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VALMONT INDUSTRIES INC - Quarter Report: 2011 September (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 September 24, 2011

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 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 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

26,443,449
Outstanding shares of common stock as of October 18, 2011


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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 24, 2011 and September 25, 2010

    3  

 

Condensed Consolidated Balance Sheets as of September 24, 2011 and December 25, 2010

    4  

 

Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended September 24, 2011 and September 25, 2010

    5  

 

Condensed Consolidated Statements of Shareholders' Equity for the thirty-nine weeks ended September 24, 2011 and September 25, 2010

    6  

 

Notes to Condensed Consolidated Financial Statements

    7-26  

Item 2.

 

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

    27-36  

Item 3.

 

Quantitative and Qualitative Disclosure about Market Risk

    36  

Item 4.

 

Controls and Procedures

    37  

PART II. OTHER INFORMATION

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

    38  

Item 6.

 

Exhibits

    38  

Signatures

    39  

2


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

(Unaudited)

 
  Thirteen Weeks Ended   Thirty-nine Weeks Ended  
 
  September 24,
2011
  September 25,
2010
  September 24,
2011
  September 25,
2010
 

Product sales

  $ 595,064   $ 492,997   $ 1,685,440   $ 1,280,824  

Services sales

    77,128     34,834     223,310     95,968  
                   
 

Net sales

    672,192     527,831     1,908,750     1,376,792  

Product cost of sales

    453,462     374,678     1,285,629     955,611  

Services cost of sales

    51,340     20,632     151,256     59,284  
                   
 

Cost of sales

    504,802     395,310     1,436,885     1,014,895  
                   
 

Gross profit

    167,390     132,521     471,865     361,897  

Selling, general and administrative expenses

    95,357     85,378     285,912     245,803  
                   
 

Operating income

    72,033     47,143     185,953     116,094  
                   

Other income (expenses):

                         
 

Interest expense

    (7,671 )   (8,487 )   (26,715 )   (22,878 )
 

Interest income

    3,141     1,733     6,919     3,181  
 

Other

    (1,670 )   58     (776 )   28  
                   

    (6,200 )   (6,696 )   (20,572 )   (19,669 )
                   

Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries

    65,833     40,447     165,381     96,425  
                   

Income tax expense (benefit):

                         
 

Current

    25,119     15,694     62,156     39,652  
 

Deferred

    (1,346 )   (1,914 )   (11,544 )   (4,744 )
                   

    23,773     13,780     50,612     34,908  
                   

Earnings before equity in earnings of nonconsolidated subsidiaries

    42,060     26,667     114,769     61,517  

Equity in earnings of nonconsolidated subsidiaries

    2,354     1,068     4,509     1,987  
                   
 

Net earnings

    44,414     27,735     119,278     63,504  
                   

Less: Earnings attributable to noncontrolling interests

    (2,273 )   (1,800 )   (5,701 )   (3,991 )
                   
 

Net earnings attributable to Valmont Industries, Inc. 

  $ 42,141   $ 25,935   $ 113,577   $ 59,513  
                   

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

  $ 1.60   $ 0.99   $ 4.32   $ 2.28  
                   

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

  $ 1.59   $ 0.98   $ 4.28   $ 2.25  
                   

Cash dividends per share

  $ 0.180   $ 0.165   $ 0.525   $ 0.480  
                   

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

    26,351     26,133     26,318     26,084  
                   

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

    26,579     26,404     26,567     26,420  
                   

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)

 
  September 24,
2011
  December 25,
2010
 

ASSETS

             

Current assets:

             
 

Cash and cash equivalents

  $ 336,908   $ 346,904  
 

Receivables, net

    449,431     410,566  
 

Inventories

    377,525     280,223  
 

Prepaid expenses and other current assets

    28,832     23,806  
 

Refundable and deferred income taxes

    35,216     32,727  
           
     

Total current assets

    1,227,912     1,094,226  
           

Property, plant and equipment, at cost

    889,857     865,287  
 

Less accumulated depreciation and amortization

    452,718     425,678  
           
     

Net property, plant and equipment

    437,139     439,609  
           

Goodwill

    315,140     314,847  

Other intangible assets, net

    174,946     185,535  

Other assets

    54,040     56,526  
           
     

Total assets

  $ 2,209,177   $ 2,090,743  
           

LIABILITIES AND SHAREHOLDERS' EQUITY

             

Current liabilities:

             
 

Current installments of long-term debt

  $ 236   $ 238  
 

Notes payable to banks

    11,022     8,824  
 

Accounts payable

    221,909     179,814  
 

Accrued employee compensation and benefits

    75,392     75,981  
 

Accrued expenses

    82,844     77,705  
 

Dividends payable

    4,760     4,352  
           
     

Total current liabilities

    396,163     346,914  
           

Deferred income taxes

    85,531     89,922  

Long-term debt, excluding current installments

    494,775     468,596  

Defined benefit pension liability

    96,990     104,171  

Deferred compensation

    29,401     23,300  

Other noncurrent liabilities

    43,068     47,713  

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

    966,872     850,269  
 

Accumulated other comprehensive income

    41,768     63,645  
 

Treasury stock

    (25,117 )   (25,922 )
           
     

Total Valmont Industries, Inc. shareholders' equity

    1,011,423     915,892  
           
 

Noncontrolling interest in consolidated subsidiaries

    51,826     94,235  
           
     

Total shareholders' equity

    1,063,249     1,010,127  
           
     

Total liabilities and shareholders' equity

  $ 2,209,177   $ 2,090,743  
           

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)

 
  Thirty-nine Weeks Ended  
 
  September 24,
2011
  September 25,
2010
 

Cash flows from operating activities:

             
 

Net earnings

  $ 119,278   $ 63,504  
 

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

             
   

Depreciation and amortization

    53,193     41,829  
   

Stock-based compensation

    3,962     4,712  
   

Defined benefit pension plan expense

    4,544      
   

Contribution to defined benefit pension plan

    (11,754 )    
   

Loss (gain) on sale of assets

    (295 )   1,513  
   

Equity in earnings of nonconsolidated subsidiaries

    (4,509 )   (1,987 )
   

Deferred income taxes

    (11,544 )   (4,744 )
   

Changes in assets and liabilities, net of the effects of acquisitions:

             
     

Receivables

    (41,606 )   (44,046 )
     

Inventories

    (99,559 )   4,390  
     

Prepaid expenses

    (5,378 )   1,063  
     

Accounts payable

    33,782     (22,674 )
     

Accrued expenses

    11,484     19,230  
     

Other noncurrent liabilities

    (4,492 )   10,254  
     

Income taxes payable/refundable

    17,009     12,295  
           
       

Net cash flows from operating activities

    64,115     85,339  
           

Cash flows from investing activities:

             
 

Purchase of property, plant and equipment

    (46,366 )   (20,283 )
 

Proceeds from sale of assets

    2,903     11,090  
 

Acquisitions, net of cash acquired

    (1,539 )   (249,057 )
 

Dividends from nonconsolidated subsidiaries

    590     9,606  
 

Other, net

    793     2,062  
           
       

Net cash flows from investing activities

    (43,619 )   (246,582 )
           

Cash flows from financing activities:

             
 

Net borrowings (payments) under short-term agreements

    2,152     2,549  
 

Proceeds from long-term borrowings

    213,832     491,000  
 

Principal payments on long-term obligations

    (187,234 )   (168,271 )
 

Purchase of noncontrolling interest

    (25,253 )    
 

Settlement of financial derivative

    (3,568 )    
 

Dividends paid

    (13,467 )   (12,240 )
 

Dividends to noncontrolling interests

    (4,958 )   (12,265 )
 

Debt issuance costs

    (1,284 )   (3,858 )
 

Proceeds from exercises under stock plans

    18,659     3,390  
 

Excess tax benefits from stock option exercises

    2,799     1,479  
 

Purchase of treasury shares

    (4,802 )   (878 )
 

Purchase of common treasury shares—stock plan exercises

    (19,829 )   (2,144 )
           
       

Net cash flows from financing activities

    (22,953 )   298,762  
           

Effect of exchange rate changes on cash and cash equivalents

    (7,539 )   4,845  
           

Net change in cash and cash equivalents

    (9,996 )   142,364  

Cash and cash equivalents—beginning of year

    346,904     180,786  
           

Cash and cash equivalents—end of period

  $ 336,908   $ 323,150  
           

See accompanying notes to condensed consolidated financial statements.

5


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Dollars in thousands)

(Unaudited)

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

Balance at December 26, 2009

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

Comprehensive income:

                                           
 

Net earnings

            59,513             3,991     63,504  
 

Currency translation adjustment

                7,503         2,503     10,006  
                                           
   

Total comprehensive income

                            73,510  

Cash dividends ($0.480 per share)

            (12,641 )               (12,641 )

Dividends to noncontrolling interests

                        (12,265 )   (12,265 )

Purchase of noncontrolling interest

        (3,754 )               (3,311 )   (7,065 )

Acquisition of Delta plc

                        79,529     79,529  

Purchase of 12,351 treasury shares

                    (878 )       (878 )

Stock options exercised; 84,900 shares issued

        (2,437 )   2,847         2,980         3,390  

Stock plan exercises; 29,095 shares purchased

                    (2,144 )       (2,144 )

Tax benefit from exercise of stock options

        1,479                     1,479  

Stock option expense

        3,675                     3,675  

Stock awards; 9,088 shares issued

        1,037             650         1,687  
                               

Balance at September 25, 2010

  $ 27,900   $   $ 817,117   $ 24,456   $ (25,382 ) $ 92,493   $ 936,584  
                               

Balance at December 25, 2010

  $ 27,900   $   $ 850,269   $ 63,645   $ (25,922 ) $ 94,235   $ 1,010,127  

Comprehensive income:

                                           
 

Net earnings

            113,577             5,701     119,278  
 

Currency translation adjustment

                (18,442 )       (1,831 )   (20,273 )
 

Loss on cash flow hedge

                (3,568 )           (3,568 )
 

Amortization of loss

                133             133  
                                           
   

Total comprehensive income

                            95,570  

Cash dividends ($0.525 per share)

            (13,875 )               (13,875 )

Dividends to noncontrolling interests

                        (4,958 )   (4,958 )

Purchase of noncontrolling interest

        16,592                 (41,845 )   (25,253 )

Acquisitions

                        524     524  

Purchase of 53,847 treasury shares

                    (4,802 )       (4,802 )

Stock options exercised; 291,208 shares issued

        (23,353 )   16,901         25,111         18,659  

Stock plan exercises; 181,603 shares purchased

                    (19,829 )       (19,829 )

Tax benefit from exercise of stock options

        2,799                     2,799  

Stock option expense

        3,732                     3,732  

Stock awards; 2,992 shares issued

        230             325         555  
                               

Balance at September 24, 2011

  $ 27,900   $   $ 966,872   $ 41,768   $ (25,117 ) $ 51,826   $ 1,063,249  
                               

See accompanying notes to condensed consolidated financial statements.

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

1. Summary of Significant Accounting Policies

    Condensed Consolidated Financial Statements

        The Condensed Consolidated Balance Sheet as of September 24, 2011, the Condensed Consolidated Statements of Operations for the thirteen and thirty-nine week periods ended September 24, 2011 and September 25, 2010, the Condensed Consolidated Statements of Cash Flows and Shareholders' Equity 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 24, 2011 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 25, 2010. 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 25, 2010. The results of operations for the periods ended September 24, 2011 are not necessarily indicative of the operating results for the full year.

    Inventories

        At September 24, 2011, approximately 36% 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 $50,775 and $42,559 at September 24, 2011 and December 25, 2010, respectively.

        Inventories consisted of the following:

 
  September 24,
2011
  December 25,
2010
 

Raw materials and purchased parts

  $ 193,469   $ 133,380  

Work-in-process

    28,939     25,891  

Finished goods and manufactured goods

    205,892     163,511  
           

Subtotal

    428,300     322,782  

LIFO reserve

    50,775     42,559  
           

Net inventory

  $ 377,525   $ 280,223  
           

    Stock Plans

        The Company maintains stock-based compensation plans approved by the shareholders, which provide that the Human Resource Committee of the Board of Directors may grant incentive stock

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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)

options, nonqualified stock options, stock appreciation rights, non-vested stock awards and bonuses of common stock. At September 24, 2011, 861,939 shares of common stock remained available for issuance under the plans. Shares and options issued and available are subject to changes in capitalization.

        Under the plans, the exercise price of each option equals the market price at the date of the grant. Options vest beginning on the first anniversary of the grant in equal amounts over three to six years or on the fifth anniversary of the grant. Expiration of grants is from six to ten years from the date of grant. The Company's compensation expense (included in selling, general and administrative expenses) and associated income tax benefits related to stock option for the thirteen and thirty-nine weeks ended September 24, 2011 and September 25, 2010, respectively, were as follows:

 
  Thirteen Weeks
Ended
September 24, 2011
  Thirteen Weeks
Ended
September 25, 2010
  Thirty-nine Weeks
Ended
September 24, 2011
  Thirty-nine Weeks
Ended
September 25, 2010
 

Compensation expense

  $ 1,265   $ 1,218   $ 3,732   $ 3,675  

Income tax benefits

    487     469     1,437     1,415  

    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, 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.

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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)

        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
September 24,
2011
  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  Significant Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Assets:

                         
 

Trading Securities

  $ 18,051   $ 18,051   $   $  

 

 
   
  Fair Value Measurement Using:  
 
  Carrying Value
December 25,
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

  $ 18,433   $ 18,433   $   $  

    Accumulated Other Comprehensive Income (Loss)

        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. "Accumulated other comprehensive income (loss)" consisted of the following at September 24, 2011 and December 25, 2010:

 
  September 24,
2011
  December 25,
2010
 

Foreign currency translation adjustment

  $ 16,278   $ 34,693  

Actuarial gain in defined benefit pension plan

    28,925     28,952  

Loss on cash flow hedge

    (3,435 )    
           

  $ 41,768   $ 63,645  
           

    Derivative Instrument

        During the second quarter of 2011, the Company executed a contract to lock in the treasury rate related to the issuance of the $150,000 of principal amount of senior notes due in 2020. The contract, for a notional amount of $130,000, was executed to hedge the risk of potential fluctuations in the treasury rates which would change the amount of net proceeds received from the debt offering. As the benchmark rate component of the fixed rate debt issuance and the cash flow hedged risk is based on

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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)

that same benchmark, this was deemed an effective hedge at inception. On June 8, 2011, this contract was settled with the Company paying approximately $3,568 to the counterparty. The Company recorded the $3,568 in accumulated other comprehensive income and is amortizing this loss to interest expense over the term of the debt.

    Recently Issued Accounting Pronouncements

        In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), requiring entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. Reclassification adjustments between net income and other comprehensive income must be shown on the face of the statement(s), with no resulting change in net earnings. ASU 2011-05 is effective for statements issued by the Company after January 1, 2012. The Company will provide the required financial reporting presentation upon the effective date.

        In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment, permitting an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Accounting Standards Codification Topic 350. This guidance will become effective for annual or interim goodwill impairment tests for fiscal years beginning after December 15, 2011. The Company will adopt this starting in fiscal 2012 and it is not expected to have a significant effect on its financial position, results of operations or cash flows.

2. Acquisitions

        On May 12, 2010, the Company acquired Delta, plc. ("Delta") a public limited company incorporated in Great Britain, and listed on the London Stock Exchange (LSE: DLTA). The price paid per share was 185 pence in cash for each Delta share, or £284,463, or $436,736 based on the contracted average exchange rate of $1.5353 / £. 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's pro forma results of operations for the thirty-nine weeks ended September 25, 2010, assuming that the acquisition occurred at the beginning of fiscal 2010 was as follows:

 
  Thirty-nine Weeks
Ended
September 25, 2010
 

Net sales

  $ 1,569,210  

Net earnings

    64,512  

Earnings per share—diluted

  $ 2.49  

        On June 24, 2011, the Company acquired the remaining 40% of Donhad Pty. Ltd. ("Donhad") that it did not own for $25,253. As this transaction was the acquisition of the remaining shares of a

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

2. Acquisitions (Continued)


consolidated subsidiary with no change in control, it was recorded within shareholders' equity. On June 1, 2011, the Company acquired 60% of an irrigation monitoring services company for $1,539. This acquisition did not have and is not expected to have a significant effect on the Company's fiscal 2011 financial results.

3. Goodwill and Intangible Assets

        The Company's annual impairment testing of goodwill was performed and completed during the third quarter of 2011. As a result of that testing, it was determined that the goodwill on the Company's Condensed Consolidated Balance Sheet was not impaired. The Company continues to monitor changes in the global economy and its reporting units that could impact future operating results of its reporting units and related components.

    Amortized Intangible Assets

        The components of amortized intangible assets at September 24, 2011 and December 25, 2010 were as follows:

 
  As of September 24, 2011    
 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Weighted
Average
Life

Customer Relationships

  $ 155,651   $ 47,083   13 years

Proprietary Software & Database

    2,609     2,609   6 years

Patents & Proprietary Technology

    9,524     3,486   8 years

Non-compete Agreements

    1,683     1,236   6 years
             

  $ 169,467   $ 54,414    
             

 

 
  As of December 25, 2010    
 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Weighted
Average
Life

Customer Relationships

  $ 155,664   $ 37,932   13 years

Proprietary Software & Database

    2,609     2,568   6 years

Patents & Proprietary Technology

    9,486     2,336   8 years

Non-compete Agreements

    1,674     1,054   6 years
             

  $ 169,433   $ 43,890    
             

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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)

        Amortization expense for intangible assets for the thirteen and thirty-nine weeks ended September 24, 2011 and September 25, 2010, respectively was as follows:

 
  Thirteen Weeks
Ended
September 24, 2011
  Thirteen Weeks
Ended
September 25, 2010
  Thirty-nine Weeks
Ended
September 24, 2011
  Thirty-nine Weeks
Ended
September 25, 2010
   
    $ 3,659   $ 3,521   $ 10,855   $ 8,295    

 

 
  Estimated
Amortization
Expense
 

2011

  $ 14,373  

2012

    13,886  

2013

    12,992  

2014

    12,569  

2015

    11,730  

        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 September 24, 2011 and December 25, 2010 were as follows:

 
  September 24,
2011
  December 25,
2010
 

Webforge

  $ 16,563   $ 16,478  

Newmark

    11,111     11,111  

Ingal EPS/Ingal Civil Products

    8,794     8,795  

Donhad

    6,634     6,635  

PiRod

    4,750     4,750  

Industrial Galvanizers

    4,628     4,632  

Other

    7,413     7,591  
           

  $ 59,893   $ 59,992  
           

        The Company's trade names were tested for impairment separately from goodwill in the third quarter of 2011. The values of the trade names were determined using the relief-from-royalty method. The Company has not completed its evaluation of trade names as of the end of the third quarter of 2011, as it is considering its future use of certain trade names. This evaluation is planned to be completed during the fourth quarter of 2011.

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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)

        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 September 24, 2011 was as follows:

 
  Engineered
Infrastructure
Products
Segment
  Utility
Support
Structures
Segment
  Coatings
Segment
  Irrigation
Segment
  Other   Total  

Balance December 25, 2010

  $ 152,062   $ 77,141   $ 64,868   $ 2,064   $ 18,712   $ 314,847  

Acquisition

                939         939  

Foreign currency translation

    (478 )       129     (155 )   (142 )   (646 )
                           

Balance September 24, 2011

  $ 151,584   $ 77,141   $ 64,997   $ 2,848   $ 18,570   $ 315,140  
                           

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:

 
  September 24,
2011
  September 25,
2010
 

Interest

  $ 17,597   $ 10,258  

Income taxes

    46,605     25,543  

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

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 24, 2011:

                   
 

Net earnings attributable to Valmont Industries, Inc. 

  $ 42,141       $ 42,141  
 

Shares outstanding

    26,351     228     26,579  
 

Per share amount

  $ 1.60     (.01 ) $ 1.59  

Thirteen weeks ended September 25, 2010:

                   
 

Net earnings attributable to Valmont Industries, Inc. 

  $ 25,935       $ 25,935  
 

Shares outstanding

    26,133     271     26,404  
 

Per share amount

  $ 0.99     (.01 ) $ 0.98  

Thirty-nine weeks ended September 24, 2011:

                   
 

Net earnings attributable to Valmont Industries, Inc. 

  $ 113,577       $ 113,577  
 

Shares outstanding

    26,318     249     26,567  
 

Per share amount

  $ 4.32     (.04 ) $ 4.28  

Thirty-nine weeks ended September 25, 2010:

                   
 

Net earnings attributable to Valmont Industries, Inc. 

  $ 59,513       $ 59,513  
 

Shares outstanding

    26,084     336     26,420  
 

Per share amount

  $ 2.28     (.03 ) $ 2.25  

        At September 24, 2011 there were 218,007 shares of outstanding stock options with exercise prices exceeding the market price of common stock that were excluded from the computation of diluted earnings per share for the thirteen and thirty-nine weeks ended September 24, 2011. At September 24, 2010 there were 403,867 of outstanding stock options with exercise prices exceeding the market price of common stock that were excluded from the computation of diluted earnings per share for the thirteen and thirty-nine weeks ended September 24, 2010.

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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. Long-term Debt

 
  September 24,
2011
  December 25,
2010
 

6.625% Senior Unsecured Notes(a)

  $ 450,000   $ 300,000  

Unamortized premium on senior unsecured notes(a)

    14,437      

6.875% Senior Subordinated Notes(b)

        150,000  

Revolving credit agreement(c)

    20,000     8,000  

IDR Bonds(d)

    8,500     8,500  

1.75% to 3.485% notes

    2,074     2,334  
           
 

Total long-term debt

    495,011     468,834  

Less current installments of long-term debt

    236     238  
           
 

Long-term debt, excluding current installments

  $ 494,775   $ 468,596  
           

(a)
The senior unsecured notes include an aggregate principal amount of $450,000 on which interest is paid and an unamortized premium balance of $14,437 at September 24, 2011. $300,000 principal amount of the notes were issued in April 2010 and $150,000 principal amount of the notes were issued in June 2011. The notes bear interest at 6.625% per annum and are due in April 2020. The premium will be amortized against interest expense as interest payments are made over the term of the notes. These notes may be repurchased at specified prepayment premiums. These notes and the senior subordinated notes are guaranteed by certain subsidiaries of the Company.

(b)
The $150,000 of senior subordinated notes were redeemed on June 16, 2011 at a redemption price of 101.146% of the principal amount plus accrued and unpaid interest thereon. The redemption premium of approximately $1,700 was recorded in interest expense.

(c)
The revolving credit agreement is with a group of banks for up to $280,000. The Company may increase the credit agreement by up to an additional $100,000 at any time, subject to the participating banks increasing the amount of their lending commitments. The interest rate on outstanding borrowings is, 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 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

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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. Long-term Debt (Continued)

(d)
The Industrial Development Revenue Bonds were issued to finance the construction of a manufacturing facility in Jasper, Tennessee. Variable interest is payable until final maturity June 1, 2025. The effective interest rates at September 24, 2011 and December 25, 2010 were 0.31% and 0.50%, respectively.

        The lending agreements include certain maintenance covenants, including financial leverage and interest coverage. The Company was in compliance with all debt covenants at September 24, 2011.

        The minimum aggregate maturities of long-term debt for each of the four years following 2011 are: $291, $20,256, $262 and $275.

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

7. Business Segments

        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 on the basis of employee headcounts and sales dollars.

        Reportable segments are as follows:

        ENGINEERED INFRASTRUCTURE PRODUCTS:    This segment consists of the manufacture of engineered metal structures and components for the global lighting and traffic, wireless communication, roadway safety and access systems 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 on a global basis; and

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

        In addition to these four reportable segments, the Company has other businesses and activities that individually are not more than 10% of consolidated sales. These include the manufacture of forged steel grinding media for the mining industry, tubular products for industrial customers, the electrolytic manganese dioxide for disposable batteries and the distribution of industrial fasteners and are reported in the "Other" category.

        In the fourth quarter of 2010, the Company reorganized its segment reporting structure to reflect the management structure as a result of the acquisition of Delta plc. The main business units of Delta are organized as follows in the reportable segment structure:

        Fiscal 2010 figures have been reclassified to conform to the fiscal 2011 segment 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

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

7. Business Segments (Continued)


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

 
  Thirteen Weeks Ended   Thirty-nine Weeks Ended  
 
  September 24,
2011
  September 25,
2010
  September 24,
2011
  September 25,
2010
 

Sales:

                         
 

Engineered Infrastructure Products segment:

                         
   

Lighting & Traffic

  $ 157,273   $ 139,387   $ 420,122   $ 344,873  
   

Communication Structures

    28,612     26,803     77,332     73,946  
   

Access Systems

    36,358     31,411     100,136     49,140  
                   
     

Engineered Infrastructure Products segment

    222,243     197,601     597,590     467,959  
 

Utility Support Structures segment

                         
   

Steel

    140,926     106,943     374,045     307,850  
   

Concrete

    18,889     15,298     47,977     42,457  
                   
     

Utility Support Structures segment

    159,815     122,241     422,022     350,307  
 

Coatings segment

    80,806     75,665     238,417     158,036  
 

Irrigation segment

    150,618     88,255     485,367     309,053  
 

Other

    88,870     61,328     246,977     131,613  
                   
   

Total

    702,352     545,090     1,990,373     1,416,968  

Intersegment Sales:

                         
 

Engineered Infrastructure Products segment

    6,611     2,936     18,035     4,712  
 

Utility Support Structures segment

    4,480     1,465     6,739     2,100  
 

Coatings segment

    11,852     9,204     34,283     21,721  
 

Irrigation segment

        1     8     7  
 

Other

    7,217     3,653     22,558     11,636  
                   
   

Total

    30,160     17,259     81,623     40,176  

Net Sales:

                         
 

Engineered Infrastructure Products segment

    215,632     194,665     579,555     463,247  
 

Utility Support Structures segment

    155,335     120,776     415,283     348,207  
 

Coatings segment

    68,954     66,161     204,134     136,315  
 

Irrigation segment

    150,618     88,254     485,359     309,046  
 

Other

    81,653     57,975     224,419     119,977  
                   
   

Total

  $ 672,192   $ 527,831   $ 1,908,750   $ 1,376,792  
                   

Operating Income:

                         
 

Engineered Infrastructure Products segment

  $ 17,189   $ 17,169   $ 30,907   $ 31,862  
 

Utility Support Structures segment

    14,731     9,740     41,214     36,988  
 

Coatings segment

    14,238     13,577     39,600     27,993  
 

Irrigation segment

    23,765     10,590     80,623     42,584  
 

Other

    12,607     7,124     32,901     20,096  
 

Net corporate expense

    (10,497 )   (11,057 )   (39,292 )   (43,429 )
                   
   

Total

  $ 72,033   $ 47,143   $ 185,953   $ 116,094  
                   

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

8. Guarantor/Non-Guarantor Financial Information

        On April 8, 2010, the Company issued $300,000 of senior unsecured notes at a coupon interest rate of 6.625% per annum. In June 2011, the Company issued an additional $150,000 principal amount of these notes to redeem the Senior Subordinated Notes that were issued in 2004. The notes are guaranteed, jointly, severally, fully and unconditionally by certain of the Company's current and future direct and indirect domestic and foreign 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.

        On May 4, 2004, the Company completed a $150,000 offering of 67/8% Senior Subordinated Notes. The notes were redeemed on June 16, 2011 at a redemption price of 101.146% of the principal amount plus accrued and unpaid interest thereon. The notes were guaranteed, jointly, severally, fully and unconditionally, on a senior subordinated basis by the Guarantors.

        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 24, 2011

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net sales

  $ 277,350   $ 98,619   $ 352,928   $ (56,705 ) $ 672,192  

Cost of sales

    205,787     83,008     272,671     (56,664 )   504,802  
                       
 

Gross profit

    71,563     15,611     80,257     (41 )   167,390  

Selling, general and administrative expenses

    37,169     11,212     46,976         95,357  
                       
 

Operating income

    34,394     4,399     33,281     (41 )   72,033  
                       

Other income (expense):

                               
 

Interest expense

    (7,562 )       (109 )       (7,671 )
 

Interest income

    9     204     2,928         3,141  
 

Other

    (1,297 )   12     (385 )       (1,670 )
                       

    (8,850 )   216     2,434         (6,200 )
                       

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

    25,544     4,615     35,715     (41 )   65,833  
                       

Income tax expense (benefit):

                               
 

Current

    12,153     (724 )   13,690         25,119  
 

Deferred

    (1,397 )   2,710     (2,659 )       (1,346 )
                       

    10,756     1,986     11,031         23,773  
                       

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

    14,788     2,629     24,684     (41 )   42,060  

Equity in earnings/(losses) of nonconsolidated subsidiaries

    27,353     14,705     2,127     (41,831 )   2,354  
                       

Net Earnings

    42,141     17,334     26,811     (41,872 )   44,414  

Less: Earnings attributable to noncontrolling interests

            (2,273 )       (2,273 )
                       
 

Net Earnings attributable to Valmont Industries, Inc. 

  $ 42,141   $ 17,334   $ 24,538   $ (41,872 ) $ 42,141  
                       

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Thirty-nine Weeks Ended September 24, 2011

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net sales

  $ 842,493   $ 259,733   $ 947,843   $ (141,319 ) $ 1,908,750  

Cost of sales

    627,802     209,827     740,621     (141,365 )   1,436,885  
                       
 

Gross profit

    214,691     49,906     207,222     46     471,865  

Selling, general and administrative expenses

    115,422     33,473     137,017         285,912  
                       
 

Operating income

    99,269     16,433     70,205     46     185,953  
                       

Other income (expense):

                               
 

Interest expense

    (26,417 )       (298 )       (26,715 )
 

Interest income

    43     204     6,672         6,919  
 

Other

    (1,105 )   42     287         (776 )
                       

    (27,479 )   246     6,661         (20,572 )
                       

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

    71,790     16,679     76,866     46     165,381  
                       

Income tax expense (benefit):

                               
 

Current

    31,505     4,552     26,099         62,156  
 

Deferred

    (5,307 )   1,742     (7,979 )       (11,544 )
                       

    26,198     6,294     18,120         50,612  
                       

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

    45,592     10,385     58,746     46     114,769  

Equity in earnings/(losses) of nonconsolidated subsidiaries

    67,985     35,042     4,247     (102,765 )   4,509  
                       

Net Earnings

    113,577     45,427     62,993     (102,719 )   119,278  

Less: Earnings attributable to noncontrolling interests

            (5,701 )       (5,701 )
                       
 

Net Earnings attributable to Valmont Industries, Inc. 

  $ 113,577   $ 45,427   $ 57,292   $ (102,719 ) $ 113,577  
                       

20


Table of Contents


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Thirteen Weeks Ended September 25, 2010

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net sales

  $ 200,302   $ 84,440   $ 280,704   $ (37,615 ) $ 527,831  

Cost of sales

    147,511     64,990     220,474     (37,665 )   395,310  
                       
 

Gross profit

    52,791     19,450     60,230     50     132,521  

Selling, general and administrative expenses

    31,801     11,126     42,451         85,378  
                       
 

Operating income

    20,990     8,324     17,779     50     47,143  
                       

Other income (expense):

                               
 

Interest expense

    (8,515 )   187     (159 )       (8,487 )
 

Interest income

    4     4     1,725         1,733  
 

Other

    254     428     (624 )       58  
                       

    (8,257 )   619     942         (6,696 )
                       

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

    12,733     8,943     18,721     50     40,447  
                       

Income tax expense (benefit):

                               
 

Current

    4,594     3,081     8,019         15,694  
 

Deferred

    (183 )   (91 )   (1,640 )       (1,914 )
                       

    4,411     2,990     6,379         13,780  
                       

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

    8,322     5,953     12,342     50     26,667  

Equity in earnings/(losses) of nonconsolidated subsidiaries

    17,613     5,751     1,021     (23,317 )   1,068  
                       

Net Earnings

    25,935     11,704     13,363     (23,267 )   27,735  

Less: Earnings attributable to noncontrolling interests

            (1,800 )       (1,800 )
                       
 

Net Earnings attributable to Valmont Industries, Inc. 

  $ 25,935   $ 11,704   $ 11,563   $ (23,267 ) $ 25,935  
                       

21


Table of Contents


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Thirty-nine Weeks Ended September 25, 2010

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net sales

  $ 616,823   $ 217,203   $ 640,764   $ (97,998 ) $ 1,376,792  

Cost of sales

    456,108     165,722     491,763     (98,698 )   1,014,895  
                       
 

Gross profit

    160,715     51,481     149,001     700     361,897  

Selling, general and administrative expenses

    113,581     33,765     98,457         245,803  
                       
 

Operating income

    47,134     17,716     50,544     700     116,094  
                       

Other income (expense):

                               
 

Interest expense

    (22,198 )       (680 )       (22,878 )
 

Interest income

    116     31     3,034         3,181  
 

Other

    476     (72 )   (376 )       28  
                       

    (21,606 )   (41 )   1,978         (19,669 )
                       

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

    25,528     17,675     52,522     700     96,425  
                       

Income tax expense (benefit):

                               
 

Current

    15,637     6,441     17,574         39,652  
 

Deferred

    (3,101 )   (376 )   (1,267 )       (4,744 )
                       

    12,536     6,065     16,307         34,908  
                       

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

    12,992     11,610     36,215     700     61,517  

Equity in earnings/(losses) of nonconsolidated subsidiaries

    46,521     10,077     1,383     (55,994 )   1,987  
                       

Net Earnings

    59,513     21,687     37,598     (55,294 )   63,504  

Less: Earnings attributable to noncontrolling interests

            (3,991 )       (3,991 )
                       
 

Net Earnings attributable to Valmont Industries, Inc. 

  $ 59,513   $ 21,687   $ 33,607   $ (55,294 ) $ 59,513  
                       

22


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

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

CONDENSED CONSOLIDATED BALANCE SHEETS
September 24, 2011

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

ASSETS

                               

Current assets:

                               
 

Cash and cash equivalents

  $ 25,593   $ 18,520   $ 292,795   $   $ 336,908  
 

Receivables, net

    116,840     50,984     281,607         449,431  
 

Inventories

    107,916     64,013     205,596         377,525  
 

Prepaid expenses

    5,231     1,245     22,356         28,832  
 

Refundable and deferred income taxes

    16,567     4,484     14,165         35,216  
                       
   

Total current assets

    272,147     139,246     816,519         1,227,912  
                       

Property, plant and equipment, at cost

    419,978     105,995     363,884         889,857  
 

Less accumulated depreciation and amortization

    280,599     54,004     118,115         452,718  
                       
   

Net property, plant and equipment

    139,379     51,991     245,769         437,139  
                       

Goodwill

    20,108     107,542     187,490         315,140  

Other intangible assets

    701     63,865     110,380         174,946  

Investment in subsidiaries and intercompany accounts

    1,231,763     594,194     (27,206 )   (1,798,751 )    

Other assets

    28,334         25,706         54,040  
                       
   

Total assets

  $ 1,692,432   $ 956,838   $ 1,358,658   $ (1,798,751 ) $ 2,209,177  
                       

LIABILITIES AND SHAREHOLDERS' EQUITY

                               

Current liabilities:

                               
 

Current installments of long-term debt

  $ 187   $   $ 49   $   $ 236  
 

Notes payable to banks

            11,022         11,022  
 

Accounts payable

    66,997     21,704     133,208         221,909  
 

Accrued employee compensation and benefits

    37,712     6,288     31,392         75,392  
 

Accrued expenses

    33,555     5,665     43,624         82,844  
 

Dividends payable

    4,760                 4,760  
                       
   

Total current liabilities

    143,211     33,657     219,295         396,163  
                       

Deferred income taxes

    15,886     28,634     41,011         85,531  

Long-term debt, excluding current installments

    493,762         1,013         494,775  

Defined benefit pension liability

            96,990         96,990  

Deferred compensation

    23,002         6,399         29,401  

Other noncurrent liabilities

    5,148         37,920         43,068  

Shareholders' equity:

                               
 

Common stock of $1 par value

    27,900     457,950     2,582     (460,532 )   27,900  
 

Additional paid-in capital

          181,542     156,188     (337,730 )    
 

Retained earnings

    966,872     255,055     703,666     (958,721 )   966,872  
 

Accumulated other comprehensive income (loss)

    41,768         41,768     (41,768 )   41,768  
 

Treasury stock

    (25,117 )               (25,117 )
                       
   

Total Valmont Industries, Inc. shareholders' equity

    1,011,423     894,547     904,204     (1,798,751 )   1,011,423  
                       

Noncontrolling interest in consolidated subsidiaries

            51,826         51,826  
                       
 

Total shareholders' equity

    1,011,423     894,547     956,030     (1,798,751 )   1,063,249  
                       
 

Total liabilities and shareholders' equity

  $ 1,692,432   $ 956,838   $ 1,358,658   $ (1,798,751 ) $ 2,209,177  
                       

23


Table of Contents


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

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

CONSOLIDATED BALANCE SHEETS
December 25, 2010

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

ASSETS

                               

Current assets:

                               
 

Cash and cash equivalents

  $ 8,015   $ 619   $ 338,270   $   $ 346,904  
 

Receivables, net

    106,181     50,663     253,722         410,566  
 

Inventories

    63,887     32,030     184,306         280,223  
 

Prepaid expenses

    3,478     920     19,408         23,806  
 

Refundable and deferred income taxes

    14,978     2,597     15,152         32,727  
                       
   

Total current assets

    196,539     86,829     810,858         1,094,226  
                       

Property, plant and equipment, at cost

    413,149     98,019     354,119         865,287  
 

Less accumulated depreciation and amortization

    269,831     50,406     105,441         425,678  
                       
   

Net property, plant and equipment

    143,318     47,613     248,678         439,609  
                       

Goodwill

    20,108     107,542     187,197         314,847  

Other intangible assets

    823     68,310     116,402         185,535  

Investment in subsidiaries and intercompany accounts

    1,146,364     587,231     30,017     (1,742,468 )   21,144  

Other assets

    24,426         10,956         35,382  
                       
   

Total assets

  $ 1,531,578   $ 897,525   $ 1,404,108   $ (1,742,468 ) $ 2,090,743  
                       

LIABILITIES AND SHAREHOLDERS' EQUITY

                               

Current liabilities:

                               
 

Current installments of long-term debt

  $ 187   $   $ 51   $   $ 238  
 

Notes payable to banks

            8,824         8,824  
 

Accounts payable

    45,854     15,254     118,706         179,814  
 

Accrued expenses

    54,368     8,147     91,171         153,686  
 

Dividends payable

    4,352                 4,352  
                       
   

Total current liabilities

    104,761     23,401     218,752         346,914  
                       

Deferred income taxes

    16,083     25,004     48,835         89,922  

Long-term debt, excluding current installments

    467,511         1,085         468,596  

Other noncurrent liabilities

    27,331         147,853         175,184  

Commitments and contingencies

                               

Shareholders' equity:

                               
 

Common stock of $1 par value

    27,900     457,950     2,582     (460,532 )   27,900  
 

Additional paid-in capital

        181,542     156,188     (337,730 )    
 

Retained earnings

    850,269     209,628     670,933     (880,561 )   850,269  
 

Accumulated other comprehensive income

    63,645         63,645     (63,645 )   63,645  
 

Treasury stock

    (25,922 )               (25,922 )
                       
   

Total Valmont Industries, Inc. shareholders' equity

    915,892     849,120     893,348     (1,742,468 )   915,892  
                       

Noncontrolling interest in consolidated subsidiaries

            94,235         94,235  
                       
 

Total shareholders' equity

    915,892     849,120     987,583     (1,742,468 )   1,010,127  
                       
 

Total liabilities and shareholders' equity

  $ 1,531,578   $ 897,525   $ 1,404,108   $ (1,742,468 ) $ 2,090,743  
                       

24


Table of Contents


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirty-nine Weeks Ended September 24, 2011

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Cash flows from operations:

                               
 

Net earnings

  $ 113,577   $ 45,427   $ 62,993   $ (102,719 ) $ 119,278  
   

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

                               
     

Depreciation

    15,758     9,416     28,019         53,193  
     

Stock-based compensation

    3,962                 3,962  
     

Defined benefit pension plan expense

            4,544         4,544  
     

Contribution to defined benefit pension plan

            (11,754 )       (11,754 )
     

Loss (gain) on sale of assets

    3     (56 )   (242 )       (295 )
     

Equity in earnings of nonconsolidated subsidiaries

    (261 )       (4,248 )       (4,509 )
     

Deferred income taxes

    (5,307 )   1,742     (7,979 )       (11,544 )
     

Changes in assets and liabilities:

                               
       

Receivables

    (10,659 )   (320 )   (30,627 )       (41,606 )
       

Inventories

    (44,029 )   (31,983 )   (23,547 )       (99,559 )
       

Prepaid expenses

    (1,753 )   (325 )   (3,300 )       (5,378 )
       

Accounts payable

    9,850     6,450     17,482         33,782  
       

Accrued expenses

    17,225     3,805     (9,546 )       11,484  
       

Other noncurrent liabilities

    1,202         (5,694 )       (4,492 )
       

Income taxes payable/refundable

    14,814         2,195         17,009  
                       
         

Net cash flows from operations

    114,382     34,156     18,296     (102,719 )   64,115  
                       

Cash flows from investing activities:

                               
 

Purchase of property, plant and equipment

    (10,133 )   (9,358 )   (26,875 )       (46,366 )
 

Proceeds from sale of assets

    34     73     2,796         2,903  
 

Acquisitions, net of cash acquired

            (1,539 )       (1,539 )
 

Dividends from nonconsolidated subsidiaries

    590                 590  
 

Other, net

    (92,449 )   (24,700 )   15,223     102,719     793  
                       
         

Net cash flows from investing activities

    (101,958 )   (33,985 )   (10,395 )   102,719     (43,619 )
                       

Cash flows from financing activities:

                               
 

Net borrowings (repayments) under short-term agreements

            2,152         2,152  
 

Proceeds from long-term borrowings

    213,832                 213,832  
 

Principal payments on long-term obligations

    (187,186 )       (48 )       (187,234 )
 

Purchase of noncontrolling interest

            (25,253 )       (25,253 )
 

Settlement of financial derivative

    (3,568 )               (3,568 )
 

Dividends paid

    (13,467 )               (13,467 )
 

Intercompany dividends

        17,730     (17,730 )        
 

Dividends to noncontrolling interests

            (4,958 )       (4,958 )
 

Debt issue fees

    (1,284 )               (1,284 )
 

Proceeds from exercises under stock plans

    18,659                 18,659  
 

Excess tax benefits from stock option exercises

    2,799                 2,799  
 

Purchase of treasury shares

    (4,802 )               (4,802 )
 

Purchase of common treasury shares—stock plan exercises

    (19,829 )               (19,829 )
                       
         

Net cash flows from financing activities

    5,154     17,730     (45,837 )       (22,953 )
                       

Effect of exchange rate changes on cash and cash equivalents

            (7,539 )       (7,539 )
                       

Net change in cash and cash equivalents

    17,578     17,901     (45,475 )       (9,996 )

Cash and cash equivalents—beginning of year

    8,015     619     338,270         346,904  
                       

Cash and cash equivalents—end of period

  $ 25,593   $ 18,520   $ 292,795   $   $ 336,908  
                       

25


Table of Contents


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirty-nine Weeks Ended September 25, 2010

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Cash flows from operations:

                               
 

Net earnings

  $ 59,513   $ 21,687   $ 37,598   $ (55,294 ) $ 63,504  
   

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

                               
     

Depreciation

    14,984     9,564     17,281         41,829  
     

Stock-based compensation

    4,712                 4,712  
     

Loss on sale of assets

    23     4     1,486         1,513  
     

Equity in earnings of nonconsolidated subsidiaries

    (604 )       (1,383 )       (1,987 )
     

Deferred income taxes

    (3,101 )   (376 )   (1,267 )       (4,744 )
     

Changes in assets and liabilities:

                               
       

Receivables

    (19,675 )   1,177     (25,548 )       (44,046 )
       

Inventories

    6,432     7,606     (9,648 )       4,390  
       

Prepaid expenses

    (1,108 )   (305 )   2,476         1,063  
       

Accounts payable

    4,022     1,031     (27,727 )       (22,674 )
       

Accrued expenses

    9,199     (9,803 )   19,834         19,230  
       

Other noncurrent liabilities

    160         10,094         10,254  
       

Income taxes payable/refundable

    (2,601 )   14,923     (27 )       12,295  
                       
         

Net cash flows from operations

    71,956     45,508     23,169     (55,294 )   85,339  
                       

Cash flows from investing activities:

                               
 

Purchase of property, plant and equipment

    (8,443 )   (1,468 )   (10,372 )       (20,283 )
 

Proceeds from sale of assets

    21     7     11,062         11,090  
 

Acquisitions, gross of cash acquired

        (436,736 )   (11,131 )       (447,867 )
 

Cash acquired through acquisitions

            198,810         198,810  
 

Dividends from nonconsolidated subsidiaries

    100         9,506         9,606  
 

Other, net

    3,229     (51,750 )   (4,711 )   55,294     2,062  
                       
         

Net cash flows from investing activities

    (5,093 )   (489,947 )   193,164     55,294     (246,582 )
                       

Cash flows from financing activities:

                               
 

Net repayments under short-term agreements

        (10 )   2,559         2,549  
 

Proceeds from long-term borrowings

    491,000                 491,000  
 

Principal payments on long-term obligations

    (168,181 )       (90 )       (168,271 )
 

Debt issue costs

    (3,858 )               (3,858 )
 

Activity under intercompany note

    (443,702 )   443,702              
 

Dividends paid

    (12,240 )               (12,240 )
 

Dividends to noncontrolling interests

            (12,265 )       (12,265 )
 

Proceeds from exercises under stock plans

    3,390                 3,390  
 

Excess tax benefits from stock option exercises

    1,479                 1,479  
 

Purchase of treasury shares

    (2,678 )       1,800         (878 )
 

Purchase of common treasury shares—stock plan exercises

    (2,144 )               (2,144 )
                       
         

Net cash flows from financing activities

    (136,934 )   443,692     (7,996 )       298,762  
                       

Effect of exchange rate changes on cash and cash equivalents

            4,845         4,845  
                       

Net change in cash and cash equivalents

    (70,071 )   (747 )   213,182         142,364  

Cash and cash equivalents—beginning of year

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

Cash and cash equivalents—end of period

  $ 11,946   $ 919   $ 310,285   $   $ 323,150  
                       

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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 25, 2010.

        In the fourth quarter of 2010, we reorganized our segment reporting structure to reflect our management structure as a result of the acquisition of Delta plc. The main business units of Delta are organized as follows in our segment structure:

        We reclassified fiscal 2010 to conform to the fiscal 2011 segment presentation.

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Results of Operations

 
  Thirteen Weeks Ended   Thirty-nine Weeks Ended  
 
  September 24,
2011
  September 25,
2010
  % Incr.
(Decr.)
  September 24,
2011
  September 25,
2010
  % Incr.
(Decr.)
 

Consolidated

                                     
 

Net sales

  $ 672.2   $ 527.8     27.4 % $ 1,908.8   $ 1,376.8     38.6 %
 

Gross profit

    167.4     132.5     26.3 %   471.9     361.9     30.4 %
   

as a percent of sales

    24.9 %   25.1 %         24.7 %   26.3 %      
 

SG&A expense

    95.4     85.4     11.7 %   285.9     245.8     16.3 %
   

as a percent of sales

    14.2 %   16.2 %         15.0 %   17.9 %      
 

Operating income

    72.0     47.1     52.9 %   186.0     116.1     60.2 %
   

as a percent of sales

    10.7 %   8.9 %         9.7 %   8.4 %      
 

Net interest expense

    4.5     6.8     (33.8 )%   19.8     19.7     0.5 %
 

Effective tax rate

    36.1 %   34.1 %         30.6 %   36.2 %      
 

Net earnings attributable to Valmont Industries, Inc. 

  $ 42.1   $ 25.9     62.5 % $ 113.6   $ 59.5     90.9 %
 

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

  $ 1.59   $ 0.98     62.2 % $ 4.28   $ 2.25     90.2 %

Engineered Infrastructure Products segment

                                     
 

Net sales

  $ 215.6   $ 194.7     10.8 % $ 579.6   $ 463.3     25.1 %
 

Gross profit

    53.3     51.7     3.1 %   135.9     122.9     10.6 %
 

SG&A expense

    36.1     34.5     4.6 %   105.0     91.0     15.4 %
 

Operating income

    17.2     17.2     0.1 %   30.9     31.9     (3.1 )%

Utility Support Structures segment

                                     
 

Net sales

  $ 155.3   $ 120.8     28.6 % $ 415.3   $ 348.2     19.3 %
 

Gross profit

    31.7     24.8     27.8 %   91.5     83.4     9.7 %
 

SG&A expense

    17.0     15.0     13.3 %   50.3     46.4     8.4 %
 

Operating income

    14.7     9.8     50.0 %   41.2     37.0     11.4 %

Coatings segment

                                     
 

Net sales

  $ 69.0   $ 66.1     4.2 % $ 204.1   $ 136.3     49.7 %
 

Gross profit

    22.7     21.5     5.6 %   65.1     44.7     45.6 %
 

SG&A expense

    8.4     7.9     6.3 %   25.5     16.7     52.7 %
 

Operating income

    14.3     13.6     5.1 %   39.6     28.0     41.4 %

Irrigation segment

                                     
 

Net sales

  $ 150.6   $ 88.2     70.7 % $ 485.4   $ 309.0     57.1 %
 

Gross profit

    42.4     23.7     78.9 %   131.1     82.8     58.3 %
 

SG&A expense

    18.7     13.2     41.7 %   50.5     40.3     25.3 %
 

Operating income

    23.7     10.5     125.7 %   80.6     42.5     89.6 %

Other

                                     
 

Net sales

  $ 81.7   $ 58.0     40.7 % $ 224.4   $ 120.0     87.0 %
 

Gross profit

    17.3     12.5     38.4 %   48.2     31.1     55.0 %
 

SG&A expense

    4.7     5.4     (13.0 )%   15.3     11.0     39.1 %
 

Operating income

    12.6     7.1     77.5 %   32.9     20.1     63.7 %

Net Corporate expense

                                     
 

Gross profit

        (1.7 )   NM     0.1     (3.0 )   NM  
 

SG&A expense

    10.4     9.4     10.6 %   39.3     40.4     (2.7 )%
 

Operating loss

    (10.4 )   (11.1 )   (6.3 )%   (39.2 )   (43.4 )   (9.7 )%

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        On May 12, 2010, we acquired Delta plc (Delta). The total amount of the acquisition was $436.7 million and was financed by a combination of cash, borrowings under our revolving credit agreement of $85.0 million and $300.0 million of senior unsecured notes.

        We began consolidating Delta's financial results in our consolidated financial statements beginning on May 12, 2010. On a segment reporting basis, Delta's operations are included in our results as follows:

        The increases in sales and operating income by segment attributable to a full year effect of Delta in fiscal 2011, as compared with fiscal 2010, were as follows (in millions):

 
  Thirty-nine weeks ended
September 24, 2011
 
 
  Net Sales   Operating
Income
 

Engineered Infrastructure Products

  $ 79.0   $ 4.8  

Utility Support Structures

    2.1     0.3  

Coatings

    61.9     8.2  

Other

    75.0     3.6  

Net corporate expense

        (4.4 )
           

Total

  $ 218.0   $ 12.5  
           

        On a consolidated basis, the increase in net sales in the third quarter and year-to-date fiscal 2011, as compared with 2010, were the result of improved sales in all reportable segments, part of which was the result of Delta's financial results being included in our consolidated financial statements for all of 2011.

        For the company as a whole, our 2011 third quarter and, without consideration of Delta sales, our year-to-date sales increases over 2010 were mainly due to increased unit sales volumes. On a reportable segment basis, the most significant unit sales volume increases were in the Irrigation and Utility Support Structures (Utility) segments. Sales prices overall were up modestly in the third quarter and year-to-date of fiscal 2011, as compared with 2010, mainly in response to rising steel prices. The increase in net sales in the third quarter and year-to-date fiscal 2011, as compared with 2010, due to currency translation effects were approximately $29 million and $54 million, respectively.

        The decrease in gross profit margin (gross profit as a percent of sales) for the third quarter and year-to-date fiscal 2011, as compared with 2010, was due to the following factors:

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        Selling, general and administrative (SG&A) spending for the third quarter and year-to-date of fiscal 2011, as compared with 2010, increased due to the following factors:

        These increases were somewhat offset by $12.9 million in lower acquisition and integration costs in the first three quarters of 2011, as compared with fiscal 2010, associated with the Delta acquisition.

        On a reportable segment basis, the Irrigation, Utility and Coatings segments reported improved operating income in the third quarter and year-to-date 2011, as compared with 2010. The EIP segment operating income in 2011 was comparable to fiscal 2010. Currency translation effects also contributed to the increase in third quarter and year-to-date operating income in fiscal 2011, as compared with 2010, of approximately $2.9 million and $5.6 million, respectively.

        The decrease in net interest expense in the third quarter of fiscal 2011, as compared with 2010, was mainly due to interest savings resulting from the refinancing of our senior subordinated debt in the second quarter of fiscal 2011 and increased interest income resulting from certain income tax refunds received in fiscal 2011. On a year-to-date basis, the increase in interest expense in fiscal 2011, as compared with 2010, was attributable to $2.8 million of expense incurred when we redeemed our senior subordinated debt and the full year effect (approximately $5.0 million) of interest expense associated with the $300 million in senior unsecured notes issued in April 2010, less $2.9 million of bank fees incurred in the first quarter of fiscal 2010 to provide the required bridge loan funding commitment for the Delta acquisition and the full impact of interest income from Delta's cash balances.

        The increase in "Other" expense in the third quarter and first three quarters of fiscal 2011, as compared with 2010, was mainly due to investment losses in the assets held in our deferred compensation plan ($1.5 million and $1.8 million, respectively). The decreases in the value of these assets were offset by corresponding decreases in our deferred compensation liabilities, which were reflected as decreases in net corporate expense. Accordingly, there was no effect on net earnings from these investment losses.

        Our effective income tax rate in third quarter of fiscal 2011 was higher than 2010, due to the reconciliation of our 2010 income tax returns and non-deductible currency losses incurred in our Mexican operation. On a year-to-date basis, the effective tax rate in fiscal 2011 was lower than 2010. This reduction was mainly due to the:

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        Aside from these events that are non-recurring in nature, we believe our year-to-date effective tax rate in fiscal 2011 and 2010 would have been approximately 32.0-33.0%.

        Our cash flows provided by operations were approximately $64.1 million in 2011, as compared with $85.3 million in 2010. While net earnings increased in 2011, as compared with 2010, higher levels of working capital to support increased business activity in the Utility and Irrigation segments in 2011 and contributions to the Delta Pension Plan of $11.8 million in 2011 were the main reasons for the lower operating cash flow in 2011, as compared with 2010.

        The increases in net sales in the third quarter and the first three quarters of 2011 as compared with 2010 were mainly due to currency translation effects ($14.1 million and $27.0 million, respectively) and improved international sales volumes. Year-to-date sales in fiscal 2011 were higher than 2010 due to these factors and the full year effect of the Delta operations. Global lighting markets continue to experience weak demand, resulting in increased price competition, despite higher raw material prices. In the Lighting product line, 2011 North American sales in the third quarter and first three quarters of the year were down slightly as compared with 2010. Market conditions in North America continue to be weak, especially in the transportation market, where funding is through federal, state and local governments. We believe sales demand in the transportation market was dampened by the lack of a long-term federal highway funding legislation and state budget deficits, as 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, which may constrain their ability to access federal matching funds to implement roadway projects. Sales in other market channels helped to offset the lower transportation market sales in 2011, as compared with 2010. In Europe, sales were higher in the third quarter and first three quarters of 2011, as compared with 2010. However, sales pricing and product mix generally were unfavorable due to weak demand, as infrastructure spending in Europe has been affected by budget deficit control measures and public debt issues.

        Communication product line sales in third quarter and first three quarters of fiscal 2011 were comparable to 2010. North America sales were lower in the third quarter of 2011, as compared with 2010 while year-to-date 2011 sales were slightly higher than 2010. While market conditions are generally more favorable in 2011 as compared with 2010, we believe uncertainty surrounding the AT&T/T-Mobile merger has caused demand for communication structures and components to slow down in the third quarter of 2011. In China, sales of wireless communication structures were higher in the third quarter and first three quarters of 2011, as compared with 2010. In 2010, annual supply contracts with Chinese wireless carriers were settled later than in the past and 2011 was more in line with what we believe is a more normal demand pattern.

        Operating income for the segment was comparable in the third quarter and first three quarters of fiscal 2011, as compared with 2010. While operating income was enhanced by the addition of the Delta operations, the impact of rising raw material costs and very competitive pricing conditions in most of our markets hampered operating income for the segment. The impact of lower North America sales on operating profit was mitigated to an extent by factory operational improvements. The operating income effect of the increased sales associated with the Delta operations was relatively minor, as we experienced generally increased sales pricing competition, including that from outside Australia resulting from the stronger Australian dollar. Operating income in the third quarter and first three quarters of fiscal 2011, as compared with 2010, was enhanced by currency translation effects of $1.6 million and $2.8 million, respectively. The increase in SG&A expense in the first three quarters of

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fiscal 2011 was mainly due to the acquisition of the Delta operations ($14.3 million), offset to a degree by lower spending levels in North America and Asia.

        In the Utility segment, the sales increases in the third quarter and first three quarters of fiscal 2011, as compared with 2010, were due to improved unit sales volumes in the U.S., offset to a degree by lower sales volumes in international markets. In U.S. markets, electrical utility companies are increasing their investment in the electrical grid over a relatively slow 2010. The sales pricing environment is slowly improving but continues to be very competitive. Our sales in 2011 were somewhat reflective of market conditions in 2010 when certain utility structures projects were awarded at relatively low prices. In international markets, the sales decrease was mainly due to lower project sales into emerging markets and lower sales volumes in China, offset to a degree by improved sales volumes in Australia.

        Operating income in fiscal 2011, as compared with 2010, increased due to the substantial increase in North America sales volume and associated operational leverage. Gross profit margins were negatively affected by the competitive pricing environment in North America and higher raw material costs, offset to an extent by productivity gains due to increased production volumes. The increase in SG&A expense for the segment in fiscal 2011 was higher than in 2010, mainly due to increased employee incentives associated with the increase in operating income.

        Net sales in the Coatings segment increased in the third quarter of fiscal 2011, as compared with 2010, mainly due to currency translation effects. On a year-to-date basis, the sales increase resulted from the effect of the galvanizing operations acquired in the Delta transaction, currency translation effects (approximately $7.5 million) and stronger unit sales demand in our operations.

        The increase in segment operating income in the third quarter of fiscal 2011, as compared with 2010, was mainly due to the effects of currency translation. Higher average zinc costs in 2011, as compared with 2010, were largely recovered through sales price increases and productivity improvements. On a year-to-date basis, the increase in operating income also was due to the effect of the acquired Delta businesses, improved sales volume and currency translation effects (approximately $0.8 million). SG&A expenses for the segment in the third quarter and first three quarters of 2011 were higher than the comparable periods in 2010, mainly due to the effect of the Delta businesses.

        In 2011, a fire occurred at one of our galvanizing facilities in Australia. A property damage and business interruption claim was filed with our insurance carrier and settlement of the claim is ongoing. We are making the necessary capital expenditures to restore the facility and plan for operations to commence in the fourth quarter of 2011. We believe that the insurance claim proceeds will exceed the net book value of the assets damaged. The financial effect of this event will be reflected in our financial statements when the insurance claim is settled.

        Irrigation segment net sales in the third quarter and first three quarters of fiscal 2011 substantially improved over 2010, mainly due to stronger sales volumes in both North American and international markets. In global markets, the sales growth was due to a very strong agricultural economy. Farm commodity prices are generally favorable and net farm income is projected to be strong in 2011. In addition, weather conditions in North America in 2011 were generally drier than 2010, further enhancing demand for irrigation machines and related service parts. In international markets, the sales improvement in fiscal 2011, as compared with 2010, was realized in most markets, particularly in Asia Pacific and South America.

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Table of Contents

        Operating income for the segment improved in 2011 over 2010, due to improved sales unit volumes in North America and the associated operational leverage. Rising raw material prices resulted in $2.4 million in increased LIFO expense in the first three quarters of 2011, as compared with 2010, which negatively affected gross profit margins. SG&A expenses increased mainly due to employee compensation costs to support the increase in sales activity and future initiatives ($1.3 million and $3.7 million, respectively) and increased employee incentives due to improved operating performance in 2011 ($1.7 million and $2.7 million, respectively).

        This unit includes the Delta grinding media and electrolytic manganese operations and our industrial tubing and fasteners operations. The increase in sales in the third quarter of 2011, as compared with 2010, was mainly due improved sales volumes in all of these operations and currency translation effects (approximately $5.6 million). Third quarter operating income improved due to improved operating results in the manganese dioxide and tubing operations and currency translation (approximately $0.8 million). On a year-to-date basis, the full year affect of the Delta operations and currency translation effects (approximately $9.1 million in sales and $1.4 million in operating income) also contributed to the sales increase and operating income increase.

        Net corporate expense in the third quarter of 2011 was comparable to 2010. Expense increases included increased incentive expense associated with improved profitability in 2011 ($2.7 million), offset by lower deferred compensation expenses of $1.5 million, and favorable experience in health insurance expenses ($0.8 million).

        On a year-to-date basis, the decrease in net corporate expense was due to Delta acquisition and integration costs that were incurred in 2010 ($12.9 million) but not 2011 and lower deferred compensation expense ($1.8 million). These decreases were offset somewhat by the full year effect of Delta's administration costs ($5.2 million) and higher employee incentive expense associated with improved profitability in 2011 as compared with 2010 ($5.9 million).

Liquidity and Capital Resources

        Working Capital and Operating Cash Flows—Net working capital was $831.7 million at September 24, 2011, as compared with $747.3 million at December 25, 2010. The increase in net working capital in 2011 mainly resulted from increased inventories to support the increase in sales, especially in the Irrigation and Utility Support Structures segments. Operating cash flow was $64.1 million in fiscal 2011, as compared with $85.3 million for the same period in 2010. The decrease in operating cash flow in 2011 mainly was the result of the increase in working capital as compared with 2010 and the annual contribution we made to the Delta Pension Plan of $11.8 million in fiscal 2011. In fiscal 2010, this contribution was made before we acquired Delta.

        Investing Cash Flows—Capital spending in the fiscal 2011 was $46.4 million, as compared with $20.3 million in 2010. The most significant capital spending projects in 2011 included our new plant in India ($7.0 million), certain capacity expansions in the Utility segment ($4.7 million) and our Australian galvanizing operations ($3.9 million). We expect our capital spending for the 2011 fiscal year to be approximately $70 to $75 million. Investing cash flows for fiscal 2010 included $436.7 million of cash (less $198.8 million of cash acquired) for the Delta acquisition and an aggregate of $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.

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        Financing Cash Flows—Our total interest-bearing debt increased from $477.7 million at December 25, 2010 to $506.0 million as of September 24, 2011. The increase in borrowings in 2011 was a seasonal increase in borrowings due to the increase in working capital in the U.S. In the second quarter of fiscal 2011, we redeemed all of our $150 million of senior subordinated notes that were due in May 2014 with the proceeds from the sale of $150 million principal amount of senior unsecured notes. The senior unsecured notes became part of a series of senior unsecured notes previously issued in April 2010. The senior unsecured notes were issued at a premium of $14.8 million in excess of the principal amount. We refinanced the senior subordinated notes to take advantage of a favorable interest-rate environment and to extend our long-term debt maturities. Financing cash flows in 2011 included approximately $25.3 million to acquire the remaining 40% of the shares of Donhad Pty. Ltd. (a manufacturer of steel grinding media serving the Australian mining industry).

        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 24, 2011, our long-term debt to invested capital ratio was 27.1%, as compared with 26.7% at December 25, 2010. 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 2011.

        Our debt financing at September 24, 2011 consisted primarily of long-term debt. We also maintain certain short-term bank lines of credit totaling $51.7 million, $45.2 million of which was unused at September 24, 2011. Our long-term debt principally consists of:

        At September 24, 2011, we had $20.0 million in outstanding borrowings under the revolving credit agreement, at an annual interest rate of 2.94%, not including facility fees. The revolving credit agreement has a termination date of October 16, 2013 and contains certain financial covenants that may limit our additional borrowing capability under the agreement. At September 24, 2011, we had the ability to borrow an additional $240.9 million under this facility.

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        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 September 24, 2011, we were in compliance with all covenants related to these debt agreements. The key covenant calculations at September 24, 2011 were as follows:

Interest-bearing debt

    506,033  

EBITDA—last 12 months

    324,966  

Leverage ratio

    1.56  

EBITDA—last 12 months

    324,966  

Interest expense—last 12 months

    34,784  

Interest earned ratio

    9.34  

        The calculation of EBITDA—last 12 months (September 25, 2010—September 24, 2011) is as follows:

Net cash flows from operating activities

  $ 130,996  

Interest expense

    34,784  

Income tax expense

    70,712  

Deferred income tax benefit

    1,783  

Noncontrolling interest

    (7,744 )

Equity in earnings/(losses) in nonconsolidated subsidiaries

    4,961  

Stock-based compensation

    (6,404 )

Pension plan expense

    (10,418 )

Contribution to pension plan

    11,754  

Payment of deferred compensation

    393  

Changes in assets and liabilities, net of acquisitions

    95,544  

Other

    (1,395 )
       

EBITDA

  $ 324,966  
       

Net earnings attributable to Valmont Industries, Inc. 

  $ 148,443  

Interest expense

    34,784  

Income tax expense

    70,712  

Depreciation and amortization expense

    71,027  
       

EBITDA

  $ 324,966  
       

        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. We have not made any provision for U.S. income taxes in our financial statements on approximately $388 million of undistributed earnings of our foreign subsidiaries, as we intend to reinvest those earnings. Therefore, if we need to repatriate foreign cash balances to the United States to meet our cash needs, income taxes would be paid to the extent that those cash repatriations were undistributed earnings of our foreign subsidiaries.

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Financial Obligations and Financial Commitments

        Other than our additional borrowings under our senior unsecured notes related to the redemption of our senior subordinated notes and revolving credit agreement related to the Delta acquisition, there have been no material changes to our financial obligations and financial commitments as described beginning on page 35 in our Form 10-K for the year ended December 25, 2010. We have future financial obligations related to (1) payment of principal and interest on interest-bearing debt, (2) Delta pension plan contributions, (3) operating leases and (4) purchase obligations. These obligations at September 24, 2011 were as follows (in millions of dollars):

Contractual Obligations
  Total   2011   2012–2013   2014–2015   After 2015  

Long-term debt

  $ 495.0   $   $ 20.5   $ 0.5   $ 474.0  

Interest

    270.0     15.1     60.2     59.8     134.9  

Delta pension plan contributions

    78.8         22.5     22.5     33.8  

Operating leases

    115.7     12.1     32.4     22.7     48.5  

Unconditional purchase commitments

    35.4     35.4              
                       

Total contractual cash obligations

  $ 994.9   $ 62.6   $ 135.6   $ 105.5   $ 691.2  
                       

        Long-term debt mainly consisted of $450.0 million principal amount of senior unsecured notes. At September 24, 2011, we had $20.0 million of outstanding borrowings under our bank revolving credit agreement. We also had various other borrowing arrangements aggregating $10.6 million at September 24, 2011. Obligations under these agreements may accelerate in event of non-compliance with covenants. The Delta pension plan contributions are related to agreed-upon cash funding commitments to the plan with the plan's trustees, which are re-negotiated in conjunction with a triennial valuation. Operating leases relate mainly to various production and office facilities and are in the normal course of business.

        Unconditional purchase obligations relate to purchase orders for zinc, aluminum and steel, all of which we plan to use in 2011, and certain capital investments planned for 2011. We believe the quantities under contract are reasonable in light of normal fluctuations in business levels and we expect to use the commodities under contract during the contract period.

        At September 24, 2011, we had approximately $50.0 million of various long-term liabilities related to certain income tax, environmental and other matters. These items are not scheduled above because we are unable to make a reasonably reliable estimate as to the timing of any potential payments.

Off Balance Sheet Arrangements

        There have been no changes in our off balance sheet arrangements as described on page 36 in our Form 10-K for the fiscal year ended December 25, 2010 during the fiscal quarter and year-to-date periods ended September 24, 2011.

Critical Accounting Policies

        There have been no changes in our critical accounting policies as described on pages 37–41 on our Form 10-K for the fiscal year ended December 25, 2010 during the fiscal quarter and year-to-date periods ended September 24, 2011.

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 24, 2011. For additional information, refer to the section "Risk Management" beginning on page 36 in our Form 10-K for the fiscal year ended December 25, 2010.

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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
 

June 26, 2011 to July 23, 2011

    13,030   $ 106.38          

July 24, 2011 to August 27, 2011

                 

August 28, 2011 to September 24, 2011

                 
                   
 

Total

    13,030   $ 106.38          
                   

        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 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

 

 

 

101

 

The following financial information from Valmont's Quarterly Report on Form 10-Q for the quarter ended September 24, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statements of Shareholders' Equity, (v) Notes to Condensed Consolidated Financial Statements (tagged as blocks of text).

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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 26th day of October, 2011.

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Index 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

 

 

 

101

 

The following financial information from Valmont's Quarterly Report on Form 10-Q for the quarter ended September 24, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statements of Shareholders' Equity, (v) Notes to Condensed Consolidated Financial Statements (tagged as blocks of text).

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