Valmont Industries Inc (VMI) 2005 Q3 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 Valmont Industries third-quarter earnings 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) Thank you.

Mr. Laudin, you may begin your conference.

Welcome to the Valmont Industries third-quarter 2005 earnings conference call. With me today are Mogens Bay, Chairman and Chief Executive Officer; Terry McClain, Senior Vice President and Chief Financial Officer; Mark Jaksich, Vice President and Corporate Controller.

Before we begin, please note this discussion is subject to our disclosure on forward-looking statements which applies to today's talk and will be read in full at the end of the call. The instructions for accessing a replay of this call can be found in our press release.

I would now like to turn the call over to our Chairman, Mogens Bay.

Good morning, everyone, and thank you for joining us. I presume you have had an opportunity to read our earnings announcement. Let me begin with the third-quarter highlights. First, operating income increased 39%. Second, net earnings were a record of 10.2 million, representing a 44% increase over last year. Third, operating income rose significantly in the Engineered and Utility Support Structures segments as a result of margin recovery in North America as well as strong performances in Europe and in China.

Fourth, operating income rose in the Coatings segments due to improved plant efficiencies and reduced workers compensation costs. Fifth, cash flows from operations were strong at 36 million for the quarter and 91 million year-to-date. Finally year-to-date we have repaid 57 million in debt, bringing our long-term debt to total capital ratio down to 39.5% below our target level of 40%.

Before turning to the performance by segment, I would like to make a few general comments. We are pleased to see significant improvement in our operating income percentage both for the quarter and year-to-date. This is the result of a focus on the quality of our earnings. We believe that the markets we serve globally and the leadership positions we hold should allow us double-digit operating income over time. That is our target.

To put this in perspective, let me remind you of some of the challenges we faced over the last few years. First we saw the collapse of the telecommunication market. Then we experienced a severe downturn in the utility market that was followed by 12 to 18 months of unprecedented steel price increases and volatility in the steel markets. And over the last 12 months, a serious downcycle in irrigation businesses worldwide.

Despite all of this, we are operating at record revenue levels and record earnings. Clearly our diversification over productlines and geographically has benefited our Company. We have three initiatives being implemented throughout our Company to further help us improve our returns. They are better skills in transaction pricing; lean manufacturing; and improved employee engagement through a cooperation with the Gallup organization.

Now onto the segment review, beginning with the Engineered Support Structures segment. Sales increased 5% to 125.4 million and operating income increased 77% to $13.2 million. Last year during the third quarter, steel costs were rising while our backlog contained lighting in traffic orders, some of which we could not recover the cost increases. This year steel prices stabilized and our orders are priced more appropriately.

Global sales of Engineered Support Structures were higher due to a combination of better market conditions in Europe and a strong performance in China. In North America lighting and traffic sales were flat with the long delay in the passage of the highway bill led to the postponement of many roadway construction jobs.

A question we are asked is when will Valmont benefit from the new highway bill? The answer is over time. The new highway bill is funded at a substantially higher level than the last one and it gives local authorities the confidence to move forward with new projects. As a result, we expect to see increased opportunities for our lighting and traffic businesses over the next few years.

In our specialty structures business, science structure sales improved due to increased market penetration and the acquisition of Sigma, which took place in the third quarter of last year. Sales of wireless communication products were essentially flat in North America. Our wireless business is a good example of where we focus on earnings quality. This is a very competitive marketplace and we are selective about the orders and price levels we accept. As a result in recent quarters, wireless communication business has had a positive contribution to segment results on flat or even lower sales.

Our China structures business continues to perform very well. During the quarter we had a substantial increase in utility structure exports from China into the Asia-Pacific region. Higher utility and wireless communication sales in China reflect the increased demand for infrastructure to sustain economic growth there. To support this growth, we are in the process of constructing our second power plant in China, this one in the south of China. It should be operational in the second quarter of 2006.

In the Utility Support Structures segments, sales decreased 8% to 51 million. The sales decrease resulted from shipment delays from this summer's hurricanes. Utility crews around the country were diverted from installation projects throughout the country to the Gulf to help restore power. This delayed several jobs. Operating income of 4.9 million is an improvement of 37% over last year as pricing returned to more traditional levels. Our backlog continued to grow throughout the quarter.

In the Coatings segments, third quarter sales of 22.2 million were essentially flat with last year. Operating income on the other hand was 76% higher at 2.6 million due to a better mix, plant efficiencies in our amortizing businesses and lower workers compensation costs in California.

In the Irrigation segment, sales were 11% lower at 55.5 million. Most of the sales decline was in international markets where lower crop prices and increased import costs reduced demand. In North America, equipment sales were modestly lower but parts sales improved due to the hot dry weather. Operating income of 4.9 million was 7.4% higher, reflecting the positive impact of cost reduction measures implemented earlier in the year.

Manufacturing input costs are on the rise for our Irrigation equipment. Steel, copper, zinc, and numerous component parts are under inflationary pressures. We must continue to manage pricing in light of these conditions. The benefits of mechanized Irrigation equipment in reducing labor costs, increasing yield, and using water more efficiently still make Irrigation equipment one of the best investments a grower can make.

In the Tubing segment, sales of 20.4 million was 7% lower than 2004 and operating income decreased 10% to 3.7 million. Both reflecting lower steel costs than the same period in 2004. Our Tubing business remains solidly profitable as we continue to serve customers in applications that allow us leverage our engineering manufacturing and customer service skills.

Turning to other financial measures, inventories are down by about 8 million from the end of the second quarter. The increase in other long-term liabilities is tied to deferred liabilities related to the acquisition of Newmark. In terms of cash flow, the depreciation and amortization for the quarter was 10.1 million and our capital expenditures for the quarter were 4.7 million. Capital expenditures for the year are expected to total between 35 and 40 million and depreciation and amortization are expected to be within the same range.

As we look ahead to the fourth quarter, we expect favorable comparisons with last year's record fourth-quarter results. We should experience good operating cash flows and we plan to further reduced debt.

This concludes the prepared portion of our remarks and I would like to take your questions.

(OPERATOR INSTRUCTIONS) Arnold Ursaner, CJS Securities.

A couple of questions. Obviously the driver for us in the quarter was the margin and I guess I have a couple of questions about that. Did you impose specific surcharges in Q3?

We had surcharges in the Coatings business in Q3. Otherwise I don't think we had specific surcharges.

Okay. I guess again is any other help or guidance you can give us on what drove this unusually good gross margin in the quarter? And how sustainable it is as you look to the balance of the year would be appreciated.

Well I think in general, Arnold, it has been what I talked about, the focus on our quality of earnings. We are the single largest player in both the Irrigation business and the structural businesses, but they are fragmented markets particularly structural business worldwide. There is plenty of business out there to be had if we are willing to pay any price. And we have really been focused on getting our margins up.

As you remember over the last couple of years particularly as a result of the rapidly increasing steel costs, we saw some pressure on margins and we're trying to recover that. My hope would be that we are merely returning to more normal margin levels and therefore they should be sustainable.

Final question for me if you would is on inventory reductions obviously it had a pretty positive impact on cash flow in the quarter. Looking back over the last two years or so you have built up inventories quite a bit when you were concerned about availability of steel. What is your view now about -- and on levels of steel inventory, and can you be a little more specific on volume reductions you may have had in steel -- in inventory?

Arnie, this is Terry McClain. Basically the volume reductions, we have had volume reductions and we don't see an availability issue with the exception of certain specialty plate steel. That will continue because of the nature of the suppliers and how they run certain steel, so we feel that we are getting more in line with our historical turnovers. And because of availability, I'd don't think we're going to have to if you will, order ahead on steel in general. Now the exception to that again is plate steel.

That primarily relates to the utility business and I think they will have to keep relatively speaking more steel per sales dollars than they have in the past.

Arnold, also on the question of steel pricing, we kind of saw some softening in steel pricing as we progressed through this year, but it was somewhat halted as a result of Hurricane Katrina and we are right now kind of watching what is going to happen in the steel market. So we also want to be careful that we don't run out of steel.

Did the price of steel in your view -- the prices steel you have in inventory -- did that specifically impact your margins in the quarter?

No, I don't think so. It was priced at market levels.

So there are no inventory profits built into the gross margin improvement?

No.

Okay, thank you.

James Gentile, Sidoti & Co.

I have several questions just to perhaps get more insight into your prepared remarks. First with the Coatings, very solid operating recovery driven by "improved plant efficiencies and lower workers comp." Could you kind of quantify perhaps how much we picked up on the workers comp? Is this the type of expense that returns into perhaps next year?

And then what these improved plant efficiencies, how they are derived -- are they permanent? Are there some closures, etc.?

Well, start with Worker's Comp. In 2004 in this quarter we had a significant amount of Worker's Comp expenses, particularly in California. And they are tied to all cases that we were getting out of our system. So the improvement we have seen this year, which is in the hundreds of thousands of dollars in the quarter, we expect not to see a reversal to the levels we saw last year. So in other words the profitability improvement as a result of that we think is sustainable.

We also saw a mix change more towards higher profitable products in the anodizing business, stronger performance in the galvanizing business, and less intercompany sales in that business. We downsized our operations in California in the anodizing business as our mix changed, which now we have substantially fewer employees there. And that will also help with Worker's Comp expenses going forward. So we think that we have the structural change in that business that is reflective of current profitability levels.

Is there any focus on taking some capacity off currently moving into 2006?

No.

So pretty much the downsizing reminiscent of California is pretty much done, so there won't be anymore?

We will continue to adjust manpower levels by plant depending on the kind of activity levels we see. But we do not have any plans of shutting down plants or combining operations.

Okay, and then for the first time in my time covering your Company, you focused on kind of a longer-term operating income target of double-digit margins. Is this a five-year goal? Is this a three-year goal? What do you hope to achieve here?

Let me answer first by saying yes, I think I would like to say it's a three-year goal. We've seen good operational performance improvement over the last couple of years. It may take five years, but the message really is that that is the area we are focused on, our business units are focused on it to improve the quality of our earnings. And if you go back in time, we have been up there close to those levels and therefore that is why I kind of put it into perspective with some of the landmines we have walked around over the last few years. I think that the underlying earnings power in these businesses should provide double-digit operating income, but clearly it isn't going to happen overnight but we have a focus on it.

The sequential and year-over-year trends indicate that you're moving in the right direction. Just two more quick questions. You focused on the -- this is the second consecutive quarter where we saw kind of a lower-than-expected Utility Support Structures topline. There were some delays in deliveries from the second quarter if I remember correctly and now some weather-related delays in the third quarter. But you commented that backlog is up. So could you perhaps give us a little bit more to hang our hats on in terms of how much we can expect for the fourth quarter, with the backlog looks like; how long it's going to take for that to turn into revenue?

To make a general comment on the utility business, if you look at our utility numbers over the last couple of years, they were not very pretty a year ago. So this is also the business where we have really focused on getting the right margins, recovering from the steel cost increases last year, getting the joint operation between Newmark's concrete plants and their one steel plant and Valmont's Steel Utility Plant, which is now under one management, to operate smoothly.

And in that business, the focus has been on let's get the margins up where we need them to be more than volume. Having said that, we clearly see lots of activities out in the utility industry and that is being reflected in an increased backlog. But even in that business, our focus is on the bottomline and the returns more than the volume but also I have no doubt that we will see good volume increases over time in this business also. I think the fundamentals are there to continue to grow that business.

What could this business look like in terms of revenue in 2006?

We will have higher revenue than in 2005 is our current plan. And so that is well over $200 million in revenue next year. But we're in the middle of our strategic planning process which we will present to our board tomorrow and the interoperating plan will be prepared between now and December so at our next call I will give you more details as to what are view is on the utilities business for next year.

Thank you very much. Good job.

Jason Rope (ph), Lord Abbett.

Good morning, gentlemen. Good quarter. The one question I had was in regards to the Irrigation segment. If you looked at the competitive environment, it would suggest the environment would -- is a lot weaker than your numbers would suggest. Do you have any color on that? Is there a share gain happening here? I would appreciate it.

Well, in general I do not think there has been much movement in the share in North America in the Irrigation business. As I did point out, most of our decline in sales has been in the international market and most of that is really focused on two large markets, Brazil and South Africa, that have both had a difficult market conditions and over time that will correct itself. But again also in the Irrigation business, our focus has been on hanging onto profitability but not giving up market share. And we have a very strong organization to help us in getting that accomplished.

Currently we have the beginning of a new Irrigation season that started here in September. And I detect more optimism going into this next season than I saw a year ago. And I also see that we have an improved order flow compared to last year. Our challenge in this business is also to deal with the inflationary prices I talked about. Throughout the industrial economy, there's lots of upward pressure on components that we purchase and we need to make sure that we find ways to pass that on in the marketplace.

Regarding the optimism in the market, is that a function of profitability of farmers and farmers that have historically looked at your products as basically a need versus more of a penetration issue in terms of getting additional customers and just more optimism on that side?

Let me put it a little in perspective. Over the last couple of years, Irrigation equipment pricing really did go up significantly as a result of the very much higher steel price increases. But even at current levels, Center Pivot Investment is a good investment for the farmer. I do not think that has changed. Now this is not -- I cannot give you data on this prediction but I think of this explanation -- I think that we really saw the effect of a sticker shock. I think that with pivot prices going up as rapidly as they did compared to a great number of years with basically very little increase if any in center pivot prices made some of the customers stand back and say wow, I wonder of this going to last and I don't have to buy right now.

So I think tighter (ph) may be the optimism we're feeling this year compared to last year has to do with the fact that maybe that sticker shock is somewhat behind us.

Great. Thank you and good quarter.

Jonathan Braatz, Kansas City Capital.

Getting back to the sort of the Irrigation side of the business, you were talking a little bit about sticker shock. As you move into this season, this Irrigation season, are Irrigation prices down from where they were last year or are they still at the relatively high levels? And is there room, or is there any expectation that you can bring prices back down?

I think prices are down slightly from the levels of last year. That is answering the first part of your question. The second part of your question really has to do with what happens to input costs. And currently steel prices are not dropping any further than what we already saw and as I mentioned, we're seeing some inflationary pressures on other components, steel, components we buy from stock suppliers, and if that comes to pass, clearly we're not going to see a downward trend in Irrigation equipment pricing.

Okay. Secondly obviously we saw most recently energy prices and natural gas in particular rise significantly. As you look at your energy needs and the way prices are at this point, what are your thoughts about these higher energy prices on your margins across the board? Are they going to be -- are we going to notice them in terms of your margins as we move into the fourth quarter and maybe in the first quarter too?

Let me first answer your last question. No, I don't think so. High energy prices affect us to various degrees depending on the business segment. The largest direct input is in the Coatings business. And in the Coatings business we are implementing and have implemented surcharges to handle this additional cost associated with energy.

In the other businesses we just have to make sure that our pricing reflects that increased cost. The fact that they had gone up as fast as they did in a way may make it easier to make the case with your customers, particularly in the Coatings business because you can't open a newspaper without reading what is happening to energy prices. So it is not a difficult sell in the sense that is it happening or isn't it happening? The only question it comes down to is the competitive environment such that it allows you to pass it on? And we are staying focused on doing exactly that.

Thanks. Lastly, Terry, obviously your cash flow this year will be pretty good and certainly as we look at next year you could generate significant amounts of free cash flow. At this point, would you prefer to pay back debt or are there some acquisition opportunities out there obviously at the right prices that I assume you'd rather look at acquisition opportunities than necessarily pay back debt at this moment. Is that sort of a correct assessment?

We're looking at acquisition opportunities all the time, John. But as you know, we're trying to focus those into absolute click type acquisitions, stuff that we already do basically or enhances a business situation. So we are looking at those that but we really want to get our debt levels down. And we don't have any pending acquisitions, particularly any large acquisitions right now that would keep us from continuing to pay down debt.

So basically most of your free cash flow at this moment I should presume should go to debt repayment?

Yes. Jon, let me answer that. There is no pressure around here to go out just because we have strong cash flows and we have good debt capacity to go out and find ways in an aggressive way to spend that money. We would much rather pay down debt and be patient to find the right acquisition that clicks right into what we know.

Sure. Thanks.

Tom Klamka, Credit Suisse.

My questions have all been answered, thank you.

Greg Hyde (ph), Wachovia Securities.

Good morning. I may not have written this down correctly but I think Mogens, that you talked about sort of three strategic initiatives, the first being better pricing skills if I wrote that down correctly. Two being lean manufacturing; and three being maybe for a better way to put it, better employee involvement.

That is correct.

Could you talk about where you are on the first two of those items and in terms of how far through the process you are? And then with respect to better pricing skills, maybe you could just elaborate on what that means?

Well, if you take first the pricing skills, we have been working over the last number of quarters with a consultant within the McKenzie Group, Michael Mann (ph), who wrote a book on pricing. And it is basically getting us better trained as to the various elements of pricing, understanding what customers put value on in our pricing and what they don't. And make sure that we match better our transactional pricing in a way that it meets up with customer expectations.

On lean manufacturing, we started a lean manufacturing process in the Irrigation business 1.5 years ago. We have seen good results there and we are basically expanding it through the rest of the businesses. We will add on a resource at Colbert (ph) to be the catalyst to transfer best practices not only among plants within segments but also between segments.

And the last initiative is the one we have with Gallup on employee engagement, where we -- every 9 to 12 months we measure worldwide the level of engagement of our employees. We train people. We train supervisors to address the issues that have come up during these surveys, and we just finished our second worldwide survey and we saw good improvement in engagement levels compared to last year. We expect to continue that process.

It is very difficult to put a number on how does improved engagement translate into improved bottomline performance, particularly as we encircle our businesses, but we just absolutely believe in our gut, that if we have people that are more actively engaged, more enthused about what we do and better understanding why we do it, they will do a better job and it will translate into better financial performance.

So on the better pricing side I gather you like if you were making an error at all it was probably that you were leaving money on the table as opposed to not being as competitive given a certain situation?

That is not a bad way to put it. We need to make sure that if we give discounts that they are discounts in areas that are truly appreciated by the customer and not across the board.

Okay, and then just one other question which is informational, but maybe I missed this, but D&A for the third quarter, do you guys have a figure on that?

Depreciation and amortization?

Yes.

10 million.

10 million even? Okay. Thanks very much.

(OPERATOR INSTRUCTIONS) A follow-up from Arnold Ursaner, CJS Securities.

A couple of small follow-up questions if I can. In Q2 you had a lower -- we had a bump in tax rate this year versus this quarter versus Q2. And also in Q2 you had mentioned in your prepared remarks that you had had lower bonus accruals. Can you comment a little bit on fourth quarter tax rate guidance and did you reverse some accruals this quarter? At the back end

Arnie, it's Mark Jaksich. On a tax rate, what bumped up that tax rate this quarter was a relatively minor provision we took against some state tax credit carryforwards that when we examined those, there appears to be a component of those we don't think we're going to be able to use before they expire. So if you took that item out of there, our effective tax rate would be pretty close to where we have been in the first two quarters.

Regarding the G&A items, no, there has been some increase in some incentive accruals as our earnings are up as a corporation, so there has not really been any substantial reversals at all in the incentive area.

Okay. Loans -- you haven't spoken at all about wind power. I know you have been observing some losses there with the dramatically higher prices of energy, improvements and composites. What are you thinking these days on wind power and do you have a view of if you can turn this profitable?

The reason I have not talked about it is that quite frankly there is still a lot of uncertainty as to how we play in that marketplace. On the goods side is we have a product that has been approved by several outside engineering groups, most importantly Germanischer of Lloyd, which is the an German certifying Company that works with the wind industry. We have a prototype manufactured at our Valley plant. We have discussions going on with Mid American Energy to put a prototype up, part of their wind park in Iowa. We hope that will happen over the next month or two.

And we do need to get turbines on structures to make sure that we have something to show the marketplace.

Secondly on the good sides is that we feel based on our calculations that we can be cost competitive at good margins with our structure installed cost. The benefit from our structure is much lower transportation costs and the components are the size where they can be galvanized for better corrosion protection.

So from a product standpoint, we are very optimistic. From a market standpoint, we are also very optimistic in the sense that the wind power market is here to stay. It will never be a huge part of our overall energy generation, but even if it is only a few percentage points, it is a very large business worldwide.

The biggest markets going forward for wind apart from North America is still countries like Spain, but big emerging markets like China. Now we have manufacturing facilities available to support those markets.

So what is the unknown? The unknown is how do we fit in the marketplace in the sense that traditionally the turbine manufacturers whether it is General Electric or Vesters or now Siemens, they tend to sell complete installations, powers and turbines together. A number of them have their own tower manufacturing facilities.

So what is the best way for us to enter into the way business is conducted today? I think that is our biggest challenge. It is not products. It is not size of market. It is how do we fait within that market? What is our entry point?

Two more questions for me on the utility business if I can. One is a year ago you saw a pretty good pickup in the utility business but part of what drove it then was customers concern about availability from wireless manufacturers that had ended the utility business were very price competitive and you saw a number of utilities come back to you over concern of availability. Given that steel appears to be much more available today, what do you think is driving them back to you now?

First of all let's go back a little. The specific issue you refer to was several years ago when the wireless communication business collapsed and a number of the people that served wireless communication with (indiscernible) poles (ph) went after the utility business. Subsequent to that, you have seen a general increase in activity levels in the utility business, more investment dollars being allocated by utilities to expand and upgrade their distribution and transmission lines. So I think what we have seen today and what we have seen over the last year or so is generally higher activity levels in the utility business. And I think we will continue to see that and our challenge is to earn a fair share of that activity.

One more again on the utility business. Power substations is a small piece of your utility business, but I believe it is materially higher margin. With the various problems we have had weather-related, are you seeing a pick up in demand for power substations at this point?

We have not seen a pickup in demand on substations as it relates to weather events recently. But we do have a pickup in demand in substations over the last 12, 18 months. So the level of activity we see in substations is more back to what we consider normal levels and it is a good business for us.

Final question on the Irrigation business. The farmer you're selling to is faced with some pretty big uncertainties with higher diesel fuel costs and some other items. Can you comment a little bit about your backlog if any? And now that the harvest season is ending, I would assume you are seeing them actually focus on new order activity. Where do we stand on backlog and new order activity in Irrigation, given the farmer income issue?

Talking about North American market, I would say that we are seeing a slightly higher activity level this year than we saw last year at the same time. Talking about the issues our customers are faced with, they are real. Energy prices are up which means their cost of doing business is up whether it is pumping costs, whether it is diesel fuel for their tractors, whether it is fertilizer costs and commodity prices are not that attractive. So therefore, they are faced with some challenges as it relates to profitability.

Having said that, in any business then the focus is on how do you drive down your cost and improve your profitability? And our equipment is still a very good investment to improve whatever the general competitive level is or economic level is to improve your performance compared to not having it. You do save water and therefore pumping costs. You do save labor. You do get increased yields and can therefore invest in better input, whether it is seed or fertilizer, etc. So everything else equal, the center pivot is a great investment for most farmers.

And going back to the Sidoti question regarding margins longer-term, I go back a little longer with you. You have had margins in the solid double-digits in things like Irrigation but never had them before in Engineered Support Structures. To get back to your goal, would it be more in the Engineered Support side or on the Irrigation side?

Well, I think when you talk about the improvement in margins to get us to double-digit as a company, that improvements is mostly going to come from the Engineered Support Structures, probably recovery in the Tubing business -- no, in the Coatings business. The two businesses where we think there may still be room for improvement but we're not going to -- it is not going to be significant is in the Tubing business, which is operating at very strong margin levels and also our Irrigation business. I think the competitive situation in the Irrigation business will probably not allow us to improve those margins substantially. But in the Engineered Support Structures business, I think mix and geographic coverage should allow us to see some significant improvements.

Okay, thank you.

Bob Fetch, Lord Abbett.

You referenced directionally some of the changes in sales that occurred during the period, but can you tell us what for example China sales were versus a year earlier?

Hold on one second.

If you could also let us know the run rate on your wireless related sales?

I can tell you that China sales were up about 50% in this year's quarter compared to last and operating income grew significantly higher than that. But that should not translate into saying that China sales will continue to go up 50%. You have seasonality in China. We had a big export order. But in general we like the opportunities in China. We like the fact that we focused on one plant for a number of years. We have a good local management team in place. We do not have expatriate (ph) management in China anymore. We are pleased with how they operate.

If you look at it in a macro sense, as I told you, we are building our second plant in the south of China. To put it in perspective, the Shanghai plant probably can do about $50 million in sales and the plant close to Bonchoi (ph) will be about the same size. So that gives the $100 million in capacity and if you look at the size of China, the size of the infrastructure markets and their potential growth rates, there is no doubt that $100 million of capacity and China should not be a stretch to get filled over time.

Okay, so again the more direct question now, how close are we to 50 million in sales with the (multiple speakers) ?

In China today we are very close.

And how much of that is export though?

I would say about 20% is export and the rest -- as a matter-of-fact I would hope that this year we will probably just pass through the $50 million mark in China -- in the structural side.

Okay. In regards to the seasonality, which periods are the largest and which are the smallest?

We're a little dependent on weather like we are in our infrastructure businesses worldwide. So which would mean that depending on weather patterns the first quarter could be a week quarter and typically the third and fourth quarters are the stronger quarters.

And you referenced an emerging market in wind in China. The sales that you just mentioned, do they exclude any wind sales?

Completely. There are no wind sales in China. There are no wind sales anywhere. There's product development and the expectation that we can create a business that is good for us within wind, but in none of our numbers do we have any revenue for wind. We only have expenses.

There's very, very small wind sales in the specialty structures group for a very small turbine, but it is insignificant.

Those are more ladder type structures for very small turbines and it is just a few hundred thousand dollars.

You have talked in the past -- hurricanes helping the businesses, wooden polls etc. are more likely to be replaced by alternative materials. Are we frankly just seeing more of that as say, building codes or customers are finding that they are just better off spending a little more up front?

It is a tough question to answer. Whenever you have a hurricane hit like Katrina, it creates havoc short-term. Also for our business because what really happens is and what should happen is that a lot of the projects that we were scheduled to ship our products to, the installation crews are going to help with emergency repairs in the Gulf region. Now a hurricane and particularly the devastation to some of the workflow lines, it would be my hope that it will move utilities more towards using steel or concrete, which will stand up better in high wind situations.

So nothing you can directly attribute to the last season?

I can give you anecdotal examples of where that happened but I can't tell you there is a trend that I can put a number on.

Are you seeing the progress that you had hoped by having -- being able to offer concrete along with steel to your utility customers?

Very much. As a matter-of-fact, one of the examples I have of an emergency order as a result of Katrina was concrete bottom sections that can be easily embedded and steel top sections. So yes, we are very much seeing not only the potential benefit of offering both steel and concrete and combinations of the two but we're also seeing it in our order flow.

Okay. Are you offering and do you see the same impact on the wireless side as well?

No. I mean it could happen, but no, I can't say we're seeing that. The typical structure we would sell to wireless is a ladder type structure out of our micro flake tire rod organization or a steel structure out of our last four facilities.

You talked about on the Irrigation side sales being down internationally. I know you had talked optimistically for example about a market like Libya that had been closed for 20 years. Did you not see the growth there or the orders there or were some other major customer markets were they weaker than expected?

I think it is a question of size. Yes, we are seeing activity in a country like Libya where when you compare a starting from zero and redeveloping the market in a country like Libya and you compare it to a downcycle in big markets like Brazil and South Africa, the increase in Libya drowns in that overall picture.

And was there anything specific to those two markets that may have resulted in sales being what they were in either of those markets? -- That type of short-term?

Commodity prices have been down and on top of that in Brazil, Brazil has had a surprisingly strong currency. And the Brazilian farmer is very dependent on export particularly with soybeans and with the strong currency they have been less competitive in the world markets than they used to be.

Okay. And you had talked about California being from a shortage of water standpoint, a much larger potential market over time. Is that still just slowly developing or are you beginning to see somewhat faster traction there?

I would say it is slowly developing. We are seeing more sales in California but it is in a way a developing market for us because it has been so dominated by Flood Irrigation. But yes, we are seeing improved activities, but again not to the scale that it is having a major impact on our overall business.

On the new product front on Irrigation, is there anything that is likely to prompt a farmer to buy some of the equipment either for the first time or replace some of his existing equipment?

Well, a major portion of our market is conversion from flood Irrigation to center pivot irrigation. You save pumping costs. You save labor. You get more uniform water application and therefore you get better yields.

On the controls side, remote control of center pivot is continuously being developed where farmers can control all their pivots from their farm office. And they can start and stop and monitor them and constant additions of new technology helps in this whole sales picture but the basic one is if you move from gravity flow irrigation to center pivot irrigation it is usually a good investment for the farmer to put that in place.

Lastly, are there any important senior management positions that are open that need to be filled?

One. We reorganized our divisions and senior management earlier this year and we are re-establishing an international position and we have a search going right now for president of that division. And the international division will comprise both our Irrigation activities worldwide outside North America and our pole activities.

We felt that with the international business being of substantial size now that having 100% attention from a management group would be helpful at this juncture. And we also feel that we can more leverage between people and facilities in Irrigation and the pole businesses particularly as we look at new markets in either of those products. So that is the only senior position where we have a search going currently.

So when you say earlier this year, that suggests that has been taking some time to find that right person?

Yes.

This search easily takes a number of months and I think we started the search in the May timeframe and we have had a number of candidates in and we may or may not be close to making a decision.

And where would they be located?

The plan is to locate them here in Nebraska and the reason for that is twofold. One, since our international business is split throughout the world, there is no geographic center that makes more sense than other places. But more importantly, the international division will have to continue to work closely with and depend on some support from the North American divisions and also give some support to North American divisions. So having some of those general managers physically very close together we think is helpful.

But it is likely to be an international type based in Nebraska?

It would be somebody with international experience based in Nebraska.

Thank you.

Greg Hyde, Wachovia Securities.

Yes. Thanks. Just one follow-up. As I think about 2006 capital spending, what goes through my mind is on the one hand all the incremental spending just to support the business and then I make adjustments for a non repeat of aircraft expense and then I make adjustment or not. And then if you can guide me here as to expenditures related to your new plant in China. That is sort of what is going through my mind. Can you help me firm that up a little bit more?

Sure. As we have talked before, our maintenance capital expenditures -- and this is what I called good maintenance, not just minimal maintenance -- is somewhere in the 22 to 25 million range. And the plant in China if you capitalized everything, a plant like China is about $9 million. So our capital expenditure focus next year at this stage is to say we would be into the normal maintenance type capital expenditures with the addition of some capital expenditures in China as we finish that plant.

So that plant roughly halfway through by year end in terms of your spending there do you think?

I don't know whether the capital spending will be halfway through by year end. It should be maybe close to that.

Thanks very much.

Michelle, we would like to conclude the call.

Included in this discussion are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions that management has made in light of experience in the industries in which Valmont operates as well as management perceptions of historical trends, current conditions, expected future developments, and other factors believed to be appropriate under the circumstances.

As you listen to and consider these comments, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties, some of which are beyond Valmont's control and assumption. Although management believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect Valmont's actual financial results and cause them to differ materially from those anticipated in the forward-looking statements.

These factors include among other things risk factors described from time to time in Valmont's reports to the Securities and Exchange Commission, as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability and price of raw material, availability and market acceptance of new products, product pricing, domestic and international competitive environment, and actions and policy changes of domestic and foreign governments.

The Company cautions that any forward-looking statement included in this discussion is made as of the date of this discussion and the Company does not undertake to update any forward-looking statements.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.