Valmont Industries, Inc. (VMI) Q2 2008 Earnings Report, Transcript and Summary

Good morning. My name is Cynthia and I will be your conference operator today. At this time, I would like to welcome everyone to the Valmont Industries Second Quarter 2008 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 would now like to turn today's call over to Mr. Jeff Laudin. Please go ahead sir.

Thank you, Cynthia. Welcome to the Valmont Industries' second quarter 2008 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 are found in our press release. I'd now like to turn the floor over to our Chairman, Mogens Bay.

Thank you, Jeff, and good morning everyone and thank you for joining us. Let me begin with second quarter highlights. First, we had record second quarter sales, operating income and net earnings. Second, operating income increased 42% and was 12.7% of sales. Third, operating income as a percentage of sales rose 1.6 percentage points. This was during a period of unprecedented inflation in steel costs. Fourth, net earnings increased 38% on a 24% increase in sales. And fifth, the improvements were widespread; all operating segments had record second quarter results. Before I review the results by segments, I would like to make a few general comments about inflation and capacity. The price of hot rolled steel increased approximately 35% during the quarter. Rapid price inflation poses significant challenges for Valmont. We must react very quickly in an inflation environment by raising prices to recover increased costs. We must be proactive and thorough in communicating with customers, the basis for our pricing actions in this environment. I want to congratulate our entire team for their outstanding job in managing through these challenging times. Often investors ask if we have the capacity to meet the demand for our markets. We have a global network of locations with flexible capacity. Over the past two years, we have been adding capacities to support growth in our businesses. In some cases, we are building greenfield plants, such as in China, and in other cases, we are adding to our existing facilities, like we have in our utility and other businesses. They have also been supplementing capacity by acquiring businesses in our core product lines. We will continue to attempt to match capacity with the anticipated growth of our various markets, and we are comfortable we'll be able to do that. We also anticipate that our lean efforts will help us free up additional capacity. Let us now review the second quarter results by segment. I will begin with the Engineered Support Structures segment, where sales increased 19% to $191 million. Operating income increased 7.4% to $17.9 million or 9.4% of sales. Operating income was below last year as inflationary costs rose faster than we were able to recover those costs. There were three main drivers of higher sales for the segment. First, the market for our core businesses, our support lighting and traffic products were resilient. Second, was the positive impact of acquisitions, and third, was improved demand in the North American wireless communication market. The North America sales of lighting and traffic products for the transportation markets were higher. The principal source for funding for this market is the U.S. Federal Highway Bill. Our current sales... and order levels are firm, as they result from projects funded under the 2005 Bill. However, with fixed budgets, projects inflation reduces the physical size of any project. During the next year, debate will begin on a new highway bill for fiscal years 2010 through 2015. The primary source for funding of the bill is the gasoline tax which is a per gallon tax. We expect that changing the tax to one that is based on a percentage of sales will become part of the debate. If history is any guidance, each success of Highway Bill has incorporated higher levels of funding. Even though some states currently may face budgetary constraints, infrastructure spending will continue to be a high priority in the U.S. Turning to other markets, sales of residential and commercializing lighting in North America were lower, as expected, due to softer activity in the housing and real estate markets. In International markets, gains in European sales reflect positive currency translation and incremental sales from the Tehomet acquisition, which took place late in the second quarter of 2007. In China, sales were essentially flat as higher lighting and utility stocks of sales offset a decline in wireless communication product sales. The Chinese government recently restructured the wireless communication industry. And while the short-term impact was to temporarily reduce demand, long-term we see the restructuring as a positive. The new industry structure increases competition between our customers, which should broaden our business opportunities. In summary, new and existing infrastructure projects continue to be developed around the world. Going forward, we expect the pace of infrastructure development to remain strong. In the Utility Support Structures segment, sales increased 13% to $101.3 million, due to the additional sales in PennSummit and improved pricing. Operating income increased 15% to $13.8 million or 13.7% of sales, as a result of a recovery of material cost increases and better factory performance. As we have noted before, utility sales can vary considerably between quarters, depending on the timing of the shipments of large orders. Our order rates are strong, and the current utility backlog is at record levels. At the present time, we do not anticipate a slowdown in investment utility structures. Spending on the electrical grid remains high remains a high priority for utility companies and their regulators. There's agreement on the need to increase the reliability of the grid and to expand its capacity. To accomplish this, additional transformation and distribution structures will need to be installed. In the Coatings segment, second quarter sales of $37.2 million were 5% higher than last year, due to solid demand from our internal customers and improved industrial demand. Higher activity in the agricultural and petroleum sectors is adding to the base level for coating services. Operating income rose 54% to $9.1 million or 24.4% of sales, as a result of lower costs, higher volumes and manufacturing efficiencies and the absence of $650,000 trucks taken in the second quarter of '07. In the Irrigation segment, sales were 48% higher at $159.7 million. Global demand for irrigation equipment was broad based across North America and international markets during the second quarter. Irrigation segment operating income increased 68% to $28 million and was 17.5% of sales. We believe the irrigation business is moving towards higher growth rates that we have... than we have it historically experienced. Previously, supply disruptions caused temporary price increases in grains that would be relieved when production increased in subsequent periods. Today, commodity prices are driven by increased demand worldwide. Besides a growing world population that needs more food and the emergent middle class in countries, such as India and China, brings with it the desire for an improved diet. An additional factor is the emergence of biofuels as an alternative source for energy. This demand-driven environment is leading to increased capital investment by growers in productivity tools, like our mechanized irrigation equipment. The need to increase production will inevitably increase the competition for limited supplies of fresh water, as agriculture today uses about two-thirds of the world's fresh water resources. Center pivot technology remains the best solution to this challenge. Evidence of this is the continued adoption of center pivot technology by growers in emerging markets. Turning to other financial measures, increased inventories and account receivable largely reflects higher activity levels, inflation to impact on inventory valuation and currency translation. During the quarter, we added approximately $16 million to the LIFO reserve. Inventory and accounts receivable turns showed a slight improvement. Depreciation and amortization for the quarter was $9.6 million, and capital expenditures were $14.5 million. You may notice a large increase in current installments of long term debt. Because our revolving bank loan agreement matures in May of 2009, it is now classified a current liability. In the near term, we will plan to renegotiate this agreement with our lenders. For the quarter, cash flow from operations were an inflow of $33.6 million. Investing cash flow were an outflow of $14.9 and financing cash flow, an outflow of $22.2 million. In 2008, depreciation and amortization is expected to be between $38 million and $40 million. For all of 2008, we expect capital spending between $60 million and $70 million. Our tax rate should be approximately 34%, depending on mix of international and domestic earnings. You may recall that in the third quarter of 2007, we had a very favorable tax rate of 22% that will not repeat in 2008. The third quarter 2008 tax rate will likely be closer to the 34% average rate. Reviewing our outlook for the balance of the year, it's positive. In our Engineered Support Structures segment, we expect increased sales in our global markets. In our Utility Support Structures segment, we see continued strengths driven by utility investment to increase the capacity and reliability of the North American transmission grid. In our Coatings segment, markets are strong. However, since coating services is not a backlog business, future results will likely be determined by conditions in local economies where we have facilities. In the Irrigation business, we're confident that the need for agriculture to increase feed grain production worldwide will support further growth. We will continue to face the challenges of inflationary prices everywhere and economic conditions in some markets. However, our broad diversification, among many industries, product lines and geographic regions worldwide, should help us manage through these challenges. In summary, for the year, we currently expect the revenue growth percentage in the mid-20s, and operating income as a percentage of sales to increase more than 1 percentage point as we have mentioned earlier in the year. This concludes the prepared portions of our remarks, and I'd now like to take up your questions. Question And Answer

[Operator Instructions]. Your first question comes from Arnie Ursaner of CJS Securities.

Hi, good morning and congratulations on the previous quarter.

Thanks Arnie.

First question I have is on the utility business, I know some of your customers sometime will ask you for shipping products for a month or two or three. Can you focus just on that for a minute, perhaps give us a sense of how many shipments you may have moved just because of timing?

Well Arnie, it's not a question of moving them because customers are asking for a delay. It is just that large project tends to ship pretty close together. So there can be in one quarter or another. But if your question is do we expect to see a bigger improvement in the third quarter of this year compared to third quarter of last year, than we saw in the second quarter, the answer is yes.

The second question I have is regarding the slowdown you had in China. And I am... really two or three questions related to China. One is on the timing issue you referred to there or the change in regulations? When do you expect to see the positive benefit of the changed increased competition?

Well, whenever an industry goes through a restructuring, it takes a little while before it settles down. But I think that the actual restructuring of how they have organized their wireless carriers is actually behind them. And I would expect to see improvements in that side of the business, going forward from here.

Update also on the status...

So in other words, we expect an improvement... a good comparison in revenue in China in the third quarter.

Okay. Can you update us on the status of your plant placed [ph] in China?

Yes the third plant has actually started, if you will, test production and it will have its official opening on August 28. But so far it's unscheduled, and I think we have the first steel pole being produced and may be already shipped over the last week or so.

My final question is more longer term and strategic, in various times you, as a company, have spoken about well run industrial companies achieving 15% operating margin as a goal. You have also expressed the goal of a 100 basis point improvement per year in your operating margin. As we think out to 2009 and 2010, do you continue to believe you as a company through lean initiatives and other actions can improve your operating margin of 100 basis points or so per or year? And at some point, do you believe you will achieve that 15% goal that well run industrial companies can achieve?

Let me first by... kind of clarifying the statement you made on previous statements, when we said that our goal was to get to 10% operating income, we said we expected that, at that period of time to improve by 100 basis points per year. And we actually improved faster than that. We have continued to improve that performance, despite very difficult environment from an inflationary standpoint, and I am proud of our people being able to do that. I think that lean over time will give us further opportunities to improve our performance but it also depends on what is the general health for the markets we are in. Right now, at least as far as we can see into the future, it looks like we have good solid markets cooperated. But if we get into down cycles in some of the markets, it will certainly affect absorption rate etcetera. But our focus is to not only grow our businesses but also find ways to improve the quality of our businesses.

I'm back in queue. Thank you very much.

Thank you.

Your next question comes from Ned Borland with Next Generation Equity.

Good morning guys and a great quarter

Thank you

If we could focus a little bit on the guidance, it seems like in the first half, you had about a 190 basis point improvement in the first half of last year. How do you expect that margin improvement in the second half to narrow or is it just... are we just looking at typical management conservatism surrounding the guidance on operating margins?

Well, one of the things... as you know we have a very strong irrigation year, and third quarter, in particularly, is traditionally a weak quarter in the irrigation business because that's not when farmers in this country install new equipment. So that will have an effect on it. And so a part of it has to do with seasonality of our earnings throughout the year. And it's not a result of overly conservative estimates on the part of management.

Okay. And then following up on the comment on the third quarter, we've been hearing the lead times for pivots are up a little bit. Does that affect... do we expect to see kind of less of the seasonal drop-off in the third quarter given that your lead times are up a little bit?

Well, you would probably see a positive comparison in the third quarter, but the third quarter is not going to get to levels that you have seen in the second quarter.

Right.

The reality is Ned, that it's too late to put systems on a field, unless for instance, they were damaged because of the tornadoes and their women to pick some crop loss by tearing up to the field. So, it's not like because it's delayed, the third quarter becomes a very, very strong quarter. The reality is that the season is fundamentally over for most people in the U.S.

Okay. But given the level of price increases that you guys have put through in your irrigation, are you seeing anybody kind of buying ahead, somebody that would maybe buy in the fourth quarter after the season, maybe buying the pivot system now and slowing it maybe late in the season?

Well you reflect in your backlog equipment that farmers have placed for installment late in the third quarter and the fourth quarter. But I mean this is not the period of the year where farmers go into field and install equipment, because they can't get into field. That doesn't mean that some of them haven't bought, equipment or reserved equipment for late in the year.

Okay. All right. I'll jump back in queue.

Your next question comes from Jon Braatz with Kansas City Capital.

Good morning, Mogens.

Good morning Jon.

A couple of questions. Obviously there has been a lot of talk about in the utility sector about wind turbines and so on and so forth. Is there anything inherently different in terms of our wind farm and the need for transmission towers as opposed to a coal generating plant or any thing like that? Any reason why there's more towers required?

Well, but all you see alternative energy in the form of either wind farms or solar farms, the more it will drive our transmission and distribution business, because these wind farms, as an example, will not be placed next to a transmission line. They will be placed in the middle of a good wind opportunity. So therefore each time you put a wind farm in, you will need additional transmission lines, substations, et cetera. So even though, we are not big in the actual support structure for turbine, we will clearly benefit from the utility markets growing, as a result of new forms of energy generation being put in place.

Okay. Secondly, in the Coatings business, obviously the margins were very strong in the quarter; I think they were 24 plus percent. From your vintage point, is something like that sustainable?

No.

Okay.

I don't think so.

Okay.

But a good solid operating income performance, I think, is sustainable in there but not in the mid 20s.

What was... was there something inherent in this quarter that drove those margins higher?

Yes, we talked about the challenges we had in the steel side. When steel went up faster than we have even seen in the past, the benefit in the coating side of the business also was that... we see... we saw a zinc drop.

Okay.

And we saw a one business unit that had a drastic improvement recovering from a difficult quarter last year. And then I think we also mentioned that last year in the quarter we fixed $650,000 charge that did not repeat. But, yes, zinc throttled back, and I don't know if that's permanent or for a while but sooner or later that will translate into the marketplace.

Okay, and then lastly going back to China, your China facility manufactures wireless towers, utility towers, lighting towers. Can you give us some breakdown a little bitter, as to the revenue breakdown as to by product segment? I thought in China, wireless towers structures were the biggest portion of revenue, I assume, and I may be correct, I am not sure. But can you give us an idea how that breaks down?

Well, I can confirm that wireless structure is still the largest part of our business in China, followed by utility structures and then followed by lighting. From a growth opportunity perspective, utility has probably the largest growth opportunities. At some point of time the rapid growth of the wireless market was slowed down, as it has everywhere in the world. But utility is a very long-term significant growth opportunity for us. The lighting business is a huge business in China, but there are many more competitors and some of the products are not as complicated from an engineering standpoint. So we need to find the right niches to participate in the lighting market but long term the lighting market is also a big opportunity.

Like in the United States, do you have... are you establishing the good relationships with the utility companies over there and have sort of inside track [ph] in many cases?

Well, no I wouldn't say that, but I would say that there's an national grid organization in China that we stay close with. And there are regional utilities we stay close with but we have to earn the business like anybody else.

Okay. Mogen, thank you very much.

Thank you.

Your next question comes from Brad Delmont [ph] with D.A. Davidson.

Good morning and congratulations on a great quarter.

Thank you Brad.

I guess, as we look forward specifically in the Engineered Support Structures segment, are you still working through contracts that have not fully recognized the current cost of steel?

Yes, one of the things in the North American structure businesses is that a lot of their jobs are funded by federal funds. And you have no opportunity to go back and renegotiate prices based on inflation. So, therefore you have jobs in your backlog that that you will have to deliver at prices that were agreed upon before you had this run-up in costs, so yes.

Okay. And I guess as you talk to suppliers do you get any indication of where steel prices are going from there?

Well, so far it's still an upwards trend.

Yes.

I mean there's some talk of steel increases easing or stopping in the fourth quarter, but we've had predictions like that before. You follow what happens with some of the iron ore prices and contracts worldwide, and you see price increases of 60% and 70% and 80% then... you would think that the general slowdown in the economy in this country, the automotive industry and then other parts of the world, eventually would put some dampening on steel costs. But I am not sure, I mean you've seen a lot of consolidation in the steel industry over the last number of years. And I think as an industry, they have become smarter. And instead of producing more than there is a need for they take furnaces out for maintenance, et cetera, et cetera and try and manage their supply. So I certainly do not expect a drastic decrease in steel prices but I think that the kind of run-up we've seen lately is not going to continue.

Okay. And then on the Utility Support Structures maybe you can just talk to the performance of PennSummit year-over-year growth to your expectations.

Yes. I mean, PennSummit, I'd say the first few weeks you have the usual getting used to its all on integration issues, but PennSummit is performing up to our expectations.

Okay. And then also within that segment and I realized margins are very lumpy on a quarterly basis given, so the timing of work, but given your comments on backlog, should we assume utilization rates should improve from here and I guess overall that at least the margins are sustainable at these levels?

Yes. I would say it's not like you see margins changing a lot, depending on that volume quarter-to-quarter. But you see volume changes because of large projects, and we expect that the relative growth in the utility business in the next quarter to be higher than it was in the second quarter.

Okay and then just on the Coatings segment, and I know again you have very limited visibility here as well. But I guess as you guys are talking to fabricators, steel fabricators, do you get any sense of what they're seeing over the next several months within their own order books?

Well it all depends on the industries we serve but the basic infrastructure industries and agricultural industries remain strong. And some of the industries tied to consumer products, it could be bulk trailers et cetera, it's probably going to be less buoyant.

Okay and then final question, and I'll let them jump in. But your irrigation business, I guess as your international irrigation business grows relative to your North American business are you seeing anything that might offset, to some extent, more so than you've seen in the past, the seasonal slowdown that you do typically see in the third quarter for that business this year?

Well, in the international businesses, you have Northern Hemisphere businesses which will generally follow the same patterns as we do in North America. And the businesses in the Southern Hemisphere will be on separate type of seasonality. But I expect our third quarter international irrigation business to continue, a very strong growth.

Okay, thank you very much. Congratulations again.

Thank you.

Your next question comes from the Steve Gambuzza [ph] with Longbow Capital.

Good morning.

Good morning.

I was wondering if you could just comment on the revenue guidance of mid 20s growth for the year, if you wouldn't mind, giving us some sense as to how much currency and acquisitions, individually, will contribute towards that goal?

Currency probably not very much in that overall picture. Acquisitions some, pricing some, and volume some. And I would say that the volume and acquisitions is a bigger portion than you will see price.

Okay. When you say currency is not significant, does that mean it's less than a percent or so or is it a couple of percent?

I would... well I can't tell if it's 1% or 2% but there's not going to be much currency change year-over-year. And it's on a small part of our business; I mean it's basically the European business what we see most of the currency. In China, it can go a little bit the other way.

Yup. And then in terms of the wind opportunity, I know historically you had given some thought into entering the market for constructing, for manufacturing wind towers but then decided that was not a business that met your kind of strategic criteria. I was just curious if you've given any thought to the opportunity, again, or if you continue to believe it's not something you want to pursue?

Well, there's no doubt in my mind that wind will continue to be a fast growth industry. Our participation, as we had envisioned it, were large structures that was a different design than the typical design. We could not see the financial return. It was not a strategic decision; it was a financial decision that we did not see the returns necessary to enter that business. We could see okay returns if we used current facilities, but we don't have excess capacity in our current facilities to... meaningful enough to make that the basis of entering this industry. And when we added the capital necessary to build plants specifically for wind, we just didn't find it attractive enough at that time. Your question is, is that something we have just put way and we're not thinking about? The answer to that is no. We constantly look at opportunities where there is the right combination between the product that we may be able to deliver to the wind power industry directly, in support structure for our turbines and the financial returns we will require. And my hope is that we will find the right combination, but until we do, we are not going to enter it.

So, you have no plans to invest capital presently?

Not right now, but we constantly look at ways where we can create enough return that capital investments will be justified.

Great. And then finally I was wondering if you would mind just explaining the inventory accrual that you took during the quarter. I guess I'm just a little bit confused, because my understanding is, you actually... your inventories is kind of half accounted for under LIFO and half accounted for under FIFO?

Yes, some plants on the FIFO and some on the LIFO. And LIFO account, during an inflationary times, tends to lower your profitability. And we took a $16 million additional LIFO charge in this quarter, then if we had not been on LIFO, by and large would have gotten to the bottom line.

But I guess your... under LIFO you're reporting in those times... current [ph] material prices through cost of goods sold?

Yes and we're taking, yes you're right.

So, why would you need an additional accrual if you're showing the most expensive material prices for your cost of goods sold?

Before I give you a more of financial accounting advice I am going to turn that answer over to Mark Jaksich.

Well, as opposed to going through the detailed calculation but basically what you're doing conceptually is you're matching current costs with current revenues under LIFO. So in the case like, we've had this year with the steel inflation, you will end up with additional LIFO provision. Now the only way you can mitigate some of that is with the substantial reduction in quantities. And but in that particular case, because of the volumes we've had and the level of business we had, we have not done that because of inventory levels... we're got to need this for the business. So but that's basically what it is. So in the cases where you've got a lot of inflation, you will have more LIFO

And the LIFO reserves you will see in the inventory number, that's where it is.

Okay, thank you very much.

Thank you.

Your next question comes from Michael Coleman with Sterne, Agee. Michael Coleman - Sterne, Agee & Leach: Good morning.

Good morning. Michael Coleman - Sterne, Agee & Leach: On your utility backlog, given the dramatic increase in input costs, could you characterize the unit volume component of that increase in the backlog?

I don't have the exact split but there is volume increase. There is a good price effect on that because of the run-up in steel but there is also volume increase in the backlog. Michael Coleman - Sterne, Agee & Leach: Okay, Great. On the irrigation, could you... kind of like what you did with China in your three businesses but irrigation. Could you go through your top three international markets, in terms of their size today and then there... kind of rank them according to their growth potential?

Well, we don't split up individual markets in... within our segments. But I think as we said in the press release, we have seen very good growth in South America and Brazil and also in Argentina. And Brazil has been kind of a depressed market for a couple of years, but it's reverting to levels that we have seen in the past. And if you look at long term growth, Brazil continues to be one of the biggest opportunities. They have vast tracks of lands; they have opportunities for double cropping. They have good water reserves in many parts of Brazil. There's a central state by the name of Mato Grosso. There is an enormous opportunity for soybean production. The commodity prices seem to be overcoming the strengths of the Brazilian currency, and they probably are continuing to improve their infrastructure. So they get these commodities to world markets more efficiently. So I would say that from a growth perspective, Brazil continues to be Valmont's at the top of the list. And I think longer term the whole former Soviet Union and Central Asia region is holding a lot of potential for growth. Michael Coleman - Sterne, Agee & Leach: Okay. The earlier this year, I guess I think after the first quarter, you had some insiders [ph], you sold some stock and I think your CFO sold the stock as well. Do you intend for additional sales in your current calendar year?

I continue to look at sales and if you look back at my sales over the last few years, you know I would have made much more money if I had retained it. But it's prudent to do some diversification particularly as you are getting somewhat closer to the retirement. So, this not a reflection at all as to how we look at the future of our business. I think I sold at $30 and $50 and $70 and $90 and that is just a diversification strategy. We have a stock ownership guideline within the Corporation, and I think in my case, it's six times my salary, and I probably have 50 times my salary in Valmont stocks. So we are certainly all and we'll continue to be very much tied to the well being on our stocks. Michael Coleman - Sterne, Agee & Leach: Okay. That I will check. Thank you.

Your next question comes from James Bank of Sidoti & Company. James Bank - Sidoti & Company: Hi, good morning.

Good morning, James. James Bank - Sidoti & Company: Question on the flooding in the Midwest, I just wanted to know if there was any impact to your business at all. Sort of a medium term thought would be the damage done out there that there could be a incremental replacement cycle; just wanted to get your thoughts on that.

Well, most of the flooding took place at Iowa, and Iowa is not a big pivot market. They basically rely on rainfall for their crops. Where we have seen more activity than usual is storm damage in Nebraska and Kansas and this general area. And each summer, you tend to have some storm damage. This summer has been, particularly bad from the weather standpoint; in other words, a lot of damage, and more than we normally see. But it was not flood-related; it was storm-related. James Bank - Sidoti & Company: Okay, that's helpful. And if I could just get a... I guess, a little more background on the Highway Bill, which I guess is actually an Act that was signed in 2005, almost two years after it had been a Bill. My understanding is that it was $286 billion six-year spend but the spend didn't begin until 2005. So doing simple math roughly over $100 billion are left to spend or were appropriated for to kind of go and carry past 2009. Am I thinking through this clearly or no?

Yes, James, I mean that's the money that was proposed will be spent. The question that's going on right now is that... big part of that funding comes from a tax that's on gallons used and the gallon usage in United State is declining from last year in a number of cases. So, there may be less money available from that part of the funding. And the question is whether or not Congress will either kick up the tax rate or put in more general funds, in order to keep the spending levels what was projected initially under that Bill. James Bank - Sidoti & Company: Okay. I just wanted to know if there's any great risk beyond 2009 as they muddle over new Highway Act?

If you believe the experts, there needs to be more spending than there was in the past on infrastructure. James Bank - Sidoti & Company: Okay.

And so right now unless there is a major priority change and there always can be a major priority change within the federal budgeting process, we wouldn't expect to see less money. We would expect to see more money being spent. James, there's always a risk when you deal with politicians and what they decide to do. But as I said in my remarks, if history is any guidance, every single Highway Bill has ended up containing higher funding levels than the previous ones. Now often you have disruptions between two bills where it takes a while for Congress to agree on what's going to happen. And then often what they do, they extend the funding levels at current levels until they agree on a new bill, but that's out of our hands. James Bank - Sidoti & Company: Right, okay. Now that's very helpful. Thank you so much, that's all I had.

[Operator Instructions]. Your next question comes from Ned Borland with Next Generation Equity.

Hi. Two questions on your irrigation. Are there any major pricing discrepancies between higher price pivots in the U.S. versus international?

No.

Okay, and have you seen any market share losses in the quarter?

No, it's very difficult to message quarter by quarter and sometimes see, we are in an industry where most of the players worldwide are not public companies. So we have to collect the lot of information from our markets from our dealers, from our suppliers, etcetera. But we have not seen any significant switches between the players over the last couple of years.

Okay, thank you.

Your next question comes from Arnie Ursaner with CJS Securities.

Wanted to try to follow up a little bit on your comment regarding the 25% or mid 20s revenue growth assumptions. You mentioned that volume and acquisitions would both be bigger than price and kind of assumptions back of the envelope...

Arnie, that's not what I had said. I said the two combined would be bigger than price.

Okay, let's stay right on that. So if you have 35% or so price increases that alone based on steel as a percent of your cost of goods would in and of itself almost translate to a 12% revenue growth.

That's correct.

So, to be very clear, are you including unannounced future acquisitions in that 25% or is that what we have in hands? Maybe you could, if let's just hypothetically say prices half of it's 12 of the 24.

Yes, then the other half will be between volume and acquisitions.

Can you break those down? In other words, there are no unannounced acquisitions in that. Is that correct?

Yes, That's correct.

So can you give us a sense of what sort of volume growth is embedded in your mid-20s type growth?

Well, it will be about half of the mid-20s would be... what do you mean... we announced the acquisitions West Coast Engineering and PennSummit.

Right.

I think we told you, in both cases, the revenues were about $50 million.

Right.

And those are the main acquisitions that would affect this.

Right, but we as analysts would have already embedded that in?

Yes, and that is already in the mid-20s that we are talking about also.

Right. The price obviously is greater than we would have thought?

Well, depending on mix in total, our steel cost is about 35% to 40% of our cost of goods sold. So, if you just use that number, the calculation you came up with is correct. Price would indicatively get complete price. It would indicate we have 12%. Some backlogs we can raise price and in some backlogs we cannot. So, at the end of the day, it's probably a little less than that, which means that a little more than 12% or 13% would come from a combination of growth, volume growth and acquisitions.

Okay. So, taking that again, I know you don't provide formal guidance. But as we, as analysts, think about '09, and I know it's well out there and it's subject to lots of economic vagaries and a lot of other issues. Should we be thinking about organic volume growth? Again, there's a mix of volume and price; most of the price increases you're putting in now will get some benefit from those into next year as well. So if I think of revenue growth in '09, if prices are up 5%, 6%, 7% or 8% or whatever the math might work out to. What sort of volume growth are you envisioning in kind of your key markets and then the opportunity for volume growth, next year?

Well your first question was, do you anticipate organic growth or volume growth beyond price going into '09? And the answer of that is yes. As long as our main markets continue to be as buoyant as they are, and we continue to look.... to see the growth opportunities that we see currently, yes, we expect volume growth as well as growth as a result of the price increases we've had to incur all this year. We're not going to give you specific items as to how much volume growth we see on top of the price growth at this time, but as we go into next year we are going to give you some indication as to how we feel about that.

Thank you very much.

At this time there are no questions. I would like to turn the call back over to management for closing remarks.

Thank you, Cynthia. 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. We look forward to speaking to you again in the next quarter. And at this time, Cynthia 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 has made in line of the experience in the industry in which Valmont operates, as well as management's perceptions that 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 assumptions. 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 environments, and actions and policy changes of domestic and foreign governments. The company cautions that any forward-looking statement included in this press release is made as of the date of the discussion and the company does not undertake to update any forward-looking statements. This concludes today's conference call. You may now disconnect.