First Quarter 2009 Highlights:

As expected, the soaring US dollar and unprecedented low global steel production as well as the ongoing credit freeze had a substantial negative impact on sales and income in the first quarter. First quarter 2009 diluted earnings per share from continuing operations were $0.25, compared with $0.67 in the first quarter of last year. First quarter income from continuing operations was $21 million, compared with $59.4 million last year. Sales in the quarter totaled $697 million, compared with $988 million in the first quarter of last year.

Foreign currency translation decreased sales by $140 million and accounted for about half of the sales decline. Foreign currency translation decreased operating income by $14 million or $0.13 per share in this year’s first quarter, in addition to reducing overall operating margins by 80 basis points. Historically low global steel production caused Harsco Metals to incur its first-ever quarterly operating loss excluding restructuring charges. Despite the tremendous global economic challenges, the company posted strong first quarter cash flow from operations performance. Cash flow from operations increased by 24% over last year’s first quarter.

Comment

Commenting on the company’s results, Salvatore D. Fazzolari, Harsco chairman and chief executive officer said, “As we anticipated, our performance was sharply lower for the quarter due to the global financial and economic crisis. The outlook for global steel production and non-residential construction markets continued to deteriorate throughout the quarter. The global economic recovery previously anticipated to begin in the second half of 2009 cannot now be predicted with any certainty. Our markets have deteriorated more than we expected.”

“We continue to face three substantial headwinds that are having a significant adverse impact on our business. They are: the soaring US dollar, which negatively impacts the translation of about 70% of our total revenues; the worst downturn in the history of the steel industry, where global production remains at unprecedented low levels; and the continuing credit freeze, which is causing cancellation and deferral of non-residential construction activity. It is difficult to see any short-term improvement in these drivers of our business. It now appears that the entire year will be extremely challenging. We will see seasonal improvement in our business and thus sequentially we expect each quarter will show improvement in our performance over the previous quarter.”

“In light of the deepening global economic and financial crisis, we have proactively and prudently implemented additional countermeasures in the first quarter which continue into the second quarter. We strongly believe that the countermeasures that we implemented in the fourth quarter of 2008 and the additional countermeasures taken in 2009 will manifest themselves as we operate throughout 2009 and beyond. At a full run-rate, we now expect these benefits to approximate $100 million in total cost reductions. In addition, we believe that the second half of 2009 will benefit fully from cost reduction initiatives, modest stimulus packages benefits, and new projects in the Gulf Region of the Middle East and the Asia Pacific region.”

“We remain confident that we have the people, the fortitude, and the discipline, along with the market opportunities and a significantly lower cost base, to weather the storm, and we have the unwavering faith that we will emerge from this crisis an even stronger company.”

First Quarter Business Review

Harsco Infrastructure

Several factors contributed to this segment’s expected lower performance in the first quarter. These include the soaring US dollar which negatively affects about 80% of Harsco Infrastructure’s revenues and earnings; the continued lack of available credit that has resulted in cancelled and delayed construction projects, as well as export sales of infrastructure-related equipment being sharply down; the deepening recession in key markets; higher pension costs; and a harsh winter, particularly in Eastern Europe.

Sales in the first quarter decreased 25% to $284 million from $379 million last year, due mainly to the soaring US dollar. The significant strengthening of the US dollar in the first quarter had a negative impact on sales from foreign currency translation of $59 million, and accounted for nearly two-thirds of the 25% decline in year-over-year sales. The remainder of the decline was due to lower operating performance, principally in the UK, which reduced sales by about $36 million. Operating income was $18.8 million in the quarter, compared with $37.8 million in last year’s first quarter.

Here again, negative foreign currency translation was the largest factor in the decline. Negative foreign currency translation reduced operating income by $5.9 million, or nearly one third of the year-over-year decline. Also contributing to the decline in income in the first quarter were lower business activity across many regions, principally in the UK; higher defined benefit pension costs of $2.5 million; frozen credit markets that adversely affected the company’s Germany-based equipment sales export business; and severe winter weather in Eastern Europe. Partially offsetting these negative markets were improved results from the Gulf region of the Middle East and the industrial maintenance work in both the US and Holland, all of which contributed solidly to the first quarter performance.

Operating margins were 6.6% in the first quarter, compared with 10% last year. Negative foreign currency translation reduced margins about 60 basis points, with the remainder due to higher pension costs and the ongoing global economic and financial crisis.

Continued strengthening of the US dollar and a difficult project funding environment due to the tight credit markets are now expected to negatively impact year-over-year results for much of 2009, as will higher pension costs. Spring construction activity should show an increase in volumes, but this will continue to be mitigated until the difficult tight credit environment abates and banks begin to lend again.

However, as the company’s growing geographic expansion efforts take hold, and with a modest expectation of a loosening of credit for project financing as the year progresses, the implementation of global economic stimulus packages later in the year, and the benefits to be realized in 2009 from the company’s countermeasures, the company expects results to improve during the seasonally stronger quarters. However, full year results for the Segment will still be down from 2008’s record performance.

Liquidity, Capital Resources and Other Matters

Net cash provided by operating activities for the first quarter 2009 was $39.6 million, a 24% increase over the $32 million for the prior year. Net cash used by investing activities was $31.4 million, a 71% decrease from the $107.1 million last year. The decreased use of cash was due primarily to lower capital expenditures, which is consistent with the company’s strategy of significantly reducing capital spending in 2009.

As previously announced, the company began to sharply curtail its capital expenditures in the fourth quarter of 2008. For all of 2009, the company now expects to reduce such expenditures by about $300 million from total capital expenditures in 2008 of some $458 million. Such action will allow the company to significantly increase its level of free cash flows. This higher level of free or discretionary cash flow will allow the company to further enhance its balance sheet and maintain its dividend, as well as take advantage of other opportunities for growth and debt reduction as they present themselves.

The company now expects cash flow from operations in 2009 to be in the area of $400 million and total capital expenditures to be in the area of $150 million.