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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
Commission file number 1-496
HERCULES INCORPORATED
A Delaware corporation
I.R.S. Employer Identification No. 51-0023450
Hercules Plaza
1313 North Market Street
Wilmington, Delaware 19894-0001
Telephone: 302-594-5000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: X No:
----- -----
As of July 31, 2002, 109,201,778 shares of registrant's common
stock were outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HERCULES INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (Unaudited)
(Dollars in millions, except per share) Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net sales $ 437 $ 459 $ 839 $ 957
Cost of sales (Note 6) 267 294 510 620
Selling, general and administrative expenses 84 107 172 208
Research and development 11 14 21 29
Goodwill and intangible asset amortization (Note 4) 3 6 5 13
Other operating expense (income), net (Note 7) 19 (65) 24 (62)
------ ------ ------ ------
Profit from operations 53 103 107 149
Interest and debt expense (Note 8) 25 53 61 108
Preferred security distributions of subsidiary trusts 14 14 29 29
Other (expense) income, net (Note 9) (45) 4 (49) 2
------ ------ ------ ------
(Loss) income before income taxes and equity loss (31) 40 (32) 14
(Benefit) provision for income taxes (9) 25 (7) 15
------ ------ ------ ------
(Loss) income before equity income (loss) (22) 15 (25) (1)
Equity income (loss) of affiliated companies, net of tax 1 (1) 1 (4)
------ ------ ------ ------
Net(loss) income from continuing operations before discontinued
operations and cumulative effect of change
in accounting principle (21) 14 (24) (5)
Discontinued operations (Note 3)
Income (loss) from operations of discontinued
business (including loss on disposal of $155 million in the
six months ended June 30, 2002) 16 27 (104) 42
Provision for income taxes 6 18 95 24
------ ------ ------ ------
Net income (loss) on discontinued operations 10 9 (199) 18
------ ------ ------ ------
Net (loss) income before cumulative effect of change
in accounting principle (11) 23 (223) 13
Cumulative effect of change in accounting principle,
net of tax, (Note 4) -- -- (368) --
------ ------ ------ ------
Net (loss) income $ (11) $ 23 $ (591) $ 13
====== ====== ====== ======
Basic and diluted (loss) earnings per share (Note 5)
Continuing operations $(0.19) $ 0.13 $(0.22) $(0.04)
Discontinued operations $ 0.09 $ 0.08 $(1.83) $ 0.16
Cumulative effect of change in accounting principle $ -- $ -- $(3.37) $ --
Net (loss) income $(0.10) $ 0.21 $(5.42) $ 0.12
Weighted average number of shares - basic (millions) 109.0 108.1 109.0 108.2
Weighted average number of shares - diluted (millions) 109.0 108.3 109.0 108.4
See accompanying notes to financial statements.
2
HERCULES INCORPORATED
CONSOLIDATED BALANCE SHEET
(Dollars in millions) (Unaudited)
June 30, December 31,
2002 2001
---- ----
ASSETS
Current assets
Cash and cash equivalents $ 72 $ 76
Accounts and notes receivable, net 373 506
Inventories
Finished products 82 127
Materials, supplies, and work in process 81 106
Deferred income taxes -- 27
------- -------
Total current assets 608 842
Property, plant, and equipment 1,927 2,234
Accumulated depreciation and amortization (1,257) (1,331)
------- -------
Net property, plant, and equipment 670 903
Goodwill and other intangible assets, net (Note 4) 631 2,476
Other assets 815 828
------- -------
Total assets $ 2,724 $ 5,049
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 148 $ 203
Accrued expenses 388 463
Short-term debt (Note 11) 141 251
------- -------
Total current liabilities 677 917
Long-term debt (Note 11) 545 1,959
Deferred income taxes 202 334
Postretirement benefits and other liabilities 470 503
Commitments and contingencies (Note 13)
Company-obligated preferred securities of subsidiary trusts (Note 12) 624 624
Stockholders' equity
Series preferred stock -- --
Common stock (shares issued: 2002 - 159,984,444;
2001 - 159, 984,444) 83 83
Additional paid-in capital 688 697
Unearned compensation (104) (104)
Other comprehensive losses (137) (218)
Retained earnings 1,508 2,099
------- -------
2,038 2,557
Reacquired stock, at cost (shares: 2002 - 50,832,374;
2001 - 51,196,972) (1,832) (1,845)
------- -------
Total stockholders' equity 206 712
------- -------
Total liabilities and stockholders' equity $ 2,724 $ 5,049
======= =======
See accompanying notes to financial statements.
3
HERCULES INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOW
(Dollars in millions) (Unaudited)
Six Months Ended June 30,
-------------------------
2002 2001
---- ----
Net cash used in operating activities of continuing operations (303) (16)
---- ----
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (13) (37)
Proceeds of investment and fixed asset disposals 1,811 346
Other, net 4 (1)
---- ----
Net cash provided by investing activities of continuing operations 1,802 308
CASH FLOW FROM FINANCING ACTIVITIES:
Long-term debt proceeds 250 147
Long-term debt repayments (1,770) (434)
Change in short-term debt (8) (92)
Common stock issued 4 12
---- ----
Net cash (used in) financing activities of continuing operations (1,524) (367)
Net cash provided by discontinued operations 25 64
Effect of exchange rate changes on cash (4) (2)
---- ----
Net decrease in cash and cash equivalents (4) (13)
Cash and cash equivalents - beginning of period 76 54
---- ----
Cash and cash equivalents - end of period $72 $41
==== ====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) 66 64
Preferred security distributions of subsidiary trusts 29 32
Income taxes 133 10
Non-cash investing and financing activities:
Incentive and other employee benefit stock plan -- 7
See accompanying notes to financial statements.
4
HERCULES INCORPORATED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions) (Unaudited) (Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net (loss) income $ (11) $ 23 $(591) $ 13
Foreign currency translation 33 (21) (22) (66)
Reclassification adjustment for
loss included in net (loss) income 103 -- 103 --
---- ---- ----- ----
Comprehensive income (loss) $ 125 $ 2 $(510) $(53)
==== ==== ===== ====
See accompanying notes to financial statements.
5
HERCULES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. These condensed consolidated financial statements of Hercules
Incorporated ("Hercules" or the "Company") are unaudited, but in the opinion of
management include all adjustments necessary to present fairly in all material
respects Hercules' financial position and results of operations for the interim
periods. These condensed consolidated financial statements should be read in
conjunction with the accounting policies, financial statements and notes
included in Hercules' Annual Report on Form 10-K for the year ended December 31,
2001. Certain prior period amounts have been reclassified to conform to the
current period presentation.
Pursuant to Securities and Exchange Commission ("SEC") Regulation S-X,
Rule 3-10, the Company is required to provide condensed consolidating financial
information on the Company and its subsidiaries in a prescribed format in all
periodic reports filed with the SEC. The information necessary to present all of
the required disclosures was not available in time to be included in this Form
10-Q filing. The Company is in the process of preparing the required condensed
consolidating financial information and intends to file a Form 10-Q/A, which
will include this information, as soon as it is available.
Pursuant to SEC Regulation S-X, Rule 3-16, the Company was required to
provide separate company stand-alone audited financial statements in its Annual
Report on Form 10-K for the fiscal year ended December 31, 2001 for certain
subsidiaries whose stock was pledged as collateral and constituted a
substantial portion of the collateral for the Company's registered debt (the
"Collateral Audits"). The information necessary to present all of the required
Collateral Audits was not available in time to be included in the Form 10-K
filing. The Company is in the process of preparing the required Collateral
Audits and intends to file a Form 10-K/A, which will include this information,
as soon as it is available. Until these Collateral Audits are filed, the
Company will not have any registration statements or post-effective amendments
to registration statements declared effective, and can not make offerings under
effective registration statements. The stock pledges were released on April 29,
2002 (see Note 11). As a result, based on the Company's current debt structure,
separate company stand-alone audited financial statements will not be required
in the Company's Annual Report on Form 10-K for the fiscal year ending December
31, 2002.
2. In June 2001, the Financial Accounting Standards Board ("FASB")
approved the issuance of Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 establishes
accounting standards for the recognition and measurement of legal obligations
associated with the retirement of tangible long-lived assets. SFAS 143 will
become effective for the Company on January 1, 2003 and requires recognition
of a liability for an asset retirement obligation in the period in which it is
incurred. The Company is in the process of evaluating the impact of this
standard, but it does not believe it will have a material effect on its
financial statements.
On January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets.
In April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
to FASB Statement No. 13, and Technical Corrections." The Company has elected to
early adopt the provisions of SFAS 145 related to the rescission of SFAS 4,
"Reporting Gains and Losses from the Extinguishment of Debt" ("SFAS 4").
Accordingly, the prepayment penalties and the write-off of debt issuance costs
relating to the April 2002 debt repayment (see Note 11) are reported in net
(loss) income from continuing operations. Under SFAS 4, the majority of these
costs would have been reported as an extraordinary loss in the Consolidated
Statement of Operations.
In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" ("SFAS 146"). SFAS 146 addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs in a Restructuring)". SFAS 146 defines the timing of the recognition of
costs associated with exit or disposal activities, the types of costs that may
be recognized and the methodology for calculating the fair value of such costs.
The provisions of SFAS 146 are effective for exit or disposal activities that
are initiated after December 31, 2002. The Company does not believe this
statement will have a material effect on its financial statements.
6
3. Discontinued Operations
On April 29, 2002, the Company completed the sale of the BetzDearborn
Water Treatment Business (the "Water Treatment Business") to GE Specialty
Materials, a unit of General Electric Company. The sale price was $1.8 billion
in cash, resulting in net after tax proceeds of approximately $1.7 billion. The
Company used the net proceeds to prepay debt under its senior credit facility
and ESOP credit facility (see Note 11). Pursuant to SFAS 144, the Water
Treatment Business has been treated as a discontinued operation as of February
12, 2002, and accordingly, 2001 financial information has been restated.
The Paper Process Chemicals Business, representing approximately
one-third of the business originally acquired with BetzDearborn Inc. in 1998,
was fully integrated into and continues to be reported within the Pulp and Paper
Division.
Summarized below are the results of operations for the three and six
months ended June 30, 2002 and 2001. The loss from discontinued operations for
the three and six months ended June 30, 2002 includes an after-tax loss on the
disposal of the business of $0 and $230 million, respectively.
(Dollars in millions) Three Months Ended June 30, Six Months Ended June 30,
2002(1) 2001 2002(1) 2001
---- ---- ----- ----
Net Sales $77 $211 $ 269 $415
--- ---- ----- ----
Profit from operations 16 26 49 42
--- ---- ----- ----
Income before income taxes 16 27 51 42
Tax provision 6 18 20 24
--- ---- ----- ----
Income from operations 10 9 31 18
Loss from disposal of business, including
taxes of $0 and $75 million -- -- (230) --
--- ---- ----- ----
Income (loss) from discontinued operations $10 $ 9 $(199) $ 18
=== ==== ===== ====
(1) Results of operations for the respective periods are through April 28,
2002.
4. Goodwill and Other Intangible Assets
Effective January 1, 2002 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). Under SFAS 142, goodwill and intangible assets
with indefinite useful lives are not amortized but instead are reviewed for
impairment at least annually and written down only in periods in which it is
determined that the fair value is less than the recorded value. SFAS 142 also
requires the transitional impairment review for goodwill, as well as an annual
impairment review, to be performed on a reporting unit basis. The Company has
identified the following reporting units: BetzDearborn, Pulp and Paper, Aqualon,
FiberVisions and Resins. In connection with the Company's transitional review,
recorded goodwill was determined to be impaired in the BetzDearborn and
FiberVisions reporting units. In the first quarter of 2002, the Company
completed its transitional impairment review of identified reporting units and
recognized after tax impairment losses of $262 million in the BetzDearborn
reporting unit and $87 million in the FiberVisions reporting unit as a
cumulative effect of a change in accounting principle.
In addition, an after tax impairment loss of $19 million was recognized
in the first quarter of 2002 relating to the Company's equity investment in CP
Kelco, which will also have an impairment under SFAS 142. After recognition of
this impairment, the carrying value for the Company's investment in CP Kelco is
zero.
7
The following table reflects the effect of the adoption of SFAS 142 on
net (loss) income and net (loss) earnings per share as if SFAS 142 had been in
effect for the periods presented.
(Dollars in millions, except per share) Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
---- ---- ---- ----
Net (loss) income before cumulative effect of change in
accounting principle:
As reported $ (11) $ 23 $ (223) $ 13
Goodwill amortization -- 13 -- 25
------- ------- ------- -------
Adjusted net (loss) income before cumulative effect of change in
accounting principle $ (11) $ 36 $ (223) $ 38
======= ======= ======= =======
Basic net (loss) earnings per share before cumulative effect of
change in accounting principle:
As reported $ (0.10) $ 0.21 $ (2.05) $ 0.12
Goodwill amortization -- 0.12 -- 0.23
------- ------- ------- -------
Adjusted basic (loss) earnings per share before cumulative effect
of change in accounting principle $ (0.10) $ 0.33 $ (2.05) $ 0.35
======= ======= ======= =======
Diluted net (loss) earnings per share before cumulative effect of
change in accounting principle:
As reported $ (0.10) $ 0.21 $ (2.05) $ 0.12
Goodwill amortization -- 0.12 -- 0.23
------- ------- ------- -------
Adjusted diluted (loss) earnings per share before cumulative
effect of change in accounting principle $ (0.10) $ 0.33 $ (2.05) $ 0.35
======= ======= ======= =======
Net (loss) income:
As reported $ (11) $ 23 $ (591) $ 13
Goodwill amortization -- 13 -- 25
------- ------- ------- -------
Adjusted net (loss) income $ (11) $ 36 $ (591) $ 38
======= ======= ======= =======
Basic net (loss) earnings per share:
As reported $ (0.10) $ 0.21 $ (5.42) $ 0.12
Goodwill amortization -- 0.12 -- 0.23
------- ------- ------- -------
Adjusted basic (loss) earnings per share $ (0.10) $ 0.33 $ (5.42) $ 0.35
======= ======= ======= =======
Diluted net (loss) earnings per share:
As reported $ (0.10) $ 0.21 $ (5.42) $ 0.12
Goodwill amortization -- 0.12 -- 0.23
------- ------- ------- -------
Adjusted diluted (loss) earnings per share $ (0.10) $ 0.33 $ (5.42) $ 0.35
======= ======= ======= =======
8
Accumulated amortization for goodwill upon adoption of SFAS 142 was
$185 million. The following table shows changes in the carrying amount of
goodwill for the six months ended June 30, 2002, by operating segment.
(Dollars in millions) Engineered
Performance Materials
Products and Additives Total
-------- ------------- -----
Balance at January 1, 2002 $ 1,724 $ 172 $ 1,896
Discontinued operations
BetzDearborn (948) -- (948)
------- ----- -------
Total discontinued operations (948) -- (948)
------- ----- -------
Impairment losses
BetzDearborn, discontinued operations (155) -- (155)
BetzDearborn, cumulative effect (267) -- (267)
FiberVisions, cumulative effect -- (87) (87)
------- ----- -------
Total impairment losses (422) (87) (509)
------- ----- -------
Foreign currency translation 15 -- 15
------- ----- -------
Balance at June 30, 2002 $ 369 $ 85 $ 454
======= ===== =======
The following table provides information regarding the Company's other
intangible assets with finite lives:
(Dollars in millions) Customer Trademarks Other
Relationships & Tradenames Intangibles Total
------------- ------------ ----------- -----
Gross Carrying Amount
Balance, January 1, 2002 $ 330 $ 250 $ 140 $ 720
Discontinued operations - BetzDearborn (241) (180) (70) (491)
----- ----- ----- -----
Balance, June 30, 2002 89 70 70 229
----- ----- ----- -----
Accumulated Amortization
Balance, January 1, 2002 $ (28) $ (20) $ (57) $(105)
Current year amortization (2) (1) (4) (7)
Discontinued operations - BetzDearborn 21 16 23 60
----- ----- ----- -----
Balance, June 30, 2002 (9) (5) (38) (52)
----- ----- ----- -----
Net Carrying Amount
Balance, January 1, 2002 $ 302 $ 230 $ 83 $ 615
Current year amortization (2) (1) (4) (7)
Discontinued operations - BetzDearborn (220) (164) (47) (431)
----- ----- ----- -----
Balance, June 30, 2002 $ 80 $ 65 $ 32 $ 177
===== ===== ===== =====
9
Total amortization expense for each of the three month periods ended
June 30, 2002 and 2001 for other intangible assets was $3 million and $6 million
respectively, of which $3 million and $2 million was included in income from
continuing operations for the three months ended June 30, 2002 and 2001,
respectively. Total amortization expense for each of the six month periods ended
June 30, 2002 and 2001 for other intangible assets was $7 million and $13
million, respectively, of which $5 million and $5 million, was included in
income from continuing operations for the six months ended June 30, 2002 and
2001, respectively. Total goodwill amortization expense for the three and six
months ended June 30, 2001 was $13 million and $25 million, respectively, of
which $4 million and $8 million respectively, was included in income from
continuing operations. Estimated amortization expense for 2002 and the five
succeeding fiscal years is as follows: 2002 through 2006 - $9 million per year,
2007 - $8 million.
5. The following table shows the amounts used in computing (loss) earnings
per share and the effect on income and the weighted-average number of shares of
dilutive potential common stock:
(In millions, except Three Months Ended June 30, Six Months Ended June 30,
per share ) 2002 2001 2002 2001
---------------------- ---------------------- ---------------------- ---------------------
(Loss) (Loss) (Loss) (Loss)
(Loss) earnings per (Loss) earnings per (Loss) earnings per (Loss) earnings per
income share income share income share income share
------ ----- ------ ----- ------ ----- ------ -----
BASIC:
Continuing operations $ (21) $ (0.19) $ 14 $ 0.13 $ (24) $ (0.22) $ (5) $ (0.04)
Discontinued operations 10 0.09 9 0.08 (199) (1.83) 18 0.16
Cumulative effect of change
in accounting principle -- -- -- -- (368) (3.37) -- --
----- ------- ----- ------- ----- ------- ---- -------
Net (loss) income (11) (0.10) 23 0.21 (591) (5.42) 13 0.12
Weighted average number
of basic shares (millions) 109.0 108.1 109.0 108.2
DILUTED:
Continuing operations $ (21) $ (0.19) $ 14 $ 0.13 $ (24) $ (0.22) $ (5) $ (0.04)
Discontinued operations 10 0.09 9 0.08 (199) (1.83) 18 0.16
Cumulative effect of change
in accounting principle -- -- -- -- (368) (3.37) -- --
----- ------- ----- ------- ----- ------- ---- -------
Net (loss) income (11) (0.10) 23 0.21 (591) (5.42) 13 0.12
Weighted average number
of diluted shares (millions) 109.0 108.3 109.0 108.4
6. Cost and expenses include depreciation related to continuing operations
of $17 million and $20 million for the three months ended June 30, 2002 and
2001,respectively, and $35 million and $40 million for the six months ended
June 30, 2002 and 2001, respectively.
7. Other operating expense (income), net, for the three and six months
ended June 30, 2002 include environmental charges of approximately $4 million
and $5 million, respectively, additional non-recurring restructuring charges of
$6 million and $10 million associated with the comprehensive cost reduction and
work process redesign program announced in September 2001 (see Note 10),
respectively, and $6 million for an asset impairment charge in the Performance
Products segment and miscellaneous expenses of $3 million in both periods.
Other operating expense (income), net, for the three and six months
ended June 30, 2001 includes $74 million of net gains relating to the sale of
the hydrocarbon resins and select portions of the rosin resins business, the
peroxy
10
chemicals business and the 50% interest in Hercules-Sanyo, Inc. These gains are
partially offset by $5 million of executive severance charges for the three and
six months ended June 30, 2001. The three and six months ended June 30, 2001
also include environmental charges of $1 million and $4 million, respectively,
and non-recurring fees associated with the proxy contest and other matters of $2
million and $3 million, respectively. In addition, the three and six months
ended June 30, 2001 include $1 million of costs relating to the abandonment of a
capital project.
8. Interest and debt costs are summarized as follows:
(Dollars in millions) Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
Costs incurred $25 $55 $61 $112
Amount capitalized -- 2 -- 4
--- --- --- ----
Interest expense $25 $53 $61 $108
=== === === ====
9. Other (expense) income, net, for the three and six months ended June
30, 2002 primarily includes a $43 million charge for debt prepayment penalties
and the write-off of debt issuance costs associated with the repayment of debt
with the proceeds from the sale of the Water Treatment Business (see Notes 3 and
11) and approximately $2 million and $6 million, respectively, for litigation
costs of a former operating unit.
Other (expense) income, net, for the three and six months ended June
30, 2001 primarily includes foreign currency gains of approximately $6 million
and $5 million, respectively, offset by miscellaneous other expenses, net, of $2
million and $3 million, respectively.
10. The consolidated balance sheet reflects liabilities for employee
severance benefits and other exit costs of $30 million and $43 million,
respectively, at June 30, 2002 and December 31, 2001. During 2001, management
authorized and committed to a plan to reduce the workforce as part of the
comprehensive cost reduction and work process redesign program. Under this plan,
approximately 1,129 employees have left or will leave the Company, of which
approximately 912 employees were terminated through June 30, 2002. The Company
incurred restructuring charges of $61 million relating to this plan, which
includes charges of $55 million for employee termination benefits and $6 million
for exit costs related to facility closures. For the three and six months ended
June 30, 2002, as a result of additional employee terminations, the estimate for
severance benefits pertaining to the 2001 plan increased by $5 million and $9
million, respectively. The estimate for exit costs related to facility closures
was increased by an additional $1 million in the quarter ended June 30, 2002.
The plan includes reductions throughout the Company with the majority of them
from support functions as well as the BetzDearborn and Pulp and Paper Divisions.
The restructuring liabilities also include amounts relating to the 1998
plan initiated upon the acquisition of BetzDearborn and additional plans that
the Company committed to in 2000 relating to the restructuring of the
BetzDearborn and Pulp and Paper Divisions and corporate realignment due to the
divestiture of non-core businesses. The total number of employee terminations
relating to the 1998 plan is 889. The total number of employee terminations
relating to the 2000 plan is 212. Actions under the 1998 and 2000 plans are
complete.
Cash payments during the three and six months ended June 30, 2002 were
$9 million and $20 million, respectively, for severance benefits and other exit
costs. Severance benefits paid during the year include the continuing benefit
streams of previously terminated employees under all three plans as well as
those terminated in the current year. Severance benefits were paid in accordance
with the Company's standard severance pay plans, or in accordance with local
practices outside the United States.
A reconciliation of activity with respect to the liabilities
established for these plans is as follows:
11
(Dollars in millions)
June 30, December 31,
2002 2001
---- ----
Balance at beginning of year $ 43 $ 34
Additional termination benefits and other exit costs 10 51
Cash payments (20) (25)
Reversals against goodwill (3) (10)
Reversals against earnings -- (7)
---- ----
Balance at end of period $ 30 $ 43
==== ====
The balance at the end of the period represents severance benefits and
other exit costs of which $26 million pertains to the 2001 restructuring plan,
$2 million pertains to the 1998 BetzDearborn plan and $2 million relates to
other restructuring plans initiated in 2000.
11. A summary of short-term and long-term debt follows:
(Dollars in millions)
June 30, December 31,
2002 2001
---- ----
SHORT-TERM:
Banks $ 1 $ 9
Current maturities of long-term debt
140 242
---- ----
$141 $251
==== ====
At June 30, 2002, the Company had $48 million of unused lines of credit
that may be drawn as needed. Lines of credit in use at June 30, 2002 were $1
million.
(Dollars in millions)
June 30, December 31,
2002 2001
---- ----
LONG-TERM:
6.60% notes due 2027 100 100
6.625% notes due 2003 125 125
11.125% senior notes due 2007 400 400
8% convertible subordinated debentures due 2010 3 3
Term loan tranche A due in varying amounts -- 543
through 2003
Term loan tranche D due 2005 -- 372
Revolving credit agreement due 2003 -- 516
ESOP debt -- 84
Term notes at various rates from 5.23% to 9.60%
due in varying amounts through 2006 53 52
Other 4 6
------- -------
$ 685 $ 2,201
Current maturities of long-term debt (140) (242)
------- -------
Net long-term debt $ 545 $ 1,959
======= =======
In 1998, the Company entered into a $3,650 million credit facility with
a syndicate of banks which included varying maturity term loans totaling $2,750
million, of which no amount was outstanding at June 30, 2002. In addition, the
facility included a $900 million revolving credit agreement, of which no amount
was outstanding at June 30, 2002.
12
As of June 30, 2002, $200 million of the multi-currency revolver was available
for use. The Company's incremental borrowing capacity was greater than the
amount available for use at June 30, 2002. Actual availability under the
revolving credit agreement has been constrained in the past, and could be
constrained in the future, by the Company's ability to meet covenants in its
senior credit facility.
Both the Company's senior credit facility and its ESOP credit facility
require quarterly compliance with certain financial covenants, including a
debt/EBITDA ratio ("leverage ratio"), an interest coverage ratio and minimum net
worth. Effective March 6, 2002, the facilities were amended to (i) modify
certain financial covenants (ii) change the mandatory prepayment provisions;
(iii) permit the reorganization of the Company in order to effect the separation
of the Water Treatment Business; and (iv) permanently reduce the revolving
committed amount under the credit facility to $200 million. The amendment to the
credit facility also included provisions that became effective upon the
consummation of the sale of the Water Treatment Business and the prepayment of
the credit facility, which occurred on April 29, 2002. These additional
provisions included the following: (i) the release of the subsidiary stock
pledged to the collateral agent; (ii) the elimination of the requirement that
stock of any additional subsidiaries be pledged in the future; and (iii) the
revision of the permitted amount of asset purchases and dispositions.
The Company used the net proceeds of approximately $1.7 billion from
the sale of the Water Treatment Business (see Note 3) to permanently reduce
long-term debt, repaying in full the following borrowings: Term Loan Tranche A,
Term Loan Tranche D, the Revolving Credit Agreement and the ESOP credit
facility. A portion of the net proceeds ($73 million) was used to collateralize
the Company's outstanding letters of credit.
Effective with the consummation of the sale of the Water Treatment
Business and the application of the net proceeds, the revolving credit facility
was permanently reduced from $900 million to $200 million. Of the $200 million
revolving credit facility, $170 million can be used for multi-currency
denominated borrowings and $30 million is restricted to U.S. dollar-denominated
debt. The amendment also resulted in the cancellation of the Canadian revolving
credit facility. In addition, as a result of these repayments, in the second
quarter of 2002 the Company recognized a $43 million charge (included in other
expense (income), net) for debt prepayment penalties and the write-off of debt
issuance costs relating to the debt that was repaid from the proceeds of the
sale of the Water Treatment Business (see Notes 3 and 9).
12. Company-obligated Preferred Securities of Subsidiary Trusts consists
of:
(Dollars in millions)
June 30, December 31,
2002 2001
---- ----
9.42% Trust Originated Preferred Securities $362 $362
6 1/2% CRESTS Units 262 262
---- ----
$624 $624
==== ====
13. Commitments and Contingencies
ENVIRONMENTAL
In the ordinary course of its business, the Company is subject to
numerous environmental laws and regulations covering compliance matters or
imposing liability for the costs of, and damages resulting from, cleaning up
sites, past spills, disposals and other releases of hazardous substances.
Changes in these laws and regulations may have a material adverse effect on the
Company's financial position and results of operations. Any failure by the
Company to adequately comply with such laws and regulations could subject the
Company to significant future liabilities.
Hercules has been identified as a potentially responsible party (PRP)
by U.S. federal and state authorities, or by private parties seeking
contribution, for the cost of environmental investigation and/or cleanup at
numerous sites. The estimated range of the reasonably possible share of costs
for the investigation and cleanup is between $83 million and $251 million. The
Company believes that the actual cost will more likely approximate $83 million
based on its estimation methods and prior experience. The actual costs will
depend upon numerous factors, including the number of parties found responsible
at each environmental site and their ability to pay; the actual methods of
remediation required or agreed to; outcomes of negotiations with regulatory
authorities; outcomes of litigation; changes in environmental laws
13
and regulations; technological developments; and the years of remedial activity
required, which could range from 0 to 30.
Hercules becomes aware of sites in which it may be named a PRP in
investigatory and/or remedial activities through correspondence from the U.S.
Environmental Protection Agency or other government agencies or from previously
named PRPs, who either request information or notify the Company of its
potential liability. The Company has established procedures for identifying
environmental issues at its plant sites. In addition to environmental audit
programs, the Company has environmental coordinators who are familiar with
environmental laws and regulations and act as a resource for identifying
environmental issues.
United States, et al. v. Vertac Corporation, et al., USDC No.
LR-C-80-109 and LR-C-80-110 (E.D. Ark.)
This case, a cost-recovery action based upon the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA, or the Superfund
statute), as well as other statutes, has been pending since 1980, and involves
liability for costs expended and to be expended in connection with the
investigation and remediation of the Vertac Chemical Company (Vertac) site in
Jacksonville, Arkansas. Hercules owned and operated the site from December 1961
until 1971. The site was used for the manufacture of certain herbicides and, at
the order of the United States, Agent Orange. In 1971, the site was leased to
Vertac's predecessor. In 1976, Hercules sold the site to Vertac. The site was
abandoned by Vertac in 1987, and Vertac was subsequently placed into
receivership by the Court. Both prior to and following the abandonment of the
site, the U.S. Environmental Protection Agency (EPA) and the Arkansas Department
of Pollution Control and Ecology (ADPC&E) were involved in the investigation and
remediation of contamination at and around the site. Pursuant to several orders
issued pursuant to CERCLA, Hercules actively participated in many of these
activities. The cleanup is essentially complete, except for certain on-going
maintenance and monitoring activities. This litigation primarily concerns the
responsibility for and the allocation of liability for the costs incurred in
connection with these activities.
Although the case initially involved many parties, as a result of
various United States District Court rulings and decisions, as well as a trial,
Hercules and Uniroyal were held jointly and severally liable for the
approximately $100 million in costs allegedly incurred by the EPA, as well as
costs to be incurred in the future. That decision was made final by the District
Court on September 13, 1999. Both Hercules and Uniroyal timely appealed that
judgment to the United States Court of Appeals for the Eighth Circuit.
On February 8, 2000, the District Court issued a final judgment on the
allocation between Hercules and Uniroyal finding Uniroyal liable for 2.6 percent
and Hercules liable for 97.4 percent of the costs at issue. Hercules timely
appealed that judgment. Oral argument in both appeals was held before the Eighth
Circuit on June 12, 2000.
On April 10, 2001, the United States Court of Appeals for the Eighth
Circuit issued an opinion in the consolidated appeals described above. In that
opinion, the Appeals Court reversed the District Court's decision which had held
Hercules jointly and severally liable for costs incurred and to be incurred at
the Jacksonville site, and remanded the case back to the District Court for a
determination of whether the harms at the site giving rise to the government's
claims were divisible, as well as other findings of the District Court. The
Appeals Court also vacated the District Court's allocation decision holding
Hercules liable for 97.4 percent of the costs at issue, ordering that these
issues be revisited following further proceedings with respect to divisibility.
Finally, the Appeals Court affirmed the judgment of liability against Uniroyal.
The trial on remand commenced on October 8, 2001 and continued through
October 19, 2001, and resumed on December 11, 2001, concluding on December 14,
2001. At the trial, the Company presented both facts and law to the District
Court in support of its belief that the Company should not be liable under
CERCLA for some or all of the costs incurred by the government in connection
with the site because those harms are divisible. Should the Company prevail on
remand, any liability to the government will be either eliminated or reduced
from the prior judgment.
Hercules Incorporated v. Aetna Casualty & Surety Company, et al., Del.
Super., C.A. No. 92C-10-105 and 90C-FE-195-1-CV (consolidated)
In 1992, Hercules brought suit against its insurance carriers for past
and future costs for cleanup of certain environmental sites. In April 1998, the
trial regarding insurance recovery for the Jacksonville, Arkansas, site (see
discussion above) was completed. The jury returned a "Special Verdict Form" with
findings that, in conjunction with the Court's other opinions, were used by the
Court to enter a judgment in August 1999. The judgment determined the amount of
Hercules' recovery for past cleanup expenditures and stated that Hercules is
entitled to similar coverage for costs incurred since September 30, 1997 and in
the future. Hercules has not included any insurance recovery in the
14
estimated range of costs above. Since entry of the Court's August 1999 order,
Hercules has entered into settlement agreements with several of its insurance
carriers and has recovered certain settlement monies. The terms of those
settlements and the amounts recovered are confidential. On August 15, 2001, the
Delaware Supreme Court issued a decision in Hercules Incorporated v. Aetna
Casualty & Surety Company, et al., Del. Super., C.A. No. 92C-10-105 and
90C-FE-195-1-CV (consolidated). In its decision, the Delaware Supreme Court
affirmed the trial court in part, reversed the trial court in part and remanded
the case for further proceedings. The specific basis upon which the Delaware
Supreme Court reversed the trial court was the trial court's application of pro
rata allocation to determine the extent of the insurers' liability. At this
time, proceedings at the trial court have not yet commenced.
The Allegany Ballistics Laboratory ("ABL") is a government-owned
facility which was operated by Hercules from 1945 to 1995. The United States
Department of the Navy has notified Hercules that the Navy would like to
negotiate with Hercules with respect to certain environmental liabilities which,
the Navy alleges, are attributable to Hercules' past operations at ABL. The Navy
alleges that, pursuant to CERCLA, it has spent a total of $24.8 million and that
it expects to spend an additional $60 million over the next 10 years. The
Company is currently investigating the Navy's allegations, including the basis
of the Navy's claims, and whether the Company's contracts with the government
pursuant to which the Company operated ABL may insulate the Company from some or
all of the amounts sought. At this time, however, the Company cannot reasonably
estimate its liability, if any, with respect to ABL and, accordingly, has not
included this site in the range of its environmental liabilities reported above.
At June 30, 2002, the accrued liability of $83 million for
environmental remediation represents management's best estimate of the probable
and reasonably estimable costs related to environmental remediation. The extent
of liability is evaluated quarterly. The measurement of the liability is
evaluated based on currently available information, including the progress of
remedial investigations at each site and the current status of negotiations with
regulatory authorities regarding the method and extent of apportionment of costs
among other PRPs. While it is not feasible to predict the outcome of all pending
suits and claims, the ultimate resolution of these environmental matters could
have a material effect upon the results of operations and the financial position
of Hercules, and the resolution of any of these matters during a specific period
could have a material effect on the quarterly or annual results of that period.
LITIGATION
The Company is a defendant in numerous asbestos-related personal injury
lawsuits and claims which typically arise from alleged exposure to asbestos
fibers from resin-encapsulated pipe and tank products which were sold by one of
the Company's former subsidiaries to a limited industrial market ("products
claims"). The Company is also a defendant in lawsuits alleging exposure to
asbestos at facilities formerly or presently owned or operated by the Company
("premises claims"). Claims are received and settled or otherwise resolved on a
regular basis. In late December 1999, the Company entered into a settlement
agreement to resolve the majority of the claims then pending. In connection with
that settlement, the Company also entered into an agreement with several of the
insurance carriers which sold that former subsidiary primary and first level
excess insurance policies. Under the terms of that agreement, the majority of
the amounts paid to resolve those products claims will be insured, subject to
the limits of the insurance coverage provided by those policies. The terms of
both settlement agreements are confidential.
Since entering into those agreements, the Company has continued to
receive and settle or otherwise resolve claims on a regular basis, with the
number of new claims averaging approximately 2,200 per year during 2000 and
2001, but at a higher rate to date for 2002. We are evaluating whether this
increase in claims is an anomaly or a new trend. As of June 2002, the Company
had pending approximately 8,950 unresolved claims, of which approximately 665
are premises claims. In addition, as of June 2002, there were pending
approximately 4,139 unpaid claims which have been settled or are subject to the
terms of a settlement agreement. In accordance with the terms of the previously
mentioned agreement with several insurance carriers, as well as agreements with
two other excess insurance carriers, the majority of the amounts paid and to be
paid to resolve those unpaid settled claims will be insured.
The Company anticipates that the primary and first level excess
insurance policies referenced above will exhaust over the next 12 to 24 months,
assuming that the rate of settlements and payments remains relatively consistent
with the Company's past experience. Nonetheless, based on the current number of
claims pending, the amounts the Company presently pays to resolve those claims,
and anticipated future claims (the Company's assumption being that the number of
future claims filed per year and claim resolution payments remain relatively
consistent with the Company's past experience, and that these matters cease to
be an ongoing liability after 2012), the Company believes that it and its former
subsidiary together have sufficient additional insurance to cover the majority
of its current and future asbestos-related liabilities. The Company is seeking
defense and indemnity payments or an agreement to pay from those carriers
responsible for excess coverage whose levels of coverage have been or will soon
be reached. Although those excess
15
carriers have not yet agreed to defend or indemnify it, the Company believes
that it is likely that they will ultimately agree to do so, and that the
majority of future asbestos related costs will ultimately be paid or reimbursed
by those carriers. However, if the Company is not able to reach satisfactory
agreements with those carriers prior to exhaustion of the primary and first
level excess insurance policies now covering the majority of its current
asbestos related claims, then beginning as early as sometime in 2003, the
Company might be required to completely fund these matters while it seeks
reimbursement from its carriers.
Based on the assumptions set forth in the preceding paragraph, the
reasonably possible future financial exposure for these matters is estimated to
be less than $200 million. As stated above, the Company presently believes that
the majority of this financial exposure will be funded by insurance proceeds.
Cash payments related to this exposure are expected to be made over an extended
number of years.
Due to the dynamic nature of asbestos litigation and the present
uncertainty concerning the participation of its excess insurance carriers,
however, the Company's estimates are inherently uncertain, and these matters may
present significantly greater and longer lasting financial exposures than
presently anticipated. As a result, the Company's liability with respect to
asbestos-related matters could exceed the amount noted above. If the Company's
liability does exceed that amount, the Company presently believes that the
majority of any additional liability it may reasonably anticipate will be paid
or reimbursed by its insurance carriers.
The Company has estimated and, therefore, has a recorded gross
liability for asbestos-related matters in its June 30, 2002 balance sheet of $73
million. The Company believes that it is probable that $56 million of that
amount will be funded by or recovered from insurance carriers. Accordingly, the
Company has recorded an asset in this amount in its June 30, 2002 balance sheet.
In June 1998, Hercules and David T. Smith Jr., a former Hercules
employee and a former plant manager at the Brunswick plant, along with
Georgia-Pacific Corporation and AlliedSignal Inc., were sued in Georgia State
Court by 423 plaintiffs for alleged personal injuries and property damage. This
litigation is captioned Coley, et al. v. Hercules Incorporated, et al., No. 98
VSO 140933 B (Fulton County, Georgia). Plaintiffs allege they were damaged by
the discharge of hazardous waste from the companies' plants. On February 11,
2000, the Georgia State Court dismissed Georgia-Pacific Corporation and
AlliedSignal Inc., without prejudice. In September 2000, David T. Smith Jr., was
dismissed by the Georgia State Court with prejudice. On July 18, 2000, the
Company was served with a complaint in a case captioned Erica Nicole Sullivan,
et al. v. Hercules Incorporated and David T. Smith, Jr., Civil Action File No.
00-1-05463-99 (Cobb County, Georgia). Based on the allegations contained in the
complaint, this matter is very similar to the Coley litigation, and is brought
on behalf of approximately 700 plaintiffs for alleged personal injury and
property damage arising from the discharge of hazardous waste from Hercules'
plant. Although venue had been removed to the United States District Court for
the Northern District of Georgia, the case was ultimately remanded back to state
court. Both the Coley and the Erica Nicole Sullivan cases are in the early
stages of motion practice and discovery. The Company denies any liability to
plaintiffs, and it will vigorously defend both of these cases.
In August 1999, the Company was sued in an action styled as Cape
Composites, Inc. v. Mitsubishi Rayon Co., Ltd., Case No. 99-08260 (U.S. District
Court, Central District of California), one of a series of similar purported
class action lawsuits brought on behalf of purchasers (excluding government
purchasers) of carbon fiber and carbon prepreg in the United States from the
named defendants from January 1, 1993 through January 31, 1999. The lawsuits
were brought following published reports of a Los Angeles federal grand jury
investigation of the carbon fiber and carbon prepreg industries. In these
lawsuits, plaintiffs allege violations of Section 1 of the Sherman Antitrust Act
for alleged price fixing. In September 1999, these lawsuits were consolidated by
the Court into a case captioned Thomas & Thomas Rodmakers v. Newport Adhesives
and Composites, Case No. CV-99-07796-GHK (CTx) (U.S. District Court, Central
District of California), with all related cases ordered dismissed. This lawsuit
is in the early stages of motion practice and discovery. On March 11, 2002, the
Court tentatively granted plaintiffs' Motion to Certify Class. That Order was
made final on May 2, 2002. The Company is named in connection with its former
Composites Products Division, which was sold to Hexcel Corporation in 1996, has
denied liability and will vigorously defend this action.
Beginning in September 2001, Hercules, along with the other defendants
in the Thomas & Thomas Rodmakers action referred to above, has been sued in nine
California state court purported class actions brought on behalf of indirect
purchasers of carbon fiber. In January 2002, these were consolidated into a case
captioned Carbon Fiber Cases I, II, and III, Judicial Council Coordination
Proceedings Nos. 4212, 4216 and 4222, Superior Court of California, County of
San Francisco. These actions all allege violations of the California Business
and Professions Code relating to alleged price fixing of carbon fiber and unfair
competition. The Company denies liability and will vigorously defend each of
these actions.
16
In June 2002, a purported class action was filed in Massachusetts under
the caption Saul M. Ostroff, et al. v. Newport Adhesives, et al., Civil Action
No. 02-2385, Superior Court of Middlesex County. This matter is a purported
class action brought on behalf of consumers who purchased merchandise
manufactured by carbon fiber, and alleges the same types of price fixing
activities alleged in the actions described in the above two paragraphs.
Further, in April 2002, a related "Qui Tam" action was unsealed by the U.S.
District Court for the Southern District of California. That action is captioned
Randall M. Beck, et al. v. Boeing Defense and Space Group, Inc., et al. (Civil
Action No. 99 CV 1557 JM JAH), was filed under seal in 1999, and is a "False
Claims" action brought pursuant to the False Claims Act (31 U.S.C. Section 729
et seq.). In that action, the Relators, in the name of the United States
Government, allege the same price fixing activities which are the subject of the
above-described actions. The Relators then allege that those alleged price
fixing activities resulted in inflated prices being charged by the defendant
carbon fiber manufacturers to the defendant defense contractors, who, in turn,
submitted claims for payment to the United States Government under various
government contracts. It is alleged that those claims for payment were "false
claims" because the prices charged for the carbon fiber and carbon prepreg were
"fixed" contrary to the laws of the United States. The Company denies liability
and will vigorously defend each of these actions.
In connection with the grand jury investigation noted above, in January
2000, the United States Department of Justice (DOJ), Antitrust Division, served
a grand jury subpoena duces tecum upon Hercules. The Company has been advised
that it is one of several manufacturers of carbon fiber and carbon prepreg that
have been served with such a subpoena.
In 1999, the Company was sued by Hexcel Corporation (Hexcel) in a case
captioned Hexcel Corporation v. Hercules Incorporated, Index No. 602293/99,
Supreme Court of New York, County of New York. In that case, Hexcel sought
recovery of a total of approximately $8,422,000 (plus interest) in alleged
"post-closing" adjustments to the purchase price paid by Hexcel for Hercules'
former Composite Products Division. The basis for these alleged "adjustments"
derive from the Sale and Purchase Agreement between Hercules and Hexcel dated as
of April 15, 1996. In June 2000, the Court granted Hexcel's motion for summary
judgment as to liability, finding the Company liable to Hexcel on technical
grounds, but reserved ruling on the amount of damages. The Court then referred
the damages determination to a Special Referee. In January 2001, the Special
Referee issued a report, recommending that the Company be found liable to Hexcel
for a total of approximately $7,300,000 plus interest, costs and expenses. In
February 2001, Hexcel moved to confirm the Special Referee's Report and the
Company moved to confirm in part and reject in part the Special Referee's
Report. The Company specifically challenged the majority of the Special
Referee's findings, and argued that a $2,000,000 indemnity "basket" established
by the terms of the April 1996 Sale and Purchase Agreement should apply,
reducing any award to Hexcel by $2,000,000. In May 2001, the Court accepted the
Special Referee's Report and rejected the Company's position. As a result,
judgment was entered against the Company in the amount of $10,219,685, which
included pre-judgment interest, costs and expenses. The Company appealed to the
Supreme Court, Appellate Division, First Department. On February 5, 2002, the
Supreme Court of New York, Appellate Division, First Department, affirmed the
decision of the trial court, entering judgment in favor of Hexcel in the full
amount. The Company then filed a Motion for Reargument or for Leave to Appeal to
the Court of Appeals, which was denied on March 19, 2002. On April 8, 2002, the
Company filed a motion for Leave to Appeal to the New York Court of Appeals
directly with the Court of Appeals, which motion was denied on June 13, 2002,
exhausting all available avenues of appeal. In addition to the foregoing, in
October 2000, Hexcel brought an action against Hercules to compel arbitration to
determine the proper "Working Capital Adjustment" under the terms of the Sale
and Purchase Agreement. Hexcel claimed it was owed approximately $1,500,000,
while the Company claimed that it was owed approximately $129,000. In late 2001,
this matter was submitted to binding arbitration. In December 2001, the
arbitrator found in the Company's favor and awarded damages to the Company of
$129,000. As a result of the foregoing, in June 2002 the Company paid Hexcel a
total of $11,052,682, representing the net amount owed to Hexcel, including
interest.
On September 28, 2000, the Company sold its Food Gums Division to CP
Kelco ApS, a joint venture that the Company entered into with Lehman Brothers
Merchant Banking Partners II, L.P. CP Kelco also acquired the biogums business
of Pharmacia Corporation (formerly Monsanto Company). In April 2001, CP Kelco
U.S., Inc., a wholly-owned subsidiary of CP Kelco ApS, sued Pharmacia (CP Kelco
U.S., Inc. v. Pharmacia Corporation, U.S. District Court for the District of
Delaware, Case No. 01-240-RRM) alleging federal securities fraud, common law
fraud, breach of warranties and representations, and equitable fraud. In
essence, the lawsuit alleges that Pharmacia misrepresented the value of the
biogums business, resulting in damages to CP Kelco U.S., including the
devaluation of CP Kelco U.S.'s senior debt by the securities markets. The
complaint seeks over $430 million in direct damages, as well as punitive
damages. In June 2001, Pharmacia filed a third-party complaint against the
Company and Lehman. That complaint seeks contribution and indemnification from
the Company and Lehman, jointly and severally, for any damages that may be
awarded to CP
17
Kelco U.S. in its action against Pharmacia. The Company believes that the
third-party lawsuit against it and Lehman is without merit. The Company has
denied any liability to Pharmacia and is vigorously defending this action.
At June 30, 2002, the consolidated balance sheet reflects a current
liability of approximately $32 million and a long-term liability of
approximately $44 million for litigation and claims. These amounts represent
management's best estimate of the probable and reasonably estimable losses
related to litigation or claims. The extent of the liability and recovery is
evaluated quarterly. While it is not feasible to predict the outcome of all
pending suits and claims, the ultimate resolution of these matters could have a
material effect upon the financial position of Hercules, and the resolution of
any of the matters during a specific period could have a material effect on the
quarterly or annual operating results for that period.
14. Segment Information
Upon the decision to divest the Water Treatment Business, the Company
realigned its reportable segments. The new reportable segments are Performance
Products and Engineered Materials and Additives. The Performance Products
segment is comprised of the Pulp and Paper Division and the Aqualon Division;
the Engineered Materials and Additives segment is composed of FiberVisions and
the Rosin and Terpenes Division.
(Dollars in millions) Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 (a) 2002 2001 (a)
----- ----- ----- -----
Net Sales:
Performance Products $ 356 $ 349 $ 683 $ 683
Engineered Materials and Additives (b) 81 110 156 274
----- ----- ----- -----
Consolidated $ 437 $ 459 $ 839 $ 957
===== ===== ===== =====
Profit from Operations:
Performance Products $ 62 $ 35 $ 120 $ 73
Engineered Materials and Additives (b) 3 1 6 14
Reconciling Items (c) (12) 67 (19) 62
----- ----- ----- -----
Consolidated $ 53 $ 103 $ 107 $ 149
===== ===== ===== =====
(a) As discussed above, the reportable segments of the Company have
been realigned subsequent to the sale of the BetzDearborn Water
Treatment Business. In addition, substantially all the reconciling
items have been allocated to the segments.
(b) Net sales and Profit from operations in 2001 include the results of
hydrocarbon resins, select rosin resins and the peroxy chemicals
businesses which were divested in May 2001. Net sales and Profit from
operations in 2001 have been reclassified to conform to the current
year presentation.
(c) Reconciling Items for the three and six months ended June 30, 2002
include restructuring charges, environmental costs and other corporate
costs not allocated to the businesses. Reconciling items for the three
and six months ended June 30, 2001 include environmental costs, other
corporate costs not allocated to the businesses and the net gains from
the sale of the hydrocarbon resins, select rosins resins and peroxy
chemicals businesses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS
Within the following discussion, unless otherwise stated, "quarter" and
"six-month period" refer to the second quarter of 2002 and the six months ended
June 30, 2002. All comparisons are with the corresponding periods in the
previous year, unless otherwise stated.
18
On April 29, 2002, the Company completed the sale of its BetzDearborn
Water Treatment Business (the "Water Treatment Business"). Accordingly, the
Water Treatment Business has been treated as a discontinued operation. Following
the divestiture, the Company realigned its reportable segments. The new
reportable segments are Performance Products, consisting of the Pulp and Paper
and Aqualon Divisions, and Engineered Materials and Additives, consisting of
FiberVisions and the Rosin and Terpenes Divisions. In addition, substantially
all reconciling items have been allocated to the segments. The reconciling items
primarily include corporate expenses. Results of operations for 2001 have been
restated to conform to the current year presentation.
Effective January 1, 2002, with the adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," the
Company ceased amortization of goodwill and other indefinite lived intangible
assets. Goodwill amortization totaled $13 million and $25 million in the three
and six months ended June 30, 2001, of which approximately $4 million and $8
million was related to continuing operations for the corresponding periods, and
$9 million and $17 million was related to discontinued operations in the three
and six months ended June 30, 2001.
In May 2001, the Company completed divestitures of its hydrocarbon
resins business, select portions of its rosin resins business, and its peroxy
chemicals business (the "Resins Divestitures").
The following tables reconcile reported sales and profit from
operations for the three and six-month periods ended June 30, 2002 and 2001 to
sales and profit from operations for the respective periods excluding
non-recurring items, divested businesses and goodwill amortization.
(Dollars in millions) (Unaudited)
Non-Recurring Divested Goodwill
Reported Items Businesses Amortization Total
-------- ----- ---------- ------------ -----
THREE MONTHS ENDED JUNE 30, 2002:
Net Sales by Industry Segment
Performance Products $ 356 $ -- $ -- $ -- $ 356
Engineered Materials and Additives 81 -- -- -- 81
----- ----- ----- ---- -----
Total $ 437 $ -- $ -- $ -- $ 437
===== ===== ===== ==== =====
Profit from Operations by Industry Segment
Performance Products $ 62 $ 6 (1) $ -- $ -- $ 68
Engineered Materials and Additives 3 -- -- -- 3
Reconciling Items (12) 9 (2) -- -- (3)
----- ----- ----- ---- -----
Total $ 53 $ 15 $ -- $ -- $ 68
===== ===== ===== ==== =====
THREE MONTHS ENDED JUNE 30, 2001:
Net Sales by Industry Segment
Performance Products $ 349 $ -- $ -- $ -- $ 349
Engineered Materials and Additives 110 -- (31)(4) -- 79
----- ----- ----- ---- -----
Total $ 459 $ -- $ (31) $ -- $ 428
===== ===== ===== ==== =====
Profit from Operations by Industry Segment
Performance Products $ 35 $ 1 $ -- $ 3 $ 39
Engineered Materials and Additives 1 -- (2)(4) 1 --
Reconciling Items 67 (68)(3) -- -- (1)
----- ----- ----- ---- -----
Total $ 103 $ (67) $ (2) $ 4 $ 38
===== ===== ===== ==== =====
19
(Dollars in millions) (Unaudited)
Non-Recurring Divested Goodwill
Reported Items Businesses Amortization Total
-------- ----- ---------- ------------ -----
SIX MONTHS ENDED JUNE 30, 2002:
Net Sales by Industry Segment
Performance Products $ 683 $ -- $ -- $ -- $ 683
Engineered Materials and Additives 156 -- -- -- 156
----- ----- ----- ---- -----
Total $ 839 $ -- $ -- $ -- $ 839
===== ===== ===== ==== =====
Profit from Operations by Industry Segment
Performance Products $ 120 $ 6 (1) $ -- $ -- $ 126
Engineered Materials and Additives 6 -- -- -- 6
Reconciling Items (19) 11 (2) -- -- (8)
----- ----- ----- ---- -----
Total $ 107 $ 17 $ -- $ -- $ 124
===== ===== ===== ==== =====
SIX MONTHS ENDED JUNE 30, 2001:
Net Sales by Industry Segment
Performance Products $ 683 $ -- $ -- $ -- $ 683
Engineered Materials and Additives 274 -- (113)(4) -- 161
----- ----- ----- ---- -----
Total $ 957 $ -- $(113) $ -- $ 844
===== ===== ===== ==== =====
Profit from Operations by Industry Segment
Performance Products $ 73 $ 1 $ -- $ 6 $ 80
Engineered Materials and Additives 14 -- (8)(4) 2 8
Reconciling Items 62 (67)(3) -- -- (5)
----- ----- ----- ---- -----
Total $ 149 $ (66) $ (8) $ 8 $ 83
===== ===== ===== ==== =====
(1) Asset impairment charge.
(2) Primarily restructuring charges.
(3) Net gains on Resins Divestitures.
(4) Sales and operating profit from divested Resins businesses.
Consolidated net sales declined $22 million, or 5%, for the quarter and
$118 million, or 12%, for the six-month period versus the corresponding periods
in 2001. The decline in net sales primarily reflects the effects of the Resins
Divestitures. Unfavorable foreign currency exchange translation, principally due
to the weaker Euro, contributed approximately $8 million to the decrease in net
sales for the six-month period; however, $1 million of favorable foreign
currency translation was recognized in the quarter. Profit from operations
decreased $50 million, or 49%, for the quarter and $42 million, or 28%, for the
six-month period versus 2001. Profit from operations in 2002 includes
non-recurring charges for restructuring and an asset impairment. Profit from
operations in 2001 includes $67 million of pre-tax non-recurring gains resulting
from the sales of the hydrocarbon resins, select portions of the rosin resins
business and the peroxy chemicals business. Total volumes decreased 6% and 19%
for the quarter and six-month period, respectively, reflecting the effects of
the Resins Divestitures. Excluding divested businesses, consolidated net sales
increased $9 million, or 2%, for the quarter and declined less than 1% for the
six-month period. Volumes on the same basis increased 7% and 2%, respectively,
for the three and six-month periods. Excluding non-recurring items, divested
businesses and the effects of goodwill amortization from 2001 results, profit
from operations improved $30 million, or 79%, for the quarter and $41 million,
or 49% for the six-month period. The improvement in profit from operations is
due primarily to cost reductions generated by the work process redesign
programs partially offset by lower pricing across most of the businesses. The
Company experienced normal seasonal pickup in its businesses in the second
quarter. However, demand in the underlying markets for these businesses remains
weak. The Company expects that earnings improvements will be generated primarily
by continued cost savings realized from the implementation of work process
improvements.
In the Performance Products segment, net sales were up $7 million, or
2%, for the quarter and remained flat for the six-month period versus the
corresponding periods in 2001. Profit from operations improved $27 million, or
77%, for the quarter and $47 million, or 64%, for the six-month period. In the
Pulp and Paper Division, net sales increased 5% and 1% for the quarter and
six-month period versus the prior year periods. Excluding non-recurring items
from all comparative periods and goodwill amortization from 2001 results, profit
from operations improved 200% in Pulp and Paper for the quarter and 72% for the
six-month period versus the same periods last year. The improvement in profit
from operations was largely due to higher volumes and cost improvements,
partially offset by unfavorable pricing and recognition of an asset impairment.
Net sales in the Aqualon Division declined 2% in both the quarter and six-month
periods and profit from operations, excluding goodwill amortization from 2001
results, improved 31% for the quarter
20
and 48% for the six-month period. The increase in profit from operations was
driven by lower raw material costs, cost reductions and favorable product mix,
partially offset by lower pricing.
In the Engineered Materials and Additives segment, excluding divested
businesses and goodwill amortization from 2001 operating profit results, net
sales increased $2 million, or 3%, for the quarter and decreased $5 million, or
3%, for the six-month period. On the same basis, profit from operations improved
$3 million in the quarter and decreased 25% for the six-month period versus the
prior year period. FiberVisions net sales declined 4% and 7% for the quarter and
six-month period, respectively. Lower sales in the quarter and six-month period
were largely driven by contractual customer pass through of lower polypropylene
costs. Profit from operations improved marginally in the quarter versus the
second quarter 2001 and decreased 50% in the six-month period. The unfavorable
variance in profit from operations in the six-month period versus the prior year
is largely due to a revision of an estimate favorably benefiting the first
quarter 2001. Excluding divested businesses, Rosin and Terpenes net sales
improved 17% and 6% for the quarter and six-month period, respectively, and
profit from operations improved versus both the prior year quarter and six-month
period. The improvement in profit from operations resulted from the 2002 hiring
of a full time sales team to support the business. Prior to 2002, sales were
sourced through distribution channels.
Interest and debt expense and preferred security distributions of
subsidiary trusts decreased $28 million for the quarter and $47 million for the
six-month period, primarily due to lower outstanding debt balances, reflecting
the application of proceeds from the sale of the Water Treatment Business on
April 29, 2002 and 2001 assets sales, as well as lower interest costs. The
Company used the proceeds from 2001 asset sales to reduce debt balances by
approximately $336 million in 2001. Following the sale of the Water Treatment
Business, the Company applied the proceeds to permanently reduce long-term debt
by approximately $1.6 billion and collaterize $73 million of the Company's
outstanding letters of credit (see Note 11).
Other expense, net increased $49 million primarily due to the write-off
of debt issuance costs associated with the repayment of debt with the proceeds
from the sale of the Water Treatment Business (see Notes 3, 9 and 11) and lower
foreign currency gains recognized in the three months ended June 30, 2002 versus
the prior year.
The effective tax rate for the quarter for continuing operations was
28% versus 63% for the same period in 2001. The anticipated tax rate for
continuing operations for 2002 is approximately 62%.
DISCONTINUED OPERATIONS
On April 29, 2002, Hercules completed the sale of the Water Treatment
Business to GE Specialty Materials, a unit of General Electric Company. The sale
price was $1.8 billion in cash, resulting in net after tax proceeds of
approximately $1.7 billion. The Company used the net proceeds to prepay debt
under its senior credit facility and ESOP credit facility (see Note 11).
Pursuant to SFAS 144, the Water Treatment Business has been treated as a
discontinued operation as of February 12, 2002, and accordingly, 2001 financial
information has been restated. The loss from discontinued operations for the
three and six months ended June 30, 2002 includes an after-tax loss on the
disposal of the business of $0 and $230 million, respectively.
The Paper Process Chemicals Business, representing approximately
one-third of the business of BetzDearborn Inc. originally acquired in 1998, was
fully integrated into and continues to be reported within the Pulp and Paper
Division.
ADOPTION OF SFAS NO. 142
The Company implemented Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142") during the first
quarter 2002. Under the provisions of this standard, goodwill and intangible
assets with indefinite useful lives are not amortized but instead are reviewed
for impairment at least annually and written down only in periods in which it is
determined that the fair value is less than the recorded value. In connection
with the Company's transitional review, recorded goodwill was determined to be
impaired in the BetzDearborn and FiberVisions reporting units. The Company
recognized after tax impairment charges of $262 million in the BetzDearborn
reporting unit and $87 million in the FiberVisions reporting unit. In addition,
an after tax impairment charge of $19 million was recognized for the Company's
equity investment in CP Kelco. After recognition of this impairment charge, the
Company's book carrying value in CP Kelco is zero.
FINANCIAL CONDITION
Liquidity and Financial Resources. Net cash used in continuing
operations was $271 million for the second quarter 2002 compared to cash used in
continuing operations of $16 million in the second quarter 2001. The increase
21
primarily reflects higher working capital requirements due largely to tax
payments and a $65 million pension contribution. The current ratio has decreased
to .90 at June 30, 2002, compared with .92 at December 31, 2001. The quick ratio
was .66 at December 31, 2001 and June 30, 2002. As of June 30, 2002, the Company
had $200 million available under its revolving credit agreement and $48 million
of short-term lines of credit. The Company's incremental borrowing capacity was
greater than the amount available for use at June 30, 2002. The Company expects
to meet short-term cash requirements from operating cash flow and availability
under lines of credit. However, actual availability is constrained by the
Company's ability to meet covenants in its senior credit facility. Future
compliance with debt covenants is dependent upon generating sufficient EBITDA
and cash flow which are, in turn, impacted by business performance, economic
climate, competitive uncertainties and possibly the resolution of contingencies.
Effective March 6, 2002, the Company amended its senior credit facility
and ESOP credit facility to (i) modify certain financial covenants; (ii) change
the mandatory prepayment provisions; (iii) permit the reorganization of the
Company in order to effect the separation of the Water Treatment Business; and
(iv) permanently reduce the revolving committed amount under the credit facility
to $200 million. The amendment to the credit facilities also included provisions
that became effective upon the consummation of the sale of the Water Treatment
Business and the prepayment of the credit facility, both of which were completed
on April 29, 2002. These additional provisions include the following: (i) the
release of the subsidiary stock pledged to the collateral agent; (ii) the
elimination of the requirement that stock of any additional subsidiaries be
pledged in the future; and (iii) the revision of the permitted amount of asset
purchases and dispositions. The Company used the net proceeds of approximately
$1.7 billion from the Water Treatment Business sale to permanently reduce
long-term debt, repaying in full the following borrowings: Term Loan Tranche A,
Term Loan Tranche D, the Revolving Credit Agreement and the ESOP credit
facility. A portion of the net proceeds ($73 million) was used to collateralize
the Company's outstanding letters of credit. The revolving credit facility was
permanently reduced from $900 million to $200 million. Of the $200 million
revolving credit facility, $170 million can be used for multi-currency
denominated borrowings and $30 million is restricted to U.S. dollar-denominated
debt. The amendment also resulted in the cancellation of the Canadian revolving
credit facility. In addition, as a result of these repayments, in the second
quarter of 2002 the Company recognized a $43 million charge (included in other
expense (income), net) for debt prepayment penalties and the write-off of debt
issuance costs relating to the debt that was repaid from the proceeds of the
sale of the Water Treatment Business (see Notes 3 and 9).
Capital Structure and Commitments. Total capitalization (stockholders'
equity, Company obligated preferred securities of subsidiary trusts and debt)
decreased to $1.5 billion at June 30, 2002, from $3.5 billion at year-end 2001.
The ratio of debt-to-total capitalization decreased to 45% at June 30, 2002 from
62% at December 31, 2001.
RISK FACTORS
Market Risk - Fluctuations in interest and foreign currency exchange
rates affect the Company's financial position and results of operations. The
Company uses several strategies from time to time to actively hedge interest
rate and foreign currency exchange rate exposure and minimize the effect of such
fluctuations on reported earnings and cash flow. Sensitivity of the Company's
financial instruments to selected changes in market rates and prices, which are
reasonably possible over a one-year period, are described below. Market values
are the present value of projected future cash flows based on the market rates
and prices chosen. The market values for interest rate risk are calculated by
utilizing a third-party software model that utilizes standard pricing models to
determine the present value of the instruments based on the market conditions as
of the valuation date.
The Company's derivative and other financial instruments subject to
interest rate risk consist of debt instruments, interest rate swaps and currency
swaps. At June 30, 2002, net market value of these combined instruments was a
liability of $1.3 billion. The sensitivity analysis assumes an instantaneous
100-basis point move in interest rates from their current levels, with all other
variables held constant. A 100-basis point increase in interest rates at June
30, 2002 would result in a $68 million decrease in the net market value of the
liability. A 100-basis point decrease in interest rates at June 30, 2001 would
result in a $76 million increase in the net market value of the liability. The
change in the net market value of derivative and other financial instruments
from year-end 2001 is primarily due to the repayment of both syndicated and
revolving debt as a result of the sale of the Water Treatment Business on April
29, 2002 (see Notes 3 and 11).
The Company's financial instruments subject to foreign currency
exchange risk consist of foreign currency forwards and options and represent a
net liability position of $3 million at June 30, 2002. The following sensitivity
analysis assumes an instantaneous 10% change in foreign currency exchange rates
from year-end levels, with all other variables held constant. A 10%
strengthening of the U.S. dollar versus other currencies at June 30, 2002 would
result in
22
a $5 million increase in the net liability position which would result in a net
asset position, while a 10% weakening of the dollar versus all currencies would
result in a $6 million decrease in the net asset position.
Foreign exchange forward and option contracts have been used to hedge
the Company's firm and anticipated foreign currency cash flows. Thus, there is
either an asset or cash flow exposure related to all the financial instruments
in the above sensitivity analysis for which the impact of a movement in exchange
rates would be in the opposite direction and substantially equal to the impact
on the instruments in the analysis. There are presently no significant
restrictions on the remittance of funds generated by the Company's operations
outside the United States.
The Company has not designated any derivative as a hedge instrument
under Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, and accordingly,
changes in the fair value of derivatives are recorded each period in earnings.
Environmental Litigation - Hercules has been identified by U.S. federal
and state authorities as a "potentially responsible party" for environmental
cleanup at numerous sites. The estimated range of reasonably possible costs for
remediation is between $83 million and $251 million. The Company does not
anticipate that its financial condition will be materially affected by
environmental remediation costs in excess of amounts accrued, although quarterly
or annual operating results could be materially affected (see Note 13 in Notes
to Financial Statements).
Environmental remediation expenses are funded from internal sources of
cash. Such expenses are not expected to have a significant effect on the
Company's ongoing liquidity. Environmental cleanup costs, including capital
expenditures for ongoing operations, are a normal, recurring part of operations
and are not significant in relation to total operating costs or cash flows.
Other Litigation - Hercules is a defendant in numerous lawsuits that
arise out of, and are incidental to, the conduct of its business. These suits
concern issues such as product liability, contract disputes, labor-related
matters, patent infringement, environmental proceedings, property damage and
personal injury matters. While it is not feasible to predict the outcome of all
pending suits and claims, the ultimate resolution of these matters could have a
material effect upon the financial position of Hercules, and the resolution of
any of the matters during a specific period could have a material effect on the
quarterly or annual operating results for that period (see Note 13 in Notes to
Financial Statements).
FORWARD-LOOKING STATEMENT
This quarterly report on Form 10-Q 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.
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, 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, 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, and adverse changes in economic and political climates around the
world. 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 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
For discussion of quantitative and qualitative disclosure about market
risk, see "Risk Factors" under Item 2, Management's Discussion and Analysis of
Results of Operations and Financial Condition.
23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For information related to Legal Proceedings, see Notes to Financial
Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Below is a summary of the final voting results from our Annual Meeting
of Stockholders that was held on June 27, 2002. A quorum of 92,489,150, or
84.79% of the outstanding voting shares as of the record date, was present in
person or by proxy at the annual meeting.
1. Election of Directors
Four of our 13 directors had terms that expired during 2002 and stood
for re-election this year.
Directors were elected to serve for three-year terms, expiring at the
2005 Annual Meeting of Shareholders, or until their successors are
elected and qualified.
Name For Withhold Authority
---- --- ------------------
William H. Joyce 76,916,057 15,573,093
Robert D. Kennedy 76,608,500 15,880,650
Jeffrey M. Lipton 76,729,155 15,759,995
Peter McCausland 77,121,384 15,367,766
Directors continuing in office after the meeting were: Richard
Fairbanks, Samuel J. Heyman, Alan R. Hirsig, Edith E. Holiday, Sunil
Kumar, Gloria Schaeffer, Paula A. Sneed, Raymond S. Troubh and Joe B.
Wyatt. John G. Drosdick retired from the Board effective April 25,
2002.
2. Ratification of PricewaterhouseCoopers LLP as Independent Accountants,
which proposal received more than a majority of the votes necessary for
ratification.
For Against Abstain
--- ------- -------
87,593,885 4,300,612 594,653
3. Approval of the extension of the expiration date of the Hercules
Incorporated Long Term Incentive Compensation Plan and change in the
limit for stock options awarded to any individual, which proposal
received more than a majority of the votes necessary for ratification.
For Against Abstain No Vote
--- ------- ------- -------
59,583,888 19,028,492 1,318,136 12,558,634
4. Approval of the continued use of the Hercules Incorporated Non-Employee
Director Stock Accumulation Plan and the conversion of unused stock
options into available shares of restricted common stock, which
proposal received more than a majority of the votes necessary for
ratification.
For Against Abstain No Vote
--- ------- ------- -------
66,232,233 12,218,417 1,479,866 12,558,634
24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
Date of Report Item No. Financial Statements Included
-------------- -------- -----------------------------
April 29, 2002 5, 7 No
May 20, 2002 5 No
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
HERCULES INCORPORATED
By: /s/ Stuart C. Shears
---------------------------------
Stuart C. Shears
Vice President and Treasurer
(Principal Financial Officer and
duly authorized signatory)
August 19, 2002
By: /s/ Fred G. Aanonsen
---------------------------------
Fred G. Aanonsen
Vice President and Controller
(Principal Financial Officer and
duly authorized signatory)
August 19, 2002
26