Hercules Reports Third Quarter 2008 Results

Business Wire, Oct 27, 2008

WILMINGTON, Del. -- 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 Quimica 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 Quimica 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.