SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Nine Months Commission File
Ended July 29, 1994 Number: 1-3011
THE VALSPAR CORPORATION
State of Incorporation: IRS Employer ID No:
Delaware 36-2443580
Principal Executive Offices:
1101 Third Street South
Minneapolis, MN 55415
Telephone Number: 612/332-7371
The registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities and Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days.
As of August 31, 1994, The Valspar Corporation has 21,577,882 shares of common
stock outstanding, excluding 5,082,774 shares held in treasury. The Company had
no other classes of stock outstanding.
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THE VALSPAR CORPORATION
Index to Form 10-Q
for quarter ended July 29, 1994
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
Condensed Consolidated Balance Sheets - July 29, 1994,
July 30, 1993, and October 29, 1993............................................................... 2 & 3
Condensed Consolidated Statements of Income - Three months and nine months
ended July 29, 1994 and July 30, 1993............................................................ 4
Condensed Consolidated Statements of Consolidated Cash Flows -
Nine months ended July 29, 1994 and July 30, 1993................................................. 5
Notes to Condensed Consolidated Financial Statements -
July 29, 1994..................................................................................... 6 & 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................... 8 & 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................ 10
Item 6. Exhibits and Reports on Form 8-K............................................................. 10
SIGNATURES ........................................................................................ 11
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
July 29, July 30, October 29,
1994 1993 1993
(Unaudited) (Unaudited) (Note)
ASSETS
CURRENT ASSETS:
Cash and short-term securities $ 1,684 $ 1,880 $ 1,637
Accounts receivable less
allowance (7/29/94-$1,255;
7/30/93-$1,583; 10/29/93-$985) 124,780 116,912 105,505
Inventories:
Manufactured products 55,791 41,879 42,587
Raw material, supplies and
work in process 27,825 26,662 25,688
Jobbed and sundry goods 111 112 115
------------ ------------ ------------
83,727 68,653 68,390
Other current assets 18,318 16,306 21,948
---------- ---------- ----------
TOTAL CURRENT ASSETS 228,509 203,751 197,480
OTHER ASSETS 34,056 37,362 36,179
PROPERTY, PLANT AND EQUIPMENT 197,438 200,004 207,168
Less allowance for depreciation (97,735) (100,410) (104,029)
---------- --------- ---------
99,703 99,594 103,139
---------- ---------- ----------
$362,268 $340,707 $336,798
======== ======== ========
Note: The Balance Sheet at October 29, 1993 has been derived from the audited
financial statements at that date.
See Notes to Condensed Consolidated Financial Statements.
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THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED - (DOLLARS IN
THOUSANDS)
July 29, July 30, October 29,
1994 1993 1993
(Unaudited) (Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ 24,036 $ 25,000 $ 3,500
Trade accounts payable 48,275 46,222 44,746
Income taxes 9,258 10,525 11,412
Accrued liabilities 53,659 48,165 53,035
Current portion of long-term debt 212 787 788
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 135,440 130,699 113,481
LONG-TERM DEBT 42,483 9,347 7,890
DEFERRED LIABILITIES 16,788 14,836 18,909
STOCKHOLDERS' EQUITY:
Common stock (Par Value-$.50;
Authorized 30,000,000 shares;
Shares issued, including shares
in treasury--26,660,656) 13,330 13,330 13,330
Additional paid-in capital 5,208 1,416 2,269
Retained earnings 191,542 213,653 223,483
Other (2,397) (1,191) (1,109)
----------- ----------- -----------
207,683 227,208 237,973
Less cost of common stock in
treasury (7/29/94-4,943,059
shares; 7/30/93-5,164,133 shares;
10/29/93-5,154,506 shares) 40,126 41,383 41,455
---------- ---------- ----------
167,557 185,825 196,518
--------- --------- ---------
$362,268 $340,707 $336,798
======== ======== ========
Note: The Balance Sheet at October 29, 1993 has been derived from the audited
financial statements at that date.
See Notes to Condensed Consolidated Financial Statements.
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THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
July 29, July 30, July 29, July 30,
1994 1993 1994 1993
Net sales $200,961 $196,861 $594,567 $513,071
Costs and expenses:
Cost of sales 141,568 139,436 430,829 371,224
Research 6,627 6,295 20,133 18,138
Selling and administration 28,147 27,136 85,003 76,078
Interest expense 723 388 1,838 1,358
Other (income)/expense - net (574) (219) 1,142 13
------------ ---------- ------------ ------------
176,491 173,036 538,945 466,811
--------- --------- --------- ---------
Income before income taxes 24,470 23,825 55,622 46,260
Income taxes 9,910 9,411 22,527 18,273
----------- ----------- ----------- -----------
Net income $ 14,560 $ 14,414 $ 33,095 $ 27,987
========== ========== ========= =========
Net income per common share (Note 2): $0.67 $0.66 $1.51 $1.29
=========== =========== =========== ===========
Average number of common
shares outstanding 21,867,009 21,675,823 21,847,472 21,697,288
Dividends paid per
common share $0.13 $0.11 $0.39 $0.33
See Notes to Condensed Consolidated Financial Statements.
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THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED
July 29, July 30,
1994 1993
OPERATING ACTIVITIES:
Net income $ 33,095 $ 27,987
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 14,706 15,678
Provisions for:
Other deferred liabilities (1,399) 564
Loss on sales or abandonment of
property, plant and equipment 1,893 343
Increase/(decrease) in cash due to
changes in net operating assets,
net of effects of acquired businesses:
Accounts and notes receivable (59,661) (24,686)
Inventories and prepaid assets (19,463) 5,774
Trade accounts payable and accrued
liabilities 36,896 (2,465)
Income taxes payable 407 3,151
Other (298) (142)
----------- -----------
Net Cash Provided by Operating Activities 6,176 26,204
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (20,569) (11,394)
Acquired businesses/assets, net of cash (75,385) (1,000)
Investment in joint ventures -- (3,484)
Other (892) (166)
----------- -----------
Net Cash Used in Investing Activities (96,846) (16,044)
FINANCING ACTIVITIES:
Net proceeds from borrowings 97,386 1,577
Proceeds from sale of treasury stock 3,231 928
Purchase of shares of Common Stock for treasury (474) (5,522)
Dividends paid (8,446) (7,106)
Other (980) 63
----------- ------------
Net Cash Provided by (Used in)
Financing Activities 90,717 (10,060)
INCREASE IN CASH 47 100
CASH AT BEGINNING OF YEAR 1,637 1,780
---------- ----------
CASH AT END OF PERIOD $ 1,684 $ 1,880
========= =========
See Notes to Condensed Consolidated Financial Statements.
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THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 29, 1994
NOTE 1: The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. For further information,
refer to the consolidated financial statements and footnotes included in the
Company's annual report on Form 10-K for the year ended October 29, 1993.
Operating results for the three month and nine month periods ended July 29, 1994
are not necessarily indicative of the results that may be expected for the
fiscal year ending October 28, 1994.
NOTE 2: Net income per share is based on the weighted average number of Common
Shares outstanding during each period plus common stock equivalents on stock
options.
NOTE 3: On February 18, 1994, Valspar's wholly-owned subsidiary, McWhorter,
Inc., purchased substantially all of the assets, consisting primarily of
inventory and fixed assets, but excluding accounts receivable, of the Resin
Products Division of Cargill, Incorporated for approximately $76 million.
McWhorter's financing for the Resin Products Division acquisition was derived
from two sources: $44 million in cash received upon collection of an
intercompany balance due from Valspar and $32 million in bank financing. Valspar
utilized existing credit facilities to finance payment of the intercompany
balance owed to McWhorter. Immediately after the acquisition, McWhorter, Inc.,
was merged into McWhorter Technologies, Inc. ("McWhorter"), with the surviving
Delaware corporation remaining a wholly-owned subsidiary of the Company.
At the close of business on April 29, 1994, all of the assets of the Resin
Products Division and the assets and liabilities of McWhorter's operations
located in Philadelphia, Pennsylvania; Carpentersville, Illinois; and Portland,
Oregon were distributed to the Valspar shareholders in the form of a stock
dividend. The April 29, 1994 Balance Sheet included in the second quarter Form
10-Q reflects this distribution. In accordance with the Distribution Agreement
dated February 18, 1994 between Valspar and McWhorter, prior to the
distribution, McWhorter transferred to Valspar resin assets located at
facilities in Los Angeles, California; Rockford and Kankakee, Illinois; and
Garland, Texas.
The significant assets and liabilities of the spun-off entity as of April 29,
1994 were as follows:
Assets: Accounts receivable $40,386
Inventory 21,435
Other assets 3,734
Property, plant and equipment (net) 69,523
Liabilities: Notes to bank (12,700)
Accounts payable (22,382)
Accrued liabilities (11,250)
Long-term debt (30,133)
Other liabilities (2,791)
---------
NET ASSETS $55,822
=======
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THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
JULY 29, 1994
The following supplemental unaudited consolidated pro forma information shows
condensed results of operations as though the McWhorter spin-off had occurred at
the beginning of fiscal 1993. The quarterly unaudited consolidated pro forma
financial information is provided for information purposes only and does not
purport to be indicative of the future results or financial position of Valspar
or what the results of operations or financial position would have been had the
McWhorter spin-off occurred as described above.
(Dollars in Thousands, except per share amount)
Net Net Net Income
Sales Income Per Share
Quarter Ended:
January 28, 1994 $137,567 $ 4,877 $ .22
April 29, 1994 192,994 11,712 .54
July 29, 1994 200,961 14,560 .67
January 29, 1993 128,357 2,931 $ .13
April 30, 1993 168,284 9,038 .42
July 30, 1993 184,677 13,198 .61
October 29, 1993 169,148 10,149 .47
--- ---- ------- ------ ---
$650,466 $35,316 $1.63
-------- ------- -----
Year To Date:
July 29, 1994 $531,522 $31,149 $1.43
July 30, 1993 481,318 25,167 1.16
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Operations: The Company's sales increased 2.1% and 15.9% in the
three and nine month periods ended July 29, 1994, respectively,
over the comparable periods of the prior year. At the end of the
second quarter (April 29, 1994), all of the Common Stock of
McWhorter Technologies, Inc., was distributed to the holders of
Valspar Common Stock on a pro rata basis. Excluding the results
of McWhorter for the first half of 1994 and for the first three
quarters of 1993, sales increased 8.8% to $200,961,000 for the
quarter and 10.4% to $531,522,000 for the nine months. Sales
within the Consumer, Industrial, Packaging, Color Corp., and
Marine Business Groups were all above last year's levels for
both the third quarter and the first nine months of 1994,
primarily due to additional volume sold.
The Company's gross profit margin for the quarter increased to
29.6% from 29.2% last year while, year-to-date gross profit
margin decreased to 27.5% from 27.6% in 1993. Excluding
McWhorter, the Company's gross profit margin increased from
29.5% to 29.6% for the third quarter and from 28.0% to 28.7% for
the first nine months of 1994 as compared to 1993. This year's
improvement in gross profit margin for the Company's continuing
businesses was due to reduced manufacturing unit costs resulting
from improved productivity and higher capacity utilization
coupled with slightly lower overall raw material prices in
effect for the first nine months of 1994.
Operating expenses (research, selling and administrative) for
the third quarter and the first nine months of 1994 were 4.0%
and 11.6% higher, respectively, than the comparable periods of
the prior year. This year's increase on a year-to-date basis was
due to additional operating expenses associated with the
acquired business, increased direct selling expenses and a
higher level of promotional and advertising programs associated
with our Consumer Group's new business efforts. As a percent of
sales, the operating expenses for the first nine months of 1994
decreased to 17.7% from 18.4% for the comparable period a year
ago. Excluding McWhorter, comparable operating expenses for the
Company's continuing businesses increased 8.3% for the quarter
and 9.9% for the first nine months over the comparable periods
for 1993. This increase in operating expense for Valspar's
continuing businesses was mainly attributable to increased
direct selling expenses and additional Consumer Group
promotional and advertising programs as noted above.
Interest expense increased by 86.3% for the quarter and 35.3%
year-to-date as compared to last year. This increase was due to
a higher level of borrowing resulting from the acquisition of
Cargill's Resin Products Division and a higher level of interest
rates. Other expense-net for the first nine months of 1994
included $2,474,000 of expense recognized during the first
quarter of 1994 for the write-down to appraised fair value of a
resin plant which was sold to Valspar at the time McWhorter
acquired the Resin Products Division assets from Cargill.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D.)
The Company's effective income tax rate for 1994 increased due
to the change in the federal statutory rate during 1993. The
impact of this change was to reduce net income per share by
approximately $.01 per share for the third quarter and $.02 per
share for the first nine months of 1994.
Net income for the third quarter and first nine months of 1994
increased 1.0% and 18.3%, respectively, over the comparable
periods of the prior year. This year's increase in net income
resulted from increased sales from the acquired business along
with additional volume sold within the Company's continuing
businesses. Excluding the results for McWhorter, net income
increased 10.3% to $14,560,000 ($.67 per share) for the third
quarter and 23.8% to $31,149,000 ($1.43 per share) for the first
nine months of 1994 over the comparable periods of 1993.
Financial Condition: The Company's total debt to capital at the
close of the third quarter of 1994 was 28.48% compared to 5.83%
at the end of fiscal 1993. This increase was due to the
additional debt and reduction in equity associated with the
McWhorter spin-off. Working capital (excluding Cash and Notes
Payable to Banks) was $115,421,000 at the close of third
quarter 1994 compared to $96,172,000 at the end of third
quarter 1993. Increased accounts receivable and inventory
levels resulting from stronger business levels in 1994 were the
primary contributors to this increase in working capital. As
described in the second quarter Form 10-Q, the Statement of
Consolidated Cash Flows for 1994 includes activity related to
McWhorter through April 29, 1994, including activity of the
acquired Resin Products Division from February 18, 1994 to
April 29, 1994.
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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 the Company's Form 10-K for the year
ended October 29, 1993.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibit 27 - Financial Data Schedule (submitted in
electronic format for use of Commission only).
(b) During the three months ended April 29, 1994, a
report on Form 8-K, dated February 18, 1994, was
filed on March 7, 1994, covering the acquisition of
certain assets of the Resin Products Division of
Cargill, Incorporated by McWhorter, Inc.
Additionally, a report on Form 8-K/A, dated March 7,
1994, was filed on May 6, 1994, covering the spin-off
of McWhorter Technologies, Inc. to Valspar
shareholders in the form of a stock dividend as of
the close of business on April 29, 1994.
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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: September 9, 1994 By /s/R. Engh
R. Engh
Secretary
Date: September 9, 1994 By /s/P. C. Reyelts
--------------------
P. C. Reyelts
Vice President, Finance
(Chief Financial Officer)