NAPERVILLE, Ill., Aug. 1, 2006 (PRIMEZONE) -- Nalco Holding Company (NYSE:NLC) today reported significantly improved second-quarter financial performance, led by strong growth and margin expansion in its Energy Services business. Nalco sales grew 6.5 percent to $891.0 million, including 6.0 percent organic growth and 0.5 percent in favorable foreign currency translation rate changes from prior-year revenues of $836.3 million.
Net earnings increased to $21.5 million from the prior-year loss of $5.8 million. Earnings per share were 15 cents on a diluted basis versus the prior-year loss of 4 cents per share.
Earnings per share include after-tax charges of $4.6 million for business process optimization, reimbursed benefit plan contributions and unusual charges versus $13.8 million for the same items in the second quarter of 2005. Adjusting for these charges, second-quarter earnings per share would have been 18 cents compared to 5 cents a year ago. (See Attachment 7A)
Adjusted EBITDA, which is used to determine compliance with the Company's debt covenants, improved 22.0 percent to $160.1 million from the prior year's $131.2 million.
"Second-quarter results were solid. Despite this strength, I would caution against over-optimism as unusual items that lowered comparable 2005 results, including inventory write-offs, played an important role in our quarter-on-quarter improvement," said Dr. William H. Joyce, Chairman and Chief Executive Officer. "Our year-to-date $304 million in Adjusted EBITDA is on track with meeting our 12 percent growth target, particularly when considering our normal seasonal earnings patterns."
Real sales growth excluding price was 2.2 percent. Price contributed about $32 million, or 3.8 percent, to organic growth in the quarter. Purchased material and freight costs were about $23 million higher than the year-ago period. "In the past two years, cumulative purchased material and freight cost increases of about $252 million have totaled $22 million more than the $230 million Nalco has received in price increases," Dr. Joyce added. "We will continue to close that price gap and drive additional margin gains through productivity."
Energy Services led second-quarter growth efforts with 16.2 percent organic sales improvement and delivery of all of the Company's real growth. Organic sales in the Industrial and Institutional Services (I&IS) segment were up modestly at 2.6 percent, while Paper Services organic revenues were flat. Real growth was essentially flat in the I&IS business and negative in Paper Services, both as a result of weakness in Europe.
"I am pleased with the real growth and price achievement in the quarter shown by our Energy Services business, which ran ahead of our expectations. Much of our remaining business was stable, but short of our real growth and price expectations," noted Dr. Joyce. "We believe that Energy Services will continue to be our primary growth driver in 2006, but expect to see better performance from Industrial and Institutional Services in the second half of the year and stability in Paper Services."
Earnings improvement in the Other segment was driven by not repeating several unusual items that harmed second quarter 2005 results. Net income was also aided by a lower tax rate, now projected to be about 40 percent in 2006. The change added 1 cent to earnings per share in the most recent quarter.
Free Cash Flow was a negative $21.9 million in the quarter. "As we projected in discussing first-quarter results, the combination of our accelerated pension contribution and our semi-annual cash interest payments in May led to negative cash flow in the quarter. On a year-to-date basis, however, we remain on track to achieve our commitment of $170 million in Free Cash Flow," Dr. Joyce commented. In April, Nalco added $45 million in funding to its U.S. pension plan. About $30 million of that funding would normally have been paid in the 3rd and 4th quarters.
In late June, Nalco appointed John Yimoyines as Group Vice President and President of Paper Services, with responsibility for North American, European and Latin American Paper Services operations. "John's marketing expertise, extensive business leadership experience and ability to work closely with customers to develop mutually beneficial relationships is the right mix of skills we need in this role today," Dr. Joyce said. Greg Nelson was named Managing Director of European Operations, in addition to his role as Group Vice President and President, Services and Equipment.
Year-to-date Results
Nominal sales increased 7.8 percent to $1,740.4 million from the year-earlier $1,613.9 million. Organically, sales grew 8.4 percent, including 5 percent price improvement. Energy Services generated 17.1 percent organic revenue growth. Industrial and Institutional Services increased organic sales 7.5 percent, and Paper Services organic sales increased 2.3 percent. Modest organic sales improvement in the Other segment was more than offset by negative foreign currency impacts.
Net income increased 483 percent to $30.3 million from 2005 first half results of $5.2 million. Earnings per share were 21 cents, up from 4 cents in the prior-year period. After-tax adjustments in the first half of 2006 were $9.5 million versus $16.4 million in the year-ago period. Adjusted for these charges, earnings per share improved 80 percent to $0.27.
Adjusted EBITDA in the first six months improved 10.3 percent to $304.0 million from $275.5 million in the year-earlier period. Free Cash Flow was $20.6 million compared to the prior year's $1.9 million.
2006 Outlook
"We remain on track to deliver our targeted 12 percent improvement in Adjusted EBITDA," Dr. Joyce said. "A key assumption here is a more normal hurricane season, unlike the second half of 2005 when our customers and suppliers were hard-hit by hurricanes, causing a significant earnings drain for us."
Nalco re-confirmed previously announced targets of organic revenue growth of about 7 percent, of which more than half is expected to come from price increases. Earnings per share are expected to be about 67 cents, unchanged except for the lower tax rate from the prior guidance of 65 cents per share. Both figures are before consideration of business process optimization charges, which to date have amounted to $3.5 million after-tax, or 2 cents per share.
"We have our targets in sight, but there is clearly work to be done to hit them. We need to continue to increase price, control expenses and invigorate real growth beyond Energy Services to have a very successful year," Dr. Joyce stated.
Investor Day
An Investor Day has been scheduled for Tuesday, August 29, 2006 at Nalco's Naperville corporate headquarters and research center. For information on the day or directions on registering for the event, please send an e-mail to Mike Bushman at mbushman@nalco.com.
Conference call
Nalco will discuss second-quarter results in a conference call and Webcast to be held on Wednesday, Aug. 2, at 10:00 a.m. ET. Information on the conference call and Webcast is available on our Web site at www.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 10,900 employees operating in 130 countries supported by a comprehensive network of manufacturing facilities, sales offices and research centers. In 2005, Nalco achieved sales of more than $3.3 billion.
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 income 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 income 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.
Nalco Holding Company and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in millions)
(Unaudited)
June 30, December 31,
2006 2005
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 31.6 $ 30.8
Accounts receivable, less allowances of
$19.5 in 2006 and $16.6 in 2005 639.8 622.3
Inventories:
Finished products 268.0 242.6
Materials and work in process 75.5 70.6
-------- --------
343.5 313.2
Prepaid expenses, taxes and other'
current assets 65.2 83.1
-------- --------
Total current assets 1,080.1 1,049.4
Property, plant and equipment, net 746.7 755.3
Intangible assets:
Goodwill 2,257.8 2,196.7
Other intangibles, net 1,200.8 1,227.5
Other assets 321.1 323.5
-------- --------
Total assets $5,606.5 $5,552.4
======== ========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 272.3 $ 285.4
Short-term debt 135.1 22.6
Other current liabilities 219.6 235.2
-------- --------
Total current liabilities 627.0 543.2
Other liabilities:
Long-term debt 3,175.8 3,244.2
Deferred income taxes 337.4 353.0
Accrued pension benefits 385.1 416.4
Other liabilities 283.4 278.9
Minority interest 14.0 11.2
Shareholders' equity 783.8 705.5
-------- --------
Total liabilities and shareholders' equity $5,606.5 $5,552.4
======== ========
ATTACHMENT 1
Nalco Holding Company and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(dollars in millions, except per share data)
Three Months ended Six Months ended
June 30, June 30,
2006 2005 2006 2005
-------- -------- -------- --------
Net sales $ 891.0 $ 836.3 $1,740.4 $1,613.9
Operating costs and
expenses:
Cost of product sold 495.6 480.3 966.7 893.1
Selling, administrative,
and research expenses 270.7 262.9 546.1 521.0
Amortization of intangible
assets 17.5 20.5 34.8 41.1
Business optimization
expenses 1.8 17.0 5.6 17.8
-------- -------- -------- --------
Total operating costs
and expenses 785.6 780.7 1,553.2 1,473.0
-------- -------- -------- --------
Operating earnings 105.4 55.6 187.2 140.9
Other income (expense), net (1.9) (0.1) (0.7) (3.5)
Interest income 2.3 2.0 4.0 4.1
Interest expense (68.1) (64.8) (134.4) (126.9)
-------- -------- -------- --------
Earnings (loss) before
income taxes and minority
interests 37.7 (7.3) 56.1 14.6
Income tax provision
(benefit) 14.4 (3.1) 22.3 6.6
Minority interests (1.8) (1.6) (3.5) (2.8)
-------- -------- -------- --------
Net earnings (loss) $ 21.5 $ (5.8) $ 30.3 $ 5.2
======== ======== ======== ========
Net earnings (loss)
per share:
Basic $ 0.15 $ (0.04) $ 0.21 $ 0.04
======== ======== ======== ========
Diluted $ 0.15 $ (0.04) $ 0.21 $ 0.04
======== ======== ======== ========
Weighted-average
shares outstanding
(millions):
Basic 142.9 141.7 142.9 141.7
======== ======== ======== ========
Diluted 146.6 141.7 146.6 146.6
======== ======== ======== ========
Nalco Holding Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollars in millions)
Six Months ended
June 30,
2006 2005
------ ------
Operating activities
Net earnings (loss) $ 30.3 $ 5.2
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Depreciation 64.7 66.7
Amortization 34.8 41.1
Amortization of deferred financing costs
and accretion of senior discount notes 21.1 19.9
Other, net (35.5) 2.7
Changes in operating assets
and liabilities (53.8) (105.9)
------ ------
Net cash provided by operating activities 61.6 29.7
------ ------
Investing activities
Purchase price adjustment on acquisition
of Ondeo Nalco Group -- (3.2)
Additions to property, plant, and
equipment, net (37.5) (25.0)
Other investing activities (4.2) --
------ ------
Net cash used for investing activities (41.7) (28.2)
------ ------
Financing activities
Changes in short-term debt, net 28.1 4.4
Proceeds from long-term debt -- 24.1
Repayments of long-term debt (45.5) (18.2)
Other (2.2) (4.4)
------ ------
Net cash provided by (used for)
financing activities (19.6) 5.9
Effect of exchange rate changes on
cash and cash equivalents 0.5 (1.3)
------ ------
Increase in cash and cash equivalents 0.8 6.1
Cash and cash equivalents at
beginning of period 30.8 33.3
------ ------
Cash and cash equivalents at
end of period $ 31.6 $ 39.4
====== ======
ATTACHMENT 3
Nalco Holding Company and Subsidiaries
Segment Information
(Unaudited)
(dollars in millions)
Net sales by reportable segment were as follows:
Three Months ended Six Months ended
June 30, June 30,
2006 2005 2006 2005
------- ------- -------- --------
Industrial and Institutional
Services $ 389.4 $ 377.5 $ 767.8 $ 718.5
Energy Services 259.3 221.5 505.6 432.1
Paper Services 178.1 176.1 353.9 346.2
Other 64.2 61.2 113.1 117.1
------- ------- -------- --------
Net sales $ 891.0 $ 836.3 $1,740.4 $1,613.9
======= ======= ======== ========
The following table presents direct contribution by reportable
segment and reconciles the total segment direct contribution to
earnings (loss) before income taxes and minority interests:
Three Months ended Six Months ended
June 30, June 30,
2006 2005 2006 2005
------- ------- -------- --------
Segment direct contribution:
Industrial and Institutional
Services $ 85.1 $ 82.9 $ 164.9 $ 148.4
Energy Services 54.9 39.7 103.2 82.7
Paper Services 26.5 27.4 52.6 57.5
Other(a) (14.9) (28.9) (34.3) (34.1)
Capital charge elimination 18.9 19.6 38.1 39.4
------- ------- -------- --------
Total segment direct
contribution 170.5 140.7 324.5 293.9
Expenses not allocated to
segments:
Administrative expenses 45.8 47.6 96.9 94.1
Amortization of intangible
assets 17.5 20.5 34.8 41.1
Business optimization
expenses 1.8 17.0 5.6 17.8
------- ------- -------- --------
Operating earnings (loss) 105.4 55.6 187.2 140.9
Other income (expense), net (1.9) (0.1) (0.7) (3.5)
Interest income 2.3 2.0 4.0 4.1
Interest expense (68.1) (64.8) (134.4) (126.9)
------- ------- -------- --------
Earnings (loss) before
income taxes and
minority interests $ 37.7 $ (7.3) $ 56.1 $ 14.6
======= ======= ======== ========
(a) Includes certain costs not allocated to segments but deducted
in arriving at direct contribution. Significant contributors to
the year-over-year change include:
- Favorable supply chain variances ($12.6 million and
$9.9 million for the three months and six months ended
June 30, 2006 vs. 2005, respectively), mostly attributable
to purchase price and volume variances.
- Unfavorable variance of $6.5 million for the six months
ended June 30, 2006 vs. 2005 attributable to favorable
adjustments in 2005 vs. 2006 for commissions and
insurance/legal claims.
- Unfavorable variance of $2.5 million for the six months
ended June 30, 2006 vs. 2005 resulting from increase in
revenue recognition adjustments, due to higher volumes
shipped in late June 2006 vs. 2005. This has no impact
on total segment direct contribution, as the offsetting
impact of this change is included in the other three
segments.
ATTACHMENT 4
Nalco Holding Company and Subsidiaries
EBITDA and Adjusted EBITDA (Unaudited)
(dollars in millions)
Three Months ended Six Months ended
June 30, June 30,
2006 2005 2006 2005
------ ------ ------ ------
Net earnings (loss) $ 21.5 $ (5.8) $ 30.3 $ 5.2
Income tax provision (benefit) 14.4 (3.1) 22.3 6.6
Interest expense, net of
interest income 65.8 62.8 130.4 122.8
Depreciation 32.3 33.5 64.7 66.7
Amortization 17.5 20.5 34.8 41.1
------ ------ ------ ------
EBITDA 151.5 107.9 282.5 242.4
Business optimization expenses 1.8 17.0 5.6 17.8
Asset write-offs 0.2 2.5 1.1 4.9
Profit sharing expense funded
by Suez 4.0 2.4 7.5 5.5
Pension settlement 0.1 -- 0.4 --
Franchise taxes 0.7 0.6 1.5 1.3
Non-cash rent expense (1.8) (1.8) 0.8 0.8
Non-wholly-owned entities 1.7 0.8 2.3 0.3
Loss (gain) on sale, net of
expenses 0.5 0.6 0.6 1.1
Other unusual charges 1.4 1.2 1.7 1.4
------ ------ ------ ------
Adjusted EBITDA $160.1 $131.2 $304.0 $275.5
====== ====== ====== ======
ATTACHMENT 5
Nalco Holding Company and Subsidiaries
Free Cash Flow
(Unaudited)
(dollars in millions)
Three Months ended Six Months ended
June 30, June 30,
2006 2005 2006 2005
------ ------ ------ ------
Net cash provided by
operating activities $ 2.8 $ 14.0 $ 61.6 $ 29.7
Minority interests (1.8) (1.6) (3.5) (2.8)
Additions to property,
plant and equipment, net (22.9) (12.7) (37.5) (25.0)
------ ------ ------ ------
Free cash flow $(21.9) $ (0.3) $ 20.6 $ 1.9
====== ====== ====== ======
ATTACHMENT 6
Nalco Holding Company and Subsidiaries
Earnings Per Share and Share Base
(Unaudited)
(dollars in millions, except per share data)
Three Months ended
------------------------------------
June 30, 2006 June 30, 2005
--------------- ----------------
Per Per
Actual Share(a) Actual Share(a)
------ ------ ------ ------
Net earnings (loss) $ 21.5 $ 0.15 $ (5.8) $ (0.04)
====== ====== ====== =======
Net earnings (loss) was
reduced (increased) by
the following items
(after tax):
Business
optimization
expenses Bus Opt Exp $ 1.1 $ 0.01 $ 11.4 $ 0.08
Profit sharing
expense funded
by Suez COGS/SGA 2.6 0.02 1.6 0.01
Other unusual
charges COGS/SGA/OIOE 0.9 0.01 0.8 0.01
------ ------
$ 4.6 $ 13.8
====== ======
Memo Only
-------------------------------
Net earnings (loss)
was reduced (increased)
by the following items
(before tax):
Business
optimization
expenses Bus Opt Exp $ 1.8 $ 0.01 $ 17.0 $ 0.12
Profit sharing
expense funded
by Suez COGS/SGA 4.0 0.03 2.4 0.02
Other unusual
charges COGS/SGA/OIOE 1.4 0.01 1.2 0.01
------ ------
$ 7.2 $ 20.6
====== ======
Weighted-average of
shares outstanding
(millions):
Basic 142.9 141.7
Diluted 146.6 141.7
(a) Diluted
ATTACHMENT 7A
Nalco Holding Company and Subsidiaries
Earnings Per Share and Share Base
(Unaudited)
(dollars in millions, except per share data)
Six Months ended
------------------------------------
June 30, 2006 June 30, 2005
--------------- ----------------
Per Per
Actual Share(a) Actual Share(a)
------ ------ ------ ------
Net earnings $ 30.3 $ 0.21 $ 5.2 $ 0.04
====== ====== ====== ======
Net earnings was
reduced by the
following items
(after tax):
Business
optimization
expenses Bus Opt Exp $ 3.5 $ 0.02 $ 11.9 $ 0.08
Profit sharing
expense funded
by Suez COGS/SGA 4.9 0.03 3.6 0.03
Other unusual
charges COGS/SGA/OIOE 1.1 0.01 0.9 0.01
------ ------
$ 9.5 $ 16.4
====== ======
Memo Only
-------------------------------
Net earnings was
reduced by the
following items
(before tax):
Business
optimization
expenses Bus Opt Exp $ 5.6 $ 0.04 $ 17.8 $ 0.12
Profit sharing
expense funded
by Suez COGS/SGA 7.5 0.05 5.5 0.04
Other unusual
charges COGS/SGA/OIOE 1.7 0.01 1.4 0.01
------ ------
$ 14.8 $ 24.7
====== ======
Weighted-average
of shares
outstanding
(millions):
Basic 142.9 141.7
Diluted 146.6 146.6
(a) Diluted
ATTACHMENT 7B