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VALMONT INDUSTRIES INC - Quarter Report: 2017 April (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 April 1, 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
22,584,613
Outstanding shares of common stock as of April 24, 2017




VALMONT INDUSTRIES, INC.

INDEX TO FORM 10-Q
 
 
Page No.
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
ended April 1, 2017 and March 26, 2016
 
 
 
weeks ended April 1, 2017 and March 26, 2016
 
Condensed Consolidated Balance Sheets as of April 1, 2017 and December 31,
 
 
2016
 
Condensed Consolidated Statements of Cash Flows for the thirteen weeks ended
 
 
April 1, 2017 and March 26, 2016
 
Condensed Consolidated Statements of Shareholders' Equity for the thirteen
 
 
weeks ended April 1, 2017 and March 26, 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 5.
Other Information
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
 
April 1,
2017
 
March 26,
2016
Product sales
$
572,952

 
$
532,940

Services sales
64,521

 
63,665

Net sales
637,473

 
596,605

Product cost of sales
426,847

 
393,492

Services cost of sales
46,021

 
42,144

Total cost of sales
472,868

 
435,636

Gross profit
164,605

 
160,969

Selling, general and administrative expenses
100,103

 
98,604

Operating income
64,502

 
62,365

Other income (expenses):
 
 
 
Interest expense
(11,304
)
 
(11,054
)
Interest income
927

 
811

Other
1,199

 
(1,678
)
 
(9,178
)
 
(11,921
)
Earnings before income taxes
55,324

 
50,444

Income tax expense:
 
 
 
Current
1,298

 
10,514

Deferred
14,065

 
5,759

 
15,363

 
16,273

Net earnings
39,961

 
34,171

Less: Earnings attributable to noncontrolling interests
(982
)
 
(1,202
)
Net earnings attributable to Valmont Industries, Inc.
$
38,979

 
$
32,969

Earnings per share:
 
 
 
Basic
$
1.73

 
$
1.45

Diluted
$
1.72

 
$
1.45

Cash dividends declared per share
$
0.375

 
$
0.375

Weighted average number of shares of common stock outstanding - Basic (000 omitted)
22,472

 
22,700

Weighted average number of shares of common stock outstanding - Diluted (000 omitted)
22,660

 
22,816

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
 
April 1,
2017
 
March 26,
2016
Net earnings
$
39,961

 
$
34,171

Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustments:
 
 
 
Unrealized translation gain (loss)
19,390

 
2,513

Unrealized gain/(loss) on hedging activities:
 
 
 
      Net investment hedge
(526
)
 

Amortization cost included in interest expense
19

 
19

Other comprehensive income (loss)
18,883

 
2,532

Comprehensive income
58,844

 
36,703

Comprehensive loss (income) attributable to noncontrolling interests
241

 
(2,327
)
Comprehensive income attributable to Valmont Industries, Inc.
$
59,085

 
$
34,376

















See accompanying notes to condensed consolidated financial statements.

4



VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
 
April 1,
2017
 
December 31,
2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
425,216

 
$
399,948

Receivables, net
455,044

 
439,342

Inventories
389,156

 
350,028

Prepaid expenses, restricted cash, and other assets
54,532

 
57,297

Refundable income taxes
7,325

 
6,601

Total current assets
1,331,273

 
1,253,216

Property, plant and equipment, at cost
1,129,787

 
1,105,736

Less accumulated depreciation and amortization
610,129

 
587,401

Net property, plant and equipment
519,658

 
518,335

Goodwill
324,061

 
321,110

Other intangible assets, net
142,000

 
144,378

Other assets
149,896

 
154,692

Total assets
$
2,466,888

 
$
2,391,731

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
860

 
$
851

Notes payable to banks
957

 
746

Accounts payable
194,525

 
177,488

Accrued employee compensation and benefits
65,663

 
72,404

Accrued expenses
112,231

 
89,914

Dividends payable
8,468

 
8,445

Total current liabilities
382,704

 
349,848

Deferred income taxes
39,030

 
35,803

Long-term debt, excluding current installments
754,523

 
754,795

Defined benefit pension liability
187,276

 
209,470

Deferred compensation
46,567

 
44,319

Other noncurrent liabilities
15,508

 
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
1,906,161

 
1,874,722

Accumulated other comprehensive loss
(326,253
)
 
(346,359
)
Treasury stock
(604,969
)
 
(612,781
)
Total Valmont Industries, Inc. shareholders’ equity
1,002,839

 
943,482

Noncontrolling interest in consolidated subsidiaries
38,441

 
39,104

Total shareholders’ equity
1,041,280

 
982,586

Total liabilities and shareholders’ equity
$
2,466,888

 
$
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)
 
Thirteen Weeks Ended
 
April 1,
2017
 
March 26,
2016
Cash flows from operating activities:
 
 
 
Net earnings
$
39,961

 
$
34,171

Adjustments to reconcile net earnings to net cash flows from operations:
 
 
 
Depreciation and amortization
20,827

 
20,598

Noncash loss on trading securities
70

 
995

Stock-based compensation
2,494

 
2,049

Defined benefit pension plan expense (benefit)
154

 
384

Contribution to defined benefit pension plan
(25,379
)
 

Change in restricted cash - pension plan trust

12,568

 

       (Gain)/loss on sale of property, plant and equipment
(102
)
 
144

Deferred income taxes
14,065

 
5,759

Changes in assets and liabilities:
 
 
 
Receivables
(12,729
)
 
20,344

Inventories
(34,817
)
 
(8,022
)
Prepaid expenses and other assets
(9,798
)
 
910

Accounts payable
14,124

 
1,383

Accrued expenses
14,020

 
(7,178
)
Other noncurrent liabilities
612

 
(823
)
Income taxes refundable
(87
)
 
9,813

Net cash flows from operating activities
35,983

 
80,527

Cash flows from investing activities:
 
 
 
Purchase of property, plant and equipment
(14,168
)
 
(13,961
)
Proceeds from sale of assets
302

 
142

Other, net
(1,715
)
 
(2,322
)
Net cash flows from investing activities
(15,581
)
 
(16,141
)
Cash flows from financing activities:
 
 
 
Net borrowings under short-term agreements
198

 
1,352

Principal payments on long-term borrowings
(215
)
 
(220
)
Dividends paid
(8,445
)
 
(8,571
)
Dividends to noncontrolling interest
(422
)
 

Purchase of treasury shares

 
(16,939
)
Proceeds from exercises under stock plans
8,894

 
1,289

Excess tax benefits from stock option exercises

 
(66
)
Purchase of common treasury shares—stock plan exercises
(2,870
)
 
(219
)
Net cash flows from financing activities
(2,860
)
 
(23,374
)
Effect of exchange rate changes on cash and cash equivalents
7,726

 
(2,372
)
Net change in cash and cash equivalents
25,268

 
38,640

Cash and cash equivalents—beginning of year
399,948

 
349,074

Cash and cash equivalents—end of period
$
425,216

 
$
387,714

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

 

 
32,969

 

 

 
1,202

 
34,171

Other comprehensive income (loss)

 

 

 
1,407

 

 
1,125

 
2,532

Cash dividends declared

 

 
(8,527
)
 

 

 

 
(8,527
)
Purchase of treasury shares; 153,962 shares acquired

 

 

 

 
(16,939
)
 

 
(16,939
)
Stock plan exercises; 1,895 shares acquired

 

 

 

 
(219
)
 

 
(219
)
Stock options exercised; 12,771 shares issued

 
(1,983
)
 
1,961

 

 
1,311

 

 
1,289

Tax benefit from stock option exercises

 
(66
)
 

 

 

 

 
(66
)
Stock option expense

 
1,491

 

 

 

 

 
1,491

Stock awards; 4,540 shares issued

 
558

 

 

 
650

 

 
1,208

Balance at March 26, 2016
$
27,900

 
$

 
$
1,756,082

 
$
(265,811
)
 
$
(587,117
)
 
$
49,097

 
$
980,151

Balance at December 31, 2016
$
27,900

 
$

 
$
1,874,722

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

 
$
982,586

Net earnings

 

 
38,979

 

 

 
982

 
39,961

Other comprehensive income (loss)

 

 

 
20,106

 

 
(1,223
)
 
18,883

Cash dividends declared

 

 
(8,468
)
 

 

 

 
(8,468
)
Dividends to noncontrolling interests

 

 

 

 

 
(422
)
 
(422
)
Stock plan exercises; 17,985 shares acquired

 

 

 

 
(2,870
)
 

 
(2,870
)
Stock options exercised; 77,336 shares issued

 
(2,494
)
 
928

 

 
10,460

 

 
8,894

Stock option expense

 
1,289

 

 

 

 

 
1,289

Stock awards; 1,583 shares issued

 
1,205

 

 

 
222

 

 
1,427

Balance at April 1, 2017
$
27,900

 
$

 
$
1,906,161

 
$
(326,253
)
 
$
(604,969
)
 
$
38,441

 
$
1,041,280










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 April 1, 2017, the Condensed Consolidated Statements of Earnings and Comprehensive Income for the thirteen weeks ended April 1, 2017 and March 26, 2016, and the Condensed Consolidated Statements of Cash Flows and Shareholders' Equity for the thirteen 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 April 1, 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 April 1, 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 April 1, 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 $38,826 and $38,047 at April 1, 2017 and December 31, 2016, respectively.
Inventories consisted of the following:
 
April 1,
2017
 
December 31,
2016
Raw materials and purchased parts
$
162,627

 
$
143,659

Work-in-process
32,560

 
27,291

Finished goods and manufactured goods
232,795

 
217,125

Subtotal
427,982

 
388,075

Less: LIFO reserve
38,826

 
38,047

 
$
389,156

 
$
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 weeks ended April 1, 2017 and March 26, 2016, were as follows:
    
 
Thirteen Weeks Ended
 
2017
 
2016
United States
$
35,424

 
$
39,600

Foreign
19,900

 
10,844

 
$
55,324

 
$
50,444

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 weeks ended April 1, 2017 and March 26, 2016 were as follows:
 
Thirteen Weeks Ended
Net periodic (benefit) expense:
2017
 
2016
Interest cost
$
4,321

 
$
6,448

Expected return on plan assets
(4,877
)
 
(6,064
)
Amortization of actuarial loss
710

 

Net periodic expense
$
154

 
$
384

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 April 1, 2017, 709,037 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 weeks ended April 1, 2017 and March 26, 2016, respectively, were as follows:
 
Thirteen Weeks Ended
 
2017
 
2016
Compensation expense
$
1,289

 
$
1,491

Income tax benefits
496

 
574

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 $37,602 ($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 $1,976 and $2,016 as of April 1, 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
April 1, 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
$
39,578

 
$
39,578

 
$

 
$

 
 
 
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 April 1, 2017 and December 31, 2016:
 
Foreign Currency Translation Adjustments
 
Gain on Hedging Activities
 
Defined Benefit Pension Plan
 
Accumulated Other Comprehensive Income
Balance at December 31, 2016
$
(251,228
)
 
$
7,978

 
$
(103,109
)
 
$
(346,359
)
Current-period comprehensive income (loss)
20,613

 
(507
)
 

 
20,106

Balance at April 1, 2017
$
(230,615
)
 
$
7,471

 
$
(103,109
)
 
$
(326,253
)
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 has a maturity date of May 2017 and a notional amount to sell British pounds and receive $44,000. No ineffectiveness resulted from the hedge and the balance is recorded in the Condensed Consolidated Statements of Other Comprehensive Income within gain/(loss) on hedging activities. The realized gain/(loss) will be deferred in other comprehensive income where it will remain until the net investments in our British subsidiaries are divested. The unrealized gain recorded at April 1, 2017 is $6,346 and is included in Other Current Assets on the Condensed Consolidated Balance Sheets.

11


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


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-9, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") 605, Revenue Recognition. The new revenue recognition standard requires entities to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. 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 as a cumulative effect adjustment in fiscal 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 that adopting this new accounting guidance but expects the adoption will result in a significant increase in total assets and liabilities.
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. We do not expect the provisions of this new standard will have a material impact on our consolidated financial statements and plan 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 will consider early adopting this standard prior to the annual goodwill impairment test in the third quarter of 2017.

In March 2017, the FASB issued ASU 2017-07, Presentation of Net Periodic Benefit Cost Related to Defined Benefit Plans, which amends the income statement presentation requirements for the components of net periodic benefit cost for an entity's defined benefit pension and post-retirement plans. 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 our consolidated financial statements and plans to adopt this ASU in the first quarter of 2018.


12


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


(2) ACQUISITIONS
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 2015, the Company substantially completed this 2015 Plan and recognized $21,708 of pre-tax restructuring expenses in cost of sales and $18,144 of pre-tax restructuring expenses in selling, general, and administrative expenses ("SG&A"). Within the total fiscal 2015 pre-tax restructuring expense of $39,852 were pre-tax asset impairments of $19,836. 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. A significant change in market conditions in any of the Company's segments may affect of the Company's assessment of necessity for further restructuring activities.
    
Liabilities recorded for the restructuring plans and changes therein for the first quarter of fiscal 2017 were as follows:
 
 
Balance at December 31, 2016
 
Recognized Restructuring Expense
 
Costs Paid or Otherwise Settled
 
Balance at April 1, 2017
Severance
 
$
1,597

 
$

 
$
(1,597
)
 
$

Other cash restructuring expenses
 
4,581

 

 
(726
)
 
3,855

   Total
 
$
6,178

 
$

 
$
(2,323
)
 
$
3,855




13


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 April 1, 2017 and December 31, 2016 were as follows:
 
April 1, 2017
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Weighted
Average
Life
Customer Relationships
$
192,743

 
$
115,792

 
13 years
Proprietary Software & Database
3,671

 
3,089

 
8 years
Patents & Proprietary Technology
6,485

 
3,566

 
11 years
Other
3,749

 
3,713

 
3 years
 
$
206,648

 
$
126,160

 
 
 
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

 
 

14


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


(4) GOODWILL AND INTANGIBLE ASSETS (Continued)
Amortization expense for intangible assets for the thirteen weeks ended April 1, 2017 and March 26, 2016, respectively was as follows:
Thirteen Weeks Ended
2017
 
2016
$
3,863

 
$
3,995

Estimated annual amortization expense related to finite‑lived intangible assets is as follows:
 
Estimated
Amortization
Expense
2017
$
15,243

2018
13,560

2019
12,819

2020
11,749

2021
9,690

The useful lives assigned to finite‑lived intangible assets included consideration of factors such as the Company’s past and expected experience related to customer retention rates, the remaining legal or contractual life of the underlying arrangement that resulted in the recognition of the intangible asset and the Company’s expected use of the intangible asset.
Non-amortized intangible assets
Intangible assets with indefinite lives are not amortized. The carrying values of trade names at April 1, 2017 and December 31, 2016 were as follows:
 
April 1,
2017
 
December 31,
2016
 
Year Acquired
Webforge
$
8,770

 
$
8,624

 
2010
Valmont SM
8,874

 
8,765

 
2014
Newmark
11,111

 
11,111

 
2004
Ingal EPS/Ingal Civil Products
7,150

 
7,032

 
2010
Donhad
5,394

 
5,305

 
2010
Shakespeare
4,000

 
4,000

 
2014
Industrial Galvanizers
2,238

 
2,201

 
2010
Other
13,975

 
13,747

 
 
 
$
61,512

 
$
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.    


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)
The Company’s trade names were tested for impairment in the third quarter of 2016. 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 as of the third quarter of 2016.
Goodwill
The carrying amount of goodwill by segment as of April 1, 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
765

 
1,946

 

 
127

 
113

 
 
2,951

Balance at April 1, 2017
$
95,079

 
$
74,158

 
$
75,404

 
$
59,696


$
19,724

 
 
$
324,061


The Company’s annual impairment test of goodwill was performed during the third quarter of 2016, 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 $13,209 of goodwill, is the reporting unit with the least amount of cushion between its estimated fair value and its carrying value. In the impairment model, the Company is forecasting steady growth in sales between 2018 to 2020 of the other complex steel structures to offset the significant decline in sales from offshore oil and gas structures realized in fiscal 2016. If this reporting unit is not able to build out a backlog of other product lines projects during 2017 to construct and deliver in fiscal 2018, an interim impairment test may be required before the next annual impairment test. The Company continues to monitor changes in the global economy that could impact future operating results of its reporting units. If such conditions arise, the Company will test a given reporting unit for impairment prior to the annual test.
(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 thirteen weeks ended April 1, 2017 and March 26, 2016 were as follows:
 
2017
 
2016
Interest
$
925

 
$
559

Income taxes
1,898

 
4,788



16


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 April 1, 2017:
 
 
 
 
 
Net earnings attributable to Valmont Industries, Inc.
$
38,979

 
$

 
$
38,979

Shares outstanding (000 omitted)
22,472

 
188

 
22,660

Per share amount
$
1.73

 
$
(0.01
)
 
$
1.72

Thirteen weeks ended March 26, 2016:
 
 
 
 
 
Net earnings attributable to Valmont Industries, Inc.
$
32,969

 
$

 
$
32,969

Shares outstanding (000 omitted)
22,700

 
116

 
22,816

Per share amount
$
1.45

 
$

 
$
1.45

At April 1, 2017 and March 26, 2016, there were 0 and 403,407 outstanding stock options with exercise prices exceeding the market price of common stock that were excluded from the computation of diluted earnings per share, respectively.

17


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 off shore oil, gas, and wind energy structures;

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

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

IRRIGATION: This segment consists of the manufacture of agricultural irrigation equipment and related
parts and services for the global agricultural industry and tubular products for industrial customers.
    
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.

18


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
 
April 1,
2017
 
March 26,
2016
SALES:
 
 
 
Engineered Support Structures segment:
 
 
 
Lighting, Traffic, and Roadway Products
$
149,082

 
$
146,302

Communication Products
31,476

 
30,669

Engineered Support Structures segment
180,558

 
176,971

Energy and Mining segment:
 
 
 
Offshore and Other Complex Steel Structures
25,707

 
22,969

Grinding Media
19,594

 
19,490

Access Systems
32,671

 
29,990

Energy and Mining segment
77,972

 
72,449

Utility Support Structures segment:
 
 
 
Steel
148,408

 
121,971

Concrete
26,204

 
22,549

Utility Support Structures segment
174,612

 
144,520

Coatings segment
73,468

 
68,581

Irrigation segment
167,224

 
158,514

Total
673,834

 
621,035

INTERSEGMENT SALES:
 
 
 
Engineered Support Structures segment
20,207

 
11,012

Energy & Mining segment

 
1,658

Utility Support Structures segment
235

 
176

Coatings segment
14,136

 
9,813

Irrigation segment
1,783

 
1,771

Total
36,361

 
24,430

NET SALES:
 
 
 
Engineered Support Structures segment
160,351

 
165,959

Energy & Mining segment
77,972

 
70,791

Utility Support Structures segment
174,377

 
144,344

Coatings segment
59,332

 
58,768

Irrigation segment
165,441

 
156,743

Total
$
637,473

 
$
596,605

 
 
 
 
OPERATING INCOME:
 
 
 
Engineered Support Structures segment
9,213

 
12,475

Energy & Mining segment
3,837

 
1,902

Utility Support Structures segment
22,708

 
14,424

Coatings segment
9,406

 
11,413

Irrigation segment
30,291

 
28,895

Adjustment to LIFO inventory valuation method
(779
)
 
2,027

Corporate
(10,174
)
 
(8,771
)
Total
$
64,502

 
$
62,365


19


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 April 1, 2017
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net sales
$
293,265

 
$
117,225

 
$
295,296

 
$
(68,313
)
 
$
637,473

Cost of sales
216,486

 
91,489

 
232,490

 
(67,597
)
 
472,868

Gross profit
76,779

 
25,736

 
62,806

 
(716
)
 
164,605

Selling, general and administrative expenses
50,217

 
11,660

 
38,226

 

 
100,103

Operating income
26,562

 
14,076

 
24,580

 
(716
)
 
64,502

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(11,142
)
 
(2,266
)
 
(162
)
 
2,266

 
(11,304
)
Interest income
151

 
14

 
3,028

 
(2,266
)
 
927

Other
1,354

 
16

 
(171
)
 

 
1,199

 
(9,637
)
 
(2,236
)
 
2,695

 

 
(9,178
)
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries
16,925

 
11,840

 
27,275

 
(716
)
 
55,324

Income tax expense (benefit):
 
 
 
 
 
 
 
 
 
Current
(4,887
)
 
5,320

 
1,109

 
(244
)
 
1,298

Deferred
11,327

 

 
2,738

 

 
14,065

 
6,440

 
5,320

 
3,847

 
(244
)
 
15,363

Earnings before equity in earnings of nonconsolidated subsidiaries
10,485

 
6,520

 
23,428

 
(472
)
 
39,961

Equity in earnings of nonconsolidated subsidiaries
28,494

 
(980
)
 

 
(27,514
)
 

Net earnings
38,979

 
5,540

 
23,428

 
(27,986
)
 
39,961

Less: Earnings attributable to noncontrolling interests

 

 
(982
)
 

 
(982
)
Net earnings attributable to Valmont Industries, Inc
$
38,979

 
$
5,540

 
$
22,446

 
$
(27,986
)
 
$
38,979


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 (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Thirteen weeks ended March 26, 2016
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net sales
$
285,038

 
$
91,526

 
$
272,114

 
$
(52,073
)
 
$
596,605

Cost of sales
207,861

 
67,862

 
211,393

 
(51,480
)
 
435,636

Gross profit
77,177

 
23,664

 
60,721

 
(593
)
 
160,969

Selling, general and administrative expenses
42,494

 
11,430

 
44,680

 

 
98,604

Operating income
34,683

 
12,234

 
16,041

 
(593
)
 
62,365

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(10,930
)
 

 
(124
)
 

 
(11,054
)
Interest income
67

 
25

 
719

 

 
811

Other
(375
)
 
12

 
(1,315
)
 

 
(1,678
)
 
(11,238
)
 
37

 
(720
)
 

 
(11,921
)
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries
23,445

 
12,271

 
15,321

 
(593
)
 
50,444

Income tax expense (benefit):
 
 
 
 
 
 
 
 
 
Current
5,583

 
2,572

 
2,479

 
(120
)
 
10,514

Deferred
2,419

 
2,149

 
1,191

 

 
5,759

 
8,002

 
4,721

 
3,670

 
(120
)
 
16,273

Earnings before equity in earnings of nonconsolidated subsidiaries
15,443

 
7,550

 
11,651

 
(473
)
 
34,171

Equity in earnings of nonconsolidated subsidiaries
17,526

 
2,113

 

 
(19,639
)
 

Net earnings
32,969

 
9,663

 
11,651

 
(20,112
)
 
34,171

Less: Earnings attributable to noncontrolling interests

 

 
(1,202
)
 

 
(1,202
)
Net earnings attributable to Valmont Industries, Inc
$
32,969

 
$
9,663

 
$
10,449

 
$
(20,112
)
 
$
32,969








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 COMPREHENSIVE INCOME
For the Thirteen weeks ended April 1, 2017
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net earnings
$
38,979

 
$
5,540

 
$
23,428

 
$
(27,986
)
 
$
39,961

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

 
69,383

 
(49,993
)
 

 
19,390

Unrealized gain/(loss) on hedging activities:
 
 
 
 
 
 
 
 
 
     Net investment hedge
(526
)
 

 

 

 
(526
)
     Amortization cost included in interest expense
19

 

 

 

 
19

Equity in other comprehensive income
20,613

 

 

 
(20,613
)
 

Other comprehensive income (loss)
20,106

 
69,383

 
(49,993
)
 
(20,613
)
 
18,883

Comprehensive income (loss)
59,085

 
74,923

 
(26,565
)
 
(48,599
)
 
58,844

Comprehensive income attributable to noncontrolling interests

 

 
241

 

 
241

Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
59,085

 
$
74,923

 
$
(26,324
)
 
$
(48,599
)
 
$
59,085







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 COMPREHENSIVE INCOME
For the Thirteen weeks ended March 26, 2016
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net earnings
$
32,969

 
$
9,663

 
$
11,651

 
$
(20,112
)
 
$
34,171

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

 
(178
)
 
2,691

 

 
2,513

Unrealized gain/(loss) on hedging activities:
 
 
 
 
 
 
 
 
 
     Amortization cost included in interest expense
19

 

 

 

 
19

Equity in other comprehensive income
1,388

 

 

 
(1,388
)
 

Other comprehensive income (loss)
1,407

 
(178
)
 
2,691

 
(1,388
)
 
2,532

Comprehensive income (loss)
34,376

 
9,485

 
14,342

 
(21,500
)
 
36,703

Comprehensive income attributable to noncontrolling interests

 

 
(2,327
)
 

 
(2,327
)
Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
34,376

 
$
9,485

 
$
12,015

 
$
(21,500
)
 
$
34,376





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 BALANCE SHEETS
April 1, 2017
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
93,149

 
$
5,479

 
$
326,588

 
$

 
$
425,216

Receivables, net
133,907

 
74,221

 
246,916

 

 
455,044

Inventories
143,773

 
49,322

 
200,930

 
(4,869
)
 
389,156

Prepaid expenses, restricted cash, and other assets
8,913

 
852

 
44,767

 

 
54,532

Refundable income taxes
7,325

 

 

 

 
7,325

Total current assets
387,067

 
129,874

 
819,201

 
(4,869
)
 
1,331,273

Property, plant and equipment, at cost
551,491

 
155,330

 
422,966

 

 
1,129,787

Less accumulated depreciation and amortization
359,317

 
79,023

 
171,789

 

 
610,129

Net property, plant and equipment
192,174

 
76,307

 
251,177

 

 
519,658

Goodwill
20,108

 
110,562

 
193,391

 

 
324,061

Other intangible assets
171

 
34,703

 
107,126

 

 
142,000

Investment in subsidiaries and intercompany accounts
1,319,342

 
1,171,413

 
1,299,723

 
(3,790,478
)
 

Other assets
45,976

 

 
103,920

 

 
149,896

Total assets
$
1,964,838

 
$
1,522,859

 
$
2,774,538

 
$
(3,795,347
)
 
$
2,466,888

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

 
$

 
$
860

 
$

 
$
860

Notes payable to banks

 

 
957

 

 
957

Accounts payable
54,551

 
17,559

 
122,415

 

 
194,525

Accrued employee compensation and benefits
32,084

 
5,774

 
27,805

 

 
65,663

Accrued expenses
45,272

 
13,014

 
53,945

 

 
112,231

Dividends payable
8,468

 

 

 

 
8,468

Total current liabilities
140,375

 
36,347

 
205,982

 

 
382,704

Deferred income taxes
24,693

 

 
14,337

 

 
39,030

Long-term debt, excluding current installments
751,148

 
180,863

 
10,339

 
(187,827
)
 
754,523

Defined benefit pension liability

 

 
187,276

 

 
187,276

Deferred compensation
41,327

 

 
5,240

 

 
46,567

Other noncurrent liabilities
4,456

 
5

 
11,047

 

 
15,508

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

 
457,950

 
648,682

 
(1,106,632
)
 
27,900

Additional paid-in capital

 
159,414

 
1,107,531

 
(1,266,945
)
 

Retained earnings
1,906,161

 
683,203

 
880,319

 
(1,563,522
)
 
1,906,161

Accumulated other comprehensive income (loss)
(326,253
)
 
5,077

 
(334,656
)
 
329,579

 
(326,253
)
Treasury stock
(604,969
)
 

 

 

 
(604,969
)
Total Valmont Industries, Inc. shareholders’ equity
1,002,839

 
1,305,644

 
2,301,876

 
(3,607,520
)
 
1,002,839

Noncontrolling interest in consolidated subsidiaries

 

 
38,441

 

 
38,441

Total shareholders’ equity
1,002,839

 
1,305,644

 
2,340,317

 
(3,607,520
)
 
1,041,280

Total liabilities and shareholders’ equity
$
1,964,838

 
$
1,522,859

 
$
2,774,538

 
$
(3,795,347
)
 
$
2,466,888


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 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


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 CASH FLOWS
For the Thirteen Weeks Ended April 1, 2017
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net earnings
$
38,979

 
$
5,540

 
$
23,428

 
$
(27,986
)
 
$
39,961

Adjustments to reconcile net earnings to net cash flows from operations:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
6,536

 
3,557

 
10,734

 

 
20,827

Noncash loss on trading securities

 

 
70

 

 
70

  Stock-based compensation
2,494

 

 

 

 
2,494

Defined benefit pension plan expense

 

 
154

 

 
154

Contribution to defined benefit pension plan

 

 
(25,379
)
 

 
(25,379
)
Decrease in restricted cash - pension plan trust

 

 
12,568

 

 
12,568

Loss (gain) on sale of property, plant and equipment
(5
)
 
(2
)
 
(95
)
 

 
(102
)
Equity in earnings in nonconsolidated subsidiaries
(28,494
)
 
980

 

 
27,514

 

Deferred income taxes
11,327

 

 
2,738

 

 
14,065

Changes in assets and liabilities:
 
 
 
 
 
 
 
 
 
Receivables
1,116

 
(13,699
)
 
(146
)
 

 
(12,729
)
Inventories
(17,105
)
 
(3,865
)
 
(14,563
)
 
716

 
(34,817
)
Prepaid expenses and other assets
3,688

 
27

 
(13,513
)
 

 
(9,798
)
Accounts payable
2,278

 
1,826

 
10,020

 

 
14,124

Accrued expenses
12,588

 
(3,697
)
 
5,129

 

 
14,020

Other noncurrent liabilities
848

 

 
(236
)
 

 
612

Income taxes payable (refundable)
(9,839
)
 
22

 
9,730

 

 
(87
)
Net cash flows from operating activities
24,411

 
(9,311
)
 
20,639

 
244

 
35,983

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchase of property, plant and equipment
(4,547
)
 
(1,797
)
 
(7,824
)
 

 
(14,168
)
Proceeds from sale of assets
7

 
6

 
289

 

 
302

Other, net
8,474

 
12,586

 
(22,531
)
 
(244
)
 
(1,715
)
Net cash flows from investing activities
3,934

 
10,795

 
(30,066
)
 
(244
)
 
(15,581
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Net borrowings under short-term agreements

 

 
198

 

 
198

Principal payments on long-term borrowings


 

 
(215
)
 

 
(215
)
Dividends paid
(8,445
)
 

 

 

 
(8,445
)
Intercompany interest on long-term note

 
(2,263
)
 
2,263

 

 

Dividends to noncontrolling interest

 

 
(422
)
 

 
(422
)
Proceeds from exercises under stock plans
8,894

 

 

 

 
8,894

Purchase of common treasury shares - stock plan exercises
(2,870
)
 

 

 

 
(2,870
)
Net cash flows from financing activities
(2,421
)
 
(2,263
)
 
1,824

 

 
(2,860
)
Effect of exchange rate changes on cash and cash equivalents

 
187

 
7,539

 

 
7,726

Net change in cash and cash equivalents
25,924

 
(592
)
 
(64
)
 

 
25,268

Cash and cash equivalents—beginning of year
67,225

 
6,071

 
326,652

 

 
399,948

Cash and cash equivalents—end of period
$
93,149

 
$
5,479

 
$
326,588

 
$

 
$
425,216


26


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


(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirteen Weeks Ended March 26, 2016
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net earnings
$
32,969

 
$
9,663

 
$
11,651

 
$
(20,112
)
 
$
34,171

Adjustments to reconcile net earnings to net cash flows from operations:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
6,857

 
3,277

 
10,464

 

 
20,598

Noncash loss on trading securities

 

 
995

 

 
995

  Stock-based compensation
2,049

 

 

 

 
2,049

Defined benefit pension plan expense

 

 
384

 

 
384

Loss (gain) on sale of property, plant and equipment
(3
)
 
52

 
95

 

 
144

Equity in earnings in nonconsolidated subsidiaries
(17,526
)
 
(2,113
)
 

 
19,639

 

Deferred income taxes
2,419

 
2,149

 
1,191

 

 
5,759

Changes in assets and liabilities:
 
 
 
 
 
 
 
 
 
Receivables
2,027

 
12,003

 
6,314

 

 
20,344

Inventories
(6,367
)
 
(2,403
)
 
155

 
593

 
(8,022
)
Prepaid expenses
4,465

 
(38
)
 
(3,517
)
 

 
910

Accounts payable
(8,102
)
 
468

 
9,017

 

 
1,383

Accrued expenses
843

 
(7,732
)
 
(289
)
 

 
(7,178
)
Other noncurrent liabilities
916

 

 
(1,739
)
 

 
(823
)
Income taxes payable (refundable)
5,628

 
85

 
4,100

 

 
9,813

Net cash flows from operating activities
26,175

 
15,411

 
38,821

 
120

 
80,527

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchase of property, plant and equipment
1,248

 
(8,630
)
 
(6,579
)
 

 
(13,961
)
Proceeds from sale of assets
104

 
(51
)
 
89

 

 
142

Other, net
11,332

 
(6,286
)
 
(7,248
)
 
(120
)
 
(2,322
)
Net cash flows from investing activities
12,684

 
(14,967
)
 
(13,738
)
 
(120
)
 
(16,141
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Net borrowings under short-term agreements

 

 
1,352

 

 
1,352

Principal payments on long-term borrowings

 

 
(220
)
 

 
(220
)
Dividends paid
(8,571
)
 

 

 

 
(8,571
)
Proceeds from exercises under stock plans
1,289

 

 

 

 
1,289

Excess tax benefits from stock option exercises
(66
)
 

 

 

 
(66
)
Purchase of treasury shares
(16,939
)
 

 

 

 
(16,939
)
Purchase of common treasury shares - stock plan exercises
(219
)
 

 

 

 
(219
)
Net cash flows from financing activities
(24,506
)
 

 
1,132

 

 
(23,374
)
Effect of exchange rate changes on cash and cash equivalents

 
114

 
(2,486
)
 

 
(2,372
)
Net change in cash and cash equivalents
14,353

 
558

 
23,729

 

 
38,640

Cash and cash equivalents—beginning of year
62,281

 
4,008

 
282,785

 

 
349,074

Cash and cash equivalents—end of period
$
76,634

 
$
4,566

 
$
306,514

 
$

 
$
387,714


27



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.


























28



Results of Operations (Dollars in millions, except per share amounts)    
 
Thirteen Weeks Ended
 
April 1, 2017
 
March 26, 2016
 
% Incr. (Decr.)
Consolidated
 
 
 
 
 
Net sales
$
637.5

 
$
596.6

 
6.9
 %
Gross profit
164.6

 
161.0

 
2.2
 %
as a percent of sales    
25.8
%
 
27.0
%
 
 
SG&A expense
100.1

 
98.6

 
1.5
 %
as a percent of sales    
15.7
%
 
16.5
%
 
 
Operating income
64.5

 
62.4

 
3.4
 %
as a percent of sales    
10.1
%
 
10.5
%
 
 
Net interest expense
10.4

 
10.2

 
2.0
 %
Effective tax rate
27.8
%
 
32.3
%
 
 
Net earnings
$
39.0

 
$
33.0

 
18.2
 %
Diluted earnings per share
$
1.72

 
$
1.45

 
18.6
 %
Engineered Support Structures
 
 
 
 
 
Net sales
$
160.4

 
$
166.0

 
(3.4
)%
Gross profit
41.3

 
46.0

 
(10.2
)%
SG&A expense
32.1

 
33.5

 
(4.2
)%
Operating income
9.2

 
12.5

 
(26.4
)%
Energy and Mining
 
 
 
 
 
Net sales
$
78.0

 
$
70.8

 
10.2
 %
Gross profit
14.5

 
12.2

 
18.9
 %
SG&A expense
10.7

 
10.3

 
3.9
 %
Operating income
3.8

 
1.9

 
100.0
 %
Utility Support Structures
 
 
 
 
 
Net sales
$
174.4

 
$
144.3

 
20.9
 %
Gross profit
39.1

 
30.1

 
29.9
 %
SG&A expense
16.4

 
15.7

 
4.5
 %
Operating income
22.7

 
14.4

 
57.6
 %
Coatings
 
 
 
 
 
Net sales
$
59.3

 
$
58.8

 
0.9
 %
Gross profit
17.7

 
19.7

 
(10.2
)%
SG&A expense
8.3

 
8.3

 
 %
Operating income
9.4

 
11.4

 
(17.5
)%
Irrigation
 
 
 
 
 
Net sales
$
165.4

 
$
156.7

 
5.6
 %
Gross profit
52.8

 
50.5

 
4.6
 %
SG&A expense
22.5

 
21.6

 
4.2
 %
Operating income
30.3

 
28.9

 
4.8
 %
Adjustment to LIFO inventory valuation method
 
 
 
 
 
Gross profit
$
(0.8
)
 
$
2.0

 
NM
Operating income
(0.8
)
 
2.0

 
NM
Net corporate expense
 
 
 
 
 
Gross profit
$

 
$
0.4

 
NM
SG&A expense
10.2

 
9.2

 
10.9
 %
Operating loss
(10.2
)
 
(8.8
)
 
(15.9
)%
NM=Not meaningful

29



Overview
On a consolidated basis, the increase in net sales in the first quarter of fiscal 2017, as compared with 2016, reflected higher sales in all reportable segments except for the ESS segment. The changes in net sales in the first quarter of fiscal 2017, as compared with fiscal 2016, were as follows:
 
First quarter
 
Total
ESS
Energy & Mining
Utility
Coatings
Irrigation
Sales - 2016
$
596.6

$
166.0

$
70.8

$
144.3

$
58.8

$
156.7

Volume
30.2

(4.6
)
5.1

28.1

(4.0
)
5.6

Pricing/mix
6.8

1.0

1.3

2.0

4.1

(1.6
)
Currency translation
3.9

(2.0
)
0.8


0.4

4.7

Sales - 2017
637.5

160.4

78.0

174.4

59.3

165.4


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 in the first quarter of 2017 as compared to the same period in 2016. Increases in average sales pricing and volumes offset the decrease in gross profit realized from the higher cost of steel. The effect of changing steel prices does not necessarily affect sales and costs of sales immediately.

Currency Translation

In the first quarter 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
Energy & Mining
Utility
Coatings
Irrigation
Corporate
First quarter
$
0.7

$

$

$

$
(0.1
)
$
0.8

$


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 first quarter of 2017, as compared with 2016, was due to higher raw material prices across most of our businesses. Gross profit increased in the first quarter of 2017, as compared to 2016, for all operating segments except for Coatings and ESS. Gross profit in the first quarter of 2017 decreased for the Coatings and ESS segments primarily due to sales pricing that did not fully recover higher raw material costs. Due to rising material costs in the first quarter of 2017, as compared to declining material costs in the first quarter of 2016, the Company experienced higher LIFO expense of $2.8 million.
  
The Company saw an increase in SG&A in the first quarter of fiscal 2017, as compared to the same period in 2016, due primarily to higher deferred compensation expenses of $1.8 million, which was offset by the same amount of other income.

30



    In the first quarter of 2017 as compared to 2016, operating income for all operating segments were higher except for the Coatings and ESS segments. The increase in operating income in the first quarter of 2017, as compared to 2016, is primarily attributable to improved volumes in Utility, Mining & Energy, and Irrigation and restructuring actions undertaken in 2016 to reduce our cost structure in certain businesses. The decrease in operating income for Coatings and ESS is driven by sales pricing that did not fully recover higher raw material costs.

Net Interest Expense and Debt
    
Net interest expense in the first quarter of 2017, as compared with the same period in 2016, was consistent due to minimal changes in short and long-term borrowings.

Other Income/Expense

The improvement in other income/expense in the first quarter of 2017, as compared with 2016, was primarily due to a change in valuation of deferred compensation assets which resulted in higher other income of $1.8 million. This amount is offset by an increase of the same amount in SG&A. The change in the market value of the Company's shares held of Delta EMD was a $0.1 million loss in the first quarter of 2017, as compared to a $1.0 million loss in the first quarter of 2016. The remaining improvement was due to more favorable foreign currency effects from transactions.

Income Tax Expense
    
Our effective income tax rate in the first quarter of 2017 was 27.8%, compared to 32.3% in the first quarter of 2016. A net non-recurring benefit of $2.0 million contributed to the lower tax rate in the first quarter of 2017. This was primarily due to our U.K. subsidiaries receiving a favorable summary judgment in their application for refund of previously paid U.K. corporate income tax.

Earnings attributable to noncontrolling interest was lower in the first quarter of 2017, primarily due to acquiring the remaining non-controlling interest of our galvanizing business in Malaysia in the second quarter of 2016.

Cash Flows from Operations
 
Our cash flows provided by operations was $36.0 million in the first quarter of fiscal 2017, as compared with $80.5 million provided by operations in the first quarter of 2016. The decrease in operating cash flow in the first quarter of fiscal 2017, as compared with 2016, was primarily the result of higher net working capital and the pension contribution made to the Delta Pension Plan in 2017.

Engineered Support Structures (ESS) segment
The increase in sales in the first quarter of fiscal 2017, as compared with the first quarter of 2016, was due to higher intercompany sales volumes to the North America Utility business and improved communication product line sales volumes. The increase was partially offset by lower sales volumes and unfavorable currency translation effects for our EMEA structures businesses.
Global lighting and traffic, and roadway product sales in the first quarter of 2017 were higher compared to the same period in fiscal 2016. In the first quarter of 2017, as compared to 2016, sales volumes in the U.S. were slightly lower across commercial and transportation markets. We expect the 2015 long-term U.S. highway bill to provide an uplift to the transportation markets in the latter half of 2017. Sales in Europe were lower in the first quarter of fiscal 2017 compared to the same period in fiscal 2016, due to lower volumes and unfavorable currency translation effects. The domestic markets in general remain subdued in Europe. In the Asia-Pacific region, sales were higher in first quarter of fiscal 2017, as compared to 2016, due primarily to higher intercompany sales from China and volume improvements in Australia and India. Roadway product sales increased in the first quarter of 2017 due to higher volumes and favorable currency translation effects.
Communication product line sales were higher in the first quarter of fiscal 2017, as compared with the same period in fiscal 2016. North America communication structure and component sales increased, due to higher demand in the market. In China, sales volumes of wireless communication structures in the first quarter of fiscal 2017 decreased over the same period in 2016 partially offset by increased Australian sales for wireless communication structures in 2017 due to higher demand from the national broadband network build out.

31



Gross profit, as a percentage of sales, and operating income for the segment were lower in the first quarter of 2017, as compared with 2016, due to margin contraction from higher raw material costs that was partially offset by higher sales pricing. SG&A spending in the first quarter of 2017 decreased as compared to the same period in 2016 due primarily to lower commissions owed on reduced telecommunication sales in China.
Energy & Mining (E&M) segment
The increase in net sales in the first quarter of 2017, as compared to 2016, was due to higher volumes, increased pricing, and favorable currency translation effects.
Access systems product line net sales in the first quarter of 2017 were higher when compared to the same period in 2016 primarily due to higher volumes. Also contributing to the increase in 2017 were improved sales pricing and favorable currency translation effects.
Offshore and other complex structures sales increased in the first quarter of 2017, as compared to the same period in 2016 due to volume improvements primarily in the wind tower product line. The increase in sales was partially offset by unfavorable currency translation effects.
Grinding media sales were relatively flat in the first quarter of 2017 as compared to 2016. A decrease in sales volumes was more than offset by an improved sales mix and favorable currency translation effects.
Operating income for the segment in the first quarter of 2017, as compared to the same period in 2016, was higher as a result of improved sales pricing/mix in the grinding media business and improved volumes in the offshore and access systems business. SG&A expense increased slightly in the first quarter of 2017 due to higher incentive costs related to improved business performance.
Utility Support Structures (Utility) segment
In the Utility segment, sales increased in the first quarter of 2017, as compared with 2016, due primarily to improved sales demand in North America resulting in increased sales volumes in tons for steel and concrete utility structures. Higher costs of steel in the first quarter of 2017, as compared to 2016, partially contributed to the increase in reported sales. 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. International utility structures sales decreased in 2017 due to lower volumes.
Gross profit as a percentage of sales improved in the first quarter of 2017, as compared to 2016, due to improved sales volumes and the related additional leverage of fixed costs. SG&A expense was higher in the first quarter of 2017, as compared with 2016, due to higher compensation costs and commission expense mostly attributed to the increased sales volumes. Operating income increased in the first quarter of 2017, as compared with 2016, due to the additional leverage of fixed costs and SG&A from increased sales volumes.
Coatings segment
Coatings segment sales increased primarily due to increased sales prices to recover higher zinc costs. This increase in the first quarter of 2017, as compared with the same period in 2016, was offset by lower external sales volumes. In North America, the 2017 sales mix consisted of higher intercompany volumes as compared to 2016. In the Asia-Pacific region, improved demand/volume in Australia and India also contributed to the increase in net sales.
SG&A expense was flat in the first quarter of 2017, as compared to the first quarter of 2016. Operating income was lower in the first quarter of 2017, as compared with 2016, due to the change in sales mix and costs incurred to start up our facility in Texas. The increase in sales pricing in the first quarter of 2017, as compared to 2016, was fully offset by the additional cost of zinc.
Irrigation segment
The increase in Irrigation segment net sales in the first quarter of fiscal 2017, as compared with 2016, was primarily due to sales volume increases in North America for both the irrigation and tubing businesses and favorable currency translation effects for international irrigation (Brazil and South Africa). In fiscal 2017, net farm income in the United States is expected to decrease 8.7% from the levels of 2016, due in part to lower market prices for corn and soybeans. The 2017 estimate represents the fourth consecutive year of a decrease in estimated net farm income. We believe this reduction may contribute to lower demand for irrigation machines in North America for the full year of 2017 as compared to 2016.

32



International sales volumes increased in Brazil which was partially offset by a decline in sales volumes in Europe and the Middle East.
SG&A was higher in the first quarter of fiscal 2017, as compared with 2016. The increase can be attributed to higher compensation and currency translation related to the international irrigation business. SG&A was relatively flat for our North American irrigation and tubing businesses. Operating income for the segment increased in the first quarter of fiscal 2017 over 2016, primarily due to North American sales volume increases, productivity improvements, and favorable foreign currency translation effects.
Net corporate expense
Net corporate expense increased in the first quarter of 2017 as compared to 2016, due to $1.8 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 lower pension expenses associated with the Delta Pension Plan.
Liquidity and Capital Resources
Cash Flows
Working Capital and Operating Cash Flows-Net working capital was $948.6 million at April 1, 2017, as compared to $903.4 million at December 31, 2016. The increase in net working capital in 2017 mainly resulted from increased inventory, cash on hand, and receivables, partially offset by higher accrued expenses and accounts payable. Cash flow provided by operations was $36.0 million in the first quarter of 2017, as compared with $80.5 million in first quarter of 2016. The decrease in operating cash flow in the first quarter of 2017, as compared to 2016, was primarily the result of higher net working capital that resulted in higher uses of cash and the pension contribution made to the Delta Pension Plan in 2017.
Investing Cash Flows-Capital spending in the first quarter of fiscal 2017 was $14.2 million, as compared to $14.0 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 $70 million.
Financing Cash Flows-Our total interest‑bearing debt decreased slightly to $756.3 million at April 1, 2017 from $756.4 million at December 31, 2016. Financing cash flows changed from a use of approximately $23.4 million in the first quarter of fiscal 2016 to a use of $2.9 million in the first quarter of fiscal 2017. We purchased $0 and $16.9 million of treasury shares in the first quarter of 2017 and 2016 under our share repurchase program.
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 first quarter of 2017. As of April 1, 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 would be willing to allow our debt rating to fall to BBB - to finance a special acquisition or other opportunity. Otherwise, we expect to maintain a ratio of debt to invested capital which will support our current investment grade debt rating.


33



Our debt financing at April 1, 2017 is primarily long-term debt consisting of:
$250.2 million face value ($253.5 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.

At April 1, 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 April 1, 2017, we had the ability to borrow $585.3 million under this facility, after consideration of standby letters of credit of $14.7 million associated with certain insurance obligations and international sales commitments. We also maintain certain short-term bank lines of credit totaling $111.4 million, $111.3 million of which was unused at April 1, 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 April 1, 2017, we were in compliance with all covenants related to the debt agreements. The key covenant calculations at April 1, 2017 were as follows:
Interest-bearing debt
$
756,340

Adjusted EBITDA-last four quarters
329,937

Leverage ratio
2.29

 
 
Adjusted EBITDA-last four quarters
$
329,937

Interest expense-last four quarters
42,386

Interest earned ratio
7.78


34



The calculation of Adjusted EBITDA-last four quarters (March 27, 2016 through April 1, 2017) is as follows:
Net cash flows from operations
$
174,624

Interest expense
42,386

Income tax expense
41,156

Impairment of property, plant and equipment
(1,099
)
Loss on investment
339

Change in fair value of contingent consideration
3,242

Deferred income tax benefit
15,379

Noncontrolling interest
(4,940
)
Stock-based compensation
(10,376
)
Pension plan expense
(1,640
)
Contribution to pension plan
26,867

Changes in assets and liabilities
58,792

Other
699

EBITDA
345,429

Reversal of contingent liability
(16,591
)
Impairment of property, plant and equipment
1,099

Adjusted EBITDA
$
329,937

Net earnings attributable to Valmont Industries, Inc.
$
179,242

Interest expense
42,386

Income tax expense
41,156

Depreciation and amortization expense
82,645

EBITDA
345,429

Reversal of contingent liability
(16,591
)
Impairment of property, plant, and equipment
1,099

Adjusted EBITDA
$
329,937

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 $469.5 million of undistributed earnings of our foreign subsidiaries, as we intend to reinvest those earnings. Of our cash balances of $425.2 million at April 1, 2017, approximately $327.1 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
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.

35



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 April 1, 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 April 1, 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.


36




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)
January 1, 2017 to January 28, 2017

 
$

 

 
$
132,172,000

January 29, 2017 to March 4, 2017

 

 

 
132,172,000

March 5, 2017 to April 1, 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 April 1, 2017, we have acquired 4,588,131 shares for approximately $617.8 million under this share repurchase program.

Item 5. Other Information
Submission of Matters to a Vote of Security Holders
Valmont's annual meeting of stockholders was held on April 25, 2017. The stockholders elected three directors to serve three-year terms, approved, on an advisory basis, a resolution approving Valmont's named executive officer compensation, voted, on an advisory basis, on the frequency of future advisory votes on executive compensation, and ratified the appointment of Deloitte & Touche LLP as independent auditors for fiscal 2017. For the annual meeting there were 22,557,828 shares outstanding and eligible to votes of which 21,016,224 were present at the meeting in person or by proxy. The tabulation for each matter voted upon at the meeting was as follows:

Election of Directors:

 
For
 
Withheld
 
Broker Non-Votes
Mogens C. Bay
18,063,565

 
628,215

 
2,324,444

Walter Scott, Jr.
17,782,121

 
909,659

 
2,324,444

Clark T. Randt, Jr.
18,350,473

 
341,307

 
2,324,444




37



Advisory vote on executive compensation:

For
18,366,915

Against
228,458

Abstain
96,407

Broker non-votes
2,324,444



Advisory vote on frequency of future advisory votes on executive compensation:

1 year
16,111,924

2 years
12,590

3 years
2,481,656

Abstain
85,610

Broker non-votes
2,324,444


The Board of Directors has determined that the Company will hold advisory votes on executive compensation on a one-year basis.


Proposal to ratify the appointment of Deloitte & Touche LLP as independent auditors for fiscal 2017:

For
20,644,518

Against
265,312

Abstain
106,394




Item 6. Exhibits
(a)
Exhibits
Exhibit No.
 
Description
31.1
 
Section 302 Certificate of Chief Executive Officer
31.2
 
Section 302 Certificate of Chief Financial Officer
32.1
 
Section 906 Certifications of Chief Executive Officer and Chief Financial Officer
101
 
The following financial information from Valmont's Quarterly Report on Form 10-Q for the quarter ended April 1, 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.


38



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf and by the undersigned hereunto duly authorized.
 
VALMONT INDUSTRIES, INC.
(Registrant)
 
/s/ MARK C. JAKSICH
 
Mark C. Jaksich
Executive Vice President and Chief Financial Officer
Dated this 27th day of April, 2017.


























39



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 April 1, 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.










































40