10-Q 1 a2193793z10-q.htm 10-Q

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Form 10-Q

(Mark One)    

ý

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 27, 2009

Or

o

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                             to                            

Commission file number 1-31429



Valmont Industries, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  47-0351813
(I.R.S. Employer
Identification No.)

One Valmont Plaza,
Omaha, Nebraska

(Address of principal executive offices)

 

68154-5215
(Zip Code)

402-963-1000
(Registrant's telephone number, including area code)

    
(Former name, former address and former fiscal year, if changed since last report)



        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

26,265,839
Outstanding shares of common stock as of July 21, 2009


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

 
   
  Page No.  

PART I. FINANCIAL INFORMATION

 

Item 1.

 

Financial Statements:

       

 

Condensed Consolidated Statements of Operations for the thirteen and twenty-six weeks ended June 27, 2009 and June 28, 2008

    3  

 

Condensed Consolidated Balance Sheets as of June 27, 2009 and December 27, 2008

    4  

 

Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended June 27, 2009 and June 28, 2008

    5  

 

Condensed Consolidated Statements of Shareholders' Equity for the twenty-six weeks ended June 27, 2009 and June 28, 2008

    6  

 

Notes to Condensed Consolidated Financial Statements

    7-24  

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

    25-33  

Item 3.

 

Quantitative and Qualitative Disclosure About Market Risk

    33  

Item 4.

 

Controls and Procedures

    33  

PART II. OTHER INFORMATION

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

    34  

Item 5.

 

Other Information

    34  

Item 6.

 

Exhibits

    34  

Signatures

    35  

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

(Unaudited)

 
  Thirteen Weeks Ended   Twenty-Six Weeks Ended  
 
  June 27,
2009
  June 28,
2008
  June 27,
2009
  June 28,
2008
 

Net sales

  $ 498,810   $ 497,129   $ 953,964   $ 919,415  

Cost of sales

    354,129     359,926     680,967     666,404  
                   
 

Gross profit

    144,681     137,203     272,997     253,011  

Selling, general and administrative expenses

    75,265     73,833     145,262     139,175  
                   
 

Operating income

    69,416     63,370     127,735     113,836  
                   

Other income (expenses):

                         
 

Interest expense

    (3,976 )   (4,708 )   (8,260 )   (9,182 )
 

Interest income

    284     877     616     1,498  
 

Miscellaneous

    1,608     (515 )   (190 )   (1,858 )
                   

    (2,084 )   (4,346 )   (7,834 )   (9,542 )
                   

Earnings before income taxes and equity in earnings (losses) of nonconsolidated subsidiaries

    67,332     59,024     119,901     104,294  
                   

Income tax expense (benefit):

                         
 

Current

    19,266     24,875     31,566     41,536  
 

Deferred

    2,785     (4,327 )   7,740     (5,934 )
                   

    22,051     20,548     39,306     35,602  
                   

Earnings before equity in earnings (losses) of nonconsolidated subsidiaries

    45,281     38,476     80,595     68,692  

Equity in earnings (losses) of nonconsolidated subsidiaries

    (71 )   31     495     (43 )
                   
 

Net earnings

    45,210     38,507     81,090     68,649  
                   

Less: Earnings attributable to noncontrolling interests

    (980 )   (1,223 )   (996 )   (1,686 )
                   
 

Net earnings attributable to Valmont Industries, Inc. 

  $ 44,230   $ 37,264   $ 80,094   $ 66,963  
                   

Earnings per share attributable to Valmont

                         
 

Industries, Inc.—Basic

  $ 1.70   $ 1.44   $ 3.09   $ 2.60  
                   

Earnings per share attributable to Valmont

                         
 

Industries Inc.—Diluted

  $ 1.69   $ 1.41   $ 3.05   $ 2.55  
                   

Cash dividends per share

  $ 0.150   $ 0.130   $ 0.280   $ 0.235  
                   

Weighted average number of shares of common stock outstanding—Basic (000 omitted)

    25,943     25,823     25,928     25,763  
                   

Weighted average number of shares of common stock outstanding—Diluted (000 omitted)

    26,223     26,377     26,224     26,306  
                   

See accompanying notes to condensed consolidated financial statements.

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

 
  June 27,
2009
  December 27,
2008
 

ASSETS

             

Current assets:

             
 

Cash and cash equivalents

  $ 96,262   $ 68,567  
 

Receivables, net

    336,168     327,620  
 

Inventories

    251,621     313,411  
 

Prepaid expenses

    24,824     13,821  
 

Refundable and deferred income taxes

    28,444     32,380  
           
   

Total current assets

    737,319     755,799  
           

Property, plant and equipment, at cost

    654,271     630,410  
 

Less accumulated depreciation and amortization

    376,385     361,090  
           
   

Net property, plant and equipment

    277,886     269,320  
           

Goodwill

    177,158     175,291  

Other intangible assets, net

    101,713     104,506  

Other assets

    25,365     21,372  
           
   

Total assets

  $ 1,319,441   $ 1,326,288  
           

LIABILITIES AND SHAREHOLDERS' EQUITY

             

Current liabilities:

             
 

Current installments of long-term debt

  $ 1,043   $ 904  
 

Notes payable to banks

    17,634     19,552  
 

Accounts payable

    129,662     136,868  
 

Accrued employee compensation and benefits

    53,686     70,158  
 

Accrued expenses

    53,673     49,700  
 

Dividends payable

    3,940     3,402  
           
   

Total current liabilities

    259,638     280,584  
           

Deferred income taxes

    44,833     45,124  

Long-term debt, excluding current installments

    258,418     337,128  

Other noncurrent liabilities

    24,908     22,476  

Shareholders' equity:

             
 

Preferred stock of $1 par value

             
   

Authorized 500,000 shares; none issued

         
 

Common stock of $1 par value

             
   

Authorized 75,000,000 shares; 27,900,000 issued

    27,900     27,900  
 

Retained earnings

    701,714     624,254  
 

Accumulated other comprehensive income

    9,711     (533 )
 

Treasury stock

    (26,352 )   (27,490 )
           
   

Total Valmont Industries, Inc. shareholders' equity

    712,973     624,131  
           
 

Noncontrolling interest in consolidated subsidiaries

    18,671     16,845  
           
   

Total shareholders'equity

    731,644     640,976  
           
   

Total liabilities and shareholders' equity

  $ 1,319,441   $ 1,326,288  
           

See accompanying notes to condensed consolidated financial statements.

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 
  Twenty-Six Weeks Ended  
 
  June 27,
2009
  June 28,
2008
 

Cash flows from operating activities:

             
 

Net earnings

  $ 81,090   $ 68,649  
 

Adjustments to reconcile net earnings to net cash flows from operations:

             
   

Depreciation and amortization

    21,710     19,115  
   

Stock-based compensation

    2,993     2,630  
   

Loss/(gain) on sale of property, plant and equipment

    345     (646 )
   

Equity in (earnings)/losses in nonconsolidated subsidiaries

    (495 )   43  
   

Deferred income taxes

    7,740     (5,934 )
   

Other

    (239 )   189  
   

Payment of deferred compensation

        (589 )
   

Changes in assets and liabilities, net of business acquisitions:

             
     

Receivables

    (5,356 )   (34,839 )
     

Inventories

    65,061     (18,519 )
     

Prepaid expenses

    (10,369 )   (6,270 )
     

Accounts payable

    (6,923 )   21,510  
     

Accrued expenses

    (13,234 )   4,048  
     

Other noncurrent liabilities

    (993 )   (1,067 )
     

Income taxes payable

    (5,732 )   1,151  
           
     

Net cash flows from operating activities

    135,598     49,471  
           

Cash flows from investing activities:

             
 

Purchase of property, plant & equipment

    (24,550 )   (25,388 )
 

Proceeds from sale of assets

    74     3,058  
 

Acquisitions, net of cash acquired

        (90,225 )
 

Dividends to noncontrolling interests

    (289 )   (184 )
 

Other, net

    (68 )   (1,100 )
           
     

Net cash flows from investing activities

    (24,833 )   (113,839 )
           

Cash flows from financing activities:

             
 

Net borrowings under short-term agreements

    (1,917 )   2,749  
 

Proceeds from long-term borrowings

    10,001     50,895  
 

Principal payments on long-term obligations

    (88,628 )   (32,985 )
 

Dividends paid

    (6,813 )   (5,454 )
 

Proceeds from exercises under stock plans

    3,126     6,627  
 

Excess tax benefits from stock option exercises

    1,446     6,850  
 

Purchase of common treasury shares—stock plan exercises

    (2,146 )   (7,744 )
           
     

Net cash flows from financing activities

    (84,931 )   20,938  
           

Effect of exchange rate changes on cash and cash equivalents

    1,861     1,733  
           

Net change in cash and cash equivalents

    27,695     (41,697 )

Cash and cash equivalents—beginning of year

    68,567     106,532  
           

Cash and cash equivalents—end of period

  $ 96,262   $ 64,835  
           

See accompanying notes to condensed consolidated financial statements.

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Dollars in thousands)

(Unaudited)

 
  Common
stock
  Additional
paid-in
capital
  Retained
earnings
  Accumulated
other
comprehensive
income (loss)
  Treasury
stock
  Noncontrolling
interest in
consolidated
subsidiaries
  Total
shareholders'
equity
 

Balance at December 29, 2007

  $ 27,900   $   $ 496,388   $ 16,996   $ (30,671 ) $ 10,373   $ 520,986  

Comprehensive income:

                                           
 

Net earnings

            66,963             1,686     68,649  
 

Currency translation adjustment

                10,482         2,903     13,385  
                                           
   

Total comprehensive income

                            82,034  

Cash dividends ($0.235 per share)

            (6,127 )               (6,127 )

Stock plan exercises; 62,928 shares purchased

                    (7,744 )       (7,744 )

Stock options exercised; 186,119 shares issued

        (9,854 )   5,966         10,515         6,627  

Tax benefit from exercise of stock options

        6,850                     6,850  

Stock option expense

          1,488                     1,488  

Stock awards; 13,025 shares issued

        1,516                       1,516  
                               

Balance at June 28, 2008

  $ 27,900   $   $ 563,190   $ 27,478   $ (27,900 ) $ 14,962   $ 605,630  
                               

Balance at December 27, 2008

 
$

27,900
 
$

 
$

624,254
 
$

(533

)

$

(27,490

)

$

16,845
 
$

640,976
 

Comprehensive income:

                                           
 

Net earnings

            80,094             996     81.090  
 

Currency translation adjustment

                10,244         830     11,074  
                                           
   

Total comprehensive income

                            92,164  

Cash dividends ($0.28 per share)

            (7,351 )               (7,351 )

Stock plan exercises; 121,345 shares issued

        (4,439 )   4,717         2,848         3,126  

Stock plan exercises; 33,481 shares purchased

                        (2,146 )       (2,146 )

Tax benefit from exercise of stock options

        1,446                     1,446  

Stock option expense

        2,040                     2,040  

Stock awards; 9,746 shares issued

        953             436         1,389  
                               

Balance at June 27, 2009

  $ 27,900   $   $ 701,714   $ 9,711   $ (26,352 ) $ 18,671   $ 731,644  
                               

See accompanying notes to condensed consolidated financial statements.

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

1. Summary of Significant Accounting Policies

    Condensed Consolidated Financial Statements

        The Condensed Consolidated Balance Sheet as of June 27, 2009, the Condensed Consolidated Statements of Operations for the thirteen and twenty-six week periods ended June 27, 2009 and June 28, 2008, the Condensed Consolidated Statements of Cash Flows and the Condensed Consolidated Statements of Shareholders' Equity for the twenty-six week periods then ended have been prepared by the Company, without audit. In the opinion of management, all necessary adjustments (which include normal recurring adjustments) have been made to present fairly the financial statements as of June 27, 2009 and for all periods presented. Information related to noncontrolling interest in consolidated subsidiaries for 2008 has been reclassified to conform to the 2009 presentation, as required under SFAS 160, Noncontrolling Interests in Consolidated Financial Statements, which was adopted effective December 28, 2008, the beginning of the Company's 2009 fiscal year. The effect of SFAS 160 was to classify noncontrolling interests on the condensed consolidated balance sheets as equity and to reclassify the related earnings in the condensed consolidated statements of operations for all periods presented.

        Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 27, 2008. The accounting policies and methods of computation followed in these interim financial statements are the same as those followed in the financial statements for the year ended December 27, 2008. The results of operations for the period ended June 27, 2009 are not necessarily indicative of the operating results for the full year.

    Inventories

        At June 27, 2009, approximately 48.4% of inventory is valued at the lower of cost, determined on the last-in, first-out (LIFO) method, or market. All other inventory is valued at the lower of cost, determined on the first-in, first-out (FIFO) method or market. Finished goods and manufactured goods inventories include the costs of acquired raw materials and related factory labor and overhead charges required to convert raw materials to manufactured finished goods. The excess of replacement cost of inventories over the LIFO value was approximately $42,200 and $58,200 at June 27, 2009 and December 27, 2008, respectively.

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

1. Summary of Significant Accounting Policies (Continued)

        Inventories consisted of the following:

 
  June 28,
2009
  December 27,
2008
 

Raw materials and purchased parts

  $ 157,463   $ 207,011  

Work-in-process

    22,595     28,925  

Finished goods and manufactured goods

    113,792     135,671  
           
 

Subtotal

    293,850     371,607  

LIFO reserve

    42,229     58,196  
           

Net inventory

  $ 251,621   $ 313,411  
           

        In the first half of 2009, the Company reduced its inventory quantities, thereby liquidating a portion of its LIFO inventories acquired in prior years. The result of this liquidation was an increase in operating income of $2,843 for the thirteen and twenty-six week periods ended June 27, 2009.

    Stock Plans

        The Company maintains stock-based compensation plans approved by the shareholders, which provide that the Compensation Committee of the Board of Directors may grant incentive stock options, nonqualified stock options, stock appreciation rights, non-vested stock awards and bonuses of common stock. At June 27, 2009, 1,348,800 shares of common stock remained available for issuance under the plans. Shares and options issued and available are subject to changes in capitalization.

        Under the plans, the exercise price of each option equals the market price at the date of the grant. Options vest beginning on the first anniversary of the grant in equal amounts over three to six years or on the fifth anniversary of the grant. Expiration of grants is from six to ten years from the date of grant. The Company's compensation expense (included in selling, general and administrative expenses) and associated income tax benefits related to stock option for the thirteen and twenty-six weeks ended June 27, 2009 and June 28, 2008, respectively, were as follows:

 
  Thirteen Weeks
Ended
June 27, 2009
  Thirteen Weeks
Ended
June 28, 2008
  Twenty-six Weeks
Ended
June 27, 2009
  Twenty-six Weeks
Ended
June 28, 2008
 

Compensation expense

  $ 1,020   $ 752   $ 2,040   $ 1,488  

Income tax benefits

    393     288     785     572  

    Fair Value

        The Company applies the provisions of SFAS No. 157, Fair Value Measurements ("SFAS 157") which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS 157 apply to other accounting pronouncements that require or permit fair value measurements. As defined in SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

1. Summary of Significant Accounting Policies (Continued)

        SFAS 157 establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

    Level 1: Quoted market prices in active markets for identical assets or liabilities.

    Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

    Level 3: Unobservable inputs that are not corroborated by market data.

        The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

        Following is a description of the valuation methodologies used for assets and liabilities measured at fair value.

        Trading Securities: The assets and liabilities recorded for the investments held in the Valmont Deferred Compensation Plan represent mutual funds, invested in debt and equity securities, classified as trading securities in accordance with Financial Accounting Standard No. 115, Accounting for Certain Investments in Debt and Equity Securities, considering the employee's ability to change investment allocation of their deferred compensation at any time. Quoted market prices are available for these securities in an active market and therefore categorized as a Level 1 input.

 
   
  Fair Value Measurement Using:  
 
  Carrying Value
June 27, 2009
  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  Significant Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Assets:

                         
 

Trading Securities

  $ 13,912   $ 13,912   $   $  

 


 

 


 

Fair Value Measurement Using:

 
 
  Carrying Value
December 27, 2008
  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  Significant Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Assets:

                         
 

Trading Securities

  $ 10,488   $ 10,488   $   $  

    Subsequent Events

        The Company implemented SFAS No. 165, Subsequent Events, in the second quarter of 2009. In accordance with this pronouncement, the Company has evaluated subsequent events through July 31, 2009. The Company incorporated into the condensed consolidated financial statements presented

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

1. Summary of Significant Accounting Policies (Continued)

herein all subsequent events requiring recognition as of June 27, 2009 and has not identified any subsequent events that require disclosure.

    Recently Issued Accounting Pronouncements

        In June 2009, the FASB issued Statement No. 166, Accounting for Transfers of Financial Assets ("FAS 166"). FAS 166 is effective for the Company beginning December 27, 2009. FAS 166 modifies the accounting and disclosure requirements regarding transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. The statement eliminates the concept of a "qualifying special-purpose entity", changes the requirements for derecognizing financial assets and requires additional disclosures about transfers of financial assets. The Company does not expect FAS 166 to have a material impact on its financial statements.

        In June 2009, the FASB issued Statement No.168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162 ("FAS 168"). The Codification will become the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of FAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. FAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. FAS 168 is not expected to have a material impact on the Company's financial statements.

2. Acquisitions

        In the first quarter of 2008, the Company acquired substantially all of the assets of Penn Summit LLC (Penn Summit), a manufacturer of steel utility and wireless communication poles located in Hazelton, Pennsylvania and 70% of the outstanding shares of West Coast Engineering Group, Ltd. (West Coast), a Canadian and U.S. manufacturer of steel and aluminum structures for the lighting, transportation and wireless communication industries headquartered in Delta, British Columbia for an aggregate amount of $90,225.

        In July 2008, the Company acquired the assets of Site Pro 1, Inc. (Site Pro), a company that distributes wireless communication components for the U.S. market. In November 2008, the Company acquired all of the outstanding shares of Stainton Metals Co., Ltd. (Stainton), an English manufacturer of steel structures for the lighting, transportation and wireless communication industries headquartered in Stockton-on-Tees, England. In addition, the Company acquired the assets of a provider of materials analysis, testing and inspection services, formed a 51% owned joint venture in Turkey with a Turkish company to manufacture and sell pole structures and acquired the assets of a galvanizing operation located near Louisville, Kentucky in 2008.

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

2. Acquisitions (Continued)

        The purchase price allocation on the Stainton acquisition was not completed as of June 27, 2009, as the Company is in the process of evaluating the fair value of certain leased assets. The Company expects to complete the purchase price allocation for this acquisition in the third quarter of 2009.

        The Company's pro forma results of operations for the thirteen and twenty-six weeks ended June 28, 2008, assuming that these acquisitions occurred at the beginning of fiscal 2008 were as follows:

 
  Thirteen Weeks
Ended
June 28, 2008
  Twenty-six Weeks
Ended
June 28, 2008
 

Net sales

  $ 515,312   $ 955,545  

Net earnings attributable to Valmont Industries, Inc. 

    38,160     69,469  

Earnings per share—diluted

  $ 1.45   $ 2.61  

3. Goodwill and Intangible Assets

        The Company's annual impairment testing of goodwill and intangible assets was performed during the third quarter of fiscal 2008. As a result of that testing, it was determined the goodwill and other intangible assets on the Company's Consolidated Balance Sheet were not impaired. The Company continues to monitor changes in the global economy that could impact future operating results of its reporting units and related components.

    Amortized Intangible Assets

        The components of amortized intangible assets at June 27, 2009 and December 27, 2008 were as follows:

 
  As of June 27, 2009    
 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Weighted
Average
Life

Customer Relationships

  $ 98,348   $ 23,382   14 years

Proprietary Software & Database

    2,609     2,363   6 years

Patents & Proprietary Technology

    3,427     1,090   13 years

Non-compete Agreements

    1,696     701   6 years
             

  $ 106,080   $ 27,536    
             

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

3. Goodwill and Intangible Assets (Continued)


 


 

As of December 27, 2008

 

 

 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Weighted
Average
Life

Customer Relationships

  $ 97,202   $ 19,560   14 years

Proprietary Software & Database

    2,609     2,295   6 years

Patents & Proprietary Technology

    3,427     929   13 years

Non-compete Agreements

    1,696     548   7 years
             

  $ 104,934   $ 23,332    
             

        Amortization expense for intangible assets for the thirteen and twenty-six weeks ended June 27, 2009 and June 28, 2008, respectively was as follows:

 
 
Thirteen Weeks
Ended
June 27, 2009
  Thirteen Weeks
Ended
June 28, 2008
  Twenty-six Weeks
Ended
June 27, 2009
  Twenty-six Weeks
Ended
June 28, 2008
 
    $ 2,070   $ 1,447   $ 4,115   $ 2,832  

        Estimated future amortization expense related to amortized intangible assets is as follows:

 
  Estimated
Amortization
Expense
 

2009

  $ 8,253  

2010

    8,266  

2011

    8,118  

2012

    8,034  

2013

    7,136  

        The useful lives assigned to finite-lived intangible assets included consideration of factors such as the Company's past and expected experience related to customer retention rates, the remaining legal or contractual life of the underlying arrangement that resulted in the recognition of the intangible asset and the Company's expected use of the intangible asset.

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

3. Goodwill and Intangible Assets (Continued)

    Non-amortized intangible assets

        Under the provisions of SFAS 142, intangible assets with indefinite lives are not amortized. The carrying values of trade names at June 27, 2009 and December 27, 2008 were as follows:

 
  June 27,
2009
  December 27,
2008
 

PiRod

  $ 4,750   $ 4,750  

Newmark

    11,111     11,111  

Tehomet

    1,316     1,316  

West Coast

    2,148     2,030  

Site Pro

    1,800     1,800  

Stainton

    1,401     1,254  

Other

    643     643  
           

  $ 23,169   $ 22,904  
           

        The PiRod, Newmark and Tehomet trade names were tested for impairment separately from goodwill in the third quarter of 2008. The values of the trade names were determined using the relief-from-royalty method. Based on this evaluation, the Company determined that its trade names were not impaired.

        In its determination of these intangible assets as indefinite-lived, the Company considered such factors as its expected future use of the intangible asset, legal, regulatory, technological and competitive factors that may impact the useful life or value of the intangible asset and the expected costs to maintain the value of the intangible asset. The Company expects that these intangible assets will maintain their value indefinitely. Accordingly, these assets are not amortized.

    Goodwill

        The carrying amount of goodwill as of June 27, 2009 was as follows:

 
  Engineered
Support
Structures
Segment
  Utility
Support
Structures
Segment
  Coatings
Segment
  Irrigation
Segment
  Total  

Balance December 27, 2008

  $ 52,324   $ 77,141   $ 43,777   $ 2,049   $ 175,291  

Foreign currency translation

    1,852             15     1,867  
                       

Balance June 27, 2009

  $ 54,176   $ 77,141   $ 43,777   $ 2,064   $ 177,158  
                       

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

4. Cash Flows

        The Company considers all highly liquid temporary cash investments purchased with a maturity of three months or less to be cash equivalents. Cash payments for interest and income taxes (net of refunds) for the twenty-six weeks ended were as follows:

 
  June 27,
2009
  June 28,
2008
 

Interest

  $ 8,759   $ 9,572  

Income taxes

    34,550     38,742  

5. Earnings Per Share

        The following table reconciles Basic and Diluted earnings per share (EPS):

 
  Basic EPS   Dilutive Effect of
Stock Options
  Diluted EPS  

Thirteen weeks ended June 27, 2009:

                   
 

Net earnings attributable to Valmont Industries, Inc. 

  $ 44,230       $ 44,230  
 

Shares outstanding

    25,943     280     26,223  
 

Per share amount

  $ 1.70     (.01 ) $ 1.69  

Thirteen weeks ended June 28, 2008:

                   
 

Net earnings attributable to Valmont Industries, Inc. 

  $ 37,264       $ 37,264  
 

Shares outstanding

    25,823     554     26,377  
 

Per share amount

  $ 1.44     (.03 ) $ 1.41  

Twenty-six weeks ended June 27, 2009:

                   
 

Net earnings attributable to Valmont Industries, Inc. 

  $ 80,094       $ 80,094  
 

Shares outstanding

    25,928     296     26,224  
 

Per share amount

  $ 3.09     (.04 ) $ 3.05  

Twenty-six weeks ended June 28, 2008:

                   
 

Net earnings attributable to Valmont Industries, Inc. 

  $ 66,963       $ 66,963  
 

Shares outstanding

    25,763     543     26,306  
 

Per share amount

  $ 2.60     (.05 ) $ 2.55  

        At June 27, 2009 there were 188,127 of outstanding stock options with exercise prices exceeding the market price of common stock that were therefore excluded from the computation of fully diluted shares earnings per share for the thirteen and twenty six weeks ended June 27, 2009. At June 28, 2008, there were no outstanding stock options with exercise prices exceeding the market price of common stock. Therefore, there were no shares contingently issuable upon exercise of stock options excluded from the computation of diluted earnings per share for the thirteen and twenty six weeks ended June 28, 2008.

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

6. Comprehensive Income

        Results of operations for foreign subsidiaries are translated using the average exchange rates during the period. Assets and liabilities are translated at the exchange rates in effect on the balance sheet dates. Currency translation adjustment is the Company's only component of accumulated other comprehensive income. The Company's total comprehensive income attributable to the Company for the thirteen and twenty-six weeks ended June 27, 2009 and June 28, 2008, respectively, were as follows:

 
  Thirteen Weeks
Ended
  Twenty-Six Weeks
Ended
 
 
  June 27,
2009
  June 28,
2008
  June 27,
2009
  June 28,
2008
 

Net earnings attributable to Valmont Industries, Inc. 

  $ 44,230   $ 37,264   $ 80,094   $ 66,963  

Currency translation adjustment

    12,815     4,625     10,244     10,482  
                   

Total comprehensive income attributable to Valmont Industries, Inc. 

  $ 57,045   $ 41,889   $ 90,338   $ 77,445  
                   

7. Business Segments

        The Company aggregates its operating segments into four reportable segments. Aggregation is based on similarity of operating segments as to economic characteristics, products, production processes, types or classes of customer and the methods of distribution. Net corporate expense is net of certain service-related expenses that are allocated to business units generally based on employee headcounts and sales dollars.

        Reportable segments are as follows:

        ENGINEERED SUPPORT STRUCTURES:    This segment consists of the manufacture of engineered metal structures and components for the lighting and traffic and wireless communication industries, certain international utility industries and for other specialty applications;

        UTILITY SUPPORT STRUCTURES:    This segment consists of the manufacture of engineered steel and concrete structures primarily for the North American utility industry;

        COATINGS:    This segment consists of galvanizing, anodizing and powder coating services; and

        IRRIGATION:    This segment consists of the manufacture of agricultural irrigation equipment and related parts and services.

        In addition to these four reportable segments, the Company has other businesses that individually are not more than 10% of consolidated sales. These businesses, which include the manufacture of tubular products and the distribution of industrial fasteners, are reported in the "Other" category.

        The accounting policies of the reportable segments are the same as those described in Note 1. The Company evaluates the performance of its business segments based upon operating income and

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

7. Business Segments (Continued)


invested capital. The Company does not allocate interest expense, non-operating income and deductions, or income taxes to its business segments.

 
  Thirteen Weeks Ended   Twenty-Six Weeks Ended  
 
  June 27,
2009
  June 28,
2008
  June 27,
2009
  June 28,
2008
 

Sales:

                         
 

Engineered Support Structures segment:

                         
   

Lighting & Traffic

  $ 129,184   $ 146,769   $ 248,662   $ 262,749  
   

Specialty

    34,895     34,276     67,828     59,568  
   

Utility

    18,463     9,914     24,439     18,080  
                   
     

Engineered Support Structures segment

    182,542     190,959     340,929     340,397  
 

Utility Support Structures segment

                         
   

Steel

    156,499     80,186     297,317     159,692  
   

Concrete

    42,646     21,116     77,889     42,780  
                   
     

Utility Support Structures segment

    199,145     101,302     375,206     202,472  
 

Coatings segment

    28,600     37,200     58,612     72,328  
 

Irrigation segment

    101,047     159,667     204,109     290,445  
 

Other

    17,693     30,802     37,303     56,251  
                   
     

Total

    529,027     519,930     1,016,159     961,893  

Intersegment Sales:

                         
 

Engineered Support Structures segment

    20,361     6,813     40,779     12,800  
 

Utility Support Structures segment

    528     1,433     1,086     2,114  
 

Coatings segment

    6,188     7,181     12,331     14,862  
 

Irrigation segment

    9     4     14     13  
 

Other

    3,131     7,370     7,985     12,689  
                   
     

Total

    30,217     22,801     62,195     42,478  

Net Sales:

                         
 

Engineered Support Structures segment

    162,181     184,146     300,150     327,597  
 

Utility Support Structures segment

    198,617     99,869     374,120     200,358  
 

Coatings segment

    22,412     30,019     46,281     57,466  
 

Irrigation segment

    101,038     159,663     204,095     290,432  
 

Other

    14,562     23,432     29,318     43,562  
                   
     

Total

  $ 498,810   $ 497,129   $ 953,964   $ 919,415  
                   

Operating Income(Loss):

                         
 

Engineered Support Structures segment

  $ 14,046   $ 18,073   $ 22,115   $ 28,155  
 

Utility Support Structures segment

    47,469     13,732     86,425     28,405  
 

Coatings segment

    6,393     9,085     12,384     15,631  
 

Irrigation segment

    9,834     28,019     21,846     50,414  
 

Other

    3,401     5,288     6,875     9,700  
 

Net corporate expense

    (11,727 )   (10,827 )   (21,910 )   (18,469 )
                   
     

Total

  $ 69,416   $ 63,370   $ 127,735   $ 113,836  
                   

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

8. Guarantor/Non-Guarantor Financial Information

        On May 4, 2004, the Company completed a $150,000,000 offering of 67/8% Senior Subordinated Notes. The Notes are guaranteed, jointly, severally, fully and unconditionally, on a senior subordinated basis by certain of the Company's current and future direct and indirect domestic subsidiaries (collectively the "Guarantors"), excluding its other current domestic and foreign subsidiaries which do not guarantee the debt (collectively referred to as the "Non-Guarantors"). All Guarantors are 100% owned by the parent company.

        Condensed consolidated financial information for the Company ("Parent"), the Guarantor subsidiaries and the Non-Guarantor subsidiaries is as follows:

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Thirteen Weeks Ended June 27, 2009

 
  Parent   Guarantors   Non-
Guarantors
  Eliminations   Total  

Net Sales

  $ 254,326   $ 136,506   $ 146,577   $ (38,599 ) $ 498,810  

Cost of Sales

    184,621     98,858     109,411     (38,761 )   354,129  
                       
 

Gross profit

    69,705     37,648     37,166     162     144,681  

Selling, general and administrative expenses

    39,405     14,243     21,617         75,265  
                       
 

Operating income

    30,300     23,405     15,549     162     69,416  
                       

Other income (deductions):

                               
 

Interest expense

    (3,709 )   (6 )   (261 )       (3,976 )
 

Interest income

    22         262         284  
 

Miscellaneous

    1,248     40     320         1,608  
                       

    (2,439 )   34     321         (2,084 )
                       

Earnings before income taxes, minority interest and equity in earnings/(losses) of nonconsolidated subsidiaries

    27,861     23,439     15,870     162     67,332  
                       

Income tax expense:

                               
 

Current

    7,373     8,171     3,722         19,266  
 

Deferred

    2,980     452     (647 )       2,785  
                       

    10,353     8,623     3,075         22,051  
                       

Earnings before equity in earnings/(losses) of nonconsolidated subsidiaries

    17,508     14,816     12,795     162     45,281  

Equity in earnings/(losses) of nonconsolidated subsidiaries

    26,560             (26,631 )   (71 )
                       
 

Net earnings

    44,068     14,816     12,795     (26,469 )   45,210  

Less: Earnings attributable to noncontrolling interests

            (980 )       (980 )
                       

Net Earnings attributable to Valmont Industries, Inc. 

  $ 44,068   $ 14,816   $ 11,815   $ (26,469 ) $ 44,230  
                       

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

8. Guarantor/Non-Guarantor Financial Information (Continued)

For the Twenty-Six Weeks Ended June 27, 2009

 
  Parent   Guarantors   Non-
Guarantors
  Eliminations   Total  

Net Sales

  $ 507,885   $ 257,176   $ 271,326   $ (82,423 ) $ 953,964  

Cost of Sales

    370,372     190,291     204,066     (83,762 )   680,967  
                       
 

Gross profit

    137,513     66,885     67,260     1,339     272,997  

Selling, general and administrative expenses

    77,175     28,280     39,807         145,262  
                       
 

Operating income

    60,338     38,605     27,453     1,339     127,735  
                       

Other income (deductions):

                               
 

Interest expense

    (7,672 )   (13 )   (575 )       (8,260 )
 

Interest income

    29     1     586         616  
 

Miscellaneous

    1,096     103     (1,389 )       (190 )
                       

    (6,547 )   91     (1,378 )       (7,834 )
                       

Earnings before income taxes, minority interest and equity in earnings/(losses) of nonconsolidated subsidiaries

    53,791     38,696     26,075     1,339     119,901  
                       

Income tax expense:

                               
 

Current

    12,776     13,935     4,855         31,566  
 

Deferred

    6,611     331     798         7,740  
                       

    19,387     14,266     5,653         39,306  
                       

Earnings before equity in earnings/(losses) of nonconsolidated subsidiaries

    34,404     24,430     20,422     1,339     80,595  

Equity in earnings/(losses) of nonconsolidated subsidiaries

    44,351             (43,856 )   495  
                       
 

Net earnings

    78,755     24,430     20,422     (42,517 )   81,090  

Less: Earnings attributable to noncontrolling interests

            (996 )       (996 )
                       

Net Earnings attributable to Valmont Industries, Inc

  $ 78,755   $ 24,430   $ 19,426   $ (42,517 ) $ 80,094  
                       

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

8. Guarantor/Non-Guarantor Financial Information (Continued)

For the Thirteen Weeks Ended June 28, 2008

 
  Parent   Guarantors   Non-
Guarantors
  Eliminations   Total  

Net Sales

  $ 296,713   $ 83,181   $ 153,412   $ (36,177 ) $ 497,129  

Cost of Sales

    220,723     62,956     112,107     (35,860 )   359,926  
                       
 

Gross profit

    75,990     20,225     41,305     (317 )   137,203  

Selling, general and administrative expenses

    40,229     11,949     21,655         73,833  
                       
 

Operating income

    35,761     8,276     19,650     (317 )   63,370  
                       

Other income (deductions):

                               
 

Interest expense

    (3,801 )   (5 )   (902 )       (4,708 )
 

Interest income

    73     7     797         877  
 

Miscellaneous

    (114 )   55     (456 )       (515 )
                       

    (3,842 )   57     (561 )       (4,346 )
                       

Earnings before income taxes, minority interest and equity in earnings/(losses) of nonconsolidated subsidiaries

    31,919     8,333     19,089     (317 )   59,024  
                       

Income tax expense:

                               
 

Current

    15,755     2,658     6,462         24,875  
 

Deferred

    (3,630 )   413     (1,110 )       (4,327 )
                       

    12,125     3,071     5,352         20,548  
                       

Earnings before equity in earnings/(losses) of nonconsolidated subsidiaries

    19,794     5,262     13,737     (317 )   38,476  

Equity in earnings/(losses) of nonconsolidated subsidiaries

    17,787         33     (17,789 )   31  
                       
 

Net earnings

    37,581     5,262     13,770     (18,106 )   38,507  

Less: Earnings attributable to noncontrolling interests

            (1,243 )       (1,243 )
                       

Net Earnings attributable to Valmont Industries, Inc. 

  $ 37,581   $ 5,262   $ 12,527   $ (18,106 ) $ 37,264  
                       

19


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

8. Guarantor/Non-Guarantor Financial Information (Continued)

For the Twenty-Six Weeks Ended June 28, 2008

 
  Parent   Guarantors   Non-
Guarantors
  Eliminations   Total  

Net Sales

  $ 548,420   $ 162,920   $ 269,826   $ (61,751 ) $ 919,415  

Cost of Sales

    404,145     125,611     198,648     (62,000 )   666,404  
                       
 

Gross profit

    144,275     37,309     71,178     249     253,011  

Selling, general and administrative expenses

    75,773     23,065     40,337         139,175  
                       
 

Operating income

    68,502     14,244     30,841     249     113,836  
                       

Other income (deductions):

                               
 

Interest expense

    (7,679 )   (11 )   (1,492 )       (9,182 )
 

Interest income

    153     19     1,326         1,498  
 

Miscellaneous

    (1,021 )   102     (939 )       (1,858 )
                       

    (8,547 )   110     (1,105 )       (9,542 )
                       

Earnings before income taxes, minority interest and equity in earnings/(losses) of nonconsolidated subsidiaries

    59,955     14,354     29,736     249     104,294  
                       

Income tax expense:

                               
 

Current

    27,571     4,784     9,181         41,536  
 

Deferred

    (5,293 )   475     (1,116 )       (5,934 )
                       

    22,278     5,259     8,065         35,602  
                       

Earnings before equity in earnings/(losses) of nonconsolidated subsidiaries

    37,677     9,095     21,671     249     68,692  

Equity in earnings/(losses) of nonconsolidated subsidiaries

    29,037         39     (29,119 )   (43 )
                       
 

Net earnings

    66,714     9,095     21,710     (28,870 )   68,649  

Less: Earnings attributable to noncontrolling interests

            (1,686 )       (1,686 )
                       

Net Earnings attributable to Valmont Industries, Inc

  $ 66,714   $ 9,095   $ 20,024   $ (28,870 ) $ 66,963  
                       

20


Table of Contents


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

8. Guarantor/Non-Guarantor Financial Information (Continued)

CONDENSED CONSOLIDATED BALANCE SHEETS
June 27, 2009

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

ASSETS

                               

Current assets:

                               
 

Cash and cash equivalents

  $ 38,866   $ 1,669   $ 55,727   $   $ 96,262  
 

Receivables, net

    120,190     72,216     143,762         336,168  
 

Inventories

    98,660     53,538     99,423         251,621  
 

Prepaid expenses

    4,390     555     19,879         24,824  
 

Refundable and deferred income taxes

    14,757     6,136     7,551         28,444  
                       
   

Total current assets

    276,863     134,114     326,342         737,319  
                       

Property, plant and equipment, at cost

    397,344     93,316     163,611         654,271  
 

Less accumulated depreciation and amortization

    250,167     41,797     84,421         376,385  
                       
   

Net property, plant and equipment

    147,177     51,519     79,190         277,886  
                       

Goodwill

    20,108     107,542     49,508         177,158  

Other intangible assets

    1,066     77,324     23,323         101,713  

Investment in subsidiaries and intercompany accounts

    677,272     29,626     (28,765 )   (678,133 )    

Other assets

    21,139         4,226         25,365  
                       
   

Total assets

  $ 1,143,625   $ 400,125   $ 453,824   $ (678,133 ) $ 1,319,441  
                       

LIABILITIES AND SHAREHOLDERS' EQUITY

                               

Current liabilities:

                               
 

Current installments of long-term debt

  $ 880   $ 13   $ 150   $   $ 1,043  
 

Notes payable to banks

        6     17,628         17,634  
 

Accounts payable

    51,954     16,311     61,397         129,662  
 

Accrued expenses

    56,404     11,828     39,127         107,359  
 

Dividends payable

    3,940                 3,940  
                       
   

Total current liabilities

    113,178     28,158     118,302         259,638  
                       

Deferred income taxes

    13,448     22,874     8,511         44,833  

Long-term debt, excluding current installments

    247,004     16     11,398         258,418  

Other noncurrent liabilities

    21,128         3,780         24,908  

Commitments and contingencies

                     

Shareholders' equity:

                               
 

Common stock of $1 par value

    27,900     14,248     3,494     (17,742 )   27,900  
 

Additional paid-in capital

        181,542     139,577     (311,902 )    
 

Retained earnings

    747,319     153,287     140,380     (339,272 )   701,714  
 

Accumulated other comprehensive income

            9,711         9,711  
 

Treasury stock

    (26,352 )               (26,352 )
                       
 

Total Valmont Industries, Inc. shareholders' equity

    748,867     349,077     293,162     (668,916 )   712,973  
                       

Noncontrolling interest in consolidated subsidiaries

            18,671         18,671  
                       
 

Total shareholders' equity

    748,867     349,077     311,833     (668,916 )   731,644  
                       
 

Total liabilities and shareholders' equity

  $ 1,143,625   $ 400,125   $ 453,824   $ (678,133 ) $ 1,319,441  
                       

21


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

8. Guarantor/Non-Guarantor Financial Information (Continued)

CONDENSED CONSOLIDATED BALANCE SHEETS
December 27, 2008

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

ASSETS

                               

Current assets:

                               
 

Cash and cash equivalents

  $ 18,989   $ 1,503   $ 48,075   $   $ 68,567  
 

Receivables, net

    114,510     61,625     151,485         327,620  
 

Inventories

    132,896     69,913     110,602         313,411  
 

Prepaid expenses

    3,362     639     9,820         13,821  
 

Refundable and deferred income taxes

    19,636     6,235     6,509         32,380  
                       
   

Total current assets

    289,393     139,915     326,491         755,799  
                       

Property, plant and equipment, at cost

    386,488     88,723     155,199         630,410  
 

Less accumulated depreciation and amortization

    243,153     38,903     79,034         361,090  
                       
   

Net property, plant and equipment

    143,335     49,820     76,165         269,320  
                       

Goodwill

    20,108     107,542     47,641         175,291  

Other intangible assets

    1,147     80,329     23,030         104,506  

Investment in subsidiaries and intercompany accounts

    679,653     2,722     (56,869 )   (625,506 )    

Other assets

    17,584         3,788         21,372  
                       
   

Total assets

  $ 1,151,220   $ 380,328   $ 420,246   $ (625,506 ) $ 1,326,288  
                       

LIABILITIES AND SHAREHOLDERS' EQUITY

                               

Current liabilities:

                               
 

Current installments of long-term debt

  $ 852   $ 16   $ 36       $ 904  
 

Notes payable to banks

        13     19,539         19,552  
 

Accounts payable

    52,891     19,812     64,165         138,868  
 

Accrued expenses

    62,958     13,175     43,725         119,858  
 

Dividends payable

    3,402                 3,402  
                       
   

Total current liabilities

    120,103     33,016     127,465         280,584  
                       

Deferred income taxes

    14,558     22,642     7,924         45,124  

Long-term debt, excluding current installments

    335,537     23     1,568         337,128  

Other noncurrent liabilities

    19,524         2,952         22,476  

Commitments and contingencies

                     

Shareholders' equity:

                               
 

Common stock of $1 par value

    27,900     14,248     3,494     (17,742 )   27,900  
 

Additional paid-in capital

        181,542     139,577     (321,119 )    
 

Retained earnings

    661,088     128,857     120,954     (286,645 )   624,254  
 

Accumulated other comprehensive income

            (533 )       (533 )
 

Treasury stock

    (27,490 )               (27,490 )
                       
 

Total Valmont Industries, Inc. shareholders' equity

    661,498     324,647     263,492     (625,506 )   624,131  
                       

Noncontrolling interest in consolidated subsidiaries

            16,845         16,845  
                       
 

Total shareholders' equity

    661,498     324,647     280,337     (625,506 )   640,976  
                       
 

Total liabilities and shareholders' equity

  $ 1,151,220   $ 380,328   $ 420,246   $ (625,506 ) $ 1,326,288  
                       

22


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

8. Guarantor/Non-Guarantor Financial Information (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Twenty-Six Weeks Ended June 27, 2009

 
  Parent   Guarantors   Non-
Guarantors
  Eliminations   Total  

Cash flows from operating activities:

                               
 

Net earnings

  $ 78,755   $ 24,430   $ 20,422   $ (42,517 ) $ 81,090  
 

Adjustments to reconcile net earnings to net cash flows from operations:

                               
   

Depreciation and amortization

    9,241     6,326     6,143         21,710  
   

Stock based compensation

    2,993                 2,993  
   

(Gain)/ Loss on sale of property, plant and equipment

    (11 )   54     302         345  
   

Equity in (earnings)/losses of nonconsolidated subsidiaries

    (495 )               (495 )
   

Deferred income taxes

    6,611     331     798         7,740  
   

Other adjustments

            (239 )       (239 )
   

Payment of deferred compensation

                               
   

Changes in assets and liabilities:

                               
     

Receivables

    (5,683 )   (10,591 )   10,918         (5,356 )
     

Inventories

    34,236     16,376     14,449         65,061  
     

Prepaid expenses

    (1,029 )   86     (9,426 )       (10,369 )
     

Accounts payable

    133     (3,502 )   (3,554 )       (6,923 )
     

Accrued expenses

    (6,121 )   (1,346 )   (5,767 )       (13,234 )
     

Other noncurrent liabilities

    (1,821 )       828         (993 )
     

Income taxes payable

    (3,913 )       (1,819 )       (5,732 )
                       
   

Net cash flows from operating activities

    112,896     32,164     33,055     (42,517 )   135,598  
                       

Cash flows from investing activities:

                               
 

Purchase of property, plant and equipment

    (12,647 )   (5,088 )   (6,815 )       (24,550 )
 

Dividends to noncontrolling interests

            (289 )       (289 )
 

Proceeds from sale of assets

    20     14     40         74  
 

Other, net

    12,500     (26,908 )   (28,177 )   42,517     (68 )
                       
   

Net cash flows from investing activities

    (127 )   (31,982 )   (35,241 )   42,517     (24,833 )
                       

Cash flows from financing activities:

                               
 

Net borrowings (repayments) under short-term agreements

        (6 )   (1,911 )       (1,917 )
 

Proceeds from long-term borrowings

            10,001         10,001  
 

Principal payments on long-term obligations

    (88,505 )   (10 )   (113 )       (88,628 )
 

Dividends paid

    (6,813 )               (6,813 )
 

Proceeds from exercises under stock plans

    3,126                 3,126  
 

Excess tax benefits from stock option exercises

    1,446                 1,446  
 

Purchase of common treasury shares—stock plan exercises

    (2,146 )               (2,146 )
                       
   

Net cash flows from financing activities

    (92,892 )   (16 )   7,977         (84,931 )
                       
 

Effect of exchange rate changes on cash and cash equivalents

            1,861         1,861  
                       
 

Net change in cash and cash equivalents

    19,877     166     7,652         27,695  
 

Cash and cash equivalents—beginning of year

    18,989     1,503     48,075         68,567  
                       
 

Cash and cash equivalents—end of period

  $ 38,866   $ 1,699   $ 55,727   $   $ 96,262  
                       

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

8. Guarantor/Non-Guarantor Financial Information (Continued)

For the Twenty-Six Weeks Ended June 28, 2008

 
  Parent   Guarantors   Non-
Guarantors
  Eliminations   Total  

Cash flows from operating activities:

                               
 

Net earnings

  $ 67,042   $ 9,095   $ 21,382   $ (28,870 ) $ 68,649  
 

Adjustments to reconcile net earnings to net cash flows from operations:

                               
   

Depreciation and amortization

    8,421     5,235     5,459         19,115  
   

Stock based compensation

    2,630                 2,630  
   

(Gain)/Loss on sale of property, plant and equipment

    22     13     (681 )       (646 )
   

Equity in (earnings)/losses of nonconsolidated subsidiaries

    82         (39 )       43  
   

Deferred income taxes

    (5,293 )   475     (1,116 )       (5,934 )
   

Other adjustments

            189         189  
   

Payment of deferred compensation

    (589 )               (589 )
   

Changes in assets and liabilities:

                               
     

Receivables

    (22,921 )   925     (12,843 )       (34,839 )
     

Inventories

    (180 )   1,605     (19,944 )       (18,519 )
     

Prepaid expenses

    (932 )   (591 )   (4,747 )       (6,270 )
     

Accounts payable

    14,967     (364 )   6,907         21,510  
     

Accrued expenses

    (72 )   299     3,821         4,048  
     

Other noncurrent liabilities

    (1,755 )       688         (1,067 )
     

Income taxes payable

    634         517         1,151  
                       
   

Net cash flows from operating activities

    62,056     16,692     (407 )   (28,870 )   49,471  
                       

Cash flows from investing activities:

                               
 

Purchase of property, plant and equipment

    (14,306 )   (1,155 )   (9,927 )       (25,388 )
 

Acquisitions, net of cash acquired

    (849 )   (57,904 )   (31,472 )       (90,225 )
 

Dividends to minority interest

            (184 )       (184 )
 

Proceeds from sale of assets

    678     51     2,329         3,058  
 

Other, net

    (111,173 )   43,727     37,476     28,870     (1,100 )
                       
   

Net cash flows from investing activities

    (125,650 )   (15,281 )   (1,778 )   28,870     (113,839 )
                       

Cash flows from financing activities:

                               
 

Net borrowings (repayments) under short-term agreements

            2,749         2,749  
 

Proceeds from long-term borrowings

    50,000         895         50,895  
 

Principal payments on long-term obligations

    (28,426 )   (86 )   (4,473 )       (32,985 )
 

Dividends paid

    (5,454 )               (5,454 )
 

Proceeds from exercises under stock plans

    6,627                 6,627  
 

Excess tax benefits from stock option exercises

    6,850                 6,850  
 

Purchase of common treasury shares—stock plan exercises

    (7,744 )               (7,744 )
                       
   

Net cash flows from financing activities

    21,853     (86 )   (829 )       20,938  
                       
 

Effect of exchange rate changes on cash and cash equivalents

            1,733         1,733  
                       
 

Net change in cash and cash equivalents

    (41,741 )   1,325     (1,281 )       (41,697 )
 

Cash and cash equivalents—beginning of year

    58,344     464     47,724         106,532  
                       
 

Cash and cash equivalents—end of period

  $ 16,603   $ 1,789   $ 46,443   $   $ 64,835  
                       

*  *  *  *  *

24


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        Management's discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements are based on assumptions that management has made in light of experience in the industries in which the Company 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. These statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond the Company's control) and assumptions. Management believes that these forward-looking statements are based on reasonable assumptions. Many factors could affect the Company'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 the Company'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.

        This discussion should be read in conjunction with the financial statements and the notes thereto, and the management's discussion and analysis, included in the Company's Annual Report on Form 10-K for the fiscal year ended December 27, 2008. We aggregate our businesses into four reportable segments. See Note 7 to the Condensed Consolidated Financial Statements.

25


Table of Contents

Results of Operations

    Dollars in thousands, except per share amounts

 
  Thirteen Weeks Ended   Twenty-six Weeks Ended  
 
  June 27, 2009   June 28, 2008   % Incr. (Decr.)   June 27, 2009   June 28, 2008   % Incr. (Decr.)  

Consolidated

                                     
 

Net sales

  $ 498,810   $ 497,129     0.3 % $ 953,964   $ 919,415     3.8 %
 

Gross profit

    144,681     137,203     5.5 %   272,997     253,011     7.9 %
   

as a percent of sales

    29.0 %   27.6 %         28.6 %   27.5 %      
 

SG&A expense

    75,265     73,833     1.9 %   145,262     139,175     4.4 %
   

as a percent of sales

    15.1 %   14.9 %         15.2 %   15.1 %      
 

Operating income

    69,416     63,370     9.5 %   127,735     113,836     12.2 %
   

as a percent of sales

    13.9 %   12.7 %         13.4 %   12.4 %      
 

Net interest expense

    3,692     3,831     -3.6 %   7,644     7,684     -0.5 %
 

Effective tax rate

    32.7 %   34.8 %         32.8 %   34.1 %      
 

Net earnings attributable to Valmont Industries, Inc. 

    44,230     37,264     18.7 %   80,094     66,963     19.6 %
 

Earnings per share attributable to Valmont Industries, Inc.—diluted

  $ 1.69   $ 1.41     19.9 % $ 3.05   $ 2.55     19.6 %

Engineered Support Structures segment

                                     
 

Net sales

  $ 162,181   $ 184,146     -11.9 % $ 300,150   $ 327,597     -8.4 %
 

Gross profit

    44,920     48,254     -6.9 %   80,178     85,845     -6.6 %
 

SG&A expense

    30,874,     30,181     2.3 %   58,063     57,690     0.6 %
 

Operating income

    14,046     18,073     -22.3 %   22,115     28,155     -21.5 %

Utility Support Structures segment

                                     
 

Net sales

  $ 198,617   $ 99,869     98.9 % $ 374,120   $ 200,358     86.7 %
 

Gross profit

    62,653     26,980     132.2 %   116,227     53,580     116.9 %
 

SG&A expense

    15,184     13,248     14.6 %   29,802     25,175     18.4 %
 

Operating income

    47,469     13,732     245.7 %   86,425     28,405     204.3 %

Coatings segment

                                     
 

Net sales

  $ 22,412   $ 30,019     -25.3 % $ 46,281   $ 57,466     -19.5 %
 

Gross profit

    9,958     12,409     -19.8 %   19,437     22,341     -13.0 %
 

SG&A expense

    3,565     3,324     7.3 %   7,053     6,710     5.1 %
 

Operating income

    6,393     9,085     -29.6 %   12,384     15,631     -20.8 %

Irrigation segment

                                     
 

Net sales

  $ 101,038   $ 159,663     -36.7 % $ 204,095   $ 290,432     -29.7 %
 

Gross profit

    22,028     42,136     -47.7 %   46,320     77,279     -40.1 %
 

SG&A expense

    12,194     14,117     -13.6 %   24,474     26,865     -8.9 %
 

Operating income

    9,834     28,019     -64.9 %   21,846     50,414     -56.7 %

Other

                                     
 

Net sales

  $ 14,562   $ 23,432     -37.9 % $ 29,318   $ 43,562     -32.7 %
 

Gross profit

    5,327     8,020     -33.6 %   11,099     14,513     -23.5 %
 

SG&A expense

    1,926     2,732     -29.5 %   4,224     4,813     -12.2 %
 

Operating income

    3,401     5,288     -35.7 %   6,875     9,700     -29.1 %

Net Corporate expense

                                     
 

Gross profit

  $ (205 ) $ (596 )   65.6 % $ (264 ) $ (547 )   51.7 %
 

SG&A expense

    11,522     10,231     12.6 %   21,646     17,922     20.8 %
 

Operating loss

    (11,727 )   (10,827 )   -8.3 %   (21,910 )   (18,469 )   -18.6 %

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    Overview

        On a consolidated basis, net sales for the second quarter and year-to-date periods ended June 27, 2009 were slightly higher as compared with the same periods in 2008. Net sales increases for the thirteen and twenty-six weeks ended June 27, 2009, as compared with the same periods in 2008, resulted from:

    the impact of acquisitions completed after the close of the second quarter of 2008 (approximately $19.2 million and $36.8 million, respectively) and;

    higher selling prices due to steel cost increases that occurred throughout most of 2008. While sales unit prices were higher in 2009, as compared with 2008, pricing levels in 2009 have generally decreased as compared with late 2008, due to pricing pressures associated with weaker sales demand and lower raw material prices.

        These increases were offset by:

    currency translation effects (approximately $9.6 million and $19.3 million, respectively). The U.S. dollar was stronger in relation to the euro, Brazilian real, South African rand and the Canadian dollar in 2009, as compared with 2008, resulting in lower sales when our sales in those currencies were translated into U.S. dollars and;

    lower sales unit volumes in 2009, as compared with 2008. On a consolidated basis, sales unit volumes for the thirteen and twenty-six weeks ended June 27, 2009 were approximately 5% less than the same periods in 2008. On a reportable segment basis, we realized a significant sales unit volume increase in the Utility Support Structures ("Utility") segment. The sales unit volume increase in Utility was more than offset by lower unit sales volumes in our other reportable segments. These decreases were mainly due to the global economic recession that began in late 2008, resulting in weaker sales demand for these businesses.

        The increase in gross profit margin (gross profit as a percent of sales) in the second quarter and year-to-date period ended June 27, 2009 over the same periods in 2008 was mainly due to the strong sales and operational performance of the Utility segment and a modest gross margins improvement in the Coatings segment. The Irrigation segment reported weaker gross margins in 2009, as compared with 2008, mainly due to lower sales and production levels. Declining raw materials costs throughout the first half of 2009 helped us maintain gross margins to some degree despite weaker sales demand and lower factory production levels in most of our businesses.

        Selling, general and administrative (SG&A) spending in 2009 (on a quarterly and year-to-date basis) increased over 2008, due to:

    increased salary and benefit costs (approximately $3.1 million and $6.2 million, respectively);

    the effect of acquisitions completed after the second quarter of 2008 (approximately $3.0 million and $5.4 million, respectively), and;

    increased deferred compensation expense related to the improved investment performance in the marketable securities underlying the deferred compensation plan as compared with of 2008 (approximately $1.0 million and $1.9 million, respectively). We recorded the investment gains and losses in these securities as "Miscellaneous" in our condensed consolidated statements of operations for the thirteen weeks and twenty-six weeks ended June 27, 2009 and June 28, 2008, respectively.

        These increases were somewhat offset by:

    currency translation effects (approximately $1.8 million and $3.3 million, respectively), and;

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    lower management incentive accruals in 2009, as compared with 2008 (approximately $3.8 million and $4.3 million, respectively)

        On a reportable segment basis, the substantial increase in operating income in the Utility segment more than offset decreased operating income of our other segments, resulting in the increased operating income in 2009, as compared with 2008.

        Net interest expense for the second quarter and year-to-date periods ended June 27, 2009, were lower than the same periods in 2008. While our second quarter and year-to-date 2009 average borrowing levels were higher than the same periods in 2008, we benefited from lower interest rates on our variable rate debt. "Miscellaneous" income was higher in the second quarter and year-to-date periods ended June 27, 2009, as compared with 2008, due to improved investment performance in the assets in our deferred compensation plan and foreign currency transaction gains realized in 2009.

        The decrease in the effective income tax rate for the second quarter and year-to-date periods ended June 27, 2009, as compared with the same periods in 2008, was mainly due to a reduction in the first quarter of 2009 of our income tax contingency liabilities. Our cash flows provided by operations were $135.6 million for the twenty-six week period ended June 27, 2009, as compared with $49.5 million for the same period in 2008. Improved net earnings and working capital management in 2009, as compared with 2008, were the main reasons for the improved operating cash flow in 2009.

    Engineered Support Structures (ESS) segment

        The decrease in ESS segment sales in the quarter and year-to-date periods ended June 27, 2009, as compared with the same periods in 2008, was mainly due to weaker sales demand in worldwide markets and foreign currency translation effects (approximately $6.1 million and $11.4 million, respectively). These decreases were offset somewhat by the impact of acquisitions (approximately $19.2 million and $36.1 million, respectively) and slightly higher selling prices, as compared with 2008.

        In North America, lighting and traffic structure sales were lower than 2008 levels due to decreased demand for lighting and traffic control support structures. In particular, sales demand for lighting structures for residential and commercial outdoor lighting applications were lower in 2009, as compared with 2008, due to weaker residential and commercial construction activity that resulted from the global economic recession and tightness in credit markets. Net sales in the transportation market channel likewise were lower in 2009 as compared with 2008. In addition to the recession in the U.S. economy, we believe that state budget deficits and uncertainty over the U.S. economic stimulus plan also contributed to weaker sales order flows in late 2008 and early 2009, which impacted first and second quarter 2009 shipments. We believe that the impact from the U.S. economic stimulus plan directed towards street and highway construction projects will not be substantial, aside from some potential positive impact of financial aid provided to the various states, which could be used to fund street and highway construction projects. In Europe, sales for the second quarter and year-to-date periods ended June 27, 2009 were comparable with 2008, as the positive impact from the Mitas and Stainton acquisitions in late 2008 were offset by lower sales demand due to economic weakness in Europe and currency translation effects.

        Sales of Specialty Structures products in 2009 increased as compared with 2008, on both a quarterly and year-to-date basis. In North America, market conditions for sales of structures and components for the wireless communication market in 2009 were somewhat lower than 2008, but sales were higher due mainly to the acquisition of Site Pro 1 (Site Pro) in July 2008. Sales of wireless communication poles in China in 2009 were comparable to 2008.

        In the utility product line, China's sales of utility structures in the China market were lower in 2009, as compared with 2008, offset somewhat by stronger sales of products exported from China.

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        The decrease in the operating income of the ESS segment in the second quarter and year-to-date periods ended June 27, 2009, as compared with the same periods in 2008 was mainly due to the decrease in sales volumes in worldwide markets, offset to a degree by the impact of acquisitions (approximately $2.7 million and $4.2 million, respectively) and lower raw material costs. For the segment, SG&A expense in the second quarter year-to-date of 2009 was comparable with the same period in 2008, as the impact from acquisitions (approximately $2.4 million and $4.5 million, respectively) was offset by currency translation impacts (approximately $1.4 million and $2.4 million, respectively) and lower commissions due to lower 2009 sales volumes (approximately $1.4 million and $2.5 million, respectively). In response to market conditions, we took actions in 2009 to reduce costs, including decreases in employment levels and reducing production capacity in selected areas. Due to the effect of severance costs and other associated costs, the impact of these actions on operating income in the second quarter and year-to-date periods ended June 27, 2009 was not significant.

    Utility Support Structures segment

        In the Utility Support Structures segment, the sales increase in the second quarter and year-to-date periods ended June 27, 2009 as compared with the same periods of 2008 was due to continued strong demand for steel and concrete transmission and substation structures and higher average sales prices. We entered the 2009 fiscal year with a record backlog and the strong 2009 sales performance relates directly to the large backlogs from year-end 2008. Our customers, who are mainly utility companies, are continuing their investment commitments in transmission and substation structures which began over the past several years to improve the reliability and capacity of the electrical grid in the U.S. Sales demand for pole structures for electrical distribution was weaker in 2009, as compared with 2008. This weakness relates directly to the downturn in residential and commercial construction in the U.S. that started in late 2008 due to the economic recession and credit crisis.

        The improved operating income for this segment in the second quarter and first half of 2009, as compared with the same periods in 2008, related to the increased sales levels, improved operating leverage associated with higher sales volumes and a more favorable sales mix than 2008. The increases in SG&A spending in the second quarter and first half of 2009, as compared with the same periods in 2008, were principally due to higher salary and employee benefit costs ($0.5 million and $1.3 million, respectively) to support the higher sales volumes, increased sales commissions associated with the increased sales in 2009 (approximately $0.6 million and $1.0 million) and higher employee incentives (approximately $0.3 million and $0.8 million, respectively) associated with improved operating income of this segment.

    Coatings segment

        The decrease in Coatings segment sales in the second quarter and year-to-date periods ended June 27, 2009 as compared with the same periods of 2008 was predominantly due to decreased sales volumes from both internal and external customers along with lower selling prices due to lower per pound zinc costs in 2009, as compared with 2008. The decrease in sales volumes in our galvanizing operations in the second quarter and year-to-date periods ended June 27, 2009 was approximately 18% and 16%, respectively, as compared with the same period in 2008. The decrease in sales demand was related to industrial economic conditions in our served markets due to the U.S. economic recession.

        Operating income decreased in the second quarter and first half of 2009, as compared with the same periods in 2008, mainly the result of lower unit sales demand. The impact of lower sales volumes was mitigated by cost reductions in factory operations, which included reduced utilization of contracted temporary workers. SG&A spending in the second quarter and first half of 2009 was comparable with 2008, as the impact of an acquisition completed in the fourth quarter of 2008 was offset by lower management incentive expense.

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    Irrigation segment

        The sales decreases in the Irrigation segment for the second quarter and first half of 2009, as compared with the same periods in 2008, was mainly due to weaker sales volumes in both domestic and international markets. In 2009, lower farm commodity prices and lower anticipated net farm income in worldwide agricultural markets, as compared 2008, resulted in decreased demand for mechanized irrigation machines in global markets. In addition, we believe that the global economic recession and an uncertain outlook for world economies caused customers to delay capital investments in irrigation technology in 2009. Sales in international irrigation markets were lower in 2009 as compared with 2008, on both a quarterly and year-to-date basis, except for China. In both North American and international markets, average selling prices were slightly lower than last year, due to price competition in our various markets and lower raw material prices. Currency translation effects also contributed to lower irrigation segment sales for the thirteen and twenty-six weeks periods ended June 27, 2009, as compared with 2008 (approximately $3.5 million and $7.9 million, respectively).

        The decrease in operating income for the thirteen and twenty-six week periods ended June 27, 2009, as compared with the same periods in 2008, was due to the effect of lower sales unit volumes and the associated operating deleverage realized as a result of lower sales and production levels. The decrease in SG&A spending in the second quarter and year-to-date 2009, as compared with 2008, was due to lower incentive expense accruals related to decreased operating income this year (approximately $1.9 million and $2.9 million, respectively) and currency translation effects (approximately $0.4 million and $0.9 million, respectively), offset somewhat by higher salary and employee benefits costs (approximately $0.8 million and $1.4 million, respectively).

    Other

        These businesses mainly include our tubing and industrial fastener operations. The decreases in sales and operating income in the second quarter and year-to-date 2009, as compared with the same periods in 2008, mainly related to weaker sales of industrial tubing due to the economic recession in the U.S. this year.

    Net corporate expense

        The increases in net corporate expense for the quarterly and year-to-date periods ended June 27, 2009, as compared with the same periods in 2008, were mainly due to increased deferred compensation liabilities related to higher investment returns on the assets of the deferred compensation plan (approximately $1.0 million and $1.9 million, respectively). The investment gains and losses were recorded in "Miscellaneous" in our condensed consolidated statement of earnings for the thirteen and twenty-six week periods ended June 27, 2009 and June 28, 2008. Higher group medical benefit costs in the first quarter of 2009 (approximately $1.1 million) also contributed to the increase in year-to-date net corporate expense, as compared with 2008.

Liquidity and Capital Resources

    Cash Flows

        Working Capital and Operating Cash Flows—Net working capital was $477.7 million at June 27, 2009, as compared with $475.2 million at December 27, 2008. The ratio of current assets to current liabilities was 2.84:1 at June 27, 2009, as compared with 2.69:1 at December 27, 2008. Operating cash flow was $135.6 million for the twenty-six week period ended June 27, 2009, as compared with $49.5 million for the same period in 2008. The improved operating cash flow in 2009 was the result of higher net earnings and a lower increase in working capital in 2009, as compared with 2008. Accounts receivable turnover in 2009 was slightly lower than the same period in 2008, mainly due to a shift in our sales mix from irrigation to other product lines. Inventory levels decreased significantly in the first

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half of 2009, as compared to December 27, 2008. In 2008, our inventory levels increased throughout the year due to significant growth in our business and extended delivery lead times from our raw material providers. As demand slowed in most of our businesses, we placed additional focus on reducing our inventories to align them better with current sales demand. We plan to continue to reduce inventories throughout the balance of 2009. Our future inventory levels, however, will depend on business conditions, vendor delivery performance and the overall supply and demand conditions of our key raw material commodities (mainly hot-rolled steel, aluminum and zinc).

        Investing Cash Flows—Capital spending during the twenty-six weeks ended June 27, 2009 was $24.6 million, as compared with $25.4 million for the same period in 2008. We expect our capital spending for the 2009 fiscal year to be approximately $50 million. Investing cash flows in 2008 reflected the aggregate of $90.2 million of cash paid for the West Coast and Penn Summit acquisitions.

        Financing Cash Flows—Our total interest-bearing debt decreased from $357.6 million at December 27, 2008 to $277.1 million at June 27, 2009. The decrease in borrowings in 2009 was predominantly associated with payments on our borrowings under our revolving credit agreement and short-term notes payable through our operating cash flows and the absence of acquisition activity in 2009.

    Sources of Financing and Capital

        We have historically funded our growth, capital spending and acquisitions through a combination of operating cash flows and debt financing. We have an internal long-term objective to maintain long-term debt as a percent of invested capital at or below 40%. At June 27, 2009, our long-term debt to invested capital ratio was 24.1%, as compared with 31.7% at December 27, 2008. Subject to our level of acquisition activity and steel industry operating conditions (which could affect the levels of inventory we need to fulfill customer commitments), we plan to maintain this ratio below 40% in 2009.

        Our debt financing at June 27, 2009 consisted primarily of long-term debt. We also maintain certain short-term bank lines of credit totaling $33.9 million, $29.6 million of which was unused at June 27, 2009. Our long-term debt principally consists of:

    $150 million of senior subordinated notes that bear interest at 6.875% per annum and are due in May 2014. We are allowed to repurchase all or a portion of the notes at the following redemption prices (stated as a percentage of face value):
 
  Redemption
Price
 

Until May 1, 2010

    103.438 %

From May 1, 2010 until May 1, 2011

    102.292 %

From May 1, 2011 until May 1, 2012

    101.146 %

After May 1, 2012

    100.000 %

        These notes are guaranteed by certain of our U.S. subsidiaries.

    $280 million revolving credit agreement with a group of banks. We may increase the credit facility by up to an additional $100 million at any time, subject to participating banks increasing the amount of their lending commitments. The interest rate on our borrowings will be, at our option, either:

    (a)
    LIBOR (based on a 1, 2, 3 or 6 month interest period, as selected by us) plus 125 to 200 basis points (inclusive of facility fees), depending on our ratio of debt to earnings before taxes, interest, depreciation and amortization (EBITDA), or;

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      (b)
      the higher of

        The higher of (a) the prime lending rate and (b) the Federal Funds rate plus 50 basis points plus in each case, 25 to 100 basis points (inclusive of facility fees), depending on our ratio of debt to EBITDA, or

        LIBOR (based on a 1 week interest period) plus 125 to 200 basis points (inclusive of facility fees), depending on our ratio of debt to EBITDA

        At June 27, 2009, we had $91.0 million in outstanding borrowings under the revolving credit agreement, at an interest rate of 1.59%, not including facility fees. The revolving credit agreement has a termination date of October 16, 2013 and contains certain financial covenants that may limit our additional borrowing capability under the agreement. At June 27, 2009, we had the ability to borrow an additional $164 million under this facility.

        These debt agreements contain covenants that require us to maintain certain coverage ratios and may limit us with respect to certain business activities, including capital expenditures. Our key debt covenants are that interest-bearing debt is not to exceed 3.75x EBITDA of the prior four quarters and that our EBITDA over our prior four quarters must be at least 2.50x our interest expense over the same period. At June 27, 2009, we were in compliance with all covenants related to these debt agreements.

        Our businesses are cyclical, but we have diversity in our markets, from a product, customer and a geographical standpoint. We have demonstrated the ability to effectively manage through business cycles and maintain liquidity. We have consistently generated operating cash flows in excess of our capital expenditures. Based on our available credit facilities and our history of positive operational cash flows, we believe that we have adequate liquidity to meet our needs.

    Recently Issued Accounting Pronouncements

        In June 2009, the FASB issued Statement No. 166, Accounting for Transfers of Financial Assets ("FAS 166"). FAS 166 is effective for the Company beginning December 27, 2009. FAS 166 modifies the accounting and disclosure requirements regarding transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. The statement eliminates the concept of a "qualifying special-purpose entity", changes the requirements for derecognizing financial assets and require additional disclosures about transfers of financial assets. We do not expect FAS 166 to have a material impact on our financial statements.

        In June 2009, the FASB issued Statement No.168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162 ("FAS 168"). The Codification will become the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of FAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. FAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. FAS 168 is not expected to have a material impact on our financial statements.

Financial Obligations and Financial Commitments

        There have been no material changes to our financial obligations and financial commitments as described beginning on page 35 in our Form 10-K for the year ended December 27, 2008.

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Off Balance Sheet Arrangements

        There have been no changes in our off balance sheet arrangements as described on page 36 in our Form 10-K for the fiscal year ended December 27, 2008.

Critical Accounting Policies

        There have been no changes in our critical accounting policies during the quarter ended June 27, 2009. We described these policies on pages 38-41 in our Form 10-K for fiscal year ended December 27, 2008.

Item 3.    Quantitative and Qualitative Disclosure about Market Risk

        There were no material changes in the company's market risk during the quarter ended June 27, 2009. For additional information, refer to the section "Risk Management" beginning on page 37 in our Form 10-K for the fiscal year ended December 27, 2008.

Item 4.    Controls and Procedures

        The Company carried out an evaluation under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports the Company files or submits under the Securities Exchange Act of 1934 is (1) accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures and (2) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms.

        There were no changes in the Company's internal controls over financial reporting during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

 
  (a)
  (b)
  (c)
  (d)
 
Period
  Total Number of
Shares Purchased
  Average Price
paid per share
  Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
  Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or
Programs
 

March 29, 2009 to April 25, 2009

    13,356   $ 63.52          

April 26, 2009 to May 30, 2009

    16,879     66.62          

May 31, 2009 to June 27, 2009

    499     65.75          
                   
 

Total

    30,734   $ 65.26          
                   

        During the second quarter, the only shares reflected above were those delivered to the Company by employees as part of stock option exercises, either to cover the purchase price of the option or the related taxes payable by the employee as part of the option exercise. The price paid per share was the market price at the date of exercise.

Item 5.    Other Information

        On April 27, 2009, the Company's Board of Directors declared a quarterly cash dividend on common stock of 15 cents per share, which was paid on July 15, 2009, to stockholders of record June 26, 2009. The indicated annual dividend rate is 60 cents per share.

Item 6.    Exhibits

(a)
Exhibits
 
  Exhibit No.   Description
      31.1   Section 302 Certificate of Chief Executive Officer

 

 

 

31.2

 

Section 302 Certificate of Chief Financial Officer

 

 

 

32.1

 

Section 906 Certifications of Chief Executive Officer and Chief Financial Officer

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf and by the undersigned hereunto duly authorized.

    VALMONT INDUSTRIES, INC.
(Registrant)

 

 

/s/ TERRY J. MCCLAIN

Terry J. McClain
Senior Vice President and Chief Financial Officer (Principal Financial Officer)

Dated this 31st day of July, 2009.

 

 

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