Hercules Incorporated (NYSE:HPC) today reported net income for the
quarter ended September 30, 2008 of $39.5 million, or $0.35 per
diluted share, as compared to $48.8�million, or $0.42 per diluted
share, for the third quarter of 2007.(1) Third quarter 2008 net
income included after tax transaction costs of approximately
$6.8�million, or $0.06 per diluted share, associated with the
pending Ashland transaction. In addition, third quarter 2008 net
income included an after tax gain of $3.9�million, or $0.03 per
diluted share, related to the settlement of the government�s claim
for additional response costs associated with the Vertac
litigation. Net income from ongoing operations(2) for the third
quarter of 2008 was $42.4 million, or $0.38 per diluted share,
compared to $53.4 million, or $0.46 per diluted share, in the third
quarter of 2007. The third quarter 2007 included net income of $7.4
million, or $0.05 per diluted share, related to the sale of
technology. The ongoing tax rate was approximately 23% in the third
quarter of 2008 versus approximately 19% in the same period last
year, or an impact of approximately $0.02 per diluted share versus
the prior year. Please refer to Table 2 for a reconciliation of net
income from ongoing operations to reported net income. Net sales in
the third quarter of 2008 were $605.8 million, an increase of
$61.6�million or 11% from the same period last year. Volume and
pricing increased by 1% and 5%, respectively. Rates of exchange
increased sales by 5% during the quarter, while mix was neutral.
The Company�s Logos Qu�mica acquisition in Latin America
contributed $2.3�million of the sales increase; however, gross
profit from the acquisition was minimal due to purchase accounting
adjustments. Net sales in the third quarter of 2008 increased in
all major regions of the world versus the prior year. Sales
increased 6% in North America, 39% in Latin America (31% excluding
the Logos Qu�mica acquisition), 9% in Europe and 23% in Asia
Pacific. Europe was lower by 6% excluding the impact of the Euro.
Reported profit from operations in the third quarter of 2008 was
$63.1 million, a decrease of 24% compared with $83.3 million for
the same period in 2007.(1) Profit from ongoing operations(2) in
the third quarter of 2008 was $77.5�million, a decrease of 8%
compared with $84.2 million in the third quarter of 2007. Excluding
the sale of technology in the prior year period, ongoing operating
profit increased 1%. Please refer to Table 2 for a reconciliation
of profit from ongoing operations to reported profit from
operations. Cash flow from operations for the nine months ended
September 30, 2008 was $135.2�million, including cash outflows for
severance, restructuring and other exit costs of $16.3�million.
Capital spending for the nine months ended September 30, 2008 was
$74.3�million. Interest and debt expense was $18.6 million in the
third quarter of 2008, compared to $17.0�million in the third
quarter of 2007, reflecting increased interest expense from cross
currency interest rate swaps and higher rates on term debt,
partially offset by lower outstanding debt balances. Total debt was
$810.4�million at September 30, 2008, a decrease of $6.3�million
from June 30, 2008. Cash and cash equivalents were $116.7 million
at September 30, 2008. Segment Results � Ongoing Basis(2) In the
Aqualon Group, net sales increased 12% and profit from ongoing
operations increased 8% in the third quarter as compared with the
third quarter of 2007. All business units had increased sales in
the third quarter as compared to the prior year. In the aggregate,
the sales increase was driven by 1% higher volume, 6% higher
prices, 1% favorable mix, and 4% favorable rates of exchange.
Coatings and construction sales increased 10% in the third quarter
of 2008 as compared to the same period of last year, due to 2%
higher volume, 5% increased pricing and 6% favorable rates of
exchange, partially offset by 3% negative product and regional mix.
Sales into the coatings markets were up 14% in the third quarter of
2008 as compared to the same period of last year. All major regions
of the world had increased sales, due in part to increased pricing.
Rates of exchange remain favorable in Europe and Asia. Volume
growth continued to be strong in Asia, primarily China. Volumes in
North America also improved, primarily due to increased sales of
specialty surfactants. Both Europe and Latin America sales volumes
were essentially flat with the prior year. Sales of specialty
surfactants have continued to improve versus the prior year every
quarter since the specialty surfactant acquisition was completed in
July 2007. In addition, sales of specialty surfactants continue to
grow outside the traditional North American markets. Construction
market sales increased 7% as compared to the third quarter of last
year. Strong growth was achieved in the Middle East and Africa.
Modest sales growth was achieved in Asia and Europe, whereas sales
in North and Latin America were lower. Pricing improvements were
achieved in most regions and product families. Regulated industry
sales increased 23% in the third quarter of 2008 as compared to the
same period of last year, primarily due to 11% higher volume, 2%
improved product mix, 6% increased pricing and 4% favorable rates
of exchange. Sales were higher in all markets. Sales increased in
the pharmaceutical, personal care and food markets by 41%, 14% and
23%, respectively, as compared to the third quarter of last year.
Growth was achieved in all major regions of the world, except Latin
America which was modestly lower. Price increases were achieved in
all markets and most product families. Sales of the AquariusTM film
coating product line for the pharmaceutical industry have continued
to improve versus the prior year every quarter since the product
launch in mid 2007. Energy and specialties sales increased 7% in
the third quarter of 2008 as compared to the same period of last
year. The increase was due to 5% higher prices, 3% favorable rates
of exchange and 4% favorable mix, partially offset by 5% lower
volume. Energy sales increased 16% while specialties increased 1%,
as compared to the prior year. Sales of energy and specialty
businesses grew in most major regions of the world, except Asia
which was essentially flat. Price increases were achieved across
most product families. Increased sales of higher priced oilfield
products improved the product mix from the prior year. Profit from
ongoing operations was 8% higher, primarily as a result of higher
volume and the associated contribution margin, increased selling
prices, lower pension expenses, and lower corporate allocated
costs, partially offset by higher raw material, transportation and
utility costs, and higher selling, general and administrative
costs. Margins were adversely impacted as price increases did not
fully offset higher raw material, freight and utility costs.
Pricing increased $14.2�million from the third quarter of last
year, whereas raw material, freight and utility costs increased
$15.7 million. The recovery of cost increases through pricing
continues to improve as 90% of cost increases were recovered in the
third quarter versus 62% in the second quarter 2008 and 35% in the
first quarter of 2008. In the Paper Technologies and Ventures Group
(PTV), net sales in the third quarter increased 10% while profit
from ongoing operations decreased 34% compared with the same
quarter in�2007. Excluding the sale of technology in the prior year
period, profit from ongoing operations was down $4.8�million or
17%. Paper Technologies sales increased 7% due to 1% higher volume,
6% favorable rates of exchange and 3% increased price, partially
offset by 3% unfavorable mix. Volumes were higher in both Latin
America and Asia, while North America was flat and Europe was lower
as compared to the third quarter of last year. The increase in both
Latin America and Asia was primarily due to growth in sales of
functional chemicals. Both North America and European volumes
reflected lower sales of strength products. Price increases were
achieved in all regions, with the largest contribution in the
Americas. The favorable rates of exchange primarily reflect the
strong Euro. Sales in fast growing markets, including Brazil,
Chile, Indonesia, Russia and the Middle East, were up 37% compared
to the prior year. Sales of new products recently introduced into
the marketplace were up 36% versus the prior year and continue to
support margins. Ventures sales increased 24% primarily due to 5%
higher volume (4% excluding the Logos Qu�mica acquisition), 8%
higher prices, 7% improved product mix, and 4% favorable rates of
exchange. Sales increased in all Ventures business units except
Tolled products: Lubricants increased 86%; Water Management
increased 17%; Pulp chemicals increased 15%; and Building and
converted products increased 6%; Tolled products decreased 11%.
Pricing was favorable in most Venture businesses but especially
strong in lubricants. The decrease in profit from ongoing
operations reflected higher raw material, freight and utility
costs, and increased SG&A costs (including employees acquired
in the Logos transaction), partially offset by favorable rates of
exchange, higher volume and associated contribution margins,
improved selling prices, lower corporate allocated costs, and lower
pension costs. Price increases were $12.2�million as compared to
the third quarter of last year, while raw material, freight and
utility costs increased $19.1�million. The recovery of cost
increases through pricing was down slightly as 64% of cost
increases were recovered in the third quarter versus 69% in the
second quarter 2008. Outlook As previously announced on July 11,
2008, the Company has entered into a definitive merger agreement
under which Ashland Inc. (Ashland) would acquire all of the
outstanding shares of the�Company. The special shareholders meeting
to vote on the merger is scheduled for November 5, 2008. Hercules
manufactures and markets chemical specialties globally for making a
variety of products for home, office and industrial markets. For
more information, visit the Hercules website at www.herc.com. This
news release includes forward-looking statements, as defined in the
Private Securities Litigation Reform Act of 1995, reflecting
management's current analysis and expectations, based on what
management believes to be reasonable assumptions. The words or
phrases "will likely result," "should," "are expected to," "will
continue," "is anticipated," "expect," "estimate," "project" or
similar expressions are among those which identify forward-looking
statements. 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 such factors as: the possibility that the
transaction with Ashland may not be completed, including as a
result of failure to obtain the approval of the Company�s
stockholders; the possibility that financing may not be available
to Ashland on the terms committed; and other risks that are
described in filings made by Ashland and the Company with the
Securities and Exchange Commission (SEC) in connection with the
proposed transaction, the ability to generate cash, changes
resulting from ongoing reviews of tax liabilities, ability to raise
capital, ability to refinance, ability to execute productivity
improvements and reduce costs, ability to improve margins, the
success of outsourcing initiatives, ability to identify, execute
and integrate acquisitions, ability to execute divestitures,
ability to complete transactions, ability to increase prices,
business climate, business performance, changes in tax laws or
regulations and related liabilities, changes in tax rates, economic
and competitive uncertainties, higher raw material, manufacturing,
freight and utility costs, reduced level of customer orders,
changes in strategies, risks in developing new products and
technologies, risks in developing new market opportunities or
expanding capacity, environmental and safety regulations and
clean-up costs, the impact of adverse events relating to the
operation of the Company's facilities and to the transportation and
storage of hazardous materials (including equipment malfunction,
explosions, fires, spills, and the effects of severe weather
conditions), foreign exchange rates, asset dispositions, the impact
of changes in the 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,
the financial capacity of settling insurers, the impact of
increased accruals and reserves for such exposures, the outcome of
litigation and appeals, and adverse changes in economic and
political climates around the world, including terrorist
activities, international hostilities and potential natural
disasters. Accordingly, there can be no assurance that the Company
will meet future results, performance or achievement, expressed or
implied by such forward-looking statements, reactivate stock
repurchases or continue the payment of dividends. As appropriate,
additional factors are contained in reports filed by the Company
with the Securities and Exchange Commission. 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. ADDITIONAL INFORMATION In connection with the proposed
transaction, Ashland and the Company have filed documents with the
SEC, including a registration statement on Form S-4 filed by
Ashland on September 29, 2008, and a related definitive proxy
statement/prospectus filed by the Company on October 3, 2008 and
mailed to investors and security holders on or about October 6,
2008. Investors and security holders are urged to read the
registration statement on Form S-4 and the related definitive
proxy/prospectus. Investors and security holders may obtain free
copies of these documents and other documents filed with the SEC by
contacting Ashland Investor Relations at (859) 815-4454 or Hercules
Investor Relations at (302) 594-7151. Investors and security
holders may also obtain free copies of the documents filed with the
SEC on Ashland�s Investor Relations website at
www.ashland.com/investors or the Company�s website at www.herc.com
or the SEC�s website at www.sec.gov. The Company and its directors
and executive officers are deemed participants in the solicitation
of proxies from the stockholders of the Company in connection with
the proposed transaction. Information regarding the special
interests of these directors and executive officers in the proposed
transaction has been included in the proxy statement/prospectus
described above. Additional information regarding the directors and
executive officers of the Company is also included in the Company�s
proxy statement for its 2008 Annual Meeting of Stockholders, which
was filed with the SEC on March 19, 2008. These documents are
available free of charge at the SEC�s web site at www.sec.gov and
from Investor Relations at Ashland and the Company as described
above. � � HERCULES INCORPORATED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS � � (Dollars in millions, except per share data)
(Unaudited) Table 1 THREE MONTHSENDED SEPT. 30 � NINE MONTHSENDED
SEPT. 30 2008 � 2007(1) � 2008 � 2007(1) Net sales $ 605.8 � $
544.2 $ 1,776.7 � $ 1,595.5 Cost of sales 421.3 358.0 1,215.8
1,040.2 Selling, general and administrative expenses 93.5 84.1
286.7 252.3 Research and development 10.9 11.0 33.4 32.4 Intangible
asset amortization 2.7 2.4 8.0 6.1 Other operating expense, net
14.3 5.4 27.1 26.1 Profit from operations 63.1 83.3 205.7 238.4
Interest and debt expense 18.6 17.0 53.6 52.0 Other expense, net
0.1 4.9 15.9 42.9 Income before income taxes and equity income 44.4
61.4 136.2 143.5 Provision (benefit) for income taxes 6.4 14.9 30.5
(26.1 ) Income before minority interests and equity income 38.0
46.5 105.7 169.6 Minority interests in losses (earnings) of
consolidated subsidiaries � 0.3 0.9 (0.7 ) Equity income of
affiliated companies, net of tax 1.6 1.0 0.5 0.5 Net income from
continuing operations before discontinued operations 39.6 47.8
107.1 169.4 Net income (loss) from discontinued operations, net of
tax(4) (0.1 ) 1.0 25.8 1.0 Net income 39.5 48.8 132.9 170.4 Basic
earnings per share: Continuing operations $ 0.35 $ 0.42 $ 0.96 $
1.48 Discontinued operations � 0.01 0.23 0.01 Net income $ 0.35 $
0.43 $ 1.19 $ 1.49 Weighted average # of basic shares (millions)
111.4 114.4 111.6 114.4 Diluted earnings per share: Continuing
operations $ 0.35 $ 0.41 $ 0.96 $ 1.47 Discontinued operations �
0.01 0.23 0.01 Net income $ 0.35 $ 0.42 $ 1.19 $ 1.48 Weighted
average # of diluted shares (millions) 112.1 115.2 112.2 115.1
Dividends declared per share $ 0.05 $ 0.05 $ 0.15 $ 0.05 Income
before income taxes and equity income $ 44.4 $ 61.4 $ 136.2 $ 143.5
Interest and debt expense 18.6 17.0 53.6 52.0 EBIT(2) 63.0 78.4
189.8 195.5 Depreciation and amortization, net of amortization of
debt issuance costs 22.6 27.2 75.4 80.3 EBITDA(2) $ 85.6 $ 105.6 $
265.2 $ 275.8 � � � (Unaudited) Table 1 (continued) � SEGMENT
DATA(Dollars in millions) THREE MONTHSENDED SEPT. 30 � NINE
MONTHSENDED SEPT. 30 2008 � 2007(1) � 2008 � 2007(1) Net Sales By
Segment(3) � � Paper Technologies $ 240.6 $ 225.9 $ 701.2 $ 674.7
Ventures 76.3 61.3 228.6 184.0 Paper Technologies & Ventures
Group $ 316.9 $ 287.2 $ 929.8 $ 858.7 � Coatings & Construction
$ 141.9 $ 128.5 $ 414.8 $ 358.7 Regulated 71.5 58.0 214.6 182.1
Energy & Specialties 75.5 70.5 217.5 196.0 Aqualon Group $
288.9 $ 257.0 $ 846.9 $ 736.8 � TOTAL $ 605.8 $ 544.2 $ 1,776.7 $
1,595.5 � Profit (Loss) From Operations By Segment Paper
Technologies & Ventures Group $ 23.0 $ 40.2 $ 76.6 $ 105.6
Aqualon Group 57.4 55.7 162.0 170.5 Corporate (17.3 ) (12.6 ) (32.9
) (37.7 ) TOTAL $ 63.1 $ 83.3 $ 205.7 $ 238.4 � � � (Unaudited)
Table 2Reconciliation to Ongoing Operations THREE MONTHSENDED SEPT.
30, 2008 � THREE MONTHSENDED SEPT. 30, 2007(1) (Dollars in
millions, except per share) NET INCOME(LOSS) � DILUTED EPS � PROFIT
FROMOPERATIONS � EBITDA � NET INCOME(LOSS) � DILUTED EPS � PROFIT
FROMOPERATIONS � EBITDA From Table 1 $ 39.5 � $ 0.35 � $ 63.1 � $
85.6 � $ 48.8 � $ 0.42 � $ 83.3 � $ 105.6 Discontinued operations,
net of tax(4) 0.1 � � � (1.0 ) (0.01 ) � � Vertac matters (3.9 )
(0.03 ) � (5.9 ) 0.7 0.01 � 1.0 Legal accruals and settlements(5)
0.1 � � 0.2 0.4 � � 0.6 Severance and restructuring costs 1.4 0.01
2.2 2.2 5.1 0.05 7.8 7.8 Asset impairments/ Accelerated
depreciation 0.8 0.01 1.3 1.1 2.3 0.02 3.5 � Pension accounting
change pre LDI implementation(1) � � � � (6.8 ) (0.06 ) (10.4 )
(10.4 ) Gain on asset dispositions � � � � (2.0 ) (0.02 ) (0.5 )
(3.0 ) Loss on sale of FiberVisions � � � � 2.8 0.03 � 2.8 Ashland
transaction costs(10) 6.8 0.06 10.4 10.4 � � � � Other(6) 0.4 � 0.5
0.6 0.6 � 0.5 0.9 Subtotal adjustment items(7) 5.7 0.05 14.4 8.6
2.1 0.02 0.9 (0.3 ) Tax adjustment to the ongoing effective tax
rate(8) (2.8 ) (0.02 ) � � 2.5 0.02 � � Ongoing Operations(2) $
42.4 $ 0.38 $ 77.5 $ 94.2 $ 53.4 $ 0.46 $ 84.2 $ 105.3 � � � � � �
� � � (Unaudited) Table 3Reconciliation to Ongoing Operations NINE
MONTHSENDED SEPT. 30, 2008 � NINE MONTHSENDED SEPT. 30, 2007(1)
(Dollars in millions, except per share) NET INCOME (LOSS) � DILUTED
EPS � PROFIT FROM OPERATIONS � EBITDA � NET INCOME (LOSS) � DILUTED
EPS � PROFIT FROM OPERATIONS � EBITDA From Table 1 $ 132.9 $ 1.19 $
205.7 $ 265.2 $ 170.4 $ 1.48 $ 238.4 $ 275.8 Discontinued
operations, net of tax(4) (25.8 ) (0.23 ) � � (1.0 ) (0.01 ) � �
Vertac matters (3.6 ) (0.03 ) � (5.4 ) 13.0 0.11 � 20.0 ABL
settlement � � � � 8.4 0.07 � 13.0 Gain on asset dispositions � � �
� (4.6 ) (0.04 ) (4.6 ) (7.1 ) Legal accruals and settlements(5)
1.1 0.01 � 1.7 1.2 0.01 � 1.8 Severance and restructuring costs 6.6
0.06 10.2 10.2 14.7 0.13 22.6 22.6 Asset impairments/ Accelerated
depreciation 4.3 0.03 6.6 1.7 7.1 0.06 10.9 � Pension accounting
change pre LDI implementation(1) � � � � (20.2 ) (0.17 ) (31.1 )
(31.1 ) Loss on sale of FiberVisions � � � � 2.5 0.02 � 2.5 Ashland
transaction costs(10) 6.8 0.06 10.4 10.4 � � � � Other(6) 3.6 0.03
1.8 5.6 1.9 0.02 1.1 2.9 Subtotal adjustment items(7) (7.0 ) (0.07
) 29.0 24.2 23.0 0.20 (1.1 ) 24.6 Tax adjustment to the ongoing
effective tax rate(8) (1.0 ) (0.01 ) � � (58.5 ) (0.51 ) � �
Ongoing Operations(2) $ 124.9 $ 1.11 $ 234.7 $ 289.4 $ 134.9 $ 1.17
$ 237.3 $ 300.4 � � (Unaudited) Table 4Reconciliation to Ongoing
Operations By Business Segment THREE MONTHSENDED SEPT. 30, 2008
(Dollars in millions) PAPER TECHNOLOGIES & VENTURES GROUP �
AQUALON GROUP � CORPORATE ITEMS / FIBERVISIONS � TOTAL HERCULES
Profit from Operations $ 23.0 � $ 57.4 � ($17.3 ) � $ 63.1
Severance, restructuring and other exit costs 0.3 (0.7 ) 2.6 2.2
Asset impairments and accelerated depreciation � � 1.3 1.3 Ashland
transaction costs(10) � � 10.4 10.4 Other(6) 0.2 0.2 0.1 0.5
Subtotal adjustment items 0.5 (0.5 ) 14.4 14.4 Profit from Ongoing
Operations(2) $ 23.5 $ 56.9 ($2.9 ) $ 77.5 � � � � � (Unaudited)
Table 5Reconciliation to Ongoing Operations By Business Segment
THREE MONTHSENDED SEPT. 30, 2007(1) (Dollars in millions) PAPER
TECHNOLOGIES & VENTURES GROUP � AQUALON GROUP � CORPORATE ITEMS
/ FIBERVISIONS � TOTAL HERCULES Profit from Operations $ 40.2 $
55.7 ($12.6 ) $ 83.3 Severance, restructuring and other exit costs
1.2 1.8 4.8 7.8 Asset impairments and accelerated depreciation (0.1
) � 3.6 3.5 Gain on asset dispositions � � (0.5 ) (0.5 ) Pension
accounting change pre LDI implementation(1) (5.6 ) (4.8 ) � (10.4 )
Other(6) � � 0.5 0.5 Subtotal adjustment items (4.5 ) (3.0 ) 8.4
0.9 Profit from Ongoing Operations(2) $ 35.7 $ 52.7 ($4.2 ) $ 84.2
� � (Unaudited) Table 6Reconciliation to Ongoing Operations By
Business Segment NINE MONTHSENDED SEPT. 30, 2008 (Dollars in
millions) PAPER TECHNOLOGIES & VENTURES GROUP � AQUALON GROUP �
CORPORATE ITEMS / FIBERVISIONS � TOTAL HERCULES Profit from
Operations $ 76.6 � $ 162.0 � ($32.9 ) � $ 205.7 Severance,
restructuring and other exit costs 2.5 (0.3 ) 8.0 10.2 Asset
impairments and accelerated depreciation � � 6.6 6.6 Ashland
transaction costs(10) � � 10.4 10.4 Other(6) 1.1 0.2 0.5 1.8
Subtotal adjustment items 3.6 (0.1 ) 25.5 29.0 Profit from Ongoing
Operations(2) $ 80.2 $ 161.9 ($7.4 ) $ 234.7 � � � � � (Unaudited)
Table 7Reconciliation to Ongoing Operations By Business Segment
NINE MONTHSENDED SEPT. 30, 2007(1) (Dollars in millions) PAPER
TECHNOLOGIES & VENTURES GROUP � AQUALON GROUP � CORPORATE ITEMS
/ FIBERVISIONS � TOTAL HERCULES Profit from Operations $ 105.6 $
170.5 ($37.7 ) $ 238.4 Severance, restructuring and other exit
costs 1.9 2.2 18.5 22.6 Asset impairments and accelerated
depreciation 0.2 � 10.7 10.9 Gain on asset dispositions � � (4.6 )
(4.6 ) Pension accounting change pre LDI implementation(1) (16.8 )
(14.3 ) � (31.1 ) Other(6) � � 1.1 1.1 Subtotal adjustment items
(14.7 ) (12.1 ) 25.7 (1.1 ) Profit from Ongoing Operations(2) $
90.9 $ 158.4 ($12.0 ) $ 237.3 � � � CONDENSED CONSOLIDATED BALANCE
SHEETS � (Dollars in millions) (Unaudited) Table 8 SEPT. 302008 �
DEC. 312007(1) Assets Current assets Cash and cash equivalents $
116.7 $ 116.5 Accounts receivable, net 421.5 366.8 Inventories
243.1 224.0 Income tax receivable 24.7 20.2 Other current assets
67.2 86.8 Total current assets 873.2 814.3 Property, plant and
equipment, net 687.2 660.0 Other assets 1,161.0 1,204.1 Total
assets $ 2,721.4 $ 2,678.4 Liabilities and Stockholders' Equity
Current liabilities Accounts payable $ 236.6 $ 222.0 Other current
liabilities 246.3 258.5 Vertac obligations 14.5 20.0 Current debt
obligations 49.6 33.7 Total current liabilities 547.0 534.2
Long-term debt 760.8 762.3 Other liabilities 819.8 881.8 Total
liabilities 2,127.6 2,178.3 Minority interests 21.2 22.1 Total
stockholders' equity 572.6 478.0 Total liabilities and
stockholders' equity $ 2,721.4 $ 2,678.4 � � CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS � (Dollars in millions) (Unaudited) Table
9 NINE MONTHSENDED SEPT. 30 2008 � 2007(1) Cash Flows from
Operating Activities: � Net income $ 132.9 $ 170.4 Adjustments to
reconcile net income to cash provided by operations: Depreciation
and amortization 75.9 82.0 Deferred income tax provision and income
taxes payable 25.8 149.1 Investment dilution and loss on sale of
51% interest in FiberVisions � 2.5 Other noncash charges and
credits 6.9 (0.5 ) Working capital, net(9) (63.8 ) (135.5 )
Asbestos-related assets and liabilities, net 8.1 46.8 Pension and
postretirement benefits (5.7 ) (40.9 ) Non-current assets and
liabilities, net (44.9 ) (26.4 ) Net cash provided by operating
activities 135.2 247.5 � Cash Flows from Investing Activities:
Capital expenditures (74.3 ) (77.8 ) Proceeds from sale of 51%
interest in FiberVisions, net of transaction costs � (1.2 )
Acquisitions and investments, net (21.6 ) (16.2 ) Proceeds from
fixed asset disposals/other 2.9 13.6 Net cash used in investing
activities (93.0 ) (81.6 ) � Cash Flows from Financing Activities:
Long-term debt proceeds � 3.9 Debt repayments and change in short
term debt 8.0 (184.1 ) Repurchase of common stock (38.1 ) (22.8 )
Dividends paid (16.5 ) � Proceeds from exercise of stock options /
other 3.1 8.2 Net cash used in financing activities (43.5 ) (194.8
) Effect of exchange rate changes on cash 1.5 5.7 Net increase
(decrease) in cash and cash equivalents 0.2 (23.2 ) Cash and cash
equivalents at beginning of period 116.5 171.8 Cash and cash
equivalents at end of period 116.7 148.6 � � NOTES: � (1) Effective
January 1, 2008, the Company has changed its method of accounting
for its qualified defined-benefit pension plans in the United
States ("U.S.") and the United Kingdom ("U.K."). The change in
accounting method and related timing coincides with the completion
of a shift in the assets of the Company's U.S. plan in connection
with the implementation of a liability-driven investing strategy
("LDI"). The change has been applied retrospectively to all prior
years. In addition, the quarterly results for the periods included
in the year ended December 31, 2007 have been adjusted. The
Company's web site contains the adjusted financial data for the
aforementioned periods. The change encompasses: (a) the basis for
the determination of the "market-related value" of plan assets from
a smoothed value to the "fair value" and (b) a reduction in the
amortization period for gains and losses in excess of the
"corridor" from a period representing the average remaining service
period of active employees to immediate recognition in the
subsequent year (i.e., a 1-year amortization period). � (2) Ongoing
operations, profit from ongoing operations, net income from ongoing
operations, EBIT and EBITDA, wherever used herein, are non-GAAP
financial measures. The ongoing operations include Paper
Technologies and Ventures and the Aqualon Group. Results from
ongoing operations exclude impairment charges and accelerated
depreciation/amortization for certain facilities within these
businesses that will have no further operating impact, severance,
restructuring and other exit costs, Ashland transaction costs,
litigation against and settlements with the Company's insurance
carriers, and legal accruals, settlements and other charges related
to divested businesses. Please refer to Tables 2, 3, 4, 5, 6 and 7
for the reconciliation of reported to ongoing operations for the
quarter and nine months ended September 30, 2008 and 2007. � EBIT
is calculated as net income before income taxes plus interest and
debt expense. EBITDA is calculated as net income before income
taxes plus interest and debt expense, depreciation and
amortization, net of amortization of debt issuance costs. � EBIT
and EBITDA are measures commonly used by the capital markets to
value enterprises. Interest, taxes, depreciation and amortization
can vary significantly between companies due in part to differences
in accounting policies, tax strategies, levels of indebtedness and
interest rates. Excluding these items provides insight into the
underlying results of operations and facilitates comparisons
between Hercules and other companies. In addition, EBITDA is
considered a reasonable approximation of gross cash flow and is one
of the measures used for determining debt covenant compliance.
Management believes that EBIT and EBITDA information is useful to
investors for these reasons. This measurement is not recognized in
accordance with GAAP and should not be viewed as an alternative to
GAAP measures of performance. � (3) Net sales by segment have been
realigned to the current organizational structure. � (4) Income
associated with the final resolution of a tax indemnification for a
divested business. � (5) These accruals and settlements exclude
asbestos and Vertac litigation matters and are primarily
attributable to divested businesses. � (6) Other primarily includes
gains and losses related to formerly divested businesses and other
costs. � (7) Adjustment items have been tax effected at the U.S.
federal statutory tax rate of 35% for 2008 and 2007, except the
loss on the sale of FiberVisions. Valuation allowances have been
established on this capital loss. Additionally, the related
earnings per share impacts are based upon diluted shares totaling
112.1 million and 115.2 million for the three months ended
September 30, 2008 and 2007, respectively and 112.2 million and
115.1 million shares for the nine months ended September 30, 2008
and 2007, respectively. � (8) The 2007 adjustment is principally
due to the resolution of the remaining IRS audit issues for the
years 1993-2003. � (9) The nine months ended September 30, 2007
includes $124.5 million paid to the United States in settlement of
the Vertac judgment, partially offset by an accrual of $19.8
million for additional response costs including accrued interest
not yet paid. � (10) Ashland transaction costs primarily include
third party legal and investment banking fees associated with the
Company's pending acquisition by Ashland Inc. �
Hercules (NYSE:HPC)
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