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 28, 1995 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, 1995, The Valspar Corporation has 21,977,189 shares of common
stock outstanding, excluding 4,683,467 shares held in treasury. The Company had
no other classes of stock outstanding.
THE VALSPAR CORPORATION
Index to Form 10-Q
for quarter ended July 28, 1995
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - July 28, 1995,
July 29, 1994, and October 28, 1994................................................... 2 & 3
Condensed Consolidated Statements of Income Three months and nine
months ended July 28, 1995
and July 29, 1994..................................................................... 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended July 28, 1995 and July 29, 1994..................................... 5
Notes to Condensed Consolidated Financial Statements -
July 28, 1995......................................................................... 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
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
July 28, July 29, October 28,
1995 1994 1994
(Unaudited) (Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,584 $ 1,906 $ 2,580
Accounts receivable less
allowance (7/28/95-$1,164;
7/29/94-$1,292; 10/28/94-$890) 139,533 126,153 112,892
Inventories:
Manufactured products 52,321 57,534 51,614
Raw material, supplies and
work in process 26,320 27,936 32,462
78,641 85,470 84,076
Other current assets 19,130 18,670 24,603
TOTAL CURRENT ASSETS 240,888 232,199 224,151
OTHER ASSETS 34,077 34,124 35,501
PROPERTY, PLANT AND EQUIPMENT 241,216 198,962 209,957
Less allowance for depreciation (114,168) (98,511) (102,001)
127,048 100,451 107,956
$402,013 $366,774 $367,608
See Notes to Condensed Consolidated Financial Statements.
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(DOLLARS IN THOUSANDS)
July 28, July 29, October 28,
1995 1994 1994
(Unaudited) (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ 28,899 $ 24,036 $ 15,000
Trade accounts payable 61,570 48,965 51,850
Income taxes 9,156 9,465 8,449
Accrued liabilities 56,603 54,113 60,555
Current portion of long-term debt 235 326 324
TOTAL CURRENT LIABILITIES 156,463 136,905 136,178
LONG-TERM DEBT 25,099 42,493 35,343
DEFERRED LIABILITIES 20,064 17,059 19,323
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 6,849 2,689 4,418
Retained earnings 226,436 193,723 203,135
Other (2,595) (2,397) (2,616)
244,020 207,345 218,267
Less cost of common stock in
treasury (7/28/95-4,687,937
shares; 7/29/94-4,603,604 shares;
10/28/94-4,739,015 shares) 43,633 37,028 41,503
200,387 170,317 176,764
$402,013 $366,774 $367,608
See Notes to Condensed Consolidated Financial Statements.
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 28, July 29, July 28, July 29,
1995 1994 1995 1994
Net sales $ 216,310 $ 203,302 $ 584,571 $ 601,185
Costs and expenses:
Cost of sales 152,084 142,931 418,819 434,452
Research and Development 7,033 6,736 20,892 20,461
Selling and administration 30,275 28,801 87,338 86,907
Interest expense 1,122 723 2,984 1,838
Other income/(expense) - net 78 564 459 (1,163)
Income before income taxes 25,874 24,675 54,997 56,364
Income taxes 10,401 10,001 21,977 22,858
Net income $ 15,473 $ 14,674 $ 33,020 $ 33,506
Net income per common share (Note 2): $ 0.70 $ 0.66 $ 1.50 $ 1.51
Average number of common
shares outstanding 22,102,853 22,206,464 22,079,446 22,186,927
Dividends paid per
common share $ 0.15 $ 0.13 $ 0.45 $ 0.39
See Notes to Condensed Consolidated Financial Statements.
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED
July 28, July 29,
1995 1994
OPERATING ACTIVITIES:
Net income $ 33,020 $ 33,506
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 15,441 14,729
Provisions for:
Other deferred liabilities 431 (3,004)
Loss on sales or abandonment of
property, plant and equipment 103 1,893
Increase/(decrease) in cash due to
changes in net operating assets:
Accounts and notes receivable (26,641) (19,705)
Inventories and prepaid assets 10,908 (13,307)
Trade accounts payable and accrued
liabilities 8,932 3,585
Income taxes payable 707 (766)
Other 93 1,215
Net Cash Provided by Operating Activities 42,994 18,146
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (31,837) (20,623)
Acquired business, net of cash -- (75,385)
Other (1,500) --
Net Cash Used in Investing Activities (33,337) (96,008)
FINANCING ACTIVITIES:
Net proceeds from borrowings 3,566 54,603
McWhorter debt spun off -- 30,086
Proceeds from sale of treasury stock 1,209 3,231
Purchase of shares of Common Stock for treasury (3,604) (498)
Dividends paid (9,824) (8,446)
Other -- (980)
Net Cash Provided by (Used in) Financing Activities (8,653) 77,996
INCREASE IN CASH AND CASH EQUIVALENTS 1,004 134
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,580 1,772
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,584 $ 1,906
See Notes to Condensed Consolidated Financial Statements.
THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 28, 1995
NOTE 1: The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they 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. Operating results for the three and nine month
periods ended July 28, 1995 are not necessarily indicative of the results that
may be expected for the year ended October 27, 1995. For further information
refer to the consolidated financial statements and footnotes thereto included in
The Valspar Corporation's annual report on Form 10-K for the year ended 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. Potential dilution from the exercise of stock options is not material.
The Shares outstanding have been restated to include Common Shares issued for
the acquisition of Sunbelt Coatings, Inc. (Sunbelt), accounted for as a pooling
of interests. See Note 3 for additional information on this transaction.
NOTE 3: On March 24, 1995 the Company acquired all of the Common Stock of
Sunbelt, in exchange for 339,455 shares of the Company's Common Stock. Sunbelt
is an automotive refinish coatings manufacturer headquartered in Picayune,
Mississippi with annual sales of approximately $10 million. The transaction has
been accounted for as a pooling of interests, and, accordingly, the consolidated
financial statements for all periods presented have been restated to include the
results of Sunbelt. The effect of this acquisition on the Company's financial
statements was not significant.
NOTE 4: Trade accounts payable include $13.7 million at July 28, 1995 of issued
checks which had not cleared the Company's bank accounts.
NOTE 5: Effective October 29, 1994, the Company adopted FASB Statement No. 112,
"Employers' Accounting for Postemployment Benefits." The cumulative effect of
adoption of the new statement was not material.
NOTE 6: Certain reclassifications have been reflected in the 1994 financial
statements to conform to the 1995 presentation.
NOTE 7: On April 29, 1994 all the Common Stock of McWhorter Technologies, Inc.
was distributed to the Valspar common stockholders in the form of a stock
dividend.
The unaudited consolidated pro-forma information below shows the results of
operations as though the McWhorter spin-off had occurred at the beginning of
fiscal 1994. This financial data is provided for information purposes only and
does not purport to be indicative of the future results or what the results of
operations would have been had the McWhorter spin-off occurred as described
above.
This data has been restated to include the results of Sunbelt, as the Sunbelt
acquisition was accounted for as a pooling of interests.
PRO-FORMA CONDENSED STATEMENTS OF INCOME
(Unaudited)
For the Nine Months Ended July 29, 1994
Historical Adjustments Pro-Forma
(In thousands, except per share amounts)
Net sales $ 601,185 $ (63,045) $ 538,140
Cost of sales 434,452 (51,853) 382,599
Gross profit 166,733 (11,192) 155,541
Operating expenses 107,368 (5,692) 101,676
Income from operations 59,365 (5,500) 53,865
Interest expense 1,838 214 2,052
Other income (expense) - net (1,163) 2,538 1,375
Income before income taxes 56,364 (3,176) 53,188
Income taxes 22,858 (1,230) 21,628
Net income $ 33,506 $ (1,946) $ 31,560
Net income per common share $ 1.51 $ 1.42
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview: The Company's operations for the nine months ended July 29,
1994 include the results of McWhorter Technologies, Inc. for the first
six months of this period, prior to the spin-off of McWhorter. The
assets and liabilities of McWhorter's operations located in
Philadelphia, Pennsylvania; Carpentersville, Illinois; and Portland,
Oregon were distributed to Valspar's shareholders in the form of a
stock dividend on April 29, 1994. As a result, the Company's
operations for the three months ended July 29, 1994 exclude McWhorter.
Note 7 describes this transaction in greater detail and presents
pro-forma financial information for the nine months ended July 29,
1994 as though the distribution had occurred at the beginning of
fiscal 1994.
On March 24, 1995, the Company completed its acquisition of all of the
stock of Sunbelt Coatings, Inc. The transaction was accounted for as a
pooling of interests; accordingly, the consolidated financial
statements for all historical periods and dates presented have been
restated to include the financial condition and the results of
Sunbelt. The impact of this restatement was not material to the
financial condition or operating results of the Company. Note 3
describes this transaction in further detail.
Operations: Net sales increased 6.4% to $216,310,000 and 8.6% to
$584,571,000 in the three and nine month periods ended July 28, 1995,
respectively, over net sales for comparable periods in the prior year
using pro-forma net sales for the nine month comparison. The third
quarter sales increase was driven by volume increases in the Consumer
and Packaging Groups, a favorable shift in product mix in the
Industrial Group, and pricing actions taken in all groups to mitigate
the impact of rising raw material costs. The sales increase was
partially offset by lower unit sales in the Industrial and Special
Products Groups. Year-to-date, sales increased for all the major
business groups due to higher volumes in the Consumer and Packaging
Groups and the effect of pricing actions taken by all of the groups.
Due to the seasonal nature of the Company's business, sales for the
quarter and nine months are not necessarily indicative of the sales
for the full year.
The gross profit margin was flat at 29.7% for the quarter compared to
the same period in 1994. The gross profit margin for the nine month
period declined to 28.4% from 28.9% in 1994 on a pro-forma basis. The
recovery in this quarter's gross margin rate is attributable to the
effect of pricing actions taken in response to rising raw material
costs, cost reduction initiatives, and reduced start-up costs in the
new production facilities. With the new resin facility in Marengo,
Illinois starting up on schedule at the end of May, the Company has
all three new facilities operating satisfactorily. While the rate of
raw material price escalation has eased somewhat, the Company
continues to experience margin pressure.
Operating expenses (research, selling and administrative) for the
third quarter and first nine months of 1995 were 5.0% and 6.4% higher,
respectively, than the comparable periods of 1994 on a pro-forma
basis. The increase is attributed to costs associated with the upgrade
and replacement of the Company's information systems, higher direct
selling expenses, and promotional costs associated with the Consumer
Group's new business efforts.
Other expense for the nine months ended July 29, 1994 included a
pre-tax charge of $2,474,000 for the write-down of a resin plant to
appraised fair value that was transferred from McWhorter to Valspar in
connection with the spin-off of McWhorter on April 29, 1994.
Financial Condition: Net cash provided by the Company's operations was
$42,994,000 for the first nine months of 1995 compared to $18,146,000
for the first nine months of 1994. The majority of the improvement is
attributed to reduced inventory balances. Inventories declined
$10,908,000 for the first nine months of 1995 compared to a
$13,307,000 increase in inventories in the comparable 1994 period. In
1994 the Consumer Group built up inventories to accommodate new
business requirements, whereas in 1995 all the major business groups
have reduced their inventories. Trade accounts payable increased in
1995 due to $13,700,000 in checks which had been issued but had not
cleared the Company's bank accounts. The increased accounts receivable
balance over 1994 resulted from higher sales in 1995 and extended
payment terms to certain customers to meet market requirements.
Net cash provided by operations, plus bank borrowings of $3,566,000,
were used to finance $31,837,000 of capital expenditures; pay
$9,824,000 in dividends to shareholders; and purchase $3,604,000 of
treasury stock. Capital spending includes the construction of new
production facilities in Marengo, Illinois and Statesville, North
Carolina and the upgrade and replacement of existing information
systems. Shares of treasury stock purchased were reissued under the
Key Employee Bonus Plan.
The Company's total debt to capital ratio decreased from 22.3% at the
close of fiscal 1994 to 21.3% at the close of the third quarter 1995;
it is also below the 28.2% level at the close of the third quarter
last year. In the second quarter, the Company entered into a five-year
$150,000,000 revolving credit agreement, replacing a previously
existing facility. In the third quarter, the Company obtained
$4,500,000 in Industrial Revenue Bond (IRB) financing for its plant
construction project in Statesville, North Carolina. The Company also
obtained IRB financing of $8,000,000 for its plant construction
project in Marengo, Illinois on September 8, 1995. The Company
believes its existing lines of credit will be sufficient to meet its
current and projected needs for short-term financing.
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 28,
1994.
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) The registrant did not file any reports on Form 8-K during the
three months ended July 28, 1995.
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 11, 1995 By /s/R. Engh
R. Engh
Secretary
Date: September 11, 1995 By /s/P. C. Reyelts
P. C. Reyelts
Vice President, Finance
(Chief Financial Officer)