<PAGE> 1
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 March 31, 1996
--------------
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 April 30, 1996, 107,070,040 shares of registrant's
common stock were outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
-----------------------------------
1996 1995
---------- -----------
<S> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . . . . . . . . $502,570 $693,044
Cost of sales . . . . . . . . . . . . . . . . . . . . . . 325,778 461,978
Selling, general, and administrative expenses . . . . . . 66,148 94,034
Research and development . . . . . . . . . . . . . . . . 13,943 15,242
Other operating expenses (income), net . . . . . . . . . (1,451) 8,246
----------- ----------
PROFIT FROM OPERATIONS . . . . . . . . . . . . . . . . . 98,152 113,544
Equity in income of affiliated companies . . . . . . . . 13,940 6,912
Interest and debt expense . . . . . . . . . . . . . . . . 7,933 7,091
Other income, net . . . . . . . . . . . . . . . . . . . . 11,838 27,920
---------- ----------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . 115,997 141,285
Provision for income taxes . . . . . . . . . . . . . . . 39,849 51,891
---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 76,148 $ 89,394
========== ==========
EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . . $ 0.70 $ 0.76
========== ==========
DIVIDENDS PER SHARE . . . . . . . . . . . . . . . . . . . $ 0.23 $ 0.21
========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 3
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31 DECEMBER 31
-------------- --------------
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 48,656 $ 72,941
Accounts and notes receivable, net . . . . . . . . . . . 427,916 425,865
Inventories
Finished products . . . . . . . . . . . . . . . . 185,457 167,793
Materials, supplies, and work in process . . . . . 149,593 140,287
Deferred income taxes . . . . . . . . . . . . . . . . . . 60,403 60,247
---------- ----------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . 872,025 867,133
Property, plant, and equipment . . . . . . . . . . . . . 2,550,368 2,564,240
Accumulated depreciation and amortization . . . . . . . . 1,578,860 1,564,543
---------- ----------
Net property, plant, and equipment . . . . . . . . 971,508 999,697
Investments . . . . . . . . . . . . . . . . . . . . . . . 341,209 344,273
Other assets . . . . . . . . . . . . . . . . . . . . . . 296,093 282,375
---------- ----------
$2,480,835 $2,493,478
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . $ 113,672 $ 117,030
Accrued expenses . . . . . . . . . . . . . . . . . . . . 265,100 312,565
Short-term debt . . . . . . . . . . . . . . . . . . . . . 330,378 206,799
Income taxes payable . . . . . . . . . . . . . . . . . . 40,036 50,327
---------- ----------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . 749,186 686,721
Long-term debt . . . . . . . . . . . . . . . . . . . . . 290,148 297,855
Deferred income taxes . . . . . . . . . . . . . . . . . . 97,090 94,946
Postretirement benefits and other liabilities . . . . . . 319,480 332,080
STOCKHOLDERS' EQUITY
Common stock (issued 1996--151,934,575;
1995--151,663,465 shares) . . . . . . . . . . . . 79,133 78,992
Additional paid-in capital . . . . . . . . . . . . . . . 480,993 471,749
Foreign currency translation adjustment . . . . . . . . . 61,336 74,687
Retained earnings . . . . . . . . . . . . . . . . . . . . 1,763,888 1,712,286
---------- ----------
2,385,350 2,337,714
Reacquired stock, at cost (1996--44,879,617;
1995--43,176,841 shares) . . . . . . . . . . . . . . . . 1,360,419 1,255,838
---------- ----------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . 1,024,931 1,081,876
---------- ----------
$2,480,835 $2,493,478
========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
CONSOLIDATED STATEMENT
OF CASH FLOW
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
THREE MONTHS ENDED MARCH 31,
-----------------------------------
1996 1995
---------- --------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATIONS . . . . . . . . . . . . $ (6,091) $105,153
---------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . (20,804) (24,992)
Proceeds of investment and fixed asset disposals . . . . . . . . 8,228 252,939
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,009 14,724
---------- -------
Net Cash Provided by (Used in) Investing Activities . . . . . . . (1,567) 242,671
---------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . 16 135
Long-term debt repayments . . . . . . . . . . . . . . . . . . . . (7,516) (76,319)
Change in short-term debt . . . . . . . . . . . . . . . . . . . . 123,580 (90,721)
Common stock issued . . . . . . . . . . . . . . . . . . . . . . . 4,865 6,428
Common stock reacquired . . . . . . . . . . . . . . . . . . . . . (112,816) (140,502)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 30,000
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . (24,546) (24,014)
---------- ---------
Net Cash Used in Financing Activities . . . . . . . . . . . . . . (16,417) (294,993)
---------- ---------
Effect of exchange rate changes on cash . . . . . . . . . . . . . (210) (270)
---------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . (24,285) 52,561
Cash and cash equivalents - beginning of period . . . . . . . . . 72,941 111,637
---------- ---------
Cash and cash equivalents - end of period . . . . . . . . . . . . $ 48,656 $164,198
========== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: . . . . . . .
Cash paid during the period for: . . . . . . . . . . . . . . . .
Interest (net of amount capitalized) . . . . . . . . . . . . $ 6,505 $ 6,406
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 46,842 11,941
Noncash investing and financing activities: . . . . . . . . . . .
Conversion of notes and debentures . . . . . . . . . . . . . 207 19,526
Accounts payable for common stock acquisitions . . . . . . . -- 97,091
Incentive plan stock issuances . . . . . . . . . . . . . . . 7,178 5,362
Investment in unconsolidated affiliates . . . . . . . . . . 600 143,862
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands) (Unaudited)
1. These condensed financial statements are unaudited, but in the opinion
of management include all adjustments (consisting of only normal accruals)
necessary to present fairly the Company's financial position and results of
operations for interim periods. It is suggested that these condensed financial
statements be read in conjunction with the accounting policies and the
financial statements and notes thereto included in the Company's annual report
for 1995.
2. Primary earnings per share are calculated on the basis of average
number of common and common equivalent shares of 109,583,935 at March 31, 1996
and 117,378,844 at March 31, 1995. Earnings have been adjusted to reflect the
elimination of interest expense, net of taxes, on the 6.5% convertible
debentures, of $21 for the quarter ended March 31, 1996, and $39 for the
quarter ended March 31, 1995.
Fully diluted earnings per share, which additionally assume conversion
of the 8% convertible subordinated debentures, are not materially different
from primary earnings per share. In the fully diluted computation, the number
of shares is increased by 2,745,711 in 1996 and 3,943,567 in 1995. Earnings
are further adjusted in both 1996 and 1995 to reflect the elimination of
interest expense on the 8% debentures (net of taxes) in the amount of $556 and
$563, respectively.
3. Cost and expenses include depreciation of $30,886 and $37,132 for the
quarters ended March 31, 1996 and 1995, respectively.
4. Other operating expenses (income), for the quarter ended March 31,
1996 includes a $2,000 reduction in the estimated losses on the pending
divestiture of the Composite Products Division. In 1995, other operating
expenses included environmental cleanup costs, principally for nonoperating
sites of $4,523 and net employee separation costs and writeoffs of $3,723.
5. Interest and debt costs are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1996 1995
------ ------
<S> <C> <C>
Three Months Ended:
Costs incurred . . . . . . . . . . . $8,847 $8,044
Amount capitalized . . . . . . . . . 914 953
------ ------
Interest expense . . . . . . . . . . $7,933 $7,091
====== ======
</TABLE>
6. Other income, net for the quarter ended March 31, 1996 primarily
reflects the gain on the sale of real estate of $7,417 and additional gains
from post-closing adjustments to the fourth quarter 1995 sale of the
Electronics & Printing Division of $3,700. In 1995, other income, net included
the net gain on the sale of the Aerospace segment of $31,700.
7. Dividends received from affiliated companies accounted for on the
equity method were $3,296 and $2,061 during the quarters ended March 31, 1996
and 1995, respectively.
5
<PAGE> 6
8. A summary of short-term and long-term debt follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------ ------------
1996 1995
------------ ------------
<S> <C> <C>
SHORT-TERM:
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . $285,000 $160,000
Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,151 46,577
Current maturities . . . . . . . . . . . . . . . . . . . . . . 227 222
-------- --------
$330,378 $206,799
======== ========
</TABLE>
At March 31, 1996, Hercules had $44,382 of unused lines of credit that may be
drawn as needed. Lines of credit in use at March 31, 1996, were $41,868.
<TABLE>
<S> <C> <C>
LONG-TERM:
Term loans due 1997-2000 . . . . . . . . . . . . . . . . . . . $ 127 $ 804
6.5% convertible subordinated debentures due 1999 . . . . . . . 1,829 1,981
7.85% notes due 2000 . . . . . . . . . . . . . . . . . . . . . 25,000 25,000
6.625% notes due 2003 . . . . . . . . . . . . . . . . . . . . . 124,866 124,861
8% convertible subordinated debentures due 2010 . . . . . . . . 41,075 41,130
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . 50,000 50,000
Variable rate loans . . . . . . . . . . . . . . . . . . . . . . 39,900 46,600
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,578 7,701
--------- ---------
290,375 298,077
Current maturities of long-term debt (227) (222)
--------- ---------
Net long-term debt $ 290,148 $ 297,855
========= =========
</TABLE>
9. Since 1991, the Board of Directors has authorized the repurchase of up
to 64,650,000 shares of Company common stock, 6,150,000 shares of which is
intended to satisfy requirements of various employee benefit programs. Through
March 31, 1996, a total of 48,575,652 shares of common stock (including
5,075,652 shares for employee benefit programs) had been purchased in the open
market at an average price of $33.06 per share.
10. In April 1996, the Company executed a definitive agreement to divest
its Composite Products Division. According to the provisions of this
agreement, Hercules will receive approximately $135 million in cash, subject to
post-closing adjustments. The transaction is expected to be completed by the
end of the second quarter of 1996. Net sales and operating profit for this
division, which are reported as part of the Corporate and other segment, were
$22,338 and $3,823, respectively, for the quarter ended March 31, 1996 and
$22,090 and $735, respectively, for the quarter ended March 31, 1995.
11. Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The provisions
of SFAS No. 121 require the Company to review its long-lived assets for
impairment on an exception basis whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable through
future cash flows. If it is determined that an impairment loss has occurred
based on expected future cash flows, then the loss is recognized in the income
statement and certain disclosures regarding the impairment are made in the
financial statements. The adoption of SFAS No. 121 did not have an effect on
the Company's consolidated financial statements at March 31, 1996.
6
<PAGE> 7
12. (a) Environmental
Hercules has been identified as a potentially responsible party (PRP)
by U.S. federal and state authorities for environmental cleanup at numerous
sites. The estimated range of the reasonably possible costs of remediation is
between $87,000 and $272,000. The actual costs will depend upon numerous
factors, including the number of parties found liable at each environmental
site and their ability to pay, the actual method of remediation, outcome of
negotiations with regulatory authorities, outcome of litigation, changes in
environmental laws and regulations, technological developments, and the years
of remedial activity required, which could range up to 30 years. Hercules
becomes aware of sites in which it may be, but has not yet been named, a PRP
principally through its knowledge of investigation of sites by the U.S.
Environmental Protection Agency (EPA) or other government agency or through
correspondence with previously named PRPs requesting information of Hercules'
activities at sites under investigation. Hercules brought suit in 1992 against
its insurance carriers for past and future costs for remediation of certain
environmental sites. Hercules has not included any insurance recovery in the
estimates set forth above.
Hercules has established procedures for identifying environmental
issues at Hercules plant sites. Environmental coordinators, a designated
position at all operating facilities, are familiar with environmental laws and
regulations and are resources for identification of environmental issues.
Hercules also has an environmental audit program, which is designed to identify
environmental issues at operating plant sites. Through these programs,
Hercules identifies potential environmental, regulatory, and remedial issues.
Litigation over liability at Jacksonville, Arkansas, the most
significant site, has been pending since 1980. As a result of a pretrial court
ruling in October 1993, Hercules has been held jointly and severally liable for
costs incurred, and for future remediation costs, at the Jacksonville site by
the District Court, Eastern District of Arkansas (the Court). Appeal of the
Court's ruling will be filed promptly after issuance of a final court order.
In November 1993, an advisory jury found Uniroyal Chemical, Ltd., liable for
the Jacksonville site, but also found that Uniroyal had proven a reasonable
basis for allocation of responsibility. That same advisory jury found Standard
Chlorine of Delaware is not a liable party for the Jacksonville site. The
Court may take the jury's findings into consideration when reaching its
decision regarding these parties. The Court has not entered its ruling on the
liability of Uniroyal and Standard Chlorine. Appeals of the Court's expected
rulings with respect to Uniroyal and Standard Chlorine are probable.
Other defendants in this litigation have either settled with the
government or, in the case of the Department of Defense, have not been held
liable. Hercules appealed the Court's order finding the Department of Defense
not liable. On January 31, 1995, the 8th Circuit Court of Appeals upheld the
Court's order. Hercules filed a petition to the U.S. Supreme Court requesting
review and reversal of the 8th Circuit Court ruling. This petition was denied
on June 26, 1995, and the case has been remanded to the District Court for
further proceedings.
Hercules' potential costs for remediation of the Jacksonville site are
presently estimated between $39,000 and $147,000. These costs are based on
Hercules' assessment of potential liability, the level of participation by
other PRPs, and current estimates of remediation costs. Remediation costs will
vary as Records of Decision are issued on each operable unit of the site and as
remediation methods are approved by the EPA.
7
<PAGE> 8
At March 31, 1996, the accrued liability 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
investigation at each site and the current status of negotiations with
regulatory authorities regarding the method and extent of apportionment of
costs among other PRPs. 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.
(b) Litigation:
Hercules is a defendant in numerous lawsuits that arise out of, and
are incidental to, the conduct of its business. In these legal proceedings, no
director, officer, or affiliate is a party or a named defendant. These suits
concern issues such as product liability, contract disputes, labor-related
matters, patent infringement, environmental proceedings, property damage, and
personal injury matters. Hercules also is a defendant in two Qui Tam ("Whistle
Blower") lawsuits brought by former employees of the Aerospace segment sold to
Alliant Techsystems. One suit involves allegations relating to submission of
false claims and records, delivery of defective products, and a deficient
quality control program. The other suit involves allegations of mischarging of
work performed under government contracts, misuse of government equipment,
other acts of financial mismanagement, and wrongful termination claims. The
government, after investigation of the allegations, declined to intervene in
either lawsuit. The first of these lawsuits is presently scheduled for trial
in February 1997. While damages claimed in the first suit are material, the
Company believes no damages were incurred by the government, no false claims
were made to the government, and alleged damages are speculative and
insupportable. The damages in the second suit were not defined. The Company
intends to vigorously defend these lawsuits.
Hercules is also a defendant in a class action (approximately 140
members) of property owners adjacent to its Brunswick, Georgia, plant. The
class members seek damages for alleged decrease in property values caused by
the presence of toxaphene (a pesticide manufactured at the plant from 1948 to
1980) on their properties. The class members claim that the toxaphene resulted
from manufacturing operations. The Company intends to vigorously defend this
lawsuit.
While it is not feasible to predict the outcome of all pending suits
and claims, management does not anticipate that the ultimate resolution of
these matters will have a material effect upon the consolidated financial
position of Hercules, although 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.
8
<PAGE> 9
OTHER FINANCIAL INFORMATION
Operational Highlights
(Dollars in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
----- -----
<S> <C> <C>
NET SALES BY INDUSTRY SEGMENT
- -----------------------------
Chemical Specialties . . . . . . . . . . . . . . . $252 $289
Food & Functional Products . . . . . . . . . . . . 228 257
Aerospace . . . . . . . . . . . . . . . . . . . . 0 123*
Corporate and other . . . . . . . . . . . . . . . 23 24
---- ----
TOTAL . . . . . . . . . . . . . . . . . . . $503 $693
==== ====
PROFIT (LOSS) FROM OPERATIONS BY INDUSTRY SEGMENT
- -------------------------------------------------
Chemical Specialties . . . . . . . . . . . . . . . $ 45 $ 59
Food & Functional Products . . . . . . . . . . . . 51 47
Aerospace . . . . . . . . . . . . . . . . . . . . . 0 13*
Corporate and other . . . . . . . . . . . . . . . . 2 (5)
---- ----
TOTAL . . . . . . . . . . . . . . . . . . . $ 98 $114
==== ====
</TABLE>
* Reflects results of operations through March 14, 1995.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
All comparisons within the following discussion are with the corresponding
periods in the previous year, unless otherwise stated.
Chemical businesses (Chemical Specialties and Food & Functional
Products segments) sales declined $66 million, or 12% for the quarter,
primarily due to lower volume. Softness in demand experienced by segments of
the chemical industry during the second half of 1995, continued into early
1996, reducing overall volume. Additionally, revenues were lower due to the
divestiture of the Electronics & Printing Division (EPD) in December 1995. On
a comparable basis (excluding first quarter 1995 EPD sales) revenues declined
$48 million, or 9% for the Chemical businesses. Consolidated net sales
declined 27% as a result of the divestiture of the Aerospace segment in March
1995, the aforementioned volume decline and EPD divestiture.
Profit from operations in the Chemical businesses declined $10 million,
or 9%. The reduction primarily reflects the volume shortfall noted above
partially offset by improved pricing and manufacturing cost improvements.
Consequently, gross profit margins on a comparable basis (excluding the
divested EPD business) remained at approximately 35% for the Chemical
businesses. Additionally, lower selling, general, and administrative expenses,
particularly those associated with revisions to employee incentive compensation
programs in 1995, favorably impacted operating profit.
Consolidated profit from operations decreased $16 million or 14%.
Consolidated gross profit declined $55 million, primarily as a result of the
aforementioned Aerospace and EPD divestitures and the volume driven revenue
shortfall. Selling, general, and administrative (SG&A) expenses and research
and development expenses declined $29 million. The reduction reflects the
elimination of approximately $17 million of costs related to the divested
businesses. The remaining decline primarily reflects lower employee incentive
compensation costs, resulting from 1995 revisions to the long-term incentive
compensation programs. Other operating expense (income) reflects a favorable
change of $10 million due to lower environmental expense as no new sites
requiring environmental expenditures were identified, lower employee separation
costs, which had been part of the ongoing cost reductions within the divested
Aerospace segment, and a reduction in estimated losses related to the pending
divestiture of the Composite Products Division.
Chemical Specialties: Net sales declined $37 million or 13%. Lower
volume for polypropylene nonwoven fibers and weakness in the adhesives markets
for resins primarily account for the sales shortfall. Additionally, sales were
negatively affected by lower finished product prices in fibers due to increased
competition. Paper technology volumes were also lower than prior year due to
continued softness in the paper industry. Volume
10
<PAGE> 11
shortfalls in paper and resins were partially offset by improved pricing.
Profit from operations decreased $14 million, or 24%. In addition to the
revenue decline, profit from operations was further affected by higher
polypropylene raw material costs, offset by cost improvements and improved
pricing in Paper Technology and Resins. Additionally, lower employee incentive
compensation costs favorably impacted operating profit.
Food & Functional Products: Net sales declined $29 million or 11%.
More than half the decline in sales relates to the divestiture of EPD in
December 1995. The remaining variance relates to reduced volume. On a
comparable basis (excluding the effect of EPD sales in 1995) sales declined $11
million or 5% as the aforementioned volume decline was partially offset by
improved pricing, particularly for Aqualon. Operating profit increased $4
million ($8 million, excluding the affect of EPD operating profit in 1995).
Despite the volume reduction, improved pricing and manufacturing cost
improvements resulted in gross margin improvements. Additionally, lower
employee incentive compensation costs favorably impacted operating profit.
The softness in demand experienced by segments of the chemical
industry during the second half of 1995 continued into 1996. Improving
conditions, coupled with continued emphasis on cost improvements, should yield
overall favorable results for 1996.*
Corporate and other: Net sales remained flat and primarily reflect the
results of the Composite Products Division. Operating profit improved $7
million and primarily reflects improved operating performance in Composite
Products, reduction in estimated losses on the pending divestiture of the
Composite Products Division, along with lower environmental expenses.
Equity in income of affiliated companies increased approximately $7
million and reflects higher earnings in Tastemaker, the 50% owned flavors joint
venture, along with Hercules' investment in Alliant Techsystems acquired in
March 1995 in conjunction with the divestiture of the Aerospace segment.
Interest and debt costs increased 12% on higher average debt
outstanding.
Other income net, (see Note 6) decreased $16 million, and primarily
reflects the net gain on the sale of the Aerospace segment in 1995, partially
offset by first quarter 1996 sales of real estate properties and additional
gain recognized on the divestiture of EPD.
- --------------------
* This paragraph contains forward looking statements and is included here to
provide safe harbor under the Private Securities Litigation Reform Act of
1995.
11
<PAGE> 12
The provision for income taxes for the first quarter reflects an
estimated annual effective tax rate of 34.9%. The 1995 full-year rate of 34%
was favorably affected by increased utilization of foreign tax credits and a
state income tax settlement related to a prior year sale of an investment.
FINANCIAL CONDITION
In April 1996 Hercules executed a definitive agreement to divest its
Composite Products Division. According to provisions of the Agreement,
Hercules will receive approximately $135 million in cash, subject to
post-closing adjustments. The transaction is expected to be completed by the
end of the second quarter. See note 10.
Cash used in operations was $6 million for the first quarter of 1996,
compared to $105 million provided in 1995. Lower net income, increased working
capital requirements coupled with higher tax payments primarily account for the
decline. First quarter income tax payments include a $36 million payment
associated with the divesture of EPD.
Short-term liquidity has remained stable since year-end 1995. Both
the current and quick ratios are relatively flat at 1.2 and 0.6, respectively.
At March 31, 1996, $44 million is available under short-term lines of credit.
During the first quarter of 1996, 1,953,853 shares of common stock
were reacquired in the open market. As a percentage of total capitalization,
total debt increased from 32% to 38%. Funds available under revolving credit
agreements at March 31, 1996 are $45 million; in addition, $50 million is
accessible, depending upon market conditions, under a shelf registration.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In September 1993, Hercules and the U.S. Environmental Protection
Agency Region 1 reached an agreement in principle in settlement of EPA's claims
that Hercules violated its wastewater permit with the City of Chicopee and the
federal pretreatment standard for industrial users of publicly owned treatment
works at its Chicopee, Massachusetts, facility. Hercules signed a Consent
Decree, which was entered by the court on December 15, 1994, based on this
agreement, requiring supplemental environmental projects (at a cost of
approximately $375,000), compliance with permit limits in the future, and
$250,000 in fines. Hercules has paid the $250,000 fine and is currently in the
process of performing the supplemental environmental projects, which are
expected to be completed in 1996.
Hercules received a letter from the New Jersey Department of
Environmental Protection (the "Department") dated March 9, 1995, which stated
that the Department was considering an enforcement action against Hercules for
alleged noncompliance with the terms of a 1993 Administrative Consent Order
("ACO") at its Kenvil, New Jersey, facility. The ACO covered alleged
violations of the Air Pollution Control Act. The letter also identified
potential violations under the Spill Compensation and Control Act, the New
Jersey Water Pollution Control Act, and the New Jersey Safe Drinking Water Act.
Hercules has met with the Department and has submitted a schedule addressing
all matters identified in the Department's letter. Although no formal legal
proceeding has been commenced, a civil enforcement action, including a penalty
assessment in excess of $100,000 is expected.
Item 4. Submission of Matters to a Vote of Security Holders.
A SUMMARY OF THE FINAL RESULTS OF VOTING ON THE RESOLUTIONS PROPOSED TO
SHAREHOLDERS AT THE ANNUAL MEETING HELD APRIL 25, 1996, IS AS FOLLOWS:
1. Election of Directors
Of the 108,506,457 shares entitled to vote, a total of 92,344,826
shares, voted FOR R. Keith Elliott, as a director; 92,318,807 shares,
voted FOR Thomas L. Gossage; and 92,339,447 shares, voted FOR Gaynor
N. Kelley. A total of 647,013 shares, WITHHELD votes for R. Keith
Elliott; 673,032 shares, WITHHELD votes for Thomas L. Gossage; 652,392
shares, WITHHELD votes for Gaynor N. Kelley.
Directors continuing in office after the meeting are: Richard M.
Fairbanks, III, Edith E. Holiday, H. Eugene McBrayer, Lee M. Thomas,
Robert G. Jahn, Ralph L. MacDonald, Jr., and Paula A. Sneed.
2. Ratification of Coopers & Lybrand L. L. P. as Auditors
The proposal received the required favorable majority vote necessary
FOR approval. Of the shares voting on this proposal, 92,564,333 were
FOR; 218,338 were AGAINST; and 209,168 ABSTAINED.
13
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits 27 - Financial Data Schedule
(b) Reports on Form 8-K.
Hercules was not required to file any reports on Form 8-K
for the quarter ended March 31, 1996.
14
<PAGE> 15
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 George MacKenzie
------------------------------------
George MacKenzie
Vice President
and Chief Financial Officer
(Principal Financial Officer
and duly authorized signatory)
May 14, 1996
by Vikram Jog
------------------------------------
Vikram Jog
Controller
(Principal Accounting Officer)
May 14, 1996
15
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Hercules Incorporated 1Q96 10-Q
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
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0
0
<COMMON> 79,133
<OTHER-SE> 945,798
<TOTAL-LIABILITY-AND-EQUITY> 2,480,835
<SALES> 502,570
<TOTAL-REVENUES> 502,570
<CGS> 325,778
<TOTAL-COSTS> 404,418
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<INTEREST-EXPENSE> 7,933
<INCOME-PRETAX> 115,997
<INCOME-TAX> 39,849
<INCOME-CONTINUING> 76,148
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<EPS-PRIMARY> .70
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