VALMONT INDUSTRIES, INC. Management's discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions that management has made in light of experience in the industries in which the Company operates, as well as management's perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances. These statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond the Company's control) and assumptions. Management believes that these forward-looking statements are based on reasonable assumptions. Many factors could affect the Company's actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. These factors include, among other things, the continuing and developing effects of COVID-19 including the effects of the outbreak on the general economy and the specific effects on the Company's business and that of its customers and suppliers, risk factors described from time to time in the Company's reports to theSecurities and Exchange Commission , as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability and price of raw materials, availability and market acceptance of new products, product pricing, domestic and international competitive environments, and actions and policy changes of domestic and foreign governments. This discussion should be read in conjunction with the financial statements and notes thereto, and the management's discussion and analysis included in the Company's Annual Report on Form 10-K for the fiscal year endedDecember 28, 2019 . Segment net sales in the table below and elsewhere are presented net of intersegment sales. See Note 8 of our condensed consolidated financial statements for additional information on segment sales and intersegment sales. 24 --------------------------------------------------------------------------------
Results of Operations (Dollars in millions, except per share amounts)
Thirteen weeks ended Twenty-six weeks ended
% Incr.
June 27, 2020 June 29, 2019 (Decr.) June 27, 2020 June 29, 2019 % Incr. (Decr.)
Consolidated
Net sales $ 688.8 $ 700.9 (1.7) % $ 1,363.0 $ 1,393.0 (2.2) %
Gross profit 183.9 178.2 3.2 % 370.2 342.8 8.0 %
as a percent of sales 26.7 % 25.4 % 27.2 % 24.6 %
SG&A expense (1) 140.5 116.7 20.4 % 259.9 $ 226.7 14.6 %
as a percent of sales 20.4 % 16.7 % 19.1 % 16.3 %
Operating income 43.4 61.5 (29.4) % 110.3 116.1 (5.0) %
as a percent of sales 6.3 % 8.8 % 8.1 % 8.3 %
Net interest expense 9.6 9.1 5.5 % 18.6 18.1 2.8 %
Effective tax rate 35.4 % 24.8 % 29.1 % 24.9 %
Net earnings $ 22.6 $ 39.7 (43.1) % $ 65.5 $ 75.8 (13.6) %
Diluted earnings per share $ 1.06 $ 1.82 (41.8) % $ 3.05 $ 3.46 (11.8) %
Engineered Support Structures
(ESS)
Net sales $ 248.8 $ 257.5 (3.4) % $ 476.2 $ 485.5 (1.9) %
Gross profit 68.4 63.5 7.7 % 130.1 115.4 12.7 %
SG&A expense 63.6 42.7 48.9 % 109.4 82.1 33.3 %
Operating income 4.8 20.8 (76.9) % 20.7 33.3 (37.8) %
Utility Support Structures
(Utility)
Net sales $ 228.5 $ 209.1 9.3 % $ 451.4 $ 452.3 (0.2) %
Gross profit 47.9 40.9 17.1 % 101.5 89.6 13.3 %
SG&A expense 26.2 24.9 5.2 % 52.1 48.5 7.4 %
Operating income 21.7 16.0 35.6 % 49.4 41.1 20.2 %
Coatings
Net sales $ 62.7 $ 81.1 (22.7) % $ 131.3 $ 151.3 (13.2) %
Gross profit 19.8 27.1 (26.9) % 41.6 47.7 (12.8) %
SG&A expense 9.7 12.0 (19.2) % 20.4 22.5 (9.3) %
Operating income 10.1 15.1 (33.1) % 21.2 25.2 (15.9) %
Irrigation
Net sales $ 148.8 $ 153.2 (2.9) % $ 304.1 $ 303.9 0.1 %
Gross profit 47.8 46.7 2.4 % 97.0 90.1 7.7 %
SG&A expense 25.5 25.1 1.6 % 51.0 48.4 5.4 %
Operating income 22.3 21.6 3.2 % 46.0 41.7 10.3 %
Net corporate expense
SG&A $ 15.5 $ 12.0 29.2 % $ 27.0 $ 25.2 7.1 %
Operating loss (15.5) (12.0) (29.2) % (27.0) (25.2) (7.1) %
(1) The second quarter and first half of 2020 include impairment of goodwill and intangible assets.
25
--------------------------------------------------------------------------------Overview
On a consolidated basis, net sales were lower in the second quarter of 2020
compared to 2019 due to lower sales in ESS, Coatings, and Irrigation segments
that were partially offset by increased sales for the Utility segment. Excluding
the effect from foreign currency translation, second quarter 2020 sales for ESS
and Irrigation were similar to 2019. In the first half of 2020, as compared to
2019, sales decreased due to lower sales in the ESS and Coatings segments. The
change in net sales in the second quarter and first half of fiscal 2020, as
compared with the same periods in 2019, is as follows:
Second quarter
Total ESS Utility Coatings Irrigation
Sales - 2019 $ 700.9 $ 257.5 $ 209.1 $ 81.1 $ 153.2
Volume (2.1) (5.8) 14.3 (13.9) 3.3
Pricing/mix 0.8 2.0 3.6 (2.8) (2.0)Acquisition/(divestiture) 2.9 1.2 1.8 -
(0.1)
Currency translation (13.7) (6.1) (0.3) (1.7) (5.6)
Sales - 2020 $ 688.8 $ 248.8 $ 228.5 $ 62.7 $ 148.8
Year-to-date
Total ESS Utility Coatings Irrigation
Sales - 2019 $ 1393.0 $ 485.5 $ 452.3 $ 151.3 $ 303.9
Volume (9.0) (3.6) (7.0) (13.3) 14.9
Pricing/mix 0.6 3.2 5.3 (3.6) (4.3)
Acquisition/(divestiture) 2.3 2.6 1.8 - (2.1)
Currency translation (23.9) (11.5) (1.0) (3.1) (8.3)
Sales - 2020 $ 1,363.0 $ 476.2 $ 451.4 $ 131.3 $ 304.1
Volume effects are estimated based on a physical production or sales measure.
Since products we sell are not uniform in nature, pricing and mix relate to a
combination of changes in sales prices and the attributes of the product sold.
Accordingly, pricing and mix changes do not necessarily result in operating
income changes.
Average steel prices for both hot rolled coil and plate were lower in North
America and China in the second quarter and first half of 2020, as compared to
2019, contributing to lower cost of sales and improved gross profit.
The Company acquired the following businesses:
•Connect-It Wireless, Inc. ("Connect-It") in the second quarter of 2019, a
domestic communication components business (ESS).
•In the first quarter of 2020, we acquired the remaining 49% of AgSense that the
Company did not own (Irrigation).
•In the first quarter of 2020, we acquired 16% of the remaining 25% of Convert
Italia that the Company did not own (Utility).
•Energia Solar Do Brasil ("Solbras") in the second quarter of 2020, a leading
provider of solar energy solutions for agriculture (Irrigation).
COVID-19 Impact on Financial Results and Liquidity
We are considered an essential business because of the products and services that serve critical infrastructure sectors as defined by many governments around the world. Our manufacturing facilities inArgentina ,France ,Malaysia ,New Zealand ,Philippines , andSouth Africa closed late in the first quarter of 2020 due to government mandates, have all resumed 26 -------------------------------------------------------------------------------- operations. All our manufacturing facilities are open and fully operational as ofJuly 28, 2020 . We continue to monitor incidence of COVID-19 on a continuous basis, particularly in areas reporting recent increases in infection. To protect the safety, health and well-being of employees, customers, suppliers and communities,CDC and WHO guidelines are being followed in all facilities. We generated positive cash flows from operating activities during the first half of 2020 and expect positive cash flows from operating activities for the full fiscal 2020 year. Our main focus is to maintain liquidity to support the working capital needs of our operations and maintain our investment grade credit rating. •Our capital spending for the 2020 fiscal year has been reduced from the previously announced approximately$100 million to$125 million to approximately$80 to$90 million . •We have suspended repurchase of shares to preserve financial liquidity until the COVID-19 impact is clearer. As a result of the evolving impact of COVID-19 on the global economy, we anticipate and are planning for slowdown in customer demand and business disruption, primarily in the Coatings and Irrigation segments. Consolidated operating income and specifically operating margin in the third quarter of 2020, is expected to be lower than the same period of 2019 as a result of the lower sales in these two segments. The ultimate magnitude of COVID-19, including the extent of its impact on the Company's financial and operational results, cash balances and available borrowings on our line of credit, will be determined by the length of time the pandemic continues, its effect on the demand for the Company's products and services and supply chain, as well as the effect of governmental regulations imposed in response to the pandemic.
Currency Translation
In the second quarter and first half of 2020, we realized a decrease in
operating profit, as compared with 2019, due in part to currency translation
effects associated with a stronger U.S. dollar against most foreign currencies.
The breakdown of this effect by segment was as follows:
Total ESS Utility Coatings Irrigation Corporate
Second quarter $ (0.6) $ (0.4) $ 0.2 $ (0.1) $ (0.3) $ -
Year-to-date $ (1.2) $ (0.6) $ 0.2 $ (0.3) $ (0.6) $ 0.1 Gross Profit, SG&A, and Operating Income
At a consolidated level, gross profit as a percent of sales was higher in
the second quarter and first half of 2020, as compared with the same periods in
2019, due to lower raw material costs across the Company, improved selling
prices across our infrastructure businesses, and improved volumes for the
Irrigation segment and associated operating leverage of fixed costs. Gross
profit improved for all operating segments, with the exception of Coatings that
had lower sales volumes.
SG&A expenses increased in the second quarter and first half of 2020, as
compared to the same periods in 2019. The increase was due to recording a
partial impairment of goodwill and tradename for the Access Systems business,
higher compensation related costs including sales commissions for the North
American infrastructure businesses, higher incentives due to improved
operations, and salary merit increases. These increases were partially offset by
lower travel costs, foreign currency translation effects, and reduced SG&A
deferred compensation expense in the first half of 2020 (offset by an increase
of the same amount in other expense).
In the second quarter and first half of 2020, as compared to the same periods
in 2019, operating income was higher in the Utility and Irrigation segments and
lower for the ESS and Coatings segments. The overall decrease in operating
income in the second quarter and first half of 2020 can be attributed to the
goodwill and tradename impairment for the Access Systems business, certain
restructuring activities, and lower volumes for the Coatings business. The
decrease was offset by lower raw material costs, improved sales pricing for the
infrastructure businesses, and improved sales volumes in the Irrigation segment.
Net Interest Expense and Debt
Net interest expense in the second quarter and first half of 2020 was similar to the same periods in 2019. Interest income was lower in the second quarter and first half of 2020, as compared to 2019, due to lower interest rates.
27
--------------------------------------------------------------------------------Other Income/Expenses
The change in other income/expenses in the second quarter and first half of
2020, as compared to 2019, was due to the change in valuation of deferred
compensation assets which resulted in additional other income of $1.0 million
and reduced other income of $4.2 million , respectively. This amount is shown as
Gain on investments (unrealized) on the condensed consolidated statements of
earnings. The change related to deferred compensation assets are offset by an
opposite change of the same amount in SG&A expense. The remaining change was due
to fluctuations in foreign currency transaction gains/losses that was less
favorable in 2020.
Income Tax Expense
Our effective income tax rate in the second quarter and first half of 2020
was 35.4% and 29.1%, compared to 24.8% and 24.9% in the second quarter and first
half of 2019. The increase in the effective tax rate is a result of the partial
impairment of goodwill and tradename for the Access Systems business that is not
fully tax deductible.
Earnings attributable to noncontrolling interests was lower in the second
quarter and first half of 2020, as compared to 2019. The decrease can be
attributed to the acquisition of the remaining noncontrolling interests of
AgSense and partial acquisition of the noncontrolling interest of Convert in the
first quarter of 2020.
Cash Flows from Operations
Our cash flows provided by operations was $150.7 million in the first half
of fiscal 2020, as compared with $113.4 million provided by operations in the
first half of 2019. The increase in operating cash flow in the first half of
2020, as compared with 2019, was due to improved working capital management. The
lower working capital is primarily attributed to an increase in accounts payable
and a larger contract liability for customer billings in excess of costs and
earnings.
ESS segment
Net sales were lower in the second quarter and first half of 2020 as
compared to 2019, primarily driven by unfavorable foreign currency translation
effects of $6.1 million and $11.5 million , respectively. Lighting, traffic, and
highway safety product sales were relatively flat in the second quarter of 2020
as compared to 2019, while communication product sales volumes were higher and
sales volumes of access systems were lower. In the first half of 2020, sales
were higher for the lighting, traffic, and highway safety product business and
lower for communication products and access systems.
Global lighting, traffic, and highway safety product sales in the second
quarter and first half of 2020 was lower by $0.5 million and higher by $14.3
million , as compared to the same periods in fiscal 2019. Sales volumes improved
in North America due to a strong backlog in transportation markets, while sales
volumes were down slightly in commercial markets. Europe sales volumes were
lower due to the ceasing of operations in Morocco , the temporary plant shutdowns
in France and India due to COVID-19, and unfavorable foreign currency
translation effects. In addition, COVID-19 contributed to tempered demand for
other locations that contributed to the decrease in sales. Lighting, traffic,
and highway safety product sales in the Asia-Pacific region decreased in the
second quarter and first half of 2020, as compared to 2019, due primarily to
temporary shutdowns in India due to COVID-19.
Communication product line sales were higher by $3.4 million in the second
quarter and lower by $1.2 million in the first half of 2020, as compared with
2019. In North America , communication structure sales volumes increased in the
second quarter of 2020 due to improved demand and the acquisition of Connect-It.
Communication product sales in Europe improved due to new project work and
Asia-Pacific sales volumes decreased primarily due to lower market activity in
China .
Access Systems product line net sales decreased in the second quarter and first
half of 2020, as compared to 2019, by $8.2 million and $17.9 million . Sales
volumes declines were driven by Australia engineering construction spending that
remained subdued negatively impacting all product lines. The business also
exited the detention center and portions of the industrial product line that
contributed to the sales declined along with unfavorable foreign currency
translation effects.
Gross profit was higher in the second quarter and first half of 2020, as
compared to 2019, due to lower cost of raw materials across the segment and
sales volume improvements in the
28
--------------------------------------------------------------------------------
Access Systems business of $16.6 million and higher sales commissions and
incentives due to improved operations in North America . Operating income
decreased due to the goodwill and tradename impairment of the Access Systems
business partially offset by lower raw material costs for all businesses and
sales volume improvements in North America .
Utility segment
In the Utility segment, sales increased in the second quarter, as compared
with 2019, due to improved sales volumes for steel and concrete structures in
North America and an improved sales mix. Sales for the first half of 2020 were
comparable to 2019. A number of our sales contracts in North America contain
provisions that tie the sales price to published steel index pricing at the time
our customer issues their purchase order but that did not result in a meaningful
decrease to the average selling prices for our steel utility structures product
line for the first half of 2020, as compared with 2019.
Offshore and Solar sales decreased in the second quarter and first half of
2020, as compared to 2019, due to lower volumes and unfavorable currency
translation effects. The decrease for both businesses can be attributed to large
projects in the prior year that did not recur.
Gross profit increased in the second quarter and first half of 2020, as
compared to 2019, due to an improved sales mix, higher sale volumes and its
associated operating leverage of fixed costs, as well as lower costs of steel
while average selling prices were similar to prior year. In addition, the
business incurred approximately $3.0 million of inspection costs during 2019 to
finalize the requirements from a 2015 commercial settlement that did not recur
in 2020. Partially offsetting that was a $2.2 million impairment of a facility
that is classified as an asset held for sale. SG&A expense was higher in the
second quarter and first half of 2020, as compared with 2019, due to higher
incentives due to improved operating results in North America and $0.6 million
of restructuring expenses incurred for the offshore and other complex steel
structures' product line. Operating income increased due to an improved mix of
product line sales and higher sales volumes.
Coatings segment
Coatings segment sales decreased in the second quarter and first half of
2020, as compared to the same periods in 2019, due to lower volumes in North
America and Asia , reduced sales pricing attributed to lower zinc costs, and
unfavorable foreign currency translation. Sales volumes decreased in North
America in the second quarter and first half of 2020, as compared to 2019, due
primarily to the slowdown caused by COVID-19. In Asia-Pacific region , sales
volumes improved in Australia , but was more than offset by decreased volumes in
Asia that were impacted by sites temporarily closed during second quarter 2020
due to COVID-19. Sales pricing also declined in Asia-Pacific due to lower zinc
costs and customer mix.
SG&A expense was lower in the second quarter and first half of 2020, as
compared to 2019, due to one-time expenses associated with a legal settlement in
2019. Operating income was lower in the second quarter and first half of 2020,
compared to the same periods in 2019, due to sales volume decreases in North
America and Asia and the associated operating deleverage of fixed costs. The
decrease was partially offset by a one-time expenses associated with a legal
settlement in 2019.
Irrigation segment
The decrease in Irrigation segment net sales in the second quarter of 2020,
as compared to 2019, is primarily due to unfavorable foreign currency
translation effects that were partially offset by sales volume improvements in
both North America and international markets. Brazil drove the sales volume
improvements for international irrigation that were partially offset by
unfavorable currency translation effects from a weaker Brazil real and South
African rand. Sales volumes increased in North America , primarily due to
increased service part sales resulting from drier weather conditions in 2020.
Sales increased slightly in the first half of 2020 as compared to 2019, due to
higher sales volumes in North America and international markets that were offset
by unfavorable foreign currency translation effects and lower sales pricing in
our tubing business. Sales of technology-related products and services continue
to increase, as growers are increasing adoption of technology to reduce costs
and enhance profitability.
SG&A was higher in the second quarter and first half of 2020, as compared to
2019, due to higher product development expenses. Operating income for the
segment increased in the second quarter and first half of 2020 over the same
periods in 2019, as a result of lower raw material costs and higher sales
volumes in international markets.
Net corporate expense
Corporate SG&A expense was higher in the second quarter and first half of 2020,
as compared to 2019. The increase the second quarter is attributed to a change
in valuation of deferred compensation assets which resulted in higher expense of
$1.0 million . In addition, there were higher incentive accruals related to
improved business performance. The increase in the first half of 2020 is due to
higher incentive, partially offset by the change in valuation of deferred
compensation assets which
29
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resulted in lower expense of
Liquidity and Capital Resources Cash Flows Working Capital and Operating Cash Flows-Net working capital was$875.0 million atJune 27, 2020 , as compared to$918.4 million atDecember 28, 2019 . The decrease in net working capital in 2020 is attributed to an increase in accounts payable of$43.3 million and contract liability for customer billings in excess of costs and earnings of$20.9 million . Cash flow provided by operations was$150.7 million in the first half of 2020, as compared with$113.4 million in the first half of 2019. The increase in operating cash flows in the first half of 2020, as compared to 2019, was primarily the result of improved working capital management. Investing Cash Flows-Capital spending in the second quarter of fiscal 2020 was$48.2 million , as compared to$49.3 million for the same period in 2019. The decrease in investing cash outflows in the second quarter of 2020, as compared to 2019, can be attributed to a reduction in cash paid for acquisitions. Financing Cash Flows-Our total interest-bearing debt was$795.4 million atJune 27, 2020 and$787.5 million atDecember 28, 2019 . Financing cash flows changed from an outflow of$55.7 million in the first half of 2019 to an outflow of$92.0 million for the first half of 2020. The increase in financing cash outflows in the first half of 2020, as compared to 2019, was due to the higher amounts paid to purchase noncontrolling interests. Guarantor Summarized Financial Information We are providing the following information in compliance with Rule 3-10 and Rule 13-01 of Regulation S-X with respect to our two tranches of senior unsecured notes. All of the senior notes are guaranteed, jointly, severally, fully and unconditionally (subject to certain customary release provisions, including sale of the subsidiary guarantor, or sale of all or substantially all of its assets) by certain of the Company's current and future direct and indirect domestic and foreign subsidiaries (collectively the "Guarantors"). The Parent is the Issuer of the notes and consolidates all Guarantors. The financial information of Issuer and Guarantors is presented on a combined basis with intercompany balances and transactions between Issuer and Guarantors eliminated. The Issuer's or Guarantors' amounts due from, amounts due to, and transactions with non-guarantor subsidiaries are separately disclosed.
Combined financial information is as follows:
Supplemental Combined Parent and Guarantors Financial Information
For the thirteen and twenty-six weeks endedJune 27, 2020 andJune 29, 2019 Twenty-six weeks Thirteen weeks ended ended Dollars in thousands June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 Net sales$ 470,667 $ 446,568 $ 938,347 $ 880,575 Gross Profit 134,963 116,537 270,198 226,107 Operating income 55,471 47,883 114,605 92,497 Net earnings 37,150 29,393 73,475 58,266 Net earnings attributable to Valmont Industries, Inc. 37,165 29,393 73,490 58,266 30
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Supplemental Combined Parent and Guarantors Financial Information
June 27, 2020 and December 28, 2019
Dollars in thousands June 27, 2020 December 28, 2019
Current assets $ 804,098 $ 728,457
Noncurrent assets 370,145 354,173
Current liabilities 344,983 312,984
Noncurrent liabilities 1,083,920 1,076,491
Noncontrolling interest in consolidated subsidiaries 1,585 -
Included in noncurrent assets is a due from non-guarantor subsidiaries
receivable of $68,508 and $54,915 at June 27, 2020 and December 28, 2019 .
Included in noncurrent liabilities is a due to non-guarantor subsidiaries
payable of $246,920 and $249,056 at June 27, 2020 and December 28, 2019 .
Financing and Capital
The Board of Directors authorized the purchase of $250 million of the Company's
shares without an expiration date in October 2018 . The share purchases will be
funded from available working capital and short-term borrowings and will be made
subject to market and economic conditions. We are not obligated to make any
share repurchases under the share repurchase program and we may discontinue the
share repurchase program at any time. We acquired 190,491 treasury shares for
approximately $20.5 million under our share repurchase program during the first
half of 2020. As of June 27, 2020 , we have approximately $184.0 million open
under this authorization to repurchase shares in the future. We suspended
repurchase of shares at the end of the first quarter to preserve financial
liquidity until the COVID-19 impact is clearer.
Our capital allocation philosophy announcement included our intention to
manage our capital structure to maintain our investment grade debt rating. Our
most recent ratings were Baa3 by Moody's Investors Services, Inc. , BBB- rating
by Fitch Rating Services, and BBB+ rating by Standard and Poor's Rating
Services . We expect to maintain a leverage ratio which will support our current
investment grade debt rating.
Our debt financing at June 27, 2020 is primarily long-term debt consisting of:
•$450 million face value ($436.5 million carrying value) of senior unsecured
notes that bear interest at 5.00% per annum and are due in October 2044 .
•$305 million face value ($297.6 million carrying value) of unsecured notes that
bear interest at 5.25% per annum and are due in October 2054 .
•We are allowed to repurchase the notes at specified prepayment premiums. Both
tranches of these notes are guaranteed by certain of our subsidiaries.
At June 27, 2020 and December 28, 2019 , we had $40.4 million and $29.0
million outstanding borrowings under our revolving credit agreement,
respectively. The revolving credit agreement contains certain financial
covenants that may limit our additional borrowing capability under the
agreement. At June 27, 2020 , we had the ability to borrow $544.5 million under
this facility, after consideration of standby letters of credit of $15.1 million
associated with certain insurance obligations and international sales
commitments. We also maintain certain short-term bank lines of credit totaling
$132.3 million , $117.8 million of which was unused at June 27, 2020 .
Our senior unsecured notes and revolving credit agreement each contain
cross-default provisions which permit the acceleration of our indebtedness to
them if we default on other indebtedness that results in, or permits, the
acceleration of such other indebtedness.
The debt agreements contain covenants that require us to maintain certain
coverage ratios and may limit us with respect to certain business activities,
including capital expenditures. The debt agreements allow us to add estimated
EBITDA from acquired businesses for periods we did not own the acquired
business. The debt agreements also provide for an adjustment to EBITDA, subject
to certain limitations, for non-cash charges or gains that are non-recurring in
nature.
31
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Our key debt covenants are as follows:
•Leverage ratio - Interest-bearing debt is not to exceed 3.5X Adjusted EBITDA
(or 3.75X Adjusted EBITDA after certain material acquisitions) of the prior four
quarters; and
•Interest earned ratio - Adjusted EBITDA over the prior four quarters must be at
least 2.5X our interest expense over the same period.
At June 27, 2020 , we were in compliance with all covenants related to the
debt agreements. The key covenant calculations at June 27, 2020 were as follows
(in 000's):
Interest-bearing debt $ 795,447
Adjusted EBITDA-last four quarters 339,824
Leverage ratio 2.34
Adjusted EBITDA-last four quarters $ 339,824
Interest expense-last four quarters 40,270
Interest earned ratio 8.44
The calculation of Adjusted EBITDA-last four quarters (June 30, 2019 through
June 27, 2020 ) is as follows. The last four quarters information ended June 27,
2020 is calculated by taking the full fiscal year ended December 28, 2019 ,
subtracting the first two quarters ended June 27, 2019 , and adding the first two
quarters ended June 27, 2020 .
Net cash flows from operations $ 344,921
Interest expense 40,270
Income tax expense 51,591
Impairment of property, plant and equipment (2,258)
Impairment of goodwill and intangible assets (16,638)
Change in investment 163
Deferred income tax benefit 2,637
Noncontrolling interest (3,713)
Stock-based compensation (10,888)
Pension plan expense 3,801
Contribution to pension plan 21,917
Changes in assets and liabilities (115,865)
Other 1,669
EBITDA 317,607
Cash restructuring expenses 3,321
Impairment of goodwill and intangible assets 16,638
Impairment of property, plant and equipment 2,258
Adjusted EBITDA $ 339,824
32--------------------------------------------------------------------------------
Net earnings attributable to Valmont Industries, Inc. $ 143,482
Interest expense 40,270
Income tax expense 51,591
Depreciation and amortization expense 82,264
EBITDA 317,607
Cash restructuring expenses 3,321
Impairment of goodwill and intangible assets 16,638
Impairment of property, plant, and equipment 2,258
Adjusted EBITDA $ 339,824
Our businesses are cyclical, but we have diversity in our markets from a
product, customer and a geographical standpoint. We have demonstrated the
ability to effectively manage through business cycles and maintain liquidity. We
have consistently generated operating cash flows in excess of our capital
expenditures. Based on our available credit facilities, recent issuance of
senior unsecured notes and our history of positive operational cash flows, we
believe that we have adequate liquidity to meet our needs.
We have cash balances of $353.3 million at June 27, 2020 , approximately
$169.7 million is held in our non-U.S. subsidiaries. If we distributed our
foreign cash balances certain taxes would be applicable. At June 27, 2020 , we
have a liability for foreign withholding taxes and U.S. state income taxes of
$3.3 million and $0.7 million , respectively.
Financial Obligations and Financial Commitments
There have been no material changes to our financial obligations and
financial commitments as described on page 34-35 in our Form 10-K for the fiscal
year ended December 28, 2019 .
Off Balance Sheet Arrangements
There have been no material changes in our off balance sheet arrangements as
described on page 35 in our Form 10-K for the fiscal year ended December 28,
2019 .
33
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Critical Accounting Policies
There were no changes in our critical accounting policies as described on pages
37-40 in our Form 10-K for the fiscal year ended December 28, 2019 during the
three months ended June 27, 2020 , with the exception of the change in method of
accounting for certain inventory, previously accounted for on the LIFO basis, so
that now all inventory is valued on the FIFO basis.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There were no material changes in the company's market risk during the
quarter ended
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