VALMONT INDUSTRIES INC [VMI] Filings

10-Q 1 vmi-20220326.htm 10-Q vmi-20220326

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended March 26, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from ____________ to

Commission file number 1-31429

_____________________________________

Valmont Industries, Inc.

(Exact name of registrant as specified in its charter)


Delaware		47-0351813
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
15000 Valmont Plaza,
Omaha,	Nebraska	68154
(Address of Principal Executive Offices)		(Zip Code)

(402) 963-1000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock $1.00 par value

VMI

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically 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). Yes x 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.

Large accelerated filer

☒

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐

No x

21,311,439

Outstanding shares of common stock as of April 21, 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 weeks ended
	March 26, 2022 and March 27, 2021	3
	Condensed Consolidated Statements of Comprehensive Income for the thirteen
	weeks ended March 26, 2022 and March 27, 2021	4
	Condensed Consolidated Balance Sheets as of March 26, 2022 and
	December 25, 2021	5
	Condensed Consolidated Statements of Cash Flows for the thirteen weeks
	ended March 26, 2022 and March 27, 2021	6
	Condensed Consolidated Statements of Shareholders' Equity for the thirteen weeks
	ended March 26, 2022 and March 27, 2021	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32

	PART II. OTHER INFORMATION
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 5.	Other Information	35
Item 6.	Exhibits	36
Signatures		37

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
	March 26, 2022		March 27, 2021
Product sales	$	890,870	$	694,965
Services sales	89,950		79,921
Net sales	980,820		774,886
Product cost of sales	673,170		518,634
Services cost of sales	58,464		51,698
Total cost of sales	731,634		570,332
Gross profit	249,186		204,554
Selling, general and administrative expenses	154,344		127,343

Operating income	94,842		77,211
Other income (expenses):
Interest expense	(11,263)		(9,999)
Interest income	227		311
Loss on investments (unrealized)	(1,063)		(109)


Other	3,642		3,449
	(8,457)		(6,348)
Earnings before income taxes	86,385		70,863
Income tax expense:
Current	22,413		8,547
Deferred	708		6,955
	23,121		15,502
Earnings before equity in earnings of nonconsolidated subsidiaries	63,264		55,361
Equity in loss of nonconsolidated subsidiaries	(358)		(360)
Net earnings	62,906		55,001
Less: (earnings)/loss attributable to noncontrolling interests	(595)		13
Net earnings attributable to Valmont Industries, Inc.	$	62,311	$	55,014
Earnings per share:
Basic	$	2.93	$	2.60
Diluted	$	2.90	$	2.57

See accompanying notes to condensed consolidated financial statements.

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)


	Thirteen Weeks Ended
	March 26, 2022		March 27, 2021
Net earnings	$	62,906	$	55,001
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized translation gain (loss)	11,062		(12,633)

Gain (loss) on hedging activities:

Cash flow hedges	—		22

Amortization cost included in interest expense	(16)		(16)

Commodity hedges	20,560		9,946
Realized gain on commodity hedges recorded in earnings	(2,043)		—
Cross currency swaps	1,811		3,606
	20,312		13,558


Actuarial gain on defined benefit pension plan	686		832
Other comprehensive income	32,060		1,757
Comprehensive income	94,966		56,758
Comprehensive (income) loss attributable to noncontrolling interests	(1,688)		486
Comprehensive income attributable to Valmont Industries, Inc.	$	93,278	$	57,244

See accompanying notes to condensed consolidated financial statements.

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)


	March 26, 2022		December 25, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	149,700	$	177,232
Receivables, net	616,538		571,593
Inventories	807,471		728,834
Contract assets	161,633		142,643
Prepaid expenses and other assets	105,233		83,646
Refundable income taxes	—		8,815
Total current assets	1,840,575		1,712,763
Property, plant and equipment, at cost	1,451,044		1,422,101
Less accumulated depreciation and amortization	840,826		823,496
Net property, plant and equipment	610,218		598,605

Goodwill	707,692		708,566
Other intangible assets, net	169,424		175,364
Other assets	253,574		251,951
Total assets	$	3,581,483	$	3,447,249

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current installments of long-term debt	$	4,226	$	4,884
Notes payable to banks	8,380		13,439
Accounts payable	404,410		347,841
Accrued employee compensation and benefits	96,547		144,559
Contract liabilities	168,794		135,746
Other accrued expenses	118,535		108,771
Income taxes payable	6,074		—

Dividends payable	11,721		10,616
Total current liabilities	818,687		765,856
Deferred income taxes	50,604		47,849
Long-term debt, excluding current installments	963,065		947,072
Defined benefit pension liability	—		536
Operating lease liabilities	146,493		147,759
Deferred compensation	36,469		35,373
Other noncurrent liabilities	61,674		89,207
Shareholders’ equity:


Common stock of $1 par value -
Authorized 75,000,000 shares; 27,900,000 issued	27,900		27,900
Additional paid in capital	5,251		1,479
Retained earnings	2,444,897		2,394,307
Accumulated other comprehensive loss	(232,160)		(263,127)
Treasury stock	(769,835)		(773,712)
Total Valmont Industries, Inc. shareholders’ equity	1,476,053		1,386,847
Noncontrolling interest in consolidated subsidiaries	28,438		26,750
Total shareholders’ equity	1,504,491		1,413,597
Total liabilities and shareholders’ equity	$	3,581,483	$	3,447,249

See accompanying notes to condensed consolidated financial statements.

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Thirteen weeks ended
	March 26, 2022		March 27, 2021
Cash flows from operating activities:
Net earnings	$	62,906	$	55,001
Adjustments to reconcile net earnings to net cash flows from operations:
Depreciation and amortization	23,884		21,031




Stock-based compensation	9,463		4,671

Defined benefit pension plan benefit	(2,705)		(3,676)
Contribution to defined benefit pension plan	—		(964)
Gain on sale of property, plant and equipment	4		60
Equity in loss in nonconsolidated subsidiaries	358		360
Deferred income taxes	708		6,955
Changes in assets and liabilities:
Receivables	(36,643)		16,044
Inventories	(68,236)		(67,386)
Prepaid expenses and other assets (current and non-current)	(4,452)		(22,514)
Contract assets	(19,486)		5,118
Accounts payable	49,006		24,605
Accrued expenses	(34,186)		(35,559)
Contract liabilities	4,308		20,051
Other noncurrent liabilities	14		4,215
Income taxes payable/refundable	17,760		5,141
Net cash flows from operating activities	2,703		33,153
Cash flows from investing activities:
Purchase of property, plant and equipment	(27,095)		(27,565)
Proceeds from sale of assets	2		204



Other, net	(2,007)		(1,947)
Net cash flows from investing activities	(29,100)		(29,308)
Cash flows from financing activities:
Proceeds from short-term borrowings	—		14,734
Payments on short-term borrowings	(5,562)		(10,759)
Proceeds from long-term borrowings	97,000		4,181
Principal payments on long-term borrowings	(82,529)		(712)


Dividends paid	(10,616)		(9,556)


Purchase of treasury shares	—		(11,131)
Proceeds from exercises under stock plans	713		19,318
Purchase of common treasury shares—stock plan exercises	(2,527)		(16,725)
Net cash flows from financing activities	(3,521)		(10,650)
Effect of exchange rate changes on cash and cash equivalents	2,386		(2,463)
Net change in cash and cash equivalents	(27,532)		(9,268)
Cash and cash equivalents—beginning of year	177,232		400,726
Cash and cash equivalents—end of period	$	149,700	$	391,458

See accompanying notes to condensed consolidated financial statements

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)


	Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Treasury stock		Noncontrolling interest in consolidated subsidiaries		Total shareholders’ equity
Balance at December 26, 2020	$	27,900	$	335	$	2,245,035	$	(309,786)	$	(781,422)	$	25,774	$	1,207,836
Net earnings	—		—		55,014		—		—		(13)		55,001
Other comprehensive income (loss)	—		—		—		2,230		—		(473)		1,757
Cash dividends declared ($0.50 per share)	—		—		(10,625)		—		—		—		(10,625)




Purchase of treasury shares; 50,147 shares acquired	—		—		—		—		(11,131)		—		(11,131)
Stock plan exercises; 70,485 shares acquired	—		—		—		—		(16,725)		—		(16,725)
Stock options exercised; 142,878 shares issued	—		(4,600)		(7,069)		—		30,987		—		19,318
Stock option expense	—		648		—		—		—		—		648
Stock awards; 2,709 shares issued	—		3,617		—		—		406		—		4,023
Balance at March 27, 2021	$	27,900	$	—	$	2,282,355	$	(307,556)	$	(777,885)	$	25,288	$	1,250,102
Balance at December 25, 2021	$	27,900	$	1,479	$	2,394,307	$	(263,127)	$	(773,712)	$	26,750	$	1,413,597
Net earnings	—		—		62,311		—		—		595		62,906
Other comprehensive income	—		—		—		30,967		—		1,093		32,060
Cash dividends declared ($0.55 per share)	—		—		(11,721)		—		—		—		(11,721)




Stock plan exercises; 11,695 shares acquired	—		—		—		—		(2,527)		—		(2,527)
Stock options exercised; 5,616 shares issued	—		(536)		—		—		1,249		—		713
Stock option expense	—		716		—		—		—		—		716
Stock awards; 37,748 shares issued	—		3,592		—		—		5,155		—		8,747
Balance at March 26, 2022	$	27,900	$	5,251	$	2,444,897	$	(232,160)	$	(769,835)	$	28,438	$	1,504,491

See accompanying notes to the condensed consolidated financial statements.

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Condensed Consolidated Financial Statements

The Condensed Consolidated Balance Sheet as of March 26, 2022, the Condensed Consolidated Statements of Earnings, Comprehensive Income, Cash Flows, and Shareholders' Equity for the thirteen weeks ended March 26, 2022 and March 27, 2021, 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 March 26, 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 March 26, 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 market. Finished goods and manufactured goods inventories include the costs of acquired raw materials and related factory labor and overhead charges required to convert raw materials to manufactured and finished goods.

Inventories consisted of the following:


	March 26, 2022		December 25, 2021
Raw materials and purchased parts	$	297,570	$	278,107
Work-in-process	78,591		63,628
Finished goods and manufactured goods	431,310		387,099
Total Inventory	$	807,471	$	728,834

Income Taxes

Earnings before income taxes for the thirteen weeks ended March 26, 2022 and March 27, 2021, were as follows:


	Thirteen weeks ended
	2022		2021
United States	$	60,816	$	51,155
Foreign	25,569		19,708
	$	86,385	$	70,863

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

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

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 weeks ended March 26, 2022 and March 27, 2021 were as follows:


	Thirteen weeks ended
Net periodic (benefit) expense:	2022		2021
Interest cost	$	3,365	$	2,497
Expected return on plan assets	(6,202)		(7,005)
Amortization of actuarial loss	132		832
Net periodic (benefit) expense	$	(2,705)	$	(3,676)

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 March 26, 2022, 175,917 shares of common stock remained available for issuance under the plans. On April 26, 2022, Company shareholders approved the Valmont 2022 Stock Plan, in which the maximum number of shares of common stock that may be issued under the stock plan is 2,000,000 and no additional award grants may be made under any prior Company stock plan.

Under the plans, the exercise price of each option equals the closing market price at the date of the grant. Options vest beginning on the first anniversary of the grant in equal amounts over three years or on the grant's fifth anniversary. Expiration of grants is seven years to ten 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.

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 weeks ended March 26, 2022 and March 27, 2021, respectively, were as follows:


	Thirteen weeks ended
	2022		2021
Compensation expense	$	9,463	$	4,671
Income tax benefits	2,366		1,168

Fair Value

The Company applies the provisions of Accounting Standards Codification 820, Fair Value Measurements (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of ASC 820 apply to other accounting pronouncements that require or permit fair value measurements. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

ASC 820 establishes a three-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 March 26, 2022 of $30,650 ($29,982 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 $101 and $94 as of March 26, 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.


			Fair Value Measurement Using:
	Carrying Value March 26, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Trading Securities	$	30,751	$	30,751	$	—	$	—
Derivative financial instruments, net	17,633		—		17,633		—


			Fair Value Measurement Using:
	Carrying Value December 25, 2021		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	$	30,076	$	30,076	$	—	$	—

Derivative financial instruments, net	(4,007)		—		(4,007)		—

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

Long-Lived Assets

The Company's other non-financial assets include goodwill and other intangible assets, which are classified as Level 3 items. These assets are measured at fair value on a non-recurring basis as part of annual impairment testing. Note 3 to these condensed consolidated financial statements contain additional information related to the intangible asset impairments recognized in fiscal 2021.

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 March 26, 2022 and December 25, 2021:


	Foreign Currency Translation Adjustments		Gain on Hedging Activities		Defined Benefit Pension Plan		Accumulated Other Comprehensive Loss
Balance at December 25, 2021	$	(243,350)	$	15,777	$	(35,554)	$	(263,127)
Current-period comprehensive income (loss)	9,969		20,312		686		30,967
Balance at March 26, 2022	$	(233,381)	$	36,089	$	(34,868)	$	(232,160)

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 revenue associated with the design stage. There is one performance obligation for revenue recognition. No general rights of return exist for customers once the product has been delivered and the Company establishes provisions for estimated warranties. The Company does not sell extended warranties for any of its products.

Shipping and handling costs associated with sales are recorded as cost of goods sold. The Company elected to use the practical expedient of treating freight as a fulfillment obligation instead of a separate performance obligation and ratably recognize freight expense as the structure is being manufactured, when the revenue from the associated customer contract is being recognized over time. With the exception of the 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.

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

The Company's contract asset as of March 26, 2022 and December 25, 2021 was $161,633 and $142,643, 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 March 26, 2022 and December 25, 2021, total contract liabilities were $221,348 and $213,203, respectively. At March 26, 2022, $168,794 was recorded as contract liabilities and $52,554 was recorded as other noncurrent liabilities on the condensed consolidated balance sheets. Additional details are as follows:

•During the thirteen weeks ended March 26, 2022, the Company recognized $28,023 of revenue that was included in the total contract liability as of December 25, 2021;

•In the thirteen weeks ended March 27, 2021, the Company recognized $38,102 of revenue that was included in the 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 March 26, 2022, the Company had $105,013 of remaining performance obligations on contracts with an original expected duration of one year or more and expects to complete the remaining performance obligations on these contracts within the next 12 to 24 months.

Segment and Product Line Revenue Recognition

Infrastructure Segment

Steel and concrete utility structures within the TD&S product 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

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

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).

Recently Issued Accounting Pronouncements (not yet adopted)

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

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 $300,000 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. In the purchase price allocation, goodwill of $273,453, developed technology of $32,900, trade name of $2,850, property, plant, and equipment of $1,063, and a deferred tax liability of $8,223 were recorded with the remainder to net working capital. Goodwill is not deductible for tax purposes, the trade name will be amortized over 7 years, and the developed technology asset will be amortized over 5 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, 2021 the Company acquired the assets of PivoTrac for $12,500 in cash. The agreed upon purchase price was $14,000, with $1,500 being held back for seller representations and warranties that will be settled within 12 months of the acquisition date. 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 preliminary fair values assigned were $10,800 for goodwill, $2,627 for customer relationships, and the remainder is net working capital. Goodwill is not deductible for tax purposes and the customer relationship will be amortized over 8 years. The Company expects the purchase price allocation to be finalized 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.

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

(3) GOODWILL AND INTANGIBLE ASSETS

Amortized Intangible Assets

The components of amortized intangible assets at March 26, 2022 and December 25, 2021 were as follows:


	March 26, 2022
	Gross Carrying Amount		Accumulated Amortization		Weighted Average Life
Customer Relationships	$	225,201	$	164,130	13 years

Patents & Proprietary Technology	58,657		15,978		9 years
Trade Name	2,850		339		6 years
Other	4,511		4,087		6 years
	$	291,219	$	184,534


	December 25, 2021
	Gross Carrying Amount		Accumulated Amortization		Weighted Average Life
Customer Relationships	$	224,597	$	160,626	13 years

Patents & Proprietary Technology	58,699		13,955		9 years
Trade Name	2,850		183		7 years
Other	4,534		3,959		6 years
	$	290,680	$	178,723

Amortization expense for intangible assets for the thirteen weeks ended March 26, 2022 and March 27, 2021, respectively was as follows:


	Thirteen weeks ended
	2022		2021
Amortization expense	$	5,849	$	4,232

Estimated annual amortization expense related to finite-lived intangible assets is as follows:


	Estimated Amortization Expense
2022	$	20,044
2023	17,783
2024	15,869
2025	14,435
2026	14,012

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.

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

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. The carrying value of trade names at March 26, 2022 and December 25, 2021 are as follows:


	March 26, 2022		December 25, 2021		Year Acquired
Newmark	$	11,111	$	11,111	2004
Convert Italia S.p.A	8,238		8,479		2018
Webforge	7,747		7,877		2010
Ingal EPS/Ingal Civil Products	7,511		7,637		2010
Valmont SM	5,904		6,082		2014
Shakespeare	4,000		4,000		2014
Walpar	3,500		3,500		2018
Other	14,729		14,721		Various
	$	62,740	$	63,407

In its determination of these intangible assets as indefinite-lived, the Company considered such factors as its expected future use of the intangible asset, legal, regulatory, technological and competitive factors that may impact the useful life or value of the intangible asset and the expected costs to maintain the value of the intangible asset. The Company expects that these intangible assets will maintain their value indefinitely. Accordingly, these assets are not amortized.

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, no trade names were determined to be impaired.

Goodwill

The carrying amount of goodwill by segment as of March 26, 2022 and December 25, 2021 was as follows:


	Infrastructure Segment		Agriculture Segment		Total
Gross Balance December 25, 2021	$	456,876	$	313,512	$	770,388
Accumulated impairment losses	(61,822)		—		(61,822)
Balance at December 25, 2021	395,054		313,512		708,566



Foreign currency translation	(1,584)		710		(874)
Balance at March 26, 2022	$	393,470	$	314,222	$	707,692


	Infrastructure Segment		Agriculture Segment		Total
Gross Balance March 26, 2022	$	455,292	$	314,222	$	769,514
Accumulated impairment losses	(61,822)		—		(61,822)
Balance at March 26, 2022	$	393,470	$	314,222	$	707,692

The Company’s annual impairment test of goodwill was performed as of August 28, 2021, using primarily the discounted cash flow method. During fiscal 2022, no goodwill impairment has been recorded.

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

(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. Cash payments for interest and income taxes (net of refunds) for the thirteen weeks ended March 26, 2022 and March 27, 2021 were as follows:


	2022		2021
Interest	$	1,613	$	111
Income taxes	6,699		3,347

(5) EARNINGS PER SHARE

The following table provides a reconciliation between Basic and Diluted earnings per share (EPS):


	Basic EPS		Dilutive Effect of Stock Options		Diluted EPS
Thirteen weeks ended March 26, 2022:
Net earnings attributable to Valmont Industries, Inc.	$	62,311	$	—	$	62,311
Weighted average shares outstanding (000's)	21,279		213		21,492
Per share amount	$	2.93	$	(0.03)	$	2.90
Thirteen weeks ended March 27, 2021:
Net earnings attributable to Valmont Industries, Inc.	$	55,014	$	—	$	55,014
Weighted average shares outstanding (000's)	21,179		250		21,429
Per share amount	$	2.60	$	(0.03)	$	2.57

At March 26, 2022 and March 27, 2021, there were 47,223 and 0 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.

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 OCI until either the sale or substantially complete liquidation of the related subsidiaries.

Fair value of derivative instruments at March 26, 2022 and December 25, 2021 are as follows:


Derivatives designated as hedging instruments:	Balance sheet location	March 26, 2022		December 25, 2021

Commodity forward contracts	Accrued expenses	$	(52)	$	(5,802)
Foreign currency forward contracts	Prepaid expenses and other assets	236		149
Foreign currency forward contracts	Accrued expenses	—		(118)
Cross currency swap contracts	Prepaid expenses and other assets	17,449		1,764
		$	17,633	$	(4,007)

Gains (losses) on derivatives recognized in the condensed consolidated statements of earnings for the thirteen weeks ended March 26, 2022 and March 27, 2021 are as follows:


		Thirteen weeks ended
	Statements of earnings location	March 26, 2022		March 27, 2021
Commodity forward contracts	Product cost of sales	$	2,043	$	—
Foreign currency forward contracts	Other income	151		(218)
Foreign currency forward contracts	Product sales	—		—
Interest rate hedge amortization	Interest expense	(16)		(16)
Cross currency swap contracts	Interest expense	774		711
		$	2,952	$	477

Cash Flow Hedges

During 2021, the Company entered into steel hot rolled coil (HRC) forward contracts that qualify as a cash flow hedge of the variability in cash flows attributable to future steel purchases. The forward contracts had a notional amount of $93,498 for the total purchase of 86,100 short tons (30,500 short tons from May 2021 thru December 2021 and 55,600 short tons from January 2022 thru December 2022). As of March 26, 2022, the forward contracts had a notional amount of $51,331 for the total purchase of 43,600 short tons from April 2022 to December 2022. 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 contract, which qualifies as a fair value hedge, matures in August 2022 and has a notional amount to sell $1,800 in exchange for a stated amount of Euros.

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

Net Investment Hedges

In 2019, the Company entered into two fixed-for-fixed cross currency swaps (“CCS”), swapping U.S. dollar principal and interest payments on a portion of its 5.00% senior unsecured notes due 2044 for Danish krone (DKK) and Euro denominated payments. The CCS were entered into in order to mitigate foreign currency risk on the Company's Euro and DKK investments and to reduce interest expense. Interest is exchanged twice per year on April 1 and October 1.

Key terms of the two CCS are as follows:


Currency	Notional Amount		Termination Date	Swapped Interest Rate	Set Settlement Amount
Danish Krone (DKK)	$	50,000	April 1, 2024	2.68%	DKK 333,625
Euro	$	80,000	April 1, 2024	2.825%	€71,550

The Company designated the full notional amount of the two CCS ($130,000) as a hedge of the net investment in certain Danish and European subsidiaries under the spot method, with all changes in the fair value of the CCS that are included in the assessment of effectiveness (changes due to 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) 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 two 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.

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

Summary by Business


	Thirteen weeks ended
	March 26, 2022		March 27, 2021
SALES:
Infrastructure	$	680,726	$	549,646
Agriculture	306,580		229,664

Total	987,306		779,310
INTERSEGMENT SALES:
Infrastructure	(3,101)		(3,201)
Agriculture	(3,385)		(1,223)

Total	(6,486)		(4,424)
NET SALES:
Infrastructure	677,625		546,445
Agriculture	303,195		228,441

Total	$	980,820	$	774,886

OPERATING INCOME:
Infrastructure	$	77,507	$	54,449
Agriculture	37,475		38,748
Corporate	(20,140)		(15,986)

Total	$	94,842	$	77,211


	Thirteen weeks ended March 26, 2022
	Infrastructure		Agriculture		Intersegment Sales		Consolidated
Geographical market:
North America	$	505,980	$	182,255	$	(6,486)	$	681,749
International	174,746		124,325		—