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RECONCILIATION OF REPORTED TO ONGOING OPERATIONS
FOR
QUARTERS AND FULL-YEAR 2004
 
 
HERCULES INCORPORATED
Reconciliation to Ongoing Operations

Twelve Months
Ended December 31, 2004
(Dollars in millions, except per share) Net
Income
(Loss)
Diluted
EPS		 Profit
From
Operations

EBITDA
As Reported

$27

$0.25

$227

$236
Discontinued operations

–

–

–

–
Cumulative effect of changes in accounting principle, net of tax

–

–

–

–
Income before discontinued operations and cumulative effect of change in accounting principle

$27

$0.25

$227

$236
Gain on sale of minority interest in CP Kelco

(27)

(0.25)

–

(27)
Asbestos litigation –Insurance carriers

6

0.06

–

9
Asbestos expense, net of insurance settlements(3)

22

0.20

–

34
Legal settlements

11

0.10

–

17
Severance and restructuring costs

6

0.06

10

10
Proxy Costs

–

–

–

–
Asset Impairments

6

0.05

7

9
Loss (gain) on debt prepayment and write-off of debt issuance costs

31

0.28

–

48
Exchange of Trust Securities(4)

(4)

(0.04)

–

(7)
Other(6)

10

0.10

12

16
Subtotal(5)

$61

$0.56

$29

$109
Tax valuation allowances

(23)

(0.21)

–

–
Tax benefit (detriment) due to adjustment to the statutory tax rate and 2003 intellectual property donation

24

0.22

–

–
Ongoing Operations(2)(5)

$89

$0.82

$256

$345
 
HERCULES INCORPORATED
Reconciliation to Ongoing Operations

Three Months
Ended December 31, 2004
(Dollars in millions, except per share) Net
Income
(Loss)
Diluted
EPS		 Profit
From
Operations

EBITDA
As Reported

$48

$0.44

$51

$54
Discontinued operations

–

–

–

–
Cumulative effect of change in accounting principle, net of tax

–

–

–

–
Net income before discontinued operations and cumulative effect of change in accounting principle

$48

$0.44

$51

$54
Gain on sale of minority interest in CP Kelco

(1)

(0.01)

–

(1)
Asbestos litigation –Insurance carriers

1

0.01

–

1
Asbestos expense, net of insurance settlements(3)

3

0.03

–

4
Legal settlements

7

0.06

–

11
Severance and restructuring costs

1

0.01

2

2
Asset impairments

2

0.02

–

2
Loss (gain) on debt prepayment and write-off of debt issuance costs

3

0.03

–

4
Exchange of Trust Securities(4)

(4)

(0.04)

–

(7)
Other(6)

4

0.03

2

7
Subtotal(5)

$16

$0.14

$ 4

$23
Tax valuation allowances(1)

(64)

(0.58)

–

–
Tax benefit (detriment) due to adjustment to the statutory tax rate and 2003 intellectual property donation

19

0.17

–

–
Ongoing Operations(2)(5)

$19

$0.17

$55

$77
 
HERCULES INCORPORATED
Reconciliation to Ongoing Operations

Three Months
Ended September 30, 2004
(Dollars in millions, except per share) Net
Income
(Loss)		 Basic &
Diluted
EPS		 Profit
From
Operations

EBITDA
As Reported

($ 51)

($0.47)

$65

$39
Discontinued operations

–

–

–

–
Net income before discontinued operations and cumulative effect of change in accounting principle

($ 51)

($0.47)

$65

$39
Asbestos litigation – Insurance carriers

3

0.03

–

5
Asbestos accruals, net of insurance
settlements(2)

19

0.18

–

30
Severance and restructuring costs

1

0.01

2

2
Proxy costs

–

–

–

–
Loss on debt prepayment and write-off of debt issuance costs

10

0.09

–

15
Other(5)

(1)

(0.01)

–

–
Subtotal(3)

$32

$0.30

$ 2

$52
Tax valuation allowances

41

0.38

–

–
Tax effect due to adjustment to the statutory tax rate

4

0.03

–

–
Ongoing Operations(1)(3)(4)

$26

$0.24

$67

$91
 
HERCULES INCORPORATED
Reconciliation to Ongoing Operations

Three Months
Ended June 30, 2004
(Dollars in millions, except per share) Net
Income
(Loss)		 Basic &
Diluted
EPS		 Profit
From
Operations

EBITDA
As Reported

$ 4

$0.04

$65

$63
Discontinued operations

–

–

–

–
Net income before discontinued operations and cumulative effect of change in accounting principle

4

0.04

65

63
Asbestos litigation -- Insurance carriers

2

0.02

–

3
Severance and restructuring costs

3

0.03

4

4
Loss on debt prepayment and write-off of debt issuance costs

14

0.13

–

22
Other(2)

4

0.03

7

5
Subtotal(3)

$23

$0.21

$11

$34
Tax benefit due to intellectual property donation in 2003 and adjustment to the statutory tax rate

1

0.01

–

–
Ongoing Operations(1)(3)

$28

$0.26

$76

$97
 

HERCULES INCORPORATED
Reconciliation to Ongoing Operations

(Dollars in millions, except per share)

Three Months Ended
March 31, 2004

Net
Income
(Loss)

Basic
& Diluted
EPS


Profit From
Operations

EBITDA

As Reported

$ 26 

$ 0.24 

$ 46 

$ 80 

Cumulative effect of change in accounting principle, net of tax

-

-   

-   

-   

Income before cumulative effect of change in accounting principle

 26 

0.24 

 46 

 80 

Gain on sale of minority interest in CP Kelco

(26)

(0.24)

-

(26)
Legal settlements

4

0.04

-

6
Severance and restructuring costs

1

0.01

2

2
Asset impairments

4

0.04

7

7
Loss on debt prepayment and write-off of debt issuance costs

5

0.04

-

7

Other(2)

2

0.02

3

4

Subtotal(3)

$(10)

$(0.09)

$12

-

Ongoing Operations(1)(3)

$  16

$  0.15

$58

$ 80

 
NOTES:

(1) Ongoing Operations

Ongoing operations and EBITDA are non-GAAP financial measures. The ongoing operations include Pulp and Paper, Aqualon, FiberVisions and Pinova. Results from ongoing operations exclude impairment charges for certain facilities within these businesses, which will have no further operating impact, charges related to divested businesses, litigation against and settlements with the Company's insurance carriers, executive retirement benefits, and a legal settlement. It also excludes the impact of special items -- most notably the prepayment and refinancing of long-term debt.

EBITDA is calculated as net income (loss) before income taxes plus interest and debt expense, depreciation and amortization, net of amortization of debt issuance costs.

EBIT and EBITDA are measures commonly used by the capital markets to value enterprises. Interest, taxes, depreciation and amortization can vary significantly between companies due in part to differences in accounting policies, tax strategies, levels of indebtedness and interest rates. Excluding these items provides insight into the underlying results of operations and facilitates comparisons between Hercules and other companies. In addition, EBITDA is considered a reasonable approximation of gross cash flow and is one of the measures used for determining debt covenant compliance. Management believes that EBIT and EBITDA information is useful to investors for these reasons. This measurement is not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance.

(2) 2003 Restatement for ESOP and FIN 46

Hercules changed its method of accounting for ESOP in the fourth quarter 2003. As required, prior periods have been restated, including the number of shares outstanding. The 2003 results have also been restated to reflect the consolidation of ES FiberVisions pursuant to the Company's adoption of FIN 46 in the third quarter of 2003.

(3) Tax Rate

Adjustment items have been tax effected at a 36% ongoing operations tax rate for 2004 and 2003, except the gain on the sale of CP Kelco, which had nominal net taxes.

(4) Discontinued Operations

In 2002 the Company sold its BetzDearborn Water Treatment Business to General Electric Specialty Materials (GESM) effective April 29, 2002. As a result of this divestiture and the corresponding debt repayment, there are certain costs that the Company will no longer incur. Primarily, these costs are related to ESOP expense and certain corporate costs for personnel who supported the BetzDearborn Water Treatment Business. It also includes an adjustment to interest expense to reflect paydown of debt of this divestiture.

(5) Other Items

Other includes gains and losses related to formerly divested businesses, special executive retirement benefit costs, tax restatement costs, and other costs.