Valmont Industries Inc (VMI) 2010 Q4 法說會逐字稿

Good morning. My name is Felicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Valmont Industries fourth-quarter earnings conference call. (Operator Instructions). Thank you. Mr. Laudin, you may begin your conference.

Thank you, Felicia, and welcome to the Valmont Industries fourth-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 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 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, everyone, and thank you for joining us. The main drivers of fourth-quarter results were the positive contribution of the Delta acquisition, strong performance in the irrigation and coatings segments, and the severe decline in operating income from the utility structures segment. Faced with no major changes in fundamentals, the engineered infrastructure product segment's performance remained subpar.

During the quarter, we organized the financial reporting of the former Delta businesses to align with our segment and management structure. These businesses performed as expected during the quarter. The integration process has proceeded smoothly, and we find these businesses to be well managed and controlled. We continue to pursue the divestiture of the manganese operations in South Africa.

The irrigation segment benefited from strong fundamental drivers and good operational performance. Higher crop prices and rising global farm income has improved farmers' outlook, resulting in robust demand in all major markets.

You may remember that last year, weather delayed the harvest in North America, and this past fall, more favorable weather led to an early harvest and a wider selling window in the fourth quarter.

In the utility support structure segment, international sales were much weaker than last year, reflecting a decline in project business. In North America, sales and volumes increased during the quarter. However, a very weak pricing environment was a drag on performance.

In our engineered infrastructure products segment, the positive results for the quarter were driven by the inclusion of the Delta infrastructure businesses. Otherwise, the global traffic and lighting businesses continued to suffer from poor demand.

Weak overseas economies, along with budget deficits in most US states, have reduced government funding for infrastructure. The lack of a multiyear highway bill is a further negative for this business. Weak demand and excess capacity results in a weak pricing environment.

Our coatings business in North America is benefiting from improved industrial and agricultural demand.

The international locations performed as expected. We're pleased with the performance of these businesses. They deliver a high operating income percentage and have experienced good volumes. We welcome the addition of the Delta locations both in the US and in the Asia-Pacific region, and we will be looking for leverage opportunities to share best practices between locations and regions.

When we look at 2010's full-year results, the environment we saw during the fourth quarter mirrored what we faced during the year -- the substantial decline in utility sales and operating income, the positive contribution from Delta, and the improved performance in irrigation and coatings.

The central issue that faced our structural businesses, whether light utility or lighting structures, was extremely competitive pricing pressure. There was too much capacity chasing a smaller market.

In our outlook for 2011, we expect the irrigation business to be strong, supported by the outlook for higher farm income and tighter crop supplies worldwide. For the coatings businesses, the addition of the Delta locations will lead to positive comparisons.

We're expecting increased utility volume in 2011 and further acceleration in 2012. However, until capacity is more fully utilized in this market, the pricing environment will continue to be challenging. When we see capacity absorb, perhaps in the second half of the year, pricing could improve. We do expect utility operating income percentage to remain double digit for the current year.

Our backlog for utility structures at the end of 2010 was about equal with ending backlog in 2009, up in North America, down internationally. But we have been awarded a number of projects which are not yet in our backlog as we only add them to our backlog number when we have firm purchase order.

We follow all major projects in the country and are encouraged by the increased activity level after a pullback during the worldwide economic crisis. Projects slated for 2012 are even more impressive in numbers and scope.

We cannot count on much near-term improvement in our markets for lighting and traffic structures. The North American and European markets will continue to face weak conditions due to reduced government spending and economic uncertainty. What we face in these businesses is the perfect unfavorable storm -- limited purchasing power by our customers, excess manufacturing capacity in the industry and rapidly increasing inputs costs, particularly steel. This will lead to continued margin pressure. LIFO accounting will further depress reported earnings.

We have made good progress in productivity improvements and in reducing costs in these businesses, but we will need an improved market to see the benefits.

We expect earnings per share for 2011 to increase 35% to 45% compared with the $3.57 in 2010. In the first quarter, our shipping schedules have been negatively impacted by severe weather, particularly across the US and in Australia. We currently expect first-quarter earnings per share of approximately $0.90, up from $0.62 in 2010.

Turning to other financial measures, movement in the balance sheet mostly reflects the addition of the Delta accounts. During the quarter, we reduced debt by around $20 million and have plenty of liquidity.

Depreciation and amortization for the fiscal year was $59.7 million, and capital expenditures was $36.1 million. At the current time, we expect in 2011 capital spending of around $60 million, which includes our new plant in India.

Before I take any questions, I have one last item. Terry McClain, our Chief Financial Officer, who has been with Valmont for 38 years, has informed me that he would like to plan for his retirement and if possible would like to retire at the end of 2011. He and I have worked together as a team for most of our time at Valmont, the last 18 years as CFO and CEO.

I wish there was a way to stop the clock, but I understand and respect his plans. So we will start a search both inside and outside the Company for a successor to Terry.

We will now take your questions.

(Operator Instructions). Chase Becker, Credit Suisse.

Thanks for taking my question, and best of luck with everything, Terry. Thanks for all the help.

Just briefly, touching on the utility business, wondering if you could talk about the sequential pricing environment. It sounds like it's down year over year, but if you look sequentially, your sales were up fairly modestly, but your operating profits were up nicely. So I'm wondering if you could speak to that.

Well, I think that we expect, at least for the first half of the year, and maybe for the year, about the same pricing environment that we saw last year. From quarter to quarter, you will see changes maybe in profitability, depending on product mix and whether it is international or North America. But in total, I would say that we still expect double-digit operating income for this year.

But in order to get to what I always say should be the average during a cycle in this business of midteens, we need more of the capacity, and the industries filled up, to give us opportunities for the industry to move up price.

Okay. And then in the engineered infrastructure products, can you talk a little bit about some of the actions you are taking to take costs out? And assuming a challenged organic revenue environment, how should we think about profitability and the likelihood of getting that up to double-digit margins?

I would say that we have reduced SG&A quite a bit and absorbed some costs in that effect. We have not been shutting down a plant. We have run the numbers and decided that that was not the right thing to do because at some point of time, these markets will come back, and we need to be ready for that.

I will say, though, that despite what we have done in productivity improvements and cost takeout, in order to return to double-digit operating income in those businesses, we do need some help from the marketplace.

Okay. And last question from me. Just longer term, can you talk a little bit about the opportunities in India with the new facility for utilities?

Yes, but I can't be very specific except to say that the Indian economy is large. It's fast-growing. There's a lot of talk about infrastructure. Monopoles, which is what we do, have not typically been used for transmission lines in India. But there is a lot of interest from Indian utilities in monopoles. The plant we are in the process of constructing in India will be able to do the full range, from lighting poles through utilities structures.

But this is the first step of a long journey in a large market. And as we look back at when we started in China nearly 15 years ago, you're not going to be able to see much effect, positive or negative, on our total numbers, at least for the first couple years.

Okay, great. Nice job. Thank you.

Arnie Ursaner, CJS Securities.

My first question relates to irrigation, which obviously was an enormously positive quarter. How should we think about -- can you expand a little bit more on what caused it, and do you believe that Q4 may have borrowed some activity from Q1?

Well, I think what caused it was a combination of strong commodity prices, good outlook for commodity prices, less concern about the general economy, and the fact that farmers got out of their combines earlier and therefore had more time to make purchases. That leads to your next question -- would that take away from the first quarter? I don't think so.

Okay. So what are you hearing from your dealers about first-quarter trends?

Strong activity.

Okay. My other question, I guess -- make Terry work a little bit before he retires, and I speak for many saying we will miss you, Terry, but the numbers that Mogens threw out for the first quarter really are not apples-to-apples because you didn't have Delta last year for half the year. Does the Company intent to provide an 8-K or give us a better feel for the contribution pro forma from Delta in the first two quarters?

Not really, Arnie. We will probably make some references to the different product lines within the reporting, but we're not going to give you reference to Delta per se.

We're only starting to scrambling the eggs by utilizing some of their plants for some of our old business and supplying some of their markets out of some of our plants, particularly in China, that didn't happen before.

Okay. And again, you gave some of the contribution from Delta, but you didn't disclose the contribution specifically in Other from Delta. If I backed into it, is $46 million about the right number for the Other contribution from Delta?

Arnie, this is Mark Jaksich. You're talking about the revenue side?

Yes.

Yes, the revenue side was about $48 million for the quarter. And that is the manganese business and the grinding media business.

Do we have a total number for Delta for the year as a separate entity?

Yes. It's a -- the revenue number is $348 million for the year, and the operating profit number, including all the purchase accounting entries and everything, is about $26 million, $26.5 million, I believe. I don't have the 10-K in front of me right now, but those are the basic numbers.

But what I'm trying to get at is that does not actually include the total contribution from Delta, including the part when it was not part of your Company. Do you have a number that you --

No, this is just the time when it was part of Valmont.

Okay. So you don't intend or have a detailed number for the full-year contribution?

Well, it will be -- when the 10-K is filed next week, there will be a pro forma on '09 and 2010.

And you can't share that number yet?

I don't have it with me at the moment.

Okay. Thank you.

Jeff Beach, Stifel Nicolaus.

It's Nathan Jones standing in for Jeff. On the USS business, can you give us a little bit more color on the differences in your expectations between the first half of 2011 and the second half of 2011?

You're talking about the utility business?

Yes.

Well, I would say that in general, I don't think we have much of a difference in expectation. Some products will move between quarters depending on construction cycles, etc. etc. I made a general reference that as activity levels in this industry continues to improve, I would hope that as capacity fills up, we will start to see better pricing. If we see better pricing in the second half, it is unlikely we will see much benefit of that additional pricing in the current shipping year, but we should see the benefits, then, going into 2012.

Can you tell us where your capacity --

I'm not promising, I'm hoping.

Sure. Can you tell us where your capacity utilization in that business is currently and what you think it needs to get to before you realize real pricing power?

Well, it's a question of industry capacity, not so much our capacity. And I would say -- this is a pure guess -- I have no visibility to the industry capacity, and I actually think that it's not like pricing will improve if capacity utilization goes from 70% to 80%.

It's when it starts getting full that you will see the improvement in price. Capacity moves in and out based on competitors' decisions on capacity. But our feeling is that in the second half of this year, we should start seeing enough better capacity utilization that we have may have some opportunity as an industry.

And you mentioned in your prepared remarks that you have been awarded some large projects that are not even in backlog yet. Can you give us an idea of the scope of those projects and when you think they might hit backlog?

Well, they will hit the backlog during this year. But from a scope standpoint, I would say, safe to say $100 million-plus.

Okay, great. Thank you very much.

Carter Shoop, Deutsche Bank.

Congratulations on a great quarter. Assuming your 2011 guidance includes a full year of the manganese business, can you discuss what the financial impact would be if you did divest that? And what are your plans on divesting that?

Well, I don't think impact is going to be substantial. This is -- let me just step back and say when we acquired Delta, we didn't put any value of the South African businesses. In the meanwhile, we've gotten quite a bit of cash out of those businesses, I think $20 million-plus.

We still do not attach any value to it as we looked at the Delta acquisition. The manganese business is under some pressure in South Africa because they sell in South African rands, and South African rands have been a fairly strong currency. And this is a global market they're dealing with.

We would like to get to the point where we could deconsolidate those businesses, which means we have to sell more than 6% of -- I think we control 56% of that business, and we need to get it into a nonconsolidated status. And we expect to get that done. We have feelers out, and we're talking to interested parties in South Africa, but I can't tell you when that will happen. But it's not a major impact on our performance.

That's helpful. And just to clarify, you're not looking to sell your entire ownership stake, just get to that minority ownership position?

No, we would love to sell everything.

Okay, great. And then can you discuss the impact that rising steel prices are expected to have for 1Q earnings as it relates to LIFO accounting?

Yes, this is Mark Jaksich. I think we're working off of estimates at this point in time. But right now, our thinking is that the LIFO impact on first quarter on the operating income would be probably in the neighborhood of about $5 million. But that is a very preliminary number.

Great, thank you.

Ned Borland, Hudson Securities.

Best of luck to you, Terry.

Let me just make sure -- I did say at the end of 2011 at the earliest. So we're going to benefit from his wise counsel for a long time.

I was packing up my stuff and walking out the door.

Okay. Well, I guess circling back to Arnie's question on irrigation, I guess with the timing of the harvest, is there any way to quantify that impact in the quarter?

No, because it's not just that; it's the general mood of the farmers. It's commodity prices. It's just a combination of everything. But if you just compare, the positives that we saw in the fourth quarter in the external environment was then further improved by the fact that the farmers weren't sitting in the fields waiting for weather where they could harvest. They got the harvest done pretty early.

Okay, fair enough. And then just sort of the -- I guess also following up on the steel question, as you looked across the segments, I think engineered support would probably be the most impacted by steel costs, or just how are you thinking about pricing in general to offset raw materials?

Well, I would say you are right. The traffic and lighting businesses are going to be the most affected, for the very reason that, one, if you have an order in your backlog with a federally funded project, you cannot go back and change pricing.

Secondly, you usually have fixed-price business in your backlog. In the utility business, you often have steel escalators. So if steel goes up we are able to adjust, and if steel goes down we will have to adjust the other way.

So, yes, the traffic and lighting business is the one that would be the most affected. It is also the one that will be the most affected by LIFO.

And I know all of you on the phone follow steel, but you have to just put it in perspective. Since roughly November 1, steel has gone from about $540 a ton to roughly $850 a ton. So that is the kind of thing that we have seen today.

Okay, that's helpful. And just on the ESS margins now, it looks like the Delta businesses are a little higher margin. You're doing some things on the SG&A to -- I guess with the legacy businesses. Are we looking at it -- if we were to just look at the sort of core Valmont businesses, are you looking at maybe getting the 10% or so by the end of the year in ESS?

I can say that would be nice. If the markets improve during the year, we can see how to get there because of the actions we have taken. But you read and hear the news as well as I do when it comes to public financing, whether it is at the local level, the state level and the federal level. And markets have to help for us to get to double-digit operating income.

Okay, thank you.

Brent Thielman, DA Davidson.

Congratulations to you, Terry. First question is on the coatings business. When I compare Q4 to Q3, obviously you're including some of the Delta operations in coatings now. But the margins dropped pretty significantly, and I'm just trying to get my hands around whether that is a function of input costs, declining prices or just lower margins at those Delta facilities. And can you kind of give a sense of what kind of margins you expect out of that business going forward?

Well, in general, if you look at the various pockets of coatings facilities, our legacy coatings facilities in North America have traditionally had the highest margin compared to what we acquired from Delta; the Delta businesses in North America slightly less; and the Delta businesses in Asia-Pacific about the same as the North American Delta businesses.

Now, that doesn't mean that one part of the business runs the business better than others, but pricing is dictated in the local environment, galvanizes very much local businesses.

So the market price is one aspect that dictates margin. The other is productivity seeing pickup, etc., etc. And I'm sure that as we get the various areas of galvanizers to communicate better and share best practices, that hopefully we will find ways to improve margins. But it is really local markets we deal with in the galvanizing business, whether it is in the US or elsewhere in the world.

Okay. And on the traffic and lighting side, I guess, can you give a sense qualitatively how your order backlog looks today relative to where you were last year? Is it down; is a flat?

I would say in North America, we're expecting about the same volume in 2011 as we saw in 2010 at the current time. We will expect an improvement in the profitability level slightly as a result of the actions we have taken. But the wildcard, then, is, as a result of rapidly increasing steel costs, what is that going to do to margin out of the backlog and, on top of that, the LIFO charge that we will have to take, which, as you know, is a tax move to postpone taxes in inflationary environments?

Okay. And do you think these movements in steel costs and I guess some of the other construction costs in general you're moving up, do you think that could have any effect, short-term effect on some of these projects actually moving forward, potentially even sidelined?

Yes. If you look from the customer's perspective, and they have X number of dollars allocated, if steel prices stay up, they will be able to buy less products for the budgets they have allocated. So, yes, at the end of the day, it comes down to what have particularly public institutions or public buyers, what have they allocated for purchases for these kind of products?

That's fair. And then lastly, just on Delta, do you think there will be opportunities to address some of the rebuilding needs in Australia? Is that going to be meaningful to you guys? I know it is early, but any sense there?

I don't know if it is going to be meaningful, but I think, yes, there are going to be some activities later on in the year. So I think we may see, particularly here in the first quarter, not because our facilities got damaged with the severe weather or the flooding in Australia, but a lot of our customers and a lot of our suppliers were affected.

So I would say that in total, we probably expect what we expected for the year, we may see more in the back half than in the first half.

And was it a meaningful impact? I know maybe your supply chain was somewhat disrupted in the quarter. Was it a meaningful impact to earnings? Can you put any numbers around it in Q4?

In Q4? No, it was not a meaningful impact in Q4.

Could it be in Q1?

I don't think meaningful. It will have some impact, but I don't think meaningful in the sense of looking at Valmont in total.

Tim Mulrooney, William Blair.

I am calling in for [Brian Dravin]. Our questions revolve around steel costs. And I know you've been talking about it a lot this morning on the Q&A, but I was just wondering if you could actually quantify how much steel prices affected gross margin in your fourth quarter and how much you expect steel prices to affect your gross margins in 2011?

That would be a tough one for me to do. If I try to do that, I'd tell you more than I know. It's very complicated because it varies from business, it varies from region, it varies from country. But in general, steel is a global commodity. It is higher in the US today than it is in China. And it tends to go up a little slower in Europe than it does in North America.

But everywhere in the world, steel prices are going up, partly because of input costs going up and partly because of more activity, maybe particularly in this country, from the automotive manufacturers.

So we're going to be faced with it different ways, depending on the businesses we are in. It is not going to be a plus. I always say that it really doesn't matter where steel is as long as it gets there in an orderly fashion, but it is not getting there in an orderly fashion.

A 50% increase over a few months is a lot to absorb. We're trying to manage through it as well as we can. And we have tried to indicate in total what it means for our businesses, as we have indicated a range for the year and a range for the first quarter.

Great, thank you.

Michael Coleman, Sterne, Agee.

I just wanted to clarify one thing. The number you gave for Delta, the $26 million, that excludes the $20 million of the transaction costs?

That is correct.

So, I was kind of looking at the $46 million for Delta on an operating basis for the year. Just kind of, do you have a sense of what the manganese business contributed to that $46 million?

What $46 million are you referring to?

So, earlier, you gave the Delta revenues for the year at $348 million, and the $26 million, which excludes the transaction costs. So the exclusion on the transaction costs puts that number at $46 million.

Let me crack that for you. $26 million is operating profit associated with Delta, including about $10 million of purchase accounting adjustments. The $15 million of transaction costs, or the $20 million of transaction costs, is in interest expense and also as part of corporate expense. So that is not included in the Delta numbers. The $15 million that we paid to do the deal was simply transaction costs that Valmont incurred to do the acquisition. So you really can't -- that's not really part of the Delta operations.

Okay. Thank you for that clarification. So then, the question becomes, of the $36 million, approximately how much would have been from the manganese business?

I don't have that number at my fingertips. I can tell you that the operating margins in that business are not as attractive as they were in 2009. 2009 was an exceptionally good year in that business, and that was part of the reason, I think, behind Delta's operating margins in 2009 from their public figures that they published.

Okay, thank you. And just a second question. Mogens, I realized this is perhaps a little sensitive, but I'm going to ask anyway. In terms of the transmission capacity in the second half of 2008, which allowed you really strong pricing, along with volume in 2009, to have really solid results, do you have a sense in terms of the amount of industry capacity perhaps added since the 2008 timeframe, whether that would be 10% or something on the order of magnitude larger than that?

My guess is that it would not be more than that, that industry has added since then. I think we may be the only player in the industry that has a lot of flexibility as it relates to capacity, as we can use high-mass lighting capacity if we need to in the utility business.

I think where we may have seen some additional capacity, but I don't know that for sure, is in some of our Mexican competitors that are trying to enter the US market. Otherwise, I don't think there has been a significant increase in base capacity in North America.

Okay, thank you.

Schon Williams, BB&T Capital Markets.

Just wanted to maybe dive a little deeper into the international side of irrigation. Can you talk about maybe -- it looks like you guys have been penetrating some new geographies on that side. Specifically, the Iraqis had a large purchase that is out there. There has been some activity in Sudan as well. Could you just talk about maybe what opportunities you see out there for new geographies?

You cut out at the beginning. But if I heard you correctly, you are focusing in on our international irrigation business and where there may be new opportunities, new geography.

Yes, exactly.

Okay. Well, first of all, most of our business currently really come from our established markets internationally. And when you specifically talk about Sudan and Iraq, and you can cover and Egypt and other parts of the Middle East, there's a lot of talk, there's a lot of activity, but there's really not a lot of actual business taking place.

In Sudan, as you know, the US government has ended their embargo as it relates to our products and that creates opportunities in that country. And I think over time, it should be a good potential market because it's a good potential food basket for other countries in the Middle East.

Now, we all follow the events in the Middle East over the last few weeks, and you know the Middle East lives up to its reputation of being impossible to predict what is going to happen, because if you look at it from the standpoint of the environment agricultural, there is plenty of water in some of the countries, great populations, a great need to more efficient agriculture, but the political situation and wars and other [peoples] in that part of the world seems to get in the way. So we are not counting on lots of activity in the Middle East, although, in theory, there should be a lot of opportunities there.

Can you comment specifically on more of your established markets? Where are you seeing the greatest growth right now? Is it Latin America? Where are you seeing the greatest --

We're seeing growth everywhere. But Latin America has been good. Southeast Asia and Australia continues to be strong, and Australia despite what we have seen from a weather standpoint there lately. And the Western European markets are doing well. South Africa, we're seeing some improvement.

So, you know, remember, commodity prices and the general drivers for our businesses are really truly global drivers. So if we see -- unless it is weather-related, when we see a general uptick, we usually see it in most places.

Okay. And then one last question. Could you give your current thoughts on maybe the highway bill situation? We've seen the White House put out a budget. [Mike] and the Republicans have been fairly conservative on what they are looking at in terms of actual spending.

Is it -- I'm just trying get a sense of, is it more important that we just get a bill passed this year, maybe -- I don't want to say regardless of the funding levels, but is it more about just getting something in place, a plan in place so that states can start planning for these larger projects? Or does it really just ultimately come down to the dollars?

Well, at the end of the day, dollars will dictate how much activity we see. But you're absolutely right. The fact that we -- if we would get a highway bill, so states will know what the rules of the game are going to be for the next four or five years, that is what we need. That is more important than the funding. The funding is not unimportant. But as to guessing when we will get a highway bill, I have given up. I've not given up on a highway bill, but I have given up guessing.

All right. Well, thank you very much for the update, and great job on the quarter.

(Operator Instructions). Jeff Beach, Stifel Nicolaus.

Nice quarter. Two questions. The first one is, the large jump in your corporate expense, can you talk about what was behind that?

Yes, Jeff, this is Mark Jaksich. The biggest piece of that was related to Delta, which includes their administrative headquarters expenses, not only in London, but also in the region, in the Asia-Pacific region, where most of their operations are located. It also includes the pension plan expenses related to Delta as well that we incurred as part of that. And that amount was in the neighborhood of about $4.5 million. So, collectively, when you take that into account, the base corporate expense actually went down from last year, which was mostly related to incentive accruals.

And can you give us an idea the quarterly run rate, at least in the next couple of quarters, in corporate?

Well, it would probably in the range of, including all the Delta expenses, in the neighborhood of about $10 million a quarter, would be a reasonable guess.

All right. Okay, thank you. The second question is, on ESS outside of North America, can you just talk briefly about the opportunity for growth in Europe and a little bit more specific about some of the Delta markets and whether there is growth potential in 2011?

I would say that the European picture is very much like the US picture, very limited public funding going into our type of products at the current time. I think that also over time will change. If you look at export markets, there may be pockets of opportunity. If you look at the Delta markets in Southeast Asia, the Australian economy is staying pretty strong. So I think we're going to continue to see good activity there. And we are planning that our activity level in China will improve over last year, particularly in the lighting and utility businesses.

Thank you.

Arnie Ursaner, CJS Securities.

A couple of quick follow-up questions. You gave us your CapEx number for the upcoming year. Can you give us your D&A expectation for the upcoming year?

Arnie, this is Mark Jaksich. I'm trying to think through it. We were about $60 million for the year, and if you include all of the Delta businesses, my thinking would be probably between $65 million and $79 million.

Okay. And the tax rate assumption for the year?

34% is probably a reasonable rate. For 2010, our rate was 36%, but that also took into account a lot of those acquisition costs were nondeductible, which bumped up our rate a little bit. 34% is probably a reasonable assumption.

Okay. And you mentioned the expense related to Delta and their corporate headquarters. I thought your announced plan was to shut their headquarters by year-end. So should we eliminate that expense in the upcoming year?

Well, included in that is really the management. There's a decent-size management function that takes place in Australia to run all of those operations over there. So in our segment reporting, we include that as part of the corporate overhead.

But also, Arnie, the London office did close last week, but we still have expenses in London relating to managing the pension plan, etc., etc. But the office is closed.

Okay. And can you update us on your ability to use or repatriate the cash you picked up in the Delta acquisition? What is the current status of that?

Well, Arnie, the cash that is available for Delta is available -- we could do acquisitions and other things with that cash. Moving it to different entities is a little more difficult, not only tax issues related to that kind of movement, but also some issues related to the pension plan. But it is available, and we can use that cash, so it can be used. Moving it, if you're talking about moving it to the US, as an example, that is a different issue, different set of issues.

Okay. And I know you will provide your detailed backlog numbers in your 10-K, but you mentioned utility support backlog was essentially flat. I assume that is with the $175 million level you had at the end of 2009?

That's correct.

And the $100 million obviously would be a pretty good-sized increment to that backlog number? The $100 million you're hoping to announce or win, what is the timing of when that backlog would be worked down?

Throughout the year, and most of it in this year. Some of it may be spilling into 2010, but the majority of it is for 2011.

Okay. In the ESS piece, you took a $2 million charge. You had mentioned you were going to do some cost-cutting initiatives. Is the $2 million the completion of the plan, or should we expect more in the upcoming year?

Well, I was say as we continue to look at cost takeouts, it is never completion. But we don't expect going into this year to have another number like that. This was mostly related to our European operations and redialing some of our agency contracts, etc.

Okay. And a follow-up to Jeff's question on corporate expense. You have a long-term bonus plan where, when your stock has a pretty sizable move towards the end of the year, can have a fairly substantial impact on your longer-term comp plan and the impact on corporate expense. Was that not an issue this year despite the move in the share?

No, because I think -- Arnie, this is Mark again -- I think when you look at some of those plans, one of those plans actually is not going to generate any incentive based on the metrics that's done. So as you true all that up, yes, we got a little bit of a bump in the stock price in the fourth quarter, but also, at the same time, one of those plans when that got trued up actually contributed to decreased expense.

Yes. The base measurements for those plans is return on invested capital and growth in operating income. So those major things have to be there. So some of those plans sometimes, we don't make those targets; it doesn't matter what happens to stock price. In general, on your question, though, Arnie, if we were in the money, stock price does make an impact, yes.

Okay. And just -- you've given more guidance than you ever have in the past, and I think as analysts, we appreciate that. Your Q1 number, though, of $0.90, you mentioned the $0.62. But the $0.62 included a number of one-time charges. The number ex-one-time items is more like $0.75. My question is, would the $0.90 be positive independent of Delta, meaning would you expect to have your other non-Delta businesses to be up year over year in Q1?

I think we would answer that question when we announce Q1.

As I said, I appreciate you've given us more guidance than you have in the past.

Brent Thielman, DA Davidson.

Thanks for taking my follow-up. I guess just Terry or Mogens, on the balance sheet, you've got $13 a share in cash. And I'm try to get a sense as to what you think excess cash is, meaning what you have in excess of working capital needs?

Well, clearly, we have a lot of cash in excess of working capital needs. And we continue to look for opportunities to invest that capital as a good return. As you know, our return on cash is not very impressive these days.

We have a good pipeline of potential acquisitions, but you can never plan when or if they will happen, depending on timing and valuation, etc., etc. But we have no plan currently of doing anything with that cash except sitting on it and see what we can find of opportunities.

Over time, if we continue to build up cash reserves and we have nowhere to use it, they will have to be returned to shareholders one way or another. But we don't think that is our challenge right now. I think we have plenty of growth opportunities in the markets we participate in where we can wisely use this cash.

Sure. I appreciate that. And just on Delta, can you remind me, is there much seasonality to that business on an annual basis?

I would say probably not, pretty evenly spread. Some of those businesses are tied into construction seasons, etc., but most of them are in Asia, where you don't have the severe weather from a construction standpoint that we see in this part of the world. So I would say not a lot of seasonality.

So the $26 million in operating income, would it be fair to sort of annualize that to get a sense of what Delta would have offered in 2010?

This is Mark again. Not exactly, because there were some -- for instance, there were some purchase accounting entries that were really nonrecurring types of things, like the write-up in inventory that you have to take and so forth, and some of the pension plan stuff related to it as well.

But probably, if you were looking at it from an overall standpoint, you would really take into account the reported earnings and then really take into account the actual purchase accounting entries, if you really wanted to look at the base business without any of the accounting entries that are associated with that because Valmont bought the business.

Okay, thanks, Mark. Thanks, guys; appreciate it.

At this time, I would like to hand the call back over to Mr. Laudin for any closing remarks.

Thank you. This concludes our call, and we thank you for joining us today. This message will be available for playback on the Internet or by phone for the next week, and we look forward to speaking with you again next quarter. At this time, the operator will read our forward-looking statements.

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 have made in light of experience in the industries of which Valmont operates, as well as management's perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances.

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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.

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This concludes today's conference call. You may now disconnect.