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 Three Months Commission File
Ended January 26, 1996 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 February 29, 1996, The Valspar Corporation has 22,111,068 shares of common
stock outstanding, excluding 4,549,588 shares held in treasury. The Company had
no other classes of stock outstanding.
THE VALSPAR CORPORATION
Index to Form 10-Q
for quarter ended January 26, 1996
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - January 26, 1996,
January 27, 1995, and October 27, 1995.................. 2 & 3
Condensed Consolidated Statements of Income - Three
months ended January 26, 1996 and January 27, 1995...... 4
Condensed Consolidated Statements of Cash Flows - Three
months ended January 26, 1996 and January 27, 1995...... 5
Notes to Condensed Consolidated Financial Statements -
January 26, 1996........................................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 7 & 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 8
Item 6. Exhibits and Reports on Form 8-K.......................... 8
SIGNATURES .......................................................... 9
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
January 26, January 27, October 27,
1996 1995 1995
---------- ---------- ----------
(Unaudited) (Unaudited) (Note)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,094 $ 2,508 $ 4,875
Accounts receivable less
allowance (1/26/96-$1,062;
1/27/95-$1,247; 10/27/95-$911) 111,094 106,909 129,954
Inventories:
Manufactured products 53,830 60,132 46,284
Raw materials, supplies, and
work-in-process 26,684 31,055 30,609
---------- ---------- ----------
80,514 91,187 76,893
Other current assets 28,069 21,211 25,186
---------- ---------- ----------
TOTAL CURRENT ASSETS 222,771 221,815 236,908
OTHER ASSETS 29,719 34,151 30,887
PROPERTY, PLANT AND EQUIPMENT 252,473 219,695 247,540
Less allowance for depreciation (121,026) (106,046) (117,136)
--------- --------- ---------
131,447 113,649 130,404
--------- --------- ---------
$383,937 $369,615 $398,199
======== ======== ========
Note: The Balance Sheet at October 27, 1995 has been derived from the audited
financial statements at that date.
See Notes to Condensed Consolidated Financial Statements.
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED - (DOLLARS IN THOUSANDS)
January 26, January 27, October 27,
1996 1995 1995
----------- ------------ ------------
(Unaudited) (Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ 17,649 $ 34,021 $ 5,288
Trade accounts payable 55,135 47,291 68,575
Income taxes 8,482 8,769 9,098
Accrued liabilities 45,904 44,408 62,719
Current portion of long-term debt 239 332 233
----------- ------------ ------------
TOTAL CURRENT LIABILITIES 127,409 134,821 145,913
LONG-TERM DEBT 21,538 35,230 21,658
DEFERRED LIABILITIES 18,191 19,648 18,513
STOCKHOLDERS' EQUITY:
Common stock (Par Value-$.50;
Authorized 30,000,000 shares;
Shares issued, including shares
in treasury, 26,660,656 shares) 13,330 13,330 13,330
Additional paid-in capital 12,183 6,682 10,348
Retained earnings 237,966 205,272 235,361
Other (3,655) (2,725) (3,436)
----------- ----------- -----------
259,824 222,559 255,603
Less cost of Common Stock in
treasury (1/26/96-4,609,835
shares; 1/27/95-4,673,509 shares;
10/27/95-4,672,046 shares) 43,025 42,643 43,488
---------- ---------- ----------
216,799 179,916 212,115
---------- ---------- ----------
$383,937 $369,615 $398,199
========== ========== ==========
Note: The Balance Sheet at October 27, 1995 has been derived from the audited
financial statements at that date.
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
--------------------------------
January 26, January 27,
1996 1995
------------- ---------
Net sales $165,304 $163,220
Costs and expenses:
Cost of sales 120,451 120,131
Research and development 6,720 6,450
Selling and administration 27,536 27,203
Interest expense 463 695
Other income - net 288 244
------------ ------------
Income before income taxes 10,422 8,985
Income taxes 4,190 3,607
----------- -----------
Net income $ 6,232 $ 5,378
========== ==========
Per common share (Note 2):
Net income $ 0.28 $ 0.24
=========== ===========
Average number of common
shares outstanding 22,161,200 22,030,637
Dividends paid per
common share $ 0.165 $ 0.15
See Notes to Condensed Consolidated Financial Statements.
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
-------------------------
January 26, January 27,
1996 1995
-------- --------
OPERATING ACTIVITIES:
Net income $ 6,232 $ 5,378
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 5,746 5,160
Provisions for:
Other deferred liabilities (166) 49
Loss on sales or abandonment of
property, plant and equipment 14 91
Increase (decrease) in cash due to
changes in net operating assets:
Accounts and notes receivable 18,860 5,983
Inventories and prepaid assets (6,503) (3,719)
Trade accounts payable and accrued
liabilities (28,014) (17,681)
Income taxes payable (617) 320
Other 192 226
-------- --------
Net Cash Used in Operating Activities (4,256) (4,193)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (6,320) (10,080)
Other -- 57
-------- --------
Net Cash Used in Investing Activities (6,320) (10,023)
FINANCING ACTIVITIES:
Net proceeds from borrowings 12,247 18,916
Proceeds from sale of treasury stock 325 873
Purchase of shares of Common Stock for treasury (150) (2,445)
Dividends paid (3,627) (3,230)
Other 0 30
-------- --------
Net Cash Provided by Financing Activities 8,795 14,144
DECREASE IN CASH AND CASH EQUIVALENTS (1,781) (72)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,875 2,580
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,094 $ 2,508
======== ========
See Notes to Condensed Consolidated Financial Statements.
THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 26, 1996.
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 month period
ended January 26, 1996 are not necessarily indicative of the results that may be
expected for the year ended October 25, 1996. 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 27,
1995.
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.
NOTE 3: Trade accounts payable include $10.3 million at January 26, 1996 of
issued checks which had not cleared the Company's bank accounts.
NOTE 4: On March 24, 1995, the Company acquired the Common Stock of Sunbelt
Coatings, Inc. in a transaction accounted for as a pooling of interests. The
consolidated financial statements for the period ended January 27, 1995 have
been restated to include the results and financial position of Sunbelt. The
effect of this acquisition on the Company's financial statements was not
significant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Acquisition: The Company announced on February 26, 1996 that it agreed to
purchase from TOTAL's Inks Division, known as "Coates Coatings," TOTAL's
worldwide can coatings business, comprised of metal packaging coatings and inks.
Worldwide sales for Coates Coatings were approximately $125 million in 1995. The
transaction is structured in phases to be completed over a period of about five
years. Completion of the initial phase of the transaction is expected to take
place near the end of the Company's second quarter or beginning of the third
quarter. All phases of the transaction are subject to various conditions and
regulatory approvals, where applicable. The transaction will be accounted for as
a purchase.
Operations: Net sales for the first quarter increased 1.3% to $165,304,000
compared to $163,220,000 a year ago. The increase was driven by the effect of
pricing actions taken in substantially all of the businesses during the prior
fiscal year in response to rising raw material costs, but partially offset by
lower unit sales in all businesses except Sunbelt, Marine and Color Corporation.
Due to the seasonal nature of the Company's business, sales for the first
quarter are not necessarily indicative of the sales for the full year.
The Company's gross profit margin for the first quarter this year was 27.1%
compared to 26.4% last year, with the Consumer Group, E.P.S., Color Corporation,
and Sunbelt businesses showing the largest improvement. The first quarter
increase is largely attributable to reduced production and distribution costs
with the three new facilities fully operational this year whereas they were in
various start-up stages last year at this time. While the rate of raw material
price escalation has eased somewhat in fiscal 1996, the Company expects that
margin pressure will continue. The Company intends to offset these higher costs
by continuing to improve its operating efficiency and to seek product price
increases.
Operating expenses (research, selling and administrative) increased $603,000, or
1.8%, over first quarter in the prior year, but remained nearly constant as a
percent of sales. The increase in expenses includes higher research expenses and
additional Consumer promotional expenses.
Net income for 1995 was 15.9% higher than the comparable period a year ago
driven by the higher gross margin resulting from reduced manufacturing and
distribution costs.
Financial Condition: The net cash used by the Company's operations was
$4,256,000 for the first quarter of 1996 compared to $4,193,000 for the first
quarter of 1995. The additional cash provided by net income and depreciation
adjustments were offset by increased working capital requirements. Accounts
payable and accrued liabilities decreased in the first quarter as a result of
higher first quarter payments of various year-end accruals and the timing of
accounts payable disbursements. Cash generated by accounts receivable increased
as the higher year-end balances were collected during the quarter.
First quarter borrowings of $12,247,000 were used to fund seasonal operating
requirements of $4,256,000, capital expenditures of $6,320,000 and dividends to
shareholders of $3,627,000. The reduction in capital spending from the prior
year relates to the completion of new production facilities in Statesville,
North Carolina and Marengo, Illinois during 1995. The Company continues to
upgrade and replace its management information systems.
The Company's total debt to capital ratio increased to 15.4% from 11.4% at the
close of fiscal 1995 as a result of the seasonality in the cash flow generated
by the business. The total debt to capital ratio as of January 27, 1995 was
27.9%. The Company believes existing lines of credit will be sufficient to meet
its current and projected needs for 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 27, 1995.
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 January 26, 1996.
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 11, 1996 By /s/R. Engh
--------------------
R. Engh
Secretary
Date: March 11, 1996 By /s/P. C. Reyelts
--------------------
P. C. Reyelts
Vice President, Finance
(Chief Financial Officer)