UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x☒QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 201726, 2020
or
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to
Commission file number 1-31429
Valmont Industries, Inc.
(Exact name of registrant as specified in its charter)
|
| | | | | | | |
Delaware
| 47-0351813 |
(State or Other Jurisdiction of
Incorporation or Organization) | 47-0351813 (I.R.S. Employer
Identification No.)
|
One Valmont Plaza,
| |
Omaha, | Nebraska
(Address | 68154-5215 |
(Address of Principal Executive Offices) |
68154-5215
(Zip (Zip Code)
|
(402) 963-1000
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
________________________
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock $1.00 par value | | VMI | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
| | | | | | | | | | | | | | | | | | | | | | |
Large accelerated filerx | ☒ | Accelerated filer o | ☐ | Non‑accelerated filero | ☐ | Smaller reporting company o | ☐ |
Emerging growth company o
| (Do not check if a
smaller reporting company)☐ | | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐
No x
22,607,68021,252,810
Outstanding shares of common stock as of October 23, 201722, 2020
VALMONT INDUSTRIES, INC.
INDEX TO FORM 10-Q
| | | | | | | | |
| | Page No. |
| PART I. FINANCIAL INFORMATION | |
Item 1. | | |
| | |
| weeks ended September 26, 2020 and September 28, 2019 | |
| | |
| and thirty-nine weeks ended September 26, 2020 and September 28, 2019 | |
| Condensed Consolidated Balance Sheets as of September 26, 2020 and December 28, | |
| 2019 | |
| Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended | |
| September 26, 2020 and September 28, 2019 | |
| Condensed Consolidated Statements of Shareholders' Equity for the thirteen and | |
| thirty-nine weeks ended September 26, 2020 and September 28, 2019 | |
| Notes to Condensed Consolidated Financial Statements | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
| | |
| PART II. OTHER INFORMATION | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
| | |
Item 6. | Exhibits | |
Signatures | |
| | |
| | |
| | |
|
| | |
| | Page No. |
| PART I. FINANCIAL INFORMATION | |
| | |
| | |
| ended September 30, 2017 and September 24, 2016 | |
| | |
| and thirty-nine weeks ended September 30, 2017 and September 24, 2016 | |
| Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, | |
| 2016 | |
| Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended | |
| September 30, 2017 and September 24, 2016 | |
| Condensed Consolidated Statements of Shareholders' Equity for the thirty-nine | |
| weeks ended September 30, 2017 and September 24, 2016 | |
| Notes to Condensed Consolidated Financial Statements | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
| | |
| PART II. OTHER INFORMATION | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 6. | | |
| |
| | |
| | |
| | |
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen weeks ended | | Thirty-nine weeks ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Product sales | $ | 657,703 | | | $ | 605,439 | | | $ | 1,874,199 | | | $ | 1,829,919 | |
Services sales | 76,267 | | | 84,901 | | | 222,779 | | | 253,431 | |
Net sales | 733,970 | | | 690,340 | | | 2,096,978 | | | 2,083,350 | |
Product cost of sales | 494,812 | | | 460,549 | | | 1,392,595 | | | 1,398,775 | |
Services cost of sales | 48,411 | | | 56,504 | | | 143,450 | | | 168,485 | |
Total cost of sales | 543,223 | | | 517,053 | | | 1,536,045 | | | 1,567,260 | |
Gross profit | 190,747 | | | 173,287 | | | 560,933 | | | 516,090 | |
Selling, general and administrative expenses | 129,268 | | | 112,223 | | | 372,481 | | | 338,950 | |
Impairment of goodwill and trade names | 0 | | | 0 | | | 16,638 | | | 0 | |
Operating income | 61,479 | | | 61,064 | | | 171,814 | | | 177,140 | |
Other income (expenses): | | | | | | | |
Interest expense | (10,454) | | | (9,976) | | | (30,566) | | | (29,971) | |
Interest income | 430 | | | 969 | | | 1,931 | | | 2,815 | |
Gain on investments (unrealized) | 900 | | | 402 | | | 1,102 | | | 4,754 | |
| | | | | | | |
| | | | | | | |
Other | 233 | | | 768 | | | 1,349 | | | 1,938 | |
| (8,891) | | | (7,837) | | | (26,184) | | | (20,464) | |
Earnings before income taxes | 52,588 | | | 53,227 | | | 145,630 | | | 156,676 | |
Income tax expense (benefit): | | | | | | | |
Current | 14,968 | | | 11,675 | | | 42,922 | | | 31,668 | |
Deferred | (2,884) | | | 1,388 | | | (3,750) | | | 7,098 | |
| 12,084 | | | 13,063 | | | 39,172 | | | 38,766 | |
Earnings before equity in earnings of nonconsolidated subsidiaries | 40,504 | | | 40,164 | | | 106,458 | | | 117,910 | |
Equity in loss of nonconsolidated subsidiaries | (276) | | | 0 | | | (755) | | | 0 | |
Net earnings | 40,228 | | | 40,164 | | | 105,703 | | | 117,910 | |
Less: earnings attributable to noncontrolling interests | (886) | | | (2,119) | | | (825) | | | (4,042) | |
Net earnings attributable to Valmont Industries, Inc. | $ | 39,342 | | | $ | 38,045 | | | $ | 104,878 | | | $ | 113,868 | |
Earnings per share: | | | | | | | |
Basic | $ | 1.85 | | | $ | 1.76 | | | $ | 4.91 | | | $ | 5.24 | |
Diluted | $ | 1.84 | | | $ | 1.75 | | | $ | 4.89 | | | $ | 5.22 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| September 30, 2017 | | September 24, 2016 | | September 30, 2017 | | September 24, 2016 |
Product sales | $ | 602,080 |
| | $ | 544,828 |
| | $ | 1,807,539 |
| | $ | 1,648,530 |
|
Services sales | 78,699 |
| | 65,419 |
| | 223,450 |
| | 198,571 |
|
Net sales | 680,779 |
| | 610,247 |
| | 2,030,989 |
| | 1,847,101 |
|
Product cost of sales | 462,854 |
| | 409,003 |
| | 1,366,875 |
| | 1,220,567 |
|
Services cost of sales | 54,331 |
| | 46,221 |
| | 152,635 |
| | 135,425 |
|
Total cost of sales | 517,185 |
| | 455,224 |
| | 1,519,510 |
| | 1,355,992 |
|
Gross profit | 163,594 |
|
| 155,023 |
|
| 511,479 |
|
| 491,109 |
|
Selling, general and administrative expenses | 103,671 |
| | 101,783 |
| | 308,764 |
| | 303,698 |
|
Operating income | 59,923 |
| | 53,240 |
| | 202,715 |
| | 187,411 |
|
Other income (expenses): | | | | | | | |
Interest expense | (11,190 | ) | | (11,100 | ) | | (33,312 | ) | | (33,276 | ) |
Interest income | 1,311 |
| | 771 |
| | 3,205 |
| | 2,289 |
|
Other | 517 |
| | 878 |
| | 1,684 |
| | 452 |
|
| (9,362 | ) | | (9,451 | ) | | (28,423 | ) | | (30,535 | ) |
Earnings before income taxes | 50,561 |
| | 43,789 |
| | 174,292 |
| | 156,876 |
|
Income tax expense: | | | | | | | |
Current | 21,163 |
| | 18,017 |
| | 50,264 |
| | 51,276 |
|
Deferred | (7,268 | ) | | (3,749 | ) | | 79 |
| | (1,534 | ) |
| 13,895 |
| | 14,268 |
| | 50,343 |
| | 49,742 |
|
Net earnings | 36,666 |
| | 29,521 |
| | 123,949 |
| | 107,134 |
|
Less: Earnings attributable to noncontrolling interests | (1,458 | ) | | (1,348 | ) | | (4,098 | ) | | (3,966 | ) |
Net earnings attributable to Valmont Industries, Inc. | $ | 35,208 |
| | $ | 28,173 |
| | 119,851 |
| | 103,168 |
|
Earnings per share: | | | | | | | |
Basic | $ | 1.56 |
| | $ | 1.25 |
| | $ | 5.33 |
| | $ | 4.56 |
|
Diluted | $ | 1.55 |
| | $ | 1.24 |
| | $ | 5.28 |
| | $ | 4.54 |
|
Cash dividends declared per share | $ | 0.375 |
| | $ | 0.375 |
| | $ | 1.125 |
| | $ | 1.125 |
|
Weighted average number of shares of common stock outstanding - Basic (000 omitted) | 22,527 |
| | 22,505 |
| | 22,505 |
| | 22,602 |
|
Weighted average number of shares of common stock outstanding - Diluted (000 omitted) | 22,751 |
| | 22,659 |
| | 22,717 |
| | 22,741 |
|
See accompanying notes to condensed consolidated financial statements.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Net earnings | 40,228 | | | 40,164 | | | 105,703 | | | 117,910 | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation adjustments: | | | | | | | |
Unrealized translation gain (loss) | 14,391 | | | (23,781) | | | (16,102) | | | (20,466) | |
| | | | | | | |
Gain (loss) on hedging activities: | | | | | | | |
Net investment hedges | 0 | | | 2,580 | | | 7,284 | | | 3,360 | |
Cash flow hedges | (26) | | | 0 | | | 344 | | | 0 | |
| | | | | | | |
Amortization cost included in interest expense | (16) | | | (16) | | | (48) | | | (48) | |
| | | | | | | |
Commodity hedges | 0 | | | (21) | | | 0 | | | (2,130) | |
Realized gain on commodity hedges recorded in earnings | 0 | | | 1,329 | | | 0 | | | 1,329 | |
Cross currency swaps | (3,725) | | | 5,443 | | | 570 | | | 3,771 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other comprehensive income (loss) | 10,624 | | | (14,466) | | | (7,952) | | | (14,184) | |
Comprehensive income | 50,852 | | | 25,698 | | | 97,751 | | | 103,726 | |
Comprehensive income attributable to noncontrolling interests | (1,358) | | | (1,297) | | | (1,785) | | | (3,390) | |
Comprehensive income attributable to Valmont Industries, Inc. | $ | 49,494 | | | $ | 24,401 | | | $ | 95,966 | | | $ | 100,336 | |
|
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| September 30, 2017 | | September 24, 2016 | | September 30, 2017 | | September 24, 2016 |
Net earnings | $ | 36,666 |
| | $ | 29,521 |
| | $ | 123,949 |
| | $ | 107,134 |
|
Other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation adjustments: | | | | | | | |
Unrealized translation gain (loss) | 19,530 |
| | 770 |
| | 60,471 |
| | (1,938 | ) |
Gain/(loss) on hedging activities: | | | | | | | |
Net investment hedge | (740 | ) | | 1,972 |
| | (1,816 | ) | | 4,897 |
|
Amortization cost included in interest expense | 19 |
| | 18 |
| | 56 |
| | 56 |
|
Other comprehensive income (loss) | 18,809 |
| | 2,760 |
| | 58,711 |
| | 3,015 |
|
Comprehensive income | 55,475 |
| | 32,281 |
| | 182,660 |
| | 110,149 |
|
Comprehensive loss (income) attributable to noncontrolling interests | (2,570 | ) | | (1,618 | ) | | (4,552 | ) | | (5,732 | ) |
Comprehensive income attributable to Valmont Industries, Inc. | $ | 52,905 |
| | $ | 30,663 |
| | $ | 178,108 |
| | $ | 104,417 |
|
See accompanying notes to condensed consolidated financial statements.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| | | September 30, 2017 | | December 31, 2016 | | September 26, 2020 | | December 28, 2019 |
ASSETS | | | | ASSETS | | | |
Current assets: | | | | Current assets: | |
Cash and cash equivalents | $ | 493,490 |
| | $ | 399,948 |
| Cash and cash equivalents | $ | 443,055 | | | $ | 353,542 | |
Receivables, net | 492,842 |
| | 439,342 |
| Receivables, net | 502,004 | | | 480,000 | |
Inventories | 403,234 |
| | 350,028 |
| Inventories | 448,088 | | | 418,370 | |
Prepaid expenses, restricted cash, and other assets | 50,064 |
| | 57,297 |
| |
Contract assets | | Contract assets | 113,254 | | | 141,322 | |
Prepaid expenses and other assets | | Prepaid expenses and other assets | 51,745 | | | 32,043 | |
Refundable income taxes | 8,493 |
| | 6,601 |
| Refundable income taxes | 0 | | | 6,947 | |
Total current assets | 1,448,123 |
| | 1,253,216 |
| Total current assets | 1,558,146 | | | 1,432,224 | |
Property, plant and equipment, at cost | 1,169,854 |
| | 1,105,736 |
| Property, plant and equipment, at cost | 1,295,639 | | | 1,245,261 | |
Less accumulated depreciation and amortization | 647,430 |
| | 587,401 |
| Less accumulated depreciation and amortization | 722,286 | | | 687,132 | |
Net property, plant and equipment | 522,424 |
| | 518,335 |
| Net property, plant and equipment | 573,353 | | | 558,129 | |
| Goodwill | 336,754 |
| | 321,110 |
| Goodwill | 421,947 | | | 428,864 | |
Other intangible assets, net | 142,090 |
| | 144,378 |
| Other intangible assets, net | 167,681 | | | 175,742 | |
Other assets | 160,780 |
| | 154,692 |
| Other assets | 202,783 | | | 212,257 | |
Total assets | $ | 2,610,171 |
| | $ | 2,391,731 |
| Total assets | $ | 2,923,910 | | | $ | 2,807,216 | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | LIABILITIES AND SHAREHOLDERS’ EQUITY | |
Current liabilities: | | | | Current liabilities: | |
Current installments of long-term debt | $ | 949 |
| | $ | 851 |
| Current installments of long-term debt | $ | 1,922 | | | $ | 760 | |
Notes payable to banks | 197 |
| | 746 |
| Notes payable to banks | 14,227 | | | 21,774 | |
Accounts payable | 216,104 |
| | 177,488 |
| Accounts payable | 269,113 | | | 197,957 | |
Accrued employee compensation and benefits | 81,494 |
| | 72,404 |
| Accrued employee compensation and benefits | 114,310 | | | 83,528 | |
Accrued expenses | 106,238 |
| | 89,914 |
| |
Contract liabilities | | Contract liabilities | 116,470 | | | 117,945 | |
Other accrued expenses | | Other accrued expenses | 97,539 | | | 83,736 | |
Income taxes payable | | Income taxes payable | 724 | | | 0 | |
| Dividends payable | 8,478 |
| | 8,445 |
| Dividends payable | 9,614 | | | 8,079 | |
Total current liabilities | 413,460 |
| | 349,848 |
| Total current liabilities | 623,919 | | | 513,779 | |
Deferred income taxes | 28,183 |
| | 35,803 |
| Deferred income taxes | 51,280 | | | 58,906 | |
Long-term debt, excluding current installments | 754,202 |
| | 754,795 |
| Long-term debt, excluding current installments | 779,788 | | | 764,944 | |
Defined benefit pension liability | 199,562 |
| | 209,470 |
| Defined benefit pension liability | 113,380 | | | 140,007 | |
Operating lease liabilities | | Operating lease liabilities | 77,705 | | | 85,817 | |
Deferred compensation | 48,612 |
| | 44,319 |
| Deferred compensation | 42,587 | | | 45,114 | |
Other noncurrent liabilities | 13,557 |
| | 14,910 |
| Other noncurrent liabilities | 45,587 | | | 8,904 | |
Shareholders’ equity: | | | | Shareholders’ equity: | |
Preferred stock of $1 par value - | | | | |
Authorized 500,000 shares; none issued | — |
| | — |
| |
| Common stock of $1 par value - | | | | Common stock of $1 par value - | |
Authorized 75,000,000 shares; 27,900,000 issued | 27,900 |
| | 27,900 |
| Authorized 75,000,000 shares; 27,900,000 issued | 27,900 | | | 27,900 | |
Additional paid in capital | | Additional paid in capital | 8,493 | | | 0 | |
Retained earnings | 1,974,601 |
| | 1,874,722 |
| Retained earnings | 2,219,182 | | | 2,173,802 | |
Accumulated other comprehensive loss | (288,102 | ) | | (346,359 | ) | Accumulated other comprehensive loss | (322,334) | | | (313,422) | |
Treasury stock | (601,565 | ) | | (612,781 | ) | Treasury stock | (770,802) | | | (743,942) | |
Total Valmont Industries, Inc. shareholders’ equity | 1,112,834 |
| | 943,482 |
| Total Valmont Industries, Inc. shareholders’ equity | 1,162,439 | | | 1,144,338 | |
Noncontrolling interest in consolidated subsidiaries | 39,761 |
| | 39,104 |
| Noncontrolling interest in consolidated subsidiaries | 27,225 | | | 45,407 | |
Total shareholders’ equity | 1,152,595 |
| | 982,586 |
| Total shareholders’ equity | 1,189,664 | | | 1,189,745 | |
Total liabilities and shareholders’ equity | $ | 2,610,171 |
| | $ | 2,391,731 |
| Total liabilities and shareholders’ equity | $ | 2,923,910 | | | $ | 2,807,216 | |
See accompanying notes to condensed consolidated financial statements.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | |
| Thirty-nine weeks ended |
| September 26, 2020 | | | September 28, 2019 |
Cash flows from operating activities: | | | | |
Net earnings | $ | 105,703 | | | | $ | 117,910 | |
Adjustments to reconcile net earnings to net cash flows from operations: | | | | |
Depreciation and amortization | 61,523 | | | | 60,424 | |
Noncash loss (gain) on trading securities | 39 | | | | (48) | |
Impairment of property, plant and equipment | 2,811 | | | | 0 | |
Impairment of goodwill & intangible assets | 16,638 | | | | 0 | |
| | | | |
Stock-based compensation | 8,736 | | | | 8,889 | |
| | | | |
Defined benefit pension plan benefit | (5,401) | | | | (382) | |
Contribution to defined benefit pension plan | (17,398) | | | | (17,426) | |
Gain on sale of property, plant and equipment | (60) | | | | (465) | |
Equity in loss in nonconsolidated subsidiaries | 755 | | | | 0 | |
Deferred income taxes | (3,750) | | | | 7,098 | |
Changes in assets and liabilities: | | | | |
Receivables | (26,298) | | | | (21,117) | |
Inventories | (32,992) | | | | 9,502 | |
Prepaid expenses and other assets | (19,157) | | | | (14,451) | |
Contract assets | 28,597 | | | | (7,850) | |
Accounts payable | 63,627 | | | | (19,256) | |
Accrued expenses | 61,122 | | | | 10,928 | |
Contract liabilities | (1,475) | | | | 118,973 | |
Other noncurrent liabilities | 20,982 | | | | (4,563) | |
Income taxes payable/refundable | 9,044 | | | | (8,936) | |
Net cash flows from operating activities | 273,046 | | | | 239,230 | |
Cash flows from investing activities: | | | | |
Purchase of property, plant and equipment | (70,960) | | | | (71,981) | |
Proceeds from sale of assets | 911 | | | | 1,325 | |
Acquisitions, net of cash acquired | (15,862) | | | | (81,841) | |
| | | | |
Settlement of net investment hedges | 11,983 | | | | 11,184 | |
Other, net | 2,543 | | | | 2,117 | |
Net cash flows from investing activities | (71,385) | | | | (139,196) | |
Cash flows from financing activities: | | | | |
Proceeds from short-term agreements | 4,251 | | | | 14,392 | |
Payments on short-term agreements | (10,713) | | | | (5,108) | |
Proceeds from long-term borrowings | 88,872 | | | | 31,000 | |
Principal payments on long-term borrowings | (76,417) | | | | (10,578) | |
| | | | |
| | | | |
Dividends paid | (27,316) | | | | (24,554) | |
Dividends to noncontrolling interest | (5,642) | | | | (6,549) | |
Purchase of noncontrolling interest | (55,916) | | | | (27,845) | |
Purchase of treasury shares | (28,006) | | | | (55,172) | |
Proceeds from exercises under stock plans | 980 | | | | 3,211 | |
Purchase of common treasury shares—stock plan exercises | (77) | | | | (1,456) | |
Net cash flows from financing activities | (109,984) | | | | (82,659) | |
Effect of exchange rate changes on cash and cash equivalents | (2,164) | | | | (3,385) | |
Net change in cash and cash equivalents | 89,513 | | | | 13,990 | |
Cash, cash equivalents, and restricted cash—beginning of year | 353,542 | | | | 313,210 | |
Cash, cash equivalents, and restricted cash—end of period | $ | 443,055 | | | | $ | 327,200 | |
|
| | | | | | | |
| Thirty-nine Weeks Ended |
| September 30, 2017 | | September 24, 2016 |
Cash flows from operating activities: | | | |
Net earnings | $ | 123,949 |
| | $ | 107,134 |
|
Adjustments to reconcile net earnings to net cash flows from operations: | | | |
Depreciation and amortization | 63,500 |
| | 61,242 |
|
Noncash loss on trading securities | 395 |
| | 973 |
|
Impairment of assets - restructuring activities | — |
| | 618 |
|
Stock-based compensation | 7,300 |
| | 6,572 |
|
Change in fair value of contingent consideration | — |
| | (3,527 | ) |
Defined benefit pension plan expense | 481 |
| | 1,486 |
|
Contribution to defined benefit pension plan | (26,064 | ) | | (712 | ) |
Change in restricted cash - pension plan trust | 12,568 |
| | (13,652 | ) |
(Gain)/loss on sale of property, plant and equipment | (732 | ) | | 250 |
|
Deferred income taxes | 79 |
| | (1,534 | ) |
Changes in assets and liabilities: | | | |
Receivables | (39,584 | ) | | 16,436 |
|
Inventories | (41,545 | ) | | (34,413 | ) |
Prepaid expenses and other assets | (11,636 | ) | | (10,624 | ) |
Accounts payable | 28,895 |
| | (11,338 | ) |
Accrued expenses | 20,157 |
| | 3,272 |
|
Other noncurrent liabilities | (1,627 | ) | | 240 |
|
Income taxes refundable | (1,732 | ) | | 4,831 |
|
Net cash flows from operating activities | 134,404 |
| | 127,254 |
|
Cash flows from investing activities: | | | |
Purchase of property, plant and equipment | (39,898 | ) | | (42,233 | ) |
Proceeds from sale of assets | 1,575 |
| | 3,938 |
|
Acquisitions, net of cash acquired | (5,362 | ) | | — |
|
Proceeds from settlement of net investment hedge | 5,123 |
| | — |
|
Other, net | (3,462 | ) | | (2,824 | ) |
Net cash flows from investing activities | (42,024 | ) | | (41,119 | ) |
Cash flows from financing activities: | | | |
Net borrowings under short-term agreements | (549 | ) | | (128 | ) |
Principal payments on long-term borrowings | (658 | ) | | (1,563 | ) |
Dividends paid | (25,386 | ) | | (25,604 | ) |
Dividends to noncontrolling interest | (3,895 | ) | | (2,527 | ) |
Purchase of noncontrolling interest | — |
| | (11,009 | ) |
Purchase of treasury shares | — |
| | (46,581 | ) |
Proceeds from exercises under stock plans | 12,446 |
| | 6,509 |
|
Purchase of common treasury shares—stock plan exercises | (3,929 | ) | | (1,453 | ) |
Net cash flows from financing activities | (21,971 | ) | | (82,356 | ) |
Effect of exchange rate changes on cash and cash equivalents | 23,133 |
| | (3,478 | ) |
Net change in cash and cash equivalents | 93,542 |
| | 301 |
|
Cash and cash equivalents—beginning of year | 399,948 |
| | 349,074 |
|
Cash and cash equivalents—end of period | $ | 493,490 |
| | $ | 349,375 |
|
See accompanying notes to condensed consolidated financial statements.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income (loss) | | Treasury stock | | Noncontrolling interest in consolidated subsidiaries | | Total shareholders’ equity |
Balance at December 26, 2015 | $ | 27,900 |
| | $ | — |
| | $ | 1,729,679 |
| | $ | (267,218 | ) | | $ | (571,920 | ) | | $ | 46,770 |
| | $ | 965,211 |
|
Net earnings | — |
| | — |
| | 103,168 |
| | — |
| | — |
| | 3,966 |
| | 107,134 |
|
Other comprehensive income (loss) | — |
| | — |
| | — |
| | 1,249 |
| | — |
| | 1,766 |
| | 3,015 |
|
Cash dividends declared | — |
| | — |
| �� | (25,482 | ) | | — |
| | — |
| | — |
| | (25,482 | ) |
Dividends to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | (2,527 | ) | | (2,527 | ) |
Purchase of noncontrolling interests | — |
| | (137 | ) | | — |
| | — |
| | — |
| | (10,872 | ) | | (11,009 | ) |
Purchase of treasury shares; 384,622 shares acquired | — |
| | — |
| | — |
| | — |
| | (46,581 | ) | | — |
| | (46,581 | ) |
Stock plan exercises; 10,747 shares acquired | — |
| | — |
| | — |
| | — |
| | (1,453 | ) | | — |
| | (1,453 | ) |
Stock options exercised; 68,631 shares issued | — |
| | (6,435 | ) | | 4,582 |
| | — |
| | 8,362 |
| | — |
| | 6,509 |
|
Stock option expense | — |
| | 4,358 |
| | — |
| | — |
| | — |
| | — |
| | 4,358 |
|
Stock awards; 6,725 shares issued | — |
| | 2,214 |
| | — |
| | — |
| | 912 |
| | — |
| | 3,126 |
|
Balance at September 24, 2016 | $ | 27,900 |
| | $ | — |
| | $ | 1,811,947 |
| | $ | (265,969 | ) | | $ | (610,680 | ) | | $ | 39,103 |
| | $ | 1,002,301 |
|
Balance at December 31, 2016 | $ | 27,900 |
| | $ | — |
| | $ | 1,874,722 |
| | $ | (346,359 | ) | | $ | (612,781 | ) | | $ | 39,104 |
| | $ | 982,586 |
|
Net earnings | — |
| | — |
| | 119,851 |
| | — |
| | — |
| | 4,098 |
| | 123,949 |
|
Other comprehensive income (loss) | — |
| | — |
| | — |
| | 58,257 |
| | — |
| | 454 |
| | 58,711 |
|
Cash dividends declared | — |
| | — |
| | (25,417 | ) | | — |
| | — |
| | — |
| | (25,417 | ) |
Dividends to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | (3,895 | ) | | (3,895 | ) |
Stock plan exercises; 24,672 shares acquired | — |
| | — |
| | — |
| | — |
| | (3,929 | ) | | — |
| | (3,929 | ) |
Stock options exercised; 106,351 shares issued | — |
| | (7,300 | ) | | 5,445 |
| | — |
| | 14,301 |
| | — |
| | 12,446 |
|
Stock option expense | — |
| | 3,868 |
| | — |
| | — |
| | — |
| | — |
| | 3,868 |
|
Stock awards; 6,034 shares issued | — |
| | 3,432 |
| | — |
| | — |
| | 844 |
| | — |
| | 4,276 |
|
Balance at September 30, 2017 | $ | 27,900 |
| | $ | — |
| | $ | 1,974,601 |
| | $ | (288,102 | ) | | $ | (601,565 | ) | | $ | 39,761 |
| | $ | 1,152,595 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 6/29/2019 (1) | $ | 27,900 | | | $ | 0 | | | $ | 2,123,754 | | | $ | (303,072) | | | $ | (728,680) | | | $ | 45,272 | | | $ | 1,165,174 | |
Net earnings | — | | | — | | | 38,045 | | | — | | | — | | | 2,119 | | | 40,164 | |
Other comprehensive income (loss) | — | | | — | | | — | | | (13,645) | | | — | | | (821) | | | (14,466) | |
Cash dividends declared ($0.375 per share) | — | | | — | | | (8,085) | | | — | | | — | | | — | | | (8,085) | |
Dividends to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | (2,090) | | | (2,090) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Purchase of treasury shares; 126,734 shares acquired | — | | | — | | | — | | | — | | | (16,822) | | | — | | | (16,822) | |
Stock plan exercises; 4,403 shares acquired | — | | | — | | | — | | | — | | | (629) | | | — | | | (629) | |
Stock options exercised; 12,586 shares issued | — | | | (2,514) | | | 2,190 | | | — | | | 1,791 | | | — | | | 1,467 | |
| | | | | | | | | | | | | |
Stock option expense | — | | | 600 | | | — | | | — | | | — | | | — | | | 600 | |
Stock awards; 223 shares issued | — | | | 1,914 | | | — | | | — | | | 5 | | | — | | | 1,919 | |
Balance at 9/28/2019 (1) | $ | 27,900 | | | $ | 0 | | | $ | 2,155,904 | | | $ | (316,717) | | | $ | (744,335) | | | $ | 44,480 | | | $ | 1,167,232 | |
Balance at June 27, 2020 | $ | 27,900 | | | $ | 0 | | | $ | 2,194,916 | | | $ | (332,486) | | | $ | (763,495) | | | $ | 25,867 | | | 1,152,702 | |
Net earnings | — | | | — | | | 39,342 | | | — | | | — | | | 886 | | | 40,228 | |
Other comprehensive income (loss) | — | | | — | | | — | | | 10,152 | | | — | | | 472 | | | 10,624 | |
Cash dividends declared ($0.45 per share) | — | | | — | | | (9,614) | | | — | | | — | | | — | | | (9,614) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Purchase of treasury shares; 60,645 shares acquired | — | | | — | | | — | | | — | | | (7,525) | | | — | | | (7,525) | |
Stock plan exercises; 580 shares acquired | — | | | — | | | — | | | — | | | (72) | | | — | | | (72) | |
Stock options exercised; 2,616 shares issued | — | | | 5,461 | | | (5,462) | | | — | | | 257 | | | — | | | 256 | |
| | | | | | | | | | | | | |
Stock option expense | — | | | 686 | | | — | | | — | | | — | | | — | | | 686 | |
Stock awards; 253 shares issued | — | | | 2,346 | | | — | | | — | | | 33 | | | — | | | 2,379 | |
Balance at September 26, 2020 | $ | 27,900 | | | $ | 8,493 | | | $ | 2,219,182 | | | $ | (322,334) | | | $ | (770,802) | | | $ | 27,225 | | | $ | 1,189,664 | |
(1) The retained earnings balance has been revised from the amounts previously reported as a result of the change in inventory valuation method from LIFO to FIFO. Refer to Note 1 for additional information.
See accompanying notes to the condensed consolidated financial statements.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income (loss) | | Treasury stock | | Noncontrolling interest in consolidated subsidiaries | | Total shareholders’ equity |
Balance at 12/29/2018 (1) | $ | 27,900 | | | $ | 0 | | | $ | 2,067,811 | | | $ | (303,185) | | | $ | (692,549) | | | $ | 75,761 | | | $ | 1,175,738 | |
Net earnings | — | | | — | | | 113,868 | | | — | | | — | | | 4,042 | | | 117,910 | |
Other comprehensive income (loss) | — | | | — | | | — | | | (13,532) | | | — | | | (652) | | | (14,184) | |
Cash dividends declared ($1.125 per share) | — | | | — | | | (24,424) | | | — | | | — | | | — | | | (24,424) | |
Dividends to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | (6,549) | | | (6,549) | |
Impact of ASC 842 adoption | — | | | — | | | (8,886) | | | — | | | — | | | — | | | (8,886) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Purchase of noncontrolling interest | — | | | 277 | | | — | | | — | | | — | | | (28,122) | | | (27,845) | |
Purchase of treasury shares; 433,463 shares acquired | — | | | — | | | — | | | — | | | (55,172) | | | — | | | (55,172) | |
Stock plan exercises; 10,499 shares acquired | — | | | — | | | — | | | — | | | (1,456) | | | — | | | (1,456) | |
Stock options exercised; 28,493 shares issued | — | | | (7,756) | | | 7,535 | | | — | | | 3,432 | | | — | | | 3,211 | |
| | | | | | | | | | | | | |
Stock option expense | — | | | 2,056 | | | — | | | — | | | — | | | — | | | 2,056 | |
Stock awards; 10,550 shares issued | — | | | 5,423 | | | — | | | — | | | 1,410 | | | — | | | 6,833 | |
Balance at 9/28/2019 (1) | $ | 27,900 | | | $ | 0 | | | $ | 2,155,904 | | | $ | (316,717) | | | $ | (744,335) | | | $ | 44,480 | | | $ | 1,167,232 | |
Balance at 12/28/2019 (1) | $ | 27,900 | | | $ | 0 | | | $ | 2,173,802 | | | $ | (313,422) | | | $ | (743,942) | | | $ | 45,407 | | | $ | 1,189,745 | |
Net earnings | — | | | — | | | 104,878 | | | — | | | — | | | 825 | | | 105,703 | |
Other comprehensive income (loss) | — | | | — | | | — | | | (8,912) | | | — | | | 960 | | | (7,952) | |
Cash dividends declared ($1.35 per share) | — | | | — | | | (28,837) | | | — | | | — | | | — | | | (28,837) | |
Dividends to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | (5,642) | | | (5,642) | |
Purchase of noncontrolling interest | — | | 0 | | | (30,661) | | | — | | — | | (19,450) | | | (50,111) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Addition of noncontrolling interest | — | | | — | | | — | | | — | | | — | | | 5,125 | | | 5,125 | |
Purchase of treasury shares; 251,136 shares acquired | — | | | — | | | — | | | — | | | (28,006) | | | — | | | (28,006) | |
Stock plan exercises; 617 shares acquired | — | | | — | | | — | | | — | | | (77) | | | — | | | (77) | |
Stock options exercised; 4,100 shares issued | — | | | 244 | | | — | | | — | | | 736 | | | — | | | 980 | |
| | | | | | | | | | | | | |
Stock option expense | — | | | 1,909 | | | — | | | — | | | — | | | — | | | 1,909 | |
Stock awards; 8,957 shares issued | — | | | 6,340 | | | — | | | — | | | 487 | | | — | | | 6,827 | |
Balance at 9/26/2020 (1) | $ | 27,900 | | | $ | 8,493 | | | $ | 2,219,182 | | | $ | (322,334) | | | $ | (770,802) | | | $ | 27,225 | | | $ | 1,189,664 | |
| | | | | | | | | | | | | |
(1) The retained earnings balance has been revised from the amounts previously reported as a result of the change in inventory valuation method from LIFO to FIFO. Refer to Note 1 for additional information.
See accompanying notes to the condensed consolidated financial statements.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Consolidated Financial Statements
The Condensed Consolidated Balance Sheet as of September 30, 2017,26, 2020, the Condensed Consolidated Statements of Earnings, and Comprehensive Income, and Shareholders' Equity for the thirteen and thirty-nine weeks ended September 30, 201726, 2020 and September 24, 2016,28, 2019, and the Condensed Consolidated Statements of Cash Flows and Shareholders' Equity for the thirty-nine week periods then ended have been prepared by the Company, without audit. In the opinion of management, all necessary adjustments (which include normal recurring adjustments) have been made to present fairly the financial statements as of September 30, 201726, 2020 and for all periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016.28, 2019. The accounting policies and methods of computation followed in these interim financial statements are the same as those followed in the financial statements for the year ended December 31, 2016.28, 2019 with the exception of the change in method of accounting for certain inventory, previously accounted for on the LIFO basis, so that now all inventory is valued on the FIFO basis. In addition, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326)and early adopted Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant's Securities as released by the Securities and Exchange Commission that are discussed further at the end of footnote 1. The results of operations for the period ended September 30, 201726, 2020 are not necessarily indicative of the operating results for the full year.
Inventories
Approximately 36% and 38% of inventory is valued at the lower of cost, determined on the last-in, first-out (LIFO) method, or market as of September 30, 2017 and December 31, 2016. All other inventoryInventory is valued at the lower of cost, determined on the first-in, first-out (FIFO) method or market. Finished goods and manufactured goods inventories include the costs of acquired raw materials and related factory labor and overhead charges required to convert raw materials to manufactured and finished goods. The excess of replacement cost of inventories over the LIFO value is approximately $40,886 and $38,047 at September 30, 2017 and December 31, 2016, respectively.
Inventories consisted of the following: | | | September 30, 2017 | | December 31, 2016 | | September 26, 2020 | | December 28, 2019 |
Raw materials and purchased parts | $ | 175,222 |
| | $ | 143,659 |
| Raw materials and purchased parts | $ | 153,708 | | | $ | 158,314 | |
Work-in-process | 35,126 |
| | 27,291 |
| Work-in-process | 25,335 | | | 38,088 | |
Finished goods and manufactured goods | 233,772 |
| | 217,125 |
| Finished goods and manufactured goods | 269,045 | | | 221,968 | |
Subtotal | 444,120 |
| | 388,075 |
| |
Less: LIFO reserve | 40,886 |
| | 38,047 |
| |
| $ | 403,234 |
| | $ | 350,028 |
| | 448,088 | | | 418,370 | |
Effective December 29, 2019, the first day of fiscal 2020, the Company changed its method of accounting for certain of its inventory, previously accounted for on the LIFO basis, so that now all inventory is valued on the FIFO basis. The Company believes this change is preferable as it provides a better matching of costs with the physical flow of goods, more accurately reflects the current value of inventory presented on the Company’s Condensed Consolidated Balance Sheets, and standardizes the Company’s inventory valuation methodology.
In accordance with ASC 250, Accounting Changes and Error Corrections, this change in method of accounting for certain inventories has been retrospectively applied to the earliest period presented. As a result of the retrospective change, the cumulative effect to retained earnings as of December 29, 2018 and December 28, 2019 was an increase of $40,215 and $32,854, respectively. This change did not affect the Company's previously reported cash flows from operating, investing, or financing activities.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The impact of the change from LIFO to FIFO on the Company’s Condensed Consolidated Statements of Earnings before income taxes and equity in earnings of nonconsolidated subsidiariesComprehensive Income for the thirteen and thirty-nine weeks ended September 30, 201728, 2019 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen weeks ended | | | Thirty-nine weeks ended | |
(in 000's, except earnings per share) | As Previously Reported | Retrospectively Adjusted | Adjustment | | As Previously Reported | Retrospectively Adjusted | Adjustment |
Cost of sales | 514,254 | 517,053 | 2,799 | | 1,561,721 | 1,567,260 | 5,539 |
Operating income | 63,863 | 61,064 | (2,799) | | 182,679 | 177,140 | (5,539) |
Income tax expense | 13,763 | 13,063 | (700) | | 40,151 | 38,766 | (1,385) |
Net earnings attributed to Valmont Industries, Inc | 40,144 | 38,045 | (2,099) | | 118,022 | 113,868 | (4,154) |
Comprehensive (loss) income | 27,797 | 25,698 | (2,099) | | 107,880 | 103,726 | (4,154) |
Net earnings per diluted share | 1.85 | 1.75 | (0.10) | | 5.41 | 5.22 | (0.19) |
The Company applied this change retrospectively to the earliest period presented. The resulting impact to the Condensed Consolidated Balance Sheet as of December 28, 2019 is as follows:
| | | | | | | | | | | |
| December 28, 2019 |
Consolidated Balance Sheet | As Previously Reported | Adjustment | Retrospectively Adjusted |
Inventory | 374,565 | 43,805 | 418,370 |
Deferred income tax liability | 47,955 | 10,951 | 58,906 |
Retained earnings | 2,140,948 | 32,854 | 2,173,802 |
Income Taxes
Earnings before income taxes for the thirteen and thirty-nine weeks ended September 26, 2020 and September 24, 2016,28, 2019, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen weeks ended | | Thirty-nine weeks ended |
| 2020 | | 2019 | | 2020 | | 2019 |
United States | $ | 33,610 | | | $ | 42,098 | | | $ | 141,347 | | | $ | 128,878 | |
Foreign | 18,978 | | | 11,129 | | | 4,283 | | | 27,798 | |
| $ | 52,588 | | | $ | 53,227 | | | $ | 145,630 | | | $ | 156,676 | |
|
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| 2017 | | 2016 | | 2017 | | 2016 |
United States | $ | 28,886 |
| | $ | 21,550 |
| | $ | 115,082 |
| | $ | 105,390 |
|
Foreign | 21,675 |
| | 22,239 |
| | 59,210 |
| | 51,486 |
|
| $ | 50,561 |
| | $ | 43,789 |
| | $ | 174,292 |
| | $ | 156,876 |
|
Pension Benefits
The Company incurs expenses in connection with the Delta Pension Plan ("DPP"). The DPP was acquired as part of the Delta plc acquisition in fiscal 2010 and has no members that are active employees. In order to measure expense and the related benefit obligation, various assumptions are made including discount rates used to value the obligation, expected return on plan assets used to fund these expenses and estimated future inflation rates. These assumptions are based on historical
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
experience as well as current facts and circumstances. An actuarial analysis is used to measure the expense and liability associated with pension benefits.
The components of the net periodic pension (benefit) expense for the thirteen and thirty-nine weeks ended September 30, 201726, 2020 and September 24, 201628, 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen weeks ended | | Thirty-nine weeks ended |
Net periodic (benefit) expense: | 2020 | | 2019 | | 2020 | | 2019 |
Interest cost | $ | 3,285 | | | $ | 4,075 | | | $ | 9,569 | | | $ | 12,602 | |
Expected return on plan assets | (5,887) | | | (4,815) | | | (17,149) | | | (14,893) | |
Amortization of actuarial loss | 748 | | | 617 | | | 2,179 | | | 1,909 | |
Net periodic (benefit) expense | $ | (1,854) | | | $ | (123) | | | $ | (5,401) | | | $ | (382) | |
|
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
Net periodic (benefit) expense: | 2017 | | 2016 | | 2017 | | 2016 |
Interest cost | $ | 4,676 |
| | $ | 6,092 |
| | $ | 13,475 |
| | $ | 19,134 |
|
Expected return on plan assets | (5,277 | ) | | (5,565 | ) | | (15,208 | ) | | (17,648 | ) |
Amortization of actuarial loss | 768 |
| | — |
| | 2,214 |
| | — |
|
Net periodic expense | $ | 167 |
| | $ | 527 |
| | $ | 481 |
| | $ | 1,486 |
|
Stock Plans
The Company maintains stock‑basedstock-based compensation plans approved by the shareholders, which provide that the Human Resource Committee of the Board of Directors may grant incentive stock options, nonqualified stock options, stock appreciation rights, non-vestedrestricted stock awards, restricted stock units, and bonuses of common stock. At September 30, 2017, 704,81826, 2020, 1,189,407 shares of common stock remained available for issuance under the plans. Shares and options issued and available are subject to changes in capitalization.
Under the plans, the exercise price of each option equals the closing market price at the date of the grant. Options vest beginning on the first anniversary of the grant in equal amounts over three years to six years or on the grant's fifth anniversary of the grant.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
anniversary. Expiration of grants is from 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's compensation expense (included in selling, general and administrative expenses) and associated income tax benefits related to stock options and restricted stock for the thirteen and thirty-nine weeks ended September 30, 201726, 2020 and September 24, 2016,28, 2019, respectively, were as follows:
| | | Thirteen Weeks Ended | | Thirty-nine Weeks Ended | | Thirteen weeks ended | | Thirty-nine weeks ended |
| 2017 | | 2016 | | 2017 | | 2016 | | 2020 | | 2019 | | 2020 | | 2019 |
Compensation expense | $ | 1,290 |
| | $ | 1,399 |
| | $ | 3,868 |
| | $ | 4,358 |
| Compensation expense | $ | 3,065 | | | $ | 2,519 | | | $ | 8,736 | | | $ | 8,889 | |
Income tax benefits | 496 |
| | 539 |
| | 1,489 |
| | 1,678 |
| Income tax benefits | 766 | | | 630 | | | 2,184 | | | 2,222 | |
Fair Value
The Company applies the provisions of Accounting Standards Codification 820, Fair Value Measurements (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of ASC 820 apply to other accounting pronouncements that require or permit fair value measurements. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
ASC 820 establishes a three‑levelthree-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value.
Trading Securities: The assets and liabilities recorded for the investments held in the Valmont Deferred Compensation Plan at September 26, 2020 of $39,283$33,709 ($35,78436,290 at December 31, 2016)28, 2019) represent mutual funds, invested in debt and equity securities, classified as trading securities in accordance with Accounting Standards Codification ("ASC") 320, Accounting for Certain Investments in Debt and Equity Securities, considering the employee's ability to change investment allocation of their deferred compensation at any time.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company's ownership of shares in Delta EMD Pty. Ltd. (JSE:DTA) is also classified as trading securities. The shares are valued at $1,779$172 and $2,016$210 as of September 30, 201726, 2020 and December 31, 2016,28, 2019, respectively, which is the estimated fair value. Quoted market prices are available for these securities in an active market and therefore categorized as a Level 1 input.
Derivative Financial Instruments: The fair value of foreign currency and commodity forward contracts, and cross currency contracts is based on a valuation model that discounts cash flows resulting from the differential between the contract price and the market-based forward rate.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurement Using: |
| Carrying Value September 26, 2020 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Trading Securities | $ | 33,881 | | | $ | 33,881 | | | $ | 0 | | | $ | 0 | |
Derivative financial instruments, net | 3,548 | | | 0 | | | 3,548 | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurement Using: |
| Carrying Value December 28, 2019 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Trading Securities | $ | 36,500 | | | $ | 36,500 | | | $ | 0 | | | $ | 0 | |
Derivative financial instruments, net | 3,247 | | | 0 | | | 3,247 | | | 0 | |
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurement Using: |
| Carrying Value September 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 | $ | 41,062 |
| | $ | 41,062 |
| | $ | — |
| | $ | — |
|
Long-Lived Assets The Company's other non-financial assets include goodwill and other intangible assets, which are classified as Level 3 items. These assets are measured at fair value on a non-recurring basis as part of annual impairment testing. Note 4 to these condensed consolidated financial statements contain additional information related to goodwill and intangible asset impairments recognized in fiscal 2020. |
| | | | | | | | | | | | | | | |
| | | Fair Value Measurement Using: |
| Carrying Value December 31, 2016 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Trading Securities | $ | 37,800 |
| | $ | 37,800 |
| | $ | — |
| | $ | — |
|
Comprehensive Income (Loss)
Comprehensive income (loss) includes net earnings, currency translation adjustments, certain derivative-related activity and changes in net actuarial gains/losses from a pension plan. Results of operations for foreign subsidiaries are translated using the average exchange rates during the period. Assets and liabilities are translated at the exchange rates in effect on the balance sheet dates. Accumulated other comprehensive income (loss) consisted of the following at September 30, 201726, 2020 and December 31, 2016:28, 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Gain on Hedging Activities | | Defined Benefit Pension Plan | | Accumulated Other Comprehensive Loss |
Balance at December 28, 2019 | $ | (232,575) | | | $ | 14,076 | | | $ | (94,923) | | | $ | (313,422) | |
Current-period comprehensive income (loss) | (17,062) | | | 8,150 | | | 0 | | | (8,912) | |
| | | | | | | |
Balance at September 26, 2020 | $ | (249,637) | | | $ | 22,226 | | | $ | (94,923) | | | $ | (322,334) | |
Revenue Recognition
The Company determines the appropriate revenue recognition for our contracts by analyzing the type, terms and conditions of each contract or arrangement with a customer. Contracts with customers for all businesses are fixed-price with sales tax excluded from revenue, and do not include variable consideration.Discounts included in contracts with customers, typically early pay discounts, are recorded as a reduction of net sales in the period in which the sale is recognized. Contract revenues are classified as product when the performance obligation is related to the manufacturing of goods. Contract revenues are classified as service when the performance obligation is the performance of a service. Service revenue is primarily related to the Coatings segment.
Customer acceptance provisions exist only in the design stage of our products and acceptance of the design by the customer is required before the project is manufactured and delivered to the customer. The Company is not entitled to any compensation solely based on design of the product and does not recognize revenue associated with the design stage. There is one performance obligation for revenue recognition. No general rights of return exist for customers once the product has been delivered and the Company establishes provisions for estimated warranties. The Company does not sell extended warranties for any of its products.
Shipping and handling costs associated with sales are recorded as cost of goods sold. The Company elected to use the practical expedient of treating freight as a fulfillment obligation instead of a separate performance obligation and ratably recognize freight expense as the structure is being manufactured, when the revenue from the associated customer contract is being recognized over time. With the exception of the Utility segment and the wireless communication structures product line, the Company’s inventory is interchangeable for a variety of each segment’s customers. The Company elected the practical expedient to not disclose the partially satisfied performance obligation at the end of the period when the contract has an original expected duration of one year or less. In addition, the Company elected the practical expedient to not adjust the amount of consideration to be received in a contract for any significant financing component if payment is expected within twelve months of transfer of control of goods or services; the Company expects all consideration to be received in one year or less at contract inception.
|
| | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Gain/(Loss) on Hedging Activities | | Defined Benefit Pension Plan | | Accumulated Other Comprehensive Loss |
Balance at December 31, 2016 | $ | (251,228 | ) | | $ | 7,978 |
| | $ | (103,109 | ) | | $ | (346,359 | ) |
Current-period comprehensive income (loss) | 60,017 |
| | (1,760 | ) | | — |
| | 58,257 |
|
Balance at September 30, 2017 | $ | (191,211 | ) | | $ | 6,218 |
| | $ | (103,109 | ) | | $ | (288,102 | ) |
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net Investment Hedge
In the second quarter of 2016, the Company entered into a one-year foreign currency forward contract which qualified as a net investment hedge, in order to mitigate foreign currency risk on a portion of our investments denominated in British pounds. The forward contract had a notional amount to sell British poundsSegment and receive $44,000, and matured in May 2017. The realized gain of $5,123 ($3,150 after tax) has been deferred in other comprehensive income where it will remain until the Company's net investments in its British subsidiaries are divested. No ineffectiveness resulted from the hedge prior to its maturity.
In the third quarter of 2017, the Company entered into two six-month foreign currency forward contracts which qualified as net investment hedges, in order to mitigate foreign currency risk on our grinding media business that is denominated in both Australian dollars and British pounds. The Company announced its intention to divest of this business in August 2017 and regulatory approval in Australia is currently pending. The forward contracts have a maturity date of January 2018 and a notional amount to sell Australian dollars and British pounds to receive $27,000 and $18,500, respectively. The unrealized loss recorded at September 30, 2017 is $740 and is included in Accounts Payable on the Consolidated Balance Sheets. No ineffectiveness has resulted from the hedge and the balance is recorded in the Consolidated Statement of Other Comprehensive Income within gain/(loss) on hedging activities. When the forward contract matures, the realized gain/(loss) will be deferred in Other Comprehensive Income where it will remain until the grinding media business is divested.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-9, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") 605, Product Line Revenue Recognition.
The new revenue recognition standard requires entities to recognize the amount of revenue to which it expects to be entitledglobal Utility segment revenues are derived from manufactured steel and concrete structures for the transfer of promised goods or services to customers. This standard is effective for interimNorth America utility industry and annual reporting periods beginning after December 15, 2017,offshore and can be adopted either retrospectively or as a cumulative effect adjustment asother complex structures used in energy generation and distribution outside of the date of adoption. Early adoption is permitted for interimUnited States. Steel and annual periods beginning after December 15, 2016. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated results of operations and financial position. One area under assessment is the timing of revenue recognition for the Company’s product lines thatconcrete utility structures are custom engineered to a single customer’scustomer specifications resulting in limited ability to sell the structure to a different customer if an order is canceled after production commences. The continuous transfer of control to the customer is evidenced either by contractual termination clauses or by our rights to payment for work performed to-date plus a reasonable profit as the products do not have an alternative use to the Company. Since control is transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment. For our steel and concrete utility and wireless communication structure product lines, we generally recognize revenue on an inputs basis, using total production hours incurred to-date for each order as a percentage of total hours estimated to produce the order. The completion percentage is applied to the order’s total revenue and total estimated costs to determine reported revenue, cost of goods sold and gross profit. Production of an order, once started, is typically completed within three months. Revenue from the offshore and other complex structures business is also recognized using an inputs method, based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. External sales agents are used in certain sales of steel and concrete structures; the Company has chosen to use the practical expedient to expense estimated commissions owed to third parties by recognizing them proportionately as the goods are manufactured.
The global ESS segment revenues are derived from the manufacture and distribution of engineered metal, composite structures and components for lighting and traffic and roadway safety, engineered access systems, and wireless communication. For the lighting and traffic and roadway safety product lines, revenue is recognized upon shipment or delivery of goods to the customer depending on contract terms, which is the same point in time that the asset can be usedcustomer is billed. For Access Systems, revenue is generally recognized upon delivery of goods to the customer which is the same point in time that the customer is billed. The wireless communication product line has large regional customers who have unique product specifications for another customer. These product lines reside in the Utility and Engineered Support Structures segments.communication structures. When the terms and conditions allowcustomer contract includes a cancellation clause that would require them to pay for work completed plus a reasonable margin if an order was canceled, revenue is recognized over time based on hours worked as a percent of total estimated hours to complete production. For the Companyremaining wireless communication product line customers which do not provide a contractual right to bill a customer for full compensationwork completed on a canceled order, for the performance completed to date, revenue will beis recognized over the production period and not the current practice which is upon shipment or timedelivery of deliverythe goods to the customer.customer which is the same point in time that the customer is billed.
The Companyglobal Coatings segment revenues are derived by providing coating services to customers’ products, which include galvanizing, anodizing, and powder coating. Revenue is also evaluatingrecognized once the necessary changescoating service has been performed and the goods are ready to its internal control processesbe picked up or delivered to recognize revenue overthe customer which is the same time using an inputs based model after adoption. Based onthat the current statuscustomer is billed.
The global Irrigation segment revenues are derived from the manufacture of agricultural irrigation equipment and related parts and services for the evaluation, the adoption of the standard is not expected to have a material effect on the amounts or timing of revenueagricultural industry and tubular products for industrial customers. Revenue recognition for the Company’s other segments. The Company expects to adoptirrigation segment is generally upon shipment of the new standard using the modified retrospective approach effective January 1, 2018.
In February 2016, the FASB issued ASU 2016-02, Leases, which provides revised guidance on leases requiring lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability will be equalgoods to the present value of lease payments. For income statement purposes,customer which is the FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases will resultsame point in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Classification will be based on criteriatime that the customer is billed. The remote monitoring subscription services are largely similar to those applied in current lease accounting, but without explicit bright lines. ASU 2016-02primarily billed annually and revenue is effective for interim and annual reporting periods beginning after December 15, 2018 and is to be appliedrecognized on a modified retrospective transition. The Companystraight-line basis over the subsequent twelve months.
Disaggregation of revenue by product line is currently evaluatingdisclosed in the effectSegment footnote. A breakdown by segment of adopting this new accounting guidance but expectsrevenue recognized over time and at a point in time for the adoption will result in a significant increase in total assetsthirteen and liabilities.thirty-nine weeks ended September 26, 2020 and September 28, 2019 is as follows:
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Point in Time | | Over Time | | Point in Time | | Over Time |
| Thirteen weeks ended September 26, 2020 | | Thirteen weeks ended September 26, 2020 | | Thirty-nine weeks ended September 26, 2020 | | Thirty-nine weeks ended September 26, 2020 |
Utility Support Structures | $ | 43,287 | | | $ | 229,192 | | | $ | 56,830 | | | $ | 667,070 | |
Engineered Support Structures | 244,785 | | | 10,160 | | | 697,491 | | | 33,693 | |
Coatings | 68,698 | | | 0 | | | 199,955 | | | 0 | |
Irrigation | 133,999 | | | 3,849 | | | 430,729 | | | 11,210 | |
| | | | | | | |
Total | $ | 490,769 | | | $ | 243,201 | | | $ | 1,385,005 | | | $ | 711,973 | |
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Point in Time | | Over Time | | Point in Time | | Over Time |
| Thirteen weeks ended September 28, 2019 | | Thirteen weeks ended September 28, 2019 | | Thirty-nine weeks ended September 28, 2019 | | Thirty-nine weeks ended September 28, 2019 |
Utility Support Structures | $ | 3,418 | | | $ | 200,778 | | | $ | 43,642 | | | $ | 612,821 | |
Engineered Support Structures | 252,501 | | | 13,993 | | | 713,574 | | | 38,454 | |
Coatings | 76,922 | | | 0 | | | 228,242 | | | 0 | |
Irrigation | 139,093 | | | 3,635 | | | 436,907 | | | 9,710 | |
| | | | | | | |
Total | $ | 471,934 | | | $ | 218,406 | | | $ | 1,422,365 | | | $ | 660,985 | |
The Company's contract asset as of September 26, 2020 and December 28, 2019 was $113,254 and $141,322,
respectively. Both steel and concrete utility customers are generally invoiced upon shipment or delivery of the goods to the customer's specified location with few customers that make up-front or progress payments. The offshore and complex steel structures business invoices customers a number of ways including advanced billings, progress billings, and billings upon shipment.
At September 26, 2020 and December 28, 2019, the contract liabilities for revenue recognized over time was $153,619 and $117,945, respectively. At September 2020, $116,470 is recorded as contract liabilities and $37,149 is recorded as other noncurrent liabilities on the condensed consolidated balance sheets. During the thirteen and thirty-nine weeks ended September 26, 2020, the Company recognized $16,333 and$55,610 of revenue that was included in the liability as of December 28, 2019. In Augustthe thirteen and thirty-nine weeks ended September 28, 2019, the Company recognized $314 and $2,242 of revenue that was included in the liability as of December 29, 2018. The revenue recognized was due to applying advance payments received for performance obligations completed during the period.
Recently Adopted Accounting Pronouncements and Guarantors Disclosures
In June 2016, the FASB issued ASU 2016-15, ClassificationNo. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Certain Cash Receipts and Cash PaymentsCredit Losses on Financial Instruments. The standard replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This update was intended to provide financial statement users with more decision-useful information about the Statement of Cash Flows, which provides more specific guidance on cash flow presentation for certain transactions. ASU 2016-15 is effective for interim periods and fiscal years beginning after December 15, 2017, with early adoption permitted.expected credit losses. The Company does not expect the provisions of this new standard will have a material impact on the consolidated financial statements and plans to adopt it in the first quarter of 2018.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test. ASU 2017-04 is effective for periods and fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted this standard in the third quarter of 2017 which is the same period as it performs the annual goodwill impairment testing.
In March 2017, the FASB issued ASU 2017-07, Presentation of Net Periodic Benefit Cost Related to Defined Benefit Plans, which amends the income statement presentation requirements for the components of net periodic benefit cost for an entity's defined benefit pension and post-retirement plans. ASU 2017-07 is effective for periods and fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of any annual period for which an entity's financial statements have not been issued. The Company does not believe this ASU will have a material impact on the consolidated financial statements and plans to adopt this ASU in the first quarter of 2018.
In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, which improves the financial reporting of hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 is effective for periods and fiscal years beginning after December 15, 2018. Early adoption is permitted for any interim period post issuance.2020. The Company does not believe the adoption of thisthe ASU willNo. 2016-13 did not have a materialsignificant impact on the condensed consolidated financial statements.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
The Company early adopted Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities rules as released by the Securities and Exchange Commission on March 2, 2020, which simplify the disclosure requirements related to the Company’s registered debt securities, guaranteed by certain of its subsidiaries, under Rule 3-10 and Rule 13-01 of Regulation S-X. The final rules permit the simplified disclosures to be provided either in a footnote to the Company’s consolidated financial statements or in management’s discussion and analysis of financial condition and results of operations. The Company has elected to provide the simplified disclosure within Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(2) ACQUISITIONS
On July 31, 2017,May 29, 2020, the Company purchased Aircon Guardrails Private Limitedacquired 55% of Energia Solar do Brasil ("Aircon"Solbras") for $5,362 in cash, net$4,308. Approximately $646 of cash acquired, plus assumed liabilities. Aircon produces highway safety systems including guardrails, structural metal products,the purchase price is contingent on seller representations and warranties that will be settled within 12 months of the acquisition date. Solbras is a leading provider of solar structural products in India with annual sales of approximately $10,000.energy solutions for agriculture. In the preliminary purchase price allocation, goodwill of $3,327$3,341 and $2,109 of customer relationships of $3,718 were recorded and other intangible assets were recorded.the remainder is net working capital. Goodwill is not deductible for tax purposes. This business is includedpurposes and the customer relationship will be amortized over 8 years. The acquisition of Solbras, located in Brazil, allows the Company to expand its product offerings in the Engineered Support StructuresIrrigation segment to include not only pivots, but also a sustainable and was acquiredlow-cost energy source to expandprovide electricity to the Company's geographic presence in the Asia-Pacific region.units. The Company expects to finalize the purchase price allocation in the fourth quarter of 2017.2020. Proforma disclosures were omitted as this business does not have a significant impact on the Company's financial results.
On May 13, 2019, the Company acquired the assets of Connect-It Wireless, Inc. ("Connect-It") for $6,034 in cash. Connect-It operates in Florida and is a manufacturer and distributor of wireless site components and safety products. In the purchase price allocation, goodwill of $3,299 and customer relationships of $828 were recorded and the remainder is net working capital. A portion of the goodwill is deductible for tax purposes. Connect-It is included in the ESS segment and was acquired to expand the Company's wireless component distribution network. The Company finalized the purchase price allocation in the fourth quarter of 2019.
On February 11, 2019, the Company acquired the outstanding shares of United Galvanizing ("United"), a provider of coatings services with an agreed upon purchase price of $28,000, with $2,000 being contingent on seller representations and warranties that was settled in the first quarter of 2020 for $1,522. On December 31, 2018, the Company acquired the assets of Larson Camouflage ("Larson"), an industry leading provider of architectural and camouflage concealment solutions for the wireless telecommunication market with an agreed upon purchase price of $34,562, with 10% being held back for seller representations and warranties that was settled in the first quarter of 2020 for $3,481.
Acquisitions of Noncontrolling Interests
In April 2016,February 2020, the Company acquired the remaining 30%49% of IGC Galvanizing Industries (M) Sdn BhdAgSense that it did not own for $5,841.$43,983, which includes a holdback payment of $2,200 that was made in the second quarter of 2020. The Company finalized the accounting for owning 100% of AgSense in the second quarter of 2020 which resulted in the recognition of a deferred tax asset of approximately $7,700. In June 2016,the first quarter of 2020, the Company acquired 5.2%16% of the remaining 10%25% that it did not own of Convert Italia for a cash payment of $11,750. The purchase agreement also settled the escrow funds which the Company had paid at date of acquisition. In April 2019, the Company acquired the remaining 4.8% of Valmont SM that it did not own for $5,168. $4,763.
As these transactions were for acquisitionsthe acquisition of partall or allpart of the remaining shares of a consolidated subsidiariessubsidiary with no change in control, they were recorded within shareholders' equity and as a financing cash flowactivity in the Condensed Consolidated Statements of Cash Flows.
3) RESTRUCTURING ACTIVITIES
In April 2015, the Company's Board of Directors authorized a broad restructuring plan (the "2015 Plan") to respond to the market environment in certain businesses. During fiscal 2016, the Company incurred pre-tax restructuring charges of $4,581 as it completed the 2015 Plan.
In 2016, the Company identified and executed further region specific restructuring activities (the "2016 Plan") and incurred $5,045 of pre-tax restructuring expenses in cost of sales and $2,780 of pre-tax restructuring expense in SG&A in 2016. Within the total $7,825, were pre-tax asset impairments of $1,099. The 2016 Plan was primarily completed by year-end 2016. The Energy and Mining segment incurred $1,607, the Coatings segment incurred $305, and Corporate incurred approximately $225 of restructuring expenses during the third quarter of 2016. A significant change in market conditions in any of the Company's segments may affect the Company's assessment of necessity for further restructuring activities.
Liabilities recorded for the restructuring plans and changes therein for the first three quarters of fiscal 2017 were as follows:
|
| | | | | | | | | | | | | | | | |
| | Balance at December 31, 2016 | | Recognized Restructuring Expense | | Costs Paid or Otherwise Settled | | Balance at September 30, 2017 |
Severance | | $ | 1,597 |
| | $ | — |
| | $ | (1,597 | ) | | $ | — |
|
Other cash restructuring expenses | | 4,581 |
| | — |
| | (3,377 | ) | | 1,204 |
|
Total | | $ | 6,178 |
| | $ | — |
| | $ | (4,974 | ) | | $ | 1,204 |
|
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(3) RESTRUCTURING ACTIVITIES
The Company is executing a restructuring program focused on certain regional restructuring activities (the "2020 Plan") of up to $20,000 expected to occur across all segments to reduce employment levels (including a U.S. specific early retirement program for administrative employees) and exit under-performing locations.
The following pre-tax expenses were recognized during the third quarter of 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ESS | | Utility | | Coatings | | Corporate | | Total |
Severance | | $ | 0 | | | $ | 0 | | | $ | 289 | | | $ | 0 | | | $ | 289 | |
Other cash restructuring expenses | | 0 | | | 267 | | | 564 | | | 0 | | | 831 | |
Asset impairments | | 0 | | | 312 | | | 241 | | | 0 | | | 553 | |
Total cost of sales | | 0 | | | 579 | | | 1,094 | | | 0 | | | 1,673 | |
| | | | | | | | | | |
Severance | | 0 | | | 0 | | | 30 | | | 0 | | | 30 | |
Other cash restructuring expenses | | 902 | | | 0 | | | 160 | | 145 | | | 1,207 | |
| | | | | | | | | | |
Total selling, general and administrative expenses | | 902 | | | 0 | | | 190 | | | 145 | | | 1,237 | |
Consolidated total | | $ | 902 | | | $ | 579 | | | $ | 1,284 | | | $ | 145 | | | $ | 2,910 | |
In the first nine-months of 2020, the Company recognized the following pre-tax restructuring expenses:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ESS | | Utility | | Coatings | | Corporate | | Total |
Severance | | $ | 399 | | | $ | 0 | | | $ | 424 | | | $ | 0 | | | $ | 823 | |
Other cash restructuring expenses | | 48 | | | 1,070 | | | 596 | | | 0 | | | 1,714 | |
Asset impairments | | 0 | | | 2,570 | | | 241 | | 0 | | | 2,811 | |
Total cost of sales | | 447 | | | 3,640 | | | 1,261 | | | 0 | | | 5,348 | |
| | | | | | | | | | |
Severance | | 242 | | | 613 | | | 85 | | | 221 | | | 1,161 | |
Other cash restructuring expenses | | 1,675 | | | 0 | | | 160 | | | 145 | | | 1,980 | |
| | | | | | | | | | |
Total selling, general and administrative expenses | | 1,917 | | | 613 | | | 245 | | | 366 | | | 3,141 | |
Consolidated total | | $ | 2,364 | | | $ | 4,253 | | | $ | 1,506 | | | $ | 366 | | | $ | 8,489 | |
Liabilities recorded for the restructuring plans were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Recognized Restructuring Expense | | Costs Paid or Otherwise Settled | | Balance at September 26, 2020 |
Severance | | $ | 1,984 | | | $ | 1,984 | | | $ | 0 | |
Other cash restructuring expenses | | 3,694 | | | 2,891 | | | 803 | |
Total | | $ | 5,678 | | | $ | 4,875 | | | $ | 803 | |
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(4) GOODWILL AND INTANGIBLE ASSETS
Amortized Intangible Assets
The components of amortized intangible assets at September 30, 201726, 2020 and December 31, 201628, 2019 were as follows: | | | September 30, 2017 | | September 26, 2020 |
| Gross Carrying Amount | | Accumulated Amortization | | Weighted Average Life | | Gross Carrying Amount | | Accumulated Amortization | | Weighted Average Life |
Customer Relationships | $ | 200,269 |
| | $ | 126,845 |
| | 13 years | Customer Relationships | $ | 232,511 | | | $ | 148,198 | | | 13 years |
Proprietary Software & Database | 3,687 |
| | 3,111 |
| | 8 years | |
| Patents & Proprietary Technology | 6,633 |
| | 3,859 |
| | 11 years | Patents & Proprietary Technology | 25,240 | | | 7,699 | | | 14 years |
Other | 4,807 |
| | 4,032 |
| | 3 years | Other | 7,492 | | | 6,553 | | | 4 years |
| $ | 215,396 |
| | $ | 137,847 |
| | | $ | 265,243 | | | $ | 162,450 | | |
| | | December 31, 2016 | | December 28, 2019 |
| Gross Carrying Amount | | Accumulated Amortization | | Weighted Average Life | | Gross Carrying Amount | | Accumulated Amortization | | Weighted Average Life |
Customer Relationships | $ | 191,316 |
| | $ | 111,342 |
| | 13 years | Customer Relationships | $ | 237,626 | | | $ | 149,720 | | | 13 years |
Proprietary Software & Database | 3,616 |
| | 3,056 |
| | 8 years | |
| Patents & Proprietary Technology | 6,434 |
| | 3,420 |
| | 11 years | Patents & Proprietary Technology | 24,068 | | | 6,358 | | | 14 years |
Other | 3,713 |
| | 3,668 |
| | 3 years | Other | 8,054 | | | 7,035 | | | 5 years |
| $ | 205,079 |
| | $ | 121,486 |
| | | $ | 269,748 | | | $ | 163,113 | | |
Amortization expense for intangible assets for the thirteen and thirty-nine weeks ended September 30, 201726, 2020 and September 24, 2016,28, 2019, respectively was as follows:
|
| | | | | | | | | | |
Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
2017 | | 2016 | | 2017 | | 2016 |
4,025 |
| | 3,964 |
| | 11,792 |
| | 12,037 |
|
| | | | | | | | | | | | | | | | | | | | |
Thirteen weeks ended | | Thirty-nine weeks ended |
2020 | | 2019 | | 2020 | | 2019 |
$ | 4,518 | | | $ | 4,484 | | | $ | 13,621 | | | $ | 13,506 | |
Estimated annual amortization expense related to finite‑livedfinite-lived intangible assets is as follows:
|
| | | |
| Estimated Amortization Expense |
2017 | $ | 15,823 |
|
2018 | 14,492 |
|
2019 | 13,718 |
|
2020 | 12,608 |
|
2021 | 10,474 |
|
| | | | | |
| Estimated Amortization Expense |
2020 | $ | 17,687 | |
2021 | 15,005 | |
2022 | 13,027 | |
2023 | 11,086 | |
2024 | 9,446 | |
The useful lives assigned to finite‑livedfinite-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
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(4) GOODWILL AND INTANGIBLE ASSETS (Continued)
Non-amortized intangible assets
Intangible assets with indefinite lives are not amortized.amortized and consist solely of trade names. The carrying valuesvalue of trade names at September 30, 201726, 2020 and December 31, 2016 were28, 2019 are as follows:
| | | | | | | | | | | | | | | | | |
| September 26, 2020 | | December 28, 2019 | | Year Acquired |
Newmark | $ | 11,111 | | | $ | 11,111 | | | 2004 |
Webforge | 7,489 | | | 9,143 | | | 2010 |
Convert Italia S.p.A | 8,721 | | | 8,378 | | | 2018 |
Valmont SM | 8,317 | | | 7,966 | | | 2014 |
Ingal EPS/Ingal Civil Products | 7,261 | | | 7,454 | | | 2010 |
Walpar | 3,500 | | | 3,500 | | | 2018 |
Shakespeare | 4,000 | | | 4,000 | | | 2014 |
Other | 14,489 | | | 17,555 | | | |
| $ | 64,888 | | | $ | 69,107 | | | |
|
| | | | | | | | | |
| September 30, 2017 | | December 31, 2016 | | Year Acquired |
Webforge | $ | 9,362 |
| | $ | 8,624 |
| | 2010 |
Valmont SM | 9,839 |
| | 8,765 |
| | 2014 |
Newmark | 11,111 |
| | 11,111 |
| | 2004 |
Ingal EPS/Ingal Civil Products | 7,633 |
| | 7,032 |
| | 2010 |
Donhad | 5,758 |
| | 5,305 |
| | 2010 |
Shakespeare | 4,000 |
| | 4,000 |
| | 2014 |
Industrial Galvanizers | 2,390 |
| | 2,201 |
| | 2010 |
Other | 14,448 |
| | 13,747 |
| | |
| $ | 64,541 |
| | $ | 60,785 |
| | |
In its determination of these intangible assets as indefinite‑lived,indefinite-lived, the Company considered such factors as its expected future use of the intangible asset, legal, regulatory, technological and competitive factors that may impact the useful life or value of the intangible asset and the expected costs to maintain the value of the intangible asset. The Company expects that these intangible assets will maintain their value indefinitely. Accordingly, these assets are not amortized.
The Company’s trade names were tested for impairment in the third quarter of 2017.2020. The values of each trade name was determined using the relief-from-royalty method. Based on this evaluation, no0 trade names were determined to be impaired. In conjunction with an interim second quarter 2020 goodwill impairment test, impairment indicators were noted for the Webforge and Locker trade names requiring an interim impairment test. As a result, an impairment charge of approximately $3,900 was recognized against these 2 trade names in fiscal 2020.
Goodwill
The carrying amount of goodwill by segment as of September 30, 201726, 2020 and December 31, 201628, 2019 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Engineered Support Structures Segment | | Utility Support Structures Segment | | Coatings Segment | | Irrigation Segment | | | | Total |
Gross Balance December 28, 2019 | $ | 228,634 | | | $ | 130,594 | | | $ | 93,747 | | | $ | 25,136 | | | | | $ | 478,111 | |
Accumulated impairment losses | (18,670) | | | (14,355) | | | (16,222) | | | 0 | | | | | (49,247) | |
Balance at December 28, 2019 | 209,964 | | | 116,239 | | | 77,525 | | | 25,136 | | | | | 428,864 | |
Acquisitions | 0 | | | 1,100 | | | 0 | | | 5,038 | | | | | 6,138 | |
Asset impairment | (12,575) | | | 0 | | | 0 | | | 0 | | | | | (12,575) | |
| | | | | | | | | | | |
Foreign currency translation | (1,605) | | | 1,629 | | | (409) | | | (95) | | | | | (480) | |
Balance at September 26, 2020 | $ | 195,784 | | | $ | 118,968 | | | $ | 77,116 | | | $ | 30,079 | | | | | $ | 421,947 | |
The Company’s annual impairment test of goodwill was performed during the third quarter of 2020, using primarily the discounted cash flow method. The estimated fair value of all of our reporting units exceeded their respective carrying value, so 0 goodwill was impaired.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Engineered Support Structures Segment | | Energy & Mining Segment | | Utility Support Structures Segment | | Coatings Segment | | Irrigation Segment | | | Total |
Balance at December 31, 2016 | $ | 94,314 |
| | $ | 72,212 |
| | $ | 75,404 |
| | $ | 59,569 |
| | $ | 19,611 |
| | | $ | 321,110 |
|
Foreign currency translation | 4,568 |
| | 6,704 |
| | — |
| | 951 |
| | 94 |
| | | 12,317 |
|
Acquisitions | 3,327 |
| | — |
| | — |
| | — |
| | — |
| | | 3,327 |
|
Balance at September 30, 2017 | $ | 102,209 |
| | $ | 78,916 |
| | $ | 75,404 |
| | $ | 60,520 |
|
| $ | 19,705 |
| | | $ | 336,754 |
|
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(4) GOODWILL AND INTANGIBLE ASSETS (Continued)
The Company’s annual impairment testIn April 2020, the price of goodwill wasa barrel of oil began a large decline and various economic forecasts show the lower price of oil will continue into the next few years. This lower price for oil and a revised assessment of the Australian market performed duringin conjunction with the third quarter of 2017, using the discounted cash flow method. As a result of that testing,executed restructuring activities required the Company determined that its goodwill was not impaired, asto re-assess the valuationfinancial projections for the Access Systems reporting unit. This resulted in lower projected net sales, operating income, and cash flows for this reporting unit, resulting in the need for an interim impairment test. The results of the reporting units exceeded their respective carrying values. The Company's offshore and other complex steel structures reporting unit with $14,645 of goodwill, istest showed that the reporting unit with the smallest cushion betweenunit's carrying value was higher than its estimated fair value and its carrying value. Sales and profitability amounts forAccordingly, the first nine monthsCompany recorded a $12,575 impairment of 2017 approximated the amountsaccess system's goodwill in the 2016 annual impairment model. The 2017 model assumes continued expansion into other highly engineered steel product offerings, such as utility support structures, where the reporting unit completed profitable projects in the past. The Company will continue to monitor the outlook for wind energy in Europe and oil and natural gas prices, which will affect the sales demand assumptions in the five year model for this reporting unit. If demand for off and onshore structures for wind energy changes significantly, the Company will perform an interim impairment test for goodwill. The Company also tracks changes in the global economy that could impact future operating resultssecond quarter of any of its reporting units.2020.
(5) CASH FLOW SUPPLEMENTARY INFORMATION
The Company considers all highly liquid temporary cash investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents. Cash payments for interest and income taxes (net of refunds) for the thirty-nine weeks ended September 30, 201726, 2020 and September 24, 201628, 2019 were as follows:
| | | | | | | | | | | |
| 2020 | | 2019 |
Interest | $ | 20,298 | | | $ | 19,440 | |
Income taxes | 35,803 | | | 39,850 | |
|
| | | | | | | |
| 2017 | | 2016 |
Interest | $ | 22,732 |
| | $ | 24,036 |
|
Income taxes | 52,823 |
| | 47,954 |
|
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(6) EARNINGS PER SHARE
The following table provides a reconciliation between Basic and Diluted earnings per share (EPS):
| | | | | | | | | | | | | | | | | |
| Basic EPS | | Dilutive Effect of Stock Options | | Diluted EPS |
Thirteen weeks ended September 26, 2020: | | | | | |
Net earnings attributable to Valmont Industries, Inc. | $ | 39,342 | | | $ | 0 | | | $ | 39,342 | |
Weighted average shares outstanding (000's) | 21,309 | | | 107 | | | 21,416 | |
Per share amount | $ | 1.85 | | | $ | (0.01) | | | $ | 1.84 | |
Thirteen weeks ended September 28, 2019: | | | | | |
Net earnings attributable to Valmont Industries, Inc. | $ | 38,045 | | | $ | 0 | | | $ | 38,045 | |
Weighted average shares outstanding (000's) | 21,556 | | | 128 | | | 21,684 | |
Per share amount | $ | 1.76 | | | $ | (0.01) | | | $ | 1.75 | |
Thirty-nine weeks ended September 26, 2020 | | | | | |
Net earnings attributable to Valmont Industries, Inc. | $ | 104,878 | | | $ | 0 | | | $ | 104,878 | |
Weighted average shares outstanding (000's) | 21,358 | | | 95 | | | 21,453 | |
Per share amount | $ | 4.91 | | | $ | (0.02) | | | $ | 4.89 | |
Thirty-nine weeks ended September 28, 2019: | | | | | |
Net earnings attributable to Valmont Industries, Inc. | $ | 113,868 | | | $ | 0 | | | $ | 113,868 | |
Weighted average shares outstanding (000's) | 21,725 | | | 101 | | | 21,826 | |
Per share amount | $ | 5.24 | | | $ | (0.02) | | | $ | 5.22 | |
|
| | | | | | | | | | | |
| Basic EPS | | Dilutive Effect of Stock Options | | Diluted EPS |
Thirteen weeks ended September 30, 2017: | | | | | |
Net earnings attributable to Valmont Industries, Inc. | $ | 35,208 |
| | $ | — |
| | $ | 35,208 |
|
Shares outstanding (000 omitted) | 22,527 |
| | 224 |
| | 22,751 |
|
Per share amount | $ | 1.56 |
| | $ | (0.01 | ) | | $ | 1.55 |
|
Thirteen weeks ended September 24, 2016: | | | | | |
Net earnings attributable to Valmont Industries, Inc. | $ | 28,173 |
| | $ | — |
| | $ | 28,173 |
|
Shares outstanding (000 omitted) | 22,505 |
| | 154 |
| | 22,659 |
|
Per share amount | $ | 1.25 |
| | $ | (0.01 | ) | | $ | 1.24 |
|
Thirty-nine weeks ended September 30, 2017: | | | | | |
Net earnings attributable to Valmont Industries, Inc. | $ | 119,851 |
| | $ | — |
| | $ | 119,851 |
|
Shares outstanding (000 omitted) | 22,505 |
| | 212 |
| | 22,717 |
|
Per share amount | $ | 5.33 |
| | $ | (0.05 | ) | | $ | 5.28 |
|
Thirty-nine weeks ended September 24, 2016: | | | | | |
Net earnings attributable to Valmont Industries, Inc. | $ | 103,168 |
| | $ | — |
| | $ | 103,168 |
|
Shares outstanding (000 omitted) | 22,602 |
| | 139 |
| | 22,741 |
|
Per share amount | $ | 4.56 |
| | $ | (0.02 | ) | | $ | 4.54 |
|
At September 24, 2016,26, 2020 and September 28, 2019, there were 378,566296,966 and 177,153 outstanding stock options with exercise prices exceeding the market price of common stock that were excluded from the computation of diluted earnings per share.share, respectively.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(7) DERIVATIVE FINANCIAL INSTRUMENTS
(7) The Company manages interest rate risk, commodity price risk, and foreign currency risk related to foreign currency denominated transactions and investments in foreign subsidiaries. Depending on the circumstances, the Company may manage these risks by utilizing derivative financial instruments. Some derivative financial instruments are marked to market and recorded in the Company's consolidated statements of earnings, while others may be accounted for as fair value, cash flow, or net investment hedges. Derivative financial instruments have credit and market risk. The Company manages these risks of derivative instruments by monitoring limits as to the types and degree of risk that can be taken, and by entering into transactions with counterparties who are recognized, stable multinational banks.
Fair value of derivative instruments at September 26, 2020 and December 28, 2019 are as follows:
| | | | | | | | | | | | | | | | | | | |
Derivatives designated as hedging instruments: | Balance sheet location | | September 26, 2020 | | December 28, 2019 | | |
| | | | | | | |
| | | | | | | |
Foreign currency forward contracts | Prepaid expenses and other assets | | $ | 1,021 | | | $ | 2,119 | | | |
| | | | | | | |
Cross currency swap contracts | Prepaid expenses and other assets | | 2,527 | | | 1,128 | | | |
| | | | | | | |
| | | $ | 3,548 | | | $ | 3,247 | | | |
Gains (losses) on derivatives recognized in the condensed consolidated statements of earnings for the thirteen and thirty-nine weeks ended September 26, 2020 and September 28, 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Thirteen weeks ended | | Thirty-nine weeks ended | | |
| Statements of earnings location | | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 | | |
Commodity forward contracts | Product cost of sales | | $ | 0 | | | $ | (1,329) | | | $ | 0 | | | $ | (1,425) | | | |
Foreign currency forward contracts | Other income | | 116 | | | 123 | | | 146 | | | 827 | | | |
Foreign currency forward contracts | Product sales | | 1,017 | | | 0 | | | 1,169 | | | 0 | | | |
Interest rate hedge amortization | Interest expense | | (16) | | | (16) | | | (48) | | | (48) | | | |
Cross currency swap contracts | Interest expense | | 649 | | | 769 | | | 2,111 | | | 2,096 | | | |
| | | $ | 1,766 | | | $ | (453) | | | $ | 3,378 | | | $ | 1,450 | | | |
Cash Flow Hedges
In 2019, the Company entered into steel hot rolled coil (HRC) forward contracts that qualified as a cash flow hedge of the variability in cash flows attributable to future steel purchases. The forward contracts had a notional amount of $12,128 for the purchase of 3,500 short tons for each month from May 2019 to September 2019. The gain/(loss) realized upon settlement is recorded in product cost of sales in the condensed consolidated statements of earnings over average inventory turns. The forward contracts were closed out in the third quarter of 2019.
In May 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 contract, which qualifies as a cash flow hedge, has a final maturity date of December 2020 and a notional amount to buy 4,500 euros in exchange for a stated amount of Brazilian Real. In March 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 contract, which qualifies as a cash flow hedge, has a final maturity date of June 2021 and a notional amount to sell $27,500 in exchange for a stated amount of Euros.
Net Investment Hedges
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
In the second quarter of 2020, the Company early settled their Australian dollar denominated forward currency contracts and received proceeds of $11,983. In the second quarter of 2019, all existing net investment hedges were early settled and the Company received proceeds of $11,184. The proceeds/gain from these settlements will remain in Other Comprehensive Income (OCI) until either the sale or substantially complete liquidation of the related subsidiaries.
In the second quarter of 2019, the Company entered into 2 fixed-for-fixed cross currency swaps (“CCS”), swapping U.S. dollar principal and interest payments on a portion of its 5.00% senior unsecured notes due 2044 for Danish krone (DKK) and Euro denominated payments. The CCS were entered into in order to mitigate foreign currency risk on the Company's Euro and DKK investments and to reduce interest expense. Interest is exchanged twice per year on April 1 and October 1.
Key terms of the two CCS are as follows:
| | | | | | | | | | | | | | |
Currency | Notional Amount | Termination Date | Swapped Interest Rate | Set Settlement Amount |
Danish Krone (DKK) | $ | 50,000 | | April 1, 2024 | 2.68% | DKK 333,625 |
Euro | $ | 80,000 | | April 1, 2024 | 2.825% | €71,550 |
The Company designated the full notional amount of the 2 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 spot foreign exchange rates) are recorded as cumulative foreign currency translation within OCI, and will remain in OCI until either the sale or substantially complete liquidation of the related subsidiaries. Net interest receipts will be recorded as a reduction of interest expense over the life of the CCS.
(8) BUSINESS SEGMENTS
The accounting principles usedCompany has 4 reportable segments based on its management structure. Each segment is global in nature with a manager responsible for segment operational performance and the preparationallocation of capital within the segment informationsegment. Net corporate expense is net of certain service-related expenses that are allocated to business units generally on the same as those used for the consolidated financial statements as disclosed in Note 1, except that the segment assets and income reflect the FIFO basis of accounting for inventory. Certain inventories are accounted for using the LIFO basis in the consolidated financial statements. In the first quarter of 2017, the Company changed its reportable segment operating income to separate out the LIFO expense (benefit). Prior year financial information has been updated to reflect this change.employee headcounts.
Reportable segments are as follows:
ENGINEERED SUPPORT STRUCTURES: This segment consists of the manufacture and distribution of engineered metal
structures and composite poles, towers, and components for the global lighting, traffic, and traffic, wireless communication and roadway safety
industries;
ENERGY AND MINING: This segment, all outside of the United States, consists of the manufacture of
markets, engineered access systems, applications, forged steel grinding media, onintegrated structure solutions for smart cities, and offshore oil, gas, and wind energy structures;highway safety products;
UTILITY SUPPORT STRUCTURES: This segment consists of the manufacture of engineered steel and
concrete structures for the global utility industry;transmission, distribution, substations, and renewable energy generation equipment;
COATINGS: This segment consists of galvanizing, painting, and anodizing services to preserve and powder coating services on a globalprotect metal products; and
basis; and
IRRIGATION: This segment consists of the manufacture of agricultural irrigation equipment, and related
parts, and services for the global agricultural industry and tubular products, water management solutions, and technology for industrial customers.precision agriculture.
The Company evaluates the performance of its business segments based upon operating income and invested capital. The Company does not allocate LIFO expense, interest expense, non-operating income and deductions, or income taxes to its business segments.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(7) BUSINESS SEGMENTS (Continued)
Summary by Business
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen weeks ended | | Thirty-nine weeks ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
SALES: | | | | | | | |
Engineered Support Structures segment: | | | | | | | |
Lighting, Traffic, and Highway Safety Products | $ | 181,571 | | | $ | 191,262 | | | $ | 534,585 | | | $ | 530,021 | |
Communication Products | 50,677 | | | 48,391 | | | 139,759 | | | 138,710 | |
Access Systems | 23,408 | | | 28,405 | | | 65,439 | | | 88,363 | |
Engineered Support Structures segment | 255,656 | | | 268,058 | | | 739,783 | | | 757,094 | |
Utility Support Structures segment: | | | | | | | |
Steel | 156,082 | | | 153,433 | | | 482,430 | | | 460,309 | |
Concrete | 39,215 | | | 28,011 | | | 120,653 | | | 88,415 | |
Engineered Solar Tracker Solutions | 43,287 | | | 3,418 | | | 56,830 | | | 43,642 | |
Offshore and Other Complex Steel Structures | 35,809 | | | 20,096 | | | 71,265 | | | 66,343 | |
Utility Support Structures segment | 274,393 | | | 204,958 | | | 731,178 | | | 658,709 | |
Coatings segment | 87,886 | | | 92,957 | | | 255,976 | | | 278,142 | |
Irrigation segment: | | | | | | | |
North America | 75,803 | | | 82,840 | | | 281,397 | | | 294,127 | |
International | 63,406 | | | 61,340 | | | 165,171 | | | 158,054 | |
Irrigation segment | 139,209 | | | 144,180 | | | 446,568 | | | 452,181 | |
| | | | | | | |
Total | 757,144 | | | 710,153 | | | 2,173,505 | | | 2,146,126 | |
INTERSEGMENT SALES: | | | | | | | |
Engineered Support Structures segment | 711 | | | 1,564 | | | 8,599 | | | 5,066 | |
Utility Support Structures segment | 1,914 | | | 762 | | | 7,278 | | | 2,246 | |
Coatings segment | 19,188 | | | 16,035 | | | 56,021 | | | 49,900 | |
Irrigation segment | 1,361 | | | 1,452 | | | 4,629 | | | 5,564 | |
| | | | | | | |
Total | 23,174 | | | 19,813 | | | 76,527 | | | 62,776 | |
NET SALES: | | | | | | | |
Engineered Support Structures segment | 254,945 | | | 266,494 | | | 731,184 | | | 752,028 | |
Utility Support Structures segment | 272,479 | | | 204,196 | | | 723,900 | | | 656,463 | |
Coatings segment | 68,698 | | | 76,922 | | | 199,955 | | | 228,242 | |
Irrigation segment | 137,848 | | | 142,728 | | | 441,939 | | | 446,617 | |
| | | | | | | |
Total | $ | 733,970 | | | $ | 690,340 | | | $ | 2,096,978 | | | $ | 2,083,350 | |
| | | | | | | |
OPERATING INCOME: | | | | | | | |
Engineered Support Structures segment | $ | 25,434 | | | $ | 21,825 | | | $ | 46,183 | | | $ | 55,152 | |
Utility Support Structures segment | 25,881 | | | 20,362 | | | 75,255 | | | 61,443 | |
Coatings segment | 12,416 | | | 13,865 | | | 33,618 | | | 39,037 | |
Irrigation segment | 14,687 | | | 18,204 | | | 60,701 | | | 59,868 | |
| | | | | | | |
| | | | | | | |
Corporate | (16,939) | | | (13,192) | | | (43,943) | | | (38,360) | |
Total | $ | 61,479 | | | $ | 61,064 | | | $ | 171,814 | | | $ | 177,140 | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| September 30, 2017 | | September 24, 2016 | | September 30, 2017 | | September 24, 2016 |
SALES: | | | | | | | |
Engineered Support Structures segment: | | | | | | | |
Lighting, Traffic, and Roadway Products | $ | 175,184 |
| | $ | 159,089 |
| | $ | 498,034 |
| | $ | 468,582 |
|
Communication Products | 46,324 |
| | 44,095 |
| | 121,613 |
| | 115,489 |
|
Engineered Support Structures segment | 221,508 |
| | 203,184 |
| | 619,647 |
| | 584,071 |
|
Energy and Mining segment: | | | | | | | |
Offshore and Other Complex Steel Structures | 25,046 |
| | 27,330 |
| | 75,372 |
| | 76,207 |
|
Grinding Media | 19,800 |
| | 20,681 |
| | 60,466 |
| | 61,189 |
|
Access Systems | 34,909 |
| | 33,541 |
| | 99,096 |
| | 97,297 |
|
Energy and Mining segment | 79,755 |
| | 81,552 |
| | 234,934 |
| | 234,693 |
|
Utility Support Structures segment: | | | | | | | |
Steel | 160,948 |
| | 131,085 |
| | 471,072 |
| | 379,157 |
|
Concrete | 18,811 |
| | 19,582 |
| | 67,921 |
| | 67,275 |
|
Utility Support Structures segment | 179,759 |
| | 150,667 |
| | 538,993 |
| | 446,432 |
|
Coatings segment | 82,593 |
| | 70,082 |
| | 235,842 |
| | 213,961 |
|
Irrigation segment | 147,428 |
| | 127,809 |
| | 502,939 |
| | 438,575 |
|
Total | 711,043 |
| | 633,294 |
| | 2,132,355 |
| | 1,917,732 |
|
INTERSEGMENT SALES: | | | | | | | |
Engineered Support Structures segment | 11,736 |
| | 10,076 |
| | 48,399 |
| | 29,202 |
|
Energy & Mining segment | 6 |
| | 319 |
| | 6 |
| | 3,386 |
|
Utility Support Structures segment | 1,231 |
| | 276 |
| | 2,448 |
| | 538 |
|
Coatings segment | 14,913 |
| | 10,079 |
| | 44,230 |
| | 31,778 |
|
Irrigation segment | 2,378 |
| | 2,297 |
| | 6,283 |
| | 5,727 |
|
Total | 30,264 |
| | 23,047 |
| | 101,366 |
| | 70,631 |
|
NET SALES: | | | | | | | |
Engineered Support Structures segment | 209,772 |
| | 193,108 |
| | 571,248 |
| | 554,869 |
|
Energy & Mining segment | 79,749 |
| | 81,233 |
| | 234,928 |
| | 231,307 |
|
Utility Support Structures segment | 178,528 |
| | 150,391 |
| | 536,545 |
| | 445,894 |
|
Coatings segment | 67,680 |
| | 60,003 |
| | 191,612 |
| | 182,183 |
|
Irrigation segment | 145,050 |
| | 125,512 |
| | 496,656 |
| | 432,848 |
|
Total | $ | 680,779 |
| | $ | 610,247 |
| | $ | 2,030,989 |
| | $ | 1,847,101 |
|
| | | | | | | |
OPERATING INCOME: | | | | | | | |
Engineered Support Structures segment | $ | 16,226 |
| | $ | 20,323 |
| | $ | 45,683 |
| | $ | 53,615 |
|
Energy & Mining segment | 1,417 |
| | 3,941 |
| | 9,195 |
| | 9,184 |
|
Utility Support Structures segment | 22,108 |
| | 16,195 |
| | 65,005 |
| | 48,201 |
|
Coatings segment | 14,577 |
| | 11,696 |
| | 36,091 |
| | 37,132 |
|
Irrigation segment | 18,235 |
| | 15,308 |
| | 83,196 |
| | 75,216 |
|
Adjustment to LIFO inventory valuation method | (1,626 | ) | | (2,066 | ) | | (2,839 | ) | | (3,192 | ) |
Corporate | (11,014 | ) | | (12,157 | ) | | (33,616 | ) | | (32,745 | ) |
Total | $ | 59,923 |
| | $ | 53,240 |
| | $ | 202,715 |
| | $ | 187,411 |
|
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION
The Company has three tranches of senior unsecured notes. All of the senior notes are guaranteed, jointly, severally, fully and unconditionally (subject to certain customary release provisions, including sale of the subsidiary guarantor, or sale of all or substantially all of its assets) by certain of the Company’s current and future direct and indirect domestic and foreign subsidiaries (collectively the “Guarantors”), excluding its other current domestic and foreign subsidiaries which do not guarantee the debt (collectively referred to as the “Non-Guarantors”). All Guarantors are 100% owned by the parent company.
Consolidated financial information for the Company ("Parent"), the Guarantor subsidiaries and the Non-Guarantor subsidiaries is as follows:
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Thirteen weeks ended September 30, 2017
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Total |
Net sales | $ | 284,538 |
| | $ | 113,243 |
| | $ | 343,818 |
| | $ | (60,820 | ) | | $ | 680,779 |
|
Cost of sales | 216,039 |
| | 88,757 |
| | 272,959 |
| | (60,570 | ) | | 517,185 |
|
Gross profit | 68,499 |
| | 24,486 |
| | 70,859 |
| | (250 | ) | | 163,594 |
|
Selling, general and administrative expenses | 46,451 |
| | 12,046 |
| | 45,174 |
| | — |
| | 103,671 |
|
Operating income | 22,048 |
| | 12,440 |
| | 25,685 |
| | (250 | ) | | 59,923 |
|
Other income (expense): | | | | | | | | | |
Interest expense | (10,884 | ) | | (3,989 | ) | | (306 | ) | | 3,989 |
| | (11,190 | ) |
Interest income | 268 |
| | 9 |
| | 5,023 |
| | (3,989 | ) | | 1,311 |
|
Other | 1,379 |
| | 11 |
| | (873 | ) | | — |
| | 517 |
|
| (9,237 | ) | | (3,969 | ) | | 3,844 |
| | — |
| | (9,362 | ) |
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries | 12,811 |
| | 8,471 |
| | 29,529 |
| | (250 | ) | | 50,561 |
|
Income tax expense (benefit): | | | | | | | | | |
Current | 9,030 |
| | 3,082 |
| | 9,059 |
| | (8 | ) | | 21,163 |
|
Deferred | (3,474 | ) | | — |
| | (3,794 | ) | | — |
| | (7,268 | ) |
| 5,556 |
| | 3,082 |
| | 5,265 |
| | (8 | ) | | 13,895 |
|
Earnings before equity in earnings of nonconsolidated subsidiaries | 7,255 |
| | 5,389 |
| | 24,264 |
| | (242 | ) | | 36,666 |
|
Equity in earnings of nonconsolidated subsidiaries | 27,953 |
| | 9,965 |
| | — |
| | (37,918 | ) | | — |
|
Net earnings | 35,208 |
| | 15,354 |
| | 24,264 |
| | (38,160 | ) | | 36,666 |
|
Less: Earnings attributable to noncontrolling interests | — |
| | — |
| | (1,458 | ) | | — |
| | (1,458 | ) |
Net earnings attributable to Valmont Industries, Inc | $ | 35,208 |
| | $ | 15,354 |
| | $ | 22,806 |
| | $ | (38,160 | ) | | $ | 35,208 |
|
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Thirty-nine Weeks Ended September 30, 2017 |
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Total |
Net sales | $ | 893,988 |
| | $ | 352,827 |
| | $ | 967,130 |
| | $ | (182,956 | ) | | $ | 2,030,989 |
|
Cost of sales | 666,060 |
| | 271,620 |
| | 764,607 |
| | (182,777 | ) | | 1,519,510 |
|
Gross profit | 227,928 |
| | 81,207 |
| | 202,523 |
| | (179 | ) | | 511,479 |
|
Selling, general and administrative expenses | 143,590 |
| | 35,555 |
| | 129,619 |
| | — |
| | 308,764 |
|
Operating income | 84,338 |
| | 45,652 |
| | 72,904 |
| | (179 | ) | | 202,715 |
|
Other income (expense): | | | | | | | | | |
Interest expense | (32,672 | ) | | (10,040 | ) | | (640 | ) | | 10,040 |
| | (33,312 | ) |
Interest income | 563 |
| | 33 |
| | 12,649 |
| | (10,040 | ) | | 3,205 |
|
Other | 3,900 |
| | 42 |
| | (2,258 | ) | | — |
| | 1,684 |
|
| (28,209 | ) | | (9,965 | ) | | 9,751 |
| | — |
| | (28,423 | ) |
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries | 56,129 |
| | 35,687 |
| | 82,655 |
| | (179 | ) | | 174,292 |
|
Income tax expense (benefit): | | | | | | | | | |
Current | 19,487 |
| | 13,184 |
| | 17,612 |
| | (19 | ) | | 50,264 |
|
Deferred | 2,065 |
| | — |
| | (1,986 | ) | | — |
| | 79 |
|
| 21,552 |
| | 13,184 |
| | 15,626 |
| | (19 | ) | | 50,343 |
|
Earnings before equity in earnings of nonconsolidated subsidiaries | 34,577 |
| | 22,503 |
| | 67,029 |
| | (160 | ) | | 123,949 |
|
Equity in earnings of nonconsolidated subsidiaries | 85,274 |
| | 15,281 |
| | — |
| | (100,555 | ) | | — |
|
Net earnings | 119,851 |
| | 37,784 |
| | 67,029 |
| | (100,715 | ) | | 123,949 |
|
Less: Earnings attributable to noncontrolling interests | — |
| | — |
| | (4,098 | ) | | — |
| | (4,098 | ) |
Net earnings attributable to Valmont Industries, Inc | $ | 119,851 |
| | $ | 37,784 |
| | $ | 62,931 |
| | $ | (100,715 | ) | | $ | 119,851 |
|
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Thirteen weeks ended September 24, 2016 |
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Total |
Net sales | $ | 261,928 |
| | $ | 89,305 |
| | $ | 300,648 |
| | $ | (41,634 | ) | | $ | 610,247 |
|
Cost of sales | 199,957 |
| | 66,401 |
| | 230,561 |
| | (41,695 | ) | | 455,224 |
|
Gross profit | 61,971 |
| | 22,904 |
| | 70,087 |
| | 61 |
| | 155,023 |
|
Selling, general and administrative expenses | 46,183 |
| | 11,073 |
| | 44,527 |
| | — |
| | 101,783 |
|
Operating income | 15,788 |
| | 11,831 |
| | 25,560 |
| | 61 |
| | 53,240 |
|
Other income (expense): | | | | | | | | | |
Interest expense | (10,920 | ) | | (6 | ) | | (174 | ) | | — |
| | (11,100 | ) |
Interest income | 68 |
| | 12 |
| | 691 |
| | — |
| | 771 |
|
Other | 1,370 |
| | 12 |
| | (504 | ) | | — |
| | 878 |
|
| (9,482 | ) | | 18 |
| | 13 |
| | — |
| | (9,451 | ) |
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries | 6,306 |
| | 11,849 |
| | 25,573 |
| | 61 |
| | 43,789 |
|
Income tax expense (benefit): | | | | | | | | | |
Current | 6,112 |
| | 5,095 |
| | 6,762 |
| | 48 |
| | 18,017 |
|
Deferred | (5,321 | ) | | — |
| | 1,572 |
| | — |
| | (3,749 | ) |
| 791 |
| | 5,095 |
| | 8,334 |
| | 48 |
| | 14,268 |
|
Earnings before equity in earnings of nonconsolidated subsidiaries | 5,515 |
| | 6,754 |
| | 17,239 |
| | 13 |
| | 29,521 |
|
Equity in earnings of nonconsolidated subsidiaries | 22,658 |
| | — |
| | — |
| | (22,658 | ) | | — |
|
Net earnings | 28,173 |
| | 6,754 |
| | 17,239 |
| | (22,645 | ) | | 29,521 |
|
Less: Earnings attributable to noncontrolling interests | — |
| | — |
| | (1,348 | ) | | — |
| | (1,348 | ) |
Net earnings attributable to Valmont Industries, Inc | $ | 28,173 |
| | $ | 6,754 |
| | $ | 15,891 |
| | $ | (22,645 | ) | | $ | 28,173 |
|
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Thirty-nine Weeks Ended September 24, 2016 |
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Total |
Net sales | $ | 837,137 |
| | $ | 277,990 |
| | $ | 873,673 |
| | $ | (141,699 | ) | | $ | 1,847,101 |
|
Cost of sales | 619,493 |
| | 205,497 |
| | 671,202 |
| | (140,200 | ) | | 1,355,992 |
|
Gross profit | 217,644 |
| | 72,493 |
| | 202,471 |
| | (1,499 | ) | | 491,109 |
|
Selling, general and administrative expenses | 133,207 |
| | 33,583 |
| | 136,908 |
| | — |
| | 303,698 |
|
Operating income | 84,437 |
| | 38,910 |
| | 65,563 |
| | (1,499 | ) | | 187,411 |
|
Other income (expense): | | | | | | | | | |
Interest expense | (32,768 | ) | | (9 | ) | | (499 | ) | | — |
| | (33,276 | ) |
Interest income | 181 |
| | 51 |
| | 2,057 |
| | — |
| | 2,289 |
|
Other | 1,694 |
| | 39 |
| | (1,281 | ) | | — |
| | 452 |
|
| (30,893 | ) | | 81 |
| | 277 |
| | — |
| | (30,535 | ) |
Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries | 53,544 |
| | 38,991 |
| | 65,840 |
| | (1,499 | ) | | 156,876 |
|
Income tax expense (benefit): | | | | | | | | | |
Current | 22,086 |
| | 13,909 |
| | 15,762 |
| | (481 | ) | | 51,276 |
|
Deferred | (1,834 | ) | | — |
| | 300 |
| | — |
| | (1,534 | ) |
| 20,252 |
| | 13,909 |
| | 16,062 |
| | (481 | ) | | 49,742 |
|
Earnings before equity in earnings of nonconsolidated subsidiaries | 33,292 |
| | 25,082 |
| | 49,778 |
| | (1,018 | ) | | 107,134 |
|
Equity in earnings of nonconsolidated subsidiaries | 69,876 |
| | 7,859 |
| | — |
| | (77,735 | ) | | — |
|
Net earnings | 103,168 |
| | 32,941 |
| | 49,778 |
| | (78,753 | ) | | 107,134 |
|
Less: Earnings attributable to noncontrolling interests | — |
| | — |
| | (3,966 | ) | | — |
| | (3,966 | ) |
Net earnings attributable to Valmont Industries, Inc | $ | 103,168 |
| | $ | 32,941 |
| | $ | 45,812 |
| | $ | (78,753 | ) | | $ | 103,168 |
|
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirteen weeks ended September 30, 2017
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Total |
Net earnings | $ | 35,208 |
| | $ | 15,354 |
| | $ | 24,264 |
| | $ | (38,160 | ) | | $ | 36,666 |
|
Other comprehensive income (loss), net of tax: | | | | | | | | | |
Foreign currency translation adjustments: | | | | | | | | | |
Unrealized translation gain (loss) | — |
| | (3,613 | ) | | 23,143 |
| | — |
| | 19,530 |
|
Unrealized gain/(loss) on hedging activities: | | | | | | | | | |
Net investment hedge | (740 | ) | | — |
| | — |
| | — |
| | (740 | ) |
Amortization cost included in interest expense | 19 |
| | — |
| | — |
| | — |
| | 19 |
|
Equity in other comprehensive income | 18,418 |
| | — |
| | — |
| | (18,418 | ) | | — |
|
Other comprehensive income (loss) | 17,697 |
| | (3,613 | ) | | 23,143 |
| | (18,418 | ) | | 18,809 |
|
Comprehensive income (loss) | 52,905 |
| | 11,741 |
| | 47,407 |
| | (56,578 | ) | | 55,475 |
|
Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | (2,570 | ) | | — |
| | (2,570 | ) |
Comprehensive income (loss) attributable to Valmont Industries, Inc. | $ | 52,905 |
| | $ | 11,741 |
| | $ | 44,837 |
| | $ | (56,578 | ) | | $ | 52,905 |
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirty-nine Weeks Ended September 30, 2017
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Total |
Net earnings | $ | 119,851 |
| | $ | 37,784 |
| | $ | 67,029 |
| | $ | (100,715 | ) | | $ | 123,949 |
|
Other comprehensive income (loss), net of tax: | | | | | | | | | |
Foreign currency translation adjustments: | | | | | | | | | |
Unrealized translation gain (loss) | — |
| | 64,411 |
| | (3,940 | ) | | — |
| | 60,471 |
|
Unrealized gain/(loss) on hedging activities: | | | | | | | | | |
Net investment hedge | (1,816 | ) | | | | — |
| | — |
| | (1,816 | ) |
Amortization cost included in interest expense | 56 |
| | — |
| | — |
| | — |
| | 56 |
|
Equity in other comprehensive income | 60,017 |
| | — |
| | — |
| | (60,017 | ) | | — |
|
Other comprehensive income (loss) | 58,257 |
| | 64,411 |
| | (3,940 | ) | | (60,017 | ) | | 58,711 |
|
Comprehensive income (loss) | 178,108 |
| | 102,195 |
| | 63,089 |
| | (160,732 | ) | | 182,660 |
|
Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | (4,552 | ) | | — |
| | (4,552 | ) |
Comprehensive income (loss) attributable to Valmont Industries, Inc. | $ | 178,108 |
| | $ | 102,195 |
| | $ | 58,537 |
| | $ | (160,732 | ) | | $ | 178,108 |
|
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirteen weeks ended September 24, 2016
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Total |
Net earnings | $ | 28,173 |
| | $ | 6,754 |
| | $ | 17,239 |
| | $ | (22,645 | ) | | $ | 29,521 |
|
Other comprehensive income (loss), net of tax: | | | | | | | | | |
Foreign currency translation adjustments: | | | | | | | | | |
Unrealized translation gain (loss) | — |
| | (114 | ) | | 884 |
| | — |
| | 770 |
|
Unrealized gain/(loss) on hedging activities: | | | | | | | | | |
Net investment hedge | 1,972 |
| | — |
| | — |
| | — |
| | 1,972 |
|
Amortization cost included in interest expense | 18 |
| | — |
| | — |
| | — |
| | 18 |
|
Equity in other comprehensive income | 500 |
| | — |
| | — |
| | (500 | ) | | — |
|
Other comprehensive income (loss) | 2,490 |
| | (114 | ) | | 884 |
| | (500 | ) | | 2,760 |
|
Comprehensive income (loss) | 30,663 |
| | 6,640 |
| | 18,123 |
| | (23,145 | ) | | 32,281 |
|
Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | (1,618 | ) | | — |
| | (1,618 | ) |
Comprehensive income (loss) attributable to Valmont Industries, Inc. | $ | 30,663 |
| | $ | 6,640 |
| | $ | 16,505 |
| | $ | (23,145 | ) | | $ | 30,663 |
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirty-nine Weeks Ended September 24, 2016
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Total |
Net earnings | $ | 103,168 |
| | $ | 32,941 |
| | $ | 49,778 |
| | $ | (78,753 | ) | | $ | 107,134 |
|
Other comprehensive income (loss), net of tax: | | | | | | | | | |
Foreign currency translation adjustments: | | | | | | | | | |
Unrealized translation gain (loss) | — |
| | (263 | ) | | (1,675 | ) | | — |
| | (1,938 | ) |
Unrealized gain/(loss) on hedging activities: | | | | | | | | | |
Net Investment Hedge | 4,897 |
| | — |
| | — |
| | — |
| | 4,897 |
|
Amortization cost included in interest expense | 56 |
| | — |
| | — |
| | — |
| | 56 |
|
Equity in other comprehensive income | (3,704 | ) | | — |
| | — |
| | 3,704 |
| | — |
|
Other comprehensive income (loss) | 1,249 |
| | (263 | ) | | (1,675 | ) | | 3,704 |
| | 3,015 |
|
Comprehensive income (loss) | 104,417 |
| | 32,678 |
| | 48,103 |
| | (75,049 | ) | | 110,149 |
|
Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | (5,732 | ) | | — |
| | (5,732 | ) |
Comprehensive income (loss) attributable to Valmont Industries, Inc. | $ | 104,417 |
| | $ | 32,678 |
| | $ | 42,371 |
| | $ | (75,049 | ) | | $ | 104,417 |
|
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2017
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Total |
ASSETS | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | $ | 118,499 |
| | $ | 4,167 |
| | $ | 370,824 |
| | $ | — |
| | $ | 493,490 |
|
Receivables, net | 152,290 |
| | 69,781 |
| | 270,771 |
| | — |
| | 492,842 |
|
Inventories | 141,774 |
| | 46,747 |
| | 219,046 |
| | (4,333 | ) | | 403,234 |
|
Prepaid expenses, restricted cash, and other assets | 8,903 |
| | 1,023 |
| | 40,138 |
| | — |
| | 50,064 |
|
Refundable income taxes | 8,493 |
| | — |
| | — |
| | — |
| | 8,493 |
|
Total current assets | 429,959 |
| | 121,718 |
| | 900,779 |
| | (4,333 | ) | | 1,448,123 |
|
Property, plant and equipment, at cost | 558,484 |
| | 158,087 |
| | 453,283 |
| | — |
| | 1,169,854 |
|
Less accumulated depreciation and amortization | 369,620 |
| | 82,708 |
| | 195,102 |
| | — |
| | 647,430 |
|
Net property, plant and equipment | 188,864 |
| | 75,379 |
| | 258,181 |
| | — |
| | 522,424 |
|
Goodwill | 20,108 |
| | 110,562 |
| | 206,084 |
| | — |
| | 336,754 |
|
Other intangible assets | 144 |
| | 32,204 |
| | 109,742 |
| | — |
| | 142,090 |
|
Investment in subsidiaries and intercompany accounts | 1,392,533 |
| | 1,180,732 |
| | 1,029,831 |
| | (3,603,096 | ) | | — |
|
Other assets | 47,613 |
| | — |
| | 113,167 |
| | — |
| | 160,780 |
|
Total assets | $ | 2,079,221 |
| | $ | 1,520,595 |
| | $ | 2,617,784 |
| | $ | (3,607,429 | ) | | $ | 2,610,171 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Current installments of long-term debt | $ | — |
| | $ | — |
| | $ | 949 |
| | $ | — |
| | $ | 949 |
|
Notes payable to banks | — |
| | — |
| | 197 |
| | — |
| | 197 |
|
Accounts payable | 59,467 |
| | 8,032 |
| | 148,605 |
| | — |
| | 216,104 |
|
Accrued employee compensation and benefits | 40,760 |
| | 8,293 |
| | 32,441 |
| | — |
| | 81,494 |
|
Accrued expenses | 44,896 |
| | 9,222 |
| | 52,120 |
| | — |
| | 106,238 |
|
Dividends payable | 8,478 |
| | — |
| | — |
| | — |
| | 8,478 |
|
Total current liabilities | 153,601 |
| | 25,547 |
| | 234,312 |
| | — |
| | 413,460 |
|
Deferred income taxes | 15,617 |
| | — |
| | 12,566 |
| | — |
| | 28,183 |
|
Long-term debt, excluding current installments | 750,933 |
| | 185,674 |
| | 10,060 |
| | (192,465 | ) | | 754,202 |
|
Defined benefit pension liability | — |
| | — |
| | 199,562 |
| | — |
| | 199,562 |
|
Deferred compensation | 43,077 |
| | — |
| | 5,535 |
| | — |
| | 48,612 |
|
Other noncurrent liabilities | 3,159 |
| | 5 |
| | 10,393 |
| | — |
| | 13,557 |
|
Shareholders’ equity: | | | | | | | | | |
Common stock of $1 par value | 27,900 |
| | 457,950 |
| | 648,682 |
| | (1,106,632 | ) | | 27,900 |
|
Additional paid-in capital | — |
| | 166,789 |
| | 1,107,536 |
| | (1,274,325 | ) | | — |
|
Retained earnings | 1,974,601 |
| | 684,532 |
| | 636,283 |
| | (1,320,815 | ) | | 1,974,601 |
|
Accumulated other comprehensive income (loss) | (288,102 | ) | | 98 |
| | (286,906 | ) | | 286,808 |
| | (288,102 | ) |
Treasury stock | (601,565 | ) | | — |
| | — |
| | — |
| | (601,565 | ) |
Total Valmont Industries, Inc. shareholders’ equity | 1,112,834 |
| | 1,309,369 |
| | 2,105,595 |
| | (3,414,964 | ) | | 1,112,834 |
|
Noncontrolling interest in consolidated subsidiaries | — |
| | — |
| | 39,761 |
| | — |
| | 39,761 |
|
Total shareholders’ equity | 1,112,834 |
| | 1,309,369 |
| | 2,145,356 |
| | (3,414,964 | ) | | 1,152,595 |
|
Total liabilities and shareholders’ equity | $ | 2,079,221 |
| | $ | 1,520,595 |
| | $ | 2,617,784 |
| | $ | (3,607,429 | ) | | $ | 2,610,171 |
|
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Total |
ASSETS | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | $ | 67,225 |
| | $ | 6,071 |
| | $ | 326,652 |
| | $ | — |
| | $ | 399,948 |
|
Receivables, net | 134,351 |
| | 60,522 |
| | 244,469 |
| | — |
| | 439,342 |
|
Inventories | 126,669 |
| | 45,457 |
| | 182,056 |
| | (4,154 | ) | | 350,028 |
|
Prepaid expenses | 13,271 |
| | 880 |
| | 43,146 |
| | — |
| | 57,297 |
|
Refundable income taxes | 6,601 |
| | — |
| | — |
| | — |
| | 6,601 |
|
Total current assets | 348,117 |
| | 112,930 |
| | 796,323 |
| | (4,154 | ) | | 1,253,216 |
|
Property, plant and equipment, at cost | 547,076 |
| | 153,596 |
| | 405,064 |
| | — |
| | 1,105,736 |
|
Less accumulated depreciation and amortization | 352,960 |
| | 76,776 |
| | 157,665 |
| | — |
| | 587,401 |
|
Net property, plant and equipment | 194,116 |
| | 76,820 |
| | 247,399 |
| | — |
| | 518,335 |
|
Goodwill | 20,108 |
| | 110,561 |
| | 190,441 |
| | — |
| | 321,110 |
|
Other intangible assets | 184 |
| | 35,953 |
| | 108,241 |
| | — |
| | 144,378 |
|
Investment in subsidiaries and intercompany accounts | 1,279,413 |
| | 901,758 |
| | 1,089,369 |
| | (3,270,540 | ) | | — |
|
Other assets | 43,880 |
| | — |
| | 110,812 |
| | — |
| | 154,692 |
|
Total assets | $ | 1,885,818 |
| | $ | 1,238,022 |
| | $ | 2,542,585 |
| | $ | (3,274,694 | ) | | $ | 2,391,731 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Current installments of long-term debt | $ | — |
| | $ | — |
| | $ | 851 |
| | $ | — |
| | $ | 851 |
|
Notes payable to banks | — |
| | — |
| | 746 |
| | — |
| | 746 |
|
Accounts payable | 52,272 |
| | 15,732 |
| | 109,484 |
| | — |
| | 177,488 |
|
Accrued employee compensation and benefits | 34,508 |
| | 7,243 |
| | 30,653 |
| | — |
| | 72,404 |
|
Accrued expenses | 30,261 |
| | 15,242 |
| | 44,411 |
| | — |
| | 89,914 |
|
Dividends payable | 8,445 |
| | — |
| | — |
| | — |
| | 8,445 |
|
Total current liabilities | 125,486 |
| | 38,217 |
| | 186,145 |
| | — |
| | 349,848 |
|
Deferred income taxes | 22,481 |
| | — |
| | 13,322 |
| | — |
| | 35,803 |
|
Long-term debt, excluding current installments | 751,251 |
| | — |
| | 3,544 |
| | — |
| | 754,795 |
|
Defined benefit pension liability | — |
| | — |
| | 209,470 |
| | — |
| | 209,470 |
|
Deferred compensation | 39,476 |
| | — |
| | 4,843 |
| | — |
| | 44,319 |
|
Other noncurrent liabilities | 3,642 |
| | 5 |
| | 11,263 |
| | — |
| | 14,910 |
|
Shareholders’ equity: | | | | | | | | |
|
|
Common stock of $1 par value | 27,900 |
| | 457,950 |
| | 648,683 |
| | (1,106,633 | ) | | 27,900 |
|
Additional paid-in capital | — |
| | 159,414 |
| | 1,107,536 |
| | (1,266,950 | ) | | — |
|
Retained earnings | 1,874,722 |
| | 646,749 |
| | 603,338 |
| | (1,250,087 | ) | | 1,874,722 |
|
Accumulated other comprehensive income | (346,359 | ) | | (64,313 | ) | | (284,663 | ) | | 348,976 |
| | (346,359 | ) |
Treasury stock | (612,781 | ) | | — |
| | — |
| | — |
| | (612,781 | ) |
Total Valmont Industries, Inc. shareholders’ equity | 943,482 |
| | 1,199,800 |
| | 2,074,894 |
| | (3,274,694 | ) | | 943,482 |
|
Noncontrolling interest in consolidated subsidiaries | — |
| | — |
| | 39,104 |
| | — |
| | 39,104 |
|
Total shareholders’ equity | 943,482 |
| | 1,199,800 |
| | 2,113,998 |
| | (3,274,694 | ) | | 982,586 |
|
Total liabilities and shareholders’ equity | $ | 1,885,818 |
|
| $ | 1,238,022 |
| | $ | 2,542,585 |
| | $ | (3,274,694 | ) | | $ | 2,391,731 |
|
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirty-nine Weeks Ended September 30, 2017
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Total |
Cash flows from operating activities: | | | | | | | | | |
Net earnings | $ | 119,851 |
| | $ | 37,784 |
| | $ | 67,029 |
| | $ | (100,715 | ) | | $ | 123,949 |
|
Adjustments to reconcile net earnings to net cash flows from operations: | | | | | | | | | |
Depreciation and amortization | 19,600 |
| | 11,130 |
| | 32,770 |
| | — |
| | 63,500 |
|
Noncash loss on trading securities | — |
| | — |
| | 395 |
| | — |
| | 395 |
|
Stock-based compensation | 7,300 |
| | — |
| | — |
| | — |
| | 7,300 |
|
Defined benefit pension plan expense | — |
| | — |
| | 481 |
| | — |
| | 481 |
|
Contribution to defined benefit pension plan | — |
| | — |
| | (26,064 | ) | | — |
| | (26,064 | ) |
Decrease in restricted cash - pension plan trust | — |
| | — |
| | 12,568 |
| | — |
| | 12,568 |
|
Loss (gain) on sale of property, plant and equipment | (725 | ) | | 59 |
| | (66 | ) | | — |
| | (732 | ) |
Equity in earnings in nonconsolidated subsidiaries | (85,274 | ) | | (15,281 | ) | | — |
| | 100,555 |
| | — |
|
Deferred income taxes | 2,065 |
| | — |
| | (1,986 | ) | | — |
| | 79 |
|
Changes in assets and liabilities: | | | | | | | | | |
Receivables | (16,190 | ) | | (9,259 | ) | | (14,135 | ) | | — |
| | (39,584 | ) |
Inventories | (15,105 | ) | | (1,290 | ) | | (25,329 | ) | | 179 |
| | (41,545 | ) |
Prepaid expenses and other assets | (2,501 | ) | | (144 | ) | | (8,991 | ) | | — |
| | (11,636 | ) |
Accounts payable | 7,196 |
| | (7,700 | ) | | 29,399 |
| | — |
| | 28,895 |
|
Accrued expenses | 20,887 |
| | (4,971 | ) | | 4,241 |
| | — |
| | 20,157 |
|
Other noncurrent liabilities | (381 | ) | | — |
| | (1,246 | ) | | — |
| | (1,627 | ) |
Income taxes payable (refundable) | (11,403 | ) | | 802 |
| | 8,869 |
| | — |
| | (1,732 | ) |
Net cash flows from operating activities | 45,320 |
| | 11,130 |
| | 77,935 |
| | 19 |
| | 134,404 |
|
Cash flows from investing activities: | | | | | | | | | |
Purchase of property, plant and equipment | (14,046 | ) | | (5,952 | ) | | (19,900 | ) | | — |
| | (39,898 | ) |
Proceeds from sale of assets | 745 |
| | (48 | ) | | 878 |
| | — |
| | 1,575 |
|
Acquisitions, net of cash acquired | — |
| | — |
| | (5,362 | ) | | — |
| | (5,362 | ) |
Proceeds from settlement of net investment hedge | 5,123 |
| | — |
| | — |
| | — |
| | 5,123 |
|
Other, net | 15,714 |
| | (8,985 | ) | | (10,172 | ) | | (19 | ) | | (3,462 | ) |
Net cash flows from investing activities | 7,536 |
| | (14,985 | ) | | (34,556 | ) | | (19 | ) | | (42,024 | ) |
Cash flows from financing activities: | | | | | | | | | |
Net borrowings under short-term agreements | — |
| | — |
| | (549 | ) | | — |
| | (549 | ) |
Principal payments on long-term borrowings |
|
| | — |
| | (658 | ) | | — |
| | (658 | ) |
Dividends paid | (25,386 | ) | | — |
| | — |
| | — |
| | (25,386 | ) |
Dividends to noncontrolling interest | — |
| |
|
| | (3,895 | ) | | — |
| | (3,895 | ) |
Intercompany dividends | 22,662 |
| | — |
| | (22,662 | ) | | — |
| | — |
|
Intercompany interest on long-term note | — |
| | (5,669 | ) | | 5,669 |
| | — |
| | — |
|
Intercompany capital contribution | (7,375 | ) | | 7,375 |
| | — |
| | — |
| | — |
|
Proceeds from exercises under stock plans | 12,446 |
| | — |
| | — |
| | — |
| | 12,446 |
|
Purchase of common treasury shares - stock plan exercises | (3,929 | ) | | — |
| | — |
| | — |
| | (3,929 | ) |
Net cash flows from financing activities | (1,582 | ) | | 1,706 |
| | (22,095 | ) | | — |
| | (21,971 | ) |
Effect of exchange rate changes on cash and cash equivalents | — |
| | 245 |
| | 22,888 |
| | — |
| | 23,133 |
|
Net change in cash and cash equivalents | 51,274 |
| | (1,904 | ) | | 44,172 |
| | — |
| | 93,542 |
|
Cash and cash equivalents—beginning of year | 67,225 |
| | 6,071 |
| | 326,652 |
| | — |
| | 399,948 |
|
Cash and cash equivalents—end of period | $ | 118,499 |
| | $ | 4,167 |
| | $ | 370,824 |
| | $ | — |
| | $ | 493,490 |
|
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(8) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirty-nine Weeks Ended September 24, 2016 |
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Total |
Cash flows from operating activities: | | | | | | | | | |
Net earnings | $ | 103,168 |
| | $ | 32,941 |
| | $ | 49,778 |
| | $ | (78,753 | ) | | $ | 107,134 |
|
Adjustments to reconcile net earnings to net cash flows from operations: | | | | | | | | | |
Depreciation and amortization | 20,482 |
| | 9,897 |
| | 30,863 |
| | — |
| | 61,242 |
|
Noncash loss on trading securities | — |
| | — |
| | 973 |
| | — |
| | 973 |
|
Impairment of assets - restructuring activities | — |
| | — |
| | 618 |
| | — |
| | 618 |
|
Stock-based compensation | 6,572 |
| | — |
| | — |
| | — |
| | 6,572 |
|
Change in fair value of contingent consideration | — |
| | — |
| | (3,527 | ) | | — |
| | (3,527 | ) |
Defined benefit pension plan expense | — |
| | — |
| | 1,486 |
| | — |
| | 1,486 |
|
Contribution to defined benefit pension plan | — |
| | — |
| | (712 | ) | | — |
| | (712 | ) |
Increase in restricted cash - pension plan trust | — |
| | — |
| | (13,652 | ) | | — |
| | (13,652 | ) |
Loss (gain) on sale of property, plant and equipment | 2 |
| | 117 |
| | 131 |
| | — |
| | 250 |
|
Equity in earnings in nonconsolidated subsidiaries | (69,876 | ) | | (7,859 | ) | | — |
| | 77,735 |
| | — |
|
Deferred income taxes | (1,834 | ) | | — |
| | 300 |
| | — |
| | (1,534 | ) |
Changes in assets and liabilities: | | | | | | | | | |
Receivables | (10,501 | ) | | 14,969 |
| | 11,968 |
| | — |
| | 16,436 |
|
Inventories | (11,847 | ) | | (5,024 | ) | | (19,041 | ) | | 1,499 |
| | (34,413 | ) |
Prepaid expenses | (4,526 | ) | | 76 |
| | (6,174 | ) | | — |
| | (10,624 | ) |
Accounts payable | (16,605 | ) | | 2,530 |
| | 2,737 |
| | — |
| | (11,338 | ) |
Accrued expenses | 11,179 |
| | (7,218 | ) | | (689 | ) | | — |
| | 3,272 |
|
Other noncurrent liabilities | (252 | ) | | 5 |
| | 487 |
| | — |
| | 240 |
|
Income taxes payable (refundable) | 19,132 |
| | (16,444 | ) | | 2,143 |
| | — |
| | 4,831 |
|
Net cash flows from operating activities | 45,094 |
| | 23,990 |
| | 57,689 |
| | 481 |
| | 127,254 |
|
Cash flows from investing activities: | | | | | | | | | |
Purchase of property, plant and equipment | (5,699 | ) | | (17,944 | ) | | (18,590 | ) | | — |
| | (42,233 | ) |
Proceeds from sale of assets | 36 |
| | 84 |
| | 3,818 |
| | — |
| | 3,938 |
|
Other, net | 13,070 |
| | (4,488 | ) | | (10,925 | ) | | (481 | ) | | (2,824 | ) |
Net cash flows from investing activities | 7,407 |
| | (22,348 | ) | | (25,697 | ) | | (481 | ) | | (41,119 | ) |
Cash flows from financing activities: | | | | | | | | | |
Net borrowings under short-term agreements | — |
| | — |
| | (128 | ) | | — |
| | (128 | ) |
Principal payments on long-term borrowings | (215 | ) | | — |
| | (1,348 | ) | | — |
| | (1,563 | ) |
Dividends paid | (25,604 | ) | | — |
| | — |
| | — |
| | (25,604 | ) |
Dividends to noncontrolling interest | — |
| | — |
| | (2,527 | ) | | — |
| | (2,527 | ) |
Purchase of noncontrolling interest | (137 | ) | | — |
| | (10,872 | ) | | — |
| | (11,009 | ) |
Proceeds from exercises under stock plans | 6,509 |
| | — |
| | — |
| | — |
| | 6,509 |
|
Purchase of treasury shares | (46,581 | ) | | — |
| | — |
| | — |
| | (46,581 | ) |
Purchase of common treasury shares - stock plan exercises | (1,453 | ) | | — |
| | — |
| | — |
| | (1,453 | ) |
Net cash flows from financing activities | (67,481 | ) | | — |
| | (14,875 | ) | | — |
| | (82,356 | ) |
Effect of exchange rate changes on cash and cash equivalents | — |
| | 168 |
| | (3,646 | ) | | — |
| | (3,478 | ) |
Net change in cash and cash equivalents | (14,980 | ) | | 1,810 |
| | 13,471 |
| | — |
| | 301 |
|
Cash and cash equivalents—beginning of year | 62,281 |
| | 4,008 |
| | 282,785 |
| | — |
| | 349,074 |
|
Cash and cash equivalents—end of period | $ | 47,301 |
| | $ | 5,818 |
| | $ | 296,256 |
| | $ | — |
| | $ | 349,375 |
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis contains forward‑lookingforward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward‑lookingforward-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‑lookingforward-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‑lookingforward-looking statements. These factors include, among other things, the continuing and developing effects of COVID-19 including the effects of the outbreak on the general economy and the specific effects on the Company's business and that of its customers and suppliers, risk factors described from time to time in the Company’s reports to the Securities and Exchange Commission, as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability and price of raw materials, availability and market acceptance of new products, product pricing, domestic and international competitive environments, and actions and policy changes of domestic and foreign governments.
This discussion should be read in conjunction with the financial statements and notes thereto, and the management's discussion and analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016.28, 2019. Segment net sales in the table below and elsewhere are presented net of intersegment sales. See Note 8 of our condensed consolidated financial statements for additional information on segment sales and intersegment sales.
Results of Operations (Dollars in millions, except per share amounts) |
| | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| September 30, 2017 | | September 24, 2016 | | % Incr. (Decr.) | | September 30, 2017 | | September 24, 2016 | | % Incr. (Decr.) |
Consolidated | | | | | | | | | | | |
Net sales | $ | 680.8 |
| | $ | 610.2 |
| | 11.6 | % | | $ | 2,031.0 |
| | $ | 1,847.1 |
| | 10.0 | % |
Gross profit | 163.6 |
| | 155.0 |
| | 5.5 | % | | 511.5 |
| | 491.1 |
| | 4.2 | % |
as a percent of sales | 24.0 | % | | 25.4 | % | | | | 25.2 | % | | 26.6 | % | | |
SG&A expense | 103.7 |
| | 101.8 |
| | 1.9 | % | | 308.8 |
| | 303.7 |
| | 1.7 | % |
as a percent of sales | 15.2 | % | | 16.7 | % | | | | 15.2 | % | | 16.4 | % | | |
Operating income | 59.9 |
| | 53.2 |
| | 12.6 | % | | 202.7 |
| | 187.4 |
| | 8.2 | % |
as a percent of sales | 8.8 | % | | 8.7 | % | | | | 10.0 | % | | 10.1 | % | | |
Net interest expense | 9.9 |
| | 10.3 |
| | (3.9 | )% | | 30.1 |
| | 31.0 |
| | (2.9 | )% |
Effective tax rate | 27.5 | % | | 32.6 | % | | | | 28.9 | % | | 31.7 | % | | |
Net earnings | $ | 35.2 |
| | $ | 28.2 |
| | 24.8 | % | | $ | 119.9 |
| | $ | 103.2 |
| | 16.2 | % |
Diluted earnings per share | $ | 1.55 |
| | $ | 1.24 |
| | 25.0 | % | | $ | 5.28 |
| | $ | 4.54 |
| | 16.3 | % |
Engineered Support Structures (ESS) | | | | | | | | | | | |
Net sales | $ | 209.8 |
| | $ | 193.1 |
| | 8.6 | % | | $ | 571.3 |
| | $ | 554.9 |
| | 3.0 | % |
Gross profit | 50.9 |
| | 54.3 |
| | (6.3 | )% | | 145.2 |
| | 156.9 |
| | (7.5 | )% |
SG&A expense | 34.6 |
| | 34.0 |
| | 1.8 | % | | 99.5 |
| | 103.3 |
| | (3.7 | )% |
Operating income | 16.3 |
| | 20.3 |
| | (19.7 | )% | | 45.7 |
| | 53.6 |
| | (14.7 | )% |
Energy and Mining (E&M) | | | | | | | | | | | |
Net sales | $ | 79.7 |
| | $ | 81.2 |
| | (1.8 | )% | | $ | 234.9 |
| | $ | 231.3 |
| | 1.6 | % |
Gross profit | 12.5 |
| | 14.8 |
| | (15.5 | )% | | 41.6 |
| | 41.6 |
| | — | % |
SG&A expense | 11.1 |
| | 10.9 |
| | 1.8 | % | | 32.4 |
| | 32.5 |
| | (0.3 | )% |
Operating income | 1.4 |
| | 3.9 |
| | (64.1 | )% | | 9.2 |
| | 9.1 |
| | 1.1 | % |
Utility Support Structures (Utility) | | | | | | | | | | | |
Net sales | $ | 178.5 |
| | $ | 150.4 |
| | 18.7 | % | | $ | 536.5 |
| | $ | 445.9 |
| | 20.3 | % |
Gross profit | 39.4 |
| | 31.8 |
| | 23.9 | % | | 115.4 |
| | 94.2 |
| | 22.5 | % |
SG&A expense | 17.3 |
| | 15.6 |
| | 10.9 | % | | 50.4 |
| | 46.0 |
| | 9.6 | % |
Operating income | 22.1 |
| | 16.2 |
| | 36.4 | % | | 65.0 |
| | 48.2 |
| | 34.9 | % |
Coatings | | | | | | | | | | | |
Net sales | $ | 67.7 |
| | $ | 60.0 |
| | 12.8 | % | | $ | 191.6 |
| | $ | 182.2 |
| | 5.2 | % |
Gross profit | 20.3 |
| | 17.9 |
| | 13.4 | % | | 58.5 |
| | 59.1 |
| | (1.0 | )% |
SG&A expense | 5.8 |
| | 6.2 |
| | (6.5 | )% | | 22.5 |
| | 22.0 |
| | 2.3 | % |
Operating income | 14.5 |
| | 11.7 |
| | 23.9 | % | | 36.0 |
| | 37.1 |
| | (3.0 | )% |
Irrigation | | | | | | | | | | | |
Net sales | $ | 145.1 |
| | $ | 125.5 |
| | 15.6 | % | | $ | 496.7 |
| | $ | 432.8 |
| | 14.8 | % |
Gross profit | 42.1 |
| | 38.1 |
| | 10.5 | % | | 153.6 |
| | 141.4 |
| | 8.6 | % |
SG&A expense | 23.9 |
| | 22.7 |
| | 5.3 | % | | 70.4 |
| | 66.1 |
| | 6.5 | % |
Operating income | 18.2 |
| | 15.4 |
| | 18.2 | % | | 83.2 |
| | 75.3 |
| | 10.5 | % |
Adjustment to LIFO inventory valuation method | | | | | | | | | | | |
Gross profit | $ | (1.6 | ) | | $ | (2.1 | ) | | NM | | $ | (2.8 | ) | | $ | (3.2 | ) | | NM |
Operating income | (1.6 | ) | | (2.1 | ) | | NM | | (2.8 | ) | | (3.2 | ) | | NM |
Net corporate expense | | | | | | | | | | | |
Gross profit | $ | — |
| | $ | 0.3 |
| | NM | | $ | — |
| | $ | 1.1 |
| | NM |
SG&A expense | 11.0 |
| | 12.4 |
| | (11.3 | )% | | 33.6 |
| | 33.8 |
| | (0.6 | )% |
Operating loss | (11.0 | ) | | (12.1 | ) | | 9.1 | % | | (33.6 | ) | | (32.7 | ) | | (2.8 | )% |
NM=Not meaningful
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen weeks ended | | Thirty-nine weeks ended |
| September 26, 2020 | | September 28, 2019 | | % Incr. (Decr.) | | September 26, 2020 | | September 28, 2019 | | % Incr. (Decr.) |
Consolidated | | | | | | | | | | | |
Net sales | $ | 734.0 | | | $ | 690.3 | | | 6.3 | % | | $ | 2,097.0 | | | $ | 2,083.4 | | | 0.7 | % |
Gross profit | 190.7 | | | 173.3 | | | 10.0 | % | | 560.9 | | | 516.1 | | | 8.7 | % |
as a percent of sales | 26.0 | % | | 25.1 | % | | | | 26.7 | % | | 24.8 | % | | |
SG&A expense (1) | 129.3 | | | 112.2 | | | 15.2 | % | | 389.1 | | | $ | 339.0 | | | 14.8 | % |
as a percent of sales | 17.6 | % | | 16.3 | % | | | | 18.6 | % | | 16.3 | % | | |
Operating income | 61.5 | | | 61.1 | | | 0.7 | % | | 171.8 | | | 177.1 | | | (3.0) | % |
as a percent of sales | 8.4 | % | | 8.9 | % | | | | 8.2 | % | | 8.5 | % | | |
Net interest expense | 10.0 | | | 9.0 | | | 11.1 | % | | 28.6 | | | 27.2 | | | 5.1 | % |
| | | | | | | | | | | |
Effective tax rate | 23.0 | % | | 24.5 | % | | | | 26.9 | % | | 24.7 | % | | |
Net earnings | $ | 39.3 | | | $ | 38.0 | | | 3.4 | % | | $ | 104.9 | | | $ | 113.9 | | | (7.9) | % |
Diluted earnings per share | $ | 1.84 | | | $ | 1.75 | | | 5.1 | % | | $ | 4.89 | | | $ | 5.22 | | | (6.3) | % |
Engineered Support Structures (ESS) | | | | | | | | | | | |
Net sales | $ | 255.0 | | | $ | 266.5 | | | (4.3) | % | | $ | 731.2 | | | $ | 752.0 | | | (2.8) | % |
Gross profit | 71.3 | | | 62.4 | | | 14.3 | % | | 201.4 | | | 177.8 | | | 13.3 | % |
SG&A expense | 45.8 | | | 40.5 | | | 13.1 | % | | 155.2 | | | 122.6 | | | 26.6 | % |
Operating income | 25.5 | | | 21.9 | | | 16.4 | % | | 46.2 | | | 55.2 | | | (16.3) | % |
Utility Support Structures (Utility) | | | | | | | | | | | |
Net sales | $ | 272.5 | | | $ | 204.2 | | | 33.4 | % | | $ | 723.9 | | | $ | 656.5 | | | 10.3 | % |
Gross profit | 54.7 | | | 44.0 | | | 24.3 | % | | 156.1 | | | 133.6 | | | 16.8 | % |
SG&A expense | 28.8 | | | 23.7 | | | 21.5 | % | | 80.8 | | | 72.2 | | | 11.9 | % |
Operating income | 25.9 | | | 20.3 | | | 27.6 | % | | 75.3 | | | 61.4 | | | 22.6 | % |
Coatings | | | | | | | | | | | |
Net sales | $ | 68.7 | | | $ | 76.9 | | | (10.7) | % | | $ | 200.0 | | | $ | 228.3 | | | (12.4) | % |
Gross profit | 22.6 | | | 24.0 | | | (5.8) | % | | 64.2 | | | 71.7 | | | (10.5) | % |
SG&A expense | 10.2 | | | 10.1 | | | 1.0 | % | | 30.6 | | | 32.7 | | | (6.4) | % |
Operating income | 12.4 | | | 13.9 | | | (10.8) | % | | 33.6 | | | 39.0 | | | (13.8) | % |
Irrigation | | | | | | | | | | | |
Net sales | $ | 137.8 | | | $ | 142.7 | | | (3.4) | % | | $ | 441.9 | | | $ | 446.6 | | | (1.1) | % |
Gross profit | 42.2 | | | 42.9 | | | (1.6) | % | | 139.2 | | | 133.0 | | | 4.7 | % |
SG&A expense | 27.5 | | | 24.7 | | | 11.3 | % | | 78.5 | | | 73.1 | | | 7.4 | % |
Operating income | 14.7 | | | 18.2 | | | (19.2) | % | | 60.7 | | | 59.9 | | | 1.3 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
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| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net corporate expense | | | | | | | | | | | |
SG&A | $ | 17.0 | | | $ | 13.2 | | | 28.8 | % | | $ | 44.0 | | | $ | 38.4 | | | 14.6 | % |
Operating loss | (17.0) | | | (13.2) | | | (28.8) | % | | (44.0) | | | (38.4) | | | (14.6) | % |
(1) The thirty-nine weeks ended September 26, 2020 includes impairment of goodwill and intangible assets.
Overview
On a consolidated basis, the increase in net sales were higher in the third quarter and first three quarters of fiscal 2017,2020, as compared withto the third quarter of fiscal 2016, reflectedsame periods in 2019, due to higher sales in all reportable segments except for the Energy & Mining segment. On a year-to-date basis, higher consolidatedUtility segment that was partially offset by lower sales in 2017, as compared to 2016, reflected increases across all reportableESS, Coatings, and Irrigation segments. The changeschange in net sales in the third quarter and first three quarters of fiscal 2017,2020, as compared with fiscal 2016, werethe same periods in 2019, is as follows:
| | | | | | | | | | | | | | | | | | |
| Third quarter |
| Total | ESS | Utility | Coatings | Irrigation | |
Sales - 2019 | $ | 690.3 | | $ | 266.5 | | $ | 204.2 | | $ | 76.9 | | $ | 142.7 | | |
Volume | 60.0 | | (17.2) | | 83.2 | | (8.9) | | 2.9 | | |
Pricing/mix | (16.8) | | 2.5 | | (17.2) | | — | | (2.1) | | |
Acquisition/(divestiture) | 2.3 | | — | | 1.7 | | — | | 0.6 | | |
Currency translation | (1.8) | | 3.2 | | 0.6 | | 0.7 | | (6.3) | | |
Sales - 2020 | $ | 734.0 | | $ | 255.0 | | $ | 272.5 | | $ | 68.7 | | $ | 137.8 | | |
|
| | | | | | | | | | | | | | | | | | |
| Third quarter |
| Total | ESS | E&M | Utility | Coatings | Irrigation |
Sales - 2016 | $ | 610.2 |
| $ | 193.1 |
| $ | 81.2 |
| $ | 150.4 |
| $ | 60.0 |
| $ | 125.5 |
|
Volume | 29.7 |
| 15.9 |
| (6.9 | ) | 1.6 |
| 1.5 |
| 17.6 |
|
Pricing/mix | 31.7 |
| (3.5 | ) | 2.0 |
| 26.5 |
| 5.6 |
| 1.1 |
|
Acquisitions | 1.6 |
| 1.6 |
| — |
| — |
| — |
| — |
|
Currency translation | 7.6 |
| 2.7 |
| 3.4 |
| — |
| 0.6 |
| 0.9 |
|
Sales - 2017 | $ | 680.8 |
| $ | 209.8 |
| $ | 79.7 |
| $ | 178.5 |
| $ | 67.7 |
| $ | 145.1 |
|
| | | | | | | | | | | | | | | | | | |
| Year-to-date |
| Total | ESS | Utility | Coatings | Irrigation | |
Sales - 2019 | $ | 2083.4 | | $ | 752.0 | | $ | 656.5 | | $ | 228.3 | | $ | 446.6 | | |
Volume | 50.9 | | (20.8) | | 76.2 | | (22.3) | | 17.8 | | |
Pricing/mix | (16.2) | | 5.7 | | (11.9) | | (3.6) | | (6.4) | | |
Acquisition/(divestiture) | 4.6 | | 2.6 | | 3.5 | | — | | (1.5) | | |
Currency translation | (25.7) | | (8.3) | | (0.4) | | (2.4) | | (14.6) | | |
Sales - 2020 | $ | 2,097.0 | | $ | 731.2 | | $ | 723.9 | | $ | 200.0 | | $ | 441.9 | | |
|
| | | | | | | | | | | | | | | | | | |
| Year-to-date |
| Total | ESS | E&M | Utility | Coatings | Irrigation |
Sales - 2016 | $ | 1,847.1 |
| $ | 554.9 |
| $ | 231.3 |
| $ | 445.9 |
| $ | 182.2 |
| $ | 432.8 |
|
Volume | 110.4 |
| 20.4 |
| (4.9 | ) | 48.2 |
| (5.6 | ) | 52.3 |
|
Pricing/mix | 63.1 |
| (2.2 | ) | 5.1 |
| 42.4 |
| 14.5 |
| 3.3 |
|
Acquisitions | 1.6 |
| 1.6 |
| — |
| — |
| — |
| — |
|
Currency translation | 8.8 |
| (3.4 | ) | 3.4 |
| — |
| 0.5 |
| 8.3 |
|
Sales - 2017 | $ | 2,031.0 |
| $ | 571.3 |
| $ | 234.9 |
| $ | 536.5 |
| $ | 191.6 |
| $ | 496.7 |
|
Volume effects are estimated based on a physical production or sales measure. Since products we sell are not uniform in nature, pricing and mix relate to a combination of changes in sales prices and the attributes of the product sold. Accordingly, pricing and mix changes do not necessarily directly result in operating income changes.
Average steel index prices for both hot rolled coil and plate were higherlower in North America and China in the third quarter and first three quarters of 2017,2020, as compared to the same periods in 2016, resulting in higher average2019, contributing to lower cost of material. We expect that average selling prices will increase over time to offset the decrease insales and improved gross profit realized from the higher cost of steel for the Company.profit.
In the third quarter of 2017, the two hurricanes in the continental United States negatively impacted 10 of our facilities by interrupting production and delivery schedules. This impacted certain locations in the ESS, Coatings, and Utility segments. The Company acquired a highway business in Indiathe following businesses:
•In the first quarter of 2020, we acquired the remaining 49% of AgSense that the Company did not own(Irrigation).
•In the first quarter of 2020, we acquired 16% of the remaining 25% of Convert Italia that the Company did not own (Utility).
•Energia Solar Do Brasil ("Aircon"Solbras") in the thirdsecond quarter of 20172020, a leading provider of solar energy solutions for agriculture (Irrigation).
COVID-19 Impact on Financial Results and Liquidity
We are considered an essential business because of the products and services that is includedserve critical infrastructure sectors as defined by many governments around the world. All our manufacturing facilities are open and fully operational as of September 26, 2020. Our manufacturing facilities in our ESS segment.
Restructuring Plan
In July 2016, the Company identified a restructuring plan in Australia/Argentina, France, Malaysia, New Zealand, (the "2016 Plan") focused primarilyPhilippines, and South Africa were temporarily closed for part of of the first half of 2020 due to government mandates. We continue to monitor incidence of COVID-19 on closinga continuous basis, particularly in areas reporting recent increases in infection. To protect the
safety, health and consolidating locations within the Energywell-being of employees, customers, suppliers and Miningcommunities, CDC and Coatings segments. The Company incurred pre-tax expensesWHO guidelines are being followed in all facilities.
We generated strong cash flows from the 2016 Plan of $2.1 million in the third quarter of 2016. The Energy and Mining segment incurred approximately $1.6 million, the Coatings segment incurred approximately $0.3 million, and Corporate incurred approximately $0.2 million of restructuring expensesoperating activities during the third quarterfirst three quarters of 2016.2020 and expect cash flows from operating activities, net of capital expenditures, to be in excess of net earnings for the full fiscal 2020 year. Our main focus is to maintain liquidity to support the working capital needs of our operations and maintain our investment grade credit rating.
The ultimate magnitude of COVID-19, including the extent of its impact on the Company’s financial and operational results, cash balances and available borrowings on our line of credit, will be determined by the length of time the pandemic continues, its effect on the demand for the Company’s products and services and supply chain, as well as the effect of governmental regulations imposed in response to the pandemic.
Currency Translation
In the third quarter and first three quarters of fiscal 2017,2020, we realized an increasea decrease in operating profit, as compared with fiscal 2016,2019, due in part to currency translation effects. Theeffects associated with a stronger U.S. dollar primarily weakened against the Brazilian real and South African rand, resulting in more operating profit in U.S. dollar terms.most foreign currencies. The breakdown of this effect by segment was as
follows:
| | | Total | ESS | E&M | Utility | Coatings | Irrigation | Corporate | | Total | ESS | Utility | Coatings | Irrigation | Corporate |
Third quarter | $ | 0.4 |
| $ | 0.2 |
| $ | 0.1 |
| $ | — |
| $ | 0.1 |
| $ | — |
| $ | — |
| Third quarter | $ | (1.4) | | $ | — | | $ | (0.2) | | $ | 0.1 | | $ | (1.3) | | $ | — | |
|
|
| | | |
Year-to-date | $ | 1.3 |
| $ | 0.1 |
| $ | 0.1 |
| $ | — |
| $ | (0.1 | ) | $ | 1.2 |
| $ | — |
| Year-to-date | $ | (2.7) | | $ | (0.6) | | $ | — | | $ | (0.2) | | $ | (1.9) | | $ | — | |
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 the third quarter and first three quarters of 2017,2020, as compared with the same periods in 2016, was primarily2019, due to higherlower raw material costs across the Company, improved selling prices across mostour infrastructure businesses, and improved volumes for the Irrigation segment and associated operating leverage of our businesses. Grossfixed costs. In the third quarter of 2020 as compared to 2019, gross profit was higher for ESS and Utility but lower for Coatings and Irrigation. On a year-to-date basis, gross profit improved for the ESS, Utility, and Irrigation segments in 2020, but was lower for Coatings due to lower sales volumes.
SG&A expenses increased in the third quarter and first three quarters of 2017,2020, as compared to the same periods in 2016,2019. The increase was due to increasedrecording a partial impairment of goodwill and tradename for the Access Systems business, higher compensation related costs including sales volumes in most operating segments. The Irrigation and Utility segments realized increases incommissions for the third quarter and first three quarters of 2017, while ESS and Energy & Mining realized a decrease in gross profit primarilyNorth American infrastructure businesses, higher incentives due to sales pricing that did not fully recover higher raw materialimproved operations, and restructuring activities. These increases were partially offset by lower travel costs, foreign currency translation effects, and an unfavorable sales mix. The Coatings segment realized higher gross profit in the third quarter, but lower gross profitreduced SG&A deferred compensation expense in the first three quarters of 2017 as compared to the same periods in fiscal 2016.
The Company saw2020 (offset by an increase in SG&A in the third quarter and first three quarters of fiscal 2017, as compared to the same periods in 2016, due to higher incentive expenses related to improved business operations. In addition, the Company incurred higher deferred compensation expenses in the first three quarters of 2017 of $1.7 million, which was offset by the same amount ofin other income.expense).
In the third quarter of 2017,2020, as compared to 2016, operating income for all operating segments were higher except for the ESS and Energy & Mining segments. On a year-to-date basis,third quarter of 2019, operating income was higher in 2017 for the Utility and IrrigationESS segments and lower for the ESSIrrigation and Coatings segments. The overall increase in operating income in the third quarter can be attributed to higher utility sales volumes and an approximate $7.0 million loss recognized on certain access systems projects in 2019 that did not recur. Operating income decreased in the first three quarters of 2017,2020 as compared to the same periodsperiod in 2016, is primarily attributable2019, due to increasedthe goodwill and tradename impairment for the Access Systems business, certain restructuring activities, and lower volumes for the Coatings businesses. The decrease was partially offset by lower raw material costs and improved sales volumes in the UtilityIrrigation and IrrigationUtility segments.
Net Interest Expense and Debt
Net interest expense in the third quarter and first three quarters of 2017, as compared with2020 was higher than the same periods in 2016, was consistent due to minimal changes in short and long-term borrowings.2019. Interest income increased due to more cash on hand to invest.
Other Income/Expense
The change in other income/expensewas lower in the third quarter and first three quarters of 2017,2020, as compared with the same periods in 2016, was primarilyto 2019, due to alower interest rates.
Other Income/Expenses
The change in other income/expenses in the third quarter and first three quarters of 2020, as compared to 2019, was due to the change in valuation of deferred compensation assets. This changeassets which resulted in loweradditional other income in the third quarter of $0.4$0.5 million but increasedand reduced other income for the first three quarters of $1.7 million.$3.7 million, respectively. This amount is shown as "Gain on investments (unrealized)" on the condensed consolidated statements of earnings. The change related to deferred compensation assets are offset by an opposite change of the same amount in SG&A expense. The change in the market value of the Company's shares held of Delta EMD was a $0.6 million smaller loss on a year-to-date basis when comparing 2017 to 2016. The remaining change was due to fluctuations in foreign currency transaction gains or losses.gains/losses that was less favorable in 2020.
Income Tax Expense
Our effective income tax rate in the third quarter and first three quarters of 20172020 was 27.5%23.0% and 28.9%26.9%, respectively, compared to 32.6%24.5% and 31.7%24.7% in the third quarter and first three quarters of 2016, respectively. A $1.9 million reversal2019. On a year-to-date basis, the increase in the effective tax rate is a result of a valuation allowance against certain foreign net operating loss carryforwardsthe partial impairment of goodwill and tradename for the Access Systems business that is not fully tax deductible. An increase in third quarter of 2017 contributed to the lower
tax rate. In addition, the Company recorded $1.8 million of deferred income tax expense related to decreased futureU.K. corporate tax rates in the United Kingdomrate effective in the third quarter of 2016.2020 provided a one time deferred tax benefit of $1.5 million reducing the effective tax rate.
Earnings attributable to noncontrolling interests was consistentlower in the third quarter and first three quarters of 2017,2020, as compared to 2019. The decrease can be attributed to the same periodsacquisition of the remaining noncontrolling interests of AgSense and partial acquisition of the noncontrolling interest of Convert in 2016.the first quarter of 2020.
Cash Flows from Operations
Our cash flows provided by operations was $134.4 $273.0 million in the first three quarters of fiscal 2017,2020, as compared with $127.3$239.2 million provided by operations in the first three quarters of 2016.2019. The increase in operating cash flow in the first three quarters of fiscal 2017,2020, as compared with 2016,2019, was primarily the result ofdue to improved net earnings mostly offset by higher net working capital tiedmanagement. Working capital is higher primarily due to increased sales volumes.
Engineered Support Structures (ESS) segment
Thean increase in cash balances.
ESS segment
Net sales were lower in the third quarter and first three quarters of fiscal 2017,2020 as compared withto 2019, primarily driven by lower sales volumes. Lighting, traffic, and highway safety product sales and access systems sales volumes were lower in the same periodsthird quarter of 2016, was due2020 as compared to improved roadway2019, while communication product sales volumes were higher. In the first three quarters of 2020, sales were higher for the lighting, traffic, and higherhighway safety and communication product line sales volumes.products businesses and lower for access systems.
Global lighting, and traffic, and roadwayhighway safety product sales in the third quarter and first three quarters of 2017 were2020 was modestly lower by $9.7 million and higher by $4.6 million, as compared to the same periods in fiscal 2016, primarily due2019. Sales volumes decreased in North America in the third quarter of 2020, attributable to increasedhigher shipments in the third quarter of 2019 resulting from the recovery from a flood event in early 2019 at one of our facilities. On a year-to-date basis, sales volumes in roadwayNorth America increased due to strong backlogs in transportation markets. Europe sales volumes were lower in the third quarter and first three quarters due to the ceasing of operations in Morocco, the temporary plant shutdown and continued slower markets in France due to COVID-19, and unfavorable foreign currency translation effects. Lighting, traffic, and highway safety product sales which is a product line outside of North America. Inin the Asia-Pacific region decreased in the third quarter and first three quarters of 2017,2020, as compared to 2016, sales volumes2019, due primarily to continued market weakness in the U.S. were lower across commercial and transportation markets. The 2015 long-term U.S. highway bill has not yet provided a meaningful uplift for our North America structures business. Sales in Europe were higher in the third quarter but lower in the first three quarters of 2017 comparedIndia attributed to the same periods in fiscal 2016. The domestic markets in general remain subdued in Europe. The increase in sales volume was partially offset by unfavorable currency translation effects on a year-to-date basis.COVID-19.
Communication product line sales were higher by $2.3 million and $1.1 million in the third quarter and first three quarters of 2020, as compared with the same periods in 2019. Communication product sales in Europe improved due to an increase in volume in the U.K. and Asia-Pacific sales volumes increased marginally. In North America, communication product sales volumes decreased in the third quarter and first three quarters of 2020 due to lower demand for communication components.
Access Systems product line net sales decreased in the third quarter and first three quarters of 2020, as compared to 2019, by $5.0 million and $22.9 million. The product line exited selling detention center systems and portions of the industrial product line which contributed to the sales decline along with unfavorable foreign currency translation effects. For the first half of 2020, subdued construction spending in Australia also contributed to a decrease in sales volume.
Gross profit was higher in the third quarter and first three quarters of fiscal 2017,2020, as compared with the same periods in fiscal 2016. In both North America and Asia-Pacific, communication structure and component sales increasedto 2019, due to higher demand from the continued network expansion by providers.
Gross profit, as a percentagelower cost of sales, and operating income forraw materials across the segment were lowerand an approximate $7.0 million loss recognized on certain access systems projects in the third quarter and first three quarters of 2017, as compared with the same periods in 2016, due to margin contraction from higher raw material costs2019 that the business wasdid not able to fully recover through higher sales pricing.recur. SG&A spending was higher in the third quarter of 2017, as compared to 2016,2020 versus 2019 due to foreign currency translation effects. SG&A spending was lowerhigher sales commissions and incentives due to improved operations in North America. For the first three quarters of 2017, as compared to 2016, due primarily to lower commissions owed on communication product line sales, reduced incentives2020, SG&A also increased due to decreased operating performance,recording a partial goodwill and currency translation effects.
Energy & Mining (E&M) segment
The decrease in net sales intradename impairment for the third quarterAccess Systems business of 2017, as compared to 2016, was due primarily to lower sales volumes that were partially offset by higher sales pricing and favorable currency translation effects. The increase in net sales in the first three quarters of 2017, as compared to 2016, was due to higher sales pricing and favorable currency translation effects.
Access systems product line net sales in the third quarter and first three quarters of 2017 were higher than the same periods in 2016 due to higher sales pricing and favorable currency translation effects. The increase was partially offset by lower external sales volumes in Asia.
Offshore and other complex structures sales decreased in the third quarter of 2017, as compared to the same period in 2016, due to lower volumes that were partially offset by favorable currency translation effects. Sales$16.6 million, Operating income decreased in the first three quarters of 2017, as compared to 2016,2020 due to lower sales pricing that wasthe goodwill and tradename impairment of the Access Systems business, partially offset by volume improvements primarilylower raw material costs for all businesses and a loss recorded on certain access systems projects in the wind tower product line.
Grinding media sales were down slightly in the third quarter and first three quarters of 2017, as compared to the same periods in 2016. A decrease in sales volumes was offset by higher sales pricing and favorable currency translation effects.
Operating income for the segment in the third quarter of 2017, as compared to 2016, was lower primarily due to sales pricing that did not fully recover higher material costs in the grinding media business. Operating income was comparable in the first three quarters of 2017 as compared to 2016, due to benefits realized in Access Systems from the 2016 restructuring activities offsetting the lower gross profit realized from higher material costs. SG&A expense was flat in the third quarter and first three quarters of 2017, as compared to the same periods in 2016. Restructuring costs incurred in the third quarter of 2016 and lower compensation costs were offset by currency translation effects in 2017.2019.
Utility Support Structures (Utility) segment
In the Utility segment, sales increased in the third quarter and first three quarters of 2017,2020, as compared with 2016,2019, due to large project work for the higher costs ofinternational solar tracking solutions product line and improved sales volumes for steel and a favorable sales mix.concrete structures in North America. A number of our sales contracts in North America contain provisions that tie the sales price to published steel index pricing at the time our customer issues their purchase order. For the first three quarters of 2017, as compared to 2016, improved sales demand in North AmericaThis resulted in increased sales volumes in tonsa decrease to the average selling prices for our steel utility structures also contributed to the increase in sales. Sales volumes in tonsproduct line for concrete utility structures were also higher in the third quarter and first three quarters of 2017,2020, as compared to the same periods in 2016. International utility structures sales decreased in 2017 due to lower volumes.with 2019.
Gross profit as a percentage of Offshore and solar tracking solutions sales increased in the third quarter and first three quarters of 2017,2020, as compared to the same periods in 2016,2019, due to improved pricinga large increase in sales volumes in the third quarter. The increase for both businesses can be attributed to large projects in the third quarter of 2020.
Gross profit increased in the third quarter and first three quarters of 2020, as compared to 2019, due to higher sales mix.volumes and its associated operating leverage of fixed costs. In addition, the business incurred approximately $3.0 million of inspection costs during 2019 to finalize the requirements from a 2015 commercial settlement. Partially offsetting that 2019 charge was a $2.8 million impairment of a facility in 2020 that is classified as an asset held for sale. SG&A expense was higher in the third quarter and first three quarters of 2017,2020, as compared with the same periods in 2016,2019, due to higher incentive expenseincentives due to improved operating results in North America and commission expensea $2.7 million allowance recognized in third quarter 2020 against an international accounts receivable. The increase in operating income for the third quarter 2020, as compared with 2019, is primarily due to higher sales volumes. The improvement in operating income margin in 2020 versus 2019 is also attributed to disciplined product pricing; gross profit margins increased as lower raw material costs was slightly more than the increasedeffect on net sales volumes. Operating income increasedfrom lower average selling prices.
Coatings segment
Coatings segment sales decreased in the third quarter and first three quarters of 2017,2020, as compared with 2016,to the same periods in 2019, due to the increasedlower volumes in North America and Asia, reduced sales pricing attributed to lower zinc costs, and unfavorable foreign currency translation. Sales volumes and improved sales pricing.
Coatings segment
Coatings segment sales increaseddecreased in North America in the third quarter and first three quarters of 2017,2020, as compared to the same periods in 2016,2019, due primarily to increaseddecreased industrial production attributed largely to the economic impacts from COVID-19. In Asia-Pacific region, sales pricesvolumes improved in Australia, which were more than offset by decreased volumes in Asia that were impacted by the continued slowdown caused by the economic impacts from COVID-19. Sales pricing also declined in Asia-Pacific due to recover higherlower zinc costs globally. External sales volumes in North America increased inand customer mix.
SG&A expense was flat for the third quarter but wereand lower year-to-date, while intercompany volumes increasedin the first three quarters of 2020, as compared to 2019, due to one-time expenses associated with a legal settlement in 2019. Operating income was lower in the third quarter and first three quarters. In the Asia-Pacific region, improved demand/volume provided an increase in net sales.
SG&A expense was lower in the third quarterquarters of 2017, as2020, compared to 2016,the same periods in 2019, due to restructuring actions undertakensales volume decreases in 2016 to reduceNorth America and Asia and the cost structure in Australia. SG&A expense was comparable in the first three quartersassociated operating deleverage of 2017, as compared to 2016. Operating income was higher in the third quarter of 2017 compared to 2016, due to improved sales pricing and restructuring actions undertaken in 2016. Operating income was lower in the first three quarters of 2017, as compared with 2016, due to costs incurred to start up our facility in Texas.fixed costs.
Irrigation segment
The increasedecrease in Irrigation segment net sales in the third quarter of 2017, as compared to 2016, was primarily due to sales volume increases for international irrigation. On a year-to-date basis in 2017 as compared to 2016, the sales increase is driven by improved volumes for both the domestic and international irrigation businesses. In North America, when comparing 2017 to the same periods of 2016, sales volumes were comparable in the third quarter but increased year-to-date primarily driven by markets outside the traditional corn-belt. In addition, higher equipment running times due to weather conditions resulted in higher service parts sales on a year-to-date basis. International sales increased in the third quarter and first three quarters of 2017,2020, as compared to the same periods in 2016,2019, is primarily due to volume increases across most regions and favorableunfavorable foreign currency translation effects (primarily Brazil real) that were partially offset by sales volume improvements in international markets. Brazil, Australia, and Argentina drove the sales volume improvements for international irrigation along with the acquisition of Solbras, which was partially offset by unfavorable currency translation effects from a weaker Brazil real and South Africa.African rand. In North America, slightly higher sales volumes for systems was more than offset by decrease in sales volumes of other products, including industrial tubing. For the first three quarters of 2020, sales of technology-related products and services continue to increase, as growers continued adoption of technology to reduce costs and enhance profitability.
SG&A was higher in the third quarter and first three quarters of fiscal 2017,2020, as compared with the same periods in 2016. The increase can primarily be attributedto 2019, due to higher incentive costs due to improved business results and currency translation effects related to the international irrigation business.product development expenses. Operating income for the segment decreased in the third quarter due to higher product development expenses and unfavorable currency translation effects. Operating income increased in the first three quarters of 2020 over 2019, as a result of lower raw material costs and higher sales volumes in international markets.
Net corporate expense
Corporate SG&A expense was higher in the third quarter and first three quarters of fiscal 2017 over the same periods in 2016, primarily due2020, as compared to North America and international irrigation sales volume increases, productivity improvements, and favorable foreign currency translation effects.
Net corporate expense
Corporate SG&A expense was lower in2019. The increase the third quarter is attributed to higher incentive accruals related to improved business performance. The increase in the first three quarters of 2017, as compared to the same period in 2016,2020 is due to $0.4 million lower pensionhigher incentive expense, forpartially offset by the Delta Pension Plan and $0.4 millionchange in valuation of lower deferred compensation expenses thatassets which resulted in lower expense of $3.7 million. The change in deferred compensation plan assets is offset by the same amount in other expense. Net corporate expense slightly increased in the first three quarters of 2017 asincome/expenses.
compared to 2016, due to $1.7 million of higher deferred compensation expenses that is offset by a reduction of the same amount in other expense. This increase was partially offset by $1.0 million of lower pension expenses for the Delta Pension Plan.
Liquidity and Capital Resources
Cash Flows
Working Capital and Operating Cash Flows-Net working capital was $1,034.7$934.2 million at September 30, 2017,26, 2020, as compared to $903.4$918.4 million at December 31, 2016.28, 2019. The increase in net working capital in 2017 mainly resulted from increased receivables,2020 is attributed to an increase in cash on hand, and inventory, partially offset by higher accrued expenses and accounts payable.balances. Cash flow provided by operations was $134.4$273.0 million in the first three quarters of 2017,2020, as compared with $127.3$239.2 million in first three quarters of 2016. The increase in operating cash flow in the first three quarters of 2017,2019. The increase in operating cash flows in 2020, as compared to 2016,2019, was primarily the result of higher net earnings tied to increased sales volumes and pricing that was mostly offset by a corresponding increase inimproved working capital.capital management.
Investing Cash Flows-Capital spending in the first three quarters of fiscal 20172020 was $39.9$71.0 million, as compared to $42.2$72.0 million for the same period in 2016. Capital spending projects2019. The decrease in 2017 and 2016 relatedinvesting cash outflows in the first three quarters quarter of 2020, as compared to investments2019, can be attributed to a reduction in machinery and equipment across all businesses.cash paid for acquisitions. We expect our capital spending for the 2017 fiscal yearexpenditures to be approximately $60 million.between $85.0 million and $95.0 million for fiscal 2020.
Financing Cash Flows-Our total interest‑bearinginterest-bearing debt decreased slightly to $755.3was $795.9 million at September 30, 2017 from $756.426, 2020 and $787.5 million at December 31, 2016.28, 2019. Financing cash flows changed from a use of approximately $82.4outflows were $110.0 million and $82.7 million in the first three quarters of fiscal 2016 to a use of $22.0 million2020 and 2019, respectively. The increase in the first three quarters of fiscal 2017. The reduction of financing cash outflows in the first three quarters of 2017,2020, as compared to 2016,2019, was due to the Company purchasing $46.6 million of treasury shares under our share repurchase program and thehigher amounts paid to purchase of certain noncontrolling interests totaling $11.0 millionand lower net borrowings.
Guarantor Summarized Financial Information
We are providing the following information in 2016.compliance with Rule 3-10 and Rule 13-01 of Regulation S-X with respect to our two tranches of senior unsecured notes. All of the senior notes are guaranteed, jointly, severally, fully and unconditionally (subject to certain customary release provisions, including sale of the subsidiary guarantor, or sale of all or substantially all of its assets) by certain of the Company’s current and future direct and indirect domestic and foreign subsidiaries (collectively the “Guarantors”). The Parent is the Issuer of the notes and consolidates all Guarantors.
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, and transactions with non-guarantor subsidiaries are separately disclosed.
Combined financial information is as follows:
Supplemental Combined Parent and Guarantors Financial Information
For the thirteen and thirty-nine weeks ended September 26, 2020 and September 28, 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen weeks ended | | Thirty-nine weeks ended |
Dollars in thousands | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Net sales | $ | 438,947 | | | $ | 433,533 | | | $ | 1,377,294 | | | $ | 1,314,108 | |
Gross Profit | 115,116 | | 114,538 | | 385,314 | | 340,645 |
Operating income | 35,261 | | 44,846 | | 149,866 | | 137,343 |
Net earnings | 13,760 | | 24,083 | | 87,235 | | 82,349 |
Net earnings attributable to Valmont Industries, Inc. | 13,759 | | 24,083 | | 87,249 | | 82,349 |
Supplemental Combined Parent and Guarantors Financial Information
September 26, 2020 and December 28, 2019
| | | | | | | | | | | |
Dollars in thousands | September 26, 2020 | | December 28, 2019 |
Current assets | $ | 777,934 | | | $ | 728,457 | |
Noncurrent assets | 374,796 | | | 354,173 | |
Current liabilities | 295,544 | | | 312,984 | |
Noncurrent liabilities | 1,121,280 | | | 1,076,491 | |
Noncontrolling interest in consolidated subsidiaries | 1,585 | | | — | |
Included in noncurrent assets is a due from non-guarantor subsidiaries receivable of $83,977 and $54,915 at September 26, 2020 and December 28, 2019. Included in noncurrent liabilities is a due to non-guarantor subsidiaries payable of $262,680 and $249,056 at September 26, 2020 and December 28, 2019.
Financing and Capital
We have an openThe Board of Directors authorized the purchase of $250 million authorized share purchase programof the Company's shares without an expiration date.date in October 2018. The share purchases will be funded from available working capital and short-term borrowings and will be made subject to market and economic conditions. We are not obligated to make any share repurchases under the share repurchase program and we may discontinue the share repurchase program at any time. NoShare repurchases were temporarily suspended at the end of the first quarter of 2020 until September 2020 as a precaution to preserve liquidity. We acquired 251,136 treasury shares were repurchasedfor approximately $28.0 million under our share repurchase program during the first three quarters of 2017.2020. As of September 30, 2017,26, 2020, we have approximately $132.2$176.4 million open under this authorization to repurchase shares in the future.
Our capital allocation philosophy announcement included our intention to manage our capital structure to maintain our investment grade debt rating. Our most recent ratingratings were Baa3 by Moody's Investors Services, Inc., BBB- rating by Fitch Rating Services, and BBB+ rating by Standard and Poor's Rating Services. We expect to maintain a leverage ratio which will support our current investment grade debt rating.
Our debt financing at September 30, 201726, 2020 is primarily long-term debt consisting of:
•$250.2450 million face value ($253.0 million carrying value) of senior unsecured notes that bear interest at 6.625% per annum and are due in April 2020.
$250 million face value ($248.9436.5 million carrying value) of senior unsecured notes that bear interest at 5.00% per annum and are due in October 2044.
•$250305 million face value ($246.8297.6 million carrying value) of unsecured notes that bear interest at 5.25% per annum and are due in October 2054.
•We are allowed to repurchase the notes at specified prepayment premiums. All threeBoth tranches of these notes are guaranteed by certain of our subsidiaries.
On October 18, 2017, we amended and restated our revolving credit facility with JP Morgan Chase Bank, N.A., as Administrative Agent, and the other lenders party thereto. The credit facility provides for $600 million of committed unsecured revolving credit loans. We may increase the credit facility by up to an additional $200 million at any time, subject to lenders increasing the amount of their commitments. Our wholly-owned subsidiaries Valmont Industries Holland B.V. and Valmont Group Pty. Ltd., along with the Company, are borrowers under the credit facility. The obligations arising under the credit facility are guaranteed by the Company and its wholly-owned subsidiaries PiRod, Inc., Valmont Coatings, Inc., Valmont Newmark, Inc. and Valmont Queensland Pty. Ltd.
The amendments to the credit facility, which are adopted in the amended and restated credit agreement, include:
an extension of the maturity date of the credit facility from October 17, 2019 to October 18, 2022;
an increase in the available borrowings in foreign currencies from $200 million to $400 million;
a decrease in the range of commitment fees payable from 10 to 27.5 basis points to 10 to 25 basis points (the specific commitment fees payable on the average daily unused portion of the commitments under the credit facility depend on the credit rating of the Company's senior, unsecured, long-term debt);
a modification of the definition of "EBITDA" to add-back non-recurring cash and non-cash restructuring costs in an amount that does not exceed $75 million in any trailing twelve month period;
a modification of the leverage ratio permitting it to increase from 3.5X to 3.75X for the four consecutive fiscal quarters after certain material acquisitions;
implementing beneficial changes to certain of the baskets and exceptions in the negative covenants of the credit facility; and
updating the credit facility with certain market provisions.
At September 30, 201726, 2020 and December 31, 2016,28, 2019, we had no$41.9 million and $29.0 million outstanding borrowings under our revolving credit agreement.agreement, respectively. The revolving credit agreement contains certain financial covenants that may limit our additional borrowing capability under the agreement. At September 30, 2017,26, 2020, we had the ability to borrow $585.2$542.6 million under this facility, after consideration of standby letters of credit of $14.8$15.5 million associated with certain insurance obligations and international sales commitments. We also maintain certain short-term bank lines of credit totaling $113.0$134.2 million, $112.8$120.0 million of which was unused at September 30, 2017.26, 2020.
Our senior unsecured notes and revolving credit agreement each contain cross-default provisions which permit the acceleration of our indebtedness to them if we default on other indebtedness that results in, or permits, the acceleration of such other indebtedness.
The debt agreements contain covenants that require us to maintain certain coverage ratios and may limit us with respect to certain business activities, including capital expenditures. The debt agreements allow us to add estimated EBITDA from acquired businesses for periods we did not own the acquired business. The debt agreements also provide for an adjustment to EBITDA, subject to certain limitations, for non-cash charges or gains that are non-recurring in nature. For 2017, our covenant calculations do not include any estimated EBITDA from acquired businesses.
Our key debt covenants are as follows:
•Leverage ratio - Interest-bearing debt is not to exceed 3.5X Adjusted EBITDA (or 3.75X Adjusted EBITDA after certain material acquisitions) of the prior four quarters; and
•Interest earned ratio - Adjusted EBITDA over the prior four quarters must be at least 2.5X our interest expense over the same period.
At September 30, 2017,26, 2020, we were in compliance with all covenants related to the debt agreements. The key covenant calculations at September 30, 201726, 2020 were as follows:follows (in 000's):
| | | | | |
Interest-bearing debt | $ | 795,937 | |
Adjusted EBITDA-last four quarters | 344,627 | |
Leverage ratio | 2.31 | |
| |
Adjusted EBITDA-last four quarters | $ | 344,627 | |
Interest expense-last four quarters | 40,748 | |
Interest earned ratio | 8.46 | |
|
| | | |
Interest-bearing debt | $ | 755,348 |
|
Adjusted EBITDA-last four quarters | 345,590 |
|
Leverage ratio | 2.19 |
|
| |
Adjusted EBITDA-last four quarters | $ | 345,590 |
|
Interest expense-last four quarters | 44,445 |
|
Interest earned ratio | 7.78 |
|
The calculation of Adjusted EBITDA-last four quarters (September 25, 2016(October 29, 2019 through September 30, 2017)26, 2020) is as follows:follows. The last four quarters information ended September 26, 2020 is calculated by taking the full fiscal year ended December 28, 2019, subtracting the first three quarters ended September 28, 2019, and adding the first three quarters ended September 26, 2020.
| | | | | |
Net cash flows from operations | $ | 341,430 | |
Interest expense | 40,748 | |
Income tax expense | 50,613 | |
Impairment of property, plant and equipment | (2,811) | |
Impairment of goodwill and intangible assets | (16,638) | |
Change in investment | 85 | |
Deferred income tax benefit | 6,908 | |
Noncontrolling interest | (2,481) | |
Stock-based compensation | (11,434) | |
Pension plan expense | 5,532 | |
Contribution to pension plan | 18,433 | |
Changes in assets and liabilities | (112,236) | |
Other | 1,351 | |
EBITDA | 319,500 | |
Cash restructuring expenses | 5,678 | |
| |
Impairment of goodwill and intangible assets | 16,638 | |
Impairment of property, plant and equipment | 2,811 | |
| |
Adjusted EBITDA | $ | 344,627 | |
| |
| |
|
| | | |
Net cash flows from operations | $ | 226,318 |
|
Interest expense | 44,445 |
|
Income tax expense | 42,666 |
|
Impairment of property, plant and equipment | (481 | ) |
Loss on investment | (8 | ) |
Change in fair value of contingent consideration | (285 | ) |
Deferred income tax benefit | 22,072 |
|
Noncontrolling interest | (5,292 | ) |
Stock-based compensation | (10,659 | ) |
Increase in restricted cash - pension plan trust | (12,568 | ) |
Pension plan expense | (865 | ) |
Contribution to pension plan | 26,840 |
|
Changes in assets and liabilities | 29,167 |
|
Other | 350 |
|
EBITDA | 361,700 |
|
Reversal of contingent liability | (16,591 | ) |
Impairment of property, plant and equipment | 481 |
|
Adjusted EBITDA | $ | 345,590 |
|
| | | | | |
Net earnings attributable to Valmont Industries, Inc. | $ | 144,778 | |
Interest expense | 40,748 | |
Income tax expense | 50,613 | |
Depreciation and amortization expense | 83,361 | |
EBITDA | 319,500 | |
Cash restructuring expenses | 5,678 | |
| |
Impairment of goodwill and intangible assets | 16,638 | |
Impairment of property, plant, and equipment | 2,811 | |
Adjusted EBITDA | $ | 344,627 | |
| |
| |
|
| | | |
Net earnings attributable to Valmont Industries, Inc. | $ | 189,915 |
|
Interest expense | 44,445 |
|
Income tax expense | 42,666 |
|
Depreciation and amortization expense | 84,674 |
|
EBITDA | 361,700 |
|
Reversal of contingent liability | (16,591 | ) |
Impairment of property, plant, and equipment | 481 |
|
Adjusted EBITDA | $ | 345,590 |
|
Our businesses are cyclical, but we have diversity in our markets from a product, customer and a geographical standpoint. We have demonstrated the ability to effectively manage through business cycles and maintain liquidity. We have consistently generated operating cash flows in excess of our capital expenditures. Based on our available credit facilities, recent issuance of senior unsecured notes and our history of positive operational cash flows, we believe that we have adequate liquidity to meet our needs.
We have not made any provision for U.S. income taxes in our financial statements on approximately $437.8 million of undistributed earnings of our foreign subsidiaries, as we intend to reinvest those earnings. Of our cash balances of $493.5$443.1 million at September 30, 2017,26, 2020, approximately $370.5$221.7 million is held in entities outside the United States.our non-U.S. subsidiaries. If we need to repatriatedistributed our foreign cash balances to the United States to meet our cash needs, incomecertain taxes would be paid to the extent that those cash repatriations were undistributed earnings of ourapplicable. At September 26, 2020, we have a liability for foreign subsidiaries. The determination of the additionalwithholding taxes and U.S. federal and state income taxes or foreign withholding taxes have not been provided, as the determination is not practicable.of $3.3 million and $0.8 million, respectively.
Financial Obligations and Financial Commitments
There have been no material changes to our financial obligations and financial commitments as described on page 3634-35 in our Form 10-K for the fiscal year ended December 31, 2016.28, 2019.
Off Balance Sheet Arrangements
There have been no material changes in our off balance sheet arrangements as described on page 3735 in our Form 10-K for the fiscal year ended December 31, 2016.28, 2019.
Critical Accounting Policies
There have beenwere no changes in our critical accounting policies as described on pages 38-4237-40 in our Form 10-K for the fiscal year ended December 31, 201628, 2019 during the quarternine months ended September 30, 2017.26, 2020, with the exception of the change in method of accounting for certain inventory, previously accounted for on the LIFO basis, so that now all inventory is valued on the FIFO basis.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There were no material changes in the company's market risk during the quarter ended September 30, 2017.26, 2020. For additional information, refer to the section "Risk Management" in our Form 10-K for the fiscal year ended December 31, 2016.28, 2019.
Item 4. Controls and Procedures
The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports the Company files or submits under the Securities Exchange Act of 1934 is (1) accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures and (2) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.
No changes in the Company's internal control over financial reporting occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1A – Risk Factors
There have been no material changes from risk factors previously disclosed in the Company’s most recent Annual Report on Form 10-K. See the discussion of the Company’s risk factors under Part I, Item 1A in each of the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 and Quarterly Report on Form 10-Q for the quarter ended March 28, 2020.
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price paid per share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Maximum Number of Shares that may yet be Purchased under the Program (1) |
June 28, 2020 to July 25, 2020 | — | | | $ | — | | | — | | | $ | 176,445,000 | |
July 26, 2020 to August 29, 2020 | — | | | — | | | — | | | 176,445,000 | |
August 30, 2020 to September 26, 2020 | 60,645 | | | 124.08 | | | 60,645 | | | 176,445,000 | |
Total | 60,645 | | | $ | 124.08 | | | 60,645 | | | $ | 176,445,000 | |
|
| | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price paid per share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Maximum Number of Shares that may yet be Purchased under the Program (1) |
July 2, 2017 to July 29, 2017 | — |
| | $ | — |
| | — |
| | $ | 132,172,000 |
|
July 30, 2017 to September 2, 2017 | — |
| | — |
| | — |
| | 132,172,000 |
|
September 3, 2017 to September 30, 2017 | — |
| | — |
| | — |
| | 132,172,000 |
|
Total | — |
| | $ | — |
| | — |
| | $ | 132,172,000 |
|
(1) On May 13, 2014, we announced a new capital allocation philosophy which included a share repurchase program. Specifically, the Board of Directors authorized the purchase of up to $500 million of the Company's outstanding common stock from time to time over twelve months at prevailing market prices, through open market or privately-negotiated transactions. On February 24, 2015 and again on October 31, 2018, the Board of Directors authorized an additional purchase of up to $250 million of the Company's outstanding common stock with no stated expiration date. As of September 30, 2017,26, 2020, we have acquired 4,588,1316,173,590 shares for approximately $617.8$823.6 million under this share repurchase program.
Item 6. Exhibits
(a) Exhibits
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| | | |
Exhibit No. | | Description |
| | List of Issuer and Guarantor Subsidiaries. This document was filed as Exhibit 22.1 to the Company's Quarterly Report on Form 10-Q (Commission file number 001-31429) for the quarter ended March 28, 2020 and is incorporated herein by this reference. |
| | Section 302 Certificate of Chief Executive Officer |
| | Section 302 Certificate of Chief Financial Officer |
| | Section 906 Certifications of Chief Executive Officer and Chief Financial Officer |
101 | | The following financial information from Valmont's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,26, 2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Shareholders' Equity, (vi) Notes to Condensed Consolidated Financial Statements and (vii) document and entity information. |
104 | | Cover Page Interactive File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf and by the undersigned hereunto duly authorized.
|
| | | | |
| VALMONT INDUSTRIES, INC. (Registrant) |
| /s/ MARK C. JAKSICHAVNER M. APPLBAUM |
| Mark C. JaksichAvner M. Applbaum
Executive Vice President and Chief Financial Officer |
Dated this 1st27th day of November, 2017.October, 2020.
Index of Exhibits
|
| | |
Exhibit No. | | Description |
31.1 | | Section 302 Certificate of Chief Executive Officer |
31.2 | | Section 302 Certificate of Chief Financial Officer |
32.1 | | Section 906 Certifications of Chief Executive Officer and Chief Financial Officer |
101 | | The following financial information from Valmont's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Shareholders' Equity, (vi) Notes to Condensed Consolidated Financial Statements and (vii) document and entity information.
|