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Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-02-23 · 223 added, 240 removed, 328 unchanged (59% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATION.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.

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 .

Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 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 ended December 25, 2021.

During the first quarter of 2022, the Company’s Chief Operating Decision Maker (“CODM”) changed the Company’s management structure and began to manage the business, allocate resources, and evaluate performance based on the new structure.

As a result, the Company has realigned to a two reportable segment structure organized by market dynamics (Infrastructure and Agriculture).

Three operating segments resulted from the new management structure and two are aggregated into the Agriculture reportable segment.

The Company considers gross profit margins, nature of products sold, nature of the production processes, type and class of customer, and methods used to distribute products when assessing aggregation of operating segments.

The Infrastructure segment includes the previous reportable segments of Utility Support Structures, Engineered Support Structures, and Coatings.

All prior period segment information has been recast to reflect this change in reportable segments.

Change 2022 - 2021

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Dollars in millions, except per share amounts

$ 3,501.6 $ 2,895.4 20.9 % $ 2,767.0 4.6 %

883.9 765.5 15.5 % 682.7 12.1 %

as a percent of sales

25.2 % 26.4 % 24.7 %

597.1 539.6 10.7 % 454.8 18.6 %

as a percent of sales

17.1 % 18.6 % 16.4 %

Operating income

286.8 225.9 27.0 % 227.9 (0.9) %

as a percent of sales

8.2 % 7.8 % 8.2 %

Net interest expense

41.4 38.7 7.0 % 36.2 6.9 %

Effective tax rate

23.6 % 25.7 % 23.9 %

Net earnings attributable to Valmont Industries, Inc

195.6 140.7 39.0 % 146.4 (3.9) %

Diluted earnings per share

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

Utility Support Structures Segment

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

197.1 210.4 (6.3) % 187.6 12.2 %

129.5 109.6 18.2 % 99.8 9.8 %

Operating income

67.6 100.8 (32.9) % 87.8 14.8 %

Engineered Support Structures Segment

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

296.1 271.4 9.1 % 229.0 18.5 %

180.6 206.1 (12.4) % 163.4 26.1 %

Operating income

115.5 65.3 76.9 % 65.6 (0.5) %

Coatings Segment

$ 299.1 $ 269.6 10.9 % $ 300.6 (10.3) %

92.2 86.4 6.7 % 94.2 (8.3) %

41.9 43.4 (3.5) % 43.2 0.5 %

Infrastructure

Operating income

50.3 43.0 17.0 % 51.0 (15.7) %

Irrigation Segment

$ 1,017.1 $ 640.1 58.9 % $ 578.7 10.6 %

297.7 197.3 50.9 % 171.9 14.8 %

160.6 114.2 40.6 % 100.2 14.0 %

Operating income

137.1 83.1 65.0 % 71.7 15.9 %

Gross profit (loss)

Operating income (loss)

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 %

RESULTS OF OPERATIONS

FISCAL 2022 COMPARED WITH FISCAL 2021

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 Utility ESS Coatings Irrigation

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

Volume 241.4 44.6 (29.6) (0.4) 226.8

The increase in net sales in 2022, as compared with 2021, was the result of higher sales in both the Infrastructure and Agriculture segments.

Fiscal 2022 included 53 weeks, while fiscal 2021 included 52 weeks.

The estimated impact on the Company's results of operations due to the extra week in fiscal 2022 was additional net sales of approximately $80.8 million and additional net earnings of approximately $5.3 million.

Infrastructure

Pricing / mix

Acquisition 10.9 2.2 — — 8.7

Currency translation

Sales - 2021 $ 3,501.6 $ 1,121.0 $ 1,064.4 $ 299.1 $ 1,017.1

Volume effects are estimated based on a physical production or sales measure.

Volume impacts are estimated based on 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 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.

Due to supply chain disruptions and lingering impacts of the pandemic, average steel prices for both hot rolled coil and plate were volatile over the past few years, especially in North America.

While hot rolled coil steel has decreased in price, the steel consumed during 2022 within cost of sales was at a much higher average cost as compared to 2021.

Gross profit margin was higher in 2022, as compared to 2021, as customer pricing mechanisms and product selling price practices allowed for the recovery of price inflation for the Infrastructure and Agriculture reportable segments.

Items Impacting Comparability

Items of note impacting the comparability of results from net earnings for 2022 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.

● charges totaling $33.3 million (no associated tax benefit) related to the divestiture of the offshore wind energy structures business,

● incremental stock-based compensation expense of $5.0 million ($4.6 million after-tax) for the employees from the Prospera subsidiary acquired in 2021, and

● incremental amortization of identified intangible assets of $3.6 million ($2.4 million after-tax) associated from the Prospera subsidiary acquired in 2021.

Items of note impacting the comparability of results from net earnings for 2021 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.

● charges totaling pre-tax $27.9 million ($21.7 million after-tax) related to the impairment of the offshore wind energy structures business 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, and

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

The Company acquired the following businesses in 2022 and 2021:

● 51% of ConcealFab in the second quarter of 2022 for $39.3 million.

ConcealFab is a Colorado-based 5G infrastructure and passive intermodulation mitigation solutions company (Infrastructure),

● 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),

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

● 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.

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.

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.

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 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

Gross profit $ 6.8 $ 1.0 $ 4.2 $ 1.6 $ — $ —

Operating Income $ 23.1 $ 7.6 $ 6.6 $ 3.9 $ 3.0 $ 2.0

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

The Company divested its offshore wind energy structures business in the fourth quarter of 2022, which resulted in a loss of approximately $33.3 million (no associated tax benefit).

The offshore wind energy structures business is included in the Other segment and the loss was recorded in “Other income (expenses)” in the Consolidated Statements of Earnings.

Macroeconomic Impacts on Financial Results and Liquidity

We continue to monitor several macroeconomic and geopolitical trends that impacted our business, including inflationary cost pressures, supply chain disruptions, the strengthened U.S.

dollar, the ongoing Russia-Ukraine conflict, changing conditions from the COVID-19 pandemic, and labor shortages.

Change in Reportable Segments

On December 26, 2021, the Company’s CODM began to manage the business, allocate resources, and evaluate performance based on changes made to the Company’s management structure.

As a result, the Company has realigned its reportable segment structure.

The Company reorganized from a four segment structure previously organized by product category (Utility Support Structures, Engineered Support Structures, Coatings, and Irrigation) to a two segment reporting structure organized by market dynamics (Infrastructure and Agriculture).

All prior period information has been recast to reflect this change in reportable segments.

See Note 21 to our Consolidated Financial Statements for additional information.

In addition to these two reportable segments, the Company had a business and related activities that are not more than 10% of consolidated sales, operating income, or assets.

This includes the offshore wind energy structures business and was reported in the “Other” segment until its divestiture in 2022.

Currency Translation

In 2021, we realized a reduction in operating profit, as compared with fiscal 2020, due to currency translation effects.

The continued strengthening of the U.S.

dollar resulted in negative foreign currency impacts for many of our businesses located in foreign jurisdictions.

In 2022, we realized an increase in operating profit, as compared with fiscal 2021, despite these overall negative currency translation effects.

The breakdown of this effect by segment was as follows:

Total ESS Utility Coatings Irrigation Corporate

Full year $ 0.9 $ 1.4 $ (0.6) $ 1.4 $ (0.3) $ (1)

Infrastructure

Gross Profit, SG&A, and Operating Income

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.

At a consolidated level, gross profit as a percent of sales was higher in 2022, as compared with 2021.

Gross profit as a percent of sales was relatively flat for both the Infrastructure and Agriculture segments, as increased raw material and labor costs were offset by an increase in average selling prices.

Gross profit was higher for both the Infrastructure and Agriculture segments in 2022.

The Company saw an increase in selling, general, and administrative (“SG&A”) expense in 2022, as compared to 2021.

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.

The increase in SG&A was due to the incremental SG&A from the Prospera acquisition in May 2021 (including intangible asset amortization, stock-based compensation, and research and development costs), higher incentives and stock-based compensation costs due to improved operations, salary merit increases, and higher travel costs.

In 2021, the Other segment recognized a pre-tax $27.9 million impairment charge of long-lived assets ($21.4 million recognized in cost of goods sold and $6.5 million in SG&A) and a $5.5 million write-off of an accounts receivable related to the offshore wind energy structures business that did not recur in 2022.

Net Interest Expense and Debt

Net interest expense in 2022 was higher than 2021 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 2021, as compared to 2020, was due to an increase of approximately $7.3 million of income recognized from the Delta pension plan.

Interest income was also higher in 2022, as compared to 2021, due to higher interest rates.

Other Income/Expense (including Gain (loss) on investments – unrealized)

The change in other income/expenses in 2022, as compared to 2021, was primarily due to a lower pension benefit of $4.5 million and the change in the valuation of deferred compensation assets which resulted in a lower income of $5.5 million.

These decreases were offset by an increase in investment income of $2.7 million and a gain of $2.1 million related to insurance proceeds received associated with windstorm damage at one of our facilities in France.

The change related to deferred compensation assets is offset by an opposite change of the same amount in SG&A expense.

Income Tax Expense

Our effective income tax rate in 2022 and 2021 was 29.9% and 23.6%, respectively.

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.

In 2022, the increase in the effective tax rate was the result of a change in geographical earnings and the approximately $33.3 million loss from divestiture of the offshore wind energy structures business which had no associated income tax benefit.

In 2021, the effective tax rate was impacted by a U.S.

tax benefit related to foreign taxes paid which was offset by a valuation allowance recorded against the offshore wind energy business structures’ deferred tax assets.

Earnings Attributable to Noncontrolling Interests

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

Earnings attributable to noncontrolling interests were higher in 2022 compared with 2021, primarily due to the new noncontrolling interest not acquired as part of the acquisition of 51% ownership of ConcealFab in the first half of 2022.

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 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 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.

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.

Our cash flows provided by operations were $326.3 million in fiscal 2022, as compared with $65.9 million provided by operations in fiscal 2021.

The increase in operating cash flow in 2022, as compared with 2021, was primarily due to the increase in net earnings and a significant increase in working capital levels during 2021 that did not occur in 2022, partially offset by an increase of approximately $15.2 million in contributions to the defined benefit pension plan.

Infrastructure Segment

Fifty-three and fifty-two weeks ended

Infrastructure

Sales, gross of intercompany eliminations:

Transmission, Distribution, and Substation

Lighting & Transportation

Telecommunications

Renewable Energy

Operating Income

Net sales were higher in 2022 by approximately $548.2 million as compared to 2021, primarily driven by higher average selling prices across all product lines, partially offset by $48.7 million of unfavorable foreign currency translation effects year over year.

The increase in net sales for North America in 2022 versus 2021 was substantially higher than the increase within international markets, partially attributed to the unfavorable currency translation effects (continued strengthening of the U.S.

In the TD&S product line, net sales increased in 2022, as compared with 2021, due primarily to a substantial 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.

Sales volumes increased modestly in 2022 as compared to 2021.

Lighting and transportation net sales increased in 2022, as compared to 2021 from the realization of customer pricing actions.

Sales volumes increased in North America but decreased within international markets in fiscal year 2022, as compared to fiscal year 2021.

Reported international sales decreased in 2022, as compared to 2021, by approximately $32.1 million due to unfavorable foreign currency translation effects.

In the Telecommunications product line, net sales increased in 2022, as compared to 2021, due primarily to higher average selling prices and approximately $26.9 million of net sales attributed to the 2022 acquisition of ConcealFab.

Higher sales volume in 2022 for North America, primarily attributed to the 5G deployments across additional markets, was partially offset by lower sales volume within international markets.

Coatings net sales increased in 2022, as compared to 2021, due to higher average selling prices, adjusted throughout the year to reflect higher average zinc costs and production wage inflation.

Sales volume increased modestly in both North America and international markets in 2022, as compared to 2021.

Reported international sales for the Coatings product line decreased in 2022, as compared to 2021, by approximately $10.1 million due to unfavorable foreign currency translation effects.

Renewable Energy net sales doubled in 2022, as compared to 2021, almost all attributed to an increase in sales volume.

Gross profit was higher in 2022, as compared to 2021.

Contractual customer pricing mechanisms and selling price management led to a large increase in average selling prices while maintaining gross profit margins during the highly inflationary environment.

SG&A was higher in 2022, as compared to 2021, due to wage inflation, increased incentives due to improved financial performance, increased travel expense, and SG&A attributed to the recent acquisition.

Operating income increased in 2022 due the increase in net sales more than offsetting the effects of inflation and other increased expenses in both cost of sales and to SG&A.

Agriculture Segment

Fifty-three and fifty-two weeks ended

Sales, gross of intercompany eliminations:

North America

International

Operating Income

Agriculture segment net sales increased in 2022 by approximately $318.2 million as compared to 2021, primarily due to much higher average selling prices of irrigation equipment globally of approximately 22%.

In North America, higher sales volumes for irrigation systems and parts in 2022, as compared to 2021, were driven by improved agricultural commodity prices.

International irrigation experienced a slightly lower sales volume in 2022, as compared to 2021.

Overall lower project sales to Egypt for the year 2022 more than offset the sales volume increases in many foreign markets.

Partially offsetting that decrease was a sales volume increase in 2022 versus 2021 due to robust demand for irrigation equipment and agriculture solar products in Brazil.

Sales of technology-related products increased $17.2 million as growers continued their adoption of technology to reduce costs and enhance profitability.

SG&A was higher in 2022, as compared to 2021, due to higher overall compensation costs and higher incentives due to improved business performance, as well as the incremental SG&A from the Prospera subsidiary acquired in the second quarter of 2021 (including the amortization of identified intangible assets, research and development costs, and stock-compensation expense).

Operating income increased in 2022 over 2021, as improved global sales volumes and pricing more than offset increases in the cost of sales and SG&A.

In November 2022, the Company completed the sale of Valmont SM, an offshore wind energy structures business with operations in Denmark.

The Company realized an approximate $33.3 million loss on the sale that is recorded in “Other income (expenses)” in the Consolidated Statements of Earnings, subject to certain post-closing adjustments.

In 2021, the offshore wind energy structures business recognized a pre-tax $27.9 million impairment charge of long-lived assets and a $5.5 million write-off of an accounts receivable that did not recur in 2022.

Net Corporate Expense

Corporate SG&A expense was higher in 2022 as compared to 2021.

The increase can be attributed to higher incentive expenses due to improved business performance, an increase in stock compensation expense, an increase in compensation expense due to salary merit increases, as well as an increase in rent expense of $2.7 million with the new corporate headquarters lease starting in the second quarter of 2021.

The increase was partially offset by the change in valuation of deferred compensation plan assets which resulted in lower expense of $5.5 million in 2022, as compared to 2021.

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

FISCAL 2021 COMPARED WITH FISCAL 2020

Infrastructure Segment

Net sales were higher in 2021 by approximately $226.3 million as compared to 2020, primarily driven by higher average selling prices across all product lines, as well as $33.3 million of favorable foreign currency translation effects year over year.

In the TD&S product line, net sales increased approximately $139.4 million in 2021, as compared with 2020, due primarily to an increase in average selling prices for the steel structures product line, reflecting the significant inflation seen in the cost of steel during 2021.

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.

Lighting and transportation net sales increased by approximately $28.6 million in 2021, as compared to 2020.

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

Sales increased within international markets in fiscal year 2021, as compared to fiscal year 2020, due to favorable foreign currency translation effects of approximately $24 million, slightly higher average selling prices, and slightly lower sales volumes.

In the Telecommunication product line, net sales increased by approximately $52.3 million in 2021, as compared to 2020, due primarily to higher net sales in North America, as 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 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 increased in 2021, as compared to 2020, due to higher average selling prices and favorable foreign currency translation.

Coatings net sales increased approximately $29.5 million 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

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.

In Asia-Pacific region, sales volumes improved in all regions, primarily due to sales pricing increases, higher volumes, and favorable foreign currency translation.

In the Renewable Energy product line, net sales decreased approximately $23.5 million in 2021, as compared to 2020, due to a decrease in sales volumes attributed to less large projects.

Gross profit was higher by approximately $38.7 million in 2021, as compared to 2020.

Contractual customer pricing mechanisms along with selling price management led to a large increase in average selling prices which more than offset the higher costs of goods sold.

The increase in sales volume for Telecommunications product line also contributed to the increase in gross profit.

SG&A was lower in 2021, as compared to 2020, primarily due to recording a partial goodwill and tradename impairment for the Access Systems business of $16.6 million during 2020 and other restructuring costs recognized in 2020 that did not recur in 2021.

Operating income increased in 2021, as compared to 2020, due the increase in net sales and the decrease in SG&A.

Agriculture Segment

Agriculture segment net sales increased in 2021 by approximately $377.0 million, 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 that occurred in 2021.

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.

1 unchanged sentence

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.

SG&A was higher in 2021, as compared to 2020, due to approximately $20.0 million of SG&A from the acquisitions of 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, 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.

The net sales for the offshore wind energy structures business in 2021 was comparable 2020.

Gross profit decreased in 2021, as compared to 2020, due primarily to the $21.4 million impairment of long-lived assets.

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

Operating income decreased in 2021 primarily due to the $27.9 million impairment of long-lived assets for the offshore wind energy structures business.

LIQUIDITY AND CAPITAL RESOURCES

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

• dividends on common stock in the range of 20% of the prior year's fully diluted net earnings;

● dividends on common stock generally in the range of 20% of the prior year’s fully diluted net earnings;

● acquisitions;

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Our most recent ratings were Baa3 by Moody’s Investors Services, Inc., BBB- by Fitch Ratings, and BBB+ by Standard and Poor’s Rating Services.

We would be willing to allow our debt rating to fall to BBB- to finance a special acquisition or other opportunity.

We would be willing to allow our debt rating to fall to BBB- to finance a special acquisition or other

We expect to maintain a ratio of debt to invested capital which will support our current investment grade debt rating.

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The Board of Directors authorized an additional $250 million of share purchases, without an expiration date in both February 2015 and again in October 2018.

The purchases will be funded from available working capital and short-term borrowings and will be made subject to market and economic conditions.

The purchases are 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 repurchases and may discontinue the program at any time.

As of December 31, 2022, we have acquired approximately 6.6 million shares for approximately $918.6 million under this share repurchase program.

Subsequent to year end, on February 27, 2023, the Board of Directors increased the amount remaining under the program by an additional $400 million, with no stated expiration date.

Sources of Financing

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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, 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.

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, 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.

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● the overnight bank rate plus 50 basis points, and

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

● term SOFR (based on a one-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.;

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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.

As of December 31, 2022, we had outstanding borrowings of $140.5 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.

We also maintain certain short‑term bank lines of credit totaling $137.8 million;

$124.4 million of which was unused at December 25, 2021.

As of December 31, 2022, we had the ability to borrow $659.4 million under this facility, after consideration of standby letters of credit of $0.2 million associated with certain insurance obligations.

We also maintain certain short‑term bank lines of credit totaling $125.0 million, of which $119.2 million was unused as of December 31, 2022.

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.

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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 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.

The 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 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).

As of December 31, 2022, we were in compliance with all covenants related to these debt agreements.

The calculation of Adjusted EBITDA-last four quarters and the leverage ratio are 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.

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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.

Total capital expenditures for fiscal 2023 are expected to be approximately $105 to $125 million.

The following table summarizes current and long-term material cash requirements as of December 31, 2022 (in millions of dollars):

Contractual Obligations Total Next 12 months Thereafter

Contractual Obligations

Long‑term debt

1,075.6 41.4 1,034.2

Delta pension plan contributions

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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 for fiscal 2022 and beyond.

We have cash balances of $177.2 million at December 25, 2021, approximately $169.5 million is held in our non-U.S.

Based on our available credit facilities, issuance of senior unsecured notes, and our history of positive operational cash flows, we believe that we have adequate liquidity to meet our needs for fiscal year 2023 and beyond.

We had cash balances of $185.4 million as of December 31, 2022, approximately $147.2 million is held in our non-U.S.

subsidiaries.

If we distributed our foreign cash balances, certain taxes would be applicable.

At December 25, 2021, we have a liability for foreign withholding taxes and U.S.

As of December 31, 2022, we had a liability for foreign withholding taxes and U.S.

state income taxes of $2.0 million and $0.9 million, respectively.

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Net cash flows from financing activities

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.

Operating Cash Flows and Working Capital – Cash generated from operating activities totaled $326.3 million in 2022 compared with $65.9 million in 2021.

Net working capital was $976.6 million as of December 31, 2022, as compared with $946.9 million as of December 25, 2021.

The increase in net working capital in 2022 was attributed to the overall increase in net sales and the related impact on contract asset and receivables, partially offset by increases in accounts payable and other accrued expenses.

Overall working capital was also affected by our use of cash to fund our capital spending and acquisition of ConcealFab as well as our various financing activities.

Investing Cash Flows – Cash used in investing activities totaled $132.1 million in 2022, compared to $417.3 million in 2021.

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.

Investing activities in 2022 included capital spending of $93.3 million and the acquisition of a controlling ownership investment in ConcealFab for $39.3 million.

In 2021, investing activities primarily included capital spending of $107.8 million and the acquisitions of two businesses within the Agriculture segment for $312.5 million.

Financing Cash Flows – Cash used in financing activities totaled $181.9 million in 2022, compared to cash provided by financing activities of $133.5 million in 2021.

Our total interest‑bearing debt decreased to $878.0 million as of December 31, 2022, from $965.4 million on December 25, 2021.

Financing cash outflows in 2022 primarily consisted of principal payments of long-term borrowings of $336.4, offset by proceeds from long-term debt borrowings of $254.0 million, dividends paid of $45.8 million, net payments on short-term agreements of $7.6 million, the purchase of treasury shares of $40.5 million, and the purchase of noncontrolling interests of $7.3 million.

During 2021, the Company had 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.

Guarantor Summarized Financial Information

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Dollars in thousands

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

Gross Profit 574,128 512,880 454,295

Operating income

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

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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.

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

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 also a measurement used to determine management incentives.

Dollars in thousands

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Adjusted effective tax rate 1

23.6 % 24.2 % 23.9 %

Tax effect on operating income

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Return on invested capital

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

Accounts payable

Accrued expenses

Income Tax Payable

Defined benefit pension asset

Defined benefit pension liability

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Average invested capital

1 The adjusted effective tax rate for 2022 excludes the effects of the $33,273 loss from the divestiture of the offshore wind energy structures business which is not deductible for income tax purposes.

The effective tax rate including the loss on the divestiture is 29.9%.

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

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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.

Adjusted EBITDA .

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.

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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.

Adjusted EBITDA 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 Adjusted EBITDA is as follows:

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Impairment of long-lived assets

Loss on divestiture of offshore wind energy structures business

Deferred income tax (expense) benefit

Noncontrolling interest

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

Pension plan expense

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Changes in assets and liabilities, net of acquisitions

Other 17 (60) 2,513

EBITDA 420,953 329,149 328,165

Impairment of long-lived assets

Loss on divestiture of offshore wind energy structures business

Cash restructuring expenses

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Net earnings attributable to Valmont Industries, Inc.

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

Interest expense

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Depreciation and amortization expense

EBITDA 420,953 329,149 328,165

Impairment of long-lived assets

Loss on divestiture of offshore wind energy structures business

Cash restructuring expenses

Adjusted EBITDA

Adjusted EBITDA, 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.

EBITDA and 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);

Leverage Ratio .

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.

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The volatility in these prices was due to such factors as fluctuations in supply and demand conditions, government tariffs and the costs of steel‑making inputs.

Steel is most significant for our Utility Support Structures segment where the cost of steel has been approximately 50% of the net sales, on average.

Steel is most significant for our TD&S product line where the cost of steel has been approximately 50% of the net sales, on average.

In 2018, we began using steel hot rolled coil derivative contracts on a limited basis to mitigate the impact of rising steel prices on operating income.

Assuming a similar sales mix, a hypothetical 20% change in the price of steel would have affected our net sales from our Utility Support Structures segment by approximately $75 million for the year ended December 25, 2021.

Assuming a similar sales mix, a hypothetical 20% change in the price of steel would have affected net sales in this product line by approximately $95 million for the year ended December 31, 2022.

We have also experienced volatility in natural gas prices in the past several years.

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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.

Assuming average interest rates and borrowings on variable rate debt, a hypothetical 10% change in interest rates would have affected our interest expense in 2022 and 2021 by approximately $0.8 million and $0.4 million, respectively.

Likewise, we have excess cash balances on deposit in interest‑bearing accounts in financial institutions.

An increase or decrease in interest rates of ten basis points would have impacted our annual interest earnings in 2021 and 2020 by approximately $0.2 million and $0.3 million, respectively.

An increase or decrease in interest rates of ten basis points would have impacted our annual interest earnings by approximately $0.2 million in both 2022 and 2021.

Foreign Exchange—Exposures to transactions denominated in a currency other than the entity’s functional currency are not material and, therefore, the potential exchange losses in future earnings, fair value, and cash flows from these transactions are not material.

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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 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.

The CCS were entered into in 2019 in order to mitigate foreign currency risk on the Company's Euro and DKK investments and to reduce interest expense.

The notional of the Euro and DKK CCS are $80.0 million and $50.0 million, respectively, and mature in 2024.

In 2019, the Company had outstanding foreign currency forward contracts which mitigate foreign currency risk of the Company's investment in its Australian denominated businesses.

The forward contracts, which qualified as net investment hedges, were settled in 2020 with the Company receiving $12.0 million.

At December 31, 2022, the Company had one outstanding fixed-for-fixed cross currency swap (“CCS”), swapping U.S.

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

The CCS was entered into in 2019 in order to mitigate foreign currency risk on the Company’s Euro investments and to reduce interest expense.

The notional amount of the Euro CCS is $80.0 million and matures in 2024.

In 2019, the Company entered into a fixed-for-fixed 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”) denominated payments.

The DKK CCS, which qualified as net investment hedges, were settled in 2022 with the Company receiving $3.5 million.

Much of our cash in non-U.S.

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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

Euro 8.6 11.3

Danish krone 2.4 5.5

Chinese renminbi

Canadian dollar

pound 16.8 8.4

Brazilian real

Commodity risk— Steel hot rolled coil is a significant commodity input used by all of our segments in the manufacture of our products, with the exception of Coatings.

Commodity risk—Steel hot rolled coil is a significant commodity input used by each of our segments in the manufacture of our products, with the exception of the Coatings product line.

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

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.

In 2021 and 2022, 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.

As of December 31, 2022, we had open forward contracts with a notional amount of $9.8 million for the total purchase of 10,300 short tons from January 2023 to March 2023.

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

Natural gas prices are volatile and we mitigate some of this volatility through the use of derivative commodity instruments.

Our current policy is to manage this commodity price risk for 0-75% of our U.S.

natural gas requirements for the upcoming 6-12 months through the purchase of natural gas swaps based on NYMEX futures prices for delivery in the month being hedged.

Our current policy is to manage this commodity price risk for 0 to 75% of our U.S.

natural gas requirements for the upcoming 6 to 18 months through the purchase of natural gas swaps based on NYMEX futures prices for delivery in the month being hedged.

The objective of this policy is to mitigate the impact on our earnings of sudden, significant increases in the price of natural gas.

At December 25, 2021, we have open natural gas swaps for 360,000 MMBtu.

As of December 31, 2022, we have open natural gas swaps with a notional value of $7.0 million for 1,230,000 MMBtu.

CRITICAL ACCOUNTING POLICIES

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We base our estimates on our experience and on other assumptions that we believe are reasonable under the circumstances.

Further, we re-evaluate our estimates from time to time and as circumstances change.

Further, we re-evaluate our

estimates from time to time and as circumstances change.

Actual results may differ under different assumptions or conditions.

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

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.

A pre-tax $27.9 million impairment of the long-lived assets (customer relationship intangible asset, trade name, and property, plant, and equipment) was recognized in fiscal year 2021.

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").

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.

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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.

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

For both the 2022 and 2021 annual impairment tests, the estimated fair value of all of our reporting units exceeded their respective carrying value, so no goodwill was impaired in 2022 or 2021.

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

Our reporting units are all cyclical and their sales and profitability may fluctuate from year to year.

The Company continues to monitor changes in the global economy that could impact future operating results of its reporting units.

If such conditions arise, the Company will test a given reporting unit for impairment prior to the annual test.

We continue to monitor changes in the global economy that could impact future operating results of its reporting units.

If such conditions arise, we will test a given reporting unit for impairment prior to the annual test.

In the evaluation of our reporting units, we look at the long-term prospects for the reporting unit and recognize that current performance may not be the best indicator of future prospects or value, which requires management judgment.

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We performed our annual impairment test of all trade names in the third quarter of 2022 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.

We recognized an impairment of approximately $2 million of the Valmont SM trade name during fiscal year 2021.

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

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The discount rate used to measure the defined benefit obligation was 4.80% at December 31, 2022.

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

The following tables present the key assumptions in the measurement of the pension benefit for 2023 and the estimated impact relative to a change in those assumptions for 2023:

Discount rate

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Inflation - RPI

Assumptions In Millions of Dollars Decrease

Assumptions In Millions of Dollars

0.25% increase in discount rate

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We have no contracts with customers, under any product line, where we could earn variable consideration.

With the exception of our Utility segment and the wireless communication structures product line, our inventory is interchangeable for a variety of the product line’s customers.

There is one performance obligation for revenue recognition.

Our Irrigation and Coatings segments recognize revenue at a point in time, which is when the service has been performed or when the goods ship;

this is the same time that the customer is billed.

Lighting, traffic, highway safety, and access system product lines within the ESS segment recognize revenue and bill customers at a point in time, which is typically when the product ships or when it is delivered, as stipulated in the customer contract.

The following provides additional information about our contracts with utility and wireless communication structures customers, where the revenue is recognized over time, the judgments we make in accounting for those contracts, and the resulting amounts recognized in our financial statements.

Accounting for utility structures and wireless communication monopole contracts:

Steel and concrete utility and wireless communication monopole structures are engineered to customer specifications resulting in limited ability to sell the structure to a different customer if an order is canceled after production commences.

The following provides additional information about our contracts with transmission, distribution, and substation structures (“TD&S”) and certain telecommunication structures customers, where the revenue recognition is over time, the judgments we make in accounting for those contracts, and the resulting amounts recognized in our financial statements.

Accounting for utility structures and telecommunication monopole contracts:

TD&S and telecommunication monopole structures are engineered to customer specifications resulting in limited ability to sell the structure to a different customer if an order is canceled after production commences.

The continuous transfer of control to the customer is evidenced either by contractual termination clauses or by our rights to payment for work performed to-date plus a reasonable profit as the products do not have an alternative use to us.

Since control is transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation.

We have certain wireless communication structures customers' contracts where we do not have the right to payment for work performed.

We also have certain telecommunication structures customers’ contracts where we do not have the right to payment for work performed.

In those instances, we recognize revenue at a point in time which is time of shipment of the structure.

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Our enterprise resource planning (“ERP”) system captures the total costs incurred to-date and the total production hours, both incurred to-date and forecast to complete.

Revenue from the Offshore and other complex steel structures business is also recognized using an inputs method, based on the cost-to-cost measure of progress.

The recently divested offshore wind energy structures business also recognized revenue using an inputs method, based on the cost-to-cost measure of progress.

Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

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We elected the practical expedient to not disclose the partially satisfied performance obligation at the end of the period when the contract has an original expected duration of one year or less.

We also have a few steel structure customer orders in a fiscal year that require one or two years to complete, due to the quantity of structures.

We also have a few TD&S customer orders in a fiscal year that require one to three years to complete, due to the quantity of structures.

Burden rates and routed production hours, per structure, will be adjusted if and when actual costs incurred are significantly higher than what had been originally projected.

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 business, we update the estimates of total costs to complete each order quarterly.

For our offshore wind energy structures business prior to its divestiture in 2022, we updated 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.

During fiscal 2021, 2020, and 2019, there were no changes to inputs/estimates which resulted in adjustments to revenue for production that occurred prior to the beginning of the year.

During fiscal 2022, 2021, and 2020, there were no changes to inputs or estimates which resulted in adjustments to revenue for production that occurred prior to the beginning of the year.

A provision for loss on the performance obligation is recognized if and when an order is projected to be at a loss, whether or not production has started.

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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