<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-3970
HARSCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1483991
(State of incorporation) (I.R.S. Employer Identification No.)
Camp Hill, Pennsylvania 17001-8888
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number (717) 763-7064
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
<TABLE>
<CAPTION>
Title of Each Class Outstanding Shares at September 30, 1999
- ------------------- ----------------------------------------
<S> <C>
Common Stock Par Value $1.25 40,140,720
Preferred Stock Purchase Rights 40,140,720
</TABLE>
-1-
<PAGE> 2
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands, except per share amounts) 1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 209,798 $ 218,330 $ 627,110 $ 649,815
Service sales 214,129 227,328 632,126 653,136
Other 2,071 492 3,289 1,364
----------- ----------- ----------- -----------
TOTAL REVENUES 425,998 446,150 1,262,525 1,304,315
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold 161,318 167,062 490,009 494,914
Cost of services sold 165,718 174,960 488,960 497,765
Selling, general and administrative expenses 49,814 52,606 153,631 158,263
Research and development expenses 1,885 1,764 5,013 4,570
Other expense 1,305 2,026 4,026 2,314
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES 380,040 398,418 1,141,639 1,157,826
----------- ----------- ----------- -----------
INCOME BEFORE INTEREST, INCOME TAXES AND
MINORITY INTEREST
45,958 47,732 120,886 146,489
Interest income 1,222 1,358 3,458 6,783
Interest expense (6,117) (5,589) (19,195) (14,143)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST 41,063 43,501 105,149 139,129
Provision for income taxes 13,731 16,096 36,802 51,478
----------- ----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST 27,332 27,405 68,347 87,651
Minority interest in net income 1,220 1,461 3,613 4,291
----------- ----------- ----------- -----------
NET INCOME $ 26,112 $ 25,944 $ 64,734 $ 83,360
=========== =========== =========== ===========
Average shares of common stock outstanding 40,740 45,782 41,161 46,300
----------- ----------- ----------- -----------
BASIC EARNINGS PER COMMON SHARE $ .64 $ .57 $ 1.57 $ 1.80
=========== =========== =========== ===========
Diluted average shares of common stock outstanding 40,854 46,100 41,299 46,703
----------- ----------- ----------- -----------
DILUTED EARNINGS PER COMMON SHARE $ .64 $ .56 $ 1.57 $ 1.78
=========== =========== =========== ===========
CASH DIVIDENDS DECLARED PER COMMON SHARE $ .225 $ .22 $ .675 $ .66
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE> 3
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
(In thousands) 1999 1998
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 50,002 $ 41,562
Receivables, less allowances for doubtful accounts of
$11,608 in 1999 and $13,602 in 1998 325,217 310,935
Inventories 160,604 175,804
Other current assets 63,421 59,140
----------- -----------
TOTAL CURRENT ASSETS 599,244 587,441
----------- -----------
Property, plant and equipment, at cost 1,452,245 1,438,102
Accumulated depreciation 819,989 811,908
----------- -----------
632,256 626,194
Cost in excess of net assets of companies acquired, net 262,050 273,708
Other assets 136,619 136,238
----------- -----------
TOTAL ASSETS $ 1,630,169 $ 1,623,581
=========== ===========
LIABILITIES
CURRENT LIABILITIES:
Notes payable and current maturities $ 26,433 $ 54,607
Accounts payable 114,787 142,681
Accrued compensation 44,395 43,938
Income taxes 32,429 42,908
Other current liabilities 169,090 190,688
----------- -----------
TOTAL CURRENT LIABILITIES 387,134 474,822
----------- -----------
Long-term debt 442,567 309,131
Deferred income taxes 58,132 55,195
Other liabilities 103,389 99,134
----------- -----------
TOTAL LIABILITIES 991,222 938,282
----------- -----------
SHAREHOLDERS' EQUITY
Common stock and additional paid-in capital 169,936 167,978
Accumulated other comprehensive income (expense) (77,305) (55,045)
Retained earnings 1,139,018 1,101,828
Treasury stock (592,702) (529,462)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 638,947 685,299
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,630,169 $ 1,623,581
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 4
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
(In thousands) 1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 64,734 $ 83,360
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 91,437 86,684
Amortization 9,768 8,702
Deferred income taxes 1,347 12,107
Other, net (928) 6,539
Changes in assets and liabilities, net of acquisitions
and dispositions of businesses:
Accounts receivable (29,030) (44,955)
Inventories 7,916 (30,405)
Accounts payable (15,526) (1,310)
Disbursements related to discontinued defense
business (13,777) (12,923)
Other assets and liabilities (14,905) (17,635)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 101,036 90,164
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (122,402) (108,703)
Purchase of businesses, net of cash acquired (4,296) (123,584)
Maturities of investments available-for-sale -- 40,000
Investments held-to-maturity, net of purchases -- 4,010
Proceeds from sales of businesses 12,224 --
Other investing activities 8,302 (4,038)
--------- ---------
NET CASH (USED) BY INVESTING ACTIVITIES (106,172) (192,315)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net (24,910) 2,320
Current maturities and long term debt:
Additions 168,411 110,894
Reductions (32,747) (36,750)
Cash dividends paid on common stock (27,997) (30,658)
Common stock issued-options 1,490 3,791
Common stock acquired for treasury (68,644) (99,410)
Other financing activities (1,766) (1,365)
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 13,837 (51,178)
--------- ---------
Effect of exchange rate changes on cash (261) (1,136)
--------- ---------
Net increase (decrease) in cash and cash equivalents 8,440 (154,465)
Cash and cash equivalents at beginning of period 41,562 221,565
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 50,002 $ 67,100
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 5
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 26,112 $ 25,944 $ 64,734 $ 83,360
Other comprehensive income (expense):
Foreign currency translation adjustments 6,802 9,668 (22,260) 3,532
Unrealized investment gains, net of deferred income taxes -- -- -- 28
-------- -------- -------- --------
Other comprehensive income (expense) 6,802 9,668 (22,260) 3,560
-------- -------- -------- --------
TOTAL COMPREHENSIVE INCOME $ 32,914 $ 35,612 $ 42,474 $ 86,920
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE> 6
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
REVIEW OF OPERATIONS BY SEGMENT
(Unaudited)
(IN MILLIONS)
<TABLE>
<CAPTION>
MILL GAS AND GENERAL CONSOLIDATED
THREE MONTHS ENDED SEPTEMBER 30, 1999 SERVICES FLUID CONTROL INFRASTRUCTURE CORPORATE TOTALS
- ------------------------------------- -------- ------------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C>
NET SALES TO UNAFFILIATED CUSTOMERS $ 184.3 $ 138.2 $ 101.4 $ -- $ 423.9
-------- -------- -------- ------ --------
INCOME (LOSS) BEFORE INTEREST, INCOME TAXES, AND
MINORITY INTEREST $ 22.2 $ 13.1 $ 11.3 $ (0.6) $ 46.0
INTEREST INCOME 1.1 -- -- -- 1.1
INTEREST EXPENSE (2.7) (0.8) (1.5) (1.1) (6.1)
INCOME TAX (EXPENSE) BENEFIT (7.0) (4.7) (3.5) 1.5 (13.7)
MINORITY INTEREST IN NET (INCOME) LOSS (1.2) -- -- -- (1.2)
-------- -------- -------- ------ --------
SEGMENT NET INCOME (LOSS) $ 12.4 $ 7.6 $ 6.3 $ (0.2) $ 26.1
======== ======== ======== ====== ========
</TABLE>
<TABLE>
<CAPTION>
MILL GAS AND GENERAL CONSOLIDATED
THREE MONTHS ENDED SEPTEMBER 30, 1998* SERVICES FLUID CONTROL INFRASTRUCTURE CORPORATE TOTALS
- -------------------------------------- -------- ------------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers $ 200.5 $ 147.2 $ 98.0 $ -- $ 445.7
-------- -------- -------- ------ --------
Income (loss) before interest, income taxes,
and minority interest $ 27.6 $ 10.6 $ 9.9 $ (0.4) $ 47.7
Interest income 1.0 0.2 0.1 0.1 1.4
Interest expense (2.9) (1.3) (1.3) -- (5.5)
Income tax (expense) benefit (10.3) (3.4) (2.9) 0.5 (16.1)
Minority interest in net (income) loss (1.4) (0.1) -- -- (1.5)
-------- -------- -------- ------ --------
Segment net income $ 14.0 $ 6.0 $ 5.8 $ 0.2 $ 26.0
======== ======== ======== ====== ========
</TABLE>
* The 1998 segment information has been restated in accordance with the
Financial Accounting Standards Board SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information."
Segment information reflects the first quarter 1999 reorganization of the
Patterson-Kelley division. The reorganization resulted in the realignment of
the heat transfer and industrial blending equipment product lines from the
Gas and Fluid Control Segment to the Infrastructure Segment. Sales of these
product lines were $7.6 million and $8.2 million for the third quarter of
1999 and 1998, respectively.
See accompanying notes to consolidated financial statements.
-6-
<PAGE> 7
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
REVIEW OF OPERATIONS BY SEGMENT
(Unaudited)
(IN MILLIONS)
<TABLE>
<CAPTION>
MILL GAS AND GENERAL CONSOLIDATED
NINE MONTHS ENDED SEPTEMBER 30, 1999 SERVICES FLUID CONTROL INFRASTRUCTURE CORPORATE TOTALS
- ------------------------------------ -------- ------------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C>
NET SALES TO UNAFFILIATED CUSTOMERS $ 539.7 $ 411.4 $ 308.1 $ -- $ 1,259.2
-------- -------- -------- ------ ----------
INCOME (LOSS) BEFORE INTEREST, INCOME TAXES, AND
MINORITY INTEREST $ 58.3 $ 31.6 $ 31.4 $ (0.4) $ 120.9
INTEREST INCOME 3.1 0.1 0.1 0.1 3.4
INTEREST EXPENSE (8.4) (3.5) (4.5) (2.8) (19.2)
INCOME TAX (EXPENSE) BENEFIT (17.3) (10.7) (9.8) 1.0 (36.8)
MINORITY INTEREST IN NET (INCOME) LOSS (3.7) .1 -- -- (3.6)
-------- -------- -------- ------ ----------
SEGMENT NET INCOME (LOSS) $ 32.0 $ 17.6 $ 17.2 $ (2.1) $ 64.7
======== ======== ======== ====== ==========
</TABLE>
<TABLE>
<CAPTION>
MILL GAS AND GENERAL CONSOLIDATED
NINE MONTHS ENDED SEPTEMBER 30, 1998* SERVICES FLUID CONTROL INFRASTRUCTURE CORPORATE TOTALS
- ------------------------------------- -------- ------------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers $ 568.0 $ 436.0 $ 299.0 $ -- $ 1,303.0
-------- -------- -------- ------ ----------
Income (loss) before interest, income taxes,
and minority interest $ 79.2 $ 40.1 $ 27.7 $ (0.5) $ 146.5
Interest income 3.4 0.2 0.3 2.9 6.8
Interest expense (7.6) (2.7) (3.8) -- (14.1)
Income tax (expense) benefit (29.9) (14.6) (8.3) 1.3 (51.5)
Minority interest in net income (4.2) (0.1) -- -- (4.3)
-------- -------- -------- ------ ----------
Segment net income $ 40.9 $ 22.9 $ 15.9 $ 3.7 $ 83.4
======== ======== ======== ====== ==========
</TABLE>
* The 1998 segment information has been restated in accordance with the
Financial Accounting Standards Board SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information."
Segment information reflects the first quarter 1999 reorganization of the
Patterson-Kelley division. The reorganization resulted in the realignment of
the heat transfer and industrial blending equipment product lines from the
Gas and Fluid Control Segment to the Infrastructure Segment. Sales of these
product lines were $20.3 million and $22.0 million for the first nine months
of 1999 and 1998, respectively.
See accompanying notes to consolidated financial statements.
-7-
<PAGE> 8
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories
Inventories consist of:
<TABLE>
<CAPTION>
SEPTEMBER 30 December 31
(in thousands) 1999 1998
------------ -----------
<S> <C> <C>
Finished Goods $ 44,025 $ 45,259
Work in process 38,572 36,060
Raw materials and purchased parts 55,073 71,576
Stores and supplies 22,934 22,909
-------- --------
$160,604 $175,804
======== ========
</TABLE>
Commitments and Contingencies
DISCONTINUED DEFENSE BUSINESS - CONTINGENCIES
FEDERAL EXCISE TAX AND OTHER MATTERS RELATED TO THE FIVE-TON TRUCK CONTRACT
In 1995, the Company, the United States Army ("Army"), and the United States
Department of Justice concluded a settlement of Harsco's previously reported
claims against the Army relating to Federal Excise Tax ("FET") arising under a
completed 1986 contract for the sale of five-ton trucks to the Army. On
September 27, 1995, the Army paid the Company $49 million in accordance with the
settlement terms. The Company released the Army from any further liability for
those claims, and the Department of Justice released the Company from a
threatened action for damages and civil penalties based on an investigation
conducted by the Department's Commercial Litigation Branch that had been pending
for several years.
The settlement preserves the rights of the parties to assert claims and defenses
under the Internal Revenue Code, and rights of the Army and the Company to claim
certain amounts that may be owed by either party to reconcile possible
underpayments or overpayments on the truck contract as part of the formal
contract close-out process.
The settlement does not resolve the claim by the Internal Revenue Service
("IRS") that, contrary to the Company's position, certain cargo truck models
sold by the Company should be considered to have gross vehicle weights in excess
of the 33,000 pound threshold under FET law, are not entitled to an exemption
from FET under any other theory, and therefore are taxable. In 1999, the IRS
assessed an increase in FET of $30.4 million plus penalties of $8.7 million and
applicable interest currently estimated to be $43.8 million. In October 1999,
the
-8-
<PAGE> 9
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
Company posted an $80 million bond required as security by the IRS. This
increase in FET takes into account offsetting credits of $9.2 million, based on
a partial allowance of the Company's $28.7 million claim that certain truck
components are exempt from FET. The IRS disallowed in full the Company's
additional claim that it is entitled to the entire $52 million of FET (plus
applicable interest currently estimated by the Company to be $40.4 million) the
Company has paid on the five-ton trucks, on the grounds that such trucks qualify
for the FET exemption applicable to certain vehicles specially designed for the
primary function of off-highway transportation. In the event that the Company
ultimately receives from the IRS a refund of tax (including applicable interest)
with respect to which the Company has already received reimbursement from the
Army, the refund would be allocated between the Company and the Army. The
Company plans to vigorously contest the IRS assessment in Federal District Court
or the U.S. Court of Federal Claims. Although there is risk of an adverse
outcome, both the Company and the Army believe that the cargo trucks are not
taxable. No recognition has been given in the accompanying financial statements
for the Company's claims with the IRS.
The settlement agreement with the Army preserves the Company's right to seek
reimbursement of after-imposed tax from the Army in the event that the cargo
trucks are determined to be taxable, but the agreement limits the reimbursement
to a maximum of $21 million. Additionally, in an earlier contract modification,
the Army accepted responsibility for $3.6 million of the potential tax, bringing
its total potential responsibility up to $24.6 million.
Under the settlement, the Army agreed that if the cargo trucks are determined to
be taxable, the 1993 decision of the Armed Services Board of Contract Appeals
(which ruled that the Company is entitled to a price adjustment to the contract
for reimbursement of FET paid on vehicles that were to be delivered after
October 1, 1988) will apply to the question of the Company's right to
reimbursement from the Army for after-imposed taxes on the cargo trucks. In the
Company's view, application of the 1993 decision will favorably resolve the
principal issues regarding any such future claim by the Company. Therefore, the
Company believes that even if the cargo trucks are ultimately held to be
taxable, the Army would be obligated to reimburse the Company for a majority of
the tax, (but not interest or penalty, if any), resulting in a net maximum
liability for the Company of $5.8 million plus penalties and applicable interest
currently estimated to be $8.7 million and $43.8 million, respectively. The
Company believes it is unlikely that resolution of this matter will have a
material adverse effect on the Company's financial position, however, it could
have a material effect on quarterly or annual results of operations.
OTHER DEFENSE BUSINESS LITIGATION
In 1992, the U.S. Government filed a counterclaim against the Company in a civil
suit alleging violations of the False Claims Act and breach of a contract to
supply M109A2 Self-Propelled Howitzers. The counterclaim was filed in response
to the Company's claim of approximately $5 million against the Government for
costs incurred on this contract relating to the same issue. In May 1997, the
U.S. Court of Federal Claims issued a decision in the first phase of
-9-
<PAGE> 10
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
the case, denying the Company's claim for reimbursement and granting the
Government's counterclaim for breach of contract and penalties under the False
Claims Act. The Government had filed a brief seeking penalties and treble
damages totaling approximately $26 million. In May 1999, the Company reached an
agreement with the U.S. Government to settle the case. Under the settlement
agreement, Harsco paid the U.S. Government $11 million and both parties released
all claims in the case. The settlement payment was charged against an existing
reserve in the second quarter of 1999.
In 1992, the United States Government through its Defense Contract Audit Agency
commenced an audit of certain contracts for sale of tracked vehicles by the
Company to foreign governments, which were financed by the United States
Government through the Defense Security Assistance Agency. The Company
cooperated with the audit and responded to a number of issues raised by the
audit. In September 1994, the Company received a subpoena issued by the
Department of Defense Inspector General seeking various documents relating to
sale contracts between the Company and foreign governments which were funded by
the Defense Security Assistance Agency. The Government subsequently subpoenaed a
number of former employees of the Company's divested defense business to testify
before a grand jury and since October 1998, has issued grand jury subpoenas to
the Company for additional documents. Based on discussions with the Government,
Harsco is the target of this investigation which primarily focuses on whether
the Company made improper certifications to the Defense Security Assistance
Agency. If the Company is unable to settle this matter with the Government, the
Company expects the Government to assert claims against it. It is not known
what the amount of claims, fines or penalties asserted would be or if any such
claims would have a material adverse effect on the Company's financial
position, or results of operations.
CONTINUING OPERATIONS - CONTINGENCIES
ENVIRONMENTAL
The Company is involved in a number of environmental remediation investigations
and clean-ups and, along with other companies, has been identified as a
"potentially responsible party" for certain waste disposal sites. While each of
these matters is subject to various uncertainties, it is probable that the
Company will agree to make payments toward funding certain of these activities
and it is possible that some of these matters will be decided unfavorably to the
Company. The Company has evaluated its potential liability, and its financial
exposure is dependent upon such factors as the continuing evolution of
environmental laws and regulatory requirements, the availability and application
of technology, the allocation of cost among potentially responsible parties, the
years of remedial activity required and the remediation methods selected. The
Consolidated Balance Sheet at September 30, 1999 and December 31, 1998, includes
an accrual of $3.7 million and $4.9 million, respectively, for environmental
matters. The amounts affecting earnings on a pre-tax basis related to
environmental matters totaled $0.2 million of income for the nine months of 1999
and $0.6 million of expense for the nine months of 1998.
-10-
<PAGE> 11
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
The liability for future remediation costs is evaluated on a quarterly basis.
Actual costs to be incurred at identified sites in future periods may vary from
the estimates, given inherent uncertainties in evaluating environmental
exposures. The Company does not expect that any sum it may have to pay in
connection with environmental matters in excess of the amounts recorded or
disclosed above would have a material adverse effect on its financial position
or results of operations.
OTHER
The Company is subject to various other claims, legal proceedings, and
investigations covering a wide range of matters that arose in the ordinary
course of business. In the opinion of management, all such matters are
adequately covered by insurance or by accruals, and if not so covered, are
without merit or are of such kind, or involve such amounts, that would not have
a material adverse effect on the financial position or results of operations of
the Company.
Financial Instruments and Hedging
The Company has subsidiaries principally operating in North America, Latin
America, Europe and Asia-Pacific. These operations are exposed to fluctuations
in related foreign currencies, in the normal course of business. The Company
seeks to reduce exposure to foreign currency fluctuations through the use of
forward exchange contracts. The Company does not hold or issue financial
instruments for trading purposes, and it is the Company's policy to prohibit the
use of derivatives for speculative purposes. The Company has a Foreign Currency
Risk Management Committee that meets periodically to monitor foreign currency
risks.
The Company enters into forward foreign exchange contracts to hedge transactions
of its non-U.S. subsidiaries, for firm commitments to purchase equipment and for
export sales denominated in foreign currencies. These contracts generally are
for 90 to 180 days or less. For those contracts that hedge an identifiable
transaction, gains or losses are deferred and accounted for as part of the
underlying transaction. The cash flows from these contracts are classified
consistent with the cash flows from the transaction being hedged. The Company
also enters into forward exchange contracts for intercompany foreign currency
commitments. These foreign exchange contracts do not qualify as hedges,
therefore, gains and losses are recognized in income based on fair market value.
As of September 30, 1999, the total of all forward exchange contracts amounted
to $19.6 million with an unfavorable mark-to-market fluctuation of $0.2 million.
-11-
<PAGE> 12
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
Reconciliation of Basic and Diluted Shares
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
(Dollars in thousands, except per share) 1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 26,112 $ 25,944 $ 64,734 $ 83,360
=========== =========== =========== ===========
Average shares of common stock
outstanding used to compute
basic earnings per common
share 40,739,944 45,781,560 41,161,387 46,300,410
Additional common shares to be
issued assuming exercise of
stock options, net of shares
assumed reacquired 114,211 318,939 137,823 402,941
----------- ----------- ----------- -----------
Shares used to compute dilutive
effect of stock options 40,854,155 46,100,499 41,299,210 46,703,351
=========== =========== =========== ===========
Basic earnings per common share $ .64 $ .57 $ 1.57 $ 1.80
=========== =========== =========== ===========
Diluted earnings per common share $ .64 $ .56 $ 1.57 $ 1.78
=========== =========== =========== ===========
</TABLE>
New Financial Accounting Standard Issued
In June 1998, the Financial Accounting Standard Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), with
an amended date effective for fiscal years beginning after June 15, 2000. SFAS
133 requires that an entity recognize all derivative instruments as either
assets or liabilities on its balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or Other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction, and, if it is, the type of hedge transaction. The Company
will adopt SFAS 133 by the first quarter of 2001. Due to the Company's limited
use of derivative instruments, SFAS 133 is not expected to have a material
effect on the financial position or results of operations of the Company.
Opinion of Management
Financial information furnished herein, which is unaudited, reflects in the
opinion of management all adjustments (all of which are of a recurring nature)
that are necessary to present a fair statement of the interim period.
-12-
<PAGE> 13
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
The change in the Company's financial position and liquidity is summarized as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31 INCREASE/
(DOLLARS ARE IN MILLIONS) 1999 1998 (DECREASE)
------------ ----------- ---------
<S> <C> <C> <C>
Current Assets $ 599.2 $ 587.4 $ 11.8
Current Liabilities 387.1 474.8 (87.7)
---------- ---------- --------
Working Capital $ 212.1 $ 112.6 $ 99.5
Current Ratio 1.5:1 1.2:1
---------- ----------
Notes Payable and
Current Maturities $ 26.4 $ 54.6 $ (28.2)
Long Term Debt 442.6 309.1 133.5
---------- ---------- --------
Total Debt 469.0 363.7 105.3
Total Equity 638.9 685.3 (46.4)
---------- ---------- --------
Total Capital $ 1,107.9 $ 1,049.0 $ 58.9
Total Debt as a Percent of
Total Capital 42.3% 34.7%
---------- ----------
</TABLE>
The improvement in the Company's working capital position and current ratio
during the first nine months of 1999 was due principally to a reduction in
current liabilities of $87.7 million. The largest reduction within current
liabilities was a $28.2 million decrease in notes payable and current maturities
due principally to refinancing short term notes into long-term debt. The
reduction in current liabilities also included $13.8 million of cash payments
related to the discontinued defense business. In current assets, a $15.2 million
decrease in inventories, principally due to the Company's strategic inventory
reduction initiative, was almost totally offset by an increase in receivables
principally due to the timing of sales.
Long term debt increased principally as a result of capital expenditures and
share repurchases. Capital expenditures (investments) for the first nine months
of 1999 were a record $122.4 million compared with the previous nine month
record of $108.7 million in 1998. Investments were made for new mill services
contracts, new processes, new products, and for productivity improvements. The
Company acquired 2,209,843 shares of its common stock in the first nine months
of 1999 at a cost of $63.3 million. Due to the timing of actual payments for the
purchase of the stock, the cash used in 1999 was $68.6 million. The Company's
capital investments, share repurchases and cash dividends demonstrate the
Company's continued commitment to creating value through strategic investment
and return of capital to shareholders.
-13-
<PAGE> 14
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED Year Ended Year Ended Year Ended
CASH UTILIZATION FOR THE PERIOD: SEPTEMBER 30 December 31 December 31 December 31
1999 1998 1997 1996
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Capital Investments $ 122.4 $ 159.8 $ 143.4 $ 150.3
Strategic Acquisitions 4.3 158.3 8.5 21.1
Share Repurchases 68.6 169.3 113.2 30.7
Cash Dividends 28.0 40.3 39.1 37.9
-------- -------- -------- --------
Total $ 223.3 $ 527.7 $ 304.2 $ 240.0
======== ======== ======== ========
</TABLE>
The Company's debt as a percent of total capital changed as a result of the
increased debt and a decrease in equity capital due to the Company's share
repurchases and $22.3 million of other comprehensive expense resulting from
foreign currency translation adjustments. The foreign currency translation
adjustments are principally due to 1999's 39% decrease in the translated value
of the Brazilian real and a 9% decrease in the translated value of the euro for
the nine months ended September 30, 1999.
FINANCIAL STATISTICS FOR THE NINE MONTHS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
SEPTEMBER 30 SEPTEMBER 30
1999 1998
------------ ------------
<S> <C> <C>
Harsco Stock Price High-Low $34.38 - 23.06 $47.25 - 23.00
Annualized Return on Average Equity 13.4% 14.4%
Annualized Return on Average Assets 10.3% 13.3%
Annualized Return on Average Capital 9.5% 11.7%
</TABLE>
Lower returns on average equity, assets, and capital are due principally to
lower income in the first nine months of 1999 compared with the record income
from continuing operations for the first nine months of 1998. Annualized return
on average equity was positively affected by lower average equity due
principally to share repurchases. Annualized return on average assets was
negatively affected by higher average assets due to capital investments and
purchases of businesses. Annualized return on average capital was negatively
impacted by higher average capital due to increased debt financing. The
Company's book value per share dropped from $16.22 per share at December 31,
1998 to $15.92 at September 30, 1999. This decrease was due principally to
foreign currency translation adjustments and share repurchases.
Operating cash flows were a strong $101.0 million in the first nine months of
1999 compared with $90.2 million in the first nine months of 1998. These amounts
include $13.8 million in
-14-
<PAGE> 15
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
1999 and $12.9 million in 1998 in cash payments for the discontinued defense
business. This increase in cash from operating activities was due principally to
favorable timing of cash payments for inventories and a lower accounts
receivable increase in the first nine months of 1999 than in the comparable
period of 1998. A strategic management initiative in 1999 has focused on a
reduction of these working capital components. Lower earnings in the first nine
months of 1999, accounts payable disbursements, and a lower increase in deferred
income taxes relative to the 1998 comparable period partially offset the
favorable items.
The Company has a U.S. commercial paper borrowing program under which it can
issue up to $400 million of short-term notes in the U.S. commercial paper
market. In addition, the Company has a 3 billion Belgian franc commercial paper
program, equivalent to approximately U.S. $79 million. The Belgian program
provides the capacity to borrow euros to fund the Company's European operations
more efficiently. The Company limits the aggregate commercial paper and
syndicated credit facility borrowings at any one time to a maximum $400 million.
At September 30, 1999, the Company had $250.3 million of commercial paper debt
outstanding under the commercial paper programs.
The Company has available through a syndicate of banks a $400 million
multi-currency five-year revolving credit facility, extending through July 2001.
This facility serves as back-up to the Company's U.S. commercial paper program.
As of September 30, 1999 there were no borrowings outstanding under this
facility.
The Company's outstanding long-term notes are rated A by Standard & Poor's, A by
Fitch IBCA and A-3 by Moody's. The Company's commercial paper is rated A-1 by
Standard & Poor's, F-1 by Fitch IBCA and P-2 by Moody's. These investment-grade
credit ratings have been recently reaffirmed. The Company also has on file with
the Securities and Exchange Commission, a Form S-3 shelf registration for the
possible issuance of up to an additional $200 million of new debt securities,
preferred stock or common stock.
As supported by the above, the Company's financial position and debt capacity
should enable it to meet its current and future requirements. As additional
resources are needed, the Company should be able to obtain funds readily and at
competitive costs. The Company is positioned to continue to invest in strategic
acquisitions, selective high return capital investments, and cash dividends as a
means to enhance shareholder value. The Company recently completed its strategic
initiative of purchasing 20% of the outstanding shares. With the completion of
this program, the Company intends to use future discretionary cash flow for
debt reduction.
-15-
<PAGE> 16
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
THIRD QUARTER OF 1999 COMPARED
WITH THIRD QUARTER OF 1998
<TABLE>
<CAPTION>
$ PERCENT
INCREASE INCREASE
(MILLIONS OF DOLLARS, EXCEPT PER SHARE) 1999 1998 (DECREASE) (DECREASE)
- --------------------------------------- ---- ---- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 426.0 $ 446.2 $ (20.2) (5%)
Net income $ 26.1 $ 25.9 $ 0.2 1%
Basic earnings per common share $ .64 $ .57 $ .07 12%
Diluted earnings per common share $ .64 $ .56 $ .08 14%
</TABLE>
SUMMARY ANALYSIS OF RESULTS
Third quarter revenues for 1999 were $426 million, a 5% decrease from last
year's comparable period. The weakness in the euro currency and the Brazilian
real in the third quarter of 1999 continued to affect the company's performance.
As a result of this, and several other currencies that devalued against the
dollar, translated comparative sales were lowered by approximately $10.6 million
in the third quarter of 1999, with a resulting reduction in net income of $.8
million.
Additionally, on a comparative basis, sales of recently acquired companies were
more than offset by reduced sales as a result of divested businesses. The
quarter's results benefited from a strong non-residential construction market
and improving conditions in the industrial gas industry which offset softness in
the steel industry. Domestic steel volume has been trending upward throughout
1999 with further improvement expected in the fourth quarter. Additionally,
sales backlog of the Gas and Fluid Control Segment has steadily increased
throughout 1999.
Net income at $26.1 million increased 1% from the third quarter of 1998. This
increase is principally due to the decrease in the effective income tax rate
from 37% in 1998 to 35% for the first nine months of 1999.
COMPARATIVE ANALYSIS OF CONSOLIDATED RESULTS
As noted above, revenues for 1999 decreased from last year's comparable period,
with approximately half ($10.6 million) of this reduction related to foreign
exchange translation effects. Adjusted for the effect of foreign currency
translation and divested businesses, net of acquisitions, sales would have
increased approximately 1% from the 1998 comparable period. Reduced volume for
Mill Services also contributed to lower sales. Sales of scaffolding, shoring
-16-
<PAGE> 17
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
and forming services and railway maintenance equipment sales increased while
demand for grating products decreased.
As a result of reduced revenue, cost of services and products sold increased as
a percent of sales compared to 1998's comparable period. Also, due to the
Company's continuing cost reduction, process improvement and reorganization
efforts, selling, general and administrative expenses were below 1998.
Income before income taxes and minority interest was down 6% from the comparable
period in 1998 due to lower results for the Mill Services Segment. Increased
earnings for scaffolding, shoring and forming services, grating products, and
certain product lines of the Gas and Fluid Control segment partially offset this
decrease. Additionally, the earnings of recently acquired companies more than
offset the earnings related to divestitures. Interest income was lower due to a
decreased amount of cash available for investment purposes compared to the third
quarter of 1998. Interest expense was higher than last year's comparable period
as a result of increased borrowings for the funding of capital expenditures and
for the Company's share repurchase program.
The effective income tax rate for the third quarter of 1999 was 33.4% versus
37.0% for 1998. The reduction in the income tax rate is composed of lower
effective income tax rates on certain domestic and international earnings.
The Company's results continued to be adversely affected by the effects of lower
worldwide steel prices and production compared to 1998. These problems
contributed to reduced sales and income in our United States, Asian, and
European operations. For the domestic steel industry, volume has been trending
upward throughout 1999, with further improvement expected in the fourth quarter.
SEGMENT ANALYSIS
<TABLE>
<CAPTION>
Harsco Mill Services Segment $ PERCENT
INCREASE INCREASE
(MILLIONS OF DOLLARS) 1999 1998 (DECREASE) (DECREASE)
- --------------------- ---- ---- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 184.3 $ 200.5 $ (16.2) (8%)
Segment net income 12.4 14.0 (1.6) (11%)
</TABLE>
Sales of the Mill Services Segment were below 1998's third quarter due to the
adverse effects of foreign exchange translation and reduced worldwide steel
prices and production compared to 1998. Fluctuating foreign currency translation
rates, principally the Brazilian real and the euro, reduced sales by $10.2
million from the 1998 comparable period. Also affecting sales,
-17-
<PAGE> 18
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
but to a lesser extent, was the divestiture of a non-core business which
contributed sales of $3.6 million in the third quarter of 1998.
Net income from the Mill Services Segment was below 1998's third quarter. The
decrease reflected the adverse volume effects of reduced worldwide steel prices
and production, particularly in the United States, and the effect of lower
currency translation rates. Partially offsetting the lower earnings was a
favorable settlement on the close-out of a service contract. Additionally, the
Company experienced lower than anticipated expenses to shut down an
international operation resulting in pre-tax income of $.8 million due to a
reserve reversal. This is detailed in the section entitled "Disposal of Impaired
Assets".
Harsco Gas and Fluid Control Segment
<TABLE>
<CAPTION>
$ PERCENT
INCREASE INCREASE
(MILLIONS OF DOLLARS) 1999 1998 (DECREASE) (DECREASE)
- --------------------- ---- ---- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 138.2 $ 147.2 $ (9.0) (6%)
Segment net income 7.6 6.0 1.6 27%
</TABLE>
This segment was adversely affected by the sales of non-core businesses which
more than offset the inclusion of sales from recently acquired companies. Soft
market conditions affecting the industrial gas and oil industries also reduced
sales. However, during 1999, the sales backlog has steadily increased.
Net income increased from the third quarter of 1998. A favorable product mix and
recently acquired companies more than offset the loss of income from divested
non-core businesses.
Harsco Infrastructure Segment
<TABLE>
<CAPTION>
$ PERCENT
INCREASE INCREASE
(MILLIONS OF DOLLARS) 1999 1998 (DECREASE) (DECREASE)
- --------------------- ---- ---- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 101.4 $ 98.0 $ 3.4 3%
Segment net income 6.3 5.8 0.5 9%
</TABLE>
Sales of the Infrastructure Segment were higher than last year's comparable
period due to increased revenues for scaffolding, shoring, and forming services
reflecting continued strong demand in non-residential construction. Railway
maintenance of way equipment sales also increased.
Net income was above 1998's third quarter due principally to higher revenues,
cost reductions, process improvements, as well as reorganization actions.
-18-
<PAGE> 19
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
INDUSTRIAL SERVICES AND ENGINEERED PRODUCTS
In addition to the segment reporting previously presented, the Company is a
diversified industrial services and engineered products company. Total
industrial service sales include mill services, as well as scaffolding, shoring,
and forming services and railway maintenance of way services. Engineered
products include sales of the Reed Minerals unit of the Mill Services Segment,
and product sales of the Infrastructure and the Gas and Fluid Control Segments.
Sales and income for the third quarter of 1999 and 1998 are presented in the
following table:
<TABLE>
<CAPTION>
THIRD QUARTER THIRD QUARTER
(MILLIONS OF DOLLARS) 1999 1998
--------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
SALES
Industrial Services $ 214.1 51% $ 227.4 51%
Engineered Products 209.8 49 218.3 49
-------- --- -------- ---
Total sales $ 423.9 100% $ 445.7 100%
======== === ======== ===
INCOME
Industrial Services $ 23.7 51% $ 26.4 55%
Engineered Products 22.9 49 21.7 45
-------- --- -------- ---
Total segment income before
interest, income taxes, and
minority interest $ 46.6 100% $ 48.1 100%
======== === ======== ===
</TABLE>
-19-
<PAGE> 20
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
FIRST NINE MONTHS OF 1999 COMPARED WITH FIRST NINE MONTHS OF 1998
<TABLE>
<CAPTION>
$ PERCENT
INCREASE INCREASE
(MILLIONS OF DOLLARS, EXCEPT PER SHARE) 1999 1998 (DECREASE) (DECREASE)
---- ---- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 1,262.5 $ 1,304.3 $ (41.8) (3%)
Net income $ 64.7 $ 83.4 $ (18.7) (22%)
Basic earnings per common share $ 1.57 $ 1.80 $ (.23) (13%)
Diluted earnings per common share $ 1.57 $ 1.78 $ (.21) (12%)
</TABLE>
SUMMARY ANALYSIS OF RESULTS
The Company's results for the first nine months of 1999 reflect the adverse
effects of a steel industry affected by overcapacity, reduced prices and weak
demand in certain parts of the world. These problems contributed to lower
production and financial stress at many steel mills. In certain instances
customers in the United States were forced to file for bankruptcy protection.
Additionally, soft market conditions in the industrial gas and oil industries
reduced results from the prior year. Finally, the strong U.S. dollar continued
to adversely impact the foreign exchange effect at operations in many countries
in which the Company has operations. As of September 30, 1999, certain of the
aforementioned unfavorable trends are beginning to dissipate. Improving backlogs
in the Gas and Fluid Control Segment, higher crude oil prices, as well as
increased domestic steel production and capacity utilization rates indicate a
more favorable business climate for the Company.
COMPARATIVE ANALYSIS OF CONSOLIDATED RESULTS
Revenues for the first nine months of 1999 were $1.26 billion, slightly below
last year's comparable period. Revenues decreased despite the inclusion of
acquired companies. The decrease in revenues included the effect of divesting
certain non-core businesses principally in the fourth quarter of 1998. Excluding
the adverse foreign exchange translation effect of the strengthening U.S.
dollar, particularly against the Brazilian real, the euro and the South African
rand, revenues approximated the first nine months of 1998.
-20-
<PAGE> 21
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Costs of services and products sold decreased, principally due to divesting of
certain non-core businesses. Costs of services and products sold decreased at a
smaller rate than the decline in sales due principally to reduced margins
associated with the Mill Services and Gas and Fluid Control Segments. As a
result of divesting certain non-core businesses and the Company's continuing
cost reduction, process improvement, and reorganization efforts, selling,
general and administrative expenses also decreased.
Income before income taxes and minority interest was down 24% from the
comparable period in 1998. Interest income was lower due to a decreased amount
of cash available for investment purposes. Interest expense was higher than last
year's comparable period as a result of increased borrowings for capital
expenditures and for the Company's share repurchase program. The Company's
defense business was sold in the fourth quarter of 1997. This resulted in $344
million of pre-tax cash proceeds. The availability of a substantial portion of
this cash in the first nine months of 1998 resulted in additional interest
income, as well as reduced interest expense compared to the first nine months of
1999.
The effective income tax rate for the first nine months of 1999 was 35% versus
37% for 1998. The reduction in the income tax rate is due principally to lower
effective income tax rates on international earnings.
SEGMENT ANALYSIS
<TABLE>
<CAPTION>
Harsco Mill Services Segment $ PERCENT
(MILLIONS OF DOLLARS) INCREASE INCREASE
1999 1998 (DECREASE) (DECREASE)
---- ---- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 539.7 $ 568.0 $ (28.3) (5%)
Segment net income 32.0 40.9 (8.9) (22%)
</TABLE>
Sales of the Mill Services Segment were below 1998's first nine months. The
inclusion of an acquired company for the full nine months of 1999 was partially
offset by the 1998 divestiture of a non-core business. This decrease also
reflects the unfavorable effects of foreign exchange translation and
overcapacity in the steel industry which has adversely affected worldwide steel
prices and production. This is particularly true in the United States where the
steel industry filed complaints with the government due to alleged unfairly low
priced imports. Lower steel production adversely affected volume and margins at
most steel mills in the United States including many of the Company's customers.
Recently, steel production and capacity utilization in the United States has
trended upwards reflecting the highest levels since the third quarter in 1998.
Net income of the Mill Services Segment was significantly below 1998's first
nine months. The decrease reflected the adverse effects of lower steel
production and prices. Also, interest expense increased from 1998's first nine
months. Results for the first nine months of 1999
-21-
<PAGE> 22
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
include a foreign currency translation gain in Brazil, which partially offset
the adverse effect of the strong U.S. dollar, while in the first nine months of
1998, net foreign currency translation exchange losses were incurred.
Harsco Gas and Fluid Control Segment
<TABLE>
<CAPTION>
$ PERCENT
(MILLIONS OF DOLLARS) INCREASE INCREASE
1999 1998 (DECREASE) (DECREASE)
---- ---- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 411.4 $ 436.0 $ (24.6) (6%)
Segment net income 17.6 22.9 (5.3) (23%)
</TABLE>
Sales of the Gas and Fluid Control Segment decreased from the first nine months
of 1998 despite the inclusion of sales of three acquired companies. The effect
of acquisitions was more than offset by lower sales of process equipment due in
part to divesting two non-core businesses. Additionally, reduced sales of pipe
fittings, and gas control and containment equipment reflected decreased demand
in the industrial gas and oil industries which have recently been favorably
affected by rising crude oil prices.
Net income was below 1998's first nine months principally due to the sales
reduction discussed above. Net income for 1999 was also adversely affected, but
to a lesser extent, by a valuation provision related to the writedown of assets
held for sale.
Harsco Infrastructure Segment
<TABLE>
<CAPTION>
$ PERCENT
(MILLIONS OF DOLLARS) INCREASE INCREASE
1999 1998 (DECREASE) (DECREASE)
---- ---- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 308.1 $ 299.0 $ 9.1 3%
Segment net income 17.2 15.9 1.3 8%
</TABLE>
Sales of the Infrastructure Segment were higher than last year's comparable
period due to increased sales for scaffolding, shoring and forming services, as
well as sales of railway maintenance of way equipment and contract services.
Net income was above 1998's first nine months due principally to improved
margins on sales of grating products. Additionally, increased income was
recorded for scaffolding, shoring and forming services.
INDUSTRIAL SERVICES AND ENGINEERED PRODUCTS
In addition to the segment reporting previously presented, the Company is a
diversified industrial services and engineered products company. Total
industrial services sales, include mill services, as well as scaffolding,
shoring, and forming services and railway maintenance of way services.
Engineered products include sales of the Reed Minerals unit in the Mill Services
Segment, and product sales of the Infrastructure and the Gas and Fluid Control
Segments.
-22-
<PAGE> 23
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Sales and income for the nine months of 1999 and 1998 are presented in the
following table:
<TABLE>
<CAPTION>
(MILLIONS OF DOLLARS) 1999 1998
--------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
SALES
Industrial Services $ 632.1 50% $ 653.2 50%
Engineered Products 627.1 50 649.8 50
---------- --- ---------- ---
Total sales $ 1,259.2 100% $ 1,303.0 100%
========== === ========== ===
INCOME
Industrial Services $ 63.6 52% $ 80.3 55%
Engineered Products 57.7 48 66.7 45
---------- --- ---------- ---
Total segment income before interest, income
taxes, and minority interest $ 121.3 100% $ 147.0 100%
========== === ========== ===
</TABLE>
EMPLOYEE TERMINATION BENEFIT COSTS
Employee termination benefit costs consist principally of severance arrangements
to employees terminated as a result of management reorganization actions. Under
these reorganization actions, the Company and its management have established
and approved specific plans of termination. The affected employees have been
notified prior to recognition of related provisions. Non-cash charges for
employee termination benefit costs are included as adjustments to reconcile net
income to net cash provided by operating activities in the Consolidated
Statement of Cash Flows.
During the first nine months of 1999, $1.3 million of reorganization expense
related to employee termination benefits was incurred primarily in the Mill
Services and Gas and Fluid Control Segments, principally in the United States.
In the first nine months of 1999, 131 employees were included in employee
termination arrangements initiated by the Company and approximately $1.1 million
cash payments were made under such arrangements. The payments are reflected as
uses of operating cash in the Consolidated Statement of Cash Flows. Under these
reorganization actions, 121 employees have been terminated as of September 30,
1999. Approximately $0.2 million of additional cash payments related to the
first nine months of 1999 reorganization actions is expected to be disbursed in
the fourth quarter of 1999.
Also during the first nine months of 1999, $2.5 million of cash payments were
disbursed in connection with the termination of 323 employees that had been
included in employee termination actions initiated, recorded and disclosed in
1998. The cash severance payments in the first nine months occurred principally
in the Mill Services Segment in South Africa.
-23-
<PAGE> 24
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
EMPLOYEE TERMINATION BENEFITS COSTS AND PAYMENTS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
Activity Summary of Total
Third Quarter Activity as of Reorganization
1999 September 30, 1999 Actions in
---------------- ------------------- --------------
Original reorganization action period: 1998 1999 1998 1999 1998 - 1999
---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Employee termination benefits expense: N/A $ 0.1 (1)$ 6.5 $ 1.3 $ 7.8
===== ----- ----- -----
Payments:
Disbursed in 1998: N/A N/A (2) (2.4) N/A (2.4)
Disbursed in 1999: (3) (0.2) (0.3) (2.5) (1.1) (3.6)
----- ----- ----- ----- -----
Total payments: $(0.2) $(0.3) (4.9) (1.1) (6.0)
===== =====
Other: 0.1 - 0.1
----- ----- -----
Remaining payments: (4) $ 1.7 $ 0.2 $ 1.9
===== ===== =====
</TABLE>
N/A - Not Applicable
(1) - This expense was recorded and disclosed in 1998.
(2) - Disbursements recorded in 1998.
(3) - Disbursements in 1999 are categorized according to the original
reorganization action period to which they relate (1998 or 1999).
(4) - Remaining payments are categorized according to the original
reorganization action period to which they relate (1998 or 1999).
EMPLOYEE TERMINATIONS - NUMBER OF EMPLOYEES
<TABLE>
<CAPTION>
Activity Summary of Total
Third Quarter Activity as of Reorganization
1999 September 30, 1999 Actions in
---- ------------------ --------------
Original reorganization action period: 1998 1999 1998 1999 1998 - 1999
---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Employees affected by new reorganization
actions: N/A 9 670 131 801
=== --- ---- ----
Employee terminations:
- ---------------------
Terminated in 1998: N/A N/A (349) N/A (349)
Terminated in 1999: (13) (11) (323) (121) (444)
--- --- ---- ---- ----
Total terminations: (13) (11) (672) (121) (793)
=== ===
Other: 52 - 52
--- ---- ----
Remaining terminations: 50 10 60
=== ==== ====
</TABLE>
N/A - Not Applicable
-24-
<PAGE> 25
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
DISPOSAL OF IMPAIRED ASSETS
In the fourth quarter of 1998, due to significant adverse changes in the
international economic environment and the steel industry, a reserve was
established to write down certain assets in the Mill Services Segment by $6.1
million to their estimated fair values. In the third quarter of 1999, those
assets were disposed, with $5.3 million being charged to the reserve and the
remaining $.8 million being included in third quarter income before taxes.
ECONOMIC ENVIRONMENT
The Company has currency exposures for its international operations which may be
subject to volatility, such as the 1999 foreign exchange fluctuations
experienced in Brazil. Such exposures may result in reduced or increased sales,
income, other comprehensive income and cash flows.
Beginning in 1998 the world-wide steel industry experienced selling price
reductions and production curtailments at many steel producers, particularly in
the United States. The United States steel industry has been unfavorably
affected by imports of low-priced foreign steel. Additionally, certain steel
producers have been forced to file for bankruptcy protection. There is a risk
that the Company's future results of operations or financial condition may be
adversely affected if the steel industry's problems continue. Our Mill Services
Segment provides services at steel mills throughout the world. The future
financial impact on the Company associated with these risks cannot be estimated.
YEAR 2000 READINESS
Year 2000 Statements contained herein about Harsco products and services are
Year 2000 Readiness Disclosures, pursuant to the Year 2000 Information and
Readiness Disclosure Act, 15 U.S.C. 1-note.
The Year 2000 problem can be traced to the early days of computers, when memory
and data storage were very expensive. To conserve these limited resources,
computer programmers decided to use just two digits in date fields to identify a
calendar year. For example, 1999 would be identified as "99." The assumption is
that the date is within the 1900s. In the year 2000 this assumption will be
invalid and some systems will not properly recognize dates. On January 1, 2000,
many computer programs in mainframe, microcomputer, client/server, personal
computer, and embedded systems may recognize the year "00" as 1900 rather than
2000. Because many computer functions are date-sensitive, this error may cause
systems to process data inaccurately or shut down if they do not recognize the
date. If not corrected, many computer applications could fail or create
erroneous results as of or prior to the year 2000. Errors may occur in
chronological sorting, in date comparisons, duration calculations, and other
time and date-sensitive processing.
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<PAGE> 26
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
The Company has taken steps to ensure that its operations will not be adversely
impacted by potential Year 2000 computer failures. The Year 2000 readiness
project is overseen by the senior management of the Company with regular
progress reports made to the Board of Directors. Year 2000 readiness teams have
been working at various levels within the Company, as well as coordinating tasks
common to the total Company. The Year 2000 readiness process has included the
following phases for mission critical areas: awareness, assessment,
prioritization, remediation or replacement, testing, and contingency planning.
New Acquisition
On October 15, 1999, the Company acquired the Pandrol Jackson railway track
maintenance business (the business) from U.K. based Charter plc for total
consideration of approximately $65 million. The Company has performed a
preliminary assessment and prioritization of remaining Year 2000 readiness tasks
for the business. It has been determined that certain information technology and
non-information technology equipment requires replacement. Additionally, the
Year 2000 status of certain third parties and the business' products must be
assessed. It is estimated that critical Year 2000 tasks will be completed by
December 31, 1999. Estimated costs to complete Year 2000 readiness are $150,000.
Due to the timing of the acquisition, the Year 2000 statistics presented below,
except estimated costs, exclude its effect. The Company believes that inclusion
of Year 2000 readiness statistics related to the business, would not have a
material effect on the Company's disclosed Year 2000 readiness status
statistics.
Information Technology
As of September 30, 1999, the Company is substantially complete in its Year 2000
readiness process related to information technology. The Company has modified,
upgraded, or replaced portions of its hardware and software so that its computer
applications will properly utilize dates beyond December 31, 1999. The majority
of the software which was not Year 2000 ready has been updated through normal
software upgrades and replacements. Most replacement hardware and software has
been purchased from vendors who have asserted that their software is Year 2000
ready. As additional assurance, our process has included an overall Year 2000
readiness assessment of critical business partners including information
technology vendors.
Non-Information Technology Systems
Included within the scope of our Year 2000 readiness plan are non-information
technology systems including office, operating, and production equipment with
embedded chips. Our assessment process generally has included inventorying such
equipment and making a determination, principally through supplier inquiry, as
to the Year 2000 readiness status of critical items. As of September 30, 1999,
the Company is substantially complete in its Year 2000 readiness process related
to non-information technology systems. Our process has included the testing,
where possible, of date-sensitive mission critical embedded chips. No required
Year 2000 modifications or replacements of a material nature have been required.
-26-
<PAGE> 27
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Third Parties
The Company is also engaged in communications with its significant business
partners, suppliers, and major customers to determine the extent to which the
Company is vulnerable to such third parties' failure to address their own Year
2000 issues. The Company's assessment is based on information available from
such third parties. The Company is also seeking assurances from the third
parties that their computer applications will not fail due to Year 2000
problems. The third party assessment process is substantially complete as of
September 30, 1999. No mission critical third parties have indicated that they
will not be Year 2000 ready by December 31, 1999. We will continue to monitor
the Year 2000 readiness status of mission critical third parties throughout the
remainder of 1999.
SUMMARY OF
YEAR 2000 READINESS STATUS
<TABLE>
<CAPTION>
PERCENTAGE COMPLETE
AS OF SEPTEMBER 30, 1999 (1)
---------------------------------------------
SURVEYING AND REMEDIATION, REPLACEMENT,
PRIORITIZATION CORRECTION AND TESTING
-------------- -------------------------
<S> <C> <C>
Information Technology 100% 100%
Non-Information Technology Systems 100% 100%
Third Parties 100% -
</TABLE>
(1) Excludes statistics related to the Pandrol Jackson railway track
maintenance business which was acquired on October 15, 1999. This is
further discussed in the section entitled "New Acquisition".
Costs
As of September 30, 1999, the Company has incurred approximately $3.0 million in
cumulative Year 2000 readiness costs. Based on the assessment of information
available, the Company's cost to complete its Year 2000 readiness program is
estimated to be an additional $.3 million. Total Year 2000 readiness costs are
estimated to be $3.3 million. The estimated cost to complete amount and the
total Year 2000 readiness costs include $150,000 related to the Pandrol Jackson
railway track maintenance business which was acquired on October 15, 1999.
Risks
The Company believes that its major Year 2000 risk relates to the performance
and readiness status of third parties, particularly those based outside the
United States, and principally utilities providing power, water and
communication networks to Company facilities and operations.
-27-
<PAGE> 28
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
The impact of such Year 2000 failures on the Company's financial position or
results of operations cannot be estimated.
Management has engaged the Company's Internal Audit Department to perform Year
2000 readiness audits and to identify other material Year 2000 risks. The Year
2000 readiness process has considered such risks.
Contingency Plans
The Company has taken steps to mitigate the risk of a material impact of Year
2000 computer failures on its operations via the development of contingency
plans. Contingency plans have been developed for those mission critical
applications, functions, and resources for which the risk of a Year 2000-related
failure has not been reduced to an insignificant level. Such plans include
detailed alternative operating procedures to be invoked upon confirmation of a
critical Year 2000 failure. The plans will be updated as necessary as new
information becomes available prior to 2000. Certain resources, such as
electricity, are not easily replaceable and there are limited contingency
planning options. If there is an extended Year 2000 failure by several third
parties or supporting infrastructures, there could be a material adverse impact
on the Company's financial position or results of operations.
EURO CURRENCY CONVERSION
On January 1, 1999, certain countries of the European Monetary Union established
fixed conversion rates between their legacy currencies and one common currency,
the euro. The euro now trades on currency exchanges and may be used in business
transactions. Beginning in January 2002, new euro-denominated notes and coins
will be issued and the existing legacy currency notes and coins will be
withdrawn from circulation by July 1, 2002. The Company's arrangements for euro
bank accounts and the modification of certain loan arrangements to accommodate
the euro have been completed. The Company is evaluating other systems and
business issues raised by the euro conversion. These issues include the need to
adapt computer and other business systems and equipment and the long-term
competitive implications of conversion. In 1998, the Company derived
approximately 22% of its sales from the European geographic area, including
non-European Monetary Union countries. In the first nine months of 1999, 21% of
sales were from the European geographic area. The Company believes the euro
conversion will not have a material effect on the Company's financial position
or results of operations.
-28-
<PAGE> 29
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
SAFE HARBOR STATEMENT
The nature of the Company's operations and the many countries in which it
operates subject it to changing economic, competitive, regulatory, and
technological conditions, risks, and uncertainties. In accordance with the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company provides the following cautionary remarks regarding important factors
which, among others, could cause future results to differ materially from the
forward-looking statements, expectations and assumptions expressed or implied
herein. These include statements about our management confidence and strategies
for performance; expectations for new and existing products, technologies, and
opportunities; and expectations for market segment and industry growth, sales,
and earnings.
These factors include, but are not limited to: (1) changes in the world-wide
business environment in which the Company operates, including import, licensing
and trade restrictions, currency exchange rates, interest rates, and capital
costs; (2) changes in governmental laws and regulations, including taxes; (3)
market and competitive changes, particularly in the steel producing, industrial
gas, and infrastructure industries which the Company serves; (4) effects of
unstable governments and business conditions in emerging economies; and (5)
other risk factors listed from time to time in the Company's SEC reports. The
Company does not intend to update this information and disclaims any legal
liability to the contrary.
-29-
<PAGE> 30
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to foreign currency risk in its international operations.
The Company conducts business in over thirty foreign countries and approximately
37%, 36% and 37% of the Company's net revenues for the years ended December 31,
1998, 1997 and 1996, respectively, were derived from the Company's operations
outside the United States. To illustrate the effect of foreign currency exchange
rate changes due to the strengthening of the U.S. dollar, in 1998 sales would
have been 1% greater in comparison with the average exchange rates for the year
1997. A similar comparison for the first nine months ended September 30, 1999,
would have increased sales 2%, if the average exchange rate for 1998 would have
remained the same for the first nine months of 1999.
The Company seeks to reduce exposures to foreign currency fluctuations, through
the use of forward exchange contracts. At September 30, 1999, these contracts
amounted to $19.6 million and 98% of the amount will mature within 1999. The
Company does not hold or issue financial instruments for trading purposes, and
it is the Company's policy to prohibit the use of derivatives for speculative
purposes.
Also, the company's cash flows and earnings are subject to changes in interest
rates. Total debt of $469 million as of September 30, 1999 had interest rates
ranging from 2.7% to 16.3%, of which approximately 35% were at fixed rates of
interest. The weighted average interest rate of total debt was approximately
5.4%. At current debt levels, a one percentage increase in interest rates would
increase annual interest expense by approximately $3.0 million.
-30-
<PAGE> 31
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information on legal proceedings is included under Part I, Item 1., the section
labeled "Commitments and Contingencies."
ITEM 5. OTHER INFORMATION
DIVIDEND INFORMATION:
On September 28, 1999, the Company announced that the Board of Directors
declared a quarterly cash dividend of 22-1/2 cents per share, payable November
15, 1999, to shareholders of record on October 15, 1999.
DIRECTORS
The Board governance policies of the Company provide that when there is a change
in a director's professional circumstances from those that pertained at the time
of the director's election to the Board, the director will offer to resign. In
accordance with this policy, the Board accepted the resignations of Robert L.
Kirk and James E. Marley in the third quarter.
SUBSEQUENT EVENT
On October 15, 1999, the Company completed the acquisition of Charter plc's
Pandrol Jackson railway track maintenance business, for approximately $48
million in cash plus assumption of liabilities, for a total consideration of
approximately $65 million. The acquisition is expected to increase Harsco's
annual railroad maintenance-of-way equipment and service revenues to
approximately $200 million and be accretive to earnings beginning in 2000.
ITEM 6(a). EXHIBITS
The following exhibits are attached:
a.) Exhibit No. 12 Computation of Ratios of Earnings to Fixed Charges.
b.) Exhibit No. 27 Financial Data Schedule
-31-
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARSCO CORPORATION
-------------------------------
(Registrant)
DATE November 11, 1999 /S/ Salvatore D. Fazzolari
--------------------- -------------------------------
Salvatore D. Fazzolari
Sr. Vice President
Chief Financial Officer & Treasurer
DATE November 11, 1999 /S/ Stephen J. Schnoor
--------------------- -------------------------------
Stephen J. Schnoor
Vice President and Controller
-32-
<PAGE> 1
HARSCO CORPORATION
Exhibit 12
Computation of Ratios of Earnings to Fixed Charges
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Nine YEARS ENDED DECEMBER 31
Months Ended ---------------------------------------------------------------------
9/30/99 1998 1997 1996 1995 1994
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax income from continuing
operations (net of minority interest
in net income) $ 101,536 $ 174,874 $ 165,613 $ 145,984 $ 107,073 $ 84,197
Add fixed charges computed below 26,278 28,417 24,263 26,181 33,121 37,982
Net adjustments for equity companies (1,098) 139 (694) (181) (466) (134)
Net adjustments for capitalized
interest (776) (10) -- -- -- (274)
--------- --------- --------- --------- --------- ---------
Consolidated Earnings Available
for Fixed Charges $ 125,940 $ 203,420 $ 189,182 $ 171,984 $ 139,728 $ 121,771
========= ========= ========= ========= ========= =========
Consolidated Fixed Charges:
Interest expense per financial
statements (1) $ 19,195 $ 20,504 $ 16,741 $ 21,483 $ 28,921 $ 34,048
Interest expense capitalized 96 128 128 131 134 338
Portion of rentals (1/3) representing
an interest factor 6,987 7,785 7,394 4,567 4,066 3,596
Interest expense for equity companies
whose debt is guaranteed (2) -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Consolidated Fixed Charges $ 26,278 $ 28,417 $ 24,263 $ 26,181 $ 33,121 $ 37,982
========= ========= ========= ========= ========= =========
Consolidated Ratio of Earnings to
Fixed Charges 4.79 7.16 7.80 6.57 4.22 3.21
========= ========= ========= ========= ========= =========
</TABLE>
(1) Includes amortization of debt discount and expense.
(2) No fixed charges were associated with debt of less than fifty percent
owned companies guaranteed by the Company during the five year period
1994 through 1998, and the nine months ended September 30, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 50,002
<SECURITIES> 0
<RECEIVABLES> 325,217
<ALLOWANCES> 11,608
<INVENTORY> 160,604
<CURRENT-ASSETS> 599,244
<PP&E> 1,452,245
<DEPRECIATION> (819,989)
<TOTAL-ASSETS> 1,630,169
<CURRENT-LIABILITIES> 387,134
<BONDS> 442,567
0
0
<COMMON> 82,718
<OTHER-SE> 556,229
<TOTAL-LIABILITY-AND-EQUITY> 1,630,169
<SALES> 1,259,236
<TOTAL-REVENUES> 1,262,525
<CGS> 978,969
<TOTAL-COSTS> 1,141,639
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 359
<INTEREST-EXPENSE> 19,195
<INCOME-PRETAX> 105,149
<INCOME-TAX> 36,802
<INCOME-CONTINUING> 64,734
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,734
<EPS-BASIC> 1.57
<EPS-DILUTED> 1.57
</TABLE>
