Valmont Industries
Annual Report 2000

Plain-text annual report

c o n t e n t s 2 6 8 10 18 26 32 LETTER TO FELLOW SHAREHOLDERS AT A GLANCE WHERE WE ARE INFRASTRUCTURE IRRIGATION INVESTMENT VALUE FINANCIAL OBJECTIVES AND RESULTS Valmont is the high-value, high-quality provider of choice for irrigation and infrastructure products around the world. We are always looking for ways to build on our leadership roles in these industries, and by sharpening our focus to concentrate resources on the things we do best, we provide real growth now and for the future. We've made investments and acquisitions that enhance our core businesses. We've put teams in place to reduce costs, increase manufacturing efficiencies, and improve delivery performance throughout the company. We've chosen locations worldwide that bring us closer to our customers around the world. We continuously look for new ways to improve our products, customer service and performance. At Valmont, we've leveraged our strengths – in our markets, products and capabilities – to become the leading manufacturer of mechanized irrigation equipment and structures for infrastructure in the world, and the leading custom galvanizing company in North America. Take a look at our businesses, our people, and our strategies, and join us as we continue to build on our strengths. 2 0 0 0 f i n a n c i a l h i g h l i g h t s [ D O L L A R S I N M I L L I O N S , E X C E P T P E R S H A R E A M O U N T S ] o p e r a t i n g r e s u l t s Net sales Operating income Net earnings Diluted earnings per share Dividends per share f i n a n c i a l p o s i t i o n Shareholders’ equity Shareholders’ equity per share Long-term debt as a % of invested capital o p e r a t i n g r a t i o s Gross profit as a % of net sales Operating income as a % of net sales Net earnings as a % of net sales Return on beginning equity Return on invested capital y e a r - e n d d a t a Shares outstanding (000) Approximate number of shareholders Number of employees $846 2000 $00846.1 67.3 30.4 1.28 0.26000 $00191.9 8.23 43.9% 25.0% 7.9% 3.6% 17.8% 10.9% 23,320 5,500 5,503 1999 $00639.9 50.2 26.4 1.08 0.26000 $00170.5 7.30 33.8% 27.0% 7.8% 4.1% 15.0% 9.8% 23,354 5,500 3,948 1998 $00630.9 47.8 27.6 1.02 0.25125 $00175.9 7.12 30.3% 24.2% 7.6% 4.4% 13.3% 10.3% 24,721 5,500 3,869 $645 $623 $631 $640 $545 $62.0 $67.3 $52.4 $50.2 $47.8 $41.8 $1.33 $1.28 $1.12 $1.08 $1.02 $.90 95 96 97 98 99 00 95 96* 97 98 99 00 95 96* 97 98 99 00 net sales operating income diluted earnings per share * Before asset valuation charge 2 l e t t e r t o f e l l o w s h a r e h o l d e r s The theme of this year’s annual report is “Building on Strength,” which captures the essence of our strategy of growing our businesses by leveraging product lines, market position and skill sets. In other words, it is about staying within our areas of competence. This strategy was born in 1993, when we decided to sharpen our focus and concentrate on the two areas where we had very strong industry positions – irrigation for agriculture, and support structures and services for infrastructure development. In 1993, those businesses totaled $334 million in revenue. By 2000, they comprised nearly all of the company’s $846 million in revenue– a compounded annual growth rate of 14 percent. Since then, our strategy has not changed. We continue to grow within our chosen industries. Today, when I look at the markets we serve and the underlying drivers for those markets, my enthusiasm for our opportunities is c o r p o r a t e v i s i o n Valmont is recognized throughout the world as an industry leader in engineered support structures and services for infrastructure, and water management for agriculture. We grow our businesses by leveraging our existing products, markets and processes. We recognize that our growth will only create shareholder value if, at the same time, we beat our cost of capital. Essential to our success is a company-wide commitment to customer service and innovation, and the ability to be the best cost producer for all products and services we provide. Recognizing that our employees are the cornerstone of our accomplishments, we pride ourselves on being people of passion and integrity who excel and deliver results. v a l m o n t i n d u s t r i e s $2.00 $1.50 $1.00 $0.50 93 94 95 96 97 98 99 00 t a r g e t – 15 % a c t u a l – 13% c o m p o u n d a n n u a l g r o w t h r a t e : d i l u t e d e a r n i n g s p e r s h a r e only reinforced. Increased food production and the need to manage the world’s fresh water resources more efficiently, coupled with the growing demand for support structures for the ever-expanding global infrastructure, offer major opportunities for Valmont’s continued growth. I also believe that our strategic position within each of our industries is strong. We have developed a global network of pole and tower manufacturing plants that provides us with tremendous flexibility in serving customers and sourcing around the world. In the irrigation business, we serve the global market through manufacturing plants in North America, South America, Europe and Africa. We are a significant player in our industries within the world economy and we are the only company in our businesses with facilities located throughout the world. 2 0 0 0 I N R E V I E W Not surprisingly, when we look back at 2000 we see a mixed picture! We performed very well in many areas and we could have done better in others. We were pleased to see the revenue line grow by 32 percent and operating income by 34 percent. We enjoyed significant growth and captured some leverage in profitability. Our sales growth came from a combination of organic growth and acquisitions. It is always difficult to execute dramatic growth and simultaneously operate very efficiently. We were no exception. We did get some operating leverage, but we had planned for more. Profits were affected by additional overtime and were hit by dramatically higher energy costs in the second half of the year. Looking at the balance sheet, we must manage our working 4 capital better. Although we saw some improvement in our receivable turns, this was more than offset by higher inventories. A high priority in 2001 is to drive further productivity improvements in our plants and to turn inventories faster. Over the last few years, we have invested significant dollars in adding capacity both within our existing plants and in new facilities. Along the way, we have absorbed startup and training costs and we have incurred substantially increased depreciation expense. Major investments in capacity should be behind us for a while. As we go forward, our task is to utilize that additional capacity fully and grow the bottom line in the process. I was very fortunate in 2000 to have had the opportunity to visit 30 Valmont facilities around the world: from South Africa to Europe, and the Americas to Asia. On every occasion, I was deeply impressed. Our people and culture truly make us successful. Around the world, Valmont employees from diverse backgrounds and cultures share similar traits – they have integrity, passion, a commitment to excellence, and are results oriented. Those who succeed at Valmont believe they are doing more than building structures from steel. They are passionate about the way our products help feed people, preserve water resources and improve the safety and quality of life around the world. I could not be prouder of our global team– or more grateful for their tremendous contributions to our success. I would like to take this occasion to thank Mike Harper for his many years of service as a member of our Board of Directors. Mike, who retired from the Board this year, has been a valuable source of input and thoughtful guidance, and a strong advocate for our shareholders. v a l m o n t i n d u s t r i e s 2 0 0 1 Although no one knows for certain what 2001 will bring, as I am writing this letter I feel optimistic about our pole and tower businesses worldwide. Although we have seen some softening in the commercial lighting business in the U.S., other markets, including utility, wireless communication and the markets supported by the federal highway bill, all show strength. Our pole businesses in Europe and Asia are off to a good start. Our coatings businesses are solid, but their profitability is more sensitive to the high price of natural gas than our other divisions. On the irrigation side of our business, I am hopeful that we will have another good year internationally, but I am concerned about the short-term outlook in North America. The long-term drivers of water conservation and increased food production are as strong as ever. Commodity prices, however, remain stubbornly low, farm policy may change, and the outlook for increased U.S. exports could be better. This uncertainty, combined with the certainty of dramatically higher energy prices affecting operating costs, has sharply curtailed North American farmers’ appetites for major capital expenditures. We cannot avoid the cyclical nature of some of our businesses, but we can offset the effect of such cycles through further geographic expansion and more product line diversification. We will continue those efforts. We promise to keep building on strength! Sincerely, Mogens C. Bay Chairman and Chief Executive Officer 6 1 4 6 2 at a g l a n c e 7 3 5 8 1 CENTER PIVOT & LINEAR MOVE IRRIGATION EQUIPMENT Efficient and uniform application of water, fertilizer and chemicals, and tubing for agriculture and industry 2 WATER RE-USE Environmental consulting for soil and water management and land application of treated wastewater 3 COMMUNICATION TOWERS Self-supporting and guyed towers and accessories for all types of communication structure applications 4 COATINGS High-quality galvanized, anodized and powder coatings 5 COMMUNICATION POLES Wireless communication pole structures and components 6 TRAFFIC Steel and aluminum traffic signage and control structures 7 COMMERCIAL & DECORATIVE LIGHTING Steel and aluminum poles for commercial, street, highway and decorative lighting 8 UTILITY STRUCTURES Poles and substation structures for electrical transmission and distribution for the utility industry v a l m o n t i n d u s t r i e s a t a g l a n c e Our focus is on two key areas worldwide – water management for agriculture, and structures and coatings for infrastructure – where our strengths are in designing, manufacturing and distributing high-quality products at the best cost. Our expertise in bringing the latest technology to our products and manufacturing processes has made us a leader in both of these industries, and our growth will continue as we build on our strengths. 8 TULSA, OKLAHOMA, USA steel poles TULSA, OKLAHOMA, USA galvanizing BRENHAM, TEXAS, USA steel poles TUALATIN, OREGON, USA galvanizing SALEM, OREGON, USA wireless communication structures ALBANY, OREGON, USA headquarters, cascade earth sciences LOS ANGELES, CALIFORNIA, USA anodizing and powder coating LONG BEACH, CALIFORNIA, USA galvanizing LINDON, UTAH, USA galvanizing, powder coating McCOOK, NEBRASKA, USA irrigation equipment OMAHA, NEBRASKA, USA CORPORATE HEADQUARTERS SIOUX CITY, IOWA, USA galvanizing WAVERLY, NEBRASKA, USA steel tubing WEST POINT, NEBRASKA, USA galvanizing VALLEY, NEBRASKA, USA irrigation equipment, steel poles, communication towers, tubing, galvanizing MONTERREY, MEXICO steel poles ST. JULIE, QUEBEC, CANADA steel and aluminum poles ELKHART, INDIANA, USA steel and aluminum poles JASPER, TENNESSEE, USA steel poles CHICAGO, ILLINOIS, USA galvanizing MINNEAPOLIS, MINNESOTA, USA aluminum poles MINNEAPOLIS, MINNESOTA, USA anodizing, powder coating and e-coating UBERABA, BRAZIL irrigation equipment, communication towers w h e r e w e a r e MADRID, SPAIN irrigation equipment RIVE-DE-GIER, FRANCE aluminum poles CREUZIER-LE-NEUF, FRANCE industrial covers and conveyers CHARMEIL, FRANCE steel poles MAARHEEZE, THE NETHERLANDS steel poles SIEDLCE, POLAND steel poles GELSENKIRCHEN, GERMANY steel poles JOHANNESBURG, SOUTH AFRICA irrigation equipment SHANGHAI, CHINA steel poles valmont is an international manufacturing company with operations a r o u n d t h e w o r l d . va l m o n t o p e rat e s 30 m a n u fa c t u r i n g p l a n t s , located on five continents, and sells its products in more than 100 countries. 10 I N F RA S T R U C T U R E Valmont meets growing infrastructure needs with dependable, durable and attractive structures. i n f r a s t r u c t u r e c o m m e r c e , c o m m u n i c at i o n , c o m m u n i t y b u i l d i n g o n s t r e n gt h World commerce is moving faster than ever before. Economies are developing based on the rapid movement and exchange of goods, services and information. Countries and communities around the world struggle to maintain the transportation, communication and public-use infrastructure necessary to sustain this economic growth. At Valmont, we meet these growing infrastructure needs with dependable, durable and attractive structures for power transmission, wireless communication, traffic control, roadway and area lighting. We leverage these products, markets and capabilities to add even more value to grow our core infrastructure businesses and provide better quality of life to people around the world. 12 A growing global population and economic progress drive the demand for Valmont’s infrastructure products. More people than ever before are communicating, commuting and moving around urban areas, creating centers of commerce that help fuel the markets for infrastructure products. As the world’s population grows, so will the demand for Valmont products that help expand the power, traffic and communication networks around the world, now and in the future. l e v e r a g i n g p r o d u c t s Communication Poles, Towers and Components: Building the Worldwide Network The information technology revolution is a global phenomenon that continues to generate demand for reliable communication infrastructure. Structures and component parts to support wireless voice and data networks are a critical part of this technological boom. Valmont manufactures a complete line of highly engineered and cost-effective communication poles, towers and component parts for which demand remains strong. Two factors in particular drive this demand. First is the rapid build-out of wireless networks worldwide as many service providers continue to add locations and upgrade their systems in an effort to keep pace with subscriber needs. Secondly, as the demand for wireless communication services increases, tower-leasing companies are supporting service providers by owning and leasing space on national networks of poles and towers. Demand for Valmont communication structures in North and South America continued to be strong throughout 2000. In China, another significant market for communication poles, Valmont is serving regional telecom companies in their rapid build-out of wireless networks throughout the country. We also expect near-term market growth in Brazil and Europe, where we continue to build market presence with the poles, towers and communication components provided through our subsidiary, Valmont Microflect™. These components include the hardware, brackets and connectors that are used to attach wireless, broadband and waveguide communication antennas to poles, towers and other structures. It is in component sales that we have introduced our first e-commerce web site for online customer orders. We believe this is an important step, as this market demands and values very quick delivery, coupled with complete shipments. g l o b a l d e m a n d f o r va l m o n t p r o d u c t s a n d s e rv i c e s w i l l b e d r i v e n l a r g e ly by p o p u l at i o n g r o w t h a n d e c o n o m i c e x pa n s i o n . l e v e r a g i n g m a r k e t s Lighting, Traffic and Utility: Leading the Way During the year 2000, worldwide deregulation and privatization of the electric power industry, a growing global economy and continued population growth produced a strong demand for the utility poles and substations that Valmont manufactures. Our sales growth was also stimulated by an increased coordination of our global sales efforts and our investments in new manufacturing facilities and equipment – steps that improved order fulfillment efficiencies and delivery times. In every area of the world, economic growth increases the need for improved transportation infrastructure. In North America, where Valmont is the industry leader in steel and aluminum poles for commercial lighting and traffic lighting, signals and signs, we acquired and successfully integrated the business of Lexington Standard Corporation, a leading manufacturer of aluminum poles. This acquisition establishes Valmont as the premier provider of aluminum poles worldwide. A new pole manufacturing facility in Jasper, Tennessee, will provide us with increased manufacturing capacity for large poles. Also in 2000, we formed a joint venture to manufacture steel poles in Mexico with Grupo IMSA. This joint venture allows Valmont's global pole business to better participate in the growing Mexican and South American pole markets with one of Mexico's leading industrial groups as our partner. With pole manufacturing facilities in five countries in the Europe/Middle East/Africa region, Valmont is well positioned to serve the expanding needs of customers there. In the Asia/Pacific region, Valmont is a leading supplier of utility and lighting poles. In the U.S. and Europe, spending on expanding and upgrading transportation infrastructure is increasing and Valmont-designed fluted and decorative poles are particularly popular in urban settings and where aesthetic considerations are important. h i g h way s a n d r oa dway s w i t h a d e q uat e l i g h t i n g f o r s a f e t y , m o r e e l e c t r i c i t y c a pa c i t y , i n c r e a s e d c o m m u n i c at i o n s a n d i n f ra s t r u c t u r e t h at l a s t s – t h e s e a r e t h e n e e d s o f a g r o w i n g w o r l d p o p u l at i o n . va l m o n t h e l p s m e e t t h e s e n e e d s . 14 l e v e r a g i n g c a p a b i l i t i e s Acting on Opportunity Since the mid 1960s, Valmont has been galvanizing its own products to improve durability. Galvanizing is one of the most efficient and cost-effective processes to protect steel from the elements as it significantly extends the service life of steel products. More recently, Valmont has added anodizing and powder-coat painting to its service offerings. Anodizing, a versatile electro-chemical process, protects aluminum with a durable, attractive finish. Powder coating is a superior, high-performance painting application, which results in a high-quality finish that resists abrasion and corrosion. We have leveraged these core capabilities both by building new facilities and by strategic acquisitions, and our coatings business has doubled every year since 1997. Valmont’s galvanizing business is now the leading custom galvanizer in North America. During 2000, the Coatings Division executed its strategy at an even faster pace, completing four acquisitions and doubling its revenues over 1999. The new coatings facilities – in Minneapolis, Los Angeles, Sioux City and Chicago – are in strategically diverse geographic locations that provide additional services, new markets and a varied customer base. In addition to traditional industrial products, we are applying coatings to products as diverse as computers, flashlights, musical instruments, aircraft parts, sporting goods – even components of the International Space Station. Conclusion In the near term, the demand for Valmont infrastructure products and services is driven by a number of powerful factors. Among these are an increase in U.S. highway and mass transit funding; an increase in core urban area renovation; the need to improve traffic flow and safety; an explosive global increase in wireless communication; and the need for improvements in the electric power grid brought on by increasing demand for electricity worldwide. The occurrences of power shortages in California serve as a stark reminder of the importance of a stable electricity infrastructure. Equally important is the need to prevent corrosion and extend the service life of basic infrastructure elements. In the long term, the global demand for Valmont products and services will continue to be driven largely by these same factors – population growth, economic expansion, and the significant new construction required to cope with traffic congestion, urban sprawl and an expanding wireless communication industry. In the next 10 years, $500 billion in new electricity generation capacity is estimated to come on line – with Asia, Europe and South America comprising the fastest-growing markets. The United States is expected to increase its current capacity by 20 percent during this same period. t h e c r i t i c a l k e y s t o s u c c e ss i n o u r i n f ra s t r u c t u r e b u s i n e ss remain quality, value, and service. L I G H T I N G Public and private areas around the world are safer thanks to lighting poles manufactured and sold by Valmont. a s t h e w o r l d ’ s l e a d i n g p r ov i d e r o f l i g h t i n g , t ra f f i c a n d u t i l i t y p o l e s , w i t h 14 pole manufacturing facilities w o r l d w i d e , va l m o n t i s p o s i t i o n e d t o a c t o n o p p o rt u n i t i e s t h at w i l l o c c u r a s w o r l d p o p u l at i o n a n d g l o b a l e c o n o m i e s g r o w . 16 RA Y S N I D E R Manager, Lighting Division – Herning Underground i n f r a s t r u c t u r e t h e p o w e r o f c h a n g e t h e p o w e r o f pa r t n e r s h i p “In California, where our company is located, utility companies previously installed their own lighting poles. Now, our state’s Rule 15 allows subcontractors to compete for this work...so as you can imagine, there are a lot of opportunities for distribution companies like ours. “To prepare our company for this and other opportunities that will occur with deregulation, we decided early on to align with a top manufacturer in the lighting pole business. Valmont plays a very big role for us. We value our relationship with Valmont for a lot of reasons, but mainly because the poles are top quality and the company is very easy to work with. I have never had a Valmont pole rejected on a job – and the delivery times are exceptional. From Valmont, I can usually count on getting my poles in half the lead-time of other manufacturers. “As we move into new markets, our alliance with Valmont is a strong point in our favor because people in our industry think favorably of Valmont. Valmont has actually helped us in our efforts to grow our business in some new markets, something they did not have to do. That’s the beauty of the relationship between our company and Valmont; it’s the best of both worlds. It is based on trust, teamwork and mutual respect, and I can’t think of a better way to do business – especially in this rapidly changing industry. When you have cooperation, you’re better prepared for the power of change.” “THE RELATIONSHIP BETWEEN OUR COMPANY AND VALMONT… IS BASED ON TRUST, TEAMWORK AND MUTUAL RESPECT.” 18 I R R I G AT I O N Technological advances on Valmont’s mechanized irrigation equipment allow farmers to apply water and chemicals with precision. i r r i g a t i o n w o r l d w i d e w a t e r m a n a g e m e n t b u i l d i n g o n s t r e n gt h Without clean, readily available fresh water for food production, industry and human consumption, our modern quality of life would be impossible. Yet a growing world population, outdated irrigation methods and increasing pollution pose serious threats to global fresh water resources and the health and livelihoods of people in every nation. Valmont is a leader in helping agricultural producers apply water more efficiently and effectively. We leverage our strength with advanced irrigation, chemical application, and wastewater treatment technologies to help improve the quality of life around the world. 20 Only four percent of the world’s total irrigated acreage is under mechanized irrigation equipment. Population pressures, pollution and increased agricultural and industrial use worldwide are putting tremendous strains on fresh water resources. One way to address this issue is to install mechanized irrigation systems on more of the land that still uses inefficient methods like flood irrigation. The precision-farming practices that are facilitated with mechanized irrigation can increase yields while conserving and recycling water. Valmont products are, and will continue to be, the products of choice for the development of efficient mechanized irrigation on a global scale. l e v e r a g i n g p r o d u c t s New Product Innovations From its beginning, Valmont has played an important role in the quest to efficiently manage and conserve water resources through the increased use of mechanized irrigation. Our focus has been on continuously improving our products to match the specific needs of growers in diverse global markets, and Valmont engineers continue to develop new technologies for water management. During the year 2000, for example, Valmont released an improved electronic control panel and base station components for irrigation equipment, the C:A:M:S 7.0™ (Computer-Aided Management System). We also introduced AccuPulse™, which allows for the precise application of chemicals and fertilizer. AccuPulse reduces the environmental impact of chemicals on soil through precise application, decreasing the risk of wind drift and runoff. This technology is ideally suited for low-to-the-ground, high-value crops such as coffee, cotton, peanuts, potatoes and many other vegetables. PolySpan™ is another Valmont product innovation – a polyethylene liner that can extend the life of irrigation pipes in areas with high water acidity. Also in 2000, we launched equipment with smaller pipe – better suited for small field applications – as well as the Valley® Spinner, a water-driven system designed for growers with small fields or limited access to electricity. The introduction of these new products preserves Valmont’s role as the technology leader in the mechanized irrigation industry. In the area of wastewater reuse, our Cascade Earth Sciences (CES) subsidiary is attracting positive attention as an industry leader in the land application of wastewater. CES designs, builds and operates wastewater reuse systems that help conserve fresh water resources by irrigating crops with treated wastewater. CES also provides consulting services to confined animal feeding operations, industrial companies and municipalities in the U.S. where land and groundwater protection is becoming critically important. We believe that wastewater treatment technology is essential to world water conservation efforts, and our experience in the U.S. will serve as the model for Valmont’s international expansion in this area in the future. f r e s h wat e r i s a f i n i t e r e s o u r c e . w i t h o u t i n s ta l l i n g m o r e e f f i c i e n t i r r i g a t i o n e q u i p m e n t , w e w i l l n o t h av e t h e wat e r t o m e e t t o m o r r o w ’ s f o o d d e m a n d s . l e v e r a g i n g m a r k e t s Our Markets Continue to Grow Valmont’s investment in and commitment to introducing mechanized irrigation to international markets has set the stage for growth. As long as world population and the desire for improved diets continue to grow, so will the demand for irrigation products. In 2000, sales of irrigation equipment increased even though commodity prices remained low. Our new 310,000 square-foot manufacturing facility in McCook, Nebraska, began operations in early 2000, greatly increasing our production capacity and delivery times in North America. The automated and streamlined flow of the facility allows us to manufacture and ship orders faster, better serving our customers. In other areas of the world, our regional manufacturing strategy is also helping us earn customers. We have successfully completed the first full year of our joint venture in South Africa, where we manufacture and sell irrigation equipment for the growing southern African market. We will soon be expanding our marketing efforts on a local level in China. Other international market opportunities include the Middle East and Australia. In Mexico and South America, demand for Valmont irrigation products remains strong. In both Mexico and Brazil – countries that are very concerned with water management and enhancing yields – Valmont has a significant presence in the mechanized irrigation market. Brazil is the world’s second-largest producer of soybeans after the U.S., and we believe this market will continue to grow. During 2000, we expanded our presence in Argentina, where we also expect continued growth opportunities. u s a b l e w a t e r s u p p l y i s l i m i t e d Total Worldwide Water Supply 3% is freshwater; of this 3%, two-thirds is trapped in polar ice caps and only one-third is usable freshwater; today, of this one-third of usable freshwater, 65% is used by agriculture. t h e n e e d t o c o n s e rv e a n d r e c yc l e wat e r w i l l d r i v e t h e r e p l a c e m e n t o f l e ss e f f i c i e n t f l o o d i r r i g at i o n m e t h o d s w i t h p r e c i s i o n fa r m i n g t e c h n i q u e s l i k e va l l e y® b ra n d m e c h a n i z e d i r r i g at i o n e q u i p m e n t . 22 l e v e r a g i n g c a p a b i l i t i e s Advanced Information Technology To assist our dealers in their sales, distribution and customer service efforts, Valmont is leading the industry in the use of advanced information technology. A new Internet-based order entry system, called Valley Virtual Office ( V2O), gives dealers instant access to an order’s manufacturing and shipping information, and allows them to better serve their customers with up-to-date information. V2O also allows dealers to design equipment configurations online, forming a broad base of proven packages that can be updated, modified or reused – quickly and cost effectively. By the end of 2000, over 50 percent of Valmont’s dealers were placing orders by way of the V2O system. Conclusion Today, farmers around the world are looking for ways to maximize their investments by making smarter use of resources. As free trade becomes more prevalent and subsidies are moderated, fresh water will become an even more valuable commodity. Technological advances such as those provided by mechanized irrigation systems allow farmers to apply water and chemicals with precision – and reduce their overall operating expenses. World population growth, improving diets and fresh water shortages will put even more pressure on producers to meet increasing food demands. The critical need to conserve and recycle water will drive the replacement of less-efficient flood irrigation methods with precision farming techniques like Valley® brand mechanized irrigation equipment. By reusing treated wastewater, water resources can be further conserved, and we will continue to research and develop the technological advances that will help make water and land resources more productive. On the local level, a shift away from large-scale dam projects in favor of individual community-based water conservation efforts complements Valmont’s efforts to better inform people about the benefits of mechanized irrigation systems, which help to increase productivity, improve yields, reduce labor costs, and conserve our precious natural resources. Increasingly, mechanized irrigation is recognized as the best way to complete many of the large-scale irrigation projects that have been initiated in various parts of the world. In each of our foreign markets, we are working with governments and other agencies to emphasize the advantages of mechanized irrigation in bringing water to fields – and our local presence is a key strategic advantage to formalization of agreements in these endeavors. By providing innovative technology based on local demands, we believe our opportunities for growth will continue. a c o r n e r s t o n e o f o u r g l o b a l s t rat e gy i s t h at w e a r e t h e o n ly c o m pa n y i n o u r i n d u s t ry t o m a n u fa c t u r e i n m o r e t h a n o n e l o c at i o n a n d f r o m o u t s i d e o f o u r d o m e s t i c m a r k e t . M C C O O K , N E Galvanized irrigation pipe moves through the assembly line at our new, automated manufacturing facility in McCook, Nebraska. by p r ov i d i n g i n n ovat i v e t e c h n o l o gy b a s e d o n l o c a l d e m a n d s , w e b e l i e v e o u r o p p o rt u n i t i e s f o r g r o w t h w i l l c o n t i n u e . 4.0% mechanized irrigation Percent of worldwide irrigated acres using mechanized irrigation 24 I G A L E L F E Z O UAT Y Farmer–Naivasha, Kenya i r r i g a t i o n i n a f r i c a , t h e s k y i s t h e l i m i t t h e p o w e r o f pa r t n e r s h i p i n a f r i c a , t h e s k y i s t h e l i m i t “There is something magical about the vast, beautiful African countryside, with its mild climate and limitless blue skies. I had lived there as a child and wanted to return, so 11 years ago I moved from Texas to Kenya to farm – something I had never done before. “The growing season here is year-round but rainfall is low and the soil is fast draining. I decided to grow exotic vegetables – French beans, snow peas and miniatures like baby corn, carrots and so on – in great demand in Europe. I started with 100 acres, which required 25 full-time men to manage the flood irrigation. To reduce my labor and energy costs and get a higher crop yield, I knew I must become more efficient with my water resources. “I researched mechanized irrigation systems and decided that Valley pivots, while not the least expensive, were the best choice because they are built the best. And because of Valmont’s commitment to the international marketplace, I knew that should I ever have a problem, Valmont would be there to support me – even in the middle of Africa. Today, we farm 700 acres with 11 pivots, all operated by just two men. Now, the rest of our 1,000 employees can spend their time harvesting, which is critical when each day’s harvest is shipped by air the next day to Europe. “I have also convinced other farmers here to install Valley pivots. With them, we get a minimum of 30 percent greater yields from our crops. Because of the year-round growing season, the payback period on the cost of our pivots is just two years. There are many poor, hungry people here in Africa and increased food production is a priority. Mechanized irrigation technology like Valley pivots is the future for me and for Africa, where the sky really is the limit.” “MECHANIZED IRRIGATION IS THE FUTURE FOR ME AND FOR AFRICA, WHERE THE SKY REALLY IS THE LIMIT.” 26 s h o rt - t e r m d r i v e r s : i n f ra s t r u c t u r e l o n g - t e r m d r i v e r s : i n f ra s t r u c t u r e 1 U.S. government highway funding 2 Demand for increased wireless communication coverage 3 Need for expansion and improvements in the power transmission grid 4 Cost savings through corrosion prevention 5 Increasing urban renovation projects 6 Increased use of decorative poles 1 Global population growth and economic expansion 2 Growing infrastructure needs of emerging economies 3 Increasing government funding for infrastructure 4 Growth in wireless communication for voice and data 5 Increased energy consumption, deregulation and competition 6 Urban sprawl and emphasis on traffic safety 7 Increased lighting needs due to consumer safety concerns a t a g l a n c e 8 Cost effectiveness of steel vs. wood poles i n v e s t m e n t va lu e s h o rt - t e r m d r i v e r s : i r r i g at i o n 1 Reduced availability of water resources 2 Rising global grain demand 3 Grain prices 4 Growing need for conservation and reuse strategies 5 Application of precision farming practices 6 Use of information technology on farm equipment 7 Increasing farm sizes l o n g - t e r m d r i v e r s : i r r i g at i o n 1 Human and industrial impact on water resources 2 Global population growth 3 Improved diets 4 World peace and economic expansion 5 Loss of arable land to urban and industrial development i n v e s t m e n t v a l u e p r o d u c t s , m a r k e t s a n d c a pa b i l i t i e s b u i l d i n g o n s t r e n gt h Growth is essential in business. It requires that a business offer products and services and provide solutions that meet customers’ needs. It requires the vision to respond to changes in the marketplace and the flexibility to adapt to those changes quickly and effectively. Growth requires us to successfully capture the opportunities in our markets that will create shareholder value. At Valmont, our strength is our people – a strong team of individuals who identify and act on the opportunities that allow us to leverage our products, markets and capabilities to sustain long-term shareholder value. We continue to build on this strength. 28 We have made the capital investments and have the management team in place to take us where we want to go. We know that our most important job is to provide our customers with exemplary service and high-quality products and services. This is what Valmont is known for, and it is what customers can continue to expect. Through manufacturing efficiencies and increased capacity, we provide quality products at a fair price. b u i l d i n g m o m e n t u m In 1993, we took a hard look at the nature of our business and the industries in which we held leadership positions: products for irrigation and infrastructure. We challenged the Valmont teams to achieve annual trendline earnings per share growth of at least 15 percent within these two business segments. That’s an aggressive target for any manufacturing company. Since then, we have divested non-core businesses and accelerated our global expansion. We continued to make investments in our manufacturing and distribution facilities. We tasked our managers to make more efficient use of resources to grow revenue and reduce operating costs. We have built on our strengths, and we remain dedicated to the disciplines and practices that will help us meet our ongoing goal of steadily increasing value for our shareholders. During 2000, we continued to improve our operational efficiency, expand our global footprint and increase our sales growth. For example, we made operational changes at our Valley, Nebraska, plant that allowed us to increase our large pole capacity by 40 percent. Our new irrigation manufacturing facility in McCook, Nebraska, and the construction of a pole manufacturing plant in Jasper, Tennessee, increased our capacity even further. The acquisition of four new coatings companies, an aluminum pole company and a tubing company increased our business in those areas. In an effort to drive down costs, we are improving our procurement processes by leveraging our global buying power. We are also implementing a computerized design process that will allow our engineers to provide technical drawings faster, increase quote accuracy and reduce manufacturing timelines for our customers. Our people and culture are what make us successful. Around the world, Valmont employees are from diverse backgrounds and cultures, but share similar traits – they have passion, integrity, a commitment to excellence, and are results oriented. Those who succeed at Valmont believe they are doing more than building structures from steel. They are passionate about the way our products help feed people, preserve water resources and improve the safety and quality of life around the world. by b u i l d i n g o n o u r s t r e n gt h s , w e r e m a i n d e d i c at e d t o t h e d i s c i p l i n e s a n d p ra c t i c e s t h at w i l l h e l p u s m e e t o u r o n g o i n g g o a l o f s t e a d i ly i n c r e a s i n g va lu e f o r o u r s h a r e h o l d e r s – n o w a n d i n t o t h e f u t u r e . b u i l d i n g v a l u e To keep management and shareholder interests aligned, Valmont applies the concept of Total Value Impact (TVI), our business performance measurement philosophy. This measurement aligns shareholder and management interests by focusing on earnings performance as well as return on investment. Valmont business units are “charged” for the capital they employ. We subtract the cost of that capital from net operating profit after taxes. The remainder is TVI, and the increase in that value from year to year is an objective measure of the value we have created for our shareholders. For our managers, TVI puts the focus squarely on earnings and capital management. It encourages them to invest in projects that generate returns in excess of the cost of the capital. TVI requires managers to think long-term – like business owners – and gives Valmont a corporation-wide focus on real value for our shareholders. All of this is part of our long-term strategy to leverage our strengths. At Valmont, our industry focus is sharply defined, yet our geographic focus is broad. We are the only mechanized irrigation company to manufacture outside our domestic market. We are the only pole provider that designs and manufactures lighting, utility and communication poles in multiple locations around the world. This global presence allows us to leverage our strength to customize products for local demands, cut transportation and shipping costs, shorten delivery times, and provide better customer service. As long as the world’s population continues to grow, so will the demand for our products. Currently, 19 percent of our revenues are derived internationally and we believe that share will grow in the future. By making the investments we have made – in our technology, plants, locations and people – we are prepared to meet the demands of our industries, markets and customers. b u i l d i n g f o r t h e f u t u r e Where do we go from here? Our concentration on two primary businesses – irrigation products and infrastructure products – keeps our growth strategies focused on our core capabilities. 1] We leverage our existing products by introducing them into new markets – such as utilizing our expertise in utility markets and applying it to the communication market. 2] We leverage our key markets by introducing new products, as we have by offering decorative aluminum poles to the lighting market. 3] We leverage our capabilities by applying them to new service offerings. Our coating business is a good example of taking internal expertise and providing it to external customers. Any decision to expand or acquire a business must meet one of these three criteria and strengthen Valmont’s primary businesses of irrigation and infrastructure. Acquisitions must provide Valmont with opportunities, customers, technologies or markets for our core businesses. By leveraging our markets, products and capabilities, we build our future. by l e v e ra g i n g o u r m a r k e t s , p r o d u c t s a n d c a pa b i l i t i e s , w e b u i l d o u r f u t u r e . 30 J E A N N E P R I T C H A R D Abbey Mill Assistant Cut-off Operator–Valley, Nebraska i n v e s t m e n t v a l u e s a f e t y i s a t e a m e f for t “The tubing mill, where I work, is a machine that makes and cuts steel tubing to customer- specified lengths. Anytime you work with steel, you have to be extra careful and watch out for one another. About four years ago, I volunteered to be part of Valmont’s Safety Council. At the Valley plant, about 75 or 80 people – supervisors, volunteer representatives and others – meet monthly to discuss safety issues. “Valmont has several programs that encourage employees to make our jobs safer. One of them, called ‘Fence Builders,’ offers incentives when people suggest safety improvements. Our department takes this seriously and I am proud that many of the Fence Builders have come from the Tubing department. Recently, for example, one of our guys designed a way to better remove excess exhaust from our work area. When we brought the plan to the management team, they were very supportive and saw that the project was done quickly and right. “That’s one of the things I like about working here – the fact that our supervisors and management teams really listen to us. When we ask for something that will make our jobs safer, they move on it – and that really reinforces the feeling that we are all on the same team. Sure, paying attention to safety benefits the company, but more than that, it’s smart and it makes everyone feel better about their jobs. We’re watching out for each other’s safety and the company is watching out for us. It’s a good feeling.“ “WE’RE WATCHING OUT FOR EACH OTHER’S SAFETY AND THE COMPANY IS WATCHING OUT FOR US.” 32 f i n a n c i a l o b j e c t i v e s a n d r e s u l t s 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 teams. 15% trendline $1.33 $1.28 $1.12 $1.08 $1.02 $.90 14.7% 15.4% 13.0% 43.9% 33.8% 30.3% 10.9% 10.3% 9.8% 17.1% 12.7% 10.4% 95 96* 97 98 99 00 95 96* 97 98 99 00 95 96 97 98 99 00 DILUTED EARNINGS PER SHARE OBJECTIVE Increase trendline earnings per share 15% per year RETURN ON INVESTED CAPITAL OBJECTIVE Achieve a minimum 10 % after tax return on invested capital LONG TERM DEBT AS A PERCENT OF INVESTED CAPITAL OBJECTIVE Maintain long-term debt as a percent of invested capital at less than 40% * before asset valuation charge c o n t e n t s 33 38 40 41 42 43 44 49 50 51 51 52 52 53 MANAGEMENT’S DISCUSSION & ANALYSIS SELECTED 11-YEAR FINANCIAL DATA CONSOLIDATED STATEMENTS OF OPERATIONS CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF CASH FLOWS CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BUSINESS SEGMENT INFORMATION QUARTERLY FINANCIAL DATA INDEPENDENT AUDITORS’ REPORT REPORT OF MANAGEMENT OFFICERS AND MANAGEMENT SHAREHOLDER INFORMATION BOARD OF DIRECTORS m a n a g e m e n t ’ s d i s c u s s i o n a n d a n a l y s i s o f f i n a n c i a l c o n d i t i o n a n d r e s u l t s o f o p e r a t i o n s 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. In 2000, the Company reclassified its shipping costs on sales transactions from a deduction to arrive at net sales to cost of goods sold. Accordingly, net sales and cost of goods sold for 1999 and 1998 have been restated for consistency purposes. R E S U LT S O F O P E RAT I O N S The net sales and operating income of the Company’s business segments for the past three years are as follows: [ I N M I L L I O N S ] net sales Irrigation Infrastructure Other 2000 Y E A R E N D E D 1999 1998 $ 326.9 496.7 22.5 $ 257.6 356.2 26.1 $ 262.1 332.5 36.3 27.0% 25.0% 24.2% $846 $631 $640 $497 $333 $356 $262 $258 $327 $36 $26 $22 Net Sales $ 846.1 $ 639.9 $ 630.9 98 99 00 98 99 00 operating income Irrigation Infrastructure Other Operating Income $ $ 28.8 37.4 1.1 67.3 $ $ 28.7 20.5 1.0 50.2 $ $ 31.6 14.3 1.9 47.8 F I S C A L 2 0 0 0 C O M PA R E D W I T H F I S C A L 19 9 9 C O N S O L I DAT E D Net sales in 2000 were $846.1 million, or 32% higher than 1999. Both segments contributed to the sales growth. The sales increase was due to acquisitions ($83.0 million) as well as growth in the Company’s base businesses. During 2000, the Company acquired six businesses for an aggregate of $52.4 million. Four of these acquisitions were in the coatings business (located in California, Minnesota, Iowa and Illinois). The other acquisitions were an aluminum pole manufacturer in Minnesota and a tubing business in Nebraska. As a group, these businesses experienced lower gross profit and selling, general and administrative (SG&A) expenses as a percent of sales than the Company’s base manufacturing businesses. Operating profits of these businesses as a percent of sales are similar to the remainder of the Company’s operations. Therefore, these businesses contributed to lower gross profit and SG&A as a percent of sales for 2000, as compared with 1999. gross profit as a percent of net sales segment sales Infrastructure Irrigation Other Total $ in millions Gross profit was 25.0% of net sales in 2000, compared with 27.0% in 1999. Gross profit percentages were lower in both segments. In addition to the negative impact of acquisitions, raw material price volatility early in the year and increased natural gas prices late in the year lowered gross profit margins. Sales mix and competitive pricing conditions in certain markets also affected gross profit margins. Selling, general and administrative expenses increased from $122.6 million (19.2% of sales) in 1999 to $144.6 million (17.1% of sales) in 2000. In addition to the positive impact from acquisitions, the Company realized leverage as sales grew faster than SG&A spending in the base business. Operating income in 2000 was reduced by the costs of closing a composite pole business in Utah and a rolled cylinder business in Oklahoma. Also, the Company accelerated research and development (R&D) expenses related to developing a structure for the wind energy market. The pretax charge to earnings related to these business closures and R&D action was $1.9 million. Operating income increased 34.0% to $67.3 million, or slightly faster than sales. As a percentage of sales, operating income increased from 7.8% in 1999 to 7.9% in 2000. 34 Net interest expense was $16.0 million in 2000, compared with $7.1 million in 1999. The higher interest expense was attributable to higher average borrowings resulting from acquisitions and capital expenditures. Interest expense was also impacted somewhat by rising U.S. interest rates in 2000. The effective tax rate was 36.3% in 2000, compared with 36.9% in 1999. The lower tax rate in 2000 resulted primarily from increased utilization of operating loss and tax credit carryforwards. Net earnings increased 15.3% to $30.4 million and diluted earnings per share increased 18.5% to $1.28. The percentage differences in earnings per share compared with net earnings was attributable to the Company’s repurchase of shares during 1999. I R R I G AT I O N S E G M E N T Net sales in the Irrigation segment increased in 2000 by 26.9% while operating income increased slightly. Operating income in 1999 includ- ed a $2.8 million gain on the sale on an investment. Excluding this gain, operating income increased 11.1% over 1999. Sales increased both in North American and international markets. In North America, sales benefited from dry weather conditions early in the year, the effect of government support programs on net farm income, continued conversion of flood irrigation to center pivots, and the full-year impact from acquisitions completed in 1999. International sales were at record levels with increased profitability, despite a very strong U.S. dollar. $145.6 $99.5 $98.6 19.2% 16.7% 17.1% 98 99 00 working capital 98 99 00 sg&a expense as a percent of net sales Part of the international sales increase came from large project sales to markets in the Middle East. Tubing sales increased over 1999, in part due to an acquisition made during 2000. Profitability did not grow as fast as sales due to lower gross profit margin as a percent of sales. Gross profit margins were impacted by startup and fixed costs in the Company's new facility in McCook, Nebraska, project sales to the Middle East which were at relatively low gross profit margins, sharp increases in raw material prices in the first half of the year, and competitive pricing conditions in North America. SG&A expense control helped to offset some of the impact of lower gross profit margins. The Company invested in two retail distribution operations in 2000 that are reported using the equity method and are not consolidated in the financial statements. These are a 40% interest in an irrigation distributor in Buenos Aires, Argentina and a 35% interest in an irrigation dealership in Kansas. I N F RA S T R U C T U R E S E G M E N T Net sales and operating income in the Infrastructure segment increased 39.4% and 82.5%, respectively. Sales increased in all product lines. Sales increases were due to acquisitions as well as growth in the base business. Increased unit sales, cost reductions and operating leverage all combined to improve the operating income for the segment. In 1999, the Company incurred a $1.9 million impairment charge related to closure of a communication tower facility in Europe. Without this charge, operating income in 2000 was 66.9% higher than 1999. In the lighting and traffic business, sales were strong in both the commercial and transportation markets. Transportation market conditions were good due to continued government funding of the highway bill and other government spending programs. Rising interest rates during 2000 impacted real estate development and the general construction economy, which slowed the growth in the commercial lighting market later in the year. Utility structure sales grew as utility companies continued to invest in transmission and distribution infrastructure to meet growing electricity needs. This strong sales activity and the effect of ongoing cost reduction and productivity programs resulted in profitability growth in North America. In Europe, lighting sales increased in local currency terms, as general economic conditions in Europe were favorable. Moreover, local elections in France helped drive the demand for quality and aesthetically attractive lighting structures. Substantial raw material price increases and very competitive market conditions hampered profitability in Europe. Also, a strong dollar hurt profitability when translated into U.S. dollars. In China, lighting and utility sales were up as the Company continued to penetrate local markets. Sales and profitability grew in the coatings division due to acquisitions and volume growth at existing facilities. The coatings business was especially impacted by rapidly rising energy costs, particularly natural gas, in the fourth quarter of 2000. Sales of wireless communication structures and components were higher in 2000. Carriers and vertical real estate companies were very active in building out their networks, which caused the increase in demand for structures and components. These higher sales led to improved profitability. In China, communication pole sales and profitability were improved over 1999. In 2000, the Company invested in a pole manufacturing joint venture with Grupo IMSA (a large diversified manufacturer based in Mexico) in Monterrey, Mexico. The Company owns 49% of the joint venture and its financial results are reported using the equity method and are not consolidated in the financial statements. F I S C A L 1 9 9 9 C O M PA R E D W I T H F I S C A L 1 9 9 8 C O N S O L I DAT E D Net sales were $639.9 million in 1999, as compared with $630.9 million in 1998, a 1.4% increase. All of the sales increase was attributable to the Infrastructure segment, as Irrigation segment sales decreased slightly from 1998 to 1999. The decrease in other sales in 1999 was due mainly to the divestiture of a steel gratings business in late 1998. Gross profit as a percent of net sales increased from 24.2% in 1998 to 27.0% in 1999. Gross profit margin improvement was achieved in both segments, with the Infrastructure segment realizing greater improvement. Selling, general and administrative (SG&A) expenses increased from $105.1 million (16.7% of sales) in 1998 to $122.6 million (19.2% of sales) in 1999. This increase in SG&A was due to expenses preparing for Year 2000 computer conversions, higher sales commissions, acquisitions, and incentive compensation. Operating income increased from $47.8 million (7.6% of sales) to $50.2 million (7.8% of sales). I R R I G AT I O N S E G M E N T Net sales decreased 1.7% from 1998 to 1999 while operating income decreased 9.0%. In North America, low commodity prices and a generally weak agricultural economy resulted in lower sales of irrigation equipment. Startup expenses in the McCook, Nebraska facility, competitive market conditions and a shift in the sales mix contributed to lower operating income. In late 1998 and early 1999, two retail outlets and an engineering consulting business were acquired. While these acquisitions added to the overall sales volume, these businesses carry lower operating profit margins than the remainder of the segment. International sales and profits were improved over 1998, despite a significant currency devaluation in Brazil. In addition, 1999 included a $2.8 million gain on the sale of an investment. I N F RA S T R U C T U R E S E G M E N T Net sales in the Infrastructure segment increased 7.1% while operating income improved 43.8%. Increased volume, cost reduction and productivity programs and increased operating leverage resulted in strong operating income growth for the segment. Sales in both the lighting and traffic product lines were strong after a slow start, aided by higher levels of government spending. Sales were also improved in the utility structures product line. Increasing investment in transmission and distribution capacity by the utility industry as a result of deregulation was the main driver of the sales increase. In Europe, sales of lighting products were above 1998 in local currency terms. Sales of lighting and utility structures in China improved over 1998. Coatings sales and profits improved over 1998, due to increased sales in existing operations and the full-year impact of the acquisitions completed in 1998. Sales and profit margins of poles, towers, and components to the wireless communication market declined in 1999 due to unfavorable U.S. market conditions early in the year. SG&A spending was maintained in anticipation of an improvement in market conditions, which occurred later in the year. Sales of communication poles in China increased in 1999. Net interest expense was $7.1 million in 1999, compared with $4.8 million in 1998. The higher interest expense was attributable to higher average borrowings, which were due mainly to share repurchases. L I Q U I D I T Y A N D C A P I TA L R E S O U R C E S The effective tax rate was 36.9% in 1999, compared with 36.4% in 1998. The higher tax rate in 1999 resulted primarily from decreased tax benefits on export sales and higher state and local income taxes. Net earnings in 1999 decreased 4.6% to $26.4 million, while diluted earnings per share increased 5.9% to $1.08. The percentage differences in net earnings as compared to earnings per share are related to the Company’s repurchase of shares in 1999. Working capital at December 30, 2000 was $145.6 million compared with $98.6 million at December 25, 1999. The ratio of current assets to current liabilities was 1.87:1 and 1.81:1 at the end of 2000 and 1999, respectively. Available short-term credit facilities through bank lines of credit were $55.4 million at the end of 2000 compared with $50 million at the end of 1999. On December 30, 2000, $18.2 million of these credit facilities were unused. 36 The Company’s growth has been financed mainly through a combination of cash provided from operations and debt financing. The Company’s long-term objective is to maintain long-term debt as a percent of invested capital below 40%. At the end of 2000, long-term debt as a percent of invested capital was 43.9% as compared with 33.8% at the end of 1999. The increased debt level was the result of capital expenditures, acquisitions and additional working capital needed to fund the growth of the base business. While this percentage exceeds the Company’s objective, management determined the related debt was appropriate to take advantage of opportunities to grow and improve the Company over the long-term. Cash provided from operating activities was $11.0 million in 2000 and $63.9 million in 1999. The reduction in operating cash flow resulted from the growth in the base business of the Company, which required higher levels of working capital to support the sales growth. Under the terms of a 1997 revolving credit agreement with a group of banks, 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 30, 2000, the outstanding principal balance was $90 million compared with a balance of $47 million at December 25, 1999. The Company is in the process of expanding this revolving credit agreement to increase debt resources. Under the terms of a 1999 unsecured facility with an insurance company, the Company may borrow up to $100 million during the first three years. Each borrowing matures no more than 15 years from the date of issuance with an average life of no more than 12 years from the date of issuance. The outstanding principal may be prepaid at any time subject to applicable yield maintenance provisions. On December 30, 2000, the outstanding principal balance under the facility was $95 million. 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 30, 2000, and December 25, 1999, cumulative totals of 4,668,360 and 4,528,360 shares had been purchased for $77.8 million and $75.5 million, respectively. Although its long-term debt to total capital exceeds its objective at the end of 2000, the Company believes cash flows from operations, available credit facilities and the capital structure now in place will be adequate for 2001 planned capital expenditures, dividends and other financial commitments, as well as to take advantage of opportunities to expand its markets and businesses. C A P I TA L E X P E N D I T U R E S In 2000, the Company spent $46.5 million on property, plant and equipment, an $8.7 million increase from the $37.8 million invested in 1999. The major expenditures were a new pole manufacturing plant in Jasper, Tennessee, the completion of the irrigation manufacturing facility in McCook, Nebraska, an expansion of the current large pole assembly facility in Valley, Nebraska, the purchase of a manufacturing facility that was previously leased in Uberaba, Brazil and new manufacturing equipment for aluminum poles. An additional $63.2 million was spent for the acquisition of four coatings facilities, a tubing operation, an aluminum pole manufacturing facility and three investments in operations that are not consolidated in the financial statements. R I S K M A N A G E M E N T Market Risk - The principal market risks affecting the Company are exposure to interest rates and foreign currency exchange rates. The Company rarely uses derivative financial instruments to hedge these exposures, nor does it use derivatives for trading purposes. Interest Rates - The Company manages interest expense using a mix of fixed, floating and variable rate debt. Assuming average interest rates and borrowings on variable rate debt, a hypothetical 10 % change in interest rates would have an impact on interest expense of $859,000 in 2000 and $563,000 in 1999. Foreign Exchange - Exposure to transactions denominated in a currency other than the entity's functional currency are not material, and therefore the potential exchange losses in future earnings, fair value and cash flows from these transactions are immaterial. The Company manages its investment risk in foreign operations by borrowing in the functional currencies of the foreign entities. The following table indicates the change in the recorded value of the Company's investment at year-end assuming a hypothetical 10% change in the value of the U.S. Dollar. [ I N T H O U S A N D S ] Europe South America Asia South Africa 2000 $ 2,555 672 532 308 1999 $ 2,489 728 295 341 O U T L O O K F O R 2 0 0 1 The Irrigation segment is experiencing some slowness in the North American marketplace. High energy prices have increased input prices for farmers, such as fuel and fertilizer, and planting decisions are uncertain at this time. In addition, a new U.S. administration creates uncertainty as to farm policy. With these variables in the marketplace, farmers may delay capital investment decisions, which could impact the sales of irrigation equipment in North America. The Company currently expects another strong year in the international irrigation business, where our strategy of local representation and manufacturing in key markets gives us a strong presence in the global marketplace and helps us compete effectively in these markets, even when the U.S. dollar is strong. The McCook, Nebraska, plant is expected to deliver the cost reductions and responsiveness to customer needs that we have planned. Longer term, the Company expects global food production to increase due to a growing world population and improving diets. To meet this need for increased food production, greater farm efficiency tools and investments in water conservation and water re-use techniques must take place. The Company's mechanized irrigation equipment conserves water and enhances farming efficiency, helping to meet these needs. In the Infrastructure segment, backlogs for domestic lighting, traffic, utility and communication products are at good levels. We expect these businesses to be strong in 2001. Profitability in the infrastructure segment is expected to increase due to ongoing cost reduction and productivity activities and increased sales volumes. Energy prices and availability could affect our businesses (especially our coatings operations) and our customer’s businesses as well, creating uncertainty for the overall U.S. economy in 2001. The long-term drivers in our infrastructure businesses are positive. Lighting and traffic structures help provide safety to businesses and residential neighborhoods. To meet the increasing need for electricity worldwide, more electrical generating capacity will need to be built. This increased generating capacity will require more transmission and distribution poles and structures to bring the electricity to users. The growing demand for wireless communication should result in increased sales of towers, poles and components. Demand to extend the life of infrastructure products should drive application of galvanizing, powder coatings and anodizing applications. Because of these trends, the Company remains positive on the outlook for its businesses. MANAGEMENT’S DISCUSSION AND ANALYSIS, AND OTHER SECTIONS OF THIS ANNUAL REPORT, CONTAIN FORWARD LOOKING STATEMENTS THAT 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. $588 $407 $419 98 99 00 total assets $ in millions $46.5 $37.8 $29.7 98 99 00 capital expenditures $ in millions 38 2 0 0 0 s e l e c t e d 11 - y e a r f i n a n c i a l d a t a [ D O L L A R S I N M I L L I O N S , E X C E P T P E R S H A R E A M O U N T S ] o p e r a t i n g d a t a Net sales Earnings (loss) from continuing operations Earnings from discontinued operations Cumulative effect of accounting change Net earnings (loss) Depreciation and amortization Capital expenditures p e r s h a r e d a t a Earnings (loss): Basic Diluted Cash dividends Shareholders’ equity f i n a n c i a l p o s i t i o n Working capital Property, plant and equipment, net Total assets Long-term debt, including current installments Shareholders’ equity Invested capital k e y f i n a n c i a l m e a s u r e s Return on beginning shareholders’ equity Return on invested capital Long-term debt as a percent of invested capital y e a r - e n d d a t a Shares outstanding (000) Approximate number of shareholders Number of employees PER SHARE AMOUNTS AND NUMBER OF SHARES REFLECT THE TWO-FOR-ONE STOCK SPLIT IN 1997. IN 2000, 1999, AND 1998 FREIGHT COSTS HAVE BEEN RECLASSIFIED FROM A REDUCTION OF NET SALES TO COST OF GOODS SOLD. $ $ $ $ $ 2000 846,129 30,400 — — 30,400 30,270 46,456 1.31 1.28 0.26 8.23 145,575 208,272 588,164 205,472 191,911 467,638 17.8% 10.9% 43.9% 23,320 5,500 5,503 1999 1998 1997 $ $ $ $ $ 639,869 26,367 — — 26,367 21,949 37,783 1.09 1.08 0.26 7.30 98,588 173,920 419,335 108,622 170,488 321,096 15.0% 9.8% 33.8% 23,354 5,500 3,948 $ $ $ $ $ 630,858 27,636 — — 27,636 19,843 29,667 1.04 1.02 0.25 7.12 99,466 157,447 406,957 96,218 175,913 317,708 13.3% 10.3% 30.3% 24,721 5,500 3,869 $ $ $ $ $ 622,506 37,544 — — 37,544 16,437 39,115 1.36 1.33 0.22 7.49 94,416 140,834 368,052 28,060 207,102 270,400 21.4% 15.4% 10.4% 27,641 5,400 3,751 1996 1995 1994 1993 1992 1991 1990 $ $ $ $ $ 644,531 21,248 — — 21,248 14,832 35,559 0.78 0.76 0.19 6.41 81,403 120,579 341,648 29,573 175,231 243,905 13.3% 10.3% 12.1% 27,330 4,400 4,868 $ $ $ $ $ 544,642 24,759 — — 24,759 12,361 34,772 0.92 0.90 0.15 5.87 80,993 113,532 308,710 36,687 159,256 215,318 18.0% 13.0% 17.0% 27,120 3,900 4,166 $ $ $ $ $ 501,740 18,887 — –– 18,887 11,018 23,535 0.70 0.69 0.15 5.10 88,278 89,201 283,443 43,242 137,582 197,591 15.5% 10.7% 21.9% 26,990 3,800 3,946 $ $ $ $ $ 464,274 7,551 4,637 (4,910) 7,278 10,907 17,089 0.27 0.27 0.15 4.52 87,793 75,501 261,275 44,076 121,841 180,961 6.1% 5.6% 24.4% 26,972 3,800 4,152 $ $ $ $ $ 445,481 11,671 3,564 — 15,235 12,585 8,353 0.57 0.56 0.13 4.43 68,551 78,150 286,076 69,735 118,428 200,501 14.1% 7.4% 34.8% 26,750 3,500 4,532 $ $ $ $ $ 446,543 (8,822) 2,134 — (6,688) 11,285 11,539 (0.25) (0.25) 0.13 4.06 69,143 84,144 291,041 81,698 108,142 205,618 (5.7%) (1.9%) 39.7% 26,620 3,500 4,478 $ $ $ $ $ 461,789 11,373 5,474 — 16,847 9,887 20,607 0.63 0.63 0.13 4.42 66,302 81,675 291,163 63,003 117,200 191,255 16.2% 9.5% 32.9% 26,494 2,800 4,524 40 c o n s o l i d a t e d s t a t e m e n t s o f o p e r a t i o n s Three-year period ended December 30, 2000 [ D O L L A R S I N T H O U S A N D S , E X C E P T P E R S H A R E A M O U N T S ] Net sales Cost of sales Gross profit Selling, general and administrative expenses Operating income Other income (deductions): Interest expense Interest income Miscellaneous Earnings before income taxes and minority interest Income tax expense (benefit): Current Deferred Earnings before minority interest Minority interest (after tax) Net Earnings Earnings per share: Basic Diluted Cash dividends per share $ $ 2000 846,129 634,246 211,883 144,627 67,256 (17,396) 1,376 (1,615) (17,635) 1999 639,869 467,123 172,746 122,570 50,176 (8,052) 913 (246) (7,385) 1998 630,858 478,010 152,848 105,096 47,752 (5,858) 1,012 726 (4,120) 49,621 42,791 43,632 17,500 500 18,000 31,621 (1,221) 30,400 1.31 1.28 0.26 $ $ $ $ 16,700 (900) 15,800 26,991 (624) 26,367 1.09 1.08 0.26 $ $ $ $ 12,500 3,400 15,900 27,732 (96) 27,636 1.04 1.02 0.25125 $ $ $ $ $ c o n s o l i d a t e d b a l a n c e s h e e t s December 30, 2000 and December 25, 1999 [ D O L L A R S I N T H O U S A N D S , E X C E P T P E R S H A R E A M O U N T S ] a s s e t s Current assets: Cash and cash equivalents Receivables, less allowance for doubtful receivables of $3,505 in 2000 and $3,203 in 1999 Inventories Prepaid expenses Refundable and deferred income taxes Total current assets Property, plant and equipment, at cost Less accumulated depreciation and amortization Net property, plant and equipment Goodwill and other assets Total assets l i a b i l i t i e s a n d s h a r e h o l d e r s ’ e q u i t y Current liabilities: Current installments of long-term debt Notes payable to banks Accounts payable Accrued expenses Dividends payable Total current liabilities Deferred income taxes Long-term debt, excluding current installments Minority interest in consolidated subsidiaries Other noncurrent liabilities 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 Additional paid-in capital Retained earnings Accumulated other comprehensive income Less: Cost of common shares in treasury- 4,579,894 shares in 2000 (4,545,503 shares in 1999) Unearned restricted stock Total shareholders’ equity Total liabilities and shareholders’ equity SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2000 1999 $ 23,176 $ 14,936 $ $ 140,396 130,682 5,814 12,991 313,059 384,686 176,414 208,272 66,833 588,164 3,496 43,462 63,005 56,005 1,516 167,484 15,419 201,976 6,733 4,641 $ $ 106,844 85,383 4,784 8,086 220,033 326,451 152,531 173,920 25,382 419,335 4,372 18,834 46,753 49,962 1,524 121,445 11,109 104,250 7,302 4,741 — — 27,900 471 244,858 (6,948) 266,281 27,900 1,043 220,506 (5,113) 244,336 74,357 13 191,911 588,164 73,808 40 170,488 419,335 $ $ 44 n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s Three-year period ended December 30, 2000 [ D O L L A R S I N T H O U S A N D S , E X C E P T P E R S H A R E A M O U N T S ] ( 1 ) S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Valmont Industries, Inc. and its wholly and majority-owned subsidiaries (the Company). Investments in 20% to 50% owned affiliates are accounted for by the equity method and investments in less than 20% owned affiliates are accounted for by the cost method. All significant intercompany items have been eliminated. Certain 1999 and 1998 items have been reclassified to conform with 2000 presentation. OPERATIONS IRRIGATION: This segment consists of the manufacture and distribution of agricultural irrigation equipment, tubular products and related parts and services; and INFRASTRUCTURE: This segment includes the manufacture and distribution of engineered metal structures and coating services for the lighting, utility and wireless communications industries. 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 year ended December 30, 2000 consisted of 53 weeks. The Company’s fiscal years ended December 25, 1999, and December 26, 1998 consisted of 52 weeks. INVENTORIES At December 30, 2000, approximately 59% 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 $8,400 and $9,100 at December 30, 2000 and December 25, 1999, respectively. LONG -LIVED ASSETS 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 intangible assets 3 to 40 years. An impairment loss is 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. 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. 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. REVENUE RECOGNITION Revenue is generally recognized upon shipment of the product or delivery of the service to the customer. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement establishes accounting and reporting standards for derivative financial instruments. The Statement requires recognition of derivatives in the statement of financial position, to be measured at fair value. Gains or losses resulting from changes in the value of derivatives are accounted for depending on the intended use of the derivative and whether it qualifies for hedge accounting. This Statement becomes effective for the Company's financial statements beginning in 2001. Due to the Company's limited use of derivative financial instruments, adoption of Statement No. 133 is not expected to have a significant effect on the Company's consolidated results of operations, financial position, or cash flows. ( 2 ) C A S H F L O W S U P P L E M E N TA R Y ( 5 ) I N C O M E TAX E S I N F O R M AT I O N The Company considers all highly liquid temporary cash investments purchased with a maturity of three months or less at the time of purchase to be cash equivalents. Cash payments for interest and income taxes (net of refunds) were as follows: Interest Income taxes 2000 $ 16,020 18,560 1999 $ 7,596 9,718 1998 $ 5,747 11,223 ( 3 ) P R O P E R T Y, P L A N T A N D E Q U I P M E N T Property, plant and equipment, at cost, consists of the following: Land and improvements Buildings and improvements Machinery and equipment Transportation equipment Office furniture and equipment Construction in progress $ 2000 20,068 96,796 194,539 6,023 38,211 29,049 $ 384,686 $ 1999 13,410 72,215 168,750 5,090 33,597 33,389 $ 326,451 The Company 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 $11,301, $8,855 and $5,807 for fiscal 2000, 1999 and 1998, respectively. Minimum lease payments under operating leases expiring subsequent to December 30, 2000 are: Fiscal year ending 2001 2002 2003 2004 2005 Subsequent Total minimum lease payments $ $ 7,719 6,636 6,306 3,631 2,719 8,221 35,232 ( 4 ) B A N K C R E D I T A R RA N G E M E N T S The Company maintains various lines of credit for short-term borrowings totaling $55,367. 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 $18,181 at December 30, 2000. 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. In addition to the lines of credit, some of the Company’s operations maintain other short-term bank loans. The weighted average interest rate on short-term borrowings was 6.5% at December 30, 2000 and 5.5% at December 25, 1999. Income tax expense (benefit) consists of: Current: Federal State Foreign Deferred: Federal State Foreign 2000 1999 1998 $ 12,961 1,274 3,265 $ 17,500 $ 11,989 927 3,784 $ 16,700 $ 9,498 914 2,088 $ 12,500 $ 1,424 75 (999) 500 $ 18,000 $ (168) (29) (703) (900) $ 15,800 $ 2,224 176 1,000 3,400 $ 15,900 The reconciliations of the statutory Federal income tax rate and the effective tax rate follows: 2000 1999 1998 Statutory Federal income tax rate State income taxes, 35.0% 35.0% 35.0% net of Federal benefit 2.6% 2.2% 1.8% Carryforwards, loss and credit Other (2.4%) 1.1% 36.3% (0.7%) 0.4% 36.9% (1.4%) 1.0% 36.4% Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards. The tax effects of significant items comprising the Company’s net deferred income tax liabilities are as follows: 2000 1999 Deferred income tax assets: Accrued expenses and allowances Operating loss and tax credit carryforwards Inventory capitalization Gross deferred income tax assets Valuation allowance Net deferred income tax assets $ $ 17,523 $ 13,726 1,580 2,025 99 1,226 21,128 (900) 20,228 $ 15,051 –– 15,051 Deferred income tax liabilities: Property, plant and equipment Lease transactions Other liabilities Total deferred income tax liabilities Net deferred income tax liabilities $ 12,763 3,673 7,314 23,750 3,522 $ 9,999 2,646 5,428 18,073 3,022 46 At December 25, 1999, and at December 30, 2000, management of the Company reviewed recent operating results and projected future operating results. The Company’s belief that realization of its net deferred tax assets is more likely than not is based on, among other factors, changes in operations that have occurred in recent years, as well as available tax planning strategies. If the Company is unable to generate sufficient taxable income in the future through operating results, increases in the valuation allowance may be required through a charge to income. The currency translation adjustments in accumulated other comprehensive income are not adjusted for income taxes as they relate to indefinite investments in non-US subsidiaries. ( 6 ) L O N G -T E R M D E B T The lending 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 700,000 shares of the remaining 5.4 million shares of Company stock authorized for repurchase by the Board of Directors in 1998 and in addition make payments of cash dividends and purchases of the Company’s capital stock of $12,000 in any fiscal year. The Company has received required waivers as to certain covenants in its debt agreements as of December 30, 2000. The minimum aggregate maturities of long-term debt for each of the four years following 2001 are: $102,086, $11,563, $15,279 and $13,150. 2000 1999 ( 7 ) S T O C K P L A N S 9.40% to 12.77% promissory notes, unsecured (a) 7.49% to 8.08% promissory notes, unsecured (b) Revolving credit agreement(c) IDR bonds (d) 3.0% to 9.25% notes Total long-term debt Less current installments of long-term debt Long-term debt, excluding current installments $ 2,250 $ 5,750 95,000 90,500 8,500 9,222 205,472 50,000 47,448 –– 5,424 108,622 3,496 4,372 $ 201,976 $ 104,250 (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 agreement. (b) The unsecured promissory notes are advances under a facility of $100,000. These notes payable are due in varying annual principal installments through 2012. The notes are subject to prepayment in whole or in part with or without premium as specified in the agreement. (c) 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 30, 2000 was 0.375%) or up to $50,000 at a rate determined through a competitive bid process. The effective interest rate at December 30, 2000 was 7.28% and at December 25,1999 was 5.98%. (d) The Industrial Development Revenue Bonds were issued to finance the construction of a manufacturing facility in Jasper, Tennessee. Variable interest is payable until final maturity June 1, 2025. The effective interest rate at December 30, 2000 was 5.05%. 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 30, 2000, 943,000 shares of common stock remained available for issuance under the plans. Shares and options issued and available 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 1998, 1999 or 2000. 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: Net earnings As reported Pro forma Earnings per share As reported: Basic Pro forma: Diluted Basic Diluted 2000 1999 1998 $ 30,400 $ 26,367 $ 27,636 $ 27,939 $ 24,441 $ 25,969 $ $ $ $ 1.31 $ 1.28 $ 1.20 $ 1.18 $ 1.09 $ 1.08 $ 1.01 $ 1.00 $ 1.04 1.02 0.98 0.96 The fair value of each option grant commencing with grants made in 1996 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 2000, 1999 and 1998: Expected volatility Risk-free interest rate Expected life from vesting date Dividend yield 2000 46% 4.81% 2.6 yrs. 1.46% 1999 41% 6.43% 2.6 yrs. 1.36% 1998 35% 4.71% 2.6 yrs. 1.15% Following is a summary of the activity of the stock plans during 1998, 1999 and 2000: Following is a summary of the activity of the status of stock options outstanding at December 30, 2000: Outstanding at December 27, 1997 Granted Exercised Forfeited Outstanding at December 26, 1998 Options exercisable at December 26, 1998 Weighted average fair value of options granted during 1998 Outstanding at December 26, 1998 Granted Exercised Forfeited Outstanding at December 25, 1999 Options exercisable at December 25, 1999 Weighted average fair value of options granted during 1999 Outstanding at December 25, 1999 Granted Exercised Forfeited Outstanding at December 30, 2000 Options exercisable at December 30, 2000 Weighted average fair value of options granted during 2000 Weighted Average Exercise Price 13.96 17.09 8.57 19.27 15.52 13.35 Number of Shares 1,924,662 712,687 (339,241) (118,012) 2,180,096 1,034,491 $ $ $ OUTSTANDING AND EXERCISABLE BY PRICE RANGE OPTIONS OUTSTANDING OPTIONS EXERCISABLE WEIGHTED AVERAGE WEIGHTED REMAINING AVERAGE CONTRACTUAL EXERCISE WEIGHTED AVERAGE EXERCISE EXERCISE PRICE RANGE NUMBER LIFE PRICE NUMBER PRICE $ 6.00-15.88 1,100,307 5.86 Years $ 12.74 771,365 $ 11.95 16.00-17.38 786,239 8.62 Years 17.41-19.97 841,930 8.20 Years 20.00-23.00 396,870 6.30 Years 16.73 19.49 21.72 3,125,346 16.57 19.06 21.78 230,172 168,849 365,877 1,536,263 $ 5.58 ( 8 ) E A R N I N G S P E R S H A R E Weighted Average Exercise Price 15.52 16.37 9.89 19.09 15.93 14.91 Number of Shares 2,180,096 870,047 (96,181) (22,046) 2,931,916 1,348,234 $ $ $ $ 6.48 Weighted Average Exercise Price 15.93 19.44 11.52 18.04 16.70 15.76 Number of Shares 2,931,916 620,376 (175,536) (251,410) 3,125,346 1,536,263 $ $ $ $ 7.54 The following table provides a reconciliation between Basic and Diluted earnings per share (EPS). Dilutive Effect of Stock Options Diluted EPS — $ 27,636 27,103 498 1.02 — $ — $ 26,367 24,413 255 1.08 — $ — $ 30,400 23,774 498 1.28 — $ Basic EPS $ 27,636 26,605 1.04 $ $ 26,367 24,158 1.09 $ $ 30,400 23,276 1.31 $ 1998: Net earnings Shares outstanding Per share amount 1999: Net earnings Shares outstanding Per share amount 2000: Net earnings Shares outstanding Per share amount ( 9 ) T R E A S U R Y S T O C K During 1998, the Board of Directors authorized management to repurchase 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 30, 2000, a total of 4.7 million shares had been purchased for $77,787 including 140,000 shares purchased during 2000 at a cost of $2,322. ( 1 0 ) E M P L OY E E R E T I R E M E N T SAV I N G S P L A N S 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 48 of Microflect; contributions under this plan are based primarily on the performance of the business unit and employee compensation. The 2000, 1999 and 1998 Company contributions to these plans amounted to approximately $6,300, $5,100 and $3,900, respectively. (11)RESEAR CH AND DEVEL OPMENT Research and development costs are charged to operations in the year incurred. Research and development expenses were approximately $4,400 in 2000, $2,500 in 1999, and $3,300 in 1998. ( 12 ) D I S C L O S U R E S A B O U T T H E FA I R VA LU E O F F I N A N C I A L I N S T R U M E N T S 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 30, 2000, the carrying amount of the Company's long-term debt was $205,472 with an estimated fair value of approximately $206,664. At December 30, 2000, the Company had one derivative financial instrument which was a foreign currency option entered into by a foreign subsidiary related to a sales order denominated in U.S. dollars. The notional amount on the option was $2.4 million. ( 1 3 ) S T O C K H O L D E R S ’ R I G H T P L A N Each share of common stock carries with it one half preferred stock purchase right ("Right"). 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. ( 1 4 ) A C Q U I S I T I O N S A N D D I V E S T I T U R E During 2000 the Company’s Irrigation segment invested $10.3 million cash in a tubing business in Nebraska; a majority ownership in an irrigation products distribution joint venture located in China; and in minority positions in an irrigation dealership located in Kansas and an irrigation products distribution operation in Argentina. Also in 2000, the Infrastructure segment invested $52.9 million in coatings facilities located in Illinois, Minnesota, California and Iowa; an aluminum pole manufacturer in Minnesota; and a minority interest in a joint venture in Mexico. The excess of purchase price over fair value of net assets acquired in 2000 was $33 million. During 1999 the Company's Irrigation segment invested $2.9 million cash in two irrigation retail outlets. The excess of purchase price over fair value of the net assets acquired has been recorded as goodwill and is being amortized over the estimated useful life. During March of 1999, the Company sold an investment in an irrigation-related business for $8.3 million and realized a gain of $2.8 million. During 1998 the Company's Coatings division acquired the operating assets of four separate galvanizing facilities in Oklahoma, California, 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 being 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. All acquisitions have been accounted for under the purchase method, and the excess of purchase price over net assets acquired is being amortized on a straight-line basis with lives ranging from 10-40 years. The results of operations of the acquired businesses are included in the consolidated financial statements from the dates of acquisition. ( 1 5 ) B U S I N E S S S E G M E N T S The Company has aggregated its businesses into two reportable segments: IRRIGATION: This segment consists of the manufacture and distribution of agricultural irrigation equipment, tubular products and related parts and services; and INFRASTRUCTURE: This segment includes the manufacture and distribution of engineered metal structures and coating services for the lighting, utility and wireless communications industries. In addition to these two reportable segments, the Company has other businesses that individually are not more than 10% of consolidated sales. The accounting policies of the reportable segments are the same as those described in Note 1. The Company evaluates the performance of its business segments based upon operating income and invested capital. The Company does not allocate interest expense, non-operating income and deductions or income taxes to its business segments. All Corporate expenses and assets are allocated to the business segments. Intersegment sales prices are both cost and market based. Included in Selling, General and Administrative Expenses in 1999 is a charge of $1,915 to write-down assets of a French communication tower facility to fair value and to provide for other related costs including employee severance. Management determined that this charge was appropriate after reviewing the decline in the European communication tower market and the operating performance of this facility. B U S I N E S S S E G M E N T I N F O R M AT I O N [DOLLARS IN THOUSANDS] summary of business segment s a l e s : Irrigation Infrastructure Other i n t e r s e g m e n t s a l e s : n e t s a l e s : o p e rat i n g i n c o m e : Total Irrigation Infrastructure Other Total Irrigation Infrastructure Other Total Irrigation Gain on sale of investment Total Irrigation Infrastructure Impairment charge Total Infrastructure Other Total Interest expense, net Miscellaneous Earnings before income taxes and minority interest t o ta l a ss e t s : capital expenditures: depreciation and amortization : Irrigation Infrastructure Other Total Irrigation Infrastructure Other Total Irrigation Infrastructure Other Total $ $ $ $ $ $ $ $ $ $ summary by geographical area by location of valmont facilities: n e t s a l e s : $ United States France Other o p e rat i n g i n c o m e : l o n g - l i v e d a ss e t s : Total United States France Other Total United States France Other Total $ $ $ $ $ 2000 337,939 503,850 27,130 868,919 11,078 7,144 4,568 22,790 326,861 496,706 22,562 846,129 28,797 –– 28,797 37,424 –– 37,424 1,035 67,256 (16,020) (1,615) 49,621 204,589 370,983 12,592 588,164 14,940 31,380 136 46,456 11,063 18,466 741 30,270 2000 689,353 55,379 101,397 846,129 56,648 3,279 7,329 67,256 246,413 13,443 15,249 275,105 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1999 260,973 363,821 28,719 653,513 3,433 7,587 2,624 13,644 257,540 356,234 26,095 639,869 25,906 2,823 28,729 22,418 (1,915) 20,503 944 50,176 (7,139) (246) 42,791 150,300 254,606 14,429 419,335 23,897 13,192 694 37,783 6,876 14,375 698 21,949 1999 502,545 56,580 80,744 639,869 41,630 1,066 7,480 50,176 167,081 14,724 17,497 199,302 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1998 262,112 341,724 37,679 641,515 — 9,243 1,414 10,657 262,112 332,481 36,265 630,858 31,579 — 31,579 14,256 — 14,256 1,917 47,752 (4,846) 726 43,632 132,654 255,122 19,181 406,957 16,652 10,344 2,671 29,667 5,295 13,791 757 19,843 1998 502,695 62,312 65,851 630,858 42,398 505 4,849 47,752 152,275 17,729 17,007 187,011 NO SINGLE CUSTOMER ACCOUNTED FOR MORE THAN 10% OF NET SALES IN 2000, 1999 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 PROPERTY, PLANT AND EQUIPMENT, NET OF DEPRECIATION, GOODWILL AND OTHER ASSETS. LONG-LIVED ASSETS BY GEOGRAPHICAL AREA ARE BASED ON LOCATION OF FACILITIES. 50 2000 First Second Third Fourth Year 1999 First Second Third Fourth Year 1998 First Second Third Fourth Year q u a r t e r l y f i n a n c i a l d a t a ( u n a u d i t e d ) [ D O L L A R S I N T H O U S A N D S , E X C E P T P E R S H A R E A M O U N T S ] Net Earnings Net Sales Gross Profit Per Share Stock Price Amount Basic Diluted High Low Dividends Declared $ 196,838 $ 49,901 $ 7,529 9,065 6,885 6,921 $ 846,129 $ 211,883 $ 30,400 224,876 201,676 222,739 57,241 51,075 53,666 $ 160,729 $ 40,398 $ 5,761 6,902 5,692 8,012 $ 639,869 $ 172,746 $ 26,367 169,457 144,766 164,917 43,594 40,003 48,751 $ 167,150 $ 43,069 $ 9,645 7,450 4,678 5,863 $ 630,858 $ 152,848 $ 27,636 159,216 147,050 157,442 38,239 34,906 36,634 $ 0.32 0.39 0.30 0.30 $ 1.31 $ 0.23 0.28 0.24 0.34 $ 1.09 $ 0.35 0.27 0.18 0.23 $ 1.04 $ 0.32 0.38 0.29 0.29 $ 1.28 $ 0.23 0.28 0.23 0.33 $ 1.08 $ 0.34 0.26 0.18 0.23 $ 1.02 $ 20.25 20.00 21.69 21.69 $ 21.69 $ 14.75 18.25 17.25 17.88 $ 18.25 $ 24.63 25.00 20.50 16.19 $ 25.00 $ 14.50 $ 0.06500 0.06500 0.06500 0.06500 $ 13.88 $ 0.26000 15.94 17.13 13.88 $ 11.25 $ 0.06500 0.06500 0.06500 0.06500 $ 11.25 $ 0.26000 13.31 14.75 13.13 $ 17.63 $ 0.05625 0.06500 0.06500 0.06500 $ 12.25 $ 0.25125 15.75 13.25 12.25 EARNINGS PER SHARE ARE COMPUTED INDEPENDENTLY FOR EACH OF THE QUARTERS. THEREFORE, THE SUM OF THE QUARTERLY EARN- INGS PER SHARE MAY NOT EQUAL THE TOTAL FOR THE YEAR. i n d e p e n d e n t a u d i t o r s ’ r e p o r t t o t h e b o a r d o f d i r e c t o r s a n d s h a r e h o l d e r s o f v a l m o n t i n d u s t r i e s , i n c . v a l l e y , n e b r a s k a We have audited the accompanying consolidated balance sheets of Valmont Industries, Inc. and subsidiaries as of December 30, 2000 and December 25, 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 30, 2000. 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 auditing standards generally accepted in the United States of America. 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 30, 2000 and December 25, 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 2000 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Omaha, Nebraska February 27, 2001 r e p o r t o f m a n a g e m e n t 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. MOGENS C. BAY Chairman and Chief Executive Officer TERRY J. McCLAIN Senior Vice President and Chief Financial Officer 52 i n f r a s t r u c t u r e o f f i c e r s a n d m a n a g e m e n t c o r p o r a t e d i v i s i o n s corporate and staff officers Mogens C. Bay Chairman and Chief Executive Officer Terry J. McClain Senior Vice President and Chief Financial Officer E. Robert Meaney Senior Vice President International Ann F. Ashford Vice President Human Resources Jill A. Daily Vice President Procurement Thomas P. Egan, Jr. Vice President Corporate Counsel and Secretary Mark C. Jaksich Vice President Corporate Controller Mark E. Treinen Vice President Business Development poles division irrigation division Thomas D. Spears President Duane Bier Vice President Operations 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 Joseph M. Goecke President Sean Gallagher Vice President Sales and Marketing James L. Snyder Vice President Components Group Mark R. Richards President Keith A. Huffman Vice President Global Operations Richard M. Sampson Vice President and General Manager Utility Products and Services Thomas F. Sanderson Vice President Global Marketing and Product Development Thomas J. Sutko Vice President and General Manager Commercial Lighting and Transportation Products and Services Philippe Guidez President Europe/Middle East/Africa Lionel Brenac Vice President Operations Europe/Middle East/Africa Klavs Guldager General Manager China/Asia/Pacific industrial products division Leonard M. Adams Vice President and General Manager Market Makers The following make a market in Valmont Industries, Inc. common stock as of February 2001: Dain Rauscher Inc., Herzog, Heine, Geduld, Inc., Kirkpatrick Pettis Inc., Knight Securities, L.P., Spear, Leeds & Kellogg, Sherwood Securities, Security Investment Company of Kansas City, Schwab Capital Markets. Visit Valmont’s Web site: www.valmont.com Corporate Headquarters Valmont Industries, Inc. One Valmont Plaza Omaha, Nebraska 68154-5215 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 68102-1596 USA 402.633.3465 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 Thursday, April 26, 2001, 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 “The Company.” 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 2000 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 68154-5215 USA Phone: 402.963.1000 402.963.1198 Fax: B O A R D O F D I R E C T O R S Kenneth Bracht and Doug Kochenderfer, (in dark shirts) explain to Valmont’s Board of Directors how the automated materials handling equipment improves product flow at the McCook, Nebraska, irrigation facility. Board Members, from left to right WALTER SCOTT, JR. KENNETH E. STINSON MOGENS C. BAY BRUCE ROHDE CHARLES D. PEEBLER, JR. THOMAS F. MADISON JOHN E. JONES ROBERT B. DAUGHERTY 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 JOHN E. JONES Retired Chairman, President and Chief Executive Officer CBI Industries, Inc. Director since 1993 THOMAS F. MADISON President, MLM Partners Chairman of the Board Communications Holdings, Inc Director since 1987 CHARLES D. PEEBLER, JR. Chairman Emeritus True North Communications, Inc. Director since 1999 WALTER SCOTT, JR. Chairman Level 3 Communications, Inc. Director since 1981 KENNETH E. STINSON Chairman and Chief Executive Officer Peter Kiewit Sons, Inc. Director since 1996 BRUCE ROHDE Chairman and Chief Executive Officer ConAgra Foods, Inc. Director since 1999 AUDIT COMMITTEE Walter Scott, Jr., Chairman John E. Jones Charles D. Peebler, Jr. COMPENSATION COMMITTEE Thomas F. Madison, Chairman Charles D. Peebler, Jr. o n e v a l m o n t p l a z a o m a h a , n e b r a s k a 6 8 1 5 4 - 5 2 1 5 p h o n e 4 0 2 . 9 6 3 . 1 0 0 0 f a x 4 0 2 . 9 6 3 . 1 1 9 8 w w w . v a l m o n t . c o m 

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