Valmont Industries Inc. Reports Operating Results (10-Q)
Valmont Industries Inc. has a market cap of $2.12 billion; its shares were traded at around $79.72 with a P/E ratio of 21 and P/S ratio of 1.2. The dividend yield of Valmont Industries Inc. stocks is 0.8%. Valmont Industries Inc. had an annual average earning growth of 15.8% over the past 10 years. GuruFocus rated Valmont Industries Inc. the business predictability rank of 2.5-star.VMI is in the portfolios of John Keeley of Keeley Fund Management, Chuck Royce of Royce& Associates, Ron Baron of Baron Funds, Kenneth Fisher of Fisher Asset Management, LLC, Bruce Kovner of Caxton Associates, Murray Stahl of Horizon Asset Management, Steven Cohen of SAC Capital Advisors, George Soros of Soros Fund Management LLC, Mario Gabelli of GAMCO Investors.
Highlight of Business Operations: On March 4, 2010, we made an offer to acquire all the ordinary shares of Delta plc ("Delta"), a public company traded on the London Stock exchange under the symbol "DLTA". The offer price was £1.85 per ordinary share, with a total estimated purchase price of $436.7 million. To manage the foreign exchange risk associated with the offer, we executed a forward foreign exchange contract with a multinational bank, whereby, if the acquisition was completed, the required British pound sterling would be delivered to us at a fixed exchange rate of $1.5353/£ to complete the acquisition. In accordance with takeover rules in the United Kingdom, we established funding for the purchase price and related acquisition costs by a combination of $264 million in restricted cash (comprised of cash balances of $83 million and $181 million in borrowings under our revolving credit agreement) and a $200 million bank bridge loan commitment. In April 2010, we issued $300 million of senior unsecured notes, terminated the bridge loan and reduced our revolving credit agreement borrowings to approximately $85 million. We completed the acquisition on May 12, 2010 and we now own 100% of Delta's ordinary shares.
SG&A expenses of $0.5 million and $14.6 million, respectively, related to acquisition costs such as investment banking fees, due diligence costs and other expenses directly associated with the acquisition and integration of Delta into Valmont. These costs, under applicable accounting standards, are required to be recorded as expenses as incurred. Interest expenses aggregating $5.1 million for the year-to-date period ended September 25, 2010 related to fees and expenses to establish the bridge loan and borrowing costs incurred to finance the acquisition prior to the May 12, 2010 acquisition date. The after-tax impact of these expenses on our net earnings for the quarter and year-to-date periods ended September 25, 2010 was approximately $0.3 million and $15.6 million, respectively.
Transaction-related expenses associated with the Delta transaction ($0.5 million and $14.6 million, respectively). These expenses were related to investment banking fees, due diligence costs and other direct costs associated with the acquisition and the integration of Delta's operations into ours. These expenses are reported as part of "General corporate expense"; Delta's SG&A expenses from May 12, 2010 to September 25, 2010 of $21.4 million and $32.4 million, respectively, were included in 2010 consolidated third quarter and year-to-date SG&A expenses. These increases were somewhat offset by lower employee incentive expenses in 2010, as compared with 2009 (approximately $4.4 million and $9.4 million, respectively), lower sales commissions related to lower net sales in 2010, as compared with 2009 (approximately $1.4 million and $3.1 million, respectively) and other expense reductions in 2010 associated with lower sales and profitability this year, as compared with 2009. In the aggregate, exclusive of the SG&A expenses related to Delta's operations and its expenses incidental to its acquisition, SG&A spending was down approximately $10.1 million and $20.1 million, respectively for the third quarter and year-to-date periods ended September 25, 2010 as compared with the same periods in 2009.
The increase in net interest expense in the third quarter and year-to-date periods ended September 25, 2010, as compared with the same periods in 2009, was mainly due to interest associated with the $300 million in senior unsecured notes issued in April 2010 (approximately $5.1 million and 9.4 million, respectively) and approximately $2.9 million, respectively, of bank fees incurred in the first half of 2010 related to providing the required bridge loan funding commitment for the Delta acquisition. "Other" income was lower in the third quarter and year-to-date periods in 2010, as compared with 2009, mainly due to lower investment income related to our non-qualified deferred compensation plan this year (approximately $0.9 million and $1.3 million respectively) and foreign currency transaction gains incurred in 2009 that did not repeat in 2010.
Working Capital and Operating Cash FlowsNet working capital was $722.6 million at September 25, 2010, as compared with $458.6 million at December 26, 2009. The increase in net working capital in 2010 mainly resulted from the Delta acquisition of $300.3 million, offset to a degree by cash on hand used to fund part of the Delta acquisition. Operating cash flow was $85.3 million for the first three quarters of 2010, as compared with $266.4 million for the same period in 2009. The decrease in operating cash flow in 2010 mainly was the result of lower net earnings 2010, as compared with 2009 and the significant cash flow generated in 2009 through inventory reductions. Accounts receivable turnover in 2010 was comparable with 2009.
Investing Cash FlowsCapital spending in the first three quarters of 2010 was $20.3 million, as compared with $38.7 million in 2009. We expect our capital spending for the 2010 fiscal year to be approximately $40 million. Investing cash flows for fiscal 2010 included $237.8 million related to the Delta, net of cash on Delta's balance sheet at May 12, 2010 and an aggregate of approximately $11.3 million associated with increasing our ownership interest in West Coast Engineering, Ltd. from 70% to 80%, acquiring the remaining 30% of our Polish poles manufacturing operation and the additional purchase price paid to the former shareholders of Stainton related to the performance of the operation after its acquisition in November 2008. In 2010, we received $9.6 million in dividends from our nonconsolidated subsidiaries, which reduced our investment in those subsidiaries. Investing cash flows in 2010 also included $11.1 million in proceeds from the sale of a discontinued Delta manganese dioxide site concluded in the third quarter of 2010.
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