Despite the global economic challenges which continue to adversely impact quarterly results, the Company has made significant progress in positioning the business for a return to earnings growth in 2010. The Company's confidence in 2010 is underpinned by the significantly reduced cost structure of the Company and the execution of its robust emerging markets strategy, as reflected in its new joint ventures, new contract signings and targeted bolt-on acquisitions. Augmenting these and other strategic initiatives are the encouraging signs from certain key economic indicators, particularly global steel production and the weakening U.S. dollar. In addition, the Company's financial condition remains healthy, with a strong balance sheet and excellent cash flows.

Third Quarter 2009 Highlights

Third quarter 2009 diluted earnings per share from continuing operations were $0.40, compared with the record $0.99 in the third quarter of last year. Negatively impacting results from continuing operations in the quarter was a $0.11 per share net non-cash charge related principally to the improper recording of revenue by a Harsco Metals business unit over a period of approximately three years. This was isolated to one country and is considered a one-time event. The impact was not material to any prior period.

Third quarter income from continuing operations was $35.1 million, compared with $85.5 million in the third quarter of last year. Income in the quarter was reduced by $9 million due to the net non-cash after-tax charge discussed above. Sales in the third quarter totaled approximately $0.74 billion, compared with $1.04 billion in the third quarter of last year. Foreign currency translation decreased sales by $53 million and accounted for approximately 18 percent of the sales decline. Foreign currency translation decreased operating income by approximately $4.6 million or $0.05 per share in this year's third quarter, in addition to reducing overall operating margins by 10 basis points.

On a year-on-year basis, the stronger U.S. dollar, lower global steel production, as well as significantly reduced global spending on non-residential construction and pricing pressures all continued to have a material negative impact on third quarter sales and income.

Despite the difficult economic climate, the Company maintained a strong balance sheet and again posted strong cash flows from operations in the third quarter and nine months. These factors enabled the Company to further reduce its debt levels and lower its debt to capital ratio.

Sequentially, the Company has begun to see some improvement in global steel production and an abatement of the strong U.S. dollar, both of which are positive signs for 2010. Challenges remain, however, in Harsco Infrastructure's end markets, with projects continuing to be cancelled or deferred due to the lack of credit and other factors.

For the first nine months of 2009, sales, income from continuing operations and diluted earnings per share were all below last year's record results. Income from continuing operations was $99.0 million, or $1.17 per diluted share, compared with $237.8 million or $2.73 per diluted share in the first nine months of 2008. Negatively impacting results from continuing operations for the first nine months was the $0.11 per share net non-cash after-tax charge mentioned above, which reduced income for the period by $9 million. Sales for the first nine months of 2009 were approximately $2.2 billion, a decrease of 29 percent from the approximately $3.1 billion in the same period last year. Foreign currency translation decreased sales for the first nine months by a record $309 million and operating income by approximately $33 million, or $0.34 per share. Foreign currency translation accounted for an unprecedented 34 percent of the total sales decline in the first nine months.

Comment

Commenting on the Company's results, Harsco Chairman and Chief Executive Officer Salvatore D. Fazzolari said, "It is encouraging to note that during the third quarter, on a sequential basis two of the major headwinds we have been facing for the past year have moderated and should provide momentum as we enter 2010.

"The recent weakening of the U.S. dollar in translation and the modest increase in overall steel production at mills served by our Harsco Metals operations are encouraging. Unfortunately, we continue to experience end market challenges in the Harsco Infrastructure business due to the continued cancellation and deferral of non-residential construction projects, as well as pricing pressures. Moreover, as previously noted, results in the quarter were marred by a one-time net non-cash charge of $0.11 per share.

"As we enter the final quarter of 2009, we are pleased with the direction of certain operational business drivers, as well as the progress we are making on a number of strategic initiatives. With steel production gradually increasing from its historical lows and weakening of the U.S. dollar, we see two important economic drivers of our business that, if sustained, will have a favorable effect on our future operating results. Further, we remain confident of our ability to reduce our cost structure and lower our break-even point by $100 million this year, as we have previously articulated, with more to come next year.

"We are very pleased with the recent new contract wins we have announced in our Metals and Minerals business platforms and are confident we will be announcing several additional contracts in Harsco Metals before the end of 2009. Additionally, we are increasingly confident of our ability to close on one or two additional acquisitions by year-end in our Harsco Infrastructure business. These will be strategically important countermeasures that should be accretive to earnings in 2010. Reflective of this was the smaller industrial plant services acquisition we recently announced in Europe which enhances our ability to gain further share in the strategically important industrial maintenance market.

"Nevertheless, significant challenges remain for our Harsco Infrastructure business, as non-residential construction spending in many of our key markets continues to be substantially below last year. There are several issues that play into this, including limited credit availability for our customers; government stimulus programs which have yet to be felt in any meaningful manner in the geographic regions important to us; and continuing pricing pressures. However, our ongoing cost reduction efforts, as well as our anticipated acquisition of several strategic bolt-on targets in key countries and our ability to move equipment to emerging markets, give us renewed confidence for 2010. I would particularly mention in this regard the new joint venture we announced yesterday with one of China's largest construction groups, which establishes a new gateway for us into the buoyant construction economy of China's fifth-largest economic province. We are also pursuing additional joint venture opportunities in other regions of China.

"We are most pleased with our cash flow performance despite the global economic difficulties. Our free cash flow (cash flow from operations less capital expenditures) improved by $152 million for the nine months. We have reduced capital expenditures so far this year by $258 million and we are well on our way to achieving our goal of a $300 million reduction for 2009.

"Looking forward to 2010, we are confident that we will return to growth next year. Our confidence is underpinned by our strong free cash flows and the opportunities these present; improving steel production; the favorable outlook for foreign exchange translation; and the ongoing benefits from our cost reduction efforts and additional countermeasures. Our confidence for 2010 is further strengthened by the accretive earnings we expect from new contract signings, joint ventures and anticipated acquisitions."

Third Quarter Business Review

Harsco Infrastructure

Continued cancellation and deferral of non-residential construction activity; pricing pressures; a difficult lending environment for the Company's customers; and the lack of stimulus spending for infrastructure projects again contributed to this Segment's reduced performance.

Sales in the third quarter decreased 29 percent to $279 million from $393 million last year. The year-over-year strengthening of the U.S. dollar through the third quarter continued to have a negative impact on sales from foreign currency translation, although much less than in recent prior quarters. The negative impact on sales from foreign currency translation in the third quarter was $24 million year-over-year, compared with $51 million in the second quarter of this year. Operating income was approximately $23 million in the quarter, compared with $60 million in last year's third quarter. Here again, foreign currency translation had less of a negative impact than in recent prior quarters, reducing operating income by $3 million year-over-year, compared with $8 million in the second quarter of 2009. The recent weakening of the dollar to the key currencies in which the Company operates, if continued, could further mitigate the negative impact of foreign currency translation in the fourth quarter and beyond.

Operating margins were a still-healthy 8.1 percent in the third quarter. This is down from the 15.3 percent recorded last year, but consistent with those of the second quarter of 2009. Negative foreign currency translation reduced margins by approximately 30 basis points in the quarter compared with last year's similar period.

Despite the fact that the Company is beginning to see incremental benefits from its cost reduction efforts, the remainder of the year for the Harsco Infrastructure Segment is expected to continue to be difficult from an operating perspective. The Company still does not foresee any meaningful near-term benefits from stimulus spending, particularly in the U.S. and U.K.; lending requirements are expected to stay restrictive; and overall non-residential construction spending continues to be down in most developed economies. All of these negative factors exacerbate the pricing environment. Performance in the fourth quarter is expected to be below the previous quarters this year.

Harsco Metals

Excluding the above-mentioned net non-cash charge, operating results at Harsco Metals reflect improvement from the second quarter, although still down year-over-year. Steel production has been gradually increasing overall at mills the Company serves, aggressive cost-cutting measures are bearing results, and the pace of new contract signings has begun to increase. These factors augur well for the future. The longer-term potential positive benefit from foreign currency translation is also encouraging. A major industry trade group has recently turned positive in its outlook for global steel consumption and production in 2010, giving another solid indicator for the future. Still, the Company remains cautious about near-term prospects because of the uncertainty of economic recovery in the U.S. and Europe.

Sales in the third quarter decreased 35 percent to $275 million from $424 million last year, due in part to the year-on-year strength of the U.S. dollar. The dollar's relative strengthening in the third quarter had a negative impact on sales of $25 million, and accounted for 17 percent of the decline in year-over-year sales. Nevertheless, this was less than half the impact seen in the second quarter of 2009, when negative foreign currency translation lowered sales from the prior year's quarter by $58 million. Including the one-time charge discussed earlier, the operating loss for this Segment was approximately $4.4 million in the quarter, compared with income of $33.3 million during this period last year and $4.2 million in the second quarter of this year. Further negatively impacting results in the third quarter for Harsco Metals were restructuring charges of approximately $5 million.

Operating margins in the third quarter were negative due to the aforementioned one-time charge as well as the restructuring charges noted above. Negative foreign currency translation reduced margins by approximately 60 basis points.

Harsco Minerals & Rail

As expected, operating results in the third quarter for this Group were down year-over-year, but only slightly.