Annual Report 2015
Inside
1
2
6
Financial Highlights
Message to Fellow Shareholders
Valmont at a Glance
Form 10-K
9
Board of Directors
10
Corporate & Business Unit Management
11
Corporate & Stock Information
A N N U A L R E P O R T 2015 (cid:87) VA L M O N T I N D U S T R I E S
1
Financial Highlights
Net Sales
Operating Income
Diluted Earnings Per Share
$ 2,662 $ 3,030 $ 3,304 $ 3,123
$ 2,618
$ 263.3 $ 382.3 $ 473.1
$ 357.7
$ 131.64
$ 8.60 $ 8.75 $ 10.35 $ 7.09
$ 1.714
$ 237.52
$ 8.174
$ 5.634
2011
2012 2013 2014
2015
2011
2012 2013 2014
2015
2011
2012 2013 2014
2015
Dollars in millions, except per share amounts
Operating Results
Net sales
Operating income2
Net earnings1,3
Diluted earnings per share4
Dividends per share
Financial Position
Total shareholders’ equity
Invested capital3
Operating Profits
Gross profit as a % of net sales
Operating income as a % of net sales
Net earnings as a % of net sales1,3
Return on beginning equity
Return on invested capital3
Year-End Data
Shares outstanding (000)
Approximate number of shareholders
Number of employees
$
2015
2,618.9
131.7
40.1
1.71
1.50
2014
3,123.1
$
2013
3,304.2
$
357.7
184.0
7.09
1.375
473.1
278.5
10.35
0.975
$
965.2
$
1,250.4
$
1,544.8
1,766.9
2,104.0
2,113.9
23.7%
5.0 %
1.5 %
3.3 %
4.6 %
22,857
3,000
10,697
25.9%
11.5 %
5.9 %
12.1 %
11.3 %
24,229
2,500
11,321
28.6%
14.3 %
8.4 %
20.6 %
15.0 %
26,825
2,500
10,769
1 Net earnings attributable to Valmont Industries, Inc.
2 Fiscal 2015 included intangible asset impairments of $42.0 million (pre-tax), restructuring expense of $39.9 million (pre-tax), and other non-recurring expenses of $24.0
million pre-tax.
3 See Item 6 on pages 21 through 25 of the attached Company’s Form 10-K.
4 Fiscal 2015 included intangible asset impairments of $40.1 million after-tax ($1.72 per share), restructuring expense of $28.2 million after-tax ($1.20 per share), other non-re-
curring expenses of $16.3 million after-tax ($0.69 per share) and deferred tax expense of $7.1 million ($0.31 per share) due to a change in the U.K. tax rate. Fiscal 2014 included
costs associated with refinancing of our long-term debt of $24.2 million after tax ($0.93 per share), and mark-to-market loss of $3.8 million after-tax on shares of Delta Pty
Ltd. ($0.15 per share). Fiscal 2013 included $4.6 million ($0.17 per share) in after-tax fixed asset impairment losses at Delta EMD Pty. Ltd. (EMD) and $12.0 million ($0.45 per
share) in losses associated with the deconsolidation of EMD.
For more detail on the footnotes above, please see the company's form 10-K enclosed.
2
VA L M O N T I N D U S T R I E S (cid:87) A N N U A L R E P O R T 2015
Message to
Fellow Shareholders
While 2015 was a very difficult year,
our long-term outlook remains positive.
A N N U A L R E P O R T 2015 (cid:87) VA L M O N T I N D U S T R I E S
3
2015 was a challenging but productive year
for Valmont. Faced with continued weakness
in end-market drivers, which impacted revenues
Positioning the Company for Success
Despite the Tough Environment
During the year, we focused on positioning our
and earnings performance, we took proactive
businesses for improved performance in a difficult
measures to realign the company through cost
external environment. We addressed what is
cutting and productivity improvement initiatives.
within our control, emphasizing improvement in
Broad-based and Persistent Macro
Weakness Continued
In addition to a generally sluggish world economy,
a number of headwinds specific to our end markets
occurred simultaneously, something we have not
seen in a very long time. Low agricultural commodity
prices led to significantly lower revenues in our irri-
gation business. Governments in most key markets
did not increase investment in infrastructure as a
result of fiscal policy and budget constraints. We
saw reduced demand from the energy and mining
our manufacturing operations and executing an
enterprise-wide restructuring plan. The restructuring
centered on consolidating production into lower
cost facilities, while maintaining the capacity to
meet our customers' present and future needs.
The result of our efforts is an annualized cost savings
of approximately $30 million. While current market
conditions remain challenging, we enter 2016 leaner
and ready to tackle the challenges in front of us.
Increasing Transparency and Focus
We modified our segment reporting structure to
sectors, and the strong US dollar resulted in lower
improve transparency of our business portfolio and
revenues and earnings from our foreign subsidiaries
provide greater internal focus. The most significant
when translated into our home currency.
change was separating out three businesses from
the former Engineered Infrastructure Products and
Other segments into the new Energy and Mining
segment. We are confident this move will lead to
greater understanding of our company and position
us well to execute, with experienced leaders at the
helm of each of our segments.
4
VA L M O N T I N D U S T R I E S (cid:87) A N N U A L R E P O R T 2015
Valmont’s Vision
Annual Segment Performance Update
In our Engineered Support Structures segment, we
The newly created Energy and Mining segment
comprises the access systems, offshore and
saw a slight improvement in results. This segment
grinding media businesses. These businesses,
has experienced headwinds over several years
which mainly serve the energy and mining industries,
as governments in most of our major markets
continued to experience “post financial crisis”
budget challenges and slow world economic
growth in general. Internal efforts to improve
the quality of earnings despite the difficult
were faced with the collapse in energy prices and
depressed mining activities. Still, we believe they
are good, long-term businesses, and we are
focused on leveraging our strong brand and
capabilities to grow our sales in markets outside
environment are showing results.
the mining and energy sectors.
In our Utility Support Structures segment,
Depressed agricultural commodity prices and farm
substantially lower steel costs contributed to
income levels continued, leading to a decline in
a decline in revenues. A continued competitive
revenue and earnings in our Irrigation segment.
pricing environment, combined with a mix shift
Despite these headwinds, this business is performing
away from larger projects and larger structures,
well in the down cycle with strong earnings quality
pressured segment earnings. We remain focused
and superior return on invested capital. In the
on building on the progress we made lowering
upcycle, this is an exceptional business.
our cost structure, deepening our customer
relationships, and developing new products
to strengthen our leadership position.
Our Coatings segment did well in North America
despite lower volumes from other Valmont divisions.
Our Australian galvanizers, on the other hand, were
negatively affected by the declining Australian
economy, in particular the mining industry, and
the resultant weakening Australian dollar.
While 2015 was a very difficult year, our long-term
outlook remains positive.
We regularly assess our strategies, and despite
current challenges, we believe them to support
long-term value creation. We are in great businesses,
hold leadership positions around the world and the
positive long-term market drivers for our businesses
remain intact. A growing global population and
middle class require the world to stretch its fresh
A N N U A L R E P O R T 2015 (cid:87) VA L M O N T I N D U S T R I E S
5
Valmont is recognized throughout the world as an industry leader in engineered products and
services for infrastructure, and water conserving irrigation equipment for agriculture. We grow
our businesses by leveraging our existing products, markets and processes. We recognize that
our growth will only create shareholder value if, at the same time, we exceed our cost of capital.
Essential to our success is a company-wide commitment to customer service and innovation,
and the ability to be the best cost producer for all products and services we provide. Recognizing
that our employees are the cornerstone of our accomplishments, we pride ourselves on being
people of passion and integrity who excel and deliver results.
water resources, and our irrigation technology is
of passion and integrity who strive to continually
helping to address this problem. The world cannot
improve our company and deliver results for our
sustain economic growth without investing in new
customers and for you, our owners. 2015 was a
or upgrading existing infrastructure. Our products
testament to how the Valmont organization lives
for infrastructure, energy and mining offer valuable
these values.
Thank you for your continued support. I look
forward to updating you on our progress in 2016.
Mogens C. Bay
Chairman and Chief Executive Officer
solutions to address these challenges. We operate
in industries with strong, long-term and global drivers.
We have been, and continue to be, well positioned.
While it is hard to say when our markets will recover,
I am confident we will be in an even stronger posi-
tion when they do.
We do not see big improvements in our end markets
in 2016, nor do we currently anticipate a further
decline. Given that outlook, we are expecting that
our efforts to reduce costs and improve productivity
will produce increased earnings this year. To drive
growth, each of our segments are investing in new
product development, market penetration and
leveraging capabilities outside our current markets.
Our many initiatives in 2015 to improve productivity,
adjust our global manufacturing footprint, and
downsize our global workforce in response to
market conditions, put tremendous pressure on
our organization. I cannot thank everyone enough
for their dedication and commitment to Valmont.
Our values remain rooted in us being people
6
VA L M O N T I N D U S T R I E S (cid:87) A N N U A L R E P O R T 2015
Valmont at a Glance
Valmont participates in the global industries for infrastructure
and agriculture through five primary business segments:
Engineered Support Structures, Utility Support Structures,
Coatings, Energy and Mining, and Irrigation.
Engineered Support Structures
We design, engineer, manufacture and supply essential products for infrastructure for
communications, road, commercial, industrial and utility distribution. In doing so, we support
global economic growth.
(cid:3)(cid:87) Steel, aluminum, composite and wood poles for lighting, traffic and signage
(cid:87) Steel structures and components for wireless communications
(cid:3)(cid:87) Highway safety products for road infrastructure
Utility Support Structures
We provide the utility industry with structures that support new generating capacity, including
renewable energy sources and upgrades to aging transmission grids.
(cid:87) Steel, concrete, composite and hybrid structures for high-voltage electric power
transmission, substations and distribution
Coatings
Our high-performing coatings protect investments in infrastructure by preventing corrosion
and extending the lifetimes of a vast array of metal products.
(cid:87) Hot-dip galvanizing and high-performing alternatives, including anodizing, powder coating,
e-coating and other finishes
Energy and Mining
We engineer and design access systems that help people move safely around industrial
facilities. We manufacture wind support structures and other products for the energy industry.
We also manufacture grinding media used in mining.
(cid:3)(cid:87) Engineered access systems and perforated metal for industrial and commercial applications
(cid:87) Wind towers and other large steel structures
(cid:3)(cid:87) Grinding media for mining
Irrigation
Through our efficient mechanized irrigation equipment, we help producers feed growing
populations and support demand for biofuels, while making efficient use of the world’s limited
freshwater supply.
(cid:3)(cid:87) Center pivot, linear move and corner irrigation equipment
(cid:87) Pivot tracking and water application control technology
(cid:3)(cid:87) Tubular products for agriculture and industry
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 26, 2015
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to
Commission file number 1-31429
_____________________________________
Valmont Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
One Valmont Plaza,
Omaha, Nebraska
(Address of Principal Executive Offices)
47-0351813
(I.R.S. Employer
Identification No.)
68154-5215
(Zip Code)
(402) 963-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock $1.00 par value
Name of exchange on which
registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Smaller reporting company
(Do not check if a
smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
At February 17, 2016 there were 22,786,996 of the Company’s common shares outstanding. The aggregate market value of the
voting stock held by non-affiliates of the Company based on the closing sale price the common shares as reported on the New York Stock
Exchange on June 26, 2015 was $2,720,907,768.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s proxy statement for its annual meeting of shareholders to be held on April 26, 2016 (the “Proxy Statement”),
to be filed within 120 days of the fiscal year ended December 26, 2015, are incorporated by reference in Part III.
VALMONT INDUSTRIES, INC.
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 26, 2015
TABLE OF CONTENTS
Business
PART I
Item 1
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Item 3
Item 4
PART II
Item 5
Properties
Legal Proceedings
Mine Safety Disclosures
Item 6
Item 7
Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of
Operation
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Item 8
Item 9
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A Controls and Procedures
Item 9B Other Information
Part III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11
Item 12
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principle Accountant Fees and Services
Item 13
Item 14
Part IV
Item 15
Exhibits and Financial Statement Schedules
2
Page
No.
3
11
17
17
18
18
20
21
24
43
44
95
95
97
98
98
98
98
98
99
PART I
ITEM 1. BUSINESS.
(a)
General Description of Business
General
We are a diversified global producer of fabricated metal products and are a leading producer of steel, aluminum and
composite pole, tower and other structures in our Engineered Support Structures (ESS) segment, steel and concrete pole
structures in our Utilities Support Structures (Utility) segment and are a global producer of mechanized irrigation systems in
our Irrigation segment. Within our Energy and Mining segment, we manufacture industrial access systems, grinding media
used in mining operations, and complex steel structures used in wind energy and utility transmission applications outside the
United States. We also provide metal coating services, including galvanizing, painting and anodizing in our Coatings
segment. Our products sold through the ESS segment include outdoor lighting, traffic control, and roadway safety structures,
wireless communication structures and components. Our pole structures sold through our Utility segment support electrical
transmission and distribution lines and related power distribution equipment. Our Irrigation segment produces mechanized
irrigation equipment that delivers water, chemical fertilizers and pesticides to agricultural crops. Customers and end-users of
our products include state and federal governments, contractors, utility and telecommunications companies, manufacturers of
commercial lighting fixtures and large farms as well as the general manufacturing sector. In 2015, approximately 37% of our
total sales were either sold in markets or produced by our manufacturing plants outside of North America. We were founded
in 1946, went public in 1968 and our shares trade on the New York Stock Exchange (ticker: VMI).
Business Strategy
Our strategy is to pursue growth opportunities that leverage our existing product portfolio, knowledge of our
principal end-markets and customers and engineering capability to increase our sales, earnings and cash flow, including:
Increasing the Market Penetration of our Existing Products. Our strategy is to increase our market penetration by
differentiating our products from our competitors’ products through superior customer service, technological innovation and
consistent high quality. For example, our Utility segment increased its sales between 2010 and 2013 through our engineering
capability, effective coordination of our production capacity and strong customer service to meet our customers’
requirements, especially on large, complex projects.
Bringing our Existing Products to New Markets. Our strategy is to expand the sales of our existing products into
geographic areas where we do not currently have a strong presence as well as into applications for which end-users do not
currently purchase our type of product. In recent years, our Utility business successfully expanded into new markets in
Africa. We have also expanded our geographic presence in Europe and North Africa for lighting structures. We have also
been successful introducing our pole products to utility and wireless communication applications where customers have
traditionally purchased lattice tower products. Our strategy of building manufacturing presences in China and India was
based primarily on expanding our offering of pole structures for lighting, utility and wireless communication to these
markets. Our Irrigation segment has a long history of developing new mechanized irrigation markets in emerging markets. In
recent years, these markets include China and Eastern Europe. Our 2015 acquisition of American Galvanizing provides us
with a presence in the Northeast U.S. galvanizing market.
Developing New Products for Markets that We Currently Serve. Our strategy is to grow by developing new
products for markets where we have a comprehensive understanding of end-user requirements and longstanding relationships
with key distributors and end-users. For example, in recent years we developed and sold structures for tramway applications
in Europe. The customers for this product line include many of the state and local governments that purchase our lighting
structures. Another example is the development and expansion of decorative product concepts for lighting applications that
have been introduced to our existing customer base. Our 2014 acquisition of the majority ownership in AgSense allows us to
offer expanded remote monitoring services over irrigation equipment and other aspects of a farming operation.
Developing New Products for New Markets and Leverage a Core Competency to Further Diversify our Business.
Our strategy is to increase our sales and diversify our business by developing new products for new markets or to leverage a
core competency. For example, we have been expanding our offering of specialized decorative lighting poles in the U.S.
including the fiberglass composite structures offered through Shakespeare Composite Structures which we acquired in 2014.
3
The decorative lighting market has different customers than our traditional markets and the products to serve that market are
different than the poles we manufacture for the transportation and commercial markets. The acquisition of Delta in 2010 gave
us a presence in highway safety systems and industrial access systems, products that we believe are complementary to our
existing products and provide us with future growth opportunities. The establishment and growth of our Coatings segment
was based on using our expertise in galvanizing to develop what is now a global business segment.
Acquisitions
We have grown internally and by acquisition. Our significant business expansions during the past five years include the
following (including the segment where the business reports):
2010
• Acquisition of Delta plc, a publicly-traded company headquartered in the United Kingdom that manufactures and
distributes steel engineered products, provides galvanizing services and manufactures steel forged grinding media and
electrolytic manganese dioxide (ESS, Energy & Mining, Coatings)
2011
• Acquisition of the remaining 40% not previously owned of Donhad Pty. Ltd., a forged steel grinding media
manufacturer located in Australia (Energy & Mining)
• Acquisition of an irrigation monitoring services company located in Brazil (Irrigation)
2012
• Acquisition of a galvanizing business with three locations in Ontario, Canada (Coatings)
2013
• Acquisition of a manufacturer of perforated, expanded metal for the non-residential market, industrial flooring and
handrails for the access systems market, and screening media for applications in the industrial and mining sectors in
Australia and Asia (Energy and Mining)
• Acquisition of the remaining 40% not previously owned of Valley Irrigation South Africa Pty. Ltd (Irrigation)
• Acquisition of a distributor a company holding proprietary intellectual property for products serving the highway
safety market located in New Zealand (ESS)
2014
• Acquisition of a manufacturer of heavy complex steel structures with two manufacturing locations in Denmark
(Energy and Mining)
• Acquisition of a 51% ownership stake in AgSense, which provides farmers with remote monitoring equipment for
their pivots and entire farming operation (Irrigation)
• Acquisition of a manufacturer of fiberglass composite support structures with two manufacturing locations in South
Carolina (ESS)
2015
• Acquisition of a galvanizing business located in Hammonton, New Jersey (Coatings)
There have been no significant divestitures of businesses in the past six years. In 2011, we exited our structures joint venture in
Turkey (formed in 2008) and ceased our structures sales and distribution operation in Italy. Both of these businesses were in the
ESS segment. The impact of these events on our financial statements was not material.
(b)
Segments
In 2015, the Company changed its reportable segment structure to improve transparency. The Company now has five
reportable segments and our management structure was changed to align with this new reporting structure. Each segment is global
in nature with a manager responsible for segment operational performance and allocation of capital within the segment. A new
reportable segment, Energy & Mining, includes the businesses primarily serving the energy and mining end markets. This segment
includes the access systems applications businesses and offshore structures business that was formerly part of the Engineered
Infrastructure Products (EIP) segment, and the grinding media business that was formerly included in the "Other" category. The
remaining businesses from the EIP segment were renamed "Engineered Support Structures". We also moved the tubing business
from the "Other" category to the Irrigation segment as one of the largest markets it serves is agriculture.
4
Our reportable segments are as follows:
Engineered Support Structures: This segment consists of the manufacture and distribution of engineered metal and
composite structures and components for global lighting and traffic, wireless communication, and roadway safety;
Utility Support Structures: This segment consists of the manufacture of engineered steel and concrete structures for
the global utility industry;
Energy and Mining: This segment, all outside of the United States, consists of the manufacture of access systems
applications, forged steel grinding media, on and off shore oil, gas, and wind energy structures.
Coatings: This segment consists of galvanizing, anodizing and powder coating services on a global basis; and
Irrigation: This segment consists of the manufacture of agricultural irrigation equipment and related parts and
services for the global agricultural industry as well as tubular products for a variety of industrial customers.
Other: In addition to these five reportable segments, we have other operations and activities that individually are
not more than 10% of consolidated sales, operating income or assets. These activities include the distribution of industrial
fasteners.
Amounts of sales, operating income and total assets attributable to each segment for each of the last three years is set
forth in Note 18 of our consolidated financial statements.
(c)
Narrative Description of Business
Information concerning the principal products produced and services rendered, markets, competition and
distribution methods for each of our five reportable segments is set forth below.
Engineered Support Structures Segment
Products Produced—We manufacture steel, aluminum, and composite poles and structures to which lighting and
traffic control fixtures are attached for a wide range of outdoor lighting applications, such as streets, highways, parking lots,
sports stadiums and commercial and residential developments. The demand for these products is driven by infrastructure,
commercial and residential construction and by consumers’ desire for well-lit streets, highways, parking lots and common
areas to help make these areas safer at night and to support trends toward more active lifestyles and 24-hour convenience. In
addition to safety, customers want products that are visually appealing. In Europe, we are a leader in decorative lighting
poles, which are attractive as well as functional. We are leveraging this expertise to expand our decorative product sales in
North America and China. Traffic poles are structures to which traffic signals are attached and aid the orderly flow of
automobile traffic. While standard designs are available, poles are often engineered to customer specifications to ensure the
proper function and safety of the structure. Product engineering takes into account factors such as weather (e.g. wind, ice) and
the products loaded on the structure (e.g. lighting fixtures, traffic signals, overhead signs) to determine the design of the pole.
This product line also includes roadway safety systems, including guard rail barrier systems, wire rope safety barriers, crash
attenuation barriers and other products designed to redirect vehicles when off course and to prevent collisions between
vehicles. Highway safety systems are also designed and engineered to absorb collisions and ultimately reduce roadway
fatalities and injury.
We also manufacture and distribute a broad range of structures (poles and towers) and components serving the
wireless communication market. A wireless communication cell site mainly consists of a steel pole or tower, shelter
(enclosure where the radio equipment is located), antennas (devices that receive and transmit data and voice information to
and from wireless communication devices) and components (items that are used to mount antennas to the structure and to
connect cabling and other parts from the antennas to the shelter). Structures are engineered and designed to customer
specifications, which include factors such as the number of antennas on the structure and wind and soil conditions. Due to the
size of these structures, design is important to ensure each structure meets performance and safety specifications. We do not
provide any significant installation services on the structures we sell.
Markets—The key markets for our lighting, traffic and roadway safety products are the transportation and
commercial lighting markets and public roadway building and improvement. The transportation market includes street and
5
highway lighting and traffic control, much of which is driven by government spending programs. For example, the U.S.
government funds highway and road improvement through the federal highway program. This program provides funding to
improve the nation’s roadway system, which includes roadway lighting and traffic control enhancements. Matching funding
from the various states may be required as a condition of federal funding. The current federal highway program was renewed
and extended in late 2015. In the United States, there are approximately 4 million miles of public roadways, with
approximately 24% carrying over 80% of the traffic. Accordingly, the need to improve traffic flow through traffic controls
and lighting is a priority for many communities. Transportation markets in other areas of the world are also heavily funded by
local and national governments. The commercial lighting market is mainly funded privately and includes lighting for
applications such as parking lots, shopping centers, sports stadiums and business parks. The commercial lighting market is
driven by macro-economic factors such as general economic growth rates, interest rates and the commercial construction
economy.
The main markets for our communication products have been the wireless telephone carriers and build-to-suit
companies (organizations that own cell sites and attach antennas from multiple carriers to the pole or tower structure). We
also sell products to state and federal governments for two-way radio communication, radar, broadcasting and security
applications. We believe long-term growth should mainly be driven by increased usage, technologies such as 4G (including
applications for smart phones, such as streaming video and internet) and demand for improved emergency response systems,
as part of the U.S. Homeland Security initiatives. Subscriber growth should continue to increase, although at a lower rate than
in the past. In general, as the number of subscribers and usage of wireless communication devices increase, we believe this
will result in demand for communication structures and components.
All of the products that we manufacture in this segment are parts of customer investments in basic infrastructure.
The total cost of these investments can be substantial, so access to capital is often important to fund infrastructure needs. Due
to the nature of these markets, demand can be cyclical as projects sometimes can be delayed due to funding or other issues.
Competition—Our competitive strategy in all of the markets we serve is to provide high value to the customer at a
reasonable price. We compete on the basis of product quality, high levels of customer service, timely, complete and accurate
delivery of the product and design capability to provide the best solutions to our customers. There are numerous competitors
in our markets, most of which are relatively small companies. Companies compete on the basis of price, product quality,
reliable delivery and unique product features. Pricing can be very competitive, especially when demand is weak or when
strong local currencies result in increased competition from imported products.
Distribution Methods—Sales and distribution activities are handled through a combination of a direct sales force and
commissioned agents. Lighting agents represent Valmont as well as lighting fixture companies and sell other related products.
Sales are typically to electrical distributors, who provide the pole, fixtures and other equipment to the end user as a complete
package. Commercial lighting and highway safety sales are normally made through Valmont sales employees, who work on a
salary plus incentive, although some sales are made through independent, commissioned sales agents.
Utility Support Structures Segment
Products Produced—We manufacture steel and concrete pole structures for electrical transmission, substation and
distribution applications. Our products help move electrical power from where it is produced to where it is used. We produce
tapered steel and pre-stressed concrete poles for high-voltage transmission lines, substations (which transfer high-voltage
electricity to low-voltage transmission) and electrical distribution (which carry electricity from the substation to the end-
user). In addition, we produce hybrid structures, which are structures with a concrete base section and steel upper sections.
Utility structures can be very large, so product design engineering is important to the function and safety of the structure. Our
engineering process takes into account weather and loading conditions, such as wind speeds, ice loads and the power lines
attached to the structure, in order to arrive at the final design.
Markets—Our sales in this segment are mainly in North America, where the key drivers in the utility business are
significant upgrades in the electrical grid to support enhanced reliability standards, policy changes encouraging more
generation from renewable energy sources, interconnection of regional grids to share more efficient generation to the benefit
of the consumer and increased electrical consumption which has outpaced the transmission investment in the past decades.
According to the Edison Electric Institute, the electrical transmission grid in the U.S. requires significant investment in the
coming years to respond to the compelling industry drivers and lack of investment over the past 25 years. The expected
increase in electrical consumption around the world should also require substantial investment in new electricity generation
6
capacity which will prompt further international growth in transmission grid development. We expect these factors to result in
increased demand for electrical utility structures to transport electricity from source to user.
Competition—Our competitive strategy in this segment is to provide high value solutions to the customer at a
reasonable price. We compete on the basis of product quality, engineering expertise, high levels of customer service and
reliable, timely delivery of the product. There are many competitors. Companies compete on the basis of price, quality and
service. Utility sales are often made through a competitive bid process, whereby the lowest bidder is awarded the contract,
provided the competitor meets all other qualifying criteria. In weak markets, price is a more important criterion in the bid
process.
Distribution Methods—Products are normally sold through commissioned sales agents or sold directly to electrical
utilities.
Energy and Mining Segment
Products Produced— We produce and distribute access systems, which are engineered structures and components
that allow people to move safely and effectively in an industrial, infrastructure or commercial facility. We also produce a line
of products which are used in architectural applications. Examples of these products are perforated metal sun screens and
facades that can be used on building structures to improve shading and aesthetics. Products offered in this product line are
usually engineered to specific customer requirements and include floor gratings, handrails, barriers and sunscreens. This
segment also manufactures complex steel structures, rotor houses, crown-mounted compensators, winches, cranes and
material handling equipment for offshore and land-based wind energy, oil & gas, and utility transmission outside of North
America. We also produce forged steel products used in the mining processing industry.
Markets - Markets for access systems are typically driven by infrastructure, industrial and commercial construction
spending and can be cyclical depending on economic conditions in the markets in which we compete. Customers consist of
construction firms or installers who participate in infrastructure, industrial and commercial construction projects, natural gas
and mineral exploration companies, resellers such as steel service centers, and end users. Markets for the complex steel
structures are in oil and gas, wind turbine towers, and material handling systems within Europe. The market for grinding
media are mines typically within Australia.
Competition - For both access systems and grinding media, we compete on the basis of product quality and timely,
complete and accurate delivery of the product. There are numerous competitors for both of these product lines. Pricing can be
very competitive, especially when demand is weak or when strong local currencies result in increased competition from
imported products. For offshore and complex steel structures, we compete based on our ability to co-engineer and design
solutions with customers, carry out advanced order production of complex steel constructions with electronics and hydraulics
and having highly automated series production for more mature products.
Coatings Segment
Services Rendered—We add finishes to metals that inhibit corrosion, extend service lives and enhance physical
attractiveness of a wide range of materials and products. Among the services provided include:
• Hot-dipped Galvanizing
• Anodizing
•
Powder Coating
• E-Coating
In our Coatings segment, we take unfinished products from our customers and return them with a galvanized,
anodized or painted finish. Galvanizing is a process that protects steel with a zinc coating that is bonded to the product
surface to inhibit rust and corrosion. Anodizing is a process applied to aluminum that oxidizes the surface of the aluminum in
a controlled manner, which protects the aluminum from corrosion and allows the material to be dyed a variety of colors. We
also paint products using powder coating and e-coating technology (where paint is applied through an electrical charge) for a
number of industries and markets.
7
Markets—Markets for our products are varied and our profitability is not substantially dependent on any one
industry or customer. Demand for coatings services generally follows the local industrial economies. Galvanizing is used in a
wide variety of industrial applications where corrosion protection of steel is desired. While markets are varied, our markets
for anodized or painted products are more directly dependent on consumer markets than industrial markets.
Competition—The Coatings markets traditionally have been very fragmented, with a large number of competitors.
Most of these competitors are relatively small, privately held companies who compete on the basis of price and personal
relationships with their customers. As a result of ongoing industry consolidation, there are also several (public and private)
multi-facility competitors. Our strategy is to compete on the basis of quality of the coating finish and timely delivery of the
coated product to the customer. We also use the production capacity at our network of plants to ensure that the customer
receives quality, timely service.
Distribution Methods—Due to freight costs, a galvanizing location has an effective service area of an approximate
300 to 500 mile radius. While we believe that we are globally one of the largest custom galvanizers, our sales are a small
percentage of the total market. Sales and customer service are provided directly to the user by a direct sales force, generally
assigned to each specific location.
Irrigation Segment
Products Produced—We manufacture and distribute mechanical irrigation equipment and related service parts under
the “Valley” brand name. A Valley irrigation machine usually is powered by electricity and propels itself over a farm field and
applies water and chemicals to crops. Water and, in some instances, chemicals are applied through sprinklers attached to a
pipeline that is supported by a series of towers, each of which is propelled via a drive train and tires. A standard mechanized
irrigation machine (also known as a “center pivot”) rotates in a circle, although we also manufacture and distribute center
pivot extensions that can irrigate corners of square and rectangular farm fields as well as conform to irregular field
boundaries (referred to as a “corner” machine). Our irrigation machines can also irrigate fields by moving up and down the
field as opposed to rotating in a circle (referred to as a “linear” machine). Irrigation machines can be configured to irrigate
fields in size from 4 acres to over 500 acres, with a standard size in the U.S. configured for a 160-acre tract of ground. One of
the key components of our irrigation machine is the control system. This is the part of the machine that allows the machine to
be operated in the manner preferred by the grower, offering control of such factors as on/off timing, individual field sector
control, rate and depth of water and chemical application. We also offer growers options to control multiple irrigation
machines through centralized computer control or mobile remote control. The irrigation machine used in international
markets is substantially the same as the one produced for the North American market.
Other Types of Irrigation — There are other forms of irrigation available to farmers, two of the most prevalent being
flood irrigation and drip irrigation. In flood irrigation, water is applied through a pipe or canal at the top of the field and
allowed to run down the field by gravity. Drip irrigation involves plastic pipe or tape resting on the surface of the field or
buried a few inches below ground level, with water being applied gradually. We estimate that center pivot and linear
irrigation comprises 50% of the irrigated acreage in North America. International markets use predominantly flood irrigation,
although all forms are used to some extent.
The Company through its majority ownership in AgSense LLC, develops and markets remote monitoring technology
for pivot irrigation systems that is sold on a subscription basis under the WagNet product name. WagNet technology allows
growers to remotely monitor and operate irrigation equipment and other farm structures such as grain bins. Data management
and control is achieved using applications running on either a personal computer-based internet browser or various mobile
devices connected to the internet. We also manufacture tubular products for industrial customers primarily in the agriculture
industry as well as in the transportation and other industries.
Markets—Market drivers in North American and international markets are essentially the same. Since the purchase
of an irrigation machine is a capital expenditure, the purchase decision is based on the expected return on investment. The
benefits a grower may realize through investment in mechanical irrigation include improved yields through better irrigation,
cost savings through reduced labor and lower water and energy usage. The purchase decision is also affected by current and
expected net farm income, commodity prices, interest rates, the status of government support programs and water regulations
in local areas. In many international markets, the relative strength or weakness of local currencies as compared with the U.S.
dollar may affect net farm income, since export markets are generally denominated in U.S. dollars.
8
The demand for mechanized irrigation comes from the following sources:
•
•
•
conversion from flood irrigation
replacement of existing mechanized irrigation machines
converting land that is not irrigated to mechanized irrigation
One of the key drivers in our Irrigation segment worldwide is that the usable water supply is limited. We estimate
that:
•
•
•
only 2.5% of total worldwide water supply is freshwater
of that 2.5%, only 30% of freshwater is available to humans
the largest user of that freshwater is agriculture
We believe these factors, along with the trend of a growing worldwide population and improving diets, reflect the
need to use water more efficiently while increasing food production to feed this growing population. We believe that
mechanized irrigation can improve water application efficiency by 40-90% compared with traditional irrigation methods by
applying water uniformly near the root zone and reducing water runoff. Furthermore, reduced water runoff improves water
quality in nearby rivers, aquifers and streams, thereby providing environmental benefits in addition to conservation of water.
Competition—In North America, there are a number of entities that provide irrigation products and services to
agricultural customers. We believe we are the leader of the four main participants in the mechanized irrigation business.
Participants compete for sales on the basis of price, product innovation and features, product durability and reliability, quality
and service capabilities of the local dealer. Pricing can become very competitive, especially in periods when market demand
local
is low. In international markets, our competitors are a combination of our major U.S. competitors and
companies. Competitive factors are similar to those in North America, although pricing tends to be a more prevalent
competitive strategy in international markets. Since competition in international markets is local, we believe local
manufacturing capability is important to competing effectively in international markets and we have that capability in key
regions.
Distribution Methods—We market our irrigation machines and service parts through independent dealers. There are
approximately 280 dealer locations in North America, with another approximately 210 dealers serving international markets.
The dealer determines the grower’s requirements, designs the configuration of the machine, installs the machine (including
providing ancillary products that deliver water and electrical power to the machine) and provides
dealer network is supported and trained by our technical and sales teams. Our international dealers are supported through our
regional headquarters in South America, South Africa, Western Europe, Australia, China and the United Arab Emirates as
well as the home office in Valley, Nebraska.
service. Our
General
Certain information generally applicable to each of our five reportable segments is set forth below.
Suppliers and Availability of Raw Materials.
Hot rolled steel coil and plate, zinc and other carbon steel products are the primary raw materials utilized in the
manufacture of finished products for all segments. We purchase these essential items from steel mills, steel service centers,
and zinc producers and these materials are usually readily available. While we may experience increased lead times to
acquire materials and volatility in our purchase costs, we do not believe that key raw materials would be unavailable for
extended periods. We have not experienced extended or wide-spread shortages of steel during this time, due to what we
believe are strong relationships with some of the major steel producers. In the past several years, we experienced volatility in
zinc and natural gas prices, but we did not experience any disruptions to our operations due to availability.
Patents, Licenses, Franchises and Concessions.
We have a number of patents for our manufacturing machinery, poles and irrigation designs. We also have a number
of registered trademarks. We do not believe the loss of any individual patent or trademark would have a material adverse
effect on our financial condition, results of operations or liquidity.
9
Seasonal Factors in Business.
Sales can be somewhat seasonal based upon the agricultural growing season and the infrastructure construction
season. Sales of mechanized irrigation equipment to farmers are traditionally higher during the spring and fall and lower in
the summer. Sales of infrastructure products are traditionally higher summer and fall and lower in the winter.
Customers.
We are not dependent for a material part of any segment’s business upon a single customer or upon very few
customers. The loss of any one customer would not have a material adverse effect on our financial condition, results of
operations or liquidity.
Backlog.
The backlog of orders for the principal products manufactured and marketed was $590.4 million at the end of the
2015 fiscal year and $658.8 million at the end of the 2014 fiscal year. An order is reported in our backlog upon receipt of a
purchase order from the customer or execution of a sales order contract. We anticipate that most of the 2015 backlog of
orders will be filled during fiscal year 2016. At year-end, the segments with backlog were as follows (dollar amounts in
millions):
Engineered Support Structures
Energy & Mining
Utility Support Structures
Irrigation
Coatings
Other
12/26/2015
12/27/2014
$
$
148.2
110.6
244.6
86.7
0.3
—
590.4
$
$
169.8
156.6
279.6
52.6
0.2
—
658.8
Research Activities.
The information called for by this item is included in Note 1 of our consolidated financial statements.
Environmental Disclosure.
We are subject to various federal, state and local laws and regulations pertaining to environmental protection and the
discharge of materials into the environment. Although we continually incur expenses and make capital expenditures related to
environmental protection, we do not anticipate that future expenditures should materially impact our financial condition,
results of operations, or liquidity.
Number of Employees.
At December 26, 2015, we had 10,697 employees.
(d)
Financial Information About Geographic Areas
Our international sales activities encompass over 100 foreign countries. The information called for by this item is
included in Note 18 of our consolidated financial statements. While Australia accounted for approximately 13% of our net
sales in 2015, no other foreign country accounted for more than 5% of our net sales. Net sales for purposes of Note 18
include sales to outside customers.
10
(e)
Available Information
We make available, free of charge through our Internet web site at http://www.valmont.com, our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after such
material is electronically filed with or furnished to the Securities and Exchange Commission.
ITEM 1A. RISK FACTORS.
The following risk factors describe various risks that may affect our business, financial condition and operations.
The ultimate consumers of our products operate in cyclical industries that have been subject to significant downturns
which have adversely impacted our sales in the past and may again in the future.
Our sales are sensitive to the market conditions present in the industries in which the ultimate consumers of our
products operate, which in some cases have been highly cyclical and subject to substantial downturns. For example, a
significant portion of our sales of support structures is to the electric utility industry. Our sales to the U.S. electric utility
industry were over $600 million in 2015 and over $750 million in 2014. Purchases of our products are deferrable to the extent
that utilities may reduce capital expenditures for reasons such as unfavorable regulatory environments, a slow U.S. economy
or financing constraints. In the event of weakness in the demand for utility structures due to reduced or delayed spending for
electrical generation and transmission projects, our sales and operating income likely will decrease.
The end users of our mechanized irrigation equipment are farmers. Accordingly, economic changes within the
agriculture industry, particularly the level of farm income, may affect sales of these products. From time to time, lower levels
of farm income resulted in reduced demand for our mechanized irrigation and tubing products. Farm income decreases when
commodity prices, acreage planted, crop yields, government subsidies and export levels decrease. In addition, weather
conditions, such as extreme drought may result in reduced availability of water for irrigation, and can affect farmers’ buying
decisions. Farm income can also decrease as farmers’ operating costs increase. Increases in oil and natural gas prices result in
fertilizer (which uses natural gas as a major ingredient). Furthermore, uncertainty
higher costs of energy and
as to future government agricultural policies may cause indecision on the part of farmers. The status and trend of government
farm supports, financing aids and policies regarding the ability to use water for agricultural irrigation can affect the demand
for our irrigation equipment. In the United States, certain parts of the country are considering policies that would restrict
usage of water for irrigation. All of these factors may cause farmers to delay capital expenditures for farm equipment.
Consequently, downturns in the agricultural industry will likely result in a slower, and possibly a negative, rate of growth in
irrigation equipment and tubing sales. As of November 2015, the U.S. Department of Agriculture (USDA) estimated U.S.
2015 net farm income to be $55.9 billion, down 38 percent from USDA’s estimate of U.S. 2014 net farm income of $90.4
billion. If realized, the 2015 forecast would be the lowest since 2002.
We have also experienced cyclical demand for those of our products that we sell to the wireless communications
industry. Sales of wireless structures and components to wireless carriers and build-to-suit companies that serve the wireless
communications industry have historically been cyclical. These customers may elect to curtail spending on new capacity to
focus on cash flow and capital management. Weak market conditions have led to competitive pricing in recent years, putting
pressure on our profit margins on sales to this industry. Changes in the competitive structure of the wireless industry, due to
industry consolidation or reorganization, may interrupt capital plans of the wireless carriers as they assess their networks.
The access systems and grinding media product lines are dependent on investment spending by our customers in the
oil, natural gas, and other mined mineral exploration industries, most specifically in the Asia Pacific region. During periods
of continued low oil and natural gas prices, these customers may elect to curtail spending on new exploration sites which will
cause us to experience lower demand for these specific product lines.
Due to the cyclical nature of these markets, we have experienced, and in the future we may experience, significant
fluctuations in our sales and operating income with respect to a substantial portion of our total product offering, and such
fluctuations could be material and adverse to our overall financial condition, results of operations and liquidity.
11
Changes in prices and reduced availability of key commodities such as steel, aluminum, zinc, natural gas and fuel may
increase our operating costs and likely reduce our net sales and profitability.
Hot rolled steel coil and other carbon steel products have historically constituted approximately one-third of the cost
of manufacturing our products. We also use large quantities of aluminum for lighting structures and zinc for the galvanization
of most of our steel products. Our facilities use large quantities of natural gas for heating and processing tanks in our
galvanizing operations. We use gasoline and diesel fuel to transport raw materials to our locations and to deliver finished
goods to our customers. The markets for these commodities can be volatile. The following factors increase the cost and
reduce the availability of these commodities:
•
•
•
•
•
increased demand, which occurs when we and other industries require greater quantities of these commodities,
which can result in higher prices and lengthen the time it takes to receive these commodities from suppliers;
lower production levels of these commodities, due to reduced production capacities or shortages of materials
needed to produce these commodities (such as coke and scrap steel for the production of steel) which could
result in reduced supplies of these commodities, higher costs for us and increased lead times;
increased cost of major inputs, such as scrap steel, coke, iron ore and energy;
fluctuations in foreign exchange rates can impact the relative cost of these commodities, which may affect the
cost effectiveness of imported materials and limit our options in acquiring these commodities; and
international trade disputes, import duties and quotas, since we import some steel for our domestic and foreign
manufacturing facilities.
Increases in the selling prices of our products may not fully recover higher commodity costs and generally lag
increases in our costs of these commodities. Consequently, an increase in these commodities will increase our operating costs
and likely reduce our profitability. Rising steel prices in 2010 and 2011 put pressure on gross profit margins, especially in our
Engineered Support Structures and Utility Support Structures segments. In both of these segments, the elapsed time between
the quotation of a sales order and the manufacturing of the product ordered can be several months. As some of these sales are
fixed price contracts, rapid increases in steel costs likely will result in lower operating income in these businesses.
Steel prices for both hot rolled coil and plate decreased substantially in North America in 2015 as compared to 2014.
Decreases in our product sales pricing and volumes offset the increase in gross profit realized from the lower steel prices.
Steel is most significant for our Utility Support Structures segment where the cost of steel has been approximately 50% of the
net sales, on average. Assuming a similar sales mix, a hypothetical 20% change in the price of steel would have affected our
net sales from our utility support structures segment by approximately $58 million for the year ended December 26, 2015.
We believe the volatility over the past several years was due to significant increases in global steel production and
rapid changes in consumption (especially in rapidly growing economies, such as China and India). The speed with which
steel suppliers impose price increases on us may prevent us from fully recovering these price increases particularly in our
lighting and traffic and utility businesses. In the same respect, rapid decreases in the price of steel can also result in reduced
operating margins in our utility businesses due to the long production lead times.
Demand for our infrastructure products and coating services is highly dependent upon the overall level of infrastructure
spending.
We manufacture and distribute engineered infrastructure products for lighting and traffic, utility and other specialty
industries. Because these products are used primarily
applications. Our Coatings segments serve many
in infrastructure construction, sales in these businesses are highly correlated with the level of construction activity, which
historically has been cyclical. Construction activity by our private and government customers is affected by and can decline
because of, a number of factors, including (but not limited to):
• weakness in the general economy, which may negatively affect tax revenues, resulting in reduced funds
available for construction;
•
•
interest rate increases, which increase the cost of construction financing; and
adverse weather conditions which slow construction activity.
12
The current economic uncertainty and slowness in the United States and Europe will have some negative effect on
our business. In our North American lighting product line, some of our lighting structure sales are for new residential and
commercial areas. As residential and commercial construction remains weak, we have experienced some negative impact on
our light pole sales to these markets. In a broader sense, in the event of an overall downturn in the economies in Europe,
Australia or China, we may experience decreased demand if our customers have difficulty securing credit for their purchases
from us.
In addition, sales in our Engineered Support Structures segment, particularly our lighting, traffic and highway safety
products, are highly dependent upon federal, state, local and foreign government spending on infrastructure development
projects, such as the 2015 U.S. federal highway bill. The level of spending on such projects may decline for a number of
reasons beyond our control, including, among other things, budgetary constraints affecting government spending generally or
transportation agencies in particular, decreases in tax revenues and changes in the political climate, including legislative
delays, with respect to infrastructure appropriations. For instance, the lack of long-term U.S. federal highway spending
legislation for a significant period of time prior to the 2015 U.S. federal highway bill has had a negative impact on our sales
in this market. A substantial reduction in the level of government appropriations for infrastructure projects could have a
material adverse effect on our results of operations or liquidity.
We may lose some of our foreign investment or our foreign sales and profits may reduce because of risks of doing
business in foreign markets.
We are an international manufacturing company with operations around the world. At December 26, 2015, we
operated over 100 manufacturing plants, located on six continents, and sold our products in more than 100 countries. In 2015,
approximately 37% of our total sales were either sold in markets or produced by our manufacturing plants outside of North
America. We have operations in geographic markets that have recently experienced political instability, such as the Middle
East, and economic uncertainty, such as Western Europe. Our geographic diversity also requires that we hire, train and retain
competent management for the various local markets. We also have a significant manufacturing presence in Australia, Europe
and China. We expect that international sales will continue to account for a significant percentage of our net sales in the
future. Accordingly, our foreign business operations and our foreign sales and profits are subject to the following potential
risks:
•
•
•
•
•
•
political and economic instability where we have foreign business operations, resulting in the reduction of the
value of, or the loss of, our investment;
recessions in economies of countries in which we have business operations, decreasing our international sales;
difficulties and costs of staffing and managing our foreign operations, increasing our foreign operating costs and
decreasing profits;
potential violation of local laws or unsanctioned management actions that could affect our profitability or ability
to compete in certain markets;
difficulties in enforcing our rights outside the United States for patents on our manufacturing machinery, poles
and irrigation designs;
increases in tariffs, export controls, taxes and other trade barriers reducing our international sales and our profit
on these sales; and
•
acts of war or terrorism.
As a result, we may lose some of our foreign investment or our foreign sales and profits may be materially reduced
because of risks of doing business in foreign markets. In 2015, we recorded a $7 million allowance for doubtful accounts in
our Irrigation segment related to a long-term receivable with a Chinese municipal entity.
13
Failure to comply with any applicable anti-corruption legislation could result in fines, criminal penalties and an adverse
effect on our business.
We must comply with all applicable laws, which may include the U.S. Foreign Corrupt Practices Act (FCPA), the
UK Bribery Act or other anti-corruption laws. These anti-corruption laws generally prohibit companies and their
intermediaries from making improper payments or providing anything of value to improperly influence government officials
or private individuals for the purpose of obtaining or retaining a business advantage regardless of whether those practices are
legal or culturally expected in a particular jurisdiction. Recently, there has been a substantial increase in the global
enforcement of anti-corruption laws. Although we have a compliance program in place designed to reduce the likelihood of
potential violations of such laws, violations of these laws could result in criminal or civil sanctions and an adverse effect on
the company’s reputation, business and results of operations and financial condition.
We are subject to currency fluctuations from our international sales, which can negatively impact our reported earnings.
We sell our products in many countries around the world. Approximately 39% of our fiscal 2015 sales were in
markets outside the United States and are often made in foreign currencies, mainly the Australian dollar, euro, Brazilian real,
Canadian dollar, Chinese renminbi and South African rand. Because our financial statements are denominated in U.S. dollars,
fluctuations in currency exchange rates between the U.S. dollar and other currencies have had and will continue to have an
impact on our reported earnings. For example, the U.S. dollar appreciated versus the Australian dollar in 2015. As a result,
our Australian sales measured in U.S. dollar terms decreased by approximately $68 million due to exchange rate translation
effects. If the U.S. dollar weakens or strengthens versus the foreign currencies mentioned above, the result will be an increase
or decrease in our reported sales and earnings, respectively. Currency fluctuations have affected our financial performance in
the past and may affect our financial performance in any given period. In 2015, we realized a $17.3 million decrease in
operating profit, as compared to 2014, from currency translation effects. In cases where local currencies are strong, the
relative cost of goods imported from outside our country of operation becomes lower and affects our ability to compete
profitably in our home markets. We experienced increased pricing competition in our access systems product line in Australia
in 2011 and 2012. This increased pricing pressure, in part, was due to the strong Australian dollar and resulting competition
from companies outside of Australia.
We also face risks arising from the imposition of foreign exchange controls and currency devaluations. Exchange
controls may limit our ability to convert foreign currencies into U.S. dollars or to remit dividends and other payments by our
foreign subsidiaries or businesses located in or conducted within a country imposing controls. Currency devaluations result in
a diminished value of funds denominated in the currency of the country instituting the devaluation. Actions of this nature
could have a material adverse effect on our results of operations and financial condition in any given period.
Our businesses require skilled labor and management talent and we may be unable to attract and retain qualified
employees.
Our businesses require skilled factory workers and management in order to meet our customer’s needs, grow our
sales and maintain competitive advantages. Skills such as welding, equipment maintenance and operating complex
manufacturing machinery may be in short supply in certain geographic areas, leading to shortages of skilled labor and/or
increased labor costs. Management talent is critical as well, to help grow our businesses and effectively plan for succession of
key employees upon retirement. In some geographic areas, skilled management talent in certain areas may be difficult to find.
To the extent we have difficulty in finding and retaining these skills in the workforce, there may be an adverse effect on our
ability to grow profitably in the future.
We may incur significant warranty or contract management costs.
In our Utility Support Structures segment, we manufacture large structures for electrical transmission. These
products may be highly engineered for very large, complex contracts and subject to terms and conditions that penalize us for
late delivery and result in consequential and compensatory damages. From time to time, we may have a product quality issue
on a large utility structures order and the costs of curing that issue may be significant. For example, we recorded a $17.0
million reserve in the fourth quarter of 2015 for a commercial settlement with a large customer that requires ongoing quality
monitoring. Our products in the Engineered Support Structures segment include structures for a wide range of outdoor
lighting and wireless communication applications.
14
In our Irrigation segment, our products are covered under warranties, some for several years. We may incur
significant warranty or product related costs, which may include repairing or replacing defective or non-conforming products,
even if another party may have contributed to the problem. In such cases, the costs of correcting the quality issue may be
significant.
We face strong competition in our markets.
We face competitive pressures from a variety of companies in each of the markets we serve. Our competitors include
companies who provide the technologies that we provide as well as companies who provide competing technologies, such as
drip irrigation. Our competitors include international, national, and local manufacturers, some of whom may have greater
financial, manufacturing, marketing and technical resources than we do, or greater penetration in or familiarity with a
particular geographic market than we have. In addition, certain of our competitors, particularly with respect to our utility and
wireless communication product lines, have sought bankruptcy protection in recent years, and may emerge with reduced debt
service obligations, which could allow them to operate at pricing levels that put pressures on our margins. Some of our
customers have moved manufacturing operations or product sourcing overseas, which can negatively impact our sales of
galvanizing and anodizing services.
To remain competitive, we will need to invest continuously in manufacturing, product development and customer
service, and we may need to reduce our prices, particularly with respect to customers in industries that are experiencing
downturns. We cannot provide assurance that we will be able to maintain our competitive position in each of the markets that
we serve.
We could incur substantial costs as the result of violations of, or liabilities under, environmental laws.
Our facilities and operations are subject to U.S. and foreign laws and regulations relating to the protection of the
environment, including those governing the discharge of pollutants into the air and water, the management and disposal of
hazardous substances and wastes, and the cleanup of contamination. Failure to comply with these laws and regulations, or
with the permits required for our operations, could result in fines or civil or criminal sanctions, third party claims for property
damage or personal injury, and investigation and cleanup costs. Potentially significant expenditures could be required in order
to comply with environmental laws that regulators may adopt or impose in the future.
Certain of our facilities have been in operation for many years and, over time, we and other predecessor operators of
these facilities have generated, used, handled and disposed of hazardous and other regulated wastes. We detected
contaminants at some of our present and former sites, principally in connection with historical operations. In addition, from
time to time we have been named as a potentially responsible party under Superfund or similar state laws. While we are not
sites, at which we
aware of any contaminated sites that are not provided for in our financial statements, including
may have material obligations, the discovery of additional contaminants or the imposition of additional cleanup obligations at
these sites could result in significant liability beyond amounts provided for in our financial statements.
We may not realize the improved operating results that we anticipate from acquisitions we may make in the future, and we
may experience difficulties in integrating the acquired businesses or may inherit significant liabilities related to such
businesses.
We explore opportunities to acquire businesses that we believe are related to our core competencies from time to
time, some of which may be material to us. We expect such acquisitions will produce operating results better than those
historically experienced or presently expected to be experienced in the future by us in the absence of the acquisition. We
cannot provide assurance that this assumption will prove correct with respect to any acquisition.
Any future acquisitions may present significant challenges for our management due to the time and resources
required to properly integrate management, employees, information systems, accounting controls, personnel and
administrative functions of the acquired business with those of Valmont and to manage the combined company on a going
forward basis. We may not be able to completely integrate and streamline overlapping functions or, if such activities are
successfully accomplished, such integration may be more costly to accomplish than presently contemplated. We may also
have difficulty in successfully integrating the product offerings of Valmont and acquired businesses to improve our collective
product offering. Our efforts to integrate acquired businesses could be affected by a number of factors beyond our control,
including general economic conditions. In addition, the process of integrating acquired businesses could cause the
interruption of, or loss of momentum in, the activities of our existing business. The diversion of management’s attention and
15
any delays or difficulties encountered in connection with the integration acquired businesses could adversely impact our
business, results of operations and liquidity, and the benefits we anticipate may never materialize. These factors are relevant
to any acquisition we undertake.
In addition, although we conduct reviews of businesses we acquire, we may be subject to unexpected claims or
liabilities, including environmental cleanup costs, as a result of these acquisitions. Such claims or liabilities could be costly to
defend or resolve and be material in amount, and thus could materially and adversely affect our business and results of
operations and liquidity.
We have, from time to time, maintained a substantial amount of outstanding indebtedness, which could impair our ability
to operate our business and react to changes in our business, remain in compliance with debt covenants and make
payments on our debt.
As of December 26, 2015, we had $766.0 million of total indebtedness outstanding. We had $581.7 million capacity
to borrow under our revolving credit facility at December 26, 2015. We normally borrow money to make business
acquisitions and major capital expenditures. From time to time, our borrowings have been significant. Our level of
indebtedness could have important consequences, including:
•
•
our ability to satisfy our obligations under our debt agreements could be affected and any failure to comply with
the requirements, including significant financial and other restrictive covenants, of any of our debt agreements
could result in an event of default under the agreements governing our indebtedness;
a substantial portion of our cash flow from operations will be required to make interest and principal payments
and will not be available for operations, working capital, capital expenditures, expansion, or general corporate
and other purposes, including possible future acquisitions that we believe would be beneficial to our business;
•
our ability to obtain additional financing in the future may be impaired;
• we may be more highly leveraged than our competitors, which may place us at a competitive disadvantage;
•
•
our flexibility in planning for, or reacting to, changes in our business and industry may be limited; and
our degree of leverage may make us more vulnerable in the event of a downturn in our business, our industry or
the economy in general.
We had $349.1 million of cash at December 26, 2015, which mitigates a portion of the risk associated with our debt.
However, approximately 80% of our consolidated cash balances are outside the United States and most of our
debt is borrowed by U.S. entities. In the event that we would have to repatriate cash from international
operations to meet cash needs in the U.S., we are likely to incur significant income tax expenses to repatriate that cash. In
addition, as we use cash for acquisitions and other purposes, any of these factors could have a material adverse effect on our
business, financial condition, results of operations, cash flows and business prospects.
The restrictions and covenants in our debt agreements could limit our ability to obtain future financings, make
needed capital expenditures, withstand a future downturn in our business, or the economy in general, or otherwise conduct
necessary corporate activities. These covenants may prevent us from taking advantage of business opportunities that arise.
A breach of any of these covenants would result in a default under the applicable debt agreement. A default, if not
waived, could result in acceleration of the debt outstanding under the agreement and in a default with respect to, and
acceleration of, the debt outstanding under our other debt agreements. The accelerated debt would become immediately due
and payable. If that should occur, we may not be able to pay all such debt or to borrow sufficient funds to refinance it. Even if
new financing were then available, it may not be on terms that are favorable to us.
16
We assumed an underfunded pension liability as part of the Delta acquisition and the combined company may be required
to increase funding of the plan and/or be subject to restrictions on the use of excess cash.
Delta is the sponsor of a United Kingdom defined benefit pension plan that, as of December 26, 2015, covered
approximately 6,500 inactive or retired former Delta employees. At December 26, 2015, this plan was, for accounting
purposes, underfunded by approximately £120.2 million ($179.3 million). The current agreement with the trustees of the
pension plan for annual funding is approximately £10.0 million ($14.9 million) in respect of the funding shortfall and
approximately £1.1 million ($1.6 million) in respect of administrative expenses. Although this funding obligation was
considered in the offer price for the Delta shares, the underfunded position may adversely affect the combined company as
follows:
• Laws and regulations in the United Kingdom normally require the plan trustees and us to agree on a new
funding plan every three years. The next funding plan will be developed in 2016. Changes in actuarial
assumptions, including future discount, inflation and interest rates, investment returns and mortality rates, may
increase the underfunded position of the pension plan and cause the combined company to increase its funding
levels in the pension plan to cover underfunded liabilities.
• The United Kingdom regulates the pension plan and the trustees represent the interests of covered workers.
Laws and regulations, under certain circumstances, could create an immediate funding obligation to the pension
plan which could be significantly greater than the £120.2 million ($179.3 million) assumed for accounting
purposes as of December 26, 2015. Such immediate funding is calculated by reference to the cost of buying out
liabilities on the insurance market, and could affect our ability to use Delta’s existing cash or the combined
company’s future excess cash to grow the business or finance other obligations. The use of Delta’s cash and
future cash flows beyond the operation of Delta’s business or the satisfaction of Delta’s obligations would
require negotiations with the trustees and regulators.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Our corporate headquarters are located in a leased facility in Omaha, Nebraska, under a lease expiring in 2021. The
headquarters of the Company’s reportable segments are located in Valley, Nebraska except for the headquarters of the
Company’s Utility Support Structures segment, which is located in Birmingham, Alabama. We also maintain a management
headquarters in Sydney, Australia. Most of our significant manufacturing locations are owned or are subject to long-term
renewable leases. Our principal manufacturing locations are in Valley, Nebraska, McCook, Nebraska, Tulsa, Oklahoma,
Brenham, Texas, Charmeil, France and Shanghai, China. All of these facilities are owned by us. We believe that our
manufacturing capabilities and capacities are adequate for us to effectively serve our customers. Our capital spending
programs consist of investment for replacement, achieving operational efficiencies and expand capacities where needed. Our
principal operating locations by reportable segment are listed below.
Engineered Support Structures segment North America manufacturing locations are in Nebraska, Texas, Indiana,
Minnesota, Oregon, South Carolina, Washington and Canada. The largest of these operations are in Valley, Nebraska and
Brenham, Texas, both of which are owned facilities. We have communication components distribution locations in New York,
California and Georgia. International locations are in France, the Netherlands, Finland, Estonia, England, Germany, Poland,
Morocco, Australia, Indonesia, the Philippines, Thailand, Malaysia, India and China. The largest of these operations are in
Charmeil, France and Shanghai, China, all of which are owned facilities.
Utility Support Structures segment North America manufacturing locations are in Alabama, Georgia, Florida,
California, Texas, Oklahoma, Pennsylvania, Tennessee, Kansas, Nebraska and Mexico. The largest of these operations are in
Tulsa, Oklahoma, Monterrey, Mexico and Hazleton, Pennsylvania. The Tulsa and Monterrey facilities are owned and the
Hazleton facility is located on both owned and leased property. Principal international manufacturing locations are in China
and France.
Energy and Mining segment is all international locations with manufacturing in Australia, Denmark, Indonesia,
Philippines, Thailand, Malaysia and China. The largest of these operations are in Australia, Denmark, and China.
17
Coatings segment North America operations include U.S. operations located in Nebraska, Illinois, California,
Minnesota, Kansas, Iowa, Indiana, New Jersey, Oregon, Utah, Oklahoma, Virginia, Alabama, Florida and South Carolina and
three locations near Toronto, Canada. International operations are located in Australia, Malaysia, the Philippines and India.
Irrigation segment North America manufacturing operations are located in Valley and McCook, Nebraska. Our
principal manufacturing operations serving international markets are located in Uberaba, Brazil, Nigel, South Africa, Jebel
Ali, United Arab Emirates, Madrid, Spain and Shandong, China. All facilities are owned except for China, which is leased.
Our other North America operations are located in Nebraska and Oregon.
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to, nor are any of our properties subject to, any material legal proceedings. We are, from time to
time, engaged in routine litigation incidental to our businesses.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
18
Executive Officers of the Company
Our executive officers at February 24, 2016, their ages, positions held, and the business experience of each during
the past five years are, as follows:
Mogens C. Bay, age 67, Chairman and Chief Executive Officer since January 1997.
Mark C. Jaksich, age 58, Executive Vice President and Chief Financial Officer since February 2014. Vice President
and Controller, February 2000 - February 2014.
Todd G. Atkinson, age 59, Executive Vice President since February 2011. Chief Executive Officer of Delta plc from
July 2003 until February 2011. Mr. Atkinson's employment ended in February 2016.
Barry A. Ruffalo, age 46, Executive Vice President since March 2015. Mr. Ruffalo was a Group President of
various divisions of Lindsay Corporation, an irrigation and infrastructure manufacturer, between 2007 and March
2015.
Vanessa K. Brown, age 63, Senior Vice President-Human Resources since July 2011. Director of Human Resources
of North America Engineered Support Structures division from 1997 until 2011.
Timothy P. Francis, age 39, Vice President and Controller since June 2014. Mr. Francis served as Chief Financial
Officer of Burlington Capital Group LLC (“BCG”) and America First Multifamily Investors, L.P. (“ATAX”), a
NASDAQ listed Limited Partnership in which BCG serves as the General Partner, from January 2012 to May 2014.
He was a certified public accountant with Deloitte & Touche LLP from January 2001 to January 2012, last serving
as Senior Audit Manager.
John A. Kehoe, age 46, Vice President of Information Technology since June 2014. Mr. Kehoe was a senior
information technology executive at Rockwell Collins, an aerospace and defense contractor and manufacturer, from
2004 - 2014.
.
19
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the New York Stock Exchange under the symbol “VMI”. We had approximately
3,000 shareholders of common stock at December 26, 2015. Other stock information required by this item is included in Note
21 “Quarterly Financial Data (unaudited)” to the consolidated financial statements and incorporated herein by reference.
Issuer Purchases of Equity Securities
Period
September 27, 2015 to October 24, 2015
October 25, 2015 to November 28, 2015
November 29, 2015 to December 26, 2015
(a)
Total Number
of
Shares
Purchased
53,600
—
145,117
Total
198,717
$
(b)
Average Price
paid per share
97.96
$
—
106.89
104.48
(c)
Total Number
of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs
(d)
Approximate Dollar
Value of Maximum
Number of
Shares that May Yet
Be Purchased Under
the Plans or
Programs
53,600
$
—
145,117
198,717
$
201,484,000
201,484,000
185,972,000
185,972,000
On May 13, 2014, we announced a capital allocation philosophy which covered both the quarterly dividend rate as
well as a share repurchase program. Specifically, the Board of Directors authorized the purchase of up to $500 million of the
Company's outstanding common stock from time to time over twelve months at prevailing market prices, through open
market or privately-negotiated transactions. On February 24, 2015, the Board of Directors authorized additional purchases of
up to $250 million of the Company's outstanding common stock with no stated expiration date. As of December 26, 2015,
we have acquired 4,146,637 shares for approximately $564.0 million under this share repurchase program.
20
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FIVE-YEAR FINANCIAL DATA
(Dollars in thousands, except per share amounts)
Operating Data
2015
2014
2013
2012
2011
(3)
Net sales
Operating income (1)
Net earnings attributable to Valmont Industries, Inc. (2)
Depreciation and amortization
Capital expenditures
$ 2,618,924
$3,123,143
$ 3,304,211
$3,029,541
$ 2,661,480
131,695
40,117
91,144
45,468
357,716
183,976
89,328
73,023
473,069
278,489
77,436
106,753
382,296
234,072
70,218
97,074
263,310
228,308
74,560
83,069
Per Share Data
Earnings:
Basic (2)
Diluted (2)
Cash dividends declared
Financial Position
Working capital
Property, plant and equipment, net
Total assets
$
$
1.72
1.71
1.500
$
7.15
7.09
1.375
$
10.45
10.35
0.975
8.84
8.75
0.855
$
8.67
8.60
0.705
$ 860,298
$ 995,727
$ 1,161,260
$1,013,507
$ 844,873
532,489
606,453
534,210
512,612
454,877
2,399,428
2,729,668
2,776,494
2,568,551
2,306,076
Long-term debt, including current installments
Total Valmont Industries, Inc. shareholders’ equity.
765,041
918,441
767,835
471,109
472,817
474,650
1,201,833
1,522,025
1,349,912
1,146,962
Cash flow data:
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities
Financial Measures
Invested capital(a)
Return on invested capital(a)
Adjusted EBITDA(b)
Return on beginning shareholders’ equity(c)
Leverage ratio (d)
Year End Data
Shares outstanding (000)
Approximate number of shareholders
Number of employees
$ 272,267
$ 174,096
$ 396,442
$ 197,097
$ 149,671
(48,171)
(220,005)
(256,863)
(139,756)
(131,721)
(136,692)
(37,380)
(16,355)
(84,063)
(45,911)
$ 1,766,897
$2,103,989
$ 2,113,903
$1,981,502
$ 1,769,461
4.6%
11.3%
15.0%
13.2%
11.0%
$ 285,115
$ 413,684
$ 546,208
$ 462,417
$ 343,633
3.3%
2.69
12.1%
1.89
20.6%
0.90
20.4%
1.05
24.9%
1.41
22,857
3,000
10,697
24,229
2,500
11,321
26,825
2,500
10,769
26,674
2,500
10,543
26,481
2,800
9,476
(1) Fiscal 2015 operating income included impairments of goodwill and intangible assets of $41,970 and restructuring expenses of $39,852.
(2) Fiscal 2015 included impairments of goodwill and intangible assets of $40,140 after-tax ($1.72 per share), restructuring expenses of
$28,167 after-tax ($1.20 per share), and deferred income tax expense of $7,120 ($0.31 per share) for a change in U.K tax rates. Fiscal
2014 included costs associated with refinancing of our long-term debt of $24,171 after tax ($0.93 per share). Fiscal 2013 included $4,569
($0.17 per share) in after-tax fixed asset impairment losses at Delta EMD Pty. Ltd. (EMD) and $12,011 ($0.45 per share) in losses
associated with the deconsolidation of EMD. Fiscal 2011 included $66,026 ($2.49 per share) of income tax benefits associated with a legal
entity restructuring resulting in the removal of valuation allowances on deferred income tax assets and increased income tax basis in certain
assets.
(3) Fiscal 2011 was a 53 week fiscal year.
_____________________________________________
21
(a)
Return on Invested Capital is calculated as Operating Income (after-tax) divided by the average of beginning and ending Invested
Capital. Invested Capital represents total assets minus total liabilities (excluding interest-bearing debt). Return on Invested
Capital is one of our key operating ratios, as it allows investors to analyze our operating performance in light of the amount of
investment required to generate our operating profit. Return on Invested Capital is also a measurement used to determine
management incentives. Return on Invested Capital is not a measure of financial performance or liquidity under generally
accepted accounting principles (GAAP). Accordingly, Invested Capital and Return on Invested Capital should not be considered
in isolation or as a substitute for net earnings, cash flows from operations or other income or cash flow data prepared in
accordance with GAAP or as a measure of our operating performance or liquidity. The table below shows how Invested Capital
and Return on Invested Capital are calculated from our income statement and balance sheet.
Operating income
Effective tax rate (1)
Tax effect on operating income
After-tax operating income
Average invested capital
Return on invested capital
Total assets
Less: Accounts and income taxes payable
Less: Accrued expenses
Less: Defined benefit pension liability
Less: Deferred compensation
Less: Other noncurrent liabilities
Less: Dividends payable
Total Invested capital
Beginning of year invested capital
Average invested capital
2015
$ 131,695
2014
$ 357,716
2013
$ 473,069
2012
$ 382,296
2011
$ 263,310
32.0%
33.4%
35.1%
35.2%
30.2%
(42,142)
(119,477)
(166,047)
(134,568)
89,553
238,239
307,022
247,728
(79,520)
183,790
1,935,443
2,108,946
2,047,703
1,875,482
1,673,584
4.6%
11.3%
15.0%
13.2%
11.0%
$2,399,428
$2,729,668
$2,776,494
$2,568,551
$2,306,076
(179,983)
(175,947)
(179,323)
(48,417)
(40,290)
(8,571)
(196,565)
(176,430)
(150,124)
(47,932)
(45,542)
(9,086)
(216,121)
(194,527)
(154,397)
(39,109)
(51,731)
(6,706)
(212,424)
(180,408)
(112,043)
(31,920)
(44,252)
(6,002)
(234,537)
(157,128)
(68,024)
(30,741)
(41,418)
(4,767)
$1,766,897
$2,103,989
$2,113,903
$1,981,502
$1,769,461
$2,103,989
$2,113,903
$1,981,502
$1,769,461
$1,577,707
$1,935,443
$2,108,946
$2,047,703
$1,875,482
$1,673,584
(1) The effective tax rate in 2015 excludes the effects of the goodwill impairments which are not deductible for income tax purposes and the $7.1 million
deferred income tax expense recognized as a result of the U.K. corporate tax rate decreasing from 20% to 18%. The effective tax rate in 2015 including
these items is 51.0%. The effective tax rate in 2011 does not include the effects of the legal entity reorganization executed in late 2011 (approximately $66.0
million). The effective tax rate in 2011 including the effect of the restructuring was 2.0%.
Return on invested capital, as presented, may not be comparable to similarly titled measures of other companies.
(b)
Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) is one of our key financial ratios in that it is the basis for
determining our maximum borrowing capacity at any one time. Our bank credit agreements contain a financial covenant that our total
debt not exceed 3.50x Adjusted EBITDA for the most recent four quarters. These bank credit agreements allow us to add
estimated EBITDA from acquired businesses for periods we did not own the acquired businesses. The bank credit agreements also provide for an
adjustment to EBITDA, subject to certain specified limitations, for non-cash charges or gains that are non-recurring in nature. If this financial
covenant is violated, we may incur additional financing costs or be required to pay the debt before its maturity date. Adjusted EBITDA is not a
measure of financial performance or liquidity under GAAP and, accordingly, should not be considered in isolation or as a substitute for net
earnings, cash flows from operations or other income or cash flow data prepared in accordance with GAAP or as a measure of our operating
performance or liquidity. The calculation of Adjusted EBITDA is as follows:
22
Net cash flows from operations
Interest expense
Income tax expense
Loss on investment
Non-cash debt refinancing costs
Change in fair value of contingent consideration
Deconsolidation of subsidiary
Impairment of goodwill and intangible assets
Impairment of property, plant and equipment
Deferred income tax (expense) benefit
Noncontrolling interest
Equity in earnings of nonconsolidated subsidiaries
Stock-based compensation
Pension plan expense
Contribution to pension plan
Changes in assets and liabilities, net of acquisitions
Other
EBITDA
Impairment of goodwill and intangible assets
Impairment of property, plant and equipment
EBITDA from acquisitions (months in 2014 not owned by Company)
Adjusted EBITDA
Net earnings attributable to Valmont Industries, Inc.
Interest expense
Income tax expense
Depreciation and amortization expense
EBITDA
Impairment of goodwill and intangible assets
Impairment of property, plant and equipment
EBITDA from acquisitions (months in 2014 not owned by Company)
Adjusted EBITDA
2015
2014
2013
2012
2011
$ 272,267
$ 174,096
$ 396,442
$ 197,097
$ 149,671
44,621
47,427
36,790
94,894
32,502
31,625
157,781
126,502
36,175
4,590
(4,555)
(3,795)
—
—
—
(12,011)
—
(12,161)
10,141
(1,971)
835
(6,513)
(6,569)
—
—
—
—
—
—
(3,720)
(4,844)
6,128
(5,829)
(4,281)
17,619
11,591
(34,205)
108,469
—
—
—
—
—
—
84,962
(8,918)
8,059
(5,931)
(5,449)
11,860
69,307
2,478
4,300
—
—
—
(5,251)
(5,342)
29
(6,730)
(2,638)
18,173
98,376
—
—
—
(41,970)
(19,836)
(4,858)
(5,216)
(247)
(7,244)
610
16,500
(71,863)
(2,327)
(392)
4,318
(321)
(693)
223,309
404,988
546,208
462,417
343,633
41,970
19,836
—
—
—
8,696
—
—
—
—
—
—
—
—
—
$ 285,115
$ 413,684
$ 546,208
$ 462,417
$ 343,633
2015
2014
2013
2012
2011
$ 40,117
$ 183,976
$ 278,489
$ 234,072
$ 228,308
44,621
47,427
91,144
36,790
94,894
89,328
32,502
31,625
157,781
126,502
77,436
70,218
36,175
4,590
74,560
223,309
404,988
546,208
462,417
343,633
41,970
19,836
—
—
—
8,696
—
—
—
—
—
—
—
—
—
$ 285,115
$ 413,684
$ 546,208
$ 462,417
$ 343,633
Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. During 2014, we incurred $38,705 of costs
associated with refinancing of debt. This category of expense is not in the definition of EBITDA for debt covenant calculation purposes per our debt
agreements. As such, it was not added back in the Adjusted EBITDA reconciliation to cash flows from operation or net earnings for either the year ended
December 27, 2014.
(c)
(d)
Return on beginning shareholders’ equity is calculated by dividing Net earnings attributable to Valmont Industries, Inc. by the prior year’s ending
Total Valmont Industries, Inc. shareholders’ equity.
Leverage ratio is calculated as the sum of current portion of long-term debt, notes payable to bank, and long-term debt divided by Adjusted
EBITDA. The leverage ratio is one of the key financial ratios in the covenants under our major debt agreements and the ratio cannot exceed 3.5
for any reporting period (four quarters). If those covenants are violated, we may incur additional financing costs or be required to pay the debt
before its maturity date. Leverage ratio is not a measure of financial performance or liquidity under GAAP and, accordingly, should not be
considered in isolation or as a substitute for net earnings, cash flows from operations or other income or cash flow data prepared in accordance
with GAAP or as a measure of our operating performance or liquidity. The calculation of this ratio is as follows:
23
Current portion of long-term debt
Notes payable to bank
Long-term debt
Total interest bearing debt
Adjusted EBITDA
Leverage Ratio
2015
2014
2013
2012
2011
$
1,077
$
1,181
$
202
$
224
$
235
976
763,964
766,017
285,115
2.69
13,952
766,654
781,787
413,684
1.89
19,024
470,907
490,133
546,208
0.90
13,375
472,593
486,192
462,417
1.05
11,403
474,415
486,053
343,633
1.41
Leverage ratio, as presented, may not be comparable to similarly titled measures of other companies.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Statements
Management’s discussion and analysis, and other sections of this annual report, contain
statements
statements are based on
within the meaning of the Private Securities Litigation Reform Act of 1995. These
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
statements are based on reasonable assumptions. Many factors could affect the Company’s actual financial
statements. These factors include,
results and cause them to differ materially from those anticipated in the
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.
The following discussion and analysis provides information which management believes is relevant to an
assessment and understanding of our consolidated results of operations and financial position. This discussion should be read
in conjunction with the Consolidated Financial Statements and related Notes.
24
General
Consolidated
Net sales
Gross profit
as a percent of sales
SG&A expense
as a percent of sales
Operating income
as a percent of sales
Net interest expense
Effective tax rate
Net earnings attributable to Valmont Industries, Inc
Diluted earnings per share
Engineered Support Structures Segment
Net sales
Gross profit
SG&A expense
Operating income
Energy & Mining Segment
Net sales
Gross profit
SG&A expense
Operating income
Utility Support Structures Segment
Net sales
Gross profit
SG&A expense
Operating income
Coatings Segment
Net sales
Gross profit
SG&A expense
Operating income
Irrigation Segment
Net sales
Gross profit
SG&A expense
Operating income
Other
Net sales
Gross profit
SG&A expense
Operating income
Net corporate expense
Gross profit
SG&A expense
Operating loss
2015
2014
Change
2015 - 2014
2013
Change
2014 - 2013
Dollars in millions, except per share amounts
$ 2,618.9
$ 3,123.1
(16.1)% $ 3,304.2
(5.5)%
(14.5)%
(23.2)%
945.2
28.6%
8.6 %
472.1
(4.6)%
14.3%
(63.2)%
473.1
(24.4)%
621.0
23.7%
489.3
18.7%
131.7
5.0%
41.3
51.0%
40.1
1.71
748.4
191.6
132.0
59.6
$
$
808.1
25.9%
450.4
14.4%
357.7
11.5%
30.7
33.4%
184.0
7.09
735.0
194.2
128.2
66.0
$
$
34.5 %
14.3%
26.0
35.1%
(78.2)%
(75.9)% $
278.5
10.35
1.8 % $
696.3
(1.3)%
3.0 %
(9.7)%
197.4
131.5
65.9
$
333.2
$
443.7
(24.9)% $
339.8
53.4
72.1
(18.7)
93.8
52.5
41.3
(43.1)%
37.3 %
(145.3)%
79.5
44.4
35.1
$
673.3
$
822.6
(18.1)% $
959.7
116.0
78.2
37.8
172.0
76.9
95.1
(32.6)%
1.7 %
(60.3)%
$
255.5
$
278.4
(8.2)% $
79.8
52.4
27.4
98.1
37.1
61.0
(18.7)%
41.2 %
(55.1)%
257.4
82.7
174.7
301.0
106.7
31.8
74.9
$
605.8
$
839.7
(27.9)% $
964.4
183.5
99.0
84.5
$
2.7
$
(3.1)
6.7
(9.8)
$
(0.2)
$
48.9
(49.1)
248.1
96.6
151.5
3.7
1.7
3.2
(1.5)
0.2
55.9
(55.7)
(26.0)%
2.5 %
(44.2)%
(27.0)% $
(282.4)%
109.4 %
553.3 %
(200.0)% $
(12.5)%
(11.8)%
304.8
98.4
206.4
43.0
(0.8)
6.4
(7.2)
0.2
76.9
(76.7)
25
18.1 %
(33.9)%
(31.5)%
5.6 %
(1.6)%
(2.5)%
0.2 %
30.6 %
18.0 %
18.2 %
17.7 %
(14.3)%
(33.2)%
(7.0)%
(45.6)%
(7.5)%
(8.1)%
16.7 %
(18.6)%
(12.9)%
(18.6)%
(1.8)%
(26.6)%
(91.4)%
312.5 %
(50.0)%
(79.2)%
— %
(27.3)%
(27.4)%
RESULTS OF OPERATIONS
FISCAL 2015 COMPARED WITH FISCAL 2014
Overview
As discussed below, the Company's reported net earnings for the year ended December 26, 2015 was impacted by
the decrease in net sales ($504.2 million), restructuring expense (pre-tax $39.9 million), and impairments of goodwill and
intangible assets (pre-tax $42.0 million).
On a consolidated basis, the decrease in net sales in 2015, as compared with 2014, reflected lower sales in all
reportable segments except for the Engineered Support Structures segment. The changes in net sales in 2015, as compared
with 2014, was due to the following factors:
Energy
&
Total
ESS
Mining Utility Coatings Irrigation Other
Sales - 2014
Volume
Pricing/mix
Acquisitions
Currency translation
Sales - 2015
22.4
(302.7)
$3,123.1 $ 735.0 $ 443.7 $ 822.6 $ 278.4 $
(49.7)
(6.9)
15.4
(69.3)
$2,618.9 $ 748.4 $ 333.2 $ 673.3 $ 255.5 $
(18.5)
12.5
2.2
(19.1)
(65.8)
(76.3)
—
(7.2)
(86.9)
73.6
(3.8)
44.9
(188.2)
(50.1)
839.7 $
(190.1)
(12.4)
11.1
(42.5)
605.8 $
3.7
(1.0)
—
—
—
2.7
Volume effects are estimated based on a physical production or sales measure. Since products we sell are not
uniform in nature, pricing and mix relate to a combination of changes in sales prices and the attributes of the product sold.
Accordingly, pricing and mix changes do not necessarily directly result in operating income changes.
Acquisitions included DS SM A/S (renamed Valmont SM), AgSense LLC, Shakespeare, and American Galvanizing.
We acquired Valmont SM in March 2014, AgSense in August 2014, Shakespeare in October 2014, and American Galvanizing
in October 2015. Shakespeare is reported in the Engineered Support Structures segment, Valmont SM is recorded in the
Energy & Mining segment, AgSense is reported in the Irrigation segment, and American Galvanizing is reported in the
Coatings segment. Average steel index prices for both hot rolled coil and plate decreased substantially in North America in
2015 as compared to 2014. Decreases in sales pricing and volumes offset the increase in gross profit realized from the lower
steel prices.
Restructuring Plan
In April 2015, our Board of Directors authorized a broad restructuring plan (the "Plan") including up to $60 million
of expenses to respond to the market environment in certain of our businesses. During 2015 we incurred approximately
$39.9 million of restructuring expense consisting of $21.7 million cost of goods sold and $18.2 million in selling, general,
and administrative expense. The decrease in gross profit in 2015 due to restructuring expense by segment is as follows:
Gross Profit
Total
ESS
Energy &
Mining
Utility
Coatings
Irrigation
Other
Corporate
Full year
$
(21.7) $
(4.1) $
(6.4) $
(4.5) $
(6.0) $
(0.7) $
— $
—
The decrease in 2015 operating income due to restructuring expense by segment is as follows:
Total
ESS
Energy &
Mining
Utility
Coatings
Irrigation
Other
Corporate
Full year
$
(39.9) $
(9.3) $
(7.1) $
(5.2) $
(6.6) $
(1.3) $
(4.0) $
(6.4)
26
Goodwill and Trade Name Impairment
The Company recognized a $16.2 million impairment of goodwill on the APAC Coatings reporting unit during fiscal
2015, which represented all of the remaining goodwill on this reporting unit. The goodwill impairment was a result of
difficulties in the Australian market over the last couple of years, including a general slowdown in manufacturing. The
Company also recorded a $1.1 million impairment of the Industrial Galvanizing trade name (in the Coatings segment) and a
$5.8 million impairment of the Webforge trade name (in the Energy and Mining segment) during 2015. In the fourth quarter
of 2015, the Company recorded a $18.8 million goodwill impairment of its Access Systems reporting unit due to continued
downward pressure on oil and natural gas prices which in turn reduces the prospects for new oil and gas exploration primarily
in Australia and Southeast Asia.
Currency Translation
In 2015, we realized a decrease in operating profit of $17.3 million, as compared with 2014, due to currency
translation effects. On average, the U.S. dollar strengthened against most currencies and in particular against the Australian
dollar, Brazilian Real, Euro, 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
ESS
Energy &
Mining
Utility
Coatings
Irrigation
Other
Corporate
Year-to-date
$
(17.3) $
(3.4) $
(5.5) $
0.2 $
(1.9) $
(7.6) $
— $
0.9
Gross Profit, SG&A, and Operating Income
The decrease in gross margin (gross profit as a percent of sales) in fiscal 2015, as compared with 2014, was due to a
combination of lower sales prices, unfavorable sales mix, restructuring charges, and reduced sales volumes in 2015. This was
partially offset by gross margin from acquisitions and a reduction of LIFO inventory layers in 2015.
Selling, general and administrative (SG&A) expense in 2015 increased from 2014, primarily due to the following
factors:
•
•
•
•
acquisition of Valmont SM, AgSense, Shakespeare, and American Galvanizing with expenses of $12.7 million;
increased doubtful account provisions of $11.1 million, principally in the irrigation segment;
expenses incurred related to the restructuring plan of $18.2 million; and
impairment of goodwill and trade names of $42.0 million.
The above increases in SG&A were partially offset by the following:
•
•
•
•
currency translation effects of $23.5 million due to the strengthening of the U.S. dollar primarily against the
Australian dollar, Brazilian Real, Euro, and South African Rand;
decreased employee incentive accruals and other compensation costs of $10.2 million, due to lower operating
results;
lower expenses associated with the Delta Pension Plan of $3.2 million, and;
reduced deferred compensation expenses of $2.6 million, which is offset by the same amount of other expense.
The decrease in operating income on a reportable segment basis in 2015, as compared to 2014, was due to reduced
operating performance in all segments. The decrease in operating income is primarily attributable to lower volumes and sales
prices, restructuring expenses, impairment charges, and currency translation effects.
Net Interest Expense and Debt
Net interest expense increased in 2015, as compared with 2014, primarily due to additional long-term debt borrowed
in the third quarter of 2014. In addition, interest income decreased due to less cash on hand for investment due to the share
buyback program.
27
The approximate $38.7 million in costs associated with refinancing of debt recognized in 2014 is due to the
Company's repurchasing through partial tender of $199.8 million in aggregate principal amount of a portion of the 6.625%
senior unsecured notes due 2020. This expense was comprised of the following:
• Cash prepayment expenses of approximately $41.2 million; less
• Recognition of $4.4 million of the proportionate unamortized premium originally recorded upon the issuance of
the 2020 notes; plus
• Recognition of approximately $2.0 million of expense comprised of the proportionate amount of the write-offs of
unamortized loss on cash flow hedge and deferred financing costs.
Other Expense
The decrease in other expense in 2015, as compared with 2014, was due to the difference in investment income from
the Company's shares of Delta EMD. In 2014, we recorded a non-cash mark to market loss of $3.8 million due to the
decrease in fair value of the shares. In 2015, we received a $5.0 million special dividend that was fully offset by a non-cash
mark to market loss; the EMD investment then appreciated approximately $0.5 million in 2015. An additional contributing
factor was more favorable foreign currency transaction gains/losses due to currency exchange rate changes. These
improvements were partially offset by reduced market performance of deferred compensation assets of $2.6 million.
Income Tax Expense
Our effective income tax rate in fiscal 2015 of 51.0%, respectively, was higher when compared with the same
periods in fiscal 2014 of 33.4%. The increase primarily relates to the APAC Coatings and Access Systems goodwill
impairments recorded in 2015 that are not deductible for tax purposes. In addition, U.K. corporate tax rates were collectively
reduced from 20% to 18%. Accordingly, we reduced the value of our deferred tax assets associated with net operating loss
carryforwards and certain timing differences by $7.1 million, with a corresponding increase in income tax expense.
Earnings attributable to noncontrolling interest was lower in 2015, as compared with 2014, due to the write-off of
the remaining interest in a joint venture.
Cash Flows from Operations
Our cash flows provided by operations were approximately $272.3 million in 2015, as compared with
$174.1 million provided by operations in 2014. The increase in operating cash flow in 2015 was the result of improved net
working capital, partially offset by lower net earnings, compared with 2014.
Engineered Support Structures (ESS) segment
The increase in net sales in 2015 as compared with 2014 was primarily due to the acquisition of Shakespeare in
October 2014 and improved volumes in certain regions. The increases were partially offset by unfavorable currency
translation effects.
Global lighting, traffic, and roadway product sales in 2015 were lower compared to 2014. Sales volumes in the U.S.
were higher in the commercial steel and aluminum markets and lower in the transportation markets. Sales volumes in
Canada decreased in 2015 as compared to 2014, due to unfavorable currency impacts that were partially offset by slightly
higher volumes. Sales in Europe were lower in 2015 compared to 2014, due to unfavorable currency translation effects that
were partially offset by higher volumes relating to a large project in the Middle East that concluded in the second quarter.
The domestic markets in general remain subdued in Europe. In the Asia Pacific region, sales were slightly lower in 2015 as
compared to 2014, due to lower investment activity in both China and Australia.
Highway safety product sales decreased in 2015 as compared to 2014, due to unfavorable foreign currency
translation. An increase in sales volume and price due to improved highway project activity in Australia and New Zealand
offset some of the unfavorable foreign currency translation.
Communication product line sales were higher in 2015, as compared with 2014. North America communication
structure sales decreased, primarily due to one customer who significantly reduced its 4G wireless network build out in 2015
28
compared with 2014. Communication component sales were slightly higher in 2015 due to continued expansion of the
customer base. In China, sales of wireless communication structures in 2015 increased over the same period in 2014 as the
investment levels by the major wireless carriers remained strong due to the 4G network build out. In Australia, sales for
wireless communication structures were down for the year but started to improve in the fourth quarter as the anticipated
national broadband network build out began.
The increase in SG&A spending in 2015 was due to the Shakespeare acquisition totaling $7.0 million and
restructuring charges of $5.2 million. These increases were partially offset by currency translation effects. Operating income
for the segment in 2015 was lower, as compared with to 2014, due to restructuring charges of $9.3 million and unfavorable
currency translation effects of $3.4 million. Due to the rapid decreases in steel prices during 2015, our North American
lighting and traffic businesses in general were able to hold on to higher sales prices which improved gross margin and
partially offset the lower operating income. In addition, lower steel prices led to reduced LIFO inventory reserves and higher
profits that were offset by revaluing the remaining FIFO inventory. Lastly, the acquisition of Shakespeare contributed nine
additional months in 2015 (as compared to 2014) accounting for additional operating income of approximately $4.0 million.
Energy & Mining (E&M) segment
The decrease in net sales in 2015 as compared with 2014 was primarily due to unfavorable currency translation
effects and reduced volumes, offset partially by two additional months of business in 2015 for Valmont SM.
Access systems product line sales decreased in 2015 as compared with 2014, primarily due to the negative impact of
currency translation effects and lower volumes. The volume decrease was primarily related to the slowdown in mining sector
investment in Australia, weaker market conditions in China, and fewer oil and gas related construction projects.
Offshore structures sales were down $43.4 million in 2015, as compared to 2014. The decrease is impacted by
unfavorable currency translation effects and reduced volumes partially offset by two additional months of sales in 2015. A
delay in wind energy product introduction by our customers has resulted in some projects being delayed. An additional factor
contributing to the sales decrease is the continuation of low oil prices that has resulted in lower sales for our customers in the
exploration industry.
Grinding media sales were down in 2015 as compared with 2014, due to the negative impact of currency translation
effects. Volumes were relatively flat year-over-year.
Operating income for the segment in 2015 was lower, as compared with 2014, due to goodwill and trade name
impairments totaling $24.6 million, restructuring charges of $7.1 million, and unfavorable currency translation effects of $5.5
million. The remainder of the decrease can be attributed to the reversal of the Locker earn-out liability in 2014 of
approximately $4.0 million, and lower volumes and sales mix in the offshore structures and access systems businesses.
SG&A spending increased in 2015 as a result of the goodwill and trade name impairments, restructuring costs, and two
additional months of Valmont SM expenses being partially offset by currency translation effects.
Utility Support Structures (Utility) segment
In the Utility segment, sales decreased in 2015 as compared with 2014, due to lower sales volume, a decrease in
average selling prices, most notably for our steel products, and an unfavorable sales mix. Our mix of revenue from very large
transmission projects in 2015 was unfavorable to 2014. A backlog including some very large transmission projects at year-
end 2013 provided for the more favorable mix of large transmission projects revenue in first quarter of 2014. Declining price
of steel during 2015 and a competitive pricing environment also contributed to lower average selling prices in 2015 compared
to 2014. In North America, sales volumes in tons for both steel and concrete utility structures were down in 2015, as
compared with 2014. The pricing environment in North America continues to be very competitive. In 2015 as compared to
2014, international utility structures sales decreased due to lower volumes in export markets and unfavorable currency
translation effects.
SG&A expense increased slightly in 2015, as compared with 2014, primarily due to restructuring costs. Operating
income in 2015, as compared with 2014, decreased due to lower volumes, reduced sales margins, restructuring costs, and
reduced leverage of fixed costs. In addition, the segment recorded a $17.0 million reserve in the fourth quarter of 2015 for a
commercial settlement with a large customer that requires ongoing quality monitoring. While we initiated a number of
actions to improve our cost structure in this segment, including certain restructuring activities, the full effect will be realized
as these initiatives become fully implemented in 2016.
29
Coatings segment
Coatings segment sales in North America decreased in 2015, as compared with 2014, due to lower sales volumes
and currency translation effects related to the strengthening of the U.S. dollar against the Canadian dollar. Intercompany
sales volumes in North America were down as well. Those decreases were partially offset by higher average selling prices in
2015 as compared to 2014. Coatings sales in Asia Pacific decreased primarily due to currency translation effects related to
the strengthening of the U.S. dollar against the Australian dollar. In addition, continued weak demand in Australia led to the
lower volumes that were partially offset by price increases to recover higher costs of zinc. Sales in Asia were down slightly
in 2015, due to currency translation effects.
SG&A expense increased in 2015, as compared to the same periods in 2014, primarily due to recording an
impairment charge on the goodwill and trade name associated with the APAC Coatings reporting unit totaling $17.3 million.
Operating income was lower in 2015, as compared with 2014, due to restructuring costs primarily in Australia, impairment
charges, lower sales volumes, unfavorable currency impacts, and reduced leverage of fixed costs in both Australia and North
America. Additionally, $3.0 million business interruption insurance proceeds were received in 2014 related to a 2013 fire at
one of our North American facilities.
Irrigation segment
The decrease in Irrigation segment net sales in 2015, as compared with 2014, was mainly due to sales volume
decreases in both North American and International markets. In calendar 2015, net farm income in the United States is
estimated by the USDA to have decreased 38% from the levels of 2014, due in part to lower market prices for corn and
soybeans. We believe this reduction contributed to lower demand for irrigation machines in North America in 2015, as
compared with 2014. In addition, sales volume from storm damage in the United States was exceptionally high in 2014. For
the tubing business, sales volumes were down due to lower price of steel and lower volumes in 2015. In international
markets, Irrigation sales decreased in 2015, as compared with 2014, primarily due to reduced volumes in Brazil, Eastern
Europe, Australia, and the Middle East and unfavorable currency translation effects in Brazil and South Africa.
SG&A was higher in 2015, as compared with 2014. This was due to increased provisions for uncollected
international receivables of approximately $8.0 million, the majority of which was a specific allowance recorded for
delinquent receivables with a Chinese municipal entity. AgSense which operated for seven additional months in 2015,
provided additional SG&A totaling $3.1 million. These increases were partially offset by currency translation reductions of
$3.6 million, lower incentives and reduced discretionary spending. Operating income for the segment declined in 2015 over
2014, due to sales volume decreases and associated operating deleverage of fixed operating costs, unfavorable currency
impacts, and increased SG&A expense. These reductions were partially offset by the operating income of AgSense that was
acquired in August 2014, lower average steel purchase prices, and reduced factory spending to adjust to the lower sales
volumes.
Other
This unit includes industrial fasteners operations and a product under development that ended in 2015. The decrease
in sales in 2015, as compared with 2014, was due primarily to lower volumes. Operating income in 2015 was lower than the
same periods in 2014, due primarily to reduced sales volumes and approximately $4 million of restructuring costs.
Net corporate expense
Net corporate expense in 2015 decreased over the same periods in fiscal 2014. These decreases were mainly due to
the following, which were offset partially by restructuring expenses of $6.4 million:
•
•
•
decreased employee incentive accruals of $8.7 million, due to reduced operating results;
lower expenses associated with the Delta Pension Plan of $3.3 million; and
reduced deferred compensation expenses of $2.6 million, which was offset by the same amount of other
expense.
30
FISCAL 2014 COMPARED WITH FISCAL 2013
Overview
On a consolidated basis, the decrease in net sales in 2014, as compared with 2013, reflected lower sales in all
reportable segments and the "Other" category, except for Engineered Support Structures and Energy and Mining. The change
in net sales in 2014, as compared with 2013, was due to the following factors:
Total
ESS
Energy &
Mining
Utility
Coatings
Irrigation
Other
Sales - 2013
Volume
Pricing/mix
Acquisitions/
Divestiture
Currency translation
Sales - 2014
$
$
3,304.2 $
(198.1)
(70.2)
136.8
(49.6)
3,123.1 $
696.3 $
27.4
(3.2)
21.5
(7.0)
735.0 $
339.8 $
(27.3)
0.4
150.9
(20.1)
443.7 $
959.7 $
(63.4)
(71.8)
—
(1.9)
822.6 $
301.0 $
(21.6)
8.1
—
(9.1)
278.4 $
964.4 $
(112.4)
(3.7)
2.9
(11.5)
839.7 $
43.0
(0.8)
—
(38.5)
—
3.7
Volume effects are estimated based on a physical production or sales measure. Since products we sell are not
uniform in nature, pricing and mix relate to a combination of changes in sales prices and the attributes of the product sold.
Accordingly, pricing and mix changes do not necessarily directly result in operating income changes.
Acquisitions included Locker Group Holdings (“Locker”), Armorflex International Ltd. ("Armorflex"), DS SM A/S
("Valmont SM"), AgSense LLC, and Shakespeare Composite Structures ("Shakespeare"). We acquired Locker in February
2013, Armorflex in December 2013, Valmont SM in March 2014, AgSense in August 2014, and Shakespeare in October
2014. Armorflex and Shakespeare are reported in the Engineered Support Structures segment, Locker and Valmont SM are
reported in the Energy and Mining segment, and AgSense is reported in the Irrigation segment. In the "Other" category, the
sales reduction of $38.5 million in 2014 reflects the deconsolidation of Delta EMD Pty. Ltd. ("EMD") in December 2013,
following the reduction of our ownership in the operation to below 50%.
The decrease in gross margin (gross profit as a percent of sales) in 2014, as compared with 2013, was due to a
combination of lower sales prices and unfavorable sales mix, reduced sales volumes, currency translation, and slightly higher
raw material costs in 2014, as compared with 2013. This was partially offset by the $12.2 million fixed asset impairment loss
in our electrolytic manganese dioxide (EMD) operation in 2013, which was recorded as Product Cost of Sales.
In 2014, we realized a decrease in operating profit, as compared with fiscal 2013, due to currency translation
effects. On average, the U.S. dollar strengthened in particular against the Australian dollar, Brazilian Real, Euro, 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
ESS
Energy &
Mining
Utility
Coatings
Irrigation
Other
Full year
$
(6.2) $
(0.5) $
(2.7) $
(0.4) $
(1.1) $
(2.0) $
Corporate
0.5
— $
Selling, general and administrative (SG&A) spending in 2014 decreased from 2013, mainly due to the following
factors:
•
•
•
decreased employee incentive accruals of $37.4 million, due to lower operating results and decreased share
price in valuing long-term incentive plans;
decreased doubtful account provisions of $3.7 million, principally in the Irrigation segment;
lower expenses associated with the Delta Pension Plan of $3.9 million; and
31
• EMD was deconsolidated in December 2013, which resulted in reduced expenses of $4.9 million.
The above reductions in SG&A were partially offset by the following:
•
•
•
the sale of one of our galvanizing facilities in Australia resulted in a 2013 gain of $4.6 million, which was
reported as a reduction of SG&A expense;
higher information technology and product development costs of approximately $5.2 million, and;
the acquisition of Shakespeare in October 2014, AgSense in August 2014, Valmont SM in March 2014, and
Armorflex in December 2013 included combined SG&A expenses in 2014 of $16.2 million.
The decrease in operating income on a reportable segment basis in 2014, as compared to 2013, was due to reduced
operating performance in the Utility, Irrigation, and Coatings segments. The ESS segment showed improved operating
performance in 2014 compared to 2013, primarily due to the acquisitions of Valmont SM, Armorflex, and Shakespeare. The
"Other" category reported reduced operating performance in 2014 compared to 2013, mainly due to reduced profitability of
grinding media business.
Net interest expense increased in 2014, as compared with 2013, due to additional long-term debt borrowed in the
third quarter of 2014.
The approximate $38.7 million in costs associated with refinancing of debt is due to the Company's repurchase
through partial tender of $199.8 million in aggregate principal amount of a portion of the 6.625% senior unsecured notes due
2020. This expense was comprised of the following:
• Cash prepayment expenses of approximately $41.2 million; less
• Recognition of $4.4 million of the proportionate unamortized premium originally recorded upon the issuance of
the 2020 notes; plus
• Recognition of approximately $2.0 million of expense comprised of the proportionate amount of the write-offs
of unamortized loss on cash flow hedge and deferred financing costs.
The increase in other expense in 2014, as compared with 2013, was mainly attributable to recording the change
(loss) in fair value of the Company's investment in EMD of $3.8 million. $2.0 million in lower appreciation of the deferred
compensation assets in 2014 as compared to 2013 also contributed to the higher other expense. The remaining increase can
be attributed to higher currency translation losses in 2014.
Our effective tax rate in 2014 was lower than fiscal 2013 due to an increased mix of foreign sourced income versus
U.S. based taxable income between the years. Foreign sourced income before income taxes as a percent of the total was
approximately 40.5% in 2014 compared to 24.7% in 2013. As these foreign jurisdictions have lower statutory income tax
rates, our overall effective income tax rate decreased. In addition, we recorded a tax benefit of $3.9 million from a change in
management’s assertions regarding foreign investment opportunities and restructuring which took place in 2014. U.S. state
income taxes also decreased in 2014 compared to 2013 as a result of lower U.S. based taxable income.
Earnings in non-consolidated subsidiaries were lower in 2014, as compared with 2013, with a small amount of
activity in 2014. In February 2013, the Company sold its 49% ownership interest in a manganese materials operation. There
was no significant gain or loss on the sale.
Our cash flows provided by operations were approximately $174.1 million in 2014, as compared with
$396.4 million provided by operations in 2013. The decrease in operating cash flow in 2014 was the result of the cash
prepayment expenses related to the refinancing of debt, decreased net earnings, and higher net working capital, as compared
with 2013.
Engineered Support Structures (ESS) segment
The increase in net sales in 2014 as compared with 2013 was mainly due to the acquisition of Shakespeare in
October 2014 and Armorflex in December 2013 ($21.5 million) and volume increases.
Global lighting, traffic, and roadway product sales in 2014 were relatively flat compared to 2013. In 2014, sales
volumes in the U.S. were higher in the commercial markets as construction and installation activity continue to show slight
improvement over 2013. However, the transportation market continues to be challenging, due in part to the lack of long-term
32
U.S. federal highway funding legislation that is affecting growth. Sales volumes in Canada were down in 2014 as compared
to 2013 due to project delays, lower government spending, and increased competition. Sales in Europe were lower in 2014
compared to 2013. Decreased volumes in France were offset to an extent by volume increases in the U.K. In the Asia Pacific
region, sales were slightly higher in 2014 compared to 2013 due to volume growth in Asia, partially offset by a decrease in
Australia due to softer market conditions. Highway safety product sales improved in 2014 compared to 2013, due to the
acquisition of Armorflex in December 2013 and modestly improved market conditions in Australia and New Zealand due to
more highway construction projects this year. This improvement is offset somewhat by unfavorable year-to-date currency
translation effects of $3.8 million.
Communication product line sales were higher in fiscal 2014, as compared to 2013, by $21.7 million. An increase
in North America sales was mainly attributable to higher wireless communication structures sales due to the continued build
out of wireless networks, partially offset by decreased communication component sales resulting from a large customer
temporarily curtailing spending. In China, sales of wireless communication structures in 2014 were higher than 2013 due to
higher investment levels by the major wireless carriers and improved market share.
The decrease in SG&A in 2014 was due to lower incentive costs of $5.2 million due to reduced profitability and
currency translation effects of $1.1 million. This was offset partially by the acquisition of Shakespeare and Armorflex
totaling $3.2 million.
Operating income for the segment in 2014 was flat, as compared with 2013, with a slightly unfavorable sales mix
and currency translation effects offset by operating income generated from the acquisitions of Shakespeare and Armorflex
($2.8 million).
Energy and Mining (E&M) segment
The increase in net sales in 2014 as compared with 2013 was mainly due to one extra month of operations for
Locker in 2014 and the acquisition of Valmont SM in March 2014 ($150.9 million). This increase was partially offset by
unfavorable currency translation effects and reduced volumes in 2014 as compared to 2013.
Access systems product line sales decreased in 2014, as compared with 2013, primarily due to the negative impact
of currency translation effects of $11.0 million and lower volumes. The volume decrease was primarily related to the
slowdown in mining sector investment in Australia and weaker market conditions in China. The volume decrease was
partially offset by the full 2014 effect of the Locker acquisition (approximately $4.5 million) that was acquired in February
2013 and better pricing in Asia. The decrease in grinding media sales in 2014 as compared to 2013, was due to reduced
volumes, sales mix, and unfavorable currency translation effects.
The increase in SG&A in 2014 was due to expenses incurred by Valmont SM of $12.2 million, which was partially
offset by currency translation effects. The increase in operating income can be attributed primarily to the acquisition of
Valmont SM of $14.3 million and the reversal of the Locker earn-out liability in 2014 of approximately $4.0 million. The
earn-out reversal was recorded against Product Cost of Sales in the Consolidated Statements of Earnings. The increases were
partially offset by unfavorable currency translation of $2.7 million and reduced volumes in the access systems business and
lower pricing and sales mix for the grinding media business.
Utility Support Structures (Utility) segment
In the Utility segment, the sales decrease in 2014, as compared with 2013, was due to lower sales volume and a
decline in the percentage of sales from very large transmission projects which changed the mix of utility structure sales
between the reporting periods. In North America, sales volumes in tons for steel utility structures were down in 2014, as
compared with 2013, partially offset by increases in sales volume for concrete structures. Sales decreased in the steel utility
structures business in 2014 over 2013 by $139.1 million, while sales increased slightly over the same time period for concrete
structures by $2.0 million. We believe industry supply and demand were more aligned in 2014, as compared with 2013, as
we and our competitors increased production capacity to meet demand. We believe this has resulted in increased price
competition for certain portions of the market where orders are awarded based on competitive bidding. In 2014, as compared
to 2013, international utility structures sales decreased due to lower sales volumes and currency translation effects.
SG&A expense decreased approximately $4.6 million in 2014, as compared with 2013, primarily due to lower
incentive compensation tied to lower operating income offset by higher employee compensation due to increased headcount
33
to support capacity expansion to meet projected long-term growth. Operating income in 2014, as compared with 2013,
decreased due to lower sales, reduced leverage of fixed costs, and increased depreciation expense on plant capacity added in
late 2013.
Coatings segment
Coatings segment sales decreased in 2014, as compared with 2013, primarily due to lower sales volumes in the Asia
Pacific region and currency translation effects related to the strengthening of the U.S. dollar against the Australian dollar.
More specifically, weak demand in Australia led to decreases in volumes offset somewhat by improved sales volumes in
Asia. Sales in North America were slightly down in 2014 compared to 2013, primarily due to lower volumes and currency
translation effects that were partially offset by an increase in sales prices due to higher zinc costs.
Operating income was also lower in 2014, as compared with 2013, due to the lower sales volumes, unfavorable
currency impacts, and reduced leverage of fixed costs in both Australia and North America. The decrease in segment
operating income in 2014 compared to 2013 was also due to the $4.6 million gain recognized on the sale of an Australian
galvanizing operation in the second quarter of fiscal 2013. The decrease in segment operating income in 2014, as compared
to the same periods in 2013, was partially offset by approximately $3.0 million of business interruption insurance proceeds
received in 2014 related to a 2013 fire at one of our North American facilities. These proceeds were recorded against Service
Cost of Sales in the Consolidated Statement of Earnings.
Irrigation segment
The decrease in Irrigation segment net sales in 2014, as compared with 2013, was mainly due to sales volume
decreases in the North American market. The decrease in North America was offset to an extent by increased sales volumes
in international markets. In North America, lower net farm income in 2014, as compared with 2013, and much lower sales
backlogs at the beginning of the year resulted in lower sales of irrigation equipment in 2014, as compared with 2013. In
fiscal 2014, net farm income in the United States is estimated to have decreased 25% from the record levels of 2013, due in
part to lower market prices for corn and soybeans. We believe this reduction contributed to lower demand for irrigation
machines in North America in 2014, as compared with 2013. Tubing sales decreased in 2014 as compared to 2013 due to
lower custom and internal sales volumes. In international markets, sales improved in 2014, as compared with 2013, mainly
due to increased activity in Brazil, Middle East, South Africa, and Australia. These increases were offset somewhat by lower
sales in China and eastern Europe, due to certain economic and political uncertainties in these regions.
Operating income for the segment declined in 2014 compared to 2013, due to the sales volume decrease and
associated operating deleverage of fixed operating costs. The primary reasons for the slight decrease in SG&A expense in
2014, as compared with 2013, related to reduced incentives of $6.0 million and lower provisions for international receivables
of $2.8 million, partially offset by increased product development spending, the acquisition of AgSense in August 2014, and
increased employee headcount in the international business.
Other
This unit includes the industrial fasteners operations. The decrease in sales in 2014, as compared with 2013, was
mainly due lower sales volumes due to the deconsolidation of EMD in December 2013 ($38.5 million). Operating income in
2014 was lower than 2013 due primarily to the deconsolidation of EMD in 2013.
Net corporate expense
Net corporate expense in 2014 decreased over 2013. These decreases were mainly due to:
•
•
•
lower employee incentives associated with reduced net earnings ($17.1 million);
decreased expenses associated with the Delta Pension Plan ($3.9 million); and
decreased deferred compensation plan expense ($2.0 million). The deferred compensation expense recorded within
corporate expense has a corresponding offset by the same amount in other income (expense).
34
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Working Capital and Operating Cash Flows-Net working capital was $860.3 at December 26, 2015, as compared
with $995.7 million at December 27, 2014. The decrease in net working capital in 2015 mainly resulted from decreased
accounts receivable due to lower sales and reduced current deferred income tax assets due to adopting ASU 2015-17 that
reclassified $31,967 to non-current assets and liabilities. Operating cash flow was $272.3 million in 2015, as compared with
$174.1 million in 2014 and $396.4 million in 2013. The increase in operating cash flow in 2015, as compared with 2014,
mainly was the result of lower current accounts receivable and improved working capital overall, partially offset by lower net
earnings. The decrease in operating cash flow in 2014, as compared with fiscal 2013, mainly was the result of less favorable
working capital and lower net earnings.
Investing Cash Flows-Capital spending in fiscal 2015 was $45.5 million, as compared with $73.0 million in fiscal
2014 and $106.8 million in fiscal 2013. Capital spending projects in 2015 included certain investments in machinery and
equipment across all businesses. We expect our capital spending for the 2016 fiscal year to be approximately $75 million. In
2013, investing cash flows included proceeds from asset sales of $37.6 million, principally consisting of $29.2 million
received from the sale of our 49% owned non-consolidated subsidiary in South Africa and $8.2 million received from the sale
of the Western Australia galvanizing operation. Investing cash flows included $12.8 million paid for American Galvanizing
in 2015, $185.7 million paid for Valmont SM, AgSense and Shakespeare Composite acquisitions in 2014, and $63.2 million
paid for the Locker and Armorflex acquisitions in 2013.
Financing Cash Flows-Our total
debt decreased to $766.0 million at December 26, 2015, from
$781.8 million at December 27, 2014. Interest-bearing debt increased in 2014 over 2013 as a result of the issuance of $500
million face value of long-term unsecured notes and the repurchase by partial tender of $199.8 million of the 2020 senior
notes. Financing cash flows in 2013 included approximately $9.3 million to acquire the remaining 40% of the shares of
Valley Irrigation South Africa Pty. Ltd. and $11.6 million in cash held by EMD that was removed from our consolidated
balance sheet upon deconsolidation. During 2015 and 2014, we acquired approximately 1.4 million shares and 2.7 million
shares for approximately $169.0 million and $395.0 million, respectively, under the share repurchase program.
Capital Allocation Philosophy
We have historically funded our growth, capital spending and acquisitions through a combination of operating cash
flows and debt financing. On May 13, 2014, our Board of Directors approved and publicly announced a capital allocation
philosophy with the following priorities for Valmont's capital:
• working capital and capital expenditure investments necessary for future sales growth;
•
•
•
dividends on common stock in the range of 15% of the prior year's fully diluted net earnings;
acquisitions;
return of capital to shareholders through share repurchases.
We also announced our intention to manage our capital structure to maintain our investment grade debt rating. Our
most recent ratings were Baa3 by Moody's Investors Services, Inc. and BBB+ by Standard and Poor's Rating Services. We
would be willing to allow our debt rating to fall to Baa3 or BBB- to finance a special acquisition or other opportunity.
Otherwise, we expect to maintain a ratio of debt to invested capital which will support our current investment grade debt
rating.
The Board of Directors in May 2014 authorized the purchase of up to $500 million of the Company's outstanding
common stock from time to time over twelve months at prevailing market prices, through open market or privately-
negotiated transactions. In February 2015, the Board of Directors authorized an additional $250 million of share purchases,
without an expiration date. The purchases will be funded from available working capital and short-term borrowings and will
be made subject to market and economic conditions. We are not obligated to make any repurchases and may discontinue the
program at any time. As of December 26, 2015, we have acquired approximately 4.1 million shares for approximately $564
million under these share repurchase programs. As of February 17, 2016, the date as of which we report on the cover of this
35
form 10-K the number of outstanding shares of our common stock, we have acquired a total of 4,216,346 shares for $571
million under the share repurchase program.
Sources of Financing
Our debt financing at December 26, 2015 consisted primarily of
debt. During 2014, the Company issued
$500 million of new notes and repurchased by partial tender $199.8 million in aggregate principal amount of the 2020 notes.
Our
debt as of December 26, 2015, principally consists of:
•
•
•
$250.2 million face value ($254.7 million carrying value) of senior unsecured notes that bear interest at 6.625%
per annum and are due in April 2020.
$250 million face value ($248.9 million carrying value) of senior unsecured notes that bear interest at 5.00% per
annum and are due in October 2044.
$250 million face value ($246.7 million carrying value) of senior unsecured notes that bear interest at 5.25% per
annum and are due in October 2054.
• We are allowed to repurchase the notes subject to the payment of a make-whole premium. All three tranches of
these notes are guaranteed by certain of our subsidiaries.
On October 17, 2014, we entered into a First Amendment to our Credit Agreement with JPMorgan Chase Bank, as
Administrative Agent, and the other lenders party thereto, dated as of August 15, 2012, which increased the committed
unsecured revolving credit facility from $400 million to $600 million and extends the maturity date from August 15, 2017 to
October 17, 2019. Under the amended credit agreement, up to $25 million is available for swingline loans, up to $75 million
is available for letters of credit and up to $200 million is available for borrowings in foreign currencies. We may increase the
revolving credit facility by up to an additional $200 million at any time, subject to participating banks increasing the amount
of their lending commitments. The interest rate on our borrowings will be, at our option, either:
(a) LIBOR (based on a 1, 2, 3 or 6 month interest period, as selected by us) plus 100 to 162.5 basis points,
depending on the credit rating of our senior debt published by Standard & Poor's Rating Services and
Moody's Investors Service, Inc.; or
(b) the higher of
•
•
the prime lending rate,
the Federal Funds rate plus 50 basis points, and
• LIBOR (based on a 1 month interest period) plus 100 basis points (inclusive of facility fees),
Plus, in each case, 0 to 62.5 basis points, depending on the credit rating of our senior debt published by
Standard & Poor's Rating Services and Moody's Investors Service, Inc.
A commitment fee is also required under the revolving credit facility which accrues at 10 to 27.5 basis points,
depending on the credit rating of our senior debt published by Standard and Poor's Rating Services and Moody's Investor
Services, Inc., on the average daily unused portion of the commitment under the revolving credit facility.
At December 26, 2015, we had no outstanding borrowings under the revolving credit facility. The revolving credit
facility has a maturity date of August 17, 2019 and contains certain financial covenants that may limit our additional
borrowing capability under the agreement. At December 26, 2015, we had the ability to borrow $581.7 million under this
facility, after consideration of standby letters of credit of $18.3 million associated with certain insurance obligations. We also
bank lines of credit totaling $103.5 million; $103.3 million of which was unused at December 26,
maintain certain
2015.
36
Our senior unsecured notes and revolving credit agreement each contain cross-default provisions which permit the
acceleration of our indebtedness to them if we default on other indebtedness that results in, or permits, the acceleration of
such other indebtedness.
These debt agreements contain covenants that require us to maintain certain coverage ratios and may limit us with
respect to certain business activities, including capital expenditures. These debt agreements allow us to add estimated
EBITDA from acquired businesses for periods we did not own the acquired businesses. The debt agreements also provide for
an adjustment to EBITDA, subject to certain specified limitations, for non-cash charges or gains that are non-recurring in
nature. For 2015, our covenant calculations do not include any estimated EBITDA from acquired businesses.
Our key debt covenants are as follows:
Interest-bearing debt is not to exceed 3.50x Adjusted EBITDA of the prior four quarters; and
•
• Adjusted EBITDA over the prior four quarters must be at least 2.50x our interest expense over the same
period.
At December 26, 2015, we were in compliance with all covenants related to these debt agreements. The key
covenant calculations at December 26, 2015 were as follows:
Interest-bearing debt
Adjusted EBITDA-last four quarters
Leverage ratio
Adjusted EBITDA-last four quarters
Interest expense-last four quarters
Interest earned ratio
$ 766,017
285,115
2.69
285,115
44,621
6.39
The calculation of Adjusted EBITDA-last four quarters is presented under the column for fiscal 2015 in footnote (b)
to the table "Selected Five-Year Data" in Item 6 - Selected Financial Data.
Our businesses are cyclical, but we have diversity in our markets, from a product, customer and a geographical
standpoint. We have demonstrated the ability to effectively manage through business cycles and maintain liquidity. We have
consistently generated operating cash flows in excess of our capital expenditures. Based on our available credit facilities,
recent issuance of senior unsecured notes and our history of positive operational cash flows, we believe that we have
adequate liquidity to meet our needs for fiscal 2015 and beyond.
We have not made any provision for U.S. income taxes in our financial statements on approximately $415.4 million
of undistributed earnings of our foreign subsidiaries, as we intend to reinvest those earnings. Of our cash balances of $349.1
million at December 26, 2015, $283.1 million is held in entities outside the United States with approximately $85.4 million
specifically held within consolidated Delta Ltd., a wholly-owned subsidiary of the Company. Delta Ltd. sponsors a defined
benefit pension plan and therefore, the Company is allowed to dividend out Delta Ltd.'s available cash only as long as that
dividend does not negatively impact Delta Ltd.'s ability to meet its annual contribution requirements of the pension plan. We
believe that the cash payments Delta Ltd. receives from its intercompany notes will provide sufficient funds to meet the
pension funding requirements but additional analysis on pension funding requirements would have to be performed prior to
the repatriation of the $85.4 million of Delta Ltd.'s cash balances.
If we need to repatriate foreign cash balances to the United States to meet our cash needs, income taxes would be
paid to the extent that those cash repatriations were undistributed earnings of our foreign subsidiaries. The income taxes that
we would pay if cash were repatriated depends on the amounts to be repatriated and from which country. If we repatriated all
of our cash outside the United States to the United States, depending on the timing and nature of such repatriations, we
estimate that we would pay in the range of $22.8 million to $99.1 million in income taxes to repatriate that cash.
37
FINANCIAL OBLIGATIONS AND FINANCIAL COMMITMENTS
We have future financial obligations related to (1) payment of principal and interest on
debt,
(2) Delta pension plan contributions, (3) operating leases and (4) purchase obligations. These obligations at December 26,
2015 were as follows (in millions of dollars):
Contractual Obligations
Total
2016
Interest
Delta pension plan contributions
Operating leases
Acquisition earn-out payments
Unconditional purchase commitments
Total contractual cash obligations
$
765.0
951.2
165.6
101.6
3.6
48.8
$ 2,035.8
$
$
1.1
42.5
16.6
20.8
—
48.8
129.8
2017-2018
1.8
$
85.0
33.1
31.4
3.6
—
154.9
$
2019-2020
251.7
$
82.3
33.1
17.4
—
—
384.5
$
After 2020
510.4
$
741.4
82.8
32.0
—
—
$ 1,366.6
debt mainly consisted of $750.2 million principal amount of senior unsecured notes. At December 26,
2015, we had no outstanding borrowings under our bank revolving credit agreement. Obligations under these agreements
with debt covenants. The Delta pension plan contributions are related to the
may be accelerated in event of
current cash funding commitments to the plan with the plan's trustees. Operating leases relate mainly to various production
and office facilities and are in the normal course of business.
Acquisition earn-out payments relate to anticipated payments to the prior owners of Pure Metal Galvanizing (PMG),
as a portion of the consideration paid for this business is contingent in nature. The earn-out arrangement generally relates to
the meeting of certain profitability targets. The target period for PMG ends in December 2017.
Unconditional purchase commitments relate to purchase orders for zinc, aluminum and steel, all of which we plan to
use in 2016, and certain capital investments planned for 2016. We believe the quantities under contract are reasonable in light
of normal fluctuations in business levels and we expect to use the commodities under contract during the contract period.
At December 26, 2015, we had approximately $42.6 million of various
liabilities related to certain
income tax, environmental and other matters. These items are not scheduled above because we are unable to make a
reasonably reliable estimate as to the timing of any potential payments.
OFF BALANCE SHEET ARRANGEMENTS
We have operating lease obligations to unaffiliated parties on leases of certain production and office facilities and
equipment. These leases are in the normal course of business and generally contain no substantial obligations for us at the end
of the lease contracts. We also maintain standby letters of credit for contract performance on certain sales contracts.
MARKET RISK
Changes in Prices
Certain key materials we use are commodities traded in worldwide markets and are subject to fluctuations in price.
The most significant materials are steel, aluminum, zinc and natural gas. Over the last several years, prices for these
commodities have been volatile. The volatility in these prices was due to such factors as fluctuations in supply and demand
conditions, government tariffs and the costs of
segment where the cost of steel has been approximately 50% of the net sales, on average. Assuming a similar sales mix, a
hypothetical 20% change in the price of steel would have affected our net sales from our utility support structures segment by
approximately $58 million for the year ended December 26, 2015.
inputs. Steel is most significant for our utility support structures
38
We have also experienced volatility in natural gas prices in the past several years. Our main strategies in managing
these risks are a combination of fixed price purchase contracts with our vendors to reduce the volatility in our purchase prices
and sales price increases where possible. We use natural gas swap contracts on a limited basis to mitigate the impact of rising
gas prices on our operating income.
Risk Management
Market Risk—The principal market risks affecting us are exposure to interest rates, foreign currency exchange rates
and natural gas. We normally do not use derivative financial instruments to hedge these exposures (except as described
below), nor do we use derivatives for trading purposes.
Interest Rates—Our
debt at December 26, 2015 was mostly fixed rate debt. In the third quarter of
2014, the Company executed a derivative contract to lock in the treasury rate on $125,000 of the $250,000 aggregate
principal amount of the Company's 5.00% Senior Notes due 2044 (the "2044 Notes") and a second derivative contract to lock
in the base interest rate on $125,000 of the $250,000 aggregate principal amount of the Company's 5.25% Senior Notes due
2054 (the "2054 Notes"). These derivatives were settled in the third quarter of 2014. Our notes payable and a small portion
of our long-term debt accrue interest at a variable rate. Assuming average interest rates and borrowings on variable rate debt,
a hypothetical 10% change in interest rates would have affected our interest expense in 2015 and 2014 by approximately $0.1
million and $0.2 million, respectively. Likewise, we have excess cash balances on deposit in
accounts in
financial institutions. An increase or decrease in interest rates of ten basis points would have impacted our annual interest
earnings in 2015 and 2014 by approximately $0.3 million.
Foreign Exchange—Exposures to transactions denominated in a currency other than the entity’s functional currency
are not material, and therefore the potential exchange losses in future earnings, fair value and cash flows from these
transactions are not material. From time to time, as market conditions indicate, we will enter into foreign currency contracts
to manage the risks associated with anticipated future transactions and current balance sheet positions that are in currencies
other than the functional currencies of our operations. At December 26, 2015, the Company had a number of open foreign
currency forward contracts, including one related to the interest payments on an intercompany note denominated in two
different currencies. The notional amount of this forward contract to sell Australian dollars was $36,590 and the contract was
settled in January 2016. At December 27, 2014, the Company had a number of open foreign currency forward contracts,
including some related to a large sales contract that was settled in Canadian dollars. The notional amount for these forward
contracts to sell Canadian dollars was $14,757 and were settled over the first nine months of 2015. Much of our cash in non-
U.S. entities is denominated in foreign currencies, where fluctuations in exchange rates will impact our cash balances in U.S.
dollar terms. A hypothetical 10% change in the value of the U.S. dollar would impact our reported cash balance by
approximately $25.2 million in 2015 and $26.1 million in 2014.
We manage our investment risk in foreign operations by borrowing in the functional currencies of the foreign
entities where appropriate. The following table indicates the change in the recorded value of our most significant investments
at year-end assuming a hypothetical 10% change in the value of the U.S. Dollar.
Australian dollar
Chinese Renminbi
Danish Krone
U.K. pound
Canadian dollar
Euro
Brazilian real
2015
2014
(in millions)
$ 22.3
12.6
11.4
7.4
5.5
4.4
2.2
$ 24.6
14.0
13.8
6.5
6.4
8.1
3.3
Commodity risk—Natural gas is a significant commodity used in our factories, especially in our Coatings segment
galvanizing operations, where natural gas is used to heat tanks that enable the hot-dipped galvanizing process. Natural gas
prices are volatile and we mitigate some of this volatility through the use of derivative commodity instruments. Our current
policy is to manage this commodity price risk for 0-50% of our U.S. natural gas requirements for the upcoming 6-12 months
through the purchase of natural gas swaps based on NYMEX futures prices for delivery in the month being hedged. The
39
objective of this policy is to mitigate the impact on our earnings of sudden, significant increases in the price of natural gas. At
December 26, 2015, we have open natural gas swaps for 40,000 MMBtu.
CRITICAL ACCOUNTING POLICIES
The following accounting policies involve judgments and estimates used in preparation of the consolidated financial
statements. There is a substantial amount of management judgment used in preparing financial statements. We must make
estimates on a number of items, such as provisions for bad debts, warranties, contingencies, impairments of long-lived assets,
and inventory obsolescence. We base our estimates on our experience and on other assumptions that we believe are
reasonable under the circumstances. Further, we re-evaluate our estimates from time to time and as circumstances change.
Actual results may differ under different assumptions or conditions. The selection and application of our critical accounting
policies are discussed annually with our audit committee.
Allowance for Doubtful Accounts
In determining an allowance for accounts receivable that will not ultimately be collected in full, we consider:
•
•
•
•
age of the accounts receivable
customer credit history
customer financial information
reasons for non-payment (product, service or billing issues).
If our customer's financial condition was to deteriorate, resulting in an impaired ability to make payment, additional
allowances may be required. As the Company’s international Irrigation business has grown, the exposure to potential losses
in international markets has also increased. These exposures can be difficult to estimate, particularly in areas of political
instability, or with governments with which the Company has limited experience, or where there is a lack of transparency as
to the current credit condition of governmental units. Receivables that are not reasonably expected to be realized in cash
within the next twelve months are classified as long-term receivables within other assets. As of December 26, 2015, the
Company had approximately $10 million in delinquent accounts receivable with Chinese municipal entities with a specific
allowance recorded against it based on our estimation of what will not be fully collected. The Company’s allowance for
doubtful accounts related to both current and long-term accounts receivables increased to $21.0 million at December 26, 2015
from $9.9 million at December 27, 2014.
Warranties
All of our businesses must meet certain product quality and performance criteria. We rely on historical product
claims data to estimate the cost of product warranties at the time revenue is recognized. In determining the accrual for the
estimated cost of warranty claims, we consider our experience with:
•
•
•
•
costs to correct the product problem in the field, including labor costs
costs for replacement parts
other direct costs associated with warranty claims
the number of product units subject to warranty claims
In addition to known claims or warranty issues, we estimate future claims on recent sales. The key assumptions in
our estimates are the rates we apply to those recent sales (which is based on historical claims experience) and our expected
future warranty costs for products that are covered under warranty for an extended period of time. Our provision for various
product warranties was approximately $36.7 million at December 26, 2015. If our estimate changed by 50%, the impact on
operating income would be approximately $18.3 million. If our cost to repair a product or the number of products subject to
warranty claims is greater than we estimated, then we would have to increase our accrued cost for warranty claims.
40
Inventories
We use the last-in first-out (LIFO) method to determine the value of approximately 39% of our inventory. The
remaining 61% of our inventory is valued on a first-in first-out (FIFO) basis. In periods of rising costs to produce inventory,
the LIFO method will result in lower profits than FIFO, because higher more recent costs are recorded to cost of goods sold
than under the FIFO method. Conversely, in periods of falling costs to produce inventory, the LIFO method will result in
higher profits than the FIFO method.
In 2015, we experienced lower costs to produce inventory than in the prior year, due mainly to lower cost for steel
products. This resulted in lower cost of goods sold (and higher operating income) in 2015 of approximately
and
$12.0 million, than had our entire inventory been valued on the FIFO method. In 2014, we experienced higher costs to
produce inventory than in the prior year, due mainly to higher cost for steel and steel-related products. This resulted in higher
costs of approximately $2.0 million, than if our entire inventory had been valued on the FIFO method. In 2013, we
experienced lower costs compared to previous years and operating income was higher by approximately $0.6 million.
We write down slow-moving and obsolete inventory by the difference between the value of the inventory and our
estimate of the reduced value based on potential future uses, the likelihood that overstocked inventory will be sold and the
expected selling prices of the inventory. If our ability to realize value on slow-moving or obsolete inventory is less favorable
than assumed, additional inventory write downs may be required.
Depreciation, Amortization and Impairment of Long-Lived Assets
Our long-lived assets consist primarily of property, plant and equipment, goodwill and intangible assets acquired in
business acquisitions. We have assigned useful lives to our property, plant and equipment and certain intangible assets
ranging from 3 to 40 years. In 2015, we determined that our galvanizing operation in Melbourne Australia would not generate
sufficient cash flows on an undiscounted cash flow basis to recover its carrying value. We had the fixed assets valued by an
appraisal firm and recognized an impairment of approximately $4.1 million. Other impairment losses were recorded in 2015
as facilities were closed and future plans for certain fixed assets changed in connection with our restructuring plans. In 2013,
we determined that the property, plant and equipment in our EMD operation was impaired. The impairment was due to
continued global oversupply of global manganese dioxide in the market, increased price competition and increasing input
costs. In addition, a major customer advised us that its purchases of EMD in 2014 would be substantially below prior years.
As future prospects for the operation were not as favorable as the past, the company undertook an impairment review in the
fourth quarter of 2013, which resulted in the $12.2 million impairment.
We identified thirteen reporting units for purposes of evaluating goodwill and we annually evaluate our reporting
units for goodwill impairment during the third fiscal quarter, which usually coincides with our strategic planning process. We
assess the value of our reporting units using after-tax cash flows from operations (less capital expenses) discounted to present
value and as a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA). The key assumptions in
the discounted cash flow analysis are the discount rate and the projected cash flows. We also use sensitivity analysis to
determine the impact of changes in discount rates and cash flow forecasts on the valuation of the reporting units. As allowed
for under current accounting standards, we rely on our previous valuations for the annual impairment testing provided that
the following criteria for each reporting unit are met: (1) the assets and liabilities that make up the reporting unit have not
changed significantly since the most recent fair value determination and (2) the most recent fair value determination resulted
in an amount that exceeded the carrying amount of the reporting unit by a substantial margin.
In step one of the annual evaluation of the APAC Coatings reporting unit, we determined that its estimated fair value
was lower than its carrying value. As a result, we recorded a preliminary impairment of goodwill of $9.1 million. We
finalized step two of the impairment analysis during the fourth quarter of 2015 recording an additional impairment of $7.1
million, which was the remaining goodwill on this reporting unit. The additional impairment resulted from the estimated fair
values of the land of this reporting unit's owned facilities appraising higher than carrying value. The goodwill impairment
was a result of difficulties in the Australian market over the last couple of years, including a general slowdown in
manufacturing.
In December 2015, the price of a barrel of oil began a steady decline to below $40. The lower price of oil and
natural gas required we re-assess the financial projections used for the annual impairment of goodwill analysis performed for
the Access Systems reporting unit. Specifically, research reports project that oil prices will not rebound above $50 a barrel
for the near term. This required lowering the net sales and cash flow projections for this reporting unit. The result of this
41
interim impairment test of goodwill was the estimated fair value of the reporting unit was lower than its carrying value.
Accordingly, we recorded a $18.8 million impairment of Access System's goodwill in the fourth quarter of 2015. Our
reporting units are all cyclical and their sales and profitability may fluctuate from year to year. In the evaluation of our
reporting units, we look at the long-term prospects for the reporting unit and recognize that current performance may not be
the best indicator of future prospects or value, which requires management judgment.
Our
intangible assets consist of trade names. We assess the values of these assets apart from
goodwill as part of the annual impairment testing. We use the relief-from-royalty method to evaluate our trade names, under
which the value of a trade name is determined based on a royalty that could be charged to a third party for using the trade
name in question. The royalty, which is based on a reasonable rate applied against estimated future sales, is tax-effected and
discounted to present value. The most significant assumptions in this evaluation include estimated future sales, the royalty
rate and the after-tax discount rate. For our evaluation purposes, the royalty rates used vary between 0.5% and 1.5% of sales
and the after-tax discount rate of 12.0% to 16.0%, which we estimate to be the after-tax cost of capital for such assets.
Our trade names were tested for impairment in the third quarter of 2015 and 2014. Two of our trade names,
Webforge (in the Energy and Mining segment) and Industrial Galvanizing (in the Coatings segment), were estimated to have
a fair value lower than carrying value during the 2015 impairment test. As such, we recognized a $5.8 million impairment of
the Webforge trade name and a $1.1 million impairment of the Industrial Galvanizing trade name. The Webforge product
line's net sales decreased in 2015 as investment in oil and gas exploration within Australia and Southeast Asia declined.
Industrial Galvanizing sales decreased in 2015 as a result of weakness in the Australian manufacturing economy. The
Company determined no other trade names were impaired.
Income Taxes
We record valuation allowances to reduce our deferred tax assets to amounts that are more likely than not to be
realized. We consider future taxable income expectations and tax-planning strategies in assessing the need for the valuation
allowance. If we estimate a deferred tax asset is not likely to be fully realized in the future, a valuation allowance to decrease
the amount of the deferred tax asset would decrease net earnings in the period the determination was made. Likewise, if we
subsequently determine that we are able to realize all or part of a net deferred tax asset in the future, an adjustment reducing
the valuation allowance would increase net earnings in the period such determination was made.
At December 26, 2015, we had approximately $130.7 million in deferred tax assets relating to tax credits and loss
carryforwards, with a valuation allowance of $90.8 million, including $80.3 million in valuation allowances remaining in the
Delta entities related to capital loss carryforwards, which are unlikely ever to be realized. If circumstances related to our
deferred tax assets change in the future, we may be required to increase or decrease the valuation allowance on these assets,
resulting in an increase or decrease in income tax expense and a reduction or increase in net income.
All foreign subsidiaries are considered permanently invested at December 26, 2015. We have not made any U.S.
income tax provision in our financial statements for $415.4 million of undistributed earnings of our foreign subsidiaries, as
we intend to reinvest those earnings. Foreign subsidiaries considered permanently invested had total cash of $283.1 million at
December 26, 2015. If circumstances change and we determine that we are not permanently invested, we would need to
record an income tax expense on our financial statements for the resulting income tax that would be paid upon repatriation.
The amount of that income tax would depend on how much of those earnings were repatriated and the related timing but
could range from a low of $22.8 million to a high of $99.1 million.
We are subject to examination by taxing authorities in the various countries in which we operate. The tax years
subject to examination vary by jurisdiction. We regularly consider the likelihood of additional income tax assessments in each
of these taxing jurisdictions based on our experiences related to prior audits and our understanding of the facts and
circumstances of the related tax issues. We include in current income tax expense any changes to accruals for potential tax
deficiencies. If our judgments related to tax deficiencies differ from our actual experience, our income tax expense could
increase or decrease in a given fiscal period.
42
Pension Benefits
Delta Ltd. maintains a defined benefit pension plan for qualifying employees in the United Kingdom. There are no
active employees as members in the plan. Independent actuaries assist in properly measuring the liabilities and expenses
associated with accounting for pension benefits to eligible employees. In order to use actuarial methods to value the liabilities
and expenses, we must make several assumptions. The critical assumptions used to measure pension obligations and
expenses are the discount rate and expected rate of return on pension assets.
We evaluate our critical assumptions at least annually. Key assumptions are based on the following factors:
• Discount rate is based on the yields available on AA-rated corporate bonds with durational periods similar to
that of the pension liabilities.
• Expected return on plan assets is based on our asset allocation mix and our historical return, taking into
consideration current and expected market conditions. Most of the assets in the pension plan are invested in
corporate bonds, the expected return of which are estimated based on the yield available on AA rated corporate
bonds. The long-term expected returns on equities are based on historic performance over the long-term.
•
Inflation is based on the estimated change in the consumer price index (“CPI”) or the retail price index (“RPI”),
depending on the relevant plan provisions.
The following tables present the key assumptions used to measure pension expense for 2016 and the estimated impact on
2016 pension expense relative to a change in those assumptions:
Assumptions
Discount rate
Expected return on plan assets
Inflation - CPI
Inflation - RPI
Assumptions In Millions of Dollars
0.50% decrease in discount rate
0.50% decrease in expected return on plan assets
0.50% increase in inflation
Pension
3.75%
5.15%
2.15%
3.25%
Increase
in Pension
Expense
$
$
$
0.6
2.7
2.1
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required is included under the captioned paragraph, “MARKET RISK” on page 38 of this report.
43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements of the Company and its subsidiaries are included herein as listed
below:
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Earnings—Three-Year Period Ended December 26, 2015
Consolidated Statements of Comprehensive Income—Three-Year Period Ended December 26, 2015
Consolidated Balance Sheets—December 26, 2015 and December 27, 2014
Consolidated Statements of Cash Flows—Three-Year Period Ended December 26, 2015
Consolidated Statements of Shareholders’ Equity—Three-Year Period Ended December 26, 2015
Notes to Consolidated Financial Statements—Three-Year Period Ended December 26, 2015
Page
45
46
47
48
49
50
51
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Valmont Industries, Inc.
Omaha, Nebraska
We have audited the accompanying consolidated balance sheets of Valmont Industries, Inc. and subsidiaries (the
“Company”) as of December 26, 2015 and December 27, 2014, and the related consolidated statements of earnings,
comprehensive income, shareholders’ equity, and cash flows for each of the three fiscal years in the period ended December
26, 2015. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements
and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
Valmont Industries, Inc. and subsidiaries as of December 26, 2015 and December 27, 2014, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended December 26, 2015, in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects,
the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial reporting as of December 26, 2015, based on the criteria established in
Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 24, 2016 expressed an unqualified opinion on the Company’s internal control
over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 24, 2016
45
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
Product sales
Services sales
Net sales
Product cost of sales
Services cost of sales
Total cost of sales
Gross profit
Selling, general and administrative expenses
Impairment of goodwill and intangible assets
Operating income
Other income (expenses):
Interest expense
Interest income
Costs associated with refinancing of debt
Other
2015
$ 2,338,132
280,792
2014
$ 2,824,456
298,687
2013
$ 2,976,359
327,852
2,618,924
1,804,055
193,836
1,997,891
621,033
447,368
41,970
131,695
(44,621)
3,296
—
2,637
(38,688)
3,123,143
2,118,687
196,339
2,315,026
808,117
450,401
—
357,716
(36,790)
6,046
(38,705)
(4,084)
(73,533)
3,304,211
2,144,942
214,041
2,358,983
945,228
472,159
—
473,069
(32,502)
6,477
—
2,373
(23,652)
Earnings before income taxes and equity in earnings of
nonconsolidated subsidiaries
Income tax expense (benefit):
Current
Deferred
Earnings before equity in earnings of nonconsolidated
subsidiaries
Equity in earnings of nonconsolidated subsidiaries
Loss from deconsolidation of subsidiary
Net earnings
Less: Earnings attributable to noncontrolling interests
Net earnings attributable to Valmont Industries, Inc.
Earnings per share:
Basic
Diluted
Cash dividends declared per share
$
$
$
$
93,007
284,183
449,417
42,569
4,858
47,427
45,580
(247)
—
45,333
(5,216)
40,117
1.72
1.71
1.500
$
$
$
$
89,643
5,251
94,894
189,289
29
—
189,318
(5,342)
183,976
7.15
7.09
1.375
$
$
$
$
167,922
(10,141)
157,781
291,636
835
(12,011)
280,460
(1,971)
278,489
10.45
10.35
0.975
See accompanying notes to consolidated financial statements.
46
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three-year period ended December 26, 2015
(Dollars in thousands)
Net earnings
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized translation gains (losses)
Realized loss on sale of foreign entity investment included in
other expense
Realized loss on deconsolidation of subsidiary
Gain/(loss) on cash flow hedge:
Amortization cost included in interest expense
Realized (gain) loss included in net earnings
Unrealized gain (loss) on cash flow hedge
Actuarial gain (loss) in defined benefit pension plan, net of tax
expense (benefit) of ($10,732) in 2015, ($3,450) in 2014, and
($10,143) in 2013
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive loss (income) attributable to noncontrolling interests
2015
2014
2013
$
45,333
$
189,318
$
280,460
(96,694)
(82,275)
(71,698)
—
—
(96,694) $
—
—
(82,275) $
5,194
8,559
(57,945)
$
74
(3,130)
2,855
(201)
(40,274)
(137,169)
(91,836)
(832)
594
983
4,837
6,414
(13,709)
(89,570)
99,748
(2,520)
400
—
—
400
(41,282)
(98,827)
181,633
(9,174)
Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
(92,668) $
97,228
$
172,459
See accompanying notes to consolidated financial statements.
47
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 26, 2015 and December 27, 2014
(Dollars in thousands, except shares and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Receivables, less allowance of $10,055 in 2015 and $6,672 in 2014
Inventories
Prepaid expenses
Refundable and deferred income taxes
Total current assets
Property, plant and equipment, at cost
Less accumulated depreciation and amortization
Net property, plant and equipment
Goodwill
Other intangible assets, net
Other assets, less allowance for doubtful receivables of $10,953 in 2015 and $3,250 in 2014
Total assets
Current liabilities:
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current installments of long-term debt
Notes payable to banks
Accounts payable
Accrued employee compensation and benefits
Accrued expenses
Dividends payable
Total current liabilities
Deferred income taxes
Long-term debt, excluding current installments
Defined benefit pension liability
Deferred compensation
Other noncurrent liabilities
Shareholders’ equity:
Preferred stock of $1 par value -
Authorized 500,000 shares; none issued
Common stock of $1 par value -
Authorized 75,000,000 shares; 27,900,000 issued
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Cost of treasury stock, common shares of 5,042,775 in 2015 and 3,670,781 in 2014
Total Valmont Industries, Inc. shareholders’ equity
Noncontrolling interest in consolidated subsidiaries
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements.
48
2015
2014
$
$
$
349,074
466,443
340,672
46,137
24,526
1,226,852
1,081,056
548,567
532,489
336,916
170,197
132,974
2,399,428
1,077
976
179,983
70,354
105,593
8,571
366,554
35,669
763,964
179,323
48,417
40,290
371,579
536,918
359,522
56,912
68,010
1,392,941
1,139,569
533,116
606,453
385,111
202,004
143,159
2,729,668
1,181
13,952
196,565
87,950
88,480
9,086
397,214
71,797
766,654
150,124
47,932
45,542
—
—
27,900
—
1,729,679
(267,218)
(571,920)
918,441
46,770
965,211
2,399,428
$
27,900
—
1,718,662
(134,433)
(410,296)
1,201,833
48,572
1,250,405
2,729,668
$
$
$
$
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-year period ended December 26, 2015 (Dollars in thousands)
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash flows from operations:
Depreciation and amortization
Noncash loss on trading securities
Deconsolidation of subsidiary
Impairment of property, plant and equipment
Impairment of goodwill & intangible assets
Non-cash debt refinancing costs
Stock-based compensation
Change in fair value of contingent consideration
Defined benefit pension plan expense (benefit)
Contribution to defined benefit pension plan
(Gain) loss on sale of property, plant and equipment
Equity in earnings in nonconsolidated subsidiaries
Deferred income taxes
Changes in assets and liabilities (net of acquisitions):
Receivables
Inventories
Prepaid expenses
Accounts payable
Accrued expenses
Other noncurrent liabilities
Income taxes payable (refundable)
Net cash flows from operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Proceeds from sale of assets
Acquisitions, net of cash acquired
Other, net
Net cash flows from investing activities
Cash flows from financing activities:
Net borrowings under short-term agreements
Proceeds from long-term borrowings
Principal payments on long-term borrowings
Cash decrease due to deconsolidation of subsidiary
Settlement of financial derivatives
Dividends paid
Dividends to noncontrolling interest
Purchase of noncontrolling interest
Debt issuance fees
Proceeds from exercises under stock plans
Excess tax benefits from stock option exercises
Purchase of treasury shares
Purchase of common treasury shares—stock plan exercises
Net cash flows from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents—beginning of year
Cash and cash equivalents—end of period
2015
2014
2013
$
45,333
$
189,318
$
280,460
91,144
4,555
—
19,836
41,970
—
7,244
—
(610)
(16,500)
2,327
247
4,858
50,267
3,296
10,844
(6,805)
8,918
(1,764)
7,107
272,267
(45,468)
3,249
(12,778)
6,826
(48,171)
(12,853)
68,000
(69,098)
—
—
(35,357)
(2,634)
—
—
13,075
1,699
(168,983)
(13,854)
(220,005)
(26,596)
(22,505)
371,579
349,074
89,328
3,795
—
—
—
(2,478)
6,730
(4,300)
2,638
(18,173)
392
(29)
5,251
907
21,458
(13,594)
(34,321)
(34,778)
1,755
(39,803)
174,096
(73,023)
2,489
(185,710)
(619)
(256,863)
(4,472)
652,211
(357,858)
—
4,981
(32,443)
(2,919)
—
(7,644)
14,572
4,264
(395,045)
(15,403)
(139,756)
(19,604)
(242,127)
613,706
371,579
77,436
—
12,011
12,161
—
—
6,513
—
6,569
(17,619)
(4,318)
(835)
(10,141)
(12,708)
13,431
4,115
12,448
21,698
(1,474)
(3,305)
396,442
(106,753)
37,582
(63,152)
602
(131,721)
5,510
274
(591)
(11,615)
—
(25,414)
(1,767)
(9,324)
—
16,348
5,306
—
(16,107)
(37,380)
(27,764)
199,577
414,129
613,706
$
$
$
See accompanying notes to consolidated financial statements.
49
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Three-year period ended December 26, 2015
(Dollars in thousands, except shares and per share amounts)
Balance at December 29, 2012
Net earnings
Other comprehensive loss
Cash dividends declared ($0.975 per
share)
Dividends to noncontrolling interests
Purchase of noncontrolling interest
Deconsolidation of EMD
Acquisition of Locker
Stock plan exercises; 103,023 shares
acquired
Stock options exercised; 216,105 shares
issued
Tax benefit from stock option exercises
Stock option expense
Stock awards; 33,721 shares issued
Balance at December 28, 2013
Net earnings
Other comprehensive loss
Cash dividends declared ($1.375 per
share)
Dividends to noncontrolling interests
Acquisition of DS SM
Acquisition of AgSense
Addition of noncontrolling interest
Purchase of treasury shares; 2,711,149
shares acquired
Stock plan exercises; 97,974 shares
acquired
Stock options exercised; 194,627 shares
issued
Tax benefit from stock option exercises
Stock option expense
Stock awards; 22,010 shares issued
Balance at December 27, 2014
Net earnings
Other comprehensive income (loss)
Cash dividends declared ($1.50 per share)
Dividends to noncontrolling interests
Purchase of treasury shares; 1,435,488
shares acquired
Stock plan exercises; 112,995 shares
acquired
Stock options exercised; 169,493 shares
issued
Tax benefit from stock option exercises
Stock option expense
Stock awards; 10,329 shares issued
Balance at December 26, 2015
Common
stock
27,900
$
$
Additional
paid-in
capital
Retained
earnings
— $1,300,529
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,038)
—
—
—
278,489
—
(26,118)
—
—
—
—
—
(9,781)
9,770
5,306
5,194
1,319
—
—
—
Accumulated
other
comprehensive
income (loss)
43,938
$
—
(91,623)
—
—
—
—
—
—
—
—
—
—
Noncontrolling
interest in
consolidated
subsidiaries
Treasury
stock
$ (22,455) $
—
—
—
—
—
—
—
(16,107)
16,359
—
—
1,343
57,098
1,971
(7,204)
—
(1,767)
(7,286)
(20,316)
325
—
—
—
—
—
Total
shareholders’
equity
1,407,010
$
280,460
(98,827)
(26,118)
(1,767)
(9,324)
(20,316)
325
(16,107)
16,348
5,306
5,194
2,662
27,900
— 1,562,670
(47,685)
(20,860)
183,976
—
—
(86,748)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(35,036)
—
—
—
—
—
—
(10,994)
7,052
4,264
4,461
2,269
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (395,045)
—
—
—
—
(15,403)
18,514
—
—
2,498
27,900
— 1,718,662
(134,433)
(410,296)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
40,117
—
(34,816)
—
—
—
(12,895)
5,716
1,699
5,137
6,059
—
—
—
—
(132,785)
—
—
—
—
—
—
— (168,983)
—
—
—
—
—
(13,854)
20,254
—
—
959
22,821
5,342
1,544,846
189,318
(2,822)
(89,570)
—
(2,919)
9,309
16,333
508
—
—
—
—
—
48,572
5,216
(4,384)
—
(2,634)
—
—
—
—
—
—
(35,036)
(2,919)
9,309
16,333
508
(395,045)
(15,403)
14,572
4,264
4,461
4,767
1,250,405
45,333
(137,169)
(34,816)
(2,634)
(168,983)
(13,854)
13,075
1,699
5,137
7,018
$
27,900
$
— $1,729,679
$
(267,218) $ (571,920) $
46,770
$
965,211
See accompanying notes to consolidated financial statements.
50
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Valmont Industries, Inc. and its wholly and
subsidiaries (the Company). The investment in Delta EMD Pty. Ltd ("EMD") is recorded at fair value
subsequent to its deconsolidation in 2013. Investments in other 20% to 50% owned affiliates and joint ventures are accounted
for by the equity method. Investments in less than 20% owned affiliates are accounted for by the cost method. All
intercompany items have been eliminated.
Cash overdrafts
Cash book overdrafts totaling $15,536 and $18,038 were classified as accounts payable at December 26, 2015 and
December 27, 2014, respectively. The Company’s policy is to report the change in book overdrafts as an operating activity in
the Consolidated Statements of Cash Flows.
Segments
The Company has five reportable segments based on its management structure. Each segment is global in nature
with a manager responsible for segment operational performance and allocation of capital within the segment. Reportable
segments are as follows:
ENGINEERED SUPPORT STRUCTURES: This segment consists of the manufacture of engineered metal
structures and components for the global lighting and traffic, wireless communication, and roadway safety;
UTILITY SUPPORT STRUCTURES: This segment consists of the manufacture of engineered steel and concrete
structures for the global utility industry;
ENERGY AND MINING: This segment consists of the manufacture of access systems applications, forged steel
grinding media, and offshore oil and gas and wind energy structures.
COATINGS: This segment consists of galvanizing, anodizing and powder coating services on a global basis; and
IRRIGATION: This segment consists of the manufacture of agricultural irrigation equipment and related parts and
services for the global agricultural industry as well as tubular products for industrial customers.
In addition to these five reportable segments, there are other businesses and activities that individually are not more
than 10% of consolidated sales. These operations include the distribution of industrial fasteners. These operations collectively
are reported in the “Other” category.
Fiscal Year
The Company operates on a 52 or 53 week fiscal year with each year ending on the last Saturday in December.
Accordingly, the Company’s fiscal years ended December 26, 2015, December 27, 2014, and December 28, 2013 consisted
of 52 weeks.
51
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounts Receivable
Accounts receivable are reported on the balance sheet net of any allowance for doubtful accounts. Allowances are
maintained in amounts considered to be appropriate in relation to the outstanding receivables based on age of the receivable,
economic conditions and customer credit quality. As the Company’s international Irrigation business has grown, the exposure
to potential losses in international markets has also increased. These exposures can be difficult to estimate, particularly in
areas of political instability, or with governments with which the Company has limited experience, or where there is a lack of
transparency as to the current credit condition of governmental units. As of December 26, 2015, the Company had
approximately $10 million in delinquent accounts receivable with Chinese municipal entities with a specific allowance
recorded against it based on our estimation of what will not be fully collected. The Company’s allowance for doubtful
accounts related to both current and long-term accounts receivables increased to $21.0 million at December 26, 2015 from
$9.9 million at December 27, 2014.
Inventories
Approximately 39% and 44% of inventory is valued at the lower of cost, determined on the last-in, first-out (LIFO)
method, or market as of December 26, 2015 and December 27, 2014, respectively. All other inventory is valued at the lower
of cost, determined on the first-in, first-out (FIFO) method or market. Finished goods and manufactured goods inventories
include the costs of acquired raw materials and related factory labor and overhead charges required to convert raw materials
to manufactured and finished goods. The excess of replacement cost of inventories over the LIFO value is approximately
$35,075 and $47,178 at December 26, 2015 and December 27, 2014, respectively.
Long-Lived Assets
Property, plant and equipment are recorded at historical cost. The Company generally uses the straight-line method
in computing depreciation and amortization for financial reporting purposes and accelerated methods for income tax
purposes. The annual provisions for depreciation and amortization have been computed principally in accordance with the
following ranges of asset lives: buildings and improvements 15 to 40 years, machinery and equipment 3 to 12 years,
transportation equipment 3 to 24 years, office furniture and equipment 3 to 7 years and intangible assets 5 to 20 years.
Depreciation expense in fiscal 2015, 2014 and 2013 was $72,805, $73,395 and $62,291, respectively.
An impairment loss is recognized if the carrying amount of an asset may not be recoverable and exceeds estimated
future undiscounted cash flows of the asset. A recognized impairment loss reduces the carrying amount of the asset to its
estimated fair value. The Company recognized a $4.1 million impairment of the Melbourne galvanizing site's equipment in
2015 as the Company determined that our galvanizing operation in Melbourne, Australia would not generate sufficient cash
flows on an undiscounted cash flow basis to recover its carrying value. Other impairment losses were recorded in 2015 as
facilities were closed and future plans for certain fixed assets changed in connection with the Company's restructuring plans.
In November 2013, it was determined that the carrying amount of certain fixed assets of Delta EMD, Ltd. were not
recoverable and an impairment loss of $12,161 was recorded to reduce the carrying amount of the fixed assets to fair value.
The impairment was a result of continued global oversupply of manganese dioxide in the market, increased price competition
and increasing input costs. In addition, a major customer advised us that its purchases from EMD in 2014 would be
substantially below prior years. This charge was recorded in Product Cost of Sales in the Consolidated Statements of
Earnings. No impairment losses were recorded in 2014.
The Company evaluates its reporting units for impairment of goodwill during the third fiscal quarter of each year, or
when events or changes in circumstances indicate the carrying value may not be recoverable. Reporting units are evaluated
using after-tax operating cash flows (less capital expenditures) discounted to present value.
are assessed separately from goodwill as part of the annual impairment testing, using a relief-from-royalty method. If the
intangible asset change
underlying assumptions related to the valuation of a reporting unit’s goodwill or an
materially before or after the annual impairment testing, the reporting unit or asset is evaluated for potential impairment. In
intangible assets
52
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
these evaluations, management considers recent operating performance, expected future performance, industry conditions and
other indicators of potential impairment. The Company performed an interim test of its Access Systems reporting unit and the
Webforge and Locker trade names as of year-end (after the 2015 annual impairment test) based on changes in expected future
performance. Please see footnote 7 for details of impairments recognized during 2015.
Income Taxes
The Company uses the asset and liability method to calculate deferred income taxes. Deferred tax assets and
liabilities are recognized on temporary differences between financial statement and tax bases of assets and liabilities using
enacted tax rates. The effect of tax rate changes on deferred tax assets and liabilities is recognized in income during the
period that includes the enactment date.
Warranties
The Company's provision for product warranty reflects management's best estimate of probable liability under its
product warranties. Estimated future warranty costs are recorded at the time a sale is recognized. Future warranty liability is
determined based on applying historical claim rate experience to units sold that are still within the warranty period. In
addition, the Company records provisions for known warranty claims.
Pension Benefits
Certain expenses are incurred in connection with a defined benefit pension plan. In order to measure expense and
the related benefit obligation, various assumptions are made including discount rates used to value the obligation, expected
return on plan assets used to fund these expenses and estimated future inflation rates. These assumptions are based on
historical experience as well as current facts and circumstances. An actuarial analysis is used to measure the expense and
liability associated with pension benefits.
Derivative Instrument
The Company may enter into derivative financial instruments to manage risk associated with fluctuation in interest
rates, foreign currency rates or commodities. Where applicable, the Company may elect to account for such derivatives as
either a cash flow or fair value hedge.
Comprehensive Income (Loss)
Comprehensive income includes net income, currency translation adjustments, certain derivative-related activity and
changes in net actuarial gains/losses from a pension plan. 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. The components of accumulated other comprehensive income (loss) consisted of the following:
Balance at December 27, 2014
Current-period comprehensive income (loss)
Balance at December 26, 2015
Foreign
Currency
Translation
Adjustments
$
(99,618) $
(92,310)
(191,928) $
Accumulated
Other
Comprehensive
Income (Loss)
Unrealized
Gain on Cash
Flow Hedge
Defined
Benefit
Pension Plan
$
3,879
(201)
3,678
$
(38,694) $
(40,274)
(78,968) $
(134,433)
(132,785)
(267,218)
$
53
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Revenue is recognized upon shipment of the product or delivery of the service to the customer, which coincides with
passage of title and risk of loss to the customer. Customer acceptance provisions exist only in the design stage of our
products. Acceptance of the design by the customer is required before the product is manufactured and delivered to the
customer. We are not entitled to any compensation solely based on design of the product and we do not recognize any
revenue associated with the design stage. No general rights of return exist for customers once the product has been delivered.
Shipping and handling costs associated with sales are recorded as cost of goods sold. Sales discounts and rebates are
estimated based on past experience and are recorded as a reduction of net sales in the period in which the sale is recognized.
Service revenues predominantly consist of coatings services provided by our Coatings segment to its customers. Revenue
from our offshore and other complex steel structures products is recognized using the percentage-of-completion method,
based primarily on contract cost incurred to date compared to total estimated contract cost.
Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets
and liabilities, the reported amounts of revenue and expenses and the disclosure of contingent assets and liabilities to prepare
these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those
estimates.
Equity Method Investments
The Company has equity method investments in non-consolidated subsidiaries which are recorded within "Other
assets" on the Consolidated Balance Sheet. In February 2013, the Company sold its nonconsolidated investment in
Manganese Materials Company Pty. Ltd. to the majority owner of the business for approximately $29,250. The profit on the
sale was not significant, which included the recognition of $5,194 in currency translation adjustments previously recorded as
part of "Accumulated other comprehensive income" on the Consolidated Balance Sheet. The Company also recognized
certain deferred tax benefits of approximately $3,200 associated with the sale in the first quarter of 2013.
Treasury 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 re-issuance price is charged or credited to “Additional Paid-In Capital.”
In May 2014, the Company announced a capital allocation philosophy which covered a share repurchase program.
Specifically, the Board of Directors authorized the purchase of up to $500 million of the Company's outstanding common
stock from time to time over twelve months at prevailing market prices, through open market or privately-negotiated
transactions. In February 2015, the Board of Directors authorized an additional purchase of up to $250 million of the
Company's outstanding common stock with no stated expiration date. As of December 26, 2015, we have acquired 4,146,637
shares for approximately $564.0 million under this share repurchase program.
Research and Development
Research and development costs are charged to operations in the year incurred. These costs are a component of
“Selling, general and administrative expenses” on the Consolidated Statements of Earnings. Research and development
expenses were approximately $11,600 in 2015, $13,900 in 2014, and $10,200 in 2013.
54
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in
Accounting Standards Codification ("ASC") 605, Revenue Recognition. The new revenue recognition standard requires
entities to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to
customers. ASU 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017 and is to be
applied retrospectively. Early application is not permitted. The Company is currently evaluating the effect that adopting this
new accounting guidance will have on its consolidated results of operations and financial position.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” Under this ASU,
inventory will be measured at the “lower of cost and net realizable value” and options that currently exist for “market value”
will be eliminated. The ASU defines net realizable value as the “estimated selling prices in the ordinary course of business,
less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current
guidance on inventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15,
2016. Early application is permitted and should be applied prospectively. Management is evaluating the provisions of this
statement, including which period to adopt, and has not determined what impact the adoption of ASU 2015-11 will have on
the Company's financial position or results of operations.
In April 2015, the FASB issued ASU 2015-04, "Practical Expedient for the Measurement Date of an Employer's
Defined Benefit Obligation and Plan Assets." Under this ASU, an entity with a fiscal year-end that differs from a calendar
month-end can apply a practical expedient that permits an entity to measure defined benefit plan assets and obligations using
the month-end closest to the entity's fiscal year-end consistently going forward. The Company early adopted this accounting
policy effective with year-end 2015. The pension plan obligation recorded on the balance sheet as of December 26, 2015 has
been measured based on the pension plan assets and obligation as of December 31, 2015.
In April 2015, the FASB issued ASU 2015-03 which provides guidance requiring debt issuance costs be presented in
the balance sheet as a direct deduction from the carrying amount of the related debt liability and further clarification guidance
allows the cost of securing a revolving line of credit to be recorded as a deferred asset regardless of whether a balance is
outstanding. This guidance is effective for the Company's first quarter of fiscal year 2016 with early adoption permitted, and
requires the use of the retrospective transition method. At December 26, 2015, the Company has approximately $7 million of
debt issuance cost for its long-term debt (excluding its revolving line of credit) which will be reclassified as a direct reduction
of long-term debt instead of an other asset in the consolidated balance sheets when this ASU is adopted in fiscal 2016.
In November 2015, the FASB issued ASU 2015-17 which provides guidance on simplifying the balance sheet
classification of deferred taxes. The guidance requires the classification of deferred tax assets and liabilities as noncurrent in a
classified balance sheet. The current requirement that deferred tax assets and liabilities of a tax-paying component of an
entity be offset and presented as a single amount is not affected by this update. The guidance is effective for the Company's
first quarter of fiscal year 2017 financial statements with early adoption permitted, and allows for the use of either a
prospective or retrospective transition method. The Company early adopted this guidance on a prospective basis starting with
its December 26, 2015 consolidated financial statements.
.
55
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(2) ACQUISITIONS AND DECONSOLIDATION
Acquisitions of Businesses
On September 30, 2015, the Company purchased American Galvanizing for $12,778 in cash, net of cash acquired,
plus assumed liabilities. American Galvanizing operates a custom galvanizing operation in New Jersey with annual sales of
approximately $10,000. Potential pro-forma disclosures were omitted as this business did not have a significant impact on
the Company's 2015 financial results. In the preliminary purchase price allocation, goodwill of $3,019 and $2,178 of
customer relationships, trade name and other intangible assets were recorded. Goodwill is not deductible for tax purposes.
This business is included in the Coatings segment and was acquired to expand the Company's geographic presence in the
Northeast United States. We expect to finalize the purchase price allocation in the first quarter of 2016 once all management
reviews have been completed.
On March 3, 2014, the Company purchased 90% of the outstanding shares of DS SM A/S, which was renamed
Valmont SM. Valmont SM is a manufacturer of heavy complex steel structures for a diverse range of industries including
wind energy, offshore oil and gas, and electricity transmission. Valmont SM operates two manufacturing locations in
Denmark and its operations are reported in the Energy and Mining segment. The purchase price paid for the business at
closing (net of $56 cash acquired) was $120,483, including the payoff of an intercompany note payable by Valmont SM to its
prior affiliates. The purchase is subject to an earn-out clause that is contingent on meeting future operational metrics for
which no liability has been established based on expectations. The earn-out clause expires on December 31, 2016. The
acquisition, which was funded by cash held by the Company, was completed to participate in markets for wind energy, oil
and gas exploration, power transmission and other related infrastructure projects and to increase the Company's geographic
footprint in Europe. The Company also funded a portion of the acquisition with an intercompany note payable. The excess
purchase price over the fair value of assets resulted in goodwill, which is not deductible for tax purposes.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the date of
acquisition, which was finalized in the fourth quarter of 2014.
At March 3,
2014
73,421
85,638
30,340
16,803
206,202
47,754
19,715
37,448
8,941
113,858
9,309
83,035
$
$
$
Current assets
Property, plant and equipment
Intangible assets
Goodwill
Total fair value of assets acquired
Current liabilities
Deferred income taxes
Intercompany note payable
Long-term debt
Total fair value of liabilities assumed
Non-controlling interests
Net assets acquired
56
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(2) ACQUISITIONS AND DECONSOLIDATION (Continued)
Based on the fair value assessments, the Company allocated $30,340 of the purchase price to acquired intangible
assets. The following table summarizes the major classes of Valmont SM's acquired intangible assets and the respective
weighted average amortization periods:
Trade Names
Backlog
Customer Relationships
Total Intangible Assets
Weighted
Average
Amortization
Period
(Years)
Indefinite
1.5
12.0
Amount
$
11,470
3,145
15,725
$
30,340
On October 6, 2014, the Company acquired Shakespeare Composite Structures (Shakespeare) for $48,272 in cash,
plus assumed liabilities. Shakespeare is a manufacturer of fiberglass reinforced composite structures and products with two
manufacturing facilities in South Carolina. Shakespeare's annual sales are approximately $55,000 and its operations are
included in the Engineered Support Structures segment. The acquisition of Shakespeare was completed to expand our
product offering of composite structure solutions. The fair value measurement process and purchase price allocation for
Shakespeare were finalized in the third quarter of 2015.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the date of the
Shakespeare acquisition (goodwill is deductible for tax purposes):
Current assets
Property, plant and equipment
Intangible assets
Goodwill
Total fair value of assets acquired
Current liabilities
Net assets acquired
At October 6,
2014
$
$
$
12,532
10,694
13,500
15,416
52,142
3,870
48,272
Based on the fair value assessments, the Company allocated $13,500 of the purchase price to acquired intangible
assets. The following table summarizes the major classes of Shakespeare acquired intangible assets and the respective
weighted-average amortization periods:
Trade Names
Customer Relationships
Total Intangible Assets
57
Weighted
Average
Amortization
Period
(Years)
Indefinite
12.0
Amount
$
$
4,000
9,500
13,500
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(2) ACQUISITIONS AND DECONSOLIDATION (Continued)
On August 25, 2014, the Company acquired 51% of AgSense, LLC (AgSense) for $17 million in cash. AgSense
operates in South Dakota and is the creator of global WagNet network which provides growers with a more complete view of
their entire farming operation by tying irrigation decision making to field, crop and weather conditions. In the measurement
of fair values of assets acquired and liabilities assumed, goodwill of $17,193 and $16,083 of customer relationships, trade
name and other intangible assets were recorded. A portion of the goodwill is deductible for tax purposes. AgSense is
included in the Irrigation Segment. The fair value measurement process and purchase price allocation for AgSense were
finalized in the second quarter of 2015.
On February 5, 2013, the Company purchased 100% of the outstanding shares of Locker Group Holdings Pty. Ltd.
("Locker"). Locker is a manufacturer of perforated and expanded metal for the non-residential market, industrial flooring and
handrails for the access systems market, and screening media for applications in the industrial and mining sectors in Australia
and Asia. Locker's operations are reported in the Energy and Mining segment. The acquisition, which was funded by cash
held by the Company, was completed to expand our product offering and sales coverage for access systems and related
products in Asia Pacific.
The purchase price paid for the business at closing (net of $116 cash acquired) was $53,152. In addition, a
maximum of $7,911 additional purchase price could be paid to the sellers upon the achievement of certain gross profit and
inventory targets over the two years following date of acquisition and the Company recognized an estimated liability of
$7,178 at February 5, 2013. During 2014 and 2013, the Company made payments of approximately $2,300 to the sellers
with respect to achievement of these targets. The Company determined that the additional purchase price tied to a gross
profit target for the twelve months ending February 2015 would not be achieved and therefore the additional purchase price
with respect to that target was not paid. As such, approximately $4,000 of this liability was reversed and recognized against
cost of goods sold during the third quarter of 2014.
In December 2013, the Company purchased 100% of the outstanding shares of Armorflex International Ltd.
("Armorflex") for $10,000. Armorflex is a company holding proprietary intellectual property for products serving the
highway safety market. In the measurement of fair values of assets acquired and liabilities assumed, we recorded goodwill of
$6,823 and an aggregate of $3,792 for customer relationships, patented technology and other intangible assets. The goodwill
is not deductible for tax purposes. Armorflex is included in the Engineered Support Structures segment and was acquired to
expand the Company's highway safety product offering in the Asia Pacific region. This acquisition did not have a significant
effect on the Company's fiscal 2013 financial results.
The Company’s Condensed Consolidated Statement of Earnings for the year ended December 26, 2015 included net
sales of $179,132 and net earnings of $8,209 resulting from the Valmont SM, AgSense, and Shakespeare acquisitions. The
pro-forma effect of these acquisitions on the 2014 Statement of Earnings was as follows:
Year ended December
27, 2014
Net sales
Net earnings
Earnings per share—diluted
$
$
$
3,201,947
189,391
7.30
Acquisitions of Noncontrolling Interests
In October 2013, the Company acquired the remaining 40% of Valley Irrigation South Africa Pty. Ltd. that it did not
own for $9,324. As this transaction was an acquisition of the remaining shares of a consolidated subsidiary with no change in
control, it was recorded within shareholders' equity and as a financing cash flow in the Consolidated Statement of Cash
Flows.
58
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(2) ACQUISITIONS AND DECONSOLIDATION (Continued)
Deconsolidation
In December 2013, the Company's ownership in Delta EMD, Ltd. ("EMD"), a consolidated subsidiary located in
South Africa, was reduced below 50% through a supplementary contribution of 1,500,000 shares to the Delta Pension Plan
("DPP"). The DPP is managed by independent trustees whose fiduciary responsibility is to make decisions for the DPP based
on the best interests of the participants. The loss recognized on the deconsolidation of EMD was $12,011, or $0.45 per share,
which consisted of $8,559 realized losses on foreign currency translation adjustments previously reported in shareholders'
equity and $3,452 in losses due to remeasurement of the remaining investment to fair value based on the market value of
EMD shares, which are publicly traded on the Johannesburg stock exchange (JSE:DTA). The Company made a fair value
election with respect to its remaining ownership interest in EMD and will report its investment at fair value going forward,
using the quoted market price of the EMD shares as fair value. In 2014, the Company recorded a non-cash mark to market
loss of $3.8 million due to the decrease in fair value of the shares. In 2015, the Company received a $5.0 million special
dividend that was fully offset by a non-cash mark to market loss; the EMD investment then appreciated approximately $0.5
million in 2015.
The net sales and net loss of EMD included in the Company's Consolidated Statements of Earnings in 2013 was
$38,621 and $3,535, respectively.
(3) RESTRUCTURING ACTIVITIES
In April 2015, the Company's Board of Directors authorized a broad restructuring plan (the "Plan") of up to $60
million to respond to the market environment in certain businesses. The following pre-tax expenses were recognized in 2015:
ESS
Energy &
Mining
Utility
Coatings
Irrigation
Other/
Corporate
TOTAL
Severance
$ 2,305
$
2,112
$ 1,555
$
508
$
724
$
— $
Other cash restructuring
expenses
Asset impairments/net loss on
disposals
Total cost of sales
Severance
Other cash restructuring
expenses
Asset impairments/net loss on
disposals
Total selling, general and
administrative expenses
1,467
333
4,105
2,951
—
2,223
5,174
882
1,853
3,361
6,355
1,142
4,550
714
—
—
714
404
238
—
642
175
5,291
5,974
270
336
—
606
—
—
724
423
—
130
553
—
—
—
1,957
1,142
7,356
10,455
Consolidated total
$ 9,279
$
7,069
$ 5,192
$
6,580
$
1,277
$
10,455
$
7,204
4,377
10,127
21,708
6,719
1,716
9,709
18,144
39,852
The $60 million Plan contemplated that the Company may have to recognize an impairment of goodwill in its APAC
galvanizing reporting unit, dependent on future financial projections factoring the restructuring activities taking place in that
reporting unit. The Company recognized $17.3 million of impairments in the APAC galvanizing reporting unit during fiscal
2015 which was comparable to the amount included in the $60 million original estimate.
59
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(3) RESTRUCTURING ACTIVITIES (Continued)
Liabilities recorded for the Plan in 2015 and changes therein were as follows:
Severance
Other cash restructuring expenses
Total
Balance at
December
27, 2014
Recognized
Restructuring
Expense
Costs Paid or
Otherwise
Settled
Balance at
December
26, 2015
$
$
— $
—
— $
13,923
6,093
20,016
$
$
12,616
4,667
17,283
$
$
1,307
1,426
2,733
A significant change in market conditions in any of the Company's segments may affect the Company's assessment
of the restructuring activities.
(4) CASH FLOW SUPPLEMENTARY INFORMATION
The Company considers all highly liquid temporary cash investments purchased with an original maturity of three
months or less at the time of purchase to be cash equivalents. Cash payments for interest and income taxes (net of refunds)
for the fifty-two weeks ended December 26, 2015, December 27, 2014, and December 28, 2013 were as follows:
Interest
Income taxes
Share Repurchase Programs
$
2015
44,974
33,046
2014
32,601 $
$
111,174
2013
32,655
167,146
On May 13, 2014, the Company announced a capital allocation philosophy which increased the dividend by 50%
and covered a share repurchase program of up to $500 million of the Company's outstanding common stock to be acquired
from time to time over twelve months at prevailing market prices, through open market or privately-negotiated transactions.
On February 24, 2015, the Board of Directors authorized an additional purchase of up to $250 million of the Company's
outstanding common stock with no stated expiration date. As of December 26, 2015, the Company has acquired 4,146,637
shares for approximately $564.0 million under the share repurchase program.
(5) INVENTORIES
Inventories consisted of the following at December 26, 2015 and December 27, 2014:
Raw materials and purchased parts
Work-in-process
Finished goods and manufactured goods
Subtotal
Less: LIFO reserve
2015
162,977
25,644
187,126
375,747
35,075
340,672
$
$
2014
179,093
27,835
199,772
406,700
47,178
359,522
$
$
60
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of the following:
Land and improvements
Buildings and improvements
Machinery and equipment
Transportation equipment
Office furniture and equipment
Construction in progress
$
2015
79,450
323,469
565,771
17,774
77,054
17,538
$1,081,056
$
2014
82,372
327,863
593,387
35,205
76,589
24,153
$1,139,569
The Company leases certain facilities, machinery, computer equipment and transportation equipment under
operating leases with unexpired terms ranging from one to fifteen years. Rental expense for operating leases amounted to
$25,546, $28,580, and $26,567 for fiscal 2015, 2014, and 2013, respectively.
Minimum lease payments under operating leases expiring subsequent to December 26, 2015 are:
Fiscal year ending
2016
2017
2018
2019
2020
Subsequent
Total minimum lease payments
(7) GOODWILL AND INTANGIBLE ASSETS
Amortized Intangible Assets
$ 20,816
17,824
13,587
9,510
7,894
31,986
$ 101,617
The components of amortized intangible assets at December 26, 2015 and December 27, 2014 were as follows:
Customer Relationships
Proprietary Software & Database
Patents & Proprietary Technology
Other
December 26, 2015
Gross
Carrying
Amount
$ 201,801
3,571
6,815
3,752
$ 215,939
$
$
Accumulated
Amortization
101,614
2,966
3,421
3,671
111,672
Weighted
Average
Life
13 years
8 years
11 years
3 years
61
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(7) GOODWILL AND INTANGIBLE ASSETS (Continued)
Customer Relationships
Proprietary Software & Database
Patents & Proprietary Technology
Other
December 27, 2014
Gross
Carrying
Amount
$ 207,509
3,769
12,394
4,355
$ 228,027
$
$
Accumulated
Amortization
88,538
2,977
8,537
2,998
103,050
Weighted
Average
Life
13 years
8 years
8 years
3 years
Amortization expense for intangible assets was $18,339, $18,414 and $15,233 for the fiscal years ended
December 26, 2015, December 27, 2014 and December 28, 2013, respectively.
Estimated annual amortization expense related to
intangible assets is as follows:
2016
2017
2018
2019
2020
Estimated
Amortization
Expense
$
15,945
15,905
14,259
13,452
12,430
The useful lives assigned to
intangible assets included consideration of factors such as the Company’s
past and expected experience related to customer retention rates, the remaining legal or contractual life of the underlying
arrangement that resulted in the recognition of the intangible asset and the Company’s expected use of the intangible asset.
Non-amortized intangible assets
Intangible assets with indefinite lives are not amortized. The carrying values of trade names at December 26, 2015
and December 27, 2014 were as follows:
Webforge
Valmont SM
Newmark
Ingal EPS/Ingal Civil Products
Donhad
Shakespeare
Industrial Galvanizers
Other
December 26,
2015
December 27,
2014
$
$
10,430
8,919
11,111
8,504
6,415
4,000
2,662
13,889
65,930
$
$
16,801
10,818
11,111
8,867
6,689
4,000
3,889
14,852
77,027
Year
Acquired
2010
2014
2004
2010
2010
2014
2010
62
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(7) GOODWILL AND INTANGIBLE ASSETS (Continued)
In its determination of these intangible assets as
the Company considered such factors as its
expected future use of the intangible asset, legal, regulatory, technological and competitive factors that may impact the useful
life or value of the intangible asset and the expected costs to maintain the value of the intangible asset. The Company expects
that these intangible assets will maintain their value indefinitely. Accordingly, these assets are not amortized.
The Company’s trade names were tested for impairment in the third quarter of 2015. The values of the trade names
were determined using the relief-from-royalty method. Based on this evaluation, the Company recorded a $5,000 impairment
of the Webforge trade name (in Energy and Mining segment) and a $1,100 impairment of the Industrial Galvanizing trade
name (in Coatings segment) during 2015. The lower price of oil and natural gas in the fourth quarter of 2015 was a
qualitative event requiring the Company to re-assess the fair value of the Webforge trade name. As a result, the Company
recognized an additional $830 impairment of that trade name. No other trade names were determined to be impaired during
2015.
Goodwill
The carrying amount of goodwill by segment as of December 26, 2015 and December 27, 2014 was as follows:
Balance at December 27, 2014
Impairment
Acquisition
Foreign currency translation
Divestiture of business
Balance at December 26, 2015
Engineered
Support
Structures
Segment
$ 107,868
Energy
and
Mining
Segment
$ 106,770
— (18,670)
—
—
(4,856)
(1,737)
$ 101,275
(6,941)
—
$ 81,159
$
$
Utility
Support
Structures
Segment
75,404
Coatings
Segment
$ 75,533
— (16,222)
3,019
—
(2,611)
—
$ 59,719
Irrigation
Segment
$ 19,536
Total
$ 385,111
— (34,892)
3,019
—
(14,585)
(177)
(1,737)
—
$ 336,916
$ 19,359
—
—
75,404
Balance at December 28, 2013
Acquisition
Foreign currency translation
Balance at December 27, 2014
Engineered
Support
Structures
Segment
$
97,253
15,416
(4,801)
$ 107,868
Energy
and
Mining
Segment
$ 96,759
16,803
(6,792)
$ 106,770
Utility
Support
Structures
Segment
$
$
75,404
—
—
75,404
Coatings
Segment
$ 77,796
—
(2,263)
$ 75,533
Irrigation
Segment
2,420
$
17,193
(77)
$ 19,536
Total
$ 349,632
49,412
(13,933)
$ 385,111
During the second quarter of 2015, the Company divested of a small business in its ESS segment. The goodwill
allocated to that business was $1,737 and was required to be written off based on the selling price of the divested business.
The Company’s annual impairment test of goodwill was performed during the third quarter of 2015, using the
discounted cash flow method. In step one of the annual evaluation of the APAC Coatings reporting, we determined that the
estimated fair value was lower than the carrying value. As a result, the Company recorded a preliminary $9,100 impairment
of goodwill on the APAC Coatings reporting unit. The Company finalized step two of the impairment analysis during the
fourth quarter of 2015 recording an additional impairment of $7,122, which was the remaining goodwill on this reporting
unit. The additional impairment resulted from the estimated fair values of the land of this reporting unit's owned facilities
appraising higher than carrying value. The goodwill impairment was a result of difficulties in the Australian market over the
last couple of years, including a general slowdown in manufacturing.
63
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(7) GOODWILL AND INTANGIBLE ASSETS (Continued)
At the end of the third quarter, the Company determined that its goodwill for all other reporting units was not
impaired, as the valuation of the reporting units exceeded their respective carrying values. In December 2015, the price of a
barrel of oil began a steady decline to below $40. The lower price of oil and natural gas required the Company to re-assess
the financial projections used for the annual impairment of goodwill analysis performed for the Access Systems reporting
unit. Specifically, research reports project that oil prices will not rebound above $50 a barrel for the near term. This required
lowering the net sales and cash flow projections for this reporting unit. The result of this interim impairment test of goodwill
was the carrying value of the reporting unit was higher than its estimated fair value. Accordingly, the Company recorded a
$18,670 million impairment of Access System's goodwill in the fourth quarter of 2015.
(8) BANK CREDIT ARRANGEMENTS
The Company maintains various lines of credit for short-term borrowings totaling $103,484 at December 26, 2015.
As of December 26, 2015 and December 27, 2014, $199 and $13,058 was outstanding, respectively. The interest rates
charged on these lines of credit vary in relation to the banks’ costs of funds. The unused and available borrowings under the
lines of credit were $103,285 at December 26, 2015. The lines of credit can be modified at any time at the option of the
banks. The Company pays no fees in connection with these lines of credit. In addition to the lines of credit, the Company also
maintains other short-term bank loans. The weighted average interest rate on short-term borrowings was 5.23% at
December 26, 2015, and 6.56% at December 27, 2014. Other notes payable of $777 and $894 were outstanding at
December 26, 2015 and December 27, 2014, respectively.
(9) INCOME TAXES
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries are as follows:
United States
Foreign
Income tax expense (benefit) consists of:
Current:
Federal
State
Foreign
Non-current:
Deferred:
Federal
State
Foreign
64
2015
$
$
99,175
(6,168)
93,007
$
$
2014
168,975
115,208
284,183
$
$
2013
338,163
111,254
449,417
2015
2014
2013
$
23,130
$
52,588
$
110,847
4,431
15,077
42,638
(69)
3,382
(333)
1,809
4,858
5,059
32,443
90,090
(447)
447
1,376
3,428
5,251
16,398
39,285
166,530
1,392
(8,661)
(307)
(1,173)
(10,141)
$
47,427
$
94,894
$
157,781
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(9) INCOME TAXES (Continued)
The reconciliations of the statutory federal income tax rate and the effective tax rate follows:
Statutory federal income tax rate
State income taxes, net of federal benefit
Carryforwards, credits and changes in valuation allowances
Foreign tax rate differences
Changes in unrecognized tax benefits
Domestic production activities deduction
Goodwill impairment
UK tax rate reduction
Other
2015
2014
2013
35.0%
35.0%
35.0%
3.1
(0.1)
(5.7)
(0.1)
(3.8)
11.3
7.7
3.6
1.8
(0.4)
(4.4)
(0.2)
(1.6)
—
—
3.2
2.4
(0.2)
(2.4)
0.3
(2.1)
—
1.8
0.3
51.0%
33.4%
35.1%
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax
credit carryforwards. The tax effects of significant items comprising the Company’s net deferred income tax liabilities are as
follows:
2015
2014
$
18,320
1,408
130,743
32,278
911
12,818
36,672
233,150
(90,837)
142,313
$
17,446
882
148,484
30,025
4,804
6,920
40,348
248,909
(104,487)
144,422
3,087
41,147
54,162
3,517
101,913
40,400
$
5,352
43,084
60,316
6,738
115,490
28,932
$
Deferred income tax assets:
Accrued expenses and allowances
Accrued insurance
Tax credits and loss carryforwards
Defined benefit pension liability
Inventory allowances
Accrued warranty
Deferred compensation
Gross deferred income tax assets
Valuation allowance
Net deferred income tax assets
Deferred income tax liabilities:
Work in progress
Property, plant and equipment
Intangible assets
Other liabilities
Total deferred income tax liabilities
Net deferred income tax asset/(liability)
65
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(9) INCOME TAXES (Continued)
Deferred income tax assets (liabilities) are presented as follows on the Consolidated Balance Sheets:
Balance Sheet Caption
Refundable and deferred income taxes
Other assets
Deferred income taxes
Net deferred income tax asset/(liability)
2015
2014
$
$
— $
76,069
(35,669)
40,400
$
30,239
70,490
(71,797)
28,932
In November 2015, the FASB issued ASU 2015-17 which provides guidance on simplifying the balance sheet
classification of deferred taxes. Currently, GAAP requires an entity to separate deferred income tax liabilities and assets into
current and noncurrent amounts for balance sheet presentation. ASU 2015-17 simplifies the presentation by classifying all
deferred tax liabilities and assets as noncurrent. Valmont adopted ASU 2015-17 as of December 26, 2015 on a prospective
basis. The net amount of current deferred tax assets being classified as noncurrent at December 26, 2015 is $31,967.
Management of the Company has reviewed recent operating results and projected future operating results. The
Company's belief that realization of its net deferred tax assets is more likely than not is based on, among other factors,
changes in operations that have occurred in recent years and available tax planning strategies. At December 26, 2015 and
December 27, 2014 respectively, there were $130,743 and $148,484 relating to tax credits and loss carryforwards and
$32,278 and $30,025 related to the defined benefit pension obligation.
Valuation allowances have been established for certain losses that reduce deferred tax assets to an amount that will,
more likely than not, be realized. The deferred tax assets at December 26, 2015 that are associated with tax loss and tax credit
carryforwards not reduced by valuation allowances expire in periods starting 2016.
Uncertain tax positions included in other non-current liabilities are evaluated in a two-step process, whereby (1) the
Company determine whether it is more likely than not that the tax positions will be sustained based on the technical merits of
the position and (2) for those tax positions that meet the more likely than not recognition threshold, the Company would
recognize the largest amount of tax benefit that is greater than fifty percent likely to be realized upon ultimate settlement with
the related tax authority.
The following summarizes the activity related to our unrecognized tax benefits in 2015 and 2014, in thousands:
Gross unrecognized tax benefits—beginning of year
Gross decreases—tax positions in prior period
Settlements with taxing authorities
Lapse of statute of limitations
Gross unrecognized tax benefits—end of year
2015
2014
$
$
4,268
(173)
687
(361)
(545)
3,876
$
$
4,727
(456)
610
—
(613)
4,268
There are approximately $1,304 of uncertain tax positions for which reversal is reasonably possible during the next
12 months due to the closing of the statute of limitations. The nature of these uncertain tax positions is generally the
computation of a tax deduction or tax credit. During 2015, the Company recorded a reduction of its gross unrecognized tax
benefit of $545 with $511 recorded as a reduction of income tax expense, due to the expiration of statutes of limitation in the
United States. During 2014, the company recorded a reduction of its gross unrecognized tax benefit of $613, with $399
recorded as a reduction of its income tax expense, due to the expiration of statutes of limitation in the United States. In
addition to these amounts, there was an aggregate of $280and $298 of interest and penalties at December 26, 2015 and
December 27, 2014, respectively. The Company’s policy is to record interest and penalties directly related to income taxes as
income tax expense in the Consolidated Statements of Earnings.
66
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(9) INCOME TAXES (Continued)
The Company files income tax returns in the U.S. and various states as well as foreign jurisdictions. Tax years 2011
and forward remain open under U.S. statutes of limitation. Generally, tax years 2012 and forward remain open under state
statutes of limitation. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was
$3,813 and $4,056 at December 26, 2015 and December 27, 2014, respectively.
All foreign subsidiaries are considered permanently invested at December 26, 2015. Provision has not been made
for United States income taxes on the undistributed earnings of the Company’s foreign subsidiaries (approximately $415,400
at December 26, 2015 and $432,700 at December 27, 2014, respectively) because the Company intends to reinvest those
earnings. Such earnings would become taxable upon the sale or liquidation of these foreign subsidiaries or upon remittance of
dividends. Furthermore, the currency translation adjustments in “Accumulated other comprehensive income (loss)” are not
adjusted for income taxes as they relate to indefinite investments in foreign subsidiaries.
(10) LONG-TERM DEBT
On September 22, 2014, the Company issued and sold $250,000 aggregate principal amount of the Company’s
5.00% senior notes due 2044 and $250,000 aggregate principal amount of the Company’s 5.25% senior notes due 2054. On
September 22, 2014, the Company repurchased through a partial tender offer $199,800 in aggregate principal amount of the
Company’s 6.625% senior notes due 2020, and $250,200 of the notes remain outstanding following the conclusion of the
tender offer. Long-term debt is as follows:
5.00% senior unsecured notes due 2044(a)
5.25% senior unsecured notes due 2054(b)
Unamortized discount on 5.00% and 5.25% senior unsecured notes (a)(b)
6.625% senior unsecured notes due 2020(c)
Unamortized premium on 6.625% senior unsecured notes(c)
Revolving credit agreement (d)
IDR Bonds(e)
Other notes
Long-term debt
Less current installments of long-term debt
Long-term debt, excluding current installments
______________________________________________
December 26,
2015
December 27,
2014
$
$
250,000
250,000
(4,405)
250,200
4,518
—
8,500
6,228
765,041
1,077
763,964
$
$
250,000
250,000
(4,449)
250,200
5,429
—
8,500
8,155
767,835
1,181
766,654
(a)
(b)
The 5.00% senior unsecured notes due 2044 include an aggregate principle amount of $250,000 on which interest is
paid and an unamortized discount balance of $1,138 at December 26, 2015. The notes bear interest at 5.000% per
annum and are due on October 1, 2044. The discount will be amortized and recognized as interest expense as
interest payments are made over the term of the notes. The notes may be repurchased prior to maturity in whole, or
in part, at any time at 100% of their principal amount plus a make-whole premium and accrued and unpaid interest.
These notes are guaranteed by certain subsidiaries of the Company.
The 5.25% senior unsecured notes due 2054 include an aggregate principle amount of $250,000 on which interest is
paid and an unamortized discount balance of $3,267 at December 26, 2015. The notes bear interest at 5.250% per
annum and are due on October 1, 2054. The discount will be amortized and recognized as interest expense as
interest payments are made over the term of the notes. The notes may be repurchased prior to maturity in whole, or
in part, at any time at 100% of their principal amount plus a make-whole premium and accrued and unpaid interest.
These notes are guaranteed by certain subsidiaries of the Company.
67
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(10) LONG-TERM DEBT (Continued)
(c)
(d)
The 6.625% senior unsecured notes due 2020, following a partial tender offer in September 2014, include a
remaining aggregate principal amount of $250,200 on which interest is paid and an unamortized premium balance of
$4,518 at December 26, 2015. The notes bear interest at 6.625% per annum and are due on April 1, 2020. In
September 2014, the Company repurchased by partial tender $199,800 in aggregate principal amount of these notes
and incurred cash prepayment expenses of approximately $41,200. In addition, $4,439 of the unamortized premium
was recognized as income which is the proportionate amount of debt that was repaid. The remaining premium will
be amortized against interest expense as interest payments are made over the term of the notes. The notes may be
repurchased prior to maturity in whole, or in part, at any time at 100% of their principal amount plus a make-whole
premium accrued and unpaid interest. These notes are guaranteed by certain subsidiaries of the Company.
On October 17, 2014, the Company entered into a First Amendment to our Credit Agreement with JPMorgan Chase
Bank, as Administrative Agent, and the other lenders party thereto, dated as of August 15, 2012, which increased the
committed unsecured revolving credit facility from $400 million to $600 million and extended the maturity date
from August 15, 2017 to October 17, 2019. The Company may increase the credit facility by up to an additional
$200 million at any time, subject to lenders increasing the amount of their commitments. The interest rate on our
borrowings will be, at our option, either:
(i)
LIBOR (based on a 1, 2, 3 or 6 month interest period, as selected by the Company) plus 100 to 162.5 basis
points, depending on the credit rating of the our senior debt published by Standard & Poor's Rating
Services and Moody's Investors Service, Inc., or;
(ii)
the higher of
•
•
the prime lending rate,
the Federal Funds rate plus 50 basis points, and
• LIBOR (based on a 1 month interest period) plus 100 basis points,
plus, in each case, 0 to 62.5 basis points, depending on the credit rating of our senior debt
published by Standard & Poor's Rating Services and Mood's Investors Service, Inc.
At December 26, 2015, the Company had no outstanding borrowings under the revolving credit facility.
The revolving credit facility has a maturity date of October 17, 2019 and contains certain financial covenants that
may limit additional borrowing capability under the agreement. At December 26, 2015, the Company had the ability
to borrow $581.7 million under this facility, after consideration of standby letters of credit of $18.3 million
associated with certain insurance obligations. We also maintain certain short-term bank lines of credit totaling
$103.5 million, $103.3 million of which was unused at December 26, 2015.
(e)
The Industrial Development Revenue Bonds were issued to finance the construction of a manufacturing facility in
Jasper, Tennessee. Variable interest is payable until final maturity on June 1, 2025. The effective interest rates at
December 26, 2015 and December 27, 2014 were 1.22% and 1.16%, respectively.
The lending agreements include certain maintenance covenants, including financial leverage and interest coverage.
The Company was in compliance with all financial debt covenants at December 26, 2015. The minimum aggregate
maturities of long-term debt for each of the five years following 2015 are: $1,102, $893, $894, $752 and $250,958.
The obligations arising under the 5.00% senior unsecured notes due 2044, the 5.25% senior unsecured notes due
2054, the 6.625% senior unsecured notes due 2020, and the revolving credit facility are guaranteed by the Company and its
wholly-owned subsidiaries PiRod, Inc., Valmont Coatings, Inc., Valmont Newmark, Inc., and Valmont Queensland Pty. Ltd.
68
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(11) STOCK-BASED COMPENSATION
The Company maintains
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, non-vested stock awards and bonuses of common stock. At December 26, 2015, 868,157 shares of
common stock remained available for issuance under the plans. Shares and options issued and available are subject to
changes in capitalization. The Company’s policy is to issue shares upon exercise of stock options from treasury shares held
by the Company.
Under the stock option 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 recorded $5,137,
$4,461 and $5,194 of compensation expense (included in selling, general and administrative expenses) in the 2015, 2014 and
2013 fiscal years, respectively. The associated tax benefits recorded in the 2015, 2014 and 2013 fiscal years was $1,952,
$1,695 and $1,974, respectively.
At December 26, 2015, the amount of unrecognized stock option compensation expense, to be recognized over a
weighted average period of 2.42 years, was approximately $12,939.
The Company uses a binomial option pricing model to value its stock options. The fair value of each option grant
made in 2015, 2014 and 2013 was estimated using the following assumptions:
Expected volatility
Risk-free interest rate
Expected life from vesting date
Dividend yield
2013
2015
2014
34.13% 32.27% 33.26%
1.16%
3.0 yrs
0.72%
1.58% 1.43%
3.0 yrs
3.0 yrs
0.94% 0.75%
Following is a summary of the activity of the stock plans during 2013, 2014 and 2015:
Outstanding at December 29, 2012
Granted
Exercised
Forfeited
Outstanding at December 28, 2013
Options vested or expected to vest at December 28, 2013
Options exercisable at December 28, 2013
Number
of
Shares
868,992
155,254
(216,105)
(12,920)
795,221
775,237
464,377
Weighted
Average
Exercise
Price
$
$
$
$
84.91
144.86
(72.17)
(129.08)
99.29
98.41
81.73
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
4.56 $ 39,994
39,678
4.51
31,508
3.58
The weighted average per share fair value of options granted during 2013, was $37.88.
69
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(11) STOCK-BASED COMPENSATION (Continued)
Outstanding at December 28, 2013
Granted
Exercised
Forfeited
Outstanding at December 27, 2014
Options vested or expected to vest at December 27, 2014
Options exercisable at December 27, 2014
Weighted
Average
Exercise
Price
$
99.29
132.94
(71.67)
(126.23)
$ 113.72
$ 113.06
97.29
$
Number of
Shares
795,221
177,717
(194,627)
(9,716)
768,595
746,974
450,539
The weighted average per share fair value of options granted during 2014 was $33.94.
Outstanding at December 27, 2014
Granted
Exercised
Forfeited
Outstanding at December 26, 2015
Options vested or expected to vest at December 26, 2015
Options exercisable at December 26, 2015
Weighted
Average
Exercise
Price
$ 113.72
104.89
74.37
137.02
$ 117.42
$ 117.61
$ 119.43
Number of
Shares
768,595
291,708
(169,493)
(41,201)
849,609
818,300
409,068
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
4.74 $
4.69
3.59
15,983
15,981
15,944
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
5.18 $
5.13
3.74
4,536
4,456
3,376
The weighted average per share fair value of options granted during 2015 was $27.91.
Following is a summary of the status of stock options outstanding at December 26, 2015:
Outstanding and Exercisable By Price Range
Options Outstanding
Options Exercisable
Exercise Price
Range
$60.97 - 85.32
$104.47 - 110.33
$120.91 - 151.45
Number
136,288
297,221
416,100
849,609
Weighted
Average
Remaining
Contractual
Life
2.08 years
6.78 years
5.05 years
Weighted
Average
Exercise
Price
$
83.78
104.68
137.55
Weighted
Average
Exercise
Price
$
83.78
109.50
138.51
Number
136,103
12,181
260,784
409,068
In accordance with shareholder-approved plans, the Company grants stock under various
compensation
arrangements, including non-vested stock and stock issued in lieu of cash bonuses. Under such arrangements, stock is issued
without direct cost to the employee. In addition, the Company grants restricted stock units. The restricted stock units are
70
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(11) STOCK-BASED COMPENSATION (Continued)
settled in Company stock when the restriction period ends. During fiscal 2015, 2014 and 2013, the Company granted non-
vested stock and restricted stock units to directors and certain management employees as follows (which are not included in
the above stock plan activity tables):
Shares issued
Compensation expense
2015
47,038
$ 108.97
$ 4,511
2014
35,885
$ 136.91
$ 3,978
2013
47,271
$ 146.72
$ 3,667
At December 26, 2015 the amount of deferred
compensation granted, to be recognized over a
period of 1.74 years, was approximately $7,772.
(12) EARNINGS PER SHARE
The following table provides a reconciliation between Basic and Diluted earnings per share (EPS):
2015:
Net earnings attributable to Valmont Industries, Inc.
Weighted average shares outstanding (000's)
Per share amount
2014:
Net earnings attributable to Valmont Industries, Inc.
Weighted average shares outstanding (000's)
Per share amount
2013:
Net earnings attributable to Valmont Industries, Inc.
Weighted average shares outstanding (000's)
Per share amount
Basic
EPS
$ 40,117
23,288
1.72
$
$ 183,976
25,719
7.15
$
$ 278,489
26,641
10.45
$
Dilutive
Effect of
Stock
Options
Diluted
EPS
$
$
$
$
$
$
— $ 40,117
23,405
1.71
117
0.01
$
— $ 183,976
25,932
7.09
213
0.06
$
— $ 278,489
26,899
10.35
258
0.10
$
Basic and diluted net earnings and earnings per share in fiscal 2015 included impairments of goodwill and intangible
assets of $40,140 after-tax ($1.72 per share), asset impairments arising from restructuring activities of $14,545 after-tax
($0.62 per share), and $13,622 of cash restructuring expenses ($0.58 per share). Fiscal 2014 included costs associated with
refinancing of our long-term debt of $24.2 million after tax ($0.93 per share). Fiscal 2013 included a non-cash after-tax loss
of $12,011 ($0.45 per share) associated with the deconsolidation of Delta EMD Pty. Ltd. (EMD) and a non-cash after-tax loss
of $4,569 ($0.17 per share) related to a fixed asset impairment loss recorded by EMD in the fourth quarter of 2013.
Earnings per share are computed independently for each of the quarters. Therefore, the sum of the quarterly
earnings per share may not equal the total for the year primarily due to the share buyback program that began in the second
quarter of 2014.
At the end of fiscal years 2015, 2014, and 2013 there were approximately 426,338, 449,000, and 1,200 outstanding
stock options, respectively, with exercise prices exceeding the market price of common stock that were excluded from the
computation of diluted earnings per share, respectively.
71
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(13) EMPLOYEE RETIREMENT SAVINGS PLAN
Established under Internal Revenue Code Section 401(k), the Valmont Employee Retirement Savings Plan
(“VERSP”) is a defined contribution plan available to all eligible employees. Participants can elect to contribute up to 50% of
annual pay, on a pretax and/or after-tax basis. The Company also makes contributions to the Plan and a non-qualified
deferred compensation plan for certain Company executives. The 2015, 2014 and 2013 Company contributions to these plans
amounted to approximately $11,700, $12,600 and $11,600 respectively.
The Company sponsors a
non-qualified deferred compensation plan for certain Company executives
who otherwise would be limited in receiving company contributions into VERSP under Internal Revenue Service regulations.
The invested assets and related liabilities of these participants were approximately$37,963 and $36,439 at December 26,
2015 and December 27, 2014, respectively. Such amounts are included in “Other assets” and “Other noncurrent liabilities” on
the Consolidated Balance Sheets. Amounts distributed from the Company’s non-qualified deferred compensation plan to
participants under the transition rules of section 409A of the Internal Revenue Code were approximately $2,439 and$1,519 at
December 26, 2015 and December 27, 2014, respectively. All distributions were made in cash.
(14) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, receivables, accounts payable, notes payable to banks and
accrued expenses approximate fair value because of the short maturity of these instruments. The fair values of each of the
Company’s long-term debt instruments are based on the amount of future cash flows associated with each instrument
discounted using the Company’s current borrowing rate for similar debt instruments of comparable maturity (Level 2). The
fair value estimates are made at a specific point in time and the underlying assumptions are subject to change based on
market conditions. At December 26, 2015 the carrying amount of the Company’s long-term debt was $765,041 with an
estimated fair value of approximately $724,020. At December 27, 2014 the carrying amount of the Company’s long-term
debt was $767,835 with an estimated fair value of approximately $813,333.
For financial reporting purposes, a
hierarchy for fair value measurements based upon the transparency of
inputs to the valuation of an asset or liability as of the measurement date is used. Inputs refers broadly to the assumptions that
market participants would use in pricing the asset or liability, including assumptions about risk. Financial assets and liabilities
carried at fair value will be classified and disclosed in one of the following three categories:
• Level 1: Quoted market prices in active markets for identical assets or liabilities.
• Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
• Level 3: Unobservable inputs that are not corroborated by market data.
The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value
measurement. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value.
Trading Securities: The assets and liabilities recorded for the investments held in the Valmont Deferred
Compensation Plan of $37,963 ($36,439 in 2014) represent mutual funds, invested in debt and equity securities, classified as
trading securities, considering the employee’s ability to change investment allocation of their deferred compensation at any
time. The Company's remaining ownership in Delta EMD Pty. Ltd. (JSE:DTA) of $4,734 ($9,034 in 2014) is recorded at fair
value at December 26, 2015. Quoted market prices are available for these securities in an active market and therefore
categorized as a Level 1 input.
72
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(14) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Carrying Value
December 26,
2015
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Fair Value Measurement Using:
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Trading Securities
$
42,697
$
42,697
$
— $
—
Carrying Value
December 27,
2014
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Fair Value Measurement Using:
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Trading Securities
$
45,473
$
45,473
$
— $
—
(15) DERIVATIVE FINANCIAL INSTRUMENTS
The Company manages risk from foreign currency rate risk related to foreign currency denominated transactions and
from natural gas supply pricing. From time to time, the Company manages these risks using derivative financial instruments.
Some of these derivative financial instruments are marked to market and recorded in the Company’s consolidated statements
of earnings, while others may be accounted for as a fair value or cash flow hedge. Derivative financial instruments have
credit risk and market risk. To manage credit risk, the Company only enters into derivative transactions with counterparties
who are recognized, stable multinational banks.
Natural Gas Prices: Natural gas supplies to meet production requirements of production facilities are purchased at
market prices. Natural gas market prices are volatile and the Company effectively fixes prices for a portion of its natural gas
usage requirements of certain of its U.S. facilities through the use of swaps. These contracts reference physical natural gas
prices or appropriate NYMEX futures contract prices. While there is a strong correlation between the NYMEX futures
contract prices and the Company’s delivered cost of natural gas, the use of financial derivatives may not exactly offset the
change in the price of physical gas. The contracts are traded in months forward and settlement dates are scheduled to coincide
with gas purchases during that future period. The financial effects of these derivatives in 2015 and 2014 were minimal.
Interest Rate Fluctuations: In prior years, the Company executed contracts to lock in the treasury rate related to
the issuance of each of their unsecured notes due in 2020, 2044, and 2054. These contracts were executed to hedge the risk of
potential fluctuations in the treasury rates which would change the amount of net proceeds received from the debt offering.
As the benchmark rate component of the fixed rate debt issuance and the cash flow hedged risk is based on that same
benchmark, each was deemed an effective hedge at inception. The settlement with each of the counterparties was recorded in
accumulated other comprehensive income and at December 26, 2015, the Company has a $4.5 million deferred loss and a
$4.4 million deferred gain remaining in accumulated other comprehensive loss related to the past settlement of these forward
contracts. The amount is amortized as a reduction of interest expense (for the deferred gain) or an increase in interest
expense (for the deferred loss) over the term of the debt.
Foreign Currency Fluctuations: The Company operates in a number of different foreign countries and may enter
into business transactions that are in currencies that are different from a given operation’s functional currency. In certain
cases, the Company may enter into foreign currency exchange contracts to manage a portion of the foreign exchange risk
associated with either a receivable or payable denominated in a foreign currency, a forecasted transaction or a series of
forecasted transactions denominated in a foreign currency.
73
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(15) DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
At December 26, 2015, the Company had a number of open foreign currency forward contracts, which are generally
accounted for as cash flow hedges if hedge accounting is utilized. The Company has one open forward contract related to
interest payments on a large intercompany note denominated in Australian dollars. The interest from these notes are used to
fund the delta pension plan in the United Kingdom with a functional currency of the British pound. The derivative is
accounted for as a cash flow hedge and has a notional amount to sell Australian dollars of $36,590, which was settled in
January 2016. Total gains on the forward contract related to the intercompany note interest payments in fiscal 2015 was
$1,821. There is no gain or loss recorded in accumulated other comprehensive income in the consolidated balance sheets
related to foreign currency forward contracts at December 26, 2015. At December 27, 2014, the Company had open foreign
currency forward contracts, including one related to a large sales contract that was settled in Canadian dollars and was
accounted for as a cash flow hedge. The notional amount of the open Canadian forward contracts at the end of 2014 was
$14,757 with unrealized gains of $424, and $242 was recorded in accumulated other comprehensive income in the
consolidated balance sheets. The forward contracts were settled by September 2015.
(16) GUARANTEES
The Company’s product warranty accrual reflects management’s best estimate of probable liability under its product
warranties. Historical product claims data is used to estimate the cost of product warranties at the time revenue is recognized.
The Company recorded a $17.0 million reserve in the fourth quarter of 2015 for a commercial settlement with a
large customer that requires ongoing quality monitoring. Changes in the product warranty accrual, which is recorded in
“Accrued expenses”, for the years ended December 26, 2015 and December 27, 2014, were as follows:
Balance, beginning of period
Payments made
Change in liability for warranties issued during the period
Change in liability for pre-existing warranties
Balance, end of period
(17) DEFINED BENEFIT RETIREMENT PLAN
2015
2014
19,760
(11,203)
28,608
(512)
36,653
$
$
20,711
(13,900)
13,130
(181)
19,760
$
$
Delta Ltd., a wholly-owned subsidiary of the Company, is the sponsor of the Delta Pension Plan ("Plan"). The Plan
provides defined benefit retirement income to eligible employees in the United Kingdom. Pension retirement benefits to
qualified employees are 1.67% of final salary per year of service upon reaching the age of 65 years. This Plan has no active
employees as members at December 26, 2015.
Funded Status
The Company recognizes the overfunded or underfunded status of the pension plan as an asset or liability. The
funded status represents the difference between the projected benefit obligation (PBO) and the fair value of the plan assets.
The PBO is the present value of benefits earned to date by plan participants, including the effect of assumed future salary
increases (if applicable) and inflation. Plan assets are measured at fair value. Effective with year-end 2015, the Company
early adopted the practical expedient accounting guidance that permits an entity to measure defined benefit plan assets and
obligations using the month-end closest to the entity's fiscal year-end consistently going forward. The pension plan obligation
recorded on the balance sheet as of December 26, 2015 has been measured based on the pension plan assets and obligation as
of December 31, 2015. Because the pension plan is denominated in British pounds sterling, the Company used exchange
74
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(17) DEFINED BENEFIT RETIREMENT PLAN (Continued)
rates of $1.5557/£ and $1.4919/£ to translate the net pension liability into U.S. dollars at December 27, 2014 and
December 26, 2015, respectively.
Projected Benefit Obligation and Fair Value of Plan Assets—The accumulated benefit obligation (ABO) is the
present value of benefits earned to date, assuming no future compensation growth. As there are no active employees in the
plan, the ABO is equal to the PBO. The underfunded ABO represents the difference between the PBO and the fair value of
plan assets. Changes in the PBO and fair value of plan assets for the pension plan for the period from December 28, 2013 to
December 27, 2014 were as follows:
Fair Value at December 28, 2013
Employer contributions
Interest cost
Actual return on plan assets
Benefits paid
Actuarial loss
Currency translation
Fair Value at December 27, 2014
Projected
Benefit
Obligation
$ 651,857
—
28,667
—
(14,498)
66,889
(40,632)
$ 692,283
Plan
Assets
497,460
18,173
—
72,820
(14,498)
—
(31,796)
542,159
$
$
Funded
status
$ (154,397)
$ (150,124)
Changes in the PBO and fair value of plan assets for the pension plan for the period from December 27, 2014 to
December 31, 2015 were as follows:
Fair Value at December 27, 2014
Employer contributions
Interest cost
Actual return on plan assets
Benefits paid
Actuarial loss
Currency translation
Fair Value at December 31, 2015
Projected
Benefit
Obligation
$ 692,283
—
24,614
—
(18,346)
28,130
(29,232)
$ 697,449
Plan
Assets
542,159
16,500
—
(306)
(18,346)
—
(21,881)
518,126
$
$
Funded
status
$ (150,124)
$ (179,323)
Pre-tax amounts recognized in accumulated other comprehensive income (loss) as of December 26, 2015 and
December 27, 2014 consisted of actuarial gains (losses):
Balance December 29, 2013
Actuarial loss
Currency translation loss
Balance December 27, 2014
Actuarial loss
Currency translation gain
Balance December 26, 2015
75
$
(38,808)
(18,980)
1,835
(55,953)
(53,661)
2,655
$ (106,959)
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(17) DEFINED BENEFIT RETIREMENT PLAN (Continued)
The estimated amount to be amortized from accumulated other comprehensive income into net periodic benefit cost
in 2016 is $1,500.
Assumptions—The weighted-average actuarial assumptions used to determine the benefit obligation at December 31, 2015
and December 27, 2014 were as follows:
Percentages
Discount rate
Salary increase
CPI inflation
RPI inflation
Expense
2015
2014
3.75%
N/A
2.15%
3.25%
3.65%
N/A
2.10%
3.20%
Pension expense is determined based upon the annual service cost of benefits (the actuarial cost of benefits earned
during a period) and the interest cost on those liabilities, less the expected return on plan assets. The expected long-term rate
of return on plan assets is applied to the fair value of plan assets. Differences in actual experience in relation to assumptions
are not recognized in net earnings immediately, but are deferred and, if necessary, amortized as pension expense.
The components of the net periodic pension expense for the fiscal years ended December 26, 2015 and
December 27, 2014 were as follows:
Net Periodic Benefit Cost:
Interest cost
Expected return on plan assets
Net periodic benefit expense (benefit)
2015
2014
24,614
(25,224)
$
(610) $
28,667
(26,029)
2,638
Assumptions—The weighted-average actuarial assumptions used to determine expense are as follows for fiscal 2015
and 2014:
Percentages
Discount rate
Expected return on plan assets
CPI Inflation
RPI Inflation
2015
2014
3.65%
5.00%
2.10%
3.20%
4.45%
5.50%
2.70%
3.60%
The discount rate is based on the yields of AA-rated corporate bonds with durational periods similar to that of the
pension liabilities. The expected return on plan assets is based on our asset allocation mix and our historical return, taking
into account current and expected market conditions. Inflation is based on expected changes in the consumer price index or
the retail price index in the U.K. depending on the relevant plan provisions.
76
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(17) DEFINED BENEFIT RETIREMENT PLAN (Continued)
Cash Contributions
The Company completed negotiations with Plan trustees in 2013 regarding annual funding for the Plan. The annual
contributions into the Plan are $14,919 (/£10,000) per annum as part of the Plan’s recovery plan, along with a contribution to
cover the administrative costs of the Plan of approximately $1,641 (/£1,100) per annum.
Benefit Payments
The following table details expected pension benefit payments for the years 2016 through 2025:
2016
2017
2018
2019
2020
Years 2021 - 2025
$
18,500
19,100
19,700
20,300
20,900
114,725
Asset Allocation Strategy
The investment strategy for pension plan assets is to maintain a diversified portfolio consisting of
• Long-term
securities that are investment grade or
in nature;
• Common stock mutual funds in U.K. and non-U.K. companies, and;
• Diversified growth funds, which are invested in a number of investments, including common stock, fixed
income funds, properties and commodities.
The plan, as required by U.K. law, has an independent trustee that sets investment policy. The general strategy is to
invest approximately 50% of the assets of the plan in common stock mutual funds and diversified growth funds, with the
remainder of the investments in long-term fixed income securities, including corporate bonds and index-linked U.K. gilts.
The trustees regularly consult with representatives of the plan sponsor and independent advisors on such matters.
The pension plan investments are held in a trust. The
maturity of the corporate bond portfolio was
13 years at December 31, 2015.
Fair Value Measurements
The pension plan assets are valued at fair value. The following is a description of the valuation methodologies used
for the investments measured at fair value, including the general classification of such instruments pursuant to the valuation
hierarchy.
Index-linked gilts—Index-linked gilts are U.K. government-backed securities consisting of bills, notes, bonds, and
other fixed income securities issued directly by the U.K. Treasury or by government-sponsored enterprises.
Corporate Bonds—Corporate bonds and debentures consist of fixed income securities issued by U.K. corporations.
Corporate Stock—This investment category consists of common and preferred stock, including mutual funds,
issued by U.K. and non-U.K. corporations.
77
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(17) DEFINED BENEFIT RETIREMENT PLAN (Continued)
Diversified growth funds - This investment category consists of diversified investment funds, whose holdings
include common stock, fixed income funds, properties and commodities of U.K. and non-U.K. securities.
These assets are pooled investment funds whereby the underlying investments can be valued using quoted market
prices. As the fair values of the pooled investment funds themselves are not publicly quoted, they are classified as Level 2
investments.
At December 31, 2015 and December 27, 2014, the pension plan assets measured at fair value on a recurring basis
were as follows:
December 31, 2015
Plan net assets:
Temporary cash investments
Index-linked gilts
Corporate bonds
Corporate stock
Diversified growth funds
Total plan net assets at fair value
December 27, 2014
Plan net assets:
Temporary cash investments
Index-linked gilts
Corporate bonds
Corporate stock
Diversified growth funds
Total plan net assets at fair value
Quoted Prices in
Active Markets
for Identical
Inputs (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
— $
5,181
$
— $
5,181
—
—
—
—
123,257
100,701
172,456
116,531
—
—
—
—
123,257
100,701
172,456
116,531
— $
518,126
$
— $
518,126
Quoted Prices in
Active Markets
for Identical
Inputs (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
— $
12,320
$
— $
12,320
—
—
—
—
— $
135,229
107,880
176,010
110,720
542,159
$
—
—
—
—
— $
135,229
107,880
176,010
110,720
542,159
78
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(18) BUSINESS SEGMENTS
In the fourth quarter of 2015, the Company changed its reportable segment structure to improve transparency. The
Company now has five reportable segments and its management structure was changed to align with this new reporting
structure. A new reportable segment, Energy & Mining, includes the businesses primarily serving the energy and mining end
markets. This segment includes the access systems applications businesses and offshore structures business that was
formerly part of the Engineered Infrastructure Products (EIP) segment, and the grinding media business that was formerly
included in the "Other" category. The remaining businesses from the EIP segment was also renamed "Engineered Support
Structures". The last change in the reporting structure was moving the tubing business from the "Other" category to the
Irrigation segment. Prior year information in this footnote has been updated to match the new reportable segment structure.
Each segment is global in nature with a manager responsible for segment operational performance and the allocation
of capital within the segment. Net corporate expense is net of certain
units generally on the basis of employee headcounts and sales dollars.
expenses that are allocated to business
Reportable segments are as follows:
ENGINEERED SUPPORT STRUCTURES: This segment consists of the manufacture of engineered metal
structures and components for the global lighting and traffic, wireless communication, and roadway safety
industries;
ENERGY AND MINING: This segment, all outside of the United States, consists of the manufacture of
access systems applications, forged steel grinding media, on and off shore oil, gas, and wind energy structures;
UTILITY SUPPORT STRUCTURES: This segment consists of the manufacture of engineered steel and
concrete structures for the global utility industry;
COATINGS: This segment consists of galvanizing, anodizing and powder coating services on a global
basis; and
IRRIGATION: This segment consists of the manufacture of agricultural irrigation equipment and related
parts and services for the global agricultural industry and tubular products for industrial customers.
In addition to these five reportable segments, the Company has other businesses and activities that individually are
not more than 10% of consolidated sales. This includes the distribution of industrial fasteners and are reported in the "Other"
category.
The accounting policies of the reportable segments are the same as those described in Note 1. The Company
evaluates the performance of its business segments based upon operating income and invested capital. The Company does not
allocate interest expense, non-operating income and deductions, or income taxes to its business segments.
79
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(18) BUSINESS SEGMENTS (Continued)
Summary by Business
SALES:
Engineered Support Structures segment:
Lighting, Traffic, and Roadway Products
Communication Products
Engineered Support Structures segment
Energy and Mining segment:
Offshore and Other Complex Steel Structures
Grinding Media
Access Systems
Energy and Mining segment
Utility Support Structures segment:
Steel
Concrete
Utility Support Structures segment
Coatings segment
Irrigation segment
Other
Total
INTERSEGMENT SALES:
Engineered Support Structures
Energy and Mining
Utility Support Structures
Coatings
Irrigation
Other
Total
NET SALES:
Engineered Support Structures segment
Energy and Mining segment
Utility Support Structures segment
Coatings segment
Irrigation segment
Other
Total
2015
2014
2013
$
600,280
171,173
771,453
103,068
96,442
138,349
337,859
578,996
95,581
674,577
302,385
612,201
7,247
2,705,722
23,003
4,652
1,239
46,912
6,430
4,562
86,798
$
648,352
161,618
809,970
$
660,423
139,888
800,311
146,432
116,056
181,495
443,983
714,427
110,589
825,016
333,853
846,326
10,108
3,269,256
74,963
295
2,451
55,418
6,609
6,377
146,113
—
138,634
201,498
340,132
853,459
108,579
962,038
357,635
970,890
51,645
3,482,651
103,974
332
2,343
56,649
6,523
8,619
178,440
748,450
333,207
673,338
255,473
605,771
2,685
$ 2,618,924
735,007
443,688
822,565
278,435
839,717
3,731
$ 3,123,143
696,337
339,800
959,695
300,986
964,367
43,026
$ 3,304,211
80
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(18) BUSINESS SEGMENTS (Continued)
OPERATING INCOME (LOSS):
Engineered Support Structures
Energy and Mining
Utility Support Structures
Coatings
Irrigation
Other
Corporate
Total
Interest expense, net
Costs associated with refinancing of debt
Other
Earnings before income taxes and equity in earnings of nonconsolidated
subsidiaries
TOTAL ASSETS:
Engineered Support Structures
Energy and Mining
Utility Support Structures
Coatings
Irrigation
Other
Corporate
Total
CAPITAL EXPENDITURES:
Engineered Support Structures
Energy and Mining
Utility Support Structures
Coatings
Irrigation
Other
Corporate
Total
2015
2014
2013
$
$
$
59,592
(18,762)
37,847
27,369
84,537
(9,802)
(49,086)
131,695
(41,325)
—
2,637
66,024
41,342
95,118
60,921
151,508
(1,535)
(55,662)
357,716
(30,744)
(38,705)
(4,084)
65,861
35,087
174,740
74,917
206,394
(7,213)
(76,717)
473,069
(26,025)
—
2,373
$
93,007
$ 284,183
$ 449,417
$
611,201
396,366
422,021
270,793
310,967
2,267
385,813
$ 2,399,428
$ 640,132
500,407
470,720
301,707
360,883
4,930
450,889
$2,729,668
$ 616,231
353,018
524,113
315,663
351,742
2,538
613,189
$2,776,494
$
$
11,445
3,544
11,815
6,836
7,756
1,396
2,676
45,468
$
$
11,849
4,893
9,014
14,029
21,113
1,181
10,944
73,023
$
$
12,905
4,515
39,347
12,206
26,039
105
11,636
106,753
81
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(18) BUSINESS SEGMENTS (Continued)
DEPRECIATION AND AMORTIZATION:
Engineered Support Structures
Energy and Mining
Utility Support Structures
Coatings
Irrigation
Other
Corporate
Total
Summary by Geographical Area by Location of Valmont Facilities:
NET SALES:
United States
Australia
Denmark
Other
Total
LONG-LIVED ASSETS:
United States
Australia
Denmark
Other
Total
2015
2014
2013
$
$
22,810
20,733
17,959
12,962
11,746
570
4,364
91,144
$
$
22,363
22,146
17,811
14,615
10,471
123
1,799
89,328
$
$
22,037
13,167
14,375
14,656
7,859
2,336
3,006
77,436
2015
2014
2013
$ 1,586,702
347,975
98,628
585,619
$ 2,618,924
$ 1,808,427
439,530
146,432
728,754
$ 3,123,143
$ 2,077,812
492,698
—
733,701
$ 3,304,211
$
582,783
259,326
90,463
240,004
$ 1,172,576
$
616,718
316,382
111,161
292,466
$ 1,336,727
$
530,042
342,320
—
306,293
$ 1,178,655
No single customer accounted for more than 10% of net sales in 2015, 2014, or 2013. Net sales by geographical area
are based on the location of the facility producing the sales and do not include sales to other operating units of the company.
While Australia accounted for approximately 13% of the Company's net sales in 2015, no other foreign country accounted for
more than 5% of the Company’s net sales.
Operating income by business segment are based on net sales less identifiable operating expenses and allocations
and includes profits recorded on sales to other operating units of the company. Long-lived assets consist of property, plant
and equipment, net of depreciation, goodwill, other intangible assets and other assets. Long-lived assets by geographical area
are based on location of facilities.
(19) COMMITMENTS & CONTINGENCIES
Various claims and lawsuits are pending against Company and certain of its subsidiaries. The Company cannot fully
determine the effect of all asserted and unasserted claims on its consolidated results of operations, financial condition, or
liquidity. Where asserted and unasserted claims are considered probable and reasonably estimable, a liability has been recorded.
We do not expect that any known lawsuits, claims, environmental costs, commitments, or contingent liabilities will have a
material adverse effect on our consolidated results of operations, financial condition, or liquidity.
82
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION
The Company has three tranches of senior unsecured notes. All of the senior notes are guaranteed, jointly, severally,
fully and unconditionally (subject to certain customary release provisions, including sale of the subsidiary guarantor, or sale
of all or substantially all of its assets) by certain of the Company’s current and future direct and indirect domestic and foreign
subsidiaries (collectively the “Guarantors”), excluding its other current domestic and foreign subsidiaries which do not
guarantee the debt (collectively referred to as the “Non-Guarantors”). All Guarantors are 100% owned by the parent
company.
Consolidated financial information for the Company ("Parent"), the Guarantor subsidiaries and the Non-Guarantor
subsidiaries is as follows:
CONSOLIDATED STATEMENTS OF EARNINGS
For the Year ended December 26, 2015
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Impairment of goodwill and intangible assets
Operating income
Other income (expense):
Interest expense
Interest income
Other
Earnings before income taxes and equity in
earnings of nonconsolidated subsidiaries
Income tax expense (benefit):
Current
Deferred
Earnings before equity in earnings of
nonconsolidated subsidiaries
Parent
$1,169,674
Guarantors
$ 423,928
890,242
279,432
194,335
—
332,847
91,081
45,549
—
85,097
45,532
Non-
Guarantors
$1,238,609
987,729
250,880
207,484
41,970
1,426
(43,552)
9
(2,374)
(45,917)
—
103
60
163
(1,069)
3,184
4,951
7,066
Total
Eliminations
$ (213,287) $2,618,924
1,997,891
621,033
(212,927)
(360)
—
447,368
41,970
131,695
(44,621)
3,296
2,637
(38,688)
—
(360)
—
—
—
—
39,180
45,695
8,492
(360)
93,007
863
10,042
10,905
23,261
(6,224)
17,037
18,446
1,040
19,486
(1)
—
(1)
42,569
4,858
47,427
28,275
28,658
(10,994)
(359)
45,580
Equity in earnings of nonconsolidated subsidiaries
Net earnings
Less: Earnings attributable to noncontrolling
interests
Net earnings attributable to Valmont Industries, Inc $
11,842
40,117
—
40,117
(39,418)
(10,760)
(247)
(11,241)
27,576
27,217
(247)
45,333
—
(5,216)
$ (10,760) $ (16,457) $
—
27,217
$
(5,216)
40,117
83
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONSOLIDATED STATEMENTS OF EARNINGS
For the Year ended December 27, 2014
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Other income (expense):
Interest expense
Interest income
Costs associated with refinancing of debt
Other
Earnings before income taxes and equity in earnings
of nonconsolidated subsidiaries
Income tax expense (benefit):
Current
Deferred
Earnings before equity in earnings of nonconsolidated
subsidiaries
Equity in earnings of nonconsolidated subsidiaries
Net earnings
Less: Earnings attributable to noncontrolling interests
Net earnings attributable to Valmont Industries, Inc
83,801
75,359
124,534
489
284,183
Total
Eliminations
$ (221,745) $ 3,123,143
2,315,026
(222,234)
489
—
489
—
—
—
—
—
138
—
138
808,117
450,401
357,716
(36,790)
6,046
(38,705)
(4,084)
(73,533)
89,643
5,251
94,894
189,289
29
351
(148,574)
(148,223)
—
189,318
(5,342)
$ (148,223) $ 183,976
Parent
$1,392,509
1,040,808
Guarantors
$ 496,326
371,639
351,701
196,987
154,714
124,687
49,171
75,516
Non-
Guarantors
$1,456,053
1,124,813
331,240
204,243
126,997
(34,267)
38
(38,705)
2,021
(70,913)
(5)
359
—
(511)
(157)
(2,518)
5,649
—
(5,594)
(2,463)
30,330
(1,474)
28,856
54,945
129,031
183,976
—
$ 183,976
$
25,277
1,866
27,143
48,216
19,509
67,725
—
67,725
$
33,898
4,859
38,757
85,777
63
85,840
(5,342)
80,498
84
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONSOLIDATED STATEMENTS OF EARNINGS
For the Year ended December 28, 2013
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Other income (expense):
Interest expense
Interest income
Other
Parent
$1,540,266
1,107,020
Guarantors
$ 689,230
503,431
433,246
209,350
223,896
185,799
59,368
126,431
Non-
Guarantors
$1,402,191
1,078,695
323,496
203,441
120,055
Total
Eliminations
$ (327,476) $3,304,211
2,358,983
(330,163)
2,687
—
2,687
(30,801)
55
4,791
(25,955)
(2)
1,032
9
1,039
(1,699)
5,390
(2,427)
1,264
—
—
—
—
945,228
472,159
473,069
(32,502)
6,477
2,373
(23,652)
Earnings before income taxes and equity in earnings
of nonconsolidated subsidiaries
Income tax expense (benefit):
Current
Deferred
Earnings before equity in earnings of nonconsolidated
subsidiaries
Equity in earnings of nonconsolidated subsidiaries
Loss from deconsolidation of subsidiary
Net earnings
Less: Earnings attributable to noncontrolling interests
197,941
127,470
121,319
2,687
449,417
78,912
(8,948)
69,964
127,977
150,512
—
278,489
—
45,951
(19)
45,932
81,538
16,417
—
97,955
—
42,379
(1,174)
41,205
80,114
494
(12,011)
68,597
(1,971)
680
—
680
2,007
(166,588)
—
(164,581)
—
167,922
(10,141)
157,781
291,636
835
(12,011)
280,460
(1,971)
Net earnings attributable to Valmont Industries, Inc
$ 278,489
$
97,955
$
66,626
$ (164,581) $ 278,489
85
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Year ended December 26, 2015
Net earnings
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized translation gains (losses)
Gain (loss) on cash flow hedge:
Amortization cost included in interest expense
Realized (gain) loss included in net earnings
Unrealized gain on cash flow hedges
Actuarial gain (loss) in defined benefit pension plan
liability
Equity in other comprehensive income
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive income attributable to noncontrolling
interests
Comprehensive income (loss) attributable to Valmont
Industries, Inc.
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
$
40,117
$ (10,760) $ (11,241) $
27,217
$
45,333
—
—
(15,166)
(15,166)
(81,528)
(81,528)
74
(3,130)
2,855
(201)
—
(132,584)
(132,785)
(92,668)
—
—
—
—
—
—
(15,166)
(25,926)
—
—
—
—
(40,274)
—
(121,802)
(133,043)
—
—
—
—
—
—
—
132,584
132,584
159,801
(96,694)
(96,694)
74
(3,130)
2,855
(201)
(40,274)
—
(137,169)
(91,836)
—
—
(832)
—
(832)
$ (92,668) $ (25,926) $ (133,875) $ 159,801
$ (92,668)
86
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Year ended December 27, 2014
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
$ 183,976
$
67,725
$
85,840
$ (148,223) $ 189,318
Net earnings
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized translation gains (losses)
—
—
(51,536)
(30,739)
(51,536)
(30,739)
Gain (loss) on cash flow hedge:
Amortization cost included in interest expense
Realized (gain) loss included in net earnings
Unrealized gain on cash flow hedges
Actuarial gain (loss) in defined benefit pension plan
liability
594
983
4,837
6,414
—
—
—
—
—
—
Equity in other comprehensive income
Other comprehensive income (loss)
Comprehensive income
(93,162)
(86,748)
97,228
—
(51,536)
16,189
—
—
—
—
(13,709)
—
(44,448)
41,392
—
—
—
—
—
—
—
93,162
93,162
(55,061)
(82,275)
(82,275)
594
983
4,837
6,414
(13,709)
—
(89,570)
99,748
Comprehensive income attributable to noncontrolling
interests
Comprehensive income attributable to Valmont
Industries, Inc.
—
—
(2,520)
—
(2,520)
$
97,228
$
16,189
$
38,872
$ (55,061) $
97,228
87
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Year ended December 28, 2013
Net earnings
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized translation gains (losses)
Realized loss on sale of investment in foreign entity
included in other expense
Realized loss on deconsolidation of subsidiary
Gain (loss) on cash flow hedge:
Amortization cost included in interest expense
Actuarial gain (loss) in defined benefit pension plan
liability
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
$ 278,489
$
97,955
$
68,597
$ (164,581) $ 280,460
—
—
—
—
400
400
—
(4,772)
(66,926)
—
—
(4,772)
5,194
8,559
(53,173)
—
—
—
—
—
(41,282)
—
(94,455)
(25,858)
—
—
—
—
—
—
—
106,430
106,430
(58,151)
(71,698)
5,194
8,559
(57,945)
400
400
(41,282)
—
(98,827)
181,633
Equity in other comprehensive income
Other comprehensive income (loss)
Comprehensive income
(106,430)
(106,030)
172,459
—
(4,772)
93,183
Comprehensive income attributable to noncontrolling
interests
Comprehensive income attributable to Valmont
Industries, Inc.
—
—
(9,174)
—
(9,174)
$ 172,459
$
93,183
$ (35,032) $ (58,151) $ 172,459
88
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONSOLIDATED BALANCE SHEETS
December 26, 2015
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
$
62,281
$
4,008
$
282,785
$
— $
349,074
939,177
(2,992,184)
—
85,861
—
132,974
$
1,873,422
$
1,137,748
$
2,383,435
$ (2,995,177) $
2,399,428
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Prepaid expenses
Refundable and deferred income taxes
Total current assets
Property, plant and equipment, at cost
Less accumulated depreciation and amortization
Net property, plant and equipment
Goodwill
Other intangible assets
Investment in subsidiaries and intercompany accounts
Other assets
Total assets
130,741
132,222
9,900
24,526
359,670
541,536
334,471
207,065
20,108
238
1,239,228
47,113
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current installments of long-term debt
$
215
$
Notes payable to banks
Accounts payable
Accrued employee compensation and benefits
Accrued expenses
Dividends payable
Total current liabilities
Deferred income taxes
Long-term debt, excluding current installments
Defined benefit pension liability
Deferred compensation
Other noncurrent liabilities
Shareholders’ equity:
Common stock of $1 par value
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock
—
66,723
32,272
31,073
8,571
138,854
9,686
758,811
—
43,485
4,145
27,900
—
1,729,679
(267,218)
(571,920)
Noncontrolling interest in consolidated subsidiaries
Total shareholders’ equity
Total liabilities and shareholders’ equity
269,315
173,064
35,471
—
760,635
406,656
144,140
262,516
206,246
129,000
25,983
5,153
179,323
4,932
36,145
66,387
38,379
766
—
109,540
132,864
69,956
62,908
110,562
40,959
813,779
—
—
—
—
—
457,950
159,414
541,917
— $
—
$
862
976
13,680
6,347
22,802
—
99,580
31,735
51,718
—
42,829
184,871
—
(2,993)
—
—
466,443
340,672
46,137
24,526
(2,993)
1,226,852
—
—
—
—
—
1,081,056
548,567
532,489
336,916
170,197
—
— $
—
—
—
—
—
—
—
—
—
—
—
1,077
976
179,983
70,354
105,593
8,571
366,554
35,669
763,964
179,323
48,417
40,290
27,900
—
(267,218)
(571,920)
918,441
46,770
965,211
648,683
(1,106,633)
1,107,536
(1,266,950)
354,727
(896,644)
1,729,679
(64,362)
(210,688)
275,050
—
—
—
—
—
46,770
—
918,441
1,094,919
1,947,028
(2,995,177)
$
1,873,422
$
1,137,748
$
2,383,435
$ (2,995,177) $
2,399,428
89
Total Valmont Industries, Inc. shareholders’ equity
918,441
1,094,919
1,900,258
(2,995,177)
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONSOLIDATED BALANCE SHEETS
December 27, 2014
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current installments of long-term debt
$
213
$
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Prepaid expenses
Refundable and deferred income taxes
Total current assets
Property, plant and equipment, at cost
Less accumulated depreciation and amortization
Net property, plant and equipment
Goodwill
Other intangible assets
Investment in subsidiaries and intercompany accounts
Other assets
Total assets
Notes payable to banks
Accounts payable
Accrued employee compensation and benefits
Accrued expenses
Dividends payable
Total current liabilities
Deferred income taxes
Long-term debt, excluding current installments
Defined benefit pension liability
Deferred compensation
Other noncurrent liabilities
Shareholders’ equity:
Common stock of $1 par value
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock
Total Valmont Industries, Inc. shareholders’ equity
Noncontrolling interest in consolidated subsidiaries
Total shareholders’ equity
Total liabilities and shareholders’ equity
158,316
127,859
7,087
53,307
416,438
556,658
319,899
236,759
20,108
292
1,446,989
46,587
—
59,893
48,169
32,616
9,086
149,977
5,584
759,895
—
41,803
8,081
27,900
—
1,718,662
(134,433)
(410,296)
$
69,869
$
2,157
$
299,553
$
— $
371,579
68,414
54,914
502
6,194
132,181
124,182
65,493
58,689
107,542
43,644
825,236
310,188
177,512
49,323
8,509
845,085
458,729
147,724
311,005
257,461
158,068
—
(763)
—
—
536,918
359,522
56,912
68,010
(763)
1,392,941
—
—
—
—
—
1,139,569
533,116
606,453
385,111
202,004
—
887,055
(3,159,280)
—
96,572
—
143,159
$
2,167,173
$
1,167,292
$
2,555,246
$ (3,160,043) $
2,729,668
— $
—
15,151
5,385
6,052
—
26,588
28,988
—
—
—
—
457,950
150,286
552,676
(49,196)
—
968
$
— $
13,952
121,521
34,396
49,812
—
220,649
37,225
6,759
150,124
6,129
37,461
—
—
—
—
—
—
—
—
—
—
—
648,682
(1,106,632)
1,098,408
(1,248,694)
1,181
13,952
196,565
87,950
88,480
9,086
397,214
71,797
766,654
150,124
47,932
45,542
27,900
—
397,302
(96,065)
—
(949,978)
1,718,662
145,261
—
(134,433)
(410,296)
1,201,833
1,111,716
2,048,327
(3,160,043)
1,201,833
—
—
48,572
—
48,572
1,201,833
1,111,716
2,096,899
(3,160,043)
1,250,405
$
2,167,173
$
1,167,292
$
2,555,246
$ (3,160,043) $
2,729,668
90
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year ended December 26, 2015
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash flows from
operations:
Depreciation and amortization
Noncash loss on trading securities
Impairment of property, plant and equipment
Impairment of goodwill & intangibles assets
Stock-based compensation
Defined benefit pension plan expense (benefit)
Contribution to defined benefit pension plan
(Gain) loss on sale of property, plant and equipment
Equity in earnings in nonconsolidated subsidiaries
Deferred income taxes
Changes in assets and liabilities (net of acquisitions):
Receivables
Inventories
Prepaid expenses
Accounts payable
Accrued expenses
Other noncurrent liabilities
Income taxes payable (refundable)
Net cash flows from operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Proceeds from sale of assets
Acquisitions, net of cash acquired
Other, net
Net cash flows from investing activities
Cash flows from financing activities:
Net borrowings under short-term agreements
Proceeds from long-term borrowings
Principal payments on long-term borrowings
Dividends paid
Intercompany dividends
Dividends to noncontrolling interest
Proceeds from exercises under stock plans
Excess tax benefits from stock option exercises
Purchase of treasury shares
Purchase of common treasury shares - stock plan exercises
Net cash flows from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents—beginning of year
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
$
40,117
$
(10,760) $
(11,241) $
27,217
$
45,333
29,433
12,611
—
7,486
—
7,244
—
—
983
(11,842)
10,042
27,576
(4,364)
2,337
6,831
(16,485)
177
7,895
107,430
(14,362)
3,996
—
72,866
62,500
—
68,000
(68,213)
(35,357)
26,115
—
13,075
1,699
(168,983)
(13,854)
(177,518)
—
(7,588)
69,869
49,100
4,555
11,808
41,970
—
(610)
(16,500)
1,025
247
1,040
19,144
(12,698)
8,679
(11,666)
7,366
(1,941)
(482)
89,796
(23,388)
(1,049)
—
(13,400)
(37,837)
(12,853)
—
(885)
—
(26,115)
(2,634)
—
—
—
—
(42,487)
(26,240)
(16,768)
299,553
—
542
—
—
—
—
319
39,418
(6,224)
3,547
18,130
(172)
(1,970)
17,713
—
(306)
72,848
(7,718)
302
(12,778)
(50,447)
(70,641)
—
—
—
—
—
—
—
—
—
—
—
(356)
1,851
2,157
4,008
—
—
—
—
—
—
—
—
(27,576)
—
—
2,228
—
—
324
—
—
91,144
4,555
19,836
41,970
7,244
(610)
(16,500)
2,327
247
4,858
50,267
3,296
10,844
(6,805)
8,918
(1,764)
7,107
2,193
272,267
—
—
—
(2,193)
(2,193)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(45,468)
3,249
(12,778)
6,826
(48,171)
(12,853)
68,000
(69,098)
(35,357)
—
(2,634)
13,075
1,699
(168,983)
(13,854)
(220,005)
(26,596)
(22,505)
371,579
349,074
Cash and cash equivalents—end of period
$
62,281
$
91
$
282,785
$
— $
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year ended December 27, 2014
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash flows from
operations:
Depreciation and amortization
Loss on investment
Non-cash debt refinancing costs
Stock-based compensation
Defined benefit pension plan expense
Contribution to defined benefit pension plan
Change in fair value of contingent consideration
(Gain) loss on sale of property, plant and equipment
Equity in earnings in nonconsolidated subsidiaries
Deferred income taxes
Changes in assets and liabilities (net of the effect from acquisitions):
Receivables
Inventories
Prepaid expenses
Accounts payable
Accrued expenses
Other noncurrent liabilities
Income taxes payable
Net cash flows from operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Acquisitions, net of cash acquired
Proceeds from sale of assets
Other, net
Net cash flows from investing activities
Cash flows from financing activities:
Net borrowings under short-term agreements
Proceeds from long-term borrowings
Principal payments on long-term obligations
Settlement of financial derivative
Dividends paid
Intercompany dividends
Intercompany interest on long-term note
Intercompany capital contribution
Dividends to noncontrolling interest
Debt issuance fees
Proceeds from exercises under stock plans
Excess tax benefits from stock option exercises
Purchase of treasury shares
Purchase of common treasury shares - stock plan exercises
Net cash flows from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents—beginning of year
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
$
183,976
$
67,725
$
85,840
$
(148,223) $
189,318
51,893
3,795
—
—
2,638
(18,173)
(4,300)
104
(63)
4,859
(20,143)
1,047
(11,671)
(26,849)
(3,740)
1,133
4,559
70,929
(28,940)
(185,710)
2,320
38,796
(173,534)
(4,472)
(329)
(864)
—
—
(80,395)
(648)
143,000
(2,919)
—
—
—
—
—
24,509
—
(2,478)
6,730
—
—
—
145
(129,031)
(1,474)
(19,136)
5,094
(2,352)
(2,260)
(21,448)
622
(24,945)
17,952
12,926
—
—
—
—
—
—
143
(19,509)
1,866
40,186
15,317
429
(5,212)
(9,590)
—
(19,417)
84,864
(41,260)
(2,823)
—
126
(73,799)
(76,496)
—
—
—
—
—
(36,600)
648
—
—
—
—
—
—
—
—
43
34,735
(6,482)
—
652,540
(356,994)
4,981
(32,443)
116,995
—
(143,000)
—
(7,644)
14,572
4,264
(395,045)
(15,403)
(157,177)
—
(145,707)
215,576
(35,952)
(56)
(27,640)
29,797
53,373
(19,548)
(68,780)
368,333
—
—
—
—
—
—
—
—
148,574
—
—
—
—
—
—
—
—
351
—
—
—
(351)
(351)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
89,328
3,795
(2,478)
6,730
2,638
(18,173)
(4,300)
392
(29)
5,251
907
21,458
(13,594)
(34,321)
(34,778)
1,755
(39,803)
174,096
(73,023)
(185,710)
2,489
(619)
(256,863)
(4,472)
652,211
(357,858)
4,981
(32,443)
—
—
—
(2,919)
(7,644)
14,572
4,264
(395,045)
(15,403)
(139,756)
(19,604)
(242,127)
613,706
371,579
Cash and cash equivalents—end of year
$
69,869
$
2,157
$
299,553
$
— $
92
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year ended December 28, 2013
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
$
278,489
$
97,955
$
68,597
$
(164,581) $
280,460
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash flows from
operations:
Depreciation and amortization
Deconsolidation of subsidiary
Impairment of property, plant and equipment
Stock-based compensation
Defined benefit pension plan expense
Contribution to defined benefit pension plan
(Gain) loss on sale of property, plant and equipment
Equity in earnings in nonconsolidated subsidiaries
Deferred income taxes
Changes in assets and liabilities (net of the effect from acquisitions):
Receivables
Inventories
Prepaid expenses
Accounts payable
Accrued expenses
Other noncurrent liabilities
Income taxes payable
Net cash flows from operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Acquisitions, net of cash acquired
Proceeds from sale of assets
Other, net
Net cash flows from investing activities
Cash flows from financing activities:
Net borrowings under short-term agreements
Proceeds from long-term borrowings
Principal payments on long-term obligations
Cash decrease due to deconsolidation of subsidiary
Dividends paid
Intercompany dividends
Intercompany interest on long-term note
Intercompany principal payment on long-term note
Dividends to noncontrolling interest
Purchase of noncontrolling interest
Proceeds from exercises under stock plans
Excess tax benefits from stock option exercises
Purchase of common treasury shares - stock plan exercises
Net cash flows from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents—beginning of year
Cash and cash equivalents—end of year
21,270
12,862
—
—
6,513
—
—
885
(150,512)
(8,948)
6,181
12,966
2,417
(10,458)
19,191
3,201
(5,908)
175,287
—
—
—
—
—
42
(16,417)
(19)
(22,259)
1,757
98
(1,643)
5,824
—
(3,251)
74,949
(76,582)
(4,439)
—
35
(83,327)
(87,731)
—
—
—
—
—
20,133
1,229
22,430
—
—
—
—
—
—
794
86,258
10,470
—
—
(187)
—
(25,414)
8,947
—
—
—
—
16,348
5,306
(16,107)
(11,107)
—
174,650
40,926
215,576
$
93
43,304
12,011
12,161
—
6,569
(17,619)
(5,245)
(494)
(1,174)
3,370
(1,292)
1,600
24,549
(3,317)
(4,675)
5,029
143,374
(25,732)
(63,152)
36,753
503
(51,628)
5,510
274
(404)
(11,615)
—
(29,080)
(1,229)
(22,430)
(1,767)
(9,324)
—
—
—
—
—
—
—
—
—
—
166,588
—
—
—
—
—
—
—
825
2,832
—
—
—
(2,832)
(2,832)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
77,436
12,011
12,161
6,513
6,569
(17,619)
(4,318)
(835)
(10,141)
(12,708)
13,431
4,115
12,448
21,698
(1,474)
(3,305)
396,442
(106,753)
(63,152)
37,582
602
(131,721)
5,510
274
(591)
(11,615)
(25,414)
—
—
—
(1,767)
(9,324)
16,348
5,306
(16,107)
(37,380)
(27,764)
199,577
414,129
613,706
43,792
(7,927)
23,083
6,714
29,797
$
(70,065)
(19,837)
1,844
366,489
368,333
$
$
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 26, 2015
(Dollars in thousands, except per share amounts)
21) QUARTERLY FINANCIAL DATA (Unaudited)
Net Sales
Gross
Profit
Per Share
Stock Price
Dividends
Amount
Basic
Diluted
High
Low
Declared
Net Earnings
$
670,398
682,123
632,575
633,828
$ 2,618,924
$ 165,454
169,548
156,751
129,280
$ 621,033
$
$
30,739
27,873
12,066
(30,561)
40,117
$
751,740
842,599
765,668
763,136
$ 3,123,143
$ 206,982
220,477
199,500
181,158
$ 808,117
$
55,980
63,976
23,559
40,461
$ 183,976
$
$
$
$
1.29
1.19
0.52
(1.34)
1.72
2.10
2.40
0.93
1.67
7.15
$
$
$
$
1.28
1.19
0.52
(1.34)
1.71
$ 130.26
128.26
121.23
117.94
$ 130.26
2.08
2.38
0.92
1.66
7.09
$ 155.64
163.23
155.62
139.31
$ 163.23
$ 117.56
118.09
97.44
93.99
$ 93.99
$ 141.74
143.02
131.68
123.44
$ 123.44
$
$
$
$
0.375
0.375
0.375
0.375
1.500
0.250
0.375
0.375
0.375
1.375
2015
First
Second (1)
Third (2)
Fourth (3)
Year
2014
First
Second
Third (4)
Fourth
Year
Earnings per share are computed independently for each of the quarters. Therefore, the sum of the quarterly earnings
per share may not equal the total for the year.
_______________________________
(1)
(2)
(3)
The second quarter of 2015 included costs associated with the restructuring plan (the "Plan") that was approved by
the Board of Directors in April 2015 of $9.8 million after tax ($0.42 per share).
The third quarter of 2015 included costs associated with the Plan of $6.3 million after tax ($0.27 per share) and non-
cash impairments of goodwill and trade names of $13.4 million after tax ($0.58 per share).
The fourth quarter of 2015 included costs associated with the Plan of $11.5 million after tax ($0.50 per share) and
non-cash impairments of goodwill and intangibles of $7.1 million and $19.6 million after tax (combined $1.16 per
share) related to our APAC Coatings and Access Systems businesses, respectively. In addition, the Company
recorded a one time increase in its warranty reserve related to one large utility project of $11.5 million after tax
($0.50 per share) and an increase to the bad debt allowance for a large international irrigation receivable of $4.8
million after tax ($0.21 per share). Lastly, U.K. corporate tax rates were collectively reduced from 20% to 18%
which reduced the value of our deferred tax assets associated with net operating loss carryforwards and certain
timing differences which increased the Company's tax expense by $7.1 million ($0.31 per share).
(4)
The third quarter of 2014 included costs associated with refinancing of our long-term debt of $24.2 million after
tax ($0.95 per share) and a non-cash fair market value adjustment for Delta EMD shares of $1.4 million after tax
($.05 per share).
94
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
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-15. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period
covered by this report, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that
information required to be disclosed by the Company in the reports the Company files or submits under the Securities
Exchange Act of 1934 is (1) accumulated and communicated to management, including the Company’s Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures and (2) recorded, processed,
summarized and reported, within the time periods specified in the Commission’s rules and forms.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting as such term is defined in Securities Exchange Act Rule 13a-15(f). 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 Company’s internal control over financial reporting. The Company’s
management used the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations (COSO) to perform this evaluation. Based on that evaluation, the Company’s management concluded that the
Company’s internal control over financial reporting was effective as of December 26, 2015.
The effectiveness of the Company’s internal control over financial reporting as of December 26, 2015 has been
audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, a copy of
which is included in this Annual Report on Form 10-K.
95
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Valmont Industries, Inc.
Omaha, Nebraska
We have audited the internal control over financial reporting of Valmont Industries, Inc. and subsidiaries (the
“Company”) as of December 26, 2015, based on criteria established in Internal Control—Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected
on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 26, 2015, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements and financial statement schedule as of and for the year ended December 26,
2015, of the Company and our report dated February 24, 2016 expressed an unqualified opinion on those financial statements
and financial statement schedule.
/s/ Deloitte & Touche LLP
Omaha, Nebraska
February 24, 2016
96
ITEM 9B. OTHER INFORMATION.
Shareholder Return Performance Graphs
The graphs below compare the yearly change in the cumulative total shareholder return on the Company’s common
stock with the cumulative total returns of the S&P Mid Cap 400 Index and the S&P Mid Cap 400 Industrial Machinery Index
for the five and ten-year periods ended December 26, 2015. The Company was added to these indexes in 2009 by Standard &
Poor’s. The graphs assume that the beginning value of the investment in Valmont Common Stock and each index was $100
and that all dividends were reinvested.
97
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Except for the information relating to the executive officers of the Company set forth in Part I of this 10-K Report,
the information called for by items 10, 11, and 13 is incorporated by reference to the sections entitled “Certain Shareholders”,
“Corporate Governance”, “Board of Directors and Election of Directors”, “Compensation Discussion and Analysis”,
"Compensation Risk Assessment", “Human Resources Committee Report”, “Summary Compensation Table”, “Grants of
Plan-Based Awards for Fiscal Year 2015”, “Outstanding Equity Awards at Fiscal Year-End”, “Options Exercised”, "Delta
Pension Benefits 2015”, “Nonqualified Deferred Compensation”, “Director Compensation”, “Potential Payments Upon
Termination or Change-in-Control” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.
The Company has adopted a Code of Ethics for Senior Officers that applies to the Company’s Chief Executive
Officer, Chief Financial Officer and Controller and has posted the code on its website at www.valmont.com through the
“Investors Relations” link. The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating
to amendments to or waivers from any provision of the Code of Ethics for Senior Officers applicable to the Company’s Chief
Executive Officer, Chief Financial Officer or Controller by posting that information on the Company’s Web site
at www.valmont.com through the “Investors Relations” link.
ITEM 11. EXECUTIVE COMPENSATION.
See Item 10.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
Incorporated herein by reference to “Certain Shareholders” and “Equity Compensation Plan Information” in the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
See Item 10.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information called for by Item 14 is incorporated by reference to the sections titled “Ratification of
Appointment of Independent Auditors” in the Proxy Statement.
98
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)(1)(2) Financial Statements and Schedules.
PART IV
The following consolidated financial statements of the Company and its subsidiaries are included herein as listed
below:
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Earnings—Three-Year Period Ended December 26, 2015
Consolidated Statements of Comprehensive Income—Three-Year Period Ended December 26, 2015
Consolidated Balance Sheets—December 26, 2015 and December 27, 2014
Consolidated Statements of Cash Flows—Three-Year Period Ended December 26, 2015
Consolidated Statements of Shareholders’ Equity—Three-Year Period Ended December 26, 2015
Notes to Consolidated Financial Statements—Three-Year Period Ended December 26, 2015
The following financial statement schedule of the Company is included herein:
SCHEDULE II—Valuation and Qualifying Accounts
45
46
47
48
49
50
51
100
All other schedules have been omitted as the required information is inapplicable or the information is included in
the consolidated financial statements or related notes. Separate financial statements of the registrant have been omitted
because the registrant meets the requirements which permit omission.
(a)(3) Exhibits.
Index to Exhibits, Page 102
99
Schedule II
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(Dollars in thousands)
Balance at
beginning of
period
Charged to
profit and
loss
Deductions
from
reserves*
Balance at
close of
period
Fifty-two weeks ended December 26, 2015
Reserve deducted in balance sheet from the asset
to which it applies—
Allowance for doubtful receivables
Allowance for deferred income tax asset valuation
Fifty-two weeks ended December 27, 2014
Reserve deducted in balance sheet from the
asset to which it applies—
Allowance for doubtful receivables
Allowance for deferred income tax asset valuation
Fifty-two weeks ended December 28, 2013
Reserve deducted in balance sheet from the asset
to which it applies—
Allowance for doubtful receivables
Allowance for deferred income tax asset valuation
$
$
$
9,922
104,487
12,420
(13,650)
(1,334) $
—
21,008
90,837
10,369
107,767
1,780
(3,280)
(2,227) $
—
9,922
104,487
7,898
120,979
4,674
(13,212)
(2,203) $
—
10,369
107,767
______________________________________________
*
The deductions from reserves are net of recoveries.
100
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 24th day of February, 2016.
SIGNATURES
Valmont Industries, Inc.
By:
/s/ MOGENS C. BAY
Mogens C. Bay
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated and on the dates indicated.
Signature
Title
Director, Chairman and Chief Executive Officer
(Principal Executive Officer)
Date
2/24/2016
/s/ MOGENS C. BAY
Mogens C. Bay
/s/ MARK C. JAKSICH
Mark C. Jaksich
/s/ TIMOTHY P. FRANCIS
Timothy P. Francis
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
2/24/2016
Vice President and Controller (Principal Accounting
Officer)
2/24/2016
Walter Scott, Jr.*
Daniel P. Neary*
Catherine James Paglia*
Theo W. Freye*
Kenneth E. Stinson*
James B. Milliken*
K.R. den Daas*
Clark Randt*
______________________________________________
*
Mogens C. Bay, by signing his name hereto, signs the Annual Report on behalf of each of the directors indicated on
this 24th day of February, 2016. A Power of Attorney authorizing Mogens C. Bay to sign the Annual Report on
Form 10-K on behalf of each of the indicated directors of Valmont Industries, Inc. has been filed herein as
Exhibit 24.
By:
/s/ MOGENS C. BAY
Mogens C. Bay
Attorney-in-Fact
101
INDEX TO EXHIBITS
Exhibit 3.1 — The Company’s Restated Certificate of Incorporation, as amended. This document
was filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q
(Commission file number 001-31429) for the quarter ended March 28, 2009 and is
incorporated herein by this reference.
Exhibit 3.2 — The Company's By-Laws, as amended. This document was filed as Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 29, 2014 and
is incorporated herein (Commission file number 001-31429) by reference.
Exhibit 4.1 — Credit Agreement, dated as of August 15, 2012, among the Company, Valmont
Industries Holland B.V. and Valmont Group Pty. Ltd., as Borrowers, JPMorgan Chase
Bank, N.A., as Administrative Agent, and the other lenders party thereto. This
document was filed as Exhibit 10.1 to the Company's Current Report on Form 8-K
(Commission file number 001-31429) dated August 15, 2012 and is incorporated
herein by reference.
Exhibit 4.2 — First Amendment dated as of October 17, 2014 to Credit Agreement, dated as of
August 15, 2012, among the Company, Valmont Industries Holland B.V. and Valmont
Group Pty. Ltd., as Borrowers, JPMorgan Chase Bank, N.A., as Administrative
Agent, and the other lenders party thereto. This document was filed as exhibit 4.2 to
the Company's Current Report on Form 8-K (Commission file number 001-31429)
dated October 17, 2014 and is incorporated herein by this reference.
Exhibit 4.3 — Second Amendment dated as of February 23, 2016 to Credit Agreement, dated as of
August 15, 2012, among the Company, Valmont Industries Holland B.V. and Valmont
Group Pty. Ltd., as Borrowers, JPMorgan Chase Bank, N.A., as Administrative
Agent, and the other lenders party thereto. This document was filed as Exhibit 10.1
to the Company’s Current Report on Form 8-K (Commission file number 001-31429)
dated February 23, 2016 and is incorporated herein by reference.
Exhibit 4.4 — Indenture relating to senior debt, dated as of April 12, 2010, among Valmont
Industries, Inc., the Subsidiary Guarantors party thereto and Wells Fargo Bank,
National Association., as Trustee. This document was filed as Exhibit 4.1 to the
Company’s Current Report on Form 8-K (Commission file number 001-31429) dated
April 12, 2010 and is incorporated herein by this reference.
Exhibit 4.5 — First Supplemental Indenture, dated as of April 12, 2010, to indenture relating to
senior debt, dated as of April 12, 2010, among Valmont Industries, Inc., the
Subsidiary Guarantors party thereto and Wells Fargo Bank, National Association, as
Trustee. This document was filed as Exhibit 4.2 to the Company’s Current Report on
Form 8-K (Commission file number 001-31429) dated April 12, 2010 and is
incorporated herein by this reference.
Exhibit 4.6 — Second Supplemental Indenture, dated as of September 22, 2014, to Indenture
relating to senior debt, dated as of April 12, 2010, among Valmont Industries, Inc., the
Subsidiary Guarantors party thereto and Wells Fargo Bank, National Association, as
Trustee. This document was filed as Exhibit 4.2 to the Company's Current Report on
Form 8-K (Commission file number 001-31429) dated September 22, 2014 and is
incorporated herein by this reference.
Exhibit 4.7 — Third Supplemental Indenture, dated as of September 22, 2014, to Indenture relating
to senior debt, dated as of April 12, 2010, among Valmont Industries, Inc., the
Subsidiary Guarantors party thereto and Wells Fargo Bank, National Association, as
Trustee. This document was filed as Exhibit 4.2 to the Company's Current Report on
Form 8-K (Commission file number 001-31429) dated September 22, 2014 and is
incorporated herein by this reference.
102
Exhibit 10.1 — The Company’s 1996 Stock Plan. This document was filed as Exhibit 10.1 to the
Company’s Annual Report on Form 10-K (Commission file number 001-31429) for
the year ended December 26, 2009 and is incorporated herein by this reference.
Exhibit 10.2 — The Company’s 1999 Stock Plan, as amended. This document was filed as
Exhibit 10.2 to the Company’s Annual Report on Form 10-K (Commission file
number 001-31429) for the year ended December 26, 2009 and is incorporated herein
by this reference.
Exhibit 10.3 — The Company’s 2002 Stock Plan. This document was filed as Exhibit 10.3 to the
Company's Annual Report on Form 10-K (Commission file number 001-31429) for
the year ended December 31, 2011 and is incorporated herein by reference.
Exhibit 10.4 — Amendment No. 1 to Valmont 2002 Stock Plan. This document was filed as
Exhibit 10.4 to the Company’s Annual Report on Form 10-K (Commission file
number 001-31429) for the year ended December 26, 2009 and is incorporated herein
by this reference.
Exhibit 10.5 — The Company’s 2008 Stock Plan. This document was filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K (Commission file number 001-31429) for
the fiscal year ended December 28, 2013 and is incorporated herein by this reference.
Exhibit 10.6 — The Company's 2013 Stock Plan. This document was filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K (Commission file number 001-31429) dated
April 30, 2013 and is incorporated herein by reference.
Exhibit 10.7*
2013 Stock Plan Amendment, dated December 17, 2015.
Exhibit 10.8* — Form of Stock Option Agreement.
Exhibit 10.9 — Form of Restricted Stock Agreement. This document was filed as Exhibit 10.4 to the
Company’s Current Report on Form 8-K (Commission file number 001-31429) dated
April 30, 2013 and is incorporated herein by reference.
Exhibit 10.10 — Form of Restricted Stock Unit Agreement (Director). This document was filed as
Exhibit 10.5 to the Company’s Current Report on Form 8-K (Commission file
number 001-31429) dated April 30, 2013 and is incorporated herein by reference.
Exhibit 10.11* — Form of Restricted Stock Unit Agreement (Domestic).
Exhibit 10.12* — Form of Restricted Stock Unit Agreement (International).
Exhibit 10.13 — Form of Director Stock Option Agreement. This document was filed as Exhibit 10.9
to the Company's Annual Report on form 10-K (Commission file number 001-31429)
for the year ended December 29, 2012 and is incorporated herein by reference.
Exhibit 10.14 — The 2013 Valmont Executive Incentive Plan. This document was filed as Exhibit 10.2
to the Company’s Current Report on Form 8-K (Commission file number 001-31429)
dated April 30, 2013 and is incorporated herein by reference.
103
Exhibit 10.15 — Director and Named Executive Officers Compensation, is incorporated by reference
to the sections entitled “Compensation Discussion and Analysis”, “Compensation
Committee Report”, “Summary Compensation Table”, “Grants of Plan-Based Awards
for Fiscal Year 2015”, “Outstanding Equity Awards at Fiscal Year-End”, “Options
Exercised and Stock Vested”, “Nonqualified Deferred Compensation”, and “Director
Compensation” in the Company’s Proxy Statement for the Annual Meeting of
Stockholders on April 26, 2016.
Exhibit 10.16 — The Amended Unfunded Deferred Compensation Plan for Nonemployee Directors.
This document was filed as Exhibit 10.15 to the Company's Annual Report on Form
10-K (Commission file number 001-31429) for the fiscal year ended December 28,
2013 and is incorporated herein by this reference.
Exhibit 10.17 — VERSP Deferred Compensation Plan. This document was filed as Exhibit 10.16 to
the Company's Annual Report on Form 10-K (Commission file number 001-31429)
for the fiscal year ended December 28, 2013 and is incorporated herein by this
reference.
Exhibit 21* — Subsidiaries of the Company.
Exhibit 23* — Consent of Deloitte & Touche LLP.
Exhibit 24* — Power of Attorney.
Exhibit 31.1* — Section 302 Certification of Chief Executive Officer.
Exhibit 31.2* — Section 302 Certification of Chief Financial Officer.
Exhibit 32.1* — Section 906 Certifications.
Exhibit 101 — The following financial information from the Company’s Annual Report on Form 10-
K for the year ended December 26, 2015, formatted in XBRL (eXtensible Business
Reporting Language): (i) the Consolidated Statements of Earnings, (ii) the
Consolidated Statements of Comprehensive Income,(iii) the Consolidated Balance
Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated
Statements of Shareholders’ Equity, (vi) Notes to Consolidated Financial Statements,
and (vii) document and entity information.
______________________________________________
*
Filed herewith
Pursuant to Item 601(b)(4) of Regulation S-K, certain instruments with respect to the registrant’s long-term debt are
not filed with this Form 10-K. Valmont will furnish a copy of such long-term debt agreements to the Securities and Exchange
Commission upon request.
Management contracts and compensatory plans are set forth as exhibits 10.1 through 10.17.
104
Exhibit 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Mogens C. Bay, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended December 26, 2015 of Valmont Industries, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
/s/ MOGENS C. BAY
Mogens C. Bay
Chairman and Chief Executive Officer
Date: February 24, 2016
Exhibit 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
I, Mark C. Jaksich, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended December 26, 2015 of Valmont Industries, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
/s/ MARK C. JAKSICH
Mark C. Jaksich
Executive Vice President and Chief Financial Officer
Date: February 24, 2016
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the
Act of 2002
The undersigned, Mogens C. Bay, Chairman and Chief Executive Officer of Valmont Industries, Inc. (the
“Company”), has executed this certification in connection with the filing with the Securities and Exchange Commission of the
Company’s Annual Report on Form 10-K for the year ended December 26, 2015 (the “Report”).
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Act of 2002, to his knowledge that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
IN WITNESS WHEREOF, the undersigned has executed this certification as of the 24th day of February, 2016.
/s/ Mogens C. Bay
Mogens C. Bay
Chairman and Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the
Act of 2002
The undersigned, Mark C. Jaksich, Executive Vice President and Chief Financial Officer of Valmont Industries, Inc.
(the “Company”), has executed this certification in connection with the filing with the Securities and Exchange Commission of
the Company’s Annual Report on Form 10-K for the year ended December 26, 2015 (the “Report”).
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Act of 2002, to his knowledge that:
3.
4.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
IN WITNESS WHEREOF, the undersigned has executed this certification as of the 24th day of February, 2016.
/s/ MARK C. JAKSICH
Mark C. Jaksich
Executive Vice President and Chief Financial Officer
(This page has been left blank intentionally.)
A N N U A L R E P O R T 2015 (cid:87) VA L M O N T I N D U S T R I E S
9
Board of Directors
Mogens C. Bay
Chairman and
James B. Milliken
Chancellor
Ambassador
Clark T. Randt, Jr.
Chief Executive Officer
City University of New York
Former U.S. Ambassador
Valmont Industries, Inc.
Director Since 2011
to the People’s Republic of China
Director Since 1993
Kaj den Daas
Daniel P. Neary
Chairman and Retired
Chief Executive Officer
Chief Executive Officer
TCP International Holdings, Ltd.
Mutual of Omaha
Director Since 2004
Director Since 2005
Director Since 2009
Walter Scott, Jr.
Retired Chairman
Peter Kiewit Sons, Inc.
Director Since 1981
Dr. Theo W. Freye
Retired Chairman
CLAAS KgaA
Director Since 2015
Catherine J. Paglia
Kenneth E. Stinson
Director
Lead Director
Enterprise Asset Management
Chairman Emeritus
Director Since 2012
Peter Kiewit Sons’, Inc.
Director Since 1996
Audit
Committee
Walter Scott, Jr. (Chairman)
Kaj den Daas
Daniel P. Neary
Catherine J. Paglia
Human Resources
Committee
Daniel P. Neary (Chairman)
Catherine J. Paglia
Kenneth E. Stinson
Governance and
Nominating Committee
Clark T. Randt, Jr. (Chairman)
Dr. Theo W. Freye
James B. Milliken
10
VA L M O N T I N D U S T R I E S (cid:87) A N N U A L R E P O R T 2015
Corporate & Business Unit Management
Corporate Management
Mogens C. Bay
Chairman & Chief Executive Officer
John A. Kehoe
Vice President Information Technology
Mark C. Jaksich
Executive Vice President & Chief Financial Officer
Barry A. Ruffalo
Executive Vice President Operational Excellence
Vanessa K. Brown
Senior Vice President Human Resources
Darrel G. Moreland
Vice President and Head of Audit
Timothy P. Francis
Vice President & Corporate Controller
Ellen S. Dasher
Vice President Global Taxation
Business Unit Management
Engineered
Support Structures
Utility Support
Structures
David M. LeBlanc
Group President
Stephen G. Kaniewski
Group President
Michael Banat
Vice President
& General Manager
International Utility
Douglas M. Bryson
Vice President
Steel Operations
Chris Colwell
Vice President
Strategy & Commerce
Timothy L. Kennedy
Vice President
Human Resources
Larry E. Price
Vice President
& Group Controller
Steven A. Schmid
Vice President
Operational Excellence
Brian J. Desigio
President North America
Structures
Viswanath Devarajan
Managing Director
India
Brian L. Ketcham
Vice President
& Group Controller
Gary P. King
Vice President
& General Manager
U.S. Lighting & Traffic
Stephen B. LeGrand
Vice President
Strategy Deployment
Piet Stevens
Vice President
& General Manager
Europe, Middle East
& Africa
Jerry Wang
Managing Director
Structures, China
Irrigation
Coatings
Leonard M. Adams
Group President
Richard S. Cornish
Group President
Joshua M. Dixon
Vice President
Global Operations
Robert J. Ludvik
Vice President
& Group Controller
Matt T. Ondrejko
Vice President
Global Marketing
Richard J. Panowicz
Vice President Sales
North American Sales
Aaron M. Schapper
Vice President
& General Manager
International Irrigation/
Global Engineering
Russell Sheehan
Managing Director
Australia/New Zealand
Coatings
Pete Smith
Vice President
& General Manager
North American
Galvanizing
Energy and Mining
Barry Ruffalo
Group President
Claus Bo Jørgensen
Chief Executive Officer
Valmont SM A/S
Ed Sill
Region President
Australia/New Zealand
and Managing Director
Access Systems
David Wong
Managing Director
Asia
A N N U A L R E P O R T 2015 (cid:87) VA L M O N T I N D U S T R I E S
11
Corporate & Stock Information
Corporate Headquarters
Valmont Industries, Inc.
One Valmont Plaza
Omaha, Nebraska 68154-5215 USA
Tel
Fax
1-402-963-1000
1-402-963-1198
Online www.valmont.com
Independent Public Accountants
Deloitte & Touche LLP
Omaha, Nebraska USA
Legal Counsel
McGrath North Mullin & Kratz, PC LLO
Omaha, Nebraska USA
Stock Transfer Agent and Registrar
Address Shareholder Inquiries to:
Wells Fargo Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120 USA
1-866-886-9962
Send Certificates for Transfer
and Address Changes to:
Wells Fargo Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120 USA
1-866-886-9962
Annual Meeting
The annual meeting of Valmont’s shareholders
will be held at 1:00 p.m. on Tuesday, April 26, 2016,
at the Omaha Marriott Hotel, 10220 Regency
Circle in Omaha, Nebraska USA.
Shareholder and Investor Relations
Valmont’s common stock trades on the New York
Stock Exchange (NYSE) under the symbol VMI.
We make available, free of charge through our
Internet website at www.valmont.com, our annual
report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amend-
ments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as soon as reasonably practicable after
such material is electronically filed with or furnished
to the Securities and Exchange Commission.
We have also posted on our website our (1)
Corporate Governance Principles, (2) Charters for
the Audit Committee, Human Resources Committee
and Governance and Nominating Committee of
the Board, (3) Code of Business Conduct, and (4)
Code of Ethics for Senior Officers applicable to the
Chief Executive Officer, Chief Financial Officer and
Controller. Valmont shareholders may also obtain
copies of these items at no charge by writing to:
Jeffrey S. Laudin
Investor Relations Department
Valmont Industries, Inc.
One Valmont Plaza
Omaha, Nebraska 68154-5215 USA
Tel
Fax
1-402-963-1000
1-402-963-1096
Valmont Industries, Inc.
One Valmont Plaza
Omaha, Nebraska 68154-5215 USA
1-402-963-1000
valmont.com