United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 29, 2002
Hercules Incorporated
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(Exact name of registrant as specified in its charter)
Delaware 001-00496 51-0023450
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(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification Number)
incorporation)
Hercules Plaza
1313 North Market Street
Wilmington, Delaware 19894-0001
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(Address of principal executive offices) (Zip Code)
(302) 594-5000
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(Registrant's telephone number, including area code)
Item 2. Acquisition or Disposition of Assets.
On April 29, 2002, Hercules Incorporated ("Hercules") announced the
completion of the sale of the Water Treatment Business, consisting of the
BetzDearborn Division and certain Pulp and Paper Division treatment businesses,
to GE Specialty Materials ("GESM"), a unit of General Electric Company.
The sale price was $1.8 billion in cash, resulting in net after tax
proceeds of approximately $1.665 billion. As previously announced, the Company
used the net proceeds to prepay debt under its senior credit facility and ESOP
credit facility. Pursuant to the March 6, 2002 amendments to the senior credit
facility and the ESOP credit facility, the following provisions became effective
upon the consummation of the sale and the prepayment of debt:
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. increases in the permitted amounts of asset purchases and
dispositions.
Proceeds from the divestiture will also serve as collateral for
outstanding letters of credit.
Item 7. Financial Statements and Exhibits.
(b) Pro Forma Financial Information.
Unaudited Pro Forma Consolidated Statement of Operations for
the years ended December 31, 2001, 2000, and 1999.
Unaudited Pro Forma Consolidated Statement of Operations for
the three months ended March 31, 2002 and 2001.
Unaudited Pro Forma Consolidated Balance Sheet as of March 31,
2002.
(c) Exhibits.
None
Basis of Presentation
The following unaudited pro forma consolidated financial
statements reflect the divestiture of Hercules' Water Treatment
Business after giving effect to the pro forma adjustments described in
the accompanying notes. These unaudited pro forma consolidated
financial statements have been prepared from, and should be read in
conjunction with, the historical consolidated financial statements and
notes thereto of Hercules, which are included in Hercules' Annual
Report on Form 10-K for the year ended December 31, 2001 and Quarterly
Report on Form 10-Q as of March 31, 2002 and for the three months ended
March 31, 2002 and 2001, respectively.
The unaudited pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred had
the divestiture been consummated at the dates indicated, nor is it
necessarily indicative of future operating results or financial
position of Hercules.
The unaudited pro forma consolidated statements of operations
give effect to the divestiture as if it had occurred at the beginning
of the earliest period presented. The unaudited pro forma balance sheet
gives effect to the divestiture as if it had occurred on March 31,
2002.
HERCULES INCORPORATED
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(UNAUDITED)
(In millions, except per share)
Pro Forma Adjustments
-----------------------
Water
Treatment Other
Hercules Business(1) Adjustments Pro Forma
-------- ----------- ----------- ---------
Net Sales $ 2,620 $ 843 $ -- $ 1,777
Cost of Sales 1,464 336 (15)(2) 1,143
Selling, general and administrative expenses 743 341 -- 402
Research and development 67 14 -- 53
Goodwill and intangible asset amortization 76 52 -- 24
Other operating income, net (17) -- -- (17)
------- ------- ------- -------
Profit from operations 287 100 15 172
Interest and debt expense 196 -- 128(3) 68
Preferred security distributions of subsidiary trusts 58 -- -- 58
Other expense, net (10) (2) -- (8)
------- ------- ------- -------
Income before income taxes and equity loss 23 98 (113) 38
Provision (benefit) for income taxes 72 55 (40)(4) 57
------- ------- ------- -------
(Loss) income before equity loss (49) 43 (73) (19)
Equity loss of affiliated companies, net of tax (9) -- -- (9)
------- ------- ------- -------
Net (loss) income $ (58) $ 43 $ (73) $ (28)
======= ======= ======= =======
Basic and diluted loss per share:
Per share - basic $ (0.54) $ (0.26)
Weighted average shares outstanding - basic 108.2 108.2
Per share - assuming dilution $ (0.54) $ (0.26)
Weighted average shares outstanding - diluted 108.2 108.2
See accompanying notes to pro forma consolidated financial statements.
HERCULES INCORPORATED
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(UNAUDITED)
(In millions, except per share)
Pro Forma Adjustments
---------------------
Water
Treatment Other
Hercules Business(1) Adjustments Pro Forma
-------- ----------- ----------- ---------
Net Sales $ 3,152 $ 849 $ -- $ 2,303
Cost of Sales 1,784 332 (16)(2) 1,468
Selling, general and administrative expenses 810 367 -- 443
Research and development 80 16 -- 64
Goodwill and intangible asset amortization 80 56 -- 24
Other operating income, net (46) -- -- (46)
------- ------- ------- -------
Profit from operations 444 78 16 350
Interest and debt expense 164 -- 121(3) 43
Preferred security distributions of subsidiary trusts 96 -- -- 96
Other expense, net (18) -- -- (18)
------- ------- ------- -------
Income (loss) before income taxes and equity loss 166 78 (105) 193
Provision (benefit) for income taxes 66 46 (37)(4) 57
------- ------- ------- -------
Income (loss) before equity loss 100 32 (68) 136
Equity loss of affiliated companies, net of tax (2) -- -- (2)
------- ------- ------- -------
Net income (loss) $ 98 $ 32 $ (68) $ 134
======= ======= ======= =======
Basic and diluted earnings per share:
Per share - basic $ 0.91 $ 1.25
Weighted average shares outstanding - basic 107.2 107.2
Per share - assuming dilution $ 0.91 $ 1.25
Weighted average shares outstanding - diluted 107.4 107.4
See accompanying notes to pro forma consolidated financial statements.
HERCULES INCORPORATED
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
(In millions, except per share)
Pro Forma Adjustments
------------------------
Water
Treatment Other
Hercules Business(1) Adjustments Pro Forma
-------- ----------- ----------- ---------
Net Sales $ 3,309 $ 846 $ -- $ 2,463
Cost of Sales 1,831 325 (18)(2) 1,524
Selling, general and administrative expenses 787 340 -- 447
Research and development 85 18 -- 67
Goodwill and intangible asset amortization 79 62 -- 17
Other operating expenses, net 47 -- -- 47
------- ------- ------- -------
Profit from operations 480 101 18 361
Interest and debt expense 185 -- 106(3) 79
Preferred security distributions of subsidiary trusts 51 -- -- 51
Other expense, net (2) (1) -- (1)
------- ------- ------- -------
Income (loss) before income taxes and equity income 242 100 (88) 230
Provision (benefit) for income taxes 75 58 (31)(4) 48
------- ------- ------- -------
Income (loss) before equity income 167 42 (57) 182
Equity income of affiliated companies, net of tax 1 -- -- 1
------- ------- ------- -------
Net income (loss) $ 168 $ 42 $ (57) $ 183
======= ======= ======= =======
Basic and diluted earnings per share:
Per share - basic $ 1.63 $ 1.77
Weighted average shares outstanding - basic 103.2 103.2
Per share - assuming dilution $ 1.62 $ 1.76
Weighted average shares outstanding - diluted 103.9 103.9
See accompanying notes to pro forma consolidated financial statements.
HERCULES INCORPORATED
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
(In millions, except per share)
Pro Forma Adjustments
----------------------
Water
Treatment Other
Hercules(5) Business Adjustments Pro Forma
----------- -------- ----------- ---------
Net Sales $ 402 $ -- $ 402
Cost of Sales 243 -- (4)(2) 247
Selling, general and administrative expenses 88 -- -- 88
Research and development 10 -- -- 10
Goodwill and intangible asset amortization 2 -- -- 2
Other operating expenses, net 5 -- -- 5
------ ------- ----- -----
Profit from operations 54 -- 4 50
Interest and debt expense 36 -- 20(3) 16
Preferred security distributions of subsidiary trusts 15 -- -- 15
Other expense, net (4) -- -- (4)
------ ------- ----- -----
(Loss) income before income taxes and equity income (1) -- (16) 15
Provision (benefit) for income taxes 2 -- (6)(4) 8
------ ------- ----- -----
(Loss) income before equity income (3) -- (10) 7
Equity income of affiliated companies, net of tax -- -- -- --
------ ------- ----- -----
Net (loss) income from continuing operations $ (3) $ -- $ (10) $ 7
====== ======= ===== =====
Basic and diluted (loss) earnings per share:
Per share - basic $(0.03) $0.06
Weighted average shares outstanding - basic 109.0 109.0
Per share - assuming dilution $(0.03) $0.06
Weighted average shares outstanding - diluted 109.0 109.2
See accompanying notes to pro forma consolidated financial statements.
HERCULES INCORPORATED
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(UNAUDITED)
(In millions, except per share)
Pro Forma Adjustments
----------------------
Water
Treatment Other
Hercules(5) Business Adjustments Pro Forma
----------- --------- ----------- ---------
Net Sales $ 498 $ -- $ 498
Cost of Sales 326 -- (4)(2) 330
Selling, general and administrative expenses 101 -- -- 101
Research and development 15 -- -- 15
Goodwill and intangible asset amortization 7 -- -- 7
Other operating expenses, net 3 -- -- 3
------ ------- ----- -----
Profit from operations 46 4 42
Interest and debt expense 55 -- 36(3) 19
Preferred security distributions of subsidiary trusts 15 -- 15
Other expense, net (2) -- (2)
------ ------- ----- -----
(Loss) income before income taxes and equity loss (26) -- (32) 6
(Benefit) provision for income taxes (10) -- (11)(4) 1
------ ------- ----- -----
(Loss) income before equity loss (16) -- (21) 5
Equity loss of affiliated companies, net of tax (3) -- (3)
------ ------- ----- -----
Net (loss) income from continuing operations $ (19) $ -- $ (21) $ 2
====== ======= ===== =====
Basic and diluted (loss) earnings per share:
Per share - basic $(0.17) $0.02
Weighted average shares outstanding - basic 107.9 107.9
Per share - assuming dilution $(0.17) $0.02
Weighted average shares outstanding - diluted 107.9 108.1
See accompanying notes to pro forma consolidated financial statements.
HERCULES INCORPORATED
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2002
(UNAUDITED)
ASSETS Hercules Business(6) Adjustments Pro Forma
-------- ----------- ----------- ---------
Current assets
Cash and cash equivalents $ 52 $ -- $ 271(7) $ 323
Accounts and notes receivable, net 318 -- -- 318
Inventories 161 -- -- 161
Assets of business held for sale 1,914 (1,914) -- --
------- ------- ------- -------
Total current assets 2,445 (1,914) 271 802
Property, plant, and equipment 1,866 -- -- 1,866
Accumulated depreciation and amortization (1,208) -- -- (1,208)
------- ------- ------- -------
Net property, plant, and equipment 658 -- -- 658
Goodwill and other intangible assets, net 610 -- -- 610
Other assets 775 -- (72)(9) 703
------- ------- ------- -------
Total assets $ 4,488 $(1,914) $ 199 $ 2,773
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 131 $ -- $ -- $ 131
Accrued expenses 515 -- (24)(10) 491
Short-term debt 205 -- (181)(7) 24
Liabilities of business held for sale 280 (280) -- --
------- ------- ------- -------
Total current liabilities 1,131 (280) (205) 646
Long-term debt 1,984 -- (1,313)(8) 671
Deferred income taxes 191 -- -- 191
Postretirement benefits and other liabilities 478 -- -- 478
Commitments and contingencies -- -- -- --
Company-obligated preferred securities of subsidiary trusts 624 -- -- 624
Stockholders' equity
Series preferred stock -- -- -- --
Common stock (shares issued:
2002 - 159,984,444) 83 -- -- 83
Additional paid-in capital 691 -- -- 691
Unearned compensation (104) -- -- (104)
Other comprehensive losses (273) 113 -- (160)
Retained earnings 1,520 (1,747) 1,717(11) 1,490
------- ------- ------- -------
1,917 (1,634) 1,717 2,000
Reacquired stock, at cost (shares:
2002 - 50,964,488) (1,837) -- -- (1,837)
------- ------- ------- -------
Total stockholders' equity 80 (1,634) 1,717 163
------- ------- ------- -------
Total liabilities and stockholders' equity $ 4,488 $(1,914) $ 199 $ 2,773
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See accompanying notes to pro forma consolidated financial statements.
HERCULES INCORPORATED
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Eliminates the results of operations of our Water Treatment Business
for the period as if the divestiture had been completed as of the
beginning of the period presented.
2. Pursuant to a distribution agreement with GESM, the Company will
continue to purchase some products from the Water Treatment Business.
This adjustment is the estimated incremental cost of purchasing product
from an outside manufacturer (GESM) and reducing gross profit to a
distribution profit only.
3. Reflects the reduction in interest expense attributable to the
application of the proceeds from the Water Treatment Business sale to
the reduction in long-term debt.
4. Reflects income tax effect of pro forma adjustments at a U.S. federal
statutory rate of 35%.
5. Reflects the results from continuing operations of the Company, which
already exclude the Water Treatment Business as this business has been
reported as a discontinued operation, for the respective period.
6. Eliminates the assets and liabilities attributed to the Water Treatment
Business as if the divestiture had been completed as of the balance
sheet date.
7. Reflects the application of the estimated proceeds of the sale of the
Water Treatment Business to prepay debt outstanding under Tranche A,
Tranche D, the revolving credit facility and the ESOP Note, as follows:
(in millions)
Gross Proceeds $ 1,800
Principal Repayments
Tranche A $ 436
Tranche D 370
Revolver 605
ESOP 75 1,486
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314
Prepayment penalties (34)
Tax withholdings (9)
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Cash $ 271
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The cash balance of $271 million includes $65 million of sale proceeds
that was used on April 29, 2002 to repay borrowings against the
revolver made during April to make a pension fund contribution.
8. Reflects principal repayments of $1,486 million plus the write-off of
the remaining unamortized fair market value step-up on the ESOP credit
facility of $8 million.
HERCULES INCORPORATED
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. Reflects the elimination of transaction costs of $55 million which are
deferred at March 31, 2002 and the write-off of $17 million in debt
issuance costs.
10. Reflects elimination of accrued taxes related to reorganization related
activities undertaken to facilitate the transaction which were withheld
from the gross proceeds by GESM and the tax impact of prepayment
penalties, debt issuance costs and ESOP fair market value adjustments.
11. Reflects the following:
(in millions)
Gross proceeds $ 1,800
Transaction costs (55)
Prepayment penalties, net of taxes at 35% (22)
Write-off of unamortized debt issuance costs, net of taxes at 35% (11)
Write-off of ESOP debt fair market value step-up, net of taxes at 35% 5
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Adjustment to retained earnings $ 1,717
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
HERCULES INCORPORATED
July 19, 2002 By: /s/ Israel J. Floyd
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Israel J. Floyd
Corporate Secretary and General Counsel