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VALMONT INDUSTRIES INC - Quarter Report: 2010 March (Form 10-Q)


Table of Contents

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


Form 10-Q

(Mark One)    

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

For the quarterly period ended March 27, 2010

Or

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

For the transition period from                             to                            

Commission file number 1-31429

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

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

One Valmont Plaza,
Omaha, Nebraska
(Address of principal executive offices)
 
68154-5215
(Zip Code)

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

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


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

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

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

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

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

26,324,409

Outstanding shares of common stock as of April 21, 2010

Table of Contents


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 weeks ended March 27, 2010 and March 28, 2009

     3  

 

Condensed Consolidated Balance Sheets as of March 27, 2010 and December 26, 2009

     4  

 

Condensed Consolidated Statements of Cash Flows for the thirteen weeks ended March 27, 2010 and March 28, 2009

     5  

 

Condensed Consolidated Statements of Shareholders' Equity for the thirteen weeks ended March 27, 2010 and March 28, 2009

     6  

 

Notes to Condensed Consolidated Financial Statements

     7-21  

Item 2.

  

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

     22-28  

Item 3.

  

Quantitative and Qualitative Disclosure about Market Risk

     29  

Item 4.

  

Controls and Procedures

     29  

PART II. OTHER INFORMATION

  

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     30  

Item 5.

  

Other Information

     30  

Item 6.

  

Exhibits

     30  

Signatures

     31  

2

Table of Contents


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  
 
   March 27,
2010 		  March 28,
2009 		 

Net sales

   $ 367,402   $ 455,154  

Cost of sales

     266,672     326,838  
           
 

Gross profit

     100,730     128,316  

Selling, general and administrative expenses

     69,080     69,997  
           
 

Operating income

     31,650     58,319  
           

Other income (expenses):

              
 

Interest expense

     (5,962 )   (4,284 )
 

Interest income

     356     332  
 

Other

     (77 )   (1,798 )
           

    (5,683 )   (5,750 )
           

Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries

     25,967     52,569  
           

Income tax expense:

              
 

Current

     6,706     12,300  
 

Deferred

     2,740     4,955  
           

    9,446     17,255  
           

Earnings before equity in earnings of nonconsolidated subsidiaries

     16,521     35,314  

Equity in earnings of nonconsolidated subsidiaries

     114     566  
           
 

Net earnings

     16,635     35,880  
           

Less: Earnings attributable to noncontrolling interests

     (172 )   (16 )
           
 

Net earnings attributable to Valmont Industries, Inc. 

   $ 16,463   $ 35,864  
           

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

   $ 0.63   $ 1.38  
           

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

   $ 0.62   $ 1.37  
           

Cash dividends per share

   $ 0.15   $ 0.13  
           

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

     26,031     25,902  
           

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

     26,419     26,225  
           

See accompanying notes to condensed consolidated financial statements.

3

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

 
   March 27,
2010 		  December 26,
2009 		 

ASSETS

              

Current assets:

              
 

Cash and cash equivalents

   $ 109,987   $ 180,786  
 

Restricted cash

     264,000     —  
 

Receivables, net

     256,672     259,521  
 

Inventories

     211,679     210,611  
 

Prepaid expenses

     20,333     22,143  
 

Refundable and deferred income taxes

     38,104     42,361  
           
   

Total current assets

     900,775     715,422  
           

Property, plant and equipment, at cost

     671,460     675,446  
 

Less accumulated depreciation and amortization

     394,832     392,358  
           
   

Net property, plant and equipment

     276,628     283,088  
           

Goodwill

     177,443     178,320  

Other intangible assets, net

     93,914     96,378  

Other assets

     29,019     28,961  
           
   

Total assets

   $ 1,477,779   $ 1,302,169  
           

LIABILITIES AND SHAREHOLDERS' EQUITY

              

Current liabilities:

              
 

Current installments of long-term debt

   $ 281   $ 231  
 

Notes payable to banks

     10,442     11,900  
 

Accounts payable

     114,319     118,210  
 

Accrued employee compensation and benefits

     48,402     66,611  
 

Accrued expenses

     57,607     55,921  
 

Dividends payable

     3,947     3,944  
           
   

Total current liabilities

     234,998     256,817  
           

Deferred income taxes

     49,577     49,281  

Long-term debt, excluding current installments

     351,127     160,251  

Other noncurrent liabilities

     29,061     27,513  

Shareholders' equity:

              
 

Preferred stock

              
   

Authorized 500,000 shares; none issued

     —     —  
 

Common stock of $1 par value

              
   

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

     27,900     27,900  
 

Retained earnings

     780,414     767,398  
 

Accumulated other comprehensive income

     10,338     16,953  
 

Treasury stock

     (25,776 )   (25,990 )
           
   

Total Valmont Industries, Inc. shareholders' equity

     792,876     786,261  
           
 

Noncontrolling interest in consolidated subsidiaries

     20,140     22,046  
           
   

Total shareholders'equity

     813,016     808,307  
           
   

Total liabilities and shareholders' equity

   $ 1,477,779   $ 1,302,169  
           

See accompanying notes to condensed consolidated financial statements.

4

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 
   Thirteen Weeks Ended  
 
   March 27,
2010 		  March 28,
2009 		 

Cash flows from operations:

              
 

Net earnings

   $ 16,635   $ 35,880  
 

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

              
   

Depreciation and amortization

     11,209     10,835  
   

Stock-based compensation

     1,599     1,499  
   

Loss on sales of property, plant and equipment

     64     121  
   

Equity in earnings of nonconsolidated subsidiaries

     (114 )   (566 )
   

Deferred income taxes

     2,740     4,955  
   

Other

     20     709  
   

Changes in assets and liabilities, before acquisitions:

              
     

Receivables

     (345 )   4.341  
     

Inventories

     (2,796 )   (5,596 )
     

Prepaid expenses

     1,463     (1,167 )
     

Accounts payable

     (2,131 )   (902 )
     

Accrued expenses

     (10,748 )   (16,672 )
     

Other noncurrent liabilities

     (160 )   1,515  
     

Income taxes payable/refundable

     1,832     2,526  
           
       

Net cash flows from operations

     19,268     37,478  
           

Cash flows from investing activities:

              
 

Purchase of property, plant and equipment

     (4,555 )   (14,042 )
 

Proceeds from sale of assets

     96     22  
 

Acquisitions

     (7,460 )   —  
 

Cash restricted for acquisitions

     (264,000 )   —  
 

Dividends to noncontrolling interests

     (295 )   (195 )
 

Other, net

     2,547     (2,263 )
           
       

Net cash flows from investing activities

     (273,667 )   (16,478 )
           

Cash flows from financing activities:

              
 

Net payments under short-term agreements

     (1,458 )   (5,709 )
 

Proceeds from long-term borrowings

     191,000     72  
 

Principal payments on long-term obligations

     (39 )   (6,313 )
 

Dividends paid

     (3,944 )   (3,402 )
 

Proceeds from exercises under stock plans

     1,803     1,394  
 

Excess tax benefits from stock option exercises

     1,010     855  
 

Purchase of treasury shares

     (877 )   —  
 

Purchase of common treasury shares—stock plan exercises

     (1,595 )   (140 )
           
       

Net cash flows from financing activities

     185,900     (13,243 )
           

Effect of exchange rate changes on cash and cash equivalents

     (2,300 )   (502 )
           

Net change in cash and cash equivalents

     (70,799 )   7,255  

Cash and cash equivalents—beginning of year

     180,786     68,567  
           

Cash and cash equivalents—end of period

   $ 109,987   $ 75,822  
           

See accompanying notes to condensed consolidated financial statements.

5

Table of Contents


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Dollars in thousands)

(Unaudited)

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

Balance at December 27, 2008

   $ 27,900   $ —   $ 624,254   $ (533 ) $ (27,490 ) $ 16,845   $ 640,976  

Comprehensive income:

                                            
 

Net earnings

     —     —     35,864     —     —     16     35,880  
 

Currency translation adjustment

     —     —     —     (2,572 )   —     (590 )   (3,162 )
                                           
   

Total comprehensive income

     —     —     —     —     —     —     32,718  

Cash dividends ($0.13 per share)

     —     —     (3,412 )   —     —     —     (3,412 )

Dividends to noncontrolling interests

     —     —     —     —     —     (195 )   (195 )

Acquisitions

     —     —     —     —     —              

Stock plan exercises; 2,747 shares purchased

     —     —     —     —     (140 )   —     (140 )

Stock options exercised; 67,849 shares issued

     —     (2,354 )   2,613     —     610     —     869  

Tax benefit from exercise of stock options

     —     855     —     —     —     —     855  

Stock option expense

           1,020     —     —     —     —     1,020  

Stock awards; 9,746 shares issued

     —     479     —     —     436     —     915  
                               

Balance at March 28, 2009

   $ 27,900   $ —   $ 659,319   $ (3,105 ) $ (26,584 ) $ 16,076   $ 673,606  
                               

Balance at December 26, 2009

  
$
27,900		  
$
—		  
$
767,398		  
$
16,953		  
$
(25,990
)
$
22,046		  
$
808,307		  

Comprehensive income:

                                            
 

Net earnings

     —     —     16,463     —     —     172     16,635  
 

Currency translation adjustment

     —     —     —     (6,615 )   —     (263 )   (6,878 )
                                           
   

Total comprehensive income

     —     —     —     —     —     —     9,757  

Cash dividends ($0.15 per share)

     —     —     (3,947 )   —     —     —     (3,947 )

Dividends to noncontrolling interests

     —     —     —     —     —     (295 )   (295 )

Purchase of noncontrolling interest

     —     (1,875 )   —     —     —     (1,520 )   (3,395 )

Purchase of 12,351 treasury shares

     —     —     —     —     (877 )   —     (877 )

Stock plan exercises; 44,088 shares issued

     —     (733 )   500     —     2,036     —     1,803  

Stock plan exercises; 22,317 shares purchased

     —     —     —     —     (1,595 )   —     (1,595 )

Tax benefit from exercise of stock options

     —     1,010     —     —     —     —     1,010  

Stock option expense

     —     1,228     —     —     —     —     1,228  

Stock awards; 9,088 shares issued

     —     370     —     —     650     —     1,020  
                               

Balance at March 27, 2010

   $ 27,900   $ —   $ 780,414   $ 10,338   $ (25,776 ) $ 20,140   $ 813,016  
                               

See accompanying notes to condensed consolidated financial statements.

6

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

1. Summary of Significant Accounting Policies

    Condensed Consolidated Financial Statements

        The Condensed Consolidated Balance Sheet as of March 27, 2010, the Condensed Consolidated Statements of Operations for the thirteen week periods ended March 27, 2010 and March 28, 2009, the Condensed Consolidated Statements of Cash Flows and Shareholders' Equity for the thirteen 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 March 27, 2010 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 26, 2009. 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 26, 2009. The results of operations for the period ended March 27, 2010 are not necessarily indicative of the operating results for the full year.

    Subsequent Events

        On April 8, 2010, the Company issued $300.0 million of senior unsecured notes at a coupon interest rate of 6.625% per annum. The proceeds of the notes offering are to be used for the Delta acquisition. In the event that the Delta acquisition is not completed, the proceeds of the notes offering will be used for general corporate purposes, including debt repayment.

    Restricted Cash

        At March 27, 2010, the Company had $264,000 of restricted cash on deposit related the proposed acquisition of ordinary shares of Delta plc (Delta). If the proposed acquisition is completed, the restriction will be removed and the cash used as part of the funding of the acquisition. If the acquisition is not completed, the restriction will be removed and the cash will be available to the Company for general corporate purposes.

    Inventories

        At March 27, 2010, approximately 46.5% 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 and finished goods. The excess of replacement cost of inventories over the LIFO value was approximately $43,000 and $39,500 at March 27, 2010 and December 26, 2009, respectively.

7

Table of Contents


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

1. Summary of Significant Accounting Policies (Continued)

        Inventories consisted of the following:

 
   March 27,
2010 		  December 26,
2009 		 

Raw materials and purchased parts

   $ 113,752   $ 112,911  

Work-in-process

     20,484     20,217  

Finished goods and manufactured goods

     120,458     117,032  
           

Subtotal

     254,694     250,160  

LIFO reserve

     43,015     39,549  
           

Net inventory

   $ 211,679   $ 210,611  
           

    Long-term debt

        At March 27, 2010, the Company had $191.0 in outstanding borrowings under its revolving credit agreement, at a weighted average annual interest rate of 1.33%, not including facility fees. These outstanding borrowings were associated with the funding requirements related to the proposed Delta acquisition. The revolving credit agreement has a termination date of October 16, 2013 and contains certain financial covenants that may limit the Company's additional borrowing capability under the agreement. At March 27, 2010, the Company had the ability to borrow an additional $64 million under this facility. Subsequent to the issuance of $300 million in senior unsecured notes in April 2010, borrowings under the revolving credit agreement were reduced to $85.0 million.

    Stock Plans

        The Company maintains stock-based compensation plans approved by the shareholders, which provide that the Compensation Committee of the Board of Directors may grant incentive stock options, nonqualified stock options, stock appreciation rights, non-vested stock awards and bonuses of common stock. At March 27, 2010, 1,130,445 shares of common stock remained available for issuance under the plans. Shares and options issued and available are subject to changes in capitalization.

        Under the plans, the exercise price of each option equals the market price at the date of the grant. Options vest beginning on the first anniversary of the grant in equal amounts over three to six years or on the fifth anniversary of the grant. Expiration of grants is from six to ten years from the date of grant. The Company recorded $1,228 and $1,020 of compensation expense (included in selling, general and administrative expenses) in the quarters ended March 27, 2010 and March 28, 2009, respectively, related to stock options. The associated tax benefits recorded were $472 and $393, respectively.

    Fair Value

        The Company applies the provisions of Accounting Standards Codification 820, Fair Value Measurements ("ASC 820") which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of ASC 820 apply to other accounting pronouncements that require or permit fair value measurements. As defined in ASC 820,

8

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

1. Summary of Significant Accounting Policies (Continued)

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.

        ASC 820 establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

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

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

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

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

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

        Trading Securities: The assets and liabilities recorded for the investments held in the Valmont Deferred Compensation Plan represent mutual funds, invested in debt and equity securities, classified as trading securities in accordance with Accounting Standards Codification 320, 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
March 27,
2010 		  Quoted Prices in
Active Markets for
Identical Assets
(Level 1) 		  Significant Other
Observable
Inputs
(Level 2) 		  Significant
Unobservable
Inputs
(Level 3) 		 

Assets:

                          
 

Trading Securities

   $ 17,361   $ 17,361   $ —   $ —  

 

 
    
   Fair Value Measurement Using:  
 
   Carrying Value
December 26,
2009 		  Quoted Prices in
Active Markets for
Identical Assets
(Level 1) 		  Significant Other
Observable
Inputs
(Level 2) 		  Significant
Unobservable
Inputs
(Level 3) 		 

Assets:

                          
 

Trading Securities

   $ 15,653   $ 15,653   $ —   $ —  

9

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

1. Summary of Significant Accounting Policies (Continued)

        In fiscal 2010, the Company implemented the provisions of updated ASC Topic 860, Transfers and Servicing, which significantly changed the accounting for transfers of financial assets. The update to ASC 860 eliminated the qualifying special purpose entity ("QSPE") concept, established conditions for reporting a transfer of a portion of a financial asset as a sale, clarified the financial-asset derecognition criteria, revised how interests retained by the transferor in a sale of financial assets initially are measured, and removed the guaranteed mortgage securitization recharacterization provisions. The implementation of this new accounting guidance had no impact on the Company's condensed consolidated financial statements for the fiscal period ended March 27, 2010.

2. Proposed Acquisition of Delta plc

        On March 10, 2010, the Company commenced a cash offer for all of the issued and to be issued ordinary share capital of Delta, plc. ("Delta") a public limited company incorporated in Great Britain, and listed on the London Stock Exchange (LSE: DLTA). The offer is 185 pence in cash for each Delta share, valuing the entire existing ordinary share capital of Delta at approximately £284.5 million, or approximately $439.0 million based on an average exchange rate of $1.543 / £. To manage the foreign exchange risk associated with the offer, the Company executed a forward foreign exchange contract with a multinational bank, whereby, if the acquisition is completed, the required British pound sterling would be delivered to the Company at a fixed exchange rate of $1.543/£ to complete the acquisition. If the acquisition is not completed, the contract will be terminated at no cost to the Company. Delta has manufacturing operations employing over 2,500 people in Australia, Asia, South Africa and the United States. Delta's businesses include engineered steel products, galvanizing services and manganese materials. The Company intends to finance the offer with the net proceeds from an April 2010 sale of $300 million of senior notes at an interest rate of 6.625% per annum and alternative funding sources, including the Company's existing borrowing arrangements. The transaction is subject to the satisfaction of customary closing conditions, including Delta shareholder acceptance. If the closing conditions are satisfied, the Company expects to close the transaction in the second quarter.

        In the first quarter of 2010, certain expenses were incurred that were associated with the proposed Delta acquisition. These expenses included:

        The after-tax impact of these expenses on the Company net earnings for the quarter ended March 27, 2010 was approximately $3.4 million.

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

3. Goodwill and Intangible Assets

        The Company's annual impairment testing of goodwill and intangible assets was performed during the third quarter of 2009. As a result of that testing, it was determined the goodwill and other intangible assets on the Company's Condensed 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.

        The components of amortized intangible assets at March 27, 2010 and December 26, 2009 were as follows:

 
   As of March 27, 2010    
 
   Gross
Carrying
Amount 		  Accumulated
Amortization 		  Weighted
Average
Life

Customer Relationships

   $ 96,925   $ 29,332   14 years

Proprietary Software & Database

     2,627     2,469   6 years

Patents & Proprietary Technology

     3,464     1,338   13 years

Non-compete Agreements

     1,680     877   6 years
             

  $ 104,696   $ 34,016    
             

 

 
   As of December 26, 2009    
 
   Gross
Carrying
Amount 		  Accumulated
Amortization 		  Weighted
Average
Life

Customer Relationships

   $ 97,289   $ 27,559   14 years

Proprietary Software & Database

     2,627     2,434   6 years

Patents & Proprietary Technology

     3,466     1,257   13 years

Non-compete Agreements

     1,704     823   6 years
             

  $ 105,086   $ 32,073    
             

        Amortization expense for intangible assets during the first quarter of 2010 and 2009 was $2,040 and $2,045, respectively. Estimated amortization expense related to amortized intangible assets is as follows:

 
   Estimated
Amortization
Expense 		 

2010

   $ 8,084  

2011

     7,820  

2012

     7,772  

2013

     6,876  

2014

     6,452  

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

3. Goodwill and Intangible Assets (Continued)

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

        Intangible assets with indefinite lives are not amortized. The carrying values of trade names at March 27, 2010 and December 26, 2009 were as follows:

 
   March 27,
2010 		  December 26,
2009 		 

PiRod

   $ 4,750   $ 4,750  

Newmark

     11,111     11,111  

Tehomet

     1,254     1,347  

West Coast

     2,410     2,356  

Site Pro

     1,800     1,800  

Stainton

     1,266     1,358  

Other

     643     643  
           

  $ 23,234   $ 23,365  
           

        The Company's trade names were tested for impairment separately from goodwill in the third quarter of 2009. The values of the trade names were determined using the relief-from-royalty method. Based on this evaluation, the Company determined that its trade names were not impaired.

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

        The carrying amount of goodwill as of March 27, 2010 was as follows:

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

Balance December 26, 2009

   $ 55,338   $ 77,141   $ 43,777   $ 2,064   $ 178,320  

Foreign currency translation

     (877 )   —     —     —     (877 )
                       

Balance March 27, 2010

   $ 54,461   $ 77,141   $ 43,777   $ 2,064   $ 177,443  
                       

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

4. Cash Flows

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

 
   March 27,
2010 		  March 28,
2009 		 

Interest

   $ 2,856   $ 2,120  

Income taxes

     3,833     9,889  

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 March 27, 2010:

                    
 

Net earnings attributable to Valmont Industries, Inc. 

   $ 16,463     —   $ 16,463  
 

Shares outstanding

     26,031     388     26,419  
 

Per share amount

   $ 0.63   $ (0.01 ) $ 0.62  

Thirteen weeks ended March 28, 2009:

                    
 

Net earnings attributable to Valmont Industries, Inc. 

   $ 35,864     —   $ 35,864  
 

Shares outstanding

     25,902     323     26,225  
 

Per share amount

   $ 1.38   $ (0.01 ) $ 1.37  

        At March 27, 2010 there were 44,767 of outstanding stock options with exercise prices exceeding the market price of common stock that were therefore excluded from the computation of fully diluted shares earnings per share for the thirteen weeks ended March 27, 2010. At March 28, 2009 there were 641,370 of outstanding stock options with exercise prices exceeding the market price of common stock that were therefore excluded from the computation of fully diluted shares earnings per share for the thirteen weeks ended March 28, 2009.

6. 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.

13

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

6. Business Segments (Continued)

        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 worldwide and for other specialty applications;

        UTILITY SUPPORT STRUCTURES:    This segment consists of the manufacture of engineered steel and concrete structures for the global 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 the fourth quarter of 2009, the Company reorganized its management structure and redefined its Utility segment to include Utility support structure activities on a global basis. Previously, sales of utility support structures outside of North America were reported as part of the ESS segment. This management structure change should help the Company better serve the global utility support structure market. Information presented for 2009 has been reclassified to conform to the 2010 presentation.

14

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

6. Business Segments (Continued)

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

 
   Thirteen Weeks Ended  
 
   March 27,
2010 		  March 28,
2009 		 

Sales:

              
 

Engineered Support Structures segment:

              
   

Lighting & Traffic

   $ 88,111   $ 103,103  
   

Communication Structures

     18,895     32,933  
           
     

Engineered Support Structures segment

     107,006     136,036  
 

Utility Support Structures segment:

              
   

Steel

     99,073     148,572  
   

Concrete

     14,155     35,388  
           
     

Utility Support Structures segment

     113,228     183,960  
 

Coatings segment

     27,930     30,012  
 

Irrigation segment

     108,639     103,062  
 

Other

     22,289     19,321  
           
   

Total

     379,092     472,391  

Intersegment Sales:

              
 

Engineered Support Structures

     1,102     5,677  
 

Utility Support Structures

     299     558  
 

Coatings

     5,764     6,143  
 

Irrigation

     3     5  
 

Other

     4,522     4,854  
           
   

Total

     11,690     17,237  

Net Sales:

              
 

Engineered Support Structures segment

     105,904     130,359  
 

Utility Support Structures segment

     112,929     183,402  
 

Coatings segment

     22,166     23,869  
 

Irrigation segment

     108,636     103,057  
 

Other

     17,767     14,467  
           
   

Total

   $ 367,402   $ 455,154  
           

Operating Income (Loss):

              
 

Engineered Support Structures segment

   $ 2,611   $ 6,422  
 

Utility Support Structures segment

     14,706     40,475  
 

Coatings segment

     4,532     5,991  
 

Irrigation segment

     15,398     11,970  
 

Other

     4,264     3,603  
 

Net corporate expense

     (9,861 )   (10,142 )
           
   

Total

   $ 31,650   $ 58,319  
           

15

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

7. 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 March 27, 2010

 
   Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net sales

   $ 199,088   $ 64,464   $ 131,492   $ (27,642 ) $ 367,402  

Cost of sales

     147,273     48,929     98,543     (28,073 )   266,672  
                       
 

Gross profit

     51,815     15,535     32,949     431     100,730  

Selling, general and administrative expenses

     35,692     11,433     21,955     —     69,080  
                       
 

Operating income

     16,123     4,102     10,994     431     31,650  
                       

Other income (expenses):

                                
 

Interest expense

     (5,754 )   —     (208 )   —     (5,962 )
 

Interest income

     11     —     345     —     356  
 

Other

     158     25     (260 )   —     (77 )
                       

    (5,585 )   25     (123 )   —     (5,683 )
                       

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

     10,538     4,127     10,871     431     25,967  
                       

Income tax expense (benefit):

                                
 

Current

     2,803     1,594     2,309     —     6,706  
 

Deferred

     1,585     (29 )   1,184     —     2,740  
                       

    4,388     1,565     3,493     —     9,446  
                       

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

     6,150     2,562     7,378     431     16,521  

Equity in earnings/(losses) of nonconsolidated subsidiaries

     10,313     —     —     (10,199 )   114  
                       

Net Earnings

     16,463     2,562     7,378     (9,768 )   16,635  

Less: Earnings attributable to noncontrolling interests

     —     —     (172 )   —     (172 )
                       
 

Net Earnings attributable to Valmont Industries, Inc. 

   $ 16,463   $ 2,562   $ 7,206   $ (9,768 ) $ 16,463  
                       

16

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

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


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Thirteen Weeks Ended March 28, 2009

 
   Parent   Guarantors   Non-
Guarantors 		  Eliminations   Total  

Net sales

   $ 253,559   $ 120,670   $ 124,749   $ (43,824 ) $ 455,154  

Cost of sales

     185,751     91,433     94,655     (45,001 )   326,838  
                       
 

Gross profit

     67,808     29,237     30,094     1,177     128,316  

Selling, general and administrative expenses

     37,770     14,037     18,190     —     69,997  
                       
 

Operating income

     30,038     15,200     11,904     1,177     58,319  
                       

Other income (expenses):

                                
 

Interest expense

     (3,963 )   (7 )   (314 )   —     (4,284 )
 

Interest income

     7     1     324     —     332  
 

Other

     (152 )   63     (1,709 )   —     (1,798 )
                       

    (4,108 )   57     (1,699 )   —     (5,750 )
                       

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

     25,930     15,257     10,205     1,177     52,569  
                       

Income tax expense (benefit):

                                
 

Current

     5,403     5,764     1,133     —     12,300  
 

Deferred

     3,631     (121 )   1,445     —     4,955  
                       

    9,034     5,643     2,578     —     17,255  
                       

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

     16,896     9,614     7,627     1,177     35,314  

Equity in earnings/(losses) of nonconsolidated subsidiaries

     17,791     —     —     (17,225 )   566  
                       

Net Earnings

     34,687     9,614     7,627     (16,048 )   35,880  

Less: Earnings attributable to noncontrolling interests

     —     —     (16 )   —     (16 )
                       
 

Net Earnings attributable to Valmont Industries, Inc. 

   $ 34,687   $ 9,614   $ 7,611   $ (16,048 ) $ 35,864  
                       

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

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

CONDENSED CONSOLIDATED BALANCE SHEETS
March 27, 2010

 
   Parent   Guarantors   Non-Guarantors   Eliminations   Total  

ASSETS

                                

Current assets:

                                
 

Cash and cash equivalents

   $ 15,205   $ 717   $ 94,065     —   $ 109,987  
 

Restricted cash

     264,000     —     —     —     264,000  
 

Receivables, net

     88,059     40,221     128,392     —     256,672  
 

Inventories

     78,222     39,622     93,835     —     211,679  
 

Prepaid expenses

     3,551     511     16,271     —     20,333  
 

Refundable and deferred income taxes

     22,640     7,400     8,064     —     38,104  
                       
   

Total current assets

     471,677     88,471     340,627     —     900,775  
                       

Property, plant and equipment, at cost

     409,955     94,134     167,371     —     671,460  
 

Less accumulated depreciation and amortization

     261,344     45,905     87,583     —     394,832  
                       
   

Net property, plant and equipment

     148,611     48,229     79,788     —     276,628  
                       

Goodwill

     20,108     107,542     49,793     —     177,443  

Other intangible assets

     944     72,817     20,153     —     93,914  

Investment in subsidiaries and intercompany accounts

     670,234     81,900     (25,306 )   (726,828 )   —  

Other assets

     24,407     —     4,612     —     29,019  
                       
   

Total assets

   $ 1,335,981   $ 398,959   $ 469,667   $ (726,828 ) $ 1,477,779  
                       

LIABILITIES AND SHAREHOLDERS' EQUITY

                                

Current liabilities:

                                
 

Current installments of long-term debt

   $ 187     —   $ 94     —   $ 281  
 

Notes payable to banks

     —     10     10,432     —     10,442  
 

Accounts payable

     38,036     10,964     65,319     —     114,319  
 

Accrued expenses

     55,409     10,282     40,318     —     106,009  
 

Dividends payable

     3,947     —     —     —     3,947  
                       
   

Total current liabilities

     97,579     21,256     116,163     —     234,998  
                       

Deferred income taxes

     32,160     9,870     7,547     —     49,577  

Long-term debt, excluding current installments

     350,698     —     429     —     351,127  

Other noncurrent liabilities

     25,547     —     3,514     —     29,061  

Commitments and contingencies

     —     —     —     —     —  

Shareholders' equity:

                                
 

Common stock of $1 par value

     27,900     14,249     3,494     (17,743 )   27,900  
 

Additional paid-in capital

     —     181,542     141,766     (323,308 )   —  
 

Retained earnings

     827,873     172,042     165,854     (385,355 )   780,414  
 

Accumulated other comprehensive income

     —     —     10,338     —     10,338  
 

Treasury stock

     (25,776 )   —     —     —     (25,776 )
                       
   

Total Valmont Industries, Inc. shareholders' equity

     829,997     367,833     472,688     (726,406 )   792,876  
                       

Noncontrolling interest in consolidated subsidiaries

     —     —     20,562     (422 )   20,140  
                       
 

Total shareholders' equity

     829,997     367,833     493,250     (726,828 )   813,016  
                       
 

Total liabilities and shareholders' equity

   $ 1,335,981   $ 398,959   $ 469,667   $ (726,828 ) $ 1,477,779  
                       

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

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

CONDENSED CONSOLIDATED BALANCE SHEETS
December 26, 2009

 
   Parent   Guarantors   Non-Guarantors   Eliminations   Total  

ASSETS

                                

Current assets:

                                
 

Cash and cash equivalents

   $ 82,017   $ 1,666   $ 97,103     —   $ 180,786  
 

Receivables, net

     75,202     48,655     135,664     —     259,521  
 

Inventories

     77,708     42,822     90,081     —     210,611  
 

Prepaid expenses

     3,309     455     18,379     —     22,143  
 

Refundable and deferred income taxes

     26,306     7,120     8,935     —     42,361  
                       
   

Total current assets

     264,542     100,718     350,162     —     715,422  
                       

Property, plant and equipment, at cost

     408,411     94,139     172,896     —     675,446  
 

Less accumulated depreciation and amortization

     257,632     44,272     90,454     —     392,358  
                       
   

Net property, plant and equipment

     150,779     49,867     82,442     —     283,088  
                       

Goodwill

     20,108     107,542     50,670     —     178,320  

Other intangible assets

     985     74,319     21,074     —     96,378  

Investment in subsidiaries and intercompany accounts

     672,135     73,905     (34,722 )   (711,318 )   —  

Other assets

     22,705     —     6,256     —     28,961  
                       
   

Total assets

     1,131,254     406,351     475,882     (711,318 )   1,302,169  
                       

LIABILITIES AND SHAREHOLDERS' EQUITY

                                

Current liabilities:

                                
 

Current installments of long-term debt

   $ 187     —   $ 44     —   $ 231  
 

Notes payable to banks

     —     13     11,887     —     11,900  
 

Accounts payable

     36,608     13,611     67,991     —     118,210  
 

Accrued expenses

     61,129     17,836     43,567     —     122,532  
 

Dividends payable

     3,944     —     —     —     3,944  
                       
   

Total current liabilities

     101,868     31,460     123,489     —     256,817  
                       

Deferred income taxes

     32,389     9,620     7,272     —     49,281  

Long-term debt, excluding current installments

     159,698     —     553     —     160,251  

Other noncurrent liabilities

     23,739     —     3,774     —     27,513  

Commitments and contingencies

     —     —     —     —     —  

Shareholders' equity:

                                
 

Common stock of $1 par value

     27,900     14,249     3,494     (17,743 )   27,900  
 

Additional paid-in capital

     —     181,542     139,577     (321,119 )   —  
 

Retained earnings

     811,650     169,480     158,724     (372,205 )   767,398  
 

Accumulated other comprehensive income

     —     —     16,953     —     16,953  
 

Treasury stock

     (25,990 )   —     —     —     (25,990 )
                       
   

Total Valmont Industries, Inc shareholders' equity

     813,560     365,271     318,748     (711,318 )   786,261  
                       

Noncontrolling interest in consolidated subsidiaries

     —     —     22,046     —     22,046  
                       
 

Total shareholders' equity

     813,560     365,271     340,794     (711,318 )   808,307  
                       
 

Total liabilities and shareholders' equity

   $ 1,131,254   $ 406,351   $ 475,882   $ (711,318 ) $ 1,302,169  
                       

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirteen Weeks Ended March 27, 2010

 
   Parent   Guarantors   Non-
Guarantors 		  Eliminations   Total  

Cash flows from operations:

                                
 

Net earnings

   $ 16,635   $ 2,562   $ 7,550   $ (10,112 ) $ 16,635  
   

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

                                
     

Depreciation

     4,988     3,183     3,038     —     11,209  
     

Stock-based compensation

     1,599     —     —     —     1,599  
     

Loss on sales of property, plant and equipment

     8     —     56     —     64  
     

Equity in losses of nonconsolidated subsidiaries

     (114 )   —     —     —     (114 )
     

Deferred income taxes

     1,585     (29 )   1,184     —     2,740  
     

Other adjustments

     —     —     20     —     20  
     

Changes in assets and liabilities:

                                
       

Receivables

     (12,826 )   8,433     4,048     —     (345 )
       

Inventories

     (514 )   3,200     (5,482 )   —     (2,796 )
       

Prepaid expenses

     (243 )   (55 )   1,761     —     1,463  
       

Accounts payable

     1,429     (2,647 )   (913 )   —     (2,131 )
       

Accrued expenses

     (5,071 )   (7,554 )   1,877     —     (10,748 )
       

Other noncurrent liabilities

     111     —     (271 )   —     (160 )
       

Income taxes payable/refundable

     1,851     —     (19 )   —     1,832  
                       
         

Net cash flows from operations

     9,438     7,093     12,849     (10,112 )   19,268  
                       

Cash flows from investing activities:

                                
 

Purchase of property, plant and equipment

     (2,605 )   (48 )   (1,902 )   —     (4,555 )
 

Proceeds from sale of property and equipment

     —     3     93     —     96  
 

Acquisitions, net of cash acquired

     —     —     (7,460 )   —     (7,460 )
 

Cash restricted for acquisitions

     (264,000 )   —     —     —     (264,000 )
 

Dividends to minority interests

     —     —     (295 )   —     (295 )
 

Other, net

     2,958     (7,997 )   (2,526 )   10,112     2,547  
                       
         

Net cash flows from investing activities

     (263,647 )   (8,042 )   (12,090 )   10,112     (273,667 )
                       

Cash flows from financing activities:

                                
 

Net repayments under short-term agreements

     —     —     (1,458 )   —     (1,458 )
 

Proceeds from long-term borrowings

     191,000     —     —     —     191,000  
 

Principal payments on long-term obligations

     —     —     (39 )   —     (39 )
 

Dividends paid

     (3,944 )   —     —     —     (3,944 )
 

Proceeds from exercises under stock plans

     1,803     —     —     —     1,803  
 

Excess tax benefits from stock option exercises

     1,010     —     —     —     1,010  
 

Purchase of treasury shares

     (877 )   —     —     —     (877 )
 

Purchase of common treasury shares—stock plan exercises

     (1,595 )   —     —     —     (1,595 )
                       
         

Net cash flows from financing activities

     187,397     —     (1,497 )   —     185,900  
                       

Effect of exchange rate changes on cash and cash equivalents

     —     —     (2,300 )   —     (2,300 )
                       

Net change in cash and cash equivalents

     (66,812 )   (949 )   (3,038 )   —     (70,799 )

Cash and cash equivalents—beginning of year

     82,017     1,666     97,103     —     180,786  
                       

Cash and cash equivalents—end of period

   $ 15,205   $ 717   $ 94,065   $ —   $ 109,987  
                       

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirteen Weeks Ended March 28, 2009

 
   Parent   Guarantors   Non-
Guarantors 		  Eliminations   Total  

Cash flows from operations:

                                
 

Net earnings

   $ 34,687   $ 9,614   $ 7,627   $ (16,048 ) $ 35,880  
 

Adjustments to reconcile net earnings to

                                
   

net cash flow from operations:

                                
   

Depreciation

     4,528     3,153     3,154     —     10,835  
   

Stock-based compensation

     1,499     —     —     —     1,499  
   

Loss on sales of property, plant and equipment

     (3 )   48     76     —     121  
   

Equity in losses of nonconsolidated subsidiaries

     (566 )   —     —     —     (566 )
   

Deferred income taxes

     3,631     (121 )   1,445     —     4,955  
   

Other adjustments

     (525 )   —     1,234     —     709  
   

Changes in assets and liabilities:

                                
     

Receivables

     (8,191 )   (8,634 )   21,166     —     4,341  
     

Inventories

     (7,852 )   4,492     (2,236 )   —     (5,596 )
     

Prepaid expenses

     (25 )   (484 )   (658 )   —     (1,167 )
     

Accounts payable

     9,138     (3,703 )   (6,337 )   —     (902 )
     

Accrued expenses

     (10,853 )   (4,032 )   (1,787 )   —     (16,672 )
     

Other noncurrent liabilities

     1,695     —     (180 )   —     1,515  
     

Income taxes payable/refundable

     4,236     —     (1,710 )   —     2,526  
                       
       

Net cash flows from operations

     31,399     333     21,794     (16,048 )   37,478  
                       

Cash flows from investing activities:

                                
 

Purchase of property, plant and equipment

     (6,391 )   (2,687 )   (4,964 )   —     (14,042 )
 

Proceeds from sale of property and equipment

     6     —     16     —     22  
 

Dividends to minority interests

     —     —     (195 )   —     (195 )
 

Other, net

     (11,226 )   2,380     (9,465 )   16,048     (2,263 )
                       
       

Net cash flows from investing activities

     (17,611 )   (307 )   (14,608 )   16,048     (16,478 )
                       

Cash flows from financing activities:

                                
 

Net repayments under short-term agreements

     —     (3 )   (5,706 )   —     (5,709 )
 

Proceeds from long-term borrowings

     —     3     69     —     72  
 

Principal payments on long-term obligations

     (6,175 )   (9 )   (129 )   —     (6,313 )
 

Dividends paid

     (3,402 )   —     —     —     (3,402 )
 

Proceeds from exercises under stock plans

     1,394     —     —     —     1,394  
 

Excess tax benefits from stock option exercises

     855     —     —     —     855  
 

Purchase of common treasury shares

     (140 )   —     —     —     (140 )
                       
       

Net cash flows from financing activities

     (7,468 )   (9 )   (5,766 )   —     (13,243 )
                       

Effect of exchange rate changes on cash and cash equivalents

     —     —     (502 )   —     (502 )
                       

Net change in cash and cash equivalents

     6,320     17     918     —     7,255  

Cash and cash equivalents—beginning of year

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

Cash and cash equivalents—end of period

   $ 25,309   $ 1,520   $ 48,993   $ —   $ 75,822  
                       

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

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

        Management's discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions that management has made in light of experience in the industries in which the Company operates, as well as management's perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances. These statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond the Company's control) and assumptions. Management believes that these forward-looking statements are based on reasonable assumptions. Many factors could affect the Company's actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. These factors include, among other things, risk factors described from time to time in the Company's reports to the Securities and Exchange Commission, as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability and price of raw materials, availability and market acceptance of new products, product pricing, domestic and international competitive environments, and actions and policy changes of domestic and foreign governments.

        This discussion should be read in conjunction with the financial statements and the notes thereto, and the management's discussion and analysis, included in the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 2009. We aggregate our businesses into four reportable segments. See Note 7 to the Condensed Consolidated Financial Statements.

        In the fourth quarter of 2009, we reorganized our Utility Support Structures reporting structure to include oversight of sales and operating income of utility structures on a world-wide basis. Accordingly, we have changed our segment reporting to match our internal reporting structure. Previously, sales and operating profit associated with utility support structure sales outside of North America were included in the Engineered Support Structures segment. Financial information for 2009 has been reclassified to conform to the 2010 presentation.

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   Thirteen Weeks Ended  
 
   March 27,
2010 		  March 28,
2009 		  %
Increase
(Decrease) 		 

Consolidated

                    
 

Net sales

   $ 367,402   $ 455,154     -19.3 %
 

Gross profit

     100,730     128,316     -21.5 %
   

as a percent of sales

    27.4 %   28.2 %      
 

SG&A expense

     69,080     69,997     -0.1 %
   

as a percent of sales

    18.8 %   15.4 %      
 

Operating income

     31,650     58,319     -45.7 %
   

as a percent of sales

    8.6 %   12.8 %      
 

Net interest expense

     5,606     3,952     41.9 %
 

Effective tax rate

     36.4 %   32.8 %      
 

Net earnings attributable to Valmont Industries, Inc. 

     16,463     35,864     -54.1 %
 

Earnings per share attributable to Valmont Industries, Inc—diluted

   $ 0.62   $ 1.37     -54.7 %

Engineered Support Structures segment

                    
 

Net sales

   $ 105,904   $ 130,359     -18.8 %
 

Gross profit

     27,904     31,884     -12.5 %
 

SG&A expense

     25,293     25,462     -0.7 %
 

Operating income

     2,611     6,422     -59.3 %

Utility Support Structures segment

                    
 

Net sales

   $ 112,929   $ 183,402     -38.4 %
 

Gross profit

     30,474     56,993     -46.5 %
 

SG&A expense

     15,768     16,518     -4.5 %
 

Operating income

     14,706     40,475     -63.7 %

Coatings segment

                    
 

Net sales

   $ 22,166   $ 23,869     -7.1 %
 

Gross profit

     7,657     9,479     -19.2 %
 

SG&A expense

     3,125     3,488     -10.4 %
 

Operating income

     4,532     5,991     -24.4 %

Irrigation segment

                    
 

Net sales

   $ 108,636   $ 103,057     5.4 %
 

Gross profit

     28,377     24,216     17.2 %
 

SG&A expense

     12,979     12,246     6.0 %
 

Operating income

     15,398     11,970     28.6 %

Other

                    
 

Net sales

   $ 17,767   $ 14,467     22.8 %
 

Gross profit

     6,186     5,727     8.0 %
 

SG&A expense

     1,922     2,124     -9.5 %
 

Operating income

     4,264     3,603     18.3 %

Net Corporate expense

                    
 

Gross profit

     132   $ 17     NM  
 

SG&A expense

     9,993     10,159     -1.6 %
 

Operating loss

     (9,861 )   (10,142 )   -2.8 %
NM
=    Not meaningful

        On a consolidated basis, the sales decrease in the first quarter of fiscal 2010, as compared with 2009, was mainly due to a combination of lower sales unit volumes and lower average selling prices.

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These decreases were offset somewhat by currency translation effects (approximately $8.4 million), as the U.S. dollar, on average, was weaker in relation to the euro, Brazilian real and South Africa rand in the first quarter of 2010, as compared with the same period in 2009. For the company as a whole our 2010 sales unit volumes were approximately 11% lower than 2009. On a reportable segment basis, we realized a significant sales unit volume decrease in the Utility Support Structures ("Utility"), Engineered Support Structures (ESS) and Coatings segments. These decreases were somewhat offset by increased unit sales volumes in the Irrigation segment. Lower unit sales prices and unfavorable sales mix also contributed the lower net sales recorded in the first quarter of 2010, as compared with 2009. Sales price decreases in 2010, as compared with 2009, resulted from a combination of weaker sales demand in most of our businesses and falling steel prices throughout much of 2009.

        The gross profit margin (gross profit as a percent of sales) in the first quarter of 2010 was slightly lower than 2009. We were able to maintain gross profit margins to some extent due to cost control and productivity measures in our manufacturing facilities and lower average steel unit costs in 2010, as compared with 2009.

        Selling, general and administrative (SG&A) spending in the first quarter of 2010 was comparable to 2009. SG&A expense increases in 2010 included approximately $2.2 million of expenses incurred as part of the proposed Delta acquisition and approximately $1.2 million due to currency translation. These increases were more than offset by lower employee incentive expenses in 2010, as compared with 2009 (approximately $2.9 million), and lower sales commissions related to lower net sales in 2010, as compared with 2009 (approximately $1.0 million).

        On a reportable segment basis, all segments except the Irrigation segment reported lower operating income in 2010, as compared with 2009.

        The increase in net interest expense in the first quarter of 2010, as compared with 2009, was due to approximately $2.8 million bank fees and borrowing costs incurred related to the Delta acquisition. Aside from the impact of the proposed Delta acquisition, net interest expense was lower in 2010, as compared with 2009, due to average lower borrowing levels in 2010, as compared with 2009. "Other" expense was lower in 2010, as compared with 2009, mainly due to foreign currency transaction losses incurred in 2009 that did not repeat in 2010.

        The increase in the effective income tax rate in the first quarter of 2010, as compared with the same period in 2009, was due to a combination of lower tax credits in 2010, the non-deductibility of a portion of the Delta acquisition expenses incurred in 2010 and the benefit of the reduction of income tax contingencies realized in the first quarter of 2009. Our cash flows provided by operations were approximately $19.3 million in the first quarter of 2010, as compared with $37.5 million in the first quarter of 2009. Lower net earnings in 2010, as compared with 2009, was the main reason for the lower operating cash flow in 2010.

        On March 4, 2010, we made an offer to acquire all the ordinary shares of Delta plc ("Delta"), a public company traded on the London Stock exchange under the symbol "DLTA". The offer price was £1.85 per ordinary share, with a total estimated purchase price of $439 million, based on an average exchange rate of $1.543/£. To manage the foreign exchange risk associated with the offer, we executed a forward foreign exchange contract with a multinational bank, whereby, if the acquisition is completed, the required British pound sterling would be delivered to us at a fixed exchange rate of $1.543/£ to complete the acquisition. If the acquisition is not completed, the contract will be terminated at no cost to us. In accordance with takeover rules in the United Kingdom, we established funding for the purchase price and related acquisition costs by a combination of $264 million in restricted cash (comprised of cash balances of $83 million and $181 million in borrowings under our revolving credit agreement) and a $200 million bank bridge loan commitment. In April 2010, we issued $300 million of

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senior unsecured notes, terminated the bridge loan and reduced our revolving credit agreement borrowings to approximately $85 million.

        In the first quarter of 2010, certain expenses were incurred in our condensed consolidated statement of operations that were associated with the proposed Delta acquisition. These expenses included:

        The after-tax impact of these expenses on our net income for the quarter ended March 27, 2010 was approximately $3.4 million.

        The decrease in net sales in the first quarter of 2010, as compared with the same period in 2009, was mainly due to lower sales volumes in both the lighting and communication structures product lines. In the Lighting product line in North America, sales were lower in both the transportation and commercial markets. In the transportation market, sales were hampered by the lack of a long-term federal highway funding legislation and state budget deficits. While legislation was passed late in the quarter to extend the current program to the end of 2010, there was no related impact to 2010 sales. We believe the lack of long-term funding legislation does not give the various states ample visibility to implement long-term initiatives. Furthermore, highway spending sponsored under the federal program requires the various states to provide part of required funding. Many states are in budget deficits and may constrain their ability to access federal matching funds to implement roadway projects. The commercial lighting market remains weak, due to continued softness in the commercial construction market. In Europe, sales were modestly lower in 2010, as compared with 2009, due to economic weakness in most of our markets and, to some extent, less favorable weather conditions across the continent. Lighting structure sales in China, while a relatively small portion of global lighting sales, improved in 2010, as compared with 2009, due to increased sales efforts.

        Sales in the communication structures product line were lower in 2010, as compared with 2009, in both North America and China. In North America, general slowness in the wireless communication market, severe winter weather conditions and our exit from the sign structure market all contributed to lower sales this year. In China, sales of wireless communication structures likewise were lower in 2010, as compared with 2009. In 2010, annual supply contracts with the various carriers are being settled later than in the past and we believe there is some continuing coordination of the wireless networks in China that is impacting network development at this time.

        Operating income in the ESS segment was lower in the first quarter of 2010, as compared with 2009, due mainly to lower sales volumes in the segment. The impact of lower sales on operating profit was mitigated to an extent by lower material costs in 2010, as compared with 2009, and factory operational improvements. SG&A expenses were lower in 2010, as compared with 2009, due to various cost containment actions in the segment this year.

        In the USS segment, the sales decrease in 2010, as compared with 2009, was due to the combination of lower sales unit volumes in the U.S. and lower average unit selling prices. The record sales performance realized in 2009 was in part related to the large backlog at the end of the 2008 fiscal

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year, which was the result of substantial order intake in the last half of 2008. At the end of fiscal 2009, our sales order backlog was less than half of the year-end 2008 backlog. During 2009 and continuing into 2010, the economic recession in the U.S. resulted in a drop in electricity demand. Accordingly, our customers reduced their purchases of structures and delayed scheduled projects. In addition, price competition became more significant, especially in light of falling steel prices throughout most of 2009. In international markets, sales in the first quarter of 2010 improved over 2009, the result of increased project sales into new markets and improved sales volumes in China.

        The decrease in operating income in 2010, as compared with 2009, was a result of lower sales volumes, lower average selling prices and an unfavorable sales mix. The decrease in SG&A expenses primarily resulted from lower employee incentives (approximately $1.6 million) in 2010, as compared with 2009, due to lower operating income this year.

        The decrease in Coatings segment sales in 2010, as compared with 2009, resulted mainly from lower sales unit volumes in our galvanizing operations, especially intersegment sales to the ESS and USS segments. Galvanizing unit volumes in 2010 were lower than 2009 by approximately 10%, as demand for galvanizing services in our market areas continued to be impacted by weak industrial demand.

        Operating income in the Coatings segment was lower in 2010, as compared with 2009, due to lower galvanizing volumes and rising zinc costs that were not recovered through sales price increases. SG&A expenses for the segment in 2010 were comparable with 2009.

        Irrigation segment net sales improved in 2010, as compared with 2009, due to stronger sales volumes in North America and currency translation effects on international sales (approximately $3.4 million). In North America, we believe improved demand for irrigation equipment in 2010 over a weak 2009 resulted from improvement in grower sentiment and expected net farm income. North American sales of service parts in 2010 lagged 2009, which we believe were due to poor winter weather conditions. In international markets, sales unit volumes were slightly lower in 2010, as compared with 2009, due mainly to lower multi-system project sales in 2010, offset somewhat by stronger market conditions in Latin America and Argentina.

        Operating income for the segment improved in 2010 over 2009, due to improved sales unit volumes in North America, lower raw material prices and a stronger international sales mix. SG&A expenses increased mainly due to the costs associated with business development activities.

        This unit mainly includes our industrial tubing and fasteners operations. The increase in sales and operating income in 2010, as compared with 2009, primarily was due to improved sales demand for tubing products.

        Net corporate expense decreased in the first quarter of 2010 as compared with the first quarter of 2009. Expense decreases associated with lower employee incentive accruals (approximately $2.1 million) and other discretionary cost reductions were somewhat offset by expenses incurred related to the proposed acquisition of Delta.

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Liquidity and Capital Resources

        Working Capital and Operating Cash Flows—Net working capital was $665.7 million at March 27, 2010, as compared with $458.6 million at December 26, 2009. The increase in net working capital in 2010 mainly resulted from $181.0 million in additional borrowing under our revolving credit agreement related to the proposed Delta acquisition that is reflected in our cash balances at March 27, 2010. Operating cash flow was $19.3 million for the thirteen week period ended March 27, 2010, as compared with $37.5 million for the same period in 2009. The decrease in operating cash flow in 2010 mainly was the result of lower net earnings 2010, as compared with 2009. Accounts receivable turnover in the first quarter of 2010 was comparable with the same period in 2009.

        Investing Cash Flows—Capital spending during the thirteen weeks ended March 27, 2010 was $4.6 million, as compared with $14.0 million for the same period in 2009. We expect our capital spending for the 2010 fiscal year to be approximately $50 million. Investing cash flows for fiscal 2010 included $264.0 million of restricted cash associated with the proposed acquisition of Delta. Investing cash flows for 2010 also include an aggregate of approximately $7.5 million associated with increasing our ownership interest in West Coast Engineering, Ltd. from 70% to 80% and the additional purchase price paid to the former shareholders of Stainton related to the performance of the operation after its acquisition in November 2008.

        Financing Cash Flows—Our total interest-bearing debt increased from $172.4 million at December 26, 2009 to $361.8 million as of March 27, 2010. The increase in borrowings in the first quarter of 2010 was predominantly associated with borrowings under our revolving credit agreement to establish the required escrow funding associated with the Delta acquisition.

        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 March 27, 2010, our long-term debt to invested capital ratio was 28.0%, as compared with 15.2% at December 26, 2009. 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 2010.

        Our debt financing at March 27, 2010 consisted primarily of long-term debt. We also maintain certain short-term bank lines of credit totaling $37.9 million, $33.0 million of which was unused at March 27, 2010. Our long-term debt principally consists of:

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        In April 2010, we issued $300 million of senior unsecured notes that bear interest at 6.625% per annum and mature on April 20, 2020. The proceeds of the notes are anticipated to be used toward the purchase of the outstanding ordinary shares of Delta. In the event that the Delta acquisition is not completed, the proceeds of the notes will be used for general corporate purposes, including debt repayment.

        At March 27, 2010, we had $191.0 in outstanding borrowings under the revolving credit agreement, at a weighted average annual interest rate of 1.33%, not including facility fees. These outstanding borrowings were associated with funding requirements related to the proposed Delta acquisition. The revolving credit agreement has a termination date of October 16, 2013 and contains certain financial covenants that may limit our additional borrowing capability under the agreement. At March 27, 2010, we had the ability to borrow an additional $64 million under this facility. Subsequent to the issuance of our senior unsecured notes in April 2010, our borrowings under our revolving credit agreement were reduced to $85.0 million.

        These debt agreements contain covenants that require us to maintain certain coverage ratios and may limit us with respect to certain business activities, including capital expenditures. Our key debt covenants are that interest-bearing debt is not to exceed 3.75x EBITDA of the prior four quarters and that our EBITDA over our prior four quarters must be at least 2.50x our interest expense over the same period. At March 27, 2010, we were in compliance with all covenants related to these debt agreements.

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

Financial Obligations and Financial Commitments

        Other than our additional borrowings under our revolving credit agreement related to the Delta offer and the contingent forward foreign exchange contract in place associated with the proposed Delta acquisition, there have been no material changes to our financial obligations and financial commitments as described beginning on page 37 in our Form 10-K for the year ended December 26, 2009.

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 26, 2009.

Critical Accounting Policies

        There have been no changes in our critical accounting policies during the quarter ended March 27, 2010. We described these policies on pages 39-41 in our Form 10-K for fiscal year ended December 26, 2009.

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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 March 27, 2010. For additional information, refer to the section "Risk Management" beginning on page 38 in our Form 10-K for the fiscal year ended December 26, 2009.

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.

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

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PART II. OTHER INFORMATION

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

Issuer Purchases of Equity Securities

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

December 27, 2009 to January 23, 2010

     —     —     —     —  

January 24, 2010 to February 27, 2010

     20,809   $ 70.68     —     —  

February 28, 2010 to March 27, 2010

     1,508   $ 82.31     —     —  
                   
 

Total

     22,317   $ 71.47     —     —  
                   

        During the first 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

        Valmont's annual meeting of stockholders was held on April 27, 2010. The stockholders elected three directors to serve three-year terms and ratified the appointment of Deloitte & Touche LLP to audit the Company's financial statements for fiscal 2010. For the annual meeting there were 26,300,415 shares outstanding and eligible to vote of which 23,481,342 were present at the meeting in person or by proxy. The tabulation for each matter voted upon at the meeting was as follows:

        Election of Directors:

 
   For   Withheld   Broker Non-Votes  

Dr. Stephen R. Lewis, Jr. 

     22,114,347     169,834     1,197,161  

Kaj den Daas

     21,805,054     479,127     1,197,161  

        Proposal to ratify the appointment of Deloitte & Touche LLP as independent auditors for fiscal 2010:

For

     23,109,837  

Against

     223,456  

Abstain

     148,049  

Item 6.    Exhibits

(a)
Exhibits

Exhibit No.   Description
  4.1   Supplemental Indenture dated as of March 3, 2010 to Indenture dated as of May 4, 2004 between Valmont, the subsidiary guarantors named therein, and Wells Fargo Bank, National Association as Trustee.

 
31.1
 
Section 302 Certificate of Chief Executive Officer

 
31.2
 
Section 302 Certificate of Chief Financial Officer

 
32.1
 
Section 906 Certifications of Chief Executive Officer and Chief Financial Officer

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SIGNATURES

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

    VALMONT INDUSTRIES, INC.
(Registrant)

 
 
/s/ TERRY J. MCCLAIN
 Terry J. McClain
 Senior Vice President and Chief Financial Officer
(Principal Financial Officer)

Dated this 27th day of April, 2010.
 
 

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Index of Exhibits

Exhibit No.   Description
  4.1   Supplemental Indenture dated as of March 3, 2010 to Indenture dated as of May 4, 2004 between Valmont, the subsidiary guarantors named therein, and Wells Fargo Bank, National Association as Trustee.

 
31.1
 
Section 302 Certificate of Chief Executive Officer

 
31.2
 
Section 302 Certificate of Chief Financial Officer

 
32.1
 
Section 906 Certifications of Chief Executive Officer and Chief Financial Officer

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