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Item 5. Market for Registrant’s Common Equity

2022-02-23 compared with 2021-02-24 · 0 added, 224 removed, 25 unchanged (90% of the section changed)

24 unchanged sentences

As of December 25, 2021, we have acquired 6,475,406 shares for approximately $878.0 million under this share repurchase program.

SELECTED FINANCIAL DATA.

SELECTED FIVE-YEAR FINANCIAL DATA

(Dollars in thousands, except per share amounts) 2020 2019 2018 2017 2016

Operating Data

$ 2,895,355 $ 2,766,976 $ 2,757,144 $ 2,745,967 $ 2,521,676

Operating income (1)

225,953 227,905 212,172 272,760 248,346

Net earnings attributable to Valmont Industries, Inc.

140,693 146,408 101,770 120,500 175,461

Depreciation and amortization

82,892 82,264 82,827 84,957 82,417

Capital expenditures

106,700 97,425 71,985 55,266 57,920

Per Share Data

$ 6.60 $ 6.76 $ 4.56 $ 5.35 $ 7.78

6.57 6.73 4.53 5.30 7.73

Cash dividends declared

1.800 1.500 1.500 1.500 1.500

Financial Position

Working capital

$ 881,322 $ 918,445 $ 985,224 $ 1,113,294 $ 941,415

Property, plant and equipment, net

597,727 558,129 513,992 518,928 518,335

2,953,160 2,807,216 2,583,893 2,645,977 2,429,778

Long-term debt, including current installments

731,179 765,704 742,601 754,854 755,646

Total Valmont Industries, Inc.

shareholders’ equity.

1,182,062 1,144,338 1,099,976 1,145,631 972,017

Cash flow data:

Net cash flows from operating activities

$ 316,294 $ 307,614 $ 153,008 $ 133,148 $ 232,820

Net cash flows from investing activities

(104,029) (168,150) (155,445) (49,615) (53,049)

Net cash flows from financing activities

(173,756) (98,950) (162,110) (32,010) (95,158)

Financial Measures

Invested capital(a)

$ 1,974,162 $ 1,977,223 $ 1,929,016 $ 1,939,605 $ 1,767,513

Return on invested capital(a)

8.7 % 8.9 % 8.0 % 10.6 % 9.8 %

Adjusted EBITDA(b)

$ 353,619 $ 316,578 $ 346,128 $ 357,667 $ 329,601

Return on beginning shareholders’ equity(c)

12.3 % 13.3 % 8.9 % 12.4 % 18.6 %

Leverage ratio (d)

2.17 2.49 2.18 2.11 2.29

Year End Data

Shares outstanding (000)

21,225 21,544 21,942 22,694 22,521

Approximate number of shareholders

17,768 21,631 21,569 24,801 26,057

Number of employees

10,844 10,398 10,328 10,690 10,552

(1) Fiscal 2020 and fiscal 2018 operating income included impairments of goodwill and intangible assets of $16,638 and $15,780 and restructuring expenses of $23,149 and $34,031.

(2) Fiscal 2020 net earnings included impairments of goodwill and intangible assets of $16,220 after-tax ($0.76 per share) and restructuring expenses of $17,324 after-tax ($0.81 per share).

Fiscal 2018 included impairments of goodwill and intangible assets of $14,736 after-tax ($0.66 per share), restructuring expenses and non-recurring asset impairments from exiting certain local markets of $37,779 after-tax ($1.68 per share), refinancing of long-term debt expenses of $11,115 after-tax ($0.50 per share), and a loss from the divestiture of the grinding media business of $5,350 after-tax ($0.24 per share).

Fiscal 2017 included $41,935 of tax expense ($1.85 per share) associated with recording the impact of the 2017 Tax Act.

Fiscal 2016 included deferred income tax benefit of $30,590 ($1.35 per share) resulting primarily from the re-measurement of the deferred tax asset for the Company's U.K.

defined benefit pension plan.

In addition, fiscal 2016 included $9,888 ($0.44 per share) recorded as a valuation allowance against a tax credit asset.

Fiscal 2016 also included the reversal of a contingent liability that was recognized as part of the Delta purchase accounting of $16,591 ($0.73 per share) which was not taxable.

(3) The Company adopted Accounting Standards Codification ("ASC") Topic 606, Revenue From Contracts with Customers, on a modified retrospective basis as of the first day of fiscal 2018.

Revenue recognition for the prior two years presented in this table was under a different basis which was ASC Topic 605.

(4) Fiscal 2016 was a 53 week fiscal year.

(a) Return on Invested Capital is calculated as Operating Income (after-tax) divided by the average of beginning and ending Invested Capital.

Invested Capital represents total assets minus total liabilities (excluding interest-bearing debt).

Return on Invested Capital is one of our key operating ratios, as it allows investors to analyze our operating performance in light of the amount of investment required to generate our operating profit.

Return on Invested Capital is also a measurement used to determine management incentives.

Return on Invested Capital is a non-GAAP measure.

Accordingly, Invested Capital and Return on Invested Capital should not be considered in isolation or as a substitute for net earnings, cash flows from operations or other income or cash flow data prepared in accordance with GAAP or as a measure of our operating performance or liquidity.

The table below shows how Invested Capital and Return on Invested Capital are calculated from our income statement and balance sheet.

2020 2019 2018 2017 2016

Operating income

$ 225,953 $ 227,905 $ 212,172 $ 272,760 $ 248,346

Adjusted effective tax rate (1)

24.2 % 23.9 % 27.1 % 28.1 % 30.8 %

Tax effect on operating income

(54,681) (54,469) (57,499) (76,646) (76,491)

After-tax operating income

171,272 173,436 154,673 196,114 171,855

Average invested capital

1,975,693 1,953,120 1,934,311 1,853,559 1,759,001

Return on invested capital

8.7 % 8.9 % 8.0 % 10.6 % 9.8 %

2,953,160 2,807,216 2,583,893 2,645,977 2,429,778

Accounts payable

(268,099) (197,957) (218,115) (227,906) (177,488)

Accrued expenses

(227,735) (167,264) (171,233) (165,455) (162,318)

Defined benefit pension liability

(118,523) (140,007) (143,904) (189,552) (209,470)

Deferred compensation

(44,519) (45,114) (46,107) (48,526) (44,319)

Other noncurrent liabilities

(58,657) (8,904) (10,394) (20,585) (14,910)

Dividends payable

(9,556) (8,079) (8,230) (8,510) (8,445)

Lease liability

(80,202) (85,817) — — —

Contract liability (130,018) (117,945) — — —

Deferred tax liability

(41,689) (58,906) (56,894) (45,838) (45,315)

Total Invested capital

$ 1,974,162 $ 1,977,223 $ 1,929,016 $ 1,939,605 $ 1,767,513

Beginning of year invested capital

$ 1,977,223 $ 1,929,016 $ 1,939,605 $ 1,767,513 $ 1,750,488

Average invested capital

$ 1,975,693 $ 1,953,120 $ 1,934,311 $ 1,853,559 $ 1,759,001

(1) The adjusted effective tax rate for 2020 and 2018 excludes the effects of the $12,575 and $14,355 goodwill impairments which is not deductible for income tax purposes.

The effective tax rate in 2020 and 2018 including the impairments are 25.7% and 29.7%.

The adjusted effective tax rate for 2017 excludes the $41,935 of tax expense associated with recording the impact of the 2017 Tax Act.

The effective tax rate in 2017 including these items is 46.5%.

The adjusted effective tax rate for 2016 excludes deferred income tax benefit of $30,590 resulting primarily from the re-measurement of the deferred tax asset for the Company's U.K.

defined benefit pension plan.

In addition, fiscal 2016 excludes $9,888 recorded as a valuation allowance against a tax credit asset.

Fiscal 2016 also excludes the reversal of a contingent liability that was recognized as part of the Delta purchase accounting of $16,591, which is not taxable.

The effective tax rate in 2016 including these items is 19.1%.

Return on invested capital, as presented, may not be comparable to similarly titled measures of other companies.

(b) 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 is as follows:

2020 2019 2018 2017 2016

Net cash flows from operations

$ 316,294 $ 307,614 $ 153,008 $ 133,148 $ 232,820

Interest expense

41,075 40,153 44,237 44,645 44,409

Income tax expense

49,615 47,753 45,608 107,565 42,806

Loss on investment

(39) 172 62 (237) (586)

Change in fair value of contingent consideration

— — — — 3,242

Loss on divestiture of grinding media business

— — (6,084) — —

Impairment of goodwill and intangible assets

(16,638) — (15,780) — —

Impairment of property, plant and equipment

(3,751) — (5,000) — (1,099)

Deferred income tax (expense) benefit

1,397 (1,486) (814) (41,175) 22,942

Noncontrolling interest

(1,456) (5,697) (5,955) (6,079) (5,159)

Equity in earnings of nonconsolidated subsidiaries

(1,004) — — — —

Stock-based compensation

(14,874) (11,587) (10,392) (10,706) (9,931)

Pension plan expense

7,311 513 2,251 (648) (1,870)

Contribution to pension plan

35,399 18,461 1,537 40,245 1,488

Changes in assets and liabilities, net of acquisitions

(98,994) (81,831) 71,539 86,985 16,662

(60) 2,513 225 3,924 (631)

314,275 316,578 274,442 357,667 345,093

Reversal of contingent liability

— — — — (16,591)

Impairment of goodwill and intangible assets

16,638 — 15,780 — —

Cash restructuring expenses

18,955 — 29,031 — —

Impairment of assets - restructuring activities

3,751 — 12,944 — 1,099

Loss on divestiture of grinding media business

— — 6,084 — —

EBITDA from acquisitions (months not owned by Company)

— — 7,847 — —

Adjusted EBITDA

$ 353,619 $ 316,578 $ 346,128 $ 357,667 $ 329,601

2020 2019 2018 2017 2016

Net earnings attributable to Valmont Industries, Inc.

$ 140,693 $ 146,408 $ 101,770 $ 120,500 $ 175,461

Interest expense

41,075 40,153 44,237 44,645 44,409

Income tax expense

49,615 47,753 45,608 107,565 42,806

Depreciation and amortization expense

82,892 82,264 82,827 84,957 82,417

314,275 316,578 274,442 357,667 345,093

Reversal of contingent liability

— — — — (16,591)

Impairment of goodwill and intangible assets

16,638 — 15,780 — —

Cash restructuring expenses

18,955 — 29,031 — —

Impairment of assets - restructuring activities

3,751 — 12,944 — 1,099

Loss on divestiture of grinding media business

— — 6,084 — —

EBITDA from acquisitions (months not owned by Company)

— — 7,847 — —

Adjusted EBITDA

$ 353,619 $ 316,578 $ 346,128 $ 357,667 $ 329,601

Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies.

During 2018, we incurred $14,820 of costs associated with refinancing of debt.

This category of expense is not in the definition of EBITDA for debt covenant calculation purposes per our debt agreements.

As such, it was not added back in the Adjusted EBITDA reconciliation to cash flows from operations or net earnings for the year ended December 29, 2018.

In October 2017, our revolving credit facility was amended to allow the Company to add-back non-recurring cash restructuring costs in 2018.

(c) Return on beginning shareholders’ equity is calculated by dividing Net earnings attributable to Valmont Industries, Inc.

by the prior year’s ending Total Valmont Industries, Inc.

shareholders’ equity.

(d) Leverage ratio is calculated as the sum of current portion of long-term debt, notes payable to bank, and long-term debt 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 is as follows:

2020 2019 2018 2017 2016

Current portion of long-term debt

$ 2,748 $ 760 $ 779 $ 966 $ 851

Notes payable to bank

35,147 21,774 10,678 161 746

Long-term debt

728,431 764,944 741,822 753,888 754,795

Total interest bearing debt

766,326 787,478 753,279 755,015 756,392

Adjusted EBITDA

353,619 316,578 346,128 357,667 329,601

Leverage Ratio

2.17 2.49 2.18 2.11 2.29

Leverage ratio, as presented, may not be comparable to similarly titled measures of other companies.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity