Valmont(VMI) - 2023 Q4 - Annual Report

PART I Business Valmont Industries, Inc. is a diversified manufacturer operating through two primary segments: Infrastructure and Agriculture, with approximately 31% of fiscal 2023 net sales from outside North America, focusing on market penetration, geographic expansion, new product development, and strategic acquisitions - The company operates through two reportable segments: Infrastructure and Agriculture[11][13][14] - In fiscal 2023, approximately 31% of net sales were from markets or manufacturing plants outside of North America[12] Order Backlog by Segment (in millions) | Segment | Dec 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Infrastructure | $1,299.6 | $1,339.1 | | Agriculture | $165.9 | $317.3 | | Total Backlog | $1,465.5 | $1,656.4 | - As of December 30, 2023, the company had 11,125 employees[60] Segments Overview The company is structured into two global reportable segments: Infrastructure and Agriculture, with Infrastructure serving utility, solar, lighting, transportation, and telecommunications markets, and Agriculture focusing on mechanized irrigation equipment and advanced technology solutions - Infrastructure Segment: Manufactures and distributes products for utility, solar, lighting, transportation, and telecommunications markets, along with providing coatings services[13] - Agriculture Segment: Manufactures center pivot and linear irrigation equipment, parts, tubular products, and advanced technology solutions for precision agriculture[14] Infrastructure Segment The Infrastructure segment produces engineered structures for various markets, with demand driven by electrical grid upgrades, infrastructure projects, 5G network expansion, and the global transition to renewable energy, relying on product quality, engineering expertise, and customer service - Key product lines are Transmission, Distribution, and Substation (TD&S); Lighting and Transportation (L&T); Coatings; Telecommunications; and Solar[16][17][21] - Market demand is supported by U.S. government programs such as the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA), which fund grid hardening and highway safety improvements[20] - The solar market is driven by the global transition to clean energy, with single-axis solar trackers being essential for maximizing energy production[27] - Sales and distribution are managed through a direct sales force and commissioned agents, often packaging poles with fixtures from other manufacturers[32] Agriculture Segment The Agriculture segment, under the Valley® brand, manufactures mechanical irrigation equipment, related parts, and advanced technology solutions to improve crop yields and conserve water and energy, competing on product durability, reliability, and dealer service through a global network - Manufactures and distributes mechanical irrigation equipment and parts under the Valley® brand name[37] - Offers advanced technology solutions, including crop anomaly detection using AI and machine learning, with over 100,000 connected devices[37] - Key market drivers include the need to improve water application efficiency, which can be enhanced by 40% to 90% compared to traditional methods, and global food security concerns[39] - Products are marketed through approximately 250 dealer locations in North America and 400 dealers internationally in over 60 countries[41] Business Strategy Valmont's growth strategy is multi-faceted, focusing on increasing market penetration of existing products through differentiation, expanding sales into new geographic regions, and developing new products for both current and new markets, with acquisitions being a key component - Increase market penetration by differentiating products through superior customer service, engineering, and technological innovation[43] - Expand sales of existing products into new geographic markets, such as Poland, India, and the Middle East[44] - Develop new products for new markets and leverage core competencies, with acquisitions being a key component of this strategy[48] Risk Factors The company identifies several significant risks to its business, including economic and business risks from cyclical end markets and commodity price volatility, legal and regulatory risks from international operations and environmental liabilities, liquidity risks from substantial debt, and general risks like competition and cybersecurity threats Economic and Business Risks Valmont's sales are exposed to cyclical downturns in its key end markets, and profitability is sensitive to volatile commodity prices, with a significant portion of revenue dependent on unpredictable government and private infrastructure spending, further complicated by foreign currency fluctuations from international sales - Sales are sensitive to cyclical downturns in key end markets, including the electric utility, agriculture, and wireless communications industries[72][74][77] - A hypothetical 20% change in the price of steel would have impacted net sales in the TD&S product line by approximately $100.0 million for fiscal 2023[83] - Demand for infrastructure products is highly dependent on government spending, which can be affected by budgetary constraints and political changes, with U.S. federal initiatives like the IIJA and IRA supporting demand, but funding timing is uncertain[85][86] - Approximately 31% of fiscal 2023 sales were in markets outside the U.S., exposing the company to risks from fluctuations in foreign currency exchange rates[87] Legal and Regulatory Risks The company faces risks from its extensive international operations, including political instability, trade tariffs, and difficulties in enforcing intellectual property rights, with compliance with anti-corruption laws and environmental regulations being critical to avoid significant penalties and cleanup costs, while product liability litigation also poses a threat - International operations are subject to risks including political and economic instability, tariffs, trade barriers, and difficulties in staffing and management[91][93][95] - Failure to comply with anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act, could result in fines, criminal penalties, and reputational damage[94][96] - Operations are subject to environmental laws, and violations or the discovery of contamination at sites could result in significant liabilities and cleanup costs[97][98] Liquidity and Capital Resources Risks As of December 30, 2023, the company's $1.14 billion total debt could limit operational flexibility and requires compliance with restrictive covenants, while a significant portion of its cash is held by foreign subsidiaries with potential repatriation restrictions, and an underfunded U.K. pension plan requires ongoing contributions - As of December 30, 2023, total outstanding indebtedness was $1,138.1 million, which could impair the ability to operate and requires compliance with debt covenants[103] - Approximately 80% of the company's $203.0 million cash balance is held outside the U.S., and repatriation may be subject to restrictions[106] - The company has an ongoing funding obligation for a U.K. defined benefit pension plan, with current annual funding of approximately £13.1 million plus administrative expenses[107] General Risks General operational risks include the potential inability to attract and retain skilled labor and management, strong competition across all markets, integration challenges and unrealized results from future acquisitions, significant warranty costs, and increasing cybersecurity threats to information technology systems - The business requires skilled factory workers and management talent, and an inability to attract and retain qualified employees could adversely affect growth[111] - The company faces strong competition from a variety of international, national, and local companies in each of its markets[112] - Acquisitions may present significant integration challenges and may not realize anticipated operating results[115][116] - Operations could be adversely affected if information technology systems are compromised by cyberattacks, potentially leading to data loss, operational disruptions, and financial penalties[122][124] Unresolved Staff Comments The company reports no unresolved staff comments - None[127] Cybersecurity Valmont's cybersecurity risk management and strategy focuses on maintaining the confidentiality, integrity, and availability of its information, benchmarked against the ISO 27001 Framework, with the Board of Directors' Audit Committee providing oversight - The information security program is designed to identify and mitigate risks, with processes including an incident response plan, security awareness training, and risk assessments[128] - Security performance is measured against the International Organization for Standardization (ISO) 27001 Framework[129] - The Board of Directors has delegated cybersecurity risk oversight to the Audit Committee, which receives regular reports from the Director of Security[133][134] Properties The company's corporate headquarters are leased in Omaha, Nebraska, while most of its principal manufacturing facilities are owned and located globally, including in the U.S., France, Brazil, Mexico, Poland, China, and the United Arab Emirates, with management believing capabilities are adequate - Corporate headquarters are located in a leased facility in Omaha, Nebraska[135] - Most significant manufacturing locations are owned, with principal sites including Valley, NE; Tulsa, OK; Charmeil, France; Uberaba, Brazil; and Shanghai, China[135] - The Infrastructure segment has North American manufacturing operations in 20 states, Canada, and Mexico, with major international locations in France and China[137] - The Agriculture segment's principal international manufacturing operations are in Brazil, the United Arab Emirates, and China[138] Legal Proceedings The company is not a party to any material legal proceedings and is engaged only in routine litigation incidental to its businesses from time to time - The company is not a party to, nor are any of its properties subject to, any material legal proceedings[140] Mine Safety Disclosures This item is not applicable to the company - Not applicable[141] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Valmont's common stock trades on the New York Stock Exchange under 'VMI', with $49.5 million in dividends paid in fiscal 2023, and 714,037 shares repurchased for approximately $178.6 million in Q4 2023, leaving $136.1 million authorized for future repurchases - The company's common stock is traded on the New York Stock Exchange under the ticker symbol 'VMI'[149] - Cash dividends paid totaled $49.5 million in fiscal 2023, compared to $45.8 million in fiscal 2022[151] Share Repurchases in Q4 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 29 - Dec 2, 2023 | 240,120 | $211.69 | | Nov 2023 ASR | 438,917 | N/A | | Dec 3 - Dec 30, 2023 | 35,000 | $222.11 | | Total | 714,037 | $250.15 | - As of December 30, 2023, $136.1 million remained available for purchase under the company's share repurchase program, which has no expiration date[152][154] [Reserved]](index=40&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2023, net sales decreased 3.9% to $4.17 billion due to a 12.0% decline in Agriculture, partially offset by a 3.1% increase in Infrastructure, while gross profit margin improved to 29.6%, but operating income and net earnings significantly fell due to a $140.8 million impairment charge and $35.2 million in realignment charges, despite maintaining strong liquidity Consolidated Financial Highlights (FY 2023 vs. FY 2022) | Metric | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $4,174.6M | $4,345.2M | (3.9)% | | Gross Profit | $1,236.0M | $1,126.3M | 9.8% | | Gross Margin | 29.6% | 25.9% | +370 bps | | Operating Income | $291.6M | $433.3M | (32.7)% | | Net Earnings | $150.8M | $250.9M | (39.9)% | | Diluted EPS | $6.78 | $11.62 | (41.7)% | - The decrease in net sales was primarily due to lower sales in the Agriculture segment, partially offset by higher sales in the Infrastructure segment[161] - Comparability of results was significantly impacted by a $140.8 million impairment charge and $35.2 million in realignment charges incurred in fiscal 2023[164][165] Fiscal 2023 Compared with Fiscal 2022 Fiscal 2023 net sales decreased by $170.6 million, primarily due to a $175.5 million volume decline in the Agriculture segment, while gross profit margin improved due to favorable pricing and lower steel costs, but operating income was heavily impacted by a $140.8 million impairment charge and $35.2 million in realignment charges, leading to a higher effective tax rate - The decrease in net sales was driven by lower volumes in Agriculture, partially offset by favorable pricing/mix in Infrastructure and contributions from acquisitions[162] - A company-wide Realignment Program resulted in $35.2 million of charges in fiscal 2023, primarily for severance and employee benefits[164] - Consolidated operating income decreased due to the $140.8 million impairment of goodwill and intangible assets and $35.2 million in realignment charges[171] - The effective tax rate increased to 38.1% in fiscal 2023, primarily because no tax benefits were recorded for the goodwill impairment charges[176] Reportable Segments Performance The Infrastructure segment's sales grew 2.8% to $3.01 billion in fiscal 2023, driven by strong performance in Solar and TD&S, leading to an 11.8% increase in operating income to $396.3 million, while the Agriculture segment's sales fell 12.2% to $1.18 billion due to lower volumes, and its operating income plummeted 90.6% to $16.9 million due to a $137.2 million impairment charge Infrastructure Segment Sales by Product Line (in millions) | Product Line | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | TD&S | $1,243.8 | $1,184.7 | 5.0% | | L&T | $964.1 | $940.5 | 2.5% | | Coatings | $354.3 | $356.7 | (0.7)% | | Telecommunications | $252.2 | $320.3 | (21.3)% | | Solar | $195.7 | $126.2 | 55.1% | | Total Sales | $3,010.1 | $2,928.4 | 2.8% | - Infrastructure operating income increased 11.8% to $396.3 million, driven by favorable pricing and cost improvements that more than offset higher SG&A[187] Agriculture Segment Sales by Geography (in millions) | Geography | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | North America | $587.1 | $766.9 | (23.4)% | | International | $595.1 | $579.8 | 2.6% | | Total Sales | $1,182.2 | $1,346.7 | (12.2)% | - Agriculture operating income decreased 90.6% to $16.9 million, primarily due to a $137.2 million impairment of goodwill and intangible assets in the Agriculture Technology reporting unit[195] Liquidity and Capital Resources The company's capital allocation priorities are funding growth, paying dividends, pursuing acquisitions, and share repurchases, while aiming to maintain its investment-grade debt rating, with total debt at $1.14 billion and $421.9 million available under its credit facility at year-end 2023, and expected capital expenditures for fiscal 2024 between $125.0 million and $140.0 million - Capital allocation priorities are: 1) working capital and capex, 2) dividends, 3) acquisitions, and 4) share repurchases[202] - As of December 30, 2023, the company had $377.9 million in borrowings outstanding under its $800.0 million revolving credit facility, with $421.9 million of borrowing capacity remaining[213] Cash Flow Summary (in millions) | Cash Flow | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $306.8 | $326.3 | | Net cash used in investing activities | ($115.3) | ($132.1) | | Net cash used in financing activities | ($176.4) | ($181.9) | - The leverage ratio, a key debt covenant metric, was 1.60 as of December 30, 2023, well below the maximum of 3.50[241][243] Critical Accounting Policies Management identifies several critical accounting policies requiring significant judgment and estimates, including the impairment testing of long-lived assets (resulting in a $121.9 million goodwill impairment in fiscal 2023), accounting for income taxes, assumptions for pension benefit obligations, and revenue recognition for long-term contracts based on progress toward completion - The annual goodwill impairment test in fiscal 2023 resulted in a $120.0 million impairment for the Agriculture Technology reporting unit and a $1.9 million impairment for the India Structures reporting unit[259] - The company maintains valuation allowances against deferred tax assets, which could be adjusted based on future taxable income expectations[269] - Critical assumptions for the U.K. defined benefit pension plan include the discount rate (4.50% for 2023) and the expected rate of return on plan assets (5.05% for 2024)[272][274] - For TD&S and Telecommunications monopole contracts, revenue is recognized over time on an inputs basis, using production hours incurred as a percentage of total estimated hours[277][278] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for the three-year period ended December 30, 2023, and accompanying notes, with Deloitte & Touche LLP providing an unqualified opinion on both the financial statements and the effectiveness of internal control over financial reporting, detailing a net income of $150.8 million on sales of $4.17 billion in fiscal 2023 Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified audit opinion on Valmont's consolidated financial statements and the effectiveness of its internal control over financial reporting as of December 30, 2023, identifying the goodwill impairment assessment for three reporting units as a critical audit matter due to significant management estimates - The auditor, Deloitte & Touche LLP, issued an unqualified opinion on the consolidated financial statements[286] - An unqualified opinion was also issued on the effectiveness of the company's internal control over financial reporting as of December 30, 2023[287][484] - The goodwill impairment assessment for three specific reporting units was identified as a critical audit matter due to the high degree of auditor judgment and complexity of management's estimates[292][293] Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, business activities, and financial items, including the two reportable segments, recent acquisitions and divestitures, the $140.8 million impairment of goodwill and intangibles in 2023, the composition of the company's $1.1 billion in long-term debt, and the funded status of its U.K. defined benefit pension plan - Note 2 (Acquisitions): The company acquired HR Products in Australia for $37.3 million in August 2023, strengthening its aftermarket parts presence in the Agriculture segment[359] - Note 4 (Realignment Activities): A 2023 realignment program resulted in $35.2 million in pre-tax charges for severance and other employee benefit costs[375][376] - Note 8 (Goodwill and Intangible Assets): In Q3 2023, the company recognized impairment charges of $121.9 million for goodwill and $18.9 million for other intangible assets, primarily related to the Agriculture Technology reporting unit[382][383][387][388] - Note 19 (Defined Benefit Retirement Plan): The U.K. pension plan was overfunded by $15.4 million as of December 30, 2023, with a projected benefit obligation of $477.8 million and plan assets of $493.2 million[442][444] - Note 21 (Business Segments): Provides a detailed breakdown of sales and operating income by segment and product line, with Infrastructure sales at $3.0 billion and $396.3 million in operating income, and Agriculture sales at $1.17 billion with $16.9 million in operating income in 2023[471] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[479] Controls and Procedures Based on an evaluation involving the CEO and CFO, management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 30, 2023, a conclusion audited and affirmed by Deloitte & Touche LLP - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures are effective in providing reasonable assurance that required information is properly recorded and reported[479] - Management concluded that the company's internal control over financial reporting was effective as of December 30, 2023, based on the COSO framework[480] - The independent registered public accounting firm, Deloitte & Touche LLP, audited and issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[481][484] Other Information This section includes performance graphs comparing the cumulative total shareholder return of the company's common stock against the S&P MidCap 400 Index and the S&P 400 Industrial Machinery & Supplies & Components Index for the five and ten-year periods ending December 30, 2023 - Presents graphs comparing the company's five and ten-year cumulative total shareholder return against the S&P MidCap 400 and a relevant S&P 400 industry index[491] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[493] PART III This section incorporates by reference information from the company's Proxy Statement for its upcoming annual shareholders' meeting, covering disclosures related to directors and executive officers, executive compensation, security ownership of certain beneficial owners and management, and certain relationships, related transactions, and director independence Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's Proxy Statement for its annual meeting of shareholders to be held on May 6, 2024 - Information required by this item is incorporated by reference from the company's Proxy Statement[496] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[498][496] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners, management, and related stockholder matters is incorporated by reference from the company's Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[499] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[500][496] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[501] PART IV This section lists the financial statements, schedules, and exhibits that are filed as part of the Form 10-K report, including an index of all exhibits such as corporate governance documents, debt agreements, stock plans, and certifications Exhibit and Financial Statement Schedules This item lists the consolidated financial statements and notes included in the report and provides a detailed index of all exhibits filed with the Form 10-K, including corporate governance documents, debt agreements, stock plans, and required certifications - Lists the Consolidated Financial Statements of the Company included in the report[503] - Provides a detailed index to all exhibits filed with the Form 10-K[503][504][505] Form 10-K Summary The company has not provided a summary for its Form 10-K - None[510]