<PAGE> 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, 1998
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
<PAGE> 2
BETZDEARBORN INC. EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
STATEMENT OF NET ASSETS AVAILABLE
FOR BENEFITS WITH FUND INFORMATION
at December 31, 1998 and 1997
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE
FOR BENEFITS WITH FUND INFORMATION
for the years ended December 31, 1998 and 1997
NOTES TO FINANCIAL STATEMENTS
SUPPLEMENTAL SCHEDULES:
Item 27a - Assets Held for Investment Purposes at December 31, 1998
Item 27d - Schedule of Reportable Transactions
for the Year Ended December 31, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
EXHIBIT INDEX
2
<PAGE> 3
BETZDEARBORN INC. EMPLOYEE STOCK OWNERSHIP AND 401 (k) PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
NONPARTICIPANT
DIRECTED PARTICIPANT DIRECTED
-------------- ----------------------------------------------------------------------------------
PUTNAM FUND PUTNAM NEW PUTNAM
PUTNAM FOR GROWTH PUTNAM MONEY OPPORTUNITIES S&P 500
ESOP FUND STOCK FUND VOYAGER FUND AND INCOME MARKET FUND FUND INDEX FUND
------------- ----------- ------------ ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments at fair value $159,565,985 $11,670,615 $51,969,856 $40,022,931 $37,019,453 $18,097,287 $10,390,961
Contribution receivable 302,524 -- -- -- -- -- --
Cash 69,551 51,407 -- -- -- -- --
------------ ----------- ----------- ----------- ----------- ----------- -----------
Total Assets 159,938,060 11,722,022 51,969,856 40,022,931 37,019,453 18,097,287 10,390,961
------------ ----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES
Accrued interest payable 302,524 -- -- -- -- -- --
Loan payable 93,500,000 -- -- -- -- -- --
------------ ----------- ----------- ----------- ----------- ----------- -----------
Net Assets Available for Benefits $ 66,135,536 $11,722,022 $51,969,856 $40,022,931 $37,019,453 $18,097,287 $10,390,961
============ =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
-------------------------------------------------------------------------------------------------
PUTNAM ASSET PUTNAM ASSET PUTNAM ASSET
PUTNAM U.S. PUTNAM INT'L ALLOCATION ALLOCATION ALLOCATION
GOVERNMENT GROWTH PUTNAM LOAN PUTNAM OTC & BALANCED GROWTH CONSERVATIVE
INCOME TRUST FUND FUND EMERGING FUND FUND FUND FUND
------------ ------------ ----------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments at fair value $9,209,912 $5,034,757 $3,622,167 $2,556,389 $1,643,412 $1,058,525 $891,617
Contribution receivable -- -- -- -- -- -- --
Cash -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- --------
Total Assets 9,209,912 5,034,757 3,622,167 2,556,389 1,643,412 1,058,525 891,617
---------- ---------- ---------- ---------- ---------- ---------- --------
LIABILITIES
Accrued interest payable -- -- -- -- -- -- --
Loan payable -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- --------
Net Assets Available for Benefits $9,209,912 $5,034,757 $3,622,167 $2,556,389 $1,643,412 $1,058,525 $891,617
========== ========== ========== ========== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
------------
<S> <C>
ASSETS
Investments at fair value $352,753,867
Contribution receivable 302,524
Cash 120,958
------------
Total Assets 353,177,349
------------
LIABILITIES
Accrued interest payable 302,524
Loan payable 93,500,000
------------
Net Assets Available for Benefits $259,374,825
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
BETZDEARBORN INC. EMPLOYEE STOCK OWNERSHIP AND 401 (k) PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NONPARTICIPANT
DIRECTED PARTICIPANT DIRECTED
-------------- ----------------------------------------------------------------------------------
PUTNAM FUND PUTNAM NEW PUTNAM U.S.
PUTNAM FOR GROWTH OPPORTUNITIES PUTNAM MONEY GOVERNMENT
ESOP FUND STOCK FUND VOYAGER FUND AND INCOME FUND MARKET FUND INCOME TRUST
------------ ----------- ------------ ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments at fair value $159,596,410 $31,315,271 $47,151,542 $41,532,541 $14,092,470 $9,532,006 $6,585,642
Contribution receivable 285,285 -- -- -- -- -- --
Cash 63,148 37,820 -- -- -- -- --
------------ ----------- ----------- ----------- ----------- ---------- ----------
Total Assets 159,944,843 31,353,091 47,151,542 41,532,541 14,092,470 9,532,006 6,585,642
------------ ----------- ----------- ----------- ----------- ---------- ----------
LIABILITIES
Accrued interest payable 285,285 -- -- -- -- -- --
Loan payable 94,500,000 -- -- -- -- -- --
------------ ----------- ----------- ----------- ----------- ---------- ----------
Net Assets Available for Benefits $ 65,159,558 $31,353,091 $47,151,542 $41,532,541 $14,092,470 $9,532,006 $6,585,642
============ =========== =========== =========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
----------------------------------------------------------------------------------------------
PUTNAM ASSET PUTNAM ASSET
PUTNAM ALLOCATION ALLOCATION PUTNAM ASSET
PUTNAM INT'L PUTNAM LOAN S&P 500 PUTNAM OTC & BALANCED CONSERVATIVE ALLOCATION
GROWTH FUND FUND INDEX FUND EMERGING FUND FUND GROWTH FUND FUND
------------ ----------- ---------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments at fair value $3,738,088 $3,718,866 $2,992,187 $1,593,400 $1,230,428 $707,287 $623,647
Contribution receivable -- -- -- -- -- -- --
Cash -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- -------- --------
Total Assets 3,738,088 3,718,866 2,992,187 1,593,400 1,230,428 707,287 623,647
---------- ---------- ---------- ---------- ---------- -------- --------
LIABILITIES
Accrued interest payable -- -- -- -- -- -- --
Loan payable -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- -------- --------
Net Assets Available for Benefits $3,738,088 $3,718,866 $2,992,187 $1,593,400 $1,230,428 $707,287 $623,647
========== ========== ========== ========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
------------
<S> <C>
ASSETS
Investments at fair value $324,409,785
Contribution receivable 285,285
Cash 100,968
------------
Total Assets 324,796,038
------------
LIABILITIES
Accrued interest payable 285,285
Loan payable 94,500,000
------------
Net Assets Available for Benefits $230,010,753
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
BETZDEARB0RN INC. EMPLOYEE STOCK OWNERSHIP AND 401 (k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NONPARTICIPANT PARTICIPANT
DIRECTED DIRECTED
------------- ------------
ESOP FUND STOCK FUND
------------ ------------
<S> <C> <C>
NET ASSETS AT DECEMBER 31, 1997 $ 65,159,558 $ 31,353,091
Add: Contributions from employer 1,720,846
Contributions from employees 1,286,732
Loan repayments from
employees 258,127
Investment income 7,260,929 736,917
Deduct: Loans issued (305,413)
Benefit payments (4,177,403) (1,999,324)
Interest expense (7,975,372)
Administrative expenses (1,359)
Change in market value 4,146,978 7,052,218
Interfund transfers 0 (26,658,967)
------------ ------------
NET ASSETS AT DECEMBER 31, 1998 $ 66,135,536 $ 11,722,022
============ ============
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
----------------------------------------------------------------------------------------
PUTNAM FUND PUTNAM NEW PUTNAM U.S.
PUTNAM VOYAGER FOR GROWTH PUTNAM MONEY OPPORTUNITIES PUTNAM S&P 500 GOVERNMENT
FUND AND INCOME MARKET FUND FUND INDEX FUND INCOME TRUST
-------------- ------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS AT DECEMBER 31, 1997 $ 47,151,542 $ 41,532,541 $ 9,532,006 $ 14,092,470 $ 2,992,187 $ 6,585,642
Add: Contributions from employer
Contributions from employees 3,445,865 2,824,770 1,048,148 2,133,761 944,489 490,641
Loan repayments from employees 572,428 421,251 291,025 329,065 88,254 76,379
Investment income 3,516,897 3,629,668 861,134 549,114 442,314
Deduct: Loans issued (612,748) (437,091) (232,816) (303,917) (53,095) (75,163)
Benefit payments (3,434,858) (3,755,049) (4,372,438) (1,515,577) (391,453) (646,524)
Interest expense
Administrative expenses (2,465) (1,767) (999) (1,035) (246) (308)
Change in market value 6,854,906 1,914,643 3,045,853 1,533,987 320
Interfund transfers (5,521,711) (6,106,035) 29,893,393 (232,447) 5,276,838 2,336,611
------------ ------------ ------------ ------------ ------------ -----------
NET ASSETS AT DECEMBER 31, 1998 $ 51,969,856 $ 40,022,931 $ 37,019,453 $ 18,097,287 $ 10,390,961 $ 9,209,912
============ ============ ============ ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
------------------------------------------------------------------------------------
PUTNAM ASSET PUTNAM ASSET PUTNAM ASSET
ALLOCATION ALLOCATION ALLOCATION
PUTNAM INT'L PUTNAM LOAN PUTNAM OTC & BALANCED GROWTH CONSERVATIVE
GROWTH FUND FUND EMERGING FUND FUND FUND FUND
----------- ----------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS AT DECEMBER 31, 1997 $ 3,738,088 $ 3,718,866 $ 1,593,400 $ 1,230,428 $ 623,647 $ 707,287
Add: Contributions from employer
Contributions from employees 554,160 460,228 180,605 492,890 57,574
Loan repayments from employees 68,343 (2,250,712) 53,385 26,708 50,902 14,845
Investment income 144,917 370,047 79,802 52,816 27,454 47,139
Deduct: Loans issued (32,108) 2,120,878 (42,805) (6,454) (14,850) (4,418)
Benefit payments (357,487) (336,912) (63,991) (117,138) (42,526) (360,481)
Interest expense
Administrative expenses (104) (144) (44) (84) (38)
Change in market value 555,329 218,257 111,311 91,874 33,665
Interfund transfers 363,619 258,257 165,180 (170,782) 396,044
----------- ----------- ----------- ----------- ----------- ------------
NET ASSETS AT DECEMBER 31, 1998 $ 5,034,757 $ 3,622,167 $ 2,556,389 $ 1,643,412 $ 1,058,525 $ 891,617
=========== =========== =========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
TOTAL
-------------
<S> <C>
NET ASSETS AT DECEMBER 31, 1997 $ 230,010,753
Add: Contributions from employer 1,720,846
Contributions from employees 13,919,863
Loan repayments from employees --
Investment income 17,719,148
Deduct: Loans issued --
Benefit payments (21,571,161)
Interest expense (7,975,372)
Administrative expenses (8,593)
Change in market value 25,559,341
Interfund transfers --
-------------
NET ASSETS AT DECEMBER 31, 1998 $ 259,374,825
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
BETZDEARB0RN INC. EMPLOYEE STOCK OWNERSHIP AND 401 (k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NONPARTICIPANT PARTICIPANT
DIRECTED DIRECTED
-------------- ------------
ESOP FUND STOCK FUND
------------ ------------
<S> <C> <C>
NET ASSETS AT DECEMBER 31, 1996 $ 66,941,910 $ 31,913,196
Add: Contributions from employer 1,491,159
Contributions from employees 2,156,742
Loan repayments from
employees 295,157
Investment income 7,664,996 801,842
Deduct: Loans issued (626,441)
Benefit payments (2,150,392) (1,583,746)
Interest expense (8,136,392)
Administrative expenses (3,711)
Change in market value (651,723) 1,546,956
Interfund transfers 0 (3,146,904)
------------ ------------
NET ASSETS AT DECEMBER 31, 1997 $ 65,159,558 $ 31,353,091
============ ============
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
----------------------------------------------------------------------------------------
PUTNAM FUND FOR PUTNAM NEW PUTNAM U.S.
PUTNAM VOYAGER GROWTH AND OPPORTUNITIES PUTNAM MONEY GOVERNMENT PUTNAM INT'L
FUND INCOME FUND MARKET FUND INCOME TRUST GROWTH FUND
-------------- ------------ ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS AT DECEMBER 31, 1996 $ 38,799,167 $ 30,892,121 $ 10,462,397 $ 8,775,990 $ 5,673,604 $--
Add: Contributions from employer
Contributions from employees 4,124,564 3,298,257 2,432,482 785,031 660,589 279,792
Loan repayments from
employees 519,749 366,279 269,244 135,966 65,583 26,724
Investment income 2,815,139 5,291,160 311,138 478,026 383,362 230,250
Deduct: Loans issued (723,142) (518,221) (203,781) (181,697) (87,156) (23,929)
Benefit payments (2,201,597) (2,084,107) (507,977) (1,228,465) (453,293) (18,769)
Interest expense
Administrative expenses (6,569) (5,128) (2,311) (1,748) (910) (229)
Change in market value 6,902,946 2,600,563 2,067,671 8 123,614 (129,709)
Interfund transfers (3,078,715) 1,691,617 (736,393) 768,895 220,249 3,373,958
------------ ------------ ------------ ----------- ----------- -----------
NET ASSETS AT DECEMBER 31, 1997 $ 47,151,542 $ 41,532,541 $ 14,092,470 $ 9,532,006 $ 6,585,642 $ 3,738,088
============ ============ ============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
---------------------------------------------------------------------------------------
PUTNAM ASSET
PUTNAM ASSET ALLOCATION PUTNAM ASSET
PUTNAM LOAN PUTNAM S&P 500 PUTNAM OTC & ALLOCATION CONSERVATIVE ALLOCATION
FUND INDEX FUND EMERGING FUND BALANCED FUND FUND GROWTH FUND
----------- -------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS AT DECEMBER 31, 1996 $ 2,880,805 $ -- $ -- $ -- $ -- $ --
Add: Contributions from employer
Contributions from employees -- 390,774 271,557 69,177 17,707 167,916
Loan repayments from employees (1,814,470) 27,723 44,025 9,876 3,004 13,331
Investment income 316,733 99,000 28,704 45,938
Deduct: Loans issued 2,483,603 (16,953) (13,770) (11,567) (24,293) (4,820)
Benefit payments (147,805) (247,296) (4,345) (6,841) (6,325) (24,969)
Interest expense
Administrative expenses (181) (135) (80) (32) (96)
Change in market value 280,577 115,498 (33,437) (15,547) (15,210)
Interfund transfers 0 2,557,543 1,180,570 1,104,300 704,069 441,557
----------- ----------- ----------- ----------- --------- ------------
NET ASSETS AT DECEMBER 31, 1997 $ 3,718,866 $ 2,992,187 $ 1,593,400 $ 1,230,428 $ 707,287 $ 623,647
=========== =========== =========== =========== ========= ============
</TABLE>
<TABLE>
<CAPTION>
---------------
PUTNAM GLOBAL
GROWTH FUND TOTAL
------------- -------------
<S> <C> <C>
NET ASSETS AT DECEMBER 31, 1996 $ 4,171,205 $ 200,510,395
Add: Contributions from employer 1,491,159
Contributions from employees 492,721 15,147,309
Loan repayments from employees 37,809 --
Investment income 18,466,288
Deduct: Loans issued (47,833) --
Benefit payments (208,779) (10,874,706)
Interest expense (8,136,392)
Administrative expenses (322) (21,452)
Change in market value 635,945 13,428,152
Interfund transfers (5,080,746) --
------------ -------------
NET ASSETS AT DECEMBER 31, 1997 $ -- $ 230,010,753
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF PLAN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The BetzDearborn Inc. Employee Stock Ownership and 401(k) Plan ("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 BetzDearborn 401(k) program was previously integrated with the
Employee Stock Ownership Plan ("ESOP"). Under the 401(k) provisions of the Plan,
employees could contribute on a pretax basis 2% to 15% of salary, the first 4%
being matched 25% by BetzDearborn through the date of acquisition. This was
continued by Hercules through year-end 1998. Beginning January 1, 1999, the
Company match was increased to 50% of the first 6% of the participants'
contribution. The company's match is made in the form of Hercules Common Stock
since the acquisition date. Previously, the match was in BetzDearborn Inc.
Series A ESOP Convertible Preferred shares. As of October 15, 1998, all
preferred shares were exchanged for Hercules common shares.
After satisfying the 401(k) matching contributions and dividends, the
remaining allocable common shares are allocated to individual participants'
accounts as of December 31st 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
(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 significant 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.
Marketable securities 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-date basis.
Interest income is recorded on the accrual basis and dividends are recorded on
the ex-dividend date. Withdrawals are recorded upon distribution.
7
<PAGE> 8
The Plan presents the net appreciation (depreciation) in fair value of
its investments and realized gains and losses on sales of investments in the
statement of changes in net assets available for benefits under "Change in
Market Value."
Although it has not expressed any intent to do so, Hercules 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, Hercules Incorporated 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 following investment media are available under the BetzDearborn
Inc. Employee Stock Ownership and 401(k) Plan:
1. The Stock Fund invests in Hercules Incorporated Common Stock
as of October 15, 1998. Previously, the Stock Fund invested
in BetzDearborn Inc. Common Stock.
2. Putnam Voyager Fund invests in a combination of stocks of small
companies expected to grow over time as well as stocks of larger,
more established corporations.
3. The Putnam Fund for Growth and Income invests mainly in
attractively priced stocks of companies that offer long-term
growth potential while also providing income.
4. Putnam Money Market Fund invests in short-term, high-quality money
market securities in an attempt to provide current income and
safety of principal.
5. Putnam New Opportunities Fund invests in a portfolio of stocks in
certain emerging industry groups that Putnam believes offer
above-average long-term growth potential.
6. Putnam S&P 500 Index Fund seeks a return, before the assessment of
fees, that closely approximates the return of the S&P 500 Index,
which is an indicator of U.S. stock market performance.
7. Putnam U.S. Government Income Trust seeks current income
consistent with capital preservation by investing mostly in
securities backed by the full faith and credit of the U.S.
government.
8. Putnam International Growth Fund seeks capital appreciation by
investing in a diversified portfolio of stocks of companies
located mainly outside the United States.
9. Putnam OTC & Emerging Growth Fund invests mainly in stocks of
small to midsize emerging growth companies.
10. Putnam Asset Allocation Balanced Portfolio is designed for the
investor who is willing to accept a moderate level of risk in a
portfolio balanced between stocks and bonds.
11. Putnam Asset Allocation Growth Portfolio is designed for the
investor who is willing to accept a higher level of risk and/or
whose investment horizon is long term.
12. Putnam Asset Allocation Conservative Portfolio is designed for the
investor who is concerned with preserving not only principal but
also the purchasing power of assets.
8
<PAGE> 9
There were 4,366 participants at December 31, 1998 who participated in
one or more of the investment media. At December 31, 1998 the number of
participants in each of the investment media was as follows:
ESOP ................................................... 3,739
Putnam Voyager Fund..................................... 2,509
The Putnam Fund for Growth and Income................... 2,421
Putnam Money Market Fund................................ 2,224
Putnam New Opportunities Fund........................... 1,672
Stock Fund ............................................. 1,252
Putnam U.S. Government Income Trust..................... 1,087
Putnam S&P 500 Index Fund............................... 873
Putnam International Growth Fund........................ 621
Putnam OTC & Emerging Growth Fund....................... 502
Putnam Asset Allocation Growth Portfolio................ 240
Putnam Asset Allocation Balanced Portfolio.............. 188
Putnam Asset Allocation Conservative Portfolio.......... 121
4. 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,
1998, the Plan held 4,052,556 unallocated shares of the Common Stock with a fair
value of $110,938,723. 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 8.56% from January 1, 1997 to December 2, 1997; 8.36% from
December 3, 1997 to October 15, 1998; and 8.96% from October 16, 1998 to
December 31, 1998. Debt service contributions paid to the ESOP during 1998 and
1997 totaled $8,958,133 and $9,123,600, respectively, including dividends of
$7,246,126 and $7,653,633, respectively. An additional contribution of $302,524
has been accrued by the Plan and is included in the contribution receivable
recorded at December 31, 1998.
The ESOP loan matures on June 19, 2009 and requires principal payments
of $1,000,000 in 1999, $1,500,000 in 2000, $2,500,000 in 2001, $4,000,000 in
2002, $5,000,000 in 2003, and $79,500,000 thereafter. The Company is obligated
to maintain certain financial ratios and meet certain net worth and indebtedness
tests.
5. 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. Trustee's and other expenses directly applicable to the Plan and paid
by the Company amounted to approximately $221,000 and $130,000 in 1998 and 1997,
respectively.
6. 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.
9
<PAGE> 10
SUPPLEMENTAL SCHEDULES
10
<PAGE> 11
BETZDEARBORN INC. EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN
SUPPLEMENTAL SCHEDULE ITEM 27a
ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
DESCRIPTION OF
INVESTMENT
INCLUDING MATURITY
IDENTITY OF ISSUE, BORROWER, DATE, RATE OF INTEREST,
OR SIMILAR PARTY PAR, OR MATURITY VALUE COST MARKET
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK:
*Hercules Incorporated - ESOP 5,828,894 shares $184,338,786 $159,565,985
*Hercules Incorporated 426,323 shares 5,803,883 11,670,615
MUTUAL FUNDS:
* Putnam Voyager Fund 2,370,887 units 36,276,502 51,969,856
* Putnam Fund for Growth & Income 1,953,290 units 33,703,511 40,022,931
* Putnam Money Market Fund 37,019,453 units 37,019,453 37,019,453
* Putnam New Opportunities Fund 309,725 units 14,198,712 18,097,287
* Putnam S&P 500 Index Fund 359,175 units 8,826,234 10,390,961
* Putnam U.S. Government Income Trust 7,019,744 units 9,200,767 9,209,912
* Putnam International Growth Fund 261,817 units 4,704,679 5,034,757
* Putnam OTC & Emerging Fund 148,196 units 2,280,021 2,556,389
* Putnam Asset Allocation Balanced Fund 136,836 units 1,568,407 1,643,412
* Putnam Asset Allocation Growth Fund 77,661 units 991,683 1,058,525
* Putnam Asset Allocation Conservative Fund 85,897 units 883,252 891,617
LOAN FUND:
* Putnam Loan Fund Participant loans; between
8% to 10.5% interest 0 3,622,167
---------------------------
Total assets held for investment purposes $339,795,890 $352,753,867
===========================
</TABLE>
*Indicates party-in-interest to the Plan.
11
<PAGE> 12
BETZDEARBORN INC. EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN
SUPPLEMENTAL SCHEDULE 27d
SCHEDULE OF REPORTABLE TRANSACTIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PURCHASE
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET PRICE
- -------------------------- -------------------- -----
<S> <C> <C>
CATEGORY (i): INDIVIDUAL
TRANSACTIONS IN EXCESS
OF 5% OF PLAN ASSETS
*Putnam Fiduciary Trust Putnam Money Market Fund:
Purchased 45,509,097 units $ 45,509,097
*Putnam Fiduciary Trust BetzDearborn Inc. Common Stock:
Sold 867,799 shares $ --
*Putnam Fiduciary Trust BetzDearborn Inc. Series A ESOP
Convertible Preferred Stock:
Sold 468,747 shares $ --
*Putnam Fiduciary Trust Hercules, Inc. Common Stock:
Purchased 5,890,872 shares $186,298,848
CATEGORY (iii): SERIES OF
SECURITIES TRANSACTIONS IN
EXCESS OF 5% OF PLAN ASSETS
*Putnam Fiduciary Trust Putnam Money Market Fund:
Purchased 61,629,861 units in 443 transactions;
Sold 34,142,666 units in 321 transactions $ 61,629,861
*Putnam Fiduciary Trust Putnam Fund for Growth and Income
Sold 820,068 units in 368 transactions $ --
*Putnam Fiduciary Trust BetzDearborn Inc. Common Stock:
Purchased 483,085 shares in 222 transactions;
Sold 995,025 shares in 289 transactions $ 28,603,844
*Putnam Fiduciary Trust BetzDearborn Inc. Series A ESOP Convertible
Preferred Stock:
Sold 475,371 shares in 37 transactions $ --
<CAPTION>
SELLING COST OF GAIN
IDENTITY OF PARTY INVOLVED PRICE ASSET (LOSS)
- -------------------------- ----- ----- ------
<S> <C> <C> <C>
CATEGORY (i): INDIVIDUAL
TRANSACTIONS IN EXCESS
OF 5% OF PLAN ASSETS
*Putnam Fiduciary Trust $ -- $ -- $ --
*Putnam Fiduciary Trust
$ 62,481,589 $42,383,851 $20,097,738
*Putnam Fiduciary Trust
$186,298,848 $93,749,420 $92,549,428
*Putnam Fiduciary Trust
$ -- $ -- $ --
CATEGORY (iii): SERIES OF
SECURITIES TRANSACTIONS IN
EXCESS OF 5% OF PLAN ASSETS
*Putnam Fiduciary Trust
$ 34,142,666 $34,142,666 $ --
*Putnam Fiduciary Trust
$16,699,026 $14,286,849 $ 2,412,177
*Putnam Fiduciary Trust
$ 69,960,684 $48,507,529 $21,453,155
*Putnam Fiduciary Trust
$188,562,520 $95,074,262 $93,488,258
</TABLE>
There were no category (ii) or (iv) reportable transactions during 1998.
*Indicates party-in-interest to the Plan.
12
<PAGE> 13
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/ H. EUGENE McBRAYER
_____________________________________________
H. Eugene McBrayer, Chairman
Finance Committee, Hercules Incorporated,
Plan Administrator
Date: June 29, 1999
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors,
Hercules Incorporated,
Wilmington, Delaware
In our opinion, the accompanying statement 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 BetzDearborn Inc. Employee Stock Ownership and 401(k) Plan (the "Plan") at
December 31, 1998, and the changes in net assets available for benefits for the
year then ended in conformity with generally accepted accounting principles.
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 audit of the statements in accordance with
generally accepted auditing standards 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. The financial statements of the Plan as of December 31, 1997 and for the
year then ended were audited by other independent accountants whose report dated
June 15, 1998 expressed an unqualified opinion on those statements.
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 fund information in the
statement of net assets available for benefits and the statement of changes in
net assets available for benefits is presented for purposes of additional
analysis rather than to present the net assets available for benefits and
changes in net assets available for benefits of each fund. The supplemental
schedules and fund information are the responsibility of the Plan's management.
The supplemental schedules and fund information 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
June 22, 1999
<PAGE> 15
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors,
Hercules Incorporated,
Wilmington, Delaware
We have audited the accompanying statement of net assets available for benefits
of the BetzDearborn Inc. Employee Stock Ownership and 401(k) Plan as of December
31,1997 and the related statement of changes in net assets available for
benefits for the year then ended. 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 audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31,1997 and the changes in its net assets available for benefits for
the year then ended, in conformity with generally accepted accounting
principles.
Our audit of the 1997 financial statements was conducted for the purpose of
forming an opinion on the basic 1997 financial statements taken as a whole. The
fund information in the statement of net assets available for benefits at
December 31,1997 and in the statement of changes in net assets available for
benefits for the year ended December 31, 1997 is presented for purposes of
additional analysis rather than to present the net assets available for benefits
and the changes in net assets available for benefits of each fund. The fund
information is the responsibility of the Plan's management. The 1997 fund
information has been subjected to the auditing procedures applied in our audit
of the basic 1997 financial statements and, in our opinion, is fairly stated in
all material respects in relation to the basic 1997 financial statements taken
as a whole.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
June 15, 1998
<PAGE> 16
EXHIBIT INDEX
NUMBER DESCRIPTION
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Ernst & Young LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-68863) of Hercules Incorporated of our report
dated June 22, 1999 relating to the financial statements, which appears in this
Form 11-K.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
July 9, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-68863) of Hercules Incorporated pertaining to the
BetzDearborn Inc. Employee Stock Ownership and 401(k) Plan of our report dated
June 15, 1998, with respect to the financial statements of the BetzDearborn
Inc. Employee Stock Ownership and 401(k) Plan as of December 31, 1997 and for
the year then ended, included in this Annual Report (Form 11-K) for the year
ended December 31, 1998.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
July 9, 1999
