Hercules Reports Third Quarter 2008 Results

  
    
  
  
    
      Hercules Incorporated (NYSE:HPC) today reported net income for the 
      quarter ended September 30, 2008 of $39.5 million, or $0.35 per diluted 
      share, as compared to $48.8 million, or $0.42 per diluted share, for the 
      third quarter of 2007.(1) Third quarter 2008 net 
      income included after tax transaction costs of approximately 
      $6.8 million, or $0.06 per diluted share, associated with the pending 
      Ashland transaction. In addition, third quarter 2008 net income included 
      an after tax gain of $3.9 million, or $0.03 per diluted share, related 
      to the settlement of the government’s claim 
      for additional response costs associated with the Vertac litigation.
    
    
      Net income from ongoing operations(2) for the 
      third quarter of 2008 was $42.4 million, or $0.38 per diluted share, 
      compared to $53.4 million, or $0.46 per diluted share, in the third 
      quarter of 2007. The third quarter 2007 included net income of $7.4 
      million, or $0.05 per diluted share, related to the sale of technology. 
      The ongoing tax rate was approximately 23% in the third quarter of 2008 
      versus approximately 19% in the same period last year, or an impact of 
      approximately $0.02 per diluted share versus the prior year. Please 
      refer to Table 2 for a reconciliation of net income from ongoing 
      operations to reported net income.
    
    
      Net sales in the third quarter of 2008 were $605.8 million, an increase 
      of $61.6 million or 11% from the same period last year. Volume and 
      pricing increased by 1% and 5%, respectively. Rates of exchange 
      increased sales by 5% during the quarter, while mix was neutral. The 
      Company’s Logos Química 
      acquisition in Latin America contributed $2.3 million of the sales 
      increase; however, gross profit from the acquisition was minimal due to 
      purchase accounting adjustments.
    
    
      Net sales in the third quarter of 2008 increased in all major regions of 
      the world versus the prior year. Sales increased 6% in North America, 
      39% in Latin America (31% excluding the Logos Química 
      acquisition), 9% in Europe and 23% in Asia Pacific. Europe was lower by 
      6% excluding the impact of the Euro.
    
    
      Reported profit from operations in the third quarter of 2008 was $63.1 
      million, a decrease of 24% compared with $83.3 million for the same 
      period in 2007.(1) Profit from ongoing 
      operations(2) in the third quarter of 2008 was 
      $77.5 million, a decrease of 8% compared with $84.2 million in the third 
      quarter of 2007. Excluding the sale of technology in the prior year 
      period, ongoing operating profit increased 1%. Please refer to Table 2 
      for a reconciliation of profit from ongoing operations to reported 
      profit from operations.
    
    
      Cash flow from operations for the nine months ended September 30, 2008 
      was $135.2 million, including cash outflows for severance, restructuring 
      and other exit costs of $16.3 million. Capital spending for the nine 
      months ended September 30, 2008 was $74.3 million.
    
    
      Interest and debt expense was $18.6 million in the third quarter of 
      2008, compared to $17.0 million in the third quarter of 2007, reflecting 
      increased interest expense from cross currency interest rate swaps and 
      higher rates on term debt, partially offset by lower outstanding debt 
      balances.
    
    
      Total debt was $810.4 million at September 30, 2008, a decrease of 
      $6.3 million from June 30, 2008. Cash and cash equivalents were $116.7 
      million at September 30, 2008.
    
    
      Segment Results – Ongoing Basis(2)
    
    
      In the Aqualon Group, net sales increased 12% and profit from ongoing 
      operations increased 8% in the third quarter as compared with the third 
      quarter of 2007. All business units had increased sales in the third 
      quarter as compared to the prior year. In the aggregate, the sales 
      increase was driven by 1% higher volume, 6% higher prices, 1% favorable 
      mix, and 4% favorable rates of exchange.
    
    
      Coatings and construction sales increased 10% in the third quarter of 
      2008 as compared to the same period of last year, due to 2% higher 
      volume, 5% increased pricing and 6% favorable rates of exchange, 
      partially offset by 3% negative product and regional mix.
    
    
      Sales into the coatings markets were up 14% in the third quarter of 2008 
      as compared to the same period of last year. All major regions of the 
      world had increased sales, due in part to increased pricing. Rates of 
      exchange remain favorable in Europe and Asia. Volume growth continued to 
      be strong in Asia, primarily China. Volumes in North America also 
      improved, primarily due to increased sales of specialty surfactants. 
      Both Europe and Latin America sales volumes were essentially flat with 
      the prior year. Sales of specialty surfactants have continued to improve 
      versus the prior year every quarter since the specialty surfactant 
      acquisition was completed in July 2007. In addition, sales of specialty 
      surfactants continue to grow outside the traditional North American 
      markets.
    
    
      Construction market sales increased 7% as compared to the third quarter 
      of last year. Strong growth was achieved in the Middle East and Africa. 
      Modest sales growth was achieved in Asia and Europe, whereas sales in 
      North and Latin America were lower. Pricing improvements were achieved 
      in most regions and product families.
    
    
      Regulated industry sales increased 23% in the third quarter of 2008 as 
      compared to the same period of last year, primarily due to 11% higher 
      volume, 2% improved product mix, 6% increased pricing and 4% favorable 
      rates of exchange. Sales were higher in all markets. Sales increased in 
      the pharmaceutical, personal care and food markets by 41%, 14% and 23%, 
      respectively, as compared to the third quarter of last year. Growth was 
      achieved in all major regions of the world, except Latin America which 
      was modestly lower. Price increases were achieved in all markets and 
      most product families. Sales of the AquariusTM 
      film coating product line for the pharmaceutical industry have continued 
      to improve versus the prior year every quarter since the product launch 
      in mid 2007.
    
    
      Energy and specialties sales increased 7% in the third quarter of 2008 
      as compared to the same period of last year. The increase was due to 5% 
      higher prices, 3% favorable rates of exchange and 4% favorable mix, 
      partially offset by 5% lower volume. Energy sales increased 16% while 
      specialties increased 1%, as compared to the prior year. Sales of energy 
      and specialty businesses grew in most major regions of the world, except 
      Asia which was essentially flat. Price increases were achieved across 
      most product families. Increased sales of higher priced oilfield 
      products improved the product mix from the prior year.
    
    
      Profit from ongoing operations was 8% higher, primarily as a result of 
      higher volume and the associated contribution margin, increased selling 
      prices, lower pension expenses, and lower corporate allocated costs, 
      partially offset by higher raw material, transportation and utility 
      costs, and higher selling, general and administrative costs. Margins 
      were adversely impacted as price increases did not fully offset higher 
      raw material, freight and utility costs. Pricing increased $14.2 million 
      from the third quarter of last year, whereas raw material, freight and 
      utility costs increased $15.7 million. The recovery of cost increases 
      through pricing continues to improve as 90% of cost increases were 
      recovered in the third quarter versus 62% in the second quarter 2008 and 
      35% in the first quarter of 2008.
    
    
      In the Paper Technologies and Ventures Group (PTV), net sales in the 
      third quarter increased 10% while profit from ongoing operations 
      decreased 34% compared with the same quarter in 2007. Excluding the sale 
      of technology in the prior year period, profit from ongoing operations 
      was down $4.8 million or 17%.
    
    
      Paper Technologies sales increased 7% due to 1% higher volume, 6% 
      favorable rates of exchange and 3% increased price, partially offset by 
      3% unfavorable mix. Volumes were higher in both Latin America and Asia, 
      while North America was flat and Europe was lower as compared to the 
      third quarter of last year. The increase in both Latin America and Asia 
      was primarily due to growth in sales of functional chemicals. Both North 
      America and European volumes reflected lower sales of strength products. 
      Price increases were achieved in all regions, with the largest 
      contribution in the Americas. The favorable rates of exchange primarily 
      reflect the strong Euro. Sales in fast growing markets, including 
      Brazil, Chile, Indonesia, Russia and the Middle East, were up 37% 
      compared to the prior year. Sales of new products recently introduced 
      into the marketplace were up 36% versus the prior year and continue to 
      support margins.
    
    
      Ventures sales increased 24% primarily due to 5% higher volume (4% 
      excluding the Logos Química acquisition), 8% 
      higher prices, 7% improved product mix, and 4% favorable rates of 
      exchange. Sales increased in all Ventures business units except Tolled 
      products: Lubricants increased 86%; Water Management increased 17%; Pulp 
      chemicals increased 15%; and Building and converted products increased 
      6%; Tolled products decreased 11%. Pricing was favorable in most Venture 
      businesses but especially strong in lubricants.
    
    
      The decrease in profit from ongoing operations reflected higher raw 
      material, freight and utility costs, and increased SG&A costs (including 
      employees acquired in the Logos transaction), partially offset by 
      favorable rates of exchange, higher volume and associated contribution 
      margins, improved selling prices, lower corporate allocated costs, and 
      lower pension costs.
    
    
      Price increases were $12.2 million as compared to the third quarter of 
      last year, while raw material, freight and utility costs increased 
      $19.1 million. The recovery of cost increases through pricing was down 
      slightly as 64% of cost increases were recovered in the third quarter 
      versus 69% in the second quarter 2008.
    
    
      Outlook
    
    
      As previously announced on July 11, 2008, the Company has entered into a 
      definitive merger agreement under which Ashland Inc. (Ashland) would 
      acquire all of the outstanding shares of the Company. The special 
      shareholders meeting to vote on the merger is scheduled for November 5, 
      2008.
    
    
      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. The words or phrases "will 
      likely result," "should," "are expected to," "will continue," "is 
      anticipated," "expect," "estimate," "project" or similar expressions are 
      among those which identify forward-looking statements. 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: the 
      possibility that the transaction with Ashland may not be completed, 
      including as a result of failure to obtain the approval of the Company’s 
      stockholders; the possibility that financing may not be available to 
      Ashland on the terms committed; and other risks that are described in 
      filings made by Ashland and the Company with the Securities and Exchange 
      Commission (SEC) in connection with the proposed transaction, the 
      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 improve 
      margins, the success of outsourcing initiatives, ability to identify, 
      execute and integrate acquisitions, ability to execute divestitures, 
      ability to complete transactions, 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 raw material, manufacturing, freight and utility 
      costs, reduced level of customer orders, changes in strategies, risks in 
      developing new products and technologies, risks in developing new market 
      opportunities or expanding capacity, environmental and safety 
      regulations and clean-up costs, the impact of adverse events relating to 
      the operation of the Company's facilities and to the transportation and 
      storage of hazardous materials (including equipment malfunction, 
      explosions, fires, spills, and the effects of severe weather 
      conditions), 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, 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 achievement, expressed 
      or implied by such forward-looking statements, reactivate stock 
      repurchases or continue the payment of dividends. As appropriate, 
      additional factors are contained in 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.
    
    
      ADDITIONAL INFORMATION
    
    
      In connection with the proposed transaction, Ashland and the Company 
      have filed documents with the SEC, including a registration statement on 
      Form S-4 filed by Ashland on September 29, 2008, and a related 
      definitive proxy statement/prospectus filed by the Company on October 3, 
      2008 and mailed to investors and security holders on or about October 6, 
      2008. Investors and security holders are urged to read the 
      registration statement on Form S-4 and the related definitive 
      proxy/prospectus. Investors and security holders may obtain free 
      copies of these documents and other documents filed with the SEC by 
      contacting Ashland Investor Relations at [phone] or Hercules 
      Investor Relations at [phone]. Investors and security 
      holders may also obtain free copies of the documents filed with the SEC 
      on Ashland’s Investor Relations website at www.ashland.com/investors 
      or the Company’s website at www.herc.com 
      or the SEC’s website at www.sec.gov.
    
    
      The Company and its directors and executive officers are deemed 
      participants in the solicitation of proxies from the stockholders of the 
      Company in connection with the proposed transaction. Information 
      regarding the special interests of these directors and executive 
      officers in the proposed transaction has been included in the proxy 
      statement/prospectus described above. Additional information 
      regarding the directors and executive officers of the Company is also 
      included in the Company’s proxy statement for 
      its 2008 Annual Meeting of Stockholders, which was filed with the SEC on 
      March 19, 2008. These documents are available free of charge at 
      the SEC’s web site at www.sec.gov 
      and from Investor Relations at Ashland and the Company as described 
      above.
    
    
      
        
        
        
           
        
        
        
        
           
        
        
        
      
      
        
          
            HERCULES INCORPORATED
          
        
      
      
        
          
            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
          
        
      
      
        
        
        
        
        
           
        
      
      
        
        
        
        
        
           
        
      
      
        
          
            (Dollars in millions, except per share data) 
          
        
        
        
        
          
            (Unaudited)
          
        
      
      
        
          
            Table 1
          
        
        
        
        
          THREE MONTHSENDED SEPT. 30
        
        
           
        
        
          NINE MONTHSENDED SEPT. 30
        
      
      
        
        
        
        
        
          2008
        
        
           
        
        
          
            2007(1)
          
        
        
           
        
        
          2008
        
        
           
        
        
          
            2007(1)
          
        
      
      
        
          Net sales
        
        
        
        
          $
        
        
          605.8
        
        
        
        
           
        
        
          $
        
        
          544.2
        
        
        
        
        
        
          $
        
        
          1,776.7
        
        
           
        
        
          $
        
        
          1,595.5
        
        
        
      
      
        
          Cost of sales
        
        
        
        
        
        
          421.3
        
        
        
        
        
        
        
        
          358.0
        
        
        
        
        
        
        
        
          1,215.8
        
        
        
        
        
        
          1,040.2
        
        
        
      
      
        
          Selling, general and administrative expenses
        
        
        
        
        
        
          93.5
        
        
        
        
        
        
        
        
          84.1
        
        
        
        
        
        
        
        
          286.7
        
        
        
        
        
        
          252.3
        
        
        
      
      
        
          Research and development
        
        
        
        
        
        
          10.9
        
        
        
        
        
        
        
        
          11.0
        
        
        
        
        
        
        
        
          33.4
        
        
        
        
        
        
          32.4
        
        
        
      
      
        
          Intangible asset amortization
        
        
        
        
        
        
          2.7
        
        
        
        
        
        
        
        
          2.4
        
        
        
        
        
        
        
        
          8.0
        
        
        
        
        
        
          6.1
        
        
        
      
      
        
          Other operating expense, net
        
        
        
        
        
        
          14.3
        
        
        
        
        
        
        
        
          5.4
        
        
        
        
        
        
        
        
          27.1
        
        
        
        
        
        
          26.1
        
        
        
      
      
        
          Profit from operations
        
        
        
        
        
        
          63.1
        
        
        
        
        
        
        
        
          83.3
        
        
        
        
        
        
        
        
          205.7
        
        
        
        
        
        
          238.4
        
        
        
      
      
        
          Interest and debt expense
        
        
        
        
        
        
          18.6
        
        
        
        
        
        
        
        
          17.0
        
        
        
        
        
        
        
        
          53.6
        
        
        
        
        
        
          52.0
        
        
        
      
      
        
          Other expense, net
        
        
        
        
        
        
          0.1
        
        
        
        
        
        
        
        
          4.9
        
        
        
        
        
        
        
        
          15.9
        
        
        
        
        
        
          42.9
        
        
        
      
      
        
          Income before income taxes and equity income
        
        
        
        
        
        
          44.4
        
        
        
        
        
        
        
        
          61.4
        
        
        
        
        
        
        
        
          136.2
        
        
        
        
        
        
          143.5
        
        
        
      
      
        
          Provision (benefit) for income taxes
        
        
        
        
        
        
          6.4
        
        
        
        
        
        
        
        
          14.9
        
        
        
        
        
        
        
        
          30.5
        
        
        
        
        
        
          (26.1
        
        
          )
        
      
      
        
          Income before minority interests and equity income
        
        
        
        
        
        
          38.0
        
        
        
        
        
        
        
        
          46.5
        
        
        
        
        
        
        
        
          105.7
        
        
        
        
        
        
          169.6
        
        
        
      
      
        
          Minority interests in losses (earnings) of consolidated subsidiaries
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          0.3
        
        
        
        
        
        
        
        
          0.9
        
        
        
        
        
        
          (0.7
        
        
          )
        
      
      
        
          Equity income of affiliated companies, net of tax
        
        
        
        
        
        
          1.6
        
        
        
        
        
        
        
        
          1.0
        
        
        
        
        
        
        
        
          0.5
        
        
        
        
        
        
          0.5
        
        
        
      
      
        
          Net income from continuing operations before discontinued operations
        
        
        
        
        
        
          39.6
        
        
        
        
        
        
        
        
          47.8
        
        
        
        
        
        
        
        
          107.1
        
        
        
        
        
        
          169.4
        
        
        
      
      
        
          Net income (loss) from discontinued operations, net of tax(4)
        
        
        
        
        
        
          (0.1
        
        
          )
        
        
        
        
        
        
          1.0
        
        
        
        
        
        
        
        
          25.8
        
        
        
        
        
        
          1.0
        
        
        
      
      
        
          Net income
        
        
        
        
        
        
          39.5
        
        
        
        
        
        
        
        
          48.8
        
        
        
        
        
        
        
        
          132.9
        
        
        
        
        
        
          170.4
        
        
        
      
      
        
          Basic earnings per share:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Continuing operations
        
        
        
        
          $
        
        
          0.35
        
        
        
        
        
        
          $
        
        
          0.42
        
        
        
        
        
        
          $
        
        
          0.96
        
        
        
        
          $
        
        
          1.48
        
        
        
      
      
        
          Discontinued operations
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          0.01
        
        
        
        
        
        
        
        
          0.23
        
        
        
        
        
        
          0.01
        
        
        
      
      
        
          Net income
        
        
        
        
          $
        
        
          0.35
        
        
        
        
        
        
          $
        
        
          0.43
        
        
        
        
        
        
          $
        
        
          1.19
        
        
        
        
          $
        
        
          1.49
        
        
        
      
      
        
          Weighted average # of basic shares (millions)
        
        
        
        
        
        
          111.4
        
        
        
        
        
        
        
        
          114.4
        
        
        
        
        
        
        
        
          111.6
        
        
        
        
        
        
          114.4
        
        
        
      
      
        
          Diluted earnings per share:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Continuing operations
        
        
        
        
          $
        
        
          0.35
        
        
        
        
        
        
          $
        
        
          0.41
        
        
        
        
        
        
          $
        
        
          0.96
        
        
        
        
          $
        
        
          1.47
        
        
        
      
      
        
          Discontinued operations
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          0.01
        
        
        
        
        
        
        
        
          0.23
        
        
        
        
        
        
          0.01
        
        
        
      
      
        
          Net income
        
        
        
        
          $
        
        
          0.35
        
        
        
        
        
        
          $
        
        
          0.42
        
        
        
        
        
        
          $
        
        
          1.19
        
        
        
        
          $
        
        
          1.48
        
        
        
      
      
        
          Weighted average # of diluted shares (millions)
        
        
        
        
        
        
          112.1
        
        
        
        
        
        
        
        
          115.2
        
        
        
        
        
        
        
        
          112.2
        
        
        
        
        
        
          115.1
        
        
        
      
      
        
          Dividends declared per share
        
        
        
        
          $
        
        
          0.05
        
        
        
        
        
        
          $
        
        
          0.05
        
        
        
        
        
        
          $
        
        
          0.15
        
        
        
        
          $
        
        
          0.05
        
        
        
      
      
        
          Income before income taxes and equity income
        
        
        
        
          $
        
        
          44.4
        
        
        
        
        
        
          $
        
        
          61.4
        
        
        
        
        
        
          $
        
        
          136.2
        
        
        
        
          $
        
        
          143.5
        
        
        
      
      
        
          Interest and debt expense
        
        
        
        
        
        
          18.6
        
        
        
        
        
        
        
        
          17.0
        
        
        
        
        
        
        
        
          53.6
        
        
        
        
        
        
          52.0
        
        
        
      
      
        
          EBIT(2)
        
        
        
        
        
        
          63.0
        
        
        
        
        
        
        
        
          78.4
        
        
        
        
        
        
        
        
          189.8
        
        
        
        
        
        
          195.5
        
        
        
      
      
        
          Depreciation and amortization, net of amortization of debt 
          issuance costs
        
        
        
        
        
        
          22.6
        
        
        
        
        
        
        
        
          27.2
        
        
        
        
        
        
        
        
          75.4
        
        
        
        
        
        
          80.3
        
        
        
      
      
        
          EBITDA(2)
        
        
        
        
          $
        
        
          85.6
        
        
        
        
        
        
          $
        
        
          105.6
        
        
        
        
        
        
          $
        
        
          265.2
        
        
        
        
          $
        
        
          275.8
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    
      
        
        
        
           
        
        
        
        
           
        
        
        
      
      
        
        
        
        
        
          
            (Unaudited)
          
        
      
      
        
          
            Table 1 (continued)
          
          
             
          
          
            SEGMENT DATA(Dollars in millions)
          
        
        
        
        
          THREE MONTHSENDED SEPT. 30
        
        
           
        
        
          NINE MONTHSENDED SEPT. 30
        
      
      
        
        
        
        
        
          2008
        
        
           
        
        
          
            2007(1)
          
        
        
           
        
        
          2008
        
        
           
        
        
          
            2007(1)
          
        
      
      
        
          Net Sales By Segment(3)
        
        
        
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
      
      
        
          Paper Technologies
        
        
        
        
          $
        
        
          240.6
        
        
        
        
        
        
          $
        
        
          225.9
        
        
        
        
        
        
          $
        
        
          701.2
        
        
        
        
        
        
          $
        
        
          674.7
        
        
        
      
      
        
          Ventures
        
        
        
        
        
        
          76.3
        
        
        
        
        
        
        
        
          61.3
        
        
        
        
        
        
        
        
          228.6
        
        
        
        
        
        
        
        
          184.0
        
        
        
      
      
        
          Paper Technologies & Ventures Group
        
        
        
        
          $
        
        
          316.9
        
        
        
        
        
        
          $
        
        
          287.2
        
        
        
        
        
        
          $
        
        
          929.8
        
        
        
        
        
        
          $
        
        
          858.7
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Coatings & Construction
        
        
        
        
          $
        
        
          141.9
        
        
        
        
        
        
          $
        
        
          128.5
        
        
        
        
        
        
          $
        
        
          414.8
        
        
        
        
        
        
          $
        
        
          358.7
        
        
        
      
      
        
          Regulated
        
        
        
        
        
        
          71.5
        
        
        
        
        
        
        
        
          58.0
        
        
        
        
        
        
        
        
          214.6
        
        
        
        
        
        
        
        
          182.1
        
        
        
      
      
        
          Energy & Specialties
        
        
        
        
        
        
          75.5
        
        
        
        
        
        
        
        
          70.5
        
        
        
        
        
        
        
        
          217.5
        
        
        
        
        
        
        
        
          196.0
        
        
        
      
      
        
          Aqualon Group
        
        
        
        
          $
        
        
          288.9
        
        
        
        
        
        
          $
        
        
          257.0
        
        
        
        
        
        
          $
        
        
          846.9
        
        
        
        
        
        
          $
        
        
          736.8
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            TOTAL
          
        
        
        
        
          $
        
        
          605.8
        
        
        
        
        
        
          $
        
        
          544.2
        
        
        
        
        
        
          $
        
        
          1,776.7
        
        
        
        
        
        
          $
        
        
          1,595.5
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Profit (Loss) From Operations By Segment
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Paper Technologies & Ventures Group
        
        
        
        
          $
        
        
          23.0
        
        
        
        
        
        
          $
        
        
          40.2
        
        
        
        
        
        
          $
        
        
          76.6
        
        
        
        
        
        
          $
        
        
          105.6
        
        
        
      
      
        
          Aqualon Group
        
        
        
        
        
        
          57.4
        
        
        
        
        
        
        
        
          55.7
        
        
        
        
        
        
        
        
          162.0
        
        
        
        
        
        
        
        
          170.5
        
        
        
      
      
        
          Corporate
        
        
        
        
        
        
          (17.3
        
        
          )
        
        
        
        
        
        
          (12.6
        
        
          )
        
        
        
        
        
        
          (32.9
        
        
          )
        
        
        
        
        
        
          (37.7
        
        
          )
        
      
      
        
          TOTAL
        
        
        
        
          $
        
        
          63.1
        
        
        
        
        
        
          $
        
        
          83.3
        
        
        
        
        
        
          $
        
        
          205.7
        
        
        
        
        
        
          $
        
        
          238.4
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    
      
        
           
        
      
      
        
        
        
           
        
        
          
            (Unaudited)
          
        
      
      
        
          
            Table 2Reconciliation 
            to Ongoing Operations
          
        
        
        
        
          
            THREE MONTHSENDED SEPT. 30, 2008
          
        
        
           
        
        
          
            THREE MONTHSENDED SEPT. 30, 2007(1)
          
        
      
      
        
          
            (Dollars in millions, except per share)
          
        
        
        
        
          
            NET INCOME(LOSS)
          
        
        
           
        
        
          
          DILUTED EPS
        
        
           
        
        
          PROFIT FROMOPERATIONS
        
        
           
        
        
          
          
          EBITDA
        
        
           
        
        
          
            NET INCOME(LOSS)
          
        
        
           
        
        
          
          DILUTED EPS
        
        
           
        
        
          PROFIT FROMOPERATIONS
        
        
           
        
        
          
          
          EBITDA
        
      
      
        
          
            From Table 1
          
        
        
        
        
          $
        
        
          39.5
        
        
        
        
           
        
        
          $
        
        
          0.35
        
        
        
        
           
        
        
          $
        
        
          63.1
        
        
           
        
        
          $
        
        
          85.6
        
        
        
        
           
        
        
          $
        
        
          48.8
        
        
        
        
           
        
        
          $
        
        
          0.42
        
        
        
        
           
        
        
          $
        
        
          83.3
        
        
        
        
           
        
        
          $
        
        
          105.6
        
        
        
      
      
        
          Discontinued operations, net of tax(4)
        
        
        
        
        
        
          0.1
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          (1.0
        
        
          )
        
        
        
        
        
        
          (0.01
        
        
          )
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
      
      
        
          Vertac matters
        
        
        
        
        
        
          (3.9
        
        
          )
        
        
        
        
        
        
          (0.03
        
        
          )
        
        
        
        
        
        
          —
        
        
        
        
        
        
          (5.9
        
        
          )
        
        
        
        
        
        
          0.7
        
        
        
        
        
        
        
        
          0.01
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          1.0
        
        
        
      
      
        
          Legal accruals and settlements(5)
        
        
        
        
        
        
          0.1
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
          0.2
        
        
        
        
        
        
        
        
          0.4
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          0.6
        
        
        
      
      
        
          Severance and restructuring costs
        
        
        
        
        
        
          1.4
        
        
        
        
        
        
        
        
          0.01
        
        
        
        
        
        
        
        
          2.2
        
        
        
        
        
        
          2.2
        
        
        
        
        
        
        
        
          5.1
        
        
        
        
        
        
        
        
          0.05
        
        
        
        
        
        
        
        
          7.8
        
        
        
        
        
        
        
        
          7.8
        
        
        
      
      
        
          Asset impairments/ Accelerated depreciation
        
        
        
        
        
        
          0.8
        
        
        
        
        
        
        
        
          0.01
        
        
        
        
        
        
        
        
          1.3
        
        
        
        
        
        
          1.1
        
        
        
        
        
        
        
        
          2.3
        
        
        
        
        
        
        
        
          0.02
        
        
        
        
        
        
        
        
          3.5
        
        
        
        
        
        
        
        
          —
        
        
        
      
      
        
          Pension accounting change pre LDI implementation(1)
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          (6.8
        
        
          )
        
        
        
        
        
        
          (0.06
        
        
          )
        
        
        
        
        
        
          (10.4
        
        
          )
        
        
        
        
        
        
          (10.4
        
        
          )
        
      
      
        
          Gain on asset dispositions
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          (2.0
        
        
          )
        
        
        
        
        
        
          (0.02
        
        
          )
        
        
        
        
        
        
          (0.5
        
        
          )
        
        
        
        
        
        
          (3.0
        
        
          )
        
      
      
        
          Loss on sale of FiberVisions
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          2.8
        
        
        
        
        
        
        
        
          0.03
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          2.8
        
        
        
      
      
        
          Ashland transaction costs(10)
        
        
        
        
        
        
          6.8
        
        
        
        
        
        
        
        
          0.06
        
        
        
        
        
        
        
        
          10.4
        
        
        
        
        
        
          10.4
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
      
      
        
          Other(6)
        
        
        
        
        
        
          0.4
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          0.5
        
        
        
        
        
        
          0.6
        
        
        
        
        
        
        
        
          0.6
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          0.5
        
        
        
        
        
        
        
        
          0.9
        
        
        
      
      
        
          Subtotal adjustment items(7)
        
        
        
        
        
        
          5.7
        
        
        
        
        
        
        
        
          0.05
        
        
        
        
        
        
        
        
          14.4
        
        
        
        
        
        
          8.6
        
        
        
        
        
        
        
        
          2.1
        
        
        
        
        
        
        
        
          0.02
        
        
        
        
        
        
        
        
          0.9
        
        
        
        
        
        
        
        
          (0.3
        
        
          )
        
      
      
        
          Tax adjustment to the ongoing effective tax rate(8)
        
        
        
        
        
        
          (2.8
        
        
          )
        
        
        
        
        
        
          (0.02
        
        
          )
        
        
        
        
        
        
          —
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          2.5
        
        
        
        
        
        
        
        
          0.02
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
      
      
        
          Ongoing Operations(2)
        
        
        
        
          $
        
        
          42.4
        
        
        
        
        
        
          $
        
        
          0.38
        
        
        
        
        
        
          $
        
        
          77.5
        
        
        
        
          $
        
        
          94.2
        
        
        
        
        
        
          $
        
        
          53.4
        
        
        
        
        
        
          $
        
        
          0.46
        
        
        
        
        
        
          $
        
        
          84.2
        
        
        
        
        
        
          $
        
        
          105.3
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    
      
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
        
      
      
        
        
        
        
        
          
            (Unaudited)
          
        
      
      
        
          
            Table 3Reconciliation 
            to Ongoing Operations
          
        
        
        
        
          
            NINE MONTHSENDED SEPT. 30, 2008
          
        
        
           
        
        
          
            NINE MONTHSENDED SEPT. 30, 2007(1)
          
        
      
      
        
          
            (Dollars in millions, except per share)
          
        
        
        
        
          
            NET 
          
          
            INCOME
          
          
            (LOSS)
          
        
        
           
        
        
          
            DILUTED
          
          
            EPS
          
        
        
           
        
        
          
            PROFIT
          
          
            FROM
          
          
            OPERATIONS
          
        
        
           
        
        
          
            EBITDA
          
        
        
           
        
        
          
            NET 
          
          
            INCOME
          
          
            (LOSS)
          
        
        
           
        
        
          
            DILUTED
          
          
            EPS
          
        
        
           
        
        
          
            PROFIT
          
          
            FROM
          
          
            OPERATIONS
          
        
        
           
        
        
          
            EBITDA
          
        
      
      
        
          
            From Table 1
          
        
        
        
        
          $
        
        
          132.9
        
        
        
        
        
        
          $
        
        
          1.19
        
        
        
        
        
        
          $
        
        
          205.7
        
        
        
        
          $
        
        
          265.2
        
        
        
        
        
        
          $
        
        
          170.4
        
        
        
        
        
        
          $
        
        
          1.48
        
        
        
        
        
        
          $
        
        
          238.4
        
        
        
        
        
        
          $
        
        
          275.8
        
        
        
      
      
        
          Discontinued operations, net of tax(4)
        
        
        
        
        
        
          (25.8
        
        
          )
        
        
        
        
        
        
          (0.23
        
        
          )
        
        
        
        
        
        
          —
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          (1.0
        
        
          )
        
        
        
        
        
        
          (0.01
        
        
          )
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
      
      
        
          Vertac matters
        
        
        
        
        
        
          (3.6
        
        
          )
        
        
        
        
        
        
          (0.03
        
        
          )
        
        
        
        
        
        
          —
        
        
        
        
        
        
          (5.4
        
        
          )
        
        
        
        
        
        
          13.0
        
        
        
        
        
        
        
        
          0.11
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          20.0
        
        
        
      
      
        
          ABL settlement
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          8.4
        
        
        
        
        
        
        
        
          0.07
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          13.0
        
        
        
      
      
        
          Gain on asset dispositions
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          (4.6
        
        
          )
        
        
        
        
        
        
          (0.04
        
        
          )
        
        
        
        
        
        
          (4.6
        
        
          )
        
        
        
        
        
        
          (7.1
        
        
          )
        
      
      
        
          Legal accruals and settlements(5)
        
        
        
        
        
        
          1.1
        
        
        
        
        
        
        
        
          0.01
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
          1.7
        
        
        
        
        
        
        
        
          1.2
        
        
        
        
        
        
        
        
          0.01
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          1.8
        
        
        
      
      
        
          Severance and restructuring costs
        
        
        
        
        
        
          6.6
        
        
        
        
        
        
        
        
          0.06
        
        
        
        
        
        
        
        
          10.2
        
        
        
        
        
        
          10.2
        
        
        
        
        
        
        
        
          14.7
        
        
        
        
        
        
        
        
          0.13
        
        
        
        
        
        
        
        
          22.6
        
        
        
        
        
        
        
        
          22.6
        
        
        
      
      
        
          Asset impairments/ Accelerated depreciation
        
        
        
        
        
        
          4.3
        
        
        
        
        
        
        
        
          0.03
        
        
        
        
        
        
        
        
          6.6
        
        
        
        
        
        
          1.7
        
        
        
        
        
        
        
        
          7.1
        
        
        
        
        
        
        
        
          0.06
        
        
        
        
        
        
        
        
          10.9
        
        
        
        
        
        
        
        
          —
        
        
        
      
      
        
          Pension accounting change pre LDI implementation(1)
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          (20.2
        
        
          )
        
        
        
        
        
        
          (0.17
        
        
          )
        
        
        
        
        
        
          (31.1
        
        
          )
        
        
        
        
        
        
          (31.1
        
        
          )
        
      
      
        
          Loss on sale of FiberVisions
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          2.5
        
        
        
        
        
        
        
        
          0.02
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          2.5
        
        
        
      
      
        
          Ashland transaction costs(10)
        
        
        
        
        
        
          6.8
        
        
        
        
        
        
        
        
          0.06
        
        
        
        
        
        
        
        
          10.4
        
        
        
        
        
        
          10.4
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
      
      
        
          Other(6)
        
        
        
        
        
        
          3.6
        
        
        
        
        
        
        
        
          0.03
        
        
        
        
        
        
        
        
          1.8
        
        
        
        
        
        
          5.6
        
        
        
        
        
        
        
        
          1.9
        
        
        
        
        
        
        
        
          0.02
        
        
        
        
        
        
        
        
          1.1
        
        
        
        
        
        
        
        
          2.9
        
        
        
      
      
        
          Subtotal adjustment items(7)
        
        
        
        
        
        
          (7.0
        
        
          )
        
        
        
        
        
        
          (0.07
        
        
          )
        
        
        
        
        
        
          29.0
        
        
        
        
        
        
          24.2
        
        
        
        
        
        
        
        
          23.0
        
        
        
        
        
        
        
        
          0.20
        
        
        
        
        
        
        
        
          (1.1
        
        
          )
        
        
        
        
        
        
          24.6
        
        
        
      
      
        
          Tax adjustment to the ongoing effective tax rate(8)
        
        
        
        
        
        
          (1.0
        
        
          )
        
        
        
        
        
        
          (0.01
        
        
          )
        
        
        
        
        
        
          —
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          (58.5
        
        
          )
        
        
        
        
        
        
          (0.51
        
        
          )
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
      
      
        
          Ongoing Operations(2)
        
        
        
        
          $
        
        
          124.9
        
        
        
        
        
        
          $
        
        
          1.11
        
        
        
        
        
        
          $
        
        
          234.7
        
        
        
        
          $
        
        
          289.4
        
        
        
        
        
        
          $
        
        
          134.9
        
        
        
        
        
        
          $
        
        
          1.17
        
        
        
        
        
        
          $
        
        
          237.3
        
        
        
        
        
        
          $
        
        
          300.4
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    
      
        
        
        
           
        
        
        
      
      
        
        
        
        
        
          
            (Unaudited)
          
        
      
      
        
          
            Table 4Reconciliation 
            to Ongoing Operations By Business Segment
          
        
        
        
        
          
            THREE MONTHSENDED SEPT. 30, 2008
          
        
      
      
        
          (Dollars in millions)
        
        
        
        
          
            PAPER
          
          
            TECHNOLOGIES & 
          
          
            VENTURES GROUP
          
        
        
           
        
        
          
            AQUALON
          
          
            GROUP
          
        
        
           
        
        
          
            CORPORATE
          
          
            ITEMS /
          
          
            FIBERVISIONS
          
        
        
           
        
        
          
            TOTAL
          
          
            HERCULES
          
        
      
      
        
          
            Profit from Operations
          
        
        
        
        
          $
        
        
          23.0
        
        
           
        
        
          $
        
        
          57.4
        
        
        
        
           
        
        
          ($17.3
        
        
          )
        
        
           
        
        
          $
        
        
          63.1
        
      
      
        
          Severance, restructuring and other exit costs
        
        
        
        
        
        
          0.3
        
        
        
        
        
        
          (0.7
        
        
          )
        
        
        
        
          2.6
        
        
        
        
        
        
        
        
          2.2
        
      
      
        
          
            Asset impairments and accelerated depreciation
          
        
        
        
        
        
        
          —
        
        
        
        
        
        
          —
        
        
        
        
        
        
          1.3
        
        
        
        
        
        
        
        
          1.3
        
      
      
        
          Ashland transaction costs(10)
        
        
        
        
        
        
          —
        
        
        
        
        
        
          —
        
        
        
        
        
        
          10.4
        
        
        
        
        
        
        
        
          10.4
        
      
      
        
          Other(6)
        
        
        
        
        
        
          0.2
        
        
        
        
        
        
          0.2
        
        
        
        
        
        
          0.1
        
        
        
        
        
        
        
        
          0.5
        
      
      
        
          Subtotal adjustment items
        
        
        
        
        
        
          0.5
        
        
        
        
        
        
          (0.5
        
        
          )
        
        
        
        
          14.4
        
        
        
        
        
        
        
        
          14.4
        
      
      
        
          
            Profit from Ongoing Operations(2)
          
        
        
        
        
          $
        
        
          23.5
        
        
        
        
          $
        
        
          56.9
        
        
        
        
        
        
          ($2.9
        
        
          )
        
        
        
        
          $
        
        
          77.5
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    
      
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
           
        
        
        
        
        
        
        
      
      
        
        
        
        
        
          
            (Unaudited)
          
        
      
      
        
          
            Table 5Reconciliation 
            to Ongoing Operations By Business Segment
          
        
        
        
        
          
            THREE MONTHSENDED SEPT. 30, 2007(1)
          
        
      
      
        
          
            (Dollars in millions)
          
        
        
        
        
          
            PAPER
          
          
            TECHNOLOGIES &
          
          
            VENTURES GROUP
          
        
        
           
        
        
          
            AQUALON
          
          
            GROUP
          
        
        
           
        
        
          
            CORPORATE
          
          
            ITEMS / 
          
          
            FIBERVISIONS
          
        
        
           
        
        
          
            TOTAL
          
          
            HERCULES
          
        
      
      
        
          
            Profit from Operations
          
        
        
        
        
          $
        
        
          40.2
        
        
        
        
        
        
          $
        
        
          55.7
        
        
        
        
        
        
          ($12.6
        
        
          )
        
        
        
        
          $
        
        
          83.3
        
        
        
      
      
        
          Severance, restructuring and other exit costs
        
        
        
        
        
        
          1.2
        
        
        
        
        
        
        
        
          1.8
        
        
        
        
        
        
          4.8
        
        
        
        
        
        
        
        
          7.8
        
        
        
      
      
        
          Asset impairments and accelerated depreciation
        
        
        
        
        
        
          (0.1
        
        
          )
        
        
        
        
        
        
          —
        
        
        
        
        
        
          3.6
        
        
        
        
        
        
        
        
          3.5
        
        
        
      
      
        
          Gain on asset dispositions
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
          (0.5
        
        
          )
        
        
        
        
        
        
          (0.5
        
        
          )
        
      
      
        
          Pension accounting change pre LDI implementation(1)
        
        
        
        
        
        
          (5.6
        
        
          )
        
        
        
        
        
        
          (4.8
        
        
          )
        
        
        
        
          —
        
        
        
        
        
        
        
        
          (10.4
        
        
          )
        
      
      
        
          Other(6)
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
          0.5
        
        
        
        
        
        
        
        
          0.5
        
        
        
      
      
        
          Subtotal adjustment items
        
        
        
        
        
        
          (4.5
        
        
          )
        
        
        
        
        
        
          (3.0
        
        
          )
        
        
        
        
          8.4
        
        
        
        
        
        
        
        
          0.9
        
        
        
      
      
        
          
            Profit from Ongoing Operations(2)
          
        
        
        
        
          $
        
        
          35.7
        
        
        
        
        
        
          $
        
        
          52.7
        
        
        
        
        
        
          ($4.2
        
        
          )
        
        
        
        
          $
        
        
          84.2
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    
      
        
        
        
           
        
        
        
      
      
        
        
        
        
        
          
            (Unaudited)
          
        
      
      
        
          
            Table 6Reconciliation 
            to Ongoing Operations By Business Segment
          
        
        
        
        
          
            NINE MONTHSENDED SEPT. 30, 2008
          
        
      
      
        
          (Dollars in millions)
        
        
        
        
          
            PAPER
          
          
            TECHNOLOGIES &
          
          
            VENTURES GROUP
          
        
        
           
        
        
          
            AQUALON
          
          
            GROUP
          
        
        
           
        
        
          
            CORPORATE
          
          
            ITEMS / 
          
          
            FIBERVISIONS
          
        
        
           
        
        
          
            TOTAL
          
          
            HERCULES
          
        
      
      
        
          
            Profit from Operations
          
        
        
        
        
          $
        
        
          76.6
        
        
           
        
        
          $
        
        
          162.0
        
        
        
        
           
        
        
          ($32.9
        
        
          )
        
        
           
        
        
          $
        
        
          205.7
        
      
      
        
          Severance, restructuring and other exit costs
        
        
        
        
        
        
          2.5
        
        
        
        
        
        
          (0.3
        
        
          )
        
        
        
        
          8.0
        
        
        
        
        
        
        
        
          10.2
        
      
      
        
          Asset impairments and accelerated depreciation
        
        
        
        
        
        
          —
        
        
        
        
        
        
          —
        
        
        
        
        
        
          6.6
        
        
        
        
        
        
        
        
          6.6
        
      
      
        
          Ashland transaction costs(10)
        
        
        
        
        
        
          —
        
        
        
        
        
        
          —
        
        
        
        
        
        
          10.4
        
        
        
        
        
        
        
        
          10.4
        
      
      
        
          Other(6)
        
        
        
        
        
        
          1.1
        
        
        
        
        
        
          0.2
        
        
        
        
        
        
          0.5
        
        
        
        
        
        
        
        
          1.8
        
      
      
        
          Subtotal adjustment items
        
        
        
        
        
        
          3.6
        
        
        
        
        
        
          (0.1
        
        
          )
        
        
        
        
          25.5
        
        
        
        
        
        
        
        
          29.0
        
      
      
        
          
            Profit from Ongoing Operations(2)
          
        
        
        
        
          $
        
        
          80.2
        
        
        
        
          $
        
        
          161.9
        
        
        
        
        
        
          ($7.4
        
        
          )
        
        
        
        
          $
        
        
          234.7
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    
      
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
           
        
        
        
        
        
        
        
      
      
        
        
        
        
        
          
            (Unaudited)
          
        
      
      
        
          
            Table 7Reconciliation 
            to Ongoing Operations By Business Segment
          
        
        
        
        
          
            NINE MONTHSENDED SEPT. 30, 2007(1)
          
        
      
      
        
          (Dollars in millions)
        
        
        
        
          
            PAPER
          
          
            TECHNOLOGIES &
          
          
            VENTURES GROUP
          
        
        
           
        
        
          
            AQUALON
          
          
            GROUP
          
        
        
           
        
        
          
            CORPORATE
          
          
            ITEMS / 
          
          
            FIBERVISIONS
          
        
        
           
        
        
          
            TOTAL
          
          
            HERCULES
          
        
      
      
        
          
            Profit from Operations
          
        
        
        
        
          $
        
        
          105.6
        
        
        
        
        
        
          $
        
        
          170.5
        
        
        
        
        
        
          ($37.7
        
        
          )
        
        
        
        
          $
        
        
          238.4
        
        
        
      
      
        
          Severance, restructuring and other exit costs
        
        
        
        
        
        
          1.9
        
        
        
        
        
        
        
        
          2.2
        
        
        
        
        
        
          18.5
        
        
        
        
        
        
        
        
          22.6
        
        
        
      
      
        
          Asset impairments and accelerated depreciation
        
        
        
        
        
        
          0.2
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
          10.7
        
        
        
        
        
        
        
        
          10.9
        
        
        
      
      
        
          Gain on asset dispositions
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
          (4.6
        
        
          )
        
        
        
        
        
        
          (4.6
        
        
          )
        
      
      
        
          Pension accounting change pre LDI implementation(1)
        
        
        
        
        
        
          (16.8
        
        
          )
        
        
        
        
        
        
          (14.3
        
        
          )
        
        
        
        
          —
        
        
        
        
        
        
        
        
          (31.1
        
        
          )
        
      
      
        
          Other(6)
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
          1.1
        
        
        
        
        
        
        
        
          1.1
        
        
        
      
      
        
          Subtotal adjustment items
        
        
        
        
        
        
          (14.7
        
        
          )
        
        
        
        
        
        
          (12.1
        
        
          )
        
        
        
        
          25.7
        
        
        
        
        
        
        
        
          (1.1
        
        
          )
        
      
      
        
          
            Profit from Ongoing Operations(2)
          
        
        
        
        
          $
        
        
          90.9
        
        
        
        
        
        
          $
        
        
          158.4
        
        
        
        
        
        
          ($12.0
        
        
          )
        
        
        
        
          $
        
        
          237.3
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    
      
        
        
        
           
        
        
        
        
           
        
        
        
      
      
        
          CONDENSED CONSOLIDATED BALANCE SHEETS
        
      
      
        
          
             
          
        
      
      
        
          
            (Dollars in millions)
          
        
        
        
        
          
            (Unaudited)
          
        
      
      
        
          
            Table 8
          
        
        
        
        
          
            SEPT. 302008
          
        
        
           
        
        
          
            DEC. 312007(1)
          
        
      
      
        
          Assets
        
        
        
        
        
        
        
        
        
      
      
        
          Current assets
        
        
        
        
        
        
        
        
        
      
      
        
          Cash and cash equivalents
        
        
        
        
          $
        
        
          116.7
        
        
        
        
          $
        
        
          116.5
        
        
        
      
      
        
          Accounts receivable, net
        
        
        
        
        
        
          421.5
        
        
        
        
        
        
          366.8
        
        
        
      
      
        
          Inventories
        
        
        
        
        
        
          243.1
        
        
        
        
        
        
          224.0
        
        
        
      
      
        
          Income tax receivable
        
        
        
        
        
        
          24.7
        
        
        
        
        
        
          20.2
        
        
        
      
      
        
          Other current assets
        
        
        
        
        
        
          67.2
        
        
        
        
        
        
          86.8
        
        
        
      
      
        
          Total current assets
        
        
        
        
        
        
          873.2
        
        
        
        
        
        
          814.3
        
        
        
      
      
        
          Property, plant and equipment, net
        
        
        
        
        
        
          687.2
        
        
        
        
        
        
          660.0
        
        
        
      
      
        
          Other assets
        
        
        
        
        
        
          1,161.0
        
        
        
        
        
        
          1,204.1
        
        
        
      
      
        
          Total assets
        
        
        
        
          $
        
        
          2,721.4
        
        
        
        
          $
        
        
          2,678.4
        
        
        
      
      
        
          Liabilities and Stockholders' Equity
        
        
        
        
        
        
        
        
        
      
      
        
          Current liabilities
        
        
        
        
        
        
        
        
        
      
      
        
          Accounts payable
        
        
        
        
          $
        
        
          236.6
        
        
        
        
          $
        
        
          222.0
        
        
        
      
      
        
          Other current liabilities
        
        
        
        
        
        
          246.3
        
        
        
        
        
        
          258.5
        
        
        
      
      
        
          Vertac obligations
        
        
        
        
        
        
          14.5
        
        
        
        
        
        
          20.0
        
        
        
      
      
        
          Current debt obligations
        
        
        
        
        
        
          49.6
        
        
        
        
        
        
          33.7
        
        
        
      
      
        
          Total current liabilities
        
        
        
        
        
        
          547.0
        
        
        
        
        
        
          534.2
        
        
        
      
      
        
          Long-term debt
        
        
        
        
        
        
          760.8
        
        
        
        
        
        
          762.3
        
        
        
      
      
        
          Other liabilities
        
        
        
        
        
        
          819.8
        
        
        
        
        
        
          881.8
        
        
        
      
      
        
          Total liabilities
        
        
        
        
        
        
          2,127.6
        
        
        
        
        
        
          2,178.3
        
        
        
      
      
        
          Minority interests
        
        
        
        
        
        
          21.2
        
        
        
        
        
        
          22.1
        
        
        
      
      
        
          Total stockholders' equity
        
        
        
        
        
        
          572.6
        
        
        
        
        
        
          478.0
        
        
        
      
      
        
          Total liabilities and stockholders' equity
        
        
        
        
          $
        
        
          2,721.4
        
        
        
        
          $
        
        
          2,678.4
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    
      
        
        
        
           
        
        
        
      
      
        
          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
        
      
      
        
          
             
          
        
      
      
        
          
            (Dollars in millions)
          
        
        
        
        
          
            (Unaudited)
          
        
      
      
        
          
            Table 9
          
        
        
        
        
          
            NINE MONTHSENDED SEPT. 30
          
        
      
      
        
        
        
        
        
          2008
        
        
           
        
        
          
            2007(1)
          
        
      
      
        
          Cash Flows from Operating Activities:
        
        
        
        
        
        
           
        
        
        
      
      
        
          Net income
        
        
        
        
          $
        
        
          132.9
        
        
        
        
        
        
          $
        
        
          170.4
        
        
        
      
      
        
          Adjustments to reconcile net income to cash provided by 
          operations:
        
        
        
        
        
        
        
        
        
      
      
        
          Depreciation and amortization
        
        
        
        
        
        
          75.9
        
        
        
        
        
        
        
        
          82.0
        
        
        
      
      
        
          Deferred income tax provision and income taxes payable
        
        
        
        
        
        
          25.8
        
        
        
        
        
        
        
        
          149.1
        
        
        
      
      
        
          Investment dilution and loss on sale of 51% interest in FiberVisions
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          2.5
        
        
        
      
      
        
          Other noncash charges and credits
        
        
        
        
        
        
          6.9
        
        
        
        
        
        
        
        
          (0.5
        
        
          )
        
      
      
        
          Working capital, net(9)
        
        
        
        
        
        
          (63.8
        
        
          )
        
        
        
        
        
        
          (135.5
        
        
          )
        
      
      
        
          Asbestos-related assets and liabilities, net
        
        
        
        
        
        
          8.1
        
        
        
        
        
        
        
        
          46.8
        
        
        
      
      
        
          Pension and postretirement benefits
        
        
        
        
        
        
          (5.7
        
        
          )
        
        
        
        
        
        
          (40.9
        
        
          )
        
      
      
        
          Non-current assets and liabilities, net
        
        
        
        
        
        
          (44.9
        
        
          )
        
        
        
        
        
        
          (26.4
        
        
          )
        
      
      
        
          Net cash provided by operating activities
        
        
        
        
        
        
          135.2
        
        
        
        
        
        
        
        
          247.5
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Cash Flows from Investing Activities:
          
        
        
        
        
        
        
        
        
        
      
      
        
          Capital expenditures
        
        
        
        
        
        
          (74.3
        
        
          )
        
        
        
        
        
        
          (77.8
        
        
          )
        
      
      
        
          Proceeds from sale of 51% interest in FiberVisions, net of 
          transaction costs
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          (1.2
        
        
          )
        
      
      
        
          Acquisitions and investments, net
        
        
        
        
        
        
          (21.6
        
        
          )
        
        
        
        
        
        
          (16.2
        
        
          )
        
      
      
        
          Proceeds from fixed asset disposals/other
        
        
        
        
        
        
          2.9
        
        
        
        
        
        
        
        
          13.6
        
        
        
      
      
        
          Net cash used in investing activities
        
        
        
        
        
        
          (93.0
        
        
          )
        
        
        
        
        
        
          (81.6
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Cash Flows from Financing Activities:
          
        
        
        
        
        
        
        
        
        
      
      
        
          Long-term debt proceeds
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          3.9
        
        
        
      
      
        
          Debt repayments and change in short term debt
        
        
        
        
        
        
          8.0
        
        
        
        
        
        
        
        
          (184.1
        
        
          )
        
      
      
        
          Repurchase of common stock
        
        
        
        
        
        
          (38.1
        
        
          )
        
        
        
        
        
        
          (22.8
        
        
          )
        
      
      
        
          Dividends paid
        
        
        
        
        
        
          (16.5
        
        
          )
        
        
        
        
        
        
          —
        
        
        
      
      
        
          Proceeds from exercise of stock options / other
        
        
        
        
        
        
          3.1
        
        
        
        
        
        
        
        
          8.2
        
        
        
      
      
        
          Net cash used in financing activities
        
        
        
        
        
        
          (43.5
        
        
          )
        
        
        
        
        
        
          (194.8
        
        
          )
        
      
      
        
          Effect of exchange rate changes on cash
        
        
        
        
        
        
          1.5
        
        
        
        
        
        
        
        
          5.7
        
        
        
      
      
        
          Net increase (decrease) in cash and cash equivalents
        
        
        
        
        
        
          0.2
        
        
        
        
        
        
        
        
          (23.2
        
        
          )
        
      
      
        
          Cash and cash equivalents at beginning of period
        
        
        
        
        
        
          116.5
        
        
        
        
        
        
        
        
          171.8
        
        
        
      
      
        
          Cash and cash equivalents at end of period
        
        
        
        
        
        
          116.7
        
        
        
        
        
        
        
        
          148.6
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    
      
        
           
        
      
      
        
          
            NOTES:
          
        
      
      
        
           
        
      
      
        
          
            (1) Effective January 1, 2008, the 
            Company has changed its method of accounting for its qualified 
            defined-benefit pension plans in the United States ("U.S.") and 
            the United Kingdom ("U.K."). The change in accounting method and 
            related timing coincides with the completion of a shift in the 
            assets of the Company's U.S. plan in connection with the 
            implementation of a liability-driven investing strategy ("LDI"). 
            The change has been applied retrospectively to all prior years. In 
            addition, the quarterly results for the periods included in the 
            year ended December 31, 2007 have been adjusted. The Company's web 
            site contains the adjusted financial data for the aforementioned 
            periods. The change encompasses: (a) the basis for the 
            determination of the "market-related value" of plan assets from a 
            smoothed value to the "fair value" and (b) a reduction in the 
            amortization period for gains and losses in excess of the 
            "corridor" from a period representing the average remaining 
            service period of active employees to immediate recognition in the 
            subsequent year (i.e., a 1-year amortization period).
          
        
      
      
        
           
        
      
      
        
          
            (2) Ongoing operations, profit from 
            ongoing operations, net income from ongoing operations, EBIT and 
            EBITDA, wherever used herein, are non-GAAP financial measures. The 
            ongoing operations include Paper Technologies and Ventures and the 
            Aqualon Group. Results from ongoing operations exclude impairment 
            charges and accelerated depreciation/amortization for certain 
            facilities within these businesses that will have no further 
            operating impact, severance, restructuring and other exit costs, 
            Ashland transaction costs, litigation against and settlements with 
            the Company's insurance carriers, and legal accruals, settlements 
            and other charges related to divested businesses. Please refer to 
            Tables 2, 3, 4, 5, 6 and 7 for the reconciliation of reported to 
            ongoing operations for the quarter and nine months ended September 
            30, 2008 and 2007.
          
        
      
      
        
           
        
      
      
        
          EBIT is calculated as net income before income taxes plus interest 
          and debt expense. EBITDA is calculated as net income 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.
        
      
      
        
           
        
      
      
        
          
            (3) Net sales by segment have been 
            realigned to the current organizational structure.
          
        
      
      
        
           
        
      
      
        
          
            (4) Income associated with the final 
            resolution of a tax indemnification for a divested business.
          
        
      
      
        
           
        
      
      
        
          
            (5) These accruals and settlements 
            exclude asbestos and Vertac litigation matters and are primarily 
            attributable to divested businesses.
          
        
      
      
        
           
        
      
      
        
          
            (6) Other primarily includes gains and 
            losses related to formerly divested businesses and other costs.
          
        
      
      
        
           
        
      
      
        
          
            (7) Adjustment items have been tax 
            effected at the U.S. federal statutory tax rate of 35% for 2008 
            and 2007, except the loss on the sale of FiberVisions. Valuation 
            allowances have been established on this capital loss. 
            Additionally, the related earnings per share impacts are based 
            upon diluted shares totaling 112.1 million and 115.2 million for 
            the three months ended September 30, 2008 and 2007, respectively 
            and 112.2 million and 115.1 million shares for the nine months 
            ended September 30, 2008 and 2007, respectively.
          
        
      
      
        
           
        
      
      
        
          
            (8) The 2007 adjustment is principally 
            due to the resolution of the remaining IRS audit issues for the 
            years 1993-2003.
          
        
      
      
        
           
        
      
      
        
          
            (9) The nine months ended September 30, 
            2007 includes $124.5 million paid to the United States in 
            settlement of the Vertac judgment, partially offset by an accrual 
            of $19.8 million for additional response costs including accrued 
            interest not yet paid.
          
        
      
      
        
           
        
      
      
        
          
            (10) Ashland transaction costs primarily 
            include third party legal and investment banking fees associated 
            with the Company's pending acquisition by Ashland Inc.