| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Condensed Consolidated Financial Statements The Condensed Consolidated Balance Sheet as of June 27, 2020, the Condensed Consolidated Statements of Earnings, Comprehensive Income, and Shareholders' Equity for the thirteen and twenty-six weeks ended June 27, 2020 and June 29, 2019, and the Condensed Consolidated Statements of Cash Flows for the twenty-six week periods then ended have been prepared by the Company, without audit. In the opinion of management, all necessary adjustments (which include normal recurring adjustments) have been made to present fairly the financial statements as of June 27, 2020 and for all periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2019. The accounting policies and methods of computation followed in these interim financial statements are the same as those followed in the financial statements for the year ended December 28, 2019 with the exception of the change in method of accounting for certain inventory, previously accounted for on the LIFO basis, so that now all inventory is valued on the FIFO basis. In addition, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) and early adopted Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant's Securities as released by the Securities and Exchange Commission that are discussed further at the end of footnote 1. The results of operations for the period ended June 27, 2020 are not necessarily indicative of the operating results for the full year. Inventories Inventory is valued at the lower of cost, determined on the first-in, first-out (FIFO) method or market. Finished goods and manufactured goods inventories include the costs of acquired raw materials and related factory labor and overhead charges required to convert raw materials to manufactured and finished goods. Inventories consisted of the following: June 27, December 28, Raw materials and purchased parts $ 167,626 $ 158,314 Work-in-process 32,535 38,088 Finished goods and manufactured goods 249,355 221,968 449,516 418,370 Effective December 29, 2019, the first day of fiscal 2020, the Company changed its method of accounting for certain of its inventory, previously accounted for on the LIFO basis, so that now all inventory is valued on the FIFO basis. The Company believes this change is preferable as it provides a better matching of costs with the physical flow of goods, more accurately reflects the current value of inventory presented on the Company’s Condensed Consolidated Balance Sheets, and standardizes the Company’s inventory valuation methodology. In accordance with ASC 250, Accounting Changes and Error Corrections , this change in method of accounting for certain inventories has been retrospectively applied to the earliest period presented. As a result of the retrospective change, the cumulative effect to retained earnings as of December 29, 2018 and December 28, 2019 was an increase of $40,215 and $32,854, respectively. This change did not affect the Company's previously reported cash flows from operating, investing, or financing activities. The impact of the change from LIFO to FIFO on the Company’s Condensed Consolidated Statements of Earnings and Comprehensive Income for the thirteen and twenty-six weeks ended June 29, 2019 is as follows: Thirteen weeks ended Twenty-six weeks ended (in 000's, except earnings per share) As Previously Reported Retrospectively Adjusted Adjustment As Previously Reported Retrospectively Adjusted Adjustment Cost of sales 520,457 522,695 2,238 1,047,467 1,050,207 2,740 Operating income 63,712 61,474 (2,238) 118,816 116,076 (2,740) Income tax expense 13,961 13,401 (560) 26,388 25,703 (685) Net earnings attributed to Valmont Industries, Inc 41,397 39,719 (1,679) 77,878 75,823 (2,055) Comprehensive (loss) income 38,048 36,370 (1,679) 80,083 78,028 (2,055) Net earnings per diluted share 1.90 1.82 (0.08) 3.56 3.46 (0.10) The Company applied this change retrospectively to the earliest period presented. The resulting impact to the Condensed Consolidated Balance Sheet as of December 28, 2019 is as follows: December 28, 2019 Consolidated Balance Sheet As Previously Reported Adjustment Retrospectively Adjusted Inventory 374,565 43,805 418,370 Deferred income tax liability 47,955 10,951 58,906 Retained earnings 2,140,948 32,854 2,173,802 Income Taxes Earnings before income taxes for the thirteen and twenty-six weeks ended June 27, 2020 and June 29, 2019, were as follows: Thirteen weeks ended Twenty-six weeks ended 2020 2019 2020 2019 United States $ 54,237 $ 45,031 $ 107,737 $ 86,780 Foreign (18,621) 9,038 (14,695) 16,669 $ 35,616 $ 54,069 $ 93,042 $ 103,449 Pension Benefits The Company incurs expenses in connection with the Delta Pension Plan ("DPP"). The DPP was acquired as part of the Delta plc acquisition in fiscal 2010 and has no members that are active employees. In order to measure expense and the related benefit obligation, various assumptions are made including discount rates used to value the obligation, expected return on plan assets used to fund these expenses and estimated future inflation rates. These assumptions are based on historical experience as well as current facts and circumstances. An actuarial analysis is used to measure the expense and liability associated with pension benefits. The components of the net periodic pension (benefit) expense for the thirteen and twenty-six weeks ended June 27, 2020 and June 29, 2019 were as follows: Thirteen weeks ended Twenty-six weeks ended Net periodic (benefit) expense: 2020 2019 2020 2019 Interest cost $ 3,160 $ 4,182 $ 6,284 $ 8,527 Expected return on plan assets (5,664) (4,943) (11,262) (10,078) Amortization of actuarial loss 720 634 1,431 1,292 Net periodic (benefit) expense $ (1,784) $ (127) $ (3,547) $ (259) Stock Plans The Company maintains stock-based compensation plans approved by the shareholders, which provide that the Human Resource Committee of the Board of Directors may grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, and bonuses of common stock. At June 27, 2020, 1,187,679 shares of common stock remained available for issuance under the plans. Under the plans, the exercise price of each option equals the closing market price at the date of the grant. Options vest beginning on the first anniversary of the grant in equal amounts over three years to six years or on the grant's fifth anniversary. Expiration of grants is seven years from the date of grant. Restricted stock units and awards generally vest in equal installments over three years beginning on the first anniversary of the grant. The Company's compensation expense (included in selling, general and administrative expenses) and associated income tax benefits related to stock options and restricted stock for the thirteen and twenty-six weeks ended June 27, 2020 and June 29, 2019, respectively, were as follows: Thirteen weeks ended Twenty-six weeks ended 2020 2019 2020 2019 Compensation expense $ 2,346 $ 2,700 $ 5,671 $ 6,370 Income tax benefits 587 675 1,418 1,593 Fair Value The Company applies the provisions of Accounting Standards Codification 820, Fair Value Measurements (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of ASC 820 apply to other accounting pronouncements that require or permit fair value measurements. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs that are not corroborated by market data. The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value. Trading Securities: The assets and liabilities recorded for the investments held in the Valmont Deferred Compensation Plan at June 27, 2020 of $37,035 ($36,290 at December 28, 2019) represent mutual funds, invested in debt and equity securities, classified as trading securities in accordance with Accounting Standards Codification ("ASC") 320, Accounting for Certain Investments in Debt and Equity Securities , considering the employee's ability to change investment allocation of their deferred compensation at any time. The Company's ownership of shares in Delta EMD Pty. Ltd. (JSE:DTA) is also classified as trading securities. The shares are valued at $170 and $210 as of June 27, 2020 and December 28, 2019, respectively, which is the estimated fair value. Quoted market prices are available for these securities in an active market and therefore categorized as a Level 1 input. Derivative Financial Instruments: The fair value of foreign currency and commodity forward contracts, and cross currency contracts is based on a valuation model that discounts cash flows resulting from the differential between the contract price and the market-based forward rate. Fair Value Measurement Using: Carrying Value June 27, 2020 Quoted Prices in Significant Other Significant Assets: Trading Securities $ 37,205 $ 37,205 $ — $ — Derivative financial instruments, net 7,268 — 7,268 — Fair Value Measurement Using: Carrying Value December 28, 2019 Quoted Prices in Significant Other Significant Assets: Trading Securities $ 36,500 $ 36,500 $ — $ — Derivative financial instruments, net 3,247 — 3,247 — Long-Lived Assets The Company's other non-financial assets include goodwill and other intangible assets, which are classified as Level 3 items. These assets are measured at fair value on a non-recurring basis as part of annual impairment testing. Note 4 to these condensed consolidated financial statements contain additional information related to goodwill and intangible asset impairments recognized in fiscal 2020. Comprehensive Income (Loss) Comprehensive income (loss) includes net earnings, currency translation adjustments, certain derivative-related activity and changes in net actuarial gains/losses from a pension plan. Results of operations for foreign subsidiaries are translated using the average exchange rates during the period. Assets and liabilities are translated at the exchange rates in effect on the balance sheet dates. Accumulated other comprehensive income (loss) consisted of the following at June 27, 2020 and December 28, 2019: Foreign Currency Translation Adjustments Gain on Hedging Activities Defined Benefit Pension Plan Accumulated Other Comprehensive Loss Balance at December 28, 2019 $ (232,575) $ 14,076 $ (94,923) $ (313,422) Current-period comprehensive income (loss) (30,981) 11,917 — (19,064) Balance at June 27, 2020 $ (263,556) $ 25,993 $ (94,923) $ (332,486) Revenue Recognition The Company determines the appropriate revenue recognition for our contracts by analyzing the type, terms and conditions of each contract or arrangement with a customer. Contracts with customers for all businesses are fixed-price with sales tax excluded from revenue, and do not include variable consideration. Discounts included in contracts with customers, typically early pay discounts, are recorded as a reduction of net sales in the period in which the sale is recognized. Contract revenues are classified as product when the performance obligation is related to the manufacturing of goods. Contract revenues are classified as service when the performance obligation is the performance of a service. Service revenue is primarily related to the Coatings segment. Customer acceptance provisions exist only in the design stage of our products and acceptance of the design by the customer is required before the project is manufactured and delivered to the customer. The Company is not entitled to any compensation solely based on design of the product and does not recognize revenue associated with the design stage. There is one performance obligation for revenue recognition. No general rights of return exist for customers once the product has been delivered and the Company establishes provisions for estimated warranties. The Company does not sell extended warranties for any of its products. Shipping and handling costs associated with sales are recorded as cost of goods sold. The Company elected to use the practical expedient of treating freight as a fulfillment obligation instead of a separate performance obligation and ratably recognize freight expense as the structure is being manufactured, when the revenue from the associated customer contract is being recognized over time. With the exception of the Utility segment and the wireless communication structures product line, the Company’s inventory is interchangeable for a variety of each segment’s customers. The Company elected the practical expedient to not disclose the partially satisfied performance obligation at the end of the period when the contract has an original expected duration of one year or less. In addition, the Company elected the practical expedient to not adjust the amount of consideration to be received in a contract for any significant financing component if payment is expected within twelve months of transfer of control of goods or services; the Company expects all consideration to be received in one year or less at contract inception. Segment and Product Line Revenue Recognition The global Utility segment revenues are derived from manufactured steel and concrete structures for the North America utility industry and offshore and other complex structures used in energy generation and distribution outside of the United States. Steel and concrete utility structures are engineered to customer specifications resulting in limited ability to sell the structure to a different customer if an order is canceled after production commences. The continuous transfer of control to the customer is evidenced either by contractual termination clauses or by our rights to payment for work performed to-date plus a reasonable profit as the products do not have an alternative use to the Company. Since control is transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment. For our steel and concrete utility and wireless communication structure product lines, we generally recognize revenue on an inputs basis, using total production hours incurred to-date for each order as a percentage of total hours estimated to produce the order. The completion percentage is applied to the order’s total revenue and total estimated costs to determine reported revenue, cost of goods sold and gross profit. Production of an order, once started, is typically completed within three months. Revenue from the offshore and other complex structures business is also recognized using an inputs method, based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. External sales agents are used in certain sales of steel and concrete structures; the Company has chosen to use the practical expedient to expense estimated commissions owed to third parties by recognizing them proportionately as the goods are manufactured. The global ESS segment revenues are derived from the manufacture and distribution of engineered metal, composite structures and components for lighting and traffic and roadway safety, engineered access systems, and wireless communication. For the lighting and traffic and roadway safety product lines, revenue is recognized upon shipment or delivery of goods to the customer depending on contract terms, which is the same point in time that the customer is billed. For Access Systems, revenue is generally recognized upon delivery of goods to the customer which is the same point in time that the customer is billed. The wireless communication product line has large regional customers who have unique product specifications for communication structures. When the customer contract includes a cancellation clause that would require them to pay for work completed plus a reasonable margin if an order was canceled, revenue is recognized over time based on hours worked as a percent of total estimated hours to complete production. For the remaining wireless communication product line customers which do not provide a contractual right to bill for work completed on a canceled order, revenue is recognized upon shipment or delivery of the goods to the customer which is the same point in time that the customer is billed. The global Coatings segment revenues are derived by providing coating services to customers’ products, which include galvanizing, anodizing, and powder coating. Revenue is recognized once the coating service has been performed and the goods are ready to be picked up or delivered to the customer which is the same time that the customer is billed. The global Irrigation segment revenues are derived from the manufacture of agricultural irrigation equipment and related parts and services for the agricultural industry and tubular products for industrial customers. Revenue recognition for the irrigation segment is generally upon shipment of the goods to the customer which is the same point in time that the customer is billed. The remote monitoring subscription services are primarily billed annually and revenue is recognized on a straight-line basis over the subsequent twelve months. Disaggregation of revenue by product line is disclosed in the Segment footnote. A breakdown by segment of revenue recognized over time and at a point in time for the thirteen and twenty-six weeks ended June 27, 2020 and June 29, 2019 is as follows: Point in Time Over Time Point in Time Over Time Thirteen weeks ended June 27, 2020 Thirteen weeks ended June 27, 2020 Twenty-six weeks ended June 27, 2020 Twenty-six weeks ended June 27, 2020 Utility Support Structures $ 4,619 $ 223,854 $ 13,543 $ 437,878 Engineered Support Structures 236,827 12,046 452,706 23,533 Coatings 62,667 — 131,257 — Irrigation 144,988 3,807 296,730 7,361 Total $ 449,101 $ 239,707 $ 894,236 $ 468,772 Point in Time Over Time Point in Time Over Time Thirteen weeks ended June 29, 2019 Thirteen weeks ended June 29, 2019 Twenty-six weeks ended June 29, 2019 Twenty-six weeks ended June 29, 2019 Utility Support Structures $ 9,932 $ 199,077 $ 40,224 $ 412,043 Engineered Support Structures 244,604 12,961 461,074 24,460 Coatings 81,089 — 151,320 — Irrigation 149,956 3,252 297,814 6,075 Total $ 485,581 $ 215,290 $ 950,432 $ 442,578 The Company's contract asset as of June 27, 2020 and December 28, 2019 was $125,004 and $141,322, respectively. Both steel and concrete utility customers are generally invoiced upon shipment or delivery of the goods to the customer's specified location with few customers that make up-front or progress payments. The offshore and complex steel structures business invoices customers a number of ways including advanced billings, progress billings, and billings upon shipment. At June 27, 2020 and December 28, 2019, the contract liability for revenue recognized over time was $138,820 and $117,945, respectively. During the thirteen and twenty-six weeks ended June 27, 2020, the Company recognized $21,037 and $39,277 of revenue that was included in the liability as of December 28, 2019. In the thirteen and twenty-six weeks ended June 29, 2019, the Company recognized $897 and $1,928 of revenue that was included in the liability as of December 29, 2018. The revenue recognized was due to applying advance payments received for projects completed during the period. Recently Adopted Accounting Pronouncements and Guarantors Disclosures In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments . The standard replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This update was intended to provide financial statement users with more decision-useful information about the expected credit losses. The Company adopted this ASU in the first quarter of 2020. The adoption of the ASU No. 2016-13 did not have a significant impact on the condensed consolidated financial statements. The Company early adopted Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities rules as released by the Securities and Exchange Commission on March 2, 2020, which simplify the disclosure requirements related to the Company’s registered debt |
