RNS Number:4881R
Hercules Inc
30 October 2003
Release on Receipt
03-25-S
HERCULES REPORTS THIRD QUARTER RESULTS
Wilmington, DE, October 30, 2003 . . . Hercules Incorporated (NYSE: HPC) today
reported net income for the quarter ended September 30, 2003 of $19 million, or
$0.17 per diluted share. This compares to a loss of $35 million, or a loss of
$0.32 per diluted share, for the same period in 2002.
Earnings from ongoing operations(1) for the third quarter of 2003 were $0.21 per
diluted share. This compares to earnings on the same basis of $0.20 per diluted
share in the third quarter of 2002 (please refer to Table 2 for reconciliation
of earnings from ongoing operations to GAAP).
Net sales in the third quarter of 2003 were $463 million, an increase of 5% from
the same period last year. Compared with the third quarter of 2002, sales
increase was driven by the Euro's strength compared with the U.S. dollar.
Third quarter 2003 net sales, as compared with the same period in 2002 increased
in all regions of the world except North America: 12% in Europe; 7% in Asia
Pacific; 10% in Latin America; and declined 3% in North America.
Profit from operations in the third quarter of 2003 was $68 million compared
with $60 million for the same period in 2002. Profit from ongoing operations(1)
in the third quarter of 2003 was $74 million, a 7% improvement compared with $69
million in the third quarter of 2002.
"In spite of significant challenges again in the third quarter, the people of
Hercules continue to deliver period over period gains," said Craig Rogerson,
Acting President and Chief Operating Officer. "Our improved results were
achieved in the face of higher non-cash pension expenses, higher energy and raw
material costs and a difficult pulp and paper marketplace, offset by the
strength of the Euro. We remain focused on our strategy of bringing value to our
customers, increasing our competitive advantage, improving productivity and
delivering significant financial improvement and growth primarily through Work
Process Redesign, our continuous improvement methodology."
Interest and debt expense which now includes preferred securities distributions
was $32 million in the third quarter of 2003, flat compared with the third
quarter of 2002. Capital spending was $8 million and $27 million in the third
quarter and nine-months 2003, respectively. Cash outflows for restructuring were
$3 million and $18 million in the third quarter and nine-months 2003,
respectively.
Total debt, including the preferred securities, was $1.373 billion at the end of
September 2003, a decrease of $134 million from year-end 2002 and a decrease of
$5 million from end of June 2003. Net debt (total debt less cash) was $1.151
billion at the end of September 2003, a decrease of $22 million and $56 million
from year-end 2002 and the end of June 2003, respectively.
Segment Results
In the Performance Products segment (Pulp and Paper, Aqualon), net sales in the
third quarter grew 3% while profit from operations improved 8% compared with the
same quarter last year. Net sales were down 3% and profit from operations
decreased 6% compared with the seasonally stronger second quarter of 2003.
In the Pulp and Paper Division, net sales grew 1% compared with the third
quarter of 2002 and declined 1% compared with the second quarter of 2003. Profit
from operations increased 4% compared with both the third quarter of 2002 and
the second quarter of 2003. Growth in sales compared with the third quarter last
year was driven by a 4% benefit from rate of exchange, offset in part by a 2%
decline in volume/mix and a 1% decline in price. In particular, the North
American paper industry remains challenging. Profit from operations benefited
from favorable rate of currency exchange, growth in South America and Work
Process Redesign improvements, partially offset by unfavorable volume/mix, lower
prices and higher raw material, energy and non-cash pension expenses.
Aqualon's net sales increased 6% compared with the third quarter of 2002 and
declined 7% compared with the second quarter of 2003. Profit from operations
improved 11% compared with the third quarter of 2002 and declined 11% versus the
second quarter of 2003. The stronger Euro compared to the U.S. dollar, higher
prices and lower costs resulted in favorable comparisons to the third quarter of
2002.
In the Engineered Materials and Additives segment (FiberVisions, Pinova), net
sales in the third quarter increased 10% compared with the third quarter of 2002
and declined 3% compared with the second quarter of 2003. Profit from operations
decreased $6 million and $1 million compared with the third quarter of 2002 and
the second quarter of 2003, respectively.
Third quarter 2003 net sales in FiberVisions increased 20% compared with the
third quarter of 2002 and decreased 1% compared with the second quarter of 2003.
With the adoption of FIN 46, the Company now consolidates the bi-component fiber
joint venture, ES FiberVisions. The consolidation versus the equity method added
13% to net sales in the third quarter compared with the prior year. Profit from
operations in the third quarter of 2003 compared with the same quarter last year
was flat with higher polymer costs, non-cash pension expenses and restructuring
costs, offset by rate of exchange and price improvement from the contractual
pass through of higher raw material costs.
Pinova's third quarter net sales declined 16% and 9% compared with the third
quarter of 2002 and the second quarter of 2003, respectively. Profit from
operations was down $6 million compared with the third quarter of 2002 and was
flat compared with the second quarter of 2003. Lower profits in the third
quarter were driven by lower volumes and higher non-cash pension expenses.
Outlook
"As we have indicated previously, we expect to deliver double-digit earnings per
share growth in 2003 and 2004," said Mr. Rogerson. "Although the external
environment remains challenging, the strength of our businesses combined with
productivity improvements from Work Process Redesign should continue to drive
our operating results."
The Company expects to change the accounting for its ESOP during the fourth
quarter of 2003 and adopt the provisions of SOP 93-6. The ESOP is used to fund
obligations related to the Company's 401(k) plan. The Company has been applying
the grandfathered provisions of SOP 76-3 since the acquisition of BetzDearborn.
Significant changes have occurred within the ESOP and the Company. Application
of SOP 93-6 results in accounting and expense recognition consistent with the
substance of the Hercules 401(k) plan. As a result of this accounting change,
2003 earnings will increase by approximately $ 0.06 per diluted share. In
addition, the Company will also restate prior periods for this change in
accounting upon the release of fourth quarter earnings.
Third Quarter Conference Call
The Company will hold a teleconference for investors and analysts on October
30th beginning at 9 AM EST. To participate in the conference call, dial
973-582-2749, 10 to 15 minutes prior to the call.
# # #
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. 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: 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, 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 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, and adverse changes in economic and political climates
around the world, including terrorist activities and international hostilities.
Accordingly, there can be no assurance that the Company will meet future
results, performance or achievements expressed or implied by such
forward-looking statements. As appropriate, additional factors are contained in
other 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.
Media Contact: John S. Riley (302) 594-6025
Investor Contact: Allen A. Spizzo (302) 594-6491
HERCULES INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(Dollars in millions, except per share data) (Unaudited)
Table 1 THREE MONTHS NINE MONTHS
As Reported(2) ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
2003 2002 2003 2002
Net sales $463 $443 $1,388 $1,282
Cost of sales 289 273 872 783
Selling, general and administrative expenses 91 86 275 258
Research and development 9 11 29 32
Intangible asset amortization(3) 2 2 6 7
Other operating expense, net 4 11 5 35
Profit from operations 68 60 201 167
Interest and debt expense 32 32 99 122
Other expense, net 7 67 17 116
Income (loss) before income taxes and equity income 29 (39) 85 (71)
Provision (benefit) for income taxes 10 (4) 23 (11)
Income (loss) before equity income 19 (35) 62 (60)
Equity in income of affiliated companies - - - 1
Net income (loss) from continuing operations before
discontinued operations and cumulative effect of 19 (35) 62 (59)
changes in accounting principle
Discontinued operations - - 2 (199)
Net income (loss) before cumulative effect of 19 (35) 64 (258)
changes in accounting principle
Cumulative effect of changes in accounting - - (28) (368)
principle, net of tax
Net income (loss) $ 19 $ (35) $36 $(626)
Basic and diluted earnings (loss) per share:
Continuing operations 0.17 (0.32) 0.56 (0.54)
Discontinued operations - - 0.02 (1.83)
Cumulative effect of changes in accounting - - (0.26) (3.37)
principle
Net income (loss) 0.17 (0.32) 0.32 (5.74)
Weighted average # of basic shares (millions) 110.9 109.2 110.3 109.2
Weighted average # of diluted shares (millions) 111.1 109.2 110.5 109.2
Income (loss) before income taxes and equity income 29 (39) 85 (71)
Interest, debt expense and preferred security 32 32 99 122
distributions
EBIT 61 (7) 184 51
Depreciation and amortization(3) 24 22 70 67
EBITDA(4) 85 15 254 118
(Unaudited)
Segment Data Reported
(Dollars in millions)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
2003 2002 2003 2002
Net Sales From Continuing Operations
By Industry Segment
Performance Products $371 $359 $1,111 $1,042
Engineered Materials and Additives 92 84 277 240
Total $463 $443 $1,388 $1,282
Profit From Continuing Operations
By Industry Segment
Performance Products $ 68 $ 63 $ 196 $ 183
Engineered Materials and Additives 2 8 7 14
Corporate Items (2) (11) (2) (30)
Total $ 68 $ 60 $ 201 $ 167
EBITDA(4) 85 15 254 118
(Unaudited)
Table 2
Reconciliation to
Ongoing THREE MONTHS THREE MONTHS
Operations ENDED SEPTEMBER 30, 2003 ENDED SEPTEMBER 30, 2002
September 30,
2003
(Dollars in Net Basic & Profit EBITDA Net Basic & Profit EBITDA
millions, Income Diluted From Income Diluted From
except per share) (Loss) EPS Operations (Loss) EPS Operations
From Table 1 $19 $0.17 $68 $85 $(35) $(0.32) $60 $15
Income (loss) 19 0.17 68 85 (35) (0.32) 60 15
before
discontinued
operations
Restructuring 2 0.02 3 3 4 0.03 7 7
costs(5)
Proxy Costs(5) 2 0.02 3 3 - - - -
Asbestos(5) - - - - 42 0.39 - 65
Other gains and
losses, net, 1 0.01 - - 1 0.01 1 1
related to
divested
businesses(5)
Other(5) 1 - - 1 1 0.01 1 1
Subtotal $ 6 $0.05 $ 6 $ 7 $48 $0.44 $ 9 $74
Tax benefit
attributable to (1) (0.01) - - - - - -
donation of
intellectual
property
Adjustment to - - - - 9 0.08 - -
statutory tax
rate
Ongoing $24 $0.21 $74 $92 $22 $0.20 $69 $89
Operations(1)
(Unaudited)
Table 3
Reconciliation to NINE MONTHS NINE MONTHS
Ongoing ENDED SEPTEMBER 30, 2003 ENDED SEPTEMBER 30, 2002
Operations
September 30,
2003
(Dollars in Net Basic & Profit EBITDA Net Basic & Profit EBITDA
millions, Income Diluted From Income Diluted From
except per share) (Loss) EPS Operations (Loss) EPS Operations
From Table 1 $36 $0.32 $201 $254 $(626) $(5.74) $167 $118
Discontinued (2) (0.02) - - 199 $1.83 - -
operations
Cumulative effect
of changes in 28 0.26 - - 368 3.37 - -
accounting
principle, net of
tax
Income (loss)
before
discontinued 62 0.56 201 254 (59) (0.54) 167 118
operations and
changes in
accounting
principle
Restructuring 2 0.02 4 4 10 0.09 16 16
costs(5)
Asset - - - - 4 0.04 6 6
Impairments(5)
Proxy Costs(5) 2 0.02 3 3 - - - -
Debt Prepayment
and Write-Off of - - - - 28 0.25 - 43
Debt Issuance
Costs(5)
Asbestos(5) - - - - 42 0.39 - 65
Other gains and
losses, net, 3 0.03 3 3 (1) (0.01) (1) (1)
related to
divested
businesses(5)
Other(5) 2 0.01 (4) 1 4 0.04 5 5
Subtotal $ 9 $0.08 $ 6 $ 11 $ 87 $0.80 $ 26 $134
Items related to
discontinued
operations(1) (5)
Interest Expense - - - - 17 0.15 - -
Distribution - - - - (3) (0.03) (5) (5)
Agreement
Corporate Costs - - - - (3) (0.03) (4) (4)
Subtotal - - - - $ 11 $0.09 $ (9) $ (9)
Tax benefit
attributable to (8) (0.07) - - - - - -
donation of
intellectual
property
Adjustment to - - - - 14 0.13 - -
statutory tax
rate
Ongoing $63 $0.57 $207 $265 $ 53 $0.48 $184 $243
Operations(1)
(1) Ongoing operations and EBITDA are non-GAAP financial measures. The ongoing
operations include Pulp and Paper, Aqualon, FiberVisions and Pinova.
Unaudited profit from ongoing operations and EBITDA (see Note 3) exclude
restructuring and other costs and includes the effects of the General
Electric Specialty Materials "GESM" distribution agreement, which became
effective on April 29, 2002.
As a result of the BetzDearborn Water Treatment Business divestiture and
corresponding debt repayment, Hercules will no longer incur costs related to
ESOP expense and certain corporate costs for personnel who supported the Water
Treatment Business. Had these costs not existed in the nine months ended
September 30, 2002, profit and EBITDA from ongoing operations would have been
higher by $4 million.
Includes an adjustment to interest expense in the nine months ended
September 30, 2002 to reflect paydown of debt with proceeds from the
BetzDearborn Water Treatment Business divestiture.
(2) Hercules 2003 results reflect adoption of FIN 46 in the third quarter 2003.
(3) Net of amortization of debt issuance costs.
(4) Calculated as income from continuing operations before taxes plus interest
expense, preferred security distributions, depreciation and amortization,
net of amortization of debt issuance costs.
(5) After tax, assuming a 36% effective tax rate for 2003 and a 35% statutory
tax rate for 2002.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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