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
For the Second Quarter Ended Commission File Number
June 27, 1998 0-3701
VALMONT INDUSTRIES, INC.
Valley, Nebraska 68064
Telephone Number 402-359-2201
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__X__ No_____
As of July 28, 1998 there were outstanding 26,431,292 common shares of the
registrant.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
------------------
PART I. FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Condensed Financial Statements:
Consolidated Statements of Operations for the thirteen
and twenty-six weeks ended June 27, 1998 and
June 28, 1997 2
Consolidated Balance Sheets as of June 27,
1998 and December 27, 1997 3
Consolidated Statement of Cash Flows for the
twenty-six weeks ended June 27, 1998 and
June 28, 1997 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
- ---------------------------
Item 5. Other Events 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 9
- ----------
Page 1
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
------- ------- ------- -------
Net sales $154,340 $159,100 $314,927 $324,518
Cost of sales 116,101 114,956 233,619 235,758
------- ------- ------- -------
Gross profit 38,239 44,144 81,308 88,760
Selling, general and administrative
expenses 25,770 27,641 53,175 57,680
------- ------- ------- -------
Operating income 12,469 16,503 28,133 31,080
------- ------- ------- -------
Other income (deductions):
Interest expense (1,003) (1,065) (2,041) (1,963)
Interest income 207 246 451 271
Miscellaneous 77 (191) 452 59
------- ------- ------- -------
(719) (1,010) (1,138) (1,633)
------- ------- ------- -------
Earnings before income taxes 11,750 15,493 26,995 29,447
------- ------- ------- -------
Income tax expense:
Current 3,600 6,140 9,300 6,840
Deferred 700 (540) 600 3,760
------- ------- ------- -------
4,300 5,600 9,900 10,600
------- ------- ------- -------
Net Earnings $ 7,450 $ 9,893 $ 17,095 $ 18,847
======= ======= ======= =======
Earnings per share:
Basic $ 0.27 $ 0.36 $ 0.62 $ 0.69
======= ======= ======= =======
Diluted $ 0.26 $ 0.35 $ 0.60 $ 0.67
======= ======= ======= =======
Cash dividends per share $ 0.065 $0.05625 $0.12125 $0.10625
======= ======= ======= =======
Weighted average number of shares of
common stock outstanding (000 omitted) 27,713 27,486 27,684 27,447
======= ======= ======= =======
Weighted average number of shares of
common stock outstanding plus dilutive
potential common shares(000 omitted) 28,293 28,232 28,263 28,221
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
Page 2
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
June 27, December 27,
ASSETS 1998 1997
- ----------------------------------------- ------- -------
Current assets:
Cash and cash equivalents $ 7,621 $ 11,505
Receivables 100,516 110,531
Assets held for sale 3,861 --
Inventories 78,909 79,444
Prepaid expenses 10,744 3,388
Deferred income taxes 16,515 13,062
------- -------
Total current assets 218,166 217,930
------- -------
Property, plant and equipment, at cost 269,009 258,478
Accumulated depreciation 124,930 117,644
------- -------
Net property, plant and equipment 144,079 140,834
------- -------
Other assets:
Investments in nonconsolidated affiliates 4,832 4,730
Other 12,828 4,558
------- -------
Total other assets 17,660 9,288
------- -------
Total assets $ 379,905 $ 368,052
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------
Current liabilities:
Current installments of long-term debt $ 7,769 $ 7,317
Notes payable to banks 15,449 18,545
Accounts payable 50,857 48,717
Accrued expenses 40,383 47,380
Dividends payable 1,800 1,555
------- -------
Total current liabilities 116,258 123,514
------- -------
Deferred income taxes 10,073 9,038
Long-term debt, excl. current installments 26,873 20,743
Minority interest in consolidated
subsidiaries 3,596 3,957
Other noncurrent liabilities 3,850 3,698
Shareholders' equity:
Preferred stock -- --
Common stock of $1 par value 27,900 27,900
Additional paid-in capital 1,982 838
Retained earnings 193,100 179,360
Accumulated Other Comprehensive Income (1,785) (966)
Treasury stock (1,933) (8)
Unearned restricted stock (9) (22)
------- -------
Total shareholders' equity 219,255 207,102
------- -------
Total liabilities and shareholders'
equity $ 379,905 $ 368,052
======= =======
See accompanying notes to consolidated financial statements.
Page 3
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Twenty-six Weeks Ended
-----------------------
June 27, June 28,
1998 1997
------- -------
Net cash provided by operations $ 26,251 $ 20,240
------- -------
Cash flows from investment activities:
Purchase of property, plant & equipment (10,061) (26,936)
Change in other assets (565) 810
Acquisitions (14,865) (627)
Proceeds from investment by minority
shareholders -- 2,381
Proceeds from sale of property and
equipment 222 96
Proceeds from sale of assets held for
sale -- 25,000
Other, net (344) (57)
------- -------
Net cash provided (used) by
investment activities (25,613) 667
------- -------
Cash flows from financing activities:
Net borrowings under short-term
agreements (3,056) (16,154)
Proceeds from long-term borrowings 5,757 --
Principal payments on long-term
obligations (2,245) (2,127)
Dividends paid (3,354) (2,739)
Proceeds from exercises under
stock plans 2,222 1,247
Proceeds from issuance of common stock -- 905
Purchase of common treasury shares (3,846) (884)
------- -------
Net cash used by
financing activities (4,522) (19,752)
------- -------
Net increase in cash and
cash equivalents (3,884) 1,155
Cash and cash equivalents--beginning of
period 11,505 9,483
------- -------
Cash and cash equivalents--end of period $ 7,621 $ 10,638
======= =======
See accompanying notes to consolidated financial statements.
Page 4
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 27, 1998 and the
Condensed Consolidated Statements of Operations for the thirteen and
twenty-six week periods ended June 27, 1998 and June 28, 1997 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 27, 1998 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 27, 1997
Annual Report to shareholders. The results of operations for the period
ended June 27, 1998 are not necessarily indicative of the operating
results for the full year.
2. Inventories
-----------
Approximately 61% of the Company's inventories are valued at cost on the
basis of the last-in first-out (LIFO) dollar value method under the
natural business unit concept, which is not in excess of market (net
realizable value). As a result, it is not possible to segregate the
inventories into their component values of raw material, work-in-process
and finished goods. All other inventories are valued at lower of first-in
first-out (FIFO) cost or market (net realizable value).
3. Cash Flows
----------
The Company considers cash and cash investments with a maturity of three
months or less when purchased, to be cash equivalents. Interest paid was
$2,056 and $2,112 for the twenty-six week periods ended June 27, 1998 and
June 28, 1997, respectively. Income taxes paid, net of refunds, were
$11,590 and $2,628 for the twenty-six week periods ended June 27, 1998 and
June 28, 1997.
4. Earnings Per Share
------------------
Share and per share information have been adjusted to give effect to
the two-for-one stock split effected in the form of a dividend on May 30,
1997. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share,"
(EPS) which requires companies to present Basic EPS and Diluted EPS as well
as to provide a reconciliation between Basic and Diluted EPS.
Accordingly, all prior periods have been restated.
---------------------------------------------------------------------
BASIC DILUTIVE EFFECT DILUTED
EPS OF STOCK OPTIONS EPS
---------------------------------------------------------------------
1997:
Thirteen weeks ended June 28, 1997:
Net earnings $ 9,893 -- $ 9,893
Shares 27,486 746 28,232
Per share amount $ 0.36 -- $ 0.35
Twenty-six weeks ended June 28, 1997:
Net earnings $18,847 -- $18,847
Shares 27,447 774 28,221
Per share amount $ 0.69 -- $ 0.67
Page 5
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(Continued)
1998:
Thirteen weeks ended June 27, 1998:
Net earnings $ 7,450 -- $ 7,450
Shares 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 27,684 579 28,263
Per share amount $ 0.62 -- $ 0.60
5. Comprehensive Income
--------------------
Statement of Financial Standards No. 130 "Reporting Comprehensive Income",
which is effective for fiscal years beginning after December 15, 1997,
defines items such as (1) foreign currency translation adjustments, (2)
unrealized gains and losses on certain investments in debt and equity
securities, and (3) minimum pension liability adjustments as items of
other comprehensive income and as such must be reported "in a financial
statement that is displayed with the same prominence as other financial
statements".
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
---- ---- ---- ----
Net income $ 7,450 $ 9,893 $17,095 $18,847
Other comprehensive income,
before tax:
Foreign currency translation
adjustments 19 (390) (819) (1,856)
------ ------ ------ ------
Comprehensive income $ 7,469 $ 9,503 $16,276 $16,991
====== ====== ====== ======
6. Treasury Stock
--------------
In June 1998, the Board of Directors authorized management to repurchase
up to 2.7 million shares of the Company's common stock. The 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 27, 1998, a total of 95,100 shares had
been purchased for $1,929.
7. 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.
Recently Issued Accounting Pronouncements:
------------------------------------------
In June of 1998, the Financial Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (FAS 133)
which is effective for all fiscal quarters after June 15, 1999. The
objective of the statement is to establish accounting and reporting
standards for derivative instruments and hedging activities. The Company
will adopt FAS 133 in the third quarter of 1999 and, based on current
circumstances, does not believe the effect of adoption will be material.
Page 6
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 views and estimates of future economic
circumstances, industry conditions, company performance and the financial
results. The statements are based on many assumptions and factors, including
availability and price of raw materials, product pricing, competitive
environment and related domestic and international market conditions, operating
efficiencies, and actions of domestic and foreign governments. Any changes
in such assumptions or factors could produce significantly different results.
Results of Operations
- --------------------
Net sales for the second quarter of 1998 were $154.3 million, a decrease of
3.0% from the $159.1 million for the same period last year. Net sales for
the first two quarters of 1998 were also below 1997 sales falling from $324.5
million in 1997 to $314.9 million this year.
Despite wet spring weather which slowed sales and installation of both
irrigation parts and equipment, the Irrigation and Coating Group sales for
the quarter and year-to-date were above last year's levels. These increased
sales resulted from both the acquisition of new coating facilities and
increased sales at the Company's manufacturing facility in Brazil which
commenced operations in April 1997. The Industrial Products Segment posted
sales declines in the second quarter and year-to-date of 1998 resulting
primarily from lower sales of communication products. The delay in the
signing of the federal highway bill prompted a slowing of orders and shipments
of lighting and traffic signal poles, which also resulted in lower sales.
However, sales in Europe were higher due to the improvement of certain
economies. Backlogs also improved in Europe during the quarter, especially
in France.
Due to continued softness in the communication industry, the Company in 1998
reorganized its North American pole and tower business during the second
quarter for higher efficiencies. The Company consolidated the activities of
its two smallest plants into larger facilities, implemented reductions in
force in other locations and reduced other expenses. The cost of this
reorganization was absorbed in the second quarter.
Gross profit as a percent of sales was 24.8% and 27.7% for the second quarter
of 1998 and 1997, respectively. Year-to-date gross profit was 25.8% compared
to 27.4% for 1998 and 1997, respectively. The decreases in margins resulted
from lower volumes and competitive pricing in the Industrial Products Group.
Selling, general and administrative (SG&A) expenses were reduced to $25.8
million for second quarter of 1998 from $27.6 million for the same period
of 1997. As a percent of sales, SG&A expenses for the respective quarters
were 16.7% and 17.4% for the second quarters of 1998 and 1997. For the
twenty-six weeks ended June 27, 1998, SG&A were also reduced to $53.2 million
from $57.7 million a year earlier. As a percent of sales for the first two
quarters, SG&A were 16.9% in 1998 compared to 17.7% in 1997.
For the second quarter of 1998 interest expense decreased from $1.1 million
a year ago to $1.0 million this year. Year-to-date interest expense remained
the same at $2.0 million. The decrease in 1998 second quarter results from
average debt levels being lower.
The effective income tax rates for the first two quarters of 1998 and 1997
were 36.6% and 36.1%, respectively, which do not vary significantly from the
expected statutory rate for the periods. Decreased foreign tax benefits and
increased state income taxes resulted in the higher rate in 1998.
Page 7
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
As a result of the aforementioned operating factors and general business
conditions, net earnings decreased from $18.8 million in the first twenty-six
weeks of 1997 to $17.1 million in the same period this year. For the second
quarter, net earnings were $9.9 million in 1997 versus $7.4 million in 1998.
Diluted earnings per share were $0.67 and $0.60 for the first twenty-six weeks
of 1997 and 1998, respectively and $0.35 and $0.26 for the second quarter of
1997 and 1998, respectively.
Liquidity and Capital Resources
- -------------------------------
Net working capital at June 27, 1998 was $101.9 million compared to $94.4
million at December 27, 1997. The ratio of current assets to current
liabilities was 1.9:1 at June 27, 1998, versus 1.8:1 at December 27, 1997.
Expenditures for property, plant and equipment for the twenty-six week period
ended June 27, 1998 were approximately $10.0 million. An additional $14.9
million was spent for the acquisition of galvanizing assets at three new
locations. Depreciation of property, plant and equipment was $9.2 million
for the second quarter of 1998 compared to $7.5 million a year ago.
Available lines of credit total $47.8 million (of which approximately $37.4
million was unused) at June 27, 1998. Long-term debt was 12.1% of total
capitalization at June 27, 1998, versus 10.4% at December 27, 1997.
The Company believes cash flow from operations, available credit
facilities, and the present capital structure will be adequate for 1998
planned capital expenditures, for dividends and other financial
commitments, and for the Company to pursue opportunities to expand its
markets and businesses.
Page 8
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION
- ---------------------------
On April 27, 1998, the Board of Directors of the Company declared a
15.5% increase in the cash dividend. The second quarter cash dividend
payable in July 1998, was 6.5 cents per share up from a previous 5.625 cent
quarterly rate.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
--------
27 Financial Data Schedule
(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 27th day of July, 1998.
Page 9