SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1994 Commission file number 1-496
------------- -----
HERCULES INCORPORATED
A Delaware Corporation
I.R.S. Employer Identification No. 51-0023450
Hercules Plaza
Wilmington, Delaware 19894
Telephone: 302-594-5000
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 and (2) has been subject to such
filing requirements for the past 90 days.
As of July 30, 1994, 39,546,032 shares of registrant's common
stock were outstanding.
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
HERCULES INCORPORATED
CONSOLIDATED
STATEMENT OF INCOME
(Dollars in thousands, except per share)
(Unaudited)
Three Months Ended June 30 Six Months Ended June 30
1994 1993 1994 1993
---- ---- ---- ----
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $705,975 $710,689 $1,386,003 $1,382,674
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 490,354 509,852 966,808 987,900
Selling, general and administrative expenses. . . . . . . . . . . . . . . . 88,332 88,332 181,926 181,380
Research and development. . . . . . . . . . . . . . . . . . . . . . . . . . 17,629 19,134 33,607 35,669
Other operating expenses, net . . . . . . . . . . . . . . . . . . . . . . . 9,402 7,772 24,913 43,711
-------- -------- ---------- ----------
Profit From Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . 100,258 85,599 178,749 134,014
Equity in income of affiliated companies. . . . . . . . . . . . . . . . . . 7,834 7,903 14,201 12,372
Interest and debt expense . . . . . . . . . . . . . . . . . . . . . . . . . 7,266 9,895 14,515 19,511
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . (4,150) 4,655 (3,375) 32,107
-------- -------- ---------- ----------
Income Before Income Taxes and
Effect of Changes in Accounting Principles. . . . . . . . . . . . . . . . . 96,676 88,262 175,060 158,982
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 32,030 33,520 58,072 60,363
-------- -------- ---------- ----------
Income Before Effect of Changes
in Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . 64,646 54,742 116,988 98,619
Effect of changes in accounting principles. . . . . . . . . . . . . . . . . -- -- -- (238,218)
-------- -------- ---------- ----------
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,646 $ 54,742 $ 116,988 $(139,599)
======== ======== ========== ==========
Earnings (Loss) Per Share:
Before effect of changes in accounting principles . . . . . . . . . . . . . $ 1.62 $ 1.26 $ 2.90 $ 2.27
Effect of changes in accounting principles. . . . . . . . . . . . . . . . . -- -- -- (5.49)
-------- -------- ---------- ----------
Earnings (Loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.62 $ 1.26 $ 2.90 $ (3.22)
======== ======== ========== ==========
Dividends Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .56 $ .56 $ 1.12 $ 1.12
======== ======== ========== ==========
See accompanying notes to financial statements.
2
HERCULES INCORPORATED
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
June 30 December 31
1994 1993
------- -----------
ASSETS
Current Assets
Cash and cash equivalents. . . . . . . . . . . $ 53,957 $ 154,628
Accounts and notes receivable. . . . . . . . . 640,327 575,924
Inventories
Finished products. . . . . . . . . . . . . 168,955 199,053
Materials, supplies, and work in process . 213,257 213,313
Deferred income taxes. . . . . . . . . . . . . 83,605 83,605
---------- ----------
Total current assets . . . . . . . . 1,160,101 1,226,523
Property, plant and equipment . . . . . . . . 3,067,200 3,270,296
Accumulated depreciation and amortization . . 1,845,894 1,960,961
---------- ----------
Net property, plant and equipment . . . . 1,221,306 1,309,335
Investments . . . . . . . . . . . . . . . . . 217,125 232,077
Other assets. . . . . . . . . . . . . . . . . 375,710 394,026
---------- ----------
$2,974,242 $3,161,961
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses . . . . $ 600,572 $ 633,771
Short-term debt . . . . . . . . . . . . . . . 190,023 163,901
Income taxes payable. . . . . . . . . . . . . 77,356 86,539
---------- ----------
Total current liabilities . . . . . . . . 867,951 884,211
Long-term debt. . . . . . . . . . . . . . . . 296,147 316,871
Deferred income taxes . . . . . . . . . . . . 107,860 126,203
Postretirement benefits and other liabilities 456,183 466,469
Stockholders' equity
Common stock (issued 1994, 60,634,098;
1993, 59,899,295 shares). . . . . . . . . 31,581 31,198
Additional paid-in capital. . . . . . . . . . 469,339 453,553
Foreign currency translation adjustment . . . 48,428 29,593
Retained earnings . . . . . . . . . . . . . . 2,027,428 1,955,005
---------- ----------
2,576,776 2,469,349
Reacquired stock, at cost (1994, 21,103,687;
1993, 19,062,295 shares). . . . . . . . . 1,330,675 1,101,142
---------- ----------
Total stockholders' equity. . . . . . . . 1,246,102 1,368,207
---------- ----------
$2,974,242 $3,161,961
========== ==========
See accompanying notes to financial statements.
3
HERCULES INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOW
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30
1994 1993
---- ----
Net Cash Provided by Operations. . . . . . . . . $ 70,536 $220,024
Cash Flow from Investing Activities:
Capital expenditures . . . . . . . . . . . . . . (76,536) (67,721)
Proceeds of investment and fixed asset disposals 166,388 59,495
Cash invested in unconsolidated affiliates . . . 2,395 (5,321)
Other, net . . . . . . . . . . . . . . . . . . . (1,075) 2,902
---------- ----------
Net Cash Used in Investing Activities. . . . . . 91,172 (10,645)
---------- ----------
Cash Flow from Financing Activities:
Long-term borrowings . . . . . . . . . . . . . . 11,911 194,327
Long-term debt repayments. . . . . . . . . . . . (137,051) (154,323)
Change in short-term debt. . . . . . . . . . . . 156,989 (2,279)
Common stock issued. . . . . . . . . . . . . . . 6,841 8,201
Common stock reacquired. . . . . . . . . . . . . (255,992) (109,043)
Dividends paid . . . . . . . . . . . . . . . . . (44,565) (48,032)
---------- ----------
Net Cash Used in Financing Activities. . . . . . (261,867) (111,149)
---------- ----------
Effect of exchange rate changes on cash. . . . . (512) (1,193)
---------- ----------
Net Increase (Decrease) in Cash and
Cash Equivalents . . . . . . . . . . . . . . $(100,671) $ 97,037
Cash and cash equivalents - beginning of period. 154,628 53,552
---------- ----------
Cash and cash equivalents - end of period. . . . $ 53,957 $150,589
========== =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) . . . . $ 17,874 $ 20,124
Income taxes . . . . . . . . . . . . . . . . 91,597 39,254
Noncash investing and financing activities:
Conversion of notes and debentures . . . . . 29,752 15,306
Accounts payable for common stock
acquisitions. . . . . . . . . . . . . . -- 5,348
Incentive plan stock issuances . . . . . . . 26,502 14,464
See accompanying notes to financial statements.
4
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 1993.
2. In 1994, equity in income of affiliated companies is reported before
applicable income taxes and included in income before income taxes and effect
of changes in accounting principles. Through December 31, 1993, equity in
income of affiliated companies was reported net of applicable income taxes and
included after tax in income before effect of changes in accounting principles.
Management believes that the current presentation is more meaningful. The
effect on income before income taxes is $7,834 and $14,201 for the second
quarter and six months ended June 30,1994 respectively, and $7,903 and $12,372
for comparable 1993 periods. The effect on provision for income taxes is
$2,168 and $4,470 for the second quarter and six months ended June 30, 1994
respectively, and $1,765 and $3,764 for comparable 1993 periods.
3. Primary earnings per share are calculated on the basis of average number
of common and common equivalent shares of 40,031,221 for the quarter ended
June 30, 1994; 40,371,700 for the six months ended June 30, 1994, and
43,314,826 for the quarter ended June 30, 1993 and 43,415,882 for the six
months ended June 30, 1993. Net income has been adjusted to reflect the
elimination of interest expense, net of taxes, on the 6-1/2% convertible
debentures in the following amounts:
June 30
1994 1993
---- ----
Three months ended. . . . . . . . . . . . . . $ 54 $ 64
Six months ended. . . . . . . . . . . . . . . 110 106
Fully diluted earnings per share, which additionally assumes conversion
of the 8% convertible subordinated debentures, is not materially different
from primary earnings per share. In the fully diluted computation, the number
of shares is increased by 1,768,181 shares in 1994 and 2,369,157 shares in
1993. Net income is further adjusted in the quarter and six-month periods for
both 1994 and 1993 to reflect the elimination of interest expense on the 8%
debentures (net of taxes) in the amount of $889 and $1,949, respectively for
1994, and $1,320 and $2,781, respectively for the corresponding periods in
1993.
4. Cost and expenses include depreciation and amortization as follows:
June 30
1994 1993
---- ----
Three months ended. . . . . . . . . . . . . . $36,140 $42,106
Six months ended. . . . . . . . . . . . . . . 75,323 83,809
5
5. Other operating expenses, net for the quarter and six months ended June
30, 1994, include environmental cleanup costs, principally for nonoperating
sites, of $5,370 and $10,604, respectively, and net restructuring charges and
writeoffs of $4,033 and $14,309, for the respective periods. The quarter and
six months ended June 30, 1993, include environmental cleanup costs for
nonoperating sites of $6,670 and $10,617, respectively, and net restructuring
charges and writeoffs of $1,102 and $33,094, for the respective periods.
6. Interest and debt costs are summarized as follows:
June 30
1994 1993
Three Months Ended: ---- ----
Costs incurred . . . . . . . . . . . . . $ 9,114 $11,141
Amount capitalized . . . . . . . . . . . 1,848 1,246
------- -------
Interest expense . . . . . . . . . . . . $ 7,266 $ 9,895
======= =======
Six Months Ended:
Costs incurred . . . . . . . . . . . . . $17,879 $21,916
Amount capitalized . . . . . . . . . . . 3,364 2,405
------- -------
Interest expense . . . . . . . . . . . . $14,515 $19,511
======= =======
7. Other income (expense), net for the quarter ended June 30, 1994, includes
provisions related to ongoing litigation, exchange and translation adjustments,
and minority interest. Additionally, the six month period includes gain from
the sale of an investment of $4,461. The second quarter of 1993 includes a
gain on the sale of a 63% ownership interest in an affiliated company of
$15,505, and charges related to contract disputes of $8,800. Additionally, the
six-month period includes gains from litigation settlements of $27,536.
8. Dividends received from affiliated companies accounted for on the equity
method were as follows:
June 30
1994 1993
---- ----
Three months ended. . . . . . . . . . . . . . $ 1,850 $ 6,254
Six months ended. . . . . . . . . . . . . . . 8,527 14,329
9. Accounts receivable include amounts under long-term contracts and
subcontracts (principally with the U.S. Government or U.S. Government
contractors) of $210,516 at June 30, 1994, and $196,465 at December 31, 1993,
net of progress payments of $367,099 and $373,132, respectively. Included in
these amounts are unbilled accounts receivable (work in progress and claims)
of $148,870 and $113,282, respectively, representing recoverable costs and
accrued profits which will be billed in accordance with contract terms and
delivery schedules. Receivables which will not be collected within one year
are $21,549 at June 30, 1994, and $15,144 at December 31, 1993.
Long-term U.S. Government contracts and subcontracts are subject to
termination by the government; however, in these circumstances an equitable
settlement of work performed
6
is negotiated unless in the unlikely event it is determined to be a
termination for default. Additionally, certain contracts are subject to
renegotiation.
10. A summary of short-term and long-term debt follows:
June 30 December 31
1994 1993
------- -----------
Short-term:
Commercial paper. . . . . . . . . . . . . . . . . . $161,525 $ --
Banks . . . . . . . . . . . . . . . . . . . . . . . 25,031 29,566
Current maturities. . . . . . . . . . . . . . . . . 3,467 134,335
-------- --------
$190,023 $163,901
======== ========
At June 30, 1994, Hercules had $67,591 of unused lines of credit that may be
drawn as needed. Lines of credit in use or supporting commercial paper at
June 30, 1994, were $24,474.
Long-term:
6.625% notes due 2003 . . . . . . . . . . . . . . . $124,833 $124,823
6.5% convertible subordinated debentures due 1999 . 4,449 5,568
8% convertible subordinated debentures due 2010 . . 68,126 96,759
7.85% notes due 2000. . . . . . . . . . . . . . . . 25,000 25,000
8.5% debentures due 2017 (a). . . . . . . . . . . . -- 79,144
9.6% notes due 1994 . . . . . . . . . . . . . . . . -- 50,000
Term loans due 1993-1995. . . . . . . . . . . . . . 51,888 52,166
Variable rate loans (b) . . . . . . . . . . . . . . 6,900 --
Other . . . . . . . . . . . . . . . . . . . . . . . 18,418 17,746
-------- --------
299,614 451,206
Current maturities of long-term debt. . . . . . . . (3,467) (134,335)
-------- --------
Net long-term debt. . . . . . . . . . . . . . . . . $296,147 $316,871
======== ========
(a) Debentures were redeemed in first quarter 1994.
(b) Uncollateralized bank borrowings with average maturities of 400 days,
with interest at a negotiated spread over lenders' cost of funds.
11. Since 1991, the Board of Directors has authorized the repurchase of up to
15,950,000 shares of company common stock, 1,450,000 shares of which is
intended to satisfy requirements of various employee benefit programs.
Through June 30, 1994, a total of 10,825,600 shares of common stock (including
950,000 shares for employee benefit programs) had been purchased in the open
market at an average price of $76.09 per share.
12. Commitments and Contingencies
(a) Environmental
Hercules has been identified as a potentially responsible party (PRP) by
Federal and State authorities for environmental cleanup at numerous sites.
The estimated range of the reasonably possible costs of remediation is between
$69,000 and $226,000. 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
7
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
brought suit in late 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.
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. The court
has not entered its ruling on the liability of Uniroyal Chemical Ltd. and
Standard Chlorine of Delaware. Appeal of the court's ruling with respect to
the finding of Hercules being jointly and severally liable will be filed
promptly after issuance of a final court order. Appeals of the court's
expected rulings with respect to Uniroyal and Standard Chlorine of Delaware
are probable.
Other defendants in this litigation have either settled with the
Government or, in the case of the Department of Defense, have been held not
liable. Hercules has appealed the Court's order finding the DoD not liable.
A decision may be received in late 1994.
Hercules' potential costs for remediation of the Jacksonville site are
presently estimated between $28,000 and $136,000. Hercules' potential costs
are based on its assessment of potential liability, the level of participation
by other PRPs and upon current estimates of the costs to remediate the
Jacksonville site. The costs to remediate will vary as Records of Decision
are issued on each operable unit at the site and as remediation methods are
determined and approved by the U.S. Environmental Protection Agency (EPA).
At June 30, 1994, the accrued liability for environmental remediation
represents management's best estimate of the probable and reasonably estimable
costs related to environmental remediation. The measurement of the liability
is evaluated quarterly 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 and personal injury
matters. Hercules is also a defendant in one Federal administrative law
proceeding and two Qui Tam ("Whistle Blower") Lawsuits brought by former
employees. 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 adverse effect upon the consolidated
financial position of the company.
13. On April 7, 1994, Hercules completed the divestiture of its Packaging
Films unit for $161,000 in cash, subject to post-closing adjustments. The
effect of the divestiture on the results of operations is not significant. Net
sales of this unit were $5,000 and $44,000 for the second quarter ended
June 30, 1994 and June 30, 1993, and $47,000 and $84,000 for the six-month
period. Operating profits were $1,000 and $4,000 for the second quarter ended
June 30, 1994 and June 30, 1993, respectively, and $1,000 and $6,000 for the
six-month period, respectively.
8
OTHER FINANCIAL INFORMATION
- ---------------------------
OPERATIONAL HIGHLIGHTS
- ----------------------
(Dollars in millions)
Three Months Ended June 30 Six Months Ended June 30
1994 1993 1994 1993
---- ---- ---- ----
Net Sales by Industry Segment
Chemical Specialties. . . . . . . . . . . . . . . . . . . . . . $ 272 $ 254 $ 527 $ 494
Food & Functional Products. . . . . . . . . . . . . . . . . . . 244 235 466 450
Aerospace . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 175 343 347
Corporate and Other . . . . . . . . . . . . . . . . . . . . . . 6 47 49 92
------ ------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 706 $ 711 $1,386 $1,383
====== ======= ======= =======
Profit (Loss) from Operations by
Industry Segment
Chemical Specialties. . . . . . . . . . . . . . . . . . . . . . $ 54 $ 42 $ 97 $ 78
Food & Functional Products. . . . . . . . . . . . . . . . . . . 40 35 73 66
Aerospace . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 14 22 27
Corporate and Other . . . . . . . . . . . . . . . . . . . . . . (7) (5) (13) (37)(a)
------ ------- ------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100 $ 86 $ 179 $ 134
====== ======= ======= =======
<FN>
(a) Includes a $25 charge for restructuring during the first quarter of 1993.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Within the following discussion, unless otherwise stated, "quarter"
and "six-month period" refer to the second quarter of 1994 and the six months
ended June 30, 1994. All comparisons are with the corresponding periods in
the previous year.
Consolidated net sales for the quarter and six-month period were
relatively flat. The loss of sales from the Packaging Films unit, which was
divested on April 7, 1994, was offset by increased sales in the continuing
business segments.
Profit from operations increased by $14 million or 16% for the
quarter, principally because of higher gross margins. Margins rose to 30.5%
from 28.3% for the quarter and similarly for the six-month period. Increased
volume, lower manufacturing and raw material costs combined with higher resins
prices improved margins in Chemical Specialties. Food and Functional
Products margin improvements were led by volume increases while Aerospace
margins were modestly higher. For the six-month period, profit from
operations increased $44 million or 33%. The increase reflects a $25 million
charge taken in the first quarter of 1993 for restructuring coupled with 1994
improvements in gross margin.
On April 7, 1994, Hercules completed its previously announced divesti-
ture of its Packaging Films unit. The effects of the divestiture on the
financial statements for the second quarter and six months ended June 30,
1994 are discussed below. (See also Note 13.)
On July 11, 1994, Hercules and Alliant Techsystems (Alliant) signed a
Letter of Intent under which Alliant will acquire a substantial portion of the
Aerospace segment for $365 million in cash and 3.5 million shares of newly
issued Alliant common stock resulting in Hercules having a 26% ownership
position in Alliant. The proposed transaction would exclude Hercules'
composite materials business. Included in the proposed sale are Aerospace
units whose reported combined revenues and operating profits were $660 million
and $105 million, respectively in 1993. The two companies have also agreed
that Hercules will hold two of the eight nonemployee seats on the Alliant
Board of Directors. The transaction is subject to certain conditions, including
the negotiation of a definitive agreement, required filings, expiration of the
waiting period, and approval by Alliant shareholders. Closing is projected to
take place by year end 1994.
Chemical Specialties sales increased 7% for the quarter and six-month
period. Higher resins pricing and volume along with higher absorbent and
textile products volume primarily account for the sales increase. In addition
to increased sales, lower manufacturing and raw material costs in resins and
absorbent and textile products resulted in a 30% improvement in second quarter
profit from operations and a 25% improvement for the six-month period. Paper
chemicals sales and operating profit were slightly higher for the quarter and
six-month period reflecting a modest economic recovery in Europe.
10
Food and Functional Products revenues increased $9 million and $17
million for the second quarter and six-month period, respectively, an
approximate 4% increase for both periods. Increased volume in food gums and
electronic and printing products resulted in the revenue improvement.
Although food gums volumes were up, continued worldwide excess capacity and
competitive pressure resulted in price softening in the quarter and six-month
period. Water soluble polymers revenues remained flat over the second quarter
and six-month period. Price increases, reflecting strong demand in the paint
and construction markets were offset by lower demand in the oil and gas
services market along with declines in coatings due to continued reductions in
military budgets and pricing pressures on furniture coating applications.
Profit from operations benefited from increased volume and resulted in a more
than 10% improvement over the comparable 1993 periods.
Aerospace sales and profit from operations were relatively flat for
the quarter and six-month period. Revenue declines from overall defense
budget cuts, reduced number of new programs, program cancellations and delays
in funding have been offset by increased sales of composite fiber into the
Department of Defense (DoD) market. Profit from operations was essentially
flat for the quarter while declining 18% in the six-month period. The second
quarter results reflect improved performance on the Titan program while the
six-month period reflects lower incentive award fees and higher severance
costs.
Corporate and Other sales decline relates primarily to the
divestiture of the Packaging Films business on April 7, 1994. While net sales
have declined, operating losses have also declined principally reflecting
lower restructuring charges in 1994.
Equity in income of affiliated companies (see Note 2) remained flat
for the second quarter while increasing $2 million for the six-month period.
The second quarter reflects higher Tastemaker earnings offset by the disposi-
tion of an equity investment in the second quarter of 1993. The increase for
the six-month period principally reflects higher earnings in Tastemaker.
Interest and debt costs incurred declined $3 million and $5 million
for the quarter and six-month period, respectively, due to reduced levels of
average debt during the periods and decreases in interest rates.
Other income (expense), net showed an unfavorable change of $9
million for the quarter and $35 million for the six-month period. The change
for the quarter principally reflects a 1993 gain on the disposition of an
equity investment. In addition, the six-month period reflects favorable
litigation settlements and gain on the sale of equity investments in 1993
aggregating $42 million, partially offset by a $4 million gain in 1994 on the
sale of an investment.
The 1994 provision for income taxes for the six-month period reflects
an estimated annual effective tax rate of 33.6%, combined with a relatively low
rate on the sale of an investment. Both the 1994 estimated rate and the 1993
full-year rate of 34% are lower than the federal statutory rate. The 1994 rate
has been favorably affected by increased utilization of foreign tax credits
and reduced foreign taxes, while the 1993 rate was affected by a research and
experimentation tax credit of $10 million and also by a relatively high tax
rate on the sale of Hercules' investment in a foreign affiliate.
11
Financial Condition
Cash flow from operations was $71 million for the six-month period
compared to $220 million for the corresponding 1993 period. The variation is
primarily attributable to the cash implications of nonrecurring items. In 1993
there was nonrecurring cash inflow from a litigation settlement and the Titan
contract restructuring. In 1994 there was a nonrecurring tax payment associated
with the Titan settlement late last year. Also in 1994 there have been higher
working capital requirements.
Overall cash flow benefited from the proceeds associated with the
sale of Packaging Films business of $161 million.
Short-term liquidity has remained stable since year-end 1993. Both
the current ratio and the quick ratio are relatively flat at 1.3 and 0.8,
respectively. At June 30, 1994, $68 million is available under short-term
lines of credit.
During the six-month period, an additional 2,115,300 shares of common
stock were reacquired in the open market. As a percentage of total
capitalization, total debt increased from 26% to 28%, during the six-month
period, principally as a result of increased debt. It is not management's
intent to have this ratio exceed 33%. Funds available under revolving credit
agreements at June 30, 1994 exceed $218 million; in addition, $50 million is
accessible, depending upon market conditions, under a shelf registration.
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PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.
In September 1993, Hercules and the U.S. Environmental Protection
Agency (EPA) Region 1 reached an agreement in principle which, when
effectuated, will settle the EPA's claims that Hercules violated its
wastewater permit with the City of Chicopee and the federal
pretreatment standards for industrial users of publicly owned
treatment works at its Chicopee, MA facility. Under the agreement in
principle, Hercules would sign a Consent Decree (the "decree")
requiring supplemental environmental projects (at a cost of
approximately $375,000), compliance with permit limits in the future,
and $250,000 in fines. Hercules expects the Decree will be finalized
in the fourth quarter of 1994.
Item 4. Submission of Matters to a Vote of Security-Holders.
The Company's Annual Meeting was held April 28, 1994. Required
information supplied in registrant's Form 10-Q for the quarter ended
March 31, 1994.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K.
Hercules was not required to file any reports on Form 8-K
for the quarter ended June 30, 1994. However an optional filing
(Item 5 event) 8-K filing was made on July 22, 1994, related to the
proposed acquisition by Alliant Techsystems of a substantial portion
of the Aerospace segment and included the Letter of Intent between
Hercules Incorporated and Alliant Techsystems dated July 11, 1994 and
press release from Hercules Incorporated dated July 12, 1994.
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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 R. Keith Elliott
---------------------------------
R. Keith Elliott
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer
and duly authorized signatory)
August 10, 1994
by T. A. Ciconte
---------------------------------
T. A. Ciconte
Vice President and Controller
(Principal Accounting Officer)
August 10, 1994
14