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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993 Commission file number 1-496
HERCULES INCORPORATED
A DELAWARE CORPORATION
l.R.S. EMPLOYER IDENTIFICATION NO. 51-0023450
HERCULES PLAZA
1313 NORTH MARKET STREET
WILMINGTON, DELAWARE 19894-0001
TELEPHONE: 302-594-5000
Securities registered pursuant to Section 12(b) of the Act
(Each class is registered on the New York Stock Exchange, Inc.)
Title of each class
Common Stock ($25/48 Stated Value)
6-1/2 % Convertible Subordinated Debentures due June 30, 1999
8% Convertible Subordinated Debentures due August 15, 2010
Registrant 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,
and has been subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to item 405 of Regulation S-K is
contained in registrant's definitive Proxy Statement dated March 14, 1994 and
is incorporated by reference in Part III Item 10 herein.
As of March 1, 1994, registrant had outstanding 40,609,408 shares of
common stock, $25/48 stated value ("Common Stock"), which is registrant's only
class of common stock.
The aggregate market value of registrant's Common Stock held by
non-affiliates based on the closing price on March 1, 1994 was
approximately $4.6 billion.
DOCUMENTS INCORPORATED BY REFERENCE
(Specific pages incorporated are identified under the applicable item herein.)
Portions of the registrant's definitive Proxy Statement dated March 14,
1994 (the "Proxy Statement") are incorporated by reference in Part lll of this
Report. Other documents incorporated by reference in this report are listed in
the Exhibit Index.
PART I
Item 1. BUSINESS:
Hercules Incorporated ("Hercules" or the "Company") is a diversified,
worldwide producer of chemicals and related products and solid fuel systems for
aerospace applications. The Company was incorporated in Delaware in 1912.
Industry Segments
Hercules operates, both domestically and throughout the world, in three
industry segments: Chemical Specialties, Food & Functional Products, and
Aerospace. The financial information regarding Hercules' industry segments,
which includes net sales and profit from operations for each of the three years
in the period ended December 31, 1993 and identifiable assets as of December
31, 1993, 1992 and 1991, is provided in Note 24 to the Consolidated Financial
Statements. See also "Summary of Significant Accounting Policies"--
Reclassification.
Information regarding principal products produced and sold by each industry
segment and principal markets served by each segment is presented in the
columns so designated in the segment table presented below. These products are
sold directly to customers from plants and warehouses, as well as being sold in
some cases (particularly in markets outside the United States) to and through
distributors.
BUSINESS UNITS PRINCIPAL PRODUCTS PRIMARY MARKETS
Chemical Specialties
Paper Technology Reactive sizes, rosin size, dispersed Writing and printing paper, tissues and
rosin sizes, wet-strength resins, wax toweling, liquid packaging, kraft paper,
emulsions, defoamers, and retention corrugated and linerboard packaging, and
aids. specialities.
Absorbent & Textile Products Polypropylene nonwoven fiber and poly- Disposable hygiene products, home
propylene textile yarns. furnishings, and automotive.
Resins Rosin resins, hydrocarbon resins, Adhesives for tapes, labels, carpet
peroxides. backing, packaging, and sealants; graphic
arts, particularly inks and toners;
rubber, including plastic compounds for
wire and cable insulation; the construc-
tion industry; and household products.
Food & Functional Products
Aqualon Carboxymethylcellulose, hydroxypropyl- Paints and lacquers, adhesives, paper,
cellulose, ethylcellulose, nitrocellulose, personal care products and cosmetics,
hydroxyethylcellulose, methylcellulose, pharmaceuticals, food and beverages, inks,
and pentaerythritol. oil well drilling, rubber, and smokeless
powder.
Food Gums Food gums and aroma chemicals. Processed meats, jellies and jams, baked
goods, convenience foods, and beverages.
Electronics & Printing Products Photopolymer resins. Printing and publishing.
Aerospace
Aerospace Solid propellant rocket motors, electronics Department of Defense, aerospace, and
equipment, ordnance, and smokeless powders. sport shooting.
Composite Products Carbon fiber, pre-impregnated broad goods, Department of Defense, commercial aircraft
and carbon fiber structures. and aerospace.
In general, except for the Aerospace segment, Hercules does not produce
against a backlog of firm orders; production is geared primarily to the level
of incoming orders and the projections of future demand. Significant
inventories of finished products, work in process and raw materials are
maintained to meet delivery requirements of customers and Hercules' production
schedules. The amount of backlog orders for the Aerospace segment at December
31, 1993 was approximately $857 million (of which approximately 51% will be
recognized during 1994) compared with approximately $1.0 billion at December
31, 1992. The 1993 backlog includes contracts awarded but not yet signed and/or
funded of approximately $300 million.
The businesses of each of the segments are not seasonal to any significant
extent.
Government Contracts
Contracts and subcontracts pursuant to which products are furnished or
services are performed by the Company for the United States Government (the
"Government") are subject to termination by the Government; however, in these
circumstances, an equitable settlement of work performed is negotiated unless
in the unlikely event it is determined to be a termination for default. Addi-
tionally, certain contracts are subject to renegotiation. The dollar amount of
sales to the U.S. Government and other customers under Government contracts,
principally by the Aerospace segment, for 1993, 1992 and 1991 is shown in Note
24 to the Consolidated Financial Statements.
Consistent with the nature of the government contract business Hercules has
been required, in accordance with billing terms of various contracts, to carry
significant amounts of working capital. The dollar amount of unbilled accounts
receivable at December 31, 1993 and December 31, 1992 and the amount to be
collected within one year is provided in Note 1 to the Consolidated Financial
Statements.
Raw Materials and Energy
Raw materials and supplies are purchased from a variety of industry sources,
including agricultural, forestry, mining, petroleum and chemical industries.
The important raw materials for the Chemical Specialties segment are
d-limonene, turpentine, crude tall oil, rosin, pine wood stumps, aromatic and
aliphatic resin formers, ketones, cumene, catalysts, alcohols, pure monomers,
toluene, clay, phenol, adipic acid, epichlorohydrin, fumaric acid, process
oils, stearic acid, diethylenetriamine, phosphorus trichloride, wax, casein,
starch, polypropylene resin, pigments, and antioxidants.
Raw materials important to the Food & Functional Products segment are
acetaldehyde, fatty acids, chemical cotton, woodpulp, ethyl chloride, alcohols,
chlorine, ethylene oxide, propylene oxide, monochloroacetic acid, methyl
chloride, caustic, inorganic acids, fruit and floral extracts, guar splits,
seaweed, water soluble gums, terpenes, and citrus peel.
Key raw materials for the Aerospace segment include rubber, aluminum, steel,
graphite fiber, hydroxyterminatedpolybutadiene, epoxy resins and adhesives,
nitrocellulose, diethylether, x-ray film, plasticizers and nitrate esters,
energetic chemicals, ammonium perchlorate, and polyacrylonitrile fiber.
Major requirements for key raw materials and fuels are typically purchased
pursuant to multi-year contracts. Hercules is not dependent on any one supplier
for a material amount of its raw material or fuel requirements, but certain
important raw materials are obtained from sole-source or a few major suppliers.
While temporary shortages of raw materials and fuels may occur occasionally,
these items are currently readily available. However, their continuing
availability and price are subject to domestic and world market and political
conditions as well as to the direct or indirect effect of United States
Government regulations. The impact of any future raw material and energy
shortages on Hercules' business as a whole or in specific world areas cannot be
accurately predicted. Operations and products may, at times, be adversely
affected by legislation, shortages or international or domestic events.
Competition
Hercules encounters substantial competition in each of its three industry
segments. This competition, from other manufacturers of the same products and
from manufacturers of different products designed for the same uses, is
expected to continue in both the United States and markets outside the United
States. Some of Hercules' competitors, such as companies engaged in petroleum
operations, have more direct access to raw materials, and some have greater
financial resources than Hercules.
The number of Hercules' principal competitors varies from product to
product. It is not practicable to estimate the number of all competitors
because of the large variety of Hercules' products, the markets served and the
world-wide business interests of Hercules. However, the Aerospace segment is
one of a small number of producers of solid rocket propulsion systems, which
are supplied to prime contractors for Government and commercial missile
programs. Competitive factors in the award of government contracts, which could
in themselves enhance the competitive position of the recipient, are technical
performance, quality, reliability, price, depth and capabilities of personnel
and adequacy of facilities.
Patents and Trademarks
Patents covering a variety of products and processes have been issued to
Hercules and its assignors. In addition, Hercules is licensed under certain
other patents covering the products and processes. Taken as a whole, the rights
of Hercules under these patents and licenses, which expire from time to time,
are considered by Hercules to constitute a valuable asset. However, Hercules
does not consider any single patent or license, or any group thereof related to
a specific product or process, to be of material importance to its business as
a whole.
Hercules also has registered trademarks for a number of its products. Some
of the more significant trademarks include: AQUAPEL sizing agent, HERCON
sizing emulsions, KYMENE resin, MAGNAMITE graphite fiber, MERIGRAPH
photopolymer resin, RED DOT smokeless powder, NANOCHEM synthetic resin,
REGALREZ resin, SYCAR resin, HERCULON olefin fiber, RELODER smokeless
powder, SLENDID fat replacer, NATROSOL hydroxyethylcellulose, CULMINAL
methylcellulose, KLUCEL hydroxypropylcellulose, and NATROSOL FPS water-
soluble polymer suspension.
Research and Development
Research and development, which is directed toward the discovery and
development of new products and processes, the improvement and refinement of
existing products and processes and development of new applications for
existing products, is primarily company-sponsored with certain aerospace
development efforts funded by Government agencies. Hercules spent $76,121,000
on research activities during 1993, as compared to $70,208,000 in 1992 and
$86,126,000 in 1991. During the three-year period, research and development
expenditures for each of the Chemical Specialties, Food & Functional Products
and Aerospace segments were between 1.5% and 3% of sales.
Environmental Matters
Hercules believes that it is in compliance in all material respects with
applicable federal, state and local environmental laws and regulations.
Expenditures relating to environmental cleanup costs have not and are not
expected to materially affect capital expenditures or competitive position.
Additional information regarding environmental matters is provided in Notes 15
and 23(c) to the Consolidated Financial Statements.
Employees
As of December 31, 1993, Hercules had 14,083 employees worldwide.
Approximately 12,060 were located in the United States, and of these employees
about 26% were represented by various local or national unions.
International Operations
Information on net sales, profit from operations, identifiable assets by
geographic areas, and the amount of export sales, for each of the last three
years appear in Note 24 to the Consolidated Financial Statements. Hercules'
operations outside the United States are subject to the usual risks and
limitations related to investments in foreign countries, such as fluctuations
in currency values, exchange control regulations, wage and price controls,
employment regulations, effects of foreign investment laws, governmental
instability (including expropriation or confiscation of assets) and other
potentially detrimental domestic and foreign governmental policies affecting
United States companies doing business abroad.
Item 2. PROPERTIES:
The Company's corporate headquarters and major research center are located
in WiImington, Delaware. Information as to Hercules' principal manufacturing
facilities and the industry segment served by each is presented below.
All principal properties are owned by Hercules except for the Company's
corporate headquarters, which is leased to the Company.
The following are Hercules' major worldwide plants:
Aerospace - Clearfield, Utah; Clearwater, Florida; Kenvil, New Jersey;
Magna, Utah; McGregor, Texas; Rocket Center, West Virginia.
Government-Owned Plants Operated by Hercules Aerospace - Radford Army
Ammunition Plant, Radford, Virginia; Sunflower Army Ammunition Plant,
Lawrence, Kansas.
Chemical Specialties - Aberdeen, Scotland; Beringen, Belgium; Brunswick,
Georgia; Burlington, Ontario, Canada; Busnago, Italy; Chicopee,
Massachusetts; Franklin, Virginia; Gibbstown, New Jersey; Hattiesburg,
Mississippi; Iberville, Quebec, Canada; Jefferson, Pennsylvania; Kalamazoo,
Michigan; Lilla Edet, Sweden; Mexico City, Mexico; Middelburg, the
Netherlands; Milwaukee, Wisconsin; Oxford, Georgia; Paulinia, Brazil;
Pendlebury, England; Portland, Oregon; St.-Jean, Quebec, Canada; Sandarne,
Sweden; Savannah, Georgia; Sobernheim, Germany; Sora, Italy; Tampere,
Finland; Traun, Austria; Uruapan, Mexico; Voreppe, France.
Food & Functional Products - Alizay, France; Barneveld, the Netherlands;
Doel, Belgium; Grossenbrode, Germany; Hopewell, Virginia; Kenedy, Texas;
Lille Skensved, Denmark; Louisiana, Missouri; Middletown, Delaware; Parlin,
New Jersey; Sao Paulo, Brazil; Tarragona, Spain; Zwijndrecht, the
Netherlands.
Hercules plants and facilities, which are continually added to and
modernized, are generally considered to be in good condition and adequate for
business operations. From time to time Hercules discontinues operations at, or
disposes of, facilities that have for one reason or another become unsuitable.
Item 3. LEGAL PROCEEDINGS:
For discussion of legal proceedings see Note 23(d) to the Hercules Financial
Statements.
During 1991, Hercules and the New Jersey Department of Environmental
Protection and Energy ("NJDEPE") negotiated concerning a compliance schedule
regarding volatile organic compounds emissions at the Hercules Kenvil, New
Jersey Facility. Hercules received an Administrative Consent Order (the
"Order") in the first quarter of 1993 containing the finalized compliance
schedule and $359,760 in fines associated with noncompliance from the NJDEPE.
Hercules signed the Order and paid the fines in May of 1993 and is in
compliance with the terms of the Order.
In September 1993, Hercules and the U.S. Environmental Protection Agency
(EPA) Region 1 reached an agreement in principle which, when effectuated, will
settle the EPA's claims that Hercules violated its wastewater permit with the
City of Chicopee and the federal pretreatment standards for industrial users
of publicly owned treatment works at its Chicopee, MA facility. Under the
agreement in principle, Hercules would sign a Consent Decree (the "Decree")
requiring supplemental environmental projects (at a cost of approximately
$350,000), compliance with permit limits in the future, and $250,000 in fines.
Hercules expects the Decree will be finalized in the second quarter of 1994.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matter was submitted to a vote of security holders during the fourth
quarter of 1993, through the solicitations of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT:
The name, age and current position of each executive officer (as defined by
Securities and Exchange Commission rules) of the Company as of March 1, 1994,
are listed below. Each of the officers, except for Richard Schwartz and R.
Keith Elliott, has, during the past five years, served in one or more executive
capacities with the Company and/or its affiliates. During such period, Mr.
Schwartz served as President, Rocketdyne Division of Rockwell International
Corporation from 1983 until 1989; and in one or more executive capacities with
Hercules since 1989. Mr. Elliott served with Engelhard Corporation as Vice
President of Finance, Chief Financial Officer and Director from 1985 to 1988
and as Senior Vice President, Chief Financial Officer and Director from 1988 to
1990; and in his present Hercules position since March 1991. There are no
family relationships among executive officers.
Name Age Current Position
Thomas L. Gossage 59 Chairman, President and Chief Executive
Officer
Richard Schwartz 58 Executive Vice President and President,
Hercules Aerospace Company
R. Keith Elliott 52 Senior Vice President and Chief Financial
Officer
Robert J. A. Fraser 44 Senior Vice President, International and
Science Technology
Vincent J. Corbo 50 Group Vice President and President,
Hercules Food & Functional Products
Company
C. Doyle Miller 53 Group Vice President and President,
Hercules Chemical Specialties Company
Thomas G . Tepas 47 Senior Vice President, Administration
Michael B. Keehan 58 Vice President and General Counsel
Thomas A. Ciconte 46 Vice President and Controller
George MacKenzie 44 Vice President and Treasurer
Israel J. Floyd 47 Secretary and Assistant General Counsel
James D. Beach 58 Vice President, Operations Support
G. A. Binninger 45 Vice President, Planning
Herbert K. Pattberg 50 President, Hercules Europe
James R. Rapp 55 Vice President, Investor Relations
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS:
Hercules Incorporated common stock is listed on the New York Stock Exchange
(ticker symbol HPC), The Stock Exchange, London, and the Swiss Stock Exchanges.
It is also traded on the Philadelphia, Midwest, and Pacific Stock Exchanges.
The approximate number of holders of record of common stock ($25/48 stated
value) as of January 31, 1994, was 20,556.
Period High Low
1992
First Quarter . . . . . . . . . . 54-3/8 44-5/8
Second Quarter. . . . . . . . . . 55-1/8 50-1/8
Third Quarter . . . . . . . . . . 57-1/2 51-1/4
Fourth Quarter. . . . . . . . . . 63-3/4 55-5/8
1993
First Quarter . . . . . . . . . . 76-1/2 63-1/4
Second Quarter. . . . . . . . . . 78-3/8 69-3/4
Third Quarter . . . . . . . . . . 91-3/8 76-3/4
Fourth Quarter. . . . . . . . . . 114-7/8 89
On December 31, 1993, the closing price of the common stock was $113-1/2.
The company has paid quarterly cash dividends as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1992 . . . . . $0.56 $0.56 $0.56 $0.56
1993 . . . . . $0.56 $0.56 $0.56 $0.56
Item 6. SELECTED FINANCIAL DATA:
A summary of selected financial data for Hercules for the years and year
ends specified is set forth in the table below.
(Dollars and shares in millions, except per share)
- -----------------------------------------------------------------------------------------------------------------------------------
For the Year 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------------
Net Sales $2,773.4 $2,864.9 $2,928.9 $3,199.9 $3,091.7
Profit (Loss) from Operations 307.6 244.4 187.2 190.1 (121.3)
Income (Loss) Before Extraordinary Item and
Effect of Changes in Accounting Principles 208.4 167.9 94.9 96.0 (96.4)
Net Income (Loss) (33.4) 167.9 94.9 96.0 (81.3)
Dividends 95.0 100.6 105.2 105.0 103.6
Per Share of Common Stock
Earnings (Loss) Before Extraordinary Item and
Effect of Changes in Accounting Principles 4.86 3.69 2.01 2.04 (2.09)
Earnings (Loss) (.77) 3.69 2.01 2.04 (1.76)
Dividends 2.24 2.24 2.24 2.24 2.24
Total Assets 3,162.0 3,227.9 3,466.8 3,699.6 3,653.2
Long Term Debt 316.9 430.8 483.0 601.0 575.7
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
This discussion should be read in connection with the information contained
in the Consolidated Financial Statements and Notes thereto.
In December 1993, Hercules reorganized its business segments to better
reflect its strategic direction. The Hercules Materials Company was disbanded
and units were reassigned as follows: Absorbent & Textile Products to Chemical
Specialties; Electronics & Printing Products to Food & Functional Products;
and Composite Products to Aerospace. Hercules also announced its intent to
divest Packaging Films (a letter of intent for the sale of this business was
signed in January 1994) and Liquid Molding Resins (See Note 21). Pending
divestiture, these units have been assigned to the Corporate organization.
Segment information in the consolidated financial statements and analysis of
results of operations reflect this organization for all years presented.
In the fourth quarter of 1993, Hercules finalized agreements to restructure
the Titan IV solid rocket motor upgrade (SRMU) contract in the Aerospace
business. In conjunction with restructuring the contract, Hercules received
approximately $262 million through December 31, 1993. As discussed below and
in Note 4 to the financial statements, the contract restructuring had
significant effects on cash flow, working capital and results of operations in
1993.
RESULTS OF OPERATIONS
All comparisons within the following discussion are to the previous year,
unless otherwise stated.
Consolidated net sales declined approximately 3% in 1993, mostly in the
Aerospace and Chemical Specialties segments. Food & Functional Products sales
were relatively flat, but marginally up after adjusting for the effects of the
1992 joint venturing of the flavors business (now included in equity in net
income of affiliated companies) and the sale of the fragrance business. Sales
reflected continued cutbacks in defense budgets, weaker European currencies,
and recessionary conditions in Europe. In 1992, net sales remained relatively
stable, after adjusting for the joint venturing and sale discussed earlier.
Profit from operations increased 26%,or $63 million in 1993. Contract
changes and settlements related to the Titan IV SRMU program aggregated
approximately $60 million. Increased gross margins were offset by higher
research and development (R&D) expenses. Selling, general and administrative
(SG&A) expenses were unchanged. Cost savings from previous restructurings and
divestitures, and the continuation of cost management programs were offset by
increased expenses for employee incentive compensation programs (primarily
related to increases in the company's stock price and performance above target
levels). Other operating expenses (Note 15 to the financial statements) were
also unchanged. Lower environmental expenses were offset by higher
restructuring and other charges. 1993 restructuring charges principally
reflect the planned disposition of Liquid Molding Resins and severance costs --
including a planned company-wide reduction in personnel. The 1992
restructuring charges principally reflected severance costs related to
rationalization of worldwide administration and support functions.
Environmental expenses are discussed further below.
In 1992, profit from operations increased by 30%, or $57 million due
principally to cost management programs, resulting in a decrease in SG&A and
R&D expenses of $55 million. In 1991, profit from operations was adversely
affected by a $68 million charge for the failed static test firing of the Titan
IV developmental SRMU. There was no similar charge in 1992. However, other
operating expenses increased by $67 million, principally due to environmental
and restructuring charges.
Chemical Specialties: Net sales declined by 5%, or $47 million in 1993.
Weaker European currencies were a significant factor in the sales decline.
While overall volumes were relatively stable, recessionary conditions in Europe
resulted in pricing pressures. Profit from operations declined by 8%, or $13
million in 1993, primarily due to the decline in revenues. Manufacturing cost
improvements, lower raw material costs and cost savings from the
rationalization of worldwide administration and support functions were largely
offset by asset writeoffs, higher incentive compensation and research and
development expenses.
In 1992, net sales revenues were relatively flat. While paper chemical and
resins revenues increased by 5% on higher volumes and higher resins prices,
absorbent and textile products revenues were adversely affected by the
termination of a carpet fiber supply contract in April 1992. The increase in
profit from operations of 38%, or $45 million was also reflective of lower raw
material prices, consolidation of production facilities, and other
manufacturing improvements.
The outlook for Chemical Specialties in 1994 is favorable in the Americas
while results in Europe will depend on economic conditions there.
Manufacturing cost improvements will continue to be important.
Food & Functional Products: Net sales were relatively flat in 1993. After
adjustments mentioned earlier, net sales were marginally higher. Although
overall volumes increased, particularly in food gums, revenues were adversely
affected by weaker European currencies, partially offset by higher water-
soluble polymer prices. Profit from operations increased by 4%, or $4 million
principally due to higher yield from process improvements and better
utilization of capacity.
In 1992, net sales declined by 8%, or $75 million, principally due to the
joint venturing and sale discussed earlier. After adjusting for the effects of
these transactions, both sales revenues and operating profits increased
marginally. Water-soluble polymer sales benefited from higher volumes, but
food gum volumes and prices were adversely affected by worldwide excess
capacity.
Continued worldwide overcapacity in food gums could adversely affect sales
revenues and profitability in the future.
Aerospace: Net sales declined by 5%, or $43 million in 1993 principally
because of overall defense budget cuts, funding delays, and program
terminations and cancellations. Additionally, the 1992 results were favorably
affected by ordnance replenishment sales resulting from the 1991 Gulf War .
Despite the reduction in sales, profit from operations increased by 102%, or
$52 million as a result of the following: Titan IV SRMU contract modifications
and settlements of $60 million ($28 million favorable effect on net sales);
incentive and award fees (a normal part of successful government contracting)
of $21 million; continued cost management; the phaseout of several loss
programs; and favorable resolution of contractual issues. Offsetting these
favorable effects were increased charges approximating $16 million, principally
related to incentive compensation plans, severance costs, and the 1992
favorable settlement of a cost-allowability issue on Government contracts.
In 1992, sales were relatively flat despite Department of Defense (DoD)
program reductions. Cutbacks in programs such as SRAM, SICBM and Peacekeeper
were offset by new contracts including the Ordnance replenishment sales
discussed above, and new business in the Defense Electronics Systems division.
Profit from operations improved substantially as the 1991 results were
adversely affected by the failed static test firing of the Titan IV
developmental SRMU. Adjusting for the charge, the improvement in 1992 was
driven primarily by aggressive cost-reduction efforts and the settlement of a
cost-allowability issue on Government contracts.
Both declines in new program opportunities and cancellations or stretch-outs
of existing programs are possible in the continued budget reduction environment
of the DoD. In addition, accelerating industry-wide excess capacity is likely
to increase price competition. Although aggressive cost-reduction efforts will
continue to be a focus, the occurrence of these events may adversely affect
Aerospace segment results in the future.
Corporate and other: Net sales were relatively flat during the three-year
period ended December 31, 1993. Operating losses declined by $20 million in
1993, reflecting lower losses in Liquid Molding Resins (before restructuring
charges) and lower environmental expenses. 1993 restructuring charges for
planned asset dispositions did not vary significantly from 1992 charges related
to rationalization of worldwide administration and support functions. The $47
million increase in operating losses in 1992 principally reflects higher
environmental expenses and the 1992 restructuring charges discussed above.
Interest and debt expense decreased by 12% and 24% in 1993 and 1992,
respectively, principally because of reduced levels of debt, partially offset
by lower capitalized interest (resulting from reduced capital spending).
Other income, net decreased by $30 million in 1993. The decline principally
reflects lower net gains on dispositions and lower interest income, offset by
favorable litigation settlements, lower foreign currency losses and 1992
shutdown costs. In 1992, other income, net increased by $24 million,
principally due to higher gains on dispositions, offset by a charge for a legal
settlement, higher foreign currency losses, lower interest income and shutdown
costs.
The provision for income taxes reflects effective tax rates of 34%, 35%,
and 46% in 1993, 1992, and 1991, respectively. The 1993 rate has been
favorably affected by a research and experimentation tax credit of $10 million,
offset by a relatively high tax rate on the sale of Hercules' investment in a
foreign affiliate. Without these unusual items, the 1993 effective tax rate
would have been 36%. The Omnibus Budget Reconciliation Act of 1993, increased
the federal corporate income tax rate from 34% to 35%, effective January 1,
1993. This has been offset by reduced foreign taxes and increased utilization
of foreign tax credits. The 11% reduction in the effective tax rate in 1992
reflects the significant reduction in higher taxed foreign earnings as a
proportion of consolidated income before income taxes. See Note 18 to the
financial statements for further information.
Equity in net income of affiliated companies increased by $11 million in
1993, reflecting improved earnings in Tastemaker, the 50% owned flavors joint
venture formed in early 1992. In 1992, equity income declined by $4 million
due to sales of Hercules' interests in several affiliates in both 1991 and
1992.
Accounting changes: Effective January 1, 1993, three new accounting
standards (FASB Statements 106, 109 and 112) were adopted, resulting in a
noncash charge against net income, aggregating $238 million ($5.55 per share).
Statement 106 would have increased periodic postretirement benefit expense;
however, modifications to benefit plans announced in February 1993 have more
than offset the increase. Hercules will continue to monitor retiree benefit
costs and evaluate coverages and employee participation, considering the costs
involved, its responsibilities to employees and the competitive environment.
See Notes 14 and 18 to the financial statements for additional information.
FINANCIAL CONDITION
Liquidity and financial resources: Net cash flow from operations was $659
million, $305 million and $387 million in 1993, 1992 and 1991, respectively.
The substantial increase in 1993 was due principally to Titan IV SRMU
recoveries of approximately $262 million. Earnings and cash proceeds from
litigation settlements were also favorable. The higher cash flow in 1991
compared with 1992 was principally attributable to net income tax refunds and
higher dividends from affiliated companies. In the three-year period ended
December 31, 1993, the company satisfied its cash requirements for capital
expenditures, other investing activities and dividends, entirely from operating
cash flows.
In addition to internally generated cash, various credit sources are
available to the company. These include short-term lines of credit, of which
$103 million was available at December 31, 1993, and revolving credit
agreements with several banks providing $380 million (all of which was
available at December 31, 1993). In addition, the company has a shelf
registration in the amount of $50 million available, subject to market
conditions.
Working capital has decreased in both 1993 and 1992. The 1993 decrease
largely reflects recoveries of accounts receivable, resulting from the
restructuring of the Titan IV SRMU contract. In addition, water-soluble
polymer inventories were managed downward. The 1992 decrease resulted
primarily from the joint venturing and sale discussed earlier, and inventory
reductions in food gums and water-soluble polymers.
Capital expenditures have declined since 1991 and were $150 million in both
1993 and 1992, and $215 million in 1991. Cash invested in affiliates also
declined during the same period from $41 million in 1991 to $5 million in 1993.
Commitments and Capital Structure: Total capitalization (stockholders'
equity plus total debt) declined from $2.3 billion at December 31, 1992 to
$1.8 billion at December 31, 1993. Accounting changes and stock repurchases
reduced stockholders' equity by $238 million and $341 million, respectively.
In addition, total debt has been reduced by $64 million during 1993. Total
debt as a percentage of total capitalization increased from 24% to 26% as a
result of the reduction in stockholders' equity. At December 31, 1993,
1,739,700 shares of common stock were authorized for repurchase. In February
1994, the Board of Directors authorized the repurchase of an additional
5,500,000 shares of common stock.
Fluctuations in foreign currency exchange rates affect the company's
financial position and results of operations. The company uses several
strategies to actively hedge foreign currency exposure and minimize the effect
of fluctuations in foreign exchange rates on reported earnings (see "Foreign
Currency Translation" and "Financial Instruments and Hedging" in the Summary of
Significant Accounting Policies and Notes 17 and 20 to the financial
statements). There are presently no significant restrictions on the remittance
of funds generated by the company's operations outside the United States.
Hercules has been identified as a potentially responsible party (PRP) by
Federal and State authorities for environmental cleanup at numerous sites. The
estimated range of the reasonably possible costs of remediation is between $69
million and $226 million. 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. Additional details regarding environmental matters are
provided in Note 23 to the financial statements.
Environmental remediation expenses for nonoperating as well as operating
sites have been funded from internal sources of cash. Such expenses are not
expected to have a significant effect on the company's ongoing liquidity.
Environmental cleanup costs, including capital expenditures for ongoing
operations are a normal, recurring part of operations and are not significant
in relation to total operating costs or cash flows.
A quarterly dividend has been paid without interruption since 1913, the
company's first year of operation. The current quarterly dividend of $.56 per
share represents a total payout for the year of $95 million.
During 1993, about 35% of capital expenditures pertained to production
capacity increases, compared with 30% in 1992 and 44% in 1991. Most of the
remainder relates to cost-savings projects, regulatory requirements and
research facilities. Capital expenditures are expected to approximate $165
million during 1994. This amount includes funds for continuation and/or
completion of ongoing projects as well as resins upgrade and modernization at
Jefferson, Pennsylvania; and hydrocarbon resins expansion at Middelburg, the
Netherlands.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
REQUIRED SUPPLEMENTARY DATA
HERCULES INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS Page
Report of Independent Accountants . . . . . . . . . . . . . . 13
Consolidated Statements of Income for the Years
Ended December 31, 1993, 1992, 1991. . . . . . . . . . . 14
Consolidated Balance Sheets as of December 31, 1993
and 1992 . . . . . . . . . . . . . . . . . . . . . . . . 15
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1993, 1992, and 1991. . . . . . . . . 16
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1993, 1992, and 1991. . . . 17
Notes to Consolidated Financial Statements. . . . . . . . . . 18-33
SUPPLEMENTARY DATA
Summary of Quarterly Results (Unaudited). . . . . . . . . . . 34
Subsidiaries of Registrant. . . . . . . . . . . . . . . . . . 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Directors of
Hercules Incorporated
Wilmington, Delaware
We have audited the consolidated financial statements of Hercules
Incorporated and subsidiary companies listed in the index on page 12 of this
Form 10-K. We have also audited the financial statement schedules as listed in
Item 14(a)2 of this Form 10-K. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits 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 our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Hercules
Incorporated and subsidiary companies as of December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flow for each of the
three years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
As discussed in Notes 14 and 18 to the financial statements, in 1993, the
company changed its methods of accounting for postemployment benefits,
postretirement benefits other than pensions, and income taxes.
2400 Eleven Penn Center Coopers & Lybrand
Philadelphia, Pennsylvania 19103
February 18, 1994
Hercules Incorporated
Consolidated Statement of Income (Dollars in thousands, except per share)
Year Ended December 31
-------------------------------------
1993 1992 1991
- -------------------------------------------------------------------------------
Net sales $2,773,404 $2,864,859 $2,928,940
Cost of sales 1,931,015 2,092,210 2,225,286
Selling, general and administrative
expenses 371,725 371,472 410,566
Research and development 76,121 70,208 86,126
Other operating expenses, net (Note 15) 86,912 86,542 19,721
-------------------------------------
Profit from operations 307,631 244,427 187,241
Interest and debt expense (Note 16) 36,159 41,196 54,148
Other income, net (Note 17) 15,606 45,607 21,532
-------------------------------------
Income before income taxes, equity
earnings, extraordinary item and
effect of changes in accounting
principles 287,078 248,838 154,625
Provision for income taxes (Note 18) 96,848 88,324 70,775
-------------------------------------
Income before equity earnings, extra-
ordinary item and effect of changes in
accounting principles 190,230 160,514 83,850
Equity in net income of affiliated
companies 18,190 7,383 11,035
-------------------------------------
Income before extraordinary item and
effect ofchanges in accounting
principles 208,420 167,897 94,885
Extraordinary charge for early retirement
of debt (Note 6) (3,578)
Effect of changes in accounting principles
(Notes 14 & 18) (238,218)
-------------------------------------
Net income (loss) ($33,376) $ 167,897 $ 94,885
=====================================
Earnings (loss) per share (Note 19):
Income before extraordinary item and
effect of changes in accounting
principles $4.86 $3.69 $2.01
Extraordinary charge for early retirement
of debt (Note 6) (0.08)
Effect of changes in accounting principles
(Notes 14 and 18) (5.55)
-------------------------------------
Earnings (loss) per share $ (0.77) $ 3.69 $ 2.01
=====================================
The accompanying accounting policies and notes are an integral part of the
consolidated financial statements.
Hercules Incorporated
Consolidated Balance Sheet (Dollars in thousands)
December 31
-------------------------
1993 1992
Assets
- -------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $154,628 $ 53,552
Accounts receivable, net (Note 1) 575,924 731,340
Total inventories (Note 2) 412,366 447,186
Deferred income taxes (Note 18) 83,605 --
---------------------------
Total Current Assets 1,226,523 1,232,078
Net Property, Plant and Equipment (Note 12) 1,309,335 1,348,346
Total Investments (Note 3) 232,077 278,239
Prepaid pension (Note 13) 229,923 218,134
Deferred charges and other assets 164,103 151,130
---------------------------
Total Assets $3,161,961 $3,227,927
===========================
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------
Current Liabilities
Accounts payable $ 168,026 $ 198,972
Short-term debt (Note 5) 163,901 113,544
Accrued expenses (Note 12) 552,284 444,228
---------------------------
Total Current Liabilities 884,211 756,744
Long-term debt (Note 6) 316,871 430,754
Deferred income taxes (Note 18) 126,203 124,714
Other postretirement benefits (Note 14) 272,955 --
Deferred credits and other liabilities 193,514 169,299
Stockholders' Equity
Series preferred stock (Note 7) -- --
Common stock (Note 8)
(shares issued: 1993, 59,899,295;
1992, 59,164,548) 31,198 30,815
Additional paid-in capital 453,553 386,591
Foreign currency translation adjustment 29,593 35,378
Retained earnings 1,955,005 2,083,343
---------------------------
2,469,349 2,536,127
Reacquired stock, at cost (1993, 19,062,295;
1992, 15,642,799 shares) 1,101,142 789,711
---------------------------
Total Stockholders' Equity 1,368,207 1,746,416
---------------------------
Total Liabilities and Stockholders' Equity $3,161,961 $3,227,927
===========================
The accompanying accounting policies and notes
are an integral part of the consolidated financial statements.
Hercules Incorporated
Consolidated Statement of Cash Flow (Dollars in thousands)
Increase (Decrease) in Cash and Cash Equivalents
Year Ended December 31
-------------------------------------
1993 1992 1991
Cash Flow from Operating Activities:
Net income (loss) $ (33,376) $ 167,897 $ 94,885
Adjustments to reconcile net income to
net cash provided from operations:
Effect of changes in accounting
principles 238,218 -- --
Extraordinary charge for early
retirement of debt 3,578 -- --
Depreciation 169,292 171,752 180,370
Nonoperating gain on disposals (5,505) (87,678) (33,465)
Contract deferrals and provisions 98,257 -- 68,000
Other nonoperating items 48,285 14,129 3,050
Accruals and deferrals of cash receipts
and payments:
Affiliates earnings less than
dividends received 191 2,839 31,084
Accounts receivable 151,987 (35,899) 129,319
Inventories 31,507 28,870 (23,565)
Accounts payable and accrued expenses (29,261) 71,778 (81,445)
Deferred charges 9,697 (28,269) (22,548)
Noncurrent credits and liabilities (23,382) (482) 41,590
- -------------------------------------------------------------------------------
Net Cash Provided from Operations 659,488 304,937 387,275
Cash Flow from Investing Activities:
Capital expenditures (149,466) (150,111) (214,469)
Proceeds of investment and fixed asset
disposals 60,829 114,987 144,148
Payments for businesses acquired, net of
cash acquired (1,137) -- --
Cash invested in unconsolidated affiliates,
net (5,540) (15,644) (41,018)
Other (8,332) (9,049) 7,427
- -------------------------------------------------------------------------------
Net Cash Used for Investing Activities (103,646) (59,817) (103,912)
Cash Flow from Financing Activities:
Long-term debt proceeds 194,588 116,618 69,034
Long-term debt repayments (221,294) (161,542) (189,325)
Change in short-term debt (28,247) (1,961) (82,457)
Common stock issued 16,560 9,381 589
Common stock reacquired (320,488) (230,903) (21,085)
Dividends paid (94,962) (100,561) (105,220)
- -------------------------------------------------------------------------------
Net Cash Used for Financing Activities (453,843) (368,968) (328,464)
Effect of exchange rate changes on cash (923) (1,218) (976)
Net Increase (Decrease) in Cash and Cash
Equivalents 101,076 (125,066) (46,077)
Cash and cash equivalents at beginning
of year 53,552 178,618 224,695
-------------------------------------
Cash and cash equivalents at end of year $ 154,628 $ 53,552 $ 178,618
=====================================
- -------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 38,359 $ 41,840 $ 54,656
Income taxes paid (refunded), net 132,827 61,507 (7,653)
Noncash investing and financing activities:
Conversion of notes and debentures 18,524 18,961 396
Contribution of net assets to joint
venture -- 52,230 --
Incentive plan stock issuances 61,600 8,773 8,514
Accounts payable for common stock
acquisitions 22,046 1,764 1,235
Premium for early retirement of debt 4,144 -- --
- -------------------------------------------------------------------------------
The accompanying accounting policies and notes
are an integral part of the consolidated financial statements.
Hercules Incorporated
Consolidated Statement of Stockholders' Equity (Dollars in thousands)
Common Paid-In Translation Retained Reacquired
Stock Capital Adjustment Earnings Stock
- ----------------------------------------------------------------------------------------------------------------------------------
Balances at January 1, 1991 $30,270 $357,571 $87,496 $2,026,342 $554,242
(Common shares: Issued 58,117,531; reacquired, 11,155,967)
Net Income -- -- -- 94,885 --
Cash dividends, $2.24 per common share -- -- -- (105,220) --
Foreign currency translation adjustment -- -- (7,129) -- --
Purchase of common stock, 494,558 shares -- -- -- -- 21,085
Retirement of reacquired stock, 187,171 shares (98) (9,194) -- -- (9,292)
Issuance of common stock:
Incentive plans, net, 214,416 shares 112 8,991 -- -- --
Conversion of debentures, 11,152 shares 6 390 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1991 30,290 357,758 80,367 2,016,007 566,035
(Common shares: Issued 58,155,928; reacquired, 11,463,354)
Net Income -- -- -- 167,897 --
Cash dividends, $2.24 per common share -- -- -- (100,561) --
Foreign currency translation adjustment -- -- (44,989) -- --
Purchase of common stock, 4,336,450 shares -- -- -- -- 231,433
Retirement of reacquired stock, 157,005 shares (82) (7,675) -- -- (7,757)
Issuance of common stock:
Incentive plans, net, 338,667 shares 176 17,978 -- -- --
Conversion of notes and debentures, 826,958 shares 431 18,530 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1992 30,815 386,591 35,378 2,083,343 789,711
(Common shares: Issued 59,164,548; reacquired, 15,642,799)
Net Loss -- -- -- (33,376) --
Cash dividends, $2.24 per common share -- -- -- (94,962) --
Foreign currency translation adjustment -- -- (5,785) -- --
Purchase of common stock, 3,959,300 shares -- -- -- -- 340,770
Issuance of common stock:
Incentive plans, net, 857,015 shares including
539,804 from reacquired stock 166 48,655 -- -- (29,339)
Conversion of notes and debentures, 417,536 shares 217 18,307 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1993 $31,198 $453,553 $29,593 $1,955,005 $1,101,142
==========================================================
(Common shares: Issued 59,899,295; reacquired, 19,062,295)
The accompanying accounting policies and notes
are an integral part of the consolidated financial statements.
Hercules Incorporated
Summary of Significant Accounting Policies (Dollars in thousands)
Principles of Consolidation
The consolidated financial statements include the accounts of Hercules
Incorporated and all wholly owned subsidiaries.
Majority-owned subsidiaries, which are immaterial, and investments in
affiliated companies owned 20% or more, are accounted for on the equity method
and, accordingly, consolidated net income includes Hercules' share of their net
income.
Long-Term Contracts
Aerospace segment sales are principally under long-term contracts and
include cost-reimbursement and fixed-price contracts. Sales under
cost-reimbursement contracts are recognized as costs are incurred and include a
proportion of the fees expected to be realized equal to the ratio of costs
incurred to date to total estimated costs. Sales under fixed price contracts
are recognized as the actual cost of work performed relates to the estimate at
completion.
Cost or performance incentives, which are incorporated in certain contracts,
are recognized when realization is assured and amounts can be reasonably
estimated. Estimated amounts for contract changes and claims are included in
contract sales only when realization is probable. Assumptions used for
recording sales and earnings are adjusted in the period of change to reflect
revisions in contract value and estimated costs. In the period in which it is
determined that a loss will be incurred on a contract, the entire amount of the
estimated loss is charged to income.
Environmental Expenditures
Environmental expenditures that pertain to current operations or relate to
future revenues are expensed or capitalized consistent with the company's
capitalization policy. Expenditures that result from the remediation of an
existing condition caused by past operations, that do not contribute to current
or future revenues, are expensed. Liabilities are recognized for remedial
activities when the cleanup is probable and the cost can be reasonably
estimated.
Cash and Cash Equivalents
Cash in excess of operating requirements is invested in short-term income
producing instruments. In accordance with company policy, cash equivalents
include commercial paper and other securities with original maturities of 90
days or less. The book value approximates fair value because of the short
maturity of those instruments.
Inventories
Inventories are stated at the lower of cost or market. Domestic inventories
are valued predominantly on the last-in, first-out (LIFO) method. Foreign
inventories and certain domestic inventories, which in the aggregate represent
approximately 49% of total inventories, are valued principally on the average
cost method. Inventoried costs relating to long-term contracts are stated at
actual production cost, including general and administrative costs.
Property and Depreciation
Property, plant and equipment are stated at cost. The company changed to
the straight-line method of depreciation, effective January 1, 1991, for newly
acquired processing facilities and equipment. Assets acquired before the
effective date of the change continue to be depreciated principally by
accelerated methods. The company believes that straight-line depreciation
provides for a better matching of costs and revenues over the lives of the
assets. The effect of the change on 1991 net income was immaterial.
Maintenance, repairs, and minor renewals are charged to income; major
renewals and betterments are capitalized. Upon normal retirement or
replacement, the cost of property (less proceeds of sale or salvage) is charged
to accumulated depreciation.
Income Taxes
Income taxes for 1993 are determined in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, which requires an asset and
liability approach for financial accounting and reporting of income taxes.
Changes in enacted tax rates are reflected in the tax provision as they occur.
A valuation allowance is recorded to reduce deferred tax assets when
realization of a tax benefit is not likely. For years prior to 1993, the
provision for income taxes was determined under Accounting Principles Board
Opinion 11 (APB 11), whereby the income tax provision was calculated under the
deferred method.
The company provides taxes on undistributed earnings of subsidiaries and
affiliates included in consolidated retained earnings to the extent such
earnings are planned to be remitted and not reinvested permanently.
Foreign Currency Translation
With the exception of operations in countries with highly inflationary
economies (Brazil in 1993 and 1992 and Brazil and Mexico in 1991), the
financial statements of Hercules' non-U.S. entities are translated into U.S.
dollars using current rates of exchange, with gains or losses resulting from
translation included in the foreign currency translation adjustment account in
the stockholders' equity section of the balance sheet. The related allocation
for income taxes is not significant. For foreign operations in countries with
highly inflationary economies, financial statements are translated at either
current or historical exchange rates, as appropriate. These currency
adjustments, along with gains and losses on foreign currency transactions
(denominated in currencies other than local currency), are reflected in net
income. The translation loss of the inflationary component of interest income
related to holding marketable securities in highly inflationary economies is
classified as a reduction in interest income.
Financial Instruments and Hedging
Financial instruments are used to hedge risk caused by fluctuating currency
and interest rates. The company enters into forward exchange and foreign
currency option contracts and currency swaps to hedge foreign currency
exposure. Realized and unrealized gains and losses on these contracts are
included in net income, except for gains and losses on contracts to hedge
specific foreign currency commitments, which are deferred and accounted for as
part of the transaction. Gains or losses on contracts used to hedge the value
of investments in certain foreign subsidiaries are included in the foreign
currency translation adjustment account.
In addition, the company uses interest rate swap agreements to manage
interest costs and risks associated with changing interest rates. The
differential to be paid or received is accrued as interest rates change and is
recognized in interest expense over the life of the agreements.
Reclassifications
In December 1993, Hercules reorganized its business segments to better
reflect its strategic direction. The Hercules Materials Company was disbanded
and units within that organization were reassigned as follows: Absorbent &
Textile Products to Chemical Specialties; Electronics & Printing Products to
Food & Functional Products; and Composite Products to Aerospace. Hercules also
announced its intent to divest Packaging Films (a letter of intent for the sale
of this business was signed in January 1994) and Liquid Molding Resins (see
Note 21). Pending divestiture, these units have been assigned to the Corporate
organization. Segment information reflects this organization for all years
presented.
In addition, certain other amounts in the 1992 and 1991 financial statements
and notes have been reclassified to conform with the 1993 presentation.
Hercules Incorporated
Notes to Financial Statements (Dollars in Thousands, except per share)
1. Accounts Receivable, Net
Accounts receivable, net consists of:
1993 1992
------------------
Trade $539,611 $673,921
Other 42,573 64,394
------------------
Total 582,184 738,315
Less allowance for doubtful accounts 6,260 6,975
------------------
$575,924 $731,340
==================
Trade accounts receivable include amounts under long-term contracts and
subcontracts (principally with the U.S. Government or U.S. Government
contractors) of $196,465 at December 31, 1993 and $349,265 at December 31,
1992, net of progress payments of $373,132 and $358,316, respectively.
Included in these amounts are unbilled accounts receivable (work in progress
and claims) of $113,282 and $245,292, respectively, representing recoverable
costs and accrued profits, which will be billed in accordance with contract
terms and delivery schedules. Receivables that will not be collected within
one year are $15,144 at December 31, 1993 and $197,838 at December 31, 1992.
A substantial portion of such receivables at December 31, 1992 relates to
retainages and amounts subject to further negotiations.
Long-term U.S. Government contracts and subcontracts are subject to
termination by the Government; however, in these circumstances, an equitable
settlement of work performed is negotiated unless in the unlikely event it is
determined to be a termination for default. Additionally, certain contracts
are subject to renegotiation.
2. Inventories
The components of inventories are as follows:
1993 1992
------------------
Finished products $199,053 $224,912
Materials, supplies and work in process 213,313 222,274
------------------
$412,366 $447,186
==================
Inventories valued on the LIFO method were lower than if valued under the
average cost method, which approximates current cost, by $35,273 and $45,226 at
December 31, 1993 and 1992, respectively.
3. Investments
Total equity investments in affiliated companies were $142,917 and $174,910
at December 31, 1993 and 1992, respectively. Dividends received from
affiliated companies were $18,381 in 1993, $10,222 in 1992, and $42,119 in
1991.
Other investments, at cost or less, were $89,160 and $103,329, for the
years ended December 31, 1993 and 1992, respectively. Included in these
amounts are noncurrent marketable securities aggregating $52,264 and $54,558
for the corresponding years. The fair value of these investments, based on
market quotes, approximates book values.
4. Contract Deferrals and Provisions
Hercules entered into a Supplemental Agreement with the Titan IV SRMU prime
contractor effective October 15, 1993. Contemporaneously with this agreement,
which calls for contract changes related to production, delivery and launch
schedules, the prime contractor entered into a Supplemental Agreement to its
Titan IV prime contract with the Air Force which was also effective October 15,
1993. As a result, Hercules dismissed its lawsuit against the prime contractor
and received payments of $215 million in November 1993, primarily for amortized
investment in development and tooling costs. Additional agreements between the
parties provide for Hercules to receive payments for settlements of contract
claims aggregating $84 million, of which $47 million was received through
December 31, 1993.
Estimated costs at completion for the Titan IV SRMU program and other
contracts are reviewed quarterly and consider the progress of the contracts,
changes in contract terms and conditions and other contingencies. Year end
deferrals and provisions are considered adequate to complete the contracts and
amounted to $118 million and $27 million at December 31, 1993 and 1992,
respectively. The increase in the deferrals and provisions principally
reflects additional risks relating to the Titan IV SRMU program resulting from
the Supplemental Agreements.
5. Short-Term Debt
A summary of short-term debt follows:
1993 1992
-------------------------
Commercial paper $ -- $ 8,230
Banks 29,566 53,149
Current maturities of long-term debt 134,335 52,165
-------------------------
$163,901 $113,544
=========================
Commercial paper is issued or renewed for varying periods, with interest at
prevailing market rates. Bank borrowings represent primarily foreign overdraft
facilities and short-term lines of credit, which are generally payable on
demand with interest at various rates. Fair values of commercial paper and
bank borrowings approximate market value because of their short maturity
period.
At December 31, 1993, Hercules had $103,380 of unused lines of credit that
may be drawn as needed, with interest at a negotiated spread over lenders' cost
of funds. Lines of credit in use at December 31, 1993, were $25,691.
6. Long-Term Debt
A summary of long-term debt follows:
1993 1992
------------------------
9.875% notes due 1993 $ -- $ 50,000
9.6% notes due 1994 50,000 50,000
Term loans due 1993-1995 (a) 52,166 53,763
8.75% notes due 1996 (b) -- 50,000
6.5% convertible subordinated debentures due 1999 (c) 5,568 6,081
7.85% notes due 2000 25,000 25,000
6.625% notes due 2003 (d) 124,823 --
8% convertible subordinated debentures due 2010 (e) 96,759 114,771
8.5% debentures due 2017 (f) 79,144 75,000
Revolving credit notes (g) -- 45,000
Other 17,746 13,304
------------------------
451,206 482,919
Current maturities of long-term debt (f) (134,335) (52,165)
-------------------------
Net long-term debt (h) $ 316,871 $430,754
=========================
(a) The term loans are with several banks and bear interest at various rates
at an agreed-upon spread over lender's cost of funds.
(b) Notes were redeemed in the first quarter of 1993 at par together with
accrued interest.
(c) The subordinated debentures are convertible into common stock at $35 per
share, and are redeemable at the option of the company at varying rates.
(d) Par value of $125,000, issued June 1993.
(e) The subordinated debentures are convertible into common stock at $44.70
per share and are redeemable at the option of the company at varying rates.
Beginning in 1996, the debentures require an annual sinking fund of $5,000.
(f) In December 1993, the company notified the holders of its intention to
redeem the debentures in January 1994. An extraordinary charge of $3,578 (net
of a tax benefit of $2,288), or $.08 per share, was recorded, principally for
redemption premiums and unamortized issuance costs. "Current maturities of
long-term debt" include these debentures.
(g) The company has entered into a revolving credit and competitive advance
facility agreement with various banks providing for commitments that terminate
in 1994 and 1998. Under the agreement, Hercules may borrow up to a total of
$380,000 (all of which was available at December 31, 1993) at an agreed-upon
spread over London Interbank Offered Rate (LIBOR). This agreement requires the
maintenance of certain financial ratios.
(h) Long-term debt maturities during the next 5 years are $134,335 in 1994,
$55,552 in 1995, $1,281 in 1996, $756 in 1997, and $634 in 1998. The estimated
fair value of the company's long-term debt (including current maturities) at
December 31, 1993 and December 31, 1992 was $619,897 and $547,500,
respectively. Estimates are based on quoted market prices for the same or
similar issues or on the current rates available to the company for debt of the
same remaining maturities. The estimated fair value exceeds book value
primarily because of trading premiums on the convertible subordinated
debentures. These premiums result from the favorable stock price in relation
to the conversion provisions of the debentures.
7. Series Preferred Stock
The series preferred stock is without par value and is issuable in series.
There are 2,000,000 shares authorized for issuance, of which none have been
issued.
8. Common Stock
Hercules common stock has a stated value of $25/48, and 150,000,000 shares
are authorized for issuance. At December 31, 1993, a total of 7,197,982 shares
were reserved for issuance for the following purposes: 293,333 shares for sales
to the Savings Plan Trustee; 2,820,846 shares for the exercise of awards under
the Stock Option Plan; 1,171,994 shares for awards under incentive compensation
plans; 2,323,905 shares for conversion of debentures and notes; and 587,904
shares for employee stock purchases.
Under the company's stock repurchase program started in 1991 through the
year ended December 31, 1993, the Board of Directors had authorized the
repurchase of up to 10,450,000 shares of company common stock, 950,000 shares
of which was intended to satisfy requirements of various employee benefit
programs. During this period, a total of 8,710,300 shares of common stock had
been purchased in the open market at an average price of $67.75 per share. In
February 1994, the Board authorized the repurchase of an additional 5,500,000
shares of company common stock.
9. Preferred Stock Purchase Rights
Each outstanding share of common stock carries one preferred stock purchase
right. The right may be exercised, under certain conditions, to purchase one
one-thousandth of a share of new Series A Junior Participating Preferred Stock
(no par) for $180. The rights are not exercisable or transferable apart from
the common stock until 10 days after a public announcement that a person or
group has acquired 20% or more, or intends to commence a tender offer for 30%
or more of the common stock of Hercules. The rights, which expire on July 13,
1995, do not have voting rights, are subject to adjustment to prevent dilution,
and may be redeemed (under certain conditions) by the company at a price of
$.02 per right at any time prior to an acquisition of 20% or more of the
company's common stock, and, if no change of control of the company's Board of
Directors has occurred, for 10 days thereafter.
In the event that the company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold, each right will entitle its holder to purchase from the
surviving or acquiring corporation, for the exercise price, common stock having
a market value of twice the exercise price of the right. Alternatively, if a
20% holder were to acquire the company by means of a reverse merger in which
the company and its stock survive, or were to engage in certain "self-dealing"
transactions, each right not owned by the 20% holder would become exercisable
for the number of common shares which, at that time, would have a market value
of two times the exercise price of the right.
At December 31, 1993, 150,000 shares of Series A Junior Participating
Preferred Stock were reserved for issuance at certain terms upon the exercise
of the Preferred Stock Purchase Rights. The voting, dividend and liquidation
rights of each one-thousandth of a share are generally equivalent to rights
enjoyed by one share of common stock, subject to certain minimum preferences.
10. Stock-based Incentive Plans
The incentive compensation plans provide for the grant of stock options and
the award of common stock and other market-based units to certain key employees
and nonemployee directors.
Shares of common stock awarded under these plans normally are either
restricted stock (shares subject to restrictions on transfer and subject to
risk of forfeiture until earned by continued employment) or performance shares
(shares subject to the same restrictions and risk of forfeiture, whose ultimate
distribution is contingent on performance as measured against predetermined
objectives over a specified period of time). During the restriction period,
award holders have the rights of stockholders, including the right to vote and
receive cash dividends, except for the right to transfer ownership. Shares are
forfeited and revert to the company as a result of employment termination,
except in the case of death, disability, retirement, or other specified events.
The number of awarded shares outstanding was 954,447, 473,365, and 418,285 at
December 31, 1993, 1992 and 1991, respectively. The cost of stock awards and
other market-based units, which is charged to income over the period during
which the restrictions lapse or over the performance period, amounted to
$36,606, $12,304, and $6,730 during 1993, 1992 and 1991, respectively. At
December 31, 1993, there were 1,171,994 shares of common stock available for
award under the plans.
Under the company's stock option plans, options are granted at the market
price on the date of grant, are exercisable at various periods from one to five
years after date of grant, and expire 10 years after date of grant.
A summary of the status of the company's stock option plans for the three
years ended December 31, 1993, follows:
Shares
-------------------------------
Available
for Grant Outstanding Price Range
January 1, 1991 187,080 812,920 $35.50 - $57.12
Terminated Plan (117,080)
Authorized 1,950,000
Granted (285,400) 285,400 $34.00 - $41.87
Exercised (14,550) $35.50
- -------------------------------------------------------------------------------
December 31, 1991 1,734,600 1,083,770 $34.00 - $57.12
Granted (337,400) 337,400 $49.00 - $55.50
Exercised (233,030) $35.50 - $57.12
Cancelled 1,980 (30,375) $35.50 - $57.12
- -------------------------------------------------------------------------------
December 31, 1992 1,399,180 1,157,765 $34.00 - $57.12
Authorized 600,000
Granted (311,850) 311,850 $68.75 - $111.50
Exercised (334,199) $35.50 - $57.12
Cancelled (1,900) $35.50 - $57.12
- -------------------------------------------------------------------------------
December 31, 1993 1,687,330 1,133,516 $34.00 - $111.50
Options exercisable at December 31, 1993, 1992 and 1991 were 611,626,
820,365, and 798,370, respectively.
11.Employee Stock Purchase Plan
In April 1993, the company approved an Employee Stock Purchase Plan, which
allows eligible employees to acquire shares of common stock through systematic
payroll deductions. The plan consists of three-month subscription periods
starting on July 1, 1993. The purchase price for each share is 85% of the
lower of the fair market value of the common stock on either the first or last
day of that subscription period. Purchases are limited from 2% to 15% of an
employee's base salary each pay period, subject to certain limitations.
Currently, 600,000 shares of Hercules common stock are registered for offer and
sale under the plan. For the year ended December 31, 1993, 12,096 shares were
issued.
12.Additional Balance Sheet Detail
1993 1992
------------------------------
Property, Plant and Equipment
Land $ 33,188 $ 28,683
Buildings and equipment 3,102,072 3,065,198
Construction in progress 135,036 106,973
------------------------------
Total 3,270,296 3,200,854
Accumulated depreciation and amortization 1,960,961 1,852,508
------------------------------
Net Property, Plant and Equipment $1,309,335 $ 1,348,346
==============================
Accrued Expenses
Payroll and employee benefits $ 83,127 $ 86,325
Income taxes payable 86,539 122,506
Contract deferrals and provisions (Note 4) 118,321 26,741
Other 264,297 208,656
------------------------------
Accrued expenses $ 552,284 $ 444,228
==============================
13. Pension Benefits
Hercules and its consolidated subsidiaries maintain various defined benefit
pension plans covering substantially all employees. Benefits for the majority
of plans are based on average final pay and years of service, while benefits
for certain represented locations are based on stated amounts and years of
service. The company's funding policy, consistent with statutory requirements
and tax considerations, is based on actuarial computations utilizing the Entry
Age Normal method of calculation.
Net periodic pension cost includes the following components:
1993 1992 1991
---------------------------------
Service cost (benefits earned
during the year) $ 28,347 $ 26,658 $ 24,712
Interest cost on projected
benefit obligation 94,866 92,012 88,614
Return on plan assets (240,192) (47,695) (239,189)
Plan deferrals and amortization 130,651 (65,803) 129,815
Amortization of transition asset (18,952) (20,135) (20,531)
---------------------------------
Net periodic pension credit $ (5,280) $(14,963) $(16,579)
==================================
The company's pension plans have assets in excess of the accumulated benefit
obligation. Plan assets include equity and fixed income securities and real
estate. The following table presents a reconciliation of the funded status of
the pension plans to prepaid pension expense.
1993 1992
- ------------------------------------------------------------------------------
Plan assets at fair value $1,446,555 $ 1,290,850
- ------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation
(vested, 1993 - $1,128,583; 1992 - $931,930) 1,179,427 968,577
Effect of increase in compensation 175,180 170,276
- ------------------------------------------------------------------------------
Projected benefit obligation 1,354,607 1,138,853
- ------------------------------------------------------------------------------
Plan assets in excess of projected benefit
obligation 91,948 151,997
Unrecognized net loss 206,698 197,854
Unrecognized prior service cost 60,054 15,448
Unrecognized transition asset (128,777) (147,165)
- ------------------------------------------------------------------------------
Prepaid pension expense $ 229,923 $ 218,134
==============================
Significant assumptions used in determining pension obligations and the
related pension expense include a discount rate of 7.25% at December 31, 1993
and 8.25% at December 31, 1992, and an assumed rate of increase in future
compensation of 4.5% and 5.0%, respectively. The expected long-term rate of
return on plan assets was 9.0%.
The changes in assumptions noted above increased the accumulated benefit
obligation and the projected benefit obligation by approximately $130,000 and
$145,000 respectively.
14. Other Postretirement and Postemployment Benefits
Hercules provides certain defined benefit postretirement health care and
life insurance benefits to retired employees. Substantially all employees are
covered and become eligible for these benefits upon satisfying the appropriate
age and service requirements necessary for receipt of these benefits.
Effective January 1, 1993, Hercules adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions." SFAS No. 106 requires the recognition of these
benefit costs on an accrual basis. Prior to January 1, 1993, the costs of
retiree health care and life insurance were expensed as paid. The effect of
adopting this accounting standard has been recognized immediately as the effect
of a change in accounting principle and has resulted in a charge of $187,860
(net of a tax benefit of $115,140) or $4.38 per share against net income. This
represents the accumulated postretirement benefit obligation existing at
January 1, 1993. This amount excludes approximately $60,000 related to
employees of government-owned, contractor-operated plants. Based on opinion of
company counsel, management believes that postretirement benefits for these
employees are the obligation of the United States Government. The new
accounting standard would have increased periodic benefit expenses; however,
modifications to the Hercules benefit plans announced in February 1993 have
more than offset the increase.
The following provides a reconciliation of the accumulated postretirement
benefit obligation (APBO) to the liabilities reflected in the company's balance
sheet at December 31, 1993:
Accumulated postretirement benefit obligation:
Retirees $198,440
Fully eligible employees 8,712
Other employees 34,848
--------
Total accumulated postretirement benefit obligation 242,000
Plan assets at fair value 10,625
--------
APBO in excess of plan assets 231,375
Unrecognized prior service benefit 58,974
Unrecognized gain on plan assets 325
Unrecognized net gain from changes in assumptions 1,703
--------
Accrued postretirement benefit cost 292,377
Amount included in Accrued expenses -- Other (19,422)
--------
Other postretirement benefits $272,955
========
The postretirement plans are contributory. In August 1993, the company
established a Voluntary Employees' Beneficiary Association (VEBA) Trust and
contributed $10,000 to fund postretirement benefits for eligible employees.
Benefits for retirees not eligible under the trust continue to be paid by the
company as incurred. The company will periodically seek reimbursement from the
trust for claims paid by the company that are eligible for reimbursement. The
plan assets are invested primarily in equity funds. The weighted average of
the expected long-term rate of return on plan assets is 9%.
In February 1993, the company announced plans to modify its health care
benefits. The changes provide for increased cost-sharing by current and future
retirees. The plan modifications reduce the accumulated postretirement benefit
obligation by $61,832, which will be amortized over the average remaining
service lives of active employees. In addition, the 1993 net periodic
postretirement benefit cost has been reduced by $8,600. Including the effect
of these changes, components of the net periodic postretirement benefit cost
for 1993 are as follows:
Service cost (benefits attributed to service during the year) $ 2,084
Interest cost on accumulated postretirement benefit obligation 19,873
Plan deferrals and amortization (2,533)
Return on plan assets (625)
--------
Net periodic postretirement benefit cost $ 18,799
========
In 1992 and 1991, the annual costs of these benefits were expensed as paid
and totaled $22,550 and $20,262, respectively.
The weighted-average discount rate used to estimate the December 31, 1993
accumulated postretirement benefit obligation was 7.25%. The assumed health
care cost trend rate used in measuring the accumulated postretirement benefit
obligation at December 31, 1993, was 10%, grading down to 5% in 1998 and
thereafter. The assumed compensation increases for life insurance were based
on graded scales averaging 4.4% for salaried employees and 3.4% for wage
employees.
A one-percentage-point increase in the assumed health care cost trend rate
would have increased the accumulated postretirement benefit obligation as of
December 31, 1993, and the net periodic postretirement benefit cost for 1993 by
$19,500 and $1,800, respectively.
Hercules provides certain disability and workers' compensation benefits,
including medical benefits, to former or inactive employees. Effective January
1, 1993, Hercules adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." This statement requires recognition of these benefit
costs on an accrual basis. Prior to January 1, 1993, disability benefits and
workers' compensation benefits were expensed as claims were reported. The
effect of adopting SFAS No. 112 has been recognized immediately as the effect
of a change in accounting principle and has resulted in a charge of $12,400
(net of a tax benefit of $7,600) or $.29 per share against 1993 net income.
Adoption of this standard did not materially affect 1993 results of operations.
15. Other Operating Expenses, Net
Other operating expenses, net include environmental cleanup costs,
principally for nonoperating sites of $34,744 in 1993, $45,152 in 1992, and
$11,141 in 1991. Net restructuring charges and other writeoffs for each of
the respective years were $52,168, $44,998 and $11,209.
16. Interest and Debt Expense
Interest and debt costs are summarized as follows:
1993 1992 1991
-------------------------------
Costs incurred $41,897 $48,966 $69,270
Amount capitalized 5,738 7,770 15,122
-------------------------------
Amount expensed $36,159 $41,196 $54,148
===============================
17. Other Income, Net
Other income, net consists of the following:
1993 1992 1991
------------------------------
Interest income $ 8,695 $13,414 $19,401
Net gains on dispositions 5,505 87,678 33,465
Gain from litigation settlements 29,036 -- --
Investment writeoffs -- (18,063) --
Miscellaneous expense, net (27,630) (37,422) (31,334)
--------------------------------
$15,606 $45,607 $21,532
================================
Miscellaneous expense, net includes net foreign currency gains (losses) of
$(1,132), $(8,055) and $2,588 in 1993, 1992 and 1991, respectively.
18. Income Taxes
Effective January 1, 1993, Hercules adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." (See
"Income Taxes" under Summary of Significant Accounting Policies.) Deferred tax
balances at January 1 were remeasured in accordance with SFAS No. 109,
resulting in a charge of $37,958, or $.88 per share against net income. The
charge primarily represents the effect of adjusting deferred taxes to reflect
recognition of foreign tax credits on a tax rather than book basis. The effect
of adopting this standard was recognized immediately as the effect of a change
in accounting principle and financial statements for years prior to 1993 were
not restated. Information shown below for those prior years was determined
under the provisions of Accounting Principles Board (APB) Opinion 11.
The domestic and foreign components of income before taxes on income are
presented below.
1993 1992 1991
--------------------------------
Domestic $162,071 $126,457 $10,221
Foreign 125,007 122,381 144,404
--------------------------------
$287,078 $248,838 $154,625
================================
A summary of the components of the tax provision follows:
1993 1992 1991
-------------------------------
Currently payable
U.S. Federal $98,328 $47,613 $(5,643)
Foreign 34,547 37,426 40,738
State 4,880 2,830 478
Deferred
Domestic (38,003) 6,125 27,206
Foreign (2,904) (5,670) 7,996
--------------------------------
Provision for income taxes
(excluding extraordinary item and 96,848 88,324 70,775
effect of accounting changes)
Extraordinary item (2,288) -- --
Effect of accounting changes:
Postretirement benefits (115,140) -- --
Postemployment benefits (7,600) -- --
Income taxes 37,958 -- --
---------------------------------
Total provision $9,778 $88,324 $70,775
=================================
Deferred tax liabilities (assets) at December 31, 1993, consist of:
Depreciation $ 204,173
Prepaid pension 88,202
Inventory 8,557
Other 12,801
---------
Gross deferred tax liabilities 313,733
---------
Postretirement benefits other than pensions (118,706)
Accrued expenses (94,255)
Government contracts (32,745)
Loss carryforwards (17,270)
Foreign tax credit carryforwards (4,306)
Accounts receivable (3,659)
Other (20,493)
---------
Gross deferred tax assets (291,434)
---------
Valuation allowance 20,299
---------
$ 42,598
=========
Included in the SFAS No. 109 adoption at January 1, 1993, were valuation
allowances of $35,629. The decrease in the valuation allowance in 1993 relates
principally to utilization of foreign tax credit carryforwards.
Under the provisions of APB 11, deferred taxes for 1992 and 1991 relate to
the following timing differences between financial and taxable income:
1992 1991
----------------------
Effect of previously established deferred taxes $ -- $23,746
Depreciation 13,021 10,746
Pension expense 9,842 4,420
Government contracts 7,995 (12,553)
Interest 510 627
Environmental expenses (8,864) 2,300
Undistributed earnings (7,665) 2,339
Inventory (1,998) (191)
Severance benefits (4,061) 1,490
Other--net (8,325) 2,278
---------------------
$ 455 $35,202
In the fourth quarter of 1993, based upon clarification of certain tax law
provisions concerning research and experimentation (R&E) credits, the company
recognized an R&E credit of $9.7 million. The tax credit relates to research
and development expenditures incurred on certain government contracts.
Additional amounts of R&E credit may be recorded in future years as
clarifications of the R&E credit provisions continue to occur.
A reconciliation of the U.S. statutory income tax rate to the effective rate
(excluding extraordinary item and effect of changes in accounting principles)
follows:
1993 1992 1991
------------------------------
U.S. statutory income tax rate 35% 34% 34%
R&E tax credit (4) -- --
Reversal of deferred taxes -- -- (18)
Undistributed earnings -- (3) 3
Foreign dividends net of credits 4 7 21
State taxes 2 1 --
Sale of investments -- (1) 5
Difference in foreign tax rates 1 2 5
Valuation allowance (5) -- --
Other 1 (5) (4)
-----------------------------
Effective tax rate 34% 35% 46%
=============================
The undistributed earnings of subsidiaries and affiliates on which no
provision for foreign withholding or U.S. income taxes has been made amounted
to $257,754 at December 31, 1993. U.S. and foreign income taxes that would be
payable if such earnings were distributed may be lower than the amount computed
at the U.S. statutory rate because of the availability of tax credits.
19. Earnings per Share
Primary earnings per share are calculated on the basis of the average number
of common and common equivalent shares, using net income adjusted to reflect
the elimination of interest expense, net of taxes, on the 6.5% convertible
debentures and the adjustable-rate convertible notes. Shares and interest
expense used in the calculation are as follows:
Shares Interest
------------------------------
1993 42,864,896 $ 226
1992 45,640,493 717
1991 48,023,357 1,590
Fully diluted earnings per share, which additionally assumes conversion of
the 8% convertible subordinated debentures, are not materially different from
primary earnings per share or are anti-dilutive. Equivalent shares are
increased by an additional 2,281,012 in 1993, 2,570,444 in 1992 and 2,572,552
in 1991, and net income is further adjusted to eliminate interest expense, net
of taxes, of $5,287 for 1993, $6,066 for 1992, and $6,072 for 1991.
20. Financial Instruments
At December 31, 1993 and 1992, the company had outstanding forward
exchange contracts to purchase foreign currencies aggregating $24,251 and
$29,292 and to sell foreign currencies aggregating $271,869 and $176,125,
respectively. Non-U.S. dollar cross-currency trades aggregated $258,530 and
$82,108, respectively. The forward exchange contracts mature during 1994.
Currency swap agreements outstanding at December 31, 1992 had a U.S. dollar
equivalent face amount of $105,800. No currency swap agreements were
outstanding at December 31, 1993.
In April 1992, the company entered into a three-year amortizing interest
rate swap agreement whereby 5.52% per annum fixed-rate debt has been
effectively converted to floating-rate debt. Beginning in March 1993, the
company entered into another agreement effectively converting floating-rate
debt into debt with a fixed rate of 7.52% per annum. For the years 1993 and
1992, these contracts resulted in reductions in the effective interest rate of
.7% and 2.0% per annum, respectively, on the weighted average notional
principal amounts outstanding. The aggregate notional principal amounts at the
end of the corresponding periods were $150,000 and $200,000, respectively.
These agreements mature through 1996.
Counterparties to the forward exchange, currency swap and interest rate
swap contracts are major financial institutions. Credit loss from counterparty
nonperformance is not anticipated.
The fair value of the company's financial instruments is estimated using
bank or market quotes or discounted cash flows using year-end foreign exchange
and interest rates. The estimated fair values of forward exchange contracts at
December 31, 1993 and 1992 were net assets (liabilities) of ($975) and $400,
respectively, and interest rate swap contracts were ($1,335) and $350 for the
corresponding periods. The fair value of currency swap agreements at December
31, 1992 was $7,160.
21. Pending Divestitures
In December 1993, the company announced its intent to divest its Packaging
Films and Liquid Molding Resins business units. In January 1994, a letter of
intent was signed for the sale of Packaging Films. Net sales for these
business units were $164,229, $170,353 and $169,063 for the years ended
December 31, 1993, 1992 and 1991, respectively. Operating losses were $27,816
(including restructuring charges of $25,000), $11,900 and $21,315 for the
corresponding periods.
22. Joint Venture
In February 1992, Hercules and IMCERA's Mallinckrodt Specialty Chemicals
Company formed a 50-50 joint venture, Tastemaker, to operate as a major
supplier to the flavors industry. Hercules contributed its PFW Flavors and
Citrus Specialties businesses to the joint venture while IMCERA contributed its
flavors unit, Fries & Fries, Inc. Sales and profit from operations of the
businesses contributed by Hercules were $96,552 and $8,854, respectively, in
1991.
23. Commitments and Contingencies
(a) Leases:
Hercules has certain operating leases, including office space and
transportation and data processing equipment, expiring at various dates.
Rental expense relating to these leases was $46,005 in 1993, $48,090 in 1992
and $55,274 in 1991.
At December 31, 1993, minimum rental payments under non-cancelable leases
aggregated $362,179 with subleases of $7,728. A significant portion of the
lease payments relate to a long-term operating lease for corporate office
facilities. The net minimum payments over the next 5 years are $28,659 in
1994, $21,957 in 1995, $15,580 in 1996, $13,927 in 1997, and $17,199 in 1998.
(b) Capital Expenditures:
Capital expenditures are expected to approximate $165,000 in 1994.
(c) Environmental:
Hercules has been identified as a potentially responsible party (PRP) by
Federal and State authorities for environmental cleanup at numerous sites. The
estimated range of the reasonably possible costs of remediation is between
$69,000 and $226,000. 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 brought suit in
late 1992 against its insurance carriers for past and future costs for
remediation of certain environmental sites. Hercules has not included any
insurance recovery in the estimates set forth above.
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. In mid-November, an advisory
jury found Uniroyal Chemical, Ltd. liable for the Jacksonville site, but also
found that Uniroyal had proven a reasonable basis for allocation of
responsibility. That same advisory jury
found that Standard Chlorine of Delaware is not a liable party for the
Jacksonville site. The Court may take the jury's findings into consideration
when reaching its decision regarding these parties.
Other defendants in this litigation have either settled with the
Government or, in the case of the Department of Defense (DoD), have been held
not liable. Hercules intends to appeal the Court's decisions holding it
jointly and severally liable, and the Order finding the DoD not liable. Once
the Court issues its opinion on Uniroyal and Standard Chlorine, appeals on
these issues may also be made.
Hercules' potential costs for remediation of the Jacksonville site are
presently estimated between $28,000 and $136,000. Hercules' potential costs
are based on its assessment of potential liability, the level of participation
by other PRPs and upon current estimates of the costs to remediate the
Jacksonville site. The costs to remediate will vary as Records of Decision are
issued on each operable unit at the site and as remediation methods are
determined and approved by the U.S. Environmental Protection Agency (EPA).
At December 31, 1993, the accrued liability for environmental remediation
represents management's best estimate of the probable and reasonably estimable
costs related to environmental remediation. The measurement of the liability
is evaluated quarterly 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.
(d) 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. Hercules is
also a defendant in a number of suits concerning product liability, contract
disputes, labor-related matters, patent infringement, environmental proceedings
and personal injury matters. Hercules is also a defendant in one Federal
administrative law proceeding. While it is not feasible to predict the outcome
of all pending suits and claims, management does not anticipate that the
ultimate resolution of these matters will have a material adverse effect upon
the consolidated financial position of the company.
24. Operations by Industry Segment and Geographic Area
(Dollars in millions)
In the Operations by Industry Segment and Geographic Area table that
follows, sales to the U.S. Government and other customers under Government
contracts, principally by the Aerospace segment, aggregate $633, $696, and $613
in 1993, 1992, and 1991, respectively. Intersegment sales are eliminated and
are insignificant.
Operating results and other financial data are prepared on an "entity
basis," which means that net sales, profit (loss) from operations and assets of
a legal entity are included in the geographic area where the legal entity is
located. For example, a direct sale from the United States to an unaffiliated
customer in Europe is reported as a U.S. sale. Interarea sales between
Hercules locations are made at transfer prices that approximate market price
and have been eliminated from consolidated net sales. Operating profit for the
individual area does not include the full profitability generated by sales of
Hercules products imported from other geographic areas.
Identifiable assets include net trade accounts receivable, inventories and
net property, plant and equipment.
Consolidated foreign subsidiaries had net assets (including translation
adjustment) of $520 at December 31, 1993, $552 at December 31, 1992, and $596
at December 31, 1991, and net income excluding the extraordinary item and
effect of changes in accounting principles of $95 in 1993, and $91 in both 1992
and 1991.
Direct export sales from the United States to unaffiliated customers were
$256, $260 and $251 for 1993, 1992 and 1991, respectively.
24. Operations by Industry Segment and Geographic Area
(Dollars in millions) continued
Food &
Industry Segments Chemical Functional Corporate &
1993 Specialties Products Aerospace Other Total
- --------------------------------------------------------------------------------------------------------------------------------
Net Sales $976 $867 $754 $176 $2,773
Profit (Loss) from Operations 149 113 105 (59) 308
Identifiable Assets 676 699 664 216 2,255
Capital Expenditures 51 68 23 7 149
Depreciation 54 55 44 16 169
1992 (1)
- --------------------------------------------------------------------------------------------------------------------------------
Net Sales 1,023 865 797 180 2,865
Profit (Loss) from Operations 162 109 52 (79)(2) 244
Identifiable Assets 676 734 835 218 2,463
Capital Expenditures 54 73 17 6 150
Depreciation 51 56 50 15 172
1991 (1)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Sales 1,016 940 795 178 2,929
Profit (Loss) from Operations 117 112 (10) (32) 187
Identifiable Assets 693 877 845 223 2,638
Capital Expenditures 66 97 35 16 214
Depreciation 49 61 56 14 180
Geographic Areas United
1993 States Europe Other Eliminations Total
- ---------------------------------------------------------------------------------------------------------------------------------
Net Sales to Unaffiliated Customers $1,994 $624 $155 $ $2,773
Interarea Sales 87 76 16 (179) --
-----------------------------------------------------------------
Total 2,081 700 171 (179) 2,773
Profit from Operations 193 111 4 308
Identifiable Assets 1,627 546 82 2,255
1992
- ---------------------------------------------------------------------------------------------------------------------------------
Net Sales to Unaffiliated Customers 2,023 680 162 2,865
Interarea Sales 93 65 15 (173) --
-----------------------------------------------------------------
Total 2,116 745 177 (173) 2,865
Profit from Operations 135 96 13 244
Identifiable Assets 1,842 532 89 2,463
1991
- ---------------------------------------------------------------------------------------------------------------------------------
Net Sales to Unaffiliated Customers 2,051 692 186 2,929
Interarea Sales 103 67 16 (186) --
-----------------------------------------------------------------
Total 2,154 759 202 (186) 2,929
Profit from Operations 55 120 12 187
Identifiable Assets 1,893 641 104 2,638
(1) Restated to reflect organizational changes to conform with 1993 presentation. (See Summary of Significant Accounting Policies
and Note 20.)
(2) Includes worldwide rationalization of $23, principally related to administration and support functions that supplied services
to the Chemical Specialties and Food & Functional Products segments.
Summary of Quarterly Results (Unaudited) (Dollars in millions, except per share)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
Operating Results 1993 1992 1993 1992 1993 1992 1993 1992 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
Net Sales $672 $744 $711 $713 $676 $711 $714 $697 $2,773 $2,865
Cost of Sales 478 549 510 519 481 520 462 504 1,931 2,092
SG&A and R&D 110 111 107 107 104 109 126 115 447 442
Other Operating Expenses, Net 36 10 8 11 7 61 36 5 87 87
- ---------------------------------------------------------------------------------------------------------------------------------
Profit from Operations 48 74 86 76 84 21 90 73 308 244
Interest and Debt Expense 10 12 10 11 8 9 8 9 36 41
Other Income (Expense) - Net 28 (8) 4 1 (2) 53 (15) -- 15 46
- ---------------------------------------------------------------------------------------------------------------------------------
Income Before Taxes 66 54 80 66 74 65 67 64 287 249
Income Taxes 25 18 32 24 27 23 13 23 97 88
- ---------------------------------------------------------------------------------------------------------------------------------
Income Before Equity Earnings, Extraordinary Item
and Accounting Changes 41 36 48 42 47 42 54 41 190 161
Equity Earnings 3 1 6 1 5 4 4 1 18 7
- ---------------------------------------------------------------------------------------------------------------------------------
Income Before Extraordinary Item
and Accounting Changes 44 37 54 43 52 46 58 42 208 168
Extraordinary Item - - - - - - (3) - (3) -
Accounting Changes (238) - - - - - - - (238) -
- ---------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $(194) $37 $54 $43 $52 $46 $55 $42 $(33) $168
===================================================================================
Earnings (Loss) Per Share
- -------------------------
Before Extraordinary Item and
Accounting Changes $1.01 $.79 $1.26 $.93 $1.21 $1.02 $1.38 $.95 $4.86 $3.69
Extraordinary Item - - - - - - (.08) - (.08) -
Accounting Changes (5.48) - - - - - - - (5.55) -
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Share $(4.47) $.79 $1.26 $.93 $1.21 $1.02 $1.30 $.95 $(.77) $3.69
====================================================================================
Net Sales by Industry Segment (1)
- ---------------------------------
Chemical Specialties $240 $266 $254 $253 $240 $258 $242 $246 $976 $1,023
Food & Functional Products 215 222 235 216 215 224 202 203 867 865
Aerospace 172 212 175 198 178 182 229 205 754 797
Corporate & Other 45 44 47 46 43 47 41 43 176 180
- ---------------------------------------------------------------------------------------------------------------------------------
Total $672 $744 $711 $713 $676 $711 $714 $697 $2,773 $2,865
====================================================================================
Profit (Loss) from Operations
by Industry Segment (1)
- -----------------------------
Chemical Specialties $36 $42 $42 $38 $41 $40 $30 $42 $149 $162
Food & Functional Products 31 29 35 33 30 28 17 19 113 109
Aerospace 13 10 14 11 15 9 63 22 105 52
Corporate & Other (32) (7) (5) (6) (2) (56) (20) (10) (59) (79)(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Total $48 $74 $86 $76 $84 $21 $90 $73 $308 $244
====================================================================================
(1) Restated to reflect organizational changes to conform with 1993 presentation. (See Summary of Significant Accounting
Policies and Note 20.)
(2) Includes worldwide rationalization of $23, principally related to administration and support functions that supplied
services to the Chemical Specialties and Food & Functional Products segments.
Principal Consolidated, Wholly Owned Subsidiaries (Directly or Indirectly)
AUSTRIA THE NETHERLANDS
Patex Chemie GmbH, Traun Hercules B.V., Rijswijk
THE BAHAMAS SINGAPORE (REPUBLIC OF)
Hercules International Trade Hercules Singapore Pte Ltd., Singapore
Corporation Limited (HINTCO), Nassau
BELGIUM SPAIN
Hercules Belgium N.V., Beringen Ceratonia S.A., Tarragona
S.A. Hercules Europe N.V., Brussels Hercules Aerospace Espana, S.A., Madrid
BERMUDA SWEDEN
Curtis Bay Insurance Co., Ltd., Hercules AB, Goteborg
Hamilton
BRAZIL UNITED STATES
Aqualon do Brasil S.A., Sao Paulo Aqualon Company, Wilmington, Delaware
Hercules do Brasil Produtos Quimicos Hercules Credit, Inc., Wilmington,
Ltda., Sao Paulo Delaware
Hercules Defense Electronics Systems,
CANADA Inc., Clearwater, Florida
Hercules Canada Inc., Missisauga, Hercules Trading Corporation,
Ontario Wilmington, Delaware
Global Environmental Solutions, Inc.,
DENMARK Wilmington, Delaware
Copenhagen Pectin A/S, Lille Skensved
ENGLAND VIRGIN ISLANDS
Hercules Limited, Surrey Hercules Overseas Corporation,
St. Croix
FINLAND
Oy Hercofinn Ab, Helsinki
FRANCE
Aqualon France B.V., Cedex
Hercules S.A., Paris
GERMANY
Hercules GmbH, Dusseldorf
Pomosin GmbH, Grossenbrode
ITALY
Hercules Italia S.p.A., Milan
JAPAN
Hercules Japan Ltd., Tokyo
MEXICO
Quimica Hercules, S.A. de C.V., Mexico, D.F.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
Not Applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
Information regarding directors and nominees for directors of the
Company is included under the caption entitled "Election of Four Directors
(Proxy Item No. 1)" on pages 8 through 11 of the Proxy Statement and is
incorporated herein by reference. Information regarding executive officers is
contained on page 6 of this report.
Disclosure of information for directors, officers, and other persons
not meeting the timely reporting requirements under section 16(a) of the
Exchange Act is contained in the Proxy Statement under the caption entitled
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" on page
7 and is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION:
Information regarding executive compensation of Hercules' directors
and executive officers is included in the Proxy Statement under the caption
entitled "Compensation of Directors" on pages 6 and 7, and the caption entitled
"Executive Compensation" on pages 13 through 21, respectively, and is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
Information regarding beneficial ownership of the Common Stock by
certain beneficial owners and by management of the Company is included under
the caption entitled "Security Ownership of Certain Beneficial Owners" on pages
3 and 4 of the Proxy Statement and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Information regarding certain relationships and related transactions
with management is included under the caption entitled "Certain Relationships
and Related Transactions" on pages 4 and 5 of the Proxy Statement and is
incorporated herein by reference.
PART IV
Item 14. EXHlBlTS, FlNANClAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K:
(a) Documents filed as part of this Report:
1. Financial Statements
These documents are listed in the Index to Consolidated Financial
Statements. See Item 8.
2. Financial Statement Schedules:
The following supplemental schedules are located in this Report
on the pages indicated.
Page
V Property, Plant and Equipment 39
VI Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment 40
IX Short Term Borrowings 41
X Supplementary Income Statement Information 41
All other schedules are omitted because they are not applicable,
not required, or the information required is either presented in
the Notes to Financial Statements or has not changed materially
from that previously reported.
3. Exhibits:
A complete listing of exhibits required is given in the Exhibit
Index which precedes the exhibits filed with this Report.
(b) Reports on Form 8-K.
Hercules was not required to file any reports on Form 8-K for the
quarter ended December 31, 1993.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on March 25, 1994.
HERCULES INCORPORATED
By R. KEITH ELLIOTT
_______________________________________
R. Keith Elliott, Senior Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on March 25, 1994.
Principal Executive Officer and Director:
Chairman, President and THOMAS L. GOSSAGE
Chief Executive Officer ---------------------------------------
Thomas L. Gossage
Principal Financial Officer and Director:
Senior Vice President and R. KEITH ELLIOTT
Chief Financial Officer ----------------------------------------
R. Keith Elliott
Principal Accounting Officer:
Vice President and Controller THOMAS A. CICONTE
----------------------------------------
Thomas A. Ciconte
Directors:
MANFRED CASPARI RALPH L. MACDONALD, JR.
- ------------------------------------- -------------------------------------
Manfred Caspari Ralph L. MacDonald, Jr.
RICHARD M. FAIRBANKS, III H. EUGENE MCBRAYER
- ------------------------------------- -------------------------------------
Richard M. Fairbanks, III H. Eugene McBrayer
EDITH E. HOLIDAY RICHARD SCHWARTZ
- ------------------------------------- -------------------------------------
Edith E. Holiday Richard Schwartz
ROBERT G. JAHN LEE M. THOMAS
- ------------------------------------- -------------------------------------
Robert G. Jahn Lee M. Thomas
GAYNOR N. KELLEY
- -------------------------------------
Gaynor N. Kelley
SCHEDULE V
HERCULES INCORPORATED AND CONSOLIDATED SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
(Thousands of Dollars)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at Additions Other Changes-- Balance
beginning at cost Retirements add (deduct)-- at end
Classification of period (net of transfers) or sales describe of period
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Land $ 28,683 $ 2,633 $ 231 $ 2,103 $ 33,188
Buildings and equipment 2,999,777 113,860 49,240 (30,767) 3,033,630
Transportation equipment 44,709 3,396 3,805 (277) 44,023
Miscellaneous 20,712 1,514 (2,319) (126) 24,419
Construction in progress 106,973 28,063 -- -- 135,036
---------- -------- ------- --------- -----------
$3,200,854 $149,466 $50,957 $(29,067)(b) $3,270,296
========== ======== ======= ========= ==========
Year Ended December 31, 1992
- ----------------------------------------------------------------------------------------------------------------------------------
Land $ 39,433 $ 782 $ 10,088 $ (1,444) $ 28,683
Buildings and equipment 2,840,769 332,311 121,685 (51,618) 2,999,777
Transportation equipment 48,120 2,262 4,513 (1,160) 44,709
Miscellaneous 20,945 1,466 870 (829) 20,712
Construction in progress 293,683 (186,710) 106,973
---------- --------- -------- ---------- ---------
$3,242,950 $150,111 $137,156(a) $(55,051)(b) $3,200,854
========== ========= ======== ========= ==========
Year Ended December 31, 1991
- ----------------------------------------------------------------------------------------------------------------------------------
Land $ 40,879 $ 435 $ 1,762 $ (119) $ 39,433
Buildings and equipment 2,545,243 322,499 30,585 3,612 2,840,769
Transportation equipment 47,851 3,820 3,466 (85) 48,120
Miscellaneous 20,437 3,234 2,727 1 20,945
Construction in progress 409,202 (115,519) 293,683
---------- --------- --------- ---------- ----------
$3,063,612 $214,469 $ 38,540 $ 3,409(b) $3,242,950
========== ========= ========= ========== ==========
(a) Includes transfer of assets to the Flavors Joint Venture of $90,036, transfer of assets to the Sanyo Joint Venture of $1,642,
and sale of Fragrance assets of $6,820 in 1992.
(b) Adjustments resulting from translating foreign assets at current rates of exchange. These amounts were reflected in the
translation adjustment component of stockholders' equity.
In view of the variety of plant and equipment and numerous rates of
depreciation, it is not considered practicable to set forth herein the rates
actually used.
SCHEDULE VI
HERCULES INCORPORATED AND CONSOLIDATED SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
(Thousands of Dollars)
- ----------------------------------------------------------------------------------------------------------------------------------
Additions
Balance at charged to Other Changes-- Balance
beginning costs and Retirements add (deduct)-- at end
Classification of period expenses or sales describe of period
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993
- ---------------------------------------------------------------------------------------------------------------------------------
Buildings and equipment $1,815,723 $164,499 $34,329 $(23,166) $1,922,727
Transportation equipment 25,563 3,185 3,500 (63) 25,185
Miscellaneous 11,222 1,608 (169) 50 13,049
---------- ---------- ---------- ----------- ----------
$1,852,508 $169,292 $37,660 $(23,179)(b) $1,960,961
========== ======== ======= ========= ==========
Year Ended December 31, 1992
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings and equipment $1,731,313 $166,397 $54,230 $(27,757) $1,815,723
Transportation equipment 25,219 3,854 2,060 (1,450) 25,563
Miscellaneous 10,163 1,501 (38) (480) 11,222
---------- ---------- ------- --------- ----------
$1,766,695 $171,752 $56,252(a) $(29,687)(b) $1,852,508
========== ======== ======= ========= ==========
Year Ended December 31, 1991
- ----------------------------------------------------------------------------------------------------------------------------------
Buildings and equipment $1,579,647 $174,127 $23,860 $ 1,399 $1,731,313
Transportation equipment 24,404 4,778 3,917 (46) 25,219
Miscellaneous 9,649 1,465 971 20 10,163
---------- ---------- -------- ------- ----------
$1,613,700 $180,370 $28,748 $ 1,373(b) $1,766,695
========== ======== ======= ======== ==========
(a) Includes transfer of assets to the Flavors Joint Venture of $24,454, transfer of assets to the Sanyo Joint Venture of $1,069,
and the sale of Fragrance assets of $1,708 in 1992.
(b) Adjustments resulting from translating amounts related to foreign assets at current rates of exchange. These amounts were
reflected in the translation adjustment component of stockholders' equity.
SCHEDULE IX
HERCULES INCORPORATED AND CONSOLIDATED SUBSIDIARIES
SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Thousands of Dollars)
Maximum Average Weighted
Category Weighted Amount Amount Average
Aggregate Balance Average Outstanding Outstanding Interest Rate
Short-Term at End of Interest At Any During the During the
Borrowings Year Rate Month-end Year(c) Year(d)
---------- --------- -------- ----------- ----------- -------------
Year Ended December 31, 1993:
Banks(a) $29,566 7.4% $69,257 $43,005 8.7%
Commercial Paper(b) -- -- 80,000 40,501 3.2%
Year Ended December 31, 1992:
Banks(a) $53,149 10.8% $98,638 $45,484 9.4%
Commercial Paper(b) 8,230 4.0% 60,000 31,029 3.8%
Year Ended December 31, 1991
Banks(a) $115,118 9.8% $118,018 $ 57,880 10.9%
Commercial Paper(b) -- -- 157,105 100,131 6.4%
(a) Bank borrowings represent primarily foreign overdraft facilities and short-term lines of credit, which are generally
payable on demand with interest at various rates.
(b) Commercial paper is issued or renewed for various periods, with interest at prevailing market rates.
(c) Banks are average month-end balances, while commercial paper is average daily amount outstanding.
(d) Actual interest costs divided by average debt amounts.
SCHEDULE X
HERCULES INCORPORATED AND CONSOLIDATED SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Thousands of Dollars)
- -------------------------------------------------------------------------------
Charged to costs
Item and expenses
- -------------------------------------------------------------------------------
Year Ended December 31, 1993
- -------------------------------------------------------------------------------
Maintenance and repairs $131,166
========
Year Ended December 31, 1992
- -------------------------------------------------------------------------------
Maintenance and repairs $132,174
========
Year Ended December 31, 1991
- -------------------------------------------------------------------------------
Maintenance and repairs $143,980
========
EXHIBIT INDEX
Number Description Incorporated by Reference to
3-A Restated Certificate of Incorporation of Hercules Incorporated as revised and Exhibit 3-A, Annual Report on Form 10-K,
amended July 6, 1988. filed March 26, 1993.
3-B By-Laws of Hercules Incorporated as revised and amended October 30, 1991. Exhibit 3-B, Annual Report on Form 10-K,
filed March 26, 1993.
4-A Form of Rights Agreement between the Company and Manufacturers Hanover Trust Form 8-A filed July 10, 1987*.
Company, dated as of June 24,1987.
4-B The Company is party to several long-term debt instruments under which in each
case the total amount of securities authorized does not exceed 10% of the total
assets of Hercules. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation
S-K, the Company agrees to furnish a copy of such instruments to the Securities
and Exchange Commission upon request.
10-A Hercules Incorporated Unit Incentive Plan. Appendix A, Notice of Annual Meeting and
Proxy Statement Dated February 10, 1969*.
10-B Hercules Executive Survivor Benefit Plan. Exhibit 10-D, Annual Report on Form
10-K, filed March 27, 1981.
10-C Hercules Incorporated Phantom Stock Plan. Exhibit E, Notice of Annual Meeting and
Proxy Statement Dated February 14, 1986*.
10-D Hercules Incorporated Restricted Stock Plan of 1986. Exhibit B, Notice of Annual Meeting and
Proxy Statement Dated February 14, 1986*.
10-E Hercules Incorporated Stock Option Plan of 1986. Exhibit D, Notice of Annual Meeting and
Proxy Statement Dated February 14, 1986*.
10-F Hercules Incorporated Deferred Compensation Plan. Exhibit 10-I, Annual Report on Form
10-K, filed March 29, 1988.
10-G Hercules Incorporated Long Term Incentive Compensation Plan. Exhibit 4.1, Registration Statement on
Form S-8, filed July 1, 1993.
10-H Hercules Incorporated Annual Management Incentive Compensation Plan. Exhibit 10-H, Annual Report on Form 10-K,
filed March 26, 1993.
10-I Hercules Incorporated 1991 Nonemployee Director Stock Option Plan. Exhibit 4.1, Registration Statement on
Form S-8, filed July 16, 1993.
EXHIBIT INDEX (Cont'd)
Number Description Incorporated by Reference to
10-J Hercules Incorporated Deferred Compensation Plan for Nonemployee Directors. Exhibit 10-J, Annual Report on Form 10-K,
filed March 26, 1993.
10-K Hercules Incorporated Retirement Plan for Nonemployee Directors. Exhibit 10-K, Annual Report on Form 10-K,
filed March 26, 1993.
10-L Hercules Employee Pension Restoration Plan. Exhibit 10-L, Annual Report on Form 10-K,
filed March 26, 1993.
10-M Form of Employment Contract between the Company and certain directors and Exhibit 10-J, Annual Report on Form 10-K,
officers of the Company. filed March 29, 1988*.
10-N Form of Indemnification Agreement between the Company and certain directors Annex II, Notice of Annual Meeting and
and officers of the Company. and Proxy Statement Dated February 19,
1987*.
10-O Employment contract between the Company and R. Keith Elliott entered into Exhibit 10-O, Annual Report on Form 10-K,
April 19, 1991. filed March 26, 1993.
13 1992 Annual Report to Stockholders (such report, except for those portions
thereof which are expressly incorporated by reference in this Annual Report on
Form 10-K, is furnished for the information of the Commission and is not to be
deemed "filed" as part of the Form 10-K or otherwise subject to the liabilities
of Section 18 of the Securities Exchange Act of 1934).
21 Subsidiaries of the Registrant. Page 35 of 1993 Form 10-K. See Part II,
Item 8.
24-A Consent of Independent Accountants.
24-B Consent of Company Counsel.
* Previously filed as indicated and incorporated herein by reference. Exhibits incorporated by reference should be located in
SEC File No. 1-496.
Exhibit 24-A. CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Hercules Incorporated and subsidiary companies on Form S-8 [Registration No.
33-37279 (which includes Registration No. 33-21668), No. 33-14912, No.
33-15052, No. 33-21667, No. 33-47664, No. 33-51178, No. 33-52621, No. 33-66136
and No. 33-65352] and on Form S-3 (Registration No. 33-15104 and No. 33-33768)
of our report dated February 9, 1993 on our audits of the consolidated
financial statements and financial statement schedules of Hercules Incorporated
and subsidiary companies as of December 31, 1993 and 1992, and for each of the
three years in the period ended December 31, 1993, which report is included in
this Annual Report on Form 10-K.
2400 Eleven Penn Center Coopers & Lybrand
Philadelphia, Pennsylvania 19103
March 22, 1993
Exhibit 24-B. CONSENT OF COMPANY COUNSEL
I hereby consent to the reference to Company Counsel in notes 23(c) and
23(d) of Notes to Financial Statements in the Hercules 1993 Annual Report to
Stockholders.
Wilmington, Delaware Michael B. Keehan
March 22, 1993 Vice President and
General Counsel
Hercules Incorporated