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OFFON

VALMONT INDUSTRIES, INC.

(VMI)
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VALMONT INDUSTRIES INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

10/28/2021 | 04:46pm EST
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 the Securities 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 ended December 26,
2020. 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
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Results of Operations (Dollars in millions, except per share amounts)

                                                 Thirteen weeks ended                                        Thirty-nine weeks ended
                                September 25,         September            % Incr.           September 25,        September 26,          % Incr.
                                     2021              26, 2020            (Decr.)                2021                2020               (Decr.)
Consolidated
Net sales                       $     868.8          $   734.0                 18.4  %       $   2,538.3          $  2,097.0                 21.0  %
Gross profit                          227.4              190.7                 19.2  %             661.6               560.9                 18.0  %
as a percent of sales                  26.2  %            26.0  %                                   26.1  %             26.7  %
SG&A expense                          151.2              129.3                 16.9  %             425.6          $    389.1                  9.4  %
as a percent of sales                  17.4  %            17.6  %                                   16.8  %             18.6  %
Operating income                       76.2               61.5                 23.9  %             236.0               171.8                 37.4  %
as a percent of sales                   8.8  %             8.4  %                                    9.3  %              8.2  %
Net interest expense                   10.6               10.0                  6.0  %              30.6                28.6                  7.0  %

Effective tax rate                     23.4  %            23.0  %                                   21.3  %             26.9  %
Net earnings                    $      51.7          $    39.3                 31.6  %       $     168.8          $    104.9                 60.9  %
Diluted earnings per share      $      2.40          $    1.84                 30.4  %       $      7.86          $     4.89                 60.7  %
Utility Support Structures
(Utility)
Net sales                       $     276.5          $   272.5                  1.5  %       $     797.1          $    723.9                 10.1  %
Gross profit                           53.5               54.7                 (2.2) %             149.3               156.1                 (4.4) %
SG&A expense                           28.9               28.8                  0.3  %              88.1                80.8                  9.0  %
Operating income                       24.6               25.9                 (5.0) %              61.2                75.3                (18.7) %
Engineered Support Structures
(ESS)
Net sales                       $     281.0          $   255.0                 10.2  %       $     772.5          $    731.2                  5.6  %
Gross profit                           79.9               71.3                 12.1  %             219.6               201.4                  9.0  %
SG&A expense                           45.6               45.8                 (0.4) %             133.4               155.2                (14.0) %
Operating income                       34.3               25.5                 34.5  %              86.2                46.2                 86.6  %
Coatings
Net sales                       $      74.9          $    68.7                  9.0  %       $     224.1          $    200.0                 12.1  %
Gross profit                           22.9               22.6                  1.3  %              71.1                64.2                 10.7  %
SG&A expense                           10.4               10.2                  2.0  %              31.1                30.6                  1.6  %
Operating income                       12.5               12.4                  0.8  %              40.0                33.6                 19.0  %
Irrigation
Net sales                       $     236.4          $   137.8                 71.6  %       $     744.6          $    441.9                 68.5  %
Gross profit                           70.7               42.2                 67.5  %             220.9               139.2                 58.7  %
SG&A expense                           42.9               27.5                 56.0  %             112.4                78.5                 43.2  %
Operating income                       27.8               14.7                 89.1  %             108.5                60.7                 78.7  %
Net corporate expense
Gross profit                    $       0.3                  -                      NM       $       0.6          $        -                      NM
SG&A                            $      23.3          $    17.0                 37.1  %       $      60.5          $     44.0                 37.5  %
Operating loss                        (23.0)             (17.0)               (35.3) %             (59.9)              (44.0)               (36.1) %



                                       25
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Overview

On a consolidated basis, net sales were higher in the third quarter and first
three quarters of 2021, as compared to the same periods of 2020, with higher
sales in all segments. The change in net sales in the third quarter and first
three quarters of fiscal 2021, as compared with the same period in 2020, is as
follows:
                                                   Third quarter
                                Total    Utility     ESS     Coatings    Irrigation
Sales - 2020                  $ 734.0   $ 272.5   $ 255.0   $    68.7   $     137.8
Volume                           32.6     (22.3)     (1.3)        0.5          55.7
Pricing/mix                      91.1      25.6      21.6         4.6          39.3
Acquisition/(divestiture)         1.2         -         -           -           1.2
Currency translation              9.9       0.7       5.8         1.1           2.3
Sales - 2021                  $ 868.8   $ 276.5   $ 281.1   $    74.9   $     236.3


                                                    Year-to-Date
                                 Total     Utility     ESS     Coatings   Irrigation
Sales - 2020                  $ 2,097.0   $ 723.9   $ 731.2   $  200.0   $     441.9
Volume                            222.5      37.9     (22.9)       3.2         204.3
Pricing/mix                       173.0      28.4      38.4       12.8          93.4
Acquisition/(divestiture)           9.2       2.2         -          -           7.0
Currency translation               36.6       4.7      25.9        8.1          (2.1)
Sales - 2021                  $ 2,538.3   $ 797.1   $ 772.6   $  224.1   $     744.5


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 higher in North
America in the third quarter and first three quarters of 2021, as compared to
2020, contributing to higher cost of sales and lower gross profit margin for the
Utility segment and the overall Company as raw material cost inflation was not
fully recovered through selling pricing mechanisms.

The Company acquired the following businesses:


•PivoTrac in the second quarter of 2021, an agricultural technology company that
offers solutions focused on remote monitoring of center pivot irrigation
machines (Irrigation).
•Prospera in the second quarter of 2021, a privately-held Israeli-based
artificial intelligence company, focused on machine learning and computer vision
in agriculture (Irrigation).
•KC Utility Packaging ("Valmont Substation") in the first quarter of 2020, a
provider of engineering, design, and packaging services in the substation market
(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 significant manufacturing facilities are open and fully
operational as of September 25, 2021. Certain foreign manufacturing facilities
were temporarily closed for part of the first half of 2020 due to government
mandates. 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.
                                       26
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We generated $61.8 million of cash flows from operating activities during the
first three quarters of 2021. Our main focus is to maintain liquidity to support
the working capital needs of our operations and maintain our investment grade
credit rating.

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.

Backlog


The backlog of unshipped orders at September 25, 2021 was approximately $1.5
billion compared with approximately $1.1 billion at December 26, 2020. The
increase is primarily attributed to the receipt of three additional purchase
orders during the first three quarters of 2021 totaling approximately $267
million for a large Utility project in North America. We expect the backlog to
be fulfilled within the subsequent 12 months with the exception of $175 million
primarily related to these three new Utility orders.

Currency Translation


  In the third quarter and first three quarters of 2021, we realized an increase
in operating income, as compared with 2020, due in part to currency translation
effects. The breakdown of this effect by segment was as follows:

                            Total   Utility    ESS    Coatings    

Irrigation Corporate

Third quarter $ 1.5 $ - $ 0.9 $ 0.2 $ 0.4 $ -

Year-to-date $ 0.3 $ (0.8) $ 1.0 $ 1.3 $ (0.3) $ (0.9)

Gross Profit, SG&A, and Operating Income


  At a consolidated level, gross profit as a percent of sales was relatively
flat in the third quarter and lower in the first three quarters of 2021, as
compared with the same periods in 2020, due to higher raw material costs across
the Company, somewhat offset by improved selling prices and sales mix. In the
third quarter and first three quarters of 2021 as compared to 2020, gross profit
was higher for all operating segments except the Utility segment.
  SG&A expenses increased in the third quarter and first three quarters of 2021
as compared to the same periods in 2020. The increase in the third quarter and
first three quarters of 2021 over the same period of 2020 was due to higher
incentives due to improved operations, salary merit increases, foreign currency
translation effects, and SG&A contributed from the recent acquisition of
Prospera and PivoTrac, and intangible asset amortization from such acquisitions.
The increase for the first three quarters of 2021 versus 2020 were somewhat
offset by a reduction in certain restructuring expenses, and a partial
impairment of goodwill and tradename for the Access Systems business that did
not recur in 2021.

  In the third quarter and first three quarters of 2021, as compared to the same
periods of 2020, operating income was higher in the Irrigation, ESS, and
Coatings segments and lower in the Utility segment. The increase in consolidated
operating income in the third quarter is primarily attributed to higher
irrigation sales volume and pricing actions in both Irrigation and ESS, somewhat
offset by the decrease in gross profit in Utility with higher average selling
prices more than offset by the impact of the cost of steel and lower offshore
product sales, as well as increases in SG&A expenses. The increase in
consolidated operating income in the first three quarters is primarily
attributed to higher irrigation sales volumes, pricing actions in both
Irrigation and ESS, the partial goodwill and tradename impairment recognized in
2020 that did not recur in 2021; somewhat offset by the decrease in gross profit
in Utility due to the same factors mentioned above for the third quarter and
increases in SG&A expenses.

                                       27
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Net Interest Expense and Debt


  Interest expense in the third quarter and first three quarters of 2021
approximated the amount recognized in 2020. Interest income was lower in the
third quarter and first three quarters of 2021, as compared to 2020, due to
lower interest rates on cash equivalents and lower overall related balances of
cash equivalents throughout 2021.

Other Income/Expenses


  The change in other income/expenses in the third quarter of 2021, as compared
to 2020, was primarily due to a higher pension benefit of $1.8 million, and the
change in valuation of deferred compensation assets which resulted in lower
other income of $0.4 million. The change in other income/expenses in the first
three quarters of 2021, as compared to 2020, was primarily due to a higher
pension benefit of $5.6 million and the change in valuation of deferred
compensation assets which resulted in higher other income of $0.5 million. The
change in valuation of deferred compensation 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 primarily due to
fluctuations in foreign currency transaction gains/losses that was more
favorable in 2021.

Income Tax Expense


  Our effective income tax rate in the third quarter and first three quarters of
2021 was 23.4% and 21.3%, compared to 23.0% and 26.9% in the third quarter and
first three quarters of 2020. On a year-to-date basis, the decrease in the
effective tax rate is primarily the result of a U.S. tax benefit related to
foreign taxes paid which did not occur in 2020 in addition to the 2020 partial
impairment of goodwill and tradename for the Access Systems business that was
not fully tax deductible.

Earnings Attributable to Noncontrolling Interests

Earnings attributable to noncontrolling interests and equity in loss of nonconsolidated subsidiaries were consistent in the third quarter and first three quarters of 2021 as compared to 2020.

Cash Flows from Operations

  Our cash flows provided by operations was $61.8 million in the first three
quarters of fiscal 2021, as compared with $273.0 million provided by operations
in the first three quarters of 2020. The decrease in operating cash flow in the
first three quarters of 2021, as compared with 2020, was primarily due to an
increase in inventory, partially offset by an increase in advance payments
received for performance obligations.

Utility segment


  In the Utility segment, sales increased in the third quarter and first three
quarters of 2021 as compared with 2020, primarily due to higher average selling
prices in the steel product line. A number of our sales contracts in North
America contain mechanisms that tie the sales price to published steel index
pricing at the time our customer issues their purchase order. This resulted in
increases to the average selling prices for our steel utility structures product
line for the third quarter and first three quarters of 2021, as compared with
2020. For the third quarter and first three quarters of 2021, sales of concrete
structures approximated the amount recognized in fiscal 2020, as slightly lower
volumes were offset by increases in average selling prices and improved product
mix.
  Offshore sales decreased in the third quarter and increased in the first three
quarters of 2021, as compared to 2020, due to a large decrease in sales volume
in the third quarter that was more than offset by higher volumes in the first
half of 2021. Solar tracker solution sales decreased in the third quarter and
first three quarters of 2021, as compared to 2020, due to lower volumes.
  Gross profit decreased in the third quarter and first three quarters of 2021,
as compared to 2020, due to the rapid steel cost inflation that could not be
fully recovered through pricing mechanisms for the steel structures product
line, as well as the decreased volumes in the solar tracker solutions product
line. SG&A expense was relatively flat in the third quarter, as compared with
2020. SG&A expense was higher in the first three quarters, as compared with
2020, due primarily to a $5.5 million write-off of a receivable following
arbitration within the offshore and other complex structures product line. The
decrease in operating income for the third quarter of 2021, as compared with
2020, is primarily due to higher average selling prices more than offset by the
impact of the cost of steel and lower offshore product sales. The decrease in
operating income
                                       28
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for the first three quarters of 2021, as compared with 2020, is primarily due to
the increase in the cost of steel that could not be fully recovered through
higher average selling prices and the $5.5 million receivable write-off
recognized in 2021.
ESS segment
  Net sales in the third quarter of 2021, as compared to 2020, increased across
the three product lines from pricing actions and due to favorable currency
translation effect of $5.8 million. Net sales increased in the first three
quarters of 2021 as compared to 2020, driven by $25.9 million of favorable
foreign currency translation, higher average selling prices across the three
product lines, partially offset by lower sales volumes of lighting, traffic and
highway safety products.
   Global lighting, traffic, and highway safety product sales in the third
quarter of 2021 increased by $7.0 million, as compared to the same period in
fiscal 2020, primarily attributed to higher average selling price partially
offset by lower sales volumes across most regions. Sales volumes decreased in
North America in the third quarter and first three quarters of 2021, attributed
to a slowdown in order volumes in the latter half of 2020 due to delays in
approving the FAST Act extension. Europe sales of lighting and traffic products
were similar in the third quarter of 2021 versus 2020 and higher for the first
three quarters of 2021 versus 2020, due to COVID mandated plant closures in 2020
that did not recur in 2021. Lighting, traffic, and highway safety product sales
in the Asia-Pacific region increased in the third quarter and first three
quarters of 2021, as compared to 2020, due to improved volumes of highway safety
products and favorable currency translation.
Communication product line sales were higher by $12.7 and $24.2 million in the
third quarter and first three quarters of 2021, as compared with the same
periods in 2020. In North America, communication product selling prices
increased in the third quarter and first three quarters of 2021, as well as
increases in sales volumes in the third quarter and first three quarters of 2021
due to higher demand for communication structures and components. Communication
product sales also improved due to an increase in sales volumes in the U.K. and
Asia-Pacific. 5G deployments continue to increase market opportunities across
all regions.
Access Systems product line net sales increased in the third quarter of 2021, as
compared to 2020, by $5.7 million due to favorable currency translation effects
and higher sales volumes. The sales improvement on a year-to-date basis can be
attributed to the favorable currency translation effects and the higher second
and third quarter sales volumes.
Gross profit was higher in the third quarter and first three quarters of 2021,
as compared to 2020, primarily due to selling price management that expanded
margins in a rising commodity cost environment and improved performance by the
access systems product line. SG&A spending was lower for the first three
quarters of 2021 versus 2020 due primarily to the $16.6 million partial
impairment of goodwill and tradenames within the access systems product line
recognized in 2020 which did not recur in 2021. Operating income increased in
the third quarter and first three quarters of 2021 due to improved average
selling prices and the $16.6 million impairment recognized in 2020 which did not
recur in 2021.
Coatings segment
  Coatings segment sales increased in the third quarter and first three quarters
of 2021, as compared to the same periods in 2020, due to higher average selling
prices and favorable foreign currency translation. In North America, a modest
improvement in sales volume combined with the increase in average selling prices
to counteract the higher cost of zinc resulted in an increase in net sales in
the third quarter and first three quarters of 2021. In Asia-Pacific region,
sales improved in all regions in 2021 due to sales price increases, higher
volumes, and favorable foreign currency translation.
  The gross profit margin decreased in the third quarter of 2021, as compared to
2020, as inflation in costs (zinc and labor) were not fully offset by the
increase in average selling prices. SG&A expense was similar in the third
quarter and first three quarters of 2021, as compared to 2020. Operating income
was higher in the first three quarters of 2021, compared to the same period in
2020, due to improved sales pricing, volume increases, and favorable foreign
currency translation, partially offset by startup costs related to the new
Pittsburgh facility.

Irrigation segment

  The increase in Irrigation segment net sales in the third quarter and first
three quarters of 2021, as compared to 2020, is due to strong sales volume
improvements in almost all markets, as well as higher average selling prices.
The sales volume improvements for international irrigation was primarily due to
deliveries on the multi-year Egypt project and higher sales in Brazil. In North
America, higher sales volumes for irrigation systems and parts were driven by
improved agricultural commodity prices. Sales of technology-related products and
services continue to increase, as growers continued adoption of technology to
reduce costs and enhance profitability.
                                       29
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  The increase in gross profit in 2021 as compared to 2020 is primarily
attributed to the sales volume growth and partially attributed to the
significant increase in average selling prices for the industrial tubing product
line. SG&A was higher in the third quarter and first three quarters of 2021, as
compared to 2020, due to approximately $8.5 million of SG&A from the recently
acquired Prospera and PivoTrac, and higher incentive expense due to improved
operating results. Operating income for the segment increased in 2021 due to
improved global sales volumes and pricing.
  Net corporate expense
Corporate SG&A expense was higher in the third quarter and first three quarters
of 2021, as compared to 2020. The increase in the third quarter is primarily due
to higher incentive accruals related to business performance. The increase in
the first three quarters of 2021,as compared to 2020, is due to higher incentive
accruals, an increase in stock compensation expense, and an increase in
acquisition diligence expense.

Liquidity and Capital Resources
Cash Flows
Working Capital and Operating Cash Flows-Net working capital was $863.8 million
at September 25, 2021, as compared to $881.3 million at December 26, 2020. The
decrease in net working capital in 2021 is attributed to a decrease in cash and
cash equivalents due to the recent business acquisitions and an increase in
accounts payable, partially offset by an increase in inventory and receivable
balances. Cash flow provided by operations was $61.8 million in the first three
quarters of 2021, as compared with $273.0 million in the first three quarters of
2020. The decrease in operating cash flows in 2021, as compared to 2020, was
primarily the result of an increased inventory balance that was partially offset
by an increase in customer advances payments (contract liabilities) and lower
pension plan contributions. The required 2021 pension contribution was made in
the fourth quarter of 2020.
Investing Cash Flows- The increase in investing cash outflows in the first three
quarters of 2021, as compared to 2020, can be attributed to $312.5 million paid
for acquisitions occurring during 2021 as compared to $15.9 million paid in
2020. Capital spending in the first three quarters of fiscal 2021 was $80.5
million, as compared to $71.0 million for the same period in 2020. We expect our
capital expenditures to be in the range of $110 million to $120 million for
fiscal 2021.
Financing Cash Flows-Our total interest-bearing debt was $916.1 million at
September 25, 2021 and $766.3 million at December 26, 2020. Financing cash flows
changed from an outflow of $110.0 million in the first three quarters of 2020 to
an inflow of $101.0 million in the first three quarters of 2021. The financing
cash inflow in the first three quarters of 2021 was primarily the result of our
borrowing on the revolving credit agreement to partially fund the Prospera
acquisition, slightly offset by principal payments on our debt, dividends paid,
and the purchase of treasury shares. The financing cash outflow for the first
three quarters of 2020 was due primarily to the purchase of noncontrolling
interests, principal payments on our debt, dividends paid, and the purchase of
treasury shares; somewhat offset by our debt borrowings.
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.


                                       30
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Combined financial information is as follows:

Supplemental Combined Parent and Guarantors Financial Information

 For the thirteen and thirty-nine weeks ended September 25, 2021 and September
                                    26, 2020
                                                    Thirteen weeks ended                         Thirty-nine weeks ended
                                              September 25,        September 26,                                    September 26,
Dollars in thousands                              2021                 2020             September 25, 2021              2020
Net sales                                    $    520,188          $  438,947          $        1,551,701          $  1,377,294
Gross Profit                                         143,724             115,116                     426,167               385,314
Operating income                                      49,166              35,261                     159,994               149,866
Net earnings                                          26,125              13,760                      92,200                87,235
Net earnings attributable to Valmont
Industries, Inc.                                      26,098              13,759                      92,090                87,249



       Supplemental Combined Parent and Guarantors Financial Information
                    September 25, 2021 and December 26, 2020
                                                                                            December 26,
Dollars in thousands                                            September 25, 2021              2020
Current assets                                                 $          729,047          $    738,437
Noncurrent assets                                                         813,116               701,571
Current liabilities                                                       371,801               321,979
Noncurrent liabilities                                                  1,287,332             1,100,657
Noncontrolling interest in consolidated subsidiaries                        1,757                 1,738


Included in noncurrent assets is a due from non-guarantor subsidiaries
receivable of $99,251 and $88,309 at September 25, 2021 and December 26, 2020.
Included in noncurrent liabilities is a due to non-guarantor subsidiaries
payable of $279,108 and $262,935 at September 25, 2021 and December 26, 2020.
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. Share repurchases were temporarily
suspended at the end of the first quarter of 2020 until September 2020 as a
precaution to preserve liquidity. We acquired 103,056 treasury shares for
approximately $24.1 million under our share repurchase program during the first
three quarters of 2021. As of September 25, 2021, we have approximately $123.9
million open under this authorization to repurchase shares in the future.

  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.

                                       31
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Our debt financing at September 25, 2021 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 September 25, 2021 and December 26, 2020, we had $168.1 million and no
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 September 25, 2021,
we had the ability to borrow $415.6 million under this facility, after
consideration of standby letters of credit of $16.3 million associated with
certain insurance obligations and international sales commitments. We also
maintain certain short-term bank lines of credit totaling $139.7 million,
$126.6 million of which was unused at September 25, 2021.

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.
On October 18, 2021, we along with our wholly-owned subsidiaries Valmont
Industries Holland B.V. and Valmont Group Pty. Ltd., as borrowers, entered into
an amendment and restatement of our revolving credit agreement with our lenders.
The maturity date of the revolving credit facility was extended to October 18,
2026.
Borrowings under the amended and restated revolving credit agreement will bear
interest, payable quarterly, monthly or at the end of any interest period
(depending on the type of borrowing), at our option, at either:
•  term SOFR (based on one, three, or six month interest periods, as selected by
us) plus a ten basis point adjustment plus a spread of 100 to 162.5 basis
points, depending on the credit rating of our senior, unsecured, long-term debt;
•  the higher of (i) the prime lending rate, (ii) an overnight bank rate plus 50
basis points and (ii) term SOFR (based on a 1 month interest period) plus a 110
basis point adjustment plus, in each case, a spread of 0 to 62.5 basis points,
depending on the credit rating of the Company's senior, unsecured, long-term
debt; or
•  daily simple SOFR plus a 10 basis point adjustment plus a spread of 100 to
162.5 basis points, depending on the credit rating of our senior, unsecured,
long-term debt.

A commitment fee, payable quarterly, is also required under the amended and
restated revolving credit agreement which accrues at 10 to 25 basis points,
depending on the credit rating of our senior, unsecured, long-term debt, on the
average daily unused portion of the commitments under the amended and restated
revolving credit agreement.
The amended and restated revolving credit agreement requires maintenance of a
leverage ratio, measured as of the last day of each of our fiscal quarters, of
3.50:1 or less. The leverage ratio is the ratio of: (a) interest-bearing debt
minus unrestricted cash in excess of $50 million (but not exceeding $500
million); to (b) adjusted EBITDA. The debt agreements provide a modification of
the definition of "EBITDA" to add-back any non-cash stock based compensation in
any trailing twelve month period and allow for an adjustment to EBITDA, subject
to certain limitations, for non-cash charges or gains that are non-recurring in
nature. The leverage ratio is permitted to increase from 3.50:1 to 3:75:1 for
the four consecutive fiscal quarters after certain material acquisitions.
The amended and restated revolving credit agreement also contains customary
affirmative and negative covenants for credit facilities of this type,
including, among others, limitations on us and our subsidiaries with respect to
indebtedness, liens, mergers and acquisitions, investments, dispositions of
assets, restricted payments, transactions with affiliates and prepayments of
indebtedness. The amended and restated revolving credit agreement also provides
for acceleration of the obligations thereunder and exercise of other enforcement
remedies upon the occurrence of customary events of default (subject to
customary grace periods, as applicable).


                                       32
--------------------------------------------------------------------------------

At September 25, 2021, we were in compliance with all covenants related to the debt agreements. The key covenant calculation at September 25, 2021 was as follows (in 000's):

       Interest-bearing debt                                       $ 

916,056

Less: Cash and cash equivalents in excess of $50 million 119,795

       Net indebtedness                                            $ 

796,261

       Adjusted EBITDA-last four quarters                            429,775
       Leverage ratio                                                   1.85

The calculation of Adjusted EBITDA-last four quarters (September 26, 2020 through September 25, 2021) is as follows. The last four quarters information ended September 25, 2021 is calculated by taking the full fiscal year ended December 26, 2020, subtracting the first three quarters ended September 26, 2020, and adding the first three quarters ended September 25, 2021.

             Net cash flows from operations                  $ 105,077
             Interest expense                                   41,976
             Income tax expense                                 56,765
             Impairment of property, plant and equipment          (940)

             Deferred income tax benefit                         6,394
             Noncontrolling interest                            (1,767)
             Pension plan expense                               12,961
             Contribution to pension plan                       18,971
             Changes in assets and liabilities                 177,260
             Other                                                (199)
             EBITDA                                            416,498
             Cash restructuring expenses                        13,277

             Adjusted EBITDA                                 $ 429,775


        Net earnings attributable to Valmont Industries, Inc.    $ 204,590
        Interest expense                                            41,976
        Income tax expense                                          56,765
        Stock-based compensation                                    24,034
        Depreciation and amortization expense                       89,133
        EBITDA                                                     416,498
        Cash restructuring expenses                                 13,277

        Adjusted EBITDA                                          $ 429,775


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 $169.8 million at September 25, 2021, approximately
$145.0 million is held in our non-U.S. subsidiaries. If we distributed our
foreign cash balances certain taxes would be applicable. At September 25, 2021,
we have a liability for foreign withholding taxes and U.S. state income taxes of
$3.4 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 26, 2020 with the exception of the following:

                                       33

--------------------------------------------------------------------------------


During the second quarter of 2021 the Company, the Company commenced on a new
corporate headquarters operating lease with straight-line annual expense of
approximately $5,100, a 2% annual increase in lease payment, and a 25 year term.
In recognition of this lease, an operating lease asset of $71,853 and an
operating lease long-term liability of $71,196 was incurred. These amounts are
included within other assets and operating lease liabilities, respectively, in
the Condensed Consolidated Balance Sheets as of September 25, 2021.
Off Balance Sheet Arrangements
There have been no material changes in our off balance sheet arrangements as
described on page 38 in our Form 10-K for the fiscal year ended December 26,
2020.
Critical Accounting Policies
There were no changes in our critical accounting policies as described on pages
39-42 in our Form 10-K for the fiscal year ended December 26, 2020 during the
three months ended September 25, 2021.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
  There were no material changes in the company's market risk during the quarter
ended September 25, 2021. For additional information, refer to the section "Risk
Management" in our Form 10-K for the fiscal year ended December 26, 2020.

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