UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2017
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
Commission file number 1-31429
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Delaware | 47-0351813 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
15000 Valmont Plaza, | | |
Omaha, | Nebraska | 68154 |
(Address of Principal Executive Offices) | (Zip Code) | |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Symbol | | Name of exchange on which registered |
Common Stock $1.00 par value | | VMI | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
NoneIndicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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
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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
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,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large | ☒ | Accelerated filer | ☐ | Non‑accelerated filer | ☐ | Smaller reporting company | ☐ |
Emerging | ☐ | | | | | | |
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.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report Yes ☒ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
At February 20, 201823, 2023 there were 22,693,41621,350,005 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 July 1, 2017June 25, 2022 was $3,296,971,119.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s proxy statement for its annual meeting of shareholders to be held on April 24, 20182023 (the “Proxy Statement”), to be filed within 120 days of the fiscal year ended December 30, 2017,31, 2022, are incorporated by reference in Part III.
Contents
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 30, 2017
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PART I | | |
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PART II | | |
22 | ||
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Management’s Discussion and Analysis of Financial Condition and Results of Operation | 23 | |
42 | ||
43 | ||
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 99 | |
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101 | ||
Disclosures Regarding Foreign Jurisdictions that Prevent Inspections | 102 | |
Part III | | |
103 | ||
103 | ||
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 103 | |
Certain Relationships and Related Transactions, and Director Independence | 103 | |
103 | ||
Part IV | | |
104 | ||
108 | ||
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1
General
We are a diversified global producermanufacturer of highly-engineered fabricated metal products.products and services for infrastructure and agriculture markets. Our Infrastructure products and services create communities that are safer, cleaner, more efficient, and better connected. Our Agriculture products and services help growers produce greater crop yields with fewer inputs. In our Engineered Support Structures (ESS) segment, we are a leading producer of steel, aluminum2022, the Company operated and composite poles, towers, industrial and architectural access systems and other structures. reported its results in the following two reporting segments:
| ● | Infrastructure |
| ● | Agriculture |
Our Utilities Support Structures (Utility) segment manufactures steel and concrete pole structures for transmission and distribution primarily within the United States. Outside of the United States, we manufacture complex steel structures used in electrical energy generation and distribution. Our IrrigationInfrastructure segment is a global producercomprised of mechanized irrigation systemsfive primary product lines. Our Transmission, Distribution, and provider of water managementSubstation product line helps deliver power with products to better harden electric grids to make infrastructure more resilient by selling structures to support electrical transmission, distribution lines, and substation conversion and storage. Our Lighting and Transportation offering includes solutions for large-scale production agriculture. Our Coatings segment provides metal coating services, including galvanizing for steelto help make roadways safer, infrastructure smarter, and other applied coatings.
Our IrrigationAgriculture segment produces mechanized irrigation equipment and related services thatto help deliver water, chemical fertilizers, herbicides, and pesticides to agricultural crops. Our Coatings segment provides coatings services for Valmontcrops that save time and conserve water, energy, and other industrial customers. input costs while also assisting in increasing yields. This segment also develops technology for better precision application including predictive, autonomous crop and irrigation management.
Customers and end-users of our Infrastructure products include municipalities and government entities globally, manufacturers of commercial lighting fixtures (OEM)(“OEM”), contractors, and telecommunications and utility companies, and large farms as well ascompanies. Customers of our Agriculture segment in the United States are dealers who resell mechanized irrigation equipment to their end customer, which is the farmer. Both segments service the general manufacturing sector.sector as well. In 2017,2022, approximately 36%32% of our totalnet 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, engineering proficiency, technological innovation, and consistent high quality.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 have2
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. For example, inIn recent years, we developed and sold structures for tramway applications in Europe. The customersspun concrete distribution poles for this product line include many ofNorth American utility markets, steel bridge girders for North America, and began offering concealment solutions for 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 2014 acquisition of the majority ownership in AgSense allows us to offer expanded remote monitoring services over irrigation equipment and other aspects of a farming operation.
Developing New Products for New Markets or Leveraging Core Competencies to Further Diversify our Business is a pathPath to increase sales.
Acquisitions
We have grown internallyorganically and by acquisition. Our significant business expansions during the past five years include the following (including the segment where the business reports):
2018
| ● | Acquisition of an integrator of prepackaged pump stations (Torrent Engineering and Equipment) located in Indiana (Agriculture) |
| ● | Acquisition of a worldwide provider of parts for agricultural irrigation equipment, Irrigation Components International (ICI), located in the United States (Agriculture) |
| ● | Acquisition of an engineering and manufacturer of overhead sign structures (Walpar) located in Alabama (Infrastructure) |
| ● | Acquisition of 75% of a provider of engineered solar tracker solutions (Convert Italia S.p.A.) headquartered in Italy (Infrastructure) |
| ● | Acquisition of a steel lattice structures producer (Derit) located in India (Infrastructure) |
| ● | Acquisition of a galvanizing business (CSP Coating Systems) located in New Zealand (Infrastructure) |
2019
| ● | Acquisition of a wireless communication concealment solutions provider (Larson Camouflage) headquartered in Arizona (Infrastructure) |
| ● | Acquisition of the remaining 4.8% not previously owned of Valmont SM (Other) |
| ● | Acquisition of a galvanizing business (United Galvanizing) located in Texas (Infrastructure) |
| ● | Acquisition of a manufacturer and distributor of wireless site components and safety products (Connect-It Wireless, Inc.) located in Florida (Infrastructure) |
2020
| ● | Acquisition of the remaining 49% not previously owned of AgSense, LLC (Agriculture) |
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| ● | Acquisition of 55% of a provider of solar solutions for Agriculture (Solbras) located in Brazil (Agriculture) |
| ● | Acquisition of KC Utility Packaging, LLC, a utility substation product provider located in Missouri (Infrastructure) |
2021
| ● | Acquisition of Prospera Technologies, Ltd., an artificial intelligence company in agriculture located in Israel (Agriculture) |
| ● | Acquisition of PivoTrac, a remote monitoring irrigation service company located in Texas (Agriculture) |
2022
| ● | Acquisition of 51% of ConcealFab, a 5G infrastructure and passive intermodulation mitigation solutions company located in Colorado (Infrastructure) |
| ● | Acquisition of the remaining 9% not previously owned of Convert Italia S.p.A. (Infrastructure) |
| ● | Acquisition of the remaining 20% not previously owned of Valmont West Coast Engineering, Ltd. (Infrastructure) |
Divestitures
In 2018, the Company divested of Donhad, a grinding media producer in Australia.
In 2022, the Company divested of Valmont SM, (Utility)
Segments
During the first quarter of 2022, the Company’s Chief Operating Decision Maker (“CODM”) changed the Company’s management structure and began to manage the business, allocate resources, and evaluate performance based on the new structure. As a highway safety business (Aircon) that manufactures guardrails, structural metal products,result, the Company has realigned to a two reportable segment structure organized by market dynamics (Infrastructure and solar structural products in India (ESS)
Both reportable segments are global in nature with a manager responsible for segment operational performance and allocation of capital within the segment. Net corporate expense is net of certain service-related expenses that are allocated to business units generally on the basis of employee headcounts.
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Reportable segments are as follows:
Infrastructure: This segment consists of the manufacture and distribution of engineeredproducts and solutions to serve the infrastructure markets of utility, renewable energy, lighting, transportation, and telecommunications, and coatings services to preserve metal and composite structures and components for lighting and traffic, access systems, wireless communication, and roadway safety applications;
Agriculture: This segment consists of the manufacture of engineered steelcenter pivot components and concrete structures for the utility industry, including on and offshore wind energy, gas and oil exploration structures;
In addition to these fourtwo reportable segments, we have other operationsthe Company had a business and related activities which arethat was not more than 10% of consolidated sales, operating income, or assets. These activities include the manufacture of forged steel grinding media.
Information concerning the principal products produced and services rendered, markets, competition, and distribution methods for each of our fourtwo reportable segments is set forth below.
Infrastructure Segment (ESS)
Products Produced
| ● | Transmission, Distribution, and Substation (“TD&S”): We engineer and manufacture steel, pre-stressed concrete, composite, and hybrid structures (concrete base section and steel upper sections). These products are used to support the lines and equipment 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. These innovative structures are offered to address the growing need for grid hardening across the globe, where fires, storms, and floods have recently occurred with increasing regularity. |
Utility structures can be very large, so product design engineering is important to the function and manufacture steel, aluminum,safety of the structure. Our engineering process takes into account weather and composite poles and structures to which lighting and traffic control fixtures are attached for a wide range of outdoor lighting applications,loading conditions, 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,wind speeds, ice loads, and the Middle East. Trafficpower lines attached to the structure, in order to arrive at the final design.
| ● | Lighting and Transportation: We design, engineer, and manufacture steel, aluminum, wood, and composite poles and structures for a wide range of lighting and highway transportation applications. 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. Valmont structures help keep these areas safer, provide technologically advanced solutions for smart cities, and support 24-hour convenience. Beyond design, technical, and engineering needs, customers also want products that are visually appealing and meet local aesthetic requirements. In Europe, Valmont is a leader in decorative lighting poles, which provide an attractive yet functional solution for our customers. We are leveraging this expertise to expand our decorative product sales in North America and the Middle East. |
Valmont traffic and overhead sign structures contribute to which traffic signals are attached and aid the orderly flow of automobile traffic. While standard designsThese poles, which support traffic signals and overhead signs, are available, poles are often engineered 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. ThisValmont has expanded its capabilities in the traffic market with the development of patented vibration mitigation technology which continuously improves the safety of traffic and roadway structures by reducing the effects of wind and fatigue. Our transportation product line also includes highway safety system products that are designed and engineered to enhance roadway safetysafety. These systems includinginclude guard rail barrier systems,barriers, wire rope safety barriers, crash attenuation barriers, and other products. Highway safety products which primarily serve the Australia market. Additionally, Valmont has expanded into the bridge market with the development of our Con-Struct Bridge system. These steel
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systems are also designedeffective, long-lasting, and engineered to enhance roadway safety.
| ● | Coatings: We add finishes to metals that inhibit corrosion, extend service lives, and enhance the aesthetics of a wide range of materials and products. We take unfinished products from our customers and return them with a galvanized, anodized, or painted finish. Hot-dip galvanizing is a process that protects and prolongs the life of steel with a zinc coating that is bonded to the product surface to inhibit rust and corrosion. CorroCote adds a protection to steel for those products that are anchored below ground against the corrosive effects of soil and underground moisture. 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 for a number of industries and markets. |
| ● | Telecommunications: We engineer, manufacture, and distribute a broad range of structures (poles and towers), camouflage concealment solutions, and components serving the wireless communication market supporting expanded 5G customer needs. 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 a structure and to connect cabling and other parts from the antennas to the shelter). Larger monopole 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 monopole structures, design is important to ensure each structure meets performance and safety specifications. |
| ● | Renewable Energy: Our solar single-axis “tracker” product is an integrated system of steel structures, electric motors, and electronic controllers. Trackers move solar panels throughout the day to maintain an optimal orientation to the sun, which materially increases their energy production. Solar energy projects utilizing trackers generate approximately 20% more energy compared to traditional fixed tilt ground-mounted systems, according to Wood Mackenzie. Our trackers utilize a simple, modular design allowing ease of installation and low operational maintenance. Further, the flexibility of our trackers’ design allows for improved site utilization, which is especially valuable to our customers considering that solar projects are being constructed on increasingly challenging sites today. We sell our products to engineering, procurement, and construction firms (“EPCs”) that build solar energy projects as well as solar developers, independent power producers, and utilities. |
Markets
The key markets for our lighting, trafficacross the Infrastructure product lines have a portion of their funding supported through local, state, 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 byfederal government spending programs. For example, the U.S. government funds highway and roadwill fund infrastructure improvement through the federal highway program. This program providesnewly passed Infrastructure Investment and Jobs Act as well as the Inflation Reduction Act. These bills will allocate funding to improvereinforce the nation’s roadway system,bridges, increase safety for the travelling public, update vital infrastructure, improve highway safety, and harden the electrical grid.
The market for our TD&S product line is 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, and increased electrical consumption, which includes roadwayhas 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. Electrical consumption is also expected to increase within international markets. 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.
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Our lighting and transportation products and solutions serve the transportation, construction, and industrial markets. Many products from our transportation product portfolio will be utilized when making these enhancements including traffic control enhancements.structures, bridge systems, roadway and street lighting, high-mast lighting, etc. Matching funding from the various states may be required as a condition of federal funding. Some states are supplementing infrastructure funding with revenue sources. Publicin the United States. Additionally, 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 4four 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.
Markets for our coatings products are varied and our profitability is not substantially dependent on any one industry or installers who participateexternal customer. However, a meaningful percentage of demand is internal, driven by Valmont’s other product lines. Demand for coatings services generally follows the local industrial economies. Galvanizing is used in thesea wide variety of industrial applications where corrosion protection of steel is desired. While markets are varied, our markets for anodized or natural gas and mineral exploration companies, and resellers such as steel service centers, and end users. Thesepainted products are more directly dependent on consumer markets can be cyclical depending on economic conditions.
The market for our communication products is driven by increased demand for wireless communication and data. CustomersOur 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, (including applications for data).which demand higher network density. Improved emergency response systems, as part of the U.S. Homeland Security initiatives, creates additional demand.
The market for our Renewable Energy product line is driven by the transition to clean energy sources globally and incentives for renewable energy investment. As utilities increase development of the products that we manufacture in this segment are parts of customer investments in basic infrastructure. The total cost of these investments canlarge-scale solar power and micro-grid applications, single axis solar tracker solutions will 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 solutions to the customer at a reasonablethe appropriate price. We compete on the basis of product quality, engineering expertise, high levels of customer service, and timely, complete, and accurate delivery of the product and design capability to provide the best solutions to our customers.product. There are numerous competitors in our markets, most of which are relatively small companies.North America as well as international markets. Companies compete on the basis of price, product quality, reliable delivery, engineering design, and unique product features.features, and service. Pricing can be very competitive, especially when demand is weak or when strong local currencies result in increased competition from imported products.
The Coatings product line 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
Distribution Methods
For lighting and transportation, 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 and traffic signal lines and sell other related products. Sales are typically to electrical distributors, who provide the production capacity at our networkpole, 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,
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although some sales are made through independent, commissioned sales agents. Our TD&S and Renewable Energy products are normally sold directly to ensure that the customer receives quality, timely service.
Due to freight costs, a galvanizing location has an effective service area of an approximate 300 to 500 mile300-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.
Agriculture Segment
Products
| ● | Irrigation Equipment and Parts: We manufacture and distribute mechanical irrigation equipment and related service parts under the “Valley” brand name. A Valley irrigation machine is powered by electricity (via solar, grid, or diesel generator) 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 four acres to over 500 acres, with a standard size in the U.S. configured for a 160-acre tract of ground. The irrigation machine used in international markets is substantially the same as the one produced for the North American market. We also manufacture tubular products for industrial customers primarily in the agriculture industry as well as in the transportation and other industries. |
| ● | Technology Products and Services: Our remote management capabilities allow control of pivots and a variety of other farm equipment on any web-connected device and our suite of advanced technology solutions offers capabilities to assist in reducing water and energy use. Our crop anomaly detection can alert growers of pivot-related water issues with artificial intelligence and machine learning (in select markets) to help farmers determine where and how much to irrigate. During fiscal year 2021, we purchased Prospera Technologies, Ltd., a leading global artificial intelligence and machine learning provider of advanced agronomy monitoring solutions. Agriculture net sales in 2022, 2021, and 2020 included technology sales of $115.1 million, $97.9 million, and $67.1 million, respectively. We also sell solar energy solutions for agriculture primarily in international markets. |
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, sinceas 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; and |
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| ● | converting land that is not irrigated to mechanized irrigation. |
One of the key drivers in our IrrigationAgriculture 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; and |
| ● | the largest user of that freshwater is agriculture. |
We believe these factors, along with the trendtrends of a growing worldwide population, and improving diets, and governments’ efforts to address food security, 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%40% to 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, price, 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 268270 dealer locations in North America, with another approximately 226400 dealers serving international markets.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 headquartersoperations in South America, South Africa, Western Europe, Australia, China, and the United Arab Emirates as well as the home officemanufacturing facility in Valley, Nebraska.
General
Certain information generally applicable to each of our fourtwo 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 during this time,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 steel, zinc, and natural gas prices, but we did not experience any disruptions to our operations due to availability.
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Patents, Licenses, Franchises, and Concessions.
We have a number of patents for our manufacturing machinery, poles, highway guardrail, 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 $670.0$1,656.4 million at the end of the 20172022 fiscal year and $602.9$1,621.9 million at the end of the 20162021 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 20172022 backlog of orders will be filled during fiscal year 2018.2023. At year-end, the segments with backlog were as follows (dollar amounts in millions):
| 12/30/2017 | 12/31/2016 | ||||||
| Engineered Support Structures | $ | 204.1 | $ | 189.8 | |||
| Utility Support Structures | 359.1 | 336.1 | |||||
| Irrigation | 100.1 | 64.1 | |||||
| Coatings | 0.1 | 0.4 | |||||
| Other | 6.6 | 12.5 | |||||
| $ | 670.0 | $ | 602.9 | ||||
| | | | | | |
|
| 12/31/2022 |
| 12/25/2021 | ||
Infrastructure | | $ | 1,339.1 | | $ | 1,086.3 |
Agriculture | |
| 317.3 | |
| 471.0 |
Other | | | — | | | 64.6 |
| | $ | 1,656.4 | | $ | 1,621.9 |
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.
As of December 30, 2017,31, 2022, we had 10,69011,364 employees.
Human Capital Resources
Our internationalpolicies and practices with respect to human capital resources are generally set forth in our Code of Business Conduct, our Human Rights Policy, and the principles described on the “About Us” page on our website www.valmont.com. Essential to our success is a company-wide commitment to customer service and innovation, and the ability to provide the best value to our customers for our products and services. Our employees are the cornerstone of our accomplishments, we pride ourselves on being people of passion and integrity who excel and deliver results. Our Code of Business Conduct and our culture require each employee to act responsibly and to treat each other fairly and with the utmost respect.
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Our businesses require skilled workers and management in order to meet our customer’s needs, grow our sales, activities encompass over 100and maintain competitive advantages. We require employees with skills in engineering, welding, equipment maintenance, and the operation of complex manufacturing machinery. Management talent is critical, as well, to help grow our businesses and effectively plan for succession of key employees upon retirement.
As of December 31, 2022, we had 6,599 employees in the United States and 4,765 employees in foreign countries. The information calledCompany places a high value on diversity and inclusion, seeking employees with diverse backgrounds and experiences who share a common interest in profitable development, improving corporate culture, and delivering sustainable business results.
We have adopted a Human Rights Policy which is published on our website. We expect our employees, suppliers, vendors, dealers, and distributors to share our commitment to human rights. We prohibit discrimination on the basis of age, race, disability, ethnicity, marital or family status, national origin, religion, gender, sexual orientation, veteran status, gender identity, or any other characteristic protected by law.
We are committed to voluntary employment, and we strictly prohibit all forms of compulsory labor, including child labor, forced labor, slavery, and human trafficking. We respect internally recognized human rights standards, and this policy is guided by the U.N. Guiding Principles for Business and Human Rights.
We require full compliance with applicable, wage, work hours, overtime, and benefit laws. We are committed to creating a culture where a healthy and safe workplace is recognized by this itemeveryone as essential to our success. Any employee can always contact our compliance officer, and confidential reporting of a situation or to ask a question is included in Note 19available on a secure website maintained by a third party. Employees are eligible for health insurance, paid and unpaid leaves, retirement plan, and life and disability / accident coverage.
When positions come open at Valmont, we try first to fill them from within. We like to reward the hard-working members of our consolidated financial statements. Australia accountedValmont community with new opportunities that are not only a chance to expand their worlds, but to also recognize and reward their dedication. We have found them to be our richest talent resource.
Our program for approximately 13%succession and management development has our highest level of attention with our net salesCEO responsible for reporting on the program directly to our board of directors.
For additional information, please see the “About Us” and "Sustainability" pages on our website and section titled “Governance, Human Capital and Sustainability Highlights” in 2017; no other foreign country accounted for more than 5% of our net sales. Net sales for purposes of Note 19 and elsewhere exclude intersegment sales.
Available Information
We make available, free of charge throughon the Investors page of our Internet web sitewebsite at
The following risk factors describe various risks that may affect our business, financial condition, and operations.
Economic and Business Risks
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
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industry were over $600 million$1.0 billion in 2017 and 2016.2022. 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, which may be exacerbated by climate change, 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 ofIn February 2018,2023, the U.S. Department of Agriculture (the “USDA”(“USDA”) estimatedforecasted U.S. 20172022 net farm income to be $63.8$162.8 billion, up 3.7 percentan increase of $21.9 billion (15.5 percent), relative to 2021. The increase was primarily related to an increase in cash receipts from crops and livestock that is offsetting a portion of the USDA’s finalexpected decrease in government support payments in 2022. If estimates hold, U.S. 2016 net farm income of $61.5 billion. If the USDA's estimate proves accurate, 2017 wouldin 2022 will be the first increase inhighest level since 1973. The USDA also forecasted U.S. 2023 net farm income following three yearsto be $136.9 billion, a decrease of significant declines.
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. Weak market conditions have led to competitive pricing in recent years, putting pressure on our profit margins on sales to this industry. 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 and grinding media 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
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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, tariffs, and quotas since we import some steel and aluminum finished components and products for various product lines. |
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 2017,2021 and more modest increases in 2016,early 2022 put pressure on gross profit margins, especially in our Engineered Support Structures segment.Utility product lines. The elapsed time between the quotationrelease of a salescustomer’s purchase 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 segmentsInfrastructure segment are fixed price contracts, rapid increases in steel costs likely will result in lower operating income.
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 andincluding 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 serveproduct line serves 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. As
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When residential and commercial construction remainsis 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 StructuresInfrastructure segment, particularly our lighting, traffictransportation, and highway safety products, are highly dependent upon federal, state, local, and foreign government spending on infrastructure development projects,projects. U.S. federal funding initiatives, such as the U.S. federal highway funding.Infrastructure Investment and Job Act (“IIJA”) and the Inflation Reduction Act (“IRA”) support multi-year demand for our infrastructure products, although the timing and amount of funding appropriations from these initiatives can be difficult to predict. 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. For instance, the lack of long-term U.S. federal highway spending legislation for a significant period of time prior to the 2015 U.S. federal highway bill had a negative impact on our sales in this market. A substantial reduction in the level of government appropriations for infrastructure projects could have a material adverse effect on our results of operations or liquidity.
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 38%32% of our fiscal 20172022 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 2015, we realized a $17.3 million decrease in operating profit, as compared to 2014, from currency translation effects. 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.
COVID-19 has impacted and is expected to continue to impact our business, including the supply chain, product demand, logistics, and facility operations and the duration, unknown at this time, of the challenges associated with the virus, or future pandemics, may result in significant adverse effects on our business, financial condition, and results of operations.
COVID-19 impacted and may continue to impact our business, including the normal operations of our facilities, overall demand for our products, changes to supply chain availability and costs, logistics delays, including temporary closures as may be mandated or otherwise made necessary by governmental authorities, and any additional carryover of economic effects. All of our operations may be affected by COVID-19 isolation measures. During the height of the previous pandemic, we temporarily implemented domestic and international travel restrictions for our employees, and thousands of our employees worked remotely.
Our businesses require skilled laborsupport critical infrastructure sectors as defined by the Department of Homeland Security (CISA.gov) and similar global agencies. These sectors are deemed vital, such that their incapacitation would have a debilitating effect on security, national economic security, national public health, or safety, or any combination thereof.
Future challenges associated with the virus, or new pandemics, may result in significant adverse effects on our business, financial condition, and results of operations.
In addition to the discussion above of Economic and Business Risks, please see our further discussion on interest rates, foreign currency exchange rates, and commodity prices included in “MARKET RISK” within "Management’s Discussion and Analysis of Financial Conditions and Results of Operations" in Part II, Item 7 in this report.
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Legal and Regulatory Risks
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, including trade relations and tariffs.
We are an international manufacturing company with operations around the world. At December 31, 2022, we operated over 80 manufacturing plants, located on six continents, and sold our products in more than 100 countries. In 2022, approximately 32% of our net sales were either sold in markets or produced by our manufacturing plants outside of North America (primarily the United States, Canada, and Mexico). We have operations in geographic markets that have recently experienced political instability, such as the Middle East, and economic uncertainty, such as Western Europe, and health issues, such as the outbreak and spread of coronavirus in China. Our geographic diversity also requires that we hire, train, and retain competent management talentfor the various local markets, which not only impacts our operational results but our managing and reporting functions.
Demand for our products and our profitability are affected by trade relations between countries. We also have a significant manufacturing presence in Australia, Brazil, Europe, and China. These operations are affected by U.S. trade policies, such as additional tariffs on a broad range of imports, and retaliatory actions by foreign countries, most recently China, which have impacted sales of our products. In addition, there can be a derived indirect impact on demand for our products arising from quotas, restrictions, and retaliatory tariffs (e.g., China tariffs on imported soybeans affects U.S. net farm income).
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; |
| ● | natural disasters and public health issues in our geographic markets, negatively impacting our workforce, manufacturing capability, and sales; |
| ● | difficulties and costs of staffing and managing our foreign operations, increasing our foreign operating costs and decreasing profits and with risk to our managing and reporting functions; |
| ● | 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 be unable to attract and retain qualified employees.
Failure to comply with any applicable anti-corruption legislation could result 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 businessesfines, criminal penalties, 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 abilitybusiness.
We must comply with all applicable laws, which include the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act, and other anti-corruption laws. These anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to grow profitablyimproperly 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 future.global enforcement of anti-corruption laws. Although we have a compliance program in place designed to reduce the likelihood of potential
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violations of such laws, violations of these laws could result in consequentialcriminal or civil sanctions and compensatory damages. From time to time, we may have a product quality issuean adverse effect on a large utility structures orderthe company’s reputation, business, and the costsresults 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 lightingoperations and wireless communication applications.
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.
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.
Liquidity and Capital Resources Risks
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 31, 2022, we had $878.0 million of total indebtedness outstanding. We had $659.4 million of capacity to borrow under our revolving credit facility at December 31, 2022. 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. |
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We had $185.4 million of cash at December 31, 2022. Approximately 79% 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 31, 2022, covered approximately 6,500 inactive or retired former Delta employees. The plan has no active employees as members. At December 31, 2022, this plan was, for accounting purposes, overfunded by approximately £20.1 million ($24.2 million). The current agreement with the trustees of the pension plan for annual funding is approximately £13.1 million ($16.0 million) in respect of the funding shortfall and approximately £1.3 million ($1.6 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 last funding plan was developed in 2022. 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 asset recognized for accounting purposes as of December 31, 2022. 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. |
General Risks
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 customers’ 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.
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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 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.
For example, in 2021, we acquired Prospera Technologies, Ltd., an integrated artificial intelligence (“AI”) technologies company that provides real-time crop analysis and anomaly detection solutions in agricultural fields. To provide these services, Prospera develops algorithms that can detect, with a high accuracy, field anomalies caused by pests, disease, or water issues. We store, process, and transmit agricultural field data. A failure to integrate innovative acquisitions such as Prospera could negatively impact future growth in our technology sales.
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.
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We have, from timemay incur significant warranty or contract management costs.
In our Infrastructure segment, we manufacture large structures for electrical transmission. These products may be highly engineered for very large, complex contracts and subject to time, maintained a substantial amount of outstanding indebtedness, which could impair our ability to operate our businessterms and react to changesconditions that penalize us for late delivery and result in our business, remain in compliance with debt covenantsconsequential and make payments on our debt.
Our Agriculture products carry warranty provisions, some of which may place us at a competitive disadvantage;
Our ability to operateoperations could be adversely affected if our information technology systems are compromised or otherwise subjected to cyber crimes.
Cybercrime 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. Our operations involve transferring data across national borders, and we must comply with increasingly complex and rigorous standards to protect business and personal data in the U.S. and foreign countries, including members of the European Union. Additionally, our operations also include innovative technologies, such as Prospera Technologies, Ltd., an integrated AI technologies company. Successful cybersecurity attacks or other security incidents could result in the loss of key innovations in artificial intelligence, internet of things (“IoT”), or other disruptive technologies; the loss of access to critical data or systems through ransomware, crypto mining, destructive attacks, or other means; and business delays, service or system disruptions, or denials of service. We protect our sensitive information and confidential and personal data, our facilities, and information technology systems, but we may be vulnerable to future security breaches. This could lead to legal risk, fines and penalties, 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.
Regulatory and business developments regarding climate change could adversely impact our operations and demand for our products.
Regulatory and business developments regarding climate change could adversely impact our operations. We follow the scientific discussion on climate change and related legislative and regulatory enactments, including those under consideration, to deliberate the potential impact on our operations and demand for our products. The scientific discussion on the presence and scope of climate change and the attention that domestic and international legislatures and regulatory authorities have given to enacting or considering laws or rules related to climate change are expected to continue. The production and market for our products are subject to the impact of laws and rules related to climate change. Our customers, and our operating segments, are exposed to risks of increased costs to comply with such laws and rules, including increased costs for raw materials and transportation, as well as exposure to damage to our respective business reputations upon any failure of compliance. Other adverse consequences of climate change could include an increased frequency of severe weather events and rising sea levels that could affect operations at our manufacturing facilities, the price of insuring Company assets, or other unforeseen disruptions of the Company’s operations, systems, property, or equipment.
None.
In 2021, we moved our corporate headquarters are located into a new leased facility in Omaha, Nebraska, under a lease expiring in 2021.2046. The headquarters of the Company’s reportable segmentssegments’ headquarters are also located in Valley, Nebraska.at the corporate headquarters. 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,Nebraska; McCook, Nebraska,Nebraska; Tulsa, Oklahoma,
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Oklahoma; Brenham, Texas,Texas; Charmeil, FranceFrance; Uberaba, Brazil; Monterrey, Mexico; Siedlce, Poland; Shanghai, China; and Shanghai, China.Dubai, United Arab Emirates. 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 expandexpanding capacities where needed. Our principal operating locations by reportable segment are listed below.
Infrastructure segment North America manufacturing locationsoperations are located in Alabama, Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Minnesota, Nebraska, Texas, Indiana, Minnesota,New Jersey, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Canada, and Canada.Mexico. The largest of these operations are in Valley, NebraskaNebraska; Brenham, Texas; Tulsa, Oklahoma; and Brenham, Texas, bothMonterrey, Mexico, all of which are owned facilities. We have communication componentscomponent distribution locations in California, Colorado, Florida, Georgia, Nebraska, New York, California, Florida, Georgia, and Texas. International locations are in Australia, China, England, Estonia, Finland, France, Germany, India, Indonesia, Italy, Malaysia, the Netherlands, Finland, Estonia, England, Germany, Poland, Morocco, Australia, Indonesia,New Zealand, the Philippines, Thailand, Malaysia, IndiaPoland, and China.Thailand. The largest of these operations are in Charmeil, France, and Shanghai, China, both of which are owned facilities.
Agriculture segment North America manufacturing operations are located in ValleyNebraska and McCook, Nebraska.Indiana. Our principal manufacturing operations serving international markets are located in Uberaba, Brazil, Nigel, South Africa, Jebel Ali,Brazil; Dubai, United Arab Emirates,Emirates; Shandong, China; and Shandong, China.a technology R&D center in Israel. All facilities are owned except for China and Israel, which isare leased.
Operations in the "other" categoryOther segment, which were divested during 2022, are located in Australia.
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.
Not Applicable.
Our current executive officers, at February 28, 2018, their ages, positions held, and the business experience of each during the past five years are, as follows:
Stephen G. Kaniewski, age 46,51, President and Chief Executive Officer since December 31, 2017, previously2017. President and Chief Operating Officer sincefrom October 2016 to December 2017. Utility Support Structures Group President from August 2015 to October 2016. Joined Valmont in August 2010 as Vice President-Information Technology, and later in January 2014 moved into the Vice President-GlobalPresident of Global Operations role for the Irrigation segment. In January 2015, he transferred to the Utility Support Structures segment as Senior Vice President and Managing Director andbusiness in August 2015 became Group President of Utility Support Structures segment.
Avner M. Applbaum, age 60,51, Executive Vice President and Chief Financial Officer since March 2020. Chief Financial Officer and Chief Operating Officer of Double E Company, an equipment manufacturer, from 2017 to March 2020.
Diane Larkin, age 58, Executive Vice President, Global Operations since June 2020. Senior Vice President of Operations and Global Supply for Pentair from 2017 to June 2020.
Aaron Schapper, age 49, Group President, Infrastructure since February 2014.2020. Utility Support Structures Group President from October 2016 to February 2020. General Manager, International Irrigation from October 2011 to October 2016.
Renee L. Campbell, age 53, Senior Vice President, Investor Relations and Treasurer since February 2022. Vice President, Investor Relations and Corporate Communications from 2017 to February 2022.
20
Timothy P. Francis, age 46, Senior Vice President and Finance Business Partner – Global Operations since June 2022. Senior Vice President and Controller February 2000from June 2014 to February 2014.
Gene Padgett, age 65,52, Senior Vice President-Human ResourcesPresident, Finance and Chief Accounting Officer since July 2011. DirectorNovember 2022. Senior Vice President and Chief Accounting Officer of DXP Enterprises, Inc., an industrial products distributor and equipment manufacturer, from 2018 to October 2022.
T. Mitchell Parnell, age 57, Executive Vice President, Chief Human Resources of North AmericaOfficer since January 2019. Vice President, Human Resources, Valmont Engineered Support Structures division from 1997 until 2011.
Claudio O. Laterreur, age 41,56, Senior Vice President and ControllerChief Information Officer since June 2014. Chief Financial Officer of Burlington Capital Group LLC (“BCG”)May 2019. US Industrial Products Partner at IBM and North America First Multifamily Investors, L.P. (“ATAX”), a NASDAQ listed Limited Partnership in which BCG serves as the General Partner,Vice President for manufacturing at Neoris from January 20122013 to May 2014.
R. Andrew Massey, age 48, Senior53, Vice President and Chief Legal & Compliance Officer since 2006.
Ellen S. Dasher, age 53, Vice President, Global Taxation since December 2015, previously Assistant Director of Information Technology since June 2014. Senior information technology executive at Rockwell Collins, an aerospace and defense contractor and manufacturer, from 2004 - 2014.Taxation.
21
ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the New York Stock Exchange under the symbol “VMI”. We had approximately 24,80136,163 shareholders of common stock at December 30, 2017. Other stock information required by this item is included in Note 21 “Quarterly Financial Data (unaudited)” to the consolidated financial statements and incorporated herein by reference.
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 | ||||||||||
| October 1, 2017 to October 28, 2017 | — | $ | — | — | $ | 132,172,000 | ||||||||
| October 29, 2017 to December 2, 2017 | — | — | — | 132,172,000 | ||||||||||
| December 3, 2017 to December 30, 2017 | — | — | — | 132,172,000 | ||||||||||
| Total | — | $ | — | — | $ | 132,172,000 | ||||||||
| (Dollars in thousands, except per share amounts) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Operating Data | (3 | ) | ||||||||||||||||||
| Net sales | $ | 2,745,967 | $ | 2,521,676 | $ | 2,618,924 | $ | 3,123,143 | $ | 3,304,211 | ||||||||||
| Operating income (1) | 266,432 | 243,504 | 131,695 | 357,716 | 473,069 | |||||||||||||||
| Net earnings attributable to Valmont Industries, Inc. (2) | 116,240 | 173,232 | 40,117 | 183,976 | 278,489 | |||||||||||||||
| Depreciation and amortization | 84,957 | 82,417 | 91,144 | 89,328 | 77,436 | |||||||||||||||
| Capital expenditures | 55,266 | 57,920 | 45,468 | 73,023 | 106,753 | |||||||||||||||
| Per Share Data | ||||||||||||||||||||
| Earnings: | ||||||||||||||||||||
| Basic (2) | $ | 5.16 | $ | 7.68 | $ | 1.72 | $ | 7.15 | $ | 10.45 | ||||||||||
| Diluted (2) | 5.11 | 7.63 | 1.71 | 7.09 | 10.35 | |||||||||||||||
| Cash dividends declared | 1.500 | 1.500 | 1.500 | 1.375 | 0.975 | |||||||||||||||
| Financial Position | ||||||||||||||||||||
| Working capital | $ | 1,069,567 | $ | 903,368 | $ | 860,298 | $ | 995,727 | $ | 1,161,260 | ||||||||||
| Property, plant and equipment, net | 518,928 | 518,335 | 532,489 | 606,453 | 534,210 | |||||||||||||||
| Total assets | 2,602,250 | 2,391,731 | 2,392,382 | 2,721,955 | 2,773,046 | |||||||||||||||
| Long-term debt, including current installments | 754,854 | 755,646 | 757,995 | 760,122 | 467,661 | |||||||||||||||
| Total Valmont Industries, Inc. shareholders’ equity. | 1,112,836 | 943,482 | 918,441 | 1,201,833 | 1,522,025 | |||||||||||||||
| Cash flow data: | ||||||||||||||||||||
| Net cash flows from operating activities | $ | 145,716 | $ | 219,168 | $ | 272,267 | $ | 174,096 | $ | 396,442 | ||||||||||
| Net cash flows from investing activities | (49,615 | ) | (53,049 | ) | (48,171 | ) | (256,863 | ) | (131,721 | ) | ||||||||||
| Net cash flows from financing activities | (32,010 | ) | (95,158 | ) | (220,005 | ) | (139,756 | ) | (37,380 | ) | ||||||||||
| Financial Measures | ||||||||||||||||||||
| Invested capital(a) | $ | 1,941,716 | $ | 1,774,781 | $ | 1,759,851 | $ | 2,096,276 | $ | 2,110,455 | ||||||||||
| Return on invested capital(a) | 10.3 | % | 9.5 | % | 4.6 | % | 11.3 | % | 15.0 | % | ||||||||||
| Adjusted EBITDA(b) | $ | 351,987 | $ | 326,629 | $ | 285,115 | $ | 413,684 | $ | 546,208 | ||||||||||
| Return on beginning shareholders’ equity(c) | 12.3 | % | 18.9 | % | 3.3 | % | 12.1 | % | 20.6 | % | ||||||||||
| Leverage ratio (d) | 2.15 | 2.32 | 2.66 | 1.87 | 0.89 | |||||||||||||||
| Year End Data | ||||||||||||||||||||
| Shares outstanding (000) | 22,694 | 22,521 | 22,857 | 24,229 | 26,825 | |||||||||||||||
| Approximate number of shareholders | 24,801 | 26,057 | 27,010 | 28,225 | 28,507 | |||||||||||||||
| Number of employees | 10,690 | 10,552 | 10,697 | 11,321 | 10,769 | |||||||||||||||
| | | | | | | | | | |
| | | | | | | Total Number of | | | |
| | | | | | | Shares Purchased | | Approximate Dollar | |
| | | | | | | as Part of | | Value of Maximum | |
| | Total Number | | | | | Publicly | | Number of | |
| | of | | | | Announced Plans | | Shares that may yet | ||
| | Shares | | Average Price | | or | | be Purchased under the | ||
Period |
| Purchased |
| paid per share |
| Programs |
| Program (1) | ||
September 25, 2022 to October 22, 2022 |
| — | | $ | — |
| — | | $ | 101,371,000 |
October 23, 2022 to November 26, 2022 |
| 26,995 | |
| 328.93 |
| 26,995 | |
| 92,523,000 |
November 27, 2022 to December 31, 2022 |
| 33,207 | |
| 334.38 |
| 33,207 | |
| 81,419,000 |
Total |
| 60,202 | | $ | 331.94 |
| 60,202 | | $ | 81,419,000 |
22
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Operating income | $ | 266,432 | $ | 243,504 | $ | 131,695 | $ | 357,716 | $ | 473,069 | |||||||||
| Adjusted effective tax rate (1) | 28.1 | % | 30.8 | % | 32.0 | % | 33.4 | % | 35.1 | % | |||||||||
| Tax effect on operating income | (74,867 | ) | (74,999 | ) | (42,142 | ) | (119,477 | ) | (166,047 | ) | |||||||||
| After-tax operating income | 191,565 | 168,505 | 89,553 | 238,239 | 307,022 | ||||||||||||||
| Average invested capital | 1,858,249 | 1,767,316 | 1,928,064 | 2,103,366 | 2,043,983 | ||||||||||||||
| Return on invested capital | 10.3 | % | 9.5 | % | 4.6 | % | 11.3 | % | 15.0 | % | |||||||||
| Total assets | 2,602,250 | 2,391,731 | 2,392,382 | 2,721,955 | 2,773,046 | ||||||||||||||
| Less: Accounts and income taxes payable | (227,906 | ) | (177,488 | ) | (179,983 | ) | (196,565 | ) | (216,121 | ) | |||||||||
| Less: Accrued expenses | (165,455 | ) | (162,318 | ) | (175,947 | ) | (176,430 | ) | (194,527 | ) | |||||||||
| Less: Defined benefit pension liability | (189,552 | ) | (209,470 | ) | (179,323 | ) | (150,124 | ) | (154,397 | ) | |||||||||
| Less: Deferred compensation | (48,526 | ) | (44,319 | ) | (48,417 | ) | (47,932 | ) | (39,109 | ) | |||||||||
| Less: Other noncurrent liabilities | (20,585 | ) | (14,910 | ) | (40,290 | ) | (45,542 | ) | (51,731 | ) | |||||||||
| Less: Dividends payable | (8,510 | ) | (8,445 | ) | (8,571 | ) | (9,086 | ) | (6,706 | ) | |||||||||
| Total Invested capital | $ | 1,941,716 | $ | 1,774,781 | $ | 1,759,851 | $ | 2,096,276 | $ | 2,110,455 | |||||||||
| Beginning of year invested capital | $ | 1,774,781 | $ | 1,759,851 | $ | 2,096,276 | $ | 2,110,455 | $ | 1,977,511 | |||||||||
| Average invested capital | $ | 1,858,249 | $ | 1,767,316 | $ | 1,928,064 | $ | 2,103,366 | $ | 2,043,983 | |||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Net cash flows from operations | $ | 145,716 | $ | 219,168 | $ | 272,267 | $ | 174,096 | $ | 396,442 | |||||||||
| Interest expense | 44,645 | 44,409 | 44,621 | 36,790 | 32,502 | ||||||||||||||
| Income tax expense | 106,145 | 42,063 | 47,427 | 94,894 | 157,781 | ||||||||||||||
| Loss on investment | (237 | ) | (586 | ) | (4,555 | ) | (3,795 | ) | — | ||||||||||
| Non-cash debt refinancing costs | — | — | — | 2,478 | — | ||||||||||||||
| Change in fair value of contingent consideration | — | 3,242 | — | 4,300 | — | ||||||||||||||
| Deconsolidation of subsidiary | — | — | — | — | (12,011 | ) | |||||||||||||
| Impairment of goodwill and intangible assets | — | — | (41,970 | ) | — | — | |||||||||||||
| Impairment of property, plant and equipment | — | (1,099 | ) | (19,836 | ) | — | (12,161 | ) | |||||||||||
| Deferred income tax (expense) benefit | (39,755 | ) | 23,685 | (4,858 | ) | (5,251 | ) | 10,141 | |||||||||||
| Noncontrolling interest | (6,079 | ) | (5,159 | ) | (5,216 | ) | (5,342 | ) | (1,971 | ) | |||||||||
| Equity in earnings of nonconsolidated subsidiaries | — | — | (247 | ) | 29 | 835 | |||||||||||||
| Stock-based compensation | (10,706 | ) | (9,931 | ) | (7,244 | ) | (6,730 | ) | (6,513 | ) | |||||||||
| Pension plan expense | (648 | ) | (1,870 | ) | 610 | (2,638 | ) | (6,569 | ) | ||||||||||
| Contribution to pension plan | 40,245 | 1,488 | 16,500 | 18,173 | 17,619 | ||||||||||||||
| Change in restricted cash - pension plan trust | (12,568 | ) | 13,652 | — | — | — | |||||||||||||
| Changes in assets and liabilities, net of acquisitions | 81,305 | 13,690 | (71,863 | ) | 98,376 | (34,205 | ) | ||||||||||||
| Other | 3,924 | (631 | ) | (2,327 | ) | (392 | ) | 4,318 | |||||||||||
| EBITDA | 351,987 | 342,121 | 223,309 | 404,988 | 546,208 | ||||||||||||||
| Reversal of contingent liability | — | (16,591 | ) | — | — | — | |||||||||||||
| Impairment of goodwill and intangible assets | — | — | 41,970 | — | — | ||||||||||||||
| Impairment of property, plant and equipment | — | 1,099 | 19,836 | — | — | ||||||||||||||
| EBITDA from acquisitions (months in 2014 not owned by Company) | — | — | — | 8,696 | — | ||||||||||||||
| Adjusted EBITDA | $ | 351,987 | $ | 326,629 | $ | 285,115 | $ | 413,684 | $ | 546,208 | |||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Net earnings attributable to Valmont Industries, Inc. | $ | 116,240 | $ | 173,232 | $ | 40,117 | $ | 183,976 | $ | 278,489 | |||||||||
| Interest expense | 44,645 | 44,409 | 44,621 | 36,790 | 32,502 | ||||||||||||||
| Income tax expense | 106,145 | 42,063 | 47,427 | 94,894 | 157,781 | ||||||||||||||
| Depreciation and amortization expense | 84,957 | 82,417 | 91,144 | 89,328 | 77,436 | ||||||||||||||
| EBITDA | 351,987 | 342,121 | 223,309 | 404,988 | 546,208 | ||||||||||||||
| Reversal of contingent liability | — | (16,591 | ) | — | — | — | |||||||||||||
| Impairment of goodwill and intangible assets | — | — | 41,970 | — | — | ||||||||||||||
| Impairment of property, plant and equipment | — | 1,099 | 19,836 | — | — | ||||||||||||||
| EBITDA from acquisitions (months in 2014 not owned by Company) | — | — | — | 8,696 | — | ||||||||||||||
| Adjusted EBITDA | $ | 351,987 | $ | 326,629 | $ | 285,115 | $ | 413,684 | $ | 546,208 | |||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Current portion of long-term debt | $ | 966 | $ | 851 | $ | 1,077 | $ | 1,181 | $ | 202 | |||||||||
| Notes payable to bank | 161 | 746 | 976 | 13,952 | 19,024 | ||||||||||||||
| Long-term debt | 753,888 | 754,795 | 756,918 | 758,941 | 467,459 | ||||||||||||||
| Total interest bearing debt | 755,015 | 756,392 | 758,971 | 774,074 | 486,685 | ||||||||||||||
| Adjusted EBITDA | 351,987 | 326,629 | 285,115 | 413,684 | 546,208 | ||||||||||||||
| Leverage Ratio | 2.15 | 2.32 | 2.66 | 1.87 | 0.89 | ||||||||||||||
Contents
ITEM 6. [RESERVED]
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.
| 2017 | 2016 | Change 2017 - 2016 | 2015 | Change 2016 - 2015 | |||||||||||||
| Dollars in millions, except per share amounts | |||||||||||||||||
| Consolidated | |||||||||||||||||
| Net sales | $ | 2,746.0 | $ | 2,521.7 | 8.9 | % | $ | 2,618.9 | (3.7 | )% | |||||||
| Gross profit | 681.8 | 656.2 | 3.9 | % | 621.0 | 5.7 | % | ||||||||||
as a percent of sales | 24.8 | % | 26.0 | % | 23.7 | % | |||||||||||
| SG&A expense | 415.4 | 412.7 | 0.7 | % | 489.3 | (15.7 | )% | ||||||||||
as a percent of sales | 15.1 | % | 16.4 | % | 18.7 | % | |||||||||||
| Operating income | 266.4 | 243.5 | 9.4 | % | 131.7 | 84.9 | % | ||||||||||
as a percent of sales | 9.7 | % | 9.7 | % | 5.0 | % | |||||||||||
| Net interest expense | 39.9 | 41.3 | (3.4 | )% | 41.3 | — | % | ||||||||||
| Effective tax rate | 46.5 | % | 19.1 | % | 51.0 | % | |||||||||||
| Net earnings attributable to Valmont Industries, Inc | 116.2 | 173.2 | (32.9 | )% | 40.1 | 331.9 | % | ||||||||||
| Diluted earnings per share | $ | 5.11 | $ | 7.63 | (33.0 | )% | $ | 1.71 | 346.2 | % | |||||||
| Engineered Support Structures Segment | |||||||||||||||||
| Net sales | $ | 912.2 | $ | 891.1 | 2.4 | % | $ | 880.8 | 1.2 | % | |||||||
| Gross profit | 225.9 | 240.0 | (5.9 | )% | 214.0 | 12.1 | % | ||||||||||
| SG&A expense | 162.9 | 167.7 | (2.9 | )% | 185.2 | (9.4 | )% | ||||||||||
| Operating income | 63.0 | 72.3 | (12.9 | )% | 28.8 | 151.0 | % | ||||||||||
| Utility Support Structures Segment | |||||||||||||||||
| Net sales | $ | 856.3 | $ | 735.6 | 16.4 | % | $ | 777.7 | (5.4 | )% | |||||||
| Gross profit | 178.4 | 147.3 | 21.1 | % | 130.0 | 13.3 | % | ||||||||||
| SG&A expense | 80.6 | 76.1 | 5.9 | % | 91.7 | (17.0 | )% | ||||||||||
| Operating income | 97.8 | 71.2 | 37.4 | % | 38.3 | 85.9 | % | ||||||||||
| Coatings Segment | |||||||||||||||||
| Net sales | $ | 256.8 | $ | 243.9 | 5.3 | % | $ | 255.5 | (4.5 | )% | |||||||
| Gross profit | 78.4 | 77.8 | 0.8 | % | 79.8 | (2.5 | )% | ||||||||||
| SG&A expense | 28.2 | 31.2 | (9.6 | )% | 52.4 | (40.5 | )% | ||||||||||
| Operating income | 50.2 | 46.6 | 7.7 | % | 27.4 | 70.1 | % | ||||||||||
| Irrigation Segment | |||||||||||||||||
| Net sales | $ | 644.4 | $ | 568.0 | 13.5 | % | $ | 605.8 | (6.2 | )% | |||||||
| Gross profit | 197.3 | 178.9 | 10.3 | % | 177.2 | 1.0 | % | ||||||||||
| SG&A expense | 95.8 | 88.0 | 8.9 | % | 99.0 | (11.1 | )% | ||||||||||
| Operating income | 101.5 | 90.9 | 11.7 | % | 78.2 | 16.2 | % | ||||||||||
| Other | |||||||||||||||||
| Net sales | $ | 76.3 | $ | 83.1 | (8.2 | )% | $ | 99.1 | (16.1 | )% | |||||||
| Gross profit | 7.4 | 14.1 | (47.5 | )% | 7.3 | 93.2 | % | ||||||||||
| SG&A expense | 5.3 | 5.4 | (1.9 | )% | 12.1 | (55.4 | )% | ||||||||||
| Operating income | 2.1 | 8.7 | (75.9 | )% | (4.8 | ) | (281.3 | )% | |||||||||
| Adjustment to LIFO inventory valuation method | |||||||||||||||||
| Gross profit | (5.7 | ) | (3.0 | ) | 90.0 | % | 12.1 | (124.8 | )% | ||||||||
| Operating income | (5.7 | ) | (3.0 | ) | 90.0 | % | 12.1 | (124.8 | )% | ||||||||
| Net corporate expense | |||||||||||||||||
| Gross profit | $ | 0.1 | $ | 1.1 | 90.9 | % | $ | 0.6 | 83.3 | % | |||||||
| SG&A expense | 42.6 | 44.3 | (3.8 | )% | 48.9 | (9.4 | )% | ||||||||||
| Operating loss | (42.5 | ) | (43.2 | ) | (1.6 | )% | (48.3 | ) | (10.6 | )% | |||||||
This section of 2017, our managementthis Form 10-K generally discusses 2022 and reporting structure changed to reflect management's expectations2021 items and year-to-year comparisons between 2022 and 2021. Discussions of future growth2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in "Management’s Discussion and Analysis of certain product linesFinancial Conditions and to take into consideration the expected divestitureResults of Operations" in Part II, Item 7 of the grinding media business, which historically was reported inCompany’s Annual Report on Form 10-K for 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. Infiscal year ended December 25, 2021.
During the first quarter of 2017, we also2022, the Company’s Chief Operating Decision Maker (“CODM”) changed ourthe Company’s management structure and began to manage the business, allocate resources, and evaluate performance based on the new structure. As a result, the Company has realigned to a two reportable segment structure organized by market dynamics (Infrastructure and Agriculture). Three operating incomesegments resulted from the new management structure and two are aggregated into the Agriculture reportable segment. The Company considers gross profit margins, nature of products sold, nature of the production processes, type and class of customer, and methods used to separate outdistribute products when assessing aggregation of operating segments. The Infrastructure segment includes the LIFO expense (benefit). Certain inventories are accounted for using the LIFO method in the consolidated financial statements. Ourprevious reportable segments of Utility Support Structures, Engineered Support Structures, and Coatings. All prior period segment discussions and segment financial information havehas been accordingly reclassified in this reportrecast to reflect this change for all periods presented.in reportable segments.
23
General
| | | | | | | | | | | | | | | | | | | |
| | | 2022 | | 2021 | | Change 2022 - 2021 | | 2020 | | Change 2021 - 2020 | ||||||||
| | | Dollars in millions, except per share amounts | ||||||||||||||||
Consolidated | | | | | | | | | | | | | | | | | | | |
Net sales | | | $ | 4,345.2 | | | $ | 3,501.6 |
| | 24.1 | % | | $ | 2,895.4 |
| | 20.9 | % |
Gross profit | | |
| 1,126.3 | | |
| 883.9 |
| | 27.4 | % | |
| 765.5 |
| | 15.5 | % |
as a percent of sales | | |
| 25.9 | % | |
| 25.2 | % | |
| | |
| 26.4 | % | |
| |
SG&A expense | | |
| 693.0 | | |
| 597.1 |
| | 16.1 | % | |
| 539.6 |
| | 10.7 | % |
as a percent of sales | | |
| 15.9 | % | |
| 17.1 | % | |
| | |
| 18.6 | % | |
| |
Operating income | | |
| 433.3 | | |
| 286.8 |
| | 51.1 | % | |
| 225.9 |
| | 27.0 | % |
as a percent of sales | | |
| 10.0 | % | |
| 8.2 | % | |
| | |
| 7.8 | % | |
| |
Net interest expense | | |
| 45.5 | | |
| 41.4 |
| | 9.9 | % | |
| 38.7 |
| | 7.0 | % |
Effective tax rate | | |
| 29.9 | % | |
| 23.6 | % | |
| | |
| 25.7 | % | |
| |
Net earnings | | |
| 250.9 | | |
| 195.6 |
| | 28.3 | % | |
| 140.7 |
| | 39.0 | % |
Diluted earnings per share | | | $ | 11.62 | | | $ | 9.10 |
| | 27.7 | % | | $ | 6.57 |
| | 38.5 | % |
Infrastructure | | |
|
| | |
|
|
| |
| | |
|
|
| |
| |
Net sales | | | $ | 2,909.7 | | | $ | 2,361.5 |
| | 23.2 | % | | $ | 2,135.2 |
| | 10.6 | % |
Gross profit | | |
| 736.6 | | |
| 603.6 |
| | 22.0 | % | |
| 564.9 |
| | 6.9 | % |
SG&A expense | | |
| 382.1 | | |
| 330.0 |
| | 15.8 | % | |
| 347.6 |
| | (5.1) | % |
Operating income | | |
| 354.5 | | |
| 273.6 |
| | 29.6 | % | |
| 217.3 |
| | 25.9 | % |
Agriculture | | |
| | | |
|
|
| |
| | |
|
|
| |
| |
Net sales | | | $ | 1,335.3 | | | $ | 1,017.1 |
| | 31.3 | % | | $ | 640.1 |
| | 58.9 | % |
Gross profit | | |
| 381.8 | | |
| 297.7 |
| | 28.2 | % | |
| 197.3 |
| | 50.9 | % |
SG&A expense | | |
| 202.5 | | |
| 160.6 |
| | 26.1 | % | |
| 114.2 |
| | 40.6 | % |
Operating income | | |
| 179.3 | | |
| 137.1 |
| | 30.8 | % | |
| 83.1 |
| | 65.0 | % |
Other | | | | | | | | | | | | | | | | | | | |
Net sales | | | $ | 100.2 | | | $ | 123.0 | | | (18.5) | % | | $ | 120.1 | | | 2.4 | % |
Gross profit (loss) | | | | 7.9 | | | | (18.2) | | | NM | | | | 3.3 | | | NM | |
SG&A expense | | | | 5.6 | | | | 22.0 | | | (74.5) | % | | | 11.5 | | | 91.3 | % |
Operating income (loss) | | | | 2.3 | | | | (40.2) | | | NM | | | | (8.2) | | | 390.2 | % |
Net corporate expense | | |
|
| | |
|
|
| |
| | |
|
|
| |
| |
Gross profit | | | $ | — | | | $ | 0.8 |
| | — | | | $ | — |
| | — | % |
SG&A | | |
| 102.8 | | |
| 84.5 |
| | 21.7 | % | |
| 66.3 |
| | 27.5 | % |
Operating loss | | |
| (102.8) | | |
| (83.7) |
| | 22.8 | % | |
| (66.3) |
| | 26.2 | % |
24
RESULTS OF OPERATIONS
FISCAL 2022 COMPARED WITH FISCAL 2021
Overview
The increase in net sales in 2017,2022, as compared with 2016, reflected2021, was the result of higher sales in all reportableboth the Infrastructure and Agriculture segments. Fiscal 2022 included 53 weeks, while fiscal 2021 included 52 weeks. The changesestimated impact on the Company's results of operations due to the extra week in fiscal 2022 was additional 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 | ||||||
| | | | | | | | | | | | |
|
| Total |
| Infrastructure | | Agriculture |
| Other | ||||
Sales - 2021 | | $ | 3,501.6 | | $ | 2,361.5 | | $ | 1,017.1 | | $ | 123.0 |
Volume | |
| 184.0 | |
| 108.7 | |
| 88.9 | |
| (13.6) |
Pricing / mix | |
| 686.5 | |
| 459.4 | |
| 223.1 | |
| 4.0 |
Acquisition | |
| 30.1 | |
| 28.8 | |
| 1.3 | |
| — |
Currency translation | |
| (57.0) | |
| (48.7) | |
| 4.9 | |
| (13.2) |
Sales - 2022 | | $ | 4,345.2 | | $ | 2,909.7 | | $ | 1,335.3 | | $ | 100.2 |
Volume effectsimpacts 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.
Due to supply chain disruptions and lingering impacts of the pandemic, average steel index prices for both hot rolled coil and plate were highervolatile over the past few years, especially in North America and ChinaAmerica. While hot rolled coil steel has decreased in 2017,price, the steel consumed during 2022 within cost of sales was at a much higher average cost as compared to 2016, resulting2021. Gross profit margin was higher in higher average cost of material. We expect that average2022, as compared to 2021, as customer pricing mechanisms and product selling prices will increase over time to offset the decrease in gross profit realized from the higher cost of steelprice practices allowed for the Company. recovery of price inflation for the Infrastructure and Agriculture reportable segments.
Items Impacting Comparability
Items of note impacting the comparability of results from net earnings for 2022 included the following:
| ● | charges totaling $33.3 million (no associated tax benefit) related to the divestiture of the offshore wind energy structures business, |
| ● | incremental stock-based compensation expense of $5.0 million ($4.6 million after-tax) for the employees from the Prospera subsidiary acquired in 2021, and |
| ● | incremental amortization of identified intangible assets of $3.6 million ($2.4 million after-tax) associated from the Prospera subsidiary acquired in 2021. |
Items of note impacting the comparability of results from net earnings for 2021 included the following:
| ● | charges totaling pre-tax $27.9 million ($21.7 million after-tax) related to the impairment of the offshore wind energy structures business long-lived assets. In addition, income tax expense of $5.1 million to establish a valuation allowance related to the tax assets of the associated product line, and |
| ● | charges totaling $5.5 million ($4.3 million after-tax) related to the write-off of a receivable. |
Acquisitions
The Company acquired a highwaythe following businesses in 2022 and 2021:
| ● | 51% of ConcealFab in the second quarter of 2022 for $39.3 million. ConcealFab is a Colorado-based 5G infrastructure and passive intermodulation mitigation solutions company (Infrastructure), |
25
| ● | Prospera in the second quarter of 2021 for $300 million. Prospera was a privately-held Israeli-based artificial intelligence company focused on machine learning and computer vision in agriculture (Agriculture), and |
| ● | PivoTrac in the second quarter of 2021 for $12.5 million. PivoTrac is an agricultural technology company that offers solutions focused on remote monitoring of center pivot irrigation machines (Agriculture). |
Divestitures
The Company divested its offshore wind energy structures business in India ("Aircon") in the thirdfourth quarter of 2017 that2022, which resulted in a loss of approximately $33.3 million (no associated tax benefit). The offshore wind energy structures business is included in the ESS segment.
Macroeconomic Impacts on closingFinancial Results and consolidating locations withinLiquidity
We continue to monitor several macroeconomic and geopolitical trends that impacted our business, including inflationary cost pressures, supply chain disruptions, the ESSstrengthened U.S. dollar, the ongoing Russia-Ukraine conflict, changing conditions from the COVID-19 pandemic, and Coatings segments (the "2016 Plan"). We incurred $7.8 million of restructuring expense consisting of $5.0 millionlabor shortages.
Change in cost of goods soldReportable Segments
On December 26, 2021, the Company’s CODM began to manage the business, allocate resources, and $2.8 million in selling, general, and administrative (SG&A) expense in 2016. The Plan was substantially completed in fiscal 2016.
In addition to these two reportable segments, the Company had a business and related activities that are not more than 10% of consolidated sales, operating income, or assets. This includes the offshore wind energy structures business and was reported in the “Other” segment until its divestiture in 2022.
Currency Translation
The continued strengthening of the U.S. dollar resulted in negative foreign currency impacts for many of our businesses. During 2016, we incurred approximately
| Total | ESS | Utility | Coatings | Irrigation | Other | Corporate | |||||||||||||||
| Full year | $ | 1.5 | $ | 0.1 | $ | — | $ | (0.1 | ) | $ | 1.2 | $ | 0.4 | $ | (0.1 | ) | |||||
| | | | | | | | | | | | | | | | |
|
| | Total |
| Infrastructure |
| Agriculture | | Other |
| Corporate | |||||
Full year | | | $ | (2.0) | | $ | (5.9) | | $ | 3.1 | | $ | 0.3 | | $ | 0.5 |
Gross Profit, SG&A, and Operating Income
At a consolidated level, the reduction in gross margin (gross profit as a percent of sales)sales was higher in 2017,2022, as compared with 2016,2021. Gross profit as a percent of sales was primarily due to higher cost ofrelatively flat for both the Infrastructure and Agriculture segments, as increased raw materials across most of our businesses. The Utility segment realizedmaterial and labor costs were offset by an increase in gross marginaverage selling prices. Gross profit was higher for both the Infrastructure and Agriculture segments 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 in selling, general, and administrative (“SG&A&A”) expense in 2017,2022, as compared to 2016,2021. The increase in SG&A was due to the following:
26
Net Interest Expense and promotional Debt
Net interest expense in 2022 was higher than 2021 due to higher average borrowings during the year. Interest income was also higher in 2022, as compared to 2021, due to higher interest rates.
Other Income/Expense (including Gain (loss) on investments – unrealized)
The change in other income/expenses in 2022, as compared to 2021, was primarily due to a lower pension benefit of $3.2$4.5 million primarilyand the change in the irrigation segment;
Income Tax Expense
Our effective income tax rate in 20172022 and 20162021 was 46.5%29.9% and 19.1%23.6%, respectively. The Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act" or “Act”) includes a number of changes toIn 2022, the U.S. Internal Revenue Code that impact corporations beginningincrease 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.
Earnings Attributable to Noncontrolling Interests
Earnings attributable to noncontrolling interests waswere higher in 2017, as2022 compared to 2016,with 2021, primarily due to improved earnings for our majority-owned irrigation businesses.
Cash Flows from Operations
Our cash flows provided by operations was $145.7were $326.3 million in 2017,fiscal 2022, as compared with $219.2$65.9 million provided by operations in 2016.fiscal 2021. The decreaseincrease in operating cash flow in 2022, as compared with 2021, was primarily due to less favorablethe increase in net earnings and a significant increase in working capital changes drivenlevels during 2021 that did not occur in 2022, partially offset by higher receivables and inventory and higheran increase of approximately $15.2 million in contributions to the Delta Pension Plan in 2017.
Infrastructure Segment
| | | | | | | | | | | | |
| | Fifty-three and fifty-two weeks ended | ||||||||||
| | | | | | | | Dollar | | |
| |
Infrastructure |
| 2022 |
| 2021 |
| Change |
| % Change | ||||
Sales, gross of intercompany eliminations: | | |
|
| |
|
| |
|
|
| |
Transmission, Distribution, and Substation | | | 1,184.7 | | | 935.1 |
| | 249.6 |
| 26.7 | % |
Lighting & Transportation | | | 940.5 | | | 825.9 |
| | 114.6 |
| 13.9 | % |
Coatings | | | 356.7 | | | 309.7 |
| | 47.0 |
| 15.2 | % |
Telecommunications | | | 320.3 | | | 238.5 |
| | 81.8 |
| 34.3 | % |
Renewable Energy | | | 126.2 | | | 62.9 |
| | 63.3 |
| 100.6 | % |
Total | | $ | 2,928.4 | | $ | 2,372.1 | | $ | 556.3 |
| 23.5 | % |
| | | | | | | | | | | | |
Operating Income | | $ | 354.5 | | $ | 273.6 | | $ | 80.9 |
| 29.6 | % |
Net sales were higher in 2017,2022 by approximately $548.2 million as compared with 2016. Into 2021, primarily driven by higher average selling prices across all product lines, partially offset by $48.7 million of unfavorable foreign currency translation effects year over year. The increase in net sales for North America and Asia-Pacific, communication structure and component sales increased duein 2022 versus 2021 was substantially higher than the increase within international markets, partially attributed to higher demand from the continued network expansion by providers.unfavorable currency translation effects (continued strengthening of the U.S. dollar).
27
In the TD&S product line, net sales increased in 2017 were higher than in 2016, due to higher average sales prices and favorable currency translation effects.
Lighting and transportation net sales demandincreased in 2022, as compared to 2021 from the realization of customer pricing actions. Sales volumes increased in North America resultedbut decreased within international markets in fiscal year 2022, as compared to fiscal year 2021. Reported international sales decreased in 2022, as compared to 2021, by approximately $32.1 million due to unfavorable foreign currency translation effects.
In the Telecommunications product line, net sales increased in 2022, as compared to 2021, due primarily to higher average selling prices and approximately $26.9 million of net sales volumesattributed to the 2022 acquisition of ConcealFab. Higher sales volume in tons2022 for North America, primarily attributed to the 5G deployments across additional markets, was partially offset by lower sales volume within international markets.
Coatings net sales increased in 2022, as compared to 2021, due to higher average selling prices, adjusted throughout the year to reflect higher average zinc costs and production wage inflation. Sales volume increased modestly in both steelNorth America and concrete utility structures that also contributedinternational markets in 2022, as compared to 2021. Reported international sales for the Coatings product line decreased in 2022, as compared to 2021, by approximately $10.1 million due to unfavorable foreign currency translation effects.
Renewable Energy net sales doubled in 2022, as compared to 2021, almost all attributed to an increase in sales volume.
Gross profit was higher in 2022, as compared to 2021. Contractual customer pricing mechanisms and selling price management led to a large increase in average selling prices while maintaining gross profit margins during the highly inflationary environment. SG&A was higher in 2022, as compared to 2021, due to wage inflation, increased incentives due to improved financial performance, increased travel expense, and SG&A attributed to the recent acquisition. Operating income increased in 2022 due the increase in sales. International utility structuresnet sales decreased in 2017 due to lower volumes.
Agriculture Segment
| | | | | | | | | | | | |
| | Fifty-three and fifty-two weeks ended | ||||||||||
| | | | | | | | Dollar | | |
| |
Agriculture |
| 2022 |
| 2021 |
| Change |
| % Change | ||||
Sales, gross of intercompany eliminations: | | |
|
| |
|
| |
|
|
| |
North America | | | 766.9 | | | 545.6 |
| | 221.3 |
| 40.6 | % |
International | | | 579.8 | | | 483.1 |
| | 96.7 |
| 20.0 | % |
Total | | $ | 1,346.7 | | $ | 1,028.7 | | $ | 318.0 |
| 30.9 | % |
| | | | | | | | | | | | |
Operating Income | | $ | 179.3 | | $ | 137.1 | | $ | 42.2 |
| 30.8 | % |
Agriculture segment net sales increased in 2017,2022 by approximately $318.2 million as compared to 2016,2021, primarily due to lowermuch higher average selling prices of irrigation equipment globally of approximately 22%. In North America, higher sales volumes that were partially offset by favorable currency translation effects.
28
SG&A was higher in 2022, as compared to 2021, due to higher overall compensation costs and higher incentives due to improved pricingbusiness performance, as well as the incremental SG&A from the Prospera subsidiary acquired in the second quarter of 2021 (including the amortization of identified intangible assets, research and sales mixdevelopment costs, and higherstock-compensation expense). Operating income increased in 2022 over 2021, as improved global sales volumes and pricing more than offset increases in North Americathe cost of sales and improved factory performance forSG&A.
Other
In November 2022, the Company completed the sale of Valmont SM, an offshore wind energy structures business with operations in Denmark. The Company realized an approximate $33.3 million loss on the sale that is recorded in “Other income (expenses)” in the Consolidated Statements of Earnings, subject to certain post-closing adjustments. In 2021, the offshore wind energy structures business recognized a pre-tax $27.9 million impairment charge of long-lived assets and other complex structures business.a $5.5 million write-off of an accounts receivable that did not recur in 2022.
Net Corporate Expense
Corporate SG&A expense was higher in 2017, as compared with 2016, due to higher incentive expense due to improved
| Total | ESS | Utility | Coatings | Irrigation | Other | |||||||||||||
| Sales - 2015 | $ | 2,618.9 | $ | 880.8 | $ | 777.7 | $ | 255.5 | $ | 605.8 | $ | 99.1 | ||||||
| Volume | (13.5 | ) | 38.2 | 2.5 | (10.0 | ) | (29.5 | ) | (14.7 | ) | ||||||||
| Pricing/mix | (60.6 | ) | (13.3 | ) | (44.4 | ) | (4.5 | ) | 1.2 | 0.4 | ||||||||
| Acquisitions | 5.9 | — | — | 5.9 | — | — | ||||||||||||
| Currency translation | (29.0 | ) | (14.6 | ) | (0.2 | ) | (3.0 | ) | (9.5 | ) | (1.7 | ) | ||||||
| Sales - 2016 | $ | 2,521.7 | $ | 891.1 | $ | 735.6 | $ | 243.9 | $ | 568.0 | $ | 83.1 | ||||||
| Total | ESS | Utility | Coatings | Irrigation | Other | Corporate | |||||||||||||||
| Full year | $ | (12.4 | ) | $ | (8.3 | ) | $ | (0.5 | ) | $ | (0.9 | ) | $ | (0.5 | ) | $ | — | $ | (2.2 | ) | |
| Total | ESS | Utility | Coatings | Irrigation | Other | Corporate | |||||||||||||||
| Full year | $ | (1.6 | ) | $ | (1.1 | ) | $ | — | $ | (0.2 | ) | $ | (0.3 | ) | $ | — | $ | — | |||
FISCAL 2021 COMPARED WITH FISCAL 2020
Infrastructure Segment
Net sales were higher in 2016,2021 by approximately $226.3 million as compared to 2015,2020, primarily driven by higher average selling prices across all product lines, as well as $33.3 million of favorable foreign currency translation effects year over year.
In the TD&S product line, net sales increased approximately $139.4 million in 2021, as compared with 2020, due primarily to improved investment activityan increase in Australia and overall market growth in India. Roadway product sales decreased in 2016 due to lower volumes and unfavorable currency translation effects.
Lighting and transportation net sales volumesincreased by approximately $28.6 million in tons for steel utility structures were higher in 2016, as compared with 2015, while concrete sales volumes in tons decreased during 2016. International utility structures sales volumes were lower in 20162021, as compared to 2015.
In the Telecommunication product line, net sales increased by approximately $52.3 million in 2021, as compared to 2020, due primarily to improved international irrigation operations. Operating income for the segment improvedhigher net sales in 2016 over 2015,North America, as communication product sales volumes increased due to lower provisions for uncollectedstrong demand from 5G and other connectivity initiatives and an increase in average selling prices. Communication product line sales within international receivables and lower discretionary spending, partially offset by lower volumes and a higher LIFO inventory reservemarkets increased modestly in 2021 mostly attributed to an increase in volume.
Coatings net sales increased approximately $29.5 million in 2021, as compared to 2020, due to higher steelaverage selling prices and favorable foreign currency translation. In North America, higher average selling prices helped to counteract the higher cost of zinc that incurred throughout the year. North America continued to see decreased industrial production attributed largely to the economic impacts from COVID-19, but not to the severity of 2020. In Asia-Pacific region, sales volumes improved in 2016.all regions, primarily due to sales pricing increases, higher volumes, and favorable foreign currency translation.
29
In the Renewable Energy product line, net sales were downdecreased approximately $23.5 million in 20162021, as compared to 2015,2020, due to a decrease in sales volumes attributed to less large projects.
Gross profit was higher by approximately $38.7 million in 2021, as compared to 2020. Contractual customer pricing mechanisms along with selling price management led to a large increase in average selling prices which more than offset the higher costs of goods sold. The increase in sales volume for Telecommunications product line also contributed to the increase in gross profit. SG&A was lower in 2021, as compared to 2020, primarily due to lower volumesrecording a partial goodwill and unfavorable currency translation effects. The volume decreases are primarily relatedtradename impairment for the Access Systems business of $16.6 million during 2020 and other restructuring costs recognized in 2020 that did not recur in 2021. Operating income increased in 2021, as compared to 2020, due the continued slowdownincrease in net sales and the Australia mining sector. Gross profit and operating income improveddecrease in SG&A.
Agriculture Segment
Agriculture segment net sales increased in 2021 by approximately $377.0 million, as compared to 2020, primarily due to an improvedhigher sales mix.
SG&A was higher in 2021, as compared to 2020, due to approximately $20.0 million of SG&A from the acquisitions of Prospera and PivoTrac, higher compensation expensescosts, and higher incentives due to improved business performance. These increases were somewhat offset by one-time costs associated with the early retirement program incurred in 2020. Operating income increased in 2021 over 2020, as improved global sales volumes and pricing more than offset increases in the cost of $3.8 millionsteel.
Other
The net sales for the offshore wind energy structures business in 2021 was comparable 2020. Gross profit decreased in 2021, as compared to 2020, due primarily to lower employment levels; and
LIQUIDITY AND CAPITAL RESOURCES
Capital Allocation Philosophy
We have historically funded our growth, capital spending, and acquisitions through a combination of operating cash flows and debt financing. On May 13, 2014, our Board of Directors approved and publicly announced aThe following are the capital allocation philosophy with the following allocation/priorities for cash generated:
| ● | working capital and capital expenditure investments necessary for future sales growth; |
| ● | dividends on common stock generally in the range of 20% 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'sMoody’s Investors Services, Inc., BBB- by Fitch Ratings, and BBB+ by Standard and Poor'sPoor’s Rating Services. We would be willing to allow our debt rating to fall to Baa3 or BBB- to finance a special acquisition or other
30
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'sCompany’s outstanding common stock from time to time over twelve months at prevailing market prices, through open market or privately-negotiated transactions. In February 2015, theThe Board of Directors authorized an additional $250 million of share purchases, without an expiration date.date in both February 2015 and again in October 2018. The purchases will beare 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 30, 2017,31, 2022, we have acquired approximately 4.66.6 million shares for approximately $617.8$918.6 million under thesethis share repurchase programs.
Sources of Financing
Our debt financing at December 30, 201731, 2022 consisted primarily of long‑term debt. During 2014, the Company issued $500 million of new notesdebt and repurchased by partial tender $199.8 million in aggregate principal amount of the 2020 notes.borrowings on our revolving credit facility. Our long‑term debt as of December 30, 2017,31, 2022, principally consistsconsisted of:
| ● | $450 million face value ($433.1 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 ($295.0 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. All threeBoth tranches of these notes are guaranteed by certain of our subsidiaries.
Our revolving credit facility with JP Morgan Chase Bank, N.A., as Administrative Agent, and the other lenders party thereto. thereto, has a maturity date of October 18, 2026.
The revolving credit facility provides for $600$800 million of committed unsecured revolving credit loans.loans with available borrowings thereunder to $400 million in foreign currencies. We may increase the credit facility by up to an additional $200$300 million at any time, subject to lenders increasing the amount of their commitments. OurThe Company and our wholly-owned subsidiaries, Valmont Industries Holland B.V. and Valmont Group Pty. Ltd., along with the Company, are authorized borrowers under the credit facility. The obligations arising under the revolving credit facility are guaranteed by the Company and its wholly-owned subsidiaries, PiRod,Valmont Telecommunications, Inc., Valmont Coatings, Inc., Valmont Newmark, Inc., and Valmont Queensland Pty. Ltd.
The interest rate on our borrowings will be, at our option, either:
| (a) |
| (b) | the higher of |
| ● | the prime lending rate, |
| ● | the overnight bank rate plus 50 basis points, and |
| ● | term SOFR (based on a one-month interest period) plus 100 basis points, |
plus, in each case, 0 to 62.5 basis points, depending on the credit rating of our senior, unsecured, long-term debt published by Standard & Poor'sPoor’s Rating Services and Moody'sMoody’s Investors Service, Inc.; or
31
| (c) | daily simple SOFR plus a 10 basis point adjustment plus a spread of 100 to 162.5 basis points, depending on the credit rating of the Company’s senior, unsecured, long-term debt published by Standard & Poor’s Rating Services and Mood’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, unsecured long-term debt published by Standard and Poor'sPoor’s Rating Services and Moody'sMoody’s Investor Services, Inc., on the average daily unused portion of the commitmentcommitments under the revolving credit facility.
As of December 30, 2017,31, 2022, we had no outstanding borrowings of $140.5 million under the revolving credit facility. The revolving credit facility has a maturity date of October 18, 20222026, and contains certaina financial covenantscovenant that may limit our additional borrowing capability under the agreement. AtAs of December 30, 2017,31, 2022, we had the ability to borrow $585.2$659.4 million under this facility, after consideration of standby letters of credit of $14.8$0.2 million associated with certain insurance obligations. We also maintain certain short‑term bank lines of credit totaling $113.4 million; $113.3$125.0 million, of which $119.2 million was unused atas of December 30, 2017.
Our senior, unsecured notes and revolving credit agreement each contain cross-default provisions which permit the acceleration of our indebtedness to them if we default on other indebtedness that results in, or permits, the acceleration of such other indebtedness.
The revolving credit facility requires maintenance of a financial leverage ratio, measured as of the last day of each of our fiscal quarters, of 3.50:1 or less. The leverage ratio is the ratio of: (a) interest-bearing debt agreements contain covenants that require usminus unrestricted cash in excess of $50 million (but not exceeding $500 million); 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.(b) adjusted EBITDA. The debt agreements also provide a modification of the definition of “EBITDA” to add-back any non-cash stock-based compensation in any trailing twelve month period and allow for an adjustment to EBITDA, subject to certain specified limitations, for non-cash charges or gains that are non-recurring in nature. For 2017, our covenant calculations do not include any estimated EBITDAThe leverage ratio is permitted to increase from acquired businesses.
The revolving credit agreement also contains customary affirmative and negative covenants or credit facilities of this type, including, among others, limitations on us and our subsidiaries with respect to indebtedness, liens, mergers and acquisitions, investments, dispositions of assets, restricted payments, transactions with affiliates and prepayments of indebtedness. The revolving credit agreement also provides for acceleration of the prior four quarters;obligations thereunder and
As of December 30, 2017,31, 2022, we were in compliance with all covenants related to these debt agreements. The key covenant calculations at December 30, 2017 were as follows:
| Interest-bearing debt | $ | 755,015 | |
| Adjusted EBITDA-last four quarters | 351,987 | ||
| Leverage ratio | 2.15 | ||
| Adjusted EBITDA-last four quarters | 351,987 | ||
| Interest expense-last four quarters | 44,645 | ||
| Interest earned ratio | 7.88 | ||
The calculation of Adjusted EBITDA-last four quarters is presented underand the columnleverage ratio are in Selected Financial Measures.
Cash Uses
Our principal cash requirements include working capital, capital expenditures, payments of principal and interest on our debt, payments of taxes, contributions to pension plan, and, if market conditions warrant, occasional investments in, or acquisitions of, business ventures. In addition, we regularly evaluate our ability to pay dividends or repurchase stock, all consistent with the terms of our debt agreements.
Cash requirements for fiscal 20172023 are expected to consist primarily of capital expenditures, Delta pension plan contributions, operating leases, and interest on outstanding debt. The Company also has unconditional purchase commitments that relate to purchase orders for zinc, aluminum, and steel, all of which we plan to use in footnote (b)2023. 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. Total capital expenditures for fiscal 2023 are expected to be approximately $105 to $125 million.
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The following table "Selected Five-Year Financial Data" in Item 6 - Selected Financial Data.
| | | | | | | | | |
| | | | | Next 12 | | | | |
Contractual Obligations |
| Total |
| months |
| Thereafter | |||
Long‑term debt | | $ | 899.1 | | $ | 1.2 | | $ | 897.9 |
Interest1 | |
| 1,070.3 | |
| 40.4 | |
| 1,029.9 |
Delta pension plan contributions | |
| 206.8 | |
| 16.0 | |
| 190.8 |
Operating leases | |
| 235.4 | |
| 23.2 | |
| 212.2 |
Total contractual cash obligations | | $ | 2,411.6 | | $ | 80.8 | | $ | 2,330.8 |
1 Interest expense amount assumes that long-term debt will be held to maturity.
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 2018year 2023 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.
Cash Flows
| | | | | | | | | | |
Dollars in thousands |
| | 2022 |
| 2021 |
| 2020 | |||
Cash flow data: | | | | | | | | | | |
Net cash flows from operating activities | | | $ | 326,265 | | $ | 65,938 | | $ | 316,294 |
Net cash flows from investing activities | | |
| (132,080) | |
| (417,308) | |
| (104,029) |
Net cash flows from financing activities | | |
| (181,905) | |
| 133,500 | |
| (173,756) |
Operating Cash Flows and Working Capital – Cash generated from operating activities totaled $326.3 million in 2022 compared with $65.9 million in 2021. Net working capital was $976.6 million as of December 31, 2022, as compared with $946.9 million as of December 25, 2021. The increase in net working capital in 2022 was attributed to the overall increase in net sales and the overallrelated impact on contract asset and receivables, partially offset by increases in accounts payable and other accrued expenses. Overall working capital was also affected by our use of cash to fund our capital spending and acquisition of ConcealFab as well as our various financing activities.
Investing Cash Flows – Cash used in investing activities totaled $132.1 million in 2022, compared to $417.3 million in 2021. Investing activities in 2022 included capital spending of $93.3 million and the Act may changeacquisition of a controlling ownership investment in ConcealFab for various reasons including, but not limited$39.3 million. In 2021, investing activities primarily included capital spending of $107.8 million and the acquisitions of two businesses within the Agriculture segment for $312.5 million.
Financing Cash Flows – Cash used in financing activities totaled $181.9 million in 2022, compared to changescash provided by financing activities of $133.5 million 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.
| Contractual Obligations | Total | 2018 | 2019-2020 | 2021-2022 | After 2022 | |||||||||||||||
| Long‑term debt | $ | 762.8 | $ | 1.0 | $ | 251.7 | $ | 1.4 | $ | 508.7 | ||||||||||
| Interest | 856.7 | 42.4 | 73.7 | 51.6 | 689.0 | |||||||||||||||
| Delta pension plan contributions | 136.4 | 1.5 | 30.0 | 30.0 | 74.9 | |||||||||||||||
| Operating leases | 99.9 | 21.6 | 31.5 | 19.5 | 27.3 | |||||||||||||||
| Unconditional purchase commitments | 62.4 | 62.4 | — | — | — | |||||||||||||||
| Total contractual cash obligations | $ | 1,918.2 | $ | 128.9 | $ | 386.9 | $ | 102.5 | $ | 1,299.9 | ||||||||||
During 2021, the Company had proceeds from long-term debt borrowings of $312.5 million, offset by payments on long-term debt of $91.3 million, dividends paid of $41.4 million, net payments on short-term agreements of $20.2 million, and the purchase of treasury shares of $26.1 million.
33
Guarantor Summarized Financial Information
We are providing the following information in compliance with Rule 3-10 and Rule 13-01 of Regulation S-X with respect to our two tranches of senior unsecured notes. At December 30, 2017, we had no outstanding borrowings under our bank revolving credit agreement. Obligations under these agreements may be accelerated in eventAll of non‑compliance with debt covenants. The Delta pension plan contributionsthe senior notes are relatedguaranteed, jointly, severally, fully, and unconditionally (subject to certain customary release provisions, including sale of the current cash funding commitments to the plan with the plan's trustees. The Company prepaid its 2018 contribution to the Delta pension plan in December 2017. Operating leases relate mainly to various production and office facilities and are in the normal coursesubsidiary guarantor, or sale of business.
The financial information of Issuer and Guarantors is presented on a combined basis with intercompany balances and transactions between Issuer and Guarantors eliminated. The Issuer’s or Guarantors’ amounts due from, amounts due to, useand transactions with non-guarantor subsidiaries are separately disclosed.
Combined financial information is as follows:
Supplemental Combined Parent and Guarantors Financial Information
For the three-year period ended December 31, 2022
| | | | | | | | | | |
|
| | | | | | | |||
Dollars in thousands |
| | 2022 |
| 2021 |
| 2020 | |||
Net sales | | | $ | 2,876,425 | | $ | 2,139,427 | | $ | 1,854,141 |
Gross Profit | | |
| 695,211 | |
| 574,128 | |
| 512,880 |
Operating income | | |
| 268,142 | |
| 208,041 | |
| 180,206 |
Net earnings | | |
| 167,114 | |
| 120,655 | |
| 106,404 |
Net earnings attributable to Valmont Industries, Inc. | | |
| 167,220 | |
| 120,458 | |
| 102,266 |
Supplemental Combined Parent and Guarantors Financial Information
December 31, 2022 and December 25, 2021
| | | | | | | |
Dollars in thousands |
| | 2022 |
| 2021 | ||
Current assets | | | $ | 769,263 | | $ | 801,797 |
Noncurrent assets | | |
| 925,088 | |
| 807,294 |
Current liabilities | | |
| 459,961 | |
| 383,394 |
Noncurrent liabilities | | |
| 1,189,548 | |
| 1,305,756 |
Noncontrolling interest in consolidated subsidiaries | | |
| 1,612 | |
| 1,844 |
Included in 2018,noncurrent assets is a due from non-guarantor subsidiaries receivable of $205,424 and certain capital investments planned$93,613 at December 31, 2022 and December 25, 2021. Included in noncurrent liabilities is a due to non-guarantor subsidiaries payable of $200,522 and $236,577 at December 31, 2022 and December 25, 2021.
34
Selected Financial Measures
We are including the following financial measures for 2018. We believe the quantities under contractCompany.
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 reasonablecalculated from our income statement and balance sheet. 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 normal fluctuationsthe amount of investment required to generate our operating profit. Return on Invested Capital is also a measurement used to determine management incentives.
| | | | | | | | | | | | |
Dollars in thousands |
| 2022 | | 2021 | | 2020 | ||||||
Operating income | | $ | 433,249 | | | $ | 286,785 | | | $ | 225,953 | |
Adjusted effective tax rate1 | |
| 27.7 | % | |
| 23.6 | % | |
| 24.2 | % |
Tax effect on operating income | |
| (119,872) | | |
| (67,681) | | |
| (54,681) | |
After-tax operating income | | $ | 313,377 | | | $ | 219,104 | | | $ | 171,272 | |
Average invested capital | | $ | 2,437,232 | | | $ | 2,176,577 | | | $ | 1,975,693 | |
Return on invested capital | |
| 12.9 | % | |
| 10.1 | % | |
| 8.7 | % |
| | | | | | | | | | | | |
Total assets | | $ | 3,556,996 | | | $ | 3,447,249 | | | $ | 2,953,160 | |
Less: Accounts payable | |
| (360,312) | | |
| (347,841) | | |
| (268,099) | |
Less: Accrued expenses | |
| (248,320) | | |
| (253,330) | | |
| (227,735) | |
Less: Income Tax Payable | |
| (3,664) | | |
| — | | |
| — | |
Less: Defined benefit pension asset | | | (24,216) | | | | — | | | | — | |
Less: Defined benefit pension liability | |
| — | | |
| (536) | | |
| (118,523) | |
Less: Deferred compensation | |
| (30,316) | | |
| (35,373) | | |
| (44,519) | |
Less: Other noncurrent liabilities | |
| (13,480) | | |
| (89,207) | | |
| (58,657) | |
Less: Dividends payable | |
| (11,742) | | |
| (10,616) | | |
| (9,556) | |
Less: Lease liability | |
| (155,469) | | |
| (147,759) | | |
| (80,202) | |
Less: Contract liability | |
| (172,915) | | |
| (135,746) | | |
| (130,018) | |
Less: Deferred tax liability | |
| (41,091) | | |
| (47,849) | | |
| (41,689) | |
Total Invested capital | | $ | 2,495,471 | | | $ | 2,378,992 | | | $ | 1,974,162 | |
Beginning of year invested capital | | $ | 2,378,992 | | | $ | 1,974,162 | | | $ | 1,977,223 | |
Average invested capital | | $ | 2,437,232 | | | $ | 2,176,577 | | | $ | 1,975,693 | |
1 The adjusted effective tax rate for 2022 excludes the effects of the $33,273 loss from the divestiture of the offshore wind energy structures business which is not deductible for income tax purposes. The effective tax rate including the loss on the divestiture is 29.9%. The adjusted effective tax rate for 2020 excludes the effects of the $12,575 goodwill impairment which is not deductible for income tax purposes. The effective tax rate in business levels2020 including the impairments is 25.7%.
Return on invested capital, as presented, may not be comparable to similarly titled measures of other companies.
35
Adjusted EBITDA. 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 expectdid not own the acquired businesses. The bank credit agreements also provide for an adjustment to use the commodities under contract during the contract period.
| | | | | | | | | | |
Dollars in thousands |
| | 2022 |
| 2021 |
| 2020 | |||
Net cash flows from operations | | | $ | 326,265 | | $ | 65,938 | | $ | 316,294 |
Interest expense | | |
| 47,534 | |
| 42,612 | |
| 41,075 |
Income tax expense | | |
| 108,687 | |
| 61,414 | |
| 49,615 |
Loss on investment | | | | — | | | — | | | (39) |
Impairment of long-lived assets | | |
| — | |
| (27,911) | |
| (20,389) |
Loss on divestiture of offshore wind energy structures business | | |
| (33,273) | |
| — | |
| — |
Deferred income tax (expense) benefit | | |
| 1,225 | |
| (71) | |
| 1,397 |
Noncontrolling interest | | |
| (3,388) | |
| (2,095) | |
| (1,456) |
Pension plan expense | | |
| 10,087 | |
| 14,567 | |
| 7,311 |
Contribution to pension plan | | |
| 17,155 | |
| 1,924 | |
| 35,399 |
Changes in assets and liabilities, net of acquisitions | | |
| 72,996 | |
| 264,558 | |
| (98,994) |
Other | | |
| (1,187) | |
| 17 | |
| (1,064) |
EBITDA | | |
| 546,101 | |
| 420,953 | |
| 329,149 |
Impairment of long-lived assets | | |
| — | |
| 27,911 | |
| 20,389 |
Loss on divestiture of offshore wind energy structures business | | |
| 33,273 | |
| — | |
| — |
Cash restructuring expenses | | | | — | | | — | | | 18,955 |
Adjusted EBITDA | | | $ | 579,374 | | $ | 448,864 | | $ | 368,493 |
| | | | | | | | | | |
|
| | 2022 |
| 2021 |
| 20201 | |||
Net earnings attributable to Valmont Industries, Inc. | | | $ | 250,863 | | $ | 195,630 | | $ | 140,693 |
Interest expense | | |
| 47,534 | |
| 42,612 | |
| 41,075 |
Income tax expense | | |
| 108,687 | |
| 61,414 | |
| 49,615 |
Stock based compensation | | |
| 41,850 | |
| 28,720 | |
| 14,874 |
Depreciation and amortization expense | | |
| 97,167 | |
| 92,577 | |
| 82,892 |
EBITDA | | |
| 546,101 | |
| 420,953 | |
| 329,149 |
Impairment of long-lived assets | | |
| — | |
| 27,911 | |
| 20,389 |
Loss on divestiture of offshore wind energy structures business | | |
| 33,273 | |
| — | |
| — |
Cash restructuring expenses | | | | — | | | — | | | 18,955 |
Adjusted EBITDA | | | $ | 579,374 | | $ | 448,864 | | $ | 368,493 |
1 Calculated in accordance with the terms of the credit facility as in effect on December 25, 2021.
EBITDA and Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other matters. These itemscompanies. In October 2021, our revolving credit facility was amended to allow the Company to add-back any non-cash stock-based compensation in any trailing twelve month period and allow for an adjustment to EBITDA, subject to certain limitations, for non-cash charges or gains that are non-recurring in nature.
36
Leverage Ratio. Leverage ratio is calculated as the sum of interest-bearing debt minus unrestricted cash in excess of $50 million (but not scheduled above because we are unable to make a reasonably reliable estimate as toexceeding $500 million); divided by Adjusted EBITDA. The leverage ratio is one of the timing of any potential payments.
The calculation of this ratio is as follows:
| | | | | | | | | | |
Dollars in thousands |
| | 2022 |
| 2021 |
| 20201 | |||
Interest-bearing debt | | | $ | 877,975 | | $ | 965,395 | | $ | 766,326 |
Less: Cash and cash equivalents in excess of $50 million | | |
| 135,406 | |
| 127,232 | |
| 350,726 |
Net indebtedness | | |
| 742,569 | |
| 838,163 | |
| 415,600 |
Adjusted EBITDA | | |
| 579,374 | |
| 448,864 | |
| 368,493 |
Leverage Ratio | | |
| 1.28 | |
| 1.87 | |
| 1.13 |
Leverage ratio, as presented, may not be comparable to similarly titled measures of other companies.
1 Calculated in accordance with the endterms of the lease contracts. We also maintain standby letters of credit for contract performancefacility as in effect 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 segmentTD&S product line 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 segmentin this product line by approximately $66$95 million for the year ended December 30, 2017.
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 natural gas. We normally do not usecommodity prices. At times, we utilize derivative financial instruments to hedge these exposures, (except as described below), norbut we do wenot use derivatives for trading purposes.
Interest Rates—Our interest‑bearing debt at December 30, 201731, 2022 was mostlyprimarily fixed rate debt.debt and borrowings on our revolving credit facility. Our notes payable, revolving credit facility, 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 20172022 and 20162021 by approximately $0.1 million.$0.8 million and $0.4 million, respectively. 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 2017 and 2016 by approximately $0.4$0.2 million in both 2022 and $0.3 million, respectively.2021.
37
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, and current balance sheet positions, and foreign subsidiary investments that are in currencies other than the functional currencies of our operations.businesses. At December 30, 2017,31, 2022, the Company had two open foreignone outstanding fixed-for-fixed cross currency
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.
| 2017 | 2016 | ||||||
| (in millions) | |||||||
| Australian dollar | $ | 25.5 | $ | 20.4 | |||
| Chinese renminbi | 14.0 | 12.3 | |||||
| Danish krone | 9.2 | 10.9 | |||||
| U.K. pound | 9.5 | 9.6 | |||||
| Euro | 10.7 | 5.4 | |||||
| Canadian dollar | 5.7 | 5.9 | |||||
| Brazilian real | 3.1 | 3.4 | |||||
| | | | | | |
|
| 2022 |
| 2021 | ||
|
| (in millions) | ||||
Australian dollar | | $ | 4.3 | | $ | 11.6 |
Euro | |
| 8.6 | |
| 8.6 |
Danish krone | |
| — | |
| 2.4 |
Chinese renminbi | |
| 6.0 | |
| 6.2 |
Canadian dollar | |
| 3.8 | |
| 3.6 |
U.K. pound | |
| 17.5 | |
| 16.8 |
Brazilian real | |
| 11.8 | |
| 4.5 |
Commodity risk—Steel hot rolled coil is a significant commodity input used by each of our segments in the manufacture of our products, with the exception of the Coatings product line. Steel prices are volatile and we may utilize derivative instruments to mitigate commodity price risk on fixed price orders. In 2021 and 2022, 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. As of December 31, 2022, we had open forward contracts with a notional amount of $9.8 million for the total purchase of 10,300 short tons from January 2023 to March 2023.
Natural gas is a significant commodity used in our factories, especially in our Coatings segmentproduct line 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%0 to 75% of our U.S. natural gas requirements for the upcoming 6-126 to 18 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. AtAs of December 30, 2017,31, 2022, we have open natural gas swaps with a notional value of $7.0 million for 80,0001,230,000 MMBtu.
CRITICAL ACCOUNTING POLICIES
The following accounting policies involve judgments and estimates used in preparation of the consolidated financial statements.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 provisions for bad debts, warranties, contingencies, impairments of long-lived assets, income taxes, revenue recognition for the product lines recognized over time, inventory obsolescence, and inventory obsolescence.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
38
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, right-of-use (lease) assets, and 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. In 2015, we determined that our galvanizing operation in Melbourne Australia would not generate sufficient cash flows on an undiscounted cash flow basis to recover its carrying value. We had the fixed assets valued by an appraisal firm and recognized anA pre-tax $27.9 million impairment of approximately $4.1 million. Other impairment losses were recordedthe long-lived assets (customer relationship intangible asset, trade name, and property, plant, and equipment) was recognized in 2015 as facilities were closed and future plans for certain fixed assets changed in connection with 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 assessFor twelve of the reporting units, we estimate the value of ourthe 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)("discounted cash flows"). 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. As allowed for under current accounting standards,For our solar tracking structure reporting unit, we rely on our previous valuationsproject meaningful annual revenue growth for the foreseeable future due to strong market conditions. Therefore, we valued this reporting unit using a blend of both the discounted cash flows and a market approach. The market valuation approach estimates the value for this reporting unit using a multiple of earnings before interest, taxes, depreciation, and amortization (“EBITDA”). We analyze EBITDA multiples for other industrial companies with similar product lines in determining what to use in the model. The key assumption in the market approach analysis is the selection of industrial companies with similar product lines and forecasted EBITDA.
For both the 2022 and 2021 annual impairment testing provided that the following criteria for each reporting unit are met: (1) the assets and liabilities that make up the reporting unit have not changed significantly since the most recent fair value determination and (2) the most recent fair value determination resulted in an amount that exceeded the carrying amount of the reporting unit by a substantial margin.
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.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
We performed our evaluation purposes, the royalty rates used vary between 0.5% and 1.5%annual impairment test of sales and the after-tax discount rate of 13.0% to 16.0%, which we estimate to be the after-tax cost of capital for such assets.
Inventories
Inventories are valued at the lower of cost, determined on a first-in, first-out basis, or net realizable value. We write down slow-moving and a $1.1 million impairmentobsolete inventory by the difference between the value of the Industrial Galvanizing trade name.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.
39
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 30, 2017,31, 2022, we had approximately $54.5$67.2 million in deferred tax assets relating to tax credits and loss carryforwards, with a valuation allowance of $27.9$43.4 million, including $2.4$7.1 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. For example,Also, we recorded a full $9.9 million valuation allowance against a tax credit asset in fiscal 2016 as we determined it is not more likely than not these credits will be utilized before they expire.
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. |
The discount rate used to measure the defined benefit obligation was 2.55%4.80% at December 30, 2017.31, 2022. The following tables present the key assumptions used to measurein the measurement of the pension expensebenefit for 20182023 and the estimated impact on 2018 pension expense relative to a change in those assumptions:
| | | |
Assumptions | Pension | ||
Discount rate | 4.80 | % | |
Expected return on plan assets | 4.85 | % | |
Inflation - CPI | 2.35 | % | |
Inflation - RPI | 3.25 | % | |
40
| | | |
|
| Decrease | |
| | in Pension | |
Assumptions In Millions of Dollars | | Benefit | |
0.25% increase in discount rate | | $ | 0.4 |
0.25% decrease in expected return on plan assets | | $ | 1.3 |
0.25% increase in inflation | | $ | 1.0 |
Revenue Recognition
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.
The following provides additional information about our contracts with transmission, distribution, and substation structures (“TD&S”) and certain telecommunication structures customers, where the revenue recognition is 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 telecommunication monopole contracts: TD&S and telecommunication 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 also have certain telecommunication 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. The recently divested offshore wind energy structures business also recognized revenue 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 TD&S customer orders in a fiscal year that require one to three 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 wind energy structures business prior to its divestiture in 2022, we updated 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 2022, 2021, and 2020, there were no changes to inputs or estimates which resulted in adjustments to revenue for production that occurred prior to the beginning of the year. 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.
41
| Assumptions In Millions of Dollars | Increase in Pension Expense | ||
| 0.25% decrease in discount rate | $ | — | |
| 0.25% decrease in expected return on plan assets | $ | 1.5 | |
| 0.25% increase in inflation | $ | 1.2 | |
The information required is included under the captioned paragraph, “MARKET RISK” on page 3634 of this report.
42
The following consolidated financial statements of the Company and its subsidiaries are included herein as listed below:
43
To the Shareholdersshareholders 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 30, 201731, 2022 and December 31, 2016,25, 2021, the related consolidated statements of earnings, comprehensive income, cash flows, and shareholders’ equity, for each of the three fiscal years in the three-year period ended December 30, 2017,31, 2022, 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 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 201731, 2022 and December 31, 2016,25, 2021, and the results of its operations and its cash flows for each of the three fiscal years in the three-year period ended December 30, 2017,31, 2022, 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 30, 2017,31, 2022, based on the criteria established in
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill — Refer to Notes 1 and 8 to the consolidated financial statements
Critical Audit Matter Description
The Company has goodwill, which is allocated among thirteen reporting units. The Company evaluates its thirteen reporting units for goodwill impairment during the third fiscal quarter of each year, or when events or changes in circumstances indicate the carrying value may not be recoverable. Twelve reporting units are evaluated using after-tax cash flows from operations (less capital expenses) discounted to present value (“discounted cash flows”). The solar tracking structure reporting unit was valued using a blend of both the discounted cash flows and a market approach. The market valuation
44
approach estimates the value for this reporting unit using a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA). The EBITDA multiples are analyzed against other industrial companies with similar product lines. These valuation methods require management to make significant estimates and assumptions related to projected cash flows, selection of industrial companies with similar product lines and forecasted EBITDA, and discount rates.
We identified goodwill for certain reporting units as a critical audit matter because of the significant estimates and assumptions made by management to estimate fair value and the difference between the fair values and the carrying values of certain reporting units as of August 27, 2022. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to certain assumptions within the projected cash flows, selection of industrial companies with similar product lines and forecasted EBITDA, and discount rates.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the goodwill impairment assessment for certain reporting units included the following, among others:
| 1. | We tested the effectiveness of internal controls over management’s goodwill impairment evaluation, including those over the projected cash flows, selection of industrial companies with similar product lines and forecasted EBITDA, and discount rates. |
| 2. | We evaluated management’s ability to accurately forecast cash flows by comparing actual results to management’s historical forecasts. |
| 3. | We evaluated the reasonableness of management’s projected cash flows by comparing to (1) historical results, (2) internal communications to management and the Board of Directors, (3) industry reports and (4) information included in Company press releases to analysts and investors. |
| 4. | With the assistance of our fair value specialists, we evaluated the discount rates, by testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management. |
| 5. | With the assistance of our fair value specialists, we evaluated the selection of industrial companies with similar product lines and forecasted EBITDA and tested the underlying source information and mathematical accuracy of the calculations. |
/s/ DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 1, 2023
We have served as the Company'sCompany’s auditor since 1996.
45
Valmont Industries, Inc. and Subsidiaries
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
| 2017 | 2016 | 2015 | |||||||||
| Product sales | $ | 2,447,219 | $ | 2,255,860 | $ | 2,338,132 | |||||
| Services sales | 298,748 | 265,816 | 280,792 | ||||||||
| Net sales | 2,745,967 | 2,521,676 | 2,618,924 | ||||||||
| Product cost of sales | 1,860,087 | 1,682,355 | 1,804,055 | ||||||||
| Services cost of sales | 204,112 | 183,078 | 193,836 | ||||||||
| Total cost of sales | 2,064,199 | 1,865,433 | 1,997,891 | ||||||||
| Gross profit | 681,768 | 656,243 | 621,033 | ||||||||
| Selling, general and administrative expenses | 415,336 | 412,739 | 447,368 | ||||||||
| Impairment of goodwill and intangible assets | — | — | 41,970 | ||||||||
| Operating income | 266,432 | 243,504 | 131,695 | ||||||||
| Other income (expenses): | |||||||||||
| Interest expense | (44,645 | ) | (44,409 | ) | (44,621 | ) | |||||
| Interest income | 4,737 | 3,105 | 3,296 | ||||||||
| Other | 1,940 | 18,254 | 2,637 | ||||||||
| (37,968 | ) | (23,050 | ) | (38,688 | ) | ||||||
| Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries | 228,464 | 220,454 | 93,007 | ||||||||
| Income tax expense (benefit): | |||||||||||
| Current | 66,390 | 65,748 | 42,569 | ||||||||
| Deferred | 39,755 | (23,685 | ) | 4,858 | |||||||
| 106,145 | 42,063 | 47,427 | |||||||||
| Earnings before equity in earnings of nonconsolidated subsidiaries | 122,319 | 178,391 | 45,580 | ||||||||
| Equity in earnings of nonconsolidated subsidiaries | — | — | (247 | ) | |||||||
| Net earnings | 122,319 | 178,391 | 45,333 | ||||||||
| Less: Earnings attributable to noncontrolling interests | (6,079 | ) | (5,159 | ) | (5,216 | ) | |||||
| Net earnings attributable to Valmont Industries, Inc. | $ | 116,240 | $ | 173,232 | $ | 40,117 | |||||
| Earnings per share: | |||||||||||
| Basic | $ | 5.16 | $ | 7.68 | $ | 1.72 | |||||
| Diluted | $ | 5.11 | $ | 7.63 | $ | 1.71 | |||||
| Cash dividends declared per share | $ | 1.500 | $ | 1.500 | $ | 1.500 | |||||
| | | | | | | | | |
| | 2022 |
| 2021 |
| 2020 | |||
Product sales | | $ | 3,955,320 | | $ | 3,159,605 | | $ | 2,594,855 |
Services sales | |
| 389,930 | |
| 341,970 | |
| 300,500 |
Net sales | |
| 4,345,250 | |
| 3,501,575 | |
| 2,895,355 |
Product cost of sales | |
| 2,958,208 | |
| 2,395,630 | |
| 1,936,024 |
Services cost of sales | |
| 260,818 | |
| 222,056 | |
| 193,817 |
Total cost of sales | |
| 3,219,026 | |
| 2,617,686 | |
| 2,129,841 |
Gross profit | |
| 1,126,224 | |
| 883,889 | |
| 765,514 |
Selling, general, and administrative expenses | |
| 692,975 | |
| 590,608 | |
| 522,923 |
Impairment of goodwill and intangible assets | |
| — | |
| 6,496 | |
| 16,638 |
Operating income | |
| 433,249 | |
| 286,785 | |
| 225,953 |
Other income (expenses): | |
| | |
| | | | |
Interest expense | |
| (47,534) | |
| (42,612) | |
| (41,075) |
Interest income | |
| 2,015 | |
| 1,192 | |
| 2,374 |
Gain (loss) on investments - unrealized | |
| (3,374) | |
| 1,920 | |
| 2,443 |
Loss from divestiture of offshore wind energy structures business | | | (33,273) | | | — | | | — |
Other | |
| 12,805 | |
| 12,798 | |
| 3,073 |
| |
| (69,361) | |
| (26,702) | |
| (33,185) |
Earnings before income taxes | |
| 363,888 | |
| 260,083 | |
| 192,768 |
Income tax expense: | |
|
| |
|
| |
|
|
Current | |
| 109,912 | |
| 61,343 | |
| 51,012 |
Deferred | |
| (1,225) | |
| 71 | |
| (1,397) |
| |
| 108,687 | |
| 61,414 | |
| 49,615 |
Earnings before equity in earnings of nonconsolidated subsidiaries | |
| 255,201 | |
| 198,669 | |
| 143,153 |
Equity in loss of nonconsolidated subsidiaries | | | (950) | | | (944) | | | (1,004) |
Net earnings | |
| 254,251 | |
| 197,725 | |
| 142,149 |
Less: Earnings attributable to noncontrolling interests | |
| (3,388) | |
| (2,095) | |
| (1,456) |
Net earnings attributable to Valmont Industries, Inc. | | $ | 250,863 | | $ | 195,630 | | $ | 140,693 |
Earnings per share: | |
|
| |
|
| |
|
|
Basic | | $ | 11.77 | | $ | 9.23 | | $ | 6.60 |
Diluted | | $ | 11.62 | | $ | 9.10 | | $ | 6.57 |
See accompanying notes to consolidated financial statements.
46
Valmont Industries, Inc. and Subsidiaries
Three-year period ended December 30, 2017
(Dollars in thousands)
| 2017 | 2016 | 2015 | |||||||||
| Net earnings | $ | 122,319 | $ | 178,391 | $ | 45,333 | |||||
| Other comprehensive income (loss), net of tax: | |||||||||||
| Foreign currency translation adjustments: | |||||||||||
| Unrealized translation gains (losses) | 79,279 | (58,315 | ) | (96,694 | ) | ||||||
| Gain/(loss) on hedging activities: | |||||||||||
| Unrealized gain (loss) on net investment hedge, net of tax expense (benefit) of ($880) in 2017 and $2,646 in 2016 | (1,695 | ) | 4,226 | — | |||||||
| Amortization cost included in interest expense | 74 | 74 | 74 | ||||||||
| Realized (gain) loss included in net earnings | — | — | (3,130 | ) | |||||||
| Unrealized gain (loss) on cash flow hedges | — | — | 2,855 | ||||||||
| (1,621 | ) | 4,300 | (201 | ) | |||||||
| Actuarial (loss) on defined benefit pension plan, net of tax expense (benefit) of ($501) in 2017, ($25,778) in 2016, and ($10,732) in 2015 | (10,871 | ) | (24,141 | ) | (40,274 | ) | |||||
| Other comprehensive income (loss) | 66,787 | (78,156 | ) | (137,169 | ) | ||||||
| Comprehensive income (loss) | 189,106 | 100,235 | (91,836 | ) | |||||||
| Comprehensive loss (income) attributable to noncontrolling interests | (5,529 | ) | (6,144 | ) | (832 | ) | |||||
| Comprehensive income (loss) attributable to Valmont Industries, Inc. | $ | 183,577 | $ | 94,091 | $ | (92,668 | ) | ||||
| | | | | | | | | |
| | 2022 |
| 2021 |
| 2020 | |||
Net earnings | | $ | 254,251 | | $ | 197,725 | | $ | 142,149 |
Other comprehensive income (loss), net of tax: | |
|
| |
|
| |
|
|
Foreign currency translation adjustments: | |
|
| |
|
| |
|
|
Unrealized translation gains (losses) | | | (44,741) | | | (31,405) | | | 21,483 |
Realized loss on offshore wind energy structures business recorded in other expense | | | 25,977 | | | — | | | — |
| | $ | (18,764) | | $ | (31,405) | | $ | 21,483 |
Gain (loss) on hedging activities: | |
| | | | | | | |
Commodity hedges | |
| (2,352) | |
| 20,019 | |
| — |
Realized (gain) loss on commodity hedges recorded in earnings | |
| 5,212 | |
| (25,821) | |
| — |
Unrealized gain (loss) on cross currency swaps | | | 5,146 | | | 6,093 | | | (5,751) |
Unrealized gain on net investment hedges, net of tax expense of $2,428 in 2020 | | | — | | | — | | | 7,289 |
Realized (gain) on offshore wind energy structures business cross currency swap, net of tax expense of $1,207 in 2022 | | | (3,620) | | | — | | | — |
Cash flow hedges | |
| — | |
| — | |
| 1,598 |
Realized gain on cash flow hedges recorded in earnings | | | — | | | — | | | (1,598) |
Amortization cost included in interest expense | |
| (64) | |
| (64) | |
| (64) |
| | | 4,322 | | | 227 | | | 1,474 |
Net gain (loss) on defined benefit pension plan, net of tax expense (benefit) of $(606) in 2022, $25,736 in 2021, $(4,183) in 2020 | |
| 1,345 | |
| 76,718 | |
| (17,349) |
Other comprehensive income (loss) | |
| (13,097) | |
| 45,540 | |
| 5,608 |
Comprehensive income | |
| 241,154 | |
| 243,265 | |
| 147,757 |
Comprehensive income attributable to noncontrolling interests | |
| (2,073) | |
| (976) | |
| (3,428) |
Comprehensive income attributable to Valmont Industries, Inc. | | $ | 239,081 | | $ | 242,289 | | $ | 144,329 |
See accompanying notes to consolidated financial statements.
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Valmont Industries, Inc. and Subsidiaries
December 30, 201731, 2022 and December 31, 2016
(Dollars in thousands, except shares and per share amounts)
| 2017 | 2016 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 492,805 | $ | 399,948 | |||
| Receivables, less allowance of $9,396 in 2017 and $10,250 in 2016 | 503,677 | 439,342 | |||||
| Inventories | 420,948 | 350,028 | |||||
| Prepaid expenses, restricted cash, and other assets | 43,643 | 57,297 | |||||
| Refundable income taxes | 11,492 | 6,601 | |||||
| Total current assets | 1,472,565 | 1,253,216 | |||||
| Property, plant and equipment, at cost | 1,165,687 | 1,105,736 | |||||
| Less accumulated depreciation and amortization | 646,759 | 587,401 | |||||
| Net property, plant and equipment | 518,928 | 518,335 | |||||
| Goodwill | 337,720 | 321,110 | |||||
| Other intangible assets, net | 138,599 | 144,378 | |||||
| Other assets, less allowance for doubtful receivables of $417 in 2017 and $8,741 in 2016 | 134,438 | 154,692 | |||||
| Total assets | $ | 2,602,250 | $ | 2,391,731 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
| Current liabilities: | |||||||
| Current installments of long-term debt | $ | 966 | $ | 851 | |||
| Notes payable to banks | 161 | 746 | |||||
| Accounts payable | 227,906 | 177,488 | |||||
| Accrued employee compensation and benefits | 84,426 | 72,404 | |||||
| Accrued expenses | 81,029 | 89,914 | |||||
| Dividends payable | 8,510 | 8,445 | |||||
| Total current liabilities | 402,998 | 349,848 | |||||
| Deferred income taxes | 34,906 | 35,803 | |||||
| Long-term debt, excluding current installments | 753,888 | 754,795 | |||||
| Defined benefit pension liability | 189,552 | 209,470 | |||||
| Deferred compensation | 48,526 | 44,319 | |||||
| Other noncurrent liabilities | 20,585 | 14,910 | |||||
| Shareholders’ equity: | |||||||
| Preferred stock of $1 par value - | |||||||
| Authorized 500,000 shares; none issued | — | — | |||||
| Common stock of $1 par value - | |||||||
| Authorized 75,000,000 shares; 27,900,000 issued | 27,900 | 27,900 | |||||
| Additional paid-in capital | — | — | |||||
| Retained earnings | 1,954,344 | 1,874,722 | |||||
| Accumulated other comprehensive income (loss) | (279,022 | ) | (346,359 | ) | |||
| Cost of treasury stock, common shares of 5,206,474 in 2017 and 5,379,106 in 2016 | (590,386 | ) | (612,781 | ) | |||
| Total Valmont Industries, Inc. shareholders’ equity | 1,112,836 | 943,482 | |||||
| Noncontrolling interest in consolidated subsidiaries | 38,959 | 39,104 | |||||
| Total shareholders’ equity | 1,151,795 | 982,586 | |||||
| Total liabilities and shareholders’ equity | $ | 2,602,250 | $ | 2,391,731 | |||
| | | | | | |
|
| 2022 |
| 2021 | ||
ASSETS | | | | | | |
Current assets: | | |
|
| |
|
Cash and cash equivalents | | $ | 185,406 | | $ | 177,232 |
Receivables, less allowance of $20,890 in 2022 and $18,050 in 2021 | |
| 604,181 | |
| 571,593 |
Inventories | |
| 728,762 | |
| 728,834 |
Contract assets | |
| 174,539 | |
| 142,643 |
Prepaid expenses and other assets | |
| 87,697 | |
| 83,646 |
Refundable income taxes | |
| — | |
| 8,815 |
Total current assets | |
| 1,780,585 | |
| 1,712,763 |
Property, plant, and equipment, at cost | |
| 1,433,151 | |
| 1,422,101 |
Less accumulated depreciation and amortization | |
| 837,573 | |
| 823,496 |
Net property, plant and equipment | |
| 595,578 | |
| 598,605 |
Goodwill | |
| 739,861 | |
| 708,566 |
Other intangible assets, net | |
| 176,615 | |
| 175,364 |
Defined pension benefit asset | | | 24,216 | |
| — |
Other assets | |
| 240,141 | |
| 251,951 |
Total assets | | $ | 3,556,996 | | $ | 3,447,249 |
| | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | |
| |
Current liabilities: | |
|
| |
|
|
Current installments of long-term debt | | $ | 1,194 | | $ | 4,884 |
Notes payable to banks | |
| 5,846 | |
| 13,439 |
Accounts payable | |
| 360,312 | |
| 347,841 |
Accrued employee compensation and benefits | |
| 124,355 | |
| 144,559 |
Contract liabilities | |
| 172,915 | |
| 135,746 |
Other accrued expenses | |
| 123,965 | |
| 108,771 |
Income taxes payable | | | 3,664 | | | — |
Dividends payable | |
| 11,742 | |
| 10,616 |
Total current liabilities | |
| 803,993 | |
| 765,856 |
Deferred income taxes | |
| 41,091 | |
| 47,849 |
Long-term debt, excluding current installments | |
| 870,935 | |
| 947,072 |
Operating lease liabilities | |
| 155,469 | |
| 147,759 |
Deferred compensation | |
| 30,316 | |
| 35,373 |
Other noncurrent liabilities | |
| 13,480 | |
| 89,743 |
Shareholders’ equity: | |
|
| |
|
|
Common stock of $1 par value - | |
| | |
| |
Authorized 75,000,000 shares; 27,900,000 issued | |
| 27,900 | |
| 27,900 |
Additional paid-in capital | |
| — | |
| 1,479 |
Retained earnings | |
| 2,593,039 | |
| 2,394,307 |
Accumulated other comprehensive loss | |
| (274,909) | |
| (263,127) |
Cost of treasury stock, common shares of 6,549,833 in 2022 and 6,619,860 in 2021 | |
| (765,183) | |
| (773,712) |
Total Valmont Industries, Inc. shareholders’ equity | |
| 1,580,847 | |
| 1,386,847 |
Noncontrolling interest in consolidated subsidiaries | |
| 60,865 | |
| 26,750 |
Total shareholders’ equity | | | 1,641,712 | | | 1,413,597 |
Total liabilities and shareholders’ equity | | $ | 3,556,996 | | $ | 3,447,249 |
See accompanying notes to consolidated financial statements.
48
Valmont Industries, Inc. and Subsidiaries
Three-year period ended December 30, 201731, 2022 (Dollars in thousands)
| 2017 | 2016 | 2015 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ | 122,319 | $ | 178,391 | $ | 45,333 | |||||
| Adjustments to reconcile net earnings to net cash flows from operations: | |||||||||||
| Depreciation and amortization | 84,957 | 82,417 | 91,144 | ||||||||
| Noncash loss on trading securities | 237 | 586 | 4,555 | ||||||||
| Contribution to defined benefit pension plan | (40,245 | ) | (1,488 | ) | (16,500 | ) | |||||
| (Increase) decrease in restricted cash - pension plan trust | 12,568 | (13,652 | ) | — | |||||||
| Impairment of property, plant and equipment | — | 1,099 | 19,836 | ||||||||
| Impairment of goodwill & intangible assets | — | — | 41,970 | ||||||||
| Stock-based compensation | 10,706 | 9,931 | 7,244 | ||||||||
| Change in fair value of contingent consideration | — | (3,242 | ) | — | |||||||
| Defined benefit pension plan expense (benefit) | 648 | 1,870 | (610 | ) | |||||||
| (Gain) loss on sale of property, plant and equipment | (3,924 | ) | 631 | 2,327 | |||||||
| Equity in earnings in nonconsolidated subsidiaries | — | — | 247 | ||||||||
| Deferred income taxes | 39,755 | (23,685 | ) | 4,858 | |||||||
| Changes in assets and liabilities (net of acquisitions): | |||||||||||
| Receivables | (49,112 | ) | 24,622 | 50,267 | |||||||
| Inventories | (57,442 | ) | (11,461 | ) | 3,296 | ||||||
| Prepaid expenses | (6,038 | ) | 1,138 | 10,844 | |||||||
| Accounts payable | 39,405 | 104 | (6,805 | ) | |||||||
| Accrued expenses | (1,998 | ) | (12,207 | ) | 8,918 | ||||||
| Other noncurrent liabilities | (7,228 | ) | (23,880 | ) | (1,764 | ) | |||||
| Income taxes payable (refundable) | 1,108 | 7,994 | 7,107 | ||||||||
| Net cash flows from operating activities | 145,716 | 219,168 | 272,267 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of property, plant and equipment | (55,266 | ) | (57,920 | ) | (45,468 | ) | |||||
| Proceeds from sale of assets | 8,185 | 5,126 | 3,249 | ||||||||
| Acquisitions, net of cash acquired | (5,362 | ) | — | (12,778 | ) | ||||||
| Proceeds from settlement of net investment hedge | 5,123 | — | — | ||||||||
| Other, net | (2,295 | ) | (255 | ) | 6,826 | ||||||
| Net cash flows used in investing activities | (49,615 | ) | (53,049 | ) | (48,171 | ) | |||||
| Cash flows from financing activities: | |||||||||||
| Payments under short-term agreements | (585 | ) | (200 | ) | (12,853 | ) | |||||
| Proceeds from long-term borrowings | — | — | 68,000 | ||||||||
| Principal payments on long-term borrowings | (887 | ) | (2,006 | ) | (69,098 | ) | |||||
| Dividends paid | (33,862 | ) | (34,053 | ) | (35,357 | ) | |||||
| Dividends to noncontrolling interest | (5,674 | ) | (2,938 | ) | (2,634 | ) | |||||
| Purchase of noncontrolling interest | — | (11,009 | ) | — | |||||||
| Proceeds from exercises under stock plans | 35,159 | 11,153 | 13,075 | ||||||||
| Excess tax benefits from stock option exercises | — | — | 1,699 | ||||||||
| Purchase of treasury shares | — | (53,800 | ) | (168,983 | ) | ||||||
| Purchase of common treasury shares—stock plan exercises | (26,161 | ) | (2,305 | ) | (13,854 | ) | |||||
| Net cash flows used in financing activities | (32,010 | ) | (95,158 | ) | (220,005 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents | 28,766 | (20,087 | ) | (26,596 | ) | ||||||
| Net change in cash and cash equivalents | 92,857 | 50,874 | (22,505 | ) | |||||||
| Cash and cash equivalents—beginning of year | 399,948 | 349,074 | 371,579 | ||||||||
| Cash and cash equivalents—end of period | $ | 492,805 | $ | 399,948 | $ | 349,074 | |||||
| | | | | | | | | |
| | 2022 |
| 2021 |
| 2020 | |||
Cash flows from operating activities: | | |
|
| |
|
| |
|
Net earnings | | $ | 254,251 | | $ | 197,725 | | $ | 142,149 |
Adjustments to reconcile net earnings to net cash flows from operations: | |
|
| |
|
| |
|
|
Depreciation and amortization | |
| 97,167 | |
| 92,577 | |
| 82,892 |
Noncash loss on trading securities | |
| — | |
| — | |
| 39 |
Contribution to defined benefit pension plan | |
| (17,155) | |
| (1,924) | |
| (35,399) |
Impairment of long-lived assets | |
| — | |
| 27,911 | |
| 20,389 |
Loss on sale of offshore wind energy structures business | | | 33,273 | |
| — | |
| — |
Stock-based compensation | |
| 41,850 | |
| 28,720 | |
| 14,874 |
Defined benefit pension plan benefit | |
| (10,087) | |
| (14,567) | |
| (7,311) |
Loss (gain) on sale of property, plant and equipment | |
| 237 | |
| (961) | |
| 60 |
Equity in loss in nonconsolidated subsidiaries | |
| 950 | |
| 944 | |
| 1,004 |
Deferred income taxes | |
| (1,225) | |
| 71 | |
| (1,397) |
Changes in assets and liabilities: | |
|
| |
| | | | |
Receivables | |
| (74,163) | |
| (69,275) | |
| (24,403) |
Inventories | |
| (3,429) | |
| (289,942) | |
| (21,888) |
Prepaid expenses and other assets (current and non-current) | |
| 26,625 | |
| (36,066) | |
| (10,633) |
Contract assets | |
| (53,008) | |
| (21,579) | |
| 19,835 |
Accounts payable | |
| 36,990 | |
| 89,418 | |
| 33,044 |
Accrued expenses | |
| 624 | |
| 30,556 | |
| 52,548 |
Contract liabilities | |
| (567) | |
| 6,589 | |
| 12,072 |
Other noncurrent liabilities | |
| (16,904) | |
| 20,181 | |
| 46,712 |
Income taxes payable / refundable | |
| 10,836 | |
| 5,560 | |
| (8,293) |
Net cash flows from operating activities | |
| 326,265 | |
| 65,938 | |
| 316,294 |
Cash flows from investing activities: | | | | | | | | | |
Purchase of property, plant, and equipment | |
| (93,288) | |
| (107,790) | |
| (106,700) |
Proceeds from sale of assets | |
| 1,582 | |
| 1,745 | |
| 10,860 |
Acquisitions, net of cash acquired | |
| (39,287) | |
| (312,500) | |
| (15,862) |
Proceeds from settlement of net investment hedge | |
| — | |
| — | |
| 11,983 |
Investments in nonconsolidated subsidiaries | |
| — | |
| — | |
| (1,283) |
Other, net | | | (1,087) | |
| 1,237 | |
| (3,027) |
Net cash flows from investing activities | |
| (132,080) | |
| (417,308) | |
| (104,029) |
Cash flows from financing activities: | |
|
| |
|
| |
|
|
Proceeds from short-term borrowings | |
| 9,665 | |
| 5,821 | |
| 20,990 |
Payments on short-term borrowings | |
| (17,242) | |
| (26,062) | |
| (7,946) |
Proceeds from long-term borrowings | |
| 253,999 | |
| 312,485 | |
| 88,872 |
Principal payments on long-term borrowings | |
| (336,403) | |
| (91,313) | |
| (121,665) |
Proceeds from settlement of financial derivatives | |
| 3,532 | |
| — | |
| — |
Debt issuance costs | |
| — | |
| (2,267) | |
| — |
Dividends paid | |
| (45,813) | |
| (41,412) | |
| (36,930) |
Dividends to noncontrolling interest | |
| (714) | |
| — | |
| (5,642) |
Purchase of noncontrolling interests | |
| (7,338) | |
| — | |
| (59,416) |
Purchase of treasury shares | |
| (40,474) | |
| (26,100) | |
| (56,491) |
Proceeds from exercises under stock plans | |
| 16,849 | |
| 23,895 | |
| 18,961 |
Purchase of common treasury shares—stock plan exercises | |
| (17,966) | |
| (21,547) | |
| (14,489) |
Net cash flows from financing activities | |
| (181,905) | |
| 133,500 | |
| (173,756) |
Effect of exchange rate changes on cash and cash equivalents | |
| (4,106) | |
| (5,624) | |
| 8,675 |
Net change in cash and cash equivalents | |
| 8,174 | |
| (223,494) | |
| 47,184 |
Cash and cash equivalents—beginning of year | |
| 177,232 | |
| 400,726 | |
| 353,542 |
Cash and cash equivalents—end of period | | $ | 185,406 | | $ | 177,232 | | $ | 400,726 |
See accompanying notes to consolidated financial statements.
49
Valmont Industries, Inc. and Subsidiaries
Three-year period ended December 30, 2017
(Dollars in thousands, except shares and per share amounts)
| Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive income (loss) | Treasury stock | Noncontrolling interest in consolidated subsidiaries | Total shareholders’ equity | |||||||||||||||||||||
| Balance at December 27, 2014 | $ | 27,900 | $ | — | $ | 1,718,662 | $ | (134,433 | ) | $ | (410,296 | ) | $ | 48,572 | $ | 1,250,405 | |||||||||||
| Net earnings | — | — | 40,117 | — | — | 5,216 | 45,333 | ||||||||||||||||||||
| Other comprehensive loss | — | — | — | (132,785 | ) | — | (4,384 | ) | (137,169 | ) | |||||||||||||||||
| Cash dividends declared ($1.50 per share) | — | — | (34,816 | ) | — | — | — | (34,816 | ) | ||||||||||||||||||
| Dividends to noncontrolling interests | — | — | — | — | — | (2,634 | ) | (2,634 | ) | ||||||||||||||||||
| Purchase of treasury shares; 1,435,488 shares acquired | — | — | — | — | (168,983 | ) | — | (168,983 | ) | ||||||||||||||||||
| Stock plan exercises; 112,995 shares acquired | — | — | — | — | (13,854 | ) | — | (13,854 | ) | ||||||||||||||||||
| Stock options exercised; 169,493 shares issued | — | (12,895 | ) | 5,716 | — | 20,254 | — | 13,075 | |||||||||||||||||||
| Tax benefit from stock option exercises | — | 1,699 | — | — | — | — | 1,699 | ||||||||||||||||||||
| Stock option expense | — | 5,137 | — | — | — | — | 5,137 | ||||||||||||||||||||
| Stock awards; 10,329 shares issued | — | 6,059 | — | — | 959 | — | 7,018 | ||||||||||||||||||||
| Balance at December 26, 2015 | 27,900 | — | 1,729,679 | (267,218 | ) | (571,920 | ) | 46,770 | 965,211 | ||||||||||||||||||
| Net earnings | — | — | 173,232 | — | — | 5,159 | 178,391 | ||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | (79,141 | ) | — | 985 | (78,156 | ) | ||||||||||||||||||
| Cash dividends declared ($1.50 per share) | — | — | (33,921 | ) | — | — | — | (33,921 | ) | ||||||||||||||||||
| Dividends to noncontrolling interests | — | — | — | — | — | (2,938 | ) | (2,938 | ) | ||||||||||||||||||
| Purchase of noncontrolling interest | — | (137 | ) | — | — | — | (10,872 | ) | (11,009 | ) | |||||||||||||||||
| Purchase of treasury shares; 441,494 shares acquired | — | — | — | — | (53,800 | ) | — | (53,800 | ) | ||||||||||||||||||
| Stock plan exercises; 16,777 shares acquired | — | — | — | — | (2,305 | ) | — | (2,305 | ) | ||||||||||||||||||
| Stock options exercised; 109,893 shares issued | — | (7,614 | ) | 5,732 | — | 13,035 | — | 11,153 | |||||||||||||||||||
| Tax benefit from stock option exercises | — | — | — | — | — | — | — | ||||||||||||||||||||
| Stock option expense | — | 5,782 | — | — | — | — | 5,782 | ||||||||||||||||||||
| Stock awards; 15,700 shares issued | — | 1,969 | — | — | 2,209 | — | 4,178 | ||||||||||||||||||||
| Balance at December 31, 2016 | 27,900 | — | 1,874,722 | (346,359 | ) | (612,781 | ) | 39,104 | 982,586 | ||||||||||||||||||
| Net earnings | — | — | 116,240 | — | — | 6,079 | 122,319 | ||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | 67,337 | — | (550 | ) | 66,787 | |||||||||||||||||||
| Cash dividends declared ($1.50 per share) | — | — | (33,927 | ) | — | — | — | (33,927 | ) | ||||||||||||||||||
| Dividends to noncontrolling interests | — | — | — | — | — | (5,674 | ) | (5,674 | ) | ||||||||||||||||||
| Stock plan exercises; 154,437 shares acquired | — | — | — | — | (26,161 | ) | — | (26,161 | ) | ||||||||||||||||||
| Stock options exercised; 284,574 shares issued | — | (4,666 | ) | (2,691 | ) | — | 42,516 | — | 35,159 | ||||||||||||||||||
| Stock option expense | — | 5,137 | — | — | — | — | 5,137 | ||||||||||||||||||||
| Stock awards; 42,846 shares issued | — | (471 | ) | — | — | 6,040 | — | 5,569 | |||||||||||||||||||
| Balance at December 30, 2017 | $ | 27,900 | $ | — | $ | 1,954,344 | $ | (279,022 | ) | $ | (590,386 | ) | $ | 38,959 | $ | 1,151,795 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| Accumulated |
| | |
| Noncontrolling |
| | | ||
| | | | | Additional | | | | | other | | | | | interest in | | Total | ||||
| | Common | | paid-in | | Retained | | comprehensive | | Treasury | | consolidated | | shareholders’ | |||||||
| | stock | | capital | | earnings | | income (loss) | | stock | | subsidiaries | | equity | |||||||
Balance at December 28, 2019 | | $ | 27,900 | | $ | — | | $ | 2,173,802 | | $ | (313,422) | | $ | (743,942) | | $ | 45,407 | | $ | 1,189,745 |
Net earnings | |
| — | |
| — | |
| 140,693 | |
| — | |
| — | |
| 1,456 | |
| 142,149 |
Other comprehensive income (loss) | |
| — | |
| — | |
| — | |
| 3,636 | |
| — | |
| 1,972 | |
| 5,608 |
Cash dividends declared ($1.80 per share) | |
| — | |
| — | |
| (38,393) | |
| — | |
| — | |
| — | |
| (38,393) |
Dividends to noncontrolling interests | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (5,642) | |
| (5,642) |
Purchase of noncontrolling interest | |
| — | |
| — | |
| (31,067) | |
| — | |
| — | |
| (22,544) | |
| (53,611) |
Addition of noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | 5,125 | | | 5,125 |
Purchase of treasury shares; 441,119 shares acquired | |
| — | |
| — | |
| — | |
| — | |
| (56,491) | |
| — | |
| (56,491) |
Stock plan exercises, 88,411 shares acquired | |
| — | |
| — | |
| — | |
| — | |
| (14,489) | |
| — | |
| (14,489) |
Stock options exercised; 147,014 shares issued | |
| — | |
| (6,335) | |
| — | |
| — | |
| 25,296 | |
| — | |
| 18,961 |
Stock option expense | |
| — | |
| 2,628 | |
| — | |
| — | |
| — | |
| — | |
| 2,628 |
Stock awards; 65,248 shares issued | |
| — | |
| 4,042 | |
| — | |
| — | |
| 8,204 | |
| — | |
| 12,246 |
Balance at December 26, 2020 | |
| 27,900 | |
| 335 | |
| 2,245,035 | |
| (309,786) | |
| (781,422) | |
| 25,774 | |
| 1,207,836 |
Net earnings | |
| — | |
| — | |
| 195,630 | |
| — | |
| — | |
| 2,095 | |
| 197,725 |
Other comprehensive income (loss) | |
| — | |
| — | |
| — | |
| 46,659 | |
| — | |
| (1,119) | |
| 45,540 |
Cash dividends declared ($2.00 per share) | |
| — | |
| — | |
| (42,472) | |
| — | |
| — | |
| — | |
| (42,472) |
Purchase of treasury shares; 111,833 shares acquired | |
| — | |
| — | |
| — | |
| — | |
| (26,100) | |
| — | |
| (26,100) |
Stock plan exercises; 90,292 shares acquired | |
| — | |
| — | |
| — | |
| — | |
| (21,547) | |
| — | |
| (21,547) |
Stock options exercised; 169,908 shares issued | |
| — | |
| (15,357) | |
| (3,886) | |
| — | |
| 43,138 | |
| — | |
| 23,895 |
Stock option expense | |
| — | |
| 2,538 | |
| — | |
| — | |
| — | |
| — | |
| 2,538 |
Stock awards; 88,395 shares issued | |
| — | |
| 13,963 | |
| — | |
| — | |
| 12,219 | |
| — | |
| 26,182 |
Balance at December 25, 2021 | |
| 27,900 | |
| 1,479 | |
| 2,394,307 | |
| (263,127) | |
| (773,712) | |
| 26,750 | |
| 1,413,597 |
Net earnings | |
| — | |
| — | |
| 250,863 | |
| — | |
| — | |
| 3,388 | |
| 254,251 |
Other comprehensive loss | |
| — | |
| — | |
| — | |
| (11,782) | |
| — | |
| (1,315) | |
| (13,097) |
Cash dividends declared ($2.20 per share) | |
| — | |
| — | |
| (46,939) | |
| — | |
| — | |
| — | |
| (46,939) |
Dividends to noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | (714) | | | (714) |
Addition of noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | 41,693 | | | 41,693 |
Reduction of noncontrolling interest | | | — | | | 1,599 | | | — | | | — | | | — | | | (8,937) | | | (7,338) |
Purchase of treasury shares; 137,612 shares acquired | |
| — | |
| — | |
| — | |
| — | |
| (40,474) | |
| — | |
| (40,474) |
Stock plan exercises; 60,599 shares acquired | |
| — | |
| — | |
| — | |
| — | |
| (17,966) | |
| — | |
| (17,966) |
Stock options exercised; 121,163 shares issued | |
| — | |
| (17,754) | |
| (5,192) | |
| — | |
| 39,795 | |
| — | |
| 16,849 |
Stock option expense | |
| — | |
| 3,120 | |
| — | |
| — | |
| — | |
| — | |
| 3,120 |
Stock awards; 147,075 shares issued | |
| — | |
| 11,556 | |
| — | |
| — | |
| 27,174 | |
| — | |
| 38,730 |
Balance at December 31, 2022 | | $ | 27,900 | | $ | — | | $ | 2,593,039 | | $ | (274,909) | | $ | (765,183) | | $ | 60,865 | | $ | 1,641,712 |
See accompanying notes to consolidated financial statements.
50
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Valmont Industries, Inc. and its wholly and majority‑owned subsidiaries (the Company)“Company”). The investment in Delta EMD Pty. Ltd ("EMD") is recorded at fair value subsequent to its deconsolidation in 2013. Investments in other 20% to 50% owned affiliates and joint ventures are accounted for by the equity method. Investments in less than 20% owned affiliates are accounted for by the cost method. All intercompany items have been eliminated.
Cash overdrafts
Cash book overdrafts totaling $21,537$25,075 and $18,734$19,670 were classified as accounts payable at December 30, 201731, 2022 and December 31, 2016,25, 2021, respectively. The Company’s policy is to report the change in book overdrafts as an operating activity in the Consolidated Statements of Cash Flows.
Change in Reportable Segments
During the first quarter of 2022, the Company’s Chief Executive Officer, as the chief operating decision maker, made changes to the Company’s management structure and began to manage the business, allocate resources, and evaluate performance under the new structure. As a result, the Company has realigned its reportable segment structure. All prior period segment information has been recast to reflect this change in reportable segments. Refer to Note 21 for additional information.
The Company has fourtwo reportable segments based on its management structure. Each segment is global in nature with a manager responsible for segment operational performance and allocation of capital within the segment. Reportable segments are as follows:
INFRASTRUCTURE: This segment consists of the manufacture and distribution of engineeredproducts and solutions to serve the infrastructure markets of utility, renewable energy, lighting, transportation, and telecommunications, and coatings services to preserve metal and composite structures and components for lighting and traffic, access systems, wireless communication, and roadway safety;
AGRICULTURE: This segment consists of the manufacture of engineered steelcenter pivot components and concrete structures for the utility industry, including on and offshore and other complex steel structures used in the energy generation or distribution industry outside the United States;
In addition to these fourtwo reportable segments, there are other businessesthe Company had a business and related activities that individually arewas not more than 10% of consolidated sales, operating income, or assets. This includes the manufacture of forged steel grinding media for the mining industryoffshore wind energy structures business and is reported in the "Other" category.
Fiscal Year
The Company operates on a 52 or 53 week fiscal year with each year ending on the last Saturday in December. Accordingly, the Company’s fiscal year ended December 30, 2017 consisted of 52 weeks. The Company's fiscal year ended December 31, 20162022 consisted of 53 weeks and the Company’s fiscal yearyears ended December 25, 2021 and December 26, 20152020 consisted of 52 weeks. The estimated impact on the company'sCompany's results of operations due to the extra week in fiscal 2016year 2022 was additional net sales of approximately $50,000$80,800 and additional net earnings of approximately $3,000.
Accounts Receivable
Accounts receivable are reported on the balance sheet net of any allowance for doubtful accounts. Allowances are maintained in amounts considered to be appropriate in relation to the outstanding receivables based on age of the receivable,
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Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
markets has also increased. These exposures can be difficult to estimate, particularly in areas of political instability, or with governments with which the Company has limited experience, or where there is a lack of transparency as to the current credit condition of governmental units.
52
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
The Company’sfollowing table details the balances of the allowance for doubtful receivables and changes therein:
| | | | | | | | | | | | | | | |
|
| Balance at |
| Charged to |
| Currency |
| Deductions |
| Balance at | |||||
| | Beginning of | | Profit and | | Translation | | from | | Close of | |||||
For periods ended: | | Period | | Loss | | Adjustment | | Reserves | | Period | |||||
December 31, 2022 | | $ | 18,050 | | $ | 4,237 | | $ | (522) | | $ | (875) | | $ | 20,890 |
December 25, 2021 | |
| 15,952 | |
| 3,379 | |
| (339) | |
| (942) | |
| 18,050 |
December 26, 2020 | |
| 9,548 | |
| 7,957 | |
| 260 | |
| (1,813) | |
| 15,952 |
The Company sells trade accounts relatedreceivable at a discount under uncommitted trade accounts receivable sale programs to both currentthird party financial institutions without recourse. As these accounts receivable are sold without recourse, the Company does not retain the associated risks following the transfer of such accounts receivable to the financial institutions.
Transfers of accounts receivable are accounted for as sales and, long-termaccordingly, accounts receivables was $9,813 at December 30, 2017.
At December 30, 201731, 2022 and December 31, 2016,25, 2021, the Company sold trade accounts receivable of $100.0 million and $25.4 million, respectively. All other inventoryThe fees associated with trade accounts receivables sold are immaterial.
Inventories
Inventory is valued at the lower of cost, determined on the first-in, first-out (FIFO)(“FIFO”) method, or market.net realizable value. Finished goods and manufactured goods inventories include the costs of acquired raw materials and related factory labor and overhead charges required to convert raw materials to manufactured and finished goods. The excess of replacement cost of inventories over the LIFO value is approximately $43,727 and $38,047 at December 30, 2017 and December 31, 2016, respectively.
Long-Lived Assets
Property, plant, and equipment are recorded at historical cost. The Company generally uses the straight-line method in computing depreciation and amortization for financial reporting purposes and accelerated methods for income tax
purposes. The annual provisions for depreciation and amortization have been computed principally in accordance with the following ranges of asset lives: buildings and improvements 15 to 40 years, machinery and equipment 3 to 12 years, transportation equipment 3 to 24 years, office furniture and equipment 3 to 7 years, and intangible assets 5 to 20 years. Depreciation expense in fiscalAn impairment loss is recognized if the carrying amount of an asset may not be recoverable and exceeds estimated future undiscounted cash flows of the asset. A recognized impairment loss reduces the carrying amount of the asset to its estimated fair value. The Company recognized a $4,151pre-tax $27,900 impairment of the Melbourne galvanizing site'slong-lived assets (property, plant, and equipment, customer relationship intangible asset, and trade name) in 2015 as the Company2021 when it determined that our galvanizing operation in Melbourne, Australiaits offshore wind energy business reporting unit would not generate sufficient cash flows on an undiscounted cash flow basis to recover itsthe carrying value. Othervalues. An impairment test was required in November 2021 when the Company received clarifying information on the competitive environment of this reporting unit in Europe. Impairment losses were recorded in 2016 and 20152020 as facilities were closed and future plans for certain fixed assets changed in connection with the Company'sCompany’s restructuring plans.
53
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
The Company evaluates its reporting units for impairment of goodwill during the third fiscal quarter of each year, or when events or changes in circumstances indicate the carrying value may not be recoverable. Reporting units are evaluated using after-tax operating cash flows (less capital expenditures) discounted to present value.value (“discounted cash flows”). For the solar tracking reporting unit, the Company valued this reporting unit using a blend of the discounted cash flows and multiple of earnings before interest, taxes, depreciation, and amortization (“EBITDA”) approach. Indefinite‑lived intangible assets are assessed separately from goodwill as part of the annual impairment testing, using a relief-from-royalty method. If the underlying assumptions related to the valuation of a reporting unit’s goodwill or an indefinite‑lived intangible asset change materially before or after the annual impairment testing, the reporting unit or asset is evaluated for potential impairment. In these evaluations, management considers recent operating performance, expected future performance, industry conditions, and other indicators of potential impairment. Please seeSee footnote 78 for details of impairments recognized during 2015.2021.
54
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
Leases
The Company's operating leases are included in “Other assets” and “Operating lease liabilities” in the Consolidated Balance Sheets.
Income Taxes
The Company uses the asset and liability method to calculate deferred income taxes. Deferred tax assets and liabilities are recognized on temporary differences between financial statement and tax bases of assets and liabilities using enacted tax rates. The effect of tax rate changes on deferred tax assets and liabilities is recognized in income during the period that includes the enactment date.
Warranties
The Company'sCompany’s provision for product warranty reflects management'smanagement’s best estimate of probable liability under its product warranties. Estimated future warranty costs are recorded at the time a sale is recognized. Future warranty liability is determined based on applying historical claim rate experience to units sold that are still within the warranty period. In addition, the Company records provisions for known warranty claims.
Pension Benefits
Certain expenses are incurred in connection with a defined benefit pension plan. 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.
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.
Fair Value
The Company applies the provisions of Accounting Standards Codification 820, Fair Value Measurement (“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.
Derivative Instrument
The Company may enter into derivative financial instruments to manage risk associated with fluctuation in interest rates, foreign currency rates, or commodities. Where applicable, the Company may elect to account for such derivatives as either a cash flow, fair value, or net investment hedge.
55
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
Comprehensive income (loss) includes net income,earnings, currency translation adjustments, certain derivative-related activity, and changes in net actuarial gains/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. The components of accumulated other comprehensive income (loss) consisted of the following:
| Foreign Currency Translation Adjustments | Gain on Hedging Activities | Defined Benefit Pension Plan | Accumulated Other Comprehensive Income (Loss) | ||||||||||||
| Balance at December 31, 2016 | $ | (251,228 | ) | $ | 7,978 | $ | (103,109 | ) | $ | (346,359 | ) | ||||
| Current-period comprehensive income (loss) | 79,829 | (1,621 | ) | (10,871 | ) | 67,337 | |||||||||
| Balance at December 30, 2017 | $ | (171,399 | ) | $ | 6,357 | $ | (113,980 | ) | $ | (279,022 | ) | ||||
| | | | | | | | | | | | |
|
| Foreign |
| | |
| | |
| Accumulated | ||
| | Currency | | | | Defined | | Other | ||||
| | Translation | | Hedging | | Benefit | | Comprehensive | ||||
| | Adjustments | | Activities | | Pension Plan | | Income (Loss) | ||||
Balance at December 25, 2021 | | $ | (243,350) | | $ | 15,777 | | $ | (35,554) | | $ | (263,127) |
Current period comprehensive income (loss) | |
| (43,426) | |
| 7,942 | |
| 1,345 | |
| (34,139) |
Divestiture of offshore wind energy structures business | | | 25,977 | | | (3,620) | | | — | | | 22,357 |
Balance at December 31, 2022 | | $ | (260,799) | | $ | 20,099 | | $ | (34,209) | | $ | (274,909) |
Revenue Recognition
The Company determines the appropriate revenue recognition for 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 ended December 30, 2017
Customer acceptance provisions exist onlyprimarily in the design stage of our products. Acceptanceproducts (on a limited basis, the Company may agree to other acceptance terms), and acceptance of the design by the customer is required before the productproject 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 anythis service as a separate performance obligation and, therefore, no revenue associatedis recognized with the design stage. No general rights of return exist for customers once the product has been delivered. 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 costs 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 transmission, distribution, and substation structures ("TD&S") product line, the renewable energy product line, and the telecommunication structures product line, the Company’s inventory is interchangeable for a variety of each segment’s customers. The Company has elected 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 does 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’s contract assets as of December 31, 2022 and December 25, 2021 totaled $174,539 and $142,643, respectively.
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Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
While most of the Infrastructure segment customers are generally invoiced upon shipment or delivery of the goods to the customer’s specified location, certain customers are also invoiced by advanced billings or progress billings. At December 31, 2022 and December 25, 2021, total contract liabilities were $178,531 and $213,203, respectively. At December 31, 2022, $172,915 was recorded as contract liabilities and $5,616 was recorded as other noncurrent liabilities on the consolidated balance sheets. Additional details are as follows:
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Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
| ● | During the fiscal year ended December 31, 2022 and December 25, 2021, the Company recognized $96,373 and $105,406 of revenue that was included in the total contract liability as of December 25, 2021 and December 26, 2020, respectively. The revenue recognized was due to applying advance payments received for performance obligations completed during the period. |
| ● | At December 31, 2022, the Company had $11,080 of remaining performance obligations on contracts with an original expected duration of one year or more and expects to complete the remaining performance obligations on these contracts within the next 12 to 24 months. |
Segment and Product Line Revenue Recognition
Infrastructure Segment
Steel and concrete utility structures within the TD&S product lines 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 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 the TD&S and telecommunication structure product lines, the Company generally recognizes 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. Sales discountssold, and rebates are estimatedgross profit. Production of an order, once started, is typically completed within three months. Depending on the product sold, revenue from renewable energy is recognized both upon shipment or delivery of goods to the customer depending on contract terms, or by using an inputs method, based on past experiencethe ratio of costs incurred to-date to the total estimated costs at completion of the performance obligation. External sales agents are used in certain TD&S sales and the Company has chosen to expense estimated commissions owed to third parties by recognizing them proportionately as the goods are recordedmanufactured.
For the structures sold for lighting and transportation and for the majority of telecommunication products, 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. There are also large regional customers who have unique product specifications for telecommunication 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 reductionpercent of net salestotal estimated hours to complete production.
The Coatings product line 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.
Agriculture Segment
Revenue recognition from the manufacture of irrigation equipment and related parts and services (including tubular products for industrial customers) 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 recognized as part of technology services product line are primarily billed annually and revenue is recognized on a straight-line basis over the subsequent twelve months (contract terms).
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Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
Disaggregation of revenue by product line is disclosed in the period“Business Segments” footnote. A breakdown by segment of revenue recognized over time and revenue recognized at a point in whichtime for the salefiscal years ended December 31, 2022 and December 25, 2021 is recognized. Service revenues predominantly consist of coatings services provided by our Coatings segment to its customers. Revenue from the offshore and other complex steel structures products is recognized using the percentage-of-completion method, based primarily on contract cost incurred to date compared to total estimated contract cost.
| | | | | | | | | | | | | | | | | | |
| | Fiscal Year 2022 | | Fiscal Year 2021 | | Fiscal Year 2020 | ||||||||||||
| | Point in | | Over | | Point in | | Over | | Point in | | Over | ||||||
|
| Time |
| Time |
| Time |
| Time |
| Time |
| Time | ||||||
Infrastructure | | $ | 1,687,458 | | $ | 1,222,288 | | $ | 1,388,297 | | $ | 973,227 | | $ | 1,296,497 | | $ | 838,703 |
Agriculture | |
| 1,307,681 | |
| 27,604 | |
| 996,278 | |
| 20,772 | |
| 624,831 | |
| 15,261 |
Other | | | — | | | 100,219 | | | — | | | 123,001 | | | — | | | 120,063 |
Total | | $ | 2,995,139 | | $ | 1,350,111 | | $ | 2,384,575 | | $ | 1,117,000 | | $ | 1,921,328 | | $ | 974,027 |
Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the reported amounts of revenue and expenses, and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
Equity Method Investments
The Company has equity method investments in non-consolidated subsidiaries which are recorded within "Other assets"“Other assets” on the Consolidated Balance Sheet.
Treasury Stock
Repurchased shares are recorded as “Treasury Stock”“Cost of treasury stock” and result in a reduction of “Shareholders’ Equity.equity.” When treasury shares are reissued, the Company uses the last-in, first-out method, and the difference between the repurchase cost and re-issuance price is charged or credited to “Additional Paid-In Capital.”
In May 2014, the Company announced a capital allocation philosophy which covered a share repurchase program. Specifically, the Board of Directors at that time authorized the purchase of up to $500,000 of the Company'sCompany’s outstanding common stock from time to time over twelve months at prevailing market prices, through open market or privately-negotiated transactions. In February 2015 and again in October 2018, the Board of Directors authorized an additional purchase of up to $250,000 of the Company'sCompany’s outstanding common stock with no stated expiration date. As of December 30, 2017,31, 2022, the Company has acquired 4,588,1316,613,018 shares for approximately $617,800$918,600 under this share repurchase program.
Research and Development
Research and development costs are charged to operations in the year incurred. These costs are a component of “Selling, general, and administrative expenses” on the Consolidated Statements of Earnings. Research and development expenses were approximately $11,600$46,000 in 2017, $8,3002022, $37,000 in 2016,2021, and $11,600$21,400 in 2015.2020.
59
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
Recently IssuedAdopted Accounting Pronouncements
In May 2014,March 2020, the Financial Accounting Standards Board ("FASB")(FASB) issued Accounting Standards Update ("ASU") 2014-09,
60
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Pronouncements (Not Yet Adopted)
In March 2017,September 2022, the FASB issued ASU 2017-07,
(2) ACQUISITIONS
Acquisitions of Businesses
On June 1, 2022, the Company acquired approximately 51% of ConcealFab for $39,287 in cash (net of cash acquired) and subject to working capital adjustments. Approximately $1,850 of the purchase price is contingent on seller representations and warranties that will be settled within 18 months of the acquisition date. ConcealFab is located in Colorado Springs, Colorado, and its operations are reported in the Infrastructure segment. The acquisition was made to allow the Company to incorporate innovative 5G infrastructure and passive intermodulation mitigation solutions into the Company’s advanced infrastructure portfolio. Goodwill is not deductible for tax purposes. The amount allocated to goodwill was primarily attributable to anticipated synergies and other intangibles that do not qualify for separate recognition. The Company expects to finalize the purchase price allocation early in the first quarter of 2023.
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed of ConcealFab as of the date of acquisition:
61
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
| | | |
|
| As of June 1, | |
| | 2022 | |
Current assets | | $ | 21,133 |
Customer relationships | |
| 26,200 |
Trade name | |
| 5,000 |
Property, plant & equipment | |
| 3,813 |
Other assets | |
| 9,108 |
Goodwill | |
| 42,465 |
Total fair value of assets acquired | | $ | 107,719 |
Current liabilities | |
| 6,658 |
Long-term debt | |
| 2,038 |
Operating lease liabilities | |
| 7,812 |
Deferred taxes | |
| 5,464 |
Other noncurrent liabilities | |
| 12 |
Total fair value of liabilities assumed | | $ | 21,984 |
Non-controlling interest in consolidated subsidiaries | |
| 41,693 |
Net assets acquired | | $ | 44,042 |
On May 12, 2021, the FASB issued ASU 2017-12, Targeted ImprovementsCompany acquired the outstanding shares of Prospera Technologies, Ltd. ("Prospera"), an artificial intelligence company focused on machine learning and computer vision in agriculture, for $300,000 in cash (net of cash acquired). The acquisition of Prospera, located in Tel Aviv, Israel, was made to Accountingallow the Company to accelerate innovation with machine learning for Hedging Activities, which improvesagronomy and is reported in the financial reportingAgriculture segment. Goodwill is not deductible for tax purposes, the trade name will be amortized over seven years, and the developed technology asset will be amortized over five years. The amount allocated to goodwill was primarily attributable to anticipated synergies and other intangibles that do not qualify for separate recognition. The Company finalized the purchase price allocation in the fourth quarter of hedging relationships through changes2021.
(2) ACQUISITIONS – CONTINUED
The following table summarizes the fair values of the assets acquired and liabilities assumed of Prospera as of the date of acquisition:
| | | |
|
| As of May 12, | |
| | 2021 | |
Current assets | | $ | 647 |
Developed technology | |
| 32,900 |
Trade name | |
| 2,850 |
Property, plant & equipment | |
| 1,063 |
Goodwill | |
| 273,453 |
Total fair value of assets acquired | | $ | 310,913 |
Current liabilities | |
| 2,690 |
Deferred taxes | |
| 8,223 |
Total fair value of liabilities assumed | | $ | 10,913 |
Net assets acquired | | $ | 300,000 |
62
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
On April 20, 2021 the Company acquired the assets of PivoTrac for $12,500 in cash. The agreed upon purchase price was $14,000, with $1,500 being held back for seller representations and warranties. The acquisition of PivoTrac, located in Texas, was made to bothallow the designationCompany to advance its technology strategy and measurement guidanceincrease its number of connected agricultural devices and is reported in the Agriculture segment. The fair values assigned were $10,800 for qualifying hedginggoodwill, $2,627 for customer relationships, and the presentation of hedge results. ASU 2017-12remainder is effectivenet working capital. Goodwill is not deductible for periodstax purposes and fiscal years beginning after December 15, 2018. Early adoption is permittedthe customer relationship will be amortized over eight years. The amount allocated to goodwill was primarily attributable to anticipated synergies and other intangibles that do not qualify for any interim period post issuance.separate recognition. The Company does not believefinalized the adoptionpurchase price allocation in the second quarter of this ASU will have a material impact2022.
On May 29, 2020, the Company acquired 55% of Energia Solar do Brasil ("Solbras") for $4,308. Approximately $646 of the purchase price was contingent on the consolidated financial statements.
On March 6, 2020, the Company acquired 75% of KC Utility Packaging, LLC for $4,200. Approximately $400 of the purchase price was contingent on seller representations and warranties and was settled for the full amount in the first quarter of 2021. The Company name was subsequently changed to Valmont Substations, LLC. The acquisition was made to expand the Company’s utility substation product offering. In the purchase price allocation, goodwill of $1,100, customer relationships of $4,000, and other intangibles of $500 were recorded. The Company finalized the purchase price allocation in the fourth quarter of 2020.
Proforma disclosures were omitted for these acquisitions as this business doesthey do not have a significant impact on the Company'sCompany’s financial results.
Acquisition-related costs incurred for the Company purchased American Galvanizingabove acquisitions were insignificant for $12,778 in cash, net of cash acquired, plus assumed liabilities. American Galvanizing operates a custom galvanizing operation in New Jersey with annual sales of approximately $8,000. In the purchase price allocation, goodwill of $3,019 and $2,178 of customer relationships, trade name and other intangible assets were recorded. Goodwill is not deductible for tax purposes. This business is included in the Coatings segment and was acquired to expand the Company's geographic presence in the Northeast United States. The purchase price allocation was finalized in the first quarter of 2016. Proforma disclosures were omitted as this business did not have a significant impact on the Company's 2015 or 2016 financial results.
Acquisitions of Noncontrolling Interests
In April 2016,August 2022, the Company acquired the remaining 30%9% of IGC Galvanizing Industries (M) Sdn Bhd that it did not ownConvert Italia S.p.A. for $5,841. In June 2016,$3,046. As this transaction was for the Company acquired 5.2%acquisition of the remaining 10% of Valmont SM that it did not own for $5,168. As these transactions were for acquisitions of part or all of the remaining shares of consolidated subsidiariessubsidiary with no change in control, they wereit was recorded within shareholders'shareholders’ equity and as a financing cash flow in the Consolidated Statements of Cash Flows.
In May 2022, the Company acquired the remaining 20% of Valmont West Coast Engineering, Ltd. for $4,292. As this transaction was for the acquisition of all of the remaining shares of consolidated subsidiary with no change in control, it was recorded within shareholders’ equity and as a financing cash flow in the Consolidated Statements of Cash Flows.
(2) ACQUISITIONS – CONTINUED
In February 2020, the Company acquired the remaining 49% of AgSense that it did not own for $43,983, which includes a holdback payment of $2,200 that was made in the second quarter of 2020. The accounting for owning 100% of AgSense resulted in the recognition of a deferred tax asset of approximately $7,700.
In December 2020, the Company acquired the remaining 40% of Torrent Engineering and Equipment that it did not own for $3,500. In the first quarter of 2020, the Company acquired 16% of the remaining 25% that it did not own of Convert Italia S.p.A. for a cash payment of $11,750. The purchase agreement also settled the escrow funds which the Company had paid at date of acquisition.
63
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
On November 30, 2022, the Company identifiedcompleted the sale of Valmont SM, the offshore wind energy structures business in Denmark, reported in the Other segment. The business was sold because it did not align with the long-term strategic plans for the Company. The offshore wind energy structures business’ historical annual sales, operating profit, and net assets are not significant for discontinued operations presentation.
The offshore wind energy structures business had operating income of $2,259 for the year ended December 31, 2022, and an operating loss of $40,192 (inclusive of a restructuring plan (the "2016 Plan")$27,900 impairment of long-lived assets) for the year ended December 25, 2021. The Company received Danish Krone 90,000 (U.S. $12,570) at closing with an additional Danish Krone 28,000 (U.S. $4,027) held in Australia/New Zealand focused primarilyan escrow account subject to normal closing conditions before it will be released to the Company.
The assets and liabilities of the offshore wind energy structures business at closing on closing and consolidating locations within the ESS and Coatings segments. In the fourth quarter of 2016, the Company decided to close a structures facilityNovember 30, 2022 were as follows:
| | | |
Cash and cash equivalents | | $ | 12,420 |
Receivables, net | | | 35,407 |
Inventories | |
| 1,144 |
Contract assets | | | 19,127 |
Prepaid expenses and other assets | | | 1,852 |
Net property, plant, and equipment | |
| 12,915 |
Intangible assets | | | 5,579 |
Other assets | | | 1,103 |
Total assets | | $ | 89,547 |
| | | |
Accounts payable | | $ | 23,611 |
Contract liabilities | | | 34,814 |
Accrued expenses | | | 4,737 |
Deferred income taxes | | | 1,375 |
Total liabilities | | $ | 64,537 |
| | | |
Net assets | | $ | 25,010 |
The pre-tax loss from divestiture is reported in Canada. The 2016 Plan was mostly completed by the end of fiscal 2016. During the last six months of fiscal 2016, the Company recorded the following pre-tax expenses from the 2016 Plan:
| Coatings | ESS | Other/ Corporate | TOTAL | |||||||||||||
| Severance | $ | 69 | $ | 1,620 | $ | — | $ | 1,689 | ||||||||
| Other cash restructuring expenses | — | 2,257 | — | 2,257 | ||||||||||||
| Asset impairments/net loss on disposals | — | 1,099 | — | 1,099 | ||||||||||||
| Total cost of sales | 69 | 4,976 | — | 5,045 | ||||||||||||
| Severance | 236 | 349 | — | 585 | ||||||||||||
| Other cash restructuring expenses | — | 1,961 | 234 | 2,195 | ||||||||||||
| Total selling, general and administrative expenses | 236 | 2,310 | 234 | 2,780 | ||||||||||||
| Consolidated total | $ | 305 | $ | 7,286 | $ | 234 | $ | 7,825 | ||||||||
| | | |
Pre-tax loss from divestitures, before recognition of currency translation loss | | $ | 12,123 |
Recognition of cumulative currency translation loss and hedges (reclassified from OCI) | |
| 21,150 |
Net pre-tax loss from divestiture of offshore wind energy structures business | | $ | 33,273 |
The transaction did not result in a taxable capital loss.
64
| ESS | Utility | Coatings | Irrigation | Other/ Corporate | TOTAL | |||||||||||||||||||
| Severance | $ | 4,417 | $ | 1,555 | $ | 508 | $ | 724 | $ | — | $ | 7,204 | ||||||||||||
| Other cash restructuring expenses | 2,349 | 1,853 | 175 | — | — | 4,377 | ||||||||||||||||||
| Asset impairments/net loss on disposals | 3,694 | 1,142 | 5,291 | — | — | 10,127 | ||||||||||||||||||
| Total cost of sales | 10,460 | 4,550 | 5,974 | 724 | — | 21,708 | ||||||||||||||||||
| Severance | 3,665 | 404 | 270 | 423 | 1,957 | 6,719 | ||||||||||||||||||
| Other cash restructuring expenses | — | 238 | 336 | — | 1,142 | 1,716 | ||||||||||||||||||
| Asset impairments/net loss on disposals | 2,223 | — | — | 130 | 7,356 | 9,709 | ||||||||||||||||||
| Total selling, general and administrative expenses | 5,888 | 642 | 606 | 553 | 10,455 | 18,144 | ||||||||||||||||||
| Consolidated total | $ | 16,348 | $ | 5,192 | $ | 6,580 | $ | 1,277 | $ | 10,455 | $ | 39,852 | ||||||||||||
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
During fiscal 2016,2020, the Company recognizedexecuted certain regional restructuring activities (the "2020 Plan") and a U.S. specific early retirement program. The 2020 Plan included the closure of one U.S. galvanizing facility. All 2020 restructuring activities were completed by December 26, 2020. The Company recorded the following pre-tax restructuring expense (all cash) of $4,581 related to the 2015 Plan:
| Balance at December 31, 2016 | Recognized Restructuring Expense | Costs Paid or Otherwise Settled | Balance at December 30, 2017 | |||||||||||||
| Severance | $ | 1,597 | $ | — | $ | (1,597 | ) | $ | — | |||||||
| Other cash restructuring expenses | 4,581 | — | (3,365 | ) | 1,216 | |||||||||||
| Total | $ | 6,178 | $ | — | $ | (4,962 | ) | $ | 1,216 | |||||||
| | | | | | | | | | | | | | | |
| | Infrastructure | | Agriculture | | Other | | Corporate | | Total | |||||
Severance | | $ | 1,139 | | $ | — | | $ | — | | $ | — | | $ | 1,139 |
Other cash restructuring expenses | |
| 1,847 | |
| — | |
| — | |
| — | |
| 1,847 |
Impairments of fixed assets/net loss on disposals | |
| 3,751 | |
| — | |
| — | |
| — | |
| 3,751 |
Total cost of sales | |
| 6,737 | |
| — | |
| — | |
| — | |
| 6,737 |
| | | | | | | | | | | | | | | |
Severance | |
| 7,873 | |
| 2,968 | |
| 1,192 | |
| 1,761 | |
| 13,794 |
Other cash restructuring expenses | |
| 1,852 | |
| — | |
| 79 | |
| 244 | |
| 2,175 |
Impairments of assets / net loss on disposals | |
| 349 | |
| — | |
| 94 | |
| — | |
| 443 |
Total selling, general and administrative expenses | |
| 10,074 | |
| 2,968 | |
| 1,365 | |
| 2,005 | |
| 16,412 |
Consolidated total | | $ | 16,811 | | $ | 2,968 | | $ | 1,365 | | $ | 2,005 | | $ | 23,149 |
The Company considers all highly liquid temporary cash investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents. Cash payments for interest and income taxes (net of refunds) for the fifty-twofifty-three weeks ended December 30, 2017, the fifty-three weeks ended
| | | | | | | | | | |
|
| | 2022 |
| 2021 |
| 2020 | |||
Interest | | | $ | 46,653 | | $ | 41,159 | | $ | 40,209 |
Income taxes | | |
| 93,109 | |
| 60,366 | |
| 54,801 |
The sale of the offshore wind energy structures business in 2022 included a hold back receivable contingent on normal closing conditions that is expected to be resolved in the first half of 2023. The acquisitions in 2020 included hold back payments contingent on seller representations and warranties of $1,046. The 2020 hold back payments were released from a trust in the first half of 2021 and the 2019 hold back payments were paid in the first quarter of 2020 and are shown as an investing use of cash in the acquisitions line item of the Consolidated Statements of Cash Flows.
(6) INVENTORIES
Inventories consisted of the following at December 31, 2022 and December 25, 2021:
| | | | | | |
| | December 31, | | December 25, | ||
| | 2022 |
| 2021 | ||
Raw materials and purchased parts | | $ | 258,814 | | $ | 278,107 |
Work-in-process | |
| 44,453 | |
| 63,628 |
Finished goods and manufactured goods | |
| 425,495 | |
| 387,099 |
| | $ | 728,762 | | $ | 728,834 |
65
| 2017 | 2016 | 2015 | ||||||||
| Interest | $ | 44,528 | $ | 45,683 | $ | 44,974 | ||||
| Income taxes | 63,791 | 48,203 | 33,046 | |||||||
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
| 2017 | 2016 | ||||||
| Raw materials and purchased parts | $ | 183,029 | $ | 143,659 | |||
| Work-in-process | 30,671 | 27,291 | |||||
| Finished goods and manufactured goods | 250,975 | 217,125 | |||||
| Subtotal | 464,675 | 388,075 | |||||
| Less: LIFO reserve | 43,727 | 38,047 | |||||
| $ | 420,948 | $ | 350,028 | ||||
Property, plant, and equipment, at cost, consist of the following:
| 2017 | 2016 | ||||||
| Land and improvements | $ | 93,258 | $ | 85,724 | |||
| Buildings and improvements | 350,937 | 325,813 | |||||
| Machinery and equipment | 588,439 | 564,171 | |||||
| Transportation equipment | 23,682 | 22,423 | |||||
| Office furniture and equipment | 82,025 | 77,453 | |||||
| Construction in progress | 27,346 | 30,152 | |||||
| $ | 1,165,687 | $ | 1,105,736 | ||||
| | | | | | |
|
| 2022 |
| 2021 | ||
Land and improvements | | $ | 113,188 | | $ | 112,236 |
Buildings and improvements | |
| 390,435 | |
| 413,884 |
Machinery and equipment | |
| 721,223 | |
| 672,319 |
Transportation equipment | |
| 30,610 | |
| 27,020 |
Office furniture and equipment | |
| 128,922 | |
| 117,757 |
Construction in progress | |
| 48,773 | |
| 78,885 |
| | $ | 1,433,151 | | $ | 1,422,101 |
(8) GOODWILL AND INTANGIBLE ASSETS
Amortized Intangible Assets
The Company leases certain facilities, machinery, computer equipmentcomponents of amortized intangible assets at December 31, 2022 and transportation equipment under operating leases with unexpired terms ranging from one to fifteen years. RentalDecember 25, 2021 were as follows:
| | | | | | | | |
| | December 31, 2022 | ||||||
| | Gross | | | | | Weighted | |
| | Carrying | | Accumulated | | Average | ||
|
| Amount |
| Amortization |
| Life | ||
Customer Relationships | | $ | 222,716 | | $ | 145,502 | | 13 years |
Patents & Proprietary Technology | |
| 58,404 | |
| 21,291 |
| 9 years |
Trade Name | |
| 2,850 | |
| 645 |
| 7 years |
Other | |
| 2,462 | |
| 2,164 |
| 5 years |
| | $ | 286,432 | | $ | 169,602 | | |
| | | | | | | | |
| | December 25, 2021 | ||||||
| | Gross | | | | | Weighted | |
| | Carrying | | Accumulated | | Average | ||
| | Amount |
| Amortization |
| Life | ||
Customer Relationships | | $ | 224,597 | | $ | 160,626 | | 13 years |
Patents & Proprietary Technology | |
| 58,699 | |
| 13,955 |
| 9 years |
Trade Name | | | 2,850 | | | 183 | | 7 years |
Other | |
| 4,534 | |
| 3,959 |
| 6 years |
| | $ | 290,680 | | $ | 178,723 | | |
Amortization expense for operating leases amounted to $25,612, $24,756,intangible assets was $22,120, $21,320, and $25,546$18,147 for the fiscal 2017, 2016,years ended December 31, 2022, December 25, 2021, and 2015,December 26, 2020, respectively. During the fourth quarter of fiscal 2021, an impairment test was required when the Company received clarifying information on the competitive environment of the offshore wind energy structures business. As a result, an impairment charge of approximately $4,483 was recognized against the remaining net book value of the related customer relationships.
66
| Fiscal year ending | |||
| 2018 | $ | 21,562 | |
| 2019 | 15,839 | ||
| 2020 | 15,639 | ||
| 2021 | 12,227 | ||
| 2022 | 7,325 | ||
| Subsequent | 27,325 | ||
| Total minimum lease payments | $ | 99,917 | |
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
| December 30, 2017 | |||||||||
| Gross Carrying Amount | Accumulated Amortization | Weighted Average Life | |||||||
| Customer Relationships | $ | 200,810 | $ | 131,062 | 13 years | ||||
| Proprietary Software & Database | 3,671 | 3,107 | 8 years | ||||||
| Patents & Proprietary Technology | 6,693 | 3,999 | 11 years | ||||||
| Other | 4,861 | 4,121 | 3 years | ||||||
| $ | 216,035 | $ | 142,289 | ||||||
| December 31, 2016 | |||||||||
| Gross Carrying Amount | Accumulated Amortization | Weighted Average Life | |||||||
| Customer Relationships | $ | 191,316 | $ | 111,342 | 13 years | ||||
| Proprietary Software & Database | 3,616 | 3,056 | 8 years | ||||||
| Patents & Proprietary Technology | 6,434 | 3,420 | 11 years | ||||||
| Other | 3,713 | 3,668 | 3 years | ||||||
| $ | 205,079 | $ | 121,486 | ||||||
Estimated annual amortization expense related to finite‑lived intangible assets is as follows:
| Estimated Amortization Expense | |||
| 2018 | $ | 14,537 | |
| 2019 | 13,761 | ||
| 2020 | 12,647 | ||
| 2021 | 10,525 | ||
| 2022 | 7,550 | ||
| | | |
|
| Estimated | |
| | Amortization | |
| | Expense | |
2023 | | $ | 20,825 |
2024 | |
| 18,888 |
2025 | |
| 17,454 |
2026 | |
| 12,933 |
2027 | |
| 9,695 |
The useful lives assigned to finite‑lived intangible assets included consideration of factors such as the Company’s past and expected experience related to customer retention rates, the remaining legal or contractual life of the underlying arrangement that resulted in the recognition of the intangible asset, and the Company’s expected use of the intangible asset.
Non-Amortized Intangible Assets
Intangible assets with indefinite lives are not amortized. The carrying values of these trade names at
| December 30, 2017 | December 31, 2016 | Year Acquired | |||||||
| Webforge | $ | 9,432 | $ | 8,624 | 2010 | ||||
| Valmont SM | 9,973 | 8,765 | 2014 | ||||||
| Newmark | 11,111 | 11,111 | 2004 | ||||||
| Ingal EPS/Ingal Civil Products | 7,690 | 7,032 | 2010 | ||||||
| Donhad | 5,801 | 5,305 | 2010 | ||||||
| Shakespeare | 4,000 | 4,000 | 2014 | ||||||
| Other | 16,846 | 15,948 | |||||||
| $ | 64,853 | $ | 60,785 | ||||||
| | | | | | | | |
|
| December 31, |
| December 25, |
| Year | ||
| | 2022 | | 2021 | | Acquired | ||
Newmark | | $ | 11,111 | | $ | 11,111 |
| 2004 |
Convert Italia S.p.A. | |
| 8,024 | |
| 8,479 |
| 2018 |
Webforge | | | 7,107 | | | 7,877 | | 2010 |
Ingal EPS / Ingal Civil Products | |
| 6,891 | |
| 7,637 |
| 2010 |
Valmont SM | |
| — | |
| 6,082 |
| 2014 |
ConcealFab | |
| 5,000 | |
| — |
| 2022 |
Shakespeare | |
| 4,000 | |
| 4,000 |
| 2014 |
Walpar | |
| 3,500 | |
| 3,500 |
| 2018 |
Other | |
| 14,152 | |
| 14,721 |
| Various |
| | $ | 59,785 | | $ | 63,407 | | |
In its determination of these intangible assets as indefinite‑lived, the Company considered such factors as its expected future use of the intangible asset, legal, regulatory, technological, and competitive factors that may impact the useful life or value of the intangible asset, and the expected costs to maintain the value of the intangible asset. The Company expects that these intangible assets will maintain their value indefinitely. Accordingly, these assets are not amortized.
Indefinite-lived intangibles, although not amortized, are still subject to annual impairment assessments, and interim date assessments should events arise that suggest their value may be diminished. The Company'sCompany’s trade names were tested for impairment separately from goodwill in the third quarteras of 2017.August 27, 2022. The values of theeach trade namesname were determined using the relief-from-royalty method. The Company determined that the value of itsBased on this evaluation, no trade names were notdetermined to be impaired.
67
Table of the Webforge trade name (in ESS segment)Contents
Valmont Industries, Inc. and a $1,100 impairment of the Industrial Galvanizing trade name (in Coatings segment).Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
The carrying amount of goodwill by segment as of
| Engineered Support Structures Segment | Utility Support Structures Segment | Coatings Segment | Irrigation Segment | Other | Total | ||||||||||||||||||
| Gross Balance at December 31, 2016 | $ | 157,689 | $ | 88,680 | $ | 75,791 | $ | 19,359 | $ | 17,487 | $ | 356,002 | |||||||||||
| Accumulated impairment losses | (18,670 | ) | — | (16,222 | ) | — | — | (34,892 | ) | ||||||||||||||
| Balance at December 31, 2016 | $ | 139,019 | $ | 88,451 | $ | 59,569 | $ | 19,611 | $ | 14,460 | $ | 321,110 | |||||||||||
| Acquisitions | 3,449 | — | — | — | — | 3,449 | |||||||||||||||||
| Foreign currency translation | 8,938 | 1,797 | 905 | 167 | 1,354 | 13,161 | |||||||||||||||||
| Balance at December 30, 2017 | $ | 151,406 | $ | 90,248 | $ | 60,474 | $ | 19,778 | $ | 15,814 | $ | 337,720 | |||||||||||
| Engineered Support Structures Segment | Utility Support Structures Segment | Coatings Segment | Irrigation Segment | Other | Total | ||||||||||||||||||
| Gross Balance at December 26, 2015 | $ | 170,341 | $ | 88,680 | $ | 75,941 | $ | 19,359 | $ | 17,487 | $ | 371,808 | |||||||||||
| Accumulated impairment losses | (18,670 | ) | — | (16,222 | ) | — | — | (34,892 | ) | ||||||||||||||
| Balance at December 26, 2015 | 151,671 | 88,680 | 59,719 | 19,359 | 17,487 | 336,916 | |||||||||||||||||
| Foreign currency translation | (12,652 | ) | (229 | ) | (150 | ) | 252 | (3,027 | ) | (15,806 | ) | ||||||||||||
| Balance at December 31, 2016 | $ | 139,019 | $ | 88,451 | $ | 59,569 | $ | 19,611 | $ | 14,460 | $ | 321,110 | |||||||||||
| | | | | | | | | | | | |
| | Infrastructure | | Agriculture | | Other | | Total | ||||
Gross balance at December 25, 2021 | | $ | 442,521 | | $ | 313,512 | | $ | 14,355 | | $ | 770,388 |
Accumulated impairment losses | |
| (47,467) | |
| — | |
| (14,355) | |
| (61,822) |
Balance at December 25, 2021 | |
| 395,054 | |
| 313,512 | |
| — | | $ | 708,566 |
Acquisitions | |
| 42,465 | |
| — | |
| — | |
| 42,465 |
Foreign currency translation | |
| (11,435) | |
| 265 | |
| — | |
| (11,170) |
Balance at December 31, 2022 | | $ | 426,084 | | $ | 313,777 | | $ | — | | $ | 739,861 |
| | | | | | | | | | | | |
| | Infrastructure | | Agriculture | | Other | | Total | ||||
Gross balance at December 26, 2020 | | $ | 447,612 | | $ | 30,177 | | $ | 14,355 | | $ | 492,144 |
Accumulated impairment losses | |
| (47,467) | |
| — | |
| (14,355) | |
| (61,822) |
Balance at December 26, 2020 | |
| 400,145 | |
| 30,177 | |
| — | |
| 430,322 |
Acquisitions | |
| — | |
| 284,253 | |
| — | |
| 284,253 |
Foreign currency translation | |
| (5,091) | |
| (918) | |
| — | |
| (6,009) |
Balance at December 25, 2021 | | $ | 395,054 | | $ | 313,512 | | $ | — | | $ | 708,566 |
The Company’s annual impairment test of goodwill was performed duringas of August 27, 2022, using primarily the third quarter of 2017 and it was determined thatdiscounted cash flow method. The solar tracking structure reporting unit projects meaningful annual revenue growth for the goodwill on the consolidated balance sheet was not impaired.
The Company maintains various lines of credit for short-term borrowings totaling $113,437$125,034 available at December 30, 2017.31, 2022. As of December 30, 201731, 2022 and December 31, 2016, $16125, 2021, $5,846 and $0$13,439 was outstanding and recorded as notes payable to banks in the Consolidated Balance Sheets, respectively. The interest rates charged on these lines of credit vary in relation to the banks’ costs of funds. The weighted average interest rate on short-term borrowings was 6.52% at December 31, 2022. The unused and available borrowings under the lines of credit were $113,276$119,188 at December 30, 2017.31, 2022. The lines of credit can be modified at any time at the option of the banks. The Company pays no fees in connection with theseunused lines of credit. In addition to the lines of credit, the Company also maintains other short-term bank loans. The weighted average interest rate on short-term borrowings was 5.00% at December 30, 2017. Other notes payable of $161 and $746 were outstanding at December 30, 2017 and December 31, 2016, respectively.
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries are as follows:
| | | | | | | | | |
| | 2022 |
| 2021 |
| 2020 | |||
United States | | $ | 224,370 | | $ | 202,051 | | $ | 169,281 |
Foreign | |
| 139,518 | |
| 58,032 | |
| 23,487 |
| | $ | 363,888 | | $ | 260,083 | | $ | 192,768 |
68
| 2017 | 2016 | 2015 | |||||||||
| United States | $ | 152,372 | $ | 136,682 | $ | 99,175 | |||||
| Foreign | 76,092 | 83,772 | (6,168 | ) | |||||||
| $ | 228,464 | $ | 220,454 | $ | 93,007 | ||||||
Valmont Industries, Inc. and 3) changing the taxation of unremitted foreign earnings. The Company estimated and recognized approximately $41,935 of tax expense for the 2017 Tax Act. The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the 2017 Tax Act (see footnote 1).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
Income tax expense (benefit) consists of:
| 2017 | 2016 | 2015 | |||||||||
| Current: | |||||||||||
| Federal | $ | 49,324 | $ | 41,539 | $ | 23,130 | |||||
| State | 4,415 | 5,467 | 4,431 | ||||||||
| Foreign | 12,880 | 19,123 | 15,077 | ||||||||
| 66,619 | 66,129 | 42,638 | |||||||||
| Non-current: | (229 | ) | (381 | ) | (69 | ) | |||||
| Deferred: | |||||||||||
| Federal | (9,626 | ) | 8,504 | 3,382 | |||||||
| State | (385 | ) | 202 | (333 | ) | ||||||
| Foreign | 49,766 | (32,391 | ) | 1,809 | |||||||
| 39,755 | (23,685 | ) | 4,858 | ||||||||
| $ | 106,145 | $ | 42,063 | $ | 47,427 | ||||||
| | | | | | | | | |
|
| 2022 |
| 2021 |
| 2020 | |||
Current: |
| |
|
| |
|
| |
|
Federal | | $ | 48,309 | | $ | 30,031 | | $ | 30,431 |
State | |
| 11,888 | |
| 8,891 | |
| 8,302 |
Foreign | |
| 48,273 | |
| 20,644 | |
| 12,730 |
| |
| 108,470 | |
| 59,566 | |
| 51,463 |
Non-current: | |
| 1,442 | |
| 1,777 | |
| (451) |
Deferred: | |
|
| |
|
| |
|
|
Federal | |
| (7,544) | |
| 4,587 | |
| (6,086) |
State | |
| (1,973) | |
| 558 | |
| (822) |
Foreign | |
| 8,292 | |
| (5,074) | |
| 5,511 |
| |
| (1,225) | |
| 71 | |
| (1,397) |
| | $ | 108,687 | | $ | 61,414 | | $ | 49,615 |
The reconciliations of the statutory federal income tax rate and the effective tax rate follows:
| 2017 | 2016 | 2015 | ||||||
| Statutory federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||
| State income taxes, net of federal benefit | 1.4 | 1.7 | 3.1 | |||||
| Carryforwards, credits and changes in valuation allowances | (1.4 | ) | 2.9 | (0.1 | ) | |||
| Foreign tax rate differences | (4.1 | ) | (4.8 | ) | (5.7 | ) | ||
| Changes in unrecognized tax benefits | (0.1 | ) | (0.2 | ) | (0.1 | ) | ||
| Domestic production activities deduction | (2.1 | ) | (2.0 | ) | (3.8 | ) | ||
| Goodwill impairment | — | — | 11.3 | |||||
| UK tax rate reduction | — | 1.0 | 7.7 | |||||
| Reversal of contingent liability | — | (2.2 | ) | — | ||||
| UK defined benefit pension plan | — | (14.6 | ) | — | ||||
| Effects of 2017 Tax Act | 18.4 | — | — | |||||
| Other | (0.6 | ) | 2.3 | 3.6 | ||||
| 46.5 | % | 19.1 | % | 51.0 | % | |||
| | | | | | | | | |
|
| 2022 | | 2021 | | 2020 | |||
Statutory federal income tax rate |
| 21.0 | % | | 21.0 | % | | 21.0 | % |
State income taxes, net of federal benefit |
| 2.3 |
| | 2.9 |
| | 3.5 | |
Carryforwards, credits and changes in valuation allowances |
| 1.0 |
| | 1.5 |
| | (1.6) | |
Foreign jurisdictional tax rate differences |
| 4.2 |
| | (0.1) |
| | (1.7) | |
Changes in unrecognized tax benefits |
| 0.3 |
| | 0.7 |
| | 0.2 | |
Goodwill and intangible impairment |
| — |
| | — |
| | 2.4 | |
Loss on divestiture of offshore wind energy structures business | | 2.2 |
| | — |
| | — | |
Other |
| (1.1) |
| | (2.4) |
| | 1.9 | |
|
| 29.9 | % | | 23.6 | % | | 25.7 | % |
Fiscal 2016year 2022 includes $32,450$8,166 of deferred income tax benefit attributable to the re-measurement of the deferred tax assetexpense related to the Company's U.K. defineddivestiture of the offshore wind energy structures business for which no benefit pension plan. This item arose from a 2016 international legal reorganization executedhas been recorded. Fiscal year 2021 includes $1,894 of U.S. tax benefits related to better reflect the Company's operational business strategies. The Company considered many factors in effecting this realignment, including streamlining treasury functions, creating a platform for future growth, and capital allocation considerations. In addition, in fiscal 2016 the Company recorded a $9,888foreign taxes paid offset by $5,102 of valuation allowance recorded against athe offshore wind energy structures business deferred tax creditassets. Fiscal year 2020 includes $4,651 of tax expense related to non-tax deductible impairment of goodwill. Fiscal year 2020 also includes $1,100 of tax expense primarily related to restructuring charges for which is not more likely than notno tax benefits have been recorded due to be realized. The reversalthe increase in valuation allowance.
69
Table of a $16,591 contingent non-current liabilityContents
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in 2016 was not taxable.thousands, except per share amounts)
(10) INCOME TAXES – CONTINUED
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards. The tax effects of significant items comprising the Company’s net deferred income tax assets/liabilities are as follows:
| 2017 | 2016 | ||||||
| Deferred income tax assets: | |||||||
| Accrued expenses and allowances | $ | 13,373 | $ | 16,549 | |||
| Accrued insurance | 818 | 1,071 | |||||
| Tax credits and loss carryforwards | 54,521 | 104,439 | |||||
| Defined benefit pension liability | 47,459 | 80,425 | |||||
| Inventory allowances | 3,433 | 1,385 | |||||
| Accrued warranty | 4,602 | 9,436 | |||||
| Deferred compensation | 29,421 | 37,988 | |||||
| Gross deferred income tax assets | 153,627 | 251,293 | |||||
| Valuation allowance | (27,864 | ) | (81,923 | ) | |||
| Net deferred income tax assets | 125,763 | 169,370 | |||||
| Deferred income tax liabilities: | |||||||
| Work in progress | 1,805 | 2,161 | |||||
| Property, plant and equipment | 26,826 | 37,961 | |||||
| Intangible assets | 39,613 | 50,405 | |||||
| Withholding taxes | 11,673 | — | |||||
| Other liabilities | 1,819 | 6,164 | |||||
| Total deferred income tax liabilities | 81,736 | 96,691 | |||||
| Net deferred income tax asset | $ | 44,027 | $ | 72,679 | |||
| | | | | | |
|
| 2022 |
| 2021 | ||
Deferred income tax assets: |
| |
|
| |
|
Accrued expenses and allowances | | $ | 33,577 | | $ | 21,241 |
Tax credits and loss carryforwards | |
| 67,249 | |
| 83,690 |
Defined benefit pension liability | |
| — | |
| 134 |
Inventory allowances | |
| 7,912 | |
| 2,818 |
Accrued compensation and benefits | |
| 24,398 | |
| 24,302 |
Lease liabilities | |
| 40,709 | |
| 41,128 |
Deferred compensation | |
| 16,308 | |
| 10,893 |
Gross deferred income tax assets | |
| 190,153 | |
| 184,206 |
Valuation allowance | |
| (48,974) | |
| (54,256) |
Net deferred income tax assets | |
| 141,179 | |
| 129,950 |
Deferred income tax liabilities: | |
|
| |
|
|
Property, plant and equipment | |
| 45,300 | |
| 37,686 |
Intangible assets | |
| 52,750 | |
| 48,244 |
Defined benefit pension asset | |
| 6,054 | |
| — |
Lease assets | |
| 40,708 | |
| 41,128 |
Other deferred tax liabilities | |
| 4,941 | |
| 5,041 |
Total deferred income tax liabilities | |
| 149,753 | |
| 132,099 |
Net deferred income tax asset (liability) | | $ | (8,574) | | $ | (2,149) |
Deferred income tax assets (liabilities) are presented as follows on the Consolidated Balance Sheets:
| | | | | | |
Balance Sheet Caption |
| 2022 |
| 2021 | ||
Other assets | | $ | 32,517 | | $ | 45,700 |
Deferred income taxes | |
| (41,091) | |
| (47,849) |
Net deferred income tax asset (liability) | | $ | (8,574) | | $ | (2,149) |
Balance Sheet Caption | 2017 | 2016 | |||||
| Other assets | $ | 78,933 | $ | 108,482 | |||
| Deferred income taxes | (34,906 | ) | (35,803 | ) | |||
| Net deferred income tax asset | $ | 44,027 | $ | 72,679 | |||
Management of the Company has reviewed recent operating results and projected future operating results. The Company'sCompany’s belief that realization of its net deferred tax assets is more likely than not is based on, among other factors, changes in operations that have occurred in recent years and available tax planning strategies. At December 30, 201731, 2022 and December 31, 201625, 2021 respectively, there were $54,521$67,249 and $104,439$83,690 relating to tax credits and loss carryforwards. During 2017, several dormant UK legal entities were placed in liquidation resulting in a reduction of the capital loss carryforward of $60,691. This reduction was fully offset by a reduction in the related valuation allowance.
Valuation allowances have been established for certain losses that reduce deferred tax assets to an amount that will, more likely than not, be realized. During fiscal 2021, it was determined no longer more likely than not that the offshore wind energy structures business, based in Denmark, would generate future taxable income so a valuation allowance of $5,102 was recognized against their tax loss carryforwards. During fiscal year 2022, the offshore wind energy structures business was sold. Also in 2021, the Company recorded a valuation allowance of $6,472 against the tax attributes related to the acquisition of Prospera. The deferred tax assets at December 30, 201731, 2022 that are associated with tax loss and tax credit carryforwards not reduced by valuation allowances expire in periods starting 2018.in 2023.
70
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
Uncertain tax positions included in other non-current liabilities are evaluated in a two-step process, whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more likely than not recognition threshold, the Company would recognize the largest amount of tax benefit that is greater than fifty percent likely to be realized upon ultimate settlement with the related tax authority.
71
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
The following summarizes the activity related to ourthe unrecognized tax benefits in 20172022 and 2016, in thousands:
| 2017 | 2016 | ||||||
| Gross unrecognized tax benefits—beginning of year | $ | 3,400 | $ | 3,876 | |||
| Gross increases—tax positions in prior period | 5 | 99 | |||||
| Gross increases—current‑period tax positions | 1,044 | 695 | |||||
| Settlements with taxing authorities | (65 | ) | (105 | ) | |||
| Lapse of statute of limitations | (1,188 | ) | (1,165 | ) | |||
| Gross unrecognized tax benefits—end of year | $ | 3,196 | $ | 3,400 | |||
| | | | | | |
|
| 2022 |
| 2021 | ||
Gross unrecognized tax benefits—beginning of year | | $ | 2,664 | | $ | 1,864 |
Gross increases—tax positions in prior period | |
| 1,133 | |
| 1,315 |
Gross decreases—tax positions in prior period | |
| — | |
| (6) |
Gross increases—current‑period tax positions | |
| 523 | |
| 240 |
Settlements with taxing authorities | |
| (1,576) | |
| — |
Lapse of statute of limitations | |
| (208) | |
| (749) |
Gross unrecognized tax benefits—end of year | | $ | 2,536 | | $ | 2,664 |
There are approximately $777$1,141 of uncertain tax positions for which reversal is reasonably possible during the next 12 months due to the closing of the statute of limitations. The nature of these uncertain tax positions is generally the computation of a tax deduction or tax credit. During 2017,2022, the Company recorded a reduction of its gross unrecognized tax benefit of $1,188$208 with $772$165 recorded as a reduction of income tax expense, due to the expiration of statutes of limitation in the United States. During 2016,2021, the Company recorded a reduction of its gross unrecognized tax benefit of $1,165,$749 with $810$592 recorded as a reduction of its income tax expense, due to the expiration of statutes of limitation in the United States. In addition to these amounts, there was an aggregate of $187$172 and $192$1,758 of interest and penalties at December 30, 201731, 2022 and December 31, 2016,25, 2021, respectively. The Company’s policy is to record interest and penalties directly related to income taxes as income tax expense in the Consolidated Statements of Earnings.
The Company files income tax returns in the U.S. and various states as well as foreign jurisdictions. Tax years 20142019 and forward remain open under U.S. statutes of limitation. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $3,059$2,447 and $3,328$4,324 at December 30, 201731, 2022 and December 31, 2016,25, 2021, respectively.
Long-term debt is as follows:
| December 30, 2017 | December 31, 2016 | ||||||
| 5.00% senior unsecured notes due 2044(a) | $ | 250,000 | $ | 250,000 | |||
| 5.25% senior unsecured notes due 2054(b) | 250,000 | 250,000 | |||||
| Unamortized discount on 5.00% and 5.25% senior unsecured notes (a)(b) | (4,312 | ) | (4,360 | ) | |||
| 6.625% senior unsecured notes due 2020(c) | 250,200 | 250,200 | |||||
| Unamortized premium on 6.625% senior unsecured notes(c) | 2,545 | 3,557 | |||||
| Revolving credit agreement (d) | — | — | |||||
| IDR Bonds(e) | 8,500 | 8,500 | |||||
| Other notes | 4,033 | 4,395 | |||||
| Debt issuance costs | (6,112 | ) | (6,646 | ) | |||
| Long-term debt | 754,854 | 755,646 | |||||
| Less current installments of long-term debt | 966 | 851 | |||||
| Long-term debt, excluding current installments | $ | 753,888 | $ | 754,795 | |||
| | | | | | |
| | December 31, |
| December 25, | ||
|
| 2022 |
| 2021 | ||
5.00% senior unsecured notes due 2044 (a) | | $ | 450,000 | | $ | 450,000 |
5.25% senior unsecured notes due 2054 (b) | |
| 305,000 | |
| 305,000 |
Unamortized discount on 5.00% and 5.25% senior unsecured notes (a) (b) | |
| (20,053) | |
| (20,436) |
Revolving credit agreement (c) | |
| 140,513 | |
| 218,897 |
Other notes | |
| 3,587 | |
| 5,684 |
Debt issuance costs | |
| (6,918) | |
| (7,189) |
Long-term debt | |
| 872,129 | |
| 951,956 |
Less: Current installments of long-term debt | |
| 1,194 | |
| 4,884 |
Long-term debt, excluding current installments | | $ | 870,935 | | $ | 947,072 |
| (a) | The 5.00% senior unsecured notes due 2044 include an aggregate principal amount of |
72
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
| (b) | The 5.25% senior unsecured notes due 2054 include an aggregate principal amount of |
73
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
(11) LONG-TERM DEBT – CONTINUED
| (c) |
| On October 18, |
| (i) |
| (ii) | the higher of |
| ● | the prime lending rate, |
| ● | the overnight bank rate plus 50 basis points, and |
| ● | term SOFR (based on a 1 month interest period) plus 100 basis points, |
plus, in each case, 0 to 62.5 basis points, depending on the credit rating of the Company'sCompany’s senior, unsecured, debt published by Standard & Poor'sPoor’s Rating Services and Mood'sMood’s Investors Service, Inc.; or
| (iii) | daily simple SOFR plus a 10 basis point adjustment plus a spread of 100 to 162.5 basis points, depending on the credit rating of the Company’s senior, unsecured, long-term debt published by Standard & Poor’s Rating Services and Mood’s Investors Service, Inc. |
At December 30, 2017,31, 2022, the Company had no$140,513 outstanding borrowings under the revolving credit facility. The revolving credit facility has a maturity date of October 18, 20222026, and contains certaina financial covenantscovenant that may limit additional borrowing capability under the agreement. At December 30, 2017,31, 2022, the Company had the ability to borrow $585,238$659,401 under this facility, after consideration of standby letters of credit of $14,762$162 associated with certain insurance obligations. WeThe Company also maintainmaintains certain short-term bank lines of credit totaling $113,437, $113,276$125,034, of which $119,188 was unused at December 30, 2017.
The revolving credit facility includes a |
The obligations arising under the 5.00% senior unsecured notes due 2044, the 5.25% senior unsecured notes due 2054, the 6.625% senior unsecured notes due 2020, and the revolving credit facility are guaranteed by the Company and its wholly-ownedwholly owned subsidiaries PiRod,Valmont Telecommunications, Inc., Valmont Coatings, Inc., Valmont Newmark, Inc., and Valmont Queensland Pty. Ltd.
(12) STOCK-BASED COMPENSATION
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 December 30, 2017, 529,35631, 2022, 1,722,643 shares of common stock remained available for issuance under the plans. Shares and options issued and available are subject to changes in
74
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
capitalization. The Company’s policy is to issue shares upon exercise of stock options or vesting of restricted stock units or issuance of restricted stock from treasury shares held by the Company.
Under the stock option plans, the exercise price of each option equals the market price at the time of the grant. Options vest beginning on the first anniversary of the grant in equal amounts over three years or on the fifth anniversary of the grant. Expiration of grants is seven to ten 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 recorded $5,137, $5,782$41,850, $28,720, and $5,137$14,874 of compensation expense (included in selling, general and administrative expenses) in the 2017, 20162022, 2021, and 20152020 fiscal years for all share-based compensation programs, respectively. The associated tax benefits recorded in the 2017, 20162022, 2021, and 20152020 fiscal years was $1,952, $2,197$10,463, $7,180, and $1,952,$3,719, respectively.
(12) STOCK-BASED COMPENSATION – CONTINUED
At December 30, 2017,31, 2022, the amount of unrecognized stock option compensation expense, to be recognized over a weighted average period of 2.032.37 years, was approximately $7,588.
The Company uses a binomial option pricing model to value its stock options. The fair value of each option grant made in 2017, 20162022, 2021 and 20152020 was estimated using the following assumptions:
| | | | | | | | | |
|
| 2022 | | 2021 | | 2020 | |||
Expected volatility |
| 32.36 | % | | 33.01 | % | | 33.72 | % |
Risk-free interest rate |
| 3.75 | % | | 1.26 | % | | 0.43 | % |
Expected life from vesting date |
| 5.4 yrs |
| | 4.0 yrs |
| | 4.0 yrs | |
Dividend yield |
| 1.10 | % | | 1.20 | % | | 1.24 | % |
Following is a summary of the stock option activity during 2020, 2021 and 2022:
| | | | | | | | | | |
| | | | | | | Weighted | | | |
| | | | Weighted | | Average | | | | |
| | | | Average | | Remaining | | Aggregate | ||
| | Number of | | Exercise | | Contractual | | Intrinsic | ||
|
| Shares |
| Price |
| Term |
| Value | ||
Outstanding at December 28, 2019 |
| 488,560 | | $ | 133.13 |
|
|
| |
|
Granted |
| 66,231 | |
| 168.80 |
|
|
| |
|
Exercised |
| (147,014) | |
| 125.43 |
|
|
| |
|
Forfeited |
| (8,212) | |
| 137.49 |
|
|
| |
|
Outstanding at December 26, 2020 |
| 399,565 | | $ | 141.79 |
| 4.88 | | $ | 12,103 |
Options vested or expected to vest at December 26, 2020 |
| 389,633 | | $ | 141.56 |
| 4.81 | |
| 11,890 |
Options exercisable at December 26, 2020 |
| 254,498 | | $ | 138.64 |
| 3.38 | |
| 8,510 |
75
| 2017 | 2016 | 2015 | ||||||
| Expected volatility | 33.76 | % | 33.88 | % | 34.13 | % | ||
| Risk-free interest rate | 2.12 | % | 1.83 | % | 1.58 | % | ||
| Expected life from vesting date | 3.0 yrs | 3.0 yrs | 3.0 yrs | |||||
| Dividend yield | 1.17 | % | 1.13 | % | 0.94 | % | ||
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||
| Outstanding at December 27, 2014 | 768,595 | $ | 113.72 | |||||||||
| Granted | 291,708 | 104.89 | ||||||||||
| Exercised | (169,493 | ) | 74.37 | |||||||||
| Forfeited | (41,201 | ) | 137.02 | |||||||||
| Outstanding at December 26, 2015 | 849,609 | $ | 117.42 | 5.18 | $ | 4,536 | ||||||
| Options vested or expected to vest at December 26, 2015 | 818,300 | $ | 117.61 | 5.13 | 4,456 | |||||||
| Options exercisable at December 26, 2015 | 409,068 | $ | 119.43 | 3.74 | 3,376 | |||||||
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||
| Outstanding at December 26, 2015 | 849,609 | $ | 117.42 | |||||||||
| Granted | 85,092 | 151.37 | ||||||||||
| Exercised | (109,893 | ) | 101.69 | |||||||||
| Forfeited | (31,635 | ) | 129.36 | |||||||||
| Outstanding at December 31, 2016 | 793,173 | $ | 122.77 | 4.78 | $ | 16,640 | ||||||
| Options vested or expected to vest at December 31, 2016 | 774,139 | $ | 124.18 | 4.75 | 16,200 | |||||||
| Options exercisable at December 31, 2016 | 469,844 | $ | 123.75 | 3.96 | 9,056 | |||||||
| | | | | | | | | | |
| | | | | | | Weighted | | | |
| | | | Weighted | | Average | | | | |
| | | | Average | | Remaining | | Aggregate | ||
| | Number of | | Exercise | | Contractual | | Intrinsic | ||
|
| Shares |
| Price |
| Term |
| Value | ||
Outstanding at December 26, 2020 |
| 399,565 | | $ | 141.79 |
|
|
| |
|
Granted |
| 47,223 | |
| 252.89 |
|
|
| |
|
Exercised |
| (169,908) | |
| 135.76 |
|
|
| |
|
Forfeited |
| (416) | |
| 132.84 |
|
|
| |
|
Outstanding at December 25, 2021 |
| 276,464 | | $ | 164.48 |
| 5.88 | | $ | 22,586 |
Options vested or expected to vest at December 25, 2021 |
| 268,338 | | $ | 163.42 |
| 5.80 | |
| 22,188 |
Options exercisable at December 25, 2021 |
| 154,860 | | $ | 142.15 |
| 4.00 | |
| 15,896 |
The weighted average per share fair value of options granted during 20162021 was $40.00.$67.81.
76
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||
| Outstanding at December 31, 2016 | 793,173 | $ | 122.77 | |||||||||
| Granted | 67,965 | 164.35 | ||||||||||
| Exercised | (284,574 | ) | 121.92 | |||||||||
| Forfeited | (5,942 | ) | 104.26 | |||||||||
| Outstanding at December 30, 2017 | 570,622 | $ | 128.34 | 4.66 | $ | 21,806 | ||||||
| Options vested or expected to vest at December 30, 2017 | 558,114 | $ | 128.00 | 4.63 | 21,517 | |||||||
| Options exercisable at December 30, 2017 | 351,794 | $ | 123.90 | 3.94 | 15,005 | |||||||
(12) STOCK-BASED COMPENSATION – CONTINUED
| | | | | | | | | | |
| | | | | | | Weighted | | | |
| | | | Weighted | | Average | | | | |
| | | | Average | | Remaining | | Aggregate | ||
| | Number of | | Exercise | | Contractual | | Intrinsic | ||
|
| Shares |
| Price |
| Term |
| Value | ||
Outstanding at December 25, 2021 |
| 276,464 | | $ | 164.48 |
|
|
| |
|
Granted |
| 40,564 | |
| 332.63 |
|
|
| |
|
Exercised |
| (121,163) | |
| 139.89 |
|
|
| |
|
Forfeited |
| (175) | |
| 104.47 |
|
|
| |
|
Outstanding at December 31, 2022 |
| 195,690 | | $ | 214.62 |
| 7.53 | | $ | 22,644 |
Options vested or expected to vest at December 31, 2022 |
| 189,267 | | $ | 212.69 |
| 7.48 | |
| 22,261 |
Options exercisable at December 31, 2022 |
| 90,556 | | $ | 172.08 |
| 6.40 | |
| 14,276 |
The weighted average per share fair value of options granted during 20172022 was $43.68.
| Outstanding and Exercisable By Price Range | ||||||||||||||||
| Options Outstanding | Options Exercisable | |||||||||||||||
| Exercise Price Range | Number | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | |||||||||||
| $83.94 - 114.11 | 239,480 | 4.71 years | $ | 103.23 | 147,216 | $ | 102.42 | |||||||||
| $120.91 - 136.42 | 127,901 | 3.22 years | 133.88 | 125,459 | 134.07 | |||||||||||
| $142.67 - 164.35 | 203,241 | 5.53 years | 154.42 | 79,119 | 147.73 | |||||||||||
| 570,622 | 351,794 | |||||||||||||||
In accordance with shareholder-approved plans, the Human Resource Committee of the Board of Directors may grant stock under various stock‑based compensation arrangements, including restricted stock awards, restricted stock units, performance based restricted stock units, and stock issued in lieu of cash bonuses. Under such arrangements, stock or cash (as applicable) is issued without direct cost to the employee. The restricted stock units are settled in Company stock when the restriction period ends. Restricted stock units and awards generally vest in equal installments over three years beginning on the first anniversary of the grant. All cash-settled restricted stock units are marked-to-market and presented within other accrued expenses and noncurrent liabilities in the Consolidated Balance Sheets. During fiscal 2017, 20162022, 2021 and 2015,2020, the Company granted restricted stock units to directors and certain management employees as follows (which are not included in the above stock plan activity tables):
| 2017 | 2016 | 2015 | |||||||||
| Shares issued | 62,160 | 58,961 | 47,038 | ||||||||
| Weighted‑average per share price on grant date | $ | 163.18 | $ | 150.48 | $ | 108.97 | |||||
| Recognized compensation expense | $ | 5,569 | $ | 4,069 | $ | 4,511 | |||||
| | | | | | | | | |
|
| 2022 |
| 2021 |
| 2020 | |||
Restricted stock units granted |
| | 60,901 |
| | 216,971 |
| | 85,251 |
Weighted‑average per share price on grant date | | $ | 313.75 | | $ | 236.28 | | $ | 161.73 |
Recognized compensation expense | | $ | 22,664 | | $ | 16,147 | | $ | 9,081 |
During the second half of 2021, the Company granted 159,982 restricted stock units, worth $36,916, to certain employees of Prospera. These restricted stock units vest in equal installments over four years and require the employees to continue employment over those four years. As such, the related compensation expense will be incurred over the vesting period.
At December 30, 201731, 2022 the amount of deferred stock‑based compensation granted, to be recognized over a weighted‑average period of 2.032.73 years, was approximately $15,971.$50,422.
Performance-based restricted stock units (“PSU”) awards consist of shares of the Company’s stock which are payable upon the determination that the Company achieve certain established performance targets and can range from 0% to 200% of the targeted payout based on the actual results. PSUs granted in 2022 and 2021 have a performance period of three years. The fair value of each PSU granted is equal to the fair market value of the Company’s common stock on the date of grant. PSUs granted generally have a three years period cliff vesting schedule; however, according to the grant agreements, if certain conditions are met, the employee (or beneficiary) will receive a prorated amount of the award based on active employment during the service period.
77
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
During fiscal 2022, 2021 and 2020, the Company granted PSU awards as follows (which are not included in the above stock plan activity tables):
| | | | | | | | | |
|
| 2022 |
| 2021 |
| 2020 | |||
Shares granted |
| | 33,736 |
| | 41,060 |
| | 35,181 |
Weighted‑average per share price on grant date | | $ | 215.15 | | $ | 230.40 | | $ | 125.41 |
Recognized compensation expense | | $ | 16,066 | | $ | 10,035 | | $ | 3,165 |
78
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
The following table provides a reconciliation between Basicbasic and Diluteddiluted earnings per share (EPS)(“EPS”):
| Basic EPS | Dilutive Effect of Stock Options | Diluted EPS | |||||||||
| 2017: | |||||||||||
| Net earnings attributable to Valmont Industries, Inc. | $ | 116,240 | $ | — | $ | 116,240 | |||||
| Weighted average shares outstanding (000's) | 22,520 | 218 | 22,738 | ||||||||
| Per share amount | $ | 5.16 | $ | 0.05 | $ | 5.11 | |||||
| 2016: | |||||||||||
| Net earnings attributable to Valmont Industries, Inc. | $ | 173,232 | $ | — | $ | 173,232 | |||||
| Weighted average shares outstanding (000's) | 22,562 | 147 | 22,709 | ||||||||
| Per share amount | $ | 7.68 | $ | 0.05 | $ | 7.63 | |||||
| 2015: | |||||||||||
| Net earnings attributable to Valmont Industries, Inc. | $ | 40,117 | $ | — | $ | 40,117 | |||||
| Weighted average shares outstanding (000's) | 23,288 | 117 | 23,405 | ||||||||
| Per share amount | $ | 1.72 | $ | 0.01 | $ | 1.71 | |||||
| | | | | | | | | |
|
| |
| Dilutive |
| | |||
| | | | | Effect of | | | ||
| | | | | Stock | | Diluted | ||
| | Basic EPS | | Options | | EPS | |||
2022: | | | | | | | | | |
Net earnings attributable to Valmont Industries, Inc. | | $ | 250,863 | | $ | — | | $ | 250,863 |
Weighted average shares outstanding (000’s) | |
| 21,311 | |
| 269 | |
| 21,580 |
Per share amount | | $ | 11.77 | | $ | (0.15) | | $ | 11.62 |
2021: | |
|
| |
|
| |
|
|
Net earnings attributable to Valmont Industries, Inc. | | $ | 195,630 | | $ | — | | $ | 195,630 |
Weighted average shares outstanding (000’s) | |
| 21,193 | |
| 300 | |
| 21,493 |
Per share amount | | $ | 9.23 | | $ | (0.13) | | $ | 9.10 |
2020: | |
|
| |
|
| |
|
|
Net earnings attributable to Valmont Industries, Inc. | | $ | 140,693 | | $ | — | | $ | 140,693 |
Weighted average shares outstanding (000’s) | |
| 21,315 | |
| 110 | |
| 21,425 |
Per share amount | | $ | 6.60 | | $ | (0.03) | | $ | 6.57 |
Basic and diluted net earnings and earnings per share in fiscal 2017year 2022 were impacted by a loss from the 2017 Tax Act enacted on December 22, 2017 bydivestiture of the U.S. government. We remeasured our U.S. deferred incomeoffshore wind energy structures’ business of $33,273 (no associated tax assets using a blended rate of 25.0% recognizing deferred income tax expense of approximately $20,372benefit) ($0.901.54 per share). We also recorded a provision charge of approximately $9,890 ($0.44 per share) of income tax expense for the deemed repatriation transition tax and $11,673 ($0.51 per share) of deferred expenses related to foreign withholding taxes and U.S. state income taxes.
Earnings per share are computed independently for each of the quarters. Therefore, the sum of the quarterly earnings per share may not equal the total for the year.
At the end of fiscal years 2017, 2016,2022, 2021, and 20152020 there were 0, 197,303,40,564, 47,223, and 426,3880 outstanding stock options, respectively, with exercise prices exceeding the market price of common stock that were excluded from the computation of diluted earnings per share, respectively.
(14) EMPLOYEE RETIREMENT SAVINGS PLAN
Established under Internal Revenue Code Section 401(k), the Valmont Employee Retirement Savings Plan (“VERSP”) is a defined contribution plan available to all eligible employees. Participants can elect to contribute up to 50%60% of annual pay, on a pretaxpre-tax and/or after-tax basis. The Company also makes contributions to the PlanVERSP and a non-qualified deferred compensation plan for certain Company executives. The 2017, 20162022, 2021, and 20152020 Company contributions to these plans amounted to approximately $11,800, $10,900$18,300, $16,000, and $11,700$14,800, respectively.
The Company sponsors a fully‑funded, non-qualified deferred compensation plan for certain Company executives who otherwise would be limited in receiving company contributions into the VERSP under Internal Revenue Service regulations. The invested assets and related liabilities of these participants were approximately $39,091$25,008 and $35,784$29,982 at December 30, 201731, 2022 and December 31, 2016,25, 2021, respectively. Such amounts are included in “Other assets” and “Deferred compensation” on the Consolidated Balance Sheets.
79
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
Amounts distributed from the Company’s non-qualified deferred compensation plan to participants under the transition rules of section 409A of the Internal Revenue Code were approximately $2,672$4,691 and $5,317$8,900 at December 30, 201731, 2022 and December 31, 2016,25, 2021, respectively. All distributions were made in cash.
80
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
The carrying amount of cash and cash equivalents, receivables, accounts payable, notes payable to banks, and accrued expenses approximate fair value because of the short maturity of these instruments. The fair values of each of the Company’s long-term debt instruments are based on the amount of future cash flows associated with each instrument discounted using the Company’s current borrowing rate for similar debt instruments of comparable maturity (Level 2). The fair value estimates are made at a specific point in time and the underlying assumptions are subject to change based on market conditions. At December 30, 2017,31, 2022, the carrying amount of the Company’s long-term debt was $754,854$872,129 with an estimated fair value of approximately $799,258.$807,281. At December 31, 2016,25, 2021, the carrying amount of the Company’s long-term debt was $755,646$951,956 with an estimated fair value of approximately $731,633.
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 is used. Inputs refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
| ● | Level 1: Quoted market prices in active markets for identical assets or liabilities. |
| ● | Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data. |
| ● | Level 3: Unobservable inputs that are not corroborated by market data. |
The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value.
Trading Securities: The assets and liabilities recorded for the investments held in the Valmont Deferred Compensation Plan of $39,091$25,008 ($35,78429,982 in 2016)2021) represent mutual funds, invested in debt and equity securities, classified as trading securities, considering the employee’s ability to change investment allocation of their deferred compensation at any time. The Company'sCompany’s remaining ownership in Delta EMD Pty. Ltd. (JSE:DTA) of $1,951$0 ($2,01694 in 2016)2021) is recorded at fair value at December 30, 2017.31, 2022. Quoted market prices are available for these securities in an active market and therefore categorized as a Level 1 input. These securities are included in Other Assets“Other assets” on the Consolidated Balance Sheets.
Derivative Financial Instruments: The fair value of foreign currency and commodity forward 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.
Mutual Funds: The Company has short-term investments in various mutual funds.
Marketable Securities: The Company’s marketable securities consist of short-term investments in certificates of deposit.
| | | | | | | | | | | | |
| | | | | Fair Value Measurement Using: | |||||||
| | |
| Quoted Prices in |
| Significant Other |
| Significant | ||||
| | | | | Active Markets | | Observable | | Unobservable | |||
| | Carrying Value | | for Identical | | Inputs | | Inputs | ||||
| | December 31, 2022 | | Assets (Level 1) | | (Level 2) | | (Level 3) | ||||
Assets: | | | | | | | | | | | | |
Trading securities | | $ | 25,008 | | $ | 25,008 | | $ | — | | $ | — |
Derivative financial instruments, net | | $ | 1,404 | | $ | — | | $ | 1,404 | | $ | — |
Cash and cash equivalents - mutual funds | | $ | 7,205 | | $ | 7,205 | | $ | — | | $ | — |
Cash and cash equivalents - marketable securities | | $ | 136 | | $ | — | | $ | 136 | | $ | — |
81
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
| Fair Value Measurement Using: | |||||||||||||||
| Carrying Value December 30, 2017 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
| Assets: | |||||||||||||||
| Trading Securities | $ | 41,042 | $ | 41,042 | $ | — | $ | — | |||||||
| Fair Value Measurement Using: | |||||||||||||||
| Carrying Value December 31, 2016 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
| Assets: | |||||||||||||||
| Trading Securities | $ | 37,800 | $ | 37,800 | $ | — | $ | — | |||||||
| | | | | | | | | | | | |
| | | | | Fair Value Measurement Using: | |||||||
| | |
| Quoted Prices in |
| Significant Other |
| Significant | ||||
| | Carrying Value | | Active Markets | | Observable | | Unobservable | ||||
| | December 25, | | for Identical | | Inputs | | Inputs | ||||
| | 2021 | | Assets (Level 1) | | (Level 2) | | (Level 3) | ||||
Assets (Liabilities): | | | | | | | | | | | | |
Trading securities | | $ | 30,076 | | $ | 30,076 | | $ | — | | $ | — |
Derivative financial instruments, net | | $ | (4,007) | | $ | — | | $ | (4,007) | | $ | — |
The Company manages interest rate risk, fromcommodity price risk, and foreign currency rate risk related to foreign currency denominated transactions and from natural gas supply pricing. From time to time,investments in foreign subsidiaries. Depending on the circumstances, the Company managesmay manage these risks usingby utilizing derivative financial instruments. Some of these derivative financial instruments are marked to market and recorded in the Company’s consolidated statementsConsolidated Statements of earnings,Earnings, while others may be accounted for as a fair value, cash flow, or net investment hedge.hedges. The Company had open foreign currency forward contracts that are marked to market at December 31, 2022 and December 25, 2021, which are insignificant and thus excluded from the tables below. Derivative financial instruments have credit risk and market risk. To manage creditThe Company manages these risks of derivative instruments by monitoring limits as to the types and degree of risk the Company only entersthat can be taken, and by entering into derivative transactions with counterparties who are recognized, stable multinational banks.
Fair value of production facilitiesderivative instruments at December 31, 2022 and December 25, 2021 are purchased at market prices. Natural gas market prices are volatile and the Company effectively fixes prices for a portion of its natural gas usage requirements of certain of its U.S. facilities through the use of swaps. These contracts reference physical natural gas prices or appropriate NYMEX futures contract prices. While there is a strong correlation between the NYMEX futures contract prices and the Company’s delivered cost of natural gas, the use of financialas follows:
| | | | | | | | |
Derivatives designated as hedging instruments: |
| Balance sheet location | | 2022 | | 2021 | ||
Commodity forward contracts | | Accrued expenses | | $ | (3,854) | | $ | (5,802) |
Foreign currency forward contracts |
| Prepaid expenses and other assets | | | 83 |
| | 149 |
Foreign currency forward contracts |
| Accrued expenses | | | — |
| | (118) |
Cross currency swap contracts |
| Prepaid expenses and other assets | | | 5,385 |
| | 1,764 |
Cross currency swap contracts |
| Accrued expenses | | | (210) |
| | — |
| | | | $ | 1,404 | | $ | (4,007) |
Gains (losses) on derivatives may not exactly offset the changerecognized in the priceConsolidated Statements of physical gas. The contractsEarnings for the years ended December 31, 2022, December 25, 2021, and December 26, 2020 are traded in months forwardas follows:
| | | | | | | | | | | | |
Derivatives designated as hedging instruments: | | Statements of earnings location | | | 2022 | | 2021 | | 2020 | |||
Commodity forward contracts | | Product cost of sales | | | $ | (5,212) | | $ | 25,821 | | $ | — |
Foreign currency forward contracts | | Product sales | | | | — | | | — | | | 1,598 |
Foreign currency forward contracts | | Other income | | | | (45) |
| | (40) |
| | 187 |
Interest rate hedge amortization | | Interest expense | | | | (64) |
| | (64) |
| | (64) |
Cross currency swap contracts | | Loss from divestiture of wind energy structures business | | | | 4,827 |
| | — |
| | — |
Cross currency swap contracts | | Interest expense | | | | 2,875 |
| | 2,780 |
| | 2,738 |
| | | | | $ | 2,381 | | $ | 28,497 | | $ | 4,459 |
82
Valmont Industries, Inc. and settlement dates are scheduled to coincide with gas purchases during that future period. The financial effects of these derivatives in 2017 and 2016 were minimal.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
Cash Flow Hedges
During 2021, the Company entered into steel hot rolled coil (“HRC”) forward contracts that qualify as a cash flow hedge of the variability in cash flows attributable to future steel purchases. The forward contracts had a notional amount of $93,498 for the total purchase of 86,100 short tons. During the second quarter of 2022, the Company entered into additional steel HRC forward contracts that qualify as a cash flow hedge of the variability in cash flows attributable to future steel purchases. The forward contracts had a notional amount of $14,010 for the total purchase of 15,000 short tons. As of December 31, 2022, the forward contracts had a notional amount of $9,766 for the total purchase of 10,300 short tons from January 2023 to March 2023. The gain (loss) realized upon settlement will be recorded in product cost of sales in the Consolidated Statements of Earnings over average inventory turns.
83
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
(16) DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
During the third quarter of 2022, the Company
entered intoDuring the third quarter of 2022, a subsidiary with a euro functional currency entered into a foreign currency forward contract to mitigate foreign currency risk related to a large customer order denominated in U.S. dollars. The forward contract, which qualifies as a fair value hedge, matures in February 2023 and has a notional amount to sell $1,800 in exchange for a stated amount of euros.
During 2021, a Brazilian subsidiary with a real functional currency entered into foreign currency forward contracts to mitigate foreign currency risk related to a customer order with components purchased in euros. The forward contracts, which qualified as net investment hedges,a cash flow hedge, matured in July and September 2021 and had notional amounts to buy 3,800 euros in exchange for a stated amount of Brazilian real. During 2021, a subsidiary with a euro functional currency entered into a foreign currency forward contract to mitigate foreign currency risk related to a large customer order denominated in U.S. dollars. The forward contract, which qualified as a fair value hedge, matured in December 2021 and a notional amount to sell $2,000 in exchange for a stated amount of euros.
In 2020, a Brazilian subsidiary with a real functional currency entered into foreign currency forward contracts to mitigate foreign currency risk related to a customer order with components purchased in euros. The forward contracts, which qualified as a cash flow hedge, matured in December 2020 and a notional amount to buy 4,500 euros in exchange for a stated amount of Brazilian real. In 2020, a subsidiary with a euro functional currency entered into foreign currency forward contracts to mitigate foreign currency risk related to a large customer order denominated in U.S. dollars. The forward contracts, which qualified as a cash flow hedge, matured in June 2021 and a notional amount to sell $27,500 in exchange for a stated amount of euros.
Net Investment Hedges
In the second quarter of 2020, the Company early settled its Australian dollar denominated foreign currency forward contracts and received proceeds of $11,983. Amounts will remain in OCI until either the sale or substantially complete liquidation of the related subsidiaries.
In the second quarter of 2019, the Company entered into two 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 our grinding media business thatthe Company’s euro and DKK investments and to reduce interest expense. Interest is denominated in both Australian dollarsexchanged twice per year on April 1 and British pounds. October 1.
The Company announced its intentiondesignated the full notional amount of the two CCS ($130,000) as a hedge of the net investment in certain Danish and European subsidiaries under the spot method, with all changes in the fair value of the CCS that are included in the assessment of effectiveness (changes due to divestspot foreign exchange rates) are recorded as cumulative foreign currency translation within AOCI. Net interest receipts will be recorded as a reduction of thisinterest expense over the life of the CCS.
During the second half of 2022, the Company settled the DKK CCS and received proceeds of $3,532. Due to the sale of the offshore wind energy structures business in August 2017the fourth quarter of 2022, the Company reclassified the cumulative net investment hedge
84
Valmont Industries, Inc. and regulatory approvalSubsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in Australia is currently pending. The forward contracts have a maturity datethousands, except per share amounts)
gain of January 2018 and a notional amount to sell British pounds and Australian dollars and receive $24,059 and $21,222, respectively. The unrealized loss recorded at December 30, 2017 is $826$4,827 ($6193,620 after tax) and is included in Accounts Payable on the Consolidated Balance Sheets. No ineffectiveness has resulted from the hedge and the balance is recordedOCI to “Loss from divestiture of offshore wind energy structures business” in the Consolidated StatementStatements of Other Comprehensive Income within gain/(loss) on hedging activities. WhenEarnings.
Key terms of the forward contracts mature, the realized gain (loss) will be deferred in other comprehensive income (loss) where it will remain until the grinding media business is divested.
| | | | | | | | | | | |
|
| Notional | | | | Swapped | | Set Settlement |
| ||
Currency | | Amount | | Termination Date | | Interest Rate | | Amount |
| ||
Euro | | $ | 80,000 | | April 1, 2024 |
| 2.825% | | € | 71,550 | |
The Company’s product warranty accrual reflects management’s best estimate of probable liability under its product warranties. Historical product claims data is used to estimate the cost of product warranties at the time revenue is recognized.
Changes in the product warranty accrual, which is recorded in “Accrued expenses”, for the years ended December 30, 201731, 2022 and December 31, 2016,25, 2021, were as follows:
| 2017 | 2016 | ||||||
| Balance, beginning of period | $ | 26,538 | $ | 36,653 | |||
| Payments made | (26,097 | ) | (20,355 | ) | |||
| Change in liability for warranties issued during the period | 9,787 | 9,565 | |||||
| Change in liability for pre-existing warranties | 9,881 | 675 | |||||
| Balance, end of period | $ | 20,109 | $ | 26,538 | |||
| | | | | | |
|
| 2022 |
| 2021 | ||
Balance, beginning of period | | $ | 21,308 | | $ | 14,787 |
Payments made | |
| (10,569) | |
| (6,444) |
Change in liability for warranties issued during the period | |
| 12,866 | |
| 13,534 |
Change in liability for pre-existing warranties | |
| (3,832) | |
| (569) |
Balance, end of period | | $ | 19,773 | | $ | 21,308 |
(18) COMMITMENTS & CONTINGENCIES
Various claims and lawsuits are pending against Company and certain of its subsidiaries. The Company cannot fully determine the effect of all asserted and unasserted claims on its consolidated results of operations, financial condition, or liquidity. Where asserted and unasserted claims are considered probable and reasonably estimable, a liability has been recorded. We doThe Company does not expect that any known lawsuits, claims, environmental costs, commitments, or contingent liabilities will have a material adverse effect on ourthe consolidated results of operations, financial condition, or liquidity.
(19) DEFINED BENEFIT RETIREMENT PLAN
Delta Ltd., a wholly-owned subsidiary of the Company, is the sponsor of the Delta Pension Plan ("Plan"). The Plan provides defined benefit retirement income to eligible employees in the United Kingdom. Pension retirement benefits to qualified employees are 1.67% of final salary per year of service upon reaching the age of 65 years. This Plan has no active employees as members at December 30, 2017.
Funded Status
The Company recognizes the overfunded or underfunded status of the pension plan as an asset or liability. The funded status represents the difference between the projected benefit obligation (PBO)(“PBO”) and the fair value of the plan assets. The PBO is the present value of benefits earned to date by plan participants, including the effect of assumed future salary increases (if applicable) and inflation. Plan assets are measured at fair value. Because the pension plan is denominated in British pounds sterling, the Company used exchange rates of $1.234/$1.209/£ and $1.349/$1.356/£ to translate the net pension liability into U.S. dollars at December 31, 20162022 and December 30, 2017,25, 2021, respectively. The PBO was $435,711 at December 31, 2022. The net funded status of $189,552$24,216 at December 30, 201731, 2022 is recorded as a noncurrent liability.asset reflecting, in part, a significant actuarial gain for the period from December 25, 2021 to December 31, 2022 attributed to an increase in the discount rate.
85
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
Projected Benefit Obligation and Fair Value of Plan Assets—The accumulated benefit obligation (ABO)(“ABO”) is the present value of benefits earned to date, assuming no future compensation growth.
As there are no active employees in the plan, the ABO is equal to the PBO for all years presented. The underfundedoverfunded ABO represents the difference between the PBO and the fair value of plan assets.
(19) DEFINED BENEFIT RETIREMENT PLAN – CONTINUED
Changes in the PBO and fair value of plan assets for the pension plan for the period from December 31, 201526, 2020 to December 31, 201625, 2021 were as follows:
| Projected Benefit Obligation | Plan Assets | Funded status | |||||||||
| Fair Value at December 31, 2015 | $ | 697,449 | $ | 518,126 | $ | (179,323 | ) | ||||
| Employer contributions | — | 1,426 | |||||||||
| Interest cost | 23,496 | — | |||||||||
| Actual return on plan assets | — | 80,538 | |||||||||
| Benefits paid | (17,792 | ) | (17,792 | ) | |||||||
| Actuarial loss | 125,765 | — | |||||||||
| Currency translation | (132,781 | ) | (95,631 | ) | |||||||
| Fair Value at December 31, 2016 | $ | 696,137 | $ | 486,667 | $ | (209,470 | ) | ||||
| | | | | | | | | |
|
| Projected |
| | |
| | | |
| | Benefit | | Plan | | Funded | |||
| | Obligation | | Assets | | status | |||
Fair Value at December 26, 2020 | | $ | 860,173 | | $ | 741,650 | | $ | (118,523) |
Employer contributions | | | — | | | 1,924 | |
| |
Interest cost |
| | 9,896 |
| | — |
| |
|
Actual return on plan assets |
| | — |
| | 48,637 |
| |
|
Benefits paid |
| | (22,952) |
| | (22,952) |
| |
|
Actuarial gain |
| | (77,379) |
| | — |
| |
|
Currency translation |
| | (8,032) |
| | (8,089) |
| |
|
Fair Value at December 25, 2021 | | $ | 761,706 | | $ | 761,170 | | $ | (536) |
Changes in the PBO and fair value of plan assets for the pension plan for the period from December 31, 201625, 2021 to December 31, 20172022 were as follows:
| | | | | | | | | |
|
| Projected |
| | |
| | | |
| | Benefit | | Plan | | Funded | |||
| | Obligation | | Assets | | status | |||
Fair Value at December 25, 2021 | | $ | 761,706 | | $ | 761,170 | | $ | (536) |
Employer contributions | | | — | | | 17,155 | |
| |
Interest cost |
| | 12,551 |
| | — |
| |
|
Actual return on plan assets |
| | — |
| | (228,493) |
| |
|
Benefits paid |
| | (20,175) |
| | (20,175) |
| |
|
Actuarial gain |
| | (248,252) |
| | — |
| |
|
Currency translation |
| | (70,119) |
| | (69,730) |
| |
|
Fair Value at December 31, 2022 | | $ | 435,711 | | $ | 459,927 | | $ | 24,216 |
Actuarial gain decreased the projected benefit obligation resulted from an increase in the discount rate to 4.80% in 2022 versus 1.90%.
86
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
| Projected Benefit Obligation | Plan Assets | Funded status | |||||||||
| Fair Value at December 31, 2016 | $ | 696,137 | $ | 486,667 | $ | (209,470 | ) | ||||
| Employer contributions | — | 40,245 | |||||||||
| Interest cost | 18,152 | — | |||||||||
| Actual return on plan assets | — | 40,842 | |||||||||
| Benefits paid | (22,172 | ) | (22,172 | ) | |||||||
| Actuarial loss | 25,154 | — | |||||||||
| Currency translation | 66,030 | 48,167 | |||||||||
| Fair Value at December 31, 2017 | $ | 783,301 | $ | 593,749 | $ | (189,552 | ) | ||||
Pre-tax amounts recognized in accumulated other comprehensive income (loss) as of December 30, 201731, 2022 and December 31, 201625, 2021 consisted of actuarial gains (losses):
| Balance December 26, 2015 | $ | (106,959 | ) |
| Actuarial loss | (66,957 | ) | |
| Currency translation gain | 17,038 | ||
| Balance December 31, 2016 | (156,878 | ) | |
| Actuarial loss | (1,789 | ) | |
| Currency translation loss | (9,583 | ) | |
| Balance December 30, 2017 | $ | (168,250 | ) |
| | | |
Balance December 26, 2020 | $ | (165,258) | |
Actuarial gain | | 102,529 | |
Prior service costs amortization | | 550 | |
Currency translation gain | | 1,239 | |
Balance December 25, 2021 | | (60,940) | |
Actuarial loss | | (2,915) | |
Prior service costs amortization | | 493 | |
Currency translation gain | | 5,451 | |
Balance December 31, 2022 | | $ | (57,911) |
Assumptions
—The weighted-average actuarial assumptions used to determine the benefit obligation at December 31,| Percentages | 2017 | 2016 | |||
| Discount rate | 2.55 | % | 2.80 | % | |
| Salary increase | N/A | N/A | |||
| CPI inflation | 2.20 | % | 2.25 | % | |
| RPI inflation | 3.30 | % | 3.15 | % | |
| | | | | | |
Percentages |
| 2022 |
| 2021 | ||
Discount rate |
| 4.80 | % | | 1.90 | % |
Salary increase |
| N/A |
| | N/A | |
CPI inflation |
| 2.35 | % | | 2.70 | % |
RPI inflation |
| 3.25 | % | | 3.30 | % |
(19) DEFINED BENEFIT RETIREMENT PLAN (Continued)
Expense/(Benefit)
Pension expensebenefit is determined based upon the annual service cost of benefits (the actuarial cost of benefits earned during a period) and the interest cost on those liabilities, less the expected return on plan assets. The interest cost component is calculated using 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 cash outflows for the corresponding year. The expected long-term rate of return on plan assets is applied to the fair value of plan assets. Differences in actual experience in relation to assumptions are not recognized in net earnings immediately, but are deferred and, if necessary, amortized as pension expense.
The components of the net periodic pension expensebenefit for the fiscal years ended December 30, 201731, 2022 and December 31, 201625, 2021 were as follows:
| | | | | | |
Net periodic (benefit) expense: | | 2022 |
| 2021 | ||
Interest cost | | $ | 12,551 | | $ | 9,896 |
Expected return on plan assets | |
| (23,131) | |
| (27,763) |
Amortization of prior service cost | |
| 493 | |
| 550 |
Amortization of actuarial loss | |
| — | |
| 2,750 |
Net periodic benefit | | $ | (10,087) | | $ | (14,567) |
87
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
| 2017 | 2016 | |||||||
| Net Periodic Benefit Cost: | ||||||||
| Interest cost | 18,152 | 23,496 | ||||||
| Expected return on plan assets | (20,486 | ) | (22,986 | ) | ||||
| Amortization of actuarial loss | 2,982 | 1,360 | ||||||
| Net periodic benefit expense (benefit) | $ | 648 | $ | 1,870 | ||||
Assumptions
—The weighted-average actuarial assumptions used to determine expense are as follows for fiscal| Percentages | 2017 | 2016 | ||||
| Discount rate | 2.80 | % | 3.75 | % | ||
| Expected return on plan assets | 4.22 | % | 5.15 | % | ||
| CPI Inflation | 2.25 | % | 2.15 | % | ||
| RPI Inflation | 3.35 | % | 3.35 | % | ||
| | | | | | |
Percentages |
| 2022 | | 2021 | ||
Discount rate for benefit obligations |
| 1.90 | % | | 1.40 | % |
Discount rate for interest cost | | 1.80 | % | | 1.15 | % |
Expected return on plan assets |
| 3.48 | % | | 3.96 | % |
CPI Inflation |
| 2.70 | % | | 2.00 | % |
RPI Inflation |
| 3.30 | % | | 2.90 | % |
The discount rate is based on the yields of AA-rated corporate bonds with durational periods similar to that of the pension liabilities. The expected return on plan assets is based on ourthe asset allocation mix and ourthe historical return, taking into account current and expected market conditions. The expected return of plan assets decreased from 3.96% to 3.48% for 2022 as the investment composition has more liability matching versus return seeking assets. Inflation is based on expected changes in the consumer price index or the retail price index in the U.K. depending on the relevant plan provisions.
Cash Contributions
The Company completed negotiations with Plan trustees in 20162022 regarding annual funding for the Plan. The annual contributions into the Plan are $13,490$16,000 (/£10,000)13,100) per annum as part of the Plan’s recovery plan, along with a contribution to cover the administrative costs of the Plan of approximately $1,484$1,600 (/£1,100)1,300) per annum. The Company deferred its 2016 recovery plan contribution payment of £10,000, placing it into a restricted cash account. The restriction released in March 2017, whenIn December 2020, the Company contributed £10,000 to the Plan. The Company also made its required £10,0002021 annual contribution in March 2017 and prepaid the 2018 £10,000 contribution in December 2017addition to the Plan.
Benefit Payments
The following table details expected pension benefit payments for the years 20182023 through 2027:2032:
| | | |
2023 |
| $ | 20,432 |
2024 | |
| 21,036 |
2025 | |
| 21,641 |
2026 | |
| 22,366 |
2027 | |
| 22,970 |
Years 2028 - 2032 | |
| 125,733 |
88
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
| 2018 | $ | 23,879 | ||
| 2019 | 24,689 | |||
| 2020 | 25,500 | |||
| 2021 | 26,308 | |||
| 2022 | 27,117 | |||
| Years 2023 - 2027 | 149,078 | |||
(19) DEFINED BENEFIT RETIREMENT PLAN – CONTINUED
Asset Allocation Strategy
The investment strategy for pension plan assets is to maintain a diversified portfolio consisting of
| ● | Long-term fixed‑income securities that are investment grade or government‑backed in nature; |
| ● | Common stock mutual funds in U.K. and non-U.K. companies, and |
| ● | Diversified growth funds, which are invested in a number of investments, including common stock, fixed income funds, properties and commodities. |
The Plan, as required by U.K. law, has an independent trustee that sets investment policy. The general strategy is to invest approximately 50% of the assets of the plan in common stock mutual funds and diversified growth funds, with the remainder of the investments in long-term fixed income securities, including corporate bonds and index-linked U.K. gilts. The trustees regularly consult with representatives of the plan sponsor and independent advisors on such matters.
The pension plan investments are held in a trust. The weighted‑average maturity of the corporate bond portfolio was 13 years at December 30, 2017.
Fair Value Measurements
The pension plan assets are valued at fair value. The following is a description of the valuation methodologies used for the investments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
Leveraged inflation-linked gilts (LDIs)
Temporary Cash Investments—These investments consist of British pound sterling, reported in terms of U.S. dollars based on currency exchange rates readily available in active markets. These temporary cash investments are classified as Level 1 investments.
Corporate Bonds
—Corporate bonds and debentures consist of fixed income securities issued by U.K. corporations. The fair value recorded by the Plan is calculated using NAV for each investment.Corporate Stock
—This investment category consists of common and preferred stock, including mutual funds, issued by U.K. and non-U.K. corporations. The fair value recorded by the Plan is calculated using NAV for eachSecured Income Asset (“SIA”) Funds—This investment category consists of diversified investment funds, whose holdings include common stock, fixed income funds, propertieswhich will have a high level of expected inflation linkage. Examples of underlying assets classes are rental streams and commoditiesinfrastructure debt. Due to the private nature of U.K.these investments, pricing inputs are not readily observable. Asset valuations are developed by the fund manager. These valuations are based on the application of public market multiples to private company cash flows, market transactions that provide valuation information for comparable companies, and non-U.K. securities.other methods. The fair value recorded by the Plan is calculated using NAV for each investment.
89
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
(19) DEFINED BENEFIT RETIREMENT PLAN – CONTINUED
At December 31, 20172022 and December 31, 2016,25, 2021, the pension plan assets measured at fair value on a recurring basis were as follows:
| | | | | | | | | | | | |
|
| Quoted Prices in |
| Significant Other |
| Significant |
| | | |||
| | Active Markets | | Observable | | Unobservable | | | | |||
| | for Identical | | Inputs | | Inputs | | | | |||
December 31, 2022 | | Inputs (Level 1) | | (Level 2) | | (Level 3) | | Total | ||||
Plan assets at fair value: |
| |
|
| |
|
| |
|
| |
|
Temporary cash investments | | $ | 5,916 | | $ | — | | $ | — | | $ | 5,916 |
Total plan net assets at fair value | | $ | 5,916 | | $ | — | | $ | — | | $ | 5,916 |
Plan assets at NAV: | |
|
| |
|
| |
|
| |
|
|
Leveraged inflation-linked gilt funds | | | | |
|
| |
|
| |
| 206,555 |
Corporate bonds | | | | |
|
| |
|
| |
| 63,953 |
Corporate stock | | | | |
|
| |
|
| |
| 55,379 |
Secured income asset funds | | | | |
|
| |
|
| |
| 128,124 |
Total plan assets at NAV | | | | |
|
| |
|
| |
| 454,011 |
Total plan assets | | | | |
|
| |
|
| | $ | 459,927 |
| | | | | | | | | | | | |
|
| Quoted Prices in |
| Significant Other |
| Significant |
| | | |||
| | Active Markets | | Observable | | Unobservable | | | | |||
| | for Identical | | Inputs | | Inputs | | | | |||
December 25, 2021 | | Inputs (Level 1) | | (Level 2) | | | (Level 3) | | Total | |||
Plan assets at fair value: |
| |
|
| |
|
| |
|
| |
|
Temporary cash investments | | $ | 14,000 | | $ | — | | $ | — | | $ | 14,000 |
Total plan net assets at fair value | | $ | 14,000 | | $ | — | | $ | — | | $ | 14,000 |
Plan assets at NAV: | |
|
| |
|
| |
|
| |
|
|
Leveraged inflation-linked gilt funds | | | | |
|
| |
|
| |
| 283,288 |
Corporate bonds | | | | |
|
| |
|
| |
| 107,945 |
Corporate stock | | | | |
|
| |
|
| |
| 212,730 |
Secured income asset funds | | | | |
|
| |
|
| |
| 143,207 |
Total plan assets at NAV | | | | |
|
| |
|
| |
| 747,170 |
Total plan assets | | | | |
|
| |
|
| | $ | 761,170 |
(20) LEASES
The Company has operating leases for plant locations, corporate offices, sales offices, and certain equipment. Outstanding leases at December 31, 2022 have remaining lease terms of one year to twenty-five years, some of which include options to extend leases for up to ten years. The Company does not have any financing leases. The Company elected practical expedients not to reassess whether existing contracts are or contain leases, to not reassess the lease classification of any existing leases, to not reassess initial direct costs for any existing leases, to use hindsight in determining the lease term and in assessing impairment of the right-of-use asset, and to not separate lease and non-lease components for all classes of underlying assets.
The Company determines if an arrangement is a lease at inception. Operating leases are included in “Other assets”, “Other accrued expenses”, and “Operating lease liabilities” in the Consolidated Balance Sheets. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make future lease payments arising from the lease.
90
| December 31, 2017 | Quoted Prices in Active Markets for Identical Inputs (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
| Plan assets at fair value: | ||||||||||||||||
| Temporary cash investments | $ | 17,915 | $ | — | $ | — | $ | 17,915 | ||||||||
| Corporate stock | 536 | — | — | 536 | ||||||||||||
| Total plan net assets at fair value | $ | 18,451 | $ | — | $ | — | $ | 18,451 | ||||||||
| Plan assets at NAV: | ||||||||||||||||
| Leveraged inflation-linked gilt funds | 158,011 | |||||||||||||||
| Corporate bonds | 88,905 | |||||||||||||||
| Corporate stock | 212,505 | |||||||||||||||
| Diversified growth funds | 115,877 | |||||||||||||||
| Total plan assets at NAV | 575,298 | |||||||||||||||
| Total plan assets | $ | 593,749 | ||||||||||||||
| December 31, 2016 | Quoted Prices in Active Markets for Identical Inputs (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
| Plan assets at fair value: | ||||||||||||||||
| Temporary cash investments | $ | 1,900 | $ | — | $ | — | $ | 1,900 | ||||||||
| Corporate stock | 480 | — | — | 480 | ||||||||||||
| Total plan net assets at fair value | $ | 2,380 | $ | — | $ | — | $ | 2,380 | ||||||||
| Plan assets at NAV: | ||||||||||||||||
| Index-linked gilts | 135,141 | |||||||||||||||
| Corporate bonds | 83,834 | |||||||||||||||
| Corporate stock | 165,338 | |||||||||||||||
| Diversified growth funds | 99,974 | |||||||||||||||
| Total plan assets at NAV | 484,287 | |||||||||||||||
| Total plan assets | $ | 486,667 | ||||||||||||||
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
Operating lease ROU assets and liabilities are recognized at commencement date based on the fourth quarterpresent value of 2017,lease payments over the Company's management structurelease term. The Company used its collateralized incremental borrowing rate in determining the present value of future lease payments. The operating lease ROU asset also includes any lease payments made and reporting was changed to reflect management's expectationsexcludes any lease incentives and impairments. Some of the future growth ofCompany’s facility leases include options to extend the lease when it is reasonably certain product lines and to take into considerationthat the expected divestiture of the grinding media business, subject to regulatory approval, which historically was reported in the Energy and Mining segment. Grinding mediaoption will be reportedexercised. Lease expense is recognized on a straight-line basis over the lease term.
The Company commenced on a new corporate headquarters operating lease with straight-line annual expense of approximately $5,100, a 2% annual increase in "Other" pending the completionlease payment, and a 25-year term during 2021. In recognition of its divestiture. The access systems applications product line is now partthis lease, an operating lease asset of the Engineered Support Structures ("ESS") segment$71,853 and the offshorean operating long-term liability of $71,196 was recognized.
(20) LEASES – CONTINUED
Lease cost and other complex structures product lineinformation related to the Company’s operating leases at December 31, 2022 and December 25, 2021 are as follows:
| | | | | | | | | |
| | Fifty-three | | Fifty-two | | ||||
| | weeks ended | | weeks ended | | ||||
| | December 31, | | December 25, | | ||||
|
| 2022 | | 2021 | | ||||
Operating lease cost | | $ | 31,062 | | | $ | 27,421 | | |
| | | | | | | | | |
Operating cash outflows from operating leases | | $ | 33,150 |
| | $ | 27,793 | |
|
ROU assets obtained in exchange for lease obligations | | $ | 27,480 |
| | $ | 86,481 | |
|
Weighted average remaining lease term | |
| 17 years |
| |
| 17 years | |
|
Weighted average discount rate | |
| 4.2 | % | |
| 4.0 | % | |
Operating lease cost includes approximately $1,600 for short-term lease costs and approximately $4,400 for variable lease payments in 2022.
Supplemental balance sheet information related to operating leases as of December 31, 2022 and December 25, 2021 is now partas follows:
| | | | | | | | |
|
| |
| December 31, |
| December 25, | ||
| | Classification | | 2022 | | 2021 | ||
Operating lease assets |
| Other assets | | $ | 162,930 | | $ | 152,664 |
| | | | | | | | |
Operating lease short-term liabilities |
| Other accrued expenses | |
| 16,857 | |
| 16,754 |
Operating lease long-term liabilities |
| Operating lease liabilities | |
| 155,469 | |
| 147,759 |
Total lease liabilities | | | | $ | 172,326 | | $ | 164,513 |
91
Table of the Utility segment. InContents
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
Minimum lease payments under operating leases expiring subsequent to December 31, 2022 are as follows:
| | | |
Fiscal year ending: |
|
| |
2023 | | $ | 23,815 |
2024 | |
| 20,689 |
2025 | |
| 19,615 |
2026 | |
| 17,333 |
2027 | |
| 13,924 |
Subsequent | |
| 147,767 |
Total minimum lease payments | | $ | 243,143 |
Less: Interest | | $ | 70,817 |
Present value of minimum lease payments | | $ | 172,326 |
92
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
(21) BUSINESS SEGMENTS
During the first quarter of 2017,2022, the Company’s CODM changed the Company’s management structure and began to manage the business, allocate resources, and evaluate performance based on the new structure. As a result, the Company also changed itshas realigned to a two reportable segment structure organized by market dynamics (Infrastructure and Agriculture). Three operating incomesegments resulted from the new management structure and two are aggregated into the Agriculture reportable segment. The Company considers gross profit margins, nature of products sold, nature of the production processes, type and class of customer, and methods used to separate outdistribute products when assessing aggregation of operating segments. The Infrastructure segment includes the LIFO expense (benefit). Certain inventories are accounted for using the LIFO basis in the consolidated financial statements. Theprevious reportable segments of Utility Support Structures, Engineered Support Structures, and Coatings. All prior period segment financial information havehas been accordingly reclassified in this reportrecast to reflect these changes, for all periods presented.
The Company now has fourtwo reportable segments based on its management structure. Each segment is global in nature with a manager responsible for segment operational performance and the allocation of capital within the segment. Net corporate expense is net of certain service‑related expenses that are allocated to business units generally on the basis of employee headcounts and sales dollars.
Reportable segments are as follows:
INFRASTRUCTURE:This segment consists of the manufacture and distribution of engineered metal,products and composite structuressolutions to serve the infrastructure markets of utility, renewable energy, lighting, transportation, and components for lightingtelecommunications, and traffic, access systems, wireless communication, and roadway safety;
AGRICULTURE:This segment consists of the manufacture of engineered steelcenter pivot components and concrete structures for the utility industry and on and offshore and other complex steel structures used in energy generation and distribution outside the United States;
In addition to these fourtwo reportable segments, the Company had other businessesa business and related activities that individually areis not more than 10% of consolidated sales, operating income or assets. This includes the manufacture of forged steel grinding media for the mining industryoffshore wind energy structures business and iswas reported in the "Other" category.
The accounting policies of the reportable segments are the same as those described in Note 1. The Company evaluates the performance of its business segments based upon operating income and invested capital. The Company does not allocate LIFO expense,Company’s operating income for segment purposes excludes unallocated corporate general and administrative expenses, interest expense, non-operating income and deductions, or income taxes to its business segments.taxes.
93
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
Summary by Business
| | | | | | | | | | |
| | | 2022 | | 2021 | | 2020 | |||
SALES: | | | | | | | | | | |
Infrastructure | | | $ | 2,928,419 | | $ | 2,372,100 | | $ | 2,141,741 |
Agriculture | | | | 1,346,672 | | | 1,028,717 | | | 645,831 |
Other | | | | 100,219 | | | 123,001 | | | 120,063 |
Total | | | | 4,375,310 | | | 3,523,818 | | | 2,907,635 |
INTERSEGMENT SALES: | | | | | | | | | | |
Infrastructure | | | | (18,673) | | | (10,576) | | | (6,541) |
Agriculture | | | | (11,387) | | | (11,667) | | | (5,739) |
Other | | | | — | | | — | | | — |
Total | | | | (30,060) | | | (22,243) | | | (12,280) |
NET SALES: | | | | | | | | | | |
Infrastructure | | | | 2,909,746 | | | 2,361,524 | | | 2,135,200 |
Agriculture | | | | 1,335,285 | | | 1,017,050 | | | 640,092 |
Other | | | | 100,219 | | | 123,001 | | | 120,063 |
Total | | | $ | 4,345,250 | | $ | 3,501,575 | | $ | 2,895,355 |
| | | | | | | | | | |
OPERATING INCOME (LOSS): | | | | | | | | | | |
Infrastructure | | | | 354,499 | | | 273,598 | | | 217,364 |
Agriculture | | | | 179,263 | | | 137,027 | | | 83,046 |
Other | | | | 2,259 | | | (40,192) | | | (8,192) |
Corporate | | | | (102,772) | | | (83,648) | | | (66,265) |
Total | | | $ | 433,249 | | $ | 286,785 | | $ | 225,953 |
| | | | | | | | | | | | | | | |
|
| Fifty-three weeks ended December 31, 2022 | |||||||||||||
| | Infrastructure |
| Agriculture | | Other |
| Intersegment Sales |
| Consolidated | |||||
Geographical market: | | |
|
| |
| | |
|
| |
|
| |
|
North America | | $ | 2,234,339 | | $ | 766,929 | | $ | — | | $ | (26,248) | | $ | 2,975,020 |
International | |
| 694,080 | |
| 579,743 | |
| 100,219 | |
| (3,812) | |
| 1,370,230 |
Total | | $ | 2,928,419 | | $ | 1,346,672 | | $ | 100,219 | | $ | (30,060) | | $ | 4,345,250 |
| | | | | | | | | | | | | | | |
Product line: | |
|
| |
|
| |
|
| |
|
| |
|
|
Transmission, Distribution, and Substation | | $ | 1,184,660 | | $ | — | | $ | — | | $ | — | | $ | 1,184,660 |
Lighting and Transportation | |
| 940,462 | |
| — | |
| — | |
| — | |
| 940,462 |
Coatings | |
| 356,707 | |
| — | |
| — | |
| (15,327) | |
| 341,380 |
Telecommunications | |
| 320,342 | |
| — | |
| — | |
| — | |
| 320,342 |
Renewable Energy | |
| 126,248 | |
| — | |
| 100,219 | |
| (3,346) | |
| 223,121 |
Irrigation Equipment and Parts, excluding Technology | |
| — | |
| 1,231,587 | |
| — | |
| (11,387) | |
| 1,220,200 |
Technology Products and Services | |
| — | |
| 115,085 | |
| — | |
| — | |
| 115,085 |
Total | | $ | 2,928,419 | | $ | 1,346,672 | | $ | 100,219 | | $ | (30,060) | | $ | 4,345,250 |
94
| 2017 | 2016 | 2015 | |||||||||
| SALES: | |||||||||||
| Engineered Support Structures segment: | |||||||||||
| Lighting, Traffic, and Roadway Products | $ | 633,178 | $ | 612,868 | $ | 580,877 | |||||
| Communication Products | 171,718 | 162,148 | 162,635 | ||||||||
| Access Systems | 133,206 | 131,703 | 138,349 | ||||||||
| Engineered Support Structures segment | 938,102 | 906,719 | 881,861 | ||||||||
| Utility Support Structures segment: | |||||||||||
| Steel | 658,604 | 538,284 | 582,930 | ||||||||
| Concrete | 99,738 | 90,256 | 95,581 | ||||||||
| Offshore and Other Complex Steel Structures | 100,773 | 107,824 | 103,068 | ||||||||
| Utility Support Structures segment | 859,115 | 736,364 | 781,579 | ||||||||
| Coatings segment | 318,891 | 289,481 | 302,385 | ||||||||
| Irrigation segment | 652,430 | 575,204 | 612,201 | ||||||||
| Other | 76,300 | 83,110 | 103,690 | ||||||||
| Total | 2,844,838 | 2,590,878 | 2,681,716 | ||||||||
| INTERSEGMENT SALES: | |||||||||||
| Engineered Support Structures | 25,862 | 15,620 | 1,059 | ||||||||
| Utility Support Structures | 2,871 | 747 | 3,829 | ||||||||
| Coatings | 62,080 | 45,604 | 46,912 | ||||||||
| Irrigation | 8,058 | 7,231 | 6,430 | ||||||||
| Other | — | — | 4,562 | ||||||||
| Total | 98,871 | 69,202 | 62,792 | ||||||||
| NET SALES: | |||||||||||
| Engineered Support Structures segment | 912,240 | 891,099 | 880,802 | ||||||||
| Utility Support Structures segment | 856,244 | 735,617 | 777,750 | ||||||||
| Coatings segment | 256,811 | 243,877 | 255,473 | ||||||||
| Irrigation segment | 644,372 | 567,973 | 605,771 | ||||||||
| Other | 76,300 | 83,110 | 99,128 | ||||||||
| Total | $ | 2,745,967 | $ | 2,521,676 | $ | 2,618,924 | |||||
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
(21) BUSINESS SEGMENTS (Continued)
| | | | | | | | | | | | | | | |
|
| Fifty-two weeks ended December 25, 2021 | |||||||||||||
| | Infrastructure |
| Agriculture | | Other |
| Intersegment Sales |
| Consolidated | |||||
Geographical market: | | |
|
| |
| | |
|
| |
|
| |
|
North America | | $ | 1,724,531 | | $ | 545,574 | | $ | — | | $ | (22,243) | | $ | 2,247,862 |
International | |
| 647,569 | |
| 483,143 | |
| 123,001 | |
| — | |
| 1,253,713 |
Total | | $ | 2,372,100 | | $ | 1,028,717 | | $ | 123,001 | | $ | (22,243) | | $ | 3,501,575 |
| | | | | | | | | | | | | | | |
Product line: | |
|
| |
|
| |
|
| |
|
| |
|
|
Transmission, Distribution, and Substation | | $ | 935,099 | | $ | — | | $ | — | | $ | — | | $ | 935,099 |
Lighting and Transportation | |
| 825,923 | |
| — | |
| — | |
| — | |
| 825,923 |
Coatings | |
| 309,647 | |
| — | |
| — | |
| (10,575) | |
| 299,072 |
Telecommunications | |
| 238,527 | |
| — | |
| — | |
| — | |
| 238,527 |
Renewable Energy | |
| 62,904 | |
| — | |
| 123,001 | |
| — | |
| 185,905 |
Irrigation Equipment and Parts, excluding Technology | |
| — | |
| 930,858 | |
| — | |
| (11,668) | |
| 919,190 |
Technology Products and Services | |
| — | |
| 97,859 | |
| — | |
| — | |
| 97,859 |
Total | | $ | 2,372,100 | | $ | 1,028,717 | | $ | 123,001 | | $ | (22,243) | | $ | 3,501,575 |
| | | | | | | | | | | | | | | |
|
| Fifty-two weeks ended December 26, 2020 | |||||||||||||
| | Infrastructure |
| Agriculture | | Other |
| Intersegment Sales |
| Consolidated | |||||
Geographical market: | | |
|
| |
| | |
|
| |
|
| |
|
North America | | $ | 1,574,802 | | $ | 378,424 | | $ | — | | $ | (12,280) | | $ | 1,940,946 |
International | |
| 566,939 | |
| 267,407 | |
| 120,063 | |
| — | |
| 954,409 |
Total | | $ | 2,141,741 | | $ | 645,831 | | $ | 120,063 | | $ | (12,280) | | $ | 2,895,355 |
| | | | | | | | | | | | | | | |
Product line: | |
|
| |
|
| |
|
| |
|
| |
|
|
Transmission, Distribution, and Substation | | $ | 795,693 | | $ | — | | $ | — | | $ | — | | $ | 795,693 |
Lighting and Transportation | |
| 797,335 | |
| — | |
| — | |
| — | |
| 797,335 |
Coatings | |
| 276,087 | |
| — | |
| — | |
| (6,541) | |
| 269,546 |
Telecommunications | |
| 186,244 | |
| — | |
| — | |
| — | |
| 186,244 |
Renewable Energy | |
| 86,382 | |
| — | |
| 120,063 | |
| — | |
| 206,445 |
Irrigation Equipment and Parts, excluding Technology | |
| — | |
| 578,686 | |
| — | |
| (5,739) | |
| 572,947 |
Technology Products and Services | |
| — | |
| 67,145 | |
| — | |
| — | |
| 67,145 |
Total | | $ | 2,141,741 | | $ | 645,831 | | $ | 120,063 | | $ | (12,280) | | $ | 2,895,355 |
95
| 2017 | 2016 | 2015 | |||||||||
| OPERATING INCOME (LOSS): | |||||||||||
| Engineered Support Structures | $ | 62,960 | $ | 72,273 | $ | 28,792 | |||||
| Utility Support Structures | 97,853 | 71,171 | 38,324 | ||||||||
| Coatings | 50,179 | 46,596 | 27,369 | ||||||||
| Irrigation | 101,498 | 90,945 | 78,218 | ||||||||
| Other | 2,134 | 8,730 | (4,767 | ) | |||||||
| Adjustment to LIFO inventory valuation method | (5,680 | ) | (2,972 | ) | 12,103 | ||||||
| Corporate | (42,512 | ) | (43,239 | ) | (48,344 | ) | |||||
| Total | 266,432 | 243,504 | 131,695 | ||||||||
| Interest expense, net | (39,908 | ) | (41,304 | ) | (41,325 | ) | |||||
| Other | 1,940 | 18,254 | 2,637 | ||||||||
| Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries | $ | 228,464 | $ | 220,454 | $ | 93,007 | |||||
| TOTAL ASSETS: | |||||||||||
| Engineered Support Structures | $ | 846,881 | $ | 776,161 | $ | 790,004 | |||||
| Utility Support Structures | 597,231 | 544,015 | 569,205 | ||||||||
| Coatings | 288,890 | 274,666 | 270,793 | ||||||||
| Irrigation | 369,798 | 313,982 | 310,967 | ||||||||
| Other | 68,934 | 65,296 | 72,646 | ||||||||
| Corporate | 430,516 | 417,611 | 378,767 | ||||||||
| Total | $ | 2,602,250 | $ | 2,391,731 | $ | 2,392,382 | |||||
| CAPITAL EXPENDITURES: | |||||||||||
| Engineered Support Structures | $ | 16,433 | $ | 13,313 | $ | 12,415 | |||||
| Utility Support Structures | 14,012 | 7,969 | 13,467 | ||||||||
| Coatings | 11,080 | 24,873 | 6,836 | ||||||||
| Irrigation | 7,055 | 8,836 | 7,756 | ||||||||
| Other | 2,376 | 1,601 | 2,318 | ||||||||
| Corporate | 4,310 | 1,328 | 2,676 | ||||||||
| Total | $ | 55,266 | $ | 57,920 | $ | 45,468 | |||||
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 30, 2017
(Dollars in thousands, except per share amounts)
| | | | | | | | | |
|
| 2022 |
| 2021 |
| 2020 | |||
OPERATING INCOME (LOSS): | | | | | | | | | |
Infrastructure | | $ | 354,499 | | $ | 273,598 | | $ | 217,364 |
Agriculture | |
| 179,263 | |
| 137,027 | |
| 83,046 |
Other | | | 2,259 | | | (40,192) | | | (8,192) |
Corporate | |
| (102,772) | |
| (83,648) | |
| (66,265) |
Total | |
| 433,249 | |
| 286,785 | |
| 225,953 |
Interest expense, net | |
| (45,519) | |
| (41,420) | |
| (38,701) |
Loss from divestiture of wind energy structures business | | | (33,273) | |
| — | |
| — |
Other | |
| 9,431 | |
| 14,718 | |
| 5,516 |
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries | | $ | 363,888 | | $ | 260,083 | | $ | 192,768 |
96
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
| 2017 | 2016 | 2015 | |||||||||
| DEPRECIATION AND AMORTIZATION: | |||||||||||
| Engineered Support Structures | $ | 27,637 | $ | 27,824 | $ | 30,775 | |||||
| Utility Support Structures | 25,079 | 24,639 | 27,305 | ||||||||
| Coatings | 15,115 | 12,883 | 12,962 | ||||||||
| Irrigation | 11,173 | 12,097 | 11,746 | ||||||||
| Other | 2,486 | 2,502 | 3,992 | ||||||||
| Corporate | 3,467 | 2,472 | 4,364 | ||||||||
| Total | $ | 84,957 | $ | 82,417 | $ | 91,144 | |||||
| | | | | | | | | |
|
| 2022 |
| 2021 |
| 2020 | |||
TOTAL ASSETS: | |
|
| |
|
| |
|
|
Infrastructure | | $ | 2,267,800 | | $ | 2,102,851 | | $ | 1,933,970 |
Agriculture | |
| 1,112,588 | |
| 1,027,272 | |
| 465,322 |
Other | | | — | | | 67,592 | | | 137,316 |
Corporate | |
| 176,608 | |
| 249,534 | |
| 416,552 |
Total | | $ | 3,556,996 | | $ | 3,447,249 | | $ | 2,953,160 |
| | | | | | | | | |
|
| 2022 |
| 2021 |
| 2020 | |||
CAPITAL EXPENDITURES: | | | | | | | | | |
Infrastructure |
| $ | 53,228 |
| $ | 72,129 |
| $ | 81,074 |
Agriculture |
| | 32,886 |
| | 17,509 |
| | 16,740 |
Other | | | — | | | 345 | | | — |
Corporate |
| | 7,174 |
| | 17,807 |
| | 8,886 |
Total | | $ | 93,288 | | $ | 107,790 | | $ | 106,700 |
| | | | | | | | | |
|
| 2022 |
| 2021 |
| 2020 | |||
DEPRECIATION AND AMORTIZATION: | | | | | | | | | |
Infrastructure | | $ | 62,398 | | $ | 59,748 | | $ | 58,985 |
Agriculture | |
| 23,681 | |
| 17,813 | |
| 12,098 |
Other | | | 1,393 | | | 5,988 | | | 5,848 |
Corporate | |
| 9,695 | |
| 9,028 | |
| 5,961 |
Total | | $ | 97,167 | | $ | 92,577 | | $ | 82,892 |
Summary by Geographical Area by Location of Valmont Facilities:
| | | | | | | | | |
|
| 2022 |
| 2021 |
| 2020 | |||
NET SALES: | | | | | | | | | |
United States | | $ | 2,965,673 | | $ | 2,260,198 | | $ | 1,919,136 |
Australia | |
| 292,072 | |
| 297,720 | |
| 252,253 |
Brazil | |
| 354,497 | |
| 200,402 | |
| 103,591 |
Denmark | |
| 100,219 | |
| 123,001 | |
| 120,063 |
Other | |
| 632,789 | |
| 620,254 | |
| 500,312 |
Total | | $ | 4,345,250 | | $ | 3,501,575 | | $ | 2,895,355 |
| | | | | | | | | |
LONG-LIVED ASSETS: | |
|
| |
|
| |
|
|
United States | | $ | 1,246,956 | | $ | 1,172,552 | | $ | 748,886 |
Australia | |
| 82,290 | |
| 173,240 | |
| 179,673 |
Brazil | |
| 42,259 | |
| 28,583 | |
| 17,151 |
Denmark | |
| — | |
| 21,232 | |
| 61,546 |
Other | |
| 404,906 | |
| 338,879 | |
| 391,279 |
Total | | $ | 1,776,411 | | $ | 1,734,486 | | $ | 1,398,535 |
97
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
Three-year period ended December 31, 2022
(Dollars in thousands, except per share amounts)
| 2017 | 2016 | 2015 | |||||||||
| NET SALES: | |||||||||||
| United States | $ | 1,702,826 | $ | 1,535,321 | $ | 1,586,702 | |||||
| Australia | 356,959 | 315,470 | 347,975 | ||||||||
| Denmark | 100,773 | 99,719 | 98,628 | ||||||||
| Other | 585,409 | 571,166 | 585,619 | ||||||||
| Total | $ | 2,745,967 | $ | 2,521,676 | $ | 2,618,924 | |||||
| LONG-LIVED ASSETS: | |||||||||||
| United States | $ | 544,724 | $ | 568,085 | $ | 575,737 | |||||
| Australia | 227,483 | 216,416 | 259,326 | ||||||||
| Denmark | 90,372 | 85,654 | 90,463 | ||||||||
| Other | 267,106 | 268,360 | 240,004 | ||||||||
| Total | $ | 1,129,685 | $ | 1,138,515 | $ | 1,165,530 | |||||
No single customer accounted for more than 10% of net sales in 2017, 2016,2022, 2021, or 2015.2020. Net sales by geographical area are based on the location of the facility producing the sales and do not include sales to other operating units of the company.Company. Brazil and Australia accounted for approximately 13%8% and 7% of the Company'sCompany’s net sales in 2017;2022, respectively; no other foreign country accounted for more than 5%3% of the Company’s net sales.
Operating income by business segment are based on net sales less identifiable operating expenses and allocations and includes profits recorded on sales to other operating units of the company.Company. Long-lived assets consist of property, plant, and equipment, net of depreciation, goodwill, other intangible assets, and other assets. Long-lived assets by geographical area are based on location of facilities.
98
| Parent | Guarantors | Non- Guarantors | Eliminations | Total | |||||||||||||||
| Net sales | $ | 1,200,181 | $ | 485,448 | $ | 1,312,214 | $ | (251,876 | ) | $ | 2,745,967 | ||||||||
| Cost of sales | 898,799 | 375,383 | 1,042,199 | (252,182 | ) | 2,064,199 | |||||||||||||
| Gross profit | 301,382 | 110,065 | 270,015 | 306 | 681,768 | ||||||||||||||
| Selling, general and administrative expenses | 192,182 | 47,955 | 175,199 | — | 415,336 | ||||||||||||||
| Operating income | 109,200 | 62,110 | 94,816 | 306 | 266,432 | ||||||||||||||
| Other income (expense): | |||||||||||||||||||
| Interest expense | (43,642 | ) | (13,866 | ) | (1,003 | ) | 13,866 | (44,645 | ) | ||||||||||
| Interest income | 838 | 42 | 17,723 | (13,866 | ) | 4,737 | |||||||||||||
| Other | 5,681 | 58 | (3,799 | ) | — | 1,940 | |||||||||||||
| (37,123 | ) | (13,766 | ) | 12,921 | — | (37,968 | ) | ||||||||||||
| Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries | 72,077 | 48,344 | 107,737 | 306 | 228,464 | ||||||||||||||
| Income tax expense (benefit): | |||||||||||||||||||
| Current | 29,407 | 17,928 | 18,920 | 135 | 66,390 | ||||||||||||||
| Deferred | 10,307 | — | 29,448 | — | 39,755 | ||||||||||||||
| 39,714 | 17,928 | 48,368 | 135 | 106,145 | |||||||||||||||
| Earnings before equity in earnings of nonconsolidated subsidiaries | 32,363 | 30,416 | 59,369 | 171 | 122,319 | ||||||||||||||
| Equity in earnings of nonconsolidated subsidiaries | 83,877 | 22,146 | — | (106,023 | ) | — | |||||||||||||
| Net earnings | 116,240 | 52,562 | 59,369 | (105,852 | ) | 122,319 | |||||||||||||
| Less: Earnings attributable to noncontrolling interests | — | — | (6,079 | ) | — | (6,079 | ) | ||||||||||||
| Net earnings attributable to Valmont Industries, Inc | $ | 116,240 | $ | 52,562 | $ | 53,290 | $ | (105,852 | ) | $ | 116,240 | ||||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Total | |||||||||||||||
| Net sales | $ | 1,126,985 | $ | 390,756 | $ | 1,195,812 | $ | (191,877 | ) | $ | 2,521,676 | ||||||||
| Cost of sales | 837,616 | 285,924 | 932,609 | (190,716 | ) | 1,865,433 | |||||||||||||
| Gross profit | 289,369 | 104,832 | 263,203 | (1,161 | ) | 656,243 | |||||||||||||
| Selling, general and administrative expenses | 184,493 | 46,244 | 182,002 | — | 412,739 | ||||||||||||||
| Impairment of goodwill and intangible assets | — | — | — | — | — | ||||||||||||||
| Operating income | 104,876 | 58,588 | 81,201 | (1,161 | ) | 243,504 | |||||||||||||
| Other income (expense): | |||||||||||||||||||
| Interest expense | (43,703 | ) | (10 | ) | (696 | ) | — | (44,409 | ) | ||||||||||
| Interest income | 273 | 112 | 2,720 | — | 3,105 | ||||||||||||||
| Other | 1,480 | 77 | 16,697 | — | 18,254 | ||||||||||||||
| (41,950 | ) | 179 | 18,721 | — | (23,050 | ) | |||||||||||||
| Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries | 62,926 | 58,767 | 99,922 | (1,161 | ) | 220,454 | |||||||||||||
| Income tax expense (benefit): | |||||||||||||||||||
| Current | 24,539 | 20,270 | 21,262 | (323 | ) | 65,748 | |||||||||||||
| Deferred | 6,216 | — | (29,901 | ) | — | (23,685 | ) | ||||||||||||
| 30,755 | 20,270 | (8,639 | ) | (323 | ) | 42,063 | |||||||||||||
| Earnings before equity in earnings of nonconsolidated subsidiaries | 32,171 | 38,497 | 108,561 | (838 | ) | 178,391 | |||||||||||||
| Equity in earnings of nonconsolidated subsidiaries | 141,061 | 66,128 | — | (207,189 | ) | — | |||||||||||||
| Net earnings | 173,232 | 104,625 | 108,561 | (208,027 | ) | 178,391 | |||||||||||||
| Less: Earnings attributable to noncontrolling interests | — | — | (5,159 | ) | — | (5,159 | ) | ||||||||||||
| Net earnings attributable to Valmont Industries, Inc | $ | 173,232 | $ | 104,625 | $ | 103,402 | $ | (208,027 | ) | $ | 173,232 | ||||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Total | |||||||||||||||
| Net sales | $ | 1,169,674 | $ | 423,928 | $ | 1,238,609 | $ | (213,287 | ) | $ | 2,618,924 | ||||||||
| Cost of sales | 890,242 | 332,847 | 987,729 | (212,927 | ) | 1,997,891 | |||||||||||||
| Gross profit | 279,432 | 91,081 | 250,880 | (360 | ) | 621,033 | |||||||||||||
| Selling, general and administrative expenses | 194,335 | 45,549 | 207,484 | — | 447,368 | ||||||||||||||
| Impairment of goodwill and intangible assets | — | — | 41,970 | — | 41,970 | ||||||||||||||
| Operating income | 85,097 | 45,532 | 1,426 | (360 | ) | 131,695 | |||||||||||||
| Other income (expense): | |||||||||||||||||||
| Interest expense | (43,552 | ) | — | (1,069 | ) | — | (44,621 | ) | |||||||||||
| Interest income | 9 | 103 | 3,184 | — | 3,296 | ||||||||||||||
| Other | (2,374 | ) | 60 | 4,951 | — | 2,637 | |||||||||||||
| (45,917 | ) | 163 | 7,066 | — | (38,688 | ) | |||||||||||||
| Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries | 39,180 | 45,695 | 8,492 | (360 | ) | 93,007 | |||||||||||||
| Income tax expense (benefit): | |||||||||||||||||||
| Current | 863 | 23,261 | 18,446 | (1 | ) | 42,569 | |||||||||||||
| Deferred | 10,042 | (6,224 | ) | 1,040 | — | 4,858 | |||||||||||||
| 10,905 | 17,037 | 19,486 | (1 | ) | 47,427 | ||||||||||||||
| Earnings before equity in earnings of nonconsolidated subsidiaries | 28,275 | 28,658 | (10,994 | ) | (359 | ) | 45,580 | ||||||||||||
| Equity in earnings of nonconsolidated subsidiaries | 11,842 | (39,418 | ) | (247 | ) | 27,576 | (247 | ) | |||||||||||
| Net earnings | 40,117 | (10,760 | ) | (11,241 | ) | 27,217 | 45,333 | ||||||||||||
| Less: Earnings attributable to noncontrolling interests | — | — | (5,216 | ) | — | (5,216 | ) | ||||||||||||
| Net earnings attributable to Valmont Industries, Inc | $ | 40,117 | $ | (10,760 | ) | $ | (16,457 | ) | $ | 27,217 | $ | 40,117 | |||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Total | |||||||||||||||
| Net earnings | $ | 116,240 | $ | 52,562 | $ | 59,369 | $ | (105,852 | ) | $ | 122,319 | ||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||
| Foreign currency translation adjustments: | |||||||||||||||||||
| Unrealized translation gains (losses) | — | 138,795 | (59,516 | ) | — | 79,279 | |||||||||||||
| Gain (loss) on hedging activity: | |||||||||||||||||||
| Unrealized gain (loss) on net investment hedge | (1,695 | ) | — | — | — | (1,695 | ) | ||||||||||||
| Amortization cost included in interest expense | 74 | — | — | — | 74 | ||||||||||||||
| (1,621 | ) | — | — | — | (1,621 | ) | |||||||||||||
| Actuarial gain (loss) in defined benefit pension plan liability | — | — | (10,871 | ) | — | (10,871 | ) | ||||||||||||
| Equity in other comprehensive income | 68,958 | — | — | (68,958 | ) | — | |||||||||||||
| Other comprehensive income (loss) | 67,337 | 138,795 | (70,387 | ) | (68,958 | ) | 66,787 | ||||||||||||
| Comprehensive income (loss) | 183,577 | 191,357 | (11,018 | ) | (174,810 | ) | 189,106 | ||||||||||||
| Comprehensive income attributable to noncontrolling interests | — | — | (5,529 | ) | — | (5,529 | ) | ||||||||||||
| Comprehensive income (loss) attributable to Valmont Industries, Inc. | $ | 183,577 | $ | 191,357 | $ | (16,547 | ) | $ | (174,810 | ) | $ | 183,577 | |||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Total | |||||||||||||||
| Net earnings | $ | 173,232 | $ | 104,625 | $ | 108,561 | $ | (208,027 | ) | $ | 178,391 | ||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||
| Foreign currency translation adjustments: | |||||||||||||||||||
| Unrealized translation gains (losses) | — | 49 | (58,364 | ) | — | (58,315 | ) | ||||||||||||
| — | 49 | (58,364 | ) | — | (58,315 | ) | |||||||||||||
| Gain (loss) on hedging activity: | |||||||||||||||||||
| Amortization cost included in interest expense | 74 | — | — | — | 74 | ||||||||||||||
| Unrealized gain on net investment hedge | 4,226 | — | — | — | 4,226 | ||||||||||||||
| 4,300 | — | — | — | 4,300 | |||||||||||||||
| Actuarial gain (loss) in defined benefit pension plan liability | — | — | (24,141 | ) | — | (24,141 | ) | ||||||||||||
| Equity in other comprehensive income | (83,252 | ) | — | — | 83,252 | — | |||||||||||||
| Other comprehensive income (loss) | (78,952 | ) | 49 | (82,505 | ) | 83,252 | (78,156 | ) | |||||||||||
| Comprehensive income (loss) | 94,280 | 104,674 | 26,056 | (124,775 | ) | 100,235 | |||||||||||||
| Comprehensive income attributable to noncontrolling interests | — | — | (6,144 | ) | — | (6,144 | ) | ||||||||||||
| Comprehensive income (loss) attributable to Valmont Industries, Inc. | $ | 94,280 | $ | 104,674 | $ | 19,912 | $ | (124,775 | ) | $ | 94,091 | ||||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Total | |||||||||||||||
| Net earnings | $ | 40,117 | $ | (10,760 | ) | $ | (11,241 | ) | $ | 27,217 | $ | 45,333 | |||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||
| Foreign currency translation adjustments: | |||||||||||||||||||
| Unrealized translation gains (losses) | — | (15,166 | ) | (81,528 | ) | — | (96,694 | ) | |||||||||||
| — | (15,166 | ) | (81,528 | ) | — | (96,694 | ) | ||||||||||||
| Gain (loss) on hedging activity: | |||||||||||||||||||
| Amortization cost included in interest expense | 74 | — | — | — | 74 | ||||||||||||||
| Realized (gain) loss included in net earnings | (3,130 | ) | — | — | — | (3,130 | ) | ||||||||||||
| Unrealized gain on cash flow hedges | 2,855 | — | — | — | 2,855 | ||||||||||||||
| (201 | ) | — | — | — | (201 | ) | |||||||||||||
| Actuarial gain (loss) in defined benefit pension plan liability | — | — | (40,274 | ) | — | (40,274 | ) | ||||||||||||
| Equity in other comprehensive income | (132,584 | ) | — | — | 132,584 | — | |||||||||||||
| Other comprehensive income (loss) | (132,785 | ) | (15,166 | ) | (121,802 | ) | 132,584 | (137,169 | ) | ||||||||||
| Comprehensive income | (92,668 | ) | (25,926 | ) | (133,043 | ) | 159,801 | (91,836 | ) | ||||||||||
| Comprehensive income attributable to noncontrolling interests | — | — | (832 | ) | — | (832 | ) | ||||||||||||
| Comprehensive income attributable to Valmont Industries, Inc. | $ | (92,668 | ) | $ | (25,926 | ) | $ | (133,875 | ) | $ | 159,801 | $ | (92,668 | ) | |||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Total | |||||||||||||||
| ASSETS | |||||||||||||||||||
| Current assets: | |||||||||||||||||||
| Cash and cash equivalents | $ | 83,329 | $ | 5,304 | $ | 404,172 | $ | — | $ | 492,805 | |||||||||
| Receivables, net | 149,221 | 82,995 | 271,461 | — | 503,677 | ||||||||||||||
| Inventories | 160,444 | 46,801 | 217,551 | (3,848 | ) | 420,948 | |||||||||||||
| Prepaid expenses, restricted cash, and other assets | 8,607 | 970 | 34,066 | — | 43,643 | ||||||||||||||
| Refundable income taxes | 11,492 | — | — | — | 11,492 | ||||||||||||||
| Total current assets | 413,093 | 136,070 | 927,250 | (3,848 | ) | 1,472,565 | |||||||||||||
| Property, plant and equipment, at cost | 557,371 | 160,767 | 447,549 | — | 1,165,687 | ||||||||||||||
| Less accumulated depreciation and amortization | 368,668 | 84,508 | 193,583 | — | 646,759 | ||||||||||||||
| Net property, plant and equipment | 188,703 | 76,259 | 253,966 | — | 518,928 | ||||||||||||||
| Goodwill | 20,108 | 110,562 | 207,050 | — | 337,720 | ||||||||||||||
| Other intangible assets | 130 | 30,955 | 107,514 | — | 138,599 | ||||||||||||||
| Investment in subsidiaries and intercompany accounts | 1,416,446 | 1,181,537 | 927,179 | (3,525,162 | ) | — | |||||||||||||
| Other assets | 50,773 | — | 83,665 | — | 134,438 | ||||||||||||||
| Total assets | $ | 2,089,253 | $ | 1,535,383 | $ | 2,506,624 | $ | (3,529,010 | ) | $ | 2,602,250 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||
| Current liabilities: | |||||||||||||||||||
| Current installments of long-term debt | $ | — | $ | — | $ | 966 | $ | — | $ | 966 | |||||||||
| Notes payable to banks | — | — | 161 | — | 161 | ||||||||||||||
| Accounts payable | 69,915 | 18,039 | 139,952 | — | 227,906 | ||||||||||||||
| Accrued employee compensation and benefits | 44,086 | 8,749 | 31,591 | — | 84,426 | ||||||||||||||
| Accrued expenses | 28,198 | 9,621 | 43,210 | — | 81,029 | ||||||||||||||
| Dividends payable | 8,510 | — | — | — | 8,510 | ||||||||||||||
| Total current liabilities | 150,709 | 36,409 | 215,880 | — | 402,998 | ||||||||||||||
| Deferred income taxes | 20,885 | — | 14,021 | — | 34,906 | ||||||||||||||
| Long-term debt, excluding current installments | 750,821 | 185,078 | 9,836 | (191,847 | ) | 753,888 | |||||||||||||
| Defined benefit pension liability | — | — | 189,552 | — | 189,552 | ||||||||||||||
| Deferred compensation | 42,928 | — | 5,598 | — | 48,526 | ||||||||||||||
| Other noncurrent liabilities | 11,074 | 6 | 9,505 | — | 20,585 | ||||||||||||||
| Shareholders’ equity: | |||||||||||||||||||
| Common stock of $1 par value | 27,900 | 457,950 | 648,682 | (1,106,632 | ) | 27,900 | |||||||||||||
| Additional paid-in capital | — | 159,414 | 1,107,536 | (1,266,950 | ) | — | |||||||||||||
| Retained earnings | 1,954,344 | 622,044 | 619,622 | (1,241,666 | ) | 1,954,344 | |||||||||||||
| Accumulated other comprehensive income (loss) | (279,022 | ) | 74,482 | (352,567 | ) | 278,085 | (279,022 | ) | |||||||||||
| Treasury stock | (590,386 | ) | — | — | — | (590,386 | ) | ||||||||||||
| Total Valmont Industries, Inc. shareholders’ equity | 1,112,836 | 1,313,890 | 2,023,273 | (3,337,163 | ) | 1,112,836 | |||||||||||||
| Noncontrolling interest in consolidated subsidiaries | — | — | 38,959 | — | 38,959 | ||||||||||||||
| Total shareholders’ equity | 1,112,836 | 1,313,890 | 2,062,232 | (3,337,163 | ) | 1,151,795 | |||||||||||||
| Total liabilities and shareholders’ equity | $ | 2,089,253 | $ | 1,535,383 | $ | 2,506,624 | $ | (3,529,010 | ) | $ | 2,602,250 | ||||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Total | |||||||||||||||
| ASSETS | |||||||||||||||||||
| Current assets: | |||||||||||||||||||
| Cash and cash equivalents | $ | 67,225 | $ | 6,071 | $ | 326,652 | $ | — | $ | 399,948 | |||||||||
| Receivables, net | 134,351 | 60,522 | 244,469 | — | 439,342 | ||||||||||||||
| Inventories | 126,669 | 45,457 | 182,056 | (4,154 | ) | 350,028 | |||||||||||||
| Prepaid expenses, restricted cash, and other assets | 13,271 | 880 | 43,146 | — | 57,297 | ||||||||||||||
| Refundable income taxes | 6,601 | — | — | — | 6,601 | ||||||||||||||
| Total current assets | 348,117 | 112,930 | 796,323 | (4,154 | ) | 1,253,216 | |||||||||||||
| Property, plant and equipment, at cost | 547,076 | 153,596 | 405,064 | — | 1,105,736 | ||||||||||||||
| Less accumulated depreciation and amortization | 352,960 | 76,776 | 157,665 | — | 587,401 | ||||||||||||||
| Net property, plant and equipment | 194,116 | 76,820 | 247,399 | — | 518,335 | ||||||||||||||
| Goodwill | 20,108 | 110,561 | 190,441 | — | 321,110 | ||||||||||||||
| Other intangible assets | 184 | 35,953 | 108,241 | — | 144,378 | ||||||||||||||
| Investment in subsidiaries and intercompany accounts | 1,279,413 | 901,758 | 1,089,369 | (3,270,540 | ) | — | |||||||||||||
| Other assets | 43,880 | — | 110,812 | — | 154,692 | ||||||||||||||
| Total assets | $ | 1,885,818 | $ | 1,238,022 | $ | 2,542,585 | $ | (3,274,694 | ) | $ | 2,391,731 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||
| Current liabilities: | |||||||||||||||||||
| Current installments of long-term debt | $ | — | $ | — | $ | 851 | $ | — | $ | 851 | |||||||||
| Notes payable to banks | — | — | 746 | — | 746 | ||||||||||||||
| Accounts payable | 52,272 | 15,732 | 109,484 | — | 177,488 | ||||||||||||||
| Accrued employee compensation and benefits | 34,508 | 7,243 | 30,653 | — | 72,404 | ||||||||||||||
| Accrued expenses | 30,261 | 15,242 | 44,411 | — | 89,914 | ||||||||||||||
| Dividends payable | 8,445 | — | — | — | 8,445 | ||||||||||||||
| Total current liabilities | 125,486 | 38,217 | 186,145 | — | 349,848 | ||||||||||||||
| Deferred income taxes | 22,481 | — | 13,322 | — | 35,803 | ||||||||||||||
| Long-term debt, excluding current installments | 751,251 | — | 3,544 | — | 754,795 | ||||||||||||||
| Defined benefit pension liability | — | — | 209,470 | — | 209,470 | ||||||||||||||
| Deferred compensation | 39,476 | — | 4,843 | — | 44,319 | ||||||||||||||
| Other noncurrent liabilities | 3,642 | 5 | 11,263 | — | 14,910 | ||||||||||||||
| Shareholders’ equity: | |||||||||||||||||||
| Common stock of $1 par value | 27,900 | 457,950 | 648,683 | (1,106,633 | ) | 27,900 | |||||||||||||
| Additional paid-in capital | — | 159,414 | 1,107,536 | (1,266,950 | ) | — | |||||||||||||
| Retained earnings | 1,874,722 | 646,749 | 603,338 | (1,250,087 | ) | 1,874,722 | |||||||||||||
| Accumulated other comprehensive income (loss) | (346,359 | ) | (64,313 | ) | (284,663 | ) | 348,976 | (346,359 | ) | ||||||||||
| Treasury stock | (612,781 | ) | — | — | — | (612,781 | ) | ||||||||||||
| Total Valmont Industries, Inc. shareholders’ equity | 943,482 | 1,199,800 | 2,074,894 | (3,274,694 | ) | 943,482 | |||||||||||||
| Noncontrolling interest in consolidated subsidiaries | — | — | 39,104 | — | 39,104 | ||||||||||||||
| Total shareholders’ equity | 943,482 | 1,199,800 | 2,113,998 | (3,274,694 | ) | 982,586 | |||||||||||||
| Total liabilities and shareholders’ equity | $ | 1,885,818 | $ | 1,238,022 | $ | 2,542,585 | $ | (3,274,694 | ) | $ | 2,391,731 | ||||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Total | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||
| Net earnings | $ | 116,240 | $ | 52,562 | $ | 59,369 | $ | (105,852 | ) | $ | 122,319 | ||||||||
| Adjustments to reconcile net earnings to net cash flows from operations: | |||||||||||||||||||
| Depreciation and amortization | 26,237 | 15,003 | 43,717 | — | 84,957 | ||||||||||||||
| Noncash loss on trading securities | — | — | 237 | — | 237 | ||||||||||||||
| Decrease in restricted cash - pension plan trust | — | — | 12,568 | — | 12,568 | ||||||||||||||
| Stock-based compensation | 10,706 | — | — | — | 10,706 | ||||||||||||||
| Defined benefit pension plan expense (benefit) | — | — | 648 | — | 648 | ||||||||||||||
| Contribution to defined benefit pension plan | — | — | (40,245 | ) | — | (40,245 | ) | ||||||||||||
| (Gain) loss on sale of property, plant and equipment | (664 | ) | 8 | (3,268 | ) | — | (3,924 | ) | |||||||||||
| Equity in earnings in nonconsolidated subsidiaries | (83,877 | ) | (22,146 | ) | — | 106,023 | — | ||||||||||||
| Deferred income taxes | 10,307 | — | 29,448 | — | 39,755 | ||||||||||||||
| Changes in assets and liabilities (net of acquisitions): | |||||||||||||||||||
| Receivables | (13,120 | ) | (22,473 | ) | (13,519 | ) | — | (49,112 | ) | ||||||||||
| Inventories | (33,775 | ) | (1,345 | ) | (22,016 | ) | (306 | ) | (57,442 | ) | |||||||||
| Prepaid expenses | (2,207 | ) | (90 | ) | (3,741 | ) | — | (6,038 | ) | ||||||||||
| Accounts payable | 17,643 | 2,307 | 19,455 | — | 39,405 | ||||||||||||||
| Accrued expenses | 7,516 | (4,116 | ) | (5,398 | ) | — | (1,998 | ) | |||||||||||
| Other noncurrent liabilities | (140 | ) | — | (7,088 | ) | — | (7,228 | ) | |||||||||||
| Income taxes payable (refundable) | (11,837 | ) | 728 | 12,217 | — | 1,108 | |||||||||||||
| Net cash flows from operating activities | 43,029 | 20,438 | 82,384 | (135 | ) | 145,716 | |||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||
| Purchase of property, plant and equipment | (20,460 | ) | (9,454 | ) | (25,352 | ) | — | (55,266 | ) | ||||||||||
| Proceeds from sale of assets | 748 | 3 | 7,434 | — | 8,185 | ||||||||||||||
| Acquisitions, net of cash acquired | — | — | (5,362 | ) | — | (5,362 | ) | ||||||||||||
| Proceeds from settlement of net investment hedge | 5,123 | — | — | — | 5,123 | ||||||||||||||
| Other, net | 684 | (22,777 | ) | 19,663 | 135 | (2,295 | ) | ||||||||||||
| Net cash flows from investing activities | (13,905 | ) | (32,228 | ) | (3,617 | ) | 135 | (49,615 | ) | ||||||||||
| Cash flows from financing activities: | |||||||||||||||||||
| Payments under short-term agreements | — | — | (585 | ) | — | (585 | ) | ||||||||||||
| Principal payments on long-term borrowings | — | (887 | ) | — | (887 | ) | |||||||||||||
| Dividends paid | (33,862 | ) | — | — | — | (33,862 | ) | ||||||||||||
| Dividends to noncontrolling interest | — | — | (5,674 | ) | — | (5,674 | ) | ||||||||||||
| Intercompany dividends | 22,662 | — | (22,662 | ) | — | — | |||||||||||||
| Intercompany capital contribution | (10,818 | ) | 10,818 | — | |||||||||||||||
| Proceeds from exercises under stock plans | 35,159 | — | — | — | 35,159 | ||||||||||||||
| Purchase of common treasury shares - stock plan exercises | (26,161 | ) | — | — | — | (26,161 | ) | ||||||||||||
| Net cash flows from financing activities | (13,020 | ) | 10,818 | (29,808 | ) | — | (32,010 | ) | |||||||||||
| Effect of exchange rate changes on cash and cash equivalents | — | 205 | 28,561 | — | 28,766 | ||||||||||||||
| Net change in cash and cash equivalents | 16,104 | (767 | ) | 77,520 | — | 92,857 | |||||||||||||
| Cash and cash equivalents—beginning of year | 67,225 | 6,071 | 326,652 | — | 399,948 | ||||||||||||||
| Cash and cash equivalents—end of period | $ | 83,329 | $ | 5,304 | $ | 404,172 | $ | — | $ | 492,805 | |||||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Total | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||
| Net earnings | $ | 173,232 | $ | 104,625 | $ | 108,561 | $ | (208,027 | ) | $ | 178,391 | ||||||||
| Adjustments to reconcile net earnings to net cash flows from operations: | |||||||||||||||||||
| Depreciation and amortization | 27,096 | 13,316 | 42,005 | — | 82,417 | ||||||||||||||
| Noncash loss on trading securities | — | — | 586 | — | 586 | ||||||||||||||
| Increase in restricted cash - pension plan trust | — | — | (13,652 | ) | — | (13,652 | ) | ||||||||||||
| Impairment of property, plant and equipment | — | — | 1,099 | — | 1,099 | ||||||||||||||
| Stock-based compensation | 9,931 | — | — | — | 9,931 | ||||||||||||||
| Change in fair value of contingent consideration | — | — | (3,242 | ) | — | (3,242 | ) | ||||||||||||
| Defined benefit pension plan expense (benefit) | — | — | 1,870 | — | 1,870 | ||||||||||||||
| Contribution to defined benefit pension plan | — | — | (1,488 | ) | — | (1,488 | ) | ||||||||||||
| (Gain) loss on sale of property, plant and equipment | 165 | 103 | 363 | — | 631 | ||||||||||||||
| Equity in earnings in nonconsolidated subsidiaries | (141,061 | ) | (66,128 | ) | — | 207,189 | — | ||||||||||||
| Deferred income taxes | 6,216 | — | (29,901 | ) | — | (23,685 | ) | ||||||||||||
| Changes in assets and liabilities (net of acquisitions): | |||||||||||||||||||
| Receivables | (3,610 | ) | 5,865 | 22,367 | — | 24,622 | |||||||||||||
| Inventories | 5,554 | (7,078 | ) | (11,097 | ) | 1,160 | (11,461 | ) | |||||||||||
| Prepaid expenses | (1,250 | ) | (114 | ) | 2,502 | — | 1,138 | ||||||||||||
| Accounts payable | (14,452 | ) | 2,052 | 12,504 | — | 104 | |||||||||||||
| Accrued expenses | 1,423 | (6,664 | ) | (6,966 | ) | — | (12,207 | ) | |||||||||||
| Other noncurrent liabilities | (2,333 | ) | 5 | (21,552 | ) | — | (23,880 | ) | |||||||||||
| Income taxes payable (refundable) | 32,873 | (16,567 | ) | (8,312 | ) | — | 7,994 | ||||||||||||
| Net cash flows from operating activities | 93,784 | 29,415 | 95,647 | 322 | 219,168 | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||
| Purchase of property, plant and equipment | (9,031 | ) | (22,320 | ) | (26,569 | ) | — | (57,920 | ) | ||||||||||
| Proceeds from sale of assets | 44 | 102 | 4,980 | — | 5,126 | ||||||||||||||
| Other, net | (633 | ) | (5,085 | ) | 5,785 | (322 | ) | (255 | ) | ||||||||||
| Net cash flows from investing activities | (9,620 | ) | (27,303 | ) | (15,804 | ) | (322 | ) | (53,049 | ) | |||||||||
| Cash flows from financing activities: | |||||||||||||||||||
| Payments under short-term agreements | — | — | (200 | ) | — | (200 | ) | ||||||||||||
| Principal payments on long-term borrowings | (215 | ) | — | (1,791 | ) | — | (2,006 | ) | |||||||||||
| Dividends paid | (34,053 | ) | — | — | — | (34,053 | ) | ||||||||||||
| Purchase of noncontrolling interest | — | — | (11,009 | ) | — | (11,009 | ) | ||||||||||||
| Dividends to noncontrolling interest | — | — | (2,938 | ) | — | (2,938 | ) | ||||||||||||
| Proceeds from exercises under stock plans | 11,153 | — | — | — | 11,153 | ||||||||||||||
| Purchase of treasury shares | (53,800 | ) | — | — | — | (53,800 | ) | ||||||||||||
| Purchase of common treasury shares - stock plan exercises | (2,305 | ) | — | — | — | (2,305 | ) | ||||||||||||
| Net cash flows from financing activities | (79,220 | ) | — | (15,938 | ) | — | (95,158 | ) | |||||||||||
| Effect of exchange rate changes on cash and cash equivalents | — | (49 | ) | (20,038 | ) | — | (20,087 | ) | |||||||||||
| Net change in cash and cash equivalents | 4,944 | 2,063 | 43,867 | — | 50,874 | ||||||||||||||
| Cash and cash equivalents—beginning of year | 62,281 | 4,008 | 282,785 | — | 349,074 | ||||||||||||||
| Cash and cash equivalents—end of period | $ | 67,225 | $ | 6,071 | $ | 326,652 | $ | — | $ | 399,948 | |||||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Total | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||
| Net earnings | $ | 40,117 | $ | (10,760 | ) | $ | (11,241 | ) | $ | 27,217 | $ | 45,333 | |||||||
| Adjustments to reconcile net earnings to net cash flows from operations: | |||||||||||||||||||
| Depreciation and amortization | 29,433 | 12,611 | 49,100 | — | 91,144 | ||||||||||||||
| Noncash loss on trading securities | — | — | 4,555 | — | 4,555 | ||||||||||||||
| Impairment of property, plant and equipment | 7,486 | 542 | 11,808 | — | 19,836 | ||||||||||||||
| Impairment of goodwill & intangibles assets | — | — | 41,970 | — | 41,970 | ||||||||||||||
| Stock-based compensation | 7,244 | — | — | — | 7,244 | ||||||||||||||
| Defined benefit pension plan expense (benefit) | — | — | (610 | ) | — | (610 | ) | ||||||||||||
| Contribution to defined benefit pension plan | — | — | (16,500 | ) | — | (16,500 | ) | ||||||||||||
| (Gain) loss on sale of property, plant and equipment | 983 | 319 | 1,025 | — | 2,327 | ||||||||||||||
| Equity in earnings in nonconsolidated subsidiaries | (11,842 | ) | 39,418 | 247 | (27,576 | ) | 247 | ||||||||||||
| Deferred income taxes | 10,042 | (6,224 | ) | 1,040 | — | 4,858 | |||||||||||||
| Changes in assets and liabilities (net of acquisitions): | |||||||||||||||||||
| Receivables | 27,576 | 3,547 | 19,144 | — | 50,267 | ||||||||||||||
| Inventories | (4,364 | ) | 18,130 | (12,698 | ) | 2,228 | 3,296 | ||||||||||||
| Prepaid expenses | 2,337 | (172 | ) | 8,679 | — | 10,844 | |||||||||||||
| Accounts payable | 6,831 | (1,970 | ) | (11,666 | ) | — | (6,805 | ) | |||||||||||
| Accrued expenses | (16,485 | ) | 17,713 | 7,366 | 324 | 8,918 | |||||||||||||
| Other noncurrent liabilities | 177 | — | (1,941 | ) | — | (1,764 | ) | ||||||||||||
| Income taxes payable (refundable) | 7,895 | (306 | ) | (482 | ) | — | 7,107 | ||||||||||||
| Net cash flows from operating activities | 107,430 | 72,848 | 89,796 | 2,193 | 272,267 | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||
| Purchase of property, plant and equipment | (14,362 | ) | (7,718 | ) | (23,388 | ) | — | (45,468 | ) | ||||||||||
| Proceeds from sale of assets | 3,996 | 302 | (1,049 | ) | — | 3,249 | |||||||||||||
| Acquisitions, net of cash acquired | — | (12,778 | ) | — | — | (12,778 | ) | ||||||||||||
| Other, net | 72,866 | (50,447 | ) | (13,400 | ) | (2,193 | ) | 6,826 | |||||||||||
| Net cash flows from investing activities | 62,500 | (70,641 | ) | (37,837 | ) | (2,193 | ) | (48,171 | ) | ||||||||||
| Cash flows from financing activities: | |||||||||||||||||||
| Payments under short-term agreements | — | — | (12,853 | ) | — | (12,853 | ) | ||||||||||||
| Proceeds from long-term borrowings | 68,000 | — | — | — | 68,000 | ||||||||||||||
| Principal payments on long-term borrowings | (68,213 | ) | — | (885 | ) | — | (69,098 | ) | |||||||||||
| Dividends paid | (35,357 | ) | — | — | — | (35,357 | ) | ||||||||||||
| Intercompany dividends | 26,115 | — | (26,115 | ) | — | — | |||||||||||||
| Dividends to noncontrolling interest | — | — | (2,634 | ) | — | (2,634 | ) | ||||||||||||
| Proceeds from exercises under stock plans | 13,075 | — | — | — | 13,075 | ||||||||||||||
| Excess tax benefits from stock option exercises | 1,699 | — | — | — | 1,699 | ||||||||||||||
| Purchase of treasury shares | (168,983 | ) | — | — | — | (168,983 | ) | ||||||||||||
| Purchase of common treasury shares - stock plan exercises | (13,854 | ) | — | — | — | (13,854 | ) | ||||||||||||
| Net cash flows from financing activities | (177,518 | ) | — | (42,487 | ) | — | (220,005 | ) | |||||||||||
| Effect of exchange rate changes on cash and cash equivalents | — | (356 | ) | (26,240 | ) | — | (26,596 | ) | |||||||||||
| Net change in cash and cash equivalents | (7,588 | ) | 1,851 | (16,768 | ) | — | (22,505 | ) | |||||||||||
| Cash and cash equivalents—beginning of year | 69,869 | 2,157 | 299,553 | — | 371,579 | ||||||||||||||
| Cash and cash equivalents—end of period | $ | 62,281 | $ | 4,008 | $ | 282,785 | $ | — | $ | 349,074 | |||||||||
| Net Earnings | |||||||||||||||||||||||||||||||
| Gross | Per Share | Stock Price | Dividends | ||||||||||||||||||||||||||||
| Net Sales | Profit | Amount | Basic | Diluted | High | Low | Declared | ||||||||||||||||||||||||
| 2017 | |||||||||||||||||||||||||||||||
| First | $ | 637,473 | $ | 164,605 | $ | 38,979 | $ | 1.73 | $ | 1.72 | $ | 165.20 | $ | 135.95 | $ | 0.375 | |||||||||||||||
| Second | 712,737 | 183,280 | 45,664 | 2.03 | 2.01 | 157.60 | 144.65 | 0.375 | |||||||||||||||||||||||
| Third | 680,779 | 163,594 | 35,208 | 1.56 | 1.55 | 160.35 | 140.90 | 0.375 | |||||||||||||||||||||||
| Fourth (1) | 714,978 | 170,289 | (3,611 | ) | (0.16 | ) | (0.16 | ) | 176.35 | 153.65 | 0.375 | ||||||||||||||||||||
| Year | $ | 2,745,967 | $ | 681,768 | $ | 116,240 | $ | 5.16 | $ | 5.11 | $ | 176.35 | $ | 135.95 | $ | 1.50 | |||||||||||||||
| 2016 | |||||||||||||||||||||||||||||||
| First | $ | 596,605 | $ | 160,968 | $ | 32,969 | $ | 1.45 | $ | 1.45 | $ | 125.69 | $ | 96.50 | $ | 0.375 | |||||||||||||||
| Second | 640,249 | 175,117 | 42,026 | 1.86 | 1.85 | 145.94 | 117.10 | 0.375 | |||||||||||||||||||||||
| Third | 610,247 | 155,023 | 28,173 | 1.25 | 1.24 | 139.62 | 125.60 | 0.375 | |||||||||||||||||||||||
| Fourth (2) | 674,575 | 165,135 | 70,064 | 3.12 | 3.10 | 156.05 | 120.65 | 0.375 | |||||||||||||||||||||||
| Year | $ | 2,521,676 | $ | 656,243 | $ | 173,232 | $ | 7.68 | $ | 7.63 | $ | 156.05 | $ | 96.50 | $ | 1.50 | |||||||||||||||
None.
The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports the Company files or submits under the Securities Exchange Act of 1934 is (1) accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures and (2) recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms.
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Securities Exchange Act Rule 13a-15(f). The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s internal control over financial reporting. The Company’s management used the framework in
Internal Control—Integrated Framework(2013) issued by the Committee of Sponsoring OrganizationsThe effectiveness of the Company’s internal control over financial reporting as of December 30, 201731, 2022 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, a copy of which is included in this Annual Report on Form 10-K.
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To the Shareholdersshareholders and the Board of Directors of Valmont Industries, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Valmont Industries, Inc. and subsidiaries (the “Company”) as of December 30, 2017,31, 2022, based on criteria established in
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 30, 2017,31, 2022, of the Company and our report dated February 28, 2018March 1, 2023, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DeloitteDELOITTE & ToucheTOUCHE LLP
Omaha, Nebraska
March 1, 2023
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Shareholder Return Performance Graphs
The graphs below compare the yearly change in the cumulative total shareholder return on the Company’s common stock with the cumulative total returns of the S&P Mid Cap 400 Index and the S&P Mid Cap 400 Industrial Machinery Index for the five and ten-year periods ended December 30, 2017.31, 2022. The Company was added to these indexes in 2009 by Standard & Poor’s. The graphs assume that the beginning value of the investment in Valmont Common Stock and each index was $100 and that all dividends were reinvested.
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Except for the information relating to the executive officers of the Company set forth in Part I of this 10-K Report, the information called for by items 10, 11, and 13 is incorporated by reference to the sections entitled “Certain Shareholders”, “Corporate Governance”, “Board of Directors and Election of Directors”, "Board Committees", “Compensation Discussion and Analysis”, "Compensation Risk Assessment", “Human Resources Committee Report”, "Pay Ratio Information", “Summary Compensation Table”, “Grants of Plan-Based Awards for Fiscal Year 2017”2022”, “Outstanding Equity Awards at Fiscal Year-End”, “Options Exercised and Stock Vested in Fiscal 2017”2022”, “Nonqualified Deferred Compensation”, “Director Compensation”, and “Potential Payments Upon Termination or Change-in-Control” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.
The Company has adopted a Code of Ethics for Senior Officers that applies to the Company’s Chief Executive Officer, Chief Financial Officer, and Controller and has posted the code on its website at
www.valmont.com through the “Investors Relations” link. The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to or waivers from any provision of the Code of Ethics for Senior Officers applicable to the Company’s Chief Executive Officer, Chief Financial Officer, or Controller by posting that information on the Company’s Web site at www.valmont.com through the “Investors Relations” link.See Item 10.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
Incorporated herein by reference to “Certain Shareholders” and “Equity Compensation Plan Information” in the Proxy Statement.
See Item 10.
The information called for by Item 14 is incorporated by reference to the sections titled “Ratification of Appointment of Independent Auditors” in the Proxy Statement.
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PART IV
(a)(1)(2)
Financial Statements and Schedules.The following consolidated financial statements of the Company and its subsidiaries are included herein as listed below:
Consolidated Financial Statements | |
| (PCAOB ID No. 34) | 44 |
46 | |
47 | |
Consolidated Balance Sheets—December | 48 |
49 | |
50 | |
51 | |
All financial statement schedule of the Company is included herein:
(3)
See exhibits listed on the "Index to Exhibits” are filed with this Form 10-K or incorporated by reference as set forthunder Part B below.
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| Balance at beginning of period | Charged to profit and loss | Currency Translation Adjustment | Deductions from reserves* | Balance at close of period | ||||||||||||
| Fifty-three weeks ended December 30, 2017 | ||||||||||||||||
| Reserve deducted in balance sheet from the asset to which it applies— | ||||||||||||||||
| Allowance for doubtful receivables | $ | 18,991 | 2,060 | 510 | (11,748 | ) | $ | 9,813 | ||||||||
| Allowance for deferred income tax asset valuation | 81,923 | 7,728 | 5,762 | (67,549 | ) | 27,864 | ||||||||||
| Fifty-two weeks ended December 31, 2016 | ||||||||||||||||
| Reserve deducted in balance sheet from the asset to which it applies— | ||||||||||||||||
| Allowance for doubtful receivables | $ | 21,008 | 1,273 | (734 | ) | (2,556 | ) | $ | 18,991 | |||||||
| Allowance for deferred income tax asset valuation | 90,837 | 9,888 | (18,129 | ) | (673 | ) | 81,923 | |||||||||
| Fifty-two weeks ended December 26, 2015 | ||||||||||||||||
| Reserve deducted in balance sheet from the asset to which it applies— | ||||||||||||||||
| Allowance for doubtful receivables | $ | 9,922 | 12,420 | (1,143 | ) | (191 | ) | $ | 21,008 | |||||||
| Allowance for deferred income tax asset valuation | 104,487 | 1,267 | (14,917 | ) | — | 90,837 | ||||||||||
(b)Exhibits
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— | ||
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— | ||
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— | ||
Second | ||
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| 4.2 | — | |
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| 4.3 | — | |
| | |
| 4.4 | — | |
| | |
| ||
Exhibit 4.5 | — | |
| Third Supplemental Indenture, dated as of September 22, 2014, to Indenture relating to senior debt, dated as of April 12, 2010, among Valmont Industries, Inc., the Subsidiary Guarantors party thereto and Wells Fargo Bank, National Association, as Trustee. This document was filed as Exhibit 4.3 to the | ||
| | |
| 4.6 | — | |
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| 10.1 | — | |
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| 10.2 | — | |
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Exhibit 10.3 | — | |
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Exhibit 10.4 | — | |
| | |
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Exhibit 10.5 | — | |
| | |
— | ||
| Form of Restricted Stock Unit Agreement (Domestic). This document was filed as Exhibit | ||
| | |
| 10.7 | — | |
| | |
| 10.8 | — | |
| | |
| 10.9 | — | |
| | |
| 10.10 | — | |
| |
| ||
Exhibit 10.11 | — | |
| VERSP Deferred Compensation Plan. This document was filed as Exhibit 10.16 to the | ||
| | |
— | ||
| | |
Exhibit 22.1 | | |
| | |
Exhibit 23* | — | |
| | |
— | ||
| | |
— | Section 302 Certification of Chief Executive | |
| | |
— | Section 302 Certification of Chief Financial | |
| | |
— | ||
| | |
Exhibit 101 | — | The following financial information from the Company’s Annual Report on Form 10-K for the year ended December |
| | |
Exhibit 104 | — | Cover Page Interactive File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Filed herewith |
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Pursuant to Item 601(b)(4) of Regulation S-K, certain instruments with respect to the registrant’s long-term debt are not filed with this Form 10-K. Valmont will furnish a copy of such long-term debt agreements to the Securities and Exchange Commission upon request.
Management contracts and compensatory plans are set forth as exhibitsExhibits 10.1 through 10.12.10.11.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 28th1st day of February, 2018.
| | | |
| |||
Valmont Industries, Inc. | |||
| | ||
| By: | /s/ STEPHEN G. KANIEWSKI | |
| | Stephen G. Kaniewski President and Chief Executive Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the dates indicated.
| | | | | ||||||||||||||||||
Signature | Title | Date | ||||||||||||||||||||
| | | | | ||||||||||||||||||
/s/ | | Director, President and Chief Executive Officer | | 3/1/2023 | ||||||||||||||||||
Stephen G. Kaniewski | | | | | ||||||||||||||||||
| | | | | ||||||||||||||||||
/s/ | | Executive Vice President and Chief Financial Officer | | 3/1/2023 | ||||||||||||||||||
Avner M. Applbaum | | | | | ||||||||||||||||||
| | | | | ||||||||||||||||||
/s/ | | Senior Vice President and Controller | | 3/1/2023 | ||||||||||||||||||
Gene Padgett | | | | | ||||||||||||||||||
| | | | | ||||||||||||||||||
Mogens C. Bay* | | James B. Milliken* | | | ||||||||||||||||||
K.R. den Daas* | | Daniel P. Neary* | | | ||||||||||||||||||
Ritu C. Favre* | | Catherine J. Paglia* | | | ||||||||||||||||||
Theo W. Freye* | | Clark T. | | | ||||||||||||||||||
Richard A. Lanoha* | | Joan Robinson-Berry* | | | ||||||||||||||||||
| | |||||||||||||||||||||
| | | ||||||||||||||||||||
* | |
Stephen G. Kaniewski, by signing his name hereto, signs the Annual Report on behalf of each of the directors indicated on this |
| | |
| By: | |
/s/ STEPHEN G. KANIEWSKI | ||
| | Stephen G. Kaniewski Attorney-in-Fact |
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