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Valmont Industries, Inc.

Valmont Industries, Inc.

P.O. Box 358
Valley, Nebraska 68064
(402) 359-2201 Fax: (402) 343-0668 Web site: http//

Public Company
Employees: 4,500
Sales: $644.5 million (1996)
Stock Exchanges: NASDAQ
SICs: 3441 Fabricated Structural Metal; 3523 Farm

Machinery & Equipment; 3612 Transformers

Valmont Industries, Inc. is recognized as the worlds leader in the design and production of mechanized agricultural irrigation equipment. They also lead globally in the manufacturing of a wide variety of metal products, consisting primarily of steel and aluminum poles and towers. Valmont is Americas largest producer of lighting and traffic control poles. The company produces towers and structures for communication and utility applications, including various fabricated products for industrial and commercial uses, such as tubing for pneumatic conveyors, health fitness exercise equipment, and heat exchangers for energy generation and textile processing. Valmont operates 18 plants located in eight countries in North and South America, Europe, and Asia, and markets its products in more than 90 countries around the world.

A Post-World War II Investment

The company was founded by a young Marine, Robert B. Daugherty, who returned from World War II to the cornfields near Valley, Nebraska, and invested his life savings in a small farm equipment manufacturing business called Valley Manufacturing Company (renamed Valmont Industries, Inc. in 1967).

By the early 1950s a revolutionary field irrigation invention captured Daughertys attention. Interested in diversifying his business, Daugherty purchased the patent rights to this unusual sprinkler irrigation contraption, which consisted of a long pipe-line mounted on wheels that traveled in a circle and sprinkler-irrigated crops as it was propelled around a field. A small unit could cover an area of a quarter mile and could accommodate the spraying of fertilizers as well as water.

Traditional gravity-flow and flood-irrigation methods were untenable in certain regions of the country, where soil and water conditions were marginal. Land that could not previously be developed could be efficiently farmed with Valmonts rotating spray irrigation/fertilization system, known as a center pivot irrigator, efficiently supplying water and nutrients to the soil and consistently enhancing crop yields.

Along with their linear move irrigation system, which rolls in a straight line along the full length of a field, more than ten million acres of agricultural land would receive water from Valmonts irrigation systems by 1996. Large quantities of pipe were needed to produce the center pivot so the Valmont team began manufacturing it on their own. An outpouring of new applications for their pipe products led to a prominence in two markets: food production and infrastructure development.

Depressed Domestic Farm Market in the Early 1980s

The post World War II years of agricultural boom slowly but steadily gave way to an economic downturn in farming, which had reached a new low by the 1980s. As irrigation equipment was closely tied to the highly volatile agricultural economy, the company was operating $1.9 million in the red by 1985. Adding to the domestic farm depression, orders from the oil-rich Near East dried up as that region became more agriculturally self-sufficient.

Daugherty saw the need for establishing a new sector. Beginning as early as the 1960s machinery had been invented to produce metal tapered light and traffic signal poles for infrastructure development and light poles for outdoor commercial and industrial use. Valmont thus branched out from its core business and began to concentrate efforts on new product development and distribution. The company acquired Gate City Steel in 1981, a service center already marketing Valmont products, and by 1986 Gate City had purchased five producers of steel reinforcing bar to accommodate their street, highway, and electrical equipment market. Federal, state, and local governments found that by adding upgraded lighting, more signs and better signals to improve traffic flow, they could sometimes circum-vent new road construction projects, increasing the demand for lighting and traffic signal poles.

In 1987 the U.S. Federal Highway Bill began a five-year, $70 million expenditure program, boosting Valmonts position. The company also expanded into producing poles for the trans-mission and distribution of electrical power and in 1987 paid General Electric $28 million to acquire and add a new subsidiary to its force, renamed Valmont Electric, a fluorescent and specialty lamp ballast business. According to Bill Birchard of CFO, The Magazine for Senior Financial Executives, To enthusiastic Valmont managers in the late 1980s, the notion of diversifying into energy-saving lighting ballasts seemed like a great strategic opportunity, one worth pumping in another $10 million or so of capital to exploit.

Diversification Pays Off Into the 1990s

Discussing his strategy for success in an article in Investment News & Views, Daugherty cautioned, New business development will occur only in those areas where we can capitalize on our existing channels of distribution, market knowledge, and investments. The company attributed much of its success to a dealer network and distribution system which offers its dealers continuous, extensive training in design, installation, and replacement parts.

The formation of another new subsidiary, a computer chain named ValCom demonstrated the creative flexibility of Doughertys philosophy. Since Valmont already had a sizeable net-work of farm-equipment retailers, management decided to market IBM and other personal computers to farmers who already used Valmont irrigation systems. While farmers werent as receptive to the idea as Valmont had hoped, the company did find a market among local businessmen who sought out the machines at local feed shops.

Valmont sold a 26 percent interest in ValCom to the public for $10 million shortly before the 1987 October Crash. Shares dropped to ten percent below the offering price but by 1988 sales and profits rose about 50 percent, to $164 million and $3.6 million, respectively. By 1988 Valcom had recovered and rose to rank fourth in the field of marketers of microcomputer hardware and software.

By the late 1980s overall company sales were improving. Daugherty told Investment News & Views that the company enters into 1988 with the largest backlog in its history. Distressed farmers had been dumping used farm equipment on the market, and as the agricultural situation improved the demand grew for new irrigation systems. William Welsh II, the company president reported in May 1988 that gains in sales and profit spanned every major business unit.

Global Expansion and Reorganization in the 1990s

Valmont first entered the European market by acquiring a pole manufacturing company, SERMETO S.A., which held about ten percent of that market in France. In 1991 Valmont added to its holdings Nolte, a pole company in the Netherlands, further broadening their manufacturing capabilities. Near Montreal, Valmont acquired an 80 percent interest in Lampadaires Feralux, Inc., a Canadian manufacturer of aluminum lighting and traffic signal poles for the American market. During this period Valmont also successfully entered new markets in Eastern Europe, Africa, Asia, and South America.

New construction and redevelopment of cities and highways have always been important to the United States and Western European pole business. A severe recession in the commercial construction industry and political problems in the Middle East factored into a poor financial performance for Valmont in 1991. A restructuring charge of approximately $10 million contributed to the fall of Valmont stock into the mid-teens at a time when the stock market composite was booming.

Given also the losses from subsidiary Valmont Electric, CFO Terry J. McClain and CEO Mogens C. Bay decided to find a way to better assess and manage the entire company. McClain told Bill Birchard of CFO, The Magazine for Senior Financial Executives that People were growing earnings, but werent making the best choices about how and where to grow them. Capital decisions were being made on the basis of too much emotion and too little analysis. Their problem was not with the concept of EVA per se, but in applying the concept to Valmonts particular needs. After extensive five-month discussions with a financial strategy consultant they came up with a unique concept, TVI, which simply computes Valmonts net operating profit after taxes minus a ten percent charge for capital employed. This method of simpler, asset-management emphasis and familiar accounting allowed managers to make better informed decisions, and more easily assess real performance, which worked in conjunction with an incentive program.

The reorganization also necessitated restructuring corporate information systems, as well as the closing of an irrigation manufacturing plant in Spain, moving production processes to lower cost areas (such as the move of Valmont Electric to Texas and Mexico).

Company Perspectives:

Valmont is committed to worldwide profitable growth and maximizing shareholder value, through a process of continuous improvement and superior management of capital and human resources. We will focus on agricultural irrigation and electrical construction products, where we have earned leadership positions.

Also in 1991 Valmonts successful computerized pivot control panel was improved allowing the farm manager to operate the system from his office, implement irrigation scheduling, and log data such as water applications and chemicals applied. ValCom, Inc. merged with Inacomp Computer Centers, Inc. giving ValCom approximately 38 percent ownership of InaCom Corp., and offered investment flexibility in the microcomputer industry.

In 1993 the company named Mogens C. Bay, a native of Denmark with impressive global operating experience, president and chief executive officer. Valmont then created a new division, Valmont International, in response to NAFTA and GATT, in order to pursue the new market economies. According to the companys 1993 annual report, the new division was responsible for developing business across business lines, identifying and capitalizing on opportunities wherever they may be, in whatever business.

Valmont utilized its fully owned subsidiaries, joint ventures, and licensing agreements to increase sales and reduce shipping costs. In their Saudi Arabian irrigation operations, for example, the company retained control of technological innovations by producing those components at home, while manufacturing structural components near the installation site, saving on ship-ping costs. Valmont opened a new metal structures business in Holland and eased into Asia by signing a joint venture agreement to build a plant in Shanghai, China, the largest and fastest-growing economy in the region.

Domestically, Valmont acquired Energy Steel Corporation of Tulsa, Oklahoma, to produce utility products and expanded plants in Salt Lake City, Utah, and in Brenham, Texas. Valmonts industrial production capacity was increased by about 25 percent from the domestic expansion and acquisitions.

Fearing that their aggressive growth could possibly spark interest in a takeover bid, the Valmont board of directors adopted a stockholders rights plan, which, according to Scott Robertson of American Metal Market, declared a dividend distribution of one right for each outstanding share of Valmont common stock. Upon becoming exercisable, each right would entitle its holder to buy one 1/1000th of a share of a new series of preferred stock at an exercise price of $100. The rights become exercisable if a person or group (other than certain exempt persons) acquires fifteen percent or more of Valmonts common stock. Dougherty owned approximately 27 percent of Valmonts outstanding common stock at the end of 1995 and was exempt from the rights plan as long as he owned no more than 35 percent of the companys common stock.

Cutting back to core businesses Valmont exited the steel reinforcing bar business, sold their interests in Inacom, their distributor and remarketer of personal computers, and sold Good-All Electric. They identified their new focus on metal manufacturing, marketing, engineering, coatings technology and on managing distribution worldwide. 1994 brought earnings up 30 percent on revenue growth of 7.5 percent, with record sales in the metal-poles-structure business due to the rapid expansion of cellular telephone networks and infrastructure investments in North America and Europe.

The company continued to invest heavily in new products, equipment and facilities around the world. Valmont reduced costs at its unprofitable lighting ballast business by $20 million, but continued to develop more energy-efficient ballast designs be-cause the industry began a demand-inspired transition from traditional magnetic ballasts to more energy-efficient electronic bal-lasts.

1996 marked both the 50th anniversary of Valmonts beginnings and the retirement of its founder, Robert B. Daugherty, who remained on as a member of Valmonts board of directors. It was a banner year for the agricultural economy, bolstered by good prices and high yields as the worldwide demand for grain continued to increase. Agricultural equipment sales in South America and western Europe increased well above the previous years level, with impressive gains in the North American market.

Tightening efforts to concentrate on their two primary businesses, the company sold its disappointing ballast operation, Valmont Electric, to Chicago Miniature Lamp, Inc. for approximately $25 million.

At the same time, the wireless communication market led in improved growth in the Industrial Products segment. In addition to manufacturing these communications structures, Valmont added the components needed to attach the antennas and wave guides to them, providing the product, installation and maintenance service worldwide. Sales of poles, towers, tubing and fabricated products increased in North America although profits were down in the European market resulting from unfavorable pricing pressures and weak markets in France and Germany. Valmonts aluminum pole facility near Lyons, France, was upgraded with a new spinner that expanded the product range and reduced costs. Valmonts strategy of enhancing its production capabilities paid off by the first quarter of 1997, rewarded by climbing European orders for wireless communication poles, towers, and decorative light product lines.

Conserving Resources into the 21st Century

With 65 percent of the worlds dwindling fresh water supply utilized by agriculture, leadership in creative and highly efficient irrigation systems continues to motivate Valmonts food production sector. Complicating the issue of fresh water re-sources are the estimates concerning the need to double the worlds food production within the next 35 years to meet growing population/food demands.

According to Brian Stanley, writing in Valmont News Release, Over half of the water pumped or diverted for irrigation is simply wasted due to inefficient irrigation techniques. The company is optimistic about the future of its center pivot which applies a precise amount of water, chemicals, and fertilizer to a predetermined height above the plants, feeding only the root zone. Simultaneous with heightened demand to meet efficient fertilization and water conservation requirements, many of the older irrigation systems installed during the 1970s were ready for replacement by the late 1990s. Finally, growth potential in major agricultural areas like South America, Australia, Europe, Africa and Asia offer further expansion opportunities for Valmont.

The first quarter of 1997 showed that Valmont sales of $165.4 million were up 28 percent from the previous first quarter. By April 1997 Mogens C. Bay announced at a share-holders meeting that the board declared a two-for one stock split, reflecting a continuous improvement in performance and the Boards confidence in the future. With its leadership position in irrigated agriculture both in the United States and over-seas, such optimism appears well grounded. Moreover, that the worlds demand for lighting and traffic structures will continue to grow seems likely, as developing countries invest in infrastructure. The conversion from wood to steel electrical distribution poles in the United States, and the rapid growth in the wireless communication industry worldwide also offer substantial opportunities for this company that grew from the cornfields.

Principal Subsidiaries

Energy Steel Corporation; Gibo-Conimast GmbH (Germany); Lampadaires Feralux, Inc. (Canada; 80%); Microflect Company; Nolte Mastenfabriek B.V. (Holland); Sermento (France; majority interest); Telec Centre S.A. (French; majority interest).

Further Reading

Abelson, Reed, Valmont Industries (Companies to Watch) Fortune, October 23, 1989, p. 134.

Brichard, Bill, Do it Yourself: How Valmont Industries Implememented EVA, CFO, The Magazine for Senior Financial Executives, March, 1996, p. 34.

Cochran, Thomas, N., Valmont Industries, Inc.: A Maker of Irrigation Pipe Finds Other Fertile Fields, Barrens, May 16, 1988, p. 8587.

Dirrim, Craig, The Nebraska Supreme Court Sounds the Death Knell for Recovery for Occupational Diseases Under the Nebraska Workers Compensation Act, Nebraska Law Review, 1992, p. 964. Painter, Steve, New Irrigation Systems Refreshing for Farmers, Journal of Commerce & Commercial, June 10, 1993, p. 7A. Robertson, Scott, Valmont Industries Expanding Three Operations, American Metal Market, December 28, 1995, p. 4.

Valmont Buys French Company, American Metal Market, June 3, 1996, p 4.

Valmont Industries (Analysts Report & Stock Information), Kansas City Business Journal, January 8, 1990, p. 19.

Valmont Industries, Inc., The Insiders Chronicle, November 21, 1988, p. 3.

Valmont Industries, Inc. (Whos News), Wall Street Journal, August 3, 1993, p. B6.

Valmont Industries Selling Lighting Equipment Unit, New York Times, January 7, 1997, p. 4N.

Terri Burgman

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