Enviri Corp (NVRI) 2008 Q3 法說會逐字稿

Good morning, my name is David and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Harsco Corporation third-quarter release conference call. All lines have been placed on mute to avoid any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions) Also, this teleconference presentation and accompanying webcast made on behalf of Harsco Corporation are subject to copyright by Harsco Corporation and all rights are reserved. Harsco Corporation will be recording this teleconference. No other recordings or redistributions of this telephone conference by any other party are permitted without the express written consent of Harsco Corporation. Your participation indicates your agreement.

I would now like to introduce Mr. Fazzolari, Chairman and CEO of Harsco Corporation. Mr. Fazzolari, you may begin your call.

Thank you. Good morning. I would like to welcome everyone to Harsco's third-quarter 2008 conference call. I have here with me today Gene Truett, our Vice President of Investor Relations, and Stephen Schnoor, our Chief Financial Officer.

Before we begin our call this morning, I would like for Gene to read the Safe Harbor statement. Gene?

Thank you, Sal, and good morning, everyone. As we do at the beginning of all of our calls, we just want to let you know that we will be having forward-looking statements in our discussions with you today. These statements relate to the future of our business, our operations, our results, economic expectations, and other aspects relating to and affecting our business. While what we say today is based on our best information available, it is possible that the results could differ from what we tell you today.

We have listed in our SEC documents statements and risk factors that affect our business, and these could be the reasons for any difference that could occur. We invite you to review the SEC filings at your convenience.

I would like to remind you that replays of this call and related information are available on our website. Please take the time to access this information at your convenience.

Before I turn the call back to Sal, I would also like to remind everyone that Harsco will be holding its Annual Analyst Conference in New York City on Friday, December 12. At that time, we will be providing further details on our plans for growth and outlook for 2009. Information on the conference can also be found on our website, or you can contact me anytime in this regard. Sal?

Thanks, Gene. We were pleased this morning to report another record quarterly performance, and Steve will provide details on our third-quarter performance in a moment. I would like to first comment on the nine months performance and also comment on how we intend to weather the current economic storm.

First, our nine months performance. Sales, income, diluted earnings per share, and cash flows were all records. Sales increased by 15%; and both income from continuing ops and diluted earnings per share for continuing ops were up 20%. Cash flows from operating activities increased by over 8%. The cash flow number, by the way -- or the cash flow increase excludes a $20 million tax payment on the gain from last year's sale of Gas Technologies.

Despite the turbulent macroeconomic environment, we are still on track, we believe, to deliver our fifth consecutive year of record results. Revenues in 2008 should be in excess of $4 billion, and earnings are expected to grow by more than 7%, excluding a one-time fourth-quarter restructuring charge.

Now let me be a bit philosophical just for a moment in order to make an important point. Now, someone once said that adversity does not build character; it reveals it. The period of 2008-2009 will certainly reveal the management teams that have the character that is necessary to navigate through what is arguably the most turbulent and challenging economic and financial period of our time. I am confident that the Harsco team is up to this challenge.

We are an experienced and seasoned group with a long history of execution. Just look at our record. I deeply believe that we will emerge from this crisis an even stronger Company than we are today. Our strength will allow us to take advantage of opportunities as they arise, and it will also allow the Company to resume its double-digit earnings growth targets.

I would also like to remind our valued shareholders and listeners of our well-balanced and diversified portfolio of high-quality businesses. We are a financially sound Company that generates prodigious cash flows. As such, Harsco will have considerable cash flows for share repurchases, acquisitions, and other growth initiatives to further support our earnings outlook in 2009. Without the need, I may add, to add any material leverage to the balance sheet. This is an important point.

I will now turn the call over to Steve, our Chief Financial Officer, who will now give you details more details on the quarter. I will then make some comments on our outlook, both for fourth quarter as well as 2009; and then we will, of course, take your questions. Steve?

Thank you, Sal, and good morning to everyone. I will briefly discuss the third-quarter performance and then, more importantly, discuss the Company's financial position, cash flows, and liquidity. I will also discuss the Company's financial strategies that will drive the Company's future success.

Despite the very difficult macroeconomic operating environment, Harsco posted record third-quarter sales, income from continuing operations and diluted earnings per share, with each showing double-digit percentage growth. The overall third-quarter operating margin of the Company was 12.8%, comparable to last year's 13.4%.

The third-quarter 2008 results included a net $6.8 million asset gain in the Access Services segment, compared with a third-quarter 2007 $3.6 million asset gain in the Minerals & Rail Group. Sales increased 13% in the third quarter. Organic growth contributed about 10%, while acquisitions contributed 1%, and foreign currency translation accounted for the remaining 2% of the growth in sales.

The organic sales growth reflects the Company's geographic balance and diversified portfolio, as well as the continuing execution of our emerging markets growth strategy. Emerging markets sales have grown 35% in the year 2008 and currently represent 21% of our sales, compared with 18% of sales in 2007.

The Company's solid organic growth rate also results from our continued ability to generate strong discretionary cash flow and to prudently invest in global growth opportunities.

The overall balance is again evident in the third-quarter results. After excluding special charges and gains, both Access Services and Minerals & Rail's operating income exceeded 2007, while the Mill Services income was only slightly below last year despite a sharp reduction in steel production during the latter half of the quarter and also despite higher fuel costs.

While no company is immune to the global financial meltdown we are currently experiencing, our balance and diversification underpin our confidence that we will fare better than many under these adverse conditions. We are encouraged by the return on capital, which improved to 12.6% from 12.1% in 2007.

Over 55% of this year's record capital expenditures or approximately $212 million has been invested in strategic growth initiatives. The remaining expenditure is allocated to sustaining the current revenue stream. More importantly, 44% on the year-to-date growth CapEx was invested in emerging economies, which augers well for future balance, performance, and growth.

Under the current economic conditions you can expect Harsco to be characteristically prudent in our capital investment strategy, while not constraining the growth opportunities of the business.

Over the past three years, we have invested $653 million in growth capital expenditures. Given the mobile nature of our capital investment pool, we can redeploy these investments throughout the world to take advantage of the highest return opportunities. Through our strong cash flows and liquidity position we will continue to prudently invest to maintain current revenues and take advantage of selected growth opportunities including acquisitions.

Let's now turn briefly to the third-quarter performance of each of the business groups. The sales growth of 12% in Access Services came mainly from the Middle East plus the industrial maintenance markets in the US as well as Northern Europe.

This was offset by expected sales declines in the UK and Ireland. Despite the global economic crisis facing us, activity continues in the industrial maintenance markets of petrochemical and power plants. Additionally, activity remained strong for us in emerging markets in the Middle East and in Asia.

The Access Service operating margin in the third quarter was 15.3%, exceeding last year's margin of 13.7%. Excluding the effect of a net asset gain of $6.8 million, the 2008 operating margin was 13.5%, approximating last year's margin.

The outlook across the global footprint of our Access Services business remains positive for the long term. In the current economic crisis we intend to leverage our global breadth and mobile asset base to focus on emerging markets as well as market segments that remain stable, such as industrial maintenance, also institutional markets such as hospitals and education, and global infrastructure work.

It is anticipated that many government stimulus packages will include funding for much-needed infrastructure projects to stimulate their local economies and provide employment opportunities. Our Access Services group is well positioned with the engineering expertise and equipment to take advantage of these expected opportunities.

Operating income for Mill Services in the third quarter essentially equaled last year. The operating margin of 7.9% was below the third-quarter 2007 margin of 9.2%. The margin was below 2007 due mainly to significant production cuts by customers around the globe, as well as higher net fuel costs [at] the customer rebuild of approximately $6.1 million.

Further volume declines are currently expected in the fourth quarter and possibly the beginning of 2009. However, long term, our customers are forecasting world steel volume growth ranging from 3% to 5% over the next five years despite the current economic crisis. The key factor behind this anticipated growth is the fact that emerging economies still requires significant steel investment to catch up with the developed world.

We believe that the Mill Services business will continue to improve. The many strategies we are executing should result in this business returning to higher margins once the global financial crisis subsides. An example is our LeanSigma continuous improvement program. We believe the key to the improvement of this business are the execution of our internal optimization programs as well as our continuing expansion in emerging markets. We will continue to be relentless in the execution of these strategies.

Minerals & Rail Group again posted an exceptional third-quarter performance, exceeding last year's performance after excluding a $3.6 million asset gain in 2007. The operating margin for the Group was down 270 basis points from last year's record due to last year's asset gain, higher LIFO steel costs in 2008 as well, and the timing of rail equipment shipments. Excluding the asset gain in the third quarter of 2007, third-quarter 2008 margins were only 90 basis points lower than last year.

The 2008 and longer-term outlook for the Rail and industrial businesses remain favorable, as they currently have a record backlog.

I will now comment on the Company's financial position, cash flows, and liquidity, as well as factors and strategies that will affect our future performance.

Harsco continues to maintain a very strong financial position with significant cash flow generation and liquidity. Our debt-to-capital ratio decreased to 39.6% from 40.3% at June 30 and 48.4% the same time last year. That is an 880 basis point improvement in the year despite our record investment in growth capital expenditures.

Our strong cash flows and successful divestiture of the Gas Technologies business in December 2007 have enabled us to substantially reduce the debt-to-capital ratio this year.

The year-to-date cash flows from operating activities are a record $382 million. The 2008 cash flow increased despite a first-quarter $20 million income tax payment related largely to the 2007 Gas Technologies divestiture.

Our free cash flow year-to-date 2008 -- that is, cash from operations less the maintenance capital expenditures -- was a healthy $213 million. This level of free cash flow provides us significant flexibility in managing the business for shareholder value.

We remain confident that we will again achieve record cash flow from operations in 2008. This will further reinforce our balance sheet during the economic downturn, at the same time providing us with liquidity to selectively invest in acquisitions, share buybacks, and growth capital.

However, as anyone who knows and admires Harsco would expect, we will remain extremely prudent in our use of cash. We will redeploy the significant mobile capital investments that have been made over the last several years before expending additional cash.

As a reminder, we successfully executed a $450 million 10-year bond issue in the second quarter of 2008, at a very favorable interest rate. This issue extended the average maturity of our long-term debt for approximately three years to six years, providing us with greater financial flexibility and significantly less exposure to variable interest rates.

We continue to have significant available liquidity with balance sheet cash of $90 million and backup revolving credit facilities more than adequate for our needs. We have been able to issue commercial paper as required and do not anticipate the need to draw down on credit facilities.

In the third quarter, the major credit rating agencies reaffirmed our A-minus credit ratings. We have a very robust customer credit approval process in place and there has not been a degradation in our trade receivables portfolio. Our bad debt expense remains below 0.25% of sales, similar to last year.

As you can see, we remain well positioned from a financial flexibility perspective. We will retain our disciplined focus on our core values and strategic priorities. Consequently, we will have an even stronger Company when the economy recovers.

To ensure we appropriately adapt to the current economic circumstances, we expect to take a restructuring charge in the area of approximately $20 million or $0.17 per share in the fourth quarter, with an estimated benefit to future years of approximately $30 million or $0.25 per share per annum, beginning in 2009.

2009 we also expect to benefit from the following actions or trends. Lower fuel costs; higher earnings per share as a result of share buybacks; the positive effects of the resolution of underperforming Mill Services contracts; benefits of our LeanSigma continuous improvement program; lower LIFO steel costs for our industrial products business. New projects will also contribute positively to earnings.

The rising US dollar during the last month will naturally impact some of these benefits if the dollar remains at its current high level. In addition, we will see higher pension costs next year due to the meltdown of the global stock markets. The higher pension costs will likely reduce some of the above benefits.

Nonetheless, with our intense focus on achieving our strategic priorities, combined with our financial flexibility, we still expect to achieve good results in 2009 despite all the headwinds from the current crisis. That completes my comments. I will now turn the call back to Sal.

Thanks, Steve. Let me now summarize our current outlook for the fourth-quarter 2008 and our initial view of 2009. I will then summarize why we have confidence in achieving the 2009 targets.

As all of you know, the most recent events have created enormous uncertainty and anxiety throughout the world. The crisis of confidence in the financial markets and the growing evidence that both the US and Western Europe are in a recession has caused our near-term prospects to be more guarded.

The breadth, depth, and speed of the current financial and economic crisis will negatively affect our business, particularly in the fourth quarter, due to the following factors.

First, as Steve mentioned, the negative effects of the soaring US dollar, in October particularly, where in just several weeks -- for example, from September 30 to October 28 the pound sterling lost 12% of its value, the euro lost 12% of its value, the Australian dollar lost 20% of its value, the Canadian dollar lost 19% of its value, and on and on and on and on. I know that has abated a bit in the last couple days, but just to make the point of the volatility that we are seeing here.

Secondly, in the fourth quarter we have seen a sharp and sudden reduction in steel production pretty much across the globe; and also exacerbating the situation, an acceleration of maintenance shutdowns by mill customers.

Thirdly, the effects of the credit crunch in the fourth quarter has slowed and deferred access equipment sales in certain construction projects. I do remind you that in our Access Service business we do have some export sales, particularly out of Europe, that go into Africa, the Middle East, and many other parts of the world. And some customers were having trouble getting letters of credit during the month of October.

Finally, the fourth item, the significant decline in metal prices in the fourth quarter is adversely affecting our Minerals business as well.

As a result of this extraordinary convergence of fourth-quarter events, we've had to scale back our earnings expectations for the fourth quarter. As a consequence, we are adjusting our full-year 2008 guidance for diluted EPS from continuing ops to a new range of $3.20 to $3.25, of course excluding the one-time restructuring charge as Steve mentioned; and that is from our previous range of $3.50 to $3.55 per diluted share.

Using the midpoint of this adjusted guidance, this still reflects an increase of approximately 7% from 2007's diluted EPS from continuing ops of $3.01. This still is a record year, excluding the one-time charge.

Now is not the time to sit back and wait for the recovery. We are proactively taking a number of important countermeasures that will reinforce our 2009 performance, regardless of when the recovery occurs. These countermeasures include the following.

We are accelerating cost-reduction actions and are developing a companywide restructuring plan to reduce our cost structure. We anticipate taking a restructuring charge -- again, as Steve has mentioned -- in the fourth quarter of approximately $20 million. That will give us an annualized benefit of approximately $30 million, and we will see that benefit in 2009.

We are also aggressively cutting costs across the enterprise including curbs on discretionary travel and hiring. We expect our overall employment levels in 2009 to be below 2008.

We are planning to significantly reduce our growth capital in 2009 in the area of $150 million. Steve quoted to you a large number that we have invested in growth capital for the last three years; and we think we are going to be well positioned for 2009. We will redeploy, by the way, this $150 million to principally two things. One is share repurchases; and secondly, targeted acquisitions. We think there are some good opportunities out there for us.

We are or will be deploying some of the equipment we have from slowing markets to new projects in such strategically important areas as the Middle East, Africa, China, India, and several other key countries.

While the global economic conditions will certainly be a challenge, I am confident that these actions will significantly reduce our cost structure. And to repeat what I said earlier, we will emerge from this crisis an even stronger Company.

We also think it is important to give our shareholders and potential investors our current view for 2009. In that regard, assuming that we begin some relief from the current credit crisis and the beginning of a return on economic confidence by the second half of 2009, our present view is that diluted earnings per share from continuing operations will be in the range of $3.20 to $3.30.

That will put us on target to achieve a sixth consecutive record year -- with 2008 being the fifth, of course -- and again of course excluding the one-time restructuring charge. By the way, this also puts us ahead of recent updated analyst estimates, where one analyst estimated $2.98 for 2009 and the other $3.00. All other analysts that follow us to our knowledge have not yet updated their 2009 numbers.

Moreover, we were hearing anecdotally during the quarter that some people expected us to be as low as $2.00 in earnings per share next year. Remember that we have built this Company to weather normal economic cycles better than most other companies. I would argue what we have seen in the fourth quarter is not a normal economic cycle.

But let's now move on to 2009 and why we do have confidence in our full-year 2009 outlook, in that it is a very achievable year. Our confidence is underpinned by the following.

First, let's start with the fourth-quarter 2008 restructuring actions which are expected to benefit 2009 by approximately $30 million or $0.25 per share.

The earnings contribution expected from the record backlog in the Minerals & Rail Group further underpins our confidence in 2009's outlook. In addition, both our Access Services and Mill Services segments have a substantial recurring revenue stream. For example, in Access Services some 26% of the revenues are generated from requirements of industrial maintenance performed annually. Within Mill Services, we operate under long-term contracts which include both fixed fee element and provisions for other recoverable costs.

Lower fuel costs should provide a significant benefit to earnings next year, particularly in our Mill Services business. As you can see, for example from our press release, the effect that fuel has had on just the Mill Services so far this year. Our net fuel cost -- and that is net of recoveries -- our net fuel cost in Mill Services of $18 million for the nine months, as outlined in the press release, translates to approximately $0.15 potential benefit to earnings next year.

Furthermore, lower fuel costs in general will benefit all of Harsco. So there is even a little bit further upside there.

Much lower LIFO costs are also expected to benefit our Minerals & Rail Group next year and provide approximately a $10 million benefit to 2009 or about $0.08 per share.

Our decisions to exit from underperforming contracts, as well as fixing certain other contracts in our Mill Services business -- and we have been working, I can tell you, tirelessly the entire year in doing this -- should provide approximately a $24 million contribution to 2009 earnings, or $0.20 per share.

Also, we expect a contribution to earnings from new projects and new markets, particularly in both Mill and Access Services. We will provide the analyst community and quantify this at our annual conference in New York that Gene mentioned. We will give you a lot more details on that.

Next is the EPS contribution from our share repurchases, which should add approximately $0.16 per share. That is assuming, of course, we purchase all 5 million shares remaining under the Board's current authorization in the fourth quarter.

Finally, we firmly expect our LeanSigma program to start making important contributions to earnings in 2009, which by the way will be in its second year of implementation. I would just like to let you know that we have spent a considerable amount of money and time in 2008 to launch this program, and it is starting to gain impressive momentum. I would also point out that we have not included any notable potential benefits of LeanSigma in our guidance.

That completes my comments, and now we would be more than happy to take any questions you may have.

(Operator Instructions) Curt Woodworth.

This is Warren Cheng for Curt Woodworth. I was just wondering if I can get a little bit more color on the '09 guidance. You gave some pretty good color, but I was just wondering in terms of the oil price. It is going to be a tailwind to your margins. But what oil price are you assuming for '09?

Also steel utilization rates in US and Europe, can you give us some color on what you are assuming?

Yes, as far as fuel costs, we are very conservative. We are assuming on average much higher than it currently is today. I think today the oil price is about $70. We are assuming a more closer to the high 90s, if I recall right. So somewhere between $90 and say $95 a barrel. Because you don't know where it's going to end up on average for the year, so it is somewhere close to $100.

Okay.

Also, as far as utilization rates -- and we will give you more color on this in December -- we have quite a few projects that are real projects. That is, that we are currently moving equipment to markets in India, certain Middle Eastern countries where we have not operated in the past or we have not operated to the extent that we will be operating, as well as a few other geographies, including a little longer term we think there are some opportunities for us in China as well.

So we have a lot of projects underway, a lot of initiatives. Equipment is being moved right now, as we speak, in many cases. We have some projects already in hand and others to come.

So we are being very cautious on where we take the equipment. If we see any significant deterioration in rental rates, we are going to redeploy that equipment elsewhere. We are not going to play that game of continuing declines.

So what I'm trying to say is we have a very solid base business in both Mill and Access. The wheels are not falling off this thing, as I think the world -- the analyst community may think it is. We think we have a very solid base.

As I mentioned in my comments, we do not expect much in the first half. So our forecast is predicated still that we are going to have a weak first-half 2009, particularly the first quarter. The first quarter is our seasonally weak quarter anyway.

We do expect to have a first quarter that is not going to be too exciting. So all that is already factored into the numbers that we gave you. So we think we gave you a conservative, reasonable, deliverable number there for 2009.

Okay, great. That's helpful. Also, what is the upside to your '09 number? Can you just walk us through sort of the moving pieces and also the possible downside to your $3.20 to $3.30?

Well, as I had mentioned, we think we are conservative. We think that number -- as you well know, we don't put numbers out there unless we think we can achieve them. We've spent a lot of time looking at 2009. One of the main reasons we took that restructuring -- will take that restructuring charge is because we wanted to be absolutely sure that we can deliver a number that we are comfortable with and gives us more confidence.

If you look at the Minerals & Rail Group, they have a record backlog. That is even despite part of the Minerals business being affected by commodity prices, particularly, some of the metals.

Even with that, they are going to perform relatively well next year. So you've got that strong base from the Minerals & Rail Group. You have all these actions that we just talked about, that I just outlined for you. You have a very strong base business in Access no matter what.

As Steve mentioned, you've seen recent press releases; we have some pretty good infrastructure projects that are under way and institutional projects. We always have that 26%, 28% of industrial business that is recurring every year. That has to happen, because of power plants and so forth.

Then you look at the Mill business, there is no way that the steel industry could continue -- I mean that the cuts that we've seen in the fourth quarter here are unprecedented, and those cannot be sustained for long periods of time, even though we are factoring in a very slow first half, as I mentioned.

So you take all this in, again we feel comfortable. We don't want to really articulate at this point any potential upside or downside, but we think the numbers are pretty solid. We will give you a little more color on this in December as we further -- some of these new projects we have underway, we will give you a little more color on that. We will see where the exchange rate starts settling down a bit, we think, by the end of the year as well. And perhaps we will have a little more visibility on fuel cost and those kinds of things.

So we tried to put together what we think is a deliverable, achievable year in '09.

Okay, that's fair. Then just one more question if I may. In terms of acquisitions, what have you seen in terms of valuations over the last month? Have you seen prices coming down? What sort of deals would you potentially be looking at or bringing to the business?

Certainly they are coming down. Probably not as much as we would like, but the recent discussions we've had with some candidates, some acquisitions we are looking at right now, certainly we are in a much better position.

We do intend and will do some acquisitions next year. Nothing of any material size, but we like these nice bolt-on acquisitions. That is where we like. So we feel confident that we should be able to do a couple deals sometime next year.

Okay, thanks a lot.

Tim Hayes.

Just two questions. First on the restructuring, the timing of the benefits in '09. You mentioned the $30 million of annualized benefits. Just to be clear, does that happen like January 1 of '09, or is that something that would be more achieved in full latter part of the year?

This is Steve Schnoor. The benefits will probably begin starting in the first quarter, but gradually increase throughout the year. So we'll get more benefits as the year goes on.

Okay. Could you give a little more color on what kind of structuring that you will be doing?

Yes, the restructuring includes probably about 40% related to exiting facilities, contracts, changes to benefit plans; and then probably about 60% related to severance costs throughout the world.

Right. Okay. Then my final question is on the contract that you signed in Minerals & Rail segment, that contract with China, which is a very large contract. Did you start to get some revenue in Q3? If so, would you care to comment how much?

We did not get a contract in China with Minerals & Rail. Are you talking about the Rail contract that we got about a year plus ago? Is that what you are talking about?

Yes, that $350 million that stretches over about four years.

I'm sorry, I thought you were referring to a service contract. No, that -- shipments are starting in the fourth quarter here. It is very slow. Then the bulk of the equipment will be shipped pretty much evenly between '09 and '10. Then there will be a little bit lagging in '11 as well.

In addition to the $350 million we've also gotten a few other smaller contracts from China from the Rail side. The Rail business right now is very, very active. We are bidding across the globe.

We believe we have the best technology in the world, and the reason we say that is because from the inquiries that we are getting from everywhere. From Japan, from Africa, from Europe, pretty much across the globe we are getting inquiries. So that business is very healthy. It is growing. It is going to have a record year in 2009 and 2010. So that business is very well positioned for growth and for performing well.

Okay, thank you. That's all my questions.

Scott Blumenthal.

Sal or Steve, could you talk a little bit about -- I know that Steve made a comment in his earlier remarks about pension costs. But have you been able to quantify what the poor performance in the equity markets has done to your pension plans and what you may need to add to them, if anything, this year or next?

We have -- we would like not to disclose a number at this time because the number is still volatile. We will give you a number in December at the analyst meeting. But suffice it to say that there is a number in our guidance already for higher pension cost. So that is already factored into the guidance.

Again, we felt we were prudent and reasonable in the number that we put in there. But as you can appreciate, given all the volatility and so forth -- for example, the measurement date is not till December 31, so therefore we don't know what the pension assets are going to be till December 31. We don't know what the discount rate is going to be till December 31.

As Steve mentioned, part of this restructuring charge, we are further cutting plan. We had one final defined benefit plan throughout the world. All the other ones we got rid of about five years ago. That plan now is being terminated as we speak today -- or in the fourth quarter here hopefully. So, those are the kinds of things we are doing.

So we think we can give you a lot more color in December on that. We would rather not give you a number right now. But just suffice to say there is a number already in that estimate.

Okay, Sal. That's fair enough. Can you just maybe touch upon your Q4 and FY '09 ideas on maintenance CapEx? Especially in lieu of these drastic cuts in steel production.

Yes, this is Steve again. The maintenance -- basically as we mentioned, both Sal and I mentioned in our remarks, growth CapEx we spent, well, $600 million over the last three years. $600 million plus.

With the downturn in certain markets, we have throughout the world our mobile equipment available to redeploy to any area in the world where we have major projects going on. For example, right now, in Middle East we are pretty much at full utilization. So we are redeploying assets there.

So we have -- our growth CapEx will go down. Our maintenance CapEx we will spend at the level necessary to maintain current revenues. Then additionally, as we see how things are evolving in our businesses, we will spend on growth CapEx as needed. But we will be very, very careful about that, using our current fleet first.

Okay. I guess, Steve, I was trying to kind of zero in specifically on the maintenance CapEx number and whether you expect that to be lower than your earlier expectation for this year, and if we are going to see a year-over-year decline.

I would say the growth CapEx number is going to go down; and maintenance CapEx number will probably be about the same as it is today.

Okay. Fair enough. Thank you.

Jeff Hammond.

Just want to -- I guess, Sal, within the fourth-quarter guidance, it looks like overall you cut guidance largely in the fourth quarter about $0.30. Can you give us a sense? You talked about I guess qualitatively some of the headwinds.

But can you give us a better sense of where that revision falls by business segment, or at least in order of magnitude?

Yes, well, first of all foreign exchange, Jeff, and that applies to the Access and Mills. They are pretty much evenly (multiple speakers).

Okay, so that is the biggest change.

Foreign exchange is a big one. Then you've got the significant unprecedented production cuts. Like I said, we've never seen anything like it in the 70 years we've been in this business. Never seen production cuts. Again, exacerbated by the moving forward in all the maintenance for the mills. So that.

And then as you will recall, in our Access Service business about roughly close to 10% of that business is sales. That is a strategic part because what we do there as you recall is we sell in the markets first. Then once the engineers and the contractors like our equipment, ultimately longer term we set up shop in those countries. So, that is an ongoing part of our business.

That sales is also, as you may recall, is not just simply exports. It includes for example destroyed equipment and equipment that is not returned and so forth. That is always recurrent as well.

But if you look at just the export part where we sell literally across the globe, a lot of our customers just abruptly canceled -- or in most cases deferred orders to later in the year or into early next year, because they were having trouble getting letters of credit. We think as things ease up a bit, those orders will start coming back in 2009. So you've got that kind of thing going on.

You have, obviously, the problems in the UK that are well documented. They are having some serious problems there. But on the good side on the UK, the government is going to spend on an infrastructure stimulus package. They also have to spend on the Olympics. So as we get into 2009, we think the UK will start. Because that is our sweet spot, is more on the infrastructure side.

Germany announced today for example they are going to spend billions of dollars on infrastructure and renovation and so forth. We are pretty sure the US will do the same, because I know the Congress has been talking about that.

So again, all those things will play very well into what we do. Now, we have not factored any of that, any of these things into our guidance, because we don't know if they are going to actually happen.

But getting back specifically to your question, it's FX, it's the production cuts, it's the credit crisis in Access, and a little bit on the recession.

And then the final piece is the plunging of metal prices in October. Again, almost unprecedented, particularly ferrochrome, iron, nickel, some of the key high-value metals that we deal in, in the Minerals side. So that is going to affect that business in the fourth quarter as well.

Okay, that's helpful. Then what are you assuming for steel production in terms of worldwide production levels in fourth quarter and moving into 1Q '09?

Well, we are looking at it more from our sites, Jeff. So we are not looking at it more from what is the global steel industry. Obviously, we are looking at our 186 sites that we have, and so that is how we are viewing it.

As I mentioned earlier, we are factoring in a very slow first half, particularly very slow first quarter, both from steel production more so than anything else.

Okay. Just moving over to Access, besides the equipment sales, have you seen any -- or where have you seen any big changes in activity levels on a near-term basis? Are there projects getting deferred or equipment coming back in that maybe you can't redeploy? Any markets that have materially changed on that front?

No, it was principally Ireland, the UK, and Spain; and we don't do anything in Spain. But the three countries -- and Denmark as well, I guess. Those are the main countries where we've seen a substantial reduction.

But again to re-emphasize, like for example in the UK, we are very balanced there. We do a lot of industrial work; we do a lot of infrastructure work.

The main thing that has been affected, Jeff, that we are seeing is what they call the multi-housing in Europe. Because most people live like in these large apartment complexes. That is where we have seen the most dramatic decline. Okay?

Infrastructure is still relatively good. Industrial is good and so forth.

Okay. Then moving to Mineral & Rail, you talk about healthy backlogs in most of the businesses within Mineral & Rail or all of them. Can you talk about the pace of order activity? Particularly within businesses like IKG and Air-X-Changers that might have some tie to oil and gas infrastructure. Any change in order activity levels?

Then separately, how are you thinking about expansion plans in Excell, relative to previous expectations? Any change?

Okay, good questions. The Air-X-Changers is 100% capacity right now; and they have a record backlog. There has been no slowing at all of their business. In fact in 2009, we're hoping that business will also have for the first time in its history, will plant a flag in the Middle East. We will be operating, I'm hoping, by at least the middle of next year they will be shipping orders from the Middle East to countries like Qatar, for example, which is a huge gas producing country.

And possibly by the end of next year, we hope to be in Asia as well. But that business, we have very good visibility in that obviously because of the order backlog. So, they are pretty solid through '09.

IKG? Again, they service a lot of oil platforms. They are very busy right now in the Gulf region, for example, and should continue to be. The lower steel prices will help IKG next year as well, because they really got hit very hard here particularly in the last quarter. Their order book is still very strong. So we have not seen any -- and they are also looking at actually doing some work in Latin America. Again, for the first time in the history of this business, we are looking at some opportunities in Latin America.

Excell and the growth plans for Excell, obviously part of their business is very dependent on metal prices. Metal prices are very depressed right now. We are hopeful, again, by the end of -- sometime next year, that they will have an operation in Asia which will start contributing to earnings in 2010. We are pretty optimistic about that, and we will give you hopefully a little bit more color on that in December. Okay?

But so if you look at that Group, like I mentioned earlier, the Rail business is going very strong and so forth. So that gives us a lot of confidence for 2009.

Okay, great. Then just final question back to CapEx, can you just give us what your expectation is for full-year '08 for total CapEx and growth CapEx, if it is any different from before?

We are estimating approximately $300 million, which $100 million would be the (inaudible) growth and $200 million maintenance.

Is that for -- for '09?

'09? Or did you say '08, Jeff?

Yes, '08 total CapEx, growth CapEx, and I guess we can --?

Yes, for '08 it will be closer to $460 million or something like that. Roughly 250 in (multiple speakers)

'08 we're expecting probably around $450 million in CapEx or so; growth about $250 million or so of that, a little more; and maintenance about $200 million. That is for '08.

Okay. Then for '09 it is basically the $200 million maintenance and, you know --?

Yes, maintenance will be about the same.

$100 million of growth?

Give or take, yes. Yes. Maintenance will be about the same.

That is why I mentioned, Jeff, the $150 million in free cash if you will that we will have next year. That is the beauty of our business. We have that discretion that we can really turn it off.

So we will still do $100 million in growth; but yet we will have $150 million for acquisitions and possibly some additional share repurchases.

We also expect to have pretty decent cash flows in '09 as well.

Great. Good color, guys.

At this time, there are no further questions in queue. (Operator Instructions) Warren Cheng.

Just a quick follow-up. In terms of the Mill's margins for '09, how big a benefit could you see from the lower fuel costs? Or is there a way you can sort of help us quantify that?

Warren, I promise we will give you a lot of details on the margins in December. We are still working through as you can appreciate a lot of different things. We want to be -- before we give you any specific range for next year that we can deliver, we would like to do a little bit more sensitivity analysis.

Also don't forget, there is complexities there because of the way that our contracts are written, with clawbacks and so forth. So there is a lot of work that is underway right now, and we feel -- but one thing we can say, we do expect to have margin-wise a much better year next year than this year.

Because if you look at the 20-some-million-dollar benefit from exiting contracts and also renegotiating existing contracts that we are going to stay at, as you recall, I put my foot down earlier in the year with our Mill Service businesses, and said that business as usual is no longer acceptable. That is, we either fix these contracts or we walk away.

We've got to re-examine how we do business across the globe in this business. We've got to take costs out of the business. We have some tremendous technologies that we have not been taking advantage of, if you will, and we are going to do that. Particularly in Asia, for example, there is some interest of some of our things that we do, and we are exploring those right now as we speak.

So there is a lot -- this business is being changed quite a bit this year. We've gone through a lot of pain here. We are also changing some of the management and so forth, so we think we are going to come into 2009 and this business is going to be very solid.

Okay, thank you.

At this time there are no further questions in queue, sir.

Thank you. Well, I think we've said enough. I really appreciate your participation with us today. Rest assured that we, as Steve said, we will be relentless and we will work tirelessly to deliver what we have outlined here for you. So again, thank you and thank you for your support.

This concludes today's conference. You may now disconnect.