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 28, 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 February 28, 1994, The Valspar Corporation has 21,618,941 shares of
common stock outstanding, excluding 5,041,715 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 28, 1994
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - January 28, 1994,
January 29, 1993, and October 29, 1993 2 & 3
Condensed Consolidated Statements of Income - Three
months ended January 28, 1994 and January 29, 1993 4
Condensed Consolidated Statements of Cash Flows - Three
months ended January 28, 1994 and January 29, 1993 5
Notes to Condensed Consolidated Financial Statements -
January 28, 1994 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 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
January 28, January 29, October 29,
1994 1993 1993
(Unaudited) (Unaudited) (Note)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,499 $ 1,565 $ 1,637
Accounts receivable less
allowance (1/28/94-$1,198;
1/29/93-$1,092; 10/29/93-$985) 93,681 82,363 105,505
Inventories:
Manufactured products 51,855 48,297 42,587
Raw material, supplies, and
work in process 26,180 27,402 25,688
Jobbed and sundry goods 120 155 115
78,155 75,854 68,390
Other current assets 21,831 18,655 21,948
TOTAL CURRENT ASSETS 195,166 178,437 197,480
OTHER ASSETS 34,607 38,100 36,179
PROPERTY, PLANT AND EQUIPMENT 208,480 193,562 207,168
Less allowance for depreciation (104,267) (93,107) (104,029)
104,213 100,455 103,139
$333,986 $316,992 $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.
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED - (DOLLARS IN THOUSANDS)
January 28, January 29, October 29,
1994 1993 1993
(Unaudited) (Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ 13,889 $ 44,200 $ 3,500
Trade accounts payable 43,093 40,098 44,746
Income taxes 7,093 5,153 11,412
Accrued liabilities 43,280 36,896 53,035
Current portion of
long-term debt 236 780 788
TOTAL CURRENT LIABILITIES 107,591 127,127 113,481
LONG-TERM DEBT 7,608 9,828 7,890
DEFERRED LIABILITIES 18,196 14,401 18,909
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 4,376 1,186 2,269
Retained earnings 224,940 193,784 223,483
Other (1,585) (1,232) (1,109)
241,061 207,068 237,973
Less cost of common stock in
treasury (1/28/94-5,006,849
shares; 1/29/93-5,180,415
shares; 10/29/93-
5,154,506 shares) 40,470 41,432 41,455
200,591 165,636 196,518
$333,986 $316,992 $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.
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
January 28, January 29,
1994 1993
Net sales $147,972 $137,167
Costs and expenses:
Cost of sales 108,664 102,435
Research 5,867 5,648
Selling and administration 24,219 22,962
Interest expense 225 435
Other expense - net 1,830 81
140,805 131,561
Income before income taxes 7,167 5,606
Income taxes 2,903 2,214
Net income $ 4,264 $ 3,392
Per common share (Note 2):
Net income $ 0.20 $ 0.16
Average number of common
shares outstanding 21,722,674 21,767,606
Dividends paid per
common share $ 0.13 $ 0.11
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 28, January 29,
1994 1993
OPERATING ACTIVITIES:
Net income $ 4,264 $ 3,392
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 4,912 5,208
Provisions for:
Other deferred liabilities 170 173
Loss on sales or abandonment of
property, plant and equipment 2,532 4
Increase (decrease) in cash due to
changes in net operating assets,
net of effects of acquired businesses:
Accounts and notes receivable 11,824 9,835
Inventories and prepaid assets (9,648) (3,776)
Trade accounts payable and
accrued liabilities (10,000) (19,970)
Income taxes payable (5,202) (2,221)
Other 156 116
Net Cash Used in Operating Activities (992) (7,239)
INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (7,447) (3,607)
Investment in joint ventures 0 (3,350)
Net Cash Used in Investing Activities (7,447) (6,957)
FINANCING ACTIVITIES:
Net proceeds from borrowings 9,555 21,251
Proceeds from sale of treasury stock 1,943 541
Purchase of shares of Common Stock
for treasury (259) (5,414)
Dividends paid (2,807) (2,380)
Other (131) (17)
Net Cash Provided by Financing Activities 8,301 13,981
DECREASE IN CASH AND CASH EQUIVALENTS (138) (215)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 1,637 1,780
CASH AT END OF PERIOD $ 1,499 $ 1,565
See Notes to Condensed Consolidated Financial Statements.
THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 28, 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 period ended January
28, 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.
Potential dilution on exercise of stock options is not material.
NOTE 3:
Other expense for the first quarter of 1994 included a pre-tax charge of
$2,474,000 for the write-down to appraised fair value of a resin plant to be
transferred to Valspar in connection with the pending spin-off of McWhorter
Technologies, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Operations: The Company's sales for the first quarter of fiscal 1994
increased $10,805,000 or 7.9% over the comparable quarter of 1993.
Sales within the Consumer, Industrial, McWhorter Resin and Special
Groups were all above last year's levels, with Consumer and Industrial
registering the highest increase in sales over the first quarter of
last year. Additional volume sold within the above groups was the
primary reason for this year's increase in first quarter sales. Sales
in the Packaging Group were below last year's levels due to competitive
price reductions resulting from further consolidation of customers
within the can coatings market. Due to the seasonal nature of the
Company's business, sales for the first quarter are not necessarily
indicative of the sales to be expected by the Company for the full
year.
The Company's gross profit margin for the first quarter this year was
26.6% compared to 25.3% last year. This year's improvement in gross
profit margin was due to reduced manufacturing unit costs resulting
from improved productivity and higher capacity utilization coupled with
lower raw material prices.
Operating expenses (research, selling, administrative) increased
$1,476,000 (5.2%) in the first quarter as compared to 1993. The
increase in this year's operating expenses was mainly due to an
increase in direct selling expenses. Although operating expenses were
up for the first quarter over last year, as a percent of sales, they
declined from 20.9% during the first quarter 1993 to 20.3% during the
first quarter 1994.
Interest expense during the first quarter decreased as a result of a
lower average level of borrowing coupled with lower interest rates.
Other expense - net for the first quarter 1994 - included $2,474,000 of
expense associated with a write-down of a resin plant which will be
sold to Valspar at the time McWhorter Resin acquires the Resin Products
Division assets of Cargill.
The income tax effective rate for the first quarter 1994 increased due
to the change in the federal statutory rate during 1993. The impact of
this change on the results for the first quarter 1994 was not
significant.
Increased sales volume at an improved gross profit margin, coupled with
controlled operating expenses and lower interest expense, resulted in a
net income for the first quarter of 1994 that was 25.7% higher than the
comparable period of the prior year.
Financial Condition: The Company's total debt to capital ratio
increased to 9.78% at the close of first quarter 1994 from 5.83% at
year-end 1993. Working capital (excluding Cash and Notes Payable to
Banks) increased from $85,862,000 at year-end 1993 to $99,965,000 at
the end of first quarter as a result of normal seasonal increases in
the Company's working capital requirements.
Capital expenditures for property, plant and equipment were $7,447,000
during the first quarter of 1994 versus $3,607,000 during the first
quarter of the prior year. The 1994 increase was primarily
attributable to the Company's purchase of a $3,000,000 distribution
center in Statesville, North Carolina. Capital expenditures for 1994
are expected to be higher than for 1993, but not at the level
indicated by first quarter activity.
On February 18, 1994, the Company's wholly-owned resin subsidiary,
McWhorter, Inc., completed its acquisition of Cargill's Resin Products
Division. In accordance with an agreement with the Federal Trade
Commission, McWhorter divested itself of certain resin assets and
liabilities to be retained by Valspar and operated in the form of a new
wholly-owned resin subsidiary, Engineered Polymer Solutions, Inc.
Valspar will operate the two resin subsidiaries independently of each
other until McWhorter Inc., newly named McWhorter Technologies, Inc.,
can be spun-off to the shareholders of Valspar. The spin-off is
expected to be completed in the second quarter of fiscal 1994.
McWhorter Technologies, Inc.'s financing for the Resin Products
Division acquisition was derived from two sources: $44,000,000 in
McWhorter Technologies, Inc. cash received upon collection of an
intercompany balance due from Valspar and $32,000,000 in bank
financing. McWhorter Technologies entered into a $60,000,000 Revolving
Credit Facility effective February 18, 1994 to provide financing for
the acquisition and for the working capital and ongoing operating needs
of the new company. The Revolving Credit Facility is not guaranteed by
Valspar. Valspar utilized existing credit facilities to finance
payment of the intercompany balance owed to McWhorter, Inc.
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) No exhibits are included herein.
(b) The registrant did not file any reports on Form 8-K during the
three months ended January 28, 1994.
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 14, 1994 By /s/R. Engh
R. Engh
Secretary
Date: March 14, 1994 By /s/ P. C. Reyelts
P. C. Reyelts
Vice President, Finance
(Chief Financial Officer)
