2004 annual report
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.
inside
1 Financial Highlights 2 Letter To Fellow Shareholders
6 Global Presence 8 At A Glance 10 Selected 11-Year Financial Summary
Form 10-K Officers, Directors and Corporate Information
vision
highlights
6
4
8
$
2
7
8
$
5
5
8
$
8
3
8
$
1
3
0
,
1
$
3
.
7
6
$
0
.
5
6
$
3
.
0
7
$
6
.
4
5
$
1
.
0
7
$
8
2
.
1
$
9
0
.
1
$
7
3
.
1
$
5
0
.
1
$
0
1
.
1
$
oo o1 o2 o3 o4
oo o1 o2 o3 o4
oo o1 o2 o3 o4
Net
Sales
Operating
Income
Diluted Earnings
Per Share
Valmont is recognized throughout the world as an industry leader in engineered support structures
Dollars in millions, except per share amounts
2004
2003
2002
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.
inside
1 Financial Highlights 2 Letter To Fellow Shareholders
6 Global Presence 8 At A Glance 10 Selected 11-Year Financial Summary
Form 10-K Officers, Directors and Corporate Information
operating results
Net sales
Operating income
Net earnings
Diluted earnings per share
Dividends per share
financial position
Shareholders’ equity
Long-term debt as a % of invested capital1
operating profits
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 capital1
year-end data
Shares outstanding (000)
Approximate number of shareholders
Number of employees
$
$
1,031.5
70.1
26.9
1.10
0.320
294.7
46.3%
23.8%
6.8%
2.6%
10.1%
7.6%
24,162
5,600
5,542
$
$
837.6
54.6
25.5
1.05
0.315
265.5
30.9%
24.8%
6.5%
3.0%
10.5%
7.4%
23,825
5,400
5,074
$
$
854.9
70.3
33.6
1.37
0.290
242.0
36.8%
27.1%
8.2%
3.9%
14.9%
9.7%
23,883
5,500
5,234
1 See footnote (2) on page 10 and items (a) and (b) on page 21 of Form 10-K
valmont industries 2004 annual report | page 1
letter to fellow
shareholders
Valmont’s 2004 financial performance showed a substantial improvement over 2003, with operating
income up 28% on a 23% increase in sales. All segments contributed to the improved performance
with the exception of the Coatings Segment. Net income increased 5%, after taking a $6.1 million
after-tax charge to refinance our debt facilities during the second quarter.
Our 2004 performance should be viewed in light of
As we pursue growth opportunities, we continue
the volatile steel market over the past 18 months. Rapid
to look for areas where we can leverage our products,
and severe price increases in steel and tight supplies led
markets and capabilities. We completed several acqui-
to a very challenging operating environment. While
sitions in 2004 that met these criteria.
I often comment on the cyclical nature of our various
First, we purchased Newmark International, the
businesses, and that many of the drivers of these cycles
largest U.S. manufacturer of pre-stressed spun concrete
are different from business to business, the cost of steel
utility poles. Newmark’s six concrete pole plants and
impacts all of our businesses in significant ways. Faced
one steel pole plant broadens our product offering to the
with such dramatic cost increases, we reacted quickly
electrical utility industry. We recognize the strength and
and appropriately to raise prices in the markets we serve
value of both the Valmont and Newmark brands, and
in order to preserve our profitability. Except for certain
our utility products will all carry the brand of Valmont-
government projects, our pricing actions preserved all
Newmark in the U.S. The combined businesses formed
but approximately one percentage point of gross profit
the Utility Support Structures Segment. This facilitates
compared to 2003. We expect more stability in the steel
better communication with customers and brings all of
market during 2005, and also do not anticipate the
our utility products and resources together to develop
tightness in availability we experienced in 2004.
optimal solutions for addressing customer needs.
valmont industries 2004 annual report | page 2
We also completed two acquisitions that broad-
2004. We saw improvements during 2004 across the U.S.,
ened our product offering in the Engineered Support
Europe and China, representing all major geographic
Structures Segment. W. J. Whatley, a fiberglass pole
areas we serve. Certain lighting and transportation
manufacturer based in Denver, enhances our offering
projects have long lead-times funded by government
of decorative lighting structures. Sigma Industries,
programs that did not allow for price adjustments to
a sign structure manufacturer based in Delaware,
recover higher raw material costs, which impeded
expands our presence on the east coast. Both Whatley
further profitability gains. The lack of a new multi-year
and Sigma are solid strategic fits that should enable us
highway bill in the U.S. creates delays and uncertainty
to better serve our customers.
in this important market. We believe that Congress will
Our Irrigation Segment posted solid results. There
enact highway legislation soon. We expect this Segment
was good activity in the U.S. market, and the interna-
to further improve both sales and operating income
tional markets we serve were strong. Looking forward,
in 2005. Our steel pole plant in Shanghai marked its
demand has softened as commodity prices have weak-
eighth consecutive year of improved sales and earnings
ened and energy prices have increased. Higher sales
and we continue to build upon this success. Our Board
prices for our equipment reflecting much higher steel
of Directors has approved the construction of another
costs have also curbed demand. Although the economic
pole plant in Southern China, which we expect will be
justification for mechanized irrigation remains strong,
producing poles later this year.
we believe that for the Irrigation Segment, 2005 results
Valmont’s Tubing Segment had an outstanding
will not exceed 2004 levels.
year, posting record sales and earnings. For much of
The Engineered Support Structures Segment, which
the year, steel availability was an issue for the industry.
primarily serves the lighting and traffic markets world-
We maintained sufficient steel inventories to grow this
wide, improved both sales and operating income during
business nicely. As steel has become more available
valmont industries 2004 annual report | page 3
during 2005, we expect stronger competition and
certified by an independent engineering group, the final
somewhat lower results.
step before initial commercial production and sales.
Our Coatings Segment had a difficult year. Most
A major financial development for Valmont in 2004
locations delivered improved profitability, but this
was the refinancing of our balance sheet, including the
was more than offset by a disappointing performance
issuance of $150 million of senior subordinated debt.
by our anodizing business in California. This facility
This debt offering was timely, given our acquisition of
faced lower sales to a major customer and significant
Newmark and historically low interest rates.
workers’ compensation charges. For the current year,
I am always impressed with how well the Valmont
we expect the Coatings Segment to deliver improved
organization responds to new challenges and 2004
earnings under similar volume levels.
was no exception as we managed through the steel
The Utility Support Structures Segment returned to
price issues. I thank all my fellow employees for their
profitability in 2004, as customer demand and pricing
continued dedication to Valmont’s success. One area
levels improved, compared to a very difficult compet-
that directly affects each employee is safety. I am
itive environment in 2003. The Newmark acquisition,
happy to report our fourth consecutive year of safety
which made a significant contribution to our 2004
performance improvement. We believe that the safety
results, should further enhance the performance of this
performance system now in place will enable us to
Segment going forward.
make further progress. Managers throughout the
In our research and development project for wind
Company embrace their role in this key area, and are
turbine structures, design changes to the product made
measured on their safety performance.
during 2004 broaden its universe of applications, while
There is no doubt in my mind that our performance
retaining its advantages over conventional wind turbine
over time is directly linked to the active engagement
structures. The new design is now in the process of being
of our employees and our challenge is to continue to
valmont industries 2004 annual report | page 4
foster an environment conducive to active participa-
Overall, I am pleased with the progress we made
tion and engagement. To that end, we have retained
in 2004, but not fully satisfied with our results. Our
the Gallup organization to implement the Q12 process
Operating Income as a percentage of sales needs to
to assist us in these efforts. The Gallup organization
be higher, and we will continue to work on raising it.
has developed a focused questionnaire that was taken
Likewise, we need to utilize our invested capital more
by every Valmont employee. The responses to these
efficiently in order to achieve a stronger return on cap-
questionnaires provided the basis for development
ital. Our future surely holds both many challenges as
of better communication, better supervisory skills
well as plenty of opportunities. Our commitment to
and stronger employee engagement. The Gallup Q12
you is that we will continue our efforts to overcome
program gives our employees a stake in monitoring
these challenges and capture these opportunities to
and improving their own work processes. That sense
create value for all of our stakeholders.
of empowerment and ownership should have positive
repercussions throughout all of our businesses.
I look forward to reporting to you on our progress, and thank you for your continued support.
Sincerely,
Mogens C. Bay
Chairman and Chief Executive Officer
valmont industries 2004 annual report | page 5
global presence
Albany, Oregon, Usa
Cascade Earth Sciences
Bartow, Florida, Usa
Concrete Poles
Bay Minette, Alabama, Usa
Concrete Poles
Brenham, Texas, Usa
Steel Poles
Chicago, Illinois, Usa
Galvanizing
Claxton, Georgia, Usa
Concrete Poles
Commerce City, Colorado, Usa
Composite Poles
El Dorado, Kansas, Usa
Steel Poles
Elkhart, Indiana, Usa
Steel And Aluminum Poles
Farmington, Minnesota, Usa
Aluminum Poles
Jasper, Tennessee, Usa
Steel Poles
Mccook, Nebraska, Usa
Irrigation Equipment
Minneapolis, Minnesota, Usa
Anodizing, Powder Coating
and E-coating
Omaha, Nebraska, Usa
Corporate Headquarters
Plymouth, Indiana, Usa
Wireless Communication
Structures and Components
and Specialty Structures
Salem, Oregon, Usa
Wireless Communication
Structures and Components
and Specialty Structures
Lindon, Utah, Usa
Galvanizing and Powder Coating
Selbyville, Delaware, Usa
Specialty Structures
Long Beach, California, Usa
Galvanizing
Sioux City, Iowa, Usa
Galvanizing
Los Angeles, California, Usa
Anodizing and Powder Coating
Mansfield, Texas, Usa
Steel Poles
Tualatin, Oregon, Usa
Galvanizing
Tulsa, Oklahoma, Usa
Steel Poles and Galvanizing
valmont industries 2004 annual report | page 6
Tuscaloosa, Alabama, Usa
Concrete Poles
Valley, Nebraska, Usa
Irrigation Equipment, Steel Poles,
Tubing and Galvanizing
Waverly, Nebraska, Usa
Steel Tubing
West Point, Nebraska, Usa
Galvanizing
Uberaba, Brazil
Irrigation Equipment
St. Julie, Quebec, Canada
Aluminum Poles
Monterrey, Mexico
Steel Poles
Rive-de-gier, France
Aluminum Poles
Shanghai, China
Steel Poles
Siedlce, Poland
Steel Poles
Berrechid, Morocco
Steel Poles
Charmeil, France
Steel Poles
Jebel Ali, U.a.e.
Irrigation Equipment
Johannesburg, South Africa
Irrigation Equipment
Maarheeze, The Netherlands
Steel Poles
Chesterfield, United Kingdom
Steel Poles
Madrid, Spain
Irrigation Equipment
Creuzier-le-neuf, France
Industrial Covers And Conveyers
Gelsenkirchen, Germany
Steel Poles
valmont industries 2004 annual report | page 7
at a glance
Infrastructure
Engineered Support Structures
Lighting and Traffic Poles and Structures
Area lighting poles for parking lots and public areas.
Sports lighting structures for arenas and stadiums.
Decorative lighting poles. Traffic and sign structures.
Street and high-mast lighting poles.
Specialty Structures
Monopoles, towers and structures for cellular, PCS,
broadcast, microwave and two-way communications.
Wireless communication components. Minimum visual
impact structures. Overhead sign structures.
Utility Poles
and Structures
Utility transmission and distribution
poles. Utility substation structures.
Coatings for
Metal Products
Galvanizing, anodizing, powder
coatings and integrated graphics.
Agriculture
Irrigation and
Water Management
Mechanized irrigation systems.
Wastewater consulting services
Tubing
Custom-made tubing used for mufflers,
fire extinguishers, grain augers, railings,
fences and other industrial applications.
valmont industries 2004 annual report | page 8
financial summary
and form 10-K
Selected 11-Year Financial Summary
(Dollars in thousands, except per share amounts)
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
OPERATING DATA
Net sales
Operating income
Earnings from continuing operations
Earnings from discontinued operations
Cumulative effect of accounting change
Net earnings
Depreciation and amortization
Capital expenditures
Effective tax rate
PER SHARE DATA1
Earnings:
Basic
Diluted
Cash dividends
INVESTED CAPITAL
Total assets
Less: accounts payable
Less: accrued expenses
Less: dividends payable
Total invested capital
FINANCIAL POSITION
Working capital
Property, plant and equipment, net
Total assets
Long-term debt, including current installments
Shareholders’ equity
KEY FINANCIAL MEASURES2
Return on beginning shareholders’ equity
Return on invested capital
Long-term debt as a percent of invested capital
YEAR END DATA
Shares outstanding (000)1
Approximate number of shareholders
Number of employees
$
$
$
$
$
$
$
1,031,475
70,112
26,881
–
–
26,881
38,644
17,182
36.0%
1.13
1.10
0.320
836,108
(69,979)
(66,506)
(1,932)
697,691
277,444
205,655
836,108
322,775
294,655
10.1%
7.6%
46.3%
24,162
5,600
5,542
837,625
54,623
25,853
–
(366)
25,487
34,597
17,679
36.3%
1.07
1.05
0.315
604,797
(63,256)
(55,856)
(1,921)
483,764
169,568
190,103
604,797
149,662
265,494
10.5%
7.4%
30.9%
23,825
5,400
5,074
854,898
70,289
34,129
–
(500)
33,629
33,942
13,942
36.5%
1.40
1.37
0.290
578,571
(55,198)
(69,828)
(1,792)
451,753
154,112
193,175
578,571
166,391
242,020
14.9%
9.7%
36.8%
23,883
5,500
5,234
872,380
65,021
26,693
–
–
26,693
36,324
25,652
36.9%
1.10
1.09
0.260
588,897
(57,027)
(58,042)
(1,598)
472,230
145,550
209,580
588,897
198,008
225,811
13.9%
8.6%
41.9%
24,477
5,500
5,342
1
2
Per share amounts and number of shares reflect the two-for-one stock split in 1997.
Operating Income after tax is calculated as ((Operating income-(Operating income multiplied by the Effective tax rate)).
Return on beginning shareholders’ equity is calculated as Net earnings divided by the prior year’s ending Shareholders’ equity.
Average invested capital is calculated as (prior year Invested capital plus current year Invested capital) divided by 2.
Return on invested capital is calculated as Operating income after-tax divided by the average invested capital.
Long-term debt as a percent of invested capital is calculated as Long-term debt, including current installments divided by Total invested capital.
valmont industries 2004 annual report | page 10
846,129
67,256
30,400
–
–
30,400
30,270
46,456
36.3%
1.31
1.28
0.260
600,135
(63,005)
(56,005)
(1,516)
479,609
145,575
208,272
600,135
205,472
191,911
17.8%
10.7%
42.8%
23,320
5,500
5,503
639,869
50,176
26,367
–
–
26,367
21,949
37,783
36.9%
1.09
1.08
0.260
419,335
(46,753)
(49,962)
(1,524)
321,096
98,588
173,920
419,335
108,622
170,488
15.0%
9.9%
33.8%
23,354
5,500
3,948
630,858
47,752
27,636
–
–
27,636
19,843
29,667
36.5%
1.04
1.02
0.250
406,957
(45,996)
(41,646)
(1,607)
317,708
99,466
157,447
406,957
96,218
175,913
13.3%
10.3%
30.3%
24,721
5,500
3,869
622,506
61,990
37,544
–
–
37,544
16,437
39,115
36.3%
1.36
1.33
0.220
368,052
(48,717)
(47,380)
(1,555)
270,400
94,416
140,834
368,052
28,060
207,102
21.4%
15.4%
10.4%
27,641
5,400
3,751
644,531
36,644
21,248
–
–
21,248
14,832
35,559
35.6%
0.78
0.76
0.190
341,648
(43,699)
(52,678)
(1,366)
243,905
81,403
120,579
341,648
29,573
175,231
13.3%
10.3%
12.1%
27,330
4,400
4,868
544,642
41,831
24,759
–
–
24,759
12,361
34,772
35.7%
0.92
0.90
0.150
308,710
(46,900)
(45,475)
(1,017)
215,318
80,993
113,532
308,710
36,687
159,256
18.0%
13.0%
17.0%
27,120
3,900
4,166
501,740
31,679
18,887
–
18,887
11,018
23,535
36.1%
0.70
0.69
0.150
283,443
(44,504)
(40,481)
(866)
197,592
88,278
89,201
283,443
43,242
137,582
15.5%
10.7%
21.9%
26,990
3,800
3,946
Selected 11-Year Financial Summary
(Dollars in thousands, except per share amounts)
OPERATING DATA
Net sales
Operating income
Earnings from continuing operations
Earnings from discontinued operations
Cumulative effect of accounting change
Net earnings
Depreciation and amortization
Capital expenditures
Effective tax rate
PER SHARE DATA1
Earnings:
Basic
Diluted
Cash dividends
INVESTED CAPITAL
Total assets
Less: accounts payable
Less: accrued expenses
Less: dividends payable
Total invested capital
FINANCIAL POSITION
Working capital
Property, plant and equipment, net
Total assets
Long-term debt, including current installments
Shareholders’ equity
KEY FINANCIAL MEASURES2
Return on beginning shareholders’ equity
Return on invested capital
Long-term debt as a percent of invested capital
YEAR END DATA
Shares outstanding (000)1
Approximate number of shareholders
Number of employees
$
1,031,475
$
836,108
$
$
$
$
$
70,112
26,881
–
–
26,881
38,644
17,182
36.0%
1.13
1.10
0.320
(69,979)
(66,506)
(1,932)
697,691
277,444
205,655
836,108
322,775
294,655
10.1%
7.6%
46.3%
24,162
5,600
5,542
837,625
54,623
25,853
–
(366)
25,487
34,597
17,679
36.3%
1.07
1.05
0.315
604,797
(63,256)
(55,856)
(1,921)
483,764
169,568
190,103
604,797
149,662
265,494
10.5%
7.4%
30.9%
23,825
5,400
5,074
854,898
70,289
34,129
–
(500)
33,629
33,942
13,942
36.5%
1.40
1.37
0.290
578,571
(55,198)
(69,828)
(1,792)
451,753
154,112
193,175
578,571
166,391
242,020
14.9%
9.7%
36.8%
23,883
5,500
5,234
872,380
65,021
26,693
–
–
26,693
36,324
25,652
36.9%
1.10
1.09
0.260
588,897
(57,027)
(58,042)
(1,598)
472,230
145,550
209,580
588,897
198,008
225,811
13.9%
8.6%
41.9%
24,477
5,500
5,342
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
846,129
67,256
30,400
–
–
30,400
30,270
46,456
36.3%
1.31
1.28
0.260
600,135
(63,005)
(56,005)
(1,516)
479,609
145,575
208,272
600,135
205,472
191,911
17.8%
10.7%
42.8%
23,320
5,500
5,503
639,869
50,176
26,367
–
–
26,367
21,949
37,783
36.9%
1.09
1.08
0.260
419,335
(46,753)
(49,962)
(1,524)
321,096
98,588
173,920
419,335
108,622
170,488
15.0%
9.9%
33.8%
23,354
5,500
3,948
630,858
47,752
27,636
–
–
27,636
19,843
29,667
36.5%
1.04
1.02
0.250
406,957
(45,996)
(41,646)
(1,607)
317,708
99,466
157,447
406,957
96,218
175,913
13.3%
10.3%
30.3%
24,721
5,500
3,869
622,506
61,990
37,544
–
–
37,544
16,437
39,115
36.3%
1.36
1.33
0.220
368,052
(48,717)
(47,380)
(1,555)
270,400
94,416
140,834
368,052
28,060
207,102
21.4%
15.4%
10.4%
27,641
5,400
3,751
644,531
36,644
21,248
–
–
21,248
14,832
35,559
35.6%
0.78
0.76
0.190
341,648
(43,699)
(52,678)
(1,366)
243,905
81,403
120,579
341,648
29,573
175,231
13.3%
10.3%
12.1%
27,330
4,400
4,868
544,642
41,831
24,759
–
–
24,759
12,361
34,772
35.7%
0.92
0.90
0.150
308,710
(46,900)
(45,475)
(1,017)
215,318
80,993
113,532
308,710
36,687
159,256
18.0%
13.0%
17.0%
27,120
3,900
4,166
501,740
31,679
18,887
–
18,887
11,018
23,535
36.1%
0.70
0.69
0.150
283,443
(44,504)
(40,481)
(866)
197,592
88,278
89,201
283,443
43,242
137,582
15.5%
10.7%
21.9%
26,990
3,800
3,946
The selected consolidated financial data set forth in the above table have been derived from the Company’s consolidated financial statements. This data should
be read in conjunction with, and are qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the
Company’s Annual Report on Form 10-K, and the Company’s audited consolidated financial statements, including the notes thereto, and the other financial infor-
mation included elsewhere in the Annual Report on Form 10-K filed with the Securities and Exchange Commission.
valmont industries 2004 annual report | page 11
2004 form 10-k
United States
Securities And Exchange Commission
Washington, D.C. 20549
Form 10-K
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 25, 2004
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-31429
Valmont Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
One Valmont Plaza,
Omaha, Nebraska
(Address of Principal Executive Offices)
47-0351813
(I.R.S. Employer
Identification No.)
68154-5215
(Zip Code)
(402) 963-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of exchange on which registered
Common Stock $1.00 par value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by refer-
ence in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No
At March 1, 2005 there were 24,210,957 of the Company’s common shares outstanding. The aggregate market value of
the voting stock held by non-affiliates of the Company based on the price the common shares were last sold on June 25, 2004
was $327,829,000.
Portions of the Company’s proxy statement for its annual meeting of shareholders to be held on April 25, 2005 (the “Proxy
Statement”), to be filed within 120 days of the fiscal year ended December 25, 2004, are incorporated by reference in Part III.
Documents Incorporated By Reference
valmont industries 2004 form 10k
Valmont Industries, Inc.
Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
For the Fiscal Year Ended December 25, 2004
Table Of Contents
PART I
Item 1.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Market for Registrant’s Common Equity, Related Stockholder Matters,
and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operation
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Page
3
17
19
19
19
20
22
36
36
72
72
75
75
75
75
75
75
76
valmont industries 2004 form 10k | page 2
Part I
Available Information
We make available, free of charge through our Internet web site at http://www.valmont.com, our annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after such material is electronically
filed with or furnished to the Securities and Exchange Commission. We submitted the annual Chief Executive Officer certification
to the NYSE for 2004 as required by Section 303A.12(a) of the NYSE Corporate Governance rules.
We have also posted on our website our (1) Corporate Governance Principles, (2) charters for the Audit Committee, Com-
pensation Committee, and Governance and Nominating Committee of the Board, (3) Code of Business Conduct, and (4) Code of
Ethics for Senior Officers applicable to the Chief Executive Officer, Chief Financial Officer and Controller. Valmont shareholders
may also obtain copies of these items at no charge by writing to: Investor Relations Department, Valmont Industries, Inc., One
Valmont Plaza, Omaha, NE, 68154.
ITEM 1. BUSINESS.
(a) General Description of Business
General
We are a diversified global producer of fabricated metal products and are a leading producer of metal and concrete pole and
tower structures in our Engineered Support Structures and Utilities Support Structures businesses, and mechanized irrigation
systems in our Irrigation business. We also provide metal coating services, including galvanizing, painting and anodizing in our
Coatings business and manufacture specialty pipe and tubing products in our Tubing business. Our pole and tower structures
are used to support outdoor lighting and traffic control fixtures, electrical transmission lines and related power distribution
equipment, wireless communications equipment and highway signs. Our mechanized irrigation equipment is used to water crops
and deliver chemical fertilizers and pesticides. Our tubing is used in a wide range of specialized agricultural, automotive and
industrial applications, including grain augers and chutes, engine exhausts and pneumatic tubing. Customers and end-users of
our products include state and federal governments, utility and telecommunications companies, manufacturers of commercial
lighting fixtures and large farms as well as the general manufacturing sector. We were founded in 1946, went public in 1968 and
our shares have been traded on The New York Stock Exchange (ticker: VMI) since August 2002, having previously traded on
the NASDAQ National Market.
Business Strategy
Our strategy is to pursue growth opportunities that leverage our existing product portfolio, knowledge of our principal
end-markets and customers and engineering capability to increase our sales, earnings and cash flow, including:
Increasing the Market Penetration of our Existing Products. Our strategy is to increase our market penetration by differenti-
ating our products from our competitors’ products through superior customer service, technological innovation and consistently
high quality. For example, we recently won a significant contract from a sports lighting company that was historically a customer
of one of our competitors. We believe this customer chose to purchase products from us, rather than our competitor, because we
have infrastructure to support it on a worldwide basis and offer superior product quality, service and reliability.
Bringing our Existing Products to New Markets. Our strategy is to expand the sales of our existing products into geographic
areas where we do not currently have a strong presence as well as into applications for which end-users do not currently purchase
our products.
Developing New Products for Markets that We Currently Serve. Our strategy is to grow by developing new products
for markets where we have a comprehensive understanding of end-user requirements and longstanding relationships with key
distributors and end-users. For example, we recently introduced a line of support structures for highway signs and message
boards. The customers for this product line include many of the state governments, construction contractors and independent
distributors that currently purchase our lighting support structures. We believe we will be able to grow sales of our support struc-
tures for highway signs rapidly because we understand these customers’ requirements well and benefit from existing relationships
with them. In addition, our recent acquisition of Newmark enables us to offer concrete utility structures in addition to our current
product offering to the utility industry.
valmont industries 2004 form 10k | page 3
Developing New Products for New Markets to Further Diversify our Business. Our strategy is to increase our sales and
diversify our business by developing new products for new markets. For example, we are in the process of developing a structure
for the wind energy industry that we believe will be more cost effective and easier to install than traditional structures. We believe
this business venture leverages our engineering and manufacturing capabilities and will open new markets for our products.
Acquisitions
We have grown internally and by acquisition and have also divested certain businesses. Our business expansions during the
past five years include:
2000
Acquisitions of four coatings facilities in Minneapolis, Minnesota; Chicago, Illinois; Los Angeles, California; and Sioux
City, Iowa
Acquisition of an aluminum pole manufacturing plant in Farmington, Minnesota
Acquisition of a Tubing business in Waverly, Nebraska
Formation of a 49% owned Engineered Support Structures manufacturing facility in Monterrey, Mexico
Acquisitions of minority interests in irrigation dealers and distributors in Kansas and Argentina
Investment in an Engineered Support Structures manufacturing facility in Jasper, Tennessee
Investment in aluminum extrusion equipment for making aluminum poles in Elkhart, Indiana
2001
Acquisition of PiRod Holdings, Inc. and subsidiary (PiRod), a manufacturer of towers, components and poles located
in Plymouth, Indiana
2004
Acquisition of Newmark International, Inc., a manufacturer of concrete and steel pole structures, headquartered in Birming-
ham, Alabama
Acquisition of a fiberglass pole manufacturer in Commerce City, Colorado
Acquisition of an overhead sign structure manufacturer in Selbyville, Delaware
Purchase of equipment for the manufacture of poles in El Dorado, Kansas
Divestitures during the past five years include the 2000 divestitures of a rolled cylinder business in Tulsa, Oklahoma and
a composite pole plant in Gunnison, Utah.
(b) Operating Segments
We report our businesses as five reportable segments as follows:
Engineered Support Structures: This segment consists of the manufacture of engineered metal structures and components
for the lighting and traffic and wireless communication industries, certain international utility industries and for other specialty
applications
Utility Support Structures: This segment consists of the manufacture of engineered metal and concrete structures for the
North American utility industry
Coatings: This segment consists of galvanizing, anodizing and powder coating services
Irrigation: This segment consists of the manufacture of agricultural irrigation equipment and related parts and services
Tubing: This segment consists of the manufacture of tubular products for industrial customers
valmont industries 2004 form 10k | page 4
In the fourth quarter of 2004, we reorganized our management reporting structure. Our North American Utility business,
formerly included in the Utility product line within the Engineered Support Structures segment, is now combined with the Con-
crete Support Structures segment and is collectively referred to as the Utility Support Structures segment. In addition to these
five reportable segments, we have other businesses that individually are not more than 10% of consolidated sales. Amounts of
revenues, operating income and total assets attributable to each segment for each of the last three years is set forth in Note 19 of
our consolidated financial statements on pages 58-63.
(c) Narrative Description of Business
Information concerning the principal products produced and services rendered, markets, competition and distribution
methods for each of our five reporting segments is set forth below.
Engineered Support Structures Segment:
The Engineered Support Structures segment manufactures and markets engineered metal structures in two broad product lines:
(1) Lighting and Traffic
Products Produced – This product line includes steel and aluminum poles and structures to which lighting and traffic control
fixtures are attached for a wide range of outdoor lighting applications, such as streets, highways, parking lots, sports stadiums and
commercial and residential developments. The demand for these products is driven by commercial and residential construction and
by consumers’ desire for well-lit streets, highways, parking lots and common areas to help make these areas safer at night and to
support trends toward more active lifestyles and 24-hour convenience. In addition to safety, customers want products that are
visually appealing. In Europe, we believe we are a leader in decorative lighting poles, which are attractive as well as functional.
We are leveraging this expertise to expand our decorative product sales in North America and China. Traffic poles are structures
to which traffic signals are attached and aid the orderly flow of automobile traffic. While standard designs are available, poles are
often engineered to customer specifications to ensure the proper function and safety of the structure. Product engineering takes
into account factors such as weather (e.g. wind, ice) and the products loaded on the structure (e.g. lighting fixtures, traffic signals,
signage) to determine the design of the pole.
Markets – The key markets for our lighting and traffic products are the transportation and commercial lighting markets.
The transportation market includes street and highway lighting and traffic control, much of which is driven by government
spending programs. For example, the U.S. government funds highway and road improvement through the Federal highway
program. This program provides funding to improve the nation’s roadway system, which includes roadway lighting and traffic
control enhancements. Matching funding from the various states may be required as a condition of federal funding. The most
recent federal highway program has been extended through May 2005. While legislation must be enacted to continue Federal
funding, we believe that such government funding will continue in some form. In North America, governments desire to improve
road and highway systems by reducing traffic congestion. In the United States, there are approximately 4 million miles of public
roadways, with approximately 24% carrying over 80% of the traffic. Accordingly, the need to improve traffic flow through traffic
controls and lighting is a priority for many communities. Transportation markets in other areas of the world are also heavily
funded by local and national governments.
The commercial lighting market is mainly funded privately and includes lighting for applications such as parking lots, shopping
centers, sports stadiums and business parks. The commercial lighting market is driven by macro economic factors such as general
economic growth rates, interest rates and the commercial construction economy.
Competition – Our competitive strategy in the Lighting and Traffic product line is to provide high value to the customer at
a reasonable price. We compete on the basis of product quality, high levels of customer service and reliable, timely delivery of the
product. There are numerous competitors in the U.S., most of which are relatively small companies. Companies compete on the
basis of price, product quality, reliable delivery and unique product features. Some competitors offer decorative products, which
not all competitors are capable of manufacturing.
valmont industries 2004 form 10k | page 5
These competitive factors also apply to European markets. There are many competitors in the European market, as most
countries have several manufacturers of lighting and traffic poles, many of which compete primarily on the basis of price. In the
Chinese market, there are a large number of local competitors, many of which are small companies who use pricing as their main
strategy, especially for standard lighting poles. In China, we are most competitive in markets where product and service quality
are highly valued or in products that require more engineering content than what local competitors provide.
Distribution Methods – Transportation market sales are generally through independent, commissioned sales agents. These
agents represent Valmont as well as lighting fixture companies and sell other related products. Sales are typically to electrical
distributors, who provide the pole, fixtures and other equipment to the end user as a complete package. Commercial lighting
sales are normally made through Valmont sales employees, who work on a salary plus incentive, although some sales are made
through independent, commissioned sales agents. Sales to the commercial lighting market are primarily to lighting fixture manu-
facturers, who package the pole and fixture for customers.
(2) Specialty
Products Produced – In our Specialty product line, we manufacture and sell a broad range of structures (poles and towers)
and components serving the wireless communication and highway sign markets. Specialty products also include special use
structures for a variety of applications.
In the wireless communication market, a wireless communication cell site will mainly consist of:
�
�
�
�
Pole or tower, which is a steel structure, usually 90-1,000 feet high
Shelter, which is an enclosure where the radio equipment is located
Antennas, which are devices that receive and transmit data and voice information to and from wireless communication devices
Components, which are items that are used to mount antennas to the structure and connect cabling and other parts from
the antennas to the shelter
For a given cell site, we provide poles, towers and components. We offer a wide range of structures to our customers, including:
�
�
�
�
Solid rod and tubular freestanding towers
Guyed towers
Tapered and non-tapered poles
Disguised products to minimize the visual impact on an area
Structures are engineered and designed to customer specifications, which include factors such as the number of antennas on
the structure and wind and soil conditions. Due to the size of these structures, design is important to ensure each structure meets
performance and safety specifications. We do not provide any significant installation services on structures we sell.
In the highway sign market, structures are either on the side of or span over a motorway and support items such as roadway
directional signage and intelligent message systems. Structures sold may be either steel or aluminum and the product design may be
in the form of a bent tube, tubular lattice or cantilevered. Like wireless communication structures, sign structures are engineered,
with the design taking into consideration factors such as the weight and size of the signage being supported and wind, soil and
other weather-related conditions.
valmont industries 2004 form 10k | page 6
In the low-voltage substation market, structures are used in the conversion of high-voltage to low-voltage electricity. From
the low-voltage substation, electricity is distributed to users. These structures tend to be lattice or wide flange beam in design and
are engineered to customer specification to support expansion or replacement of electrical utility infrastructure.
Markets – The main market for our specialty products has been the wireless telephone industry, although we also sell
products to state and federal governments for two-way radio communication, radar, broadcasting and security purposes.
Over the past number of years, the main market driver has been the growth of subscribers to wireless telephone services. The
number of wireless phone subscribers has increased substantially worldwide. According to the Cellular Telecommunications and
Internet Association (CTIA), cell phone subscribers in the U.S grew from 6.4 million in 1991 to nearly 170 million in 2004, an
annual compounded growth rate of nearly 30%. In the last five years, the annual compounded rate of subscriber growth was
approximately 17%. In general, as the number of users and the usage of wireless devices by these users increase, more cell sites
and, accordingly, more structures, antennas and components should be needed. While demand for structures and components in
recent years was substantially lower than in the late 1990’s and 2000, we believe long-term growth should be driven by:
�
�
�
�
Subscriber growth (although at a lower rate of growth than the past)
Increased usage (more cell calls, plus growth in data communications rather than just voice communications)
New technologies, such as 3G (the third generation of wireless technology)
Demand for improved emergency response systems, as part of the U.S. Homeland Security initiatives
There are two broad customer groups for our specialty products:
� Wireless carriers, which are companies that provide wireless services to subscribers. Carriers may work through project
management groups to organize cell site development
�
Build-to-suit (BTS) companies, which are organizations that own cell sites and attach antennas from multiple carriers to the
pole or tower structure. BTS companies generate rental revenue from the wireless carriers who use those cell sites
Infrastructure costs can be substantial for these customers, so access to capital is important to their ability to fund future
infrastructure needs. Many of these companies have experienced a reduced access to capital in recent years, due to the downturn
in equity prices for telecommunication stocks. Accordingly, their infrastructure spending on network development has focused on
upgrading technology rather than increasing the number of structures. We believe that infrastructure spending should eventually
increase, in order to improve and maintain service levels demanded by users. We also believe that increased user demand will lead
to an increase in the number of cell sites.
The market for sign structures generally is related to highway construction and the desire for improved roadway signage and
intelligent messaging for motorists to improve traffic flow. Specifications vary by state and the individual state highway departments
are key contacts for the sales of these structures.
Competition –There are a number of competitors in the wireless communication market in the U.S., although some have exited
the business or sought protection under bankruptcy laws in recent years due to difficult market conditions. Since market conditions
have been relatively weak and ample manufacturing capacity has been available, pricing has become extremely competitive in recent
years and we believe it is the main strategy for most of our competitors. We compete on the basis of product quality, service quality
and design capability, although we must also remain price competitive to gain orders. We also face a number of competitors when
we compete for sign structure sales, most of which compete on a regional basis. Since we are relatively new in these markets, some
of our competitors are more experienced in these markets than us.
valmont industries 2004 form 10k | page 7
Distribution Methods – Sales and distribution activities are normally handled through a direct sales force. In the sale of sign
structures, we work through the same commissioned sales agent organization as our Lighting and Traffic product line as well as
our direct sales force. These agents sell to construction contractors.
In addition to these two main product lines, we also produce electrical transmission and substation structures for markets
outside the U.S., mainly China.
Utility Support Structures Segment:
Products Produced – The steel and concrete pole structures product lines are used for electrical transmission, substation and
distribution applications. Our products help move electrical power from where it is produced to where it is used. We manufacture
tapered steel and pre-stressed concrete poles for high-voltage transmission lines, substations (which transfer high-voltage electricity
to low-voltage transmission) and electrical distribution (which carry electricity from the substation to the end-user). In addition,
we produce hybrid structures, which are structures with a concrete base section and steel upper sections. Utility structures can
be very large, so product design engineering is important to the function and safety of the structure. Our engineering process
takes into account weather and loading conditions, such as wind speeds, ice loads and the power lines attached to the structure,
in order to arrive at the final design.
Markets – Our sales in this segment are mostly in the United States, where the key drivers in the utility business are capacity
in the electrical transmission grid, industrial growth and deregulation in the utility industry. According to the Edison Electric
Institute, the electrical transmission grid in the U.S. operates near capacity in many areas, due to increasing electrical consumption
and lack of investment over the past 25 years. The expected increase in electrical consumption also should require substantial
investment in new electricity generation capacity in the U.S. and around the world. Furthermore, deregulation and privatization
of electrical utilities should require grid systems to interconnect. All of these factors are expected to increase demand for electrical
utility structures to transport electricity from source to user. Sales may take place on bid project basis or through strategic alliance
relationships with certain customers.
Competition – Our competitive strategy in this segment is to provide high value solutions to the customer at a reasonable
price. We compete on the basis of product quality, high levels of customer service and reliable, timely delivery of the product.
There are many competitors. Companies compete on the basis of price, quality, service and engineering expertise. Utility sales
are often made through a competitive bid process, whereby the lowest bidder is awarded the contract, provided the competitor
meets all other qualifying criteria. In weak markets, price is a more important criterion in the bid process. When the wireless com-
munication pole market is weak (as it was in 2002 and 2003), we may see these manufacturers also competing in this segment.
Distribution Methods – Products are normally sold through commissioned sales agents or sold directly to electrical utilities
and independent power producers.
Coatings Segment:
Services Rendered – We add finishes to metals that inhibit corrosion, extend service lives and enhance physical attractiveness
of a wide range of materials and products. Among the services provided include:
Hot-dipped Galvanizing
Anodizing
Powder Coating
E-Coating
valmont industries 2004 form 10k | page 8
In our Coatings segment, we take unfinished products from our customers and return them with a galvanized, anodized or
painted finish. Galvanizing is a process that protects steel with a zinc coating that is bonded to the product surface to inhibit rust
and corrosion. Anodizing is a process applied to aluminum that oxidizes the surface of the aluminum in a controlled manner, which
protects the aluminum from corrosion and allows the material to be dyed a variety of colors. We also paint products using powder
coating and e-coating technology (where paint is applied through an electrical charge) for a number of industries and markets.
Markets – Markets for our products are varied and our profitability is not substantially dependent on any one industry or
customer. Demand for coatings services generally follows the industrial U.S. economy, as all of our operations are in the U.S. Galva-
nizing is used in a wide variety of industrial applications where corrosion protection of steel is desired. While markets are varied, our
markets for anodized or painted products are more directly dependent on consumer markets than industrial markets.
Competition – The Coatings industry is very fragmented, with a large number of competitors. Most of these competitors
are relatively small, privately held companies who compete on the basis of price and personal relationships with their customers.
Our strategy is to compete on the basis of quality of the coating finish, and timely delivery of the coated product to the customer.
We also use the production capacity at our network of plants to assure that the customer receives quality service.
Distribution Methods – Due to freight costs, a galvanizing location has an effective service area of an approximate 500-mile
radius. While we believe that we are the largest custom galvanizer in North America, our sales are a small percentage of the total
market. Sales and customer service are provided directly to the user by a direct sales force, generally assigned to each specific
location.
Irrigation Segment:
Products Produced – In our Irrigation segment, we manufacture and distribute mechanical irrigation equipment and related
service parts under the “Valley” brand name. A Valmont irrigation machine is electricity-powered and propels itself over a farm
field and applies water and chemicals to crops. Water and, in some instances, chemicals are applied through sprinklers attached to
a pipeline that is supported by a series of towers, each of which is propelled via a drive train and tires. A standard mechanized
irrigation machine (also known as a “center pivot”) rotates in a circle, although we also manufacture and distribute center
pivot extensions that can irrigate corners of square and rectangular farm fields as well as conform to irregular field boundaries
(referred to as a “corner” machine). Our irrigation machines can also irrigate fields by moving up and down the field as opposed
to rotating in a circle (referred to as a “linear” machine). Irrigation machines can be configured to irrigate fields in size from
4 acres to over 500 acres, with a standard size in the U.S. configured for a 160-acre tract of ground. One of the key components
of our irrigation machine is the control system. This is the part of the machine that allows the machine to be operated in the
manner preferred by the grower, offering control of such factors as on/off timing, individual field sector control, rate and depth
of water and chemical application. We also offer growers options to control multiple irrigation machines through centralized
computer control or mobile remote control. The irrigation machine used in international markets is substantially the same as the
one produced for the North American market.
There are other forms of irrigation available to farmers, two of the most prevalent being flood irrigation and drip irrigation.
In flood irrigation, water is applied through a pipe or canal at the top of the field and allowed to run down the field by gravity.
Drip irrigation involves plastic pipe or tape resting on the surface of the field or buried a few inches below ground level, with
water being applied gradually. We estimate that center pivot and linear irrigation comprises one-third of the irrigated acreage in
North America. International markets use predominantly flood irrigation, although all forms are used to some extent.
Markets – Market drivers in North American and international markets are essentially the same. Since the purchase of an
irrigation machine is a capital expenditure, the decision is based on the expected return on investment. The benefits a grower
may realize through investment in mechanical irrigation include improved yields through better irrigation, cost savings through
reduced labor and lower water and energy usage. The purchase decision is also affected by current and expected net farm income,
commodity prices, interest rates and the status of government support programs. In many international markets, financing the
purchase of mechanized irrigation machines can be more challenging than in the U.S. and affects market growth in those areas.
valmont industries 2004 form 10k | page 9
The demand for mechanized irrigation comes from the following sources:
Conversion from flood irrigation
Replacement of existing mechanized irrigation machines
Conversion from dryland farming
One of the key drivers in our Irrigation segment worldwide is that the usable water supply is limited. We estimate that:
Only 2.5% of total worldwide water supply is freshwater
Of that 2.5%, only 30% of freshwater is available to humans
The largest user of that freshwater is agriculture
We believe these factors, along with the trend of a growing worldwide population and improving diets, reflect the need to use
water more efficiently while increasing food production to feed this growing population. We believe that mechanized irrigation
can improve water application efficiency by 40-90% compared with traditional irrigation methods by applying water uniformly
near the root zone and reducing water runoff. Furthermore, reduced water runoff improves water quality in nearby rivers, aquifers
and streams, thereby providing environmental benefits in addition to conservation of water.
Competition – In North America, there are a number of entities that provide irrigation products and services to agricultural
customers. We believe we are the leader of the four main participants in the mechanized irrigation business. Participants compete
for sales on the basis of price, product innovation and features, product durability and reliability, quality and service capabilities
of the local dealer. Pricing can become very competitive, especially in periods where market demand is low. In international markets,
our competitors are mainly local companies, most of which are privately owned. Competitive factors are similar to those in
North America, although pricing tends to be a more prevalent competitive strategy in international markets. Since competition
in international markets is local, we believe local manufacturing capability is important to competing effectively in international
markets and we have that capability in key regions.
Distribution Methods – We market our irrigation machines and service parts through independent dealers. There are
approximately 200 dealers in North America, with another 130 dealers serving international markets. The dealer determines
the grower’s requirements, designs the configuration of the machine, installs the machine (including providing ancillary products
that deliver water and electrical power to the machine) and provides after-sales service. Our dealer network is supported and
trained by our technical and sales teams. Our international dealers are supported through our regional headquarters in South
America, South Africa, Western Europe, Australia, China and the Middle East as well as the home office in Valley, Nebraska.
Tubing Segment:
Products Produced – Our Tubing segment produces light-wall welded steel tubing for various customers and industries.
We produce tubing in diameters from 3/4 to 16 inches and in wall thicknesses from 1/32 to 9/32 of an inch. Our operations are
located in Valley and Waverly, Nebraska and virtually all sales are in North America.
Markets – Our Tubing business specializes in products that require some additional engineering or fabrication to meet our
customers’ needs. Our markets and customers are varied. In addition to supplying tubing to our Irrigation segment operations
in Valley, Nebraska, our tubing is used in such products as grain handling systems, pneumatic tube delivery systems used in the
healthcare industry, fire protection systems for office buildings and warehouses, automotive products and exercise equipment.
valmont industries 2004 form 10k | page 10
Competition – The industrial tubing business is large and with many competitors, some of which have a much larger share
of the total market than us. Many tubing companies compete on the basis of price and specialize in standard products and
long production runs. We compete in certain niches in the tubing market, on the basis of high quality and customer service. We
specialize in products that require additional fabrication, shaping and cutting operations. Pricing can be very competitive and is
impacted by fluctuations in hot rolled steel prices.
Distribution Methods – Our products are distributed through a combination of commissioned sales agents and a direct
sales force.
General
Certain information generally applicable to each of our five reportable segments is set forth below.
Suppliers and Availability of Raw Materials.
Hot rolled steel coil and plate, zinc and other carbon steel products are the primary raw materials utilized in the manufacture
of finished products for all segments. These essential items are purchased from steel mills, zinc producers and steel service centers
and are usually readily available. While we may experience short-term disruptions and volatility, we do not believe that key raw
materials would be unavailable for extended periods. In 2004, there were shortages in hot-rolled steel supplies, due primarily to
shortages of steel-producing inputs, such as scrap steel, coke and iron ore. These shortages led to sharp price increases, extended
lead times and availability issues for some manufacturers. We did not experience extended or wide-spread shortages of steel during
this time, due to what we believe are strong relationships with some of the major steel producers.
Patents, Licenses, Franchises and Concessions.
We have a number of patents for our manufacturing machinery, poles and irrigation designs. We also have a number of
registered trademarks. We do not believe the loss of any individual patent would have a material adverse effect on our financial
condition, results of operations or liquidity.
Seasonal Factors in Business.
Sales can be somewhat seasonal based upon the agricultural growing season and the infrastructure construction season.
Sales of mechanized irrigation equipment and tubing to farmers are traditionally higher during the spring and fall and lower in
the summer. Sales of infrastructure products are traditionally higher during prime construction seasons and lower in the winter.
Customers.
We are not dependent for a material part of any segment’s business upon a single customer or upon very few customers. The
loss of any one customer would not have a material adverse effect on our financial condition, results of operations or liquidity.
valmont industries 2004 form 10k | page 11
Backlog.
The backlog of orders for the principal products manufactured and marketed was approximately $223.0 million at the end
of the 2004 fiscal year and $161.8 million at the end of the 2003 fiscal year. We anticipate that most of the backlog of orders will
be filled during fiscal year 2005. At year-end, the segments with backlog were as follows (dollar amounts in millions):
Engineered Support Structures
Utility Support Structures
Irrigation
Tubing
Other
Dec. 25, 2004
Dec. 27, 2003
$
129.1
60.2
23.5
7.8
2.4
$
89.7
23.6
39.4
7.0
2.1
$
223.0
$
161.8
Research Activities.
The information called for by this item is included in Note 14 of our consolidated financial statements on page 56 of this report.
Environmental Disclosure.
We are subject to various federal, state and local laws and regulations pertaining to environmental protection and the
discharge of materials into the environment. Although we continually incur expenses and make capital expenditures related to
environmental protection, we do not anticipate that future expenditures should materially impact our financial condition, results
of operations, or liquidity.
Number of Employees.
At December 25, 2004, we had 5,542 employees.
(d) Financial Information About Geographic Areas
Our international sales activities encompass over 100 foreign countries. The information called for by this item is included
in Note 19 of our consolidated financial statements on page 62 of this report. While France accounted for 6.5% of our net sales,
no other foreign country accounted for more than 5% of our net sales.
Risk Factors
The following risk factors describe various risks that may affect our business, financial condition and operations.
Increases in steel prices and reduced availability of steel will increase our operating costs and likely reduce our profitability.
Hot rolled steel coil and other carbon steel products have historically constituted approximately one-third of the cost of
manufacturing our products. The market for steel that we use in our manufacturing processes is volatile. The following factors
increase the cost and reduce the availability of steel for us:
valmont industries 2004 form 10k | page 12
increased demand for steel which occurs when other industries purchase greater quantities of steel at times when we require
more steel for manufacturing, which can result in higher prices and lengthen the time it takes to receive material from
suppliers;
increased freight costs, because our manufacturing sites are usually not located near the major steel manufacturers;
lower steel production levels due to reduced production capacity for steel or shortages of materials needed to produce steel
(such as coke and scrap steel) which could result in reduced supplies of steel, resulting in higher costs for us and increased
lead times to acquire material;
lower inventory levels at steel mills and steel service centers when major steel users, such as the automobile manufacturers,
increase their steel orders, which can reduce available inventory for us to meet our requirements;
fluctuations in foreign exchange rates can impact the relative cost of steel, which may affect the cost effectiveness of imported
steel and limit our options in acquiring steel; and
international trade disputes, import duties and quotas, since we import some steel for our domestic and foreign
manufacturing facilities.
Increases in the selling prices of our products may not fully recover additional steel costs and generally lag increases in steel
prices. Consequently, an increase in steel prices will increase our operating costs and likely reduce our profitability. For example,
rising steel prices in 2002 and late 2003 put pressure on gross profit margins, especially in our Engineered Support Structures
segment. U.S. government trade and tariff actions reduced the availability and increased the cost of steel imported from outside the
United States in 2002 and 2003. While these tariffs were repealed in late 2003, the weakness of the U.S. dollar made procurement
of steel from outside the United States less attractive.
The 2004 fiscal year was characterized by an unprecedented and rapid increase in steel prices, which resulted from the impo-
sition of surcharges by steel suppliers and, in some cases (in a departure from normal industry practices), modification of their
contracts and commitments. We believe this situation was caused by significant increases in steel production and consumption in
China, leading to shortages in key steel-making materials (such as coke, iron ore and scrap steel), which impacted the production
capability of other steel producers. Under such circumstances, steel supplies may become tighter and impact our ability to acquire
steel and meet customer requirements on a timely basis. The speed with which steel suppliers imposed surcharges and increased
prices in 2004 prevented us from fully recovering these price increases and reduced our operating margins, particularly in our
lighting and traffic and utility businesses. In addition, our Coatings segment was negatively impacted, as some of our galvanizing
customers had difficulty procuring steel.
Increases in energy prices will increase our operating costs and likely reduce our profitability.
We use energy to manufacture our products. Our operating costs increase if energy costs rise, which occurred in 2001 and 2003
due to additional energy usage caused by severe winter weather conditions and higher oil and natural gas prices. During periods of
higher energy costs, we may not be able to recover our operating cost increases through price increases without reducing demand
for our products. While we may hedge our exposure to higher prices via energy futures contracts, increases in energy prices will
increase our operating costs and likely reduce our profitability.
The ultimate consumers of our products operate in cyclical industries that have been subject to significant downturns which
have adversely impacted our sales in the past and may again in the future.
Our sales are sensitive to the market conditions present in the industries in which the ultimate consumers of our products
operate, which in some cases have been highly cyclical and subject to substantial downturns. For example, a significant portion
of our sales of support structures is to the electric utility industry. Our sales to the U.S. electric utility industry were approximately
$176.4 million in 2004. Purchases of our products are, to a significant extent, deferrable to the extent that utilities reduce capital
expenditures as a result of unfavorable regulatory environments, a slow U.S. economy or financing constraints. As a result
of weakness in the industry that occurred in 2003, utility companies and independent power producers reduced or delayed
spending for electrical generation and transmission projects, which resulted in decreased demand for our products and severe
pricing pressure in the market.
valmont industries 2004 form 10k | page 13
The end users of our mechanized irrigation equipment and a substantial portion of our tubing are farmers and, as a result,
sales of those products are affected by economic changes within the agriculture industry, particularly the level of farm income.
Lower levels of farm income generally result in reduced demand for our mechanized irrigation and tubing products. Farm
income decreases when commodity prices, acreage planted, crop yields, government subsidies and export levels decrease. In
addition, weather conditions, such as extreme drought may result in reduced availability of water for irrigation, and can affect
farmers’ buying decisions. Farm income can also decrease as farmers’ operating costs increase. In 2001, rapid increases in
natural gas prices resulted in higher costs of energy and nitrogen-based fertilizer (which uses natural gas as a major ingredient).
Furthermore, uncertainty as to future government agricultural policies causes indecision on the part of farmers. These factors
may cause farmers to delay capital expenditures for farm equipment. Consequently, downturns in the agricultural industry, such
as occurred in 2001 and during the last quarter of 2004, result in a slower, and possibly a negative, rate of growth in irrigation
equipment and tubing sales.
We have also experienced cyclical demand for those of our products that are targeted to the wireless communications
industry, which has deteriorated since 2000. Our sales to the wireless communications industry were approximately $82 million
in 2004. While sales in 2004 improved 17% over 2003, wireless carriers and build-to-suit companies that serve the wireless
communications industry may elect to curtail spending on new structures to focus on cash flow and capital management. In
2003, our sales of products for the wireless communications industry in North America were 25% lower than in 2002, and the
weak market conditions led to extremely competitive pricing in recent years, putting pressure on our profit margins on sales to
this industry.
As a result of this underlying cyclicality, we have experienced, and in the future we may experience, significant fluctuations
in our sales and operating income with respect to a substantial portion of our total product offering, and such fluctuations could
be material and adverse to our overall financial condition, results of operations and liquidity.
Demand for our engineered support structures, tubing products and coating services is highly dependent upon the overall
level of infrastructure spending.
We manufacture and distribute engineered support structures for lighting and traffic, utility and other specialty applications.
Our Tubing and Coatings segments serve many construction-related industries. Because these products are used primarily in
infrastructure construction, sales in these businesses are highly correlated with the level of construction activity, which histori-
cally has been cyclical. Construction activity by our private and government customers is impacted by and can decline because
of, among other things:
weakness in the general economy, which reduces funds available for construction;
interest rate increases, which increase the cost of construction financing; and
adverse weather conditions which slow construction activity.
In addition, sales in our Engineered Support Structures segment, particularly our lighting and traffic products, are highly
dependent upon federal, state, local and foreign government spending on infrastructure development projects, such as the federal
highway program. The level of spending on such projects may decline for a number of reasons beyond our control, including,
among other things, budgetary constraints affecting government spending generally or transportation agencies in particular,
decreases in tax revenues and changes in the political climate, including legislative delays, with respect to infrastructure appro-
priations. A substantial reduction in the level of government appropriations for infrastructure projects could have a material
adverse effect on our results of operations or liquidity.
We may lose some of our foreign investment or our foreign sales and profits may be reduced because of risks of doing business
in foreign markets.
We are an international manufacturing company with operations around the world. At December 25, 2004, we operated
43 manufacturing plants, located on five continents, and sold our products in more than 100 countries. In 2004, international
sales accounted for approximately 23% of our total sales, and we have operations in geographic markets that have recently
experienced political instability, such as the Middle East, and economic uncertainty, such as Argentina.
valmont industries 2004 form 10k | page 14
We expect that international sales will continue to account for a significant percentage of our net sales into the foreseeable
future. Accordingly, our foreign business operations and our foreign sales and profits are subject to the following potential risks:
political and economic instability where we have foreign business operations, resulting in the reduction of the value of, or
the loss of, our investment;
recessions in economies of countries in which we have business operations, decreasing our international sales;
difficulties and costs of staffing and managing our foreign operations, increasing our foreign operating costs and decreasing
profits;
difficulties in enforcing our rights outside the United States for patents on our manufacturing machinery, poles and irrigation
designs;
increases in tariffs, export controls, taxes and other trade barriers reducing our international sales and our profit on these
sales; and
acts of war or terrorism.
As a result, we may lose some of our foreign investment or our foreign sales and profits may be materially reduced because
of risks of doing business in foreign markets.
We are subject to currency fluctuations from our international sales, which can negatively impact our reported earnings.
Our products are sold in many countries around the world. Approximately 23% of our sales are generated by export or
foreign subsidiaries and are often made in foreign currencies, mainly the Brazilian real, Canadian dollar, euro and South African
rand. Because our financial statements are denominated in U.S. dollars, fluctuations in currency exchange rates between the U.S.
dollar and other currencies have had and will continue to have an impact on our reported earnings. If the U.S. dollar weakens
or strengthens versus the foreign currencies mentioned above, the result will be an increase or decrease in our reported sales and
earnings, respectively. We do not have exchange rate hedges in place to reduce this currency translation risk. Currency fluctuations
have affected our financial performance in the past and may affect our financial performance in any given period.
We also face risks arising from the imposition of foreign exchange controls and currency devaluations. Exchange controls may
limit our ability to convert foreign currencies into U.S. dollars or to remit dividends and other payments by our foreign subsidiaries
or businesses located in or conducted within a country imposing controls. Currency devaluations result in a diminished value of
funds denominated in the currency of the country instituting the devaluation. Actions of this nature, if they occur or continue
for significant periods of time, could have a material adverse effect on our results of operations and financial condition in any
given period.
We face strong competition in our markets.
We face competitive pressures from a variety of companies in each of the markets we serve. Our competitors include companies
who provide the technologies that we provide as well as companies who provide competing technologies, such as drip irrigation.
Our competitors include international, national, and local manufacturers, some of whom may have greater financial, manu-
facturing, marketing and technical resources than we do, or greater penetration in or familiarity with a particular geographic
market than we have. In addition, certain of our competitors, particularly with respect to our utility and wireless communication
product lines, have sought bankruptcy protection in recent years, and may emerge with reduced debt service obligations, which
could allow them to operate at pricing levels that put pressures on our margins. To remain competitive, we will need to invest
continuously in manufacturing, product development and customer service, and we may need to reduce our prices, particularly
with respect to customers in industries that are experiencing downturns. We cannot provide assurance that we will be able to
maintain our competitive position in each of the markets that we serve.
valmont industries 2004 form 10k | page 15
We could incur substantial costs as the result of violations of, or liabilities under, environmental laws.
Our facilities and operations are subject to U.S. and foreign laws and regulations relating to the protection of the environment,
including those governing the discharge of pollutants into the air and water, the management and disposal of hazardous substances
and wastes, and the cleanup of contamination. Failure to comply with these laws and regulations, or with the permits required for
our operations, could result in fines or civil or criminal sanctions, third party claims for property damage or personal injury, and
investigation and cleanup costs. Potentially significant expenditures could be required in order to comply with environmental laws
that may be adopted or imposed in the future.
Certain of our facilities have been in operation for many years and, over time, we and other predecessor operators of
these facilities have generated, used, handled and disposed of hazardous and other regulated wastes. Contaminants have been
detected at some of our present and former sites, principally in connection with historical operations. In addition, from time
to time we have been named as a potentially responsible party under Superfund or similar state laws. While we are not aware
of any contaminated sites, including third-party sites, at which we may have material obligations, the discovery of additional
contaminants or the imposition of additional cleanup obligations at these sites could result in significant liability.
We may not realize the improved operating results that we anticipate from the Newmark acquisition or other acquisitions
we may make in the future, and we may experience difficulties in integrating the acquired businesses or may inherit significant
liabilities related to such businesses.
We explore opportunities to acquire businesses that we believe are related to our core competencies from time to time, some
of which may be material to us. In evaluating the terms of our acquisition of Newmark, we analyzed the respective businesses
of Valmont and Newmark and made certain assumptions concerning their respective future operations. A principal assumption
was that the acquisition will produce operating results better than those historically experienced or presently expected to be
experienced in the future by us in the absence of the acquisition. We cannot provide assurance that this assumption will prove
correct with respect to any acquisition.
The Newmark acquisition and any future acquisitions may present significant challenges for our management due to the
increased time and resources required to properly integrate management, employees, information systems, accounting controls,
personnel and administrative functions of the acquired business with those of Valmont and to manage the combined company on
a going forward basis. We may not be able to successfully integrate and streamline overlapping functions or, if such activities are
successfully accomplished, such integration may be more costly to accomplish than presently contemplated. We may also have
difficulty in successfully integrating the product offerings of Valmont and acquired businesses to improve our collective product
offering. Our efforts to integrate acquired businesses could be affected by a number of factors beyond our control, including
general economic conditions. In addition, the process of integrating acquired businesses could cause the interruption of, or loss
of momentum in, the activities of our existing business. The diversion of management’s attention and any delays or difficulties
encountered in connection with the integration of these businesses could adversely impact our business, results of operations and
liquidity, and the benefits we anticipate may never materialize.
In addition, although we conduct reviews of businesses we acquire, we may be subject to unexpected claims or liabilities,
including environmental cleanup costs, as a result of these acquisitions. Such claims or liabilities could be costly to defend or resolve
and be material in amount, and thus could materially and adversely affect our business and results of operations and liquidity.
We have a substantial amount of outstanding indebtedness, which could impair our ability to operate our business and react
to changes in our business, remain in compliance with debt covenants and make payments on our debt.
We have a significant amount of indebtedness. As of December 25, 2004, we had approximately $327.5 million of total
indebtedness outstanding and our ratio of total debt to shareholders’ equity was 1.11. In addition, we had up to $73.3 million
of additional borrowing capacity under our new revolving credit facility. Our level of indebtedness could have important conse-
quences, including:
valmont industries 2004 form 10k | page 16
our ability to satisfy our obligations under our debt agreements could be affected and any failure to comply with the require-
ments, including significant financial and other restrictive covenants, of any of our debt agreements could result in an event
of default under the agreements governing our indebtedness;
a substantial portion of our cash flow from operations will be required to make interest and principal payments and will
not be available for operations, working capital, capital expenditures, expansion, or general corporate and other purposes,
including possible future acquisitions that we believe would be beneficial to our business;
our ability to obtain additional financing in the future may be impaired;
we may be more highly leveraged than our competitors, which may place us at a competitive disadvantage;
our flexibility in planning for, or reacting to, changes in our business and industry may be limited; and
our degree of leverage may make us more vulnerable in the event of a downturn in our business, our industry or the economy
in general.
Any of these factors could have a material adverse effect on our business, financial condition, results of operations, cash
flows and business prospects.
The restrictions and covenants in our debt agreements could limit our ability to obtain future financings, make needed capital
expenditures, withstand a future downturn in our business, or the economy in general, or otherwise conduct necessary corporate
activities. We may also be prevented from taking advantage of business opportunities that arise because of the limitations that the
restrictive covenants under our new senior credit agreement and the indenture governing our senior subordinated notes impose
on us.
A breach of any of these covenants would result in a default under the applicable debt agreement. A default, if not waived,
could result in acceleration of the debt outstanding under the agreement and in a default with respect to, and acceleration of, the
debt outstanding under our other debt agreements. The accelerated debt would become immediately due and payable. If that
should occur, we may not be able to pay all such debt or to borrow sufficient funds to refinance it. Even if new financing were
then available, it may not be on terms that are acceptable to us.
ITEM 2. PROPERTIES.
The Company’s corporate headquarters are located in a leased facility in Omaha, Nebraska, under a lease expiring in September,
2008. The headquarters of the Company’s reporting segments are located in Valley, Nebraska except for the headquarters of the
Company’s Utility Support Structures segment, which are located in Birmingham, Alabama. The principal operating locations of
the Company are listed below.
Owned,
Leased
Principal Activities
Engineered Support Structures Segment
Berrechid, Morocco
Brenham, Texas
Owned
Owned
Charmeil, France
Elkhart, Indiana
Farmington, Minnesota
Gelsenkirchen, Germany
Commerce City, Colorado
Maarheeze, The Netherlands
Rive-de-Gier, France
Shanghai, China
Siedlce, Poland
St. Julie, Quebec, Canada
Tulsa, Oklahoma
Valley, Nebraska
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Leased
Leased
Leased
Owned
Owned
Manufacture of steel poles for lighting and traffic
Manufacture of steel poles for lighting and traffic, utility and
wireless communication
Manufacture of steel poles for lighting and traffic, utility and
wireless communication
Manufacture of steel and aluminum poles for lighting and traffic
Manufacture of aluminum poles for lighting and traffic
Manufacture of steel poles for lighting and traffic
Manufacture of fiberglass poles for lighting and traffic
Manufacture of steel poles for lighting and traffic
Manufacture of aluminum poles for lighting and traffic
Manufacture of steel poles for lighting and traffic, utility and
wireless communication
Manufacture of steel poles for lighting and traffic
Manufacture of aluminum poles for lighting and traffic
Manufacture of steel poles for lighting and traffic and utility
Segment management headquarters; manufacture of steel poles
for lighting and traffic, utility and wireless communication
valmont industries 2004 form 10k | page 17
Plymouth, Indiana
Salem, Oregon
Selbyville, Delaware
Utility Support Structures Segment
Birmingham, Alabama
Tuscaloosa, Alabama
Bay Minette, Alabama
Claxton, Georgia
Bartow, Florida
Barstow, California
Bellville, Texas
Tulsa, Oklahoma
Jasper, Tennessee
Mansfield, Texas
El Dorado, Kansas
Coatings Segment
Chicago, Illinois
Lindon, Utah
Long Beach, California
Los Angeles, California
Minneapolis, Minnesota
Sioux City, Iowa
Tualatin, Oregon
Tulsa, Oklahoma
Valley, Nebraska
West Point, Nebraska
Irrigation Segment
Albany, Oregon
Brisbane, Australia
San Antonio, Texas
Dubai, United Arab Emirates
Johannesburg, South Africa
Madrid, Spain
McCook, Nebraska
Uberaba, Brazil
Valley, Nebraska
Tubing Segment
Valley, Nebraska
Waverly, Nebraska
Other Locations
Creuzier-le-neuf, France
Salem and Portland, Oregon
Valley, Nebraska
Owned,
Leased
Owned
Leased
Leased
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Leased
Leased
Owned
Leased
Leased
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Leased
Leased
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Principal Activities
Manufacture of wireless communication structures and components
and specialty products
Manufacture of wireless communication structures and components
and specialty products
Manufacture of steel overhead sign structures
Segment management headquarters
Manufacture of concrete poles for utility
Manufacture of concrete poles for utility
Manufacture of concrete poles for utility
Manufacture of concrete poles for utility
Manufacture of concrete poles for utility
Manufacture of concrete poles for utility
Manufacture of steel poles for utility
Manufacture of steel poles for utility
Manufacture of steel poles for utility
Manufacture of steel poles for utility
Galvanizing services
Galvanizing services
Galvanizing services
Anodizing services
Painting and anodizing services
Galvanizing services
Galvanizing services
Galvanizing services
Segment management headquarters; galvanizing services
Galvanizing services
Water and soil management services
Distribution of irrigation equipment
Distribution of irrigation equipment
Manufacture of irrigation equipment
Manufacture of irrigation equipment
Manufacture of irrigation equipment
Manufacture of irrigation equipment
Manufacture of irrigation equipment
Segment management headquarters; manufacture of
irrigation equipment
Owned
Owned
Segment management headquarters; manufacture of steel tubing
Manufacture of steel tubing
Owned
Leased
Owned
Manufacture of industrial covers and conveyors
Distribution of industrial fasteners
Manufacture of wind energy equipment
valmont industries 2004 form 10k | page 18
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to, nor are any of our properties subject to, any material legal proceedings. We are, from time to time,
engaged in routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of stockholders during the fourth quarter of 2004.
Executive Officers of the Company
Our executive officers at December 25, 2004, their ages, positions held, and the business experience of each during the past
five years are, as follows:
Mogens C. Bay, age 56, Chairman and Chief Executive Officer since January 1997.
Terry J. McClain, age 57, Senior Vice President and Chief Financial Officer since January 1997.
E. Robert Meaney, age 57, Senior Vice President since September 1998.
Ann F. Ashford, age 44, Vice President-Human Resources since December 1999.
Steven G. Branscombe, age 49, Vice President-Information Technology since October 2001. Senior Project Manager, IBM
Corporation, from August 2000 to September 2001. Principal, American Management Systems, from June 1999 to July 2000.
Mark C. Jaksich, age 47, Vice President and Controller since February 2000. Director of Corporate Accounting of the
Company from April 1998 to February 2000.
Walter P. Pasko, age 54, Vice President-Procurement since May 2002. Vice President-Purchasing and National Accounts,
National Material Company, September 1997 to April 2002.
P. Thomas Pogge, age 56, Vice President, General Counsel and Secretary since May 2001. Attorney in private practice from
January 2000 to April 2001.
Mark E. Treinen, age 49, Vice President-Business Development since January 1994.
Part II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF
EQUITY SECURITIES.
Our common stock, previously listed and trading on the NASDAQ National Market under the symbol “VALM”, was
approved for listing on the New York Stock Exchange and began trading under the symbol “VMI” on August 30, 2002. We had
approximately 5,600 shareholders of common stock at December 25, 2004. Other stock information required by this item is
included in “Quarterly Financial Data (unaudited)” on page 72 of this report.
valmont industries 2004 form 10k | page 19
Issuer Purchases of Equity Securities
Period
September 26, 2004 to October 23, 2004
October 24, 2004 to November 27, 2004
November 28, 2004 to December 25, 2004
Total
(a) Total Number of
Shares Purchased
(b) Average Price
paid per share
—
74,392
16,596
90,988
—
23.80
25.01
24.02
(c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
(d) Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs
—
—
—
0
—
—
—
0
During the fourth quarter, the only shares reflected above were those delivered to the Company by employees as part of
stock option exercises, either to cover the purchase price of the option or the related taxes payable by the employee as part of the
option exercise. The price paid per share was the market price at the date of exercise.
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FIVE-YEAR FINANCIAL DATA
Operating Data
Net sales
Operating income
Cumulative effect of accounting change
Net earnings
Depreciation and amortization
Capital expenditures
Per Share Data
Earnings:
Basic
Diluted
Cash dividends
Financial Position
Working capital
Property, plant and equipment, net
Total assets
Long-term debt, including current installments
Shareholders’ equity
Invested capital(a)
$
$
$
2004
2003
2002
2001
2000
1,031,475 $
70,112
—
26,881
38,644
17,182
837,625 $
54,623
(366)
25,487
34,597
17,679
854,898 $
872,380 $
70,289
(500)
33,629
33,942
13,942
65,021
—
26,693
36,324
25,652
846,129
67,256
—
30,400
30,270
46,456
1.13 $
1.10
0.320
1.07 $
1.05
0.315
1.40 $
1.37
0.290
1.10 $
1.09
0.260
1.31
1.28
0.260
277,444 $
205,655
836,108
322,775
294,655
697,691
169,568 $
190,103
604,797
149,662
265,494
483,764
154,112 $
193,175
578,571
166,391
242,020
451,753
145,550 $
209,580
588,897
198,008
225,811
472,230
145,575
208,272
600,135
205,472
191,911
479,609
Key Financial Measures
Return on invested capital(a)
Long-term debt as a percent of invested capital(b)
7.6%
46.3%
7.4%
30.9%
9.7%
36.8%
8.6%
41.9%
10.7%
42.8%
Year End Data
Shares outstanding (000)
Approximate number of shareholders
Number of employees
24,162
5,600
5,542
23,825
5,400
5,074
23,883
5,500
5,234
24,477
5,500
5,342
23,320
5,500
5,503
valmont industries 2004 form 10k | page 20
(a) Return on Invested Capital is calculated as Operating Income (after-tax) divided by the average of beginning and ending
Invested Capital. Invested Capital represents Total Assets minus Accounts Payable, Accrued Expenses and Dividends
Payable. Return on Invested Capital is one of our key operating ratios, as it allows investors to analyze our operating
performance in light of the amount of investment required to generate our operating profit. Return on Invested Capital is
also a measurement used to determine management incentives. Return on Invested Capital is not a measure of financial
performance or liquidity under generally accepted accounting principles (GAAP). Accordingly, Return on Invested Capital
should not be considered in isolation or as a substitute for net earnings, cash flows from operations or other income or cash
flow data prepared in accordance with GAAP or as a measure of our operating performance or liquidity. The table below
shows how Invested Capital and Return on Invested Capital are calculated from our income statement and balance sheet.
Operating income
Effective tax rate
Tax effect on Operating Income
$
70,112 $
36.0%
(25,240)
54,623 $
36.3%
(19,828)
70,289 $
36.5%
(25,655)
65,021 $
36.9%
(23,993)
2004
2003
2002
2001
After-tax Operating income
Average Invested Capital
Return on invested capital
Total Assets
Less: Accounts Payable
Less: Accrued Expenses
Less: Dividends Payable
44,872
590,728
7.6%
836,108
(69,979)
(66,506)
(1,932)
34,795
467,759
7.4%
604,797
(63,256)
(55,856)
(1,921)
44,634
461,992
9.7%
578,571
(55,198)
(69,828)
(1,792)
41,028
475,920
8.6%
588,897
(57,027)
(58,042)
(1,598)
Total Invested Capital
Beginning of year Invested Capital
Average Invested Capital
697,691
483,764
590,728 $
483,764
451,753
467,759 $
451,753
472,230
461,992 $
472,230
479,609
475,920 $
$
2000
67,256
36.3%
(24,414)
42,842
400,353
10.7%
600,135
(63,005)
(56,005)
(1,516)
479,609
321,096
400,353
(b) Long-term debt as a percent of invested capital is calculated as the sum of Current portion of long-term debt and Long-term
debt divided by Total Invested Capital. This is one of our key financial ratios in that it measures the amount of financial
leverage on our balance sheet at any point in time. We also have covenants under our major debt agreements that relate to
the amount of debt we carry. If those covenants are violated, we may incur additional financing costs or be required to pay
the debt before its maturity date. We have an internal target to maintain this ratio at or below 40%. This ratio may exceed
40% from time to time for major strategic purposes, such as acquisitions. Long-term debt as a percent of capital is not a
measure of financial performance or liquidity under GAAP. Accordingly, long-term debt as a percent of capital should not
be considered in isolation or as a substitute for net earnings, cash flows from operations or other income or cash flow data
prepared in accordance with GAAP or as a measure of our operating performance or liquidity. The calculation of this ratio
is as follows:
Current portion of long-term debt
Long-term debt
Total Long-term debt
Total Invested Capital
Long-term debt as a percent of
invested capital
2004
2003
2002
2001
$
$
7,962 $
314,813
322,775
697,691 $
15,009 $
134,653
149,662
483,764 $
10,849 $
155,542
166,391
451,753 $
11,062 $
186,946
198,008
472,230 $
2000
3,496
201,976
205,472
479,609
46.3%
30.9%
36.8%
41.9%
42.8%
valmont industries 2004 form 10k | page 21
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Forward-Looking Statements
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 forward-looking statements are based on assumptions
that management has made in light of experience in the industries in which the Company operates, as well as management’s
perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate
under the circumstances. These statements are not guarantees of performance or results. They involve risks, uncertainties (some
of which are beyond the Company’s control) and assumptions. Management believes that these forward-looking statements
are based on reasonable assumptions. Many factors could affect the Company’s actual financial results and cause them to differ
materially from those anticipated in the forward-looking statements. These factors include, among other things, risk factors
described from time to time in the Company’s reports to the Securities and Exchange Commission, as well as future economic
and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability
and price of raw materials, availability and market acceptance of new products, product pricing, domestic and international
competitive environments, and actions and policy changes of domestic and foreign governments.
General
The following discussion and analysis provides information which management believes is relevant to an assessment and
understanding of our consolidated results of operations and financial position. This discussion should be read in conjunction
with the Consolidated Financial Statements and related Notes. As described in Item 1(b) above, we established the Utility Support
Structures segment in 2004, which includes the operations relating to utility support structures sold in North America. All data
for 2003 and 2002 have been reclassified to conform to the current segment structure.
Dollars in millions, except per share amounts
2004
2003
Change
2004-2003
2002
Change
2003-2002
Consolidated
Net sales
Gross profit
as a percent of sales
SG&A expense
as a percent of sales
Operating income
as a percent of sales
Net interest expense
Effective tax rate
Net earnings
Earnings per share
Engineered Structures Segment
Net sales
Gross profit
SG&A expense
Operating income
Utility Support Structures Segment
Net sales
Gross profit
SG&A expense
Operating income (loss)
$
1,031.5 $
245.9
23.8 %
175.8
17.0 %
70.1
6.8 %
14.7
36.0%
26.9
1.10
400.9
103.5
71.9
31.6
176.4
31.3
24.2
7.1
837.6
208.0
24.8 %
153.4
18.3 %
54.6
6.5 %
8.8
36.3%
25.5
1.05
330.0
94.6
68.4
26.2
23.1% $
18.2%
14.6%
28.4%
67.0%
5.5%
4.8%
21.5%
9.4%
5.1%
20.6%
76.8
8.8
14.3
(5.5 )
129.7%
255.7%
69.2%
NM
854.9
231.5
27.1 %
161.2
18.9 %
70.3
8.2 %
10.7
36.5 %
33.6
1.37
313.2
90.1
63.2
26.9
123.5
35.7
18.4
17.3
-2.0%
-10.2%
-4.8%
-22.3%
-17.8%
-24.1%
-23.4%
5.4%
5.0%
8.2%
-2.6%
-37.8%
-75.3%
-22.3%
NM
valmont industries 2004 form 10k | page 22
Dollars in millions, except per share amounts
2004
2003
Change
2004-2003
Coatings Segment
Net sales
Gross profit
SG&A expense
Operating income
Irrigation Segment
Net sales
Gross profit
SG&A expense
Operating income
Tubing Segment
Net sales
Gross profit
SG&A expense
Operating income
Other
Net sales
Gross profit
SG&A expense
Operating loss
Net corporate expense
Gross profit
SG&A expense
Operating loss
73.5
14.0
9.8
4.2
297.8
73.8
38.3
35.5
68.7
20.3
6.9
13.4
14.2
4.6
7.4
(2.8 )
(1.6 )
17.3
(18.9 )
91.1
16.7
9.9
6.8
279.9
71.8
37.2
34.6
44.8
11.3
4.8
6.5
14.9
5.2
7.3
(2.1 )
-19.3%
-16.2%
-1.0%
-38.2%
6.4%
2.8%
3.0%
2.6%
53.3%
79.6%
43.8%
106.2%
-4.7%
-11.5%
1.4%
-33.3%
(0.4 )
11.5
(11.9 )
-300.0%
50.4%
-58.8%
2002
96.0
23.2
9.4
13.8
264.7
64.8
34.0
30.8
45.4
12.9
4.8
8.1
12.1
5.1
6.7
(1.6 )
(0.3 )
24.7
(25.0 )
Change
2003-2002
-5.1%
-28.0%
5.3%
-50.7%
5.7%
10.8%
9.4%
12.3%
-1.3%
-12.4%
0.0%
-19.8%
23.1%
2.0%
9.0%
-31.2%
-33.3%
-53.4%
52.4%
NM – not meaningful
RESULTS OF OPERATIONS
FISCAL 2004 COMPARED WITH FISCAL 2003
Overview
In 2004, we completed three acquisitions. On April 16, 2004, we completed the purchase of Newmark International, Inc.
(Newmark), a manufacturer of concrete and steel pole structures mainly for the electrical utility industry. The purchase price was
approximately $110.2 million in cash (including transaction costs), plus the assumption of approximately $11.5 million of interest-
bearing debt. On May 24, 2004, we completed the purchase of W.J. Whatley, Inc. (Whatley), a manufacturer of fiberglass poles
principally for outdoor lighting applications. The purchase price for the Whatley shares was approximately $9.3 million in cash
(including transaction costs), plus the assumption of approximately $0.7 million of interest-bearing debt. On August 2, 2004,
we completed the purchase of the net assets of Sigma Industries, Inc. (Sigma), a manufacturer of overhead sign structures mainly
serving the eastern United States. The purchase price for the net assets of this business was approximately $6.3 million, plus the
assumption of approximately $0.4 million of interest-bearing debt. The results of Newmark are reported in the Utility Support
Structures Segment and the results of Whatley and Sigma are reported in the Engineered Support Structures Segment. The results
of these operations are included in our consolidated results starting on the closing dates of the acquisitions. The funds used for
these acquisitions were borrowed through our existing credit facilities. See also “Liquidity and Capital Resources.”
valmont industries 2004 form 10k | page 23
Steel is a significant cost component of the products we manufacture. In 2004, we experienced substantial cost increases
for rolled sheet, plate and other products made from steel. Significant increases of steel production in China drove up prices and
created shortages of key steel-producing inputs (such as coke, iron ore and scrap steel), which led to restricted steel supplies. This
situation in turn caused rapid, unprecedented increases in what we paid for steel and created availability issues. In some cases,
suppliers broke pricing agreements on or added surcharges to existing contracts. Firm pricing and consignment programs from
the steel mills were no longer available, which, along with uncertain availability and extended lead times, led us to increase our
steel inventories above historical norms to ensure our ability to meet customer commitments. Where possible, we increased our
sales prices to mitigate the impact of higher steel costs on operating income. The negative impact on 2004 operating income as a
result of higher steel costs that could not be passed on in the marketplace was approximately $7.0 million.
The increase in sales as compared with 2003 was due to the impact of acquisitions completed in 2004 ($79.8 million), sales
volume increases in the Engineered Support Structures (ESS) and Tubing segments and sales price increases resulting from steel cost
increases. Gross profit as a percentage of sales was down as compared with 2003, due mainly to the impact of steel cost increases not
covered by sales price increases. SG&A spending increased mainly due to the impact from acquisitions ($10.4 million), increased
employee incentives due to improved operating profit ($6.2 million), currency translation effects ($2.9 million) and increased
commissions related to higher sales volumes ($1.6 million).
The increase in interest expense in 2004 as compared with 2003 was due to higher average borrowing levels in 2004. These
higher borrowing levels were due to acquisitions funded by borrowings ($125.4 million) and higher working capital levels resulting
from higher sales levels and increased inventories due to steel industry conditions mentioned above. The $9.9 million in “Debt
prepayment expenses” in 2004 relates to a charge we recorded in the second quarter of 2004 mainly related to the prepayment
of our promissory notes as part of the refinancing of our long-term debt. The decrease in the effective tax rate relates primarily
to a reduction of $0.4 million in deferred tax asset valuation allowances associated with net operating loss carryforwards in a
European subsidiary due to improved profitability in that entity.
In 2004, we recognized a profit in our share of the earnings of non-consolidated subsidiaries, as compared with a loss in
2003. This improvement was the result of improved business conditions and operating performance of our non-consolidated
joint ventures in an irrigation distributor in Argentina and a steel pole manufacturing facility in Mexico. Minority interest in
earnings of consolidated subsidiaries was comparable to 2003, as lower net earnings in our Irrigation segment operations in
Brazil and South Africa were offset by improved earnings in our irrigation segment retail store operation in California. Our
ownership percentages in these locations are less than 100%.
Due to our 2004 acquisition activity and lower operating cash flows in 2004 as compared with 2003, we have higher inter-
estbearing debt than at the end of fiscal 2003. Accordingly, our long-term debt to invested capital ratio increased from 30.9% in
2003 to 46.3% in 2004. While this ratio is in excess of our internal goal of 40%, we believe that, with continued improvements
in earnings and working capital management, we will be able to reduce this ratio to below our internal goal over the next 18 to
24 months.
Engineered Support Structures (ESS) Segment
General
The sales increase in the ESS segment was related to the acquisition of Whatley and Sigma ($12.6 million), currency translation
effects ($9.4 million), sales volume increases and sales price increases implemented to offset rising steel costs. Gross profit grew at a
lower rate than sales, as sales price increases did not completely cover the increased cost of steel and the sales mix was unfavorable.
These factors were offset to a degree by improved gross margins in Europe resulting from improved factory performance. SG&A
spending was up mainly due to fiscal 2004 acquisitions ($2.3 million) and currency translation effects ($2.0 million). Operating
income improved in all regions, mainly as a result of sales volume increases in all regions, the impact of 2004 acquisitions ($1.1
million), and operational improvements in Europe, where operating income improved by $2.6 million in 2004 as compared with
2003. During 2004, we reduced our cost structure in Europe to position ourselves for better profitability. While the impact of cost
reductions was somewhat offset by severance costs, we believe that our current operating structure and management team are
appropriate to allow us to build on 2004 for continued operating improvements. Operating profits in China grew by $1.4 million
in 2004 as compared with 2003, due to continued sales growth.
valmont industries 2004 form 10k | page 24
Lighting and Traffic Products
In North America, lighting and traffic structure sales increased in 2004 as compared with 2003 due to a combination of a sales
volume increase of approximately 6% and sales price increases in response to higher steel prices. Market demand continues to be
driven by government spending programs and the need for improved street and highway lighting and traffic control. The current
U.S. federal highway program was extended throughout 2004 by a series of short-term extensions and is currently extended
through May 2005. We believe that a new six-year spending program will be enacted in 2005, which, if enacted, should provide
for stability in the funding of projects that include street and area lighting and traffic structures. Commercial lighting sales in
North America were down slightly in 2004, as compared with 2003. Competitive pricing in this market resulted in slightly lower
orders from lighting fixture manufacturers, as some competitors did not increase sales prices as much as we did when steel prices
escalated. In Europe, sales volumes increased modestly in local currency terms, as demand for lighting and traffic structures
reflected slightly better economic conditions in our major market areas. In China, sales were comparable to 2003.
Specialty Products
In North America, sales of specialty products were up approximately 38% as compared with 2003. The most significant
source of growth was from overhead sign structures. In 2003, we entered this market and 2004 was our first full year of operation.
Sign structure sales of $11 million in 2004 included those of Sigma Industries since its acquisition in August 2004. Sales of wireless
communication structures and components were up from a weak 2003, as wireless carriers increased spending on new structures
and antennas to improve coverage and service. Sales of wireless communication poles in China increased by approximately 15% in
2004 as compared with 2003, due to continued development of its wireless networks. Our sales of wireless structures in China have
steadily grown over the years as we believe we have built a good reputation with the wireless carriers and benefited from the strong
demand in wireless communication services in China. While we expect relatively strong demand to continue in the future, growth
rates may moderate from past growth rates.
Utility Products
This product line includes sales of utility structures for markets outside of North America. Sales improved over 2003, mainly
due to sales growth in China of approximately $5.2 million. We continue to believe that as China grows its electrical generation
and distribution capacity, we should see good demand for steel poles for electrical transmission, substation and distribution
applications.
Utility Support Structures Segment
The sharp increase in sales in 2004 as compared with 2003 was due to the acquisition of Newmark in April 2004 ($67.2
million), improved sales volumes in our existing utility structures product line and increased sales prices. While sales volumes
of steel utility structures increased approximately 15% in 2004 as compared with 2003, our sales were particularly low in the
second and third quarters of 2003, when our order rates fell as we attempted to maintain pricing when market prices were falling.
Newmark’s sales volumes of concrete utility poles since its acquisition in April 2004 were approximately 10% higher than the
same period in 2003. In 2004, demand for steel and concrete transmission, substation and distribution structures was stronger
than in 2003, as electrical utility companies increased spending for structures to improve the electrical grid system, despite the
lack of U.S. energy policy legislation. Gross profit improved at a higher rate than sales because the difficult pricing environment
in 2003 improved somewhat in 2004. Approximately $7.8 million of the operating income improvement from 2003 to 2004
was due to the acquisition of Newmark.
Coatings Segment
Coatings segment sales and profitability decreased in 2004 as compared with 2003 mainly due to lower anodizing service
sales to a major customer. While we still expect future sales to this customer, we do not expect such sales to return to historical
levels. In light of these lower sales volumes, we are making efforts to expand our anodizing customer base and strengthen our
relationships with current customers. We have also reduced our cost structure to further position ourselves for improved profit-
ability in the future. Aside from the lower volumes, gross profit in this segment was also negatively impacted by approximately
$0.7 million of increased workers compensation costs in California. We believe workers compensation reform legislation passed in
California this year will help us better control workers compensation costs in the future. Galvanizing volumes were comparable to
2003, with a modest improvement in profitability. SG&A spending in 2004 was comparable to 2003.
valmont industries 2004 form 10k | page 25
Irrigation Segment
The increase in irrigation segment sales was due to price increases associated with increased steel costs. In North America,
sales volumes of irrigation machines and related service parts were down approximately 4% in 2004, as compared with 2003.
While the agricultural economy in general was favorable throughout most of 2004, weakness in commodity prices and higher
energy and other farm input costs have contributed to weakness in demand in the latter part of 2004. Profitability in North
America was up by $1.6 million in 2004 as compared with 2003, due to improved retail operations, good expense control and
disciplined product pricing in light of rising steel costs.
In markets outside of North America, sales were similar to 2003, after consideration of currency translation effects. Sales
in Brazil and South Africa were slightly lower than strong 2003 sales levels, reflecting somewhat weaker farm commodity prices.
The strong South African currency versus the U.S. dollar has negatively impacted the competitiveness of farm exports in that
region. Sales decreases in these regions were offset by stronger sales in other regions. International profitability in 2004 was down
by $0.8 million from a strong 2003, mostly related to lower operating income in Brazil and South Africa.
Tubing Segment
Tubing segment sales increased mainly through sales price increases to pass along increased steel costs, although sales volume
was up approximately 5% as well. We believe that sales demand was driven to some extent by rapidly rising steel prices and our
availability of steel. The increase in gross profit was due to an improved pricing environment for our commodity-type products,
our ability to pass along increased steel costs to the market and an unfavorable inventory adjustment that was recorded in 2003.
SG&A expense was up in 2004 as compared to 2003 due to employee incentives ($1.5 million) related to increased operating
income and sales commissions ($0.6 million) due to increased sales.
Other
Our “Other” businesses include our machine tool accessory business in France, our industrial fastener business in the U.S.
and wind energy development. Sales and profitability were down in 2004, as compared with 2003, due to approximately 17%
lower demand for machine tool accessories in Europe. Our spending to develop a structure for the wind energy industry was
$2.4 million in 2004 as compared with $2.8 million in 2003. We continue to make progress on this new product development
initiative and we remain optimistic as to our future in this business.
Net corporate expense
The increase in net corporate expenses in 2004 as compared with 2003 mainly related to increased employee incentives
associated with improved operating income (approximately $4.5 million), and approximately $1.0 million in incremental costs
related to compliance with the internal controls over financial reporting provisions of the Sarbanes-Oxley Act of 2002.
FISCAL 2003 COMPARED WITH FISCAL 2002
Overview
The sales decrease in 2003 as compared with 2002 was the result of lower sales in the Utility Support Structures and Coatings
segments, offset somewhat by increased sales in the Irrigation and ESS segments. Due to a weakening of the U.S. dollar in
relation to the Euro and the South African Rand, sales in dollar terms were positively impacted by $23.1 million. The sales
decrease after taking into account the currency translation effect was 4.8%. Gross profit margins were lower in most segments,
except that margins improved slightly in the Irrigation segment, mainly as a result of improved margins in the international
markets. In particular, margins were significantly impacted by severe pricing pressure in the Utility Support Structures segment.
Lower sales in the Utility Support Structures and Coatings segments also resulted in lower coverage of fixed manufacturing
costs, which further contributed to lower profitability. The decrease in Selling, General and Administrative (SG&A) expense was
mainly due to a reduction of approximately $12.5 million in employee incentives and supplemental 401K matches. This decrease
was directly related to the decrease in our profitability and return on invested capital. This decrease was offset to some extent by
currency translation impacts related to a weaker U.S. dollar, which increased our expenses in dollar terms.
valmont industries 2004 form 10k | page 26
The decrease in interest expense was principally related to lower average borrowing levels in 2003. Our capital spending
and acquisition activity in 2003 has continued to be lower than historical levels and our share repurchases that year were not
significant. As a result, our free cash flows were used to reduce our interest-bearing debt.
Our effective tax rate was comparable to 2002, as there have been no major changes to tax rates or our general income tax
position for 2003. Losses in nonconsolidated subsidiaries were lower in 2003 as compared with 2002, due to some improvement
in our Irrigation segment joint ventures in Argentina and the U.S. In addition, in 2002 we recorded a $1.1 million impairment
charge in our investment in our U.S. nonconsolidated subsidiary. Minority interest in earnings of consolidated subsidiaries was
higher in 2003, mainly related to strong profitability gains in our Irrigation segment operations in Brazil and South Africa. Our
ownership percentages in these locations are less than 100%.
The Financial Accounting Standards Board (FAS) Interpretation No. 46R, “Consolidation of Variable Interest Entities”
(FIN 46R), is applicable to public entities that have interests in variable interest entities for periods ending after December 15,
2003. Under FIN 46, the assets, liabilities and results of activities of variable interest entities are required to be reported in the
consolidated financial statements of their primary beneficiaries. We assessed our relationships with variable interest entities and
determined that we were the primary beneficiary in a variable interest entity related to our lease of transportation equipment.
Accordingly, in the fourth quarter of 2003, we recorded a cumulative effect of a change in accounting of $0.4 million (net of
related tax effects of $0.2 million). In addition, we recorded a net increase to property, plant and equipment of $9.3 million and
an increase to interest-bearing debt of $9.9 million.
We generated solid operating cash flow during 2003 and 2002 and we used those cash flows to reduce our interest-bearing
debt. Our long-term debt to invested capital ratio was reduced from 36.8% to 30.9% in 2003.
Engineered Support Structures (ESS) Segment
General
The sales increase in the ESS segment related to currency translation effects, as stronger sales in the Lighting and Traffic
product line were essentially offset by lower sales in the Specialty product line. The decrease in operating income was the result
of higher SG&A spending in Europe, where spending increased from 2002 due to our efforts to expand sales distribution and
manufacturing in the region and expand our product offerings.
Lighting and Traffic Products
In North America, lighting and traffic structure sales increased by 3.6% in 2003. Market demand continued to be driven by
government spending programs and the need for improved street and highway lighting and traffic control. The commercial lighting
sales in 2003 were essentially flat with 2002, as commercial construction and the related demand for area lighting for parking
lots and common areas was somewhat weaker than in 2002. Building alliances with lighting fixture manufacturers helped us to
maintain sales despite some softness in the overall market. Profitability in North America improved, principally due to increased
sales. In Europe, sales increased 5.7% in local currency terms, as most of the sales increase related to efforts to expand our manu-
facturing presence and sales coverage in the region. In China, sales were down slightly, but we are continuing to make progress in
finding local market segments that are attractive and capitalize on export opportunities to generate sales and profits.
valmont industries 2004 form 10k | page 27
Specialty Products
In North America, sales of specialty products were down as compared with 2002. Wireless carriers and build-to-suit companies
continued to curtail spending on new structures for the wireless communication industry as they focused on cash flow and capital
management. Structures and antennas being installed have generally been done so as to augment existing networks to improve
coverage and service. While sales were lower and pricing remained very competitive, our factory and administrative costs were
reduced by approximately $4.0 million this year which helped to minimize the impact of these lower sales on the segment’s operating
income. In 2003, this product line also began to manufacture overhead sign and low-voltage substation structures; while 2003
sales in these products were not material, we were successful in achieving orders for future delivery. We continue to experience
strong demand for wireless communication poles in China, as they continue to pursue buildout of their wireless networks.
Utility Products
In China, our sales increased approximately $5.0 million in 2003 as compared with 2002. We have been successful in
penetrating the utility market with transmission and substation products.
Utility Support Structures Segment
The sales decrease in 2003 as compared with 2002 related to a combination of lower market demand and a very competitive
pricing environment. Market demand for steel poles for transmission and substations was somewhat lower than in 2002. Utility
companies and independent power producers have reduced spending for electrical generation and transmission projects due to factors
such as a lack of U.S. energy legislation and some financing constraints. The key factor that affected profitability was the severe
pricing pressure in the marketplace throughout 2003. The pricing pressure resulted from some weakness in the market, combined
with new competitors in the form of manufacturers who also compete for sales of pole structures in the wireless communication
market. In the first quarter, our backlogs and sales fell as we attempted to maintain pricing. Our pricing was more aggressive in
the second quarter and we were successful in increasing our order rate, although sales prices were substantially less than what we
experienced in the last few years. Sales in the fourth quarter were similar to 2002, although at lower margin levels than in the past.
The impact of pricing and unfavorable product mix on operating income was approximately $8.9 million in 2003.
Coatings Segment
The decrease in Coatings segment sales in 2003 as compared with 2002 was due to weakness in the industrial economy
in the U.S. throughout 2003. In addition, the amount of business with our other locations was down in 2003, as lower sales
in the Utility Support Structures segment and the Specialty product line in the ESS segment also led to lower production levels in
our galvanizing locations that serve those businesses. As a result of these factors, sales in our galvanizing locations were 14.4%
lower than in 2002. Operating income decreased due to lower sales and gross margins, offset by reduced SG&A expenses. Our
galvanizing operations have relatively high fixed costs. When production fluctuates, it can have a significant impact on earnings.
The estimated total impact of the volume decrease on gross margin was $4.7 million. Gross margins were also impacted by
approximately $1.1 million in higher workers compensation costs in 2003. Most of this increase occurred in our California
operations, where the legal environment in the workers compensation area is difficult for employers. SG&A spending was
comparable to 2002 levels. Operating income in 2002 included a $1.2 million gain on the sale of a facility in our Minnesota
location.
Irrigation Segment
Irrigation segment sales in 2003 increased in both domestic and international markets. In North America, improved
commodity prices, dry growing conditions in our main market areas, a generally favorable U.S. farm bill and low interest rates
contributed to increased demand for mechanized irrigation machines and related service parts. The increase in sales and some
improved pricing resulted in higher operating income in 2003.
valmont industries 2004 form 10k | page 28
In the international marketplace (after considering currency translation impacts), sales were similar to 2002. Sales in the
Middle East market were down substantially, as the war in Iraq impacted project sales in the region. In Brazil, we achieved
record sales and profits, as market conditions were very strong. Good agricultural commodity prices and favorable government
programs helped drive the strong sales demand and contributed to our excellent operating performance in 2003. In South Africa,
sales in local currency terms were down slightly from our record sales in 2002, but profitability improved, due to improved
operations management and pricing that led to improved gross margins. Good agricultural commodity prices and generally dry
growing conditions helped maintain strong demand for mechanized irrigation machines in the region. Overall profitability in our
international operations improved by 21%, about half of which was due to currency translation effects resulting from a weaker
U.S. dollar, especially in relation to the South African Rand.
Tubing Segment
In the Tubing segment, sales were slightly lower than last year, although sales were stronger in the fourth quarter as compared
with 2002, reflecting some strengthening economic conditions in the U.S. This segment was impacted significantly by the steel
market, as most of the cost of tubing is hot-rolled sheet steel. In the fourth quarter of 2003, steel prices started to rise and there
was some concern about availability of steel in the near future. In these conditions, our sales tend to increase, as customers order
more tubing to reduce the risk of future shortages and avoid future price increases. Operating income was down from 2002 due
to some pricing pressures in commodity-type products and an unfavorable inventory adjustment.
Other
Our “Other” businesses include our machine tool accessory business in France, our industrial fastener business in the U.S.
and wind energy development. Sales were up mostly due to currency translation impacts and profitability was down mainly due
to higher spending on developing a new structure for the wind energy industry. Our spending on development activity was $2.8
million in 2003, as compared with $2.4 million in 2002.
Net corporate expense
The principal reasons for lower net corporate expenses in 2003 as compared with 2002 were reduced employee incentives
associated with lower profitability and return on invested capital (approximately $8.7 million) and approximately $2.2 million
associated with an increase in the amount of corporate computer expenses allocated to our operating units. In addition, rental
costs on our corporate headquarters building decreased by $1.6 million in 2003 as compared with 2002 due to lower interest
rates, as our rental costs are based on the LIBOR plus a spread.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Working Capital and Operating Cash Flows Net working capital was $277.4 million at fiscal year-end 2004, as compared
with $169.6 million at year-end 2003. The ratio of current assets to current liabilities was 2.84:1 as of December 25, 2004, as
compared with 2.12:1 at December 27, 2003. The increase in working capital included approximately $25.1 million in net
working capital acquired as part of the Newmark, Whatley and Sigma acquisitions. The increase in working capital was also due
to higher sales in 2004 as compared with 2003, which resulted in higher accounts receivable and inventories. Availability issues,
extended lead times and lack of firm pricing for steel in 2004 further contributed to the increase in inventory levels in 2004 over
2003 levels. While inventories are down from the end of the third quarter of 2004, they are not yet down to historical levels.
Operating cash flow was $6.1 million in 2004, as compared with $59.8 million in 2003 and $69.5 million in 2002. The decrease
in operating cash flow in 2004 as compared with 2003 related mainly to higher working capital levels in 2004.
Investing Cash Flows The most significant investing cash flow item was the $125.4 million expended (net of cash acquired)
related to the Newmark, Whatley and Sigma acquisitions. Capital spending was $17.2 million in 2004, as compared with $17.7
million in 2003, and $13.9 million in 2002. Our depreciation and amortization expenses for 2004, 2003 and 2002 were $38.6
million, $34.6 million and $33.9 million, respectively. Throughout much of the 1990’s our capital spending was relatively high
as we added manufacturing capacity in a number of areas, most notably our Irrigation segment factory in McCook, Nebraska
and our Utility Support Structures factory in Jasper, Tennessee. We have not made any substantial capacity additions in the past
three years. In addition, we made a number of acquisitions from 1998 to 2004 that added capacity and allowed us to expand
our market coverage. While we do not expect capital spending to remain at 2004 levels over the long term, we do not anticipate
a substantial increase in capital spending in the near future. Fiscal 2005 capital expenditures are estimated to be between $25
and $30 million.
valmont industries 2004 form 10k | page 29
Financing Cash Flows Total interest-bearing debt increased from $165.2 million in 2003 to $327.5 million as of December
25, 2004, an increase of $162.3 million. Most of the increase in borrowing occurred in our new major long-term credit facilities
described below and was due to our 2004 acquisitions, which totaled $138 million (including $12.6 million in debt that was
assumed as part of the acquisitions).
Sources of Financing and Capital
We have historically funded our growth, capital spending and acquisitions through a combination of operating cash flows
and debt financing. We have an internal long-term objective to maintain long-term debt as a percent of capital at or below 40%.
At December 25, 2004, our long-term debt to invested capital ratio was 46.3%, as compared with 30.9% at the end of fiscal
2003. This internal objective is exceeded from time to time in order to take advantage of opportunities to grow and improve
our businesses. We believe the acquisitions described above were appropriate opportunities to expand our market coverage and
product offerings and generate earnings growth. While our long-term debt to capital ratio is in excess of our 40% objective after
the effect of our refinancing, we believe our cash flows will enable us to reduce our debt levels to 40% over the next 18 to 24
months. This estimate is dependent on our level of acquisition activity and steel industry availability and pricing issues, which are
causing us to carry more inventory than we customarily maintain.
Our priorities in use of future cash flows are as follows:
Fund internal growth initiatives in core businesses
Pay down interest-bearing debt
Invest in acquisitions clearly connected to our core businesses or an existing competency
Return money to our shareholders through increased dividends or common stock repurchases at appropriate share prices
Our debt financing at December 25, 2004 consisted mainly of long-term debt. We also maintain certain short-term bank lines
of credit totaling $26.3 million, $22.7 million of which was unused at December 25, 2004. As a result of the Newmark acquisition
and to take advantage of a favorable interest rate environment, we refinanced our major long-term credit facilities in May 2004. The
refinancing included $150 million in senior subordinated notes and a new $225 million bank financing arrangement consisting of a
$150 million revolving credit agreement and a $75.0 million term loan. The proceeds were used to repay the old revolving credit
facility, the bridge loan obligation incurred to fund part of the Newmark acquisition and to prepay $79.0 million of promissory
notes. The prepaid promissory notes contained yield maintenance provisions that required us to pay as a prepayment premium
of approximately $9.6 million in addition to the $79.0 million in debt, plus approximately $0.7 million in accrued interest.
The $150 million senior subordinated notes bear interest at 6.875% per annum and are due in May 2014. We may repurchase
the notes after five years at specified prepayment premiums and these notes are guaranteed by certain of our U.S. subsidiaries.
The $150 million revolving credit agreement carries an interest rate spread over the LIBOR of 75 to 175 basis points, depending
on our ratio of debt to earnings before taxes, interest, depreciation and amortization (EBITDA). At December 25, 2004, we had
$71.1 million outstanding under the revolving credit agreement at an interest rate of 3.7921% per annum. The revolving credit
agreement contains certain financial covenants that limit our additional borrowing capability under the agreement. At December
25, 2004, we had the ability to borrow an additional $73.3 million under this facility.
valmont industries 2004 form 10k | page 30
The $75 million term loan accrues interest based on the LIBOR plus a spread of 75 to 175 basis points, depending on our
debt to EBITDA ratio, and requires quarterly principal payments beginning in 2005 through 2009. The annualized principal
payments beginning in 2005 in millions are: $3.8, $11.2, $18.8, $26.2, and $15.0. The effective interest rate on this loan at
December 25, 2004 was 4.125% per annum.
In the event of a sharp decrease in demand for our products, resulting profitability reductions would reduce our operating
cash flows and may affect our ability to grow. Likewise, low profitability or operating losses could impact our compliance with
key long-term debt covenants, which could ultimately result in default of these debt agreements and acceleration of payments
due. 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.
FINANCIAL OBLIGATIONS AND FINANCIAL COMMITMENTS
We have 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 as of December 25, 2004
are summarized as follows, in millions of dollars:
Contractual Obligations
Total
2005
2006-2007
2008-2009
After 2009
Long-term debt
Capital leases
Unconditional purchase obligations
Operating leases
$
311.3 $
11.5
24.9
28.4
$
7.2 $
0.8
24.9
8.2
25.2
1.7
—
12.7
$
118.9
1.5
—
4.7
160.0
7.5
—
2.8
Total contractual cash obligations
$
376.1 $
41.1 $
39.6
$
125.1
$
170.3
Long-term debt principally consists of the $150 million of senior subordinated notes, the $75 million term loan and the $150
million revolving credit agreement ($71.1 million was outstanding at December 25, 2004). Obligations under these agreements
could be accelerated in event of non-compliance with covenants. At December 25, 2004, the Company was in compliance with
all debt covenants.
Capital leases relate principally to a production facility in France and transportation and office equipment. Operating leases
relate mainly to various production and office facilities and are in the normal course of business.
As of December 25, 2004, our interest obligations associated with our long-term debt and capital leases were as follows (in
millions of dollars):
2005
2006-2007
2008-2009
After 2009
$
17.1
33.0
28.2
49.7
Unconditional purchase obligations relate to purchase orders for aluminum, zinc and steel for periods up to one year. We
believe the quantities under contract are reasonable in light of normal fluctuations in business levels and we expect to use the
commodities under contract during the contract period.
OFF BALANCE SHEET ARRANGEMENTS
We have operating lease obligations to unaffiliated 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 obligations for us at the end of the lease
contracts. The most significant operating lease is the lease of our corporate headquarters office building in Omaha, Nebraska.
On this lease, we lease the entire office complex and sublease other office space in the complex to outside parties. The lease pay-
ments are based on the London Interbank Offer Rate (LIBOR), plus a spread that varies depending on our financial leverage.
The current lease obligation expires in 2008, at which time we may elect to 1) renew the lease at a negotiated rate and duration;
2) purchase the facility from the lessor for $35 million; or 3) terminate the lease. In the event that we terminate the lease and
valmont industries 2004 form 10k | page 31
the facility is sold for less than $35 million, we are obligated to pay the difference between the sales price and $35 million to the
owner. This lease also contains certain covenants that are similar to those in our revolving credit agreement, including covenants
related to financial leverage and coverage of certain fixed charges. The estimated fair value of the residual value guarantee is
$1.3 million, which we have classified on the balance sheet in “Other noncurrent liabilities”. This lease was reviewed under the
provisions of FAS Interpretation 46R (“Consolidation of Variable Interest Entities”), and we determined that we were not
required to consolidate the lessor entity because we were not the primary beneficiary.
We also have certain commercial commitments related to contingent events that could create a financial obligation for us.
Except as noted below, these commitments at December 25, 2004 are as follows (in millions of dollars):
Other Commercial Commitments
Standby Letters of Credit
Guarantees
Total
Amounts
Committed
$
2.8
2.9
2005
$ 1.8
0.4
Total commercial commitments
$
5.7 $
2.2
$
2006-2007
2008-2009
Thereafter
—
—
—
1.0
2.5
3.5 $
—
—
—
Commitment Expiration Period
The above commitments include $5.6 million in loan guarantees of non-consolidated subsidiaries in Argentina and Mexico
and are in proportion to our ownership percentage of these companies or are accompanied by a guarantee from the majority
owner to us. As prescribed by the Financial Accounting Standards Board (FASB) Interpretation 45, “Guarantor’s Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45), the fair value
of the guarantees was $1.1 million and is recorded in Other noncurrent liabilities on our December 25, 2004 balance sheet. We
also maintain standby letters of credit for contract performance on certain sales contracts.
MARKET RISK
Changes in Prices
Certain key materials we use are commodities traded in worldwide markets and are subject to fluctuations in price. The
most significant materials are steel, aluminum, zinc and natural gas. Over the last three years, hot-rolled steel prices have been
volatile. In 2002, prices rose sharply early in the year before falling later in the year. In 2004, prices rose dramatically throughout
much of the year. The volatility in price over time was due to such factors as fluctuations in supply, government tariffs and the
costs of steelmaking inputs. We have also experienced volatility in natural gas prices in the past several years. Our main strategies
in managing these risks are a combination of fixed price purchase contracts with our vendors to minimize the impact of volatility
in prices and sales price increases where possible. With respect to natural gas, we hedge a percentage of forecasted usage through
the use of natural gas swap contracts. In 2004, these strategies as they pertain to steel were not as effective as in the past, as suppliers
discontinued fixed price contracts and consignment programs.
valmont industries 2004 form 10k | page 32
Risk Management
Market Risk – The principal market risks affecting us are exposure to interest rates, foreign currency exchange rates and
natural gas. We normally do not use derivative financial instruments to hedge these exposures (except as described below), nor
do we use derivatives for trading purposes.
Interest Rates – Our interest-bearing debt is 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
approximately $0.8 million in 2004 and $0.2 million in 2003.
Foreign Exchange – Exposures to transactions denominated in a currency other than the entity’s functional currency are
not material, and therefore the potential exchange losses in future earnings, fair value and cash flows from these transactions are
immaterial. Much of our cash in non-U.S. entities is denominated in foreign currencies, where fluctuations in exchange rates will
impact cash balances in U.S. dollar terms. A hypothetical 10% change in the value of the U.S. dollar would impact our reported
cash balance by approximately $2.1 million in 2004 and $2.4 million in 2003.
We manage our 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 our investments at year-end assuming a hypothetical
10% change in the value of the U.S. Dollar.
(in millions)
Europe
South America
Asia
South Africa
$
2004
5.0
0.7
2.2
0.5
$
2003
4.0
0.7
1.6
0.5
Commodity risk – Natural gas is a significant commodity used in our factories, especially in our Coatings segment galvanizing
operations, where natural gas is used to heat tanks that enable the hot-dipped galvanizing process. Natural gas prices are volatile
and we mitigate some of this volatility through the use of derivative commodity instruments. Our current policy is to hedge
25-50% of our U.S. natural gas requirements for the upcoming 6-12 months through purchase of natural gas swaps based on
NYMEX futures prices for delivery in the month being hedged. The objective of this policy is to mitigate the impact on our
earnings of sudden, significant increases in the price of natural gas. Annual U.S. gas requirements are approximately 700,000
MMBtu. We have hedged approximately 50% of our expected 2005 U.S. requirements through April 2005 and approximately
25% of our expected requirements for June 2005. The fair value of these instruments is based on quoted market prices from the
NYMEX. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in price.
As of December 25, 2004 our market risk exposure related to future natural gas requirements being hedged was approximately
$1.0 million based on a sensitivity analysis. Changes in the market value of these derivative instruments have a high correlation to
changes in the spot price of natural gas. Since we forward price only a portion of our natural gas requirements, this hypothetical
adverse impact on natural gas derivative instruments would be more than offset by lower costs for all natural gas we purchase.
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. The selection and application of our critical accounting policies are discussed
periodically with our audit committee.
valmont industries 2004 form 10k | page 33
Allowance for Doubtful Accounts
In determining an allowance for accounts receivable that will not ultimately be collected in full, we consider:
age of the accounts receivable
customer credit history
customer financial information
reasons for non-payment (product, service or billing issues).
If our customer’s financial condition were to deteriorate, resulting in an impairment in their ability to make payment, additional
allowances may be required.
Warranties
All of our businesses must meet certain product quality and performance criteria. We rely on historical product claims 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
the number of product units subject to warranty claims
In addition to known claims or warranty issues, we estimate future claims on recent sales. The key assumption in our estimate
is the rate we apply to those recent sales, which is based on historical claims experience. If this estimated rate changed by 50%, the
impact on operating income would be approximately $1.7 million. If our cost to repair a product or the number of products subject
to warranty claims is greater than we estimated, then 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 2004, we experienced substantially higher costs to produce inventory than in 2003, due mainly to higher costs for steel and
steel-related products. This resulted in higher cost of goods sold (and lower operating income) of approximately $20.9 million than
had all our inventory 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 writedowns of the inventory may be required.
valmont industries 2004 form 10k | page 34
Depreciation, Amortization and Impairment of Long-Lived Assets
Our long-lived assets consist primarily of property, plant and equipment and intangible assets that were acquired in business
acquisitions. We have assigned useful lives to our property, plant and equipment and certain intangible assets ranging from 3 to
40 years.
We annually evaluate our reporting units for goodwill impairment during the third fiscal quarter, which coincides with our
strategic planning process. We value our reporting units using after-tax cash flows from operations (less capital expenditures)
discounted to present value. The key assumptions are the discount rate and the annual free cash flow. We also use sensitivity
analysis to determine the impact of changes in discount rates and cash flow forecasts on the valuation of the reporting units. As
allowed for under SFAS 142, we rely on our previous valuations for the annual impairment testing provided that the following
criteria for each reporting unit are met: (1) the assets and liabilities that make up the reporting unit have not changed signifi-
cantly since the most recent fair value determination and (2) the most recent fair value determination resulted in an amount that
exceeded the carrying amount of the reporting unit by a substantial margin.
In the case of most of our reporting units, the above criteria have been met and no further evaluation was required. If our
assumptions about intangible 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 2002, we determined that our invest-
ment in an irrigation dealer in North America was impaired, which resulted in a writedown of $1.1 million.
Our indefinite-lived intangible assets consist of trade names and their values are separately assessed from goodwill as part of
the annual impairment testing. This assessment is made using the relief-from-royalty method, under which the value of a trade
name is determined based on a royalty that could be charged to a third party for using the trade name in question. The royalty,
which is based on a reasonable rate applied against forecasted sales, is tax-effected and discounted to present value. The most
significant assumptions in this evaluation include estimated future sales, the royalty rate and the after-tax discount rate. For our
evaluation purposes, the royalty rates used vary between 1% and 2% of sales and the after-tax discount rate of 8.5%, which we
estimate to be our after-tax cost of capital.
Stock Options
Our employees are periodically granted stock options by the Compensation Committee of the Board of Directors. As
allowed under generally accepted accounting principles (GAAP), we do not record any compensation expense on the income
statement with respect to options granted to employees and directors. Alternatively, under GAAP, we could have recorded a
compensation expense based on the fair value of employee stock options. As described in Note 1 in the Consolidated Financial
Statements, had we recorded a fair value-based compensation expense for stock options, earnings per share would have been
$0.07 to $0.12 less than what was reported for each of the 2002, 2003 and 2004 fiscal years. On December 16, 2004, the FASB
issued Statement No. 123 (revised 2004) (“SFAS No. 123R”), Share-Based Payment. SFAS No. 123R will require us to measure
the cost of all employee stock-based compensation awards based on the grant date fair value of those awards and to record that
cost as compensation expense over the period during which the employee is required to perform service in exchange for the
award (generally over the vesting period of the award). SFAS No. 123R is effective beginning in the company’s third quarter of
fiscal 2005. We are currently evaluating how we will implement this new standard and the expected impact that the adoption of
SFAS No. 123R will have on our results of operations and cash flows.
Income Taxes
We record a valuation allowance to reduce our 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 is estimated to be not fully realizable in the future, a valuation allowance to decrease the amount of the deferred
tax asset would decrease net income in the period the determination was made. Likewise, should we subsequently determine that
we would be able to realize all or part of a net deferred tax asset in the future, an adjustment reducing the valuation allowance
would increase net earnings in the period such determination was made. At December 25, 2004, we had approximately $2.8
million in deferred tax assets related mainly to tax credit carryforwards, with a valuation allowance of $0.3 million. In 2004, we
removed $0.4 million of prior valuation allowances (and, accordingly, reduced our income tax expense), because we determined
that, based on facts and circumstances, the realization of these deferred tax assets was more likely than not. If these circumstances
change in the future, we may be required to increase or decrease the valuation allowance on these assets, resulting in an increase
or decrease in income tax expense and a reduction or increase in net income. At December 25, 2004, we had deferred tax assets
of $2.1 million related to nonconsolidated subsidiaries which have been fully offset by a valuation adjustment.
valmont industries 2004 form 10k | page 35
Recently Issued Accounting Pronouncements
On December 16, 2004, the FASB issued Statement No. 123 (revised 2004) (“SFAS No. 123R”), Share-Based Payment.
SFAS No. 123R will require the company to measure the cost of all employee stock-based compensation awards based on the
grant date fair value of those awards and to record that cost as compensation expense over the period during which the employee
is required to perform service in exchange for the award (generally over the vesting period of the award). Excess tax benefits,
as defined by this Statement, will be recognized as an addition to paid-in capital. SFAS No. 123R is effective beginning in the
company’s third quarter of fiscal 2005. We are currently evaluating the expected impact that the adoption of SFAS No. 123R will
have on our results of operations and cash flows.
In November 2004, the FASB issued Statement No. 151, Inventory Costs. SFAS No. 151 clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs and wasted material. Under this pronouncement, abnormal amounts of
these costs are required to be charged against earnings rather than included in the cost of inventory on the balance sheet. SFAS
No. 151 will be effective at the beginning of the company’s 2006 fiscal year. We do not believe this pronouncement will have a
significant effect on our financial statements.
In December 2004, the FASB issued Statement No. 153, Exchanges of Nonmonetary Assets. SFAS No. 153 amends existing
guidance regarding the accounting for nonmonetary exchanges of similar productive assets. Under this pronouncement, the
accounting for exchanges of similar productive assets that are not expected to significantly change the future cash flows of an
entity will be an exception to the general rule that exchanges are accounted for based on the relative fair values of the exchanged
assets. This pronouncement is effective at the beginning of our third quarter of fiscal 2005. We do not believe this pronouncement
will have a significant effect on our financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required is included under the captioned paragraph, “Risk Management” on page 33 of this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements of the Company and its subsidiaries are included herein as listed below:
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations – Three-Year Period Ended December 25, 2004
Consolidated Balance Sheets – December 25, 2004 and December 27, 2003
Consolidated Statements of Cash Flows – Three-Year Period Ended December 25, 2004
Consolidated Statements of Shareholders’ Equity – Three-Year Period Ended December 25, 2004
Notes to Consolidated Financial Statements – Three-Year Period Ended December 25, 2004
37
38
39
40
41
42-71
valmont industries 2004 form 10k | page 36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Valmont Industries, Inc.
Omaha, Nebraska
We have audited the accompanying consolidated balance sheets of Valmont Industries, Inc. and subsidiaries (the “Company”)
as of December 25, 2004 and December 27, 2003, and the related consolidated statements of operations, shareholders’ equity
and cash flows for each of the three fiscal years in the period ended December 25, 2004. Our audits also included the financial
statement schedule listed in Item 15. These financial statements and financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). 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 25, 2004 and December 27, 2003, and the results of their operations and their
cash flows for each of the three fiscal years in the period ended December 25, 2004 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information
set forth therein.
As discussed in Note 1, in 2003 the Company changed its method of accounting for variable interest entities and in 2002 the
Company changed its method of accounting for goodwill and other intangible assets.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
effectiveness of the Company’s internal control over financial reporting as of December 25, 2004, based on the criteria established
in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 8, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the
Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal
control over financial reporting.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 8, 2005
valmont industries 2004 form 10k | page 37
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
Product sales
Services sales
Net sales
Product cost of sales
Services cost of sales
Total cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Other income (deductions):
Interest expense
Interest income
Debt prepayment expenses
Miscellaneous
Earnings before income taxes, minority interest, equity in earnings/(losses)
of nonconsolidated subsidiaries and cumulative effect of change in
accounting principle
Income tax expense (benefit):
Current
Deferred
Earnings before minority interest, equity in earnings/(losses) of
nonconsolidated subsidiaries and cumulative effect of change in
accounting principle
Minority interest
Equity in earnings/(losses) of nonconsolidated subsidiaries
Cumulative effect of change in accounting principle
Net earnings
Earning per share:
Basic:
Income from continuing operations before cumulative effect of change
in accounting principle
Cumulative effect of change in accounting principle
Net earnings
Diluted:
Income from continuing operations before cumulative effect of change
in accounting principle
Cumulative effect of change in accounting principle
Net earnings
Cash dividends per share
See accompanying notes to consolidated financial statements.
valmont industries 2004 form 10k | page 38
$
2004
946,912
84,563
1,031,475
720,251
65,302
785,553
245,922
175,810
70,112
(16,073)
1,333
(9,860)
(679)
(25,279)
$
2003
741,229
96,396
837,625
554,564
75,071
629,635
207,990
153,367
54,623
(9,897)
1,095
—
(276)
(9,078)
$
2002
760,593
94,305
854,898
554,779
68,643
623,422
231,476
161,187
70,289
(11,722)
1,048
—
(337)
(11,011)
44,833
45,545
59,278
20,828
(4,701)
16,127
28,706
(2,397)
572
—
11,684
4,850
16,534
29,011
(2,222)
(936)
(366)
17,777
3,860
21,637
37,641
(1,170)
(2,342)
(500)
$
26,881
$
25,487
$
33,629
$
$
$
$
$
1.13
—
1.13
1.10
—
1.10
0.320
$
$
$
$
$
1.09
(0.02)
1.07
1.06
(0.01)
1.05
0.315
$
$
$
$
$
1.42
(0.02)
1.40
1.39
(0.02)
1.37
0.290
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 25, 2004 and December 27, 2003
(Dollars in thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Receivables, less allowance for doubtful receivables of $5,372 in 2004 and $4,363 in 2003
$
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
Other intangible assets
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
Commitments and contingencies
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 (loss)
Less:
Cost of common shares in treasury—3,737,773 shares in 2004 (4,074,847 shares in 2003)
Unearned restricted stock-102,666 shares in 2004 (51,333 shares in 2003)
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements.
2004
2003
30,210
188,512
186,988
8,408
14,387
428,505
493,997
288,342
205,655
106,022
63,337
32,589
$
33,345
151,765
116,475
8,622
10,903
321,110
448,678
258,575
190,103
56,022
14,358
23,204
$
836,108
$
604,797
$
7,962
4,682
69,979
66,506
1,932
151,061
42,639
314,813
22,833
10,107
$
15,009
15,500
63,256
55,856
1,921
151,542
22,748
134,653
22,116
8,244
—
—
27,900
—
324,748
3,499
356,147
59,200
2,292
294,655
27,900
—
306,920
(2,147)
332,673
65,975
1,204
265,494
$
836,108
$
604,797
valmont industries 2004 form 10k | page 39
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-year period ended December 25, 2004
(Dollars in thousands)
Cash flows from operations:
Net earnings
Adjustments to reconcile net earnings to net cash flows from operations:
Depreciation and amortization
Loss on sale of property, plant and equipment
Cumulative effect of change in accounting principle
Equity in (earnings)/losses in nonconsolidated subsidiaries
Minority interest in net losses of consolidated subsidiaries
Deferred income taxes
Other adjustments
Changes in assets and liabilities:
Receivables
Inventories
Prepaid expenses
Accounts payable
Accrued expenses
Other noncurrent liabilities
Income taxes payable
Net cash flows from operations
Cash flows from investing activities:
Purchase of property, plant and equipment
Purchase of minority interest
Investment in nonconsolidated subsidiary
Acquisitions, net of cash acquired
Dividends to minority interests
Proceeds from sale of property, plant and equipment
Proceeds from sale to minority shareholder
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
Fees paid to issue debt
Purchase of common treasury shares:
Stock repurchases
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
2004
2003
2002
$
26,881
$
25,487
$
33,629
38,644
1,127
—
(572)
2,397
(4,701)
2,131
(13,253)
(48,889)
1,758
(3,488)
5,987
718
(2,593)
6,147
(17,182)
—
(2,450)
(125,446)
(1,796)
2,333
—
(6,132)
(150,673)
(22,495)
263,171
(91,365)
(7,654)
6,305
(5,520)
—
(2,701)
139,741
1,650
(3,135)
33,345
34,597
802
366
936
2,222
4,850
881
(10,515)
8,999
(3,249)
2,203
(16,026)
1,170
7,058
59,781
(17,679)
(200)
(1,715)
—
(1,220)
645
76
(1,023)
(21,116)
10,367
767
(27,388)
(7,414)
1,192
—
(3,351)
(615)
(26,442)
1,608
13,831
19,514
33,942
1,083
500
2,342
1,170
3,860
(332)
3,774
(10,172)
(235)
284
10,625
(809)
(10,208)
69,453
(13,942)
(855)
—
—
(537)
2,961
1,253
(2,606)
(13,726)
(8,171)
1,249
(33,070)
(6,758)
8,591
—
(14,250)
(6,898)
(59,307)
(1,428)
(5,008)
24,522
Cash and cash equivalents—end of year
$
30,210
$
33,345
$
19,514
See accompanying notes to consolidated financial statements.
valmont industries 2004 form 10k | page 40
Valmont Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
Balance at December 29, 2001
Comprehensive income:
Net earnings
Currency translation adjustment
Total comprehensive income
Cash dividends ($0.29 per share)
Purchase of treasury shares:
Stock repurchases,
820,932 shares
Stock plan exercises,
291,935 shares
Stock options exercised;
507,723 shares issued
Tax benefit from exercise of stock options
Stock awards; 18,795 shares issued
Balance at December 28, 2002
Comprehensive income:
Net earnings
Currency translation adjustment
Total comprehensive income
Cash dividends ($0.315 per share)
Purchase of treasury shares:
Stock repurchases,
175,959 shares
Stock plan exercises,
29,224 shares
Stock options exercised;
75,876 shares issued
Tax benefit from exercise of stock options
Stock awards; 70,975 shares issued
Balance at December 27, 2003
Comprehensive income:
Net earnings
Net derivative adjustment
Currency translation adjustment
Total comprehensive income
Cash dividends ($0.32 per share)
Purchase of treasury shares:
Stock plan exercises,
123,497 shares
Stock options exercised;
397,238 shares issued
Tax benefit from exercise of stock options
Stock awards; 63,333 shares issued
Common
stock
Additional
paid-in
capital
other
Retained comprehensive
earnings income (loss)
Treasury
stock
Unearned
Total
restricted shareholders’
equity
stock
Accumulated
$
27,900 $
— $ 264,854 $
(11,957) $
(54,986) $
— $ 225,811
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(141)
146
(5)
—
—
—
—
—
—
33,629
—
—
(6,952)
—
1,908
—
—
—
—
—
—
—
—
—
—
33,629
1,908
35,537
(6,952)
—
—
—
(14,250)
—
(14,250)
—
(6,898)
—
(6,898)
(1,975)
1,882
93
(2,426)
—
—
—
—
—
10,916
—
282
27,900
—
289,105
(10,049)
(64,936)
25,487
—
—
(7,543)
—
7,902
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,515
1,882
375
242,020
25,487
7,902
33,389
(7,543)
—
—
(129)
—
—
—
(3,351)
—
(3,351)
—
—
—
—
(615)
—
(615)
1,462
—
1,465
—
—
(1,204)
1,192
146
256
27,900
—
306,920
(2,147)
(65,975)
(1,204)
265,494
—
—
—
—
—
—
—
—
—
—
—
—
—
—
26,881
—
—
—
(7,665)
—
(112)
5,758
—
—
—
—
—
—
—
—
—
—
—
—
26,881
(112)
5,758
32,527
(7,665)
—
—
—
(2,701)
—
(2,701)
(1,344)
1,091
253
(1,388)
—
—
—
—
—
9,037
—
439
—
—
(1,088)
6,305
1,091
(396)
Balance at December 25, 2004
$
27,900 $
— $ 324,748 $
3,499 $
(59,200) $
(2,292) $ 294,655
See accompanying notes to consolidated financial statements.
valmont industries 2004 form 10k | page 41
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three-year period ended December 25, 2004
(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 2003 items have been reclassified to conform with 2004 presentation.
Operating Segments
ENGINEERED SUPPORT STRUCTURES: This segment consists of the manufacture of engineered metal structures and com-
ponents for the lighting and traffic and wireless communication industries, certain international utility industries and for other
specialty applications;
UTILITY SUPPORT STRUCTURES: This segment consists of the manufacture of engineered steel and concrete structures
primarily for the North American utility industry;
COATINGS: This segment consists of galvanizing, anodizing and powder coating services;
IRRIGATION: This segment consists of the manufacture of agricultural irrigation equipment and related parts and services;
and
TUBING: This segment consists of the manufacture of tubular products for industrial customers.
Fiscal Year
The Company operates on a 52 or 53 week fiscal year with each year ending on the last Saturday in December. Accordingly,
the Company’s fiscal years ended December 25, 2004, December 27, 2003, and December 28, 2002, consisted of 52 weeks.
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, transportation equipment 3 to 24 years,
office furniture and equipment 3 to 7 years and intangible assets 5 to 20 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
2002, the Company recognized an impairment loss of $1.1 million related to its nonconsolidated investment of an irrigation
dealership in North America.
Change in Accounting
The Financial Accounting Standards Board (FAS) Interpretation No. 46R, “Consolidation of Variable Interest Entities”
(FIN 46R), was revised in December 2003 and is applicable to public entities that have interests in variable interest entities for
periods ending after December 15, 2003. Under FIN 46R, the assets, liabilities and results of operations of variable interest enti-
ties are required to be reported in the consolidated financial statements of their primary beneficiaries. The Company assessed its
relationships with variable interest entities and determined that it is the primary beneficiary in a variable interest entity related to
the Company’s lease of transportation equipment. In the fourth quarter of 2003, the Company recorded a cumulative effect of a
change in accounting of $366 (net of related tax effects of $210). In addition, the Company recorded a net increase to property,
plant and equipment of $9,305 and an increase to interest-bearing debt of $9,881.
valmont industries 2004 form 10k | page 42
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
Effective December 30, 2001, the Company adopted Statement of Financial Accounting Standard No. 142, “Goodwill and
Other Intangible Assets.” This standard established new accounting and reporting requirements for goodwill and other intangible
assets. Under SFAS 142, all amortization of goodwill and intangible assets with indefinite lives ceased effective December 30,
2001. Also, recorded goodwill was tested for impairment by comparing the fair value to its carrying value. Based on the initial
impairment test, the Company recorded a cumulative effect of change in accounting principle of $0.5 million in 2002 related
to its investment in a consulting business in the Irrigation segment that provides environmental and wastewater management
consulting services.
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 bases 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.
Accumulated Other Comprehensive Income (Loss)
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 (loss)”. Accumulated other comprehensive
income (loss) consisted of the following as of December 25, 2004, December 27, 2003 and December 28, 2002:
(in thousands)
Foreign currency translation adjustment
Net derivative adjustment
Balance, end of period
$
2004
2003
3,611 $
(112)
(2,147) $
—
2002
(10,049)
—
$
3,499 $
(2,147) $
(10,049)
Revenue Recognition
Revenue is recognized upon shipment of the product or delivery of the service to the customer, which coincides with passage
of title and risk of loss to the customer. Customer acceptance provisions exist only in the design stage of our products. No general
rights of return exist for customers once the product has been delivered.
valmont industries 2004 form 10k | page 43
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
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.
Stock Options
The Company accounts for its stock plans under the recognition and measurement principles of APB Opinion 25, “Accounting
for Stock Issued to Employees”, and related Interpretations. No stock-based compensation cost is reflected in net income, as all
options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of
grant. Note 10 to the Consolidated Financial Statements provides a detailed discussion of the Company’s stock option plans.
The following table illustrates the effect on net income and earnings per share if the company had applied the fair value
recognition provision of FASB Statement No. 123, “Accounting for Stock-Based Compensation”, to stock-based employee
compensation.
Net earnings as reported
Add: Stock-based employee compensation expense
2004
2003
2002
$
26,881 $
25,487 $
33,629
included in reported net income, net of related tax effects
330
181
236
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
Pro forma
Earnings per share as reported:
Basic
Diluted
Pro forma:
Basic
Diluted
1,969
2,475
3,059
$
25,242 $
23,193 $
30,806
$
$
$
$
1.13 $
1.07 $
1.10 $
1.05 $
1.06 $
0.97 $
1.03 $
0.95 $
1.40
1.37
1.29
1.25
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 2004, 2003 and 2002:
Expected volatility
Risk-free interest rate
Expected life from vesting date
Dividend yield
2004
29%
3.01%
2.3 yrs.
1.51%
2003
35%
1.97%
2.3 yrs.
1.53%
2002
46%
1.95%
2.9 yrs.
1.48%
valmont industries 2004 form 10k | page 44
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
Derivatives and financial instruments
The Company accounts for derivatives in accordance with SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities”, as amended. SFAS No. 133 requires the recognition of derivatives in the balance sheet and the measurement
of these instruments at fair value. Changes in the fair value of derivatives are recorded in earnings unless the normal purchase or
sale exception applies or hedge accounting is elected.
The Company enters into derivative instruments consisting of swap agreements to fix prices for a portion of future natural gas
usage requirements. These instruments have been designated, documented and assessed for hedge relationships, which resulted
in cash flow hedges that require the Company to record these derivatives at their fair value as assets or liabilities on the balance
sheet with an offset in “Accumulated other comprehensive income (loss)”. Amounts are removed from “Accumulated other
comprehensive income (loss)” as the underlying transactions occur and realized gains or losses are recorded.
Recently Issued Accounting Pronouncements
On December 16, 2004, the FASB issued Statement No. 123 (revised 2004) (“SFAS No. 123R”), Share-Based Payment.
SFAS No. 123R will require the company to measure the cost of all employee stock-based compensation awards based on the
grant date fair value of those awards and to record that cost as compensation expense over the period during which the employee
is required to perform service in exchange for the award (generally over the vesting period of the award). Excess tax benefits,
as defined by this Statement, will be recognized as an addition to paid-in capital. SFAS No. 123R is effective beginning in the
company’s third quarter of fiscal 2005. The Company is currently evaluating the expected impact that the adoption of SFAS No.
123R will have on its results of operations and cash flows.
In November 2004, the FASB issued Statement No. 151, Inventory Costs. SFAS No. 151 clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs and wasted material. Under this pronouncement, abnormal amounts of
these costs are required to be charged against earnings rather than included in the cost of inventory on the balance sheet. SFAS
No. 151 will be effective at the beginning of the company’s 2006 fiscal year. The Company does not believe this pronouncement
will have a significant effect on its financial statements.
In December 2004, the FASB issued Statement No. 153, Exchanges of Nonmonetary Assets. SFAS No. 153 amends existing
guidance regarding the accounting for nonmonetary exchanges of similar productive assets. Under this pronouncement, the
accounting for exchanges of similar productive assets that are not expected to significantly change the future cash flows of an
entity will be an exception to the general rule that exchanges are accounted for based on the relative fair values of the exchanged
assets. This pronouncement is effective at the beginning of the company’s third quarter of fiscal 2005. The Company does not
believe this pronouncement will have a significant effect on its financial statements.
valmont industries 2004 form 10k | page 45
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
(2) ACQUISITIONS
On April 16, 2004, the Company acquired all the outstanding shares of Newmark International, Inc. (Newmark), a manu-
facturer of concrete and steel pole structures serving primarily the electrical utility industry. The results of Newmark are included
in the consolidated financial statements of the Company since that date. The Company finalized the purchase price allocation of
this acquisition in 2004. The total cost of the acquisition (including transaction costs) was $110,147 in cash, plus the assumption
of $11,506 of interest-bearing debt, which was repaid after the acquisition. The following table summarizes the fair values of the
assets acquired and liabilities assumed at the date of the acquisition.
Current assets
Property, plant and equipment
Intangible assets
Goodwill
Total assets acquired
Current liabilities
Deferred income taxes
Long-term debt
Total liabilities assumed
Net assets acquired
At April 16, 2004
$
$
31,011
32,356
48,107
42,628
154,102
(17,614)
(23,629)
(2,712)
(43,955)
110,147
Of the $48,107 of intangible assets, $11,111 was assigned to trademarks and trade names that are not subject to amortization.
The assets that make up the remainder of the acquired intangible assets are customer relationships of $34,068 (20-year useful
life), patents and proprietary technology of $1,969 (weighted average useful life of 14.7 years), and computer software of $959
(7-year useful life). The goodwill related to the acquisition was $42,628 and was assigned to the Utility Support Structures
segment. The reasons for the acquisition included broadening the Company’s product line to include concrete support structures
and combinations of steel and concrete structures to better meet customer needs, acquiring a trained workforce and experienced
management team, and providing certain synergies to help the Company compete more effectively in the utility transmission and
distribution structures industry.
On May 24, 2004, the Company acquired all the outstanding shares of W.J. Whatley, Inc. (Whatley), a manufacturer of
fiberglass poles primarily serving street and area lighting customers. Whatley’s operations are included in the Company’s consoli-
dated financial statements since the acquisition date. The total purchase price amounted to $9,327 in cash (including transaction
costs). Goodwill of $6,831 was recognized as part of the purchase price allocation and was assigned to the Engineered Support
Structures segment. The Company acquired Whatley to broaden its product line in lighting structures to include fiberglass poles,
to acquire a trained workforce, and to gain leverage from combining the respective sales distribution groups.
On August 2, 2004, the Company acquired substantially all the net assets of Sigma Industries, Inc. (Sigma), a manufacturer of
overhead sign structures mainly serving the eastern United States. Sigma’s operations are included in the Company’s consolidated
financial statements since the acquisition date. The purchase price for the net assets of this business was $6,285 in cash. Goodwill
of $395 was recognized as part of the purchase price allocation and was assigned to the Engineered Support Structures segment.
The Company acquired Sigma to broaden its expertise in and coverage of the sign structures industry.
valmont industries 2004 form 10k | page 46
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
The Company’s summary proforma results of operations for the fiscal years ended December 25, 2004 and December 27,
2003, assuming that the transactions occurred at the beginning of the periods presented are as follows:
Fiscal Years Ended
Net sales
Net earnings
Proforma earnings per share – diluted
$
1,065,398 $
28,304
$
1.15 $
December 25,
2004
December 27,
2003
938,740
25,772
1.06
(3) 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
(4) INVENTORIES
2004
2003
$
14,995 $
21,533
9,947 $
4,294
2002
11,701
26,233
At December 25, 2004, approximately 56% 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. Finished goods and manufactured goods inventories include the costs of acquired raw materials and related factory
labor and overhead charges required to convert raw materials to manufactured and finished goods. The excess of replacement
cost of inventories over the LIFO value is approximately $30,700 and $9,800 at December 25, 2004 and December 27, 2003,
respectively.
Inventories consisted of the following:
Raw materials and purchased parts
Work-in-process
Finished goods and manufactured goods
Subtotal
LIFO reserve
Net inventory
$
$
2004
121,484
20,696
75,526
217,706
30,718
2003
63,121
9,038
54,087
126,246
9,771
$
186,988 $
116,475
valmont industries 2004 form 10k | page 47
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
(5) 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
$
2004
2003
22,448 $
133,311
259,861
18,470
55,371
4,536
21,905
115,914
236,286
18,279
51,660
4,634
$
493,997 $
448,678
The Company leases certain facilities, machinery, computer equipment and transportation equipment under operating
leases with unexpired terms ranging from one to fifteen years. Rental expense for operating leases amounted to $10,208, $9,202
and $10,262 for fiscal 2004, 2003 and 2002, respectively.
Minimum lease payments under operating leases expiring subsequent to December 25, 2004 are:
Fiscal year ending
2005
2006
2007
2008
2009
Subsequent
$
8,217
6,964
5,708
3,445
1,300
2,830
Total minimum lease payments
$
28,464
(6) GOODWILL AND INTANGIBLE ASSETS
The Company’s annual impairment testing of goodwill and other intangible assets was performed during the third quarter
of 2004. As a result of that testing, it was determined the goodwill and other intangible assets on the Company’s Consolidated
Balance Sheet were not impaired.
Amortized Intangible Assets
The components of amortized intangible assets at December 25, 2004 and December 27, 2003 are as follows:
As of December 25, 2004
Gross
Carrying
Amount
Accumulated
Amortization
47,691 $
2,609
2,839
331
4,911
1,335
120
33
Weighted
Average
Life
18 years
6 years
14 years
5 years
$
$
53,470 $
6,399
Customer Relationships
Proprietary Software & Database
Patents & Proprietary Technology
Non-compete Agreements
valmont industries 2004 form 10k | page 48
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
Customer Relationships
Proprietary Software & Database
As of December 27, 2003
Gross
Carrying
Amount
Accumulated
Amortization
$
11,500 $
1,650
$
13,150 $
2,634
908
3,542
Life
12 years
5 years
Amortization expense for intangible assets was $2,856, $1,288 and $1,288 for the fifty-two week periods ended December
25, 2004, December 27, 2003, and December 28, 2002, respectively. Estimated annual amortization expense related to amortized
intangible assets is as follows:
2005
2006
2007
2008
2009
$
Estimated
Amortization
Expense
3,606
3,359
3,276
3,276
3,244
Non-amortized intangible assets
Under the provisions of SFAS 142, intangible assets with indefinite lives are not amortized. The carrying value of the PiRod,
Newmark and Sigma trade names are $4,750, $11,111 and $405, respectively. The Newmark and Sigma trade names arose
from 2004 acquisitions, and the PiRod trade name (which arose from a 2001 acquisition) has not changed in the fifty-two weeks
ended December 25, 2004.
The indefinite lived intangible assets were tested for impairment separately from goodwill in the third quarter of 2004. The
values of the trade names were determined using the relief-from-royalty method. Based on this evaluation, the Company determined
that its trade names as reported on its Consolidated Balance Sheet were not impaired.
Goodwill
The carrying amount of goodwill by segment as of December 25, 2004 was as follows:
Engineered
Support
Structures
Segment
Utility
Support
Structures
Segment
Coatings
Segment
Irrigation
Segment
Tubing
Segment
Balance December 27, 2003
Acquisitions
Foreign Currency Translation
$
12,587 $
7,226
146
— $
42,628
—
42,192 $
—
—
$
981
—
—
262 $
—
—
Total
56,022
49,854
146
Balance December 25, 2004
$
19,959 $
42,628 $
42,192 $
981 $
262 $
106,022
valmont industries 2004 form 10k | page 49
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
The carrying amount of goodwill by segment as of December 27, 2003 was as follows:
Engineered
Support
Structures
Segment
Utility
Support
Structures
Segment
Coatings
Segment
Irrigation
Segment
Tubing
Segment
Balance December 28, 2002
Foreign Currency Translation
$
12,236 $
351
— $
—
42,192 $
—
981 $
—
262 $
—
Total
55,671
351
Balance December 27, 2003
$
12,587 $
— $
42,192 $
981 $
262 $
56,022
(7) BANK CREDIT ARRANGEMENTS
The Company maintains various lines of credit for short-term borrowings totaling $26,322. 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 $22,744
at December 25, 2004. The lines of credit can be modified at any time at the option of the banks. The Company pays no fees in
connection with these 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 2.64% at December 25, 2004 and 3.16% at December 27, 2003.
(8) INCOME TAXES
Income tax expense (benefit) consists of:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
2004
2003
2002
$
12,725 $
1,206
6,897
5,299 $
738
5,647
$
20,828 $
11,684 $
$
(3,994) $
(199)
(508)
4,402 $
170
278
(4,701)
4,850
$
16,127 $
16,534 $
12,874
1,192
3,711
17,777
3,351
348
161
3,860
21,637
valmont industries 2004 form 10k | page 50
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
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
2004
2003
35.0%
2.7%
(2.0)%
0.3%
36.0%
35.0%
1.6%
(1.0)%
0.7%
36.3%
2002
35.0%
2.0%
(1.7)%
1.2%
36.5%
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
Accrued insurance
Tax credit and net operating loss carryforwards
Inventory allowances
Accrued warranty
Deferred compensation
Nonconsolidated subsidiaries
Gross deferred income tax assets
Valuation allowance
Net deferred income tax assets
Deferred income tax liabilities:
Property, plant and equipment
Intangible assets
Lease transactions
Other liabilities
Total deferred income tax liabilities
Net deferred income tax liabilities
$
2004
2003
1,025 $
2,413
2,686
7,501
1,533
9,101
2,115
4,497
846
1,690
2,449
1,682
9,387
2,213
26,374
(2,377)
22,764
(2,838)
$
23,997 $
19,926
$
$
23,445
22,164
2,622
6,447
54,678
$
30,681 $
17,253
1,119
5,695
7,704
31,771
11,845
At December 25, 2004 and at December 27, 2003, 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. Valuation allowances have been established for certain operating losses that reduce deferred tax assets to an amount
that will, more likely than not, be realized. The currency translation adjustments in “Accumulated other comprehensive income
(loss)” are not adjusted for income taxes as they relate to indefinite investments in non-US subsidiaries.
valmont industries 2004 form 10k | page 51
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
Provision has not been made for United States income taxes on a portion of the undistributed earnings of the Company’s
foreign subsidiaries (approximately $53,853 and $42,583 at December 25, 2004 and December 27, 2003, respectively) because
the Company intends to reinvest those earnings. Such earnings would become taxable upon the sale or liquidation of these foreign
subsidiaries or upon remittance of dividends.
On October 22, 2004, the American Jobs Creation Act (AJCA) was signed into law. The AJCA includes a deduction of 85% of
certain foreign earnings that are repatriated, as defined in the AJCA. The Company may elect to apply this provision to qualifying
earnings repatriations in fiscal 2005. The Company has started an evaluation of the effects of the repatriation provision; however,
the Company does not expect to be able to complete this evaluation until after the Treasury Department provides additional
clarification on key elements of the provision. The Company expects to complete its evaluation of the effects of the repatriation
provision within a reasonable period of time following the publication of the additional clarifying language. The range of
possible amounts that the Company is considering for repatriation under this provision is between zero and $57,501. The related
potential range of income tax is between zero and $20,126.
(9) LONG-TERM DEBT
6.875% Senior Subordinated Notes(a)
Term Loan(b)
6.80% to 8.08% promissory notes, unsecured
Revolving credit agreement(c)
6.91% secured loan(d)
IDR Bonds(e)
2.18% to 6.70% notes
Total long-term debt
Less current installments of long-term debt
$
2004
150,000 $
75,000
—
71,100
9,496
8,500
8,679
2003
—
—
80,000
40,000
9,881
8,500
11,281
322,775
7,962
149,662
15,009
Long-term debt, excluding current installments
$
314,813 $
134,653
(a) The $150 million of senior subordinated notes bear interest at 6.875% per annum and are due May 2014. The notes may
be repurchased after five years at specified prepayment premiums and are guaranteed by certain U.S. subsidiaries of the
Company.
(b) The $75 million term loan is with a group of banks and is unsecured. Principal payments are due beginning in 2005 through
2009. The term loan interest accrues at the Company’s option at (i) the higher of the prime lending rate and the Federal
Funds rate plus 50 basis points or (ii) LIBOR plus a spread of 75-175 basis points (inclusive of facility fees), depending on
the Company’s ratio of total debt to earnings before taxes, interest, depreciation and amortization (EBITDA). This loan may
be prepaid at any time without penalty. The effective interest rate at December 25, 2004 was 4.125%.
(c) 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 May 4, 2009. The funds borrowed may be repaid at any time without penalty, or additional funds
may be borrowed up to the facility limit. The revolving credit agreement interest accrues at the Company’s option at (i) the
higher of the prime lending rate and the Federal Funds rate plus 50 basis points or (ii) LIBOR plus a spread of 75-175 basis
points (inclusive of facility fees), depending on the Company’s ratio of total debt to EBITDA. The effective interest rate at
December 25, 2004 was 3.7921%.
valmont industries 2004 form 10k | page 52
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
(d) The secured loan is through a finance company and is related to transportation equipment. The loan payments are required
until November 2010, with a payment of $5.9 million due at the end of the loan. The loan may be prepaid at any time
without penalty.
(e) 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 25, 2004
was 1.97%.
The lending agreements place certain restrictions on working capital, capital expenditures, payment of dividends, purchase
of Company stock and additional borrowings. The Company is in compliance with all debt covenants at December 25, 2004.
The minimum aggregate maturities of long-term debt for each of the four years following 2005 are: $8,797, $18,119,
$25,538, and $94,851.
(10) 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 25, 2004, 1,108,631 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.
Following is a summary of the activity of the stock plans during 2002, 2003 and 2004:
Outstanding at December 29, 2001
Granted
Exercised
Forfeited
Outstanding at December 28, 2002
Options exercisable at December 28, 2002
Weighted average fair value of options granted during 2002
Number of
Shares
3,464,844 $
597,101
(507,723)
(85,434)
3,468,788 $
2,074,549 $
$
Weighted
Average
Exercise
Price
16.37
20.96
(12.63)
(17.93)
17.67
17.34
8.88
valmont industries 2004 form 10k | page 53
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
Outstanding at December 28, 2002
Granted
Exercised
Forfeited
Outstanding at December 27, 2003
Options exercisable at December 27, 2003
Weighted average fair value of options granted during 2003
Outstanding at December 27, 2003
Granted
Exercised
Forfeited
Outstanding at December 25, 2004
Options exercisable at December 25, 2004
Weighted average fair value of options granted during 2004
Number of
Shares
3,468,788 $
326,300
(75,876 )
(15,032 )
Weighted
Average
Exercise
Price
17.67
22.81
(15.81 )
(18.44 )
3,704,180 $
18.16
2,651,056 $
$
17.75
6.62
Number of
Shares
3,704,180 $
399,337
(411,238)
(65,863)
3,626,416 $
2,737,698 $
$
Weighted
Average
Exercise
Price
18.16
24.09
(16.13)
(24.49)
18.93
17.86
5.98
Following is a summary of the status of stock options outstanding at December 25, 2004:
Options Outstanding
Options Exercisable
Outstanding and Exercisable By Price Range
$
Exercise Price
Range
6.00-16.69
17.28-21.78
21.80-25.23
Weighted Average
Remaining
Contractual Life
Weighted
Average
Exercise Price
$
4.68 years
4.53 years
8.00 years
14.84
19.69
23.40
Number
1,360,913
1,231,424
1,034,079
3,626,416
Weighted
Average
Exercise Price
14.97
19.66
22.90
$
Number
1,271,580
1,148,557
317,561
2,737,698
valmont industries 2004 form 10k | page 54
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
In accordance with shareholder-approved plans, the Company grants stock under various stock-based compensation arrange-
ments, including restricted stock and stock issued in lieu of cash bonuses. Under each arrangement, stock is issued without direct cost
to the employee. In addition, the Company grants restricted stock units. The restricted stock units will be settled in Company stock
when the restriction period ends. During fiscal 2004, 2003 and 2002, the Company granted restricted stock and restricted stock
units to directors and certain management employees as follows (which are included in the above stock plan activity tables):
Shares issued
Weighted-average per share price on grant date
Compensation expense
2004
66,883
2003
68,913
$
$
24.02 $
532 $
22.71 $
286 $
2002
17,680
20.18
372
At December 25, 2004, the amount of deferred stock-based compensation granted, but to be recognized over future periods,
was approximately $2,980.
(11) EARNINGS PER SHARE
The following table provides a reconciliation between Basic and Diluted earnings per share (EPS).
2004:
Net earnings
Shares outstanding (000’s)
Per share amount
2003:
Net earnings
Shares outstanding (000’s)
Per share amount
2002:
Net earnings
Shares outstanding (000’s)
Per share amount
Dilutive
Effect of
Stock Options
Basic EPS
Diluted EPS
$
$
$
$
$
$
26,881 $
23,889
1.13 $
25,487 $
23,805
1.07 $
33,629 $
23,947
1.40 $
— $
631
.03 $
— $
553
.02 $
— $
609
.03 $
26,881
24,520
1.10
25,487
24,358
1.05
33,629
24,556
1.37
At the end of fiscal years 2004, 2003, and 2002, there were 0.1 million, 0.1 million, and 0.4 million options outstanding,
respectively, with exercise prices exceeding the market value of common stock that were therefore excluded from the computation
of shares contingently issuable upon exercise of the options.
(12) TREASURY 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.”
valmont industries 2004 form 10k | page 55
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
(13) EMPLOYEE RETIREMENT SAVINGS PLAN
Established under Internal Revenue Code Section 401(k), the Valmont Employee Retirement Savings Plan (“VERSP”) is
a defined contribution plan available to all eligible employees. Participants can elect to contribute up to 15% of annual pay, on
a pretax and/or after-tax basis. The Company may also make basic, matching and/or supplemental contributions to the Plan.
In addition, the Company has a money purchase pension plan and a profit sharing plan covering the employees of PiRod, Inc.,
which were merged into the VERSP plan in 2002. The 2004, 2003 and 2002 Company contributions to these plans amounted
to approximately $4,700, $5,200 and $5,700, 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 approximately $14.5 million and $13.1 million at December 25, 2004
and December 27, 2003, respectively. Such amounts are included in “Other assets” and “Other noncurrent liabilities” on the
Consolidated Balance Sheets.
(14) RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations in the year incurred. These costs are a component of “Selling,
general & administrative expenses” on the Consolidated Statements of Operations. Research and development expenses were
approximately $5,500 in 2004, $6,000 in 2003, and $5,400 in 2002.
(15) 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 25, 2004,
the carrying amount of the Company’s long-term debt was $322,775 with an estimated fair value of approximately $329,538.
At December 27, 2003, the carrying amount of the Company’s long-term debt was $149,662 with an estimated fair value of
approximately $159,264.
(16) DERIVATIVE FINANCIAL INSTRUMENTS
The Company manages risk using derivative financial instruments to partially hedge the risk of increased natural gas supply
prices on the Company’s earnings. Derivative financial instruments have credit risk and market risk. To manage credit risk, the
Company only enters into derivative transactions with counter-parties who are recognized, stable multinational banks.
The Company classifies a derivative financial instrument as a hedge if all of the following conditions are met:
1. The item to be hedged must expose the Company to currency, interest or price risk.
2.
It must be probable that the results of the hedge position substantially offset the effects of currency, interest or price changes on
the hedged item (e.g., there is a high correlation between the hedge position and changes in market value of the hedged item).
3. The derivative financial instrument must be designated as a hedge of the item at the inception of the hedge.
valmont industries 2004 form 10k | page 56
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
Natural Gas Prices: Natural gas supplies to meet production requirements of production facilities are purchased at market
prices. Natural gas market prices are volatile and the Company effectively fixes prices for a portion of its natural gas usage
requirements of certain of its U.S. facilities through the use of swaps. These contracts reference physical natural gas prices or
appropriate NYMEX futures contract prices. While there is a strong correlation between the NYMEX futures contract prices
and the Company’s delivered cost of natural gas, the use of financial derivatives may not exactly offset the change in the price
of physical gas. The contracts are traded in months forward and settlement dates are scheduled to coincide with gas purchases
during that future period.
Annual consolidated purchase requirements are approximately 700,000 MMBtu. Derivative contracts and firm purchase
commitments were in place at December 25, 2004 to cover approximately 50% of estimated natural gas requirements through
April 2005 and approximately 25% of estimated requirements for June 2005.
A swap is a contract between the Company and a third party to exchange cash based on a designated price. Basis swap
contracts require payments to or from the Company for the amount that monthly published gas prices from the source specified
in the contract differ from prices of NYMEX natural gas futures during a specified period. There are no initial cash requirements
related to swap and basis swap agreements. At December 25, 2004, the Company had open swaps totaling 160,000 MMBtu
with a total unrealized loss of $114. These swaps were accounted for as a cash flow hedge. The effective portion of the hedge
was $112 and is classified as “Accumulated other comprehensive income (loss)” in the Company’s Consolidated Balance Sheet
at December 25, 2004.
Gains and losses on settlement of these contracts and premium payments on option contracts are credited or charged to
cost of sales in the month in which the hedged transaction closes. The risk and reward of outstanding natural gas positions are
directly related to increases or decreases in natural gas prices in relation to the underlying NYMEX natural gas contract prices.
Cash flows related to natural gas hedging are reported as cash flows from operating activities.
(17) GUARANTEES
In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). This Interpretation
elaborates on the existing disclosure requirements for most guarantees, including loan guarantees and standby letters of credit. It
also requires, at the time a company issues a guarantee, the recognition of an initial liability for the fair value, or market value, of
the obligations it assumes under the guarantee, and must disclose that information in its interim and annual financial statements.
The provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor’s obligations do
not apply to product warranties or to guarantees accounted for as derivatives. The initial recognition and initial measurement
provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002.
The Company has guaranteed the repayment of two bank loans of certain nonconsolidated equity investees. The guarantees
continue until the loans, including accrued interest and fees, have been paid in full. The maximum amount of the guarantees
may vary, but are limited to the sum of the total due and unpaid principal amounts, accrued and unpaid interest and any other
related expenses. As of December 25, 2004, the maximum amount of the guarantees was approximately $5.6 million. These
loan guarantees are in proportion to our ownership percentage of these companies or are accompanied by a guarantee from the
majority owner to the Company. In accordance with FIN 45, the Company recorded the fair value of these guarantees of $1.1
million in “Other noncurrent liabilities” at December 27, 2003 and is unchanged at December 25, 2004. In September 2003,
the Company refinanced the synthetic lease on its corporate headquarters building. The lease has an initial term of 5 years and
the Company may, at any time, elect to exercise a purchase option. If the Company elects not to purchase the building or renew
the lease, the building is returned to the lessor for remarketing. As part of the new lease, the Company issued a residual value
guarantee of $30.1 million. In accordance with FIN 45, the Company recorded the fair value of that guarantee of $1.7 million in
“Other noncurrent liabilities” at December 27, 2003. The value of that guarantee is $1.3 million at December 25, 2004.
valmont industries 2004 form 10k | page 57
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
The Company’s product warranty accrual reflects management’s best estimate of probable liability under its product warran-
ties. Historical product claims data is used to estimate the cost of product warranties at the time revenue is recognized.
Changes in the product warranty accrual for the years ended December 25, 2004 and December 27, 2003 were as follows:
Balance, beginning of period
Payments made
Change in liability for warranties issued during the period
Change in liability for pre-existing warranties
$
2004
6,961 $
(7,971 )
7,278
17
2003
5,571
(6,330 )
6,310
1,410
Balance, end of period
$
6,285 $
6,961
(18) 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, the founder of the Company, 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.
(19) BUSINESS SEGMENTS
In the fourth quarter of 2004, the Company reorganized its management structure to better serve the electrical utility
industry by its North American steel and concrete utility businesses. The results of these operations were previously reported in
the Engineered Support Structures Segment and the former Concrete Support Structures Segment, respectively. Net corporate
expense is net of certain service-related expenses that are allocated to business units generally on the basis of employee head-
counts and sales dollars. Figures for 2003 and 2002 have been reclassified to conform to the 2004 presentation.
valmont industries 2004 form 10k | page 58
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
Therefore, the Company reports its businesses as five reportable segments:
ENGINEERED SUPPORT STRUCTURES: This segment consists of the manufacture of engineered metal structures and com-
ponents for the lighting and traffic and wireless communication industries, certain international utility industries and for
other specialty applications;
UTILITY SUPPORT STRUCTURES: This segment consists of the manufacture of engineered steel and concrete structures
primarily for the North American utility industry;
COATINGS: This segment consists of galvanizing, anodizing and powder coating services;
IRRIGATION: This segment consists of the manufacture of agricultural irrigation equipment and related parts and services;
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 wind energy development, 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.
valmont industries 2004 form 10k | page 59
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
SUMMARY BY BUSINESS SEGMENTS
SALES:
Engineered Support Structures segment:
Lighting & Traffic
Specialty
Utility
Engineered Support Structures segment
Utility Support Structures segment:
Steel
Concrete
Utility Support Structures segment
Coatings segment
Irrigation segment
Tubing segment
Other
Total
INTERSEGMENT SALES:
Coatings
Irrigation
Tubing
Other
Total
NET SALES:
Engineered Support Structures segment:
Lighting & Traffic
Specialty
Utility
Engineered Support Structures segment
Utility Support Structures segment:
Steel
Concrete
Utility Support Structures segment
Coatings segment
Irrigation segment
Tubing segment
Other
Total
valmont industries 2004 form 10k | page 60
2004
2003
2002
$
293,761
92,281
14,891
400,933
127,330
49,042
176,372
88,080
297,985
83,398
17,976
1,064,744
14,569
175
14,765
3,760
33,269
293,761
92,281
14,891
400,933
127,330
49,042
176,372
73,511
297,810
68,633
14,216
$
249,438
69,926
10,634
329,998
76,842
—
76,842
103,692
280,780
57,783
17,676
866,771
12,553
872
12,950
2,771
29,146
249,438
69,926
10,634
329,998
76,842
—
76,842
91,139
279,908
44,833
14,905
$
228,605
77,490
7,106
313,201
123,495
—
123,495
111,704
264,844
57,716
16,974
887,934
15,669
162
12,326
4,879
33,036
228,605
77,490
7,106
313,201
123,495
—
123,495
96,035
264,682
45,390
12,095
$
1,031,475
$
837,625
$
854,898
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
OPERATING INCOME (LOSS):
Engineered Support Structures segment
Utility Support Structures segment
Coatings segment
Irrigation segment
Tubing segment
Other
Corporate
Total
Interest expense, net
Debt prepayment expense
Miscellaneous
2004
2003
2002
$
$
31,607
7,145
4,231
35,442
13,408
(2,837)
(18,884)
70,112
(14,740)
(9,860)
(679)
26,258
(5,557)
6,798
34,574
6,506
(2,133)
(11,823)
54,623
(8,802)
—
(276)
$
26,890
17,348
13,832
30,827
8,050
(1,664)
(24,994)
70,289
(10,674)
—
(337)
Earnings before income taxes, minority interest, and equity in earnings/(losses)
of nonconsolidated subsidiaries and cumulative effect of change in
accounting principle
$
44,833
$
45,545
$
59,278
TOTAL ASSETS:
Engineered Support Structures
Utility Support Structures
Coatings
Irrigation
Tubing
Other
Corporate
Total
$
296,729
225,314
83,195
143,927
31,606
9,023
46,314
$
256,785
39,436
93,140
140,833
24,060
5,633
44,910
$
226,431
41,678
97,537
136,800
29,447
4,328
42,350
$
836,108
$
604,797
$
578,571
valmont industries 2004 form 10k | page 61
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
CAPITAL EXPENDITURES:
Engineered Support Structures
Utility Support Structures
Coatings
Irrigation
Tubing
Other
Corporate
Total
DEPRECIATION AND AMORTIZATION:
Engineered Support Structures
Utility Support Structures
Coatings
Irrigation
Tubing
Other
Corporate
Total
2004
2003
2002
$
$
6,288
4,061
1,484
2,922
1,211
415
801
$
9,317
860
1,919
4,072
593
298
620
4,979
212
5,414
1,993
1,055
163
126
$
17,182
$
17,679
$
13,942
$
13,445
6,733
4,690
7,729
1,968
670
3,409
$
15,800
697
5,168
8,235
2,076
479
2,142
$
16,148
780
4,943
8,163
1,973
71
1,864
$
38,644
$
34,597
$
33,942
Summary by Geographical Area by Location of Valmont Facilities:
2004
2003
2002
NET SALES:
United States
France
Other
Total
OPERATING INCOME:
United States
France
Other
Total
LONG-LIVED ASSETS:
United States
France
Other
Total
valmont industries 2004 form 10k | page 62
$
800,015
67,323
164,137
$
630,479
61,663
145,483
$
687,802
50,826
116,270
$
1,031,475
$
837,625
$
854,898
$
49,222
1,338
19,552
$
35,795
888
17,940
$
55,605
2,537
12,147
$
70,112
$
54,623
$
70,289
$
372,246
12,451
22,906
$
248,746
13,417
21,524
$
250,870
12,807
19,966
$
407,603
$
283,687
$
283,643
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
No single customer accounted for more than 10% of net sales in 2004, 2003, or 2002. Net sales by geographical area are
based on the location of the facility producing the sales. No foreign country other than that disclosed herein accounted for more
than 5% of our net 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, other intangible assets and other
assets. Long-lived assets by geographical area are based on location of facilities.
(20) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION
On May 4, 2004, the Company completed a $150,000 offering of 6 7/8% Senior Subordinated Notes. The Notes are
guaranteed, jointly, severally, fully and unconditionally, on a senior subordinated basis by certain of the Company’s current and
future direct and indirect domestic subsidiaries (collectively the “Guarantors”), excluding its other current domestic and foreign
subsidiaries which do not guarantee the debt (collectively referred to as the “Non-Guarantors”). All Guarantors are 100%
owned by the parent company.
Condensed consolidated financial information for the Parent Company, the Guarantor Subsidiaries and the Non-Guarantor
Subsidiaries is as follows:
valmont industries 2004 form 10k | page 63
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year ended December 25, 2004
Product sales
Services sales
Net sales
Product cost of sales
Services cost of sales
Total cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Other income (deductions):
Interest expense
Interest income
Debt prepayment expenses
Miscellaneous
Earnings before income taxes, minority
interest and equity in earnings/(losses) of
Parent
Guarantors Non-Guarantors
Eliminations
$
588,679 $
50,123
133,731 $
34,288
282,338 $
14,721
(57,836) $
(14,569)
638,802
458,024
39,295
497,319
141,483
100,374
41,109
(15,048)
159
(9,860)
7
(24,742)
168,019
106,905
30,122
137,027
30,992
25,003
5,989
297,059
212,501
10,454
222,955
74,104
50,433
23,671
(19)
4
—
(1,919)
(1,934)
(1,132)
1,296
—
1,233
1,397
Total
946,912
84,563
1,031,475
720,251
65,302
(72,405)
(57,179)
(14,569)
(71,748)
785,553
(657)
—
(657)
126
(126)
—
—
—
245,922
175,810
70,112
(16,073)
1,333
(9,860)
(679)
(25,279)
nonconsolidated subsidiaries
16,367
4,055
25,068
(657)
44,833
Income tax expense:
Current
Deferred
Earnings before minority interest, and equity
in earnings/(losses) of nonconsolidated
subsidiaries
Minority interest
Equity in earnings/(losses) of
nonconsolidated subsidiaries
9,345
(3,036)
6,309
2,188
(544)
1,644
9,295
(1,121)
8,174
—
—
—
20,828
(4,701)
16,127
10,058
—
17,480
2,411
—
—
16,894
(2,397)
(657)
—
28,706
(2,397)
30
(16,938)
572
Net earnings
$
27,538 $
2,411 $
14,527 $
(17,595) $
26,881
valmont industries 2004 form 10k | page 64
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 27, 2003
Parent
Guarantors Non-Guarantors
Eliminations
Total
$
483,725 $
47,909
58,503 $
46,271
239,988 $
14,769
(40,987) $
(12,553)
Product sales
Services sales
Net sales
Product cost of sales
Services cost of sales
Total 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:
Current
Deferred
Earnings before minority interest,
and equity in earnings/(losses)
of nonconsolidated subsidiaries
Minority interest
Equity in earnings/(losses) of
nonconsolidated subsidiaries
Cumulative effect of change in
accounting principle
531,634
366,883
37,910
404,793
126,841
90,064
36,777
(9,010)
289
(410)
(9,131)
104,774
48,722
39,036
87,758
17,016
18,554
(1,538)
254,757
180,450
10,678
191,128
63,629
44,749
18,880
(26)
—
14
(12)
(1,129)
1,074
120
65
741,229
96,396
837,625
554,564
75,071
(53,540)
(41,491)
(12,553)
(54,044)
629,635
504
—
504
268
(268)
—
—
207,990
153,367
54,623
(9,897)
1,095
(276)
(9,078)
27,646
(1,550)
18,945
504
45,545
8,328
2,807
11,135
16,511
—
8,838
(366)
(2,422)
1,637
(785)
5,778
406
6,184
(765)
—
12,761
(2,222)
—
—
—
504
—
—
—
—
—
(9,774)
—
11,684
4,850
16,534
29,011
(2,222)
(936)
(366)
Net earnings
$
24,983 $
(765) $
10,539 $
(9,270) $
25,487
valmont industries 2004 form 10k | page 65
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 28, 2002
Parent
Guarantors Non-Guarantors
Eliminations
Total
Product sales
Services sales
Net sales
Product cost of sales
Services cost of sales
Total 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)
$
525,566 $
55,461
77,684 $
44,027
205,696 $
10,486
216,182
154,959
8,160
163,119
53,063
36,885
16,178
121,711
63,315
35,301
98,616
23,095
19,617
3,478
(58)
7
21
(30)
(1,537)
884
(393)
(1,046)
(48,353) $
(15,669)
(64,022)
(48,047)
(15,669)
760,593
94,305
854,898
554,779
68,643
(63,716)
623,422
(306)
—
(306)
405
(405)
—
—
231,476
161,187
70,289
(11,722)
1,048
(337)
(11,011)
581,027
384,552
40,851
425,403
155,624
104,685
50,939
(10,532)
562
35
(9,935)
of nonconsolidated subsidiaries
41,004
3,448
15,132
(306)
59,278
Income tax expense:
Current
Deferred
Earnings before minority interest, and
equity in earnings/(losses) of
nonconsolidated subsidiaries
Minority interest
Equity in earnings/(losses) of nonconsolidated
subsidiaries
Cumulative effect of change in accounting principle
12,213
3,340
15,553
25,451
—
8,484
—
944
478
1,422
2,026
—
—
—
4,620
42
4,662
—
—
—
10,470
(1,170)
(306)
—
—
(500)
(10,826)
—
17,777
3,860
21,637
37,641
(1,170)
(2,342)
(500)
Net earnings
$
33,935 $
2,026 $
8,800
$ (11,132) $
33,629
valmont industries 2004 form 10k | page 66
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
CONSOLIDATED BALANCE SHEETS
December 25, 2004
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net
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
Other intangible assets
Investment in subsidiaries and intercompany accounts
Other assets
Parent
Guarantors Non-Guarantors
Eliminations
Total
$
966 $
79,280
95,922
2,382
9,389
187,939
321,074
201,559
119,515
20,370
832
352,291
32,554
3,694 $
28,310
38,488
915
3,042
74,449
72,727
24,403
48,324
73,375
59,771
35,367
41
25,550 $
80,975
53,802
5,111
1,956
167,394
100,196
62,380
37,816
12,277
2,734
(8,566)
1,894
— $
(53)
(1,224)
—
—
(1,277)
—
—
—
—
—
(379,092)
(1,900)
30,210
188,512
186,988
8,408
14,387
428,505
493,997
288,342
205,655
106,022
63,337
—
32,589
Total assets
$
713,501 $
291,327 $
213,549 $
(382,269) $
836,108
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
Commitments and contingencies
Shareholders’ equity:
Common stock of $1 par value
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock
Unearned restricted stock
Total shareholders’ equity
$
4,860 $
—
21,382
41,692
1,932
69,866
16,854
313,368
21,600
—
27,900
—
325,405
—
(59,200)
(2,292)
291,813
26 $
—
10,312
5,771
—
3,076 $
4,682
38,285
19,096
—
16,109
21,610
94
—
—
14,249
159,081
80,184
—
—
—
253,514
65,139
4,175
3,251
1,233
10,107
14,448
67,721
43,976
3,499
—
—
— $
—
—
(53)
—
(53)
—
(1,900)
—
—
(28,697)
(226,802)
(124,817)
—
—
—
7,962
4,682
69,979
66,506
1,932
151,061
42,639
314,813
22,833
10,107
27,900
—
324,748
3,499
(59,200)
(2,292)
Total liabilities and shareholders’ equity
$
713,501 $
291,327 $
213,549 $
(382,269) $
836,108
valmont industries 2004 form 10k | page 67
129,644
(380,316)
294,655
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
CONSOLIDATED BALANCE SHEETS
December 27, 2003
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Parent
Guarantors Non-Guarantors
Eliminations
Total
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
Other intangible assets
Investment in subsidiaries and intercompany accounts
Other assets
Deferred income taxes
$
1,982 $
612 $
60,935
62,290
2,978
9,784
137,969
313,542
183,524
130,018
20,370
—
190,685
26,430
—
17,660
15,659
451
933
35,315
38,926
18,748
20,178
30,747
14,358
50,271
—
2,757
30,751 $
73,269
39,100
5,193
186
148,499
96,210
56,303
39,907
4,905
—
4,073
174
—
— $
(99)
(574)
—
—
(673)
—
—
—
—
—
(245,029)
(3,400)
(2,757)
33,345
151,765
116,475
8,622
10,903
321,110
448,678
258,575
190,103
56,022
14,358
—
23,204
—
Total assets
$
505,472 $
153,626 $
197,558 $
(251,859) $
604,797
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
Commitments and contingencies
Shareholders’ equity:
Common stock of $1 par value
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock
Unearned restricted stock
$
14,843 $
—
15,340
34,240
1,921
66,344
22,641
128,191
20,081
—
27,900
—
307,494
—
(65,975)
(1,204)
61 $
—
7,893
4,587
—
12,541
—
120
—
—
14,248
68,978
57,739
—
—
—
105 $
15,500
40,023
17,128
—
72,756
2,864
9,742
2,035
8,244
— $
—
—
(99)
—
(99)
(2,757)
(3,400)
—
—
21,429
46,340
36,295
(2,147)
—
—
(35,677)
(115,318)
(94,608)
—
—
—
15,009
15,500
63,256
55,856
1,921
151,542
22,748
134,653
22,116
8,244
27,900
—
306,920
(2,147)
(65,975)
(1,204)
Total shareholders’ equity
268,215
140,965
101,917
(245,603)
265,494
Total liabilities and shareholders’ equity
$
505,472 $
153,626 $
197,558 $
(251,859) $
604,797
valmont industries 2004 form 10k | page 68
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 25, 2004
Parent
Guarantors Non-Guarantors
Eliminations
Total
$
27,538 $
2,411 $
14,527 $
(17,595) $
26,881
Cash flows from operations:
Net earnings
Adjustments to reconcile net earnings to net
cash flows from operations:
Depreciation and amortization
(Gain)/loss on sale of property, plant and
equipment
Equity in (earnings)/losses of
nonconsolidated subsidiaries
Minority interest
Deferred income taxes
Other adjustments
Changes in assets and liabilities:
Receivables
Inventories
Prepaid expenses
Accounts payable
Accrued expenses
Other noncurrent liabilities
Income taxes payable
22,484
8,803
517
9
(542)
—
(3,036)
869
(17,684)
(33,665)
1,033
1,501
7,442
2,076
(2,442)
—
—
(544)
—
2,444
(8,043)
259
(278)
(1,591)
—
1,240
7,357
601
(30)
2,397
(1,121)
1,262
1,941
(6,531)
466
(4,711)
182
(1,358)
(1,391)
—
—
—
—
—
—
46
(650)
—
—
(46)
—
—
Net cash flows from operations
6,091
4,710
13,591
(18,245)
Cash flows from investing activities:
Purchase of property, plant and equipment
Investment in nonconsolidated subsidiary
Acquisitions, net of cash acquired
Proceeds from minority interests
Proceeds from sale of property, plant and equipment
Other, net
(11,249)
(2,450)
(125,446)
—
65
(33,652)
(1,921)
—
—
—
12
11,849
Net cash flows from investing activities
(172,732)
9,940
Cash flows from financing activities:
Net repayments under short-term agreements
Proceeds from long-term borrowings
Principal payments on long-term obligations
Dividends paid
Proceeds from exercises under stock plans
Debt issuance costs
Purchase of common treasury shares:
—
263,100
(87,905)
(7,654)
6,305
(5,520)
(11,388)
—
(180)
—
—
—
(4,012)
—
—
(1,796)
2,256
(1,074)
(4,626)
(11,107)
71
(4,780)
—
—
—
Stock plan exercises
(2,701)
—
—
Net cash flows from financing activities
165,625
(11,568)
(15,816)
Effect of exchange rate changes on cash and
cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents—beginning of year
—
(1,016)
1,982
—
3,082
612
1,650
(5,201)
30,751
—
—
—
—
—
16,745
16,745
—
—
1,500
—
—
—
—
1,500
—
—
—
Cash and cash equivalents—end of year
$
966 $
3,694 $
25,550 $
— $
30,210
valmont industries 2004 form 10k | page 69
38,644
1,127
(572)
2,397
(4,701)
2,131
(13,253)
(48,889)
1,758
(3,488)
5,987
718
(2,593)
6,147
(17,182)
(2,450)
(125,446)
(1,796)
2,333
(6,132)
(150,673)
(22,495)
263,171
(91,365)
(7,654)
6,305
(5,520)
(2,701)
139,741
1,650
(3,135)
33,345
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 27, 2003
Cash flows from operations:
Net earnings
Adjustments to reconcile net earnings to net
cash flows from operations:
Depreciation and amortization
(Gain)/loss on sale of property, plant and
equipment
Cumulative effect of change in accounting principle
Equity in (earnings)/losses of
nonconsolidated subsidiaries
Minority interest
Deferred income taxes
Other adjustments
Changes in assets and liabilities:
Receivables
Inventories
Prepaid expenses
Accounts payable
Accrued expenses
Other noncurrent liabilities
Income taxes payable
Net cash flows from operations
Cash flows from investing activities:
Purchase of property, plant and equipment
Purchase of minority interest
Investment in nonconsolidated subsidiary
Proceeds from minority interests
Proceeds from sale of property, plant and equipment
Proceeds from sale to minority shareholder
Other, net
Net cash flows from investing activities
Cash flows from financing activities:
Net borrowings 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
Parent
Guarantors Non-Guarantors
Eliminations
Total
$
24,983 $
(765) $
10,539 $
(9,270) $
25,487
22,656
4,945
6,996
151
366
936
—
2,807
384
(7,543)
6,957
(714)
4,106
(14,678)
703
6,368
47,482
(10,874)
—
(2,001)
—
190
—
(4,127)
(16,812)
—
101
(26,767)
(7,414)
1,192
(3,351)
(615)
102
—
—
—
1,637
—
(1,599)
1,383
(14)
(3,962)
(3,200)
—
(685)
(2,158)
(983)
—
—
—
26
—
3,170
2,213
—
—
(134)
—
—
—
—
549
—
—
2,222
406
497
(1,140)
811
(2,521)
2,059
1,619
467
1,375
—
—
—
—
—
—
—
(233)
(152)
—
—
233
—
—
23,879
(9,422)
(5,822)
(200)
286
(1,220)
429
76
(8,388)
(14,839)
10,367
666
(1,587)
—
—
—
—
—
—
—
—
—
—
8,322
8,322
—
—
1,100
—
—
—
—
34,597
802
366
936
2,222
4,850
881
(10,515)
8,999
(3,249)
2,203
(16,026)
1,170
7,058
59,781
(17,679)
(200)
(1,715)
(1,220)
645
76
(1,023)
(21,116)
10,367
767
(27,388)
(7,414)
1,192
(3,351)
(615)
Net cash flows from financing activities
(36,854)
(134)
9,446
1,100
(26,442)
Effect of exchange rate changes on cash and cash
equivalents
Net change in cash and cash equivalents
Cash and cash equivalents—beginning of year
—
(6,184)
8,166
—
(79)
691
1,608
20,094
10,657
—
—
—
1,608
13,831
19,514
Cash and cash equivalents—end of year
$
1,982 $
612 $
30,751 $
— $
33,345
valmont industries 2004 form 10k | page 70
Valmont Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-year period ended December 25, 2004
(Dollars in thousands, except per share amounts)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 28, 2002
Parent
Guarantors Non-Guarantors
Eliminations
Total
$
33,935 $
2,026 $
8,800 $
(11,132) $
33,629
Cash flows from operations:
Net earnings
Adjustments to reconcile net earnings to net
cash flows from operations:
Depreciation and amortization
(Gain)/loss on sale of property, plant and
equipment
Cumulative effect of change in accounting principle
Equity in (earnings)/losses of
nonconsolidated subsidiaries
Minority interest
Deferred income taxes
Other adjustments
Changes in assets and liabilities:
Receivables
Inventories
Prepaid expenses
Accounts payable
Accrued expenses
Other noncurrent liabilities
Income taxes payable
Net cash flows from operations
Cash flows from investing activities:
Purchase of property, plant and equipment
Purchase of minority interest
Proceeds from minority interests
Proceeds from sale of property, plant and equipment
Proceeds from sale to minority shareholder
Other, net
22,906
5,177
5,859
2,086
—
2,342
—
3,340
357
9,864
(5,268)
(394)
(4,274)
11,442
(849)
(10,453)
65,034
(8,128)
—
—
409
—
(4,226)
(1,138)
—
—
—
478
—
7,657
2,852
(326)
(539)
(2,791)
—
3,443
135
500
—
1,170
42
(689)
(13,502)
(7,955)
485
5,609
1,730
40
245
(3,311)
—
—
2,552
—
(16,264)
(2,503)
(855)
(537)
—
1,253
5,495
Net cash flows from investing activities
(11,945)
(17,023)
2,853
Cash flows from financing activities:
Net borrowings 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
—
627
(31,913)
(6,758)
8,591
(14,250)
(6,898)
(50,601)
—
2,488
5,678
—
234
(164)
—
—
—
—
70
—
(114)
805
—
—
—
—
—
—
—
(245)
199
—
(512)
244
—
(3,443)
33,942
1,083
500
2,342
1,170
3,860
(332)
3,774
(10,172)
(235)
284
10,625
(809)
(10,208)
—
—
—
—
—
12,389
12,389
—
—
2,500
—
—
—
—
(8,171)
388
(3,493)
—
—
—
—
(11,276)
2,500
(1,428)
(7,382)
18,039
—
—
—
(13,942)
(855)
(537)
2,961
1,253
(2,606)
(13,726)
(8,171)
1,249
(33,070)
(6,758)
8,591
(14,250)
(6,898)
(59,307)
(1,428)
(5,008)
24,522
16,839
2,469
(14,889)
69,453
Cash and cash equivalents—end of year
$
8,166 $
691 $
10,657 $
— $
19,514
******
valmont industries 2004 form 10k | page 71
QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, except per share amounts)
Net Sales Gross Profit
Amount
Basic
Diluted
High
Low
Declared
Net Earnings
Per Share
Stock Price
Dividends
$
215,897 $
266,013
262,890
286,675
51,280 $
66,080
61,100
67,462
5,501 $
2,812
7,104
11,464
$
1,031,475 $
245,922 $
26,881 $
$
207,294 $
200,666
202,498
227,167
52,853 $
51,488
47,806
55,843
7,293 $
6,367
4,093
7,734
$
837,625 $
207,990 $
25,487 $
$
208,648 $
225,090
205,504
215,656
55,233 $
61,082
54,803
60,358
6,769 $
10,306
8,050
8,504
$
854,898 $
231,476 $
33,629 $
0.23 $
0.12
0.30
0.48
1.13 $
0.31 $
0.27
0.17
0.32
1.07 $
0.28 $
0.43
0.33
0.36
1.40 $
0.22 $
0.12
0.29
0.47
23.66 $
23.03
22.97
25.97
19.35 $
19.67
19.40
20.53
1.10 $
25.97 $
19.35 $
0.30 $
0.26
0.17
0.32
21.88 $
22.85
21.88
24.22
18.48 $
18.30
17.65
18.96
1.05 $
24.22 $
17.65 $
0.28 $
0.42
0.32
0.35
21.40 $
21.40
25.15
25.50
14.15 $
16.61
18.32
17.24
1.37 $
25.50 $
14.15 $
0.080
0.080
0.080
0.080
0.320
0.075
0.080
0.080
0.080
0.315
0.065
0.075
0.075
0.075
0.290
2004
First
Second
Third
Fourth
Year
2003
First
Second
Third
Fourth
Year
2002
First
Second
Third
Fourth
Year
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
The Company carried out an evaluation under the supervision and with the participation of the Company’s management,
including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of
the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, the
Company’s disclosure controls and procedures provide reasonable assurance that such disclosure controls and procedures are
effective in timely providing them with material information relating to the Company (including its consolidated subsidiaries)
required to be included in the Company’s periodic Securities and Exchange Commission filings.
There have been no significant changes in the Company’s internal controls over financial reporting during the fourth fiscal
quarter for the period covered by this report that have materially affected, or are reasonably likely to materially affect, such
internal controls.
valmont industries 2004 form 10k | page 72
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting
as such term is defined in Securities Exchange Act Rule 13a-15(f). The Company carried out an evaluation under the supervision and
with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the Company’s internal control over financial reporting. The Company’s management used the framework in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) to perform this evaluation.
Based on that evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was
effective as of December 25, 2004.
Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December
25, 2004 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report,
a copy of which is included in this Annual Report on Form 10-K.
valmont industries 2004 form 10k | page 73
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Valmont Industries, Inc.
Omaha, Nebraska
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over
Financial Reporting, that Valmont Industries, Inc. and subsidiaries (the “Company”) maintained effective internal control over
financial reporting as of December 25, 2004, based on criteria established in Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness
of the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board
of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accor-
dance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on
a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting
as of December 25, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 25, 2004, based
on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated financial statements and financial statement schedule as of and for the year ended December 25, 2004 of the
Company and our report dated March 8, 2005 expressed an unqualified opinion on those financial statements and financial
statement schedule.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 8, 2005
valmont industries 2004 form 10k | page 74
ITEM 9B. OTHER INFORMATION.
None.
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Except for the information relating to the executive officers of the Company set forth in Part I of this 10-K Report, the infor-
mation called for by items 10, 11, and 13 is incorporated by reference to the sections entitled “Corporate Governance”, “Certain
Shareholders”, “Election of Directors”, “Director Compensation”, “Summary Compensation Table”, “Stock Option Grants in
Fiscal Year 2004”, “Options Exercised in Fiscal Year 2004 and Fiscal Year End Values”, “Compensation Committee Report on
Executive Compensation”, and “Long-Term Incentive Plans-Awards in Fiscal Year 2004” in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
See Item 10.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Incorporated herein by reference to “Certain Shareholders” in the Proxy Statement.
Equity Compensation Plan Information
The following table provides information about the Company’s stock that may be issued upon exercise of options, warrants
and rights under existing equity compensation plans as of December 25, 2004.
Number of securities to be issued
upon exercise of outstanding
options, warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available for future
issuance under equity
compensation (including
securities plans reflected in
column (a))
(c)
Equity compensation plans approved
by security holders
Equity compensation plans not
approved by security holders
Total
3,626,416
—
3,626,416
18.43
—
1,108,631
—
1,108,631
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See Item 10.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information called for by Item 14 is incorporated by reference to the sections titled “Ratification of Appointment of
Independent Auditors” in the Proxy Statement.
valmont industries 2004 form 10k | page 75
Part IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)(1)(2) Financial Statements and Schedules.
The following consolidated financial statements of the Company and its subsidiaries are included herein as listed below:
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations-Three-Year Period Ended December 25, 2004
Consolidated Balance Sheets-December 25, 2004 and December 27, 2003
Consolidated Statements of Cash Flows-Three-Year Period Ended December 25, 2004
Consolidated Statements of Shareholders’ Equity-Three-Year Period Ended December 25, 2004
Notes to Consolidated Financial Statements-Three-Year Period Ended December 25, 2004
The following financial statement schedule of the Company is included herein:
Consolidated Financial Statement Schedule Supporting Consolidated Financial Statement
SCHEDULE II—Valuation and Qualifying Accounts
37
38
39
40
41
42-71
77
All other schedules have been omitted as the required information is inapplicable or the information is included in the con-
solidated financial statements or related notes.
Separate financial statements of the registrant have been omitted because the registrant meets the requirements which permit
omission.
(a)(3) Exhibits.
Index to Exhibits, Page 79
valmont industries 2004 form 10k | page 76
Valmont Industries, Inc. and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Fifty-two weeks ended December 25, 2004
Reserve deducted in balance sheet from the asset to
which it applies—
Allowance for doubtful receivables
Fifty-two weeks ended December 27, 2003
Reserve deducted in balance sheet from the asset to
which it applies—
Allowance for doubtful receivables
Fifty-two weeks ended December 28, 2002
Reserve deducted in balance sheet from the asset to
which it applies—
Allowance for doubtful receivables
* The deductions from reserves are net of recoveries.
Balance at
beginning of
period
Charged to
profit and loss
Deductions*
from reserves*
Balance at
close of
period
$
4,363
1,443
434
5,372
$
3,957
1,531
1,125
4,363
$
4,842
745
1,630
3,957
valmont industries 2004 form 10k | page 77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 8th day of March, 2005.
VALMONT INDUSTRIES, INC.
BY:
Mogens C. Bay
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated and on the dates indicated.
Mogens C. Bay
(Principal Executive Officer)
Director, Chairman and Chief Executive Officer
Terry J. McClain
(Principal Financial Officer)
Senior Vice President and Chief Financial Officer
Mark C. Jaksich
(Principal Accounting Officer)
Vice President and Controller
Walter Scott, Jr.*
Thomas F. Madison*
Charles D. Peebler, Jr.*
Glen A. Barton*
John E. Jones*
Kenneth E. Stinson*
Stephen R. Lewis, Jr.*
K.R. (Kaj) den Daas*
3/8/05
Date
3/8/05
Date
3/8/05
Date
*Mogens C. Bay, by signing his name hereto, signs the Annual Report on behalf of each of the directors indicated on this 8th
day of March, 2005. A Power of Attorney authorizing Mogens C. Bay to sign the Annual Report of Form 10-K on behalf of each
of the indicated directors of Valmont Industries, Inc. has been filed herein as Exhibit 24.
Mogens C. Bay
Attorney-in-Fact
valmont industries 2004 form 10k | page 78
INDEX TO EXHIBITS
EXHIBIT 3.1 The Company’s Certificate of Incorporation, as amended. This document was filed as Exhibit 3(i) to the Company’s
Annual Report on Form 10-K for the year ended December 27, 2003 and is incorporated herein by this reference.
EXHIBIT 3.2 The Company’s By-Laws, as amended. This document was filed as Exhibit 3(ii) to the Company’s Annual Report on
Form 10-K for the year ended December 27, 2003 and is incorporated by this reference.
EXHIBIT 4.1* Rights Agreement as of December 19, 1995, between the Company and First National Bank of Omaha as Rights
Agent, with Certificate of Adjustment.
EXHIBIT 4.2 Amendment dated July 29, 2002 to Rights Agreement. This document was filed as Exhibit 4.1 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 29, 2002 and is incorporated herein by this reference.
EXHIBIT 4.3 The Company’s Credit Agreement with The Bank of New York dated May 4, 2004. This document was filed as
Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 27, 2004 and is incor-
porated herein by this reference.
EXHIBIT 4.4
Indenture relating to senior subordinated debt dated as of May 4, 2004, between Valmont Industries, Inc., as issuer and
Wells Fargo Bank, National Association as trustee. This document was filed as Exhibit 4.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended March 27, 2004 and is incorporated herein by this reference.
EXHIBIT 10.1 The Company’s 1988 Stock Plan and certain amendments. This document was filed as Exhibit 10(i) to the Company’s
Annual Report on Form 10-K for the year ended December 28, 2002 and is incorporated herein by this reference.
EXHIBIT 10.2* The Company’s 1996 Stock Plan.
EXHIBIT 10.3* The Company’s 1999 Stock Plan, as amended.
EXHIBIT 10.4 The Company’s 2002 Stock Plan. This document was filed as Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 30, 2002 and is incorporated herein by this reference.
EXHIBIT 10.5 Amendment No. 1 to Valmont 2002 Stock Plan. This document was filed as Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended March 27, 2004 and is incorporated herein by this reference.
EXHIBIT 10.6 Form of Stock Option Agreement. This document was filed as Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended September 25, 2004 and is incorporated herein by this reference.
EXHIBIT 10.7 Form of Restricted Stock Agreement. This document was filed as Exhibit 10.1 to the Company’s Current Report on
Form 8-K dated December 19, 2004 and is incorporated herein by this reference.
EXHIBIT 10.8 The Valmont Executive Incentive Plan, as amended. This document was filed as Exhibit 10(iv) to the Company’s
Annual Report on Form 10-K for the year ended December 30, 2000 and is incorporated herein by this reference.
EXHIBIT 10.9* Director Compensation summary.
EXHIBIT 10.10 The Amended Unfunded Deferred Compensation Plan for Nonemployee Directors. This document was filed as
Exhibit 10(vi) to the Company’s Annual Report on Form 10-K for the year ended December 27, 2003 and is incor-
porated herein by this reference.
EXHIBIT 10.11 VERSP Restoration Plan. This document was filed as Exhibit 10 to the Company’s Registration Statement on Form
S-8 (333-64170) and is incorporated herein by this reference.
valmont industries 2004 form 10k | page 79
EXHIBIT 21* Subsidiaries of the Company.
EXHIBIT 23* Consent of Deloitte & Touche LLP.
EXHIBIT 24* Power of Attorney.
EXHIBIT 31.1* Section 302 Certification of Chief Executive Officer.
EXHIBIT 31.2* Section 302 Certification of Chief Financial Officer.
EXHIBIT 32.1* Section 906 Certifications.
Pursuant to Item 601(b)(4) of Regulation S-K, certain instruments with respect to the registrant’s long-term debt are not
filed with this Form 10-K. Valmont will furnish a copy of such long-term debt agreements to the Securities and Exchange Com-
mission upon request.
Management contracts and compensatory plans are set forth as exhibits 10.1 through 10.11.
* Filed herewith.
valmont industries 2004 form 10k | page 80
CERTIFICATIONS
I, Mogens C. Bay, certify that:
EXHIBIT 31.1
1. I have reviewed this annual report on Form 10-K for the year ended December 25, 2004 of Valmont Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has mate-
rially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 8, 2005
Mogens C. Bay
Chief Executive Officer
valmont industries 2004 form 10k | page 81
CERTIFICATIONS
I, Terry J. McClain, certify that:
EXHIBIT 31.2
1. I have reviewed this annual report on Form 10-K for the year ended December 25, 2004 of Valmont Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our con-
clusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has mate-
rially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 8, 2005
Terry J. McClain
Senior Vice President and Chief Financial Officer
valmont industries 2004 form 10k | page 82
officers, directors and
corporate information
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
Ann F. Ashford
VICE PRESIDENT
HUMAN RESOURCES
Steven G. Branscombe
VICE PRESIDENT
INFORMATION TECHNOLOGY
Mark C. Jaksich
VICE PRESIDENT
CORPORATE CONTROLLER
Walter P. Pasko
VICE PRESIDENT
PROCUREMENT
P. Thomas Pogge
VICE PRESIDENT
GENERAL COUNSEL
AND SECRETARY
Mark E. Treinen
VICE PRESIDENT
BUSINESS DEVELOPMENT
valmont industries 2004 annual report
Engineered Support
Structures Division
Mark R. Richards
PRESIDENT
Thomas J. Sutko
VICE PRESIDENT AND GENERAL MANGER
NORTH AMERICAN LIGHTING AND
TRANSPORTATION
Doug Kochenderfer
VICE PRESIDENT AND GENERAL MANAGER
SPECIALTY STRUCTURES
Michael Banat
VICE PRESIDENT
INTERNATIONAL SALES AND MARKETING
Huang Xiao Yong
GENERAL MANAGER
CHINA
Utility Support
Structures Division
Earl Foust
PRESIDENT
Wesley J. Oliphant
VICE PRESIDENT
STEEL BUSINESS UNITS
Douglas C. Sherman
VICE PRESIDENT
MARKET DEVELOPMENT
Irrigation Division
Thomas D. Spears
PRESIDENT
Duane Bier
VICE PRESIDENT
OPERATIONS
Terry Rahe
PRESIDENT
CASCADE EARTH SCIENCES
James L. Brown
VICE PRESIDENT
NORTH AMERICAN SALES
William G. Loughman, III
VICE PRESIDENT
RETAIL
Nicholas J. Mizaur
VICE PRESIDENT
INTERNATIONAL
Coatings Division
Leonard M. Adams
PRESIDENT
Richard S. Cornish
VICE PRESIDENT
OPERATIONS
Tubing Division
Leonard M. Adams
PRESIDENT
Board Of
Directors
Mogens C. Bay
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
VALMONT INDUSTRIES, INC.
DIRECTOR SINCE 1993
John E. Jones
RETIRED CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
CBI INDUSTRIES, INC.
DIRECTOR SINCE 1993
Dr. Stephen R. Lewis, Jr.
PRESIDENT EMERITUS AND
PROFESSOR OF ECONOMICS
CARLETON COLLEGE
DIRECTOR SINCE 2002
Thomas F. Madison
LEAD DIRECTOR
PRESIDENT
MLM PARTNERS
CHAIRMAN OF THE BOARD
COMMUNICATIONS HOLDINGS, INC.
DIRECTOR SINCE 1987
Charles D. Peebler, Jr.
CHAIRMAN EMERITUS
TRUE NORTH COMMUNICATIONS, INC.
DIRECTOR SINCE 1999
Walter Scott, Jr.
CHAIRMAN
LEVEL 3 COMMUNICATIONS, INC.
Audit Committee
DIRECTOR SINCE 1981
Kenneth E. Stinson
CHAIRMAN
PETER KIEWIT SONS’, INC.
DIRECTOR SINCE 1996
Glen Barton
RETIRED CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
CATERPILLAR, INC.
DIRECTOR SINCE 2004
Kaj den Daas
EXECUTIVE VICE PRESIDENT
PHILIPS LIGHTING B.V.
CHIEF OPERATING OFFICER
BUSINESS GROUP LAMPS
DIRECTOR SINCE 2004
Walter Scott, Jr., Chairman
John E. Jones
Charles D. Peebler, Jr.
Compensation Committee
Thomas F. Madison, Chairman
Charles D. Peebler, Jr.
Dr. Stephen R. Lewis, Jr.
Glen A. Barton
Governance and
Nominating Committee
Thomas F. Madison, Chairman
Dr. Stephen R. Lewis, Jr.
Kaj den Daas
valmont industries 2004 annual report
Annual Meeting
Forward-Looking Statements
This report contains forward-looking
statements within the meaning of
the Private Securities Litigation
Reform Act of 1995. These state-
ments 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.
The Company cautions that any
forward-looking statements included
in this report are made as of the date
of this report.
The annual meeting of Valmont’s
shareholders will be held at 2:00
p.m. on Monday, April 25, 2005, at
the Joslyn Art Museum in Omaha,
Nebraska USA.
Shareholder and
Investor Relations
Valmont’s common stock trades
on the New York Stock Exchange
(NYSE) under the symbol VMI.
We make available, free of charge
through our Internet Web site at
www.valmont.com, our annual
report on Form 10-K, quarterly
reports on Form 10-Q, current
reports on Form 8-K, and amend-
ments to those reports filed or
furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange
Act of 1934, as soon as reasonably
practicable after such material is
electronically filed with or furnished
to the Securities and Exchange
Commission.
We have also posted on our Web
site our (1) Corporate Governance
Principles, (2) charter for the Audit
Committee, Compensation Committee,
and Governance and Nominating
Committee of the Board, (3) Code of
Business Conduct, and (4) Code of
Ethics for Senior Officers applicable
to the Chief Executive Officer, Chief
Financial Officer and Controller.
Valmont shareholders may also
obtain copies of these items at no
charge by writing to:
Jeffrey S. Laudin
Investor Relations Department
Valmont Industries, Inc.
One Valmont Plaza
Omaha, NE 68154 USA
1-402-963-1000
Tel
1-402-963-1198
Fax
Corporate and
Stock Information
Corporate Headquarters
Valmont Industries, Inc.
One Valmont Plaza
Omaha, Nebraska 68154-5215 USA
1-402-963-1000
Tel
Fax
1-402-963-1198
valmont.com
Independent Public Accountants
Deloitte & Touche LLP
Omaha, Nebraska USA
Legal Counsel
McGrath North Mullin & Kratz, PC
LLO
Omaha, Nebraska USA
Stock Transfer Agent
and Registrar
ADDRESS SHAREHOLDER INQUIRIES TO:
The Bank of New York
Shareholder Relations
Department, 11 E
P.O. Box 11258
Church Street Station
New York, NY 10285 USA
1-866-886-9962
SEND CERTIFICATES FOR TRANSFER AND
ADDRESS CHANGES TO:
The Bank of New York
Receive and Deliver Department
P.O. Box 11002
Church Street Station
New York, NY 10286 USA
valmont industries 2004 annual report
valmont.com
valmont.com
VALMONT INDUSTRIES, INC.
ONE VALMONT PLAZA
OMAHA, NEBRASKA 68154-5215
402 .963.1000
VALMONT.COM