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OFFON

VALMONT INDUSTRIES, INC.

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

07/29/2021 | 10:08am EDT
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.
                                       23
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Results of Operations (Dollars in millions, except per share amounts)

                                                   Thirteen weeks ended                                              Twenty-six weeks ended
                                                                                % Incr.                                                            % Incr.
                                 June 26, 2021          June 27, 2020           (Decr.)            June 26, 2021          June 27, 2020            (Decr.)
Consolidated
Net sales                       $       894.6          $      688.8                 29.9  %       $     1,669.5          $     1,363.0                 22.5  %
Gross profit                            229.6                 183.9                 24.9  %               434.2                  370.2                 17.3  %
as a percent of sales                    25.7  %               26.7  %                                     26.0  %                27.2  %
SG&A expense                            147.0                 140.5                  4.6  %               274.4          $       259.9                  5.6  %
as a percent of sales                    16.4  %               20.4  %                                     16.4  %                19.1  %
Operating income                         82.6                  43.4                 90.3  %               159.8                  110.3                 44.9  %
as a percent of sales                     9.2  %                6.3  %                                      9.6  %                 8.1  %
Net interest expense                     10.3                   9.6                  7.3  %                19.9                   18.6                  7.0  %

Effective tax rate                       19.0  %               35.4  %                                     20.3  %                29.1  %
Net earnings                    $        62.1          $       22.6                174.8  %       $       117.1          $        65.5                 78.8  %
Diluted earnings per share      $        2.89          $       1.06                172.6  %       $        5.46          $        3.05                 79.0  %
Utility Support Structures
(Utility)
Net sales                       $       267.9          $      228.5                 17.2  %       $       520.6          $       451.4                 15.3  %
Gross profit                             47.2                  47.9                 (1.5) %                95.8                  101.5                 (5.6) %
SG&A expense                             32.3                  26.2                 23.3  %                59.2                   52.1                 13.6  %
Operating income                         14.9                  21.7                (31.3) %                36.6                   49.4                (25.9) %
Engineered Support Structures
(ESS)
Net sales                       $       269.3          $      248.8                  8.2  %       $       491.5          $       476.2                  3.2  %
Gross profit                             75.8                  68.4                 10.8  %               139.7                  130.1                  7.4  %
SG&A expense                             43.8                  63.6                (31.1) %                87.8                  109.4                (19.7) %
Operating income                         32.0                   4.8                566.7  %                51.9                   20.7                150.7  %
Coatings
Net sales                       $        77.6          $       62.7                 23.8  %       $       149.2          $       131.3                 13.6  %
Gross profit                             25.0                  19.8                 26.3  %                48.2                   41.6                 15.9  %
SG&A expense                             10.4                   9.7                  7.2  %                20.7                   20.4                  1.5  %
Operating income                         14.6                  10.1                 44.6  %                27.5                   21.2                 29.7  %
Irrigation
Net sales                       $       279.8          $      148.8                 88.0  %       $       508.2          $       304.1                 67.1  %
Gross profit                             81.3                  47.8                 70.1  %               150.2                   97.0                 54.8  %
SG&A expense                             39.3                  25.5                 54.1  %                69.5                   51.0                 36.3  %
Operating income                         42.0                  22.3                 88.3  %                80.7                   46.0                 75.4  %

Net corporate expense
Gross profit                    $         0.3          $          -                      NM       $         0.3          $           -                      NM
SG&A                            $        21.2          $       15.5                 36.8  %       $        37.2          $        27.0                 37.8  %
Operating loss                          (20.9)                (15.5)               (34.8) %               (36.9)                 (27.0)               (36.7) %



                                       24
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Overview

On a consolidated basis, net sales were higher in the second quarter and first
half of 2021, as compared to the same periods of 2020, with higher sales in all
segments. The change in net sales in the second quarter and first half of fiscal
2021, as compared with the same period in 2020, is as follows:
                                                  Second quarter
                                Total    Utility     ESS     Coatings    Irrigation
Sales - 2020                  $ 688.8   $ 228.5   $ 248.8   $    62.7   $     148.8
Volume                          121.9      28.6      (2.4)        6.0          89.7
Pricing/mix                      63.6       8.5      11.4         5.1          38.6
Acquisition/(divestiture)         1.1         -         -           -           1.1
Currency translation             19.2       2.3      11.5         3.8           1.6
Sales - 2021                  $ 894.6   $ 267.9   $ 269.3   $    77.6   $     279.8



                                                    Year-to-Date
                                 Total     Utility     ESS     Coatings   Irrigation
Sales - 2020                  $ 1,363.0   $ 451.4   $ 476.2   $  131.3   $     304.1
Volume                            189.7      60.1     (21.6)       2.6         148.6
Pricing/mix                        81.9       2.8      16.8        8.2          54.1
Acquisition/(divestiture)           8.1       2.2         -          -           5.9
Currency translation               26.8       4.1      20.1        7.1          (4.5)
Sales - 2021                  $ 1,669.5   $ 520.6   $ 491.5   $  149.2   $     508.2


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 first half of 2021, as compared to 2020, contributing to higher
cost of sales and lower gross profit margin.

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 June 26, 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
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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 $70.2 million of cash flows from operating activities during the
first half 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 June 26, 2021 was approximately $1.3 billion
compared with approximately $1.1 billion at December 26, 2020. The increase is
primarily attributed to the receipt of two additional purchase orders totaling
approximately $220 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 two new Utility orders.

Currency Translation

In the second quarter and first half of 2021, we realized a decrease in operating profit, as compared with 2020, due to currency translation effects. The breakdown of this effect by segment was as follows:

                           Total    Utility    ESS    Coatings    Irrigation    Corporate
        Second quarter    $ (0.4)  $  (0.4)  $ 0.1   $     0.6   $         -   $     (0.7)

        Year-to-date      $ (1.2)  $  (0.8)  $ 0.1   $     1.1   $      (0.7)  $     (0.9)


Gross Profit, SG&A, and Operating Income


  At a consolidated level, gross profit as a percent of sales was lower in the
second quarter and first half 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 volume sales mix. In the second quarter and first
half of 2021 as compared to 2020, gross profit was higher for all operating
segments except the Utility segment.
  SG&A expenses increased in the second quarter and first half of 2021 as
compared to the same periods in 2020. The increase in the second quarter of 2021
over the same period of 2020 was due to higher incentives due to improved
operations, salary merit increases, travel costs, depreciation, foreign currency
translation effects, and expenses from the acquisition of Prospera and PivoTrac.
The increases 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. The increase in the first half of
2021 over the same period of 2020 was due to higher incentives due to improved
operations, salary merit increases, depreciation, foreign currency translation
effects, and expenses from the acquisition of Prospera and PivoTrac. The
increases were somewhat offset by a reduction in certain restructuring expenses,
travel costs, and a partial impairment of goodwill and tradename for the Access
Systems business that did not recur in 2021.

In the second quarter and first half 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 second quarter is primarily attributed to higher irrigation sales volumes and the partial goodwill and tradename impairment recognized in 2020 that did not recur in 2021.

Net Interest Expense and Debt


  Interest expense in the second quarter and first half of 2021 approximated the
amount recognized in 2020. Interest income was lower in the second quarter and
first half of 2021, as compared to 2020, due to lower interest rates on cash
equivalents.


                                       26
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Other Income/Expenses


  The change in other income/expenses in the second quarter of 2021, as compared
to 2020, was primarily due to a higher pension benefit of $2.0 million, and the
change in valuation of deferred compensation assets which resulted in lower
other income of $1.3 million. The change in other income/expenses in the first
half of 2021, as compared to 2020, was primarily due to a higher pension benefit
of $3.9 million and the change in valuation of deferred compensation assets
which resulted in higher other income of $0.9 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.

Income Tax Expense

  Our effective income tax rate in the second quarter and first half of 2021 was
19.0% and 20.3%, compared to 35.4% and 29.1% in the second quarter and first
half of 2020. The lower tax rate in the second quarter and first half of 2021 is
attributed to an increase in the U.K. corporate income tax rate and its
corresponding effect on a deferred tax asset in addition to a U.S. tax benefit
related to foreign taxes paid which did not occur in the second quarter and
first half of 2020.

Earnings Attributable to Noncontrolling Interests

Earnings attributable to noncontrolling interests and equity in loss of nonconsolidated subsidiaries was consistent in the second quarter and first half of 2021 as compared to 2020.

Cash Flows from Operations

  Our cash flows provided by operations was $70.2 million in the first half of
fiscal 2021, as compared with $150.7 million provided by operations in the first
half of 2020. The decrease in operating cash flow in the first half of 2021, as
compared with 2020, was primarily due to an increase in inventory and a larger
decrease of accrued employee compensation and benefits attributed to higher
incentive payments in first half 2021 versus 2020, partially offset by an
increase in advance payments received for performance obligations.

Utility segment


  In the Utility segment, sales increased in the second quarter and first half
of 2021, as compared with 2020, primarily due to an increase in volume for the
offshore and other complex steel structures product line. The second quarter and
year-to-date average selling prices and volumes slightly increased for 2021, as
compared to 2020, for 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 a slight increase to the average selling prices for our steel
utility structures product line for the second quarter and first half of 2021,
as compared with 2020, but average selling prices were flat on a year-to-date
basis between 2021 and 2020. For the first six month of 2021, sales of concrete
structures approximated the amount recognized in fiscal 2020.

Offshore sales increased in the second quarter and first half of 2021, as compared to 2020, due to a large increase in sales volumes in the first quarter and favorable foreign currency translation. Solar tracker solution sales increased due to a large project in the second quarter of 2021.

  Gross profit decreased in the second quarter and first half of 2021, as
compared to 2020, due to rapid steel cost inflation that could not be fully
recovered through pricing mechanisms for the steel structures product line. SG&A
expense was higher in the second quarter and first half of 2021, 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 second quarter and first half 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 second quarter of 2021, as compared to 2020, increased across
the three product lines from pricing actions and due to favorable currency
translation effect of $11.5 million. Net sales slightly increased in the first
half of 2021
                                       27
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as compared to 2020, driven by $20.1 million of favorable foreign currency translation, higher sales volumes in communication structures product line, partially offset by lower sales of lighting, traffic and highway safety product volumes.

   Global lighting, traffic, and highway safety product sales in the second
quarter of 2021 increased by $6.0 million, as compared to the same period in
fiscal 2020, primarily attributed to favorable currency translation effects.
Sales volumes decreased in North America in the second quarter and first half 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 higher compared to the second quarter and first half of
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 second quarter of 2021, as compared to 2020, due to improved
volumes of highway safety products and favorable currency translation. Sales for
this region were flat for the first half of 2021, as compared to 2020, when
measured in local currencies.
Communication product line sales were higher by $3.6 and $11.5 million in the
second quarter and first half of 2021, as compared with the same periods in
2020. In North America, communication product selling prices increased in the
second quarter and first half of 2021, as well as increases in sales volumes in
the first half 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 second quarter of 2021,
as compared to 2020, by $6.4 million due to favorable current 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 quarter sales volumes.
Gross profit was higher in the second quarter and first half of 2021, as
compared to 2020, primarily due to selling price management that expanded margin
in a rising commodity cost environment for the telecommunications product lines
and improved performance in the Access Systems business attributed to
restructuring actions undertaken in 2020. SG&A spending was lower in the second
quarter and first half 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 second quarter and first half of 2021 due to improved average selling
prices and the $16.6 million impairment in 2020 which did not recur in 2021.
Coatings segment
  Coatings segment sales increased in the second quarter and first half of 2021,
as compared to the same periods in 2020, due to higher sales pricing attributed
to higher zinc costs, and favorable foreign currency translation. Sales had a
slight increase in North America in the second quarter and first half of 2021,
as compared to 2020. Sales price increases to counteract the higher cost of zinc
more than offset the higher zinc costs as well as the lower sales volumes in the
first quarter of 2021 due to decreased industrial production attributed largely
to the disruption from COVID-19 on certain customers. In Asia-Pacific region,
sales improved in all regions due to sales price increases, higher volumes, and
favorable foreign currency translation.
  SG&A expense was slightly higher in the second quarter and first half of 2021,
as compared to 2020, due to higher incentive accruals related to business
performance. Operating income was higher in the second quarter and first half of
2021, compared to the same period in 2020, due to improved sales pricing, volume
increases, and favorable foreign currency translation.

Irrigation segment

  The increase in Irrigation segment net sales in the second quarter and first
half of 2021, as compared to 2020, is due to sales volume improvements for both
the North America and international irrigation businesses, as well as higher
average selling prices. The Middle East drove the sales volume improvements for
international irrigation, due to deliveries on the multi-year Egypt project.
Brazil also had a strong quarter with improved sales volumes and the acquisition
of Solbras in the second quarter of 2020. 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.
  SG&A was higher in the second quarter and first half of 2021, as compared to
2020, due to approximately $3.1 million of higher product development expenses,
driven by the acquisitions of Prospera and PivoTrac that did not occur in 2020,
increase in intangible asset amortization, and higher compensation costs due to
improved operating results. Operating income for the segment increased in 2021
due to improved global sales volumes and pricing. The increase in operating
                                       28
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income was partially offset in 2021 due to restructuring activities in South
Africa which resulted in the recognition of $0.4 million of cost of sales and
$0.5 million of SG&A during the second quarter of 2021.
  Net corporate expense
Corporate SG&A expense was higher in the second quarter and first half of 2021,
as compared to 2020. The increase in the second quarter is primarily due to
higher incentive accruals related to business performance and an increase in
acquisition diligence costs, somewhat offset by the change in valuation of
deferred compensation assets which resulted in lower expense of $1.3 million.
The increase in the first half of 2021 is due to higher incentive accruals, an
increase in stock compensation expense, and the change in valuation of deferred
compensation assets which resulted in higher expense of $0.9 million. The change
in deferred compensation plan assets is offset by the same amount in other
income/expenses.

Liquidity and Capital Resources
Cash Flows
Working Capital and Operating Cash Flows-Net working capital was $848.1 million
at June 26, 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 acquisitions and an increase in accounts payable,
partially offset by an increase in inventory and receivable balances. Cash flow
provided by operations was $70.2 million in the first half of 2021, as compared
with $150.7 million in the first half 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 half
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 half of fiscal 2021 was $48.8 million, as compared
to $48.2 million for the same period in 2020. We expect our capital expenditures
to be approximately $115 million for fiscal 2021.
Financing Cash Flows-Our total interest-bearing debt was $896.0 million at
June 26, 2021 and $766.3 million at December 26, 2020. Financing cash flows
changed from an outflow of $92.0 million in the first half of 2020 to an inflow
of $90.1 million in the first half of 2021. The financing cash inflow in the
first half 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 borrowings, dividends paid, and the purchase of
treasury shares. The financing cash outflow first half of 2020 was due primarily
to the purchase of noncontrolling interests, dividends paid, and the purchase of
treasury shares.
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.


                                       29
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Combined financial information is as follows:

Supplemental Combined Parent and Guarantors Financial Information

  For the thirteen and twenty-six weeks ended June 26, 2021 and June 27, 2020
                                                        Thirteen weeks ended                           Twenty-six weeks ended
Dollars in thousands                            June 26, 2021           June 27, 2020          June 26, 2021           June 27, 2020
Net sales                                     $      563,833          $      470,667          $   1,031,513          $      938,347
Gross Profit                                            147,208                 134,963                282,443                 270,198
Operating income                                         51,695                  55,471                110,829                 114,605
Net earnings                                             29,750                  37,150                 66,075                  73,475
Net earnings attributable to Valmont
Industries, Inc.                                         29,668                  37,165                 65,993                  73,490



       Supplemental Combined Parent and Guarantors Financial Information
                      June 26, 2021 and December 26, 2020
                                                                                         December 26,
Dollars in thousands                                              June 26, 2021              2020
Current assets                                                  $      767,848          $    738,437
Noncurrent assets                                                      722,245               701,571
Current liabilities                                                    313,556               321,979
Noncurrent liabilities                                               1,129,754             1,100,657
Noncontrolling interest in consolidated subsidiaries                     1,744                 1,738


Included in noncurrent assets is a due from non-guarantor subsidiaries
receivable of $99,251 and $88,309 at June 26, 2021 and December 26, 2020.
Included in noncurrent liabilities is a due to non-guarantor subsidiaries
payable of $279,108 and $262,935 at June 26, 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 92,297 treasury shares for
approximately $21.6 million under our share repurchase program during the first
half of 2021. As of June 26, 2021, we have approximately $126.4 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.

                                       30
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Our debt financing at June 26, 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 June 26, 2021 and December 26, 2020, we had $131.0 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 June 26, 2021, we
had the ability to borrow $452.9 million under this facility, after
consideration of standby letters of credit of $16.1 million associated with
certain insurance obligations and international sales commitments. We also
maintain certain short-term bank lines of credit totaling $141.8 million,
$112.4 million of which was unused at June 26, 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.
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.
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 26, 2021, we were in compliance with all covenants related to the debt
agreements. The key covenant calculations at June 26, 2021 were as follows (in
000's):
                 Interest-bearing debt                  $ 895,955
                 Adjusted EBITDA-last four quarters       389,947
                 Leverage ratio                              2.30

                 Adjusted EBITDA-last four quarters     $ 389,947
                 Interest expense-last four quarters       41,398
                 Interest earned ratio                       9.42


                                       31
--------------------------------------------------------------------------------

The calculation of Adjusted EBITDA-last four quarters (June 28, 2020 through
June 26, 2021) is as follows. The last four quarters information ended June 26,
2021 is calculated by taking the full fiscal year ended December 26, 2020,
subtracting the first two quarters ended June 27, 2020, and adding the first two
quarters ended June 26, 2021.
             Net cash flows from operations                  $ 235,735
             Interest expense                                   41,398
             Income tax expense                                 52,769
             Impairment of property, plant and equipment        (1,493)

             Change in investment                                   (5)
             Deferred income tax benefit                         4,250
             Noncontrolling interest                            (2,051)
             Stock-based compensation                          (18,151)
             Pension plan expense                               11,164
             Contribution to pension plan                       19,231
             Changes in assets and liabilities                  29,862
             Other                                                 111
             EBITDA                                            372,820
             Cash restructuring expenses                        15,634

             Impairment of property, plant and equipment         1,493

             Adjusted EBITDA                                 $ 389,947


        Net earnings attributable to Valmont Industries, Inc.    $ 192,281
        Interest expense                                            41,398
        Income tax expense                                          52,769
        Depreciation and amortization expense                       86,372
        EBITDA                                                     372,820
        Cash restructuring expenses                                 15,634

        Impairment of property, plant, and equipment                 1,493
        Adjusted EBITDA                                          $ 389,947



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 $199.3 million at June 26, 2021, approximately $188.0
million is held in our non-U.S. subsidiaries. If we distributed our foreign cash
balances certain taxes would be applicable. At June 26, 2021, we have a
liability for foreign withholding taxes and U.S. state income taxes of $3.5
million and $0.8 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:

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

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 June 26, 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 June 26, 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 June 26, 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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