FOR THE FISCAL YEAR ENDED DECEMBER 30, 2017
MESSAGE TO FELLOW
SHAREHOLDERS AND
FORM 10-K
This is a time of transition at Valmont. As I write this, Steve Kaniewski has taken over as Valmont’s
CEO and I have moved into the role of Executive Chairman of the Board of Directors. Steve will
run the company and I couldn’t be any more confident that he will do a very, very good job.
Steve has been with us for nearly a decade and he has excelled at every job he has had at our
company. I know that he shares my love for Valmont and he lives our values. He is passionate
about the businesses we are in, he operates with absolute integrity and he is committed to
continuously find ways to improve how we serve our customers and run our business and to
deliver results.
After nearly 25 years as your CEO, I want to take this opportunity to thank you, our shareholders,
for the support you have afforded me. Over the years we have had good times and we have faced
challenges, but never lost sight of the fact that we are in businesses with strong, global and long
term drivers.
I am extremely honored to have led Valmont for a quarter of a century and am proud of the role
this company has played in improving the lives of countless individuals around the world.
Mogens C. Bay
Executive Chairman
MESSAGE
TO OUR SHAREHOLDERS
2017 was a year of progress for Valmont. We
recognized another year of revenue and earn-
ings growth. A rebound in the Utility business,
increased Irrigation demand, and a late-year
recovery in our Coatings business more than
offset mixed results in Engineered Support
Structures. Revenues grew 9.0%. While GAAP
diluted earnings per share declined, on an
adjusted basis, earnings per share increased
commensurately with the growth in revenues.
A challenge we faced in 2017 was rapid raw
material inflation that was difficult to fully
recover in certain businesses. Overall, profitability
improved through increased sales, a continued
focus on cost reductions, and operational efficien-
cies. We are pleased with our progress in 2017.
As this is the first CEO change in nearly 25
years, looking ahead, you may be wondering
what might change. First, we are taking steps
to expand our definition of our total addressable
market, uncovering growth opportunities that
may have been overlooked in the past. This
broader view has energized our teams, providing
new avenues of growth to pursue. We will keep
you posted on our progress. Second, this renewed
emphasis on growth will bring a change to our
organizational structure in two ways. To support
our expanded market view, we are building
commercially-focused teams to grow revenue.
This allows us to leverage our global leadership
position, our geographic footprint, and our unique
engineering expertise to differentiate ourselves
in the market. Second, we are combining certain
administrative and functional roles into central-
ized regional back offices, to leverage common
expertise along cross-divisional lines.
What will not change are the great drivers
of our businesses that remain strong and
supported by long-term secular trends:
WITH GRATITUDE
population growth, water scarcity and improving
diets for our agricultural businesses, and the
need for investment and re-investment in global
infrastructure. Our historical focus on Return
on Invested Capital as an important measure
of creating shareholder value will remain solidly
and firmly in place.
challenges made it difficult to fully recover cost
inflation through pricing actions as quickly as
they occurred.
End market demand for lighting and traffic was
muted in many regions due to reduced global
infrastructure investment.
As we move to lessen our dependency on the
energy and mining end-markets, we negotiated
a definitive agreement this past August to divest
of the grinding media business, which is subject
to regulatory approval. As a result, we changed
our segment reporting structure. Our access
systems business will now be reported within
the Engineered Support Structures Segment
and the offshore structures business will be
included in the Utility Support Structures
Segment, resulting in four reportable segments
in 2018. This aligns these businesses better with
future growth opportunities.
Segment Performance
Engineered Support Structures Segment
This segment showed modest revenue gains,
however, inflation in raw material costs resulted
in reduced profitability. North America steel
costs increased numerous times during 2017,
and increased significantly in China. Competitive
Sales of wireless communications structures and
components improved, benefiting from network
upgrades and rollouts in the Asia Pacific region,
and carrier competition for better wireless
coverage in North America.
Our Highway Safety business, while small,
performed well and we expanded into the
India market during the year. Sales of access
systems improved as we focused growth efforts
on architectural products and streamlined our
supply chain.
Utility Support Structures Segment
This segment remained strong throughout the
year, supported by the ongoing expansion of
the North American grid and a continued move
to renewable and other generation sources.
Profitability returned to double digits as a result
of strong operational performance and increased
sales. The impact of coastal hurricanes and
fires in the Western U.S. once again highlighted
$ 3,304 $ 3,123 $ 2,618
$ 2,522 $ 2,746
$ 473.1
$ 357.7 $131.62
$ 243.52
$ 266.4
$ 10.35
$ 7.09
$ 1.715
$ 7.634
$ 5.116
$ 237.52
$ 255.92
$ 6.424
$ 5.635
$ 6.976
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Net Sales
Operating Income
Diluted Earnings Per Share
VALMONT’S VISION
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.
the need for hardening of the grid. We believe
we are well positioned to participate in these
opportunities. Sales of offshore products in
Europe continued to be challenged by reduced
investment in oil and natural gas exploration
and a more competitive environment in wind.
This is reflected in the 2017 results.
Coatings Segment
A dramatic increase in global zinc prices led
to a lag in cost recoveries. Despite this, revenue
increased and profitability was similar to last
year. Profitability was impacted by a greater
percentage of internal sales versus industrial
customers. Our Asia Pacific businesses bene-
fited from last year’s restructuring efforts and
rebounding investments in infrastructure.
Irrigation Segment
Relatively low levels of commodity prices and
net farm income kept growers cautious about
making capital investments. Nevertheless, sales
of irrigation equipment in North America rose
modestly. Our international markets remained
robust as the desire for countries to be more
self-sufficient in their food production was
supported by local government investments
in irrigation and agriculture. The rollout of
a new family of ICON™ smart panels and a
patented, revolutionary center drive motor
was well received by the market, reinforcing
our market leadership position.
2018 Outlook
As we look towards 2018, we continue our
dedication to generating long-term shareholder
value by driving market growth through
innovative new products, moving into new
geographies, and pursuing on our pipeline of
strategic acquisition candidates. We will drive
operational improvement through process
standardization across the organization. This
past year, we started an organizational shift
to put more resources towards centralizing key
common processes across our segments. We
opened two regional shared service centers
to consolidate certain administrative functions.
This approach creates more efficiencies in
administering back office work, freeing
resources within the businesses to pursue
growth. It is a journey that is vital to our future
growth strategy. We are making good progress
on all of these initiatives and expect to build
on our efforts in 2018.
Stephen G. Kaniewski
President and Chief Executive Officer
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 30, 2017
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
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
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
No
No
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
Non accelerated filer
Smaller reporting company
Emerging growth company
(Do not check if a
smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
At February 20, 2018 there were 22,693,416 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 July 1, 2017
was $3,296,971,119.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s proxy statement for its annual meeting of shareholders to be held on April 24, 2018 (the “Proxy Statement”), to be filed
within 120 days of the fiscal year ended December 30, 2017, are incorporated by reference in Part III.
This Introduction of the 10-K provides information concerning Valmont Industries, Inc. It does not contain all of the
information you should consider. Please read the entire 10-K carefully before voting or making an investment decision. In
particular please refer to the following sections:
Item 1 Business
Item 6 Selected Financial Data
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operation
Item 8 Financial Statements and Supplementary Data
Note, this introduction does not contain Part III information as most of the information will be incorporated by reference from
our proxy statement to be filed for the annual shareholders meeting on April 24, 2018.
FINANCIAL HIGHLIGHTS
$ 3,304 $ 3,123 $ 2,618
$ 2,522 $ 2,746
$ 473.1
$ 357.7 $131.62
$ 243.52
$ 266.4
$ 10.35
$ 7.09
$ 1.715
$ 7.634
$ 5.116
$ 237.52
$ 255.92
$ 6.424
$ 5.635
$ 6.976
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Net Sales
Operating Income
Diluted Earnings Per Share
Dollars in millions, except per share amounts
OPERATING RESULTS
Net sales
Operating income2
Net earnings1,4,5,6
Diluted earnings per share4,5,6
Dividends per share
FINANCIAL POSITION
Total shareholders’ equity
Invested capital3
OPERATING PROFITS
2017
2016
2015
$
2,746.0
$
2,521.7
$
2,618.9
266.4
116.2
5.11
1.50
243.5
173.2
7.63
1.50
131.7
40.1
1.71
1.50
$
1,151.8
$
982.8
1,941.7
1,774.8
$
965.2
1,759.9
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
24.8%
9.7%
4.2 %
12.3 %
10.3 %
Shares outstanding (000)
Approximate number of shareholders
Number of employees
22,694
24,801
10,690
26.0%
9.7%
6.9 %
18.9 %
9.5 %
22,521
26,057
10,552
23.7%
5.0%
1.5 %
3.3 %
4.6 %
22,857
27,010
10,697
1 Net earnings attributable to Valmont Industries, Inc.
2 Fiscal 2016 GAAP operating income included restructuring expense of $12.4 million (pre-tax). On an adjusted basis, operating income was $255.9 million. Fiscal 2015
GAAP operating income 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 on an adjusted basis, operating income was $237.5 million.
3 See Item 6, Selected Financial Data, in this Form 10-K for calculation of invested capital and return on invested capital.
4 Fiscal 2016 included deferred income tax benefit of $30.6 million ($1.35 per share) resulting primarily from the re-measurement of the deferred tax asset for the
Company's U.K. defined benefit pension plan. In addition, fiscal 2016 included $9.9 million ($0.44 per share) recorded as a valuation allowance against a tax credit
asset. Finally, fiscal 2016 included the reversal of a contingent liability that was recognized as part of the Delta purchase accounting of $16.6 million ($0.73 per share)
which is not taxable.
5 Fiscal 2015 included intangible asset impairment of $40.1 million after tax ($1.72 per share), restructuring expense of $28.2 million after tax ($1.20 per share), other
non-recurring 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).
6. Fiscal 2017 included $42.0 million ($1.85 per share) of tax expense attributed to the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) enacted in December 2017.
For more information on the footnotes above and the reasons why we believe the non-GAAP measures are useful, please see Item 6, Item 7 and Item 8.
VALMONT
AT A GLANCE
Valmont competes in the global industries for infra-
structure and agriculture through four primary business
segments: Engineered Support Structures, Utility
Support Structures, Coatings and Irrigation.
Coatings
Our high-performing coatings protect invest-
ments in infrastructure by preventing corrosion
and extending the lifetimes of metal products
across numerous end markets.
▼▼ Hot-dip galvanizing and high-performing
alternatives, including anodizing, powder
coating, e-coating and other finishes
Irrigation
Through our efficient irrigation equipment,
we help producers feed growing populations
and support demand for biofuels, while
making efficient use of the world’s limited
freshwater supply.
▼▼ Center pivot, linear move and corner
irrigation equipment
▼▼ Pivot tracking and water application
control technology
▼▼ Tubular products for agriculture and industry
Engineered Support Structures
We design, engineer, manufacture and supply
essential infrastructure products for wireless
communications, street, highways and commer-
cial construction applications. In doing so, we
support global infrastructure investment to
enhance economic growth.
▼▼ Steel, aluminum, composite and wood
poles for lighting, traffic and signage
▼▼ Steel structures and components for
wireless communications
▼▼ Highway safety products for road
infrastructure
▼▼ Engineered access systems and perforated
metal that allow people to effectively move
through an industrial complex
Utility Support Structures
We provide the utility industry with highly engi-
neered structures that support new generating
capacity, including renewable energy sources,
and upgrades to aging transmission grids.
▼▼ Steel, concrete and hybrid structures for
high-voltage electric power transmission,
substations and distribution
▼▼ Towers and components for the wind energy
industry and related products and services
Competitive Strengths
▼▼ We hold leadership positions in most of our
major markets.
▼▼ We believe we are the leading competitor
in fragmented industries.
▼▼ We are a global player with international
revenues representing 38% of sales in 2017.
Our long term financial goals
▼▼ Grow revenue between 5-10% through growth
in our existing businesses and by acquisition
▼▼ Grow earnings per-share more than 10%
▼▼ After-tax return on invested capital greater
than 10%
▼▼ Free cash flow equals or exceeds net earnings
Our capital allocation philosophy is based on
three priorities:
▼▼ Support the growth and operations of our
existing businesses through working capital
and capital investment
▼▼ Pursue acquisitions that leverage with our
businesses or competencies and show clear
path to exceeding our cost of capital within
2 to 3 years
▼▼ Return money to shareholders through
dividends or opportunistic share repurchases
Value Creation
We believe shareholder value is created when
our after-tax returns grow over time and
exceed our cost of capital. We believe stock
prices are correlated with value creation.
We call our measure of value creation
TVI (Total Value Impact), which is
calculated as follows:
Net Operating Profit After-Tax
– Cost of Capital = TVI
BOARD
OF DIRECTORS
Mogens C. Bay
Executive Chairman
James B. Milliken
Chancellor
Valmont Industries, Inc.
City University of New York
Ambassador
Clark T. Randt, Jr.
Former U.S. Ambassador
Director Since 1993
Director Since 2011
to the People’s Republic of China
Stephen G. Kaniewski
President and
Donna M. Milrod
Senior External Advisor
Chief Executive Officer
McKinsey & Company
Valmont Industries, Inc.
Director Since 2018
Director Since 2018
Kaj den Daas
Retired Executive Vice President
Phillips Lighting B.V.
of the Netherlands
Director Since 2004
Dr. Theo W. Freye
Retired Chairman
CLAAS KgaA
Director Since 2015
Daniel P. Neary
Former Chairman and Retired
Chief Executive Officer
Mutual of Omaha
Director Since 2005
Catherine J. Paglia1
Director
Enterprise Asset Management
Director Since 2012
Director Since 2009
Walter Scott, Jr.
Retired Chairman
Peter Kiewit Sons, Inc.
Director Since 1981
Kenneth E. Stinson1
Lead Director
Chairman Emeritus
Peter Kiewit Sons’, Inc.
Director Since 1996
1The Board designated Catherine J. Paglia
as Lead Director effective April 25, 2018
following the retirement of current Lead
Director Kenneth E. Stinson.
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
Donna M. Milrod
Governance and
Nominating Committee
Clark T. Randt, Jr. (Chairman)
Dr. Theo W. Freye
James B. Milliken
CORPORATE
MANAGEMENT
Stephen G. Kaniewski
President
& Chief Executive Officer
Mark C. Jaksich
Executive Vice President
& Chief Financial Officer
Vanessa K. Brown
Senior Vice President
Human Resources
Douglas M. Bryson
Senior Vice President
North America
Pole Operations
John A. Kehoe
Senior Vice President
Information Technology
Ellen S. Dasher
Vice President
Global Taxation
Timothy P. Francis
Vice President
& Corporate Controller
R. Andrew Massey
Vice President
Legal & Compliance
Darrel G. Moreland
Vice President
& Head of Audit
BUSINESS UNIT
MANAGEMENT
ENGINEERED SUPPORT STRUCTURES
Barry A. Ruffalo
Group President
UTILITY SUPPORT STRUCTURES
Aaron M. Schapper
Group President
IRRIGATION
Leonard M. Adams
Group President
COATINGS
Richard S. Cornish
Group President
CORPORATE
& STOCK INFORMATION
Corporate Headquarters
Valmont Industries, Inc.
One Valmont Plaza
Shareholder and Investor Relations
Valmont’s common stock trades on the New
York Stock Exchange (NYSE) under the
Omaha, Nebraska 68154-5215 USA
symbol VMI.
Tel
1-402-963-1000
Fax
1-402-963-1198
Online www.valmont.com
Independent Registered Public
Accounting Firm
Deloitte & Touche LLP
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 amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d)
Omaha, Nebraska USA
of the Securities Exchange Act of 1934, as soon
Legal Counsel
McGrath North Mullin & Kratz, PC LLO
Omaha, Nebraska USA
Stock Transfer Agent and Registrar
Address Shareholder Inquiries to:
Broadridge Corporate Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, NY 11717
1-844-202-5345 or 1-720-414-6878
Send Certificates for Transfer
and Address Changes to:
Broadridge Corporate Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, NY 11717
1-844-202-5345 or 1-720-414-6878
Annual Meeting
The annual meeting of Valmont’s shareholders
will be held at 1:00 p.m. on Tuesday, April
24, 2018, at One Valmont Plaza, Omaha,
Nebraska USA.
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:
Renee L. Campbell
Investor Relations Department
Valmont Industries, Inc.
One Valmont Plaza
Omaha, Nebraska 68154-5215 USA
Tel
1-402-963-1000
Fax
1-402-963-1096
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 30, 2017
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
1
Page
No.
2
10
16
16
17
17
18
19
22
41
42
94
94
96
97
97
97
97
97
98
PART I
ITEM 1. BUSINESS.
(a)
General Description of Business
General
We are a diversified global producer of highly-engineered fabricated metal products. In our Engineered Support
Structures (ESS) segment, we are a leading producer of steel, aluminum and composite poles, towers, industrial and
architectural access systems and other structures. Our Utilities Support Structures (Utility) segment manufactures steel and
concrete pole structures for transmission and distribution primarily within the United States. Outside of the United States, we
manufacture complex steel structures used in electrical energy generation and distribution. Our Irrigation segment is a global
producer of mechanized irrigation systems and provider of water management solutions for large-scale production
agriculture. Our Coatings segment provides metal coating services, including galvanizing for steel and other applied coatings.
Our ESS segment sells the following products: outdoor lighting, traffic control, and roadway safety structures,
wireless communication structures and components, and access systems. Our Utility segment sells pole structures to support
electrical transmission and distribution lines and related power distribution equipment. Our Irrigation segment produces
mechanized irrigation equipment and related services that deliver water, chemical fertilizers and pesticides to agricultural
crops. Our Coatings segment provides coatings services for Valmont and other industrial customers. Customers and end-
users of our products include municipalities and government entities globally, manufacturers of commercial lighting fixtures
(OEM), contractors, telecommunications and utility companies, and large farms as well as the general manufacturing sector.
In 2017, approximately 36% 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 ESS segment increased its sales in 2015 through our engineering capability and
strong customer service to meet our customers’ requirements on a complex project for specialty decorative street lighting
structures on the road leading to the Doha international airport in Qatar.
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 serve and where end-users do not currently purchase our type of product. For
example, we have also expanded our geographic presence in Europe, Middle East, and North Africa for lighting structures.
We have been successful introducing our monopole products to utility and wireless communication customers that
traditionally purchased lattice tower products. This strategy led to us building manufacturing presences in China and India to
expand our offering of pole structures for lighting, utility and wireless communication to these markets. Our Irrigation
segment has a long history of developing new emerging markets for mechanized irrigation around the world. In recent years,
these markets include Eastern Europe and Middle East countries.
Developing New Products for Markets that We Currently Serve. Our strategy is to grow by developing new
products for markets using our comprehensive understanding of end-user requirements and leveraging 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 lighting poles 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.
2
Developing New Products for New Markets or Leveraging Core Competencies to Further Diversify our Business is
a path to increase sales. For example, 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. The decorative lighting market has different
requirements and preferences than our traditional transportation and commercial markets. For example, our joint venture with
Tehomet provided expertise in the decorative wood pole market. 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.
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):
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 (ESS)
• Acquisition of the remaining 40% not previously owned of Valley Irrigation South Africa Pty. Ltd (Irrigation)
• Acquisition of a distributor holding proprietary intellectual property for products serving the highway safety market
located in New Zealand (ESS)
2014
• Acquisition of 90% of a manufacturer of heavy complex steel structures (Valmont SM) with two manufacturing
locations in Denmark (Utility)
• 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)
2016
• Acquisition of the remaining 30% not previously owned of IGC Galvanizing Industries (M) Sdn Bhd (Coatings)
• Acquisition of 5.2% of the remaining 10% not previously owned of Valmont SM (Utility)
2017
• Acquisition of a highway safety business (Aircon) that manufactures guardrails, structural metal products, and solar
structural products in India (ESS)
There have been no significant divestitures of businesses in the past five years.
(b)
Segments
The Company has four reportable segments based on our management structure. Each segment is global in nature with a
manager responsible for segment operational performance and allocation of capital within the segment.
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 lighting and traffic, access systems, wireless communication, and roadway safety
applications;
Utility Support Structures: This segment consists of the manufacture of engineered steel and concrete structures for
the utility industry, including on and offshore wind energy, gas and oil exploration structures;
3
Coatings: This segment consists of galvanizing, anodizing and powder coating services; and
Irrigation: This segment consists of the manufacture of agricultural irrigation equipment and related parts and
services for the agricultural industry as well as tubular products for a variety of industrial customers.
Other: In addition to these four reportable segments, we have other operations and activities which are not more
than 10% of consolidated sales, operating income or assets. These activities include the manufacture of forged steel grinding
media.
Amounts of sales, operating income and total assets attributable to each segment for each of the last three years is set
forth in Note 19 of our consolidated financial statements. In the fourth quarter of 2017, our management and related segment
reporting structure was changed; a reflection of where we expect future growth of certain product lines and to take into
consideration the expected divestiture of the grinding media business, subject to regulatory approval, which historically was
reported in the Energy and Mining segment. The access systems applications product line is now part of the Engineered
Support Structures ("ESS") segment and the offshore and other complex structures product line is now part of the Utility
segment. In 2017, the Company also changed its reportable segment operating income to separate out the LIFO expense
(benefit). Certain inventories are accounted for using the LIFO basis in the consolidated financial statements.
Our segment discussions and segment financial information have been accordingly reclassified in this report to
reflect this change, for all periods presented.
(c)
Narrative Description of Business
Information concerning the principal products produced and services rendered, markets, competition and
distribution methods for each of our four reportable segments is set forth below.
Engineered Support Structures Segment (ESS)
Products Produced—We engineer and 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, China, and the Middle East. 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. Highway safety systems are also designed and
engineered to enhance roadway safety.
We also engineer, 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 or manufacture. We produce and distribute
access systems that allow people to move safely and effectively in an industrial, infrastructure or commercial facility,
Products offered in this product line are usually engineered to specific customer requirements and include floor gratings,
handrails, barriers and sunscreens. 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.
4
Markets—The key markets for our lighting, traffic and roadway safety products are the transportation and
commercial lighting markets and public roadway construction and upgrades. The transportation market includes street and
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. Some states are supplementing infrastructure
funding with revenue sources. Public and private partnerships have recently emerged as an additional funding source. The
current federal highway program was renewed and extended in late 2015. The current administration has recommended
increases to spending on roadway infrastructure. 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 mostly 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. Valmont has many
long-standing relationships with OEM’s who serve this market. Markets for access systems are typically driven by
infrastructure, industrial and commercial construction spending. Customers include construction firms or installers who
participate in these markets, or, natural gas and mineral exploration companies, and resellers such as steel service centers, and
end users. These markets can be cyclical depending on economic conditions.
The market for our communication products is driven by increased demand for wireless communication and data.
Customers are wireless network providers and organizations that own cell sites and attach antennas from multiple carriers to
the pole or tower structure (build to suit companies). 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 5G (including applications for data). Improved emergency response systems, as part of
the U.S. Homeland Security initiatives, creates additional demand.
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.
Demand can be cyclical in these markets due to overall economic conditions. Additionally, projects can sometimes 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, engineering design, 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, access systems 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 (Utility)
Products Produced—We engineer and manufacture tapered steel, pre-stressed concrete and hybrid structures
(concrete base section and steel upper sections). These products are used to support the lines that carry power for electrical
transmission, substation and distribution applications. Transmission refers to moving power from where it is produced to
where it is used. Substations transfer high voltage electricity to low voltage transmission. Electrical distribution carries
electricity from the substation to the end-user.
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
5
power lines attached to the structure, in order to arrive at the final design. Outside the U.S., we produce utility structures for
offshore and onshore wind energy. We also manufacture complex steel structures such as rotor houses for wind turbines,
crown-mounted compensators, winches and cranes for oil and gas exploration, and material handling equipment for
manufacturing.
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 prior to 2008. In international markets,
electrical consumption is expected to increase. This will require substantial investment in new electricity generation capacity
and 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, as is used in the U.S. markets today. Sales of complex steel structures,
wind turbine towers and rotor houses, material handling systems, utility transmission structures, and structures for oil & gas
exploration mainly occur within Europe.
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 criteria in the bid
process. We also sell on a preferred-provider basis to certain large utility customers. These contractual arrangements often
last between 3 and 5 years and are frequently renewed. For offshore and complex steel structures, we compete based on our
ability to co-engineer and design solutions with customers. We are one of a limited number of competitors that can execute
advanced order production of complex steel constructions that entail electronics, hydraulics, and highly automated series
production for very customized products.
Distribution Methods—Products are normally sold directly to electrical utilities or energy providers with some sales
sold through commissioned sales agents.
Coatings Segment (Coatings)
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-dip 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.
Markets—Markets for our products are varied and our profitability is not substantially dependent on any one
industry or external customer. However, a meaningful percentage of demand is internal, driven by Valmont's other segments.
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.
6
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 (Irrigation)
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. A newly-formed water management group is
providing product and service sales related to the delivery of water through mechanized irrigation equipment. 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.
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. AgSense technology allows growers to remotely monitor and
operate irrigation equipment and other farm implements. Data management and control is achieved using applications
running on either a desktop 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 America 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. In addition, governments
are sponsoring irrigation projects for self-sufficiency in food production.
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
7
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
is low. In international markets, our competitors are a combination of our major U.S. competitors and privately owned local
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 268 dealer locations in North America, with another approximately 226 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 after sales service. Our
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.
General
Certain information generally applicable to each of our four 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.
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.
8
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 $670.0 million at the end of the
2017 fiscal year and $602.9 million at the end of the 2016 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 2017 backlog of
orders will be filled during fiscal year 2018. At year-end, the segments with backlog were as follows (dollar amounts in
millions):
Engineered Support Structures
Utility Support Structures
Irrigation
Coatings
Other
12/30/2017
12/31/2016
$
$
204.1
359.1
100.1
0.1
6.6
670.0
$
$
189.8
336.1
64.1
0.4
12.5
602.9
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 30, 2017, we had 10,690 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 19 of our consolidated financial statements. Australia accounted for approximately 13% of our net sales in
2017; no other foreign country accounted for more than 5% of our net sales. Net sales for purposes of Note 19 and elsewhere
exclude intersegment sales.
(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.
9
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 2017 and 2016. 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
higher costs of energy and nitrogen based fertilizer (which uses natural gas as a major ingredient). Furthermore, uncertainty
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 February 2018, the U.S. Department of Agriculture (the “USDA”) estimated U.S.
2017 net farm income to be $63.8 billion, up 3.7 percent from the USDA’s final U.S. 2016 net farm income of $61.5
billion. If the USDA's estimate proves accurate, 2017 would be the first increase in net farm income following three years of
significant declines.
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 partially 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.
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:
10
•
•
•
•
•
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 2017, and more modest increases in 2016, put pressure on gross
profit margins, especially in our Engineered Support Structures segment. The elapsed time between the quotation of a sales
order and the manufacturing of the product ordered can be several months. As some of the sales in the Engineered Support
Structures and Utility Support Structures segments are fixed price contracts, rapid increases in steel costs likely will result in
lower operating income.
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 $66 million for the year ended December 30, 2017.
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
applications. Our Coatings segments serve many construction related industries. Because these products are used primarily
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.
The current economic uncertainty 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 in these countries have difficulty securing credit for their purchases from
us.
11
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 U.S. federal highway funding. 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 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.
Certain of the Company’s foreign subsidiaries in India, New Zealand, and Australia manufacture highway safety
products, primarily for sale in non-U.S. markets, and license certain design patents related to guardrails to third parties.
There are currently domestic U.S. product liability lawsuits against some companies that manufacture and install certain
guardrail products. Such lawsuits, some of which have at times involved a foreign subsidiary based on its design patent,
could lead to a decline in demand for such products or approval for use of such products by government purchasers both
domestically and internationally, and potentially raise litigation risk for foreign subsidiaries and negatively impact their sales
and license fees.
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 30, 2017, we
operated over 80 manufacturing plants, located on six continents, and sold our products in more than 100 countries. In 2017,
approximately 36% 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.
12
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 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 38% of our fiscal 2017 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 significantly against most currencies in fiscal 2015.
The most significant impact involved our Australian sales measured in U.S. dollar terms that decreased by approximately $68
million due to exchange rate translation effects in fiscal 2015. 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 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 for certain positions 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.
Our Irrigation products carry warranty provisions, some of which may span several years. In the event we have
wide-spread product reliability issues with certain components, we may be required to incur significant costs to remedy the
situation.
13
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
aware of any contaminated sites that are not provided for in our financial statements, including third party sites, at which we
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
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.
14
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 30, 2017, we had $755.0 million of total indebtedness outstanding. We had $585.2 million of
capacity to borrow under our revolving credit facility at December 30, 2017. 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
and 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 $492.8 million of cash at December 30, 2017, which mitigates a portion of the risk associated with our debt.
However, approximately 82% of our consolidated cash balances are outside the United States and most of our
interest bearing 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 may be subject to legal, contractual or other restrictions. 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.
We assumed an underfunded pension liability as part of the 2010 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 30, 2017, covered
approximately 6,500 inactive or retired former Delta employees. At December 30, 2017, this plan was, for accounting
purposes, underfunded by approximately £140.5 million ($189.6 million). The current agreement with the trustees of the
pension plan for annual funding is approximately £10.0 million ($13.5 million) in respect of the funding shortfall and
approximately £1.1 million ($1.5 million) in respect of administrative expenses. Although this funding obligation was
considered in the acquisition price for the Delta shares, the underfunded position may adversely affect the combined
company as follows:
15
• 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 2019. 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 £140.5 million ($189.6 million) assumed for accounting
purposes as of December 30, 2017. Such immediate funding is calculated by reference to the cost of buying out
liabilities on the insurance market, and could affect our ability to fund the Company’s future growth of the
business or finance other obligations.
Our ability to operate could be adversely affected if our information technology systems are compromised or otherwise
subjected to cyber crimes.
Cyber crime continually increases in sophistication and may pose a significant risk to the security of our information
technology systems and networks, which if breached could materially adversely affect the confidentiality, availability and
integrity of our data. We protect our sensitive information and confidential and personal data, our facilities and information
technology systems, but we may be vulnerable to security breaches. This could lead to negative publicity, theft, modification
or destruction of proprietary information or key information, manufacture of defective products, production downtimes and
operational disruptions, which could adversely affect our reputation, competitiveness and results of operations.
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. 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, Florida, Georgia, and Texas. 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, both 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. The largest principal international manufacturing location is
Denmark and there are also manufacturing locations in China and France.
Coatings segment North America operations include U.S. operations located in Nebraska, California, Minnesota,
Iowa, Indiana, Illinois, Kansas, New Jersey, Oregon, Utah, Oklahoma, Texas, Virginia, Alabama, Florida and South Carolina
and two locations near Toronto, Canada. International operations are located in Australia, Malaysia, the Philippines and India.
16
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, and Shandong, China. All facilities are owned except for China, which is leased.
Our operations in the "other" category are located in Australia.
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.
Executive Officers of the Company
Our executive officers at February 28, 2018, their ages, positions held, and the business experience of each during
the past five years are, as follows:
Mogens C. Bay, age 69, Executive Chairman of the Board of Directors since December 31, 2017, previously Chief
Executive Officer since August 1993.
Stephen G. Kaniewski, age 46, President and Chief Executive Officer since December 31, 2017, previously
President and Chief Operating Officer since October 2016. Joined Valmont in August 2010 as Vice President-
Information Technology, and later in January 2014 moved into the Vice President-Global Operations role for the
Irrigation segment. In January 2015, he transferred to the Utility Support Structures segment as Senior Vice
President and Managing Director and in August 2015 became Group President of Utility Support Structures
segment.
Mark C. Jaksich, age 60, Executive Vice President and Chief Financial Officer since February 2014. Vice President
and Controller, February 2000 to February 2014.
Vanessa K. Brown, age 65, 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 41, Vice President and Controller since June 2014. 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.
John A. Kehoe, age 48, Senior Vice President of Information Technology since June 2014. Senior information
technology executive at Rockwell Collins, an aerospace and defense contractor and manufacturer, from 2004 - 2014.
17
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
24,801 shareholders of common stock at December 30, 2017. 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
(a)
Total Number
of
Shares
Purchased
(b)
Average Price
paid per share
—
— $
—
—
— $
—
—
—
(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
— $
—
—
— $
132,172,000
132,172,000
132,172,000
132,172,000
Period
October 1, 2017 to October 28, 2017
October 29, 2017 to December 2, 2017
December 3, 2017 to December 30, 2017
Total
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 30, 2017,
we have acquired 4,588,131 shares for approximately $617.8 million under this share repurchase program.
18
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FIVE-YEAR FINANCIAL DATA
(Dollars in thousands, except per share amounts)
Operating Data
2017
2016
2015
2014
2013
(3)
Net sales
Operating income (1)
Net earnings attributable to Valmont Industries, Inc. (2)
Depreciation and amortization
Capital expenditures
$ 2,745,967
$2,521,676
$ 2,618,924
$3,123,143
$ 3,304,211
266,432
116,240
84,957
55,266
243,504
173,232
82,417
57,920
131,695
40,117
91,144
45,468
357,716
183,976
89,328
73,023
473,069
278,489
77,436
106,753
Per Share Data
Earnings:
Basic (2)
Diluted (2)
Cash dividends declared
Financial Position
Working capital
Property, plant and equipment, net
Total assets
Long-term debt, including current installments
Total Valmont Industries, Inc. shareholders’ equity.
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
$
$
5.16
5.11
1.500
7.68
7.63
1.500
$
$
1.72
1.71
1.500
7.15
7.09
1.375
$
10.45
10.35
0.975
$ 1,069,567
$ 903,368
$ 860,298
$ 995,727
$ 1,161,260
518,928
518,335
532,489
606,453
534,210
2,602,250
2,391,731
2,392,382
2,721,955
2,773,046
754,854
1,112,836
755,646
943,482
757,995
918,441
760,122
467,661
1,201,833
1,522,025
$ 145,716
$ 219,168
$ 272,267
$ 174,096
$ 396,442
(49,615)
(32,010)
(53,049)
(95,158)
(48,171)
(220,005)
(256,863)
(139,756)
(131,721)
(37,380)
$ 1,941,716
$1,774,781
$ 1,759,851
$2,096,276
$ 2,110,455
10.3%
9.5%
4.6%
11.3%
15.0%
$ 351,987
$ 326,629
$ 285,115
$ 413,684
$ 546,208
12.3%
2.15
18.9%
2.32
3.3%
2.66
12.1%
1.87
20.6%
0.89
22,694
24,801
10,690
22,521
26,057
10,552
22,857
27,010
10,697
24,229
28,225
11,321
26,825
28,507
10,769
(1) Fiscal 2015 operating income included impairments of goodwill and intangible assets of $41,970 and restructuring expenses of $39,852.
(2) Fiscal 2017 included $41,935 of tax expense ($1.85 per share) associated with recording the impact of the 2017 Tax Act. Fiscal 2016
included deferred income tax benefit of $30,590 ($1.35 per share) resulting primarily from the re-measurement of the deferred tax asset for
the Company's U.K. defined benefit pension plan. In addition, fiscal 2016 included $9,888 ($0.44 per share) recorded as a valuation
allowance against a tax credit asset. Fiscal 2016 also included the reversal of a contingent liability that was recognized as part of the Delta
purchase accounting of $16,591 ($0.73 per share) which is not taxable. 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.
(3) Fiscal 2016 was a 53 week fiscal year.
19
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 a non-GAAP measure. 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
Adjusted 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
2017
$ 266,432
2016
$ 243,504
2015
$ 131,695
2014
$ 357,716
2013
$ 473,069
28.1%
30.8%
32.0%
33.4%
35.1%
(74,867)
191,565
(74,999)
168,505
(42,142)
(119,477)
(166,047)
89,553
238,239
307,022
1,858,249
1,767,316
1,928,064
2,103,366
2,043,983
10.3%
9.5%
4.6%
11.3%
15.0%
2,602,250
2,391,731
2,392,382
2,721,955
2,773,046
(227,906)
(165,455)
(189,552)
(48,526)
(20,585)
(8,510)
(177,488)
(162,318)
(209,470)
(44,319)
(14,910)
(8,445)
(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)
$1,941,716
$1,774,781
$1,759,851
$2,096,276
$2,110,455
$1,774,781
$1,759,851
$2,096,276
$2,110,455
$1,977,511
$1,858,249
$1,767,316
$1,928,064
$2,103,366
$2,043,983
(1) The adjusted effective tax rate for 2017 excludes the $41,935 of tax expense associated with recording the impact of the 2017 Tax Act. The
effective tax rate in 2017 including these items is 46.5%. The adjusted effective tax rate for 2016 excludes deferred income tax benefit of $30,590
resulting primarily from the re-measurement of the deferred tax asset for the Company's U.K. defined benefit pension plan. In addition, fiscal 2016
excludes $9,888 recorded as a valuation allowance against a tax credit asset. Fiscal 2016 also excludes the reversal of a contingent liability that was
recognized as part of the Delta purchase accounting of $16,591, which is not taxable. The effective tax rate in 2016 including these items is 19.1%.
The adjusted effective tax rate in 2015 excludes the effects of the goodwill impairments which are not deductible for income tax purposes and the
$7,120 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%.
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 interest bearing debt not exceed 3.50x Adjusted EBITDA (or 3.75x Adjusted EBITDA after certain material acquisitions) 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 non-GAAP measure 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:
20
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
Change in restricted cash - pension plan trust
Changes in assets and liabilities, net of acquisitions
Other
EBITDA
Reversal of contingent liability
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
Reversal of contingent liability
Impairment of goodwill and intangible assets
Impairment of property, plant and equipment
EBITDA from acquisitions (months in 2014 not owned by Company)
Adjusted EBITDA
2017
2016
2015
2014
2013
$ 145,716
$ 219,168
$ 272,267
$ 174,096
$ 396,442
44,645
106,145
44,409
42,063
44,621
47,427
36,790
94,894
32,502
157,781
(237)
(586)
(4,555)
(3,795)
—
—
—
(12,011)
—
(12,161)
10,141
(1,971)
835
(6,513)
(6,569)
2,478
4,300
—
—
—
(5,251)
(5,342)
29
(6,730)
(2,638)
—
—
—
—
—
—
3,242
—
—
—
—
—
(41,970)
(1,099)
(19,836)
(4,858)
(5,216)
(247)
(7,244)
610
(39,755)
23,685
(6,079)
(5,159)
—
(10,706)
(648)
40,245
(12,568)
81,305
3,924
—
(9,931)
(1,870)
1,488
13,652
13,690
16,500
18,173
17,619
—
—
—
(71,863)
98,376
(34,205)
(631)
(2,327)
(392)
4,318
351,987
342,121
223,309
404,988
546,208
—
—
—
—
(16,591)
—
1,099
—
—
41,970
19,836
—
—
—
—
8,696
—
—
—
—
$ 351,987
$ 326,629
$ 285,115
$ 413,684
$ 546,208
2017
2016
2015
2014
2013
$ 116,240
$ 173,232
$ 40,117
$ 183,976
$ 278,489
44,645
106,145
84,957
44,409
42,063
82,417
44,621
47,427
91,144
36,790
94,894
89,328
32,502
157,781
77,436
351,987
342,121
223,309
404,988
546,208
—
—
—
—
(16,591)
—
1,099
—
—
41,970
19,836
—
—
—
—
8,696
—
—
—
—
$ 351,987
$ 326,629
$ 285,115
$ 413,684
$ 546,208
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 operations or net earnings for 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
(or 3.75x after certain material acquisitions) 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 a non-GAAP measure 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:
21
Current portion of long-term debt
Notes payable to bank
Long-term debt
Total interest bearing debt
Adjusted EBITDA
Leverage Ratio
2017
2016
2015
2014
2013
$
$
966
161
753,888
755,015
351,987
2.15
851
746
754,795
756,392
326,629
2.32
$
1,077
$
1,181
$
202
976
756,918
758,971
285,115
2.66
13,952
758,941
774,074
413,684
1.87
19,024
467,459
486,685
546,208
0.89
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
Forward Looking Statements
Management’s discussion and analysis, and other sections of this annual report, contain forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements are based on
assumptions that management has made in light of experience in the industries in which the Company operates, as well as
management’s perceptions of historical trends, current conditions, expected future developments and other factors believed to
be appropriate under the circumstances. These statements are not guarantees of performance or results. They involve risks,
uncertainties (some of which are beyond the Company’s control) and assumptions. Management believes that these
forward looking statements are based on reasonable assumptions. Many factors could affect the Company’s actual financial
results and cause them to differ materially from those anticipated in the forward looking statements. These factors include,
among other things, risk factors described from time to time in the Company’s reports to the Securities and Exchange
Commission, as well as future economic and market circumstances, industry conditions, company performance and financial
results, operating efficiencies, availability and price of raw materials, availability and market acceptance of new products,
product pricing, domestic and international competitive environments, and actions and policy changes of domestic and
foreign governments.
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.
22
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
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
Adjustment to LIFO inventory valuation method
Gross profit
Operating income
Net corporate expense
Gross profit
SG&A expense
Operating loss
2017
2016
Change
2017 - 2016
2015
Change
2016 - 2015
Dollars in millions, except per share amounts
$ 2,746.0
$ 2,521.7
8.9 % $ 2,618.9
(3.7)%
5.7 %
3.9 %
621.0
23.7%
0.7 %
489.3
(15.7)%
18.7%
9.4 %
131.7
84.9 %
681.8
24.8%
415.4
15.1%
266.4
9.7%
39.9
46.5%
116.2
5.11
912.2
225.9
162.9
63.0
$
$
656.2
26.0%
412.7
16.4%
243.5
9.7%
41.3
19.1%
173.2
7.63
891.1
240.0
167.7
72.3
$
$
(3.4)%
(32.9)%
(33.0)% $
5.0%
41.3
51.0%
40.1
1.71
2.4 % $
880.8
(5.9)%
(2.9)%
(12.9)%
214.0
185.2
28.8
$
856.3
$
735.6
16.4 % $
777.7
178.4
80.6
97.8
147.3
76.1
71.2
21.1 %
5.9 %
37.4 %
130.0
91.7
38.3
$
256.8
$
243.9
5.3 % $
255.5
78.4
28.2
50.2
77.8
31.2
46.6
0.8 %
(9.6)%
7.7 %
79.8
52.4
27.4
$
644.4
$
568.0
13.5 % $
605.8
177.2
99.0
78.2
99.1
7.3
12.1
197.3
95.8
101.5
$
76.3
$
7.4
5.3
2.1
(5.7)
(5.7)
178.9
88.0
90.9
83.1
14.1
5.4
8.7
(3.0)
(3.0)
10.3 %
8.9 %
11.7 %
(8.2)% $
(47.5)%
(1.9)%
(75.9)%
90.0 %
90.0 %
(4.8)
(281.3)%
12.1
12.1
(124.8)%
(124.8)%
— %
331.9 %
346.2 %
1.2 %
12.1 %
(9.4)%
151.0 %
(5.4)%
13.3 %
(17.0)%
85.9 %
(4.5)%
(2.5)%
(40.5)%
70.1 %
(6.2)%
1.0 %
(11.1)%
16.2 %
(16.1)%
93.2 %
(55.4)%
$
$
0.1
42.6
1.1
44.3
(42.5)
(43.2)
90.9 % $
(3.8)%
(1.6)%
0.6
48.9
(48.3)
83.3 %
(9.4)%
(10.6)%
23
RESULTS OF OPERATIONS
FISCAL 2017 COMPARED WITH FISCAL 2016
Overview
In the fourth quarter of 2017, our management and reporting structure changed to reflect management's expectations
of future growth of certain product lines and to take into consideration the expected divestiture of the grinding media
business, which historically was reported in the Energy and Mining segment. The access systems applications product line is
now part of the Engineered Support Structures ("ESS") segment and the offshore and other complex structures product line is
now part of the Utility segment. Grinding media will be reported in "Other" pending the completion of its divestiture. In the
first quarter of 2017, we also changed our reportable segment operating income to separate out the LIFO expense (benefit).
Certain inventories are accounted for using the LIFO method in the consolidated financial statements. Our segment
discussions and segment financial information have been accordingly reclassified in this report to reflect this change, for all
periods presented.
On a consolidated basis, the increase in net sales in 2017, as compared with 2016, reflected higher sales in all
reportable segments. The changes in net sales in 2017, as compared with 2016, were as follows:
Sales - 2016
Volume
Pricing/mix
Acquisitions
Currency translation
Sales - 2017
Total
ESS
Utility
Coatings
Irrigation Other
$ 2,521.7 $
891.1 $
735.6 $
97.4
102.4
4.8
19.7
10.4
1.6
4.8
4.3
49.5
68.2
—
3.0
243.9 $
(9.6)
21.2
—
1.3
568.0 $
61.5
6.3
—
8.6
83.1
(14.4)
5.1
—
2.5
$ 2,746.0 $
912.2 $
856.3 $
256.8 $
644.4 $
76.3
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.
Average steel index prices for both hot rolled coil and plate were higher in North America and China in 2017, as
compared to 2016, resulting in higher average cost of material. We expect that average selling prices will increase over time
to offset the decrease in gross profit realized from the higher cost of steel for the Company. The Company acquired a
highway business in India ("Aircon") in the third quarter of 2017 that is included in the ESS segment.
Restructuring Plan
In 2016, we executed a restructuring plan in Australia/New Zealand focused primarily on closing and consolidating
locations within the ESS and Coatings segments (the "2016 Plan"). We incurred $7.8 million of restructuring expense
consisting of $5.0 million in cost of goods sold and $2.8 million in selling, general, and administrative (SG&A) expense in
2016. The Plan was substantially completed in fiscal 2016.
In 2015, we executed a broad restructuring plan (the "2015 Plan") to respond to the market environment in certain of
our businesses. During 2016, we incurred approximately $4.6 million of restructuring expense to complete the 2015 Plan
consisting of $4.1 million in SG&A expense with the remainder recorded in cost of goods sold.
Currency Translation
In 2017, we realized a benefit to operating profit, as compared with fiscal 2016, due to currency translation effects.
The U.S. dollar primarily weakened against the Brazilian real and South African rand, resulting in more operating profit in
U.S. dollar terms. The breakdown of this effect by segment was as follows:
24
Total
ESS
Utility
Coatings
Irrigation
Other
Full year
$
1.5 $
0.1 $
— $
(0.1) $
1.2 $
Gross Profit, SG&A, and Operating Income
Corporate
(0.1)
0.4 $
At a consolidated level, the reduction in gross margin (gross profit as a percent of sales) in 2017, as compared with
2016, was primarily due to higher cost of raw materials across most of our businesses. The Utility segment realized an
increase in gross margin in 2017, while ESS, Irrigation, and Coatings realized a decrease in gross profit primarily due to sales
pricing that did not fully recover higher raw material costs and unfavorable sales mix. Lower volumes for Coatings and
Other also contributed to the reduction in gross margin through deleverage of fixed costs.
The Company saw an increase within SG&A expense in 2017, as compared to 2016, due to the following:
•
•
•
•
•
higher employee incentives of $5.0 million due to improved business operations;
reversal of $3.2 million of a contingent consideration liability in 2016 to the former owners of an acquired business;
increased project and promotional expenses of $3.2 million, primarily in the irrigation segment;
higher deferred compensation expenses of $2.7 million, which was offset by a decrease of the same amount of other
expense; and
currency translation effects of $1.9 million (higher SG&A) due to the strengthening of the Australian dollar,
Brazilian real, and South African rand against the U.S. dollar.
The above increases were partially offset by the following decreases in SG&A expense in 2017 as compared to
2016:
•
•
restructuring expenses incurred in 2016 totaling $6.8 million; and
reversal of an environmental remediation liability of $2.6 million related to land of a former galvanizing operation in
Australia that was sold in 2017.
In 2017, as compared to 2016, operating income for all operating segments were higher except for the ESS segment
and Other. The increase in operating income in 2017, as compared to 2016, is primarily attributable to increased sales
volumes in the Utility and Irrigation segments, along with restructuring expenses incurred in 2016 and the associated benefits
of the restructuring activities.
Net Interest Expense and Debt
Net interest expense in 2017, as compared to 2016, was lower as interest income increased due to more cash on hand
to invest. Long-term and short-term borrowings were consistent year-over-year.
Other Income/Expense
The decrease in other income in 2017, as compared to 2016, is primarily due to the reversal of a contingent liability
provision of approximately $16.6 million in 2016, out of "Other noncurrent liabilities."
Income Tax Expense
Our effective income tax rate in 2017 and 2016 was 46.5% and 19.1%, respectively. The Tax Cuts and Jobs Act of
2017 (the "2017 Tax Act" or “Act”) includes a number of changes to the U.S. Internal Revenue Code that impact corporations
beginning in 2018; including a reduction in the statutory federal corporate income tax rate from 35% to 21%, limiting or
eliminating certain tax deductions, and changing the taxation of unremitted foreign earnings. Accordingly, the Company
recorded a one-time charge of approximately $42 million for the fourth quarter of 2017 related to the transition effects of the
Act. Excluding this charge, our effective tax rate would have been 28.1% for 2017. The $42 million charge is comprised of
(a) approximately $9.9 million of expense related to the taxation of unremitted foreign earnings, the federal portion of which
is payable over eight (8) years beginning in 2018, (b) approximately $20.4 million of expense related to the remeasurement
of U.S. deferred tax balances to reflect the new U.S. corporate income tax rate, using a federal and state tax rate of 25.0%,
and (c) approximately $11.7 million of deferred expenses related to foreign withholding taxes and U.S. state income taxes.
25
These amounts are provisional and our estimates and overall impact of the Act may change for various reasons including, but
not limited to, changes in our interpretation and assumptions, additional guidance that may be issued by governing
authorities, and tax planning actions we may undertake. We continue to gather additional information to fully account for the
Act. Any updates and changes in the estimates will be communicated in future quarterly financial statements.
Tax expense in 2016 included $30.6 million of deferred income tax benefit attributable to the remeasurement of the
deferred tax asset related to the Company's U.K. defined benefit pension plan. In addition, we recorded a $9.9 million
valuation allowance against a tax credit for which we believe we are not likely to receive the benefit in 2016. Excluding
these items as well as the impact of the reversal of the contingent liability of $16.6 million that is not taxable, our adjusted
effective tax rate was 30.8% for 2016 versus the GAAP reported effective tax rate of 19.1%.
Earnings attributable to noncontrolling interests was higher in 2017, as compared to 2016, due to improved earnings
for our majority-owned irrigation businesses.
Cash Flows from Operations
Our cash flows provided by operations was $145.7 million in 2017, as compared with $219.2 million provided by
operations in 2016. The decrease in operating cash flow was due to less favorable working capital changes driven by higher
receivables and inventory and higher contributions to the Delta Pension Plan in 2017.
Engineered Support Structures (ESS) segment
The increase in sales in 2017, as compared with 2016, was due to improved roadway product sales volumes and
communication product line sales volumes. Global lighting and traffic, and roadway product sales in 2017 were higher
compared to the same periods in fiscal 2016, primarily due to increased sales volumes in roadway product sales, which is a
product line outside of North America. In 2017, as compared to 2016, sales volumes in the U.S. were lower across
commercial and transportation markets. The 2015 long-term U.S. highway bill has not yet provided a meaningful uplift for
our North America structures business. Sales in Europe were lower in 2017 as the domestic markets in general remain
subdued. The increase in sales for global lighting and traffic, and roadway product is also attributed to currency translation
effects and the acquisition of Aircon in the third quarter of 2017.
Communication product line sales were higher in 2017, as compared with 2016. In North America and Asia-Pacific,
communication structure and component sales increased due to higher demand from the continued network expansion by
providers.
Access systems product line net sales in 2017 were higher than in 2016, due to higher average sales prices and
favorable currency translation effects.
Gross profit, as a percentage of sales, and operating income for the segment were lower in 2017, as compared with
2016, due to margin contraction from higher raw material costs that the business was not able to fully recover through higher
sales pricing. SG&A spending was lower in 2017, as compared to 2016, due primarily to lower commissions owed on
communication product line sales, reduced incentives due to decreased operating performance, and restructuring costs and
activities undertaken in 2016 to reduce the cost structure primarily in the access systems business in Australia.
Utility Support Structures (Utility) segment
In the Utility segment, sales increased in 2017, as compared with 2016, due to improved volumes and higher sales
prices due to steel cost increases and a favorable sales mix. A number of our sales contracts contain provisions that tie the
sales price to published steel index pricing at the time our customer issues their purchase order. Improved sales demand in
North America resulted in increased sales volumes in tons for both steel and concrete utility structures that also contributed to
the increase in sales. International utility structures sales decreased in 2017 due to lower volumes.
Offshore and other complex structures sales decreased in 2017, as compared to 2016, due to lower volumes that
were partially offset by favorable currency translation effects.
Gross profit as a percentage of sales increased in 2017, as compared to 2016, due to improved pricing and sales mix
and higher sales volumes in North America and improved factory performance for the offshore and other complex structures
business. SG&A expense was higher in 2017, as compared with 2016, due to higher incentive expense due to improved
26
operations and commission expense attributed to the increased sales volumes. Operating income increased in 2017, as
compared with 2016, due to the increased sales volumes and improved pricing and sales mix in North America.
Coatings segment
Coatings segment sales increased in 2017, as compared to 2016, due primarily to increased sales prices to recover
higher zinc costs globally. External sales volumes decreased while intercompany volumes increased in North America during
2017. In the Asia-Pacific region, improved demand/volume in Australia along with currency transaction effects led to an
increase in sales in 2017 as compared to 2016.
SG&A expense was lower in 2017, as compared to 2016, due to lower compensation costs and no restructuring
expense in 2017. Both 2017 and 2016 had non-recurring transactions recognized as reductions in SG&A. A former
galvanizing operation in Australia was sold in 2017 allowing for a reversal of an environmental remediation liability of $2.6
million. In 2016, a contingent consideration liability to the former owners of an acquired business was reduced $3.2 million
due to changes in estimated earnings over the earn-out period. Operating income was higher in 2017, as compared with 2016,
due to lower SG&A expenses.
Irrigation segment
The increase in Irrigation segment net sales in 2017, as compared to 2016, was primarily due to sales volume
increases for both domestic and international irrigation and currency translation effects. In North America, when comparing
2017 to 2016, sales volumes increased driven by markets outside the traditional corn-belt. In addition, higher equipment
running times due to weather conditions resulted in higher service parts sales. International sales increased in 2017, as
compared to 2016, due primarily to volume increases in the Middle East and South America and favorable foreign currency
translation effects for Brazil and South Africa.
SG&A was higher in 2017, as compared with 2016. The increase can be attributed to higher incentive and
commission costs due to improved business results, increased product development and promotional expenses, and currency
translation effects related to the international irrigation business. Gross profit and operating income for the segment increased
in 2017 over 2016, primarily due to North America and international irrigation sales volume increases and favorable foreign
currency translation effects.
Other
Grinding media sales decreased from lower volumes. A decrease in sales volumes was partially offset by higher
sales pricing and favorable currency translation effects. Gross profit and operating income were lower in 2017, as compared
to 2016, due to lower volumes.
LIFO expense
Steel index prices for both hot rolled coil, plate, and zinc in the U.S. increased at a higher rate in 2017, as compared
to 2016, which drove higher LIFO expense.
Net corporate expense
Net corporate expense is similar when comparing 2017 to 2016. Approximately $4 million of increased incentive
expense was offset by lower pension expense and better performance of the Company's U.S. medical plan as compared to
2016.
27
FISCAL 2016 COMPARED WITH FISCAL 2015
Overview
The Company's reported net earnings for the year ended December 31, 2016 was impacted by a decrease in net sales
($97.2 million) and restructuring expenses (pre-tax $12.4 million). Reported net earnings for the year ended December 26,
2015 included restructuring expenses (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 2016, as compared with 2015, reflected lower sales in all
reportable segments except for the ESS segment. In fiscal 2016, the Company had 53 weeks of operations while fiscal 2015
and 2014 had 52 weeks of operations. The estimated impact on the company's results of operations due to the extra week in
fiscal 2016 was additional net sales of approximately $50 million and additional net earnings of approximately $3 million.
The changes in net sales in 2016, as compared with 2015, was due to the following factors:
Sales - 2015
Volume
Pricing/mix
Acquisitions
Currency translation
Sales - 2016
Total
ESS
Utility
Coatings
Irrigation
Other
$ 2,618.9 $
880.8 $
777.7 $
(13.5)
(60.6)
5.9
(29.0)
$ 2,521.7 $
38.2
(13.3)
—
(14.6)
891.1 $
2.5
(44.4)
—
(0.2)
735.6 $
255.5 $
(10.0)
(4.5)
5.9
(3.0)
243.9 $
605.8 $
(29.5)
1.2
—
(9.5)
568.0 $
99.1
(14.7)
0.4
—
(1.7)
83.1
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.
Restructuring Plan
In 2016, we executed a restructuring plan in Australia/New Zealand focused primarily on closing and consolidating
locations within the ESS and Coatings segments (the "2016 Plan"). We incurred approximately $7.8 million of restructuring
expense consisting of $5.0 million in cost of goods sold and $2.8 million in selling, general, and administrative (SG&A)
expense in 2016. The Plan was substantially completed in fiscal 2016.
In April 2015, our Board of Directors authorized a broad restructuring plan (the "2015 Plan") to respond to the
market environment in certain of our businesses. During 2016, we incurred approximately $4.6 million of restructuring
expense to complete the 2015 Plan consisting of $4.1 million in SG&A expense with the remainder recorded in cost of goods
sold.
Inclusive of both the 2016 and 2015 Plans, operating income in 2016 was reduced due to restructuring expense by
segment as follows:
Total
ESS
Utility
Coatings
Irrigation
Other
Corporate
Full year
$
(12.4) $
(8.3) $
(0.5) $
(0.9) $
(0.5) $
— $
(2.2)
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 the result of
difficulties in the Australian market over the last couple of years, including a general slowdown in manufacturing. In
28
addition, 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 ESS segment) during 2015. The Company also
recognized an $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 2016, we realized a decrease in operating profit of $1.6 million, as compared with 2015, 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 African Rand, resulting in less operating profit in U.S. dollar terms. The breakdown of
this effect by segment was as follows:
Total
ESS
Utility
Coatings
Irrigation
Other
Corporate
Full year
$
(1.6) $
(1.1) $
— $
(0.2) $
(0.3) $
— $
—
Gross Profit, SG&A, and Operating Income
At a consolidated level, the improvement in gross margin (gross profit as a percent of sales) in 2016, as compared
with 2015, was due to restructuring activities undertaken in 2015 and the $17 million Utility segment commercial settlement
recognized in 2015. Gross profit increased in 2016, as compared to 2015, for all operating segments except for Coatings and
Irrigation. Gross profit decreased for Coatings and Irrigation primarily due to lower volumes and unfavorable currency
translation effects. Reduced average selling prices also resulted in a decline in gross profit for the Coatings segment.
The Company incurred $6.8 million of restructuring expense in 2016 within SG&A expense, compared to $18.2
million in 2015. Excluding restructuring expense, the Company saw a decrease in SG&A in 2016 of $65.2 million, as
compared with 2015, mainly due to the following factors:
•
•
•
•
•
$42.0 million of goodwill and intangible impairments recorded in 2015 which did not recur in 2016;
reduced doubtful account provisions of $11.1 million, principally in the Irrigation segment;
currency translation effects of $4.7 million (lower SG&A) due to the strengthening of the U.S. dollar primarily
against the Australian dollar, Brazilian real, and South African rand;
reversal of $3.2 million of a contingent consideration liability to the former owners of Pure Metal Galvanizing
in 2016; and
reductions due to exiting a business development activity, lower project expenses, reduced discretionary
spending, and benefits from restructuring activities undertaken in 2015.
The above reductions were partially offset by the following increases in SG&A expense in 2016 as compared with
2015:
•
•
•
increased incentive expenses due to improved operating performance of $13.6 million;
higher deferred compensation expenses of $1.5 million, which was offset by a decrease of the same amount of
other expense; and
increased pension expenses of $2.5 million.
In 2016 as compared to 2015, operating income improved for all operating segments. The increase in operating
income is primarily attributable to reduced expenses for restructuring activities and the associated benefits of the
restructuring activities, no goodwill or intangible asset impairments in 2016, lower doubtful account provisions, and reduced
overall SG&A spending.
Net Interest Expense and Debt
Net interest expense in 2016, as compared to 2015, was consistent due to minimal changes in short and long-term
borrowings.
29
Other Expense
The increase in other income in 2016 is a result of the reversal of a contingent liability provision, approximately
$16.6 million, out of "Other noncurrent liabilities." This liability was originally recorded as part of the Delta purchase
accounting in 2010 to address a certain contingent liability. The statutes of limitation have expired and we now determine
this matter to be remote.
Income Tax Expense
Our effective income tax rates were 19.1% and 51.0% in 2016 and 2015. Fiscal 2016 includes $30.6 million of
deferred income tax benefit attributable to the re-measurement of the deferred tax asset related to the Company's U.K.
defined benefit pension plan. In addition, in fiscal 2016 we recorded a $9.9 million valuation allowance against a tax credit
for which we believe we are not likely to receive the benefit. Excluding these items as well as the impact of the reversal of
the contingent liability of $16.6 million that is not taxable, our adjusted effective tax rate was 30.8% for 2016. The fiscal
2015 rate is unusually high primarily due to the APAC Coatings and Access Systems goodwill impairments recorded that are
not deductible for tax purposes. In addition, U.K. corporate tax rates were collectively reduced from 20% to 18% in 2015.
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 deferred income tax expense. Excluding these items, our
adjusted effective tax rate was 32.0% in fiscal 2015.
Noncontrolling Interests
Earnings attributable to noncontrolling interest was flat in 2016 as compared to 2015.
Cash Flows from Operations
Cash flows provided by operations were $219.2 million in 2016, as compared with $272.3 million provided by
operations in 2015. The decrease in operating cash flow in 2016, as compared with 2015, was the result of higher net
working capital and a reduction in noncurrent liabilities that was partially offset by improved net earnings.
Engineered Support Structures (ESS) segment
The increase in sales in 2016 as compared with 2015 was primarily due to improved volumes in our Asia-Pacific
Structures businesses. The volume increase was partially offset by unfavorable currency translation effects and lower
average selling prices mostly attributed to average lower cost of steel.
Global lighting and traffic, and roadway product sales in 2016 were higher compared to the same periods in fiscal
2015. Sales volumes in the U.S. were higher in the commercial and OEM markets (steel and aluminum), and modestly lower
in the transportation markets. We expect the 2015 long-term U.S. highway bill to provide an uplift to the transportation
market demand sometime in 2017. Sales in Canada decreased in 2016 as compared to 2015, from lower volumes due to less
large projects and unfavorable currency translation. Sales in Europe were lower in 2016 compared to 2015, due to
unfavorable currency translation effects and lower volumes primarily related to a large project in the Middle East in 2015.
The domestic markets in general remain subdued in Europe, as economic conditions have curtailed infrastructure investment.
In the Asia-Pacific ("APAC") region, sales were higher in 2016, as compared to 2015, due primarily to improved investment
activity in Australia and overall market growth in India. Roadway product sales decreased in 2016 due to lower volumes and
unfavorable currency translation effects.
Communication product line sales were lower in 2016, as compared with 2015. North America communication
structure and component sales decreased, due to lower market demand. In China, sales of wireless communication structures
in 2016 increased over the same period in 2015 as the investment levels by the major wireless carriers have remained strong
and we have increased our market share through better sales coverage. In Australia, sales for wireless communication
structures improved in 2016 due to higher demand from the national broadband network build out.
Access systems product line sales in 2016 were lower when compared to 2015. The sales decrease was primarily due
to the negative impact of currency translation effects and lower sales prices in Asia. The decrease in sales price is primarily
related to fewer oil and gas related construction projects in the APAC region.
30
Operating income was higher for the segment in 2016, as compared to 2015, primarily due to goodwill and trade
name impairment charges in 2015 associated with the Access Systems reporting unit totaling $24.6 million. Gross profit, as a
percentage of sales, for the segment were higher in 2016, as compared with 2015, due to margin expansion from lower
average raw material costs, growth in the Asia-Pacific telecommunication business, and lower costs resulting from the 2015
restructuring activities. These increases were partially offset by unfavorable currency translation effects and lower sales
volumes in Europe and the North American wireless communication businesses. Favorable LIFO inventory valuation reserve
adjustments were approximately $4 million lower in 2016 as compared to 2015. SG&A spending in 2016 decreased over the
same period in 2015 due primarily to goodwill and trade name impairment charges in 2015 associated with the Access
Systems reporting unit, partially offset by increased commissions owed on the higher telecommunication sales in the Asia-
Pacific region and higher compensation costs.
Utility Support Structures (Utility) segment
In the Utility segment, sales decreased in 2016 as compared with 2015, due mainly to decreased average selling
prices tied to the lower cost of steel and lower international sales volumes. Declining cost of steel during the second half of
2015 and first quarter of 2016 contributed to lower average selling prices for the first three quarters of 2016. A number of our
sales contracts contain provisions that tie the sales price to published steel index pricing at the time our customer issues their
purchase order.
In North America, sales volumes in tons for steel utility structures were higher in 2016, as compared with 2015,
while concrete sales volumes in tons decreased during 2016. International utility structures sales volumes were lower in 2016
as compared to 2015.
Offshore and other complex structures sales increased in 2016 as compared to 2015. The increase can be attributed
to volume improvements primarily in the wind tower product line. Oil and gas product activity continues to be slow due to
low oil prices that caused some previously planned projects to be postponed.
Gross profit as a percentage of sales improved in 2016, as compared to 2015, due to a number of actions taken in
2015 to improve our cost structure and operational efficiency in this segment, including certain restructuring activities
involving facility closures. 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. SG&A expense was lower in 2016, as
compared with 2015, primarily due to the benefits realized from the 2015 restructuring activities. Operating income increased
in 2016, as compared with 2015, primarily due to lower restructuring costs and the related improved cost structure realized in
2016 and the commercial settlement recorded in 2015.
Coatings segment
Coatings segment sales in North America decreased in 2016, as compared with 2015, due to lower volumes and less
favorable sales pricing mostly due to mix. The decrease was partially offset by the acquisition of American Galvanizing that
accounted for $5.9 million of sales. Coatings sales in the Asia-Pacific region were lower in 2016 due to reduced volumes,
lower pricing and sales mix, and unfavorable currency translation effects primarily related to the strengthening of the U.S.
dollar against the Australian dollar and Malaysian Ringgit.
SG&A expense was lower in 2016, as compared to 2015, due to $17.3 million of goodwill and trade name
impairment charges recorded in 2015 associated with the APAC Coatings reporting unit. In addition, the contingent
consideration liability to the former owners of Pure Metal Galvanizing (PMG), payable in calendar 2018, was reduced in
2016 by $3.2 million, due to changes in the estimated earnings over the earn out period. The decrease was partially offset by
the SG&A of American Galvanizing, acquired in the fourth quarter of 2015. Operating income was higher in 2016, as
compared with 2015, due primarily to the impairment charges in 2015 not recurring in 2016, the reduction in the PMG
contingent consideration liability in 2016, and income from the American Galvanizing acquisition. These increases were
partially offset by reduced volumes in North America and Asia Pacific and less favorable sales mix.
Irrigation segment
The decrease in Irrigation segment net sales in 2016, as compared with 2015, was mainly due to sales volume
decreases in North America for both the irrigation and tubing businesses and unfavorable currency translation effects for our
international irrigation business. Volume increases for international irrigation partially offset the decrease. In fiscal 2016, net
farm income in the United States is expected to decrease 17.2% from the levels of 2015, due in part to lower market prices
for corn and soybeans. The 2016 estimate represents the third consecutive year of a decrease in estimated net farm income.
We believe this reduction contributed to lower demand for irrigation machines in North America in 2016 as compared with
31
2015. In international markets, sales volumes increased in 2016 over 2015 due to volume improvements in all regions except
for Australia and China. The volume improvements were partially offset by unfavorable currency translation effects of $9.5
million primarily related to the South African rand and Brazilian real.
SG&A was lower in 2016 as compared with 2015, and is primarily attributed to approximately $10.5 million of
lower provisions for uncollected international receivables. In 2015, the Company recorded a provision of approximately $8.0
million primarily related to delinquent receivables with a Chinese municipal entity. In addition, currency translation and
lower overall discretionary spending contributed to lower SG&A. The decreases were partially offset by increased
compensation and incentive expenses due primarily to improved international irrigation operations. Operating income for the
segment improved in 2016 over 2015, due to lower provisions for uncollected international receivables and lower
discretionary spending, partially offset by lower volumes and a higher LIFO inventory reserve due to higher steel prices in
2016.
Other
Grinding media sales were down in 2016 as compared to 2015, primarily due to lower volumes and unfavorable
currency translation effects. The volume decreases are primarily related to the continued slowdown in the Australia mining
sector. Gross profit and operating income improved primarily due to an improved sales mix.
LIFO expense
Steel index prices for both hot rolled coil and plate in the U.S. increased in 2016 whereas they declined significantly
in 2015. As a result, the Company had LIFO benefit in 2015 but LIFO expense recognized in 2016.
Net corporate expense
Net corporate expense in 2016 decreased compared to 2015. The decrease was mainly due to the following:
•
•
•
lower restructuring expenses of $4.5 million;
lower compensation expenses of $3.8 million due primarily to lower employment levels; and
reduced discretionary spending.
The above decreases were partially offset by approximately $7.7 million of higher incentive costs in 2016 due to
improved operations, $2.5 million of higher pension expense for the Delta Pension Plan, and increased deferred
compensation expenses of $1.5 million, which was offset by the same amount of other expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Working Capital and Operating Cash Flows-Net working capital was $1,069.6 million at December 30, 2017, as
compared with $903.4 million at December 31, 2016. The increase in net working capital in 2017 mainly resulted from
higher cash balances, along with higher receivables and inventory due to improved sales, higher costs of materials, and
additional inventory on-hand to support sales growth and higher year-end backlogs. Operating cash flow was $145.7
million in 2017, as compared with $219.2 million in 2016 and $272.3 million in 2015. The decrease in operating cash flow in
2017, as compared to 2016, was due to less favorable working capital changes driven by higher receivables and inventory
and higher contributions to the Delta Pension Plan in 2017. The decrease in operating cash flow in 2016, as compared to
2015, was due to less favorable working capital changes including receivables, accrued expenses primarily due to a reduced
warranty accrual, and other noncurrent liabilities due to the reversal of a contingent liability related to the Delta acquisition.
The decreases were partially offset by higher net earnings and a lower pension contribution in 2016 as compared to 2015.
Investing Cash Flows-Capital spending in fiscal 2017 was $55.3 million, as compared with $57.9 million in fiscal
2016 and $45.5 million in fiscal 2015. Capital spending projects in 2017 included investments in machinery and equipment
across all businesses. We expect our capital spending for the 2018 fiscal year to be approximately $70 million. Investing cash
flows included $5.4 million paid for Aircon in 2017 and $12.8 million paid for American Galvanizing in 2015.
32
Financing Cash Flows-Our total interest bearing debt decreased to $755.0 million at December 30, 2017, from
$756.4 million at December 31, 2016. During 2016 and 2015, we acquired approximately 0.4 million shares and 1.4 million
shares for approximately $53.8 million and $169.0 million, respectively, under the share repurchase program. No shares
were repurchased in 2017.
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 cash generated:
• 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; and
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. 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 30, 2017, we have acquired approximately 4.6 million shares for approximately $617.8
million under these share repurchase programs.
Sources of Financing
Our debt financing at December 30, 2017 consisted primarily of long term 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 long term debt as of December 30, 2017, principally consists of:
•
•
•
$250.2 million face value ($252.7 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 ($246.8 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 18, 2017, we amended and restated our revolving credit facility with JP Morgan Chase Bank, N.A., as
Administrative Agent, and the other lenders party thereto. The credit facility provides for $600 million of committed
unsecured revolving credit loans. We may increase the credit facility by up to an additional $200 million at any time, subject
to lenders increasing the amount of their commitments. Our wholly-owned subsidiaries Valmont Industries Holland B.V. and
Valmont Group Pty. Ltd., along with the Company, are borrowers under the credit facility. The obligations arising under the
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.
33
The material amendments to the credit facility, which are set forth in the amended and restated credit agreement,
include:
•
•
•
•
•
an extension of the maturity date of the credit facility from October 17, 2019 to October 18, 2022;
an increase in the available borrowings in foreign currencies from $200 million to $400 million;
a modification of the definition of "EBITDA" to add-back non-recurring cash and non-cash restructuring costs
in an amount that does not exceed $75 million in any trailing twelve month period;
a modification of the leverage ratio permitting it to increase from 3.5X to 3.75X for the four consecutive fiscal
quarters after certain material acquisitions; and
updating the credit facility with certain market provisions.
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 25 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 30, 2017, we had no outstanding borrowings under the revolving credit facility. The revolving credit
facility has a maturity date of October 18, 2022 and contains certain financial covenants that may limit our additional
borrowing capability under the agreement. At December 30, 2017, we had the ability to borrow $585.2 million under this
facility, after consideration of standby letters of credit of $14.8 million associated with certain insurance obligations. We also
maintain certain short term bank lines of credit totaling $113.4 million; $113.3 million of which was unused at December 30,
2017.
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 2017, our covenant calculations do not include any estimated EBITDA from acquired businesses.
Our key debt covenants are as follows:
•
•
Leverage ratio - Interest-bearing debt is not to exceed 3.50x Adjusted EBITDA (or 3.75x Adjusted
EBITDA after certain material acquisitions) of the prior four quarters; and
Interest earned ratio - Adjusted EBITDA over the prior four quarters must be at least 2.50x our interest
expense over the same period.
34
At December 30, 2017, we were in compliance with all covenants related to these debt agreements. The key
covenant calculations at December 30, 2017 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
$ 755,015
351,987
2.15
351,987
44,645
7.88
The calculation of Adjusted EBITDA-last four quarters is presented under the column for fiscal 2017 in footnote (b)
to the table "Selected Five-Year Financial 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 2018 and beyond.
We previously considered the earnings in our non-U.S. subsidiaries to be indefinitely reinvested and, accordingly,
recorded no related deferred income taxes. Prior to the 2017 Tax Act, we had an excess of the amount for financial reporting
over the tax basis in our foreign subsidiaries, including unremitted foreign earnings of approximately $400 million. While
the tax on these foreign earnings imposed by the 2017 Tax Act (“Transition Tax”) resulted in the reduction of the excess of
the amount for financial reporting over the tax basis in our foreign subsidiaries, an actual repatriation from our non-U.S.
subsidiaries may still be subject to foreign withholding taxes and U.S. state income taxes.
As a result of the 2017 Tax Act, we have reassessed our position with respect to the approximately $400 million of
unremitted foreign earnings in our non-U.S. subsidiaries. We have taken the position that our previously deferred earnings in
our non-U.S. subsidiaries that were subject to the Transition Tax are not indefinitely reinvested. Of our cash balances of
$492.8 million at December 29, 2017, approximately $405.0 million is held in our non-U.S. subsidiaries. Consequently, with
the change in our position on unremitted foreign earnings, if we distributed our foreign cash balances certain taxes would be
applicable. Therefore, we have recorded deferred income taxes for foreign withholding taxes and U.S. state income taxes of
$10.4 million and $1.3 million respectively. Our estimates and the overall impact of the Act may change for various reasons
including, but not limited to, changes in our interpretation and assumptions, additional guidance that may be issued by
governing authorities, and tax planning actions we may undertake. We continue to gather additional information to fully
account for the Act. Any updates and changes in the estimates will be communicated in future quarterly financial statements.
FINANCIAL OBLIGATIONS AND FINANCIAL COMMITMENTS
We have future financial obligations related to (1) payment of principal and interest on interest bearing debt,
(2) Delta pension plan contributions, (3) operating leases and (4) purchase obligations. These obligations at December 30,
2017 were as follows (in millions of dollars):
Contractual Obligations
Total
2018
Interest
Delta pension plan contributions
Operating leases
Unconditional purchase commitments
Total contractual cash obligations
$
762.8
856.7
136.4
99.9
62.4
$ 1,918.2
$
$
1.0
42.4
1.5
21.6
62.4
128.9
35
2019-2020
251.7
$
73.7
30.0
31.5
—
386.9
$
2021-2022
1.4
$
51.6
30.0
19.5
—
102.5
$
After 2022
508.7
$
689.0
74.9
27.3
—
$ 1,299.9
Long term debt mainly consisted of $750.2 million principal amount of senior unsecured notes. At December 30,
2017, we had no outstanding borrowings under our bank revolving credit agreement. Obligations under these agreements
may be accelerated in event of non compliance with debt covenants. The Delta pension plan contributions are related to the
current cash funding commitments to the plan with the plan's trustees. The Company prepaid its 2018 contribution to the
Delta pension plan in December 2017. Operating leases relate mainly to various production and office facilities and are in
the normal course of business.
Unconditional purchase commitments relate to purchase orders for zinc, aluminum and steel, all of which we plan to
use in 2018, and certain capital investments planned for 2018. 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 30, 2017, we had approximately $23.5 million of various long term 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 steel making inputs. 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 $66 million for the year ended December 30, 2017.
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 interest bearing debt at December 30, 2017 was mostly fixed rate debt. 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 2017 and 2016 by
approximately $0.1 million. Likewise, we have excess cash balances on deposit in interest bearing accounts in financial
institutions. An increase or decrease in interest rates of ten basis points would have impacted our annual interest earnings in
2017 and 2016 by approximately $0.4 million and $0.3 million, respectively.
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 30, 2017, the Company had two open foreign currency
36
forward contracts that both qualified as net investment hedges. The purpose of the net investment hedges is to mitigate
foreign currency risk on a portion of our foreign subsidiary investments in the grinding media business that are denominated
in British pounds and Australian dollars. The divestiture of our grinding media business is currently pending Australia
regulatory approval. The forward contracts have a maturity date of January 2018 and a notional amount to sell British
pounds and Australian dollars and receive $24.1 million and $21.2 million, respectively. The unrealized loss recorded at
December 30, 2017 is $0.8 million and is included in Accounts Payable and Accumulated Other Comprehensive Income
(Loss) on the Consolidated Balance Sheets.
At December 31, 2016, the Company had certain open foreign currency forward contracts, the most significant of
which was a one-year foreign currency forward contract which qualified as a net investment hedge, in order to mitigate
foreign currency risk on a portion of our foreign subsidiary investments denominated in British pounds. The notional amount
of this forward contract to sell British pounds was $44.0 million and the contract was settled in May 2017. 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 between two entities with two different functional currencies. The notional amount of this forward
contract to sell Australian dollars was $36.6 million and the contract was settled in January 2016. 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 $37.2 million in 2017 and $28.7 million in 2016.
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
Euro
Canadian dollar
Brazilian real
2017
2016
(in millions)
$ 25.5
14.0
9.2
9.5
10.7
5.7
3.1
$ 20.4
12.3
10.9
9.6
5.4
5.9
3.4
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
objective of this policy is to mitigate the impact on our earnings of sudden, significant increases in the price of natural gas. At
December 30, 2017, we have open natural gas swaps for 80,000 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:
37
•
•
•
•
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. The Company’s allowance for
doubtful accounts related to both current and long-term accounts receivables is $9.8 million at December 30, 2017.
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 $20.1 million at December 30, 2017. If our estimate changed by 50%, the impact on
operating income would be approximately $10.1 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.
Inventories
We use the last-in first-out (LIFO) method to determine the value of approximately 37% of our inventory. The
remaining 63% 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 2017 and 2016, we experienced higher average 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 goods sold of approximately $5.7 million in
2017 and $3.0 million in 2016, than if our entire inventory had been valued on the FIFO method. In 2015, we experienced
lower costs to produce inventory than in the prior year, due mainly to lower cost for steel and steel related products. This
resulted in lower cost of goods sold (and higher operating income) of approximately $12.0 million in 2015, than had our
entire inventory been valued on the FIFO method.
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.
38
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.
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.
Our most recent impairment test during the third quarter of 2017 showed that the estimated fair value of all of our
reporting units exceeded their respective carrying value, so no goodwill was impaired. Our offshore and other complex steel
structures reporting unit with $14.8 million of goodwill, is the reporting unit that did not have a substantial excess of
estimated fair value over its carrying value. The 2017 model assumes continued expansion into other highly engineered steel
product offerings, such as utility support structures, where the reporting unit completed profitable projects in the past. We will
continue to monitor the outlook for wind energy in Europe which would affect the sales demand assumptions in the five year
model for this reporting unit. If demand for off and onshore structures for wind energy declines significantly and oil and
natural gas prices do not increase to a level to drive new extraction investment, we will be required to perform an interim
impairment test for goodwill. A hypothetical 1% change in the discount rate would increase/decrease the fair value of this
reporting unit by approximately $10 million, which approximates the cushion between the estimated fair value and carrying
value of this reporting unit.
If our assumptions on discount rates and future cash flows change as a result of events or circumstances, and we
believe these assets may have declined in value, then we may record impairment charges, resulting in lower profits. Our
reporting units are all cyclical and their sales and profitability may fluctuate from year to year. The Company continues to
monitor changes in the global economy that could impact future operating results of its reporting units. If such conditions
arise, the Company will test a given reporting unit for impairment prior to the annual test. 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.
In fiscal 2015, we recognized a $16.2 million impairment charge which represented all of the goodwill on the APAC
Coatings reporting unit. The forecast for lower prices for oil and natural gas required an interim step 2 test for our Access
Systems reporting unit during the fourth quarter of 2015. We recognized an $18.7 million impairment of goodwill as a result
of that test.
Our indefinite lived 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 13.0% 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 2017 where we determined no trade names were
impaired. In fiscal 2015, two of our trade names, Webforge (in the ESS segment) and Industrial Galvanizing (in the Coatings
segment), were estimated to have a fair value lower than carrying value during the impairment tests. 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.
39
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 30, 2017, we had approximately $54.5 million in deferred tax assets relating to tax credits and loss
carryforwards, with a valuation allowance of $27.9 million, including $2.4 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. For example, we
recorded a full $9.9 million valuation allowance against a tax credit asset in fiscal 2016 as we determined it is not more likely
than not these credits will be utilized before they expire.
We previously considered the earnings in our non-U.S. subsidiaries to be indefinitely reinvested and, accordingly,
recorded no related deferred income tax liabilities. The 2017 Tax Act, enacted in December 2017, subjected our unremitted
foreign earnings of approximately $400 million to tax at certain specified rates. We made a reasonable estimate of the
Transition Tax and recorded a provisional transition tax obligation of $9.9 million. However, we are continuing to gather
additional information to more precisely compute the amount of the transition tax. In addition, deferred taxes of $11.7 million
related to these unremitted foreign earnings were recorded in the fourth quarter of 2017 for future taxes that will be incurred
when cash is repatriated. This amount is provisional and our estimate and overall impact of the Act may change for various
reasons including, but not limited to, changes in our interpretation and assumptions, additional guidance that may be issued
by governing authorities, and tax planning actions we may undertake. We continue to gather additional information to fully
account for the 2017 Tax Act and to determine our position with respect to future earnings. Any updates to our position will
be communicated in future quarterly financial statements and may result in the recording of additional income tax expense.
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.
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.
40
•
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.
We modified the method used to estimate the interest cost components of the net periodic pension expense in 2017.
The new method uses the full yield curve approach to estimate the interest cost by applying the specific spot rates along the
yield curve used to determine the present value of the benefit plan obligations to relevant projected cash outflows for the
corresponding year. Prior to 2017, the interest cost components were determined using a single weighted-average discount
rate. The change does not affect the measurement of the total benefit plan obligation at year-end as the change in interest cost
will be offset by an equivalent but opposite change in the actuarial gains and losses recorded in other comprehensive income
(loss).
The discount rate used to measure the defined benefit obligation was 2.55% at December 30, 2017. The following
tables present the key assumptions used to measure pension expense for 2018 and the estimated impact on 2018 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
0.25% decrease in discount rate
0.25% decrease in expected return on plan assets
0.25% increase in inflation
Pension
2.55%
4.29%
2.20%
3.15%
Increase
in Pension
Expense
$
$
$
—
1.5
1.2
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required is included under the captioned paragraph, “MARKET RISK” on page 36 of this report.
41
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 30, 2017
Consolidated Statements of Comprehensive Income—Three-Year Period Ended December 30, 2017
Consolidated Balance Sheets—December 30, 2017 and December 31, 2016
Consolidated Statements of Cash Flows—Three-Year Period Ended December 30, 2017
Consolidated Statements of Shareholders’ Equity—Three-Year Period Ended December 30, 2017
Notes to Consolidated Financial Statements—Three-Year Period Ended December 30, 2017
Page
43
44
45
46
47
48
49
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Valmont Industries, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Valmont Industries, Inc. and subsidiaries (the
“Company”) as of December 30, 2017 and December 31, 2016, the related consolidated statements of earnings,
comprehensive income, cash flows, and shareholders’ equity for each of the three fiscal years in the period ended December
30, 2017, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial
statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 30, 2017 and December 31, 2016, and the results of its operations and its cash flows
for each of the three fiscal years in the period ended December 30, 2017, in conformity with the accounting principles
generally accepted in the United States of America.
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 30, 2017, 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 28, 2018 expressed an unqualified opinion on the Company’s internal control
over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 28, 2018
We have served as the Company's auditor since 1996.
43
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Three-year period ended December 30, 2017
(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
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.
Earnings per share:
Basic
Diluted
Cash dividends declared per share
2017
$ 2,447,219
2016
$ 2,255,860
2015
$ 2,338,132
298,748
2,745,967
1,860,087
204,112
265,816
2,521,676
1,682,355
183,078
280,792
2,618,924
1,804,055
193,836
2,064,199
1,865,433
1,997,891
681,768
415,336
—
656,243
412,739
—
266,432
243,504
(44,645)
4,737
1,940
(37,968)
(44,409)
3,105
18,254
(23,050)
621,033
447,368
41,970
131,695
(44,621)
3,296
2,637
(38,688)
228,464
220,454
93,007
66,390
39,755
106,145
65,748
(23,685)
42,063
122,319
178,391
—
122,319
(6,079)
116,240
5.16
5.11
1.500
$
$
$
$
—
178,391
(5,159)
173,232
7.68
7.63
1.500
$
$
$
$
$
$
$
$
42,569
4,858
47,427
45,580
(247)
45,333
(5,216)
40,117
1.72
1.71
1.500
See accompanying notes to consolidated financial statements.
44
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three-year period ended December 30, 2017
(Dollars in thousands)
Net earnings
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized translation gains (losses)
Gain/(loss) on hedging activities:
Unrealized gain (loss) on net investment hedge, net of tax expense
(benefit) of ($880) in 2017 and $2,646 in 2016
Amortization cost included in interest expense
Realized (gain) loss included in net earnings
Unrealized gain (loss) on cash flow hedges
Actuarial (loss) on defined benefit pension plan, net of tax expense
(benefit) of ($501) in 2017, ($25,778) in 2016, and ($10,732) in
2015
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive loss (income) attributable to noncontrolling interests
2017
2016
2015
$
122,319
$
178,391
$
45,333
79,279
(58,315)
(96,694)
(1,695)
74
—
—
(1,621)
(10,871)
66,787
189,106
(5,529)
4,226
74
—
—
4,300
—
74
(3,130)
2,855
(201)
(24,141)
(78,156)
100,235
(6,144)
(40,274)
(137,169)
(91,836)
(832)
Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
183,577
$
94,091
$
(92,668)
See accompanying notes to consolidated financial statements.
45
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 30, 2017 and December 31, 2016
(Dollars in thousands, except shares and per share amounts)
Current assets:
ASSETS
Cash and cash equivalents
Receivables, less allowance of $9,396 in 2017 and $10,250 in 2016
Inventories
Prepaid expenses, restricted cash, and other assets
Refundable 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 $417 in 2017 and $8,741 in 2016
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 5,206,474 in 2017 and 5,379,106 in 2016
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.
46
2017
2016
$
$
$
492,805
503,677
420,948
43,643
11,492
1,472,565
1,165,687
646,759
518,928
337,720
138,599
134,438
2,602,250
966
161
227,906
84,426
81,029
8,510
402,998
34,906
753,888
189,552
48,526
20,585
399,948
439,342
350,028
57,297
6,601
1,253,216
1,105,736
587,401
518,335
321,110
144,378
154,692
2,391,731
851
746
177,488
72,404
89,914
8,445
349,848
35,803
754,795
209,470
44,319
14,910
—
—
27,900
—
1,954,344
(279,022)
(590,386)
1,112,836
38,959
1,151,795
2,602,250
$
27,900
—
1,874,722
(346,359)
(612,781)
943,482
39,104
982,586
2,391,731
$
$
$
$
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-year period ended December 30, 2017 (Dollars in thousands)
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash flows from operations:
2017
2016
2015
$
122,319
$
178,391
$
45,333
Depreciation and amortization
Noncash loss on trading securities
Contribution to defined benefit pension plan
(Increase) decrease in restricted cash - pension plan trust
Impairment of property, plant and equipment
Impairment of goodwill & intangible assets
Stock-based compensation
Change in fair value of contingent consideration
Defined benefit pension plan expense (benefit)
(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
Proceeds from settlement of net investment hedge
Other, net
Net cash flows used in investing activities
Cash flows from financing activities:
Payments under short-term agreements
Proceeds from long-term borrowings
Principal payments on long-term borrowings
Dividends paid
Dividends to noncontrolling interest
Purchase of 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 used in 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
84,957
237
(40,245)
12,568
—
—
10,706
—
648
(3,924)
—
39,755
(49,112)
(57,442)
(6,038)
39,405
(1,998)
(7,228)
1,108
145,716
(55,266)
8,185
(5,362)
5,123
(2,295)
(49,615)
(585)
—
(887)
(33,862)
(5,674)
—
35,159
—
—
(26,161)
(32,010)
28,766
92,857
399,948
492,805
$
82,417
586
(1,488)
(13,652)
1,099
—
9,931
(3,242)
1,870
631
—
(23,685)
24,622
(11,461)
1,138
104
(12,207)
(23,880)
7,994
219,168
(57,920)
5,126
—
—
(255)
(53,049)
(200)
—
(2,006)
(34,053)
(2,938)
(11,009)
11,153
—
(53,800)
(2,305)
(95,158)
(20,087)
50,874
349,074
399,948
91,144
4,555
(16,500)
—
19,836
41,970
7,244
—
(610)
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
$
$
See accompanying notes to consolidated financial statements.
47
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Three-year period ended December 30, 2017
(Dollars in thousands, except shares and per share amounts)
Common
stock
27,900
$
$
Additional
paid-in
capital
Retained
earnings
— $1,718,662
Accumulated
other
comprehensive
income (loss)
$
Noncontrolling
interest in
consolidated
subsidiaries
Treasury
stock
(134,433) $ (410,296) $
Balance at December 27, 2014
Net earnings
Other comprehensive 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
Net earnings
Other comprehensive income (loss)
Cash dividends declared ($1.50 per share)
Dividends to noncontrolling interests
Purchase of noncontrolling interest
Purchase of treasury shares; 441,494
shares acquired
Stock plan exercises; 16,777 shares
acquired
Stock options exercised; 109,893 shares
issued
Tax benefit from stock option exercises
Stock option expense
Stock awards; 15,700 shares issued
Balance at December 31, 2016
Net earnings
Other comprehensive income (loss)
Cash dividends declared ($1.50 per share)
Dividends to noncontrolling interests
Stock plan exercises; 154,437 shares
acquired
Stock options exercised; 284,574 shares
issued
Stock option expense
Stock awards; 42,846 shares issued
Balance at December 30, 2017
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
40,117
—
(34,816)
—
—
—
(12,895)
5,716
1,699
5,137
6,059
—
—
—
—
(132,785)
—
—
—
—
—
—
— (168,983)
—
—
—
—
—
(13,854)
20,254
—
—
959
27,900
— 1,729,679
(267,218)
(571,920)
173,232
—
—
(79,141)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(137)
—
—
(33,921)
—
—
—
—
(7,614)
5,732
—
5,782
1,969
—
—
—
—
—
—
—
—
(53,800)
(2,305)
13,035
—
—
2,209
—
—
—
—
—
—
—
—
—
27,900
— 1,874,722
(346,359)
(612,781)
—
—
—
—
—
—
—
—
—
—
—
—
—
116,240
—
(33,927)
—
—
(4,666)
(2,691)
5,137
(471)
—
—
—
67,337
—
—
—
—
—
—
—
—
—
—
(26,161)
42,516
—
6,040
Total
shareholders’
equity
1,250,405
$
45,333
(137,169)
(34,816)
(2,634)
(168,983)
(13,854)
13,075
1,699
5,137
7,018
965,211
178,391
(78,156)
(33,921)
(2,938)
(11,009)
(53,800)
(2,305)
11,153
—
5,782
4,178
982,586
122,319
66,787
(33,927)
(5,674)
(26,161)
35,159
5,137
5,569
48,572
5,216
(4,384)
—
(2,634)
—
—
—
—
—
—
46,770
5,159
985
—
(2,938)
(10,872)
—
—
—
—
—
—
39,104
6,079
(550)
—
(5,674)
—
—
—
—
$
27,900
$
— $1,954,344
$
(279,022) $ (590,386) $
38,959
$
1,151,795
See accompanying notes to consolidated financial statements.
48
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(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
majority owned 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 $21,537 and $18,734 were classified as accounts payable at December 30, 2017 and
December 31, 2016, 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 four 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 and distribution of
engineered metal, and composite structures and components for lighting and traffic, access systems, wireless communication,
and roadway safety;
UTILITY SUPPORT STRUCTURES: This segment consists of the manufacture of engineered steel and concrete
structures for the utility industry, including on and offshore and other complex steel structures used in the energy generation
or distribution industry outside the United States;
COATINGS: This segment consists of galvanizing, anodizing and powder coating services; and
IRRIGATION: This segment consists of the manufacture of agricultural irrigation equipment and related parts and
services for the agricultural industry as well as tubular products for a variety of industrial customers.
In addition to these four reportable segments, there are other businesses and activities that individually are not more
than 10% of consolidated sales, operating income or assets. This includes the manufacture of forged steel grinding media for
the mining industry and is 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 year ended December 30, 2017 consisted of 52 weeks. The Company's fiscal year ended
December 31, 2016 consisted of 53 weeks and fiscal year ended December 26, 2015 consisted of 52 weeks. The estimated
impact on the company's results of operations due to the extra week in fiscal 2016 was additional net sales of approximately
$50,000 and additional net earnings of approximately $3,000.
49
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(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. The Company’s allowance for doubtful accounts related
to both current and long-term accounts receivables was $9,813 at December 30, 2017.
Inventories
Approximately 37% and 38% of inventory is valued at the lower of cost, determined on the last-in, first-out (LIFO)
method, or market as of December 30, 2017 and December 31, 2016, 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
$43,727 and $38,047 at December 30, 2017 and December 31, 2016, 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 2017, 2016 and 2015 was $69,046, $66,482 and $72,805, 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 $4,151 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 2016 and 2015 as
facilities were closed and future plans for certain fixed assets changed in connection with the Company's restructuring plans.
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. Indefinite lived intangible assets
are assessed separately from goodwill as part of the annual impairment testing, using a relief-from-royalty method. If the
underlying assumptions related to the valuation of a reporting unit’s goodwill or an indefinite lived intangible asset change
materially before or after the annual impairment testing, the reporting unit or asset is evaluated for potential impairment. In
these evaluations, management considers recent operating performance, expected future performance, industry conditions and
other indicators of potential impairment. 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.
50
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, fair value, or net investment hedge.
Comprehensive Income (Loss)
Comprehensive income (loss) 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:
Accumulated
Other
Comprehensive
Income (Loss)
Defined
Benefit
Pension Plan
$
(103,109) $
(10,871)
(113,980) $
(346,359)
67,337
(279,022)
$
Balance at December 31, 2016
Current-period comprehensive income (loss)
Balance at December 30, 2017
Gain on
Hedging
Activities
7,978
(1,621)
6,357
Foreign
Currency
Translation
Adjustments
$
(251,228) $
79,829
(171,399) $
$
51
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(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. The Company is not entitled to any compensation solely based on design of the product and does 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 the 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.
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 $500,000 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 $250,000 of the Company's outstanding
common stock with no stated expiration date. As of December 30, 2017, the Company has acquired 4,588,131 shares for
approximately $617,800 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 2017, $8,300 in 2016, and $11,600 in 2015.
52
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(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. This standard is effective for interim and annual reporting periods beginning after December 15, 2017, and can be
adopted either retrospectively or as a cumulative effect adjustment as of the date of adoption. Early adoption is permitted for
interim and annual periods beginning after December 15, 2016.
During 2017, the Company performed an evaluation of the effect from adopting this new accounting guidance will
have on its consolidated results of operations and financial position. When the terms and conditions allow the Company to
bill a customer for full compensation on a canceled order for the performance completed to date, and the inventory is custom
engineered to a single customer's specifications, revenue will be recognized over the production period and not the historical
practice which is upon shipment or time of delivery to the customer. The Company has certain product lines with customer
engineering specifications resulting in limited ability for the asset to be used for another customer; this resides in the Utility
segment and a small product line of the Engineered Support Structures segment. The Company estimates that approximately
$52,000 of sales and $13,100 of pre-tax operating income would have been recognized prior to December 30, 2017 if the
Company followed the new accounting guidance instead of the previously applied revenue recognition guidance.
The Company will adopt the new standard using the modified retrospective approach effective the first day of
fiscal 2018, resulting in a credit to retained earnings being recognized for approximately $9,800. From a balance sheet
perspective, a contract asset will be recorded for the amount of revenue recognized over the production period in excess of
billings to that customer. A large portion of the increase to total assets from the recognition of a contract asset will be offset
by lower reported inventory; the effect on the balance sheet will not be material. Although there were no significant changes
to the Company's accounting systems or controls upon adoption of Topic 606, certain existing controls were modified to
incorporate the revisions made to our accounting policies and practices.
In February 2016, the FASB issued ASU 2016-02, Leases, which provides revised guidance on leases requiring
lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the
definition of a short-term lease). ASU 2016-02 is effective for interim and annual reporting periods beginning after December
15, 2018, with early adoption permitted. The Company is currently evaluating the effect of adopting this new accounting
guidance but expects the adoption will result in a significant increase in total assets and liabilities.
In December 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which
requires amounts generally described as restricted cash and restricted cash equivalents to be included within cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statement of cash flows.
ASU 2016-18 is effective for interim periods and fiscal years beginning after December 15, 2017, with early adoption
permitted. The Company will adopt in the first quarter of 2018, recasting the beginning-of-period and end-of-period total
cash and cash equivalent amounts on the statement of cash flows to include the £10,000 restricted cash account for the
pension plan at December 31, 2016, thus changing cash flows from operations for fiscal years 2017 and 2016.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which eliminates
Step 2 from the goodwill impairment test. ASU 2017-04 is effective for periods and fiscal years beginning after December
15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after
January 1, 2017. The Company adopted this standard in the third quarter of 2017 which is the same period as it performs the
annual goodwill impairment testing.
53
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In March 2017, the FASB issued ASU 2017-07, Presentation of Net Periodic Benefit Cost Related to Defined Benefit
Plans, which amends the income statement presentation requirements for the components of net periodic benefit cost for an
entity's defined benefit pension and post-retirement plans. ASU 2017-07 is effective for periods and fiscal years beginning
after December 15, 2017. Early adoption is permitted as of the beginning of any annual period for which an entity's financial
statements have not been issued. The Company does not believe this ASU will have a material impact on the consolidated
financial statements and plans to adopt this ASU in the first quarter of 2018.
In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, which
improves the financial reporting of hedging relationships through changes to both the designation and measurement guidance
for qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 is effective for periods and fiscal
years beginning after December 15, 2018. Early adoption is permitted for any interim period post issuance. The Company
does not believe the adoption of this ASU will have a material impact on the consolidated financial statements.
On December 22, 2017 the SEC staff issued Staff Accounting Bulletin118 (SAB 118), which provides guidance on
accounting for the tax effects of the 2017 Tax Act. SAB 118 provides a measurement period that should not extend beyond
one year from the enactment date for companies to complete the accounting under Accounting Standards Codification (ASC)
740, Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of 2017 Tax
Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax
effects of the 2017 Tax Act is incomplete but for which they are able to determine a reasonable estimate, it must record a
provisional amount in the financial statements. Provisional treatment is proper in light of anticipated additional guidance
from various taxing authorities, the SEC, the FASB, and even the Joint Committee on Taxation.
(2) ACQUISITIONS
Acquisitions of Businesses
On July 31, 2017, the Company purchased Aircon Guardrails Private Limited ("Aircon") for $5,362 in cash, net of
cash acquired, plus assumed liabilities. Aircon produces highway safety systems including guardrails, structural metal
products, and solar structural products in India with annual sales of approximately $10,000. In the purchase price allocation,
goodwill of $3,327 and $2,109 of customer relationships and other intangible assets were recorded. Goodwill is not
deductible for tax purposes. This business is included in the Engineered Support Structures segment and was acquired to
expand the Company's geographic presence in the Asia-Pacific region. The purchase price allocation was finalized in the
fourth quarter of 2017. Proforma disclosures were omitted as this business does not have a significant impact on the
Company's financial results.
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 $8,000. In the 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. The
purchase price allocation was finalized in the first quarter of 2016. Proforma disclosures were omitted as this business did
not have a significant impact on the Company's 2015 or 2016 financial results.
Acquisitions of Noncontrolling Interests
In April 2016, the Company acquired the remaining 30% of IGC Galvanizing Industries (M) Sdn Bhd that it did not
own for $5,841. In June 2016, the Company acquired 5.2% of the remaining 10% of Valmont SM that it did not own for
$5,168. As these transactions were for acquisitions of part or all of the remaining shares of consolidated subsidiaries with no
change in control, they were recorded within shareholders' equity and as a financing cash flow in the Consolidated
Statements of Cash Flows.
54
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(3) RESTRUCTURING ACTIVITIES
2016 Plan
In July 2016, the Company identified a restructuring plan (the "2016 Plan") in Australia/New Zealand focused
primarily on closing and consolidating locations within the ESS and Coatings segments. In the fourth quarter of 2016, the
Company decided to close a structures facility in Canada. The 2016 Plan was mostly completed by the end of fiscal 2016.
During the last six months of fiscal 2016, the Company recorded the following pre-tax expenses from the 2016 Plan:
Coatings
ESS
Other/
Corporate
TOTAL
Severance
$
Other cash restructuring
expenses
Asset impairments/net loss on
disposals
Total cost of sales
Severance
Other cash restructuring
expenses
Total selling, general and
administrative expenses
Consolidated total
$
69
—
—
69
236
—
236
305
$ 1,620
$
— $
2,257
1,099
4,976
349
1,961
2,310
$ 7,286
$
—
—
—
—
234
234
234
$
1,689
2,257
1,099
5,045
585
2,195
2,780
7,825
2015 Plan
In April 2015, the Company's Board of Directors authorized a broad restructuring plan (the "2015 Plan"). The following pre-
tax expenses were recognized in 2015:
ESS
Utility
Coatings
Irrigation
Other/
Corporate
TOTAL
Severance
$ 4,417
$ 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
2,349
1,853
3,694
10,460
1,142
4,550
3,665
—
2,223
5,888
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
$16,348
$ 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
55
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(3) RESTRUCTURING ACTIVITIES (Continued)
During fiscal 2016, the Company recognized the following pre-tax restructuring expense (all cash) of $4,581 related to the
2015 Plan:
• Utility segment recognized $528 (cost of sales)
• ESS segment recognized $1,040 (SG&A)
• Coatings segment recognized $602 (SG&A)
•
Irrigation segment recognized $468 (SG&A)
• Corporate recorded $1,943 (SG&A)
Change in the liabilities recorded for the restructuring plans were as follows:
Balance at
December
31, 2016
Recognized
Restructuring
Expense
Costs Paid or
Otherwise
Settled
Balance at
December
30, 2017
Severance
Other cash restructuring expenses
Total
$
$
1,597
4,581
6,178
$
$
— $
—
— $
(1,597)
(3,365)
(4,962)
$
$
—
1,216
1,216
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 30, 2017, the fifty-three weeks ended December 31, 2016, and the fifty-two weeks
ended December 26, 2015 were as follows:
Interest
Income taxes
$
2017
44,528
63,791
$
2016
45,683 $
48,203
2015
44,974
33,046
56
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(5) INVENTORIES
Inventories consisted of the following at December 30, 2017 and December 31, 2016:
Raw materials and purchased parts
Work-in-process
Finished goods and manufactured goods
Subtotal
Less: LIFO reserve
(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
2017
183,029
30,671
250,975
464,675
43,727
420,948
$
$
2016
143,659
27,291
217,125
388,075
38,047
350,028
$
$
$
2017
93,258
350,937
588,439
23,682
82,025
27,346
$1,165,687
$
2016
85,724
325,813
564,171
22,423
77,453
30,152
$1,105,736
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
$25,612, $24,756, and $25,546 for fiscal 2017, 2016, and 2015, respectively.
Minimum lease payments under operating leases expiring subsequent to December 30, 2017 are:
Fiscal year ending
2018
2019
2020
2021
2022
Subsequent
Total minimum lease payments
$ 21,562
15,839
15,639
12,227
7,325
27,325
$ 99,917
57
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(7) GOODWILL AND INTANGIBLE ASSETS
Amortized Intangible Assets
The components of amortized intangible assets at December 30, 2017 and December 31, 2016 were as follows:
Customer Relationships
Proprietary Software & Database
Patents & Proprietary Technology
Other
Customer Relationships
Proprietary Software & Database
Patents & Proprietary Technology
Other
December 30, 2017
Gross
Carrying
Amount
$ 200,810
3,671
6,693
4,861
$ 216,035
$
$
Accumulated
Amortization
131,062
3,107
3,999
4,121
142,289
Weighted
Average
Life
13 years
8 years
11 years
3 years
December 31, 2016
Gross
Carrying
Amount
$ 191,316
3,616
6,434
3,713
$ 205,079
$
$
Accumulated
Amortization
111,342
3,056
3,420
3,668
121,486
Weighted
Average
Life
13 years
8 years
11 years
3 years
Amortization expense for intangible assets was $15,911, $15,935 and $18,339 for the fiscal years ended
December 30, 2017, December 31, 2016 and December 26, 2015, respectively.
Estimated annual amortization expense related to finite lived intangible assets is as follows:
2018
2019
2020
2021
2022
Estimated
Amortization
Expense
$
14,537
13,761
12,647
10,525
7,550
The useful lives assigned to finite lived 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 30, 2017
and December 31, 2016 were as follows:
58
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(7) GOODWILL AND INTANGIBLE ASSETS (Continued)
Webforge
Valmont SM
Newmark
Ingal EPS/Ingal Civil Products
Donhad
Shakespeare
Other
December 30,
2017
December 31,
2016
$
$
9,432
9,973
11,111
7,690
5,801
4,000
16,846
64,853
$
$
8,624
8,765
11,111
7,032
5,305
4,000
15,948
60,785
Year
Acquired
2010
2014
2004
2010
2010
2014
In its determination of these intangible assets as indefinite lived, 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 separately from goodwill in the third quarter of 2017. The
values of the trade names were determined using the relief-from-royalty method. The Company determined that the value of
its trade names were not impaired. The increase in certain trade names in 2017 was due to currency translation effects.
In 2015, the Company recorded a $5,830 impairment of the Webforge trade name (in ESS segment) and a $1,100
impairment of the Industrial Galvanizing trade name (in Coatings segment).
Goodwill
The carrying amount of goodwill by segment as of December 30, 2017 and December 31, 2016 was as follows:
Other
$ 17,487
$ 14,460
—
Total
$ 356,002
— (34,892)
$ 321,110
3,449
1,354
$ 15,814
13,161
$ 337,720
Engineered
Support
Structures
Segment
Gross Balance at December 31, 2016 $ 157,689
(18,670)
Accumulated impairment losses
$ 139,019
Balance at December 31, 2016
Acquisitions
3,449
Foreign currency translation
Balance at December 30, 2017
8,938
$ 151,406
Utility
Support
Structures
Segment
$ 88,680
—
$ 88,451
—
1,797
$ 90,248
Coatings
Segment
$
$
$
75,791
(16,222)
59,569
—
905
60,474
Irrigation
Segment
$ 19,359
—
$ 19,611
—
167
$ 19,778
59
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(7) GOODWILL AND INTANGIBLE ASSETS (Continued)
Engineered
Support
Structures
Segment
Gross Balance at December 26, 2015 $ 170,341
(18,670)
Accumulated impairment losses
151,671
Balance at December 26, 2015
(12,652)
Foreign currency translation
$ 139,019
Balance at December 31, 2016
Utility
Support
Structures
Segment
$ 88,680
—
88,680
(229)
$ 88,451
Coatings
Segment
$
$
75,941
(16,222)
59,719
(150)
59,569
Irrigation
Segment
$ 19,359
—
19,359
252
$ 19,611
Other
$ 17,487
Total
$ 371,808
— (34,892)
336,916
(15,806)
$ 321,110
17,487
(3,027)
$ 14,460
The Company’s annual impairment test of goodwill was performed during the third quarter of 2017 and it was
determined that the goodwill on the consolidated balance sheet was not impaired.
In fiscal 2015, the Company recognized a $16,222 impairment charge which represented all of the goodwill on the
APAC Coatings reporting unit. The forecast for lower prices for oil and natural gas required an interim step 2 test for our
Access Systems reporting unit during the fourth quarter of 2015. Accordingly, the Company recorded a $18,670 impairment
of Access System's goodwill.
(8) BANK CREDIT ARRANGEMENTS
The Company maintains various lines of credit for short-term borrowings totaling $113,437 at December 30, 2017.
As of December 30, 2017 and December 31, 2016, $161 and $0 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 $113,276 at December 30, 2017. 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 5.00% at December 30, 2017.
Other notes payable of $161 and $746 were outstanding at December 30, 2017 and December 31, 2016, respectively.
(9) INCOME TAXES
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries are as follows:
United States
Foreign
2017
152,372
76,092
228,464
$
$
2016
136,682
83,772
220,454
$
$
$
$
2015
99,175
(6,168)
93,007
The 2017 Tax Act was enacted in December 2017 which comprised a number of changes to the U.S. Internal
Revenue Code that impact corporations beginning in 2018; 1) a reduction in the statutory federal corporate income tax rate
from 35% to 21%, 2) limiting or eliminating certain tax deductions, and 3) changing the taxation of unremitted foreign
earnings. The Company estimated and recognized approximately $41,935 of tax expense for the 2017 Tax Act. The SEC
staff issued SAB 118, which provides guidance on accounting for the tax effects of the 2017 Tax Act (see footnote 1).
The Company's accounting for the following element of the 2017 Tax Act is complete:
Reduction of U.S. federal corporate tax rate: The 2017 Tax Act reduces the corporate tax rate to 21 percent,
effective January 1, 2018. Consequently, we have recorded a decrease related to deferred taxes of $20,372, with a
corresponding net adjustment to deferred income tax expense for the year ended December 30, 2017.
60
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(9) INCOME TAXES (Continued)
The Company's accounting for the following elements of the 2017 Tax Act is provisional. However, reasonable
estimates of certain effects were made and, therefore, the Company recorded the following:
Deemed Repatriation transition tax: The Deemed Repatriation transition tax (“Transition Tax”) is a tax on
previously untaxed accumulated and current earnings and profits (“E&P”) of certain of our foreign subsidiaries,
which subjected the Company's unremitted foreign earnings of approximately $400,000 to tax at certain specified
rates less associated foreign tax credits. To determine the amount of the Transition Tax, the Company determined, in
addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-
U.S. income taxes paid on such earnings. The Company was able to make a reasonable estimate of the Transition
Tax and recorded a provisional Transition Tax obligation of $9,890. The federal portion of this is payable over eight
(8) years. However, the Company may adjust this amount in 2018 to more precisely compute the amount of the
Transition Tax after assessing additional implementation guidance from the IRS, state tax authorities, the SEC, the
FASB, or the Joint Committee on Taxation. The Company previously considered the earnings in our non-U.S.
subsidiaries to be indefinitely reinvested and, accordingly, recorded no related deferred income taxes.
Indefinite reinvestment assertion: The Company reassessed its position with respect to previously untaxed
accumulated foreign earnings in its non-U.S. subsidiaries. The Company has taken the position that earnings subject
to the Transition Tax are not indefinitely reinvested. The Company was able to make a reasonable estimate and
recorded a provisional amount of the deferred income taxes for foreign withholding taxes and U.S. state income
taxes of $10,373 and $1,300, respectively. However, the Company may adjust this amount in 2018 to more precisely
compute the amount of the Transition Tax after assessing additional implementation guidance. The Company also
continues to gather additional information to determine its permanently reinvested position with respect to future
foreign earnings.
Income tax expense (benefit) consists of:
Current:
Federal
State
Foreign
Non-current:
Deferred:
Federal
State
Foreign
2017
2016
2015
$
49,324
$
41,539
$
4,415
12,880
66,619
(229)
(9,626)
(385)
49,766
39,755
5,467
19,123
66,129
(381)
8,504
202
(32,391)
(23,685)
23,130
4,431
15,077
42,638
(69)
3,382
(333)
1,809
4,858
$
106,145
$
42,063
$
47,427
61
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(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
Reversal of contingent liability
UK defined benefit pension plan
Effects of 2017 Tax Act
Other
2017
2016
2015
35.0%
35.0%
35.0%
1.4
(1.4)
(4.1)
(0.1)
(2.1)
—
—
—
—
18.4
(0.6)
46.5%
1.7
2.9
(4.8)
(0.2)
(2.0)
—
1.0
(2.2)
(14.6)
—
2.3
3.1
(0.1)
(5.7)
(0.1)
(3.8)
11.3
7.7
—
—
—
3.6
19.1%
51.0%
Fiscal 2016 includes $32,450 of deferred income tax benefit attributable to the re-measurement of the deferred tax
asset related to the Company's U.K. defined benefit pension plan. This item arose from a 2016 international legal
reorganization executed to better reflect the Company's operational business strategies. The Company considered many
factors in effecting this realignment, including streamlining treasury functions, creating a platform for future growth, and
capital allocation considerations. In addition, in fiscal 2016 the Company recorded a $9,888 valuation allowance against a tax
credit which is not more likely than not to be realized. The reversal of a $16,591 contingent non-current liability in 2016 was
not taxable.
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:
62
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(9) INCOME TAXES (Continued)
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
Withholding taxes
Other liabilities
Total deferred income tax liabilities
Net deferred income tax asset
2017
2016
$
$
13,373
818
54,521
47,459
3,433
4,602
29,421
153,627
(27,864)
125,763
1,805
26,826
39,613
11,673
1,819
81,736
44,027
$
$
16,549
1,071
104,439
80,425
1,385
9,436
37,988
251,293
(81,923)
169,370
2,161
37,961
50,405
—
6,164
96,691
72,679
Deferred income tax assets (liabilities) are presented as follows on the Consolidated Balance Sheets:
Balance Sheet Caption
Other assets
Deferred income taxes
Net deferred income tax asset
2017
78,933
(34,906)
44,027
$
$
2016
108,482
(35,803)
72,679
$
$
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 30, 2017 and
December 31, 2016 respectively, there were $54,521 and $104,439 relating to tax credits and loss carryforwards. During
2017, several dormant UK legal entities were placed in liquidation resulting in a reduction of the capital loss carryforward of
$60,691. This reduction was fully offset by a reduction in the related valuation allowance.
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 30, 2017 that are associated with tax loss and tax credit
carryforwards not reduced by valuation allowances expire in periods starting 2018.
Uncertain tax positions included in other non-current liabilities are evaluated in a two-step process, whereby (1) the
Company determines 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.
63
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(9) INCOME TAXES (Continued)
The following summarizes the activity related to our unrecognized tax benefits in 2017 and 2016, in thousands:
Gross unrecognized tax benefits—beginning of year
Gross increases—tax positions in prior period
Settlements with taxing authorities
Lapse of statute of limitations
Gross unrecognized tax benefits—end of year
2017
2016
$
$
3,400
5
1,044
(65)
(1,188)
3,196
$
$
3,876
99
695
(105)
(1,165)
3,400
There are approximately $777 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 2017, the Company recorded a reduction of its gross unrecognized tax
benefit of $1,188 with $772 recorded as a reduction of income tax expense, due to the expiration of statutes of limitation in
the United States. During 2016, the Company recorded a reduction of its gross unrecognized tax benefit of $1,165, with $810
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 $187 and $192 of interest and penalties at December 30, 2017 and
December 31, 2016, 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.
The Company files income tax returns in the U.S. and various states as well as foreign jurisdictions. Tax years 2014
and forward remain open under U.S. statutes of limitation. The total amount of unrecognized tax benefits that, if recognized,
would affect the effective tax rate was $3,059 and $3,328 at December 30, 2017 and December 31, 2016, respectively.
(10) LONG-TERM DEBT
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
Debt issuance costs
Long-term debt
Less current installments of long-term debt
Long-term debt, excluding current installments
December 30,
2017
December 31,
2016
$
$
250,000
250,000
(4,312)
250,200
2,545
—
8,500
4,033
(6,112)
754,854
966
753,888
$
$
250,000
250,000
(4,360)
250,200
3,557
—
8,500
4,395
(6,646)
755,646
851
754,795
64
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(10) LONG-TERM DEBT (Continued)
(a)
(b)
(c)
(d)
The 5.00% senior unsecured notes due 2044 include an aggregate principal amount of $250,000 on which interest is
paid and an unamortized discount balance of $1,102 at December 30, 2017. 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 principal amount of $250,000 on which interest is
paid and an unamortized discount balance of $3,210 at December 30, 2017. 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.
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
$2,545 at December 30, 2017. The notes bear interest at 6.625% per annum and are due on April 1, 2020. 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 18, 2017, the Company amended and restated its revolving credit facility with JP Morgan Chase Bank,
N.A., as Administrative Agent, and the other lenders party thereto. The credit facility provides for $600,000 of
committed unsecured revolving credit loans. The Company may increase the credit facility by up to an additional
$200,000 at any time, subject to lenders increasing the amount of their commitments. This amendment extends the
maturity date of the credit facility from October 17, 2019 to October 18, 2022 and increases the available
borrowings in foreign currencies from $200 million to $400 million. The interest rate on the borrowings will be, at
the Company's 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 Company's 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 the Company's senior
debt published by Standard & Poor's Rating Services and Mood's Investors Service, Inc.
65
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(10) LONG-TERM DEBT (Continued)
At December 30, 2017, the Company had no outstanding borrowings under the revolving credit facility.
The revolving credit facility has a maturity date of October 18, 2022 and contains certain financial covenants that
may limit additional borrowing capability under the agreement. At December 30, 2017, the Company had the ability
to borrow $585,238 under this facility, after consideration of standby letters of credit of $14,762 associated with
certain insurance obligations. We also maintain certain short-term bank lines of credit totaling $113,437, $113,276 of
which was unused at December 30, 2017.
(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 30, 2017 and December 31, 2016 were 2.00% and 1.48% 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 30, 2017. The minimum aggregate
maturities of long-term debt for each of the five years following 2017 are: $966, $765, $250,969, $773 and $582.
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.
(11) STOCK-BASED COMPENSATION
The Company maintains stock based compensation plans approved by the shareholders, which provide that the
Human Resource Committee of the Board of Directors may grant incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock awards, restricted stock units, and bonuses of common stock. At December 30, 2017,
529,356 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 years or on the fifth anniversary of
the grant. Expiration of grants is seven years from the date of grant. The Company recorded $5,137, $5,782 and $5,137 of
compensation expense (included in selling, general and administrative expenses) in the 2017, 2016 and 2015 fiscal years,
respectively. The associated tax benefits recorded in the 2017, 2016 and 2015 fiscal years was $1,952, $2,197 and $1,952,
respectively.
At December 30, 2017, the amount of unrecognized stock option compensation expense, to be recognized over a
weighted average period of 2.03 years, was approximately $7,588.
The Company uses a binomial option pricing model to value its stock options. The fair value of each option grant
made in 2017, 2016 and 2015 was estimated using the following assumptions:
Expected volatility
Risk-free interest rate
Expected life from vesting date
Dividend yield
2015
2017
2016
33.76% 33.88% 34.13%
1.58%
2.12% 1.83%
3.0 yrs
3.0 yrs
3.0 yrs
0.94%
1.17% 1.13%
66
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(11) STOCK-BASED COMPENSATION (Continued)
Following is a summary of the activity of the stock plans during 2015, 2016 and 2017:
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
Number
of
Shares
768,595
291,708
(169,493)
(41,201)
849,609
818,300
409,068
Weighted
Average
Exercise
Price
$ 113.72
104.89
74.37
137.02
$ 117.42
$ 117.61
$ 119.43
The weighted average per share fair value of options granted during 2015 was $27.91.
Outstanding at December 26, 2015
Granted
Exercised
Forfeited
Outstanding at December 31, 2016
Options vested or expected to vest at December 31, 2016
Options exercisable at December 31, 2016
Weighted
Average
Exercise
Price
$ 117.42
151.37
101.69
129.36
$ 122.77
$ 124.18
$ 123.75
Number of
Shares
849,609
85,092
(109,893)
(31,635)
793,173
774,139
469,844
The weighted average per share fair value of options granted during 2016 was $40.00.
Outstanding at December 31, 2016
Granted
Exercised
Forfeited
Outstanding at December 30, 2017
Options vested or expected to vest at December 30, 2017
Options exercisable at December 30, 2017
Weighted
Average
Exercise
Price
$ 122.77
164.35
121.92
104.26
$ 128.34
$ 128.00
$ 123.90
Number of
Shares
793,173
67,965
(284,574)
(5,942)
570,622
558,114
351,794
The weighted average per share fair value of options granted during 2017 was $43.68.
67
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
$
5.18
5.13
3.74
4,536
4,456
3,376
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
$
4.78
4.75
3.96
16,640
16,200
9,056
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
$
4.66
4.63
3.94
21,806
21,517
15,005
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(11) STOCK-BASED COMPENSATION (Continued)
Following is a summary of the status of stock options outstanding at December 30, 2017:
Outstanding and Exercisable By Price Range
Options Outstanding
Options Exercisable
Exercise Price
Range
$83.94 - 114.11
$120.91 - 136.42
$142.67 - 164.35
Number
239,480
127,901
203,241
570,622
Weighted
Average
Remaining
Contractual
Life
4.71 years
3.22 years
5.53 years
Weighted
Average
Exercise
Price
103.23
$
133.88
154.42
Weighted
Average
Exercise
Price
102.42
$
134.07
147.73
Number
147,216
125,459
79,119
351,794
In accordance with shareholder-approved plans, the Human Resource Committee of the Board of Directors may
grant stock under various stock based compensation arrangements, including restricted stock awards, restricted stock units,
and stock issued in lieu of cash bonuses. Under such arrangements, stock is issued without direct cost to the employee. The
restricted stock units are settled in Company stock when the restriction period ends. During fiscal 2017, 2016 and 2015, the
Company granted restricted stock units to directors and certain management employees as follows (which are not included in
the above stock plan activity tables):
Shares issued
Recognized compensation expense
2017
62,160
$ 163.18
$ 5,569
2016
58,961
$ 150.48
$ 4,069
2015
47,038
$ 108.97
$ 4,511
At December 30, 2017 the amount of deferred stock based compensation granted, to be recognized over a
weighted average period of 2.03 years, was approximately $15,971.
68
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(12) EARNINGS PER SHARE
The following table provides a reconciliation between Basic and Diluted earnings per share (EPS):
2017:
Net earnings attributable to Valmont Industries, Inc.
Weighted average shares outstanding (000's)
Per share amount
2016:
Net earnings attributable to Valmont Industries, Inc.
Weighted average shares outstanding (000's)
Per share amount
2015:
Net earnings attributable to Valmont Industries, Inc.
Weighted average shares outstanding (000's)
Per share amount
Dilutive
Effect of
Stock
Options
Diluted
EPS
$
$
$
$
$
$
— $ 116,240
22,738
218
5.11
0.05
$
— $ 173,232
22,709
147
7.63
0.05
$
— $ 40,117
23,405
117
1.71
0.01
$
Basic
EPS
$ 116,240
22,520
5.16
$
$ 173,232
22,562
7.68
$
$ 40,117
23,288
1.72
$
Basic and diluted net earnings and earnings per share in fiscal 2017 were impacted by the 2017 Tax Act enacted on
December 22, 2017 by the U.S. government. We remeasured our U.S. deferred income tax assets using a blended rate of
25.0% recognizing deferred income tax expense of approximately $20,372 ($0.90 per share). We also recorded a provision
charge of approximately $9,890 ($0.44 per share) of income tax expense for the deemed repatriation transition tax and
$11,673 ($0.51 per share) of deferred expenses related to foreign withholding taxes and U.S. state income taxes.
Basic and diluted net earnings and earnings per share in fiscal 2016 included a deferred income tax benefit of
$30,590 ($1.35 per share) primarily attributable to the re-measurement of the deferred tax asset related to the Company's
U.K. defined benefit pension plan. In addition, fiscal 2016 included $9,888 ($0.44 per share) recorded as a valuation
allowance against a tax credit asset. Finally, fiscal 2016 included the reversal of a contingent liability that was recognized as
part of the Delta purchase accounting of $16,591 ($0.73 per share) which was not taxable. 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).
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.
At the end of fiscal years 2017, 2016, and 2015 there were 0, 197,303, and 426,388 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.
69
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(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 2017, 2016 and 2015 Company contributions to these plans
amounted to approximately $11,800, $10,900 and $11,700 respectively.
The Company sponsors a fully funded, 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 $39,091 and $35,784 at December 30,
2017 and December 31, 2016, respectively. Such amounts are included in “Other assets” and “Deferred compensation” 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 $2,672 and $5,317 at
December 30, 2017 and December 31, 2016, 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 30, 2017, the carrying amount of the Company’s long-term debt was $754,854 with an
estimated fair value of approximately $799,258. At December 31, 2016, the carrying amount of the Company’s long-term
debt was $755,646 with an estimated fair value of approximately $731,633.
For financial reporting purposes, a three level 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 $39,091 ($35,784 in 2016) 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 $1,951 ($2,016 in 2016) is recorded at fair
value at December 30, 2017. Quoted market prices are available for these securities in an active market and therefore
categorized as a Level 1 input. These securities are included in Other Assets on the Consolidated Balance Sheets.
70
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(14) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Carrying Value
December 30,
2017
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
$
41,042
$
41,042
$
— $
—
Carrying Value
December 31,
2016
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
$
37,800
$
37,800
$
— $
—
(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, cash flow, or net investment 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 2017 and 2016 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 (loss) and at December 30, 2017, the Company has a $2,545 deferred loss and a
$4,312 deferred gain 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 a receivable or payable denominated in a foreign currency, a forecasted transaction or a series of forecasted
transactions denominated in a foreign currency, or an investment in foreign operations with a different functional currency.
71
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(15) DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
In July 2017, the Company entered into two six-month foreign currency forward contracts which qualified as net
investment hedges, in order to mitigate foreign currency risk on our grinding media business that is denominated in both
Australian dollars and British pounds. The Company announced its intention to divest of this business in August 2017 and
regulatory approval in Australia is currently pending. The forward contracts have a maturity date of January 2018 and a
notional amount to sell British pounds and Australian dollars and receive $24,059 and $21,222, respectively. The unrealized
loss recorded at December 30, 2017 is $826 ($619 after tax) and is included in Accounts Payable on the Consolidated
Balance Sheets. No ineffectiveness has resulted from the hedge and the balance is recorded in the Consolidated Statement of
Other Comprehensive Income within gain/(loss) on hedging activities. When the forward contracts mature, the realized gain
(loss) will be deferred in other comprehensive income (loss) where it will remain until the grinding media business is
divested.
In 2016, the Company entered into a one-year foreign currency forward contract which qualified as a net investment
hedge, in order to mitigate foreign currency risk on a portion of our investments denominated in British pounds. The forward
contract had a notional amount to sell British pounds and receive $44,000, and matured in May 2017. The realized gain of
$5,123 ($3,150 after tax) has been deferred in other comprehensive income (loss) where it will remain until the Company's
net investments in its British subsidiaries are divested. No ineffectiveness resulted from the hedge prior to its maturity.
(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.
Changes in the product warranty accrual, which is recorded in “Accrued expenses”, for the years ended
December 30, 2017 and December 31, 2016, 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) COMMITMENTS & CONTINGENCIES
2017
2016
$
$
26,538
(26,097)
9,787
9,881
20,109
$
$
36,653
(20,355)
9,565
675
26,538
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.
The Company established a provision in 2010 to address a pre-acquisition contingency which arose from the Delta
acquisition and was recognized as part of the purchase accounting. The applicable statutes of limitations expired and the
Company determined this contingent liability is remote. Therefore in 2016, the Company reduced "Other noncurrent
liabilities" by $16,591, the amount of the provision, and recognized “Other" income.
72
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(18) DEFINED BENEFIT RETIREMENT PLAN
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 30, 2017.
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. Because the pension plan is denominated in
British pounds sterling, the Company used exchange rates of $1.234/£ and $1.349/£ to translate the net pension liability into
U.S. dollars at December 31, 2016 and December 30, 2017, respectively. The net funded status of $189,552 at December 30,
2017 is recorded as a noncurrent liability.
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 for all years presented. 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 31, 2015 to December 31, 2016 were as follows:
Fair Value at December 31, 2015
Employer contributions
Interest cost
Actual return on plan assets
Benefits paid
Actuarial loss
Currency translation
Fair Value at December 31, 2016
Projected
Benefit
Obligation
$ 697,449
—
23,496
—
(17,792)
125,765
(132,781)
$ 696,137
Plan
Assets
518,126
1,426
—
80,538
(17,792)
—
(95,631)
486,667
$
$
Funded
status
$ (179,323)
$ (209,470)
73
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(18) DEFINED BENEFIT RETIREMENT PLAN (Continued)
Changes in the PBO and fair value of plan assets for the pension plan for the period from December 31, 2016 to
December 31, 2017 were as follows:
Fair Value at December 31, 2016
Employer contributions
Interest cost
Actual return on plan assets
Benefits paid
Actuarial loss
Currency translation
Fair Value at December 31, 2017
Projected
Benefit
Obligation
$ 696,137
—
18,152
—
(22,172)
25,154
66,030
$ 783,301
Plan
Assets
486,667
40,245
—
40,842
(22,172)
—
48,167
593,749
$
$
Funded
status
$ (209,470)
$ (189,552)
Pre-tax amounts recognized in accumulated other comprehensive income (loss) as of December 30, 2017 and
December 31, 2016 consisted of actuarial gains (losses):
Balance December 26, 2015
Actuarial loss
Currency translation gain
Balance December 31, 2016
Actuarial loss
Currency translation loss
Balance December 30, 2017
$ (106,959)
(66,957)
17,038
(156,878)
(1,789)
(9,583)
$ (168,250)
The estimated amount to be amortized from accumulated other comprehensive income into net periodic benefit cost
in 2018 is approximately $2,982.
Assumptions—The weighted-average actuarial assumptions used to determine the benefit obligation at December 31, 2017
and December 31, 2016 were as follows:
Percentages
Discount rate
Salary increase
CPI inflation
RPI inflation
2017
2016
2.55%
N/A
2.20%
3.30%
2.80%
N/A
2.25%
3.15%
74
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(18) DEFINED BENEFIT RETIREMENT PLAN (Continued)
Expense
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 30, 2017 and
December 31, 2016 were as follows:
Net Periodic Benefit Cost:
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Net periodic benefit expense (benefit)
2017
2016
18,152
(20,486)
2,982
648
$
23,496
(22,986)
1,360
1,870
$
Assumptions—The weighted-average actuarial assumptions used to determine expense are as follows for fiscal 2017
and 2016:
Percentages
Discount rate
Expected return on plan assets
CPI Inflation
RPI Inflation
2017
2016
2.80%
4.22%
2.25%
3.35%
3.75%
5.15%
2.15%
3.35%
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.
Cash Contributions
The Company completed negotiations with Plan trustees in 2016 regarding annual funding for the Plan. The annual
contributions into the Plan are $13,490 (/£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 $1,484 (/£1,100) per annum. The Company deferred its 2016
recovery plan contribution payment of £10,000, placing it into a restricted cash account. The restriction released in March
2017, when the Company contributed £10,000 to the Plan. The Company also made its required £10,000 annual contribution
in March 2017 and prepaid the 2018 £10,000 contribution in December 2017 to the Plan.
75
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(18) DEFINED BENEFIT RETIREMENT PLAN (Continued)
Benefit Payments
The following table details expected pension benefit payments for the years 2018 through 2027:
2018
2019
2020
2021
2022
Years 2023 - 2027
$
23,879
24,689
25,500
26,308
27,117
149,078
Asset Allocation Strategy
The investment strategy for pension plan assets is to maintain a diversified portfolio consisting of
• Long-term fixed income securities that are investment grade or government backed 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 weighted average maturity of the corporate bond portfolio was
13 years at December 30, 2017.
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.
Leveraged inflation-linked gilts (LDIs)—LDIs are a combination of U.K. government-backed securities (such as
bonds or other fixed income securities issued directly by the U.K. Treasury) money market instruments, and derivatives
combined to give leveraged exposure to changes in the U.K. long-term interest and inflation rates. These funds are expected
to offset a proportion of the impact changes in the long-term interest and inflation rates in the U.K. have on the pension plan's
benefit plan obligation liability. The fair value recorded by the Plan is calculated using net asset value (NAV) for each
investment.
Corporate Bonds—Corporate bonds and debentures consist of fixed income securities issued by U.K. corporations.
The fair value recorded by the Plan is calculated using NAV for each investment.
Corporate Stock—This investment category consists of common and preferred stock, including mutual funds,
issued by U.K. and non-U.K. corporations. The fair value recorded by the Plan is calculated using NAV for each investment,
except for one small holding that is actively traded.
76
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(18) 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. The fair value
recorded by the Plan is calculated using NAV for each investment.
At December 31, 2017 and December 31, 2016, the pension plan assets measured at fair value on a recurring basis
were as follows:
December 31, 2017
Plan assets at fair value:
Temporary cash investments
Corporate stock
Total plan net assets at fair value
Plan assets at NAV:
Leveraged inflation-linked gilt funds
Corporate bonds
Corporate stock
Diversified growth funds
Total plan assets at NAV
Total plan assets
December 31, 2016
Plan assets at fair value:
Temporary cash investments
Corporate stock
Total plan net assets at fair value
Plan assets at NAV:
Index-linked gilts
Corporate bonds
Corporate stock
Diversified growth funds
Total plan assets at NAV
Total plan assets
Quoted Prices in
Active Markets
for Identical
Inputs (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
17,915
536
18,451
$
$
— $
—
— $
— $
—
— $
17,915
536
18,451
158,011
88,905
212,505
115,877
575,298
$
593,749
Quoted Prices in
Active Markets
for Identical
Inputs (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
1,900
480
2,380
$
$
— $
—
— $
— $
—
— $
1,900
480
2,380
135,141
83,834
165,338
99,974
484,287
$
486,667
77
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(19) BUSINESS SEGMENTS
In the fourth quarter of 2017, the Company's management structure and reporting was changed to reflect
management's expectations of the future growth of certain product lines and to take into consideration the expected
divestiture of the grinding media business, subject to regulatory approval, which historically was reported in the Energy and
Mining segment. Grinding media will be reported in "Other" pending the completion of its divestiture. The access systems
applications product line is now part of the Engineered Support Structures ("ESS") segment and the offshore and other
complex structures product line is now part of the Utility segment. In the first quarter of 2017, the Company also changed its
reportable segment operating income to separate out the LIFO expense (benefit). Certain inventories are accounted for using
the LIFO basis in the consolidated financial statements. The segment financial information have been accordingly
reclassified in this report to reflect these changes, for all periods presented.
The Company now has four reportable segments based on its management 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 service related expenses that are allocated to business units generally on the basis of
employee headcounts and sales dollars.
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 lighting and traffic, access systems, wireless
communication, and roadway safety;
UTILITY SUPPORT STRUCTURES: This segment consists of the manufacture of engineered steel and
concrete structures for the utility industry and on and offshore and other complex steel structures used in energy
generation and distribution outside the United States;
COATINGS: This segment consists of galvanizing, anodizing and powder coating services; and
IRRIGATION: This segment consists of the manufacture of agricultural irrigation equipment and related
parts and services for the agricultural industry and tubular products for industrial customers.
In addition to these four reportable segments, the Company had other businesses and activities that individually are
not more than 10% of consolidated sales, operating income or assets. This includes the manufacture of forged steel grinding
media for the mining industry and is 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 LIFO expense, interest expense, non-operating income and deductions, or income taxes to its business segments.
78
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(19) BUSINESS SEGMENTS (Continued)
Summary by Business
SALES:
Engineered Support Structures segment:
Lighting, Traffic, and Roadway Products
$
Communication Products
Access Systems
Engineered Support Structures segment
Utility Support Structures segment:
Steel
Concrete
Offshore and Other Complex Steel Structures
Utility Support Structures segment
Coatings segment
Irrigation segment
Other
Total
INTERSEGMENT SALES:
Engineered Support Structures
Utility Support Structures
Coatings
Irrigation
Other
Total
NET SALES:
Engineered Support Structures segment
Utility Support Structures segment
Coatings segment
Irrigation segment
Other
Total
2017
2016
2015
633,178
171,718
133,206
938,102
$
612,868
162,148
131,703
906,719
$
580,877
162,635
138,349
881,861
658,604
99,738
100,773
859,115
318,891
652,430
76,300
2,844,838
25,862
2,871
62,080
8,058
—
98,871
538,284
90,256
107,824
736,364
289,481
575,204
83,110
2,590,878
15,620
747
45,604
7,231
—
69,202
582,930
95,581
103,068
781,579
302,385
612,201
103,690
2,681,716
1,059
3,829
46,912
6,430
4,562
62,792
912,240
856,244
256,811
644,372
76,300
$ 2,745,967
891,099
735,617
243,877
567,973
83,110
$ 2,521,676
880,802
777,750
255,473
605,771
99,128
$ 2,618,924
79
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(19) BUSINESS SEGMENTS (Continued)
OPERATING INCOME (LOSS):
Engineered Support Structures
Utility Support Structures
Coatings
Irrigation
Other
Adjustment to LIFO inventory valuation method
Corporate
Total
Interest expense, net
Other
Earnings before income taxes and equity in earnings of nonconsolidated
subsidiaries
TOTAL ASSETS:
Engineered Support Structures
Utility Support Structures
Coatings
Irrigation
Other
Corporate
Total
CAPITAL EXPENDITURES:
Engineered Support Structures
Utility Support Structures
Coatings
Irrigation
Other
Corporate
Total
2017
2016
2015
$
$
62,960
97,853
50,179
101,498
2,134
(5,680)
(42,512)
266,432
(39,908)
1,940
$
72,273
71,171
46,596
90,945
8,730
(2,972)
(43,239)
243,504
(41,304)
18,254
28,792
38,324
27,369
78,218
(4,767)
12,103
(48,344)
131,695
(41,325)
2,637
$
228,464
$ 220,454
$
93,007
$
846,881
597,231
288,890
369,798
68,934
430,516
$ 2,602,250
$ 776,161
544,015
274,666
313,982
65,296
417,611
$2,391,731
$ 790,004
569,205
270,793
310,967
72,646
378,767
$2,392,382
$
$
16,433
14,012
11,080
7,055
2,376
4,310
55,266
$
$
13,313
7,969
24,873
8,836
1,601
1,328
57,920
$
$
12,415
13,467
6,836
7,756
2,318
2,676
45,468
80
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(19) BUSINESS SEGMENTS (Continued)
DEPRECIATION AND AMORTIZATION:
Engineered Support Structures
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
2017
2016
2015
$
$
27,637
25,079
15,115
11,173
2,486
3,467
84,957
$
$
27,824
24,639
12,883
12,097
2,502
2,472
82,417
$
$
30,775
27,305
12,962
11,746
3,992
4,364
91,144
2017
2016
2015
$ 1,702,826
356,959
100,773
585,409
$ 2,745,967
$ 1,535,321
315,470
99,719
571,166
$ 2,521,676
$ 1,586,702
347,975
98,628
585,619
$ 2,618,924
$
544,724
227,483
90,372
267,106
$ 1,129,685
$
568,085
216,416
85,654
268,360
$ 1,138,515
$
575,737
259,326
90,463
240,004
$ 1,165,530
No single customer accounted for more than 10% of net sales in 2017, 2016, or 2015. 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.
Australia accounted for approximately 13% of the Company's net sales in 2017; 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.
81
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(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. The Company is the issuer.
Consolidated financial information for the Company ("Parent"), the Guarantor subsidiaries and the Non-Guarantor
subsidiaries is as follows:
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Year ended December 30, 2017
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Other income (expense):
Interest expense
Interest income
Other
Parent
$1,200,181
Guarantors
$ 485,448
Non-
Guarantors
$1,312,214
375,383
1,042,199
110,065
47,955
62,110
270,015
175,199
94,816
898,799
301,382
192,182
109,200
(43,642)
838
5,681
(37,123)
(13,866)
42
58
(13,766)
(1,003)
17,723
(3,799)
12,921
13,866
(13,866)
—
—
Elimination
s
Total
$ (251,876) $2,745,967
2,064,199
(252,182)
306
—
306
681,768
415,336
266,432
(44,645)
4,737
1,940
(37,968)
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
72,077
48,344
107,737
306
228,464
29,407
10,307
39,714
17,928
—
17,928
18,920
29,448
48,368
135
—
135
66,390
39,755
106,145
32,363
30,416
59,369
171
122,319
83,877
116,240
22,146
52,562
— (106,023)
(105,852)
59,369
—
122,319
—
—
(6,079)
—
(6,079)
$ 116,240
$
52,562
$
53,290
$ (105,852) $ 116,240
82
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Year ended December 31, 2016
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
Equity in earnings of nonconsolidated subsidiaries
Net earnings
Less: Earnings attributable to noncontrolling interests
Total
Eliminations
$ (191,877) $ 2,521,676
1,865,433
Parent
$1,126,985
Guarantors
$ 390,756
837,616
289,369
184,493
—
285,924
104,832
46,244
—
Non-
Guarantors
$1,195,812
932,609
263,203
182,002
—
104,876
58,588
81,201
(43,703)
273
1,480
(41,950)
(10)
112
77
179
(696)
2,720
16,697
18,721
(190,716)
(1,161)
—
—
(1,161)
—
—
—
—
62,926
58,767
99,922
(1,161)
220,454
24,539
6,216
30,755
32,171
141,061
173,232
—
20,270
—
20,270
38,497
66,128
104,625
—
21,262
(29,901)
(8,639)
(323)
—
(323)
108,561
(838)
— (207,189)
(208,027)
—
108,561
(5,159)
$ 103,402
178,391
(5,159)
$ (208,027) $ 173,232
656,243
412,739
—
243,504
(44,409)
3,105
18,254
(23,050)
65,748
(23,685)
42,063
178,391
—
Net earnings attributable to Valmont Industries, Inc
$ 173,232
$ 104,625
83
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED 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
Equity in earnings of nonconsolidated subsidiaries
Net earnings
Less: Earnings attributable to noncontrolling interests
Total
Eliminations
$ (213,287) $ 2,618,924
1,997,891
(212,927)
(360)
—
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
—
(360)
—
—
—
—
39,180
45,695
8,492
(360)
93,007
863
10,042
10,905
28,275
11,842
40,117
—
23,261
(6,224)
17,037
28,658
(39,418)
(10,760)
—
18,446
1,040
19,486
(10,994)
(247)
(11,241)
(5,216)
(1)
—
(1)
(359)
27,576
27,217
—
621,033
447,368
41,970
131,695
(44,621)
3,296
2,637
(38,688)
42,569
4,858
47,427
45,580
(247)
45,333
(5,216)
40,117
Net earnings attributable to Valmont Industries, Inc
$
40,117
$ (10,760) $ (16,457) $
27,217
$
84
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Year ended December 30, 2017
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
Net earnings
$ 116,240
$
52,562
$
59,369
$ (105,852) $ 122,319
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized translation gains (losses)
—
138,795
(59,516)
Gain (loss) on hedging activity:
Unrealized gain (loss) on net investment hedge
Amortization cost included in interest expense
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.
(1,695)
74
(1,621)
—
68,958
67,337
183,577
—
—
—
—
—
138,795
191,357
—
—
—
—
—
—
—
(10,871)
—
(70,387)
(11,018)
—
(68,958)
(68,958)
(174,810)
79,279
(1,695)
74
(1,621)
(10,871)
—
66,787
189,106
—
—
(5,529)
—
(5,529)
$ 183,577
$ 191,357
$ (16,547) $ (174,810) $ 183,577
85
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Year ended December 31, 2016
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
Net earnings
$ 173,232
$ 104,625
$ 108,561
$ (208,027) $ 178,391
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized translation gains (losses)
Gain (loss) on hedging activity:
Amortization cost included in interest expense
Unrealized gain on net investment hedge
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.
—
—
74
4,226
4,300
—
(83,252)
(78,952)
94,280
49
49
—
—
—
—
—
49
104,674
(58,364)
(58,364)
—
—
—
(24,141)
—
(82,505)
26,056
—
—
—
—
—
—
83,252
83,252
(124,775)
(58,315)
(58,315)
74
4,226
4,300
(24,141)
—
(78,156)
100,235
—
—
(6,144)
—
(6,144)
$
94,280
$ 104,674
$
19,912
$ (124,775) $
94,091
86
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Year ended December 26, 2015
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
Net earnings
$
40,117
$ (10,760) $ (11,241) $
27,217
$
45,333
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized translation gains (losses)
Gain (loss) on hedging activity:
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
Comprehensive income attributable to noncontrolling
interests
Comprehensive income attributable to Valmont
Industries, Inc.
—
—
(15,166)
(81,528)
(15,166)
(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)
87
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS
December 30, 2017
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Prepaid expenses, restricted cash, and other assets
Refundable 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
$
83,329
$
5,304
$
404,172
$
— $
492,805
149,221
160,444
8,607
11,492
413,093
557,371
368,668
188,703
20,108
130
82,995
46,801
970
—
136,070
160,767
84,508
76,259
110,562
30,955
271,461
217,551
34,066
—
927,250
447,549
193,583
253,966
207,050
107,514
—
(3,848)
—
—
503,677
420,948
43,643
11,492
(3,848)
1,472,565
—
—
—
—
—
1,165,687
646,759
518,928
337,720
138,599
—
Investment in subsidiaries and intercompany accounts
1,416,446
1,181,537
927,179
(3,525,162)
Other assets
Total assets
50,773
—
83,665
—
134,438
$
2,089,253
$
1,535,383
$
2,506,624
$ (3,529,010) $
2,602,250
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
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:
Common stock of $1 par value
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock
$
— $
—
— $
—
$
966
161
69,915
44,086
28,198
8,510
150,709
20,885
750,821
—
42,928
11,074
27,900
—
1,954,344
(279,022)
(590,386)
18,039
139,952
8,749
9,621
—
31,591
43,210
—
36,409
215,880
14,021
9,836
189,552
5,598
9,505
—
185,078
—
—
6
457,950
159,414
622,044
74,482
—
— $
—
—
—
—
—
—
—
(191,847)
—
—
—
966
161
227,906
84,426
81,029
8,510
402,998
34,906
753,888
189,552
48,526
20,585
27,900
—
648,682
(1,106,632)
1,107,536
(1,266,950)
619,622
(1,241,666)
1,954,344
(352,567)
278,085
—
—
(279,022)
(590,386)
Total Valmont Industries, Inc. shareholders’ equity
1,112,836
1,313,890
2,023,273
(3,337,163)
1,112,836
Noncontrolling interest in consolidated subsidiaries
—
—
38,959
—
38,959
Total shareholders’ equity
Total liabilities and shareholders’ equity
1,112,836
1,313,890
2,062,232
(3,337,163)
1,151,795
$
2,089,253
$
1,535,383
$
2,506,624
$ (3,529,010) $
2,602,250
88
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Prepaid expenses, restricted cash, and other assets
Refundable 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
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
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:
Common stock of $1 par value
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock
Noncontrolling interest in consolidated subsidiaries
Total shareholders’ equity
Total liabilities and shareholders’ equity
134,351
126,669
13,271
6,601
348,117
547,076
352,960
194,116
20,108
184
1,279,413
43,880
52,272
34,508
30,261
8,445
125,486
22,481
751,251
—
39,476
3,642
27,900
—
1,874,722
(346,359)
(612,781)
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
$
67,225
$
6,071
$
326,652
$
— $
399,948
60,522
45,457
880
—
112,930
153,596
76,776
76,820
110,561
35,953
901,758
244,469
182,056
43,146
—
796,323
405,064
157,665
247,399
190,441
108,241
—
(4,154)
—
—
439,342
350,028
57,297
6,601
(4,154)
1,253,216
—
—
—
—
—
1,105,736
587,401
518,335
321,110
144,378
—
1,089,369
(3,270,540)
—
110,812
—
154,692
$
1,885,818
$
1,238,022
$
2,542,585
$ (3,274,694) $
2,391,731
$
— $
—
— $
—
$
851
746
15,732
7,243
15,242
—
109,484
30,653
44,411
—
38,217
186,145
13,322
3,544
209,470
4,843
11,263
—
—
—
—
5
457,950
159,414
646,749
— $
—
—
—
—
—
—
—
—
—
—
—
851
746
177,488
72,404
89,914
8,445
349,848
35,803
754,795
209,470
44,319
14,910
27,900
—
(346,359)
(612,781)
943,482
39,104
982,586
648,683
(1,106,633)
1,107,536
(1,266,950)
603,338
(1,250,087)
1,874,722
(64,313)
(284,663)
348,976
—
—
—
—
—
39,104
—
943,482
1,199,800
2,113,998
(3,274,694)
$
1,885,818
$
1,238,022
$
2,542,585
$ (3,274,694) $
2,391,731
89
Total Valmont Industries, Inc. shareholders’ equity
943,482
1,199,800
2,074,894
(3,274,694)
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year ended December 30, 2017
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
Decrease in restricted cash - pension plan trust
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
Proceeds from settlement of net investment hedge
Other, net
Net cash flows from investing activities
Cash flows from financing activities:
Payments under short-term agreements
Principal payments on long-term borrowings
Dividends paid
Dividends to noncontrolling interest
Intercompany dividends
Intercompany capital contribution
Proceeds from exercises under stock plans
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
$
116,240
$
52,562
$
59,369
$
(105,852) $
122,319
26,237
15,003
—
—
10,706
—
—
(664)
(83,877)
10,307
(13,120)
(33,775)
(2,207)
17,643
7,516
(140)
(11,837)
43,029
—
—
—
—
—
8
(22,146)
—
(22,473)
(1,345)
(90)
2,307
(4,116)
—
728
20,438
(20,460)
(9,454)
748
—
5,123
684
(13,905)
—
(33,862)
—
22,662
(10,818)
35,159
(26,161)
(13,020)
—
16,104
67,225
3
—
—
(22,777)
(32,228)
—
—
—
—
—
10,818
—
—
10,818
205
(767)
6,071
43,717
237
12,568
—
648
(40,245)
(3,268)
—
29,448
(13,519)
(22,016)
(3,741)
19,455
(5,398)
(7,088)
12,217
82,384
(25,352)
7,434
(5,362)
—
19,663
(3,617)
(585)
(887)
—
(5,674)
(22,662)
—
—
(29,808)
28,561
77,520
326,652
—
—
—
—
—
—
—
106,023
—
—
(306)
—
—
—
—
—
84,957
237
12,568
10,706
648
(40,245)
(3,924)
—
39,755
(49,112)
(57,442)
(6,038)
39,405
(1,998)
(7,228)
1,108
(135)
145,716
—
—
—
—
135
135
—
—
—
—
—
—
—
—
—
—
—
(55,266)
8,185
(5,362)
5,123
(2,295)
(49,615)
(585)
(887)
(33,862)
(5,674)
—
—
35,159
(26,161)
(32,010)
28,766
92,857
399,948
492,805
Cash and cash equivalents—end of period
$
83,329
$
5,304
$
404,172
$
— $
90
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
$
173,232
$
104,625
$
108,561
$
(208,027) $
178,391
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year ended December 31, 2016
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
Increase in restricted cash - pension plan trust
Impairment of property, plant and equipment
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
27,096
13,316
—
—
—
9,931
—
—
—
165
—
—
—
—
—
—
—
103
42,005
586
(13,652)
1,099
—
(3,242)
1,870
(1,488)
363
—
Equity in earnings in nonconsolidated subsidiaries
(141,061)
(66,128)
Deferred income taxes
6,216
—
(29,901)
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
Other, net
Net cash flows from investing activities
Cash flows from financing activities:
Payments under short-term agreements
Principal payments on long-term borrowings
Dividends paid
Purchase of noncontrolling interest
Dividends to noncontrolling interest
Proceeds from exercises under stock plans
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
(3,610)
5,554
(1,250)
(14,452)
1,423
(2,333)
32,873
93,784
5,865
(7,078)
(114)
2,052
(6,664)
5
(16,567)
29,415
22,367
(11,097)
2,502
12,504
(6,966)
(21,552)
(8,312)
95,647
(9,031)
(22,320)
(26,569)
44
(633)
(9,620)
—
(215)
(34,053)
—
—
11,153
(53,800)
(2,305)
(79,220)
—
4,944
62,281
67,225
102
(5,085)
(27,303)
—
—
—
—
—
—
—
—
—
(49)
2,063
4,008
6,071
$
$
4,980
5,785
(15,804)
(200)
(1,791)
—
(11,009)
(2,938)
—
—
—
(15,938)
(20,038)
43,867
282,785
326,652
$
$
91
—
—
—
—
—
—
—
—
—
207,189
—
—
1,160
—
—
—
—
—
322
—
—
(322)
(322)
—
—
—
—
—
—
—
—
—
—
—
—
— $
82,417
586
(13,652)
1,099
9,931
(3,242)
1,870
(1,488)
631
—
(23,685)
24,622
(11,461)
1,138
104
(12,207)
(23,880)
7,994
219,168
(57,920)
5,126
(255)
(53,049)
(200)
(2,006)
(34,053)
(11,009)
(2,938)
11,153
(53,800)
(2,305)
(95,158)
(20,087)
50,874
349,074
399,948
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED 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:
Payments 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
$
92
$
282,785
$
— $
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(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
$
637,473
712,737
680,779
714,978
$ 2,745,967
$ 164,605
183,280
163,594
170,289
$ 681,768
$
38,979
45,664
35,208
(3,611)
$ 116,240
$
596,605
640,249
610,247
674,575
$ 2,521,676
$ 160,968
175,117
155,023
165,135
$ 656,243
$
32,969
42,026
28,173
70,064
$ 173,232
$
$
$
$
1.73
2.03
1.56
(0.16)
5.16
1.45
1.86
1.25
3.12
7.68
$
$
$
$
1.72
2.01
1.55
(0.16)
5.11
$ 165.20
157.60
160.35
176.35
$ 176.35
1.45
1.85
1.24
3.10
7.63
$ 125.69
145.94
139.62
156.05
$ 156.05
$ 135.95
144.65
140.90
153.65
$ 135.95
$ 96.50
117.10
125.60
120.65
$ 96.50
$
$
$
$
0.375
0.375
0.375
0.375
1.50
0.375
0.375
0.375
0.375
1.50
2017
First
Second
Third
Fourth (1)
Year
2016
First
Second
Third
Fourth (2)
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)
The fourth quarter of 2017 was impacted by the 2017 Tax Act. We remeasured our U.S. deferred income tax assets
using a blended rate of 25.0% recognizing deferred income tax expense of approximately $20,372 ($0.90 per
share). We also recorded a provision charge of approximately $9,890 ($0.44 per share) of income tax expense for
the deemed repatriation transition tax and $11,673 ($0.51 per share) of deferred expenses related to foreign
withholding taxes and U.S. state income taxes.
The fourth quarter of 2016 included a deferred income tax benefit of $30,590 ($1.35 per share)
primarily attributable to the re-measurement of the deferred tax asset related to the Company's U.K. defined benefit
pension plan. In addition, fiscal 2016 included $9,888 ($0.44 per share) recorded as a valuation allowance against a
tax credit asset. Finally, the fourth quarter of 2016 included the reversal of a contingent liability that was
recognized as part of the Delta purchase accounting of $16,591 ($0.73 per share).
93
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 30, 2017.
The effectiveness of the Company’s internal control over financial reporting as of December 30, 2017 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.
94
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Valmont Industries, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Valmont Industries, Inc. and subsidiaries (the
“Company”) as of December 30, 2017, based on criteria established in Internal Control—Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 30, 2017, based on the
criteria established in Internal Control—Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended December 30, 2017, of the Company and
our report dated February 28, 2018 expressed an unqualified opinion on those financial statements.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Deloitte & Touche LLP
Omaha, Nebraska
February 28, 2018
95
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 30, 2017. 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.
96
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”, "Pay Ratio Information", “Summary
Compensation Table”, “Grants of Plan-Based Awards for Fiscal Year 2017”, “Outstanding Equity Awards at Fiscal Year-
End”, “Options Exercised in Fiscal 2017”, “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.
97
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 30, 2017
Consolidated Statements of Comprehensive Income—Three-Year Period Ended December 30, 2017
Consolidated Balance Sheets—December 30, 2017 and December 31, 2016
Consolidated Statements of Cash Flows—Three-Year Period Ended December 30, 2017
Consolidated Statements of Shareholders’ Equity—Three-Year Period Ended December 30, 2017
Notes to Consolidated Financial Statements—Three-Year Period Ended December 30, 2017
43
44
45
46
47
48
49
The following financial statement schedule of the Company is included herein:
SCHEDULE II—Valuation and Qualifying Accounts
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) The exhibits listed on the "Index to Exhibits” are filed with this Form 10-K or incorporated by reference as set forth
below.
(b)
below.
The exhibits listed on the "Index to Exhibits” are filed with this Form 10-K or incorporated by reference as set forth
(c)
Additional Financial Statement Schedules
98
Schedule II
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(Dollars in thousands)
Balance at
beginning
of
period
Charged
to
profit and
loss
Currency
Translation
Adjustment
Deductions
from
reserves*
Balance at
close of
period
Fifty-three weeks ended December 30, 2017
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 31, 2016
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 26, 2015
Reserve deducted in balance sheet from the asset
to which it applies—
$
$
18,991
81,923
2,060
7,728
510
5,762
(11,748) $
(67,549)
9,813
27,864
21,008
90,837
1,273
9,888
(734)
(18,129)
(2,556) $
(673)
18,991
81,923
Allowance for doubtful receivables
Allowance for deferred income tax asset valuation
$
9,922
104,487
12,420
1,267
(1,143)
(14,917)
(191) $
—
21,008
90,837
______________________________________________
*
The deductions from reserves are net of recoveries.
99
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 10.1 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 — First Amended and Restated Credit Agreement, dated as of October 18, 2017, 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 October 18,
2017 and is incorporated herein by reference.
Exhibit 4.5
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 4.6 — 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 4.7 — 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.
100
Exhibit 4.8 — 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 4.3 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 10.1 — 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 10.2 — 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 10.3
2013 Stock Plan Amendment, dated December 17, 2015. This document was filed as
Exhibit 10.7 to the Company’s Annual Report on Form 10-K (Commission file
number 001-31429) for the year ended December 26, 2015 and is incorporated herein
by this reference.
Exhibit 10.4 — Form of Stock Option Agreement. This document was filed as Exhibit 10.8 to the
Company’s Annual Report on Form 10-K (Commission file number 001-31429) for
the year ended December 31, 2016 and is incorporated herein by this reference.
Exhibit 10.5 — 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 10.6 — 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 10.7 — Form of Restricted Stock Unit Agreement (Domestic). This document was filed as
Exhibit 10.11 to the Company’s Annual Report on Form 10-K (Commission file
number 001-31429) for the year ended December 31, 2016 and is incorporated herein
by this reference.
Exhibit 10.8 — Form of Restricted Stock Unit Agreement (International). This document was filed as
Exhibit 10.12 to the Company’s Annual Report on Form 10-K (Commission file
number 001-31429) for the year ended December 26, 2015 and is incorporated herein
by this reference.
Exhibit 10.9 — 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 10.10 — 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.
Exhibit 10.11 — 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.
101
Exhibit 10.12 — 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 30, 2017, 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 10.12.
102
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 28th day of February, 2018.
SIGNATURES
Valmont Industries, Inc.
By:
/s/ STEPHEN G. KANIEWSKI
Stephen G. Kaniewski
President and 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, President and Chief Executive Officer
(Principal Executive Officer)
Date
2/28/2018
/s/ Stephen G. Kaniewski
Stephen G. Kaniewski
/s/ MARK C. JAKSICH
Mark C. Jaksich
/s/ TIMOTHY P. FRANCIS
Timothy P. Francis
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
2/28/2018
Vice President and Controller (Principal Accounting
Officer)
2/28/2018
Mogens C. Bay*
K.R. den Daas*
Theo W. Freye*
James B. Milliken*
Donna M. Milrod*
Daniel P. Neary*
Catherine J. Paglia*
Clark T. Randt*
Walter Scott, Jr.*
Kenneth E. Stinson*
______________________________________________
*
Stephen G. Kaniewski, by signing his name hereto, signs the Annual Report on behalf of each of the directors
indicated on this 28th day of February, 2018. A Power of Attorney authorizing Stephen G. Kaniewski 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/ STEPHEN G. KANIEWSKI
Stephen G. Kaniewski
Attorney-in-Fact
103
Exhibit 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Stephen G. Kaniewski, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended December 30, 2017 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/ STEPHEN G. KANIEWSKI
Stephen G. Kaniewski
President and Chief Executive Officer
Date: February 28, 2018
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 30, 2017 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 28, 2018
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes Oxley Act of 2002
The undersigned, Stephen G. Kaniewski, 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 30, 2017 (the “Report”).
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley 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 28th day of February, 2018.
/s/ STEPHEN G. KANIEWSKI
Stephen G. Kaniewski
President 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 Sarbanes Oxley 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 30, 2017 (the “Report”).
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley 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 28th day of February, 2018.
/s/ MARK C. JAKSICH
Mark C. Jaksich
Executive Vice President and Chief Financial Officer
BR920253-0318-10K