Valmont Industries Annual Report 2001

Plain-text annual report

A n n u a l R e p o r t 2 0 0 1 Valmont is recognized throughout the world as an industry leader in engineered support structures and services for infrastructure, and irrigation equipment for agriculture. 01 02 08 12 14 14 20 24 26 31 32 34 35 36 68 69 F I N A N C I A L H I G H L I G H T S L E T T E R T O S H A R E H O L D E R S AT A G L A N C E I N F R A S T R U C T U R E M A N AG E M E N T P E R S P E C T I V E S P O L E S W I R E L E S S C O M M U N I C AT I O N C OAT I N G S I R R I G AT I O N T U B I N G G L O B A L L O C AT I O N S T H E VA L U E O F O U R G L O B A L I N V E S T M E N T T O TA L VA L U E I M PA C T F I N A N C I A L R E S U LT S O F F I C E R S A N D M A N A G E M E N T T H E B O A R D O F D I R E C T O R S Financial Highlights 2001 Operating Results Net sales Operating income Net earnings Diluted earnings per share Dividends per share Total Value Impact (TVI) Financial Position Shareholders’ equity Shareholders’ equity per share Long-term debt as a % of invested capital Operating Ratios 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 Year-End Data Shares outstanding (000) Approximate number of shareholders Number of employees 2001 2000 1999 $0,00872.4 65.0 26.7 1.09 0.26 0.5 $00.0225.8 9.23 41.9% 24.9% 7.5% 3.1% 13.9% 8.6% 24,477 5,500 5,342 $00846.1 67.3 30.4 1.28 0.26 9.0 $00191.9 8.23 42.8% 25.0% 7.9% 3.6% 17.8% 10.9% 23,320 5,500 5,503 $00639.9 50.2 26.4 1.08 0.26 4.5 $00170.5 7.30 33.8% 27.0% 7.8% 4.1% 15.0% 9.8% 23,354 5,500 3,948 Corporate Vision 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 exceed 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. Net Sales Operating Income Diluted Earnings Per Share $$ 623623 631631 640640 846846 872872 $$ 62.062.0 47.847.8 50.250.2 67.367.3 65.065.0 $$ 1.331.33 1.021.02 1.081.08 1.281.28 1.091.09 9797 9898 9999 0000 0101 9797 9898 9999 0000 0101 9797 9898 9999 0000 0101 02 | 03 Letter to Fellow Shareholders The year 2001 was a year of rapid change in a number of our markets. This is nothing new for Valmont. We grew up in the agricultural Mogens C. Bay Chairman and Chief Executive Officer “As usual,the people at Valmont worked as a team, made the necessary adjustments,accelerated cost reduction programs,improved productivity and safety,and pursued new business opportunities. They deserve our gratitude.” industry, where we learned early The Irrigation Segment ran into on to deal with cyclicality and headwinds early in the year, both unpredictability. in the United States and South How did we do this year? In total, I would say we performed quite well when evaluated in the context of a severe economic slowdown in the United States. Operating income was down 3% and net earnings were down 12% on a 3% increase in sales. The leverage gained in our Poles segment didn’t totally offset the difficulties we experienced in the segments where markets were weak. America. Here at home, our largest market, challenges included high A highlight for us this year was the input costs for farmers, low com- addition of PiRod, a leader in the modity prices and uncertainty wireless communication industry, over farm legislation. In Brazil the to our business. In addition to their government put restrictions on unmatched reputation for customer electricity and water use, and the service, PiRod’s product line and economy of Argentina continued to geographic coverage complements deteriorate. Bright spots included ours at Valmont-Microﬂect. Myron the Middle East, Africa and Australia. Noble and his team have built an Despite difficult domestic market outstanding business and we are conditions, the Irrigation division pleased they decided to join us. At As usual, the people at Valmont improved gross proﬁt margins, the time of the acquisition, we knew worked as a team, made the neces- reduced inventories signiﬁcantly, that the prior robust growth rate of sary adjustments, accelerated and achieved record on-time and this industry was not sustainable, cost reduction programs, improved complete delivery performance. but we did not expect business con- productivity and safety, and pursued new business opportunities. They deserve our gratitude. In our Wireless Communications Segment, the market for structures softened in 2001 and at an accelerat- Our Poles Segment had record ing pace as the year progressed. performance. Operating income The general collapse of telecommuni- increased 57% on 14% revenue cations stocks brought with it a growth. We beneﬁted from robust sharply curtailed appetite for capital utility, transportation and lighting spending. However, component sales markets and did an excellent job to this industry remained fairly steady of scheduling our manufacturing as our customers added additional facilities and leveraging our global antennas to existing structures. ditions to worsen as rapidly as they did. I am pleased to report, though, that PiRod was accretive to our earnings in 2001. We believe that the wireless communication industry will rebound. The move toward more voice and data transfer by wireless means is irreversible. network. Falling raw material prices were also helpful. We are seeing the beneﬁts of having a wide geographic presence across several continents, combined with a broad product line serving several industries. This diversity gives us great ﬂexibility. 04 | 05 “One thing I can say for certain: We have strong positions in good businesses,great people,and whatever the external environment, we will make the appropriate adjustments to maximize our performance.” Our Coatings Segment suffered through high energy costs early in the year only to be followed by the challenge of a slowing economy during the second half. They did a Over the past four years, we have good job maintaining productivity made substantial investments in our levels and had some success in businesses. We believe that these expanding their customer base. investments will serve us well going Our Tubing Segment saw a drop in revenue and experienced unfavorable absorption of ﬁxed costs. Even so, they delivered double digit operating income as a percent of sales and an excellent return on invested capital. forward. Our Coatings division was I mentioned in last year’s letter built through greenﬁeld startups and that we would focus on our balance acquisitions. In our Pole business sheet in 2001. We did. Since the we added substantial capacity and PiRod acquisition at the end of the the timing was excellent. We could ﬁrst quarter, we have reduced our not have availed ourselves of the debt by more than $70 million and opportunities in the marketplace and our total debt is now at a more delivered the ﬁnancial performance comfortable level. in Poles without these investments. Our businesses have great cash In the Irrigation business, we ﬂow characteristics. They should not completed a brand new and highly require major capital investments for automated manufacturing facility in some time, and, as we drive internal McCook, Nebraska. Here the timing growth, they will need only modest was less than perfect. The facility investments in working capital. has delivered everything we expected regarding increased productivity and lower costs, but it will really have a positive impact on the bottom line only when market conditions for irrigation equipment improve. At that time, the proﬁt impact is expected to be dramatic. 2002 It is not easy to predict how we will fare in 2002, but my belief is our com- pany will see improved earnings as our Pole business should stay strong The amount of cash ﬂow directed to and our Coatings business should each of the above is less important beneﬁt from an eventual economic than the priority with which we recovery as should our Wireless allocate capital. Communication businesses. We have four priorities for the free It is also important for you to know Regarding the Irrigation business, cash ﬂow we generate: that we will not acquire a business there is presently some optimism in 1 Fund internal growth. just for the sake of growth. We will the U.S. agricultural market. However, maintain a focused, disciplined absent improved commodity prices 2 Reduce debt until we are comfort- approach to growth. We will grow I believe the signing of a new farm ably under our self-imposed ratio by leveraging one of our strengths– bill this spring is necessary to sustain of long term debt to total capital a market position, a product line, such optimism. Farmers need and of 40% (at the end of 2001, it was or a skill set. deserve to know what the rules are slightly less than 42%). As 2001 came to a close, conﬁdence going to be. 3 Pursue “click” acquisitions, in U.S. ﬁnancial markets was shaken Uncertainties include the current i.e., businesses that build on by incidents of improper accounting precarious ﬁnancial state of the our strengths and ﬁt neatly and business practices. I am fortu- U.S. steel industry, as well as very into our existing businesses. nate to have worked 23 years for a limited visibility in the wireless 4 Return money to you in the form of stock repurchases or dividends. company built on a solid foundation communication industry. of sound ethical behavior and a straightforward, conservative ﬁnan- cial philosophy. Terry McClain, our Chief Financial Officer, and a 28-year veteran at Valmont, wouldn’t hesitate for a second to go to our Board of Directors if he felt he was being One thing I can say for certain: We have strong positions in good busi- nesses, great people, and whatever the external environment, we will make the appropriate adjustments to maximize our performance. lobbied to put an aggressive spin on I thank you for your continued support. our numbers. That is the kind of Chief Financial Officer we and you want. Sincerely, Mogens C. Bay Chairman and Chief Executive Officer 06 | 07 What Do We Do at Valmont? At Valmont,we do more than just manufacture products. We design and build products that make life better for people around the world.Our lighting and traffic poles illuminate and beautify the world’s roadways and help ensure the smooth,safe ﬂow of traffic.Our utility poles help transmit and distribute power to millions of homes and businesses worldwide.Our communication poles, towers and components support the communication demands of millions of wireless telephone users.Our irrigation and water management products efficiently deliver fresh water to crops and land–when and where it is needed most.Our tubing products are key elements of a variety of everyday products,everywhere.And our coating services add the ﬁnal touch,extending product life and quality. That’s what we do at Valmont.We provide long-lasting, highly engineered products–products that are engineered for life. We Improve People’s Lives. 08 | 09 How are Our Products Used? Lighting and Traffic Poles Illuminating Your Life at a Glance Our focus is on two key markets worldwide: highly On-the-go lifestyles require products that enable activity any time of day or night. >> Around the world, Valmont brightens the night with poles that support sports lighting for arenas and stadiums, area lighting for parking lots and public areas, and decorative lighting that illuminate city streets and tourist venues. Guiding the Way engineered structures and coatings for infrastructure, On today’s streets, improved safety and congestion relief are important for travelers and commuters. Valmont provides poles and water management for agriculture.Our expertise in design and engineering, combined with our worldwide manufacturing network, enables us to competitively deliver superior products that enhance the quality of life for people around the world. for street and area lighting, traffic control, signage, and mass transit lines to help travelers get quickly and safely from one point to another. >> The world is there to be traveled, and Valmont poles are there with you, helping to safely guide the way. Utility Poles Energizing Your Life How does electricity get from the power plant to your outlet? >> Across wires connected to Valmont transmission and distribution poles. >> Valmont also designs and manufactures structures for substations where high voltage is transformed to lower voltage for distribution. >> Around the world, Valmont provides the poles and structures that move electricity from the power plant to where it is needed the most. 10 | 11 Wireless Communication Connecting People Irrigation Feeding People If you communicate with a cellular phone, chances are that Valmont products are involved. >> We design, manufacture and Valmont is the undisputed world leader in mechanized irrigation equipment, which helps agricultural producers apply water deliver monopoles, towers and other structures for cellular, PCS, broadcast, microwave and two-way communications. >> more efficiently and effectively. >> Through our global plant network and worldwide dealer organization, we manufacture, Valmont is an innovator in minimum visual impact structures–poles and cell sites that look like trees, church steeples, ﬂagpoles deliver and service the world’s most innovative, high-quality irrigation equipment and services–from center pivots and corner or other environmentally camouﬂaged structures, so sometimes you see them and sometimes you don’t. >> We also provide extensions for large ﬁelds to linear machines for long or narrow ﬁelds to machines speciﬁcally designed for smaller ﬁelds. >> the components used to attach antennas, cables and hardware to poles, towers and rooftops. We offer the most complete integrated controls products in the industry – easy to use and highly reliable – and last year we introduced Accu-Pulse, the ﬁrst precision chemical applicator mounted to irrigation equipment. >> Where there is ground to be irrigated, Valmont has it covered. Coatings Extending Product Life Tubing Shaping Everyday Life Would you like a blue ﬂashlight, a red light pole or a custom design on your skateboard? >> Valmont’s Coatings business From small tubing for sprinkler systems to large-diameter tubing for grain augers, Valmont is dedicated to designing and gives you such distinctive choices. >> We apply galvanizing, anodizing, powder coatings and integrated graphics that make manufacturing the unique products our customers need. >> We provide a wide range of tubular steel products in a variety of products last longer and look better. >> We custom coat items for manufacturers who want to increase the appeal, appearance shapes and ﬁnishes for many applications. >> We are also known for crafting custom shapes for customers – because we and longevity of their products, as well as our own poles, irrigation equipment and other structures. believe that customer service shapes our success. 12 | 13 Engineered to Meet Global Demand While you may not notice them,Valmont poles and structures are all around you.They deliver electricity, light your way at night on highways and city streets, and enable your wireless phone call.Our coatings processes provide visual appeal and extend product life.Every day,our infrastructure products impact the lives of people around the world.We take that very seriously–so every day we continually develop forward-looking products like our new wind energy structure,to ensure the quality of life for future generations. e r u t c u r t s a r f n I 14 | 15 Poles Lighting and Traffic Lighting: Illuminating Your Life It’s a simple fact: Better lighting enhances safety. People want and need safer roads and community areas such as parks, stadiums, shopping centers and parking lots. So it is not surprising that even in times of economic downturn such as 2001, Valmont’s lighting and traffic business was strong. In addition to safety, people want products that look good. As in many industries today, Valmont’s municipal, industrial and commercial customers are concerned not only with function and durability but also with aesthetics. Valmont’s engineers often collaborate with architects and city planners to design structures that achieve just the right feel and appearance. 0.1 Management Perspective: Poles Division Valmont’s decorative poles enhance streetscapes, walkways and other outdoor lighted environments. In Europe, Valmont has long been a line of new European-style a leader in lining historic streets decorative poles in the U.S., which with visually pleasing poles that has been enthusiastically received. facilitate city beautiﬁcation. To Our success with this product line leverage this success, we launched in Europe leads us to believe these and other high-quality, custom- designed lighting poles will be a growing global source of sales revenue for Valmont in the future. Visually appealing lighting poles are also in demand in China, where urbanization efforts and infrastructure investments remain high. Because of our in-country design, manufacturing and delivery capabilities, Valmont is able to provide high-quality pole products in China. Our experience in manu- facturing basic, lower-cost poles also works in our favor in developing countries where the demand for attractive lighting must also ﬁt within budget constraints. Custom-designed lighting poles are a growing market for Valmont. “Our products, while highly engineered for complex applications, often appear to be quite simple on the surface – poles for street and area lighting, traffic signals, wireless communication and utility lines. Yet all around the world, these poles are used to light the way, deliver electricity, increase connectivity and highway safety–our products impact people’s lives, so we take our position as an industry leader very seriously.” Light Mark Richards D I V I S I O N P R E S I D E N T Brighter Days Ahead We expect our lighting business to beneﬁt as the overall global economy recovers. Developed countries continually upgrade their infrastructures, while developing countries seek to increase trade opportunities and exports through investing in airport, marine port and roadway facilities that require extensive lighting. All around the world, more active lifestyles drive the need for improved lighting for roads, parks and recreation areas for nighttime activities. $$ 251251 310310 354354 $$ 15.315.3 21.721.7 34.134.1 9999 0000 0101 9999 0000 0101 Net Net Sales Sales Operating Operating Income Income Dollars in Millions 16 | 17 Government Funding for Highway Construction Leads to Increased Demand for Valmont's Products $$ 36.736.7 39.139.1 42.442.4 45.345.3 51.151.1 51.851.8 57.757.7 9595 9696 9797 9898 9999 0000 0101 Dollars in Billions Source: U.S. Department of Commerce. Construction put-in-place. Seasonally adjusted annual rate in current dollars. Traffic: Guiding the Way In most areas of the world, govern- Government spending on How often have you felt frustrated ment spending on national, state infrastructure continues to be waiting in traffic? The continual need and local levels generally funds a very signiﬁcant driver for the to reduce congestion and improve this industry. In the United States, growth of Valmont’s pole products safe traffic ﬂow is a key driver of for example, federal spending for traffic and highway lighting. Valmont’s traffic structures business. on highway infrastructure has We believe opportunity for growth increased in the range of three also exists in other areas of the to ﬁve percent per year. world where improving road and highway infrastructure promotes trade and facilitates the movement of goods to market. “There are approximately four million miles of public roadways in the U.S., of which 24 percent carry over 80 percent of the traffic. Because of this, the need to increase efficiency by using traffic controls, sign structures, intelligent message systems and lighting is a top priority for most communities. With our eight pole plants in North America, we believe we are well positioned to help meet many of these needs.” Safe 18 | 19 Utility Energizing Your Life Growing Demand for Electricity Increases the Demand for Valmont’s Utility Poles and Substation Products Industrial growth and deregulation is driving growth in our utility poles business. The electrical transmission grid in the U.S. already operates near its capacity in several areas due to increasing electricity con- sumption. We expect substantial investments will be necessary to accommodate the level of reliability that users have come to demand. Over the next 10 years it is projected that $500 billion in new electricity generation capacity could come online around the world. The United States alone is expected to increase generating capacity by approximately 20 percent during this time frame. In both the U.S. and Europe, the move toward deregulation and the resulting consolidation of utilities continues to create demand for our transmission, substation and distri- bution products to complete grid systems and interconnect regions. (Twh) (Twh) 3,378 3,378 3,463 3,549 3,463 3,549 3,638 3,638 3,729 3,822 3,729 3,822 0000 0101 0202 0303 0404 0505 Source: Edison Electric Institute, DOE, Electric Power Monthly, NERC, Banc of America Securities LLC estimates. China alone has committed more than $200 billion for infrastructure improvements, especially in the previously undeveloped western region. In each of these regions, the growing global demand for electricity is driven by population growth, industrialization, urbaniza- tion of cities and infrastructure improvement. Products like ours are essential to future development, and because of our global design, production and delivery capabilities, we believe we are positioned to serve this growing demand. More and more utilities are ﬁnding it cost-effective to switch from wood poles to more reliable steel poles. One of the tasks for each team is to of the year, during which time we apply an ‘outside in’ perspective to focused on streamlining business help us better deﬁne our customers’ processes. In China, we are broaden- wants and needs. As a result of this ing our product offerings, expanding 2001 Review process, we have already begun export sales and continuing to grow To better serve our customers, to see increased customer our core domestic operations. In developing countries, too, an increased need for structures this year we organized our utility, service levels. privatization efforts may result to transport power to the user. from the difficulties governments face keeping pace with the demands placed upon existing generation and transmission systems. Often, power is generated at the fuel source–farther away from con- sumers than in industrialized nations–this means there is Asia, the Middle East and Latin America are projected to be the top three fastest-growing markets for future electricity consumption, due to rapidly growing populations. commercial lighting and trans- portation groups into ‘Centers of Excellence,’ each supported by a dedicated team focused only on serving its single market. In each individual market, Valmont Investments made to expand expects to build upon its leadership manufacturing capacity in 2000 position by focusing and coordinating helped us achieve record sales and our global sales and manufacturing reinforce our leadership position activities, and by further investing in the industry in 2001. In Europe, in process improvements. demand was strong early due to mayoral elections in France but slowed during the second half “We must keep focused on our customers’ needs. We must continue to leverage our global production capabilities and distribution channels. Our commitment to continuous improvement will enable us to provide even better products and services to our customers and improve people’s lives.” Power “Our long-term vision is built upon ﬁve critical success factors. We must focus on our customers and provide them with the best possible products and services. We must be technology driven and highly committed to reducing costs and improving quality. And we must always think globally and act locally. In 2001, we measured and tracked our progress in these areas – and we have already seen great improvement. By continuing to focus on these factors, we can make our vision a reality.” 20 | 21 Wireless Communication Connecting People The wireless communication indus- try, while relatively young, is here to stay. It is an industry currently experiencing consolidation, pricing pressures and a demanding cus- tomer base. It is also an industry that we expect will continue to grow. Growth will be driven by attractive calling plans, new services and Projected Cell Site Growth 350,000 350,000 275,000 275,000 200,000 200,000 125,000 125,000 0101 0202 0303 0404 0505 0606 Source: CTIA applications, and the desire to quickly Long-term growth will be driven by sites as are currently used by and effectively communicate anytime a combination of ongoing subscriber existing technology. Additionally, anywhere through wireless devices. growth, increased usage, as well as the increased need for better To remain competitive, we are the introduction of new technologies emergency response systems focused on improving our products, such as 3G, the third generation of will drive demand for structures enhancing manufacturing efficiency, wireless technology. It is projected and components. and providing faster delivery times. that 3G technology will require three to four times as many transmission 0.2 Management Perspective: Wireless Communication Division Talk $$ 6868 9393 122122 $$ (1.6) (1.8) 2.32.3 (1.6) (1.8) 9999 0000 0101 9999 0000 0101 Net Net Sales Sales Operating Operating Income Income Dollars in Millions 22 | 23 2001 Review The downturn in the telecom- munication industry during 2001 was worsened by an excess of uninstalled inventory owned by carriers and tower rental companies. We responded by downsizing our division, which better aligned our cost structure to current market conditions. Despite a difficult business environ- ment, the wireless communication division moved forward with several product and service innovations. The engineering and development Valmont’s broad line of components enables antennas and cables to be attached to wireless communication structures. of our new ﬂagpole cell silo is a MVI products help overcome enables us to better control product strong addition to our minimum many zoning issues with structures scheduling, manufacturing and visual impact (MVI) product line. designed to blend into the sur- delivery. The beneﬁts include a lower rounding environment. To improve investment in inventory, shorter lead customer service, we fully times for our customers and higher implemented a new integrated levels of customer service. manufacturing resource planning (MRP) computer system, which The PiRod Purchase In 2001, Valmont purchased and integrated PiRod, Inc. into its wireless communication business. PiRod, which has an outstanding reputation for customer service, In the area of wireless component engineering and manufacturing products–used to attach antennas, tower structures and components, cables and hardware to poles, strengthened our industry position towers and rooftops–demand as a leader in the wireless communi- was steady in 2001. To increase cation business. By integrating the our opportunities in this area, Conclusion tower, monopole and components Valmont plans to build on the strong Although our market prospects business of Microﬂect and PiRod, Microﬂect and PiRod brands and for 2002 are guarded, we believe the we can streamline production and service reputations and continually wireless communication industry achieve further economies of scale. develop new products. will recover. As the number of new During the past year, PiRod received certiﬁcation by the Canadian Welding Bureau, which now opens the Canadian market for PiRod’s products, such as our highly engineered equipment- mounting platforms. wireless subscribers grows, and usage rates increase, so should the sales of our products–and at a fairly strong rate. We believe the acquisition of PiRod better positions Valmont for the future. “Because of the strong growth of wireless communication around the world, Valmont’s structures and component products have become an important part of the everyday fabric of newly mobile and connected societies. We take great pride in this. It is gratifying to see the positive ways our products improve lifestyles. It boils down to the fact that our products allow people to communicate in a mobile mode –vitally important in today’s more complicated society.” Listen Myron Noble P I R O D P R E S I D E N T “The purchase of PiRod complements Valmont’s wireless communication business with its great reputation for customer service and design capabilities. Additionally, it broadens our tower and component product lines, and importantly, our customer base.” Doug Kochenderfer V I C E P R E S I D E N T A N D G E N E R A L M A N A G E R VA L M O N T M I C R O F L E C T 24 | 25 Coatings Extending Product Life Simply put, we add ﬁnishes– galvanizing, anodizing, and powder coatings–to a wide variety of prod- ucts. We coat products for a wide variety of customers who have come to rely on our processes to add value to their products by making them look uniquely better and last longer. We also coat our own Valmont infrastructure and irrigation products. Hot dip galvanizing makes steel products last longer. Galvanizing, a process that and other infrastructure products protects steel with a zinc coating helped us weather the general that is bonded to the product surface economic downturn as well as to inhibit rust and corrosion, forms higher prices for electricity and the largest part of our coatings natural gas–two important costs business. This year we continued of galvanizing. to beneﬁt from strong infrastructure spending. The demand for galvaniz- ing guardrails, bridge sections, poles Anodizing and powder coating provide protective and decorative coatings for aluminum and other metal and non-metal products– from ﬂashlights and computer components to baseball bats and cellular phones. While this business was off slightly in 2001 due to the impact of the economic downturn in the technology industry, the outlook for 2002 is improved. To help counteract ﬂat sales in our coatings business in 2001–due to current economic conditions and higher energy input prices–we acted quickly by adjusting employment levels commensurate with the business activity. Meanwhile, we are pleased to report that recent acquisitions have enabled us to make considerable progress in attracting new customers during the past year. Valmont’s Coatings business is service-based. The services we provide are essential to a diverse customer base, and increased demand for customization of colors and textures bodes well for further sales growth opportunities in the future.While galvanizing is a capital-intensive business, inventory requirements are low and our operat- ing efficiencies allow good margins and solid operating cash ﬂows. Also, if business conditions warrant it, we can adjust employment levels up and down to match market demands. In 2002 we look forward to an improved economy and improved margins from lower input costs. As we grow, we will continue to reﬁne our administrative processes to ﬁnd ways of further improving our results. Valmont’s proprietary technologies allow custom-designed ﬁnishes to be applied to aluminum products, giving customers more ﬁnish choices. 0.3 Management Perspective: Coatings Division $$ 3737 9494 9999 $$ 7.07.0 13.513.5 9.49.4 “For a relatively modest cost, we take a plain product and put a ﬁnish on it that allows our customer to sell it at a higher value. For the end user, that means more choices in the colors and patterns they want and a longer-lasting product. For our customer, we are adding value to their products at a reasonable price. Everyone wins.” Protect 9999 0000 0101 9999 0000 0101 Net Net Sales Sales Operating Operating Income Income Dollars in Millions “Valmont is the leading custom galvanizer in North America. We achieved this position by working in partnership with our customers. By recognizing and fulﬁlling their needs, we have been able to create opportunities that might not have been attained otherwise. The ability to leverage our business this way is a direct result of our focus on processes and excellent customer service.” Jeffrey Briggs D I V I S I O N P R E S I D E N T 26 | 27 01 | 02 Impacting Lives Through Increased Food Production and Safer, More Plentiful Water Supplies Conserving water saves money.The result? More plentiful food supplies and lower prices.Valmont’s Valley® irrigation business is the largest supplier of mechanized irrigation equipment and services in the world.We have a global manufacturing presence and a well-established worldwide dealer network.Because we provide top-quality irrigation products in nearly every agricultural market around the world,farmers and consumers for generations to come will have access to modern,efficient water management and increased food production. n o i t a g i r r I 28 | 29 Irrigation Usable Water Supply is Limited Feeding People Irrigation has a tremendous impact on our quality of life. In much of the world, we are close to the limits of arable land availability. As world population and food needs grow, we will all become even more dependent on increased food production from existing farmland. Meeting increasing production demand will mean using water in smarter ways. Valley® mechanized irrigation products put the priority on more efficient water use–on getting ‘more crops per drop.’ By putting more water near the root zone where crops can actually use it, while simultaneously reducing runoff, Valley equipment and technology can improve water application efficiency from 40 to 90 percent compared with traditional irrigation methods. 0.4 Management Perspective: Irrigation Division “Our products lead to more efficient food production at lower costs – food that often feeds the poorest part of the world’s population. And our products help farmers make money, which beneﬁts for other uses and for future generations.” global economies. But what’s under-appreciated is that mechanized irrigation reduces the burden on the world’s fresh water supply by helping to keep it cleaner and more available Water Tom Spears D I V I S I O N P R E S I D E N T Reduced runoff also improves water quality in nearby streams and rivers that are the source of fresh water for wildlife and human consumption. Valley irrigation products and serv- ices help farmers produce better crops, improve yields and reduce labor costs while at the same time providing real conservation and social beneﬁts. Valmont is the recognized leader in the design and manufacturing of automated irrigation equipment. Since the 1950s, we have manufac- tured more than 100,000 systems, most of which are still operating today. Our products are known for durability–it is not uncommon for Valley equipment to last 25 to 30 Remote programming–a feature of Valley irrigation equipment–enables precise control of water and chemical application timing, rates and depth. years. Agricultural producers have We are also innovators in the area of industry – to recover, clean and come to rely on this kind of quality wastewater re-use, and we continue re-use wastewater for agricultural and on the unparalleled service to explore business opportunities in applications. We believe these provided through our Valley which our products are instrumental types of projects demonstrate the dealer network. in conserving fresh water resources. versatility of our equipment and the During the past year, we have worked wide range of growth opportunities within the energy sector–particularly available for us in the future. the coal bed methane recovery $$ 228228 284284 239239 $$ 24.124.1 21.221.2 15.515.5 “Our international business– only slightly down last year despite globally depressed crop prices –will beneﬁt from a huge opportunity that is just now being tapped: only four percent of agriculture outside the U.S. is mechanically irrigated. And within the U.S., history shows that agriculture moves in cycles, and upward cycles release signiﬁcant pent-up demand for new 9999 0000 0101 9999 0000 0101 equipment and technologies.” Net Net Sales Sales Operating Operating Income Income Dollars in Millions 30 | 31 2001 Review During 2001, we took steps to improve our service levels to our dealers and customers. By the end of the year we had shipped 99.6 percent of our domestic systems on time, and 94 percent of our orders were shipped and received without problems. We improved our produc- tion planning processes to enable us to operate with much lower inventories–extremely important in ﬂuctuating markets. Our advanced irrigation and water management equipment is designed to conserve water and increase food production. This year was also one of continued a new universal linear machine Valley innovation. For smaller ﬁelds and, along with other innovations in developing markets, we introduced like smaller diameter (5 and 6-inch) the mechanical ‘Spinner’ that does pipe, we are expanding our product not use electricity, running only on offerings to meet the different needs pressurized water. We also introduced of different customers around the world. All of these innovations and improvements during 2001 help ensure that Valley remains ‘The Most Trusted Name in Irrigation.’™ “Valley dealers focus on serving customers, whether that means keeping equipment running during the dry, hot growing seasons or providing the one-on-one training and advice that comes from personal experience. Many of our dealerships are family operations, now in their second or third generations, and you would be hard pressed to ﬁnd anyone who better understands the best way to irrigate local crops. That’s a true Valley advantage – hometown experience and dedication.” Food Tubing Shaping Everyday Life Valmont’s tubing division is solidly proﬁtable, with many of our products used in ways that are not always readily apparent. Our tubing products are used, for example, in pneumatic tube delivery systems within the health care industry, in ﬁre protection systems in office buildings and warehouses, and within the recre- ation industry by exercise equipment producers. Customers often come to Valmont with a request for a special part or product and because of our engineering and design expertise we are able to build it for them. Our tubing products business is strongly impacted by the steel industry and steel prices. During 2001, raw steel prices fell to 20-year lows. As a result, more than 25 steel producers sought some form of bankruptcy protection–putting Also in 2001 we created a distinct tremendous pressure on selling brand identity for Valmont tubular prices for tubular products. We have products, introduced via a new responded by keeping our prices Web site–an important vehicle for competitive, monitoring inventory customer contact and marketing levels, and focusing on cost-reduc- promotions. We expect our Internet tion initiatives. Most importantly, we marketing and communications pres- have maintained close relationships ence will be increasingly important with our customers and suppliers as we introduce new tubing product during these difficult times. lines and applications. This year we implemented and intro- Our Prospects for 2002 duced a successful new product line. General economic conditions Motorcycle enthusiasts appreciate and the current health of the steel that one of the most integral parts industry are concerns. We expect of a motorcycle –and one of the most that steel prices will increase in important design elements–is its 2002. Since inventories throughout muffler. The cosmetic speciﬁcations the supply chain appear very low, for this product are arduous, with the an increase in demand in 2002 will ﬁnal step in fabrication being chrome require a quick response. Our plating. During 2001 we worked production capabilities position closely with one of our customers us well for that. to develop a motorcycle muffler case component that we believe will allow our customer to streamline produc- tion and reduce costs. 0.5 Management Perspective: Tubing Division $$ 2929 4343 4242 $$ 4.64.6 7.67.6 5.85.8 9999 0000 0101 9999 0000 0101 Net Net Sales Sales Operating Operating Income Income Dollars in Millions “Because of falling steel prices and a slowdown in the economy, our 2001 ﬁnancial performance was below that of 2000. Even so, we maintained a strong market position while dealing with these difficulties. We are ready for growth and excited about our prospects for the future.” Leonard Adams V I C E P R E S I D E N T A N D G E N E R A L M A N A G E R 32 | 33 Valmont Industries, Inc. Global Presence TULSA, OKLAHOMA, USA Steel Poles and Galvanizing TUALATIN, OREGON, USA Galvanizing SALEM, OREGON, USA Wireless Communication Structures and Components ALBANY, OREGON, USA Cascade Earth Sciences LINDON, UTAH, USA Galvanizing and Powder Coating LOS ANGELES, CALIFORNIA, USA Anodizing and Powder Coating LONG BEACH, CALIFORNIA, USA Galvanizing SIOUX CITY, IOWA, USA Galvanizing WEST POINT, NEBRASKA, USA Galvanizing McCOOK, NEBRASKA, USA Irrigation Equipment OMAHA, NEBRASKA, USA Corporate Headquarters WAVERLY, NEBRASKA, USA Steel Tubing VALLEY, NEBRASKA, USA Irrigation Equipment, Steel Poles, Wireless Communication Towers, Tubing and Galvanizing BRENHAM, TEXAS, USA Steel Poles MONTERREY, MEXICO Steel Poles MINNEAPOLIS, MINNESOTA, USA Anodizing, Powder Coating and E-Coating FARMINGTON, MINNESOTA, USA Aluminum Poles ST. JULIE, QUEBEC, CANADA Steel and Aluminum Poles ELKHART, INDIANA, USA Steel and Aluminum Poles PLYMOUTH, INDIANA, USA Wireless Communication Structures and Components JASPER, TENNESSEE, USA Steel Poles CHICAGO, ILLINOIS, USA Galvanizing UBERABA, BRAZIL Irrigation Equipment and Communication Towers MAARHEEZE, THE NETHERLANDS Steel Poles GELSENKIRCHEN, GERMANY Steel Poles SIEDLCE, POLAND Steel Poles SHANGHAI, CHINA Steel Poles CHARMEIL, FRANCE Steel Poles CREUZIER-LE-NEUF, FRANCE Industrial Covers and Conveyers RIVE-DE-GIER, FRANCE Aluminum Poles MADRID, SPAIN Irrigation Equipment BERRECHID, MOROCCO Steel Poles JOHANNESBURG, SOUTH AFRICA Irrigation Equipment Where We Are 34 | 35 The Value of Our Global Investment TVI: Aligning Management Performance with Shareholders’ Goals “By developing and providing innovative products based on local demands,our opportunities for growth will continue.” Bob Meaney Senior Vice President International One World The advent of technology–tele- Our infrastructure products help In many of our markets, govern- phones, fax machines, the Internet, make the world a safer place.With ments are enacting policies that wireless communication devices– an increasing population comes require progressive water quality has brought us all closer together the need for safer highways and city improvements and conservation and made doing business globally streets, recreation areas and other efforts. We work directly with these At Valmont, we never lose sight of the fact that our shareholders are our owners and deserve an excellent return on their investment. Our job is to manage the capital they invest with us through a delicate balance of risk and reasonable reward. We must invest our capital in opportunities that will allow our company to prosper, outpace our competition and earn a good return for our share- holders.To motivate our managers to think and act with shareholder interests in mind we apply the con- cept and performance measurement tool of Total Value Impact (TVI). Terry McClain Senior Vice President and Chief Financial Officer We then determine what it costs What do we do with TVI?At Valmont us to use the debt and equity of the we use TVI to measure and reward company to ﬁnance that invested performance. If the results of an capital. Next, we subtract the cost investment, project or division do of the capital, which for Valmont is not grow TVI, we are not creating 8.5%, from the after-tax operating value for our shareholders. When both easier and essential to our public places. Additional electricity governments and with development How does TVI work? TVI is a return proﬁt. That leaves a residual, which this happens, we believe it is time success. Through international transmission and distribution capac- and aid agencies to emphasize and on invested capital measure. From we call TVI. From an accounting to reassess the value, strategy or commerce, we develop understand- ity is also needed. Our strategy of promote the advantages of mecha- our income statement, we measure perspective there is no TVI account, management of that investment, ings and partnerships that serve manufacturing locally is key to our nized irrigation. By developing and after-tax operating proﬁt. From our but from a ﬁnancial perspective, TVI project or division. We want TVI to make the world a better place. success in growing global markets providing innovative products based balance sheet, we measure average is a measure of the dollars returned to be positive and grow. where our lighting and traffic, and on local demands, our opportunities invested capital–essentially the above normal expectations on our utility structures are indispensable. for growth will continue. difference between assets and productive assets. Our products improve the quality of people’s lives around the world–and we strive to get them to market as quickly and efficiently as possible– always maintaining our high stan- dards for quality. Central to this approach is our global manufacturing Cellular phones and other wireless devices help keep people safer and more connected at work, on the road and at home. Again, our products are essential to this technology. In Conclusion Global markets are critical to our growth and success. Individual markets evolve at different rates, and our strategy of producing locally strategy. With production facilities Our irrigation products help feed pays off on many levels. We are in strategic locations worldwide and the world.The need to conserve, insulated from the pressures of through global procurement, we are re-use and maintain the quality of competing in a single market, and able to compete better, deliver faster fresh water while increasing crop as one market ebbs, another may and maintain lower costs. We can yields will drive the adoption of be expanding. By having production provide exemplary on-site customer mechanized irrigation in almost facilities in many areas of the world, service and customize our products every region of the world. we can reach any area quickly and to best meet the needs of each mar- ket. And, by hiring local employees, we contribute to and participate in local economies and communities. cost effectively–a distinct advan- tage for our customers and our shareholders. As an incentive tool for our managers atValmont, we prefer the TVI measure of performance, with compensation directly tied to results. It’s a good way to encourage thinking about both the short-term and long-term effects of management decisions. Our managers understand that they must not only increase sales and earnings, but they must also make wise investment decisions. non-interest bearing liabilities. Simpliﬁed Example of TVI Shows how an Investment can Create or Destroy Value In this example, the TVI created in the ﬁrst year is invested in a machine Year 1 Year 2 Investment Year 2 Investment Creates $3 Sales Creates No Sales Increase Increase Sales Expenses Operating Proﬁt Tax at 35% Operating Proﬁt after Tax (NOPAT) Assets Non-Interest Bearing Liabilities Average Invested Capital Cost of Capital Cost of Capital Dollars TVI (NOPAT-cost of capital $) Value Created (Lost) from Capital Investment $0050.00 (40.00) 10.00 (3.50) 6.50 50.00 40.00 10.00 8.5% 0.85 5.65 – $0050.00 (40.00) 10.00 (3.50) 6.50 55.65 40.00 15.65 8.5% 1.33 5.17 $053.00 (40.00) 13.00 (4.55) 8.45 55.65 40.00 15.65 8.5% 1.33 7.12 $00(0.48) $001.47 36 | 37 01 | 02 Financial Results 2001 s l a i c n a n i F 37 38 48 50 51 52 53 54 63 66 67 67 68 68 69 F I N A N C I A L O B J E C T I V E S M A N AG 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 S E L E C T E D 1 1 - Y E A R F I N A N C I A L D ATA C O N S O L I D AT E D S TAT E M E N T O F O P E R AT I O N S C O N S O L I D AT E D B A L A N C E S H E E T S C O N S O L I D AT E D S TAT E M E N T S O F C A S H F L O W S C O N S O L I D AT E D S TAT E M E N T S O F S H A R E H O L D E R S ’ E Q U I T Y N O T E S T O C O N S O L I D AT E D F I N A N C I A L S H E E T S 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 Q UA R T E R LY F I N A N C I A L D ATA I N D E P E N D E N T AU D I T O R S ’ R E P O R T R E P O R T O F M A N AG E M E N T O F F I C E R S A N D M A N AG E M E N T S H A R E H O L D E R I N F O R M AT I O N T H E B O A R D O F D I R E C T O R S Financial Objectives 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.We have deliberately made investments in our businesses in recent years.This is reﬂected in the down- trend of our TVI and return on invested capital graphs.We believe these metrics should improve as we realize the beneﬁts of these investments. The goals we have established for 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.We have replaced our earnings per share growth goal with a goal to grow TVI,which we believe is a more meaningful measure of shareholder value creation. Total Value Impact Return on Invested Capital Long-Term Debt as a Percent of Invested Capital $$ 17.717.7 5.35.3 4.54.5 9.09.0 0.50.5 %% 15.415.4 10.310.3 9.89.8 10.910.9 8.68.6 %% 10.410.4 30.330.3 33.833.8 42.842.8 41.941.9 9797 9898 9999 0000 0101 9797 9898 9999 0000 0101 9797 9898 9999 0000 0101 Objective Grow TVI from year-to-year Dollars in Millions Objective Achieve a minimum 10% after tax return on invested capital Objective Maintain long-term debt as a percentage of invested capital at less than 40% 38 | 39 Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis provides information which 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. (Dollars in millions) Net Sales: Infrastructure businesses: Poles Wireless Communication Coatings Total Infrastructure businesses Agricultural businesses: Irrigation Tubing Total Agricultural businesses Other Net Sales Operating Income: Infrastructure businesses: Poles Wireless Communication Coatings Total Infrastructure businesses Agricultural businesses: Irrigation Tubing Total Agricultural businesses Other Operating Income 1999 2000 Change 2000-1999 2001 Change 2001-2000 $ 251.0 68.2 $ 37.0 $ $ 356.2 $ 228.2 29.4 $ $ 257.6 $ 26.1 $ 639.9 $ $ $ $ $ $ $ $ $ 15.3 (1.8) 7.0 20.5 24.1 4.6 28.7 1.0 50.2 $ 310.0 92.6 $ 94.1 $ $ 496.7 $ 283.6 43.3 $ $ 326.9 $ 22.5 $ 846.1 $ $ $ $ $ $ $ $ $ 21.7 2.3 13.5 37.5 21.2 7.6 28.8 1.0 67.3 24.3% 35.8% 154.3% 39.4% 24.3% 47.5% 26.9% -13.5% 32.2% 41.4% NM 91.8% 82.5% -12.1% 64.7% 0.2% 9.6% 34.0% $ 354.0 $ 121.6 99.2 $ $ 574.8 $ 238.6 42.4 $ $ 281.0 $ 16.6 $ 872.4 $ $ $ $ $ $ $ $ $ 34.1 (1.6) 9.4 41.9 15.5 5.8 21.3 1.8 65.0 14.2% 31.3% 5.4% 15.7% -15.9% -2.1% -14.1% -26.1% 3.1% 57.4% -167.5% -30.3% 12.0% -27.2% -23.4% -26.3% 77.4% -3.3% Results of Operations Fiscal 2001 Compared with Fiscal 2000 Consolidated Net sales in 2001 increased 3.1% over 2000 to $872.4 million. The sales increase was due to sales increases in the Infrastructure businesses, offset by sales decreases in the Agricultural businesses. The increase in Wireless Communication segment sales was attributable to the PiRod acquisition, which was completed on March 30, 2001. In 2001, gross proﬁt as a percent of sales was virtually unchanged from 2000. Higher margins in the Poles segment essentially offset lower margins in the other segments. Selling, general and administrative expenses (SG&A) as a percent of sales increased in 2001 due to lower sales in the Irrigation, and Wireless Communication segments. While expenses were reduced in these segments, sales decreased more than expenses. Operating income decreased 3.3% as compared with 2000. Improved proﬁts in the Poles segment partially offset proﬁtability decreases in the other segments. Net interest expense was essentially unchanged between 2001 and 2000. While interest- bearing debt was reduced in 2001, average borrowing levels were higher than in 2000. The effect on interest expense from these higher borrowing levels was offset by declining interest rates throughout most of 2001 on the Company’s variable interest rate debt. Declining interest rates resulted in a positive impact on interest expense of $2.5 million in 2001. The Company’s effective tax rate increased from 36.0% in 2000 to 36.9% in 2001. The rate increase was mainly associated with taxes related to distributions from foreign entities and increased goodwill amortization expenses that were not tax-deductible. Losses in nonconsolidated subsidiaries increased in 2001 due to unproﬁtable opera- tions in the Company’s Mexican joint venture and a write down of $1 million in an investment in an irrigation distributor in Argentina. The Mexico performance related to poor local market demand for pole products in the second half of 2001 and start-up production inefficiencies. The Argentina write down was prompted by the recent difficulties encountered in the Argentine economy. Net earnings decreased 12% to $26.7 million in 2001 from $30.4 million in 2000. Diluted earnings per share decreased 15% from $1.28 to $1.09. The percentage drop in earnings per share was more than the decrease in net earnings due to the additional shares outstanding in 2001 related to the shares issued as part of the PiRod acquisition. Poles Segment The improvement in sales and operating proﬁt was attributable to strong performance in North America. North American sales in lighting and traffic products were up due to government funding for the U.S. highway program, where the emphasis on safety and traffic control drove demand for the Company’s street, area and highway lighting products as well as traffic poles and sign structures. Sales in the commercial lighting market improved slightly over 2000, as increased alliances with lighting ﬁxture OEM’s helped maintain order rates despite a slowdown in commercial construction activity. Utility product sales also improved substantially over 2000. As electric utility companies and independent power producers have been adding new capacity, the Company’s transmission, substation and distribution poles are needed to bring this newly generated electricity from the generation source to users. The operating proﬁt improvement in North America was in part due to the improved sales volumes as well as margin enhancements associated with improved manufacturing productivity, stable material prices and effective utilization of capacity expansions. The Company closed its composite pole facility in late 2000, which contributed to the 2001 operating proﬁt improvement. This facility recorded a loss of $1.7 million in 2000. Gross Proﬁt as a Percent of Net Sales %% 27.027.0 25.025.0 24.924.9 9999 0000 0101 Segment Sales 639.9 $$ 639.9 846.2 846.2 872.4 872.4 16.616.6 42.442.4 99.299.2 121.6 121.6 22.622.6 43.343.3 94.194.1 92.692.6 283.6 283.6 238.6 238.6 354.0 354.0 310.0 310.0 26.126.1 29.429.4 37.037.0 68.268.2 228.2 228.2 251.0 251.0 9999 0000 0101 Poles Irrigation Wireless Communications Coatings Tubing Other Dollars in Millions 40 | 41 In Europe, lighting sales were down 6% as compared with 2000. Preparations for local elections in France increased sales early in the year, but the European economy weakened throughout the remainder of 2001, lowering market demand for lighting structures. Despite the lower sales, operating proﬁt was slightly improved, the result of factory and SG&A expense control and improved operations. Sales and proﬁts in China were similar to 2000. SG&A Expense as a Percent of Net Sales %% 19.219.2 17.117.1 17.517.5 Wireless Communication Segment The sales and operating proﬁt of the Wireless Communication segment for 2001 include the operations of PiRod after its acquisition at the end of the ﬁrst quarter. If PiRod’s sales are excluded from 2001, worldwide sales would have been down 12%. Sales in North America (without PiRod) were down 18% from 2000, with market demand slowing more dramatically as 2001 progressed. This was due to the general slowdown of the economy and particularly the slumping telecommunications industry , which hampered our customers’ ability to sustain funding of their strong network buildout of 2000. Furthermore, the installation of many of the structures sold in 2000 was delayed, which also reduced demand for new structures. Sales of components, which are parts that attach antennas to structures such as poles, towers and buildings, were relatively stable. Components were used to support subscriber growth and bandwidth demand by allowing more antennas to be installed on existing structures. This reduction in market demand for structures (especially towers) resulted in a drop in gross proﬁt margins and operating income in 2001. Unfavorable manufacturing ﬁxed cost coverage in the Company’s Nebraska and Oregon plants due to the lower production volumes reduced 2001 operating proﬁt by approximately $3 million. The Company elected in the fourth quarter to eliminate some overlapping product lines between the PiRod and Valmont/Microﬂect brands, resulting in a pretax $1.5 million inventory valuation charge. PiRod was accretive to net income and neutral to earnings per share in 2001. Sales of communication poles in China improved over 2000, as a continuing wireless network buildout drove increased demand. 9999 0000 0101 Coatings Segment The sales increase in the Coatings segment related to a signiﬁcant sales improvement at one location, where the Company is providing coating and assembly services to a large customer. Aside from this location, sales were down 12%. Furthermore, galvanizing services provided to the Irrigation segment were down from 2000, due to lower production levels in that segment and further transfer of Irrigation production to its McCook, Nebraska facility, which galvanizes its own production. The reduction in operating income in 2001 mainly related to reduced ﬁxed cost coverage due to the generally lower production levels, an operating income reduction of approximately $4 million. Higher energy prices also negatively impacted 2001 proﬁtability by approximately $1 million. Irrigation Segment Sales in the Irrigation segment were lower, both in North American and International markets. Weak commodity prices, high input costs for farmers related to energy prices and uncertainty over future U.S. farm policy all contributed to weaker market conditions in North America. As a result, management reduced employment and planned spending levels in early 2001. North American operating proﬁt was down as compared with 2000, but improved pricing discipline, customer service improvements and the spending reductions taken early in the year resulted in an improved operating proﬁt percentage. Sales and proﬁts in international markets were lower in 2001, mainly due to poor market conditions in Brazil. Government imposed electricity and water restrictions brought about by drought reduced farmers’ ability to obtain permits to irrigate, which reduced demand for irrigation machines. The combined impact on operating proﬁt of lower sales and margin was $3 million. Sales and proﬁts in other international markets in total were similar to 2000. The Company’s strategy of local manufacturing and distribution in international markets has enabled it to remain competitive, despite the continued strength of the U.S. dollar. Tubing Segment The Tubing segment recorded slightly lower sales than in 2000, due to a weaker U.S. economy. Sales to the Irrigation segment fell, due to lower Irrigation sales and transfer of production to its McCook facility, which produces its own tubing. These lower production levels resulted in unfavorable manufacturing ﬁxed cost coverage, estimated at $1 million. Pricing competition due to a weakening U.S. economy and falling steel prices resulted in further margin pressure. SG&A spending was reduced in light of weaker sales and margins to mitigate the impact of lower margins on operating proﬁt. Fiscal 2000 Compared with Fiscal 1999 Consolidated Net sales increased signiﬁcantly over 1999, due to acquisitions completed in 2000 (contributing $83 million in sales) and growth in the Company’s base businesses. All segments in the Infrastructure and Agricultural businesses contributed to the sales growth. Gross proﬁt as a percent of sales fell from 27.0% in 1999 to 25.0% in 2000. As a group, acquisitions made in 2000 (four in the Coatings segment, one in the Tubing segment and one in the Poles segment) experienced lower gross proﬁt and 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. The impact of acquisitions on gross proﬁt and SG&A as a percent of sales was 0.7%. Otherwise, gross proﬁt percentages were lower in all segments, except the Poles segment, where gross proﬁt margins were unchanged from 1999. Raw material price volatility early in the year and increased natural gas prices late in the year also negatively impacted gross proﬁt margins. Aside from the impact from acquisitions, the Company realized SG&A leverage as sales grew faster than spending in the base businesses. Operating income increased slightly faster than sales. A decrease in operating income in the Irrigation segment was offset by improved proﬁts in the other segments. 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 by rising U.S. interest rates in 2000 by an estimated $3 million. The effective tax rate was 36.0% 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 difference in earnings per share as compared with net earnings was attributable to the Company’s repurchase of shares during 1999. Poles Segment North American lighting and traffic sales were strong in both the commercial and lighting and traffic markets. Lighting and traffic market conditions were good due to continued government funding of the highway program 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 continue 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. Substantial raw material price increases and very competitive market conditions hampered proﬁtability in Europe. In China, lighting and utility sales were up as the Company continued to penetrate local markets. 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 on the equity method. Wireless Communication Segment The sales increase was driven primarily by strong U.S. market conditions in 2000. Carriers and build to suit companies were very active in building out their networks, which caused the increase in demand for structures and components. This improved sales activity led to improved proﬁtability, although margins diminished due to unfavorable sales mix. In China, communication poles sales and proﬁtability were improved over 1999. In 1999, the Company incurred a $1.9 million impairment charge related to a communication tower facility in Europe. Coatings Segment Sales and proﬁtability grew due to acquisitions completed in the year 2000 (which contributed $51.4 million in sales) and volume growth at existing facilities. Strong economic conditions in the U.S. during 2000 helped drive the increase in sales. Operating proﬁt increased substantially in 2000, driven mainly by volume increases, acquisitions and operating leverage. Operating proﬁt grew at a slower rate than sales due to production difficulties at one location throughout much of 2000 and a sharp increase in energy prices in the fourth quarter of 2000. 42 | 43 Irrigation Segment 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. Part of the international sales increase came from large project sales to markets in the Middle East. Operating income in 1999 included a $2.8 million gain on the sale on an investment. Otherwise, operating income was virtually unchanged from 1999. 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 start up 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 ($1.3 million gross margin impact), sharp increases in raw material prices in the ﬁrst half of the year of approximately $2.2 million and competitive pricing conditions in North America. Good SG&A expense control helped to offset some of the impacts of lower gross proﬁt margins. Tubing Segment Tubing sales increased over 1999, due to an acquisition made during 2000 (which contributed $6.6 million in sales) and good market conditions driven by a strong U.S. economy. This strong sales performance likewise resulted in the increase in operating income. Critical Accounting Policies The following accounting policies involve judgments and estimates used in preparation of the consolidated ﬁnancial statements.There is a substantial amount of management judgment used in preparing ﬁnancial statements. We must make estimates on a number of items, such as provisions for bad debts, warranties, contingencies, impairments of long-lived assets, and inventory obsolescence. We base our estimates on our experience and on other assumptions that we believe are reasonable under the circumstances. Further, we re-evaluate our estimates from time to time and as circumstances change. Actual results may differ under different assumptions or conditions. Allowance for Doubtful Accounts In determining an allowance for receivables that will not ultimately be collected in full, we consider: > age of the accounts receivable > customer credit history > customer ﬁnancial information, and > reasons for non-payment (product, service or billing issues). If our customers’ ﬁnancial condition were to deteriorate, resulting in a reduction in their ability to make payment, additional allowances may be required. Warranties We rely on historical product data to estimate the cost of product warranties at the time revenue is recognized. In determining the accrual for the estimated cost of warranty claims, we consider our experience with: > costs to correct the product problem in the ﬁeld, including labor costs, > costs for replacement parts, > other direct costs associated with warranty claims, and > the number of product units subject to warranty claims. If our cost to repair a product or the number of products subject to warranty claims is greater than we estimated, we would have to increase our accrued cost for warranty claims. Inventories We use the last-in ﬁrst-out (LIFO) method to determine the value of the majority of our inventory. The remainder of our inventory is valued on a ﬁrst-in ﬁrst out (FIFO) basis. In periods of rising costs to produce inventory, the LIFO method will result in lower proﬁts than FIFO, because higher more recent costs are recorded to cost of goods sold than under the FIFO method. Conversely, in periods of falling costs to produce inventory, the LIFO method will result in higher proﬁts than the FIFO method. In 2001, the Company experienced generally lower costs to produce inventory than in 2000, due in part to our lower costs for steel and other commodities. This resulted in a reduction in the cost of goods sold of $1.4 million, and proﬁts reported in our ﬁnancial statements in 2001 were higher than would otherwise have been reported had all the Company’s inventories been valued on the FIFO method. We write down slow-moving and obsolete inventory by the difference between the value of the inventory and our estimate of the reduced value based on potential future uses, the likelihood that overstocked inventory will be sold and the expected selling prices of the inventory. If our ability to realize value on slow-moving or obsolete inventory is less favorable than assumed, additional write-downs of the inventory may be required. Depreciation and Amortization of Long-Lived Assets The Company’s long-lived assets consist primarily of property, plant and equipment and goodwill and intangible assets that were acquired in business acquisitions. We believe the useful lives we assigned to these assets, which range from 3 to 40 years, are reasonable. If our assumptions about these assets change as a result of events or circumstances, and we believe the assets may have declined in value, then we may record impairment charges, resulting in lower proﬁts. For example, in 2001 we determined through this process that the company’s investment in an Argentine irrigation distributor was impaired, due to recent difficulties in Argentina’s economy, and we wrote down the value of the investment by $1 million. Stock Options Employees of the Company are periodically granted stock options by the Compensation Committee of the Board of Directors. As allowed under generally accepted accounting principles (GAAP), the Company does not record any compensation expense on the income statement with respect to options granted to employees. Alternatively, under GAAP, the Company could have recorded a compensation expense based on the fair value of employee stock options. As described in Note 7 in the Consolidated Financial Statements, had the Company recorded a fair value-based compensation expense for stock options, earnings per share would have been $0.08 to $0.10 less than what was reported for the 1999, 2000 and 2001 ﬁscal years. Income Taxes The Company records a valuation allowance to reduce its deferred tax assets to an amount that is more likely than not to be realized. While future taxable income and tax-planning strategies are considered in assessing the need for the valuation allowance, if a deferred tax asset was estimated to be not fully realizable in the future, a valuation allowance to the deferred tax asset would decrease net income in the period the determination was made. Likewise, should the Company subsequently determine that it would be able to realize more than the net deferred tax asset in the future, an adjustment reducing the valuation allowance would increase net earnings in the period such determination was made. 44 | 45 Liquidity and Capital Resources Net working capital was $145.6 million at ﬁscal year-end 2001, or virtually unchanged from year-end 2000. The ratio of current assets to current liabilities was 2.05:1 as of December 29, 2001, as compared with 1.87:1 at December 30, 2000. Operating cash ﬂow was $109.8 million in 2001, as compared with $11.0 million in 2000. The strong operating cash ﬂow improvement was attributed to better working capital management this year. Inventories were reduced steadily throughout the year in all segments, particularly in the Irrigation and Wireless Communication segments. Capital spending was $25.7 million in 2001, a sharp decrease from the $46.5 million that was spent in 2000. The major capital projects this year included: > Poles Segment–large pole capacity expansion, aluminum extruder and business software; and Total Assets $$ 419419 600600 589589 > Irrigation Segment–manufacturing facility in the United Arab Emirates. In addition, $33.4 million cash was expended as part of the PiRod acquisition, which was completed on March 30, 2001. The stronger operational cash ﬂow, combined with lower capital spending and reduced cash for acquisitions, enabled the Company to reduce its interest-bearing debt from $248.9 million at December 30, 2000 to $209.3 million at December 29, 2001. 9999 0000 0101 Dollars in Millions Dollars in Millions The Company has historically funded its growth, capital spending and acquisitions by a combination of operating cash ﬂows and debt ﬁnancing. The Company’s long-term objective is to maintain long-term debt as a percent of capital below 40%. The Company has temporarily exceeded its self-imposed objective for major strategic purposes, such as acquisitions. At year-end 2001, long-term debt was 41.9% of invested capital, down from 42.8% at year-end 2000. While long-term debt as a percent of capital was above the Company’s stated objective, debt levels have been reduced in 2001 and the Company plans to meet this ﬁnancial objective in 2002, barring signiﬁcant acquisition activity. The Company’s debt ﬁnancing consists of a combination of short-term credit facilities and long-term debt. The short-term credit facilities are with various banks and amounted to $36.0 million at the end of 2001 as compared with $55.4 million at the end of 2000. On December 29, 2001, $29.5 million of these credit facilities were unused. The major components of long-term debt include a 2001 revolving credit agreement with a group of banks and a long-term unsecured credit facility with an insurance company. Under the revolving credit agreement, the Company may borrow up to $150 million in multiple currencies. The facility is unsecured and any outstanding principal balance is due in August 2006. The outstanding balance may be paid down at any time and additional funds may be borrowed up to the $150 million maximum. At December 29, 2001, the outstanding principal balance was $77.5 million, compared with $90.0 million at the end of ﬁscal 2000. The Company’s borrowings under the unsecured facility with an insurance company are $100 million, the maximum under the agreement. The annual principal payments due under this facility are in varying amounts starting in 2002 and ending in 2012. The principal may be prepaid at any time, subject to applicable yield maintenance provisions. The Company also has certain minor long-term borrowings, including capital lease arrangements. Debt covenants under the revolving credit agreement and the unsecured facility with an insurance company require the Company to maintain certain leverage and ﬁxed charge coverage ratios for the duration of the agreements. At the end of ﬁscal 2001, the Company was in compliance with all debt covenants. Capital Expenditures Working Capital $$ 37.837.8 46.546.5 25.725.7 $$ 98.698.6 145.6 145.6 145.6 145.6 In December 2001, the Board of Directors authorized the repurchase of up to 1.5 million shares of the Company’s common stock. This authorization replaced the authorization made in 1998. As of December 29, 2001, no shares had been repurchased under this authorization. The Company’s priorities in use of future free cash ﬂows are as follows: > Fund internal growth initiatives in core businesses; > Pay down interest-bearing debt; > Invest in acquisitions clearly connected to the Company’s core businesses; and > Complete authorized common stock repurchases. 9999 0000 0101 9999 0000 0101 In the event of a sharp decrease in demand for the Company’s products, resulting proﬁtability reductions would reduce its operating cash ﬂows and affect its ability to grow. Likewise, low proﬁtability or operating losses could impact the Company’s . compliance with key long-term debt covenants These factors could come from a number of sources, such as a prolonged depression in the U.S. farm economy, a substantial reduction in government (including state and local) funding of the federal highway program and a prolonged U.S. economic recession. Dollars in Millions Dollars in Millions Dollars in Millions Dollars in Millions Financial Obligations and Commercial Commitments The Company has future ﬁnancial obligations related to (1) payment of principal and interest on interest-bearing debt, including capital lease obligations, (2) various operating leases and (3) purchase obligations. These obligations are sum- marized as follows, in millions of dollars: Contractual Obligations Long-term debt and capital leases Operating leases Unconditional purchase obligations Total contractual cash obligations Total $ 198.0 34.9 14.7 $ 247.6 $ 2002 11.1 7.7 14.7 $ 33.5 2003-2004 2005-2006 Thereafter $ $ 29.9 11.6 – 41.5 $ 107.0 6.8 – $ 113.8 $ $ $ 50.0 8.8 – 58.8 Long-term debt principally consists of the revolving credit agreement and the unsecured credit facility with an insurance company. Obligations under these agreements could be accelerated in event of non-compliance with loan covenants. The Company’s operating leases relate to obligations associated with outside parties on leases of certain production and office facilities and equipment. These leases are in the normal course of business and generally contain no substantial obli- gations for the Company at the end of the lease contracts. The most signiﬁcant operating lease is the corporate office building in Omaha, Nebraska, which is a lease with a U.S. bank. The Company makes lease payments on the entire office complex and sub-leases approximately 75% of the total office space to outside parties. Substantially all of the office space (95%) is occupied either by the Company or outside lessees. The current lease obligation is through 2003, at which time the Company may elect to 1) renew the lease at a negotiated rate and duration; 2) purchase the facility from the bank for $35 million; or 3) terminate the lease. In the event that the Company terminates the lease and the facility is sold for less than $35 million, the Company is obligated to pay the difference between the sales price and $35 million to the bank. 46 | 47 Unconditional purchase obligations relate to purchase orders for aluminum, natural gas and zinc for periods up to one year. The quantities under contract are reasonable in light of normal ﬂuctuations in business levels, so the Company expects to use the commodities under contract during the contract period. The Company also has certain commercial commitments related to contingent events that could create a ﬁnancial obligation for the Company, which contingent ﬁnancial obligations do not meet the requirements for balance sheet recognition. These commitments at December 29, 2001 are as follows (in millions of dollars): Other Commercial Commitments Standby Lines of Credit Guarantees Total commercial commitments Total Amounts Committed Commitment Expiration Period 2002 $ $ 4.4 2.0 6.4 $ $ 4.4 2.0 6.4 The above commitments include $4.2 in loan guarantees of non-consolidated subsidiaries in Argentina and Mexico and are in proportion to the Company’s ownership percentage in these companies. The Company also maintains standby letters of credit for contract performance on certain sales contracts. As the likelihood of nonperformance under these commitments was not considered to be probable, they are not recognized on the balance sheet at December 29, 2001. Risk Management Market Risk –The principal market risks affecting the Company are exposure to interest rates and foreign currency exchange rates. The Company’s use of derivative ﬁnancial instruments to hedge these exposures is not material. The Company does not use derivatives for trading purposes. Interest Rates –The Company manages interest expense using a mix of ﬁxed 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 $618 thousand in 2001 and $859 thousand in 2000. Foreign Exchange – Exposure to transactions denominated in a currency other than the entity’s functional currency is 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 where appropriate. 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. (in thousands) Europe South America Asia South Africa 2001 $ 2,719 334 466 198 2000 $ 2,555 672 532 308 Outlook for 2002 In the Poles segment, we expect continued sales and earnings growth. Backlogs are strong and the revenue drivers in North America (U.S. government funding for the highway program and capacity additions for electricity generation) remain favorable for 2002. We expect the Wireless Communication segment to remain weak in 2002. The key market drivers in wireless technology (subscriber growth, network buildout to improve service and technological advances such as 3G) remain positive in the long-term. However, it is not clear when wireless carriers and build-to-suit companies will resume their buildout plans. In the meantime, we are focusing on integrating the Valmont/Microﬂect and PiRod products and organizations to maximize the synergies as the result of the PiRod acquisition. We expect the Coatings segment will show improved sales and proﬁts as the U.S. economy improves. In the Irrigation segment, we are not expecting a substantial change in the North American market in 2002. The uncertain status of the U.S. farm program, and agricultural markets that have been weak since 1998, likely will keep the market from growing much in the coming year. However, if the market does improve, we believe we are well positioned to take advantage of the opportunity. Our cost structure is in line with the size of the business, and our inventory levels are much lower than at this time last year. Our international irrigation business is geographically diversiﬁed and our strategy of local manufacturing and distribution in key markets allows us to be competitive despite the current strength of the U.S. dollar. We expect improvement in the sales and proﬁtability of the Tubing segment when the U.S. economy gains strength. We expect to continue to generate positive cash ﬂow and reduce interest-bearing debt, thereby reducing our ﬁnancial leverage and positioning ourselves for growth as opportunities arise. In summary, our outlook toward 2002 is optimistic. The Poles segment should remain strong and if the U.S. economy strengthens we expect that our Coatings and Tubing segments will show improved sales and earnings. Barring a further weakening of the agricultural or telecommunications markets, we believe the Company is positioned for improved earnings in 2002. Management’s discussion and analysis, and other sections of this Annual Report, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Future economic and market circumstances, industry conditions, company performance and ﬁnancial results, operating efficiencies, availability and price of raw materials, availability and market acceptance of new products, product pricing, domestic and international competitive environments, actions and policy changes of domestic and foreign governments and other risks described from time to time in the company’s reports to the Securities and Exchange Commission are examples of factors, among others, that could cause results to differ materially from those described in the forward-looking statements. 48 | 49 2001 Selected 11-Year Financial Data (Dollars in thousands, except per share amounts) Operating Data Net sales Earnings (loss) from continuing operations Earnings from discontinued operations Cumulative effect of accounting change Net earnings (loss) Depreciation and amortization Capital expenditures Per Share Data Earnings (loss): Basic Diluted Cash dividends Shareholders' equity Financial Position Working capital Property, plant and equipment, net Total assets Long-term debt, including current installments Shareholders' equity Invested capital Key Financial Measures Return on beginning shareholders' equity Return on invested capital Long-term debt as a percent of invested capital Year End Data Shares outstanding (000) Approximate number of shareholders Number of employees 2001 2000* 1999* 1998* 1997 1996 1995 1994 1993 1992 1991 $ $ $ $ $ 872,380 26,693 – – 26,693 36,324 25,652 1.10 1.09 0.26 9.23 145,550 209,580 588,897 198,008 225,811 472,229 13.9% 8.6% 41.9% 24,477 5,500 5,342 846,129 30,400 – – 30,400 30,270 46,456 1.31 1.28 0.26 8.23 145,575 208,272 600,135 205,472 191,911 479,609 17.8% 10.9% 42.8% 23,320 5,500 5,503 639,869 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 3,751 644,531 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 Per share amounts and number of shares reﬂect the two-for-one stock split 1997. * In 2000, 1999, and 1998, freight costs have been reclassiﬁed to cost of goods sold. 50 | 51 Consolidated Statements of Operations Three-year period ended December 29, 2001 Consolidated Balance Sheets December 29, 2001 and December 30, 2000 (Dollars in thousands, except per share amounts) (Dollars in thousands, except per share amounts) 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, minority interest and equity in earnings (losses) of nonconsolidated subsidiaries Income tax expense (beneﬁt): Current Deferred Earnings before minority interest and equity in earnings (losses) of nonconsolidated subsidiaries Minority interest (after tax) Equity in earnings (losses) of nonconsolidated subsidiaries (after tax) Net earnings Earnings per share: Basic Diluted Cash dividends per share See accompanying notes to consolidated ﬁnancial statements. 2001 872,380 654,759 217,621 152,600 65,021 (17,080) 1,050 (524) (16,554) 48,467 14,073 3,827 17,900 30,567 (509) (3,365) 26,693 1.10 1.09 0.26 $ $ $ $ $ 2000 846,129 634,246 211,883 144,627 67,256 (17,396) 1,376 (1,198) (17,218) 50,038 17,500 500 18,000 32,038 (1,221) (417) 30,400 1.31 1.28 0.26 $ $ $ $ $ 1999 639,869 467,123 172,746 122,570 50,176 (8,052) 913 (306) (7,445) 42,731 16,700 (900) 15,800 26,931 (624) 60 26,367 1.09 1.08 0.26 $ $ $ $ $ Assets Current assets: Cash and cash equivalents Receivables, less allowance for doubtful receivables of $4,842 in 2001 and $3,505 in 2000 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 Liabilities And Shareholders’ Equity 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 Other noncurrent liabilities Minority interest in consolidated subsidiaries 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- 3,422,166 shares in 2001 (4,579,894 shares in 2000) Unearned restricted stock Total shareholders’ equity 2001 2000 $ 24,522 $ 23,176 134,632 108,962 4,763 11,719 284,598 404,559 194,979 209,580 94,719 140,396 130,682 5,814 12,991 313,059 384,686 176,414 208,272 78,804 $ 588,897 $ 600,135 $ $ 11,062 11,319 57,027 58,042 1,598 3,496 43,462 63,005 56,005 1,516 139,048 167,484 15,065 186,946 15,947 6,080 15,419 201,976 16,612 6,733 – – 27,900 – 264,854 (11,957) 280,797 54,986 – 225,811 27,900 471 244,858 (6,948) 266,281 74,357 13 191,911 Total liabilities and shareholders’ equity $ 588,897 $ 600,135 See accompanying notes to consolidated ﬁnancial statements. 52 | 53 Consolidated Statements of Cash Flows Three-year period ended December 29, 2001 (Dollars in thousands) Cash Flows from Operations: Net earnings Adjustments to reconcile net earnings to net cash ﬂows from operations: Depreciation and amortization Other adjustments Equity in (earnings) losses in nonconsolidated subsidiaries Minority interest in net earnings of consolidated subsidiaries Changes in assets and liabilities: Receivables Inventories Prepaid expenses Accounts payable Accrued expenses Other noncurrent liabilities Income taxes Net cash ﬂows from operations Cash Flows from Investing Activities: Purchase of property, plant and equipment Acquisitions, net of cash acquired Proceeds from sale of property and equipment Proceeds from sale of investment Proceeds from investments by minority shareholders Other, net Net cash ﬂows from investing activities Cash Flows from Financing Activities: Net borrowings (repayments) under short-term agreements Proceeds from long-term borrowings Principal payments on long-term obligations Dividends paid Proceeds from exercises under stock plans Purchase of common treasury shares: Stock repurchase program Stock plan exercises Net cash ﬂows from ﬁnancing activities Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents–beginning of year Cash and cash equivalents–end of year $ See accompanying notes to consolidated ﬁnancial statements. 2001 2000 1999 $ 26,693 $ 30,400 $ 26,367 36,324 (370) 3,365 509 10,234 35,714 946 (12,513) (1,160) (586) 10,683 109,839 (25,652) (34,079) 341 63 (105) (2,288) (61,720) (26,416) 30,216 (42,718) (6,308) 1,256 (1,373) (186) (45,529) (1,244) 1,346 23,176 24,522 $ 30,270 2,360 417 1,221 (26,593) (40,894) (667) 13,840 2,632 (411) (1,591) 10,984 (46,456) (63,173) 276 319 – (759) (109,793) 23,871 105,961 (14,472) (6,056) 2,573 (2,322) (1,647) 107,908 (859) 8,240 14,936 23,176 21,949 (2,198) (60) 624 5,567 (8,473) (48) 4,340 9,007 1,225 5,635 63,935 (37,783) (2,854) 114 8,294 1,374 (1,285) (32,140) (9,312) 75,060 (60,863) (6,337) 637 (22,210) (588) (23,613) (826) 7,356 7,580 $ 14,936 Consolidated Statements of Shareholder’s Equity (Dollars in thousands, except per share amounts) Three-year period ended December 29, 2001 Balance at December 26, 1998 Comprehensive income: Net earnings Currency translation adjustment Total comprehensive income Cash dividends ($0.26 per share) Purchase of treasury shares: Stock repurchase program, 1,406,200 shares Stock plan exercises, 35,982 shares Stock options exercised; 56,181 shares issued Tax beneﬁt from exercise of stock options Stock awards; 19,125 shares issued Balance at December 25, 1999 Comprehensive income: Net earnings Currency translation adjustment Total comprehensive income Cash dividends ($0.26 per share) Purchase of treasury shares: Stock repurchase program, 140,200 shares Stock plan exercises, 83,927 shares Stock options exercised; 175,536 shares issued Tax beneﬁt from exercise of stock options Stock awards; 14,000 shares issued Balance at December 30, 2000 Comprehensive income: Net earnings Currency translation adjustment Total comprehensive income Cash dividends ($0.26 per share) Issuance of 1,215,333 shares in connection with PiRod acquisition Purchase of treasury shares: Stock repurchase program, 103,500 shares Stock plan exercises, 11,326 shares Stock options exercised; 38,734 shares issued Tax beneﬁt from exercise of stock options Stock awards; 19,754 shares issued Common stock Additional paid-in capital Accumulated other Retained comprehensive Treasury income earnings stock Unearned restricted shareholders’ Total stock equity 27,900 $ 1,280 $ 200,393 $ (1,423) $ (52,235) $ (2) $ 175,913 – – – – – – – – – – – – – – – (404) 111 56 26,367 – – (6,254) – – – – – – (3,690) – – – – – – – – – – – (22,210) (588) 951 – 274 – – – – – – 26,367 (3,690) 22,677 (6,254) (22,210) (588) – – (38) 547 111 292 27,900 $ 1,043 $ 220,506 $ (5,113) $ (73,808) $ (40) $ 170,488 – – – – – – – – – – – – – – – (1,130) 516 42 30,400 – – (6,048) – – – – – – (1,835) – – – – – – – – – – – (2,322) (1,647) 3,188 – 232 – – – – – – – – 27 30,400 (1,835) 28,565 (6,048) (2,322) (1,647) 2,058 516 301 27,900 $ 471 $ 244,858 $ (6,948) $ (74,357) $ (13) $ 191,911 – – – – – – – – – – – – – – – – – (543) 67 5 26,693 – – (6,383) (1,078) – – 764 – – – (5,009) – – – – – – – – – – – – 20,361 (1,373) (197) 268 – 312 – – – – – – – – – 13 26,693 (5,009) 21,684 (6,383) 19,283 (1,373) (197) 489 67 330 Balance at December 29, 2001 27,900 $ – $ 264,854 $ (11,957) $ (54,986) $ – $ 225,811 See accompanying notes to consolidated ﬁnancial statements. 54 | 55 Notes to Consolidated Financial Statements Three-year period ended December 29, 2001 (Dollars in thousands, except per share amounts) (1) Summary of Signiﬁcant Accounting Policies Principles of Consolidation The consolidated ﬁnancial statements include the accounts of Valmont Industries, Inc. 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 2000 items have been reclassiﬁed to conform with 2001 presentation. Operating Segments > Poles: This segment consists of the manufacture of engineered metal structures for the lighting and traffic and utility industries > Wireless Communication:This segment consists of the manufacture of tower and pole structures and components for the wireless telephone industry > Coatings: This segment consists of coatings services for industrial customers > Irrigation:This segment consists of the manufacture of irrigation equipment and related parts and services to agricultural customers > Tubing: This segment consists of the manufacture of tubular products for industrial customers Fiscal Year The Company operates on 52/53 week ﬁscal years with each year ending on the last Saturday in December. Accordingly, the Company’s ﬁscal years ended December 29, 2001 and December 25, 1999 consisted of 52 weeks. The Company’s ﬁscal year ended December 30, 2000 consisted of 53 weeks. Inventories At December 29, 2001, approximately 55% 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 $7,000 and $8,400 at December 29, 2001 and December 30, 2000, 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. In ﬁscal 2001, the Company recognized an impairment loss of $1.0 million related to its nonconsolidated investment in Argentina. 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. Revenue Recognition Revenue is generally recognized upon shipment of the product or delivery of the service to the customer. 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. Derivative Instruments The Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities (as amended) in the ﬁrst quarter of 2001. Due to the Company’s limited use of derivative instruments, the impact of implementing this Statement was insigniﬁcant. Stock Options The Company accounts for employee stock options under APB 25. Since all options are granted at option prices equal to the market price on the date of grant, no compensation expense is recorded on the Statement of Earnings. Note 7 to the Consolidated Financial Statements provides a detailed discussion of the Company’s stock option plans. Recently Issued Accounting Pronouncements In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. In October 2001, the FASB approved the issuance of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 141 requires all business combinations entered into subsequent to June 30, 2001 be accounted for using the purchase method of accounting. SFAS No. 142 provides that goodwill and other intangible assets with indeﬁnite lives will not be amortized, but will be tested for impairment on an annual basis. SFAS No. 144 addresses the accounting and reporting for impairment of long-lived assets. These standards are effective for ﬁscal years beginning after December 15, 2001. The Company has not quantiﬁed the impact resulting from the adoption of these standards. (2) Cash Flow Supplementary Information 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 (3) Property, Plant and Equipment 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 2001 $ 18,263 $ 8,020 2000 $ 16,020 $ 18,560 1999 $ 7,596 $ 9,718 2001 $ 20,499 104,906 206,889 6,132 42,484 23,649 $ 404,559 2000 $ 20,068 96,796 194,539 6,023 38,211 29,049 $ 384,686 The Company leases certain facilities, machinery, computer equipment and transportation equipment under operating leases with unexpired terms ranging from one to nine years. Rental expense for operating leases amounted to $11,912, $11,301 and $8,855 for ﬁscal 2001, 2000 and 1999, respectively. 56 | 57 Minimum lease payments under operating leases expiring subsequent to December 29, 2001 are: Fiscal year ending 2002 2003 2004 2005 2006 Subsequent Total minimum lease payments $ 7,682 7,184 4,450 3,754 3,058 8,787 $ 34,915 Operating leases include the office complex at the Company’s headquarters in Omaha, Nebraska, which is a lease with a U.S. bank. The Company makes lease payments on the entire office complex and leases other office space in the complex to outside parties. The current lease obligation is through 2003, at which time the Company may elect to 1) renew the lease at a negotiated rate and duration; 2) purchase the facility from the bank for $35 million; or 3) terminate the lease. In the event that the Company terminates the lease and the facility is sold for less than $35 million, the Company is obligated to pay the difference between the sales price and the $35 million to the bank. (4) Bank Credit Arrangements The Company maintains various lines of credit for short-term borrowings totaling $36,014. 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 $29,455 at December 29, 2001. The lines of credit can be modiﬁed at any time at the option of the banks. The Company pays no fees in connection with the lines of credit. In addition to the lines of credit, the Company also maintains other short-term bank loans. The weighted average interest rate on short-term borrowings was 4.8% at December 29, 2001 and 6.5% at December 30, 2000. Income Taxes (5) Income tax expense (beneﬁt) consists of: 2001 2000 1999 Current: Federal State Foreign Deferred: Federal State Foreign $ 9,684 1,082 3,307 $ 14,073 $ 4,326 214 (713) $ 3,827 $ 17,900 The reconciliations of the statutory Federal income tax rate and the effective tax rate follows: Statutory Federal income tax rate State income taxes,net of Federal beneﬁt Carryforwards, credits and changes in valuation allowances Other 2001 35.0% 2.2% (2.1%) 1.8% 36.9% $ 12,961 1,274 3,265 $ 17,500 $ 1,424 75 (999) $ 500 $ 18,000 2000 35.0% 2.6% (2.4%) 0.8% 36.0% $ 11,989 927 3,784 $ 16,700 $ (168) (29) (703) $ (900) $ 15,800 1999 35.0% 2.2% (0.7%) 0.5% 37.0% 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: Deferred income tax assets: Accrued expenses and allowances Operating loss and tax credit carryforwards Inventory capitalization Gross deferred income tax assets Valuation allowance Total deferred income tax assets Deferred income tax liabilities: Property, plant and equipment Lease transactions Other liabilities Total deferred income tax liabilities Net deferred income tax liabilities 2001 2000 $ 21,860 1,727 1,726 25,313 – $ 25,313 10,817 4,996 12,845 28,658 $ 17,523 1,580 2,025 21,128 (900) $ 20,228 12,763 3,673 7,314 23,750 $ 3,345 $ 3,522 At December 29, 2001, 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) Long-Term Debt 9.40% promissory note, unsecured 6.80% to 8.08% promissory notes, unsecured (a) Revolving credit agreement (b) IDR Bonds (c) 3.0% to 6.50% notes Total long-term debt Less current installments of long-term debt Long-term debt, excluding current installments $ 2001 – 100,000 77,500 8,500 12,008 198,008 11,062 $ 186,946 2000 $ 2,250 95,000 90,500 8,500 9,222 205,472 3,496 $ 201,976 (a) 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. (b) The revolving credit agreement is an unsecured facility with a group of banks for a maximum of $150,000. The facility has a termination date of August 21, 2006. 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 29, 2001 was 0.75%) or up to $60,000 at a rate determined through a competitive bid process. The effective interest rate at December 29, 2001 was 2.68% and at December 30, 2000 was 7.28%. (c) 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 29, 2001 was 1.70%. 58 | 59 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 777,640 shares of Company common 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 is in compliance with all debt covenants. The minimum aggregate maturities of long-term debt for each of the four years following 2002 are: $15,541, $14,320, $15,202 and $91,774. (7) Stock Plans The Company maintains stock-based compensation plans approved by the shareholders, which provide that the Compensation Committee of the Board of Directors may grant incentive stock options, nonqualiﬁed stock options, stock appreciation rights, restricted stock awards and bonuses of common stock. At December 29, 2001, 517,922 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 2001, 2000 or 1999. 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 Diluted Pro forma: Basic Diluted 2001 2000 1999 $ 26,693 $ 23,981 $ $ $ $ 1.10 1.09 0.99 0.98 $ 30,400 $ 27,939 $ $ $ $ 1.31 1.28 1.20 1.18 $ 26,367 $ 24,441 $ $ $ $ 1.09 1.08 1.01 1.00 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 2001, 2000 and 1999: Expected volatility Risk-free interest rate Expected life from vesting date Dividend yield 2001 50% 3.84% 2.6 yrs. 1.54% 2000 46% 4.81% 2.6 yrs. 1.46% 1999 41% 6.43% 2.6 yrs 1.36% Following is a summary of the activity of the stock plans during 1999, 2000 and 2001: Outstanding at December 27, 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 Outstanding at December 30, 2000 Granted Exercised Forfeited Outstanding at December 29, 2001 Options exercisable at December 29, 2001 Weighted average fair value of options granted during 2001 Number of Shares 2,180,096 870,047 (96,181) (22,046) 2,931,916 1,348,234 Number of Shares 2,931,916 620,376 (175,536) (251,410) 3,125,346 1,536,263 Number of Shares 3,125,346 533,800 (38,734) (155,568) 3,464,844 2,089,299 Weighted Average Exercise Price $ 15.52 16.37 (9.89) (19.09) $ 15.93 $ 14.91 $ 6.48 Weighted Average Exercise Price $ 15.93 19.44 (11.52) (18.04) $ 16.70 $ 15.76 $ 7.54 Weighted Average Exercise Price $ 16.70 14.70 (12.26) (18.35) $ 16.37 $ 16.41 $ 5.92 60 | 61 Following is a summary of the status of stock options outstanding at December 29, 2001: Outstanding and Exercisable By Price Range Options Outstanding Options Exercisable Exercise Price Range $ 6.00-13.91 14.87-16.69 17.28-19.97 20.32-23.00 Number 988,147 1,112,792 1,003,480 360,425 3,464,844 Weighted Average Remaining Contractual Life Weighted Average Exercise Price $ 6.06 years 7.26 years 7.47 years 5.46 years 11.79 16.25 19.07 21.79 Weighted Average Exercise Price $ 10.35 16.23 19.17 21.76 Number 536,014 662,191 540,669 350,425 2,089,299 (8) Earnings Per Share The following table provides a reconciliation between Basic and Diluted earnings per share (EPS). 2001: Net earnings Shares outstanding Per share amount 2000: Net earnings Shares outstanding Per share amount 1999: Net earnings Shares outstanding Per share amount Dilutive Effect of Diluted Basic EPS Stock Options EPS $ 26,693 24,280 1.10 $ $ 30,400 23,276 1.31 $ $ 26,367 24,158 1.09 $ – 244 – – 498 – – 255 – $ 26,693 24,524 1.09 $ $ 30,400 23,774 1.28 $ $ 26,367 24,413 1.08 $ Treasury Stock (9) 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 29, 2001, a total of 4.8 million shares had been purchased for $79,160 including 103,500 shares purchased during 2001 at a cost of $1,373. In December of 2001, the Company’s Board of Directors cancelled the above authorization and reauthorized management to repurchase 1.5 million shares of the Company’s common stock. At December 29, 2001, no shares had been repurchased under this authorization. (10) Employee Retirement Savings Plan Established under Internal Revenue Code Section 401(k), the Valmont Employee Retirement Savings Plan (“VERSP”) 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 2001, the deﬁned contribution plan covering the employees of Microﬂect was merged into the VERSP plan. In addition, the Company has a money purchase pension plan and a proﬁt sharing plan covering the employees of PiRod, Inc.; contributions under these plans are based primarily on the performance of the business unit and employee compensation. The 2001, 2000 and 1999 Company contributions to these plans amounted to approximately $6,200, $6,300 and $5,100, respectively. The Company also offers a fully-funded, non-qualiﬁed deferred contribution plan for certain Company executives who otherwise would be limited in making pretax contributions into VERSP under Internal Revenue Service regulations. The invested assets and related liabilities to these participants were $11.0 million and $12.0 million at December 29, 2001 and December 30, 2000, respectively. Such amounts are included in “Goodwill and other assets” and “Other noncurrent liabilities” on the Consolidated Balance Sheets. (11) Research and Development Research and development costs are charged to operations in the year incurred. Research and development expenses were approximately $3,900 in 2001, $4,400 in 2000, and $2,500 in 1999. (12) Disclosures About the Fair Value of Financial Instruments The carrying amount of cash and cash equivalents, receivables, accounts payable, notes payable to banks and accrued expenses approximate fair value because of the short maturity of these instruments. The fair values of each of the Company’s long-term debt instruments are based on the amount of future cash ﬂows associated with each instrument discounted using the Company’s current borrowing rate for similar debt instruments of comparable maturity. The fair value estimates are made at a speciﬁc point in time and the underlying assumptions are subject to change based on market conditions. At December 29, 2001, the carrying amount of the Company’s long-term debt was $198,008 with an estimated fair value of approximately $200,818. (13) Stockholders’ Right Plan 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. (14) Acquisitions and Divestiture On March 30, 2001, the Company’s Wireless Communication segment acquired all the outstanding shares of PiRod Holdings, Inc. and subsidiary (PiRod), a manufacturer of towers, components and poles located in Plymouth, Indiana. The Company issued 1.2 million shares of Company common stock and $33.4 million of cash was paid to retire PiRod long-term debt. The excess of purchase price over fair value of net assets acquired was $6.5 million and was recorded as goodwill. The purchase price allocation will be completed upon ﬁnalization of asset and liability valuations. Goodwill and other intangible assets arising from the transaction are being amortized over their estimated useful lives. The Company’s summary proforma results of operations for the ﬁfty-two and ﬁfty-three week periods ended December 29, 2001 and December 30, 2000, respectively, assuming the transaction occurred at the beginning of the periods presented are as follows: Net sales Net earnings Earnings per share–diluted Fifty-two and Fifty-three Weeks Ended December 30, 2000 December 29, 2001 $ 887,508 27,676 1.11 $ 929,906 36,436 1.46 62 | 63 During 2000 the Company’s Irrigation segment invested $6.6 million cash in the investment in a new irrigation equipment manufacturing plant in the United Arab Emirates; 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. The Coatings segment invested $40.8 million in facilities located in Illinois, Minnesota, California and Iowa. The Poles segment invested $12.7 million in an aluminum pole manufacturer in Minnesota and a minority interest in a joint venture in Mexico. The Tubing segment invested $3.1 in a tubing business in Nebraska. 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 a nonconsolidated investment in an irrigation-related business for $8.3 million and realized a gain of $2.8 million. 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. (15) Business Segments Beginning in 2001, the Company has aggregated its businesses into ﬁve reportable segments: > Poles: This segment consists of the manufacture of engineered metal structures for the lighting and traffic and utility industries; and > Wireless Communication: This segment consists of the manufacture of tower and pole structures and components for the wireless telephone industry; and Business Segment Information Summary by Business Segments Sales: Poles: Lighting & Traffic Utility Poles segment Wireless Communication: Structures Components Wireless Communication segment Coatings segment Irrigation segment Tubing segment Other Total > Coatings:This segment consists of coatings services for industrial customers; and Intersegment Sales: > Irrigation: This segment consists of the manufacture of irrigation equipment and related parts and services to agricultural customers; and > Tubing: This segment consists of the manufacture of tubular products for industrial customers. In addition to these ﬁve reportable segments, the Company has other businesses that individually are not more than 10% of consolidated sales. These businesses, which include pressure vessels, machine tool accessories and industrial fasteners, are reported in the “Other” category. Prior period information is presented in accordance with the current reportable segment structure. 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. Poles–Lighting Coatings Irrigation Tubing Other Total Poles segment: Lighting & Traffic Utility Poles segment Net Sales: Wireless Communication segment: Structures Components Wireless Communication segment Coatings segment Irrigation segment Tubing segment Other Total 2001 2000 1999 $ 218,122 135,876 353,998 80,451 41,107 121,558 116,245 238,657 51,881 20,153 $ 211,374 98,677 310,051 63,399 29,180 92,579 116,115 291,148 58,515 27,130 $ 182,352 68,679 251,031 49,965 18,218 68,183 54,963 228,564 42,770 28,719 $ 902,492 $ 895,538 $ 674,230 $ $ – 17,048 78 9,513 3,473 30,112 218,122 135,876 353,998 80,451 41,107 121,558 99,197 238,579 42,368 16,680 $ 71 21,968 7,583 15,218 4,569 49,409 211,303 98,677 309,980 63,399 29,180 92,579 94,147 283,565 43,297 22,561 – 17,943 386 13,408 2,624 34,361 182,352 68,679 251,031 49,965 18,218 68,183 37,020 228,178 29,362 26,095 $ 872,380 $ 846,129 $ 639,869 64 | 65 Business Segment Information (Continued) Summary by Business Segments Business Segment Information (Continued) Summary by Business Segments Operating Income: Poles segment $ 34,095 $ 21,657 $ 15,311 Summary by Geographical Area by Location of Valmont Facilities: Net Sales: 2001 2000 1999 2001 2000 1999 Wireless Communication segment Impairment charge Total Wireless Communication segment Coatings segment Irrigation segment Gain on sale of investment Total Irrigation segment Tubing segment Other Total Interest expense, net Miscellaneous Earnings before income taxes, minority interest, and equity in earnings (losses) of nonconsolidated subsidiaries Total Assets: Poles Wireless Communication Coatings Irrigation Tubing Other Total Capital Expenditures: Poles Wireless Communication Coatings Irrigation Tubing Other Total Depreciation and Amortization: Poles Wireless Communication Coatings Irrigation Tubing Other Total (1,553) – (1,553) 9,391 15,452 – 15,452 5,800 1,836 2,301 – 2,301 13,466 21,218 – 21,218 7,579 1,035 87 (1,915) (1,828) 7,020 21,305 2,823 24,128 4,601 944 United States France Other Total Operating Income: United States France Other Total $ 65,021 $ 67,256 $ 50,176 Long-Lived Assets: United States France Other Total $ 725,643 52,593 94,144 $ 689,353 55,379 101,397 $ 502,545 56,580 80,744 $ 872,380 $ 846,129 $ 639,869 $ $ $ 54,610 2,551 7,860 65,021 274,501 11,806 17,992 $ $ $ 56,648 3,279 7,329 67,256 258,384 13,443 15,249 $ $ $ 41,630 1,066 7,480 50,176 167,081 14,724 17,497 $ 304,299 $ 287,076 $ 199,302 No single customer accounted for more than 10% of net sales in 2001, 2000, or 1999. 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. (16,030) (524) (16,020) (1,198) (7,139) (306) $ 48,467 $ 50,038 $ 42,731 $ $ $ $ $ $ 202,933 102,541 104,675 140,527 29,079 9,142 $ 210,525 62,487 105,069 177,541 31,522 12,991 $ 166,310 48,836 39,460 139,759 10,541 14,429 588,897 $ 600,135 $ 419,335 14,678 1,776 2,063 4,721 2,283 131 25,652 12,303 4,325 7,800 9,816 2,054 26 36,324 $ $ $ $ 24,864 1,911 4,260 14,853 432 136 46,456 10,012 829 7,624 9,147 1,917 741 30,270 $ $ $ 7,739 1,155 4,298 23,587 310 694 37,783 9,436 1,386 3,553 6,367 509 698 $ 21,949 66 | 67 Quarterly Financial Data (Unaudited) (Dollars in thousands, except per share amounts) Net Sales Net Earnings Gross Proﬁt Amount Basic Per Share Diluted High Stock Price Dividends Low Declared 2001 First Second Third Fourth Year 2000 First Second Third Fourth Year 1999 First Second Third Fourth Year $ 204,267 $ 49,738 $ 4,791 $ 59,232 53,134 55,517 $ 872,380 $ 217,621 $ 26,693 $ 232,889 209,287 225,937 8,468 6,951 6,483 $ 196,838 $ 49,901 $ 7,529 $ 57,241 51,075 53,666 $ 846,129 $ 211,883 $ 30,400 $ 224,876 201,676 222,739 9,065 6,885 6,921 $ 160,729 $ 40,398 $ 5,761 $ 43,594 40,003 48,751 $ 639,869 $ 172,746 $ 26,367 $ 169,457 144,766 164,917 6,902 5,692 8,012 0.20 $ 0.34 0.28 0.26 1.10 $ 0.32 $ 0.39 0.30 0.30 1.31 $ 0.23 $ 0.28 0.24 0.34 1.09 $ 0.20 $ 20.69 $ 14.50 $ 0.065 0.065 0.34 0.065 0.28 0.065 0.26 0.26 1.09 $ 20.69 $ 12.12 $ 18.30 18.16 16.38 14.12 12.12 12.51 0.32 $ 20.25 $ 14.50 $ 0.065 0.065 0.38 0.065 0.29 0.065 0.29 0.26 1.28 $ 21.69 $ 13.88 $ 20.00 21.69 21.69 15.94 17.13 13.88 0.23 $ 14.75 $ 11.25 $ 0.065 0.065 0.28 0.065 0.23 0.065 0.33 0.26 1.08 $ 18.25 $ 11.25 $ 18.25 17.25 17.88 13.31 14.75 13.13 Earnings per share are computed independently for each of the quarters. Therefore, the sum of the quarterly earnings per share may not equal the total for the year. Independent Auditors’ Report To the Board of Directors and Shareholders of Valmont Industries, Inc. Valley, Nebraska We have audited the accompanying consolidated balance sheets of Valmont Industries, Inc. and subsidiaries as of December 29, 2001 and December 30, 2000, and the related consolidated statements of operations, shareholders' equity and cash ﬂows for each of the three years in the period ended December 29, 2001. 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 29, 2001 and December 30, 2000, and the results of their operations and their cash ﬂows for each of the three years in the period ended December 29, 2001 in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Omaha, Nebraska February 8, 2002 Report of Management The consolidated ﬁnancial statements of Valmont Industries, Inc. and subsidiaries and the other information contained in the Annual Report were prepared by and are the responsibility of management. The statements have been prepared in accordance with generally accepted accounting principles and necessarily include amounts based on management’s best estimates and judgements. In fulﬁlling its responsibilities, management relies on a system of internal controls which provide reasonable assurance that the ﬁnancial records are reliable for preparing ﬁnancial statements and maintaining accountability of assets. Internal controls are designed to reduce the risk that material errors or irregularities in the ﬁnancial statements may occur and not be timely detected. These systems are augmented by written policies, careful selection and training of qualiﬁed personnel, an organizational structure providing for the division of responsibilities and a program of ﬁnancial, operational and systems audits. The Company also has a business ethics policy which requires employees to maintain high ethical standards in the conduct of Company business. The Audit Committee, composed of non-employee directors, is responsible for recommending to the Board of Directors, subject to ratiﬁcation of shareholders, the independent accounting ﬁrm to be retained each year. The Audit Committee meets regularly,and when appropriate separately, with the independent certiﬁed public accountants, management and the internal auditors to review the ﬁnancial statements of the Company, the independence and performance of the Company’s independent auditors, and the compliance by the Company with legal and regulatory requirements. 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 68 | 02 Officers and Management The Board of Directors 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 Monday, April 29, 2002, 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 2001 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 402.963.1000 Phone: 402.963.1198 Fax: 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 Steven G. Branscombe Vice President Information Systems Mark C. Jaksich Vice President Corporate Controller P. Thomas Pogge Vice President General Counsel and Secretary Mark E. Treinen Vice President Business Development Poles Division Mark R. Richards President Keith A. Huffman Vice President Global Operations Wireless Communication Division Myron Noble President PiRod Richard M. Sampson Vice President and General Manager Utility Products and Services Doug Kochenderfer Vice President General Manager Valmont Microﬂect 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 Coatings Division Jeffrey Briggs President Richard S. Cornish Vice President Operations Irrigation Division Thomas D. Spears President Duane Bier Vice President Operations James L. Brown Director North American Sales William G. Loughman III Vice President Parts and Service Terry Rahe President Cascade Earth Sciences Tubing 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 2002: Dain Rauscher Inc., Herzog, Heine, Geduld, Inc., Knight Securities, L.P., Spear, Leeds & Kellogg, Sherwood Securities, Jeffries & Co., Fahnstock & Co., Inc. Visit Valmont’s Web site: www.valmont.com From left to right: Thomas F. Madison Mogens C. Bay Kenneth E. Stinson Robert B. Daugherty John E. Jones Walter Scott, Jr. Charles D. Peebler, Jr. Bruce Rohde 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 Bruce Rohde Chairman and Chief Executive Officer ConAgra Foods, 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 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 Audit Committee Walter Scott, Jr., Chairman John E. Jones Charles D. Peebler, Jr. Compensation Committee Thomas F. Madison, Chairman Charles D. Peebler, Jr. OneValmont Plaza Omaha, Nebraska 68154-5215 USA Phone 402.963.1000 Fax 402.963.1198 www.valmont.com

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