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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended
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Jun. 25, 2022
Accounting Policies [Abstract] |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. 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:
| June 25, 2022 |  | December 25, 2021
Raw materials and purchased parts | $ | 309,372 |  |  | $ | 278,107 |
Work-in-process | 72,632 |  |  | 63,628 |
Finished goods and manufactured goods | 404,596 |  |  | 387,099 |
Total Inventory | $ | 786,600 |  |  | $ | 728,834 |
Income Taxes Earnings bef ore income taxes 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
| 2022 |  | 2021 |  | 2022 |  | 2021
United States | $ | 62,214 |  |  | $ | 57,090 |  |  | $ | 123,031 |  |  | $ | 108,245 |
Foreign | 45,135 |  |  | 20,666 |  |  | 70,703 |  |  | 40,374 |
| $ | 107,349 |  |  | $ | 77,756 |  |  | $ | 193,734 |  |  | $ | 148,619 |
Pension Benefits The Company incurs expenses in connection with the Delta Pension Plan ("DPP"). The DPP was acquired as part of the Delta plc acquisition in fiscal 2010 and has no members that are active employees. In order to measure expense and the related benefit obligation, various assumptions are made including discount rates used to value the obligation, expected return on plan assets used to fund these expenses and estimated future inflation rates. These assumptions are based on historical experience as well as current facts and circumstances. An actuarial analysis is used to measure the expense and liability associated with pension benefits. The components of the net periodic pension (benefit) expense for the thirteen and 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 | $ | 3,157 |  |  | $ | 2,530 |  |  | $ | 6,522 |  |  | $ | 5,027 |
Expected return on plan assets | (5,818) |  |  | (7,097) |  |  | (12,020) |  |  | (14,102) |
Amortization of actuarial loss | 124 |  |  | 843 |  |  | 256 |  |  | 1,675 |
Net periodic benefit | $ | (2,537) |  |  | $ | (3,724) |  |  | $ | (5,242) |  |  | $ | (7,400) |
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 June 25, 2022, 1,892,141 shares 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 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 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 | $ | 10,120 |  |  | $ | 4,277 |  |  | $ | 19,583 |  |  | $ | 8,948 |
Income tax benefits | 2,530 |  |  | 1,069 |  |  | 4,896 |  |  | 2,237 |
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. 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 $28,383 ($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 $93 and $94 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.
|  |  | Fair Value Measurement Using:
| Carrying Value June 25, 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 | $ | 28,476 |  |  | $ | 28,476 |  |  | $ | — |  |  | $ | — |
Derivative financial instruments, net | 3,432 |  |  | — |  |  | 3,432 |  |  | — |
|  |  | 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) |  |  | — |
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. 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 June 25, 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) | (31,112) |  |  | 5,799 |  |  | 256 |  |  | (25,057) |
Balance at June 25, 2022 | $ | (274,462) |  |  | $ | 21,576 |  |  | $ | (35,298) |  |  | $ | (288,184) |
Revenue Recognition The Company determines the appropriate revenue recognition for our contracts by analyzing the type, terms and conditions of each contract or arrangement with a customer. Contracts with customers for all businesses are fixed-price with sales tax excluded from revenue, and do not include variable consideration. Discounts included in contracts with customers, typically early pay discounts, are recorded as a reduction of net sales in the period in which the sale is recognized. Contract revenues are classified as product when the performance obligation is related to the manufacturing of goods. Contract revenues are classified as service when the performance obligation is the performance of a service. Service revenue is primarily related to the Coatings and Technology Products and Services product lines. Customer acceptance provisions exist only in the design stage of our products and acceptance of the design by the customer is required before the project is manufactured and delivered to the customer. The Company is not entitled to any compensation solely based on design of the product and does not recognize this service as a separate performance obligation and, therefore, no revenue is recognized with the design stage. No general rights of return exist for customers once the product has been delivered and the Company establishes provisions for estimated warranties. The Company does not sell extended warranties for any of its products. Shipping and handling costs associated with sales are recorded as cost of goods sold. The Company elected to use the practical expedient of treating freight as a fulfillment obligation instead of a separate performance obligation and ratably recognize freight expense as the structure is being manufactured, when the revenue from the associated customer contract is being recognized over time. With the exception of the transmission, distribution, and substation structures ("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 $200,522 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 June 25, 2022 and December 25, 2021, total contract liabilities were $217,698 and $213,203, respectively. At June 25, 2022, $175,814 was recorded as contract liabilities and $41,884 was recorded as other noncurrent liabilities on the condensed consolidated balance sheets. Additional details are as follows: •During the thirteen and twenty-six weeks ended June 25, 2022, the Company recognized $31,149 and $59,171 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 $31,267 and $69,369 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 $83,681 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 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 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.

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