What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-23 compared with 2021-02-24 · 286 added, 318 removed, 282 unchanged (68% of the section changed)

11 unchanged sentences

This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes.

This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020.

Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Conditions and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year en ded December 31, 2020 .

2021 2020 Change

20 unchanged sentences

$ 9.10 $ 6.57 38.5 % $ 6.73 (2.4) %

Engineered Support Structures Segment

Utility Support Structures Segment

$ 1,121.0 $ 1,002.2 11.9 % $ 885.6 13.2 %

3 unchanged sentences

67.6 100.8 (32.9) % 87.8 14.8 %

Utility Support Structures Segment

Engineered Support Structures Segment

$ 1,064.4 $ 983.5 8.2 % $ 1,002.1 (1.9) %

15 unchanged sentences

137.1 83.1 65.0 % 71.7 15.9 %

$ — $ — NM $ 23.1 NM

— — NM 0.8 NM

— — NM 1.7 NM

Operating income

— — NM (0.9) NM

Net corporate expense

$ 0.8 $ — — $ — — %

84.5 66.3 27.5 % 48.2 37.6 %

Operating loss

(83.7) (66.3) 26.2 % (48.2) 37.6 %

NM - Not Meaningful

RESULTS OF OPERATIONS

FISCAL 2021 COMPARED WITH FISCAL 2020

The increase in net sales in 2020, as compared with 2019, was due to higher sales in the Utility and Irrigation segments that were offset by lower sales in the ESS and Coatings segments.

The increase in net sales in 2021, as compared with 2020, was due to higher sales in all segments.

The changes in net sales in 2021, as compared with 2020, were as follows:

Total ESS Utility Coatings Irrigation

Total Utility ESS Coatings Irrigation

Sales - 2020 $ 2,895.3 $ 1,002.1 $ 983.5 $ 269.6 $ 640.1

1 unchanged sentence

Pricing/mix 321.3 69.7 85.5 21.6 144.5

Acquisition/(divestiture) 10.7 2.6 6.2 — 1.9

Acquisition 10.9 2.2 — — 8.7

Currency translation 32.7 2.4 25.0 8.3 (3.0)

3 unchanged sentences

Accordingly, pricing and mix changes do not necessarily result in operating income changes.

Increased project sales for offshore and other complex steel structures, solar tracking solutions, and international Irrigation is the primary contributor to the increase in sales volume for fiscal 2020, as compared to 2019.

Average steel prices for both hot rolled coil and plate were lower in North America and China in fiscal 2020, as compared to 2019, contributing to lower average selling prices for the Utility segment.

The Company acquired the following businesses:

• 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).

Average steel prices for both hot rolled coil and plate were higher in 2021, as compared to 2020, contributing to higher cost of sales and lower gross profit margin for the Utility and Irrigation segments and the overall Company as raw material cost inflation was not fully recovered through selling pricing mechanisms.

Items Impacting Comparability

Items of note impacting the comparability of results from net earnings for 2021 included the following:

• charges totaling pre-tax $27.9 million ($21.7 million after-tax) related to the impairment of the Offshore and other complex steel structures long-lived assets.

In addition, income tax expense of $5.1 million to establish a valuation allowance related to the tax assets of the associated product line,

• Stock based compensation expense of $5.2 million ($4.8 million after-tax) for the employees from the recently acquired Prospera subsidiary, and

• charges totaling $5.5 million ($4.3 million after-tax) related to the write-off of a receivable.

Items of note impacting the comparability of results from net earnings for 2020 included the following:

• charges totaling $16.6 million ($16.2 million after-tax) related to the impairment of goodwill and tradenames for the Access Systems reporting unit (ESS segment),

• charges totaling $23.1 million ($17.3 million after-tax) related to our 2020 restructuring plan.

The Company acquired the following businesses in 2021 and 2020:

• Prospera in the second quarter of 2021 for $300 million.

Prospera is a privately-held Israeli-based artificial intelligence company focused on machine learning and computer vision in agriculture (Irrigation),

• PivoTrac in the second quarter of 2021 for $12.5 million.

PivoTrac is an agricultural technology company that offers solutions focused on remote monitoring of center pivot irrigation machines (Irrigation),

• Energia Solar Do Brasil ("Solbras") in the second quarter of 2020 for $4.3 million.

Solbras is a leading provider of solar energy solutions for agriculture (Irrigation), and

• Remaining 49% of AgSense LLC in the first quarter of 2020 for $44.0 million (Irrigation).

COVID-19 Impact on Financial Results and Liquidity

During 2020 and to a lesser extent in 2021, the effects of COVID and the related actions of governments and other authorities to contain COVID affected and continue to affect the company’s operations, results, and cash flows.

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.

All our manufacturing facilities were open and fully operational as of December 25, 2021.

Our manufacturing facilities in Argentina, France, Malaysia, New Zealand, Philippines, and South Africa 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.

We generated strong cash flows from operating activities during 2020 resulting in cash flows from operating activities, net of capital expenditures, in excess of net earnings for fiscal 2020.

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.

Restructuring Plan

Fiscal 2020 Restructuring Plan

During 2020, the Company executed certain regional restructuring activities (the "2020 Plan") primarily in the ESS and Utility segments and a U.S.

specific early retirement program covering all segments.

The 2020 Plan included the closure of one U.S.

Coatings facility.

The decrease in 2020 gross profit and operating income due to restructuring expense by segment is as follows:

The increase in 2021 gross profit and operating income due to the 2020 restructuring expense that did not recur in 2021 by segment is as follows:

Total ESS Utility Coatings Irrigation Corporate

7 unchanged sentences

Gross Profit, SG&A, and Operating Income

At a consolidated level, gross profit as a percent of sales was higher in 2020, as compared with 2019, due to customer pricing discipline (the decline in cost of sales from lower raw material costs was slightly more than the decrease in lower average selling prices) and an increase in sales volumes for the Irrigation segment and associated operating leverage of fixed costs.

Gross profit improved for the ESS, Utility, and Irrigation segments in 2020, but was lower for Coatings due to lower sales volumes.

At a consolidated level, gross profit as a percent of sales was lower in 2021, as compared with 2020, due to higher raw material costs which were partially offset by an increase in average selling prices across all segments.

Gross profit increased for the ESS, Coatings, and Irrigation segments in 2021, but was lower for the Utility segment which recognized a $21.4 million impairment of property, plant, and equipment at the Offshore and other complex steel structures reporting unit during 2021.

The Company saw an increase in selling, general, and administrative (SG&A) expense in 2021, as compared to 2020.

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 restructuring activities.

These increases were partially offset by lower travel costs, foreign currency translation effects, and reduced SG&A deferred compensation expense (offset by an increase of the same amount in other expense).

The increase was primarily due to the SG&A attributed to the Prospera acquisition (acquired in May 2021) and higher incentives and stock-based compensation due to improved operations, and the $5.5 million write off of an international accounts receivable in the Utility segment.

These increases in SG&A were partially offset by $16.3 million of restructuring expense (mostly severance) recognized during 2020 that did not recur in 2021.

Impairments of intangible assets (and goodwill in 2020) of $6.5 million and $16.6 million were recognized in 2021 and 2020, respectively.

Net Interest Expense and Debt

Net interest expense in 2020 was higher than 2019, due to a higher average borrowings during the year.

Net interest expense in 2021 was higher than 2020, due to higher average borrowings during the year.

Interest income was lower in 2021, as compared to 2020, due to lower interest rates.

Other Income/Expense

The change in other income/expenses in 2020, as compared to 2019, was due to the change in valuation of deferred compensation assets which resulted in lower other income of $3.5 million.

This amount is shown as "Gain on investments (unrealized)" on the 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 and a higher pension benefit in 2020.

The change in other income/expenses in 2021, as compared to 2020, was due to an increase of approximately $7.3 million of income recognized from the Delta pension plan.

Income Tax Expense

Our effective income tax rate in 2021 and 2020 was 23.6% and 25.7%, respectively.

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.

In 2021, the decrease in the effective tax rate was the result of a U.S.

tax benefit related to foreign taxes paid which was offset by a valuation allowance recorded against the Offshore and other complex steel structures' deferred tax assets.

In 2020, the effective tax rate was impacted by the 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 was lower in 2020 as compared to 2019, due to the acquisition of the remaining noncontrolling interests of AgSense and partial acquisition of the noncontrolling interest of Covert in the first quarter of 2020.

Earnings attributable to noncontrolling interests was comparable in 2021 with 2020.

Cash Flows from Operations

Our cash flows provided by operations was $65.9 million in fiscal 2021, as compared with $316.3 million provided by operations in fiscal 2020.

The increase in operating cash flow in 2020, as compared with 2019, was due to the $40.9 million increase in non-current contract liability partially offset by the increase in accounts receivable and the early payment (December 2020) of the required 2021 annual contribution to the Delta pension plan .

The decrease in operating cash flow in 2021, as compared with 2020, was due to the $289.9 million increase in inventory and the $69.3 million increase in accounts receivable partially offset by the increase in accounts payable and accrued expenses of $119.3 million and the early payment (December 2020) of the required 2021 annual contribution to the Delta pension plan that did not occur in 2021.

Engineered Support Structures (ESS) segment

Net sales were lower in 2020 as compared to 2019, primarily driven by lower sales volumes for access systems.

Sales were higher for the lighting, traffic, and highway safety and communication products businesses and lower for access systems.

Global lighting, traffic, and highway safety product sales in 2020 were higher by $6.3 million, as compared to 2019.

Sales volumes in North America increased due to a stronger transportation market and higher pricing.

Europe sales volumes were lower due to the temporary plant shutdown in France and market demand disruptions due to COVID-19.

Lighting, traffic, and highway safety product sales in the Asia-Pacific region decreased in 2020, as compared to 2019, due primarily to continued market weakness in India attributed to COVID-19.

Net sales were higher in 2021 as compared to 2020, primarily driven by an increase in average selling prices across all product lines, and favorable foreign currency translation effects which offset the decrease in sales volumes for the lighting, traffic, and highway product line.

Sales amounts were higher for the communication products and access systems product lines while comparable for lighting, traffic, and highway products' line year over year.

Customer pricing actions were taken across all product lines during 2021 to counter the significant inflation seen in materials, most specifically steel.

Lighting, traffic, and highway safety product sales in 2021 were $0.4 million higher, as compared to 2020.

In North America, sales decreased slightly as declines in volumes within the transportation markets were partially offset by increased higher average selling pricing year over year.

Lighting, traffic, and highway safety product sales in international markets increased in 2021, as compared to 2020, due to favorable foreign currency translation effects of approximately $18 million, slightly higher average selling prices, and slightly lower sales volumes.

Communication product line sales were higher by $50 million in 2021 as compared with 2020.

Communication product sales in Europe improved due to an increase in volume in the U.K.

and Asia-Pacific sales volumes decreased marginally.

In North America, communication product sales volumes decreased due to lower demand for communication towers and components.

Access Systems product line net sales decreased by $26.1 million in 2020, as compared to 2019.

In early 2020, we decided to exit the detention center systems product line, which contributed to the sales decline along with unfavorable foreign currency translation effects.

Impacts from subdued construction spending in Australia and COVID-19 impacts in Asia-Pacific also contributed to a decrease in sales volume.

Gross profit was higher in 2020, as compared to 2019, due to lower cost of raw materials across the segment and an approximate $7.0 million one-time loss recognized on certain access systems projects in 2019 that did not recur in 2020.

SG&A was higher in 2020 versus 2019 due to recording a partial goodwill and tradename impairment for the Access Systems business of $16.6 million, restructuring costs of $6.6 million, and higher sales commissions in North America.

Operating income decreased in 2020 due to the goodwill and tradename impairment of the Access Systems business and restructuring costs, partially offset by lower raw material costs for all businesses and a one-time $7 million loss recorded on certain access systems projects in third quarter of 2019 that did not recur in 2020.

In North America, communication product sales volumes increased due to strong demand from 5G and other connectivity initiatives and an increase in average selling prices.

Communication product line sales within international markets increased modestly in 2021 mostly attributed to an increase in volume.

Access Systems product line net sales increased by $17.5 million in 2021, as compared to 2020.

Favorable foreign currency translation effects were approximately $6 million in 2021, as compared to 2020, with the majority of the remaining increase in 2021 attributed to improved sales volumes.

Gross profit was higher in 2021, as compared to 2020, primarily from the sales volume increase in the communication product line.

SG&A was lower in 2021 versus 2020 due primarily to recording a partial goodwill and tradename impairment for the Access Systems business of $16.6 million during 2020.

Operating income increased in 2021 due the gross profit contribution from the increase in sales volumes and the lower SG&A due to the goodwill and tradename impairment of the Access Systems business and other restructuring costs recognized in 2020 that did not recur in 2021.

Utility Support Structures (Utility) segment

In the Utility segment, sales increased in 2020, as compared with 2019, due to large project work for the international solar tracking solutions and offshore and other complex structures product lines and improved sales volumes for steel and concrete structures in North America.

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.

This resulted in a decrease to the average selling prices for our steel utility structures product line for 2020, as compared with 2019.

Offshore and other complex steel structures sales increased $29.9 million and solar tracking solutions sales increased $38.9 million in 2020, as compared to 2019, due to an increase in sales volumes attributed to large projects.

Gross profit increased in 2020, as compared to 2019, due to higher sales volumes and its associated operating leverage of fixed costs.

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.

We recognized a $2.8 million impairment of a facility in 2020 that was sold in the fourth quarter.

SG&A expense was higher in 2020, as compared with 2019, due to higher sales commissions and incentives related to improved operating results in North America and a $2.7 million allowance recognized in third quarter 2020 against an international accounts receivable.

Certain other restructuring actions, including the early retirement program, also contributed to the increase in SG&A.

Operating income increased primarily due to higher sales volumes in 2020 compared to 2019.

In the Utility segment, sales increased in 2021, as compared with 2020, due primarily to an increase in average selling prices for the steel structures product line.

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.

Our average selling prices for the steel structures product line were higher during the second half of 2021, as compared to 2020, reflecting the significant inflation seen in the cost of steel during 2021.

Offshore and other complex steel structures sales was comparable in 2021 to 2020 and solar tracking solutions sales decreased $23.5 million in 2021, as compared to 2020, due to a decrease in sales volumes attributed to less large projects.

Gross profit decreased in 2021, as compared to 2020, due primarily to the $21.4 million impairment of long-lived asset for the offshore steel structures product line.

SG&A expense was higher in 2021, as compared with 2020, primarily due to $6.5 million of impairments of Offshore and other complex steel structures intangible assets and a $5.5 million write-off of an account receivable.

These increases in SG&A were partially offset by the 2020 restructuring actions, including the early retirement program, which resulted in $2.5 million of expense during 2020 that did not recur in 2021.

Operating income decreased in 2021 primarily due to the $27.9 million impairment of long-lived assets for the Offshore and other complex steel structures reporting unit.

Coatings segment

Coatings segment sales decreased in 2020, as compared to 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 2020, as compared to 2019, due primarily to decreased industrial production attributed largely to the economic impacts from COVID-19.

In Asia-Pacific region, sales volumes improved in Australia, which were more than offset by decreased volumes in Asia that were impacted by the economic disruptions from COVID-19.

Sales pricing also declined in Asia-Pacific due to lower zinc costs and customer mix.

SG&A expense in 2020 was comparable to 2019.

SG&A expense in 2020 included one-time costs related to closing down a coatings location in North America and the early retirement program that was offset by one-time expenses associated with a legal settlement in 2019 that did not recur in 2020.

Operating income was lower in 2020, compared to 2019, due to sales volume decreases in North America and Asia and the associated operating deleverage of fixed costs.

Coatings segment sales increased in 2021, as compared to 2020, due to higher average selling prices and favorable foreign currency translation.

In North America, higher average selling prices helped to counteract the higher cost of zinc that incurred throughout the year.

North America continued to see decreased industrial production attributed largely to the economic impacts from COVID-19, but not to the severity of 2020.

In the Asia-Pacific region, sales volumes improved in all regions, primarily due to an increase in average sales price, higher volumes, and favorable foreign currency translation.

SG&A expense decreased in 2021, as compared to 2020.

SG&A expense in 2020 included $2.4 million of non-recurring costs related to closing down a Coatings location in North America and the early retirement program that did not recur in 2021.

Operating income was higher in 2021, compared to 2020, due to the higher average selling prices and foreign currency translation in North America and Asia and the lower SG&A expense, partially offset by startup costs incurred in 2021 related to the new Pittsburgh facility.

Irrigation segment

The increase in Irrigation segment net sales in 2020, as compared to 2019, is primarily due to higher sales volumes for international irrigation.

The sales improvement is offset by unfavorable foreign currency translation effects and slightly lower sales pricing due to the reduced cost of steel.

The sales volume increase for international irrigation of approximately $74 million was attributed to deliveries on the multi-year Egypt project and a strong market in Brazil.

The increase was offset by unfavorable currency translation effects of approximately $21 million from a weaker Brazilian real and South African rand.

In North America, higher sales volumes for systems and parts was partially offset by sales pricing due to lower steel costs.

In 2020, sales of technology-related products and services continued to increase, as growers continued adoption of technology to reduce costs and enhance profitability.

SG&A was higher in 2020, as compared to 2019, due to higher product development expenses, one-time costs associated with the early retirement program, and higher incentives due to improved business performance.

Operating income increased in 2020 over 2019, due to higher sales volumes in international markets and lower raw material costs.

Irrigation segment net sales increased in 2021, as compared to 2020, primarily due to higher sales volumes in almost all markets, as well as higher average selling prices.

Net sales also increased slightly due to the continuing increase in sales of technology-related products and services, strengthened by our acquisitions of Prospera and PivoTrac.

The sales increase for international irrigation of $215.7 million was primarily due to deliveries on the multi-year Egypt project and higher sales volumes in Brazil.

In North America, higher sales volumes for irrigation systems and parts were driven by improved agricultural commodity prices.

Average selling prices for the North American tubular product line were up substantially in 2021, versus 2020, to reflect the inflation seen in the cost of steel during 2021.

SG&A was higher in 2021, as compared to 2020, due to approximately $20.0 million of SG&A from recently acquired Prospera and PivoTrac, higher compensation costs, and higher incentives due to improved business performance.

These increases were somewhat offset by one-time costs associated with the early retirement program incurred in 2020.

Operating income increased in 2021 over 2020, as improved global sales volumes and pricing more than offset increases in the cost of steel.

Net corporate expense

Corporate SG&A expense was higher in 2021 as compared to 2020.

The increase can be attributed to higher incentive expenses due to improved business performance and one-time costs associated with the early retirement program.

The increase was partially offset by the change in valuation of deferred compensation plan assets which resulted in lower expense.

The increase can be attributed to higher incentive expenses due to improved business performance, an increase in stock compensation expense, an increase in acquisition diligence expense, as well as an increase in rent expense with the new corporate headquarters lease.

The increase was partially offset by $1.7 million of non-recurring severance costs from the 2020 early retirement program and the change in valuation of deferred compensation plan assets which resulted in lower expense in 2021, as compared to 2020.

The change in deferred compensation plan assets is offset by the same amount in other income/expenses.

RESULTS OF OPERATIONS

FISCAL 2019 COMPARED WITH FISCAL 2018

The increase in net sales in 2019, as compared with 2018, was due to higher sales in the ESS, Utility, and Coatings segments that were substantially offset by lower sales in the Irrigation and Other segments.

The changes in net sales in 2019, as compared with 2018, were as follows:

Total ESS Utility Coatings Irrigation Other

Sales - 2018 $ 2,757.1 $ 967.3 $ 855.2 $ 286.7 $ 624.8 $ 23.1

Volume (102.1) 18.1 (60.3) (15.8) (44.1) —

Pricing/mix 82.0 17.6 51.5 11.5 1.4 —

Acquisition/(divestiture) 76.3 27.4 43.9 23.9 4.2 (23.1)

Currency translation (46.3) (28.3) (4.7) (5.7) (7.6) —

Sales - 2019 $ 2,767.0 $ 1,002.1 $ 885.6 $ 300.6 $ 578.7 $ —

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 directly result in operating income changes.

Average steel index prices for both hot rolled coil and plate were lower in North America and China in 2019, as compared to 2018, resulting in lower average costs of sales and improved gross profit.

The Company acquired the following companies during 2019 and 2018:

• A majority ownership stake in Torrent Engineering and Equipment ("Torrent") in the first quarter of 2018 (Irrigation).

• Derit Infrastructure Pvt.

("Derit") in the third quarter of 2018, which operates a lattice steel manufacturing facility located in India (Utility and Coatings).

• A majority ownership stake in Convert Italia SpA ("Convert") in the third quarter of 2018, a provider of engineered solar tracker solutions (Utility).

• Walpar in the third quarter of 2018, a domestic manufacturer of overhead sign structures (ESS).

• CSP Coating Systems ("CSP Coatings") in the fourth quarter of 2018, a coatings provider in New Zealand (Coatings).

• Larson Camouflage ("Larson") in the first quarter of 2019, an industry leading provider of architectural and camouflage concealment solutions for the wireless telecommunication market (ESS).

• United Galvanizing ("United") in the first quarter of 2019, a domestic coatings provider (Coatings).

• Connect-It Wireless, Inc.

("Connect-It") in the second quarter of 2019, a domestic communication components business (ESS).

The Company divested of its grinding media business in the second quarter of 2018, which resulted in a pre-tax loss of approximately $6.1 million.

The grinding media business is reported in Other and the loss was recorded in other income (expenses) on the Consolidated Statements of Earnings.

Restructuring Plan

In February 2018, the Company announced a restructuring plan related to certain operations in 2018, primarily in the ESS segment, through consolidation and other cost-reduction activities (the "2018 Plan").

The Company incurred pre-tax expenses from the 2018 Plan of $34.0 million in 2018.

Currency Translation

In 2019, we realized a reduction in operating profit, as compared with fiscal 2018, due to currency translation effects.

The breakdown of this effect by segment was as follows:

Total ESS Utility Coatings Irrigation Other Corporate

Full year $ (1.9) $ (0.8) $ 0.1 $ (0.5) $ (0.8) $ — $ 0.1

Gross Profit, SG&A, and Operating Income

At a consolidated level, the increase in gross margin (gross profit as a percent of sales) in 2019, as compared with 2018, can be attributed to restructuring costs incurred in 2018 of $18.4 million, lower raw material costs, and improved selling prices across our infrastructure businesses.

The ESS and Utility segments realized an increase in gross margin in 2019, while Irrigation and Coatings realized a decrease in gross margin.

The Company saw a decrease in selling, general, and administrative (SG&A) expense in 2019, as compared to 2018.

The decrease was driven by higher nonrecurring expenses in 2018 including impairment of the goodwill and trade name of the offshore and other complex structures ("Offshore") business totaling $15.8 million, restructuring costs of $15.6 million, expenses from recently acquired businesses of $9.0 million, and acquisition diligence expenses of $4.4 million.

The decrease was partially offset by higher deferred compensation expenses of $6.8 million (offset recognized in other expense as described below), and higher compensation and project related costs in 2019.

Operating income was higher for the ESS and Utility segments and lower for the Irrigation and Coatings segments in 2019, as compared to 2018.

The overall increase in operating income can be attributed to the Offshore goodwill and trade name impairment and restructuring costs incurred in 2018 and a lower cost structure resulting from those activities in 2019.

Net Interest Expense and Debt

Net interest expense for 2019 was lower than 2018 due to a debt refinancing in the third quarter of 2018 that included retiring $250.2 million senior unsecured notes due 2020 at 6.625% and issuing new senior unsecured notes of $200.0 million due 2044 and $55.0 million due 2054 at 5.0% and 5.25%, respectively.

Costs associated with the refinancing of debt totaled $14.8 million.

In addition, the Company entered into certain cross currency swaps in 2018 that effectively swaps the Company's U.S.

denominated debt for Euro and Danish kroner debt at lower interest rates which reduces interest expense.

Interest income was lower in 2019 due to having less cash on hand to invest during the year.

Other Income/Expense

The increase in other income in 2019, as compared with 2018, is due to the change in valuation of deferred compensation assets in 2019 that resulted in additional income of $6.8 million.

This amount is offset by a reduction of the same amount in SG&A expense.

The Company also divested of its grinding media business in 2018 that resulted in a loss of $6.1 million.

Income Tax Expense

Our effective income tax rate in 2019 and 2018 was 23.9% and 29.7%, respectively.

The 2018 tax rate was higher due to certain restructuring costs and impairment charges for which no tax benefits were recorded.

Earnings Attributable to Noncontrolling Interests

Noncontrolling interest expense in 2019 was consistent with 2018.

Cash Flows from Operations

Our cash flows provided by operations was $307.6 million in 2019, as compared with $153.0 million provided by operations in 2018.

The increase in operating cash flows was due to improved working capital management offset by higher contributions to the Delta pension plan.

The lower working capital is primarily due to a larger liability for customer billings in excess of costs and earnings (accrued expenses).

This was partially offset by the 2019 Delta pension plan contribution (the 2018 annual payment was contributed early in December 2017) which is a use of cash flows from operations.

Engineered Support Structures (ESS) segment

The increase in sales in 2019 as compared with 2018, was due to recent acquisitions, improved communication product line sales, and improved sales pricing.

Sales were partially offset by unfavorable foreign currency translation effects of $28.3 million.

Global lighting and traffic, and highway safety product sales in 2019 were $2.3 million higher as compared to 2018, due to higher sales pricing and increased sales volumes.

Sales volumes and pricing in North America were higher across commercial and transportation markets and also increased due to the acquisition of Walpar.

Sales in Europe were lower in 2019, as compared to 2018, due to volume decreases from ceasing manufacturing operations in Morocco and unfavorable foreign currency translation effects as the value of the euro depreciated against the U.S.

Sales volumes in Asia-Pacific were higher in India due to improved demand, offset by lower demand in China for lighting and traffic products.

Highway safety product sales decreased in 2019, as compared to 2018, due to a slowdown in government spending in Australia and India and certain project sales in 2018 that did not reoccur in 2019.

Communication product line sales increased by $39.1 million in 2019, as compared with 2018.

In North America, communication structure and component sales increased in 2019 due to strong demand from the network expansion by providers and acquisition of Larson and Connect-It.

In Asia-Pacific, sales volumes decreased due to lower demand in China and Australia for new wireless communication structures.

Access Systems product line net sales decreased in 2019 by $16.0 million, as compared to 2018.

The decrease was attributed to lower sales volumes in Australia and unfavorable foreign currency translation effects.

Gross profit, as a percentage of sales, and operating income for the segment were higher in 2019, as compared to 2018, due to improved sales volume and pricing, restructuring costs incurred in 2018, and recent acquisitions.

The improvements in profitability were partially offset by an approximate $7 million loss recognized in 2019 on certain access systems projects and much lower gross profit during the second half of 2019 attributed to weak ANZ access systems market conditions.

SG&A spending was lower in 2019, as compared to 2018, due to restructuring costs incurred in 2018 and foreign currency translation effects.

The decrease in SG&A expense was partially offset by the expenses of recent acquisitions.

Utility Support Structures (Utility) segment

In the Utility segment, sales increased in 2019 as compared with 2018, due to higher sales pricing in North America and the acquisition of Convert and Derit that was offset by lower North America volumes and unfavorable foreign currency translation effects.

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.

Specific to North America, the average sales price increase was partially offset by lower sales volumes for steel utility structures;

concrete utility structure sales volumes were higher.

The 2018 acquisitions of Convert and Derit contributed $43.9 million of additional sales in 2019, as compared to 2018.

Offshore and other complex structures sales decreased in 2019, as compared to 2018, due to lower sales pricing and unfavorable foreign currency translation effects, partially offset by sales volume increases.

Gross profit as a percentage of sales increased in 2019, as compared to 2018, due to improved sales pricing in North America and restructuring costs incurred in 2018.

SG&A expense was lower in 2019, as compared with 2018, due to the goodwill and trade name impairment recorded in 2018 for Offshore business of $15.8 million that was partially offset by expenses associated with recent acquisitions and higher compensation related expenses.

Coatings segment

Coatings segment sales increased in 2019, as compared to 2018, due to increased sales prices and the acquisition of United, CSP Coatings, and Derit.

Sales volume demand otherwise decreased in North America in 2019, as compared to 2018, due to lower industrial economy growth in the U.S.

offset somewhat by price actions.

In the Asia-Pacific region, the acquisition of Derit and CSP Coatings and price increases to recover zinc cost increases drove improved sales in 2019 as compared to 2018.

Gross profit increased in 2019 as compared to 2018, due to contributions from recent acquisitions.

SG&A expense was higher in 2019, as compared to 2018, due to expenses of recent acquisitions and non-recurring expenses.

2019 included approximately $3.0 million of expenses associated with a legal settlement;

in 2018 the business recorded the reversal of an environmental remediation liability related to one of our North America galvanizing locations of $1.9 million.

Operating income was lower in 2019 compared to 2018, due to sales volume decreases globally and non-recurring expenses.

Irrigation segment

The decrease in Irrigation segment net sales in 2019, as compared to 2018, is primarily due to lower sales volumes in North America and international markets and unfavorable foreign currency translation effects.

Continued low farm commodity prices and uncertainty around trade disputes with China dampened net farm income and caused growers to delay irrigation investments.

However, sales of technology-related products and services continue to grow, as growers are increasing adoption of technology to reduce costs and enhance profitability.

The decrease in international sales can be attributed to project delays and lower overall large project work across most regions.

In addition, the weakening of the Brazilian real and South African rand in 2019 resulted in lower sales due to currency translation.

SG&A was higher in 2019, as compared to 2018.

The increase can be attributed to expenses associated with the recent acquisitions and planned higher product development expenses.

Operating income for the segment decreased in 2019 due to lower sales volumes for the tubing and international irrigation businesses and the associated operating deleverage of fixed factory and SG&A costs.

In April 2018, the Company completed the sale of Donhad, a mining consumable business with operations in Australia.

There are no remaining businesses recorded within Other.

Net corporate expense

Corporate SG&A expense was higher in 2019 as compared to 2018.

The increase can be attributed to $6.8 million of increased appreciation of deferred compensation plan assets.

The increase in deferred compensation plan assets is offset by the same amount in other income/expense.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital and Operating Cash Flows -Net working capital was $881.3 million at December 26, 2020, as compared with $918.4 million at December 28, 2019.

The decrease in net working capital in 2020 is attributed to an increase in accrued compensation and benefits which is primarily driven by an approximately $11 million liability for the early retirement program and higher accrual for incentives earned during 2020.

Cash flow provided by operations was $316.3 million in 2020, as compared with $307.6 million in 2019 and $153.0 million in 2018.

The increase in operating cash flow in 2020, as compared to 2019, was the result of improved working capital management, offset by the required 2021 annual contribution to the Delta pension plan being made early in December 2020.

Investing Cash Flows -Capital spending in fiscal 2020 was $106.7 million, as compared with $97.4 million in fiscal 2019 and $72.0 million in fiscal 2018.

The increase in capital spending in 2020 resulted from a number of plant expansions in the North America utility business.

The decrease in investing cash outflows in 2020, as compared to 2019, was due to a decrease in acquisition spending.

We expect our capital spending for the 2021 fiscal year to be approximately $110.0 million.

Financing Cash Flows -Our total interest‑bearing debt decreased to $766.3 million at December 26, 2020, from $787.5 million at December 28, 2019.

Financing cash outflows increased in 2020, as compared to 2019, due to the Company paying down debt balances and higher purchases of noncontrolling interests.

In 2019, net proceeds were received for additional 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.

Combined financial information is as follows:

Supplemental Combined Parent and Guarantors Financial Information

For the three year period ended December 26, 2020

Dollars in thousands 2020 2019 2018

$ 1,854,141 $ 1,751,899 $ 1,693,787

512,880 454,295 418,295

Operating income

180,206 178,990 174,825

106,404 109,908 73,761

Net earnings attributable to Valmont Industries, Inc.

106,266 109,908 73,761

Supplemental Combined Parent and Guarantors Financial Information

December 26, 2020 and December 28, 2019

Dollars in thousands 2020 2019

Current assets $ 738,437 $ 728,457

Noncurrent assets 701,571 661,919

Current liabilities 321,979 312,984

Noncurrent liabilities 1,100,657 1,076,491

Noncontrolling interest in consolidated subsidiaries 1,738 —

Included in noncurrent assets is a due from non-guarantor subsidiaries receivable of $88,309 and $54,915 at December 26, 2020 and December 28, 2019.

Included in noncurrent liabilities is a due to non-guarantor subsidiaries payable of $262,935 and $249,056 at December 26, 2020 and December 28, 2019.

Capital Allocation Philosophy

We have historically funded our growth, capital spending and acquisitions through a combination of operating cash flows and debt financing.

In May 2014, our Board of Directors approved and publicly announced a capital allocation philosophy with the following priorities for cash generated:

The following are the capital allocation/priorities for cash generated:

• working capital and capital expenditure investments necessary for future sales growth;

10 unchanged sentences

We are not obligated to make any repurchases and may discontinue the program at any time.

As of December 26, 2020, we have acquired approximately 6.4 million shares for approximately $852.0 million under these share repurchase programs.

As of December 25, 2021, we have acquired approximately 6.5 million shares for approximately $878.0 million under this share repurchase program.

Sources of Financing

Our debt financing at December 26, 2020 consisted primarily of long‑term debt.

During 2018, the Company issued an additional $200 million aggregate principal amount of its 5.00% senior notes due 2044 and $55 million aggregate principal amount of its 5.25% senior notes due 2054 and redeemed $250.2 million in remaining aggregate principal amount of the 2020 senior notes.

Our long‑term debt as of December 26, 2020, principally consists of:

Our debt financing at December 25, 2021 consisted primarily of long‑term debt and borrowings on our revolving credit facility.

Our long‑term debt as of December 25, 2021, principally consisted of:

• $450 million face value ($436.9 million carrying value) of senior unsecured notes that bear interest at 5.00% per annum and are due in October 2044.

2 unchanged sentences

Both tranches of these notes are guaranteed by certain of our subsidiaries.

Our revolving credit facility with JP Morgan Chase Bank, N.A., as Administrative Agent, and the other lenders party thereto, has a maturity date of October 18, 2022.

The credit facility provides for $600 million of committed unsecured revolving credit loans with available borrowings thereunder to $400 million in foreign currencies.

Our revolving credit facility with JP Morgan Chase Bank, N.A., as Administrative Agent, and the other lenders party thereto, had a maturity date of October 18, 2022.

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 term was extended to October 18, 2026.

The revolving credit facility provides for $800 million of committed unsecured revolving credit loans with available borrowings thereunder to $400 million in foreign currencies.

We may increase the credit facility by up to an additional $300 million at any time, subject to lenders increasing the amount of their commitments.

The leverage ratio of 3.5X increases to 3.75X for the four consecutive fiscal quarters after certain material acquisitions.

The Company and our wholly-owned subsidiaries Valmont Industries Holland B.V.

1 unchanged sentence

Ltd., are authorized borrowers under the credit facility.

The obligations arising under the credit facility are guaranteed by the Company and its wholly-owned subsidiaries PiRod, Inc., Valmont Coatings, Inc., Valmont Newmark, Inc.

and Valmont Queensland Pty.

The obligations arising under the revolving credit facility are guaranteed by the Company and its wholly-owned subsidiaries Valmont Telecommunications, Inc., Valmont Coatings, Inc., Valmont Newmark, Inc., and Valmont Queensland Pty.

The interest rate on our borrowings will be, at our option, either:

(a) LIBOR (based on a 1, 2, 3 or 6 month interest period, as selected by us) plus 100 to 162.5 basis points, depending on the credit rating of our senior debt published by Standard & Poor's Rating Services and Moody's Investors Service, Inc.;

(a) term SOFR (based on a 1, 3 or 6 month interest period, as selected by the Company) plus a 10 basis point adjustment plus a spread of 100 to 162.5 basis points, depending on the credit rating of the Company's senior, unsecured, long-term debt published by Standard & Poor's Rating Services and Moody's Investors Service, Inc.;

(b) the higher of

• the prime lending rate,

• the Federal Funds rate plus 50 basis points, and

• LIBOR (based on a 1 month interest period) plus 100 basis points (inclusive of facility fees),

plus, in each case, 0 to 62.5 basis points, depending on the credit rating of our senior debt published by Standard & Poor's Rating Services and Moody's Investors Service, Inc.

A commitment fee is also required under the revolving credit facility which accrues at 10 to 25 basis points, depending on the credit rating of our senior debt published by Standard and Poor's Rating Services and Moody's Investor Services, Inc., on the average daily unused portion of the commitment under the revolving credit facility.

At December 26, 2020, we had no outstanding borrowings under the revolving credit facility.

The revolving credit facility has a maturity date of October 18, 2022 and contains certain financial covenants that may limit our additional borrowing capability under the agreement.

• the overnight bank rate plus 50 basis points, and

• term SOFR (based on a 1 month interest period) plus 100 basis points,

plus, in each case, 0 to 62.5 basis points, depending on the credit rating of our senior, unsecured, long-term debt published by Standard & Poor's Rating Services and Moody's Investors Service, Inc.;

(c) 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 the Company's senior, unsecured, long-term debt published by Standard & Poor's Rating Services and Mood's Investors Service, Inc.

A commitment fee is also required under the revolving credit facility which accrues at 10 to 25 basis points, depending on the credit rating of our senior, unsecured long-term debt published by Standard and Poor's Rating Services and Moody's Investor Services, Inc., on the average daily unused portion of the commitments under the revolving credit agreement.

At December 25, 2021, we had outstanding borrowings of $218.9 million under the revolving credit facility.

The revolving credit facility has a maturity date of October 18, 2026 and contains a financial covenant that may limit our additional borrowing capability under the agreement.

At December 25, 2021, we had the ability to borrow $590.5 million under this facility, after consideration of standby letters of credit of $0.7 million associated with certain insurance obligations.

2 unchanged sentences

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.

These 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.

These debt agreements allow us to add estimated EBITDA from acquired businesses for periods we did not own the acquired businesses.

The debt agreements also provide for an adjustment to EBITDA, subject to certain specified 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 3.50x Adjusted EBITDA (or 3.75x Adjusted EBITDA after certain material acquisitions) of the prior four quarters;

• Interest earned ratio - Adjusted EBITDA over the prior four quarters must be at least 2.50x our interest expense over the same period.

The revolving credit facility requires maintenance of a financial 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 or 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).

At December 25, 2021, we were in compliance with all covenants related to these debt agreements.

The key covenant calculations at December 26, 2020 were as follows (amounts in thousands):

Interest-bearing debt $ 766,326

Adjusted EBITDA-last four quarters 353,619

Leverage ratio 2.17

Adjusted EBITDA-last four quarters 353,619

Interest expense-last four quarters 41,075

Interest earned ratio 8.61

The calculation of Adjusted EBITDA-last four quarters is presented under the column for fiscal 2020 in footnote (b) to the table "Selected Five-Year Financial Data" in Item 6 - Selected Financial Data.

The calculation of Adjusted EBITDA-last four quarters and the Leverage ratio are presented under the column for fiscal 2021 in footnotes (b) and (c) to the tables below in Selected Financial Measures.

Our principal cash requirements include working capital, capital expenditures, payments of principal and interest on our debt, payments of taxes, contributions to pension plan, and, if market conditions warrant, occasional investments in, or acquisitions of, business ventures.

In addition, we regularly evaluate our ability to pay dividends or repurchase stock, all consistent with the terms of our debt agreements.

Cash requirements for fiscal 2022 are expected to consist primarily of capital expenditures, Delta pension plan contributions, operating leases, and interest on outstanding debt.

The Company also has unconditional purchase commitments that relate to purchase orders for zinc, aluminum and steel, all of which we plan to use in 2022.

We believe the quantities under contract are reasonable in light of normal fluctuations in business levels and we expect to use the commodities under contract during the contract period.

Total capital expenditures for fiscal 2022 are expected to be approximately $115 million.

The following table summarizes current and long-term material cash requirements as of December 25, 2021 (in millions of dollars):

Contractual Obligations Total Next 12 months Thereafter

Long‑term debt $ 979.6 $ 4.9 $ 974.7

1,075.6 41.4 1,034.2

Delta pension plan contributions 175.8 19.5 156.3

Operating leases 235.4 23.2 212.2

Total contractual cash obligations $ 2,466.4 $ 89.0 $ 2,377.4

1 Interest expense amount assumes that long-term debt will be held to maturity.

Our businesses are cyclical, but we have diversity in our markets, from a product, customer and a geographical standpoint.

7 unchanged sentences

state income taxes of $2.7 million and $0.7 million, respectively.

FINANCIAL OBLIGATIONS AND FINANCIAL COMMITMENTS

We have future financial obligations related to (1) payment of principal and interest on interest‑bearing debt, (2) Delta pension plan contributions, (3) operating leases and (4) purchase obligations.

These obligations at December 26, 2020 were as follows (in millions of dollars):

Contractual Obligations Total 2021 2022-2023 2024-2025 After 2025

Long‑term debt $ 759.5 $ 2.7 $ 1.8 $ — $ 755.0

Interest 1,074.9 38.6 77.1 77.0 882.2

Delta pension plan contributions 177.5 1.7 39.1 39.1 97.6

Operating leases 114.3 17.9 25.5 18.6 52.3

Unconditional purchase commitments 65.9 65.9 — — —

Total contractual cash obligations $ 2,192.1 $ 126.8 $ 143.5 $ 134.7 $ 1,787.1

Long‑term debt mainly consisted of $755.0 million principal amount of senior unsecured notes.

The Delta pension plan contributions are related to the current cash funding commitments to the plan with the plan's trustees.

Operating leases relate mainly to various production and office facilities and are in the normal course of business.

Unconditional purchase commitments relate to purchase orders for zinc, aluminum and steel, all of which we plan to use in 2021, and certain capital investments planned for 2021.

We believe the quantities under contract are reasonable in light of normal fluctuations in business levels and we expect to use the commodities under contract during the contract period.

At December 26, 2020, we had approximately $23.7 million of various long‑term liabilities related to certain income tax and other matters.

These items are not scheduled above because we are unable to make a reasonably reliable estimate as to the timing of any potential payments.

OFF BALANCE SHEET ARRANGEMENTS

We maintain standby letters of credit for contract performance on certain sales contracts.

(Dollars in thousands) 2021 2020 2019

Cash flow data:

Net cash flows from operating activities $ 65,938 $ 316,294 $ 307,614

Net cash flows from investing activities (417,308) (104,029) (168,150)

Net cash flows from financing activities 133,500 (173,756) (98,950)

Operating Cash Flows and Working Capital - Cash generated from operating activities totaled $65.9 million in 2021, compared with $316.3 million in 2020 and $307.6 million in 2019.

Net working capital was $946.9 million at December 25, 2021, as compared with $881.3 million at December 26, 2020.

The increase in net working capital in 2021 was attributed to an increase in inventory (primarily driven by the impact of higher steel costs) and receivables (primarily driven by higher sales in the fourth quarter), somewhat offset by increases in accounts payable and accrued compensation and benefits (primarily driven by higher accrual for incentives earned during 2021) and the use of cash to facilitate our investing and financing activities.

The decrease in operating cash flow in 2021 was favorably impacted by the required 2021 annual contribution to the Delta pension plan being made early in December 2020.

Investing Cash Flows - Cash used in investing activities totaled $417.3 million in 2021, compared to $104.0 million in 2020.

Investing activities in 2021 primarily included capital spending of $107.8 million and the acquisition of two

businesses within the Irrigation segment for $312.5 million.

In 2020, investing activities primarily included capital spending of $106.7 million, acquisitions of $15.9 million, proceeds from the settlement of a net investment hedge of $12.0 million, and proceeds from the sale of assets of $10.9 million.

Financing Cash Flows - Cash provided by financing activities totaled $133.5 million in 2021, compared to cash used in financing activities of $173.8 million in 2020.

Our total interest‑bearing debt increased to $965.4 million at December 25, 2021, from $766.3 million at December 26, 2020.

Financing cash inflows in 2021 primarily consisted of proceeds from long-term debt borrowings of $312.5 million, offset by payments on long-term debt of $91.3 million, dividends paid of $41.4 million, net payments on short-term agreements of $20.2 million, and the purchase of treasury shares of $26.1 million.

During 2020, the Company had proceeds from long-term debt borrowings of $88.9 million and net proceeds of $13.0 million from short-term agreements.

This was reduced primarily by the repayment of long-term debt of $121.7 million, dividends paid of $36.9 million, the purchase of noncontrolling interest of $59.4 million and the purchase of treasury shares of $56.5 million.

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.

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 three year period ended December 25, 2021

Dollars in thousands 2021 2020 2019

Net sales $ 2,139,427 $ 1,854,141 $ 1,751.899

Gross Profit 574,128 512,880 454,295

Operating income 208,041 180,206 178,990

Net earnings 120,655 106,404 109,908

Net earnings attributable to Valmont Industries, Inc.

120,458 102,266 109,908

Supplemental Combined Parent and Guarantors Financial Information

December 25, 2021 and December 26, 2020

Dollars in thousands 2021 2020

Current assets $ 801,797 $ 738,437

Noncurrent assets 807,294 701,571

Current liabilities 383,394 321,979

Noncurrent liabilities 1,305,756 1,100,657

Noncontrolling interest in consolidated subsidiaries 1,844 1,738

Included in noncurrent assets is a due from non-guarantor subsidiaries receivable of $93,613 and $88,309 at December 25, 2021 and December 26, 2020.

Included in noncurrent liabilities is a due to non-guarantor subsidiaries payable of $236,577 and $262,935 at December 25, 2021 and December 26, 2020

Selected Financial Measures

We are including the following financial measures for the company.

Dollars in thousands 2021 2020 2019

Total invested capital(a) $ 2,378,992 $ 1,974,162 $ 1,977,223

Return on invested capital(a) 10.1 % 8.7 % 8.9 %

Adjusted EBITDA(b) $ 448,864 $ 368,493 $ 328,165

Leverage ratio (c) 1.87 1.13 1.47

(a) Return on Invested Capital is calculated as Operating Income (after-tax) divided by the average of beginning and ending Invested Capital.

Invested Capital represents total assets minus total liabilities (excluding interest-bearing debt).

Return on Invested Capital is one of our key operating ratios, as it allows investors to analyze our operating performance in light of the amount of investment required to generate our operating profit.

Return on Invested Capital is also a measurement used to determine management incentives.

Return on Invested Capital is a non-GAAP measure.

Accordingly, Invested Capital and Return on Invested Capital should not be considered in isolation or as a substitute for net earnings, cash flows from operations or other income or cash flow data prepared in accordance with GAAP or as a measure of our operating performance or liquidity.

The table below shows how Invested Capital and Return on Invested Capital are calculated from our income statement and balance sheet.

Dollars in thousands 2021 2020 2019

Operating income $ 286,785 $ 225,953 $ 227,905

Adjusted effective tax rate 1

23.6 % 24.2 % 23.9 %

Tax effect on operating income (67,681) (54,681) (54,469)

After-tax operating income 219,104 171,272 173,436

Average invested capital 2,176,577 1,975,693 1,953,120

Return on invested capital 10.1 % 8.7 % 8.9 %

Total assets 3,447,249 2,953,160 2,807,216

Accounts payable (347,841) (268,099) (197,957)

Accrued expenses (253,330) (227,735) (167,264)

Defined benefit pension liability (536) (118,523) (140,007)

Deferred compensation (35,373) (44,519) (45,114)

Other noncurrent liabilities (89,207) (58,657) (8,904)

Dividends payable (10,616) (9,556) (8,079)

Lease liability (147,759) (80,202) (85,817)

Contract liability (135,746) (130,018) (117,945)

Deferred tax liability (47,849) (41,689) (58,906)

Total Invested capital $ 2,378,992 $ 1,974,162 $ 1,977,223

Beginning of year invested capital $ 1,974,162 $ 1,977,223 $ 1,929,016

Average invested capital $ 2,176,577 $ 1,975,693 $ 1,953,120

1 The adjusted effective tax rate for 2020 excludes the effects of the $12,575 goodwill impairment which is not deductible for income tax purposes.

The effective tax rate in 2020 including the impairments is 25.7%.

Return on invested capital, as presented, may not be comparable to similarly titled measures of other companies.

(b) Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) is one of our key financial ratios in that it is the basis for determining our maximum borrowing capacity at any one time.

Our bank credit agreements contain a financial covenant that our total interest‑bearing debt not exceed 3.50x Adjusted EBITDA (or 3.75x Adjusted EBITDA after certain material acquisitions) for the most recent four quarters.

These bank credit agreements allow us to add estimated EBITDA from acquired businesses for periods we did not own the acquired businesses.

The bank credit agreements also provide for an adjustment to EBITDA, subject to certain specified limitations, for non-cash charges or gains that are non-recurring in nature.

If this financial covenant is violated, we may incur additional financing costs or be required to pay the debt before its maturity date.

Adjusted EBITDA is non-GAAP measure and, accordingly, should not be considered in isolation or as a substitute for net earnings, cash flows from operations or other income or cash flow data prepared in accordance with GAAP or as a measure of our operating performance or liquidity.

The calculation of Adjusted EBITDA is as follows:

Dollars in thousands 2021 2020 2019

Net cash flows from operations $ 65,938 $ 316,294 $ 307,614

Interest expense 42,612 41,075 40,153

Income tax expense 61,414 49,615 47,753

Loss on investment — (39) 172

Impairment of long-lived assets (27,911) (20,389) —

Deferred income tax (expense) benefit (71) 1,397 (1,486)

Noncontrolling interest (2,095) (1,456) (5,697)

Equity in earnings of nonconsolidated subsidiaries — (1,004) —

Pension plan expense 14,567 7,311 513

Contribution to pension plan 1,924 35,399 18,461

Changes in assets and liabilities, net of acquisitions 264,558 (98,994) (81,831)

Other 17 (60) 2,513

EBITDA 420,953 329,149 328,165

Impairment of long-lived assets 27,911 20,389 —

Cash restructuring expenses — 18,955 —

Adjusted EBITDA $ 448,864 $ 368,493 $ 328,165

Net earnings attributable to Valmont Industries, Inc.

$ 195,630 $ 140,693 $ 146,408

Interest expense 42,612 41,075 40,153

Income tax expense 61,414 49,615 47,753

Stock based compensation 28,720 14,874 11,587

Depreciation and amortization expense 92,577 82,892 82,264

EBITDA 420,953 329,149 328,165

Impairment of long-lived assets 27,911 20,389 —

Cash restructuring expenses — 18,955 —

Adjusted EBITDA $ 448,864 $ 368,493 $ 328,165

Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies.

In October 2021, our revolving credit facility was amended to allow the Company 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.

(c) Leverage ratio is calculated as the sum of interest-bearing debt minus unrestricted cash in excess of $50 million (but not exceeding $500 million);

divided by Adjusted EBITDA.

The leverage ratio is one of the key financial ratios in the covenants under our major debt agreements and the ratio cannot exceed 3.5 (or 3.75x after certain material acquisitions) for any reporting period (four quarters).

If those covenants are violated, we may incur additional financing costs or be required to pay the debt before its maturity date.

Leverage ratio is a non-GAAP measure and, accordingly, should not be considered in isolation or as a substitute for net earnings, cash flows from operations or other income or cash flow data prepared in accordance with GAAP or as a measure of our operating performance or liquidity.

The calculation of this ratio is as follows:

Dollars in thousands 2021 2020 1

Interest-bearing debt $ 965,395 $ 766,326 $ 787,478

Cash and cash equivalents in excess of $50 million 127,232 350,726 303,542

Net indebtedness 838,163 415,600 483,936

Adjusted EBITDA 448,864 368,493 328,165

Leverage Ratio 1.87 1.13 1.47

Leverage ratio, as presented, may not be comparable to similarly titled measures of other companies.

1 Calculated in accordance with the terms of the credit facility as in effect on December 25, 2021.

Changes in Prices

12 unchanged sentences

At times, we utilize derivative financial instruments to hedge these exposures, but we do not use derivatives for trading purposes.

Interest Rates—Our interest‑bearing debt at December 26, 2020 was mostly fixed rate debt.

Our notes payable and a small portion of our long-term debt accrue interest at a variable rate.

Interest Rates—Our interest‑bearing debt at December 25, 2021 was primarily fixed rate debt and borrowings on our revolving credit facility.

Our notes payable, revolving credit facility, and a small portion of our long-term debt accrue interest at a variable rate.

Assuming average interest rates and borrowings on variable rate debt, a hypothetical 10% change in interest rates would have affected our interest expense in 2021 and 2020 by approximately $0.4 million.

4 unchanged sentences

From time to time, as market conditions indicate, we will enter into foreign currency contracts to manage the risks associated with anticipated future transactions, current balance sheet positions, and foreign subsidiary investments that are in currencies other than the functional currencies of our businesses.

At December 26, 2020, the Company had outstanding foreign currency forward contracts which mitigate foreign currency risk of the Company's investment in its Brazilian real and euro denominated businesses.

The forward contracts, which qualify as cash flow hedges, mature in the first quarter of 2021.

The Company also has two outstanding fixed-for-fixed cross currency swaps (“CCS”), swapping U.S.

At December 25, 2021, the Company had two outstanding fixed-for-fixed cross currency swaps (“CCS”), swapping U.S.

dollar principal and interest payments on a portion of its 5.00% senior unsecured notes due 2044 for Danish krone (DKK) and Euro denominated payments.

9 unchanged sentences

We manage our investment risk in foreign operations by borrowing in the functional currencies of the foreign entities or by utilizing hedging instruments (as discussed above) where appropriate.

The following table indicates the change in the recorded value of our most significant investments at year-end assuming a hypothetical 10% change in the value of the U.S.

The following table indicates the change

in the recorded value of our most significant investments at year-end assuming a hypothetical 10% change in the value of the U.S.

(in millions)

Australian dollar $ 11.6 $ 15.0

$ 15.0 $ 14.7

Euro 8.6 11.3

Danish krone 2.4 5.5

Chinese renminbi 6.2 6.7

Canadian dollar 3.6 3.6

pound 16.8 8.4

Brazilian real 4.5 3.4

1 unchanged sentence

Steel prices are volatile and we may utilize derivative instruments to mitigate commodity price risk on fixed price orders.

In 2019 and 2018, the Company entered into steel hot rolled coil forward contracts which qualified as a cash flow hedge of the variability in the cash flows attributable to future steel purchases.

There are no outstanding steel coil forward contracts at December, 26, 2020.

In 2021, the Company entered into steel hot rolled coil forward contracts which qualified as a cash flow hedge of the variability in the cash flows attributable to future steel purchases.

At December, 25, 2021, we had open forward contracts with a notional amount of $69.7 million for the total purchase of 55,600 short tons from January 2022 to December 2022.

Natural gas is a significant commodity used in our factories, especially in our Coatings segment galvanizing operations, where natural gas is used to heat tanks that enable the hot-dipped galvanizing process.

15 unchanged sentences

We have assigned useful lives to our property, plant and equipment and certain intangible assets ranging from 3 to 40 years.

Upon adoption of ASC 842, Leases in 2019, the Company impaired the right-of-use asset for one of our galvanizing facilities in Australia as it will not generate sufficient cash flows to recover the carrying value.

Impairment losses were recorded in 2020 and 2018 as facilities were closed and certain fixed assets were no longer expected to be used as a result of our restructuring plans.

We identified twelve reporting units for purposes of evaluating goodwill and we annually evaluate our reporting units for goodwill impairment during the third fiscal quarter, which usually coincides with our strategic planning process.

We assess the value of our reporting units using after-tax cash flows from operations (less capital expenses) discounted to present value.

In November 2021, we obtained clarifying information on the amount of duties that the European Union would impose on imports of steel wind towers.

A resulting impairment test (based on estimated undiscounted future cash flows) was required for our Offshore and other complex steel structures reporting unit.

The undiscounted cash flows of its long-lived assets were less than the carrying values which required us to estimate their fair value and we recognized a pre-tax $27.9 million impairment of the long-lived assets (customer relationship intangible asset, trade name, and property, plant and equipment).

Impairment losses of $3.8 million were recorded in 2020 as facilities were closed and certain fixed assets were no longer expected to be used as a result of our restructuring plans.

Upon adoption of ASC 842, Leases in 2019, the Company impaired the right-of-use asset for one of our galvanizing facilities in Australia as it was determined that it would not generate sufficient cash flows to recover the carrying value.

We identified thirteen reporting units for purposes of evaluating goodwill and we annually evaluate our reporting units for goodwill impairment during the third fiscal quarter, which usually coincides with our strategic planning process.

For twelve of the reporting units, we estimate the value of the reporting units using after-tax cash flows from operations (less

capital expenses) discounted to present value ("discounted cash flows").

The key assumptions in the discounted cash flow analysis are the discount rate and the projected cash flows.

1 unchanged sentence

For our solar tracking structure reporting unit, we project meaningful annual revenue growth for the foreseeable future due to strong market conditions.

Therefore, we valued the terminal value for this reporting unit using a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA), as that is the valuation technique we’d

expect a third party to use.

We analyze EBITDA multiples for other industrial companies with similar product lines in determining what to use in the mode l.

For both the 2020 and 2019 annual impairment test, we did not first perform the qualitative assessment of each of our reporting units using our judgment.

Our access systems reporting unit required an interim impairment test during fiscal 2020 due to various economic forecasts showing a depressed price of oil for the next few years.

A revised view of the Australian market performed in conjunction with the executed restructuring activities required a re-assessment of the financial projections for this reporting unit resulting in lower projected net sales, operating income, and cash flows for this reporting unit.

Accordingly, we recognized a $12.6 million impairment of goodwill in the second quarter of 2020.

The estimated fair value of all of our reporting units exceeded their respective carrying value, so no goodwill was impaired during our annual impairment test in 2020.

A goodwill impairment of $14.4 million, which represents all of the goodwill of the offshore and other complex steel reporting unit, was recorded in the third quarter of 2018.

Therefore, we valued this reporting unit using a blend of both the discounted cash flows and a market approach.

The market valuation approach estimates the value for this reporting unit using a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA).

We analyze EBITDA multiples for other industrial companies with similar product lines in determining what to use in the model .

The key assumption in the market approach analysis are the selection of industrial companies with similar product lines and forecasted EBITDA.

For both the 2021 and 2020 annual impairment test, the estimated fair value of all of our reporting units exceeded their respective carrying value, so no goodwill was impaired during our annual impairment test in 2021 or 2020.

A $12.6 million impairment of our access systems reporting unit was recognized as a result of an interim impairment test during second quarter of 2020.

If our assumptions on discount rates and future cash flows change as a result of events or circumstances, and we believe these assets may have declined in value, then we may record impairment charges, resulting in lower profits .

8 unchanged sentences

The most significant assumptions in this evaluation include estimated future sales, the royalty rate and the after-tax discount rate.

For our evaluation purposes, the royalty rates used vary between 0.5% and 1.5% of sales and the after-tax discount rate of 12.0% to 15.0%, which we estimate to be the after-tax cost of capital for such assets.

In conjunction with the interim goodwill impairment test of access systems, impairment indicators were noted in the Webforge and Locker trade names.

We recognized a resulting impairment charge of $3.9 million against these two trade names in second quarter of 2020.

We performed our annual impairment test of all trade named in the third quarter of 2020 and determined none were impaired.

In 2018, an impairment of $1.4 million was recorded against the offshore and other complex steel structures trade name (Valmont SM).

We performed our annual impairment test of all trade names in the third quarter of 2021 and determined none were impaired.

As a result of a fourth quarter 2021 interim impairment test of the long-lived assets of the Offshore and other complex steel structures reporting unit, we recognized an impairment of approximately $2 million.

Inventories are valued at the lower of cost, determined on a first-in, first-out basis, or net realizable value.

5 unchanged sentences

Likewise, if we subsequently determine that we are able to realize all or part of a net deferred tax asset in the future, an adjustment reducing the valuation allowance would increase net earnings in the period such determination was made.

At December 26, 2020, we had approximately $81.9 million in deferred tax assets relating to tax credits and loss carryforwards, with a valuation allowance of $44.5 million, including $2.7 million in valuation allowances remaining in the Delta entities related to capital loss carryforwards, which are unlikely ever to be realized.

At December 25, 2021, we had approximately $83.7 million in deferred tax assets relating to tax credits and loss carryforwards, with a valuation allowance of $49.7 million, including $8.4 million in valuation allowances related to capital loss carryforwards, which are unlikely ever to be realized.

If circumstances related to our deferred tax assets change in the future, we may be required to increase or decrease the valuation allowance on these assets, resulting in an increase or decrease in income tax expense and a reduction or increase in net income.

Also, we consider the earnings in our greater than 50% owned non-U.S.

subsidiaries to not be indefinitely reinvested and, accordingly, we have a

deferred tax liability of $3.9 million related to these unremitted foreign earnings for future taxes that will be incurred when cash is repatriated.

subsidiaries to not be indefinitely reinvested and, accordingly, we have a deferred tax liability of $3.4 million related to these unremitted foreign earnings for future taxes that will be incurred when cash is repatriated.

We are subject to examination by taxing authorities in the various countries in which we operate.

17 unchanged sentences

The discount rate used to measure the defined benefit obligation was 1.9% at December 25, 2020.

The following tables present the key assumptions used to measure pension expense for 2021 and the estimated impact on 2021 pension expense relative to a change in those assumptions:

The following tables present the key assumptions used to measure the pension benefit for 2022 and the estimated impact relative to a change in those assumptions for 2022:

Assumptions Pension

3 unchanged sentences

Inflation - RPI

Assumptions In Millions of Dollars Increase

0.25% decrease in discount rate

Assumptions In Millions of Dollars Decrease

0.25% increase in discount rate $ 1.0

0.25% decrease in expected return on plan assets

1 unchanged sentence

Revenue Recognition

Effective the first day of fiscal 2018, we adopted the requirements of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) .

Please see note 1 to the consolidated financial statements for additional information on the new standard and the cumulative effect from the modified retrospective adjustment.

We determine the appropriate revenue recognition for our contracts by analyzing the type, terms and conditions of each contract or arrangement with a customer.

25 unchanged sentences

This resets the timing of revenue recognition for future periods so it is better aligned with the new production schedule.

For our offshore and other complex steel structures, we update the estimates of total costs to complete each order quarterly.

For our Offshore and other complex steel structures business, we update the estimates of total costs to complete each order quarterly.

Based on these updates, revenue in the current period may reflect adjustments for amounts that had been previously recognized.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis