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VALMONT INDUSTRIES INC - Quarter Report: 2008 September (Form 10-Q)


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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 September 27, 2008

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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

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


26,151,080
Outstanding shares of common stock as of October 20, 2008


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 thirty-nine weeks ended September 27, 2008 and September 29, 2007

  3

 

Condensed Consolidated Balance Sheets as of September 27, 2008 and December 29, 2007

  4

 

Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended September 27, 2008 and September 29, 2007

  5

 

Notes to Condensed Consolidated Financial Statements

  6-24

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

  34

Item 4.

 

Controls and Procedures

  34

 

PART II. OTHER INFORMATION

   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  35

Item 5.

 

Other Information

  35

Item 6.

 

Exhibits

  35

Signatures

  36

2



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   Thirty-nine Weeks Ended  
 
  Sept. 27,
2008
  Sept. 29,
2007
  Sept. 27,
2008
  Sept. 29,
2007
 

Net sales

  $ 494,801   $ 372,033   $ 1,414,216   $ 1,114,972  

Cost of sales

    359,802     274,461     1,026,206     819,719  
                   
 

Gross profit

    134,999     97,572     388,010     295,253  

Selling, general and administrative expenses

    73,103     59,858     212,278     179,573  
                   
 

Operating income

    61,896     37,714     175,732     115,680  
                   

Other income (expense):

                         
 

Interest expense

    (4,264 )   (4,470 )   (13,446 )   (13,159 )
 

Interest income

    382     666     1,880     1,796  
 

Miscellaneous

    (376 )   (319 )   (2,234 )   (342 )
                   

    (4,258 )   (4,123 )   (13,800 )   (11,705 )
                   

Earnings before income taxes, minority interest and equity in earnings of nonconsolidated subsidiaries

    57,638     33,591     161,932     103,975  
                   

Income tax expense (benefit):

                         
 

Current

    24,089     8,506     65,625     30,857  
 

Deferred

    (4,501 )   (1,070 )   (10,435 )   553  
                   

    19,588     7,436     55,190     31,410  
                   

Earnings before minority interest and equity in earnings of nonconsolidated subsidiaries

    38,050     26,155     106,742     72,565  

Minority interest

    (1,478 )   (700 )   (3,164 )   (1,355 )

Equity in earnings of nonconsolidated subsidiaries

    412     438     369     372  
                   

Net earnings

  $ 36,984   $ 25,893   $ 103,947   $ 71,582  
                   

Earnings per share—Basic

  $ 1.43   $ 1.01   $ 4.03   $ 2.81  
                   

Earnings per share—Diluted

  $ 1.40   $ 0.99   $ 3.95   $ 2.74  
                   

Cash dividends per share

  $ 0.130   $ 0.105   $ 0.365   $ 0.305  
                   

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

    25,864     25,570     25,793     25,500  
                   

Weighted average number of shares of common stock outstanding plus dilutive potential common shares (000 omitted)

    26,362     26,207     26,321     26,096  
                   

See accompanying notes to condensed consolidated financial statements.

3



VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

 
  September 27, 2008   December 29, 2007  

ASSETS

             

Current assets:

             
 

Cash and cash equivalents

  $ 68,095   $ 106,532  
 

Receivables, net

    318,723     254,472  
 

Inventories

    313,600     219,993  
 

Prepaid expenses

    19,612     17,734  
 

Refundable and deferred income taxes

    32,223     22,866  
           
   

Total current assets

    752,253     621,597  
           

Property, plant and equipment, at cost

    631,730     582,015  
 

Less accumulated depreciation and amortization

    366,520     349,331  
           
   

Net property, plant and equipment

    265,210     232,684  
           

Goodwill

    168,587     116,132  

Other intangible assets, net

    94,325     58,343  

Other assets

    22,518     23,857  
           
   

Total assets

  $ 1,302,893   $ 1,052,613  
           

LIABILITIES AND SHAREHOLDERS' EQUITY

             

Current liabilities:

             
 

Current installments of long-term debt

  $ 2,341   $ 22,510  
 

Notes payable to banks

    28,234     15,005  
 

Accounts payable

    177,102     128,599  
 

Accrued expenses

    60,299     37,957  
 

Accrued employee compensation and benefits

    70,200     64,241  
 

Dividends payable

    3,399     2,724  
           
   

Total current liabilities

    341,575     271,036  
           

Deferred income taxes

    37,879     35,547  

Long-term debt, excluding current installments

    265,086     200,738  

Other noncurrent liabilities

    24,147     24,306  

Minority interest in consolidated subsidiaries

    19,710     10,373  

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; issued 27,900,000 shares

    27,900     27,900  
 

Retained earnings

    597,674     496,388  
 

Accumulated other comprehensive income

    16,340     16,996  
 

Treasury stock

    (27,418 )   (30,671 )
           
     

Total shareholders' equity

    614,496     510,613  
           
     

Total liabilities and shareholders' equity

  $ 1,302,893   $ 1,052,613  
           

See accompanying notes to condensed consolidated financial statements.

4



VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 
  Thirty-nine Weeks Ended  
 
  Sept. 27, 2008   Sept. 29, 2007  

Cash flows from operating activities:

             
 

Net earnings

  $ 103,947   $ 71,582  
 

Adjustments to reconcile net earnings to net cash flows from operating activities:

             
   

Depreciation and amortization

    29,081     25,736  
   

Stock-based compensation

    3,869     2,694  
   

Loss/(gain) on sale of assets

    (377 )   819  
   

Equity in earnings of nonconsolidated subsidiaries

    (369 )   (372 )
   

Minority interest

    3,164     1,355  
   

Deferred income taxes

    (10,435 )   553  
   

Other adjustments

    (840 )   694  
   

Payment of deferred compensation

    (589 )   (9,186 )
   

Changes in assets and liabilities, net of business acquisitions:

             
     

Receivables

    (49,109 )   (44,662 )
     

Inventories

    (78,663 )   (11,147 )
     

Prepaid expenses

    (28 )   (1,650 )
     

Accounts payable

    34,510     7,582  
     

Accrued expenses

    24,152     16,715  
     

Other noncurrent liabilities

    (1,430 )   (879 )
     

Income taxes payable/refundable

    10,111     (4,600 )
           
     

Net cash flows from operating activities

    66,994     55,234  
           

Cash flows from investing activities:

             
 

Purchase of property, plant & equipment

    (38,924 )   (42,901 )
 

Proceeds from sale of assets

    3,133     9,371  
 

Acquisitions, net of cash acquired

    (119,044 )   (16,163 )
 

Dividends to minority interests

    (184 )   (715 )
 

Other, net

    (598 )   (1,417 )
           
     

Net cash flows from investing activities

    (155,617 )   (51,825 )
           

Cash flows from financing activities:

             
 

Net borrowings under short-term agreements

    10,395     1,624  
 

Proceeds from long-term borrowings

    80,895     12,463  
 

Principal payments on long-term obligations

    (38,787 )   (12,147 )
 

Dividends paid

    (8,852 )   (7,588 )
 

Proceeds from exercises under stock plans

    6,689     6,287  
 

Excess tax benefits from stock option exercises

    7,117     5,541  
 

Purchase of common treasury shares—stock plan exercises

    (7,895 )   (6,244 )
           
     

Net cash flows from financing activities

    49,562     (64 )
           

Effect of exchange rate changes on cash and cash equivalents

    625     2,488  
           

Net change in cash and cash equivalents

    (38,437 )   5,833  

Cash and cash equivalents—beginning of year

    106,532     63,504  
           

Cash and cash equivalents—end of period

  $ 68,095   $ 69,337  
           

See accompanying notes to condensed consolidated financial statements.

5



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 September 27, 2008 and the Condensed Consolidated Statements of Operations for the thirteen and thirty-nine week periods ended September 27, 2008 and September 29, 2007 and the Condensed Consolidated Statements of Cash Flows for the thirty-nine 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 September 27, 2008 and 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 29, 2007. 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 29, 2007. The results of operations for the periods ended September 27, 2008 are not necessarily indicative of the operating results for the full year.

    Inventories

        At September 27, 2008, approximately 50.1% 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 $66,500 and $35,800 at September 27, 2008 and December 29, 2007, respectively.

        Inventories consisted of the following:

 
  September 27, 2008   December 29, 2007  

Raw materials and purchased parts

  $ 217,715   $ 139,557  

Work-in-process

    26,707     21,481  

Finished goods and manufactured goods

    135,718     94,747  
           
 

Subtotal

    380,140     255,785  

LIFO reserve

    66,540     35,792  
           

Inventory

  $ 313,600   $ 219,993  
           

    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

6



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)

stock. At September 27, 2008, 1,698,000 shares of common stock remained available for issuance under the plans. Shares and options issued and available for issuance are subject to changes in capitalization.

        Under the plans, the exercise price of each option equals the market price at the time 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 related to stock options (included in selling, general and administrative expenses) and associated tax benefits in fiscal 2008 and 2007 were as follows:

 
  Thirteen Weeks Ended   Thirty-nine Weeks Ended  
 
  Sept. 27, 2008   Sept. 29, 2007   Sept. 27, 2008   Sept. 29, 2007  

Compensation expense

  $ 760   $ 367   $ 2,248   $ 1,264  

Related tax benefits

    289     141     854     487  

    Fair Value

        On December 30, 2007, the Company adopted 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. In February 2008, the FASB issued FASB Staff Position No. 157-2 (FSP 157-2), "Effective Date of FASB Statement 157." FSP 157-2 delayed for one year the applicability of SFAS 157's fair-value measurements to certain nonfinancial assets and liabilities. The Company adopted SFAS 157 in 2008, except as it applies to those nonfinancial assets and liabilities affected by the one-year delay.

        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.

7



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)

        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 September 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

  $ 12,399   $ 12,399   $   $  

Liabilities:

                         
 

Trading Securities

  $ 12,399   $ 12,399   $   $  

    Recently Issued Accounting Pronouncements

        In December 2007, the FASB issued Statement 141R ("SFAS No. 141R"), Business Combinations. This Statement amends accounting and reporting standards associated with business combinations. This Statement requires the acquiring entity to recognize the assets acquired, liabilities assumed and noncontrolling interests in the acquired entity at the date of acquisition at their fair values, including noncontrolling interests. In addition, SFAS No. 141R requires that direct costs associated with an acquisition be expensed as incurred and sets forth various other changes in accounting and reporting related to business combinations. This Statement is effective for business combinations completed by the Company after December 27, 2008. The effect of this Statement on the Company's consolidated financial statements is expected to result in lower net income in years when it has acquisitions, since acquisition costs are expensed as incurred and higher values of intangible assets will be recorded in cases where the Company acquires less than 100% of a company.

        In December 2007, the FASB issued Statement 160 ("SFAS No. 160"), Noncontrolling Interests in Consolidated Financial Statements. This Statement amended the accounting and reporting for noncontrolling interests in a consolidated subsidiary and for the deconsolidation of a subsidiary. Included in this statement is the requirement that noncontrolling interests be reported in the equity section of the balance sheet. This Statement is effective at the beginning of the Company's 2009 fiscal year. The Company expects that the effect of this Statement on its consolidated financial statements will increase shareholders' equity in that minority interest will be classified as part of shareholders' equity under this Statement.

    Subsequent Event

        In October 2008, the Company replaced its revolving credit agreement and the term loan with a new five-year $280 million revolving credit agreement described below. The Company repaid the

8



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)

outstanding balances of its revolving credit agreement and the term loan with borrowings from the new revolving credit agreement.

        On October 16, 2008, the Company entered into a new five-year $280 million revolving credit agreement with a group of banks. The Company may increase the credit agreement by up to an additional $100 million at any time, subject to the participating banks increasing the amount of their lending commitments. The interest rate on outstanding borrowings will be, at the Company's option, either:

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

    (ii)
    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 the Company's 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 the Company's ratio of debt to EBITDA

        The new revolving credit agreement has maintenance covenants that may limit the Company's additional borrowing capability under the agreement, similar to the covenants in the prior revolving credit agreement.

2. Acquisitions

        In January 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, for approximately $57,904, including transaction costs. In addition, the Company assumed $96 of interest-bearing debt as part of the acquisition. The Company recorded $31,440 of goodwill as part of the purchase price allocation and assigned the goodwill to the Utility Support Structures segment. The Company financed the acquisition with cash balances and approximately $7,500 of borrowings through its revolving credit agreement. The Company acquired Penn Summit to expand its geographic presence in the United States for steel utility support structures.

        In February 2008, the Company acquired 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 $31,431 Canadian dollars ($31,472 U.S. dollars). In addition, $6,304 of interest-bearing debt was assumed as part of the acquisition. The purchase price was financed through the Company's revolving credit agreement. The Company recorded $19,438 of goodwill as part of the preliminary purchase price allocation and assigned the goodwill to the Engineered Support Structures (ESS) segment. The Company acquired West Coast to expand its geographic presence in Canada and the United States for lighting and transportation structures.

9



VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

2. Acquisitions (Continued)

        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 for $22,460 in cash. Site Pro is reported as part of the ESS segment. The acquisition was financed through the Company's revolving credit agreement. The Company recorded $703 of goodwill as part of the purchase price allocation and assigned the goodwill to the ESS segment. The Site Pro acquisition was completed to expand the Company's geographic distribution and service levels in wireless communication components.

        The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed as of the date of acquisition.

 
  Penn Summit   West Coast   Site Pro  

Current Assets

  $ 12,167   $ 12,794   $ 6,119  

Property, plant and equipment and other long-term assets

    5,177     10,112     172  

Intangible assets

    13,322     9,786     16,931  

Goodwill

    31,440     19,438     703  
               
 

Total assets acquired

  $ 62,106   $ 52,130   $ 23,925  
               

Current liabilities

    4,106     7,765     1,465  

Deferred income taxes

        3,364      

Long-term debt

    96     6,304      

Minority Interest

        3,225      
               
 

Total liabilities assumed

    4,202     20,658     1,465  
               
 

Net assets acquired

  $ 57,904   $ 31,472   $ 22,460  
               

        The purchase price allocation on the West Coast acquisition was not finalized in the third quarter of 2008, as the fair value determinations on the real estate and other intangible assets acquired was not complete. The Company expects to finalize the purchase price allocations in the fourth quarter of 2008.

        In the third quarter of 2008, the Company acquired the assets of Matco, Inc. (Matco), a company that provides consulting services related to corrosion protection, for $3,700 in cash. Matco is reported as part of the Utility Support Structures segment. The fair values of the assets and liabilities recorded as part of the Matco acquisition included: current assets, $693; current liabilities, $154; property, plant and equipment, $914; intangible assets, $914; and goodwill, $1,333. In addition, the Company formed a 51% owned joint venture in Turkey with a Turkish company to manufacture and sell pole structures. The Company's contribution for its 50% ownership was $4,472 in cash. This joint venture is reported as part of the ESS segment. The Company acquired Matco to expand its expertise in corrosion protection technologies. The Turkish joint venture was established to build its manufacturing base and distribution of pole structures in the Middle East and Central Asia.

        On April 26, 2007, the Company acquired 70% of the outstanding shares of Tehomet Oy (Tehomet), a Finnish manufacturer of lighting poles. Tehomet's operations are included in the Company's condensed consolidated financial statement since the acquisition date. In June 2008, the

10



VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

2. Acquisitions (Continued)


Company acquired the remaining 30% of the outstanding shares of a North American Irrigation dealership from its minority shareholder for $848.

        The Company's proforma results of operations for the thirteen and thirty-nine weeks ended September 29, 2007, assuming that the transaction occurred at the beginning of the periods presented are as follows:

 
  Thirteen Weeks Ended September 29, 2007   Thirty-nine Weeks Ended September 29, 2007  

Net sales

  $ 398,935   $ 1,195,027  

Net income

    25,588     70,843  

Earnings per share—diluted

  $ 0.98   $ 2.71  

3. Goodwill and Intangible Assets

        The Company's annual impairment testing of goodwill and intangible assets was performed during the third quarter of 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 September 27, 2008 and December 29, 2007 were as follows:

 
  As of September 27, 2008    
 
  Gross Carrying Amount   Accumulated Amortization   Weighted Average Life

Customer Relationships

  $ 86,446   $ 17,683   16 years

Proprietary Software & Database

    2,609     2,260   6 years

Patents & Proprietary Technology

    2,887     865   14 years

Non-compete Agreements

    1,709     468   6 years
             

  $ 93,651   $ 21,276    
             

 

 
  As of December 29, 2007    
 
  Gross Carrying Amount   Accumulated Amortization   Weighted Average Life

Customer Relationships

  $ 51,459   $ 13,819   16 years

Proprietary Software & Database

    2,609     2,158   6 years

Patents & Proprietary Technology

    2,839     715   14 years

Non-compete Agreements

    1,007     285   7 years
             

  $ 57,914   $ 16,977    
             

11



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)

        Amortization expense for intangible assets for the thirteen weeks ended September 27, 2008 and September 29, 2007 was $1,768 and $919, respectively. Amortization expense for intangible assets for the thirty-nine weeks ended September 27, 2008, and September 29, 2007 was $4,600 and $2,602, respectively. Estimated amortization expense related to amortized intangible assets is as follows:

 
  Estimated Amortization Expense  

2008

  $ 6,180  

2009

    7,104  

2010

    7,104  

2011

    7,104  

2012

    7,060  

        The useful lives assigned to amortized 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.

    Non-amortized intangible assets

        Intangible assets with indefinite lives are not amortized. The carrying values of trade names at September 27, 2008 and December 29, 2007 were as follows:

 
  September 28, 2008   December 29, 2007   Year Acquired  

PiRod

  $ 4,750   $ 4,750     2001  

Newmark

    11,111     11,111     2004  

Tehomet

    1,369     1,373     2007  

Feralux

    172     172     2007  

West Coast

    2,255         2008  

Site Pro

    2,177         2008  

Matco

    116         2008  
                 

  $ 21,950   $ 17,406        
                 

        The PiRod, Newmark, Tehomet and Feralux 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 as of September 27, 2008.

        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.

12



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)

    Goodwill

        The carrying amount of goodwill as of September 27, 2008 was as follows:

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

Balance December 29, 2007

  $ 28,570   $ 43,517   $ 42,192   $ 1,853   $ 116,132  

Acquisitions

    20,141     32,773         202     53,116  

Foreign currency translation

    (661 )               (661 )
                       

Balance September 27, 2008

  $ 48,050   $ 76,290   $ 42,192   $ 2,055   $ 168,587  
                       

        In January 2008, the Company acquired substantially all of the net operating assets of a steel utility pole manufacturer in Hazelton, Pennsylvania. This acquisition increased the goodwill in the Utility Support Structures segment by $31,440. In February 2008, the Company acquired 70% of the outstanding shares of a Canadian and U.S. manufacturer of steel and aluminum structures for the lighting, transportation and wireless communication industries headquartered in Delta, British Columbia. This acquisition increased the goodwill in the ESS segment by $19,438. In June 2008, the Company acquired the minority owner's shares in a North American irrigation dealership, resulting in a $202 increase of goodwill in the Irrigation segment. In the third quarter 2008, the Company acquired the assets of Site Pro and Matco that increased the goodwill of the ESS segment and the Utility Support Structures segment by $703 and $1,333, respectively.

13



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 thirty-nine weeks ended were as follows:

 
  Sept. 27, 2008   Sept. 29, 2007  

Interest

  $ 11,216   $ 10,852  

Income taxes

    57,076     31,985  

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 September 27, 2008:

                   
 

Net earnings

  $ 36,984       $ 36,984  
 

Shares outstanding

    25,864     498     26,362  
 

Per share amount

  $ 1.43     (.03 ) $ 1.40  

Thirteen weeks ended September 29, 2007:

                   
 

Net earnings

  $ 25,893       $ 25,893  
 

Shares outstanding

    25,570     637     26,207  
 

Per share amount

  $ 1.01     (.02 ) $ 0.99  

Thirty-nine weeks ended September 27, 2008:

                   
 

Net earnings

  $ 103,947       $ 103,947  
 

Shares outstanding

    25,793     528     26,321  
 

Per share amount

  $ 4.03     (.08 ) $ 3.95  

Thirty-nine weeks ended September 29, 2007:

                   
 

Net earnings

  $ 71,582       $ 71,582  
 

Shares outstanding

    25,500     596     26,096  
 

Per share amount

  $ 2.81     (.07 ) $ 2.74  

        At September 27, 2008 and September 29, 2007 there were no outstanding options with exercise prices exceeding the market prices of common stock. Accordingly, no option shares were excluded from the computations of diluted earnings per share for the periods presented.

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

14



VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

6. Comprehensive Income (Continued)


comprehensive income. The Company's total comprehensive income for the thirteen and thirty-nine weeks ended September 27, 2008 and September 29, 2007, respectively, were as follows:

 
  Thirteen Weeks Ended   Thirty-nine Weeks Ended  
 
  Sept. 27,
2008
  Sept. 29,
2007
  Sept. 27,
2008
  Sept. 29,
2007
 

Net earnings

  $ 36,984   $ 25,893   $ 103,947   $ 71,582  

Currency translation adjustment

    (11,139 )   4,712     (657 )   9,369  
                   

Total comprehensive income

  $ 25,845   $ 30,605   $ 103,290   $ 80,951  
                   

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.

        In 2007, the Company determined that its Tubing business did not meet the quantitative thresholds as a reportable segment. Accordingly, the Tubing business and its financial results are included in "Other". The Company reclassified information related to the Tubing business for 2007 to conform to the 2008 presentation.

        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

15



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   Thirty-nine Weeks Ended  
 
  Sept. 27,
2008
  Sept. 29,
2007
  Sept. 27,
2008
  Sept. 29,
2007
 

Sales:

                         
 

Engineered Support Structures segment

                         
   

Lighting & Traffic

  $ 132,466   $ 123,393   $ 395,215   $ 342,259  
   

Specialty

    37,174     33,771     96,742     91,202  
   

Utility

    17,429     7,604     35,509     17,137  
                   

    187,069     164,768     527,466     450,598  
 

Utility Support Structures segment

                         
   

Steel

    92,888     60,780     252,580     189,314  
   

Concrete

    20,098     18,282     62,878     59,878  
                   

    112,986     79,062     315,458     249,192  
 

Coatings segment

   
35,889
   
34,321
   
108,217
   
103,351
 
 

Irrigation segment

    150,445     84,822     440,890     285,301  
 

Other

    33,564     29,359     89,815     93,312  
                   

    519,953     392,332     1,481,846     1,181,754  

Intersegment Sales:

                         
 

Engineered Support Structures

    7,880     7,124     20,680     24,897  
 

Utility Support Structures

    1,973     69     4,087     705  
 

Coatings

    6,961     7,523     21,823     23,115  
 

Irrigation

    5     7     18     54  
 

Other

    8,333     5,576     21,022     18,011  
                   

    25,152     20,299     67,630     66,782  

Net Sales

                         
 

Engineered Support Structures

    179,189     157,644     506.786     425,701  
 

Utility Support Structures

    111,013     78,993     311,371     248,487  
 

Coatings

    28,928     26,798     86,394     80,236  
 

Irrigation

    150,440     84,815     440,872     285,247  
 

Other

    25,231     23,783     68,793     75,301  
                   

Consolidated Net Sales

  $ 494,801   $ 372,033   $ 1,414,216   $ 1,114,972  
                   

Operating Income

                         
 

Engineered Support Structures

  $ 16,247   $ 16,679   $ 44,402   $ 42,102  
 

Utility Support Structures

    14,620     10,045     43,025     31,640  
 

Coatings

    9,284     6,117     24,915     17,217  
 

Irrigation

    25,249     8,859     75,663     37,761  
 

Other

    5,821     4,707     15,521     14,936  
 

Net corporate expense

    (9,325 )   (8,693 )   (27,794 )   (27,976 )
                   

Total Operating Income

  $ 61,896   $ 37,714   $ 175,732   $ 115,680  
                   

16



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 September 27, 2008

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net sales

  $ 286,461   $ 93,062   $ 160,629   $ (45,351 ) $ 494,801  

Cost of sales

    216,297     71,132     118,724     (46,351 )   359,802  
                       
 

Gross profit

    70,164     21,930     41,905     1,000     134,999  

Selling, general and administrative expenses

    39,703     12,966     20,434         73,103  
                       
 

Operating income

    30,461     8,964     21,471     1,000     61,896  
                       

Other income (deductions):

                               
 

Interest expense

    (3,778 )   (3 )   (483 )       (4,264 )
 

Interest income

    17     9     356         382  
 

Miscellaneous

    (758 )   59     323         (376 )
                       

    (4,519 )   65     196         (4,258 )

Earnings before income taxes, minority interest, and equity in earnings of nonconsolidated subsidiaries

    25,942     9,029     21,667     1,000     57,638  
                       

Income tax expense:

                               
 

Current

    13,108     3,578     7,403         24,089  
 

Deferred

    (3,406 )   (77 )   (1,018 )       (4,501 )
                       

    9,702     3,501     6,385         19,588  
                       

Earnings before minority interest, and equity in earnings of nonconsolidated subsidiaries

    16,240     5,528     15,282     1,000     38,050  

Minority interest

            (1,478 )       (1,478 )

Equity in earnings of nonconsolidated subsidiaries

    19,744             (19,332 )   412  
                       
 

Net earnings

  $ 35,984   $ 5,528   $ 13,804   $ (18,332 ) $ 36,984  
                       

17



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 Thirty-nine Weeks Ended September 27, 2008

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net sales

  $ 834,881   $ 255,982   $ 430,455   $ (107,102 ) $ 1,414,216  

Cost of sales

    620,442     196,743     317,372     (108,351 )   1,026,206  
                       
 

Gross profit

    214,439     59,239     113,083     1,249     388,010  

Selling, general and administrative expenses

    115,476     36,031     60,771         212,278  
                       
 

Operating income

    98,963     23,208     52,312     1,249     175,732  
                       

Other income (deductions):

                               
 

Interest expense

    (11,457 )   (14 )   (1,975 )       (13,446 )
 

Interest income

    170     28     1,682         1,880  
 

Miscellaneous

    (1,779 )   161     (616 )       (2,234 )
                       

    (13,066 )   175     (909 )       (13,800 )

Earnings before income taxes, minority interest, and equity in earnings of nonconsolidated subsidiaries

    85,897     23,383     51,403     1,249     161,932  
                       

Income tax expense:

                               
 

Current

    40,679     8,362     16,584         65,625  
 

Deferred

    (8,699 )   398     (2,134 )       (10,435 )
                       

    31,980     8,760     14,450         55,190  
                       

Earnings before minority interest, and equity in earnings of nonconsolidated subsidiaries

    53,917     14,623     36,953     1,249     106,742  

Minority interest

            (3,164 )       (3,164 )

Equity in earnings of nonconsolidated subsidiaries

    48,781         39     (48,451 )   369  
                       
 

Net earnings

  $ 102,698   $ 14,623   $ 33,828   $ (47,202 ) $ 103,947  
                       

18



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 OPERATIONS
For the Thirteen Weeks Ended September 29, 2007

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net sales

  $ 223,203   $ 61,195   $ 116,654   $ (29,019 ) $ 372,033  

Cost of sales

    166,532     47,719     88,998     (28,788 )   274,461  
                       
 

Gross profit

    56,671     13,476     27,656     (231 )   97,572  

Selling, general and administrative expenses

    34,235     8,385     17,238         59,858  
                       
 

Operating income

    22,436     5,091     10,418     (231 )   37,714  
                       

Other income (deductions):

                               
 

Interest expense

    (3,966 )   (1 )   (590 )   87     (4,470 )
 

Interest income

    142     155     456     (87 )   666  
 

Miscellaneous

    11     21     (351 )       (319 )
                       

    (3,813 )   175     (485 )       (4,123 )

Earnings before income taxes, minority interest, and equity in earnings of nonconsolidated subsidiaries

    18,623     5,266     9,933     (231 )   33,591  
                       

Income tax expense:

                               
 

Current

    3,740     2,034     2,732         8,506  
 

Deferred

    323     (193 )   (1,200 )       (1,070 )
                       

    4,063     1,841     1,532         7,436  
                       

Earnings before minority interest, and equity in earnings of nonconsolidated subsidiaries

    14,560     3,425     8,401     (231 )   26,155  

Minority interest

            (700 )       (700 )

Equity in earnings of nonconsolidated subsidiaries

    11,563         173     (11,298 )   438  
                       
 

Net earnings

  $ 26,123   $ 3,425   $ 7,874   $ (11,529 ) $ 25,893  
                       

19



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 Thirty-nine Weeks Ended September 29, 2007

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net sales

  $ 692,121   $ 182,173   $ 323,225   $ (82,547 ) $ 1,114,972  

Cost of sales

    511,058     145,226     245,365     (81,930 )   819,719  
                       
 

Gross profit

    181,063     36,947     77,860     (617 )   295,253  

Selling, general and administrative expenses

    103,638     25,774     50,161         179,573  
                       
 

Operating income

    77,425     11,173     27,699     (617 )   115,680  
                       

Other income (deductions):

                               
 

Interest expense

    (11,975 )   (5 )   (1,602 )   423     (13,159 )
 

Interest income

    423     500     1,296     (423 )   1,796  
 

Miscellaneous

    21     57     (420 )       (342 )
                       

    (11,531 )   552     (726 )       (11,705 )

Earnings before income taxes, minority interest, and equity in earnings of nonconsolidated subsidiaries

    65,894     11,725     26,973     (617 )   103,975  
                       

Income tax expense:

                               
 

Current

    19,087     4,554     7,216         30,857  
 

Deferred

    2,026     (542 )   (931 )       553  
                       

    21,113     4,012     6,285         31,410  
                       

Earnings before minority interest, and equity in earnings of nonconsolidated subsidiaries

    44,781     7,713     20,688     (617 )   72,565  

Minority interest

            (1,355 )       (1,355 )

Equity in earnings of nonconsolidated subsidiaries

    27,417         198     (27,243 )   372  
                       
 

Net earnings

  $ 72,198   $ 7,713   $ 19,531   $ (27,860 ) $ 71,582  
                       

20



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
September 27, 2008

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

ASSETS

                               

Current assets:

                               
 

Cash and cash equivalents

  $ 14,312   $ 1,467   $ 52,316   $   $ 68,095  
 

Receivables, net

    123,027     49,471     146,225         318,723  
 

Inventories

    125,427     62,802     125,371         313,600  
 

Prepaid expenses

    4,730     865     14,017         19,612  
 

Refundable and deferred income taxes

    20,890     3,777     7,556         32,223  
                       
   

Total current assets

    288,386     118,382     345,485         752,253  

Property, plant and equipment, at cost

    382,230     86,703     162,798         631,731  
 

Less accumulated depreciation and amortization

    242,241     37,617     86,663         366,521  
                       
 

Net property, plant and equipment

    139,989     49,086     76,135         265,210  
                       

Goodwill

    20,108     105,518     42,961         168,587  

Other intangible assets

    630     77,290     16,405         94,325  

Investment in subsidiaries and intercompany accounts

    590,497     20,410     (39,648 )   (571,259 )    

Other assets

    17,840         4,678         22,518  
                       
   

Total assets

  $ 1,057,450   $ 370,686   $ 446,016   $ (571,259 ) $ 1,302,893  
                       

LIABILITIES AND SHAREHOLDERS' EQUITY

                               

Current liabilities:

                               
 

Current installments of long-term debt

  $ 830   $ 24   $ 1,487   $   $ 2,341  
 

Notes payable to banks

    16,000         12,234         28,234  
 

Accounts payable

    86,205     18,217     72,680         177,102  
 

Accrued expenses

    72,338     11,506     46,655         130,499  
 

Dividends payable

    3,399                 3,399  
                       
   

Total current liabilities

    178,772     29,747     133,056         341,575  
                       

Deferred income taxes

    9,349     21,602     6,928         37,879  

Long-term debt, excluding current installments

    251,572     13     13,501         265,086  

Other noncurrent liabilities

    21,138         3,009         24,147  

Minority interest in consolidated subsidiaries

            19,710         19,710  

Shareholders' equity:

                               
 

Common stock of $1 par value

    27,900     14,249     3,492     (17,741 )   27,900  
 

Additional paid-in capital

        181,542     113,739     (295,281 )    
 

Retained earnings

    596,137     123,533     136,241     (258,237 )   597,674  
 

Accumulated other comprehensive loss

            16,340         16,340  
 

Treasury stock

    (27,418 )               (27,418 )
                       
 

Total shareholders' equity

    596,619     319,324     269,812     (571,259 )   614,496  
                       
   

Total liabilities and shareholders' equity

  $ 1,057,450   $ 370,686   $ 446,016   $ (571,259 ) $ 1,302,893  
                       

21



VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

8. Guarantor/Non-Guarantor Financial Information


CONDENSED CONSOLIDATED BALANCE SHEETS

December 29, 2007

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

ASSETS

                               

Current assets:

                               
 

Cash and cash equivalents

  $ 58,344   $ 464   $ 47,724   $   $ 106,532  
 

Receivables, net

    101,637     34,141     118,694         254,472  
 

Inventories

    87,887     50,248     81,858         219,993  
 

Prepaid expenses

    4,636     474     12,624         17,734  
 

Refundable and deferred income taxes

    13,407     3,351     6,108         22,866  
                       
   

Total current assets

    265,911     88,678     267,008         621,597  
                       

Property, plant and equipment, at cost

    359,003     79,631     143,381         582,015  
 

Less accumulated depreciation and amortization

    231,838     34,535     82,958         349,331  
                       

Net property, plant and equipment

    127,165     45,096     60,423         232,684  
                       

Goodwill

    20,108     73,375     22,649         116,132  

Other intangible assets

    670     50,533     7,140         58,343  

Investment in subsidiaries and intercompany accounts

    409,892     66,674     (18,986 )   (457,580 )    

Other assets

    19,137         4,720         23,857  
                       
   

Total assets

  $ 842,883   $ 324,356   $ 342,954   $ (457,580 ) $ 1,052,613  
                       

LIABILITIES AND SHAREHOLDERS' EQUITY

                               

Current liabilities:

                               
 

Current installments of long-term debt

  $ 20,183   $ 32   $ 2,295   $   $ 22,510  
 

Notes payable to banks

            15,005         15,005  
 

Accounts payable

    47,570     13,307     67,722         128,599  
 

Accrued expenses

    60,066     7,991     34,141         102,198  
 

Dividends payable

    2,724                 2,724  
                       
   

Total current liabilities

    130,543     21,330     119,163         271,036  
                       

Deferred income taxes

    10,566     20,778     4,203         35,547  

Long-term debt, excluding current installments

    185,274     6     15,458         200,738  

Other noncurrent liabilities

    20,504         3,802         24,306  

Minority interest in consolidated subsidiaries

            10,373         10,373  

Shareholders' equity:

                               
 

Common stock of $1 par value

    27,900     14,249     3,492     (17,741 )   27,900  
 

Additional paid-in capital

        159,082     67,055     (226,137 )    
 

Retained earnings

    498,767     108,911     102,412     (213,702 )   496,388  
 

Accumulated other comprehensive income

            16,996         16,996  
 

Treasury stock

    (30,671 )               (30,671 )
                       
 

Total shareholders' equity

    495,996     282,242     189,955     (457,580 )   510,613  
                       
   

Total liabilities and shareholders' equity

  $ 842,883   $ 324,356   $ 342,954   $ (457,580 ) $ 1,052,613  
                       

22



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 Thirty-nine Weeks Ended September 27, 2008

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Cash flows from operating activities:

                               
 

Net earnings

  $ 102,698   $ 14,623   $ 33,828   $ (47,202 ) $ 103,947  
 

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

                               
   

Depreciation and amortization

    12,556     8,116     8,409         29,081  
   

Stock based compensation

    3,869                 3,869  
   

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

    29     42     (448 )       (377 )
   

Equity in (earnings)/losses of nonconsolidated subsidiaries

    (330 )       (39 )       (369 )
   

Minority interest

    328         2,836         3,164  
   

Deferred income taxes

    (8,698 )   398     (2,135 )       (10,435 )
   

Other adjustments

    (4 )       (836 )       (840 )
   

Payment of deferred compensation

    (589 )               (589 )
   

Changes in assets and liabilities:

                               
     

Receivables

    (21,390 )   (4,568 )   (23,151 )       (49,109 )
     

Inventories

    (37,540 )   (4,631 )   (36,492 )       (78,663 )
     

Prepaid expenses

    (94 )   (96 )   162         (28 )
     

Accounts payable

    29,130     1,502     3,878         34,510  
     

Accrued expenses

    12,645     1,199     10,308         24,152  
     

Other noncurrent liabilities

    (1,502 )       72         (1,430 )
     

Income taxes payable

    11,209         (1,098 )       10,111  
                       
   

Net cash flows from operating activities

    102,317     16,585     (4,706 )   (47,202 )   66,994  
                       

Cash flows from investing activities:

                               
 

Purchase of property, plant and equipment

    (24,910 )   (2,626 )   (11,388 )       (38,924 )
 

Proceeds from sale of assets

    726     65     2,342         3,133  
 

Acquisitions, net of cash acquired

    (849 )   (84,065 )   (34,130 )       (119,044 )
 

Dividends to minority interests

            (184 )       (184 )
 

Other, net

    (181,320 )   71,141     62,378     47,202     (599 )
                       
   

Net cash flows from investing activities

    (206,353 )   (15,485 )   19,018     47,202     (155,618 )
                       

Cash flows from financing activities:

                               
 

Net borrowings under short-term agreements

    16,000         (5,605 )       10,395  
 

Proceeds from long-term borrowings

    80,000         895         80,895  
 

Principal payments on long-term obligations

    (33,055 )   (97 )   (5,635 )       (38,787 )
 

Dividends paid

    (8,852 )               (8,852 )
 

Proceeds from exercises under stock plans

    6,689                 6,689  
 

Excess tax benefits from stock option exercises

    7,117                 7,117  
 

Purchase of common treasury shares—stock plan exercises

    (7,895 )               (7,895 )
                       
   

Net cash flows from financing activities

    60,004     (97 )   (10,345 )       49,562  
                       
 

Effect of exchange rate changes on cash and cash equivalents

            625         625  
                       
 

Net change in cash and cash equivalents

    (44,032 )   1,003     4,592         (38,437 )
 

Cash and cash equivalents—beginning of year

    58,344     464     47,724         106,532  
                       
 

Cash and cash equivalents—end of period

  $ 14,312   $ 1,467   $ 52,316       $ 68,095  
                       

23



VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

8. Guarantor/Non-Guarantor Financial Information


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Thirty-nine Weeks Ended September 29, 2007

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Cash flows from operating activities:

                               
 

Net earnings

  $ 72,198   $ 7,713   $ 19,531   $ (27,860 ) $ 71,582  
 

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

                               
   

Depreciation and amortization

    13,126     6,548     6,062         25,736  
   

Stock based compensation

    2,694                 2,694  
   

Loss on sale of property, plant and equipment

    14     674     131         819  
   

Equity in (earnings)/losses of nonconsolidated subsidiaries

    (174 )       (198 )       (372 )
   

Minority interest

            1,356         1,356  
   

Deferred income taxes

    2,026     (542 )   (931 )       553  
   

Other adjustments

            693         693  
   

Payment of deferred compensation

    (9,186 )               (9,186 )
   

Changes in assets and liabilities:

                               
     

Receivables

    (17,085 )   1,618     (29,147 )   (48 )   (44,662 )
     

Inventories

    (1,295 )   401     (10,253 )       (11,147 )
     

Prepaid expenses

    (1,006 )   (57 )   (587 )       (1,650 )
     

Accounts payable

    1,191     (1,284 )   7,675         7,582  
     

Accrued expenses

    11,926     568     4,173     48     16,715  
     

Other noncurrent liabilities

    (1,965 )       1,086         (879 )
     

Income taxes payable

    (2,416 )       (2,184 )       (4,600 )
                       
   

Net cash flows from operating activities

    70,048     15,639     (2,593 )   (27,860 )   55,234  
                       

Cash flows from investing activities:

                               
 

Purchase of property, plant and equipment

    (24,716 )   (6,940 )   (11,245 )       (42,901 )
 

Proceeds from sale of assets

    9,204     42     125         9,371  
 

Acquisitions, net of cash aquired

            (16,163 )       (16,163 )
 

Dividends to minority interests

            (715 )       (715 )
 

Other, net

    (41,846 )   (9,726 )   22,295     27,860     (1,417 )
                       
   

Net cash flows from investing activities

    (57,358 )   (16,624 )   (5,703 )   27,860     (51,825 )
                       

Cash flows from financing activities:

                               
 

Net borrowings under short-term agreements

            1,624         1,624  
 

Proceeds from long-term borrowings

    12,087         376         12,463  
 

Principal payments on long-term obligations

    (10,847 )   (22 )   (1,278 )       (12,147 )
 

Dividends paid

    (7,588 )               (7,588 )
 

Proceeds from exercises under stock plans

    6,287                 6,287  
 

Excess tax benefits from stock option exercises

    5,541                 5,541  
 

Purchase of common treasury shares—stock plan exercises

    (6,244 )               (6,244 )
                       
   

Net cash flows from financing activities

    (764 )   (22 )   722         (64 )
                       
 

Effect of exchange rate changes on cash and cash equivalents

            2,488         2,488  
                       
 

Net change in cash and cash equivalents

    11,926     (1,007 )   (5,086 )       5,833  
 

Cash and cash equivalents—beginning of year

    25,438     2,962     35,104         63,504  
                       
 

Cash and cash equivalents—end of period

  $ 37,364   $ 1,955   $ 30,018       $ 69,337  
                       

*****

24



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 29, 2007. We aggregate our businesses into four reportable segments. See Note 7 to the Condensed Consolidated Financial Statements.

25


Results of Operations

    Dollars in thousands, except per share amounts

 
  Thirteen Weeks Ended   Thirty-nine Weeks Ended  
 
  September 27, 2008   September 29, 2007   % Incr.
(Decr.)
  September 27, 2008   September 29, 2007   % Incr.
(Decr.)
 

Consolidated

                                     
 

Net sales

  $ 494,801   $ 372,033     33.0 % $ 1,414,216   $ 1,114,972     26.8 %
 

Gross profit

    134,999     97,572     38.4 %   388,010     295,253     31.4 %
   

as a percent of sales

    27.3 %   26.2 %         27.4 %   26.5 %      
 

SG&A expense

    73,103     59,858     22.1 %   212,278     179,573     18.2 %
   

as a percent of sales

    14.8 %   16.1 %         15.0 %   16.1 %      
 

Operating income

    61,896     37,714     64.1 %   175,732     115,680     51.9 %
   

as a percent of sales

    12.5 %   10.1 %         12.4 %   10.4 %      
 

Net interest expense

    3,882     3,804     2.1 %   11,566     11,363     1.8 %
 

Effective tax rate

    34.0 %   22.1 %         34.1 %   30.2 %      
 

Net earnings

    36,984     25,893     42.8 %   103,947     71,582     45.2 %
 

Earnings per share-diluted

  $ 1.40   $ 0.99     41.4 % $ 3.95   $ 2.74     44.2 %

Engineered Support Structures segment

                                     
   

Net sales

  $ 179,189   $ 157,644     13.7 % $ 506,786   $ 425,701     19.0 %
   

Gross profit

    45,830     41,398     10.7 %   131,674     114,943     14.6 %
   

SG&A expense

    29,583     24,719     19.7 %   87,272     72,841     19.8 %
   

Operating income

    16,247     16,679     (2.6 )%   44,402     42,102     5.5 %

Utility Support Structures segment

                                     
   

Net sales

    111,013     78,993     40.5 %   311,371     248,487     25.3 %
   

Gross profit

    27,999     19,076     46.8 %   81,482     58,890     38.4 %
   

SG&A expense

    13,371     9,031     48.1 %   38,449     27,250     41.1 %
   

Operating income

    14,620     10,045     45.6 %   43,025     31,640     36.0 %

Coatings segment

                                     
   

Net sales

    28,928     26,798     7.9 %   86,394     80,236     7.7 %
   

Gross profit

    12,485     8,767     42.4 %   34,826     25,112     38.7 %
   

SG&A expense

    3,201     2,650     20.8 %   9,911     7,895     25.5 %
   

Operating income

    9,284     6,117     51.8 %   24,915     17,217     44.7 %

Irrigation segment

                                     
   

Net sales

    150,440     84,815     77.4 %   440,872     285,247     54.6 %
   

Gross profit

    40,141     20,635     94.5 %   117,420     71,957     63.2 %
   

SG&A expense

    14,891     11,776     26.5 %   41,756     34,196     22.1 %
   

Operating income

    25,249     8,859     185.0 %   75,663     37,761     100.4 %

Other

                                     
   

Net sales

    25,231     23,783     6.1 %   68,793     75,301     (8.6 )%
   

Gross profit

    8,284     7,406     11.9 %   22,797     23,742     (4.0 )%
   

SG&A expense

    2,472     2,699     (8.4 )%   7,285     8,806     (17.3 )%
   

Operating income

    5,821     4,707     23.7 %   15,521     14,936     3.9 %

Net corporate expense

                                     
   

Gross profit

    260     290     (10.3 )%   (189 )   609     (131.0 )%
   

SG&A expense

    9,585     8,983     6.7 %   27,605     28,585     (3.4 )%
   

Operating income (loss)

    (9,325 )   (8,693 )   (7.3 )%   (27,794 )   (27,976 )   0.7 %

26


    Overview

    General

        The sales increases for the thirteen and thirty-nine week periods ended September 27, 2008, as compared with the same periods of 2007, were due to increased selling prices to recover higher raw material costs, acquisitions, currency translation effects and sales unit volume increases. The sales unit volume increases were mainly due to improved sales demand in the Irrigation and Coatings segments. Unit volumes in the Utility Support Structures and Engineered Support Structures (ESS) segments for the thirteen and thirty-nine week periods ended September 27, 2008 were comparable with the same periods in 2007. On a consolidated basis, sales unit volume increased approximately 10% for the thirteen weeks ended September 27, 2008, as compared with the same period in 2007. Year-to-date sales unit volumes in 2008 were approximately 9% over 2007. Our costs for hot-rolled steel products escalated rapidly throughout 2008, resulting in higher costs for the items we manufacture. Where possible, we increased sales prices to our customers to recover these increased costs.

        The improvement in gross margin (gross profit as a percent of sales) for the thirteen and thirty-nine week periods ended September 27, 2008, as compared with the same periods of 2007, resulted mainly from improved factory productivity, improved sales pricing and the operational improvements in the North America specialty structures operations. On a segment basis, the most significant gross margin improvement was in the Coatings and Irrigation segments.

        The increases in selling, general and administrative (SG&A) expenses for the thirteen and thirty-nine week periods ended September 27, 2008, as compared with the same periods in 2007, mainly resulted from:

    Increased salary and benefit costs to support the increase in sales activity (approximately $4.1 million and $10.4 million, respectively);

    Net effect of acquisitions and divestitures (approximately $3.6 million and $8.3 million, respectively);

    Higher employee incentives related to improved operating performance (approximately $0.8 million and $3.5 million, respectively), and;

    Currency translation effects (approximately $1.2 million and $4.6 million, respectively).

        These increases were somewhat offset by lower employee benefit costs (especially group medical expenses) for the year-to-date period ended September 27, 2008, as compared with 2007 (approximately $2.0 million) and decreased deferred compensation expense related to the investment performance of the marketable securities underlying the deferred compensation plan ($0.7 and $1.7 million for the thirteen and thirty-nine week periods ended September 27, 2008, respectively). We recorded the investment losses in these securities as "Other Expense" in our condensed consolidated statement of operations for the thirteen and thirty-nine week periods ended September 27, 2008. The impact of these investments on the condensed consolidated statement of operations for the thirteen weeks and thirty-nine weeks ended September 28, 2007 was not significant.

        For the thirteen-week period ended September 27, 2008, all reportable segments contributed to the improved operating income in 2008 as compared with 2007 except the ESS segment, which reported slightly lower operating income in 2008. On a year-to-date basis, all reportable segments recorded higher operating income in 2008, as compared with 2007.

        Net interest expense for the thirteen and thirty-nine weeks ended September 27, 2008 were comparable with the same periods in 2007, as the effect of higher average borrowing levels in 2008 on interest expense were largely offset by lower interest rates on our variable rate debt in 2008, as compared with 2007.

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        Our effective tax rate for the third quarter and year-to-date periods ended September 27, 2008 was higher as compared with 2007. Our income tax rate in 2007 was lower than normal and was principally associated with the realization of certain income tax benefits on transactions that occurred in prior years. These income tax benefits mainly related to the expiration of statutes of limitation. Other factors that contributed to a higher income tax rate in 2008, as compared with 2007, included higher taxes on our profits generated in China and Mexico due to changes in their respective income tax laws in late 2007 and lower tax credits realized in the U.S. in 2008, as compared with 2007.

        Our cash flows provided by operations were $67.0 million for the thirty-nine weeks ended September 27, 2008, as compared with $55.2 million of cash provided by operations for the same period in 2007. The higher operating cash flows in 2008 principally resulted from increased earnings in 2008, partially offset by higher working capital required by the increased net sales realized in 2008, as compared with 2007.

    Acquisitions and Divestitures

        In 2007 and 2008, we acquired the following businesses:

    Tehomet Oy (Tehomet), a manufacturer of lighting structures located in Finland and Estonia acquired in April 2007;

    Penn Summit Tubular LLC (Penn Summit), a manufacturer of steel utility and wireless communication structures located in Hazelton, Pennsylvania acquired in January 2008;

    West Coast Engineering Group, Ltd. (West Coast), a manufacturer of steel lighting and wireless communication structures located in Canada and the U.S. acquired in February 2008; and

    Site Pro 1, Inc. (Site Pro), a wireless communication components company headquartered in Long Island, New York acquired in July 2008.

        In addition to these acquisitions, we acquired a small engineering services company located in Pittsburgh, Pennsylvania and formed a pole manufacturing joint venture in Turkey. We completed these acquisitions late in the third quarter of 2008 and they did not have a significant impact on our financial statements in 2008.

        We report Tehomet, West Coast and Site Pro as part of the ESS segment and Penn Summit as part of the Utility Support Structures segment. In addition, we divested certain operations that were included as part of our "Other" businesses. These operations included our tubing operation in Waverly, Nebraska, which we closed in late 2007 and our French machine tool accessory operation, which we sold to a third party in January 2008.

        The aggregate net increases of our net sales associated with these acquisitions and divestures for the thirteen and thirty-nine weeks ended September 27, 2008, as compared with the same periods in 2007 were approximately $21.0 million and $46.1 million, respectively. The operating income net increases for these periods over 2007 were approximately $4.9 million and $9.5 million, respectively.

    Foreign Currency Translation

        For the thirteen and thirty-nine week periods ended September 27, 2008, we realized approximately $9.8 million and $31.3 million, respectively, of increased sales related to the financial statement translation of our international operations into U.S. dollars. These translation effects also resulted in an increase in operating income for the thirteen and thirty-nine weeks ended September 27, 2008, as compared with the same periods in 2007 of approximately $1.6 million and $4.2 million, respectively.

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        Foreign currencies such as the Euro and the Brazilian Real were stronger in relation to the U.S. dollar through most of 2008, as compared with 2007. Accordingly, our sales denominated in those currencies translated to a higher amount of U.S. dollars in 2008, as compared with 2007.

    Engineered Support Structures segment

        The sales increases for the thirteen and thirty-nine week periods ended September 27, 2008, as compared with the same periods in 2007 were due to the increased sales prices to recover higher steel costs, currency translation impacts (approximately $7.1 million and $24.3 million, respectively) and the net effect of acquisitions and divestitures (approximately $10.6 million and $28.9 million, respectively). Unit volumes in all regions in 2008 were comparable with 2007 for the third quarter and on a year-to-date basis.

        In North America, lighting and traffic structure sales in 2008 were higher than 2007, due to a combination of the West Coast acquisition, increased sales price increases and a modest increase in unit volume. In the transportation market channel, sales were higher in 2008, as compared with 2007, as highway spending funded through the U.S. and state programs was stronger than in 2007. Sales in the commercial market channel in 2008 were slightly lower than 2007, due predominantly to a weaker commercial construction market in the U.S. Sales of lighting structures to electrical utilities in 2008 lagged 2007, due to the recent weakness in the residential housing market. In Europe, sales in local currency were higher in 2008, as compared with 2007 due mainly to sales price increases to recover higher steel costs and the Tehomet acquisition, offset somewhat by weaker volumes in France. Sales of lighting structures in China in 2008 were higher than 2007, on both a quarterly and year-to-date basis, mainly due to continued market expansion and increased sales efforts.

        Sales of Specialty Structures products increased in 2008, as compared with 2007, on both a quarterly and year-to-date basis. In North America, structure sales in the wireless communication market in 2008 improved over 2007. Sales of wireless communication components increased due to the Site Pro acquisition. Sales of wireless communication poles in China were down in 2008, as compared with 2007, both on a quarterly and year-to-date basis. We believe a major contributing factor to the decrease in wireless communication structures sales was reorganization of the Chinese wireless communication industry, which is causing some delays in ordering patterns for structures.

        Segment operating income for the thirteen weeks ended September 27, 2008 was slightly below 2007. On a year-to-date basis, operating income in 2008 improved over 2007. The factors contributing to stronger operating earnings in 2008 included:

    Improvement in the North American specialty structures operations (approximately $1.3 million and $5.7 million, respectively), mainly due to the impact of actions taken in late 2007 to consolidate sign structure manufacturing operations, and;

    West Coast, Tehomet and Site Pro acquisitions (approximately $1.6 million and $3.0 million, respectively).

        These improvements were largely offset by lower factory productivity in our North American lighting structures operations. Operating income from international operations was comparable to 2007, as currency translation effects (approximately $0.6 million and $2.3 million, respectively) offset increased market development expenses and lower operating income in China, which included start-up expenses related to our third plant in China. This manufacturing facility began production in the third quarter of 2008.

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        The increases in SG&A expense for the thirteen and thirty-nine weeks ended September 27, 2008, as compared with the same periods in 2007, were mainly due to:

    Increased salary and employee benefit costs (approximately $1.0 million and $3.6 million, respectively);

    West Coast, Tehomet and Site Pro acquisitions (approximately $1.6 million and $4.3 million, respectively), and;

    Foreign currency translation (approximately $1.0 million and $4.1 million, respectively).

    Utility Support Structures segment

        The sales increases in the Utility Support Structures segment for the thirteen and thirty-nine weeks ended September 27, 2008, as compared with the same periods of 2007, were due to the acquisition of Penn Summit and sales price increases implemented to recover higher steel costs. Unit sales of transmission, substation and distribution pole structures to utility customers in 2008 was slightly lower than 2007, both on a quarterly and year-to-date basis, mainly due to customers delaying shipments to future dates. These delays typically relate to factors such as weather and construction delays. Order flow continues to be strong, as sales backlogs were at record levels as of September 27, 2008. The increase in demand for utility structures was the result of continued investment by utility companies to improve the electrical transmission and distribution infrastructure in the United States.

        Gross profit increased in the third quarter of 2008, as compared with 2007 due to improved factory operating performance this year. The increases in SG&A spending for the thirteen and thirty-nine weeks ended September 27, 2008, as compared with the same periods in 2007, were primarily due to the Penn Summit acquisition ($2.6 million and $6.8 million, respectively) and increased salary, benefits and incentive expenses related to the higher sales activity and operating profit levels (approximately $1.1 million and $2.1 million, respectively).

    Coatings segment

        Coatings segment sales for the thirteen and thirty-nine week periods ended September 27, 2008 were above 2007 levels, mainly due to increased demand for galvanizing services, offset to an extent by lower selling prices. In our galvanizing operations, pounds of steel galvanized (including intersegment sales) in 2008 for the thirteen and thirty-nine weeks ended September 27, 2008 increased over the same periods in 2007 by approximately 12% and 11%, respectively. The volume increases were due to stronger industrial economic conditions in our market areas, including increased galvanizing services provided to our other operations in the U.S.

        The increases in operating income for the thirteen and thirty-nine weeks ended September 27, 2008 as compared with the same periods in 2007 were principally due to lower zinc costs, the impact of higher galvanizing volumes and improvement in our utilization of zinc. The main reason for the SG&A spending increases for the third quarter and year-to-date periods ended September 27, 2008, as compared with the same periods in 2007, were higher incentive expenses associated with increased operating profit this year.

    Irrigation segment

        For the thirteen and thirty-nine weeks ended September 27, 2008 the sales increases in the Irrigation segment, as compared with the same periods in 2007, were mainly due to higher sales volumes, although selling prices also increased in 2008, as compared with 2007, to recover higher steel costs. In global markets, higher farm commodity prices and net farm income in 2008 and 2007 resulted in improved demand for irrigation machines. Sales demand in international markets was stronger in 2008, as compared with 2007, in most geographic regions, with the most significant sales increases

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taking place in Brazil, the Middle East and the Pacific Rim. In North America, demand for irrigation machines and service parts in 2008 was also enhanced due to machines that were damaged by a pattern of severe storms in the U.S.

        The increase in operating income for the thirteen and thirty-nine weeks ended September 27, 2008, as compared with the same periods in 2007, was due to improved sales volumes, sales price increases to offset steel cost increases and operating leverage realized through control of SG&A spending. The increases in SG&A spending for the thirteen and thirty-nine weeks ended September 27, 2008, as compared with the same periods in 2007 were mainly attributable to increased employee incentives associated with improved operational performance ($0.9 million and $2.2 million, respectively) and increased salary and benefit expense for additional administrative personnel ($1.2 million and $3.2 million, respectively).

    Other

        This mainly includes our tubing, industrial fastener and French machine tool accessories operations. The decreases in sales for the thirteen and thirty-nine weeks ended September 27, 2008, as compared with the same periods in 2007, was due to the sale of our machine tool accessory operation in early 2008 and the closure of a small tubing facility in late 2007. The impact of these actions on our operating income was not significant.

    Net corporate expense

        The increase in net corporate expenses for the thirteen weeks ended September 27, 2008, as compared with 2007, were due to higher compensation costs. On a year-to-date basis, net corporate expense was comparable with 2007. Items of lower expense in 2008 included:

    decreased employee group insurance costs in 2008 (approximately $2.0 million), and;

    lower deferred compensation liabilities related to investment losses in the assets in the deferred compensation plan of approximately $1.7 million.

        Items of greater expense in the year to date period in 2008 included higher employee incentives due to improved earnings and common stock price (which is used to value certain long-term management incentives) this year (approximately $1.1 million) and increased stock-based compensation expense in 2008 (approximately $0.6 million).

Liquidity and Capital Resources

    Cash Flows

        Working Capital and Operating Cash Flows—Net working capital was $410.7 million at September 27, 2008, as compared with $350.6 million at December 29, 2007. The ratio of current assets to current liabilities was 2.20:1 at September 27, 2008, as compared with 2.29:1 at December 29, 2007. The increase in net working capital and the current ratio mainly relates to increases in accounts receivable and inventories associated with higher sales activity and increased backlogs in 2008, as compared with 2007. Cash flow provided by operations was $67.0 million for the thirty-nine week period ended September 27, 2008, as compared with $55.2 million provided by operations for the same period in 2007. The increase in operating cash flows in 2008, as compared with 2007, related primarily to increased net earnings offset by an increase in working capital in 2008, as compared with 2007. In 2008 and 2007, we distributed $589 and $9,186, respectively, from our non-qualified deferred compensation plan to participants under the transition rules of section 409A of the Internal Revenue Code.

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        Investing Cash Flows—Capital spending during the thirty-nine weeks ended September 27, 2008 was $38.9 million, as compared with $42.9 million for the same period in 2007. Our capital spending in 2008 and 2007 included additional manufacturing capacity for ESS, Utility Support Structures and Irrigation segments. We expect that our capital spending for the 2008 fiscal year will be between $55 million and $60 million.

        Investing cash flows in 2008 also reflected the aggregate of $119.0 million of cash paid for the acquisitions completed in 2008. In 2007, we spent approximately $16.9 million (net of cash acquired) to acquire 70% of the outstanding stock of Tehomet Oy, a Finnish manufacturer of lighting structures and the remaining 20% of our Canadian aluminum pole manufacturing operation.

        The cash used to pay the distributions from our non-qualified deferred compensation plan was generated from the liquidation of investments, which was classified as "Proceeds from sale of assets" in the statement of cash flows for the thirty-nine week periods ended September 27, 2008 and September 29, 2007, respectively.

        Financing Cash Flows—Our total interest-bearing debt increased from $238.3 million as of December 29, 2007 to $295.7 million as of September 27, 2008, which was reported as an increase in financing cash flows for the thirty-nine weeks ended September 27, 2008. The main reasons for the increase in borrowings relate to the debt that we incurred to fund the 2008 acquisitions (approximately $70 million) and approximately $6.4 million of debt that we assumed as part of the West Coast and Penn Summit acquisitions. We funded the Penn Summit acquisition in part through approximately $50 million of our cash balances.

    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 September 27, 2008, our long-term debt to invested capital ratio was 27.0%, as compared with 27.3% at December 29, 2007. We may exceed our internal objective of 40% from time to time in order to take advantage of opportunities to grow and improve our businesses, such as the Newmark, Whatley and Sigma acquisitions that we completed in 2004. 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 2008.

        Our debt financing at September 27, 2008 consisted primarily of long-term debt. We also maintain certain short-term bank lines of credit totaling $32.5 million, $20.5 million which was unused at September 27, 2008. Our long-term debt at September 27, 2008 principally consisted of:

    $150 million of senior subordinated notes that bear interest at 6.875% per annum and are due in May 2014. We may repurchase the notes starting in May 2009 at specified prepayment premiums. Certain of our U.S. subsidiaries guarantee these notes.

    $150 million revolving credit agreement with a group of banks that accrued interest at our option at:(a) the higher of the prime lending rate and the Federal Funds rate plus 50 basis points or (b) an interest rate spread over the LIBOR of 62.5 to 137.5 basis points (inclusive of facility fees), depending on our ratio of debt to earnings before taxes, interest, depreciation and amortization (EBITDA). At September 27, 2008, we had outstanding balances under the revolving credit agreement totaling $71.4 million. The revolving credit agreement has a termination date of May 4, 2009 and contained certain financial covenants that limited our additional borrowing capability under the agreement. At September 27, 2008, we had the ability to borrow an additional $69.6 million under this facility. The weighted average effective interest

32


      rate on borrowings outstanding under this agreement at September 27, 2008 was 3.30% per annum.

    Term loan with a group of banks that accrued interest at our option at (a) the higher of the prime lending rate and the Federal Funds rate plus 50 basis points or (b) LIBOR plus a spread of 62.5 to 137.5 basis points, depending on our debt to EBITDA ratio and had an outstanding balance of $23.8 million at September 27, 2008. This loan required quarterly principal payments through May 2009. The future principal payments due in 2008 and 2009 in millions were $11.9 and $11.9, respectively. The effective interest rate on this loan was 3.125% per annum at September 27, 2008.

        These debt agreements include certain covenants that require us to maintain certain coverage ratios and may limit us with respect to certain business activities. At September 27, 2008, we were in compliance with all covenants related to our debt agreements.

        Subsequent to September 27, 2008, we replaced the revolving credit agreement and the term loan with a new $280 million revolving credit facility described below. We repaid the outstanding balances of the revolving credit agreement and the term loan with borrowings from the new revolving credit facility.

        On October 16, 2008, we entered into a new five-year $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:

    (iii)
    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;

    (iv)
    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

        The new revolving credit agreement has maintenance covenants that may limit our additional borrowing capability under the agreement, similar to the covenants in our prior revolving credit agreement.

FINANCIAL OBLIGATIONS AND FINANCIAL COMMITMENTS

        Other than our new revolving credit agreement, there have been no material changes to our financial obligations and financial commitments as described on page 37 in our Form 10-K for the year ended December 29, 2007.

    Off Balance Sheet Arrangements

        There have been no changes in our off balance sheet arrangements as described on page 37 in our Form 10-K for the fiscal year ended December 29, 2007.

    Critical Accounting Policies

        There have been no changes in the Company's critical accounting policies during the quarter ended September 27, 2008. These policies are described on pages 39-42 in our Form 10-K for fiscal year ended December 29, 2007.

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Item 3. Quantitative and Qualitative Disclosure about Market Risk

        There were no material changes in the company's market risk during the quarter ended September 27, 2008. For additional information, refer to the section "Risk Management" on pages 38-39 in our Form 10-K for the fiscal year ended December 29, 2007.

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. In the third quarter of fiscal 2008, the Company implemented various process and information systems enhancements, principally related to the implementation of enterprise resource planning software and related business improvements in its Brenham, Texas operation that is part of the ESS segment. These process and information system enhancements resulted in modifications to internal controls over sales, customer service, inventory management, accounts receivable, and accounts payable processes. Aside from such change, there have been 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.

34



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
 

June 29, 2008 to July 26, 2008

    1,220   $ 111.22          

July 27, 2008 to Aug. 30, 2008

    302   $ 105.94          

Aug. 31, 2008 to Sept. 27, 2008

                 
                   
 

Total

    1,522   $ 110.17          
                   

        During the third 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 July 28, 2008, the Company's Board of Directors declared a quarterly cash dividend on common stock of 13 cents per share, which was paid on October 15, 2008, to stockholders of record September 26, 2008. The indicated annual dividend rate is 52 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

35



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 3rd day of November, 2008.

 

 

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List of 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

37




QuickLinks

26,151,080 Outstanding shares of common stock as of October 20, 2008
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited)
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited)
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Thirteen Weeks Ended September 27, 2008
For the Thirty-nine Weeks Ended September 27, 2008
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS December 29, 2007
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Thirty-nine Weeks Ended September 27, 2008
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Thirty-nine Weeks Ended September 29, 2007
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES PART 1. FINANCIAL INFORMATION
PART II. OTHER INFORMATION
SIGNATURES
List of Exhibits