FORM 8-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
AMENDMENT NO. 2 TO FORM 8-K REPORT
DATED MARCH 7, 1994
Date of Report (Date of earliest event reported):
February 18, 1994
THE VALSPAR CORPORATION
Delaware 1-3011 36-2443580
(State or other
Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
1101 Third Street South, Minneapolis, Minnesota 55415
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612)332-7371
Not applicable
(Former name or former address, if changed, since last report)
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
On April 4, 1994 the Board of Directors of The Valspar
Corporation ("Valspar") declared a distribution (the
"Distribution") payable to holders of record of Valspar's common
stock, par value $.50 per share (the "Valspar Common Stock"), at
the close of business on April 15, 1994 (the "Record Date"), of
one (1) share of common stock, par value $.01 per share (the
"McWhorter Common Stock"), together with associated preferred
stock purchase rights, of McWhorter Technologies, Inc., a wholly-
owned subsidiary of Valspar and a Delaware corporation
("McWhorter"), for every two (2) shares of Valspar Common Stock
outstanding on the Record Date. The Distribution was effected on
April 29, 1994 (the "Distribution Date"). As a result of the
Distribution, 100% of the then outstanding shares of McWhorter
Common Stock were distributed to Valspar stockholders, each of
whom received the same percentage of McWhorter Common Stock as
such stockholder held of Valspar Common Stock on the Record Date.
Certificates representing shares of McWhorter Common Stock,
together with associated preferred stock purchase rights, were
mailed to Valspar stockholders on the Distribution Date.
Prior to the Distribution, on February 18, 1994, McWhorter,
Inc., a California corporation and a wholly-owned subsidiary of
the Company, had acquired substantially all of the assets (the
"Acquisition") of the Resin Products Division (the "Resin
Products Division") of Cargill, Incorporated, a Delaware
corporation ("Cargill"). Immediately after the Acquisition,
McWhorter, Inc. was merged into McWhorter, with the surviving
Delaware corporation remaining a wholly-owned subsidiary of the
Company until the Distribution Date.
The Acquisition and the Distribution were described in the
Form 8-K of Valspar dated March 7, 1994, which is amended and
supplemented by this Form 8-K/A.
For further information regarding the Distribution,
reference is made to the Form S-1 Registration Statement of
McWhorter (Commission File No. 33-75726), as declared effective
on April 4, 1994 (the "McWhorter S-1"), under the captions "The Distribution"
and "Relationship Between Valspar and McWhorter After the Distribution."
These sections are included as Exhibit 99.1 to this report and incorporated
by reference herein.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Page
Resin Products Division (a Division of Cargill,
Incorporated)
Report of Independent Auditors. . . . . . . . . . . 6
Balance Sheets at January 31, 1994 (Unaudited) and at
May 31, 1993 and 1992 . . . . . . . . . . . . . . 7
Statements of Income for the Eight Months Ended
January 31, 1994 and 1993 (Unaudited) and for
each of the Three Years Ended May 31, 1993. . . . 8
Statements of Cash Flows for the Eight Months Ended
January 31, 1994 and 1993 (Unaudited) and for
each of the Three Years Ended May 31, 1993. . . . 9
Notes to Financial Statements . . . . . . . . . . . 10
(b) Pro Forma Financial Information . . . . . . . . . . 15
Unaudited Pro Forma Balance Sheet,
January 28, 1994. . . . . . . . . . . . . . . . . 16
Unaudited Pro Forma Statement of Income for
the Year Ended October 29, 1993 . . . . . . . . . 17
Unaudited Pro Forma Statement of Income for
the Three Months Ended January 28, 1994 . . . . . 18
(c) Exhibits.
*10.1 Distribution Agreement
*10.2 Environmental Matters Agreement
*10.3 Technology License Agreement
*10.4 Tax Sharing Agreement
*10.5 Master Tolling Agreement
*10.6 Sale and Purchase of Assets Agreement between
Cargill, Incorporated and McWhorter, Inc.
dated as of May 19, 1993, as subsequently
modified and amended
*10.7 Agreement Containing Consent Order executed as
of September 30, 1993 by the Federal Trade
Commission, The Valspar Corporation and
McWhorter, Inc.
*10.8 $60,000,000 Credit Agreement dated as of
February 1, 1994 among McWhorter, Inc.,
McWhorter Technologies, Inc., the Banks
listed therein and Wachovia Bank of
Georgia, N.A., as Agent
*10.9 Lease Agreement between McWhorter Technologies,
Inc. and The Valspar Corporation for the
lease to McWhorter of office and laboratory
space in Minneapolis, Minnesota
*10.10 Lease Agreement between McWhorter Technologies,
Inc. and The Valspar Corporation for the
lease to Valspar of manufacturing, warehousing,
laboratory and office space in Philadelphia,
Pennsylvania
23.1 Consent of KPMG Peat Marwick. . . . . . . . . 19
99.1 Portions of the McWhorter S-1 . . . . . . . . 20
_________________________
* Incorporated by reference to Exhibits 10.1, 10.2, 10.3,
10.4, 10.5, 10.11, 10.12, 10.13, 10.14 and 10.15,
respectively, to the McWhorter S-1.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this Amendment No. 2
to the report on 8-K to be signed on its behalf by the
undersigned hereunto duly authorized.
THE VALSPAR CORPORATION
By /s/ Rolf Engh
Printed Name: Rolf Engh
Title: General Counsel and Secretary
Date: May 6, 1994
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Cargill, Incorporated:
We have audited the accompanying balance sheets of Resin Products Division
(a division of Cargill, Incorporated) as of May 31, 1993 and 1992, and the
related statements of income and cash flows for each of the years in the
three year period ended May 31, 1993. These financial statements are the
responsiblity of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Resin Products Division (a
division of Cargill, Incorporated) as of May 31, 1993 and 1992, and the result
of its operations and its cash flows for each of the years in the three year
period ended May 31, 1993, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK
Minneapolis, Minnesota
November 12, 1993
RESIN PRODUCTS DIVISION
(A DIVISION OF CARGILL, INCORPORATED)
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
January 31, May 31,
1994 1993 1992
(Unaudited)
ASSETS
Current assets:
Cash $ 1 $ 1 $ 2
Trade accounts receivable, net of
allowance for doubtful accounts of
$963 (unaudited), $986 and $894 23,184 31,436 31,179
Due from Cargill, Incorporated (Note 5) 5,143 - -
Inventories (Note 3) 14,400 16,689 18,598
Prepaid expenses - 7 5
Total current assets 42,728 48,133 49,784
Other assets:
Deferred charges 106 153 231
Deferred taxes 1,768 1,768 763
Total other assets 1,874 1,921 994
Property and equipment, net
(Notes 2, 4 and 5) 25,745 29,476 28,028
Total assets $70,347 $79,530 $78,806
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt (Note 5) $ 5,950 $ 9,200 $ 100
Due to Cargill, Incorporated (Note 5) - 4,822 4,105
Accounts payable 12,913 18,348 17,304
Accrued insurance expense 4,600 4,076 3,621
Accrued payroll expense 2,254 1,996 1,920
Accrued environmental liabilities 4,253 4,463 1,571
Other accrued expense 1,577 2,865 2,775
Total current liabilities 31,547 45,770 31,396
Long-term debt, excluding current
portion (Note 5) - - 9,200
Total liabilities 31,547 45,770 40,596
Equity:
Advances from Cargill, Incorporated 2,200 2,200 2,200
Investment by Cargill, Incorporated 36,600 31,560 36,010
Commitments and contingencies (Notes 8 and 9)
Total liabilities and equity $70,347 $79,530 $78,806
The accompanying notes are an integral part of the financial statements.
RESIN PRODUCTS DIVISION
(A Division of Cargill, Incorporated)
STATEMENTS OF INCOME
(Dollars in thousands)
Eight months ended Year ended May 31,
January 31,
1994 1993 1993 1992 1991
(Unaudited)
Net sales $139,028 $135,517 $208,621 $198,245 $185,295
Cost of sales 118,891 119,867 183,424 173,991 165,593
Gross profit 20,137 15,650 25,197 24,254 19,702
Research and
development expenses 1,664 1,959 2,973 2,743 2,604
Selling, general and
administrative expenses 9,205 9,110 16,802 13,894 12,835
Operating income 9,268 4,581 5,422 7,617 4,263
Interest expense 579 782 1,131 1,404 2,014
Income before income taxes 8,689 3,799 4,291 6,213 2,249
Income taxes 3,649 1,520 1,741 2,448 910
Net income $ 5,040 $ 2,279 $ 2,550 $ 3,765 $ 1,339
The accompanying notes are an integral part of the financial statements.
RESIN PRODUCTS DIVISION
(A DIVISION OF CARGILL, INCORPORATED)
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Eight months ended Year ended May 31,
January 31,
1994 1993 1993 1992 1991
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $5,040 $2,279 $2,550 $3,765 $1,339
Noncash items included in net income:
Depreciation and amortization 4,061 4,247 6,268 6,172 5,523
Deferred income taxes - - (1,005) (108) (768)
(Decrease) increase in cash due
to changes in net operating assets:
Trade accounts receivable 8,252 6,804 (257) 943 1,037
Inventories 2,289 (1,353) 1,909 1,056 (863)
Prepaid expenses 7 5 (2) - (5)
Accounts payable (5,435) (5,178) 1,044 7,320 (2,283)
Accrued insurance expense 524 521 455 927 580
Accrued payroll expense 258 (262) 76 376 78
Accrued environmental liabilities (210) 337 2,892 (123) 737
Other accrued expenses (1,288) (1,821) 90 (444) (861)
Net cash provided by operating
activities 13,498 5,579 14,020 19,884 4,514
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (287) (4,313) (7,698) (6,189) (7,434)
Net proceeds from property and
equipment disposals 4 - 60 99 -
Net cash used in investing activities (283) (4,313) (7,638) (6,090) (7,434)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of debt (3,250) - (100) (100) -
Repayment of advances from Cargill,
Incorporated (9,965) (1,267) 717 (13,694) (386)
Return of investment to Cargill,
Incorporated - - (7,000) - -
Capital infusion from Cargill,
Incorporated - - - - 3,306
Net cash (used in) provided by
financing activities (13,215) (1,267) (6,383)(13,794) 2,920
Decrease in cash and cash equivalents - (1) (1) - -
Cash at beginning of period 1 2 2 2 2
Cash at end of period $ 1 $ 1 $ 1 $ 2 $ 2
SUPPLEMENTAL INFORMATION:
Cash paid during the period for
interest $ 579 $ 782 $1,131 $1,404 $2,014
Cash paid during the period for
income taxes (to Cargill,Incorporated) - - 2,746 2,556 1,678
</TABLE>
The accompanying notes are an integral part of the financial statements.
RESIN PRODUCTS DIVISION
(A DIVISION OF CARGILL, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
October 31, 1993
(DOLLARS IN THOUSANDS)
1. GENERAL INFORMATION AND BASIS OF PRESENTATION
Resin Products Division is a division of Cargill, Incorporated
(Cargill) that produces surface coating resins for architectural, special
purpose coatings and original equipment manufacturing, as well as
polyesters for reinforced fiberglass and other specialty applications.
Divisional plants are located in Lynwood, California; Forest Park,
Georgia; Ennis, Texas; and Carpentersville and Chicago Heights, Illinois.
Administrative and research and development activities are located in
Minneapolis, Minnesota.
On May 19, 1993, Cargill entered into a purchase agreement (the
Agreement) with McWhorter, Inc. (McWhorter), a wholly owned subsidiary
of The Valspar Corporation, whereby McWhorter agreed to purchase
substantially all of the assets of Resin Products Division. Trade
accounts receivable and certain property and equipment are excluded from
the Agreement and certain liabilities will be assumed by McWhorter.
Regarding environmental costs, Cargill has agreed to reimburse McWhorter
for the first $5 million of obligations related to on-site environmental
matters that are (1) disclosed by Cargill, or (2) undisclosed, unknown to
Cargill, arise from Cargill's ownership or operation of the facilities,
and arise within one year of closing. Expenditures for such
environmental costs by Cargill before the closing of the acquisition
which are agreed upon by Cargill and McWhorter reduce the $5 million
reimbursement obligation proportionately. McWhorter is responsible for
all obligations related to such on-site environmental matters that are in
excess of Cargill's $5 million commitment, and cannot make claims for
breaches of representations and warranties that arise more than one year
after closing. All obligations related to on-site environmental matters
known to but undisclosed by Cargill that are discovered within one year
of closing are retained by Cargill provided, however, that McWhorter must
pay the first $10 thousand of response costs relating to each of these
matters. The Agreement does not affect the obligations, if any, of
either party with respect to any superfund site, including that site
designated by the Illinois EPA as the Carpentersville, Illinois site.
The financial statements are presented as if Resin Products Division
had existed as a corporation separate from Cargill for the periods
presented and include the historical assets, liabilities, revenues and
expenses that are directly related to the business that comprises Resin
Products Division's operations which McWhorter intends to acquire. The
trade accounts receivable and liabilities which relate to Resin Products
Division, while excluded from the Agreement, are included in the
accompanying financial statements as they are indicative of such amounts
that may result from the Resin Products Division operations.
For the periods presented, expenses reflected in the financial
statements include an allocation of certain corporate expenses from
Cargill, which allocations took into consideration personnel, space,
estimates of time spent to provide services, or other appropriate costing
measures. These allocations are for general management, treasury, tax,
payroll, financial reporting, benefits administration, insurance,
communication, public affairs and other miscellaneous services.
Management believes that the foregoing allocations were made on a
reasonable basis and that they are indicative of what such expenses would<PAGE>
have been had Resin Products Division operated as a stand-alone entity.
The accompanying financial statements may not necessarily reflect the
financial position and results of operations of Resin Products Division
in the future.
The financial information as of January 31, 1994 and for the eight
months ended January 31, 1994 and 1993 is unaudited. In the opinion of
management, such information contains all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed in preparing the accompanying
financial statements are summarized below:
Property and Equipment
Property and equipment are stated at cost. Depreciation on property
and equipment is calculated using a combination of straight-line and
accelerated methods at rates based on the estimated lives of the assets,
which are generally as follows:
Buildings............. 10-40 years
Machinery.............. 2-12 years
The Company adopted a new method of depreciating certain assets from
accelerated to straight-line for assets acquired after June 1, 1992.
This change increased fiscal 1993 net income by $99.
Retirement Benefits
Cargill has pension plans covering most employees of Resin Products
Division. Benefits are based on years of service and compensation.
Unrecognized net gains or losses are amortized over the expected
remaining service lives of employees. Pensions are funded in compliance
with requirements prescribed by ERISA.
Income Taxes
Cargill files a consolidated federal income tax return. Resin Products
Division accounts for U.S. income taxes as if it filed a separate
federal income tax return.
Deferred income taxes are recognized for timing differences between
income for financial reporting purposes and income for tax purposes.
Income taxes payable have been reflected in amounts recorded as "Advances
from Cargill, Incorporated."
The accompanying financial statements for the three years ended May 31,
1993 have been prepared in accordance with the deferred method of
accounting for income taxes required by APB Opinion No. 11. FAS No.
109 was adopted as of June 1, 1993. Adoption of FAS No. 109 did not
have a material impact on the financial position or results of operations
as of and for the eight months ended January 31, 1994.
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the last in, first out (LIFO) method.
In fiscal 1993, 1992 and 1991 certain inventory quantities were
reduced, resulting in liquidations of LIFO inventory quantities carried
at lower costs prevailing in prior years. The effect was to increase net
earnings by $1,154, $1,404 and $337 in fiscal 1993, 1992 and 1991,
respectively.
Inventories are summarized as follows:
January 31, Year ended May 31,
1994 1993 1992
(Unaudited)
Raw materials $ 6,016 $ 6,955 $ 8,203
Finished goods 11,988 13,338 12,988
Less reduction to LIFO costs (3,604) (3,604) (2,593)
$14,400 $16,689 $18,598
4. PROPERTY AND EQUIPMENT
The components of property and equipment are summarized below:
January 31, Year ended May 31,
1994 1993 1992
(Unaudited)
Land and land improvements $ 5,412 $ 5,395 $ 5,124
Buildings 11,403 11,252 10,640
Machinery and equipment 70,330 69,416 63,288
Construction in progress 336 1,189 1,599
87,481 87,252 80,651
Less accumulated depreciation 61,736 57,776 52,623
Net property and equipment $25,745 $29,476 $28,028
5. INDEBTEDNESS
Financing Arrangements
Resin Products Division has Industrial Revenue Bonds (IRBs) which
specifically relate to facilities in Chicago Heights, Illinois; Forest
Park, Georgia; and Ennis, Texas. The total IRB balances as of May 31,
1993 and 1992 are $9,200 and $9,300, respectively. The interest rates on
the IRBs range from 6.5% to 9.5%. The IRBs are due in various
installments through 2003, however, are reflected as a current liability
in the accompanying balance sheets as Cargill intends to pay off the
majority of the outstanding balance in conjunction with the sale of Resin
Products Division to McWhorter.
Cargill uses a centralized cash management system to finance its
operations, including that of Resin Products Division. Resin Products
Division's financing requirements are satisfied by cash transactions with
Cargill. These transactions are included in "Due to Cargill,
Incorporated" for short-term advances an "Advances from Cargill,
Incorporated" for long-term advances The long-term advances were charged
an average interest rate of 9.0%, 9.4% and 9.6% for the fiscal years
ended May 31, 1993, 1992 and 1991, respectively. The short-term amounts
were charged an average interest rate of 3.6%, 5.5% and 7.6%,
respectively.
6. INCOME TAXES
Income tax expense is made up of the following components:
Eight months Year ended May 31,
ended January 31,
1994 1993 1993 1992 1991
(Unaudited)
United States,
primarily federal:
Current $3,649 $1,520 $2,746 $2,556 $1,678
Deferred - - (1,005) (108) (768)
$3,649 $1,520 $1,741 $2,448 $ 910
The effective tax rate is different from the statutory U.S. federal income
tax rate for the following reasons:
Eight months Year ended May 31,
ended January 31,
1994 1993 1993 1992 1991
(Unaudited)
U.S. statutory rate 34.0% 34.0% 34.0% 34.0% 34.0%
State and local income taxes 4.0 4.0 4.0 4.0 4.0
Other 4.0 2.0 2.6 1.4 2.5
42.0% 40.0% 40.6% 39.4% 40.5%
Deferred taxes are comprised of the following:
January 31, Year ended May 31,
1994 1993 1992 1991
(Unaudited)
Depreciation $ 201 $ 376 $ 340 $ 212
Accrued expense (232) (1,414) (434) (545)
Allowance for bad debts 10 (36) (98) (214)
Inventory basis adjustment 40 77 88 (217)
Other (19) (8) (4) (4)
$ - $(1,005) $(108) $(768)
7. RELATED PARTY TRANSACTIONS
Charges allocated from Cargill for certain corporate expenses (see note
1) were $2,151, $2,144 and $2,012 for 1993, 1992 and 1991, respectively.
Resin Products Division purchased raw materials from other Cargill
business units amounting to $13,478, $12,853 and $12,911 for 1993, 1992
and 1991, respectively.
8. LEASE COMMITMENTS
The Company leases certain machinery and equipment under operating
lease agreements. Future minimum lease payments are $116, and $38 in
1994 and 1995, respectively. Rental expense for all operating leases was
$256 in 1993, $209 in 1992 and $242 in 1991.
9. EMPLOYEE BENEFIT PLANS
Cargill has three defined benefit pension plans covering substantially
all employees of Resin Products Division. A pension credit has been
allocated to Resin Products Division based on the percentage of Resin
Products Division employees in each plan and aggregated $91, $6 and $66,
respectively, for the fiscal years ended May 31, 1993, 1992 and 1991.
The information required to determine the total amount of accumulated
benefits and net assets for Resin Products Division is not readily
available. Cargill will retain all assets and liabilities under its
defined benefit pension plans. McWhorter will make available to Resin
Products Division employees who become McWhorter employees a defined
benefit pension plan similar to the Cargill plans.
In February 1992, Cargill established an Employee Stock Ownership Plan
(ESOP). The ESOP, which covers all Cargill U.S. nonunion employees,
began allocating shares to employees on July 1, 1992 as a substitute for
certain pension and retiree health insurance benefits and as a 50% match
on 401(k) contributions up to 6%.
In addition to providing pension benefits, Cargill provides health care
and some life insurance benefits for certain retired employees. Prior to
June 1, 1993, the cost of the benefits was charged to earnings as
premiums were paid. Resin Products Division adopted Statement of
Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, (FAS No. 106) on June 1,
1993. FAS No. 106 requires accrual of the estimated cost of retiree
benefit payments, other than pensions, during the employee's active
service period. Adoption of FAS No. 106 was done on a prospective basis
and did not have a material impact on the Resin Products Division's
financial position or results of operations as of January 31, 1994.
10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results for
the years ended May 31, 1993 and 1992 and the quarters ended August 31,
1993 and November 30, 1993:
Net Sales Gross Profit Net Income
(Dollars in thousands)
1994 quarter ended:
August 31, 1993 $ 57,620 $ 7,938 $ 2,203
November 30, 1993 51,227 8,009 1,977
$108,847 $ 15,947 $ 4,180
1993 quarter ended:
August 31, 1992 $ 56,793 $ 7,562 $ 1,896
November 30, 1992 49,492 5,021 200
February 28, 1993 44,178 4,815 332
May 31, 1993 58,158 7,799 1,502
$208,621 $ 25,197 $ 3,930
1992 quarter ended:
August 31, 1991 $ 54,181 $ 7,642 $ 1,783
November 30, 1991 46,611 5,990 724
February 29, 1992 43,679 4,693 229
May 31, 1992 53,774 5,929 1,029
$198,245 $ 24,254 $ 3,765
UNAUDITED PRO FORMA FINANCIAL INFORMATION
On February 18, 1994, Valspar purchased from
Cargill, Incorporated for approximately $76 million in cash,
substantially all of the assets, consisting primarily of
inventory and fixed assets but excluding accounts receivable, of
Cargill's Resin Products Division (the "Acquisition"). The
allocation of the $76 million purchase price, as reflected in the
Unaudited Pro Forma Balance Sheet, was based on an independent
appraisal report for assets other than inventories, which were
valued according to the provisions of the purchase agreement at
amounts approximating fair values. Following the Distribution,
the Unaudited Pro Forma Financial Information excludes the
business and assets of the Resin Products Division and includes
all assets related to McWhorter's operations in Los Angeles,
California; Rockford, Illinois; Kankakee, Illinois; and Garland,
Texas which were transferred to Valspar prior to the
Distribution.
The unaudited pro forma balance sheet at January 28, 1994
presents the combined financial position of Valspar assuming that
the Acquisition and the Distribution had occurred at that date.
The unaudited pro forma statements of income for the three
months ended January 28, 1994 and for the year ended October 29,
1993 present the results of Valspar's operations for such periods
assuming that the Acquisition and the Distribution had occurred
at October 30, 1993 and October 31, 1992, respectively. The
unaudited pro forma financial information has been prepared by
adjusting the historical statements of income and balance sheets
for the effect of costs, expenses, assets and liabilities which
might have been incurred or assumed had the Acquisition and the
Distribution been effected on the dates indicated.
The unaudited pro forma financial information is provided
for informational purposes only and does not purport to be
indicative of the future results or financial position of
Valspar. This information should be read in conjunction with the
consolidated financial statements and notes thereto included in
Valspar's Form 10-K for the year ended October 29, 1993 and Form
10-Q for the three months ended January 28, 1994.
THE VALSPAR CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
JANUARY 28, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Acquisition
of Resin Spin-Off of
Products McWhorter
The Valspar Division Technologies, Pro Forma
Corporation Assets Inc. Adjustments (1) Pro Forma
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and short-term securities $ 1,499 $ 2,000 $( 1,581) $ 1,918
Accounts receivable - net . . . 93,681 (5,472) 88,209
Inventories . . . . . . . . . . 78,155 17,000 (19,999) 75,156
Prepaid expenses . . . . . . . 21,831 2,300 (3,623) $(1,070) 19,438
Total current assets 195,166 $21,300 (30,675) (1,070) 184,721
Property, plant, and equipment - net 104,213 59,000 (70,502) 92,711
Other assets 34,607 (1,417) 33,190
TOTAL ASSETS $333,986 $80,300 $(102,594) $(1,070) $310,622
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities:
Notes payable to banks . . . . . $ 13,889 $13,889
Trade accounts payable . . . . . 43,093 (5,667) 37,426
Income taxes . . . . . . . . . . 7,093 (1,087) $(433) 5,573
Accrued liabilities . . . . . . . 43,280 $ 2,300 (6,456) 39,124
Current portion of long-term debt 236 (31) 205
Total current liabilities . . 107,591 2,300 (13,241) (433) 96,217
Senior long-term debt . . . . . . 7,608 78,000 (34,111) 51,497
Deferred and other liabilities . 18,196 (1,616) 16,580
Stockholders' equity . . . . . . 200,591 (53,626) (637) 146,328
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY . . $333,986 $80,300 $(102,594) $(1,070) $310,622
</TABLE>
- -------------------------------------
(1) Adjustments reflect a charge to retained earnings, net of taxes,
for transaction expenses relating to the spin-off.
THE VALSPAR CORPORATION
UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED OCTOBER 29, 1993
(Dollars in thousands, except per share amounts)
<TABLE>
<caption
Spin-off of
McWhorter
The Valspar Resin Products Technologies,
Corporation Division Inc. Pro Forma
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . $693,678 $211,041 $(254,254) $650,465
Cost of sales . . . . . . . . . 497,034 183,391 (214,989) 465,436
Gross profit . . . . . . . . . 196,644 27,650 $(39,265) 185,029
Research . . . . . . . . . . . 24,579 2,878 (3,736) 23,721
Selling and administrative . . 102,750 16,912 (21,118) 98,544
Income from operations . . . . 69,315 7,860 (14,411) 62,764
Other expense - net . . . . . . 2,038 (72) 1,966
Interest expense (income) . . . 1,645 1,026 (16) 2,655
Income before income taxes . . 65,632 6,834 (14,323) 58,143
Income taxes . . . . . . . . . 25,450 2,890 (5,515) 22,825
Net income . . . . . . . . . . $ 40,182 $ 3,944 $(8,840) $ 35,318
Earnings per share . . . . . . $1.85 $1.63
Average shares outstanding . . 21,691 21,691
</TABLE>
THE VALSPAR CORPORATION
UNAUDITED PRO FORMA STATEMENT OF INCOME
THREE MONTHS ENDED JANUARY 28, 1994
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Spin-off of
Resin McWhorter
The Valspar Products Technologies, Pro Forma
Corporation Division Inc. Adjustments Pro Forma
<S> <C> <C> <C> <C>
Net sales . . . . . . . . $147,972 $45,248 $(55,653) $137,567
Cost of sales . . . . . . 108,664 38,943 (47,149) 100,458
Gross profit . . . . . . 39,308 6,305 (8,504) 37,109
Research . . . . . . . . 5,867 577 (795) 5,649
Selling and administrative 24,219 3,383 (4,413) 23,189
Other expense . . . . . . 1,830 0 (2,474) (644)
Operating income . . . . 7,392 2,345 (822) 8,915
Interest expense (income) 225 186 (2) $255(1) 664
Income before taxes . . . 7,167 2,159 (820) (255) 8,251
Income taxes . . . . . . 2,903 906 (332) (103)(2) 3,374
Net income . . . . . . . $ 4,264 $ 1,253 $(488) $(152) $ 4,877
Earnings per share . . . $0.20 $0.22
Average shares outstanding 21,722 21,722
</TABLE>
______________________________
(1) Reflects the interest cost on the additional borrowing required to
pay off a receivable due to McWhorter from Valspar.
(2) Reflects the tax effect of the interest expense at an assumed rate
of 40.5%.
Exhibit 23.1
CONSENT OF KPMG PEAT MARWICK
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Valspar Corporation:
We consent to the incorporation by reference in the Registration Statements
(No. 2-79961, No. 2-79962, No. 33-51224, No. 33-51226, No. 33-39258,
No. 33-51222, No. 33-53824, No. 33-56062 and No. 33-72238) on Form S-8
of the Valspar Corporation of our report dated November 12, 1993, with respect
to the balance sheets of Resin Products Division (a division of Cargill,
Incorporated) as of May 31, 1993 and 1992, and the related statements of
income and cash flows for each of the years in the three-year period ended
May 31, 1993, which report appears in the Form 8-K of The Valspar Corporation.
KPMG PEAT MARWICK
Minneapolis, Minnesota
May 4, 1994
Exhibit 99.1
PORTIONS OF THE FORM S-1 REGISTRATION STATEMENT
OF MCWHORTER TECHNOLOGIES, INC. (FILE NO. 33-75726),
AS DECLARED EFFECTIVE ON APRIL 4, 1994.
THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
The Valspar Board of Directors has determined, for the reasons set forth
below, that it is in the best interests of Valspar and its stockholders to
undertake the Distribution.
As indicated above, in May 1993, McWhorter entered into an agreement
with Cargill whereby McWhorter agreed to purchase substantially all the assets
of the Resin Products Division of Cargill (the "Acquisition"), subject to a
number of conditions including approval of the transaction by the FTC.
McWhorter believes the Acquisition represents an extraordinary opportunity for
McWhorter. While McWhorter was considered to be the third largest producer of
solvent-based surface coating resins in the United States prior to the
Acquisition, its annual sales volume represented less than 10% of the
estimated industry volume. The Acquisition increases significantly
McWhorter's sales volume and results in several strategic advantages.
First, the Resin Products Division has five resin plants, each of which
is more technologically advanced than McWhorter's plants. Accordingly, the
Acquisition provides to McWhorter more advanced production facilities.
Second, the introduction of five additional plants and substantially more
sales volume allows McWhorter to realize efficient, low cost production,
broaden its geographic distribution of various products and reduce
administrative overhead. Third, it is expected that combining the technology
of McWhorter and the Resin Products Division, considered two industry leaders
in product formulas and production processes, enhances future technological
advancement. For example, due to environmental concerns, production of
conventional solvent-based resins is declining, while demand for waterborne
and higher-solids resins is increasing. As a result of the Acquisition, as
the largest company in the solvent-based surface coatings resin business in
the United States, McWhorter has additional resources to develop water-based,
high solids and other compliant technologies that it would not otherwise have
without the Acquisition.
After extensive review of and initial objection by the FTC to the then
proposed Acquisition, Valspar, McWhorter and the FTC staff agreed to the
Acquisition in connection with the Distribution. See "The Consent Order" for
a full description of the FTC proceedings. The Distribution permits Valspar
to consummate the Acquisition while satisfying FTC requirements and complying
with the Consent Order. In addition, the Distribution allows McWhorter to
more effectively respond to the concerns of its customers regarding
enhancement of the financial strength of Valspar, which in many cases competes
with them.
The Valspar Board of Directors met on September 29, 1993 and determined
to proceed with the Distribution. The material factors considered by the
Valspar Board in determining that the Distribution is in the best interests of
Valspar and its stockholders were, in addition to the reasons respecting the
strategic advantages of the Acquisition set forth above: (i) the ability of
Valspar to retain within Valspar and McWhorter (collectively) all technology
of Valspar, McWhorter and the Resin Products Division; (ii) Valspar
stockholders will receive the full value of the Acquisition; (iii) the
Distribution addresses the complaints of resin customers who are also
competitors of Valspar; (iv) new opportunities will be provided for Valspar
and McWhorter employees; (v) the Acquisition and the Distribution will create
a leading coatings resin company with significant growth opportunities; and
(vi) Valspar will be able to retain a profitable coatings resin business that
will continue to supply most of Valspar's internal needs. In reaching its
conclusions, the Valspar Board also considered the views of Valspar's
financial advisor, Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"). DLJ advised the Board with respect to the likely effect of the
Distribution on the prospective market value of Valspar Common Stock, the
likely trading range and market value of McWhorter Common Stock following the
Distribution and various issues relating to McWhorter's capital structure,
dividend policy, McWhorter Common Stock trading market, composition of the
Board of Directors and executive compensation. DLJ also assisted McWhorter in
preparing this Information Statement and will assist McWhorter following the
Distribution by advising them on investor relations and general financial
matters. Valspar will pay DLJ a fee for their services regarding the
Distribution and will reimburse DLJ for its reasonable out-of-pocket expenses
(including fees and disbursements of counsel) incurred in connection with the
Distribution. Valspar has agreed to indemnify DLJ against certain liabilities
and expenses in connection with their services regarding the Distribution.
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions of the Distribution are set forth in a
Distribution Agreement dated as of February 18, 1994 (the "Distribution
Agreement") and related agreements entered into between Valspar and McWhorter.
See "Relationship Between Valspar and McWhorter After the Distribution."
Valspar will effect the Distribution on the Distribution Date by
delivering 100% of the outstanding shares of McWhorter Common Stock, together
with associated preferred stock purchase rights, to Chemical Bank, N.A. (the
"Distribution Agent"), for distribution to the holders of record of
outstanding shares of Valspar Common Stock on the Record Date. The
Distribution will be made on the basis of one (1) share of McWhorter Common
Stock for every two (2) shares of Valspar Common Stock outstanding on the
Record Date. The actual number of shares of McWhorter Common Stock to be
distributed will depend on the number of shares of Valspar Common Stock
outstanding on the Record Date. Based upon the 21,636,121 shares of Valspar
Common Stock outstanding on March 15, 1994, approximately 10,818,060 shares of
McWhorter Common Stock, together with associated preferred stock purchase
rights, will be distributed to Valspar stockholders. All such shares of
McWhorter Common Stock will be fully paid, nonassessable and free of
preemptive rights. See "Description of McWhorter Capital Stock." Certificates
representing shares of McWhorter Common Stock will be mailed to Valspar
stockholders on or about April 29, 1994.
No certificates or scrip representing fractional shares of McWhorter
Common Stock will be issued as part of the Distribution. The Distribution
Agent will aggregate fractional shares into whole shares (currently expected
to be less than 10,000 whole shares) and sell them in the open market shortly
after the Distribution Date at then prevailing prices on behalf of holders who
otherwise would be entitled to receive fractional share interests. Such
persons will receive instead a cash payment in the amount of their pro rata
share of the total sales proceeds from the sale of the fractional share
interests. See "Federal Income Tax Consequences" below. Such sales are
expected to be made prior to the mailing of shares of McWhorter Common Stock
to Valspar stockholders.
No holder of Valspar Common Stock will be required to pay any cash or
other consideration for the shares of McWhorter Common Stock received in the
Distribution or to surrender or exchange shares of Valspar Common Stock in
order to receive McWhorter Common Stock. The Distribution does not affect the
number of, or the rights attached to, outstanding shares of Valspar Common
Stock.
FEDERAL INCOME TAX CONSEQUENCES
Valspar received a ruling from the Internal Revenue Service to the
effect that for Federal income tax purposes (a) Valspar, McWhorter and Valspar
stockholders will not recognize any gain or loss by reason of the distribution
of McWhorter Common Stock, (b) the basis of Valspar Common Stock and McWhorter
Common Stock in the hands of the holders of Valspar Common Stock after the
Distribution will be the same as the basis of Valspar Common Stock held by
them immediately before the Distribution, allocated in proportion to the fair
market value of each in accordance with Section 1.358-2(a) of the Income Tax
Regulations, and (c) the holding period of the McWhorter Common Stock received
by the holders of Valspar Common Stock will include the holding period of the
Valspar Common Stock with respect to which the Distribution is made, provided
that such stock is held as a capital asset on the Distribution Date.
Cash received in lieu of fractional share interests in McWhorter Common
Stock will be treated as payment in exchange for stock redeemed. The
difference between the amount of cash received and the basis allocable to such
fractional share interests will be a capital gain or loss, as the case may be,
provided that the Valspar Common Stock is held as a capital asset on the
Distribution Date.
The foregoing summary of the anticipated Federal income tax consequences
of the Distribution is for general information only. Holders of Valspar
Common Stock should consult their own advisors as to the specific tax
consequences of the Distribution, including the application and effect of
foreign, state and local tax laws.
TRADING OF MCWHORTER COMMON STOCK
The McWhorter Common Stock has been approved for listing on the New York
Stock Exchange, Inc. (the "NYSE"), subject to official notice of issuance.
Based on the number of holders of record of Valspar Common Stock as of March
15, 1994, McWhorter is expected to have approximately 1,895 stockholders of
record (which does not reflect beneficial holders of shares held in "street
name") at the Distribution Date.
A "when-issued" trading market in the McWhorter Common Stock is expected
to develop prior to the Record Date. The term "when-issued" means trading in
shares prior to the time certificates are actually available or issued.
Shares of McWhorter Common Stock distributed to Valspar stockholders
will be freely transferable, except for shares received by persons who may be
deemed to be "affiliates" of McWhorter under the Securities Act of 1933, as
amended (the "Securities Act"). Persons who may be deemed to be affiliates of
McWhorter after the Distribution generally include individuals or entities
that control, are controlled by, or are under common control with, McWhorter
and may include certain officers and directors of McWhorter as well as
principal stockholders of McWhorter. Persons who are affiliates of McWhorter
will be permitted to sell their shares of McWhorter Common Stock only pursuant
to an effective registration statement under the Securities Act or an
exemption from the registration requirements of the Securities Act, such as
the exemption afforded by Rule 144.
RELATIONSHIP BETWEEN VALSPAR AND McWHORTER
AFTER THE DISTRIBUTION
For purposes of governing certain of the ongoing relationships between
Valspar and McWhorter after the Distribution, to fully comply with the Consent
Order and to provide an orderly transition to the status of two separate
independent companies, Valspar and McWhorter have entered or will enter into
various agreements, including those described in this section. The forms of
agreements summarized in this section are included as exhibits to the
Registration Statement on Form S-1 of which this Information
Statement/Prospectus forms a part, and the following summaries are qualified
in their entirety by reference to the agreements as filed.
DISTRIBUTION AGREEMENT
Valspar and McWhorter have entered into the Distribution Agreement which
provides for, among other things, the principal corporate transactions
required to effect the Distribution by transferring to Valspar all tangible
and intangible assets of McWhorter located at facilities in Los Angeles,
California; Rockford, Illinois; Kankakee, Illinois; and Garland, Texas (the
"Conveyed Assets") and certain other assets, the segregation between Valspar
and McWhorter of certain liabilities, and certain other agreements governing
the relationship between Valspar and McWhorter following the Distribution.
The Acquisition and the transfer by McWhorter of the Conveyed Assets occurred
on February 18, 1994 (the "Conveyance Date").
Subject to certain exceptions, the Distribution Agreement provides for
assumptions and cross-indemnities designed to place, effective as of the
Conveyance Date, financial responsibility for the liabilities of the
properties retained by McWhorter with McWhorter and financial responsibility
for the liabilities of the businesses transferred to or retained by Valspar
with Valspar.
The Distribution Agreement also contains certain provisions relating to
employee compensation, benefits, labor matters and the treatment of stock
options and restricted stock with respect to Valspar Common Stock held by
Valspar employees who become employees of McWhorter. Among other things,
these provisions apply to McWhorter's establishment of employee welfare and
pension benefit plans, the assumption and discharge by McWhorter of all the
liabilities and obligations relating to employees of the properties retained
by McWhorter from and after the Conveyance Date under all applicable
collective bargaining and labor agreements and the assumption and discharge by
Valspar of similar liabilities and obligations relating to employees
transferred to Valspar with the Conveyed Assets.
The Distribution Agreement provides for cooperation between Valspar and
McWhorter in obtaining initial insurance coverage for McWhorter after the
Conveyance Date and also provides for the allocation of benefits under
existing insurance policies between Valspar and McWhorter after such date and
sets forth procedures for the administration of insured claims.
The Distribution Agreement further provides that Valspar and McWhorter
will be granted access to certain records and information in the possession of
the other for audit, accounting, claims, litigation, tax purposes and
disclosure and reporting obligations, but not for competitive purposes, and
requires the retention by each party for a period of eight years following the
Distribution Date of all such information in its possession.
The Distribution Agreement specifies that Valspar and McWhorter will
enter into a lease agreement for space to be provided by Valspar to McWhorter
in Minneapolis, Minnesota and Valspar will enter into a lease agreement for
space to be provided by McWhorter to Valspar at McWhorter's facilities in
Philadelphia, Pennsylvania and Carpentersville, Illinois. McWhorter will have
access to Valspar's test fence facilities in Marengo, Illinois and Fort Myers,
Florida. Valspar will be provided reasonable access to McWhorter's pilot
plant in Carpentersville, Illinois at such rates as agreed upon.
The Distribution Agreement provides that Valspar and McWhorter will pay
their own costs and expenses in connection with the Distribution.
ENVIRONMENTAL MATTERS AGREEMENT
Valspar and McWhorter have entered into an Environmental Matters
Agreement (the "Environmental Matters Agreement") providing for their
respective obligations concerning environmental liabilities arising out of the
operation of the properties retained by McWhorter and the Conveyed Assets and
other environmental matters.
Pursuant to the Environmental Matters Agreement, McWhorter has agreed to
assume and to indemnify Valspar with regard to all environmental liabilities
relating to the operation of the properties retained by McWhorter, the actions
of employees and agents of the properties retained by McWhorter and the
contamination of the premises of the properties retained by McWhorter or
arising from (i) McWhorter's unreasonable refusal to approve a settlement in a
joint Superfund matter (as defined in the Environmental Matters Agreement)
managed by Valspar or (ii) Valspar's management of a joint Superfund matter or
other matter on behalf of McWhorter.
The Environmental Matters Agreement provides for the management of the
defense of certain environmental liabilities relating to joint Superfund
matters, for cooperation between McWhorter and Valspar and for the sharing of
services and information relating to such environmental liabilities. See
"Business and Properties of McWhorter-Legal Proceedings; Environmental
Matters."
TECHNOLOGY LICENSE AGREEMENT
Valspar and McWhorter have entered into a Technology License Agreement
(the "Technology Agreement") which provides, among other things, for the grant
by Valspar to McWhorter of a license to certain patent rights, copyrights,
trade secrets and know-how ("Technology") used by McWhorter in its coating
resins business and the grant by McWhorter to Valspar of a license to (i)
technology acquired from Cargill in connection with McWhorter's acquisition of
the Resin Products Division and (ii) certain technology of McWhorter used in
its coating resins business. Technology which is proprietary with respect to
customers or products of Valspar or customers of McWhorter or the Resin
Products Division is excluded from the licenses. Each license will be granted
on a world-wide, paid-up, non-royalty bearing, perpetual and non-exclusive
basis without the right to sublicense to third parties.
TAX SHARING AGREEMENT
Valspar and McWhorter have entered into a Tax Sharing Agreement (the
"Tax Sharing Agreement"), to become effective on the Distribution Date. In
general, under the Tax Sharing Agreement, Valspar is responsible for filing
all tax returns and paying all taxes relating to the properties retained by
McWhorter for periods up to the Distribution Date and McWhorter is responsible
for filing all such tax returns and paying all such taxes for periods
beginning on and after the Distribution Date. Valspar and McWhorter have
agreed to cooperate with one another and to share information in preparing
such tax returns and in dealing with other tax matters. In addition, Valspar
and McWhorter have agreed that if, as a result of a tax audit or other
specified event relating to periods prior to the Distribution Date, there is a
future tax detriment or tax benefit to McWhorter after the Distribution Date,
then McWhorter shall reimburse Valspar or receive a cash payment from Valspar,
whichever is applicable.
Under the Tax Sharing Agreement, McWhorter has agreed that it will
refrain from engaging in certain transactions during the two year period
following the Distribution unless it shall first provide Valspar with an
Internal Revenue Service ruling that the transaction will not adversely affect
the tax-free nature of the Distribution or Valspar consents to such action.
In addition, McWhorter has agreed to indemnify Valspar against any tax
liability or other expense Valspar may incur if, notwithstanding the
restriction on certain transactions involving McWhorter, the Distribution is
determined not to have qualified for tax-free treatment as a result of certain
transactions undertaken by or affecting McWhorter subsequent to the
Distribution. The transactions subject to these provisions include
liquidation of McWhorter, mergers with other corporations, certain repurchases
by McWhorter of its stock and purchases of McWhorter's stock by third parties
and divestitures of businesses.
MASTER TOLLING AGREEMENT
Valspar and McWhorter have entered into a Master Tolling Agreement
pursuant to which McWhorter will produce certain products for Valspar under
tolling arrangements containing terms customary in the industry.
BUYING COOPERATIVE
Valspar and McWhorter intend to enter into a buying cooperative to
purchase certain raw materials. The cooperative is permitted under the terms
of the Consent Order.
