FOR THE FISCAL YEAR ENDED DECEMBER 29, 2018
MESSAGE TO
FELLOW SHAREHOLDERS
and FORM 10-K
A MESSAGE TO OUR
SHAREHOLDERS
Stephen G. Kaniewski
President and Chief Executive Officer
During fiscal 2018, we made great progress positioning
Valmont for sustainable, long-term growth. In what
was a transformative year for our company, we
continued to build on our commitment to success,
through a constant emphasis on our Core Values
of Passion, Integrity, Continuous Improvement and
Delivering Results. Together, these values guide us in
addressing the challenges of today and are energizing
our teams as we look to the future.
OUR CORE VALUES:
we operate
with absolute
integrity
we have a
passion for our
products, services,
and customers
we strive for
continuous
improvement
removing waste
everywhere with a true
sense of urgency
we consistently
deliver
results
In March, we hosted an Investor Day in New York City,
where we outlined a three-year strategy and plan to
prepare us for long-term growth. 2018 was the first
year of that plan, and we are already benefiting from
several notable accomplishments. We are expanding
our total addressable markets, and have made
significant progress in building and aligning our
teams toward growth. We also executed on a
significant transformation of our global operations
toward optimizing our manufacturing footprint, as
we continue to increase our served markets.
Implementing a central-led operating model in North
America, we continue to simplify our operations to
best serve our markets, and are expanding our shared
services areas to support IT and financial back office
functions. We built upon our competitive differentiators,
including our flexible global manufacturing footprint,
and innovative engineering and technology solutions,
supporting our position at or near the top of the markets we
serve. And we executed on a balanced capital allocation
plan to support our growth initiatives, all with a focus on
providing superior service and value to our customers.
2018 Financial Performance
Despite several headwinds in 2018, the Valmont
team delivered another year of profitable growth,
supported by a number of long-term enduring
drivers across our served markets, and driven by the
outstanding commitment of our more than 10,000
associates worldwide.1
• Revenues of $2.76 Billion
• GAAP Operating Income of $202.3 Million and
Adjusted 2 Operating Income of $269.4 Million
• GAAP Earnings Per Diluted Share of $4.20 and
Adjusted2 Earnings Per Diluted Share of $7.59
• Adjusted After-Tax Return on Invested Capital
of 10.6%3
2018 was challenged by continued, rapid raw
material inflation that took time to fully recover in
certain businesses. Low net farm income and
uncertainty around impacts of tariffs and trade
policies impacted our North America irrigation
business. A truckers’ strike in Brazil led to an
interruption of operations, impacting full-year results.
Weakness in the China market, most notably in our
telecommunications business, led to lower sales
and profitability there during the year. And increased
China competition in our Northern European offshore
wind business led to a challenging price environment
that we expect to continue into 2019.
Despite these short-term headwinds, the long-term
growth drivers for our businesses remain strong. We
continue optimizing our core strengths to meet an
increasing global demand for quality infrastructure
and improved productivity for agriculture.
We also enhanced our core business portfolio
in 2018 by completing the divestiture of the grinding
media business in April and completed six
acquisitions during the year.
Our strategy to expand our market leadership
position through organic growth has supported the
new construction of a steel structures facility in
1 Segment results are detailed in the 2018 fourth quarter earnings results
and the attached 2018 10-K
2 Excludes expenses for goodwill impairment, restructuring activities, debt
refinancing, and other non-recurring expenses; see reconciliation provided
on the financial highlights page.
3 Calculation of average invested capital is on pg 20 of the attached 2018
Form 10-K. The Adjusted After-Tax Return on Invested Capital presented
is further calculated by using adjusted operating income of $269.4 Million,
an adjusted tax rate of 24.0% (adjusted to exclude the non-deductible
goodwill impairment and certain restructuring expenses in taxing
jurisdictions where the Company will not realize a tax benefit) for an
adjusted after-tax return on invested capital of 10.6%.
Secular Growth Drivers:
Engineered Support Structures
• Significant investment in transportation
infrastructure
• Unprecedented demand for wireless
network structures
• Rapidly accelerating 5G network
deployment in global urban centers
• Increasing demand for integrated smart
technology solutions
Utility Support Structures
• Aging infrastructure replacement from
historic underinvestment in electric grid
• Grid resiliency requirements for
uninterrupted power
• Notable demand for renewable
power (solar and wind) and distributed
generation
• Replacement of wood distribution and
transmission poles with those made from
more robust materials
Irrigation
• Constraints on fresh water resources
• Growing populations demand higher
food production
• Governments’ desire for self-sufficient
food production
• Rising commodity prices and net farm
income amid a farm labor shortage
• Global leadership in advanced
technology solutions that optimize
water usage
Coatings
• Strong correlation to overall industrial
production
• The demand for better return on infra-
structure investments
• Growing number of economies actively
combating corrosion costs
• Increased demand for sustainable
metal products
2018 Acquisitions:
I
T
A
L
I
A
A global designer and provider of
engineered solar tracker solutions.
The most comprehensive steel coating
service provider in New Zealand.
A global manufacturer of steel lattice
structures for power transmission,
wireless communications, and renewable
generation, as well as a provider of
zinc galvanizing services.
IRRIGATION
COMPONENTS
INTERNATIONAL
A worldwide provider of parts for
agricultural irrigation equipment.
Designs and delivers high-pressure
water and compressed air process
systems around the world.
An industry leader in the design,
engineering and manufacturing of
overhead sign structures for the North
America transportation market.
Siedlice, Poland, and a concrete structures facility
in Fort Meade, Florida. The recently announced
construction of a new galvanizing line near
Pittsburgh, Pennsylvania, commencing in 2019,
will enhance our market position in the northeast
U.S. region. In addition, we are expanding our
irrigation facility in the United Arab Emirates to better
serve new and existing global irrigation markets. We
executed on a comprehensive plan to transform our
global operations, mostly in the Engineered Support
Structures segment, and the resulting organizational
alignment and manufacturing footprint have
positioned us well for profitable growth. We also
continued to drive innovation through investments in
new product development and technology
solutions, notably in our Irrigation segment. Our
strong and flexible balance sheet supported our
focus to maintain an investment grade credit rating.
While free cash flow was below our long-term stated
goal of 1x Net Earnings, we ended the year with
$313.2 million in cash, providing us with solid liquidity
leading into 2019. We also refinanced our long-term
debt at attractive interest rates.
2018 Acquisitions
Acquisitions are an important part of our growth
strategy and long-term financial goals. Strategic
additions to our portfolio of businesses help us
achieve addressable market growth more rapidly,
and strengthen our ability to offer integrated
solutions to our customers. During 2018, we
completed six acquisitions across all four of our
business segments—expanding on our capabilities,
and offering increased growth opportunities.
Capital Allocation
Valmont has a solid history of returning capital to our
shareholders in a most efficient manner, and we
remain committed to a balanced capital allocation
philosophy. In 2018, we returned approximately $149
million, comprised of $34 million in cash dividends,
and $115 million in share repurchases. We deployed
$143 million toward acquisitions, and executed on
dividend payments at a ratio of 20% of prior year net
earnings, above our stated goal of 15%.
CAPITAL ALLOCATION SCORECARD
a Balanced Approach
$364M of Capital Deployed
in 2018
Capital
Expenditures
$72M
Dividends
$34M
Acquisitions
$143M
Share
Repurchases
$115M
Business
Growth
Return of
Capital to
Shareholders
Capital
Expenditures
• Working capital investment to support
business growth
• CapEx of $72M in 2018
Acquisitions
• Strategic fit + market expansion
• Returns exceed cost of capital within 3 years
Dividends
• Payout ratio target: 15% of net earnings
• Current payout: 20%
Share
Repurchases
• Opportunistic approach
• Supported by free cash flows
• $17M remaining on current authorization1
• $250M reauthorization approved on 10/30/2018
1 As of 12/29/2018
Creating Shareholder Value by
Increasing our Dedication to Lean
Over the past several years, we have achieved solid
performance in total shareholder return. Although we
participate in cyclical markets, we have consistently
delivered results throughout these cycles. Our
commitment to improve shareholder return over time
includes the 2018 launch of Valmont Agile and Lean,
that is focused on continuous improvement. Through
a blended learning program designed specifically for
Valmont associates, we are utilizing online courses,
videos, face-to-face training and follow-up coaching
to reinforce key concepts and facilitate success.
Agile and Lean initiatives create standard work, leading
to better product quality, more efficient processes
and faster acquisition integration. They also drive
faster deployment of new products and services,
positively impacting customer satisfaction and
employee engagement. As we look forward, our
focused efforts to implement Agile and Lean
methodologies will accelerate shareholder return
and profitability.
Elevating our Commitment to Corporate and
Social Responsibility
Valmont’s inherent commitment to social responsibility
is reflected in our corporate tag line, Conserving
Resources. Improving Life®. We embrace social
responsibility in our products; the way we conduct our
business; and in our relations with customers,
employees, vendors, and shareholders. We have long
been committed to improving the communities where
our employees live and work, with a strong focus
on environmental, health and safe working
environments. We have executed recycling programs
across all four business segments, and our more than
80 Green Teams around the world have implemented
numerous energy-saving projects. We are also proud to
be a 5-year recipient of the Nebraska Safest Companies
Award from the National Safety Council.
Long-Term Financial Goals:
Revenue Growth 1
5 to 10%
Earnings Per Share Growth
Return on Invested Capital
>10%
>10%
Free Cash Flow Conversion
>1.0X NET EARNINGS
Operating Margin
>12%
Realizing Our Potential
Moving forward, we are committed to make further
progress on the path to Valmont’s full potential as
reflected in our long-term financial goals.
We are inspired by the many opportunities to have a
meaningful global impact through the products and
services we provide. Thank you for your support of the
Valmont team as we continue to focus on growth and
generating shareholder value for many years to come.
Stephen G. Kaniewski
President and Chief Executive Officer
1 Revenue Growth is 5% organic. Acquisitions over time are necessary to
achieve top end of range.
Valmont® is Committed to Sustainability:
• Our UK operation developed an 8-step program to
reduce power consumption by 20%.
• We retooled our recycling program at our facility in
Monterrey, Mexico, recycling 10,824 tons of scrap metal,
733 gallons of oil and 105 tons of wood.
• We implemented energy saving projects that reduced
global electrical usage by over 18 Million Kwhs since 2016 –
enough energy to power 1,700 U.S. homes for a year.
• Valmont’s North American Operations Division diverted
over 1,100 tons from landfills thanks to recycling and
waste reduction efforts. That’s 10 rail cars of waste that
was reduced.
• More than 80 Green Teams have been established
at Valmont facilities worldwide.
FINANCIAL HIGHLIGHTS
$ GAAP $ ADJUSTED
$2,757
$2,746
$2,522
2018
2017
Net Sales
2016
Dollars in millions, except per share amounts
OPERATING RESULTS
Net sales
Operating income1
Net earnings 2,4,5,7
Diluted earnings per share4,5,7
Dividends per share
FINANCIAL POSITION
Total shareholders’ equity
Invested capital3
OPERATING PROFITS
Gross profit as a % of net sales
Operating income as a % of net sales
Net earnings as a % of net sales2
Return on beginning equity
Return on invested capital3
YEAR-END DATA
Shares outstanding (OOO’s)
Approximate number of shareholders
Number of employees
$269.41
$267.1
$255.91
$7.594
$7.637
$6.975
$245.41
$6.427
$202.31
$5.115
$4.204
2018
2017
Operating Income
2016
2018
2017
Diluted Earnings Per Share
2016
20186
$ 2,757.1
202.3
94.4
4.20
1.50
$ 1,135.5
1,932.3
23.9%
7.3%
3.4%
8.5%
7.6%
21,948
21,569
10,328
2017
$ 2,746.0
267.1
116.2
5.11
1.50
$ 1,151.8
1,941.7
24.8%
9.7%
4.2%
12.3%
10.3%
22,694
24,801
10,690
2016
$ 2,521.7
245.4
173.2
7.63
1.50
$ 982.6
1,774.8
26.0%
9.7%
6.9%
18.9%
9.6%
22,521
26,057
10,552
1. Fiscal 2018 GAAP operating income included restructuring expense of $34.0 million (pre-tax), goodwill and intangible asset impairments of $15.8 million (pre-tax), and other
non-recurring expenses of $17.3 million (pre-tax). On an adjusted basis, operating income was $269.4 million. Fiscal 2016 GAAP operating income included restructuring
expense of $12.4 million (pre-tax). On an adjusted basis, operating income was $255.9 million.
2. Net earnings attributable to Valmont Industries, Inc.
3. See Item 6, Selected Financial Data, in the company’s Form 10-K for calculation of invested capital and return on invested capital. See also footnote 3 above in “2018
Financial Performance” for 2018 adjusted return on invested capital.
4. Fiscal 2018 included impairments of goodwill and intangible assets of $14.7 million after-tax ($0.66 per share), restructuring expenses of $30.1 million after-tax
($1.34 per share), refinancing of long-term debt expenses of $11.1 million after-tax ($0.50 per share), $14.6 million after-tax ($0.65 per share) of other non-recurring expenses,
and a loss from the divestiture of the grinding media business of $5.5 million after-tax ($0.24 per share).
5. 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.
6. The Company adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue From Contracts with Customers, on a modified retrospective basis as of the first
day of fiscal 2018. Revenue recognition for the prior four years presented in this table were under a different basis which was ASC Topic 605. Please see footnote 1 to the
financial statements for further information.
7. 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.
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 is a global leader in providing products
that support critical infrastructure that is essential
for economic and agricultural growth.
s
$2.8
Billion Dollars
in Net Sales
31
Distinct
Valmont Brands
a
23
Countries with
Valmont Facilities
87
Manufacturing
Facilities Worldwide
f
4
10,000+
Segments in which
we do Business
Global
Employees
2018
Revenue by Geography
Valmont Manufacturing Facilities
ENGINEERED SUPPORT STRUCTURES (ESS)
IRRIGATION
The Engineered Support Structures (ESS) business segment
engineers, manufactures and distributes the structures
essential for supporting global infrastructure growth.
The primary markets for ESS include outdoor lighting for
public, commercial and industrial spaces as well as sporting
venues. The ESS segment also develops traffic management
(signals and signage), lighting and highway safety products.
In addition to architectural facades, ESS is also a leading
provider of structures and components for wireless
communications carriers around the world.
The Irrigation business segment develops the technologies
and systems that improve agricultural productivity through
efficient delivery of fresh water. From its roots as the
innovators of center pivot irrigation, this segment has grown
to include pumping stations, sprinklers, drive trains and
traction solutions. The Valmont Irrigation segment is an
industry leader in developing advanced technology solutions
including a suite of control panels and mobile technologies
that help the world’s ag producers optimize fresh water
management.
UTILITY SUPPORT STRUCTURES
The Utility Support Structures (Utility) business segment
enables power to be transferred from the generation
source—power generation facility or renewable source such
as a solar or wind farm—to the end power consumer. In
addition to manufacturing, this segment offers custom
engineering and support services. Its products include
transmission and distribution poles, lattice structures,
substation components and renewable energy generation
equipment. The Utility segment is a pioneer in working with
steel, concrete, hybrid and composite materials.
COATINGS
The Coatings business segment of Valmont extends the
life, value and aesthetic properties of metal products.
Valmont Coatings operates the world’s largest network of
coatings facilities, offering hot-dip galvanizing, as well as
applied coatings (anodizing, electro-deposition, liquid,
powder, duplex). While Valmont Coatings serves the needs
of Valmont Industries, a majority of its business comes
from external customers.
69%AMERICAS10%EMEA21%APAC BOARD
OF DIRECTORS
CORPORATE
MANAGEMENT
James B. Milliken
Chancellor
University of Texas System
Director since 2011
Governance &
Nominating Committee
Donna M. Milrod
Executive Vice President
State Street Corporation
Director since 2018
Human Resources Committee
Daniel P. Neary
Former Chairman & Retired
Chief Executive Officer
Mutual of Omaha
Director since 2005
Audit Committee
Chairman, Human Resources
Committee
Ambassador
Clark T. Randt, Jr.
Former U.S. Ambassador
to the People’s Republic
of China
Director Since 2009
Chairman, Governance &
Nominating Committee
Walter Scott, Jr.
Retired Chairman
Peter Kiewit Sons, Inc.
Director Since 1981
Chairman, Audit Committee
Governance &
Nominating Committee
Clark T. Randt, Jr. (Chairman)
Dr. Theo W. Freye
James B. Milliken
Mogens C. Bay
Chairman
Valmont Industries, Inc.
Director Since 1993
Catherine J. Paglia
Lead Director
Enterprise Asset
Management
Director Since 2012
Audit Committee
Human Resources
Committee
Kaj Den Daas
Retired Executive
Vice President
Phillips Lighting B.V.
of the Netherlands
Director Since 2004
Audit Committee
Dr. Theo W. Freye
Retired CEO
CLAAS KgaA
Director Since 2015
Governance &
Nominating Committee
Stephen G. Kaniewski
President &
Chief Executive Officer
Valmont Industries, Inc.
Director Since 2018
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
Donna M. Milrod
Stephen G. Kaniewski
President
& Chief Executive Officer
Mark C. Jaksich
Executive Vice President
& Chief Financial Officer
T. Mitchell Parnell
Senior Vice President
Human Resources
Teresa M. Hecker
Vice President
Internal Audit
R. Andrew Massey
Vice President
Legal & Compliance Officer
Timothy P. Francis
Senior Vice President
& Corporate Controller
Ellen S. Dasher
Vice President
Global Taxation
Dan A. Koch, Jr.
Vice President
North American Pole
Operations
Matthew T. Ondrejko
Vice President
Global Marketing
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 HEADQUARTERS
SHAREHOLDER AND INVESTOR RELATIONS
Valmont Industries, Inc.
One Valmont Plaza
Omaha, Nebraska 68154-5215 USA
1-402-963-1000
www.valmont.com
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Deloitte & Touche LLP
Omaha, Nebraska USA
STOCK TRANSFER AGENT AND REGISTRAR
ADDRESS SHAREHOLDER INQUIRES TO:
Broadridge Corporate Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, New York 11717-0718 USA
1-844-202-5345 or 1-720-414-6878
ANNUAL MEETING
The annual meeting of Valmont shareholders
will be held at 1:00 p.m. on Tuesday, April 30, 2019,
at One Valmont Plaza, Omaha, Nebraska USA.
Valmont’s common stock trades on the New York Stock
Exchange (NYSE) under the symbol VMI.
We make available, free of charge through our 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) of the
Securities Exchange Act of 1934, as soon as reasonably
practicable after such material is electronically filed with or
furnished to the Securities and Exchange Commission.
We have also posted on our website our (1) Corporate
Governance Principles, (2) Charters for the Audit Committee,
Human Resources Committee and Governance and
Nominating Committee of the Board, (3) Code of Business
Conduct and (4) Code of Ethics for Senior Officers
applicable to the Chief Executive Officer, Chief Financial
Officer and Corporate Controller. Valmont shareholders
may also obtain copies of these items at no charge
by contacting:
Renee L. Campbell
Investor Relations
Valmont Industries, Inc.
One Valmont Plaza
Omaha, Nebraska 68154-5215 USA
1-402-963-1000
InvestorRelations@valmont.com
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 29, 2018
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 every Interactive Data File required to be submitted 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 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, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
"emerging growth 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
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 21, 2019 there were 21,941,622 of the Company’s common shares outstanding. The aggregate market value of the voting stock
held by non-affiliates of the Company based on the closing sale price the common shares as reported on the New York Stock Exchange on June 30,
2018 was $3,233,462,981.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s proxy statement for its annual meeting of shareholders to be held on April 30, 2019 (the “Proxy Statement”), to be filed
within 120 days of the fiscal year ended December 29, 2018, are incorporated by reference in Part III.
VALMONT INDUSTRIES, INC.
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 29, 2018
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
Item 16
Exhibits and Financial Statement Schedules
Form 10-K Summary
1
Page
No.
2
10
16
16
17
17
18
19
22
40
41
100
100
102
103
103
103
103
103
104
108
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, and components for the
global lighting, traffic, and wireless communications markets. The ESS segment also produces engineered access systems,
highway safety products, and integrated structure solutions for smart cities. Our Utilities Support Structures (Utility) segment
manufactures steel and concrete pole structures for global utility transmission, distribution and generation platforms primarily
in the United States. The Utility segment also produces complex steel energy generation structures and engineered solar
tracking solutions sold outside the United States. Our Irrigation segment is a global producer of mechanized irrigation
systems, provider of water management solutions for large-scale production agriculture, and technology for precision
agriculture. Our Coatings segment provides global galvanizing, painting and anodizing services to preserve and protect metal
products.
Our ESS segment sells the following products: outdoor lighting, traffic control, and roadway safety structures,
wireless communication structures and components, and engineered 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 2018, approximately 34% of our net sales were either sold in markets or produced by our manufacturing plants
outside of North America. We were founded in 1946, went public in 1968 and our shares trade on the New York Stock
Exchange (ticker: VMI).
Business Strategy
Our strategy is to pursue growth opportunities that leverage our existing product portfolio, knowledge of our
principal end-markets and customers and engineering capability to increase our sales, earnings and cash flow, including:
Increasing the Market Penetration of our Existing Products. Our strategy is to increase our market penetration by
differentiating our products from our competitors’ products through superior customer service, technological innovation and
consistent high quality. For example, our Utility segment increased its 2018 sales by offering substations that are prepackaged
to simplify our customer's installation and PyraMAX transmission structures.
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 expanded our geographic presence in Europe, the Middle East, and North Africa for lighting structures.
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
African 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. 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 2018 acquisition of Walpar, an industry leader in the design, engineering and manufacturing of
overhead sign structures for the North America transportation market is an example of this strategy.
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 2018 acquisition of Convert Italia SpA , gave us a
presence in engineered solar tracking 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):
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)
2018
• Acquisition of a integrator of prepackaged pump stations (Irrigation)
• Acquisition of a worldwide provider of parts for agricultural irrigation equipment, Irrigation Components
International (ICI), located in the United States (Irrigation)
• Acquisition of an engineering and manufacturer of overhead sign structures (Walpar) located in Southeast United
States (ESS)
• Acquisition of 75% of a provider of engineered solar tracker solutions (Convert Italia SpA) headquartered in
Italy (Utility)
• Acquisition of a steel lattice structures producer located in India (Utility)
• Acquisition of a galvanizing business located in New Zealand (Coatings)
In 2018, the Company divested of Donhad, a grinding media producer in Australia.
(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 poles, towers, and components for global lighting, traffic, and wireless communication markets, engineered access
systems, integrated structure solutions for smart cities, and highway safety products;
3
Utility Support Structures: This segment consists of the manufacture of engineered steel and concrete structures for
the global utility transmission, distribution, and generation applications, renewable energy generation equipment, and
inspection services;
Coatings: This segment consists of galvanizing, painting, and anodizing services; and
Irrigation: This segment consists of the manufacture of agricultural irrigation equipment, parts, services, tubular
products, water management solutions, and technology for precision agriculture.
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 until its divestiture in 2018.
(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 and overhead
signs are attached and aid the orderly flow of automobile traffic. These poles are typically standard designs but can also be
engineered to be slightly modified to meet 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 barriers, 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), camouflage
concealment solutions, 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). Larger
mono-pole 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 mono-pole 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 also 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 include floor gratings,
handrails, barriers and sunscreens. We also produce a line of engineered 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.
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
4
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, natural gas and mineral exploration companies, 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 and technologies such as 5G, which demand higher network density. 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 government or 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, wireless communication products and components, 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), and steel lattice structures. 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. We also design and engineer single axis solar tracker
solutions for utility-scale solar applications.
Utility structures can be very large, so product design engineering is important to the function and safety of the
structure. Our engineering process takes into account weather and loading conditions, such as wind speeds, ice loads and the
power lines attached to the structure, in order to arrive at the final design. In Northern Europe, 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
5
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. As utilities increase development
of large-scale solar power and micro-grid applications, single axis tracker solutions will be an essential tool for achieving
higher energy production. 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.
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.
6
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. Our advanced technology solutions include a suite of smart panels
and remote management of irrigation machines through smartphone, tablet, or centralized computer control. Irrigation net
sales in 2018, 2017, and 2016 included technology sales of $45.3 million, $43.4 million, and $26.5 million, respectively. We
also offer customized water application and scheduling services, which provide forecast information to assist growers in
determining precision of water application on the field. Our water management group also provides 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
One of the key drivers in our Irrigation segment worldwide is that the usable water supply is limited. We estimate
that:
7
•
•
•
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, technology offerings, and service parts through
independent dealers. There are approximately 270 dealer locations in North America, with another approximately 270 dealers
serving international markets in over 60 countries. 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 in the past several years, 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 in the 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 $644.7 million at the end of the
2018 fiscal year and $670.0 million at the end of the 2017 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 2018 backlog of
orders will be filled during fiscal year 2019. At year-end, the segments with backlog were as follows (dollar amounts in
millions):
Engineered Support Structures
Utility Support Structures
Irrigation
Coatings
Other
12/29/2018
12/30/2017
$
$
257.4
325.9
59.7
1.7
—
644.7
$
$
204.1
359.1
100.1
0.1
6.6
670.0
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 29, 2018, we had 10,328 employees.
(d)
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 2018 and 2017. 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 November 2018, the U.S. Department of Agriculture (the “USDA”) estimated
U.S. 2018 net farm income to be $66.3 billion, down 12.1 percent from the USDA’s final U.S. 2017 net farm income of $75.4
billion.
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. 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 engineered access systems 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:
•
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;
10
•
•
•
•
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 2018 and 2017 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 can also decrease substantially in a given period, which occurred in
North America in 2015. 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 $64 million for the year
ended December 29, 2018.
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.
When residential and commercial construction is 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.
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
11
transportation agencies in particular, decreases in tax revenues and changes in the political climate, including legislative
delays, with respect to infrastructure appropriations.
Design patent litigation related to guardrails could reduce demand for such products and raise litigation risk.
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 decline because of risks of doing
business in foreign markets.
We are an international manufacturing company with operations around the world. At December 29, 2018, we
operated over 80 manufacturing plants, located on six continents, and sold our products in more than 100 countries. In 2018,
approximately 34% of our net 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, 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 36% of our fiscal 2018 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 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, traffic, 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 of 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 29, 2018, we had $753.3 million of total indebtedness outstanding. We had $579.7 million of
capacity to borrow under our revolving credit facility at December 29, 2018. 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 $313.2 million of cash at December 29, 2018, which mitigates a portion of the risk associated with our debt.
However, approximately 65% 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 29, 2018, covered
approximately 6,500 inactive or retired former Delta employees. The plan has no active employees as members. At
December 29, 2018, this plan was, for accounting purposes, underfunded by approximately £113.4 million ($143.9 million).
The current agreement with the trustees of the pension plan for annual funding is approximately £10.0 million ($12.7 million)
in respect of the funding shortfall and approximately £1.1 million ($1.4 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 £113.4 million ($143.9 million) assumed for accounting
purposes as of December 29, 2018. 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 expanding 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, Alabama,
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, Tennessee, Kansas, Nebraska and Mexico. The largest of these operations are in Tulsa,
Oklahoma and Monterrey, Mexico. The Tulsa and Monterrey facilities are owned. The largest principal international
manufacturing location is Denmark and there are also manufacturing locations in China, France, Italy and India.
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.
Irrigation segment North America manufacturing operations are located in Valley, Nebraska, McCook, Nebraska and
Indiana. 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.
16
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 during fiscal 2018, their ages, positions held, and the business experience of each during the
past five years are, as follows:
Mogens C. Bay, age 70, Executive Chairman of the Board of Directors since December 31, 2017, previously Chief
Executive Officer since August 1993. Mr. Bay became the non-executive Chairman on January 1, 2019.
Stephen G. Kaniewski, age 47, 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, moved into the Vice President-Global Operations role for the Irrigation segment in 2014.
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 61, Executive Vice President and Chief Financial Officer since February 2014. Vice President
and Controller, February 2000 to February 2014.
Vanessa K. Brown, age 66, Senior Vice President-Human Resources since July 2011. Mrs. Brown retired at the end
of fiscal 2018.
Timothy P. Francis, age 42, Senior 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.
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
21,569 shareholders of common stock at December 29, 2018.
Issuer Purchases of Equity Securities
Period
September 30, 2018 to October 27, 2018
October 28, 2018 to December 1, 2018
December 2, 2018 to December 29, 2018
(a)
Total Number
of
Shares
Purchased
96,022
58,616
74,186
Total
228,824
$
(b)
Average Price
paid per share
125.70
$
125.06
114.38
121.87
(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
96,022
$
58,616
74,186
228,824
$
283,182,000
275,852,000
267,366,000
267,366,000
On May 13, 2014, we announced a capital allocation philosophy which covered both the quarterly dividend rate as
well as a share repurchase program. The Board of Directors at that time 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 and again on October 31, 2018, 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 29, 2018, we have acquired 5,431,409 shares for approximately $732.6 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
2018
2017
2016
2015
2014
(3)
(4)
Net sales
Operating income (1)
Net earnings attributable to Valmont Industries, Inc. (2)
Depreciation and amortization
Capital expenditures
$ 2,757,144
$2,745,967
$ 2,521,676
$2,618,924
$ 3,123,143
202,280
94,351
82,827
71,985
267,080
116,240
84,957
55,266
245,374
173,232
82,417
57,920
131,695
40,117
91,144
45,468
357,716
183,976
89,328
73,023
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
$
$
4.23
4.20
1.500
5.16
5.11
1.500
$
7.68
7.63
1.500
$
1.72
1.71
1.500
$
7.15
7.09
1.375
$ 931,605
$1,069,567
$ 903,368
$ 860,298
$ 995,727
513,992
518,928
518,335
532,489
606,453
2,530,274
2,602,250
2,391,731
2,392,382
2,721,955
742,601
754,854
1,059,762
1,112,836
755,646
943,482
757,995
918,441
760,122
1,201,833
$ 153,008
$ 133,148
$ 232,820
$ 272,267
$ 174,096
(155,445)
(162,110)
(49,615)
(32,010)
(53,049)
(95,158)
(48,171)
(220,005)
(256,863)
(139,756)
$ 1,932,291
$1,941,716
$ 1,774,781
$1,759,851
$ 2,096,276
7.6%
10.3%
9.6%
4.6%
11.3%
$ 336,236
$ 351,987
$ 326,629
$ 285,115
$ 413,684
8.5%
2.24
12.3%
2.15
18.9%
2.32
3.3%
2.66
12.1%
1.87
21,942
21,569
10,328
22,694
24,801
10,690
22,521
26,057
10,552
22,857
27,010
10,697
24,229
28,225
11,321
(1) Fiscal 2018 operating income included impairments of goodwill and intangible assets of $15,780 and restructuring expenses of $34,031.
Fiscal 2015 operating income included impairments of goodwill and intangible assets of $41,970 and restructuring expenses of $39,852.
(2) Fiscal 2018 included impairments of goodwill and intangible assets of $14,736 after-tax ($0.66 per share), restructuring expenses and
non-recurring asset impairments from exiting certain local markets of $37,779 after-tax ($1.68 per share), refinancing of long-term debt
expenses of $11,115 after-tax ($0.50 per share), and a loss from the divestiture of the grinding media business of $5,350 after-tax ($0.24 per
share). 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).
19
(3) The Company adopted Accounting Standards Codification ("ASC") Topic 606, Revenue From Contracts with Customers, on a modified
retrospective basis as of the first day of fiscal 2018. Revenue recognition for the prior four years presented in this table was under a
different basis which was ASC Topic 605. Please see footnote 1 to the financial statements for further information.
(4) Fiscal 2016 was a 53 week fiscal year.
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 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
2018
$ 202,280
2017
$ 267,080
2016
$ 245,374
2015
$ 131,695
2014
$ 357,716
27.1%
28.1%
30.8%
32.0%
33.4%
(54,818)
147,462
(75,049)
192,031
(75,575)
169,799
(42,142)
(119,477)
89,553
238,239
1,937,004
1,858,249
1,767,316
1,928,064
2,103,366
7.6%
10.3%
9.6%
4.6%
11.3%
2,530,274
2,602,250
2,391,731
2,392,382
2,721,955
(218,115)
(171,233)
(143,904)
(46,107)
(10,394)
(8,230)
(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)
$1,932,291
$1,941,716
$1,774,781
$1,759,851
$2,096,276
$1,941,716
$1,774,781
$1,759,851
$2,096,276
$2,110,455
$1,937,004
$1,858,249
$1,767,316
$1,928,064
$2,103,366
(1) The adjusted effective tax rate for 2018 excludes the effects of the $14,355 goodwill impairment which is not deductible for income tax
purposes. The effective tax rate in 2018 including this item is 30.1%. 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
Loss on divestiture of grinding media business
Impairment of goodwill and intangible assets
Impairment of property, plant and equipment
Deferred income tax (expense) benefit
Noncontrolling interest
Equity in earnings of nonconsolidated subsidiaries
Stock-based compensation
Pension plan expense
Contribution to pension plan
Changes in assets and liabilities, net of acquisitions
Other
EBITDA
Reversal of contingent liability
Impairment of goodwill and intangible assets
Cash restructuring expenses
Impairment of assets - restructuring activities
Loss on divestiture of grinding media business
EBITDA from acquisitions (months 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
Cash restructuring expenses
Impairment of assets - restructuring activities
Loss on divestiture of grinding media business
EBITDA from acquisitions (months not owned by Company)
Adjusted EBITDA
2018
2017
2016
2015
2014
$ 153,008
$ 133,148
$ 232,820
$ 272,267
$ 174,096
44,237
43,135
44,645
106,145
44,409
42,063
44,621
47,427
36,790
94,894
(237)
(586)
(4,555)
(3,795)
62
—
—
(6,084)
(15,780)
(5,000)
—
—
—
—
—
—
3,242
—
—
—
—
—
(41,970)
(1,099)
(19,836)
(4,858)
(5,216)
(247)
(7,244)
610
—
(9,931)
(1,870)
1,659
(39,755)
23,685
(5,955)
(6,079)
(5,159)
—
—
(10,392)
(10,706)
2,251
1,537
61,647
225
(648)
40,245
81,305
3,924
2,478
4,300
—
—
—
(5,251)
(5,342)
29
(6,730)
(2,638)
18,173
98,376
1,488
16,500
13,690
(71,863)
(631)
(2,327)
(392)
264,550
351,987
342,121
223,309
404,988
—
15,780
29,031
12,944
6,084
7,847
—
—
—
—
—
—
(16,591)
—
—
—
41,970
—
1,099
19,836
—
—
—
—
—
—
—
—
—
8,696
$ 336,236
$ 351,987
$ 326,629
$ 285,115
$ 413,684
2018
2017
2016
2015
2014
$ 94,351
$ 116,240
$ 173,232
$ 40,117
$ 183,976
44,237
43,135
82,827
44,645
106,145
84,957
44,409
42,063
82,417
44,621
47,427
91,144
36,790
94,894
89,328
264,550
351,987
342,121
223,309
404,988
—
15,780
29,031
12,944
6,084
7,847
—
—
—
—
—
—
(16,591)
—
—
—
41,970
—
1,099
19,836
—
—
—
—
—
—
—
—
—
8,696
$ 336,236
$ 351,987
$ 326,629
$ 285,115
$ 413,684
Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. During 2018 and 2014, we incurred $14,820 and
$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 years
ended December 29, 2018 or December 27, 2014. In October 2017, our revolving credit facility was amended to allow the Company to add-back non-
recurring cash restructuring costs in 2018.
(c)
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.
21
(d)
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:
2018
2017
2016
2015
2014
Current portion of long-term debt
$
779
$
Notes payable to bank
Long-term debt
Total interest bearing debt
Adjusted EBITDA
Leverage Ratio
10,678
741,822
753,279
336,236
2.24
$
966
161
753,888
755,015
351,987
2.15
851
746
754,795
756,392
326,629
2.32
$
1,077
$
976
756,918
758,971
285,115
2.66
1,181
13,952
758,941
774,074
413,684
1.87
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
2018
2017
Change
2018 - 2017
2016
Change
2017 - 2016
Dollars in millions, except per share amounts
$ 2,757.1
$ 2,746.0
0.4 % $ 2,521.7
8.9 %
3.9 %
(3.4)%
656.2
26.0%
10.0 %
410.8
0.9 %
16.3%
(24.3)%
245.4
8.8 %
658.3
23.9%
456.0
16.5%
202.3
7.3%
39.6
30.1%
94.4
4.20
967.3
213.1
178.3
34.8
$
$
681.8
24.8%
414.7
15.1%
267.1
9.7%
39.9
46.5%
116.2
5.11
912.2
225.9
162.9
63.0
$
$
(0.8)%
9.7%
41.3
19.1%
(18.8)%
(17.8)% $
173.2
7.63
6.0 % $
891.1
(5.7)%
9.5 %
(44.8)%
240.0
167.7
72.3
$
855.2
$
856.3
(0.1)% $
735.6
170.5
105.7
64.8
178.4
80.6
97.8
(4.4)%
31.1 %
(33.7)%
147.3
76.1
71.2
$
286.7
$
256.8
11.6 % $
243.9
91.0
35.7
55.3
78.4
28.2
50.2
16.1 %
26.6 %
10.2 %
77.8
31.2
46.6
$
624.8
$
644.4
(3.0)% $
568.0
192.8
95.1
97.7
197.3
95.8
101.5
(2.3)%
(0.7)%
(3.7)%
$
23.1
$
76.3
(69.7)% $
0.8
1.7
(0.9)
7.4
5.3
2.1
(89.2)%
(67.9)%
(142.9)%
178.9
88.0
90.9
83.1
14.1
5.4
8.7
$
(9.9)
(9.9)
(5.7)
(5.7)
(73.7)% $
(73.7)%
(3.0)
(3.0)
— $
39.5
(39.5)
0.1
41.9
(41.8)
(100.0)% $
(5.7)%
(5.5)%
1.1
42.4
(41.3)
$
$
23
(3.4)%
(32.9)%
(33.0)%
2.4 %
(5.9)%
(2.9)%
(12.9)%
16.4 %
21.1 %
5.9 %
37.4 %
5.3 %
0.8 %
(9.6)%
7.7 %
13.5 %
10.3 %
8.9 %
11.7 %
(8.2)%
(47.5)%
(1.9)%
(75.9)%
(90.0)%
(90.0)%
(90.9)%
(1.2)%
1.2 %
RESULTS OF OPERATIONS
FISCAL 2018 COMPARED WITH FISCAL 2017
Overview
The increase in net sales in 2018, as compared with 2017, was due to higher sales in the ESS and Coatings segments
that were offset by lower sales in the Irrigation, Utility, and Other segments. The changes in net sales in 2018, as compared
with 2017, were as follows:
Sales - 2017
Volume
Pricing/mix
Acquisition/(divestiture)
Currency translation
Sales - 2018
Total
ESS
Utility
Coatings
Irrigation
Other
$
2,746.0 $
912.2 $
(100.6)
114.8
1.5
(4.6)
8.3
28.1
17.2
1.5
856.3 $
(74.8)
50.3
18.9
4.5
$
2,757.1 $
967.3 $
855.2 $
256.8 $
10.8
16.9
3.1
(0.9)
286.7 $
644.4 $
(40.6)
17.1
14.3
(10.4)
624.8 $
76.3
(4.3)
2.4
(52.0)
0.7
23.1
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. On the first day of
fiscal 2018, the Company adopted the new revenue recognition accounting standard ("ASC 606"). Within the Utility Support
Structures segment, the steel and concrete product lines now recognize revenue over time whereas in 2017 and years prior,
their revenue was recognized at a point in time, which was typically upon product delivery to the customer. The impact of the
adoption of ASC 606 in 2018 was an increase in sales of $36.4 million and an increase in operating income of $6.2 million
primarily in the Utility segment. It is not practicable to estimate the sales volumes attributable to the adoption of ASC 606
and thus is not a separate line item in the table above. Information on the adoption of the revenue standard can be found
under Critical Accounting Policies within Management's Discussion and Analysis.
Average steel index prices for both hot rolled coil and plate were higher in North America and China in 2018, as
compared to 2017, resulting in higher average cost of material. In general, the average selling prices increased during the year
to mitigate decrease in gross profit realized from the higher cost of steel for the Company.
The Company acquired the following companies during 2018:
• Torrent Engineering and Equipment ("Torrent") in the first quarter of 2018 that is included in our Irrigation segment.
• Derit Infrastructure Pvt. Ltd. ("Derit"), a manufacturing facility located in India that is included in both the Utility
and Coatings segments.
• A majority ownership stake in Convert Italia SpA ("Convert"), a provider of engineered solar tracker solutions, also
acquired during the third quarter of 2018 and included in the Utility segment.
• Walpar, a manufacturer of overhead sign structures, in the third quarter of 2018 that is included in the ESS segment.
• CSP Coating Systems ("CSP Coatings"), a coatings provider in New Zealand, acquired in the fourth quarter of 2018
that is included in the Coatings segment.
The Company divested of its grinding media business in the second quarter of 2018, which resulted in a pre-tax loss
of approximately $6.1 million. The grinding media business is reported in Other and the loss was recorded in other income
(expenses) on the Consolidated Statements of Earnings.
Restructuring Plan
In February 2018, the Company announced a restructuring plan related to certain operations in 2018, primarily in the
ESS segment, through consolidation and other cost-reduction activities (the "2018 Plan"). The Company incurred pre-tax
expenses from the 2018 Plan of $34.0 million. The decrease in 2018 gross profit and operating income due to restructuring
expense by segment is as follows:
24
Total
ESS
Utility Irrigation Corporate
Gross Profit
Operating Income
$
$
18.4 $
14.3 $
4.1 $
— $
34.0 $
28.5 $
5.2 $
0.2 $
—
0.1
Currency Translation
In 2018, we realized a reduction in operating profit, as compared with fiscal 2017, due to currency translation
effects. The breakdown of this effect by segment was as follows:
Total
ESS
Utility
Coatings
Irrigation
Other
Corporate
Full year
$
(1.8) $
(0.5) $
0.3 $
— $
(1.6) $
— $
—
Gross Profit, SG&A, and Operating Income
At a consolidated level, the reduction in gross margin (gross profit as a percent of sales) in 2018, as compared with
2017, was primarily due to restructuring costs incurred in the ESS and Utility segments. The Irrigation and Coatings
segments realized an increase in gross margin in 2018, while Utility, ESS, and Other realized a decrease in gross margin.
The Company saw an increase in selling, general, and administrative (SG&A) expense in 2018, as compared to
2017, due to impairment of the goodwill and trade name of the Offshore and other complex structures ("Offshore") business
totaling $15.8 million, restructuring costs incurred of $15.6 million, SG&A from recently acquired businesses of $9.0 million,
and acquisition diligence expenses of $4.4 million. The increase was partially offset by lower deferred compensation
expenses of $5.0 million (offset recognized in other expense as described below) and $3.6 million of SG&A in 2017 from the
grinding media business divested in 2018.
Operating income was lower for all reportable segments with the exception of Coatings in 2018, as compared to
2017. The decrease is attributed to the impairment of the goodwill and trade name of the Offshore business, restructuring
costs incurred in the ESS and Utility segments, and the disposal of the grinding media business included in Other.
Net Interest Expense and Debt
Net interest expense for 2018 was consistent with 2017. The Company issued $200.0 million and $55.0 million of
senior secured notes in June 2018 at 5.0% and 5.25%, respectively. Proceeds from the debt issuance were subsequently used
to pay off the 2020 bonds in July 2018.
The approximate $14.8 million in pre-tax costs ($11.1 million after-tax) associated with refinancing of debt is due to
the Company's repurchase through tender of $250.2 million in aggregate principal amount of the senior unsecured notes due
2020. This expense was comprised of the following:
• Cash prepayment expenses of approximately $15.8 million; plus
• Recognition of $1.0 million of expense comprised of the write-offs of unamortized loss on the cash flow hedge and
deferred financing costs; less
• Recognition of $2.0 million of the unamortized premium originally recorded upon the issuance of the 2020 notes.
Other Income/Expense
The change in other income/expense in 2018, as compared with 2017, was primarily due to the divestiture of our
grinding media business that resulted in a loss of approximately $6.1 million. Excluding the divestiture, higher other income
was driven by a periodic pension benefit in 2018 that resulted a beneficial change of $2.8 million. In addition, the change in
market value of the Company's shares held of Delta EMD was an improvement of $0.8 million. The remaining change was
due to more favorable foreign currency transaction gains/losses in 2018 as compared to 2017. The increase in other income
was partially offset by a change in valuation of deferred compensation assets in 2018 which resulted in additional expense of
$5.0 million. This amount is offset by a reduction of the same amount in SG&A expense.
25
Income Tax Expense
Our effective income tax rate in 2018 and 2017 was 30.1% and 46.5%, respectively. The 2018 tax rate was impacted
by the reduction in the U.S. corporate income tax rate from 35% to 21% offset by 2018 restructuring costs and impairment
charges for which no tax benefits have been recorded. The 2017 tax rate was impacted by The Tax Cuts and Jobs Act of 2017
(the "2017 Tax Act" or “Act”) which resulted in a one-time fourth quarter of 2017 charge of approximately $42 million
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 was comprised of (a) approximately $9.9 million of expense related to the taxation of
unremitted foreign earnings ("transition tax"), 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. During 2018, the Company finalized the transition
tax which resulted in a credit to tax expense of $0.5 million.
Earnings attributable to noncontrolling interests was consistent in 2018 and 2017.
Cash Flows from Operations
Our cash flows provided by operations was $153.0 million in 2018, as compared with $133.1 million provided by
operations in 2017. The increase in operating cash flows was due to lower contributions to the Delta pension plan partially
offset by lower net earnings.
Engineered Support Structures (ESS) segment
The increase in sales in 2018, as compared with 2017, was due to higher sales pricing to cover the higher costs of
steel and sales volume increases from acquisitions in 2018.
Global lighting and traffic, and highway safety product sales in 2018 were $73.4 million higher as compared to
2017, due to higher sales pricing and increased sales volumes. Sales volumes and pricing in North America were higher
across commercial and transportation markets and also increased due to the acquisition of Walpar in the third quarter of 2018.
Improved sales volumes in Europe contributed to higher sales in 2018, as compared to 2017, along with favorable currency
translation effects as the value of the euro appreciated against the U.S. dollar. Sales volumes in Asia-Pacific were higher in
India due to improved demand, offset by lower demand in China for lighting and traffic products. Highway safety product
sales increased in 2018, as compared to 2017, due to higher demand in Australia and the acquisition of Aircon in the third
quarter of 2017.
Communication product line sales were lower by $21.9 million in 2018, as compared with 2017. In North America,
communication structure and component sales increased in 2018 due to strong demand from the network expansion by
providers. In Asia-Pacific, sales volumes decreased due to much lower demand in China for new wireless communication
structures.
Access Systems product line net sales decreased in 2018 by $2.7 million, as compared to 2017. The decrease can be
attributed to lower sales volumes in Asia due to less large project work that was partially offset by improved demand in
Australia, in part due to efforts to expand our sales reach into architectural and construction markets.
Gross profit, as a percentage of sales, and operating income for the segment were lower in 2018, as compared to
2017, due to restructuring costs incurred in 2018. In 2018, the segment incurred $14.3 million of restructuring costs within
product cost of sales and $14.2 million within SG&A expense. In addition, approximately $8.0 million of asset impairment
costs were incurred related to exiting certain local markets in 2018. SG&A spending was higher in 2018, as compared to
2017, due to restructuring costs and SG&A expenses of Walpar that was acquired in the third quarter of 2018. Operating
income decreased primarily from the the $28.5 million of incurred restructuring costs.
Utility Support Structures (Utility) segment
In the Utility segment, sales decreased in 2018, as compared with 2017, due to lower sales volumes in North
America that are offset by sales price increases to cover higher steel costs and the acquisition of Convert and Derit in the
26
third quarter of 2018. A number of our sales contracts in North America contain provisions that tie the sales price to published
steel index pricing at the time our customer issues their purchase order. Measured in tonnages, sales volumes for steel utility
structures in North America were lower whereas concrete utility structure sales volumes were higher in 2018, as compared to
2017. The Company adopted new revenue recognition guidance effective the first day of fiscal 2018; steel and concrete
reported sales in 2017 were recognized upon delivery to customers (point in time) whereas reported revenue for 2018 is based
on progress of production on customer orders (over time).
Offshore and other complex structures sales decreased in 2018, as compared to 2017, due to lower sales volumes
that were partially offset by positive effects from currency translation.
Gross profit as a percentage of sales decreased in 2018, as compared to 2017, due to restructuring costs incurred of
$4.1 million and lower offshore and complex steel structures sales volumes. SG&A expense was higher in 2018, as compared
with 2017, due to the goodwill and trade name impairment recorded for Offshore business of $15.8 million, restructuring
expenses, and increased expenses related to the acquisition of Derit and Convert. Excluding restructuring expenses, expenses
associated with the acquisitions, and the intangible asset impairment, operating income in 2018 was consistent with 2017.
Coatings segment
Coatings segment sales increased in 2018, as compared to 2017, due to increased sales prices to recover higher zinc
costs globally and higher sales volumes. The Company acquired Derit in the third quarter of 2018 and CSP Coatings in the
fourth quarter of 2018 that also contributed to higher sales. Sales pricing and volume demand increased in North America in
2018, as compared to 2017. In the Asia-Pacific region, continued improvements in the Australia market along with overall
higher sales pricing provided an increase in net sales.
SG&A expense was higher in 2018, as compared to 2017, due to higher compensation costs related to improved
business operations and currency translation effects. Non-recurring items were recognized in 2018 and 2017 which reduced
SG&A. 2018 included the reversal of an environmental remediation liability related to one of our North America galvanizing
locations of $1.9 million; in 2017 the business recorded a reversal of an environmental remediation liability of $2.6 million
due to the sale of a former galvanizing operation in Australia. Operating income was higher in 2018 compared to 2017, due to
improved sales volumes and the associated operating leverage of fixed costs and improved sales pricing.
Irrigation segment
The decrease in Irrigation segment net sales in 2018, as compared to 2017, is primarily due to sales volume
decreases, particularly in the international markets. The decrease in international sales can be attributed to project delays and
lower overall large project work across most regions. In addition, the weakening of the Brazilian real and Argentina peso in
2018 resulted in lower sales due to currency translation. North America sales increased in 2018, as compared to 2017, due to
higher sales pricing and recent acquisitions. Sales volumes in North America for the year were lower due to continued weak
farm income levels. Recent proposed tariffs also caused uncertainly leading farmers to delay irrigation purchases.
SG&A was lower in 2018, as compared to 2017. The decrease can be attributed to lower incentives from reduced
business operations and currency translation effects which were partially offset by expenses associated with the 2018
acquisitions. Operating income for the segment decreased in 2018 compared to 2017, due to lower sales volumes and the
associated operating deleverage of fixed costs and currency translation effects.
Other
In April 2018, the Company completed the sale of Donhad, a mining consumable business with operations in
Australia. The Company realized an approximate $6.1 million loss on the sale that is recorded in other income/expense,
subject to certain post-closing adjustments.
LIFO expense
Steel index prices for both hot rolled coil and plate, and zinc in the U.S. increased at a higher rate in 2018, as
compared to 2017, resulting in higher LIFO expense.
Net corporate expense
Corporate SG&A expense was lower in 2018 as compared to 2017. The decrease can be attributed to lower deferred
compensation expenses of $5.0 million, which is offset by the same amount in other expense, and lower incentive expense.
The decrease was partially offset by higher compensation expenses.
27
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:
Total
ESS
Utility
Coatings
Irrigation
Other
Full year
$
1.5 $
0.1 $
— $
(0.1) $
1.2 $
28
Corporate
(0.1)
0.4 $
Gross Profit, SG&A, and Operating Income
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.
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.
29
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 $133.1 million in 2017, as compared with $232.8 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
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.
30
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.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Working Capital and Operating Cash Flows-Net working capital was $931.6 million at December 29, 2018, as
compared with $1,069.6 million at December 30, 2017. The decrease in net working capital in 2018 mainly resulted from
lower cash balances mostly attributed to the investing outflow for acquisitions and financing outflow for stock repurchases,
and an increase in accrued expense for the Convert contingent consideration liability. Operating cash flow was $153.0
million in 2018, as compared with $133.1 million in 2017 and $232.8 million in 2016. The increase in operating cash flow in
2018, as compared to 2017, was due to lower contributions to the Delta Pension Plan in 2018 partially offset by lower net
earnings.
Investing Cash Flows-Capital spending in fiscal 2018 was $72.0 million, as compared with $55.3 million in fiscal
2017 and $57.9 million in fiscal 2016. Capital spending projects in 2018 included investments in machinery and equipment
across all businesses. The increase in investing cash outflows in 2018, as compared to 2017, was primarily due to business
31
acquisitions totaling $143.0 million ($5.4 million in 2017) that was partially offset by proceeds from the sale of the grinding
media business of $62.5 million. We expect our capital spending for the 2019 fiscal year to be approximately $90.0 million.
Financing Cash Flows-Our total interest bearing debt decreased to $753.3 million at December 29, 2018, from
$755.0 million at December 30, 2017. During 2018 and 2016, we acquired approximately 0.8 million shares and 0.4 million
shares for $114.8 million and $53.8 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. In May 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 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. The Board of Directors authorized an additional $250 million of share purchases, without an
expiration date in both February 2015 and again in October 2018. 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 29, 2018, we have acquired approximately
5.4 million shares for approximately $732.6 million under these share repurchase programs.
Sources of Financing
Our debt financing at December 29, 2018 consisted primarily of long term debt. During 2018, the Company issued
an additional $200 million aggregate principal amount of its 5.00% senior notes due 2044 and $55 million aggregate
principal amount of its 5.25% senior notes due 2054 and redeemed $250.2 million in remaining aggregate principal amount
of the 2020 senior notes. Our long term debt as of December 29, 2018, principally consists of:
•
•
$450 million face value ($436.1 million carrying value) of senior unsecured notes that bear interest at 5.00% per
annum and are due in October 2044.
$305 million face value ($297.4 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. Both 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. The Company and our wholly-owned subsidiaries Valmont Industries
Holland B.V. and Valmont Group Pty. Ltd., are authorized borrowers under the credit facility. The obligations arising under
32
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.
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 29, 2018, we had $5.7 million of 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 29, 2018, we had the ability to borrow $579.7 million
under this facility, after consideration of standby letters of credit of $14.6 million associated with certain insurance
obligations. We also maintain certain short term bank lines of credit totaling $137.7 million; $127.0 million of which was
unused at December 29, 2018.
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.
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.
33
At December 29, 2018, we were in compliance with all covenants related to these debt agreements. The key
covenant calculations at December 29, 2018 were as follows (amounts in thousands):
Interest-bearing debt
Adjusted EBITDA-last four quarters
Leverage ratio
Adjusted EBITDA-last four quarters
Interest expense-last four quarters
Interest earned ratio
$ 753,279
336,236
2.24
336,236
44,237
7.60
The calculation of Adjusted EBITDA-last four quarters is presented under the column for fiscal 2018 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 2019 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 reassessed our position with respect to the approximately $400 million of
unremitted foreign earnings in our non-U.S. subsidiaries. Our position is that the previously deferred earnings in our non-
U.S. subsidiaries that were subject to the Transition Tax are not indefinitely reinvested. Further, in 2018 we have taken the
position on non-U.S. subsidiaries we are not indefinitely reinvested on their 2018 unremitted foreign earnings. Of our cash
balances of $313.2 million at December 29, 2018, approximately $203.6 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. At December 29, 2018, we have a liability for foreign withholding taxes and U.S. state
income taxes of $3.7 million and $0.6 million, respectively.
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 29,
2018 were as follows (in millions of dollars):
Contractual Obligations
Total
2019
Interest
Delta pension plan contributions
Operating leases
Unconditional purchase commitments
Total contractual cash obligations
$
772.1
1,144.3
140.9
146.8
94.2
$ 2,298.3
$
$
0.8
38.9
14.1
18.8
94.2
166.8
2020-2021
1.6
$
77.8
28.2
30.8
—
138.4
$
2022-2023
6.2
$
77.6
28.2
20.8
—
132.8
$
After 2023
763.5
$
950.0
70.4
76.4
—
$ 1,860.3
Long term debt mainly consisted of $755.0 million principal amount of senior unsecured notes. At December 29,
2018, we had outstanding borrowings of $5.7 million 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
34
related to the current cash funding commitments to the plan with the plan's trustees. Operating leases relate mainly to various
production and office facilities and are in the normal course of business.
Unconditional purchase commitments relate to purchase orders for zinc, aluminum and steel, all of which we plan to
use in 2019, and certain capital investments planned for 2019. 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.
The unconditional purchase commitments also includes the January 2019 purchase of the non-controlling interests of Walpar,
LLC for $23.1 million as contractually required per the purchase agreement.
At December 29, 2018, we had approximately $13.0 million of various long term liabilities related to certain
income tax 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. The contingent consideration payment for Convert Italia SpA has also
been excluded from the contractual obligations schedule as the payment is not fixed but dependent on the business exceeding
a profitability target for calendar 2018. The $11.6 million accrual at December 29, 2018 is an estimate which will be
finalized during the second quarter of 2019.
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. In 2018, we began using steel hot
rolled coil derivative contracts on a limited basis to mitigate the impact of rising steel prices on operating income. 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 $64 million for the year ended December 29, 2018.
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 commodity prices. At times, we utilize derivative financial instruments to hedge these exposures, but we do not use
derivatives for trading purposes.
Interest Rates—Our interest bearing debt at December 29, 2018 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 2018 and 2017 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
2018 and 2017 by approximately $0.3 million and $0.4 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. The Company is also exposed to investment risk related to foreign operations. From time to
35
time, as market conditions indicate, we will enter into foreign currency contracts to manage the risks associated with
anticipated future transactions, current balance sheet positions, and foreign subsidiary investments that are in currencies other
than the functional currencies of our businesses. At December 29, 2018, the Company had two oustanding foreign currency
forward contracts which mitigate foreign currency risk of the Company's investment in its Australian dollar and Euro
denominated businesses. The forward contracts, which qualify as net investment hedges, have a maturity date of May 2020
and notional amounts to sell Australian dollars and Euro to receive $100.0 million and $50.0 million, respectively. On August
24, 2018, the Company entered into three fixed-for-fixed cross currency swaps (“CCS”), swapping U.S. dollar principal and
interest payments on a portion of its 5.00% senior unsecured notes due 2044 for Danish krone (DKK) and Euro denominated
payments. The CCS were entered into in order to mitigate foreign currency risk on the Company's Euro and DKK
investments and to reduce interest expense. The notional of the two Euro and DKK CCS are $35.0 million and $60.0 million,
respectively, and they mature in 2020 to 2023.
At December 30, 2017, the Company had open foreign currency forward contracts that qualified as net investment
hedges. The purpose of the net investment hedges were 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 was pending at the end of 2017 and was finalized in the second quarter of 2018.
The forward contracts had a maturity date in the first quarter of 2018 and a notional amount to sell British pounds and
Australian dollars and receive $24.1 million and $21.2 million, respectively. At December 31, 2016, the Company had
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. 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 $18.5 million in 2018 and $37.2 million in
2017.
We manage our investment risk in foreign operations by borrowing in the functional currencies of the foreign
entities or by utilizing hedging instruments (as discussed above) 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
Euro
Danish krone
Chinese renminbi
Canadian dollar
U.K. pound
Brazilian real
2018
2017
(in millions)
$ 18.1
12.1
7.0
6.7
4.7
4.4
2.7
$25.5
10.7
9.2
14.0
5.7
9.5
3.1
Commodity risk— Steel hot rolled coil is a significant commodity input used by all of our segments in the
manufacture of our products, with the exception of Coatings. Steel prices are volatile and we may utilize derivative
instruments to mitigate commodity price risk on fixed price orders. In 2018, the Company entered into steel hot rolled coil
forward contracts which qualified as a cash flow hedge of the variability in the cash flows attributable to future steel
purchases. The forward contracts had a notional amount of $8,469 for the purchase of 3,500 short tons for each month from
July 2018 to September 2018 and a notional amount of $15,563 for the purchase of 6,500 short tons for each month from
October 2018 to December 2018.
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 29,
2018, we have no natural gas swaps outstanding.
36
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 impairments of long-lived assets, income taxes, revenue recognition for the product
lines recognized over time, inventory obsolescence, and pension benefits. 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.
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. Impairment losses were recorded in 2018 as facilities were closed and certain fixed assets are no
longer expected to be used as a result of 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.
Our most recent impairment test calculated an estimated fair value of our Offshore and other complex steel
structures reporting unit that was lower than its carrying value. Lower near-term financial projections and an approximately
15% decline in the undiscounted terminal value applied in the 2018 annual impairment test, when compared to the 2017
annual impairment test, is a result of a challenging pricing environment for onshore wind and energy transmission structures
that is difficult to predict when it will recover. As a result, a goodwill impairment was recorded in the third quarter of 2018
totaling $14.4 million, which represents all of the goodwill of the Offshore and other complex steel reporting unit. All of our
other reporting units exceeded their respective carrying value, so no additional goodwill was impaired.
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.
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 12.0% to 16.0%, which we estimate to be the after-tax cost of capital for such assets.
Our trade names were tested for impairment in the third quarter of 2018 using the relief-from-royalty valuation
methodology. We determined that the value of the Valmont SM trade name (offshore and other complex steel reporting unit)
was impaired and we recorded an impairment charge of $1.4 million. No other trade names were determined to be impaired.
37
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 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 2018, 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 in 2018, 2017, and 2016
of approximately $9.9 million, $5.7 million, and $3.0 million, respectively, than if our entire inventory had 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.
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 29, 2018, we had approximately $56.9 million in deferred tax assets relating to tax credits and loss
carryforwards, with a valuation allowance of $33.2 million, including $2.3 million in valuation allowances remaining in the
Delta entities related to capital loss carryforwards, which are unlikely ever to be realized. If circumstances related to our
deferred tax assets change in the future, we may be required to increase or decrease the valuation allowance on these assets,
resulting in an increase or decrease in income tax expense and a reduction or increase in net income.
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 in 2017. Further, deferred taxes of $11.7
million related to these unremitted foreign earnings were recorded in 2017 for future taxes that will be incurred when cash is
repatriated. In 2018, as a result of additional guidance we finalized the impact of the 2017 Tax Act on our finalized
unremitted foreign earnings of approximately $394 million concluding the transitional tax obligation was $9.3 million. In
addition, we have taken the position that on non-U.S. subsidiaries we are not indefinitely reinvested on their 2018 unremitted
foreign earnings. Therefore, we recorded income tax expense for foreign withholding taxes and U.S. state income taxes of
$0.9 million and $0.1 million, respectively during 2018.
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.
38
Pension Benefits
Delta Ltd. maintains a defined benefit pension plan for qualifying employees in the United Kingdom. There are no
active employees as members in the plan. Independent actuaries assist in properly measuring the liabilities and expenses
associated with accounting for pension benefits to eligible employees. In order to use actuarial methods to value the liabilities
and expenses, we must make several assumptions. The critical assumptions used to measure pension obligations and
expenses are the discount rate and expected rate of return on pension assets.
We evaluate our critical assumptions at least annually. Key assumptions are based on the following factors:
• Discount rate is based on the yields available on AA-rated corporate bonds with durational periods similar to
that of the pension liabilities.
• Expected return on plan assets is based on our asset allocation mix and our historical return, taking into
consideration current and expected market conditions. Most of the assets in the pension plan are invested in
corporate bonds, the expected return of which are estimated based on the yield available on AA rated corporate
bonds. The long-term expected returns on equities are based on historic performance over the long-term.
•
Inflation is based on the estimated change in the consumer price index (“CPI”) or the retail price index (“RPI”),
depending on the relevant plan provisions.
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 2.90% at December 29, 2018. The following
tables present the key assumptions used to measure pension expense for 2019 and the estimated impact on 2019 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
Revenue Recognition
Pension
2.55%
4.29%
2.20%
3.30%
Increase
in Pension
Expense
$
$
$
—
1.2
1.2
Effective the first day of fiscal 2018, we adopted the requirements of Accounting Standards Update (ASU) 2014-09,
Revenue from Contracts with Customers (Topic 606). Please see note 1 to the consolidated financial statements for additional
information on the new standard and the cumulative effect from the modified retrospective adjustment.
We determine the appropriate revenue recognition for our contracts by analyzing the type, terms and conditions of
each contract or arrangement with a customer. We have no contracts with customers, under any product line, where we could
39
earn variable consideration. With the exception of our Utility segment and the wireless communication structures product
line, our inventory is interchangeable for a variety of the product line’s customers. There is one performance obligation for
revenue recognition. Our Irrigation and Coatings segments recognize revenue at a point in time, which is when the service
has been performed or when the goods ship; this is the same time that the customer is billed. Lighting, traffic, highway safety,
and access system product lines within the ESS segment recognize revenue and bill customers at a point in time, which is
typically when the product ships or when it is delivered, as stipulated in the customer contract.
The following provides additional information about our contracts with utility and wireless communication
structures customers, where the revenue is recognized over time, the judgments we make in accounting for those contracts,
and the resulting amounts recognized in our financial statements.
Accounting for utility structures and wireless communication monopole contracts: Steel and concrete utility and wireless
communication monopole structures are engineered to customer specifications resulting in limited ability to sell the
structure to a different customer if an order is canceled after production commences. The continuous transfer of control
to the customer is evidenced either by contractual termination clauses or by our rights to payment for work performed to-
date plus a reasonable profit as the products do not have an alternative use to us. Since control is transferring over time,
revenue is recognized based on the extent of progress towards completion of the performance obligation. We have
certain wireless communication structures customers' contracts where we do not have the right to payment for work
performed. In those instances, we recognize revenue at a point in time which is time of shipment of the structure.
The selection of the method to measure progress towards completion requires judgment. For our steel and concrete
utility and wireless communication structure product lines, we recognize revenue on an inputs basis, using total
production hours incurred to-date for each order as a percentage of total hours estimated to produce the order. The
completion percentage is applied to the order’s total revenue and total estimated costs to determine reported revenue,
cost of goods sold and gross profit. Our enterprise resource planning (ERP) system captures the total costs incurred to-
date and the total production hours, both incurred to-date and forecast to complete. Revenue from the offshore and other
complex steel structures business is also recognized using an inputs method, based on the cost-to-cost measure of
progress. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on
the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.
Management must make assumptions and estimates regarding manufacturing labor hours and wages, the usage and
cost of materials, and manufacturing burden / overhead recovery rates for each production facility. For our steel, concrete
and wireless communication structures, production of an order, once started, is typically completed within three months.
Projected profitability on open production orders is reviewed and updated monthly. We elected the practical expedient to
not disclose the partially satisfied performance obligation at the end of the period when the contract has an original
expected duration of one year or less.
We also have a few steel structure customer orders in a fiscal year that require one or two years to complete, due to
the quantity of structures. Burden rates and routed production hours, per structure, will be adjusted if and when actual
costs incurred are significantly higher than what had been originally projected. This resets the timing of revenue
recognition for future periods so it is better aligned with the new production schedule. For our offshore and other
complex steel structures, we update the estimates of total costs to complete each order quarterly. Based on these updates,
revenue in the current period may reflect adjustments for amounts that had been previously recognized. During fiscal
2018, there were no changes to inputs/estimates which resulted in adjustments to revenue for production that occurred
prior to the beginning of the quarter. A provision for loss on the performance obligation is recognized if and when an
order is projected to be at a loss, whether or not production has started.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required is included under the captioned paragraph, “MARKET RISK” on page 35 of this report.
40
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 29, 2018
Consolidated Statements of Comprehensive Income—Three-Year Period Ended December 29, 2018
Consolidated Balance Sheets—December 29, 2018 and December 30, 2017
Consolidated Statements of Cash Flows—Three-Year Period Ended December 29, 2018
Consolidated Statements of Shareholders’ Equity—Three-Year Period Ended December 29, 2018
Notes to Consolidated Financial Statements—Three-Year Period Ended December 29, 2018
Page
42
43
44
45
46
47
48
41
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 29, 2018 and December 30, 2017, the related consolidated statements of earnings,
comprehensive income, cash flows, and shareholders' equity, for each of the three years in the period ended December 29,
2018, 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 financial statements present fairly, in all material respects, the financial position of the
Company as of December 29, 2018 and December 30, 2017, and the results of its operations and its cash flows for each of the
three years in the period ended December 29, 2018, 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) (PCAOB), the Company's internal control over financial reporting as of December 29, 2018, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 27, 2019, 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 27, 2019
We have served as the Company's auditor since 1996.
42
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
Product sales
Services sales
Net sales
Product cost of sales
Services cost of sales
Total cost of sales
Gross profit
Selling, general and administrative expenses
Impairment of goodwill and intangible assets
Operating income
Other income (expenses):
Interest expense
Interest income
Costs associated with refinancing of debt
Loss from divestiture of grinding media business
Other
Earnings before income taxes and equity in earnings of
nonconsolidated subsidiaries
Income tax expense (benefit):
Current
Deferred
Net earnings
Less: Earnings attributable to noncontrolling interests
Net earnings attributable to Valmont Industries, Inc.
Earnings per share:
Basic
Diluted
2018
$ 2,437,334
2017
$ 2,447,219
2016
$ 2,255,860
319,810
2,757,144
1,887,959
210,905
298,748
2,745,967
1,860,087
204,112
265,816
2,521,676
1,682,355
183,078
2,098,864
2,064,199
1,865,433
658,280
440,220
15,780
202,280
(44,237)
4,668
(14,820)
(6,084)
1,634
(58,839)
681,768
414,688
—
656,243
410,869
—
267,080
245,374
(44,645)
4,737
(44,409)
3,105
—
—
—
—
1,292
(38,616)
16,384
(24,920)
143,441
228,464
220,454
44,794
(1,659)
43,135
100,306
(5,955)
94,351
4.23
4.20
$
$
$
66,390
39,755
106,145
122,319
(6,079)
116,240
5.16
5.11
$
$
$
65,748
(23,685)
42,063
178,391
(5,159)
173,232
7.68
7.63
$
$
$
See accompanying notes to consolidated financial statements.
43
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three-year period ended December 29, 2018
(Dollars in thousands)
Net earnings
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized translation gains (losses)
Realized loss on divestiture of grinding media business recorded
in other expense
Gain/(loss) on hedging activities:
Unrealized gain (loss) on net investment hedges, net of tax expense
(benefit) of $1,894 in 2018, ($880) in 2017 and $2,646 in 2016
Realized loss on grinding media net investment hedge
Amortization cost included in interest expense
Deferred loss on interest rate hedges
Commodity hedges
Realized gain on commodity hedges recorded in earnings
Unrealized gain (loss) on cross currency swaps
Actuarial gain (loss) on defined benefit pension plan, net of tax expense
(benefit) of $8,177 in 2018, ($501) in 2017 and ($25,778) in 2016
Other comprehensive income (loss)
Comprehensive income
Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to Valmont Industries, Inc.
$
2018
2017
2016
$
100,306
$
122,319
$
178,391
(65,436)
79,279
(58,315)
9,203
(56,233) $
$
—
79,279
$
—
(58,315)
5,291
1,215
423
(2,467)
1,021
(1,021)
352
4,814
(1,695)
—
74
—
—
—
—
(1,621)
4,226
—
74
—
—
—
—
4,300
29,885
(21,534)
78,772
(8,584)
70,188
$
(10,871)
66,787
189,106
(5,529)
183,577
$
(24,141)
(78,156)
100,235
(6,144)
94,091
See accompanying notes to consolidated financial statements.
44
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 29, 2018 and December 30, 2017
(Dollars in thousands, except shares and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Receivables, less allowance of $8,277 in 2018 and $9,396 in 2017
Inventories
Contract asset - costs and profits in excess of billings
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
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 5,951,971 in 2018 and 5,206,474 in 2017
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.
45
2018
2017
$
$
$
313,210
483,963
383,566
112,525
42,800
4,576
1,340,640
1,160,865
646,873
513,992
385,207
175,956
114,479
2,530,274
779
10,678
218,115
79,291
91,942
8,230
409,035
43,489
741,822
143,904
46,107
10,394
492,805
503,677
420,948
16,165
27,478
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
—
—
27,900
—
2,027,596
(303,185)
(692,549)
1,059,762
75,761
1,135,523
2,530,274
$
27,900
—
1,954,344
(279,022)
(590,386)
1,112,836
38,959
1,151,795
2,602,250
$
$
$
$
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-year period ended December 29, 2018 (Dollars in thousands)
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash flows from operations:
Depreciation and amortization
Noncash loss on trading securities
Contribution to defined benefit pension plan
Impairment of property, plant and equipment
Impairment of goodwill & intangible assets
Loss on divestiture of grinding media business
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
Deferred income taxes
Changes in assets and liabilities (net of acquisitions):
Receivables
Inventories
Prepaid expenses
Contract asset - costs and profits in excess of billings
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:
Borrowings (Payments) under short-term agreements
Proceeds from long-term borrowings
Principal payments on long-term borrowings
Settlement of financial derivatives
Debt issuance costs
Dividends paid
Dividends to noncontrolling interest
Purchase of noncontrolling interest
Proceeds from exercises under stock plans
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, cash equivalents, and restricted cash—beginning of year
Cash, cash equivalents, and restricted cash—end of year
2018
2017
2016
$
100,306
$
122,319
$
178,391
82,827
(62)
(1,537)
5,000
15,780
6,084
10,392
—
(2,251)
(225)
(1,659)
12,571
(13,774)
(11,048)
(32,932)
(1,486)
49
(10,888)
(4,139)
153,008
(71,985)
63,103
(143,020)
(1,621)
(1,922)
(155,445)
10,543
251,655
(262,191)
(2,467)
(2,322)
(33,726)
(7,055)
(5,510)
7,357
(114,805)
(3,589)
(162,110)
(15,048)
(179,595)
492,805
313,210
$
$
84,957
237
(40,245)
—
—
—
10,706
—
648
(3,924)
39,755
(49,112)
(57,442)
(6,214)
176
39,405
(1,998)
(7,228)
1,108
133,148
(55,266)
8,185
(5,362)
5,123
(2,295)
(49,615)
(585)
—
(887)
—
—
(33,862)
(5,674)
—
35,159
—
(26,161)
(32,010)
27,682
79,205
413,600
492,805
$
82,417
586
(1,488)
1,099
—
—
9,931
(3,242)
1,870
631
(23,685)
24,622
(11,461)
(1,925)
3,063
104
(12,207)
(23,880)
7,994
232,820
(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)
64,526
349,074
413,600
See accompanying notes to consolidated financial statements.
46
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Three-year period ended December 29, 2018
(Dollars in thousands, except shares and per share amounts)
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
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
Net earnings
Other comprehensive income (loss)
Cash dividends declared ($1.50 per share)
Dividends to noncontrolling interests
Purchase of noncontrolling interest
Cumulative impact of ASC 606 adoption
Impact of ASU 2016-16 adoption
Addition of noncontrolling interest
Purchase of treasury shares; 843,278
shares acquired
Stock plan exercises; 27,555 shares
acquired
Stock options exercised; 63,717 shares
issued
Stock option expense
Stock awards; 61,208 shares issued
Balance at December 29, 2018
Additional
paid-in
capital
$
Retained
earnings
— $1,729,679
Accumulated
other
comprehensive
income (loss)
$
(267,218) $ (571,920) $
Noncontrolling
interest in
consolidated
subsidiaries
Total
shareholders’
equity
Treasury
stock
Common
stock
27,900
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(137)
—
—
173,232
—
(33,921)
—
—
—
—
(7,614)
5,732
5,782
1,969
—
—
—
(79,141)
—
—
—
—
—
—
—
—
—
—
—
—
—
(53,800)
(2,305)
13,035
—
2,209
27,900
— 1,874,722
(346,359)
(612,781)
—
—
—
—
—
—
—
—
—
—
—
—
—
(4,666)
5,137
(471)
116,240
—
(33,927)
—
—
(2,691)
—
—
—
67,337
—
—
—
—
—
—
—
—
—
—
(26,161)
42,516
—
6,040
46,770
$
5,159
985
—
(2,938)
(10,872)
—
—
—
—
—
39,104
6,079
(550)
—
(5,674)
—
—
—
—
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
27,900
— 1,954,344
(279,022)
(590,386)
38,959
1,151,795
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,397)
4,064
(1,667)
94,351
—
(33,426)
—
—
9,771
1,038
—
—
—
1,518
—
—
—
(24,163)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (114,805)
—
—
—
—
(3,589)
8,236
—
7,995
5,955
2,629
—
(7,055)
(5,510)
—
—
40,783
—
—
—
—
—
100,306
(21,534)
(33,426)
(7,055)
(5,510)
9,771
1,038
40,783
(114,805)
(3,589)
7,357
4,064
6,328
$
27,900
$
— $2,027,596
$
(303,185) $ (692,549) $
75,761
$
1,135,523
See accompanying notes to consolidated financial statements.
47
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(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 $8,888 and $21,537 were classified as accounts payable at December 29, 2018 and
December 30, 2017, 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 poles, towers, and components for global lighting, traffic, and wireless communication
markets, engineered access systems, integrated structure solutions for smart cities, and highway safety products;
UTILITY SUPPORT STRUCTURES: This segment consists of the manufacture of engineered steel and concrete
structures for the global utility transmission, distribution, and generation applications, renewable energy generation
equipment, and inspection services;
COATINGS: This segment consists of galvanizing, painting, and anodizing services; and
IRRIGATION: This segment consists of the manufacture of agricultural irrigation equipment, parts, services, tubular
products, water management solutions, and technology for precision agriculture.
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. The grinding media business was divested in 2018.
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 29, 2018 and December 30, 2017 consisted of 52 weeks and fiscal
year ended December 31, 2016 consisted of 53 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.
48
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(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 current accounts receivable was $8,277 at December 29, 2018.
Inventories
Approximately 37% and 37% of inventory is valued at the lower of cost, determined on the last-in, first-out (LIFO)
method, or market as of December 29, 2018 and December 30, 2017, 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
$53,619 and $43,727 at December 29, 2018 and December 30, 2017, 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 2018, 2017 and 2016 was $67,499, $69,046 and $66,482, 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. Impairment losses were recorded in 2018 and 2016 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. See footnote 8 for details of impairments recognized during 2018.
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.
49
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(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 Instruments
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:
Foreign
Currency
Translation
Adjustments
$
(171,399) $
(68,065)
9,203
(230,261) $
$
Gain on
Hedging
Activities
6,357
3,599
1,215
11,171
Balance at December 30, 2017
Current-period comprehensive income (loss)
Divestiture of grinding media business
Balance at December 29, 2018
Subsequent Events
Defined
Benefit
Pension Plan
$
(113,980) $
29,885
— $
(84,095) $
$
Accumulated
Other
Comprehensive
Income (Loss)
(279,022)
(34,581)
10,418
(303,185)
On December 31, 2018, the Company acquired the assets of Larson Camouflage, an industry-leading provider of
architectural and camouflage concealment solutions for the wireless telecommunication market. The business is located in
Tucson, Arizona. The acquisition was funded with cash on hand and will be included in the ESS segment. On February 11,
2019, the Company acquired the outstanding shares of United Galvanizing, Inc. located in Houston, Texas. The acquisition
was made to expand the North America coatings footprint. The acquisition was funded with cash on hand and will be
included in the Coatings segment.
50
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
On December 31, 2017, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from
Contracts with Customers (ASC 606). The Company elected to use the modified retrospective approach for the adoption of
the new revenue standard. The cumulative effect of initially applying the new revenue standard was recorded as an
adjustment to the opening balance of retained earnings, which impacted the Consolidated Balance Sheet as follows:
Balance Sheet
Assets
Inventories
Contract asset - costs & profits in excess of billings
Liabilities and shareholders' equity
Accrued expenses
Deferred income taxes
Retained earnings
December 30,
2017
ASC 606
Adjustments
December 31,
2017
$
420,948
16,165
$
(36,243) $
51,507
384,705
67,672
81,029
34,906
1,954,344
2,043
3,450
9,771
83,072
38,356
1,964,115
The adoption of ASC 606 had the following impact on the Consolidated Balance Sheets and Consolidated
Statements of Earnings for the fiscal year ended December 29, 2018:
Balance Sheet
Assets
Inventories
Contract asset - costs & profits in excess of billings
Liabilities and shareholders' equity
Accrued expenses
Deferred income taxes
Retained earnings
As Reported
Balance
Excluding ASC
606 Effects
Change
$
383,566
112,525
$
446,267
24,647
$
(62,701)
87,878
91,942
43,489
2,027,596
86,174
38,492
2,013,184
5,768
4,997
14,412
Statement of
Earnings
Net Sales
Operating Income
As Reported
$ 2,757,144
202,280
Balance
Excluding ASC
606 Effects
$
$
2,720,773
196,092
Change
$ 36,371
6,188
$
The Company determines the appropriate revenue recognition for our contracts by analyzing the type, terms and
conditions of each contract or arrangement with a customer. Contracts with customers for all businesses are fixed-price with
sales tax excluded from revenue, and do not include variable consideration. Discounts included in contracts with customers,
typically early pay discounts, are recorded as a reduction of net sales in the period in which the sale is recognized. Contract
revenues are classified as product when the performance obligation is related to the manufacturing of goods. Contract
revenues are classified as service when the performance obligation is the performance of a service. Service revenue is
primarily related to the Coatings segment.
Customer acceptance provisions exist only in the design stage of our products and acceptance of the design by the
customer is required before the project 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 revenue associated with the design stage. There is
51
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
one performance obligation for revenue recognition. No general rights of return exist for customers once the product has been
delivered and the Company establishes provisions for estimated warranties. The Company does not sell extended warranties
for any of its products.
Shipping and handling costs associated with sales are recorded as cost of goods sold. The Company elected to use
the practical expedient of treating freight as a fulfillment obligation instead of a separate performance obligation and ratably
recognize freight expense as the structure is being manufactured, when the revenue from the associated customer contract is
being recognized over time. With the exception of the Utility segment and the wireless communication structures product
line, the Company’s inventory is interchangeable for a variety of each segment’s customers. The Company elected the
practical expedient to not disclose the partially satisfied performance obligation at the end of the period when the contract has
an original expected duration of one year or less. The Company did not have any significant contracts with an original
expected duration of more than one year at December 29, 2018. In addition, the Company elected the practical expedient to
not adjust the amount of consideration to be received in a contract for any significant financing component if payment is
expected within twelve months of transfer of control of goods or services; the Company expects all consideration to be
received in one year or less at contract inception.
Segment and Product Line Revenue Recognition
The global Utility segment revenues are derived from manufactured steel and concrete structures for the North
America utility industry and offshore and other complex structures used in energy generation and distribution outside of the
United States. Steel and concrete utility structures are engineered to customer specifications resulting in limited ability to sell
the structure to a different customer if an order is canceled after production commences. The continuous transfer of control to
the customer is evidenced either by contractual termination clauses or by our rights to payment for work performed to-date
plus a reasonable profit as the products do not have an alternative use to the Company. Since control is transferring over time,
revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the
method to measure progress towards completion requires judgment. For our steel and concrete utility and wireless
communication structure product lines, we generally recognize revenue on an inputs basis, using total production hours
incurred to-date for each order as a percentage of total hours estimated to produce the order. The completion percentage is
applied to the order’s total revenue and total estimated costs to determine reported revenue, cost of goods sold and gross
profit. Production of an order, once started, is typically completed within three months. Revenue from the offshore and other
complex structures business is also recognized using an inputs method, based on the ratio of costs incurred to date to the total
estimated costs at completion of the performance obligation. External sales agents are used in certain sales of steel and
concrete structures; the Company has chosen to use the practical expedient to expense estimated commissions owed to third
parties by recognizing them proportionately as the goods are manufactured.
The global ESS segment revenues are derived from the manufacture and distribution of engineered metal, composite
structures and components for lighting and traffic and roadway safety, engineered access systems, and wireless
communication. For the lighting and traffic and roadway safety product lines, revenue is recognized upon shipment or
delivery of goods to the customer depending on contract terms, which is the same point in time that the customer is billed.
For Access Systems, revenue is generally recognized upon delivery of goods to the customer which is the same point in time
that the customer is billed. The wireless communication monopole product line has large regional customers who have unique
product specifications for these larger communication structures. When the customer contract includes a cancellation clause
that would require them to pay for work completed plus a reasonable margin if an order was canceled, revenue is recognized
over time based on hours worked as a percent of total estimated hours to complete production. For the remaining wireless
communication product line customers which do not provide a contractual right to bill for work completed on a canceled
order, revenue is recognized upon shipment or delivery of the goods to the customer which is the same point in time that the
customer is billed. For wireless communication towers and components, revenue is recognized upon shipment or delivery of
goods to the customer depending on contract terms, which is the same point in time that the customer is billed.
The global Coatings segment revenues are derived by providing coating services to customers’ products, which
include galvanizing, anodizing, and powder coating. Revenue is recognized once the coating service has been performed and
the goods are ready to be picked up or delivered to the customer which is the same time that the customer is billed.
52
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The global Irrigation segment revenues are derived from the manufacture of agricultural irrigation equipment and
related parts and services for the agricultural industry and tubular products for industrial customers. Revenue recognition for
the irrigation segment is generally upon shipment of the goods to the customer which is the same point in time that the
customer is billed. The remote monitoring subscription services are primarily billed annually and revenue is recognized on a
straight-line basis over the subsequent twelve months.
Disaggregation of revenue by product line is disclosed in the Segment footnote. A breakdown by segment of revenue
recognized over time and revenue recognized at a point in time for the fiscal year ended December 29, 2018 is as follows:
Point in Time
Fiscal year
ended
December 29,
2018
$
$
16,760
922,677
286,739
612,385
23,080
1,861,641
Over Time
Fiscal year
ended
December
29, 2018
$
$
838,446
44,681
—
12,376
—
895,503
Utility Support Structures
Engineered Support Structures
Coatings
Irrigation
Other
Total
The Company's contract asset as of December 29, 2018 is $112,525. The contract assets attributable to the
cumulative effect from the adoption of the new revenue recognition guidance was $51,507; the contract asset at December
30, 2017, attributable to the offshore and other complex structures product line, was $16,165. Both steel and concrete utility
customers are generally invoiced upon shipment or delivery of the goods to the customer's specified location and there are
normally no up-front or progress payments. The increase in the contract asset between ASC 606 adoption date to year-end
2018 is attributed to an increase in finished structures that had not yet been shipped to the customers. The offshore and
complex steel structures business invoices customers a number of ways including advanced billings, progress billings, and
billings upon shipment.
At December 29, 2018 and December 30, 2017, the contract liability for revenue recognized over time was $4,906
and $7,368. The contract liability is included in Accrued Expenses on the Consolidated Balance Sheets. During the fiscal
year ended December 29, 2018, the Company recognized $5,222 of revenue that was included in the liability as of December
30, 2017. The revenue recognized was due to applying advance payments received for projects completed during the period.
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 Sheets.
53
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 at that time 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 and again in October 2018, 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 29,
2018, the Company has acquired 5,431,409 shares for approximately $732,634 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 $11,500 in 2018, $11,600 in 2017, and $8,300 in 2016.
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2014-9, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in
Accounting Standards Codification ("ASC") 605, Revenue Recognition. Effective December 31, 2017, the Company adopted
Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). The Company elected
the modified retrospective approach for the adoption of the new revenue standard, resulting in a credit to retained earnings
being recognized for $9,771. The Company calculated the cumulative effect on revenue of approximately $51,507 with
$13,121 of pre-tax operating income; these were customer orders for the steel utility, concrete utility, and wireless
communication structures product lines at various stages of production at December 30, 2017.
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. The Company adopted this ASU in the first quarter of 2018,
recognizing the Delta Pension Plan (DPP) net periodic pension expense within Other income (expense). The Company
reclassified $648 and $1,870 of DPP net periodic pension expense in 2017 and 2016 out of selling, general, and
administrative expense and into Other expense.
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.
The Company adopted the ASU 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 reducing cash flows from operating activities by $12,568 in 2017. The Company did not
have any restricted cash at December 29, 2018 or December 30, 2017.
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
54
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Company adopted this ASU in the first quarter of 2018, which did not have a material impact on the consolidated financial
statements.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments in the
Statement of Cash Flows, which provides more specific guidance on cash flow presentation for certain transactions. ASU
2016-15 is effective for interim periods and fiscal years beginning after December 15, 2017, with early adoption permitted.
The Company adopted this ASU in the first quarter of 2018, which did not have a material impact on the consolidated
financial statements.
In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other than Inventory, which
requires the Company to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory
when the transfer occurs, as opposed to when it is sold to an outside party. The Company adopted this standard in 2018 and
the result was an increase to retained earnings of $1,038.
Recently Issued Accounting Pronouncements
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 and the Company will adopt this ASU in the first quarter of 2019. The Company's analysis estimates that total
liabilities and total assets will increase by $100,000 to $120,000 upon adoption the first day of fiscal 2019. The Company
made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet for all
classes of underlying assets. In addition, the Company elected certain practical expedients not to reassess whether existing
contracts are or contain leases, to not reassess the lease classification of any existing leases, to not reassess initial direct costs
for any existing leases, and to not separate lease components for all classes of underlying assets. The Company will elect not
to recast its comparative periods in transition (the “Comparatives Under 840 Option”) as allowed under ASU 2018-11.
(2) ACQUISITIONS
Acquisitions of Businesses
On October 18, 2018, the Company acquired CSP Coatings Systems of Auckland, New Zealand, a provider of a
wide range of coatings services for approximately $17,711. The acquisition further strengthens the Company's Asia-Pacific
market position and will be reported in the Coatings segment. The preliminary fair values assigned were $7,373 to property,
plant, and equipment, $3,113 for customer relationships, $5,120 for goodwill, with the remainder net working capital.
Goodwill is not deductible for tax purposes and the customer relationships will be amortized over 10 years. The Company
expects the purchase price allocation to be finalized in the second quarter of 2019.
On August 3, 2018, the Company purchased approximately 72% of the outstanding shares of Walpar, LLC
("Walpar") for $57,805 in cash. Walpar is an industry leader in the design, engineering and manufacturing of overhead sign
structures for the North America transportation market. Walpar is located in Birmingham, Alabama and its operations are
reported in the Engineered Support Structures segment. The transaction was funded with cash on hand and the purchase of
the remaining 28% non-controlling interests was acquired in January 2019. The acquisition of Walpar was completed to
expand the Company's product offering in the sign structure market. The preliminary fair value measurement disclosed below
is subject to management reviews and completion of the fair value measurements of the assets acquired and liabilities
assumed. Customer relationships will be amortized over 14 years and the trade name has an indefinite life. Goodwill is not
deductible for tax purposes. The Company expects the purchase price allocation to be finalized in the second quarter of 2019.
55
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(2) ACQUISITIONS (Continued)
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed of Walpar
as of the date of acquisition:
Current assets
Customer relationships
Trade name
Goodwill
Total fair value of assets acquired
Current liabilities
Deferred taxes
Total fair value of liabilities assumed
Non-controlling interests
Net assets acquired
At August 3,
2018
13,210
32,000
4,300
42,216
91,726
2,185
8,654
10,839
23,082
57,805
$
$
$
$
On August 3, 2018, the Company acquired 75% of the outstanding shares of Convert Italia SpA ("Convert") for
$43,504 in cash. Convert is a designer and provider of engineered solar tracker solutions that is headquartered in Italy, with
offices in Brazil and Argentina. Additional purchase price will be paid contingent on Convert realizing specific EBITDA and
revenue targets in calendar years 2018 and 2020. The Company recognized $11,608 in estimated contingent consideration
liability which is subject to finalization expected to occur during the third quarter of 2019. The Company acquired Convert to
grow market adjacencies in the Utility Support Structures segment.
The preliminary fair value measurements disclosed below are subject to management reviews and completion of the
fair value measurements of the assets acquired and liabilities assumed. Patents and proprietary technology will be amortized
over 15 years and the trade name has an indefinite life. Goodwill is not deductible for tax purposes. The Company expects the
fair value measurement process and purchase price allocation to be finalized in the third quarter of 2019. The following table
summarizes the preliminary fair values of the assets acquired and liabilities assumed of Convert at the date of acquisition:
Current assets
Other assets
Patent and Proprietary Technology
Trade name
Goodwill
Total fair value of assets acquired
Current liabilities
Contingent consideration liability
Deferred taxes
Total fair value of liabilities assumed
Non-controlling interests
Net assets acquired
56
At August 3,
2018
18,349
3,166
16,554
8,701
34,280
81,050
5,376
11,608
6,061
23,045
14,501
43,504
$
$
$
$
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(2) ACQUISITIONS (Continued)
On August 1, 2018, the Company acquired the operational assets of Derit Infrastructure Pvt. Ltd. ("Derit") for
$14,700 in cash, net of assumed liabilities. The Company acquired the net assets at fair value with no value assigned to
intangible assets in the purchase price allocation. Derit has a manufacturing facility in India with production capabilities for
steel lattice structures for power transmission, wireless communication, and a provider of zinc galvanizing services. Derit
was acquired to provide the Company with lattice structure manufacturing capabilities and to further expand the geographic
footprint of the galvanizing business. The majority of the business will be reported in the Utility Support Structures segment,
while the galvanizing business will be reported in the Coatings segment. The purchase price allocation was finalized in the
fourth quarter of 2018. Proforma disclosures were omitted as this business does not have a significant impact on the
Company's financial results.
On January 26, 2018, the Company acquired 60% of the assets of Torrent Engineering and Equipment ("Torrent")
for $4,800 in cash. Torrent operates in Indiana and is an integrator of prefabricated pump stations that involves designing
high pressure water and compressed air process systems. Torrent has annual sales of approximately $9,000. In the purchase
price allocation, goodwill of $3,922 and $4,020 of customer relationships and other intangible assets were recorded. A
portion of the goodwill is deductible for tax purposes. Torrent is included in the Irrigation segment and was acquired to
expand the Company's water management capabilities. The purchase price allocation was finalized in the second quarter of
2018.
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.
The Company's Consolidated Statements of Earnings for the fiscal year ended December 29, 2018 included net
sales of $33,973 and net earnings of $1,566 resulting from the Walpar, Convert, Torrent, and CSP Coatings acquisitions. The
proforma effect of these acquisitions on the 2018 and 2017 Consolidated Statements of Earnings is as follows:
Net sales
Net earnings
Earnings per share-diluted
Acquisitions of Noncontrolling Interests
Fifty-two
Weeks Ended
December 29,
2018
Fifty-two
Weeks Ended
December 30,
2017
$
2,798,705
$
2,818,035
97,170
4.32
122,407
5.39
In March 2018, the Company acquired the remaining 10% of Valmont Industria e Commercio Ltda. that it did not
own for $5,510. 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.
57
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(3) DIVESTITURE
On April 30, 2018, the Company completed the sale of Donhad, its grinding media business in Australia, reported in
the Other segment. The business was sold because it did not fit the long-term strategic plans for the Company. The grinding
media business historical annual sales, operating profit, and net assets are not significant for discontinued operations
presentation.
The grinding media business had operating income/(loss) of ($913) for the year ended December 29, 2018, and
$2,134 for the ended December 30, 2017. The Company received Australian $82,500 (U.S. $62,518).
The assets and liabilities of the grinding media business at closing on April 30, 2018 were as follows:
Receivables, net
Inventories
Net property, plant, and equipment
Goodwill and intangible assets
Other assets
Total assets
Accounts payable
Accrued expenses
Deferred income taxes
Total liabilities
Net assets
$
$
$
$
$
9,848
15,945
13,815
27,153
1,388
68,149
7,125
2,484
2,187
11,796
56,353
The pre-tax loss from the divestiture is reported in other income (expense). The loss is comprised of the proceeds
from buyer, less deal-related costs, less the net assets of the business which resulted in a gain of $4,334. Offsetting this
amount is a $(10,418) realized loss on foreign exchange translation adjustments and net investment hedges previously
reported in shareholders' equity.
Pre-tax gain from divestiture, before recognition of currency translation loss
Recognition of cumulative currency translation loss and hedges (out of OCI)
Net pre-tax loss from divestiture of the grinding media business
$
$
4,334
(10,418)
(6,084)
The transaction did not result in a taxable capital gain as the cash proceeds were less than the tax carrying value of
the business. There is an insignificant tax benefit from the tax deductibility of deal related expenses.
58
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(4) RESTRUCTURING ACTIVITIES
2018 Plan
During 2018, the Company executed certain regional restructuring activities (the "2018 Plan") primarily in the ESS
and Utility segments to transform its operational business model including exiting certain local markets. The result will be
the closure of seven facilities, including three in China. The one Utility facility and one ESS facility in Europe will cease
production and the 2018 Plan will be completed during the second quarter of 2019. All other facilities were closed by
December 29, 2018. The Company recorded the following pre-tax expenses:
ESS
Utility
Irrigation
Other/
Corporate
TOTAL
Severance
$ 6,255
$ 1,825
$
— $
— $
Other cash restructuring expenses
3,512
2,228
Impairments of fixed assets/net
loss on disposals
Total cost of sales
Severance
Other cash restructuring expenses
Impairments of fixed assets/net
loss on disposals
Total selling, general and
administrative expenses
4,560
—
14,327
4,053
10,654
3,151
440
1,100
—
—
14,245
1,100
Consolidated total
$ 28,572
$ 5,153
$
—
—
—
129
51
—
180
180
$
—
—
—
—
126
—
126
126
$
8,080
5,740
4,560
18,380
11,883
3,328
440
15,651
34,031
In connection with exiting certain local markets as a result of the 2018 Plan, the Company also recorded $7,944 of
impairments of current and other assets during fiscal 2018, primarily inventory.
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
$
59
—
—
—
—
234
234
234
$
1,689
2,257
1,099
5,045
585
2,195
2,780
7,825
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(4) RESTRUCTURING ACTIVITIES (Continued)
During fiscal 2016, the Company recognized the following pre-tax restructuring expense (all cash) of $4,581 related
to the 2015 Restructuring 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:
Severance
Other cash restructuring expenses
Total
Balance at
December 30,
2017
Recognized
Restructuring
Expense
Costs Paid or
Otherwise
Settled
Balance at
December 29,
2018
$
$
— $
1,216
1,216
$
19,963
9,068
29,031
$
$
(13,369)
(6,822)
(20,191)
$
$
6,594
3,462
10,056
A significant change in market conditions in any of the Company's segments may affect the Company's assessment
of the restructuring activities.
(5) 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 29, 2018 and December 30, 2017, and the fifty-three weeks ended December 31,
2016 were as follows:
Interest
Income taxes
2018
$ 43,305
47,355
2017
$ 44,528
63,791
$
2016
45,683
48,203
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the
statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows for fiscal
year 2016.
Cash and cash equivalents
Restricted cash included in other current assets
Total cash, cash equivalents, and restricted cash shown
in the statement of cash flows
2016
$ 399,948
13,652
413,600
60
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(6) INVENTORIES
Inventories consisted of the following at December 29, 2018 and December 30, 2017:
Raw materials and purchased parts
Work-in-process
Finished goods and manufactured goods
Subtotal
Less: LIFO reserve
(7) 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
2018
190,115
35,566
211,504
437,185
53,619
383,566
$
$
2017
183,029
30,671
250,975
464,675
43,727
420,948
$
$
$
2018
99,797
348,836
549,311
24,380
85,239
53,302
$1,160,865
$
2017
93,258
350,937
588,439
23,682
82,025
27,346
$1,165,687
The Company leases certain facilities, machinery, computer equipment and transportation equipment under
operating leases with unexpired terms ranging from one to twenty years. Rental expense for operating leases amounted to
$25,549, $25,612, and $24,756 for fiscal 2018, 2017, and 2016, respectively.
Minimum lease payments under operating leases expiring subsequent to December 29, 2018 are:
Fiscal year ending
2019
2020
2021
2022
2023
Subsequent
Total minimum lease payments
$ 18,757
16,830
13,992
11,932
8,866
76,438
$ 146,815
61
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(8) GOODWILL AND INTANGIBLE ASSETS
Amortized Intangible Assets
The components of amortized intangible assets at December 29, 2018 and December 30, 2017 were as follows:
Customer Relationships
Patents & Proprietary Technology
Other
Customer Relationships
Patents & Proprietary Technology
Other
December 29, 2018
Gross
Carrying
Amount
$ 219,508
23,662
7,971
$ 251,141
$
$
Accumulated
Amortization
132,180
4,837
6,891
143,908
Weighted
Average
Life
13 years
14 years
5 years
December 30, 2017
Gross
Carrying
Amount
$ 200,810
6,693
8,532
$ 216,035
$
$
Accumulated
Amortization
131,062
3,999
7,228
142,289
Weighted
Average
Life
13 years
11 years
5 years
Amortization expense for intangible assets was $15,328, $15,911 and $15,935 for the fiscal years ended
December 29, 2018, December 30, 2017 and December 31, 2016, respectively.
Estimated annual amortization expense related to finite lived intangible assets is as follows:
2019
2020
2021
2022
2023
Estimated
Amortization
Expense
$
16,170
15,082
13,079
10,976
9,264
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 29, 2018
and December 30, 2017 were as follows:
62
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(8) GOODWILL AND INTANGIBLE ASSETS (Continued)
Newmark
Webforge
Valmont SM
Ingal EPS/Ingal Civil Products
Donhad
Shakespeare
Walpar
Convert
Other
December 29,
2018
December 30,
2017
$
$
11,111
8,872
8,155
7,233
—
4,000
4,300
8,580
16,472
68,723
$
$
11,111
9,432
9,973
7,690
5,801
4,000
—
—
16,846
64,853
Year
Acquired
2004
2010
2014
2010
2010
2014
2018
2018
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 2018. The
values of each trade name was determined using the relief-from-royalty method. Based on this evaluation, the value of the
offshore and other complex steel structures (Valmont SM) trade name was deemed to be impaired and the Company recorded
a charge of $1,425. No other trade names were determined to be impaired.
Goodwill
The carrying amount of goodwill by segment as of December 29, 2018 and December 30, 2017 was as follows:
Coatings
Segment
76,696
(16,222)
60,474
5,120
Irrigation
Segment
$ 19,778
—
19,778
5,503
—
—
—
(879)
64,715
—
(117)
$ 25,164
$
Other
$ 15,814
Total
$ 372,612
— (34,892)
$ 337,720
15,814
—
87,119
— (14,355)
(15,814)
(15,814)
(9,463)
—
— $ 385,207
Engineered
Support
Structures
Segment
Gross Balance at December 30, 2017 $ 170,076
(18,670)
Accumulated impairment losses
151,406
Balance at December 30, 2017
Acquisitions
42,216
Impairment
Divestiture of grinding media
Foreign currency translation
Balance at December 29, 2018
—
—
(7,557)
$ 186,065
Utility
Support
Structures
Segment
$ 90,248
—
90,248
34,280
(14,355)
—
(910)
$ 109,263
$
$
63
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(8) GOODWILL AND INTANGIBLE ASSETS (Continued)
Engineered
Support
Structures
Segment
Gross Balance at December 31, 2016 $ 157,689
(18,670)
Accumulated impairment losses
139,019
Balance at December 31, 2016
3,449
Acquisitions
8,938
Foreign currency translation
$ 151,406
Balance at December 30, 2017
Utility
Support
Structures
Segment
$ 88,451
—
88,451
—
1,797
$ 90,248
Coatings
Segment
$
$
75,791
(16,222)
59,569
—
905
60,474
Irrigation
Segment
$ 19,611
—
19,611
—
167
$ 19,778
Other
$ 14,460
Total
$ 356,002
— (34,892)
321,110
3,449
13,161
$ 337,720
14,460
—
1,354
$ 15,814
The Company’s annual impairment test of goodwill was performed during the third quarter of 2018, using the
discounted cash flow method. The Company previously highlighted significant, adverse challenges in the wind energy
market in Northern Europe that impacts our Offshore and other complex steel structures business. A lack of protective tariffs
has led to an extremely competitive environment in that region. Lower near-term financial projections and an approximately
15% decline in the undiscounted terminal value applied in the 2018 test, when compared to the 2017 annual impairment test,
is a result of challenging onshore wind and energy transmission structures pricing that is difficult to predict when it will
recover. This resulted in an estimated fair value of the Offshore and other complex steel structures reporting unit below the
Company’s investment in this business. As a result, a goodwill impairment was recorded in the third quarter totaling
$14,355, which represents all of the goodwill of the offshore and other complex steel reporting unit.
(9) BANK CREDIT ARRANGEMENTS
The Company maintains various lines of credit for short-term borrowings totaling $137,679 at December 29, 2018.
As of December 29, 2018 and December 30, 2017, $10,678 and $161 was outstanding and recorded as notes payable in the
Consolidated Balance Sheets, respectively. The interest rates charged on these lines of credit vary in relation to the banks’
costs of funds. The weighted average interest rate on short-term borrowings was 1.37% at December 29, 2018. The unused
and available borrowings under the lines of credit were $127,001 at December 29, 2018. The lines of credit can be modified
at any time at the option of the banks. The Company pays no fees in connection with unused lines of credit.
(10) INCOME TAXES
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries are as follows:
United States
Foreign
2018
127,852
15,589
143,441
$
$
2017
152,372
76,092
228,464
$
$
2016
136,682
83,772
220,454
$
$
In fiscal 2017, the Company estimated and recognized approximately $41,935 of tax expense for the 2017 Tax Act.
The SEC staff issued SAB 118, which provided guidance on accounting for the tax effects of the 2017 Tax Act.
The Company's accounting for the following element of the 2017 Tax Act was finalized as of December 30, 2017:
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.
64
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(10) INCOME TAXES (Continued)
The Company's accounting for the following elements of the 2017 Tax Act were provisional estimates at December 30, 2017,
and were finalized as of December 29, 2018 as follows:
Deemed Repatriation transition tax: The Deemed Repatriation transition tax (“Transition Tax”) is a tax on
unremitted foreign earnings of certain foreign subsidiaries, which subjected the Company's unremitted foreign
earnings of approximately $394,000 to tax at certain specified rates less associated foreign tax credits. The Company
recorded a Transition Tax obligation of $9,890 during fiscal 2017 and reduced this expense by $550 in 2018 upon
finalization.
Indefinite reinvestment assertion: The Company position remains that unremitted foreign earnings subject to the
Transition Tax are not indefinitely reinvested. The Company recorded foreign withholding taxes and U.S. state
income taxes of $10,373 and $1,300. This expense was recorded in 2017 with a decrease of only $140 recognized in
2018 as it was finalized. In addition, the Company has taken the position that on non-U.S. subsidiaries, the 2018
unremitted foreign earnings are not indefinitely reinvested and it recorded additional foreign withholding taxes and
U.S. state income taxes of $918 and $99, respectively during 2018.
Income tax expense (benefit) consists of:
Current:
Federal
State
Foreign
Non-current:
Deferred:
Federal
State
Foreign
2018
2017
2016
$
21,106
$
49,324
$
6,585
17,559
45,250
(456)
213
9
(1,881)
(1,659)
4,415
12,880
66,619
(229)
(9,626)
(385)
49,766
39,755
41,539
5,467
19,123
66,129
(381)
8,504
202
(32,391)
(23,685)
$
43,135
$
106,145
$
42,063
65
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(10) 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
2018
2017
2016
21.0%
3.5
3.2
(1.0)
(0.3)
—
2.2
—
—
—
(0.5)
2.0
30.1%
35.0%
1.4
(1.4)
(4.1)
(0.1)
(2.1)
—
—
—
—
18.4
(0.6)
46.5%
35.0%
1.7
2.9
(4.8)
(0.2)
(2.0)
—
1.0
(2.2)
(14.6)
—
2.3
19.1%
Fiscal 2018 includes $3,171 of tax expense related to non tax deductible goodwill and $6,756 of tax expense
primarily related to restructuring charges for which no tax benefits have been recorded due to the increase in valuation
allowance. Fiscal 2017 includes $41,935 of tax expense related to the 2017 Tax Act. 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:
66
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(10) 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
Future repatriation of foreign earnings
Other liabilities
Total deferred income tax liabilities
Net deferred income tax asset
2018
2017
$
$
4,354
644
56,867
36,328
4,384
3,914
28,706
135,197
(33,228)
101,969
1,064
25,477
44,850
2,746
4,545
78,682
23,287
$
$
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
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
2018
66,776
(43,489)
23,287
$
$
2017
78,933
(34,906)
44,027
$
$
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 29, 2018 and
December 30, 2017 respectively, there were $56,867 and $54,521 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 29, 2018 that are associated with tax loss and tax credit
carryforwards not reduced by valuation allowances expire in periods starting 2021.
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.
67
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(10) INCOME TAXES (Continued)
The following summarizes the activity related to our unrecognized tax benefits in 2018 and 2017, in thousands:
Gross unrecognized tax benefits—beginning of year
Gross increases—tax positions in prior period
Gross decreases—tax positions in prior period
Settlements with taxing authorities
Lapse of statute of limitations
Gross unrecognized tax benefits—end of year
2018
2017
3,196
103
(199)
280
(50)
(731)
2,599
$
$
3,400
5
—
1,044
(65)
(1,188)
3,196
$
$
There are approximately $766 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 2018, the Company recorded a reduction of its gross unrecognized tax
benefit of $731 with $577 recorded as a reduction of income tax expense, due to the expiration of statutes of limitation in the
United States. During 2017, the Company recorded a reduction of its gross unrecognized tax benefit of $1,188, with $772
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 $196 and $187 of interest and penalties at December 29, 2018 and
December 30, 2017, 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 2015
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 $2,536 and $3,059 at December 29, 2018 and December 30, 2017, respectively.
(11) 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 29,
2018
December 30,
2017
$
$
450,000
305,000
(21,468)
—
—
5,719
8,500
2,918
(8,068)
742,601
779
741,822
$
$
250,000
250,000
(4,312)
250,200
2,545
—
8,500
4,033
(6,112)
754,854
966
753,888
68
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(11) LONG-TERM DEBT (Continued)
(a)
(b)
(c)
(d)
The 5.00% senior unsecured notes due 2044 include an aggregate principal amount of $450,000 on which interest is
paid and an unamortized discount balance of $13,930 at December 29, 2018. 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 $305,000 on which interest is
paid and an unamortized discount balance of $7,538 at December 29, 2018. 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.
On June 11, 2018, the Company notified the holders of the 2020 bonds of its plan to redeem all of these bonds. On
July 9, 2018, the Company redeemed all $250,200 of the 2020 bonds at a make-whole redemption price equal to
approximately $266,000 plus approximately $3,600 of accrued and unpaid interest on the notes from April 20, 2018
to July 8, 2018. The Company recognized $14,820 of redemption related expenses, including the recognition of the
unamortized premium, in the third quarter of 2018.
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.
At December 29, 2018, the Company had $5,719 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 29, 2018, the Company had the ability to borrow
$579,651 under this facility, after consideration of standby letters of credit of $14,630 associated with certain insurance
obligations. We also maintain certain short-term bank lines of credit totaling $137,679, $127,001 of which was unused at
December 29, 2018.
69
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(11) LONG-TERM DEBT (Continued)
(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 29, 2018 and December 30, 2017 were 3.27% and 2.00% 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 29, 2018. The minimum aggregate
maturities of long-term debt for each of the five years following 2018 are: $779, $778, $778, $582 and $0.
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.
(12) 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 29, 2018,
1,418,611 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 or vesting of
restricted stock units or issuance of restricted stock 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 $4,064, $5,137 and $5,782 of
compensation expense (included in selling, general and administrative expenses) in the 2018, 2017 and 2016 fiscal years,
respectively. The associated tax benefits recorded in the 2018, 2017 and 2016 fiscal years was $1,016, $1,952 and $2,197,
respectively.
At December 29, 2018, the amount of unrecognized stock option compensation expense, to be recognized over a
weighted average period of 2.44 years, was approximately $5,940.
The Company uses a binomial option pricing model to value its stock options. The fair value of each option grant
made in 2018, 2017 and 2016 was estimated using the following assumptions:
Expected volatility
Risk-free interest rate
Expected life from vesting date
Dividend yield
2016
2018
2017
33.39% 33.76% 33.88%
1.83%
2.67% 2.12%
3.0 yrs
3.0 yrs
3.0 yrs
1.13%
1.07% 1.17%
70
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(12) STOCK-BASED COMPENSATION (Continued)
Following is a summary of the stock option activity during 2016, 2017 and 2018:
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
Number
of
Shares
849,609
85,092
(109,893)
(31,635)
793,173
774,139
469,844
Weighted
Average
Exercise
Price
$ 117.42
151.37
101.69
129.36
$ 122.77
$ 124.18
$ 123.75
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.
Outstanding at December 30, 2017
Granted
Exercised
Forfeited
Outstanding at December 29, 2018
Options vested or expected to vest at December 29, 2018
Options exercisable at December 29, 2018
Weighted
Average
Exercise
Price
$ 128.34
112.08
106.26
129.52
$ 127.74
$ 127.84
$ 126.61
Number of
Shares
570,622
105,135
(63,717)
(33,627)
578,413
565,952
405,128
The weighted average per share fair value of options granted during 2018 was $30.48.
71
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
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
$
4.35
4.30
3.47
909
909
909
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(12) STOCK-BASED COMPENSATION (Continued)
Following is a summary of the status of stock options outstanding at December 29, 2018:
Outstanding and Exercisable By Price Range
Options Outstanding
Options Exercisable
Exercise Price
Range
$104.47 - 114.11
$120.91 - 136.42
$142.67 - 164.35
Number
277,757
114,910
185,746
578,413
Weighted
Average
Remaining
Contractual
Life
5.09 years
2.25 years
4.55 years
Weighted
Average
Exercise
Price
107.39
$
134.02
154.31
Weighted
Average
Exercise
Price
104.47
$
134.01
151.44
Number
171,607
114,627
118,894
405,128
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. Restricted stock units and awards
generally vest in equal installments over three years beginning on the first anniversary of the grant. During fiscal 2018, 2017
and 2016, 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 granted
Recognized compensation expense
2018
88,127
$ 114.89
$ 6,328
2017
62,160
$ 163.18
$ 5,569
2016
58,961
$ 150.48
$ 4,069
At December 29, 2018 the amount of deferred stock based compensation granted, to be recognized over a
weighted average period of 1.82 years, was approximately $17,754.
72
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(13) EARNINGS PER SHARE
The following table provides a reconciliation between Basic and Diluted earnings per share (EPS):
2018:
Net earnings attributable to Valmont Industries, Inc.
Weighted average shares outstanding (000's)
Per share amount
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
Dilutive
Effect of
Stock
Options
Diluted
EPS
$
$
$
$
$
$
— $ 94,351
22,446
140
4.20
0.03
$
— $ 116,240
22,738
218
5.11
0.05
$
— $ 173,232
22,709
147
7.63
0.05
$
Basic
EPS
$ 94,351
22,306
4.23
$
$ 116,240
22,520
5.16
$
$ 173,232
22,562
7.68
$
Basic and diluted net earnings and earnings per share in fiscal 2018 was impacted by impairments of goodwill and
intangible assets of $14,736 after-tax ($0.66 per share), restructuring expenses and non-recurring asset impairments arising
from exiting certain local markets of $37,779 after-tax ($1.68 per share), refinancing of long-term debt expenses of $11,115
after-tax ($0.50 per share), and a loss from the divestiture of the grinding media business of $5,350 after-tax ($0.24 per
share).
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.
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 2018, 2017, and 2016 there were 406,806, 0, and 197,303 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.
73
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(14) 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 2018, 2017 and 2016 Company contributions to these plans
amounted to approximately $12,300, $11,800 and $10,900 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 $37,516 and $39,091 at December 29,
2018 and December 30, 2017, 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 $2,352 and $2,672 at
December 29, 2018 and December 30, 2017, respectively. All distributions were made in cash.
(15) 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 29, 2018, the carrying amount of the Company’s long-term debt was $742,601 with an
estimated fair value of approximately $683,602. 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.
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 $37,516 ($39,091 in 2017) 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 $2,508 ($1,951 in 2017) is recorded at fair
value at December 29, 2018. 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.
Derivative Financial Instruments: The fair value of foreign currency and commodity forward and cross currency
contracts is based on a valuation model that discounts cash flows resulting from the differential between the contract price
and the market-based forward rate.
74
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(15) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Carrying Value
December 29,
2018
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
Derivative financial instruments, net
$
$
40,024
9,147
$
40,024
—
— $
9,147
—
—
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
Liabilities:
$
41,042
$
41,042
$
— $
Derivative financial instruments
(826)
—
(826)
—
—
(16) DERIVATIVE FINANCIAL INSTRUMENTS
The Company manages interest rate risk, commodity price risk, and foreign currency risk related to foreign currency
denominated transactions and investments in foreign subsidiaries. Depending on the circumstances, the Company may
manage these risks by utilizing derivative financial instruments. Some derivative financial instruments are marked to market
and recorded in the Company's consolidated statements of earnings, while others may be accounted for as fair value, cash
flow, or net investment hedges. The Company had open foreign currency forward contracts that are marked to market at
December 29, 2018, which are insignificant and thus excluded from the tables below. Derivative financial instruments have
credit and market risk. The Company manages these risks of derivative instruments by monitoring limits as to the types and
degree of risk that can be taken, and by entering into transactions with counterparties who are recognized, stable
multinational banks.
Fair value of derivative instruments at December 29, 2018 and December 30, 2017 are as follows:
Derivatives designated as hedging
instruments:
Commodity forward contracts
Foreign currency forward contracts
Foreign currency forward contracts
Cross currency swap contracts
Balance sheet location
Prepaid expenses and other assets
Prepaid expenses and other assets
Accrued expenses
Prepaid expenses and other assets
December 29,
2018
December 30,
2017
$
$
(285) $
8,357
—
1,075
9,147
$
—
—
(826)
—
(826)
75
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(16) DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
Gains (losses) on derivatives recognized in the consolidated statements of earnings for the years ended December
29, 2018, December 30, 2017, and December 31, 2016 are as follows:
Derivatives designated as hedging
instruments:
Commodity forward contracts
Foreign currency forward contracts
Foreign currency forward contracts
Interest rate contracts
Cross currency swap contracts
Statements of earnings
location
Product cost of sales
Loss from divestiture of
grinding media business
Other income (expense)
Interest expense
Interest expense
2018
2017
2016
$
1,021
$
— $
(1,215)
782
(423)
828
993
$
$
—
—
(74)
—
(74) $
—
—
—
(74)
—
(74)
Cash Flow Hedges
In 2018, the Company entered into steel hot rolled coil (HRC) forward contracts which qualified as a cash flow
hedge of the variability in the cash flows attributable to future steel purchases. The forward contracts have a notional amount
of $8,469 for the purchase of 3,500 short tons for each month from July 2018 to September 2018 and a notional amount of
$15,563 for the purchase of 6,500 short tons for each month from October 2018 to December 2018. The gain (loss) realized
upon settlement is recorded in product cost of sales in the consolidated statements of earnings over average inventory turns.
On June 19, 2018, the Company issued and sold $200,000 aggregate principal amount of the Company’s 5.00%
senior notes due 2044 and $55,000 aggregate principal amount of the Company’s 5.25% senior notes due 2054. During the
second quarter of 2018, the Company executed contracts to hedge the risk of potential fluctuations in the treasury rates on the
2044 Notes and 2054 Notes which would change the amount of net proceeds received from the debt offering. These contracts
had a combined notional amount of $175,000. On June 8, 2018, these contracts were settled with the Company paying $2,467
to the counterparties which was recorded in OCI and will be amortized as an increase to interest expense over the term of the
debt. Due to the retirement of the 2020 bonds in July 2018, the Company wrote off the remaining $411 unamortized loss on
the related cash flow hedge.
Net Investment Hedges
The Company previously executed two six-month foreign currency forward contracts which qualified as net
investment hedges, in order to mitigate foreign currency risk on the grinding media business that was denominated in both
Australian dollars and British pounds. Due to the sale of the grinding media business in the second quarter of 2018, the
Company reclassified the net investment hedge loss of $1,621 ($1,215 after tax) from OCI to loss from divestiture of
grinding media business in the Statements of Earnings.
In the second quarter of 2018, the Company entered into two foreign currency forward contracts to mitigate foreign
currency risk of the Company's investment in its Australian dollar and Euro denominated businesses. The forward contracts,
which qualify as net investment hedges, have a maturity date of May 2020 and notional amounts to sell Australian dollars and
Euro to receive $100,000 and $50,000, respectively.
Effective in the third quarter of 2018, in conjunction with the adoption of recently issued hedging accounting
guidance (see Note 1 for further information), the Company elected as an accounting policy to change its method of assessing
76
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(16) DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
effectiveness for all net investment hedges from the forward method to the spot method. As a result of this election, all
existing and future net investment hedges will be accounted for under the spot method. As an additional accounting policy
election to be applied to similar hedges under this new standard, the initial value of any component excluded from the
assessment of effectiveness will be recognized in income or expense using a systematic and rational method over the life of
the hedging instrument.
Due to the change in the method used to assess effectiveness from the forward to the spot method in the third quarter
of 2018, the Euro and Australian dollar net investment hedges were de-designated. The forward contracts were then re-
designated as net investment hedges under the spot method and the initial excluded component value related to the Australian
dollar and Euro net investment hedges were $538 and $3,190, respectively, which the Company has elected to amortize in
other income (expense) in the consolidated statements of earnings using the straight-line method over the remaining term of
the contracts.
On August 24, 2018, the Company entered into three fixed-for-fixed cross currency swaps (“CCS”), swapping U.S.
dollar principal and interest payments on a portion of its 5.00% senior unsecured notes due 2044 for Danish krone (DKK)
and Euro denominated payments. The CCS were entered into in order to mitigate foreign currency risk on the Company's
Euro and DKK investments and to reduce interest expense. Interest is exchanged twice per year on April 1 and October 1.
Key terms of the three CCS are as follows:
Currency
Danish Kroner, DKK $
Euro
Euro
$
$
Notional
Amount
Termination Date
Swapped
Interest Rate
Set Settlement
Amount
60,000
25,000
10,000
October 1, 2023
October 1, 2020
October 1, 2021
2.52%
2.14%
2.29%
DKK 386,118
€21,580
€8,631
The Company designated the full notional amount of the three CCS ($95,000) as a hedge of the net investment in
certain Danish and European subsidiaries under the spot method, with all changes in the fair value of the CCS that are
included in the assessment of effectiveness (changes due to spot foreign exchange rates) are recorded as cumulative foreign
currency translation within OCI, and will remain in OCI until either the sale or substantially complete liquidation of the
related subsidiaries. Net interest receipts will be recorded as a reduction of interest expense over the life of the CCS.
(17) 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 29, 2018 and December 30, 2017, 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
77
2018
2017
20,109
(18,920)
13,566
2,253
17,008
$
$
26,538
(26,097)
9,787
9,881
20,109
$
$
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(18) COMMITMENTS & CONTINGENCIES
Various claims and lawsuits are pending against Company and certain of its subsidiaries. The Company cannot fully
determine the effect of all asserted and unasserted claims on its consolidated results of operations, financial condition, or
liquidity. Where asserted and unasserted claims are considered probable and reasonably estimable, a liability has been recorded.
We do not expect that any known lawsuits, claims, environmental costs, commitments, or contingent liabilities will have a
material adverse effect on our consolidated results of operations, financial condition, or liquidity.
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.
(19) 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 29, 2018.
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 $1.349/£ and $1.269/£ to translate the net pension liability into
U.S. dollars at December 30, 2017 and December 29, 2018, respectively. The net funded status of $143,904 at December 29,
2018 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. On October 26, 2018, the High Court of
Justice in the United Kingdom ruled that pension plans which offered guaranteed minimum pension ("GMP") benefits
between 1990 and 1997 must ensure the benefit accrued between men and women were equal. The Company estimated the
cost of GMP equalization at £9,500, which is being treated as a prior service cost at December 29, 2018.
Changes in the PBO and fair value of plan assets for the pension plan for the period from December 31, 2016 to
December 30, 2017 were as follows:
78
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(19) DEFINED BENEFIT RETIREMENT PLAN (Continued)
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)
Changes in the PBO and fair value of plan assets for the pension plan for the period from December 30, 2017 to
December 29, 2018 were as follows:
Fair Value at December 30, 2017
Employer contributions
Interest cost
Prior service costs - GMP equalization
Actual return on plan assets
Benefits paid
Actuarial gain
Currency translation
Fair Value at December 29, 2018
Projected
Benefit
Obligation
$ 783,301
—
17,878
12,056
—
(28,207)
(95,480)
(42,108)
$ 647,440
Plan
Assets
593,749
1,537
—
(32,120)
(28,207)
—
(31,423)
503,536
$
$
Funded
status
$ (189,552)
$ (143,904)
Pre-tax amounts recognized in accumulated other comprehensive income (loss) as of December 29, 2018 and
December 30, 2017 consisted of actuarial gains (losses):
Balance December 31, 2016
Actuarial loss
Currency translation loss
Balance December 30, 2017
Actuarial gain
Prior service costs - GMP equalization
Currency translation gain
Balance December 29, 2018
$ (156,878)
(1,789)
(9,583)
(168,250)
44,760
(12,056)
5,358
$ (130,188)
The estimated amount to be amortized from accumulated other comprehensive income into net periodic benefit cost
in 2019 is approximately $1,650.
79
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(19) DEFINED BENEFIT RETIREMENT PLAN (Continued)
Assumptions—The weighted-average actuarial assumptions used to determine the benefit obligation at December 29, 2018
and December 30, 2017 were as follows:
Percentages
Discount rate
Salary increase
CPI inflation
RPI inflation
Expense
2018
2017
2.90%
N/A
2.20%
3.30%
2.55%
N/A
2.20%
3.30%
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 29, 2018 and
December 30, 2017 were as follows:
Net Periodic Benefit Cost:
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Net periodic benefit expense (benefit)
2018
2017
17,878
(23,175)
3,046
(2,251) $
18,152
(20,486)
2,982
648
$
Assumptions—The weighted-average actuarial assumptions used to determine expense are as follows for fiscal 2018
and 2017:
Percentages
Discount rate
Expected return on plan assets
CPI Inflation
RPI Inflation
2018
2017
2.55%
4.29%
2.20%
3.30%
2.80%
4.22%
2.25%
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.
80
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(19) DEFINED BENEFIT RETIREMENT PLAN (Continued)
Cash Contributions
The Company completed negotiations with Plan trustees in 2016 regarding annual funding for the Plan. The annual
contributions into the Plan are $12,690 (/£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 $1,396 (/£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.
Benefit Payments
The following table details expected pension benefit payments for the years 2019 through 2028:
2019
2020
2021
2022
2023
Years 2023 - 2028
$
27,790
28,680
29,695
30,585
31,600
173,470
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 29, 2018.
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
81
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(19) DEFINED BENEFIT RETIREMENT PLAN (Continued)
benefit plan obligation liability. The fair value recorded by the Plan is calculated using net asset value (NAV) for
each investment.
Temporary Cash Investments– These investments consist of British pound sterling, reported in terms of U.S.
dollars based on currency exchange rates readily available in active markets. These temporary cash investments are classified
as Level 1 investments.
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 (which is the level 1 investment).
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.
Secured income asset (SIA) funds - This investment category consists of holdings which will have a high level of
expected inflation linkage. Examples of underlying assets classes are rental streams and infrastructure debt. Due to the
private nature of these investments, pricing inputs are not readily observable. Asset valuations are developed by the fund
manager. These valuations are based on the application of public market multiples to private company cash flows, market
transactions that provide valuation information for comparable companies, and other methods. The fair value recorded by the
Plan is calculated using NAV.
At December 31, 2018 and December 31, 2017, the pension plan assets measured at fair value on a recurring basis
were as follows:
December 31, 2018
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
Secured income asset 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
$
$
61,040
506
61,546
$
$
— $
—
— $
— $
61,040
—
506
— $
61,546
122,711
80,454
183,750
55,075
441,990
$
503,536
82
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(19) DEFINED BENEFIT RETIREMENT PLAN (Continued)
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
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
83
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(20) BUSINESS 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 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 of engineered metal
and composite poles, towers, and components for global lighting, traffic, and wireless communication markets,
engineered access systems, integrated structure solutions for smart cities, and highway safety products;
UTILITY SUPPORT STRUCTURES: This segment consists of the manufacture of engineered steel and
concrete structures for the global utility transmission, distribution, and generation applications, renewable energy
generation equipment, and inspection services;
COATINGS: This segment consists of galvanizing, painting, and anodizing services; and
IRRIGATION: This segment consists of the manufacture of agricultural irrigation equipment, parts,
services, tubular products, water management solutions, and technology for precision agriculture.
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 until its divestiture in 2018.
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.
84
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(20) 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
Engineered Solar Tracker Solutions
Offshore and Other Complex Steel Structures
Utility Support Structures segment
Coatings segment
Irrigation segment:
North America
International
Irrigation segment
Other
Total
INTERSEGMENT SALES:
Engineered Support Structures
Utility Support Structures
Coatings
Irrigation
Total
NET SALES:
Engineered Support Structures segment
Utility Support Structures segment
Coatings segment
Irrigation segment
Other
Total
2018
2017
2016
706,582
149,817
130,481
986,880
637,979
111,875
16,760
92,559
859,173
353,351
386,683
246,983
633,666
23,080
2,856,150
19,522
3,967
66,612
8,905
99,006
$
633,178
171,718
133,206
938,102
658,604
99,738
—
100,773
859,115
318,891
369,832
282,598
652,430
76,300
2,844,838
25,862
2,871
62,080
8,058
98,871
$
612,868
162,148
131,703
906,719
538,284
90,256
—
107,824
736,364
289,481
351,436
223,768
575,204
83,110
2,590,878
15,620
747
45,604
7,231
69,202
967,358
855,206
286,739
624,761
23,080
$ 2,757,144
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
85
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(20) 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
Costs associated with refinancing of debt
Loss from divestiture of grinding media business
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
2018
2017
2016
$
$
$
34,776
64,766
55,325
97,722
(913)
(9,892)
(39,504)
202,280
(39,569)
(14,820)
(6,084)
1,634
62,960
97,853
50,179
101,498
2,134
(5,680)
(41,864)
267,080
(39,908)
—
—
1,292
72,273
71,171
46,596
90,945
8,730
(2,972)
(41,369)
245,374
(41,304)
—
—
16,384
$
143,441
$ 228,464
$ 220,454
$
867,735
700,915
294,951
347,894
—
318,779
$ 2,530,274
$ 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
$
$
26,783
17,442
10,320
7,249
7
10,184
71,985
$
$
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
86
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(20) 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
2018
2017
2016
$
$
27,274
23,618
15,956
11,335
775
3,869
82,827
$
$
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
2018
2017
2016
$ 1,771,390
325,553
92,559
567,642
$ 2,757,144
$ 1,702,826
356,959
100,773
585,409
$ 2,745,967
$ 1,535,321
315,470
99,719
571,166
$ 2,521,676
$
624,143
168,438
64,497
332,556
$ 1,189,634
$
544,724
227,483
90,372
267,106
$ 1,129,685
$
568,085
216,416
85,654
268,360
$ 1,138,515
No single customer accounted for more than 10% of net sales in 2018, 2017, or 2016. 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 12% of the Company's net sales in 2018; 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.
87
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(21) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION
The Company has two 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 29, 2018
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
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
Net earnings attributable to Valmont Industries,
Inc
Parent
$1,192,134
Guarantors
$ 522,366
Non-
Guarantors
$1,303,323
906,646
285,488
192,343
93,145
(42,524)
791
(17,602)
(59,335)
399,451
1,055,215
122,915
51,127
71,788
248,108
212,530
35,578
(14,815)
82
59
(14,674)
(1,713)
18,610
(1,727)
15,170
Total
Eliminations
$ (260,679) $ 2,757,144
2,098,864
(262,448)
1,769
—
1,769
14,815
(14,815)
—
—
658,280
456,000
202,280
(44,237)
4,668
(19,270)
(58,839)
33,810
57,114
50,748
1,769
143,441
6,310
1,532
7,842
14,948
1,791
16,739
23,290
(4,982)
18,308
246
—
246
44,794
(1,659)
43,135
25,968
40,375
32,440
1,523
100,306
68,383
94,351
37,304
77,679
— (105,687)
(104,164)
32,440
—
100,306
—
—
(5,955)
—
(5,955)
$
94,351
$
77,679
$
26,485
$ (104,164) $
94,351
88
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(21) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
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
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
$ (251,876) $ 2,745,967
2,064,199
(252,182)
306
Parent
$1,200,181
Guarantors
$ 485,448
Non-
Guarantors
$1,312,214
898,799
301,382
192,182
109,200
(43,642)
838
5,681
(37,123)
375,383
1,042,199
110,065
47,955
62,110
270,015
174,551
95,464
—
306
(13,866)
42
58
(13,766)
(1,003)
17,723
(4,447)
12,273
13,866
(13,866)
—
—
72,077
48,344
107,737
306
228,464
29,407
10,307
39,714
32,363
83,877
116,240
—
17,928
—
17,928
30,416
22,146
52,562
—
18,920
29,448
48,368
135
—
135
59,369
171
— (106,023)
(105,852)
—
59,369
(6,079)
53,290
122,319
(6,079)
$ (105,852) $ 116,240
681,768
414,688
267,080
(44,645)
4,737
1,292
(38,616)
66,390
39,755
106,145
122,319
—
Net earnings attributable to Valmont Industries, Inc
$ 116,240
$
52,562
$
89
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(21) 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
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
837,616
289,369
184,493
104,876
(43,703)
273
1,480
(41,950)
Parent
$1,126,985
Guarantors
$ 390,756
Non-
Guarantors
$1,195,812
932,609
263,203
180,132
83,071
285,924
104,832
46,244
58,588
Total
Eliminations
$ (191,877) $2,521,676
1,865,433
(190,716)
(1,161)
—
(1,161)
656,243
410,869
245,374
(44,409)
3,105
16,384
(24,920)
65,748
(23,685)
42,063
178,391
—
(10)
112
77
179
(696)
2,720
14,827
16,851
—
—
—
—
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
Net earnings attributable to Valmont Industries, Inc
$ 173,232
$ 104,625
90
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(21) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Year ended December 29, 2018
Net earnings
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized translation gains (losses)
Realized loss on divestiture of grinding media
business recorded in earnings
Gain (loss) on hedging activities
Actuarial gain (loss) in defined benefit pension plan
liability
Equity in other comprehensive income
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive income attributable to noncontrolling
interests
Comprehensive income (loss) attributable to Valmont
Industries, Inc.
Parent
$
94,351
Guarantors
77,679
$
Non-
Guarantors
32,440
$
Eliminations
$ (104,164) $ 100,306
Total
—
—
4,814
—
(28,977)
(24,163)
70,188
(6,509)
(58,927)
—
—
—
—
(6,509)
71,170
9,203
—
29,885
—
(19,839)
12,601
—
—
—
—
28,977
28,977
(75,187)
(65,436)
9,203
4,814
29,885
—
(21,534)
78,772
—
—
(8,584)
—
(8,584)
$
70,188
$
71,170
$
4,017
$ (75,187) $
70,188
91
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(21) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Year ended December 30, 2017
Net earnings
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized translation gains (losses)
Gain (loss) on hedging activities
Actuarial gain (loss) in defined benefit pension plan
liability
Equity in other comprehensive income
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive income attributable to noncontrolling
interests
Comprehensive income (loss) attributable to Valmont
Industries, Inc.
Parent
$ 116,240
Guarantors
52,562
$
Non-
Guarantors
59,369
$
Eliminations
$ (105,852) $ 122,319
Total
—
(1,621)
—
68,958
67,337
183,577
138,795
—
—
—
138,795
191,357
(59,516)
—
(10,871)
—
(70,387)
(11,018)
—
—
79,279
(1,621)
—
(68,958)
(68,958)
(174,810)
(10,871)
—
66,787
189,106
—
—
(5,529)
—
(5,529)
$ 183,577
$ 191,357
$ (16,547) $ (174,810) $ 183,577
92
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(21) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Year ended December 31, 2016
Net earnings
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized translation gains (losses)
Gain (loss) on hedging activities
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.
Parent
$ 173,232
Guarantors
$ 104,625
Non-
Guarantors
$ 108,561
Eliminations
$ (208,027) $ 178,391
Total
—
4,300
—
(83,252)
(78,952)
94,280
49
—
—
—
49
104,674
(58,364)
—
(24,141)
—
(82,505)
26,056
—
—
—
83,252
83,252
(124,775)
(58,315)
4,300
(24,141)
—
(78,156)
100,235
—
—
(6,144)
—
(6,144)
$
94,280
$ 104,674
$
19,912
$ (124,775) $
94,091
93
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(21) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS
December 29, 2018
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Contra asset - costs and profits in excess of billings
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
$
104,256
$
5,518
$
203,436
$
— $
313,210
134,943
138,158
50,271
21,858
4,576
454,062
579,046
390,438
188,608
20,108
76
75,204
37,019
35,200
746
—
153,687
172,050
93,374
78,676
110,562
27,452
273,816
210,791
27,054
20,196
—
735,293
409,769
163,061
246,708
254,537
148,428
—
(2,402)
—
—
—
483,963
383,566
112,525
42,800
4,576
(2,402)
1,340,640
—
—
—
—
—
1,160,865
646,873
513,992
385,207
175,956
—
Investment in subsidiaries and intercompany accounts
1,286,545
1,161,612
932,982
(3,381,139)
Other assets
Total assets
47,674
—
66,805
—
114,479
$
1,997,073
$
1,531,989
$
2,384,753
$ (3,383,541) $
2,530,274
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
$
— $
—
— $
—
779
$
— $
779
38,399
226,748
10,678
128,730
30,687
55,874
—
29,113
7,858
143,904
4,611
6,187
—
—
—
—
—
—
—
(166,729)
—
—
—
68,304
41,418
25,936
8,230
143,888
14,376
733,964
—
41,496
3,587
27,900
—
2,027,596
(303,185)
(692,549)
21,081
7,186
10,132
—
—
166,729
—
—
620
457,950
162,906
624,394
80,991
—
648,682
(1,106,632)
1,107,536
(1,270,442)
467,699
(1,092,093)
2,027,596
(333,346)
252,355
—
—
(303,185)
(692,549)
10,678
218,115
79,291
91,942
8,230
409,035
43,489
741,822
143,904
46,107
10,394
27,900
—
Total Valmont Industries, Inc. shareholders’ equity
1,059,762
1,326,241
1,890,571
(3,216,812)
1,059,762
Noncontrolling interest in consolidated subsidiaries
—
—
75,761
—
75,761
Total shareholders’ equity
Total liabilities and shareholders’ equity
1,059,762
1,326,241
1,966,332
(3,216,812)
1,135,523
$
1,997,073
$
1,531,989
$
2,384,753
$ (3,383,541) $
2,530,274
94
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(21) 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
Contra asset - costs and profits in excess of billings
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
16,165
17,901
—
927,250
447,549
193,583
253,966
207,050
107,514
—
(3,848)
—
—
—
503,677
420,948
16,165
27,478
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
95
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(21) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year ended December 29, 2018
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash flows from
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
$
94,351
$
77,679
$
32,440
$
(104,164) $
100,306
operations:
Depreciation and amortization
Noncash loss on trading securities
Contribution to defined benefit pension plan
Impairment of property, plant and equipment
Impairment of goodwill & intangible assets
Loss on divestiture of grinding media business
Stock-based compensation
Defined benefit pension plan (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):
Net working capital
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:
Borrowings under short-term agreements
Proceeds from long-term borrowings
Principal payments on long-term borrowings
Settlement of financial derivative
Debt issuance costs
Dividends paid
Dividends to noncontrolling interest
Intercompany dividends
Intercompany capital contribution
Purchase of 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, cash equivalents, and restricted cash—beginning of year
26,155
13,959
—
—
—
—
2,518
10,392
—
57
(68,383)
1,532
(17,681)
(7,345)
(6,176)
35,420
—
—
—
—
—
—
—
(37)
(37,304)
1,791
(13,962)
615
(1,303)
41,438
(25,255)
(13,115)
44
(57,805)
(1,621)
69,714
(14,923)
—
245,936
(261,219)
(2,467)
(2,322)
(33,726)
—
168,757
(3,492)
—
7,357
(114,805)
(3,589)
430
—
20,927
83,329
268
—
—
(42,667)
(55,514)
—
—
—
—
—
—
—
11,296
3,492
—
—
—
—
14,788
(498)
214
5,304
5,518
42,713
(62)
(1,537)
5,000
15,780
3,566
—
(2,251)
(245)
—
(4,982)
(13,208)
(4,158)
3,340
76,396
(33,615)
62,791
(85,215)
—
(29,215)
(85,254)
10,543
5,719
(972)
—
—
—
(7,055)
(180,053)
—
(5,510)
—
—
—
(177,328)
(14,550)
(200,736)
404,172
—
—
—
—
—
—
—
—
—
105,687
—
(1,769)
—
—
(246)
—
—
—
—
246
246
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
203,436
$
— $
82,827
(62)
(1,537)
5,000
15,780
6,084
10,392
(2,251)
(225)
—
(1,659)
(46,620)
(10,888)
(4,139)
153,008
(71,985)
63,103
(143,020)
(1,621)
(1,922)
(155,445)
10,543
251,655
(262,191)
(2,467)
(2,322)
(33,726)
(7,055)
—
—
(5,510)
7,357
(114,805)
(3,589)
(162,110)
(15,048)
(179,595)
492,805
313,210
Cash, cash equivalents, and restricted cash—end of period
$
104,256
$
96
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(21) 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
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
$
116,240
$
52,562
$
59,369
$
(105,852) $
122,319
15,003
43,717
operations:
Depreciation and amortization
Noncash loss on trading securities
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):
Net working capital
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, cash equivalents, and restricted cash—beginning of year
(20,460)
(9,454)
26,237
—
10,706
—
—
(664)
(83,877)
10,307
(23,943)
(140)
(11,837)
43,029
748
—
5,123
684
(13,905)
—
—
(33,862)
—
22,662
(10,818)
35,159
(26,161)
(13,020)
—
16,104
67,225
—
—
—
—
8
(22,146)
—
(25,717)
—
728
20,438
3
—
—
(22,777)
(32,228)
—
—
—
—
—
10,818
—
—
10,818
205
(767)
6,071
5,304
237
—
648
(40,245)
(3,268)
—
29,448
(25,219)
(7,088)
12,217
69,816
(25,352)
7,434
(5,362)
—
19,663
(3,617)
(585)
(887)
—
(5,674)
(22,662)
—
—
—
(29,808)
27,477
63,868
340,304
—
—
—
—
—
—
106,023
—
(306)
—
—
(135)
—
—
—
—
135
135
—
—
—
—
—
—
—
—
—
—
—
—
84,957
237
10,706
648
(40,245)
(3,924)
—
39,755
(75,185)
(7,228)
1,108
133,148
(55,266)
8,185
(5,362)
5,123
(2,295)
(49,615)
(585)
(887)
(33,862)
(5,674)
—
—
35,159
(26,161)
(32,010)
27,682
79,205
413,600
492,805
$
404,172
$
— $
Cash, cash equivalents, and restricted cash—end of period
$
83,329
$
97
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(21) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year ended December 31, 2016
Equity in earnings in nonconsolidated subsidiaries
(141,061)
(66,128)
Deferred income taxes
6,216
—
(29,901)
—
(23,685)
Changes in assets and liabilities (net of acquisitions):
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
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
Net working capital
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, cash equivalents, and restricted cash—beginning of year
Parent
Guarantors
Non-
Guarantors
Eliminations
Total
$
173,232
$
104,625
$
108,561
$
(208,027) $
178,391
27,096
13,316
—
—
9,931
—
—
—
165
—
—
—
—
—
—
103
42,005
586
1,099
—
(3,242)
1,870
(1,488)
363
—
—
—
—
—
—
—
—
—
207,189
82,417
586
1,099
9,931
(3,242)
1,870
(1,488)
631
—
(12,335)
(2,333)
32,873
93,784
(5,939)
5
(16,567)
29,415
19,310
(21,552)
(8,312)
109,299
(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
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)
57,519
282,785
1,160
—
—
322
—
—
(322)
(322)
—
—
—
—
—
—
—
—
—
—
—
—
2,196
(23,880)
7,994
232,820
(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)
64,526
349,074
413,600
$
340,304
$
— $
Cash, cash equivalents, and restricted cash—end of period
$
67,225
$
98
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 29, 2018
(Dollars in thousands, except per share amounts)
(22) QUARTERLY FINANCIAL DATA (Unaudited)
Net Sales
Gross
Profit
Per Share
Stock Price
Dividends
Amount
Basic
Diluted
High
Low
Declared
Net Earnings
$
698,684
682,405
678,692
697,363
$ 2,757,144
$ 169,240
174,999
164,340
149,701
$ 658,280
$
$
39,281
32,960
4,448
17,662
94,351
$
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
$
$
$
$
1.74
1.47
0.20
0.80
4.23
1.73
2.03
1.56
(0.16)
5.16
$
$
$
$
1.72
1.46
0.20
0.80
4.20
$ 171.55
154.60
157.15
141.38
$ 171.55
1.72
2.01
1.55
(0.16)
5.11
$ 165.20
157.60
160.35
176.35
$ 176.35
$ 140.10
137.90
135.00
103.01
$ 103.01
$ 135.95
144.65
140.90
153.65
$ 135.95
$
$
$
$
0.375
0.375
0.375
0.375
1.50
0.375
0.375
0.375
0.375
1.50
2018
First
Second
Third (1)
Fourth (2)
Year
2017
First
Second
Third
Fourth (3)
Year
Earnings per share are computed independently for each of the quarters. Therefore, the sum of the quarterly earnings
per share may not equal the total for the year.
_______________________________
(1)
(2)
(3)
The third quarter of 2018 included an impairment of goodwill and intangible assets totaling $14,736 after tax
($0.66 per share) and refinancing of long-term debt expenses of $11,115 after-tax ($0.50 per share).
In the fourth quarter of 2018, the Company recognized restructuring activities expenses and non-recurring asset
impairment charges from exiting certain markets of $20,625 after-tax ($0.92 per share).
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.
99
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 29, 2018. The Company acquired Convert
Italia SpA and Walpar, LLC on August 3, 2018, and they represented approximately 8% of its total assets as of December 29,
2018, 1% of its net sales, and 1% of its operating income for fiscal 2018. As these acquisitions occurred during the last
12 months, the scope of the Company's assessment of the effectiveness of internal control over financial reporting does not
include Convert Italia SpA or Walpar, LLC. This exclusion is in accordance with the SEC's general guidance that an
assessment of a recently acquired business may be omitted from the Company's scope in the year of acquisition.
The effectiveness of the Company’s internal control over financial reporting as of December 29, 2018 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.
100
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 29, 2018, 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 29, 2018, based on
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 29, 2018, of the Company and
our report dated February 27, 2019, expressed an unqualified opinion on those financial statements.
As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its
assessment the internal control over financial reporting at Walpar, LLC and Convert Italia SpA, which were both acquired on
August 3, 2018 and whose financial statements constitute 8% of total assets, respectively, 1% of revenues, and 1% of
operating income of the consolidated financial statement amounts as of and for the year ended December 29, 2018.
Accordingly, our audit did not include the internal control over financial reporting at Walpar, LLC and Convert Italia SpA.
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 27, 2019
101
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 29, 2018. 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.
102
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 2018”, “Outstanding Equity Awards at Fiscal Year-
End”, “Options Exercised in Fiscal 2018”, “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.
103
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 29, 2018
Consolidated Statements of Comprehensive Income—Three-Year Period Ended December 29, 2018
Consolidated Balance Sheets—December 29, 2018 and December 30, 2017
Consolidated Statements of Cash Flows—Three-Year Period Ended December 29, 2018
Consolidated Statements of Shareholders’ Equity—Three-Year Period Ended December 29, 2018
Notes to Consolidated Financial Statements—Three-Year Period Ended December 29, 2018
42
43
44
45
46
47
48
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
104
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-two weeks ended December 29, 2018
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 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-three 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
$
$
$
9,813
27,864
994
10,769
(365)
(384)
(2,165) $
(5,021)
8,277
33,228
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
______________________________________________
*
The deductions from reserves are net of recoveries.
105
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.
106
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 — The Company's 2018 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
March 12, 2018 and is incorporated herein by reference.
Exhibit 10.5 — Form of Stock Option Agreement. This document was filed as Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q (Commission file number 001-31429) for
the quarter ended March 31, 2018 and is incorporated herein by this reference.
Exhibit 10.6 — Form of Restricted Stock Unit Agreement (Domestic). This document was filed as
Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (Commission file
number 001-31429) for the quarter ended March 31, 2018 and is incorporated herein
by reference.
Exhibit 10.7 — Form of Restricted Stock Unit Agreement (Director). This document was filed as
Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (Commission file
number 001-31429) for the quarter ended March 31, 2018 and is incorporated herein
by 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 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 this 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.
107
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 29, 2018, 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.
ITEM 16. FORM 10-K SUMMARY
Not Applicable.
108
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 27th day of February, 2019.
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
2/27/2019
/s/ Stephen G. Kaniewski
Stephen G. Kaniewski
/s/ MARK C. JAKSICH
Mark C. Jaksich
/s/ TIMOTHY P. FRANCIS
Timothy P. Francis
Mogens C. Bay*
K.R. den Daas*
Theo W. Freye*
James B. Milliken*
Donna M. Milrod*
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
2/27/2019
Senior Vice President and Controller (Principal
Accounting Officer)
2/27/2019
Daniel P. Neary*
Catherine J. Paglia*
Clark T. Randt*
Walter Scott, Jr.*
______________________________________________
*
Stephen G. Kaniewski, by signing his name hereto, signs the Annual Report on behalf of each of the directors
indicated on this 27th day of February, 2019. 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
109
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 29, 2018 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 27, 2019
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 29, 2018 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 27, 2019
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 29, 2018 (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 27th day of February, 2019.
/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 29, 2018 (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 27th day of February, 2019.
/s/ MARK C. JAKSICH
Mark C. Jaksich
Executive Vice President and Chief Financial Officer
BR920253-0319-10K