11-K 1 e11-k.txt 11-K/BETZDEARBORN INC. EMPLOYEE STOCK /401K PLAN 1 COMMISSION FILE NO. 1-496 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 11-K ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1999 Title of the Plan: BETZDEARBORN INC. EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN Issuer of the securities held pursuant to the Plan: HERCULES INCORPORATED Hercules Plaza 1313 North Market Street Wilmington, Delaware 19894 2 BETZDEARBORN INC. EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS at December 31, 1999 and 1998 STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS for the year ended December 31, 1999 NOTES TO FINANCIAL STATEMENTS SUPPLEMENTAL SCHEDULES: Schedule H, Part IV, Item 4i - Assets Held for Investment Purposes at December 31, 1999 Schedule H, Part IV, Item 4j - Schedule of Reportable Transactions for the Year Ended December 31, 1999 REPORT OF INDEPENDENT ACCOUNTANTS EXHIBIT INDEX 3 BETZDEARBORN INC. EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1999 1998 ---- ---- ASSETS Investments at fair value $394,090,238 $352,753,867 Contribution receivable 299,289 302,524 Cash 41,621 120,958 ------------ ------------ 394,431,148 353,177,349 LIABILITIES Accrued interest payable 299,289 302,524 Loan payable 92,500,000 93,500,000 ------------ ------------ Net Assets Available for Benefits $301,631,859 $259,374,825 ============ ============
The accompanying notes are an integral part ofthese financial statements. 4 BETZDEARB0RN INC. EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year Ended December 31, 1999 ADDITIONS: ADDITIONS TO NET ASSETS ATTRIBUTED TO: INVESTMENT INCOME: Net appreciation in fair value of investments $ 55,450,543 Interest 1,684,735 Dividends 7,045,321 ------------ 64,180,599 CONTRIBUTIONS: Participant 13,864,495 Employer 3,174,581 ------------ 17,039,076 ------------ Total additions 81,219,675 DEDUCTIONS: DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO: Benefits paid to participants 30,625,446 Interest expense 8,329,565 Administrative expenses 7,630 ------------ Total deductions 38,962,641 ------------ Net increase 42,257,034 NET ASSETS AVAILABLE FOR BENEFITS: Beginning of year 259,374,825 ------------ End of year $301,631,859 ============
The accompanying notes are an integral part of these financial statements. 5 NOTES TO FINANCIAL STATEMENTS 1. DESCRIPTION OF PLAN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following description of the BetzDearborn Inc. Employee Stock Ownership and 401(k) Plan (the Plan) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions. The Plan is a defined contribution plan, which covers substantially all domestic employees of the former BetzDearborn Inc. who have attained age 21. (See Note 2.) The Plan is a defined contribution plan subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Under the 401(k) provisions of the Plan, employees can contribute on a pretax basis 2% to 15% of salary, the first 6% being matched 50% by Hercules Incorporated (the Company) in the form of Hercules Incorporated common stock. Participants are immediately vested in their contributions plus actual earnings thereon. Vesting in the Company's matching contribution portion of their accounts plus actual earnings thereon is based on years of continuous service. A participant is 100% vested after 5 years of credited service. After satisfying the 401(k) matching contributions and dividends, the remaining allocable common shares are allocated to individual participants' accounts as of December 31 of each plan year based on the participants' eligible compensation as a percentage of total eligible compensation. The number of shares released for allocation in a Plan year is equal to the number of previously unreleased shares multiplied by a fraction. The numerator of the fraction is the amount of principal and interest paid on the loan for the Plan year, and the denominator of the fraction is the sum of the numerator plus the principal and interest to be paid on the loan for all future Plan years during the term of the loan. The Plan provides for various investment options in any combination of stocks, bonds, fixed income securities, mutual funds, and other investment securities. Investment securities are exposed to various risks, such as interest rate, market, and credit. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in risks in the near term would materially affect participants' account balances and the amounts reported in the statement of net assets available for benefits and the statement of changes in net assets available for benefits. The assets of the Plan are held by Putnam Fiduciary Trust Company (the Trustee). The Trustee also performs recordkeeping for the Plan. The Plan includes an employee loan provision authorizing participants to borrow up to 50% of withholdings and earnings, up to $50,000. The loans are executed by promissory notes and have a minimum term of 12 months and a maximum term of 60 months. The loans bear interest at a rate of 2% over prime, set on the first day of each quarter. The loans are repaid over the term in bi-weekly installments of principal and interest by payroll deduction. A participant also has the right to repay the loan in full at any time without penalty. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and changes therein, and disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The financial statements of the Plan are prepared under the accrual method of accounting. Investments in the Plan are carried at fair value. Hercules Incorporated Common Stock and investments in various mutual funds are stated at aggregate fair value as determined from quoted market prices. Series A ESOP Convertible Preferred Stock of the former BetzDearborn Inc. was stated at aggregate current value as determined by an independent securities appraisal company. Purchases and sales of securities are recorded on a trade- 6 date basis. Interest income is recorded on the accrual basis and dividends are recorded on the ex-dividend date. Withdrawals are recorded upon distribution. The Plan presents in the statement of changes in net assets available for benefits, the net appreciation (depreciation) in fair value of its investments, which consists of the realized gains or losses and the unrealized appreciation (depreciation) on those investments. Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts. 2. ACQUISITION On October 15, 1998, the Company acquired all of the outstanding common stock of BetzDearborn Inc. for $72 per share and exchanged $186 million in Hercules Common Stock for the Series A Convertible Preferred shares held by the BetzDearborn ESOP Trust. Hercules became the sponsor of the BetzDearborn ESOP and related trust as a long-term benefit for substantially all of BetzDearborn's U.S. employees. 3. INVESTMENTS The fair value of the Plan's investments that represent five percent or more of net assets available for benefits at December 31, 1999 or 1998 are as follows:
1999 1998 ---- ---- Hercules Incorporated Common Stock $ 31,915,715 $ 11,670,615 Hercules Incorporated ESOP Stock* 156,733,250 159,565,985 The Putnam Fund for Growth & Income 32,693,527 40,022,931 Putnam New Opportunities Fund 30,705,452 18,097,287 Putnam Voyager Fund 71,358,867 51,969,856 Putnam Money Market Fund 23,987,449 37,019,453
*Nonparticipant-directed During 1999, the Plan's investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated in value by $55,450,543 as follows:
Common stock $ 4,622,659 Mutual funds 50,827,884 ----------- $55,450,543 ===========
4. NONPARTICIPANT-DIRECTED INVESTMENTS Information about the net assets and the significant components of the changes in net assets relating to the nonparticipant-directed investments is as follows:
December 31, ------------ 1999 1998 ---- ---- Allocated Unallocated Allocated Unallocated --------- ----------- --------- ----------- NET ASSETS: Investments in Hercules Incorporated Common stock $ 50,397,120 $ 106,336,130 $ 48,627,262 $ 110,938,723 Contributions receivable -- 299,289 -- 302,524 Accrued interest payable -- (299,289) -- (302,524) Loan payable -- (92,500,000) -- (93,500,000) ------------- ------------- ------------- ------------- $ 50,397,120 $ 13,836,130 $ 48,627,262 $ 17,438,723 ============= ============= ============= =============
7
Year Ended December 31, 1999 ----------------- Allocated Unallocated --------- ----------- Changes in net assets: Net appreciation in fair value of investments: $ 1,017,097 $ 2,364,083 Dividends -- 6,154,983 Employer contributions -- 3,174,581 Benefits paid to participants (6,074,466) -- Interest expense -- (8,329,565) Allocation of shares under ESOP provision 6,966,675 (6,966,675) Transfers to other investment options (139,448) -- ----------- ----------- Net increase (decrease) $ 1,769,858 ($3,602,593) =========== ===========
5. ESOP LOAN, COMPANY LOAN GUARANTEE, AND EMPLOYER CONTRIBUTIONS The ESOP loan is secured by the unallocated shares of Hercules Incorporated Common Stock and is guaranteed by the Company. At December 31, 1999, the Plan held 3,814,749 unallocated shares of the Common Stock with a fair value of $106,336,130. The Company is required to make contributions to the Plan which, together with dividends received on stock held by the Plan, are sufficient to enable the Plan to service its indebtedness. Interest was incurred on the loan at 8.36% from December 3, 1997 to October 15, 1998; and 8.96% from October 16, 1998 to December 31, 1999. Debt service contributions paid to the ESOP during 1999 and 1998 totaled approximately $9,332,800 and $8,958,133, respectively, including dividends of $6,154,983 and $7,246,126, respectively. An additional contribution of $299,289 has been accrued by the Plan and is included in the contribution receivable recorded at December 31, 1999. The ESOP loan matures on June 19, 2009 and requires principal payments of $1,500,000 in 2000, $2,500,000 in 2001, $4,000,000 in 2002, $5,000,000 in 2003, $7,000,000 in 2004, and $72,500,000 thereafter. The Company is obligated to maintain certain financial ratios and meet certain net worth and indebtedness tests. 6. TRANSACTIONS WITH PARTIES-IN-INTEREST In accordance with the Plan document, the Company will pay substantially all administrative expenses reasonably incurred in connection with the Plan. It is impractical to allocate common expenses of the Company and the Plan. However, certain employees of the Company are involved in the operation of the Plan. 7. TAX STATUS The United States Treasury Department advised on April 2, 1999, that the Plan as amended through April 9, 1998 is a qualified plan under Section 401(a) of the Internal Revenue Code and whose trust is therefore exempt from Federal income taxes under provisions of Section 501(a) of the code. The Plan has been amended since receiving the determination letter. However, the Plan administrator believes that the Plan is designed and currently being operated in compliance with the applicable provisions of the Internal Revenue Code. 8 SUPPLEMENTAL SCHEDULES 9 BETZDEARBORN INC. EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN SUPPLEMENTAL SCHEDULE H, ITEM 4I ASSETS HELD FOR INVESTMENT PURPOSES DECEMBER 31, 1999
DESCRIPTION OF INVESTMENT INCLUDING MATURITY DATE, IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST, PAR, OR SIMILAR PARTY OR MATURITY VALUE COST MARKET ---------------------------- ----------------- ---- ------ COMMON STOCK: *Hercules Incorporated - ESOP 5,622,725 shares $164,686,850 $156,733,250 ----------------------------------------------------------------------------------------------------------------------------------- *Hercules Incorporated Common Stock 1,144,958 shares 26,623,816 31,915,715 ----------------------------------------------------------------------------------------------------------------------------------- MUTUAL FUNDS: ----------------------------------------------------------------------------------------------------------------------------------- *Putnam Voyager Fund 2,258,192 shares 52,731,012 71,358,867 ----------------------------------------------------------------------------------------------------------------------------------- *Putnam Fund for Growth & Income 1,741,799 shares 35,451,561 32,693,527 ----------------------------------------------------------------------------------------------------------------------------------- *Putnam Money Market Fund 23,987,449 shares 23,987,449 23,987,449 ----------------------------------------------------------------------------------------------------------------------------------- *Putnam New Opportunities Fund 332,275 shares 21,022,800 30,705,452 ----------------------------------------------------------------------------------------------------------------------------------- *Putnam S&P 500 Index Fund 410,229 shares 11,051,370 14,333,393 ----------------------------------------------------------------------------------------------------------------------------------- *Putnam U.S. Government Income Trust 538,548 shares 6,959,688 6,640,300 ----------------------------------------------------------------------------------------------------------------------------------- *Putnam International Growth Fund 296,978 shares 6,289,657 8,846,988 ----------------------------------------------------------------------------------------------------------------------------------- *Putnam OTC & Emerging Growth Fund 221,804 shares 4,930,772 8,299,905 ----------------------------------------------------------------------------------------------------------------------------------- *Putnam Asset Allocation Balanced Fund 142,023 shares 1,735,351 1,842,038 ----------------------------------------------------------------------------------------------------------------------------------- *Putnam Asset Allocation Growth Fund 100,523 shares 1,411,902 1,536,996 ----------------------------------------------------------------------------------------------------------------------------------- *Putnam Asset Allocation Conservative Fund 126,879 shares 1,332,403 1,339,847 ----------------------------------------------------------------------------------------------------------------------------------- LOAN FUND: ----------------------------------------------------------------------------------------------------------------------------------- *Putnam Loan Fund Participant loans; between 8% to 10.5% interest N/A 3,856,511 ----------------------------------------------------------------------------------------------------------------------------------- Total assets held for investment purposes $358,214,631 $394,090,238 -----------------------------------------------------------------------------------------------------------------------------------
*Indicates party-in-interest to the Plan. 10 BETZDEARBORN INC. EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN SUPPLEMENTAL SCHEDULE H, ITEM 4J SCHEDULE OF REPORTABLE TRANSACTIONS YEAR ENDED DECEMBER 31, 1999
IDENTITY OF PARTY INVOLVED PURCHASE SELLING COST OF GAIN CATEGORY (I): DESCRIPTION OF ASSET PRICE PRICE ASSET (LOSS) ----------------------------------------------------------------------------------------------------------------------------------- *Putnam Fiduciary Trust Hercules Incorporated Common Stock $26,354,131 -- $26,354,131 -- ----------------------------------------------------------------------------------------------------------------------------------- *Putnam Fiduciary Trust Hercules Incorporated Common Stock -- $ 7,297,467 $ 5,534,196 $ 1,763,271 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- *Putnam Fiduciary Trust Hercules Incorporated ESOP Stock $ 7,052,877 -- $ 7,052,877 -- ----------------------------------------------------------------------------------------------------------------------------------- *Putnam Fiduciary Trust Hercules Incorporated ESOP Stock -- $ 6,300,117 $ 4,973,191 $ 1,326,926 -----------------------------------------------------------------------------------------------------------------------------------
11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the Plan) have duly caused this annual report to be signed by the undersigned hereunto duly authorized. BETZDEARBORN INC. EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN /s/ Ralph L. MacDonald, Jr. --------------------------- Ralph L. MacDonald, Jr., Chairman Finance Committee, Hercules Incorporated, Plan Administrator Date: July 13, 2000 12 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors, Hercules Incorporated, Wilmington, Delaware In our opinion, the accompanying statements of net assets available for benefits and the related statement of changes in net assets available for benefits present fairly, in all material respects, the net assets available for benefits of the BetzDearborn Inc. Employee Stock Ownership and 401(k) Plan (the "Plan") at December 31, 1999 and December 31, 1998, and the changes in net assets available for benefits for the year then ended in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Plan's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits of the statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of Assets Held for Investment Purposes and Reportable Transactions are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules are the responsibility of the Plan's management. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ PricewaterhouseCoopers LLP Philadelphia, Pennsylvania 19103 July 11, 2000 13 EXHIBIT INDEX
NUMBER DESCRIPTION 23.1 Consent of PricewaterhouseCoopers LLP