During the first quarter of 2010, we used cash on hand and $9.4 million in proceeds from the sale of treasury stock to fund normal seasonal working capital needs, $27.6 million in share repurchases, $15.9 million in dividend payments and $8.5 million in capital expenditures.
Capital expenditures for property, plant and equipment were $8.5 million in 2010, compared with $10.8 million in 2009. We anticipate capital spending in 2010 to be approximately $80 million.
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The ratio of total debt to capital was 36.8% at January 29, 2010, compared to 36.9% at October 30, 2009 and 41.4% at January 30, 2009. Short-term debt (notes payable plus current portion of long-term debt) was $6.3 million at January 29, 2010. This debt was comprised of foreign subsidiary borrowings. We ended our 2010 first quarter with $557.3 million of liquidity that includes $427.7 million of available committed credit facilities and $129.6 million of cash. We believe cash flow from operations, existing lines of credit, access to credit facilities and access to debt and capital markets will be sufficient to meet our current and projected financing needs.
We have a credit facility with covenants that require us to maintain certain financial ratios. We were in compliance with these covenants as of January 29, 2010. Our debt covenants do not limit, nor are they reasonably likely to limit, our ability to obtain additional debt or equity financing.
Our cash and cash equivalent balances consist of high quality short-term money market instruments and cash held by our international subsidiaries that are used to fund day-to-day operating needs. Those balances have also been used to finance acquisitions. Our investment policy on excess cash is to preserve principal.
We use derivative instruments with a number of counterparties principally to manage well-defined interest rate and foreign currency exchange risks. We evaluate the financial stability of each counterparty and spread the risk among several financial institutions to limit our exposure. We will continue to monitor counterparty risk on an ongoing basis.
Off-Balance Sheet Financing: We do not have off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Forward Looking Statements: Certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. These forward-looking statements are based on management’s current expectations, estimates, assumptions and beliefs concerning future events, conditions and financial performance. Forward-looking statements are necessarily subject to risks, uncertainties and other factors, many of which are outside our control and could cause actual results to differ materially from such statements. Any statement that is not historical in nature is a forward-looking statement and may be identified by the use of words and phrases such as “expects,” “anticipates,” “believes,” “will,” “will likely result,” “will continue,” “plans to” and similar expressions. These uncertainties and other factors include, but are not limited to, changes in general economic conditions both domestic and international, including recessions and other external economic and political factors, which may adversely affect our business, the value of our investments, the financial stability of our customers and suppliers and our ability to obtain financing; dependence of internal earnings growth on economic conditions and growth in the domestic and international coatings industry; competitive factors including pricing pressure and product competition; risks related to any future acquisitions, including risks of adverse changes in the results of acquired businesses and the assumption of unforeseen liabilities; risks of disruptions in business resulting from the integration process and higher interest costs resulting from further borrowing for any such acquisitions; our reliance on the efforts of vendors, government agencies, utilities and other third parties to achieve adequate compliance and avoid disruption of our business; risks of disruptions in business resulting from our relationships with customers and suppliers; risks and uncertainties associated with operations and achievement of growth in developing markets, including China and Central and South America; unusual weather conditions adversely affecting sales; changes in raw materials pricing and availability; delays in passing along cost increases to customers; changes in governmental regulation, including more stringent environmental, health and safety regulations; changes in accounting policies and standards and taxation requirements such as new tax laws or revised tax law interpretations; the nature, cost and outcome of pending and future litigation and other legal proceedings; civil unrest and the outbreak of war and other significant national and international events; and other risks and uncertainties. The foregoing list is not exhaustive, and we disclaim any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our foreign sales and results of operations are subject to the impact of foreign currency fluctuations. We have not hedged our exposure to translation gains and losses; however, we have reduced our exposure by borrowing funds in local currencies. A 10% adverse change in foreign currency rates would not have a material effect on our results of operations or financial position.
We are also subject to interest rate risk. At January 29, 2010, approximately 3.4% of our total debt consisted of floating rate debt. From time to time, we may enter into interest rate swaps to hedge a portion of either our variable or fixed rate debt. Assuming the current level of borrowings, a 10% increase in interest rates from those in effect at the end of the first quarter would not have a material impact on our results of operations or financial position.
ITEM 4: CONTROLS AND PROCEDURES
Disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of January 29, 2010. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.
There were no changes in our internal control over financial reporting during the quarter ended January 29, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
During the period covered by this report, there were no legal proceedings instituted that are reportable, and there were no material developments in any of the legal proceedings that were previously reported on our Form 10-K for the year ended October 30, 2009.
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
| | |
| (a) | Not applicable |
| (b) | Not applicable |
| (c) | We made the following repurchases of equity securities during the quarter ended January 29, 2010: |
| | | | | | | | | | | | |
Period | | Total Number
of Shares
Purchased | | Average
Price Paid
per Share | | Total Number of
Shares Purchased as Part
of Publicly Announced
Plans or Programs | | Maximum Number
of Shares that May
Yet be Purchased Under
the Plans or Programs |
10/31/09 – 11/27/09 | | | — | | | $ — | | | — | | | 4,000,000 |
| | | | | | | | | | | | |
11/28/09 – 12/25/09 | | | 420,000 | | | 26.88 | | | 420,000 | | | 3,580,000 |
| | | | | | | | | | | | |
12/26/09 – 1/29/10 | | | 580,000 | | | 28.06 | | | 580,000 | | | 3,000,000 |
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ITEM 5: OTHER INFORMATION
At the Annual Meeting of Stockholders on February 18, 2010, the stockholders took the following actions:
| | |
| (i) | The stockholders elected four directors in Class III for a three-year term. The stockholders present in person or by proxy cast the following numbers of votes in connection with the election of directors, resulting in the election of all nominees: |
| | | | | | | |
| | Votes For | | Votes Withheld | | Non-Votes |
| Charles W. Gaillard | 80,437,964 | | 6,829,424 | | 8,015,922 |
| Gary E. Hendrickson | 82,238,732 | | 5,028,656 | | 8,015,922 |
| Mae C. Jemison | 85,698,775 | | 1,568,613 | | 8,015,922 |
| Gregory R. Palen | 75,986,851 | | 11,280,537 | | 8,015,922 |
| | |
| | The directors whose term of office continued after the meeting are: John S. Bode, Jeffrey H. Curler, Ian R. Friendly, Janel S. Haugarth, William L. Mansfield and Stephen D. Newlin. |
| | |
| (ii) | The stockholders approved an increase in the shares reserved under the Corporation’s 2009 Omnibus Equity Plan. |
| | | | |
| Votes For | Votes Against | Abstentions | Non-Votes |
| 58,837,865 | 28,120,383 | 309,840 | 8,015,922 |
| | |
| (iii) | The stockholders ratified the appointment of Ernst & Young LLP as the Corporation’s independent registered public accounting firm for fiscal 2010. |
| | | | |
| Votes For | Votes Against | Abstentions | |
| 91,517,090 | 3,682,294 | 83,926 | |
ITEM 6: EXHIBITS
| | |
| Exhibits | |
| 10.1 | Three-Year Credit Agreement with Wells Fargo Bank, National Association, as Administrative Agent and an issuing bank, Wachovia Bank, National Association, as an issuing bank, and certain other lenders |
| 10.2 | First Amendment to Credit Agreement, dated August 17, 2009, among the registrant, the lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent |
| 31.1 | Section 302 Certification of the Chief Executive Officer |
| 31.2 | Section 302 Certification of the Chief Financial Officer |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | |
| | THE VALSPAR CORPORATION |
| | | |
Date: March 10, 2010 | | By | /s/Rolf Engh |
| | Rolf Engh
Secretary |
| | | |
Date: March 10, 2010 | | By | /s/Lori A. Walker |
| | Lori A. Walker |
| | Senior Vice President and |
| | Chief Financial Officer |
