Use these links to rapidly review the document TABLE OF CONTENTS
Table of Contents
UNITED STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
Form 10-Q
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 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.
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
26,754,496 Outstanding shares of common stock as of April 24, 2013
VALMONT INDUSTRIES, INC.INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements:
Condensed Consolidated Statements of Earnings for the thirteen weeks ended March 30, 2013 and March 31, 2012
Condensed Consolidated Statements of Comprehensive Income for the thirteen weeks ended March 30, 2013 and March 31, 2012
Condensed Consolidated Balance Sheets as of March 30, 2013 and December 29, 2012
Condensed Consolidated Statements of Cash Flows for the thirteen weeks ended March 30, 2013 and March 31, 2012
Condensed Consolidated Statements of Shareholders' Equity for the thirteen weeks ended March 30, 2013 and March 31, 2012
Notes to Condensed Consolidated Financial Statements
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
PART II. OTHER INFORMATION
Unregistered Sales of Equity Securities and Use of Proceeds
Item 5.
Other Information
Item 6.
Exhibits
Signatures
2
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in thousands, except per share amounts) (Unaudited)
Product sales
Services sales
Net sales
Product cost of sales
Services cost of sales
Total cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Other income (expenses):
Interest expense
Interest income
Other
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries
Income tax expense (benefit):
Current
Deferred
Earnings before equity in earnings of nonconsolidated subsidiaries
Equity in earnings of nonconsolidated subsidiaries
Net earnings
Less: Earnings attributable to noncontrolling interests
Net earnings attributable to Valmont Industries, Inc.
Earnings per share:
Basic
Diluted
Cash dividends declared per share
Weighted average number of shares of common stock outstanding—Basic (000 omitted)
Weighted average number of shares of common stock outstanding—Diluted (000 omitted)
See accompanying notes to condensed consolidated financial statements.
3
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) (Unaudited)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized translation gains (losses)
Realized (loss) included in net earnings during the period
Unrealized loss on cash flow hedge:
Amortization cost included in interest expense
Actuarial gain (loss) in defined benefit pension plan
Other comprehensive income (loss)
Comprehensive income
Comprehensive loss (income) attributable to noncontrolling interests
Comprehensive income attributable to Valmont Industries, Inc.
4
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except shares and per share amounts) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Prepaid expenses
Refundable and deferred income taxes
Total current assets
Property, plant and equipment, at cost
Less accumulated depreciation and amortization
Net property, plant and equipment
Goodwill
Other intangible assets, net
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt
Notes payable to banks
Accounts payable
Accrued employee compensation and benefits
Accrued expenses
Income taxes payable
Dividends payable
Total current liabilities
Deferred income taxes
Long-term debt, excluding current installments
Defined benefit pension liability
Deferred compensation
Other noncurrent liabilities
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
Retained earnings
Accumulated other comprehensive income
Treasury stock
Total Valmont Industries, Inc. shareholders' equity
Noncontrolling interest in consolidated subsidiaries
Total shareholders' equity
Total liabilities and shareholders' equity
5
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Cash flows from operating activities:
Adjustments to reconcile net earnings to net cash flows from operations:
Depreciation and amortization
Stock-based compensation
Defined benefit pension plan expense
Contribution to defined benefit pension plan
Gain on sale of property, plant and equipment
Equity in earnings in nonconsolidated subsidiaries
Changes in assets and liabilities (net of acquisitions):
Receivables
Net cash flows from operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Proceeds from sale of assets
Acquisitions, net of cash acquired
Other, net
Net cash flows from investing activities
Cash flows from financing activities:
Net borrowings under short-term agreements
Proceeds from long-term borrowings
Principal payments on long-term borrowings
Dividends paid
Dividends to noncontrolling interest
Proceeds from exercises under stock plans
Excess tax benefits from stock option exercises
Purchase of common treasury shares—stock plan exercises
Net cash flows from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents—beginning of year
Cash and cash equivalents—end of period
6
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands) (Unaudited)
Balance at December 31, 2011
Other comprehensive income
Cash dividends declared
Dividends to noncontrolling interests
Stock plan exercises; 69,376 shares acquired
Stock options exercised; 133,510 shares issued
Tax benefit from stock option exercises
Stock option expense
Stock awards; 402 shares issued
Balance at March 31, 2012
Balance at December 29, 2012
Other comprehensive loss
Acquisition of Locker
Stock plan exercises; 77,955 shares acquired
Stock options exercised; 156,342 shares issued
Stock awards; 2,667 shares issued
Balance at March 30, 2013
7
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 30, 2013, the Condensed Consolidated Statements of Earnings and Comprehensive Income for the thirteen weeks ended March 30, 2013 and March 31, 2012, and the Condensed Consolidated Statements of Cash Flows and Shareholders' Equity for the thirteen week periods then ended have been prepared by the Company, without audit. In the opinion of management, all necessary adjustments (which include normal recurring adjustments) have been made to present fairly the financial statements as of March 30, 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) increased by $6,028. 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 March 30, 2013 are not necessarily indicative of the operating results for the full year.
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 March 30, 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 $44,517 and $45,822 at March 30, 2013 and December 29, 2012, respectively.
8
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories consisted of the following:
Raw materials and purchased parts
Work-in-process
Finished goods and manufactured goods
Subtotal
Less: LIFO reserve
Income Taxes
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries for the thirteen weeks ended March 30, 2013 and March 31, 2012, were as follows:
United States
Foreign
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 thirteen weeks ended March 31, 2012 and March 30, 2013 were as follows:
Net Periodic Benefit Cost:
Interest cost
Expected return on plan assets
Net periodic benefit expense
9
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 March 30, 2013, 446,126 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 weeks ended March 30, 2013 and March 31, 2012, respectively, were as follows:
Compensation expense
Income tax benefits
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 $29.2 million. 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 $3.2 million 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
10
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.
Assets:
Trading Securities
11
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 liabilities are translated at the exchange rates in effect on the balance sheet dates. Accumulated other comprehensive income (loss) consisted of the following at March 30, 2013 and December 29, 2012:
Current-period comprehensive income (loss)
(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 $54,714 and before a net working capital adjustment of $1,562 to be received from the sellers. In addition, a maximum of $7,911 additional purchase price upon the achievement of certain gross profit and inventory targets over the next two years. The Company determined the present value of the potential addition 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 March 30, 2013, subject to management reviews and completion of the fair value measurements of the assets acquired and liabilities assumed. The Company expects the fair value measurement process to be completed in the second quarter of 2013.
12
(2) ACQUISITION OF LOCKER GROUP HOLDINGS PTY. LTD. (Continued)
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed as of the date of acquisition.
Current assets
Property, plant and equipment
Intangible assets
Total fair value of assets acquired
Current liabilities
Other non-current liabilities
Non-controlling interests
Total fair value of liabilities assumed and non-controlling interests
Net assets acquired
The Company's Condensed Consolidated Statements of Earnings for the period ended March 30, 2013 included $11,854 and $250 of net sales and net earnings, respectively, resulting from Locker's operations from February 5, 2013 and March 30, 2013.
Based on the preliminary valuation, the Company allocated $9,509 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:
Trade Names
Customer Relationships
13
(3) GOODWILL AND INTANGIBLE ASSETS
Amortized Intangible Assets
The components of amortized intangible assets at March 30, 2013 and December 29, 2012 were as follows:
Proprietary Software & Database
Patents & Proprietary Technology
Non-compete Agreements
Amortization expense for intangible assets for the thirteen weeks ended March 30, 2013 and March 31, 2012, respectively was as follows:
Estimated annual amortization expense related to finite-lived intangible assets is as follows:
2013
2014
2015
2016
2017
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
14
(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
Intangible assets with indefinite lives are not amortized. The carrying values of trade names at March 30, 2013 and December 29, 2012 were as follows:
Webforge
Newmark
Ingal EPS/Ingal Civil Products
Donhad
Industrial Galvanizers
In its determination of these intangible assets as indefinite-lived, the Company considered such factors as its expected future use of the intangible asset, legal, regulatory, technological and competitive factors that may impact the useful life or value of the intangible asset and the expected costs to maintain the value of the intangible asset. The Company expects that these intangible assets will maintain their value indefinitely. Accordingly, these assets are not amortized.
The 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.
The carrying amount of goodwill by segment as of March 30, 2013 and December 29, 2012 was as follows:
Acquisitions
Foreign currency translation
15
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 thirteen weeks ended March 30, 2013 2013 and March 31, 2012 were as follows:
Interest
Income taxes
(5) EARNINGS PER SHARE
The following table provides a reconciliation between Basic and Diluted earnings per share (EPS):
Thirteen weeks ended March 30, 2013:
Shares outstanding
Per share amount
Thirteen weeks ended March 31, 2012:
At March 30, 2013 and March 31, 2012, there were no outstanding stock options with exercise prices exceeding the market price of common stock.
16
(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;
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.
17
(6) BUSINESS SEGMENTS (Continued)
Summary by Business
SALES:
Engineered Infrastructure Products segment:
Lighting, Traffic, and Roadway Products
Communication Products
Access Systems
Engineered Infrastructure Products segment
Utility Support Structures segment:
Steel
Concrete
Utility Support Structures segment
Coatings segment
Irrigation segment
Total
INTERSEGMENT SALES:
Engineered Infrastructure Products
Utility Support Structures
Coatings
Irrigation
NET SALES:
OPERATING INCOME:
Corporate
18
(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 March 30, 2013
Cost of sales
Other income (expense):
19
(7) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS For the Thirteen Weeks Ended March 31, 2012
20
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Thirteen Weeks Ended March 30, 2013
Unrealized gains (losses) arising during the period
Actuarial gain (loss) in defined benefit pension plan liability
Equity in other comprehensive income
Comprehensive income attributable to noncontrolling interests
21
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Thirteen Weeks Ended March 31, 2012
22
CONDENSED CONSOLIDATED BALANCE SHEETS March 30, 2013
Other intangible assets
Investment in subsidiaries and intercompany accounts
Common stock of $1 par value
Additional paid-in capital
23
CONDENSED CONSOLIDATED BALANCE SHEETS December 29, 2012
24
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Thirteen Weeks Ended March 30, 2013
Income taxes payable (refundable)
Acquisitions, net of cash aquired
Purchase of common treasury shares—stock plan exercises:
25
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Thirteen Weeks Ended March 31, 2012
Cash flows from operations:
Loss (gain) on sale of property, plant and equipment
Changes in assets and liabilities:
Net cash flows from operations
Dividend to noncontrolling interests
26
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.
27
Results of Operations
Dollars in millions, except per share amounts
Consolidated
as a percent of sales
SG&A expense
Net interest expense
Effective tax rate
Diluted earnings per share
Net corporate expense
Operating loss
NM=Not meaningful
28
Overview
On a consolidated basis, the increase in net sales in 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 thirteen week period ended March 30, 2013 and fiscal 2012 refers to the thirteen week period ended March 31, 2012. For the company as a whole, the increase in net sales in 2013, as compared with 2012, was due to the following factors:
Foreign currency translation factors, in the aggregate, resulted in a $4.2 million decrease in net sales and a $0.7 million decrease in operating profit, as compared with 2012.
The increase in gross margin (gross profit as a percent of sales) in fiscal 2013, as compared with 2012, was due to improved sales prices and sales mix as well as 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 first quarter of 2013, as compared with the same period in 2012. LIFO expense in the first quarter of 2013 was $2.6 million lower than the same period in 2012, contributing to the comparatively higher gross margin in 2013, as compared with 2012.
Selling, general and administrative (SG&A) spending in fiscal 2013, as compared with 2012, increased mainly due to the following factors:
On a reportable segment basis, all segments achieved improved operating income in the first quarter of 2013, as compared with 2012, except the Coatings segment and the "Other" category.
Net interest expense increased in fiscal 2013, as compared with 2012. The increase was primarily attributable to lower interest income of $0.7 million due to reduced cash invested in Australia, as we used cash on hand to fund the Locker acquisition.
Our effective income 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 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.
29
Our cash flows generated by operations were approximately $64.6 million in 2013, as compared with $12.9 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 fiscal 2013 as compared with 2012 was mainly due to the acquisition of Locker in February 2013 (approximately $11.5 million). Global lighting sales were lower in fiscal 2013, as compared with 2012, mainly due to lower sales in Europe. North American lighting and traffic structures sales in 2013 were slightly higher as compared with 2012. The transportation market for lighting and traffic structures continues to be challenging, as the lack of long-term highway funding legislation and state budget challenges, which we believe are limiting roadway project activity. Sales in other market channels such as sales to lighting fixture manufacturers and commercial construction projects in 2013 were stable as compared with 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 in fiscal 2013, as compared with fiscal 2012. 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 fiscal 2013 were lower than 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 sales in 2013 were comparable with 2012, as spending for roads and highways in Australia continues to be relatively weak due to budgetary restrictions.
Operating income for the segment in fiscal 2013 was higher than 2012, due primarily to improved operating performance of our pole structures operations in the Asia Pacific region and the effects of improved North American communication product sales. The increase in SG&A spending mainly was attributable to Locker (approximately $3.1 million). 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 fiscal 2013, as compared with 2012, was due to improved unit sales volumes in global markets of approximately $25.9 million and improved pricing and sales mix in the U.S. of approximately $22.5 million. 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 in 2013, as compared with 2012. In international markets, the 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. The increase in SG&A expense in fiscal 2013, as compared with fiscal 2012, was mainly due to increased employee compensation ($0.9 million) and incentives ($0.5 million) associated with the increase in business levels and operating income.
30
Coatings segment sales increased in fiscal 2013, as compared with 2012, due mainly to the December 2012 PMG acquisition (approximately $8.0 million). In North America, we experienced slightly lower external demand for galvanizing services, although internal demand from our other segments was higher in 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 decrease in segment operating income in fiscal 2013, as compared with 2012, was mainly due to unfavorable factory productivity (approximately $1.5 million) and a less favorable sales mix. The operating profit associated with PMG in the first quarter of 2013 was not significant. SG&A expenses for the segment in fiscal 2013 were higher than the comparable periods in 2012, mainly due to PMG (approximately $1.5 million).
The increase in Irrigation segment net sales in fiscal 2013, as compared with 2012, was mainly due to improved sales volumes of approximately $38.9 million and favorable pricing and sales mix of approximately $11.6 million, offset by approximately $2.4 million of unfavorable currency translation effect. The pricing and sales mix effect was generally due to sales price increases that took effect after the first quarter of 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 through 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 fiscal 2013, as compared with 2012, mainly due to increased activity in Brazil.
Operating income for the segment improved in 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 (including $1.6 million in lower LIFO expenses) 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 $0.8 million) and other expenses to support the business activity levels and product development.
This unit includes the grinding media, industrial tubing, electrolytic manganese and industrial fasteners operations. The decrease in sales in fiscal 2013, as compared with 2012, was mainly due lower sales volumes (approximately $4.8 million) and sales prices (approximately $3.7 million). Operating income in 2013 was down slightly from 2012, as lower raw material prices helped to dampen the effects of lower selling prices.
Net corporate expense in fiscal 2013 increased over 2012, due to higher employee incentives associated with improved net earnings and share price, which affected long-term incentive plans (approximately $1.7 million), higher compensation and employee benefit costs (approximately $1.7 million) and increased expenses associated with the Delta Pension Plan (approximately $0.6 million) and . These increases were partially offset by 2012 stamp duties incurred in Australia related to the 2011 Delta legal restructuring of $1.2 million that were not incurred in 2013.
31
Liquidity and Capital Resources
Cash Flows
Working Capital and Operating Cash Flows—Net working capital was $1,059.7 million at March 30, 2013, as compared with $1,013.5 million at December 29, 2012. The increase in net working capital in 2013 mainly resulted from increased inventories to support the increase in sales. Cash flow provided by operations was $64.6 million in fiscal 2013, as compared with $12.9 million used by operations in fiscal 2012. The increase in operating cash flow in 2013 was the result of the improvement in net earnings along with less additional working capital increase in 2013, as compared with 2012.
Investing Cash Flows—Capital spending in the first quarter of fiscal 2013 was $21.8 million, as compared with $20.1 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 reflects $29.4 million received from the sale of our 49% owned non-consolidated subsidiary in South Africa and $54.7 million paid for the Locker acquisition.
Financing Cash Flows—Our total interest-bearing debt decreased slightly to $485.8 million at March 30, 2013 from $486.2 million at December 29, 2012. Financing cash flows overall were similar in 2013, as compared with 2012.
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 30, 2013, our long-term debt to invested capital ratio was 23.2%, 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 March 30, 2013 consisted primarily of long-term debt. We also maintain certain short-term bank lines of credit totaling $101.8 million, $88.4 million of which was unused at March 30, 2013. Our long-term debt principally consists of:
32
At March 30, 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 March 30, 2013, we had the ability to borrow $384.0 million under this facility, after consideration of standby letters of credit of $16.0 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:
At March 30, 2013, we were in compliance with all covenants related to these debt agreements. The key covenant calculations at March 30, 2013 were as follows:
Interest-bearing debt
EBITDA—last four quarters
Leverage ratio
Interest expense—last four quarters
Interest earned ratio
The calculation of EBITDA—last four quarters (March 31, 2012 through March 30, 2013) is as follows:
Income tax expense
Deferred income tax benefit
Noncontrolling interest
Pension plan expense
Contribution to pension plan
Changes in assets and liabilities
EBITDA
Depreciation and amortization expense
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
33
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 $605.2 million of undistributed earnings of our foreign subsidiaries, as we intend to reinvest those earnings. Of our cash balances at March 30, 2013, approximately $330.5 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 $36.7 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 March 30, 2013.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There were no material changes in the company's market risk during the quarter ended March 30, 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.
34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
December 30, 2012 to January 26, 2013
January 27, 2013 to March 2, 2013
March 3, 2013 to March 30, 2013
During the third quarter, the only shares reflected above were those delivered to the Company by employees as part of stock option exercises, either to cover the purchase price of the option or the related taxes payable by the employee as part of the option exercise. The price paid per share was the market price at the date of exercise.
Item 5. Other Information
Submission of Matters to a Vote of Security Holders
Valmont's annual meeting of stockholders was held on April 30, 2013. The stockholders elected two directors to serve three-year terms, approved, on an advisory basis, a resolution approving Valmont's named executive officer compensation, approved the Valmont 2013 Stock Plan, approved the Valmont 2013 Executive Incentive Plan and ratified the appointment of Deloitte & Touche LLP to audit the Company's financial statements for fiscal 2013. For the annual meeting there were 26,750,561 shares outstanding and eligible to vote of which 24,441,549 were present at the meeting in person or by proxy. The tabulation for each matter voted upon at the meeting was as follows:
Election of Directors:
Kaj den Daas
James B. Milliken
Advisory vote on executive compensation:
For
Against
Abstain
Broker non-votes
Proposal to approve the Valmont 2013 Stock Plan:
35
Proposal to approve the Valmont 2013 Executive Incentive Plan:
Proposal to ratify the appointment of Deloitte & Touche LLP as independent auditors for fiscal 2013:
Item 6. Exhibits
36
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 2nd day of May, 2013.
37
Index of Exhibits
38