- Accelerated top line growth, up 14 percent
- BRIC+ and technology investments setting stage for more
profitable growth
- 2010 earnings outlook raised
Nalco (NYSE:NLC), providing essential expertise for water, energy
and air, generated sales that were the second highest third-quarter
revenues in Company history, as the Company moved toward full
recovery from recession impacts.
For the quarter ended September 30, 2010, revenue increased 14
percent, 13 percent organically, to $1.09 billion, with double
digit organic growth rates achieved in all three segments. Diluted
earnings per share (EPS) were 42 cents – on net earnings of $59
million – and more than double the year-ago 20 cents. Adjusted EPS
was 42 cents in the third quarter of 2010 compared to 31 cents in
the prior-year third quarter after adding back unusual items (See
Attachment 7). Adjusted EBITDA was $196 million compared with $190
million in the third quarter of 2009. Current year adjusted EBITDA
results benefited from growth, productivity programs and an
incentive adjustment, while the third quarter of 2009 included
substantial onetime savings not repeated in 2010.
"Our strong top-line growth is more evidence that we remain on
track toward delivering a sustainable revenue growth rate of 6-8
percent by continuing to invest in growth strategies like BRIC+ and
new technology," said Chairman and Chief Executive Officer Erik
Fyrwald.
Energy, Paper and Water Services segments increased sales
organically by 18, 11, and 10 percent, respectively. By industry,
revenue growth was strongest in Upstream Energy, Paper, Chemical,
Power, Primary Metals, and Mining.
Geographically, respective nominal and organic percentage sales
growth were as follows: North America (+18, +17), Asia (+18, +12),
Latin America (+14 +9), and Europe, Africa and Middle East (+3,
+8). BRIC+ growth was more than 40 percent nominally, reflecting
continued benefits from the Company's aggressive growth strategy
for these key markets.
Maintaining that growth going into 2011 and beyond has required
higher levels of investment in field staffing and other operating
costs, dampening current period profitability.
Gross profit margin of 44.7 percent, down from 47.2 percent in
third quarter 2009, reflects the combination of weak economic
recovery in mature markets and competitive pressures which limited
price recovery of raw material costs.
Free Cash Flow was $66 million in the quarter, reflecting
improved cash earnings and continued focus on working capital. The
third-quarter tax rate of 38 percent contributes to a full-year tax
rate expectation of 36 to 37 percent on an adjusted basis. (See
Attachment 8)
Year-to-date Results and 2010 Expectations
Year-to-date revenues increased 14 percent (11 percent
organically) to $3.1 billion, with organic sales in Energy, Paper
and Water up 18, 9 and 7 percent, respectively. Excluding
dispersants, Energy Services organic sales were up 9 percent and
total Company sales increased 8 percent
organically. Year-to-date EPS is $1.01 compared to the
year-ago 16 cents. Adjusted EPS – adding back restructuring and
unusual items – is $1.15 per share from the year-earlier 61 cents
per share. Adjusted EBITDA is up 19 percent year-to-date to $559
million, gross profit margin is up 10 basis points to 45.4
percent and Free Cash Flow stands at $111 million.
Given these results, Nalco increased its earnings outlook for
2010. Adjusted EBITDA and adjusted EPS are now expected to exceed
$740 million and $1.50, up from $735 million and $1.40,
respectively. The Company continues to expect Free Cash Flow to
exceed $150 million.
"We are pleased with the progress we are making in BRIC+ and
other target geographies and market segments while working to
maintain the proper balance of profitability and growth," Fyrwald
said. "We will continue to build on our aggressive Water and Energy
Services strategies and remain committed to delivering profitable
growth and solid Free Cash Flow."
Conference Call/Webcast
Nalco will discuss third-quarter 2010 results in a conference
call and audio-only Webcast to be held on Wednesday, Oct. 27 at 10
a.m. ET. Information on the conference call and Webcast is
available on our website at www.nalco.com/investors.
About Nalco
Nalco is the world's largest sustainability services company
focused on industrial water, energy and air applications;
delivering significant environmental, social and economic
performance benefits to our customers. We help our customers reduce
energy, water and other natural resource consumption, enhance air
quality, minimize environmental releases and improve productivity
and end products while boosting the bottom line. Together our
comprehensive solutions contribute to the sustainable development
of customer operations. Nalco is a member of the Dow Jones
Sustainability Indexes. More than 11,500 Nalco employees operate in
150 countries supported by a comprehensive network of manufacturing
facilities, sales offices and research centers to serve a broad
range of end markets. In 2009, Nalco achieved sales of more than
$3.7 billion. For more information visit www.nalco.com.
Follow us on Twitter at www.twitter.com/Nalco_News and
www.twitter.com/NalcoCompany.
The Nalco Company logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=1135
Non-GAAP Financial Measures
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.
EBITDA is a non-GAAP measure used by management as an internal
operating metric and for enterprise valuation purposes. Adjusted
EBITDA is a non-GAAP measure that includes adjusting for
restructuring expenses and unusual items. 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 Noncontrolling Interest charges. Adjusted EPS is a
non-GAAP measure that includes adjusting for restructuring expenses
and unusual items. Reconciliation to reported EPS as shown on
Nalco's Statement of Operations is included in Attachment 7.
Adjusted Effective Tax Rate is defined as the income tax provision
excluding the tax expense (benefit) of specified transactions,
divided by earnings before income taxes excluding the earnings
(loss) before income taxes attributable to those specified
transactions. It is reconciled to the actual effective tax
rate on Attachment 8. In addition, Nalco may discuss sales
growth in terms of nominal (actual), organic (nominal less foreign
currency and acquisition/divestiture/merger/joint venture/perimeter
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 concerning
the Company's financial results and outlook for 2010, 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 in
its most recent filing on Form 10-K and other Securities and
Exchange Commission filings. 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 (Unaudited) |
6. Free Cash Flow (Unaudited) |
7. Earnings Per Share Data (Unaudited) |
8. Adjusted Effective Income Tax Rate
(Unaudited) |
|
|
|
Nalco Holding Company and
Subsidiaries |
Condensed Consolidated Balance
Sheets |
(dollars in millions) |
|
|
|
|
(Unaudited) |
|
|
September 30, |
December 31, |
|
2010 |
2009 |
Assets |
|
|
Current assets: |
|
|
Cash and cash equivalents |
$175.0 |
$127.6 |
Accounts receivable, less allowances of
$20.1 in 2010 and $17.8 in 2009 |
759.6 |
681.2 |
Inventories: |
|
|
Finished products |
282.7 |
232.6 |
Materials and work in process |
91.6 |
81.2 |
|
374.3 |
313.8 |
Prepaid expenses, taxes and other current
assets |
193.9 |
122.2 |
Total current assets |
1,502.8 |
1,244.8 |
|
|
|
Property, plant, and equipment, net |
700.7 |
678.1 |
Intangible assets: |
|
|
Goodwill |
1,847.7 |
1,800.0 |
Other intangibles, net |
1,033.6 |
1,055.9 |
Other assets |
170.6 |
186.0 |
Total assets |
$5,255.4 |
$4,964.8 |
|
|
|
Liabilities and equity |
|
|
Current liabilities: |
|
|
Accounts payable |
$341.9 |
$315.4 |
Short-term debt |
110.4 |
229.8 |
Other current liabilities |
404.1 |
380.6 |
Total current liabilities |
856.4 |
925.8 |
|
|
|
Other liabilities: |
|
|
Long-term debt |
2,821.7 |
2,714.3 |
Deferred income taxes |
305.9 |
202.9 |
Accrued pension benefits |
392.8 |
418.1 |
Other liabilities |
218.9 |
212.1 |
|
|
|
Equity: |
|
|
Nalco Holding Company shareholders'
equity |
628.1 |
471.6 |
Noncontrolling interest |
31.6 |
20.0 |
Total equity |
659.7 |
491.6 |
Total liabilities and equity |
$5,255.4 |
$4,964.8 |
|
ATTACHMENT 1 |
|
|
|
|
|
Nalco Holding Company and
Subsidiaries |
Condensed Consolidated
Statements of Operations (Unaudited) |
(dollars in millions, except
per share amounts) |
|
|
|
|
|
|
Three Months ended September
30, 2010 |
Three Months ended September
30, 2009 |
Nine Months ended September
30, 2010 |
Nine Months ended September
30, 2009 |
|
|
|
|
|
Net sales |
$1,088.3 |
$957.0 |
$3,131.5 |
$2,738.5 |
Operating costs and expenses: |
|
|
|
|
Cost of product sold |
602.2 |
505.4 |
1,709.3 |
1,497.5 |
Selling, administrative and research
expenses |
316.1 |
317.4 |
950.5 |
899.2 |
Amortization of intangible assets |
10.8 |
12.3 |
32.2 |
35.6 |
Restructuring expenses |
(0.3) |
2.7 |
1.9 |
46.9 |
Total operating costs and expenses |
928.8 |
837.8 |
2,693.9 |
2,479.2 |
|
|
|
|
|
Operating earnings |
159.5 |
119.2 |
437.6 |
259.3 |
|
|
|
|
|
Other income (expense), net |
(2.8) |
(0.7) |
(20.3) |
(12.2) |
Interest income |
0.8 |
0.8 |
3.7 |
2.9 |
Interest expense |
(59.1) |
(65.4) |
(176.2) |
(188.9) |
|
|
|
|
|
Earnings before income taxes |
98.4 |
53.9 |
244.8 |
61.1 |
|
|
|
|
|
Income tax provision |
37.5 |
24.4 |
100.9 |
34.2 |
|
|
|
|
|
Net earnings |
60.9 |
29.5 |
143.9 |
26.9 |
|
|
|
|
|
Less: Net earnings attributable to
noncontrolling interests |
2.0 |
1.5 |
3.1 |
4.9 |
|
|
|
|
|
Net earnings attributable to Nalco Holding
Company |
$58.9 |
$28.0 |
$140.8 |
$22.0 |
|
|
|
|
|
Net earnings per share attributable to Nalco
Holding Company common shareholders: |
|
|
|
|
Basic |
$0.43 |
$0.20 |
$1.02 |
$0.16 |
Diluted |
$0.42 |
$0.20 |
$1.01 |
$0.16 |
Weighted-average shares outstanding
(millions): |
|
|
|
|
Basic |
$138.3 |
$138.2 |
$138.3 |
$138.2 |
Diluted |
$139.4 |
$138.7 |
$139.3 |
$138.5 |
Cash dividends declared per share |
$0.035 |
$0.035 |
$0.105 |
$0.105 |
|
ATTACHMENT 2 |
|
|
|
Nalco Holding Company and
Subsidiaries |
Condensed Consolidated
Statements of Cash Flows (Unaudited) |
(dollars in millions) |
|
|
|
|
Nine Months ended
September 30, 2010 |
Nine Months ended
September 30, 2009 |
Operating activities |
|
|
Net earnings |
$143.9 |
$26.9 |
Adjustments to reconcile net
earnings to net cash provided by operating activities: |
|
Depreciation |
92.0 |
106.9 |
Amortization |
32.2 |
35.6 |
Amortization of deferred financing
costs |
9.1 |
8.1 |
Loss on early extinguishment of debt |
-- |
16.4 |
Other, net |
54.0 |
18.4 |
Changes in operating assets and
liabilities |
(115.5) |
237.8 |
Net cash provided by operating
activities |
215.7 |
450.1 |
|
|
|
Investing activities |
|
|
Additions to property, plant, and equipment,
net |
(101.4) |
(70.8) |
Business purchases |
(33.6) |
(23.7) |
Other, net |
1.6 |
(1.3) |
Net cash used for investing activities |
(133.4) |
(95.8) |
|
|
|
Financing activities |
|
|
Cash dividends |
(14.5) |
(14.5) |
Changes in short-term debt, net |
(128.9) |
(123.2) |
Proceeds from long-term debt |
125.9 |
1,239.3 |
Repayments of long-term debt |
(0.1) |
(1,216.0) |
Redemption premium on early extinguishment of
debt |
-- |
(9.2) |
Deferred financing costs |
(1.2) |
(53.9) |
Other, net |
(4.1) |
(4.3) |
Net cash used for financing activities |
(22.9) |
(181.8) |
Effect of exchange rate changes on cash and
cash equivalents |
(12.0) |
7.2 |
Increase in cash and cash equivalents |
47.4 |
179.7 |
Cash and cash equivalents at beginning of
period |
127.6 |
61.8 |
Cash and cash equivalents at end of
period |
$175.0 |
$241.5 |
|
ATTACHMENT 3 |
|
|
|
|
|
Nalco Holding Company and
Subsidiaries |
Segment Information
(Unaudited) |
(dollars in millions) |
|
|
|
|
|
Net sales by reportable segment
were as follows: |
|
|
|
|
|
|
Three Months ended
September 30, 2010 |
Three Months ended
September 30, 2009 |
Nine Months ended
September 30, 2010 |
Nine Months ended
September 30, 2009 |
|
|
|
|
|
Water Services |
$471.3 |
$425.6 |
$1,320.3 |
$1,191.8 |
Paper Services |
194.4 |
175.7 |
554.3 |
498.0 |
Energy Services |
422.6 |
355.7 |
1,256.9 |
1,048.7 |
Net sales |
$1,088.3 |
$957.0 |
$3,131.5 |
$2,738.5 |
|
|
|
|
|
The following table presents
direct contribution by reportable segment and reconciles the total
segment direct contribution to earnings before income taxes: |
|
|
|
|
|
|
Three Months ended
September 30, 2010 |
Three Months ended
September 30, 2009 |
Nine Months ended
September 30, 2010 |
Nine Months ended
September 30, 2009 |
|
|
|
|
|
Segment direct contribution: |
|
|
|
|
Water Services |
$94.8 |
$96.6 |
$258.8 |
$221.6 |
Paper Services |
32.9 |
34.5 |
91.7 |
79.9 |
Energy Services |
98.5 |
82.2 |
303.3 |
234.6 |
Total segment direct contribution |
226.2 |
213.3 |
653.8 |
536.1 |
|
|
|
|
|
Expenses not allocated to segments: |
|
|
|
|
Administrative expenses |
56.2 |
79.1 |
182.1 |
194.3 |
Amortization of intangible assets |
10.8 |
12.3 |
32.2 |
35.6 |
Restructuring expenses |
(0.3) |
2.7 |
1.9 |
46.9 |
Operating earnings |
159.5 |
119.2 |
437.6 |
259.3 |
Other income (expense), net |
(2.8) |
(0.7) |
(20.3) |
(12.2) |
Interest income |
0.8 |
0.8 |
3.7 |
2.9 |
Interest expense |
(59.1) |
(65.4) |
(176.2) |
(188.9) |
Earnings before income taxes |
$98.4 |
$53.9 |
$244.8 |
$61.1 |
|
|
|
|
|
ATTACHMENT 4 |
|
|
|
|
|
Nalco Holding Company and
Subsidiaries |
EBITDA (Unaudited) |
(dollars in millions) |
|
|
|
|
|
|
Three Months ended September
30, 2010 |
Three Months ended September
30, 2009 |
Nine Months ended September
30, 2010 |
Nine Months ended September
30, 2009 |
|
|
|
|
|
Net earnings attributable to Nalco Holding
Company |
$58.9 |
$28.0 |
$140.8 |
$22.0 |
Income tax provision |
37.5 |
24.4 |
100.9 |
34.2 |
Interest expense, net of interest income |
58.3 |
64.6 |
172.5 |
186.0 |
Depreciation |
30.9 |
37.5 |
92.0 |
106.9 |
Amortization |
10.8 |
12.3 |
32.2 |
35.6 |
EBITDA |
196.4 |
166.8 |
538.4 |
384.7 |
Restructuring expenses |
(0.3) |
2.7 |
1.9 |
46.9 |
Pension settlement loss |
-- |
20.6 |
-- |
20.6 |
Foreign exchange loss from devaluation of
Venezuelan bolivar fuerte |
-- |
-- |
18.4 |
-- |
Loss on early extinguishment of debt |
-- |
-- |
-- |
16.4 |
Adjusted EBITDA |
$196.1 |
$190.1 |
$558.7 |
$468.6 |
|
|
|
|
|
ATTACHMENT 5 |
|
|
|
|
|
Nalco Holding Company and
Subsidiaries |
Free Cash Flow (Unaudited) |
(dollars in millions) |
|
|
|
|
|
|
Three Months ended September
30, 2010 |
Three Months ended September
30, 2009 |
Nine Months ended September
30, 2010 |
Nine Months ended September
30, 2009 |
|
|
|
|
|
Net cash provided by operating
activities |
$111.6 |
$165.0 |
$215.7 |
$450.1 |
Net earnings attributable to noncontrolling
interests |
(2.0) |
(1.5) |
(3.1) |
(4.9) |
Additions to property, plant, and equipment,
net |
(43.6) |
(29.7) |
(101.4) |
(70.8) |
Free cash flow |
$66.0 |
$133.8 |
$111.2 |
$374.4 |
|
|
|
|
|
ATTACHMENT 6 |
|
|
|
|
|
Nalco Holding Company and
Subsidiaries |
Earnings Per Share Data
(Unaudited) |
|
|
|
|
|
|
Three Months ended September
30, 2010 |
Three Months ended September
30, 2009 |
Nine Months ended September
30, 2010 |
Nine Months ended September
30, 2009 |
|
|
|
|
|
Adjusted earnings per share
attributable to Nalco Holding Company* |
$0.42 |
$0.31 |
$1.15 |
$0.61 |
Restructuring expenses, net of tax |
-- |
(0.02) |
(0.01) |
(0.29) |
Pension settlement loss, net of tax |
-- |
(0.09) |
-- |
(0.09) |
Foreign exchange loss from devaluation
of Venezuelan bolivar fuerte, net of tax |
-- |
-- |
(0.10) |
-- |
Loss on early extinguishment of debt, net of
tax |
-- |
-- |
-- |
(0.07) |
Deferred tax adjustment for reduced tax
deductibility of postretirement prescription drug benefits |
-- |
-- |
(0.02) |
-- |
Diluted net earnings per share
attributable to Nalco Holding Company, as reported |
$0.42 |
$0.20 |
$1.01 |
$0.16 |
|
|
|
|
|
* Excludes after-tax impacts of
restructuring expenses, pension settlement loss, foreign exchange
loss from devaluation of Venezuelan bolivar fuerte, loss on early
extinguishment of debt, and deferred tax adjustment for reduced tax
deductibility of postretirement prescription drug benefits. |
|
|
|
|
|
ATTACHMENT 7 |
|
|
|
|
Nalco Holding Company and
Subsidiaries |
Adjusted Effective Income Tax
Rate (Unaudited) |
(dollars in millions) |
|
|
|
|
|
Three Months
ended September 30, 2010 |
|
Earnings before Income
Taxes |
Income Tax
Provision |
Effective Income Tax
Rate |
|
|
|
|
As reported |
$98.4 |
$37.5 |
38.1% |
Less: |
|
|
|
Restructuring expenses |
0.3 |
-- |
|
As adjusted |
$98.1 |
$37.5 |
38.2% |
|
|
|
|
|
Nine Months ended
September 30, 2010 |
|
Earnings before Income
Taxes |
Income Tax
Provision |
Effective Income Tax
Rate |
|
|
|
|
As reported |
$244.8 |
$100.9 |
41.2% |
Less: |
|
|
|
Restructuring expenses |
(1.9) |
0.1 |
|
Foreign exchange loss from devaluation of
Venezuelan bolivar fuerte, net of tax |
(18.4) |
(4.2) |
|
Deferred tax adjustment for reduced tax
deductibility of postretirement prescription drug benefits |
-- |
2.6 |
|
As adjusted |
$265.1 |
$102.4 |
38.6% |
|
|
|
|
ATTACHMENT 8 |
CONTACT: Nalco
Media Contact:
Charlie Pajor
630 305 1556
cpajor@nalco.com
Investor Contact:
Lisa Curran
630 305 1475
llcurran@nalco.com
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