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Hercules Incorporated
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HERCULES REPORTS FIRST QUARTER 2001 RESULTS;
CONTINUES PROCESS TO SELL OR MERGE COMPANY
WILMINGTON, DE, MAY 7, 2001 ... Hercules Incorporated (NYSE: HPC) today reported
sales for the first-quarter ending March 31, 2001 of $702 million, down 4% on a
comparable basis from the prior year. The company recorded a loss of $.09 per
diluted share in the quarter on a reported and recurring basis. This compares to
diluted earnings per share in the first quarter 2000 of $.34 on a reported basis
and $.35 on a recurring basis.
Earnings during the quarter included a non-cash loss of $.03 per diluted share
from the company's equity interest in C.P. Kelco.
The company reported recurring profit from operations of $63 million, 34% lower
than the same period last year on the same business basis. This reflects the
impact of challenging conditions in the chemical industry as well as soft demand
in key markets. A number of factors including higher energy, freight and raw
material costs, as well as unfavorable foreign currency exchange translation
further reduced results.
The slowing worldwide economy particularly impacted Pulp and Paper and Aqualon.
However, BetzDearborn delivered results in line with last year's performance and
the company's FiberVisions unit reported improved performance.
Thomas L. Gossage, chairman and chief executive officer, said, "Difficult
economic forces in the chemical industry and in our businesses continued in the
first quarter. Although we are cautious looking forward, we expect business
conditions to improve as the year progresses. To offset higher costs, we are
raising prices across our divisions. In addition, we are attacking costs in
every operation and maximizing cash flow as we simultaneously move ahead in our
efforts to sell or merge the company.
"We closed the sale of the majority of our resins business to Eastman Chemical
Company last week. During the first quarter, we also signed a definitive
agreement to sell the peroxides business to GEO Specialty Chemicals, Inc. Steps
are also well underway to divest our wood rosin and terpenes business," Gossage
said.
(continued)
2
"The process to merge or sell the company and its businesses is ongoing," he
said. "We are evaluating and pursuing a number of alternatives. Although the
timetable has not met our original plans, the process continues to move
forward."
Gossage pointed out that cash flow from operating activities, which excludes
capital expenditures, was positive for the quarter versus a deficit last year.
He described that as "strong performance given the difficult operating
environment for the industry and Hercules." Effective steps to improve cash
included trimming of capital expenditures, active management of working capital,
a company-wide restriction on hiring, and a firm hold on all discretionary
expenses. Interest expense and preferred security distributions rose $15 million
in the quarter as a result of higher interest rates as compared to the first
quarter 2000.
SEGMENT AND REGIONAL RESULTS
----------------------------
In the Process Chemicals Segment, sales in the first quarter were down 2% and
profit from operations declined 18% versus the same quarter 2000. The Pulp and
Paper Division was hurt by weak demand in the North American and European
markets. In North America, industry production of paper and paperboard declined
10% in the quarter. Volumes for Hercules Pulp and Paper Division were off 4%
from last year's first quarter.
BetzDearborn, also part of Process Chemicals, reported sales and profit from
operations essentially even with last year's results. Higher costs borne by this
division for freight and utility charges were offset by improved pricing, a 4%
rise in volumes and positive changes in product mix.
In the Functional Products Segment, first quarter sales and profit from
operations, excluding the divested food gums and nitrocellulose businesses, were
down 4% and profit from operations fell 38% compared to the same quarter 2000.
Slower sales in emerging international regions and to the U.S. paint market were
only partially offset by strong sales to the oilfield sector and to a rebounding
construction market in Europe. Higher raw material and energy costs impacted
results during the quarter. In addition, we had additional costs during the
quarter as we commissioned our new methylcellulose facility in Belgium. Overall,
on the same business basis, Aqualon's volumes rose 1% in the quarter versus a
year ago.
In the Chemical Specialties Segment, sales dropped 7% in the first quarter
versus the same period a year ago, although profits from operations increased 6%
compared to the first quarter 2000. Higher pricing and lower overhead expenses
led to this improvement, despite being partially offset by higher costs for raw
materials and energy. FiberVisions volumes were lower as this unit exited a
number of lower margin textile sectors.
(continued)
3
Within this segment, on May 1st, the company closed the sale of its hydrocarbon
resins and portions of its rosin resins business to Eastman. Also, the peroxides
sales to GEO and the auction of wood rosins and terpenes businesses are
progressing.
In the company's largest market, North America, sales declined 3%. In Europe,
sales fell 4%; in the emerging markets of Latin America and Asia Pacific, sales
in the quarter fell 4% and 6%, respectively.
# # #
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 REASONABLE ASSUMPTIONS. RESULTS COULD DIFFER
MATERIALLY DEPENDING ON SUCH FACTORS AS BUSINESS CLIMATE, ECONOMIC AND
COMPETITIVE UNCERTAINTIES, FAILURE TO COMPLETE TRANSACTIONS, ADVERSE LEGAL AND
REGULATORY DEVELOPMENTS, AND ADVERSE CHANGES IN ECONOMIC AND POLITICAL CLIMATES
AROUND THE WORLD. AS APPROPRIATE, ADDITIONAL FACTORS ARE CONTAINED IN REPORTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF
THE DATE OF THIS PRESS RELEASE. THIS PARAGRAPH IS INCLUDED TO PROVIDE SAFE
HARBOR FOR FORWARD-LOOKING STATEMENTS, WHICH ARE NOT REQUIRED TO BE PUBLICLY
REVISED AS CIRCUMSTANCES CHANGE.
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) (Unaudited)
Three Months
Ended
March 31
---------------
2001 2000(A)
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Net sales $702 $798
Cost of sales 409 450
Selling, general and administrative
expenses 190 197
Research and development 19 21
Goodwill and intangible asset
amortization 19 20
Other operating expenses, net 3 4
------ -------
Profit from operations 62 106
Equity in income of affiliated
companies (3) -
Interest and debt expense 55 32
Preferred security distribution of
subsidiary trusts 15 23
Other income (expense), net (3) 5
------ -------
Income before income taxes (14) 56
Provision for income taxes (4) 20
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Net income $(10) $36
====== =======
Earnings per share:
Basic: $(0.09) $0.34
====== =======
Weighted average No. shares
(millions) 107.9 106.7
Diluted: $(0.09) $0.34
====== =======
Weighted average No. shares
(millions) 108.0 106.9
Note: Depreciation and
amortization $ 54 $ 60
________________________________________________________________________________
(Unaudited)
SEGMENT DATA Excluding
(Dollars In Millions) Nonrecurring
Items
Three Months Three Months
Ended Ended
March 31 March 31
--------------------------------
2001 2000 2001 2000
------- ------ ------ ------
Net Sales By Industry Segment
Process Chemicals and Services $407 $416 $407 $416
Functional Products 131 206 131 206
Chemical Specialties 164 177 164 177
Reconciling Items - (1) - (1)
------- ------ ------ ------
Total $702 $798 $702 $798
======= ====== ====== ======
Profit (Loss) From Operations By
Industry Segment
Process Chemicals and Services $63 $77 $63 $77
Functional Products 24 52 24 52
Chemical Specialties 17 16 17 16
Reconciling Items (42) (39) (41) (37)
------- ------ ------ ------
Total $62 $106 $63 $108
======= ====== ====== ======
EBITDA(B) $112 $162 $113 $164
(A) Effective with the second quarter 2000, we changed our policy regarding
the classification of shipping and handling expenses. Accordingly, net sales
and cost of sales for the first quarter 2000 have been restated to reflect
this change for purposes of comparability. There is no impact on profit from
operations as a result of this change.
(B) Calculated as profit from operations plus depreciation and amortization,
net of amortization of debt issuance costs.