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VALMONT INDUSTRIES INC - Quarter Report: 2016 June (Form 10-Q)




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
Form 10-Q
(Mark One)
x    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 25, 2016
or
o    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)
47-0351813 
(I.R.S. Employer
Identification No.)
One Valmont Plaza, 
Omaha, Nebraska 
(Address of Principal Executive Offices)
 
68154-5215 
(Zip Code)

(402) 963-1000
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non‑accelerated filer o 
Smaller reporting company o
 
 
(Do not check if a
smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
22,637,254
Outstanding shares of common stock as of July 21, 2016




VALMONT INDUSTRIES, INC.

INDEX TO FORM 10-Q
 
 
Page No.
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
ended June 25, 2016 and June 27, 2015
 
 
 
and twenty-six weeks ended June 25, 2016 and June 27, 2015
 
Condensed Consolidated Balance Sheets as of June 25, 2016 and December 26,
 
 
2015
 
Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended
 
 
June 25, 2016 and June 27, 2015
 
Condensed Consolidated Statements of Shareholders' Equity for the twenty-six
 
 
weeks ended June 25, 2016 and June 27, 2015
 
Notes to Condensed Consolidated Financial Statements
Item 2.
Item 3.
Item 4.
 
 
 
 
PART II. OTHER INFORMATION
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
 
 
 
 
 
 
 
 
 


2




VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
(Unaudited)
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
June 25,
2016
 
June 27,
2015
 
June 25,
2016
 
June 27,
2015
Product sales
$
570,762

 
$
611,782

 
$
1,103,702

 
$
1,215,676

Services sales
69,487

 
70,341

 
133,152

 
136,845

Net sales
640,249

 
682,123

 
1,236,854

 
1,352,521

Product cost of sales
418,072

 
461,173

 
811,564

 
920,714

Services cost of sales
47,060

 
51,402

 
89,204

 
96,805

Total cost of sales
465,132

 
512,575

 
900,768

 
1,017,519

Gross profit
175,117

 
169,548

 
336,086

 
335,002

Selling, general and administrative expenses
103,311

 
115,548

 
201,915

 
223,319

Operating income
71,806

 
54,000

 
134,171

 
111,683

Other income (expenses):
 
 
 
 
 
 
 
Interest expense
(11,122
)
 
(11,232
)
 
(22,176
)
 
(22,360
)
Interest income
707

 
616

 
1,518

 
1,490

Other
1,252

 
(28
)
 
(426
)
 
988

 
(9,163
)
 
(10,644
)
 
(21,084
)
 
(19,882
)
Earnings before income taxes
62,643

 
43,356

 
113,087

 
91,801

Income tax expense (benefit):
 
 
 
 
 
 
 
Current
22,745

 
19,136

 
33,259

 
30,910

Deferred
(3,544
)
 
(5,219
)
 
2,215

 
(55
)
 
19,201

 
13,917

 
35,474

 
30,855

Net earnings
43,442

 
29,439

 
77,613

 
60,946

Less: Earnings attributable to noncontrolling interests
(1,416
)
 
(1,566
)
 
(2,618
)
 
(2,334
)
Net earnings attributable to Valmont Industries, Inc.
$
42,026

 
$
27,873

 
$
74,995

 
$
58,612

Earnings per share:
 
 
 
 
 
 
 
Basic
$
1.86

 
$
1.19

 
$
3.31

 
$
2.48

Diluted
$
1.85

 
$
1.19

 
$
3.29

 
$
2.47

Cash dividends declared per share
$
0.375

 
$
0.375

 
$
0.750

 
$
0.750

Weighted average number of shares of common stock outstanding - Basic (000 omitted)
22,602

 
23,336

 
22,651

 
23,602

Weighted average number of shares of common stock outstanding - Diluted (000 omitted)
22,749

 
23,450

 
22,782

 
23,716

See accompanying notes to condensed consolidated financial statements.

3



VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
June 25,
2016
 
June 27,
2015
 
June 25,
2016
 
June 27,
2015
Net earnings
$
43,442

 
$
29,439

 
$
77,613

 
$
60,946

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
Unrealized translation gain (loss)
(2,296
)
 
18,328

 
217

 
(39,850
)
Unrealized gain/(loss) on cash flow hedge:
 
 
 
 
 
 
 
Amortization cost included in interest expense
19

 
19

 
38

 
37

     Gain on cash flow hedges

 
751

 

 
1,045

Other comprehensive income (loss)
(2,277
)
 
19,098

 
255

 
(38,768
)
Comprehensive income
41,165

 
48,537

 
77,868

 
22,178

Comprehensive loss (income) attributable to noncontrolling interests
(1,787
)
 
(1,968
)
 
(4,114
)
 
(641
)
Comprehensive income attributable to Valmont Industries, Inc.
$
39,378

 
$
46,569

 
$
73,754

 
$
21,537

















See accompanying notes to condensed consolidated financial statements.

4



VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
 
June 25,
2016
 
December 26,
2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
344,346

 
$
349,074

Receivables, net
466,749

 
466,443

Inventories
372,106

 
340,672

Prepaid expenses, restricted cash, and other assets
63,650

 
46,137

Refundable income taxes
20,441

 
24,526

Total current assets
1,267,292

 
1,226,852

Property, plant and equipment, at cost
1,105,955

 
1,081,056

Less accumulated depreciation and amortization
579,608

 
548,567

Net property, plant and equipment
526,347

 
532,489

Goodwill
331,603

 
336,916

Other intangible assets, net
158,814

 
170,197

Other assets
111,817

 
125,928

Total assets
$
2,395,873

 
$
2,392,382

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
889

 
$
1,077

Notes payable to banks
3,735

 
976

Accounts payable
183,126

 
179,983

Accrued employee compensation and benefits
66,626

 
70,354

Accrued expenses
95,158

 
105,593

Dividends payable
8,505

 
8,571

Total current liabilities
358,039

 
366,554

Deferred income taxes
35,541

 
35,669

Long-term debt, excluding current installments
756,543

 
756,918

Defined benefit pension liability
164,329

 
179,323

Deferred compensation
48,965

 
48,417

Other noncurrent liabilities
38,285

 
40,290

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
27,900

 
27,900

Retained earnings
1,790,120

 
1,729,679

Accumulated other comprehensive loss
(268,459
)
 
(267,218
)
Treasury stock
(593,479
)
 
(571,920
)
Total Valmont Industries, Inc. shareholders’ equity
956,082

 
918,441

Noncontrolling interest in consolidated subsidiaries
38,089

 
46,770

Total shareholders’ equity
994,171

 
965,211

Total liabilities and shareholders’ equity
$
2,395,873

 
$
2,392,382

See accompanying notes to condensed consolidated financial statements.

5



VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
Twenty-six Weeks Ended
 
June 25,
2016
 
June 27,
2015
Cash flows from operating activities:
 
 
 
Net earnings
$
77,613

 
$
60,946

Adjustments to reconcile net earnings to net cash flows from operations:
 
 
 
Depreciation and amortization
40,804

 
47,761

Noncash loss on trading securities
1,035

 
4,582

Impairment of assets - restructuring activities

 
9,292

Stock-based compensation
4,201

 
3,513

Defined benefit pension plan expense (benefit)
959

 
(305
)
Contribution to defined benefit pension plan
(712
)
 
(15,735
)
Increase in restricted cash - pension plan trust

(13,652
)
 

Gain on sale of property, plant and equipment
1,074

 
542

Deferred income taxes
2,215

 
(55
)
Changes in assets and liabilities:
 
 
 
Receivables
2,942

 
32,511

Inventories
(29,335
)
 
(27,746
)
Prepaid expenses and other assets
(4,859
)
 
(3,087
)
Accounts payable
1,430

 
(5,021
)
Accrued expenses
(13,636
)
 
(6,431
)
Other noncurrent liabilities
327

 
1,761

Income taxes refundable
9,516

 
15,817

Net cash flows from operating activities
79,922

 
118,345

Cash flows from investing activities:
 
 
 
Purchase of property, plant and equipment
(26,019
)
 
(24,758
)
Proceeds from sale of assets
1,827

 
1,101

Other, net
(1,608
)
 
5,896

Net cash flows from investing activities
(25,800
)
 
(17,761
)
Cash flows from financing activities:
 
 
 
Net borrowings under short-term agreements
2,593

 
(5,890
)
Proceeds from long-term borrowings

 
33,000

Principal payments on long-term borrowings
(659
)
 
(33,657
)
Dividends paid
(17,098
)
 
(17,956
)
Dividends to noncontrolling interest
(1,923
)
 
(1,669
)
Purchase of noncontrolling interest
(11,009
)
 

Purchase of treasury shares
(28,621
)
 
(121,020
)
Proceeds from exercises under stock plans
5,975

 
9,454

Excess tax benefits from stock option exercises

 
1,394

Purchase of common treasury shares—stock plan exercises
(1,453
)
 
(10,490
)
Net cash flows from financing activities
(52,195
)
 
(146,834
)
Effect of exchange rate changes on cash and cash equivalents
(6,655
)
 
(7,806
)
Net change in cash and cash equivalents
(4,728
)
 
(54,056
)
Cash and cash equivalents—beginning of year
349,074

 
371,579

Cash and cash equivalents—end of period
$
344,346

 
$
317,523

See accompanying notes to condensed consolidated financial statements.

6


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)
(Unaudited)
 
Common
stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Accumulated
other
comprehensive
income (loss)
 
Treasury
stock
 
Noncontrolling
interest in
consolidated
subsidiaries
 
Total
shareholders’
equity
Balance at December 27, 2014
$
27,900

 
$

 
$
1,718,662

 
$
(134,433
)
 
$
(410,296
)
 
$
48,572

 
$
1,250,405

Net earnings

 

 
58,612

 

 

 
2,334

 
60,946

Other comprehensive income (loss)

 

 

 
(37,075
)
 

 
(1,693
)
 
(38,768
)
Cash dividends declared

 

 
(17,603
)
 

 

 

 
(17,603
)
Dividends to noncontrolling interests

 

 

 

 

 
(1,669
)
 
(1,669
)
Purchase of treasury shares; 989,821 shares acquired

 

 

 

 
(121,020
)
 

 
(121,020
)
Stock plan exercises; 82,989 shares acquired

 

 

 

 
(10,490
)
 

 
(10,490
)
Stock options exercised; 119,687 shares issued

 
(8,860
)
 
2,863

 

 
15,451

 

 
9,454

Tax benefit from stock option exercises

 
1,394

 

 

 

 

 
1,394

Stock option expense

 
2,653

 

 

 

 

 
2,653

Stock awards; 4,846 shares issued

 
4,813

 

 

 
478

 

 
5,291

Balance at June 27, 2015
$
27,900

 
$

 
$
1,762,534

 
$
(171,508
)
 
$
(525,877
)
 
$
47,544

 
$
1,140,593

Balance at December 26, 2015
$
27,900

 
$

 
$
1,729,679

 
$
(267,218
)
 
$
(571,920
)
 
$
46,770

 
$
965,211

Net earnings

 

 
74,995

 

 

 
2,618

 
77,613

Other comprehensive income (loss)

 

 

 
(1,241
)
 

 
1,496

 
255

Cash dividends declared

 

 
(17,027
)
 

 

 

 
(17,027
)
Dividends to noncontrolling interests

 

 

 

 

 
(1,923
)
 
(1,923
)
Purchase of noncontrolling interests

 
(137
)
 

 

 

 
(10,872
)
 
(11,009
)
Purchase of treasury shares; 245,798 shares acquired

 

 

 

 
(28,621
)
 

 
(28,621
)
Stock plan exercises; 10,747 shares acquired

 

 

 

 
(1,453
)
 

 
(1,453
)
Stock options exercised; 62,535 shares issued

 
(4,064
)
 
2,473

 

 
7,566

 

 
5,975

Stock option expense

 
2,959

 

 

 

 

 
2,959

Stock awards; 6,976 shares issued

 
1,242

 

 

 
949

 

 
2,191

Balance at June 25, 2016
$
27,900

 
$

 
$
1,790,120

 
$
(268,459
)
 
$
(593,479
)
 
$
38,089

 
$
994,171










See accompanying notes to condensed consolidated financial statements.

7


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Consolidated Financial Statements
The Condensed Consolidated Balance Sheet as of June 25, 2016, the Condensed Consolidated Statements of Earnings and Comprehensive Income for the thirteen and twenty-six weeks ended June 25, 2016 and June 27, 2015, and the Condensed Consolidated Statements of Cash Flows and Shareholders' Equity for the twenty-six week periods then ended have been prepared by the Company, without audit. In the opinion of management, all necessary adjustments (which include normal recurring adjustments) have been made to present fairly the financial statements as of June 25, 2016 and for all periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 2015. The accounting policies and methods of computation followed in these interim financial statements are the same as those followed in the financial statements for the year ended December 26, 2015. The results of operations for the period ended June 25, 2016 are not necessarily indicative of the operating results for the full year.
Inventories
Approximately 38% and 39% of inventory is valued at the lower of cost, determined on the last-in, first-out (LIFO) method, or market as of June 25, 2016 and December 26, 2015. 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 $36,201 and $35,075 at June 25, 2016 and December 26, 2015, respectively.
Inventories consisted of the following:
 
June 25,
2016
 
December 26,
2015
Raw materials and purchased parts
$
170,973

 
$
162,977

Work-in-process
24,762

 
25,644

Finished goods and manufactured goods
212,572

 
187,126

Subtotal
408,307

 
375,747

Less: LIFO reserve
36,201

 
35,075

 
$
372,106

 
$
340,672


8


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries for the thirteen and twenty-six weeks ended June 25, 2016 and June 27, 2015, were as follows:
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
2016
 
2015
 
2016
 
2015
United States
$
44,240

 
$
33,641

 
$
83,840

 
$
66,282

Foreign
18,403

 
9,715

 
29,247

 
25,519

 
$
62,643

 
$
43,356

 
$
113,087

 
$
91,801

Pension Benefits
The Company incurs expenses in connection with the Delta Pension Plan ("DPP"). The DPP was acquired as part of the Delta plc acquisition in fiscal 2010 and has no members that are active employees. 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.

The components of the net periodic pension (benefit) expense for the thirteen and twenty-six weeks ended June 25, 2016 and June 27, 2015 were as follows:
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
Net periodic (benefit) expense:
2016
 
2015
 
2016
 
2015
Interest cost
$
6,659

 
$
6,189

 
$
13,042

 
$
12,300

Expected return on plan assets
(6,084
)
 
(6,344
)
 
(12,083
)
 
(12,605
)
Net periodic (benefit) expense
$
575

 
$
(155
)
 
$
959

 
$
(305
)
Stock Plans

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, non-vested stock awards and bonuses of common stock. At June 25, 2016, 874,352 shares of common stock remained available for issuance under the plans. Shares and options issued and available are subject to changes in capitalization.
Under the plans, the exercise price of each option equals the closing market price at the date of the grant. Options vest beginning on the first anniversary of the grant in equal amounts over three to six years or on the fifth anniversary of the grant.




9


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Expiration of grants is from seven to ten years from the date of grant. The Company's compensation expense (included in selling, general and administrative expenses) and associated income tax benefits related to stock options for the thirteen and twenty-six weeks ended June 25, 2016 and June 27, 2015, respectively, were as follows:
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
2016
 
2015
 
2016
 
2015
Compensation expense
$
1,468

 
$
1,303

 
$
2,959

 
$
2,653

Income tax benefits
565

 
501

 
1,139

 
1,021

Equity Method Investments
The Company has equity method investments in non-consolidated subsidiaries, which are recorded within "Other assets" on the Condensed Consolidated Balance Sheet.
Fair Value
The Company applies the provisions of Accounting Standards Codification 820, Fair Value Measurements (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of ASC 820 apply to other accounting pronouncements that require or permit fair value measurements. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
ASC 820 establishes 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. Inputs refer 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 $38,287 ($37,963 at December 26, 2015) represent mutual funds, invested in debt and equity securities, classified as trading securities in accordance with Accounting Standards Codification 320, Accounting for Certain Investments in Debt and Equity Securities, considering the employee's ability to change investment allocation of their deferred compensation at any time.

10


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company's ownership of shares in Delta EMD Pty. Ltd. (JSE:DTA) is also classified as trading securities. The shares are valued at $1,821 and $4,734 as of June 25, 2016 and December 26, 2015, respectively, which is the estimated fair value. During the first quarter of 2016, the Company received a dividend of $1,541 from Delta EMD Pty. Ltd and the market price of the shares were proportionately reduced accordingly. Quoted market prices are available for these securities in an active market and therefore categorized as a Level 1 input.
 
 
 
Fair Value Measurement Using:
 
Carrying Value
June 25, 2016
 
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Trading Securities
$
40,108

 
$
40,108

 
$

 
$

 
 
 
Fair Value Measurement Using:
 
Carrying Value
December 26,
2015
 
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Trading Securities
$
42,697

 
$
42,697

 
$

 
$

Comprehensive Income
Comprehensive income includes net earnings, 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. Accumulated other comprehensive income (loss) consisted of the following at June 25, 2016 and December 26, 2015:
 
Foreign Currency Translation Adjustments
 
Unrealized Gain on Cash Flow Hedge
 
Defined Benefit Pension Plan
 
Accumulated Other Comprehensive Income
Balance at December 26, 2015
$
(191,928
)
 
$
3,678

 
$
(78,968
)
 
$
(267,218
)
Current-period comprehensive income (loss)
(1,279
)
 
38

 

 
(1,241
)
Balance at June 25, 2016
$
(193,207
)
 
$
3,716

 
$
(78,968
)
 
$
(268,459
)
Net Investment Hedge
In the second quarter of 2016, the Company entered into a one-year foreign currency forward contract which qualified as a net investment hedge, in order to mitigate foreign currency risk on a portion of our investments denominated in British pounds. No ineffectiveness resulted from the hedge and the balance is recorded in the Condensed Consolidated Statements of Other Comprehensive Income as a component of Foreign currency translation adjustments. The realized gain (loss) will be deferred in other comprehensive income where it will remain until the net investments in our British subsidiaries are divested. The unrealized gain recorded at June 25, 2016 was $2,925 and is included in Other Current Assets on the Condensed Consolidated Balance Sheets.

11


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued 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. The new revenue recognition standard requires entities to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-9 was to be effective for interim and annual reporting periods beginning after December 15, 2016 and is to be applied retrospectively. In August 2015, the FASB issued ASU 2015-14, Deferral of the Effective Date, which defers the effective date by one year to interim and annual reporting periods beginning after December 15, 2017 and is to be applied retrospectively. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated results of operations and financial position.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. Under this ASU, inventory will be measured at the “lower of cost and net realizable value” and options that currently exist for “market value” will be eliminated. The ASU defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016 and should be applied prospectively. The Company is evaluating the provisions of this statement, including which period to adopt, and has not determined what impact the adoption of ASU 2015-11 will have on the Company's financial position or results of operations. The Company plans to adopt this ASU in fiscal 2017.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which provides guidance requiring debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability and further clarification guidance allows the cost of securing a revolving line of credit to be recorded as a deferred asset regardless of whether a balance is outstanding. The Company retrospectively adopted this guidance during the first quarter of 2016 and reclassified approximately $7,000 of debt issuance cost for its long-term debt (excluding its revolving line of credit) to a direct reduction of long-term debt instead of an other asset in the condensed consolidated balance sheets for December 26, 2015.
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). The liability will be equal to the present value of lease payments. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018 and is to be applied on a modified retrospective transition. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated results of operations and financial position.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which provides revised guidance for employee share-based compensation payments. The ASU requires all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) be recognized as income tax expense or benefit in the income statement. It also states excess tax benefits to be classified along with other income tax cash flows as an operating activity whereas currently it is classified within a financing cash flow activity. ASU 2016-09 is effective prospectively for interim and annual reporting periods beginning after December 15, 2016. The Company early adopted this guidance prospectively in the second quarter of 2016 which resulted in an income tax benefit of approximately $289.


12


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(2) ACQUISITIONS
On September 30, 2015, the Company purchased American Galvanizing for $12,778 in cash, net of cash acquired, plus assumed liabilities. American Galvanizing operates a custom galvanizing operation in New Jersey with annual sales of approximately $10,000. In the purchase price allocation, goodwill of $3,019 and $2,178 of customer relationships, trade name and other intangible assets were recorded. Goodwill is not deductible for tax purposes. This business is included in the Coatings segment and was acquired to expand the Company's geographic presence in the Northeast United States. The purchase price allocation was finalized in the first quarter of 2016. Pro-forma disclosures were omitted as this business did not have a significant impact on the Company's 2015 or 2016 financial results.
Acquisitions of Noncontrolling Interests
In April 2016, the Company acquired the remaining 30% of IGC Galvanizing Industries (M) Sdn Bhd that it did not own for $5,841. In June 2016, the Company acquired 5.2% of the remaining 10% of Valmont SM that it did not own for $5,168. As these transactions were for acquisitions of part or all of the remaining shares of consolidated subsidiaries with no change in control, they were recorded within shareholders' equity and as a financing cash flow in the Consolidated Statements of Cash Flows.
(3) RESTRUCTURING ACTIVITIES    
In July 2016, the Company identified a restructuring plan in Australia/New Zealand (the "2016 Plan") focused primarily on closing and consolidating locations within the Energy and Mining and Coatings segments. During the remainder of 2016, the Company estimates it will incur the following pre-tax expenses from the 2016 Plan:

 
 
Energy & Mining
 
Coatings
 
Other/ Corporate
 
TOTAL
Severance
 
$
365

 
$
380

 
$

 
$
745

Other cash restructuring expenses
 
1,728

 
285

 

 
2,013

Asset impairments/net loss on disposals
 
815

 

 

 
815

   Total cost of sales
 
2,908

 
665

 

 
3,573

 
 
 
 
 
 
 
 
 
Severance
 
240

 
715

 

 
955

Other cash restructuring expenses
 

 

 
200

 
200

  Total selling, general and administrative expenses
 
240

 
715

 
200

 
1,155

      Consolidated total
 
$
3,148

 
$
1,380

 
$
200

 
$
4,728

    

In April 2015, the Company's Board of Directors authorized a broad restructuring plan (the "Plan") to respond to the market environment in certain businesses. During fiscal 2015, the Company substantially completed this Plan and recognized $21,708 of pre-tax restructuring expenses in cost of sales and $18,144 of pre-tax restructuring expenses in selling, general, and administrative expenses. Within the total fiscal 2015 pre-tax restructuring expense of $39,852 were pre-tax asset impairments of $19,836. The Company's utility segment recognized $380 of pre-tax restucturing expense during the first half of fiscal 2016.

    

13


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


During the first quarter of fiscal 2015, the Company's recognized $785 of pre-tax expense for severance and other cash related expenses within the ESS and Energy and Mining segments. During the second quarter of fiscal 2015, the Company recognized the following pre-tax restructuring expenses:

 
 
ESS
 
Energy & Mining
 
Utility
 
Coatings
 
Irrigation
 
Other/ Corporate
 
TOTAL
Severance
 
$
32

 
$
576

 
$
1,380

 
$
310

 
$

 
$

 
$
2,298

Other cash restructuring expenses
 

 
45

 
375

 
40

 

 

 
460

Asset impairments/net loss on disposals
 
45

 
752

 
295

 
4,150

 

 

 
5,242

   Total cost of sales
 
77

 
1,373

 
2,050

 
4,500

 

 

 
8,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Severance
 
797

 
168

 
405

 

 
219

 
240

 
1,829

Other cash restructuring expenses
 
125

 

 

 
269

 

 

 
394

Asset impairments/net loss on disposals
 
2,030

 

 

 

 
130

 
1,890

 
4,050

  Total selling, general and administrative expenses
 
2,952

 
168

 
405

 
269

 
349

 
2,130

 
6,273

      Consolidated total
 
$
3,029

 
$
1,541

 
$
2,455

 
$
4,769

 
$
349

 
$
2,130

 
$
14,273


Liabilities recorded for the restructuring Plan and changes therein for the first half of fiscal 2016 were as follows:
 
 
Balance at December 26, 2015
 
Recognized Restructuring Expense
 
Costs Paid or Otherwise Settled
 
Balance at June 25, 2016
Severance
 
$
1,307

 
$

 
$
(1,188
)
 
$
119

Other cash restructuring expenses
 
1,426

 

 
(305
)
 
1,121

   Total
 
$
2,733

 
$

 
$
(1,493
)
 
$
1,240

(4) GOODWILL AND INTANGIBLE ASSETS
Amortized Intangible Assets
The components of amortized intangible assets at June 25, 2016 and December 26, 2015 were as follows:
 
June 25, 2016
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Weighted
Average
Life
Customer Relationships
$
198,175

 
$
107,359

 
13 years
Proprietary Software & Database
3,632

 
3,031

 
8 years
Patents & Proprietary Technology
6,922

 
3,687

 
11 years
Other
3,856

 
3,790

 
3 years
 
$
212,585

 
$
117,867

 
 



14


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(4) GOODWILL AND INTANGIBLE ASSETS (Continued)
 
December 26, 2015
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Weighted
Average
Life
Customer Relationships
$
201,801

 
$
101,614

 
13 years
Proprietary Software & Database
3,571

 
2,966

 
8 years
Patents & Proprietary Technology
6,815

 
3,421

 
11 years
Other
3,752

 
3,671

 
3 years
 
$
215,939

 
$
111,672

 
 
Amortization expense for intangible assets for the thirteen and twenty-six weeks ended June 25, 2016 and June 27, 2015, respectively was as follows:
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
2016
 
2015
 
2016
 
2015
$
4,078

 
$
4,737

 
$
8,073

 
$
9,650

Estimated annual amortization expense related to finite‑lived intangible assets is as follows:
 
Estimated
Amortization
Expense
2016
$
15,906

2017
15,624

2018
13,990

2019
13,209

2020
12,158

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.

15


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(4) GOODWILL AND INTANGIBLE ASSETS (Continued)
Non-amortized intangible assets
Intangible assets with indefinite lives are not amortized. The carrying values of trade names at June 25, 2016 and December 26, 2015 were as follows:
 
June 25,
2016
 
December 26,
2015
 
Year Acquired
Webforge
$
9,545

 
$
10,430

 
2010
Valmont SM
9,246

 
8,919

 
2014
Newmark
11,111

 
11,111

 
2004
Ingal EPS/Ingal Civil Products
7,781

 
8,504

 
2010
Donhad
5,870

 
6,415

 
2010
Shakespeare
4,000

 
4,000

 
2014
Industrial Galvanizers
2,436

 
2,662

 
2010
Other
14,107

 
13,889

 
 
 
$
64,096

 
$
65,930

 
 
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 in the third quarter of 2015. The values of the trade names were determined using the relief-from-royalty method. Based on this evaluation, the Company recorded a $5,000 impairment of the Webforge trade name (in Energy & Mining segment) and a $1,100 impairment of the Industrial Galvanizing trade name (in Coatings segment) during 2015. The lower price of oil and natural gas in the fourth quarter of 2015 was a qualitative event requiring the Company to re-assess the fair value of the Webforge trade name. As a result, the Company recognized an additional $830 impairment of that trade name. No other trade names were determined to be impaired during 2015 and no qualitative events were noted during the first half of 2016 requiring an interim test for potential impairment.
Goodwill
The carrying amount of goodwill by segment as of June 25, 2016 and December 26, 2015 was as follows:
 
Engineered
Support
Structures
Segment
 
Energy & Mining Segment
 
Utility
Support
Structures
Segment
 
Coatings
Segment
 
Irrigation
Segment
 
 
Total
Gross goodwill at December 26, 2015
$
101,275

 
$
99,829

 
$
75,404

 
$
75,941

 
$
19,359

 
 
$
371,808

Accumulated impairment losses

 
(18,670
)
 

 
(16,222
)
 

 
 
(34,892
)
Balance at December 26, 2015
$
101,275

 
$
81,159

 
$
75,404

 
$
59,719

 
$
19,359

 
 
$
336,916

Foreign currency translation
(2,589
)
 
(3,200
)
 

 
411

 
65

 
 
(5,313
)
Balance at June 25, 2016
$
98,686

 
$
77,959

 
$
75,404

 
$
60,130


$
19,424

 
 
$
331,603


The Company’s annual impairment test of goodwill was performed during the third quarter of 2015, using the discounted cash flow method. The APAC Coatings reporting unit failed step one in that the estimated fair value was lower than the carrying value. As a result, the Company recorded $9,100 impairment of goodwill on the APAC Coatings reporting

16


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


unit. The Company finalized step two of the impairment analysis during the fourth quarter of 2015 recording an additional impairment of $7,122, which was the remaining goodwill on this reporting unit.
The Company recorded an $18,670 impairment of Access System's goodwill in the fourth quarter of 2015 primarily driven by the depressed price of a barrel of oil. The Company continues to monitor changes in the global economy that could impact future operating results of its reporting units and no qualitative events were noted in the first half of 2016. If such conditions arise, the Company will test a given reporting unit for impairment during 2016 prior to the annual test.
(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 twenty-six weeks ended June 25, 2016 and June 27, 2015 were as follows:
 
2016
 
2015
Interest
$
22,142

 
$
22,898

Income taxes
28,791

 
14,280

Share Repurchase Programs    
On May 13, 2014, the Company announced a new capital allocation philosophy which increased the dividend by 50% and covered a share repurchase program of up to $500,000 of the Company's outstanding common stock to be acquired from time to time over twelve months at prevailing market prices, through open market or privately-negotiated transactions. On February 24, 2015, the Board of Directors authorized an additional purchase of up to $250,000 of the Company's outstanding common stock with no stated expiration date. As of June 25, 2016, the Company has acquired 4,392,435 shares for approximately $592,600 under the share repurchase programs.


17


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(6) EARNINGS PER SHARE
The following table provides a reconciliation between Basic and Diluted earnings per share (EPS):
 
Basic EPS
 
Dilutive
Effect of
Stock
Options
 
Diluted EPS
Thirteen weeks ended June 25, 2016:
 
 
 
 
 
Net earnings attributable to Valmont Industries, Inc.
$
42,026

 
$

 
$
42,026

Shares outstanding (000 omitted)
22,602

 
147

 
22,749

Per share amount
$
1.86

 
$
(0.01
)
 
$
1.85

Thirteen weeks ended June 27, 2015:
 
 
 
 
 
Net earnings attributable to Valmont Industries, Inc.
$
27,873

 
$

 
$
27,873

Shares outstanding (000 omitted)
23,336

 
114

 
23,450

Per share amount
$
1.19

 
$

 
$
1.19

Twenty-six weeks ended June 25, 2016:
 
 
 
 
 
Net earnings attributable to Valmont Industries, Inc.
$
74,995

 
$

 
$
74,995

Shares outstanding (000 omitted)
22,651

 
131

 
22,782

Per share amount
$
3.31

 
$
(0.02
)
 
$
3.29

Twenty-six weeks ended June 27, 2015:
 
 
 
 
 
Net earnings attributable to Valmont Industries, Inc.
$
58,612

 
$

 
$
58,612

Shares outstanding (000 omitted)
23,602

 
114

 
23,716

Per share amount
$
2.48

 
$
(0.01
)
 
$
2.47

Earnings per share are computed independently for each of the quarters. Therefore, the sum of the quarterly earnings per share may not equal the total for the year primarily due to the share buyback program.
At June 25, 2016 and June 27, 2015, there were 381,973 and 452,459 outstanding stock options with exercise prices exceeding the market price of common stock that were excluded from the computation of diluted earnings per share, respectively.

18


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(7) BUSINESS SEGMENTS
In the fourth quarter of 2015, the Company changed its reportable segment structure to improve transparency. The Company now has five reportable segments and its management structure was changed to align with this new reporting structure. A new reportable segment, Energy & Mining, includes the businesses primarily serving the energy and mining end markets. This segment includes the access systems applications businesses and offshore structures business that was formerly part of the Engineered Infrastructure Products (EIP) segment, and the grinding media business that was formerly included in the "Other" category. The remaining businesses from the EIP segment was also renamed "Engineered Support Structures". The last change in the reporting structure was moving the tubing business from the "Other" category to the Irrigation segment. Prior year information in this footnote has been updated to match the new reportable segment structure.
Reportable segments are as follows:

ENGINEERED SUPPORT STRUCTURES: This segment consists of the manufacture of engineered metal
structures and components for the global lighting and traffic, wireless communication, and roadway safety
industries;

ENERGY AND MINING: This segment, all outside of the United States, consists of the manufacture of
access systems applications, forged steel grinding media, on and off shore oil, gas, and wind energy structures;

UTILITY SUPPORT STRUCTURES: This segment consists of the manufacture of engineered steel and
concrete structures for the global utility industry;

COATINGS: This segment consists of galvanizing, anodizing and powder coating services on a global
basis; and

IRRIGATION: This segment consists of the manufacture of agricultural irrigation equipment and related
parts and services for the global agricultural industry and tubular products for industrial customers.
    
Due to the business reorganization and restructuring activities that occurred in 2015, there are no longer business operations included in Other for fiscal 2016. In 2015, the Company had other businesses and activities that individually were not more than 1% of consolidated sales.
The accounting policies of the reportable segments are the same as those described in Note 1. The Company evaluates the performance of its business segments based upon operating income and invested capital. The Company does not allocate interest expense, non-operating income and deductions, or income taxes to its business segments.








19


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(7) BUSINESS SEGMENTS (Continued)
Summary by Business
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
June 25,
2016
 
June 27,
2015
 
June 25,
2016
 
June 27,
2015
SALES:
 
 
 
 
 
 
 
Engineered Support Structures segment:
 
 
 
 
 
 
 
Lighting, Traffic, and Roadway Products
$
163,191

 
$
154,821

 
$
309,493

 
$
300,169

Communication Products
40,725

 
45,935

 
71,394

 
78,491

Engineered Support Structures segment
203,916

 
200,756

 
380,887

 
378,660

Energy and Mining segment:
 
 
 
 
 
 
 
Offshore and Other Complex Steel Structures
25,908

 
23,135

 
48,877

 
47,983

Grinding Media
21,018

 
25,856

 
40,508

 
53,347

Access Systems
33,766

 
37,311

 
63,756

 
73,033

Energy and Mining segment
80,692

 
86,302

 
153,141

 
174,363

Utility Support Structures segment:
 
 
 
 
 
 
 
Steel
126,101

 
139,425

 
248,072

 
297,698

Concrete
25,144

 
23,504

 
47,693

 
41,572

Utility Support Structures segment
151,245

 
162,929

 
295,765

 
339,270

Coatings segment
75,298

 
76,093

 
143,879

 
150,453

Irrigation segment
152,252

 
173,303

 
310,766

 
347,880

Other

 
2,342

 

 
4,511

Total
663,403

 
701,725

 
1,284,438

 
1,395,137

INTERSEGMENT SALES:
 
 
 
 
 
 
 
Engineered Support Structures segment
8,114

 
4,133

 
19,126

 
11,239

Energy & Mining segment
1,409

 
52

 
3,067

 
101

Utility Support Structures segment
86

 
273

 
262

 
562

Coatings segment
11,886

 
12,178

 
21,699

 
24,725

Irrigation segment
1,659

 
1,758

 
3,430

 
3,482

Other

 
1,208

 

 
2,507

Total
23,154

 
19,602

 
47,584

 
42,616

NET SALES:
 
 
 
 
 
 
 
Engineered Support Structures segment
195,802

 
196,623

 
361,761

 
367,421

Energy & Mining segment
79,283

 
86,250

 
150,074

 
174,262

Utility Support Structures segment
151,159

 
162,656

 
295,503

 
338,708

Coatings segment
63,412

 
63,915

 
122,180

 
125,728

Irrigation segment
150,593

 
171,545

 
307,336

 
344,398

Other

 
1,134

 

 
2,004

Total
$
640,249

 
$
682,123

 
$
1,236,854

 
$
1,352,521

 
 
 
 
 
 
 
 
OPERATING INCOME:
 
 
 
 
 
 
 
Engineered Support Structures segment
$
20,968

 
$
16,219

 
$
35,176

 
$
25,669

Energy & Mining segment
3,341

 
2,698

 
5,243

 
7,064

Utility Support Structures segment
17,528

 
10,399

 
32,296

 
25,756

Coatings segment
14,023

 
7,862

 
25,436

 
18,861

Irrigation segment
27,763

 
31,865

 
56,608

 
62,039

Other

 
(1,271
)
 

 
(2,379
)
Corporate
(11,817
)
 
(13,772
)
 
(20,588
)
 
(25,327
)
Total
$
71,806

 
$
54,000

 
$
134,171

 
$
111,683


20


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION
The Company has three tranches of senior unsecured notes. All of the senior notes are guaranteed, jointly, severally, fully and unconditionally (subject to certain customary release provisions, including sale of the subsidiary guarantor, or sale of all or substantially all of its assets) by certain of the Company’s current and future direct and indirect domestic and foreign subsidiaries (collectively the “Guarantors”), excluding its other current domestic and foreign subsidiaries which do not guarantee the debt (collectively referred to as the “Non-Guarantors”). All Guarantors are 100% owned by the parent company.

Consolidated financial information for the Company ("Parent"), the Guarantor subsidiaries and the Non-Guarantor subsidiaries is as follows:
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Thirteen weeks ended June 25, 2016
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net sales
$
290,171

 
$
97,159

 
$
300,911

 
$
(47,992
)
 
$
640,249

Cost of sales
211,675

 
71,234

 
229,248

 
(47,025
)
 
465,132

Gross profit
78,496

 
25,925

 
71,663

 
(967
)
 
175,117

Selling, general and administrative expenses
44,530

 
11,080

 
47,701

 

 
103,311

Operating income
33,966

 
14,845

 
23,962

 
(967
)
 
71,806

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(10,918
)
 
(3
)
 
(201
)
 

 
(11,122
)
Interest income
46

 
14

 
647

 

 
707

Other
699

 
15

 
538

 

 
1,252

 
(10,173
)
 
26

 
984

 

 
(9,163
)
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries
23,793

 
14,871

 
24,946

 
(967
)
 
62,643

Income tax expense (benefit):
 
 
 
 
 
 
 
 
 
Current
10,391

 
6,242

 
6,521

 
(409
)
 
22,745

Deferred
1,068

 
(2,149
)
 
(2,463
)
 

 
(3,544
)
 
11,459

 
4,093

 
4,058

 
(409
)
 
19,201

Earnings before equity in earnings of nonconsolidated subsidiaries
12,334

 
10,778

 
20,888

 
(558
)
 
43,442

Equity in earnings of nonconsolidated subsidiaries
29,692

 
5,746

 

 
(35,438
)
 

Net earnings
42,026

 
16,524

 
20,888

 
(35,996
)
 
43,442

Less: Earnings attributable to noncontrolling interests

 

 
(1,416
)
 

 
(1,416
)
Net earnings attributable to Valmont Industries, Inc
$
42,026

 
$
16,524

 
$
19,472

 
$
(35,996
)
 
$
42,026


21


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Twenty-six weeks ended June 25, 2016
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net sales
$
575,209

 
$
188,685

 
$
573,025

 
$
(100,065
)
 
$
1,236,854

Cost of sales
419,536

 
139,096

 
440,641

 
(98,505
)
 
900,768

Gross profit
155,673

 
49,589

 
132,384

 
(1,560
)
 
336,086

Selling, general and administrative expenses
87,024

 
22,510

 
92,381

 

 
201,915

Operating income
68,649

 
27,079

 
40,003

 
(1,560
)
 
134,171

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(21,848
)
 
(3
)
 
(325
)
 

 
(22,176
)
Interest income
113

 
39

 
1,366

 

 
1,518

Other
324

 
27

 
(777
)
 

 
(426
)
 
(21,411
)
 
63

 
264

 

 
(21,084
)
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries
47,238

 
27,142

 
40,267

 
(1,560
)
 
113,087

Income tax expense (benefit):
 
 
 
 
 
 
 
 
 
Current
15,974

 
8,814

 
9,000

 
(529
)
 
33,259

Deferred
3,487

 

 
(1,272
)
 
 
 
2,215

 
19,461

 
8,814

 
7,728

 
(529
)
 
35,474

Earnings before equity in earnings of nonconsolidated subsidiaries
27,777

 
18,328

 
32,539

 
(1,031
)
 
77,613

Equity in earnings of nonconsolidated subsidiaries
47,218

 
7,859

 
 
 
(55,077
)
 

Net earnings
74,995

 
26,187

 
32,539

 
(56,108
)
 
77,613

Less: Earnings attributable to noncontrolling interests

 

 
(2,618
)
 

 
(2,618
)
Net earnings attributable to Valmont Industries, Inc
$
74,995

 
$
26,187

 
$
29,921

 
$
(56,108
)
 
$
74,995



22


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)



(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Thirteen weeks ended June 27, 2015
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net sales
$
311,156

 
$
102,090

 
$
322,555

 
$
(53,678
)
 
$
682,123

Cost of sales
232,779

 
78,149

 
254,666

 
(53,019
)
 
512,575

Gross profit
78,377

 
23,941

 
67,889

 
(659
)
 
169,548

Selling, general and administrative expenses
50,913

 
11,091

 
53,544

 

 
115,548

Operating income
27,464

 
12,850

 
14,345

 
(659
)
 
54,000

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(10,894
)
 

 
(338
)
 

 
(11,232
)
Interest income
4

 
2

 
610

 

 
616

Other
(248
)
 
24

 
196

 

 
(28
)
 
(11,138
)
 
26

 
468

 

 
(10,644
)
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries
16,326

 
12,876

 
14,813

 
(659
)
 
43,356

Income tax expense (benefit):
 
 
 
 
 
 
 
 
 
Current
7,545

 
5,223

 
6,547

 
(179
)
 
19,136

Deferred
(1,650
)
 
(51
)
 
(3,518
)
 

 
(5,219
)
 
5,895

 
5,172

 
3,029

 
(179
)
 
13,917

Earnings before equity in earnings of nonconsolidated subsidiaries
10,431

 
7,704

 
11,784

 
(480
)
 
29,439

Equity in earnings of nonconsolidated subsidiaries
17,442

 
876

 

 
(18,318
)
 

Net earnings
27,873

 
8,580

 
11,784

 
(18,798
)
 
29,439

Less: Earnings attributable to noncontrolling interests

 

 
(1,566
)
 

 
(1,566
)
Net earnings attributable to Valmont Industries, Inc
$
27,873

 
$
8,580

 
$
10,218

 
$
(18,798
)
 
$
27,873



23


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Twenty-six weeks ended June 27, 2015
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net sales
$
640,287

 
$
198,038

 
$
624,791

 
$
(110,595
)
 
$
1,352,521

Cost of sales
482,646

 
153,045

 
491,651

 
(109,823
)
 
1,017,519

Gross profit
157,641

 
44,993

 
133,140

 
(772
)
 
335,002

Selling, general and administrative expenses
98,955

 
22,388

 
101,976

 

 
223,319

Operating income
58,686

 
22,605

 
31,164

 
(772
)
 
111,683

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(21,726
)
 

 
(634
)
 

 
(22,360
)
Interest income
13

 
4

 
1,473

 

 
1,490

Other
(897
)
 

 
1,885

 

 
988

 
(22,610
)
 
4

 
2,724

 

 
(19,882
)
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries
36,076

 
22,609

 
33,888

 
(772
)
 
91,801

Income tax expense (benefit):
 
 
 
 
 
 
 
 
 
Current
8,937

 
9,850

 
12,344

 
(221
)
 
30,910

Deferred
3,819

 
(584
)
 
(3,290
)
 

 
(55
)
 
12,756

 
9,266

 
9,054

 
(221
)
 
30,855

Earnings before equity in earnings of nonconsolidated subsidiaries
23,320

 
13,343

 
24,834

 
(551
)
 
60,946

Equity in earnings of nonconsolidated subsidiaries
35,292

 
5,181

 

 
(40,473
)
 

Net earnings
58,612

 
18,524

 
24,834

 
(41,024
)
 
60,946

Less: Earnings attributable to noncontrolling interests

 

 
(2,334
)
 

 
(2,334
)
Net earnings attributable to Valmont Industries, Inc
$
58,612

 
$
18,524

 
$
22,500

 
$
(41,024
)
 
$
58,612





24


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirteen weeks ended June 25, 2016
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net earnings
$
42,026

 
$
16,524

 
$
20,888

 
$
(35,996
)
 
$
43,442

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
 
        Unrealized translation gain (loss)
2,925

 
29

 
(5,250
)
 

 
(2,296
)
Unrealized loss on cash flow hedge:
 
 
 
 
 
 
 
 
 
     Amortization cost included in interest expense
19

 

 

 

 
19

Equity in other comprehensive income
(5,592
)
 

 

 
5,592

 

Other comprehensive income (loss)
(2,648
)
 
29

 
(5,250
)
 
5,592

 
(2,277
)
Comprehensive income (loss)
39,378

 
16,553

 
15,638

 
(30,404
)
 
41,165

Comprehensive income attributable to noncontrolling interests

 

 
(1,787
)
 

 
(1,787
)
Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
39,378

 
$
16,553

 
$
13,851

 
$
(30,404
)
 
$
39,378




25


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Twenty-six weeks ended June 25, 2016
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net earnings
$
74,995

 
$
26,187

 
$
32,539

 
$
(56,108
)
 
$
77,613

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
 
        Unrealized translation gain (loss)
2,925

 
(149
)
 
(2,559
)
 

 
217

Unrealized loss on cash flow hedge:
 
 
 
 
 
 
 
 
 
     Amortization cost included in interest expense
38

 

 

 

 
38

Equity in other comprehensive income
(1,279
)
 

 

 
1,279

 

Other comprehensive income (loss)
1,684

 
(149
)
 
(2,559
)
 
1,279

 
255

Comprehensive income (loss)
76,679

 
26,038

 
29,980

 
(54,829
)
 
77,868

Comprehensive income attributable to noncontrolling interests

 

 
(4,114
)
 

 
(4,114
)
Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
76,679

 
$
26,038

 
$
25,866

 
$
(54,829
)
 
$
73,754




26


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirteen weeks ended June 27, 2015
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net earnings
$
27,873

 
$
8,580

 
$
11,784

 
$
(18,798
)
 
$
29,439

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
 
        Unrealized translation gain (loss)

 
76

 
18,252

 

 
18,328

Unrealized loss on cash flow hedge:
 
 
 
 
 
 
 
 
 
     Amortization cost included in interest expense
19

 

 

 

 
19

Actuarial gain (loss) in defined benefit pension plan liability
(301
)
 

 
1,052

 

 
751

Equity in other comprehensive income
18,978

 

 

 
(18,978
)
 

Other comprehensive income (loss)
18,696

 
76

 
19,304

 
(18,978
)
 
19,098

Comprehensive income (loss)
46,569

 
8,656

 
31,088

 
(37,776
)
 
48,537

Comprehensive income attributable to noncontrolling interests

 

 
(1,968
)
 

 
(1,968
)
Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
46,569

 
$
8,656

 
$
29,120

 
$
(37,776
)
 
$
46,569



27


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Twenty-six weeks ended June 27, 2015
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net earnings
$
58,612

 
$
18,524

 
$
24,834

 
$
(41,024
)
 
$
60,946

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
 
        Unrealized translation gain (loss)

 
(8,812
)
 
(31,038
)
 

 
(39,850
)
Unrealized loss on cash flow hedge:
 
 
 
 
 
 
 
 
 
     Amortization cost included in interest expense
37

 

 

 

 
37

Actuarial gain (loss) in defined benefit pension plan liability
(209
)
 

 
1,254

 

 
1,045

Equity in other comprehensive income
(36,903
)
 

 

 
36,903

 

Other comprehensive income (loss)
(37,075
)
 
(8,812
)
 
(29,784
)
 
36,903

 
(38,768
)
Comprehensive income (loss)
21,537

 
9,712

 
(4,950
)
 
(4,121
)
 
22,178

Comprehensive income attributable to noncontrolling interests

 

 
(641
)
 

 
(641
)
Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
21,537

 
$
9,712

 
$
(5,591
)
 
$
(4,121
)
 
$
21,537



28


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)

CONDENSED CONSOLIDATED BALANCE SHEETS
June 25, 2016
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
62,149

 
$
4,022

 
$
278,175

 
$

 
$
344,346

Receivables, net
130,354

 
58,203

 
278,192

 

 
466,749

Inventories
140,981

 
38,542

 
197,137

 
(4,554
)
 
372,106

Prepaid expenses, restricted cash, and other assets
11,405

 
730

 
51,515

 

 
63,650

Refundable income taxes
20,441

 

 

 

 
20,441

Total current assets
365,330

 
101,497

 
805,019

 
(4,554
)
 
1,267,292

Property, plant and equipment, at cost
540,415

 
145,857

 
419,683

 

 
1,105,955

Less accumulated depreciation and amortization
345,295

 
74,076

 
160,237

 

 
579,608

Net property, plant and equipment
195,120

 
71,781

 
259,446

 

 
526,347

Goodwill
20,108

 
110,562

 
200,933

 

 
331,603

Other intangible assets
211

 
38,460

 
120,143

 

 
158,814

Investment in subsidiaries and intercompany accounts
1,268,543

 
852,048

 
1,090,615

 
(3,211,206
)
 

Other assets
40,034

 
3

 
71,780

 

 
111,817

Total assets
$
1,889,346

 
$
1,174,351

 
$
2,547,936

 
$
(3,215,760
)
 
$
2,395,873

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current installments of long-term debt
$

 
$

 
$
889

 
$

 
$
889

Notes payable to banks

 

 
3,735

 

 
3,735

Accounts payable
53,254

 
13,601

 
116,271

 

 
183,126

Accrued employee compensation and benefits
26,945

 
5,919

 
33,762

 

 
66,626

Accrued expenses
31,118

 
17,073

 
46,967

 

 
95,158

Dividends payable
8,505

 

 

 

 
8,505

Total current liabilities
119,822

 
36,593

 
201,624

 

 
358,039

Deferred income taxes
13,173

 

 
22,368

 

 
35,541

Long-term debt, excluding current installments
751,448

 

 
5,095

 

 
756,543

Defined benefit pension liability

 

 
164,329

 

 
164,329

Deferred compensation
43,887

 

 
5,078

 

 
48,965

Other noncurrent liabilities
4,934

 
5

 
33,346

 

 
38,285

Shareholders’ equity:
 
 
 
 
 
 
 
 
 
Common stock of $1 par value
27,900

 
457,950

 
648,682

 
(1,106,632
)
 
27,900

Additional paid-in capital

 
159,414

 
1,107,536

 
(1,266,950
)
 

Retained earnings
1,790,120

 
584,900

 
530,930

 
(1,115,830
)
 
1,790,120

Accumulated other comprehensive income (loss)
(268,459
)
 
(64,511
)
 
(209,141
)
 
273,652

 
(268,459
)
Treasury stock
(593,479
)
 

 

 

 
(593,479
)
Total Valmont Industries, Inc. shareholders’ equity
956,082

 
1,137,753

 
2,078,007

 
(3,215,760
)
 
956,082

Noncontrolling interest in consolidated subsidiaries

 

 
38,089

 

 
38,089

Total shareholders’ equity
956,082

 
1,137,753

 
2,116,096

 
(3,215,760
)
 
994,171

Total liabilities and shareholders’ equity
$
1,889,346

 
$
1,174,351

 
$
2,547,936

 
$
(3,215,760
)
 
$
2,395,873


29


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS
December 26, 2015
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
62,281

 
$
4,008

 
$
282,785

 
$

 
$
349,074

Receivables, net
130,741

 
66,387

 
269,315

 

 
466,443

Inventories
132,222

 
38,379

 
173,064

 
(2,993
)
 
340,672

Prepaid expenses
9,900

 
766

 
35,471

 

 
46,137

Refundable income taxes
24,526

 

 

 

 
24,526

Total current assets
359,670

 
109,540

 
760,635

 
(2,993
)
 
1,226,852

Property, plant and equipment, at cost
541,536

 
132,864

 
406,656

 

 
1,081,056

Less accumulated depreciation and amortization
334,471

 
69,956

 
144,140

 

 
548,567

Net property, plant and equipment
207,065

 
62,908

 
262,516

 

 
532,489

Goodwill
20,108

 
110,562

 
206,246

 

 
336,916

Other intangible assets
238

 
40,959

 
129,000

 

 
170,197

Investment in subsidiaries and intercompany accounts
1,239,228

 
813,779

 
939,177

 
(2,992,184
)
 

Other assets
40,067

 

 
85,861

 

 
125,928

Total assets
$
1,866,376

 
$
1,137,748

 
$
2,383,435

 
$
(2,995,177
)
 
$
2,392,382

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current installments of long-term debt
$
215

 
$

 
$
862

 
$

 
$
1,077

Notes payable to banks

 

 
976

 

 
976

Accounts payable
66,723

 
13,680

 
99,580

 

 
179,983

Accrued employee compensation and benefits
32,272

 
6,347

 
31,735

 

 
70,354

Accrued expenses
31,073

 
22,802

 
51,718

 

 
105,593

Dividends payable
8,571

 

 

 

 
8,571

Total current liabilities
138,854

 
42,829

 
184,871

 

 
366,554

Deferred income taxes
9,686

 

 
25,983

 

 
35,669

Long-term debt, excluding current installments
751,765

 

 
5,153

 

 
756,918

Defined benefit pension liability

 

 
179,323

 

 
179,323

Deferred compensation
43,485

 

 
4,932

 

 
48,417

Other noncurrent liabilities
4,145

 

 
36,145

 

 
40,290

Shareholders’ equity:
 
 
 
 
 
 
 
 


Common stock of $1 par value
27,900

 
457,950

 
648,683

 
(1,106,633
)
 
27,900

Additional paid-in capital

 
159,414

 
1,107,536

 
(1,266,950
)
 

Retained earnings
1,729,679

 
541,917

 
354,727

 
(896,644
)
 
1,729,679

Accumulated other comprehensive income
(267,218
)
 
(64,362
)
 
(210,688
)
 
275,050

 
(267,218
)
Treasury stock
(571,920
)
 

 

 

 
(571,920
)
Total Valmont Industries, Inc. shareholders’ equity
918,441

 
1,094,919

 
1,900,258

 
(2,995,177
)
 
918,441

Noncontrolling interest in consolidated subsidiaries

 

 
46,770

 

 
46,770

Total shareholders’ equity
918,441

 
1,094,919

 
1,947,028

 
(2,995,177
)
 
965,211

Total liabilities and shareholders’ equity
$
1,866,376


$
1,137,748

 
$
2,383,435

 
$
(2,995,177
)
 
$
2,392,382


30


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Twenty-six Weeks Ended June 25, 2016
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net earnings
$
74,995

 
$
26,187

 
$
32,539

 
$
(56,108
)
 
$
77,613

Adjustments to reconcile net earnings to net cash flows from operations:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
13,705

 
6,591

 
20,508

 

 
40,804

Noncash loss on trading securities

 

 
1,035

 

 
1,035

  Stock-based compensation
4,201

 

 

 

 
4,201

Defined benefit pension plan expense

 

 
959

 

 
959

Contribution to defined benefit pension plan

 

 
(712
)
 

 
(712
)
Increase in restricted cash - pension plan trust

 

 
(13,652
)
 

 
(13,652
)
Loss (gain) on sale of property, plant and equipment
(6
)
 
60

 
1,020

 

 
1,074

Equity in earnings in nonconsolidated subsidiaries
(47,218
)
 
(7,859
)
 

 
55,077

 

Deferred income taxes
3,487

 

 
(1,272
)
 

 
2,215

Changes in assets and liabilities:
 
 
 
 
 
 
 
 
 
Receivables
386

 
8,185

 
(5,629
)
 

 
2,942

Inventories
(8,757
)
 
(164
)
 
(21,974
)
 
1,560

 
(29,335
)
Prepaid expenses and other assets
(1,504
)
 
35

 
(3,390
)
 

 
(4,859
)
Accounts payable
(13,469
)
 
(79
)
 
14,978

 

 
1,430

Accrued expenses
(4,040
)
 
(6,158
)
 
(3,438
)
 

 
(13,636
)
Other noncurrent liabilities
868

 
5

 
(546
)
 

 
327

Income taxes payable (refundable)
19,033

 
(16,499
)
 
6,982

 

 
9,516

Net cash flows from operating activities
41,681

 
10,304

 
27,408

 
529

 
79,922

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchase of property, plant and equipment
(1,240
)
 
(13,167
)
 
(11,612
)
 

 
(26,019
)
Proceeds from sale of assets
58

 
141

 
1,628

 

 
1,827

Other, net
918

 
2,641

 
(4,638
)
 
(529
)
 
(1,608
)
Net cash flows from investing activities
(264
)
 
(10,385
)
 
(14,622
)
 
(529
)
 
(25,800
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Net borrowings under short-term agreements

 

 
2,593

 

 
2,593

Principal payments on long-term borrowings
(215
)
 

 
(444
)
 

 
(659
)
Dividends paid
(17,098
)
 

 

 

 
(17,098
)
Dividends to noncontrolling interest

 

 
(1,923
)
 

 
(1,923
)
Purchase of noncontrolling interest
(137
)
 

 
(10,872
)
 

 
(11,009
)
Proceeds from exercises under stock plans
5,975

 

 

 

 
5,975

Purchase of treasury shares
(28,621
)
 

 

 

 
(28,621
)
Purchase of common treasury shares - stock plan exercises
(1,453
)
 

 

 

 
(1,453
)
Net cash flows from financing activities
(41,549
)
 

 
(10,646
)
 

 
(52,195
)
Effect of exchange rate changes on cash and cash equivalents

 
95

 
(6,750
)
 

 
(6,655
)
Net change in cash and cash equivalents
(132
)
 
14

 
(4,610
)
 

 
(4,728
)
Cash and cash equivalents—beginning of year
62,281

 
4,008

 
282,785

 

 
349,074

Cash and cash equivalents—end of period
$
62,149

 
$
4,022

 
$
278,175

 
$

 
$
344,346


31


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Twenty-six Weeks Ended June 27, 2015
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net earnings
$
58,612

 
$
18,524

 
$
24,834

 
$
(41,024
)
 
$
60,946

Adjustments to reconcile net earnings to net cash flows from operations:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
14,983

 
6,278

 
26,500

 

 
47,761

Noncash loss on trading securities

 

 
4,582

 

 
4,582

Impairment of assets - restructuring activities
1,890

 
215

 
7,187

 

 
9,292

  Stock-based compensation
7,466

 

 
(3,953
)
 

 
3,513

Defined benefit pension plan expense

 

 
(305
)
 

 
(305
)
Contribution to defined benefit pension plan

 

 
(15,735
)
 

 
(15,735
)
Gain on sale of property, plant and equipment
(8
)
 
97

 
453

 

 
542

Equity in earnings in nonconsolidated subsidiaries
(35,292
)
 
(5,181
)
 

 
40,473

 

Deferred income taxes
3,819

 
(584
)
 
(3,290
)
 

 
(55
)
Changes in assets and liabilities:
 
 
 
 
 
 
 
 
 
Receivables
12,153

 
13,807

 
6,551

 

 
32,511

Inventories
10,161

 
3,093

 
(41,000
)
 

 
(27,746
)
Prepaid expenses
305

 
(160
)
 
(3,232
)
 

 
(3,087
)
Accounts payable
(8,538
)
 
204

 
3,313

 

 
(5,021
)
Accrued expenses
(13,652
)
 
(46
)
 
7,267

 

 
(6,431
)
Other noncurrent liabilities
(2,729
)
 

 
4,490

 

 
1,761

Income taxes payable (refundable)
15,016

 
(5
)
 
806

 

 
15,817

Net cash flows from operating activities
64,186

 
36,242

 
18,468

 
(551
)
 
118,345

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchase of property, plant and equipment
(7,065
)
 
(3,147
)
 
(14,546
)
 

 
(24,758
)
Proceeds from sale of assets
25

 
19

 
1,057

 

 
1,101

Other, net
24,268

 
(33,440
)
 
14,517

 
551

 
5,896

Net cash flows from investing activities
17,228

 
(36,568
)
 
1,028

 
551

 
(17,761
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Net borrowings under short-term agreements

 

 
(5,890
)
 

 
(5,890
)
Proceeds from long-term borrowings
33,000

 

 

 

 
33,000

Principal payments on long-term borrowings
(33,212
)
 

 
(445
)
 

 
(33,657
)
Dividends paid
(17,956
)
 

 

 

 
(17,956
)
Dividends to noncontrolling interest

 

 
(1,669
)
 

 
(1,669
)
Proceeds from exercises under stock plans
9,454

 

 

 

 
9,454

Excess tax benefits from stock option exercises
1,394

 

 

 

 
1,394

Purchase of treasury shares
(121,020
)
 

 

 

 
(121,020
)
Purchase of common treasury shares - stock plan exercises
(10,490
)
 

 

 

 
(10,490
)
Net cash flows from financing activities
(138,830
)
 

 
(8,004
)
 

 
(146,834
)
Effect of exchange rate changes on cash and cash equivalents

 
(31
)
 
(7,775
)
 

 
(7,806
)
Net change in cash and cash equivalents
(57,416
)
 
(357
)
 
3,717

 

 
(54,056
)
Cash and cash equivalents—beginning of year
69,869

 
2,157

 
299,553

 

 
371,579

Cash and cash equivalents—end of period
$
12,453

 
$
1,800

 
$
303,270

 
$

 
$
317,523


32



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis contains forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These 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.
This discussion should be read in conjunction with the financial statements and notes thereto, and the management's discussion and analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 2015. Segment sales in the table below are presented net of intersegment sales.


























33



Results of Operations (Dollars in millions, except per share amounts)    
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
June 25, 2016
 
June 27, 2015
 
% Incr. (Decr.)
 
June 25, 2016
 
June 27, 2015
 
% Incr. (Decr.)
Consolidated
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
640.2

 
$
682.1

 
(6.1
)%
 
$
1,236.9

 
$
1,352.5

 
(8.5
)%
Gross profit
175.1

 
169.5

 
3.3
 %
 
336.1

 
335.0

 
0.3
 %
as a percent of sales    
27.4
%
 
24.8
%
 
 
 
27.2
%
 
24.8
%
 
 
SG&A expense
103.3

 
115.5

 
(10.6
)%
 
201.9

 
223.3

 
(9.6
)%
as a percent of sales    
16.1
%
 
16.9
%
 
 
 
16.3
%
 
16.5
%
 
 
Operating income
71.8

 
54.0

 
33.0
 %
 
134.2

 
111.7

 
20.1
 %
as a percent of sales    
11.2
%
 
7.9
%
 
 
 
10.8
%
 
8.3
%
 
 
Net interest expense
10.4

 
10.6

 
(1.9
)%
 
20.7

 
20.9

 
(1.0
)%
Effective tax rate
30.6
%
 
32.1
%
 
 
 
31.3
%
 
33.6
%
 
 
Net earnings
$
42.0

 
$
27.9

 
50.5
 %
 
$
75.0

 
$
58.6

 
28.0
 %
Diluted earnings per share
$
1.85

 
$
1.19

 
55.5
 %
 
$
3.29

 
$
2.47

 
33.2
 %
Engineered Support Structures
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
195.8

 
$
196.6

 
(0.4
)%
 
361.8

 
367.4

 
(1.5
)%
Gross profit
56.8

 
51.0

 
11.4
 %
 
104.5

 
92.9

 
12.5
 %
SG&A expense
35.8

 
34.8

 
2.9
 %
 
69.3

 
67.2

 
3.1
 %
Operating income
21.0

 
16.2

 
29.6
 %
 
35.2

 
25.7

 
37.0
 %
Energy and Mining
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
79.3

 
$
86.3

 
(8.1
)%
 
$
150.1

 
$
174.3

 
(13.9
)%
Gross profit
14.6

 
15.5

 
(5.8
)%
 
26.8

 
31.8

 
(15.7
)%
SG&A expense
11.3

 
12.8

 
(11.7
)%
 
21.6

 
24.7

 
(12.6
)%
Operating income
3.3

 
2.7

 
22.2
 %
 
5.2

 
7.1

 
(26.8
)%
Utility Support Structures
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
151.2

 
$
162.6

 
(7.0
)%
 
$
295.5

 
$
338.7

 
(12.8
)%
Gross profit
32.2

 
30.6

 
5.2
 %
 
62.7

 
65.2

 
(3.8
)%
SG&A expense
14.7

 
20.2

 
(27.2
)%
 
30.4

 
39.5

 
(23.0
)%
Operating income
17.5

 
10.4

 
68.3
 %
 
32.3

 
25.7

 
25.7
 %
Coatings
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
63.4

 
$
63.9

 
(0.8
)%
 
$
122.2

 
$
125.7

 
(2.8
)%
Gross profit
21.5

 
17.0

 
26.5
 %
 
41.2

 
36.8

 
12.0
 %
SG&A expense
7.5

 
9.1

 
(17.6
)%
 
15.8

 
17.9

 
(11.7
)%
Operating income
14.0

 
7.9

 
77.2
 %
 
25.4

 
18.9

 
34.4
 %
Irrigation
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
150.5

 
$
171.6

 
(12.3
)%
 
$
307.3

 
$
344.4

 
(10.8
)%
Gross profit
49.6

 
55.3

 
(10.3
)%
 
100.1

 
108.1

 
(7.4
)%
SG&A expense
21.8

 
23.5

 
(7.2
)%
 
43.4

 
46.1

 
(5.9
)%
Operating income
27.8

 
31.8

 
(12.6
)%
 
56.7

 
62.0

 
(8.5
)%
Other
 
 
 
 
 
 
 
 
 
 
 
Net sales
$

 
$
1.1

 
NM
 
$

 
$
2.0

 
NM
Gross profit

 
(0.1
)
 
NM
 

 
0.1

 
NM
SG&A expense

 
1.2

 
NM
 

 
2.5

 
NM
Operating income

 
(1.3
)
 
NM
 

 
(2.4
)
 
NM
Net corporate expense
 
 
 
 
 
 
 
 
 
 
 
Gross profit
$
0.4

 
$
0.2

 
NM
 
$
0.8

 
$
0.1

 
NM
SG&A expense
12.2

 
13.9

 
(12.2
)%
 
21.4

 
25.4

 
(15.7
)%
Operating loss
(11.8
)
 
(13.7
)
 
13.9
 %
 
(20.6
)
 
(25.3
)
 
18.6
 %
NM=Not meaningful

34



Overview
On a consolidated basis, the decrease in net sales in the second quarter and first half of fiscal 2016, as compared with 2015, reflected lower sales in all reportable segments. The changes in net sales in the second quarter and first half of fiscal 2016, as compared with fiscal 2015, were as follows:
 
Second quarter
 
Total
ESS
Energy & Mining
Utility
Coatings
Irrigation
Other
Sales - 2015
$
682.1

$
196.6

$
86.3

$
162.6

$
63.9

$
171.6

$
1.1

Volume
(6.1
)
3.2

(2.4
)
10.0

0.7

(16.5
)
(1.1
)
Pricing/mix
(27.3
)
(0.7
)
(2.4
)
(21.4
)
(1.9
)
(0.9
)

Acquisitions
2.0




2.0



Currency translation
(10.5
)
(3.3
)
(2.2
)

(1.3
)
(3.7
)

Sales - 2016
$
640.2

$
195.8

$
79.3

$
151.2

$
63.4

$
150.5

$

 
Year-to-date
 
Total
ESS
Energy & Mining
Utility
Coatings
Irrigation
Other
Sales - 2015
$
1,352.5

$
367.4

$
174.3

$
338.7

$
125.7

$
344.4

$
2.0

Volume
(36.6
)
9.9

(11.5
)
(6.5
)
(0.7
)
(25.8
)
(2.0
)
Pricing/mix
(52.3
)
(6.6
)
(4.6
)
(36.7
)
(3.0
)
(1.4
)

Acquisitions
3.9




3.9



Currency translation
(30.6
)
(8.9
)
(8.1
)

(3.7
)
(9.9
)

Sales - 2016
$
1,236.9

$
361.8

$
150.1

$
295.5

$
122.2

$
307.3

$


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 decreased substantially in North America throughout 2015 before bottoming out during the first quarter of 2016. Steel prices then strengthened quickly during the second quarter of 2016 reaching similar pricing levels as seen near the end of the first quarter of 2015. The effect of increasing steel prices does not necessarily affect sales and costs of sales immediately. Decreases in average sales pricing and volumes offset the increase in gross profit realized from the lower cost of steel. We acquired American Galvanizing in October 2015 and it is reported in the Coatings segment.

Restructuring Plan

In July 2016, the Company identified a restructuring plan in Australia/New Zealand (the "2016 Plan") focused primarily on closing and consolidating locations within the Energy and Mining and Coatings segments. During the second half of 2016, the Company estimates it will incur pre-tax expenses from the 2016 Plan of $4.7 million.    

In April 2015, our Board of Directors authorized a broad restructuring plan (the "Plan") that was substantially completed by the end of December 2015. During the second quarter and first half of 2015, we incurred restructuring charges of $14.3 million and $15.1 million, respectively. The utility segment recognized $0.4 million of pre-tax restucturing expense during the first half of fiscal 2016. The decrease in second quarter and first half of fiscal 2015 gross profit by segment from the restructuring activities is as follows:


35



 
Total
ESS
Energy & Mining
Utility
Coatings
Irrigation
Other
Corporate
Second quarter
$
(8.0
)
$
(0.1
)
$
(1.4
)
$
(2.0
)
$
(4.5
)
$

$

$

 
 
 
 
 
 
 
 
 
Year-to-date
$
(8.2
)
$
(0.2
)
$
(1.5
)
$
(2.0
)
$
(4.5
)
$

$

$


The decrease in second quarter and first half of fiscal 2015 operating income due to restructuring expense by segment is as follows:
 
Total
ESS
Energy & Mining
Utility
Coatings
Irrigation
Other
Corporate
Second quarter
$
(14.3
)
$
(3.1
)
$
(1.5
)
$
(2.5
)
$
(4.8
)
$
(0.3
)
$

$
(2.1
)
 
 
 
 
 
 
 
 
 
Year-to-date
$
(15.1
)
$
(3.7
)
$
(1.7
)
$
(2.5
)
$
(4.8
)
$
(0.3
)
$

$
(2.1
)

Currency Translation

In the second quarter and first half of fiscal 2016, we realized a decrease in operating profit, as compared with fiscal 2015, due to currency translation effects. On average, the U.S. dollar strengthened in particular against the Australian dollar, Brazilian real, euro, and South African rand, resulting in less operating profit in U.S. dollar terms. The breakdown of this effect by segment was as follows:
 
Total
ESS
Energy & Mining
Utility
Coatings
Irrigation
Other
Corporate
Second quarter
$
(0.9
)
$
(0.3
)
$
(0.2
)
$

$

$
(0.4
)
$

$

 


 
 
 
 
 
 
 
Year-to-date
$
(2.0
)
$
(0.5
)
$
(0.5
)
$

$
(0.1
)
$
(1.0
)
$

$
0.1


Gross Profit, SG&A, and Operating Income

At a consolidated level, the improvement in gross margin (gross profit as a percent of sales) in the second quarter and first half of 2016, as compared with 2015, was due to restructuring activities undertaken in 2015 and lower raw material prices across most of our businesses that was partially offset by unfavorable foreign currency translation. The gross profit increase in the second quarter and first half of 2016, as compared to 2015, can be primarily attributed to improved operating performance in the ESS and Coatings segments due in part to restructuring actions taken in 2015. The irrigation segment reduced the gross profit improvement primarily due to lower volumes that led to reduced operating leverage of fixed costs and unfavorable foreign currency translation.
  
Selling, general and administrative (SG&A) spending in the second quarter and first half of fiscal 2016, as compared with the same periods in 2015, decreased mainly due to the following factors:
 
currency translation effects of $1.3 million and $4.1 million, respectively, due to the strengthening of the U.S. dollar primarily against the Australian dollar, Brazilian real, and South African rand;
restructuring expenses incurred in 2015 totaling $6.3 million and $6.9 million, respectively; and
reduced costs of approximately $6.8 million and $13.1 million, respectively, attributed to the restructuring activities undertaken in 2015, which included reduced headcounts, closure of facilities, and an overall reduction in discretionary spending.

The above reductions were partially offset by an increase in incentive expenses due to improved operating performance and higher pension costs associated with the Delta Pension Plan that combined totaled $4.5 million and $4.8 million, in the second quarter and first half of 2016, respectively.

The increase in operating income on a reportable segment basis in the second quarter and first half of fiscal 2016, as compared to 2015, was due to improved operating performance in the ESS, Utility, and Coatings segments offset by Irrigation. Energy & Mining slightly improved operating income in the second quarter, but was still lower on a year-to-date

36



basis. The increase in operating income for 2016, as compared to 2015, is primarily attributable to reduced expenses resulting from the 2015 restructuring activities, lower raw material prices, and reduced overall SG&A spending.

Net Interest Expense and Debt
    
Net interest expense in the second quarter and first half of fiscal 2016, as compared with the same periods in 2015, were consistent due to minimal changes in short and long-term borrowings.

Other Expense

The increase in other expense in the first half of 2016, as compared with 2015, was primarily due to the change in the market value of the Company's shares held of Delta EMD. In the first half of 2016, we recorded a non-cash mark to market loss on the investment of $1.0 million versus a gain of $0.6 million ($5.0 million special dividend offset by a non-cash mark to market loss of $4.4 million) in the same period of 2015. The decrease in other expense in the second quarter of 2016, as compared to 2015, was due to recording a gain on deferred compensation assets which results in other income of approximately $0.6 million and more favorable foreign currency transactions.

Income Tax Expense
    
Our effective income tax rate in the second quarter and first half of fiscal 2016 was 30.6% and 31.3%, respectively, compared to 32.1% and 33.6% in the second quarter and first half of 2015, respectively. The effective tax rate in 2016 was positively impacted by research and development tax credits and benefits related to certain withholding taxes paid in foreign jurisdictions.

Earnings attributable to noncontrolling interest was relatively flat in the second quarter and first half of fiscal 2016, as compared with the same periods in 2015.

Cash Flows from Operations
 
Our cash flows provided by operations were approximately $79.9 million in the first half of fiscal 2016, as compared with $118.3 million provided by operations in 2015. The decrease in operating cash flow in the first half of fiscal 2016, as compared with 2015, was the result of less favorable net working capital changes in the comparable periods.

Engineered Support Structures (ESS) segment
The decrease in net sales in the first half of fiscal 2016 as compared with 2015 was primarily due to unfavorable foreign currency translation effects and lower average sales pricing due to lower steel prices primarily in our lighting and traffic product lines. The decrease in net sales in the second quarter of 2016 as compared with the same period in 2015 was due to unfavorable currency translation effects. These reductions were partially offset by improved volumes in the China and Australia telecommunication business.
Global lighting and traffic, and roadway product sales in the second quarter and first half of 2016 were higher compared to the same periods in fiscal 2015. In the second quarter and first half of 2016, as compared to the same periods in 2015, sales volumes in the U.S. were higher in the commercial steel market, higher in the aluminum markets, and modestly lower in the transportation markets. We expect transportation markets to pick up in the latter half of 2016 due to the long-term highway bill that was signed in 2015. Sales in Canada decreased in the second quarter and first half of 2016 as compared to 2015, from lower volumes due to less large projects and unfavorable currency impacts. Sales in Europe were lower in the second quarter and first half of fiscal 2016 compared to the same periods in fiscal 2015, due to unfavorable currency translation effects and lower volumes primarily related to a large project in the Middle East that was ongoing in 2015. The domestic markets in general remain subdued in Europe. In the Asia-Pacific region, sales were higher in the second quarter and first half of fiscal 2016, as compared to 2015, due primarily to improved investment activity in both China and Australia and overall market growth in India. Roadway product sales decreased in the second quarter and first half of 2016 due to unfavorable foreign currency translation effects and lower volumes.
Communication product line sales were lower in the second quarter and first half of fiscal 2016, as compared with the same periods in fiscal 2015. North America communication structure and component sales decreased, due to lower demand in the market. In China, sales of wireless communication structures in the second quarter and first half of fiscal 2016

37



increased over the same period in 2015 as the investment levels by the major wireless carriers have remained strong and we have increased our market share through better sales coverage. In Australia, sales for wireless communication structures improved in 2016 due to the national broadband network build out.
Gross profit, as a percentage of sales, and operating income for the segment were higher in the second quarter and first half of fiscal 2016, as compared with fiscal 2015, due to margin expansion from reduced raw material costs, growth in the Asia-Pacific telecommunication business, and lower costs resulting from the 2015 restructuring activities. These increases were partially offset by unfavorable currency translation effects and lower sales volumes in the European and North American wireless communication businesses. The LIFO reserve adjustment was less favorable between the two years. SG&A spending in the second quarter and first half of 2016 was slightly up over the same periods in 2015 due to increased commissions owed on the higher telecommunication sales in the Asia-Pacific region.
Energy & Mining (E&M) segment
The decrease in net sales in the second quarter and first half of 2016, as compared to 2015, was primarily due to unfavorable currency translation effects and lower volumes.
Access systems product line sales decreased in the second quarter and first half of 2016, as compared with 2015, primarily due to the negative impact of currency translation effects and lower sales prices. The decrease in sales price is primarily related to fewer oil and gas related construction projects in the Asia-Pacific region which increased competition.
Offshore and other complex structures sales increased in the second quarter and first half of 2016, as compared to the same periods in 2015. The increase can be attributed to volume improvements primarily in the wind tower product line. Oil and gas product activity continues to be slow due to low oil prices that has caused some previously planned projects to be postponed.
Grinding media sales were down in the second quarter and first half of 2016 as compared to 2015, due to volume decreases and unfavorable currency translation effects. The volume decreases are primarily related to the continued slowdown in the Australia mining sector.
Operating income for the segment in the second quarter of 2016 was higher as a result of $1.5 million of incurred restructuring expenses during second quarter of 2015. For the first half of 2016, as compared to the same period in 2015, operating income was lower due primarily to unfavorable currency translation effects and lower sales prices in the access systems businesses. SG&A expense decreased due to currency translation effects and the lower fixed cost structuring arising from restructuring activities that took place in 2015.
Utility Support Structures (Utility) segment
In the Utility segment, sales decreased in the second quarter and first half of 2016, as compared with 2015, due mainly to decreased average selling prices tied to the lower cost of steel; an unfavorable product mix towards smaller structures also contributed to the sales decline. Those decreases were partially offset by improved volumes for both concrete and steel businesses in the second quarter of 2016. Declining cost of steel during the second half of 2015 contributed to lower average selling prices in the second quarter and first half of 2016 as compared to 2015. 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. The cost of steel, as reflected in the published indexes, increased throughout the second quarter with published prices in June 2016 approximating the level seen near the end of the first quarter of 2015.
In North America, sales volumes in tons for steel utility structures were higher in the second quarter and slightly lower in the first half of 2016, as compared with 2015. Concrete sales volumes in tons increased during the second quarter and first half of 2016. In the second quarter and first half of 2016, as compared to 2015, international utility structures sales decreased due to lower volumes in the Asia-Pacific and Europe, Middle East, and Africa (EMEA) regions.
Gross profit as a percentage of sales improved in the second quarter and first half of 2016, as compared to 2015, due to a number of actions taken in 2015 to improve our cost structure in this segment, including certain restructuring activities involving facility closures. We incurred $2.1 million of restructuring costs within gross profit in the second quarter of 2015. SG&A expense was lower in the second quarter and first half of 2016, as compared with 2015, primarily due to the benefits realized from the 2015 restructuring activities and reduced sales commissions. Operating income increased in the second quarter and first half of 2016, as compared with 2015, primarily due to restructuring costs recognized in the second quarter of 2015 and the related improved cost structure realized in 2016. The sales volume improvement in the second quarter of 2016 also provided additional leverage of fixed costs as compared to the same period in 2015.

38



Coatings segment
Coatings segment sales in North America decreased slightly in the second quarter and first half of 2016, as compared with the same periods in 2015, due to reduced zinc prices which resulted in lower average selling prices and unfavorable currency translation effects. The decrease was partially offset by the acquisition of American Galvanizing that accounted for $2.0 million and $3.9 million of sales, respectively. North American volumes were up in the second quarter and first half of fiscal 2016. Coatings sales in the Asia-Pacific region decreased primarily due to reduced volumes and unfavorable currency translation effects related to the strengthening of the U.S. dollar against the Australian dollar and Malaysian Ringgit. Continued weak demand in Australia led to lower volumes and sales volumes in Asia were down in the second quarter and first half of 2016, due to a slower market environment.
SG&A expense was lower in the second quarter and first half of 2016, as compared to the same periods in 2015, due to currency translation effects, fiscal 2015 restructuring expenses which did not recur, and lower discretionary spending in 2016. In addition, the contingent consideration liability to the former owners of Pure Metal Galvanizing (PMG), payable in calendar 2018, was reduced in the second quarter of 2016 by $0.9 million due to changes in the expected earnings over the earn out period. The decrease was partially offset by the SG&A of American Galvanizing, acquired in late fiscal 2015. Operating income was higher in the second quarter and first half of 2016, as compared with 2015, due to the $4.8 million of 2015 restructuring expenses incurred in Australia, the resulting restructuring savings and the reduction in the PMG contingent consideration liability recorded in the second quarter of 2016.
Irrigation segment
The decrease in Irrigation segment net sales in the second quarter and first half of fiscal 2016, as compared with 2015, was mainly due to sales volume decreases in North America for both the irrigation and tubing businesses and unfavorable currency translation effects for our international irrigation business. In fiscal 2016, net farm income in the United States is expected to decrease 3% from the levels of 2015, due in part to lower market prices for corn and soybeans. The 2016 estimate represents the third consecutive year of a decrease in estimated net farm income. We believe this reduction somewhat contributed to lower demand for irrigation machines in North America in the second quarter and first half of 2016, as compared with 2015. In international markets, unfavorable currency translation effects (primarily Brazil and South Africa) decreased sales $3.7 million and $9.9 million, respectively, in the second quarter and first half of 2016, as compared with 2015. This decrease was partially offset by volume improvements in Eastern Europe and the Middle East.
SG&A was lower in the second quarter and first half of fiscal 2016, as compared with 2015. This was due to currency translation effects and a general reduction in overall spending. Operating income for the segment declined in the second quarter and first half of fiscal 2016 over 2015, due to North America irrigation and tubing sales volume decreases and unfavorable currency translation effects for the international irrigation businesses.
Other
Due to the business reorganization that occurred in the fourth quarter of 2015, there are no longer business operations included in Other.
Net corporate expense
Net corporate expense in the second quarter and first half of fiscal 2016 decreased $1.6 million and $4.0 million, respectively, over the same periods in fiscal 2015, due largely to restructuring activities that took place during 2015. The decrease is primarily due to lower headcounts, reduced discretionary spending, and approximately $2 million of restructuring expenses in 2015 which did not recur. The reductions were partially offset by increased Delta Pension Plan expenses of $0.7 million and $1.3 million, and increased incentive expense of approximately $2.0 million for both second quarter and the first half of 2016, respectively.
Liquidity and Capital Resources
Cash Flows

39



Working Capital and Operating Cash Flows-Net working capital was $909.3 million at June 25, 2016, as compared to $860.3 million at December 26, 2015. The increase in net working capital in 2016 mainly resulted from increased inventory and prepaid expenses, restricted cash, and other assets. Cash flow provided by operations was $79.9 million in the first half of 2016, as compared with $118.3 million in first half of 2015. The decrease in operating cash flow in the first half of 2016, as compared to 2015, was primarily the result of the approximately $32 million reduction in accounts receivable realized in the first half of 2015 not repeating in 2016.
Investing Cash Flows-Capital spending in the first half of fiscal 2016 was $26.0 million, as compared to $24.8 million for the same period in 2015. Capital spending projects in 2016 and 2015 related to investments in machinery and equipment across all businesses. We expect our capital spending for the 2016 fiscal year to be approximately $70 million.
Financing Cash Flows-Our total interest‑bearing debt increased slightly to $761.2 million at June 25, 2016 from $759.0 million at December 26, 2015. Financing cash flows changed from a use of approximately $146.8 million in the first half of fiscal 2015 to a use of $52.2 million in the first half of fiscal 2016. The primary reason for the change was due to purchasing $92.4 million less treasury shares in the first half of 2016 as compared to the same period in 2015 related to the share repurchase program.
Financing and Capital
On May 13, 2014, we announced a new capital allocation philosophy which covered a share repurchase program. The Board of Directors authorized the purchase of up to $500 million of the Company's outstanding common stock from time to time over twelve months at prevailing market prices, through open market or privately-negotiated transactions. In February 2015, the Board of Directors authorized an additional $250 million of share purchase, without an expiration date. The share 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 share repurchases under the share repurchase program and we may discontinue the share repurchase program at any time.
As of June 25, 2016, we have acquired approximately 4.4 million shares for approximately $592.6 million under these share repurchase programs. As of July 21, 2016, the date as of which we report on the cover of this Form 10-Q the number of outstanding shares of our common stock, we have acquired a total of approximately 4.42 million shares for approximately $596.8 million under these share repurchase programs.
Our capital allocation philosophy announcement included our intention to manage our capital structure to maintain our investment grade debt rating. Our most recent rating were Baa3 by Moody's Investors Services, Inc. and BBB+ rating 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. Otherwise, we expect to maintain a ratio of debt to invested capital which will support our current investment grade debt rating.

Our debt financing at June 25, 2016 is primarily long-term debt consisting of:
$250.2 million face value ($254.2 million carrying value) of senior unsecured notes that bear interest at 6.625% per annum and are due in April 2020.
$250 million face value ($248.9 million carrying value) of senior unsecured notes that bear interest at 5.00% per annum and are due in October 2044.
$250 million face value ($246.7 million carrying value) of unsecured notes that bear interest at 5.25% per annum and are due in October 2054.
We are allowed to repurchase the notes at specified prepayment premiums. All three tranches of these notes are guaranteed by certain of our subsidiaries.

At June 25, 2016 and December 26, 2015, we had no outstanding borrowings under our revolving credit agreement. The revolving credit agreement contains certain financial covenants that may limit our additional borrowing capability under the agreement. At June 25, 2016, we had the ability to borrow $584.6 million under this facility, after consideration of standby letters of credit of $15.4 million associated with certain insurance obligations and international sales commitments. We also maintain certain short-term bank lines of credit totaling $117.2 million, $114.3 million of which was unused at June 25, 2016.


40



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.
The 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. The debt agreements allow us to add estimated EBITDA from acquired businesses for periods we did not own the acquired business. The debt agreements also provide for an adjustment to EBITDA, subject to certain limitations, for non-cash charges or gains that are non-recurring in nature. For 2016, our covenant calculations do not include any estimated EBITDA from acquired businesses.
Our key debt covenants are as follows:
Interest-bearing debt is not to exceed 3.5X Adjusted EBITDA of the prior four quarters; and
Adjusted EBITDA over the prior four quarters must be at least 2.5X our interest expense over the same period.

At June 25, 2016, we were in compliance with all covenants related to the debt agreements. The key covenant calculations at June 25, 2016 were as follows:
Interest-bearing debt
$
761,167

Adjusted EBITDA-last four quarters
287,206

Leverage ratio
2.65

 
 
Adjusted EBITDA-last four quarters
$
287,206

Interest expense-last four quarters
41,959

Interest earned ratio
6.84

The calculation of Adjusted EBITDA-last four quarters (June 28, 2015 through June 25, 2016) is as follows:
Net cash flows from operations
$
233,844

Interest expense
41,959

Income tax expense
52,047

Impairment of property, plant and equipment
(10,544
)
Impairment of goodwill & intangible assets
(41,970
)
Loss on investment
(1,008
)
Deferred income tax benefit
(7,129
)
Noncontrolling interest
(5,501
)
Equity in earnings of nonconsolidated subsidiaries
(247
)
Stock-based compensation
(7,932
)
Pension plan expense
(654
)
Contribution to pension plan
1,477

Restricted cash - pension plan trust
13,652

Changes in assets and liabilities
(30,444
)
Other
(2,858
)
EBITDA
234,692

Impairment of goodwill and intangible assets
41,970

Impairment of property, plant and equipment
10,544

Adjusted EBITDA
287,206


41



Net earnings attributable to Valmont Industries, Inc.
$
56,500

Interest expense
41,959

Income tax expense
52,047

Depreciation and amortization expense
84,186

EBITDA
234,692

Impairment of goodwill and intangible assets
41,970

Impairment of property, plant, and equipment
10,544

Adjusted EBITDA
287,206

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.
We have not made any provision for U.S. income taxes in our financial statements on approximately $456.7 million of undistributed earnings of our foreign subsidiaries, as we intend to reinvest those earnings. Of our cash balances of $344.3 million at June 25, 2016, approximately $277.7 million is held in entities outside the United States with $105.1 million specifically held within consolidated Delta Ltd., a wholly-owned subsidiary of the Company. Delta Ltd. sponsors a defined benefit pension plan and therefore, the Company is allowed to dividend out Delta Ltd.'s available cash only as long as that dividend does not negatively impact Delta Ltd.'s ability to meet its annual contribution requirements of the pension plan. We believe that the cash payments Delta Ltd. receives from its intercompany notes will provide sufficient funds to meet the pension funding requirements but additional analysis on pension funding requirements would have to be performed prior to the repatriation of the $105.1 million of Delta Ltd.'s cash balances.
If we need to repatriate foreign cash balances to the United States to meet our cash needs, income taxes would be paid to the extent that those cash repatriations were undistributed earnings of our foreign subsidiaries. The income taxes that we would pay if cash were repatriated depends on the amounts to be repatriated and from which country. If all of our cash outside the United States were to be repatriated to the United States, depending on the timing and nature of such repatriations, we estimate that we would pay in the range of $23 million to $100 million in income taxes to repatriate that cash.
Financial Obligations and Financial Commitments
There have been no material changes to our financial obligations and financial commitments as described on page 38 in our Form 10-K for the fiscal year ended December 26, 2015.
Off Balance Sheet Arrangements
There have been no changes in our off balance sheet arrangements as described on page 38 in our Form 10-K for the fiscal year ended December 26, 2015.
Critical Accounting Policies
There have been no changes in our critical accounting policies as described on pages 40-43 in our Form 10-K for the fiscal year ended December 26, 2015 during the quarter ended June 25, 2016.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There were no material changes in the company's market risk during the quarter ended June 25, 2016. For additional information, refer to the section "Risk Management" in our Form 10-K for the fiscal year ended December 26, 2015.

Item 4. 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.
No changes in the Company's internal control over financial reporting occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.




42




PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities
Period
 
Total Number of
Shares Purchased
 
Average Price
paid per share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
 
Approximate Dollar Value of Maximum Number of Shares that may yet be Purchased under the Program (1)
March 27, 2016 to April 23, 2016
43,076

 
$
121.72

 
43,076

 
$
163,800,000

April 24, 2016 to May 28, 2016
31,500

 
131.55

 
31,500

 
159,600,000

May 29, 2016 to June 25, 2016
17,260

 
132.98

 
17,260

 
157,400,000

Total
91,836

 
$
127.21

 
91,836

 
$
157,400,000

(1) On May 13, 2014, we announced a new capital allocation philosophy which covered both the quarterly dividend rate as well as a share repurchase program. Specifically, the Board of Directors authorized the purchase of up to $500 million of the Company's outstanding common stock from time to time over twelve months at prevailing market prices, through open market or privately-negotiated transactions. On February 24, 2015, the Board of Directors authorized an additional purchase of up to $250 million of the Company's outstanding common stock with no stated expiration date. As of June 25, 2016, we have acquired 4,392,435 shares for approximately $592.6 million under this share repurchase program.


Item 6. Exhibits
(a)
Exhibits
Exhibit No.
 
Description
31.1
 
Section 302 Certificate of Chief Executive Officer
31.2
 
Section 302 Certificate of Chief Financial Officer
32.1
 
Section 906 Certifications of Chief Executive Officer and Chief Financial Officer
101
 
The following financial information from Valmont's Quarterly Report on Form 10-Q for the quarter ended June 25, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Shareholders' Equity, (vi) Notes to Condensed Consolidated Financial Statements and (vii) document and entity information.


43



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf and by the undersigned hereunto duly authorized.
 
VALMONT INDUSTRIES, INC.
(Registrant)
 
/s/ MARK C. JAKSICH
 
Mark C. Jaksich
Executive Vice President and Chief Financial Officer
Dated this 27th day of July, 2016.


























44



Index of Exhibits
Exhibit No.
 
Description
31.1
 
Section 302 Certificate of Chief Executive Officer
31.2
 
Section 302 Certificate of Chief Financial Officer
32.1
 
Section 906 Certifications of Chief Executive Officer and Chief Financial Officer
101
 
The following financial information from Valmont's Quarterly Report on Form 10-Q for the quarter ended June 25, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Shareholders' Equity, (vi) Notes to Condensed Consolidated Financial Statements and (vii) document and entity information.










































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