- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 <TABLE> <S> <C> For the Second Quarter Ended Commission File Number June 26, 1999 0-3701 </TABLE> ------------------------ VALMONT INDUSTRIES, INC. Omaha, Nebraska 68154-5215 Telephone Number 402-963-1000 DELAWARE 47-0351813 (State of Incorporation) (I.R.S. Employer Identification No.) Indicate by check mark whether the registrant (1) has filed all reports to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, and (2) has been subject to such filing requirements for the past ninety days. Yes / / No /X/ As of July 28, 1999 there were outstanding 24,206,396 common shares of the registrant. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q <TABLE> <CAPTION> PAGE NO. ----------- <S> <C> PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements: Consolidated Statements of Operations for the thirteen and twenty-six weeks ended June 26, 1999 and June 27, 1998....................................................................................... 3 Consolidated Balance Sheets as of June 26, 1999 and December 26, 1998................................. 4 Consolidated Statements of Cash Flows for the twenty-six weeks ended June 26, 1999 and June 27, 1998................................................................................................ 5 Notes to Consolidated Financial Statements............................................................ 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 9-11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K................................................................ 12 SIGNATURES.............................................................................................. 12 </TABLE> 2
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) <TABLE> <CAPTION> THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED ---------------------- ---------------------- <S> <C> <C> <C> <C> JUNE 26, JUNE 27, JUNE 26, JUNE 27, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Net sales........................................................ $ 162,759 $ 154,340 $ 317,162 $ 314,927 Cost of sales.................................................... 119,165 116,101 233,170 233,619 ---------- ---------- ---------- ---------- Gross profit................................................... 43,594 38,239 83,992 81,308 Selling, general and administrative expenses..................... 30,364 25,770 59,847 53,175 ---------- ---------- ---------- ---------- Operating income............................................... 13,230 12,469 24,145 28,133 ---------- ---------- ---------- ---------- Other income (deductions): Interest expense............................................... (1,956) (1,003) (3,861) (2,041) Interest income................................................ 189 207 419 451 Miscellaneous.................................................. (561) 77 (640) 452 ---------- ---------- ---------- ---------- (2,328) (719) (4,082) (1,138) ---------- ---------- ---------- ---------- Earnings before income taxes................................... 10,902 11,750 20,063 26,995 ---------- ---------- ---------- ---------- Income tax expense: Current........................................................ 3,400 3,600 8,900 9,300 Deferred....................................................... 600 700 (1,500) 600 ---------- ---------- ---------- ---------- 4,000 4,300 7,400 9,900 ---------- ---------- ---------- ---------- Net Earnings................................................... $ 6,902 $ 7,450 $ 12,663 $ 17,095 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Earnings per share: Basic........................................................ $ 0.28 $ 0.27 $ 0.52 $ 0.62 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Diluted...................................................... $ 0.28 $ 0.26 $ 0.51 $ 0.60 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Cash dividends per share....................................... $ 0.065 $ 0.065 $ 0.13 $ 0.12125 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number of shares of common stock outstanding (000 omitted).................................................. 24,237 27,713 24,412 27,684 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number of shares of common stock outstanding plus dilutive potential common shares (000 omitted)............ 24,425 28,293 24,602 28,263 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- </TABLE> See accompanying notes to consolidated financial statements. 3
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> JUNE 26, 1999 DECEMBER 26, (UNAUDITED) 1998 ----------- ------------ <S> <C> <C> ASSETS Current assets: Cash and cash equivalents........................................................... $ 7,779 $ 7,580 Receivables......................................................................... 106,487 115,843 Inventories......................................................................... 75,538 77,694 Prepaid expenses.................................................................... 5,409 5,297 Refundable and deferred income taxes................................................ 12,317 13,532 ----------- ------------ Total current assets.............................................................. 207,530 219,946 ----------- ------------ Property, plant and equipment, at cost................................................ 318,176 292,944 Less accumulated depreciation and amortization...................................... 144,487 135,497 ----------- ------------ Net property, plant and equipment................................................. 173,689 157,447 ----------- ------------ Goodwill and other assets............................................................. 24,973 29,564 ----------- ------------ Total assets...................................................................... $ 406,192 $ 406,957 ----------- ------------ ----------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt.............................................. $ 5,686 $ 5,737 Notes payable to banks.............................................................. 21,514 25,494 Accounts payable.................................................................... 47,966 45,996 Accrued expenses.................................................................... 46,933 41,646 Dividends payable................................................................... 1,573 1,607 ----------- ------------ Total current liabilities......................................................... 123,672 120,480 ----------- ------------ Deferred income taxes................................................................. 11,036 11,984 Long-term debt, excl. current installments............................................ 86,602 90,481 Minority interest in consolidated subsidiaries........................................ 6,960 3,862 Other noncurrent liabilities.......................................................... 3,485 4,237 Shareholders' equity: Preferred stock..................................................................... -- -- Common stock of $1 par value........................................................ 27,900 27,900 Additional paid-in capital.......................................................... 1,173 1,280 Retained earnings................................................................... 209,894 200,393 Accumulated other comprehensive income.............................................. (5,474) (1,423) Treasury stock...................................................................... (59,056) (52,235) Unearned restricted stock........................................................... -- (2) ----------- ------------ Total shareholders' equity........................................................ 174,437 175,913 ----------- ------------ Total liabilities and shareholders' equity........................................ $ 406,192 $ 406,957 ----------- ------------ ----------- ------------ </TABLE> See accompanying notes to consolidated financial statements. 4
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED) <TABLE> <CAPTION> TWENTY-SIX WEEKS ENDED -------------------- <S> <C> <C> JUNE 26, JUNE 27, 1999 1998 --------- --------- Net cash provided by operations............................................................. $ 39,542 $ 26,251 --------- --------- Cash flows from investment activities: Purchase of property, plant & equipment................................................... (24,601) (10,061) Acquisitions.............................................................................. (2,854) (14,865) Proceeds from sale of property and equipment.............................................. 114 222 Proceeds from investment by minority shareholder 1,374 -- Proceeds from sale of nonconsolidated affiliate........................................... 8,294 -- Changes in other assets................................................................... (501) (565) Other, net................................................................................ (739) (344) --------- --------- Net cash used in investing activities................................................... (18,913) (25,613) --------- --------- Cash flows from financing activities: Net repayments under short-term agreements................................................ (6,936) (3,056) Proceeds from long-term borrowings........................................................ 187 5,757 Principal payments on long-term obligations............................................... (2,537) (2,245) Dividends paid............................................................................ (3,196) (3,354) Proceeds from exercises under stock plans................................................. 381 2,222 Purchase of common treasury shares: Stock repurchase program................................................................ (7,236) (1,929) Stock plan exercises.................................................................... (338) (1,917) --------- --------- Net cash used by financing activities................................................... (19,675) (4,522) --------- --------- Effect of exchange rate changes on cash and and cash equivalents............................ (755) -- --------- --------- Net increase (decrease) in cash and cash equivalents.................................... 199 (3,884) Cash and cash equivalents--beginning of period.............................................. 7,580 11,505 --------- --------- Cash and cash equivalents--end of period.................................................... $ 7,779 $ 7,621 --------- --------- --------- --------- </TABLE> See accompanying notes to consolidated financial statements. 5
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The Condensed Consolidated Balance Sheet as of June 26, 1999 and the Condensed Consolidated Statements of Operations for the thirteen and twenty-six week periods ended June 26, 1999 and June 27, 1998 and the Condensed Consolidated Statements of Cash Flows 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 26, 1999 and for all periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles 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 December 26, 1998 Annual Report to shareholders. The results of operations for the period ended June 26, 1999 are not necessarily indicative of the operating results for the full year. 2. INVENTORIES At June 26, 1999, approximately 59% of inventory is valued at the lower of cost, determined on the last-in, first-out (FIFO) method or market. The excess of replacement cost of inventories over the LIFO value is approximately $10,000 and $11,000 at June 26, 1999 and December 26, 1998, respectively. 3. 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) were as follows: <TABLE> <CAPTION> JUNE 26, JUNE 27, 1999 1998 --------- ----------- <S> <C> <C> Interest................................................................. $ 3,744 $ 2,056 Income taxes............................................................. 11,590 7,066 </TABLE> 6
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (UNAUDITED) 4. EARNINGS PER SHARE The following table provides a reconciliation between Basic and Diluted earnings per share: <TABLE> <CAPTION> BASIC DILUTIVE EFFECT DILUTED EPS OF STOCK OPTIONS EPS --------- ------------------------- ----------- <S> <C> <C> <C> 1998: Thirteen weeks ended June 27, 1998: Net earnings.................................................... $ 7,450 -- $ 7,450 Shares outstanding.............................................. 27,713 580 28,293 Per share amount................................................ $ 0.27 -- $ 0.26 Twenty-six weeks ended June 27, 1998: Net earnings.................................................... $ 17,095 -- $ 17,095 Shares outstanding.............................................. 27,684 579 28,263 Per share amount................................................ 0.62 -- 0.60 1999: Thirteen weeks ended June 26, 1999: Net earnings.................................................... $ 6,902 -- $ 6,902 Shares outstanding.............................................. 24,237 188 24,425 Per share amount................................................ $ 0.28 -- $ 0.28 Twenty-six weeks ended June 26, 1999: Net earnings.................................................... $ 12,663 -- $ 12,663 Shares outstanding.............................................. 24,412 190 24,602 Per share amount................................................ 0.52 -- 0.51 </TABLE> 5. COMPREHENSIVE INCOME <TABLE> <CAPTION> THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED ------------------------ -------------------- <S> <C> <C> <C> <C> JUNE 26, JUNE 27, JUNE 26, JUNE 27, 1999 1998 1999 1998 ----------- ----------- --------- --------- Net earnings............................................................ $ 6,902 $ 7,450 $ 12,663 $ 17,095 Currency translation adjustments........................................ (785) 19 (4,051) (819) ----------- ----------- --------- --------- Total comprehensive income.......................................... $ 6,117 $ 7,469 $ 8,612 $ 16,276 ----------- ----------- --------- --------- ----------- ----------- --------- --------- </TABLE> 6. TREASURY STOCK During 1998, the Board of Directors authorized management to repurchase up to 5.4 million shares of the Company's common stock. Repurchased shares are recorded as "Treasury Stock" and result in a reduction of "Shareholders' Equity." When treasury shares are reissued, the Company uses the last-in, first-out method, and the difference between the repurchase cost and reissuance price is charged or credited to "Additional Paid-In Capital." As of June 26, 1999, a total of 535,000 shares had been purchased for $7.2 million during 1999. 7
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (UNAUDITED) 7. BUSINESS SEGMENTS <TABLE> <CAPTION> THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED ---------------------- ---------------------- <S> <C> <C> <C> <C> JUNE 26, JUNE 27, JUNE 26, JUNE 27, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Sales: Irrigation..................................................... $ 74,680 $ 68,699 $ 146,052 $ 150,815 Infrastructure................................................. 84,526 78,794 163,404 157,417 Other.......................................................... 7,392 9,744 15,323 18,105 ---------- ---------- ---------- ---------- 166,598 157,237 324,779 326,337 Intersegment Sales: Irrigation..................................................... $ 972 $ -- $ 1,662 $ 1 Infrastructure................................................. 1,648 2,549 4,283 11,437 Other.......................................................... 1,219 348 1,672 (26) ---------- ---------- ---------- ---------- 3,839 2,897 7,617 11,412 Net Sales: Irrigation..................................................... $ 73,708 $ 68,699 $ 144,390 $ 150,816 Infrastructure................................................. 82,878 76,245 159,121 145,980 Other.......................................................... 6,173 9,396 13,651 18,131 ---------- ---------- ---------- ---------- Consolidated net sales....................................... $ 162,759 $ 154,340 $ 317,162 $ 314,927 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Income Irrigation operations.......................................... $ 8,533 $ 9,040 $ 18,194 $ 23,305 Gain on sale of investment..................................... -- -- 2,823 -- ---------- ---------- ---------- ---------- Total Irrigation............................................. 8,533 9,040 21,017 23,305 ---------- ---------- ---------- ---------- Infrastructure operations...................................... 4,483 2,599 4,879 3,666 Impairment charge.............................................. -- -- (2,431) -- ---------- ---------- ---------- ---------- Total Infrastructure......................................... 4,483 2,599 2,448 3,666 ---------- ---------- ---------- ---------- Other.......................................................... 214 830 680 1,162 ---------- ---------- ---------- ---------- Total........................................................ $ 13,230 $ 12,469 $ 24,145 $ 28,133 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- </TABLE> 8. USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed combined financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. 8
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis contains forward looking statements which reflect management's current view and estimates of future economic and market circumstances, industry conditions, company performance and financial results. The statements are based on many assumptions and factors including operating efficiencies, availability and price of raw materials, availability and market acceptance of new products, product pricing, domestic and international competitive environments, actions and policy changes of domestic and foreign governments and other risks described from time to time in the Company's reports to the Securities and Exchange Commission. Any changes in such assumptions or factors could produce significantly different results. RESULTS OF OPERATIONS CONSOLIDATED Net sales for the second quarter of 1999 were $162.8 million, an increase of 5.5% from $154.3 million for the same period last year. For the twenty-six weeks ended June 26, 1999, sales increased 0.7% to $317.2 million from $314.9 million a year ago. The increase in the second quarter of 1999 was attributable to increased sales in the irrigation and infrastructure segments while other sales decreased. For the twenty-six weeks ended June 26, 1999, a sales increase in the infrastructure segment was offset by decreased sales in the irrigation segment and other sales. Gross profit margin was 26.8% for the thirteen week period ended June 26, 1999 compared to 24.7% for the same period of 1998. For the twenty-six week period ended June 26, 1999, gross profit margin was up from 25.8% for the twenty-six weeks ended June 27, 1998, to 26.5%. The increases are primarily a result of improved margins in the infrastructure segment while the irrigation segment gross profit margins remained approximately the same. Selling, general and administrative (SG&A) expenses increased from $53.2 million (16.9% of sales) in the first half of 1998 to $59.8 million (18.9% of sales)for the first half of 1999. SG&A was up due to: acquisitions made in the last half of 1998 and thus far in 1999; acceleration of investments in management information systems for manufacturing and human resource applications to prepare for future growth and expansion; and increased sales volume. Operating income for the second quarter of 1999 was $13.2 million, up from $12.5 million for the same period in 1998. For the twenty-six weeks ended June 26, 1999, operating income decreased to $24.1 million from $28.1 million for the twenty-six weeks ended June 27, 1998. Net interest expense was $3.4 million for the twenty-six weeks of 1999 up from the $1.6 million incurred in 1998, reflecting the higher average borrowings as a result of the stock repurchase plan. Decreased tax benefits from exports resulted in the effective tax rate being increased for the twenty-six week period in 1999 to 36.9% from 36.7% for the twenty-six week period in 1998. For the second quarter, net earnings decreased 7.4% to $6.9 million and diluted earnings per share increased 7.7% to $0.28. Year-to-date earnings decreased 25.9% to $12.7 million and diluted earnings per share decreased 15.0% to $0.51. The difference in the percentage increase/decrease in earnings per share compared to net earnings is attributable to the Company's repurchase of shares during 1998 and 1999. IRRIGATION SEGMENT The Irrigation segment net sales for the second quarter increased 8.7% in 1999 compared to 1998. However, year-to-date sales decreased 3.2%. For the second quarter, operating income declined 5.6% from $9.0 million to $8.5 million. Domestically, sales increased as a result of the Company's additional presence in the irrigation products distribution network. General weakness in agricultural markets lowered the Company's tubing sales to agricultural equipment manufacturers. International sales in the irrigation 9
segment increased due to the geographic diversification and local manufacturing and distribution presence around the world. For the 26 week period ended June 26, 1999, operating income declined 9.4% from $23.3 million to $21.1 million. Included in this year's operating income is a gain from the sale of an investment of $2.8 million. Year to date 1999 operating income from operations decreased 22.0% from 1998 operating income. Operating income was lower due to pricing pressures on irrigation equipment sales and costs incurred to improve management information systems. INFRASTRUCTURE SEGMENT Net sales for the second quarter in the Infrastructure segment increased 8.7% to $82.9 million in 1999 from $76.2 million in 1998. For the first half of 1999, net sales rose 7.9% to $163.4 million from $151.5 million during the first half of 1998. Sales improved for poles and structures for lighting, traffic, and utility markets as well as for coating services. Domestically, lighting sales rose due to a strong market demand and higher levels of government funding for infrastructure spending. Increased sales of utility poles and structures were the result of continued demand for greater transmission and distribution capacity by the electric utilities. Due to the ongoing slowdown in the build-out of wireless communication networks, sales of communication products remain below last year's levels. Internationally, the Company's plant in China showed increased sales in lighting and communication pole sales, In Europe, lighting sales were approximately the same, however communication product sales were below last year's levels. Acquisitions of protective coating during the last half of 1998 and volume growth in existing locations increased sales of protective coating during the first half of 1999. For the second thirteen weeks of 1999, the Infrastructure segment reported operating profit of $4.5 million in 1999 compared to operating profit of $2.6 million in 1998. For the twenty-six week period ended June 26, 1999, operating profit decreased from $3.7 million a year earlier to $2.4 million. The 1999 operating income included an impairment charge of $2.4 million to adjust the asset values and record severance costs related to a reduction in size of a communication tower facility in France. Operating income before the charge increased $1.2 million in 1999 from 1998 first half results. In addition to the volume increase, a continuous effort to reduce costs and improved productivity increased operating income for the infrastructure segment. LIQUIDITY AND CAPITAL RESOURCES Net working capital at June 26, 1999 was $83.9 million compared to $99.5 million at December 26, 1998. The ratio of current assets to current liabilities was 1.7:1 at June 26, 1999, versus 1.8:1 at December 26, 1998. Expenditures for property, plant and equipment for the twenty-six week period ended June 26, 1999 were approximately $24.6 million. Included in these expenditures are building and site work at the new irrigation facility in McCook, NE. and the new coatings facility in Tulsa, OK. An additional $2.9 million was invested in two retail irrigation outlets. During the first half of fiscal 1999, the Company repurchased 534,900 shares of its common stock for $7.2 million. The aggregate shares purchased under the program commenced in 1998 is 3.7 million, costing $60.5 million. Depreciation of property, plant and equipment was $10.0 million for the first half of 1999 compared to $9.2 million a year ago. Available lines of credit total $43.7 million (of which approximately $31.5 million was unused) at June 26, 1999. Long-term debt was 29.8% of total capitalization at June 26, 1999, versus 30.3% at December 26, 1998. The Company believes cash flow from operations, available credit facilities, and the present capital structure will be adequate for 1999 planned capital expenditures, dividends, continuing the common share repurchase plan, pursuing of opportunities to expand its markets and businesses and other financial commitments. 10
YEAR 2000 The following comments are to be read in conjunction with the Y2K disclosure in the Company's 1998 annual report on Form 10-K filed with the Securities and Exchange Commission. At June 26, 1999, the Company estimates it is 85% complete in its overall compliance efforts. Approximately $7.0 million has been spent to date, with the remaining estimated costs of $3.0 million expected to be spent by the end of the year. The Company expects to become fully Year 2000 compliant during the fourth quarter of 1999. The Company has completed the process to identify, evaluate and resolve machines and equipment with embedded chips by June 26, 1999. Supplier evaluation was nearly complete by the second quarter's end as well. The Company continues to expect that all domestic systems will be Y2K compliant by the end of the third quarter and international compliance will be completed by the end of the fourth quarter. The majority of the network and personal computer equipment should be inventoried and tested by the end of the third quarter. 11
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits <TABLE> <C> <C> <S> 27 -- Financial Data Schedule </TABLE> (b) Reports on Form 8-K The Company filed no reports on Form 8-K during the past fiscal quarter. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf and by the undersigned hereunto duly authorized. VALMONT INDUSTRIES, INC. (Registrant) /s/ TERRY J. MCCLAIN ---------------------------------------- Terry J. McClain VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL OFFICER) Dated this 29th day of July, 1999. 12