Document


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 March 31, 2018
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
22,552,073
Outstanding shares of common stock as of April 20, 2018


VALMONT INDUSTRIES, INC.

INDEX TO FORM 10-Q
 
 
Page No.
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
March 31, 2018 and April 1, 2017
 
 
 
weeks ended March 31, 2018 and April 1, 2017
 
Condensed Consolidated Balance Sheets as of March 31, 2018 and December 30,
 
 
2017
 
Condensed Consolidated Statements of Cash Flows for the thirteen weeks ended
 
 
March 31, 2018 and April 1, 2017
 
Condensed Consolidated Statements of Shareholders' Equity for the thirteen
 
 
weeks ended March 31, 2018 and April 1, 2017
 
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
 
March 31,
2018
 
April 1,
2017
Product sales
$
620,486

 
$
572,952

Services sales
78,198

 
64,521

Net sales
698,684

 
637,473

Product cost of sales
476,264

 
426,847

Services cost of sales
53,180

 
46,021

Total cost of sales
529,444

 
472,868

Gross profit
169,240


164,605

Selling, general and administrative expenses
105,280

 
99,949

Operating income
63,960

 
64,656

Other income (expenses):
 
 
 
Interest expense
(11,074
)
 
(11,304
)
Interest income
1,267

 
927

Other
(1,141
)
 
1,045

 
(10,948
)
 
(9,332
)
Earnings before income taxes
53,012

 
55,324

Income tax expense:
 
 
 
Current
7,713

 
1,298

Deferred
4,819

 
14,065

 
12,532

 
15,363

Net earnings
40,480

 
39,961

Less: Earnings attributable to noncontrolling interests
(1,199
)
 
(982
)
Net earnings attributable to Valmont Industries, Inc.
$
39,281

 
$
38,979

Earnings per share:
 
 
 
Basic
$
1.74

 
$
1.73

Diluted
$
1.72

 
$
1.72

Cash dividends declared per share
$
0.375

 
$
0.375

Weighted average number of shares of common stock outstanding - Basic (000 omitted)
22,609

 
22,472

Weighted average number of shares of common stock outstanding - Diluted (000 omitted)
22,796

 
22,660

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
 
March 31,
2018
 
April 1,
2017
Net earnings
$
40,480

 
$
39,961

Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustments:
 
 
 
Unrealized translation gain
6,804

 
19,390

Gain/(loss) on hedging activities:
 
 
 
      Net investment hedge, net of tax expense (benefit) of ($263) in 2018 and ($200) in 2017
(789
)
 
(526
)
Amortization cost included in interest expense
19

 
19

     Cash flow hedges
(93
)
 
—

Other comprehensive income (loss)
5,941

 
18,883

Comprehensive income
46,421

 
58,844

Comprehensive loss (income) attributable to noncontrolling interests
(4,747
)
 
241

Comprehensive income attributable to Valmont Industries, Inc.
$
41,674

 
$
59,085

















See accompanying notes to condensed consolidated financial statements.

4


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
 
March 31,
2018
 
December 30,
2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
479,663

 
$
492,805

Receivables, net
467,010

 
503,677

Inventories
370,005

 
420,948

Prepaid expenses and other assets
127,251

 
43,643

Assets held for sale
72,665

 
—

    Refundable income taxes
6,749

 
11,492

        Total current assets
1,523,343

 
1,472,565

Property, plant and equipment, at cost
1,137,152

 
1,165,687

Less accumulated depreciation and amortization
633,440

 
646,759

Net property, plant and equipment
503,712

 
518,928

Goodwill
327,874

 
337,720

Other intangible assets, net
129,540

 
138,599

Other assets
133,595

 
134,438

Total assets
$
2,618,064

 
$
2,602,250

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
951

 
$
966

Notes payable to banks
377

 
161

Accounts payable
190,902

 
227,906

Accrued employee compensation and benefits
67,928

 
84,426

Accrued expenses
92,651

 
81,029

Liabilities held for sale
12,960

 
—

    Dividends payable
8,493

 
8,510

Total current liabilities
374,262

 
402,998

Deferred income taxes
39,669

 
34,906

Long-term debt, excluding current installments
753,647

 
753,888

Defined benefit pension liability
195,490

 
189,552

Deferred compensation
48,597

 
48,526

Other noncurrent liabilities
21,043

 
20,585

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
1,996,474

 
1,954,344

Accumulated other comprehensive loss
(276,629
)
 
(279,022
)
Treasury stock
(602,504
)
 
(590,386
)
Total Valmont Industries, Inc. shareholders’ equity
1,145,241

 
1,112,836

Noncontrolling interest in consolidated subsidiaries
40,115

 
38,959

Total shareholders’ equity
1,185,356

 
1,151,795

Total liabilities and shareholders’ equity
$
2,618,064

 
$
2,602,250

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
 
March 31,
2018
 
April 1,
2017
Cash flows from operating activities:
 
 
 
Net earnings
$
40,480

 
$
39,961

Adjustments to reconcile net earnings to net cash flows from operations:
 
 
 
Depreciation and amortization
21,178

 
20,827

Noncash loss on trading securities
71

 
70

Impairment of property, plant and equipment
1,145

 
—

Stock-based compensation
2,775

 
2,494

Defined benefit pension plan expense
(594
)
 
154

Contribution to defined benefit pension plan
(731
)
 
(25,379
)
       (Gain)/loss on sale of property, plant and equipment
(280
)
 
(102
)
Deferred income taxes
4,819

 
14,065

Changes in assets and liabilities:
 
 
 
Receivables
29,794

 
(12,729
)
Inventories
(1,201
)
 
(34,817
)
Prepaid expenses and other assets
(32,025
)
 
(9,798
)
Accounts payable
(29,449
)
 
14,124

Accrued expenses
(6,407
)
 
14,020

Other noncurrent liabilities
440

 
612

Income taxes refundable
3,033

 
(87
)
Net cash flows from operating activities
33,048

 
23,415

Cash flows from investing activities:
 
 
 
Purchase of property, plant and equipment
(16,248
)
 
(14,168
)
Proceeds from sale of assets
714

 
302

Acquisitions, net of cash acquired
(4,800
)
 
—

Loss from settlement of net investment hedge
(863
)
 
—

Other, net
(1,782
)
 
(1,715
)
Net cash flows from investing activities
(22,979
)
 
(15,581
)
Cash flows from financing activities:
 
 
 
Borrowings under short-term agreements
219

 
198

Principal payments on long-term borrowings
(249
)
 
(215
)
Dividends paid
(8,510
)
 
(8,445
)
Dividends to noncontrolling interest
(1,281
)
 
(422
)
Purchase of noncontrolling interest
(5,510
)
 
—

Purchase of treasury shares
(14,790
)
 
—

Proceeds from exercises under stock plans
2,972

 
8,894

Purchase of common treasury shares—stock plan exercises
(1,504
)
 
(2,870
)
Net cash flows from financing activities
(28,653
)
 
(2,860
)
Effect of exchange rate changes on cash and cash equivalents
5,442

 
7,726

Net change in cash and cash equivalents
(13,142
)
 
12,700

Cash, cash equivalents, and restricted cash—beginning of year
492,805

 
412,516

Cash, cash equivalents, and restricted cash—end of period
$
479,663

 
$
425,216

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 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

Balance at December 30, 2017
$
27,900

 
$
—

 
$
1,954,344

 
$
(279,022
)
 
$
(590,386
)
 
$
38,959

 
$
1,151,795

Net earnings
—

 
—

 
39,281

 
—

 
—

 
1,199

 
40,480

Other comprehensive income (loss)
—

 
—

 
—

 
2,393

 
—

 
3,548

 
5,941

Cash dividends declared
—

 
—

 
(8,493
)
 
—

 
—

 
—

 
(8,493
)
Dividends to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(1,281
)
 
(1,281
)
Purchase of noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(5,510
)
 
(5,510
)
Cumulative impact of ASC 606 adoption
—

 
—

 
9,771

 
—

 
—

 
—

 
9,771

Addition of noncontrolling interest
—

 
—

 
—

 
—

 
—

 
3,200

 
3,200

Purchase of treasury shares; 101,387 shares acquired
—

 
—

 
—

 
—

 
(14,790
)
 
—

 
(14,790
)
Stock plan exercises; 9,548 shares acquired
—

 
—

 
—

 
—

 
(1,504
)
 
—

 
(1,504
)
Stock options exercised; 27,904 shares issued
—

 
(2,545
)
 
1,571

 
—

 
3,946

 
—

 
2,972

Stock option expense
—

 
1,090

 
—

 
—

 
—

 
—

 
1,090

Stock awards; 1,840 shares issued
—

 
1,455

 
—

 
—

 
230

 
—

 
1,685

Balance at March 31, 2018
$
27,900

 
$
—

 
$
1,996,474

 
$
(276,629
)
 
$
(602,504
)
 
$
40,115

 
$
1,185,356










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 March 31, 2018, the Condensed Consolidated Statements of Earnings and Comprehensive Income for the thirteen weeks ended March 31, 2018 and April 1, 2017, 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 March 31, 2018 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 30, 2017. 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 30, 2017 with the exception of the revenue recognition accounting policy which changed from adopting ASU 2014-09 and is discussed later within this footnote. The results of operations for the period ended March 31, 2018 are not necessarily indicative of the operating results for the full year.
Inventories
Approximately 37% and 37% of inventory is valued at the lower of cost, determined on the last-in, first-out (LIFO) method, or market as of March 31, 2018 and December 30, 2017. 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 $44,808 and $43,727 at March 31, 2018 and December 30, 2017, respectively.
Inventories consisted of the following:
 
March 31,
2018
 
December 30,
2017
Raw materials and purchased parts
$
176,554

 
$
183,029

Work-in-process
20,197

 
30,671

Finished goods and manufactured goods
218,062

 
250,975

Subtotal
414,813

 
464,675

Less: LIFO reserve
44,808

 
43,727

 
$
370,005

 
$
420,948



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 March 31, 2018 and April 1, 2017, were as follows:
    
 
Thirteen Weeks Ended
 
2018
 
2017
United States
$
41,765

 
$
35,424

Foreign
11,247

 
19,900

 
$
53,012

 
$
55,324

The Company estimated and recognized provisional amounts at December 30, 2017 for the following aspect of the 2017 Tax Act:
•
Deemed Repatriation transition tax: The Deemed Repatriation transition tax (“Transition Tax”) is a tax on unremitted foreign earnings of certain foreign subsidiaries, which subjected the Company's unremitted foreign earnings of approximately $400,000 to tax at certain specified rates less associated foreign tax credits. The Company recorded a provisional Transition Tax obligation of $9,890.
•
Indefinite reinvestment assertion: The Company's position is that unremitted foreign earnings subject to the Transition Tax are not indefinitely reinvested. The Company recorded a provisional amount of the deferred income taxes for foreign withholding taxes and U.S. state income taxes of $10,373 and $1,300, respectively. The Company also continues to gather additional information to determine its permanently reinvested position with respect to future foreign earnings.
•
No adjustments to these 2017 Tax Act amounts were recognized during the first quarter of 2018. However, the Company may adjust these provisional amounts in future quarters of 2018 after assessing additional implementation guidance as it becomes available.

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 March 31, 2018 and April 1, 2017 were as follows:
 
Thirteen Weeks Ended
Net periodic (benefit) expense:
2018
 
2017
Interest cost
$
4,716

 
$
4,321

Expected return on plan assets
(6,114
)
 
(4,877
)
Amortization of actuarial loss
804

 
710

Net periodic expense (benefit)
$
(594
)
 
$
154


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)
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 March 31, 2018, 550,606 shares of common stock remained available for issuance under the plans.
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 grant's fifth anniversary.
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 March 31, 2018 and April 1, 2017, respectively, were as follows:
 
Thirteen Weeks Ended
 
2018
 
2017
Compensation expense
$
1,090

 
$
1,289

Income tax benefits
273

 
496

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 $39,118 ($39,091 at December 30, 2017) 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 $1,954 and $1,951 as of March 31, 2018 and December 30, 2017, 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
March 31, 2018
 
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Trading Securities
$
41,072

 
$
41,072

 
$
—

 
$
—

    
 
 
 
Fair Value Measurement Using:
 
Carrying Value
December 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
$
41,042

 
$
41,042

 
$
—

 
$
—

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 March 31, 2018 and December 30, 2017:
 
Foreign Currency Translation Adjustments
 
Gain/(Loss) on Hedging Activities
 
Defined Benefit Pension Plan
 
Accumulated Other Comprehensive Loss
Balance at December 30, 2017
$
(171,399
)
 
$
6,357

 
$
(113,980
)
 
$
(279,022
)
Current-period comprehensive income (loss)
3,256

 
(863
)
 
—

 
2,393

Balance at March 31, 2018
$
(168,143
)
 
$
5,494

 
$
(113,980
)
 
$
(276,629
)
Revenue Recognition
On December 31, 2017, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). The Company elected to use the modified retrospective approach for the adoption of the new revenue standard. The cumulative effect of initially applying the new revenue standard was recorded as an adjustment to the opening balance of retained earnings, which impacted the Condensed Consolidated Balance Sheet as follows:




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)
Balance Sheet
December 30,
2017
 
ASC 606 Adjustments
 
December 31,
2017
Assets
 
 
 
 
 
Inventories
$
420,948

 
$
(36,243
)
 
$
384,705

Prepaid expenses and other current assets
43,643

 
51,507

 
95,150

Liabilities and shareholders' equity
 
 
 
 
 
Accrued expenses
81,029

 
2,043

 
83,072

Deferred income taxes
34,906

 
3,450

 
38,356

Retained earnings
1,954,344

 
9,771

 
1,964,115

The adoption of ASC 606 had the following impact on the Consolidated Balance Sheets and Consolidated Statements of Earnings for the thirteen weeks ended March 31, 2018:
Balance Sheet
As Reported
 
Balance Excluding ASC 606 Effects
 
Change
Assets
 
 
 
 
 
Inventories
$
370,005

 
$
425,956

 
$
(55,951
)
Prepaid expenses and other current assets
127,251

 
48,767

 
78,484

Liabilities and shareholders' equity
 
 
 
 
 
Accrued expenses
92,651

 
87,626

 
5,025

Deferred income taxes
39,669

 
35,539

 
4,130

Retained earnings
1,996,474

 
1,983,096

 
13,378

 
 
 
 
 
 
Statement of Earnings
 
 
 
 
 
Net Sales
$
698,684

 
$
670,874

 
$
27,810

Operating Income
63,960

 
58,886

 
5,074

The Company determines the appropriate revenue recognition for our contracts by analyzing the type, terms and conditions of each contract or arrangement with a customer. Contracts with customers for all businesses are fixed-price with sales tax excluded from revenue, and do not include variable consideration. Discounts included in contracts with customers, typically early pay discounts, are recorded as a reduction of net sales in the period in which the sale is recognized. Contract revenues are classified as product when the performance obligation is related to the manufacturing of goods. Contract revenues are classified as service when the performance obligation is the performance of a service. Service revenue is primarily related to the Coatings segment.
Customer acceptance provisions exist only in the design stage of our products and acceptance of the design by the customer is required before the project is manufactured and delivered to the customer. The Company is not entitled to any compensation solely based on design of the product and does not recognize revenue associated with the design stage. There is one performance obligation for revenue recognition. No general rights of return exist for customers once the product has been delivered and the Company establishes provisions for estimated warranties. The Company does not sell extended warranties for any of its products.
Shipping and handling costs associated with sales are recorded as cost of goods sold. The Company elected to use the practical expedient of treating freight as a fulfillment obligation instead of a separate performance obligation and ratably recognize freight expense as the structure is being manufactured, when the revenue from the associated customer contract is being recognized over time. With the exception of the Utility segment and the wireless communication structures product


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)
line, the Company’s inventory is interchangeable for a variety of each segment’s customers. The Company elected the practical expedient to not disclose the partially satisfied performance obligation at the end of the period when the contract has an original expected duration of one year or less. In addition, the Company elected the practical expedient to not adjust the amount of consideration to be received in a contract for any significant financing component if payment is expected within twelve months of transfer of control of goods or services; the Company expects all consideration to be received in one year or less at contract inception.
Segment and Product Line Revenue Recognition
The global Utility segment revenues are derived from manufactured steel and concrete structures for the North America utility industry and offshore and other complex structures used in energy generation and distribution outside of the United States. Steel and concrete utility structures are engineered to customer specifications resulting in limited ability to sell the structure to a different customer if an order is canceled after production commences. The continuous transfer of control to the customer is evidenced either by contractual termination clauses or by our rights to payment for work performed to-date plus a reasonable profit as the products do not have an alternative use to the Company. Since control is transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment. For our steel and concrete utility and wireless communication structure product lines, we generally recognize revenue on an inputs basis, using total production hours incurred to-date for each order as a percentage of total hours estimated to produce the order. The completion percentage is applied to the order’s total revenue and total estimated costs to determine reported revenue, cost of goods sold and gross profit. Production of an order, once started, is typically completed within three months. Revenue from the offshore and other complex structures business is also recognized using an inputs method, based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. External sales agents are used in certain sales of steel and concrete structures; the Company has chosen to use the practical expedient to expense estimated commissions owed to third parties by recognizing them proportionately as the goods are manufactured.
The global ESS segment revenues are derived from the manufacture and distribution of engineered metal, composite structures and components for lighting and traffic and roadway safety, engineered access systems, and wireless communication. For the lighting and traffic and roadway safety product lines, revenue is recognized upon shipment or delivery of goods to the customer depending on contract terms, which is the same point in time that the customer is billed. For Access Systems, revenue is generally recognized upon delivery of goods to the customer which is the same point in time that the customer is billed. The wireless communication product line has large regional customers who have unique product specifications for communication structures. When the customer contract includes a cancellation clause that would require them to pay for work completed plus a reasonable margin if an order was canceled, revenue is recognized over time based on hours worked as a percent of total estimated hours to complete production. For the remaining wireless communication product line customers which do not provide a contractual right to bill for work completed on a canceled order, revenue is recognized upon shipment or delivery of the goods to the customer which is the same point in time that the customer is billed.
The global Coatings segment revenues are derived by providing coating services to customers’ products, which include galvanizing, anodizing, and powder coating. Revenue is recognized once the coating service has been performed and the goods are ready to be picked up or delivered to the customer which is the same time that the customer is billed.
The global Irrigation segment revenues are derived from the manufacture of agricultural irrigation equipment and related parts and services for the agricultural industry and tubular products for industrial customers. Revenue recognition for the irrigation segment is generally upon shipment of the goods to the customer which is the same point in time that the customer is billed. The remote monitoring subscription services are primarily billed annually and revenue is recognized on a straight-line basis over the subsequent twelve months.
Disaggregation of revenue by product line is disclosed in the Segment footnote. A breakdown by segment of revenue recognized over time and revenue recognized at a point in time for the thirteen weeks ended March 31, 2018 is as follows:


13

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)
 
Point in Time
 
Over Time
 
March 31, 2018
 
March 31, 2018
Utility Support Structures
$
—

 
$
209,859

Engineered Support Structures
207,194

 
8,722

Coatings
68,458

 
—

Irrigation
183,234

 
2,818

Other
18,399

 
—

  Total
$
477,285

 
$
221,399

The Company's contract asset as of March 31, 2018 is $95,209. This amount is included within prepaid expenses and other assets line item within current assets. The contract assets attributable to the cumulative effect from the adoption of the new revenue recognition guidance was $51,507; the contract asset at December 30, 2017, attributable to the offshore and other complex structures product line, was $16,165. Both steel and concrete utility customers are generally invoiced upon shipment or delivery of the goods to the customer's specified location and there are normally no up-front or progress payments. The offshore and complex steel structures business invoices customers a number of ways including advanced billings, progress billings, and billings upon shipment.

At March 31, 2018 and December 30, 2017, the contract liability for revenue recognized over time was $6,301 and $7,368. The contract liability is included in Accrued Expenses on the Condensed Consolidated Balance Sheets. During the quarter ended March 31, 2018, the Company recognized $2,824 of revenue that was included in the liability as of December 30, 2017. The revenue recognized was due to applying advance payments received for projects completed during the quarter.
Hedging Activities
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 was received at the end of March 2018. The forward contracts had a maturity date of January 2018 and a notional amount to sell British pounds and Australian dollars to receive $24,059 and $21,222, respectively. The two forward contracts matured at the end of January 2018 with a combined loss of $2,671. As regulatory approval was still pending at maturity of the contracts, the Company chose to extend the Australian dollar contract through April 2018 which is the planned date of divestiture. The gain recorded on the contract extended through April at March 31, 2018 is $792. 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. The gain/(loss) will be deferred in Other Comprehensive Income where it will remain until the grinding media business is divested in the second quarter of 2018.
In the first quarter of 2018, the Company entered into a steel hot rolled coil forward contract which qualified as a cash flow hedge of the variability in the cash flows attributable to future steel purchases. The forward contract has a notional amount of $7,142 for the hedge of 1,500 short tons for each month from July 2018 to December 2018. The unrealized loss at March 31, 2018 is $93 and is included in Accounts Payable on the Condensed Consolidated Balance Sheets. The balance is recorded in the Consolidated Statement of Other Comprehensive Income within gain/(loss) on hedging activities. The gain/(loss) will be recognized in the income statement when the hedged inventory is used in customer orders.


14

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 Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-9, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") 605, Revenue Recognition. Effective December 31, 2017, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). The Company elected the modified retrospective approach for the adoption of the new revenue standard, resulting in a credit to retained earnings being recognized for $9,771. The Company calculated the cumulative effect on revenue of approximately $51,507 with $13,121 of pre-tax operating income; these were customer orders for the steel utility, concrete utility, and wireless communication structures product lines at various stages of production at December 30, 2017.
In March 2017, the FASB issued ASU 2017-07, Presentation of Net Periodic Benefit Cost Related to Defined Benefit Plans, which amends the income statement presentation requirements for the components of net periodic benefit cost for an entity's defined benefit pension and post-retirement plans. The Company adopted this ASU in the first quarter of 2018, recognizing the DPP net periodic pension expense within Other income (expense). The Company also reclassified $154 of DPP net periodic pension expense for first quarter 2017 out of selling, general, and administrative expense and into Other (expense).
In December 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents to be included within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statement of cash flows.
The Company adopted the ASU in the first quarter of 2018, recasting the beginning-of-period and end-of-period total cash and cash equivalent amounts on the statement of cash flows to include the £10,000 restricted cash account for the pension plan at December 31, 2016, thus reducing cash flows from operating activities by $12,568 for the first quarter of 2017. The Company did not have any restricted cash at March 31, 2018 or December 30, 2017.

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

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments in the Statement of Cash Flows, which provides more specific guidance on cash flow presentation for certain transactions. ASU 2016-15 is effective for interim periods and fiscal years beginning after December 15, 2017, with early adoption permitted. The Company adopted this ASU in the first quarter of 2018, which did not have a material impact on the consolidated financial statements.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, which provides revised guidance on leases requiring lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect of adopting this new accounting guidance but expects the adoption will result in a significant increase in total assets and liabilities.

15

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(2) ACQUISITIONS
On January 26, 2018, the Company acquired 60% of the assets of Torrent Engineering and Equipment ("Torrent") for $4,800 in cash. Torrent operates in Indiana and is an integrator of prefabricated pump stations that involves designing high pressure water and compressed air process systems. Torrent has annual sales of approximately $9,000. In the preliminary purchase price allocation, goodwill of $3,922 and $4,020 of customer relationships and other intangible assets were recorded. A portion of the goodwill is deductible for tax purposes. Torrent is included in the Irrigation segment and was acquired to expand the Company's water management capabilities. The Company expects to finalize the purchase price allocation in the second quarter of 2018.
On July 31, 2017, the Company purchased Aircon Guardrails Private Limited ("Aircon") for $5,362 in cash, net of cash acquired, plus assumed liabilities. Aircon produces highway safety systems including guardrails, structural metal products, and solar structural products in India with annual sales of approximately $10,000. In the purchase price allocation, goodwill of $3,327 and $2,109 of customer relationships and other intangible assets were recorded. Goodwill is not deductible for tax purposes. This business is included in the Engineered Support Structures segment and was acquired to expand the Company's geographic presence in the Asia-Pacific region. The purchase price allocation was finalized in the fourth quarter of 2017. Proforma disclosures were omitted as this business does not have a significant impact on the Company's financial results.
Acquisitions of Noncontrolling Interests
In March 2018, the Company acquired the remaining 10% of Valmont Industria e Commercio Ltda. that it did not own for $5,510. As this transaction was for the acquisition of 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.


16

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(3) ASSETS AND LIABILITIES HELD FOR SALE
During the first quarter of 2018, the Company received regulatory approval to sell Donhad, its grinding media business in Australia, which is reported in the Other segment. The grinding media business had pre-tax income/(loss) of ($579) and $2,086 for the thirteen weeks ended March 31, 2018 and April 1, 2017, respectively. The business is being sold because it does not fit the long-term strategic plans for the Company. The Company expects the sale to close during the second quarter of 2018. The expected proceeds from the sale are greater than its carrying value as of March 31, 2018. The grinding media business historical annual sales, operating profit, and net assets did not meet the quantitative thresholds for discontinued operations presentation. The carrying value of the assets and liabilities are separately presented within the captions "Assets held for sale" and "Liabilities held for sale" in the Condensed Consolidated Balance Sheet.
The assets and liabilities of the grinding media business as of March 31, 2018 are as follows:
 
 
Receivables, net
$
9,978

Inventories
16,155

Net property, plant, and equipment
14,013

Goodwill and intangible assets
27,607

Other assets
4,912

  Total assets
$
72,665

 
 
Accounts payable
$
9,201

Accrued expenses
1,536

Deferred income taxes
2,223

   Total liabilities
$
12,960

 
 
Net assets
59,705


17

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(4) RESTRUCTURING ACTIVITIES    
In February 2018, the Company decided upon certain regional restructuring activities (the "2018 Plan") of approximately $10,000, primarily in the ESS segment. The Company expects to incur $7,500 of pre-tax restructuring expenses in cost of sales and $2,500 of pre-tax restructuring expense in SG&A in 2018. Within the $10,000 are expected pre-tax asset impairments of approximately $2,000.

The following pre-tax expense were recognized during the first quarter of 2018:
 
 
ESS
 
Utility
 
Total
Severance
 
$
423

 
$
—

 
$
423

Other cash restructuring expenses
 
—

 
772

 
772

Asset impairments/net loss on disposals
 
1,145

 
—

 
1,145

   Total cost of sales
 
1,568

 
772

 
2,340

 
 
 
 
 
 
 
Severance
 
1,978

 
—

 
1,978

Other cash restructuring expenses
 
82

 
—

 
82

  Total selling, general and administrative expenses
 
2,060

 
—

 
2,060

      Consolidated total
 
$
3,628

 
$
772

 
$
4,400


    
Liabilities recorded for the restructuring plans and changes therein for the first quarter of fiscal 2018 were as follows:
 
 
Balance at December 30, 2017
 
Recognized Restructuring Expense
 
Costs Paid or Otherwise Settled
 
Balance at March 31, 2018
Severance
 
$
—

 
$
2,401

 
$
(2,251
)
 
$
150

Other cash restructuring expenses
 
1,216

 
772

 
(1,988
)
 
—

   Total
 
$
1,216

 
$
3,173

 
$
(4,239
)
 
$
150



18

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(5) GOODWILL AND INTANGIBLE ASSETS
Amortized Intangible Assets
The components of amortized intangible assets at March 31, 2018 and December 30, 2017 were as follows:
 
March 31, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Weighted
Average
Life
Customer Relationships
$
191,117

 
$
126,168

 
13 years
Proprietary Software & Database
3,659

 
3,115

 
8 years
Patents & Proprietary Technology
6,748

 
4,115

 
11 years
Other
5,035

 
4,248

 
3 years
 
$
206,559

 
$
137,646

 
 
 
December 30, 2017
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Weighted
Average
Life
Customer Relationships
$
200,810

 
$
131,062

 
13 years
Proprietary Software & Database
3,671

 
3,107

 
8 years
Patents & Proprietary Technology
6,693

 
3,999

 
11 years
Other
4,861

 
4,121

 
3 years
 
$
216,035

 
$
142,289

 
 
Amortization expense for intangible assets for the thirteen weeks ended March 31, 2018 and April 1, 2017, respectively was as follows:
Thirteen Weeks Ended
2018
 
2017
3,883

 
3,863

Estimated annual amortization expense related to finite‑lived intangible assets is as follows:
 
Estimated
Amortization
Expense
2018
$
14,167

2019
12,986

2020
11,879

2021
9,796

2022
7,494

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.

19

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(5) GOODWILL AND INTANGIBLE ASSETS (Continued)
Non-amortized intangible assets
Intangible assets with indefinite lives are not amortized. The carrying values of trade names at March 31, 2018 and December 30, 2017 were as follows:
 
March 31,
2018
 
December 30,
2017
 
Year Acquired
Webforge
$
9,793

 
$
9,432

 
2010
Valmont SM
10,243

 
9,973

 
2014
Newmark
11,111

 
11,111

 
2004
Ingal EPS/Ingal Civil Products
7,985

 
7,690

 
2010
Shakespeare
4,000

 
4,000

 
2014
Other
17,495

 
22,647

 
 
 
$
60,627

 
$
64,853

 
 
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 March 31, 2018 and December 30, 2017 was as follows:
 
Engineered
Support
Structures
Segment
 
Utility
Support
Structures
Segment
 
Coatings
Segment
 
Irrigation
Segment
 
Other
 
Total
Gross Balance at December 30, 2017
$
170,076

 
$
90,248

 
$
76,696

 
$
19,778

 
$
15,814

 
$
372,612

Accumulated impairment losses
(18,670
)
 
$
—

 
(16,222
)
 
$
—

 
$
—

 
$
(34,892
)
Balance at December 30, 2017
$
151,406

 
$
90,248

 
$
60,474

 
$
19,778

 
$
15,814

 
$
337,720

Acquisitions
—

 
—

 
—

 
3,922

 
—

 
3,922

Assets held for sale
—

 
—

 
—

 
—

 
(16,420
)
 
(16,420
)
Foreign currency translation
1,984

 
402

 
(200
)
 
(140
)
 
606

 
2,652

Balance at March 31, 2018
$
153,390

 
$
90,650

 
$
60,274


$
23,560

 
$
—

 
$
327,874


The Company’s annual impairment test of goodwill was performed during the third quarter of 2017. 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 $15,245 of goodwill, is the reporting unit that did not have a substantial excess of estimated fair value over its carrying value. The Company monitors the outlook for wind energy in Europe which would affect the sales demand assumptions in the five year

20

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(5) GOODWILL AND INTANGIBLE ASSETS (Continued)
impairment model for this reporting unit. If demand for off and onshore structures for wind energy declines significantly and recent increases to oil prices do not drive demand for new exploration structures, the Company may be required to perform an interim goodwill impairment test. The Company continues to monitor changes in global market conditions, including commodity prices, which could impact future results of any of its reporting units.
(6) 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 March 31, 2018 and April 1, 2017 were as follows:
 
2018
 
2017
Interest
$
439

 
$
925

Income taxes
2,912

 
1,898

(7) 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 March 31, 2018:
 
 
 
 
 
Net earnings attributable to Valmont Industries, Inc.
$
39,281

 
$
—

 
$
39,281

Shares outstanding (000 omitted)
22,609

 
187

 
22,796

Per share amount
$
1.74

 
$
(0.02
)
 
$
1.72

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

At March 31, 2018, there were 147,554 outstanding stock options with exercise prices exceeding the market price of common stock that were excluded from the computation of diluted earnings per share.

21

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(8) BUSINESS SEGMENTS
In the fourth quarter of 2017, the Company's management structure and reporting was changed to reflect management's expectations of the future growth of certain product lines and to take into consideration the expected divestiture of the grinding media business which historically was reported in the Energy and Mining segment. Grinding media will be reported in "Other" pending the completion of its divestiture. The access systems applications product line is now part of the Engineered Support Structures ("ESS") segment and the offshore and other complex structures product line is now part of the Utility segment. The segment financial information have been accordingly reclassified in this report to reflect these changes, for all periods presented.

The Company has four reportable segments based on its management structure. Each segment is global in nature with a manager responsible for segment operational performance and the allocation of capital within the segment. Net corporate expense is net of certain service‑related expenses that are allocated to business units generally on the basis of employee headcounts.

Reportable segments are as follows:

ENGINEERED SUPPORT STRUCTURES: This segment consists of the manufacture and distribution of engineered metal and composite structures and components for lighting, traffic, and wireless communication markets, engineered access systems, and highway safety products;

UTILITY SUPPORT STRUCTURES: This segment consists of the manufacture of engineered steel and concrete structures for the global utility transmission, distribution, and generation applications and on and offshore and other complex steel structures used in energy generation and distribution outside the United States, and inspection services;
COATINGS: This segment consists of galvanizing, anodizing and powder coating services; and
IRRIGATION: This segment consists of the manufacture of agricultural irrigation equipment, parts, services and tubular products and technology for precision agriculture.
In addition to these four reportable segments, the Company had other businesses and activities that individually are not more than 10% of consolidated sales, operating income or assets. This includes the manufacture of forged steel grinding media for the mining industry and is reported in the "Other" category.
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.

22

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(8) BUSINESS SEGMENTS (Continued)
Summary by Business
 
Thirteen Weeks Ended
 
March 31,
2018
 
April 1,
2017
SALES:
 
 
 
Engineered Support Structures segment:
 
 
 
Lighting, Traffic, and Highway Safety Products
$
160,444

 
$
140,802

    Communication Products
34,113

 
31,476

Access Systems
30,397

 
32,671

Engineered Support Structures segment
224,954

 
204,949

Utility Support Structures segment:
 
 
 
Steel
163,983

 
148,354

Concrete
23,662

 
26,204

Offshore and Other Complex Steel Structures
22,217

 
25,707

Utility Support Structures segment
209,862

 
200,265

Coatings segment
84,947

 
73,468

Irrigation segment
187,953

 
167,224

Other
18,399

 
19,594

Total
726,115

 
665,500

INTERSEGMENT SALES:
 
 
 
Engineered Support Structures segment
9,038

 
11,873

Utility Support Structures segment
3

 
235

Coatings segment
16,489

 
14,136

Irrigation segment
1,901

 
1,783

Other
—

 
—

Total
27,431

 
28,027

NET SALES:
 
 
 
Engineered Support Structures segment
215,916

 
193,076

Utility Support Structures segment
209,859

 
200,030

Coatings segment
68,458

 
59,332

Irrigation segment
186,052

 
165,441

Other
18,399

 
19,594

Total
$
698,684

 
$
637,473

 
 
 
 
OPERATING INCOME:
 
 
 
Engineered Support Structures segment
$
6,947

 
$
9,464

Utility Support Structures segment
23,367

 
24,207

Coatings segment
11,867

 
9,406

Irrigation segment
33,887

 
30,291

Other
(579
)
 
2,086

Adjustment to LIFO inventory valuation method
(1,081
)
 
(779
)
Corporate
(10,448
)
 
(10,019
)
Total
$
63,960

 
$
64,656


23

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(9) 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 March 31, 2018
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net sales
$
315,992

 
$
121,171

 
$
332,136

 
$
(70,615
)
 
$
698,684

Cost of sales
235,596

 
94,459

 
271,716

 
(72,327
)
 
529,444

Gross profit
80,396

 
26,712

 
60,420

 
1,712

 
169,240

Selling, general and administrative expenses
46,531

 
11,917

 
46,832

 
—

 
105,280

Operating income
33,865

 
14,795

 
13,588

 
1,712

 
63,960

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(10,881
)
 
(3,880
)
 
(193
)
 
3,880

 
(11,074
)
Interest income
176

 
10

 
4,961

 
(3,880
)
 
1,267

Other
(106
)
 
12

 
(1,047
)
 
—

 
(1,141
)
 
(10,811
)
 
(3,858
)
 
3,721

 
—

 
(10,948
)
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries
23,054

 
10,937

 
17,309

 
1,712

 
53,012

Income tax expense (benefit):
 
 
 
 
 
 
 
 
 
Current
2,769

 
886

 
3,921

 
137

 
7,713

Deferred
5,591

 
1,791

 
(2,563
)
 
—

 
4,819

 
8,360

 
2,677

 
1,358

 
137

 
12,532

Earnings before equity in earnings of nonconsolidated subsidiaries
14,694

 
8,260

 
15,951

 
1,575

 
40,480

Equity in earnings of nonconsolidated subsidiaries
24,587

 
2,729

 
—

 
(27,316
)
 
—

Net earnings
39,281

 
10,989

 
15,951

 
(25,741
)
 
40,480

Less: Earnings attributable to noncontrolling interests
—

 
—

 
(1,199
)
 
—

 
(1,199
)
Net earnings attributable to Valmont Industries, Inc
$
39,281

 
$
10,989

 
$
14,752

 
$
(25,741
)
 
$
39,281



24

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


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

 
38,072

 
—

 
99,949

Operating income
26,562

 
14,076

 
24,734

 
(716
)
 
64,656

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

 
(325
)
 
—

 
1,045

 
(9,637
)
 
(2,236
)
 
2,541

 
—

 
(9,332
)
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





25

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(9) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirteen weeks ended March 31, 2018
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Net earnings
$
39,281

 
$
10,989

 
$
15,951

 
$
(25,741
)
 
$
40,480

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

 
(8,680
)
 
15,484

 
—

 
6,804

Unrealized gain/(loss) on hedging activities:
 
 
 
 
 
 
 
 
 
     Net investment hedge
(789
)
 
—

 
—

 
—

 
(789
)
     Amortization cost included in interest expense
19

 
—

 
—

 
—

 
19

     Cash flow hedges
(93
)
 
—

 
—

 
—

 
(93
)
Equity in other comprehensive income
3,256

 
—

 
—

 
(3,256
)
 
—

Other comprehensive income (loss)
2,393

 
(8,680
)
 
15,484

 
(3,256
)
 
5,941

Comprehensive income (loss)
41,674

 
2,309

 
31,435

 
(28,997
)
 
46,421

Comprehensive income attributable to noncontrolling interests
—

 
—

 
(4,747
)
 
—

 
(4,747
)
Comprehensive income (loss) attributable to Valmont Industries, Inc.
$
41,674

 
$
2,309

 
$
26,688

 
$
(28,997
)
 
$
41,674



26

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


(9) 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



27

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


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

CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2018
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
71,423

 
$
3,409

 
$
404,831