Liquidity, Capital Resources and Other Matters

Net cash provided by operating activities in2009 was $434 million, compared with the record $574 million in 2008. However, net cash used by investment activities was $269 million, a 39% decrease from the $443 million last year. The decreased use of cash was primarily due to lower capital expenditures, down 64% or $292 million for the year. These reductions in capital expenditures were partially offset by $103 million used for bolt-on acquisitions in 4Q09. The Company continues to exercise stringent control over capital expenditures and is benefiting from the global mobility of its asset base.

These sharply curtailed capital expenditures have allowed the Company to significantly increase its level of free cash flows (cash from operations less capital expenditures) in 2009. Free cash flow in 2009 was a record $269 million, more than double the $117 million of free cash flow in 2008. The Company expects a similar amount of free cash flow in 2010 as it achieved in 2009.

The total debt to capital ratio on December 31, 2009, was 39.5%, a notable improvement of 160 basis points over the 41.1% recorded on December 31, 2008, due to the aforementioned free cash flows. This represents the Company’s lowest year-end total debt to capital ratio in more than a decade, since December 31, 1998.

Due to the difficult and challenging financial and economic environment in which the Company operated in 2009, Economic Value Added (EVA) declined for the year. The Company is dedicated to return to growth in EVA in 2010.

HSC expects free cash flow in 2010 to again be in the area of $250 million.

Dividend

On November 19, 2009, the Board of Directors of HSC increased the Company's dividend rate for the 16th consecutive year, raising the annual dividend to $0.82 per share from the previous $0.80 per share, while also declaring the Company's 239th consecutive quarterly cash dividend.

The increased rate equates to a regular quarterly cash dividend of $0.2050 per share. The new was payable on February 16, 2010, to Harsco stockholders of record as of January 15, 2010.

On November 3, 2009, the Board of Directors of HSC paid a quarterly cash dividend of $0.20 per share, or $0.80 per share on an annualized basis, to stockholders of record as of October 14, 2009.
 

On January 5, 2010, HSC announced that Paul O'Kelly has joined the Company's global leadership team to head the European region of the Company's Harsco Infrastructure business group. Mr. O'Kelly will assume executive management responsibility for all Harsco Infrastructure group operations and business growth opportunities throughout the entire European region.

Acquisitions and New Ventures

On November 10, 2009, HSC announced its acquisition of ESCO Interamerica, Ltd., one of Latin America's premier engineering and equipment services providers to the infrastructure sector and the number one market leader in Central America and the Caribbean. The acquisition reflects the significant growth opportunities and operating synergies that the Company expects to realize from its expanded footprint in the Latin American market. The acquisition is expected to be accretive to Harsco's earnings in 2010, and will be funded principally from the Company's strong cash flows. Terms of the acquisition were not disclosed.

On October 28, 2009, HSC announced that it has entered into a joint venture partnership for rental scaffolding, formwork, and shoring services and equipment with one of the largest construction groups in China. Harsco's agreement with Zhejiang Construction Materials and Equipment Company Limited, a subsidiary of Zhejiang Construction Group, brings together Harsco's extensive global expertise and resources with one of the largest construction organizations in China, having annual sales in excess of $6 billion. The joint venture will initially target major project opportunities in the commercial building, infrastructure, and industrial plant maintenance sectors of Zhejiang Province, a rapidly-growing region on China's eastern coast that ranks as China's fifth largest economic province.

On October 15, 2009, HSC announced new agreements between Harsco Minerals and two of Austria's leading stainless and specialty steel producers to recycle their metal making slags into environmentally beneficial commercial applications. The 10-year agreements have a combined revenue potential of up to $100 million over their duration, and both automatically renew for successive 5-year periods.

On the same day, the Company announced the signing of a new, multi-million dollar supply contract which expands its business with a major asphalt shingle manufacturer in the United States. The agreement is expected to add to Harsco's share of this market in 2010 and beyond. Under the contract, Harsco's Minerals division will supply a full range of roofing granules to customer plant locations across the U.S. for use in the manufacture of asphalt shingles, principally for the residential roofing and home refurbishment markets.

On October 12, 2009, the Company announced its acquisition of Nicol UK Ltd., a multi-disciplined provider of industrial insulation services, site services, and scaffolding to major petrochemical, energy and industrial clients throughout the UK. Terms were not disclosed.
 

• The primary risk to HSC is a deceleration in the global economy, which will likely result in lower steel production levels, and, thus, reduce service revenue at Mills Services.