NAPERVILLE, Ill., May 1, 2007 (PRIME NEWSWIRE) -- Nalco Holding Company (NYSE:NLC) today announced that it grew first quarter sales 7.1 percent to $909.3 million and more than doubled net income from the prior-year period. Adjusted EBITDA, used to determine compliance with the Company's debt covenants, improved 9.8 percent to $158.0 million from the year-earlier $143.9 million.
Net income improved 122.7 percent to $19.6 million from 2006 first quarter results of $8.8 million. Diluted earnings per share were 13 cents compared to year-earlier results of 6 cents per share.
"I am pleased with the quarter. We are on the right path to meet our 2007 performance targets. We still have a great deal of work to do to both deliver successful results this year and set the stage for improved performance in the coming years," said Chairman and Chief Executive Officer Dr. William H. Joyce.
First quarter earnings included after-tax charges of $4.7 million for business process optimization, reimbursed benefit plan contributions and unusual charges versus $4.9 million for the same items in the first quarter of 2006. Without these charges, earnings per share would have been 16 cents compared to 9 cents a year ago. (See Attachment 7)
Free Cash Flow generation was $34.9 million, of which $31.3 million was used for Term Loan repayments. A 3.5-cent per share quarterly dividend initiated by the Company at the end of the first quarter is expected to use about $5 million of free cash flow in each quarter going forward.
Organic sales growth amounted to 4.2 percent, while currency impacts added 2.9 percent to reported results. Energy Services grew 7.5 percent organically, led by strong growth in oil field production services. Industrial and Institutional Services (I&IS) grew organically at 3.3 percent, with weakness in Western Europe offset by strong growth in Latin America, Eastern Europe and other emerging geographies. Paper Services was essentially flat, with strong growth in Latin America nearly offsetting weakness in the remaining geographies. Other segment sales grew 12.7 percent organically.
Productivity initiatives generated $13 million in gains in the first quarter toward a 2007 goal of $75 million. "Our work process improvement efforts are gaining momentum, with a very comprehensive round of Nalco Business Transformation (NBT) process changes, including a complete SAP system upgrade that successfully came on stream last week. We will gain savings going forward from streamlined order entry and production planning practices. Key benefits come from improving customer interactions such as on-time deliveries and billing accuracy. Importantly, we are freeing up our sales engineers to spend more of their time helping customers identify ways to improve their operating performance and financial returns," Dr. Joyce said.
"While generally pleased with the direction of the Company, we have our share of improvement opportunities. Some of our businesses trail expectations. However, growth in Latin America, Eastern Europe and other emerging markets ran well ahead of expectations to keep us on track," stated Dr. Joyce.
2007 Forecast
Nalco reaffirmed its performance guidance for 2007.
"We continue to believe that our prior guidance is proper for the year -- organic sales growth of better than 5 percent, 10 percent improvement in Adjusted EBITDA, 30 percent improvement in Free Cash Flow and 50 percent improvement in earnings per share as reported," Dr. Joyce said.
At 40.6 percent, the first quarter effective tax rate was temporarily higher due to certain adjustments that had to be recognized in the quarter rather than as adjustments to Nalco's annual effective rate. These one-time adjustments do not change the Company's outlook for an effective tax rate of no more than 36 percent for the full year.
An important assumption in the Company's projections is that raw material and freight costs remain at or below existing levels. "We are already seeing higher year-on-year costs from freight and some other items as a result of the recent run-ups in crude oil and refined product prices. We are prepared to handle these increases with additional price movement, but would be challenged if a large escalation in cost occurs late in the year," said Dr. Joyce. "From what we see today, however, we remain confident in our ability to meet our forecasts."
Conference Call
Nalco will discuss first-quarter results in a conference call and Webcast to be held on Wednesday, May 2, at 10:00 a.m. ET. Information on the conference call and Webcast is available on our Web site at www.nalco.com.
Investor Day
Nalco announced that it plans to hold its annual Investor Day on Tuesday, August 28 at its Sugar Land, Texas Energy Services Division headquarters. For more information or to express interest in attending please contact Mike Bushman at mbushman@nalco.com.
About Nalco
Nalco is the leading provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. The company currently serves more than 70,000 customer locations representing a broad range of end markets. It has established a global presence with more than 11,000 employees operating in 130 countries supported by a comprehensive network of manufacturing facilities, sales offices and research centers. For more information visit www.nalco.com.
The Nalco Company logo is available at http://www.primezone.com/newsroom/prs/?pkgid=1135
Several non-GAAP measures are discussed in today's press release. Management believes that discussion of these measures provides investors with additional insight into the ongoing operations of Nalco Holding Company. Non-GAAP measures are reconciled to the closest GAAP measure in schedules attached to this press release, which may also be found at www.nalco.com. Adjusted EBITDA is a non-GAAP measure used to determine compliance with the Company's debt covenants. Reconciliation to net earnings is included in Attachment 5. Free Cash Flow is reconciled on Attachment 6 to Cash from Operations as shown on Nalco's Cash Flow Statement, and is defined as Cash from Operations less Capital Expenditures and Minority Interest charges. Adjustments to net earnings are identified in Attachments 7A and 7B. The adjustments represent those items included in Nalco's income statement that are either one-time in nature, support incremental cost reduction programs, or -- in the case of the profit-sharing reimbursements by our former owner -- are unusual when compared to other companies. In addition, Nalco discusses sales growth in terms of nominal (actual), organic (nominal less foreign currency and acquisition/divestiture/merger/joint venture impacts), and real (organic growth less that portion of the growth which consists of price increases that simply pass along higher purchased material and freight costs). The non-GAAP measures should not be viewed as alternatives to GAAP measures of performance. Furthermore, these measures may not be consistent with similar measures provided by other companies.
This news release includes forward-looking statements, reflecting current analysis and expectations, based on what are believed to be reasonable assumptions. Forward-looking statements may involve known and unknown risks, uncertainties and other factors, which may cause the actual results to differ materially from those projected, stated or implied, depending on many factors, including, without limitation: ability to generate cash, ability to raise capital, ability to refinance, the result of the pursuit of strategic alternatives, ability to execute work process redesign and reduce costs, ability to execute price increases, business climate, business performance, economic and competitive uncertainties, higher manufacturing costs, reduced level of customer orders, changes in strategies, risks in developing new products and technologies, environmental and safety regulations and clean-up costs, foreign exchange rates, the impact of changes in the regulation or value of pension fund assets and liabilities, changes in generally accepted accounting principles, adverse legal and regulatory developments, including increases in the number or financial exposures of claims, lawsuits, settlements or judgments, or the inability to eliminate or reduce such financial exposures by collecting indemnity payments from insurers, the impact of increased accruals and reserves for such exposures, weather-related factors, and adverse changes in economic and political climates around the world, including terrorism and international hostilities, and other risk factors identified by the Company. Accordingly, there can be no assurance that the Company will meet future results, performance or achievements expressed or implied by such forward-looking statements. This paragraph is included to provide safe harbor for forward-looking statements, which are not generally required to be publicly revised as circumstances change, and which the Company does not intend to update.
Attachments
1. Condensed Consolidated Balance Sheets (Unaudited)
2. Condensed Consolidated Statements of Operations (Unaudited)
3. Condensed Consolidated Statements of Cash Flows (Unaudited)
4. Segment Information (Unaudited)
5. EBITDA and Adjusted EBITDA (Unaudited)
6. Free Cash Flow (Unaudited)
7. Earnings Per Share and Share Base (Unaudited)
8. Condensed Consolidated Statements of Operations - 2006 Results
Reclassified to Conform with 2007 Presentation (Unaudited)
9. Segment Information - 2006 Results Reclassified to Conform with
2007 Presentation (Unaudited)
Nalco Holding Company and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in millions)
(Unaudited)
March 31, December 31,
2007 2006
---------- ----------
Assets
Current assets:
Cash and cash equivalents $ 41.6 $ 37.3
Accounts receivable, less allowances of
$20.4 in 2007 and $19.0 in 2006 692.4 695.3
Inventories:
Finished products 284.1 264.5
Materials and work in process 75.0 76.2
---------- ----------
359.1 340.7
Prepaid expenses, taxes and other
current assets 80.6 94.1
---------- ----------
Total current assets 1,173.7 1,167.4
Property, plant, and equipment, net 737.1 743.4
Intangible assets:
Goodwill 2,312.3 2,299.9
Other intangibles, net 1,156.8 1,169.5
Other assets 260.5 276.3
---------- ----------
Total assets $ 5,640.4 $ 5,656.5
========== ==========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 286.4 $ 288.2
Short-term debt 150.4 150.2
Other current liabilities 275.2 281.0
---------- ----------
Total current liabilities 712.0 719.4
Other liabilities:
Long-term debt 3,022.7 3,038.6
Deferred income taxes 285.1 314.3
Accrued pension benefits 422.6 430.7
Other liabilities 255.2 250.0
Minority interest 12.8 12.6
Shareholders' equity 930.0 890.9
---------- ----------
Total liabilities and shareholders' equity $ 5,640.4 $ 5,656.5
========== ==========
ATTACHMENT 1
Nalco Holding Company and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(dollars in millions, except per share data)
Three Months Three Months
ended ended
March 31, March 31,
2007 2006
----------- -----------
Net sales $ 909.3 $ 849.4
Operating costs and expenses:
Cost of product sold 503.5 475.0
Selling, administrative, and research
expenses 288.4 271.5
Amortization of intangible assets 15.2 17.3
Business optimization expenses -- 3.8
---------- ----------
Total operating costs and expenses 807.1 767.6
---------- ----------
Operating earnings 102.2 81.8
Other income (expense), net (0.3) 1.2
Interest income 2.6 1.7
Interest expense (68.3) (66.3)
---------- ----------
Earnings before income taxes and minority
interests 36.2 18.4
Income tax provision 14.7 7.9
Minority interests (1.9) (1.7)
---------- ----------
Net earnings $ 19.6 $ 8.8
========== ==========
Net earnings per share:
Basic $ 0.14 $ 0.06
========== ==========
Diluted $ 0.13 $ 0.06
========== ==========
Weighted-average shares outstanding (millions):
Basic 143.6 142.8
========== ==========
Diluted 148.0 146.6
========== ==========
Cash dividends declared per share $ 0.035 $ --
========== ==========
ATTACHMENT 2
Nalco Holding Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollars in millions)
Three Months Three Months
ended ended
March 31, March 31,
2007 2006
---------- ----------
Operating activities
Net earnings $ 19.6 $ 8.8
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 31.8 32.4
Amortization 15.2 17.3
Amortization of deferred financing
costs and accretion of senior
discount notes 11.2 9.6
Other, net 1.3 (5.5)
Changes in operating assets and
liabilities (21.2) (3.8)
---------- ----------
Net cash provided by operating activities 57.9 58.8
---------- ----------
Investing activities
Additions to property, plant, and
equipment, net (21.1) (14.6)
Other 0.6 (0.3)
---------- ----------
Net cash used for investing activities (20.5) (14.9)
---------- ----------
Financing activities
Changes in short-term debt, net (7.5) 10.3
Proceeds from long-term debt -- 3.3
Repayments of long-term debt (24.0) (45.1)
Other (1.9) (0.8)
---------- ----------
Net cash used for financing activities (33.4) (32.3)
Effect of exchange rate changes on cash
and cash equivalents 0.3 0.4
---------- ----------
Increase in cash and cash equivalents 4.3 12.0
Cash and cash equivalents at beginning
of period 37.3 30.8
---------- ----------
Cash and cash equivalents at end of period $ 41.6 $ 42.8
========== ==========
ATTACHMENT 3
Nalco Holding Company and Subsidiaries
Segment Information
(Unaudited)
(dollars in millions)
Net sales by reportable segment were as follows:
Three Months Three Months
ended ended
March 31, March 31,
2007 2006
---------- ----------
Industrial and Institutional Services $ 406.3 $ 381.5
Energy Services 272.0 246.6
Paper Services 179.3 176.1
Other 51.7 45.2
---------- ----------
Net sales $ 909.3 $ 849.4
========== ==========
The following table presents direct contribution by reportable
segment and reconciles the total segment direct contribution to
earnings before income taxes and minority interests:
Three Months Three Months
ended ended
March 31, March 31,
2007 2006
---------- ----------
Segment direct contribution:
Industrial and Institutional Services $ 88.0 $ 80.1
Energy Services 55.8 48.6
Paper Services 25.0 26.4
Other* (18.1) (20.0)
Capital charge elimination 20.1 19.2
---------- ----------
Total segment direct contribution 170.8 154.3
Expenses not allocated to segments:
Administrative expenses 53.4 51.4
Amortization of intangible assets 15.2 17.3
Business optimization expenses -- 3.8
---------- ----------
Operating earnings 102.2 81.8
Other income (expense), net (0.3) 1.2
Interest income 2.6 1.7
Interest expense (68.3) (66.3)
---------- ----------
Earnings before income taxes and minority
interests $ 36.2 $ 18.4
========== ==========
*Includes certain costs not allocated to segments, but deducted in
arriving at direct contribution.
ATTACHMENT 4
Nalco Holding Company and Subsidiaries
EBITDA and Adjusted EBITDA (Unaudited)
(dollars in millions)
Three Months Three Months
ended ended
March 31, March 31,
2007 2006
---------- ----------
Net earnings $ 19.6 $ 8.8
Income tax provision 14.7 7.9
Interest expense, net of interest income 65.7 64.6
Depreciation 31.8 32.4
Amortization 15.2 17.3
---------- ----------
EBITDA 147.0 131.0
Business optimization expenses -- 3.8
Asset write-offs -- 0.9
Profit sharing expense funded by Suez 3.8 3.5
Pension settlement -- 0.3
Franchise taxes 0.8 0.8
Non-cash rent expense 2.6 2.6
Non-wholly owned entities 0.2 0.6
Loss on sale, net of expenses 0.2 0.1
Other unusual charges 3.4 0.3
---------- ----------
Adjusted EBITDA $ 158.0 $ 143.9
========== ==========
ATTACHMENT 5
Nalco Holding Company and Subsidiaries
Free Cash Flow
(Unaudited)
(dollars in millions)
Three Months Three Months
ended ended
March 31, March 31,
2007 2006
---------- ----------
Net cash provided by operating activities $ 57.9 $ 58.8
Minority interests (1.9) (1.7)
Additions to property, plant, and
equipment, net (21.1) (14.6)
---------- ----------
Free cash flow $ 34.9 $ 42.5
========== ==========
ATTACHMENT 6
Nalco Holding Company and Subsidiaries
Earnings Per Share and Share Base
(Unaudited)
(dollars in millions, except per share data)
Three Months Three Months
ended ended
March 31, 2007 March 31, 2006
----------------- -----------------
Per Per
Actual Share* Actual Share*
------- ------- ------- -------
Net earnings $ 19.6 $ 0.13 $ 8.8 0.06
======= ======= ======= =======
Net earnings was reduced by the
following items (after tax):
Business optimization
expenses Bus Opt Exp $ -- -- $ 2.4 $ 0.02
Profit sharing expense
funded by Suez COGS/SGA 2.5 0.02 2.3 0.02
Other unusual
charges COGS/SGA/OIOE 2.2 0.01 0.2 --
------- -------
$ 4.7 $ 4.9
======= =======
Memo Only
---------
Net earnings was reduced by the
following items (pre tax):
Business optimization
expenses Bus Opt Exp $ -- -- $ 3.8 $ 0.03
Profit sharing expense
funded by Suez COGS/SGA 3.8 0.03 3.5 0.02
Other unusual
charges COGS/SGA/OIOE 3.4 0.02 0.3 --
------- -------
$ 7.2 $ 7.6
======= =======
Weighted-average shares outstanding
(millions):
Basic 143.6 142.8
Diluted 148.0 146.6
* Diluted
ATTACHMENT 7
Nalco Holding Company and Subsidiaries
Condensed Consolidated Statements of Operations
2006 Results Reclassified to Conform with 2007 Presentation
(Unaudited)
(dollars in millions, except per share data)
Three Three Three Three
Months Months Months Months Year
ended ended ended ended ended
March 31, June 30, Sept. 30, Dec. 31, Dec. 31,
2006 2006 2006 2006 2006
-------- -------- -------- -------- --------
Net sales $ 849.4 $ 891.0 $ 915.4 $ 946.8 $3,602.6
Operating costs
and expenses:
Cost of product
sold 475.0 499.5 506.2 511.6 1,992.3
Selling,
administrative,
and research
expenses 271.5 266.8 273.6 285.8 1,097.7
Amortization of
intangible assets 17.3 17.5 17.6 17.7 70.1
Business
optimization
expenses 3.8 1.8 3.0 0.9 9.5
-------- -------- -------- -------- --------
Total operating
costs and expenses 767.6 785.6 800.4 816.0 3,169.6
-------- -------- -------- -------- --------
Operating earnings 81.8 105.4 115.0 130.8 433.0
Other income
(expense), net 1.2 (1.9) 0.1 (3.8) (4.4)
Interest income 1.7 2.3 2.4 2.7 9.1
Interest expense (66.3) (68.1) (68.9) (68.7) (272.0)
-------- -------- -------- -------- --------
Earnings before
income taxes and
minority interests 18.4 37.7 48.6 61.0 165.7
Income tax provision 7.9 14.4 16.2 20.4 58.9
Minority interests (1.7) (1.8) (1.7) (2.7) (7.9)
-------- -------- -------- -------- --------
Net earnings $ 8.8 $ 21.5 $ 30.7 $ 37.9 $ 98.9
======== ======== ======== ======== ========
Net earnings per
share:
Basic $ 0.06 $ 0.15 $ 0.21 $ 0.26 $ 0.69
======== ======== ======== ======== ========
Diluted $ 0.06 $ 0.15 $ 0.21 $ 0.26 $ 0.67
======== ======== ======== ======== ========
Weighted-average
shares outstanding
(millions):
Basic 142.8 142.9 143.0 143.0 143.0
======== ======== ======== ======== ========
Diluted 146.6 146.6 146.6 147.0 146.7
======== ======== ======== ======== ========
ATTACHMENT 8
Nalco Holding Company and Subsidiaries
Segment Information
2006 Results Reclassified to Conform with 2007 Presentation
(Unaudited)
(dollars in millions)
Three Three Three Three
Months Months Months Months Year
ended ended ended ended ended
March 31, June 30, Sept. 30, Dec. 31, Dec. 31,
2006 2006 2006 2006 2006
-------- -------- -------- -------- --------
Industrial and
Institutional
Services $ 381.5 $ 392.4 $ 409.4 $ 421.8 $1,605.1
Energy Services 246.6 259.5 267.3 279.8 1,053.2
Paper Services 176.1 178.4 181.5 186.9 722.9
Other 45.2 60.7 57.2 58.3 221.4
-------- -------- -------- -------- --------
Net sales $ 849.4 $ 891.0 $ 915.4 $ 946.8 $3,602.6
======== ======== ======== ======== ========
Segment direct
contribution:
Industrial and
Institutional
Services $ 80.1 $ 85.0 $ 98.2 $ 97.3 $ 360.6
Energy Services 48.6 55.3 58.3 63.0 225.2
Paper Services 26.4 26.8 29.0 33.0 115.2
Other (20.0) (15.2) (15.1) (5.8) (56.1)
Capital charge
elimination 19.2 18.9 19.4 19.6 77.1
-------- -------- -------- -------- --------
Total segment
direct
contribution 154.3 170.8 189.8 207.1 722.0
Expenses not
allocated to
segments:
Administrative
expenses 51.4 46.1 54.2 57.7 209.4
Amortization of
intangible
assets 17.3 17.5 17.6 17.7 70.1
Business
optimization
expenses 3.8 1.8 3.0 0.9 9.5
-------- -------- -------- -------- --------
Operating
earnings 81.8 105.4 115.0 130.8 433.0
Other income
(expense), net 1.2 (1.9) 0.1 (3.8) (4.4)
Interest income 1.7 2.3 2.4 2.7 9.1
Interest expense (66.3) (68.1) (68.9) (68.7) (272.0)
-------- -------- -------- -------- --------
Earnings before
income taxes and
minority
interests $ 18.4 $ 37.7 $ 48.6 $ 61.0 $ 165.7
======== ======== ======== ======== ========
ATTACHMENT 9