Edgar Filing: VALMONT INDUSTRIES INC

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

Form 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 29, 2018

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)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class		Name of exchange on which registered
Common Stock $1.00 par value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No x

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer x	Accelerated filer o	Non‑accelerated filer o	Smaller reporting company o
Emerging growth company o

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

At February 21, 2019 there were 21,941,622 of the Company’s common shares outstanding. The aggregate market value of the voting stock held by non-affiliates of the Company based on the closing sale price the common shares as reported on the New York Stock Exchange on June 30, 2018 was $3,233,462,981.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s proxy statement for its annual meeting of shareholders to be held on April 30, 2019 (the “Proxy Statement”), to be filed within 120 days of the fiscal year ended December 29, 2018, are incorporated by reference in Part III.

VALMONT INDUSTRIES, INC.

Annual Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the fiscal year ended December 29, 2018

TABLE OF CONTENTS



		Page No.
PART I
Item 1	Business	2
Item 1A	Risk Factors	10
Item 1B	Unresolved Staff Comments	16
Item 2	Properties	16
Item 3	Legal Proceedings	17
Item 4	Mine Safety Disclosures	17
PART II
Item 5	Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	18
Item 6	Selected Financial Data	19
Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operation	22
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	40
Item 8	Financial Statements and Supplementary Data	41
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	100
Item 9A	Controls and Procedures	100
Item 9B	Other Information	102
Part III
Item 10	Directors, Executive Officers and Corporate Governance	103
Item 11	Executive Compensation	103
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	103
Item 13	Certain Relationships and Related Transactions, and Director Independence	103
Item 14	Principle Accountant Fees and Services	103
Part IV
Item 15	Exhibits and Financial Statement Schedules	104
Item 16	Form 10-K Summary	108

PART I

ITEM 1. BUSINESS.


(a)	General Description of Business

General

We are a diversified global producer of highly-engineered fabricated metal products. In our Engineered Support Structures (ESS) segment, we are a leading producer of steel, aluminum and composite poles, towers, and components for the global lighting, traffic, and wireless communications markets. The ESS segment also produces engineered access systems, highway safety products, and integrated structure solutions for smart cities. Our Utilities Support Structures (Utility) segment manufactures steel and concrete pole structures for global utility transmission, distribution and generation platforms primarily in the United States. The Utility segment also produces complex steel energy generation structures and engineered solar tracking solutions sold outside the United States. Our Irrigation segment is a global producer of mechanized irrigation systems, provider of water management solutions for large-scale production agriculture, and technology for precision agriculture. Our Coatings segment provides global galvanizing, painting and anodizing services to preserve and protect metal products.

Our ESS segment sells the following products: outdoor lighting, traffic control, and roadway safety structures, wireless communication structures and components, and engineered access systems. Our Utility segment sells pole structures to support electrical transmission and distribution lines and related power distribution equipment. Our Irrigation segment produces mechanized irrigation equipment and related services that deliver water, chemical fertilizers and pesticides to agricultural crops. Our Coatings segment provides coatings services for Valmont and other industrial customers. Customers and end-users of our products include municipalities and government entities globally, manufacturers of commercial lighting fixtures (OEM), contractors, telecommunications and utility companies, and large farms as well as the general manufacturing sector. In 2018, approximately 34% of our net sales were either sold in markets or produced by our manufacturing plants outside of North America. We were founded in 1946, went public in 1968 and our shares trade on the New York Stock Exchange (ticker: VMI).

Business Strategy

Our strategy is to pursue growth opportunities that leverage our existing product portfolio, knowledge of our principal end-markets and customers and engineering capability to increase our sales, earnings and cash flow, including:

Increasing the Market Penetration of our Existing Products. Our strategy is to increase our market penetration by differentiating our products from our competitors’ products through superior customer service, technological innovation and consistent high quality. For example, our Utility segment increased its 2018 sales by offering substations that are prepackaged to simplify our customer's installation and PyraMAX transmission structures.

Bringing our Existing Products to New Markets. Our strategy is to expand the sales of our existing products into geographic areas where we do not currently serve and where end-users do not currently purchase our type of product. For example, we have expanded our geographic presence in Europe, the Middle East, and North Africa for lighting structures. This strategy led to us building manufacturing presences in China and India to expand our offering of pole structures for lighting, utility and wireless communication to these markets. Our Irrigation segment has a long history of developing new emerging markets for mechanized irrigation around the world. In recent years, these markets include Eastern Europe and African countries.

Developing New Products for Markets that We Currently Serve. Our strategy is to grow by developing new products for markets using our comprehensive understanding of end-user requirements and leveraging longstanding relationships with key distributors and end-users. In recent years we developed and sold structures for tramway applications in Europe. The customers for this product line include many of the state and local governments that purchase our lighting structures. Another example is the development and expansion of decorative lighting poles that have been introduced to our existing customer base. Our 2018 acquisition of Walpar, an industry leader in the design, engineering and manufacturing of overhead sign structures for the North America transportation market is an example of this strategy.

Developing New Products for New Markets or Leveraging Core Competencies to Further Diversify our Business is a path to increase sales. For example, the establishment and growth of our Coatings segment was based on using our expertise in galvanizing to develop what is now a global business segment. The decorative lighting market has different requirements and preferences than our traditional transportation and commercial markets. For example, our joint venture with Tehomet provided expertise in the decorative wood pole market. The 2018 acquisition of Convert Italia SpA , gave us a presence in engineered solar tracking products that we believe are complementary to our existing products and provide us with future growth opportunities.

Acquisitions

We have grown internally and by acquisition. Our significant business expansions during the past five years include the following (including the segment where the business reports):

2014


•	Acquisition of 90% of a manufacturer of heavy complex steel structures (Valmont SM) with two manufacturing locations in Denmark (Utility)


•	Acquisition of a 51% ownership stake in AgSense, which provides farmers with remote monitoring equipment for their pivots and entire farming operation (Irrigation)


•	Acquisition of a manufacturer of fiberglass composite support structures with two manufacturing locations in South Carolina (ESS)

2015


•	Acquisition of a galvanizing business located in Hammonton, New Jersey (Coatings)

2016


•	Acquisition of the remaining 30% not previously owned of IGC Galvanizing Industries (M) Sdn Bhd (Coatings)


•	Acquisition of 5.2% of the remaining 10% not previously owned of Valmont SM (Utility)

2017


•	Acquisition of a highway safety business (Aircon) that manufactures guardrails, structural metal products, and solar structural products in India (ESS)

2018


•	Acquisition of a integrator of prepackaged pump stations (Irrigation)


•	Acquisition of a worldwide provider of parts for agricultural irrigation equipment, Irrigation Components International (ICI), located in the United States (Irrigation)


•	Acquisition of an engineering and manufacturer of overhead sign structures (Walpar) located in Southeast United States (ESS)


•	Acquisition of 75% of a provider of engineered solar tracker solutions (Convert Italia SpA) headquartered in Italy (Utility)


•	Acquisition of a steel lattice structures producer located in India (Utility)


•	Acquisition of a galvanizing business located in New Zealand (Coatings)

In 2018, the Company divested of Donhad, a grinding media producer in Australia.

(b) Segments

The Company has four reportable segments based on our management structure. Each segment is global in nature with a manager responsible for segment operational performance and allocation of capital within the segment.

Our reportable segments are as follows:

Engineered Support Structures: This segment consists of the manufacture and distribution of engineered metal and composite poles, towers, and components for global lighting, traffic, and wireless communication markets, engineered access systems, integrated structure solutions for smart cities, and highway safety products;

Utility Support Structures: This segment consists of the manufacture of engineered steel and concrete structures for the global utility transmission, distribution, and generation applications, renewable energy generation equipment, and inspection services;

Coatings: This segment consists of galvanizing, painting, and anodizing services; and

Irrigation: This segment consists of the manufacture of agricultural irrigation equipment, parts, services, tubular products, water management solutions, and technology for precision agriculture.

Other: In addition to these four reportable segments, we have other operations and activities which are not more than 10% of consolidated sales, operating income or assets. These activities include the manufacture of forged steel grinding media until its divestiture in 2018.


(c)	Narrative Description of Business

Information concerning the principal products produced and services rendered, markets, competition and distribution methods for each of our four reportable segments is set forth below.

Engineered Support Structures Segment (ESS)

Products Produced—We engineer and manufacture steel, aluminum, and composite poles and structures to which lighting and traffic control fixtures are attached for a wide range of outdoor lighting applications, such as streets, highways, parking lots, sports stadiums and commercial and residential developments. The demand for these products is driven by infrastructure, commercial and residential construction and by consumers’ desire for well-lit streets, highways, parking lots and common areas to help make these areas safer at night and to support trends toward more active lifestyles and 24-hour convenience. In addition to safety, customers want products that are visually appealing. In Europe, we are a leader in decorative lighting poles, which are attractive as well as functional. We are leveraging this expertise to expand our decorative product sales in North America, China, and the Middle East. Traffic poles are structures to which traffic signals and overhead signs are attached and aid the orderly flow of automobile traffic. These poles are typically standard designs but can also be engineered to be slightly modified to meet customer specifications to ensure the proper function and safety of the structure. Product engineering takes into account factors such as weather (e.g. wind, ice) and the products loaded on the structure (e.g. lighting fixtures, traffic signals, overhead signs) to determine the design of the pole. This product line also includes roadway safety systems, including guard rail barriers, wire rope safety barriers, crash attenuation barriers and other products. Highway safety systems are also designed and engineered to enhance roadway safety.

We also engineer, manufacture, and distribute a broad range of structures (poles and towers), camouflage concealment solutions, and components serving the wireless communication market. A wireless communication cell site mainly consists of a steel pole or tower, shelter (enclosure where the radio equipment is located), antennas (devices that receive and transmit data and voice information to and from wireless communication devices) and components (items that are used to mount antennas to the structure and to connect cabling and other parts from the antennas to the shelter). Larger mono-pole structures are engineered and designed to customer specifications, which include factors such as the number of antennas on the structure and wind and soil conditions. Due to the size of these mono-pole structures, design is important to ensure each structure meets performance and safety specifications. We do not provide any significant installation services on the structures we sell or manufacture. We also produce and distribute access systems that allow people to move safely and effectively in an industrial, infrastructure or commercial facility. Products offered in this product line include floor gratings, handrails, barriers and sunscreens. We also produce a line of engineered products which are used in architectural applications. Examples of these products are perforated metal sun screens and facades that can be used on building structures to improve shading and aesthetics.

Markets—The key markets for our lighting, traffic and roadway safety products are the transportation and commercial lighting markets and public roadway construction and upgrades. The transportation market includes street and highway lighting and traffic control, much of which is driven by government spending programs. For example, the U.S. government funds highway and road improvement through the federal highway program. This program provides funding to improve the nation’s roadway system, which includes roadway lighting and traffic control enhancements. Matching funding from the various states may be required as a condition of federal funding. Some states are supplementing infrastructure funding with revenue sources. Public and private partnerships have recently emerged as an additional funding source. The current federal highway program was renewed and extended in late 2015. The current administration has recommended

increases to spending on roadway infrastructure. In the United States, there are approximately 4 million miles of public roadways, with approximately 24% carrying over 80% of the traffic. Accordingly, the need to improve traffic flow through traffic controls and lighting is a priority for many communities. Transportation markets in other areas of the world are also heavily funded by local and national governments.

The commercial lighting market is mostly funded privately and includes lighting for applications such as parking lots, shopping centers, sports stadiums and business parks. The commercial lighting market is driven by macro-economic factors such as general economic growth rates, interest rates and the commercial construction economy. Valmont has many long-standing relationships with OEM’s who serve this market. Markets for access systems are typically driven by infrastructure, industrial and commercial construction spending. Customers include construction firms or installers who participate in these markets, natural gas and mineral exploration companies, resellers such as steel service centers, and end users. These markets can be cyclical depending on economic conditions.

The market for our communication products is driven by increased demand for wireless communication and data. Customers are wireless network providers and organizations that own cell sites and attach antennas from multiple carriers to the pole or tower structure (build to suit companies). We also sell products to state and federal governments for two-way radio communication, radar, broadcasting and security applications. We believe long-term growth should mainly be driven by increased usage and technologies such as 5G, which demand higher network density. Improved emergency response systems, as part of the U.S. Homeland Security initiatives, creates additional demand.

All of the products that we manufacture in this segment are parts of government or customer investments in basic infrastructure. The total cost of these investments can be substantial, so access to capital is often important to fund infrastructure needs. Demand can be cyclical in these markets due to overall economic conditions. Additionally, projects can sometimes be delayed due to funding or other issues.

Competition—Our competitive strategy in all of the markets we serve is to provide high value to the customer at a reasonable price. We compete on the basis of product quality, high levels of customer service, timely, complete, and accurate delivery of the product and design capability to provide the best solutions to our customers. There are numerous competitors in our markets, most of which are relatively small companies. Companies compete on the basis of price, product quality, reliable delivery, engineering design, and unique product features. Pricing can be very competitive, especially when demand is weak or when strong local currencies result in increased competition from imported products.

Distribution Methods—Sales and distribution activities are handled through a combination of a direct sales force and commissioned agents. Lighting agents represent Valmont as well as lighting fixture companies and sell other related products. Sales are typically to electrical distributors, who provide the pole, fixtures and other equipment to the end user as a complete package. Commercial lighting, wireless communication products and components, access systems and highway safety sales are normally made through Valmont sales employees, who work on a salary plus incentive, although some sales are made through independent, commissioned sales agents.

Utility Support Structures Segment (Utility)

Products Produced—We engineer and manufacture tapered steel, pre-stressed concrete and hybrid structures (concrete base section and steel upper sections), and steel lattice structures. These products are used to support the lines that carry power for electrical transmission, substation and distribution applications. Transmission refers to moving power from where it is produced to where it is used. Substations transfer high voltage electricity to low voltage transmission. Electrical distribution carries electricity from the substation to the end-user. We also design and engineer single axis solar tracker solutions for utility-scale solar applications.

Utility structures can be very large, so product design engineering is important to the function and safety of the structure. Our engineering process takes into account weather and loading conditions, such as wind speeds, ice loads and the power lines attached to the structure, in order to arrive at the final design. In Northern Europe, we produce utility structures for offshore and onshore wind energy. We also manufacture complex steel structures such as rotor houses for wind turbines, crown-mounted compensators, winches and cranes for oil and gas exploration, and material handling equipment for manufacturing.

Markets—Our sales in this segment are mainly in North America, where the key drivers in the utility business are significant upgrades in the electrical grid to support enhanced reliability standards, policy changes encouraging more

generation from renewable energy sources, interconnection of regional grids to share more efficient generation to the benefit of the consumer and increased electrical consumption which has outpaced the transmission investment in the past decades. According to the Edison Electric Institute, the electrical transmission grid in the U.S. requires significant investment in the coming years to respond to the compelling industry drivers and lack of investment prior to 2008. In international markets, electrical consumption is expected to increase. This will require substantial investment in new electricity generation capacity and growth in transmission grid development. We expect these factors to result in increased demand for electrical utility structures to transport electricity from source to user, as is used in the U.S. markets today. As utilities increase development of large-scale solar power and micro-grid applications, single axis tracker solutions will be an essential tool for achieving higher energy production. Sales of complex steel structures, wind turbine towers and rotor houses, material handling systems, utility transmission structures, and structures for oil & gas exploration mainly occur within Europe.

Competition—Our competitive strategy in this segment is to provide high value solutions to the customer at a reasonable price. We compete on the basis of product quality, engineering expertise, high levels of customer service and reliable, timely delivery of the product. There are many competitors. Companies compete on the basis of price, quality and service. Utility sales are often made through a competitive bid process, whereby the lowest bidder is awarded the contract, provided the competitor meets all other qualifying criteria. In weak markets, price is a more important criteria in the bid process. We also sell on a preferred-provider basis to certain large utility customers. These contractual arrangements often last between 3 and 5 years and are frequently renewed. For offshore and complex steel structures, we compete based on our ability to co-engineer and design solutions with customers. We are one of a limited number of competitors that can execute advanced order production of complex steel constructions that entail electronics, hydraulics, and highly automated series production for very customized products.

Distribution Methods—Products are normally sold directly to electrical utilities or energy providers with some sales sold through commissioned sales agents.

Coatings Segment (Coatings)

Services Rendered—We add finishes to metals that inhibit corrosion, extend service lives and enhance physical attractiveness of a wide range of materials and products. Among the services provided include:


•	Hot-dip Galvanizing


•	Anodizing


•	Powder Coating


•	E-Coating

In our Coatings segment, we take unfinished products from our customers and return them with a galvanized, anodized or painted finish. Galvanizing is a process that protects steel with a zinc coating that is bonded to the product surface to inhibit rust and corrosion. Anodizing is a process applied to aluminum that oxidizes the surface of the aluminum in a controlled manner, which protects the aluminum from corrosion and allows the material to be dyed a variety of colors. We also paint products using powder coating and e-coating technology (where paint is applied through an electrical charge) for a number of industries and markets.

Markets—Markets for our products are varied and our profitability is not substantially dependent on any one industry or external customer. However, a meaningful percentage of demand is internal, driven by Valmont's other segments. Demand for coatings services generally follows the local industrial economies. Galvanizing is used in a wide variety of industrial applications where corrosion protection of steel is desired. While markets are varied, our markets for anodized or painted products are more directly dependent on consumer markets than industrial markets.

Competition—The Coatings markets traditionally have been very fragmented, with a large number of competitors. Most of these competitors are relatively small, privately held companies who compete on the basis of price and personal relationships with their customers. As a result of ongoing industry consolidation, there are also several (public and private) multi-facility competitors. Our strategy is to compete on the basis of quality of the coating finish and timely delivery of the coated product to the customer. We also use the production capacity at our network of plants to ensure that the customer receives quality, timely service.

Distribution Methods—Due to freight costs, a galvanizing location has an effective service area of an approximate 300 to 500 mile radius. While we believe that we are globally one of the largest custom galvanizers, our sales are a small percentage of the total market. Sales and customer service are provided directly to the user by a direct sales force, generally assigned to each specific location.

Irrigation Segment (Irrigation)

Products Produced—We manufacture and distribute mechanical irrigation equipment and related service parts under the “Valley” brand name. A Valley irrigation machine usually is powered by electricity and propels itself over a farm field and applies water and chemicals to crops. Water and, in some instances, chemicals are applied through sprinklers attached to a pipeline that is supported by a series of towers, each of which is propelled via a drive train and tires. A standard mechanized irrigation machine (also known as a “center pivot”) rotates in a circle, although we also manufacture and distribute center pivot extensions that can irrigate corners of square and rectangular farm fields as well as conform to irregular field boundaries (referred to as a “corner” machine). Our irrigation machines can also irrigate fields by moving up and down the field as opposed to rotating in a circle (referred to as a “linear” machine). Irrigation machines can be configured to irrigate fields in size from 4 acres to over 500 acres, with a standard size in the U.S. configured for a 160-acre tract of ground. One of the key components of our irrigation machine is the control system. This is the part of the machine that allows the machine to be operated in the manner preferred by the grower, offering control of such factors as on/off timing, individual field sector control, rate and depth of water and chemical application. Our advanced technology solutions include a suite of smart panels and remote management of irrigation machines through smartphone, tablet, or centralized computer control. Irrigation net sales in 2018, 2017, and 2016 included technology sales of $45.3 million, $43.4 million, and $26.5 million, respectively. We also offer customized water application and scheduling services, which provide forecast information to assist growers in determining precision of water application on the field. Our water management group also provides product and service sales related to the delivery of water through mechanized irrigation equipment. The irrigation machine used in international markets is substantially the same as the one produced for the North American market.

Other Types of Irrigation — There are other forms of irrigation available to farmers, two of the most prevalent being flood irrigation and drip irrigation. In flood irrigation, water is applied through a pipe or canal at the top of the field and allowed to run down the field by gravity. Drip irrigation involves plastic pipe or tape resting on the surface of the field or buried a few inches below ground level, with water being applied gradually. We estimate that center pivot and linear irrigation comprises 50% of the irrigated acreage in North America. International markets use predominantly flood irrigation.

The Company through its majority ownership in AgSense LLC, develops and markets remote monitoring technology for pivot irrigation systems that is sold on a subscription basis. AgSense technology allows growers to remotely monitor and operate irrigation equipment and other farm implements. Data management and control is achieved using applications running on either a desktop Internet browser or various mobile devices connected to the Internet. We also manufacture tubular products for industrial customers primarily in the agriculture industry as well as in the transportation and other industries.

Markets—Market drivers in North America and international markets are essentially the same. Since the purchase of an irrigation machine is a capital expenditure, the purchase decision is based on the expected return on investment. The benefits a grower may realize through investment in mechanical irrigation include improved yields through better irrigation, cost savings through reduced labor and lower water and energy usage. The purchase decision is also affected by current and expected net farm income, commodity prices, interest rates, the status of government support programs and water regulations in local areas. In many international markets, the relative strength or weakness of local currencies as compared with the U.S. dollar may affect net farm income, since export markets are generally denominated in U.S. dollars. In addition, governments are sponsoring irrigation projects for self-sufficiency in food production.

The demand for mechanized irrigation comes from the following sources:


•	conversion from flood irrigation


•	replacement of existing mechanized irrigation machines


•	converting land that is not irrigated to mechanized irrigation

One of the key drivers in our Irrigation segment worldwide is that the usable water supply is limited. We estimate that:


•	only 2.5% of total worldwide water supply is freshwater


•	of that 2.5%, only 30% of freshwater is available to humans


•	the largest user of that freshwater is agriculture

We believe these factors, along with the trend of a growing worldwide population and improving diets, reflect the need to use water more efficiently while increasing food production to feed this growing population. We believe that mechanized irrigation can improve water application efficiency by 40-90% compared with traditional irrigation methods by applying water uniformly near the root zone and reducing water runoff. Furthermore, reduced water runoff improves water quality in nearby rivers, aquifers and streams, thereby providing environmental benefits in addition to conservation of water.

Competition—In North America, there are a number of entities that provide irrigation products and services to agricultural customers. We believe we are the leader of the four main participants in the mechanized irrigation business. Participants compete for sales on the basis of price, product innovation and features, product durability and reliability, quality and service capabilities of the local dealer. Pricing can become very competitive, especially in periods when market demand is low. In international markets, our competitors are a combination of our major U.S. competitors and privately‑owned local companies. Competitive factors are similar to those in North America, although pricing tends to be a more prevalent competitive strategy in international markets. Since competition in international markets is local, we believe local manufacturing capability is important to competing effectively in international markets and we have that capability in key regions.

Distribution Methods—We market our irrigation machines, technology offerings, and service parts through independent dealers. There are approximately 270 dealer locations in North America, with another approximately 270 dealers serving international markets in over 60 countries. The dealer determines the grower’s requirements, designs the configuration of the machine, installs the machine (including providing ancillary products that deliver water and electrical power to the machine) and provides after‑sales service. Our dealer network is supported and trained by our technical and sales teams. Our international dealers are supported through our regional headquarters in South America, South Africa, Western Europe, Australia, China and the United Arab Emirates as well as the home office in Valley, Nebraska.

General

Certain information generally applicable to each of our four reportable segments is set forth below.

Suppliers and Availability of Raw Materials.

Hot rolled steel coil and plate, zinc and other carbon steel products are the primary raw materials utilized in the manufacture of finished products for all segments. We purchase these essential items from steel mills, steel service centers, and zinc producers and these materials are usually readily available. While we may experience increased lead times to acquire materials and volatility in our purchase costs, we do not believe that key raw materials would be unavailable for extended periods. We have not experienced extended or wide-spread shortages of steel in the past several years, due to what we believe are strong relationships with some of the major steel producers. In the past several years, we experienced volatility in zinc and natural gas prices, but we did not experience any disruptions to our operations due to availability.

Patents, Licenses, Franchises and Concessions.

We have a number of patents for our manufacturing machinery, poles and irrigation designs. We also have a number of registered trademarks. We do not believe the loss of any individual patent or trademark would have a material adverse effect on our financial condition, results of operations or liquidity.

Seasonal Factors in Business.

Sales can be somewhat seasonal based upon the agricultural growing season and the infrastructure construction season. Sales of mechanized irrigation equipment to farmers are traditionally higher during the spring and fall and lower in the summer. Sales of infrastructure products are traditionally higher in the summer and fall and lower in the winter.

Customers.

We are not dependent for a material part of any segment’s business upon a single customer or upon very few customers. The loss of any one customer would not have a material adverse effect on our financial condition, results of operations or liquidity.

Backlog.

The backlog of orders for the principal products manufactured and marketed was $644.7 million at the end of the 2018 fiscal year and $670.0 million at the end of the 2017 fiscal year. An order is reported in our backlog upon receipt of a purchase order from the customer or execution of a sales order contract. We anticipate that most of the 2018 backlog of orders will be filled during fiscal year 2019. At year-end, the segments with backlog were as follows (dollar amounts in millions):



	12/29/2018		12/30/2017
Engineered Support Structures	$	257.4	$	204.1
Utility Support Structures	325.9		359.1
Irrigation	59.7		100.1
Coatings	1.7		0.1
Other	—		6.6
	$	644.7	$	670.0

Environmental Disclosure.

We are subject to various federal, state and local laws and regulations pertaining to environmental protection and the discharge of materials into the environment. Although we continually incur expenses and make capital expenditures related to environmental protection, we do not anticipate that future expenditures should materially impact our financial condition, results of operations, or liquidity.

Number of Employees.

At December 29, 2018, we had 10,328 employees.


(d)	Available Information

We make available, free of charge through our Internet web site at http://www.valmont.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.

ITEM 1A. RISK FACTORS.

The following risk factors describe various risks that may affect our business, financial condition and operations.

The ultimate consumers of our products operate in cyclical industries that have been subject to significant downturns which have adversely impacted our sales in the past and may again in the future.

Our sales are sensitive to the market conditions present in the industries in which the ultimate consumers of our products operate, which in some cases have been highly cyclical and subject to substantial downturns. For example, a significant portion of our sales of support structures is to the electric utility industry. Our sales to the U.S. electric utility industry were over $600 million in 2018 and 2017. Purchases of our products are deferrable to the extent that utilities may reduce capital expenditures for reasons such as unfavorable regulatory environments, a slow U.S. economy or financing constraints. In the event of weakness in the demand for utility structures due to reduced or delayed spending for electrical generation and transmission projects, our sales and operating income likely will decrease.

The end users of our mechanized irrigation equipment are farmers. Accordingly, economic changes within the agriculture industry, particularly the level of farm income, may affect sales of these products. From time to time, lower levels of farm income resulted in reduced demand for our mechanized irrigation and tubing products. Farm income decreases when commodity prices, acreage planted, crop yields, government subsidies and export levels decrease. In addition, weather conditions, such as extreme drought may result in reduced availability of water for irrigation, and can affect farmers’ buying decisions. Farm income can also decrease as farmers’ operating costs increase. Increases in oil and natural gas prices result in higher costs of energy and nitrogen‑based fertilizer (which uses natural gas as a major ingredient). Furthermore, uncertainty as to future government agricultural policies may cause indecision on the part of farmers. The status and trend of government farm supports, financing aids and policies regarding the ability to use water for agricultural irrigation can affect the demand for our irrigation equipment. In the United States, certain parts of the country are considering policies that would restrict usage of water for irrigation. All of these factors may cause farmers to delay capital expenditures for farm equipment. Consequently, downturns in the agricultural industry will likely result in a slower, and possibly a negative, rate of growth in irrigation equipment and tubing sales. As of November 2018, the U.S. Department of Agriculture (the “USDA”) estimated U.S. 2018 net farm income to be $66.3 billion, down 12.1 percent from the USDA’s final U.S. 2017 net farm income of $75.4 billion.

We have also experienced cyclical demand for those of our products that we sell to the wireless communications industry. Sales of wireless structures and components to wireless carriers and build-to-suit companies that serve the wireless communications industry have historically been cyclical. These customers may elect to curtail spending on new capacity to focus on cash flow and capital management. Changes in the competitive structure of the wireless industry, due to industry consolidation or reorganization, may interrupt capital plans of the wireless carriers as they assess their networks.

The engineered access systems product lines are partially dependent on investment spending by our customers in the oil, natural gas, and other mined mineral exploration industries, most specifically in the Asia Pacific region. During periods of continued low oil and natural gas prices, these customers may elect to curtail spending on new exploration sites which will cause us to experience lower demand for these specific product lines.

Due to the cyclical nature of these markets, we have experienced, and in the future we may experience, significant fluctuations in our sales and operating income with respect to a substantial portion of our total product offering, and such fluctuations could be material and adverse to our overall financial condition, results of operations and liquidity.

Changes in prices and reduced availability of key commodities such as steel, aluminum, zinc, natural gas and fuel may increase our operating costs and likely reduce our net sales and profitability.

Hot rolled steel coil and other carbon steel products have historically constituted approximately one-third of the cost of manufacturing our products. We also use large quantities of aluminum for lighting structures and zinc for the galvanization of most of our steel products. Our facilities use large quantities of natural gas for heating and processing tanks in our galvanizing operations. We use gasoline and diesel fuel to transport raw materials to our locations and to deliver finished goods to our customers. The markets for these commodities can be volatile. The following factors increase the cost and reduce the availability of these commodities:


•	increased demand, which occurs when we and other industries require greater quantities of these commodities, which can result in higher prices and lengthen the time it takes to receive these commodities from suppliers;


•	lower production levels of these commodities, due to reduced production capacities or shortages of materials needed to produce these commodities (such as coke and scrap steel for the production of steel) which could result in reduced supplies of these commodities, higher costs for us and increased lead times;


•	increased cost of major inputs, such as scrap steel, coke, iron ore and energy;


•	fluctuations in foreign exchange rates can impact the relative cost of these commodities, which may affect the cost effectiveness of imported materials and limit our options in acquiring these commodities; and


•	international trade disputes, import duties and quotas, since we import some steel for our domestic and foreign manufacturing facilities.

Increases in the selling prices of our products may not fully recover higher commodity costs and generally lag increases in our costs of these commodities. Consequently, an increase in these commodities will increase our operating costs and likely reduce our profitability. Rising steel prices in 2018 and 2017 put pressure on gross profit margins, especially in our Engineered Support Structures segment. The elapsed time between the quotation of a sales order and the manufacturing of the product ordered can be several months. As some of the sales in the Engineered Support Structures and Utility Support Structures segments are fixed price contracts, rapid increases in steel costs likely will result in lower operating income.

Steel prices for both hot rolled coil and plate can also decrease substantially in a given period, which occurred in North America in 2015. Decreases in our product sales pricing and volumes offset the increase in gross profit realized from the lower steel prices. Steel is most significant for our Utility Support Structures segment where the cost of steel has been approximately 50% of the net sales, on average. Assuming a similar sales mix, a hypothetical 20% change in the price of steel would have affected our net sales from our utility support structures segment by approximately $64 million for the year ended December 29, 2018.

We believe the volatility over the past several years was due to significant increases in global steel production and rapid changes in consumption (especially in rapidly growing economies, such as China and India). The speed with which steel suppliers impose price increases on us may prevent us from fully recovering these price increases particularly in our lighting and traffic and utility businesses. In the same respect, rapid decreases in the price of steel can also result in reduced operating margins in our utility businesses due to the long production lead times.

Demand for our infrastructure products and coating services is highly dependent upon the overall level of infrastructure spending.

We manufacture and distribute engineered infrastructure products for lighting and traffic, utility and other specialty applications. Our Coatings segments serve many construction‑related industries. Because these products are used primarily in infrastructure construction, sales in these businesses are highly correlated with the level of construction activity, which historically has been cyclical. Construction activity by our private and government customers is affected by and can decline because of, a number of factors, including (but not limited to):


•	weakness in the general economy, which may negatively affect tax revenues, resulting in reduced funds available for construction;


•	interest rate increases, which increase the cost of construction financing; and


•	adverse weather conditions which slow construction activity.

The current economic uncertainty in the United States and Europe will have some negative effect on our business. In our North American lighting product line, some of our lighting structure sales are for new residential and commercial areas. When residential and commercial construction is weak, we have experienced some negative impact on our light pole sales to these markets. In a broader sense, in the event of an overall downturn in the economies in Europe, Australia or China, we may experience decreased demand if our customers in these countries have difficulty securing credit for their purchases from us.

In addition, sales in our Engineered Support Structures segment, particularly our lighting, traffic and highway safety products, are highly dependent upon federal, state, local and foreign government spending on infrastructure development projects, such as the U.S. federal highway funding. The level of spending on such projects may decline for a number of reasons beyond our control, including, among other things, budgetary constraints affecting government spending generally or

transportation agencies in particular, decreases in tax revenues and changes in the political climate, including legislative delays, with respect to infrastructure appropriations.

Design patent litigation related to guardrails could reduce demand for such products and raise litigation risk.

Certain of the Company’s foreign subsidiaries in India, New Zealand, and Australia manufacture highway safety products, primarily for sale in non-U.S. markets, and license certain design patents related to guardrails to third parties. There are currently domestic U.S. product liability lawsuits against some companies that manufacture and install certain guardrail products. Such lawsuits, some of which have at times involved a foreign subsidiary based on its design patent, could lead to a decline in demand for such products or approval for use of such products by government purchasers both domestically and internationally, and potentially raise litigation risk for foreign subsidiaries and negatively impact their sales and license fees.

We may lose some of our foreign investment or our foreign sales and profits may decline because of risks of doing business in foreign markets.

We are an international manufacturing company with operations around the world. At December 29, 2018, we operated over 80 manufacturing plants, located on six continents, and sold our products in more than 100 countries. In 2018, approximately 34% of our net sales were either sold in markets or produced by our manufacturing plants outside of North America. We have operations in geographic markets that have recently experienced political instability, such as the Middle East, and economic uncertainty, such as Western Europe. Our geographic diversity also requires that we hire, train and retain competent management for the various local markets. We also have a significant manufacturing presence in Australia, Europe and China. We expect that international sales will continue to account for a significant percentage of our net sales in the future. Accordingly, our foreign business operations and our foreign sales and profits are subject to the following potential risks:


•	political and economic instability, resulting in the reduction of the value of, or the loss of, our investment;


•	recessions in economies of countries in which we have business operations, decreasing our international sales;


•	difficulties and costs of staffing and managing our foreign operations, increasing our foreign operating costs and decreasing profits;


•	potential violation of local laws or unsanctioned management actions that could affect our profitability or ability to compete in certain markets;


•	difficulties in enforcing our rights outside the United States for patents on our manufacturing machinery, poles and irrigation designs;


•	increases in tariffs, export controls, taxes and other trade barriers reducing our international sales and our profit on these sales; and


•	acts of war or terrorism.

As a result, we may lose some of our foreign investment or our foreign sales and profits may be materially reduced because of risks of doing business in foreign markets.

Failure to comply with any applicable anti-corruption legislation could result in fines, criminal penalties and an adverse effect on our business.

We must comply with all applicable laws, which include the U.S. Foreign Corrupt Practices Act (FCPA), the UK Bribery Act or other anti-corruption laws. These anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence government officials or private individuals for the purpose of obtaining or retaining a business advantage regardless of whether those practices are legal or culturally expected in a particular jurisdiction. Recently, there has been a substantial increase in the global enforcement of anti-corruption laws. Although we have a compliance program in place designed to reduce the likelihood of potential violations of such laws, violations of these laws could result in criminal or civil sanctions and an adverse effect on the company’s reputation, business and results of operations and financial condition.

We are subject to currency fluctuations from our international sales, which can negatively impact our reported earnings.

We sell our products in many countries around the world. Approximately 36% of our fiscal 2018 sales were in markets outside the United States and are often made in foreign currencies, mainly the Australian dollar, euro, Brazilian real, Canadian dollar, Chinese renminbi and South African rand. Because our financial statements are denominated in U.S. dollars, fluctuations in currency exchange rates between the U.S. dollar and other currencies have had and will continue to have an impact on our reported earnings. For example, the U.S. dollar appreciated significantly against most currencies in fiscal 2015. The most significant impact involved our Australian sales measured in U.S. dollar terms that decreased by approximately $68 million due to exchange rate translation effects in fiscal 2015. If the U.S. dollar weakens or strengthens versus the foreign currencies mentioned above, the result will be an increase or decrease in our reported sales and earnings, respectively. Currency fluctuations have affected our financial performance in the past and may affect our financial performance in any given period. In cases where local currencies are strong, the relative cost of goods imported from outside our country of operation becomes lower and affects our ability to compete profitably in our home markets.

We also face risks arising from the imposition of foreign exchange controls and currency devaluations. Exchange controls may limit our ability to convert foreign currencies into U.S. dollars or to remit dividends and other payments by our foreign subsidiaries or businesses located in or conducted within a country imposing controls. Currency devaluations result in a diminished value of funds denominated in the currency of the country instituting the devaluation. Actions of this nature could have a material adverse effect on our results of operations and financial condition in any given period.

Our businesses require skilled labor and management talent and we may be unable to attract and retain qualified employees.

Our businesses require skilled factory workers and management in order to meet our customer’s needs, grow our sales and maintain competitive advantages. Skills such as welding, equipment maintenance and operating complex manufacturing machinery may be in short supply in certain geographic areas, leading to shortages of skilled labor and/or increased labor costs. Management talent is critical as well, to help grow our businesses and effectively plan for succession of key employees upon retirement. In some geographic areas, skilled management talent for certain positions may be difficult to find. To the extent we have difficulty in finding and retaining these skills in the workforce, there may be an adverse effect on our ability to grow profitably in the future.

We may incur significant warranty or contract management costs.

In our Utility Support Structures segment, we manufacture large structures for electrical transmission. These products may be highly engineered for very large, complex contracts and subject to terms and conditions that penalize us for late delivery and result in consequential and compensatory damages. From time to time, we may have a product quality issue on a large utility structures order and the costs of curing that issue may be significant. For example, we recorded a $17.0 million reserve in the fourth quarter of 2015 for a commercial settlement with a large customer that requires ongoing quality monitoring. Our products in the Engineered Support Structures segment include structures for a wide range of outdoor lighting, traffic, and wireless communication applications.

Our Irrigation products carry warranty provisions, some of which may span several years. In the event we have wide-spread product reliability issues with certain components, we may be required to incur significant costs to remedy the situation.

We face strong competition in our markets.

We face competitive pressures from a variety of companies in each of the markets we serve. Our competitors include companies who provide the technologies that we provide as well as companies who provide competing technologies, such as drip irrigation. Our competitors include international, national, and local manufacturers, some of whom may have greater financial, manufacturing, marketing and technical resources than we do, or greater penetration in or familiarity with a particular geographic market than we have.

In addition, certain of our competitors, particularly with respect to our utility and wireless communication product lines, have sought bankruptcy protection in recent years, and may emerge with reduced debt service obligations, which could allow them to operate at pricing levels that put pressures on our margins. Some of our customers have moved manufacturing operations or product sourcing overseas, which can negatively impact our sales of galvanizing and anodizing services.

To remain competitive, we will need to invest continuously in manufacturing, product development and customer service, and we may need to reduce our prices, particularly with respect to customers in industries that are experiencing downturns. We cannot provide assurance that we will be able to maintain our competitive position in each of the markets that we serve.

We could incur substantial costs as the result of violations of, or liabilities under, environmental laws.

Our facilities and operations are subject to U.S. and foreign laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, and the cleanup of contamination. Failure to comply with these laws and regulations, or with the permits required for our operations, could result in fines or civil or criminal sanctions, third party claims for property damage or personal injury, and investigation and cleanup costs. Potentially significant expenditures could be required in order to comply with environmental laws that regulators may adopt or impose in the future.

Certain of our facilities have been in operation for many years and, over time, we and other predecessor operators of these facilities have generated, used, handled and disposed of hazardous and other regulated wastes. We detected contaminants at some of our present and former sites, principally in connection with historical operations. In addition, from time to time we have been named as a potentially responsible party under Superfund or similar state laws. While we are not aware of any contaminated sites that are not provided for in our financial statements, including third‑party sites, at which we may have material obligations, the discovery of additional contaminants or the imposition of additional cleanup obligations at these sites could result in significant liability beyond amounts provided for in our financial statements.

We may not realize the improved operating results that we anticipate from acquisitions we may make in the future, and we may experience difficulties in integrating the acquired businesses or may inherit significant liabilities related to such businesses.

We explore opportunities to acquire businesses that we believe are related to our core competencies from time to time, some of which may be material to us. We expect such acquisitions will produce operating results better than those historically experienced or presently expected to be experienced in the future by us in the absence of the acquisition. We cannot provide assurance that this assumption will prove correct with respect to any acquisition.

Any future acquisitions may present significant challenges for our management due to the time and resources required to properly integrate management, employees, information systems, accounting controls, personnel and administrative functions of the acquired business with those of Valmont and to manage the combined company on a going forward basis. We may not be able to completely integrate and streamline overlapping functions or, if such activities are successfully accomplished, such integration may be more costly to accomplish than presently contemplated. We may also have difficulty in successfully integrating the product offerings of Valmont and acquired businesses to improve our collective product offering. Our efforts to integrate acquired businesses could be affected by a number of factors beyond our control, including general economic conditions. In addition, the process of integrating acquired businesses could cause the interruption of, or loss of momentum in, the activities of our existing business. The diversion of management’s attention and any delays or difficulties encountered in connection with the integration of acquired businesses could adversely impact our business, results of operations and liquidity, and the benefits we anticipate may never materialize. These factors are relevant to any acquisition we undertake.

In addition, although we conduct reviews of businesses we acquire, we may be subject to unexpected claims or liabilities, including environmental cleanup costs, as a result of these acquisitions. Such claims or liabilities could be costly to defend or resolve and be material in amount, and thus could materially and adversely affect our business and results of operations and liquidity.

We have, from time to time, maintained a substantial amount of outstanding indebtedness, which could impair our ability to operate our business and react to changes in our business, remain in compliance with debt covenants and make payments on our debt.

As of December 29, 2018, we had $753.3 million of total indebtedness outstanding. We had $579.7 million of capacity to borrow under our revolving credit facility at December 29, 2018. We normally borrow money to make business acquisitions and major capital expenditures. From time to time, our borrowings have been significant. Our level of indebtedness could have important consequences, including:


•	our ability to satisfy our obligations under our debt agreements could be affected and any failure to comply with the requirements, including significant financial and other restrictive covenants, of any of our debt agreements and could result in an event of default under the agreements governing our indebtedness;


•	a substantial portion of our cash flow from operations will be required to make interest and principal payments and will not be available for operations, working capital, capital expenditures, expansion, or general corporate and other purposes, including possible future acquisitions that we believe would be beneficial to our business;


•	our ability to obtain additional financing in the future may be impaired;


•	we may be more highly leveraged than our competitors, which may place us at a competitive disadvantage;


•	our flexibility in planning for, or reacting to, changes in our business and industry may be limited; and


•	our degree of leverage may make us more vulnerable in the event of a downturn in our business, our industry or the economy in general.

We had $313.2 million of cash at December 29, 2018, which mitigates a portion of the risk associated with our debt. However, approximately 65% of our consolidated cash balances are outside the United States and most of our interest‑bearing debt is borrowed by U.S. entities. In the event that we would have to repatriate cash from international operations to meet cash needs in the U.S., we may be subject to legal, contractual or other restrictions. In addition, as we use cash for acquisitions and other purposes, any of these factors could have a material adverse effect on our business, financial condition, results of operations, cash flows and business prospects.

The restrictions and covenants in our debt agreements could limit our ability to obtain future financings, make needed capital expenditures, withstand a future downturn in our business, or the economy in general, or otherwise conduct necessary corporate activities. These covenants may prevent us from taking advantage of business opportunities that arise.

A breach of any of these covenants would result in a default under the applicable debt agreement. A default, if not waived, could result in acceleration of the debt outstanding under the agreement and in a default with respect to, and acceleration of, the debt outstanding under our other debt agreements. The accelerated debt would become immediately due and payable. If that should occur, we may not be able to pay all such debt or to borrow sufficient funds to refinance it. Even if new financing were then available, it may not be on terms that are favorable to us.

We assumed an underfunded pension liability as part of the 2010 Delta acquisition and the combined company may be required to increase funding of the plan and/or be subject to restrictions on the use of excess cash.

Delta is the sponsor of a United Kingdom defined benefit pension plan that, as of December 29, 2018, covered approximately 6,500 inactive or retired former Delta employees. The plan has no active employees as members. At December 29, 2018, this plan was, for accounting purposes, underfunded by approximately £113.4 million ($143.9 million). The current agreement with the trustees of the pension plan for annual funding is approximately £10.0 million ($12.7 million) in respect of the funding shortfall and approximately £1.1 million ($1.4 million) in respect of administrative expenses. Although this funding obligation was considered in the acquisition price for the Delta shares, the underfunded position may adversely affect the combined company as follows:

•

Laws and regulations in the United Kingdom normally require the plan trustees and us to agree on a new funding plan every three years. The next funding plan will be developed in 2019. Changes in actuarial assumptions, including future discount, inflation and interest rates, investment returns and mortality rates, may increase the underfunded position of the pension plan and cause the combined company to increase its funding levels in the pension plan to cover underfunded liabilities.

•

The United Kingdom regulates the pension plan and the trustees represent the interests of covered workers. Laws and regulations, under certain circumstances, could create an immediate funding obligation to the pension plan which could be significantly greater than the £113.4 million ($143.9 million) assumed for accounting purposes as of December 29, 2018. Such immediate funding is calculated by reference to the cost of buying out liabilities on the insurance market, and could affect our ability to fund the Company’s future growth of the business or finance other obligations.

Our ability to operate could be adversely affected if our information technology systems are compromised or otherwise subjected to cyber crimes.

Cyber crime continually increases in sophistication and may pose a significant risk to the security of our information technology systems and networks, which if breached could materially adversely affect the confidentiality, availability and integrity of our data. We protect our sensitive information and confidential and personal data, our facilities and information technology systems, but we may be vulnerable to security breaches. This could lead to negative publicity, theft, modification or destruction of proprietary information or key information, manufacture of defective products, production downtimes and operational disruptions, which could adversely affect our reputation, competitiveness and results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

Our corporate headquarters are located in a leased facility in Omaha, Nebraska, under a lease expiring in 2021. The headquarters of the Company’s reportable segments are located in Valley, Nebraska. We also maintain a management headquarters in Sydney, Australia. Most of our significant manufacturing locations are owned or are subject to long-term renewable leases. Our principal manufacturing locations are in Valley, Nebraska, McCook, Nebraska, Tulsa, Oklahoma, Brenham, Texas, Charmeil, France and Shanghai, China. All of these facilities are owned by us. We believe that our manufacturing capabilities and capacities are adequate for us to effectively serve our customers. Our capital spending programs consist of investment for replacement, achieving operational efficiencies and expanding capacities where needed. Our principal operating locations by reportable segment are listed below.

Engineered Support Structures segment North America manufacturing locations are in Nebraska, Texas, Alabama, Indiana, Minnesota, Oregon, South Carolina, Washington and Canada. The largest of these operations are in Valley, Nebraska and Brenham, Texas, both of which are owned facilities. We have communication components distribution locations in New York, California, Florida, Georgia, and Texas. International locations are in France, the Netherlands, Finland, Estonia, England, Germany, Poland, Morocco, Australia, Indonesia, the Philippines, Thailand, Malaysia, India and China. The largest of these operations are in Charmeil, France and Shanghai, China, both of which are owned facilities.

Utility Support Structures segment North America manufacturing locations are in Alabama, Georgia, Florida, California, Texas, Oklahoma, Tennessee, Kansas, Nebraska and Mexico. The largest of these operations are in Tulsa, Oklahoma and Monterrey, Mexico. The Tulsa and Monterrey facilities are owned. The largest principal international manufacturing location is Denmark and there are also manufacturing locations in China, France, Italy and India.

Coatings segment North America operations include U.S. operations located in Nebraska, California, Minnesota, Iowa, Indiana, Illinois, Kansas, New Jersey, Oregon, Utah, Oklahoma, Texas, Virginia, Alabama, Florida and South Carolina and two locations near Toronto, Canada. International operations are located in Australia, Malaysia, the Philippines and India.

Irrigation segment North America manufacturing operations are located in Valley, Nebraska, McCook, Nebraska and Indiana. Our principal manufacturing operations serving international markets are located in Uberaba, Brazil, Nigel, South Africa, Jebel Ali, United Arab Emirates, and Shandong, China. All facilities are owned except for China, which is leased.

Our operations in the "other" category are located in Australia.

ITEM 3. LEGAL PROCEEDINGS.

We are not a party to, nor are any of our properties subject to, any material legal proceedings. We are, from time to time, engaged in routine litigation incidental to our businesses.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

Executive Officers of the Company

Our executive officers during fiscal 2018, their ages, positions held, and the business experience of each during the past five years are, as follows:

Mogens C. Bay, age 70, Executive Chairman of the Board of Directors since December 31, 2017, previously Chief Executive Officer since August 1993. Mr. Bay became the non-executive Chairman on January 1, 2019.

Stephen G. Kaniewski, age 47, President and Chief Executive Officer since December 31, 2017, previously President and Chief Operating Officer since October 2016. Joined Valmont in August 2010 as Vice President-Information Technology, moved into the Vice President-Global Operations role for the Irrigation segment in 2014. In January 2015, he transferred to the Utility Support Structures segment as Senior Vice President and Managing Director and in August 2015 became Group President of Utility Support Structures segment.

Mark C. Jaksich, age 61, Executive Vice President and Chief Financial Officer since February 2014. Vice President and Controller, February 2000 to February 2014.

Vanessa K. Brown, age 66, Senior Vice President-Human Resources since July 2011. Mrs. Brown retired at the end of fiscal 2018.

Timothy P. Francis, age 42, Senior Vice President and Controller since June 2014. Chief Financial Officer of Burlington Capital Group LLC (“BCG”) and America First Multifamily Investors, L.P. (“ATAX”), a NASDAQ listed Limited Partnership in which BCG serves as the General Partner, from January 2012 to May 2014.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is traded on the New York Stock Exchange under the symbol “VMI”. We had approximately 21,569 shareholders of common stock at December 29, 2018.

Issuer Purchases of Equity Securities



Period	(a) Total Number of Shares Purchased	(b) Average Price paid per share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Approximate Dollar Value of Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
September 30, 2018 to October 27, 2018	96,022	$	125.70	96,022	$	283,182,000
October 28, 2018 to December 1, 2018	58,616	125.06		58,616	275,852,000
December 2, 2018 to December 29, 2018	74,186	114.38		74,186	267,366,000
Total	228,824	$	121.87	228,824	$	267,366,000

On May 13, 2014, we announced a capital allocation philosophy which covered both the quarterly dividend rate as well as a share repurchase program. The Board of Directors at that time authorized the purchase of up to $500 million of the Company's outstanding common stock from time to time over twelve months at prevailing market prices, through open market or privately-negotiated transactions. On February 24, 2015 and again on October 31, 2018, the Board of Directors authorized additional purchases of up to $250 million of the Company's outstanding common stock with no stated expiration date. As of December 29, 2018, we have acquired 5,431,409 shares for approximately $732.6 million under this share repurchase program.

ITEM 6. SELECTED FINANCIAL DATA.

SELECTED FIVE-YEAR FINANCIAL DATA



(Dollars in thousands, except per share amounts)	2018			2017			2016			2015			2014
Operating Data	(3		)				(4		)
Net sales	$	2,757,144		$	2,745,967		$	2,521,676		$	2,618,924		$	3,123,143
Operating income (1)	202,280			267,080			245,374			131,695			357,716
Net earnings attributable to Valmont Industries, Inc. (2)	94,351			116,240			173,232			40,117			183,976
Depreciation and amortization	82,827			84,957			82,417			91,144			89,328
Capital expenditures	71,985			55,266			57,920			45,468			73,023
Per Share Data
Earnings:
Basic (2)	$	4.23		$	5.16		$	7.68		$	1.72		$	7.15
Diluted (2)	4.20			5.11			7.63			1.71			7.09
Cash dividends declared	1.500			1.500			1.500			1.500			1.375
Financial Position
Working capital	$	931,605		$	1,069,567		$	903,368		$	860,298		$	995,727
Property, plant and equipment, net	513,992			518,928			518,335			532,489			606,453
Total assets	2,530,274			2,602,250			2,391,731			2,392,382			2,721,955
Long-term debt, including current installments	742,601			754,854			755,646			757,995			760,122
Total Valmont Industries, Inc. shareholders’ equity.	1,059,762			1,112,836			943,482			918,441			1,201,833
Cash flow data:
Net cash flows from operating activities	$	153,008		$	133,148		$	232,820		$	272,267		$	174,096
Net cash flows from investing activities	(155,445		)	(49,615		)	(53,049		)	(48,171		)	(256,863		)
Net cash flows from financing activities	(162,110		)	(32,010		)	(95,158		)	(220,005		)	(139,756		)
Financial Measures
Invested capital(a)	$	1,932,291		$	1,941,716		$	1,774,781		$	1,759,851		$	2,096,276
Return on invested capital(a)	7.6		%	10.3		%	9.6		%	4.6		%	11.3		%
Adjusted EBITDA(b)	$	336,236		$	351,987		$	326,629		$	285,115		$	413,684
Return on beginning shareholders’ equity(c)	8.5		%	12.3		%	18.9		%	3.3		%	12.1		%
Leverage ratio (d)	2.24			2.15			2.32			2.66			1.87
Year End Data
Shares outstanding (000)	21,942			22,694			22,521			22,857			24,229
Approximate number of shareholders	21,569			24,801			26,057			27,010			28,225
Number of employees	10,328			10,690			10,552			10,697			11,321

(1) Fiscal 2018 operating income included impairments of goodwill and intangible assets of $15,780 and restructuring expenses of $34,031. Fiscal 2015 operating income included impairments of goodwill and intangible assets of $41,970 and restructuring expenses of $39,852.

(2) Fiscal 2018 included impairments of goodwill and intangible assets of $14,736 after-tax ($0.66 per share), restructuring expenses and non-recurring asset impairments from exiting certain local markets of $37,779 after-tax ($1.68 per share), refinancing of long-term debt expenses of $11,115 after-tax ($0.50 per share), and a loss from the divestiture of the grinding media business of $5,350 after-tax ($0.24 per share). Fiscal 2017 included $41,935 of tax expense ($1.85 per share) associated with recording the impact of the 2017 Tax Act. Fiscal 2016 included deferred income tax benefit of $30,590 ($1.35 per share) resulting primarily from the re-measurement of the deferred tax asset for the Company's U.K. defined benefit pension plan. In addition, fiscal 2016 included $9,888 ($0.44 per share) recorded as a valuation allowance against a tax credit asset. Fiscal 2016 also included the reversal of a contingent liability that was recognized as part of the Delta purchase accounting of $16,591 ($0.73 per share) which is not taxable. Fiscal 2015 included impairments of goodwill and intangible assets of $40,140 after-tax ($1.72 per share), restructuring expenses of $28,167 after-tax ($1.20 per share), and deferred income tax expense of $7,120 ($0.31 per share) for a change in U.K. tax rates. Fiscal 2014 included costs associated with refinancing of our long-term debt of $24,171 after tax ($0.93 per share).

(3) The Company adopted Accounting Standards Codification ("ASC") Topic 606, Revenue From Contracts with Customers, on a modified retrospective basis as of the first day of fiscal 2018. Revenue recognition for the prior four years presented in this table was under a different basis which was ASC Topic 605. Please see footnote 1 to the financial statements for further information.

(4) Fiscal 2016 was a 53 week fiscal year.

Return on Invested Capital is calculated as Operating Income (after-tax) divided by the average of beginning and ending Invested Capital. Invested Capital represents total assets minus total liabilities (excluding interest-bearing debt). Return on Invested Capital is one of our key operating ratios, as it allows investors to analyze our operating performance in light of the amount of investment required to generate our operating profit. Return on Invested Capital is also a measurement used to determine management incentives. Return on Invested Capital is a non-GAAP measure. Accordingly, Invested Capital and Return on Invested Capital should not be considered in isolation or as a substitute for net earnings, cash flows from operations or other income or cash flow data prepared in accordance with GAAP or as a measure of our operating performance or liquidity. The table below shows how Invested Capital and Return on Invested Capital are calculated from our income statement and balance sheet.



	2018			2017			2016			2015			2014
Operating income	$	202,280		$	267,080		$	245,374		$	131,695		$	357,716
Adjusted effective tax rate (1)	27.1		%	28.1		%	30.8		%	32.0		%	33.4		%
Tax effect on operating income	(54,818		)	(75,049		)	(75,575		)	(42,142		)	(119,477		)
After-tax operating income	147,462			192,031			169,799			89,553			238,239
Average invested capital	1,937,004			1,858,249			1,767,316			1,928,064			2,103,366
Return on invested capital	7.6		%	10.3		%	9.6		%	4.6		%	11.3		%
Total assets	2,530,274			2,602,250			2,391,731			2,392,382			2,721,955
Less: Accounts payable	(218,115		)	(227,906		)	(177,488		)	(179,983		)	(196,565		)
Less: Accrued expenses	(171,233		)	(165,455		)	(162,318		)	(175,947		)	(176,430		)
Less: Defined benefit pension liability	(143,904		)	(189,552		)	(209,470		)	(179,323		)	(150,124		)
Less: Deferred compensation	(46,107		)	(48,526		)	(44,319		)	(48,417		)	(47,932		)
Less: Other noncurrent liabilities	(10,394		)	(20,585		)	(14,910		)	(40,290		)	(45,542		)
Less: Dividends payable	(8,230		)	(8,510		)	(8,445		)	(8,571		)	(9,086		)
Total Invested capital	$	1,932,291		$	1,941,716		$	1,774,781		$	1,759,851		$	2,096,276
Beginning of year invested capital	$	1,941,716		$	1,774,781		$	1,759,851		$	2,096,276		$	2,110,455
Average invested capital	$	1,937,004		$	1,858,249		$	1,767,316		$	1,928,064		$	2,103,366

(1) The adjusted effective tax rate for 2018 excludes the effects of the $14,355 goodwill impairment which is not deductible for income tax purposes. The effective tax rate in 2018 including this item is 30.1%. The adjusted effective tax rate for 2017 excludes the $41,935 of tax expense associated with recording the impact of the 2017 Tax Act. The effective tax rate in 2017 including these items is 46.5%. The adjusted effective tax rate for 2016 excludes deferred income tax benefit of $30,590 resulting primarily from the re-measurement of the deferred tax asset for the Company's U.K. defined benefit pension plan. In addition, fiscal 2016 excludes $9,888 recorded as a valuation allowance against a tax credit asset. Fiscal 2016 also excludes the reversal of a contingent liability that was recognized as part of the Delta purchase accounting of $16,591, which is not taxable. The effective tax rate in 2016 including these items is 19.1%. The adjusted effective tax rate in 2015 excludes the effects of the goodwill impairments which are not deductible for income tax purposes and the $7,120 million deferred income tax expense recognized as a result of the U.K. corporate tax rate decreasing from 20% to 18%. The effective tax rate in 2015 including these items is 51.0%.

Return on invested capital, as presented, may not be comparable to similarly titled measures of other companies.

(b)

Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) is one of our key financial ratios in that it is the basis for determining our maximum borrowing capacity at any one time. Our bank credit agreements contain a financial covenant that our total interest‑bearing debt not exceed 3.50x Adjusted EBITDA (or 3.75x Adjusted EBITDA after certain material acquisitions) for the most recent four quarters. These bank credit agreements allow us to add estimated EBITDA from acquired businesses for periods we did not own the acquired businesses. The bank credit agreements also provide for an adjustment to EBITDA, subject to certain specified limitations, for non-cash charges or gains that are non-recurring in nature. If this financial covenant is violated, we may incur additional financing costs or be required to pay the debt before its maturity date. Adjusted EBITDA is non-GAAP measure and, accordingly, should not be considered in isolation or as a substitute for net earnings, cash flows from operations or other income or cash flow data prepared in accordance with GAAP or as a measure of our operating performance or liquidity. The calculation of Adjusted EBITDA is as follows:



	2018			2017			2016			2015			2014
Net cash flows from operations	$	153,008		$	133,148		$	232,820		$	272,267		$	174,096
Interest expense	44,237			44,645			44,409			44,621			36,790
Income tax expense	43,135			106,145			42,063			47,427			94,894
Loss on investment	62			(237		)	(586		)	(4,555		)	(3,795		)
Non-cash debt refinancing costs	—			—			—			—			2,478
Change in fair value of contingent consideration	—			—			3,242			—			4,300
Loss on divestiture of grinding media business	(6,084		)	—			—			—			—
Impairment of goodwill and intangible assets	(15,780		)	—			—			(41,970		)	—
Impairment of property, plant and equipment	(5,000		)	—			(1,099		)	(19,836		)	—
Deferred income tax (expense) benefit	1,659			(39,755		)	23,685			(4,858		)	(5,251		)
Noncontrolling interest	(5,955		)	(6,079		)	(5,159		)	(5,216		)	(5,342		)
Equity in earnings of nonconsolidated subsidiaries	—			—			—			(247		)	29
Stock-based compensation	(10,392		)	(10,706		)	(9,931		)	(7,244		)	(6,730		)
Pension plan expense	2,251			(648		)	(1,870		)	610			(2,638		)
Contribution to pension plan	1,537			40,245			1,488			16,500			18,173
Changes in assets and liabilities, net of acquisitions	61,647			81,305			13,690			(71,863		)	98,376
Other	225			3,924			(631		)	(2,327		)	(392		)
EBITDA	264,550			351,987			342,121			223,309			404,988
Reversal of contingent liability	—			—			(16,591		)	—			—
Impairment of goodwill and intangible assets	15,780			—			—			41,970			—
Cash restructuring expenses	29,031			—			—			—			—
Impairment of assets - restructuring activities	12,944			—			1,099			19,836			—
Loss on divestiture of grinding media business	6,084			—			—			—			—
EBITDA from acquisitions (months not owned by Company)	7,847			—			—			—			8,696
Adjusted EBITDA	$	336,236		$	351,987		$	326,629		$	285,115		$	413,684



	2018		2017		2016			2015		2014
Net earnings attributable to Valmont Industries, Inc.	$	94,351	$	116,240	$	173,232		$	40,117	$	183,976
Interest expense	44,237		44,645		44,409			44,621		36,790
Income tax expense	43,135		106,145		42,063			47,427		94,894
Depreciation and amortization expense	82,827		84,957		82,417			91,144		89,328
EBITDA	264,550		351,987		342,121			223,309		404,988
Reversal of contingent liability	—		—		(16,591		)	—		—
Impairment of goodwill and intangible assets	15,780		—		—			41,970		—
Cash restructuring expenses	29,031		—		—			—		—
Impairment of assets - restructuring activities	12,944		—		1,099			19,836		—
Loss on divestiture of grinding media business	6,084		—		—			—		—
EBITDA from acquisitions (months not owned by Company)	7,847		—		—			—		8,696
Adjusted EBITDA	$	336,236	$	351,987	$	326,629		$	285,115	$	413,684

Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. During 2018 and 2014, we incurred $14,820 and $38,705 of costs associated with refinancing of debt. This category of expense is not in the definition of EBITDA for debt covenant calculation purposes per our debt agreements. As such, it was not added back in the Adjusted EBITDA reconciliation to cash flows from operations or net earnings for the years ended December 29, 2018 or December 27, 2014. In October 2017, our revolving credit facility was amended to allow the Company to add-back non-recurring cash restructuring costs in 2018.


(c)	Return on beginning shareholders’ equity is calculated by dividing Net earnings attributable to Valmont Industries, Inc. by the prior year’s ending Total Valmont Industries, Inc. shareholders’ equity.

(d)

Leverage ratio is calculated as the sum of current portion of long-term debt, notes payable to bank, and long-term debt divided by Adjusted EBITDA. The leverage ratio is one of the key financial ratios in the covenants under our major debt agreements and the ratio cannot exceed 3.5 (or 3.75x after certain material acquisitions) for any reporting period (four quarters). If those covenants are violated, we may incur additional financing costs or be required to pay the debt before its maturity date. Leverage ratio is a non-GAAP measure and, accordingly, should not be considered in isolation or as a substitute for net earnings, cash flows from operations or other income or cash flow data prepared in accordance with GAAP or as a measure of our operating performance or liquidity. The calculation of this ratio is as follows:



	2018		2017		2016		2015		2014
Current portion of long-term debt	$	779	$	966	$	851	$	1,077	$	1,181
Notes payable to bank	10,678		161		746		976		13,952
Long-term debt	741,822		753,888		754,795		756,918		758,941
Total interest bearing debt	753,279		755,015		756,392		758,971		774,074
Adjusted EBITDA	336,236		351,987		326,629		285,115		413,684
Leverage Ratio	2.24		2.15		2.32		2.66		1.87

Leverage ratio, as presented, may not be comparable to similarly titled measures of other companies.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Forward‑Looking Statements

Management’s discussion and analysis, and other sections of this annual report, contain forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward‑looking statements are based on assumptions that management has made in light of experience in the industries in which the Company operates, as well as management’s perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances. These statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond the Company’s control) and assumptions. Management believes that these forward‑looking statements are based on reasonable assumptions. Many factors could affect the Company’s actual financial results and cause them to differ materially from those anticipated in the forward‑looking statements. These factors include, among other things, risk factors described from time to time in the Company’s reports to the Securities and Exchange Commission, as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability and price of raw materials, availability and market acceptance of new products, product pricing, domestic and international competitive environments, and actions and policy changes of domestic and foreign governments.

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial position. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes.

General



	2018			2017			Change 2018 - 2017		2016			Change 2017 - 2016
	Dollars in millions, except per share amounts
Consolidated
Net sales	$	2,757.1		$	2,746.0		0.4	%	$	2,521.7		8.9	%
Gross profit	658.3			681.8			(3.4	)%	656.2			3.9	%
as a percent of sales	23.9		%	24.8		%			26.0		%
SG&A expense	456.0			414.7			10.0	%	410.8			0.9	%
as a percent of sales	16.5		%	15.1		%			16.3		%
Operating income	202.3			267.1			(24.3	)%	245.4			8.8	%
as a percent of sales	7.3		%	9.7		%			9.7		%
Net interest expense	39.6			39.9			(0.8	)%	41.3			(3.4	)%
Effective tax rate	30.1		%	46.5		%			19.1		%
Net earnings attributable to Valmont Industries, Inc	94.4			116.2			(18.8	)%	173.2			(32.9	)%
Diluted earnings per share	$	4.20		$	5.11		(17.8	)%	$	7.63		(33.0	)%
Engineered Support Structures Segment
Net sales	$	967.3		$	912.2		6.0	%	$	891.1		2.4	%
Gross profit	213.1			225.9			(5.7	)%	240.0			(5.9	)%
SG&A expense	178.3			162.9			9.5	%	167.7			(2.9	)%
Operating income	34.8			63.0			(44.8	)%	72.3			(12.9	)%
Utility Support Structures Segment
Net sales	$	855.2		$	856.3		(0.1	)%	$	735.6		16.4	%
Gross profit	170.5			178.4			(4.4	)%	147.3			21.1	%
SG&A expense	105.7			80.6			31.1	%	76.1			5.9	%
Operating income	64.8			97.8			(33.7	)%	71.2			37.4	%
Coatings Segment
Net sales	$	286.7		$	256.8		11.6	%	$	243.9		5.3	%
Gross profit	91.0			78.4			16.1	%	77.8			0.8	%
SG&A expense	35.7			28.2			26.6	%	31.2			(9.6	)%
Operating income	55.3			50.2			10.2	%	46.6			7.7	%
Irrigation Segment
Net sales	$	624.8		$	644.4		(3.0	)%	$	568.0		13.5	%
Gross profit	192.8			197.3			(2.3	)%	178.9			10.3	%
SG&A expense	95.1			95.8			(0.7	)%	88.0			8.9	%
Operating income	97.7			101.5			(3.7	)%	90.9			11.7	%
Other
Net sales	$	23.1		$	76.3		(69.7	)%	$	83.1		(8.2	)%
Gross profit	0.8			7.4			(89.2	)%	14.1			(47.5	)%
SG&A expense	1.7			5.3			(67.9	)%	5.4			(1.9	)%
Operating income	(0.9		)	2.1			(142.9	)%	8.7			(75.9	)%
Adjustment to LIFO inventory valuation method
Gross profit	$	(9.9	)	$	(5.7	)	(73.7	)%	$	(3.0	)	(90.0	)%
Operating income	(9.9		)	(5.7		)	(73.7	)%	(3.0		)	(90.0	)%
Net corporate expense
Gross profit	$	—		$	0.1		(100.0	)%	$	1.1		(90.9	)%
SG&A expense	39.5			41.9			(5.7	)%	42.4			(1.2	)%
Operating loss	(39.5		)	(41.8		)	(5.5	)%	(41.3		)	1.2	%

RESULTS OF OPERATIONS

FISCAL 2018 COMPARED WITH FISCAL 2017

Overview

The increase in net sales in 2018, as compared with 2017, was due to higher sales in the ESS and Coatings segments that were offset by lower sales in the Irrigation, Utility, and Other segments. The changes in net sales in 2018, as compared with 2017, were as follows:



	Total			ESS		Utility			Coatings			Irrigation			Other
Sales - 2017	$	2,746.0		$	912.2	$	856.3		$	256.8		$	644.4		$	76.3
Volume	(100.6		)	8.3		(74.8		)	10.8			(40.6		)	(4.3		)
Pricing/mix	114.8			28.1		50.3			16.9			17.1			2.4
Acquisition/(divestiture)	1.5			17.2		18.9			3.1			14.3			(52.0		)
Currency translation	(4.6		)	1.5		4.5			(0.9		)	(10.4		)	0.7
Sales - 2018	$	2,757.1		$	967.3	$	855.2		$	286.7		$	624.8		$	23.1

Volume effects are estimated based on a physical production or sales measure. Since products we sell are not uniform in nature, pricing and mix relate to a combination of changes in sales prices and the attributes of the product sold. Accordingly, pricing and mix changes do not necessarily directly result in operating income changes. On the first day of fiscal 2018, the Company adopted the new revenue recognition accounting standard ("ASC 606"). Within the Utility Support Structures segment, the steel and concrete product lines now recognize revenue over time whereas in 2017 and years prior, their revenue was recognized at a point in time, which was typically upon product delivery to the customer. The impact of the adoption of ASC 606 in 2018 was an increase in sales of $36.4 million and an increase in operating income of $6.2 million primarily in the Utility segment. It is not practicable to estimate the sales volumes attributable to the adoption of ASC 606 and thus is not a separate line item in the table above. Information on the adoption of the revenue standard can be found under Critical Accounting Policies within Management's Discussion and Analysis.

Average steel index prices for both hot rolled coil and plate were higher in North America and China in 2018, as compared to 2017, resulting in higher average cost of material. In general, the average selling prices increased during the year to mitigate decrease in gross profit realized from the higher cost of steel for the Company.

The Company acquired the following companies during 2018:


•	Torrent Engineering and Equipment ("Torrent") in the first quarter of 2018 that is included in our Irrigation segment.


•	Derit Infrastructure Pvt. Ltd. ("Derit"), a manufacturing facility located in India that is included in both the Utility and Coatings segments.


•	A majority ownership stake in Convert Italia SpA ("Convert"), a provider of engineered solar tracker solutions, also acquired during the third quarter of 2018 and included in the Utility segment.


•	Walpar, a manufacturer of overhead sign structures, in the third quarter of 2018 that is included in the ESS segment.


•	CSP Coating Systems ("CSP Coatings"), a coatings provider in New Zealand, acquired in the fourth quarter of 2018 that is included in the Coatings segment.

The Company divested of its grinding media business in the second quarter of 2018, which resulted in a pre-tax loss of approximately $6.1 million. The grinding media business is reported in Other and the loss was recorded in other income (expenses) on the Consolidated Statements of Earnings.

Restructuring Plan

In February 2018, the Company announced a restructuring plan related to certain operations in 2018, primarily in the ESS segment, through consolidation and other cost-reduction activities (the "2018 Plan"). The Company incurred pre-tax expenses from the 2018 Plan of $34.0 million. The decrease in 2018 gross profit and operating income due to restructuring expense by segment is as follows:



	Total		ESS		Utility		Irrigation		Corporate
Gross Profit	$	18.4	$	14.3	$	4.1	$	—	$	—

Operating Income	$	34.0	$	28.5	$	5.2	$	0.2	$	0.1

Currency Translation

In 2018, we realized a reduction in operating profit, as compared with fiscal 2017, due to currency translation effects. The breakdown of this effect by segment was as follows:



	Total			ESS			Utility		Coatings		Irrigation			Other		Corporate
Full year	$	(1.8	)	$	(0.5	)	$	0.3	$	—	$	(1.6	)	$	—	$	—

Gross Profit, SG&A, and Operating Income

At a consolidated level, the reduction in gross margin (gross profit as a percent of sales) in 2018, as compared with 2017, was primarily due to restructuring costs incurred in the ESS and Utility segments. The Irrigation and Coatings segments realized an increase in gross margin in 2018, while Utility, ESS, and Other realized a decrease in gross margin.

The Company saw an increase in selling, general, and administrative (SG&A) expense in 2018, as compared to 2017, due to impairment of the goodwill and trade name of the Offshore and other complex structures ("Offshore") business totaling $15.8 million, restructuring costs incurred of $15.6 million, SG&A from recently acquired businesses of $9.0 million, and acquisition diligence expenses of $4.4 million. The increase was partially offset by lower deferred compensation expenses of $5.0 million (offset recognized in other expense as described below) and $3.6 million of SG&A in 2017 from the grinding media business divested in 2018.

Operating income was lower for all reportable segments with the exception of Coatings in 2018, as compared to 2017. The decrease is attributed to the impairment of the goodwill and trade name of the Offshore business, restructuring costs incurred in the ESS and Utility segments, and the disposal of the grinding media business included in Other.

Net Interest Expense and Debt

Net interest expense for 2018 was consistent with 2017. The Company issued $200.0 million and $55.0 million of senior secured notes in June 2018 at 5.0% and 5.25%, respectively. Proceeds from the debt issuance were subsequently used to pay off the 2020 bonds in July 2018.

The approximate $14.8 million in pre-tax costs ($11.1 million after-tax) associated with refinancing of debt is due to the Company's repurchase through tender of $250.2 million in aggregate principal amount of the senior unsecured notes due 2020. This expense was comprised of the following:


•	Cash prepayment expenses of approximately $15.8 million; plus


•	Recognition of $1.0 million of expense comprised of the write-offs of unamortized loss on the cash flow hedge and deferred financing costs; less


•	Recognition of $2.0 million of the unamortized premium originally recorded upon the issuance of the 2020 notes.

Other Income/Expense

The change in other income/expense in 2018, as compared with 2017, was primarily due to the divestiture of our grinding media business that resulted in a loss of approximately $6.1 million. Excluding the divestiture, higher other income was driven by a periodic pension benefit in 2018 that resulted a beneficial change of $2.8 million. In addition, the change in market value of the Company's shares held of Delta EMD was an improvement of $0.8 million. The remaining change was due to more favorable foreign currency transaction gains/losses in 2018 as compared to 2017. The increase in other income was partially offset by a change in valuation of deferred compensation assets in 2018 which resulted in additional expense of $5.0 million. This amount is offset by a reduction of the same amount in SG&A expense.

Income Tax Expense

Our effective income tax rate in 2018 and 2017 was 30.1% and 46.5%, respectively. The 2018 tax rate was impacted by the reduction in the U.S. corporate income tax rate from 35% to 21% offset by 2018 restructuring costs and impairment charges for which no tax benefits have been recorded. The 2017 tax rate was impacted by The Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act" or “Act”) which resulted in a one-time fourth quarter of 2017 charge of approximately $42 million related to the transition effects of the Act. Excluding this charge, our effective tax rate would have been 28.1% for 2017.

The $42 million charge was comprised of (a) approximately $9.9 million of expense related to the taxation of unremitted foreign earnings ("transition tax"), the federal portion of which is payable over eight (8) years beginning in 2018, (b) approximately $20.4 million of expense related to the remeasurement of U.S. deferred tax balances to reflect the new U.S. corporate income tax rate, using a federal and state tax rate of 25.0%, and (c) approximately $11.7 million of deferred expenses related to foreign withholding taxes and U.S. state income taxes. During 2018, the Company finalized the transition tax which resulted in a credit to tax expense of $0.5 million.

Earnings attributable to noncontrolling interests was consistent in 2018 and 2017.

Cash Flows from Operations

Our cash flows provided by operations was $153.0 million in 2018, as compared with $133.1 million provided by operations in 2017. The increase in operating cash flows was due to lower contributions to the Delta pension plan partially offset by lower net earnings.

Engineered Support Structures (ESS) segment

The increase in sales in 2018, as compared with 2017, was due to higher sales pricing to cover the higher costs of steel and sales volume increases from acquisitions in 2018.

Global lighting and traffic, and highway safety product sales in 2018 were $73.4 million higher as compared to 2017, due to higher sales pricing and increased sales volumes. Sales volumes and pricing in North America were higher across commercial and transportation markets and also increased due to the acquisition of Walpar in the third quarter of 2018. Improved sales volumes in Europe contributed to higher sales in 2018, as compared to 2017, along with favorable currency translation effects as the value of the euro appreciated against the U.S. dollar. Sales volumes in Asia-Pacific were higher in India due to improved demand, offset by lower demand in China for lighting and traffic products. Highway safety product sales increased in 2018, as compared to 2017, due to higher demand in Australia and the acquisition of Aircon in the third quarter of 2017.

Communication product line sales were lower by $21.9 million in 2018, as compared with 2017. In North America, communication structure and component sales increased in 2018 due to strong demand from the network expansion by providers. In Asia-Pacific, sales volumes decreased due to much lower demand in China for new wireless communication structures.

Access Systems product line net sales decreased in 2018 by $2.7 million, as compared to 2017. The decrease can be attributed to lower sales volumes in Asia due to less large project work that was partially offset by improved demand in Australia, in part due to efforts to expand our sales reach into architectural and construction markets.

Gross profit, as a percentage of sales, and operating income for the segment were lower in 2018, as compared to 2017, due to restructuring costs incurred in 2018. In 2018, the segment incurred $14.3 million of restructuring costs within product cost of sales and $14.2 million within SG&A expense. In addition, approximately $8.0 million of asset impairment costs were incurred related to exiting certain local markets in 2018. SG&A spending was higher in 2018, as compared to 2017, due to restructuring costs and SG&A expenses of Walpar that was acquired in the third quarter of 2018. Operating income decreased primarily from the the $28.5 million of incurred restructuring costs.

Utility Support Structures (Utility) segment

In the Utility segment, sales decreased in 2018, as compared with 2017, due to lower sales volumes in North America that are offset by sales price increases to cover higher steel costs and the acquisition of Convert and Derit in the

third quarter of 2018. A number of our sales contracts in North America contain provisions that tie the sales price to published steel index pricing at the time our customer issues their purchase order. Measured in tonnages, sales volumes for steel utility structures in North America were lower whereas concrete utility structure sales volumes were higher in 2018, as compared to 2017. The Company adopted new revenue recognition guidance effective the first day of fiscal 2018; steel and concrete reported sales in 2017 were recognized upon delivery to customers (point in time) whereas reported revenue for 2018 is based on progress of production on customer orders (over time).

Offshore and other complex structures sales decreased in 2018, as compared to 2017, due to lower sales volumes that were partially offset by positive effects from currency translation.

Gross profit as a percentage of sales decreased in 2018, as compared to 2017, due to restructuring costs incurred of $4.1 million and lower offshore and complex steel structures sales volumes. SG&A expense was higher in 2018, as compared with 2017, due to the goodwill and trade name impairment recorded for Offshore business of $15.8 million, restructuring expenses, and increased expenses related to the acquisition of Derit and Convert. Excluding restructuring expenses, expenses associated with the acquisitions, and the intangible asset impairment, operating income in 2018 was consistent with 2017.

Coatings segment

Coatings segment sales increased in 2018, as compared to 2017, due to increased sales prices to recover higher zinc costs globally and higher sales volumes. The Company acquired Derit in the third quarter of 2018 and CSP Coatings in the fourth quarter of 2018 that also contributed to higher sales. Sales pricing and volume demand increased in North America in 2018, as compared to 2017. In the Asia-Pacific region, continued improvements in the Australia market along with overall higher sales pricing provided an increase in net sales.

SG&A expense was higher in 2018, as compared to 2017, due to higher compensation costs related to improved business operations and currency translation effects. Non-recurring items were recognized in 2018 and 2017 which reduced SG&A. 2018 included the reversal of an environmental remediation liability related to one of our North America galvanizing locations of $1.9 million; in 2017 the business recorded a reversal of an environmental remediation liability of $2.6 million due to the sale of a former galvanizing operation in Australia. Operating income was higher in 2018 compared to 2017, due to improved sales volumes and the associated operating leverage of fixed costs and improved sales pricing.

Irrigation segment

The decrease in Irrigation segment net sales in 2018, as compared to 2017, is primarily due to sales volume decreases, particularly in the international markets. The decrease in international sales can be attributed to project delays and lower overall large project work across most regions. In addition, the weakening of the Brazilian real and Argentina peso in 2018 resulted in lower sales due to currency translation. North America sales increased in 2018, as compared to 2017, due to higher sales pricing and recent acquisitions. Sales volumes in North America for the year were lower due to continued weak farm income levels. Recent proposed tariffs also caused uncertainly leading farmers to delay irrigation purchases.

SG&A was lower in 2018, as compared to 2017. The decrease can be attributed to lower incentives from reduced business operations and currency translation effects which were partially offset by expenses associated with the 2018 acquisitions. Operating income for the segment decreased in 2018 compared to 2017, due to lower sales volumes and the associated operating deleverage of fixed costs and currency translation effects.

Other

In April 2018, the Company completed the sale of Donhad, a mining consumable business with operations in Australia. The Company realized an approximate $6.1 million loss on the sale that is recorded in other income/expense, subject to certain post-closing adjustments.

LIFO expense

Steel index prices for both hot rolled coil and plate, and zinc in the U.S. increased at a higher rate in 2018, as compared to 2017, resulting in higher LIFO expense.

Net corporate expense

Corporate SG&A expense was lower in 2018 as compared to 2017. The decrease can be attributed to lower deferred compensation expenses of $5.0 million, which is offset by the same amount in other expense, and lower incentive expense. The decrease was partially offset by higher compensation expenses.

FISCAL 2017 COMPARED WITH FISCAL 2016

Overview

In the fourth quarter of 2017, our management and reporting structure changed to reflect management's expectations of future growth of certain product lines and to take into consideration the expected divestiture of the grinding media business, which historically was reported in the Energy and Mining segment. The access systems applications product line is now part of the Engineered Support Structures ("ESS") segment and the offshore and other complex structures product line is now part of the Utility segment. Grinding media will be reported in "Other" pending the completion of its divestiture. In the first quarter of 2017, we also changed our reportable segment operating income to separate out the LIFO expense (benefit). Certain inventories are accounted for using the LIFO method in the consolidated financial statements. Our segment discussions and segment financial information have been accordingly reclassified in this report to reflect this change, for all periods presented.

On a consolidated basis, the increase in net sales in 2017, as compared with 2016, reflected higher sales in all reportable segments. The changes in net sales in 2017, as compared with 2016, were as follows:



	Total		ESS		Utility		Coatings			Irrigation		Other
Sales - 2016	$	2,521.7	$	891.1	$	735.6	$	243.9		$	568.0	$	83.1
Volume	97.4		10.4		49.5		(9.6		)	61.5		(14.4		)
Pricing/mix	102.4		1.6		68.2		21.2			6.3		5.1
Acquisitions	4.8		4.8		—		—			—		—
Currency translation	19.7		4.3		3.0		1.3			8.6		2.5
Sales - 2017	$	2,746.0	$	912.2	$	856.3	$	256.8		$	644.4	$	76.3

Average steel index prices for both hot rolled coil and plate were higher in North America and China in 2017, as compared to 2016, resulting in higher average cost of material. We expect that average selling prices will increase over time to offset the decrease in gross profit realized from the higher cost of steel for the Company. The Company acquired a highway business in India ("Aircon") in the third quarter of 2017 that is included in the ESS segment.

Restructuring Plan

In 2016, we executed a restructuring plan in Australia/New Zealand focused primarily on closing and consolidating locations within the ESS and Coatings segments (the "2016 Plan"). We incurred $7.8 million of restructuring expense consisting of $5.0 million in cost of goods sold and $2.8 million in selling, general, and administrative (SG&A) expense in 2016. The Plan was substantially completed in fiscal 2016.

In 2015, we executed a broad restructuring plan (the "2015 Plan") to respond to the market environment in certain of our businesses. During 2016, we incurred approximately $4.6 million of restructuring expense to complete the 2015 Plan consisting of $4.1 million in SG&A expense with the remainder recorded in cost of goods sold.

Currency Translation

In 2017, we realized a benefit to operating profit, as compared with fiscal 2016, due to currency translation effects. The U.S. dollar primarily weakened against the Brazilian real and South African rand, resulting in more operating profit in U.S. dollar terms. The breakdown of this effect by segment was as follows:



	Total		ESS		Utility		Coatings			Irrigation		Other		Corporate
Full year	$	1.5	$	0.1	$	—	$	(0.1	)	$	1.2	$	0.4	$	(0.1	)

Gross Profit, SG&A, and Operating Income

At a consolidated level, the reduction in gross margin (gross profit as a percent of sales) in 2017, as compared with 2016, was primarily due to higher cost of raw materials across most of our businesses. The Utility segment realized an increase in gross margin in 2017, while ESS, Irrigation, and Coatings realized a decrease in gross profit primarily due to sales pricing that did not fully recover higher raw material costs and unfavorable sales mix. Lower volumes for Coatings and Other also contributed to the reduction in gross margin through deleverage of fixed costs.

The Company saw an increase within SG&A expense in 2017, as compared to 2016, due to the following:


•	higher employee incentives of $5.0 million due to improved business operations;


•	reversal of $3.2 million of a contingent consideration liability in 2016 to the former owners of an acquired business;


•	increased project and promotional expenses of $3.2 million, primarily in the irrigation segment;


•	higher deferred compensation expenses of $2.7 million, which was offset by a decrease of the same amount of other expense; and


•	currency translation effects of $1.9 million (higher SG&A) due to the strengthening of the Australian dollar, Brazilian real, and South African rand against the U.S. dollar.

The above increases were partially offset by the following decreases in SG&A expense in 2017 as compared to 2016:


•	restructuring expenses incurred in 2016 totaling $6.8 million; and


•	reversal of an environmental remediation liability of $2.6 million related to land of a former galvanizing operation in Australia that was sold in 2017.

In 2017, as compared to 2016, operating income for all operating segments were higher except for the ESS segment and Other. The increase in operating income in 2017, as compared to 2016, is primarily attributable to increased sales volumes in the Utility and Irrigation segments, along with restructuring expenses incurred in 2016 and the associated benefits of the restructuring activities.

Net Interest Expense and Debt

Net interest expense in 2017, as compared to 2016, was lower as interest income increased due to more cash on hand to invest. Long-term and short-term borrowings were consistent year-over-year.

Other Income/Expense

The decrease in other income in 2017, as compared to 2016, is primarily due to the reversal of a contingent liability provision of approximately $16.6 million in 2016, out of "Other noncurrent liabilities."

Income Tax Expense

Our effective income tax rate in 2017 and 2016 was 46.5% and 19.1%, respectively. The Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act" or “Act”) includes a number of changes to the U.S. Internal Revenue Code that impact corporations beginning in 2018; including a reduction in the statutory federal corporate income tax rate from 35% to 21%, limiting or eliminating certain tax deductions, and changing the taxation of unremitted foreign earnings. Accordingly, the Company recorded a one-time charge of approximately $42 million for the fourth quarter of 2017 related to the transition effects of the Act. Excluding this charge, our effective tax rate would have been 28.1% for 2017. The $42 million charge is comprised of (a) approximately $9.9 million of expense related to the taxation of unremitted foreign earnings, the federal portion of which is payable over eight (8) years beginning in 2018, (b) approximately $20.4 million of expense related to the remeasurement of U.S. deferred tax balances to reflect the new U.S. corporate income tax rate, using a federal and state tax rate of 25.0%, and (c) approximately $11.7 million of deferred expenses related to foreign withholding taxes and U.S. state income taxes. These amounts are provisional and our estimates and overall impact of the Act may change for various reasons including, but not limited to, changes in our interpretation and assumptions, additional guidance that may be issued by governing authorities, and tax planning actions we may undertake. We continue to gather additional information to fully account for the Act. Any updates and changes in the estimates will be communicated in future quarterly financial statements.

Tax expense in 2016 included $30.6 million of deferred income tax benefit attributable to the remeasurement of the deferred tax asset related to the Company's U.K. defined benefit pension plan. In addition, we recorded a $9.9 million valuation allowance against a tax credit for which we believe we are not likely to receive the benefit in 2016. Excluding these items as well as the impact of the reversal of the contingent liability of $16.6 million that is not taxable, our adjusted effective tax rate was 30.8% for 2016 versus the GAAP reported effective tax rate of 19.1%.

Earnings attributable to noncontrolling interests was higher in 2017, as compared to 2016, due to improved earnings for our majority-owned irrigation businesses.

Cash Flows from Operations

Our cash flows provided by operations was $133.1 million in 2017, as compared with $232.8 million provided by operations in 2016. The decrease in operating cash flow was due to less favorable working capital changes driven by higher receivables and inventory and higher contributions to the Delta Pension Plan in 2017.

Engineered Support Structures (ESS) segment

The increase in sales in 2017, as compared with 2016, was due to improved roadway product sales volumes and communication product line sales volumes. Global lighting and traffic, and roadway product sales in 2017 were higher compared to the same periods in fiscal 2016, primarily due to increased sales volumes in roadway product sales, which is a product line outside of North America. In 2017, as compared to 2016, sales volumes in the U.S. were lower across commercial and transportation markets. The 2015 long-term U.S. highway bill has not yet provided a meaningful uplift for our North America structures business. Sales in Europe were lower in 2017 as the domestic markets in general remain subdued. The increase in sales for global lighting and traffic, and roadway product is also attributed to currency translation effects and the acquisition of Aircon in the third quarter of 2017.

Communication product line sales were higher in 2017, as compared with 2016. In North America and Asia-Pacific, communication structure and component sales increased due to higher demand from the continued network expansion by providers.

Access systems product line net sales in 2017 were higher than in 2016, due to higher average sales prices and favorable currency translation effects.

Gross profit, as a percentage of sales, and operating income for the segment were lower in 2017, as compared with 2016, due to margin contraction from higher raw material costs that the business was not able to fully recover through higher sales pricing. SG&A spending was lower in 2017, as compared to 2016, due primarily to lower commissions owed on communication product line sales, reduced incentives due to decreased operating performance, and restructuring costs and activities undertaken in 2016 to reduce the cost structure primarily in the access systems business in Australia.

Utility Support Structures (Utility) segment

In the Utility segment, sales increased in 2017, as compared with 2016, due to improved volumes and higher sales prices due to steel cost increases and a favorable sales mix. A number of our sales contracts contain provisions that tie the sales price to published steel index pricing at the time our customer issues their purchase order. Improved sales demand in North America resulted in increased sales volumes in tons for both steel and concrete utility structures that also contributed to the increase in sales. International utility structures sales decreased in 2017 due to lower volumes.

Offshore and other complex structures sales decreased in 2017, as compared to 2016, due to lower volumes that were partially offset by favorable currency translation effects.

Gross profit as a percentage of sales increased in 2017, as compared to 2016, due to improved pricing and sales mix and higher sales volumes in North America and improved factory performance for the offshore and other complex structures business. SG&A expense was higher in 2017, as compared with 2016, due to higher incentive expense due to improved operations and commission expense attributed to the increased sales volumes. Operating income increased in 2017, as compared with 2016, due to the increased sales volumes and improved pricing and sales mix in North America.

Coatings segment

Coatings segment sales increased in 2017, as compared to 2016, due primarily to increased sales prices to recover higher zinc costs globally. External sales volumes decreased while intercompany volumes increased in North America during 2017. In the Asia-Pacific region, improved demand/volume in Australia along with currency transaction effects led to an increase in sales in 2017 as compared to 2016.

SG&A expense was lower in 2017, as compared to 2016, due to lower compensation costs and no restructuring expense in 2017. Both 2017 and 2016 had non-recurring transactions recognized as reductions in SG&A. A former galvanizing operation in Australia was sold in 2017 allowing for a reversal of an environmental remediation liability of $2.6 million. In 2016, a contingent consideration liability to the former owners of an acquired business was reduced $3.2 million due to changes in estimated earnings over the earn-out period. Operating income was higher in 2017, as compared with 2016, due to lower SG&A expenses.

Irrigation segment

The increase in Irrigation segment net sales in 2017, as compared to 2016, was primarily due to sales volume increases for both domestic and international irrigation and currency translation effects. In North America, when comparing 2017 to 2016, sales volumes increased driven by markets outside the traditional corn-belt. In addition, higher equipment running times due to weather conditions resulted in higher service parts sales. International sales increased in 2017, as compared to 2016, due primarily to volume increases in the Middle East and South America and favorable foreign currency translation effects for Brazil and South Africa.

SG&A was higher in 2017, as compared with 2016. The increase can be attributed to higher incentive and commission costs due to improved business results, increased product development and promotional expenses, and currency translation effects related to the international irrigation business. Gross profit and operating income for the segment increased in 2017 over 2016, primarily due to North America and international irrigation sales volume increases and favorable foreign currency translation effects.

Other

Grinding media sales decreased from lower volumes. A decrease in sales volumes was partially offset by higher sales pricing and favorable currency translation effects. Gross profit and operating income were lower in 2017, as compared to 2016, due to lower volumes.

LIFO expense

Steel index prices for both hot rolled coil, plate, and zinc in the U.S. increased at a higher rate in 2017, as compared to 2016, which drove higher LIFO expense.

Net corporate expense

Net corporate expense is similar when comparing 2017 to 2016. Approximately $4 million of increased incentive expense was offset by lower pension expense and better performance of the Company's U.S. medical plan as compared to 2016.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Working Capital and Operating Cash Flows-Net working capital was $931.6 million at December 29, 2018, as compared with $1,069.6 million at December 30, 2017. The decrease in net working capital in 2018 mainly resulted from lower cash balances mostly attributed to the investing outflow for acquisitions and financing outflow for stock repurchases, and an increase in accrued expense for the Convert contingent consideration liability. Operating cash flow was $153.0 million in 2018, as compared with $133.1 million in 2017 and $232.8 million in 2016. The increase in operating cash flow in 2018, as compared to 2017, was due to lower contributions to the Delta Pension Plan in 2018 partially offset by lower net earnings.

Investing Cash Flows-Capital spending in fiscal 2018 was $72.0 million, as compared with $55.3 million in fiscal 2017 and $57.9 million in fiscal 2016. Capital spending projects in 2018 included investments in machinery and equipment across all businesses. The increase in investing cash outflows in 2018, as compared to 2017, was primarily due to business

acquisitions totaling $143.0 million ($5.4 million in 2017) that was partially offset by proceeds from the sale of the grinding media business of $62.5 million. We expect our capital spending for the 2019 fiscal year to be approximately $90.0 million.

Financing Cash Flows-Our total interest‑bearing debt decreased to $753.3 million at December 29, 2018, from $755.0 million at December 30, 2017. During 2018 and 2016, we acquired approximately 0.8 million shares and 0.4 million shares for $114.8 million and $53.8 million, respectively, under the share repurchase program. No shares were repurchased in 2017.

Capital Allocation Philosophy

We have historically funded our growth, capital spending and acquisitions through a combination of operating cash flows and debt financing. In May 2014, our Board of Directors approved and publicly announced a capital allocation philosophy with the following priorities for cash generated:

•working capital and capital expenditure investments necessary for future sales growth;

•dividends on common stock in the range of 15% of the prior year's fully diluted net earnings;

•acquisitions; and

•return of capital to shareholders through share repurchases.

We also announced our intention to manage our capital structure to maintain our investment grade debt rating. Our most recent ratings were Baa3 by Moody's Investors Services, Inc. and BBB+ by Standard and Poor's Rating Services. We would be willing to allow our debt rating to fall to BBB- to finance a special acquisition or other opportunity. We expect to maintain a ratio of debt to invested capital which will support our current investment grade debt rating.

The Board of Directors in May 2014 authorized the purchase of up to $500 million of the Company's outstanding common stock from time to time over twelve months at prevailing market prices, through open market or privately-negotiated transactions. The Board of Directors authorized an additional $250 million of share purchases, without an expiration date in both February 2015 and again in October 2018. The purchases will be funded from available working capital and short-term borrowings and will be made subject to market and economic conditions. We are not obligated to make any repurchases and may discontinue the program at any time. As of December 29, 2018, we have acquired approximately 5.4 million shares for approximately $732.6 million under these share repurchase programs.

Sources of Financing

Our debt financing at December 29, 2018 consisted primarily of long‑term debt. During 2018, the Company issued an additional $200 million aggregate principal amount of its 5.00% senior notes due 2044 and $55 million aggregate principal amount of its 5.25% senior notes due 2054 and redeemed $250.2 million in remaining aggregate principal amount of the 2020 senior notes. Our long‑term debt as of December 29, 2018, principally consists of:


•	$450 million face value ($436.1 million carrying value) of senior unsecured notes that bear interest at 5.00% per annum and are due in October 2044.


•	$305 million face value ($297.4 million carrying value) of senior unsecured notes that bear interest at 5.25% per annum and are due in October 2054.


•	We are allowed to repurchase the notes subject to the payment of a make-whole premium. Both tranches of these notes are guaranteed by certain of our subsidiaries.

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

the credit facility are guaranteed by the Company and its wholly-owned subsidiaries PiRod, Inc., Valmont Coatings, Inc., Valmont Newmark, Inc. and Valmont Queensland Pty. Ltd.

The material amendments to the credit facility, which are set forth in the amended and restated credit agreement, include:an extension of the maturity date of the credit facility from October 17, 2019 to October 18, 2022;


•	an increase in the available borrowings in foreign currencies from $200 million to $400 million;


•	a modification of the definition of "EBITDA" to add-back non-recurring cash and non-cash restructuring costs in an amount that does not exceed $75 million in any trailing twelve month period;


•	a modification of the leverage ratio permitting it to increase from 3.5X to 3.75X for the four consecutive fiscal quarters after certain material acquisitions; and


•	updating the credit facility with certain market provisions.

The interest rate on our borrowings will be, at our option, either:


(a)	LIBOR (based on a 1, 2, 3 or 6 month interest period, as selected by us) plus 100 to 162.5 basis points, depending on the credit rating of our senior debt published by Standard & Poor's Rating Services and Moody's Investors Service, Inc.; or

(b) the higher of


•	the prime lending rate,


•	the Federal Funds rate plus 50 basis points, and


•	LIBOR (based on a 1 month interest period) plus 100 basis points (inclusive of facility fees),

plus, in each case, 0 to 62.5 basis points, depending on the credit rating of our senior debt published by Standard & Poor's Rating Services and Moody's Investors Service, Inc.

A commitment fee is also required under the revolving credit facility which accrues at 10 to 25 basis points, depending on the credit rating of our senior debt published by Standard and Poor's Rating Services and Moody's Investor Services, Inc., on the average daily unused portion of the commitment under the revolving credit facility.

At December 29, 2018, we had $5.7 million of outstanding borrowings under the revolving credit facility. The revolving credit facility has a maturity date of October 18, 2022 and contains certain financial covenants that may limit our additional borrowing capability under the agreement. At December 29, 2018, we had the ability to borrow $579.7 million under this facility, after consideration of standby letters of credit of $14.6 million associated with certain insurance obligations. We also maintain certain short‑term bank lines of credit totaling $137.7 million; $127.0 million of which was unused at December 29, 2018.

Our senior unsecured notes and revolving credit agreement each contain cross-default provisions which permit the acceleration of our indebtedness to them if we default on other indebtedness that results in, or permits, the acceleration of such other indebtedness.

These debt agreements contain covenants that require us to maintain certain coverage ratios and may limit us with respect to certain business activities, including capital expenditures. These debt agreements allow us to add estimated EBITDA from acquired businesses for periods we did not own the acquired businesses. The debt agreements also provide for an adjustment to EBITDA, subject to certain specified limitations, for non-cash charges or gains that are non-recurring in nature.

Our key debt covenants are as follows:


•	Leverage ratio - Interest-bearing debt is not to exceed 3.50x Adjusted EBITDA (or 3.75x Adjusted EBITDA after certain material acquisitions) of the prior four quarters; and


•	Interest earned ratio - Adjusted EBITDA over the prior four quarters must be at least 2.50x our interest expense over the same period.

At December 29, 2018, we were in compliance with all covenants related to these debt agreements. The key covenant calculations at December 29, 2018 were as follows (amounts in thousands):



Interest-bearing debt	$	753,279
Adjusted EBITDA-last four quarters	336,236
Leverage ratio	2.24

Adjusted EBITDA-last four quarters	336,236
Interest expense-last four quarters	44,237
Interest earned ratio	7.60

The calculation of Adjusted EBITDA-last four quarters is presented under the column for fiscal 2018 in footnote (b) to the table "Selected Five-Year Financial Data" in Item 6 - Selected Financial Data.

Our businesses are cyclical, but we have diversity in our markets, from a product, customer and a geographical standpoint. We have demonstrated the ability to effectively manage through business cycles and maintain liquidity. We have consistently generated operating cash flows in excess of our capital expenditures. Based on our available credit facilities, recent issuance of senior unsecured notes and our history of positive operational cash flows, we believe that we have adequate liquidity to meet our needs for fiscal 2019 and beyond.

We previously considered the earnings in our non-U.S. subsidiaries to be indefinitely reinvested and, accordingly, recorded no related deferred income taxes. Prior to the 2017 Tax Act, we had an excess of the amount for financial reporting over the tax basis in our foreign subsidiaries, including unremitted foreign earnings of approximately $400 million. While the tax on these foreign earnings imposed by the 2017 Tax Act (“Transition Tax”) resulted in the reduction of the excess of the amount for financial reporting over the tax basis in our foreign subsidiaries, an actual repatriation from our non-U.S. subsidiaries may still be subject to foreign withholding taxes and U.S. state income taxes.

As a result of the 2017 Tax Act, we reassessed our position with respect to the approximately $400 million of unremitted foreign earnings in our non-U.S. subsidiaries. Our position is that the previously deferred earnings in our non-U.S. subsidiaries that were subject to the Transition Tax are not indefinitely reinvested. Further, in 2018 we have taken the position on non-U.S. subsidiaries we are not indefinitely reinvested on their 2018 unremitted foreign earnings. Of our cash balances of $313.2 million at December 29, 2018, approximately $203.6 million is held in our non-U.S. subsidiaries. Consequently, with the change in our position on unremitted foreign earnings, if we distributed our foreign cash balances certain taxes would be applicable. At December 29, 2018, we have a liability for foreign withholding taxes and U.S. state income taxes of $3.7 million and $0.6 million, respectively.

FINANCIAL OBLIGATIONS AND FINANCIAL COMMITMENTS

We have future financial obligations related to (1) payment of principal and interest on interest‑bearing debt, (2) Delta pension plan contributions, (3) operating leases and (4) purchase obligations. These obligations at December 29, 2018 were as follows (in millions of dollars):



Contractual Obligations	Total		2019		2020-2021		2022-2023		After 2023
Long‑term debt	$	772.1	$	0.8	$	1.6	$	6.2	$	763.5
Interest	1,144.3		38.9		77.8		77.6		950.0
Delta pension plan contributions	140.9		14.1		28.2		28.2		70.4
Operating leases	146.8		18.8		30.8		20.8		76.4
Unconditional purchase commitments	94.2		94.2		—		—		—
Total contractual cash obligations	$	2,298.3	$	166.8	$	138.4	$	132.8	$	1,860.3

Long‑term debt mainly consisted of $755.0 million principal amount of senior unsecured notes. At December 29, 2018, we had outstanding borrowings of $5.7 million under our bank revolving credit agreement. Obligations under these agreements may be accelerated in event of non‑compliance with debt covenants. The Delta pension plan contributions are

related to the current cash funding commitments to the plan with the plan's trustees. Operating leases relate mainly to various production and office facilities and are in the normal course of business.

Unconditional purchase commitments relate to purchase orders for zinc, aluminum and steel, all of which we plan to use in 2019, and certain capital investments planned for 2019. We believe the quantities under contract are reasonable in light of normal fluctuations in business levels and we expect to use the commodities under contract during the contract period. The unconditional purchase commitments also includes the January 2019 purchase of the non-controlling interests of Walpar, LLC for $23.1 million as contractually required per the purchase agreement.

At December 29, 2018, we had approximately $13.0 million of various long‑term liabilities related to certain income tax and other matters. These items are not scheduled above because we are unable to make a reasonably reliable estimate as to the timing of any potential payments. The contingent consideration payment for Convert Italia SpA has also been excluded from the contractual obligations schedule as the payment is not fixed but dependent on the business exceeding a profitability target for calendar 2018. The $11.6 million accrual at December 29, 2018 is an estimate which will be finalized during the second quarter of 2019.

OFF BALANCE SHEET ARRANGEMENTS

We have operating lease obligations to unaffiliated parties on leases of certain production and office facilities and equipment. These leases are in the normal course of business and generally contain no substantial obligations for us at the end of the lease contracts. We also maintain standby letters of credit for contract performance on certain sales contracts.

MARKET RISK

Changes in Prices

Certain key materials we use are commodities traded in worldwide markets and are subject to fluctuations in price. The most significant materials are steel, aluminum, zinc and natural gas. Over the last several years, prices for these commodities have been volatile. The volatility in these prices was due to such factors as fluctuations in supply and demand conditions, government tariffs and the costs of steel‑making inputs. Steel is most significant for our utility support structures segment where the cost of steel has been approximately 50% of the net sales, on average. In 2018, we began using steel hot rolled coil derivative contracts on a limited basis to mitigate the impact of rising steel prices on operating income. Assuming a similar sales mix, a hypothetical 20% change in the price of steel would have affected our net sales from our utility support structures segment by approximately $64 million for the year ended December 29, 2018.

We have also experienced volatility in natural gas prices in the past several years. Our main strategies in managing these risks are a combination of fixed price purchase contracts with our vendors to reduce the volatility in our purchase prices and sales price increases where possible. We use natural gas swap contracts on a limited basis to mitigate the impact of rising gas prices on our operating income.

Risk Management

Market Risk—The principal market risks affecting us are exposure to interest rates, foreign currency exchange rates and commodity prices. At times, we utilize derivative financial instruments to hedge these exposures, but we do not use derivatives for trading purposes.

Interest Rates—Our interest‑bearing debt at December 29, 2018 was mostly fixed rate debt. Our notes payable and a small portion of our long-term debt accrue interest at a variable rate. Assuming average interest rates and borrowings on variable rate debt, a hypothetical 10% change in interest rates would have affected our interest expense in 2018 and 2017 by approximately $0.1 million. Likewise, we have excess cash balances on deposit in interest‑bearing accounts in financial institutions. An increase or decrease in interest rates of ten basis points would have impacted our annual interest earnings in 2018 and 2017 by approximately $0.3 million and $0.4 million, respectively.

Foreign Exchange—Exposures to transactions denominated in a currency other than the entity’s functional currency are not material, and therefore the potential exchange losses in future earnings, fair value and cash flows from these transactions are not material. The Company is also exposed to investment risk related to foreign operations. From time to

time, as market conditions indicate, we will enter into foreign currency contracts to manage the risks associated with anticipated future transactions, current balance sheet positions, and foreign subsidiary investments that are in currencies other than the functional currencies of our businesses. At December 29, 2018, the Company had two oustanding foreign currency forward contracts which mitigate foreign currency risk of the Company's investment in its Australian dollar and Euro denominated businesses. The forward contracts, which qualify as net investment hedges, have a maturity date of May 2020 and notional amounts to sell Australian dollars and Euro to receive $100.0 million and $50.0 million, respectively. On August 24, 2018, the Company entered into three fixed-for-fixed cross currency swaps (“CCS”), swapping U.S. dollar principal and interest payments on a portion of its 5.00% senior unsecured notes due 2044 for Danish krone (DKK) and Euro denominated payments. The CCS were entered into in order to mitigate foreign currency risk on the Company's Euro and DKK investments and to reduce interest expense. The notional of the two Euro and DKK CCS are $35.0 million and $60.0 million, respectively, and they mature in 2020 to 2023.

At December 30, 2017, the Company had open foreign currency forward contracts that qualified as net investment hedges. The purpose of the net investment hedges were to mitigate foreign currency risk on a portion of our foreign subsidiary investments in the grinding media business that are denominated in British pounds and Australian dollars. The divestiture of our grinding media business was pending at the end of 2017 and was finalized in the second quarter of 2018. The forward contracts had a maturity date in the first quarter of 2018 and a notional amount to sell British pounds and Australian dollars and receive $24.1 million and $21.2 million, respectively. At December 31, 2016, the Company had foreign currency forward contracts, the most significant of which was a one-year foreign currency forward contract which qualified as a net investment hedge, in order to mitigate foreign currency risk on a portion of our foreign subsidiary investments denominated in British pounds. The notional amount of this forward contract to sell British pounds was $44.0 million and the contract was settled in May 2017. Much of our cash in non-U.S. entities is denominated in foreign currencies, where fluctuations in exchange rates will impact our cash balances in U.S. dollar terms. A hypothetical 10% change in the value of the U.S. dollar would impact our reported cash balance by approximately $18.5 million in 2018 and $37.2 million in 2017.

We manage our investment risk in foreign operations by borrowing in the functional currencies of the foreign entities or by utilizing hedging instruments (as discussed above) where appropriate. The following table indicates the change in the recorded value of our most significant investments at year-end assuming a hypothetical 10% change in the value of the U.S. Dollar.



	2018		2017
	(in millions)
Australian dollar	$	18.1	$	25.5
Euro	12.1		10.7
Danish krone	7.0		9.2
Chinese renminbi	6.7		14.0
Canadian dollar	4.7		5.7
U.K. pound	4.4		9.5
Brazilian real	2.7		3.1

Commodity risk— Steel hot rolled coil is a significant commodity input used by all of our segments in the manufacture of our products, with the exception of Coatings. Steel prices are volatile and we may utilize derivative instruments to mitigate commodity price risk on fixed price orders. In 2018, the Company entered into steel hot rolled coil forward contracts which qualified as a cash flow hedge of the variability in the cash flows attributable to future steel purchases. The forward contracts had a notional amount of $8,469 for the purchase of 3,500 short tons for each month from July 2018 to September 2018 and a notional amount of $15,563 for the purchase of 6,500 short tons for each month from October 2018 to December 2018.

Natural gas is a significant commodity used in our factories, especially in our Coatings segment galvanizing operations, where natural gas is used to heat tanks that enable the hot-dipped galvanizing process. Natural gas prices are volatile and we mitigate some of this volatility through the use of derivative commodity instruments. Our current policy is to manage this commodity price risk for 0-50% of our U.S. natural gas requirements for the upcoming 6-12 months through the purchase of natural gas swaps based on NYMEX futures prices for delivery in the month being hedged. The objective of this policy is to mitigate the impact on our earnings of sudden, significant increases in the price of natural gas. At December 29, 2018, we have no natural gas swaps outstanding.

CRITICAL ACCOUNTING POLICIES

The following accounting policies involve judgments and estimates used in preparation of the consolidated financial statements. There is a substantial amount of management judgment used in preparing financial statements. We must make estimates on a number of items, such as impairments of long-lived assets, income taxes, revenue recognition for the product lines recognized over time, inventory obsolescence, and pension benefits. We base our estimates on our experience and on other assumptions that we believe are reasonable under the circumstances. Further, we re-evaluate our estimates from time to time and as circumstances change. Actual results may differ under different assumptions or conditions. The selection and application of our critical accounting policies are discussed annually with our audit committee.

Depreciation, Amortization and Impairment of Long-Lived Assets

Our long-lived assets consist primarily of property, plant and equipment, goodwill and intangible assets acquired in business acquisitions. We have assigned useful lives to our property, plant and equipment and certain intangible assets ranging from 3 to 40 years. Impairment losses were recorded in 2018 as facilities were closed and certain fixed assets are no longer expected to be used as a result of our restructuring plans.

We identified thirteen reporting units for purposes of evaluating goodwill and we annually evaluate our reporting units for goodwill impairment during the third fiscal quarter, which usually coincides with our strategic planning process. We assess the value of our reporting units using after-tax cash flows from operations (less capital expenses) discounted to present value and as a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA). The key assumptions in the discounted cash flow analysis are the discount rate and the projected cash flows. We also use sensitivity analysis to determine the impact of changes in discount rates and cash flow forecasts on the valuation of the reporting units.

Our most recent impairment test calculated an estimated fair value of our Offshore and other complex steel structures reporting unit that was lower than its carrying value. Lower near-term financial projections and an approximately 15% decline in the undiscounted terminal value applied in the 2018 annual impairment test, when compared to the 2017 annual impairment test, is a result of a challenging pricing environment for onshore wind and energy transmission structures that is difficult to predict when it will recover. As a result, a goodwill impairment was recorded in the third quarter of 2018 totaling $14.4 million, which represents all of the goodwill of the Offshore and other complex steel reporting unit. All of our other reporting units exceeded their respective carrying value, so no additional goodwill was impaired.

If our assumptions on discount rates and future cash flows change as a result of events or circumstances, and we believe these assets may have declined in value, then we may record impairment charges, resulting in lower profits. Our reporting units are all cyclical and their sales and profitability may fluctuate from year to year. The Company continues to monitor changes in the global economy that could impact future operating results of its reporting units. If such conditions arise, the Company will test a given reporting unit for impairment prior to the annual test. In the evaluation of our reporting units, we look at the long-term prospects for the reporting unit and recognize that current performance may not be the best indicator of future prospects or value, which requires management judgment.

Our indefinite‑lived intangible assets consist of trade names. We assess the values of these assets apart from goodwill as part of the annual impairment testing. We use the relief-from-royalty method to evaluate our trade names, under which the value of a trade name is determined based on a royalty that could be charged to a third party for using the trade name in question. The royalty, which is based on a reasonable rate applied against estimated future sales, is tax-effected and discounted to present value. The most significant assumptions in this evaluation include estimated future sales, the royalty rate and the after-tax discount rate. For our evaluation purposes, the royalty rates used vary between 0.5% and 1.5% of sales and the after-tax discount rate of 12.0% to 16.0%, which we estimate to be the after-tax cost of capital for such assets.

Our trade names were tested for impairment in the third quarter of 2018 using the relief-from-royalty valuation methodology. We determined that the value of the Valmont SM trade name (offshore and other complex steel reporting unit) was impaired and we recorded an impairment charge of $1.4 million. No other trade names were determined to be impaired.

Inventories

We use the last-in first-out (LIFO) method to determine the value of approximately 37% of our inventory. The remaining 63% of our inventory is valued on a first-in first-out (FIFO) basis. In periods of rising costs to produce inventory, the LIFO method will result in lower profits than FIFO, because higher recent costs are recorded to cost of goods sold than under the FIFO method. Conversely, in periods of falling costs to produce inventory, the LIFO method will result in higher profits than the FIFO method.

In 2018, 2017, and 2016, we experienced higher average costs to produce inventory than in the prior year, due mainly to higher cost for steel and steel-related products. This resulted in higher costs of goods sold in 2018, 2017, and 2016 of approximately $9.9 million, $5.7 million, and $3.0 million, respectively, than if our entire inventory had been valued on the FIFO method.

We write down slow-moving and obsolete inventory by the difference between the value of the inventory and our estimate of the reduced value based on potential future uses, the likelihood that overstocked inventory will be sold and the expected selling prices of the inventory. If our ability to realize value on slow-moving or obsolete inventory is less favorable than assumed, additional inventory write downs may be required.

Income Taxes

We record valuation allowances to reduce our deferred tax assets to amounts that are more likely than not to be realized. We consider future taxable income expectations and tax-planning strategies in assessing the need for the valuation allowance. If we estimate a deferred tax asset is not likely to be fully realized in the future, a valuation allowance to decrease the amount of the deferred tax asset would decrease net earnings in the period the determination was made. Likewise, if we subsequently determine that we are able to realize all or part of a net deferred tax asset in the future, an adjustment reducing the valuation allowance would increase net earnings in the period such determination was made.

At December 29, 2018, we had approximately $56.9 million in deferred tax assets relating to tax credits and loss carryforwards, with a valuation allowance of $33.2 million, including $2.3 million in valuation allowances remaining in the Delta entities related to capital loss carryforwards, which are unlikely ever to be realized. If circumstances related to our deferred tax assets change in the future, we may be required to increase or decrease the valuation allowance on these assets, resulting in an increase or decrease in income tax expense and a reduction or increase in net income.

We previously considered the earnings in our non-U.S. subsidiaries to be indefinitely reinvested and, accordingly, recorded no related deferred income tax liabilities. The 2017 Tax Act, enacted in December 2017, subjected our unremitted foreign earnings of approximately $400 million to tax at certain specified rates. We made a reasonable estimate of the Transition Tax and recorded a provisional transition tax obligation of $9.9 million in 2017. Further, deferred taxes of $11.7 million related to these unremitted foreign earnings were recorded in 2017 for future taxes that will be incurred when cash is repatriated. In 2018, as a result of additional guidance we finalized the impact of the 2017 Tax Act on our finalized unremitted foreign earnings of approximately $394 million concluding the transitional tax obligation was $9.3 million. In addition, we have taken the position that on non-U.S. subsidiaries we are not indefinitely reinvested on their 2018 unremitted foreign earnings. Therefore, we recorded income tax expense for foreign withholding taxes and U.S. state income taxes of $0.9 million and $0.1 million, respectively during 2018.

We are subject to examination by taxing authorities in the various countries in which we operate. The tax years subject to examination vary by jurisdiction. We regularly consider the likelihood of additional income tax assessments in each of these taxing jurisdictions based on our experiences related to prior audits and our understanding of the facts and circumstances of the related tax issues. We include in current income tax expense any changes to accruals for potential tax deficiencies. If our judgments related to tax deficiencies differ from our actual experience, our income tax expense could increase or decrease in a given fiscal period.

Pension Benefits

Delta Ltd. maintains a defined benefit pension plan for qualifying employees in the United Kingdom. There are no active employees as members in the plan. Independent actuaries assist in properly measuring the liabilities and expenses associated with accounting for pension benefits to eligible employees. In order to use actuarial methods to value the liabilities and expenses, we must make several assumptions. The critical assumptions used to measure pension obligations and expenses are the discount rate and expected rate of return on pension assets.

We evaluate our critical assumptions at least annually. Key assumptions are based on the following factors:


•	Discount rate is based on the yields available on AA-rated corporate bonds with durational periods similar to that of the pension liabilities.

•

Expected return on plan assets is based on our asset allocation mix and our historical return, taking into consideration current and expected market conditions. Most of the assets in the pension plan are invested in corporate bonds, the expected return of which are estimated based on the yield available on AA rated corporate bonds. The long-term expected returns on equities are based on historic performance over the long-term.


•	Inflation is based on the estimated change in the consumer price index (“CPI”) or the retail price index (“RPI”), depending on the relevant plan provisions.

We modified the method used to estimate the interest cost components of the net periodic pension expense in 2017. The new method uses the full yield curve approach to estimate the interest cost by applying the specific spot rates along the yield curve used to determine the present value of the benefit plan obligations to relevant projected cash outflows for the corresponding year. Prior to 2017, the interest cost components were determined using a single weighted-average discount rate. The change does not affect the measurement of the total benefit plan obligation at year-end as the change in interest cost will be offset by an equivalent but opposite change in the actuarial gains and losses recorded in other comprehensive income (loss).

The discount rate used to measure the defined benefit obligation was 2.90% at December 29, 2018. The following tables present the key assumptions used to measure pension expense for 2019 and the estimated impact on 2019 pension expense relative to a change in those assumptions:



Assumptions	Pension
Discount rate	2.55	%
Expected return on plan assets	4.29	%
Inflation - CPI	2.20	%
Inflation - RPI	3.30	%



Assumptions In Millions of Dollars	Increase in Pension Expense
0.25% decrease in discount rate	$	—
0.25% decrease in expected return on plan assets	$	1.2
0.25% increase in inflation	$	1.2

Revenue Recognition

Effective the first day of fiscal 2018, we adopted the requirements of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). Please see note 1 to the consolidated financial statements for additional information on the new standard and the cumulative effect from the modified retrospective adjustment.

We determine the appropriate revenue recognition for our contracts by analyzing the type, terms and conditions of each contract or arrangement with a customer. We have no contracts with customers, under any product line, where we could

earn variable consideration. With the exception of our Utility segment and the wireless communication structures product line, our inventory is interchangeable for a variety of the product line’s customers. There is one performance obligation for revenue recognition. Our Irrigation and Coatings segments recognize revenue at a point in time, which is when the service has been performed or when the goods ship; this is the same time that the customer is billed. Lighting, traffic, highway safety, and access system product lines within the ESS segment recognize revenue and bill customers at a point in time, which is typically when the product ships or when it is delivered, as stipulated in the customer contract.

The following provides additional information about our contracts with utility and wireless communication structures customers, where the revenue is recognized over time, the judgments we make in accounting for those contracts, and the resulting amounts recognized in our financial statements.

Accounting for utility structures and wireless communication monopole contracts: Steel and concrete utility and wireless communication monopole structures are engineered to customer specifications resulting in limited ability to sell the structure to a different customer if an order is canceled after production commences. The continuous transfer of control to the customer is evidenced either by contractual termination clauses or by our rights to payment for work performed to-date plus a reasonable profit as the products do not have an alternative use to us. Since control is transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. We have certain wireless communication structures customers' contracts where we do not have the right to payment for work performed. In those instances, we recognize revenue at a point in time which is time of shipment of the structure.

The selection of the method to measure progress towards completion requires judgment. For our steel and concrete utility and wireless communication structure product lines, we recognize revenue on an inputs basis, using total production hours incurred to-date for each order as a percentage of total hours estimated to produce the order. The completion percentage is applied to the order’s total revenue and total estimated costs to determine reported revenue, cost of goods sold and gross profit. Our enterprise resource planning (ERP) system captures the total costs incurred to-date and the total production hours, both incurred to-date and forecast to complete. Revenue from the offshore and other complex steel structures business is also recognized using an inputs method, based on the cost-to-cost measure of progress. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

Management must make assumptions and estimates regarding manufacturing labor hours and wages, the usage and cost of materials, and manufacturing burden / overhead recovery rates for each production facility. For our steel, concrete and wireless communication structures, production of an order, once started, is typically completed within three months. Projected profitability on open production orders is reviewed and updated monthly. We elected the practical expedient to not disclose the partially satisfied performance obligation at the end of the period when the contract has an original expected duration of one year or less.

We also have a few steel structure customer orders in a fiscal year that require one or two years to complete, due to the quantity of structures. Burden rates and routed production hours, per structure, will be adjusted if and when actual costs incurred are significantly higher than what had been originally projected. This resets the timing of revenue recognition for future periods so it is better aligned with the new production schedule. For our offshore and other complex steel structures, we update the estimates of total costs to complete each order quarterly. Based on these updates, revenue in the current period may reflect adjustments for amounts that had been previously recognized. During fiscal 2018, there were no changes to inputs/estimates which resulted in adjustments to revenue for production that occurred prior to the beginning of the quarter. A provision for loss on the performance obligation is recognized if and when an order is projected to be at a loss, whether or not production has started.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The information required is included under the captioned paragraph, “MARKET RISK” on page 35 of this report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The following consolidated financial statements of the Company and its subsidiaries are included herein as listed below:



	Page
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	42
Consolidated Statements of Earnings—Three-Year Period Ended December 29, 2018	43
Consolidated Statements of Comprehensive Income—Three-Year Period Ended December 29, 2018	44
Consolidated Balance Sheets—December 29, 2018 and December 30, 2017	45
Consolidated Statements of Cash Flows—Three-Year Period Ended December 29, 2018	46
Consolidated Statements of Shareholders’ Equity—Three-Year Period Ended December 29, 2018	47
Notes to Consolidated Financial Statements—Three-Year Period Ended December 29, 2018	48

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Valmont Industries, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Valmont Industries, Inc. and subsidiaries (the "Company") as of December 29, 2018 and December 30, 2017, the related consolidated statements of earnings, comprehensive income, cash flows, and shareholders' equity, for each of the three years in the period ended December 29, 2018, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 29, 2018 and December 30, 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2018, in conformity with the accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 29, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2019, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP

Omaha, Nebraska

February 27, 2019

We have served as the Company's auditor since 1996.

Valmont Industries, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

Three-year period ended December 29, 2018

(Dollars in thousands, except per share amounts)



	2018			2017			2016
Product sales	$	2,437,334		$	2,447,219		$	2,255,860
Services sales	319,810			298,748			265,816
Net sales	2,757,144			2,745,967			2,521,676
Product cost of sales	1,887,959			1,860,087			1,682,355
Services cost of sales	210,905			204,112			183,078
Total cost of sales	2,098,864			2,064,199			1,865,433
Gross profit	658,280			681,768			656,243
Selling, general and administrative expenses	440,220			414,688			410,869
Impairment of goodwill and intangible assets	15,780			—			—
Operating income	202,280			267,080			245,374
Other income (expenses):
Interest expense	(44,237		)	(44,645		)	(44,409		)
Interest income	4,668			4,737			3,105
Costs associated with refinancing of debt	(14,820		)	—			—
Loss from divestiture of grinding media business	(6,084		)	—			—
Other	1,634			1,292			16,384
	(58,839		)	(38,616		)	(24,920		)
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries	143,441			228,464			220,454
Income tax expense (benefit):
Current	44,794			66,390			65,748
Deferred	(1,659		)	39,755			(23,685		)
	43,135			106,145			42,063
Net earnings	100,306			122,319			178,391
Less: Earnings attributable to noncontrolling interests	(5,955		)	(6,079		)	(5,159		)
Net earnings attributable to Valmont Industries, Inc.	$	94,351		$	116,240		$	173,232
Earnings per share:
Basic	$	4.23		$	5.16		$	7.68
Diluted	$	4.20		$	5.11		$	7.63

See accompanying notes to consolidated financial statements.

Valmont Industries, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three-year period ended December 29, 2018

(Dollars in thousands)



	2018			2017			2016
Net earnings	$	100,306		$	122,319		$	178,391
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized translation gains (losses)	(65,436		)	79,279			(58,315		)
Realized loss on divestiture of grinding media business recorded in other expense	9,203			—			—
	$	(56,233	)	$	79,279		$	(58,315	)
Gain/(loss) on hedging activities:
Unrealized gain (loss) on net investment hedges, net of tax expense (benefit) of $1,894 in 2018, ($880) in 2017 and $2,646 in 2016	5,291			(1,695		)	4,226
Realized loss on grinding media net investment hedge	1,215			—