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 Third Quarter Ended Commission File Number
September 26, 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_____ No__X__
As of October 23, 1998 there were outstanding 25,125,900 common shares of the
registrant.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
------------------
PART I. FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Condensed Consolidated Financial Statements:
Consolidated Statements of Operations for the thirteen
and thirty-nine weeks ended September 26, 1998 and
September 27, 1997 2
Consolidated Balance Sheets as of September 26,
1998 and December 27, 1997 3
Consolidated Statements of Cash Flows for the
thirty-nine weeks ended September 26, 1998 and
September 27, 1997 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
PART II. OTHER INFORMATION
- ---------------------------
Item 5. Other Events 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
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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 Thirty-nine Weeks Ended
-------------------- ----------------------
Sept. 26, Sept. 27, Sept. 26, Sept. 27,
1998 1997 1998 1997
------- ------- ------- -------
Net sales $140,105 $136,015 $455,032 $460,533
Cost of sales 105,199 98,269 338,818 334,027
------- ------- ------- -------
Gross profit 34,906 37,746 116,214 126,506
Selling, general and administrative
expenses 26,383 24,432 79,558 82,112
------- ------- ------- -------
Operating income 8,523 13,314 36,656 44,394
------- ------- ------- -------
Other income (deductions):
Interest expense (1,398) (1,002) (3,439) (2,965)
Interest income 226 132 677 403
Miscellaneous 27 (87) 479 (28)
------- ------- ------- -------
(1,145) (957) (2,283) (2,590)
------- ------- ------- -------
Earnings before income taxes 7,378 12,357 34,373 41,804
------- ------- ------- -------
Income tax expense:
Current 3,200 4,560 12,500 11,400
Deferred (500) (60) 100 3,700
------- ------- ------- -------
2,700 4,500 12,600 15,100
------- ------- ------- -------
Net Earnings $ 4,678 $ 7,857 $ 21,773 $ 26,704
======= ======= ======= =======
Earnings per share:
Basic $ 0.18 $ 0.28 $ 0.80 $ 0.97
======= ======= ======= =======
Diluted $ 0.18 $ 0.28 $ 0.79 $ 0.95
======= ======= ======= =======
Cash dividends per share $ 0.065 $0.05625 $0.18625 $0.16250
======= ======= ======= =======
Weighted average number of shares of
common stock outstanding (000 omitted) 26,029 27,567 27,132 27,487
======= ======= ======= =======
Weighted average number of shares of
common stock outstanding plus dilutive
potential common shares(000 omitted) 26,388 28,238 27,585 28,165
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
Page 2
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
September 26, December 27,
ASSETS 1998 1997
- ----------------------------------------- ------- -------
Current assets:
Cash and cash equivalents $ 8,662 $ 11,505
Receivables 104,325 110,531
Assets held for sale 1,450 --
Inventories 83,932 79,444
Prepaid expenses 6,061 3,388
Deferred income taxes 13,623 13,062
------- -------
Total current assets 218,053 217,930
------- -------
Property, plant and equipment, at cost 282,770 258,478
Accumulated depreciation 131,117 117,644
------- -------
Net property, plant and equipment 151,653 140,834
------- -------
Other assets:
Investments in nonconsolidated affiliates 4,832 4,730
Other 22,341 4,558
------- -------
Total other assets 27,173 9,288
------- -------
Total assets $ 396,879 $ 368,052
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------
Current liabilities:
Current installments of long-term debt $ 7,754 $ 7,317
Notes payable to banks 25,339 18,545
Accounts payable 48,005 48,717
Accrued expenses 43,304 47,380
Dividends payable 1,646 1,555
------- -------
Total current liabilities 126,048 123,514
------- -------
Deferred income taxes 9,316 9,038
Long-term debt, excl. current installments 73,806 20,743
Minority interest in consolidated
subsidiaries 3,673 3,957
Other noncurrent liabilities 3,977 3,698
Shareholders' equity:
Preferred stock -- --
Common stock of $1 par value 27,900 27,900
Additional paid-in capital 1,626 838
Retained earnings 196,131 179,360
Accumulated Other Comprehensive Income (1,118) (966)
Treasury stock (44,474) (8)
Unearned restricted stock (6) (22)
------- -------
Total shareholders' equity 180,059 207,102
------- -------
Total liabilities and shareholders'
equity $ 396,879 $ 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)
Thirty-nine Weeks Ended
-----------------------
September 26, September 27,
1998 1997
------- -------
Net cash provided by operations $ 36,834 $ 9,376
------- -------
Cash flows from investment activities:
Purchase of property, plant & equipment (18,576) (31,945)
Change in other assets (672) 969
Acquisitions (28,257) (627)
Proceeds from investment by minority
shareholders -- 2,450
Proceeds from sale of property and
equipment 3,011 126
Proceeds from sale of assets held for
sale -- 25,000
Other, net (1,179) (183)
------- -------
Net cash used by
investment activities (45,673) (4,210)
------- -------
Cash flows from financing activities:
Net borrowings under short-term
agreements 3,281 2,112
Proceeds from long-term borrowings 58,267 250
Principal payments on long-term
obligations (5,223) (4,019)
Dividends paid (5,002) (4,286)
Proceeds from exercises under
stock plans 2,675 1,569
Proceeds from issuance of common stock -- 905
Purchase of common treasury shares (48,002) (2,564)
------- -------
Net cash provided (used) by
financing activities 5,996 (6,033)
------- -------
Net decrease in cash and
cash equivalents (2,843) (867)
Cash and cash equivalents--beginning of
period 11,505 9,483
------- -------
Cash and cash equivalents--end of period $ 8,662 $ 8,616
======= =======
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 September 26, 1998 and the
Condensed Consolidated Statements of Operations for the thirteen and
thirty-nine week periods ended September 26, 1998 and September 27, 1997
and the Condensed Consolidated Statements of Cash Flows for the thirty-
nine 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 September 26, 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 September 26, 1998 are not necessarily indicative of the operating
results for the full year.
2. Inventories
-----------
Approximately 63% 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
$2,766 and $3,099 for the thirty-nine week periods ended September 26,
1998 and September 27, 1997, respectively. Income taxes paid, net of
refunds, were $12,234 and $12,803 for the thirty-nine week periods ended
September 26, 1998 and September 27, 1997, respectively.
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 September 27, 1997:
Net earnings $ 7,857 -- $ 7,857
Shares 27,567 671 28,238
Per share amount $ 0.28 -- $ 0.28
Thirty-nine weeks ended September 27, 1997:
Net earnings $26,704 -- $26,704
Shares 27,487 678 28,165
Per share amount $ 0.97 -- $ 0.95
Page 5
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(Continued)
1998:
Thirteen weeks ended September 26, 1998:
Net earnings $ 4,678 -- $ 4,678
Shares 26,029 359 26,388
Per share amount 0.18 -- 0.18
Thirty-nine weeks ended September 26, 1998:
Net earnings $21,773 -- $21,773
Shares 27,132 453 27,585
Per share amount $ 0.80 -- $ 0.79
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 Thirty-nine Weeks Ended
-------------------- ----------------------
Sept. 26, Sept. 27, Sept. 26, Sept. 27,
1998 1997 1998 1997
---- ---- ---- ----
Net income $ 4,678 $ 7,857 $21,773 $26,704
Other comprehensive income,
before tax:
Foreign currency translation
adjustments 667 (983) (152) (2,839)
------ ------ ------ ------
Comprehensive income $ 5,345 $ 6,874 $21,621 $23,865
====== ====== ====== ======
6. Treasury Stock
--------------
In 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 September 26, 1998, a total of
2,592,460 shares had been purchased for $45,089.
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.
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 third quarter of 1998 were $140.1 million, an increase of
3.0% from the $136.0 million for the same period last year. Net sales for
the first three quarters of 1998 were $460.5 million, down from $455.0 million
for the same period in 1997.
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 international sales.
However, recent weakness in commodity prices have led to lower domestic sales
and earnings of irrigation equipment in the last part of the quarter.
The Industrial Products Segment posted a sales increase in the third quarter
of 1998. Year-to-date sales declined from sales levels of a year ago.
Continued weakness in the wireless communication industry, a delay in the
signing of the federal highway bill that slowed shipments of lighting and
traffic products and lower European sales of lighting products were among
the factors that contributed to sales declines. A tight labor market has
slowed the ramp up in production capacity to build and ship the large backlog
of the Industrial Products Segment.
Gross profit as a percent of sales was 24.9% and 27.8% for the third quarter
of 1998 and 1997, respectively. Year-to-date gross profit was 25.5% compared
to 27.5% for 1998 and 1997, respectively. The decreases in margins resulted
from lower volumes, competitive pricing and increased overtime costs in the
Industrial Products Group.
Selling, general and administrative (SG&A) expenses were $26.4 million for the
third quarter of 1998 and $24.4 million for the same period of 1997. As a
percent of sales, SG&A expenses for the respective quarters were 18.8% and
18.0% for the third quarters of 1998 and 1997. For the thirty-nine weeks
ended September 26, 1998, SG&A expenses were $79.6 million compared to $82.1
million a year earlier. As a percent of sales SG&A expenses for the first
three quarters were 17.5% in 1998 compared to 17.8% in 1997.
For the third quarter of 1998 interest expense increased to $1.4 million
from $1.0 million a year ago. Year-to-date interest expense also increased
to $3.4 million from $3.0 million. The increase in 1998 third quarter results
from higher average debt levels.
The effective income tax rates for the first three quarters of 1998 and 1997
were 36.7% 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 to $26.7 million in the first thirty-nine
weeks of 1998 from $21.8 million in the same period in 1997. For the third
quarter, net earnings were $4.7 million in 1998 versus $7.9 million in 1997.
Diluted earnings per share were $0.79 and $0.95 for the first thirty-nine weeks
of 1998 and 1997, respectively and $0.18 and $0.28 for the third quarter of
1998 and 1997, respectively.
Liquidity and Capital Resources
- -------------------------------
Net working capital at September 26, 1998 was $92.0 million compared to $94.4
million at December 27, 1997. The ratio of current assets to current
liabilities was 1.7:1 at September 26, 1998, versus 1.8:1 at December 27, 1997.
Expenditures for property, plant and equipment for the thirty-nine week period
ended September 26, 1998 were approximately $18.6 million. Cash spent for
share buyback amounted to $45.8 as of September 26, 1998. An additional $28.3
million was spent for the acquisition of galvanizing assets at four new
locations. Depreciation of property, plant and equipment was $13.8 million
for the first three quarters of 1998 compared to $11.5 million a year ago.
Available lines of credit total $43.2 million (of which approximately $22.9
million was unused) at September 26, 1998. Long-term debt was 26.8% of total
capitalization at September 26, 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 as well as continuing its common share repurchase plan and
to pursuing opportunities to expand its markets and businesses.
Year 2000
- ---------
The Company has been addressing the Year 2000 situation for over two years.
The Company's plan has included remediation of mainframe legacy systems,
upgrades to packaged systems, implementation of new Enterprise Resource
Planning (ERP) systems in certain business units of the Company, examination
and resolution of administrative and shop equipment that contain embedded
chips, evaluation of the Year 2000 readiness of the Company's key suppliers
and evaluation and resolution of network equipment and personal computers.
The component requiring the greatest time and having the greatest risk is the
legacy system remediation. This activity has been under way since mid-1996 and
is in the final systems test stage. The Company anticipates completion of
this testing phase during the second quarter of 1999. Package upgrades are
in final testing. The new ERP system will be implemented in the United States
during the second quarter of 1999 and in Europe in the fourth quarter of 1999.
The Company has contacted most key domestic suppliers relative to their Year
2000 readiness and has received positive responses. The Company is in the
process of contacting the Company's key international suppliers and anticipates
completion of this phase in the first quarter of 1999. The next steps in
supplier evaluation are to follow up with the critical suppliers by telephone
or with visits and, additionally to identify alternative suppliers for all
critical components. Completion of supplier evaluation is expected by the
end of the second quarter 1999.
Page 8
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The process to identify, evaluate and resolve machines and equipment with
embedded chip issues has been under way for nine months. The process is
essentially complete for the Company's main plant located in Valley, NE. and
will be completed at all other locations by the end of the second quarter
of 1999.
Since much of the network and personal computer equipment is relatively new
and frequently upgraded, the majority will be inventoried and tested by the
end of the first quarter of 1999.
The total cost of the Company's Year 2000 project will be less than $10
million. Approximately $6 million has been spent to date, and the remaining
estimated costs of $4 million are expected to be spent by the end of 1999.
Included in these amounts is the cost of installing the new ERP systems which
was undertaken to both improve business and processes and also address Year
2000 issues.
The Company's greatest Year 2000 concern isthat its suppliers would be
unable to deliver product and/or services in a timely fashion. The Company
is currently developing contingency plans to identify alternative vendors and
is considering the stockpiling of critical inventory items. Availability of
power and telecommunications are required for the Company to operate
effectively. These services for the most part are beyond the Company's
control and alternate sources are not readily available. Since the Company
is currently testing its major business systems or replacing with new
systems, the Company does not consider the failure of those systems as
"reasonably likely"; however, the Company is discussing contingency plans to
cover key business functions for a short period of time. These contingency
plans are expected to be developed by the end of the second quarter 1999.
Page 9
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION
- ---------------------------
On August 17, 1998, the Board of Directors announced the authorization
to increase the repurchase of the company's stock buyback plan by an
additional 2.7 million shares, to an aggregate of 5.4 million shares. On
September 8, 1998, the Board of Directors of the Company declared the third
quarter cash dividend payable on October 15, 1998, of 6.5 cents per share.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
--------
10.1 Amended Unfunded Deferred Compensation Plan for Nonemployee
Directors
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 30th day of October, 1998.
Page 10