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, 2001
001-496
(Commission File Number)
TITLE OF THE PLAN
HERCULES INCORPORATED SAVINGS AND INVESTMENT PLAN
ISSUER OF THE SECURITIES HELD PURSUANT TO THE PLAN
HERCULES INCORPORATED
Hercules Plaza
1313 North Market Street
Wilmington, Delaware 19894
HERCULES INCORPORATED SAVINGS AND INVESTMENT PLAN
FINANCIAL STATEMENTS
STATEMENTS OF NET ASSETS AVAILABLE
FOR BENEFITS
at December 31, 2001 and 2000
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE
FOR BENEFITS
for the year ended December 31, 2001
NOTES TO FINANCIAL STATEMENTS
SUPPLEMENTAL SCHEDULES
Supplemental schedules required by Section 2520, 103-10 of the Department of
Labor Rules and Regulations for Reporting and Disclosure under ERISA have been
omitted because they are not applicable. Plans with all of their assets in a
Master Trust are exempt from the requirement to include investment supplemental
schedules as part of their Financial Statements.
REPORT OF INDEPENDENT ACCOUNTANTS
EXHIBIT INDEX
2
HERCULES INCORPORATED SAVINGS AND INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
(Dollars in thousands)
December 31,
2001 2000
---------- ----------
Participants' interest in Hercules Incorporated
Master Savings Trust $ 220,108 $ 298,358
---------- ----------
Net assets available for benefits $ 220,108 $ 298,358
========== ==========
The accompanying notes are an integral part of these financial statements.
3
HERCULES INCORPORATED SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
(Dollars in thousands)
Year Ended
ADDITIONS: December 31, 2001
----------------------
(DECREASE IN) ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment losses
Decrease in net interest in Hercules Incorporated Master Savings Trust $ (37,065)
Contributions:
Participant 11,277
Employer 3,744
Transfers from other plans (Note 6) 7,346
-----------
Net Additions (14,698)
-----------
DEDUCTIONS:
DEDUCTIONS FROM NET ASSETS ATTRIBUTABLE TO:
Benefits paid to participants (41,189)
Transfers to other plans (Note 7) (21,721)
Administrative expenses (642)
-----------
Total Deductions (63,552)
-----------
Net Decrease (78,250)
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 298,358
-----------
End of year $ 220,108
===========
The accompanying notes are an integral part of these financial statements.
4
HERCULES INCORPORATED SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF PLAN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following description of the Hercules Incorporated Savings and
Investment Plan (the Plan) provides only general information. The Plan is a
defined contribution plan subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA). Participants should refer to the Plan
agreement for a more complete description of the Plan's provisions.
At time of enrollment in the Plan, participants may elect to contribute
up to 15% of their annual wages on either a pre- or post-tax basis, or a
combination thereof. Hercules Incorporated (Hercules or the Company) contributes
in the form of Hercules Incorporated common stock, 50% of the first 6% of the
annual wages that an employee contributes to the Plan. Participants shall direct
the investment of their monthly savings in any of the Plan's investment options,
or a combination thereof. Participants are vested immediately in their
contributions plus actual earnings thereon. Vesting in the Company's
contribution portion of their accounts is based on years of continuous service.
A participant is 100 percent vested in his or her account balance at all times.
The Plan currently offers eight mutual funds, an insurance investment
contract option and the common stock of the Company as investment options for
participants. 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.
Each participant's account is credited with the participant's
contribution, the Company's contribution and the Plan earnings, and charged with
an allocation of administrative expenses. Allocations are based on participant
earnings or account balances, as defined. The benefit to which a participant is
entitled is the benefit that can be provided from the participant's vested
account.
The Plan includes an employee loan provision authorizing participants
to borrow a minimum of $1 thousand up to a maximum, equal to the lesser of $50
thousand or 50% of their vested balances in the Plan. The loans are executed by
promissory notes and have a minimum term of 12 months and a maximum term of 60
months, except for qualified residential loans, which have a maximum term of 120
months. The loans bear an interest rate equal to the average rate charged by
selected major banks to prime customers for secured loans. The loans are repaid
over the term in monthly 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. The Plan's investments are stated at fair value except for
its insurance investment contract, which is valued at contract value which
represents costs plus investment earnings less withdraws. Quoted market prices
are used to value investments. Shares of mutual funds are valued at the net
asset value of shares held by the Plan at year end. The fair value of the common
stock of Hercules Incorporated is based upon the price at which the stock market
closed on the New York Stock Exchange on the last business day of the year.
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. The Plan provides that
participants who retire from the Company may elect, upon retirement, an Optional
Valuation Date (OVD) for determining their final withdrawal. The OVD is the last
business day of any month following retirement, in which the distribution is
requested.
The Plan presents in the statement of changes in net assets available
for benefits its allocated share of the Trust's investment activities, which
includes the net appreciation (depreciation) in fair value of its investments,
which consists of the realized gains or losses and the change in unrealized
appreciation (depreciation) on those investments. Such allocation was only
necessary for the month of January as the two plans which had assets jointly
held in the Hercules Incorporated Master Savings Trust (the Trust) were
5
merged as of the close of business on January 31, 2001. On that date the
Hercules Incorporated Employee Savings Plan merged with and into the Plan and as
such there was no allocation required for the final eleven months of the plan
year (Note 6).
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.
6
HERCULES INCORPORATED SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN MASTER TRUST
The assets of the Plan are held in the Trust. At December 31, 2001, the
assets of the Trust are held by Bankers Trust Company (Trustee). The Plan's
investment in the Trust is based upon the fair value of net assets in the Trust
and the Plan's relative interest in the Trust. The fair value of the Plan's
interest in the Trust is based on the beginning of the year value of the Plan's
interest in the Trust plus contributions, and allocated investment income less
actual distributions. The Plan's share of the net assets of the Trust was
approximately 100% and 98% at December 31, 2001 and 2000, respectively. Record
keeping for the Plan is performed by MetLife's Defined Contribution Group.
On April 29, 2002, the Board of Directors of the Company approved the
appointment of The Vanguard Group as both the trustee and record keeper for the
Plan, effective July 1, 2002.
The following table presents the fair values of investments for the
Trust:
(Dollars in thousands)
December 31,
2001 2000
---------- ----------
Hercules Incorporated Common Stock $ 28,318 $ 58,451
Mutual Funds 106,535 145,542
Blended Interest Rate Fund 81,014 94,600
Loan Fund 4,241 7,061
---------- ----------
$ 220,108 $ 305,654
========== ==========
Investment income for the Trust for the year ended December 31, 2001 is
as follows:
(Dollars in thousands)
Net depreciation in fair value of investments:
Hercules Common Stock $ (26,399)
Mutual Funds (17,389)
-------------
(43,788)
Interest 5,588
Dividends 1,211
-------------
Total $ (36,989)
=============
7
HERCULES INCORPORATED SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
3. NON-PARTICIPANT-DIRECTED INVESTMENTS
Information about the net assets and the significant components of the
changes in net assets relating to the non-participant-directed investments is as
follows:
(Dollars in thousands)
December 31,
2001 2000
------------ ------------
Interest in Hercules Master Savings Trust
investment in Hercules common stock $ 8,970 $ 15,032
------------ ------------
$ 8,970 $ 15,032
============ ============
(Dollars in thousands)
Year Ended
December 31, 2001
Decrease in net interest in Hercules Master
Savings Trust $ (7,314)
Employers Contributions 3,746
Benefits paid to participants (2,321)
Transfers to other plans (173)
-------------
Net Decrease $ (6,062)
=============
4. TAX STATUS
The United States Treasury Department advised on October 29, 1997, that
the Plan as amended through February 1, 1996, is a qualified trust under Section
401(a) of the Internal Revenue Code and is therefore exempt from Federal income
taxes under provisions of Section 501(a) of the code. The Plan has been amended
since receiving the determination letter. However, the Plan administrator
believes that the Plan is designed and currently being operated in compliance
with the applicable provisions of the Internal Revenue Code.
8
HERCULES INCORPORATED SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
5. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits
for the Plan, per the financial statements to the Form 5500:
(Dollars in thousands)
December 31,
2001 2000
---------- ----------
Net Assets Available for Benefits per the financial statements $ 220,108 $ 298,358
Amounts allocated to withdrawing participants (75) (145)
---------- ----------
Net Assets Available for Benefits per the Form 5500 $ 220,033 $ 298,213
========== ==========
(Dollars in thousands)
Year Ended
December 31, 2001
Benefits paid to participants per the financial statements $ 41,189
Add (deduct):
Amounts allocated to withdrawing participants at December 31, 2001 75
Amounts allocated to withdrawing participants at December 31, 2000 (145)
-------------
Benefits paid to participants per the Form 5500 $ 41,119
=============
Amounts allocated to withdrawing participants are recorded on the Form
5500 for benefit claims that have been processed and approved for payment prior
to December 31 but not yet paid as of that date.
6. MERGER OF EMPLOYEE SAVINGS PLAN
After the close of business January 31, 2001, the Hercules Incorporated
Employee Savings Plan was merged into the Plan. Pursuant to the merger,
approximately 194 participants with assets having a fair market value of $7,346
thousand at the time of merger, became part of the Plan.
7. PLAN TRANSFERS
In May 2001 the Company completed the sales of its hydrocarbon resins
business and select portions of its rosin resins business to Eastman Chemical
Company (Eastman) and of its peroxy chemicals business to GEO Specialty
Chemicals, Inc. (GEO). Pursuant to these transactions, the Plan transferred
account balances having fair market values of $19,010 thousand and $2,711
thousand, respectively, to the trustees of the Eastman and GEO benefit plans.
9
HERCULES INCORPORATED SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
8. SUBSEQUENT EVENTS
On April 28, 2002, pursuant to a Stock and Asset Purchase Agreement
executed February 12, 2002 (the Agreement), the Company sold its BetzDearborn
Water Treatment Business to GE Specialty Materials (GESM), a unit of General
Electric Company (the Water Treatment Business sale). As a result of this
transaction, the Company undertook certain actions to facilitate the Water
Treatment Business sale, as summarized below.
On April 24, 2002, the Board of Directors of Hercules approved the
merging of the BetzDearborn Inc. Employee Stock Ownership and 401(k) Plan (the
BetzDearborn Plan) into the Hercules Incorporated Savings and Investment Plan,
effective March 1, 2002. In addition, the BetzDearborn Plan Trust was
transferred from BetzDearborn Inc. to Hercules.
Also effective with the closing of the sale of the BetzDearborn Water
Treatment Business, the Board of Directors amended the BetzDearborn Plan to
facilitate BetzDearborn Plan participants who are Water Treatment Business
employees (the Inactive Participants) to make direct account rollovers to the GE
401(k) Plan, including: (i) full and immediate vesting of all account balances
coincident with the closing of the Water Treatment Business sale, (ii)
permitting transfers from Hercules stock accounts without restraint, (iii)
allowing retention of the right to have Hercules stock accounts distributed in
the form of stock certificates, and (iv) allowing the retention of the account
balances and loans under the Hercules Savings and Investment Plan.
10
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 Hercules Incorporated Savings and Investment Plan (the "Plan") at
December 31, 2001 and December 31, 2000, and the changes in net assets available
for benefits for the year ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. 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 audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, 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 audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania 19103
June 24, 2002
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.
HERCULES INCORPORATED SAVINGS AND INVESTMENT PLAN
/s/ Edward V. Carrington
-------------------------------------
Edward V. Carrington
Vice President, Human Resources and
Corporate Resources
Plan Administrator
June 28, 2002
EXHIBIT INDEX
NUMBER DESCRIPTION
23 Consent of Independent Accountants