Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
VMI > SEC Filings for VMI > Form 10-Q on 24-Oct-2013All Recent SEC Filings

Show all filings for VALMONT INDUSTRIES INC

Form 10-Q for VALMONT INDUSTRIES INC


24-Oct-2013

Quarterly Report


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. Segment sales in the table below are presented net of intersegment sales.


Table of Contents

Results of Operations

    Dollars in millions, except per share amounts

                             Thirteen Weeks Ended                          Thirty-nine Weeks Ended
                  September 28,     September 29,    % Incr.      September 28,     September 29,    % Incr.
                      2013              2012         (Decr.)          2013              2012         (Decr.)
Consolidated
Net sales        $         778.0   $         729.8        6.6 %  $       2,476.3   $       2,214.5       11.8 %
Gross profit               225.6             192.4       17.3 %            722.4             578.1       25.0 %
as a percent
of sales                    29.0 %            26.4 %                        29.2 %            26.1 %
SG&A expense               115.7             102.0       13.4 %            350.0             307.6       13.8 %
as a percent
of sales                    14.9 %            14.0 %                        14.1 %            13.9 %
Operating
income                     109.9              90.4       21.6 %            372.4             270.6       37.6 %
as a percent
of sales                    14.1 %            12.4 %                        15.0 %            12.2 %
Net interest
expense                      6.6               6.3        4.8 %             19.6              17.6       11.4 %
Effective tax
rate                        42.8 %            34.1 %                        35.6 %            36.2 %
Net earnings     $          56.5   $          56.7       (0.4 )% $         223.6   $         169.0       32.3 %
Diluted
earnings per
share            $          2.10   $          2.12       (0.9 )% $          8.31   $          6.32       31.5 %
Engineered
Infrastructure
Products
Net sales        $         235.3   $         219.3        7.3 %  $         658.0   $         616.0        6.8 %
Gross profit                67.6              59.0       14.6 %            186.0             160.1       16.2 %
SG&A expense                41.9              40.3        4.0 %            125.0             119.2        4.9 %
Operating
income                      25.7              18.7       37.4 %             61.0              40.9       49.1 %
Utility
Support
Structures
Net sales        $         228.9   $         216.9        5.5 %  $         696.1   $         617.9       12.7 %
Gross profit                61.8              47.9       29.0 %            189.8             134.5       41.1 %
SG&A expense                20.3              17.7       14.7 %             60.0              52.6       14.1 %
Operating
income                      41.5              30.2       37.4 %            129.8              81.9       58.5 %
Coatings
Net sales        $          75.3   $          71.4        5.5 %  $         229.6   $         213.1        7.7 %
Gross profit                28.7              26.3        9.1 %             80.9              79.0        2.4 %
SG&A expense                 8.9               7.7       15.6 %             24.1              24.4       (1.2 )%
Operating
income                      19.8              18.6        6.5 %             56.8              54.6        4.0 %
Irrigation
Net sales        $         175.1   $         156.4       12.0 %  $         690.0   $         546.7       26.2 %
Gross profit                52.8              44.5       18.7 %            216.3             156.4       38.3 %
SG&A expense                21.7              17.3       25.4 %             66.4              53.2       24.8 %
Operating
income                      31.1              27.2       14.3 %            149.9             103.2       45.3 %
Other
Net sales        $          63.4   $          65.8       (3.6 )% $         202.6   $         220.8       (8.2 )%
Gross profit                14.8              14.5        2.1 %             49.2              47.9        2.7 %
SG&A expense                 4.8               4.8          - %             15.4              14.5        6.2 %
Operating
income                      10.0               9.7        3.1 %             33.8              33.4        1.2 %
Net corporate
expense
Gross profit     $          (0.1 ) $           0.2         NM    $           0.2   $           0.2         NM
SG&A expense                18.1              14.2       27.5 %             59.1              43.6       35.6 %
Operating loss             (18.2 )           (14.0 )    (30.0 )%           (58.9 )           (43.4 )    (35.7 )%

NM=Not meaningful


Table of Contents

Overview

    On a consolidated basis, the increase in net sales in the third quarter and
first three quarters of 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 and thirty-nine week periods ended
September 28, 2013 and fiscal 2012 refers to the thirteen and thirty-nine week
periods ended September 29, 2012. The increase in net sales in fiscal 2013, as
compared with fiscal 2012, was due to the following factors:

                                                     Third quarter
                            Total      EIP     Utility     Coatings     Irrigation    Other
    Sales-2012             $ 729.8   $ 219.3    $ 216.9    $    71.4    $     156.4   $ 65.8
    Volume                    17.9       5.1       (8.4 )       (2.2 )         17.8      5.6
    Pricing/mix               21.5      (1.7 )     19.9          0.5            4.7     (1.9 )
    Acquisitions              25.9      16.8          -          9.1              -        -
    Currency translation     (17.1 )    (4.2 )      0.5         (3.5 )         (3.8 )   (6.1 )

    Sales-2013             $ 778.0   $ 235.3    $ 228.9    $    75.3    $     175.1   $ 63.4

                                                      Year-to-date
                            Total       EIP     Utility     Coatings     Irrigation     Other
   Sales-2012             $ 2,214.5   $ 616.0    $ 617.9    $   213.1    $     546.7   $ 220.8
   Volume                     136.9       1.0       14.4         (7.0 )        128.0       0.5
   Pricing/mix                 78.2      (1.2 )     63.2          1.9           23.6      (9.3 )
   Acquisitions                72.8      46.7          -         26.1              -         -
   Currency translation       (26.1 )    (4.5 )      0.6         (4.5 )         (8.3 )    (9.4 )

   Sales-2013             $ 2,476.3   $ 658.0    $ 696.1    $   229.6    $     690.0   $ 202.6

Acquisitions included Locker Group Holdings ("Locker") and Pure Metal Galvanizing ("PMG"). We acquired PMG in December 2012 and Locker in February 2013. We report Locker in the Engineered Infrastructure Products segment and PMG in the Coatings segment.

In the third quarter and first three quarters of fiscal 2013, we realized a decrease in operating profit, as compared with fiscal 2012, due to currency translation effects. On average, the U.S. dollar strengthened in particular against the Australian dollar, Brazilian Real and South Africa Rand, resulting in less operating profit in U.S. dollar terms. The breakdown of this effect by segment was as follows:

                        Total     EIP      Coatings    Irrigation    Other     Corporate
        Third quarter   $ (2.2 ) $ (0.6 )  $    (0.6 )  $     (0.5 ) $ (0.5 )   $       -
        Year-to-date    $ (3.1 ) $ (0.5 )  $    (0.7 )  $     (1.3 ) $ (0.7 )   $     0.1

The increase in gross margin (gross profit as a percent of sales) in fiscal 2013, as compared with 2012, was due to a combination of improved sales prices and sales mix, improved factory operations and moderating raw material costs in 2013, as compared with 2012. In general, our cost of steel and other raw materials were slightly lower in the third quarter and first three quarters of 2013, as compared with the same periods in 2012.


Table of Contents

Selling, general and administrative (SG&A) spending in the third quarter and first three quarters of fiscal 2013, as compared with the same period in 2012, increased mainly due to the following factors:


Expenses recorded by Locker and PMG, which were acquired after the third quarter of 2012, of $4.9 million and $14.4 million, respectively;


Increased compensation expenses of $2.1 million and $7.1 million, respectively, mainly associated with increased employment levels and salary increases, and;


Increased employee incentive accruals of $1.2 million and $9.9 million, respectively, due to improved operating results and increased share price in valuing long-term incentive plans.

In addition, certain non-recurring items affecting the comparisons of SG&A expenses included:


The sale of one of our galvanizing facilities in Australia resulted in a gain of $4.6 million in the second quarter of 2013, which was reported as a reduction of SG&A expense, and;


Insurance proceeds received in fiscal 2012 related to a fire in one of our galvanizing facilities in Australia resulted in a non-recurring reduction in SG&A in the third quarter and first three quarters of fiscal 2012 of $0.6 million and $2.0 million, respectively.

On a reportable segment basis, all segments realized improved operating income in the third quarter and first three quarters of 2013, as compared with 2012.

Net interest expense increased in the the third quarter and first three quarters of fiscal 2013, as compared with 2012, due to a combination of lower interest income, as we used invested cash to fund the Locker acquisition, and slightly higher interest expense. The increase in interest expense principally was due to higher bank fees and interest incurred due to international working capital borrowings.

The increase in other expense in the third quarter of 2013, as compared with 2012, mainly was attributable to foreign exchange transaction losses due to currency volatility.

Our effective income tax rate in the third quarter of fiscal 2013 was higher than the same period in fiscal 2012, principally due to a lowering of U.K. income tax rates and reconciliation of our annual income tax filings. In fiscal 2012 and 2013, U.K. tax rates were collectively reduced from 25% to 20%. Accordingly, we reduced the value of our deferred tax assets associated with net operating loss carryforwards and certain timing differences by $8.3 million in the third quarter of fiscal 2013 ($4.7 million in fiscal 2012), with a corresponding increase in income tax expense. On a year-to-date basis, the effects of the U.K. tax rate decrease were offset somewhat by approximately $1.5 million of tax benefits associated with the first quarter 2013 sale of our nonconsolidated investment in South Africa and $1.4 million of increased research and development tax credits in the U.S.

Earnings in non-consolidated subsidiaries were lower in fiscal 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.

Our cash flows generated by operations were approximately $249.1 million in the first three quarters of fiscal 2013, as compared with $117.7 million in 2012. The increase in operating cash flow in the first three quarters of fiscal 2013 was the result of improved net earnings and less additional working capital to support the improved sales in 2013, as compared with 2012.

Engineered Infrastructure Products (EIP) segment

The increase in net sales in the third quarter and first three quarters of fiscal 2013 as compared with 2012 was mainly due to the acquisition of Locker in February 2013. Global lighting sales in the third quarter and first three quarters of fiscal 2013 were comparable with the same periods in fiscal 2012. In the third quarter of fiscal 2013, sales in North America and Europe were comparable with


Table of Contents

2012. On a year-to-date basis, North American sales were comparable with 2012 while Europe was down slightly from 2012. The transportation market for lighting and traffic structures in the U.S., while stable, continues to be challenging, due in part to the lack of long-term U.S. federal highway funding legislation. Sales in other market channels such as sales to lighting fixture manufacturers and commercial construction projects in the third quarter and first three quarters of fiscal 2013 improved somewhat as compared with the same periods in 2012. In Europe, year-to-date 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 improved in the third quarter and first three quarters of fiscal 2013, as compared with the same periods of fiscal 2012. On a regional basis, North American sales in the third quarter and first three quarters of fiscal 2013 improved over the same periods in fiscal 2012 by $8.4 and $16.9 million, respectively. 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 the third quarter and first three quarters of fiscal 2013 were lower than the same periods in fiscal 2012.

Access systems product line sales improved in fiscal 2013, as compared with 2012, mainly due to the Locker acquisition in February 2013. Otherwise, access systems sales in the third quarter and first three quarters of fiscal 2013 were lower than 2012, due a combination of slowness in mining sector investment in Australia and exchange rate effects due to a weaker Australian dollar in 2013 and related competitive pricing effects. Highway safety product sales in fiscal 2013 were comparable with fiscal 2012, as spending for roads and highways in Australia continues to be relatively weak due to budgetary restrictions.

Operating income for the segment in the third quarter and first three quarters of fiscal 2013 increased, as compared with the same periods of fiscal 2012, due primarily to:


improved operating performance of our lighting operations as a result of better factory operating performance (approximately $7.2 million and $9.8 million, respectively);


improved North American communication product sales (approximately $1.0 million and $6.8 million), and;


operating profit generated from Locker (approximately $1.4 million and $2.7 million, respectively).

The increase in SG&A spending was attributable to Locker (approximately $3.8 million and $10.4 million, respectively). SG&A spending otherwise was lower in fiscal 2013, as compared with 2012, mainly associated with cost cutting measures taken in Europe in the third and fourth quarters of 2012.

Utility Support Structures (Utility) segment

In the Utility segment, the sales increase in the third quarter and first three quarters of fiscal 2013, as compared with 2012, was due mainly to improved sales in the U.S. market. While international sales were lower in the third quarter of 2013, as compared with the same period of 2012, year-to-date international sales in 2013 were comparable with fiscal 2012. International utility sales are more dependent on bid projects than North America.

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 and mix in 2013, as compared with 2012.

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. In addition, the third


Table of Contents

quarter and first three quarters of fiscal 2012 included approximately $1.3 million and $8.4 million, respectively, of unanticipated production and rework costs associated with one large order. These costs did not recur in fiscal 2013, which contributed to the gross profit improvements in fiscal 2013, as compared with 2012. The increases in SG&A expense in the third quarter and first three quarters of fiscal 2013, as compared with fiscal 2012, were mainly due to increased employee compensation ($1.0 million and $2.3 million, respectively) and incentives ($0.5 million and $1.3 million, respectively) associated with the increase in business levels and operating income.

Coatings segment

Coatings segment sales increased in the third quarter and first three quarters of fiscal 2013, as compared with 2012, due mainly to the December 2012 PMG acquisition. North America experienced stable external demand for galvanizing services, although internal demand from our other segments was higher in the third quarter and first three quarters of 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 increase in segment operating income in the third quarter and first three quarters of fiscal 2013, as compared with 2012, was mainly due to the gain on the sale of an Australian galvanizing operation in the second quarter of fiscal 2013 of $4.6 million, and operating income provided by PMG ($1.6 million and $3.1 million, respectively). These two positive effects on fiscal 2013 operating income were offset to an extent by the effect of lower external demand for coatings services in Australia and the following non-recurring favorable events that occurred in fiscal 2012:


Insurance recoveries in the third quarter of fiscal 2012 related to fire and storm damages at one of our Australian galvanizing facilities of approximately $0.8 million, and;


Settlement of a dispute with a vendor of approximately $0.9 million in the second quarter of 2012.

Irrigation segment

The increase in Irrigation segment net sales in the third quarter and first three quarters of fiscal 2013, as compared with 2012, was mainly due to sales volume increases in both North American and International markets. The pricing and sales mix effect was generally due to sales price increases that took effect in 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 generally 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 throughout 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 the third quarter and first three quarters of fiscal 2013, as compared with 2012, mainly due to increased activity in Brazil, Eastern Europe and Australia. On balance, sales in other international regions in the third quarter and first three quarters of fiscal 2013 were comparable to the same periods of a strong fiscal 2012.

Operating income for the segment improved in fiscal 2013 over 2012, due to improved global sales unit volumes and related price increases. Moderating raw material prices in light of higher selling prices also contributed to improved operating income in 2013, as compared with 2012. The most significant reasons for the increase in SG&A expense in 2013, as compared with 2012, related to employee compensation costs and incentives (approximately $1.1 million and $4.2 million, respectively), $0.8 million and $2.0 million in provisions for international receivables recorded in the third quarter and first three quarters of 2013 and other expenses to support the business activity levels and product development.


Table of Contents

Other

This unit includes the grinding media, industrial tubing, electrolytic manganese and industrial fasteners operations. The decrease in sales in the third quarter and first three quarters of fiscal 2013, as compared with 2012, was mainly due lower sales prices and exchange rate translation effects. Operating income in the third quarter and first three quarters of fiscal 2013 was comparable with the same periods in 2012, as lower raw material prices helped to dampen the effects of lower selling prices.

Net corporate expense

Net corporate expense in the third quarter and first three quarters of fiscal 2013 increased over the same periods in fiscal 2012. These increases were mainly due to:


higher employee incentives associated with improved net earnings and share price, which affected long-term incentive plans. Third quarter incentive expense in fiscal 2013 was comparable with 2012. On a year-to-date basis, incentive expenses in fiscal 2013 were $5.3 million higher than 2012;


insurance settlements realized in the third quarter and first three quarters of 2012 related to a fire and storm damage to one of our galvanizing facilities in Australia of $0.6 million and $2.0 million, respectively, that did not recur in fiscal 2013;


higher compensation and employee benefit costs (approximately $1.5 million and $4.2 million, respectively), and;


increased expenses associated with the Delta Pension Plan (approximately $0.6 million and $1.9 million, respectively).

These increases were partially offset by 2012 stamp duties incurred in the first quarter of fiscal 2012 related to the 2011 Delta legal restructuring of $1.2 million that did not recur in 2013.

Liquidity and Capital Resources

Cash Flows

Working Capital and Operating Cash Flows-Net working capital was $1,166.6 million at September 28, 2013, as compared with $1,013.5 million at December 29, 2012. The increase in net working capital in 2013 mainly resulted from increased cash on hand. Cash flow provided by operations was $249.1 million in the first three quarters of fiscal 2013, as compared with $117.7 million provided by operations in the first three quarters of fiscal 2012. The increase in operating cash flow in 2013 was the result of the improvement in net earnings and working capital management in 2013, as compared with 2012. Despite higher sales levels in the first three quarters of fiscal 2013, receivable levels were comparable and inventory slightly increased as compared to December 29, 2012. Receivable turnover was slightly better in 2013, as compared with 2012, in part due to strong sales in North America, where collections generally are faster than at international locations. Inventory levels at September 28, 2013 were slightly higher than December 29, 2012, due to seasonal trends and the addition of Locker in 2013.

Investing Cash Flows-Capital spending in the first three quarters of fiscal 2013 was $75.1 million, as compared with $58.7 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 included proceeds from asset sales of $39.6 million, principally consisting of $29.2 million received from the sale of our 49% owned non-consolidated subsidiary in South Africa and


Table of Contents

$8.2 million received from the sale of the Western Australia galvanizing operation. Investing cash flows also included $53.2 million paid for the Locker acquisition.

Financing Cash Flows-Our total interest-bearing debt increased slightly to $488.7 million at September 28, 2013 from $486.2 million at December 29, 2012. Financing cash flows overall were lower in the first three quarters of fiscal 2013, as compared with the same period in 2012. The main reason for the decrease related to higher dividend payments associated with an increase in per share dividends in fiscal 2013.

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 September 28, 2013, our long-term debt to invested capital ratio was 22.0%, 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 September 28, 2013 consisted primarily of long-term debt. We also maintain certain short-term bank lines of credit totaling $102.5 million, $85.3 million of which was unused at September 28, 2013. Our long-term debt principally consists of:


$450 million face value ($462 million carrying value) of senior unsecured notes that bear interest at 6.625% per annum and are due in April 2020. We are allowed to repurchase the notes at specified prepayment premiums. These notes are guaranteed by certain of our subsidiaries.

. . .

  Add VMI to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for VMI - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.