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____________________________________________________________________________________________ This case was written by Jay Caver (MBA ‘97) and Jennifer Hill (MBA ‘98) under the supervision of Associate Professor Kenneth Eades as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright  1997 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet or transmitted in any form or by any means—electronic, mechanical, photocopying, recording or otherwise—without the permission of the Darden School Foundation.

VALMONT INDUSTRIES, INC.

Forty years ago, we made our first center pivot irrigation system. It was essentially a long steel pipe resting upon a set of wheels that would travel in a circle, watering crops. A few years later, we stood that irrigation pipe on its end and made our first light pole. It was our first lesson in leverage. It wouldn’t be our last.

—Valmont 1993 Annual Report After being one of the most successful Fortune 500 companies during the 1980s,

Valmont Industries fell on difficult times in the 1990s. For the period 1990–92, Valmont’s earnings fell well below the company’s peak year of 1989, and Valmont management believed that the company’s stock had fallen out of favor with Wall Street (Exhibit 1). Although Valmont management fought back by cutting costs, restructuring, and spinning off segments of its business, by the summer of 1993 there was still no tangible evidence that the tide had turned.

Earlier in the year, several cross-functional teams had been formed to evaluate the company’s performance and to recommend a course of action to senior management. Terry McClain, vice president of finance and administration–irrigation division, had been assigned to a team charged with discovering what drove shareholder value and how best to create it. This team was prepared to recommend that Valmont implement a new management concept known as “economic profit” or “economic value added” (EVA).1 With just a few days left before their deadline, McClain and other team members were wondering whether EVA could live up to its promise of motivating managers to act like shareholders and ultimately lead managers toward making value-enhancing decisions that would reverse Valmont’s weak earnings and lackluster stock-price performance.

1 EVA is a trademark of Stern Stewart & Co., New York.

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Valmont’s History

Valmont Industries was begun in 1946 by an inventor, Sam McCleneghan, and a U.S. marine, Robert B. Daugherty, who had just returned home after World War II. Recognizing the potential of McCleneghan’s small farm-machine manufacturing company, Daugherty invested his life savings of $5,000 in the Valley Manufacturing Company. (The name was changed to Valmont in 1967, although products continued to be sold under the Valley registered trademark.) In 1952, when a recession hit the farm industry, Daugherty looked for a way to diversify the business. He came across an inventor of an unusual new machine that pulled a long pipeline, mounted on wheels, across a field; attached to the pipeline was a sprinkler. In 1953, Valley Manufacturing purchased the patent rights to the machine, and Valmont’s dominance of the agricultural-irrigation industry began.

Valmont spent the following decade improving that first irrigation machine and developing a marketing organization to sell it. Its gradual success fostered the development of additional business lines. In 1959, the company began manufacturing six-inch steel pipe and tubing. During the 1960s, the company developed high-speed resistance welding for tubular products, which led to the manufacture of tapered steel poles to support street lights, traffic signals, and lighting for parking lots and stadiums.

With the issuance of 20% of its stock in 1968, Valmont went public but continued to grow “entrepreneurially.” During the 1970s, Valmont began to develop overseas markets for its products, through licensing agreements with Saudi Arabia, Brazil, Yugoslavia, and the Soviet Union. In the United States, the company’s industrial products division expanded by manufacturing transmission towers for the electrical-utility industry. The company’s irrigation division developed a computer program called ValCom to help farmers size and price out their irrigation systems. It then saw an opportunity to market PCs (personal computer) to farmers and their accountants, and created a microcomputer-reselling business by the same name.

The 1980s saw a period of growth through acquisition. In 1981, Valmont purchased Gate City Steel, a manufacturer of steel reinforcing bars for use in buildings, bridges, and general construction. In 1987, Valmont purchased a manufacturer of ballasts2 from General Electric, with the goal of leveraging its electric-utility and commercial-lighting customer bases. In 1988, it acquired a 50% interest in Rudolf Bauer A.G., a financially distressed Austrian manufacturer of irrigation equipment that Valmont hoped to turn around. During the following three years, it purchased interests in European and Canadian manufacturers of light poles, with the intention of further penetrating the surrounding markets.

During that growth period, the company enjoyed consistent financial success and frequent recognition for its performance. On sales of $663 million in 1988, its stock returned 129.6% to investors, earning it fifth place in Fortune’s “Ten Highest” list that year.3 In October

2 A ballast is a small transformer that converts electrical current to the appropriate frequency for a fluorescent lamp; every fluorescent lamp requires a ballast.

3 Reed Abelson and Rahul Jacob, “The Biggest Blowout Ever,” Fortune (April 24, 1989): 346.

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1989, Fortune profiled Valmont as a “company to watch,” noting Valmont President William Welsh’s prediction that he would “build sales to $2 billion in five years and increase profits an average 15% a year.”4 In May 1990, President Bush named Valmont one of 11 companies to receive a Presidential “E Star” Award for excellence in exporting.

Then Valmont suddenly and unexpectedly faltered in 1990. Despite Welsh’s forecast that 1990 would be another record year for Valmont, earnings were down for the year and by 1991, the company had recorded an $8 million loss. (See Exhibit 2 and Exhibit 3 for a financial summary.) The reversal of fortune was attributable to the impact of the recession in the United States, the end of the drought, and the Persian Gulf War. Rudolf Bauer A.G. lost substantial business in the Middle East, and was liquidated in Austrian bankruptcy proceedings. In a $15- million restructuring, Valmont relocated its ballast-manufacturing operation. Although its microcomputer-reselling subsidiary, ValCom, had performed beyond all expectations, producing almost 50% of the company’s sales and 26% of its operating profit in 1990, Valmont decided to refocus its energies on its core manufacturing competencies by gradually divesting itself of ValCom. For a summary of Valmont’s acquisitions and divestitures, see Exhibit 4.

In 1993, Valmont’s operations were divided into two major business segments: the irrigation division and the industrial products division. The irrigation division specialized in center-pivot and linear-move irrigation systems, contributing 30% of Valmont’s revenues and 42% of its operating profit. The remaining 70% of revenues and 58% of operating profits were contributed by Valmont’s industrial products division, which had two major units: pole structures for the lighting, electrical-transmission, and wireless-communication industries; and Valmont Electric, the ballast operation it had purchased from General Electric in 1987 for $28 million. Mechanized-Irrigation Industry

Irrigation benefits areas with little rainfall, as well as areas where rainfall is undependable or unseasonable. In 1992, 58 million acres, or 15%, of U.S. farmland was irrigated. Of that amount, 54% was irrigated by a mechanical sprinkler system, 42% by a less sophisticated method known as “surface/gravity” (flood) irrigation, and 3% by a new technology known as “low flow” (i.e., surface spray). Roughly half the mechanical irrigation systems in use were of the center-pivot or linear-move type that Valmont produced, and of which it was the market leader.

Initially, mechanical systems were used to irrigate unarable land, but by 1993, growth in irrigated acreage in the United States had come to a halt. Domestically, 50% of sales now resulted from conversions of surface-method users. Although expensive (a system that lasted 10 to 15 years and irrigated 132 acres sold for $50,000), mechanical systems were preferable

4 “Companies to Watch,” Fortune (October 23, 1989): 134.

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because they gave the farmer precise control of water distribution, increasing crop yields by 10%–20%. They could also be used to apply fertilizers and pesticides.

Agricultural equipment was a highly cyclical industry: in the mid 1980s, when the U.S.

agricultural industry fell into a recession, irrigation-equipment sales fell by almost 50% in 1985 and another 30% in 1986. Those cash-strapped farmers who purchased equipment at all were likely to purchase it used. The economics of mechanical-irrigation systems, however, improved during the drought of the late 1980s, when water became expensive, because mechanical systems used 50% less water than flooding. Environmental concerns also favored mechanized methods.

In the United States, sales were driven primarily by farm income and interest rates. Worldwide, irrigated acreage had increased 10% since 1975, almost all the increase overseas. Up to 1993, however, sales by U.S. manufacturers to foreign markets had been volatile because of economic and political changes in those markets, primarily in the Middle East and Eastern Europe. Analysts forecast the long-term growth rate of the international market to be 5%–7% in unit volume.

The mechanized-irrigation industry had just two major American competitors, both headquartered in Nebraska—Valmont Industries, with 45% of the domestic market and 200 dealers, and Lindsay Manufacturing Company, with 30% of the domestic market and 270 dealers. Lindsay derived 80% of its revenues from irrigation equipment, sold under the Zimmatic trademark. Dealers reported that the two companies offered similar products, although Valmont offered a unique product called CAMS (computer aided management system). Introduced in 1990, CAMS gave farmers the ability to control their irrigation systems from their homes and offices, and had been well received by customers. Although Valmont was both the technological and U.S. market leader, Lindsay had been more successful in the Saudi Arabian market. Lindsay had also taken steps to become the industry’s low-cost producer. As one observer stated in a 1991 Forbes profile, “In a decade, they had reduced the number of man-hours needed to produce a system from 500 to 184.”5 See Exhibit 5 for Valmont’s results by business segment and Exhibit 6 for selected data on Lindsay. Industrial Products Division

At the end of 1992, the industrial products division consisted of three segments: Industrial and Construction Products (poles and tubing); Gate City Steel; and Valmont Electric (the ballast operation and Good-All Electric). By the summer of 1993, Valmont had liquidated the operating assets of Gate City Steel and had sold Good-All Electric (a manufacturer of cathodic protection rectifiers, power supplies, and battery chargers). Industrial products produced $298 million in revenues in 1992; of that amount, analysts estimated that $200 million came from poles and tubing with the remaining $98 million from the ballast operation. See Exhibit 7 for an analysis of the industrial products division.

5 James Cook, “Making Every Drop Count,” Forbes (April 29, 1991): 103.

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Industrial and construction products

This segment consisted of three major product lines: poles for lighting applications, utility poles, and wireless-communication towers. Of the three lines, poles for lighting applications was the largest contributor to revenue. Valmont began manufacturing steel poles to support traffic lights, signals, parking-lot lights, and stadium lights in the early 1960s. With its strengths in product design and manufacturing, Valmont learned to market those products over a period of several years. By 1992, however, Valmont’s domestic-market share of steel poles was estimated to be 40%. Its closest competitor, with a 25% market share, was Union Metal Corporation, with annual sales of $38 million and 300 employees. Valmont had overtaken Union Metal some years earlier to become the market leader. Recognizing the maturity of the domestic market for lighting poles, Valmont began expanding internationally in 1989. By early 1993, Valmont was the second-largest pole manufacturer in Europe.

In the 1970s, Valmont expanded by manufacturing larger poles for use by electrical utilities for transmission, distribution, and substations. Again, this was a difficult market to enter, but through perseverance Valmont learned to market to the utility industry. The market’s potential was clear: 3% of the nation’s wooden distribution poles were being replaced by steel poles each year because of steel’s lower lifecycle costs and more pleasing appearance; 60% to 80% of all new transmission structures were made of tubular steel. In 1992, Valmont was the second-largest manufacturer of domestic utility poles, with 25% of the market. The leader in the industry was Thomas & Betts, which had a 50% market share. The two were the only national competitors in the industry. Valmont was an early competitor in the market for wireless- communication poles. By 1992, analysts estimated its market share to be 50%.

The early 1990s had been a difficult time for the industrial products division because of the recession in both the United States and Europe. Sales were heavily dependent on public- infrastructure spending and private commercial-construction spending, which contributed equally to the division’s revenues. In 1991, the company reported that commercial-construction spending had fallen 25% from 1990’s already-depressed levels. In December 1991, however, the U.S. Congress passed the six-year, $151 billion Surface Transportation Act, which increased annual funding to improve the nation’s roads, bridges, and transit systems by 40%. Valmont was optimistic that its lighting-pole and ballast products would benefit from that spending. U.S. Industrial Outlook reported that the value of shipments of noncurrent-carrying wiring devices declined another 1.5% in 1992, and forecast growth of just 1.5% annually for the period 1993– 97. Stock analysts expected double-digit growth in wireless-communication towers, but otherwise believed that Valmont’s most promising opportunities were international.

Valmont Electric

Valmont Electric was primarily a manufacturer of magnetic and electronic ballasts for fluorescent lights. The less-sophisticated magnetic ballasts were cheaper but less energy-efficient than the newer-generation electronic ballasts, which cost $17 or $18 and saved 40% more energy than magnetic ballasts. Because roughly 25% of all electricity in the United States was used for

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lighting, utility companies with demand-side management mandates logically made ballasts the target of their rebate programs in the early 1990s. Ninety-five percent of the nation’s 1.5 billion fluorescent-lighting fixtures were considered candidates for retrofitting. Although demand between 1989 and 1991 had declined because of the recession, it picked up dramatically in 1992. By year-end, MagneTek, Valmont Electric’s most formidable competitor, reported a $300 million backlog. (Exhibit 7 presents the outlook for the ballast industry.)

The ballast industry was dominated by MagneTek and Advance Transformer (a subsidiary of North American Phillips), each with a 40%–45% market share. With 12% of the magnetic-ballast market and 7.5% of the electronic-ballast market, Valmont was third in the industry. When demand for ballasts fell between 1989 and 1991, prices fell and margins eroded. In 1991, Valmont spent $11.3 million pretax to restructure its ballast operations. The company moved its operations from Illinois to its lower-cost locations in Texas and Mexico, purchased automated manufacturing equipment to increase productivity and capacity, outsourced activities, and redesigned its products to utilize lower-cost components. In 1992, the company formed employee teams to further streamline operations. The teams developed computer links with customers and suppliers so that orders, billing, and deliveries could be communicated on-line. They developed partnerships with vendors that shortened cycle times. Their purchasing manager won Purchasing magazine’s first Cost Savers’ Hall of Fame contest for a previously unknown “fixed-forward-purchase” arrangement he worked out with copper suppliers that saved Valmont $700,000 a year.6 The outlook was positive: at year-end 1992, Valmont’s backlog was $91.6 million, 11% higher than the year before, with most of the increase attributable to Valmont Electric. Valmont announced its 1992 annual report:

In the lighting-ballast market, we are the third-largest producer in North America and have prime positions in niche markets. We have significantly restructured this business to allow us to compete as a low-cost producer of high-quality products. Our strengthened manufacturing and engineering capabilities position us for the future, and we have scaled our operations to support markets that yield profitable growth. Electronic and efficient electromagnetic ballast-lamp combinations are growth areas for the next decade. We have the design technology and production capabilities to continually improve our position in those market areas. MagneTek’s story paralleled Valmont Electric’s. A $1.5 billion manufacturer of electrical

equipment, MagneTek employed 18,000 workers and operated 52 manufacturing plants and service centers in the United States and 9 overseas. During the low-demand period of 1989– 1991, MagneTek, like Valmont, had restructured, expanded capacity, and developed a continuous-improvement program. Results had been encouraging, leading MagneTek in early 1993 to adopt an organizational structure comprising 60 strategic business units. See Exhibit 8 for business-segment information on MagneTek. Exhibit 9 and Exhibit 10 present comparison data for MagneTek and other Valmont competitors.

6 Anne Millen Porter, “Cost Savers’ Hall-of-Fame Drafts Valmont’s Foley,” Purchasing (December 10, 1992): 20.

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Economic Value Added

In the early 1990s, economic value added was gaining rapid momentum as an integrated financial measurement and incentive-compensation system that could significantly improve a company’s bottom line and stock price. According to Fortune:

[EVA is] …today’s hottest financial idea and getting hotter. Seeing why is easy.… Managers who run their businesses according to the precepts of EVA have hugely increased the value of their companies.… Little wonder that highly regarded major corporations—Coca-Cola, AT&T, Quaker Oats, Briggs & Stratton, CSX, and many others—are flocking to the concept.… Explains Quaker’s CEO William Smithburg: “EVA makes managers act like shareholders. It’s the true corporate faith for the 1990s.”7 Economic value added (generically known as economic profit or residual income) was

not a new concept: the economist Alfred Marshall described it as early as 1890 when he wrote, “What remains of his [the owner’s or manager’s] profits after deducting interest on his capital at the current rate may be called his earnings of undertaking or management.” It was not well understood or applied by corporate management, however, until G. Bennett Stewart and Joel Stern made it the cornerstone of their financial consulting firm, Stern Stewart & Company, in 1982.

As McClain and his team prepared for their presentation, they reflected on the merits of economic value added, principal among them the simplicity of its calculation. The distinct advantage of economic profit was that it treated the cost of capital as a line item rather than as a percentage-hurdle rate. In the words of one author, “Anyone with fourth-grade arithmetic skills can do it; no calculator is needed, let alone a computer.”8 In its most basic form, EVA could be calculated as after-tax operating profit less a cost-of-capital charge. The capital charge was computed as the firm’s weighted-average cost of capital (WACC) times the invested capital:

Sales – Operating expenses – Income taxes = NOPAT (net operating profit after tax) – Cost of capital (WACC  Invested capital) = EVA

Invested capital could be measured as either the sources of funds (i.e., debt and equity) or as the uses of funds (i.e., assets net of noninterest-bearing current liabilities). Because EVA was frequently used to measure divisional and business unit performance, it was normally more convenient to rely upon net assets as the measure of invested capital. This approach allowed

7 Shawn Tully, “The Real Key to Creating Wealth,” Fortune (September 20,1993): 38. 8 Daniel J. McConville, “All about EVA,” Industry Week (April 18, 1994).

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EVA to be defined in a shorthand method as the spread of return on net assets (RONA) over the cost of capital (WACC) times net assets (which equaled invested capital). 9 EVA = (RONA − WACC)  Net assets

McClain knew that he would need to be prepared to explain EVA to the board of directors in simple terms and also to answer its detailed questions about its implementation. He continued to research books and articles on EVA, and to probe financial and compensation consultants for information. He learned that operating expenses included depreciation and amortization, but excluded interest expense. Adjustments were sometimes made to the calculation of economic profit to take into account a company’s unique operating characteristics. For example, to prevent the calculation from unduly penalizing a line manager for making investments with long-term benefits, but short-term losses, such items as R&D expenses, advertising expenses, and training expenses were sometimes capitalized and included as part of invested capital.

McClain took comfort in knowing that the concept of economic profit stood on firm academic ground. In particular, net present value (NPV) calculations could be reconciled with economic profit calculations when both were projected into the future (i.e., NPV equaled the present value of future economic profits). Unlike NPV, however, last year’s capital investments would not become this year’s “sunk costs” in the minds of line managers. On the contrary, any assets acquired would continue to bear a cost—the cost of capital—for as long as they were held. Over the years, too many enthusiastic managers had taken Valmont down paths that had grown earnings in the short term, but that were strategically unsound for the long term and had ultimately destroyed shareholder value. McClain wondered if EVA might be the tool to prevent decisions on capital from being made on the basis of too much emotion and too little analysis.

By way of preparation for the presentation, McClain and his team condensed their EVA research to a handful of its major benefits, and collected supporting testimonials from the dozen Fortune 500 companies already using EVA. Most important, the team believed, EVA linked employees’ rewards with shareholders’ rewards, and thereby encouraged managers to think like owners and entrepreneurs. CSX had supplied compelling anecdotal evidence in the business press:

“EVA is anything but theoretical,” says CEO John Snow, who introduced the concept at his company in 1988.… On the route from New Orleans to Jacksonville, Florida, four locomotives used to power trains at 28 mph. But the trains arrived at midnight, long before they were unloaded onto trucks or freighters. Spurred by the EVA imperative, CSX decided to run the trains at 25 mph with only three locomotives and arrive three hours later, still in plenty of time to be unloaded at 4 or 5 a.m. The three locomotives also use some 25% less fuel than four. Intermodal’s EVA was $10 million last year and is on track to

9 Although there was no standard, it was a common practice to use the beginning of the year balance for net

assets to simplify the calculation.

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triple in 1993. Wall Street has noticed: CSX stock was at $28 when Snow introduced the EVA program and was recently at $75.10

The team observed that companies that adopted EVA generally believed that economic profit was the single best predictor of stock performance:

We believe that the best financial proxy for shareholder value creation is a measure that we call controllable earnings [i.e., EVA]. Our analysis, and that of Stern Stewart & Co., the consulting firm that introduced us to EVA, shows a very close correlation between the trend in EVA and shareholder value. (William Smithburg, Chair, Quaker Oats)11

Many of the EVA companies quoted in the business press emphasized EVA’s value in

focusing management attention on balance sheet management, where before it had tended to focus excessively on earnings. That is, EVA helped managers up and down the line to distinguish projects and activities with positive NPVs from those with positive earnings but negative NPVs. As James Meenan, AT&T’s chief financial officer, observed, “‘Good’ is no longer positive operating earnings. It’s only [good] when you beat the cost of capital.”12

The ease with which EVA could be calculated and understood, when linked to incentive compensation, gave it the power to harness the good ideas of a company’s employees at all levels:

Not only do we agree intellectually with the EVA concept, but we find it easy to use within the context of existing information and simple to explain. We have operating people explaining EVA to other operating people.13

In effect, EVA converts the balance sheet into another expense (capital costs) that may be compared directly with and managed in the same way as normal operating expenses. For that reason, companies that have a tradition of managing for earnings find it relatively simple in practice to switch the focus of their managers to EVA.14

Some companies also liked EVA because it helped avoid disputes over budget and capital

expenditures; it focused managements’ efforts on profits rather than politics:

Most companies determine bonuses by how an executive performs against a budget; the most common target is a percentage rise in operating earnings. But the budget benchmark has a glaring flaw: managers have an incentive to negotiate a

10 Tully. 11 Enterprise (April 1993). 12 Tully. 13 Basil Anderson, chief financial officer of Scott Paper Company, quoted in Stern Stewart & Co. brochure. 14 G. Bennett Stewart, “EVA: Fact and Fantasy,” Journal of Applied Corporate Finance (Summer 1994): 77.

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target that’s easy to beat. “The negotiation process is long and difficult,” says Derek Smith, executive vice president of Atlanta’s Equifax, an information services company that now bases compensation on EVA. “Instead of reaching for the stars, managers have an incentive to aim low.”15

Finally, the team considered it a good sign that Wall Street seemed to hold EVA in high

regard, and that some investment managers even made a practice of inquiring whether target companies used value-based management systems:

Investors understandably favor companies committed to increasing EVA. Eugene Vesell, senior vice president of Oppenheimer Capital, which manages $26 billion, says, “We like to invest in companies that use EVA and similar measures. Making higher returns than the cost of capital is how we look at the world.”16 As Joel Stern noted, “Just announcing that a company will go to EVA increases its

market value by 12% on average.”17 EVA seemed to offer a number of substantial benefits. But the team understood that EVA

must be adopted, rather than simply calculated, to make a difference. They also knew that there were a number of implementation issues to iron out along the way. In particular, the team wondered whether Valmont should implement a compensation system that would chasten poor performance as well as rewarding superior performances. Given Valmont’s particular culture and the industries in which it competed, exactly how should the link to compensation be accomplished? Using Valmont’s WACC of 10% for the business segments seemed fair, but how should Valmont treat items such as “corporate overhead” in the EVA calculation for a divisional manager? Was EVA a sustainable concept, or was it the “flavor-of-the-month program”? Would some other means of motivating management and raising the company’s stock price work better than EVA?

15 Tully. 16 Tully. 17 Gerard A. Achstatter, “EVA: Performance Gauge for the 1990s?” Investors Business Daily (June 21, 1995).

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Exhibit 1

VALMONT INDUSTRIES, INC.

Stock Price Performance: Valmont versus S&P 5001 (1989–93)

1 Price series are computed assuming reinvestment of dividends.

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For the exclusive use of K. Kothari, 2016.

This document is authorized for use only by Krish Kothari in Finance taught by David C. Ketcham, Bryant University from January 2016 to July 2016.

UVA-F-1191

-13-

Exhibit 3

VALMONT INDUSTRIES, INC.

Consolidated Balance Sheets, Year End December 31 (in thousands of dollars)

Assets 1988 1989 1990 1991 1992

Current assets:

Cash and cash equivalents 5,299 13,826 10,859 7,283 12,747

Receivables, net 60,578 67,491 79,803 65,968 65,630

Inventories 70,390 76,746 71,783 67,954 60,560

Other current assets 7,023 4,161 7,607 18,188 14,406

Total current assets 143,291 162,224 170,052 159,393 153,343

Other assets 24,190 29,080 33,571 39,302 44,135

Property, plant, and equipment, net 51,600 70,286 79,610 82,164 75,740

Total assets 219,081 261,590 283,233 280,859 273,218

Liabilities

Current liabilities:

Current long-term debt and notes payable 17,592 7,940 35,432 14,362 15,161

Accounts payable 35,180 50,436 29,615 34,086 32,326

Other accrued liabilities 34,930 34,130 41,482 45,360 41,989

Total current liabilities 87,702 92,506 106,529 93,808 89,476

Long-term debt 45,550 60,726 54,463 70,428 60,357

Other long-term liabilities 6,726 9,421 10,852 15,542 12,067

52,276 70,147 65,315 85,970 72,424

Shareholders’ equity:

Common stock ($1 par) and paid-in capital 8,000 12,000 12,792 12,421 12,000

Retained earnings 75,856 85,918 98,951 87,997 98,224

Currency-translation adjustment 548 1,065 1,972 2,029 1,439

84,404 98,983 113,715 102,447 111,663

Less:

Cost of common shares in treasury 5,301 46 1,768 969 145

Unearned restricted stock – – 558 397 200

Total shareholders’ equity 79,103 98,937 111,389 101,081 111,318

Total liabilities and shareholders’ equity 219,081 261,590 283,233 280,859 273,218

For the exclusive use of K. Kothari, 2016.

This document is authorized for use only by Krish Kothari in Finance taught by David C. Ketcham, Bryant University from January 2016 to July 2016.

UVA-F-1191

-14-

Exhibit 4

VALMONT INDUSTRIES, INC.

Summary of Acquisitions and Divestitures

1981 Purchased 50% of Gate City Steel (steel service center and reinforcing-bars company).

1985 Purchased remaining 50% of Gate City Steel.

1987 Purchased ballast operation from General Electric for $28 million. ValCom, Valmont’s microcomputer-reselling subsidiary, taken public.

1988 Purchased 50% interest in Rudolf Bauer A.G., an Austrian manufacturer of irrigation equipment.

1989 Acquired majority position in Sermeto, a French manufacturer of steel light poles.

1990 Acquired Dutch company, Nolte Mastenfabriek B.V., a manufacturer of steel poles sold in the Netherlands and neighboring countries. Acquired an 80% interest in Lampadaires Feralux, Inc., a Canadian manufacturer of aluminum lighting and traffic-signal poles. Merger of ValCom and InaComp Computer Centers; renamed InaCom Corp. Valmont reduced its ownership from 78% to 38%. Rudolf Bauer A.G. liquidated in Austrian bankruptcy proceedings.

1992 Restructured ballast business; moved facilities from Illinois to Texas and Mexico. Downsized Gate City Steel; closed two locations. Increased ownership in Sermeto to 99.5%.

1993 Sold 38% stake in InaCom; proceeds of $48 million pretax. Decision made to sell operating assets of Gate City Steel and exit the steel-reinforcing business (sales of Gate City Steel estimated at $30 million). Decision made to divest interest in Good-All Electric (sales estimated at $10 million).

For the exclusive use of K. Kothari, 2016.

This document is authorized for use only by Krish Kothari in Finance taught by David C. Ketcham, Bryant University from January 2016 to July 2016.

UVA-F-1191

-15-

Exhibit 5

VALMONT INDUSTRIES, INC.

Summary of Business Segments (in thousands of dollars)

1989 1990 1991 1992 1993E

Revenues Industrial products 273,411 306,082 301,677 297,907 295,100 Irrigation products 158,167 140,653 128,210 126,965 129,909 Intersegment sales (857) (199) (169) (187) (100) Total 430,721 446,536 429,718 424,685 424,909

Operating profit (loss) 1989 1990 1991 1992 1993E

Industrial products 24,647 19,092 (4,305) 15,545 19,518 Irrigation products 20,482 14,229 8,721 11,472 12,400 Corporate (13,325) (7,940) (10,441) (6,027) (6,000) Total 31,804 25,381 (6,025) 20,990 25,918

Net assets 1989 1990 1991 1992

Industrial products 102,148 126,127 115,508 112,167

Industrial/construction 63,405 79,430 77,548 76,020 Valmont Electric 38,743 46,697 37,960 36,147

Irrigation products 31,717 29,431 27,647 23,647 Corporate 43,159 56,578 58,258 63,089

Total 177,024 212,136 201,413 198,903 __________________ Data sources: Valmont Industries annual reports and case writer estimates.

For the exclusive use of K. Kothari, 2016.

This document is authorized for use only by Krish Kothari in Finance taught by David C. Ketcham, Bryant University from January 2016 to July 2016.

UVA-F-1191

-16-

Exhibit 6

VALMONT INDUSTRIES, INC.

Selected Financial Data on Lindsay Manufacturing Company, Fiscal Year-End August 31 (in thousands of dollars, except per-share data)

1988 1989 1990 1991 1992

Net sales 76,120 92,630 102,710 98,660 108,930

Cost of goods sold 64,330 74,060 82,700 77,180 85,130 SG&A 7,000 8,240 9,630 10,480 10,930 Operating income 4,790 10,330 10,380 11,000 12,860 Interest expense – – – – – Other income (loss) 170 810 2,520 1,600 2,880 Pretax profit 4,960 11,140 12,900 12,600 15,740 Taxes 1,180 3,780 4,510 3,700 4,720 Net income 3,770 7,370 8,390 8,900 11,020

Earnings per share $0.36 $0.69 $0.81 $0.85 $1.01 Average shares outstanding 10,480 10,700 10,570 10,460 10,870

1988 1989 1990 1991 1992 Assets Cash and equivalents 3,140 12,770 16,850 18,670 18,270 Receivables 6,210 6,540 8,500 7,330 8,210 Inventories 9,170 6,930 9,790 9,060 4,280 Other current assets 640 1,100 3,530 4,220 4,990 Current assets 19,160 27,340 38,680 39,280 35,760 Gross fixed assets 19,350 19,340 20,380 21,070 21,690 Accumulated depreciation 14,710 14,950 15,700 15,680 15,740 Net fixed assets 4,650 4,390 4,680 5,390 5,950 Long-term investments and other 160 – 3,590 15,750 29,650 Total assets 23,970 31,730 46,940 60,420 71,360 Liabilities and equity

Accounts payable 7,070 4,260 7,710 5,320 5,570 Short-term debt 960 – – – – Other accrued liabilities 7,410 10,900 14,480 21,560 20,610 Current liabilities 15,440 15,160 22,190 26,880 26,180 Long-term debt – – – – – Other long-term liabilities 530 580 710 740 750 Total liabilities 15,970 15,740 22,900 27,620 26,930 Shareholders’ equity 8,000 15,990 24,040 32,800 44,430 Total liabilities and equity 23,970 31,730 46,940 60,420 71,360 __________________ Data source: Bloomberg Financial Analysis.

For the exclusive use of K. Kothari, 2016.

This document is authorized for use only by Krish Kothari in Finance taught by David C. Ketcham, Bryant University from January 2016 to July 2016.

UVA-F-1191

-17-

Exhibit 7

VALMONT INDUSTRIES, INC.

Analysis of Industrial Products Division (in millions of dollars)

Revenues 1990 1991 1992 1993E

Industrial/construction 190.0 190.0 200.0 200.0 Valmont Electric 116.1 111.7 97.9 95.1

Total 306.1 301.7 297.9 295.1

Operating profit (loss) 1990 1991 1992 1993E

Industrial/construction 17.0 13.0 19.0 19.0 Valmont Electric 2.1 (6.0) (3.5) 0.5 Restructuring 0.0 (11.3) 0.0 0.0

Total 19.1 (4.3) 15.5 19.5

Operating profit margins 1990 1991 1992 1993E

Industrial/construction 8.9% 6.8% 9.5% 9.5% Valmont Electric 1.8% −5.4% −3.6% 0.5%

Total 6.2% −1.4% 5.2% 6.6%

Fluorescent-ballast industry Estimated unit volume (in millions) 1990 1991

1992

1993E

Magnetic ballasts 62.3 61.0 70.0 65.0 Electronic ballasts 5.5 10.0 13.0 25.0 Total 67.8 71.0 83.0 90.0

For the exclusive use of K. Kothari, 2016.

This document is authorized for use only by Krish Kothari in Finance taught by David C. Ketcham, Bryant University from January 2016 to July 2016.

UVA-F-1191

-18-

Exhibit 8

VALMONT INDUSTRIES, INC.

MagneTek Business-Segment Analysis, Fiscal Year-End June 30 (in millions of dollars)

Revenues 1991 1992 1993

Ballasts and transformers 521.3 654.6 828.5 Motors and controls 613.0 575.2 683.7

Total 1,134.3 1,229.8 1,512.2

Operating profit (loss) 1991 1992 1993

Ballasts and transformers 63.3 71.9 63.7 Motors and controls 52.3 33.9 39.7

Total 115.6 105.8 103.4

Operating profit margins 1991 1992 1993

Ballasts and transformers 12.1% 11.0% 7.7% Motors and controls 8.5% 5.9% 5.8%

Total 10.2% 8.6% 6.8%

Net assets 1991 1992 1993

Ballasts and transformers 234.8 396.8 470.3 Motors and controls 298.8 367.1 384.3

Total 533.7 763.9 854.6

__________________ Data sources: MagneTek Annual Report (June 30, 1993) and case writer estimates.

For the exclusive use of K. Kothari, 2016.

This document is authorized for use only by Krish Kothari in Finance taught by David C. Ketcham, Bryant University from January 2016 to July 2016.

UVA-F-1191

-19-

Exhibit 9

VALMONT INDUSTRIES, INC.

Estimated Market-Share Data

Irrigation Systems Wireless Communication Poles Valmont 45% Valmont 50% Lindsay Manufacturing 30% Others 50% Others 25%

Domestic Lighting Poles Domestic Utility Poles Valmont 40% Thomas & Betts 50% Union Metal 25% Valmont 25% Others 30% Others 25%

Magnetic Ballasts Electronic Ballasts Advance Transformer 45% MagneTek 50% MagneTek 40% Advance Transformer 37% Valmont 12% Valmont 8% Others 3% Others 6%

__________________ Data source: Lehman Brothers Report (August 19, 1993).

For the exclusive use of K. Kothari, 2016.

This document is authorized for use only by Krish Kothari in Finance taught by David C. Ketcham, Bryant University from January 2016 to July 2016.

UVA-F-1191

-20-

Exhibit 10

VALMONT INDUSTRIES, INC.

Comparisons of 1992 Financial Statements

Long-Term Debt/

Total Capital

Return on

Assets

Operating

Margin

Net Fixed Asset

Turnover

Lindsay Manufacturing 0.0% 15.4% 11.8% 18.31 MagneTek 69.9% 2.7% 6.8% 6.35 Thomas & Betts 47.4% 8.1% 2.3% 3.55 Valmont Industries 32.2% 4.8% 4.9% 5.61

__________________ Sources: Lehman Brothers Report (August 19, 1993), and Bloomberg Data Service.

For the exclusive use of K. Kothari, 2016.

This document is authorized for use only by Krish Kothari in Finance taught by David C. Ketcham, Bryant University from January 2016 to July 2016.