Exhibit 13
Valmont 1998 Annual Report
Text Only for SCC
148
(FRONT COVER)
Irrigation
Industry
Infrastructure
Image
Street light/traffic light combination pole
Valmont Logo
1998 Annual Report
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Linear irrigator
149
(INSIDE FRONT COVER)
Contents
1 FINANCIAL HIGHLIGHTS
2 LETTER TO FELLOW SHAREHOLDERS
5 TOTAL VALUE IMPACT
6 AT A GLANCE
8 WHERE WE ARE
10 IRRIGATION
14 INFRASTRUCTURE
18 INDUSTRY
22 VALUE OF VALMONT
24 STRATEGIES FOR GROWTH
24 EXPANDING AROUND THE WORLD
25 HOW VALMONT GOES TO MARKET
25 PILLARS FOR ECONOMIC GROWTH
28 FINANCIAL OBJECTIVES AND RESULTS
29 MANAGEMENT'S DISCUSSION & ANALYSIS
34 SELECTED 11-YEAR FINANCIAL DATA
36 CONSOLIDATED STATEMENTS OF OPERATIONS
37 CONSOLIDATED BALANCE SHEETS
38 CONSOLIDATED STATEMENTS OF CASH FLOWS
39 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
45 BUSINESS SEGMENT INFORMATION
46 QUARTERLY FINANCIAL DATA
47 INDEPENDENT AUDITORS' REPORT
47 REPORT OF MANAGEMENT
48 OFFICERS AND MANAGEMENT
48 SHAREHOLDER INFORMATION
49 BOARD OF DIRECTORS
Management's Discussion and Analysis contains forward looking statements which
reflect management's current view and estimates of future economic and market
circumstances, industry conditions, company performance and financial results.
The statements are based on many assumptions and factors including operating
efficiencies, availability and price of raw materials, availability and market
acceptance of new products, product pricing, domestic and international
competitive environments, actions and policy changes of domestic and
international governments, and other risks described from time to time in
Valmont's reports to the Securities and Exchange Commission. Any changes in such
assumptions or factors could produce significantly different results.
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PAGE 1
FINANCIAL HIGHLIGHTS
[DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS]
OPERATING RESULTS AND RATIOS ARE BEFORE 1996 ASSET VALUATION CHARGE.
OPERATING RESULTS 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $606.3 $622.5 $644.5
Net earnings 27.6 37.5 31.3
Diluted earnings per share 1.02 1.33 1.12
Dividends per share 0.25125 0.21875 0.1875
FINANCIAL POSITION
Shareholders' equity $175.9 $207.1 $175.2
Shareholders' equity per share 7.12 7.49 6.41
Long-term debt as a % of invested capital 30.3% 10.4% 12.1%
OPERATING RATIOS
Gross profit as a % of net sales 25.2% 27.2% 26.7%
Operating income as a % of net sales 7.9% 10.0% 8.1%
Net earnings as a % of net sales 4.6% 6.0% 4.9%
Return on beginning equity 13.3% 21.4% 19.7%
Return on invested capital 10.3% 15.4% 14.7%
YEAR-END DATA
Shares outstanding (000) 24,721 27,641 27,330
Approximate number of shareholders 5,500 5,400 4,400
Number of employees 3,869 3,751 4,868
Graph
NET SALES
- ---------
1994 $502
1995 $545
1996 $645
1997 $623
1998 $606
Graph
DILUTED EARNINGS PER SHARE
- --------------------------
1994 $.69
1995 $.90
1996 $1.12
1997 $1.33
1998 $1.02
Graph
Return on invested capital
- --------------------------
1994 10.7%
1995 13.0%
1996 14.7%
1997 15.4%
1998 10.3%
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PAGE 2
Letter to fellow shareholders
Photo Man with elbow on table.
Caption: MOGENS C. BAY CHAIRMAN AND CHIEF EXECUTIVE OFFICER
In last year's annual report I predicted that 1998 would be yet another record
year for your company. I was wrong! 1998 was a reminder that some of our
businesses are cyclical and when they hit a down cycle, earnings and sales
growth targets will not be met. It also proved to us, however, that our
diversification efforts are paying off. We had strong performance in our
coatings businesses, a good year in our European lighting and traffic pole
businesses and another year of sales growth in our international irrigation
business lead by a banner year in Brazil. Despite having a difficult first half
in the North American pole businesses, a soft second half in the North American
irrigation business, and a lackluster year in our wireless communication
business worldwide, we still delivered the third highest earnings in the
company's history.
In 1998, we met two of our three financial objectives. Our after-tax return on
invested capital was 10.3%, exceeding our target of 10%. Our debt to total
invested capital at 30% remained well under our comfort level of 40%. This,
despite spending over $50 million buying back Valmont stock, illustrates our
businesses' ability to generate cash. But our most important objective, earnings
per share growth, was not met in 1998, as our earnings dropped 23%. I must
emphasize that our earnings growth target is a "trendline" target and that
Valmont's earnings per share have grown 14% compounded annually over the past
five years. That is a healthy performance for any manufacturing company.
Whenever we experience a bump in the road, as we did in 1998, it makes us sit
back and re-evaluate the underlying drivers of our businesses. We need to be
comfortable that this truly is just a bump in the road and not an early sign
that we might be heading down a rocky road.
When we examine the long-term factors that relate to Valmont's irrigation
business, this year's events highlight what we know about population increases
and dietary improvement. Increased population and economic improvement spark the
demand for more and better food. For example, the Asian region experienced
increased prosperity and growth until the summer of 1997, and until then they
did what was expected--increased imports of grain and meat to improve their
diets.
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The Asian financial crisis slowed that trend, but the long-term outlook remains
in place. To increase food production with limited water and land resources
farmers must become ever more efficient. Mechanized irrigation is one of the
best ways to improve farmers' efficiency.
Our infrastructure businesses also have strong fundamentals. Whether it is more
lighting or better signs and signals, the underlying desire for increased
highway safety and less traffic congestion drive the demand for Valmont's pole
products. And, to increase capacity and service reliability in the electric
utility industry, it will take the type of high quality steel-engineered
transmission and distribution poles that are Valmont's hallmark.
Graph
DILUTED EARNINGS PER SHARE
Actual 15% Target
- ------ ----------
1993 $0.54 $0.54
1994 $0.69 $0 62
1995 $0.90 $0.71
1996 $1.12 $0.82
1997 $1.33 $0.94
1998 $1.02 $1.09
Valmont's compounded annual earnings growth rate over the last five years is 14
percent.
The wireless communication industry is yet another good example of why we
reiterate that, in spite of short-term market dynamics, the long-term drivers in
our businesses are strong. When you weigh the rapid growth of the wireless
communication industry in the U.S. and around the world and see how well the
technology has been accepted, you cannot help but be enthused about the
long-term outlook for this popular and convenient technology. The next level of
growth for this industry should come from improved service and global expansion.
In order to achieve better levels of service, wireless providers will need more
towers, poles, and components to expand their networks.
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A `Thank You' to the Valmont Team
Whenever an organization is faced with less favorable market conditions than you
had planned, it must contend with greater levels of stress. Cost containment and
downsizing become necessary to protect the corporation's earnings to the fullest
extent possible. Yet, customers continue to deserve exceptional service even
when fewer resources are available. The Valmont team has met this challenge
admirably, working long hours and finding more efficient ways to get the job
done. I thank them for a great effort under difficult circumstances.
"We are confident that we are focused on the right businesses: water management
for agriculture and engineered structures and services for infrastructure
development."
In closing, while we are not satisfied with the operating results for 1998, we
are confident that we are focused on the right businesses: water management for
agriculture and engineered structures and services for infrastructure
development. Business conditions could have been better in 1998, however, the
long-term drivers for all of our businesses are positive. We intend to
vigilantly pursue every opportunity to grow our core businesses while building
shareholder value.
Signature
/s/ Mogens C. Bay
- ------------------------------------
Mogens C. Bay
Chairman and Chief Executive Officer
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TOTAL VALUE IMPACT
"TVI motivates managers to think like shareholders."
Total Value Impact (TVI) is more than a concept at Valmont. In 1994,
TVI--Valmont's unique formulation and application of the business philosophy of
value-added metrics-became the principal tool used in aligning shareholder and
management interests. TVI is a measurement designed to enhance shareholder
value. Simply put, it is Valmont's net operating profit after taxes minus a
10 percent charge for the capital employed.
TVI has placed the efficient management of capital squarely in the limelight for
Valmont managers, encouraging them to understand and measure the elements that
enhance long-term TVI growth and shareholder value. These elements include the
level of margins necessary to earn more than the cost of capital, the amount of
capital needed to generate each dollar of sales, and other standard measures
such as revenue growth, operating profit margin and invested capital turnover.
Because TVI drives Valmont's management compensation bonus plan, results are
immediate. Under the Valmont plan, managers who exceed their target TVI can
increase their bonuses while managers who fall short do not receive any bonus.
The TVI process motivates managers to think like shareholders.
Valmont's long history of financial stability and accountability has become
increasingly important to our customers, shareholders and employees. It is our
goal that each of these constituents continues to receive the value they have
come to expect from Valmont. Our annual financial goals are to grow trendline
earnings by 15 percent per year, maintain long-term debt at less than 40 percent
of invested capital, and achieve a minimum 10 percent after tax return on
invested capital.
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AT A GLANCE
Infrastructure
Image
Street light/traffic light combination pole
STREET & AREA LIGHTING
Valmont is the world leader in the manufacture of steel and aluminum lighting
and traffic control structures. Valmont's specialized sports lighting structures
for stadiums and sports centers can be found in locations around the world.
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Communication pole
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Communication tower
COMMUNICATION POLES & TOWERS
Valmont produces wireless communication structures and components, including
poles and self-supporting towers configured to customer specifications. "Tree
poles" and other camouflaged products are designed to blend in with the
surrounding environment.
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Electrical poles
UTILITY STRUCTURES
For the utility industry, Valmont manufactures poles and structures for
electrical transmission and distribution, as well as low-profile substation
structures.
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Irrigation
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Linear irrigator
CENTER PIVOT & LINEAR MOVE EQUIPMENT
From a fixed point in the field, Valmont's Valley-Registered Trademark-
Center Pivot mechanized irrigation equipment rotates in a circular path
around the field, evenly distributing water, fertilizer and chemicals. Valley
Linear/Universal Linear equipment is designed for long, rectangular or
L-shaped fields.
Image
Water droplet
WATER RE-USE
Through its Cascade Earth Sciences subsidiary, Valmont offers environmental
engineering expertise for soil and water resource management and land
application of treated wastewater using mechanized irrigation equipment.
Industry
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Galvanized tubing
COATINGS
Valmont's Coatings Division applies high-quality, galvanized and powder coatings
to products and components manufactured by Valmont as well as by other
companies.
Image
Nine stacked pipes
INDUSTRIAL PRODUCTS
Valmont's Industrial Products Division manufactures standard and customized
steel tubing for agriculture and general industry, and precision telescopic
covers and conveyors for the machine tool industry. Valmont distributes fastener
products for industrial applications and is a leading supplier to the pressure
vessel and heat recovery steam generator industries, manufacturing rolled and
welded steel cylinders.
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WHERE WE ARE
Map illustration
St. Hubert, Quebec, Canada
MANUFACTURING FACILITY: STEEL AND ALUMINUM POLES
Long Beach, California, USA
GALVANIZING
Elkhart, Indiana, USA
MANUFACTURING FACILITY: STEEL AND ALUMINUM POLES
Omaha, Nebraska, USA
Corporate Headquarters
Valley, Nebraska, USA
MANUFACTURING FACILITY: IRRIGATION EQUIPMENT, STEEL POLES, TUBING, GALVANIZING
West Point, Nebraska, USA
GALVANIZING
Tulsa, Oklahoma, USA
MANUFACTURING FACILITY: STEEL POLES, ROLLED AND WELDED STEEL CYLINDERS,
GALVANIZING
Albany, Oregon, USA
HEADQUARTERS, CASCADE EARTH SCIENCES, ENVIRONMENTAL ENGINEERING, EARTH SCIENCES,
WATER AND SOIL MANAGEMENT
Salem, Oregon, USA
MANUFACTURING FACILITY: WIRELESS COMMUNICATION STRUCTURES, PASSIVE REPEATERS,
WAVE GUIDE AND ANTENNA SUPPORTING SYSTEMS, FASTENERS
Tualatin, Oregon, USA
GALVANIZING
Brenham, Texas, USA
MANUFACTURING FACILITY: STEEL POLES
Gunnison, Utah, USA
MANUFACTURING FACILITY: COMPOSITE POLES
Lindon, Utah, USA
GALVANIZING
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Map illustration
Uberaba, Brazil
MANUFACTURING FACILITY: IRRIGATION EQUIPMENT, COMMUNICATION TOWERS
Shanghai, China
MANUFACTURING FACILITY: STEEL POLES
Charmeil, France
MANUFACTURING FACILITY: STEEL POLES
Creuzier-le-Neuf, France
MANUFACTURING FACILITY: INDUSTRIAL COVERS AND CONVEYERS
Lempdes, France
MANUFACTURING FACILITY: STEEL COMMUNICATION TOWERS
Rive-de-Gier, France
MANUFACTURING FACILITY: ALUMINUM POLES
Gelsenkirchen, Germany
MANUFACTURING FACILITY: STEEL POLES
Maarheeze, The Netherlands
MANUFACTURING FACILITY: STEEL POLES
Siedlce, Poland
MANUFACTURING FACILITY: STEEL POLES
Madrid, Spain
MANUFACTURING FACILITY: IRRIGATION EQUIPMENT
Valmont is an international manufacturing company with operations around the
world. Valmont designs and manufactures mechanized irrigation equipment to
enhance food production through efficient water management, as well as poles,
towers and structures for lighting, utility and communication applications, and
custom coating and fabricated products for various industrial uses. Valmont
operates 21 manufacturing plants, located on four continents, and markets its
products in more than 100 countries.
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Photo Man under linear irrigator Caption: Don Worden, along with sons Tom and
Brian, farm 4,000 acres in Washington's southern basin using the Valley(R)
pivots he purchased more than 20 years ago.
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IRRIGATION
"Value for the money we spent."
"Washington state's southern basin gets, on average, just seven inches of
rainfall per year. And because the soil is fairly fine, it doesn't hold the
moisture that a heavier clay-type soil does. So in 1975, I decided to install
center pivots on my farm. I talked to the various pivot manufacturers that were
around at that time, and the one that made the biggest impression was Valley.
"I was looking to place about 32 pivots on about 4,000 acres, and the Valley
dealer, Bert Benton in Pasco, gave me good advice and a package deal. They
weren't the least expensive systems, but I felt good about dealing with Bert and
so did my banker. We've never had a moment of regret. We felt like Valley was a
better product-sturdy, galvanized and built to last.
"And last they have. Some of our neighbors bought other brands and they have
all been replaced by now--so we know we got good value from Valley. Sure
we've had to do a little preventive maintenance over the years--and Bert has
always been there to help. More than twenty years later, the pivots are
working as well as ever-and we're still talking with the same people we
bought them from. That means a lot to us."
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IRRIGATION
WATER: ONE OF OUR MOST VALUABLE RESOURCES
Of all the water on earth, only a fraction of one percent is available for human
use. Next to air and sunlight, water is our most valuable resource-and the one
that is most at risk. Today, more than 1 billion people lack an assured supply
of good quality water, (1) and in the next decade the number of countries facing
severe water shortages is very likely to increase dramatically.
AGRICULTURAL WATER ISSUES
Advanced irrigation methods provide a solution to water demand and food supply
problems. It is a well-documented fact that irrigated land is more than twice as
productive as rain-fed cropland. In the developed world, studies show that
irrigation increases yields 50 to 200 percent for most crops. In developing
countries, irrigation increases yields for most crops by 100 to 400 percent-yet
only about 20 percent of the arable land there is irrigated. Worldwide, only 16
percent of the world's croplands are irrigated, yet these irrigated acres yield
some 36 percent of the global harvest. A World Bank study estimates that
irrigation could be extended over an additional 270 million acres of land in
developing countries, producing enough food each year to feed 1.5 to 2 billion
people.
Over the next 30 years, experts predict that the current level of food
production must double in order to meet the demands of a growing population and
improving diets. This increase in production, however, depends on more efficient
methods of water management. Many opportunities exist to improve the efficiency
of water used in irrigation--and Valmont is best positioned to lead the way.
More than half of the future gains in crop production are expected to come from
irrigated land. This represents a tremendous growth opportunity for companies
like Valmont to lead the charge in demonstrating to growers the value of
mechanized irrigation. Valmont is working to provide them with the tools
necessary to successfully increase production to meet world agriculture needs.
WATER MANAGEMENT: OUR MOST IMPORTANT ROLE
Modern mechanized irrigation equipment, such as that designed and manufactured
by Valmont, uses up to 50 percent less water and 75 percent less labor than
traditional irrigation methods. This equipment also provides superior farm
management tools. By replacing flood irrigation methods--which often perform
poorly and waste as much as 50 percent of the total water pumped before it
reaches the intended crop--producers can increase yields while conserving
valuable soil and water resources.
Technologies such as those supplied by Valmont--including low pressure
irrigation methods, efficient sprinklers, volume control and better
irrigation scheduling--are effective in reducing water and energy use, and
they are essential in countries where water management is a critical issue.
Since agriculture is responsible for some 67 percent of global fresh water
use, the potential for water savings through greater efficiency in irrigation
is enormous. This translates into a significant potential demand for
Valley-Registered Trademark- irrigation products.
Photo
Arial view of center pivot irrigation
Caption: IRRIGATED LAND IS MORE THAN TWICE AS PRODUCTIVE AS RAIN FED CROPLAND.
(1) Food and Agriculture Organization of the United Nations; www.fao.org.
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LEADING THE WAY WITH INFORMATION-BASED PRECISION IRRIGATION PRODUCTS
At Valmont, we understand that our business depends on being good stewards of
land and water. As more precision farming methods are adopted, it is necessary
to provide irrigation equipment controls and software that are custom-designed
for specific crops, varying terrain, water and soil types. Information-based
technology is becoming more important as growers adopt more precise methods of
farming. We are committed to leading the way with irrigation products that
utilize advanced technology and are designed to facilitate water management. In
this arena, Valmont has entered into strategic alliances with leading
engineering and electronic design firms in order to develop innovations in
software, electronics and controls that will lead to technological advances in
precision farming.
Photo
Linear irrigator
Caption: Precision application puts water in the crop root zone, eliminating
runoff and reducing evaporation losses.
Additionally, Valmont is pioneering research in new control and electronic
technologies that will, in the future, help producers analyze weather, soil, and
crop yield conditions to apply optimal water and chemical amounts. As a leader
in these technologies, Valmont is helping producers to use resources more
efficiently and move from uniform water and chemical application to non-uniform,
precision application--applying the right amount of water and chemicals where
needed, not necessarily evenly over the entire field.
INNOVATIVE WASTEWATER MANAGEMENT PROCESSES ARE THE WAY OF THE FUTURE
As the leading manufacturer of mechanized irrigation equipment, Valmont takes
seriously its role in water management issues. In the area of wastewater
management, research is providing information about how to re-use treated
wastewater for irrigation purposes. Valmont is at the forefront of this research
and is positioned to be a leader in providing this technology.
For nearly 20 years, Valmont has teamed with the city of Tallahassee,
Florida, in a working farm research program to study the effectiveness of
irrigating farm crops with treated wastewater. Today, with 13
Valley-Registered Trademark- center pivots, the city of Tallahassee recycles
100 percent of its effluents over 1,800 acres of crop land. The U.S.
Environmental Protection Agency, which along with the state agency
establishes strict guidelines on the application of wastewater to cropland,
calls the project an example of "a state-of-the-art" recycling program that
contributes to agricultural resources and pollution prevention.
At Valmont, we believe that wastewater management is a key to improved water
stewardship worldwide. In 1998, we acquired Cascade Earth Sciences, Ltd.
("CES"), of Albany, Oregon, a firm that specializes in the land application of
wastewater.
CES is staffed with talented geologists, soil scientists, environmental
technicians, and civil, environmental and agricultural engineers. Their
expertise gives us the ability to conduct a thorough analysis of soil
fertility, wastewater nutrient value, and crop agronomic characteristics to
determine the best solutions to wastewater management needs. And, by
combining Valley-Registered Trademark- center pivot or linear move machines
with wastewater application equipment, we can assure precision and uniformity
in the land application of recycled wastewater. The acquisition of CES
provides the growth opportunity for Valmont to provide industrial, municipal
and agricultural generators of wastewater with turn-key solutions for
wastewater management issues.
Photo
Man standing at back of truck
Caption: Computerized control mechanisms help manage electricity loads and
maximize water use, allowing producers to tailor water rates for each part of
the field.
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Photo Man standing under power pole Caption: Tim Johnson is Director of
Purchasing for Hawaiian Electric Company, a utility that provides electricity
to 98 percent of the state of Hawaii.
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INFRASTRUCTURE
"This is what strategic partnership is all about ..."
"Every company looks for ways to maintain quality but reduce costs--and we're
not any different. Our challenge, however, is to do both and increase the
standardization of the poles we purchase to transmit our power. That may not
sound like a huge task, but consider that we operate in a hot, humid,
mountainous environment where the spans are long, loads are heavy, and
termites and moisture take their toll on wood poles.
"Our specifications are that new poles be made of galvanized steel and although
they may contain differing amounts of steel--because of varying load
requirements--they all have common components within a family of poles. We have
always worked successfully with Valmont, so when we looked for a strategic
partner, it made sense to work with someone who understands our challenges.
"There are a lot of synergies between our organization and Valmont's, especially
in the design and manufacturing stages. We do the initial research--collect
information about the terrain, determine the necessary spacing and weights to
correspond with height and load requirements, and we share all of that with
Valmont. Their engineers and ours work together to come up with a design. Then
Valmont manufactures the poles and delivers them to us.
"Although we try to avoid timeline-critical projects, we've had a few of them,
and Valmont has risen to the task every time. They've arranged for expedited
manufacturing and delivery and are helping us figure out how to eliminate future
emergencies. This is what a strategic partnership is all about--working together
to solve problems and get the job done right--on time and whenever possible,
under budget."
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INFRASTRUCTURE
Keeping pace with global infrastructure development
In the coming years, infrastructure expansion is expected to increase in
developing nations to meet the demands of newly liberated economies and growing
populations. Industrialized nations, in a quest to increase public safety and
provide the additional services required in a competitive environment, will seek
to add to and upgrade existing infrastructure with durable, long-lasting and
more cost-effective products. Valmont continues to invest in new technology that
allows us to maintain our leadership positions by improving our pole products
and manufacturing processes. Valmont's capabilities to design and manufacture
high quality steel and aluminum poles and towers for lighting, traffic, utility
and communication applications are aligned with these trends.
Electric utility industry: change creates opportunities
Shifting political and economic issues are bringing about change to the energy
industry in nearly every part of the world. With the opening of economic markets
worldwide, countries in Europe, Asia and South America have begun efforts to
privatize and deregulate their national electric systems. In the United States,
many states have enacted legislation to promote electric utility competition.
Isolated power grids that previously supplied electricity to an insular customer
base will be interconnected to allow consumers to choose their energy suppliers.
The wave of deregulation and increased competition that is sweeping the world's
energy markets will translate into lower prices and increased services for
consumers. Electric utilities, in order to maintain a competitive edge, must
implement more cost-effective ways of doing business.
Valmont manufactures high quality transmission structures, distribution poles
and substations for the electric utility industry-products for which there will
be increased demand as power grids are expanded. In an effort to become more
cost-effective, many utilities and energy providers are replacing wooden poles
with lighter weight, easier-to-install steel poles that are impervious to
termites and wood rot. Steel poles last years longer than wooden poles, and can
result in lower total installed costs.
Additionally, as worldwide economic and population growth translates into
increased housing and commercial development, additional power capacity is
needed. Valmont is forming strategic alliances with both in the U.S.
and abroad to meet the demand for poles and transmission structures. By working
in partnership with our customers, we are able to identify more efficient
designs and build products to meet each customer's individual needs and
specifications.
To assist our strategic partners and other customers in lowering costs, Valmont
also provides a variety of coatings and finishes to poles in order to meet the
various challenges of climate, terrain and the aesthetic needs of our customers.
Photo
View of power poles from harvested corn field
Caption: TO BECOME MORE COST-EFFECTIVE, MANY UTILITIES ARE REPLACING WOODEN
POLES WITH LIGHTER WEIGHT AND EASIER-TO-INSTALL STEEL POLES.
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Lighting the way with safer roadways and population centers
Another aspect of a growing population base worldwide is the need for more roads
and highways. Consumer safety is a top priority for governments and business
owners alike. People prefer well-lit parking lots; safely lit streets, freeways
and roads; and traffic signals and signs that provide for a smooth flow of
traffic. In the U.S., Congress passed the federal highway bill in June of 1998
which provides $204 billion over six years to upgrade the nation's
transportation infrastructure. With funding earmarked for both roadway and mass
transit enhancements, lighting poles and traffic structures such as those
manufactured by Valmont are in greater demand.
Photo
Target parking lot
Caption: CONSUMER SAFETY IS A TOP PRIORITY-AND MORE RETAILERS ARE RECOGNIZING
THE LINK BETWEEN WELL-LIT PARKING LOTS AND SALES.
Anywhere, any time communications: a world of opportunity
In Europe, where tourism is a major industry, spending on infrastructure is also
increasing. Custom-designed fluted and decorative poles are particularly popular
in European tourist areas. Additionally, sports stadiums and event facilities
are being constructed that require specialized, highly engineered lighting
structures. In other parts of the world, demand for lighting products is also
high. Valmont has located manufacturing facilities throughout Europe, and in
China, to meet the growing demand for lighting structures worldwide.
Worldwide, mobile wireless infrastructure development slowed in 1998. However,
indications are that due to continued advances and capabilities in digital
technologies, the wireless segment of the communication industry will soon see
renewed opportunities for growth.
Some experts predict that within the near future, the wireless phone will also
become the home phone in parts of the developing world. This trend will be
especially evident in nations that choose to meet customer demands by forgoing
the installation of wired lines in favor of newer, less-costly wireless
solutions. Privatization of state-owned telecommunications providers in Europe
and Asia is also encouraging wireless investment and cellular subscriber growth.
As a leading provider of self-supporting communication towers and monopoles,
Valmont is poised to benefit from growth in this industry. Camouflaged
structures--designed to blend into the environment--and combination poles
that can be used for both lighting and wireless communications, are becoming
more popular. Valmont has invested in the technology to provide these
custom-designed products quickly and cost effectively. To complement our
communication tower and pole business, we also manufacture and install
component products such as waveguide support systems, antenna supports and
rooftop mounting systems.
Photo
Cactus
Caption: CAMOUFLAGED COMMUNICATION POLES BLEND INTO THE ENVIRONMENT.
Photo
Street light/traffic light combination pole
Caption: THE U.S. FEDERAL HIGHWAY BILL, PASSED IN 1998, PROVIDES FUNDING TO
UPGRADE THE NATION'S TRANSPORTATION INFRASTRUCTURE. ADDITIONAL TRAFFIC
SIGNALS AND SIGNS WILL HELP EASE TRAFFIC CONGESTION AND INCREASE SAFETY.
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Photo
Man standing under netting/flag pole
Caption: DR. LEE SIMMONS IS DIRECTOR OF OMAHA'S HENRY DOORLY ZOO, WHICH RANKS
AMONG THE TOP FIVE ZOOS IN THE WORLD.
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Industry
"A flag that is visible for miles around."
"We wanted to make it easy for visitors to find our new Safari Park.
Unfortunately, Mother Nature put a hill between us and Interstate 80, so our
flagpole would have to be 160 feet high.
"There were a couple of other items on our wish list, too. We wanted the pole to
be the sole support for our aviary netting and to sustain winches and cables
that would allow us to lower the netting to catch a bird. We also wanted to
implant a photovoltaic sensor inside the pole to automatically furl and unfurl a
25 X 48-foot flag at dawn, dusk and during bad weather. Naturally, we wanted
this all in place by opening day which was less than six weeks away.
"Everyone was skeptical at first. But the people at Valmont pulled out all the
stops and put me in touch with engineer Carl Macchietto. Keep in mind that this
was a totally unique concept...a 16-story, freestanding pole that not only
supports an aviary but also accommodates some pretty sophisticated mechanics. A
prototype did not exist.
"After we finalized the design, it was less than a month before the pole was
installed--just hours before we were hit with 108 miles-per-hour winds. The pole
swayed in the wind just like you would expect, but it proved to be absolutely
sound. It's an amazing feat of engineering and it meets all of our goals."
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INDUSTRY
Leveraging our strength: quality products for industry
A key Valmont strategy is to leverage our manufacturing strengths. As a result
we have become a leading supplier of steel tubing, rolled cylinders, fasteners,
precision telescopic covers, and custom-finish coatings for industrial use.
Industrial products: adding value for industrial customers
Valmont has been manufacturing tubing for industrial use--from
small-diameter/heavy wall to large-diameter/light wall--for more than 40 years.
Our high-speed manufacturing equipment can produce custom-engineered tubing in a
wide variety of shapes and sizes built to exacting tolerances.
In addition to our internal customers--Valmont's Irrigation and Infrastructure
Divisions--our Industrial Products Division provides products and services to a
wide variety of customers. We provide standard and custom steel tubing products
for use in the manufacture of agricultural equipment, truck and automotive
equipment, fire-protection sprinkler applications, fire extinguishers, heat
exchangers, and other general fabrication uses. These include structural tubing
for the construction industry in squares or rectangles, designed to meet
industry physical strength and dimensional requirements.
Additionally, the division is a leading supplier of ASME-certified rolled and
welded cylinders for use in the manufacture of pressure vessels, boilers and
heat recovery steam generators. Industrial fasteners are supplied for Valmont's
internal divisions, and for other original equipment manufacturers across the
Midwestern and Pacific Northwestern United States. The division also works
closely with machine tool manufacturers in Europe in the design and manufacture
of auxiliary machine tool equipment such as telescopic covers and conveyors.
The Industrial Products Division is focused on adding value to all of its
product lines by providing customers with additional fabrication and engineering
services keyed to their specific needs. Given the increasing trend throughout
the industrial manufacturing market to outsource many of the services provided
by Valmont's Industrial Products Division, we expect substantial growth as this
division continues to meet the new expectations and requirements of customers.
Photo
Pneumatic transportation system
Caption: VALMONT'S INDUSTRIAL PRODUCTS DIVISION SUPPLIES THIN WALL TUBING USED
IN PNEUMATIC TRANSPORTATION SYSTEMS THAT MOVE ITEMS AT SPEEDS OF UP TO 25 FEET
PER SECOND.
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Coatings: custom protective finishes for industry
Since the mid 1960's our manufacturing capabilities have included a hot-dip
galvanizing process that coats steel products with a protective zinc coating.
Leveraging on this core strength, we formed a separate Coatings Division to
provide custom-finish coatings for products and components manufactured by other
companies in addition to our own.
The galvanizing process helps protect steel against corrosion. Corrosion is
estimated to cost the U.S. economy more than $200 billion annually--4.2% of the
U.S. gross domestic product. This cost is dramatically reduced when steel is
protected through the galvanizing process, which generally lengthens the life of
steel by a factor of at least five.
By protecting steel from corrosion, new uses for steel are possible, and we
expect the demand for galvanizing to increase. For example, telephone poles
traditionally built out of wood can now be built at a competitive cost using
galvanized poles. In many world areas where deforestation is a problem and
natural habitats need to be protected, galvanized steel provides practical
alternatives to the harvesting of wood for poles.
The opportunities for the future growth of our Coatings Division are many.
Today, our Valley, Nebraska plant is the largest galvanizing facility in North
America, and we are among the country's largest custom galvanizers. Our Coatings
Division is our fastest growing business. During 1998, we acquired four
galvanizing operations--in Utah, Oregon, Oklahoma and California--which serve to
fulfill our internal needs as well as help meet the growing external demand for
galvanizing as a protective coating.
Also during 1998, Valmont became the first U.S. galvanizer with multiple plants
to achieve ISO 9002 certification. This international certification ensures
customers of our commitment to quality standards worldwide--an important
competitive advantage.
Photo
End view of round and square tubing
Caption: VALMONT MANUFACTURES ROUND AND SQUARE, LARGE AND SMALL DIAMETER
MECHANICAL TUBING FROM THE LIGHTEST TO THE HEAVIEST WALLS IN THE INDUSTRY.
Photo
Hot dipping pole
Caption: HOT DIP GALVANIZING OF STEEL PRODUCTS FORMS A LONG- LASTING, PROTECTIVE
COATING AGAINST CORROSION.
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Photo
Man standing under street light
Caption: HUUB SMEETS IS DIRECTOR OF THE DEPARTMENT OF URBAN PLANNING AND
DEVELOPMENT FOR THE CITY OF MAASTRICHT IN THE NETHERLANDS.
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THE VALUE OF VALMONT
"Resplendent past, bright future."
"Our city is very progressive. Located in the southern part of Holland, we think
of Maastricht as a `springboard' to Europe, as we are only a few kilometres from
the borders of both Belgium and Germany.
"Historically, Maastricht has always been a centre of industry and trade. During
the 19th century, our city was a key military defense location where thousands
of ceramic products were made for use by the military and others. Today,
Maastricht is still known as the centre of the ceramics industry--and products
with renowned brand names such as Royal Sphinx and Royal Mosa find their way to
all parts of the world.
"In recent years, our key initiative has been the revitalization of our
Ceramique area, a 23-hectare region of downtown Maastricht-home to a museum,
library, industry, office workers, urban dwellers and all the amenities these
groups require. We host more than 15 million visitors to our city each year and
it is important that they see our city at its best--resplendent in the culture
and history for which we are known.
"When we began our renovation, our first step was to rebuild beautiful Ceramique
Avenue. We ordered 100 specially selected Valmont aluminum poles which were
designed to complement the look of the area. Plus, these poles support high top
lights to illuminate the Avenue and at a lower level, support lights for
pedestrians and bicyclists. Although Valmont's were not the lowest-priced
products or the highest-priced, we believe they were the best choice--extremely
high quality and the desired aesthetic appeal. We are now placing 100 more poles
on side streets. I think that is a testament to our satisfaction with the
product and to Valmont's ability to serve its customers well with style,
quality, service, and most importantly, value."
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THE VALUE OF VALMONT
Our past sets the course for our future
What we do best is leverage our expertise--in engineering, manufacturing, and
marketing--to build a stronger presence in our global economies.
Well-planned strategies for growth
The progress of Valmont over the years--from a manufacturer of a single line
of center pivot irrigation equipment to a manufacturer of diverse products
and components for agricultural and industrial uses--has been methodical and
logical. This strategy--of leveraging our strengths and expanding our
presence only in viable markets--will continue to drive our success.
In the early years, necessity mandated that we fabricate our own tubing and
build components from the ground up. Soon, we were the world's leading
manufacturer of mechanized irrigation equipment. Valmont's management team began
to look for ways to leverage the company's steel fabrication expertise while
reducing the company's dependence on agriculture. They recognized the
opportunity to manufacture tubing for other industries, and soon began to
develop the industrial tubing market for original equipment manufacturers, steel
service centers and for use in both private and public projects.
Over the years, our skill base in design, engineering, manufacturing and coating
continued to grow, and we introduced additional irrigation products that
revolutionized the irrigation industry--the corner system, linear move system,
low-pressure system, and computerized technology. We expanded into the
manufacture of tapered tubes for outdoor lighting and traffic signals, and large
tubular structures for the electric utility and communication industries.
We found other profitable ways to put our expertise to use. In 1966, we began
hot-dip galvanizing our products to provide protection. Today, we are among the
largest custom galvanizers in North America. We broadened our position in the
communication industry with the acquisition of the Microflect Company in 1995,
which enabled us to provide towers, components and installation and maintenance
services. We have leveraged our water management expertise as well--putting our
irrigation equipment to use in other sectors such as land application of treated
wastewater. Our acquisition this year of Cascade Earth Sciences will allow us to
offer better solutions to a wide range of agricultural, industrial and municipal
customers.
Expanding around the world
From the beginning, we knew that our products had global appeal and value, and
yet we also understood the prudence of careful international investment. We
decided early on that if we were to participate in markets overseas, we must
also selectively manufacture overseas. In that way--by being closer to our
customers--we can ensure that our products are engineered and built to fit
specific needs. And by employing local people and supporting their local
economies, we are able to become a part of the communities and countries that
sustain us.
Our Irrigation Division began developing overseas markets in the early
1970's. Licensing agreements were established in Saudi Arabia, Brazil,
Yugoslavia, South Africa and the Soviet Union. Soon, Valley-Registered
Trademark- pivot and linear move equipment was being sold in Europe, the
Middle East, Africa, Australia, China, Thailand and Latin America.
Valley-Registered Trademark- irrigation manufacturing facilities are now
located in Brazil and Spain, in addition to the U.S.
Starting with our first investment in France in 1989, our pole products have
also been well received in international markets. In 1991, we acquired two
companies; one, a steel pole manufacturer in the Netherlands and the other a
Canadian producer of aluminum lighting and traffic poles. During 1996, we
completed construction of a facility to manufacture light poles in Shanghai,
China, and we purchased a majority interest in a manufacturer of communication
towers in France. Also that year, we
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purchased a majority interest in a manufacturer and distributor of lighting pole
structures in Gelsenkirchen, Germany. In 1997, we started a lighting pole
manufacturing facility in Siedlce, Poland. Today, in addition to our six
facilities in the U.S., we now manufacture irrigation equipment, poles, tower
structures and fabricated products at plants in Germany, Spain, China, Poland,
France, the Netherlands, Brazil and Canada.
Our future growth will result from doing what we do best: leveraging our
talents and strengths and remaining close to our customers. In all of our
engineering and manufacturing endeavors, we strive to be the `best cost'
producer--to provide the highest-quality products at a fair, competitive
price. We are committed to implementing innovations in design and automating
our manufacturing processes to provide customized products quickly and cost
effectively. This is the value of Valmont and the commitment that our
customers deserve and have come to rely on.
How Valmont goes to market
Valmont's Lighting and Utility products are sold through a network of Valmont
sales representatives and agents to utilities, general contractors, city, state
and federal entities, and others. To increase sales and customer alliances, our
strategy for the future includes: introducing new products customized to meet
customer needs; combining product engineering and manufacturing excellence to
deliver engineered structures at the best cost; forming additional strategic
alliances with key customers and vendors; and expanding our product line through
the use of more diverse materials.
Valley-Registered Trademark- Irrigation products are marketed through a
worldwide network of Valley Irrigation dealers--many of whom have been part
of Valmont since the 1960's. Valmont's strategy for increasing sales
includes: increasing dealer sales within each marketplace; adding and
recruiting new dealers in strategic locations; and encouraging conversion
from current flood irrigation practices by providing farmers, producers and
influencers with educational information about the value and advantages of
mechanized irrigation.
As a customer-driven company, Valmont seeks to provide its end users with the
information and tools they need in order to be more productive and profitable.
We do this by incorporating customer needs into our designs and by ensuring that
our representative dealer networks are equipped with new technologies, improved
services and the benefits they offer.
Pillars for economic growth
THE WORLD BANK HAS DETERMINED THAT TO SUSTAIN ECONOMIC GROWTH OUTSIDE THE U.S.
AND KEEP PACE WITH FUTURE DEMANDS, FOUR BASIC COMPONENTS MUST BE AVAILABLE:
SAFE WATER
ELECTRICITY
PAVED ROADS
TELEPHONES
Illustration of pillars
VALMONT IS AN INDUSTRY LEADER IN THE MANUFACTURE OF PRODUCTS FOR ALL FOUR OF
THESE AREAS. WE ARE THE LEADING PROVIDER OF IRRIGATION AND WASTEWATER MANAGEMENT
SYSTEMS THAT WILL HELP ENSURE A SAFE, PLENTIFUL WATER SUPPLY. WE ARE A LEADING
MANUFACTURER OF STEEL TRANSMISSION STRUCTURES THAT PROVIDE ELECTRICITY TO MEET
INCREASED GLOBAL DEMAND. OUR LIGHTING AND TRAFFIC CONTROL STRUCTURES LINE
FREEWAYS AND ROADWAYS IN LOCATIONS AROUND THE WORLD. AND IN THE TELEPHONE AND
COMMUNICATION INDUSTRY, WE ARE LEADING THE WAY IN THE DESIGN AND MANUFACTURE OF
WIRELESS COMMUNICATION STRUCTURES AND COMPONENTS.
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Photo
Man and daughter standing in a shop
Caption: GENE LOUDEN, OF VALMONT'S IRRIGATION GEAR BOX MANUFACTURING DEPARTMENT,
AND HIS DAUGHTER, BRENDA, LIGHTING PRODUCTS MARKETING TRAINEE, WORK FOR VALMONT
IN VALLEY, NEBRASKA.
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All in the family
"We are all in this together."
"When my daughter, Brenda, was in her final year of college, she was accepted
for a Valmont internship. I couldn't have been happier, because as a long-time
Valmont employee--I work on a gear box manufacturing team--I know that Valmont
is a good place to work.
"Sure, there have been a lot of changes at Valmont over the years. Automation
and technological processes have been put in place and safety is even more a
focus. But what sets Valmont apart, I think, is that as the company has grown,
expanded around the world and the products have become more sophisticated, the
management team has done what a lot of companies have not been able to do.
They've empowered their employees and instilled the sense that we're all in this
together--that our opinions and suggestions are important.
"For instance, we have a team-based approach and a Just-in-Time (JIT) program
that brings employees together from different disciplines to address issues and
solve problems. There is also an emphasis on aptitude evaluations to ensure that
the right employees are in the right positions since there are so many career
paths available. Training sessions are offered for every shift--even the
graveyard shift, which is the one I work on. And for employees who want to
pursue higher education, Valmont provides college tuition assistance. My
daughter, for instance--now a full-time Valmont employee--is working on her
master's degree. Classes are held right here at the Valley location.
"I think all of this has contributed to the company's ability to streamline
processes and increase productivity. But more importantly, it has led to an
increase in employee pride and morale. At Valmont, every person matters--just
like a family. And that's the kind of place I want my daughter to work."
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FINANCIAL OBJECTIVES AND RESULTS
OBJECTIVE
Increase trendline earnings 15% per year
Graph
NET EARNINGS
- ------------
1994 $18.9
1995 $24.8
1996 *$31.3
1997 $37.5
1998 $27.6
15% trendline
$ in millions
*Before asset valuation charge
OBJECTIVE
Achieve a minimum 10% after tax Return on Invested Capital
Graph
RETURN ON INVESTED CAPITAL
- --------------------------
1994 10.7%
1995 13.0%
1996 *14.7%
1997 15.4%
1998 10.3%
OBJECTIVE
Maintain Long-Term Debt as a percent of Invested Capital at less than 40%
Graph
LONG TERM DEBT AS A PERCENT OF INVESTED CAPITAL
- -----------------------------------------------
1994 21.9%
1995 17.1%
1996 12.1%
1997 10.4%
1998 30.3%
WE MEASURE OUR PERFORMANCE AGAINST MANY STANDARDS. FINANCIALLY, WE HAVE SELECTED
THREE PRINCIPAL FACTORS THAT TELL JUST HOW WELL WE ARE MANAGING THE COMPANY AND
THE MONEY INVESTED IN IT. THE GOALS WE HAVE ESTABLISHED FOR EARNINGS GROWTH,
RETURN ON INVESTED CAPITAL AND LONG TERM DEBT LEVERAGE ARE APPROPRIATE FOR THE
INDUSTRIES IN WHICH WE PARTICIPATE, YET CHALLENGING ENOUGH TO DEMAND THE VERY
BEST TALENTS AND PERFORMANCE OF OUR MANAGEMENT TEAM.
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MANAGEMENT'S DISCUSSION and analysis of Financial Condition and Results of
Operations
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial position. This discussion
should be read in conjunction with the Consolidated Financial Statements and
related Notes.
RESULTS OF OPERATIONS
The net sales and operating income of the Company's business segments for the
past three years are as follows:
YEAR ENDED
[IN MILLIONS] 1998 1997 1996
---------------------------------------
NET SALES
Irrigation $221.1 $239.2 $210.7
Infrastructure 296.0 307.6 270.9
Other 89.2 75.7 162.9
-----------------------------------------
Net Sales $606.3 $622.5 $644.5
-----------------------------------------
OPERATING INCOME
Irrigation $25.7 $29.1 $23.9
Infrastructure 8.8 24.6 19.9
Other 13.3 8.3 (7.2)
-----------------------------------------
OPERATING INCOME 47.8 62.0 36.6
Other deductions (4.3) (3.1) (3.6)
-----------------------------------------
Earnings before
income taxes $43.5 $58.9 $33.0
-----------------------------------------
FISCAL 1998 COMPARED WITH FISCAL 1997 CONSOLIDATED
Net sales of $606.3 million in 1998 were 2.6% lower than 1997 net sales of
$622.5 million. Sales volume declined in both the Infrastructure and Irrigation
segments. Sales in the Irrigation segment declined 7.6% from $239.2 million in
1997 to $221.1 million in 1998. In the Infrastructure segment, 1998 sales were
$296.0 million, down 3.8% from 1997 sales of $307.6 million. Other sales
increased 17.8% from $75.7 million to $89.2 million in 1998, primarily from the
acquisitions of four coatings operations in 1998.
Graph
Segment sales
- -------------
1996 $645 Infrastructure $271 Irrigation $211 Other $163
1997 $623 Infrastructure $308 Irrigation $239 Other $76
1998 $606 Infrastructure $296 Irrigation $221 Other $89
$ in millions
GROSS PROFIT AS A PERCENT OF NET SALES
1996 26.7%
1997 27.2%
1998 25.2%
The gross profit margin was 25.2% in 1998, compared with 27.2% in 1997. The
reduction in 1998 was primarily attributable to lower margins in the
Infrastructure segment offset in part by improved margins in the Irrigation
segment. Selling, general and administrative expenses declined from $107.2
million (17.2% of sales) in 1997 to $105.1 million (17.3% of sales) in 1998, as
a result of cost reduction programs, less sales volume and lower incentive
payments. Operating income (pretax earnings before interest and miscellaneous
income) decreased 23.0%.
Net interest expense was $4.8 million in 1998, compared with $2.8 million in
1997. The higher interest expense is attributable to higher average borrowings.
The effective tax rate was 36.5% in 1998, compared with 36.3% in 1997. The
higher tax rate in 1998 results primarily from decreased foreign tax benefits.
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Net earnings decreased 26.4% to $27.6 million and diluted earnings per share
decreased 23.3% to $1.02. The lower percentage decrease in earnings per share
compared to net earnings was primarily attributable to the Company's repurchase
of shares during 1998.
IRRIGATION SEGMENT
Net sales and operating income in the Irrigation segment decreased in 1998 by
7.6% and 11.6%, respectively. Agricultural commodity prices declined in the
second half of 1998 due to large supplies of grain, which were a result of a
favorable growing season and declining demand, particularly from Asia. In recent
years, Asian economies have become a larger force in affecting the world's grain
supply and demand balance. The disruption in their economies beginning in the
summer of 1997 caused a decline in exports of U.S. grain and a decline in prices
in 1998. Consequently, farmers became very conservative in their spending for
equipment and postponed their investments in machinery. To encourage sales,
industry-wide pricing became more competitive. These were the primary
contributors to Valmont's reduced sales and operating income for irrigation
equipment for the year.
Graph
WORKING CAPITAL
- ---------------
1996 $81.4
1997 $94.4
1998 $99.5
$ in millions
SG&A EXPENSE AS A PERCENT OF NET SALES
1996 18.6%
1997 17.2%
1998 17.3%
INFRASTRUCTURE SEGMENT
Net sales in the Infrastructure segment decreased 3.8% while operating income
decreased 64.5%. With respect to the Company's lighting and traffic pole
products, wet weather delayed the start of the construction season in many parts
of the United States. Also, a delay in the passage of the federal highway bill
kept many product purchasers sidelined and thereby reduced sales. As a result,
the shipments of lighting and traffic products were lower than the 1997 levels.
The eventual passage of the highway bill in June 1998 resulted in an increase of
orders for lighting and traffic products throughout the second half of the year.
To fill this demand, the Company incurred increased overtime costs. While cost
reductions and a reorganization in the North American Pole business lowered the
Company's overall cost structure, these actions were not sufficient to overcome
the lower prices and reduced gross profit margins on orders taken in the first
half of the year but manufactured and shipped in the second half. In Europe,
sales of lighting products were above 1997 levels due to the improvement of
certain European economies. Lighting sales from the Shanghai, China facility
were higher in 1998 as compared to 1997.
Orders from electric utility companies in 1998 were above 1997 levels for
transmission structures, substations, and distribution poles. This was due to an
overall strengthening in demand from utility companies seeking to increase
service reliability and expand capacity. Additionally, Valmont has entered into
strategic alliances with select electric utility customers to provide cost
savings and custom engineering, which have contributed to increased sales.
Utility product sales also benefited from increased sales of steel transmission
and distribution poles to utility customers who replaced wood poles with steel.
Sales of communication poles, towers, and components to the wireless
communication market declined in 1998. An overall slowdown, in the build-out of
the U.S. wireless communication network, continued throughout 1998. This led to
a very competitive market environment that reduced sales and pressured pricing
levels. Sales of communication poles and towers in Europe also declined. Sales
of communication poles in China increased in 1998. However, the effects of
currency devaluation and economic uncertainty led to a reduced level of sales of
communication products in the rest of Southeast Asia.
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FISCAL 1997 COMPARED WITH FISCAL 1996 CONSOLIDATED
Net sales of $622.5 million were 3.4% lower in 1997 than 1996 net sales of
$644.5 million. The divestiture in 1997 of Valmont Electric, Inc., a ballast
business, was primarily responsible for the sales decline.
The gross profit margin was 27.2% in 1997, compared with 26.7% in 1996. The
increase in 1997 was primarily attributable to the sale of the ballast business.
Operating income (pretax earnings before interest and miscellaneous income)
increased 69.2%.
As a percent of sales, Selling, general and administrative (SG & A) expenses
were 17.2% in 1997 compared to 18.6% in 1996. SG & A expenses in 1997 were
$107.2 million compared to $119.6 million in 1996. The decrease in SG & A
expenses as a percent of sales resulted from the sale of the ballast business in
early 1997, and from leverage of SG & A expenses in other parts of the Company.
Net interest expense was $2.8 million in 1997, compared with $3.6 million in
1996. The lower interest expense was attributable to lower debt levels.
The effective tax rate was 36.3% in 1997, compared with 35.7% in 1996. Increased
income tax rates were primarily the result of tax rates in some foreign
jurisdictions being higher than the U.S.
Net income increased 76.7% to $37.5 million and diluted earnings per share
increased 75.0% to $1.33. The lower percentage decrease in earnings per share
compared to net income was primarily attributable to increased outstanding
shares.
IRRIGATION SEGMENT
Irrigation segment sales and operating income increased in 1997 by 13.5% and
21.6%, respectively, due to volume increases both domestically and
internationally. These volume increases resulted domestically from a strong farm
income and internationally from a new facility in Brazil that led to increased
sales in Latin America.
INFRASTRUCTURE SEGMENT
During 1997, the Infrastructure segment net sales and operating income increased
by 13.5% and 23.3%, respectively. Domestically, infrastructure modernization and
continued road and highway construction and improvement accounted for the sales
increase. Internationally, sales were up in local currencies due to a strong
light pole demand and sales of new products; however, these sales decreased when
translated into U.S. dollars.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital at December 26, 1998 was $99.5 million compared to $94.4
million at December 27, 1997. The ratio of current assets to current liabilities
was 1.8:1 at both year ends.
Available short-term credit facilities through bank lines of credit were $44
million at the end of 1998 compared to $47 million at the end of 1997. On
December 26, 1998, $24 million of these credit facilities were unused.
The Company's growth has been financed through a combination of cash provided by
debt financing and from operations. The Company's objective is to maintain
long-term debt as a percent of invested capital below 40%. At the end of 1998,
long-term debt as a percent of invested capital was 30.3% as compared to 10.4%
at the end of 1997. The increased debt level is the result of the share
repurchase program, capital expenditures and acquisitions.
Cash provided from operating activities was $42.0 million in 1998 and $23.3
million in 1997.
In October of 1997, the Company entered into a Revolving Credit Agreement with a
group of banks. Under the terms of the agreement, the Company may borrow up to
the equivalent of $100 million in multiple currencies. This facility is
unsecured and any outstanding principal balance is due on June 30, 2002. The
outstanding principal balance may be paid down at any time without penalty or
additional funds may be borrowed up to the maximum limit. On December 26, 1998,
the outstanding principal balance was $79 million compared to a balance of $5
million at December 27, 1997.
In 1998, the Board of Directors authorized the repurchase of up to 5.4 million
shares of the Company's common stock. Repurchased shares are recorded as
"Treasury Stock" and result in a reduction of "Shareholders' Equity." When
treasury shares are reissued, the Company uses the last-in, first-out method,
and the difference between the repurchase cost and reissuance price is charged
or credited to "Additional Paid-In Capital." As of December 26, 1998, a total of
3,122,160 shares had been purchased for $53,255.
The Company believes cash flows from operations, available credit facilities and
the capital structure now in place will be adequate for 1999 planned capital
expenditures, for dividends, additional share repurchases and other financial
commitments, and for the Company to pursue opportunities to expand its markets
and businesses.
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CAPITAL EXPENDITURES
In 1998, the Company expended $29.7 million in property, plant and equipment,
a $9.4 million decrease from the $39.1 million invested in 1997. The major
expenditure was a new irrigation manufacturing facility under construction in
McCook, Nebraska. Also, included in capital expenditures were increased
capacity and replacement of property at Valley, Nebraska, Elkhart, Indiana,
Tulsa, Oklahoma and Salem, Oregon. An additional $29.4 million was spent for
the acquisition of coating facilities in California, Oklahoma, Oregon and
Utah. These acquisitions enabled the Company's Coating Division to reach new
markets and customers. Also, included in the acquisitions of 1998, was the
purchase of outstanding shares of Cascade Earth Sciences, Ltd., a firm
providing consulting services for environmental and wastewater management
projects with headquarters in Oregon.
RISK MANAGEMENT
The Company is subject to market risks associated with changes in foreign
currency exchange rates and interest rates. The Company conducts business in
many parts of the world. Export sales from the United States are generally
denominated in U.S. dollars. In countries where the Company has manufacturing or
distribution operations (principally Western Europe, Brazil and China),
transactions are generally denominated in the local currency of that country.
Where practical, the Company maintains local currency lines of credit and
long-term debt to reduce the currency rate risk exposure. The Company's exchange
rate exposure totals $40 million and is located in Western Europe ($30 million),
Brazil ($8 million) and China ($2 million).
The Company is subject to market risk from exposure to changes in interest
rates based on its financing, investing and cash management activities. This
risk is managed using a mix of fixed and variable rate debt to maintain the
desired level of interest rate risk exposure and to minimize net interest
expense. At December 26, 1998, the Company had debt outstanding of
approximately $122 million, of which 85% was subject to variable interest
rates.
YEAR 2000
The Company has been addressing the Year 2000 situation for over two years. The
Company's plan has included remediation of its mainframe systems, upgrades to
packaged systems, implementation of new Enterprise Resource Planning (ERP)
systems in certain business units, examination and resolution of administrative
and shop equipment that contain embedded chips, evaluation of the Year 2000
readiness of key suppliers and evaluation and resolution of network equipment
and personal computers.
The Company anticipates completion of its Year 2000 planning during the second
quarter of 1999 in the U.S. and in the fourth quarter of 1999 in Europe.
The Company has contacted most key domestic suppliers relative to their Year
2000 readiness and has received positive responses. The Company is in the
process of contacting key international suppliers and anticipates completion of
this phase in the first quarter of 1999. Completion of supplier evaluation is
expected by the end of the second quarter of 1999.
The process to identify, evaluate and resolve machines and equipment with
embedded chips has been under way for nine months. The process is essentially
complete for the Company's main plant located in Valley, Nebraska and will be
completed at all other locations by the end of the second quarter of 1999.
Since much of the network and personal computer equipment is relatively new and
frequently upgraded, the majority will be inventoried and tested by the end of
the first quarter of 1999.
The total cost of the Company's Year 2000 Project is expected to be less than
$10 million. Approximately $6 million has been spent to date, and the remaining
estimated costs of $4 million are expected to be spent by the end of 1999.
Included in these amounts is the cost of installing new ERP systems, which was
undertaken to improve business and processes and also address Year 2000 issues.
The Company believes its primary Year 2000 risk is that suppliers will not be
able to deliver products and/or services in a timely fashion. The Company is
currently developing contingency plans to identify alternative vendors and is
considering the stockpiling of critical inventory items. Availability of
electrical power and telecommunications is required for the Company to operate
effectively. These services for the most part are beyond the Company's control
and alternate sources are not readily available. Since the Company is currently
testing its major business systems or installing new systems, the Company
believes such systems will be Year 2000 compliant; however, the Company is
discussing contingency plans to cover key business functions for a short period
of time. These contingency plans are expected to be developed by the end of the
second quarter of 1999.
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PAGE 33
OUTLOOK FOR 1999
The Company anticipates that spending by farmers on irrigation equipment in the
U.S. will remain low in 1999. However, the Company expects a positive year for
lighting and traffic products as well as utility products. This projection is
based on strong order flows and backlogs in these businesses in late 1998 which
has carried into 1999. The current business outlook for wireless communication,
is that sales levels will be below those of 1998. As a result of anticipated
continued softness in the communication products and irrigation equipment
businesses, the Company's overall current outlook is for earnings in 1999 to be
similar to those of 1998.
Over the long-term, the Company remains positive on the outlook for its
businesses. Every year, the world's population grows and with this growth comes
an increased need for food. In order to keep up with the escalating demand for
food and the desire for improved diets, the agricultural industry must become
more efficient. Mechanized irrigation equipment, such as that produced by
Valmont, is one of the most cost-effective ways for farmers to improve
efficiency. Population growth and economic expansion also create demands on
basic infrastructure. Valmont manufactures poles for street lighting and traffic
signals and signs, which help relieve congestion, improve highway safety and
enhance parking lot safety. The Company also produces structures for the
electric utility industry. These products support the transmission and
distribution of added electrical capacity. Valmont's poles, towers and
components also support wireless communication antennas. Wireless communication
is a technology that has already rapidly transformed worldwide communication and
further expansion of wireless networks is anticipated. Part of the Company's
business plan is to be positioned to respond to trends in these industries with
the manufacture of competitively priced products targeted to those industries.
The goal of the 1999 business plan is to position the Company for long-term
profitable growth and enhanced shareholder value.
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTAINS FORWARD LOOKING STATEMENTS WHICH
REFLECT MANAGEMENT'S CURRENT VIEW AND ESTIMATES OF FUTURE ECONOMIC AND MARKET
CIRCUMSTANCES, INDUSTRY CONDITIONS, COMPANY PERFORMANCE AND FINANCIAL RESULTS.
THE STATEMENTS ARE BASED ON MANY ASSUMPTIONS AND FACTORS INCLUDING OPERATING
EFFICIENCIES, AVAILABILITY AND PRICE OF RAW MATERIALS, AVAILABILITY AND MARKET
ACCEPTANCE OF NEW PRODUCTS, PRODUCT PRICING, DOMESTIC AND INTERNATIONAL
COMPETITIVE ENVIRONMENTS, ACTIONS AND POLICY CHANGES OF DOMESTIC AND
INTERNATIONAL GOVERNMENTS, AND OTHER RISKS DESCRIBED FROM TIME TO TIME IN
VALMONT'S REPORTS TO THE SECURITIES AND EXCHANGE COMMISSION. ANY CHANGES IN SUCH
ASSUMPTIONS OR FACTORS COULD PRODUCE SIGNIFICANTLY DIFFERENT RESULTS.
Graph
TOTAL ASSETS
- ------------
1996 $342
1997 $368
1998 $407
$ in millions
CAPITAL EXPENDITURES
1996 $35.6
1997 $39.1
1998 $29.7
$ in millions
183
PAGE 34
SELECTED 11-YEAR FINANCIAL DATA
[DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS] 1998 1997 1996 1995
OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------
Net sales $606,307 $622,506 $644,531 544,642
Earnings (loss) from continuing operations 27,636 37,544 21,248 24,759
Earnings from discontinued operations -- -- -- --
Cumulative effect of accounting change -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 27,636 $ 37,544 $ 21,248 $ 24,759
- -----------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 19,843 $ 16,437 $ 14,832 $ 12,361
Capital expenditures 29,667 39,115 35,559 34,772
Per share data
Earnings (loss):
Basic $ 1.04 $ 1.36 $ 0.78 $ 0.92
Diluted 1.02 1.33 0.76 0.90
Cash dividends 0.25 0.22 0.19 0.15
Shareholders' equity 7.12 7.49 6.41 5.87
FINANCIAL POSITION
Working capital $ 99,466 $ 94,416 $ 81,403 $ 80,993
Property, plant and equipment, net 157,447 140,834 120,579 113,532
Total assets 406,957 368,052 341,648 308,710
Long-term debt, including current installments 96,218 28,060 29,573 36,687
Shareholders' equity 175,913 207,102 175,231 159,256
Invested capital 317,708 270,400 243,905 215,318
KEY FINANCIAL MEASURES
Return on beginning shareholders' equity 13.3% 21.4% 13.3% 18.0%
Return on invested capital 10.3% 15.4% 10.3% 13.0%
Long-term debt as a percent of invested capital 30.3% 10.4% 12.1% 17.0%
YEAR-END DATA
Shares outstanding (000) 24,721 27,641 27,330 27,120
Approximate number of shareholders 5,500 5,400 4,400 3,900
Number of employees 3,869 3,751 4,868 4,166
Per share amounts and number of shares reflect the
two-for-one stock splits in 1988, 1989 and 1997.
All amounts include pooling-of-interests method of accounting
for the acquisition of Microflect in July, 1995.
184
PAGE 35
1994 1993 1992 1991 1990 1989 1988
-------- --------- --------- --------- --------- --------- ---------
$501,740 $464,274 $445,481 $446,543 $461,789 $443,444 $439,569
18,887 7,551 11,671 (8,822) 11,373 16,818 12,301
-- 4,637 3,564 2,134 5,474 4,602 3,639
-- (4,910) -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
$ 18,887 $ 7,278 $ 15,235 $ (6,688) $ 16,847 $ 21,420 $ 15,940
- --------------------------------------------------------------------------------------------------------------------------------
$ 11,018 $ 10,907 $ 12,585 $ 11,285 $ 9,887 $ 7,608 $ 7,788
23,535 17,089 8,353 11,539 20,607 17,470 9,750
$ 0.70 $ 0.27 $ 0.57 $ (0.25) $ 0.63 $ 0.81 $ 0.62
0.69 0.27 0.56 (0.25) 0.63 0.81 0.62
0.15 0.15 0.13 0.13 0.13 0.11 0.09
5.10 4.52 4.43 4.06 4.42 3.94 3.26
$ 88,278 $ 87,793 $ 68,551 $ 69,143 $ 66,302 $ 72,811 $ 58,786
89,201 75,501 78,150 84,144 81,675 71,872 53,135
283,443 261,275 286,076 291.041 291,163 268,216 225,461
43,242 44,076 69,735 81,698 63,003 66,774 47,337
137,582 121,841 118,428 108,142 117,200 104,069 84,163
197,591 180,961 200,501 205,618 191,255 180,464 138,392
15.5% 6.1% 14.1% (5.7%) 16.2% 25.5% 23.2%
10.7% 5.6% 7.4% (1.9%) 9.5% 12.4% 11.6%
21.9% 24.4% 34.8% 39.7% 32.9% 37.0% 34.2%
26,990 26,972 26,750 26,620 26,494 26,412 25,828
3,800 3,800 3,500 3,500 2,800 1,600 1,500
3,946 4,152 4,532 4,478 4,524 4,255 3,569
185
PAGE 36
Consolidated Statements of Operations
THREE-YEAR PERIOD ENDED DECEMBER 26, 1998
[DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS] 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
Net sales $606,307 $622,506 $644,531
Cost of sales 453,459 453,326 472,463
-----------------------------------------------
Gross profit 152,848 169,180 172,068
Selling, general and administrative expenses 105,096 107,190 119,624
Asset valuation charge -- -- 15,800
-----------------------------------------------
Operating income 47,752 61,990 36,644
-----------------------------------------------
Other income (deductions):
Interest expense (5,858) (3,731) (3,952)
Interest income 1,012 900 344
Miscellaneous 630 (215) 12
-----------------------------------------------
(4,216) (3,046) (3,596)
-----------------------------------------------
Earnings before income taxes 43,536 58,944 33,048
-----------------------------------------------
Income tax expense (benefit):
Current 12,500 14,400 19,970
Deferred 3,400 7,000 (8,170)
-----------------------------------------------
15,900 21,400 11,800
-----------------------------------------------
Net earnings $ 27,636 $ 37,544 $ 21,248
-----------------------------------------------
-----------------------------------------------
Earnings per share:
Basic $ 1.04 $ 1.36 $ 0.78
-----------------------------------------------
-----------------------------------------------
Diluted $ 1.02 $ 1.33 $ 0.76
-----------------------------------------------
-----------------------------------------------
Cash dividends per share $0.25125 $0.21875 $ 0.1875
-----------------------------------------------
-----------------------------------------------
See accompanying notes to consolidated financial statements.
186
PAGE 37
CONSOLIDATED BALANCE SHEETS
DECEMBER 26, 1998 AND DECEMBER 27, 1997
[DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS] 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,580 $ 11,505
Receivables, less allowance for doubtful receivables
of $3,421 in 1998 and $2,132 in 1997 115,843 110,531
Inventories 77,694 79,444
Prepaid expenses 5,297 3,388
Refundable and deferred income taxes 13,532 13,062
-----------------------------
219,946 217,930
Property, plant and equipment, at cost 292,944 258,478
Less accumulated depreciation and amortization 135,497 117,644
-----------------------------
Net property, plant and equipment 157,447 140,834
-----------------------------
Goodwill and other assets 29,564 9,288
-----------------------------
Total assets $406,957 $368,052
-----------------------------
-----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES:
Current installments of long-term debt $ 5,737 $ 7,317
Notes payable to banks 25,494 18,545
Accounts payable 45,996 48,717
Accrued expenses 41,646 47,380
Dividends payable 1,607 1,555
-----------------------------
Total current liabilities 120,480 123,514
-----------------------------
Deferred income taxes 11,984 9,038
Long-term debt, excluding current installments 90,481 20,743
Minority interest in consolidated subsidiaries 3,862 3,957
Other noncurrent liabilities 4,237 3,698
Shareholders' equity:
Preferred stock of $1 par value.
Authorized 500,000 shares; none issued -- --
Common stock of $1 par value.
Authorized 75,000,000 shares; issued 27,900,000 shares 27,900 27,900
Additional paid-in capital 1,280 838
Retained earnings 200,393 179,360
Accumulated other comprehensive income (1,423) (966)
-----------------------------
228,150 207,132
Less:
Cost of common shares in treasury
3,178,627 shares in 1998 (259,031 shares in 1997) 52,235 8
Unearned restricted stock 2 22
-----------------------------
Total shareholders' equity 175,913 207,102
-----------------------------
Total liabilities and shareholders' equity $406,957 $368,052
-----------------------------
-----------------------------
See accompanying notes to consolidated financial statements.
187
PAGE 38
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE-YEAR PERIOD ENDED DECEMBER 26, 1998
[DOLLARS IN THOUSANDS] 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATIONS:
Net earnings $27,636 $37,544 $21,248
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 19,843 16,437 14,832
Other adjustments (302) 1,385 580
Changes in assets and liabilities:
Receivables 1,379 (32,040) (16,484)
Inventories 4,057 (7,671) (16,270)
Prepaid expenses (1,704) (1,081) (1,217)
Accounts payable (4,645) 7,154 10,120
Accrued expenses (7,986) (4,297) 15,022
Other noncurrent liabilities 253 769 (394)
Income taxes 3,517 5,147 (7,594)
---------------------------------------------
Net cash provided by operations 42,048 23,347 19,843
---------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (29,667) (39,115) (35,559)
Acquisitions (29,447) -- (1,255)
Proceeds from sale of property and equipment 4,768 289 858
Proceeds from sale of assets held for sale -- 26,903 --
Proceeds from investments by minority shareholder -- 1,959 97
Changes in other assets (1,875) 924 (1,246)
Other, net (581) (1,007) (260)
---------------------------------------------
Net cash used in investing activities (56,802) (10,047) (37,365)
-------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments)
under short-term agreements 6,612 (4,550) 20,630
Proceeds from long-term borrowings 73,443 7,172 1,942
Principal payments on long-term obligations (9,742) (7,856) (8,142)
Dividends paid (6,551) (5,838) (4,762)
Proceeds from exercises under stock plans 3,347 3,067 2,073
Purchase of common treasury shares:
Stock repurchase program (53,255) -- --
Stock plan exercises (3,025) (3,273) (1,732)
---------------------------------------------
Net cash provided (used) by
financing activities 10,829 (11,278) 10,009
---------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,925) 2,022 (7,513)
Cash and cash equivalents--beginning of year 11,505 9,483 16,996
---------------------------------------------
Cash and cash equivalents--end of year $ 7,580 $11,505 $ 9,483
---------------------------------------------
---------------------------------------------
See accompanying notes to consolidated financial statements.
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PAGE 39
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE-YEAR PERIOD ENDED DECEMBER 26, 1998
Common Additional Retained Accumulated Treasury Unearned Total
stock paid-in earnings other stock restricted shareholders'
[DOLLARS IN THOUSANDS, capital comprehensive stock equity
EXCEPT PER SHARE AMOUNTS] income
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 30, 1995 $13,950 $4,694 $137,009 $3,689 $(24) $(62) $159,256
Comprehensive income:
Net earnings -- -- 21,248 -- -- -- 21,248
Currency translation adjustment -- -- -- (1,952) -- -- (1,952)
-------
Total comprehensive income 19,296
Cash dividends ($0.1875 per share) -- -- (5,111) -- -- -- (5,111)
Purchase of 97,444 common
shares - stock plan exercises -- -- -- -- (1,732) -- (1,732)
Stock options exercised;
174,810 shares issued -- 335 -- -- 1,738 -- 2,073
Tax benefit from exercise
of stock options -- 1,023 -- -- -- -- 1,023
Stock awards; 27,824 shares issued -- 406 -- -- -- 20 426
-----------------------------------------------------------------------------------------
BALANCE AT DECEMBER 28, 1996 13,950 6,458 153,146 1,737 (18) (42) 175,231
Comprehensive income:
Net earnings -- -- 37,544 -- -- -- 37,544
Currency translation
adjustment -- -- -- (2,703) -- -- (2,703)
-------
Total comprehensive income 34,841
Cash dividends ($0.21875 per share) -- -- (6,027) -- -- -- (6,027)
Purchase of 154,039 common
shares - stock plan exercises -- -- -- -- (3,273) -- (3,273)
Sale of 43, 914 common
shares -- 905 -- -- -- -- 905
Stock options exercised;
393,164 shares issued -- (216) -- -- 3,283 -- 3,067
Tax benefit from exercise
of stock options -- 1,796 -- -- -- -- 1,796
Stock awards; 27,146 shares issued -- 542 -- -- -- 20 562
Two-for-one stock split 13,950 (8,647) (5,303) -- -- -- --
-----------------------------------------------------------------------------------------
BALANCE AT DECEMBER 27, 1997 27,900 838 179,360 (966) (8) (22) 207,102
Comprehensive income:
Net earnings -- -- 27,636 -- -- -- 27,636
Currency translation adjustment -- -- -- (457) -- -- (457)
-----
Total comprehensive income 27,179
Cash dividends ($0.25125 per share) -- -- (6,603) -- -- -- (6,603)
Purchase of treasury shares:
Stock repurchase program
3,122,160 shares -- -- -- -- (53,255) -- (53,255)
Stock plan exercises,
163,590 shares -- -- -- -- (3,025) -- (3,025)
Stock options exercised;
339,241 shares issued -- (1,331) -- -- 4,052 -- 2,721
Tax benefit from exercise
of stock options -- 1,169 -- -- -- -- 1,169
Stock awards;
26,913 shares issued -- 604 -- -- 1 20 625
-----------------------------------------------------------------------------------------
BALANCE AT DECEMBER 26, 1998 $27,900 $1,280 $200,393 $(1,423) $(52,235) $ (2) $175,913
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
189
PAGE 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE-YEAR PERIOD ENDED DECEMBER 26, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Valmont
Industries, Inc. (the Company) and its wholly and majority-owned subsidiaries.
Investments in 20% to 50% owned affiliates are accounted for on the equity
method and investments in less than 20% owned affiliates are accounted for on
the cost method. All significant intercompany items have been eliminated.
OPERATIONS
The Company designs, manufactures and distributes agricultural irrigation
equipment and related products and services, engineered metal structures and
related products for the lighting, utility and wireless communications
industries, and industrial products including steel tubing, pressure vessels,
machine tool accessories, industrial fasteners; and provides custom coating
services.
FISCAL YEAR
The Company operates on 52/53 week fiscal years with each year ending on the
last Saturday in December. Accordingly, the Company's fiscal years 1998, 1997
and 1996 ended on December 26, December 27 and December 28, respectively, and
each of these fiscal years consisted of 52 weeks.
INVENTORIES
At December 26, 1998, approximately 65% of inventory is valued at the lower of
cost, determined on the last-in, first-out (LIFO) method or market. All other
inventory is valued at the lower of cost, determined on the first-in, first-out
(FIFO) method or market.
The excess of replacement cost of inventories over the LIFO value is
approximately $10,000 and $11,000 at December 26, 1998 and December 27, 1997,
respectively.
LONG-LIVED ASSETS
The Company follows Statement of Financial Accounting Standards No. 121, (SFAS
No. 121), "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to Be Disposed Of," which prescribes that an impairment loss be
recognized if the carrying amount of an asset may not be recoverable and exceeds
estimated future undiscounted cash flows of the asset. A recognized impairment
loss reduces the carrying amount of the asset to its fair value. (Note 14).
Property, plant and equipment are recorded at historical cost. The Company uses
the straight-line method in computing depreciation and amortization for
financial reporting purposes and generally uses accelerated methods for income
tax purposes. The annual provisions for depreciation and amortization have been
computed principally in accordance with the following ranges of asset lives:
buildings 15 to 40 years, machinery and equipment 3 to 12 years, and intangibles
3 to 40 years.
INCOME TAXES
The Company uses the asset and liability method to calculate deferred income
taxes. Deferred tax assets and liabilities are recognized on temporary
differences between financial statement and tax basis of assets and liabilities
using enacted tax rates. The effect of tax rate changes on deferred tax assets
and liabilities is recognized in income during the period that includes the
enactment date.
FOREIGN CURRENCY TRANSLATIONS
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. Cumulative translation
adjustments are included as a separate component of accumulated other
comprehensive income as shown on the Consolidated Statements of Shareholders'
Equity. These translation adjustments are the Company's only component of other
comprehensive income.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 1999.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company plans initial
application of this statement for the quarter beginning December 26, 1999. The
Statement will not be applied retroactively to financial statements of prior
periods.
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PAGE 41
RECLASSIFICATIONS
Certain amounts in the 1997 and 1996 financial statements have been reclassified
to conform with the 1998 presentation.
(2) CASH FLOW SUPPLEMENTARY INFORMATION
The Company considers all highly liquid temporary cash investments purchased
with a maturity of three months or less to be cash equivalents. Cash payments
for interest and income taxes (net of refunds) were as follows:
1998 1997 1996
-------------------------------------------
Interest $ 5,747 $ 4,035 $ 3,824
Income taxes 11,223 16,373 17,904
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consists of the following:
1998 1997
----------------------------
Land and improvements $ 12,696 $ 12,661
Buildings and improvements 69,690 65,495
Machinery and equipment 152,229 131,939
Transportation equipment 5,131 4,343
Office furniture and equipment 25,786 23,387
Construction in progress 27,412 20,653
----------------------------
$292,944 $258,478
----------------------------
----------------------------
The Company also leases certain facilities, machinery, computer equipment and
transportation equipment under operating leases with unexpired terms ranging
from one to twelve years. Rental expense for operating leases amounted to
$5,807, $4,920 and $4,963 for fiscal 1998, 1997 and 1996, respectively.
Minimum lease payments under operating leases expiring subsequent to
December 26, 1998 are:
Fiscal year ending
1999 $ 6,224
2000 5,571
2001 5,245
2002 3,934
2003 3,779
Subsequent 8,133
-------
Total minimum lease payments $32,886
-------
-------
(4) BANK CREDIT ARRANGEMENTS
The Company maintains various lines of credit for short-term borrowings totaling
$44,000. The interest rates charged on these lines of credit vary in relation to
the banks' costs of funds. The unused borrowings under the lines of credit were
$24,000 at December 26, 1998. The lines of credit can be modified at any time at
the option of the banks. The Company pays facility fees of 1/8 of 1% in
connection with $10,000 of its lines of credit, and pays no fees in connection
with the remaining lines of credit. The weighted average interest rate on
short-term borrowings was 5.3% at December 26, 1998 and 5.7% at December 27,
1997.
(5) INCOME TAXES
Income tax expense (benefit) consists of:
1998 1997 1996
--------------------------------------------
Current:
Federal $ 9,501 $11,423 $16,914
State 912 940 1,086
Foreign 2,087 2,037 1,970
--------------------------------------------
12,500 14,400 19,970
--------------------------------------------
Deferred:
Federal 2,224 5,963 (7,006)
State 176 529 (392)
Foreign 1,000 508 (772)
--------------------------------------------
3,400 7,000 (8,170)
--------------------------------------------
$15,900 $21,400 $11,800
--------------------------------------------
--------------------------------------------
The reconciliations of the statutory Federal income tax rate and the effective
tax rates follow:
1998 1997 1996
-------------------------------------------
Statutory Federal
income tax rate 35.0% 35.0% 35.0%
State income taxes,
net of Federal benefit 1.8% 1.9% 2.1%
Other (0.3)% (0.6)% (1.4)%
-------------------------------------------
36.5% 36.3% 35.7%
-------------------------------------------
-------------------------------------------
The tax effects of temporary differences that give rise to deferred tax assets
and liabilities at December 26, 1998 and December 27, 1997, are presented below:
1998 1997
--------------------------
Deferred tax assets:
Accrued expenses and allowances $10,688 $11,920
Allowance for doubtful receivables 289 166
Inventory capitalization 1,199 1,273
--------------------------
Total deferred tax assets 12,176 13,359
--------------------------
Deferred tax liabilities:
Plant and equipment 11,062 9,578
Lease transactions 1,507 1,586
Warranty accrual 323 442
Other 4,241 2,609
--------------------------
Total deferred tax liabilities 17,133 14,215
--------------------------
Net deferred tax liabilities $(4,957) $(856)
--------------------------
--------------------------
No valuation allowance for deferred tax assets has been provided since all tax
benefits are more likely than not to be realized. No taxes have been provided on
undistributed earnings of foreign subsidiaries as the Company intends to
reinvest these earnings in foreign operations.
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PAGE 42
(6) LONG-TERM DEBT
1998 1997
---------------------------
9.40% to 12.77% promissory
notes, unsecured (a) $10,250 $14,750
Promissory note, secured -- 2,165
Revolving credit agreement (b) 78,833 5,000
3.0% to 9.25% notes 7,135 6,145
---------------------------
Total long-term debt 96,218 28,060
Less current installments
of long-term debt 5,737 7,317
---------------------------
Long-term debt, excluding
current installments $90,481 $20,743
---------------------------
---------------------------
(A) The unsecured promissory notes payable are due in varying annual
principal installments through 2001. The notes are subject to prepayment
in whole or in part with or without premium as specified in the
agreements.
(B) The revolving credit agreement is an unsecured facility with a group of
banks for a maximum of $100,000. The facility has a termination date of
June 30, 2002. The funds borrowed may be repaid at any time without
penalty, or additional funds may be borrowed up to the facility limit.
The Company may choose from the following three interest rate
alternatives: the higher of prime rate or Federal Funds Rate plus 0.5%,
the applicable Eurodollar rate plus a leverage ratio-based spread (which
at December 26, 1998 was 0.2%) or up to $50,000 at a rate determined
through a competitive bid process. The effective interest rate at
December 26, 1998 was 5.36% and at December 27, 1997 was 6.18%.
The agreements place certain restrictions on working capital, capital
expenditures, payment of dividends, purchase of Company stock and additional
borrowings. Under the most restrictive covenants of the Agreements, the Company
may purchase the remainder of the 5.4 million shares of Company stock authorized
by the Board of Directors in 1998 and make payments of cash dividends and
purchases of the Company's capital stock of $12,000 in any fiscal year.
The minimum aggregate maturities of long-term debt for each of the four years
following 1999 are: $4,330, $2,906, $79,473 and $452.
(7) STOCK PLANS
The Company maintains stock-based compensation plans approved by the
shareholders which provide that the Compensation Committee of the Board of
Directors may grant incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock awards and bonuses of common stock. At
December 26, 1998, 448,000 shares of common stock remained available for
issuance under the plans. The optioned shares are subject to changes in
capitalization.
Under the plans, the exercise price of each option equals the market price at
the time of the grant. Options vest beginning on the first anniversary of the
grant in equal amounts over three to six years or on the fifth anniversary of
the grant. Expiration of grants is from six to ten years from the date of grant.
The Company applies APB Opinion 25 in accounting for its fixed stock
compensation plans. Accordingly, no compensation cost has been recognized for
the fixed plans in 1996, 1997 or 1998. Had compensation cost been determined on
the basis of fair value pursuant to Statement of Financial Accounting Standards
No. 123, net earnings and earnings per share would have been reduced as follows:
1998 1997 1996
----------------------------------------
Net earnings
As reported $27,636 $37,544 $21,248
------------------------------------------
Pro forma $25,969 $36,584 $20,561
------------------------------------------
Earnings per share
As reported: Basic $1.04 $1.36 $0.78
----------------------------------------
Diluted $1.02 $1.33 $0.76
----------------------------------------
Pro forma: Basic $0.98 $1.33 $0.75
----------------------------------------
Diluted $0.96 $1.30 $0.73
----------------------------------------
The fair value of each option grant was estimated as of the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996:
1998 1997 1996
----------------------------------------
Expected volatility 35% 29% 28%
Risk-free interest rate 4.71% 5.75% 6.11%
Expected life from vesting date 2.6yrs 2.7yrs 2.5yrs
Dividend yield 1.15% 1.03% 1.03%
Following is a summary of the activity of the stock plans during 1996, 1997 and
1998:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
Outstanding at
December 30, 1995 1,790,042 $ 8.61
Granted 414,030 18.64
Exercised (280,000) (7.41)
Forfeited (57,098) (5.57)
Outstanding at
----------------------------
December 28, 1996 1,866,974 $11.11
----------------------------
Options exercisable at
December 28, 1996 825,306 $ 8.33
----------------------------
Weighted average fair value
of options granted during 1996 $ 6.24
-----
192
PAGE 43
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
----------- -----------
Outstanding at
December 28, 1996 1,866,974 $11.11
Granted 443,414 21.48
Exercised (308,876) (7.43)
Forfeited (76,850) (14.34)
----------------------------
Outstanding at December 27, 1997 1,924,662 $13.96
----------------------------
Options exercisable at
December 27, 1997 919,801 $10.22
----------------------------
Weighted average fair value of
options granted during 1997 $6.56
-----
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
----------- ----------
Outstanding at
December 27, 1997 1,924,662 $13.96
Granted 712,687 17.09
Exercised (339,241) (8.57)
Forfeited (118,012) (19.27)
Outstanding at
----------------------------
December 26, 1998 2,180,096 $15.52
----------------------------
Options exercisable at
December 26, 1998 1,034,491 $13.35
----------------------------
Weighted average fair value of
options granted during 1998 $5.58
-----
Following is a summary of the status of stock options outstanding at
December 26, 1998:
OUTSTANDING AND EXERCISABLE BY PRICE RANGE
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
EXERCISE REMAINING AVERAGE AVERAGE
PRICE CONTRACTUAL EXERCISE EXERCISE
RANGE NUMBER LIFE PRICE NUMBER PRICE
---------------------------------------------------------------------------------------------------------
$5.50-11.88 745,943 5.39 years $ 9.78 680,706 $ 9.88
12.25-15.88 578,542 9.43 years 15.78 18,500 15.09
16.00-21.78 765,731 8.14 years 20.11 295,405 19.99
22.13-23.00 89,880 6.90 years 22.51 39,880 22.67
---------------------------------------------------------------------------------------------------------
2,180,096 1,034,491
---------------------------------------------------------------------------------------------------------
(8) EARNINGS PER SHARE
The following table provides a reconciliation between Basic and Diluted earnings
per share (EPS).
DILUTIVE
EFFECT OF
STOCK DILUTED
BASIC EPS OPTIONS EPS
--------------------------------------------------
1996:
Net earnings $21,248 -- $21,248
Shares outstanding 27,308 751 28,059
Per share amount $ 0.78 $ 0.76
1997:
Net earnings $37,544 -- $37,544
Shares outstanding 27,521 686 28,207
Per share amount $ 1.36 $ 1.33
1998:
Net earnings $27,636 -- $27,636
Shares outstanding 26,605 498 27,103
Per share amount $ 1.04 $ 1.02
(9) TREASURY STOCK
During 1998, the Board of Directors authorized management to repurchase up to
5.4 million shares of the Company's common stock. In the year ended December 26,
1998, a total of 3.1 million shares had been repurchased for $53,255.
Repurchased shares are recorded as "Treasury Stock" and result in a reduction of
"Shareholders' Equity." When treasury shares are reissued, the Company uses the
last-in, first-out method, and the difference between the repurchase cost and
reissuance price is charged or credited to "Additional Paid-In Capital."
(10) EMPLOYEE RETIREMENT SAVINGS PLAN
Established under Internal Revenue Code Section 401(k), the Valmont Employee
Retirement Savings Plan is available to all eligible employees. Participants can
elect to contribute up to 15% of annual pay, on a pretax and/or after-tax basis.
The Company may also make basic, matching and/or supplemental contributions to
the Plan. In addition, the Company has a defined contribution plan covering the
employees of Microflect; contributions under this plan are based primarily on
the performance of the business unit and employee compensation. The 1998, 1997
and 1996 Company contributions to these plans amounted to approximately $3,900,
$5,400 and $5,000, respectively.
(11) RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations in the year incurred.
Research and development expenses were approximately $3,300 in 1998, $3,700 in
1997, and $3,900 in 1996.
193
PAGE 44
(12) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, receivables, accounts payable,
notes payable to banks and accrued expenses approximate fair value because of
the short maturity of these instruments. The fair values of each of the
Company's long-term debt instruments are based on the amount of future cash
flows associated with each instrument discounted using the Company's current
borrowing rate for similar debt instruments of comparable maturity. The fair
value estimates are made at a specific point in time and the underlying
assumptions are subject to change based on market conditions. At December 26,
1998, the carrying amount of the Company's long-term debt was $96,218 with an
estimated fair value of approximately the same. At December 27, 1997, the
carrying amount of the Company's long-term debt was $28,060 with an estimated
fair value of approximately $29,000.
(13) STOCKHOLDERS' RIGHT PLAN
In December 1995, the Company's Board of Directors declared a dividend of one
preferred stock purchase right ("Right") for each outstanding share of common
stock. The Right becomes exercisable ten days after a person (other than Robert
B. Daugherty and his related persons and entities) acquires or commences a
tender offer for 15% or more of the Company's common stock. Each Right entitles
the holder to purchase one one-thousandth of a share of a new series of
preferred stock at an exercise price of $100, subject to adjustment. The Right
expires on December 19, 2005 and may be redeemed at the option of the Company at
$.01 per Right, subject to adjustment. Under certain circumstances, if (i) any
person becomes an Acquiring Person or (ii) the Company is acquired in a merger
or other business combination, each holder of a Right (other than the Acquiring
Person) will have the right to receive, upon exercise of the Right, shares of
common stock (of the Company under (i) and of the acquiring company under (ii))
having a value of twice the exercise price of the Right.
(14) ACQUISITIONS AND DIVESTITURE
During 1998 the Company acquired the operating assets of four separate
galvanizing facilities in California, Oklahoma, Oregon and Utah. The excess of
purchase price over the estimated fair values of the net assets acquired has
been recorded as goodwill and is amortized over estimated useful lives. In
November 1998, the Company acquired the outstanding shares of Cascade Earth
Sciences, Ltd., a firm providing consulting services for environmental and
wastewater management projects with headquarters in Oregon.
During 1996, the Company initiated a plan to dispose of Valmont Electric, Inc.,
its ballast business. In accordance with SFAS No. 121, the Company recorded a
pretax asset valuation charge of $15,800 ($10,100 after tax) in 1996 to reduce
the value of the net assets of the ballast business to the sales price, net of
expenses. The Company sold the common stock of Valmont Electric, Inc. in January
1997 for approximately $25,000.
In February 1996, the Company purchased a majority interest in Telec Centre
S.A., a small French manufacturer of communication towers. In March 1996, the
Company purchased a majority interest in Gibo-Conimast GmbH, a German
manufacturer and distributor of pole structures for the lighting market.
These acquisitions have been accounted for under the purchase method. The
results of operations of the acquired businesses are included in the
consolidated financial statements from the dates of acquisition.
(15) BUSINESS SEGMENTS
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Disclosures," in 1998.This accounting pronouncement changes the way
the Company reports information about its operating segments and, accordingly,
the 1997 and 1996 information has been restated to conform to the 1998
presentation.
The Company organizes its businesses on a world-wide product line basis and has
two reportable segments:
IRRIGATION: This segment consists of the manufacture and distribution
of agricultural irrigation equipment and related products and services;
INFRASTRUCTURE: This segment includes the manufacture and distribution
of engineered metal structures and related products for the lighting,
utility and wireless communications industries.
In addition to these two reportable segments, the Company has several other
businesses that do not fit within the reportable segments listed above, and are
not individually more than 10% of combined net sales. These businesses include
custom coatings, steel tubing, pressure vessels, machine tool accessories and
industrial fasteners. For fiscal years 1997 and 1996, the "Other" category also
includes the ballast business that was sold in January 1997.
The accounting policies of the reportable segments are the same as those
described in Note 1. The Company evaluates the performance of its operating
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 operating segments. All Corporate expenses and assets are allocated to
the operating segments. Intersegment sales include tubing sales to the
Irrigation segment and coatings services to the Irrigation and Infrastructure
segments. Intersegment sales prices are both cost and market based.
194
PAGE 45
BUSINESS SEGMENT INFORMATION
SUMMARY BY BUSINESS SEGMENTS
[DOLLARS IN THOUSANDS] 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
NET SALES
Irrigation $221,087 $239,157 $210,672
Infrastructure 296,002 307,586 270,897
Other--Total 124,258 110,231 194,726
Less: Intersegment sales 35,040 34,468 31,764
------------------------------------------------------
Other--Sales to external customers 89,218 75,763 162,962
------------------------------------------------------
Total $606,307 $622,506 $644,531
------------------------------------------------------
OPERATING INCOME
Irrigation 25,725 29,090 23,918
Infrastructure 9,553 25,274 20,611
Other 12,474 7,626 (7,885)
------------------------------------------------------
Total 47,752 61,990 36,644
INTEREST EXPENSE, NET (4,846) (2,831) (3,608)
MISCELLANEOUS 630 (215) 12
------------------------------------------------------
Earnings before income taxes $ 43,536 $ 58,944 $ 33,048
------------------------------------------------------
TOTAL ASSETS:
Irrigation 107,899 94,294 68,588
Infrastructure 202,140 214,789 188,057
Other 96,918 58,969 85,003
------------------------------------------------------
Total $406,957 $368,052 $341,648
------------------------------------------------------
CAPITAL EXPENDITURES:
Irrigation 16,484 7,421 4,055
Infrastructure 3,846 22,671 15,300
Other 9,337 9,023 16,204
------------------------------------------------------
Total $ 29,667 $ 39,115 $ 35,559
------------------------------------------------------
DEPRECIATION AND AMORTIZATION:
Irrigation 3,875 3,245 2,958
Infrastructure 4,943 3,047 1,841
------------------------------------------------------
Total $19,843 $16,437 $14,832
------------------------------------------------------
SUMMARY BY GEOGRAPHICAL AREA
BY LOCATION OF VALMONT FACILITIES: 1998 1997 1996
------------------------------------------------------
NET SALES
United States 493,413 527,609 557,826
France 59,887 52,226 58,843
Other 53,007 42,671 27,862
------------------------------------------------------
Total $606,307 $622,506 $644,531
------------------------------------------------------
OPERATING INCOME
United States 42,398 56,594 32,451
France 505 1,976 2,644
Other 4,849 3,420 1,549
------------------------------------------------------
Total $ 47,752 $ 61,990 $ 36,644
------------------------------------------------------
LONG-LIVED ASSETS
United States 153,712 116,265 95,922
France 17,729 18,597 20,769
Other 15,570 15,260 14,110
------------------------------------------------------
Total $187,011 $150,122 $130,801
------------------------------------------------------
NO SINGLE CUSTOMER ACCOUNTED FOR MORE THAN 10% OF NET SALES IN 1996, 1997 OR
1998. NET SALES BY GEOGRAPHICAL AREA ARE BASED ON THE LOCATION OF THE FACILITY
PRODUCING THE SALES.
OPERATING INCOME BY BUSINESS SEGMENT AND GEOGRAPHICAL AREAS ARE BASED ON NET
SALES LESS IDENTIFIABLE OPERATING EXPENSES AND ALLOCATIONS.
LONG-LIVED ASSETS CONSIST OF INVESTMENT IN NONCONSOLIDATED AFFILIATES, GOODWILL,
OTHER ASSETS AND PROPERTY, PLANT AND EQUIPMENT, NET OF DEPRECIATION. LONG-LIVED
ASSETS BY GEOGRAPHICAL AREA ARE BASED ON LOCATION OF FACILITIES.
195
PAGE 46
QUARTERLY FINANCIAL DATA (UNAUDITED)
[DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS]
NET EARNINGS (LOSS)
-----------------------------
Net Gross Per Share Stock Price Dividends
Sales Profit Amount Basic Diluted High Low Declared
----------------------------------------------------------------------------------------------------------
1998
First $160,587 $ 43,069 $ 9,645 $0.35 $0.34 $24.63 $17.63 $0.05625
Second 154,340 38,239 7,450 0.27 0.26 25.00 15.75 0.06500
Third 140,105 34,906 4,678 0.18 0.18 20.50 13.25 0.06500
Fourth 151,275 36,634 5,863 0.23 0.23 16.19 12.25 0.06500
----------------------------------------------------------------------------------------------------------
Year $606,307 $152,848 $27,636 $1.04 $1.02 $25.00 $12.25 $0.25125
1997
First $165,418 $ 44,616 $ 8,954 $0.33 $0.32 $22.63 $18.63 $0.05000
Second 159,100 44,144 9,893 0.36 0.35 22.38 18.50 0.05625
Third 136,015 37,746 7,857 0.28 0.28 21.88 19.00 0.05625
Fourth 161,973 42,674 10,840 0.39 0.38 23.88 19.00 0.05625
----------------------------------------------------------------------------------------------------------
Year $622,506 $169,180 $37,544 $1.36 $1.33 $23.88 $18.50 $0.21875
1996
First $148,914 $ 39,999 $ 6,946 $0.26 $0.25 $15.07 $12.13 0.03750
Second 166,849 43,913 8,501 0.32 0.30 17.00 14.75 0.05000
Third 148,048 40,583 6,578 0.24 0.24 18.00 14.13 0.05000
Fourth 180,720 47,573 (777) (0.03) (0.03)1 19.75 16.88 0.05000
----------------------------------------------------------------------------------------------------------
Year $644,531 $172,068 $21,248 $0.78 $0.76 $19.75 $12.13 $0.18750
EARNINGS PER SHARE ARE COMPUTED INDEPENDENTLY FOR EACH OF THE QUARTERS.
THEREFORE, THE SUM OF THE QUARTERLY EARNINGS PER SHARE MAY NOT EQUAL THE TOTAL
FOR THE YEAR.
(1) AFTER A PRE-TAX ASSET VALUATION CHARGE OF ASSETS OF $15,800, ($10,100 AFTER
TAX) OR $0.36 PER SHARE.
196
PAGE 47
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF VALMONT INDUSTRIES, INC.
We have audited the accompanying consolidated balance sheets of Valmont
Industries, Inc. and subsidiaries as of December 26, 1998 and December 27, 1997,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended December 26, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Valmont Industries, Inc. and
subsidiaries as of December 26, 1998 and December 27, 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 26, 1998 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
- ----------------------------
DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 5, 1999
REPORT OF MANAGEMENT
The consolidated financial statements of Valmont Industries, Inc. and
Subsidiaries and the other information contained in the Annual Report were
prepared by and are the responsibility of management. The statements have been
prepared in accordance with generally accepted accounting principles and
necessarily include amounts based on management's best estimates and judgements.
In fulfilling its responsibilities, management relies on a system of internal
controls which provide reasonable assurance that the financial records are
reliable for preparing financial statements and maintaining accountability of
assets. Internal controls are designed to reduce the risk that material errors
or irregularities in the financial statements may occur and not be timely
detected. These systems are augmented by written policies, careful selection and
training of qualified personnel, an organizational structure providing for the
division of responsibilities and a program of financial, operational and systems
audits. The Company also has a business ethics policy which requires employees
to maintain high ethical standards in the conduct of Company business.
The Audit Committee, composed of non-employee directors is responsible for
recommending to the Board of Directors, subject to ratification of shareholders,
the independent accounting firm to be retained each year. The Audit Committee
meets regularly, and when appropriate separately, with the independent certified
public accountants, management and the internal auditors to review company
performance. The independent certified public accountants, internal auditors,
and the Audit Committee have unrestricted access to each other in the discharge
of their responsibilities.
Signature Signature
/s/ Mogens C. Bay /s/ Terry J. McClain
- ------------------------------------ -------------------------------------------------
Mogens C. Bay Terry J. McClain
Chairman and Chief Executive Officer Senior Vice President and Chief Financial Officer
197
PAGE 48
OFFICERS AND MANAGEMENT
CORPORATE
- -------------------------------
CORPORATE OFFICERS
- -------------------------------
MOGENS C. BAY*
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
VINCENT T. CORSO*
SENIOR VICE PRESIDENT
AND CHIEF OPERATING OFFICER
THOMAS P. EGAN, JR.
VICE PRESIDENT
CORPORATE COUNSEL
AND SECRETARY
TERRY J. MCCLAIN*
SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
E. ROBERT MEANEY*
SENIOR VICE PRESIDENT
VALMONT INTERNATIONAL
BRIAN C. STANLEY
VICE PRESIDENT AND
CONTROLLER
MARK E. TREINEN
VICE PRESIDENT
BUSINESS DEVELOPMENT
*MEMBER, OFFICE OF
THE PRESIDENT
DIVISIONS
- -------------------------------
LIGHTING & UTILITY
- -------------------------------
VINCENT T. CORSO
(ACTING) PRESIDENT
LEONARD M. ADAMS
VICE PRESIDENT
OPERATIONS, NORTH AMERICA
RICHARD M. SAMPSON
VICE PRESIDENT
SALES
THOMAS F. SANDERSON
VICE PRESIDENT
MARKETING AND
PROJECT DEVELOPMENT
THOMAS J. SUTKO
VICE PRESIDENT
ADMINISTRATION
INDUSTRIAL PRODUCTS DIVISION
- -------------------------------
JOHN V. FOLEY
PRESIDENT
IRRIGATION DIVISION
- -------------------------------
THOMAS D. SPEARS
PRESIDENT
DUANE BIER
VICE PRESIDENT
OPERATIONS
JAMES J. EITING
VICE PRESIDENT
KEY ACCOUNTS
HECTOR A. HAGET
VICE PRESIDENT
MARKETING AND ENGINEERING
TERRY RAHE
PRESIDENT
CASCADE EARTH SCIENCES
DENNIS E. SCHWIEGER
VICE PRESIDENT
GLOBAL SALES
COATINGS DIVISION
- -------------------------------
JEFFREY BRIGGS
PRESIDENT
RICHARD S. CORNISH
VICE PRESIDENT
OPERATIONS
COMMUNICATION DIVISION
- -------------------------------
JAMES R. CALLAWAY
PRESIDENT
SEAN GALLAGHER
VICE PRESIDENT
SALES
J. MARSHALL HAINES
VICE PRESIDENT
OPERATIONS
VALMONT ASIA/PACIFIC
- -------------------------------
E. ROBERT MEANEY
(ACTING) PRESIDENT
VALMONT EUROPE/MIDDLE EAST/AFRICA
- -------------------------------
JAN A.M. DRIESSENS
PRESIDENT
PAUL VAN ISEGHEM
VICE PRESIDENT OPERATIONS
- --------------------------------
CORPORATE HEADQUARTERS
Valmont Industries, Inc.
One Valmont Plaza
Omaha, Nebraska 68154 USA
402.963.1000
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
Omaha, Nebraska USA
LEGAL COUNSEL
McGrath, North, Mullin &
Kratz, P.C.
Omaha, Nebraska USA
STOCK TRANSFER AGENT AND
REGISTRAR
First National Bank of
Omaha Trust Department
One First National Center
Omaha, Nebraska 68102 USA
402.341.0500
Notices regarding changes of
address and inquiries regarding
lost or stolen certificates and
transfers of stock should be
directed to the transfer agent.
ANNUAL MEETING
The annual meeting of Valmont's
shareholders will be held at
2:00 p.m. on Monday, April 26,
1999, at the Joslyn Art Museum
in Omaha, Nebraska USA
SHAREHOLDER AND INVESTOR
RELATIONS
Valmont's common stock trades
on the Nasdaq national market
under the symbol VALM.
Valmont's most recent Quarterly
News Releases are available
on the internet at
www.valmont.com under
the heading "Valmont News."
Valmont maintains an active
investor relations program
and mailing list to keep
shareholders and potential
investors informed about the
Company. Comments and
inquiries are welcomed
and should be directed to
Investor Relations.
A copy of Valmont's 1998 Annual
Report on form 10-K may be
obtained by calling or writing
Investor Relations:
Jeffrey S. Laudin
Investor Relations Department
Valmont Industries, Inc.
One Valmont Plaza
Omaha, Nebraska 68154 USA
Phone: 402.963.1000
Fax: 402.963.1199
MARKET MAKERS
The following make a market in Valmont Industries, Inc. common stock as of
February 1999: George K. Baum & Company, Dain Rauscher Inc.,Herzog, Heine,
Geduld, Inc., Kirkpatrick Pettis Inc., Knight Securities, L.P., Spear, Leeds &
Kellogg, Sherwood Securities.
Visit Valmont's Website: www.valmont.com
198
(INSIDE BACK COVER)
BOARD OF DIRECTORS
MOGENS C. BAY
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
VALMONT INDUSTRIES, INC.
DIRECTOR SINCE 1993
ROBERT B. DAUGHERTY
FOUNDER AND CHAIRMAN EMERITUS
VALMONT INDUSTRIES, INC.
DIRECTOR SINCE 1947
CHARLES M. HARPER
FORMER CHAIRMAN AND CEO
RJR NABISCO HOLDINGS CORP. AND CONAGRA, INC.
DIRECTOR SINCE 1979
ALLEN F. JACOBSON
RETIRED CHAIRMAN AND CEO
3M COMPANY
DIRECTOR SINCE 1976
LLOYD P. JOHNSON
RETIRED CHAIRMAN OF THE BOARD
NORWEST CORPORATION
DIRECTOR SINCE 1991
JOHN E. JONES
RETIRED CHAIRMAN, PRESIDENT AND CEO
CBI INDUSTRIES, INC.
DIRECTOR SINCE 1993
THOMAS F. MADISON
PRESIDENT, MLM PARTNERS
CHAIRMAN OF THE BOARD
COMMUNICATIONS HOLDINGS, INC.
DIRECTOR SINCE 1987
WALTER SCOTT, JR.
CHAIRMAN
LEVEL 3 COMMUNICATIONS, INC.
DIRECTOR SINCE 1981
KENNETH E. STINSON
CHAIRMAN AND CEO
PETER KIEWIT SONS', INC.
DIRECTOR SINCE 1996
ROBERT G. WALLACE
RETIRED EXECUTIVE VICE PRESIDENT
PHILLIPS PETROLEUM CO.
DIRECTOR SINCE 1984
AUDIT COMMITTEE
WALTER SCOTT, JR., CHAIRMAN
JOHN E. JONES
ROBERT G. WALLACE
COMPENSATION COMMITTEE
ALLEN F. JACOBSON, CHAIRMAN
CHARLES M. HARPER
LLOYD P. JOHNSON
THOMAS F. MADISON
FROM LEFT
ALLEN F. JACOBSON
KENNETH E. STINSON
WALTER SCOTT, JR.
ROBERT B. DAUGHERTY
MOGENS C. BAY
THOMAS F. MADISON
CHARLES M. HARPER
JOHN E. JONES
LLOYD P. JOHNSON
ROBERT G. WALLACE
199
(BACK COVER)
Valmont Logo
One ValmontPlaza
Omaha, Nebraska 68154-5215 USA
402.963.1000 fax 402.963.1199
www.valmont.com
200