<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission file number 1-496
HERCULES INCORPORATED
A Delaware Corporation
I.R.S. Employer Identification No. 51-0023450
Hercules Plaza
1313 North Market Street
Wilmington, Delaware 19894-0001
Telephone: 302-594-5000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
As of April 30, 1998, 94,903,685 shares of registrant's common stock were
outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
HERCULES INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(Dollars in millions, except per share)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended March 31,
----------------------------
1998 1997
----- -----
<S> <C> <C>
Net sales ........................................ $ 430 $ 495
Cost of sales .................................... 262 320
Selling, general, and administrative expenses .... 61 66
Research and development ......................... 13 14
Other operating expenses, net .................... -- 163
----- -----
Profit (loss) from operations .................... 94 (68)
Equity in income of affiliated companies ......... 5 17
Interest and debt expense ........................ 11 10
Other income (expense), net ...................... (44) 335
----- -----
Income before income taxes ....................... 44 274
Provision for income taxes ....................... 16 166
----- -----
Net income ....................................... $ 28 $ 108
===== =====
Earnings per share:
Basic ..................................... $0.29 $1.07
===== =====
Diluted ................................... $0.29 $1.03
===== =====
Dividends per share .............................. $0.27 $0.25
===== =====
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 3
HERCULES INCORPORATED
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
<TABLE>
<CAPTION>
(Unaudited)
March 31 December 31
-----------------------
1998 1997
---- ----
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents ......................... $ 108 $ 17
Accounts and notes receivable, net ................ 390 389
Inventories
Finished products ............................. 128 121
Materials, supplies, and work in process ...... 117 113
Deferred income taxes ............................. 49 49
------- -------
Total current assets .......................... 792 689
Property, plant, and equipment ....................... 2,098 2,088
Accumulated depreciation and amortization ............ 1,407 1,401
------- -------
Net property, plant, and equipment ............ 691 687
Investments .......................................... 611 615
Other assets ......................................... 442 420
------- -------
Total assets .................................. $ 2,536 $ 2,411
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .................................. 114 $ 116
Accrued expenses .................................. 372 317
Short-term debt ................................... 340 275
Income taxes payable .............................. 91 91
------- -------
Total current liabilities ..................... 917 799
Long-term debt ....................................... 486 419
Deferred income taxes ................................ 164 160
Postretirement benefits and other liabilities ........ 339 343
Stockholders' equity
Common stock (shares issued: 1998 -- 154,628,783;
1997 -- 154,357,015) .......................... 81 80
Additional paid-in capital ........................ 507 504
Foreign currency translation adjustment ........... (9) (2)
Retained earnings ................................. 2,165 2,163
------- -------
2,744 2,745
Reacquired stock, at cost (shares: 1998 -- 59,403,890;
1997 -- 58,289,376) ........................... 2,114 2,055
------- -------
Total stockholders' equity ........................ 630 690
------- -------
Total liabilities and stockholders' equity ........ $ 2,536 $ 2,411
======= =======
</TABLE>
See accompanying notes to financial statements.
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HERCULES INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOW
(Dollars in millions)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended March 31,
1998 1997
----- -----
<S> <C> <C>
Net cash provided by operations ......................... $ 38 $ 33
----- -----
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures .................................... (28) (24)
Proceeds of investment and fixed asset disposals ........ 34 108
Other, net .............................................. (11) 1
----- -----
Net cash provided by (used in) investing activities (5) 85
----- -----
CASH FLOW FROM FINANCING ACTIVITIES:
Long-term debt proceeds ................................. 72 --
Long-term debt repayments ............................... -- (90)
Change in short-term debt ............................... 65 39
Common stock reissued ................................... 6 3
Common stock reacquired ................................. (59) (28)
Dividends paid .......................................... (26) (25)
----- -----
Net cash provided by (used in) financing activities 58 (101)
----- -----
Effect of exchange rate changes on cash ................. -- (1)
----- -----
Net increase in cash and cash equivalents ............... 91 16
Cash and cash equivalents - beginning of period ......... 17 30
----- -----
Cash and cash equivalents - end of period ............... $ 108 $ 46
===== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) .............. $ 8 $ 6
Income taxes ...................................... 11 15
Noncash investing and financing activities:
Accounts payable for common stock acquisitions .... 11 8
Incentive plan stock issuances .................... 4 2
Investment in long-term note ...................... -- 500
Conversion of notes and debentures ................ 4 --
</TABLE>
See accompanying notes to financial statements.
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HERCULES INCORPORATED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Dollars in millions)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended March 31,
1998 1997
---- -----
<S> <C> <C>
Net income ...................................... $ 28 $ 108
Foreign currency translation, net of tax ........ (7) (34)
---- -----
Comprehensive income ............................ $ 21 $ 74
==== =====
</TABLE>
See accompanying notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. These condensed financial statements are unaudited, but in the opinion of
management include all adjustments necessary to present fairly the Company's
financial position and results of operations for interim periods. It is
suggested that these condensed financial statements be read in conjunction with
the accounting policies and the financial statements and notes thereto included
in the Company's annual report for 1997.
2. Earnings per share (EPS) are calculated under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," adopted in
the fourth quarter of 1997. EPS amounts for 1997 have been restated to conform
with SFAS No. 128. The following table shows the amounts used in computing EPS
and the effect on income and the weighted-average number of shares of dilutive
potential common stock:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Basic
Net income ............................ $ 28 $ 108
Weighted-average shares outstanding ... 95.9 101.2
-------- --------
EPS ................................... $ 0.29 $ 1.07
======== ========
Diluted
Net income ............................ $ 28 $ 108
Interest on convertible debentures .... -- 1
-------- --------
Net income for EPS calculation ........ $ 28 $ 109
======== ========
Weighted-average shares outstanding ... 95.9 101.2
Options ............................... .8 1.3
Convertible debentures ................ .7 3.0
-------- --------
Adjusted weighted-average shares ...... 97.4 105.5
--------
EPS ................................... $ 0.29 $ 1.03
======== ========
</TABLE>
3. Cost and expenses include depreciation of $16 million and $22 million for the
quarters ended March 31, 1998 and 1997, respectively.
4. Other operating expenses, net for the quarter ended March 31, 1997 include
charges of $141 million associated with management organizational changes and
adoption of alternative competitive strategies relative to current businesses,
announced in 1997. This charge includes $118 million related to asset
rationalizations and impairment and $23 million related to severance benefits.
Included in the $118 million is an impairment loss of $91 million ($23 million
in Food & Functional Products and $68 million in Chemical Specialties).
Additionally, the Company recognized approximately $27 million of
rationalization charges primarily associated with certain assets, which will no
longer be utilized, and lease abandonment costs. Concurrently, management
authorized and committed the Company to a plan to reduce its work force and
accrued $23 million of severance related benefits, of which approximately $13
million is the remaining liability at March 31, 1998. Additionally, other
operating expenses in 1997 include $13 million of net environmental cleanup
costs, principally for nonoperating sites and $8 million of executive
retirement benefits.
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5. Interest and debt costs are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in millions) Three Months Ended March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Costs incurred ........................... $14 $11
Amount capitalized ....................... 3 1
--- ---
Interest expense ......................... $11 $10
=== ===
</TABLE>
6. Other income (expense), net for the quarter ended March 31, 1998 includes
$63 million of legal settlements and accruals, primarily related to the
settlement of a Qui Tam (Whistle Blower) lawsuit (see Note 9) and a $2 million
write off of a claim related to a divested business, partially offset by
interest income of $10 million, primarily related to the $500 million note
obtained upon completion of transactions that monetized the Tastemaker
investment (see below) and $11 million of gains on the sale of investments.
Other income, net for the quarter ended March 31, 1997 primarily reflects a
gain of $357 million on completion of transactions to monetize the investment
in Tastemaker, a 50%-owned flavors joint venture. In addition, it includes net
foreign currency gains of $11 million and charges of $32 million related to
legal settlements and accruals.
7. A summary of short-term and long-term debt follows:
<TABLE>
<CAPTION>
(Dollars in millions) March 31, December 31,
--------- ------------
1998 1997
---- ----
SHORT-TERM:
<S> <C> <C>
Commercial paper ......................... $203 $195
Banks .................................... 137 80
Current maturities ....................... -- --
---- ----
$340 $275
==== ====
</TABLE>
At March 31, 1998, Hercules had $130 million of unused lines of credit
that may be drawn as needed. Lines of credit in use at March 31, 1998, were $116
million.
<TABLE>
<CAPTION>
(Dollars in millions)
LONG-TERM:
<S> <C> <C>
6.15% notes due 2000 ................................. $100 $100
6.60% notes due 2027 ................................. 100 100
7.85% notes due 2000 ................................. 25 25
6.625% notes due 2003 ................................ 125 125
8% convertible subordinated debentures due 2010 ...... 6 10
Commercial paper ..................................... 50 50
Variable rate loans .................................. 72 2
Other ................................................ 8 7
---- ----
486 419
Current maturities of long-term debt ................. -- --
---- ----
Net long-term debt ................................... $486 $419
==== ====
</TABLE>
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<PAGE> 8
8. Since 1991, the Board of Directors has authorized the repurchase of up to
74,650,000 shares of Company common stock, 6,150,000 shares of which is intended
to satisfy requirements of various employee benefit programs. Through March 31,
1998, a total of 65,550,772 shares of common stock (including 6,150,000 shares
for employee benefit programs) had been purchased in the open market at an
average price of $37.26 per share.
9. COMMITMENTS AND CONTINGENCIES
Environmental:
Hercules has been identified as a potentially responsible party (PRP) by U.S.
federal and state authorities for environmental cleanup at numerous sites. The
estimated range of the reasonably possible costs of remediation is between $68
million and $231 million. The actual costs will depend upon numerous factors,
including the number of parties found liable at each environmental site and
their ability to pay, the actual method of remediation, outcome of negotiations
with regulatory authorities, outcome of litigation, changes in environmental
laws and regulations, technological developments, and the years of remedial
activity required, which could range up to 30 years. Hercules becomes aware of
sites in which it may be, but has not yet been named, a PRP principally through
its knowledge of investigation of sites by the U.S. Environmental Protection
Agency (EPA) or other government agency or through correspondence with
previously named PRPs requesting information on Hercules' activities at sites
under investigation. Hercules brought suit in 1992 against its insurance
carriers for past and future costs for remediation of certain environmental
sites. In April 1998, the trial of the Jacksonville, Arkansas, site was
completed. The jury has returned a "Special Verdict Form" with findings which
will be used by the Court to enter a judgement. The judgement will determine
the amount of Hercules recovery for past clean-up expenditures and will state
that Hercules is entitled to similar coverage for costs incurred since
September 30, 1997 and in the furture. Hercules has not included any insurance
recovery in the estimates above.
Hercules has established procedures for identifying environmental
issues at Hercules plant sites. Environmental coordinators, a designated
position at all operating facilities, are familiar with environmental laws and
regulations and are resources for identification of environmental issues.
Hercules also has an environmental audit program, which is designed to identify
environmental issues at operating plant sites. Through these programs, Hercules
identifies potential environmental, regulatory, and remedial issues.
Litigation over liability at Jacksonville, Arkansas, the most
significant site, has been pending since 1980. As a result of a pretrial court
ruling in October 1993, Hercules has been held jointly and severally liable for
costs incurred, and for future remediation costs, at the Jacksonville site by
the District Court, Eastern District of Arkansas (the Court).
Other defendants in this litigation have either settled with the
government or, in the case of the Department of Defense (DoD), have not been
held liable. Hercules appealed the Court's order finding the DoD not liable. On
January 31, 1995, the 8th Circuit Court of Appeals upheld the Court's order.
Hercules filed a petition to the U.S. Supreme Court requesting review and
reversal of the 8th Circuit Court ruling. This petition was denied on June 26,
1995, and the case was remanded to the District Court for further proceedings.
On May 21, 1997, the Court issued a ruling that Uniroyal is liable and
that Standard Chlorine is not liable to Hercules for contribution. A trial on
allocation of liability and damages among Hercules, Uniroyal, and the United
States will begin in June 1998. Hercules expects to appeal the Court's
determination with respect to its liability, the divisibility of harm issue, and
Standard Chlorine's liability when final judgment is entered.
Hercules' potential costs for remediation of the Jacksonville site are
presently estimated between $19 million and $98 million. These costs are based
on Hercules' assessment of
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<PAGE> 9
potential liability, the level of participation by other PRPs, and current
estimates of remediation costs.
At March 31, 1998, the accrued liability for environmental remediation
represents management's best estimate of the probable and reasonably estimable
costs related to environmental remediation. The extent of liability is evaluated
quarterly. The measurement of the liability is evaluated based on currently
available information, including the progress of remedial investigation at each
site and the current status of negotiations with regulatory authorities
regarding the method and extent of apportionment of costs among other PRPs. The
Company does not anticipate that its financial condition will be materially
affected by environmental remediation costs in excess of amounts accrued,
although quarterly or annual operating results could be materially affected.
Litigation:
Hercules is a defendant in numerous lawsuits that arise out of, and are
incidental to, the conduct of its business. In these legal proceedings, no
director, officer, or affiliate is a party or a named defendant. These suits
concern issues such as product liability, contract disputes, labor-related
matters, patent infringement, environmental proceedings, property damage, and
personal injury matters.
Hercules also is a defendant in two Qui Tam (Whistle Blower) lawsuits
in the U.S. District Court for the Central District of Utah, brought by former
employees of the Aerospace business sold to Alliant Techsystems. The first suit
(United States of America ex. rel. Katherine A. Colunga v. Hercules
Incorporated, et al., Civil No. 89-C-954B), involves allegations relating to
submission of false claims and records under various government contracts,
delivery of defective products, a deficient quality control program, and
wrongful termination claims. The second suit (United States of America ex. rel.
Benny D. Hullinger, et al., Civil No. 92-CV-085) involves allegations relating
to submission of false claims and records, mischarging of work performed under
government contracts, misuse of government equipment, other acts of financial
mismanagement, and wrongful termination claims. The government, after
investigation of the allegations, declined to intervene in either lawsuit. (A
third Qui Tam lawsuit is described in the second paragraph below.) The first
lawsuit is in pretrial and is scheduled for trial in June 1998. The trial will
not proceed if the Court approves the settlement described in the following
paragraph. The Court has denied various motions filed by Hercules, including
motions for summary judgment and other motions designed to limit the scope of
the trial and the extent of damages claimed. If any damages are awarded by the
jury under the False Claims Act, such damages would be automatically tripled by
the Court, and attorneys' fees and costs would also be added. As a result of
the Court's denial of the Company's motions, and the Court's position as to how
the relevant contracts should be interpreted, which position is adverse to the
Company, damage claims may be presented to the jury in amounts which, if
awarded, would have a material adverse effect on the Company. The damages in
the second suit were not defined.
In May 1998, Hercules announced that it had agreed to settle the first
lawsuit. Under the terms of the settlement, subject to the approval of the
Court, Hercules will pay $36 million to settle the case, plus another $19
million to cover the plaintiff's attorneys fees, expenses, and costs. The
Company believes no damages were incurred by the government, no false claims
were made to the government, and alleged damages are speculative and
unsupportable. However, because of the mounting legal costs, the prospect of
treble damages, uncertainty present in any litigation, and to avoid the major
costs of a lengthy trial and subsequent appeal by the losing party management
determined that a settlement was in the best interest of Hercules'
shareholders.
9
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In March 1995, Hercules sold its Aerospace business to Alliant
Techsystems, Inc., pursuant to a Purchase and Sale Agreement between Alliant and
Hercules (the Purchase Agreement). As part of such sale, Hercules received an
ownership interest in Alliant. In March 1997, Alliant and Hercules received a
partially unsealed complaint that named both as defendants, initiated on an
unknown date, and filed in an undisclosed federal court, in a Qui Tam action by
a former employee alleging violations of the False Claims Act. The action
alleges labor mischarging at Alliant's Bacchus Works facility in Magna, Utah,
and contains a claim for wrongful termination. Damages are not specified; and
Alliant and Hercules have agreed to share equally the cost of defense until
such time as a determination is made as to the applicability of the
indemnification provisions of the Purchase Agreement. In February 1998, the
parties reached a tentative settlement, which has now been finalized, under
which all claims alleging mischarging to the Intermediate Nuclear Forces
Contract have been settled. The settlement was recognized in the fourth quarter
of 1997. Other portions of the complaint, which include allegations of
mischarging to other government contracts and claims for wrongful termination
of employment, remain unresolved and are the subject of continued discussions.
The government has indicated it does not intend to intervene in these matters.
While it is not feasible to predict the outcome of all pending suits
and claims, other then the settlement described above, management does not
anticipate that the ultimate resolution of these matters will have a material
effect upon the consolidated financial position of Hercules, although the
resolution of any of the matters during a specific period could have a material
effect on the quarterly or annual operating results for that period.
10. In April 1998, Hercules announced that it had completed the acquisition of
the worldwide paper chemicals group of Houghton International, Inc. and the
international pectin business of Citrus Colloids Ltd. for approximately $95
million. Houghton's paper chemicals group has sales of approximately $30 million
and Citrus Colloids has annual revenues in excess of $30 million.
OTHER FINANCIAL INFORMATION
Operational Highlights
(Dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
NET SALES BY INDUSTRY SEGMENT
Chemical Specialties .......................... $215 $ 272
Food & Functional Products .................... 214 223
Corporate and other ........................... 1 --
---- -----
Total .................................. $430 $ 495
==== =====
PROFIT (LOSS) FROM OPERATIONS BY INDUSTRY SEGMENT
Chemical Specialties .......................... $ 38 ($ 46)
Food & Functional Products .................... 55 (3)
Corporate and other ........................... 1 (19)
---- -----
Total .................................. $ 94 ($ 68)
==== =====
</TABLE>
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
The table below reflects results through profit from operations on an
adjusted basis. The 1997 results exclude the effects of asset rationalization
and impairment, severance, benefits, and other adjustments aggregating $161
million (see Notes 4 and 6). Additionally, 1997 has been further adjusted to
exclude the operations of the Fibers Division of the Chemical Specialties
segment, which was joint ventured in June 1997. The table should make it easier
to compare quarter-over-quarter operating results. Accordingly, the discussion
that follows speaks to the comparisons in the table through profit from
operations.
<TABLE>
<CAPTION>
(Dollars in millions) Three Months Ended March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales ............................................ $430 $ 451
---- -----
Cost of sales ........................................ 262 285
Selling, general, and administrative expenses ........ 61 62
Research and development ............................. 13 13
Other operating expenses, net ........................ -- 1
---- -----
Profit from operations ............................... $ 94 $ 90
==== =====
Net Sales by Industry Segment
Chemical Specialties ............................ $215 $ 228
Food & Functional Products ...................... 214 223
Corporate and other ............................. 1 --
---- -----
Total ...................................... $430 $ 451
==== =====
Profit (Loss) From Operations by Industry Segment
Chemical Specialties ............................ $ 38 $ 48
Food & Functional Products ...................... 55 45
Corporate and other ............................. 1 (3)
---- -----
Total ...................................... $ 94 $ 90
==== =====
</TABLE>
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RESULTS OF OPERATIONS
Within the following discussion, unless otherwise stated, "quarter" and
"three-month period" refer to the first quarter of 1998 and the three months
ended March 31, 1998. All comparisons are with the corresponding periods in the
previous year, unless otherwise stated.
Consolidated net sales decreased $21 million, or 5%, while Chemical
Specialties sales decreased $13 million, or 6%, and Food & Functional Products
sales decreased $9 million, or 4%. These decreases were driven by weaker foreign
currencies relative to the dollar, which negatively impacted consolidated sales
$16 million, or 4%; $9 million, or 4%, in Chemical Specialties; and $7 million,
or 3%, in Food & Functional Products. Additionally, consolidated sales were
negatively impacted $17 million, or 4%, as a result of lower demand resulting
from the Asian economic crisis. Volume in Food & Functional Products,
particularly in Aqualon, due to this lower demand, negatively impacted sales $13
million, or 6%. Additionally, in Chemical Specialties, competitive pricing
pressures and lower volume in paper technology contributed to the sales decline.
Consolidated profit from operations increased $4 million, or 4%. The
improvement reflects manufacturing cost improvement initiatives, which more than
offset lower volumes, higher raw material costs, rates of exchange impacts, and
the impact of the Asian economic crisis. As a result, overall gross margins
improved to 39% from 37% and operating margins improved from 20% to 22%.
Chemical Specialties operating profit decreased $10 million, or 20%.
The major reasons for the decrease were the weather-related shortages of stump
wood, a key raw material for the pale wood rosin business, competitive pricing
pressures noted above, in both paper size and wet-strength resins, and weaker
foreign currencies relative to the dollar.
Food & Functional Products operating profit increased $10 million, or
22%. Manufacturing cost improvements and better pricing more than offset the
lower volumes resulting from the Asian economic crisis and the unfavorable
effects of currency exchange rates.
Equity in income of affiliated companies decreased $12 million and
primarily reflects the monetization of investments in Tastemaker in March 1997
(see Note 6) and Alliant Techsystems in December 1997, partially offset by
equity income from FiberVisions, the 51% owned fibers joint venture.
Interest and debt expense remained relatively flat as higher interest
costs on increased average debt over the period was offset by increased
capitalized interest associated with higher capital spending.
Other income, net (see Note 6) decreased $379 million. The quarter
ended March 31, 1998 includes a charge of $63 million for legal settlements and
accruals, primarily related to the settlement of a Qui Tam (Whistle Blower)
lawsuit (see Note 9), while the quarter ended March 31, 1997 included the gain
on the monetization of the Tastemaker investment of $347 million and legal
accruals and settlements of $32 million.
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<PAGE> 13
The provision for income taxes for the quarter ended March 31, 1998
reflects an estimated annual effective rate of 34.5%. The 1997 full-year rate of
45% was unfavorably affected by a higher rate on the monetization of the
Tastemaker and Alliant investments, along with required increases to tax
reserves related to anticipated tax assessments by federal, state, and foreign
tax authorities.
FINANCIAL CONDITION
Cash provided by operations was $38 million compared to $33 million in
1997. The increase primarily reflects improved working capital and lower tax
payments.
In April 1998, Hercules announced that it had completed the acquisition
of the worldwide paper chemicals group of Houghton International, Inc. and the
international pectin business of Citrus Colloids Ltd. for approximately $95
million. Houghton's paper chemicals group has sales of approximately $30 million
and Citrus Colloids has annual revenues in excess of $30 million.
Short-term liquidity has remained stable since year-end 1997. Both
current and quick ratios are relatively flat at .9 and .6, respectively. At
March 31, 1998, $130 million was available under short-term lines of credit and
$447 million was available under revolving credit agreements. During the
quarter, the Company entered into a financing agreement with a bank, which
provides for the sale of promissory notes in the principal amount of up to $22
million at any one time. The agreement, which expires in December 1998,
provides for commitments by the bank and the Company under which the bank
purchases promissory notes denominated in a number of foreign currencies in
exchange for U.S. dollars. The notes are repayable only to the extent of future
revenue of certain foreign subsidiaries. Obligations under the agreement are
not cancelable by the Company or the bank. Transaction gains and losses related
to the notes are deferred and recognized as an adjustment to the revenue
supporting the note repayment.
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<PAGE> 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In September 1993, Hercules and the U.S. Environmental Protection
Agency (EPA) Region 1 reached an agreement in principle in settlement of the
EPA's claims that Hercules violated its wastewater permit with the City of
Chicopee and the Federal pretreatment standard for industrial users of publicly
owned treatment works at its Chicopee, Massachusetts, facility. Hercules signed
a Consent Decree, which was entered by the court on December 15, 1994, based on
this agreement, requiring supplemental environmental projects (at a cost of
approximately $375,000), compliance with permit limits in the future, and
$250,000 in fines. Hercules has paid the $250,000 fine and has completed
performance of the supplemental environmental projects. Hercules has initiated
those actions necessary to obtain court approval for the termination of the
Consent Decree.
In December 1997, Hercules received notice of an enforcement action by
the State of Georgia, Environmental Protection Department (EPD). EPD has
requested that Hercules enter into a proposed Consent Order, alleging violations
of the Resource Conservation and Recovery Act (RCRA) and seeking a civil penalty
of $250,000. Hercules has entered into settlement discussions with EPD in an
attempt to resolve this matter.
Item 4. Submission of Matters to a Vote of Security Holders.
A SUMMARY OF THE FINAL RESULTS OF VOTING ON THE RESOLUTIONS PROPOSED TO
SHAREHOLDERS AT THE ANNUAL MEETING HELD APRIL 30, 1998, IS AS FOLLOWS:
1. Election of Directors
Of the 86,207,333 shares voted, a total of 85,159,474 shares, voted FOR
Robert G. Jahn, as a director; 85,227,952 shares, voted FOR Ralph L.
MacDonald, Jr.; and 85,181,842 shares, voted FOR Paula A. Sneed. A
total of 1,047,859 shares, WITHHELD votes for Robert G. Jahn; 979,381
shares, WITHHELD votes for Ralph L. MacDonald, Jr.; and 1,025,491
shares, WITHHELD votes for Paula A. Sneed.
Directors continuing in office after the meeting are: R. Keith
Elliott, Vincent J. Corbo, Richard M. Fairbanks, III, Edith E.
Holiday, Gaynor N. Kelley, H. Eugene McBrayer, and Peter McCausland.
2. Ratification of Coopers & Lybrand L. L. P. as Auditors
The proposal received the required favorable majority vote necessary
FOR approval. Of the shares voting on this proposal, 85,628,016 were
FOR; 164,994 were AGAINST; and 414,323 ABSTAINED.
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<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
Hercules was not required to file any reports on Form 8-K for the
quarter ended March 31, 1998.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hercules Incorporated
by George MacKenzie
--------------------
George MacKenzie
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer
and duly authorized signatory)
May 15, 1998
by Vikram Jog
---------------------
Vikram Jog
Vice President and Controller
(Principal Accounting Officer)
May 15, 1998
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
HERCULES INCORPORATED 10Q98
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 108,000
<SECURITIES> 0
<RECEIVABLES> 390,000
<ALLOWANCES> 0
<INVENTORY> 245,000
<CURRENT-ASSETS> 792,000
<PP&E> 2,098,000
<DEPRECIATION> 1,407,000
<TOTAL-ASSETS> 2,536,000
<CURRENT-LIABILITIES> 917,000
<BONDS> 0
81,000
0
<COMMON> 0
<OTHER-SE> 549,000
<TOTAL-LIABILITY-AND-EQUITY> 2,536,000
<SALES> 430,000
<TOTAL-REVENUES> 430,000
<CGS> 262,000
<TOTAL-COSTS> 74,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,000
<INCOME-PRETAX> 44,000
<INCOME-TAX> 16,000
<INCOME-CONTINUING> 28,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,000
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
