|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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
(Exact name of registrant as specified in its charter)
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices) | (Zip Code) |
(
(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 |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and emerging growth company in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer | ☐ | Non‑accelerated filer | ☐ | Smaller reporting company | ||
Emerging growth 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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Outstanding shares of common stock as of October 27, 2022
VALMONT INDUSTRIES, INC
INDEX TO FORM 10-Q
| Page No. | ||
PART I. FINANCIAL INFORMATION | |||
Item 1. | Financial Statements (unaudited): | ||
Condensed Consolidated Statements of Earnings for the thirteen and thirty-nine weeks ended September 24, 2022 and September 25, 2021 | |||
Condensed Consolidated Statements of Comprehensive Income for the thirteen and thirty-nine weeks ended September 24, 2022 and September 25, 2021 | |||
Condensed Consolidated Balance Sheets as of September 24, 2022 and December 25, 2021 | |||
Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended September 24, 2022 and September 25, 2021 | |||
Condensed Consolidated Statements of Shareholders’ Equity for the thirteen and thirty-nine weeks ended September 24, 2022 and September 25, 2021 | |||
Notes to Condensed Consolidated Financial Statements | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | ||
Item 4. | Controls and Procedures | ||
PART II. OTHER INFORMATION | |||
Item 1A. | Risk Factors | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | ||
Item 6. | Exhibits | ||
Signatures | |||
2
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
(Unaudited)
Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||||
September 24, | September 25, | September 24, | September 25, | ||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | |||||||
Product sales | $ | | $ | | $ | | $ | | |||||
Services sales |
| |
| |
| |
| | |||||
Net sales |
| |
| |
| |
| | |||||
Product cost of sales |
| |
| |
| |
| | |||||
Services cost of sales |
| |
| |
| |
| | |||||
Total cost of sales |
| |
| |
| |
| | |||||
Gross profit |
| |
| |
| |
| | |||||
Selling, general and administrative expenses |
| |
| |
| |
| | |||||
Operating income |
| |
| |
| |
| | |||||
Other income (expenses): |
|
|
|
|
|
|
|
| |||||
Interest expense |
| ( |
| ( |
| ( |
| ( | |||||
Interest income |
| |
| |
| |
| | |||||
Gain (loss) on investments - unrealized |
| ( |
| |
| ( |
| | |||||
Other |
| |
| |
| |
| | |||||
| ( |
| ( |
| ( |
| ( | ||||||
Earnings before income taxes |
| |
| |
| |
| | |||||
Income tax expense: |
|
|
|
|
|
|
|
| |||||
Current |
| |
| |
| |
| | |||||
Deferred |
| ( |
| ( |
| ( |
| ( | |||||
| |
| |
| |
| | ||||||
Earnings before equity in earnings of nonconsolidated subsidiaries |
| |
| |
| |
| | |||||
Equity in loss of nonconsolidated subsidiaries |
| ( | ( | ( | ( | ||||||||
Net earnings |
| |
| |
| |
| | |||||
Less: earnings attributable to noncontrolling interests |
| ( |
| ( |
| ( |
| ( | |||||
Net earnings attributable to Valmont Industries, Inc. | $ | | $ | | $ | | $ | | |||||
Earnings per share: |
|
|
|
|
|
|
| ||||||
Basic | $ | | $ | | $ | | $ | | |||||
Diluted | $ | | $ | | $ | | $ | | |||||
See accompanying notes to condensed consolidated financial statements.
3
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
Thirteen Weeks Ended | Thirty-nine weeks ended | ||||||||||||
September 24, | September 25, | September 24, | September 25, | ||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | |||||||
Net earnings | $ | | $ | | $ | | $ | | |||||
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
| |||||
Foreign currency translation adjustments: |
|
|
|
|
|
|
|
| |||||
Unrealized translation loss |
| ( |
| ( |
| ( |
| ( | |||||
Gain (loss) on hedging activities: |
|
|
|
|
|
|
|
| |||||
Cash flow hedges |
| — |
| |
| — |
| | |||||
Amortization cost included in interest expense |
| ( |
| ( |
| ( |
| ( | |||||
Commodity hedges |
| ( |
| ( |
| ( |
| | |||||
Realized (gain) loss on commodity hedges recorded in earnings |
| |
| ( |
| |
| ( | |||||
Cross currency swaps |
| |
| |
| |
| | |||||
Defined Benefit Pension Plan: | |||||||||||||
Actuarial loss |
| |
| |
| |
| | |||||
Other comprehensive loss |
| ( |
| ( |
| ( |
| ( | |||||
Comprehensive income |
| |
| |
| |
| | |||||
Comprehensive (income) loss attributable to noncontrolling interests |
| |
| |
| ( |
| ( | |||||
Comprehensive income attributable to Valmont Industries, Inc. | $ | | $ | | $ | | $ | | |||||
See accompanying notes to condensed consolidated financial statements.
4
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
| September 24, |
| December 25, | |||
| 2022 |
| 2021 | |||
ASSETS | ||||||
Current assets: |
|
|
| |||
Cash and cash equivalents | $ | | $ | | ||
Receivables, net |
| |
| | ||
Inventories |
| |
| | ||
Contract assets |
| |
| | ||
Prepaid expenses and other assets |
| |
| | ||
Refundable income taxes |
| |
| | ||
Total current assets |
| |
| | ||
Property, plant and equipment, at cost |
| |
| | ||
Less accumulated depreciation and amortization |
| |
| | ||
Net property, plant and equipment |
| |
| | ||
Goodwill |
| |
| | ||
Other intangible assets, net |
| |
| | ||
Other assets |
| |
| | ||
Total assets | $ | | $ | | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
| ||
Current liabilities: |
|
|
|
| ||
Current installments of long-term debt | $ | | $ | | ||
Notes payable to banks |
| |
| | ||
Accounts payable |
| |
| | ||
Accrued employee compensation and benefits |
| |
| | ||
Contract liabilities |
| |
| | ||
Other accrued expenses |
| |
| | ||
Income taxes payable | | | ||||
Dividends payable |
| |
| | ||
Total current liabilities |
| |
| | ||
Deferred income taxes |
| |
| | ||
Long-term debt, excluding current installments |
| |
| | ||
Defined benefit pension liability |
| |
| | ||
Operating lease liabilities |
| |
| | ||
Deferred compensation |
| |
| | ||
Other noncurrent liabilities |
| |
| | ||
Shareholders’ equity: |
|
|
|
| ||
Common stock of $ |
|
| ||||
Authorized |
| |
| | ||
Additional paid in capital |
| |
| | ||
Retained earnings |
| |
| | ||
Accumulated other comprehensive loss |
| ( |
| ( | ||
Treasury stock |
| ( |
| ( | ||
Total Valmont Industries, Inc. shareholders’ equity |
| |
| | ||
Noncontrolling interest in consolidated subsidiaries |
| |
| | ||
Total shareholders’ equity | | | ||||
Total liabilities and shareholders’ equity | $ | | $ | | ||
See accompanying notes to condensed consolidated financial statements.
5
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| Thirty-nine weeks ended | |||||
September 24, | September 25, | |||||
2022 |
| 2021 | ||||
Cash flows from operating activities: |
|
|
| |||
Net earnings | $ | | $ | | ||
Adjustments to reconcile net earnings to net cash flows from operations: |
|
| ||||
Depreciation and amortization |
| |
| | ||
Stock-based compensation |
| |
| | ||
Defined benefit pension plan benefit | ( | ( | ||||
Contribution to defined benefit pension plan |
| ( |
| ( | ||
Loss (gain) on sale of property, plant and equipment |
| |
| ( | ||
Equity in loss in nonconsolidated subsidiaries |
| |
| | ||
Deferred income taxes |
| ( |
| ( | ||
Changes in assets and liabilities: |
|
| ||||
Receivables |
| ( |
| ( | ||
Inventories |
| ( |
| ( | ||
Prepaid expenses and other assets (current and non-current) |
| |
| ( | ||
Contract assets |
| ( |
| ( | ||
Accounts payable |
| |
| | ||
Accrued expenses |
| |
| | ||
Contract liabilities |
| ( |
| | ||
Other noncurrent liabilities |
| ( |
| | ||
Income taxes payable/refundable |
| |
| | ||
Net cash flows from operating activities |
| |
| | ||
Cash flows from investing activities: |
|
| ||||
Purchase of property, plant and equipment |
| ( |
| ( | ||
Proceeds from sale of assets |
| |
| | ||
Acquisitions, net of cash acquired |
| ( |
| ( | ||
Other, net | ( | | ||||
Net cash flows from investing activities |
| ( |
| ( | ||
Cash flows from financing activities: |
|
| ||||
Proceeds from short-term borrowings |
| |
| | ||
Payments on short-term borrowings |
| ( |
| ( | ||
Proceeds from long-term borrowings |
| |
| | ||
Principal payments on long-term borrowings |
| ( |
| ( | ||
Settlement of financial derivatives |
| |
| | ||
Dividends paid |
| ( |
| ( | ||
Purchase of noncontrolling interests |
| ( |
| | ||
Purchase of treasury shares |
| ( |
| ( | ||
Proceeds from exercises under stock plans |
| |
| | ||
Purchase of common treasury shares—stock plan exercises |
| ( |
| ( | ||
Net cash flows from financing activities |
| ( |
| | ||
Effect of exchange rate changes on cash and cash equivalents |
| ( |
| ( | ||
Net change in cash and cash equivalents |
| ( |
| ( | ||
Cash and cash equivalents—beginning of year |
| |
| | ||
Cash and cash equivalents—end of period | $ | | $ | | ||
See accompanying notes to condensed consolidated financial statements
6
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)
(Unaudited)
|
|
|
| Accumulated |
|
| Noncontrolling |
| |||||||||||||
Additional | other | interest in | Total | ||||||||||||||||||
Common | paid-in | Retained | comprehensive | Treasury | consolidated | shareholders’ | |||||||||||||||
| stock |
| capital |
| earnings |
| loss |
| stock |
| subsidiaries |
| equity | ||||||||
Balance at June 26, 2021 | $ | | $ | — | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
Net earnings |
| — |
| — |
| |
| — |
| — |
| |
| | |||||||
Other comprehensive loss |
| — |
| — |
| — |
| ( |
| — |
| ( |
| ( | |||||||
Cash dividends declared ($ |
| — |
| — |
| ( |
| — |
| — |
| — |
| ( | |||||||
Purchase of treasury shares; |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||||
Stock plan exercises; |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||||
Stock options exercised; |
| — |
| ( |
| |
| — |
| |
| — |
| | |||||||
Stock option expense |
| — |
| |
| — |
| — |
| — |
| — |
| | |||||||
Stock awards; |
| — |
| |
| — |
| — |
| |
| — |
| | |||||||
Balance at September 25, 2021 | $ | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
Balance at June 25, 2022 | $ | | $ | | $ | | $ | ( | $ | ( | $ | | | ||||||||
Net earnings |
| — |
| — |
| |
| — |
| — |
| |
| | |||||||
Other comprehensive loss |
| — |
| — |
| — |
| ( |
| — |
| ( |
| ( | |||||||
Cash dividends declared ($ |
| — |
| — |
| ( |
| — |
| — |
| — |
| ( | |||||||
Purchase of noncontrolling interest |
| — |
| |
| — |
| — |
| — |
| ( |
| ( | |||||||
Addition of noncontrolling interest due to acquisition |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||||
Purchase of treasury shares; |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||||
Stock plan exercises; |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||||
Stock options exercised; | — | ( | — | — | | — | | ||||||||||||||
Stock option expense | — | | — | — | — | — | | ||||||||||||||
Stock awards; |
| — |
| |
| — |
| — |
| |
| — |
| | |||||||
Balance at September 24, 2022 | $ | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
See accompanying notes to the condensed consolidated financial statements.
7
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)
(Unaudited)
|
|
|
| Accumulated |
|
| Noncontrolling |
| |||||||||||||
Additional | other | interest in | Total | ||||||||||||||||||
Common | paid-in | Retained | comprehensive | Treasury | consolidated | shareholders’ | |||||||||||||||
stock | capital | earnings | loss | stock | subsidiaries | equity | |||||||||||||||
Balance at December 26, 2020 | $ | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
Net earnings |
| — |
| — |
| |
| — |
| — |
| |
| | |||||||
Other comprehensive loss |
| — |
| — |
| — |
| ( |
| — |
| ( |
| ( | |||||||
Cash dividends declared ($ |
| — |
| — |
| ( |
| — |
| — |
| — |
| ( | |||||||
Purchase of treasury shares; |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||||
Stock plan exercises; |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||||
Stock options exercised; |
| — |
| ( |
| ( |
| — |
| |
| — |
| | |||||||
Stock option expense |
| — |
| |
| — |
| — |
| — |
| — |
| | |||||||
Stock awards; |
| — |
| |
| — |
| — |
| |
| — |
| | |||||||
Balance at September 25, 2021 | $ | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
Balance at December 25, 2021 | $ | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
Net earnings |
| — |
| — |
| |
| — |
| — |
| |
| | |||||||
Other comprehensive loss |
| — |
| — |
| — |
| ( |
| — |
| ( |
| ( | |||||||
Cash dividends declared ($ |
| — |
| — |
| ( |
| — |
| — |
| — |
| ( | |||||||
Purchase of noncontrolling interest |
| — |
| |
| — |
| — |
| — |
| ( |
| ( | |||||||
Addition of noncontrolling interest due to acquisition |
| — |
| — |
| — |
| — |
| — |
| |
| | |||||||
Purchase of treasury shares; |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||||
Stock plan exercises; |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||||
Stock options exercised; | — | ( | — | — | | — | | ||||||||||||||
Stock option expense | — | | — | — | — | — | | ||||||||||||||
Stock awards; |
| — |
| |
| — |
| — |
| |
| — |
| | |||||||
Balance at September 24, 2022 | $ | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
See accompanying notes to the condensed consolidated financial statements.
8
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Consolidated Financial Statements
The Condensed Consolidated Balance Sheet as of September 24, 2022, the Condensed Consolidated Statements of Earnings, Comprehensive Income, and Shareholders’ Equity for the thirteen and thirty-nine weeks ended September 24, 2022 and September 25, 2021, and the Condensed Consolidated Statement of Cash Flows for the thirty-nine weeks then ended have been prepared by Valmont Industries, Inc. (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 24, 2022 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 25, 2021. The results of operations for the period ended September 24, 2022 are not necessarily indicative of the operating results for the full year.
Change in Reportable Segments
During the first quarter of 2022, the Company’s Chief Executive Officer, as the chief operating decision maker (CODM), made changes to the Company’s management structure and began to manage the business, allocate resources, and evaluate performance under the new structure. As a result, the Company has realigned its reportable segment structure. All prior period segment information has been recast to reflect this change in reportable segments. Refer to Note 7 for additional information.
Inventories
Inventory is valued at the lower of cost, determined on the first-in, first-out (“FIFO”) method or net realizable value. Finished goods and manufactured goods inventories include the costs of acquired raw materials and related factory labor and overhead charges required to convert raw materials to manufactured and finished goods.
Inventories consisted of the following:
September 24, | December 25, | |||||
2022 |
| 2021 | ||||
Raw materials and purchased parts | $ | | $ | | ||
Work-in-process |
| |
| | ||
Finished goods and manufactured goods |
| |
| | ||
Total Inventory | $ | | $ | | ||
Income Taxes
Earnings before income taxes for the thirteen and thirty-nine weeks ended September 24, 2022 and September 25, 2021, were as follows:
| Thirteen weeks ended | Thirty-nine weeks ended | |||||||||||
2022 |
| 2021 | 2022 |
| 2021 | ||||||||
United States | $ | | $ | | $ | | $ | | |||||
Foreign |
| |
| |
| |
| | |||||
$ | | $ | | $ | | $ | | ||||||
9
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Pension Benefits
The Company incurs expenses in connection with the Delta Pension Plan (“DPP”). The DPP was acquired as part of the Delta plc acquisition in fiscal 2010 and has no members that are active employees. In order to measure expense and the related benefit obligation, various assumptions are made including discount rates used to value the obligation, expected return on plan assets used to fund these expenses and estimated future inflation rates. These assumptions are based on historical experience as well as current facts and circumstances. An actuarial analysis is used to measure the expense and liability associated with pension benefits.
The components of the net periodic pension (benefit) expense for the thirteen and thirty-nine weeks ended September 24, 2022 and September 25, 2021 were as follows:
Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||||
Net periodic (benefit) expense: | 2022 |
| 2021 | 2022 |
| 2021 | |||||||
Interest cost | $ | | $ | | $ | | $ | | |||||
Expected return on plan assets |
| ( |
| ( |
| ( |
| ( | |||||
Amortization of actuarial loss |
| |
| |
| |
| | |||||
Net periodic benefit | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Stock Plans
The Company maintains stock-based compensation plans approved by the shareholders, which provide that the Human Resource Committee of the Board of Directors may grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, and bonuses of common stock. At September 24, 2022,
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
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 24, 2022 and September 25, 2021, respectively, were as follows:
Thirteen weeks ended | Thirty-nine weeks ended | |||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Compensation expense | $ | | $ | | $ | |
| $ | | |||
Income tax benefits |
| |
| |
| |
| | ||||
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.
10
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
ASC 820 establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value.
Trading Securities: The majority of the Company’s trading securities represent the investments held in the Valmont Deferred Compensation Plan (the “DCP”). The assets and liabilities of the DCP at September 24, 2022 of $
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.
Marketable Securities: The Company's marketable securities consist of short-term investments in certificates of deposit.
Fair Value Measurement Using: | ||||||||||||
| Quoted Prices in |
| Significant Other |
| Significant | |||||||
Active Markets | Observable | Unobservable | ||||||||||
Carrying Value | for Identical | Inputs | Inputs | |||||||||
September 24, 2022 | Assets (Level 1) | (Level 2) | (Level 3) | |||||||||
Assets: | ||||||||||||
Trading securities | $ | | $ | | $ | | $ | | ||||
Derivative financial instruments, net | $ | 8,690 | $ | — | $ | 8,690 | $ | — | ||||
Marketable securities | $ | | $ | | $ | | $ | | ||||
Fair Value Measurement Using: | ||||||||||||
| Quoted Prices in |
| Significant Other |
| Significant | |||||||
Carrying Value | Active Markets | Observable | Unobservable | |||||||||
December 25, | for Identical | Inputs | Inputs | |||||||||
2021 | Assets (Level 1) | (Level 2) | (Level 3) | |||||||||
Assets (Liabilities): | ||||||||||||
Trading securities | $ | | $ | | $ | | $ | | ||||
Derivative financial instruments, net | $ | ( | $ | | $ | ( | $ | | ||||
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.
11
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Leases
The Company’s operating leases are included in other assets and operating lease liabilities.
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 24, 2022 and December 25, 2021:
| Foreign |
|
|
| Accumulated | |||||||
Currency | Gain on | Defined | Other | |||||||||
Translation | Hedging | Benefit | Comprehensive | |||||||||
Adjustments | Activities | Pension Plan | Loss | |||||||||
Balance at December 25, 2021 | $ | ( | $ | | $ | ( | $ | ( | ||||
Current-period comprehensive income (loss) |
| ( |
| |
| |
| ( | ||||
Balance at September 24, 2022 | $ | ( | $ | | $ | ( | $ | ( | ||||
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 and Technology Products and Services product lines.
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 this service as a separate performance obligation and, therefore, no revenue is recognized with the design stage. 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 transmission, distribution, and substation structures (TDS) product line, the renewable energy product lines, and the telecommunication structures product line, the Company’s inventory is interchangeable for a variety of each segment’s customers. The Company has elected to not disclose the partially satisfied performance obligation at the end of the period when the contract has an original expected duration of one year or less. In addition, the Company does not adjust the amount of consideration to be received in a contract for any significant financing component if payment is expected within twelve months of transfer of control of goods or services.
The Company’s contract asset as of September 24, 2022 and December 25, 2021 was $
12
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
At September 24, 2022 and December 25, 2021, total contract liabilities were $
| ● | During the thirteen and thirty-nine weeks ended September 24, 2022, the Company recognized $ |
| ● | In the thirteen and thirty-nine weeks ended September 25, 2021, the Company recognized $ |
| ● | At September 24, 2022, the Company had $ |
Segment and Product Line Revenue Recognition
Infrastructure Segment
Steel and concrete utility structures within the TDS product line are engineered to customer specifications resulting in limited ability to sell the structure to a different customer if an order is canceled after production commences. The continuous transfer of control to the customer is evidenced either by contractual termination clauses or by our rights to payment for work performed to-date plus a reasonable profit as the products do not have an alternative use to the Company. Since control is transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment. For our TDS and telecommunication 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. Depending on the product sold, revenue from renewable energy is recognized both upon shipment or delivery of goods to the customer depending on contract terms, or by using an inputs method, based on 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 TDS sales and the Company has chosen to expense estimated commissions owed to third parties by recognizing them proportionately as the goods are manufactured.
For the structures sold for lighting and transportation and for the majority of telecommunication products, revenue is recognized upon shipment or delivery of goods to the customer depending on contract terms, which is the same point in time that the customer is billed. There are also large regional customers who have unique product specifications for telecommunication structures. When the customer contract includes a cancellation clause that would require them to pay for work completed plus a reasonable margin if an order was canceled, revenue is recognized over time based on hours worked as a percent of total estimated hours to complete production.
The Coatings product line revenues are derived by providing coating services to customers’ products, which include galvanizing, anodizing, and powder coating. Revenue is recognized once the coating service has been performed and the goods are ready to be picked up or delivered to the customer which is the same time that the customer is billed.
Agriculture Segment
Revenue recognition from the manufacture of irrigation equipment and related parts and services (including tubular products for industrial customers) is generally upon shipment of the goods to the customer which is the same point in time that the customer is billed. The remote monitoring subscription services recognized as part of technology services product line are primarily billed annually and revenue is recognized on a straight-line basis over the subsequent twelve months.
13
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Disaggregation of revenue by product line is disclosed in the Business Segments and Related Revenue Information footnote (see note 7).
Recently Issued Accounting Pronouncements (not yet adopted)
In September 2022, the FASB issued ASU No. 2022-04: Liabilities - Supplier Finance Programs (Topic 450-50): Disclosure of Supplier Finance Program Obligations, which requires all buyers that use supplier finance programs to enhance the transparency of such programs to allow financial statement users to understand the effect on working capital, liquidity and cash flows. The new guidance requires disclosure of key terms of the program, including a description of the payment terms, payment timing and assets pledged as security or other forms of guarantees provided to the finance provider or intermediary. Other requirements include the disclosure of the amount that remains unpaid as of the end of the reporting period, a description of where these obligations are presented in the balance sheet and a rollforward of the obligation during the annual period. The guidance is effective in the first quarter of 2023, except for the rollforward, which is effective in 2024. Early adoption is permitted. We are currently evaluating the effect of adopting this accounting guidance.
In March 2020, the FASB issued Accounting Standards Update No. 2020-04 (ASU 2020-04), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP principles to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued due to reference rate reform. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope, which clarified that certain optional expedients and exceptions in Topic 848 apply to derivative instruments that are affected by the discounting transition due to reference rate reform. The Company has not used any of the accommodations to date but may use them up until December 31, 2022.
(2) ACQUISITIONS
Acquisitions of Businesses
On June 1, 2022, the Company acquired approximately
14
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed of ConcealFab as of the date of acquisition:
| As of June 1, | ||
2022 | |||
Current assets | $ | | |
Customer relationships |
| | |
Trade name |
| | |
Property, plant equipment |
| | |
Other assets |
| | |
Goodwill |
| | |
Total fair value of assets acquired | $ | | |
Current liabilities |
| | |
Long-term debt |
| | |
Operating lease liabilities |
| | |
Deferred taxes |
| | |
Other noncurrent liabilities |
| | |
Total fair value of liabilities assumed | $ | | |
Non-controlling interest in consolidated subsidiaries |
| | |
Net assets acquired | $ | | |
On May 12, 2021, the Company acquired the outstanding shares of Prospera, an artificial intelligence company focused on machine learning and computer vision in agriculture, for $
The following table summarizes the fair values of the assets acquired and liabilities assumed of Prospera as of the date of acquisition:
| As of May 12, | ||
2021 | |||
Current assets | $ | | |
Developed technology |
| | |
Trade name |
| | |
Property, plant equipment |
| | |
Goodwill |
| | |
Total fair value of assets acquired | $ | | |
Current liabilities |
| | |
Deferred taxes |
| | |
Total fair value of liabilities assumed | $ | | |
Net assets acquired | $ | | |
15
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
On April 20, 2021 the Company acquired the assets of PivoTrac for $
Proforma disclosures were omitted for these acquisitions as the they do not have a significant impact on the Company’s financial results.
Acquisition of Noncontrolling Interests
On August 10, 2022, the Company acquired the remaining
On May 10, 2022, the Company acquired the remaining
(3) GOODWILL AND INTANGIBLE ASSETS
Amortized Intangible Assets
The components of amortized intangible assets as of September 24, 2022 and December 25, 2021 were as follows:
September 24, 2022 | ||||||||
Gross | Weighted | |||||||
Carrying | Accumulated | Average | ||||||
| Amount |
| Amortization |
| Life | |||
Customer Relationships | $ | | $ | | ||||
Patents Proprietary Technology |
| |
| |
| |||
Trade Name |
| |
| |
| |||
Other |
| |
| |
| |||
$ | | $ | | |||||
December 25, 2021 | ||||||||
Gross | Weighted | |||||||
Carrying | Accumulated | Average | ||||||
Amount |
| Amortization |
| Life | ||||
Customer Relationships | $ | | $ | | ||||
Patents Proprietary Technology |
| |
| |
| |||
Trade Name | | | ||||||
Other |
| |
| |
| |||
$ | | $ | | |||||
16
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Amortization expense for intangible assets for the thirteen and thirty-nine weeks ended September 24, 2022 and September 25, 2021, respectively was as follows:
Thirteen weeks ended | Thirty-nine weeks ended | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Amortization expense | $ | | $ | | $ | | $ | | ||||
Estimated annual amortization expense related to finite-lived intangible assets is as follows:
| Estimated | ||
Amortization | |||
Expense | |||
2022 | $ | | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 |
| | |
The useful lives assigned to finite-lived intangible assets included consideration of factors such as the Company’s past and expected experience related to customer retention rates, the remaining legal or contractual life of the underlying arrangement that resulted in the recognition of the intangible asset and the Company’s expected use of the intangible asset.
Non-amortized intangible assets
Intangible assets with indefinite lives are not amortized and consist solely of trade names. The carrying value of trade names at September 24, 2022 and December 25, 2021 are as follows:
| September 24, |
| December 25, |
| Year | |||
2022 | 2021 | Acquired | ||||||
Newmark | $ | | $ | |
| 2004 | ||
Convert Italia S.p.A |
| |
| |
| 2018 | ||
Webforge | | | 2010 | |||||
Ingal EPS/Ingal Civil Products |
| |
| |
| 2010 | ||
Valmont SM |
| |
| |
| 2014 | ||
ConcealFab |
| |
|
| 2022 | |||
Shakespeare |
| |
| |
| 2014 | ||
Walpar |
| |
| |
| 2018 | ||
Other |
| |
| |
| Various | ||
$ | | $ | | |||||
In its determination of these intangible assets as indefinite-lived, the Company considered such factors as its expected future use of the intangible asset, legal, regulatory, technological and competitive factors that may impact the useful life or value of the intangible asset and the expected costs to maintain the value of the intangible asset. The Company expects that these intangible assets will maintain their value indefinitely. Accordingly, these assets are not amortized.
The Company’s trade names were tested for impairment as of August 27, 2022. The values of each trade name were determined using the relief-from-royalty method. Based on this evaluation,
17
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Goodwill
The carrying amount of goodwill by segment as of September 24, 2022 and December 25, 2021 was as follows:
| Infrastructure |
| Agriculture |
| |||||
Segment | Segment | Total | |||||||
Gross Balance December 25, 2021 | $ | | $ | | $ | | |||
Accumulated impairment losses |
| ( |
| — |
| ( | |||
Balance at December 25, 2021 |
| |
| | | ||||
Acquisitions |
| |
| — |
| | |||
Foreign currency translation |
| ( |
| |
| ( | |||
Balance at September 24, 2022 | $ | | $ | | $ | | |||
Infrastructure |
| Agriculture |
| ||||||
Segment | Segment | Total | |||||||
Gross Balance September 24, 2022 | $ | | $ | | $ | | |||
Accumulated impairment losses | ( | — | ( | ||||||
Balance at September 24, 2022 | $ | | $ | | $ | | |||
The Company’s annual impairment test of goodwill was performed as of August 27, 2022, using primarily the discounted cash flow method. The estimated fair value of all our reporting units exceeded their respective carrying value, so
(4) 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.
| 2022 |
| 2021 | |||
Interest | $ | | $ | | ||
Income taxes |
| |
| | ||
18
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(5) EARNINGS PER SHARE
The following table provides a reconciliation between Basic and Diluted earnings per share (“EPS”):
|
| Dilutive |
| ||||||
Effect of | |||||||||
Stock | Diluted | ||||||||
Basic EPS | Options | EPS | |||||||
Thirteen weeks ended September 24, 2022: | |||||||||
Net earnings attributable to Valmont Industries, Inc. | $ | | $ | — | $ | | |||
Weighted average shares outstanding (000’s) |
| |
| |
| | |||
Per share amount | $ | | $ | ( | $ | | |||
Thirteen weeks ended September 25, 2021: |
|
|
|
| |||||
Net earnings attributable to Valmont Industries, Inc. | $ | | $ | — | $ | | |||
Weighted average shares outstanding (000’s) |
| |
| |
| | |||
Per share amount | $ | | $ | ( | $ | | |||
Thirty-nine weeks ended September 24, 2022 |
|
|
| . | |||||
Net earnings attributable to Valmont Industries, Inc. | $ | | $ | — | $ | | |||
Weighted average shares outstanding (000’s) |
| |
| |
| | |||
Per share amount | $ | | $ | ( | $ | | |||
Thirty-nine weeks ended September 25, 2021: |
|
|
|
| |||||
Net earnings attributable to Valmont Industries, Inc. | $ | | $ | — | $ | | |||
Weighted average shares outstanding (000’s) |
| |
| |
| | |||
Per share amount | $ | | $ | ( | $ | | |||
As of September 24, 2022 and September 25, 2021, there were
19
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(6) DERIVATIVE FINANCIAL INSTRUMENTS
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. Any gains or losses from net investment hedge activities remain in accumulated other comprehensive income (“AOCI”) until either the sale or substantially complete liquidation of the related subsidiaries.
Fair value of derivative instruments at September 24, 2022 and December 25, 2021 are as follows:
September 24, | December 25, | |||||||
Derivatives designated as hedging instruments: |
| Balance sheet location | 2022 | 2021 | ||||
Commodity forward contracts | Accrued expenses | $ | ( | $ | ( | |||
Foreign currency forward contracts |
| Prepaid expenses and other assets | |
| | |||
Foreign currency forward contracts |
| Accrued expenses | ( |
| ( | |||
Cross currency swap contracts |
| Prepaid expenses and other assets | |
| | |||
Cross currency swap contracts |
| Accrued expenses | ( |
| ||||
$ | | $ | ( | |||||
Gains (losses) on derivatives recognized in the condensed consolidated statements of earnings for the thirteen and thirty-nine weeks ended September 24, 2022 and September 25, 2021 are as follows:
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||||
Statements of earnings | September 24, | September 25, | September 24, | September 25, | ||||||||||
location | 2022 |
| 2021 |
| 2022 |
| 2021 | |||||||
Commodity forward contracts | Product cost of sales | $ | ( | $ | | $ | ( | $ | | |||||
Foreign currency forward contracts | Other income | ( |
| | ( |
| | |||||||
Interest rate hedge amortization | Interest expense | ( |
| ( | ( |
| ( | |||||||
Cross currency swap contracts | Interest expense | |
| | |
| | |||||||
$ | ( | $ | | $ | | $ | | |||||||
Cash Flow Hedges
During 2021, the Company entered into steel hot rolled coil (“HRC”) commodity forward contracts that qualify as a cash flow hedge of the variability in cash flows attributable to future steel purchases. The forward contracts had a notional amount of $
During the third quarter of 2022, the Company entered into natural gas commodity forward contracts that qualify as a cash flow hedge of the variability in cash flows attributable to future natural gas purchases. The forward contracts had a notional amount of $
20
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
During the third quarter of 2022, a subsidiary with a Euro functional currency entered into a foreign currency forward contract to mitigate foreign currency risk related to a large customer order denominated in U.S. dollars. The forward contract, which qualifies as a fair value hedge, matures in February 2023 and has a notional amount to sell $
Net Investment Hedges
In 2019, the Company entered into
The Company designated the initial full notional amount of the two CCS ($
During the third quarter of 2022, the Company partially settled the DKK CCS and received proceeds of $
Key terms of the remaining two CCS are as follows:
| Notional | Swapped | Set Settlement | ||||||||
Currency | Amount | Termination Date | Interest Rate | Amount | |||||||
Danish Krone | $ | | April 1, 2024 |
| DKK | ||||||
Euro | $ | | April 1, 2024 |
| € | ||||||
(7) BUSINESS SEGMENTS RELATED REVENUE INFORMATION
During the first quarter of 2022, the Company’s CODM changed the Company’s management structure and began to manage the business, allocate resources and evaluate performance based on the new structure. As a result, the Company has realigned to a
Both reportable segments are global in nature with a manager responsible for segment operational performance and the allocation of capital within the segment. Net corporate expense is net of certain service-related expenses that are allocated to business units generally on the basis of employee headcounts.
Reportable segments are as follows:
INFRASTRUCTURE: This segment consists of the manufacture and distribution of products and solutions to serve the infrastructure markets of utility, renewable energy, lighting, transportation, and telecommunications, and coatings services to preserve metal products.
AGRICULTURE: This segment consists of the manufacture of center pivot and linear irrigation equipment for agricultural markets, including parts and tubular products, and advanced technology solutions for precision agriculture.
21
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
The Company evaluates the performance of its reportable segments based upon operating income and invested capital. The Company does not allocate interest expense, non-operating income (expense), or income taxes to its reportable segments.
Summary by Business
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||
September 24, |
| September 25, |
| September 24, |
| September 25, | ||||||
2022 | 2021 | 2022 | 2021 | |||||||||
SALES: | ||||||||||||
Infrastructure | $ | | $ | | $ | | $ | | ||||
Agriculture |
| |
| |
| |
| | ||||
Total |
| |
| |
| |
| | ||||
INTERSEGMENT SALES: |
|
|
|
|
|
|
|
| ||||
Infrastructure |
| ( |
| ( |
| ( |
| ( | ||||
Agriculture |
| ( |
| ( |
| ( |
| ( | ||||
Total |
| ( |
| ( |
| ( |
| ( | ||||
NET SALES: |
|
|
|
|
|
|
|
| ||||
Infrastructure |
| |
| |
| |
| | ||||
Agriculture |
| |
| |
| |
| | ||||
Total | $ | | $ | | $ | | $ | | ||||
OPERATING INCOME: |
|
|
|
|
|
|
|
| ||||
Infrastructure | $ | | $ | | $ | | $ | | ||||
Agriculture |
| |
| |
| |
| | ||||
Corporate |
| ( |
| ( |
| ( |
| ( | ||||
Total | $ | | $ | | $ | | $ | | ||||
| Thirteen weeks ended September 24, 2022 | |||||||||||
Infrastructure |
| Agriculture |
| Intersegment Sales |
| Consolidated | ||||||
Geographical market: |
|
|
|
|
|
|
| |||||
North America | $ | | $ | | $ | ( | $ | | ||||
International |
| |
| |
| ( |
| | ||||
Total | $ | | $ | | $ | ( | $ | | ||||
Product line: |
|
|
|
|
|
|
|
| ||||
Transmission, Distribution and Substation | $ | | $ | — | $ | — | $ | | ||||
Lighting and Transportation |
| |
| — |
| — |
| | ||||
Coatings |
| |
| — |
| ( |
| | ||||
Telecommunications |
| |
| — |
| — |
| | ||||
Renewable Energy |
| |
| — |
| ( |
| | ||||
Irrigation Equipment and Parts, excluding Technology |
| — |
| |
| ( |
| | ||||
Technology Products and Services |
| — |
| |
| — |
| | ||||
Total | $ | | $ | | $ | ( | $ | | ||||
22
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
| Thirty-nine weeks ended September 24, 2022 | |||||||||||
Infrastructure |
| Agriculture |
| Intersegment Sales |
| Consolidated | ||||||
Geographical market: |
|
|
|
|
|
|
| |||||
North America | $ | | $ | | $ | ( | $ | | ||||
International |
| |
| |
| ( |
| | ||||
Total | $ | | $ | | $ | ( | $ | | ||||
Product line: |
|
|
|
|
|
|
|
| ||||
Transmission, Distribution and Substation | $ | | $ | | $ | | $ | | ||||
Lighting and Transportation |
| |
| |
| |
| | ||||
Coatings |
| |
| |
| ( |
| | ||||
Telecommunications |
| |
| |
| |
| | ||||
Renewable Energy |
| |
| |
| ( |
| | ||||
Irrigation Equipment and Parts, excluding Technology |
| |
| |
| ( |
| | ||||
Technology Products and Services |
| |
| |
| |
| | ||||
Total | $ | | $ | | $ | ( | $ | | ||||
| Thirteen weeks ended September 25, 2021 | |||||||||||
Infrastructure |
| Agriculture |
| Intersegment Sales |
| Consolidated | ||||||
Geographical market: |
|
|
|
|
|
|
| |||||
North America | $ | | $ | | $ | ( | $ | | ||||
International |
| |
| |
| |
| | ||||
Total | $ | | $ | | $ | ( | $ | | ||||
Product line: |
|
|
|
|
|
|
|
| ||||
Transmission, Distribution and Substation | $ | | $ | | $ | | $ | | ||||
Lighting and Transportation |
| |
| |
| |
| | ||||
Coatings |
| |
| |
| ( |
| | ||||
Telecommunications |
| |
| |
| |
| | ||||
Renewable Energy |
| |
| |
| |
| | ||||
Irrigation Equipment and Parts, excluding Technology |
| |
| |
| ( |
| | ||||
Technology Products and Services |
| |
| |
| |
| | ||||
Total | $ | | $ | | $ | ( | $ | | ||||
23
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
| Thirty-nine weeks ended September 25, 2021 | |||||||||||
Infrastructure |
| Agriculture |
| Intersegment Sales |
| Consolidated | ||||||
Geographical market: |
|
|
|
|
|
|
| |||||
North America | $ | | $ | | $ | ( | $ | | ||||
International |
| |
| |
| |
| | ||||
Total | $ | | $ | | $ | ( | $ | | ||||
Product line: |
|
|
|
|
|
|
|
| ||||
Transmission, Distribution and Substation | $ | | $ | | $ | | $ | | ||||
Lighting and Transportation |
| |
| |
| |
| | ||||
Coatings |
| |
| |
| ( |
| | ||||
Telecommunications |
| |
| |
| |
| | ||||
Renewable Energy |
| |
| |
| |
| | ||||
Irrigation Equipment and Parts, excluding Technology |
| |
| |
| ( |
| | ||||
Technology Products and Services |
| |
| |
| |
| | ||||
Total | $ | | $ | | $ | ( | $ | | ||||
A breakdown by segment of revenue recognized over time and at a point in time for the thirteen and thirty-nine weeks ended September 24, 2022 and September 25, 2021 is as follows:
Point in Time | Over Time | Total | |||||||
Thirteen | Thirteen | Thirteen | |||||||
weeks ended | weeks ended | weeks ended | |||||||
| September 24, 2022 |
| September 24, 2022 |
| September 24, 2022 | ||||
Infrastructure | $ | | $ | | $ | | |||
Agriculture |
| | |
| | ||||
Total | $ | | $ | | $ | | |||
| Point in Time |
| Over Time |
| Total | ||||
Thirty-nine | Thirty-nine | Thirty-nine | |||||||
weeks ended | weeks ended | weeks ended | |||||||
September 24, 2022 | September 24, 2022 | September 24, 2022 | |||||||
Infrastructure | $ | | $ | | $ | | |||
Agriculture |
| | |
| | ||||
Total | $ | | $ | | $ | | |||
| Point in Time |
| Over Time |
| Total | ||||
Thirteen | Thirteen | Thirteen | |||||||
weeks ended | weeks ended | weeks ended | |||||||
September 25, 2021 | September 25, 2021 | September 25, 2021 | |||||||
Infrastructure | $ | | $ | | $ | | |||
Agriculture |
| | |
| | ||||
Total | $ | | $ | | $ | | |||
24
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
| Point in Time |
| Over Time |
| Total | ||||
Thirty-nine | Thirty-nine | Thirty-nine | |||||||
weeks ended | weeks ended | weeks ended | |||||||
September 25, 2021 | September 25, 2021 | September 25, 2021 | |||||||
Infrastructure | $ | | $ | | $ | | |||
Agriculture |
| | |
| | ||||
Total | $ | | $ | | $ | | |||
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions that management has made in light of experience in the industries in which the Company operates, as well as management’s perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances. These statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond the Company’s control) and assumptions. Management believes that these forward-looking statements are based on reasonable assumptions. Many factors could affect the Company’s actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. These factors include, among other things, the continuing and developing effects of the COVID-19 pandemic 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, geopolitical risks, 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 25, 2021. Segment net sales in the table below and elsewhere are presented net of intersegment sales. See Note 7 of our condensed consolidated financial statements for additional information on segment realignment, segment sales, and intersegment sales.
26
Results of Operations (Dollars in millions, except per share amounts)
Thirteen weeks ended |
| Thirty-nine weeks ended |
| |||||||||||||||
September 24, 2022 |
| September 25, 2021 |
| % Incr. (Decr.) |
| September 24, 2022 |
| September 25, 2021 |
| % Incr. (Decr.) |
| |||||||
Consolidated | ||||||||||||||||||
Net sales | $ | 1,097.4 | $ | 868.8 |
| 26.3 | % | $ | 3,213.7 | $ | 2,538.3 |
| 26.6 | % | ||||
Gross profit | 285.5 |
| 227.4 |
| 25.5 | % |
| 827.3 |
| 661.6 |
| 25.0 | % | |||||
as a percent of sales | 26.0 | % |
| 26.2 | % |
|
| 25.7 | % |
| 26.1 | % |
| |||||
SGA expense | 175.5 |
| 151.2 |
| 16.1 | % |
| 503.7 | $ | 425.6 |
| 18.4 | % | |||||
as a percent of sales | 16.0 | % |
| 17.4 | % |
|
| 15.7 | % |
| 16.8 | % |
| |||||
Operating income | 110.0 |
| 76.2 |
| 44.4 | % |
| 323.5 |
| 236.0 |
| 37.1 | % | |||||
as a percent of sales | 10.0 | % |
| 8.8 | % |
|
| 10.1 | % |
| 9.3 | % |
| |||||
Net interest expense | 11.1 |
| 10.6 |
| 4.7 | % |
| 33.3 |
| 30.6 |
| 8.8 | % | |||||
Effective tax rate | 27.6 | % |
| 23.4 | % |
|
| 27.3 | % |
| 21.3 | % |
| |||||
Net earnings | $ | 72.1 | $ | 51.7 |
| 39.5 | % | $ | 210.5 | $ | 168.8 |
| 24.7 | % | ||||
Diluted earnings per share | $ | 3.34 | $ | 2.40 |
| 39.2 | % | $ | 9.77 | $ | 7.86 |
| 24.3 | % | ||||
Infrastructure |
|
|
|
|
|
|
|
|
|
| ||||||||
Net sales | $ | 773.2 | $ | 632.4 |
| 22.3 | % | $ | 2,211.6 | $ | 1,793.7 |
| 23.3 | % | ||||
Gross profit |
| 190.9 |
| 156.3 |
| 22.1 | % |
| 539.8 |
| 440.0 |
| 22.7 | % | ||||
SGA expense |
| 97.3 |
| 84.9 |
| 14.6 | % |
| 284.1 |
| 252.6 |
| 12.5 | % | ||||
Operating income |
| 93.6 |
| 71.4 |
| 31.1 | % |
| 255.7 |
| 187.4 |
| 36.4 | % | ||||
Agriculture |
|
|
|
|
|
|
|
| ||||||||||
Net sales | $ | 324.1 | $ | 236.4 |
| 37.1 | % | $ | 1,002.1 | $ | 744.6 |
| 34.6 | % | ||||
Gross profit |
| 94.6 |
| 70.7 |
| 33.8 | % |
| 287.4 |
| 220.9 |
| 30.1 | % | ||||
SGA expense |
| 51.3 |
| 42.9 |
| 19.6 | % |
| 148.6 |
| 112.4 |
| 32.2 | % | ||||
Operating income |
| 43.3 |
| 27.8 |
| 55.8 | % |
| 138.8 |
| 108.5 |
| 27.9 | % | ||||
Net corporate expense |
|
|
|
|
|
|
|
| ||||||||||
Gross profit | $ | — | $ | 0.3 |
| NM | $ | — | $ | 0.6 |
| NM | ||||||
SGA |
| 26.9 |
| 23.3 |
| 15.5 | % |
| 71.0 |
| 60.5 |
| 17.4 | % | ||||
Operating loss |
| (26.9) |
| (23.0) |
| 17.0 | % |
| (71.0) |
| (59.9) |
| 18.5 | % | ||||
27
Overview, Including Items Impacting Comparability
On a consolidated basis, net sales were higher in the third quarter and first three quarters of 2022, as compared to the same periods of 2021, with higher sales in both reporting segments.
Average steel prices for both hot rolled coil and plate have been very volatile over the past two years, especially in North America. While hot rolled coil steel recently decreased in price, the steel consumed during fiscal 2022 within cost of sales was at a much higher average cost than the steel consumed during fiscal 2021. This resulted in higher net sales and cost of sales during the third quarter and first nine months of 2022, when compared to the same period of 2021, as customer pricing mechanisms and product selling price practices allowed for the recovery of that inflation for both reportable segments.
The Company acquired the following businesses:
| ● | ConcealFab in the second quarter of 2022, a telecommunications technology company that offers 5G infrastructure and passive intermodulation mitigation solutions (Infrastructure). |
| ● | PivoTrac in the second quarter of 2021, an agricultural technology company that offers solutions focused on remote monitoring of center pivot irrigation machines (Agriculture). |
| ● | Prospera in the second quarter of 2021, a privately-held Israeli-based artificial intelligence company, focused on machine learning and computer vision in agriculture (Agriculture). |
There were no items of note impacting comparability of results from net earnings in the third quarter of 2022. Items of note impacting comparability of results from net earnings in the first three quarters of 2022 included amortization of identified intangible assets of $3.6 million ($2.4 million after-tax) and stock-based compensation expense of $5.0 million ($4.6 million after-tax) for the employees from the Prospera subsidiary. These items were recognized within SGA for the Agriculture segment. These items were $1.6 million ($1.3 million after-tax) and $2.5 million ($1.8 million after-tax), respectively, for the third quarter of 2022, and $1.9 million ($1.5 million after-tax) and $2.3 million ($ 2.1 million after-tax), respectively, for the third quarter of 2021.
There were no items of note impacting comparability of results from net earnings in the third quarter of 2021. Items of note impacting comparability of results from net earnings in the first three quarters of 2021 included:
| ● | charges of $5.5 million ($4.4 million after-tax) related to a write-off of a receivable following arbitration, |
| ● | charges of $1.6 million ($1.3 million after-tax) related to restructuring activities, and |
| ● | charges of $1.1 million ($0.8 million after-tax) related to acquisition costs. |
Macroeconomic Impacts on Financial Results and Liquidity
We continue to monitor several macroeconomic and geopolitical trends, that impacted our business, including inflationary cost pressures, supply chain disruptions, the strengthened U.S. dollar, the on-going Russia-Ukraine conflict, changing conditions from the COVID-19 pandemic, and labor shortages.
The ultimate magnitude of the COVID-19 pandemic, including the extent of its impact on the Company’s financial and operational results 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.
Change in Reportable Segments
On December 26, 2021, the Company’s CODM began to manage the business, allocate resources and evaluate performance based on changes made to the Company’s management structure. As a result, the Company has realigned its reportable segment structure. The Company reorganized from a four segment structure previously organized by product category (Utility Structures, Engineered Support Structures, Coatings, and Irrigation) to a two segment reporting structure
28
organized by market dynamics (Infrastructure and Agriculture). All prior period information has been recast to reflect this change in reportable segments. See Note 7 to our Condensed Consolidated Financial Statements for additional information.
Backlog
The backlog of unshipped orders at September 24, 2022 was approximately $2.0 billion compared with approximately $1.6 billion at December 25, 2021. The increase is primarily attributed to the receipt of a large purchase order of approximately $200 million for a large project within our renewable energy product line and $135 million for a large project within our transmission, distribution, and substation product line. Both of these projects are within the Infrastructure reporting segment. We expect approximately $1.8 billion of the backlog to be fulfilled within the subsequent 12 months.
Currency Translation
In the third quarter and first three quarters of 2022, we realized an increase in operating income, as compared with 2021, despite negative currency translation effects. The breakdown of this effect by segment was as follows:
| Total |
| Infrastructure |
| Agriculture |
| Corporate | |||||
Third quarter | $ | (1.9) | $ | (1.5) | $ | (0.5) | $ | 0.1 | ||||
Year-to-date | $ | (1.8) | $ | (4.0) | $ | 1.9 | $ | 0.3 | ||||
Gross Profit, SGA, and Operating Income
At a consolidated level, gross profit as a percent of sales was relatively flat in the third quarter of 2022 and decreased slightly in the first three quarters of 2022, as compared with the same periods in 2021, but the amount of gross profit increased due to the higher average selling prices across all product lines more than offsetting higher costs of goods sold across the Company. Amounts of gross profit increased for both reportable segments.
The increase in the third quarter of 2022 SGA expense over the same period of 2021 was due to higher incentives attributed to improved financial results, salary merit increases, and higher travel costs. The increase in the first three quarters of 2022 SGA expense over the same period of 2021 was due to the incremental SGA from the May 2021 acquisition of Prospera (including intangible asset amortization, stock-based compensation, and research and development costs), higher incentives attributed to improved financial results, salary merit increases, and higher travel costs.
The increase in consolidated operating income in the third quarter and first three quarters of 2022, as compared to the same periods of 2021, is primarily due to the increase in average selling prices more than offsetting higher costs of goods sold. This was partially offset by the increase in SGA year over year.
Net Interest Expense
Interest expense increased in the third quarter and first three quarters of 2022, as compared to the same periods in 2021, due to borrowing on the revolving line of credit.
Other Income/Expenses (including Gain (loss) on Investments - Unrealized)
The change in other income/expenses in the third quarter of 2022, as compared to 2021, was primarily due to a lower pension benefit of $1.3 million and the change in the valuation of deferred compensation assets, shown as Gain (loss) on investments - unrealized on the condensed consolidated statements of earnings, which resulted in lower other income of $1.4 million. The change in other income/expenses in the first three quarters of 2022, as compared to 2021, was primarily due to a lower pension benefit of $3.5 million and the change in the valuation of deferred compensation assets which resulted in lower other income of $6.0 million. The change related to deferred compensation assets is offset by an opposite change of the same amount in SGA expense.
Income Tax Expense
Our effective income tax rate in the third quarter and first three quarters of 2022 was 27.6% and 27.3% compared to 23.4% and 21.3% in the third quarter and first three quarters of 2021. The increase in the effective tax rate was primarily due to a change in geographical earnings and the finalization of U.S. tax regulations related to foreign tax credits during 2022. In
29
addition, there was an incremental tax benefit in 2021 driven by a change in the United Kingdom tax rate which did not recur in 2022.
Earnings Attributable to Noncontrolling Interests
Earnings attributable to noncontrolling interests were higher in the third quarter and first three quarters of 2022 as compared to 2021 due to higher net earnings of the subsidiaries Valmont does not own 100%.
Cash Flows from Operations
Our cash flows provided by operations were $183.7 million in the first three quarters of fiscal 2022, as compared with $61.8 million provided by operations in the first three quarters of 2021. The increase in operating cash flows in the first three quarters of 2022, as compared with 2021, was primarily the result of the increase in net earnings and a smaller increase in working capital levels, partially offset by a significant increase in the contribution to the defined benefit pension plan of approximately $17 million.
Infrastructure segment
Thirteen weeks ended | ||||||||||||
Dollar |
| |||||||||||
Infrastructure |
| Q3 2022 |
| Q3 2021 |
| Change |
| % Change | ||||
Sales, gross of intercompany eliminations: |
|
|
|
|
|
|
| |||||
Transmission, Distribution and Substation | 304.8 | 239.6 |
| 65.2 |
| 27.2 | % | |||||
Lighting Transportation | 241.6 | 218.0 |
| 23.6 |
| 10.8 | % | |||||
Coatings | 92.0 | 76.8 |
| 15.2 |
| 19.8 | % | |||||
Telecommunications | 92.8 | 63.1 |
| 29.7 |
| 47.1 | % | |||||
Renewable Energy | 47.2 | 36.9 |
| 10.3 |
| 27.9 | % | |||||
Total | $ | 778.4 | $ | 634.4 | $ | 144.0 |
| 22.7 | % | |||
Operating Income | $ | 93.6 | $ | 71.4 | $ | 22.2 |
| 31.1 | % | |||
Thirty-nine weeks ended | ||||||||||||
Dollar |
| |||||||||||
Infrastructure |
| Q3 2022 |
| Q3 2021 |
| Change |
| % Change | ||||
Sales, gross of intercompany eliminations: |
|
|
|
|
|
|
| |||||
Transmission, Distribution and Substation | 882.2 | 668.5 |
| 213.7 |
| 32.0 | % | |||||
Lighting Transportation | 701.0 | 609.7 |
| 91.3 |
| 15.0 | % | |||||
Coatings | 264.3 | 231.9 |
| 32.4 |
| 14.0 | % | |||||
Telecommunications | 232.8 | 162.8 |
| 70.0 |
| 43.0 | % | |||||
Renewable Energy | 143.8 | 128.6 |
| 15.2 |
| 11.8 | % | |||||
Total | $ | 2,224.1 | $ | 1,801.5 | $ | 422.6 |
| 23.5 | % | |||
Operating Income | $ | 255.7 | $ | 187.4 | $ | 68.3 |
| 36.4 | % | |||
Net sales in the third quarter and first three quarters of 2022, as compared to 2021, increased for this segment across all of the product lines primarily due to higher average selling prices partially offset by $17.6 million in third quarter of 2022 and $40.8 million in the first three quarters of 2022 of unfavorable foreign currency translation effects. From a geography perspective, the increase in sales within North America was much higher than within international markets. The lower reported international sales in 2022, versus 2021, is partially attributed to currency translation effects (appreciation of the U.S. dollar).
Transmission, distribution, and substation sales increased in the third quarter and first three quarters of 2022 as compared with 2021, primarily due to substantially higher average selling prices. This increase in average selling prices is due to a number of our sales contracts in North America containing mechanisms that tie the sales price to published steel
30
index pricing at the time our customer issues their purchase order. Sales volumes increased modestly in the third quarter and first three quarters of 2022, as compared to 2021.
Lighting and transportation sales increased during the third quarter and first three quarters of 2022, as compared to the same period in fiscal 2021, due to meaningfully higher average selling prices, primarily in North America, from the continuation of realized pricing actions. Sales volumes increased in North America for both the third quarter and first three quarters of 2022 while volumes decreased within international markets during the first three quarters of 2022. Reported international sales also decreased in the third quarter and first three quarters of 2022 due to unfavorable foreign currency translation effects.
Telecommunication sales increased in the third quarter of 2022, as compared with the same periods in 2021, due primarily to higher average selling prices and sales generated by the recent acquisition. Sales volumes increased in the first three quarters of 2022, as compared with the same period of 2021 as 5G deployments continue to increase market opportunities across all regions. Average selling prices were higher in the first three quarters of 2022, as compared to 2021.
Coatings sales increased in the third quarter and first three quarters of 2022, as compared to the same periods in 2021, due to higher average selling prices. Coating sales also increased in the third quarter of 2022, as compared to 2021, due to improved sales volume. Renewable energy sales increased in the third quarter and first three quarters of 2022, as compared to 2021, due to improved sales volumes partially offset by unfavorable foreign currency translation effects.
Gross profit was higher in the third quarter and first three quarters of 2022, as compared to 2021. The customer contractual pricing mechanisms and selling price management led to a large increase in average selling prices while maintaining gross profit margins in a highly inflationary environment. The increase in operating income for the third quarter and first three quarters of 2022, as compared with 2021, is due to a 22% increase in gross profit versus an approximately 15% increase in SGA. The operating income margin increased to 12% in the third quarter of 2022, from 11% in third quarter of 2021, due to the higher average selling prices.
Agriculture segment
Thirteen weeks ended | ||||||||||||
|
|
| Dollar |
|
| |||||||
Agriculture |
| Q3 2022 |
| Q3 2021 |
| Change |
| % Change | ||||
Sales, gross of intercompany eliminations: |
|
|
|
|
|
|
| |||||
North America | 178.6 | 116.3 |
| 62.3 |
| 53.6 | % | |||||
International | 148.6 | 124.0 |
| 24.6 |
| 19.8 | % | |||||
Total | $ | 327.2 | $ | 240.3 | $ | 86.9 |
| 36.2 | % | |||
Operating Income | $ | 43.3 | $ | 27.7 | $ | 15.6 |
| 56.3 | % | |||
Thirty-nine weeks ended | ||||||||||||
Dollar |
| |||||||||||
Agriculture |
| Q3 2022 |
| Q3 2021 |
| Change |
| % Change | ||||
Sales, gross of intercompany eliminations: |
|
|
|
|
|
|
| |||||
North America | 564.4 | 395.1 |
| 169.3 |
| 42.8 | % | |||||
International | 447.2 | 356.9 |
| 90.3 |
| 25.3 | % | |||||
Total | $ | 1,011.6 | $ | 752.0 | $ | 259.6 |
| 34.5 | % | |||
Operating Income | $ | 138.8 | $ | 108.5 | $ | 30.3 |
| 27.9 | % | |||
The increase in Agriculture segment net sales in the third quarter and first three quarters of 2022, as compared to 2021, was primarily due to much higher average selling prices of irrigation equipment globally. In North America, higher sales volumes for irrigation systems and parts in 2022, as compared to 2021, were driven by improved agricultural commodity prices. The International irrigation product line experienced a slightly lower sales volume for the third quarter and first three quarters of 2022 as compared to 2021. Overall lower project sales to Egypt for the third quarter and first three quarters of 2022 more than offset the sales volume increases in most foreign markets. Partially offsetting that decrease was a sales volume increase in the third quarter of 2022 versus 2021 due to robust demand for irrigation equipment and agriculture
31
solar products in Brazil. Sales of technology-related products increased as growers continued adoption of technology to reduce costs and enhance profitability.
The increase in gross profit in 2022, as compared to 2021, was primarily attributed to the meaningfully higher average selling prices which more than offset the amount of inflation within cost of goods sold, as well as increased volume in North America. SGA was higher in the third quarter of 2022, as compared to 2021, primarily due to higher compensation and travel costs, as well as increased research and development spending. SGA was higher in the first three quarters of 2022, as compared to 2021, due to higher overall compensation cost and the SGA from the Prospera subsidiary acquired in the third quarter of 2021, including the amortization of identified intangible assets, research and development costs, and stock-based compensation expense. Operating income for the segment was higher in 2022, versus 2021, due to an increase in gross profit, attributed primarily to the higher average selling prices, partially offset by the higher SGA.
Net corporate expense
Corporate SGA expense was higher in the third quarter and first three quarters of 2022, as compared to the same periods in 2021, primarily due to higher incentive accruals related to business performance, an increase in rent expense, and higher compensation expense due to salary merit increases. These increases were partially offset by $1.4 million and $6.0 million of lower expense from the change in valuation of the deferred compensation plan assets in the third quarter and first three quarters of 2022, respectively.
Liquidity and Capital Resources
Capital Allocation Philosophy
We have historically funded our growth, capital spending and acquisitions through a combination of operating cash flows and debt financing. The following are the capital allocation/priorities for cash generated:
| ● | working capital and capital expenditure investments necessary for future sales growth; |
| ● | dividends on common stock in the range of 20% of the prior year’s fully diluted net earnings; |
| ● | acquisitions; and |
| ● | return of capital to shareholders through share repurchases. |
We also announced our intention to manage our capital structure to maintain our investment grade debt rating. Our most recent ratings were Baa3 by Moody’s Investors Services, Inc., BBB- by Fitch Ratings, and BBB+ by Standard and Poor’s Rating Services. We would be willing to allow our debt rating to fall to BBB- to finance a special acquisition or other opportunity. We expect to maintain a ratio of debt to invested capital which will support our current investment grade debt rating.
The Board of Directors in May 2014 authorized the purchase of up to $500 million of the Company’s outstanding common stock from time to time over twelve months at prevailing market prices, through open market or privately-negotiated transactions. The Board of Directors authorized an additional $250 million of share purchases, without an expiration date in both February 2015 and again in October 2018. The purchases will be funded from available working capital and short-term borrowings and will be made subject to market and economic conditions. We are not obligated to make any repurchases and may discontinue the program at any time. As of September 24, 2022, we have acquired approximately 6.6 million shares for approximately $898.6 million under this share repurchase program.
On February 22, 2022, the Company announced that the Board of Directors approved an increase to the quarterly cash dividend on the common stock to $0.55 per share, or a rate of $2.20 per share on an annualized basis, an increase of 10% from the prior quarterly cash dividend of $0.50 per share.
32
Sources of Financing
Our debt financing at September 24, 2022 consisted primarily of long‑term debt and borrowings on our revolving credit facility. Our long‑term debt as of September 24, 2022, principally consisted of:
| ● | $450 million face value ($437.1 million carrying value) of senior unsecured notes that bear interest at 5.00% per annum and are due in October 2044. |
| ● | $305 million face value ($297.7 million carrying value) of senior unsecured notes that bear interest at 5.25% per annum and are due in October 2054. |
We are allowed to repurchase the notes subject to the payment of a make-whole premium. Both tranches of these notes are guaranteed by certain of our subsidiaries.
Our revolving credit facility with JP Morgan Chase Bank, N.A., as Administrative Agent, and the other lenders party thereto, has a maturity date of October 18, 2026.
The revolving credit facility provides for $800 million of committed unsecured revolving credit loans with available borrowings thereunder to $400 million in foreign currencies. We may increase the credit facility by up to an additional $300 million at any time, subject to lenders increasing the amount of their commitments. The Company and our wholly-owned subsidiaries Valmont Industries Holland B.V. and Valmont Group Pty. Ltd., are authorized borrowers under the credit facility. The obligations arising under the revolving credit facility are guaranteed by the Company and its wholly-owned subsidiaries Valmont Telecommunications, Inc., Valmont Coatings, Inc., Valmont Newmark, Inc., and Valmont Queensland Pty. Ltd.
The interest rate on our borrowings will be, at our option, either:
| (a) | term SOFR (based on a 1, 3 or 6 month interest period, as selected by the Company) plus a 10 basis point adjustment plus a spread of 100 to 162.5 basis points, depending on the credit rating of the Company’s senior, unsecured, long-term debt published by Standard Poor’s Rating Services and Moody’s Investors Service, Inc.; |
| (b) | the higher of |
| ● | the prime lending rate, |
| ● | the overnight bank rate plus 50 basis points, and |
| ● | term SOFR (based on a 1 month interest period) plus 100 basis points, |
plus, in each case, 0 to 62.5 basis points, depending on the credit rating of our senior, unsecured, long-term debt published by Standard Poor’s Rating Services and Moody’s Investors Service, Inc.; or
| (c) | daily simple SOFR plus a 10 basis point adjustment plus a spread of 100 to 162.5 basis points, depending on the credit rating of the Company’s senior, unsecured, long-term debt published by Standard Poor’s Rating Services and Mood’s Investors Service, Inc. |
A commitment fee is also required under the revolving credit facility which accrues at 10 to 25 basis points, depending on the credit rating of our senior, unsecured long-term debt published by Standard and Poor’s Rating Services and Moody’s Investor Services, Inc., on the average daily unused portion of the commitments under the revolving credit agreement.
At September 24, 2022 and December 25, 2021, we had outstanding borrowings of $205.6 million and $218.9 million, respectively, under the revolving credit facility. The revolving credit facility has a maturity date of October 18, 2026 and contains a financial covenant that may limit our additional borrowing capability under the agreement. At September 24, 2022, we had the ability to borrow $594.4 million under this facility, after consideration of standby letters of credit of $0.2 million associated with certain insurance obligations. We also maintain certain short‑term bank lines of credit totaling $130.1 million; $125.1 million of which was unused at September 24, 2022.
33
Our senior, unsecured notes and revolving credit agreement each contain cross-default provisions which permit the acceleration of our indebtedness to them if we default on other indebtedness that results in, or permits, the acceleration of such other indebtedness.
The revolving credit facility requires maintenance of a financial leverage ratio, measured as of the last day of each of our fiscal quarters, of 3.50:1 or less. The leverage ratio is the ratio of: (a) interest-bearing debt minus unrestricted cash in excess of $50 million (but not exceeding $500 million); to (b) adjusted EBITDA. The debt agreements provide a modification of the definition of “EBITDA” to add-back any non-cash stock-based compensation in any trailing twelve month period and allow for an adjustment to EBITDA, subject to certain limitations, for non-cash charges or gains that are non-recurring in nature. The leverage ratio is permitted to increase from 3.50:1 to 3:75:1 for the four consecutive fiscal quarters after certain material acquisitions.
The amended and restated revolving credit agreement also contains customary affirmative and negative covenants or credit facilities of this type, including, among others, limitations on us and our subsidiaries with respect to indebtedness, liens, mergers and acquisitions, investments, dispositions of assets, restricted payments, transactions with affiliates and prepayments of indebtedness. The amended and restated revolving credit agreement also provides for acceleration of the obligations thereunder and exercise of other enforcement remedies upon the occurrence of customary events of default (subject to customary grace periods, as applicable).
At September 24, 2022, we were in compliance with all covenants related to these debt agreements.
The calculation of Adjusted EBITDA-last four quarters and the Leverage ratio are presented in the tables below in Selected Financial Measures.
Cash Uses
Our principal cash requirements include working capital, capital expenditures, payments of principal and interest on our debt, payments of taxes, contributions to pension plan, and, if market conditions warrant, occasional investments in, or acquisitions of, business ventures. In addition, we regularly evaluate our ability to pay dividends or repurchase stock, all consistent with the terms of our debt agreements.
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 cash balances of $166.2 million at September 24, 2022, approximately $136.6 million is held in our non-U.S. subsidiaries. If we distributed our foreign cash balances certain taxes would be applicable. At September 24, 2022, we have a liability for foreign withholding taxes and U.S. state income taxes of $3.8 million and $0.7 million, respectively.
Cash Flows
The following table includes a summary of our cash flow information for the thirty-nine weeks ended September 24, 2022 and September 25, 2021:
Dollars in thousands |
| 2022 |
| 2021 | ||
Cash flow data: | ||||||
Net cash flows from operating activities | $ | 183,726 | $ | 61,829 | ||
Net cash flows from investing activities |
| (106,446) |
| (389,463) | ||
Net cash flows from financing activities |
| (79,143) |
| 101,016 | ||
Working Capital and Operating Cash Flows- Net working capital was $981.9 million at September 24, 2022, as compared to $946.9 million at December 25, 2021. The increase in net working capital in 2022 is attributed to an increase in inventory due to higher average steel costs, an increase in accounts receivables, partially offset by an increase in accounts payable. Cash flow provided by operations was $183.7 million in the first three quarters of 2022, as compared with $61.8 million in the first three quarters of 2021. The increase in operating cash flows in the first three quarters of 2022, as compared
34
with 2021, was primarily the result of the increase in net earnings partially offset by a significant increase in the contribution to the defined benefit pension plan.
Investing Cash Flows- Cash used in investing activities totaled $106.4 million in the first three quarters of 2022, compared to $389.5 million in the first three quarters of 2021. Investing activities in 2022 primarily included capital spending of $67.1 million and the acquisition of ConcealFab for $39.3 million. For the first three quarters of 2021, investing activities primarily included capital spending of $80.5 million and the acquisition of two businesses for $312.5 million. We expect our capital expenditures to be in the range of $95 million to $105 million for fiscal 2022.
Financing Cash Flows- Our total interest-bearing debt was $942.2 million at September 24, 2022 and $965.4 million at December 25, 2021. Cash used in financing activities totaled $79.1 million in 2022, compared to cash provided of $101.0 million in 2021.
The financing cash used in the first three quarters of 2022 was primarily the result of borrowings on the revolving credit agreement and short-term notes of $239.6 million; offset by principal payments on our long-term debt and short-term borrowings of $263.5 million, and dividends paid of $34.1 million, the purchase of treasury shares of $20.5 million, and the purchase of non-controlling interests of $7.3 million. The financing cash provided for the first three quarters of 2021 was primarily due to borrowings on the revolving credit agreement and short-term borrowings of $239.9 million; somewhat offset by the principal payments on our long-term debt and short-term borrowings of $89.8 million, dividends paid of $30.8 million, and the purchase of treasury shares of $24.1 million
Guarantor Summarized Financial Information
We are providing the following information in compliance with Rule 3-10 and Rule 13-01 of Regulation S-X with respect to our two tranches of senior unsecured notes. 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 24, 2022 and September 25, 2021
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||
Dollars in thousands |
| September 24, 2022 |
| September 25, 2021 |
| September 24, 2022 |
| September 25, 2021 | ||||
Net sales | $ | 716,429 | $ | 520,188 | $ | 2,112,678 | $ | 1,551,701 | ||||
Gross Profit |
| 165,323 |
| 143,724 |
| 510,591 |
| 426,167 | ||||
Operating income |
| 59,496 |
| 49,166 |
| 201,633 |
| 159,994 | ||||
Net earnings |
| 35,791 |
| 26,125 |
| 124,128 |
| 92,200 | ||||
Net earnings attributable to Valmont Industries, Inc. |
| 33,708 |
| 26,098 |
| 124,233 |
| 92,090 | ||||
Supplemental Combined Parent and Guarantors Financial Information
September 24, 2022 and December 25, 2021
Dollars in thousands |
| September 24, 2022 |
| December 25, 2021 | ||
Current assets | $ | 803,504 | $ | 801,797 | ||
Noncurrent assets |
| 904,481 |
| 807,294 | ||
Current liabilities |
| 470,927 |
| 383,394 | ||
Noncurrent liabilities |
| 1,226,321 |
| 1,305,756 | ||
Noncontrolling interest in consolidated subsidiaries |
| 1,738 |
| 1,844 | ||
35
Included in noncurrent assets is a due from non-guarantor subsidiaries receivable of $185,795 and $93,613 at September 24, 2022 and December 25, 2021. Included in noncurrent liabilities is a due to non-guarantor subsidiaries payable of $169,899 and $236,577 at September 24, 2022 and December 25, 2021.
Selected Financial Measures
We are including the following financial measures for the company.
Adjusted EBITDA. Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) is one of our key financial ratios in that it is the basis for determining our maximum borrowing capacity at any one time. Our bank credit agreements contain a financial covenant that our total interest‑bearing debt not exceed 3.50x Adjusted EBITDA (or 3.75x Adjusted EBITDA after certain material acquisitions) for the most recent four quarters. These bank credit agreements allow us to add estimated EBITDA from acquired businesses for periods we did not own the acquired businesses. The bank credit agreements also provide for an adjustment to EBITDA, subject to certain specified limitations, for non-cash charges or gains that are non-recurring in nature. If this financial covenant is violated, we may incur additional financing costs or be required to pay the debt before its maturity date. Adjusted EBITDA is non-GAAP measure and, accordingly, should not be considered in isolation or as a substitute for net earnings, cash flows from operations or other income or cash flow data prepared in accordance with GAAP or as a measure of our operating performance or liquidity. The calculation of Adjusted EBITDA-last four quarters (September 25, 2021 to September 24, 2022) is as follows:
Dollars in thousands |
| Last four quarters Q3 2022 | |
Net cash flows from operations | $ | 187,835 | |
Interest expense |
| 45,423 | |
Income tax expense |
| 94,910 | |
Impairment of long-lived assets |
| (27,911) | |
Deferred income tax (expense) benefit |
| (5,326) | |
Noncontrolling interest |
| (3,470) | |
Pension plan benefit |
| 11,113 | |
Contribution to pension plan |
| 18,109 | |
Changes in assets and liabilities, net of acquisitions |
| 198,063 | |
Other |
| (1,875) | |
EBITDA | $ | 516,871 | |
Impairment of long-lived assets |
| 27,911 | |
Adjusted EBITDA | $ | 544,782 | |
| Last four quarters Q3 2022 | ||
Net earnings attributable to Valmont Industries, Inc. | $ | 237,387 | |
Interest expense |
| 45,423 | |
Income tax expense |
| 95,623 | |
Stock based compensation |
| 40,823 | |
Depreciation and amortization expense |
| 97,615 | |
EBITDA | $ | 516,871 | |
Impairment of long-lived assets |
| 27,911 | |
Adjusted EBITDA | $ | 544,782 | |
EBITDA and Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. In October 2021, our revolving credit facility was amended to allow the Company to add-back any non-cash stock-based compensation in any trailing twelve month period and allow for an adjustment to EBITDA, subject to certain limitations, for non-cash charges or gains that are non-recurring in nature.
Leverage ratio. Leverage ratio is calculated as the sum of interest-bearing debt minus unrestricted cash in excess of $50 million (but not exceeding $500 million); divided by Adjusted EBITDA. The leverage ratio is one of the key financial ratios in the covenants under our major debt agreements and the ratio cannot exceed 3.5 (or 3.75x after certain material acquisitions) for any reporting period (four quarters). If those covenants are violated, we may incur additional financing costs or be required to pay the debt before its maturity date. Leverage ratio is a non-GAAP measure and, accordingly, should not be considered in isolation or as a substitute for net earnings, cash flows from operations or other income or cash flow data prepared in accordance with GAAP or as a measure of our operating performance or liquidity.
36
The calculation of this ratio at September 24, 2022 is as follows:
Dollars in thousands |
| 2022 | |
Interest-bearing debt | $ | 942,170 | |
Less: Cash and cash equivalents in excess of $50 million |
| 116,221 | |
Net indebtedness | $ | 825,949 | |
Adjusted EBITDA |
| 544,782 | |
Leverage Ratio |
| 1.52 | |
Leverage ratio, as presented, may not be comparable to similarly titled measures of other companies.
Financial Obligations and Financial Commitments
There have been no material changes to our financial obligations and financial commitments as described on page 29 in our Form 10-K for the fiscal year ended December 25, 2021.
Critical Accounting Policies
There were no changes in our critical accounting policies as described on pages 34-37 in our Form 10-K for the fiscal year ended December 25, 2021 during the nine months ended September 24, 2022.
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 24, 2022. For additional information, refer to the section Risk Management in our Form 10-K for the fiscal year ended December 25, 2021.
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 25, 2021.
37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Total Number of | ||||||||||
Shares Purchased | Approximate Dollar | |||||||||
as Part of | Value of Maximum | |||||||||
Total Number | Publicly | Number of | ||||||||
of | Announced Plans | Shares that may yet | ||||||||
Shares | Average Price | or | be Purchased under the | |||||||
Period |
| Purchased |
| paid per share |
| Programs |
| Program (1) | ||
June 26, 2022 to July 23, 2022 |
| — | $ | — |
| — | $ | 112,086,000 | ||
July 24, 2022 to August 27, 2022 |
| 38,606 |
| 277.54 |
| 38,606 |
| 101,371,000 | ||
August 28, 2022 to September 24, 2022 |
| — |
| — |
| — |
| 101,371,000 | ||
Total |
| 38,606 | $ | 277.54 |
| 38,606 | $ | 101,371,000 | ||
| (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 bringing total authorization to $1.0 billion. As of September 24, 2022, we have acquired 6,552,816 shares for approximately $898.6 million under this share repurchase program. |
38
Item 6. Exhibits
| (a) | Exhibits |
Exhibit No. |
| Description |
22.1 | ||
31.1* | ||
31.2* | ||
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 24, 2022, 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 |
39
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/ AVNER M. APPLBAUM | |
Avner M. Applbaum | |
Executive Vice President and Chief Financial Officer | |
Dated the 2nd day of November, 2022
40