Enviri Corp (NVRI) 2009 Q2 法說會逐字稿

Good morning. My name is Michelle, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Harsco Corporation second-quarter earnings 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 telephone conference, presentation and accompanying webcast made on behalf of Harsco Corporation are subject to copyrights by Harsco Corporation and all rights are reserved. Harsco Corporation will be recording this teleconference. No other recordings or distributions 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. Salvatore Fazzolari, Chairman of Harsco Corporation. Mr. Fazzolari, you may begin your call.

Thank you. Good morning. I would like to welcome everyone to Harsco's second-quarter 2009 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, I will ask Gene to read the Safe Harbor statement. Gene?

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 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.

What we say today is based on our best information available. It is possible that results could differ from what we tell you today. We've listed in our SEC statements reasons and risk factors that affect our business, and these could be the reason for any differences that could occur. We invite you to review the SEC filings at your convenience.

We 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. Sal?

Thanks, Gene. We'll start the call today by making some brief comments on both the second quarter as well as the six-month's performance. And I will also touch on the current operating environment. Steve will then follow, of course, with his comments regarding the quarter, and then we will make some additional comments regarding the outlook for the year, and finally we will take your questions.

We were pleased to exceed our earnings guidance for the second quarter and we were most pleased with our strong free cash flow performance. The first half of 2009 was arguably one of the most challenging and turbulent economic periods in the history of Harsco. Three major headwinds facing our business were in full force.

Of the three headwinds, the stronger US dollar had the most significant adverse effect on our results. The stronger dollar accounted for 42% of the sales decline in the first half of 2009, and it also accounted for a substantial reduction in earnings per share of $0.27. We believe this to be the most dramatic first-half negative impact from foreign currency translation in the history of the Company.

Second in its negative impact was the continuing unprecedented low global steel production, resulting in sales and income declines in both our metals and minerals business platforms. And the final major headwind was the lack of credit that continues to adversely affect construction across the globe as we continue to see projects canceled and delayed.

From a macro global perspective, the Gulf region of the Middle East and the Asia-Pacific region continued to perform well. But with sales less than 15% of our business in this part of the world, its good performance is eclipsed by the severe recession in Europe and North America.

From a specific country and subregion viewpoint, the UK and, to a lesser extent, Eastern Europe and Scandinavia were the worst performers in our portfolio. The poor performance of the UK, however, continues to overshadow all other parts of the world.

To counteract these strong headwinds, we again proactively and aggressively expanded our countermeasures in the second quarter, and we will continue to do so in the third quarter, as well. Consequently, we now expect at least $125 million in annualized savings from our countermeasures. This is up from the $100 million that we discussed with you in April -- at the April conference call, and it is substantially higher than the $50 million target we discussed with you during our January conference call.

I am proud of the discipline our Harsco global leadership team has demonstrated in aggressively reducing our cost structure and lowering our breakeven point.

On the positive side, the Harsco Rail business continues to perform well across the globe, with the large China order underpinning its strength. Harsco Rail actually posted its best quarterly performance in history.

Despite facing the most turbulent and challenging period of our time, I believe that we continue to be well-positioned to weather this so-called great recession. Moreover, we are systematically positioning our business platforms for significant upside once our key markets recover, and they will recover.

We have a strong balance sheet and a very healthy liquidity position. We have excellent free cash flow. And we now have a much leaner cost structure that is more in line with today's global economic reality.

With respect to free cash flow, that is cash flow from operations less capital expenditures, we achieved a 254% year-over-year improvement for the first half of 2009; we are quite pleased with that. And we are also on target to achieve our stated goal of approximately $250 million of free cash for 2009.

I would also like to make several points on the outlook for 2009. Our markets continue to exhibit limited visibility into how soon conditions will improve. This is particularly true in our Infrastructure business, where general construction markets deteriorated further in the second quarter and which have continued, unfortunately, into the third quarter, as well.

We have not yet seen any short-term catalyst that would significantly reverse the three major headwinds that we are facing. Although I will note, with perhaps a little optimism, that the strong US dollar is starting to abate, and that at least in the short term, there are indications that global steel production is inching up from historic lows.

But on the other hand, I also note that construction markets continue to deteriorate due to the lack of credit and the "great recession."

Having said that, we expect our second half of 2009 should show a modest improvement over the first-half performance, particularly as we realize more benefits from our countermeasures. We remain confident that the benefits from our strategic countermeasures are positioning us well for the inevitable recovery.

I strongly believe that Harsco has a very bright future. My conviction about the future of Harsco is soundly underpinned by, first of all, the significant strengthening of our global leadership team over the past year. Also, the lowering of our operating breakeven points in all of our businesses with the proactive and aggressive countermeasures -- as I indicated, $125 million and growing. And the rigorous implementation and execution of our emerging market strategy, where we are starting to get some traction on.

Also true to Harsco's tradition, we continue to maintain a strong balance sheet, and we will, of course, continue to generate strong free cash flows. I can assure you that Harsco has the talent and the resolve to not only weather this great recession, but to emerge from it a much stronger company.

Finally, I would like to make a brief comment on the ArcelorMittal matter. As I'm sure most of you know, ArcelorMittal is our largest customer. I am pleased to report that we have satisfactorily resolved all major outstanding issues with them. Most of the Harsco senior management team, including myself, have been in regular dialogue with members of the senior management team of ArcelorMittal, particularly during the second quarter, in order to resolve this matter satisfactorily.

One of the major benefits of engaging at the highest level of the two organizations is that it has brought us closer together. And also, it gives us a solid platform to build upon. We believe that we have laid the foundation for constructive future dialogue on how we can work together as a team in a win-win scenario.

I will now turn the call over to Steve, and he will give you more details on our second-quarter performance. Steve.

Thank you, Sal, and good morning, everyone. As anticipated, our second-quarter earnings were impacted by the turbulent global economic environment. However, our aggressive implementation of countermeasures that began in 2008 and continues today, along with a disciplined focus on maintaining a strong balance sheet and cash flows, resulted in second-quarter earnings that exceeded our expectations.

The benefits of our diverse business portfolio were evident in our performance, as the Harsco Minerals & Rail group's results, particularly Harsco Rail, offset the lower performance we had expected from the Harsco Metals and Infrastructure groups. We will continue to implement appropriate countermeasures to ensure we have a leaner, stronger and more efficiently run company for the long term. We are relentlessly focused on improving processes, as well as permanently eliminating cost.

I will now discuss the second-quarter earnings for the Company and each segment, as well as our strong free cash flows and liquidity position. Second-quarter earnings per share from continuing operations were $0.52. As Sal has noted, second-quarter earnings were significantly impacted by the continuing headwinds of the stronger US dollar, a significant reduction in construction activity, the global credit freeze, as well as the unprecedented decline in global steel production. Those headwinds continue today, with conflicting views of economists as to whether the worst is behind us.

Despite a recent weakening of the US dollar on a sequential basis, I would like to emphasize and illustrate a significant negative effect of the stronger US dollar on the Company in the quarter, in comparison with the second quarter of last year. The following year-over-year changes occurred in our major currencies in relation to the stronger dollar. British pound sterling declined 26%. The euro declined 14%. The Brazilian real declined 24%. The Polish zloty declined 49%. The Canadian dollar declined 15%.

Overall, foreign currency translation reduced our second-quarter sales compared with 2008 by $115 million and operating income by $14 million, or $0.13 per share. The sales reduction due to foreign-currency translation was approximately one third of our total sales decline, and a reduction in operating income due to foreign currency was approximately 19% of the total decline in operating income.

Although the dollar has weakened recently, there will still be a negative translation impact on earnings for most of the remainder of 2009 since the dollar was comparatively stronger well into the second half of 2008. However, if the recent trend of a weakening dollar continues, the second-half effect will be somewhat less than in the first half of 2009.

As I previously mentioned, we are relentlessly focused on maintaining a strong balance sheet and generating strong free cash flows, as we believe these are true measures of a strong company. Therefore, I am pleased to report that despite the current economic turbulence, our year-to-date free cash flow increased by $122 million, or 254%, from last year, where we had significantly negative free cash flow. Free cash flow in this case is defined as in a traditional sense, as cash from operations minus all capital expenditures.

We have also generated $123 million in discretionary cash flows this year. Discretionary cash flow is cash from operations minus only maintenance capital expenditures. 2008 discretionary cash flow was $97 million. Therefore, there was a $26 million year-over-year positive swing despite a tougher economic environment in 2009.

As we have previously communicated to you, one of our key 2009 strategies is to reduce our capital expenditures by leveraging a substantial mobile capital expenditure base in which we have invested over the last several years. Through June 2009, total capital expenditures were only $83 million compared with $258 million in 2008. That is a huge $175 million, or 68%, year-over-year reduction.

This large reduction in capital expenditures is confirmation of the truly discretionary nature of these investments. Our business model and the mobile nature of our asset base provided us substantial leverage in managing through all phases of a business cycle, enabling us to maintain substantial liquidity and financial flexibility.

However, the reduction in capital expenditures is not inhibiting our ability to take on new business. For example, we continue to aggressively redeploy infrastructure rental assets, mostly from the UK, to the Middle East, Holland, Latin America and Asia Pacific, where business remains more robust, where we have identified growth opportunities.

As a result of our reduced capital expenditures and strong cash from operations, we expect to generate significant discretionary cash flow in 2009. This discretionary cash flow will be used to support our long history of paying cash dividends to our shareholders. We will also pay down debt to the extent possible under our borrowing arrangements. Further, we will consider prudent, small, accretive bolt-on acquisitions if they are consistent with our growth strategies and meet our strict acquisition criteria.

Consistent with the strong free cash flows, our balance sheet and available liquidity remain strong. Due to our strong free cash flows, we paid down debt of $57 million in cash since year-end. In past years, it has been rare for the Company to pay down debt in the first half. Balance sheet debt also declined since December at a lower rate than the cash payments due to foreign-currency translation. Our debt-to-total-capital ratio was only 40.6% as of June 30, 2009, and down 130 basis points from March 31 and down [50] basis points from December 31, 2008.

Let's now review the second-quarter performance of each of the business groups. As in the first quarter, Harsco Infrastructure was significantly impacted by foreign currency translation, a reduction in global construction activity, as well as the global credit freeze. Foreign currency translation reduced second-quarter 2009 sales by $51 million compared with 2008. Excluding the effect of foreign currency translation, sales declined by 16% from 2008.

The stronger US dollar reduced operating income by $8 million compared with last year. Operations in the Gulf region of the Middle East, the Asia-Pacific region and our global industrial maintenance business continued to perform well in the second quarter. However, this was more than offset by general construction declines in the UK, other parts of Europe and in North America. Additionally, equipment sales from export markets continued to lag 2008 levels due to the global credit freeze.

Given the still-difficult market environment in construction, our near-term outlook for our Infrastructure business is guarded. However, 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 industrial maintenance, as well as global infrastructure work. We will also continue to aggressively implement countermeasures to reduce our cost base. In the second quarter, a net $1.4 million restructuring charge was taken in this segment to implement further countermeasures.

However, reduced construction activity and a global credit freeze continue to have a detrimental effect on this group, resulting in delayed or postponed equipment sales and projects.

Global governments have made substantial commitments for stimulus packages to fund much-needed infrastructure projects throughout the world. However, in most markets, the funds have either not yet been dispersed or have not yet resulted in a significant increase in project starts. We now believe the effects of this spending will not have a significant effect until 2010 and later.

Our Infrastructure group remains well-positioned with its engineering and logistics expertise, as well as its mobile capital investment base to take advantage of these expected opportunities when they occur.

Global steel mill production declines remained at unprecedented levels in the second quarter of 2009. Second-quarter 2009 steel production from the Company's customers was 43% lower than the second quarter of 2008. Year-to-date production is also down 43% from last year. Production volume declines, as well as foreign currency translation, had a significant negative impact on Harsco Metals in the second quarter, resulting in operating income of $4.2 million, substantially below last year. However, as expected, the second-quarter results improved sequentially over the first quarter's operating loss.

Foreign currency translation reduced Harsco Metals' first-quarter sales by $58 million and operating income by $6 million compared with 2008. Therefore, exclusive of foreign currency translation effects, Harsco Metals' operating income would have been $10 million.

Our assumption is that steel production volumes will remain at historically low levels for the remainder of 2009, with gradual increases in each sequential quarter. There are some signs of stabilization in a few markets, but in general, steel demand and production remain historically low and visibility is limited.

With the exception of the Minerals business, which again was significantly impacted by reduced steel production volumes and lower commodity prices, the Minerals & Rail group posted very respectable results in the second quarter. Harsco Rail posted record results and operating margin in the second quarter.

Last, I would like to echo Sal by saying that as a Company, we will be unrelenting in the continued execution of our core strategies of fielding the A-team for our key seats, continuous improvement, value creation, including maintaining a strong balance sheet, free cash flows and liquidity. Those strategies, along with our continued implementation of countermeasures, will provide significant earnings leverage when the global economy improves. We have no doubt that we will emerge from the downturn as a much stronger company than before.

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

Thanks, Steve. Let me now summarize our current outlook for the third quarter of 2009 and for the remainder of the year. Although global steel production remains at near unprecedented low levels, the outlook is for a slight improvement in the second half of the year for steel production. However, the outlook for construction markets is not as positive, as certain key markets continued to deteriorate throughout the second quarter and well into the third quarter.

The lack of credit, the "great recession" and the lack of any meaningful benefits from stimulus packages continue to adversely impact our markets. These negative trends cause us to be more guarded about the expectations for the Infrastructure business in the second half of 2009.

The UK and the US markets are good examples of what we've been weathering in the infrastructure business. Just let me tell you a little bit about recent press releases, from last week actually. In the UK construction market, the market dropped 2.2% in the second quarter, putting it nearly 15% below last year -- and by the way, that is the biggest year-on-year decline on record in the UK. So you can see how much the construction market deteriorated in the United Kingdom, which is one of our largest markets.

And in the US, which obviously is one of our largest markets as well, the AIA's Architectural Billings Index plunged nearly five points in June. This score indicates a sharp decline in demand over the next six to nine months. In fact, the AIA commented that, "the US has not yet reached the bottom of the construction downturn and that there has been little movement of stimulus funds." I think those two releases really capture the essence of what we are facing in the Infrastructure business.

I should be clear that we are still confident, however, that our Infrastructure Segment will have substantial profitability during the remainder of the year. In fact, its performance in the second half of the year should be higher than the first half. But we will be unable to achieve the profitability levels that we had previously expected for this group.

I can assure you that we are not sitting still relative to the Infrastructure business, and for that matter, any of our businesses. To the contrary, we are extremely proactive. We continue to incur costs to ship large quantities of equipment, as well as reposition some key people to expanding markets in the Middle East and Africa and the Asia-Pacific region. We also continue to take restructuring charges to lower our breakeven point. And we continue to incur costs for recruiting the best talent available in this business to strengthen the overall global management team.

With respect to the near-term outlook for our Harsco Minerals & Rail group, the expectations remain mixed. Harsco Rail should continue to perform well, but not as strongly as it did in the first half, due to timing of shipments. Harsco Minerals' performances should show a slight sequential improvement in the second half compared with the first half, due mainly to slightly higher metals production. The Harsco Industrial group will also continue to perform well, but it will be down in the second half compared to the first half, mainly to weakness in the natural gas drilling market.

Taking all of these factors into consideration, we are prudently modifying our view of 2009. And as you saw in the press release this morning, we are adjusting our full-year 2009 guidance for diluted EPS from continuing operations to a new range of $1.72 to $1.82, from the previous range of $1.90 to $2.10.

The third quarter will be negatively impacted by the deterioration of the construction market, as we mentioned. Thus, the third quarter is expected to be below the second-quarter performance. And by the way, if you look historically, the second quarter has always been our strongest quarter, and so this is not a major surprise. And it will also be below last year's third quarter for the obvious reasons.

For the third quarter, we are forecasting earnings from continuing operations in a range of $0.45 to $0.50 per share, compared with $0.99 in last year's record third quarter.

That completes my comments for now. We'll have some final closing comments, but before we do that, obviously, we will take your questions.

(Operator Instructions) Jeff Hammond.

Just wanted to just go through, I guess, the moving pieces of the guidance. It looks like you took down the full year by about a quarter. It seems like you are getting more cost savings, lower tax rate, favorable FX -- or I guess less negative FX.

But how are you thinking -- if you could just walk us through how you are maybe thinking about -- differently about the three segments, for good or for bad, versus your prior expectations.

Just quickly, on the Infrastructure business, which is the one that has changed the most of course, and the comments that we've made there. We were expecting some benefits from stimulus. We had not expected the level of deterioration that we saw in the second quarter, that was evidenced by the press releases that I quoted.

And the markets just have deteriorated significantly, and there is very little going on. Just anecdotally, I can give you a couple of examples on the Infrastructure. For example, what we've experienced -- we get calls from contractors saying, "Come get your equipment because we don't have any more funds to complete this project," or, "We're going to use our own equipment because we can't afford to do this right now." And those kind of things.

So we are seeing a lot of reactions. And the fact that there is very limited visibility, given all the things that we said about Infrastructure. So the biggest change is in the Infrastructure business.

For the Metals business, our outlook is pretty much unchanged from where we were when we gave the guidance at the end of the first quarter. And then on Minerals & Rail, though, there is a little bit of a change there. We did -- the Rail business did much better in the second quarter due to timing. So we had expected some of that in the third quarter, which shifted into the second quarter. So that has affected the second half.

And then secondly, our -- what we call our Air-X-Changers business in the natural gas, their second half is substantially off the first half. There has been -- again, that was another one -- dramatic change in natural gas drilling due to the sharp decline in the price of natural gas.

So those are the major factors that have changed from when we talked last time.

Just to clarify on the Minerals & Rails, then the strong margin performance there was a little bit of a pull forward in the Rail business?

That's correct, Jeff. As you well know, with those machines, when they happen, they happen. Because there is a lot of complexities of getting them on the ships and all that stuff. And whenever that date happens, it happens. And it just happened that one of the major pieces of equipment going to China fell into the second quarter, when we had initially expected it would happen in the third quarter.

Okay. That's good color. And then just on the cost savings, I'm just trying to get a better feel for how these cost savings are flowing in. Do you have any sense of what your cost savings traction would have been 1Q, 2Q, when you kind of start hitting those $125 annualized run rate? Is there any incremental savings you get into 2010?

Well, that's a very good question. First of all, on the macro level, Jeff, we believe that well over $100 million of this is permanent cost reductions. Also, as I indicated, we are not stopping at the $125 million. We think that we are going to hit a much higher number as the year progresses.

Relative to the quarters, it was a very slow start in the first quarter, no question about it. We did see some pretty good benefits in the second quarter, getting closer to the $100 million run rate. As we get into the third quarter, we should certainly see the -- or the second half particularly, let's just say -- we should start seeing pretty much the full run rate of these benefits. That just shows you the impact of what has happened to the Infrastructure business during the course of the year here.

Okay. And then just finally, on Infrastructure, it sounds like you think the profitability in that business is better second half versus first half. Is that simply the cost savings coming in, but the business is maybe weaker from a top-line perspective?

Seasonality, Jeff. As the Infrastructure business -- January and February are by far the worst two months -- I mean dramatically bad relative to the other 10 months. So you do have a huge seasonality factor, first half versus second half, okay? And then -- that is really the main thing. Then of course, the cost savings.

Okay. Thanks a lot.

[Ryan McLean].

I guess just one of the things I wanted to talk about is the ArcelorMittal agreement that you guys came to. Can you go into that and describe what kind of value it is that you are bringing to them, so that it is not just on price, but you are providing whatever sort of value so that you can get actually a decent margin from them? Maybe describe it a little bit more.

I'll try to give you a little color on it without getting into the details, obviously, because the details are confidential. But certainly, something that started off very negatively, I believe has turned into something very positive. The dialogue that we've established at the highest level of the organization has turned out to be a very positive thing.

Also, we teamed up together, the two organizations, we put a team of Harsco employees across the globe and a team of ArcelorMittal employees across the globe, to work on some matters, and we came up with some very interesting projects that we can save ArcelorMittal a considerable amount of money that they were not aware of.

On the other hand, the plus for us is that we've obviously displayed and demonstrated to the customer the value that we bring to the organization. And just as importantly, we believe that we are going to get some additional contract renewals, some new contracts possibly in some markets, emerging markets, that we are currently not in, those kind of things. So there is a quid pro quo there.

But suffice it to say I -- personally, I am very encouraged by the way this thing has played out. Although I could tell you it was a very difficult negotiation, and I personally have spent considerable amount of time on this, as has most of the senior management team. But we believe the net result is a win-win.

Thank you. That's very helpful. The other thing I wanted to talk about is maybe a longer-term type of perspective. But last year at the Analyst Day, you were talking about the LeanSigma initiatives that you've been taking. And one of the things I look for when we are trying to track a company's progress on there is improvements in inventory turnover. Now given most of your revenues are from services, inventory turnover doesn't really give that good of an indication of the progress. So I guess my question is how do you gauge the progress of the investment that you've made over the last year?

On the continuous improvement, how we gauge --?

Yes. Is there a sort of metrics that as outsiders we can look at that might help us --?

I mean, we have some key metrics internally that we have not obviously shared. But maybe perhaps at some point we ought to put together some metrics to share with the outside.

For example, we obviously track the number of kaizen events. We track the cost savings as a result of that. The capital avoidance, the CapEx avoidance, which is a huge, huge part of this long-term, we are committed to -- under the CI program -- to take out a substantial amount of capital. And so the capital avoidance is one of the most important aspects of this thing.

And then there is a bunch of other metrics, from the amount of time, the amount of space, all those kind of things, as a subset. So we have numerous metrics that we measure, but we've not compiled any specific ones for external, but we can certainly consider doing that to give you a little more color.

It would be helpful as you move along. That's all I've got. Thank you very much.

(Operator Instructions) Tim Hayes, Davenport & Company.

Good morning. Just a question on the cost savings, the target of $125 million. Of that, remind me again how much is going to come from headcount reduction.

Well, unfortunately, I can tell you that -- and it is something we're obviously not proud of -- is that we've already reduced our headcount globally by about 3500 people. And when it's all said and done, it will be closer to 4000 people. So that is something we are not proud of because we like to employ people.

So -- and don't forget, we had over 400 locations in 50 countries, so the -- it has been spread. Although I've got -- quite a bit of it is coming out of the UK. But that -- so does that answer your question?

I was kind of looking for a dollar figure. And then follow-up to that dollar figure, when business does come back, is there some idea of you would be hiring some of those folks back, or is the 4000 a permanent cut? Just wanted to get an idea of how much of the headcount is permanent versus what would end up going away when business conditions improve.

This is Steve. I think Sal indicated in an earlier response that approximately $100 million of the savings are considered permanent. And the way we are doing that is rationalizing facilities. For example, the Infrastructure business had way too many facilities to begin with, so what we've been doing is basically taking -- shutting down some of those facilities, moving equipment around to where it is needed around the globe. And as a result of that, when we take a facility and we rationalize it and make it redundant basically, those costs go away permanently.

So that is the type of thing we are seeing, along with -- we are changing our processes as well, as far as the continuous improvement program, looking at better ways to do things in general, reducing the time it takes to perform some of the processes administratively, as well as in operating the business itself. So between a continuous improvement and a rationalizing of facilities, those savings are permanent type savings, and it results in approximately $100 million of the $125 million that Sal mentioned.

Tim, Gene. Just to add also, particularly even in our Metals group, we found that we had quite a number of part-time employees and contract employees. And we can assure you that many of those, if not most, if not all, will not be coming back.

Okay. And on another question on the restructuring costs, could you give the breakout by segment? We caught the $1.7 million in Infrastructure. Just wanted to see how the other restructuring charges hit the other segments, including corporate.

It was mostly the Infrastructure segment that had the restructuring charges in the second quarter. It wasn't the -- in the second quarter, it wasn't a lot of corporate. And the Metals charges that were taken starting in 2008, and continuing in the first-quarter. But the second quarter substantially Infrastructure related. We are seeing the upcoming downturn in the markets compared to what we had seen before that we focused on Infrastructure.

All right. And what was the total restructuring for the quarter (multiple speakers)?

$2.3 million was [the net].

Right.

Okay.

And we're probably going to incur a similar number for the remainder of the year, each quarter, we think. There will probably be about $2 million a quarter, because there has -- and it's in our guidance -- because there are still further actions.

As Steve said, one of the things we are doing on the Infrastructure business, it has given us an opportunity to do, is we re-examined the way the business is positioned in various countries through our continuous process improvement, as well as some of these other countermeasures, we are closely examining the most optimal locations, if you will.

So we are closing down locations. We are consolidating locations. And also at the same time, we are implementing a global ERP system, which will mean that we won't need as many people to run this business. We will not need as many locations to run this business. And we will not need as much equipment to run this business. So we are going to greatly optimize the business, so when business does come back, when the markets return, a lot of those people, unfortunately, will not be coming back to the organization.

And a similar thing is in our Metals business as well. As we continue to redesign process through CI, what we are finding is that we don't need as many people and we don't need as much equipment. So again, when the markets return and production does pick up, a similar thing; we will not need many of those people back.

So to answer your question, out of the 4000 people that we think are unfortunately going to be gone from the organization by the end of the year here, it's hard to give you a specific number, but I would say quite a few, unfortunately, will not be coming back once the markets return.

Okay. Thank you.

Jeff Hammond, KeyBanc.

Just a housekeeping item on tax rate. How are you thinking about the second half tax rate?

Jeff, the tax rate will be, we estimate, in the area of 24% effective income tax rate for the year.

Okay, so just in my model, that kind of implies a bump-up to the high 20s in the second half?

Basically in the first half, the effective rate is the rate on a continuing operations basis. In the first half, there were some discrete items over and above that. There could be some of those as well in the second half. But the effective rate, everything considered, 24% for the year.

Yes, we talk, Jeff, the sustainable effective tax rate, there are, because of the accounting rules, these one-off, discrete items that kind of confuse the number a bit.

Okay, so that is pulling out those discrete items in the first half. So second half, you are thinking about a 24% tax?

24% (multiple speakers).

Okay, that's helpful. And then just -- I'm just trying to better understand the trajectory and kind of where we are on Infrastructure. Would you say that adjusting for seasonality that 2Q kind of represents the bottom? Or just as you look at projects coming off and things coming on, where do we kind of reach the bottom in terms of rate of change?

We think it is more Q3, Jeff, in all honesty. We saw the dramatic change in Q2, and I think we are certainly getting to the bottom. It is hard to say when you've hit bottom, when you haven't. But certainly, we are floating around the bottom of this thing.

The UK -- again, going back to the UK thing and the US thing, that surprised us, the depth of the deterioration in both markets. That was unexpected to that level. So it is hard to say what is going to happen in the third quarter. We are just not seeing a whole lot of activity. As I indicated, we are getting people literally calling us to come get the equipment. They are stopping construction, etc., etc.

Now the good news is we had been repositioning in this business. The industrial side still continues to do relatively well. We are making some inroads into places like India, for example, and other parts of Asia. But it's slow. And we have some other expansions in some of the African countries, and particularly the Gulf region countries. But it takes time to get into those markets and expand into some of the other markets that we are in. But we are making headway.

And like I said, the other thing -- I don't want to overstate the effect of this, but we continue to spend a considerable amount of money, particularly in the Infrastructure business, at moving massive amounts of equipment. That is very expensive, and we take those costs, obviously, as they are incurred.

Secondly, we've been doing quite a bit of recruiting as we try to strengthen this team. One thing that has exposed -- the recession always ends up exposing -- particularly a "great recession" like we are in now -- exposes people. So we've had to make considerable changes in our global leadership team. So that cost is being incurred as we go along. And also we are positioning people. We are moving people, as we reposition equipment, resources and so forth, to where the markets are. And that is being incurred as we go along.

Okay. I know visibility is clouded in the near term. But just considering the long-cycle nature of the business and, again, how kind of projects are rolling off versus rolling on, how would you be thinking about 2010? Is that another down year, or is 2009 kind of the low point from your perspective?

I would hope 2009 is the low point, Jeff. Given all the strategies that we outlined here for you, we think 2009 should be the low point, and you should see -- but it's all tied into the global GDP, as you well know. So if the global GDP goes up next year, we would expect this business to perform better.

Okay. Thanks, guys.

Yvonne Varano, Jefferies.

Just back to Arcelor, with that agreement should we assume that they are back to paying the fixed fee on their contracts? And then can you talk about how they pay it and whether you anticipate recouping all of that?

I mean, again, Yvonne, without giving too much of the details, we believe that we satisfactorily resolved that. Yes, they are going to pay and true up all the invoices. Just suffice it to say that, and that the situation is such that it is a win-win for both parties, okay? I think we both came out of this with benefits that we had not anticipated going in, as we worked together as a team. So we will recover and obviously get our invoices paid.

Sure. And then in this environment with what is going on in steel, have you seen other companies more interested in outsourcing?

I think generally, the metals industry particularly is more prone to outsourcing than any of the other businesses in general. We are not seeing a dramatic change one way or the other.

I am hoping, personally, that what we've been able to demonstrate here with ArcelorMittal, that we can do a similar exercise with some of the other steel companies, and we can show them the value that we can bring to them and help them lower their cost structure and improve their results.

Great. And then just I noticed on uses of cash that share buyback was not mentioned. Can you just tell me where that falls in terms of a priority?

Right now, Yvonne, we don't anticipate share buybacks this year.

Yvonne, our goal is we want a very, very strong balance sheet. And by the end of the year, the debt should be down quite a bit. And we continue to generate a significant amount of free cash flow. That will continue next year. We want to be extremely well-positioned from a balance sheet standpoint, and so as the markets recover, we can take advantage of opportunities throughout the world.

You did mention potential tuck-in acquisitions. Is that more a 2010 event, and are you seeing a loosening up of any opportunities out there? Is there still a disparity between what people want for the business versus what you are willing to pay?

I can tell you that we've worked on quite a few acquisitions so far this year, and every single one of them has fallen apart because of price. We are still having -- people will not face the reality of today's environment. They still want pricing based on the old economy, and that old economy will never come back. And they just will not face the brutal facts that this is the new norm.

So we've walked away from quite a few transactions already this year. We've been actually very aggressive and looked at a number of transactions, and we've been fully occupied with that. But we have not been able to complete one deal this year and it was all due to pricing.

Okay. Well, thank you very much.

That concludes today's questions. Mr. Fazzolari, you may do your closing remarks.

Thank you. Thank you very much. I would just like to summarize briefly and reiterate briefly our key strategies, because I really believe this is the way to get out of this great recession, weather this "great recession" that we are in, and with the objective of emerging from it a much stronger company.

And also, I believe that these actions will position the Company very well for a bright future. And there is principally four key strategies. The first one is, again, enacting our proactive and aggressive countermeasures that we talked about, which the objective is to permanently reduce our breakeven point. Many of these actions are sustainable, as we talked earlier, and we do believe and we will not stop at the $125 million number that we mentioned.

Secondly, we will continue with our robust emerging market strategy. We believe this is a very important aspect of the future of the Company, with a particular emphasis on the Gulf region of the Middle East and Africa, Brazil, China and India are some of the key focal points of our strategy. And the execution of this strategy will not only better balance our portfolio, but it will provide growth in sales, earnings and EVA.

Third, you know, the continued strengthening of Harsco's global leadership team, as you've seen in press releases all year, and you will probably continue to see for the remainder of the year, as well. We are determined to get that right.

And finally, maintaining, as we've talked about, the strong balance sheet and generating abundant free cash flow, because this really provides the foundation for building what we call an enduring enterprise.

We thank you for your support, and we thank you for joining the call today.

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

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