Enviri Corp (NVRI) 2009 Q1 法說會逐字稿

Good afternoon. My name is Anthony and I will be your conference facilitator. At this time I would like to welcome everyone to the Harsco Corporation first quarter earnings release for 2009 conference call. At this time all lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (Operator Instructions)

Also this telephone conference 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 teleconference by any other party are permitted without express written consent of Harsco Corporation. Your participation indicates your agreement.

At this time I would like to introduce Mr. Sal Fazzolari, Chairman of Harsco Corporation. Mr. Fazzolari, you may begin your conference.

Thank you. Good morning, everyone. Welcome to Harsco's first-quarter 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 this morning I will ask Gene to read the Safe Harbor statement. Gene, please.

Thank you, Sal. 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 discussion 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.

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 statements reasons and risk factors that affect our businesses 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 review this information at your convenience.

We would also like to advise our listeners that over the past 24 hours the Harrisburg area has had a problem with calls being dropped in the area. We are working with our telecom provider to address the problem, but cannot be sure this will not occur during our call today. If our call does drop for any reason, it will be reconnected immediately. We apologize in advance for any inconvenience that may occur. Sal?

Thanks, Gene. I will start off this morning by making some brief comments on the first-quarter performance and of course the current operating environment that we are in. Then we will follow that by comments from Steve on the quarter, and then I will offer a few additional comments on the outlook for 2009 before we take your questions.

Let me start off this morning with two very important points about our first-quarter performance. First, we were, of course, pleased to exceed our earnings guidance for the first quarter and, secondly, we were most pleased with our strong cash flow performance.

The first quarter 2009 was arguably one of the most challenging and turbulent economic periods in the history of this company. Three major headwinds facing the Company were in gale force in the first quarter. Of the three headwinds the soaring US dollar had the most significant, adverse effect on our results impacting all three business groups. The stronger dollar accounted for almost half of our sales decline and it also accounted for a substantial reduction in operating income and margins. We believe this to be the most dramatic quarterly negative impact from foreign currency translation in the history of the Company.

Second in its negative impact was the unprecedented low global steel production with sales and income declining in both Harsco Metals and Harsco Minerals business platforms. The final major headwind the Company faced was the lack of credit that continues to adversely affect non-residential construction projects across the globe.

Due to these strong headwinds we have proactively and aggressively expanded our countermeasures during the first quarter, which by the way continue into the second quarter as well. Consequently, we now expect these countermeasures to produce approximately $100 million in annualized savings. This is up from the $50 million that we discussed with you just three months ago in the January conference call.

I am proud of the way the Harsco team has responded to the challenge of aggressively reducing our cost structure. In the first quarter the Infrastructure business was negatively impacted by the stronger US dollar. I would remind you that approximately 80% of our Infrastructure Group's revenues are generated outside the US. Also greatly impacting the results of this segment is the problem from the ongoing lack of credit that I mentioned earlier, which is causing cancellation and deferral of construction projects across the globe.

From a country viewpoint the United Kingdom stands above all others as the worst performer in the portfolio due to a very severe recession. In fact, the poor performance of the UK overshadowed all other regions of the world.

Our Harsco Metals business incurred their first-ever quarterly operating loss due to the steep reduction in global steel production that deteriorated even further in the first quarter. Results of the Metals Group were also adversely impacted by the strong dollar where here again just like Infrastructure about 80% of the revenues of the Metals Group is generated outside the US.

The Minerals & Rail business was mixed. On the positive side, Harsco Rail continues to perform well across the globe with the large China order underpinning its strength. On the negative side, Harsco Minerals continues to be adversely impacted by the lack of metals production and a very depressed commodity prices. In fact, Excell Mineral, which is one of the two business units that make up Harsco Minerals, incurred an operating loss in the first quarter.

The Harsco Industrial Group, which you may recall is made up of Air-X, IKG, and PK, performed relatively well in the quarter but faces its own set of challenges in the near term.

But let me put all of this in perspective. Despite the most turbulent and challenging period of our time, we continue to be well-positioned to whether this storm. We have a very strong balance sheet. We have a healthy liquidity position. We have excellent free cash flows and we now have a cost structure that is more aligned with today's global economic landscape.

Moreover, our strong financial position underpins our ability to selectively target key growth opportunities throughout the world with many opportunities already presenting themselves. We are, however, being very disciplined and selective in which projects we undertake.

As we stated in this morning's press release, we expect 2009 to be the most challenging year and particularly in the first half of the year. We do not see any short-term silver bullet catalyst that will significantly reverse the three major headwinds that I just summarized for you. At some point, however, the dollar will weaken, steel production will resume, and credit will start flowing again. When this happens we will be well prepared to take advantage of these reversing trends, particularly with our much lower cost structure and our sound balance sheet.

My conviction about the future is soundly underpinned by the significant strengthening of our global leadership team over the past year, the lowering of our operating breakeven points in each of the businesses, and the rigorous implementation and execution of our emerging markets strategy.

Just to be clear and at the risk of being somewhat repetitive, we are not being passive waiting for a major change in our primary business drivers that is the three major headwinds to reverse. To the contrary, we are proactively and aggressively executing our strategy which is made up principally of five major elements. I would like to go over those five with you.

First, strong and effective countermeasures that significantly reduce our cost structure and continue to lower our breakeven point. Although we are pleased with the $100 million in savings, we are not going to stop there. Second, we will continue to strengthen our global leadership team. Although we have made meaningful and measurable progress, particularly in the last six months, more will be done to ensure that we assemble the very best team possible.

Third, we will continue with the implementation and execution of our robust emerging markets strategy. Here again we have made considerable and measurable progress in the past year, but many more opportunities are available as we continue to shift our portfolio to these higher growth markets.

Fourth, we will continue to move forward with our aggressive implementation of Lean Sigma continuous improvement. As you may recall, this is just our second year under our Lean journey yet we are already starting to see the potential of this transformational initiative. In fact, we will continue to invest considerable resources in Lean this year despite the global recession. We call this internally clock building; that is we are investing for the long-term benefit of the Company.

And fifth, we will continue to maintain a strong balance sheet and we will continue to generate strong free cash flows. Both have been hallmarks of Harsco for decades. Steve will, of course, discuss this in more detail shortly.

In addition to the five major strategies, we will continue to pay a dividend to our loyal shareholders. There are certain things in fact at Harsco that are sacrosanct. They include integrity, maintaining an A rating, and paying a dividend. We believe the dividend is secure.

Finally, I can assure you that this management team has the ability and the resolve to not only survive this tremendous turbulence that we are in but to emerge from it an even stronger company. A company with, we believe, a very, very bright future.

I will now turn the call over to Steve, our CFO, who will give you more details on our performance for the first quarter. I will then make some final comments on our outlook and then we will, of course, take your questions. Steve?

Thank you, Sal, and good morning, everyone. As expected, our first-quarter earnings were negatively impacted by the extremely turbulent economic environment that is affecting almost every company. However, the implementation of countermeasures that began in 2008 and continuing today along with a disciplined focus on maintaining a strong balance sheet and cash flows enabled the Company to report first-quarter earnings that actually exceeded previously communicated expectations. This is despite a continued significant strengthening of the US dollar in the quarter.

As a management team we will continue to implement appropriate countermeasures to weather this storm and to ensure we have a leaner, stronger, and more efficiently run company.

I will now briefly discuss the first-quarter earnings for the Company and each segment, and more importantly, discuss the Company's strong cash flows and financial position.

First-quarter earnings per share from continuing operations was $0.25. Compared with last year first-quarter earnings were significantly affected by the continuing headwinds of the stronger US dollar, the global credit freeze, as well as the unprecedented decline in global steel production. There are presently no clear signs or visibility that these headwinds will subside anytime soon.

Additionally, defined benefit pension plan expense increased $6 million from the first quarter of last year. To emphasize and illustrate the significant negative effect of the stronger US dollar on the Company in the quarter in comparison with the first quarter of 2008 the following changes occurred in our major currencies. For example the British pound sterling declined 28% compared to last year, the euro declined 15%, Brazilian real declined 26%, Polish zlotych declined 35%, South African rand declined 22%.

Overall, foreign currency translation reduced the Company's sales compared with 2008 by $140 million and operating income by $14 million or $0.13 per share. The sales reduction due to foreign currency translation was 48% of the total sales decline in the Company and the reduction in operating income due to foreign currency translation was 23% of the total decline in operating income.

As I previously mentioned, the Company is relentlessly focused on maintaining a strong balance sheet and generating strong cash flow from operations as we believe these are true measures of a strong company. Therefore, we are pleased to report that despite the current economic turbulence we generated $40 million in cash from operations in the first quarter. This exceeded the 2008 first-quarter cash generation by $8 million or 24%.

We also generated $20 million in free cash flow in the first quarter. Free cash flow is cash from operations less maintenance and capital expenditures. In 2008 free cash flow was a negative $26 million; this is a $47 million year-over-year positive swing.

As we previously communicated to you, in 2009 we will significantly reduce our capital expenditures by leveraging a substantial amount of mobile growth capital expenditures in which we have invested over the last several years. In the first quarter of 2009 total capital expenditures were only $36 million compared with $120 million in 2008. That is an $84 million or 70% reduction year-over-year.

Reduction in capital expenditures is not inhibiting our ability to take on new business, however. For example, we continue to aggressively redeploy infrastructure rental assets from the UK to the Middle East and Asia Pacific where business remains robust. As a result of our reduced capital expenditures and strong cash flow from operations, the Company expects to generate significant free cash flow in 2009. That free cash flow will be used for dividends and to pay down debt to the extent possible.

We will also consider prudent, small, accretive, bolt-on acquisitions if they are consistent with our growth strategies and they meet our strict acquisition criteria.

Consistent with our strategy the Company's balance sheet and available liquidity remains strong. As of March 31 total debt declined by $17 million from December 31, 2008, due mostly to the strong first-quarter cash flow. In past years it has been extremely rare for the Company to pay down debt in the first quarter.

Our debt to total capital ratio was only 41.9% as of March 31, slightly higher than the 41.1% as of December 31, 2008. The main reason for this small increase was a reduction in the Company's equity resulting from foreign currency translation of the stronger US dollar. Using the US dollar exchange rate as of December 31, the first-quarter debt to capital ratio would be 100 basis points lower or 40.9% and 20 basis points lower than year-end.

Let's now turn briefly to the first-quarter performance of each of the business groups. As Sal noted, in the first quarter Harsco Infrastructure was significantly impacted by foreign currency translation as well as the global credit freeze and to a lesser extent increased pension expense. Foreign currency translation reduced first quarter 2009 sales by $59 million compared with 2008. Excluding the effect of foreign currency translation, sales declined by only 9% from 2008.

A stronger US dollar also reduced operating income by $6 million. Additionally, higher defined-benefit pension expense reduced earnings by almost $3 million compared with last year.

Operations in the Gulf region of the Middle East, the German infrastructure market, and our global industrial maintenance business continued to perform well in the first quarter. However, this was more than offset by revenue declines in the UK and other parts of Europe. Additionally, the equipment sales to export markets continued to decline due to the reduced availability of customer financing.

Despite the global economic conditions there is some positive news to report, recurring industrial maintenance activity, which represents over 25% of this segment's revenues, continues in such areas as petrochemical and power plants. Additionally, business activity remains sound in emerging markets in the Gulf region of the Middle East as well as Asia-Pacific.

The near-term outlook in our Infrastructure business is guarded. We will continue to leverage our global breadth and mobile asset base to focus on emerging markets as well as market segments that remain strong, such as the industrial maintenance and global infrastructure markets. However, the global credit freeze continues to have a detrimental effect on this group resulting in delays or postponed equipment sales and projects.

On a positive note, in some cases this has resulted in customers renting equipment rather than purchasing it.

We do expect global government stimulus packages to fund much-needed infrastructure projects throughout the world. However, we now believe the effects of this spending will not have a significant effect until very late in 2009 and into 2010. Our Infrastructure group remains well-positioned with its engineering and logistics expertise, as well as the capital investment base, to take advantage of these expected opportunities.

Global steel mill production declines reached unprecedented levels in the first quarter of 2009. First-quarter 2009 production for the Company's customers was 43% lower than the first quarter of 2008. Production volume declines as well as foreign currency translation had a significantly negative impact on Harsco Metals, resulting in a pre-restructuring charge operating loss for the first time ever.

The production volume declines have continued into the second quarter. Our assumption is that production volumes will remain at overall historically low levels for the remainder of 2009 with gradual increases in each sequential quarter.

Foreign currency translation reduced Harsco Metals first-quarter sales by $74 million and operating income by $7 million compared with 2008. Therefore, exclusive of foreign currency translation effects Harsco Metals operating income would have been over $4 million. The exception of the Minerals business, which was significantly affected by reduced production volumes and lower commodity prices.

The Minerals & Rail group posted respectable results in the first quarter. Harsco Rail's sales exceeded the first quarter of 2008 despite the acceleration of certain shipments into the fourth quarter of last year that were originally planned for the first quarter of this year. We expect similar results for this group for the remainder of 2009.

As a company, despite the current economic circumstances, we will continue to execute our core strategies -- relating to people, continuous improvement, and value creation. We will continue to focus on maintaining a strong balance sheet and strong cash flows to maintain our high liquidity level and our financial flexibility. We have no doubt that we will emerge from 2009 as a stronger company.

That completes my comments. I will now turn the call back to Sal.

Thanks, Steve. Let me now summarize our current outlook for the second quarter of 2009 as well as our view for the remainder of the year. Our outlook for global steel production and non-residential construction markets, as we mentioned earlier, continued to deteriorate throughout the first quarter. Particularly in March we saw a sharp drop-off. This coupled with the unabated strengthening of the US dollar does cause us to be more guarded about expectations for 2009.

The global economic recovery that we had previously anticipated would begin in the second half of the year now is very unlikely. In fact, we don't expect any to occur until sometime in 2010. Consequently, we have prudently modified our view of 2009 and we are adjusting and have adjusted our full-year 2009 guidance, as you saw this morning, for diluted EPS from continuing ops to a new range of $1.90 to $2.10 from the previous range of $2.80 to $3.00.

The second quarter should show a notable sequential improvement over the first quarter, but it will be, obviously, below last year's record second-quarter performance. For the second quarter, as we indicated in the press release today, we are forecasting earnings from continuing operations in a range of $0.40 to $0.50.

Our guidance for 2009 is based on the assumption that there will be no significant change to the US dollar either up or down. That results from our Infrastructure group improved modestly towards the end of the year from both the global stimulus packages as well as some falling in the flow of credit and that sequentially in every quarter there will be a gradual improvement in global steel production that we service.

That completes my comments and now we would be very happy to take your questions.

(Operator Instructions) [Jim Lucas].

Good morning. First question here, we have heard from a variety of companies across multitude of industries that clearly no one is immune with what is going out there. And notwithstanding the FX headwind, just looking at the core underlying business, over the last few weeks so really since the first quarter ended have you seen any signs of moderation out there? I mean, the bottoming isn't the right word and what we are hearing from a lot of places is that the rate of decline is moderating. But are you seeing anything faint signs of moderation out there?

Well, we are certainly not seeing any improvement, Jim. Are we seeing some kind of leveling off? Yes, possibly. I can't imagine steel production going any lower, because I think they would have to shut the mills down. So that will be the next step if, God forbid, that happens.

The credit thing; I am sure you saw the Wall Street Journal this week. They said credit is not flowing. There is no money being lent and we are seeing that across the globe. We used to export some of our products all over the globe and that literally has dried up overnight. There is no credit flowing.

We continue to see projects delayed and delayed and delayed. Some canceled, but there is more on the delay aside. So there is very little positive news coming out on the credit side.

And as you know what is going on with the dollar, so really when you look at the three major headwinds we have the only one that could possibly have any kind of sign of life would be steel production. But we are not seeing it.

Jim Lucas. Okay.

Jim, Gene. I think also that we have read over the last several weeks of several attempts or several indications that the total risk aversion on currency has begun to mitigate a little bit but then it falls back. So I think that the question is is the dollar within a range bound at this point and not necessarily strengthening significantly more? Of course, what we are all looking for is it to weaken a bit.

All right, fair enough. On that credit comment, in terms -- on the global scale of developed versus emerging markets do you see the credit implications and delayed projects in terms of overall percentage of projects amplified in one versus the other?

That is a good question, Jim. Actually, yes, there is a difference. Certainly the emerging markets is much better. I mean, Saudi particularly; we are having no problems at all in Saudi. The UAE, Dubai is having some issues but Abu Dhabi is going very strong. There is no issues there. Qatar is going very strong, no issues there. Those are the three primary countries in the Middle East that we are not really seeing any major issues.

Asia-Pacific, you know, China is doing very well. They are flush with cash and there is no credit -- there is a lot of things that are flowing there because they are able to move immediately on the infrastructure spend unlike the US. And so, yes, you are right, there is a big difference between Europe, particularly -- Western and Eastern Europe is having some problems -- and the US. Yes, there is a regional difference.

Okay. And finally, with regards to the talk of global stimulus spending around the globe, we heard Caterpillar earlier this week say that stimulus in China means nine weeks versus nine months here in the US. Are you seeing any sort of quotation activity in terms of the global stimulus packages that have been announced out there?

In the US we are not seeing anything. We have teams -- we put together teams, if you will, to really monitor all projects that we can get very involved in and so we are on top of that. Not only just on the infrastructure side, but on the rail side as well we have a team put together. So we are watching very, very closely.

But to my knowledge, unless Steve and Gene know something differently than I do, we have not yet seen any specific activity where we are actually bidding anything right now.

Clearly, these expectations are there but I think it's just moving these things through the processes that is taking time.

Europe is a mixed bag too, because they are all doing different things. The UK is a disaster from an economic standpoint. We have never seen a country deteriorate so quickly and so deeply as the UK. And that was actually one of the major drivers to our performance in the first quarter and it affected all of our businesses in the UK. So that is going to be ongoing for the second quarter as well.

I know they are trying to push through some stimulus packages but, again, we have not seen major movement there. But we are moving, again, as we talked this morning and outlined and I am sure you have heard us say, we continue to move a substantial or material amount of equipment out of the UK. Thankfully, we have places to put it. We are not only moving the equipment, we are also moving some people as well where we need to fill some holes with opportunities.

Okay, great. Thank you very much for the color.

Jeff Hammond.

Good morning, guys. Just in light of what you are seeing in the demand environment on the infrastructure business, where do you see margins troughing out and is this kind of down high single-digit organic growth decline kind of the run rate you are expecting on a full-year basis?

Well, we certainly believe, Jeff, that the first quarter is the low point in margins. We do expect margins to improve sequentially second, third, and fourth quarter of the year.

The first quarter was affected by many things. As you well know, the pensions obviously was a major factor. But the weather in Eastern Europe was just horrendous and that caused some problems.

The credit issue is causing problems from the standpoint that [UNIBEC] has had historically a very strong robust export business out of Germany. That business has literally dried up overnight and that was a pretty good margin business as well so that is going to take a while to recover.

But on balance if you look at the significant cost benefits -- that we are taking a lot of costs out of the business -- if you look at some of the markets where we are gaining some market share and some of the markets that are actually growing into new markets like India that we have just gone into and so forth, on balance we think with all the initiatives we have that certainly you will see the margins continue to improve in this business.

I can't give you an exact number, and I probably shouldn't, for the year but I can tell you I strongly believe that the first quarter is certainly a low point for us.

Okay, but -- okay. Then just I know you are able to move some equipment around, but as you look broadly what are you seeing in terms of rental rates as you get some of this excess capacity on the access side?

It is obviously by region, Jeff. I mean, some regions have more pricing pressures than others, particularly if you are looking on the construction side. There is certainly pricing pressures across the globe, but it depends on where it is. In some regions it's not as bad as others.

Again, how we are compensating for that is that, like I said, we are taking some market share. We are compensating through lower costs and so forth, so it's on a case-by-case basis. But I don't want to leave you with the impression that there aren't any pricing pressures, because there are.

In fact, there are pricing pressures in all businesses. And I can't believe you would hear any company in the world say that they are not seeing pricing pressures across any of their businesses because they would be lying if they were to say that.

Okay, that is helpful. Then just shifting gears to the metals business. I mean a lot of change and certainly everybody has been surprised on the production levels. How are you thinking about this business structurally? Has there been any change in terms of your customers saying we want to outsource more in this environment because we want to be less vertically integrated or we want to in-source more because we have this excess labor? Are you seeing any change in attitude along those lines?

No, not really. In fact, I think if they could I think they would outsource more. What we are hearing is they really value what we do, they really want us to do more. We are actually holding back, if you will. We are not taking on any new work unless it meets our strict criteria.

What we are doing, Jeff, also is we have been saying to you for the last 12 months, 15 months, or so with this business we are working to a plan. And that plan is to restructure this business to diversify our customer base, diversify the geography, improve the technology, and improve the team. One of the things that this recession or whatever you want to call it in the steel industry -- more like a depression -- is that it has exposed some weak links we have in the organization and we are dealing with that.

We have made some very good progress. We have recruited -- one good thing, a recession is a terrible thing to waste as they say, and we are not wasting it. We are finding, actually, across the globe some very good talent and we are bringing it in. I am sure you have seen some press releases in the last six months where we have brought in some and there will be more.

We are assembling, I believe, a world-class team. When we come out of this I think we are going to be extremely well-positioned to take advantage of a lot of opportunities. We still believe we are the global leader in this business, but we do need to diversify the customer base, particularly, and also the geography. And we are going to do that.

Okay. Then final question just on CapEx, it looks like -- should we think of this $150 million as all maintenance CapEx and how do we undershoot, I guess? Last year maintenance CapEx was $220 million so how do you get --? Are you essentially running below maintenance CapEx at this point?

Jeff, it's Steve. The predominant portion of CapEx will be maintenance CapEx and it's below last year's run rate for a variety of different reasons because the lower production we are using the equipment less, requiring less maintenance CapEx replacements. And we are maintaining the equipment that we have as opposed to replacing it.

Okay. Then most of your new steel contracts or access or infrastructure contracts are those all being, I guess, funded with existing CapEx that are maybe being moved from elsewhere?

Yes, that is the number one thing I ask for any new project is where can we get the CapEx from. Other sites where the production levels are low and expects to be low or they had surplus CapEx, capital investment; so that is the first thing we do. There will be some additional expenses of course, but as much as possible it is taken from other sites.

We always have to augment it a little bit, Jeff, with some new -- like those new two contracts we have in the UAE, for example, that we are just starting up. That was a combination of some equipment that we moved from, that is sitting around throughout the world but we did have to buy some equipment, new equipment as well.

On the Infrastructure side it is substantially, mostly internally-generated equipment for the most part. Also, our customers in a lot of cases sell us equipment, Jeff, because -- the large construction companies will sell us equipment so we can get it relatively inexpensively. So the need for brand-new equipment is very tiny in that business right now.

Okay. Thanks, guys.

Yvonne Varano.

Thanks. I was wondering if you could just help us with that increase in the savings in terms of the different segments that we might see that coming out of --?

You are talking about the $100 million, Yvonne?

Yes.

You know, proportionally where it's going to be -- well, certainly the largest cost reductions are coming out of the Metals group, okay. So let's leave it at that. But Infrastructure is right behind it and then Minerals & Rail would be a distant third there.

The Minerals & Rail, the Rail business is very healthy. The industrial group within Minerals & Rail is doing okay and they have very little needs as far as that because it's a very flexible business model.

So it's really more in the Minerals side, the old Excell, where we have had to take quite a bit of cost out because they are being dramatically impacted by not only the lack of production, but also the commodity price angle there is severely depressed. So they incurred a loss for the first time in the history of that business as well in the first quarter.

But does that help? Steve may want to give you a little more color on that?

Absolutely, the Metals business is the predominant -- it takes up the most of the savings of $100 million that we are talking about and secondly, as Sal said, the Infrastructure business. There are some opportunities in Mineral & Rails; we are taking those opportunities as well.

Basically, we are looking at everything. We are looking at -- we have established a very, very cost-conscious culture that is built in now to the organization. So we are challenging every single cost. We also have the Lean Sigma program in place and we are seeing more benefits from that as we go on. That has taken hold as well.

So the mix is as Sal said, and basically the savings result from all types of different things.

In that $100 million there is a minimum number, like I mentioned in my comments, opening comments, we are not stopping there. We are looking right now at quite a few other initiatives, particularly in the UK, where it is that the market is just horrible there. We need to take even additional measures in the UK, so there will be further cost reductions there.

Germany is another market where we need to take some further costs out and selectively other spots throughout the world. So we are not done.

Okay. Then just on Excell, I know production levels are very low; it hasn't been a great market. But how are you viewing potential growth opportunities there? Has that sort of been put on hold or are we still looking at --?

No, we are still in very active dialogue with this massive project we have in China with TISCO Steel. We are doing the engineering studies right now, because that is an all-inclusive project which means not only -- the Metals part is only a small part of this project. It's the environmental part that they are very interested in where we take all these co-products and do something with them; fertilizers and so forth.

That project is underway right now. It's under feasibility engineering study. It's one of those projects you have to invest a lot of money and time up front and it probably won't be up and running till probably at the early next year at this time.

So we are doing -- we are continuing to invest that is what I was saying. When you look at Lean Sigma, when you look at some of these, the people thing where we are spending a lot of money on recruiting right now because we are very determined to get all the top players that we can possibly bring into the organizations. So all that money is being spent and obviously we just, we absorb it and we move on. So we continue to invest in building this company for the long-term, and so we are not taking a short-term view of those kind of things.

Okay. Then, lastly, I know you said the Industrial group is doing an okay. Can you just give us sort of a quick one-liner on each of the businesses in there?

Yes. Air-X has had a very good run because of natural gas activity. Given where the price of natural gas is -- it has plummeted considerably -- certainly their backlog has slowed quite a bit to be honest with you. But the good news there with Air-X, historically, what you would have seen with that business it would have continued to go down and you go through these massive cycles.

What we have been doing is trying to globalize that business. I am very pleased to say that as of the third quarter this business will be up and running in the Asia-Pacific market. So that should help soften the impact of the US and Canadian market, which historically has been their market, just those two countries.

Now we are going to be very active in Asia-Pacific. Like I said, we will be invoicing in the third quarter there.

We also believe that no later than the first quarter of '10 they will also be up and running in the Middle East, so the combination of those two should help soften the blow.

IKG is doing relatively well, believe it or not. What they are doing is they are truly the number one player. They are actually surviving by taking market share from competitors. That is the main factor there.

PK, which is very small, they are doing okay because they are very specialized, very niche-type business, and they are plugging along as well. So on balance the one that has been the most affected -- that could be possibly the most affected is Air-X. But our countermeasures anticipating this, the global growth of that business should help soften the cycle.

Great. Thanks very much.

John Emrich.

Thank you; just two quick ones. What is in the $2.8 million of other income?

Other income, those are, generally speaking, asset sale gains and some foreign currency.

Gains on asset sales and ForEx. Last question, what is the outlook sequentially for DSOs and inventory turns, both of which I think deteriorated year-over-year? I know it's tough when you have a negative surprise on the revenue side to make inventory turn real quick, but I am just wondering what capital is going to look like.

Actually, we believe our bad debt -- for example, an indicator of receivable is bad debt expense; it's only 0.3% of revenues in the first quarter and we have a pretty conservative view on that. We see there is going to be some stress on receivables, but we have a very robust credit approval process, a very robust collection process. Actually Gene is very much involved with that. And we monitor the accounts very, very carefully and continuously, so we don't see a huge deterioration in receivables.

We are getting our inventories -- we are managing our inventories and obviously we are not spending money unless we absolutely have to. So we don't anticipate inventories to increase as well. As a matter of fact, they will be going down and I think the turns will be increasing.

Great, thanks.

(Operator Instructions) Jeff Hammond.

Just a couple of quick housekeeping follow-ups. Pension you called out as a headwind, I think $3 million this quarter. Is that kind of the run rate to think about going forward?

It was $6 million, Jeff.

Okay, $6 million.

That would be in Infrastructure; $6 million in total.

$6 million per quarter for defined benefit pension expense is the run rate, Jeff. That usually stays the same each quarter.

Okay. And what is the cash flow dynamic on pension this year?

We don't anticipate to have to fund pension anymore than we did last year. We plan to spend, I think, overall for all plants throughout the world maybe a little over $30 million. That is built in to our projections.

Okay, perfect. Then you mentioned the strengthening US dollars quite a few times and I think you gave the year-on-year comparisons, but I am just trying to get a sense of what -- maybe if you could give me your assumptions for the euro, pound, or a couple of the major currencies today. It just didn't seem like on the surface from February when you first reported to now that the currencies had moved that materially.

They have moved materially from last year though. For example, the first quarter for the euro last year was 1.53 versus about 1.3.

Right. I am just trying to understand what has changed versus your previous guidance.

For example, since year-end the dollar has gotten stronger with most of our major currencies. And since the last forecast that we had put in back in January we were using the year-end rates or maybe a little bit before that, so since then the dollar has gotten stronger. So that really affects our forecast for the year, but we don't anticipate any change from where it was as of the end of the quarter. That is not --

Okay. So your previous guidance was as of year-end and your current guidance reflects the March 31 currency rates?

Yes, Jeff, what we do is about a week to 10 days before each call we look at where currencies are then and that is the base rate we use to give guidance for the remainder of the year. Then we adjust that every 90 days as we have another earnings release.

Okay. So your guidance is not the March 31, it's as of -- within the last couple of weeks?

Yes, it would be like the early April --

Which essentially is the end of March, Jeff.

It's pretty much on the end of the quarter. We do some sensitivity analysis, but generally speaking it's the beginning of the month rate, if you will. So it would be the April and the January rates.

Okay, great. Thanks, guys.

(Operator Instructions) I am not showing any further questions at this time.

Okay, thank you. Just like to thank everyone for participating in today's call. We obviously look forward to speaking with you at the next call and I thank you for your participation and great questions.

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