Valmont Industries Inc (VMI) 2010 Q2 法說會逐字稿

Good morning. My name is Christine. I will be your conference operator today. At this time, I would like to welcome everyone to the Valmont Industries second 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 session. (Operator Instructions) I will now turn the call over to Jeff Laudin, Manager of Investor Relations. Please go ahead, sir.

Thank you, Christine. Welcome to the Valmont Industries second quarter 2010 earnings conference call. With me today, are Mogens Bay, Chairman and Chief Executive Officer, Terry McClain, Senior Vice President and Chief Financial Officer, and Mark Jackson, 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 the call can be found in our press release. I would now like to turn the floor over to our Chairman and Chief Executive Officer, Mogens Bay.

Good morning, everybody and thank you for joining us. Let me begin with some second quarter highlights. The utilities structures revenue and operating income were sharply lower. The egation segment comparisons were favorable with last year. Coating segment also had favorable sales and operating income performance, and the engineer and support structure segment results were negatively impacted by reduced government investment and infrastructure of weak global wireless communication markets and pricing pressure. The total earnings impact of the Delta financing and expenses were $0.45 a share.

The real story for the quarter and the year is the drastic reduction in utility activity and performance compared to a very, very strong 2009. The utility support structure segment had a 48% decline in sales and a 76% reduction in operating income as we experienced deleverage of factory and SG&A costs on the lower revenues and a very tough pricing environment. These results stand in sharp contrast with last year's exceptional second quarter results, the latter part of 2008 as the financial crisis was unfolding, utility companies were still placing substantial orders for (inaudible) infrastructure. This set the stage for Valmont's record year in 2009.

As utilities were budgeting for 2010, the reduced capital spending plans for transmission and distribution pushing out some larger projects, probably in reaction to lower demand for electricity and falling revenues. This led to a substantial decline in our backlog. We expected to see a meaningful pickup in utility orders by now, but that has not occurred, and market participants are chasing a smaller market leading to a deterioration of pricing and margins. In discussions with our utility customers and industry participants, we do not hear of projects being cancelled. What we do hear is that a number of projects have been delayed to defer capital spending until the economic recovery is more certain, permitting and regulatory approvals have also caused some delays on certain projects.

In the utility business, orders and projects can be very large and the size and timing of projects can create lumpy revenues and earnings between quarters and even between years. We like our precision in this market. We like the industry, and the opportunities it present us worldwide. Our activity level will rebound as utilities make the necessary investment in the nation's and the world's transmission and distribution grid to increase capacity, improve liability and support economic growth. In a very challenging environment currently, we are pleased to still see operating income percentage above 10%.

Turning to the Engineered Support Structures segment, sales were 10% lower at $134.7 million. Operating income decreased 30% to $8.1 million. Segment profitability fell largely due to volume deleverage and a competitive pricing environment in most global markets. Last year the Engineered Support Structures Segment was a source of capacity for the utility business and the loss of this intercompany production resulted in some manufacturing deleverage.

North American commercial lighting sales were lower due to the recession's impact on real estate development. Sales of products for the transportation market were higher reflecting some positive impact of Congress extending the highway bill until the end of this year. We will need a new highway bill, though, to have more visibility in this market, in this country. The structure market for wireless communications slowed but we have a substantial components business serving this market that continues to perform well.

In Europe, sales of lighting and traffic products were lower largely due to economic weakness and the reduction of government stimulus programs when compared to last year. In the China market, wireless communication product sales were lower as wireless carriers deferred network investment. The fact remains, though, that you can't grow the economy over time without investing in infrastructure, and as the global economy gains traction, infrastructure spending will resume.

We have combined Delta's businesses into one segment for the rest of this year. We will evaluate our segment structure going forward by year end. Delta's contributions to revenues between May 12, and June 26, was $74.2 million, and operating income was $7.2 million net of approximately $2 million in acquisition related amortization, resulting in an operating income percent of 9.7%. The integration process is going smoothly and the businesses are running well. Recognizing that Valmont has only owned Delta since May 12, but to provide you with some general data we can say that for the first six months of this year Delta's engineered steel product sales and operating income were comparable to last year and Delta's galvanizing services sales and operating income improved over last year.

We report Delta EMD, the South African manganese business in our results, but we are currently in the process of selling this business. One of the benefits from the Delta acquisition was an increased global footprint. In particular, exposure to the resource-driven Australian economy and the faster growing Asian economies. We're expecting that the combined Valmont and Delta businesses have good opportunities for growth and development going forward.

In the egation segment sales were 11% higher at $112.2 million and the egation segment operating income increased 69%, so $16.6 million and was 14.8% of sales. Volume levels of operating costs and somewhat improved pricing was the primary reason for the profitability gains. Even though current commodity prices are below last year's, farm income is expected to increase in 2010 in North America, driven by the livestock sector. Farmer sentiment and spending has improved from 2009's depressed levels, and this year has also seen conservation subsidy programs in North America reemerge as a positive factor.

International sales increased in most major regions, resulting from an improvement in grower confidence compared to the same period last year. In the Coatings Segment, second quarter sales were 17% higher at 34 -- $33.4 million. The relative strength is probably due to a rebuilding of manufacturing and fabricator inventories that were drawn down during the recession. Operating income increased 19% to $7.6 million and was 22.7% of sales. We are pleased how this business has protected the quality of earnings through managing its cost structure and productivity during a tough economic environment.

Turning to other financial measures, the effective tax rate for the quarter increased due to the non deducibility of certain acquisition costs associated with the Delta transaction. Currency had only a minor impact on earnings. Excluding Delta, accounts receivable declined in line with volumes. Inventories were flat compared with recent quarters, and long-term debt increased reflecting the borrowings for the Delta transaction.

The increase in other long-term liabilities reflects the Delta pension plan and the increase in cash reflects the combined cash positions of Valmont and Delta. Certain of Valmont's inventory costs are accounted for on a LIFO basis, and in the current environment inflation and material costs results in lower earnings than had FIFO costs assumptions been used. Depreciation and amortization for the quarter was $13.4 million and capital expenditures were $6.5 million. Our current outlook is for full-year consolidated earnings to decline 35% before consideration of the Delta transaction, mainly as a result of lower utility revenues and margins. We expect the modest decline in sales in the Engineered Support Structures segment, however operational performance should improve on a comparative basis as we continue to address our cost structure. Results in the egation segment should show modest improvement in sales and a good improvement in operating income. And we expect continued productivity in the coating segment. For the Delta segment, we expect that the operating income will largely offset financing and deal expenses. We have leadership positions in very attractive markets and when economic conditions improve, we should be well positioned to benefit from global infrastructure and agriculture growth. This concludes the prepared portion of our remarks and I'd now like to take your questions.

Thank you. (Operator Instructions) We will pause for just a moment to compile the Q-and-A roster. Your first question comes from the line of Arnie Ursaner with CJS Securities.

Good morning Mogans. Good morning, Terry. Two questions related to the utility segment where it seems the biggest changes underway in your business and would like you to expand on two things. One would be utilities normally form their budgets in October, and you were very clear and cautious last year that going into this year they didn't expect very much activity, so I guess I'm trying to figure out, one question would be, what has caused you to change your view for utilities since most of them are likely to form their budgets in October and November, would be one broad question? The second, which is getting an increasing amount of investor attention, is the apparent debate between lattice versus mono pole and where you stand in that marketplace environment competitively?

Thanks, Arnie. First of all, I think that our prediction that utilities would lower their investments in 2010 have come through. I think utilities expected to maybe see more economic up tick by this time of the year and therefore be ready to release some of the larger projects to place orders. I think some of them are taking a wait-and-see attitude. There's been a lot of talk about a double dip recession, and maybe some concern about the speed of the economic recovery. And my guess is that they are taking a breather and taking a look at what's going on.

As you will recall, over the last couple of years, as the economy had had slowed down, or contracted, actual electric consumption went down, which has, of course, taken some of the pressure off of some of the utilities to expand their transmission and distribution network. On your second question, lattice worldwide is still an important part of structures for transmission lines. In the aggregate, mono poles is gaining market share on lattice, mainly because of right of way issues in this country and elsewhere in the world. There are some utility lines that are being designed for lattice, and that will continue to be the case. And we do not participate in that because we have not seen an opportunity to make decent returns in that business.

Now, there are some lines that could be designed either way, and we are working with utilities to convince them that either steel structures or a combination of concrete and steel or concrete structures is a better alternative. But there's really no change in how we view that market. Lattice is a tough market, as we have seen, to make money in when we have looked at it from the the outside, and we continue to, I think, participate in the expanded market share for mono poles.

But again, more specifically, we're hearing about increasing Indian competitions, competitors coming in the market who are trying to establish a Beach head with aggressive pricing, and I would guess if a utility has a choice, if utilities can do lattice at a lower cost versus mono pole, why wouldn't they go that way?

That all depends on other considerations, the most important one being right of way considerations. And foreign companies probably are trying to participate in whatever lattice business there is in North America because there's very little North American production. Most of the production for lattice is in India, it's in Turkey, a company called Letuce it's the former ABB facilities in Mexico, in Venezuela and Brazil, but very little in the US.

And just to clarify one of the things you said, I think the term you used is you guess the utilities are taking a breather. Are you basing this on what your sales people are telling you, actual dialogue with customers, and if, in fact, they do take a breather for -- let's say they don't make decisions until October and place orders with you in later this year or early next year, the whole thesis of a recovery in 2011, won't that be under a pretty good cloud four?

Well, first of all, that's probably too early to say. The impression of the utilities taking a breather is a result of conversations with utilities where they earlier said they were ready to place an order for X project, probably in the second half of 2010, and they may be postponing some of that. On the general question of recovery, what's going to happen in 2011 is too early to be specific on, but my feeling currently is that we will see improvement in most of our businesses going into 2011, including the utilities. The utility business is having an extremely tough year this years and part of it is because the whole industry has -- had had such a spectacular year in 2009.

Thank you.

Thank you. Your next question comes from the line of Ned Borland with Hudson Securities.

Good morning. Just following up on utilities for a second here, and I don't want to beat a dead horse here, but I guess if you could just give us some color on the size of some of these utility projects that are being quoted and pushed to the right, are they comparable in size, what you shipped last year?

If you exclude one particular big project last year, I would say yes. There are a number of projects in the size of 50, 70, 80 million, and there are a number of projects in the size of 20 to 30 million. Last year we had one project that was more than 100 million, and they only come very rarely.

Okay. That's helpful. And then on your comments regarding engineered support margins comparing favorably, I'm assuming that's comparing favorably to the first half and not last year.

Yeah.

Okay. Then your comments on Delta, maybe I missed it, but what is the status of the mange manganese property?

It's in the process of being sold. It's a company called Delta EMD, of which we own about 50% -- 57%. It's a popular company in South Africa, and it's in the process of being sold as a company. Investment bankers have been retained, and potential buyers are having dialog with them.

Finally, the tax rate going forward, how should we think about that?

I'll ask --

Ned, I think if you -- the tax rate now was inflated because of the nondeductibility of certain expenses. I think the tax rate going forward will be below 34%.

Okay.

Ned, this is Mark Jaksich. Part of the reason for that is borrowing costs on the bonds and so forth in the US so we get a bigger, larger tax yield on that expense than we would otherwise, but that also depends a lot on the mix of earnings, as far as North America versus international markets.

All right, thank you.

Thank you. Your next question comes from the line of Jon Braatz with Kansas City Capital.

Good morning, gentlemen. Not to beat the dead horse again, but, Mogens, when we look at the utility business and the utility business the revenue has fallen off sharply, is there anything that you can do, or are you doing anything to mitigate the decline . Are there some costs that you can take out of the equation without maybe jeopardizing the business in the

The answer is yes, and that is happening and has happened, but I would also remind you that last year, when we saw an extreme increase in activity and profitability, it was really not followed with a very large increase in SG&A expenses. But they had been reducing expenses and employment level in that business, both direct in the plant and also SG&A.

Okay. So would it be fair to say that if the revenues going forward were similar, that your margins might improve a little bit?

We -- as I have said before, last year's margins, which were about 20%, are not the margins we are going to see in this business. This year's margin is around 10%, are probably also not the margins we normally will see. I expect that business to deliver mid teens operating income margin kind of over the cycle.

Okay. Turning to Delta, the manganese contribution in the quarter, I know last year they were doing very well. Are they continuing to do very well and enhancing the profitability of Delta?

They are enhancing the profitability of Delta. In the second quarter, we only had that business five weeks or so, and the revenue from Delta EMD was about 7 million, and the operating income was less than 2.

Okay. When we look at specifically maybe the cash flow generated by Delta, or the EBITDA, what level of D&A by Delta, or the EBITDA, what level of D&A are we at with Delta? The amortization looked like 2 million. What might the depreciation level be, or can you talk about the EBITDA levels of Delta?

Yeah, John, this is Mark Jaksich.

Hi, Mark.

On the base Delta business, if you use an exchange rate of $1.50 per pound, I think you're talking about $12 million based on Delta's published accounts. On an ongoing basis, purchase method type depreciation and amortization, and that also includes some adjustments related to pension, the depreciation and amortization component of that would be about $7 million or so give or take, on an annualized basis.

Okay.

And also, in general, thinking about Delta going forward, I would think about from the a capital investment standpoint, very like Valmont. It's not a -- they don't have businesses that require very large capital investments, maintenance capital is very modest, and most capital of any size will be in connection with market or capacity expansion.

Okay. What kind of commitments have you made it to pension board in terms of cash payments annually from Delta?

Well, there's an amortization schedule going on now, I think, Mark, about 7.3 million pounds. That's a direct contribution to the plan, plus some administrative expenses that are picked up by the company. 7.3 million pounds, and that's the current commitment.

Okay so that's sort of like, if you want to consider it as sort of a CapEx spend, so to speak, for Delta, and a reduction of their net cash flows that you are generating from Delta, correct?

That's correct.

All right. Terry, when we look at that time free cash flow in its entirety, will that be directed towards obviously net of cap spending, to debt repayment?

Well, in general. It depends on what the acquisition activity is, John.

Sure.

But we do have revolver borrow which is we would pay off initially, then, of course, we have the bonds that mature in 2014, then we'd have to decide on further debt reduction, whether or not we'd want to prefund those bonds.

Thank you very much.

Thank you. Your next question comes from the line of Brian Drab with William Blair

Hope you have room for one more analyst on the call.

We sure do.

First question, you are not going to be surprised, is on the utility business. In the first quarter one of your comments was that the poor weather, especially in the northeast, held up delivery of a lot of product. I would have thought that maybe that would give you some advantage due to pent up demand going into the second quarter. Did you see any of that, and do you think that that helped you in the second quarter?

I do not. Keep in mind that the utility planning horizon is fairly long. These projects are on the drawing board for a long time, then when they get released is a determination by the utility in relationship to the general environment, the capital plans, et cetera, et cetera. So sort of by quarter issues driven Bay pent up demand I don't think we'll see in that business. You could have a situation where orders that should have been delivered and couldn't be delivered because of a snowstorm or something would be delayed a couple of weeks, switching from one quarter to another. But in general, these projects have long planning horizons.

Okay. I'm trying to determine what happened with the Delta business and the profitability in the quarter. Last year Delta was running at about a 14% consolidated operating margin, and from what I can determine from their public filings, management at Delta was expecting results this year to be pretty much flat with 2009. That was their guidance. And margin in the quarter were 10%. So this is one of the areas here that's making it very difficult to forecast for us, of course. My first guess would have been, well, the manganese business were down, but it sounds like they he did well, galvanizing did well, and the structures business did well. Which of these businesses at Delta drove margin down from 14% to this slightly below 10% level?

This is Mark Jaksich. First of all that 10% level also includes purchase method amortization of about 2 million for the quarter. So the other thing in particular is that in the pension plan, we went into 2010 with a larger deficit in the pension plan, and those expenses are required to be picked up as part of operating income under US GAAP, and those -- that was the impact of that for us, anyway, was probably about a million dollars. For the quarter, or for the six months, tore few weeks that we had it. So when you take some of that into consideration as well, that closes some of that gap, I believe.

I would also say that the manganese materials business sales did decline in this particular period, although we're only talking about a five-week period from the same period last year. And that is a business that was -- that will disappear out of the Delta business. In total, Delta is perform sog far like what we predicted as we looked at the acquisition. But I can understand that it's not toes get your arms around it right now, and for the next couple of quarters it will probably get clear and by year end, when we determine the segmentation going forward, it will be even clearer yet.

Okay. And for that pension plan expense, what would we expect that to be for the year? Is that just going to run at the same run rate that it was in the -- for the few weeks that you reported Delta?

Yeah, that would be my anticipation.

Okay, thank you.

Thank you. Your next question comes from the line of Steven Gambuzza with Longbow Capital.

Good morning. Just add few questions on Delta. Could you clarify what the total Delta related expense is kind of at the operating income level? You've booked some already but if you could clarify what you have booked and what you expect to book for the full year 2010, that would be very helpful.

I think at the table at the tail end of the press release, the second quarter indicates $11.9 million pure acquisition related expenses. That includes things like investment bankers. Delta's expenses were required to pick up as a part of that. The operating income line and stamp duty on the shares of the biggest items. Going forward, there will probably be a few items as we get through some consulting and planning related types of expenses, but those should diminish substantially going forward.

Okay, so what did you book in the first quarter?

$2.2 million.

$2.2 million. So at the EBIT level it shouldn't be much more than -- shouldn't be more than a few million dollars more than this kind of, I guess the 14.1 million of costs?

Yeah, that's our expectation right now.

So if we add that, plus the interest expense for the full year, would you expect the kind of organic earnings contributions from Delta to be roughly equivalent to that amount? 14 plus 1 plus the financing costs?

Yeah, we are saying that the total deal costs, plus the additional financing, in connection with the Delta acquisition for this year, will be offset by and large by operating income from the Delta business.

And the way would you measure financing costs is just the bond issue that you just made?

That's correct.

That's the kind of quantity of capital.

Exactly.

Okay. That's very helpful. In terms of corporate expenses, they shot up in the quarter. Was that where the deal expenses for Delta resided?

Yes.

Should we expect that corporate line to go back to the Q # rate?

Yes.

okay. As we reflect on the guidance for the base business excluding Delta, if we take a 35% earnings decline from 2009, and then look at what would be implied in the second half of the year versus the first half of the year would it seem like it's a relatively flat earnings picture for second half versus first half 2010. Would you expect the makeup of the EBIT in the second half 2010 to be roughly the same as the first half in terms of the contributions of the various segments or is there any business that would you expect to decline or improve substantially on a sequential basis in the first half versus first half? I'm sorry, second half versus first half.

I think what we said in the release was that we expect the irrigation business to continue to show favorable comparisons, i.e. strength compared to last year, and we continue to expect good performance in the coatings business. We expect an improved operating income I think in the second half for ESS compared to first half.

Steven, when you talk sequential, make sure I understand this, sequentially, irrigation will go into their third quarter, and sequentially the third quarter is down from the second quarter. We tend to talk about versus last year. So sequentially irrigation will go down, and sequentially, generally ESS goes up. Think of it as what's going on in the construction market. Summer weather, construction things are happen sog the ESS continues to continue. Irrigation tends to decline because the North American market, the crops are maturing in the field. So I hope I understand this. When you talk sequentially, there will be a difference in continues.

I was just looking at it like you did 573 in 2009 so if you did 35% less than in that 2010 it would be 372, and it looks like the business did about $1.80 or so in the first half. So it's kind of $1.88 in the second half. I realize there's a seasonal pattern, but there's also some trends.

That's a good way to look at it, that's fine.

And so the normal -- there's a normal seasonality in the business, but there's also some very substantial kind of offsetting trends. I just wanted to see if it's -- we should expect kind of the performance of the business in the first half adjusted for seasonality in the second half.

That's correct. You are not going to see a major shift between the segments and their relative performance in the second half compared to the first half.

That's what I was looking for. Thank you very much.

Thank you. Your next question comes from the line of Jeff Beach, Stifel Nicolaus.

good morning.

Good morning.

I would like you to discuss a little bit the competitive pricing that's developed that appears to be worse than you thought. I would have thought, or the pricing appears to be not disciplined at this point, and just in the utility side, if the orders begin to pick up, at some point late this year, 2011, would you think competitive pricing would get better almost immediately with orders, or would there be a lag?

In general, when the market contracts like hat done this year, you have a lot of capacity chasing less business. And the pricing environment does become difficult. As soon as that picture changes, we will tend to see better pricing, because there's more business to go out. Whether that happens immediately or it happens over a short period of time, that's tough to predict. That depends on which companies are bidding on what projects. But in general, as the business climate improves, a lot of good things happen. The pricing becomes better, absorption becomes better, et cetera.

On the engineered support, you are into your seasonally stronger period. Do you see the pricing environment in the last couple months getting better with the increased volume, or is it as bad as it appears to have been early in the year?

I would say that we have not seen a marked improvement in the pricing environment in that business. Having said that, I do expect that the overall performance for the segment in the second half would be better than the first half. Part of that is better absorption and better volume.

Just two more things. Over on the coatings side, why is your business so strong externally here when your own internal business is down so much?

That is a good question. And since galvanized -- our galvanizing facilities galvanize a very broad range of products. When we summarize it, we have a feeling that some of our customers' inventories over the last 12, 18 months were reduced to a very low level, and we've seen some replenishment of those inventories. But it has been a little puzzling, and a pleasant one fours to see the continued good performance in that business.

All right. And last of all, on the corporate expense line, is there going to be some jump here ahead for the Delta acquisition, or no material increase?

There's not going to be any -- I mean, if you take away the expenses connected with Delta, you are not going to see any major change in corporate expense is and it will be running less than it done 20 10, and -- 2009, and a big reason for that is incentive payments.

All right, thank you very much.

Thank you. (Operator Instructions) Your next question comes from the line of Michael Coleman with Sterne Agee.

Good morning.

Good morning, Michael.

I was wondering if you could give us a little bit more in terms of Delta in terms of the operating income to largely offset the financing. We have kind of gone over the financing side of it somewhat, but in terms of how you are defining the operating income, is that before or after the manganese business? Would that include the manganese business, or would that exclude because it's in the process of beg sold?

It's currently included, and we will have to determine, depending on where the process is for that sale, later this year if it should be reported under discontinued operations. So as soon as we have a good feel for that we'll make that determination. But currently operating income from that business is in the operating income line, and if I recall correct for the period of time we had had the second quarter is $1.7 million.

So back half of the year, if that business isn't sold, it would add something on the order of $6 million, $7 million?

That depends on that marketplace. That is a fluctuating performance, but it should add reasonable earnings during the rest of the year.

So if you sell it, does that mean that your -- obviously that would imply that your expectations for operating income would be lower in the deal financing and costs and so forth may further off there is set that operating income contribution?

Yeah, I mean, I think it's unlikely that that deal will be closed and finalized before the end of the year, and the comments on operating income offsetting all deal expenses and additional finance expense is for this year, obviously going into next year we don't have the deal expenses, and we expect Delta to be nicely accretive. But as long as we have it as part of the ongoing business picture, we will continue to report the operating income from that business.

Okay. And just to clarify on a couple of things earlier, I think you mentioned that pension expense was included in that operating income and that it was at about a million in the quarter. So is kind of $8 million a decent run rate to use on an annual basis in terms of pension expense for next year?

We're not going to know what that is until next year, because we have to go through the actuarial calculations at the end of this year, so that's going to remain to be seen. That will all depend on what happens with assumptions.

Okay. And just one more clarification. I think you said earlier the amortization for Delta on a annualized basis was about $7 million. Did I hear that correctly?

Yes.

Okay. Thank you.

Thank you. Your next question comes from the line of Brent Thielman of D.A. Davidson.

one more on the utility side. Last year represented the ex stream high end in terms of profit contributions. It sounds like you are saying the latest quarter sort of represents an extreme at the low end. Is that a fair statement?

Yes.

Okay, and then could you just talk about sort of what you are seeing out of some of your plants in China in terms of demand for different products there, activity in general?

I would say that the activity in China is slower than we would have expected right now. The Chinese economy has continued to grow very fast. They just adjusted the second quarter growth numbers, but it's like adjusting from 11% to 9% so still very heavy growth. I think that last year we benefit freed stimulus money coming into that economy from the Chinese government, and that went into the economy directly as opposed to what happened in this country. And I think maybe we're seeing some throttling back this year as a result of that. So in general I would say, and it's not just one segment of that industry, I'd say in general we are seeing some slowdown this year, and the question is what would happen going into next year, but if the Chinese economy continues to grow, we'll expect to regain growth of our business, too.

Sure. And then just lastly, in the Engineered Support Structures Segment, do you expect you can get margins sort of closer to that higher traditional single digit level this year in the second half, or is there still not enough visibility?

Yes.

Which way?

We expect that in the second half of this year we will see the kind of margins you started your question with.

Okay. Thank you very much.

Thank you. Your next question comes from the line of Arnie Ursaner with CJS Securities.

Two things that might help us all try to form a view in terms of modeling going forward, can you provide a pro forma second half for Delta? In other words, can you give us what last year's second half was for Delta, then comment on higher or lower actually for them last year?

We can probably give you some general trend information as to what we see in the second half of this year compared to second half of last year. I don't have it right here now, but we can get back to you on some of that.

Arnie, this is Mark Jaksich. Since Delta was a public company, they've got public account published for the whole year 2009. They also published half year accounts for 2009 as well. So at least as far as what they did last year you would be able to determine that at least from the public filings made by Delta.

Okay, and now assuming we get our hands on that how would you view the second half this year versus Delta's second half last year, higher or lower? On a constant currency basis, if you think that way.

I would hesitate to give you a direct question without looking into it a little further, so I'd have to get back to you on that.

Then the other number or stat that might give us a little better understanding of your utility business, at various times in 2009 you provided backlog numbers of what you had in utility. If could you perhaps maybe give us a sense of how that trend has changed in the last quarter or two that would be very helpful.

Yeah, I would say that the backlog is about flat, and that's one of the reasons of why I said when we started this call is we had had expected to see strengthening of our backlog by this time of the year. And it has barely -- it has stayed pretty flat over the last quarter.

So flat quarter over quarter. What is the actual perhaps dollar value of the backlog you have?

I'm trying to think the exact number. I'd have to confirm it to you. But --

As you know, Arnie, we really don't disclose backlog information in detail like that during the year.

But did you at various times in 2009.

Well we gave you indications up or down. We can do that.

Let me ask it a different way. Is your book to bill positive or negative at this point in utility?

Flat.

And in the backlog, the things that you have, for example, one of your largest projects you were awarded won't kick in until 2012. Do you include in that your backlog?

No.

So backlog is a 12-month backlog?

Well, it's a backlog what we have a good feel for, when this is going to be shipped. We have a couple of orders that we don't know yet exactly when they're going to hit because of permit right of way issues, and until they are resolved, we don't put them in.

And you mentioned permitting several times in both your prepared and your comments today. Can you give us a little feel of one or two specific examples of where permitting has slowed you down and how long it's likely to last?

Well, there's a -- I can give you the first half of that, which is we have a sizable order in Pennsylvania that was published earlier this year, and I think it's a court that closed down the implementation for awhile until some of these right of way issues were resolved. And on the second part of your question, exactly when that's going to resolve is anybody's guess. People are guessing it will be a few quarters.

I think actually in your press release, or theirs, in PPL's, they had talked about it deferring out until 2012.

It could be second half of 2011, or into 2012. The actual implementation of the project will span more than a couple of orders.

Just one more clarification. Your SG&A, we obviously had the big charge this quarter, but your run rate SG&A is roughly $8 million and does not include any bonus accruals at this stage?

Are you talking about corporate expense?

Yes, corporate expense.

Yeah, there is some incentive expense in there. It's not substantial, because of long-term plans that are currently projected to have some level of payouts. So those are booked as earned, but there's no annual incentive provided for in any corporate numbers.

So a run rate of around 8 million is the right way to think of it?

I believe so.

Thank you.

Thank you. (Operator Instructions) Next question comes from the line of Jon Braatz with Kansas City capital.

Couple follow-ups. Mark, is the current run rate on the amortization for Delta will that continue at these levels in 2011, 2012, or is there some accelerated amortization.

That would be the ongoing run rate. There's a dab of purchase price allocation that's going to inventory, and that's included, and that will all be taken care of this year. But if you think about, from 2011 going forward, that $7 million or so would be the number we would expect going forward.

Okay. Mogens, from a strategic standpoint, the combination of Delta and Valmont, obviously you don't necessarily want to run Delta as a stand-alone company. You want to build upon it. What are your intentions? What do you see as opportunities for the combined company and the possibilities for new business and new facilities and so on? Can you talk a little bit about the strategic implications of the acquisition?

Yes. If you look at Delta business, some of the businesses they are in are smack in the middle of what we already do, galvanizing and sister structural businesses. And we will see some synergies between those, particular probably in the pole businesses. But they have a significant business, their wet forge business, which is the industrial access business, and they have a very good footprint in Australia and southeast Asia and China. And our intention is to take the -- that business and find opportunities to expand that into other parts of the world. And other business they are involved in, not to the same extent as wet forge is highway safety products in Australia. And we are going to take a look to see whether there are opportunities particularly in the general geographic area they're already strong in to expand that business. I also think that because they have a number of facilities in countries where we have not really had much of a footprint, we may see some opportunities where their presence will ease our looking at countries we haven't been active insofar with our businesses. None of these opportunities or potential synergies or potential growth was included in our evaluation of the Delta as we acquired it.

Thank you, Mogens.

Thank you. At this time there are no further questions in queue. I will turn the call back over to management.

Thank you, Christy. This concludes our call. We thank you for joining us today. This message will be available for playback on the Internet or by phone for the next week. We look forward to speaking to you again next quarter. And at this time, Christy, read our forward looking disclosure.

Included in the discussion of 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 industry in which Valmont operates as well as management's perceptions of historical trends, current conditions, expected future developments, and other factors believed to be appropriate turned 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 above or beyond Valmont's control and assumption. Although management believes these forward-looking statements are based on a reasonable assumptions you should be aware that manufacturers could affect Valmont's final 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 materials, availability and market acceptance of new products, product pricing, domestic and international competitive environments, and actions and policy changes of domestic and foreign governments. The company cautions that any forward-looking statements 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. Thank you. This concludes today's conference call. You may now disconnect.