-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WDegvLTo5ea7LKXac3VS3VdHvY9ALI9CErUM8V4N/iftyRPAG3lsbsQ9esLF3gsc u+VP8VwrnletmVRF0o1F/A== 0000069598-97-000014.txt : 19970515 0000069598-97-000014.hdr.sgml : 19970515 ACCESSION NUMBER: 0000069598-97-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NALCO CHEMICAL CO CENTRAL INDEX KEY: 0000069598 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS CHEMICAL PRODUCTS [2890] IRS NUMBER: 361520480 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04957 FILM NUMBER: 97603976 BUSINESS ADDRESS: STREET 1: ONE NALCO CTR CITY: NAPERVILLE STATE: IL ZIP: 60563 BUSINESS PHONE: 7083051000 MAIL ADDRESS: STREET 1: ONE NALCO CENTER CITY: NAPERVILLE STATE: IL ZIP: 60563-1198 10-Q 1 10-Q 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 March 31, 1997 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 March 31, 1997 was 66,754,397 shares common stock - par value $.1875 a share. NALCO CHEMICAL COMPANY INDEX Page No. Part I. Financial Information: Item 1. Financial Statements Condensed Consolidated Statements of Financial Condition - March 31, 1997 (Unaudited) and December 31, 1996.........2 Condensed Consolidated Statements of Earnings (Unaudited) - Three Months Ended March 31, 1997 and 1996.............3 Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 1997 and 1996.............4 Notes to Condensed Consolidated Financial Statements (Unaudited)....................5 Report of Independent Accountants on Review of Interim Financial Information...7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................8 Part II. Other Information: Item 4. Submission of Matters to a Vote of Security Holders.........................10 Item 6. Exhibits and Reports on Form 8-K..............10 Exhibit (11) - Statement Re: Computation of Earnings Per Share...............11 Exhibit (15) - Awareness Letter of Independent Accountants.........................13 Exhibit (27) - Financial Data Schedule......................14 Signatures..................................................15 PART I. FINANCIAL INFORMATION NALCO CHEMICAL COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION March 31, December 31, 1997 1996 (Dollars in millions) (Unaudited) (Note) ASSETS Current assets Cash and cash equivalents $ 41.0 $ 38.8 Accounts receivable, less allowances of $5.1 and $4.9, respectively 244.3 233.4 Inventories Finished products 64.1 61.4 Materials and work in process 26.0 29.4 ------- -------- 90.1 90.8 Prepaid expenses, taxes and other current assets 20.9 22.2 ------- -------- Total current assets 396.3 385.2 Investment in and advances to partnership 124.4 126.0 Goodwill, less accumulated amortization of $25.8 and $24.7, respectively 228.7 202.5 Other assets 155.6 158.8 Property, plant and equipment 1,161.1 1,169.4 Less allowances for depreciation (653.9) (647.4) -------- -------- 507.2 522.0 -------- -------- $1,412.2 $1,394.5 ======== ======== LIABILITIES/SHAREHOLDERS' EQUITY Current liabilities Short-term debt $ 77.1 $ 31.3 Accounts payable 99.7 114.6 Other current liabilities 136.2 143.8 -------- -------- Total current liabilities 313.0 289.7 Long-term debt 242.2 252.6 Deferred income taxes 42.7 42.9 Accrued postretirement benefits 99.1 98.5 Other liabilities 55.7 56.3 Shareholders' equity 659.5 654.5 -------- -------- $1,412.2 $1,394.5 ======== ======== Note: The Statement of Financial Condition at December 31, 1996 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 (UNAUDITED) Three Months Ended (Amounts in millions, March 31 except per share data) 1997 1996 Net sales $334.6 $301.9 Operating costs and expenses Cost of products sold 144.8 135.0 Operating expenses 136.4 123.1 ------ ------ 281.2 258.1 ------ ------ Operating earnings 53.4 43.8 Other income (expense) Interest and other income 0.8 0.5 Interest expense (3.6) (3.7) Equity in earnings of partnership 5.8 6.4 ------ ------ Earnings from continuing operations before income taxes 56.4 47.0 Income taxes 20.6 17.0 ------ ------ Earnings from continuing operations 35.8 30.0 Discontinued operations, net of income taxes - 1.8 ------ ------ Net earnings $ 35.8 $ 31.8 ====== ======= Per common share - Primary Earnings from continuing operations $ 0.49 $ 0.40 Discontinued operations, net of income taxes - 0.03 ------ ------ Net earnings $ 0.49 $ 0.43 ====== ====== Per common share - Fully diluted Earnings from continuing operations $ 0.46 $ 0.38 Discontinued operations, net of income taxes - 0.02 ------ ------ Net earnings $ 0.46 $ 0.40 ====== ====== Per common share - Cash dividends $ 0.25 $ 0.25 ====== ====== Average primary shares outstanding (in thousands) 67,505 67,529 Average fully diluted shares outstanding (in thousands) 75,338 75,511 See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited). NALCO CHEMICAL COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended March 31 (Dollars in millions) 1997 1996 -------- ------ Cash provided by (used for) operating activities Net earnings $ 35.8 $ 31.8 Adjustments not affecting cash Depreciation and amortization 23.8 24.1 Other, net (2.4) (3.8) Changes in current assets and liabilities (22.9) (16.9) ------ ------ Net cash provided by operations 34.3 35.2 ------ ------ Investing activities Additions to property, plant and equipment (16.4) (27.3) Business purchases (32.2) - Other 5.8 3.3 ------ ------ Net cash (used for) investing activities (42.8) (24.0) ------ ------ Financing activities Cash dividends (19.6) (19.7) Changes in short-term debt 46.8 6.5 Changes in long-term debt ( 1.3) (1.9) Common stock reacquired (18.0) - Other 4.1 2.8 ----- ------ Net cash provided by (used for) financing activities 12.0 (12.3) ------ ------ Effects of foreign exchange rate changes (1.3) 0.7 ------ ------ Increase (decrease) in cash and cash equivalents $ 2.2 $ (0.4) ====== ====== See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited). NALCO CHEMICAL COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, 1997 NOTE A -- BASIS OF PRESENTATION The accompanying condensed consolidated financial statements have been prepared, without audit, in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. Financial information as of December 31 has been derived from the audited financial statements of the Company, but does not include all disclosures required by generally accepted accounting principles. It is the opinion of management that the unaudited condensed consolidated financial statements include all adjustments necessary to fairly state the results of operations for the three month periods ended March 31, 1997 and 1996. 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, 1996. The unaudited condensed consolidated financial statements and the related notes have been reviewed by Nalco's independent accountants, Price Waterhouse LLP. The Independent Accountants' Review Report is included on page 7. NOTE B -- EFFECT OF CHANGING ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share." SFAS 128 establishes standards for computing and presenting earnings per share (EPS) and simplifies the standards for computing earnings per share previously found in APB Opinion No. 15 (APB 15), "Earnings per Share." It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB 15. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. SFAS 128 requires restatement of all prior-period EPS data presented. Adoption of SFAS 128 is expected to have little or no impact on the Company's future and previously reported EPS. NOTE C -- SHAREHOLDERS' EQUITY Shareholders' equity may be further detailed as follows: March 31, December 31, (Dollars in millions, 1997 1996 ------------ ----------- except per share figures) Preferred stock par value $1.00 per share; authorized 2,000,000 shares; Series B ESOP Convertible Preferred Stock - 390,471 shares at March 31, 1997 and 392,851 shares at December 31, 1996 $ 0.4 $ 0.4 Series C Junior Participating Preferred Stock - none issued - - Capital in excess of par value of shares 187.4 188.6 Unearned ESOP compensation (151.1) (162.6) ------- ------- 36.7 26.4 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 32.5 31.2 Retained earnings 1,008.2 992.0 Minimum pension liability adjustment (6.1) (6.1) Foreign currency translation adjustments (49.0) (39.9) Common stock reacquired - at cost 13,533,171 shares at March 31, 1997 and 13,263,648 shares at December 31, 1996 (377.9) (364.2) ------- ------- Total shareholders' equity $ 659.5 $ 654.5 ======= ======= NOTE D -- ACQUISITIONS In January 1997, the Company acquired the stock of International Water Consultants Beheer B.V. (IWC) and the assets of Nutmeg Technologies, Inc. (Nutmeg). IWC serves the water treatment needs of customers in the Netherlands, Belgium, Germany and the Commonwealth of Independent States and Nutmeg is a water treatment company which serves markets mainly in the Northeast United States. They had 1996 sales of just under $30 million. The purchase price of these two businesses was $32.2 million. The Company is in the process of evaluating the assets that were purchased and the liabilities that were assumed in these acquistions and accordingly will make any necessary adjustments to the recorded value of the acquired assets and liabilities. 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 March 31, 1997, and for the three month period then ended. This interim financial information is the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial information for it to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the statement of consolidated financial condition as of December 31, 1996, 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 3, 1997, 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, 1996, is fairly stated in all material respects in relation to the statement of consolidated financial condition from which it has been derived. Price Waterhouse LLP By: Robert R. Ross Engagement Partner April 17, 1997 Chicago, Illinois Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations First Quarter 1997 Operations Compared to First Quarter 1996 Sales increased by 11 percent over last year with improvements reported by all five divisions. The Water and Waste Treatment Division reported a sales increase of 22 percent which included sales by Diversey Water Technologies (DWT), a middle market water treatment business acquired by the Company in mid-1996. Solid improvements were also posted by the Basic Industry and WATERGY(R) Groups. The Process Chemicals Division reported a 5 percent sales gain with the Paper Chemicals Group and the newly formed Pulp Group turning in strong increases. The Europe Division reported a 7 percent gain over the first quarter 1996. This included sales by IWC, which was acquired in January 1997, and the European operations of DWT. Sales increases in local currencies were also reported by most other operations in the Division, but these were moderated by translation effects due to the strengthening of the U.S. dollar versus most European currencies compared to last year. The Latin America Division reported a 3 percent sales increase for the period. Operations in Argentina, Chile, and Mexico reported significant double-digit sales increases over last year. The Pacific Division posted an 11 percent sales gain over last year with strong sales increases in Australia, China, Japan, Korea, Philippines, Singapore/Malaysia, and Thailand. The gross margin was 56.7 percent for the quarter compared to last year's rate of 55.3 percent. This improvement was mainly attributable to higher margins of the newly acquired DWT. In addition, improved margins in North America were partly offset by slight declines in the Europe, Latin America and Pacific Divisions. Operating expenses (selling, service, research, etc.) were up $13.3 million or 11 percent over last year, primarily because of the additions of DWT and IWC. Nalco's equity in earnings of Nalco/Exxon for the first quarter of 1997 was $5.8 million, a decrease of $0.6 million from the first quarter of 1996. The decrease was largely attributable to the strengthening of the U.S. dollar compared to most European currencies. The effective income tax rate for the first quarter 1997 was 36.5 percent, compared to the 36.2 percent rate that was reported for the first quarter 1996. Earnings from continuing operations as a percent to sales was 10.7 percent for the first quarter 1997, a slight improvement compared to the 9.9 percent for the first quarter 1996. First quarter 1997 fully diluted earnings per share from continuing operations was 46 cents compared to 38 cents for the first quarter 1996. Net earnings per share on a fully diluted basis for the first quarter 1997 was 46 cents compared to 40 cents for the first quarter 1996 which included the results of the discontinued superabsorbent chemical business. Changes in Financial Condition Cash and cash equivalents increased by $2.2 million during the quarter as detailed in the Unaudited Condensed Consolidated Statement of Cash Flows. Days sales outstanding were 65 days at March 31, 1997, up slightly from the 64 days at the end of 1996. Working capital at March 31, 1997 totaled $83.3 million, down slightly from the $95.5 million at last year end. The ratio of current assets to current liabilities was 1.3 to 1 at March 31, 1997. The $26.2 million increase in goodwill is mainly attributable to the acquisitions of IWC and Nutmeg. See Note D -- Acquisitions. These acquisitions were financed primarily by the issuance of commercial paper, which accounted for most of the increase in short-term debt. Capital investments totaled $16.4 million for the first quarter of 1997. Major expenditures were for additional PORTA-FEED(R) units and automobiles for the sales force. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of Nalco Chemical Company was held on April 17, 1997, for the purpose of electing four Class I Directors; approving the appointment of independent accountants; and a shareholder proposal regarding endorsement of the CERES Principles. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there was no solicitation in opposition to management's solicitation. All of management's nominees for directors as listed in the proxy statement were elected. The vote electing the individual directors was as follows: Class I Director Shares Voted "For" Shares Withheld - ---------------- ------------------ --------------- J. L. Ballesteros 55,863,329 10,463,563 J. P. Frazee, Jr. 55,804,314 10,522,578 A. L. Kelly 55,882,795 10,444,097 F. A. Krehbiel 55,911,070 10,415,822 The appointment of Price Waterhouse LLP as independent accountants for the Company was approved: Shares Voted "For" Shares Voted "Against" Shares Abstaining 65,829,059 310,564 187,269 The Shareholder Proposal regarding endorsement of the CERES Principles was not approved: Shares Voted "For" Shares Voted "Against" Shares Abstaining Broker Non-Votes 6,210,334 49,374,933 5,546,862 5,194,763 Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are included herein: (11) Statement Re: Computation of Earnings Per Share (15) Awareness Letter of Independent Accountants (27) Financial Data Schedule (b) The Registrant did not file any reports on Form 8-K during the three months ended March 31, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NALCO CHEMICAL COMPANY (Registrant) Date: May 12, 1997 W. E. BUCHHOLZ -------------------------- W. E. Buchholz - Senior Vice President, Chief Financial Officer Date: May 12, 1997 S. J. GIOIMO -------------------------- S. J. Gioimo - Secretary EX-11 2 EXHIBIT 11 EXHIBIT (11) STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE NALCO CHEMICAL COMPANY AND SUBSIDIARIES Three Months Ended (Amounts in thousands, March 31 except per share data) 1997 1996 ------ ----- Primary Average shares outstanding 66,880 67,223 Net effect of dilutive stock options and shares contingently issuable-based on the treasury stock method using average market price 625 306 ------- ------- TOTALS 67,505 67,529 ======= ======= Earnings from continuing operations $ 35,831 $ 30,008 Earnings from discontinued operations, net of income taxes - 1,765 -------- -------- Net earnings 35,831 31,773 Preferred stock dividends, net of income taxes (2,878) (2,855) -------- -------- Net earnings to common shareholders $ 32,953 $ 28,918 ======== ======== Per share amounts: Earnings from continuing operations $ 0.49 $ 0.40 Earnings from discontinued operations, net of income taxes - 0.03 ------- ------- Net earnings to common shareholders $ 0.49 $ 0.43 ======= ======= EXHIBIT (11) STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE NALCO CHEMICAL COMPANY AND SUBSIDIARIES Three Months Ended (Amounts in thousands, March 31 except per share data) 1997 1996 ------ ----- Fully Diluted Average shares outstanding 66,880 67,223 Average dilutive effect of assumed conversion of ESOP Convertible Preferred shares 7,831 7,982 Additional shares assuming exercise of dilutive stock options and shares contingently issuable-based on the treasury stock method using the quarter-end market price, if higher than average market price 627 306 -------- -------- TOTALS 75,338 75,511 ======== ======== Earnings from continuing operations $ 35,831 $ 30,008 Earnings from discontinued operations net of income taxes - 1,765 ------- -------- Net earnings 35,831 31,773 Additional ESOP contribution resulting from assumed conversion, net of income taxes (1,123) (1,141) Tax adjustment on assumed common dividends (261) (230) -------- -------- Net earnings to common shareholders $ 34,447 $ 30,402 ======== ======== Per share amounts: Earnings from continuing operations $ 0.46 $ 0.38 Earnings from discontinued operations, net of income taxes - 0.02 ------- ------- Net earnings to common shareholders $ 0.46 $ 0.40 ======= ======= EX-15 3 EXHIBIT 15 EXHIBIT (15) AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Dear Sirs: We are aware that Nalco Chemical Company has included our report dated April 17, 1997 (issued pursuant to the provisions of Statement on Auditing Standards No. 71) in the Prospectuses constituting part of its Registration Statements on Form S-3 (Nos. 33-57363, 33-53111, 33-9934, 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, Price Waterhouse LLP By: Robert R. Ross Engagement Partner May 12, 1997 Chicago, Illinois EX-27 4 FDS --
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AT MARCH 31, 1997 AND THE CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1997 OF NALCO CHEMICAL COMPANY AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1997 MAR-31-1997 41,000,000 0 249,400,000 (5,100,000) 90,100,000 396,300,000 1,161,100,000 (653,900,000) 1,411,900,000 313,000,000 241,900,000 0 400,000 15,100,000 644,000,000 1,411,900,000 334,600,000 334,600,000 144,800,000 144,800,000 136,400,000 0 3,600,000 56,400,000 20,600,000 35,800,000 0 0 0 35,800,000 0.49 0.46
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