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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
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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
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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.
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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.
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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-
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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
============= ============= ============= =============
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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.
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SUPPLEMENTAL SCHEDULES
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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
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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
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*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.
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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
- -----------------------------------------------------------------------------------------------------------------------------------
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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
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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
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EXHIBIT INDEX
NUMBER DESCRIPTION
23.1 Consent of PricewaterhouseCoopers LLP