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VALMONT INDUSTRIES INC - Quarter Report: 2021 March (Form 10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
Form 10-Q
(Mark One)
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 2021
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
For the transition period from ____________ to
Commission file number 1-31429
_____________________________________
Valmont Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware
47-0351813
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
One Valmont Plaza,
Omaha,Nebraska  68154-5215
 (Address of Principal Executive Offices)
 (Zip Code)

(402) 963-1000
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock $1.00 par value
VMI
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filerNon‑accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No x
21,249,279
Outstanding shares of common stock as of April 22, 2021

1


VALMONT INDUSTRIES, INC.

INDEX TO FORM 10-Q
Page No.
PART I. FINANCIAL INFORMATION
Item 1.
March 27, 2021 and March 28, 2020
weeks ended March 27, 2021 and March 28, 2020
Condensed Consolidated Balance Sheets as of March 27, 2021 and December 26,
2020
Condensed Consolidated Statements of Cash Flows for the thirteen weeks ended
March 27, 2021 and March 28, 2020
Condensed Consolidated Statements of Shareholders' Equity for the thirteen
 weeks ended March 27, 2021 and March 28, 2020
Notes to Condensed Consolidated Financial Statements
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 5.
Other Information
Item 6.
Exhibits
Signatures









2




VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
(Unaudited)
Thirteen weeks ended
March 27,
2021
March 28,
2020
Product sales$694,965 $598,909 
Services sales79,921 75,291 
Net sales774,886 674,200 
Product cost of sales518,634 438,788 
Services cost of sales51,698 49,163 
Total cost of sales570,332 487,951 
Gross profit204,554 186,249 
Selling, general and administrative expenses127,343 119,354 
Operating income77,211 66,895 
Other income (expenses):
Interest expense(9,999)(10,014)
Interest income311 1,043 
Loss on investments (unrealized)(109)(2,308)
Other3,449 1,810 
(6,348)(9,469)
Earnings before income taxes70,863 57,426 
Income tax expense:
Current8,547 6,309 
Deferred6,955 8,177 
15,502 14,486 
Earnings before equity in earnings of nonconsolidated subsidiaries55,361 42,940 
Equity in loss of nonconsolidated subsidiaries(360)(219)
Net earnings55,001 42,721 
Less: loss attributable to noncontrolling interests13 208 
Net earnings attributable to Valmont Industries, Inc.$55,014 $42,929 
Earnings per share:
Basic$2.60 $2.00 
Diluted$2.57 $1.99 

See accompanying notes to condensed consolidated financial statements.
3


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
Thirteen Weeks Ended
March 27,
2021
March 28,
2020
Net earnings
55,001 42,721 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
  Unrealized translation gain (loss)(12,633)(49,381)
         Gain (loss) on hedging activities:
Net investment hedges— 8,711 
   Cash flow hedges22 443 
Amortization cost included in interest expense(16)(16)
     Commodity hedges9,946 — 
     Cross currency swaps3,606 6,302 
Defined Benefit Pension Plan:
     Actuarial gain (loss)832 — 
Other comprehensive income (loss)
1,757 (33,941)
Comprehensive income
56,758 8,780 
Comprehensive loss (income) attributable to noncontrolling interests486 (297)
Comprehensive income attributable to Valmont Industries, Inc.
$57,244 $8,483 












See accompanying notes to condensed consolidated financial statements.
4


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
March 27,
2021
December 26,
2020
ASSETS
Current assets:
Cash and cash equivalents$391,458 $400,726 
 Receivables, net491,383 511,714 
Inventories512,924 448,941 
   Contract assets117,539 123,495 
Prepaid expenses and other assets89,522 59,804 
     Refundable income taxes4,810 9,945 
        Total current assets1,607,636 1,554,625 
Property, plant and equipment, at cost1,354,433 1,341,380 
Less accumulated depreciation and amortization749,079 743,653 
Net property, plant and equipment605,354 597,727 
Goodwill429,927 430,322 
Other intangible assets, net161,539 167,193 
Other assets203,620 203,293 
Total assets$3,008,076 $2,953,160 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current installments of long-term debt$5,147 $2,748 
Notes payable to banks38,182 35,147 
Accounts payable289,110 268,099 
Accrued employee compensation and benefits85,932 137,939 
   Contract liabilities 150,068 130,018 
Other accrued expenses100,245 89,796 
         Dividends payable10,625 9,556 
Total current liabilities679,309 673,303 
Deferred income taxes48,419 41,689 
Long-term debt, excluding current installments729,589 728,431 
Defined benefit pension liability115,869 118,523 
Operating lease liabilities78,004 80,202 
Deferred compensation45,513 44,519 
Other noncurrent liabilities61,271 58,657 
Shareholders’ equity:
Common stock of $1 par value -
Authorized 75,000,000 shares; 27,900,000 issued
27,900 27,900 
Additional paid in capital— 335 
Retained earnings2,282,355 2,245,035 
Accumulated other comprehensive loss(307,556)(309,786)
Treasury stock(777,885)(781,422)
     Total Valmont Industries, Inc. shareholders’ equity1,224,814 1,182,062 
Noncontrolling interest in consolidated subsidiaries25,288 25,774 
Total shareholders’ equity1,250,102 1,207,836 
Total liabilities and shareholders’ equity$3,008,076 $2,953,160 

See accompanying notes to condensed consolidated financial statements.
5


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Thirteen weeks ended
March 27,
2021
March 28,
2020
Cash flows from operating activities:
Net earnings
$55,001 $42,721 
Adjustments to reconcile net earnings to net cash flows from operations:
Depreciation and amortization
21,031 20,343 
Noncash loss (gain) on trading securities — 32 
Stock-based compensation
4,671 3,325 
Defined benefit pension plan benefit
(3,676)(1,763)
Contribution to defined benefit pension plan
(964)(17,039)
         Loss on sale of property, plant and equipment60 53 
Equity in loss in nonconsolidated subsidiaries
360 219 
Deferred income taxes
6,955 8,177 
Changes in assets and liabilities:
Receivables
16,044 (27,116)
Inventories
(67,386)(8,674)
Prepaid expenses and other assets (current and non-current)(22,514)(10,149)
Contract assets5,118 (3,933)
Accounts payable
24,605 13,880 
Accrued expenses
(35,559)5,716 
Contract liabilities20,051 33,089 
Other noncurrent liabilities
4,215 (2,971)
Income taxes payable/refundable5,141 6,442 
Net cash flows from operating activities
33,153 62,352 
Cash flows from investing activities:
Purchase of property, plant and equipment
(27,565)(23,580)
Proceeds from sale of assets
204 684 
Acquisitions, net of cash acquired
— (8,804)
Other, net
(1,947)(1,436)
Net cash flows from investing activities
(29,308)(33,136)
Cash flows from financing activities:
Proceeds from short-term agreements
14,734 3,751 
Payments on short-term agreements
(10,759)(5,193)
Proceeds from long-term borrowings
4,181 10,000 
Principal payments on long-term borrowings
(712)(188)
Dividends paid
(9,556)(8,079)
Dividends to noncontrolling interest
— (5,342)
Purchase of noncontrolling interest
— (53,534)
Purchase of treasury shares
(11,131)(20,481)
Proceeds from exercises under stock plans
19,318 60 
Purchase of common treasury shares—stock plan exercises
(16,725)(3)
Net cash flows from financing activities
(10,650)(79,009)
Effect of exchange rate changes on cash and cash equivalents
(2,463)(9,104)
Net change in cash and cash equivalents
(9,268)(58,897)
Cash and cash equivalents—beginning of year400,726 353,542 
Cash and cash equivalents—end of period$391,458 $294,645 

See accompanying notes to condensed consolidated financial statements.



VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)
(Unaudited)


Common
stock
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Treasury
stock
Noncontrolling
interest in
consolidated
subsidiaries
Total
shareholders’
equity
Balance at December 28, 2019$27,900 $— $2,173,802 $(313,422)$(743,942)$45,407 $1,189,745 
Net earnings— — 42,929 — — (208)42,721 
Other comprehensive income (loss)— — — (34,446)— 505 (33,941)
Cash dividends declared ($0.45 per share)
— — (9,625)— — — (9,625)
Dividends to noncontrolling interests— — — — — (5,342)(5,342)
Purchase of noncontrolling interest— — (38,686)— — (19,243)(57,929)
Addition of noncontrolling interest— — — — — 1,600 1,600 
Purchase of treasury shares; 190,491 shares acquired
— — — — (20,481)— (20,481)
Stock plan exercises; 23 shares acquired
— — — — (3)— (3)
Stock options exercised; 1,166 shares issued
— (3,011)2,909 — 162 — 60 
Stock option expense— 611 — — — — 611 
Stock awards; 2,500 shares issued
— 2,400 — — 314 — 2,714 
Balance at March 28, 2020$27,900 $— $2,171,329 $(347,868)$(763,950)$22,719 $1,110,130 
Balance at December 26, 2020$27,900 $335 $2,245,035 $(309,786)$(781,422)$25,774 $1,207,836 
Net earnings— — 55,014 — — (13)55,001 
Other comprehensive income (loss)— — — 2,230 — (473)1,757 
Cash dividends declared ($0.50 per share)
— — (10,625)— — — (10,625)
Purchase of treasury shares; 50,147 shares acquired
— — — — (11,131)— (11,131)
Stock plan exercises; 70,485 shares issued
— — — — (16,725)— (16,725)
Stock options exercised; 142,878 shares issued
— (4,600)(7,069)— 30,987 — 19,318 
Stock option expense— 648 — — — — 648 
Stock awards; 2,709 shares issued
— 3,617 — — 406 — 4,023 
Balance at March 27, 2021$27,900 $— $2,282,355 $(307,556)$(777,885)$25,288 $1,250,102 








See accompanying notes to the condensed consolidated financial statements.
6


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Consolidated Financial Statements
The Condensed Consolidated Balance Sheet as of March 27, 2021, the Condensed Consolidated Statements of Earnings, Comprehensive Income, Cash Flows, and Shareholders' Equity for the thirteen weeks ended March 27, 2021 and March 28, 2020, have been prepared by Valmont Industries Inc. (the Company), without audit. In the opinion of management, all necessary adjustments (which include normal recurring adjustments) have been made to present fairly the financial statements as of March 27, 2021 and for all periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 2020. The results of operations for the period ended March 27, 2021 are not necessarily indicative of the operating results for the full year.
    Inventories
Inventory is valued at the lower of cost, determined on the first-in, first-out (FIFO) method or market. Finished goods and manufactured goods inventories include the costs of acquired raw materials and related factory labor and overhead charges required to convert raw materials to manufactured and finished goods.
Inventories consisted of the following:
March 27,
2021
December 26,
2020
Raw materials and purchased parts
$185,995 $155,512 
Work-in-process
36,916 33,632 
Finished goods and manufactured goods
290,013 259,797 
Total Inventory$512,924 $448,941 

Income Taxes
Earnings before income taxes for the thirteen weeks ended March 27, 2021 and March 28, 2020, were as follows:    
Thirteen weeks ended
20212020
United States
$51,155 $53,500 
Foreign
19,708 3,926 
$70,863 $57,426 

Pension Benefits
The Company incurs expenses in connection with the Delta Pension Plan ("DPP"). The DPP was acquired as part of the Delta plc acquisition in fiscal 2010 and has no members that are active employees. In order to measure expense and the related benefit obligation, various assumptions are made including discount rates used to value the obligation, expected return on plan assets used to fund these expenses and estimated future inflation rates. These assumptions are based on historical experience as well as current facts and circumstances. An actuarial analysis is used to measure the expense and liability associated with pension benefits.

7


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)

The components of the net periodic pension (benefit) expense for the thirteen weeks ended March 27, 2021 and March 28, 2020 were as follows:
Thirteen weeks ended
Net periodic (benefit) expense:20212020
Interest cost
$2,497 $3,124 
Expected return on plan assets
(7,005)(5,598)
Amortization of actuarial loss
832 711 
Net periodic (benefit) expense
$(3,676)$(1,763)


    Stock Plans
The Company maintains stock-based compensation plans approved by the shareholders, which provide that the Human Resource Committee of the Board of Directors may grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, and bonuses of common stock. At March 27, 2021, 748,372 shares of common stock remained available for issuance under the plans.
    Under the plans, the exercise price of each option equals the closing market price at the date of the grant. Options vest beginning on the first anniversary of the grant in equal amounts over three years or on the grant's fifth anniversary. Expiration of grants is seven years to ten years from the date of grant. Restricted stock units and awards generally vest in equal installments over three years beginning on the first anniversary of the grant.
The Company's compensation expense (included in selling, general and administrative expenses) and associated income tax benefits related to stock options and restricted stock for the thirteen weeks ended March 27, 2021 and March 28, 2020, respectively, were as follows:
Thirteen weeks ended
20212020
Compensation expense
$4,671 $3,325 
Income tax benefits
1,168 831 
Fair Value
The Company applies the provisions of Accounting Standards Codification 820, Fair Value Measurements (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of ASC 820 apply to other accounting pronouncements that require or permit fair value measurements. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
8


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)

ASC 820 establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
     Level 1: Quoted market prices in active markets for identical assets or liabilities.
    Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
    Level 3: Unobservable inputs that are not corroborated by market data.
The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value.
Trading Securities: The assets and liabilities recorded for the investments held in the Valmont Deferred Compensation Plan at March 27, 2021 of $35,874 ($35,125 at December 26, 2020) represent mutual funds, invested in debt and equity securities, classified as trading securities in accordance with Accounting Standards Codification ("ASC") 320, Accounting for Certain Investments in Debt and Equity Securities, considering the employee's ability to change investment allocation of their deferred compensation at any time. The Company's ownership of shares in Delta EMD Pty. Ltd. (JSE:DTA) is also classified as trading securities. The shares are valued at $197 and $202 as of March 27, 2021 and December 26, 2020, respectively, which is the estimated fair value. Quoted market prices are available for these securities in an active market and therefore categorized as a Level 1 input.
Derivative Financial Instruments: The fair value of foreign currency and commodity forward contracts, and cross currency contracts is based on a valuation model that discounts cash flows resulting from the differential between the contract price and the market-based forward rate.
Fair Value Measurement Using:
Carrying Value March 27, 2021Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Trading Securities
$36,071 $36,071 $— $— 
Derivative financial instruments, net
8,849 — 8,849 — 

Fair Value Measurement Using:
Carrying Value December 26, 2020Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Trading Securities
$35,327 $35,327 $— $— 
Liabilities:
Derivative financial instruments, net
(5,911)— (5,911)— 

9


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)

Long-Lived Assets
    The Company's other non-financial assets include goodwill and other intangible assets, which are classified as Level 3 items. These assets are measured at fair value on a non-recurring basis as part of annual impairment testing. Note 4 to these condensed consolidated financial statements contain additional information related to goodwill and intangible asset impairments recognized in fiscal 2020.

Comprehensive Income (Loss)
Comprehensive income (loss) includes net earnings, currency translation adjustments, certain derivative-related activity and changes in net actuarial gains/losses from a pension plan. Results of operations for foreign subsidiaries are translated using the average exchange rates during the period. Assets and liabilities are translated at the exchange rates in effect on the balance sheet dates. Accumulated other comprehensive income (loss) consisted of the following at March 27, 2021 and December 26, 2020:
Foreign Currency Translation AdjustmentsGain on Hedging ActivitiesDefined Benefit Pension PlanAccumulated Other Comprehensive Loss
Balance at December 26, 2020$(213,064)$15,550 $(112,272)$(309,786)
   Current-period comprehensive income (loss)(12,160)13,558 832 2,230 
Balance at March 27, 2021$(225,224)$29,108 $(111,440)$(307,556)

    Revenue Recognition
    The Company determines the appropriate revenue recognition for our contracts by analyzing the type, terms and conditions of each contract or arrangement with a customer. Contracts with customers for all businesses are fixed-price with sales tax excluded from revenue, and do not include variable consideration. Discounts included in contracts with customers, typically early pay discounts, are recorded as a reduction of net sales in the period in which the sale is recognized. Contract revenues are classified as product when the performance obligation is related to the manufacturing of goods. Contract revenues are classified as service when the performance obligation is the performance of a service. Service revenue is primarily related to the Coatings segment.
    Customer acceptance provisions exist only in the design stage of our products and acceptance of the design by the customer is required before the project is manufactured and delivered to the customer. The Company is not entitled to any compensation solely based on design of the product and does not recognize revenue associated with the design stage. There is one performance obligation for revenue recognition. No general rights of return exist for customers once the product has been delivered and the Company establishes provisions for estimated warranties. The Company does not sell extended warranties for any of its products.
    Shipping and handling costs associated with sales are recorded as cost of goods sold. The Company elected to use the practical expedient of treating freight as a fulfillment obligation instead of a separate performance obligation and ratably recognize freight expense as the structure is being manufactured, when the revenue from the associated customer contract is being recognized over time. With the exception of the Utility segment and the wireless communication structures product line, the Company’s inventory is interchangeable for a variety of each segment’s customers. The Company 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. In addition, the Company elected the practical expedient to not adjust the amount of consideration to be received in a contract for any significant financing component if payment is expected within twelve months of transfer of control of goods or services; the Company expects all consideration to be received in one year or less at contract inception.
Segment and Product Line Revenue Recognition
10


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)

    The global Utility segment revenues are derived from manufactured steel and concrete structures for the North America utility industry and offshore and other complex structures used in energy generation and distribution outside of the United States. Steel and concrete utility 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 the Company. Since control is transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment. For our steel and concrete utility and wireless communication structure product lines, we generally recognize revenue on an inputs basis, using total production hours incurred to-date for each order as a percentage of total hours estimated to produce the order. The completion percentage is applied to the order’s total revenue and total estimated costs to determine reported revenue, cost of goods sold and gross profit. Production of an order, once started, is typically completed within three months. Revenue from the offshore and other complex structures business is also recognized using an inputs method, based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. External sales agents are used in certain sales of steel and concrete structures; the Company has chosen to use the practical expedient to expense estimated commissions owed to third parties by recognizing them proportionately as the goods are manufactured.
    The global ESS segment revenues are derived from the manufacture and distribution of engineered metal, composite structures and components for lighting and traffic and roadway safety, engineered access systems, and wireless communication. For the lighting and traffic and roadway safety product lines, revenue is recognized upon shipment or delivery of goods to the customer depending on contract terms, which is the same point in time that the customer is billed. For Access Systems, revenue is generally recognized upon delivery of goods to the customer which is the same point in time that the customer is billed. The wireless communication product line has large regional customers who have unique product specifications for communication structures. When the customer contract includes a cancellation clause that would require them to pay for work completed plus a reasonable margin if an order was canceled, revenue is recognized over time based on hours worked as a percent of total estimated hours to complete production. For the remaining wireless communication product line customers which do not provide a contractual right to bill for work completed on a canceled order, revenue is recognized upon shipment or delivery of the goods to the customer which is the same point in time that the customer is billed.
    The global Coatings segment revenues are derived by providing coating services to customers’ products, which include galvanizing, anodizing, and powder coating. Revenue is recognized once the coating service has been performed and the goods are ready to be picked up or delivered to the customer which is the same time that the customer is billed.
    The global Irrigation segment revenues are derived from the manufacture of agricultural irrigation equipment and related parts and services for the agricultural industry and tubular products for industrial customers. Revenue recognition for the irrigation segment is generally upon shipment of the goods to the customer which is the same point in time that the customer is billed. The remote monitoring subscription services are primarily billed annually and revenue is recognized on a straight-line basis over the subsequent twelve months.
    Disaggregation of revenue by product line is disclosed in the Segment footnote. A breakdown by segment of revenue recognized over time and at a point in time for the thirteen weeks ended March 27, 2021 and March 28, 2020 is as follows:
11


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)

Point in TimeOver TimePoint in TimeOver Time
Thirteen weeks ended March 27, 2021Thirteen weeks ended March 27, 2021Thirteen weeks ended March 28, 2020Thirteen weeks ended March 28, 2020
Utility Support Structures$6,294 $246,404 $8,924 $214,024 
Engineered Support Structures
213,846 8,310 215,879 11,487 
Coatings
71,591 — 68,590 — 
Irrigation
224,637 3,804 151,742 3,554 
  Total
$516,368 $258,518 $445,135 $229,065 

The Company's contract asset as of March 27, 2021 and December 26, 2020 was $117,539 and $123,495,
respectively. Both steel and concrete utility customers are generally invoiced upon shipment or delivery of the goods to the customer's specified location with few customers that make up-front or progress payments. The offshore and complex steel structures business invoices customers a number of ways including advanced billings, progress billings, and billings upon shipment.

    At March 27, 2021 and December 26, 2020, contract liabilities were $194,427 and $170,919, respectively. At March 2021, $150,068 is recorded as contract liabilities and $44,359 is recorded as other noncurrent liabilities on the condensed consolidated balance sheets. During the thirteen weeks ended March 27, 2021, the Company recognized $38,102 of revenue that was included in the liability as of December 26, 2020. In the thirteen weeks ended March 28, 2020, the Company recognized $18,240 of revenue that was included in the liability as of December 28, 2019. The revenue recognized was due to applying advance payments received for performance obligations completed during the period. At March 27, 2021, the Company had $44,359 or remaining performance obligations on contracts with an original expected duration of one year or more and expects to complete the remaining performance obligations on these contracts within the next 12 to 24 months.

Recently Adopted Accounting Pronouncements

    In December 2019, the FASB issued Accounting Standards Update No. 2018-14 (ASU 2019-12), Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting and disclosure requirements for income taxes by clarifying existing guidance to improve consistency in application of Accounting Standards Codification (ASC) 740. The Company adopted this standard on the first day of fiscal 2021 and it did not have a material impact on the Company's condensed consolidated financial statements.

Recently Issued Accounting Pronouncements (not yet adopted)

In March 2020, the FASB issued Accounting Standards Update No. 2020-04 (ASU 2020-04), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP principles to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued due to reference rate reform. The Company has not used any of the accommodations to date, but may use them up until December 31, 2022.

12


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)

(2) ACQUISITIONS
    On May 29, 2020, the Company acquired 55% of Energia Solar do Brasil ("Solbras") for $4,308. Approximately $646 of the purchase price is contingent on seller representations and warranties that will be settled in the second quarter of 2021. Solbras is a leading provider of solar energy solutions for agriculture. In the purchase price allocation, goodwill of $3,341 and customer relationships of $3,718 were recorded and the remainder is net working capital. Goodwill is not deductible for tax purposes and the customer relationship will be amortized over 8 years. The acquisition of Solbras, located in Brazil, allows the Company to expand its product offerings in the Irrigation segment to include not only pivots, but also a sustainable and low-cost energy source to provide electricity to the units. The Company finalized the purchase price allocation in the fourth quarter of 2020.
On March 6, 2020, the Company acquired 75% of KC Utility Packaging, LLC for $4,200. Approximately $400 of the purchase price was contingent on seller representations and warranties and was settled for the full amount in the first quarter of 2021. The Company name was subsequently changed to Valmont Substations LLC. The acquisition was made to expand the Company's utility substation product offering. In the purchase price allocation, goodwill of $1,100, customer relationships of $4,000, and other intangibles of $500 were recorded. The Company finalized the purchase price allocation in the fourth quarter of 2020.
Proforma disclosures were omitted for the 2020 acquisitions as the Solbras and Valmont Substation acquisitions do not have a significant impact on the Company's financial results.
Acquisitions of Noncontrolling Interests
    In February 2020, the Company acquired the remaining 49% of AgSense that it did not own for $43,983, which includes a holdback payment of $2,200 that was made in the second quarter of 2020. The Company finalized the accounting for owning 100% of AgSense in the second quarter of 2020 which resulted in the recognition of a deferred tax asset of approximately $7,700. In the first quarter of 2020, the Company acquired 16% of the remaining 25% that it did not own of Convert Italia for a cash payment of $11,750. The purchase agreement also settled the escrow funds which the Company had paid at date of acquisition.

As these transactions were for the acquisition of all or part of the remaining shares of a consolidated subsidiary with no change in control, they were recorded within shareholders' equity and as a financing activity in the Condensed Consolidated Statements of Cash Flows.


(3) RESTRUCTURING ACTIVITIES    
    In 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 and restructuring activities were completed by the end of 2020. The Company recorded restructuring expenses in cost of sales and selling, general, and administrative expenses of $6,737 and $16,412, respectively.
    Liabilities recorded for the restructuring plans were as follows:
Balance at December 26, 2020Costs Paid or Otherwise Settled Balance at March 27, 2021
Severance$12,660 $(12,660)$— 
Other cash restructuring expenses— — — 
   Total $12,660 $(12,660)$— 

13


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)

(4) GOODWILL AND INTANGIBLE ASSETS
Amortized Intangible Assets
The components of amortized intangible assets at March 27, 2021 and December 26, 2020 were as follows:
March 27, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Weighted
Average
Life
Customer Relationships
$237,388 $160,088 13 years
Patents & Proprietary Technology
25,823 8,642 14 years
Other
7,484 7,211 4 years
$270,695 $175,941 

December 26, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Weighted
Average
Life
Customer Relationships
$237,232 $155,760 13 years
Patents & Proprietary Technology
26,208 8,301 14 years
Other
7,602 6,786 4 years
$271,042 $170,847 
Amortization expense for intangible assets for the thirteen weeks ended March 27, 2021 and March 28, 2020, respectively was as follows:
Thirteen weeks ended
20212020
$4,232 $4,593 
Estimated annual amortization expense related to finite-lived intangible assets is as follows:
Estimated
Amortization
Expense
2021$15,976 
202213,337 
202311,503 
20249,587 
20258,153 
The useful lives assigned to finite-lived intangible assets included consideration of factors such as the Company’s past and expected experience related to customer retention rates, the remaining legal or contractual life of the underlying arrangement that resulted in the recognition of the intangible asset and the Company’s expected use of the intangible asset.
14


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)

Non-amortized intangible assets
Intangible assets with indefinite lives are not amortized and consist solely of trade names. The carrying value of trade names at March 27, 2021 and December 26, 2020 are as follows:
March 27,
2021
December 26,
2020
Year Acquired
Newmark$11,111 $11,111 2004
Webforge8,104 7,972 2010
Convert Italia S.p.A8,845 9,137 2018
Valmont SM8,443 8,720 2014
Ingal EPS/Ingal Civil Products7,857 7,730 2010
Walpar3,500 3,500 2018
Shakespeare4,000 4,000 2014
Other14,925 14,828 Various
$66,785 $66,998 

In its determination of these intangible assets as indefinite-lived, the Company considered such factors as its expected future use of the intangible asset, legal, regulatory, technological and competitive factors that may impact the useful life or value of the intangible asset and the expected costs to maintain the value of the intangible asset. The Company expects that these intangible assets will maintain their value indefinitely. Accordingly, these assets are not amortized.    
The Company’s trade names were tested for impairment in the third quarter of 2020. The values of each trade name were determined using the relief-from-royalty method. Based on this evaluation, no trade names were determined to be impaired. In conjunction with an interim second quarter 2020 goodwill impairment test, impairment indicators were noted for the Webforge and Locker trade names requiring an interim impairment test. As a result, an impairment charge of approximately $3,900 was recognized against these two trade names in fiscal 2020.
Goodwill
The carrying amount of goodwill by segment as of March 27, 2021 and December 26, 2020 was as follows:
Engineered
Support
Structures
Segment
Utility
Support
Structures
Segment
Coatings
Segment
Irrigation
Segment
Total
Gross Balance December 26, 2020$232,323 $135,335 $94,309 $30,177 $492,144 
   Accumulated impairment losses(31,245)(14,355)(16,222)— (61,822)
Balance at December 26, 2020201,078 120,980 78,087 30,177 430,322 
Foreign currency translation1,204 (1,438)207 (368)(395)
Balance at March 27, 2021$202,282 $119,542 $78,294 $29,809 $429,927 

The Company’s annual impairment test of goodwill was performed during the third quarter of 2020, using primarily the discounted cash flow method. The estimated fair value of all of our reporting units exceeded their respective carrying value, so no goodwill was impaired.

In April 2020, the price of a barrel of oil began a large decline and various economic forecasts show the lower price of oil will continue into the next few years. This lower price for oil and a revised assessment of the Australian market
15


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)

performed in conjunction with the executed restructuring activities required the Company to re-assess the financial projections for the Access Systems reporting unit. This resulted in lower projected net sales, operating income, and cash flows for this reporting unit, resulting in the need for an interim impairment test. The results of the test showed that the reporting unit's carrying value was higher than its estimated fair value. Accordingly, the Company recorded a $12,575 impairment of Access System's goodwill in the second quarter of 2020.
(5) CASH FLOW SUPPLEMENTARY INFORMATION
    The Company considers all highly liquid temporary cash investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents. Cash payments for interest and income taxes (net of refunds) for the thirty-nine weeks ended March 27, 2021 and March 28, 2020 were as follows:
20212020
Interest
$111 $179 
Income taxes
3,347 1,590 
(6) EARNINGS PER SHARE
The following table provides a reconciliation between Basic and Diluted earnings per share (EPS):
Basic EPSDilutive
Effect of
Stock
Options
Diluted EPS
Thirteen weeks ended March 27, 2021:
Net earnings attributable to Valmont Industries, Inc.
$55,014 $— $55,014 
Weighted average shares outstanding (000's)
21,179 250 21,429 
Per share amount
$2.60 $(0.03)$2.57 
Thirteen weeks ended March 28, 2020:
Net earnings attributable to Valmont Industries, Inc.
$42,929 $— $42,929 
Weighted average shares outstanding (000's)
21,453 96 21,549 
Per share amount
$2.00 $(0.01)$1.99 

    At March 27, 2021 and March 28, 2020, there were 0 and 302,899 outstanding stock options with exercise prices exceeding the market price of common stock that were excluded from the computation of diluted earnings per share, respectively.
16


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)

(7) DERIVATIVE FINANCIAL INSTRUMENTS
    The Company manages interest rate risk, commodity price risk, and foreign currency risk related to foreign currency denominated transactions and investments in foreign subsidiaries. Depending on the circumstances, the Company may manage these risks by utilizing derivative financial instruments. Some derivative financial instruments are marked to market and recorded in the Company's consolidated statements of earnings, while others may be accounted for as fair value, cash flow, or net investment hedges. Derivative financial instruments have credit and market risk. The Company manages these risks of derivative instruments by monitoring limits as to the types and degree of risk that can be taken, and by entering into transactions with counterparties who are recognized, stable multinational banks.
    Fair value of derivative instruments at March 27, 2021 and December 26, 2020 are as follows:
Derivatives designated as hedging instruments:Balance sheet locationMarch 27, 2021December 26, 2020
Commodity forward contracts
Prepaid expenses and other assets
9,946 — 
Foreign currency forward contracts
Prepaid expenses and other assets
19 $724 
Cross currency swap contracts
Prepaid expenses and other assets
1,311 600 
Cross currency swap contracts
Accrued expenses
(2,427)(7,235)
8,849 (5,911)
    Gains (losses) on derivatives recognized in the condensed consolidated statements of earnings for the thirteen weeks ended March 27, 2021 and March 28, 2020 are as follows:
Thirteen weeks ended
Statements of earnings locationMarch 27, 2021March 28, 2020
Foreign currency forward contracts  Other income (218)123 
Foreign currency forward contractsProduct sales— 53 
Interest rate hedge amortizationInterest expense(16)(16)
Cross currency swap contractsInterest expense711 743 
$477 $903 
    
Cash Flow Hedges
    In the first quarter of 2021, the Company entered into steel hot rolled coil (HRC) forward contracts that qualify as a cash flow hedge of the variability in cash flows attributable to future steel purchases. The forward contracts have a notional amount of $23,801 for the total purchase of 30,500 short tons from May to December 2021. The gain/(loss) realized upon settlement will be recorded in product cost of sales in the condensed consolidated statements of earnings over average inventory turns.
    In May 2020, a Brazilian subsidiary with a Real functional currency entered into foreign currency forward contracts to mitigate foreign currency risk related to a customer order with components purchased in Euros. The forward contract, which qualifies as a cash flow hedge, matured in December 2020 and a had notional amount to buy 4,500 euros in exchange for a stated amount of Brazilian Real. In March 2020, a subsidiary with a Euro functional currency entered into foreign currency forward contracts to mitigate foreign currency risk related to a large customer order denominated in U.S. dollars. The forward contract, which qualifies as a cash flow hedge, has a final maturity date of June 2021 and a notional amount to sell $27,500 in exchange for a stated amount of Euros.
17


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)

    Net Investment Hedges
    In the second quarter of 2020, the Company early settled their Australian dollar denominated forward currency contracts and received proceeds of $11,983. The proceeds/gain from these settlements (net of tax) will remain in Other Comprehensive Income (OCI) until either the sale or substantially complete liquidation of the related subsidiaries.
    In the second quarter of 2019, the Company entered into two 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 order to mitigate foreign currency risk on the Company's Euro and DKK investments and to reduce interest expense. Interest is exchanged twice per year on April 1 and October 1.
    Key terms of the two CCS are as follows:
CurrencyNotional AmountTermination DateSwapped Interest RateSet Settlement Amount
Danish Krone (DKK)$50,000 April 1, 20242.68%DKK 333,625
Euro$80,000 April 1, 20242.825%€71,550

    The Company designated the full notional amount of the two CCS ($130,000) as a hedge of the net investment in certain Danish and European subsidiaries under the spot method, with all changes in the fair value of the CCS that are included in the assessment of effectiveness (changes due to spot foreign exchange rates) are recorded as cumulative foreign currency translation within OCI, and will remain in OCI until either the sale or substantially complete liquidation of the related subsidiaries. Net interest receipts will be recorded as a reduction of interest expense over the life of the CCS.












18


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)

(8) BUSINESS SEGMENTS
    The Company has four reportable segments based on its management structure. Each segment is global in nature with a manager responsible for segment operational performance and the allocation of capital within the segment. Net corporate expense is net of certain service-related expenses that are allocated to business units generally on the basis of employee headcounts.

Reportable segments are as follows:

    UTILITY SUPPORT STRUCTURES: This segment consists of the manufacture of engineered steel and concrete structures for the utility markets, including transmission, distribution, substations, and renewable energy generation equipment;
    ENGINEERED SUPPORT STRUCTURES: This segment consists of the manufacture and distribution of engineered poles, towers, and components for lighting, traffic, and wireless communication markets, including integrated structure solutions for smart cities, and engineered access systems;

    COATINGS: This segment consists of global galvanizing, painting, and anodizing services to preserve and protect metal products; and
    IRRIGATION: This segment consists of the global manufacture of agricultural irrigation equipment, parts, services and tubular products, and advanced technology solutions for water management solutions and precision agriculture.
    The Company evaluates the performance of its business segments based upon operating income and invested capital. The Company does not allocate interest expense, non-operating income and deductions, or income taxes to its business segments.
19


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)

Summary by Business
Thirteen weeks ended
March 27,
2021
March 28,
2020
SALES:
Utility Support Structures segment:
Steel168,497 166,531 
Concrete40,383 35,785 
Engineered Solar Tracker Solutions6,294 8,924 
Offshore and Other Complex Steel Structures37,959 14,221 
Utility Support Structures segment253,133 225,461 
Engineered Support Structures segment:
Lighting, Traffic, and Highway Safety Products$153,870 $171,987 
    Communication Products46,079 38,196 
Access Systems22,378 20,559 
Engineered Support Structures segment222,327 230,742 
Coatings segment93,288 88,085 
Irrigation segment:
    North America122,751 106,560 
    International106,913 50,160 
        Irrigation segment229,664 156,720 
Total798,412 701,008 
INTERSEGMENT SALES:
Utility Support Structures segment435 2,513 
Engineered Support Structures segment171 3,376 
Coatings segment21,697 19,495 
Irrigation segment1,223 1,424 
Total23,526 26,808 
NET SALES:
Utility Support Structures segment252,698 222,948 
Engineered Support Structures segment222,156 227,366 
Coatings segment71,591 68,590 
Irrigation segment228,441 155,296 
Total$774,886 $674,200 
OPERATING INCOME:
Utility Support Structures segment21,652 27,724 
Engineered Support Structures segment$19,925 $15,931 
Coatings segment12,872 11,054 
Irrigation segment38,748 23,663 
Corporate(15,986)(11,477)
Total$77,211 $66,895 

20


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions that management has made in light of experience in the industries in which the Company operates, as well as management’s perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances. These statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond the Company’s control) and assumptions. Management believes that these forward-looking statements are based on reasonable assumptions. Many factors could affect the Company’s actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. These factors include, among other things, the continuing and developing effects of COVID-19 including the effects of the outbreak on the general economy and the specific effects on the Company's business and that of its customers and suppliers, risk factors described from time to time in the Company’s reports to the Securities and Exchange Commission, as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability and price of raw materials, availability and market acceptance of new products, product pricing, domestic and international competitive environments, and actions and policy changes of domestic and foreign governments.
This discussion should be read in conjunction with the financial statements and notes thereto, and the management's discussion and analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 2020. Segment net sales in the table below and elsewhere are presented net of intersegment sales. See Note 8 of our condensed consolidated financial statements for additional information on segment sales and intersegment sales.
21


Results of Operations (Dollars in millions, except per share amounts)    
Thirteen weeks ended
March 27, 2021March 28, 2020% Incr. (Decr.)
Consolidated
Net sales
$774.9 $674.2 14.9 %
Gross profit
204.6 186.2 9.9 %
as a percent of sales    
26.4 %27.6 %
SG&A expense (1)127.3 119.3 6.7 %
as a percent of sales    
16.4 %17.7 %
Operating income
77.2 66.9 15.4 %
as a percent of sales    
10.0 %9.9 %
Net interest expense
9.7 9.0 7.8 %
Effective tax rate
21.9 %25.2 %
Net earnings
$55.0 $42.9 28.2 %
Diluted earnings per share
$2.57 $1.99 29.1 %
Utility Support Structures (Utility)
Net sales
$252.7 $222.9 13.4 %
Gross profit
48.6 53.5 (9.2)%
SG&A expense
26.9 25.8 4.3 %
Operating income
21.7 27.7 (21.7)%
Engineered Support Structures (ESS)
Net sales
$222.2 $227.4 (2.3)%
Gross profit
63.9 61.7 3.6 %
SG&A expense
44.0 45.8 (3.9)%
Operating income
19.9 15.9 25.2 %
Coatings
Net sales
$71.6 $68.6 4.4 %
Gross profit
23.2 21.8 6.4 %
SG&A expense
10.3 10.7 (3.7)%
Operating income
12.9 11.1 16.2 %
Irrigation
Net sales
$228.4 $155.3 47.1 %
Gross profit
68.9 49.2 40.0 %
SG&A expense
30.2 25.5 18.4 %
Operating income
38.7 23.7 63.3 %
Net corporate expense
SG&A
$16.0 $11.5 39.1 %
Operating loss
(16.0)(11.5)(39.1)%

22


Overview
On a consolidated basis, net sales were higher in the first quarter of 2021, as compared to the same period in 2020, due to higher sales in the Irrigation, Utility, and Coatings segments that was partially offset by lower sales in ESS segment. The change in net sales in the first quarter of fiscal 2021, as compared with the same period in 2020, is as follows:
First quarter
TotalUtilityESSCoatingsIrrigation
Sales - 2020$674.2 $222.9 $227.4 $68.6 $155.3 
Volume67.8 31.5 (19.2)(3.4)58.9 
Pricing/mix18.3 (5.7)5.4 3.1 15.5 
Acquisition/(divestiture)7.0 2.2 — — 4.8 
Currency translation7.6 1.8 8.6 3.3 (6.1)
Sales - 2021$774.9 $252.7 $222.2 $71.6 $228.4 
    
Volume effects are estimated based on a physical production or sales measure. Since products we sell are not uniform in nature, pricing and mix relate to a combination of changes in sales prices and the attributes of the product sold. Accordingly, pricing and mix changes do not necessarily result in operating income changes.
    Average steel prices for both hot rolled coil and plate were higher in North America in the first quarter of 2021, as compared to 2020, contributing to higher cost of sales and lower gross profit margin.
    
    The Company acquired the following businesses:

KC Utility Packaging ("Valmont Substation") in the first quarter of 2020, a provider of engineering, design, and packaging services in the substation market (Utility).
Energia Solar Do Brasil ("Solbras") in the second quarter of 2020, a leading provider of solar energy solutions for agriculture (Irrigation).

COVID-19 Impact on Financial Results and Liquidity

We are considered an essential business because of the products and services that serve critical infrastructure sectors as defined by many governments around the world. All our manufacturing facilities are open and fully operational as of March 27, 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 $33.2 million of cash flows from operating activities during the first quarter of 2021. Our main focus is to maintain liquidity to support the working capital needs of our operations and maintain our investment grade credit rating.

The ultimate magnitude of COVID-19, including the extent of its impact on the Company’s financial and operational results, cash balances and available borrowings on our line of credit, will be determined by the length of time the pandemic continues, its effect on the demand for the Company’s products and services and supply chain, as well as the effect of governmental regulations imposed in response to the pandemic.

Backlog

The backlog of unshipped orders at March 27, 2021 was approximately $1.3 billion compared with approximately $1.1 billion at December 26, 2020. The increase is primarily attributed to the receipt of two additional purchase orders totaling approximately $220 million for a large Utility project in North America. We expect the backlog to be fulfilled within the subsequent 12 months with the exception of these new $220 million Utility orders.
23



Currency Translation

    In the first quarter of 2021, we realized an decrease in operating profit, as compared with 2020, due to currency translation effects. The breakdown of this effect by segment was as follows:
    
TotalUtilityESSCoatingsIrrigationCorporate
First quarter$(0.8)$(0.4)$— $0.5 $(0.7)$(0.2)

Gross Profit, SG&A, and Operating Income

    At a consolidated level, gross profit as a percent of sales was lower in the first quarter of 2021, as compared with the same period in 2020, due to higher raw material costs across the Company and a change in sales mix. In the first quarter of 2021 as compared to 2020, gross profit was higher for all operating segments except the Utility segment.
    SG&A expenses increased in the first quarter of 2021 as compared to first quarter of 2020. The increase was due to higher SG&A deferred compensation expense (offset by a decrease of the same amount in other expense), foreign currency translation effects, and expenses from the acquisition of Solbras and Valmont Substation.

    In the first quarter of 2021, as compared to the first quarter of 2020, operating income was higher in the Irrigation, ESS, and Coatings segments and lower in the Utility segment. The increase in consolidated operating income in the first quarter is primarily attributed to higher irrigation sales volumes.

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

Other Income/Expenses

    The change in other income/expenses in the first quarter of 2021, as compared to 2020, was due to the change in valuation of deferred compensation assets which resulted in lower other expense of $2.2 million. This amount is shown as "Loss on investments (unrealized)" on the condensed consolidated statements of earnings. The change related to deferred compensation assets are offset by an opposite change of the same amount in SG&A expense.

Income Tax Expense
    
    Our effective income tax rate in the first quarter of 2021 was 21.9%, compared to 25.2% in the first quarter of 2020. The lower tax rate in the first quarter of 2021 is attributed to an incremental tax benefit driven by employee stock option exercises which did not occur in the first quarter of 2020.

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

Cash Flows from Operations
    Our cash flows provided by operations was $33.2 million in the first quarter of fiscal 2021, as compared with $62.4 million provided by operations in the first quarter of 2020. The decrease in operating cash flow in the first quarter of 2021, as compared with 2020, was due to an increase in inventory and a larger decrease of accrued employee compensation and benefits attributed to higher incentive payments in first quarter 2021 versus 2020.

Utility segment

    In the Utility segment, sales increased in the first quarter of 2021, as compared with 2020, due to an increase in volume for the offshore and other complex steel structures product line. In steel, sales were flat in the first quarter of 2021 as
24


compared to 2020, as an increase in sales volume was offset by lower average selling pricing. 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 the first quarter of 2021, as compared with 2020.
    Offshore sales increased in the first quarter of 2021, as compared to 2020, due to a large increase in sales volumes in the first quarter and favorable foreign currency translation. Solar tracker solution sales decreased due to less large project work in the first quarter of 2021.
    Gross profit decreased in the first quarter of 2021, as compared to 2020, due to rapid steel cost inflation that could not be fully recovered through pricing actions for the steel structures product line. SG&A expense was higher in the first quarter of 2021, as compared with 2020, due to expenses from Valmont Substation (a recent acquisition) and foreign currency translation. The decrease in operating income for the first quarter 2021, as compared with 2020, is primarily due to the increase in the cost of steel that could not be fully recovered through pricing actions.
ESS segment
    Net sales were lower in the first quarter of 2021 as compared to 2020, driven by lower sales volumes. Lighting, traffic, and highway safety product sales were lower in the first quarter of 2021 as compared to 2020, while communication product and access systems sales were higher.
     Global lighting, traffic, and highway safety product sales in the first quarter of 2021 was lower by $18.1 million, as compared to the first quarter of 2020. Sales volumes decreased in North America in the first quarter of 2021, attributed to a slowdown in order volumes in the latter half of 2020 due to delays in government approval of the FAST Act extension impacted both funding and delayed construction projects. Europe sales of lighting and traffic products were unchanged compared to the first quarter of 2020. Lighting, traffic, and highway safety product sales in the Asia-Pacific region decreased in the first quarter of 2021, as compared to 2020, due to a slow start to the year in Australia and freight constraints out of China. Highway safety products sales declined as many highway projects across India continue to be delayed due to COVID-19.
Communication product line sales were higher by $7.9 million in the first quarter of 2021, as compared with the same period in 2020. In North America, communication product sales volumes increased in the first quarter of 2021 due to higher demand for communication structures and components. Communication product sales in Europe improved due to an increase in sales volumes in the U.K. and Asia-Pacific sales volumes. 5G deployments continue to increase market opportunities across all regions.
Access Systems product line net sales increased in the first quarter of 2021, as compared to 2020, by $1.8 million. The sales improvement can be primarily attributed to favorable currency translation effects.
Gross profit was higher in the first quarter of 2021, as compared to 2020, due to selling price management that expanded margin in a rising commodity cost environment for the telecommunications product lines and improved performance in the Access Systems business attributed to restructuring actions undertaken in 2020. SG&A spending was lower in the first quarter of 2021 versus 2020 due to lower travel costs (impacted by COVID-19), reduced compensation costs due in part to the U.S. early retirement program, and reduced sales commissions. Operating income increased in the first quarter of 2021 due to improved sales pricing and lower SG&A spending.     
Coatings segment
    Coatings segment sales increased in the first quarter of 2021, as compared to the same period in 2020, due to higher sales pricing attributed to higher zinc costs, and favorable foreign currency translation. Sales were flat in North America in the first quarter of 2021, as compared to 2020. Sales price increases to counteract the higher cost of zinc were offset by lower sales volumes due to decreased industrial production attributed largely to the disruption from COVID-19 on certain customers. In Asia-Pacific region, sales improved in all regions due to higher volumes and favorable foreign currency translation. Sales pricing was lower in Australia due to customer mix.
    SG&A expense was slightly lower in the first quarter of 2021, as compared to 2020, due to lower travel expenses (related to COVID-19). Operating income was higher in the first quarter of 2021, compared to the same period in 2020, due to improved sales pricing and favorable foreign currency translation.
    Irrigation segment
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    The increase in Irrigation segment net sales in the first quarter of 2021, as compared to 2020, is due to sales volume improvements for both the North America and international irrigation businesses. The Middle East drove the sales volume improvements for international irrigation, due to deliveries on the multi-year Egypt project. Brazil also had a strong quarter with improved sales volumes and the acquisition of Solbras in the second quarter of 2020, partially offset by unfavorable currency translation effects from a weaker Brazilian real. In North America, higher sales volumes for irrigation systems and parts were driven by improved agricultural commodity prices. Sales of technology-related products and services continue to increase, as growers continued adoption of technology to reduce costs and enhance profitability.
    SG&A was higher in the first quarter of 2021, as compared to 2020, due to approximately $2 million of higher product development expenses and compensation costs due to improved operating results. Operating income for the segment increased in 2021 due to improved global sales volumes.
    Net corporate expense
Corporate SG&A expense was higher in the first quarter of 2021, as compared to 2020. The increase is primarily due to the change in valuation of deferred compensation assets which resulted in higher expense of $2.2 million. The change in deferred compensation plan assets is offset by the same amount in other income/expenses.

Liquidity and Capital Resources
Cash Flows
Working Capital and Operating Cash Flows-Net working capital was $928.3 million at March 27, 2021, as compared to $881.3 million at December 26, 2020. The increase in net working capital in 2021 is attributed to an increase in inventory balances. Cash flow provided by operations was $33.2 million in the first quarter of 2021, as compared with $62.4 million in the first quarter of 2020. The decrease in operating cash flows in 2021, as compared to 2020, was primarily the result of an increased inventory balance, higher incentive compensation payments, that was partially offset by lower pension contributions. The required 2021 pension contribution was made in the fourth quarter of 2020.
Investing Cash Flows- The decrease in investing cash outflows in the first quarter of 2021, as compared to 2020, can be attributed to no acquisitions occurring during 2021. Capital spending in the first quarter of fiscal 2021 was $27.6 million, as compared to $23.6 million for the same period in 2020. We expect our capital expenditures to be approximately $115 million for fiscal 2021.
Financing Cash Flows-Our total interest-bearing debt was $772.9 million at March 27, 2021 and $766.3 million at December 26, 2020. Financing cash outflows were $10.7 million and $79.0 million in the first quarter of 2021 and 2020, respectively. The decrease in financing cash outflows in the first quarter of 2021, as compared to 2020, was due primarily to the purchase of noncontrolling interests in fiscal 2020 that did not recur in 2021.
Guarantor Summarized Financial Information

We are providing the following information in compliance with Rule 3-10 and Rule 13-01 of Regulation S-X with respect to our two tranches of senior unsecured notes. All of the senior notes are guaranteed, jointly, severally, fully and unconditionally (subject to certain customary release provisions, including sale of the subsidiary guarantor, or sale of all or substantially all of its assets) by certain of the Company’s current and future direct and indirect domestic and foreign subsidiaries (collectively the “Guarantors”). The Parent is the Issuer of the notes and consolidates all Guarantors.

The financial information of Issuer and Guarantors is presented on a combined basis with intercompany balances and transactions between Issuer and Guarantors eliminated. The Issuer’s or Guarantors' amounts due from, amounts due to, and transactions with non-guarantor subsidiaries are separately disclosed.


Combined financial information is as follows:
Supplemental Combined Parent and Guarantors Financial Information
For the thirteen weeks ended March 27, 2021 and March 28, 2020
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Thirteen weeks ended
Dollars in thousandsMarch 27, 2021March 28, 2020
Net sales
$482,722 $467,680 
Gross Profit
135,521135,235
Operating income
52,96659,134
Net earnings
31,02836,325
Net earnings attributable to Valmont Industries, Inc.31,02236,325

Supplemental Combined Parent and Guarantors Financial Information
March 27, 2021 and December 26, 2020

Dollars in thousandsMarch 27, 2021December 26, 2020
Current assets$767,848 $738,437 
Noncurrent assets719,353 701,571 
Current liabilities313,556 321,979 
Noncurrent liabilities1,126,862 1,100,657 
Noncontrolling interest in consolidated subsidiaries1,744 1,738 
Included in noncurrent assets is a due from non-guarantor subsidiaries receivable of $96,359 and $88,309 at March 27, 2021 and December 26, 2020. Included in noncurrent liabilities is a due to non-guarantor subsidiaries payable of $276,216 and $262,935 at March 27, 2021 and December 26, 2020.
Financing and Capital
The Board of Directors authorized the purchase of $250 million of the Company's shares without an expiration date in October 2018. The share purchases will be funded from available working capital and short-term borrowings and will be made subject to market and economic conditions. We are not obligated to make any share repurchases under the share repurchase program and we may discontinue the share repurchase program at any time. Share repurchases were temporarily suspended at the end of the first quarter of 2020 until September 2020 as a precaution to preserve liquidity. We acquired 50,147 treasury shares for approximately $11.1 million under our share repurchase program during the first quarter of 2021. As of March 27, 2021, we have approximately $136.8 million open under this authorization to repurchase shares in the future.

    Our capital allocation philosophy announcement included our intention to manage our capital structure to maintain our investment grade debt rating. Our most recent ratings were Baa3 by Moody's Investors Services, Inc., BBB- rating by Fitch Rating Services, and BBB+ rating by Standard and Poor's Rating Services. We expect to maintain a leverage ratio which will support our current investment grade debt rating.

Our debt financing at March 27, 2021 is primarily long-term debt consisting of:
$450 million face value ($436.5 million carrying value) of senior unsecured notes that bear interest at 5.00% per annum and are due in October 2044.
$305 million face value ($297.6 million carrying value) of unsecured notes that bear interest at 5.25% per annum and are due in October 2054.
We are allowed to repurchase the notes at specified prepayment premiums. Both tranches of these notes are guaranteed by certain of our subsidiaries.

    At March 27, 2021 and December 26, 2020, we had no outstanding borrowings under our revolving credit agreement. The revolving credit agreement contains certain financial covenants that may limit our additional borrowing
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capability under the agreement. At March 27, 2021, we had the ability to borrow $585.4 million under this facility, after consideration of standby letters of credit of $14.6 million associated with certain insurance obligations and international sales commitments. We also maintain certain short-term bank lines of credit totaling $152.5 million, $114.5 million of which was unused at March 27, 2021.

Our senior unsecured notes and revolving credit agreement each contain cross-default provisions which permit the acceleration of our indebtedness to them if we default on other indebtedness that results in, or permits, the acceleration of such other indebtedness.
The debt agreements contain covenants that require us to maintain certain coverage ratios and may limit us with respect to certain business activities, including capital expenditures. The debt agreements allow us to add estimated EBITDA from acquired businesses for periods we did not own the acquired business. The debt agreements also provide for an adjustment to EBITDA, subject to certain limitations, for non-cash charges or gains that are non-recurring in nature.
Our key debt covenants are as follows:
Leverage ratio - Interest-bearing debt is not to exceed 3.5X Adjusted EBITDA (or 3.75X Adjusted EBITDA after certain material acquisitions) of the prior four quarters; and
Interest earned ratio - Adjusted EBITDA over the prior four quarters must be at least 2.5X our interest expense over the same period.

    At March 27, 2021, we were in compliance with all covenants related to the debt agreements. The key covenant calculations at March 27, 2021 were as follows (in 000's):

Interest-bearing debt$772,918 
Adjusted EBITDA-last four quarters367,396 
Leverage ratio2.10 
Adjusted EBITDA-last four quarters$367,396 
Interest expense-last four quarters41,061 
Interest earned ratio8.95 
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The calculation of Adjusted EBITDA-last four quarters (March 29, 2020 through March 27, 2021) is as follows. The last four quarters information ended March 27, 2021 is calculated by taking the full fiscal year ended December 26, 2020, subtracting the first quarter ended March 28, 2020, and adding the first quarter ended March 27, 2021.
Net cash flows from operations$287,095 
Interest expense41,061 
Income tax expense50,631 
Impairment of property, plant and equipment(3,751)
Impairment of goodwill and intangible assets(16,638)
Change in investment(7)
Deferred income tax benefit2,619 
Noncontrolling interest(1,650)
Stock-based compensation(16,220)
Pension plan expense9,224 
Contribution to pension plan19,324 
Changes in assets and liabilities(42,423)
Other(1,213)
EBITDA 328,052 
Cash restructuring expenses18,955 
Impairment of goodwill and intangible assets16,638 
Impairment of property, plant and equipment3,751 
Adjusted EBITDA$367,396 

Net earnings attributable to Valmont Industries, Inc.$152,779 
Interest expense41,061 
Income tax expense50,631 
Depreciation and amortization expense83,581 
EBITDA328,052 
Cash restructuring expenses18,955 
Impairment of goodwill and intangible assets16,638 
Impairment of property, plant, and equipment3,751 
Adjusted EBITDA$367,396 

Our businesses are cyclical, but we have diversity in our markets from a product, customer and a geographical standpoint. We have demonstrated the ability to effectively manage through business cycles and maintain liquidity. We have consistently generated operating cash flows in excess of our capital expenditures. Based on our available credit facilities, recent issuance of senior unsecured notes and our history of positive operational cash flows, we believe that we have adequate liquidity to meet our needs.
    We have cash balances of $391.5 million at March 27, 2021, approximately $197.1 million is held in our non-U.S. subsidiaries. If we distributed our foreign cash balances certain taxes would be applicable. At March 27, 2021, we have a liability for foreign withholding taxes and U.S. state income taxes of $3.3 million and $0.7 million, respectively.

Financial Obligations and Financial Commitments
    There have been no material changes to our financial obligations and financial commitments as described on page 34-35 in our Form 10-K for the fiscal year ended December 26, 2020.
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Off Balance Sheet Arrangements
There have been no material changes in our off balance sheet arrangements as described on page 38 in our Form 10-K for the fiscal year ended December 26, 2020.
Critical Accounting Policies
There were no changes in our critical accounting policies as described on pages 39-42 in our Form 10-K for the fiscal year ended December 26, 2020 during the three months ended March 27, 2021.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
    There were no material changes in the company's market risk during the quarter ended March 27, 2021. For additional information, refer to the section "Risk Management" in our Form 10-K for the fiscal year ended December 26, 2020.


Item 4. Controls and Procedures
The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports the Company files or submits under the Securities Exchange Act of 1934 is (1) accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures and (2) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.
    No changes in the Company's internal control over financial reporting occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


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PART II. OTHER INFORMATION
ITEM 1A – Risk Factors
There have been no material changes from risk factors previously disclosed in the Company’s most recent Annual Report on Form 10-K. See the discussion of the Company’s risk factors under Part I, Item 1A in each of the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2020.
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PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities
PeriodTotal Number of
Shares Purchased
Average Price
paid per share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
Approximate Dollar Value of Maximum Number of Shares that may yet be Purchased under the Program (1)
December 27, 2020 to January 23, 202112,347 $175.84 12,347 $145,789,000 
January 24, 2021 to February 27, 202110,100 236.44 10,100 143,401,000 
February 28, 2021 to March 27, 202127,700 237.27 27,700 136,829,000 
Total
50,147 $221.98 50,147 $136,829,000 
(1) On May 13, 2014, we announced a new capital allocation philosophy which included a share repurchase program. Specifically, the Board of Directors authorized the purchase of up to $500 million of the Company's outstanding common stock from time to time over twelve months at prevailing market prices, through open market or privately-negotiated transactions. On February 24, 2015 and again on October 31, 2018, the Board of Directors authorized an additional purchase of up to $250 million of the Company's outstanding common stock with no stated expiration date bringing total authorization to $1.0 billion. As of March 27, 2021, we have acquired 6,413,720 shares for approximately $863.2 million under this share repurchase program.

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Item 5. Other Information
Submission of Matters to a Vote of Security Holders
    Valmont's annual meeting of stockholders was held on April 27, 2021. The stockholders elected four directors to serve three-year terms, approved, on an advisory basis, a resolution approving Valmont's named executive officer compensation, and ratified the appointment of Deloitte & Touche LLP as independent auditors for fiscal 2021. For the annual meeting there were 21,263,503 shares outstanding and eligible to vote of which 19,707,113 were present at the meeting in person or by proxy. The tabulation for each matter voted upon at the meeting was as follows:

    Election of Directors:

ForWithheldBroker Non-Votes
Daniel P. Neary18,102,166670,876934,071
Theo Freye17,761,2581,011,784934,071
Stephen G. Kaniewski18,553,087219,955934,071
Joan Robinson-Berry18,692,79680,246934,071



Advisory vote on executive compensation:

For18,127,768
Against624,408
Abstain20,866
Broker non-votes934,071


Proposal to ratify the appointment of Deloitte & Touche LLP as independent auditors for fiscal 2021:

For18,630,268
Against1,039,312
Abstain37,533

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Item 6. Exhibits
(a)    Exhibits
Exhibit No.Description
List of Issuer and Guarantor Subsidiaries. This document was filed as Exhibit 22.1 to the Company's Quarterly Report on Form 10-Q (Commission file number 001-31429) for the quarter ended March 28, 2020 and is incorporated herein by this reference.
Section 302 Certificate of Chief Executive Officer
Section 302 Certificate of Chief Financial Officer
Section 906 Certifications of Chief Executive Officer and Chief Financial Officer
101The following financial information from Valmont's Quarterly Report on Form 10-Q for the quarter ended March 27, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Shareholders' Equity, (vi) Notes to Condensed Consolidated Financial Statements and (vii) document and entity information.
104Cover Page Interactive File (formatted as Inline XBRL and contained in Exhibit 101)
_____________________________________________

*    Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf and by the undersigned hereunto duly authorized.
VALMONT INDUSTRIES, INC.
(Registrant)
/s/ AVNER M. APPLBAUM
Avner M. Applbaum
Executive Vice President and Chief Financial Officer
Dated the 28th day of April, 2021.









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