-----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, ACYcg0BSaMw1wtZxXSK2fgc+2IhCqT4MCxU2g2gg522KfoaGIKlp3XMFTj/P+P84 0Af7LPW5xKH83WqGQ1Y+3g== 0000069598-98-000003.txt : 19980518 0000069598-98-000003.hdr.sgml : 19980518 ACCESSION NUMBER: 0000069598-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: SEC FILE NUMBER: 001-04957 FILM NUMBER: 98622961 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, 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 March 31, 1998 was 66,191,974 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, 1998 (Unaudited) and December 31, 1997.........................................2 Condensed Consolidated Statements of Earnings and Comprehensive Income (Unaudited) - Three Months Ended March 31, 1998 and 1997...................................................3 Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 1998 and 1997.............................................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
- 4 - PART I. FINANCIAL INFORMATION NALCO CHEMICAL COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31, 1998 1997 (Dollars in millions) (Unaudited) (Note) ASSETS Current assets Cash and cash equivalents $ 57.4 $ 49.7 Accounts receivable, less allowances of $3.4 and $4.2, respectively 247.7 241.6 Inventories Finished products 77.1 68.2 Materials and work in process 27.4 26.3 -------- -------- 104.5 94.5 Prepaid expenses, taxes and other current assets 22.8 23.2 -------- -------- Total current assets 432.4 409.0 Investment in and advances to partnership 129.9 122.9 Goodwill, less accumulated amortization of $32.0 and $29.5, respectively 286.2 249.4 Other assets 157.9 167.1 Property, plant and equipment 1,164.8 1,135.2 Less allowances for depreciation (665.9) (642.7) -------- -------- 498.9 492.5 -------- -------- $1,505.3 $1,440.9 ======== ======== LIABILITIES/SHAREHOLDERS' EQUITY Current liabilities Short-term debt $ 25.2 $ 22.1 Accounts payable 112.9 108.1 Other current liabilities 131.2 125.4 -------- -------- Total current liabilities 269.3 255.6 Long-term debt 364.8 335.3 Deferred income taxes 34.7 37.2 Accrued postretirement benefits 101.5 100.7 Other liabilities 57.9 59.4 Shareholders' equity 677.1 652.7 -------- -------- $1,505.3 $1,440.9 ======== ========
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)
Three Months Ended (Dollars in millions, March 31, except per share data) 1998 1997 Net sales $367.1 $334.6 Operating costs and expenses Cost of products sold 164.9 144.8 Operating expenses 145.9 136.4 ------ ------ 310.8 281.2 ------ ------ Operating earnings 56.3 53.4 Other income (expense) Interest and other income 1.0 0.8 Interest expense(4.9) (3.6) Equity in earnings of partnership 7.3 5.8 ------ ------ Earnings before income taxes 59.7 56.4 Income taxes 21.7 20.6 ------ ------ Net earnings 38.0 35.8 Other comprehensive income Foreign currency translation adjustments (6.9) (9.1) ------ ------ Comprehensive income $ 31.1 $ 26.7 ====== ====== Per common share: Net earnings - basic $ 0.53 $ 0.49 ====== ====== Net earnings - diluted $ 0.49 $ 0.46 ====== ====== Cash dividends $ 0.25 $ 0.25 ====== ====== Average basic shares outstanding (in thousands) 66,116 66,880 Average diluted shares outstanding (in thousands) 74,570 75,364
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) 1998 1997 -------- ------ Cash provided by (used for) operating activities Net earnings $ 38.0 $ 35.8 Adjustments not affecting cash Depreciation and amortization 25.6 23.8 Other, net (9.0) (2.4) Changes in current assets and liabilities (10.2) (22.9) ------- ------ Net cash provided by operations 44.4 34.3 ------ ------ Investing activities Additions to property, plant and equipment (25.8) (16.4) Business purchases (23.4) (32.2) Other (3.7) 5.8 ------ ------ Net cash (used for) investing activities (52.9) (42.8) ------ ------ Financing activities Cash dividends (19.4) (19.6) Changes in short-term debt 2.3 46.8 Changes in long-term debt 32.5 (1.3) Common stock reacquired (6.3) (18.0) Other 8.2 4.1 ------ ------ Net cash provided by financing activities 17.3 12.0 ------ ------ Effects of foreign exchange rate changes (1.1) (1.3) ------ ------ Increase in cash and cash equivalents $ 7.7 $ 2.2 ====== ======
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited). NALCO CHEMICAL COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, 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 periods ended March 31, 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, Price Waterhouse LLP. The Independent Accountants' Review Report is included on page 7. NOTE B -- EARNINGS PER SHARE Tables which detail the computations of basic and diluted earnings per share for the three months ended March 31, 1998 and 1997 are included in Exhibit (11) on pages 11 and 12. NOTE C -- SHAREHOLDERS' EQUITY Shareholders' equity may be further detailed as follows:
March 31, 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 - 382,884 shares at March 31, 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 183.8 184.1 Unearned ESOP compensation (140.5) (151.1) -------- ------- 43.7 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 43.7 40.8 Common stock reacquired - at cost 14,095,594 shares at March 31, 1998 and 14,251,003 shares at December 31, 1997 (420.9) (420.4) Retained earnings 1,091.3 1,072.7 Accumulated other comprehensive income (95.8) (88.9) -------- ------- Total shareholders' equity $ 677.1 $ 652.7 ======== =======
NOTE D--ACQUISITIONS During the first quarter 1998, the Company acquired three businesses that operate in Nalco's core markets of water treatment and process chemicals. Each of the 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 $23 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 1998 is not significant. In April 1998, the Company acquired three additional businesses that also operate in the Company's core markets of water treatment and process chemicals for a combined purchase price of approximately $90 million. 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, 1998, 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, 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. Price Waterhouse LLP By: Robert R. Ross Engagement Partner April 16, 1998 Chicago, Illinois Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations First Quarter 1998 Operations Compared to First Quarter 1997 Sales increased 10 percent over last year with five of the six divisions reporting higher results. Changes in volume, mix and price increased sales 6 percent over year-ago results. Acquisitions and the consolidation of Nalco-Chemserve resulted in an additional 6 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 revenues of approximately $14 million for the first 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 first quarter 1998 sales by $21 million or 6 percent. Sales for the first quarter 1998 and 1997 by major operating unit were as follows: First Quarter Increase (Dollars in millions) 1998 1997 (Decrease) -------- -------- ---------- Industrial $112.8 $ 96.5 17% Specialty 78.0 68.2 14% Pulp & Paper 82.3 78.9 4% Process 48.1 44.6 8% Latin America 21.7 19.1 14% Pacific 24.2 27.3 (11%) ------- ------- Total $367.1 $334.6 10% ======= ======= The Industrial Division reported a sales gain of 17 percent. Sales by Nalco-Chemserve, which was formed at the beginning of 1998 by merging Nalco's affiliate in South Africa with the water treatment interests of Chemical Services Limited, and other acquisitions had a 10 percent positive effect on Industrial Division sales. Freight revenue increased sales 6 percent, while the translation effect of the stronger U.S. dollar reduced sales 3 percent. Acquisitions and freight revenues accounted for slightly more than three-fourths of the Specialty Division's 14 percent increase in sales, while translation rate changes had a 2 percent negative impact on Specialty Division sales. Revenue growth in both the Industrial and Specialty Divisions was also adversely affected by this year's unusually warm winter. The Pulp and Paper Division posted a 4 percent sales improvement. The increase in sales attributable to freight revenues was largely offset by the translation effect of the stronger U.S. dollar. Acquisitions and freight revenues increased Process Division sales 14 percent over a year ago, while the translation effect of the stronger U.S. dollar reduced sales 5 percent. Process Division sales were slowed by the current low prices for metals, leading to reduced industry output, and by continued slowness in the coal industry in the eastern United States. The Latin America Division reported a 14 percent improvement despite the translation effect of the stronger U.S. dollar which reduced sales 8 percent. Double-digit gains in local currencies were posted by most operations in the Division. Despite a strong increase in local currency sales by nearly all operations in the Pacific Division, reported sales decreased by 11 percent from last year due to the translation effect of the severe decline in the values of most Asian currencies against the U.S. dollar. The effect of freight revenues and acquisitions on Latin America and Pacific Division sales was negligible. The gross margin was 55.1 percent for the first quarter 1998. The first quarter 1998 gross margin reflects the classification of $14 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 compared to 56.7 percent for the first quarter 1997. This improvement was mainly attributable to greater manufacturing and purchasing efficiencies. Operating expenses (selling, administrative and research) were up $9.5 million over the first 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 $1.3 million over the first quarter of last year which reflects higher borrowings to finance acquisitions and stock repurchases. Nalco's equity in Nalco/Exxon for the first quarter 1998 was $7.3 million, up $1.5 million over the first quarter 1997. Improved market conditions, particularly in international oil field chemicals, contributed to this increase. The effective income tax rate for the first quarter 1998 was 36.3 percent compared to the 36.5 percent that was reported for the first quarter 1997. Net earnings as a percent to sales was 10.4 percent for the first quarter 1998, as compared to last year's return on sales of 10.7 percent. On a comparable basis, without freight revenue classified as sales, net earnings would have been 10.8 percent of sales for the first quarter 1998. Net earnings per share on a diluted basis was 49 cents for the first quarter 1998 compared to 46 cents for the first quarter 1997. Changes in Financial Condition Cash and cash equivalents increased by $7.7 million during the first three months as detailed in the Unaudited Condensed Consolidated Statement of Cash Flows. Days sales outstanding were 59 days at March 31, 1998, down slightly from the 61 days outstanding at December 31, 1997. Working capital at March 31, 1998 totaled $163.1 million, a $9.7 million increase over the $153.4 million at December 31, 1997. The ratio of current assets to current liabilities was 1.6 to 1 at March 31, 1998. The $36.8 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, which is classified as long-term debt and accounts for most of the increase in long-term debt. Capital investments totaled $25.8 million for the first quarter of 1998. Major expenditures included additional investments to install the Company's new global management information systems, manufacturing process improvements, additional PORTA-FEED(R) units and vehicles for the sales force. 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 will be used to reduce outstanding commercial paper borrowings. Notes up to $250 million remain available under the shelf registration statement. 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 16, 1998, for the purpose of electing four Class II Directors and one Class III Director; 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 II Director Shares Voted "For" Shares Withheld ----------------- ------------------ --------------- H. Corless 65,961,738 907,661 H. M. Dean 65,974,465 894,934 E. J. Mooney 65,976,734 892,665 S. A. Penrose 65,951,795 917,604
Class III Director Shares Voted "For" Shares Withheld B. S. Kelly 65,709,089 1,160,310
The appointment of Price Waterhouse LLP as independent accountants for the Company was approved:
Shares Voted "For" Shares Voted "Against" Shares Abstaining 65,751,792 425,726 691,881
The Shareholder Proposal regarding endorsement of the CERES Principles was not approved:
Shares Voted "For" Shares Voted "Against" Shares Abstaining Broker Non-Votes 7,732,863 51,146,333 2,631,537 5,358,666
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, 1998. 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 15, 1998 W. E. BUCHHOLZ --------------------------- W. E. Buchholz - Senior Vice President, Chief Financial Officer Date: May 15, 1998 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) 1998 1997 -------- ------- Basic Average shares outstanding 66,116 66,880 ======== ======== Net earnings $38,001 $35,831 Dividends on preferred stock, net of taxes (2,904) (2,878) ------- ------- Net earnings to common shareholders $35,097 $32,953 ======= ======= Per share amounts: Net earnings to common shareholders $0.53 $0.49 ======== ========
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) 1998 1997 ----- ----- Diluted Average shares outstanding used in Basic earnings per share 66,116 66,880 Effect of dilutive securities: Assumed conversion of preferred stock 7,668 7,831 Stock options and contingently issuable shares 786 653 ------- ------- TOTALS 74,570 75,364 ======= ======= Net earnings $38,001 $35,831 Additional ESOP expense resulting from assumed conversion of preferred stock, net of taxes (1,122) (1,123) Income tax adjustment on assumed common dividends (286) (261) ------- ------- Net earnings to common shareholders $36,593 $34,447 ======= ======= Per share amounts: Net earnings to common shareholders $0.49 $0.46 ======= =======
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 16, 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, Price Waterhouse LLP By: Robert R. Ross Engagement Partner May 15, 1998 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, 1998 AND THE CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1998 OF NALCO CHEMICAL COMPANY AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 57,400,000 0 251,100,000 (3,400,000) 104,500,000 432,400,000 1,164,800,000 (665,900,000) 1,505,300,000 269,300,000 364,800,000 400,000 0 15,100,000 661,600,000 1,505,300,000 367,100,000 367,100,000 164,900,000 164,900,000 0 0 4,900,000 59,700,000 21,700,000 38,000,000 0 0 0 38,000,000 .53 .49
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