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VALMONT INDUSTRIES INC - Quarter Report: 2013 June (Form 10-Q)


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



Form 10-Q

(Mark One)    

ý

 

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

For the quarterly period ended June 29, 2013

or

o

 

TRANSITION REPORT PURSUANT TO 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 Sections 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 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

26,772,121
Outstanding shares of common stock as of July 19, 2013

   


Table of Contents

VALMONT INDUSTRIES, INC.
INDEX TO FORM 10-Q

Page No.  

PART I. FINANCIAL INFORMATION

 

Item 1.

 

Financial Statements:

       

 

Condensed Consolidated Statements of Earnings for the thirteen and twenty-six weeks ended June 29, 2013 and June 30, 2012

    3  

 

Condensed Consolidated Statements of Comprehensive Income for the thirteen and twenty-six weeks ended June 29, 2013 and June 30, 2012

    4  

 

Condensed Consolidated Balance Sheets as of June 29, 2013 and December 29, 2012

    5  

 

Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended June 29, 2013 and June 30, 2012

    6  

 

Condensed Consolidated Statements of Shareholders' Equity for the twenty-six weeks ended June 29, 2013 and June 30, 2012

    7  

 

Notes to Condensed Consolidated Financial Statements

    8  

Item 2.

 

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

    31  

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

    40  

Item 4.

 

Controls and Procedures

    40  

PART II. OTHER INFORMATION

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

    41  

Item 6.

 

Exhibits

    41  

Signatures

    42  

2


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Dollars in thousands, except per share amounts)

(Unaudited)

 
  Thirteen Weeks Ended   Twenty-six Weeks Ended  
 
  June 29,
2013
  June 30,
2012
  June 29,
2013
  June 30,
2012
 

Product sales

  $ 794,341   $ 688,693   $ 1,534,788   $ 1,330,680  

Services sales

    84,318     78,622     163,501     153,985  
                   

Net sales

    878,659     767,315     1,698,289     1,484,665  

Product cost of sales

    563,306     519,438     1,092,467     1,002,146  

Services cost of sales

    53,882     48,482     108,982     96,810  
                   

Total cost of sales

    617,188     567,920     1,201,449     1,098,956  
                   

Gross profit

    261,471     199,395     496,840     385,709  

Selling, general and administrative expenses

    117,206     102,043     234,385     205,539  
                   

Operating income

    144,265     97,352     262,455     180,170  
                   

Other income (expenses):

                         

Interest expense

    (8,025 )   (7,421 )   (16,215 )   (15,228 )

Interest income

    1,852     1,910     3,205     3,988  

Other

    123     (1,977 )   1,679     (400 )
                   

    (6,050 )   (7,488 )   (11,331 )   (11,640 )
                   

Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries

    138,215     89,864     251,124     168,530  
                   

Income tax expense (benefit):

                         

Current

    48,210     35,985     86,870     63,014  

Deferred

    (1,042 )   (5,193 )   (4,729 )   (4,456 )
                   

    47,168     30,792     82,141     58,558  
                   

Earnings before equity in earnings of nonconsolidated subsidiaries

    91,047     59,072     168,983     109,972  

Equity in earnings of nonconsolidated subsidiaries

    269     2,087     473     3,775  
                   

Net earnings

    91,316     61,159     169,456     113,747  

Less: Earnings attributable to noncontrolling interests

    (1,753 )   (1,179 )   (2,324 )   (1,442 )
                   

Net earnings attributable to Valmont Industries, Inc. 

  $ 89,563   $ 59,980   $ 167,132     112,305  
                   

Earnings per share:

                         

Basic

  $ 3.36   $ 2.27   $ 6.28   $ 4.25  
                   

Diluted

  $ 3.33   $ 2.24   $ 6.22   $ 4.20  
                   

Cash dividends declared per share

  $ 0.250   $ 0.225   $ 0.475   $ 0.405  
                   

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

    26,648     26,467     26,615     26,432  
                   

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

    26,910     26,758     26,884     26,718  
                   

   

See accompanying notes to condensed consolidated financial statements.

3


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

 
  Thirteen Weeks Ended   Twenty-six Weeks Ended  
 
  June 29,
2013
  June 30,
2012
  June 29,
2013
  June 30,
2012
 

Net earnings

  $ 91,316   $ 61,159   $ 169,456   $ 113,747  
                   

Other comprehensive income (loss), net of tax:

                         

Foreign currency translation adjustments:

                         

Unrealized translation losses

    (52,962 )   (30,821 )   (62,582 )   (1,259 )

Realized loss included in net earnings during the period

            (5,194 )    

Unrealized loss on cash flow hedge:

                         

Amortization cost included in interest expense          

    100     100     200     200  

Actuarial gain (loss) in defined benefit pension plan

    42     (1,238 )   (894 )   633  
                   

Other comprehensive income (loss)

    (52,820 )   (31,959 )   (68,470 )   (426 )
                   

Comprehensive income

    38,496     29,200     100,986     113,321  

Comprehensive loss (income) attributable to noncontrolling interests

    1,549     2,533     3,189     (2,481 )
                   

Comprehensive income attributable to Valmont Industries, Inc. 

  $ 40,045   $ 31,733   $ 104,175   $ 110,840  
                   

   

See accompanying notes to condensed consolidated financial statements.

4


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except shares and per share amounts)

(Unaudited)

 
  June 29,
2013
  December 29,
2012
 

ASSETS

             

Current assets:

             

Cash and cash equivalents

  $ 490,477   $ 414,129  

Receivables, net

    513,766     515,902  

Inventories

    413,408     412,384  

Prepaid expenses

    33,587     25,144  

Refundable and deferred income taxes

    68,168     58,381  
           

Total current assets

    1,519,406     1,425,940  
           

Property, plant and equipment, at cost

    1,018,988     994,774  

Less accumulated depreciation and amortization

    488,506     482,162  
           

Net property, plant and equipment

    530,482     512,612  
           

Goodwill

    332,367     330,791  

Other intangible assets, net

    168,470     172,270  

Other assets

    100,898     126,938  
           

Total assets

  $ 2,651,623   $ 2,568,551  
           

LIABILITIES AND SHAREHOLDERS' EQUITY

             

Current liabilities:

             

Current installments of long-term debt

  $ 457   $ 224  

Notes payable to banks

    16,004     13,375  

Accounts payable

    212,097     212,424  

Accrued employee compensation and benefits

    100,536     101,905  

Accrued expenses

    80,988     78,503  

Dividends payable

    6,693     6,002  
           

Total current liabilities

    416,775     412,433  
           

Deferred income taxes

    80,151     88,300  

Long-term debt, excluding current installments

    471,662     472,593  

Defined benefit pension liability

    98,707     112,043  

Deferred compensation

    37,117     31,920  

Other noncurrent liabilities

    48,854     44,252  

Shareholders' equity:

             

Preferred stock of $1 par value—
Authorized 500,000 shares; none issued

         

Common stock of $1 par value—
Authorized 75,000,000 shares; 27,900,000 issued

    27,900     27,900  

Retained earnings

    1,458,326     1,300,529  

Accumulated other comprehensive income (loss)

    (19,019 )   43,938  

Treasury stock

    (21,317 )   (22,455 )
           

Total Valmont Industries, Inc. shareholders' equity

    1,445,890     1,349,912  
           

Noncontrolling interest in consolidated subsidiaries

    52,467     57,098  
           

Total shareholders' equity

    1,498,357     1,407,010  
           

Total liabilities and shareholders' equity

  $ 2,651,623   $ 2,568,551  
           

   

See accompanying notes to condensed consolidated financial statements.

5


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 
  Twenty-six Weeks Ended  
 
  June 29,
2013
  June 30,
2012
 

Cash flows from operating activities:

             

Net earnings

  $ 169,456   $ 113,747  

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

             

Depreciation and amortization

    38,186     34,367  

Stock-based compensation

    3,342     3,067  

Defined benefit pension plan expense

    3,245     2,050  

Contribution to defined benefit pension plan

    (10,346 )   (10,750 )

Gain on sale of property, plant and equipment

    (5,071 )   (164 )

Equity in earnings in nonconsolidated subsidiaries

    (473 )   (3,775 )

Deferred income taxes

    (4,729 )   (4,456 )

Changes in assets and liabilities (net of acquisitions):

             

Receivables

    (3,331 )   (69,922 )

Inventories

    (2,491 )   (48,498 )

Prepaid expenses

    (5,910 )   (4,060 )

Accounts payable

    736     1,976  

Accrued expenses

    2,916     (621 )

Other noncurrent liabilities

    1,873     (408 )

Income taxes payable

    (11,810 )   (16,090 )
           

Net cash flows from operating activities

    175,593     (3,537 )
           

Cash flows from investing activities:

             

Purchase of property, plant and equipment

    (54,258 )   (39,221 )

Proceeds from sale of assets

    39,054     4,867  

Acquisitions, net of cash acquired

    (53,152 )    

Other, net

    (133 )   1,837  
           

Net cash flows from investing activities

    (68,489 )   (32,517 )
           

Cash flows from financing activities:

             

Net borrowings under short-term agreements

    2,620     5,931  

Proceeds from long-term borrowings

    68     39,126  

Principal payments on long-term borrowings

    (303 )   (39,232 )

Proceeds from sale of partial ownership interest

        1,404  

Dividends paid

    (12,021 )   (9,545 )

Dividends to noncontrolling interest

    (1,767 )   (1,379 )

Proceeds from exercises under stock plans

    14,098     15,153  

Excess tax benefits from stock option exercises

    305     3,211  

Purchase of common treasury shares—stock plan exercises

    (13,602 )   (14,086 )
           

Net cash flows from financing activities

    (10,602 )   583  
           

Effect of exchange rate changes on cash and cash equivalents

    (20,154 )   958  
           

Net change in cash and cash equivalents

    76,348     (34,513 )

Cash and cash equivalents—beginning of year

    414,129     362,894  
           

Cash and cash equivalents—end of period

  $ 490,477   $ 328,381  
           

   

See accompanying notes to condensed consolidated financial statements.

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Dollars in thousands)

(Unaudited)

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

Balance at December 31, 2011

  $ 27,900   $   $ 1,079,698   $ 64,052   $ (24,688 ) $ 50,949   $ 1,197,911  

Net earnings

            112,305             1,442     113,747  

Other comprehensive income (loss)

                (1,465 )       1,039     (426 )

Cash dividends declared

            (10,763 )               (10,763 )

Dividends to noncontrolling interests

                        (1,379 )   (1,379 )

Sale of partial ownership interest

        (610 )               2,014     1,404  

Stock plan exercises; 119,928 shares acquired

                    (14,086 )       (14,086 )

Stock options exercised; 230,141 shares issued

        (5,576 )   5,363         15,366         15,153  

Tax benefit from stock option exercises

        3,211                       3,211  

Stock option expense

        2,490                       2,490  

Stock awards; 402 shares issued

        485             92         577  
                               

Balance at June 30, 2012

  $ 27,900   $   $ 1,186,603   $ 62,587   $ (23,316 ) $ 54,065   $ 1,307,839  
                               

Balance at December 29, 2012

  $ 27,900   $   $ 1,300,529   $ 43,938   $ (22,455 ) $ 57,098   $ 1,407,010  

Net earnings

            167,132             2,324     169,456  

Other comprehensive loss

                (62,957 )       (5,513 )   (68,470 )

Cash dividends declared

            (12,713 )               (12,713 )

Dividends to noncontrolling interests

                        (1,767 )   (1,767 )

Acquisition of Locker

                        325     325  

Stock plan exercises; 85,874 shares acquired

                    (13,602 )       (13,602 )

Stock options exercised; 177,902 shares issued

        (3,647 )   3,378         14,367         14,098  

Tax benefit from stock option exercises

        305                     305  

Stock option expense

        2,627                     2,627  

Stock awards; 2,667 shares issued

        715             373         1,088  
                               

Balance at June 29, 2013

  $ 27,900   $   $ 1,458,326   $ (19,019 ) $ (21,317 ) $ 52,467   $ 1,498,357  
                               

   

See accompanying notes to condensed consolidated financial statements.

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Condensed Consolidated Financial Statements

        The Condensed Consolidated Balance Sheet as of June 29, 2013, the Condensed Consolidated Statements of Earnings and Comprehensive Income for the thirteen and twenty-six weeks ended June 29, 2013 and June 30, 2012, and the Condensed Consolidated Statements of Cash Flows and Shareholders' Equity for the twenty-six week periods then ended have been prepared by the Company, without audit. In the opinion of management, all necessary adjustments (which include normal recurring adjustments) have been made to present fairly the financial statements as of June 29, 2013 and for all periods presented.

        Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2012. The accounting policies and methods of computation followed in these interim financial statements are the same as those followed in the financial statements for the year ended December 29, 2012. In 2013, the Company changed its presentation of certain intercompany utility structure sales to align with management's current reporting structure. In 2013, those sales were recorded as part of the Engineered Infrastructure Products (EIP) segment. In 2012, these sales were recorded in the Utility Support Structures segment. Fiscal 2012 reporting was reclassified to conform with the 2013 presentation. Accordingly, fiscal 2012 EIP segment sales (and the associated intersegment sales elimination) for the thirteen and twenty-six weeks ended June 30, 2012 increased by $10,034 and $16,062, respectively. Fiscal 2012 segment sales (after intersegment sales eliminations) and operating income were unchanged from amounts previously reported. The results of operations for the period ended June 29, 2013 are not necessarily indicative of the operating results for the full year.

    Inventories

        Approximately 40% and 43% of inventory is valued at the lower of cost, determined on the last-in, first-out (LIFO) method, or market as of June 29, 2013 and December 29, 2012, respectively. 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 is approximately $42,468 and $45,822 at June 29, 2013 and December 29, 2012, respectively.

8


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Inventories consisted of the following:

 
  June 29,
2013
  December 29,
2012
 

Raw materials and purchased parts

  $ 182,907   $ 199,808  

Work-in-process

    39,385     36,114  

Finished goods and manufactured goods

    233,584     222,284  
           

Subtotal

    455,876     458,206  

Less: LIFO reserve

    42,468     45,822  
           

  $ 413,408   $ 412,384  
           

    Income Taxes

        Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries for the thirteen and twenty-six weeks ended June 29, 2013 and June 30, 2012, were as follows:

 
  Thirteen Weeks
Ended
  Twenty-six Weeks
Ended
 
 
  2013   2012   2013   2012  

United States

  $ 98,684   $ 68,132   $ 187,421   $ 130,827  

Foreign

    39,531     21,732     63,703     37,703  
                   

  $ 138,215   $ 89,864   $ 251,124   $ 168,530  
                   

    Pension Benefits

        The Company incurs expenses in connection with the Delta Pension Plan ("DPP"). The DPP was acquired as part of the Delta plc acquisition in fiscal 2010 and has no members that are active employees. In order to measure expense and the related benefit obligation, various assumptions are made including discount rates used to value the obligation, expected return on plan assets used to fund these expenses and estimated future inflation rates. These assumptions are based on historical experience as well as current facts and circumstances. An actuarial analysis is used to measure the expense and liability associated with pension benefits.

        The components of the net periodic pension expense for the twenty-six weeks ended June 29, 2013 and June 30, 2012 were as follows:

 
  2013   2012  

Net periodic benefit expense:

             

Interest cost

  $ 13,058   $ 11,594  

Expected return on plan assets

    (9,813 )   (9,544 )
           

Net periodic benefit expense

  $ 3,245   $ 2,050  
           

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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)

    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 options, nonqualified stock options, stock appreciation rights, non-vested stock awards and bonuses of common stock. At June 29, 2013, 1,700,000 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 closing 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 options for the thirteen and twenty-six weeks ended June 29, 2013 and June 30, 2012, respectively, were as follows:

 
  Thirteen Weeks Ended   Twenty-six Weeks Ended  
 
  2013   2012   2013   2012  

Compensation expense

  $ 1,314   $ 1,245   $ 2,627   $ 2,490  

Income tax benefits

    505     479     1,011     959  

    Equity Method Investments

        The Company has equity method investments in non-consolidated subsidiaries, which are recorded within "Other assets" on the Condensed Consolidated Balance Sheet. In February 2013, the Company sold its nonconsolidated investment in Manganese Materials Company Pty. Ltd. to the majority owner of the business for approximately $29,250. The profit on the sale was not significant, which included the recognition of $5,194 in currency translation adjustments previously recorded as part of "Accumulated other comprehensive income" on the Condensed consolidated balance sheet. The Company also recognized certain deferred tax benefits of approximately $3,200 associated with the sale in the first quarter of fiscal 2013.

    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 refer broadly to the assumptions that market participants would use in pricing the asset or liability, including

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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)

assumptions about risk. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

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

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

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

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

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

        Trading Securities: The assets and liabilities recorded for the investments held in the Valmont Deferred Compensation Plan represent mutual funds, invested in debt and equity securities, classified as trading securities in accordance with Accounting Standards Codification 320, Accounting for Certain Investments in Debt and Equity Securities, considering the employee's ability to change investment allocation of their deferred compensation at any time. Quoted market prices are available for these securities in an active market and therefore categorized as a Level 1 input.

 
   
  Fair Value Measurement Using:  
 
  Carrying Value
June 29, 2013
  Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
  Significant Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Assets:

                         

Trading Securities

  $ 24,562   $ 24,562   $   $  

 

 
   
  Fair Value Measurement Using:  
 
  Carrying Value
December 29, 2012
  Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
  Significant Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Assets:

                         

Trading Securities

  $ 20,087   $ 20,087   $   $  

    Comprehensive Income

        Comprehensive income includes net earnings, currency translation adjustments, certain derivative-related activity and changes in net actuarial gains/losses from a pension plan. Results of operations for foreign subsidiaries are translated using the average exchange rates during the period. Assets 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)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

liabilities are translated at the exchange rates in effect on the balance sheet dates. Accumulated other comprehensive income (loss) consisted of the following at June 29, 2013 and December 29, 2012:

 
  Foreign
Currency
Translation
Adjustments
  Unrealized
Loss on Cash
Flow Hedge
  Defined Benefit
Pension Plan
  Accumulated
Other
Comprehensive
Income
 

Balance at December 29, 2012

  $ 30,576   $ (2,935 ) $ 16,297   $ 43,938  

Current-period comprehensive income (loss)

    (62,263 )   200     (894 )   (62,957 )
                   

Balance at June 29, 2013

  $ (31,687 ) $ (2,735 ) $ 15,403   $ (19,019 )
                   

(2) ACQUISITION OF LOCKER GROUP HOLDINGS PTY. LTD.

        On February 5, 2013, the Company purchased 100% of the outstanding shares of Locker Group Holdings Pty. Ltd. (Locker). Locker is a manufacturer of perforated and expanded metal for the non-residential market, industrial flooring and handrails for the access systems market, and screening media for applications in the industrial and mining sectors in Australia and Asia. Locker's annual sales for the twelve months prior to the acquisition date were approximately $80,000 and its operations are reported in the Engineered Infrastructure Products Segment. The purchase price paid for the business at closing (net of $116 cash acquired) was $53,152. In addition, a maximum of $7,911 additional purchase price may be paid to the sellers upon the achievement of certain gross profit and inventory targets over the next two years. The Company determined the present value of the potential additional purchase price at February 5, 2013 to be $6,175. The acquisition, which was funded by cash held by the Company, was completed to expand our product offering and sales coverage for access systems and related products in Asia Pacific.

        The preliminary fair value measurement was completed at June 29, 2013, subject to final independent reviews of the fair value assessments of assets acquired and liabilities assumed. The Company expects the fair value measurement process to be completed in the third quarter of 2013.

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

 
  At February 5,
2013
 

Current assets

  $ 25,584  

Property, plant and equipment

    20,412  

Intangible assets

    11,199  

Goodwill

    13,326  
       

Total fair value of assets acquired

  $ 70,521  
       

Current liabilities

    9,595  

Deferred income taxes

    481  

Other non-current liabilities

    677  

Non-controlling interests

    325  
       

Total fair value of liabilities assumed and non-controlling interests

    11,078  
       

Net assets acquired

  $ 59,443  
       

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

(2) ACQUISITION OF LOCKER GROUP HOLDINGS PTY. LTD. (Continued)

        The Company's Condensed Consolidated Statements of Earnings for the thirteen and twenty-six weeks ended June 29, 2013 included net sales of $18,082 and $29,936, respectively, and net earnings of $288 and $539, respectively, resulting from Locker's operations from February 5, 2013 to June 29, 2013.

        Based on the fair value assessments, the Company allocated $11,199 of the purchase price to acquired intangible assets. The following table summarizes the major classes of Locker acquired intangible assets and the respective weighted-average amortization periods:

 
  Amount   Weighted
Average
Amortization
Period
(Years)
 

Trade Names

  $ 4,116     Indefinite  

Customer Relationships

    6,047     10.0  

Software and Technology

    1,036     5.0  
             

  $ 11,199        
             

(3) GOODWILL AND INTANGIBLE ASSETS

    Amortized Intangible Assets

        The components of amortized intangible assets at June 29, 2013 and December 29, 2012 were as follows:

 
  June 29, 2013
 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Weighted
Average
Life

Customer Relationships

  $ 171,290   $ 68,632   13 years

Proprietary Software & Database

    3,949     2,824   6 years

Patents & Proprietary Technology

    9,592     6,084   8 years

Non-compete Agreements

    1,793     1,582   6 years
             

  $ 186,624   $ 79,122    
             

 

 
  December 29, 2012
 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Weighted
Average
Life

Customer Relationships

  $ 170,556   $ 62,957   13 years

Proprietary Software & Database

    3,073     2,795   6 years

Patents & Proprietary Technology

    9,953     5,517   8 years

Non-compete Agreements

    1,807     1,542   6 years
             

  $ 185,389   $ 72,811    
             

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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 twenty-six weeks ended June 29, 2013 and June 30, 2012, respectively was as follows:

 
  Thirteen Weeks Ended   Twenty-six Weeks Ended    
 
  2013   2012   2013   2012    
    $ 3,458   $ 3,624   $ 7,696   $ 7,169    

        Estimated annual amortization expense related to finite-lived intangible assets is as follows:

 
  Estimated
Amortization
Expense
 

2013

  $ 15,715  

2014

    14,898  

2015

    14,053  

2016

    13,518  

2017

    13,479  

        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.

    Non-amortized intangible assets

        Intangible assets with indefinite lives are not amortized. The carrying values of trade names at June 29, 2013 and December 29, 2012 were as follows:

 
  June 29,
2013
  December 29,
2012
  Year
Acquired
 

Webforge

  $ 16,456   $ 17,411     2010  

Newmark

    11,111     11,111     2004  

Ingal EPS/Ingal Civil Products

    8,685     9,189     2010  

Donhad

    6,552     6,932     2010  

Industrial Galvanizers

    3,809     4,030     2010  

Other

    14,355     11,019        
                 

  $ 60,968   $ 59,692        
                 

        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.

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

(3) GOODWILL AND INTANGIBLE ASSETS (Continued)

        The Company's trade names were tested for impairment in the third quarter of 2012. The values of the trade names were determined using the relief-from-royalty method. Based on this evaluation, the Company determined that its trade names were not impaired.

    Goodwill

        The carrying amount of goodwill by segment as of June 29, 2013 and December 29, 2012 was as follows:

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

Balance at December 29, 2012

  $ 155,185   $ 77,141   $ 77,053   $ 2,517   $ 18,895   $ 330,791  

Acquisitions

    13,326                     13,326  

Foreign currency translation

    (9,663 )       (998 )   (54 )   (1,035 )   (11,750 )

Other

    1,737     (1,737 )                
                           

Balance at June 29, 2013

  $ 160,585   $ 75,404   $ 76,055   $ 2,463   $ 17,860   $ 332,367  
                           

        The goodwill from acquisitions arose from the acquisition of Locker. The Company's goodwill was tested for impairment during the third quarter of 2012. As a result of that testing, the Company determined that its goodwill was not impaired, as the valuation of the reporting units exceeded their respective carrying values. The Company continues to monitor changes in the global economy that could impact future operating results of its reporting units. If such conditions arise, the Company will test a given reporting unit for impairment prior to the annual test.

(4) CASH FLOW SUPPLEMENTARY INFORMATION

        The Company considers all highly liquid temporary cash investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents. Cash payments for interest and income taxes (net of refunds) for the twenty-six weeks ended June 29, 2013 and June 30, 2012 were as follows:

 
  2013   2012  

Interest

  $ 16,329   $ 15,494  

Income taxes

    103,604     73,105  

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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 provides a reconciliation between Basic and Diluted earnings per share (EPS):

 
  Basic EPS   Dilutive
Effect of
Stock Options
  Diluted EPS  

Thirteen weeks ended June 29, 2013:

                   

Net earnings attributable to Valmont Industries, Inc. 

  $ 89,563   $   $ 89,563  

Shares outstanding

    26,648     262     26,910  

Per share amount

  $ 3.36   $ (0.03 ) $ 3.33  

Thirteen weeks ended June 30, 2012:

                   

Net earnings attributable to Valmont Industries, Inc. 

  $ 59,980   $   $ 59,980  

Shares outstanding

    26,467     291     26,758  

Per share amount

  $ 2.27   $ (0.03 ) $ 2.24  

Twenty-six weeks ended June 29, 2013:

                   

Net earnings attributable to Valmont Industries, Inc. 

  $ 167,132   $   $ 167,132  

Shares outstanding

    26,615     269     26,884  

Per share amount

  $ 6.28   $ (0.06 ) $ 6.22  

Twenty-six weeks ended June 30, 2012:

                   

Net earnings attributable to Valmont Industries, Inc. 

  $ 112,305   $   $ 112,305  

Shares outstanding

    26,432     286     26,718  

Per share amount

  $ 4.25   $ (0.05 ) $ 4.20  

        At June 29, 2013 there were 1,172 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 weeks and twenty-six weeks ending June 29, 2013. At June 30, 2012, there were no outstanding stock options with exercise prices exceeding the market price of common stock.

(6) BUSINESS SEGMENTS

        The Company has four reportable segments based on its management structure. Each segment is global in nature with a manager responsible for segment operational performance and the allocation of capital within the segment. 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;

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

(6) BUSINESS SEGMENTS (Continued)

        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, electrolytic manganese dioxide for disposable batteries and the distribution of industrial fasteners and are reported in the "Other" category.

        The accounting policies of the reportable segments are the same as those described in Note 1. The Company evaluates the performance of its business segments based upon operating income and invested capital. The Company does not allocate interest expense, non-operating income and deductions, or income taxes to its business segments.

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

(6) BUSINESS SEGMENTS (Continued)

Summary by Business

 
  Thirteen Weeks Ended   Twenty-six Weeks Ended  
 
  June 29,
2013
  June 30,
2012
  June 29,
2013
  June 30,
2012
 

SALES:

                         

Engineered Infrastructure Products segment:

                         

Lighting, Traffic, and Roadway Products

  $ 161,487   $ 158,575   $ 308,657   $ 297,900  

Communication Products

    34,771     36,488     63,393     63,183  

Access Systems

    54,378     40,753     102,256     78,660  
                   

Engineered Infrastructure Products segment

    250,636     235,816     474,306     439,743  

Utility Support Structures segment:

                         

Steel

    201,164     185,079     411,661     352,043  

Concrete

    27,079     27,158     56,220     51,426  
                   

Utility Support Structures segment

    228,243     212,237     467,881     403,469  

Coatings segment

    93,798     84,837     183,043     167,684  

Irrigation segment

    270,175     194,496     514,882     390,762  

Other

    83,679     87,194     161,548     173,257  
                   

Total

    926,531     814,580     1,801,660     1,574,915  

INTERSEGMENT SALES:

                         

Engineered Infrastructure Products segment

    22,169     24,726     51,621     43,146  

Utility Support Structures segment

    299     467     710     2,447  

Coatings segment

    14,448     13,252     28,778     25,949  

Irrigation segment

    1     6     1     431  

Other

    10,955     8,814     22,261     18,277  
                   

Total

    47,872     47,265     103,371     90,250  

NET SALES:

                         

Engineered Infrastructure Products segment

    228,467     211,090     422,685     396,597  

Utility Support Structures segment

    227,944     211,770     467,171     401,022  

Coatings segment

    79,350     71,585     154,265     141,735  

Irrigation segment

    270,174     194,490     514,881     390,331  

Other

    72,724     78,380     139,287     154,980  
                   

Total

  $ 878,659   $ 767,315   $ 1,698,289   $ 1,484,665  
                   

OPERATING INCOME:

                         

Engineered Infrastructure Products segment

  $ 22,603   $ 14,168   $ 35,337   $ 22,192  

Utility Support Structures segment

    42,121     26,574     88,276     51,678  

Coatings segment

    23,552     19,517     36,972     36,029  

Irrigation segment

    64,174     37,607     118,733     76,015  

Other

    13,025     12,259     23,812     23,670  

Corporate

    (21,210 )   (12,773 )   (40,675 )   (29,414 )
                   

Total

  $ 144,265   $ 97,352   $ 262,455   $ 180,170  
                   

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

(7) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION

        The Company has $450,000 principal amount of senior unsecured notes outstanding at a coupon interest rate of 6.625% per annum. 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.

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


CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Thirteen weeks ended June 29, 2013

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net sales

  $ 426,817   $ 169,027   $ 360,802   $ (77,987 ) $ 878,659  

Cost of sales

    297,949     126,290     273,482     (80,533 )   617,188  
                       

Gross profit

    128,868     42,737     87,320     2,546     261,471  

Selling, general and administrative expenses

    55,720     14,347     47,139         117,206  
                       

Operating income

    73,148     28,390     40,181     2,546     144,265  
                       

Other income (expense):

                               

Interest expense

    (7,636 )   (11,944 )   (390 )   11,945     (8,025 )

Interest income

    8     237     13,552     (11,945 )   1,852  

Other

    394     31     (302 )       123  
                       

    (7,234 )   (11,676 )   12,860         (6,050 )
                       

Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries

    65,914     16,714     53,041     2,546     138,215  
                       

Income tax expense (benefit):

                               

Current

    24,824     6,546     16,182     658     48,210  

Deferred

    (750 )   1,399     (1,691 )       (1,042 )
                       

    24,074     7,945     14,491     658     47,168  
                       

Earnings before equity in earnings of nonconsolidated subsidiaries

    41,840     8,769     38,550     1,888     91,047  

Equity in earnings of nonconsolidated subsidiaries

    47,723     23,234         (70,688 )   269  
                       

Net earnings

    89,563     32,003     38,550     (68,800 )   91,316  

Less: Earnings attributable to noncontrolling interests

            (1,753 )       (1,753 )
                       

Net earnings attributable to Valmont Industries, Inc

  $ 89,563   $ 32,003   $ 36,797   $ (68,800 ) $ 89,563  
                       

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

(7) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Twenty-six Weeks Ended June 29, 2013

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net sales

  $ 843,430   $ 339,876   $ 686,211   $ (171,228 ) $ 1,698,289  

Cost of sales

    598,629     255,288     521,865     (174,333 )   1,201,449  
                       

Gross profit

    244,801     84,588     164,346     3,105     496,840  

Selling, general and administrative expenses

    105,746     28,341     100,298         234,385  
                       

Operating income

    139,055     56,247     64,048     3,105     262,455  
                       

Other income (expense):

                               

Interest expense

    (15,391 )   (24,574 )   (824 )   24,574     (16,215 )

Interest income

    15     490     27,274     (24,574 )   3,205  

Other

    1,802     46     (169 )       1,679  
                       

    (13,574 )   (24,038 )   26,281         (11,331 )
                       

Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries

    125,481     32,209     90,329     3,105     251,124  
                       

Income tax expense (benefit):

                               

Current

    45,999     13,382     26,652     837     86,870  

Deferred

    (2,504 )   1,702     (3,927 )       (4,729 )
                       

    43,495     15,084     22,725     837     82,141  
                       

Earnings before equity in earnings of nonconsolidated subsidiaries

    81,986     17,125     67,604     2,268     168,983  

Equity in earnings of nonconsolidated subsidiaries

    85,146     42,385     207     (127,265 )   473  
                       

Net earnings

    167,132     59,510     67,811     (124,997 )   169,456  

Less: Earnings attributable to noncontrolling interests

            (2,324 )       (2,324 )
                       

Net earnings attributable to Valmont Industries, Inc

    167,132     59,510     65,487     (124,997 )   167,132  
                       

20


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

(7) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Thirteen weeks ended June 30, 2012

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net sales

  $ 347,643   $ 152,159   $ 333,171   $ (65,658 ) $ 767,315  

Cost of sales

    249,557     121,658     261,374     (64,669 )   567,920  
                       

Gross profit

    98,086     30,501     71,797     (989 )   199,395  

Selling, general and administrative expenses

    43,762     13,177     45,104         102,043  
                       

Operating income

    54,324     17,324     26,693     (989 )   97,352  
                       

Other income (expense):

                               

Interest expense

    (7,573 )   (12,244 )   152     12,244     (7,421 )

Interest income

    5     129     14,020     (12,244 )   1,910  

Other

    (454 )   11     (1,534 )       (1,977 )
                       

    (8,022 )   (12,104 )   12,638         (7,488 )
                       

Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries

    46,302     5,220     39,331     (989 )   89,864  
                       

Income tax expense (benefit):

                               

Current

    19,363     6,197     10,425         35,985  

Deferred

    (2,963 )   (1,031 )   (1,199 )       (5,193 )
                       

    16,400     5,166     9,226         30,792  
                       

Earnings before equity in earnings of nonconsolidated subsidiaries

    29,902     54     30,105     (989 )   59,072  

Equity in earnings of nonconsolidated subsidiaries

    30,078     23,253     2,276     (53,520 )   2,087  
                       

Net earnings

  $ 59,980   $ 23,307   $ 32,381   $ (54,509 ) $ 61,159  

Less: Earnings attributable to noncontrolling interests

            (1,179 )       (1,179 )
                       

Net earnings attributable to Valmont Industries, Inc

  $ 59,980   $ 23,307   $ 31,202   $ (54,509 ) $ 59,980  
                       

21


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

(7) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Twenty-six Weeks Ended June 30, 2012

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net sales

    712,483     280,871     627,113     (135,802 )   1,484,665  

Cost of sales

    517,069     225,300     491,297     (134,710 )   1,098,956  
                       

Gross profit

    195,414     55,571     135,816     (1,092 )   385,709  

Selling, general and administrative expenses

    87,034     26,965     91,540         205,539  
                       

Operating income

    108,380     28,606     44,276     (1,092 )   180,170  

Other income (expense):

                               

Interest expense

    (15,255 )   (24,501 )   27     24,501     (15,228 )

Interest income

    14     323     28,152     (24,501 )   3,988  

Other

    1,005     25     (1,430 )       (400 )
                       

    (14,236 )   (24,153 )   26,749         (11,640 )
                       

Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries              

    94,144     4,453     71,025     (1,092 )   168,530  
                       

Income tax expense (benefit):

                               

Current

    36,548     5,296     21,170         63,014  

Deferred

    (2,769 )   139     (1,826 )       (4,456 )
                       

    33,779     5,435     19,344         58,558  
                       

Earnings before equity in earnings of nonconsolidated subsidiaries

    60,365     (982 )   51,681     (1,092 )   109,972  

Equity in earnings of nonconsolidated subsidiaries

    51,940     46,361     3,932     (98,458 )   3,775  
                       

Net earnings

    112,305     45,379     55,613     (99,550 )   113,747  

Less: Earnings attributable to noncontrolling interests

            (1,442 )       (1,442 )
                       

Net earnings attributable to Valmont Industries, Inc

  $ 112,305   $ 45,379   $ 54,171   $ (99,550 ) $ 112,305  
                       

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)

(7) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirteen weeks ended June 29, 2013

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net earnings

  $ 89,563   $ 32,003   $ 38,550   $ (68,800 ) $ 91,316  
                       

Other comprehensive income (loss), net of tax:

                               

Foreign currency translation adjustments:

                               

Unrealized gains (losses) arising during the period

        65,807     (118,769 )       (52,962 )

Realized (loss) included in net earnings during the period

                     
                       

        65,807     (118,769 )       (52,962 )
                       

Unrealized loss on cash flow hedge:

                               

Amortization cost included in interest expense          

    100                 100  
                       

    100                 100  
                       

Actuarial gain (loss) in defined benefit pension plan liability

            42         42  

Equity in other comprehensive income

   
(49,618

)
 
   
   
49,618
   
 
                       

Other comprehensive income (loss)

    (49,518 )   65,807     (118,727 )   49,618     (52,820 )
                       

Comprehensive income

    40,045     97,810     (80,177 )   (19,182 )   38,496  

Comprehensive income attributable to noncontrolling interests

            1,549         1,549  
                       

Comprehensive income attributable to Valmont Industries, Inc. 

  $ 40,045   $ 97,810   $ (78,628 ) $ (19,182 ) $ 40,045  
                       

23


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

(7) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Twenty-six Weeks Ended June 29, 2013

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net earnings

  $ 167,132   $ 59,510   $ 67,811   $ (124,997 ) $ 169,456  
                       

Other comprehensive income (loss), net of tax:

                               

Foreign currency translation adjustments:

                               

Unrealized gains (losses) arising during the period

        27,486     (90,068 )       (62,582 )

Realized (loss) included in net earnings during the period

            (5,194 )       (5,194 )
                       

        27,486     (95,262 )       (67,776 )
                       

Unrealized loss on cash flow hedge:

                               

Amortization cost included in interest expense          

    200                 200  
                       

    200                 200  
                       

Actuarial gain (loss) in defined benefit pension plan liability

            (894 )       (894 )

Equity in other comprehensive income

   
(63,157

)
 
         
63,157
   
 
                       

Other comprehensive income (loss)

    (62,957 )   27,486     (96,156 )   63,157     (68,470 )
                       

Comprehensive income

    104,175     86,996     (28,345 )   (61,840 )   100,986  

Comprehensive income attributable to noncontrolling interests

            3,189         3,189  
                       

Comprehensive income attributable to Valmont Industries, Inc. 

  $ 104,175   $ 86,996   $ (25,156 ) $ (61,840 ) $ 104,175  
                       

24


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

(7) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirteen weeks ended June 30, 2012

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net earnings

  $ 59,980   $ 23,307   $ 32,381   $ (54,509 ) $ 61,159  
                       

Other comprehensive income (loss), net of tax:

                               

Foreign currency translation adjustments:

                               

Unrealized gains (losses) arising during the period

        14,123     (38,433 )   (6,511 )   (30,821 )
                       

        14,123     (38,433 )   (6,511 )   (30,821 )
                       

Unrealized loss on cash flow hedge:

                               

Amortization cost included in interest expense          

    100                 100  
                       

    100                 100  
                       

Actuarial gain (loss) in defined benefit pension plan liability

            (1,238 )       (1,238 )

Equity in other comprehensive income

   
(28,347

)
 
   
   
28,347
   
 
                       

Other comprehensive income (loss)

    (28,247 )   14,123     (39,671 )   21,836     (31,959 )
                       

Comprehensive income

    31,733     37,430     (7,290 )   (32,673 )   29,200  

Comprehensive income attributable to noncontrolling interests

            2,533         2,533  
                       

Comprehensive income attributable to Valmont Industries, Inc. 

  $ 31,733   $ 37,430   $ (4,757 ) $ (32,673 ) $ 31,733  
                       

25


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

(7) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Twenty-six Weeks Ended June 30, 2012

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Net earnings

  $ 112,305   $ 45,379   $ 55,613   $ (99,550 ) $ 113,747  
                       

Other comprehensive income (loss), net of tax:

                               

Foreign currency translation adjustments:

                               

Unrealized gains (losses) arising during the period

        (2,244 )   7,496     (6,511 )   (1,259 )
                       

        (2,244 )   7,496     (6,511 )   (1,259 )
                       

Unrealized loss on cash flow hedge:

                               

Amortization cost included in interest expense          

    200                 200  
                       

    200                 200  
                       

Actuarial gain in defined benefit pension plan liability

            633         633  

Equity in other comprehensive income

   
(1,665

)
 
   
   
1,665
   
 
                       

Other comprehensive income (loss)

    (1,465 )   (2,244 )   8,129     (4,846 )   (426 )
                       

Comprehensive income

    110,840     43,135     63,742     (104,396 )   113,321  

Comprehensive income attributable to noncontrolling interests

            (2,481 )       (2,481 )
                       

Comprehensive income attributable to Valmont Industries, Inc. 

  $ 110,840   $ 43,135   $ 61,261   $ (104,396 ) $ 110,840  
                       

26


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

(7) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)

CONDENSED CONSOLIDATED BALANCE SHEETS
June 29, 2013

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

ASSETS

                               

Current assets:

                               

Cash and cash equivalents

  $ 135,336   $ 29,738   $ 325,403   $   $ 490,477  

Receivables, net

    143,707     81,159     288,900         513,766  

Inventories

    135,396     70,345     207,667         413,408  

Prepaid expenses

    6,573     712     26,302         33,587  

Refundable and deferred income taxes

    38,155     5,605     24,408         68,168  
                       

Total current assets

    459,167     187,559     872,680         1,519,406  
                       

Property, plant and equipment, at cost

    476,731     141,114     401,143         1,018,988  

Less accumulated depreciation and amortization

    296,524     58,723     133,259         488,506  
                       

Net property, plant and equipment

    180,207     82,391     267,884         530,482  
                       

Goodwill

    20,108     107,542     204,717         332,367  

Other intangible assets

    419     50,869     117,182         168,470  

Investment in subsidiaries and intercompany accounts

    1,446,491     1,348,693     556,568     (3,351,752 )    

Other assets

    36,588         64,310         100,898  
                       

Total assets

  $ 2,142,980   $ 1,777,054   $ 2,083,341   $ (3,351,752 ) $ 2,651,623  
                       

LIABILITIES AND SHAREHOLDERS' EQUITY

                               

Current liabilities:

                               

Current installments of long-term debt

  $ 188   $   $ 269   $   $ 457  

Notes payable to banks

            16,004         16,004  

Accounts payable

    66,559     19,128     126,410         212,097  

Accrued employee compensation and benefits

    58,734     9,046     32,756         100,536  

Accrued expenses

    37,575     4,227     39,186         80,988  

Dividends payable

    6,693                 6,693  
                       

Total current liabilities

    169,749     32,401     214,625         416,775  
                       

Deferred income taxes

    19,182     28,254     32,715         80,151  

Long-term debt, excluding current installments

    470,919     532,852     743     (532,852 )   471,662  

Defined benefit pension liability

            98,707         98,707  

Deferred compensation

    29,689         7,428         37,117  

Other noncurrent liabilities

    7,551         41,303         48,854  

Shareholders' equity:

                               

Common stock of $1 par value

    27,900     457,950     254,982     (712,932 )   27,900  

Additional paid-in capital

        150,286     894,239     (1,044,525 )    

Retained earnings

    1,458,326     526,750     505,878     (1,032,628 )   1,458,326  

Accumulated other comprehensive income (loss)

    (19,019 )   48,561     (19,746 )   (28,815 )   (19,019 )

Treasury stock

    (21,317 )               (21,317 )
                       

Total Valmont Industries, Inc. shareholders' equity

    1,445,890     1,183,547     1,635,353     (2,818,900 )   1,445,890  
                       

Noncontrolling interest in consolidated subsidiaries

            52,467         52,467  
                       

Total shareholders' equity

    1,445,890     1,183,547     1,687,820     (2,818,900 )   1,498,357  
                       

Total liabilities and shareholders' equity

  $ 2,142,980   $ 1,777,054   $ 2,083,341   $ (3,351,752 ) $ 2,651,623  
                       

27


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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

(7) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)

CONDENSED CONSOLIDATED BALANCE SHEETS
December 29, 2012

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

ASSETS

                               

Current assets:

                               

Cash and cash equivalents

  $ 40,926   $ 83,203   $ 290,000   $   $ 414,129  

Receivables, net

    144,161     86,403     285,338         515,902  

Inventories

    146,619     71,988     193,777         412,384  

Prepaid expenses

    7,153     1,029     16,962         25,144  

Refundable and deferred income taxes

    29,359     6,904     22,118         58,381  
                       

Total current assets

    368,218     249,527     808,195         1,425,940  
                       

Property, plant and equipment, at cost

    456,497     122,937     415,340         994,774  

Less accumulated depreciation and amortization

    288,226     55,239     138,697         482,162  
                       

Net property, plant and equipment

    168,271     67,698     276,643         512,612  
                       

Goodwill

    20,108     107,542     203,141         330,791  

Other intangible assets

    499     53,517     118,254         172,270  

Investment in subsidiaries and intercompany accounts

    1,456,159     1,246,777     615,152     (3,318,088 )    

Other assets

    32,511         94,427         126,938  
                       

Total assets

  $ 2,045,766   $ 1,725,061   $ 2,115,812   $ (3,318,088 ) $ 2,568,551  
                       

LIABILITIES AND SHAREHOLDERS' EQUITY

                               

Current liabilities:

                               

Current installments of long-term debt

  $ 189   $   $ 35   $   $ 224  

Notes payable to banks

            13,375         13,375  

Accounts payable

    72,610     22,006     117,808         212,424  

Accrued employee compensation and benefits

    61,572     10,530     29,803           101,905  

Accrued expenses

    30,641     4,674     43,188         78,503  

Income taxes payable

        31     669     (700 )    

Dividends payable

    6,002                 6,002  
                       

Total current liabilities

    171,014     37,241     204,878     (700 )   412,433  
                       

Deferred income taxes

    23,305     27,851     37,144         88,300  

Long-term debt, excluding current installments

    471,828     599,873     765     (599,873 )   472,593  

Defined benefit pension liability

            112,043         112,043  

Deferred compensation

    25,200         6,720         31,920  

Other noncurrent liabilities

    4,507         39,745         44,252  

Shareholders' equity:

                               

Common stock of $1 par value

    27,900     457,950     254,982     (712,932 )   27,900  

Additional paid-in capital

        150,286     893,274     (1,043,560 )    

Retained earnings

    1,300,529     467,240     443,337     (910,577 )   1,300,529  

Accumulated other comprehensive income

    43,938     (15,380 )   65,826     (50,446 )   43,938  

Treasury stock

    (22,455 )               (22,455 )
                       

Total Valmont Industries, Inc. shareholders' equity

    1,349,912     1,060,096     1,657,419     (2,717,515 )   1,349,912  
                       

Noncontrolling interest in consolidated subsidiaries

            57,098         57,098  
                       

Total shareholders' equity

    1,349,912     1,060,096     1,714,517     (2,717,515 )   1,407,010  
                       

Total liabilities and shareholders' equity

  $ 2,045,766   $ 1,725,061   $ 2,115,812   $ (3,318,088 ) $ 2,568,551  
                       

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

(7) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Twenty-six Weeks Ended June 29, 2013

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Cash flows from operating activities:

                               

Net earnings

  $ 167,132   $ 59,510   $ 67,811   $ (124,997 ) $ 169,456  

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

                               

Depreciation and amortization

    9,834     6,452     21,900         38,186  

Stock-based compensation

    3,342                 3,342  

Defined benefit pension plan expense           

            3,245         3,245  

Contribution to defined benefit pension plan

            (10,346 )       (10,346 )

Gain on sale of property, plant and equipment

    337     36     (5,444 )       (5,071 )

Equity in earnings in nonconsolidated subsidiaries

    (266 )       (207 )       (473 )

Deferred income taxes

    (2,504 )   1,702     (3,927 )       (4,729 )

Changes in assets and liabilities (net of acquisitions):

                               

Receivables

    453     5,235     (9,019 )       (3,331 )

Inventories

    10,524     1,643     (14,658 )       (2,491 )

Prepaid expenses

    579     318     (6,807 )       (5,910 )

Accounts payable

    (6,052 )   (2,877 )   9,665         736  

Accrued expenses

    4,471     (1,932 )   377         2,916  

Other noncurrent liabilities

    3,058         (1,185 )       1,873  

Income taxes payable (refundable)           

    (10,415 )   (1,943 )   (277 )   825     (11,810 )
                       

Net cash flows from operating activities

    180,493     68,144     51,128     (124,172 )   175,593  
                       

Cash flows from investing activities:

                               

Purchase of property, plant and equipment

    (22,826 )   (18,569 )   (12,863 )       (54,258 )

Proceeds from sale of assets

    1,466     32     37,556         39,054  

Acquisitions, net of cash acquired

            (53,152 )       (53,152 )

Other, net

    (53,317 )   (99,472 )   28,484     124,172     (133 )
                       

Net cash flows from investing activities

    (74,677 )   (118,009 )   25     124,172     (68,489 )
                       

Cash flows from financing activities:

                               

Net borrowings under short-term agreements

            2,620         2,620  

Proceeds from long-term borrowings           

            68         68  

Principal payments on long-term borrowings

    (186 )       (117 )       (303 )

Dividends paid

    (12,021 )               (12,021 )

Dividends to noncontrolling interest           

            (1,767 )       (1,767 )

Proceeds from exercises under stock plans

    14,098                 14,098  

Excess tax benefits from stock option exercises

    305                 305  

Purchase of common treasury shares—stock plan exercises:

    (13,602 )               (13,602 )
                       

Net cash flows from financing activities

    (11,406 )       804         (10,602 )
                       

Effect of exchange rate changes on cash and cash equivalents

        (3,600 )   (16,554 )       (20,154 )
                       

Net change in cash and cash equivalents

    94,410     (53,465 )   35,403         76,348  

Cash and cash equivalents—beginning of year

    40,926     83,203     290,000         414,129  
                       

Cash and cash equivalents—end of period

  $ 135,336   $ 29,738   $ 325,403   $   $ 490,477  
                       

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

(7) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Twenty-six Weeks Ended June 30, 2012

 
  Parent   Guarantors   Non-Guarantors   Eliminations   Total  

Cash flows from operations:

                               

Net earnings

  $ 112,305   $ 45,379   $ 55,613   $ (99,550 ) $ 113,747  

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

                               

Depreciation and amortization

    9,121     6,341     18,905         34,367  

Stock-based compensation

    3,067                 3,067  

Defined benefit pension plan expense           

            2,050         2,050  

Contribution to defined benefit pension plan

            (10,750 )       (10,750 )

Gain on sale of property, plant and equipment

    (65 )   (44 )   (55 )       (164 )

Equity in earnings of nonconsolidated subsidiaries

    157         (3,932 )       (3,775 )

Deferred income taxes

    (2,769 )   139     (1,826 )       (4,456 )

Changes in assets and liabilities:

                               

Receivables

    (11,412 )   (27,844 )   (30,666 )       (69,922 )

Inventories

    (10,063 )   (7,131 )   (31,471 )   167     (48,498 )

Prepaid expenses

    (1,332 )   266     (2,994 )       (4,060 )

Accounts payable

    (13,913 )   5,395     10,494         1,976  

Accrued expenses

    3,009     (1,227 )   (2,403 )       (621 )

Other noncurrent liabilities

    719         (1,127 )       (408 )

Income taxes payable (refundable)           

    (13,249 )   38     (2,879 )       (16,090 )
                       

Net cash flows from operations

    75,575     21,312     (1,041 )   (99,383 )   (3,537 )
                       

Cash flows from investing activities:

                               

Purchase of property, plant and equipment

    (15,037 )   (6,017 )   (18,167 )       (39,221 )

Proceeds from sale of assets

    98     52     4,717         4,867  

Other, net

    (59,181 )   6,599     (44,964 )   99,383     1,837  
                       

Net cash flows from investing activities

    (74,120 )   634     (58,414 )   99,383     (32,517 )
                       

Cash flows from financing activities:

                               

Net borrowings under short-term agreements

            5,931         5,931  

Proceeds from long-term borrowings           

    39,000         126         39,126  

Principal payments on long-term borrowings

    (39,191 )       (41 )       (39,232 )

Proceeds from sale of partial ownership interest

            1,404         1,404  

Dividends paid

    (9,545 )               (9,545 )

Dividend to noncontrolling interests           

            (1,379 )       (1,379 )

Proceeds from exercises under stock plans

    15,153                 15,153  

Excess tax benefits from stock option exercises

    3,211                 3,211  

Purchase of common treasury shares—stock plan exercises

    (14,086 )               (14,086 )
                       

Net cash flows from financing activities

    (5,458 )       6,041         583  
                       

Effect of exchange rate changes on cash and cash equivalents

        270     688         958  
                       

Net change in cash and cash equivalents

    (4,003 )   22,216     (52,726 )       (34,513 )

Cash and cash equivalents—beginning of year

    27,545     18,257     317,092         362,894  
                       

Cash and cash equivalents—end of period

  $ 23,542   $ 40,473   $ 264,366   $   $ 328,381  
                       

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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 notes thereto, and the management's discussion and analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2012. Segment sales in the table below are presented net of intersegment sales.

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Results of Operations

        Dollars in millions, except per share amounts

 
  Thirteen Weeks Ended   Twenty-six Weeks Ended  
 
  June 29,
2013
  June 30,
2012
  % Incr.
(Decr.)
  June 29,
2013
  June 30,
2012
  % Incr.
(Decr.)
 

Consolidated

                                     

Net sales

  $ 878.7   $ 767.3     14.5 % $ 1,698.3   $ 1,484.7     14.4 %

Gross profit

    261.5     199.4     31.1 %   496.8     385.7     28.8 %

as a percent of sales

    29.8 %   26.0 %         29.3 %   26.0 %      

SG&A expense

    117.2     102.0     14.9 %   234.4     205.5     14.1 %

as a percent of sales

    13.3 %   13.3 %         13.8 %   13.8 %      

Operating income

    144.3     97.4     48.2 %   262.5     180.2     45.7 %

as a percent of sales

    16.4 %   12.7 %         15.5 %   12.1 %      

Net interest expense

    6.2     5.5     12.7 %   13.0     11.2     16.1 %

Effective tax rate

    34.1 %   34.3 %         32.7 %   34.7 %      

Net earnings

  $ 89.6   $ 60.0     49.3 % $ 167.1   $ 112.3     48.8 %

Diluted earnings per share

  $ 3.33   $ 2.24     48.7 % $ 6.22   $ 4.20     48.1 %

Engineered Infrastructure Products

                                     

Net sales

  $ 228.5   $ 211.1     8.2 % $ 422.7   $ 396.6     6.6 %

Gross profit

    64.8     54.5     18.9 %   118.4     101.1     17.1 %

SG&A expense

    42.2     40.3     4.7 %   83.1     78.9     5.3 %

Operating income

    22.6     14.2     59.2 %   35.3     22.2     59.0 %

Utility Support Structures

                                     

Net sales

  $ 227.9   $ 211.7     7.7 % $ 467.2   $ 401.0     16.5 %

Gross profit

    62.1     44.3     40.2 %   128.0     86.6     47.8 %

SG&A expense

    20.0     17.7     13.0 %   39.7     34.9     13.8 %

Operating income

    42.1     26.6     58.3 %   88.3     51.7     70.8 %

Coatings

                                     

Net sales

  $ 79.4   $ 71.6     10.9 % $ 154.3   $ 141.8     8.8 %

Gross profit

    29.1     27.4     6.2 %   52.2     52.7     (0.9 )%

SG&A expense

    5.5     7.9     (30.4 )%   15.2     16.7     (9.0 )%

Operating income

    23.6     19.5     21.0 %   37.0     36.0     2.8 %

Irrigation

                                     

Net sales

  $ 270.2   $ 194.5     38.9 % $ 514.9   $ 390.3     31.9 %

Gross profit

    87.1     55.9     55.8 %   163.5     111.9     46.1 %

SG&A expense

    22.9     18.3     25.1 %   44.8     35.9     24.8 %

Operating income

    64.2     37.6     70.7 %   118.7     76.0     56.2 %

Other

                                     

Net sales

  $ 72.7   $ 78.4     (7.3 )% $ 139.2   $ 155.0     (10.2 )%

Gross profit

    18.3     17.1     7.0 %   34.4     33.4     3.0 %

SG&A expense

    5.3     4.8     10.4 %   10.6     9.7     9.3 %

Operating income

    13.0     12.3     5.7 %   23.8     23.7     0.4 %

Net corporate expense

                                     

Gross profit

  $ 0.1   $ 0.2     NM   $ 0.3   $     NM  

SG&A expense

    21.3     13.0     63.8 %   41.0     29.4     39.5 %

Operating loss

    (21.2 )   (12.8 )   (65.6 )%   (40.7 )   (29.4 )   (38.4 )%

    NM=Not meaningful

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Overview

        On a consolidated basis, the increase in net sales in the second quarter and first half of fiscal 2013, as compared with 2012, reflected improved sales in all reportable segments while sales were down in the "Other" category. Fiscal 2013 refers to the twenty-six and thirteen week periods ended June 29, 2013 and fiscal 2012 refers to the twenty-six and thirteen week periods ended June 30, 2012. The increase in net sales in 2013, as compared with 2012, was due to the following factors:

 
  Second Quarter  
 
  Total   EIP   Utility   Coatings   Irrigation   Other  

Sales—2012

  $ 767.3   $ 211.1   $ 211.7   $ 71.6   $ 194.5   $ 78.4  

Volume

    63.4     (0.9 )   (4.7 )   (2.1 )   70.5     0.6  

Pricing/mix

    25.7         20.8     1.3     7.3     (3.7 )

Acquisitions

    27.1     18.1         9.0          

Currency translation

    (4.8 )   0.2     0.1     (0.4 )   (2.1 )   (2.6 )
                           

Sales—2013

  $ 878.7   $ 228.5   $ 227.9   $ 79.4   $ 270.2   $ 72.7  
                           

 

 
  Year-to-date  
 
  Total   EIP   Utility   Coatings   Irrigation   Other  

Sales—2012

  $ 1,484.7   $ 396.6   $ 401.0   $ 141.8   $ 390.3   $ 155.0  

Volume

    119.0     (4.0 )   22.8     (4.9 )   110.2     (5.1 )

Pricing/mix

    56.7     0.5     43.3     1.4     18.9     (7.4 )

Acquisitions

    46.9     29.9         17.0          

Currency translation

    (9.0 )   (0.3 )   0.1     (1.0 )   (4.5 )   (3.3 )
                           

Sales—2013

  $ 1,698.3   $ 422.7   $ 467.2   $ 154.3   $ 514.9   $ 139.2  
                           

        Acquisitions included Locker Holdings Group ("Locker") and Pure Metal Galvanizing ("PMG"). We acquired PMG in December 2012 and Locker in February 2013. We report Locker in the Engineered Infrastructure Products segment and PMG in the Coatings segment.

        The decrease in operating profit due to currency translation effects in the second quarter and first half of 2013, as compared with 2012 was $0.5 million and $1.2 million, respectively.

        The increase in gross margin (gross profit as a percent of sales) in fiscal 2013, as compared with 2012, was due to a combination of improved sales prices and sales mix, improved sales volumes and lower raw material costs in 2013, as compared with 2012. In general, our cost of steel and other raw materials were slightly lower in the second quarter and first half of 2013, as compared with the same periods in 2012.

        Selling, general and administrative (SG&A) spending in the second quarter and first half of fiscal 2013, as compared with the same period in 2012, increased mainly due to the following factors:

    Expenses recorded by Locker and PMG, which were acquired after the second quarter of 2012, of $5.0 million and $9.6 million, respectively;

    Increased compensation expenses of $2.1 million and $4.7 million, respectively, mainly associated with increased employment levels and salary increases, and;

    Increased employee incentive accruals of $6.0 million and $8.7 million, respectively, due to improved operating results and increased share price in valuing long-term incentive plans.

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        In addition, certain non-recurring items affecting the comparisons of SG&A expenses included:

    The sale of one of our galvanizing facilities in Australia resulted in a gain of $4.6 million in the second quarter of 2013, which was reported as a reduction of SG&A expense, and;

    Insurance proceeds received in the second quarter of 2012 related to a fire in one of our galvanizing facilities in Australia resulted in a non-recurring reduction in SG&A of $1.4 million.

        On a reportable segment basis, all segments realized improved operating income in the second quarter and first half of 2013, as compared with 2012.

        Net interest expense increased in the the second quarter and first half of fiscal 2013, as compared with 2012, due to a combination of lower interest income, as we used invested cash to fund the Locker acquisition, and slightly higher interest expense. The increase in interest expense principally was due to higher bank fees and interest incurred due to international working capital borrowings.

        Our effective income tax rate in the second quarter of fiscal 2013 was comparable with 2012. The year-to-date effective tax rate in fiscal 2013 was lower than 2012, mainly due to approximately $3.2 million of non-cash tax benefits associated with the first quarter 2013 sale of our nonconsolidated investment in South Africa and $1.0 million of increased research and development tax credits in the U.S.

        Earnings in non-consolidated subsidiaries were lower in fiscal 2013, as compared with 2012, due to the sale of our 49% owned manganese materials operation in February 2013. There was no significant gain or loss on the sale.

        Our cash flows generated by operations were approximately $175.6 million in fiscal 2013, as compared with $3.5 million used by operations in 2012. The increase in operating cash flow in 2013 was the result of improved in net earnings and lower working capital increase in 2013, as compared with 2012.

    Engineered Infrastructure Products (EIP) segment

        The increase in net sales in the second quarter and first half of fiscal 2013 as compared with 2012 was mainly due to the acquisition of Locker in February 2013. Global lighting sales in the second quarter and first half of fiscal 2013 were comparable with the same periods in fiscal 2012, and slightly improved sales in North America were offset by lower sales in Europe. The transportation market for lighting and traffic structures in the U.S., while stable, continues to be challenging. Sales in other market channels such as sales to lighting fixture manufacturers and commercial construction projects in the second quarter and first half of fiscal 2013 improved somewhat as compared with the same periods in 2012. In Europe, sales in fiscal 2013 were lower than 2012, as weak economic conditions and restricted government roadway spending activity hampered demand for lighting structures.

        Communication product line sales in fiscal 2013 were improved over 2012, mainly due to higher sales in North America of $4.1 million and $8.5 million, respectively. The increase in North America sales was mainly attributable to stronger sales demand for components due to 4G wireless communication development. In China, sales of wireless communication structures in the second quarter and first half of fiscal 2013 were lower than the same periods in fiscal 2012.

        Access systems product line sales improved in 2013, as compared with 2012, mainly due to the Locker acquisition in February 2013. Highway safety product sales in 2013 were comparable with 2012, as spending for roads and highways in Australia continues to be relatively weak due to budgetary restrictions.

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        Operating income for the segment in the second quarter and first half of fiscal 2013 increased, as compared with the same periods of fiscal 2012, due primarily to:

    improved operating performance of our pole structures operations in Europe and Asia Pacific, due to better sales mix, better factory operating performance and lower SG&A spending;

    improved North American communication product sales, and;

    operating profit generated from Locker (approximately $0.9 million and $1.3 million, respectively).

        The increase in SG&A spending was attributable to Locker (approximately $3.6 million and $6.6 million, respectively). SG&A spending otherwise was lower in 2013, as compared with 2012, mainly associated with cost cutting measures taken in Europe in the latter part of 2012.

    Utility Support Structures (Utility) segment

        In the Utility segment, the sales increase in the second quarter and first half of fiscal 2013, as compared with 2012, was due mainly to improved sales in the U.S. market. While international sales were lower in the second quarter of 2013, as compared with the same period of 2012, year-to-date international sales in 2013 improved over fiscal 2012. International utility sales are more dependent on bid projects than North America.

        In the U.S., electrical utility companies continue to invest in the electrical grid at a high rate, as evidenced by record backlogs at December 29, 2012 and continued strong order flow in 2013. Certain low margin orders that shipped and were completed in fiscal 2012 contributed to improved sales prices and mix in 2013, as compared with 2012. In international markets, the year-to-date sales increase was related to higher sales in the Asia Pacific region and certain project sales in Africa.

        Operating income in fiscal 2013, as compared with 2012, increased due to the increase in sales volumes, improved sales pricing and mix and favorable leverage of fixed costs. In addition, the second quarter and first half of fiscal 2012 included approximately $5.8 million and $7.1 million, respectively, of unanticipated production and rework costs associated with one large order. These costs did not recur in fiscal 2013, which contributed to the gross profit improvements in fiscal 2013, as compared with 2012. The increases in SG&A expense in the second quarter and first half of fiscal 2013, as compared with fiscal 2012, were mainly due to increased employee compensation ($0.5 million and $1.3 million, respectively) and incentives ($0.3 million and $0.8 million, respectively) associated with the increase in business levels and operating income.

    Coatings segment

        Coatings segment sales increased in the second quarter and first half of fiscal 2013, as compared with 2012, due mainly to the December 2012 PMG acquisition. In North America, we experienced slightly lower external demand for galvanizing services, although internal demand from our other segments was higher in the second quarter and first half of 2013, as compared with 2012. Asia Pacific volumes in 2013 were lower than 2012 due to weak demand in Australia. Unit pricing in 2013 was comparable with 2012.

        The increase in segment operating income in the second quarter and first half of fiscal 2013, as compared with 2012, was mainly due to the gain on the sale of an Australian galvanizing operation in the second quarter of fiscal 2013 of $4.6 million, and operating income provided by PMG ($1.2 million and $1.5 million, respectively). These two positive effects on fiscal 2013 operating income were offset to an extent by the effect of lower external demand for coatings services and a non-recurring favorable settlement with a vendor in the second quarter of fiscal 2012 of approximately $0.9 million.

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Table of Contents

    Irrigation segment

        The increase in Irrigation segment net sales in the second quarter and first half of fiscal 2013, as compared with 2012, was mainly due to sales volume increases in both North American and International markets. The pricing and sales mix effect was generally due to sales price increases that took effect in 2012 to recover higher material costs in early 2012. In global markets, the sales growth was due to very strong agricultural economies around the world. Farm commodity prices continue to be favorable. We believe that farm commodity prices have been favorable due to strong demand, including consumption in the production of ethanol and other fuels, and traditionally low inventories of major farm commodities. In addition, in North America, we believe widespread drought throughout much of the country in 2012 further highlighted the benefits of center pivot irrigation and contributed to enhanced demand for our products. In international markets, sales improved in the second quarter and first half of fiscal 2013, as compared with 2012, mainly due to increased activity in Brazil and Eastern Europe. On balance, sales in other international regions in the second quarter and first half of fiscal 2013 were comparable to the same periods of a strong fiscal 2012.

        Operating income for the segment improved in fiscal 2013 over 2012, due to improved sales unit volumes in North America and related price increases. Moderating raw material prices in light of higher selling prices also contributed to improved operating income in 2013, as compared with 2012. The most significant reason for the increase in SG&A expense in 2013, as compared with 2012, related to employee compensation costs and incentives (approximately $2.3 million and $3.1 million, respectively), $1.2 million in bad debt provisions for international receivables recorded in the second quarter of 2013 and other expenses to support the business activity levels and product development.

    Other

        This unit includes the grinding media, industrial tubing, electrolytic manganese and industrial fasteners operations. The decrease in sales in the second quarter and first half of fiscal 2013, as compared with 2012, was mainly due lower sales volumes and sales prices. Operating income in the second quarter and first half of fiscal 2013 was comparable with the same periods in 2012, as lower raw material prices helped to dampen the effects of lower selling prices.

    Net corporate expense

        Net corporate expense in the second quarter and first half of fiscal 2013 increased over the same periods in fiscal 2012. These increases were mainly due to:

    higher employee incentives associated with improved net earnings and share price, which affected long-term incentive plans (approximately $3.9 million and $5.6 million, respectively);

    insurance settlements realized in the second quarter of 2012 related to a fire and storm damage to one of our galvanizing facilities in Australia of $1.4 million that did not recur in fiscal 2013;

    higher compensation and employee benefit costs (approximately $1.0 million and $2.7 million, respectively), and;

    increased expenses associated with the Delta Pension Plan (approximately $0.6 million and $1.2 million, respectively).

        These increases were partially offset by 2012 stamp duties incurred in the first quarter of fiscal 2012 related to the 2011 Delta legal restructuring of $1.2 million that did not recur in 2013.

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Liquidity and Capital Resources

    Cash Flows

        Working Capital and Operating Cash Flows—Net working capital was $1,102.6 million at June 29, 2013, as compared with $1,013.5 million at December 29, 2012. The increase in net working capital in 2013 mainly resulted from increased cash on hand. Cash flow provided by operations was $175.6 million in fiscal 2013, as compared with $3.5 million used by operations in fiscal 2012. The increase in operating cash flow in 2013 was the result of the improvement in net earnings and working capital management in 2013, as compared with 2012. Despite higher sales levels, receivable and inventory levels were comparable with December 2012. Receivable turnover was slightly better in 2013, as compared with 2012, in part due to strong sales in North America, where collections generally are faster than at international locations. Inventory levels in June 2013 were comparable with December 2012, due to generally improved material lead times and has resulted in us being able to maintain lower inventory stocks at June 2013, as compared with December 2012.

        Investing Cash Flows—Capital spending in the first half of fiscal 2013 was $54.3 million, as compared with $39.2 million for the same period in 2012. The most significant capital spending projects in 2013 included certain capacity expansions in the Utility and Irrigation segments. We expect our capital spending for the 2013 fiscal year to be approximately $110 million. The increase in expected capital spending over 2012 is mainly due to capacity increases to meet the growing need for utility structures in the U.S. and additional manufacturing investment in the Irrigation segment. In 2013, investing cash flows included proceeds from asset sales of $39.1 million, principally consisting of $29.2 million received from the sale of our 49% owned non-consolidated subsidiary in South Africa and $8.2 million received from the sale of the Western Australia galvanizing operation. Investing cash flows also included $53.2 million paid for the Locker acquisition.

        Financing Cash Flows—Our total interest-bearing debt increased slightly to $488.1 million at June 29, 2013 from $486.2 million at December 29, 2012. Financing cash flows overall were lower in fiscal 2013, as compared with 2012. The main reasons for the decrease related to higher dividend payments associated with an increase in per share dividends in fiscal 2013 and lower excess tax benefits related to stock option exercises.

    Financing and Capital

        We have historically funded our growth, capital spending and acquisitions through a combination of operating cash flows and debt financing. We have an internal long-term objective to maintain long-term debt as a percent of invested capital at or below 40%. At June 29, 2013, our long-term debt to invested capital ratio was 22.8%, as compared with 23.9% at December 29, 2012. 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 2013.

        Our debt financing at June 29, 2013 consisted primarily of long-term debt. We also maintain certain short-term bank lines of credit totaling $106.6 million, $90.6 million of which was unused at June 29, 2013. Our long-term debt principally consists of:

    $450 million face value ($462 million carrying value) of senior unsecured notes that bear interest at 6.625% per annum and are due in April 2020. We are allowed to repurchase the notes at specified prepayment premiums. These notes are guaranteed by certain of our subsidiaries.

    $400 million revolving credit agreement with a group of banks. We may increase the credit facility by up to an additional $200 million at any time, subject to participating banks increasing

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      the amount of their lending commitments. The interest rate on our borrowings will be, at our option, either:

      (a)
      LIBOR (based on a 1, 2, 3 or 6 month interest period, as selected by us) plus 125 to 225 basis points (inclusive of facility fees), depending on our ratio of debt to earnings before taxes, interest, depreciation and amortization (EBITDA), or;

      (b)
      the higher of

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

        LIBOR (based on a 1 week interest period) plus 125 to 225 basis points (inclusive of facility fees), depending on our ratio of debt to EBITDA.

        At June 29, 2013 and December 29, 2012, we had no outstanding borrowings under the revolving credit agreement. The revolving credit agreement has a termination date of August 15, 2017, and contains certain financial covenants that may limit our additional borrowing capability under the agreement. At June 29, 2013, we had the ability to borrow $384.5 million under this facility, after consideration of standby letters of credit of $15.5 million associated with certain insurance obligations.

        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 as follows:

    Interest-bearing debt is not to exceed 3.5X EBITDA of the prior four quarters; and

    EBITDA over the prior four quarters must be at least 2.5X our interest expense over the same period.

        At June 29, 2013, we were in compliance with all covenants related to these debt agreements. The key covenant calculations at June 29, 2013 were as follows:

Interest-bearing debt

  $ 488,123  

EBITDA—last four quarters

    545,633  

Leverage ratio

    0.89  

EBITDA—last four quarters

 
$

545,633
 

Interest expense—last four quarters

    32,612  

Interest earned ratio

    16.73  

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        The calculation of EBITDA—last four quarters (June 30, 2012 through June 29, 2013) is as follows:

Net cash flows from operations

  $ 376,227  

Interest expense

    32,612  

Income tax expense

    150,085  

Deferred income tax benefit

    (3,448 )

Noncontrolling interest

    (5,727 )

Equity in earnings of nonconsolidated subsidiaries

    2,826  

Stock-based compensation

    (6,104 )

Pension plan expense

    (5,476 )

Contribution to pension plan

    11,187  

Changes in assets and liabilities

    (11,136 )

Other

    4,587  
       

EBITDA

  $ 545,633  
       

Net earnings attributable to Valmont Industries, Inc. 

  $ 288,899  

Interest expense

    32,612  

Income tax expense

    150,085  

Depreciation and amortization expense

    74,037  
       

EBITDA

  $ 545,633  
       

        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 $620.4 million of undistributed earnings of our foreign subsidiaries, as we intend to reinvest those earnings. Of our cash balances at June 29, 2013, approximately $352.0 million is held in entities outside the United States. 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. The income taxes that we would pay if cash were repatriated depends on the amounts to be repatriated and from which country. If all of our cash outside the United States were to be repatriated to the United States, we estimate that we would pay approximately $42.4 million in income taxes to repatriate that cash.

Financial Obligations and Financial Commitments

        There have been no material changes to our financial obligations and financial commitments as described on page 37 in our Form 10-K for the fiscal year ended December 29, 2012.

Off Balance Sheet Arrangements

        There have been no changes in our off balance sheet arrangements as described on page 38 in our Form 10-K for the fiscal year ended December 29, 2012.

Critical Accounting Policies

        There have been no changes in our critical accounting policies as described on pages 39-43 in our Form 10-K for the fiscal year ended December 29, 2012 during the quarter ended June 29, 2013.

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Item 3.    Quantitative and Qualitative Disclosures about Market Risk

        There were no material changes in the company's market risk during the quarter ended June 29, 2013. For additional information, refer to the section "Risk Management" in our Form 10-K for the fiscal year ended December 29, 2012.

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
 

March 31, 2013 to April 27, 2013

                 

April 28, 2013 to June 1, 2013

    7,919     154.91          

June 2, 2013 to June 29, 2013

                 
                   

Total

    7,919   $ 154.91          
                   

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

Item 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 June 29, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Shareholders' Equity, (vi) Notes to Condensed Consolidated Financial Statements and (vii) document and entity information.

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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/ RICHARD P. HEYSE

Richard P. Heyse
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

Dated this 25th day of July, 2013.

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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 June 29, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Shareholders' Equity, (vi) Notes to Condensed Consolidated Financial Statements and (vii) document and entity information.

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