UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File Number:  0-3701

VALMONT INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

 

402-963-1000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes  o No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). x Yes  o No

23,772,953

Outstanding shares of common stock as of July 18, 2003

Index is located on page 2.

Total number of pages 21.

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

				Page No.
PART I.		FINANCIAL INFORMATION
Item 1.		Condensed Consolidated Financial Statements:
		Condensed Consolidated Statements of Operations for the thirteen and twenty-six weeks ended June 28, 2003 and June 29, 2002		3
		Condensed Consolidated Balance Sheets as of June 28, 2003 and December 28, 2002		4
		Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended June 28, 2003 and June 29, 2002		5
		Notes to Condensed Consolidated Financial Statements		6-12
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		13-17
Item 3.		Quantitative and Qualitative Disclosure about Market Risk		18
Item 4.		Controls and Procedures		18
PART II.		OTHER INFORMATION
Item 5.		Other Information		18
Item 6.		Exhibits and Reports on Form 8-K		18
SIGNATURES				19

 

2

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 28,  2003			June 29,  2002			June 28,  2003			June 29,  2002
Net sales		$	200,666		$	225,090		$	407,960		$	433,738
Cost of sales		149,178			164,008			303,619			317,423
Gross profit		51,488			61,082			104,341			116,315
Selling, general and administrative expenses		37,757			41,500			75,559			80,813
Operating income		13,731			19,582			28,782			35,502
Other income (deductions):
Interest expense		(2,631		)	(3,053		)	(5,316		)	(6,252		)
Interest income		317			194			551			529
Miscellaneous		(117		)	(259		)	(155		)	(565		)
		(2,431		)	(3,118		)	(4,920		)	(6,288		)
Earnings before income taxes, minority interest, equity in earnings (losses) of nonconsolidated subsidiaries and cumulative effect of change in accounting principle		11,300			16,464			23,862			29,214
Income tax expense (benefit):
Current		3,699			5,549			6,842			11,276
Deferred		415			446			1,920			(558		)
		4,114			5,995			8,762			10,718
Earnings before minority interest, equity in earnings (losses) of nonconsolidated subsidiaries and cumulative effect of change in accounting principle		7,186			10,469			15,100			18,496
Minority interest (after tax)		(717		)	(438		)	(988		)	(418		)
Equity in earnings (losses) of nonconsolidated subsidiaries (after tax)		(102		)	275			(452		)	(503		)
Cumulative effect of change in accounting principle (Note 2)		—			—			—			(500		)
Net earnings		$	6,367		$	10,306		$	13,660		$	17,075
Earnings per share—Basic:
Earnings before cumulative effect of change in accounting principle		$	0.27		$	0.43		$	0.57		$	0.73
Cumulative effect of change in accounting principle		—			—			—			(.02		)
Earnings per share—Basic		$	0.27		$	0.43		$	0.57		$	0.71
Earnings per share—Diluted:
Earnings before cumulative effect of change in accounting principle		$	0.26		$	0.42		$	0.56		$	0.72
Cumulative effect of change in accounting principle		—			—			—			(.02		)
Earnings per share—Diluted		$	0.26		$	0.42		$	0.56		$	0.70
Cash dividends per share		$	0.080		$	0.075		$	0.155		$	0.140
Weighted average number of shares of common stock outstanding (000 omitted)		23,786			24,076			23,832			24,054
Weighted average number of shares of common stock outstanding plus dilutive potential common shares (000 omitted)		24,300			24,655			24,345			24,505

See accompanying notes to condensed consolidated financial statements.

3

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)

		June 28, 2003			December 28, 2002
ASSETS
Current assets:
Cash and cash equivalents		$	28,642			$	19,514
Receivables, net		135,341				132,697
Inventories		115,973				120,837
Prepaid expenses		7,447				4,868
Refundable and deferred income taxes		10,268				17,012
Total current assets		297,671				294,928
Property, plant and equipment, at cost		428,336				415,828
Less accumulated depreciation and amortization		241,331				222,653
Net property, plant and equipment		187,005				193,175
Goodwill		55,845				55,671
Other intangible assets, net		15,001				15,646
Other assets		18,751				19,151
Total assets		$	574,273			$	578,571
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current installments of long-term debt		$	11,778			$	10,849
Notes payable to banks		12,415				3,149
Accounts payable		56,105				55,198
Accrued expenses		51,283				69,828
Dividends payable		1,915				1,792
Total current liabilities		133,496				140,816
Deferred income taxes		19,393				18,240
Long-term debt, excluding current installments		142,836				155,542
Minority interest in consolidated subsidiaries		8,274				6,582
Other noncurrent liabilities		15,818				15,371
Shareholders’ equity:
Preferred stock		—				—
Common stock of $1 par value		27,900				27,900
Retained earnings		298,827				289,105
Accumulated other comprehensive loss		(5,100		)		(10,049		)
Treasury stock		(67,171		)		(64,936		)
Total shareholders’ equity		254,456				242,020
Total liabilities and shareholders’ equity		$	574,273			$	578,571

See accompanying notes to condensed consolidated financial statements.

4

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

		Twenty-six Weeks Ended
		June 28, 2003			June 29, 2002
Net cash flows from operations		$	28,897		$	30,598
Cash flows from investing activities:
Purchase of property, plant & equipment		(10,666		)	(7,768		)
Additional investment in nonconsolidated subsidiary		(735		)	—
Proceeds from sale of property and equipment		63			223
Other, net		212			133
Net cash flows from investing activities		(11,126		)	(7,412		)
Cash flows from financing activities:
Net borrowings under short-term agreements		8,462			(1,306		)
Proceeds from long-term borrowings		118			413
Principal payments on long-term obligations		(11,906		)	(20,445		)
Dividends paid		(3,461		)	(3,190		)
Proceeds from exercises under stock plans		416			1,179
Purchase of common treasury shares:
Stock repurchase program		(2,997		)	(6,791		)
Stock plan exercises		(276		)	(518		)
Net cash flows from financing activities		(9,644		)	(30,658		)
Effect of exchange rate changes on cash and cash equivalents		1,001			(130		)
Net change in cash and cash equivalents		9,128			(7,602		)
Cash and cash equivalents—beginning of period		19,514			24,522
Cash and cash equivalents—end of period		$	28,642		$	16,920

See accompanying notes to condensed consolidated financial statements.

5

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

1.    Summary of Significant Accounting Policies

Condensed Consolidated Financial Statements

The Condensed Consolidated Balance Sheet as of June 28, 2003 and the Condensed Consolidated Statements of Operations for the thirteen and twenty-six week periods ended June 28, 2003 and June 29, 2002 and the Condensed Consolidated Statements of Cash Flows for the thirteen and 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 28, 2003 and for all periods presented.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in the Company’s December 28, 2002 Annual Report to shareholders. The accounting policies and methods of computation followed in these interim financial statements are the same as those followed in the financial statements for the year ended December 28, 2002. The results of operations for the period ended June 28, 2003 are not necessarily indicative of the operating results for the full year.

Stock Plans

The Company maintains stock-based compensation plans approved by the shareholders, which provide that the Compensation Committee of the Board of Directors may grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards and bonuses of common stock. At June 28, 2003, 1,667,993 shares of common stock remained available for issuance under the plans. Shares and options issued and available are subject to changes in capitalization.

Under the plans, the exercise price of each option equals the market price at the time of the grant. Options vest beginning on the first anniversary of the grant in equal amounts over three to six years or on the fifth anniversary of the grant. Expiration of grants is from six to ten years from the date of grant.

The Company accounts for those plans under the recognition and measurement principles of APB Opinion 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based compensation cost is reflected in net income, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the company had applied the fair value

6

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

		Thirteen weeks ended					Twenty-six weeks ended
		June 28, 2003			June 29, 2002		June 28, 2003		June 29, 2002
Net earnings
Net earnings as reported		$	6,367		10,306		13,660		17,075
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		535			633		1,283		1,211
Pro forma net earnings		$	5,832		9,673		12,377		15,864
Earnings per share
As reported: Basic		$	0.27		0.43		0.57		0.71
Diluted		$	0.26		0.42		0.56		0.70
Pro forma: Basic		$	0.25		0.40		0.52		0.66
Diluted		$	0.24		0.39		0.51		0.65

 

2.    Goodwill and Intangible Assets

Effective December 30, 2001 the Company adopted Statement of Financial Accounting Standards No. 142 (SFAS 142) Goodwill and Other Intangible Assets. This standard established new accounting and reporting requirements for goodwill and other intangible assets. Under SFAS 142, all amortization of goodwill and intangible assets with indefinite lives ceased effective December 30, 2001. Also, recorded goodwill was tested for impairment at December 31, 2001 by comparing the fair value to its carrying value. Based on the initial impairment test, the Company recorded a cumulative effect of change in accounting principle of $0.5 million loss ($0.02 per diluted share) on the Condensed Consolidated Statement of Operations for the twenty-six weeks ended June 29, 2002 related to its investment in a consulting business in the Irrigation segment that provides environmental and wastewater management consulting services. Fair value was determined using a discounted cash flow methodology.

The Company’s annual impairment testing on its reporting units was performed during the third quarter of 2002. There have been no events or circumstances since the third quarter of 2002 that would require an interim impairment test on the Company’s reporting units.

7

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

Amortized Intangible Assets

The components of amortized intangible assets at June 28, 2003 and December 28, 2002 were as follows:

		As of June 28, 2003
		Gross Carrying					Accumulated
		Amount					Amortization					Life
Customer Relationships			$	11,500				$	2,156			12 years
Proprietary Software & Database			1,650					743				5 years
			$	13,150				$	2,899

 

		As of December 28, 2002
		Gross Carrying					Accumulated
		Amount					Amortization					Life
Customer Relationships			$	11,500				$	1,677			12 years
Proprietary Software & Database			1,650					577				5 years
			$	13,150				$	2,254

 

Amortization expense for intangible assets during the second quarter of 2003 and 2002 was $322 and $309, respectively. Amortization expense for intangible assets for the twenty-six weeks ended June 28, 2003, and June 29, 2002 was $644 and $644, respectively. Estimated amortization expense related to amortized intangible assets is as follows:

		Estimated
		Amortization
		Expense
2003			1,288
2004			1,288
2005			1,288
2006			1,040
2007			958
2008			958

 

Non-amortized intangible assets

Under the provisions of SFAS 142, intangible assets with indefinite lives are not amortized. The carrying value of the PiRod trade name is $4,750 and has not changed in the thirteen or twenty-six weeks ended June 28, 2003.

8

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

Goodwill

The carrying amount of goodwill as of June 28, 2003 was as follows:

		Engineered Support Structures Segment					Coatings Segment			Irrigation Segment					Tubing Segment					Total
Balance December 28, 2002			$	12,236			$	42,192			$	981				$	262			$	55,671
Impairment charge			—				—				—					—				—
Foreign Currency Translation			174				—				—					—				174
Balance June 28, 2003			$	12,410			$	42,192			$	981				$	262			$	55,845

 

The carrying amount of goodwill as of June 29, 2002 is as follows:

		Engineered Support Structures Segment					Coatings Segment			Irrigation Segment					Tubing Segment					Total
Balance December 29, 2001			$	11,954			$	42,192			$	1,481				$	262			$	55,889
Impairment charge			—				—				(500		)			—				(500		)
Foreign Currency Translation			187				—				—					—				187
Balance June 29, 2002			$	12,141			$	42,192			$	981				$	262			$	55,576

 

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) for the twenty-six weeks ended were as follows:

		June 28,			June 29,
		2003			2002
Interest		$	5,324		$	6,185
Income Taxes		175			16,546

 

9

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

4.    Earnings Per Share

The following table provides a reconciliation between Basic and Diluted earnings per share:

		BASIC			DILUTIVE EFFECT				DILUTED
		EPS			OF STOCK OPTIONS				EPS
Thirteen weeks ended June 28, 2003:
Net earnings		$	6,367			—			$	6,367
Shares outstanding		23,786				514			24,300
Per share amount		$	0.27			.01			$	0.26
Thirteen weeks ended June 29, 2002:
Net earnings		$	10,306			—			$	10,306
Shares outstanding		24,076				579			24,655
Per share amount		$	0.43			.01			$	0.42
Twenty-six weeks ended June 28, 2003:
Net earnings		$	13,660			—			$	13,660
Shares outstanding		23,832				513			24,345
Per share amount		$	0.57			.01			$	0.56
Twenty-six weeks ended June 29, 2002:
Net earnings		$	17,075			—			$	17,075
Shares outstanding		24,054				451			24,505
Per share amount		$	0.71			.01			$	0.70

 

5.    Comprehensive Income

Results of operations for foreign subsidiaries are translated using the average exchange rates during the period. Assets and liabilities are translated at the exchange rates in effect on the balance sheet dates. Currency translation adjustment is the Company’s only component of other comprehensive income.

		Thirteen Weeks Ended						Twenty-six Weeks Ended
		June 28,			June 29,			June 28,			June 29,
		2003			2002			2003			2002
Net earnings		$	6,367		$	10,306		$	13,660		$	17,075
Currency translation adjustment		3,659			2,244			4,949			1,456
Total comprehensive income		$	10,026		$	12,550		$	18,609		$	18,531

 

10

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

6.    Business Segments

In the second quarter of fiscal 2003, the Company reorganized the management reporting structure of the Wireless Communication segment in order to reduce costs and better utilize the talents and capabilities inside that segment. Accordingly, this segment was combined with the Poles segment and is now the Engineered Support Structures segment. The Company reports its businesses as four reportable segments:

Engineered Support Structures:  This segment consists of the manufacture of engineered metal structures and components for the lighting, traffic, utility and wireless communication industries;

Coatings:  This segment consists of galvanizing, anodizing and powder coating services;

Irrigation:  This segment consists of the manufacture of agricultural irrigation equipment and related parts and services; and

Tubing:  This segment consists of the manufacture of tubular products for industrial customers.

11

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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

In addition to these four reportable segments, the Company has other businesses that individually are not more than 10% of consolidated sales. These businesses, which include wind energy development, machine tool accessories and industrial fasteners, are reported in the “Other” category. Prior period information is presented in accordance with the current reportable segment structure.

		Thirteen Weeks Ended						Twenty-six Weeks Ended
		June 28,			June 29,			June 28,			June 29,
		2003			2002			2003			2002
Sales:
Engineered Support Structures segment:
Lighting & Traffic		$	62,434		$	57,374		$	119,011		$	107,986
Utility		14,877			39,367			39,185			77,637
Wireless Communication		16,098			18,529			27,093			35,585
		93,409			115,270			185,289			221,208
Coatings segment		23,556			26,943			50,718			54,492
Irrigation segment		71,344			70,583			146,913			135,943
Tubing segment		14,015			15,867			30,476			29,745
Other		4,461			4,265			9,077			8,373
		206,785			232,928			422,473			449,761
Intersegment Sales:
Coatings		2,509			3,919			5,561			8,213
Irrigation		114			25			141			81
Tubing		2,922			2,885			7,550			5,729
Other		574			1,009			1,261			2,000
		6,119			7,838			14,513			16,023
Net Sales
Engineered Support Structures		93,409			115,270			185,289			221,208
Coatings		21,047			23,024			45,157			46,279
Irrigation		71,230			70,558			146,772			135,862
Tubing		11,093			12,982			22,926			24,016
Other		3,887			3,256			7,816			6,373
Consolidated Net Sales		$	200,666		$	225,090		$	407,960		$	433,738
Operating Income
Engineered Support Structures		$	3,107		$	8,139		$	5,322		$	13,152
Coatings		1,104			2,528			2,737			4,772
Irrigation		8,721			7,929			18,730			15,219
Tubing		1,385			1,633			3,001			3,195
Other		(586		)	(647		)	(1,008		)	(836		)
Total Operating Income		$	13,731		$	19,582		$	28,782		$	35,502

 

12

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

PART 1. FINANCIAL INFORMATION

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 statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. 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, 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 are examples of factors, among others, that could cause results to differ materially from those described in the forward-looking statements. The Company cautions that any forward-looking statements included in this report are made as of the date of this report.

We report our businesses as four reportable segments. See Note 6 to the Condensed Consolidated Financial Statements. In the second quarter of fiscal 2003, we reorganized the management reporting structure of the Wireless Communication segment in order to reduce costs and better utilize the talents and capabilities inside that segment. Accordingly, that segment was combined with the Poles segment. This new segment is named the Engineered Support Structures segment.

13

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Results of Operations

Dollars in thousands, except per share amounts

		Thirteen Weeks Ended										Twenty-Six Weeks Ended
		June 28, 2003			June 29, 2002			% Change				June 28, 2003			June 29, 2002			% Change
Consolidated
Net sales		$	200,666		$	225,090			-10.9	%		$	407,960		$	433,738			-5.9	%
Gross profit		$	51,488		61,082				-15.7	%		$	104,341		116,315				-10.3	%
as a percent of sales		25.7		%	27.1		%					25.6		%	26.8		%
SG&A expense		$	37,757		41,500				-9.0	%		$	75,559		80,813				-6.5	%
as a percent of sales		18.8		%	18.4		%					18.5		%	18.6		%
Operating income		13,731			19,582				-29.9	%		28,782			35,502				-18.9	%
as a percent of sales		6.8		%	8.7		%					7.1		%	8.2		%
Net interest expense		2,314			2,859				-19.1	%		4,765			5,723				-16.7	%
Effective tax rate		36.4		%	36.4		%					36.7		%	36.7		%
Net earnings		6,367			10,306				-38.2	%		13,660			17,075				-20.0	%
Earnings per share		0.26			0.42				-38.1	%		0.56			0.70				-20.0	%
Infrastructure businesses:
Engineered Support Structures segment
Net sales		93,409			115,270				-19.0	%		185,289			221,208				-16.2	%
Operating income		3,107			8,139				-61.8	%		5,322			13,152				-59.5	%
Coatings segment
Net sales		21,047			23,024				-8.6	%		45,157			46,279				-2.4	%
Operating income		1,104			2,528				-56.3	%		2,737			4,772				-42.6	%
Total Infrastructure businesses:
Net sales		114,456			138,294				-17.2	%		230,446			267,487				-13.8	%
Operating income		4,211			10,667				-60.5	%		8,059			17,924				-55.0	%
Agricultural businesses:
Irrigation segment
Net sales		71,230			70,558				1.0	%		146,772			135,862				8.0	%
Operating income		8,721			7,929				10.0	%		18,730			15,219				23.1	%
Tubing segment
Net sales		11,093			12,982				-14.6	%		22,926			24,016				-4.5	%
Operating income		1,385			1,633				-15.2	%		3,001			3,195				-6.1	%
Total Agricultural businesses:
Net sales		82,323			83,540				-1.5	%		169,698			159,878				6.1	%
Operating income		10,106			9,562				5.7	%		21,731			18,414				18.0	%
Other
Net sales		3,887			3,256				19.4	%		7,816			6,373				22.6	%
Operating income (loss)		(586		)	(647		)		9.4	%		(1,008		)	(836		)		-20.6	%

 

Consolidated

The net sales decrease in 2003 as compared with 2002 was mainly attributable to lower sales in the Engineered Support Structures (ESS) segment, offset somewhat by higher sales in the Irrigation segment. In particular, ESS segment sales decreases were caused by a sharp decrease in Utility product sales. In addition, a weak U.S. industrial economy resulted in lower sales in the Tubing and Coatings segments. Gross profit margins were lower than in 2002, which was caused by generally lower sales volumes and

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factory production levels as well as pricing pressures in the ESS segment Utility and Wireless Communication product lines. Material price inflation has not had a significant impact on our gross profit margins in the thirteen and twenty-six week periods ended June 28, 2003. SG&A expense reductions mainly resulted from lower employee incentive accruals in 2003 of approximately $3.8 million and $6.0 million for thirteen and twenty-six weeks ended June 28, 2003, respectively. The reduction of net interest expense this year was primarily due to lower average borrowing levels in 2003, as compared with 2002. We have been using our free cash flows to continue to reduce our interest-bearing debt. Minority interest in earnings was higher in 2003 as compared with 2002 due to improved earnings in our Irrigation segment operations in Brazil and South Africa, which are less than 100% owned. In “Earnings (losses) in nonconsolidated subsidiaries”, our Mexican ESS joint venture has recorded increased losses this year, as compared with 2002, due to low sales demand in the Mexican and U.S. utility markets. On a year-to-date basis, these losses were offset by profitability improvement in our Argentine Irrigation segment joint venture. The decrease in net earnings in 2003 as compared with 2002 resulted from lower operating income, partially offset by lower interest expenses and a $0.5 million charge to earnings in the first quarter of 2002 relating to a change in accounting principle.

Engineered Support Structures (ESS) segment

In the ESS segment, Lighting and Traffic product sales were improved over 2002 levels. In the U.S., investments in the road and highway system continue to support demand for lighting and traffic pole products. While commercial lighting sales are relatively weak due to U.S. economic conditions, sales activity funded by government spending programs (such as the U.S. highway bill) remain strong. In Europe, Lighting sales in the second quarter were relatively unchanged from 2002 in local currency terms, while year-to-date sales are up slightly, due to expansion of sales efforts into other areas of the region.

Utility sales were sharply lower than 2002, both on a quarterly and year-to-date basis. Capital spending for electrical generation and transmission by electrical utilities and independent power producers in the U.S. was reduced starting in 2002 and has continued into 2003. The spending reduction was largely attributable to high debt levels and lower share prices of some utility companies, which has restricted their access to funding for capital spending. Uncertainty over the future of U.S. energy policy also has contributed to the slowdown in market demand. As a result, our Utility sales are down significantly from last year. Sales in 2002 were bolstered by record sales backlogs going into the year and a large sale in the first part of the year to replace poles damaged in winter storms. As a result of lower sales demand, pricing pressures have increased, which have negatively impacted gross margins.

In the Wireless Communication product line, sales of structures and components to the wireless communication industry remain weak, due to constrained capital spending by wireless carriers and build-to-suit companies. To address this situation, we have continued our expansion into structures for sign and other applications to expand our product offerings and enter new markets. These efforts have resulted in sales orders this year and we believe these expansion plans will enhance future sales and profitability in the ESS segment.

In our Shanghai, China operation, second quarter sales were slightly lower in Lighting but were more than offset by improved Utility and Wireless Communication sales. These increased sales led to higher profitability for the quarter. Year-to-date sales and earnings were similar to 2002.

The reduction in operating income in the ESS segment was the result of lower sales volumes in and pricing pressures and unfavorable mix in the Utility and Wireless Communication product lines. Factory spending has been reduced by nearly 20% as compared with 2002 to reduce the potential impact on operating income associated with the lower sales volumes. The unfavorable impact of pricing and product mix on operating income is approximately $1.6 and $2.2 million for the thirteen and twenty-six weeks ended June 28, 2003. SG&A spending on a quarterly and year-to-date basis is down form last year by $0.7 million and $1.8 million, respectively, primarily through reduced incentive accruals.

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Coatings segment

Sales in the Coatings segment were down as compared with 2002 due to continued weakness in the U.S. industrial economy, which impacted demand for coatings services. In addition, the galvanizing services provided to our other businesses are lagging 2002 levels, as this segment has also been negatively impacted by reduced sales in the ESS segment. These lower sales and production volumes resulted in lower operating income. While factory spending has been reduced,  certain factory costs are incurred despite lower sales volume and production levels. The total impact of reduced volumes on operating income was approximately $2.0 and $2.8 million for the thirteen and twenty-six weeks ended June 28, 2003, respectively.

Irrigation segment

Irrigation segment sales for the second quarter of 2003 were up slightly from 2002, as increases in international sales were largely offset by lower sales volumes in North America. On a year-to-date basis, the sales increase was due to improvements in both North America and international markets. In North America, demand for irrigation machines in the second quarter of 2003 was lower than in 2002, due to generally wetter growing conditions this year, which resulted in lower demand for irrigation machines and related service parts. In addition, we believe implementation delays of certain portions of the U.S. farm bill have caused some customers to delay equipment purchases. In the international markets, strong sales demand in Brazil, South Africa and Australia continue to be driven by stable commodity prices and favorable government support programs. The improvement in operating income was the result of the sales volume increases, stable pricing environments and favorable sales and product mix.

Tubing segment

The decrease in tubing sales was due to weak industrial demand in the U.S. In addition, sluggish sales demand has resulted in some pricing pressures in the marketplace.

Other

Other businesses include machine tool accessories, distribution of industrial fasteners and wind energy development. Sales increased mainly due to currency translation effects. The main reason for the lower year-to date earnings was increased wind energy development expenses.

Liquidity and Capital Resources

Net working capital was $164.2 million at June 28, 2003, as compared with $154.1 million at December 28, 2002. The ratio of current assets to current liabilities was 2.23:1 at June 28, 2003, as compared with 2.09:1 at December 28, 2002. Operating cash flows were $28.9 million for the twenty-six week period ended June 28, 2003, as compared with $30.6 million for the same period in 2002. The slightly lower operating cash flow this year was due to lower earnings, offset to some extent by lower non-cash working capital levels this year. Working capital levels have been impacted by foreign currency translation impacts this year, as the U.S. dollar was weaker against a number of foreign currencies, including the Euro and the South African Rand. The impact of currency fluctuations on receivable and inventory balances this quarter was an increase of approximately $4.6 million and $4.2 million, respectively, as compared with

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June 29, 2002. Capital expenditures and depreciation and amortization expenses for the thirteen and twenty-six week periods ended June 28, 2003 and June 29, 2002 were as follows (in millions of dollars):

				Thirteen Weeks Ended										Twenty-six Weeks Ended
				June 28, 2003					June 29, 2002					June 28, 2003					June 29, 2002
Capital expenditures					$	5.3				$	4.0				$	10.7				$	7.8
Depreciation and amortization					8.5					8.6					17.0					16.7

 

There were no acquisitions completed in 2003 or 2002.

We have historically funded our growth through a combination of cash generated from operations and debt financing. We have an internal objective to maintain long-term debt at or below 40% of invested capital. At June 28, 2003, our long-term debt to invested capital ratio was 33.3%. Unless we engage in significant acquisition activity, we expect to maintain this ratio at under 40%.

Our debt financing consists of a combination of short-term credit facilities and long-term debt. We currently maintain $23.0 million in short-term bank credit lines, of which $13.7 million were unused at June 28, 2003. Our long-term debt consists primarily of fixed rate unsecured promissory notes of $90 million with a weighted average interest rate of 7.77% and a variable rate revolving credit line. The revolving credit line is for a maximum of $150 million, of which $45 million was outstanding at June 28, 2003. The interest rate on the revolving credit line was approximately 2.01% at June 28, 2003. We are in compliance with all long-term debt covenants at June 28, 2003.

In December 2001, our Board of Directors authorized a repurchase of up to 1.5 million shares of our common stock. As of June 28, 2003, 952,500 shares have been repurchased under this authorization for a total cost of $16.9 million.

We believe that operating cash flows and our available credit facilities will be adequate for 2003 planned capital spending plans, dividends and other financial obligations. We also believe we will have adequate financial resources to take advantage of opportunities to grow our businesses and markets. There have been no material changes to our financial and contractual obligations or other commercial commitments disclosed on pages 22 and 23 in our Form 10-K for the fiscal year ended December 28, 2002.

Outlook for Remainder of 2003

For the remainder of 2003, we expect the current weaknesses in the Utility, Wireless Communication and Coatings markets to continue. We are actively pursuing opportunities to improve our businesses through growth initiatives and cost reduction efforts. In the Irrigation segment, it is customarily difficult to predict the remainder of the year, in that the strength of the fall selling season in the U.S. is dependent on the remainder of the growing season. In total, we expect 2003 net sales to be modestly below 2002 levels, with net income and earnings per share to be lower than 2002 by 10 to 20 percent. Despite difficult economic and operating conditions, our businesses continue to generate strong cash flows and we intend to support our market leadership positions. We believe the long-term drivers supporting our businesses are favorable and, when the industrial economy improves, we believe we are well positioned for improved performance and growth.

Critical Accounting Policies

There have been no changes in our critical accounting policies during the quarter ended June 28, 2003.

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ITEM  3.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There have been no material changes in the company’s market risk during the second quarter ended June 28, 2003. For additional information, refer to the section “Risk Management” on pages 23 and 24 of our Form 10-K for the fiscal year ended December 28, 2002.

ITEM  4.    CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures provide reasonable assurance that such disclosure controls and procedures are effective in timely providing them with material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic Securities and Exchange Commission filings. Since the date of the evaluation, there have been no significant changes in the Company’s internal controls or in other factors that could significantly affect such internal controls.

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

PART II.  OTHER INFORMATION

ITEM 5.    OTHER INFORMATION

On July 28, 2003, the Company’s Board of Directors authorized a quarterly cash dividend on common stock of 8.0 cents per share, payable October 15, 2003, to stockholders of record September 26, 2003. The indicated annual dividend rate is 32 cents per share.

 ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

Exhibit No.		Description
32.1		Section 906 Certifications of Chief Executive Officer and Chief Financial Officer

 

(b)  Reports on Form 8-K

The Company furnished its press releases with earnings information on the Company’s quarter ended June 28, 2003 on Form 8-K dated June 19, 2003 and Form 8-K dated July 21, 2003.

 

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