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VALMONT INDUSTRIES INC - Quarter Report: 2017 September (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 September 30, 2017
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
Emerging growth company  o

(Do not check if a
smaller reporting company)
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
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
22,607,680
Outstanding shares of common stock as of October 23, 2017




VALMONT INDUSTRIES, INC.

INDEX TO FORM 10-Q
 
 
Page No.
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
ended September 30, 2017 and September 24, 2016
 
 
 
and thirty-nine weeks ended September 30, 2017 and September 24, 2016
 
Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31,
 
 
2016
 
Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended
 
 
September 30, 2017 and September 24, 2016
 
Condensed Consolidated Statements of Shareholders' Equity for the thirty-nine
 
 
weeks ended September 30, 2017 and September 24, 2016
 
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
 
Thirty-nine Weeks Ended
 
September 30,
2017
 
September 24,
2016
 
September 30,
2017
 
September 24,
2016
Product sales
$
602,080

 
$
544,828

 
$
1,807,539

 
$
1,648,530

Services sales
78,699

 
65,419

 
223,450

 
198,571

Net sales
680,779

 
610,247

 
2,030,989

 
1,847,101

Product cost of sales
462,854

 
409,003

 
1,366,875

 
1,220,567

Services cost of sales
54,331

 
46,221

 
152,635

 
135,425

Total cost of sales
517,185

 
455,224

 
1,519,510

 
1,355,992

Gross profit
163,594


155,023


511,479


491,109

Selling, general and administrative expenses
103,671

 
101,783

 
308,764

 
303,698

Operating income
59,923

 
53,240

 
202,715

 
187,411

Other income (expenses):
 
 
 
 
 
 
 
Interest expense
(11,190
)
 
(11,100
)
 
(33,312
)
 
(33,276
)
Interest income
1,311

 
771

 
3,205

 
2,289

Other
517

 
878

 
1,684

 
452

 
(9,362
)
 
(9,451
)
 
(28,423
)
 
(30,535
)
Earnings before income taxes
50,561

 
43,789

 
174,292

 
156,876

Income tax expense:
 
 
 
 
 
 
 
Current
21,163

 
18,017

 
50,264

 
51,276

Deferred
(7,268
)
 
(3,749
)
 
79

 
(1,534
)
 
13,895

 
14,268

 
50,343

 
49,742

Net earnings
36,666

 
29,521

 
123,949

 
107,134

Less: Earnings attributable to noncontrolling interests
(1,458
)
 
(1,348
)
 
(4,098
)
 
(3,966
)
Net earnings attributable to Valmont Industries, Inc.
$
35,208

 
$
28,173

 
119,851

 
103,168

Earnings per share:
 
 
 
 
 
 
 
Basic
$
1.56

 
$
1.25

 
$
5.33

 
$
4.56

Diluted
$
1.55

 
$
1.24

 
$
5.28

 
$
4.54

Cash dividends declared per share
$
0.375

 
$
0.375

 
$
1.125

 
$
1.125

Weighted average number of shares of common stock outstanding - Basic (000 omitted)
22,527

 
22,505

 
22,505

 
22,602

Weighted average number of shares of common stock outstanding - Diluted (000 omitted)
22,751

 
22,659

 
22,717

 
22,741

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
 
Thirty-nine Weeks Ended
 
September 30,
2017
 
September 24,
2016
 
September 30,
2017
 
September 24,
2016
Net earnings
$
36,666

 
$
29,521

 
$
123,949

 
$
107,134

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
Unrealized translation gain (loss)
19,530

 
770

 
60,471

 
(1,938
)
Gain/(loss) on hedging activities:
 
 
 
 
 
 
 
      Net investment hedge
(740
)
 
1,972

 
(1,816
)
 
4,897

Amortization cost included in interest expense
19

 
18

 
56

 
56

Other comprehensive income (loss)
18,809

 
2,760

 
58,711

 
3,015

Comprehensive income
55,475

 
32,281

 
182,660

 
110,149

Comprehensive loss (income) attributable to noncontrolling interests
(2,570
)
 
(1,618
)
 
(4,552
)
 
(5,732
)
Comprehensive income attributable to Valmont Industries, Inc.
$
52,905

 
$
30,663

 
$
178,108

 
$
104,417

















See accompanying notes to condensed consolidated financial statements.

4



VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
 
September 30,
2017
 
December 31,
2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
493,490

 
$
399,948

Receivables, net
492,842

 
439,342

Inventories
403,234

 
350,028

Prepaid expenses, restricted cash, and other assets
50,064

 
57,297

Refundable income taxes
8,493

 
6,601

        Total current assets
1,448,123

 
1,253,216

Property, plant and equipment, at cost
1,169,854

 
1,105,736

Less accumulated depreciation and amortization
647,430

 
587,401

Net property, plant and equipment
522,424

 
518,335

Goodwill
336,754

 
321,110

Other intangible assets, net
142,090

 
144,378

Other assets
160,780

 
154,692

Total assets
$
2,610,171

 
$
2,391,731

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
949

 
$
851

Notes payable to banks
197

 
746

Accounts payable
216,104

 
177,488

Accrued employee compensation and benefits
81,494

 
72,404

Accrued expenses
106,238

 
89,914

Dividends payable
8,478

 
8,445

Total current liabilities
413,460

 
349,848

Deferred income taxes
28,183

 
35,803

Long-term debt, excluding current installments
754,202

 
754,795

Defined benefit pension liability
199,562

 
209,470

Deferred compensation
48,612

 
44,319

Other noncurrent liabilities
13,557

 
14,910

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
1,974,601

 
1,874,722

Accumulated other comprehensive loss
(288,102
)
 
(346,359
)
Treasury stock
(601,565
)
 
(612,781
)
Total Valmont Industries, Inc. shareholders’ equity
1,112,834

 
943,482

Noncontrolling interest in consolidated subsidiaries
39,761

 
39,104

Total shareholders’ equity
1,152,595

 
982,586

Total liabilities and shareholders’ equity
$
2,610,171

 
$
2,391,731

See accompanying notes to condensed consolidated financial statements.

5



VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
Thirty-nine Weeks Ended
 
September 30,
2017
 
September 24,
2016
Cash flows from operating activities:
 
 
 
Net earnings
$
123,949

 
$
107,134

Adjustments to reconcile net earnings to net cash flows from operations:
 
 
 
Depreciation and amortization
63,500

 
61,242

Noncash loss on trading securities
395

 
973

Impairment of assets - restructuring activities

 
618

Stock-based compensation
7,300

 
6,572

Change in fair value of contingent consideration

 
(3,527
)
Defined benefit pension plan expense
481

 
1,486

Contribution to defined benefit pension plan
(26,064
)
 
(712
)
Change in restricted cash - pension plan trust
12,568

 
(13,652
)
       (Gain)/loss on sale of property, plant and equipment
(732
)
 
250

Deferred income taxes
79

 
(1,534
)
Changes in assets and liabilities:
 
 
 
Receivables
(39,584
)
 
16,436

Inventories
(41,545
)
 
(34,413
)
Prepaid expenses and other assets
(11,636
)
 
(10,624
)
Accounts payable
28,895

 
(11,338
)
Accrued expenses
20,157

 
3,272

Other noncurrent liabilities
(1,627
)
 
240

Income taxes refundable
(1,732
)
 
4,831

Net cash flows from operating activities
134,404

 
127,254

Cash flows from investing activities:
 
 
 
Purchase of property, plant and equipment
(39,898
)
 
(42,233
)
Proceeds from sale of assets
1,575

 
3,938

Acquisitions, net of cash acquired
(5,362
)
 

Proceeds from settlement of net investment hedge
5,123

 

Other, net
(3,462
)
 
(2,824
)
Net cash flows from investing activities
(42,024
)
 
(41,119
)
Cash flows from financing activities:
 
 
 
Net borrowings under short-term agreements
(549
)
 
(128
)
Principal payments on long-term borrowings
(658
)
 
(1,563
)
Dividends paid
(25,386
)
 
(25,604
)
Dividends to noncontrolling interest
(3,895
)
 
(2,527
)
Purchase of noncontrolling interest

 
(11,009
)
Purchase of treasury shares

 
(46,581
)
Proceeds from exercises under stock plans
12,446

 
6,509

Purchase of common treasury shares—stock plan exercises
(3,929
)
 
(1,453
)
Net cash flows from financing activities
(21,971
)
 
(82,356
)
Effect of exchange rate changes on cash and cash equivalents
23,133

 
(3,478
)
Net change in cash and cash equivalents
93,542

 
301

Cash and cash equivalents—beginning of year
399,948

 
349,074

Cash and cash equivalents—end of period
$
493,490

 
$
349,375

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 26, 2015
$
27,900

 
$

 
$
1,729,679

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

 
$
965,211

Net earnings

 

 
103,168

 

 

 
3,966

 
107,134

Other comprehensive income (loss)

 

 

 
1,249

 

 
1,766

 
3,015

Cash dividends declared

 

 
(25,482
)
 

 

 

 
(25,482
)
Dividends to noncontrolling interests

 

 

 

 

 
(2,527
)
 
(2,527
)
Purchase of noncontrolling interests

 
(137
)
 

 

 

 
(10,872
)
 
(11,009
)
Purchase of treasury shares; 384,622 shares acquired

 

 

 

 
(46,581
)
 

 
(46,581
)
Stock plan exercises; 10,747 shares acquired

 

 

 

 
(1,453
)
 

 
(1,453
)
Stock options exercised; 68,631 shares issued

 
(6,435
)
 
4,582

 

 
8,362

 

 
6,509

Stock option expense

 
4,358

 

 

 

 

 
4,358

Stock awards; 6,725 shares issued

 
2,214

 

 

 
912

 

 
3,126

Balance at September 24, 2016
$
27,900

 
$

 
$
1,811,947

 
$
(265,969
)
 
$
(610,680
)
 
$
39,103

 
$
1,002,301

Balance at December 31, 2016
$
27,900

 
$

 
$
1,874,722

 
$
(346,359
)
 
$
(612,781
)
 
$
39,104

 
$
982,586

Net earnings

 

 
119,851

 

 

 
4,098

 
123,949

Other comprehensive income (loss)

 

 

 
58,257

 

 
454

 
58,711

Cash dividends declared

 

 
(25,417
)
 

 

 

 
(25,417
)
Dividends to noncontrolling interests

 

 

 

 

 
(3,895
)
 
(3,895
)
Stock plan exercises; 24,672 shares acquired

 

 

 

 
(3,929
)
 

 
(3,929
)
Stock options exercised; 106,351 shares issued

 
(7,300
)
 
5,445

 

 
14,301

 

 
12,446

Stock option expense

 
3,868

 

 

 

 

 
3,868

Stock awards; 6,034 shares issued

 
3,432

 

 

 
844

 

 
4,276

Balance at September 30, 2017
$
27,900

 
$

 
$
1,974,601

 
$
(288,102
)
 
$
(601,565
)
 
$
39,761

 
$
1,152,595










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 September 30, 2017, the Condensed Consolidated Statements of Earnings and Comprehensive Income for the thirteen and thirty-nine weeks ended September 30, 2017 and September 24, 2016, and the Condensed Consolidated Statements of Cash Flows and Shareholders' Equity for the thirty-nine 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 September 30, 2017 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 31, 2016. 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 31, 2016. The results of operations for the period ended September 30, 2017 are not necessarily indicative of the operating results for the full year.
Inventories
Approximately 36% and 38% of inventory is valued at the lower of cost, determined on the last-in, first-out (LIFO) method, or market as of September 30, 2017 and December 31, 2016. 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 $40,886 and $38,047 at September 30, 2017 and December 31, 2016, respectively.
Inventories consisted of the following:
 
September 30,
2017
 
December 31,
2016
Raw materials and purchased parts
$
175,222

 
$
143,659

Work-in-process
35,126

 
27,291

Finished goods and manufactured goods
233,772

 
217,125

Subtotal
444,120

 
388,075

Less: LIFO reserve
40,886

 
38,047

 
$
403,234

 
$
350,028



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 thirty-nine weeks ended September 30, 2017 and September 24, 2016, were as follows:
    
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
 
2017
 
2016
 
2017
 
2016
United States
$
28,886

 
$
21,550

 
$
115,082

 
$
105,390

Foreign
21,675

 
22,239

 
59,210

 
51,486

 
$
50,561

 
$
43,789

 
$
174,292

 
$
156,876

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 thirty-nine weeks ended September 30, 2017 and September 24, 2016 were as follows:
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
Net periodic (benefit) expense:
2017
 
2016
 
2017
 
2016
Interest cost
$
4,676

 
$
6,092

 
$
13,475

 
$
19,134

Expected return on plan assets
(5,277
)
 
(5,565
)
 
(15,208
)
 
(17,648
)
Amortization of actuarial loss
768

 

 
2,214

 

Net periodic expense
$
167

 
$
527

 
$
481

 
$
1,486

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 September 30, 2017, 704,818 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 thirty-nine weeks ended September 30, 2017 and September 24, 2016, respectively, were as follows:
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
 
2017
 
2016
 
2017
 
2016
Compensation expense
$
1,290

 
$
1,399

 
$
3,868

 
$
4,358

Income tax benefits
496

 
539

 
1,489

 
1,678

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 $39,283 ($35,784 at December 31, 2016) 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 $1,779 and $2,016 as of September 30, 2017 and December 31, 2016, respectively, which is the estimated fair value. 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
September 30, 2017
 
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Trading Securities
$
41,062

 
$
41,062

 
$

 
$

    
 
 
 
Fair Value Measurement Using:
 
Carrying Value
December 31,
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
$
37,800

 
$
37,800

 
$

 
$

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 September 30, 2017 and December 31, 2016:
 
Foreign Currency Translation Adjustments
 
Gain/(Loss) on Hedging Activities
 
Defined Benefit Pension Plan
 
Accumulated Other Comprehensive Loss
Balance at December 31, 2016
$
(251,228
)
 
$
7,978

 
$
(103,109
)
 
$
(346,359
)
Current-period comprehensive income (loss)
60,017

 
(1,760
)
 

 
58,257

Balance at September 30, 2017
$
(191,211
)
 
$
6,218

 
$
(103,109
)
 
$
(288,102
)
    








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)

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. The forward contract had a notional amount to sell British pounds and receive $44,000, and matured in May 2017. The realized gain of $5,123 ($3,150 after tax) has been deferred in other comprehensive income where it will remain until the Company's net investments in its British subsidiaries are divested. No ineffectiveness resulted from the hedge prior to its maturity.
In the third quarter of 2017, the Company entered into two six-month foreign currency forward contracts which qualified as net investment hedges, in order to mitigate foreign currency risk on our grinding media business that is denominated in both Australian dollars and British pounds. The Company announced its intention to divest of this business in August 2017 and regulatory approval in Australia is currently pending. The forward contracts have a maturity date of January 2018 and a notional amount to sell Australian dollars and British pounds to receive $27,000 and $18,500, respectively. The unrealized loss recorded at September 30, 2017 is $740 and is included in Accounts Payable on the Consolidated Balance Sheets. No ineffectiveness has resulted from the hedge and the balance is recorded in the Consolidated Statement of Other Comprehensive Income within gain/(loss) on hedging activities. When the forward contract matures, the realized gain/(loss) will be deferred in Other Comprehensive Income where it will remain until the grinding media business is divested.
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. This standard is effective for interim and annual reporting periods beginning after December 15, 2017, and can be adopted either retrospectively or as a cumulative effect adjustment as of the date of adoption. Early adoption is permitted for interim and annual periods beginning after December 15, 2016. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated results of operations and financial position. One area under assessment is the timing of revenue recognition for the Company’s product lines that are custom engineered to a single customer’s specifications resulting in limited ability that the asset can be used for another customer. These product lines reside in the Utility and Engineered Support Structures segments.  When the terms and conditions allow the Company to bill a customer for full compensation on a canceled order for the performance completed to date, revenue will be recognized over the production period and not the current practice which is upon shipment or time of delivery to the customer.  The Company is also evaluating the necessary changes to its internal control processes to recognize revenue over time using an inputs based model after adoption. Based on the current status of the evaluation, the adoption of the standard is not expected to have a material effect on the amounts or timing of revenue recognition for the Company’s other segments.  The Company expects to adopt the new standard using the modified retrospective approach effective January 1, 2018.
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 of adopting this new accounting guidance but expects the adoption will result in a significant increase in total assets and liabilities.

12


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)
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments in the Statement of Cash Flows, which provides more specific guidance on cash flow presentation for certain transactions. ASU 2016-15 is effective for interim periods and fiscal years beginning after December 15, 2017, with early adoption permitted. The Company does not expect the provisions of this new standard will have a material impact on the consolidated financial statements and plans to adopt it in the first quarter of 2018.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test. ASU 2017-04 is effective for periods and fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted this standard in the third quarter of 2017 which is the same period as it performs the annual goodwill impairment testing.
    
In March 2017, the FASB issued ASU 2017-07, Presentation of Net Periodic Benefit Cost Related to Defined Benefit Plans, which amends the income statement presentation requirements for the components of net periodic benefit cost for an entity's defined benefit pension and post-retirement plans. ASU 2017-07 is effective for periods and fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of any annual period for which an entity's financial statements have not been issued. The Company does not believe this ASU will have a material impact on the consolidated financial statements and plans to adopt this ASU in the first quarter of 2018.

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, which improves the financial reporting of hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 is effective for periods and fiscal years beginning after December 15, 2018. Early adoption is permitted for any interim period post issuance. The Company does not believe the adoption of this ASU will have a material impact on the consolidated financial statements.

13


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


(2) ACQUISITIONS
On July 31, 2017, the Company purchased Aircon Guardrails Private Limited ("Aircon") for $5,362 in cash, net of cash acquired, plus assumed liabilities. Aircon produces highway safety systems including guardrails, structural metal products, and solar structural products in India with annual sales of approximately $10,000. In the preliminary purchase price allocation, goodwill of $3,327 and $2,109 of customer relationships and other intangible assets were recorded. Goodwill is not deductible for tax purposes. This business is included in the Engineered Support Structures segment and was acquired to expand the Company's geographic presence in the Asia-Pacific region. The Company expects to finalize the purchase price allocation in the fourth quarter of 2017. Proforma disclosures were omitted as this business does not have a significant impact on the Company's financial results.
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 April 2015, the Company's Board of Directors authorized a broad restructuring plan (the "2015 Plan") to respond to the market environment in certain businesses. During fiscal 2016, the Company incurred pre-tax restructuring charges of $4,581 as it completed the 2015 Plan.     

In 2016, the Company identified and executed further region specific restructuring activities (the "2016 Plan") and incurred $5,045 of pre-tax restructuring expenses in cost of sales and $2,780 of pre-tax restructuring expense in SG&A in 2016. Within the total $7,825, were pre-tax asset impairments of $1,099. The 2016 Plan was primarily completed by year-end 2016. The Energy and Mining segment incurred $1,607, the Coatings segment incurred $305, and Corporate incurred approximately $225 of restructuring expenses during the third quarter of 2016. A significant change in market conditions in any of the Company's segments may affect the Company's assessment of necessity for further restructuring activities.
    
Liabilities recorded for the restructuring plans and changes therein for the first three quarters of fiscal 2017 were as follows:
 
 
Balance at December 31, 2016
 
Recognized Restructuring Expense
 
Costs Paid or Otherwise Settled
 
Balance at September 30, 2017
Severance
 
$
1,597

 
$

 
$
(1,597
)
 
$

Other cash restructuring expenses
 
4,581

 

 
(3,377
)
 
1,204

   Total
 
$
6,178

 
$

 
$
(4,974
)
 
$
1,204



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
Amortized Intangible Assets
The components of amortized intangible assets at September 30, 2017 and December 31, 2016 were as follows:
 
September 30, 2017
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Weighted
Average
Life
Customer Relationships
$
200,269

 
$
126,845

 
13 years
Proprietary Software & Database
3,687

 
3,111

 
8 years
Patents & Proprietary Technology
6,633

 
3,859

 
11 years
Other
4,807

 
4,032

 
3 years
 
$
215,396

 
$
137,847

 
 
 
December 31, 2016
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Weighted
Average
Life
Customer Relationships
$
191,316

 
$
111,342

 
13 years
Proprietary Software & Database
3,616

 
3,056

 
8 years
Patents & Proprietary Technology
6,434

 
3,420

 
11 years
Other
3,713

 
3,668

 
3 years
 
$
205,079

 
$
121,486

 
 
Amortization expense for intangible assets for the thirteen and thirty-nine weeks ended September 30, 2017 and September 24, 2016, respectively was as follows:
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
2017
 
2016
 
2017
 
2016
4,025

 
3,964

 
11,792

 
12,037

Estimated annual amortization expense related to finite‑lived intangible assets is as follows:
 
Estimated
Amortization
Expense
2017
$
15,823

2018
14,492

2019
13,718

2020
12,608

2021
10,474

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 September 30, 2017 and December 31, 2016 were as follows:
 
September 30,
2017
 
December 31,
2016
 
Year Acquired
Webforge
$
9,362

 
$
8,624

 
2010
Valmont SM
9,839

 
8,765

 
2014
Newmark
11,111

 
11,111

 
2004
Ingal EPS/Ingal Civil Products
7,633

 
7,032

 
2010
Donhad
5,758

 
5,305

 
2010
Shakespeare
4,000

 
4,000

 
2014
Industrial Galvanizers
2,390

 
2,201

 
2010
Other
14,448

 
13,747

 
 
 
$
64,541

 
$
60,785

 
 
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 2017. The values of each trade name was determined using the relief-from-royalty method. Based on this evaluation, no trade names were determined to be impaired.
Goodwill
The carrying amount of goodwill by segment as of September 30, 2017 and December 31, 2016 was as follows:
 
Engineered
Support
Structures
Segment
 
Energy & Mining Segment
 
Utility
Support
Structures
Segment
 
Coatings
Segment
 
Irrigation
Segment
 
 
Total
Balance at December 31, 2016
$
94,314

 
$
72,212

 
$
75,404

 
$
59,569

 
$
19,611

 
 
$
321,110

Foreign currency translation
4,568

 
6,704

 

 
951

 
94

 
 
12,317

Acquisitions
3,327

 

 

 

 

 
 
3,327

Balance at September 30, 2017
$
102,209

 
$
78,916

 
$
75,404

 
$
60,520


$
19,705

 
 
$
336,754







16


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)
The Company’s annual impairment test of goodwill was performed during the third quarter of 2017, using the discounted cash flow method. As a result of that testing, the Company determined that its goodwill was not impaired, as the valuation of the reporting units exceeded their respective carrying values. The Company's offshore and other complex steel structures reporting unit with $14,645 of goodwill, is the reporting unit with the smallest cushion between its estimated fair value and its carrying value. Sales and profitability amounts for the first nine months of 2017 approximated the amounts in the 2016 annual impairment model. The 2017 model assumes continued expansion into other highly engineered steel product offerings, such as utility support structures, where the reporting unit completed profitable projects in the past. The Company will continue to monitor the outlook for wind energy in Europe and oil and natural gas prices, which will affect the sales demand assumptions in the five year model for this reporting unit. If demand for off and onshore structures for wind energy changes significantly, the Company will perform an interim impairment test for goodwill. The Company also tracks changes in the global economy that could impact future operating results of any of its reporting units.
(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 thirty-nine weeks ended September 30, 2017 and September 24, 2016 were as follows:
 
2017
 
2016
Interest
$
22,732

 
$
24,036

Income taxes
52,823

 
47,954


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 September 30, 2017:
 
 
 
 
 
Net earnings attributable to Valmont Industries, Inc.
$
35,208

 
$

 
$
35,208

Shares outstanding (000 omitted)
22,527

 
224

 
22,751

Per share amount
$
1.56

 
$
(0.01
)
 
$
1.55

Thirteen weeks ended September 24, 2016:
 
 
 
 
 
Net earnings attributable to Valmont Industries, Inc.
$
28,173

 
$

 
$
28,173

Shares outstanding (000 omitted)
22,505

 
154

 
22,659

Per share amount
$
1.25

 
$
(0.01
)
 
$
1.24

Thirty-nine weeks ended September 30, 2017:
 
 
 
 
 
Net earnings attributable to Valmont Industries, Inc.
$
119,851

 
$

 
$
119,851

Shares outstanding (000 omitted)
22,505

 
212

 
22,717

Per share amount
$
5.33

 
$
(0.05
)
 
$
5.28

Thirty-nine weeks ended September 24, 2016:
 
 
 
 
 
Net earnings attributable to Valmont Industries, Inc.
$
103,168

 
$

 
$
103,168

Shares outstanding (000 omitted)
22,602

 
139

 
22,741

Per share amount
$
4.56

 
$
(0.02
)
 
$
4.54

At September 24, 2016, there were 378,566 outstanding stock options with exercise prices exceeding the market price of common stock that were excluded from the computation of diluted earnings per share.

18


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


(7) BUSINESS SEGMENTS
The accounting principles used in the preparation of the segment information are the same as those used for the consolidated financial statements as disclosed in Note 1, except that the segment assets and income reflect the FIFO basis of accounting for inventory. Certain inventories are accounted for using the LIFO basis in the consolidated financial statements. In the first quarter of 2017, the Company changed its reportable segment operating income to separate out the LIFO expense (benefit). Prior year financial information has been updated to reflect this change.
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 offshore 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.

The Company evaluates the performance of its business segments based upon operating income and invested capital. The Company does not allocate LIFO expense, interest expense, non-operating income and deductions, or income taxes to its business segments.

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
 
Thirty-nine Weeks Ended
 
September 30,
2017
 
September 24,
2016
 
September 30,
2017
 
September 24,
2016
SALES:
 
 
 
 
 
 
 
Engineered Support Structures segment:
 
 
 
 
 
 
 
Lighting, Traffic, and Roadway Products
$
175,184

 
$
159,089

 
$
498,034

 
$
468,582

Communication Products
46,324

 
44,095

 
121,613

 
115,489

Engineered Support Structures segment
221,508

 
203,184

 
619,647

 
584,071

Energy and Mining segment:
 
 
 
 
 
 
 
Offshore and Other Complex Steel Structures
25,046

 
27,330

 
75,372

 
76,207

Grinding Media
19,800

 
20,681

 
60,466

 
61,189

Access Systems
34,909

 
33,541

 
99,096

 
97,297

Energy and Mining segment
79,755

 
81,552

 
234,934

 
234,693

Utility Support Structures segment:
 
 
 
 
 
 
 
Steel
160,948

 
131,085

 
471,072

 
379,157

Concrete
18,811

 
19,582

 
67,921

 
67,275

Utility Support Structures segment
179,759

 
150,667

 
538,993

 
446,432

Coatings segment
82,593

 
70,082

 
235,842

 
213,961

Irrigation segment
147,428

 
127,809

 
502,939

 
438,575

Total
711,043

 
633,294

 
2,132,355

 
1,917,732

INTERSEGMENT SALES:
 
 
 
 
 
 
 
Engineered Support Structures segment
11,736

 
10,076

 
48,399

 
29,202

Energy & Mining segment
6

 
319

 
6

 
3,386

Utility Support Structures segment
1,231

 
276

 
2,448

 
538

Coatings segment
14,913

 
10,079

 
44,230

 
31,778

Irrigation segment
2,378

 
2,297

 
6,283

 
5,727

Total
30,264

 
23,047

 
101,366

 
70,631

NET SALES:
 
 
 
 
 
 
 
Engineered Support Structures segment
209,772

 
193,108

 
571,248

 
554,869

Energy & Mining segment
79,749

 
81,233

 
234,928

 
231,307

Utility Support Structures segment
178,528

 
150,391

 
536,545

 
445,894

Coatings segment
67,680

 
60,003

 
191,612

 
182,183

Irrigation segment
145,050

 
125,512

 
496,656

 
432,848

Total
$
680,779

 
$
610,247

 
$
2,030,989

 
$
1,847,101

 
 
 
 
 
 
 
 
OPERATING INCOME:
 
 
 
 
 
 
 
Engineered Support Structures segment
$
16,226

 
$
20,323

 
$
45,683

 
$
53,615

Energy & Mining segment
1,417

 
3,941

 
9,195

 
9,184

Utility Support Structures segment
22,108

 
16,195

 
65,005

 
48,201

Coatings segment
14,577

 
11,696

 
36,091

 
37,132

Irrigation segment
18,235

 
15,308

 
83,196

 
75,216

Adjustment to LIFO inventory valuation method
(1,626
)
 
(2,066
)
 
(2,839
)
 
(3,192
)
Corporate
(11,014
)
 
(12,157
)
 
(33,616
)
 
(32,745
)
Total
$
59,923

 
$
53,240

 
$
202,715

 
$
187,411


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 September 30, 2017
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net sales
$
284,538

 
$
113,243

 
$
343,818

 
$
(60,820
)
 
$
680,779

Cost of sales
216,039

 
88,757

 
272,959

 
(60,570
)
 
517,185

Gross profit
68,499

 
24,486

 
70,859

 
(250
)
 
163,594

Selling, general and administrative expenses
46,451

 
12,046

 
45,174

 

 
103,671

Operating income
22,048

 
12,440

 
25,685

 
(250
)
 
59,923

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(10,884
)
 
(3,989
)
 
(306
)
 
3,989

 
(11,190
)
Interest income
268

 
9

 
5,023

 
(3,989
)
 
1,311

Other
1,379

 
11

 
(873
)
 

 
517

 
(9,237
)
 
(3,969
)
 
3,844

 

 
(9,362
)
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries
12,811

 
8,471

 
29,529

 
(250
)
 
50,561

Income tax expense (benefit):
 
 
 
 
 
 
 
 
 
Current
9,030

 
3,082

 
9,059

 
(8
)
 
21,163

Deferred
(3,474
)
 

 
(3,794
)
 

 
(7,268
)
 
5,556

 
3,082

 
5,265

 
(8
)
 
13,895

Earnings before equity in earnings of nonconsolidated subsidiaries
7,255

 
5,389

 
24,264

 
(242
)
 
36,666

Equity in earnings of nonconsolidated subsidiaries
27,953

 
9,965

 

 
(37,918
)
 

Net earnings
35,208

 
15,354

 
24,264

 
(38,160
)
 
36,666

Less: Earnings attributable to noncontrolling interests

 

 
(1,458
)
 

 
(1,458
)
Net earnings attributable to Valmont Industries, Inc
$
35,208

 
$
15,354

 
$
22,806

 
$
(38,160
)
 
$
35,208


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 Thirty-nine Weeks Ended September 30, 2017
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net sales
$
893,988

 
$
352,827

 
$
967,130

 
$
(182,956
)
 
$
2,030,989

Cost of sales
666,060

 
271,620

 
764,607

 
(182,777
)
 
1,519,510

Gross profit
227,928

 
81,207

 
202,523

 
(179
)
 
511,479

Selling, general and administrative expenses
143,590

 
35,555

 
129,619

 

 
308,764

Operating income
84,338

 
45,652

 
72,904

 
(179
)
 
202,715

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(32,672
)
 
(10,040
)
 
(640
)
 
10,040

 
(33,312
)
Interest income
563

 
33

 
12,649

 
(10,040
)
 
3,205

Other
3,900

 
42

 
(2,258
)
 

 
1,684

 
(28,209
)
 
(9,965
)
 
9,751

 

 
(28,423
)
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries
56,129

 
35,687

 
82,655

 
(179
)
 
174,292

Income tax expense (benefit):
 
 
 
 
 
 
 
 
 
Current
19,487

 
13,184

 
17,612

 
(19
)
 
50,264

Deferred
2,065

 

 
(1,986
)
 

 
79

 
21,552

 
13,184

 
15,626

 
(19
)
 
50,343

Earnings before equity in earnings of nonconsolidated subsidiaries
34,577

 
22,503

 
67,029

 
(160
)
 
123,949

Equity in earnings of nonconsolidated subsidiaries
85,274

 
15,281

 

 
(100,555
)
 

Net earnings
119,851

 
37,784

 
67,029

 
(100,715
)
 
123,949

Less: Earnings attributable to noncontrolling interests

 

 
(4,098
)
 

 
(4,098
)
Net earnings attributable to Valmont Industries, Inc
$
119,851

 
$
37,784

 
$
62,931

 
$
(100,715
)
 
$
119,851



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 September 24, 2016
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net sales
$
261,928

 
$
89,305

 
$
300,648

 
$
(41,634
)
 
$
610,247

Cost of sales
199,957

 
66,401

 
230,561

 
(41,695
)
 
455,224

Gross profit
61,971

 
22,904

 
70,087

 
61

 
155,023

Selling, general and administrative expenses
46,183

 
11,073

 
44,527

 

 
101,783

Operating income
15,788

 
11,831

 
25,560

 
61

 
53,240

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(10,920
)
 
(6
)
 
(174
)
 

 
(11,100
)
Interest income
68

 
12

 
691

 

 
771

Other
1,370

 
12

 
(504
)
 

 
878

 
(9,482
)
 
18

 
13

 

 
(9,451
)
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries
6,306

 
11,849

 
25,573

 
61

 
43,789

Income tax expense (benefit):
 
 
 
 
 
 
 
 
 
Current
6,112

 
5,095

 
6,762

 
48

 
18,017

Deferred
(5,321
)
 

 
1,572

 

 
(3,749
)
 
791

 
5,095

 
8,334

 
48

 
14,268

Earnings before equity in earnings of nonconsolidated subsidiaries
5,515

 
6,754

 
17,239

 
13

 
29,521

Equity in earnings of nonconsolidated subsidiaries
22,658

 

 

 
(22,658
)
 

Net earnings
28,173

 
6,754

 
17,239

 
(22,645
)
 
29,521

Less: Earnings attributable to noncontrolling interests

 

 
(1,348
)
 

 
(1,348
)
Net earnings attributable to Valmont Industries, Inc
$
28,173

 
$
6,754

 
$
15,891

 
$
(22,645
)
 
$
28,173




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 Thirty-nine Weeks Ended September 24, 2016
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net sales
$
837,137

 
$
277,990

 
$
873,673

 
$
(141,699
)
 
$
1,847,101

Cost of sales
619,493

 
205,497

 
671,202

 
(140,200
)
 
1,355,992

Gross profit
217,644

 
72,493

 
202,471

 
(1,499
)
 
491,109

Selling, general and administrative expenses
133,207

 
33,583

 
136,908

 

 
303,698

Operating income
84,437

 
38,910

 
65,563

 
(1,499
)
 
187,411

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(32,768
)
 
(9
)
 
(499
)
 

 
(33,276
)
Interest income
181

 
51

 
2,057

 

 
2,289

Other
1,694

 
39

 
(1,281
)
 

 
452

 
(30,893
)
 
81

 
277

 

 
(30,535
)
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries
53,544

 
38,991

 
65,840

 
(1,499
)
 
156,876

Income tax expense (benefit):
 
 
 
 
 
 
 
 
 
Current
22,086

 
13,909

 
15,762

 
(481
)
 
51,276

Deferred
(1,834
)
 

 
300

 

 
(1,534
)
 
20,252

 
13,909

 
16,062

 
(481
)
 
49,742

Earnings before equity in earnings of nonconsolidated subsidiaries
33,292

 
25,082

 
49,778

 
(1,018
)
 
107,134

Equity in earnings of nonconsolidated subsidiaries
69,876

 
7,859

 

 
(77,735
)
 

Net earnings
103,168

 
32,941

 
49,778

 
(78,753
)
 
107,134

Less: Earnings attributable to noncontrolling interests

 

 
(3,966
)
 

 
(3,966
)
Net earnings attributable to Valmont Industries, Inc
$
103,168

 
$
32,941

 
$
45,812

 
$
(78,753
)
 
$
103,168



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 September 30, 2017
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net earnings
$
35,208

 
$
15,354

 
$
24,264

 
$
(38,160
)
 
$
36,666

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

 
(3,613
)
 
23,143

 

 
19,530

Unrealized gain/(loss) on hedging activities:
 
 
 
 
 
 
 
 
 
     Net investment hedge
(740
)
 

 

 

 
(740
)
     Amortization cost included in interest expense
19

 

 

 

 
19

Equity in other comprehensive income
18,418

 

 

 
(18,418
)
 

Other comprehensive income (loss)
17,697

 
(3,613
)
 
23,143

 
(18,418
)
 
18,809

Comprehensive income (loss)
52,905

 
11,741

 
47,407

 
(56,578
)
 
55,475

Comprehensive income attributable to noncontrolling interests

 

 
(2,570
)
 

 
(2,570
)
Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
52,905

 
$
11,741

 
$
44,837

 
$
(56,578
)
 
$
52,905


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirty-nine Weeks Ended September 30, 2017
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net earnings
$
119,851

 
$
37,784

 
$
67,029

 
$
(100,715
)
 
$
123,949

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

 
64,411

 
(3,940
)
 

 
60,471

Unrealized gain/(loss) on hedging activities:
 
 
 
 
 
 
 
 
 
     Net investment hedge
(1,816
)
 
 
 

 

 
(1,816
)
     Amortization cost included in interest expense
56

 

 

 

 
56

Equity in other comprehensive income
60,017

 

 

 
(60,017
)
 

Other comprehensive income (loss)
58,257

 
64,411

 
(3,940
)
 
(60,017
)
 
58,711

Comprehensive income (loss)
178,108

 
102,195

 
63,089

 
(160,732
)
 
182,660

Comprehensive income attributable to noncontrolling interests

 

 
(4,552
)
 

 
(4,552
)
Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
178,108

 
$
102,195

 
$
58,537

 
$
(160,732
)
 
$
178,108



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 Thirteen weeks ended September 24, 2016
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net earnings
$
28,173

 
$
6,754

 
$
17,239

 
$
(22,645
)
 
$
29,521

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

 
(114
)
 
884

 

 
770

Unrealized gain/(loss) on hedging activities:
 
 
 
 
 
 
 
 
 
     Net investment hedge
1,972

 

 

 

 
1,972

     Amortization cost included in interest expense
18

 

 

 

 
18

Equity in other comprehensive income
500

 

 

 
(500
)
 

Other comprehensive income (loss)
2,490

 
(114
)
 
884

 
(500
)
 
2,760

Comprehensive income (loss)
30,663

 
6,640

 
18,123

 
(23,145
)
 
32,281

Comprehensive income attributable to noncontrolling interests

 

 
(1,618
)
 

 
(1,618
)
Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
30,663

 
$
6,640

 
$
16,505

 
$
(23,145
)
 
$
30,663


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirty-nine Weeks Ended September 24, 2016
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net earnings
$
103,168

 
$
32,941

 
$
49,778

 
$
(78,753
)
 
$
107,134

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

 
(263
)
 
(1,675
)
 

 
(1,938
)
Unrealized gain/(loss) on hedging activities:
 
 
 
 
 
 
 
 
 
      Net Investment Hedge
4,897

 

 

 

 
4,897

     Amortization cost included in interest expense
56

 

 

 

 
56

Equity in other comprehensive income
(3,704
)
 

 

 
3,704

 

Other comprehensive income (loss)
1,249

 
(263
)
 
(1,675
)
 
3,704

 
3,015

Comprehensive income (loss)
104,417

 
32,678

 
48,103

 
(75,049
)
 
110,149

Comprehensive income attributable to noncontrolling interests

 

 
(5,732
)
 

 
(5,732
)
Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
104,417

 
$
32,678

 
$
42,371

 
$
(75,049
)
 
$
104,417


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 BALANCE SHEETS
September 30, 2017
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
118,499

 
$
4,167

 
$
370,824

 
$

 
$
493,490

Receivables, net
152,290

 
69,781

 
270,771

 

 
492,842

Inventories
141,774

 
46,747

 
219,046

 
(4,333
)
 
403,234

Prepaid expenses, restricted cash, and other assets
8,903

 
1,023

 
40,138

 

 
50,064

Refundable income taxes
8,493

 

 

 

 
8,493

Total current assets
429,959

 
121,718

 
900,779

 
(4,333
)
 
1,448,123

Property, plant and equipment, at cost
558,484

 
158,087

 
453,283

 

 
1,169,854

Less accumulated depreciation and amortization
369,620

 
82,708

 
195,102

 

 
647,430

Net property, plant and equipment
188,864

 
75,379

 
258,181

 

 
522,424

Goodwill
20,108

 
110,562

 
206,084

 

 
336,754

Other intangible assets
144

 
32,204

 
109,742

 

 
142,090

Investment in subsidiaries and intercompany accounts
1,392,533

 
1,180,732

 
1,029,831

 
(3,603,096
)
 

Other assets
47,613

 

 
113,167

 

 
160,780

Total assets
$
2,079,221

 
$
1,520,595

 
$
2,617,784

 
$
(3,607,429
)
 
$
2,610,171

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

 
$

 
$
949

 
$

 
$
949

Notes payable to banks

 

 
197

 

 
197

Accounts payable
59,467

 
8,032

 
148,605

 

 
216,104

Accrued employee compensation and benefits
40,760

 
8,293

 
32,441

 

 
81,494

Accrued expenses
44,896

 
9,222

 
52,120

 

 
106,238

Dividends payable
8,478

 

 

 

 
8,478

Total current liabilities
153,601

 
25,547

 
234,312

 

 
413,460

Deferred income taxes
15,617

 

 
12,566

 

 
28,183

Long-term debt, excluding current installments
750,933

 
185,674

 
10,060

 
(192,465
)
 
754,202

Defined benefit pension liability

 

 
199,562

 

 
199,562

Deferred compensation
43,077

 

 
5,535

 

 
48,612

Other noncurrent liabilities
3,159

 
5

 
10,393

 

 
13,557

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

 
457,950

 
648,682

 
(1,106,632
)
 
27,900

Additional paid-in capital

 
166,789

 
1,107,536

 
(1,274,325
)
 

Retained earnings
1,974,601

 
684,532

 
636,283

 
(1,320,815
)
 
1,974,601

Accumulated other comprehensive income (loss)
(288,102
)
 
98

 
(286,906
)
 
286,808

 
(288,102
)
Treasury stock
(601,565
)
 

 

 

 
(601,565
)
Total Valmont Industries, Inc. shareholders’ equity
1,112,834

 
1,309,369

 
2,105,595

 
(3,414,964
)
 
1,112,834

Noncontrolling interest in consolidated subsidiaries

 

 
39,761

 

 
39,761

Total shareholders’ equity
1,112,834

 
1,309,369

 
2,145,356

 
(3,414,964
)
 
1,152,595

Total liabilities and shareholders’ equity
$
2,079,221

 
$
1,520,595

 
$
2,617,784

 
$
(3,607,429
)
 
$
2,610,171


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 BALANCE SHEETS
December 31, 2016
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
67,225

 
$
6,071

 
$
326,652

 
$

 
$
399,948

Receivables, net
134,351

 
60,522

 
244,469

 

 
439,342

Inventories
126,669

 
45,457

 
182,056

 
(4,154
)
 
350,028

Prepaid expenses
13,271

 
880

 
43,146

 

 
57,297

Refundable income taxes
6,601

 

 

 

 
6,601

Total current assets
348,117

 
112,930

 
796,323

 
(4,154
)
 
1,253,216

Property, plant and equipment, at cost
547,076

 
153,596

 
405,064

 

 
1,105,736

Less accumulated depreciation and amortization
352,960

 
76,776

 
157,665

 

 
587,401

Net property, plant and equipment
194,116

 
76,820

 
247,399

 

 
518,335

Goodwill
20,108

 
110,561

 
190,441

 

 
321,110

Other intangible assets
184

 
35,953

 
108,241

 

 
144,378

Investment in subsidiaries and intercompany accounts
1,279,413

 
901,758

 
1,089,369

 
(3,270,540
)
 

Other assets
43,880

 

 
110,812

 

 
154,692

Total assets
$
1,885,818

 
$
1,238,022

 
$
2,542,585

 
$
(3,274,694
)
 
$
2,391,731

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

 
$

 
$
851

 
$

 
$
851

Notes payable to banks

 

 
746

 

 
746

Accounts payable
52,272

 
15,732

 
109,484

 

 
177,488

Accrued employee compensation and benefits
34,508

 
7,243

 
30,653

 

 
72,404

Accrued expenses
30,261

 
15,242

 
44,411

 

 
89,914

Dividends payable
8,445

 

 

 

 
8,445

Total current liabilities
125,486

 
38,217

 
186,145

 

 
349,848

Deferred income taxes
22,481

 

 
13,322

 

 
35,803

Long-term debt, excluding current installments
751,251

 

 
3,544

 

 
754,795

Defined benefit pension liability

 

 
209,470

 

 
209,470

Deferred compensation
39,476

 

 
4,843

 

 
44,319

Other noncurrent liabilities
3,642

 
5

 
11,263

 

 
14,910

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
1,874,722

 
646,749

 
603,338

 
(1,250,087
)
 
1,874,722

Accumulated other comprehensive income
(346,359
)
 
(64,313
)
 
(284,663
)
 
348,976

 
(346,359
)
Treasury stock
(612,781
)
 

 

 

 
(612,781
)
Total Valmont Industries, Inc. shareholders’ equity
943,482

 
1,199,800

 
2,074,894

 
(3,274,694
)
 
943,482

Noncontrolling interest in consolidated subsidiaries

 

 
39,104

 

 
39,104

Total shareholders’ equity
943,482

 
1,199,800

 
2,113,998

 
(3,274,694
)
 
982,586

Total liabilities and shareholders’ equity
$
1,885,818


$
1,238,022

 
$
2,542,585

 
$
(3,274,694
)
 
$
2,391,731


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 STATEMENTS OF CASH FLOWS
For the Thirty-nine Weeks Ended September 30, 2017
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net earnings
$
119,851

 
$
37,784

 
$
67,029

 
$
(100,715
)
 
$
123,949

Adjustments to reconcile net earnings to net cash flows from operations:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
19,600

 
11,130

 
32,770

 

 
63,500

Noncash loss on trading securities

 

 
395

 

 
395

  Stock-based compensation
7,300

 

 

 

 
7,300

Defined benefit pension plan expense

 

 
481

 

 
481

Contribution to defined benefit pension plan

 

 
(26,064
)
 

 
(26,064
)
Decrease in restricted cash - pension plan trust

 

 
12,568

 

 
12,568

Loss (gain) on sale of property, plant and equipment
(725
)
 
59

 
(66
)
 

 
(732
)
Equity in earnings in nonconsolidated subsidiaries
(85,274
)
 
(15,281
)
 

 
100,555

 

Deferred income taxes
2,065

 

 
(1,986
)
 

 
79

Changes in assets and liabilities:
 
 
 
 
 
 
 
 
 
Receivables
(16,190
)
 
(9,259
)
 
(14,135
)
 

 
(39,584
)
Inventories
(15,105
)
 
(1,290
)
 
(25,329
)
 
179

 
(41,545
)
Prepaid expenses and other assets
(2,501
)
 
(144
)
 
(8,991
)
 

 
(11,636
)
Accounts payable
7,196

 
(7,700
)
 
29,399

 

 
28,895

Accrued expenses
20,887

 
(4,971
)
 
4,241

 

 
20,157

Other noncurrent liabilities
(381
)
 

 
(1,246
)
 

 
(1,627
)
Income taxes payable (refundable)
(11,403
)
 
802

 
8,869

 

 
(1,732
)
Net cash flows from operating activities
45,320

 
11,130

 
77,935

 
19

 
134,404

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchase of property, plant and equipment
(14,046
)
 
(5,952
)
 
(19,900
)
 

 
(39,898
)
Proceeds from sale of assets
745

 
(48
)
 
878

 

 
1,575

Acquisitions, net of cash acquired

 

 
(5,362
)
 

 
(5,362
)
Proceeds from settlement of net investment hedge
5,123

 

 

 

 
5,123

Other, net
15,714

 
(8,985
)
 
(10,172
)
 
(19
)
 
(3,462
)
Net cash flows from investing activities
7,536

 
(14,985
)
 
(34,556
)
 
(19
)
 
(42,024
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Net borrowings under short-term agreements

 

 
(549
)
 

 
(549
)
Principal payments on long-term borrowings


 

 
(658
)
 

 
(658
)
Dividends paid
(25,386
)
 

 

 

 
(25,386
)
Dividends to noncontrolling interest

 


 
(3,895
)
 

 
(3,895
)
Intercompany dividends
22,662

 

 
(22,662
)
 

 

Intercompany interest on long-term note

 
(5,669
)
 
5,669

 

 

Intercompany capital contribution
(7,375
)
 
7,375

 

 

 

Proceeds from exercises under stock plans
12,446

 

 

 

 
12,446

Purchase of common treasury shares - stock plan exercises
(3,929
)
 

 

 

 
(3,929
)
Net cash flows from financing activities
(1,582
)
 
1,706

 
(22,095
)
 

 
(21,971
)
Effect of exchange rate changes on cash and cash equivalents

 
245

 
22,888

 

 
23,133

Net change in cash and cash equivalents
51,274

 
(1,904
)
 
44,172

 

 
93,542

Cash and cash equivalents—beginning of year
67,225

 
6,071

 
326,652

 

 
399,948

Cash and cash equivalents—end of period
$
118,499

 
$
4,167

 
$
370,824

 
$

 
$
493,490


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 STATEMENTS OF CASH FLOWS
For the Thirty-nine Weeks Ended September 24, 2016
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net earnings
$
103,168

 
$
32,941

 
$
49,778

 
$
(78,753
)
 
$
107,134

Adjustments to reconcile net earnings to net cash flows from operations:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
20,482

 
9,897

 
30,863

 

 
61,242

Noncash loss on trading securities

 

 
973

 

 
973

Impairment of assets - restructuring activities

 

 
618

 

 
618

  Stock-based compensation
6,572

 

 

 

 
6,572

  Change in fair value of contingent consideration

 

 
(3,527
)
 

 
(3,527
)
Defined benefit pension plan expense

 

 
1,486

 

 
1,486

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
2

 
117

 
131

 

 
250

Equity in earnings in nonconsolidated subsidiaries
(69,876
)
 
(7,859
)
 

 
77,735

 

Deferred income taxes
(1,834
)
 

 
300

 

 
(1,534
)
Changes in assets and liabilities:
 
 
 
 
 
 
 
 
 
Receivables
(10,501
)
 
14,969

 
11,968

 

 
16,436

Inventories
(11,847
)
 
(5,024
)
 
(19,041
)
 
1,499

 
(34,413
)
Prepaid expenses
(4,526
)
 
76

 
(6,174
)
 

 
(10,624
)
Accounts payable
(16,605
)
 
2,530

 
2,737

 

 
(11,338
)
Accrued expenses
11,179

 
(7,218
)
 
(689
)
 

 
3,272

Other noncurrent liabilities
(252
)
 
5

 
487

 

 
240

Income taxes payable (refundable)
19,132

 
(16,444
)
 
2,143

 

 
4,831

Net cash flows from operating activities
45,094

 
23,990

 
57,689

 
481

 
127,254

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchase of property, plant and equipment
(5,699
)
 
(17,944
)
 
(18,590
)
 

 
(42,233
)
Proceeds from sale of assets
36

 
84

 
3,818

 

 
3,938

Other, net
13,070

 
(4,488
)
 
(10,925
)
 
(481
)
 
(2,824
)
Net cash flows from investing activities
7,407

 
(22,348
)
 
(25,697
)
 
(481
)
 
(41,119
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Net borrowings under short-term agreements

 

 
(128
)
 

 
(128
)
Principal payments on long-term borrowings
(215
)
 

 
(1,348
)
 

 
(1,563
)
Dividends paid
(25,604
)
 

 

 

 
(25,604
)
Dividends to noncontrolling interest

 

 
(2,527
)
 

 
(2,527
)
Purchase of noncontrolling interest
(137
)
 

 
(10,872
)
 

 
(11,009
)
Proceeds from exercises under stock plans
6,509

 

 

 

 
6,509

Purchase of treasury shares
(46,581
)
 

 

 

 
(46,581
)
Purchase of common treasury shares - stock plan exercises
(1,453
)
 

 

 

 
(1,453
)
Net cash flows from financing activities
(67,481
)
 

 
(14,875
)
 

 
(82,356
)
Effect of exchange rate changes on cash and cash equivalents

 
168

 
(3,646
)
 

 
(3,478
)
Net change in cash and cash equivalents
(14,980
)
 
1,810

 
13,471

 

 
301

Cash and cash equivalents—beginning of year
62,281

 
4,008

 
282,785

 

 
349,074

Cash and cash equivalents—end of period
$
47,301

 
$
5,818

 
$
296,256

 
$

 
$
349,375


30



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 31, 2016. Segment sales in the table below are presented net of intersegment sales.

31



Results of Operations (Dollars in millions, except per share amounts)    
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
 
September 30, 2017
 
September 24, 2016
 
% Incr. (Decr.)
 
September 30, 2017
 
September 24, 2016
 
% Incr. (Decr.)
Consolidated
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
680.8

 
$
610.2

 
11.6
 %
 
$
2,031.0

 
$
1,847.1

 
10.0
 %
Gross profit
163.6

 
155.0

 
5.5
 %
 
511.5

 
491.1

 
4.2
 %
as a percent of sales    
24.0
%
 
25.4
%
 
 
 
25.2
%
 
26.6
%
 
 
SG&A expense
103.7

 
101.8

 
1.9
 %
 
308.8

 
303.7

 
1.7
 %
as a percent of sales    
15.2
%
 
16.7
%
 
 
 
15.2
%
 
16.4
%
 
 
Operating income
59.9

 
53.2

 
12.6
 %
 
202.7

 
187.4

 
8.2
 %
as a percent of sales    
8.8
%
 
8.7
%
 
 
 
10.0
%
 
10.1
%
 
 
Net interest expense
9.9

 
10.3

 
(3.9
)%
 
30.1

 
31.0

 
(2.9
)%
Effective tax rate
27.5
%
 
32.6
%
 
 
 
28.9
%
 
31.7
%
 
 
Net earnings
$
35.2

 
$
28.2

 
24.8
 %
 
$
119.9

 
$
103.2

 
16.2
 %
Diluted earnings per share
$
1.55

 
$
1.24

 
25.0
 %
 
$
5.28

 
$
4.54

 
16.3
 %
Engineered Support Structures (ESS)
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
209.8

 
$
193.1

 
8.6
 %
 
$
571.3

 
$
554.9

 
3.0
 %
Gross profit
50.9

 
54.3

 
(6.3
)%
 
145.2

 
156.9

 
(7.5
)%
SG&A expense
34.6

 
34.0

 
1.8
 %
 
99.5

 
103.3

 
(3.7
)%
Operating income
16.3

 
20.3

 
(19.7
)%
 
45.7

 
53.6

 
(14.7
)%
Energy and Mining (E&M)
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
79.7

 
$
81.2

 
(1.8
)%
 
$
234.9

 
$
231.3

 
1.6
 %
Gross profit
12.5

 
14.8

 
(15.5
)%
 
41.6

 
41.6

 
 %
SG&A expense
11.1

 
10.9

 
1.8
 %
 
32.4

 
32.5

 
(0.3
)%
Operating income
1.4

 
3.9

 
(64.1
)%
 
9.2

 
9.1

 
1.1
 %
Utility Support Structures (Utility)
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
178.5

 
$
150.4

 
18.7
 %
 
$
536.5

 
$
445.9

 
20.3
 %
Gross profit
39.4

 
31.8

 
23.9
 %
 
115.4

 
94.2

 
22.5
 %
SG&A expense
17.3

 
15.6

 
10.9
 %
 
50.4

 
46.0

 
9.6
 %
Operating income
22.1

 
16.2

 
36.4
 %
 
65.0

 
48.2

 
34.9
 %
Coatings
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
67.7

 
$
60.0

 
12.8
 %
 
$
191.6

 
$
182.2

 
5.2
 %
Gross profit
20.3

 
17.9

 
13.4
 %
 
58.5

 
59.1

 
(1.0
)%
SG&A expense
5.8

 
6.2

 
(6.5
)%
 
22.5

 
22.0

 
2.3
 %
Operating income
14.5

 
11.7

 
23.9
 %
 
36.0

 
37.1

 
(3.0
)%
Irrigation
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
145.1

 
$
125.5

 
15.6
 %
 
$
496.7

 
$
432.8

 
14.8
 %
Gross profit
42.1

 
38.1

 
10.5
 %
 
153.6

 
141.4

 
8.6
 %
SG&A expense
23.9

 
22.7

 
5.3
 %
 
70.4

 
66.1

 
6.5
 %
Operating income
18.2

 
15.4

 
18.2
 %
 
83.2

 
75.3

 
10.5
 %
Adjustment to LIFO inventory valuation method
 
 
 
 
 
 
 
 
 
 
 
Gross profit
$
(1.6
)
 
$
(2.1
)
 
NM
 
$
(2.8
)
 
$
(3.2
)
 
NM
Operating income
(1.6
)
 
(2.1
)
 
NM
 
(2.8
)
 
(3.2
)
 
NM
Net corporate expense
 
 
 
 
 
 
 
 
 
 
 
Gross profit
$

 
$
0.3

 
NM
 
$

 
$
1.1

 
NM
SG&A expense
11.0

 
12.4

 
(11.3
)%
 
33.6

 
33.8

 
(0.6
)%
Operating loss
(11.0
)
 
(12.1
)
 
9.1
 %
 
(33.6
)
 
(32.7
)
 
(2.8
)%
NM=Not meaningful

32



Overview
On a consolidated basis, the increase in net sales in the third quarter of fiscal 2017, as compared with the third quarter of fiscal 2016, reflected higher sales in all reportable segments except for the Energy & Mining segment. On a year-to-date basis, higher consolidated sales in 2017, as compared to 2016, reflected increases across all reportable segments. The changes in net sales in the third quarter and first three quarters of fiscal 2017, as compared with fiscal 2016, were as follows:
 
Third quarter
 
Total
ESS
E&M
Utility
Coatings
Irrigation
Sales - 2016
$
610.2

$
193.1

$
81.2

$
150.4

$
60.0

$
125.5

Volume
29.7

15.9

(6.9
)
1.6

1.5

17.6

Pricing/mix
31.7

(3.5
)
2.0

26.5

5.6

1.1

Acquisitions
1.6

1.6





Currency translation
7.6

2.7

3.4


0.6

0.9

Sales - 2017
$
680.8

$
209.8

$
79.7

$
178.5

$
67.7

$
145.1

 
Year-to-date
 
Total
ESS
E&M
Utility
Coatings
Irrigation
Sales - 2016
$
1,847.1

$
554.9

$
231.3

$
445.9

$
182.2

$
432.8

Volume
110.4

20.4

(4.9
)
48.2

(5.6
)
52.3

Pricing/mix
63.1

(2.2
)
5.1

42.4

14.5

3.3

Acquisitions
1.6

1.6





Currency translation
8.8

(3.4
)
3.4


0.5

8.3

Sales - 2017
$
2,031.0

$
571.3

$
234.9

$
536.5

$
191.6

$
496.7

Volume effects are estimated based on a physical production or sales measure. Since products we sell are not uniform in nature, pricing and mix relate to a combination of changes in sales prices and the attributes of the product sold. Accordingly, pricing and mix changes do not necessarily directly result in operating income changes.

Average steel index prices for both hot rolled coil and plate were higher in North America and China in the third quarter and first three quarters of 2017, as compared to the same periods in 2016, resulting in higher average cost of material. We expect that average selling prices will increase over time to offset the decrease in gross profit realized from the higher cost of steel for the Company.
    
In the third quarter of 2017, the two hurricanes in the continental United States negatively impacted 10 of our facilities by interrupting production and delivery schedules. This impacted certain locations in the ESS, Coatings, and Utility segments. The Company acquired a highway business in India ("Aircon") in the third quarter of 2017 that is included in our ESS 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. The Company incurred pre-tax expenses from the 2016 Plan of $2.1 million in the third quarter of 2016. The Energy and Mining segment incurred approximately $1.6 million, the Coatings segment incurred approximately $0.3 million, and Corporate incurred approximately $0.2 million of restructuring expenses during the third quarter of 2016.



33



Currency Translation

In the third quarter and first three quarters of fiscal 2017, we realized an increase in operating profit, as compared with fiscal 2016, due to currency translation effects. The U.S. dollar primarily weakened against the Brazilian real and South African rand, resulting in more operating profit in U.S. dollar terms. The breakdown of this effect by segment was as
follows:
 
Total
ESS
E&M
Utility
Coatings
Irrigation
Corporate
Third quarter
$
0.4

$
0.2

$
0.1

$

$
0.1

$

$

 


 
 
 
 
 
 
Year-to-date
$
1.3

$
0.1

$
0.1

$

$
(0.1
)
$
1.2

$



Gross Profit, SG&A, and Operating Income

At a consolidated level, the reduction in gross margin (gross profit as a percent of sales) in the third quarter and first three quarters of 2017, as compared with the same periods in 2016, was primarily due to higher raw material prices across most of our businesses. Gross profit increased in the third quarter and first three quarters of 2017, as compared to the same periods in 2016, due to increased sales volumes in most operating segments. The Irrigation and Utility segments realized increases in the third quarter and first three quarters of 2017, while ESS and Energy & Mining realized a decrease in gross profit primarily due to sales pricing that did not fully recover higher raw material costs and an unfavorable sales mix. The Coatings segment realized higher gross profit in the third quarter, but lower gross profit in the first three quarters of 2017 as compared to the same periods in fiscal 2016.
  
The Company saw an increase in SG&A in the third quarter and first three quarters of fiscal 2017, as compared to the same periods in 2016, due to higher incentive expenses related to improved business operations. In addition, the Company incurred higher deferred compensation expenses in the first three quarters of 2017 of $1.7 million, which was offset by the same amount of other income.

    In the third quarter of 2017, as compared to 2016, operating income for all operating segments were higher except for the ESS and Energy & Mining segments. On a year-to-date basis, operating income was higher in 2017 for the Utility and Irrigation segments and lower for the ESS and Coatings segments. The increase in operating income in the third quarter and first three quarters of 2017, as compared to the same periods in 2016, is primarily attributable to increased sales volumes in the Utility and Irrigation segments.

Net Interest Expense and Debt
    
Net interest expense in the third quarter and first three quarters of 2017, as compared with the same periods in 2016, was consistent due to minimal changes in short and long-term borrowings. Interest income increased due to more cash on hand to invest.

Other Income/Expense

The change in other income/expense in the third quarter and first three quarters of 2017, as compared with the same periods in 2016, was primarily due to a change in valuation of deferred compensation assets. This change resulted in lower other income in the third quarter of $0.4 million but increased other income for the first three quarters of $1.7 million. This amount is offset by the same amount in SG&A expense. The change in the market value of the Company's shares held of Delta EMD was a $0.6 million smaller loss on a year-to-date basis when comparing 2017 to 2016. The remaining change was due to foreign currency transaction gains or losses.

Income Tax Expense
    
Our effective income tax rate in the third quarter and first three quarters of 2017 was 27.5% and 28.9%, respectively, compared to 32.6% and 31.7% in the third quarter and first three quarters of 2016, respectively. A $1.9 million reversal of a valuation allowance against certain foreign net operating loss carryforwards in third quarter of 2017 contributed to the lower

34



tax rate. In addition, the Company recorded $1.8 million of deferred income tax expense related to decreased future corporate tax rates in the United Kingdom in the third quarter of 2016.

Earnings attributable to noncontrolling interests was consistent in the third quarter and first three quarters of 2017, as compared to the same periods in 2016.

Cash Flows from Operations
 
Our cash flows provided by operations was $134.4 million in the first three quarters of fiscal 2017, as compared with $127.3 million provided by operations in the first three quarters of 2016. The increase in operating cash flow in the first three quarters of fiscal 2017, as compared with 2016, was primarily the result of improved net earnings mostly offset by higher net working capital tied to increased sales volumes.

Engineered Support Structures (ESS) segment
The increase in sales in the third quarter and first three quarters of fiscal 2017, as compared with the same periods of 2016, was due to improved roadway product sales volumes and higher communication product line sales volumes.
Global lighting and traffic, and roadway product sales in the third quarter and first three quarters of 2017 were higher compared to the same periods in fiscal 2016, primarily due to increased sales volumes in roadway product sales, which is a product line outside of North America. In the third quarter and first three quarters of 2017, as compared to 2016, sales volumes in the U.S. were lower across commercial and transportation markets. The 2015 long-term U.S. highway bill has not yet provided a meaningful uplift for our North America structures business. Sales in Europe were higher in the third quarter but lower in the first three quarters of 2017 compared to the same periods in fiscal 2016. The domestic markets in general remain subdued in Europe. The increase in sales volume was partially offset by unfavorable currency translation effects on a year-to-date basis.
Communication product line sales were higher in the third quarter and first three quarters of fiscal 2017, as compared with the same periods in fiscal 2016. In both North America and Asia-Pacific, communication structure and component sales increased due to higher demand from the continued network expansion by providers.
Gross profit, as a percentage of sales, and operating income for the segment were lower in the third quarter and first three quarters of 2017, as compared with the same periods in 2016, due to margin contraction from higher raw material costs that the business was not able to fully recover through higher sales pricing. SG&A spending was higher in the third quarter of 2017, as compared to 2016, due to foreign currency translation effects. SG&A spending was lower in the first three quarters of 2017, as compared to 2016, due primarily to lower commissions owed on communication product line sales, reduced incentives due to decreased operating performance, and currency translation effects.
Energy & Mining (E&M) segment
The decrease in net sales in the third quarter of 2017, as compared to 2016, was due primarily to lower sales volumes that were partially offset by higher sales pricing and favorable currency translation effects. The increase in net sales in the first three quarters of 2017, as compared to 2016, was due to higher sales pricing and favorable currency translation effects.
Access systems product line net sales in the third quarter and first three quarters of 2017 were higher than the same periods in 2016 due to higher sales pricing and favorable currency translation effects. The increase was partially offset by lower external sales volumes in Asia.
Offshore and other complex structures sales decreased in the third quarter of 2017, as compared to the same period in 2016, due to lower volumes that were partially offset by favorable currency translation effects. Sales decreased in the first three quarters of 2017, as compared to 2016, due to lower sales pricing that was partially offset by volume improvements primarily in the wind tower product line.
Grinding media sales were down slightly in the third quarter and first three quarters of 2017, as compared to the same periods in 2016. A decrease in sales volumes was offset by higher sales pricing and favorable currency translation effects.

35



Operating income for the segment in the third quarter of 2017, as compared to 2016, was lower primarily due to sales pricing that did not fully recover higher material costs in the grinding media business. Operating income was comparable in the first three quarters of 2017 as compared to 2016, due to benefits realized in Access Systems from the 2016 restructuring activities offsetting the lower gross profit realized from higher material costs. SG&A expense was flat in the third quarter and first three quarters of 2017, as compared to the same periods in 2016. Restructuring costs incurred in the third quarter of 2016 and lower compensation costs were offset by currency translation effects in 2017.
Utility Support Structures (Utility) segment
In the Utility segment, sales increased in the third quarter of 2017, as compared with 2016, due to the higher costs of steel and a favorable sales mix. A number of our sales contracts contain provisions that tie the sales price to published steel index pricing at the time our customer issues their purchase order. For the first three quarters of 2017, as compared to 2016, improved sales demand in North America resulted in increased sales volumes in tons for steel utility structures also contributed to the increase in sales. Sales volumes in tons for concrete utility structures were also higher in the third quarter and first three quarters of 2017, as compared to the same periods in 2016. International utility structures sales decreased in 2017 due to lower volumes.
Gross profit as a percentage of sales increased in the third quarter and first three quarters of 2017, as compared to the same periods in 2016, due to improved pricing and sales mix. SG&A expense was higher in the third quarter and first three quarters of 2017, as compared with the same periods in 2016, due to higher incentive expense and commission expense attributed to the increased sales volumes. Operating income increased in the third quarter and first three quarters of 2017, as compared with 2016, due to the increased sales volumes and improved sales pricing.
Coatings segment
Coatings segment sales increased in the third quarter and first three quarters of 2017, as compared to the same periods in 2016, due primarily to increased sales prices to recover higher zinc costs globally. External sales volumes in North America increased in the third quarter but were lower year-to-date, while intercompany volumes increased in the third quarter and first three quarters. In the Asia-Pacific region, improved demand/volume provided an increase in net sales.
SG&A expense was lower in the third quarter of 2017, as compared to 2016, due to restructuring actions undertaken in 2016 to reduce the cost structure in Australia. SG&A expense was comparable in the first three quarters of 2017, as compared to 2016. Operating income was higher in the third quarter of 2017 compared to 2016, due to improved sales pricing and restructuring actions undertaken in 2016. Operating income was lower in the first three quarters of 2017, as compared with 2016, due to costs incurred to start up our facility in Texas.
Irrigation segment
The increase in Irrigation segment net sales in the third quarter of 2017, as compared to 2016, was primarily due to sales volume increases for international irrigation. On a year-to-date basis in 2017 as compared to 2016, the sales increase is driven by improved volumes for both the domestic and international irrigation businesses. In North America, when comparing 2017 to the same periods of 2016, sales volumes were comparable in the third quarter but increased year-to-date primarily driven by markets outside the traditional corn-belt. In addition, higher equipment running times due to weather conditions resulted in higher service parts sales on a year-to-date basis. International sales increased in the third quarter and first three quarters of 2017, as compared to the same periods in 2016, due to volume increases across most regions and favorable foreign currency translation effects for Brazil and South Africa.
SG&A was higher in the third quarter and first three quarters of fiscal 2017, as compared with the same periods in 2016. The increase can primarily be attributed to higher incentive costs due to improved business results and currency translation effects related to the international irrigation business. Operating income for the segment increased in the third quarter and first three quarters of fiscal 2017 over the same periods in 2016, primarily due to North America and international irrigation sales volume increases, productivity improvements, and favorable foreign currency translation effects.
Net corporate expense
Corporate SG&A expense was lower in the third quarter of 2017, as compared to the same period in 2016, due to $0.4 million lower pension expense for the Delta Pension Plan and $0.4 million of lower deferred compensation expenses that is offset by the same amount in other expense. Net corporate expense slightly increased in the first three quarters of 2017 as

36



compared to 2016, due to $1.7 million of higher deferred compensation expenses that is offset by a reduction of the same amount in other expense. This increase was partially offset by $1.0 million of lower pension expenses for the Delta Pension Plan.

Liquidity and Capital Resources
Cash Flows
Working Capital and Operating Cash Flows-Net working capital was $1,034.7 million at September 30, 2017, as compared to $903.4 million at December 31, 2016. The increase in net working capital in 2017 mainly resulted from increased receivables, cash on hand, and inventory, partially offset by higher accrued expenses and accounts payable. Cash flow provided by operations was $134.4 million in the first three quarters of 2017, as compared with $127.3 million in first three quarters of 2016. The increase in operating cash flow in the first three quarters of 2017, as compared to 2016, was primarily the result of higher net earnings tied to increased sales volumes and pricing that was mostly offset by a corresponding increase in working capital.
Investing Cash Flows-Capital spending in the first three quarters of fiscal 2017 was $39.9 million, as compared to $42.2 million for the same period in 2016. Capital spending projects in 2017 and 2016 related to investments in machinery and equipment across all businesses. We expect our capital spending for the 2017 fiscal year to be approximately $60 million.
Financing Cash Flows-Our total interest‑bearing debt decreased slightly to $755.3 million at September 30, 2017 from $756.4 million at December 31, 2016. Financing cash flows changed from a use of approximately $82.4 million in the first three quarters of fiscal 2016 to a use of $22.0 million in the first three quarters of fiscal 2017. The reduction of financing cash outflows in the first three quarters of 2017, as compared to 2016, was due to the Company purchasing $46.6 million of treasury shares under our share repurchase program and the purchase of certain noncontrolling interests totaling $11.0 million in 2016.
Financing and Capital
We have an open $250 million authorized share purchase program 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. No shares were repurchased during the first three quarters of 2017. As of September 30, 2017, we have approximately $132.2 million open under this authorization to repurchase shares in the future.
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 expect to maintain a leverage ratio which will support our current investment grade debt rating.
Our debt financing at September 30, 2017 is primarily long-term debt consisting of:
$250.2 million face value ($253.0 million carrying value) of senior unsecured notes that bear interest at 6.625% per annum and are due in April 2020.
$250 million face value ($248.9 million carrying value) of senior unsecured notes that bear interest at 5.00% per annum and are due in October 2044.
$250 million face value ($246.8 million carrying value) of 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.

On October 18, 2017, we amended and restated our revolving credit facility with JP Morgan Chase Bank, N.A., as Administrative Agent, and the other lenders party thereto.  The credit facility provides for $600 million of committed unsecured revolving credit loans.  We may increase the credit facility by up to an additional $200 million at any time, subject to lenders increasing the amount of their commitments.  Our wholly-owned subsidiaries Valmont Industries Holland B.V. and Valmont Group Pty. Ltd., along with the Company, are borrowers under the credit facility.  The obligations arising under the credit facility are guaranteed by the Company and its wholly-owned subsidiaries PiRod, Inc., Valmont Coatings, Inc., Valmont Newmark, Inc. and Valmont Queensland Pty. Ltd.

The amendments to the credit facility, which are adopted in the amended and restated credit agreement, include:

37



an extension of the maturity date of the credit facility from October 17, 2019 to October 18, 2022;
an increase in the available borrowings in foreign currencies from $200 million to $400 million;
a decrease in the range of commitment fees payable from 10 to 27.5 basis points to 10 to 25 basis points (the specific commitment fees payable on the average daily unused portion of the commitments under the credit facility depend on the credit rating of the Company's senior, unsecured, long-term debt);
a modification of the definition of "EBITDA" to add-back non-recurring cash and non-cash restructuring costs in an amount that does not exceed $75 million in any trailing twelve month period;
a modification of the leverage ratio permitting it to increase from 3.5X to 3.75X for the four consecutive fiscal quarters after certain material acquisitions;
implementing beneficial changes to certain of the baskets and exceptions in the negative covenants of the credit facility; and
updating the credit facility with certain market provisions.

At September 30, 2017 and December 31, 2016, 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 September 30, 2017, we had the ability to borrow $585.2 million under this facility, after consideration of standby letters of credit of $14.8 million associated with certain insurance obligations and international sales commitments. We also maintain certain short-term bank lines of credit totaling $113.0 million, $112.8 million of which was unused at September 30, 2017.

Our senior unsecured notes and revolving credit agreement each contain cross-default provisions which permit the acceleration of our indebtedness to them if we default on other indebtedness that results in, or permits, the acceleration of such other indebtedness.
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 2017, 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 September 30, 2017, we were in compliance with all covenants related to the debt agreements. The key covenant calculations at September 30, 2017 were as follows:
Interest-bearing debt
$
755,348

Adjusted EBITDA-last four quarters
345,590

Leverage ratio
2.19

 
 
Adjusted EBITDA-last four quarters
$
345,590

Interest expense-last four quarters
44,445

Interest earned ratio
7.78


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The calculation of Adjusted EBITDA-last four quarters (September 25, 2016 through September 30, 2017) is as follows:
Net cash flows from operations
$
226,318

Interest expense
44,445

Income tax expense
42,666

Impairment of property, plant and equipment
(481
)
Loss on investment
(8
)
Change in fair value of contingent consideration
(285
)
Deferred income tax benefit
22,072

Noncontrolling interest
(5,292
)
Stock-based compensation
(10,659
)
Increase in restricted cash - pension plan trust
(12,568
)
Pension plan expense
(865
)
Contribution to pension plan
26,840

Changes in assets and liabilities
29,167

Other
350

EBITDA
361,700

Reversal of contingent liability
(16,591
)
Impairment of property, plant and equipment
481

Adjusted EBITDA
$
345,590

Net earnings attributable to Valmont Industries, Inc.
$
189,915

Interest expense
44,445

Income tax expense
42,666

Depreciation and amortization expense
84,674

EBITDA
361,700

Reversal of contingent liability
(16,591
)
Impairment of property, plant, and equipment
481

Adjusted EBITDA
$
345,590

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 $437.8 million of undistributed earnings of our foreign subsidiaries, as we intend to reinvest those earnings. Of our cash balances of $493.5 million at September 30, 2017, approximately $370.5 million is held in entities outside the United States. 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 determination of the additional U.S. federal and state income taxes or foreign withholding taxes have not been provided, as the determination is not practicable.
Financial Obligations and Financial Commitments
There have been no material changes to our financial obligations and financial commitments as described on page 36 in our Form 10-K for the fiscal year ended December 31, 2016.
Off Balance Sheet Arrangements

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There have been no changes in our off balance sheet arrangements as described on page 37 in our Form 10-K for the fiscal year ended December 31, 2016.
Critical Accounting Policies
There have been no changes in our critical accounting policies as described on pages 38-42 in our Form 10-K for the fiscal year ended December 31, 2016 during the quarter ended September 30, 2017.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There were no material changes in the company's market risk during the quarter ended September 30, 2017. For additional information, refer to the section "Risk Management" in our Form 10-K for the fiscal year ended December 31, 2016.

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.


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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)
July 2, 2017 to July 29, 2017

 
$

 

 
$
132,172,000

July 30, 2017 to September 2, 2017

 

 

 
132,172,000

September 3, 2017 to September 30, 2017

 

 

 
132,172,000

Total

 
$

 

 
$
132,172,000

(1) On May 13, 2014, we announced a new capital allocation philosophy which included 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 September 30, 2017, we have acquired 4,588,131 shares for approximately $617.8 million under this share repurchase program.


Item 6. Exhibits
(a)
Exhibits
Exhibit No.
 
Description
 
Section 302 Certificate of Chief Executive Officer
 
Section 302 Certificate of Chief Financial Officer
 
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 September 30, 2017, 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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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 1st day of November, 2017.


























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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 September 30, 2017, 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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