Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.99M
2: EX-3.1 Articles of Incorporation/Organization or Bylaws HTML 72K
3: EX-31.1 Certification -- §302 - SOA'02 HTML 22K
4: EX-31.2 Certification -- §302 - SOA'02 HTML 22K
5: EX-32.1 Certification -- §906 - SOA'02 HTML 21K
11: R1 Cover Page HTML 71K
12: R2 Condensed Consolidated Statements of Earnings HTML 114K
13: R3 Condensed Consolidated Statements of Comprehensive HTML 69K
Income
14: R4 Condensed Consolidated Balance Sheets HTML 154K
15: R5 Condensed Consolidated Balance Sheets HTML 24K
(Parenthetical)
16: R6 Condensed Consolidated Statements of Cash Flows HTML 116K
17: R7 Condensed Consolidated Statements of Shareholders' HTML 86K
Equity
18: R8 Condensed Consolidated Statements of Shareholders' HTML 32K
Equity (Parenthetical)
19: R9 Basis of Presentation and Summary of Significant HTML 110K
Accounting Policies
20: R10 Acquisitions HTML 45K
21: R11 Goodwill and Intangible Assets HTML 87K
22: R12 Cash Flow Supplementary Information HTML 24K
23: R13 Earnings Per Share HTML 46K
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26: R16 Basis of Presentation and Summary of Significant HTML 82K
Accounting Policies (Policies)
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Accounting Policies (Tables)
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33: R23 Business Segments (Tables) HTML 200K
34: R24 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT HTML 26K
ACCOUNTING POLICIES - Inventories (Details)
35: R25 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT HTML 28K
ACCOUNTING POLICIES - Income Taxes (Details)
36: R26 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT HTML 31K
ACCOUNTING POLICIES - Pension Benefits (Details)
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ACCOUNTING POLICIES - Stock Plans (Details)
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ACCOUNTING POLICIES - Fair Value (Details)
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ACCOUNTING POLICIES - Comprehensive Income
(Details)
40: R30 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT HTML 45K
ACCOUNTING POLICIES - Revenues (Details)
41: R31 ACQUISITIONS - Narrative (Details) HTML 64K
42: R32 ACQUISITIONS - Preliminary Fair Values Of The HTML 74K
Assets Acquired And Liabilities Assumed At Date Of
Acquisition (Details)
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Impairment (Details)
47: R37 Cash Flow Supplementary Information (Details) HTML 23K
48: R38 Earnings Per Share (Details) HTML 61K
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Derivatives (Details)
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53: R43 BUSINESS SEGMENTS - Additional Information HTML 20K
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(Exact name of registrant as specified in its charter)
iDelaware
i47-0351813
(State
or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
i15000 Valmont Plaza,
iOmaha,
iNebraska
i68154
(Address of Principal Executive Offices)
(Zip Code)
(i402) i963-1000
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name
of each exchange on which registered
iCommon Stock $1.00 par value
iVMI
iNew
York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYesx No o
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYesx No o
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.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non‑accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐
No x
i21,350,725
Outstanding shares of common stock as of July 21, 2022
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(1) iBASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
i
Condensed Consolidated Financial Statements
The Condensed Consolidated Balance Sheet as of June 25, 2022, the Condensed Consolidated Statements of Earnings, Comprehensive Income, and Shareholders' Equity for the thirteen and twenty-six weeks ended June 25, 2022 and June
26, 2021, and the Condensed Consolidated Statement of Cash Flows for the twenty-six 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 June 25, 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 June 25, 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.
iInventories
Inventory is valued at the lower of cost, determined on the first-in, first-out (FIFO) method or market. Finished goods and manufactured goods inventories include the costs of acquired raw materials and related factory labor and overhead charges required
to convert raw materials to manufactured and finished goods.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
i
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.
i
The
components of the net periodic pension (benefit) expense for the thirteen and twenty-six weeks ended June 25, 2022 and June 26, 2021 were as follows:
Thirteen weeks ended
Twenty-six weeks ended
Net
periodic (benefit) expense:
2022
2021
2022
2021
Interest cost
$
i3,157
$
i2,530
$
i6,522
$
i5,027
Expected
return on plan assets
(i5,818)
(i7,097)
(i12,020)
(i14,102)
Amortization
of actuarial loss
i124
i843
i256
i1,675
Net
periodic benefit
$
(i2,537)
$
(i3,724)
$
(i5,242)
$
(i7,400)
/
iStock
Plans
The Company maintains stock-based compensation plans approved by the shareholders, which provide that the Human Resource Committee of the Board of Directors may grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, and bonuses of common stock. At June 25, 2022,i1,892,141shares of common stock remained available for issuance under the plans.
Under the plans, the exercise price of each option equals the closing market price at the date of the grant. Options vest beginning on the first anniversary of the grant in equal amounts over ithree years or on the grant's fifth anniversary. Expiration of grants is iseven
years to iten years from the date of grant. Restricted stock units and awards generally vest in equal installments over three or four years beginning on the first anniversary of the grant.
i
The
Company's compensation expense (included in selling, general and administrative expenses) and associated income tax benefits related to stock options and restricted stock for the thirteen and twenty-six weeks ended June 25, 2022 and June 26, 2021, respectively, were as follows:
Thirteen
weeks ended
Twenty-six weeks ended
2022
2021
2022
2021
Compensation expense
$
i10,120
$
i4,277
$
i19,583
$
i8,948
Income
tax benefits
i2,530
i1,069
i4,896
i2,237
/
iFair
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.
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 assets and liabilities recorded for the investments held in the Valmont Deferred Compensation Plan at June 25, 2022 of $i28,383
($i29,982 at December 25, 2021) represent mutual funds, invested in debt and equity securities, classified as trading securities in accordance with Accounting Standards Codification ("ASC") 320, Accounting for Certain Investments in Debt and Equity Securities, considering the employee's ability to change investment allocation of their deferred compensation at any time. The Company's
ownership of shares in Delta EMD Pty. Ltd. (JSE:DTA) is also classified as trading securities. The shares are valued at $i93 and $i94 as of June 25,
2022 and December 25, 2021, respectively, which is the estimated fair value. Quoted market prices are available for these securities in an active market and therefore categorized as a Level 1 input.
Derivative Financial Instruments: The fair value of foreign currency and commodity forward contracts, and cross currency contracts is based on a valuation model that discounts cash flows resulting from the differential between the contract price and the market-based forward rate.i
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Assets (Liabilities):
Trading
Securities
$
i30,076
$
i30,076
$
i—
$
i—
Derivative
financial instruments, net
(i4,007)
i—
(i4,007)
i—
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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
iLeases
The
Company's operating leases are included in other assets and operating lease liabilities.
iComprehensive 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. iAccumulated other comprehensive income (loss) consisted of the following at June 25, 2022 and December 25, 2021:
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 ("TD&S") 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 June 25, 2022 and December 25, 2021 was $i200,522
and $i142,643, respectively. While most of the Infrastructure segment customers are generally invoiced upon shipment or delivery of the goods to the customer's specified location, certain customers are also invoiced by advanced billings or progress billings.
At June 25, 2022 and December 25, 2021, total contract
liabilities were $i217,698 and $i213,203, respectively. At June 25, 2022, $i175,814
was recorded as contract liabilities and $i41,884 was recorded as other noncurrent liabilities on the condensed consolidated balance sheets. Additional details are as follows:
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
•During the thirteen and twenty-six weeks ended June 25, 2022, the Company recognized $i31,149
and $i59,171 of revenue that was included in the total contract liability as of December 25, 2021. The revenue recognized was due to applying advance payments received for performance obligations completed during the period;
•In the thirteen and twenty-six weeks ended June
26, 2021, the Company recognized $i31,267 and $i69,369
of revenue that was included in the total contract liability as of December 26, 2020. The revenue recognized was due to applying advance payments received for performance obligations completed during the period; and
•At June 25, 2022, the Company had $i83,681
of remaining performance obligations on contracts with an original expected duration of one year or more and expects to complete the remaining performance obligations on these contracts within the next i12 to i24
months.
Segment and Product Line Revenue Recognition
Infrastructure Segment
Steel and concrete utility structures within the TD&S 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 TD&S 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 TD&S 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.
Disaggregation of revenue by product line is disclosed in the Business Segments and Related Revenue Information footnote (see note 7).
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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands, except per share amounts)
(Unaudited)
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)
iACQUISITIONS
Acquisitions of Businesses
On June 1, 2022, the Company acquired approximately i51%
of ConcealFab for $i39,297 in cash (net of cash acquired) and subject to working capital adjustments. Approximately $i1,850
of the purchase price is contingent on seller representations and warranties that will be settled within 18 months of the acquisition date. ConcealFab is located in Colorado Springs, Colorado and its operations are reported in the Infrastructure segment. The acquisition was made to allow the Company to incorporate innovative 5G infrastructure and passive intermodulation mitigation solutions into our advanced infrastructure portfolio. Goodwill is not deductible for tax purposes. The amount allocated to goodwill was primarily attributable to anticipated synergies and other intangibles that do not qualify for separate recognition. The Company expects to finalize the purchase price allocation in the second quarter of 2023.
i
The
following table summarizes the preliminary fair values of the assets acquired and liabilities assumed of ConcealFab as of the date of acquisition:
Non-controlling interest in consolidated subsidiaries
i41,743
Net
assets acquired
$
i44,095
/
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 $i300,000 in cash (net of cash acquired). The acquisition of Prospera, located in Tel Aviv, Israel, was made to allow the Company to accelerate innovation with machine
learning for agronomy and is reported in the Agriculture segment. Goodwill is inot deductible for tax purposes, the trade name will be amortized over i7
years, and the developed technology asset will be amortized over i5 years. The amount allocated to goodwill was primarily attributable to anticipated synergies and other intangibles that do not qualify for separate recognition. The Company finalized the purchase price allocation in the fourth quarter of 2021.
On April 20, 2021the Company acquired the assets of PivoTrac for $i12,500
in cash. The agreed upon purchase price was $i14,000, with $i1,500
being held back for seller representations and warranties. The acquisition of PivoTrac, located in Texas, was made to allow the Company to advance its technology strategy and increase its number of connected agricultural devices and will be reported in the Agriculture segment. The fair values assigned were $i10,800 for goodwill, $i2,627
for customer relationships, and the remainder is net working capital. Goodwill is inot deductible for tax purposes and the customer relationship will be amortized over i8
years. The Company finalized the purchase price allocation in the second quarter of 2022.
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 May 10, 2022, the Company acquired the remaining i20%
of Valmont West Coast Engineering Ltd. for $i4,292. As this transaction was for the acquisition of all of the remaining shares of consolidated subsidiary with no change in control, it was recorded within shareholders' equity and as a financing cash flow in the Consolidated Statements of Cash Flows.
Amortization
expense for intangible assets for the thirteen and twenty-six weeks ended June 25, 2022 and June 26, 2021, respectively was as follows:
Thirteen weeks ended
Twenty-six weeks ended
2022
2021
2022
2021
Amortization
expense
$
i5,531
$
i5,182
$
i11,380
$
i9,414
/
iEstimated
annual amortization expense related to finite-lived intangible assets is as follows:
Estimated Amortization Expense
2022
$
i21,425
2023
i19,588
2024
i17,675
2025
i16,241
2026
i15,823
/
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.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Non-amortized intangible assets
Intangible assets with indefinite lives are not amortized and consist solely of trade names. iThe carrying value of trade names at June 25, 2022 and December 25,
2021 are as follows:
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 28, 2021. The values of each trade name were determined using
the relief-from-royalty method. Based on this evaluation, ino trade names were determined to be impaired.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
The Company’s annual impairment test of goodwill was performed as of August 28, 2021, using primarily the discounted cash flow method. The estimated fair value of all our reporting units exceeded their respective carrying value, so no goodwill impairments were recorded. During fiscal 2022, ino
goodwill impairments have been recorded.
(4) iCASH 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. iCash
payments for interest and income taxes (net of refunds) for the thirteen weeks ended June 25, 2022 and June 26, 2021 were as follows:
2022
2021
Interest
$
i22,221
$
i19,657
Income
taxes
i29,921
i11,317
(5) iEARNINGS PER SHARE
iThe
following table provides a reconciliation between Basic and Diluted earnings per share (EPS):
Net earnings attributable to Valmont Industries, Inc.
$
i117,124
$
i—
$
i117,124
Weighted
average shares outstanding (000's)
i21,186
i263
i21,449
Per
share amount
$
i5.53
$
(i0.07)
$
i5.46
/
At
June 25, 2022 and June 26, 2021, there were i47,223 and i0
outstanding stock options with exercise prices exceeding the market price of common stock that were excluded from the computation of diluted earnings per share, respectively.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
(6)
iDERIVATIVE 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 other comprehensive income ("OCI") until either the sale or substantially complete liquidation of the related subsidiaries.
iGains
(losses) on derivatives recognized in the condensed consolidated statements of earnings for the thirteen and twenty-six weeks ended June 25, 2022 and June 26, 2021 are as follows:
During 2021, the Company entered into steel hot rolled coil (HRC) forward contracts that qualify as a cash flow hedge of the variability in cash flows attributable to future steel purchases. The forward contracts had a notional amount of $i93,498 for the total
purchase of i86,100 short tons. During the second quarter of 2022, the Company entered into additional steel HRC forward contracts that qualify as a cash flow hedge of the variability in cash flows attributable to future steel purchases. The forward contracts had a notional amount
of $i14,010 for the total purchase of i15,000 short tons. As of June 25, 2022, the forward contracts
had a notional amount of $i43,589 for the total purchase of i42,400 short tons from July 2022 to March 2023. The gain/(loss) realized upon settlement will
be recorded in product cost of sales in the condensed consolidated statements of earnings over average inventory turns.
During the first 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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands, except per share amounts)
(Unaudited)
contract, which qualifies as a fair value hedge, matures in August 2022 and has a notional amount to sell $i1,800 in exchange for a stated amount of Euros.
Net Investment Hedges
In 2019, the
Company entered into itwo fixed-for-fixed cross currency swaps (“CCS”), swapping U.S. dollar principal and interest payments on a portion of its i5.00%
senior unsecured notes due 2044 for Danish krone (DKK) and Euro denominated payments. The CCS were entered into in order to mitigate foreign currency risk on the Company's Euro and DKK investments and to reduce interest expense. Interest is exchanged twice per year on April 1 and October 1.
The
Company designated the full notional amount of the itwo CCS ($i130,000) as a hedge of the net investment in certain Danish and European subsidiaries
under the spot method, with all changes in the fair value of the CCS that are included in the assessment of effectiveness (changes due to spot foreign exchange rates) are recorded as cumulative foreign currency translation within OCI. Net interest receipts will be recorded as a reduction of interest expense over the life of the CCS.
(7) iBUSINESS 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 itwo reportable segment structure organized by market dynamics (Infrastructure
and Agriculture). Three operating segments resulted from the new management structure and two are aggregated into the Agriculture reportable segment. The Company considers gross profit margins, nature of products sold, nature of the production processes, type and class of customer, and methods used to distribute products when assessing aggregation of operating segments. The Infrastructure segment includes the previous reportable segments of Utility Structures, Engineered Support Structures, and Coatings. All prior period segment information has been recast to reflect this change in reportable segments.
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 and protect 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.
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.
Irrigation
Equipment and Parts, excluding Technology
i—
i460,708
(i3,367)
i457,341
Technology
Products and Services
i—
i50,921
i—
i50,921
Total
$
i1,167,250
$
i511,629
$
(i9,364)
$
i1,669,515
A
breakdown by segment of revenue recognized over time and at a point in time for the thirteen and twenty-six weeks ended June 25, 2022 and June 26, 2021 is as follows:
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 COVID-19 including the effects of the outbreak on the general economy and the specific effects on the Company's business and that of its customers and suppliers, risk factors described from time to time in the Company’s reports to the Securities and Exchange Commission, as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies,
availability and price of raw materials, availability and market acceptance of new products, product pricing, domestic and international competitive environments, 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.
24
Results
of Operations (Dollars in millions, except per share amounts)
On a consolidated basis, net sales were higher in the second quarter and first half 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 were higher, especially in North America, and have stayed at elevated levels resulting in higher cost of sales and net sales as customer pricing mechanisms and product selling price practices allowed for the recovery of that inflation for both reportable segments.
•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).
Items of note impacting the comparability of results from net earnings in the second quarter of 2022 included amortization of identified intangible assets of $1.6 million ($1.2 million after-tax) and stock-based compensation expense of $2.5 million ($2.3 million after-tax) for the employees from the Prospera
subsidiary acquired in the second quarter of 2021 (recognized within SG&A for the Agriculture segment). Items of note impacting the comparability of results from net earnings in the first half 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 SG&A for the Agriculture segment.
Items of note impacting comparability of results from net earnings in the second quarter and first half of 2021 included:
•charges of $5.5 million ($4.4 after-tax) related to a write-off of a receivable following arbitration,
•charges
of $1.6 million ($1.3 after-tax) related to restructuring activities, and
•charges of $1.1 million ($0.8 after-tax) related to acquisition costs.
Macroeconomic Impacts on Financial Results and Liquidity
We continue to monitor several macroeconomic and geopolitical trends, that have impacted our business, including changing conditions from the COVID-19 pandemic, the on-going Russia-Ukraine conflict, inflationary cost pressures, supply chain disruptions, and labor shortages. The effects of COVID-19 and the related actions of governments and other authorities to contain COVID-19 affected and continue to affect the company’s operations, results, and cash flows. Our significant manufacturing
facilities were open and fully operational as of June 25, 2022.
The ultimate magnitude of COVID-19, including the extent of its impact on the Company’s financial and operational results, cash balances and available borrowings on our line of credit, will be determined by the length of time the pandemic continues, its effect on the demand for the Company’s products and services and supply chain, as well as the effect of governmental regulations imposed in response to the pandemic.
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 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.
26
Backlog
The backlog of unshipped orders at June 25, 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 $1.7 billion
of the backlog to be fulfilled within the subsequent 12 months.
Currency Translation
In the second quarter and first half of 2022, we realized an increase in operating income, as compared with 2021, with currency translation effects relatively flat. The breakdown of this effect by segment was as follows:
Total
Infrastructure
Agriculture
Corporate
Second
quarter
$
(0.2)
$
(2.1)
$
1.7
$
0.2
Year-to-date
$
0.1
$
(2.5)
$
2.4
$
0.2
Gross
Profit, SG&A, and Operating Income
At a consolidated level, gross profit as a percent of sales was relatively flat in the second quarter of 2022 and decreased slightly in the first half 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 second quarter and first half of 2022 SG&A expense over the same periods of 2021 was due to the incremental SG&A from the May 2021 acquisition of Prospera (including intangible asset amortization, stock-based compensation,
and research and development costs), higher incentives due to improved operations, and salary merit increases.
The increase in consolidated operating income in the second quarter and first half 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 SG&A year over year.
Net Interest Expense
Interest expense increased in the second quarter and first half 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 second quarter of 2022, as compared to 2021, was primarily due to a lower pension benefit of $1.2 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 income of $3.5 million. The change in other income/expenses in the first half of 2022, as compared to 2021, was primarily due to a lower pension benefit of $2.2 million and the change in the valuation of deferred compensation asses which resulted in lower income of $4.5 million. The change related to deferred compensation assets are offset by an opposite change of the same amount in SG&A expense.
Income Tax Expense
Our effective income tax rate in the second quarter and first half of 2022
was 27.6% and 27.2% compared to 19.0% and 20.3% in the second quarter and first half 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 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.
27
Earnings Attributable to Noncontrolling Interests
Earnings attributable to noncontrolling interests were higher in the second quarter and first half 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 $68.0 million in the first half of fiscal 2022, as compared with $70.2 million provided by operations in the first half of 2021. The operating cash flows in the first half of 2022, as compared with 2021, were comparable as a significant increase in the contribution to the defined benefit pension plan of approximately $17 million and overall working capital changes were offset by the increase in net earnings.
Infrastructure segment
Thirteen
weeks ended
Infrastructure
Q2 2022
Q2 2021
Dollar Change
% Change
Sales, gross of intercompany eliminations:
Transmission, Distribution and Substation
295.8
220.5
75.3
34.1
%
Lighting
& Transportation
246.7
215.2
31.5
14.6
%
Coatings
90.3
80.3
10.0
12.5
%
Telecommunications
78.5
54.1
24.4
45.1
%
Renewable
Energy
53.6
47.5
6.1
12.8
%
Total
$
764.9
$
617.6
$
147.3
23.9
%
Operating
Income
$
84.6
$
61.6
$
23.0
37.3
%
Twenty-six
weeks ended
Infrastructure
Q2 2022
Q2 2021
Dollar Change
% Change
Sales, gross of intercompany eliminations:
Transmission, Distribution and Substation
577.4
428.9
148.5
34.6
%
Lighting
& Transportation
459.4
391.8
67.6
17.3
%
Coatings
172.3
155.1
17.2
11.1
%
Telecommunications
139.9
99.7
40.2
40.3
%
Renewable
Energy
96.6
91.7
4.9
5.3
%
Total
$
1,445.6
$
1,167.2
$
278.4
23.9
%
Operating
Income
$
162.2
$
116.0
$
46.2
39.8
%
Net sales in the second quarter and first half 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 $15.7 million in second quarter of 2022 and $23.2 million in the first half 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 the appreciation of the U.S. dollar.
Transmission, distribution, and substation sales increased in the second quarter and first half 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 index
28
pricing
at the time our customer issues their purchase order. Sales volumes increased modestly in the second quarter and first half of 2022, as compared to 2021.
Lighting and transportation sales increased during the second quarter and first half 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 second quarter and first half of 2022 while volumes decreased within international markets during the first half of 2022. Reported international sales also decreased in the second quarter and first half of 2022 due to unfavorable foreign currency translation effects.
Telecommunication sales increased in the second quarter of 2022, as compared with the same periods in 2021, due primarily to considerably
higher average selling prices. Sales volumes increased in the first half 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 half of 2022, as compared to 2021.
Coatings sales increased in the second quarter and first half of 2022, as compared to the same periods in 2021, due to higher average selling prices. Renewable energy sales increased in the second quarter and first half 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 second quarter and first half 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 second quarter and first half of 2022, as compared with 2021, is due to a 23% increase in gross profit versus an approximately 12% increase in SG&A. The operating income margin increased to 11% in the second quarter of 2022, from 10% in second quarter of 2021, due to better leverage of fixed costs, including SG&A, in 2022.
Agriculture segment
Thirteen
weeks ended
Agriculture
Q2 2022
Q2 2021
Dollar Change
% Change
Sales, gross of intercompany eliminations:
North America
203.5
156.0
47.5
30.4
%
International
174.3
125.9
48.4
38.4
%
Total
$
377.8
$
281.9
$
95.9
34.0
%
Operating
Income
$
58.0
$
42.0
$
16.0
38.1
%
Twenty-six
weeks ended
Agriculture
Q2 2022
Q2 2021
Dollar Change
% Change
Sales, gross of intercompany eliminations:
North America
385.7
278.8
106.9
38.3
%
International
298.6
232.8
65.8
28.3
%
Total
$
684.3
$
511.6
$
172.7
33.8
%
Operating
Income
$
95.5
$
80.7
$
14.8
18.3
%
29
The increase in Agriculture segment net sales in the second quarter and first half of 2022, as compared to 2021, is 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. International sales volumes increased in the second quarter of 2022 versus 2021 due to robust demand for irrigation equipment and agriculture solar products in Brazil. Overall lower project sales for the first half of 2022 versus 2021 more than offset the sales growth in the second quarter of 2022 resulting in slightly lower sales volume for international irrigation product line. Sales of technology-related products and services continue to increase, as growers continued adoption of technology to reduce costs and enhance profitability.
The increase in gross profit in 2022, as compared to 2021, is primarily attributed to the meaningfully higher average selling prices which more than offset the amount of inflation within
cost of goods sold. SG&A was higher in the second quarter and first half of 2022, as compared to 2021, due to the SG&A from the Prospera subsidiary acquired in the second quarter of 2021, including the amortization of identified intangible assets and stock-based compensation expense. Operating income for the segment was higher in 2022, versus 2021, due to an increase in gross profit margin partially offset by the higher SG&A.
Net corporate expense
Corporate SG&A expense was higher in the second quarter and first half 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, partially offset by $3.5 million of lower expense from the change in valuation of the deferred compensation
plan assets.
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 June 25, 2022, we have acquired approximately 6.5 million shares for approximately $878.0 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.
30
Sources of Financing
Our debt financing at June 25, 2022 consisted primarily of long‑term debt and borrowings on our revolving credit facility. Our long‑term debt as of June 25, 2022, principally consisted of:
•$450 million face value ($437.0 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 June 25, 2022 and December 25, 2021, we had outstanding borrowings of $265.6 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 June 25, 2022, we had the ability to borrow $534.4 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 $138.2 million; $133.8 million of which was unused at June 25, 2022.
31
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 June 25,
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 $154.6 million at June 25, 2022, approximately $119.7 million is held in our non-U.S. subsidiaries. If we distributed our foreign cash balances certain taxes would be applicable. At June 25, 2022, we have a liability for foreign withholding taxes and U.S. state income taxes of $3.4 million and $0.7 million, respectively.
Cash
Flows
The following table includes a summary of our cash flow information for the twenty-six weeks ended June 25, 2022 and June 26, 2021:
Dollars in thousands
2022
2021
Cash flow data:
Net
cash flows from operating activities
$
68,019
$
70,185
Net cash flows from investing activities
(87,811)
(361,398)
Net cash flows from financing activities
570
90,060
Working Capital and Operating
Cash Flows-Net working capital was $1,025.9 million at June 25, 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 the rising commodity prices and an increase in receivables, partially offset by an increase in accounts payable. Cash flow provided by operations was $68.0 million in the first half of 2022, as compared with $70.2 million in the
32
first half of 2021. The operating cash flows in the first half of 2022, as compared with 2021, were comparable as a significant increase in the contribution to the defined benefit pension plan and overall working
capital changes were offset by the increase in net earnings.
Investing Cash Flows- Cash used in investing activities totaled $87.8 million in the first half of 2022, compared to $361.4 million in the first half of 2021. Investing activities in 2022 primarily included capital spending of $49.7 million and the acquisition of ConcealFab for $39.3 million. For the first half of 2021, investing activities primarily included capital spending of $48.8 million and the acquisition of two businesses for $312.5 million. We expect our capital expenditures to be in the range of $110 million to $120 million for fiscal 2022.
Financing Cash Flows- Our total interest-bearing debt was $1,003.1 million at June 25, 2022 and $965.4 million at December 25,
2021. Cash provided in financing activities totaled $0.6 million in 2022, compared to $90.1 million in 2021.
The financing cash provided in the first half of 2022 was primarily the result of borrowings on the revolving credit agreement of $201.5 million; mostly offset by principal payments on our long-term debt and short-term borrowings of $166.1 million, and dividends paid of $22.3 million, the purchase of treasury shares of $9.8 million, and the purchase of a non-controlling interest of $4.3 million. The financing cash provided for the first half of 2021 was primarily due to borrowings on the revolving credit agreement and short-term borrowings of $161.3 million; somewhat offset by the principal payments on our long-term debt and short-term borrowings of $32.4 million, dividends paid of $20.2 million, and the purchase of treasury shares of $21.6 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.
33
Combined financial information is as follows:
Supplemental Combined Parent and Guarantors Financial Information
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 (June
26, 2021 to June 25, 2022) is as follows:
34
Dollars in thousands
2022
Net cash flows from operations
$
63,772
Interest
expense
44,826
Income tax expense
83,880
Impairment of long-lived assets
(27,911)
Deferred
income tax (expense) benefit
(6,465)
Noncontrolling interest
(3,255)
Pension plan benefit
12,409
Contribution to pension plan
18,109
Changes in assets and liabilities, net of acquisitions
298,390
Other
(2,242)
EBITDA
$
481,513
Impairment
of long-lived assets
27,911
Adjusted EBITDA
$
509,424
2022
Net
earnings attributable to Valmont Industries, Inc.
$
216,925
Interest expense
44,826
Income tax expense
83,880
Stock based compensation
39,355
Depreciation and amortization
expense
96,527
EBITDA
$
481,513
Impairment of long-lived assets
27,911
Adjusted
EBITDA
$
509,424
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.
The calculation of this ratio at June 25, 2022 is as follows:
Dollars
in thousands
2022
Interest-bearing debt
$
1,003,093
Less: Cash and cash equivalents in excess of $50 million
104,579
Net indebtedness
$
898,514
Adjusted EBITDA
509,424
Leverage
Ratio
1.76
Leverage ratio, as presented, may not be comparable to similarly titled measures of other companies.
35
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 three months ended June 25, 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 June 25, 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.
36
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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Period
Total
Number of Shares Purchased
Average Price paid per share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Maximum Number of Shares that may yet be Purchased under the Program (1)
(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
June 25, 2022, we have acquired 6,514,210 shares for approximately $887.9 million under this share repurchase program.
On July 26, 2022, the Board of Directors of Valmont approved amendments to Article II, Section 7 of Valmont’s bylaws. The bylaw
amendment affirms electronic transmission by members of the Board of Directors pursuant to Delaware law.
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 June 25, 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)
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.
