-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, nlEtChQjVPBRVbGZ3BCmVtuziErretEdy9VLXaAeB7PwUdBAZrhX/wf1n3xyF2B8 Z4XEao+mAV0tRVBfW3UD+w== 0000950131-94-000413.txt : 19940331 0000950131-94-000413.hdr.sgml : 19940331 ACCESSION NUMBER: 0000950131-94-000413 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NALCO CHEMICAL CO CENTRAL INDEX KEY: 0000069598 STANDARD INDUSTRIAL CLASSIFICATION: 2890 IRS NUMBER: 361520480 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-04957 FILM NUMBER: 94518274 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-K 1 FORM 10-K 1993 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1993 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to COMMISSION FILE NUMBER 1-4957 NALCO CHEMICAL COMPANY INCORPORATED IN THE STATE OF DELAWARE I.R.S. EMPLOYER IDENTIFICATION NO. 36-1520480 ONE NALCO CENTER, NAPERVILLE, ILLINOIS 60563-1198 TELEPHONE 708-305-1000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE ON WHICH REGISTERED TITLE OF EACH CLASS CHICAGO STOCK EXCHANGE COMMON STOCK PAR VALUE NEW YORK STOCK EXCHANGE $ 0.1875 PER SHARE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant was $2,457,951,746 at February 21, 1994.* The number of shares outstanding of each of the issuer's classes of Common Stock, as of February 21, 1994 was 68,985,285 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's 1993 Annual Report to Shareholders are incorporated by reference into Parts I and II. Portions of the Registrant's Proxy Statement dated March 18, 1994 for the April 20, 1994 Annual Meeting of Shareholders are incorporated by reference into Part III. - -------------- *Excludes reported beneficial ownership by all directors and executive officers of the Registrant; however, this determination does not constitute an admission of affiliate status for any of these stockholders. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS PART I
PAGE ---- Item 1 Business........................................................ 1 Executive Officers of the Registrant............................ 3 Item 2 Properties...................................................... 4 Item 3 Legal Proceedings............................................... 5 Item 4 Submission of Matters to a Vote of Security Holders............. 5 PART II Item 5 Market for the Registrant's Common Stock and Related Security 5 Holder Matters.................................................. Item 6 Selected Financial Data......................................... 5 Item 7 Management's Discussion and Analysis of Financial Condition and 5 Results of Operations........................................... Item 8 Financial Statements and Supplementary Data..................... 5 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................ 6 PART III Item 10 Directors and Executive Officers of the Registrant.............. 6 Item 11 Executive Compensation.......................................... 6 Item 12 Security Ownership of Certain Beneficial Owners and Management.. 6 Item 13 Certain Relationships and Related Transactions.................. 6 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K. 6
PART I ITEM 1. BUSINESS Nalco Chemical Company was incorporated in 1928 in Delaware and has its principal executive offices at One Nalco Center, Naperville, Illinois 60563. Its telephone number is 708-305-1000. As used in this report, "Company" and "Nalco" refer to Nalco Chemical Company and its consolidated subsidiaries. Nalco is engaged primarily in the manufacture and sale of highly specialized Service Chemicals. Specified financial information for Service Chemicals by geographic area is shown in Note 2 of the Notes to Consolidated Financial Statements in the Company's 1993 Annual Report to Shareholders and is incorporated herein by reference. Nalco's business includes the production and sale of chemicals, technology, services, and systems (monitoring and surveillance) used in water treatment, pollution control, energy conservation, oil production and refining, steelmaking, papermaking, mining and mineral processing, electricity generation, other industrial processes, and commercial building utility systems. Service Chemicals are developed and formulated to meet specific customer needs. In general, they are part of value added programs designed to help customers maintain a high level of operating performance and efficiency in their facilities or to improve the quality of customers' end products. Nalco products are used for purposes such as: control of scale, corrosion, foam and fouling in cooling systems, boilers, and other equipment; clarification of water; improved combustion; separation of liquids and solids; control of dust; improvement of crude oil production through emulsion breaking and the secondary and tertiary recovery of oil; lubrication and corrosion protection in rolling, drawing and forming of metals; improved production of pulp and qualities of paper; recovery of minerals; superabsorbent polymers for disposable diapers; and specialized process applications in a variety of industries. The quality and on-site availability of technical expertise provided through highly qualified Nalco personnel are also important considerations to customers since the effective use of the Company's products requires a substantial amount of problem solving, monitoring, and technical assistance on the part of Nalco employees. Service Chemicals are usually marketed through Nalco's own organization because of the high degree of technical service required. The worldwide field sales force is trained in the application and use of Nalco Service Chemicals, and is supported by a marketing staff of specialists in the technology and use of various Nalco Service Chemicals. Competitive conditions vary for Nalco depending on the industries served and the products involved. Management believes the Company is one of the most important worldwide suppliers of water treatment products and service chemical programs, based on estimated sales of comparable products for industrial customers on the process side (e.g., the manufacturing process, which a plant uses to produce its end product) and the utility side (e.g., boilers for power generation or cooling systems for process temperature control). All aspects of this business are considered to be very competitive, and companies providing similar products or programs range in size from very large multinational companies to small local manufacturers. The number of competitors varies by product application and ranges from a few large companies to hundreds of small local companies. The Company's principal method of competition is based on quality service, product performance and technology through safe, practical applied science. In May 1993, Nalco sold Adco Products, Inc., a subsidiary which manufactured specialty sealants and adhesives for automotive, industrial, and construction markets. The results of Adco Products, Inc. were reported as discontinued operations in 1991, along with the results of Day-Glo Color Corp. and the Penray Companies. Day-Glo Color Corp. and the Penray Companies were sold in October 1991 and June 1992, respectively. On February 3, 1994, Nalco and Exxon Chemical Company, a division of Exxon Corporation, announced that they had signed a memorandum of understanding to form a worldwide energy chemicals joint venture. The joint venture will include Nalco's U.S. Petroleum Chemicals Division business units, certain petroleum chemical product lines of its international operations, and Exxon Chemical Company's Energy Chemicals worldwide business. The new company, to be named Nalco/Exxon Energy Chemicals, is 1 ITEM 1. BUSINESS (CONT'D) targeted to start up and begin operations by mid-1994, pending government and regulatory approvals and definitive agreements between the two companies. On that same date, the Company announced that it had entered into a letter of intent to sell its Freeport, Texas plant and its automotive paint spray booth business to PPG Industries, Inc. The Freeport plant, which has 27 Nalco employees, produces chemical products for the oil production and refining market. It is expected that the Nalco/Exxon Energy Chemicals joint venture will purchase certain of its requirements for these products from PPG. Nalco's worldwide automotive paint spray booth business, approximately $10 million in size, is also included in the proposed sale to PPG. Nalco has agreed to sell and service the water treatment related applications for PPG in the automotive facilities associated with the business sold. There were no other significant changes in the markets served or in the methods of distribution since the beginning of 1993. Although no single Service Chemicals product represents a material portion of the business, historically, new product and new market developments have been designed to increase market penetration and to maintain sales and earnings growth. OTHER MATTERS The principal raw materials used by Nalco ordinarily are available in adequate quantities from several sources of supply in the United States and in foreign countries. Purchases of chemicals are made in the ordinary course of business and in accordance with the requirements of production. Inventories of Service Chemicals are maintained in Nalco-owned facilities and in warehouses situated throughout the United States and in countries in which subsidiaries operate. Shipments to customers may be made from either manufacturing plants or warehouse stocks. Nalco owns or is licensed under a large number of patents relating to a number of products and processes. Nalco's rights under such patents and licenses are of significant importance in the operation of the business, but no single patent or license is believed to be material with respect to its business. Over 700 patents existed at the end of 1993 with remaining durations ranging from less than one year to 17 years with an average duration of about 10 years. Nalco's business is considered nonseasonal. Large dollar amounts of backlogs are unusual since chemicals are normally shipped within a few days of the receipt of orders. The dollar amount of the normal backlog of orders is not considered to be significant in relation to the total annual dollar volume of sales of Nalco. The Company does not depend upon either a single customer, or very few customers, for a material part of the business. Nalco's laboratories are involved in research and development of chemical products and in providing technical support, including analyses of samples. Research and development expenses of continuing operations amounted to $50.4 million in 1993, compared to $48.0 million in 1992, and $45.9 million in 1991. There were approximately 6,800 persons employed full time by Nalco at the end of 1993. Compliance with Federal, State, and local regulations relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures, earnings, or competitive position of Nalco. There are no material capital expenditures for environmental control facilities anticipated during 1994. Compliance with increasingly stringent regulations should not have a material effect upon earnings but may strengthen the competitive position of Nalco because of available capital and technical resources. Although inflation is not a significant factor domestically, the Company adjusts selling prices to maintain profit margins wherever possible. Investments are made in modern plants and equipment that will increase 2 ITEM 1. BUSINESS (CONT'D) productivity and thereby minimize the effect of rising costs. In addition, the last-in, first-out (LIFO) valuation method is used for 59 percent of the Company's inventories, which ensures that changing material costs are recognized in reported income; more importantly, these costs are recognized in pricing decisions. The impact of inflation in foreign exchange movements at foreign subsidiaries is managed by minimizing assets exposed to currency movements and by increasing sales prices to parallel increases in the local inflation rate. The Company emphasizes working capital management, frequent dividend remittance, timely settlement of intercompany account balances, foreign currency borrowings, and selected hedging. In most hyperinflationary economies, the rate of local currency devaluation is related to and approximately equal to the local inflation rate. Therefore, Nalco attempts to increase its local selling prices to help offset the impact of devaluation on exposed assets and the impact of increases in local content costs. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Registrant are named below together with their principal occupation. During the last 5 years all of the executive officers have been employed by the Company, as indicated, except for W. E. Buchholz. W. H. Clark has been Chief Executive Officer of the Company since 1982 and Chairman of the Board since 1984. He also served as President from 1982 to 1990. E. J. Mooney has been Chief Operating Officer since 1992 and President of the Company since 1990. He had been an Executive Vice President since 1988. M. B. Harp has been Executive Vice President, International Operations since January 1993. He had been a Group Vice President since 1988. W. S. Weeber has been Executive Vice President, Operations Staff since January 1993. He had been a Group Vice President since 1986. P. Dabringhausen has been Group Vice President and President, Process Chemicals Division since January 1993. He had been a Vice President since 1991, and was President, Nalco Pacific from 1989 to 1992 and an International Division Vice President, Marketing from 1987 to 1989. S. D. Newlin was elected Group Vice President, President, Nalco Europe on March 1, 1994. He had been Vice President, President, Nalco Pacific since December 1992. From January 1992 to December 1992 he was General Manager, Pulp and Paper Chemicals Group; from 1990 to 1992 he was General Manager of UNISOLV(R); and from 1987 to 1990 he was General Manager, WATERGY(R). J. D. Tinsley has been Group Vice President and President, Water and Waste Treatment Division since January 1993. From March to December 1992, he was a Group Vice President and President, Process Chemicals Division, and from 1986 to 1992 he was Vice President, Corporate Development. W. E. Buchholz has been Vice President and Chief Financial Officer since January 1993. He was formerly Vice President--Finance and Chief Financial Officer for Cincinnati Milacron, Inc. (a manufacturer of industrial equipment, supplies and services for the metal cutting and plastic processing industries) since 1987. The corporate officers of the Registrant are usually elected at the annual meeting of directors and hold office for a term of one year. There is no family relationship between any of the executive officers. No arrangement or understanding exists between the executive officers and any other person pursuant to which such officers were selected as officers of the Registrant. For further information on the executive officers of the Registrant, please refer to the inside back cover of the Company's 1993 Annual Report to Shareholders, which is incorporated herein by reference. 3 ITEM 2. PROPERTIES Nalco has facilities used to produce and store inventories and service customer needs at 16 domestic and 27 foreign locations. Primary domestic manufacturing plants are located in:
LAND AREA BUILDING AREA (ACRES) (SQ.FT.) --------- ------------- Carson, California................................ 21 84,000 Jonesboro, Georgia................................ 12 35,000 Chicago, Illinois 6216 West 66th Place........................... 42 856,000 9165 South Harbor Avenue........................ 5 104,000 Garyville, Louisiana.............................. 251 235,000 Paulsboro, New Jersey............................. 14 33,000 Freeport, Texas................................... 139 36,000 Sugar Land, Texas................................. 30 246,000
(East & West (East facilities) facility) Other domestic manufacturing and/or warehouse facilities are located in: Kenai, Alaska; Bakersfield, California; Hobbs, New Mexico; Oklahoma City, Oklahoma; Odessa, Texas; Clarksburg, West Virginia; Vancouver, Washington; and Evansville, Wyoming. The general offices of the Company are located on a 146-acre site in Naperville, Illinois. This facility includes three five-story buildings totaling 417,000 square feet. About 317,000 square feet is used for office space and the balance is used for support services and storage. A power plant with a dual energy system (steam and electricity) serves both the Corporate and Technical Centers and has 31,000 square feet of space. Primary domestic research facilities are located in Naperville, Illinois and Sugar Land, Texas. The Naperville Technical Center is adjacent to the Corporate Center and houses process simulation areas and a technical library in buildings which total 235,000 square feet. The Sugar Land West facility has process simulation areas and a technical library. Total building area at this facility is about 202,000 square feet. Primary foreign manufacturing plants, which also generally include laboratory and office facilities, are located in:
LAND AREA BUILDING AREA (ACRES) (SQ.FT.) --------- ------------- Botany, Australia................................. 10 102,000 Vienna, Austria................................... 4 45,000 Suzano, Brazil.................................... 14 81,000 Burlington, Canada................................ 14 138,000 Soledad, Colombia................................. 6 27,000 Cheshire, England................................. 15 226,000 Douvrin-Billy Berclau, France..................... 25 23,000 Biebesheim, Germany............................... 28 103,000 Tilburg, The Netherlands.......................... 6 31,000 Cisterna di Latina, Italy......................... 25 88,000 Celra, Spain...................................... 25 109,000 Jordbro, Sweden................................... 4 28,000 Anaco, Venezuela.................................. 43 76,000
Other foreign facilities are located in: Perth, Australia; Buenos Aires, Argentina; Edmonton, Canada; Santiago, Chile; Quito, Ecuador; Maurepas, France; Bogor, Indonesia; Kashima, Japan; Auckland, New Zealand; Calamba, Laguna, Philippines; Dammam, Saudi Arabia; Jurong Town, Singapore; Hsin Chu Hsien, Taiwan; and Maracaibo, Venezuela. 4 ITEM 2. PROPERTIES (CONT'D) In 1992, the Company acquired 12 acres of land in Oegstgeest, The Netherlands, for the purpose of constructing a business and technical center to serve Nalco customers throughout Europe. Construction of this 88,000 square- foot facility is in process, and it is scheduled for completion in 1994. In addition to the property mentioned above, Nalco occupies general and sales offices and warehouses which are rented under short-term leases. Except for land leased in the Philippines, Saudi Arabia, Chile, Ecuador and Argentina, all other real property (including all production facilities) is owned by Nalco. While the plants are of varying ages, the Company believes that they are well maintained, are equipped with modern and efficient equipment, and are in good operating condition and suitable for the purposes for which they are being used. Capital expenditures for 1994 should remain near the $117.8 million spent in 1993, if planned sales and earnings for 1994 are reached. ITEM 3. LEGAL PROCEEDINGS. For information on this item, please refer to Note 15 of the Notes to Consolidated Financial Statements in the Company's 1993 Annual Report to Shareholders, which is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. The Registrant's Common Stock is listed on the New York and Chicago Stock Exchanges. The number of holders of record of Common Stock, par value $0.1875 per share, at December 31, 1993 was 6,111. Dividends and Common Stock market prices included in the Quarterly Summary in the Company's 1993 Annual Report to Shareholders are incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. Selected Financial Data including net sales, earnings from continuing operations, earnings from continuing operations per common share, total assets, long-term debt, and cash dividends paid are reported in the Eleven Year Summary in the Company's 1993 Annual Report to Shareholders and are incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Financial Condition and Results of Operations Management's discussion and analysis of financial condition and results of operations which is included in the sections titled "Management's Discussion and Analysis--Results of Operations" and "Management's Discussion and Analysis--Financial Condition" in the Company's 1993 Annual Report to Shareholders is incorporated herein by reference. Liquidity and Capital Resources Management's discussion of liquidity and capital resources which is included in the section titled "Management's Discussion and Analysis--Cash Flows" in the Company's 1993 Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Report of Independent Accountants, the Consolidated Financial Statements, and the Notes to Consolidated Financial Statements of the Registrant and its subsidiaries, included in the Company's 1993 Annual Report to Shareholders, are incorporated herein by reference. The Reports of Independent Auditors, which were included in the Company's 1992 and 1991 Annual Reports to Shareholders, are incorporated herein by reference from the Registrant's Form 10-K for the years ended 1992 and 1991. The Quarterly Summary in the Company's 1993 Annual Report to Shareholders is incorporated herein by reference. 5 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The information called for hereunder has been previously reported (as defined in Rule 12b-2 under the Securities and Exchange Act of 1934) in the Registrant's Form 8-K dated February 16, 1993 and Form 8 dated April 14, 1993. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Item 10 information is set forth in Part I, Item 1, page 3 and also in the Company's Proxy Statement dated March 18, 1994, under Election of Directors through Election of Directors--Meetings of the Board and Committees of the Board, which is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information contained under Election of Directors--Directors' Remuneration and Retirement Policies through Election of Directors--Change in Control in the Company's Proxy Statement dated March 18, 1994, with respect to executive compensation and transactions, is incorporated herein by reference in response to this item. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information contained under Shares Outstanding and Voting Rights in the Company's Proxy Statement dated March 18, 1994, with respect to security ownership of certain beneficial owners and management, is incorporated herein by reference in response to this item. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) The following consolidated financial statements of the Registrant and its subsidiaries included in the Company's 1993 Annual Report to Shareholders are incorporated herein by reference in Item 8:
--- Statements of Consolidated Financial Condition December 31, 1993, 1992 and 1991 Statements of Consolidated Earnings Years ended December 31, 1993, 1992 and 1991 Statements of Consolidated Cash Flows Years ended December 31, 1993, 1992 and 1991 Statement of Consolidated Common Shareholders' Equity Years ended December 31, 1993, 1992 and 1991 Notes to Consolidated Financial Statements Quarterly Summary (Unaudited) Years ended December 31, 1993 and 1992 Report of Independent Accountants
The Reports of Independent Auditors, which were included in the Company's 1992 and 1991 Annual Reports to Shareholders, are incorporated herein by reference from the Registrant's Form 10-K for the years ended 1992 and 1991. (2) The following consolidated financial statement schedules for the years 1993, 1992 and 1991 are submitted herewith: Report of Independent Accountants on Financial Statement Schedules ScheduleV --Property, Plant and Equipment ScheduleVI --Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment Schedule VIII --Valuation and Qualifying Accounts ScheduleIX --Short-Term Borrowings Schedule X --Supplementary Income Statement Information
6 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (CONT'D) All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (3) Exhibits
--- Exhibit 3A --Restated Certificate of Incorporation/2/ Exhibit 3B --Certificates of Correction and Amendment to the Restated Certificate of Incorporation/8/ Exhibit 3C --Certificate of Designations, Preferences and Rights of Series B ESOP Convertible Preferred Stock/4/ Exhibit 3D --By-laws/1//0/ Exhibit 10A --Form of Key Executive Agreement/1/ 10B --Agreements to Restore Benefits Reduced by Excess ERISA- Related Limits/1/ 10C --Form of Death Benefit Agreement/2/ 10D --Management Incentive Plan/2/ 10E --Performance Unit Plan/2/ 10F --Restricted Stock Plan/8/ 10G --1982 Stock Option Plan as amended April 16, 1984, January 30, 1987, and February 12, 1993/1//0/ 10H --Deferred Compensation Plan for Directors/3/ 10I --Supplemental Retirement Income Plan/6/ 10J --1990 Stock Option Plan as amended April 23, 1992, and February 12, 1993/1//0/ 10K --Stock Option Plan for Non-Employee Directors/1//0/ 10L --Directors Benefit Protection Trust of Nalco Chemical Company/6/ 10M --Management Benefit Protection Trust of Nalco Chemical Company/6/ 10N --Restricted Stock Trust of Nalco Chemical Company/6/ 10O --Performance Share Plan/9/ Exhibit 11 --Computation of Earnings Per Share Exhibit 13 --Those portions of the 1993 Annual Report to Shareholders expressly incorporated herein by reference Exhibit 21 --Subsidiaries of the Registrant Exhibit 23 --Consent of Independent Accountants Exhibit 99A --Notice of Annual Meeting and Proxy Statement/1//1/ Exhibit 99B --August 7, 1986 and June 26, 1989 Letters to Shareholders with Summaries of the Preferred Share Purchase Rights Agreement as amended/5/ Exhibit 99C --Reports of Other Auditors/1//0/ Exhibit Nos. 10A-10O constitute management contracts, compensation plans, or arrangements covering directors and officers of the Company.
(b) Reports on Form 8-K filed in the fourth quarter of 1993 are: None - -------- /1/Incorporated herein by reference from the Registrant's Form 10-K for the year ended 1986. /2/Incorporated herein by reference from the Registrant's Form 10-K for the year ended 1987. /3/Incorporated herein by reference from the Registrant's Form 8-K dated July 24, 1986. /4/Incorporated herein by reference from the Registrant's Form 8-K dated May 15, 1989. /5/Incorporated herein by reference from the Registrant's Form 10-K for the year ended 1989. /6/Incorporated herein by reference from the Registrant's Form 10-K for the year ended 1990. /7/Incorporated herein by reference from the Registrant's Form 10-Q for the quarter ended September 30, 1992. /8/Incorporated herein by reference from the Registrant's Form 10-K for the year ended 1991. /9/Incorporated herein by reference from the Registrant's March 16, 1992 Proxy Statement. /1//0/Incorporated herein by reference from the Registrant's Form 10-K for the year ended 1992. /1//1/Incorporated herein by reference from the Registrant's Notice of Annual Meeting and Proxy Statement dated March 18, 1994. 7 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. NALCO CHEMICAL COMPANY W. H. Clark By___________________________________ W. H. Clark Chairman and Chief Executive Officer Date: March 25, 1994 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW ON MARCH 25, 1994 BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.
SIGNATURE TITLE --------- ----- W. E. Buchholz ------------------------------------ W. E. Buchholz Vice President and Chief Financial Officer R. L. Ratliff ------------------------------------ R. L. Ratliff Controller H. G. Bernthal ------------------------------------ H. G. Bernthal Director W. H. Clark ------------------------------------ W. H. Clark Director, Chairman and Chief Executive Officer H. Corless ------------------------------------ H. Corless Director H. M. Dean ------------------------------------ H. M. Dean Director J. P. Frazee, Jr. ------------------------------------ J. P. Frazee, Jr. Director A. L. Kelly ------------------------------------ A. L. Kelly Director F. A. Krehbiel ------------------------------------ F. A. Krehbiel Director E. J. Mooney ------------------------------------ E. J. Mooney Director C. W. Parry ------------------------------------ C. W. Parry Director W. A. Pogue ------------------------------------ W. A. Pogue Director J. J. Shea ------------------------------------ J. J. Shea Director
8 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of Nalco Chemical Company Our audit of the consolidated financial statements referred to in our report dated January 25, 1994, except as to Note 17, which is as of February 3, 1994, appearing on page 16 of the 1993 Annual Report of Nalco Chemical Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE Chicago, Illinois January 25, 1994 9 NALCO CHEMICAL COMPANY AND SUBSIDIARIES -------------- SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
COL. A COL. B COL. C COL. D COL. E COL. F - ------ -------------- ------------ ----------- --------------- -------------- BALANCE AT OTHER CHANGES-- BALANCE BEGINNING ADDITIONS ADD (DEDUCT)-- AT END CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE OF PERIOD -------------- -------------- ------------ ----------- --------------- -------------- Year ended December 31, 1993 Land.................. $ 37,418,000 $ 358,000 $ 110,000 $ (592,000)(E) $ 39,124,000 2,050,000 (F) Buildings............. 207,027,000 13,616,000 1,625,000 (3,748,000)(E) 215,225,000 (45,000)(F) Machinery and equipment............ 799,779,000 103,851,000 22,934,000(B) (10,508,000)(E) 871,563,000 1,375,000 (F) -------------- ------------ ----------- ------------ -------------- Total............... $1,044,224,000 $117,825,000(A) $24,669,000 $(11,468,000) $1,125,912,000 ============== ============ =========== ============ ============== Year ended December 31, 1992 Land.................. $ 33,621,000 $ 4,837,000 $ 9,000 $ (1,031,000)(E) $ 37,418,000 Buildings............. 203,599,000 7,626,000 287,000 (3,840,000)(E) 207,027,000 (71,000)(G) Machinery and equipment............ 720,549,000 118,523,000 27,239,000(B) (11,364,000)(E) 799,779,000 (690,000)(G) -------------- ------------ ----------- ------------ -------------- Total............... $ 957,769,000 $130,986,000(A) $27,535,000 $(16,996,000) $1,044,224,000 ============== ============ =========== ============ ============== Year ended December 31, 1991 Land.................. $ 31,076,000 $ 21,000 $ 1,956,000 $ (234,000)(E) $ 33,621,000 5,997,000 (H) (1,283,000)(I) Buildings............. 200,148,000 8,304,000 10,954,000(C) (2,315,000)(E) 203,599,000 17,197,000 (H) (8,781,000)(I) Machinery and equipment............ 609,104,000 128,502,000 42,255,000(D) (5,616,000)(E) 720,549,000 40,380,000 (H) (9,566,000)(I) -------------- ------------ ----------- ------------ -------------- Total............... $ 840,328,000 $136,827,000(A) $55,165,000 $ 35,779,000 $ 957,769,000 ============== ============ =========== ============ ==============
- -------- Note A--Additions represent expansion of production, distribution, laboratory and other facilities. The more significant 1993 expenditures are described on page 20 of the 1993 Annual Report to Shareholders. Note B--Mainly the retirement of transportation equipment. Note C--Mainly the sale of Day-Glo Color Corp. Note D--Mainly the sale of Day-Glo Color Corp. and the retirement of transportation equipment. Note E--Foreign currency translation adjustments. Note F--December 1992 net change; the fiscal year end of the consolidated foreign subsidiaries was changed from November 30 to December 31. Note G--Reclassification of additions of Adco Products, Inc. and the Penray Companies to Net Assets of Discontinued Operations. Note H--Acquisition of Alchem, Inc., Catoleum (Pty.) Ltd., and Nalfloc Limited. Note I--Reclassification of assets of Adco Products, Inc. and the Penray Companies to Net Assets of Discontinued Operations. 10 NALCO CHEMICAL COMPANY AND SUBSIDIARIES -------------- SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
COL. A COL. B COL. C COL. D COL. E COL. F - ------ ------------ ------------ ----------- -------------- ------------ ADDITIONS OTHER BALANCE AT CHARGED TO CHANGES-- BALANCE BEGINNING COSTS ADD (DEDUCT)-- AT END DESCRIPTION OF PERIOD AND EXPENSES RETIREMENTS DESCRIBE OF PERIOD ----------- ------------ ------------ ----------- -------------- ------------ Year ended December 31, 1993 Buildings............. $ 76,483,000 $ 6,362,000 $ 647,000 $(1,367,000)(A) $ 80,918,000 87,000 (B) Machinery and equipment............ 434,490,000 76,333,000 14,968,000 (7,521,000)(A) 490,450,000 2,116,000 (B) ------------ ----------- ----------- ----------- ------------ Total............... $510,973,000 $82,695,000 $15,615,000 $(6,685,000) $571,368,000 ============ =========== =========== =========== ============ Year ended December 31, 1992 Buildings............. $ 70,451,000 $ 6,652,000 $ 9,000 $ (611,000) $ 76,483,000 Machinery and equipment............ 393,753,000 68,442,000 20,987,000 (6,718,000) 434,490,000 ------------ ----------- ----------- ----------- ------------ Total............... $464,204,000 $75,094,000 $20,996,000 $(7,329,000)(A) $510,973,000 ============ =========== =========== =========== ============ Year ended December 31, 1991 Buildings............. $ 66,072,000 $ 6,479,000 $ 2,126,000 $ (869,000)(A) $ 70,451,000 2,434,000 (C) (1,539,000)(D) Machinery and equipment............ 354,987,000 58,067,000 22,786,000 (4,095,000)(A) 393,753,000 13,564,000 (C) (5,984,000)(D) ------------ ----------- ----------- ----------- ------------ Total............... $421,059,000 $64,546,000 $24,912,000 $ 3,511,000 $464,204,000 ============ =========== =========== =========== ============
- -------- Note A--Foreign currency translation adjustments. Note B--December 1992 net change; the fiscal year end of the consolidated foreign subsidiaries was changed from November 30 to December 31. Note C--Acquisition of Alchem, Inc., Catoleum (Pty.) Ltd., and Nalfloc Limited. Note D--Reclassification of assets of Adco Products, Inc. and the Penray Companies to Net Assets of Discontinued Operations. 11 NALCO CHEMICAL COMPANY AND SUBSIDIARIES -------------- SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E - ------ ---------- ----------------------- ------------ ---------- ADDITIONS ----------------------- (2) (1) CHARGED BALANCE AT CHARGED TO OTHER BALANCE BEGINNING TO COSTS ACCOUNTS-- DEDUCTIONS-- AT END DESCRIPTION OF PERIOD AND EXPENSES DESCRIBE DESCRIBE OF PERIOD ----------- ---------- ------------ ---------- ------------ ---------- Reserves deducted in the Statements of Consolidated Financial Condition from the assets to which they apply Allowance for doubtful accounts Year ended: December 31, 1993... $5,879,000 $ 716,000 $2,125,000 (A) $4,470,000 ========== ========== === ========== ========== December 31, 1992... $4,756,000 $2,947,000 $1,824,000 (A) $5,879,000 ========== ========== === ========== ========== $1,213,000 (A) 287,000 (B) (585,000)(C) --- ---------- December 31, 1991... $4,940,000 $ 731,000 $ 915,000 $4,756,000 ========== ========== === ========== ==========
- -------- Note A--Excess of accounts written off over recoveries. Note B--U.S. Subsidiaries' allowance for doubtful accounts reclassified to Net Assets of Discontinued Operations. Note C--Allowance for doubtful accounts of Alchem, Inc., Catoleum (Pty) Ltd., and Nalfloc Limited at date of acquisition. 12 NALCO CHEMICAL COMPANY AND SUBSIDIARIES -------------- SCHEDULE IX--SHORT-TERM BORROWINGS
COL. A COL. B COL. C COL. D COL. E COL. F ---------------- ----------- -------- ------------ ----------- ---------- WEIGHTED MAXIMUM AVERAGE AVERAGE WEIGHTED AMOUNT AMOUNT INTEREST AVERAGE OUTSTANDING OUTSTANDING RATE BALANCE AT INTEREST DURING THE DURING THE DURING THE CATEGORY OF BORROWINGS END OF YEAR RATE YEAR YEAR(D) YEAR(E) ---------------------- ----------- -------- ------------ ----------- ---------- 1993: Amounts payable to banks (A)............ $15,224,000 60.8%(C) $39,972,000 $18,843,000 41.0%(F) Commercial paper (B).. -- -- 162,500,000 54,166,000 3.2% 1992: Amounts payable to banks (A)............ $19,465,000 79.2%(C) $ 43,255,000 $25,525,000 21.1%(F) Commercial paper (B).. 22,000,000 3.5% 152,000,000 43,987,000 3.7% 1991: Amounts payable to banks (A)............ $24,338,000 247.7%(C) $ 99,117,000 $31,808,000 21.3%(F) Commercial paper (B).. 60,500,000 4.8% 62,500,000 6,857,000 6.0%
- -------- Note A--Substantially all short-term borrowings at year end were payable to banks under lines of credit arrangements with no termination date and include bank overdrafts and short-term notes payable used by foreign subsidiaries for working capital requirements, and the current portion of long-term debt. Note B--Excludes amounts classified as noncurrent. Note C--The unusually large weighted average interest rate is the result of local borrowings by the Registrant's subsidiary in Brazil, a hyperinflationary country. Excluding Brazil, the weighted average interest rate is 8.5%, 20.1%, and 16.5% for 1993, 1992, and 1991, respectively. Note D--Average borrowings were determined based on the amounts outstanding at each month-end for foreign borrowings and the current portion of long- term debt and daily or monthly amounts outstanding during the year under domestic lines of credit. Note E--The weighted average interest rate during the year was computed by dividing actual interest expense in each year by average short-term borrowings outstanding during the year. Note F--The unusually large weighted average interest rate during the year is the result of local borrowings by the Registrant's subsidiary in Brazil, a hyperinflationary country. Excluding Brazil, the weighted average interest rate during the year was 8.5%, 17.1%, and 17.2% for 1993, 1992, and 1991, respectively. 13 NALCO CHEMICAL COMPANY AND SUBSIDIARIES -------------- SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
COL. A COL. B ------ ----------------------------------- CHARGED TO COSTS AND EXPENSES ----------------------------------- YEAR ENDED DECEMBER 31 ITEM 1993 1992 1991 ---- ----------- ----------- ----------- Maintenance and repairs.................... $21,943,000 $22,264,000 $22,796,000
- -------- Note--Amounts for amortization of intangible assets, royalties, taxes (other than payroll and income taxes) and advertising costs have been omitted, as such amounts are less than 1% of total sales and revenues. 14 EX-11 2 COMPUTATION OF EPS EXHIBIT (11) STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE NALCO CHEMICAL COMPANY AND SUBSIDIARIES
YEAR ENDED DECEMBER 31 ---------------------------- 1993 1992 1991 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- -------- -------- PRIMARY Average shares outstanding during the year..... 69,125 70,035 69,562 Net effect of dilutive stock options and shares contingently issuable--based on the treasury stock method using average market price....... 738 945 815 -------- -------- -------- TOTALS....................................... 69,863 70,980 70,377 ======== ======== ======== Earnings from continuing operations before extraordinary loss and effect of accounting change........................................ $152,697 $144,989 $134,586 Discontinued operations, net of taxes.......... -- -- 3,205 Extraordinary loss from retirement of debt, net of taxes...................................... (10,600) -- -- Cumulative effect of change in accounting for postretirement benefits other than pensions, net of taxes.................................. (56,462) -- -- -------- -------- -------- Net earnings................................... 85,635 144,989 137,791 Preferred stock dividends, net of taxes........ (10,813) (9,988) (10,045) -------- -------- -------- Net earnings to common shareholders............ $ 74,822 $135,001 $127,746 ======== ======== ======== Per share amounts: Earnings from continuing operations before extraordinary loss and effect of accounting change........................................ $ 2.03 $ 1.90 $ 1.78 Discontinued operations, net of taxes.......... -- -- .04 Extraordinary loss from retirement of debt, net of taxes...................................... (.15) -- -- Cumulative effect of change in accounting for postretirement benefits other than pensions, net of taxes.................................. (.81) -- -- -------- -------- -------- Net earnings to common shareholders............ $ 1.07 $ 1.90 $ 1.82 ======== ======== ========
EXHIBIT (11) STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE NALCO CHEMICAL COMPANY AND SUBSIDIARIES
YEAR ENDED DECEMBER 31 ---------------------------- 1993 1992 1991 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- -------- -------- FULLY DILUTED Average shares outstanding during the year..... 69,125 70,035 69,562 Average dilutive effect of assumed conversion of ESOP Convertible Preferred Shares.......... 8,190 8,253 8,290 Additional shares assuming exercise of dilutive stock options and shares contingently issuable--based on the treasury stock method using the year-end market price, if higher than average market price..................... 812 966 1,085 -------- -------- -------- TOTALS....................................... 78,127 79,254 78,937 ======== ======== ======== Earnings from continuing operations before extraordinary loss and effect of accounting change........................................ $152,697 $144,989 $134,586 Discontinued operations, net of taxes.......... -- -- 3,205 Extraordinary loss from retirement of debt, net of taxes...................................... (10,600) -- -- Cumulative effect of change in accounting for postretirement benefits other than pensions, net of taxes.................................. (56,462) -- -- -------- -------- -------- Net earnings................................... 85,635 144,989 137,791 Additional ESOP contribution resulting from assumed conversion, net of taxes.............. (5,254) (5,625) (5,711) Tax adjustment on assumed common dividends..... (573) 2,563 2,545 -------- -------- -------- Net earnings applicable to common shareholders. $ 79,808 $141,927 $134,625 ======== ======== ======== Per share amounts: Earnings from continuing operations before extraordinary loss and effect of accounting change........................................ $ 1.88 $ 1.79 $ 1.67 Discontinued operations, net of taxes.......... -- -- .04 Extraordinary loss from retirement of debt, net of taxes...................................... (.14) -- -- Cumulative effect of change in accounting for postretirement benefits other than pensions, net of taxes.................................. (.72) -- -- -------- -------- -------- Net earnings to common shareholders............ $ 1.02 $ 1.79 $ 1.71 ======== ======== ========
EX-13 3 ANNUAL REPORT REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Nalco Chemical Company In our opinion, the accompanying statement of consolidated financial condition and the related consolidated statements of earnings, of cash flows and of common shareholders' equity present fairly, in all material respects, the financial position of Nalco Chemical Company and its subsidiaries at December 31, 1993, and the results of their operations and their cash flows for the year in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. The financial statements of Nalco Chemical Company for the years ended December 31, 1992 and 1991 were audited by other independent accountants whose report dated January 26, 1993 expressed an unqualified opinion on those statements. As discussed in the notes to the financial statements, the Company changed its method of accounting for postretirement benefits other than pensions in 1993. PRICE WATERHOUSE Chicago, Illinois January 25, 1994, except as to Note 17, which is as of February 3, 1994 R. R. Ross Engagement Partner MANAGEMENT'S DISCUSSION AND ANALYSIS--RESULTS OF OPERATIONS Sales from continuing operations reached record levels for the seventh consecutive year in 1993, totaling $1,389 million, a 1 percent gain over last year. 1992 sales rose 11 percent over the 1991 total of $1,237 million; however, the sales increase would have been 8 percent excluding sales of the five former affiliated companies which were acquired late in the first quarter 1991. Sales for the last three years by major operating unit were as follows:
1993 vs 1992 1992 vs 1991 Increase (in millions) 1993 1992 1991 (Decrease) Increase - ------------ -------- -------- -------- ------------ ------------ Water and Waste Treatment $ 333.6 $ 320.0 $ 303.1 4% 6% Process Chemicals 347.1 324.7 285.9 7 14 Petroleum Chemicals 136.1 141.9 138.6 (4) 2 International* 572.6 587.9 509.7 (3) 15 -------- -------- -------- Total $1,389.4 $1,374.5 $1,237.3 1 11 *Includes export sales of 32.2 28.0 31.6
Sales by the three units comprising U.S. Operations were up 4 percent in 1993, as six of the twelve marketing groups reported improved results. The Water and Waste Treatment Division posted a 4 percent increase, with four of the five marketing groups recording solid advances, including a double-digit gain by UNISOLV. Strong double-digit gains by Absorbent Chemicals and the Pulp and Paper Chemicals Group paced the Process Chemicals Division to a 7 percent increase over 1992. Petroleum Chemicals Division sales were down 4 percent from a year ago, because of lower oil field production sales. International Operations reported a 3 percent sales decline. Sales by European subsidiaries were down 9 percent, primarily as a result of the stronger U.S. dollar in relation to European currencies. Sales in Europe would have increased 6 percent had 1993 exchange rates remained the same as 1992. Sales by Latin American subsidiaries were 9 percent higher than a year ago as our companies in Venezuela, Chile, and Argentina reported double-digit advances. In the Pacific Rim, double-digit sales gains by subsidiaries in Indonesia, Japan, and South East Asia resulted in an 8 percent increase over 1992. Had translation rates remained unchanged from 1992, revenues of our Pacific Rim companies would have risen 13 percent. U.S. Operations posted an 8 percent sales advance in 1992 compared with 1991, as most marketing groups reported improved results. International Operations revenues were up 15 percent. The 1991 acquisition of former affiliated companies contributed about half of the increase because these operations reported 9 months sales in 1991 compared to the full year in 1992. Sales by European subsidiaries rose 12 percent, primarily as a result of the aforementioned acquisition and the weaker U.S. dollar in relation to European currencies. Sales by Latin American subsidiaries increased 13 percent principally because of double-digit gains by our companies in Brazil, Colombia, and Argentina. In the Pacific Rim, results of the acquired companies and double-digit sales gains by most of the other subsidiaries in the region resulted in a 39 percent increase over 1991. Cost of products sold was 43.8 percent of sales for 1993, compared with percentages of 44.5 for 1992 and 45.0 for 1991. U.S. Operations reported slightly higher selling prices and declining raw material costs which more than offset increased manufacturing expenses. Gross margins of our foreign subsidiaries were also slightly higher than a year ago. Stable selling prices and declining raw material costs, partly offset by higher manufacturing expenses, accounted for higher gross margins reported by U.S. Operations in 1992 over 1991. Gross margins of our foreign subsidiaries also increased from 1991 with our subsidiaries in Australia, Brazil, and Colombia reporting the most significant improvements. Operating expenses increased $15 million, or 3 percent in 1993. Selling and service expenses were up $13 million, or 3 percent over last year. Salaries, benefits, and commissions rose $10 million, or 4 percent, reflecting growth in the sales force and the adoption of new accounting rules for retiree benefits other than pensions. Worldwide, research expenses rose $2 million, or 5 percent over 1992, mainly due to higher salaries and benefits. As a percent to sales, research expenses were 3.6 percent in 1993 compared to 3.5 percent in 1992 and 3.7 percent in 1991. Administrative expenses for 1993 declined slightly from last year. Lower provisions for incentive plans were partly offset by increased salaries and benefits. Total operating expenses for 1992 were up $49 million, or 11 percent over 1991 in part because 1992 included a full year of expenses for the acquired companies compared to nine months in 1991. Higher salaries, benefits, and commissions, associated with the growth of the sales force, also contributed to this increase. Interest and other income for 1993 was $14 million, a $4 million decline from a year ago. This decrease was primarily the result of lower interest income which resulted from reduced levels of invested cash balances and lower interest rates. A $2 million gain on the sale of an investment in a mutual insurance company and a $1 million improvement in equity in earnings of affiliated companies partially offset the reduction in interest income. Interest and other income for 1991 included $3 million of equity earnings of the five affiliated companies that were purchased that year. Interest expense totaled $28 million in 1993, a decrease of $12 million from a year ago, which reflects the early repayment of debt discussed below. 1992 interest expense of $40 million was up $13 million over 1991 due to larger outstanding debt to support the affiliate acquisitions made in 1991. Earnings from continuing operations before extraordinary loss and effect of accounting change as a percent to sales were 11.0 percent, 10.5 percent, and 10.9 percent in 1993, 1992, and 1991, respectively. During the first quarter 1993, the Company recorded an extraordinary loss of $11 million as a result of the early repayment of long-term debt. (See Note 13). Effective January 1, 1993, the Company implemented, on the immediate recognition basis, Statement of Financial Accounting Standards No. 106 (SFAS 106), "Employers' Accounting for Postretirement Benefits Other Than Pensions." The adoption of SFAS 106 resulted in a non-recurring charge to 1993 earnings of $57 million, net of $33 million of income tax benefits. (See Note 4). In addition, operating earnings for 1993 were reduced $8 million due to the recurring additional costs related to SFAS 106. Also effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes", and Statement of Financial Accounting Standards No. 112 (SFAS 112), "Employers' Accounting for Postemployment Benefits." Adoption of these pronouncements did not have a material effect on the Company's earnings or financial position. On August 10, 1993, the Revenue Reconciliation Act of 1993 was signed into law, which increased the U.S. corporate income tax rate from 34 percent to 35 percent, retroactive to January 1, 1993. Without this tax rate change, the 1993 effective tax rate would have been 38.1 percent, compared with the actual effective tax rate of 38.9 percent. The Company is involved in environmental clean-up activities or litigation in connection with former waste disposal sites and plant locations. (See Note 15). This involvement has not had, nor is it expected to have, a material effect on the Company's earnings or financial position. MANAGEMENT'S DISCUSSION AND ANALYSIS--FINANCIAL CONDITION Total assets decreased $138 million or 10 percent during 1993. A $143 million decline in cash, cash equivalents, and short-term marketable securities reflects repayment of commercial paper borrowings. Inventories were $6 million or 8 percent lower than at the end of 1992, and $18 million lower than the December 31, 1991 level. The Company is committed to a program of improved inventory management which complements high levels of customer service. The $25 million increase in net property, plant, and equipment reflects capital spending of $118 million and depreciation expense of $83 million. The translation impact of a stronger U.S. dollar reduced the carrying value of the fixed assets of foreign subsidiaries. Liabilities dropped $113 million or 15 percent, primarily because of the repayment of debt. Short-term debt and long-term debt were down $26 million and $162 million, respectively, from last year. The cumulative effect of adopting SFAS No. 106, net of tax benefits, however, added about $60 million in liabilities. Current income taxes payable totaled $17 million at the end of 1993, an increase of $11 million from a year ago, which was mainly the result of higher taxes currently payable on United States earnings. Deferred income taxes declined $49 million, primarily because of a $33 million deferred tax asset associated with the provision for the cumulative effect of adopting SFAS 106, and a $6 million deferred tax asset recorded as a result of the extraordinary loss from the early retirement of debt. Shareholders' equity declined $25 million or 4 percent during 1993 primarily because dividends totaling $72 million and common stock repurchases of 1.7 million shares for $59 million were greater than net earnings of $86 million. Treasury stock transactions for stock option, benefit, and other plans totaled $15 million. Based on earnings before the extraordinary loss and the effect of the change in accounting principle, Nalco's return on average shareholders' equity was 28.6 percent in 1993, up from 25.7 percent in 1992. On February 3, 1994, Nalco and Exxon Chemical Company, a division of Exxon Corporation, announced that they had signed a memorandum of understanding to form a worldwide energy chemicals joint venture. The joint venture will include Nalco's U.S. Petroleum Chemicals Division business units, certain petroleum chemical product lines of its international operations, and Exxon Chemical Company's Energy Chemicals worldwide business. (See Note 17). On the same date, the Company announced that it had entered into a letter of intent to sell its Freeport, Texas plant and its automotive paint spray booth business to PPG Industries, Inc. (See Note 17). MANAGEMENT'S DISCUSSION AND ANALYSIS--CASH FLOWS One of Nalco's most significant financial strengths is its ability to consistently generate strong cash flow from operations. Net cash provided by operating activities continued to grow in 1993, primarily from growth in net earnings before noncash charges for the extraordinary loss from retirement of debt, the effect of the change in accounting principle, depreciation, and amortization. Cash flow activity in 1993 reflected strong cash flows from operating activities of $256 million and net proceeds of $104 million from the liquidation of marketable securities. Major funding needs included capital spending of $118 million, payments of long-term debt of $169 million, dividends of $72 million, and $59 million for the reacquisition of common stock. In 1992, cash from operations rose $9 million or 5 percent over the 1991 total of $199 million, which was mainly attributable to higher net earnings. Net cash provided by investing activities during 1993 was negligible. Investments in property, plant, and equipment of $118 million were offset by the cash proceeds received from the liquidation of marketable securities and the sale of Adco Products, Inc. Domestic investments accounted for about two-thirds of the capital spending for 1993, including $18 million for PORTA-FEED units, $17 million for field equipment, and $18 million for transportation equipment. The largest foreign expenditure for 1993 was $11 million for the construction of the Nalco Europe Business and Technical Center near Leiden, The Netherlands, which is scheduled for completion in mid-1994. In 1994 we plan to invest in internal growth and expect capital investment to remain near the 1993 level. In 1992, net cash required for investing activities was $124 million, with capital spending representing the most significant activity. Domestic investments represented 70 percent of the total capital investment of $131 million. The most significant investments included $26 million for PORTA-FEED units, $17 million for field equipment, $26 million for transportation equipment, and $6 million for the initial costs of constructing the Nalco Europe Business and Technical Center. Investing activities required the use of $238 million in 1991, and the three most significant business investment activities were for acquisitions, capital investment, and the sale of a discontinued operation. The remaining 51 percent of the common shares of five affiliated companies was acquired for $171 million; investments in property, plant, and equipment of $137 million accounted for the next largest investing activity; and the Company sold Day-Glo Color Corp. in a transaction which provided $72 million. The most significant financing activity in 1993 was the repayment of commercial paper borrowings as previously discussed. Dividends on common stock paid by Nalco during 1993 amounted to $61 million or $.885 per share. Since the Company's founding in 1928, it has paid 262 consecutive quarterly dividends, and expects to continue its policy of paying regular cash dividends. During the year, 1.7 million shares of common stock were repurchased at a cost of $59 million. Management believes that the stock repurchase program represents a sound economic investment for Nalco's shareholders. Cash dividends represented the most significant financing cash outflows in 1992 and 1991. In 1991, proceeds from debt were principally used to finance the acquisition of the five affiliated companies. Management expects that growth in existing businesses will be financed principally from internally generated funds. For general purposes and to support the ESOP loans and the issuance of commercial paper, Nalco also has a $340 million Revolving Credit Agreement with twelve banks. The credit arrangements were unused at December 31, 1993. (See Note 13). In addition, most foreign subsidiaries have established short-term borrowing facilities in local currency and use them as the need arises. Net debt (short-term and long-term borrowings less cash and short-term marketable securities) totaled $189 million, $234 million, and $255 million at December 31, 1993, 1992, and 1991, respectively. - -------------------------------------------------------------------------- STATEMENTS OF CONSOLIDATED EARNINGS
December 31 - -------------------------------------------------------------------------- (in millions except per share figures) 1993 1992 1991 - -------------------------------------------------------------------------- NET SALES $1,389.4 $1,374.5 $1,237.3 Operating costs and expenses Cost of products sold 608.9 611.5 557.0 Selling and service 414.3 401.4 360.4 Research and development 50.4 48.0 45.9 Administrative and general 52.9 53.3 47.0 -------- -------- -------- 1,126.5 1,114.2 1,010.3 -------- -------- -------- OPERATING EARNINGS 262.9 260.3 227.0 Interest and other income 14.4 18.3 18.9 Interest expense (27.5) (40.3) (27.1) -------- -------- -------- EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 249.8 238.3 218.8 Income taxes 97.1 93.3 84.2 -------- -------- -------- EARNINGS FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY LOSS AND EFFECT OF ACCOUNTING CHANGE 152.7 145.0 134.6 Discontinued operations, net of taxes - - 3.2 -------- -------- -------- EARNINGS BEFORE EXTRAORDINARY LOSS AND EFFECT OF ACCOUNTING CHANGE 152.7 145.0 137.8 Extraordinary loss from retirement of debt, net of taxes (10.6) - - Cumulative effect of change in accounting for postretirement benefits other than pensions, net of taxes (56.5) - - -------- -------- -------- Net Earnings $ 85.6 $ 145.0 $ 137.8 ======== ======== ======== EARNINGS PER COMMON SHARE--PRIMARY Continuing operations $ 2.03 $ 1.90 $ 1.78 Discontinued operations - - .04 Extraordinary loss from retirement of debt, net of taxes (.15) - - Cumulative effect of change in accounting for postretirement benefits other than pensions, net of taxes (.81) - - -------- -------- -------- Net earnings $ 1.07 $ 1.90 $ 1.82 ======== ======== ======== EARNINGS PER COMMON SHARE--FULLY DILUTED Continuing operations $ 1.88 $ 1.79 $ 1.67 Discontinued operations - - .04 Extraordinary loss from retirement of debt, net of taxes (.14) - - Cumulative effect of change in accounting for postretirement benefits other than pensions, net of taxes (.72) - - -------- -------- -------- Net earnings $ 1.02 $ 1.79 $ 1.71 ======== ======== ========
The notes to consolidated financial statements are an integral part of these statements.
- -------------------------------------------------------------------------------- STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION December 31 ------------------------------ (in millions) 1993 1992 1991 - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 78.1 $ 117.5 $ 120.1 Short-term marketable securities-- at cost which approximates market - 104.0 92.2 Receivables, less allowances of $4.5 in 1993, $5.9 in 1992, and $4.8 in 1991 215.2 213.3 208.3 Inventories Finished products 43.5 44.7 52.9 Materials and work in process 25.4 30.0 34.4 -------- -------- -------- 68.9 74.7 87.3 Prepaid expenses 12.8 12.4 10.0 -------- -------- -------- TOTAL CURRENT ASSETS 375.0 521.9 517.9 Other Assets Net assets of discontinued operations - 14.1 26.4 Goodwill, less accumulated amortization of $10.1 in 1993, $6.7 in 1992, and $3.6 in 1991 112.9 118.2 138.3 Miscellaneous 166.0 163.1 148.2 -------- -------- -------- TOTAL OTHER ASSETS 278.9 295.4 312.9 NET PROPERTY, PLANT, AND EQUIPMENT 558.5 533.3 493.6 -------- -------- -------- TOTAL ASSETS $1,212.4 $1,350.6 $1,324.4 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt $ 15.2 $ 41.5 $ 84.9 Accounts payable 84.5 89.4 98.0 Accrued compensation 26.3 28.4 28.5 Other accrued expenses 46.2 41.8 43.5 Income taxes 17.4 6.5 6.7 -------- -------- -------- TOTAL CURRENT LIABILITIES 189.6 207.6 261.6 LONG-TERM DEBT 252.1 413.8 394.1 DEFERRED INCOME TAXES 58.1 107.3 90.8 ACCRUED POSTRETIREMENT BENEFITS 94.2 - - OTHER LIABILITIES 67.8 45.6 49.2 COMMITMENTS AND CONTINGENT LIABILITIES - - - SHAREHOLDERS' EQUITY Preferred stock--par value $1.00 per share 0.4 0.4 0.4 Capital in excess of par value of shares 195.7 197.3 198.7 Unearned ESOP compensation (174.4) (188.7) (189.6) -------- -------- -------- 21.7 9.0 9.5 Common stock--par value $.1875 per share; 80,287,568 shares issued 15.1 15.1 15.1 Capital in excess of par value of shares 10.6 9.6 8.7 Retained earnings 819.2 807.6 731.4 Minimum pension liability adjustment (7.1) - - Foreign currency translation adjustments (49.3) (50.4) (23.9) Common stock reacquired--at cost (259.6) (214.6) (212.1) -------- -------- -------- TOTAL SHAREHOLDERS' EQUITY 550.6 576.3 528.7 -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,212.4 $1,350.6 $1,324.4 ======== ======== ========
The notes to consolidated financial statements are an integral part of these statements .
STATEMENTS OF CONSOLIDATED CASH FLOWS December 31 ------------------------- (in millions) 1993 1992 1991 - -------------------------------------------------- ------- ------- ------- CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES Net earnings $ 85.6 $ 145.0 $ 137.8 Adjustments to reconcile net earnings to cash provided by operating activities Extraordinary loss from retirement of debt 10.6 - - Cumulative effect of change in accounting for postretirement benefits other than pensions 56.5 - - Depreciation and amortization 86.5 80.6 69.1 Noncurrent deferred income taxes (2.8) 17.2 13.4 Other--net 10.4 (15.7) 1.4 Changes in current assets and liabilities Receivables (31.6) (24.2) (16.7) Inventories (4.4) 3.4 (9.5) Accounts payable 15.4 2.0 1.7 Other 29.7 - 1.9 ------- ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 255.9 208.3 199.1 ------- ------- ------- CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES Additions to property, plant, and equipment (117.8) (131.0) (136.8) Business purchase - - (170.9) Purchases of marketable securities and restricted investments (210.2) (228.9) (222.6) Sales of marketable securities and restricted investments 314.2 228.9 222.3 Proceeds from sale of business 15.7 7.5 71.9 Other investing activities (1.4) (0.4) (1.6) ------- ------- ------- NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 0.5 (123.9) (237.7) ------- ------- ------- CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES Cash dividends, net of taxes (71.9) (68.8) (67.8) Proceeds from long-term debt 1.3 32.9 179.0 Payments of long-term debt (168.7) (46.3) (6.1) Common stock reacquired (58.5) (14.3) - Other financing transactions 2.2 9.7 21.2 ------- ------- ------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (295.6) (86.8) 126.3 Effect of foreign exchange rate changes on cash and cash equivalents (0.2) (0.2) (2.8) ------- ------- ------- Increase (decrease) in cash and cash equivalents (39.4) (2.6) 84.9 Cash and cash equivalents at the beginning of the year 117.5 120.1 35.2 ------- ------- ------- CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 78.1 $ 117.5 $ 120.1 ======= ======= =======
The notes to consolidated financial statements are an integral part of these statements.
- ---------------------------------------------------------------------------------------------------------------------- STATEMENT OF CONSOLIDATED COMMON SHAREHOLDERS' EQUITY (in millions) - ---------------------------------------------------------------------------------------------------------------------- Capital in Minimum Foreign Common Stock Common Excess of Pension Currency Reacquired Stock Par Value Retained Liability Translation Number Issued of Shares Earnings Adjustment Adjustments of Shares Cost - ---------------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 1, 1991 $15.1 $ 7.9 $660.2 $ - $(13.0) 11.0 $(222.3) Net earnings 137.8 Earnings of acquired companies 1.2 Dividends on preferred stock --net of tax (10.0) Dividends on common stock ($0.83 per share) (57.8) Stock issued under option, benefit, and other plans 0.8 (0.5) 10.2 Currency translation adjustments (10.9) ----- ----- ------ ----- ------ ---- ------- BALANCE AT DECEMBER 31,1991 15.1 8.7 731.4 - (23.9) 10.5 (212.1) Net earnings 145.0 Dividends on preferred stock --net of tax (10.0) Dividends on common stock ($0.84 per share) (58.8) Reacquired common stock 0.4 (14.3) Stock issued under option, benefit, and other plans 0.9 (0.6) 11.8 Currency translation adjustments (26.5) ----- ----- ------ ----- ------ ---- ------- BALANCE AT DECEMBER 31, 1992 15.1 9.6 807.6 - (50.4) 10.3 (214.6) Net earnings 85.6 Net loss by foreign subsidiaries in December 1992 (2.1) Dividends on preferred stock --net of tax (10.8) Dividends on common stock ($0.885 per share) (61.1) Reacquired common stock 1.7 (58.5) Stock issued under option, benefit, and other plans 1.0 (0.6) 13.5 Minimum pension liability adjustment (7.1) Currency translation adjustments 1.1 ----- ----- ------ ----- ------ ---- ------- BALANCE AT DECEMBER 31, 1993 $15.1 $10.6 $819.2 $(7.1) $(49.3) 11.4 $(259.6) ===== ===== ====== ===== ====== ==== =======
The notes to consolidated financial statements are an integral part of these statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION POLICY--Nalco's consolidated financial statements include the accounts of the parent company and its majority-owned subsidiaries. In 1993, the fiscal year end of the consolidated foreign subsidiaries was changed from November 30 to December 31. As a result of the change, the Company recorded the results of its foreign operations for the month of December 1992 directly to retained earnings. Investments in affiliated companies are reported on the equity method. CONCENTRATION OF CREDIT RISK--Financial instruments which potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents, short-term marketable securities, and receivables. Nalco has a formal policy to place cash and cash equivalents with high credit quality financial institutions and limit the amount of credit exposure to any one financial institution. Cash and cash equivalents include demand deposits and short-term highly liquid debt instruments purchased with maturities of three months or less. Management believes the likelihood of incurring losses related to credit risk is remote. Concentration of credit risk relating to receivables is limited due to a large number of customers from many different industries and locations. Management believes the recorded allowances for doubtful accounts are adequate to cover potential credit risk losses. FOREIGN CURRENCY TRANSLATION--The local currency has been designated as the functional currency in financial statements of companies which account for approximately 86 percent of total foreign subsidiary net assets at the end of 1993. These financial statements are translated at current and average exchange rates, with any resulting translation adjustments included in the cumulative translation adjustment account in shareholders' equity. The remaining subsidiaries operate in countries with hyperinflationary environments and their statements are translated using a combination of current, average, and historical exchange rates, with the resulting translation impact included in results of operations. Transactions executed in different currencies resulting in exchange adjustments are included in results of operations. The impact of foreign currency exchange transactions, included in interest and other income in 1993, 1992, and 1991, was not significant. FOREIGN CURRENCY EXCHANGE CONTRACTS--Nalco, in the management of its exposure to fluctuations in foreign currency rates, enters into forward exchange contracts and currency swaps. The forward contracts hedge foreign currency transactions and have maturities which generally do not exceed six months. The Company's swap agreements have maturities up to 7 years, and hedge foreign currency intercompany loans related to the 1991 affiliate acquisitions. Counterparties are major financial institutions. Nalco is exposed to credit loss in the event of non-performance by the counterparties to the contracts. However, management evaluates the creditworthiness of the counterparties' financial condition and believes the likelihood of such default is remote and any losses therefrom would not be material. At December 31, 1993, the Company had approximately $27 million in foreign forward exchange contracts and $130 million in foreign currency swaps. INVENTORY VALUATION--Inventories are valued at the lower of cost or market. Approximately 59 percent of the inventories at the end of 1993 are valued using the last-in, first-out (LIFO) method. The remaining inventories are valued using the average cost or first-in, first-out (FIFO) method. If the FIFO method of accounting had been used for all inventories, reported inventory amounts would have been higher at December 31, 1993, 1992, and 1991 by $35 million, $41 million, and $44 million, respectively. During 1993 and 1992, inventory quantities were reduced, which resulted in a liquidation of LIFO inventory layers carried at lower costs which prevailed in prior years. The effect of these liquidations was not material. GOODWILL--Goodwill consists of costs in excess of the fair value of tangible net assets of acquired companies and is generally amortized over 40 years using the straight-line method. The Company periodically makes judgmental determinations of the value of the recorded goodwill to determine if an impairment has occurred. Management is currently of the opinion that no such impairment exists. INCOME TAXES--In 1992 and 1991, the provision for deferred income taxes represents the tax effect of differences in the timing of income and expense recognition for tax and financial reporting purposes. The provision for deferred income taxes in 1993 was determined pursuant to the provisions of Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes". Under this statement, the provision for deferred income taxes represents the tax effect of temporary differences between the carrying amount of assets and liabilities and their tax bases. Deferred income taxes are provided on the undistributed earnings of foreign subsidiaries and affiliated companies except to the extent such earnings are considered to be permanently reinvested in the subsidiary or affiliate. Where it is contemplated that earnings will be remitted, credit for foreign taxes already paid generally will offset applicable U.S. income taxes. In cases where foreign tax credits will not offset U.S. income taxes, appropriate provisions are included in the Consolidated Statements of Earnings. Repatriation of permanently reinvested earnings would not materially increase the Company's tax liabilities. RETIREMENT PLANS--The cost of retirement plans is computed on the basis of accepted actuarial methods (using the projected unit credit method for the principal plan) and includes current service costs, amortization of increases in prior service costs over the expected future service of active participants as of the date such costs are first recognized, and amortization of the initial unrecognized net pension asset or liability on a straight-line basis over 18 years. The costs of health and life insurance postretirement benefits were charged against earnings as paid in years prior to 1993. Effective January 1, 1993, the Company adopted SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", and the costs of providing such benefits are accrued as earned. Annual expense represents a combination of interest and service cost provisions. Most postretirement benefits are not funded. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)--ESOP contribution expense is based upon non-level debt payments made by the ESOP to meet the plan funding requirements. An adjustment to expense is made when the computed amount is less than 80 percent of the cumulative expense that would be recognized under the "shares allocated" method. EARNINGS PER SHARE--Primary earnings per common share is computed by dividing net earnings (after deducting preferred stock dividends, net of income taxes) by the weighted average number of shares and share equivalents outstanding during the year. Fully diluted earnings per share is based upon the weighted average number of common shares and share equivalents, plus the weighted average number of common shares resulting from the assumed conversion of the Series B ESOP Convertible Preferred Stock (preferred stock). Earnings for purposes of computing fully diluted earnings per share are reduced for additional ESOP debt service expense resulting from the assumed replacement of preferred stock dividends with common stock dividends, net of related tax benefits. NOTE 2--BUSINESS SEGMENT AND GEOGRAPHIC AREA DATA Nalco is engaged in the worldwide manufacture and sale of highly specialized Service Chemical programs. This includes production and service related to the sale and application of chemicals and technology used in water treatment, pollution control, energy conservation, oil production and refining, steelmaking, papermaking, mining, and other industrial processes as well as a superabsorbent product for the disposable diaper market. Within Nalco, sales between geographic areas are made at prevailing market prices to customers minus an amount intended to compensate the sister Nalco company for providing quality customer service. Operating earnings represent sales less cost of products sold and operating expenses. In computing operating earnings, none of the following items is considered: general corporate expenses, interest income or expense, equity in earnings of affiliated companies, or income taxes. Identifiable assets are those directly associated with operations of the geographic area. Corporate assets consist mainly of cash and cash equivalents, marketable securities, investments in unconsolidated affiliates and leveraged leases, and capital assets used for corporate purposes. Corporate assets for the years 1992 and 1991 also include the net assets of discontinued operations. GEOGRAPHIC AREA DATA
(in millions) 1993 1992 1991 - ----------------------------------------------------------------- SALES North America $ 915.1 $ 883.7 $ 815.8 Europe 315.6 346.5 310.6 Latin America 66.4 60.7 53.9 Pacific 116.7 108.2 77.7 Sales between areas (24.4) (24.6) (20.7) -------- -------- -------- $1,389.4 $1,374.5 $1,237.3 ======== ======== ======== OPERATING EARNINGS North America $ 216.9 $ 211.3 $ 186.7 Europe 41.8 48.9 44.0 Latin America 11.4 10.0 5.6 Pacific 14.4 14.4 8.2 Expenses not allocated to areas (21.6) (24.3) (17.5) -------- -------- -------- $ 262.9 $ 260.3 $ 227.0 ======== ======== ======== IDENTIFIABLE ASSETS North America $ 566.6 $ 562.2 $ 542.0 Europe 227.4 225.5 240.7 Latin America 45.4 42.7 40.1 Pacific 126.3 124.7 128.9 Corporate 246.7 395.5 372.7 -------- -------- -------- $1,212.4 $1,350.6 $1,324.4 ======== ======== ========
Amounts for United States sales in the tabulation above include exports to the following areas:
(in millions) 1993 1992 1991 - ---------------------------------------------------------------- Latin America $19.2 $16.0 $18.8 All other 13.0 12.0 12.8 - ----------------------------------------------------------------
NOTE 3--PENSION PLANS The Company has several noncontributory defined benefit pension plans covering most employees in the United States and those with eight foreign subsidiaries. The principal domestic plan represents approximately 73 percent of the projected benefit obligation and 82 percent of the total market value of assets. This plan provides benefits that are based on years of service and the employee's highest paid 48 months during the last 120 months before termination of employment. Approximately 94 percent of the assets in the plan at December 31, 1993 was invested in stocks, bonds, and insurance contracts, and the remaining assets were invested in professionally managed real estate trusts and partnerships. Due to the present funded position of the plan, no contributions have been made since 1984, and none are anticipated in 1994. Four of the eight foreign pension plans are unfunded, generally because amounts contributed are not deductible for tax purposes. Employees in the United States whose pension benefits exceed ERISA limitations are covered by a supplementary non-qualified, unfunded pension plan which is being provided for by charges to earnings sufficient to meet the projected benefit obligation (PBO). The accruals for the cost of this plan are based on substantially the same actuarial methods and economic assumptions as those used for the principal plan. Net pension expense for all defined benefit plans included in operating results was comprised of:
(in millions) 1993 1992 1991 - ------------------------------------------------------------------------ Service cost for benefits earned $ 16.4 $ 15.9 $ 12.9 Interest costs on the PBO 23.1 24.5 20.7 Actual return on plan assets (41.7) (22.5) (42.1) Net amortizations and deferrals 17.1 (4.3) 17.0 ------ ------ ------ Net pension expense for defined benefit plans $ 14.9 $ 13.6 $ 8.5 ====== ====== ======
Assumptions for the plans as of the end of the last three years were as follows:
U.S. Plans ----------------------------- 1993 1992 1991 - ------------------------------------------------------------------------- Weighted-average discount rates 7.5% 8.5% 8.3% Rates of increase in compensation levels 4.8 6.3 7.0 Rates of return on plan assets 9.0 10.0 10.0 - ------------------------------------------------------------------------- Foreign Plans ----------------------------- 1993 1992 1991 - ------------------------------------------------------------------------- Weighted-average discount rates 6.5-9.0% 7.0-10.0% 6.5-11.0% Rates of increase in compensation levels 4.5-6.5 5.0- 8.0 5.0- 8.0 Rates of return on plan assets 7.0-9.5 7.0-10.0 6.5-10.0 - -------------------------------------------------------------------------
The following table sets forth the funded status and amounts recognized in the consolidated statements of financial condition at year end for plans in which assets exceed the accumulated benefit obligation (ABO):
December 31 ------------------------ (in millions) 1993 1992 1991 - -------------------------------------------------------------- Actuarial present value of: Vested benefit obligation $178.1 $150.4 $160.5 Non-vested benefit obligation 3.4 5.6 5.4 ------ ------ ------ Total ABO 181.5 156.0 165.9 Effect of future salary increases 90.9 79.2 80.1 ------ ------ ------ Total PBO 272.4 235.2 246.0 Plan assets at fair market value 278.2 247.8 266.9 ------ ------ ------ Plan assets in excess of the PBO 5.8 12.6 20.9 Unrecognized net (asset) from date of adoption (32.0) (34.7) (38.0) Unrecognized prior service cost 15.4 15.4 9.9 Unrecognized net actuarial losses 21.8 22.6 24.7 ------ ------ ------ Net pension assets recognized $ 11.0 $ 15.9 $ 17.5 ====== ====== ======
The following table sets forth the funded status and amounts recognized in the consolidated statements of financial condition at year end for plans in which the ABO exceeds assets:
December 31 ------------------------ (in millions) 1993 1992 1991 - --------------------------------------------------------------------- Actuarial present value of: Vested benefit obligation $ 25.9 $ 24.7 $ 22.8 Non-vested benefit obligation 2.2 1.9 1.6 ------ ------ ------ Total ABO 28.1 26.6 24.4 Effect of future salary increases 13.2 14.9 15.2 ------ ------ ------ Total PBO 41.3 41.5 39.6 Plan assets at fair market value 3.4 3.3 - ------ ------ ------ Plan assets (less) than the PBO (37.9) (38.2) (39.6) Unrecognized net liability from date of adoption 4.1 4.6 4.3 Unrecognized prior service cost 7.5 8.9 1.2 Unrecognized net actuarial losses 15.9 17.8 11.4 Adjustment to recognize minimum liability (20.5) (10.0) (6.0) ------ ------ ------ Net pension (liabilities) recognized $(30.9) $(16.9) $(28.7) ====== ====== ======
In accordance with Statement of Financial Accounting Standards No. 87 (SFAS 87), "Employers' Accounting for Pensions," the Company has recorded a minimum pension liability for certain plans, representing the excess of the ABO over plan assets and accrued pension costs. A corresponding amount was recognized as an intangible asset, except to the extent that these additional liabilities exceeded related unrecognized prior service cost and net transition obligation, in which case the increase in liabilities was charged directly to shareholders' equity. For 1993, the excess minimum pension liability resulted in a $7 million charge to shareholders' equity, net of income taxes. NOTE 4--POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Nalco has defined benefit postretirement plans that provide medical, dental, and life insurance benefits for substantially all United States retirees and eligible dependents. Nalco retains the right to change or terminate these benefits. Effective January 1, 1993, the Company implemented, on the immediate recognition basis, SFAS 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." This statement requires that the cost of these benefits be recognized in the financial statements during an employee's active working career with the Company. Nalco's previous practice was to expense these costs as incurred. The adoption of SFAS 106 resulted in a noncash charge of $57 million, net of $33 million of income tax benefits. The expense accrued in 1993 exceeded the amount under the previous accounting method by $8 million before taxes. Nalco's cash flows will be unaffected by this accounting change because Nalco intends to continue its current practice of paying most costs of these postretirement benefits as the claims are incurred. The postretirement benefit expense for 1993 totaled $10 million and included $3 million for service cost of benefits earned and $7 million for interest cost on the accumulated postretirement benefit obligation. Costs of these benefits were $2 million in 1992 and 1991, and were funded from current Company cash flows and charged to earnings as claims were paid. The 1993 accrued postretirement benefit liability included the following components:
(in millions) - ---------------------------------------------------------------------- Actuarial present value of postretirement benefit obligations Retirees $41.6 Fully eligible active plan participants 12.2 Other active plan participants 34.8 ----- Accumulated postretirement benefit obligation 88.6 Unrecognized net gain 8.3 ----- Accrued postretirement benefit liability 96.9 Less current portion 2.7 ----- Noncurrent liability $94.2 =====
Measurement of the accumulated postretirement benefit obligation was based on a 7.5 percent discount rate and a health care cost trend rate of 11.5 percent for 1993, decreasing 0.5 percent per year to an ultimate rate of 5.5 percent. A one- percentage-point increase in the assumed health care cost trend rate would have increased the 1993 postretirement benefit expense by approximately $2 million and would have increased the 1993 accumulated postretirement benefit obligation by $12 million. NOTE 5--EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) AND PROFIT SHARING PLAN In 1989, Nalco established an ESOP to give most domestic employees an additional opportunity to share in the ownership of the Company's stock. The ESOP purchased 415,800 shares of preferred stock for $200 million with proceeds from loans described in Note 13. These shares are allocated to eligible employees based on a percentage of pretax earnings. See Note 14 for more detail on the preferred stock. Selected information about the ESOP for the past three years is as follows:
(in millions) 1993 1992 1991 - ---------------------------------------------------- Preferred stock dividends $15.7 $15.9 $15.9 Interest expense on ESOP debt 10.3 11.1 13.0 ESOP benefit expense 1.2 0.9 2.4 ESOP contribution payments - - 1.7 - ----------------------------------------------------
Prior to the establishment of the ESOP, the Company funded a profit sharing plan. Past contributions were made to a bank trustee for investment in Nalco common stock for the accounts of participating employees. At the end of 1993, the trustee of the plan held 3,765,713 shares of Nalco common stock, representing 5.5 percent of the outstanding shares. NOTE 6--LEASE COMMITMENTS AND RENTAL EXPENSE Nalco has a number of operating leases for office space and equipment. Rental expense amounted to $14 million in 1993, $15 million in 1992, and $13 million in 1991. Future minimum payments under noncancellable operating leases as of December 31, 1993 are not material. NOTE 7--STOCK OPTION, RESTRICTED STOCK, AND PERFORMANCE PLANS Nalco's 1990 Stock Option Plan for key management employees authorized the granting of stock options for the purchase of up to 6,000,000 shares of Nalco common stock. Nalco's 1982 Stock Option Plan authorized the granting of either incentive stock options or non-qualified options for the purchase of up to 6,000,000 shares of Nalco's common stock. No additional grants will be made under the 1982 plan. The option price under both plans cannot be less than the fair market value on the date of grant. Options granted since 1989 become exercisable ratably over the three years following the grant date, and will expire 10 years after the date granted. Options granted prior to 1989 have a term of 10 years, and became exercisable upon grant. Options may be exercised in whole or in part for cash, shares of common stock, or a combination thereof. The changes in shares under option to employees are summarized as follows:
1993 1992 1991 - ------------------------------------------------------------------------------- At beginning of year 4,348,644 3,205,028 3,719,000 Options granted - price per share 1993-$36.31; 1992-$36.00; 1991-$29.81 491,600 1,776,220 99,600 Options exercised - average price per share 1993-$17.81; 1992-$16.75; 1991-$17.05 (518,734) (601,004) (594,306) Options expired or cancelled (62,033) (31,600) (19,266) At end of year - average price per share 1993-$28.09; 1992-$26.03; 1991-$18.80 4,259,477 4,348,644 3,205,028 Options exercisable at end of year 2,639,155 - -------------------------------------------------------------------------------
The 1990 Stock Option Plan for Non-Employee Directors authorizes the granting of stock options to outside directors for the purchase of up to 500,000 common shares. The option price under the plan cannot be less than the fair market value on the date of the grant and options expire 10 years from the grant date. A total of 36,000 options were granted under the directors' plan during 1993 at an option price of $32.94 per share, and a total of 32,000 options were granted each year under the directors' plan during 1992 and 1991 at option prices of $33.25 and $31.97 per share, respectively. These options became exercisable upon grant, but none have yet been exercised. A Restricted Stock Plan for key management employees provides for the grant of "share units" which, upon vesting, are paid in shares of Nalco common stock on a one-for-one basis. One-half of the units granted normally vest five years from the date of award, and the remaining half vest at retirement, if the grantee retires directly from Nalco under the Retirement Income Plan. However, all of these contingent share units vest automatically in the event of death, disability, or in the event of a change in control of the Company. Not more than 500,000 share units may be awarded. The remaining number of share units available for award under the plan at December 31, 1993 was 275,830, and 99,420 share units were outstanding at year end. A Performance Unit Plan provided for the annual assignment of contingent performance units to designated officers and other key executives. The contingent units assigned were earned, subject to the attainment of goals for growth in earnings for each performance period. Payment of earned awards are made in cash following the conclusion of the applicable performance period. A Performance Share Plan for designated officers and other key executives was approved by shareholders in 1992. It provides for the annual assignment of performance shares which are contingent upon future earnings growth of the Company. Performance awards shall be paid half in cash and half in the Company's common stock, except that any payments made after 1,000,000 shares have been issued shall be made only in cash and only with respect to contingent performance shares already assigned. The cash portion of an award shall be paid after determination of the award; however, the right to receive common shares shall not vest to a participant until three years after the end of a performance period. Charges to earnings for all plans aggregated $4 million, $5 million, and $1 million in 1993, 1992, and 1991, respectively. NOTE 8--INCOME TAXES Effective January 1, 1993, Nalco adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The cumulative effect of the change in the method of accounting for income taxes as of the beginning of 1993 was not material. A significant amount of earnings from continuing consolidated operations before income taxes is from foreign sources, as reflected in the following tabulation:
(in millions) 1993 1992 1991 - --------------------------------------- Domestic $182.6 $165.9 $152.4 Foreign 67.2 72.4 66.4 ------ ------ ------ Total $249.8 $238.3 $218.8 ====== ====== ======
The components of income tax provisions attributable to earnings from continuing consolidated operations are summarized as follows:
(in millions) 1993 1992 1991 - ------------------------------------ Current Federal $55.3 $32.1 $35.0 State 9.5 6.5 6.5 Foreign 26.8 36.9 34.8 ----- ----- ----- 91.6 75.5 76.3 ----- ----- ----- Deferred Federal 3.0 13.6 9.9 State 0.8 2.8 1.7 Foreign 1.7 1.4 (3.7) ----- ----- ----- 5.5 17.8 7.9 ----- ----- ----- Total $97.1 $93.3 $84.2 ===== ===== =====
Current foreign taxes listed above include taxes withheld by foreign governments on distributions from subsidiaries and affiliates (principally dividends and service fees). Nalco made income tax payments of $87 million, $77 million, and $85 million during 1993, 1992, and 1991, respectively. The effective income tax rate varies from the federal statutory rate because of the factors indicated below:
1993 1992 1991 - ------------------------------------------------------------------------------- Statutory U.S. federal tax rate 35.0% 34.0% 34.0% State income taxes, net of federal tax benefit 2.7 2.6 2.4 Foreign earnings subject to higher rates 0.6 2.0 1.6 Other 0.6 0.6 0.5 ---- ---- ---- Effective tax rate 38.9% 39.2% 38.5% ==== ==== ====
Details of the 1993 deferred tax assets and liabilities are as follows:
(in millions) - ----------------------------------------------------------------- Deferred tax assets: Postretirement benefits $ 39.1 Early retirement of debt 5.1 Other 15.6 ------ Total 59.8 ------ Deferred tax liabilities: Depreciation 72.0 Leveraged lease investments 35.6 Other 10.3 ------ Total 117.9 ------ Net deferred tax liability $ 58.1 ======
NOTE 9--ACQUISITIONS In March 1991 the Company acquired the remaining interest in five affiliated companies for $171 million. Each of these companies provides Nalco's water treatment and specialty process chemicals to customers. Nalco already owned 49 percent of the common shares of each of these companies and had been accounting for earnings on the equity basis. The operations of these former affiliated companies were consolidated effective April 1991. If the acquisitions had occurred at the beginning of 1991, unaudited pro forma results for 1991 would have reflected net sales and net earnings of $1,281 million and $133 million, respectively. Earnings per common share would have been $1.76 on a primary basis and $1.65 fully diluted. NOTE 10--DISCONTINUED OPERATIONS In 1991 the results of our U.S. Subsidiaries, Day-Glo Color Corp., Adco Products, Inc., and the Penray Companies were reported as discontinued operations because Day-Glo Color Corp. was sold, and the net assets of the other two companies were held for sale. The Penray Companies were sold in 1992, and Adco Products, Inc. was sold in 1993. The net carrying amount of assets of discontinued operations consisted primarily of accounts receivable, inventory, and property, plant, and equipment less related liabilities at December 31, 1992 and 1991. NOTE 11--FINANCE SUBSIDIARIES Nalco has four finance subsidiaries, one wholly-owned and three 80%-owned, which were established to increase the return on financial assets. These subsidiaries are the lessor of a diversified portfolio of leveraged leases involving creditworthy lessees. Amounts related to the finance subsidiaries which are included in the Statements of Consolidated Financial Condition and Earnings are as follows:
(in millions) 1993 1992 1991 - ------------------------------------------------------ AT YEAR END Leveraged lease investments $44.6 $43.9 $44.4 Current liabilities 1.8 1.6 1.8 Deferred income taxes and other 35.6 35.9 35.6 ----- ----- ----- Net assets $ 7.2 $ 6.4 $ 7.0 ----- ----- ----- FOR THE YEAR Net earnings $ 1.5 $ 1.0 $ 1.3 Dividends received by Nalco 0.3 0.3 0.4 - ------------------------------------------------------
Investments in leased property represent future rentals and residuals, net of nonrecourse debt. The leased assets are financed primarily by nonrecourse loans which are secured by the lessees' rental obligations and the leased property, but ownership of the property is retained by the finance subsidiaries. Such loans amounted to approximately $59 million at both December 31, 1993 and 1992, and $61 million at December 31, 1991. Income from leveraged lease transactions is reported on the financing method, which requires income recognition over the life of the lease at a level rate of return on the positive net investment. NOTE 12--PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment (including major improvements) are recorded at cost. Depreciation of buildings and equipment is calculated over their estimated useful lives generally using the straight-line method. The estimated useful lives of the major classes of depreciable assets are as follows: buildings 15 to 40 years; equipment 3 to 15 years. Property, plant, and equipment consists of the following:
(in millions) 1993 1992 1991 - ---------------------------------------------------------- Land $ 39.1 $ 37.4 $ 33.6 Buildings 215.2 207.0 203.6 Equipment 875.6 799.8 720.6 -------- -------- ------- 1,129.9 1,044.2 957.8 Allowances for depreciation (571.4) (510.9) (464.2) -------- -------- ------- $ 558.5 $ 533.3 $ 493.6 ======== ======== =======
NOTE 13--DEBT Long-term debt consists of the following:
(in millions) 1993 1992 1991 - ------------------------------------------ ESOP loans $179.9 $186.0 $190.5 Commercial paper - 160.0 160.0 Other 72.2 67.8 43.6 ------ ------ ------ Total $252.1 $413.8 $394.1 ====== ====== ======
In 1989, the ESOP borrowed $200 million to purchase preferred stock from the Company. Nalco borrowed $66 million which was subsequently loaned to the ESOP, and guaranteed the balance of $134 million. Borrowings related to the ESOP are reflected as long-term debt with a corresponding reduction of shareholders' equity (unearned ESOP compensation). The ESOP is repaying the loans and interest over a projected 13-year period using Company contributions and dividends from preferred stock. As the principal amount of the borrowings is repaid, the debt and the unearned ESOP compensation are being reduced. $88 million of borrowings are variable rate notes which are presently remarketed on a monthly basis with a final maturity on December 31, 2008. Any notes which cannot be successfully remarketed will be purchased by the Company or one of its subsidiaries. The Company entered into an interest rate swap agreement which effectively converted the $88 million of variable rate notes into fixed-rate debt of 7.3 percent. The remaining borrowings are 8.1 percent fixed-rate loans with a final maturity in the year 2000. During 1993, the Company repaid $160 million of commercial paper borrowings which had been classified as long-term debt. The early retirement of this debt resulted in an extraordinary loss of $11 million net of tax benefits of $6 million. The $72 million in other long-term debt includes $45 million owed by two foreign subsidiaries at variable interest rates. The balance was borrowed by the parent company and various foreign subsidiaries. Interest paid by Nalco was $33 million, $44 million, and $36 million in 1993, 1992, and 1991, respectively. The following table presents the projected annual maturities of long-term debt for the next five years after 1993:
(in millions) - ---------------- 1994 $ 2.4 1995 0.1 1996 66.1 1997 12.0 1998 12.0
The amounts above include approximately $90 million in maturities related to the ESOP loans. The ESOP is required to repay principal on its loan from Nalco annually in order to allocate shares to participants, and this loan matures for Nalco in 1996. For general purposes and to support the ESOP loans and the issuance of commercial paper, Nalco has a $340 million Revolving Credit Agreement with twelve banks. This agreement is structured as a three-year revolving credit with an option in 1996 to convert the borrowings to a four-year term loan. Borrowings under the credit agreement would be at rates which, at Nalco's option, vary with the prime rate, CD rate, or LIBOR. The credit line carries a commitment fee of .25 percent on the unused portion. The credit arrangements were unused at December 31, 1993. NOTE 14--SHAREHOLDERS' EQUITY Information on preferred and common shares is summarized in the following table:
(dollars in millions, except per share amounts) 1993 1992 1991 - --------------------------------------------------------------------- Preferred stock, par value $1.00 per share; authorized 2,000,000 shares; Series B ESOP Convertible Preferred Stock--outstanding; 407,806 shares-1993, 411,032 shares-1992, and 414,037 shares -1991 $ 0.4 $ 0.4 $ 0.4 Series A Junior Participating Preferred Stock--none issued Common stock, par value $.1875 per share; authorized 200,000,000 shares; issued 80,287,568 shares 15.1 15.1 15.1 - ----------------------------------------------------------------------
There were 11,383,105 shares, 10,266,979 shares, and 10,459,404 shares held in treasury at December 31, 1993, 1992, and 1991, respectively. In 1990, Nalco's Board of Directors authorized the repurchase of up to 2 million shares of the Company's common stock. During 1993, the repurchase of those shares was completed and the Board of Directors authorized the repurchase of an additional 2 million shares. The Company issued 415,800 shares of preferred stock to the ESOP in 1989 for $481.00 per share, the preference price upon liquidation. This preferred stock ranks senior to Series A Junior Participating Stock and common stock as to the payment of dividends and the distribution of assets on liquidation, dissolution and winding up of Nalco. Dividends on each share of preferred stock are cumulative and will be paid quarterly at the rate of 8 percent or $38.48 per annum. Full conversion of preferred shares occurs upon a holder's retirement or separation of service from the Company, and effective in 1999 participants in the ESOP may partially convert their stock upon reaching age 55. The conversion ratio and number of votes per share of preferred stock are subject to adjustment under certain conditions. The preferred stock entitles a participant to 20 votes per share, voting together with the holders of common stock and initially was convertible into 20 shares of common stock. The shares of preferred stock are redeemable by Nalco at $500.24 per share, and at prices declining annually to $481.00 per share on or after May 15, 1997. Also, the shares of preferred stock may be required to be redeemed by Nalco under certain circumstances. During 1993, 3,226 preferred shares were converted to 61,566 common shares of Nalco Stock. During 1992 and 1991, 3,005 and 1,102 preferred shares were converted to 60,082 and 26,318 common shares, respectively. Approximately 8,300,000 common shares have been reserved for the conversion of preferred stock. In 1986, the Board of Directors declared a dividend distribution of one Preferred Share Purchase Right (Right) for each outstanding share of common stock. The Rights, as amended in 1989, are not exercisable or transferrable apart from the common stock until a person or group has acquired, or makes a tender offer for 15 percent or more of the common stock. If Nalco is acquired in a merger or other business combination transaction, each Right other than that held by the acquiring party will entitle the holder to receive, upon exercise at a price of $50, common stock of either Nalco or the acquiring company having a value equal to two times that price. The Rights are redeemable at $.025 each at any time before a 15 percent or greater position has been acquired, and expire on August 31, 1996. NOTE 15--CONTINGENCIES AND LITIGATION Nalco has been named as a potentially responsible party by the Environmental Protection Agency (EPA) or state enforcement agencies at 10 waste sites where some financial contribution is or may be required. These agencies have also identified many other parties who may be responsible for clean-up costs at the waste disposal sites. Nalco's financial contribution to clean up these sites is expected to be minor. There has been no significant financial impact on Nalco up to the present, nor is it anticipated that there will be in the future, as a result of these matters. Nalco has and will continue to make provisions for these costs when the Company's liability can be reasonably estimated. As of December 31, 1993, the Company had reserves of approximately $2 million for potential future environmental clean-up costs. The Company's 1993 expenditures relating to environmental compliance and clean-up activities were not significant. The environmental reserves represent management's current estimate of its proportional clean-up costs and are not reduced by any possible recoveries from insurance companies or other potentially responsible parties not specifically identified by the EPA. Although management cannot determine whether or not a material effect on future operations is reasonably likely to occur, it believes that the recorded reserve levels are appropriate estimates of the potential liability. Further, management believes that the additional maximum exposure level in excess of the recorded reserve level would not be material to the financial condition of the Company. Although settlement of the reserves will cause future cash outlays, it is not expected that such outlays will materially impact the Company's liquidity position. In the ordinary course of its business, Nalco is also a party to a number of lawsuits and is subject to various claims, the outcome of which, in the opinion of management, should not have a material effect on the consolidated financial position of Nalco. NOTE 16--FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values of cash and cash equivalents, short-term marketable securities, short-term debt, commercial paper borrowings, and term borrowings at variable interest rates approximated their fair values at December 31, 1993 and 1992. A currency swap which hedges a net investment in a foreign subsidiary was an asset with a fair value of $9 million, based on current settlement prices, which did not differ materially from the carrying value at December 31, 1993. The fair value of certain interest rate swap liabilities, based on current settlement prices, approximated the carrying value of $15 million at December 31, 1993. The fair value of the Company's fixed-rate ESOP borrowings at December 31, 1993 and 1992 was approximately $121 million and $120 million, respectively, which was estimated using discounted cash flow analyses, based on the Company's current borrowing rates for similar types of borrowing arrangements. The fair value of the Company's off-balance-sheet financial instruments such as foreign currency forward contracts, currency swaps, and interest rate swaps was a net liability of $10 million and $7 million at December 31, 1993 and 1992, respectively, which was estimated using quoted market prices of comparable contracts and pricing models or formulas using current assumptions. NOTE 17--SUBSEQUENT EVENTS On February 3, 1994, Nalco and Exxon Chemical Company, a division of Exxon Corporation, announced that they had signed a memorandum of understanding to form a worldwide energy chemicals joint venture. The joint venture will include Nalco's U.S. Petroleum Chemicals Division business units, certain petroleum chemical product lines of its international operations, and Exxon Chemical Company's Energy Chemicals worldwide business. The new company, to be named Nalco/Exxon Energy Chemicals, is targeted to start up by mid-1994, pending government and regulatory approvals and definitive agreements between the two companies. On that same date, the Company announced that it had entered into a letter of intent to sell its Freeport, Texas plant and its automotive paint spray booth business to PPG Industries, Inc. The Freeport plant, which has 27 Nalco employees, produces chemical products for the oil production and refining market. It is expected that the Nalco/Exxon Energy Chemicals joint venture will purchase certain of its requirements for these products from PPG. Nalco's worldwide automotive paint spray booth business, approximately $10 million in size, would be included in the sale to PPG. Nalco has agreed to sell and service the water treatment related applications for PPG in the automotive facilities associated with the business sold.
QUARTERLY SUMMARY (UNAUDITED) 1993 1992 ---------------------------------- ---------------------------------- (Dollar amounts in millions, First Second Third Fourth First Second Third Fourth except per share figures) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------------------------------------------------------- Sales $339.0 $347.5 $354.0 $348.9 $326.4 $340.3 $349.5 $358.3 Gross earnings 188.9 195.7 199.1 196.8 179.7 189.2 192.5 201.6 Earnings from operations 35.1 38.1 38.7 40.8 33.0 36.4 34.8 40.8 Extraordinary loss from retirement of debt (10.6) - - - - - - - Cumulative effect of accounting change (56.5) - - - - - - - Net earnings (loss) (32.0) 38.1 38.7 40.8 33.0 36.4 34.8 40.8 Per common share Earnings-fully diluted Earnings from operations .43 .46 .48 .51 .41 .45 .43 .50 Extraordinary loss and accounting change (.85) - - - - - - - Net earnings (loss) (.42) .46 .48 .51 .41 .45 .43 .50 Dividends .21 .225 .225 .225 .21 .21 .21 .21 Market price High 37 3/8 36 3/8 36 3/8 37 7/8 40 7/8 37 36 37 3/4 Low 32 1/2 31 1/4 32 1/2 30 1/4 33 1/4 30 3/4 32 30 3/8 - ---------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------- ELEVEN YEAR SUMMARY (Dollar amounts in millions except per share figures) 1993 1992 1991 - ------------------------------------------------------------------------------------------------- NET SALES $1,389.4 $1,374.5 $1,237.3 Operating costs and expenses Cost of products sold 608.9 611.5 557.0 Selling and service 414.3 401.4 360.4 Research and development 50.4 48.0 45.9 Administrative and general 52.9 53.3 47.0 - ------------------------------------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 1,126.5 1,114.2 1,010.3 - ------------------------------------------------------------------------------------------------- OPERATING EARNINGS 262.9 260.3 227.0 Interest and other income 14.4 18.3 18.9 Interest expense (27.5) (40.3) (27.1) - ------------------------------------------------------------------------------------------------- EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 249.8 238.3 218.8 Income taxes 97.1 93.3 84.2 - ------------------------------------------------------------------------------------------------- EARNINGS FROM CONTINUING OPERATIONS 152.7 145.0 134.6 Earnings (loss) from discontinued operations - - 3.2 - ------------------------------------------------------------------------------------------------- EARNINGS BEFORE EXTRAORDINARY LOSS AND EFFECT OF ACCOUNTING CHANGE 152.7 145.0 137.8 Extraordinary loss from retirement of debt, net of taxes (10.6) - - Cumulative effect of change in accounting for postretirement benefits other than pensions, net of taxes (56.5) - - - ------------------------------------------------------------------------------------------------- NET EARNINGS $ 85.6 $ 145.0 $ 137.8 ================================================================================================= PER SHARE OF COMMON STOCK Earnings from continuing operations--primary $ 2.03 $ 1.90 $ 1.78 Discontinued operations - - .04 Extraordinary item (.15) - - Accounting change (.81) - - Net earnings 1.07 1.90 1.82 Net earnings--fully diluted 1.02 1.79 1.71 Cash dividends paid .885 .84 .83 - ------------------------------------------------------------------------------------------------- FINANCIAL RATIOS Earnings as a percent to sales* 11.0% 10.5% 10.9% Earnings as a percent to shareholders' equity* 28.6 25.7 27.6 Effective income tax rate* 38.9 39.2 38.5 Common stock dividends paid as a percent to earnings* 40.0 40.6 42.9 Research and development expenses as a percent to sales* 3.6 3.5 3.7 Current ratio 2.0 to 1 2.5 to 1 2.0 to 1 - ------------------------------------------------------------------------------------------------- FINANCIAL POSITION DATA Working capital $ 185.4 $ 314.3 $ 256.3 Total assets 1,212.4 1,350.6 1,324.4 Property, plant, and equipment (cost) 1,129.9 1,044.2 957.8 Long-term debt 252.1 413.8 394.1 Deferred income taxes 58.1 107.3 90.8 Shareholders' equity 550.6 576.3 528.7 - ------------------------------------------------------------------------------------------------- OTHER DATA Working capital provided from operations $ 245.6 $ 226.7 $ 218.5 Capital investments 117.8 131.0 136.8 Depreciation and amortization* 86.5 79.4 64.6 Dividends on common stock 61.1 58.8 57.8 Cost of common stock repurchased 58.5 14.3 - Wages, salaries, commissions, and benefits 413.6 403.7 376.6 Common shares outstanding at year end (thousands) 68,905 70,021 69,828 Market price per share of common stock at year end $ 37.50 $ 34.625 $ 41.625 Number of common shareholders of record 6,111 6,129 5,543 Number of employees at year end 6,802 6,714 6,832 - -------------------------------------------------------------------------------------------------
NOTE: Shares outstanding and per share amounts have been restated to reflect the two-for-one stock split in 1991. * based on earnings from continuing operations before extraordinary loss and effect of accounting change.
- ------------------------------------------------------------------------------------------- 1990 1989 1988 1987 1986 1985 1984 1983 - ------------------------------------------------------------------------------------------- $1,068.1 $ 949.6 $ 892.6 $ 756.0 $ 658.5 $ 658.6 $ 655.8 $ 606.3 484.5 439.5 418.9 355.4 298.3 301.2 303.5 280.9 294.0 254.8 238.7 205.7 185.8 172.4 172.0 158.9 40.4 35.6 32.4 30.7 29.2 29.9 30.3 28.6 50.2 47.2 50.0 38.9 41.4 34.3 34.9 30.7 - ------------------------------------------------------------------------------------------- 869.1 777.1 740.0 630.7 554.7 537.8 540.7 499.1 - ------------------------------------------------------------------------------------------- 199.0 172.5 152.6 125.3 103.8 120.8 115.1 107.2 19.9 27.0 20.6 14.9 12.6 10.9 15.0 12.9 (11.5) (9.7) (9.5) (8.2) (6.0) (3.9) (4.2) (4.6) - ------------------------------------------------------------------------------------------- 207.4 189.8 163.7 132.0 110.4 127.8 125.9 115.5 80.0 72.5 59.6 53.2 48.1 54.3 52.8 50.1 - ------------------------------------------------------------------------------------------- 127.4 117.3 104.1 78.8 62.3 73.5 73.1 65.4 3.7 2.6 1.9 1.5 1.4 (0.2) 3.1 5.6 - ------------------------------------------------------------------------------------------- 131.1 119.9 106.0 80.3 63.7 73.3 76.2 71.0 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------- $ 131.1 $ 119.9 $ 106.0 $ 80.3 $ 63.7 $ 73.3 $ 76.2 $ 71.0 =========================================================================================== $1.66 $ 1.47 $ 1.33 $ .99 $ .79 $ .94 $ .93 $ .82 .05 .03 .02 .02 .02 - .04 .07 - - - - - - - - - - - - - - - - 1.71 1.50 1.35 1.01 .81 .94 .97 .89 1.60 1.46 1.35 1.01 .81 .93 .97 .89 .755 .68 .645 .60 .60 .60 .60 .57 - ------------------------------------------------------------------------------------------- 11.9% 12.3% 11.7% 10.4% 9.5% 11.2% 11.1% 10.8% 29.1 25.4 22.3 18.4 15.7 20.1 20.8 19.0 38.6 38.2 36.4 40.3 43.6 42.5 41.9 43.4 41.5 43.5 48.5 59.9 75.6 63.9 64.4 69.4 3.8 3.7 3.6 4.1 4.4 4.5 4.6 4.7 2.3 to 1 2.3 to 1 2.1 to 1 1.8 to 1 1.7 to 1 1.8 to 1 2.4 to 1 2.3 to 1 - ------------------------------------------------------------------------------------------- $ 229.7 $ 218.5 $ 174.4 $ 121.8 $ 86.7 $ 80.7 $ 120.5 $ 130.3 1,037.0 938.5 838.9 781.8 621.9 571.1 484.6 493.6 840.3 720.1 648.7 607.5 547.6 499.0 426.1 389.1 282.2 214.0 100.8 72.8 38.4 36.5 18.8 18.6 77.8 62.7 53.7 47.3 42.3 34.4 21.3 14.0 455.6 443.7 477.5 446.8 407.5 384.2 352.1 350.5 - ------------------------------------------------------------------------------------------- $ 192.4 $ 159.1 $ 148.4 $ 132.9 $ 113.2 $ 113.0 $ 109.7 $ 101.5 114.9 86.4 61.6 57.2 63.6 59.9 52.5 40.5 47.5 39.8 42.4 39.7 37.8 32.9 32.8 29.2 52.9 51.0 50.5 47.2 47.1 47.0 47.1 45.4 80.5 111.7 21.5 11.6 - - 19.7 - 326.0 282.5 263.8 231.3 203.7 195.4 182.0 172.3 69,292 72,199 77,129 78,298 78,542 78,308 78,213 79,687 $ 28.25 $ 24.75 $17.625 $16.625 $ 13.75 $13.375 $ 13.25 $ 15.50 5,099 5,224 5,477 5,668 5,821 6,156 5,751 5,125 5,862 5,489 5,381 5,085 4,868 5,065 4,751 4,596 - -------------------------------------------------------------------------------------------
BOARD OF DIRECTORS Harold G. Bernthal/E,C,B/(1980) Chairman, CroBern, Inc. Health and investment company W. H. Clark/E,B/(1980) Chairman and Chief Executive Officer Harry Corless/A/(1989) Retired Chairman, ICI Americas, Inc. Chemicals and pharmaceuticals company Howard M. Dean/C,B/(1987) Chairman and Chief Executive Officer, Dean Foods Company Diversified food processor and distributor John P. Frazee, Jr./A/(1985) Retired President and Chief Operating Officer Sprint Corporation Telecommunications company Arthur L. Kelly/C/(1992) Managing Partner, KEL Enterprises Ltd. Holding and investment company Frederick A. Krehbiel/A/(1990) Chairman and Chief Executive Officer, Molex Incorporated Electrical and electronic equipment company Edward J. Mooney/E,B/(1988) President and Chief Operating Officer Charles W. Parry/E,A/(1985) Retired Chairman and Chief Executive Officer, Aluminum Company of America Aluminum and advanced materials company William A. Pogue/E,C,B/(1981) Retired Chairman and Chief Executive Officer, CBI Industries, Inc. Metal fabrication and investment company John J. Shea/A/(1993) President and Chief Executive Officer, Spiegel, Inc. Apparel, special retail and catalog sales (Year in which elected) Committee assignments effective April 23, 1993 /E/Executive Committee /A/Audit Committee /C/Executive Compensation Committee /B/Board Affairs and Nominating Committee CORPORATE OFFICERS W. H. Clark (61) Chairman and Chief Executive Officer 34 years of service Edward J. Mooney (52) President and Chief Operating Officer 25 years of service Milford B. Harp (56) Executive Vice President, International Operations 30 years of service W. Steven Weeber (51) Executive Vice President, Operations Staff 27 years of service Peter Dabringhausen (55) Group Vice President President, Process Chemicals Division 24 years of service John R. Sutley (50) Group Vice President President, Nalco Europe 24 years of service J. David Tinsley (53) Group Vice President President, Water and Waste Treatment Division 28 years of service Ronald J. Allain (53) Senior Vice President, Research and Development 23 years of service James F. Lambe (48) Senior Vice President, Human Resources 24 years of service David R. Bertran (50) Senior Vice President, Manufacturing and Logistics 10 years of service John D. Berthoud (50) Vice President, Marketing and Quality Management 23 years of service William E. Buchholz (51) Vice President, Chief Financial Officer 1 year of service Christian L. Campbell (43) Vice President and General Counsel 4 years of service Francisco A. Laddaga (60) Vice President, President Nalco Latin America 28 years of service Stephen D. Newlin (41) Vice President, President Nalco Pacific 18 years of service Anthony J. Sadowski (55) Vice President, Environmental Health and Safety 27 years of service Jack A. Shubert (43) Vice President President, Petroleum Chemicals Division 17 years of service Dale W. Walker (57) Vice President, Corporate Sales 34 years of service Robert L. Ratliff (45) Controller 18 years of service William G. Marshall (47) Treasurer 13 years of service Suzzanne J. Gioimo (50) Secretary 24 years of service Craig J. Holderness (41) Assistant Treasurer 16 years of service Mary D. Hall (37) Assistant Treasurer (as of February 15, 1994) NALCO CHEMICAL COMPANY AND SUBSIDIARIES APPENDIX TO 1993 FORM 10-K GRAPHS AND IMAGE MATERIAL 1993 ANNUAL REPORT TO SHAREHOLDERS The following is a list and narrative description of graphs included in those portions of the 1993 Annual Report to Shareholders expressly incorporated herein by reference. In the portion of the Annual Report to Shareholders titled Management's Discussion and Analysis" the following graphs appear: Sales, based on continuing operations, in millions of dollars. The values depicted in the graph are as follows:
Year Amount ---- ------ 1989 $ 950 1990 $1,068 1991 $1,237 1992 $1,375 1993 $1,389
Operating earnings, in millions of dollars. The values depicted in the graph are as follows:
Year Amount ---- ------ 1989 $ 173 1990 $ 199 1991 $ 227 1992 $ 260 1993 $ 263
Depreciation, based on continuing operations, in millions of dollars. The values depicted in the graph are as follows:
Year Amount ---- ------ 1989 $40 1990 $47 1991 $61 1992 $75 1993 $83
NALCO CHEMICAL COMPANY AND SUBSIDIARIES APPENDIX TO 1993 FORM 10-K GRAPHS AND IMAGE MATERIAL 1993 ANNUAL REPORT TO SHAREHOLDERS Shareholders' Equity, in millions of dollars. The values depicted in the graph are as follows:
Year Amount ----- ------ 1989 $444 1990 $456 1991 $529 1992 $576 1993 $551
Return on Shareholders' Equity, before extraordinary loss and effect of accounting change, in percentages. The values depicted in the graph are as follows:
Year Amount ---- ------ 1989 26.0% 1990 29.9% 1991 28.3% 1992 25.7% 1993 28.6%
Cash Provided by Operating Activities, in millions of dollars. The values depicted in the graph are as follows:
Year Amount ---- ------ 1989 $169 1990 $188 1991 $199 1992 $208 1993 $256
Capital Additions, in millions of dollars. The values depicted in the graph are as follows:
Year Amount ---- ------ 1989 $ 86 1990 $115 1991 $137 1992 $131 1993 $118
NALCO CHEMICAL COMPANY AND SUBSIDIARIES APPENDIX TO 1993 FORM 10-K GRAPHS AND IMAGE MATERIAL 1993 ANNUAL REPORT TO SHAREHOLDERS Dividends per Common Share, in dollars. The values depicted in the graph are as follows:
Year Amount ---- ------- 1989 $ 0.68 1990 $ 0.755 1991 $ 0.83 1992 $ 0.84 1993 $ 0.885
Market Value of Nalco Common Share at Year-End Closing Price, in dollars. The values depicted in the graph are as follows:
Year Amount ---- ------- 1989 $ 24.75 1990 $ 28.25 1991 $41.625 1992 $34.625 1993 $ 37.50
EX-21 4 SUBSIDIARIES OF REG EXHIBIT (21) NALCO CHEMICAL COMPANY AND SUBSIDIARIES -------------- SUBSIDIARIES OF THE REGISTRANT Subsidiaries of the registrant, all of which are wholly-owned unless otherwise indicated, are as follows:
STATE OR OTHER JURISDICTION OF INCORPORATION OR COMPANY ORGANIZATION ------- ------------------- Domestic: Aluminate Sales Corporation.............................. Illinois Chicago Chemical Company................................. Illinois Board Chemistry, Inc..................................... Illinois East End Properties Corporation.......................... Illinois Nalco Delaware........................................... Delaware Nalco Foreign Sales Corporation.......................... U.S. Virgin Islands Nalco FT, Inc............................................ Delaware Nalco International Sales Company........................ Delaware Nalco Leasing Corporation................................ Delaware Nalco Neighborhood Development Corporation............... Delaware Nalco Resources Investment Company....................... Texas Nalgreen, Inc............................................ Delaware Oil Products & Chemical Company, Inc..................... Illinois The Flox Company......................................... Minnesota Visco Products Company................................... Texas Foreign: Deutsche Nalco-Chemie, G.m.b.H........................... Germany Nalco Anadolu A.S........................................ Turkey Nalco Applied Services of Europe B.V..................... Netherlands Nalco Argentina, S.A..................................... Argentina Nalco Australia Pty. Limited............................. Australia Nalco Belgium N.V........................................ Belgium Nalco Canada, Inc........................................ Canada Nalco Chemical A.B....................................... Sweden Nalco Chemical B.V....................................... Netherlands Nalco Chemical Company (Philippines) Inc................. Philippines Nalco Chemical Company (Thailand) Limited................ Thailand Nalco Chemical Gesellschaft m.b.H........................ Austria Nalco Chemical (H.K.) Limited............................ Hong Kong Nalco Chemii............................................. Czechoslovakia Nalco de Venezuela, C.A.................................. Venezuela Nalco Ecuador, S.A....................................... Ecuador Nalco Egypt.............................................. Egypt Nalco Espanola, S.A...................................... Spain Nalco Europe B.V......................................... Netherlands Nalco France............................................. France Nalco GIAP--CHEM......................................... Russia Nalco Gulf Limited....................................... Dubai Nalco Hellas S.A......................................... Greece Nalco Holdings Australia Pty. Limited.................... Australia
STATE OR OTHER JURISDICTION OF INCORPORATION COMPANY OR ORGANIZATION ------- --------------- Nalco Investments Canada, Inc................................ Canada Nalco Investments Australia, Pty. Limited.................... Australia Nalco Investments U.K. Limited............................... United Kingdom Nalco Italiana, S.p.A........................................ Italy Nalco Japan Company, Ltd..................................... Japan Nalco Kemiai Kft............................................. Hungary Nalco Korea Co., Ltd......................................... South Korea Nalco Limited................................................ United Kingdom Nalco New Zealand, Ltd....................................... New Zealand Nalco Norge A/S.............................................. United Kingdom Nalco Poland................................................. Poland Nalco Portuguesa (Q.I.) Ltda................................. Portugal Nalco Productos Quimicos de Chile S.A........................ Chile Nalco Produtos Quimicos Limitada............................. Brazil Nalco Saudi Co., Ltd......................................... Saudi Arabia(1) Nalco South East Asia Pte. Limited........................... Singapore Nalfleet, Inc................................................ United Kingdom P.T. Nalco Perkasa........................................... Indonesia Quimica Nalco de Colombia, S.A............................... Colombia Suomen Nalco Oy.............................................. Finland Taiwan Nalco Chemical Co., Ltd............................... Taiwan(2) NCC Chemicals (Malaysia) SDN BHD............................. Malaysia
- -------- Note (1)--60% of voting securities owned by Registrant Note (2)--55% of voting securities owned by Registrant EX-23 5 CONSENT OF AUDITORS EXHIBIT (23-1) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-3 (Numbers 2-97721, 33-9934) and Form S-8 (Numbers 33-38033, 33-38032, 33-29149, 2-97721, 2-97131, 2-82642) of our report dated January 25, 1994, except as to Note 17, which is as of February 3, 1994, which appears on page 16 of the 1993 Annual Report to Shareholders of Nalco Chemical Company, which is incorporated by reference in Nalco Chemical Company's Annual Report on Form 10-K for the year ended December 31, 1993. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears on page 9 of such Annual Report on Form 10-K. PRICE WATERHOUSE Chicago, Illinois March 25, 1994 EXHIBIT (23-2) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-3 (Numbers 2-97721, 33-9934) and Form S-8 (Numbers 33-38033, 33- 38032, 33-29149, 2-97721, 2-97131, 2-97131, 2-82642) of Nalco Chemical Company of our report dated December 30, 1992 relating to the financial statements of Nalco Investments UK Limited in this Form 10-K. PRICE WATERHOUSE March 25, 1994 Liverpool, England EXHIBIT (23-3) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-3 (Numbers 2-97721, 33-9934) and Form S-8 (Numbers 33-38033, 33-38032, 33-29149, 2-97721, 2-97131, 2-82642) of Nalco Chemical Company of our report dated March 18, 1993 relating to the financial statements of Nalco Australia Pty Limited in this Form 10-K. PRICE WATERHOUSE March 25, 1994 Sydney, Australia EXHIBIT (23-4) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-3 (Numbers 2-97721, 33-9934) and Form S-8 (Numbers 33-38033, 33-38032, 33-29149, 2-97721, 2-97131, 2-82642) of Nalco Chemical Company of our report dated December 23, 1992 relating to the financial statements of Nalco Canada Inc. in this Form 10-K. PRICE WATERHOUSE March 25, 1994 Burlington, Ontario, Canada EXHIBIT (23-5) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the 1993 Annual Report on Form 10-K of Nalco Chemical Company of our report dated January 26, 1993 included in the Company's 1992 Annual Report to Shareholders and incorporated by reference in its 1992 Annual Report on Form 10-K. Our audit also included the consolidated financial schedules of Nalco Chemical Company listed in Item 14(a) as of December 31, 1992 and 1991 and for the years then ended. These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the consolidated financial statement schedules referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the following Registration Statements of Nalco Chemical Company and in the related Prospectuses of our report dated January 26, 1993 with respect to the consolidated financial statements and schedules of Nalco Chemical Company as of December 31, 1992 and 1991 and for the years then ended which are incorporated by reference in this Annual Report on Form 10-K for the year ended December 31, 1993:
COMMISSION FILE NO. ------------------------------------------------------------- FORM S- FORM S-8 3 -------- ------- 33-38033 2-97721 33-38032 33-9934 33-29149 2-97721 2-97131 2-82642
Ernst & Young Chicago, Illinois March 25, 1994 -----END PRIVACY-ENHANCED MESSAGE-----