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HERCULES REPORTS SECOND QUARTER 2006 RESULTS |
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WILMINGTON, DE, July 26, 2006 . . . Hercules Incorporated (NYSE: HPC) today reported a net loss for the quarter ended June 30, 2006 of $52.3 million, or $0.47 per diluted share, as compared to net income of $9.2 million, or $0.08 per diluted share, for the second quarter of 2005.(1) The Company recorded an after-tax charge of $68.9 million in the second quarter of 2006 to increase its accrual for the recently affirmed ruling in the lawsuit captioned United States of America v. Vertac Chemical Corporation, et al. (the "Vertac lawsuit"). Net income from ongoing operations(2) for the second quarter of 2006 was $35.3 million, or $0.32 per diluted share, an increase of 19% per diluted share as compared to net income from ongoing operations of $30.1 million, or $0.27 per diluted share, in the second quarter of 2005. Please refer to Table 2 for a reconciliation of net income from ongoing operations to reported net income. Net income from ongoing operations for the six months ended June 30, 2006 was $61.6 million, or $0.56 per diluted share, an increase of 22% per diluted share versus the same period in 2005. Cash flow from operations for the six months ended June 30, 2006 was $64.0 million, an increase of $44.0 million as compared to the same period last year. Net sales in the second quarter of 2006 were $501.0 million, a decrease of 6% from the same period last year. The decrease in net sales reflects the effects of the Company's sale of a majority interest in FiberVisions on March 31, 2006 (the "FiberVisions transaction"). Excluding the impact of the FiberVisions transaction, sales increased 8% from the same period of last year. Volume and pricing increased by 8% and 2%, respectively. An unfavorable mix reduced sales by 2% during the quarter. Excluding the FiberVisions transaction, net sales for the six months ended June 30, 2006 were $959.1 million, an increase of $67 million or 8% as compared to the same period in 2005. Excluding the impact of the FiberVisions
transaction, net sales in the second quarter of 2006
increased 13% in North America, 8% in Latin America and 18%
in Asia Pacific as compared to the same period last year.
Europe was lower by 2%. Excluding the impact of the Euro,
sales in Europe were flat as compared to the second quarter
of 2005. Aqualon’s increased European sales offset weaker
sales of Paper Technologies in that region. "We were disappointed in the ruling recently received regarding the Vertac lawsuit and will seek further review of the Court's ruling. However, we remain positive about our overall momentum and our solid results," said Craig A. Rogerson, President and Chief Executive Officer. "Aqualon's volumes remain strong and Paper Technologies continues to deliver solid results in a challenging marketplace. We continue to meet or exceed our expectations in sales, earnings and cash flow growth, and continue to strengthen our balance sheet." Interest and debt expense was $16.7 million in the second quarter of 2006, down $6.1 million or 27% compared with the second quarter of 2005, reflecting lower outstanding debt balances and improved debt mix, partially offset by increased variable short term rates. Interest expense decreased $4.0 million as compared to the first quarter of 2006, partially reflecting lower debt balances outstanding. Total debt was $986.2 million at June 30, 2006, a decrease of $122.8 million from year-end 2005. Cash and cash equivalents were $81.9 million at June 30, 2006, an increase of $4.6 million from year-end 2005. Capital spending was $14.8 million in the second quarter and $22.9 million year to date. This compares to $15.4 million and $25.9 million in the second quarter and year to date periods last year, respectively. Cash outflows for severance, restructuring and other exit costs were $6.5 million in the quarter and $14.2 million year to date. Segment Results – Reported Basis In the Aqualon Group, net sales increased 14% while profit from operations increased 13% in the second quarter as compared with the second quarter of 2005. All segments had increased sales in the second quarter as compared to the prior year. In the aggregate, the sales increase was driven by 24% higher volume (12% excluding the first quarter acquisition of a guar and guar derivatives business and the consolidation of Hercules Tianpu, the Company's Chinese methylcellulose joint venture), partially offset by 9% unfavorable product mix (3% unfavorable excluding the acquisition and Tianpu) and 1% unfavorable rates of exchange. Overall the guar acquisition and Tianpu consolidation accounted for a 7% sales increase. Pricing, in the aggregate, was flat. Coatings & Construction sales increased 10% in the second quarter of 2006 as compared to the same period of last year, primarily due to 18% higher volume (9% excluding the Tianpu consolidation) partially offset by 4% unfavorable mix (1% unfavorable excluding Tianpu), 3% lower pricing and 1% unfavorable rates of exchange. Hercules Tianpu accounted for a 6% sales increase. Sales were strong in most regions, recovering from the soft conditions noted last year in the European markets. Sales of Coatings' products in Asia were especially strong during the second quarter. Pricing in the segment was lower reflecting, in part, continued pricing challenges in methylcellulose for construction products. Regulated Industries sales increased 1% in the second quarter of 2006 as compared to the same period of last year, primarily due to 1% increased volume and 1% increased price, partially offset by 1% unfavorable rates of exchange. Volume increased modestly in the food sector, whereas personal care sales were down slightly. Energy & Specialties sales increased 33% in the second quarter of 2006 as compared to the same period of last year. The increase was due to 29% higher volume/mix (13% excluding the guar and guar derivatives acquisition) and 5% higher prices, partially offset by 1% unfavorable rates of exchange. The acquisition accounted for a 16% sales increase. The natural gas and oil services sector demand continues to be strong and price increases were achieved across many of the specialty products families. Aqualon Group's profit from operations increased $6.5 million, primarily as a result of the higher volume and the associated contribution margin, partially offset by higher raw material, transportation and utility costs. Selling, general and administrative (SG&A) costs were slightly lower compared to the prior year, primarily reflecting lower corporate support costs offset by increased sales and marketing, business management and technology costs incurred to support growth initiatives. "Aqualon’s volume continued to grow significantly versus last year as we benefited from both organic growth and bolt-on acquisitions," said Mr. Rogerson. "We continue to grow in our focused markets and expect pricing to show steady improvement going forward." In the Paper Technologies and Ventures Group ("PTV"), net sales in the second quarter increased 2% and profit from operations increased 3% compared with the same quarter in 2005. Paper Technologies sales increased 2% due to 3% increased price and a 3% improved product mix, partially offset by 4% lower volume. Rates of exchange were flat. The improved mix reflects higher sales of new products in both the process and functional products families. Increased pricing was achieved in all regions of the world. Volumes were lower in both the Americas and Europe, while Asia remained strong. Venture sales increased 4% primarily due to 5% higher price, a 1% improved product mix, and 2% favorable rates of exchange, partially offset by 4% lower volume. PTV’s increased profit from operations
reflects improved selling prices, a favorable product mix
and lower SG&A costs, offset by lower sales volume and
higher raw material, transportation and utility costs.
Severance, restructuring and other exit costs and
accelerated depreciation of impaired assets taken in the
second quarter of 2006 were $3.6 million as compared to $6.8
million in the same period of 2005. Reflecting the benefit
of restructuring initiatives, SG&A costs were lower than the
prior year despite higher legal fees associated with patent
defense costs and higher allocated pension expenses. In
addition, a legal settlement was made for a net cost of $1.1
million in the quarter. "Western European markets proved challenging again in the second quarter of this year, but our strategy of improving product mix through innovation and increasing selling prices continues to show progress," commented Mr. Rogerson. "And our continued focus on streamlining the costs to effectively serve our customers has helped improve our results." Outlook "We remain optimistic about both earnings and cash flow growth from our businesses for the balance of the year," said Mr. Rogerson. "Aqualon's volumes should continue to be strong across its markets and pricing should show steady improvement. Paper Technologies' volumes are expected to improve modestly with our new product pipeline and continued pricing discipline supporting gross margins." Second Quarter Conference Call and Webcast The Company will discuss second quarter 2006 results tomorrow, July 27th, at 9:00 a.m., Eastern. Teleconference: (973) 582-2717 – Ask for
Conference ID # 7628054 Webcast: Listen-only mode via Internet broadcast from www.herc.com under Shareholder Info. # # # Hercules manufactures and markets chemical specialties globally for making a variety of products for home, office and industrial markets. For more information, visit the Hercules website at www.herc.com. This news release includes
forward-looking statements, as defined in the Private
Securities Litigation Reform Act of 1995, reflecting
management's current analysis and expectations, based on
what management believes to be reasonable assumptions.
Forward-looking statements may involve known and unknown
risks, uncertainties and other factors, which may cause the
actual results to differ materially from those projected,
stated or implied, depending on such factors as: ability to
generate cash, changes resulting from ongoing reviews of tax
liabilities, ability to raise capital, ability to refinance,
ability to execute productivity improvements and reduce
costs, ability to execute and integrate acquisitions,
ability to execute divestitures, ability to increase prices,
business climate, business performance, changes in tax laws
or regulations and related liabilities, changes in tax
rates, economic and competitive uncertainties, higher
manufacturing costs, reduced level of customer orders,
changes in strategies, risks in developing new products and
technologies, risks in developing new market opportunities,
environmental and safety regulations and clean-up costs,
foreign exchange rates, asset dispositions, the impact of
changes in the value of pension fund assets and liabilities,
changes in generally accepted accounting principles, adverse
legal and regulatory developments, including increases in
the number or financial exposures of claims, lawsuits,
settlements or judgments, the financial capacity of settling
insurers, the impact of increased accruals and reserves for
such exposures, the outcome of litigation and appeals,
including the inability to obtain judicial review of adverse
litigation results, and adverse changes in economic and
political climates around the world, including terrorist
activities, international hostilities and potential natural
disasters. Accordingly, there can be no assurance that the
Company will meet future results, performance or
achievements expressed or implied by such forward-looking
statements. As appropriate, additional factors are contained
in other reports filed by the Company with the Securities
and Exchange Commission. This paragraph is included to
provide safe harbor for forward-looking statements, which
are not generally required to be publicly revised as
circumstances change, and which the Company does not intend
to update.
HERCULES
INCORPORATED
(Dollars
in millions, except per share data)
(Unaudited)
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