Enviri Corp (NVRI) 2009 Q3 法說會逐字稿

Good morning. My name is Kyle, and I will be your conference facilitator. 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 prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions)

Also, the telephone conference presentation and accompanying webcast made on behalf of Harsco Corporation is 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. Sal Fazzolari, Chairman and CEO of Harsco Corporation. Mr. Fazzolari, you may begin your call.

Thank you very much. Good morning. I would like to welcome everyone to Harsco's third-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, as customary, 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 the 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 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 a replay 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. Excluding the one-time charge -- and Steve will give you a little more color on that when we get to his comments -- we were obviously pleased with the overall performance in the quarter, particularly given the continuing difficult market conditions.

I will focus the remainder of my comments this morning on the Harsco Infrastructure business. I will also outline for you all that we've accomplished this year, and we've accomplished much, particularly --or arguably through the worst global economic and financial crisis of our time. And I will summarize the reasons why we believe that we will return to earnings growth in 2010.

As we highlighted in the press release today, the unavailability of credit is having a material impact on the commercial construction and the multifamily construction markets, particularly across Europe and the US. This is exacerbated by the continued lack of stimulus funds, which is negatively impacting infrastructure projects, particularly in the US. Pricing pressures are also having a negative impact on results, as competitors chase a limited number of available projects throughout the world.

As noted in today's press release, we expect the performance of the Harsco Infrastructure business in the fourth quarter to be lower than last year's fourth quarter and the prior three quarters of 2009. We, however, are not standing still and waiting for the markets to improve. In fact, to the contrary, we've been very proactive and aggressive on many fronts, which I would like to share with you this morning.

Our major actions and strategic initiatives underpin our confidence for a return to modest growth in 2010 in our Infrastructure business. First, we have made meaningful and measurable progress on reducing costs in the Harsco Infrastructure business in the past year. Nevertheless, there is more that can be done and more will be done to lower our overall cost structure. The additional savings will come from such measures as further consolidation of branches, global shared services and other key countermeasures.

Another area that we are focusing on that can deliver considerable savings in 2010 and beyond is our new global supply chain initiative. We believe that there are substantial opportunities to enhance our performance by implementing a world-class global supply chain management system. I will give you a little more on this a little bit later.

In addition to our aggressive and sustainable cost-saving initiatives, there are several strategic countermeasures that will allow us to redeploy more rental equipment from Europe to the emerging markets. A very good example of this is the joint venture in China that we announced yesterday that will be operational late in the first quarter of 2010. We are very excited about the prospects of working in the Chinese infrastructure market.

This announcement follows the joint venture company established last quarter in Saudi Arabia, another very substantial emerging economy with massive infrastructure spend. We are aligning ourselves with the right partners in the right geographies with growth economies.

Also, we anticipate closing on one additional bolt-on acquisition in the fourth quarter that will further allow us to redeploy excess equipment from Europe to new growth markets.

In summary, then, considering the significant cost reduction initiatives already completed and the additional savings currently in process, coupled with the countermeasures of joint ventures and a possible bolt-on acquisition, we feel very positive that the Harsco Infrastructure business will be better positioned in 2010 to withstand the ongoing turbulence in the market and improve its overall performance.

Moving on to the macroeconomic environment, in my 30 years of Harsco, I have not seen a year like 2009. Without a doubt, this has been the most difficult economic period in the history of the Company. Navigating through this great recession has been challenging, but we believe that we will emerge from this a much stronger Company. I am steadfast in my belief that Harsco's best days are still ahead.

Much has been accomplished in the past year that I would like to highlight for you. We have significantly lowered our cost structure and reduced the breakeven points of all of our business platforms, with more savings, we believe, to come. As we stated in the last conference call with you, we proactively and aggressively expanded our countermeasures during the year, and we now expect at least $125 million in annualized savings from our countermeasures, which we expect to fully realize next year in 2010, with approximately $100 million being realized in 2009.

We have executed our emerging markets strategy with great vigor, as evidenced by key joint ventures and new contract signings. We expect to announce further contract signings in the fourth quarter, and hopefully announce at least one small additional bolt-on acquisition that will further expand our footprint.

We have recruited top talent across the world and have considerably strengthened the global leadership team. We expect to eclipse our $300 million capital expenditure reduction target for the year. We also expect to generate at least $250 million in free cash flow this year. This CapEx discipline that we instilled in 2009 will carry over to 2010, where again, we expect to achieve considerable free cash flow.

We rebranded the company under the Harsco name. Starting in 2010, all businesses across the globe will operate as one Harsco. We strengthened our relationship with key customers.

So in summary, much has been accomplished. We also have a strong balance sheet. We have healthy liquidity. We have excellent free cash flows. We have a leaner cost structure, we are more aligned with today's global economic reality, and we continue to vigorously execute our emerging market strategy.

So let's move on now to our outlook for 2010 and why we believe that we will see earnings growth next year. Some of this, what I am about to say, is repetitive from the 2009 accomplishments that I just outlined for you, but I believe were important to reiterate in the context of next year's performance.

We have made substantive and measurable progress this year in positioning Harsco for a return to earnings growth in 2010. Our confidence in 2010 is underpinned by the execution of our robust emerging market strategy, as reflected in announced new joint ventures and new contracts. In addition, we expect to announce more contract signings over the next month.

But probably the most important factor underpinning our confidence is our significantly reduced cost structure, with a full $125 million in cost reductions being fully realized in 2010, with potentially more savings to come, as I will explain next.

We are now in the process of commencing, with the help of an outside third party, a strategic global supply chain initiative that we believe will further reduce our overall cost structure and continue to drive down our breakeven points. We will provide more details on this at the December analyst meeting in New York, once we have publicly announced who our partner is in this very important initiative.

Augmenting these and other strategic initiatives are the encouraging signs from certain key economic indicators, as you are well aware of, particularly strengthening global steel production and the weakening of the US dollar.

In addition, the Company's financial condition remains healthy - a strong balance sheet and excellent free cash flows.

I will now turn the call over to Steve, our CFO, who will give you more details on our performance for the third quarter. Steve.

Thank you Sal, and good morning everyone. As reported in this morning's press release, the Company recorded a one-time, nonrecurring, out-of-period adjustment of $0.11 per share, related principally to the reversal of improperly recorded revenue isolated to one business unit and one country in the Harsco Metals group. The reversal resulted in a failure to receive advance customer agreement for additional work performed by the Company for two customers.

As a result of this, the Company determined that reversal of the accrued revenue was required in the third quarter. No prior period was materially impacted by this adjustment. Exclusive of this one-time adjustment, the Metals group's performance was better than expected.

As anticipated, our third-quarter earnings continued to be impacted by the difficult global economic environment. This is particularly true for the commercial construction market sector of our Infrastructure business. However, the 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 third-quarter earnings that exceeded our expectations.

The benefit of our diverse business portfolio were evident in our performance, as the Harsco Minerals & Rail Group's results, particularly Harsco Rail, offset the expected lower performance of the Harsco Infrastructure group. 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 costs. We have established a culture of cost consciousness.

I will now discuss the third-quarter earnings for the Company and each segment, as well as our strong free cash flows and liquidity position. Third-quarter earnings in comparison to prior year were impacted by a significant reduction in commercial construction activity, resulting from the difficult credit environment for our customers. Additionally, global steel production levels continued to trail those of 2008, but increased on a sequential basis from the second quarter of 2009.

The headwind of frozen commercial construction credit markets continues today. An example of these effects is reflected in a statement by a respected economist that 'Most architects in the US are reporting that banks are extremely reluctant to provide financing for projects, and that new equity requirements and conservative appraisals are making it even more difficult for developers to get loans."

Despite the favorable impact to our results from the recent weakening of the US dollar on a sequential basis, I would like to emphasize that the effects of foreign currency translation still had a negative impact on the quarter in comparison to the third quarter of 2008. This is primarily due to the US GAAP requirement that the average exchange rates for the quarter be used to translate the income statement, rather than quarter-end exchange rates.

Overall, foreign currency translation reduced our third-quarter sales compared with 2008 by $53 million and operating income by $5 million, or $0.05 per share. As expected, on a sequential basis, the foreign currency impact in the third quarter was significantly less than the prior two quarters.

As I previously mentioned, we are relentlessly focused on maintaining a strong balance sheet and generating strong free cash flows, as we believe these measures are both prudent and reflective of a strong company. Therefore, I am pleased to report that despite the current economic difficulties, our year-to-date free cash flow is $154 million. Last year, our free cash flow was only $1 million. Free cash flow in this case is defined in a traditional way as cash from operations minus all capital expenditures.

As we have previously communicated to you, one of our key 2009 strategies is to reduce our capital expenditures by leveraging the substantial mobile equipment in which we have invested over the last several years. Through September, total capital expenditures were only $123 million, compared with $381 million last year. That is a huge $258 million, or 68%, year-over-year reduction.

This 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 provide a substantial leverage and financial flexibility in managing it through all phases of a business cycle, enabling us to maintain strong liquidity and free cash flow.

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, Latin America and Asia Pacific regions, where business remains more robust and where we have otherwise identified growth opportunities. Some of these opportunities have been recently announced in our Company's press releases.

As a result of our reduced capital expenditures and strong cash from operations, we remain on target to generate significant free cash flow in 2009. Free 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, 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 have paid down $88 million of debt since year-end. Balance sheet debt also declined by $51 million since December, a lower rate than the cash payments due to foreign currency translation. Our debt-to-total-capital ratio was reduced to 38.5% as of September 30. That is down 210 basis points from June and down 260 basis points from year-end.

Let's now review the third-quarter performance of each of the business groups. As in the first two quarters, Harsco Infrastructure was again significantly impacted in the third quarter by foreign currency translation, a reduction in global commercial construction activity and the difficult credit environment for our customers.

Foreign currency translation reduced third-quarter sales by $24 million compared with 2008. Excluding the effect of foreign currency translation, sales declined by 23% from last year. The stronger US dollar reduced the Infrastructure group's operating income by $3 million compared with last year's.

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 third quarter. However, this continued to be more than offset by general construction declines in the UK, other parts of Europe and in North America. Additionally, equipment sales to export markets continued to lag last year's levels due to the difficult commercial construction lending environment.

Given the still difficult market environment for construction, our near-term outlook for our infrastructure business remains 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 third quarter, a net $1.4 million restructuring charge was taken in this segment to implement further countermeasures.

However, reduced commercial construction activity continues to have a detrimental effect on this group, resulting in delayed or postponed equipment sales and projects. Global governments have made substantial commitments to stimulus packages to fund much-needed infrastructure projects throughout the world. However, in most markets, the funds have either not yet been disbursed or have not yet resulted in a significant increase in infrastructure project starts. We now believe the effects of this spending will not have a significant effect until mid-2010 or later.

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

Global steel production in the third quarter 2009 remained at levels well below the third quarter of 2008. However, volume has sequentially improved from the second quarter of 2009. Steel production for the Company's customers is 27% lower this year than the third quarter of last year. However, third-quarter steel production improved from the second-quarter 2009, when volume was 43% lower than the prior year. On a year-to-date basis, production is down 38% from last year.

In comparison to the prior year, production volume declines had a significant negative impact on Harsco Metals in the third quarter, resulting in operating income, excluding one-time adjustments, substantially below last year. The one-time negative adjustment approximated $13 million on a pretax basis. Therefore, as expected, excluding the adjustment, the third-quarter results improved significantly on a sequential basis over the second quarter's operating income.

Foreign currency translation reduced Harsco Metals' third-quarter sales by $25 million and operating income by $1 million compared with last year. Based upon customer production plans, our assumption is that steel production volumes will continue to increase sequentially in the fourth quarter. We will also continue to implement cost reductions in the Metals group to benefit future periods.

In the third quarter, restructuring costs of $4.7 million were recorded in the Metals group as a countermeasure. Excluding these costs and the one-time negative adjustment, operating income for the group was substantially higher than the second quarter of 2009.

The Minerals & Rail group posted very respectable results in the third quarter. All three businesses in this group posted better-than-expected third-quarter results, which were, once again, led by Harsco Rail. In the fourth quarter, seasonal factors are expected to affect the results of Harsco Minerals, and the timing of shipments is likely to reduce the income of Harsco Rail on a sequential basis.

And last, I would like to echo Sal by saying that as a Company, we will continue to be unrelenting in a 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 flow and liquidity. Those strategies, along with our continued implementation of cost reductions and other countermeasures, will provide significant future earnings leverage. We have no doubt that we will enter 2010 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 for you our current outlook for the fourth quarter of 2009. Although global steel production, as Steve indicated, remains at historical low levels, the outlook, as he also indicated, is for some improvement in the fourth quarter.

But on the opposite end, the outlook for construction markets is not as positive, as Steve indicated that the key markets continued to deteriorate -- in fact did deteriorate throughout the third quarter and will into the fourth quarter, as well.

The lack of credit, the severe recession and the lack of any meaningful benefits from stimulus packages continued to adversely impact these markets, particularly the UK and the US. I am sure you saw where the UK was actually surprised by their negative GDP in the quarter; and they were expecting a modest improvement. And so you can see that that market is particularly severely depressed and there is virtually no construction going on at all. And the US is not that far behind when it comes to commercial construction, particularly commercial construction projects. These negative trends obviously cause us to be more guarded about the expectations for the Infrastructure business in the fourth quarter.

I should be clear, however, that we are still confident that the Infrastructure segment in the fourth quarter will show profitability, but not, of course, to the level that we've seen the prior three quarters and last year's fourth quarter.

With respect to the near-term outlook for Harsco Minerals & Rail, as Steve indicated, it is going to be somewhat of a mixed bag. Harsco Rail and Harsco Minerals will continue to perform well, but not as well as the third quarter due to the timing of deliveries as well as seasonal factors. And the Harsco Industrial group will also continue to perform well, but will be down compared to the previous three quarters.

Taking all these factors into consideration and excluding, of course, the one-time charge of $0.11, we are adjusting slightly our range for 2009. Our full-year 2009 guidance for diluted EPS from continuing ops are expected to be in a range of $1.70 to $1.75. And that is from the previous range of $1.72 to $1.82.

That completes our formal comments now, and we would obviously be -- welcome any questions you may have.

(Operator Instructions) Jeff Hammond, KeyBanc Capital.

Good morning, guys. Just wanted to run through a little bit more of the moving pieces from 3Q to 4Q. It seems like as we listen to the steel companies, maybe utilization continues to improve to some extent. Maybe some of this noise and restructuring comes out of the way. FX has got to be a big help.

Is that -- is Infrastructure negative enough to more than offset all of that, as you think of like the sequential decline in earnings 4Q versus 3?

Yes, Jeff. I mean, it is Infrastructure, but also don't forget Minerals & Rail. They've had a phenomenal nine months. Even though they are going to have a good fourth quarter, it is not going to be as good -- part of it was because we did have a little bit of timing issues on some Rail shipments from the fourth to the third quarter.

So all those factors added up make us more guarded about the fourth quarter. But it is really principally those two things. Steve, I don't know if you have anything to add to that --.

No, it really is Infrastructure. No, you pointed out the key movements, the moving parts (multiple speakers) doing better and Infrastructure down and Minerals & Rail, because of the excellent -- the timing of shipments for Rail for example, aren't going to do as good as they have in, for example, the third quarter. But they will have had a phenomenal year, no doubt.

Okay. I think you said FX was a $0.05 headwind on an earnings basis. Can you try to help us bridge from 3Q to 4Q in terms of FX? It seems like FX translation is going to be a help in the fourth quarter, both year-on-year and sequentially.

Is there -- based on how you are looking at current rates, etc., how much help do you get there 3Q to 4Q?

I can't believe we are going to get much, Jeff, because you -- also you've got to remember where you are making the money, and so that is a big factor. Okay? So that is a huge factor.

So you've got to look where has been the most movement in the currency has been the euro. Europe, right now in general, and the Sterling -- there has been somewhat a movement in Sterling, as well. So if you look at those two major currencies, for example, those are the businesses that are suffering the most. So you are translating nothing, basically. You know what I mean? So you are not going to get much of a benefit there.

Okay. And then you gave us a little bit of picture into 2010 in terms of what you are doing on the costs and your focus on the emerging markets, and I think you just pointed to return to modest growth.

But can you give us a better sense of how you are thinking about the businesses, puts and takes into 2010? And then on this $125 million of cost saves, can you maybe speak of what would be incremental, that you didn't get this year that you would start to capture next year?

Jeff, we are obviously going to give you a lot of information at the December analyst meeting, because we are still in the midst of our planning cycle, which does not end until basically November -- right after Thanksgiving. So I can give you a few things.

For example, the incremental savings is $25 million. We said we are going to get about -- roughly about $100 million this year. We are certain we can deliver at least $125 million next year. That is what we are signing up to.

But we are not going to stop there. For example, we are kicking off this global supply-chain initiative that I mentioned. We are hoping to have a press release on that over the next 30, 45 days that will outline a little more about that. And again, we will give you more color on that in December. But we think there is some savings to be had even next year on that, that are not in the $125 million.

Also, when you look at the emerging markets, we are starting to make some very good headway. You saw China, you saw Saudi. There are more to come. We are still working hard in China. We are working in other mid-Eastern countries. We are working in India. We are hoping to have some announcements there.

So there is a lot underway, and we are hoping that by the time we get to New York in early December that you should see several new press releases and -- underpinning what I just said, support what I just said.

So you look at cost reductions, you look at emerging markets, you look at the trends in FX rates, you look at global steel production, coming off obviously the worst period ever.

Infrastructure, as I mentioned in my comments, we do believe, based on all the things that we are working on, particularly the cost reductions, redeploying equipment, and so forth, like I mentioned, I think, in the second-quarter conference call, we spent a considerable amount of money this year and continue to spend a considerable amount of money on restructuring charges, on moving equipment, moving people. All those costs are being absorbed to position the business for 2010.

So we do believe that we can get back to modest -- to use the word modest -- because I don't have all the details on that, because we are still putting all the pieces together. But we believe we are going to have modest return -- improvement in '10 over '09 for the Infrastructure group. Does that help?

Yes. The last comment on Infrastructure, you think modest improvement in profitability or you think revenues would be up, and I guess would that signal that 4Q is kind of the bottom?

We believe Q4 will be bottom and that modest improvement certainly in profitability. We are still rolling up the revenues, Jeff, and still looking at all the FX, so it is hard to give you -- we will give you everything you need in December. But we are confident that we will have some modest improvement in profitability.

And Jeff, regarding the cost reductions you had asked, we are still in the process of consolidating branches and centralizing functions, so that's an ongoing thing. We are a global company in 50 countries, so we have substantial opportunities in that regard. So that is part of the additional cost reductions that will be taking place going forward.

Jeff, the way we are approaching it is that irrespective of what happens to the economies, we are taking things in our own hands, the things that we can control. That is, we can lower our breakeven point, lower our cost base, number one. Two, there are a lot of opportunities, because of the business platforms we have, to grow in the emerging markets.

So those are the things we are concentrating on, the things that we can control and deliver. Then if we get any kind of bump from GDP or FX or whatever, that is great. That is all on the plus side.

Okay, thanks, guys. I'll get back in queue.

Jim Lucas, Janney Montgomery Scott.

Good morning, guys. This is Mike Wherley standing in for Jim Lucas. You were talking about the CapEx numbers for 2010. I think you said they would be relatively similar to 2009. Did I hear that right?

Well, we are still working those numbers, as I just mentioned to Jeff, as well. But if you look at what we're -- there will be some growth CapEx next year, a little more than we've had this year, because of press releases that we just made and press releases that will be made in the next couple months. So there will be additional growth CapEx next year relative to this year.

However, if you look at -- we are going to greatly exceed or exceed the $300 million reduction in CapEx this year, so we are going to end up with about well over -- from $100 -- $450 some million (multiple speakers) last year to 150 million some this year; so a $300 million reduction. Now next year, when you look at the CapEx, it probably won't be quite as dramatic, but certainly we are still going to be able to generate a substantial amount of free cash.

Because cash from operations will go up, so the equation still stays the same. If cash from operations goes up, CapEx may go up, but the two numbers move in tandem, so the net number, the free cash flow number, is still going to be pretty substantial.

One of the things we've learned this year regarding CapEx is, as I mentioned, our asset base, our capital rental asset base is very mobile. And this year, because of the economic situation and the reduction in capital expenditures, we really learned a lot about how to move equipment around the globe very, very efficiently and cost effectively. So we learned -- our logistics programs improved tremendously. That helps reduce CapEx on an ongoing basis, as well.

So (multiple speakers) have improved, and we are able to use those assets much more efficiently and effectively.

Okay. And did you give a percentage of what 2009 CapEx is growth CapEx?

The growth CapEx was only 50%. I think this year it is a little bit more than that, the growth CapEx so far, since we've allocated, in some cases, growth CapEx in some of the projects that had been announced previously. And some of the new projects in Metals, as well, the new contracts you saw in the Middle East, for example. So it's a little bit higher percentage this year, growth versus maintenance. Normally, it is about a 50-50 split.

Okay, thanks. The other thing I was wondering about is as you were evaluating some of these underperforming contracts in Harsco Metals over the past year, I am just wondering if this one-time charge came about after Harsco pulled out of one of those underperforming contracts.

No, that was not the case, no.

And is there any chance that there are similar situations at any other Metals, where --?

No, we don't -- it was an isolated incident, one country, one business unit, one group, and that is what we know. It is just one situation; no other situations exist in -- throughout the globe.

Okay, thank you.

Glenn Wortman, Sidoti & Co.

Good morning, everyone. You guys posted another impressive operating margin in the All Other category. Can you just give us a little bit more color of what's going on there and whether or not those margins are sustainable? I know in 4Q, revenues can be down a little bit. But if revenue jumps back up again a little bit in 2010, can we think about 20 plus operating margins going forward?

Yes, those -- we are actually quite proud of that business, and we are trying to find ways to grow that Group. We are working very hard on the Minerals side. You saw an announcement in Austria where we got a major contract for Minerals. The Rail business is working very hard to expand across the globe.

And so it is really balanced. We have three business platforms there; we have Rail, Minerals and Industrial. And all three are performing extremely well under the worst economic conditions in 80 years. So there is -- obviously, they are doing something right there. And I think there is a lot of lessons for all of our businesses as to how to manage a portfolio. And it always comes down to people, it comes down to business model, it comes down to markets and so forth.

So if you look at the performance there, they had an extraordinary quarter. I think we did almost 21% margins there. And -- but that is consistent with some prior years, where we had -- I think in '07 and '08, we had some quarters that were in the 20s there.

And we see that being sustainable next year. Particularly when you look at that business, though, they tend to have stronger second and third quarters, and first and fourth quarters are not usually quite as strong. And for the year, you end up with a high teens margin or something like that. But certainly, we think that business can continue to perform next year to similar levels.

Okay, Thank you. And then just the pricing pressure you alluded to in the Infrastructure group, would you say the pricing pressure is accelerating?

I'm sorry -- say that again.

Accelerating the pricing pressure in the Infrastructure (multiple speakers).

Oh, the pricing pressures. No, I mean that has been ongoing all year. I mean, we are seeing consistent throughout the whole year. I don't think I would use the word accelerated. It is just a fact of life, when you have a limited number of projects and everybody is chasing those projects, particularly the Europeans. I mean, Europe has been decimated when it comes to this business. And you have a lot of European competitors, and most of them are private companies. And they are chasing any order they can at any price.

So we are being very selective, and we are moving equipment and people. And in some cases, obviously, we are participating in certain markets. But that is what is truly driving it. It is really a European thing.

Okay. And finally, on the already announced restructuring initiatives, were you at or near the full run rate as far as your cost savings during the third quarter?

No.

No. Because as Steve said, we still took -- I think it was $7 million additional reorganization charges in the third quarter. So we will not be really at a full run rate of all those savings until January 1 of 2010. That is why we expect to get the full impact in 2010 of at least $125 million.

Okay. Thank you very much.

Yvonne Varano, Jefferies.

Thanks. Just a couple things. You talked on the Infrastructure side, it seems that you think 4Q could be the weakest quarter and getting better into 2010. Can you just give me an idea of what your visibility is on that? And is it just some longer-term contracts you see coming through or projects?

Well, it's a good question, Yvonne. It is a bunch of stuff. Part of it is we continue to make very good head, make progress. We continue to make good progress on moving more into the pure infrastructure markets across the globe, number one. Number two, our industrial maintenance business, we are making good progress there.

You saw, for example, we did that small bolt-on acquisition in the UK. The reason we did that is it gives us a very good value proposition to go to the industrial market in the UK and strengthen that. Even though the construction market is at a standstill there, the industrial market continues to perform very well, the refineries and the petrochem and that kind of stuff.

So it is a market shift, number one. Number two, we moved a lot of equipment and lot of people to key markets. We've established a beachhead in Saudi, established a beachhead in China. We have a few other projects like that underway right now that we hope to talk about.

And so when you see all this, plus then you throw on top of that all the cost reductions -- that the Infrastructure group has been the group that has lagged the most when it comes to cost reductions, to be brutally frank with you. The Metals group was ahead of everyone, because you saw what happened last year with the Metals business. It literally fell off the cliff in the fourth quarter last year.

So they were the most aggressive, the most proactive in cutting costs and cutting -- the Infrastructure guys kind of were a bit lax to be honest with you. And so now obviously they got religion, and so they are catching up, and they are catching up with significant momentum. And so you are seeing a lot of costs being taken out of the business as we are going along here. And that will continue all the way through the end of the year.

And so all of those savings will not be really fully realized until next year, Yvonne.

Right, Yvonne, because of the nature of the business and the number of locations, they have a lot of properties which take -- has taken a little longer to exit than we had hoped for. So we are -- that's been accelerated over the last quarter or two, so we are getting out of those properties. That will reduce our costs, as well as the associated fixed overhead related to those facilities. So that is going to benefit next year more than -- much more than it has this year.

So would you classify your optimism as being more cost-driven or more topline-driven?

It's cost. A lot of it is cost. There is some top line, though. Like I said, Saudi, India, China, there are some things coming onstream and a couple small bolt-on acquisitions to get into certain key market segments. So the combination -- plus, you are not going to have the major headwind of FX next year, hopefully. And so there will be some revenue, but it is certainly a cost issue.

And as I mentioned earlier, we are getting much better at utilizing our equipment more efficiently and effectively throughout the globe with our logistics projects.

Are there any metrics that you can give us in terms of utilization rates and where they've been today or where you expect them to be?

No, I mean, Yvonne, not right now. But what we will promise is in December, we will try to give you some better metrics to give you a little more clarity. Like for example, the makeup of the market segments, perhaps some macro utilization rates.

As you can appreciate, all of our competitors are private companies, and we are the only public company, basically, out there. And so we are very sensitive about utilization rates and rental rates and those kind of things.

Any -- I know it is hard -- instead of actually giving an actual rental rate, is there many magnitude of the price declines that you could bracket for us?

Again, it is by geography. And the worst is Europe, like I said; although North America is right behind it. But certainly Europe has been bad.

Are we like 10 to 15, or are we 20 to 30? Is there any broad range you can give?

No, I mean I would prefer not to, in all honesty.

Okay. And is there any way you can break out what the potential added cost might be from moving the equipment around globally? I assume that costs you something.

It's an interesting question. We view those as normal, obviously, operating costs. But certainly, we probably incurred more this year than we have probably I don't know how many years combined. So maybe -- I mean, it is a very good question. Maybe Steve can pull that information together and we can share that with you at the conference.

Because it has got to be a pretty sizable number, because you have the reorg costs that we took this year, which are quite considerable, and that is closing branches and terminations and all that stuff. But that number, the moving costs, are not obviously reported in that number. That is a normal recurring cost, if you will, and incurred as you go along. So --

We do a cost-benefit analysis, obviously, before we move equipment. Say, for example, from Seattle to Singapore, we wouldn't do something like that. We try to manage it so it is cost efficient. And obviously, it is always more cost efficient than buying new equipment. So to buy new equipment is not the answer.

So yes, there has been significant cost. Some of it flows through the restructuring costs if you're closing a location, but most of it doesn't. It just flows through normal cost of sales.

We moved quite a few people this year to, Yvonne, you know. We have been placing -- we've set up a major headquarters in Dubai. So we incurred a substantial amount of cost moving people there from Europe to Dubai. In India, as well, we've set up quite a sizable group in India. So considerable costs incurred. So I mean, those things are going on. Again, we are positioning the business for 2010.

Sure. Just one on the Rail side. We know we have that China contact out there. Can you maybe tell us how far through we are in actually shipping product on that?

Yes, we are pretty much on track -- and no pun intended -- in that the full-blown shipments will be pretty evenly split between '10 and '11, with a little bit -- I'm sorry -- '09 and '10, with a little bit in '11. So the majority of the shipments will occur pretty evenly between this year and next year, with still a little bit lingering into the first, second quarter of '11. And so you should see a very smooth transition there from this year into next year.

Okay. And then just lastly, on the Metals side, I know there's been a lot of restructuring; we still see the restructuring costs coming through on that front. But is there an operating margin range that we can look at returning to?

Well, you know, our goal, Yvonne, has always been that we need to get back to double-digit margins. Will we get there next year? I can't say. Obviously, we'll hopefully be able to give you more specifics on that in December as we are working through that. But certainly, our goal is we've got to get back to double-digit margins. Just how long is it going to take us to get there? I can't answer that at this moment.

Is the feeling that we will see sequential improvement, though, in 4Q, as volumes come up a little bit?

Yes.

Yes, absolutely, and you should see, obviously, improvement next year in total.

Sure, because we've had some pretty low margins this year. Okay. Terrific. Thanks so much.

Tim Hayes, Davenport & Co.

Just had one question. In regards to the improper recording of revenue in the Metals segment, was there an adjustment to revenues to go along with the adjustment in operating income?

Yes, there was an adjustment to revenues. It was insignificant to the total revenues of the Company, though.

Yes, they did impact -- it did impact revenues, yes (multiple speakers). It was a revenue issue.

I does. Actually, most of that adjustment that I mentioned earlier of pretax, the $13 million, would have been recorded to revenues as well.

Okay. And that -- (technical difficulty) and that 13, that's -- aside from the restructuring is not part of that 13, correct?

That's correct. Separate item totally.

Okay. All right. That helps. Thank you.

(Operator Instructions) Jeff Hammond, KeyBanc Capital.

Just a couple follow-ups. Sal, you've talked about this emerging market strategy and some of the announcements you made, and there seems to be more to come. I know that is a longer range strategy.

If you look at those collectively, is that a meaningful contributor into 2010, or should we think of that as starting to really more gain traction into '11, '12 and beyond?

Yes, I think you just characterized it very well, Jeff. I think you will see some benefit next year, but certainly you will see -- should see significant benefits in '11 and '12, as we really start getting this thing geared up.

You can appreciate -- we started this emerging market strategy January 1, 2008. We are only two years into it, and I think we've actually done very well considering where we were. But as you can appreciate too, Jeff, a lot of these things just take a lot of time to really gain momentum. Like for example, we are still working on this Minerals project in China, and we still don't even have a contract yet. This Infrastructure project, though, will be more immediate.

Now, we are hoping on the Infrastructure side actually, because those revenues can be more immediate as opposed to the Metals and Minerals side, where you have to go through a lengthy, lengthy process, which sometimes takes years to really get them ramped up to their full run rate.

So we are really concentrating, in addition to this infrastructure JV that we just announced yesterday -- or the Commerce Department actually announced -- that we are working on another one we are hoping to get in another province. We don't have it yet, but just to give you an idea, there is a lot of initiatives. We are looking at a lot of things in India right now. We are hoping to be able to share some of those with you in December.

So -- but when you start putting all this together, it does take time, and I think you captured it beautifully, the way you said it.

Okay, and then just a couple housekeeping. Restructuring expenses this quarter were -- it looks like $6.9 million. And how should we think about that in the fourth quarter? And do you have lingering costs that would offset some of the 25 into 2010?

In the fourth quarter, Jeff, we don't anticipate a number of that magnitude for restructuring. And what was the second part of the question?

Just into 2010, are you still running restructuring through the P&L?

There will be restructuring costs running through the P&L from a standpoint of, for example, as you exit a facility, when you move equipment in that case to a new facility [or have at least runout] costs for the Infrastructure group, those types of things will be part of P&L. But normally, they are pretty routine and they are not significant amounts in any one particular period.

That has been ongoing this year as part of our restructuring program, and we anticipate that, because it takes some time to get out of these facilities, to be running through the P&L next year as well.

Okay. And then on the fourth quarter, do you have a sense of what that $6.9 million would go to? You said less, but is it 1, is it 3?

It is really not going to be significant.

It shouldn't be more than a couple million, Jeff, at the most. We think it peaked in the third quarter, certainly.

Okay, and how should we think about the fourth quarter tax rate and tax rate into 2010?

Yes, for the fourth quarter, the tax rate should be in the area of 22% to 24%, somewhere in that area. And we are still working on the 2010. A lot goes into that. It is a huge -- a lot of moving parts.

Okay. Should it be materially different than kind of the nearer-term run rate?

It is really hard to say. I don't think it will be really significantly higher, but it is really hard to say at this point.

Okay. Thanks, guys.

There are no further questions at this time.

Okay. Thank you. Well, in closing, I would just actually like to remind everyone that our annual analyst conference is coming up on December 11 in New York City, and we are looking forward to sharing with you all that we've accomplished this year, and probably more importantly to you, how are we going to really achieve our growth for 2010. And we are looking forward to sharing all that with you.

So again, thank you. We appreciate your support, and thank you for joining us on this call today.

That does conclude today's conference call. You may now disconnect.