UNITED STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
Commission file number 1-31429
Valmont Industries, Inc. (Exact name of registrant as specified in its charter)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.ý Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
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
26,064,654Outstanding shares of common stock as of April 24, 2008
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q
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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited)
See accompanying notes to condensed consolidated financial statements.
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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited)
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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (Unaudited)
1. Summary of Significant Accounting Policies
Condensed Consolidated Financial Statements
The Condensed Consolidated Balance Sheet as of March 29, 2008, the Condensed Consolidated Statements of Operations for the thirteen week periods ended March 29, 2008 and March 31, 2007 and the Condensed Consolidated Statements of Cash Flows for the thirteen week periods then ended have been prepared by the Company, without audit. In the opinion of management, all necessary adjustments (which include normal recurring adjustments) have been made to present fairly the financial statements as of March 29, 2008 and for all periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2007. The accounting policies and methods of computation followed in these interim financial statements are the same as those followed in the financial statements for the year ended December 29, 2007. The results of operations for the period ended March 29, 2008 are not necessarily indicative of the operating results for the full year.
Inventories
At March 29, 2008, approximately 48.6% of inventory is valued at the lower of cost, determined on the last-in, first-out (LIFO) method, or market. All other inventory is valued at the lower of cost, determined on the first-in, first-out (FIFO) method or market. Finished goods and manufactured goods inventories include the costs of acquired raw materials and related factory labor and overhead charges required to convert raw materials to manufactured finished goods. The excess of replacement cost of inventories over the LIFO value was approximately $42,200 and $35,800 at March 29, 2008 and December 29, 2007, respectively.
Inventories consisted of the following:
Stock Plans
The Company maintains stock-based compensation plans approved by the shareholders, which provide that the Compensation Committee of the Board of Directors may grant incentive stock options, nonqualified stock options, stock appreciation rights, non-vested stock awards and bonuses of common
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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. At March 29, 2008, 1,088,882 shares of common stock remained available for issuance under the plans. Shares and options issued and available are subject to changes in capitalization.
Under the plans, the exercise price of each option equals the market price at the date of the grant. Options vest beginning on the first anniversary of the grant in equal amounts over three to six years or on the fifth anniversary of the grant. Expiration of grants is from six to ten years from the date of grant. The Company recorded $736 and $489 of compensation expense (included in selling, general and administrative expenses) in the quarters ended March 29, 2008 and March 31, 2007, respectively, related to stock options. The associated tax benefits recorded were $283 and $188, respectively.
Fair Value
On December 30, 2007, the Company adopted SFAS No. 157, Fair Value Measurements ("SFAS 157") which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS 157 apply to other accounting pronouncements that require or permit fair value measurements. As defined in SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In February 2008, the FASB issued FASB Staff Position No. 157-2 (FSP 157-2), "Effective Date of FASB Statement 157." FSP 157-2 delayed for one year the applicability of SFAS 157's fair-value measurements to certain nonfinancial assets and liabilities. The Company adopted SFAS 157 in 2008, except as it applies to those nonfinancial assets and liabilities affected by the one-year delay.
SFAS 157 establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value.
Trading Securities: The assets and liabilities recorded for the investments held in the Valmont Deferred Compensation Plan represent mutual funds, invested in debt and equity securities, classified as trading securities in accordance with Financial Accounting Standard No. 115, Accounting for Certain Investments in Debt and Equity Securities, considering the employee's ability to change investment allocation of their
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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.
Recently Issued Accounting Pronouncements
In December 2007, the FASB issued Statement 141R ("SFAS No. 141R"), Business Combinations. This Statement amends accounting and reporting standards associated with the business combinations. This Statement requires the acquiring entity to recognize the assets acquired, liabilities assumed and noncontrolling interests in the acquired entity at the date of acquisition at their fair values, including noncontrolling interests. In addition, SFAS No. 141R requires that direct costs associated with an acquisition be expensed as incurred and sets forth various other changes in accounting and reporting related to business combinations. This Statement is effective at the beginning of the Company's 2009 fiscal year on a prospective basis. The Company is currently assessing the effect of this Statement on its consolidated financial statements.
In December 2007, the FASB issued Statement 160 ("SFAS No. 160"), Noncontrolling Interests in Consolidated Financial Statements. This Statement amended the accounting and reporting for noncontrolling interests in a consolidated subsidiary and for the deconsolidation of a subsidiary. Included in this statement is the requirement that noncontrolling interests be reported in the equity section of the balance sheet. This Statement is effective at the beginning of the Company's 2009 fiscal year. The Company is currently assessing the effect of this Statement on its consolidated financial statements.
2. Acquisitions
In January 2008, the Company acquired substantially all of the assets of Penn Summit LLC (Penn Summit), a manufacturer of steel utility and wireless communication poles located in Hazelton, Pennsylvania, for approximately $57,904, including transaction costs. In addition, $96 of interest-bearing debt was assumed as part of the acquisition. The Company recorded $26,964, of goodwill as part of the preliminary purchase price allocation and assigned the goodwill to the Utility Support Structures segment. The Company financed the acquisition with cash balances and approximately $7.5 million of borrowings through its revolving credit agreement. The Company acquired Penn Summit to expand its geographic presence in the United States for steel utility support structures.
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2. Acquisitions (Continued)
In February 2008, the Company acquired 70% of the outstanding shares of West Coast Engineering Group, Ltd. (West Coast), a Canadian and U.S. manufacturer of steel and aluminum structures for the lighting, transportation and wireless communication industries headquartered in Delta, British Columbia, for $31.4 million Canadian dollars ($31,472 U.S. dollars). In addition, $6,304 of interest-bearing debt was assumed as part of the acquisition. The purchase price was financed through the Company's revolving credit agreement. The Company recorded $19,438 of goodwill as part of the preliminary purchase price allocation and assigned the goodwill to the Engineered Support Structures segment. The Company acquired West Coast to expand its geographic presence in Canada and the United States for lighting and transportation structures.
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed as of the date of acquisition.
The purchase price allocations on the West Coast and Penn Summit acquisitions were not finalized in the first quarter of 2008, as the fair value determinations on the assets acquired was still in process. The Company expects to finalize the purchase price allocations in the second quarter of 2008.
On April 26, 2007, the Company acquired 70% of the outstanding shares of Tehomet Oy (Tehomet), a Finnish manufacturer of lighting poles. Tehomet's operations are included in the Company's condensed consolidated financial statement since the acquisition date.
The Company's proforma results of operations for the thirteen weeks ended March 31, 2007, assuming that the transaction occurred at the beginning of the periods presented are as follows:
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3. Goodwill and Intangible Assets
The Company's annual impairment testing of goodwill and intangible assets was performed during the third quarter of 2007. As a result of that testing, it was determined the goodwill and other intangible assets on the Company's Consolidated Balance Sheet were not impaired.
Amortized Intangible Assets
The components of amortized intangible assets at March 29, 2008 and December 29, 2007 were as follows:
Amortization expense for intangible assets during the first quarter of 2008 and 2007 was $1,385 and $830, respectively. Estimated amortization expense related to amortized intangible assets is as follows:
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
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3. Goodwill and Intangible Assets (Continued)
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
Under the provisions of SFAS 142, intangible assets with indefinite lives are not amortized. The carrying values of trade names at March 29, 2008 and December 29, 2007 were as follows:
The PiRod and Newmark trade names were tested for impairment separately from goodwill in the third quarter of 2007. The values of the trade names were determined using the relief-from-royalty method. Based on this evaluation, the Company determined that its trade names were not impaired as of September 29, 2007.
In its determination of these intangible assets as indefinite-lived, the Company considered such factors as its expected future use of the intangible asset, legal, regulatory, technological and competitive factors that may impact the useful life or value of the intangible asset and the expected costs to maintain the value of the intangible asset. The Company expects that these intangible assets will maintain their value indefinitely. Accordingly, these assets are not amortized.
Goodwill
The carrying amount of goodwill as of March 29, 2008 was as follows:
In January 2008, the Company acquired substantially all of the net operating assets of a steel utility pole manufacturer in Hazelton, Pennsylvania. This acquisition resulted in a $26,964 increase to
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goodwill in the Utility Support Structure segment. In February 2008, the Company acquired 70% of the outstanding shares of a Canadian and U.S. manufacturer of steel and aluminum structures for the lighting, transportation and wireless communication industries headquartered in Delta, British Columbia. This acquisition resulted in a $19,438 increase to goodwill in the Engineered Support Structures segment.
4. Cash Flows
The Company considers all highly liquid temporary cash investments purchased with a maturity of three months or less to be cash equivalents. Cash payments for interest and income taxes (net of refunds) for the thirteen weeks ended were as follows:
5. Earnings Per Share
The following table reconciles Basic and Diluted earnings per share (EPS):
At March 29, 2008 and March 31, 2007, there were no outstanding stock options with exercise prices exceeding the market price of common stock. Therefore, there were no shares contingently issuable upon exercise of stock options excluded from the computation of fully diluted earnings per share for the thirteen weeks ended March 29, 2008 and March 31, 2007.
6. Comprehensive Income
Results of operations for foreign subsidiaries are translated using the average exchange rates during the period. Assets and liabilities are translated at the exchange rates in effect on the balance sheet dates. Currency translation adjustment is the Company's only component of accumulated other
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6. Comprehensive Income (Continued)
comprehensive income. The Company's other comprehensive income for the thirteen weeks ended March 29, 2008 and March 31, 2007, respectively, were as follows:
7. Business Segments
The Company aggregates its operating segments into four reportable segments. Aggregation is based on similarity of operating segments as to economic characteristics, products, production processes, types or classes of customer and the methods of distribution. Net corporate expense is net of certain service-related expenses that are allocated to business units generally based on employee headcounts and sales dollars.
Reportable segments are as follows:
ENGINEERED SUPPORT STRUCTURES: This segment consists of the manufacture of engineered metal structures and components for the lighting and traffic and wireless communication industries, certain international utility industries and for other specialty applications;
UTILITY SUPPORT STRUCTURES: This segment consists of the manufacture of engineered steel and concrete structures primarily for the North American utility industry;
COATINGS: This segment consists of galvanizing, anodizing and powder coating services; and
IRRIGATION: This segment consists of the manufacture of agricultural irrigation equipment and related parts and services.
In addition to these four reportable segments, the Company has other businesses that individually are not more than 10% of consolidated sales. These businesses, which include the manufacture of tubular products and the distribution of industrial fasteners, are reported in the "Other" category.
In 2007, the Company determined that its Tubing business did not meet the quantitative thresholds as a reportable segment. Accordingly, the Tubing business and its financial results are included in "Other". Information related to the Tubing business for the first quarter of 2007 has been reclassified to conform to the first quarter of 2008 presentation.
The accounting policies of the reportable segments are the same as those described in Note 1. The Company evaluates the performance of its business segments based upon operating income and 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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8. Guarantor/Non-Guarantor Financial Information
On May 4, 2004, the Company completed a $150,000,000 offering of 67/8% Senior Subordinated Notes. The Notes are guaranteed, jointly, severally, fully and unconditionally, on a senior subordinated basis by certain of the Company's current and future direct and indirect domestic subsidiaries (collectively the "Guarantors"), excluding its other current domestic and foreign subsidiaries which do not guarantee the debt (collectively referred to as the "Non-Guarantors"). All Guarantors are 100% owned by the parent company.
Condensed consolidated financial information for the Company ("Parent"), the Guarantor subsidiaries and the Non-Guarantor subsidiaries is as follows:
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Thirteen Weeks Ended March 29, 2008
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Thirteen Weeks Ended March 31, 2007
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CONDENSED CONSOLIDATED BALANCE SHEETS March 29, 2008
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CONDENSED CONSOLIDATED BALANCE SHEETS December 29, 2007
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Thirteen Weeks Ended March 29, 2008
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Thirteen Weeks Ended March 31, 2007
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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES PART 1. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions that management has made in light of experience in the industries in which the Company operates, as well as management's perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances. These statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond the Company's control) and assumptions. Management believes that these forward-looking statements are based on reasonable assumptions. Many factors could affect the Company's actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. These factors include, among other things, risk factors described from time to time in the Company's reports to the Securities and Exchange Commission, as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability and price of raw materials, availability and market acceptance of new products, product pricing, domestic and international competitive environments, and actions and policy changes of domestic and foreign governments.
This discussion should be read in conjunction with the financial statements and the notes thereto, and the management's discussion and analysis, included in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2007. We aggregate our businesses into four reportable segments. See Note 7 to the Condensed Consolidated Financial Statements.
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Dollars in thousands, except per share amounts
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Overview
The sales increase in the first quarter of fiscal 2008, as compared with 2007, was due to improved sales volumes in all reportable segments, increased selling prices to recover higher raw material costs, the impact of acquisitions completed after the close of the first quarter of 2007 and the effects of currency translation. The most significant sales volume increase occurred in the Irrigation segment, due to strong conditions in the global agricultural economy. We acquired three businesses after the first quarter of 2007, which recorded an aggregate of $18.5 million in sales in the first quarter of 2008. These acquired businesses were as follows:
Tehomet and West Coast are included in the ESS segment and Penn Summit is in the Utility Support Structures segment. In the first quarter of 2008, we realized approximately $9.0 million of increased sales related to the financial statement translation of our international operations into U.S. dollars. As foreign currencies such as the Euro and the Brazilian real have strengthened in relation to the U.S. dollar in 2008, as compared with 2007, our sales denominated in those currencies translate to a higher amount of U.S. dollars.
The increase in gross profit margin (gross profit as a percent of sales) in the first quarter of 2008 over the same period in 2007 was due to improved sales volumes and the related operational leverage of fixed manufacturing costs. Gross profit was also positively affected in 2008 by improved sales pricing, foreign currency translation effects (approximately $2.5 million) and our acquisitions of Tehomet, West Coast and Penn Summit (approximately $2.7 million).
Selling, general and administrative (SG&A) spending increased mainly as a result of higher salary and benefit costs required to support the increased sales activity (approximately $2.6 million), increased employee incentives associated with the improvement in operating performance ($2.0 million), the effect of our acquisitions (approximately $2.5 million) and foreign currency translation (approximately $1.5 million). These increases in SG&A expenses were offset to an extent by lower group medical expenses in 2008, as compared with 2007 (approximately $1.1 million) and decreased deferred compensation expense related to the investment performance in the marketable securities underlying the deferred compensation plan (approximately $1.0 million). We recorded the investment losses in these securities as "Other Expense" in our condensed consolidated statement of operations for the thirteen weeks ended March 29, 2008.
All reportable segments contributed to the improved operating income in the first quarter of 2008, as compared with 2007. The Irrigation and Utility Support Structures segments achieved the largest increases in operating profit.
The increase in net interest expense in the first quarter of 2008, as compared with the same period of 2007, was due to higher average borrowing levels in 2008, offset somewhat by lower interest rates on our variable rate debt. "Miscellaneous" expense was higher in 2008, as compared with 2007, mainly due to $1.0 million in investment losses in assets related to our deferred compensation plan. We recorded the related reduction in the deferred compensation liability as a reduction in SG&A expense in 2008. The impact of the investment returns on these assets on our financial statements was not significant in the first quarter of 2007.
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The decrease in the effective income tax rate in the first quarter of 2008, as compared with the same period in 2007, was mainly due to lower overall income tax rates on our foreign earnings. Our cash flows provided by operations was $15.9 million in the first quarter of 2008, as compared with $4.6 million used by operations in the first quarter of 2007. Improved net earnings and a smaller increase working capital in 2008, as compared with 2007, were the main reasons for the improved operating cash flow in 2008.
Engineered Support Structures (ESS) segment
The improvement in ESS segment sales in the first quarter of 2008, as compared with 2007, was mainly due to increased sales prices, the West Coast and Tehomet acquisitions (approximately $8.4 million) and foreign currency translation effects (approximately $7.0 million). In North America, lighting and traffic structure sales were higher than 2007 levels due to a combination of increased volume and sales price increases. Net sales in the transportation market channel improved in 2008, as compared with 2007, due mainly to increased spending funded through the federal highway program. In the commercial market channel, sales improved through expanded relationships with lighting fixture manufacturers and expansion into new markets, such as lighting structures for decorative applications. These increases in North America were essentially offset by lower special project and intercompany utility sales in 2008, as compared with 2007. In Europe, lighting sales in local currency terms in 2008 were comparable with 2007.
Sales of Specialty Structures products in the first quarter of 2008 increased as compared with the same period in 2007. In North America, market conditions for sales of structures and components for the wireless communication market in 2008 were comparable to 2007, but sales were higher due mainly to improved sales prices. Sales of wireless communication poles in China were stronger in the first quarter of 2008 as compared with 2007, due to continued strong demand from the Chinese wireless carriers as they continue the development of their wireless networks. China's sales also improved due to increased demand for utility structures in the first quarter of 2008, as compared with 2007.
The increase in the operating income of the ESS segment in the first quarter of 2008 as compared with the same period in 2007 was due to improvement in North American operations. In particular, operating income improved due to the combining of certain North American specialty structures facilities in late 2007. The operating income of international operations was comparable with 2007, as we did not completely recover rapidly rising raw material prices in China through higher sales prices, which offset much of the effect of higher sales on operating income. For the segment, the main reasons for the increase in SG&A expense in the first quarter of 2008 as compared with the same period in 2007 were increased salary and employee benefit costs ($1.0 million), foreign currency translation effects ($1.3 million) and the West Coast and Tehomet acquisitions ($1.2 million).
Utility Support Structures segment
In the Utility Support Structures segment, the sales increase in the first quarter of 2008 as compared with the first quarter of 2007 was due to the Penn Summit acquisition ($10.1 million), improved demand for steel transmission, substation and distribution pole structures and higher average sales prices. The improved operating earnings for this segment as compared with 2007 related to the improved sales levels, improved operating leverage associated with higher sales volumes and a more favorable sales mix than the first quarter of 2007. The increase in SG&A spending was mainly due to the Penn Summit acquisition ($2.1 million) and higher salary and employee benefit costs ($0.5 million) to support the higher sales volumes.
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Coatings segment
The increase in Coatings segment sales in the first quarter of 2008 as compared with the first quarter of 2007 was predominantly due to increased sales volumes due to stronger demand from both internal and external customers, offset to a degree by slightly lower selling prices due to lower per pound zinc costs in 2008, as compared with 2007. The increase in operating income in the first quarter of 2008, as compared with the first quarter of 2007, resulted from improved factory performance, sales volume increases and lower zinc costs in 2008. The increase in SG&A spending in the first quarter of 2008, as compared with the first quarter of 2007 was related to higher employee incentives associated with improved operating income and increased professional fees related to ongoing business growth initiatives.
Irrigation segment
The sales increase in the Irrigation segment for the first quarter of 2008, as compared with the same period in 2007, was mainly due to higher sales volumes in both domestic and international markets. A very strong global agricultural economy driven by high farm commodity prices resulted in improved demand for irrigation machines and related service parts in all major markets around the world. In North America, average selling prices likewise were higher than last year, in response to increasing raw material prices. On a regional basis, international sales in the first quarter of 2008 were up in all major markets, as compared with the first quarter of 2007 and were further enhanced by increased sales in emerging Asian markets.
Operating income for the first quarter of 2008 increased over the same period in 2007 due to the increase in sales volume, margin expansion through a more favorable pricing environment in 2008 and operating leverage achieved as a result of the higher sales and production levels. The most significant factors related to the increase in SG&A spending in 2008, as compared with 2007, were higher incentive expense accruals related to increased operating income this year ($1.0 million) and larger salary and employee benefits costs of approximately $0.7 million.
Other
This mainly includes our tubing, industrial fastener and machine tool operations. The decrease in sales in the first quarter of 2008, as compared with the same period in 2007 mainly related to the sale of the machine tool accessories business in early 2008 and the closure of a small tubing facility in late 2007. The impact of these actions on our operating income was not significant.
Net corporate expense
The increase in net corporate expense in the first quarter of 2008 as compared with the first quarter of 2007 was due to increased employee incentive accruals related to the improvement in net earnings in 2008 (approximately $1.2 million) and higher professional fees expenses associated with various operational and consulting activities ($0.6 million). These increases were offset to a degree by reduced deferred compensation liabilities related to investment losses in the assets of the deferred compensation plan of approximately $1.0 million. The investment losses were recorded in "Other expense" in our condensed consolidated statement of earnings for the thirteen-week period ended March 29, 2008.
Liquidity and Capital Resources
Cash Flows
Working Capital and Operating Cash Flows—Net working capital was $345.5 million at March 29, 2008, as compared with $350.6 million at December 29, 2007. The ratio of current assets to current
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liabilities was 2.21:1 at March 29, 2008, as compared with 2.29:1 at December 29, 2007. Operating cash flow was $15.9 million for the thirteen week period ended March 29, 2008, as compared with a net outflow of $4.6 million for the same period in 2007. The improved operating cash flow in 2008 was the result of higher net earnings and improved working capital management, as compared with 2007.
Investing Cash Flows—Capital spending during the thirteen weeks ended March 29, 2008 was $10.9 million, as compared with $12.5 million for the same period in 2007. We expect our capital spending for the 2008 fiscal year to be between $60 million and $70 million. Investing cash flows in 2008 also reflected the aggregate of $89.4 million of cash paid for the West Coast and Penn Summit acquisitions that were completed this year.
Financing Cash Flows—Our total interest-bearing debt increased from $238.3 million as of December 29, 2007 to $287.0 million as of March 29, 2008. The increase in borrowings in the first quarter of 2008 was predominantly associated with the debt that we incurred to fund the Penn Summit and West Coast acquisitions (approximately $39 million) and approximately $6.4 million of debt that we assumed as part of the West Coast and Penn Summit acquisitions. We funded the Penn Summit acquisition in part through approximately $50 million of our cash balances.
Sources of Financing and Capital
We have historically funded our growth, capital spending and acquisitions through a combination of operating cash flows and debt financing. We have an internal long-term objective to maintain long-term debt as a percent of invested capital at or below 40%. At March 29, 2008, our long-term debt to invested capital ratio was 29.7%, as compared with 27.3% at December 29, 2007. Our long-term debt may exceed 40% invested capital from time to time in order to take advantage of opportunities to grow and improve our businesses, such as the Newmark, Whatley and Sigma acquisitions that were completed in 2004. Subject to our level of acquisition activity and steel industry operating conditions (which could affect the levels of inventory we need to fulfill customer commitments), we plan to maintain this ratio below 40% in 2008.
Our debt financing at March 29, 2008 consisted primarily of long-term debt. We also maintain certain short-term bank lines of credit totaling $22.7 million, $9.6 million of which was unused at March 29, 2008. Our long-term debt principally consists of:
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and $11.9, respectively. The effective interest rate on this loan was 3.875% per annum at March 29, 2008.
Under these debt agreements, we are required to maintain certain coverage ratios and may limit us with respect to certain business activities. At March 29, 2008, we were in compliance with all covenants related to these debt agreements.
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 year ended December 29, 2007.
Off Balance Sheet Arrangements
There have been no changes in our off balance sheet arrangements as described on page 37 in our Form 10-K for the fiscal year ended December 29, 2007.
Critical Accounting Policies
There have been no changes in our critical accounting policies during the quarter ended March 29, 2008. We described these policies on pages 39-42 in our Form 10-K for fiscal year ended December 29, 2007.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
There were no material changes in the company's market risk during the quarter ended March 31, 2007. For additional information, refer to the section "Risk Management" on pages 38-39 in our Form 10-K for the fiscal year ended December 30, 2006.
Item 4. Controls and Procedures
The Company carried out an evaluation under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports the Company files or submits under the Securities Exchange Act of 1934 is (1) accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures and (2) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms.
In the first quarter of fiscal 2008, the company implemented various process and information system enhancements, principally related to the implementation of enterprise resource planning software and related business improvements in the Elkhart, Indiana operation that are reported as part of the Engineered Supports Structures segment. These process and information systems enhancements resulted in modifications to internal controls over sales, customer service, inventory management and accounts payable processes. There were no other changes in the Company's internal controls over financial reporting during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
During the first quarter, the 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 4. Submission of Matters to a Vote of Security Holders
Valmont's annual meeting of stockholders was held on April 28, 2008. The stockholders elected two directors to serve three-year terms, approved the Valmont 2008 Stock Plan, approved the Valmont 2008 Executive Incentive Plan and ratified the appointment of Deloitte & Touche LLP to audit the Company's financial statements for fiscal 2008. For the annual meeting there were 25,981,044shares outstanding and eligible to vote of which 24,793,261were present at the meeting in person or by proxy. The tabulation for each matter voted upon at the meeting was as follows:
Election of Directors:
Proposal to approve the Valmont 2008 Stock Plan:
Proposal to approve the Valmont 2008 Executive Incentive Plan:
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Proposal to ratify the appointment of Deloitte & Touche LLP as independent auditors for fiscal 2008:
Item 6. Exhibits
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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.
Dated this 5th day of May, 2008.
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