SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended October 28, 1994 Commission file number 1-3011
THE VALSPAR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2443580
(State of incorporation) (I.R.S. Employer
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
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
Common Stock, $.50 Par Value New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to the filing requirements
for the past 90 days.
Yes __X__ No_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in defini-tive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by persons other than
officers, directors and more than 5% stockholders of the registrant as of
December 30, 1994 was $390 million based on the closing sales price of $33.50
per share as reported on the New York Stock Exchange. As of such date,
21,544,479 shares of Common Stock, $.50 par value per share (net of 5,116,177
shares in treasury) were outstanding.
DOCUMENTS INCORPORATED IN PART BY REFERENCE
<TABLE>
Incorporated Documents Location in Form 10-K
<S> <C>
1. The Valspar Corporation Annual Report to Stockholders Parts II and IV
for fiscal year ended October 28, 1994
2. The Valspar Corporation Notice of 1995 Annual Meeting of Part III
Stockholders and Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days of fiscal year ended October 28, 1994
</TABLE>
PART I
ITEM 1. BUSINESS
DESCRIPTION
The Valspar Corporation (the "Company") is a paint and coatings manufacturer and
has one reportable industry segment. Operating groups of the Company are
organized so as to reflect classes of similar products, and the following table
shows the percentage of net sales for these groups for the past three fiscal
years.
Class of Products 1994 1993 1992
Consumer Coatings 31% 30% 29%
Packaging Coatings 25 27 27
Industrial Coatings 23 23 23
Special Products 21 20 21
PRODUCTS AND DISTRIBUTION METHODS
The Company is engaged in the manufacture and distribution of paint and coatings
through its Consumer Coatings, Industrial Coatings, Packaging Coatings and
Special Products groups.
The CONSUMER COATINGS group manufactures and distributes a full line of latex
and oil-based paints, stains and varnishes serving primarily the do-it-yourself
market. Its products are marketed under proprietary brands (Colony, Valspar,
Enterprise, Magicolor, McCloskey, BPS and Masury) and under private labels.
Colony, Valspar, Enterprise and McCloskey paint sales are directed primarily to
home improvement centers. Magicolor's marketing focus is mass merchants and the
branded products of Masury and Valspar are sold directly to paint specialty
stores and independent building material outlets. Private label and BPS consumer
products are primarily sold to hardware wholesalers, home center chains, farm
store chains and farm cooperatives. A group of specialty products, which
includes Valspar and McCloskey varnishes, clear polyurethanes, interior stains
and marine paints, is sold nationally through all of these channels.
Merchandising assistance is provided to consumer customers in the form of
seasonal promotion programs, cooperative advertising on a local basis,
informational literature and self-merchandised displays. Consumer products are
distributed throughout the United States, primarily from factory warehouses and
warehouse distribution centers.
The primary manufacturing plants for CONSUMER COATINGS are located in Azusa,
California; Garland, Texas; Philadelphia, Pennsylvania; Rockford, Illinois;
Tampa, Florida; and Wheeling, Illinois. The latex manufacturing plant in
Wheeling is one of the most modern facilities in the consumer paint industry.
The Garland plant is also a very modern manufacturing facility providing needed
capacity for producing consumer latex paint, industrial coatings, packaging
coatings and resins. In December 1993, a 200,000 square foot warehouse building
located in Statesville, North Carolina was purchased and has been used as a
distribution center. During 1994, the building was modified to include a modern
consumer latex paint plant. Production will begin in early 1995.
The PACKAGING COATINGS group is the largest coatings supplier to the rigid
packaging industry in North America and a major licensor of the related
technology to coatings companies throughout the world. Packaging coatings for
application to food and beverage can bodies and ends comprise the largest volume
of sales by this group. Great care is taken to ensure that these coatings meet
F.D.A. and U.S.D.A. standards. Also produced are coatings for aerosol cans,
bottle crowns, closures for glass bottles, and coatings for flexible
packaging-paper, film and foil substrates. In 1994, the Packaging Coatings Group
expanded its operations to the Far East by opening a sales office in Hong Kong
to sell to and service customers in Southeast Asia. The group also entered into
a letter of intent with a large Chinese company for the manufacture of packaging
coatings in the Peoples Republic of China which is expected to begin operations
in late 1995.
The primary manufacturing plants for the PACKAGING COATINGS group are in Azusa,
California; Covington, Georgia; Garland, Texas; Pittsburgh, Pennsylvania;
Rochester, Pennsylvania; and West Hill, Ontario, Canada.
The INDUSTRIAL COATINGS group manufactures and distributes, primarily in the
United States and Canada, decorative and protective coatings for application to
wood, metal and plastic substrates. The Company is a major supplier of finishes
to the furniture and wood paneling industry. Products include fillers, primers,
stains and topcoats which are sold for such diversified end uses as exterior
siding, prefinished flooring, interior wall paneling, kitchen cabinets, pianos
and furniture. For metal and plastic substrates a large variety of coatings are
formulated to meet customers' needs and also, when required, to meet EPA
requirements through the use of such technologies as electrodeposition, powder,
high solids, water-borne and UV light cured coatings. These products are used by
a wide range of industries including the railcar, appliance, office furniture,
agricultural and construction equipment and metal fabrication industries. The
Company also supplies coating systems to the coil coatings industry which are
used to coat coils of metal prior to fabrication into products for such markets
as pre-engineered buildings, doors, lighting fixtures and appliances. The
Company does not sell original equipment manufacturers of auto body primer or
exterior topcoats but has a definitive agreement to acquire Sunbelt Coatings,
Inc., a manufacturer of automotive and fleet refinish coatings. The acquisition
is expected to be completed in the second quarter of fiscal 1995. The Company is
also a supplier for auto underbody, underhood and some exterior trim parts.
The manufacturing plants for the INDUSTRIAL COATINGS group are located at Fort
Wayne, Indiana; Garland, Texas; High Point, North Carolina; Jackson, Tennessee;
Kankakee, Illinois; and West Hill, Ontario, Canada.
The SPECIAL PRODUCTS group is engaged in the production and marketing, primarily
in the United States, of resins and emulsions for coatings, heavy duty
maintenance and marine coatings, high performance floor coatings for industrial
and commercial use, colorants and colorant systems. Emulsions and resins are
produced at the Company's facilities in Los Angeles, California; Garland, Texas;
Kankakee and Rockford, Illinois for use by the Company and for sale to other
coatings manufacturers. Certain resin operations previously included in the
Company's McWhorter subsidiary were distributed to the Company's shareholders in
the form of a stock dividend at the time of the spin-off of McWhorter
Technologies, Inc. in April 1994. Following the spin-off, the Company retained
the resin operations located in Los Angeles, Rockford, Kankakee and Garland as
described above. The spin-off is described in Note B to the Consolidated
Financial Statements on pages 15 and 16 of Valspar's 1994 Annual Report to
Stockholders included in this Form 10-K. By mid 1995, production of emulsions
will begin at a new resin plant under construction in Marengo, Illinois to
support the growth of the Company's consumer paint business and to better
service external customers. Heavy duty maintenance coatings are formulated for
applicators with highly corrosive and other harsh environmental exposures
requiring specialized coatings technology. Major markets are petrochemical
units, utilities, nuclear plants, paper mills, food processing and
pharmaceutical plants, waste and water treatment facilities, off-shore oil
structures and the marine industry. Heavy duty maintenance and marine coatings
are primarily manufactured in Beaumont, Texas and Garland, Texas. Also
distributed through its Federal International Chemical division are specialty
coatings and resurfacers for concrete and wood floors. These products are
produced at Federal's plant in Chicago, Illinois. Paint colorants, manufactured
at the Company's facilities in Chicago and Rockford, Illinois, are used by
retail paint dealers to color paint to customer specification. These colorants
are used to support the Company's consumer business and are sold directly to
external customers. During 1994, new colorant capacity was added to the
Company's Louisville, Kentucky plant. This state-of-the-art facility primarily
produces colorants to serve the industrial segment as well as provide additional
trade sales colorant capacity.
The Company invested in two joint ventures during the first quarter of 1993. To
expand coatings sales in the Mexican and Central American markets, the Company
formed a joint venture with Pinturas Atlas Marlux called Valspar-Marlux to
engage in the marketing, sales, distribution and technical service of packaging,
coil, wood and general metals coatings. To further develop the professional
paint market served by home centers, the Company entered into a sales and
marketing joint venture with Smiland Paint Company called Conco Paint Company.
In each venture, both the Company and its joint venture partner manufacture the
products sold by the joint venture.
RAW MATERIALS
Materials are procured from a number of suppliers. Many of these raw materials
are petroleum based derivatives, including olefin and natural gas derivatives,
as well as mined products. Under normal conditions all of these materials are
generally available on the open market, although prices and availability are
subject to fluctuation from time to time.
PATENTS
The Company's business is not materially dependent upon franchises, licenses or
similar rights, or on any single patent or trademark or group of related patents
or trademarks.
SEASONALITY AND WORKING CAPITAL ITEMS
The Company's sales volume is traditionally highest during the third quarter of
the fiscal year. This seasonality is due to the buying cycle of the consumer
paint and heavy duty maintenance businesses. During the first quarter, when
sales are generally lowest, the Company builds inventory, the financing for
which is provided primarily by internally generated funds and short-term credit
lines discussed in Note E of the Notes to Consolidated Financial Statements on
pages 16 and 17 of Valspar's 1994 Annual Report to Stockholders included in this
Form 10-K.
SIGNIFICANT CUSTOMERS
No material part of the business is dependent upon a single customer or upon a
small number of customers, the loss of which would have a materially adverse
effect on the Company.
BACKLOG AND GOVERNMENT CONTRACTS
The Company has no significant backlog of orders and generally is able to fill
orders on a current basis.
No material portion of the business of the Company is subject to renegotiation
of profit or termination of contracts or subcontracts at the election of the
Government.
COMPETITION
All aspects of the paint and coatings business are highly competitive. There are
approximately 800 domestic paint and coatings manufacturers, and the Company
now ranks sixth in North America with less than 5% of the market.
Principal methods of competition for consumer coatings and specialty paint
products include price, consumer recognition, product innovation, product
quality and rapid response to customer orders. The Company offers merchandising
and promotion programs to its consumer customers to counter the extensive
advertising programs of some of its competitors, and has maintained product
recognition through high quality, well-designed products.
Principal methods of competition for industrial and packaging coatings are
technical capabilities for specific product formulation, ability to meet
customer delivery requirements, technical assistance to the customer in product
application, price and new product concepts. The Company believes that its
industrial and packaging coatings are competitive in these respects in the
industries it serves. The markets for these coatings are increasingly global and
the Company is taking measures to establish a presence in Asia and Europe to
address these important markets.
Principal methods of competition for resins and emulsions, heavy duty
maintenance coatings and high performance floor coatings are product quality,
rapid response to customer orders, technical assistance to the customer in
product application, price and new product development. The Company believes it
is competitive in these respects in the Special Products business discussed
previously.
The Company competes in the colorant and colorant systems business with fewer
than five colorant manufacturers. The Company ranks second in sales to the
largest colorant producer, which has greater than 50% of U.S. colorant sales.
Competitive factors include color design and range, product quality,
compatibility with various types of paint bases, dealer merchandising assistance
and price. The Company believes that it is competitive in these respects.
RESEARCH AND DEVELOPMENT
Research and development costs for fiscal 1994 were $26,980,000, representing a
9.8% increase over fiscal 1993 ($24,579,000). Fiscal 1993 costs decreased
slightly over those of fiscal 1992 ($24,802,000). Fiscal 1992 was a 53 week
fiscal year. Excluding the additional accounting week, research and development
costs for fiscal 1993 increased 1% over fiscal 1992. Primary emphasis has been
in emerging technologies in the industrial and packaging coatings markets.
ENVIRONMENTAL COMPLIANCE
The Company undertakes to comply with applicable regulations relating to
protection of the environment and workers' safety. Capital expenditures for this
purpose were not material in fiscal 1994, and capital expenditures for 1995 to
comply with existing laws and regulations are also not expected to be material.
EMPLOYEES
The Company employs approximately 2,500 persons, approximately 538 of whom are
members of unions.
FOREIGN OPERATIONS AND EXPORT SALES
The Company's plant in West Hill, Ontario, Canada manufactures and distributes
packaging, coil and general industrial coatings for the Canadian market. This
plant is one of the largest suppliers of powder coatings in Canada. Other than
the business of the Canadian subsidiary, the Company's foreign operations
consist primarily of licensing and joint venture arrangements. Technologies for
packaging and heavy duty maintenance coatings, colorants, powder coatings and
general industrial coatings are currently licensed to paint and coating
manufacturers in over twenty foreign countries. The markets for industrial and
packaging coatings are becoming increasingly global. To capitalize on this
globalization, the Company is reducing its reliance on licensing agreements in
various foreign countries and placing greater emphasis on joint ventures which
provide the Company an equity interest and permit the Company to exert greater
control over the use of its technology. Export sales are not material.
ITEM 2. PROPERTIES
The Company's principal offices in Minneapolis, Minnesota are owned. Operations
are conducted at seventeen locations, primarily in Illinois, California, Texas
and Pennsylvania with one plant in West Hill, Ontario, Canada. Fourteen plants
with square footage of 2,170,000 are owned and three of the plants with square
footage of 250,000 are leased. The Statesville, North Carolina plant with 50,000
square footage and the Marengo, Illinois plant with 52,000 square footage will
begin production in 1995.
The Company considers that the principal properties and facilities owned or
leased by it are adequately maintained, in good operating condition and are
adequate for the purposes for which they are being used. Operating capacity
varies by division, but for most of the Company's businesses, additional
productive capacity is available by increasing the number of shifts worked.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims relating to environmental and waste
disposal matters at the sites of a number of current and former plants. The
Company engages or participates in remedial and other environmental compliance
activities at certain of these sites. At other sites, the Company has been named
as a potentially responsible party (PRP) under federal and state environmental
laws for the remediation of hazardous waste. While uncertainties exist with
respect to the amounts and timing of the Company's ultimate environmental
liabilities, the Company believes that such liabilities, individually and in the
aggregate, will not have a material adverse effect on the Company's financial
condition or results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 8 through 10 of the
Company's 1994 Annual Report to Stockholders incorporated by reference into Part
II Item 7.
The Company is a defendant in a number of other legal proceedings which it
believes are not out of the ordinary in a business of the type and size in which
it is engaged. The Company believes that these legal proceedings, individually
and in the aggregate, will not have a material adverse effect on its business or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted during the fourth quarter of fiscal year 1994 to a
vote of security holders.
- --------------------------------
EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of all of the registrant's executive officers, all of whose
terms expire in February 1995, and the positions held by them are as listed
below. There are no family relationships between any of the officers or between
any officer and director.
<TABLE>
Name Age Position
<S> <C> <C>
C. Angus Wurtele 60 Chairman of the Board and Chief Executive Officer
since February 1973
Robert E. Pajor 58 Vice Chairman since March 1994
Richard M. Rompala 48 President since March 1994
Larry B. Brandenburger 47 Vice President, Research and Development since
October 1989
Stephen M. Briggs 38 Vice President, Consumer Coatings Group since August
1993
Rolf Engh 41 Vice President, International since September 1993
and Secretary since April 1993
Steven L. Erdahl 42 Vice President, Industrial Coatings Group since June
1991
William L. Mansfield 46 Vice President, Packaging Coatings Group since
February 1991
Paul C. Reyelts 48 Vice President, Finance since April 1982
</TABLE>
The foregoing executive officers have served in the stated capacity for the
registrant during the past five years, except for the following:
Prior to March 1994, Mr. Pajor was President and Chief Operating Officer since
June 1981.
Prior to March 1994, Mr. Rompala was Group Vice President-Coatings and Resins
since January 1992 and Group Vice President-Chemicals since June 1987 at PPG
Industries, Inc.
Prior to August 1993, Mr. Briggs was Vice President, Consumer Sales since
February 1992. Previously he held the position of Vice President, Color
Corporation of America and McCloskey since December 1991 and was General
Manager, Color Corporation of America since November 1989.
Prior to April 1993, Mr. Engh was a partner of Lindquist & Vennum, a
Minneapolis, Minnesota law firm, since 1986.
Prior to June 1991, Mr. Erdahl was Vice President, Metal Coatings since October
1989.
Prior to February 1991, Mr. Mansfield was Vice President, Packaging Coatings
since July 1990. Previously he held the position of Packaging Group General
Manager since July 1989.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information in the section titled "Stock Information and Dividends" on page
7 of Valspar's 1994 Annual Report to Stockholders is incorporated herein by
reference. All market prices indicated in this section commencing December 8,
1993, represent transactions on the New York Stock Exchange. Prior to that date,
the Company's Common Stock was traded on the American Stock Exchange. The number
of record holders of the Company's Common Stock at December 30, 1994 was 1,903.
The quarterly dividend declared December 14, 1994, which was paid January 13,
1995 to Common Stockholders of record December 30, 1994, was increased to 15
cents per share.
ITEM 6. SELECTED FINANCIAL DATA
The information in the section titled "Eleven Year Financial Summary" for the
years 1990 through 1994 on pages 6 and 7 of Valspar's 1994 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information in the section titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 8 through 10 of
Valspar's 1994 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and notes thereto on pages 11 through 19
of Valspar's 1994 Annual Report to Stockholders are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors set forth on pages 2 and 3 of Valspar's
Proxy Statement dated January 20, 1995 is incorporated herein by reference. The
information regarding executive officers is set forth in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information in the section titled "Executive Compensation" on pages 6 and 7
and the section titled "Directors Compensation" on pages 4 and 5 of Valspar's
Proxy Statement dated January 20, 1995 is incorporated herein by reference. The
information on pages 8 through 11 of Valspar's Proxy Statement dated January 20,
1995 is not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the section titled "Share Ownership of Certain Beneficial
Owners" and "Share Ownership of Management" on pages 12 and 13 of Valspar's
Proxy Statement dated January 20, 1995 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the section titled "Certain Transactions" on page 5 of
Valspar's Proxy Statement dated January 20, 1995 is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) For financial statements and financial statement schedules filed as a part
of this report, reference is made to "Index to Financial Statements and
Financial Statement Schedules" on page F-2 of this report. For a list of
exhibits filed as a part of this report, see Item 14(c) below. Compensatory
Plans listed in Item 14(c) are denoted by a double asterisk.
(b) No reports on Form 8-K were filed during the fourth quarter of the year
ended October 28, 1994.
(c) The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
Exhibit
No. Description
<S> <C>
3(a)7 CERTIFICATE OF INCORPORATION--as amended to and including
June 30, 1970, with further amendments to Article Four
dated February 29, 1984, February 25, 1986 and February
26, 1992, and to Article Eleven dated February 25, 1987
3(b)3 BY-LAWS--as amended to and including February 25, 1987
10(a)1 THE VALSPAR CORPORATION SUPPLEMENTAL STOCK OWNERSHIP PLAN **
10(b)1 THE VALSPAR CORPORATION KEY EMPLOYEES' SUPPLEMENTARY RETIREMENT PLAN **
10(c)2 THE VALSPAR CORPORATION SUPPLEMENTAL BONUS PLAN **
10(d)5 THE VALSPAR CORPORATION DEFERRED BONUS AND STOCK SALE
PLAN--as amended August 12, 1987, December 21, 1988 and
December 12, 1990 **
10(e)4 THE VALSPAR CORPORATION 1982 INCENTIVE STOCK OPTION PLAN--as amended February 25,
1987 **
10(f)4 THE VALSPAR CORPORATION NONQUALIFIED STOCK
OPTION PLAN **
10(g)6 THE VALSPAR CORPORATION 1991 STOCK OPTION PLAN **
10(h)6 THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN **
10(i)7 THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN **
10(j)8 THE VALSPAR CORPORATION RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS--as
amended December 14, 1994**
10(k)7 THE VALSPAR CORPORATION ANNUAL BONUS PLAN **
10(l)7 THE VALSPAR CORPORATION INCENTIVE BONUS PLAN **
10(m)+ DISTRIBUTION AGREEMENT REGARDING McWHORTER SPIN-OFF
10(n)+ ENVIRONMENTAL MATTERS AGREEMENT
10(o)+ TECHNOLOGY LICENSE AGREEMENT
10(p)+ TAX SHARING AGREEMENT
10(q)+ MASTER TOLLING AGREEMENT
10(r)+ SALE AND PURCHASE OF ASSETS AGREEMENT BETWEEN CARGILL, INCORPORATED AND McWHORTER,
INC. DATED AS OF MAY 19, 1993, AS SUBSEQUENTLY MODIFIED AND AMENDED
10(s)+ AGREEMENT CONTAINING CONSENT ORDER EXECUTED AS OF
SEPTEMBER 30, 1993 BY THE FEDERAL TRADE COMMISSION, THE
VALSPAR CORPORATION AND McWHORTER, INC.
10(t)+ $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(u)+ LEASE AGREEMENT BETWEEN McWHORTER TECHNOLOGIES, INC. AND THE VALSPAR CORPORATION
FOR THE LEASE TO McWHORTER OF OFFICE AND LABORATORY SPACE IN MINNEAPOLIS, MINNESOTA
10(v)+ 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
13* 1994 Annual Report to Stockholders (only those portions
expressly incorporated by reference herein shall be deemed
filed with the Commission)
22* Subsidiaries of the Registrant
23(a)* Consent of Independent Auditors--Ernst & Young LLP
23(b)* Consent of Independent Auditors--Deloitte & Touche LLP
28(a)* Financial Statements for the Years Ended October 28, 1994 and October 29, 1993 and
Independent Auditors' Report--Valspar Stock Ownership Trust for Salaried Employees
28(b)* Financial Statements for the Years Ended October 28, 1994 and October 29, 1993 and
Independent Auditors' Report--Valspar Stock Ownership Trust for Hourly Employees
28(c)* Financial Statements for the Years Ended October 28, 1994 and October 29, 1993 and
Independent Auditors' Report--Valspar Profit Sharing Retirement Plan
----------------------------
</TABLE>
1 As filed with Form 10-K for the period ended October 31, 1981.
2 As filed with Form 10-K for the period ended October 31, 1983.
3 As filed with Form 10-K for the period ended October 30, 1987.
4 As filed with Form 10-K for the period ended October 27, 1989.
5 As filed with Form 10-K for the period ended October 26, 1990.
6 As filed with Form 10-K for the period ended October 25, 1991.
7 As filed with Form 10-K for the period ended October 30, 1992.
8 Plan filed with Form 10-K for the period ended October 30, 1992; amendment
filed with this Form 10-K.
* As filed with this Form 10-K.
** Compensatory Plan or arrangement required to be filed pursuant to Item
14(c) of Form 10-K.
+ 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 Form S-1 Registration
Statement of McWhorter (Commission File No. 33-75726), as declared
effective on April 4, 1994.
Portions of the 1995 Proxy Statement are incorporated herein by reference as set
forth in Items 10, 11, 12 and 13 of this report. Only those portions expressly
incorporated by reference herein shall be deemed filed with the Commission.
(d) See page F-2 of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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
January 24, 1995 /s/ Rolf Engh
Rolf Engh, Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ C. Angus Wurtele January 24, 1995 /s/ Thomas R. McBurney January 24, 1995
C. Angus Wurtele, Chairman of the Board Thomas R. McBurney, Director
and Chief Executive Officer
/s/ Paul C. Reyelts January 24, 1995 /s/ Kendrick B. Melrose January 24, 1995
Paul C. Reyelts, Vice President, Finance Kendrick B. Melrose, Director
(Chief Financial Officer)
/s/ Curtis O. Huovie January 24, 1995 -------------------------------
Curtis O. Huovie, Vice President Robert E. Pajor, Director
and Controller (Chief Accounting Officer) (Vice Chairman)
/s/ Susan S. Boren January 24, 1995 -------------------------------
Susan S. Boren, Director Gregory R. Palen, Director
- ---------------------------------- /s/ Lawrence Perlman January 24, 1995
Richard N. Cardozo, Director Lawrence Perlman, Director
- ---------------------------------- /s/ Richard M. Rompala January 24, 1995
William W. George, Director Richard M. Rompala, Director
(President)
-------------------------------
Michael P. Sullivan, Director
</TABLE>
Annual Report on Form 10-K
Item 14(a)(1) and (2), (c) and (d)
Financial Statements and
Financial Statement Schedules
Certain Exhibits
Year ended October 28, 1994
THE VALSPAR CORPORATION
Minneapolis, Minnesota
The Valspar Corporation
Form 10-K--Item 14(a)(1) and (2) and Item 14(d)
Index to Financial Statements and Financial Statement Schedules
The following consolidated financial statements of The Valspar Corporation and
subsidiaries are incorporated in Part II, Item 8, and Part IV, Item 14(a) of
this report by reference to the Registrant's Annual Report to Stockholders for
the year ended October 28, 1994:
<TABLE>
<CAPTION>
Pages in Annual Report
<S> <C>
Report of Independent Auditors......................................................................20
Financial Statements:
Consolidated Balance Sheets--October 28, 1994 and October 29, 1993...............................11
Consolidated Statements of Income--Years ended October 28, 1994,
October 29, 1993 and October 30, 1992.........................................................12
Consolidated Statements of Changes in Stockholders' Equity--
Years ended October 28, 1994, October 29, 1993 and October 30, 1992...........................12
Consolidated Statements of Cash Flows--Years ended October 28, 1994,
October 29, 1993 and October 30, 1992.........................................................13
Notes to Consolidated Financial Statements....................................................14-19
Selected Quarterly Financial Data (Unaudited).......................................................19
</TABLE>
The following consolidated financial statement schedules should be read in
conjunction with the consolidated financial statements referred to above:
Financial Statement Schedules:
Years ended October 28, 1994, October 29, 1993 and October 30, 1992
<TABLE>
<CAPTION>
Schedule. Page
<S> <C> <C>
VIII Valuation and Qualifying Accounts and Reserves...............................F-3
IX Short-Term Borrowings........................................................F-4
</TABLE>
The Valspar Corporation
Schedule VIII--Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. C COL. D COL. E
Additions
(1) (2)
Charged to Expense Charged to
Balance at Beginning or Other Deductions Balance at
Description of Period (Income) Accounts--Describe --Describe End of Period
Deducted from asset accounts:
Allowance for doubtful
accounts:
<S> <C> <C> <C> <C>
Year ended October 28, 1994 $985,000 $(112,000) $ 358,000 (1) $835,000
(433,000) (2)
113,000 (3)
Year ended October 29, 1993 953,000 201,000 451,000 (1) 985,000
(282,000) (2)
Year ended October 30, 1992 971,000 571,000 843,000 (1) 953,000
(254,000) (2)
</TABLE>
(1) Uncollectible accounts written off.
(2) Recoveries on accounts previously written off.
(3) Amount spun off to McWhorter Technologies, Inc. on April 29, 1994
(See Note B in Annual Report).
The Valspar Corporation
Schedule IX--Short-Term Borrowings
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
Maximum Average Weighted
Amount Amount Average
Balance Weighted Outstanding Outstanding Interest Rate
Category of Aggregate at End Average During the During the During the
Short-Term Borrowings of Period Interest Rate Period Period (2) Period (3)
Notes payable to banks (1):
<S> <C> <C> <C> <C> <C>
Year ended October 28, 1994 $15,000,000 5.1% $108,000,000 (4) $46,700,000 4.7%
Year ended October 29, 1993 3,500,000 3.5% 44,200,000 18,899,000 3.5%
Year ended October 30, 1992 22,100,000 3.5% 57,807,000 39,585,000 5.8%
</TABLE>
(1) Notes payable to banks represent borrowings under lines of credit borrowing
arrangements which have no termination date but are reviewed annually for
renewal. See also Note E to consolidated financial statements.
(2) The average amount outstanding during the period was computed by dividing
the total of daily outstanding principal balances by the number of days in
the Registrant's fiscal year.
(3) The weighted average interest rate during the period was computed by
dividing the actual interest expense by average short-term debt
outstanding.
(4) This amount includes McWhorter borrowing of $42,700,000 as of April 29,
1994.
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
<TABLE>
<CAPTION>
Exhibit
No. Description
<S> <C>
3(a)7 CERTIFICATE OF INCORPORATION--as amended to and including
June 30, 1970, with further amendments to Article Four
dated February 29, 1984, February 25, 1986 and February
26, 1992, and to Article Eleven dated February 25, 1987
3(b)3 BY-LAWS--as amended to and including February 25, 1987
10(a)1 THE VALSPAR CORPORATION SUPPLEMENTAL STOCK OWNERSHIP PLAN **
10(b)1 THE VALSPAR CORPORATION KEY EMPLOYEES' SUPPLEMENTARY RETIREMENT PLAN **
10(c)2 THE VALSPAR CORPORATION SUPPLEMENTAL BONUS PLAN **
10(d)5 THE VALSPAR CORPORATION DEFERRED BONUS AND STOCK SALE
PLAN--as amended August 12, 1987, December 21, 1988 and
December 12, 1990 **
10(e)4 THE VALSPAR CORPORATION 1982 INCENTIVE STOCK OPTION PLAN--as amended February 25,
1987 **
10(f)4 THE VALSPAR CORPORATION NONQUALIFIED STOCK
OPTION PLAN **
10(g)6 THE VALSPAR CORPORATION 1991 STOCK OPTION PLAN **
10(h)6 THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN **
10(i)7 THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN **
10(j)8 THE VALSPAR CORPORATION RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS--as
amended December 14, 1994**
10(k)7 THE VALSPAR CORPORATION ANNUAL BONUS PLAN **
10(l)7 THE VALSPAR CORPORATION INCENTIVE BONUS PLAN **
10(m)+ DISTRIBUTION AGREEMENT REGARDING McWHORTER SPIN-OFF
10(n)+ ENVIRONMENTAL MATTERS AGREEMENT
10(o)+ TECHNOLOGY LICENSE AGREEMENT
10(p)+ TAX SHARING AGREEMENT
10(q)+ MASTER TOLLING AGREEMENT
10(r)+ SALE AND PURCHASE OF ASSETS AGREEMENT BETWEEN CARGILL, INCORPORATED AND McWHORTER,
INC. DATED AS OF MAY 19, 1993, AS SUBSEQUENTLY MODIFIED AND AMENDED
10(s)+ AGREEMENT CONTAINING CONSENT ORDER EXECUTED AS OF
SEPTEMBER 30, 1993 BY THE FEDERAL TRADE COMMISSION, THE
VALSPAR CORPORATION AND McWHORTER, INC.
10(t)+ $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(u)+ LEASE AGREEMENT BETWEEN McWHORTER TECHNOLOGIES, INC. AND THE VALSPAR CORPORATION
FOR THE LEASE TO McWHORTER OF OFFICE AND LABORATORY SPACE IN MINNEAPOLIS, MINNESOTA
10(v)+ 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
13* 1994 Annual Report to Stockholders (only those portions
expressly incorporated by reference herein shall be deemed
filed with the Commission)
22* Subsidiaries of the Registrant
23(a)* Consent of Independent Auditors--Ernst & Young LLP
23(b)* Consent of Independent Auditors--Deloitte & Touche LLP
28(a)* Financial Statements for the Years Ended October 28, 1994 and October 29, 1993 and
Independent Auditors' Report--Valspar Stock Ownership Trust for Salaried Employees
28(b)* Financial Statements for the Years Ended October 28, 1994 and October 29, 1993 and
Independent Auditors' Report--Valspar Stock Ownership Trust for Hourly Employees
28(c)* Financial Statements for the Years Ended October 28, 1994 and October 29, 1993 and
Independent Auditors' Report--Valspar Profit Sharing Retirement Plan
</TABLE>
------------------------
1 As filed with Form 10-K for the period ended October 31, 1981.
2 As filed with Form 10-K for the period ended October 31, 1983.
3 As filed with Form 10-K for the period ended October 30, 1987.
4 As filed with Form 10-K for the period ended October 27, 1989.
5 As filed with Form 10-K for the period ended October 26, 1990.
6 As filed with Form 10-K for the period ended October 25, 1991.
7 As filed with Form 10-K for the period ended October 30, 1992.
8 Plan filed with Form 10-K for the period ended October 30, 1992; amendment
filed with this Form-10-K.
* As filed with this Form 10-K.
** Compensatory Plan or arrangement required to be filed pursuant to Item
14(c) of Form 10-K.
+ 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 Form S-1 Registration
Statement of McWhorter (Commission File No. 33-75726), as declared
effective on April 4, 1994.
Exhibit No. 10(j)
THE VALSPAR CORPORATION
AMENDMENT TO RESTRICTED STOCK PLAN
FOR NON-EMPLOYEE DIRECTORS
The Valspar Corporation Restricted Stock Plan for Non-Employee
Directors is hereby amended as follows:
A. The Section captioned "Definitions" is hereby amended to add the
following:
"Change of Control" shall be deemed to have occurred if (i) any person
increases or decreases its percentage equity ownership in Valspar by
more than twenty percentage points from that person's percentage equity
ownership in Valspar on the date hereof or (ii) a majority of the
members of the board of directors of Valspar were nominated and
approved by the board of directors as it existed prior to the election
of such directors. For the purposes of this definition, a "person"
shall include an individual, corporation, partnership, trust or other
legal entity or any group of such persons acting in concert. In
calculating the ownership interest of any person, all securities for
which such person is a beneficial owner as that term is used in Rule
13d-3, as then in effect, under the Securities Exchange Act of 1934
shall be included.
"Disability" shall mean a mental or physical disability which prevents
a Participant from fulfilling his/her obligations as a member of the
Board of Directors of Valspar for a period of three consecutive
calendar months in any twelve month period.
"Retirement" shall mean the termination as a director of Valspar at any
time after the Participant has attained the age of sixty years for any
reason other than Termination for Cause.
"Termination for Cause" shall mean the termination as a member of the
Board of Directors of Valspar as a result of an illegal act or a
willful violation of a Valspar policy.
B. The section captioned "Plan" is hereby amended by deleting paragraph
(e) and adding the following paragraphs (e) and (f) to Section 1,
immediately following Section 1(d):
(e) All grants of restricted Stock pursuant to Section 1(a)
for Board service in fiscal years 1992 and 1993 (the "1992 and 1993
Grants") are hereby restated and clarified to reflect the understanding
of Valspar and the Participants as of the respective dates of the 1992
and 1993 Grants, as follows. The shares of restricted Stock granted
pursuant to the 1992 and 1993 Grants are forfeitable for three years
from the date of the grant if the Participant ceases to be a director
of Valspar for any reason other than death, Disability, Retirement or
Change of Control. Such shares of Stock shall not be forfeitable if the
Participant ceases to be a director of Valspar during such three-year
period as a result of such Participant's death, Disability or
Retirement or a Change of Control of Valspar or if the Participant
ceases to be a director of Valspar after the end of such three-year
period. With respect to grants for Board service in years subsequent to
fiscal 1993, the provisions of this Section 1(e) shall not apply and
such grants shall vest immediately, subject to the provisions of this
Section 1.
(f) The certificate representing the shares of Stock shall be
distributed to the person in whose name it was issued, or if
appropriate that person's estate, at such time as such participant is
no longer a director of Valspar and the risk of forfeiture pursuant to
Section 1(e), if any, has lapsed. If any shares of Stock are forfeited
pursuant to Section 1(e), the certificate representing those shares
shall be cancelled and the shares shall be returned to the reserve
under this Plan.
APPROVALS:
The foregoing Amendment was approved by the Board of Directors of
Valspar at its meeting on December 14, 1994.
/s/ Rolf Engh
Rolf Engh, Secretary
<TABLE>
<CAPTION>
ELEVEN-YEAR FINANCIAL SUMMARY
(Dollars in Thousands, except per share amounts)
Fiscal Years 1994 1993 1992 1991 1990
OPERATING RESULTS
<S> <C> <C> <C> <C> <C>
Net Sales $786,848 $693,678 $683,485 $632,562 $571,445
Cost and Expenses
Cost of Sales 564,210 497,034 492,092 458,953 410,094
Operating Expense 143,711 127,329 131,232 120,643 109,206
Income from Operations 78,927 69,315 60,161 52,966 52,145
Other Expense (Income) - Net 606 2,038 360 1,504 3,337
Interest 2,504 1,645 2,932 5,686 4,704
Income Before Income Taxes 75,817 65,632 56,869 45,776 44,104
Net Income 45,484 40,182 34,418 27,676 26,731
Net Income as a Percent of Sales 5.8% 5.8% 5.0% 4.4% 4.7%
Return on Average Equity 24.5% 22.0% 21.7% 20.0% 22.1%
Per Common Share:
Net Income $ 2.08 $ 1.85 $ 1.57 $ 1.27 $ 1.22
Dividends Paid .52 .44 .36 .30 .26
Stockholders' Equity 8.07 9.14 7.84 6.79 5.92
FINANCIAL POSITION
Total Assets $363,368 $336,798 $321,618 $319,367 $302,806
Working Capital at Year-End 86,101 83,999 57,500 58,066 56,199
Property, Plant and Equipment, Net 107,028 103,139 101,005 98,818 106,621
Long-Term Debt,
Excluding Current Portion 35,334 7,890 10,684 30,697 49,456
Stockholders' Equity 174,120 196,518 169,377 147,896 128,707
OTHER STATISTICS
Property, Plant and Equipment Expenditures $ 31,546 $ 17,073 $ 19,581 $ 8,843 $ 13,171
Depreciation and Amortization Expense 19,115 20,621 19,793 18,896 15,119
Research and Development Expense 26,980 24,579 24,802 23,226 20,350
Total Cash Dividends $ 11,252 $ 9,471 $ 7,843 $ 6,519 $ 5,651
Average Common Shares Outstanding (000's) 21,823 21,691 21,973 21,862 21,854
Number of Stockholders 1,902 1,866 1,863 1,857 1,863
Number of Employees at Year-End 2,521 2,513 2,482 2,530 2,502
Market Price Range -
Common Stock:
High $ 45.75 $ 41.50 $ 36.38 $ 23.44 $ 20.00
Low 32.75 30.38 22.56 15.25 14.69
</TABLE>
<TABLE>
<CAPTION>
ELEVEN-YEAR FINANCIAL SUMMARY (Continued)
(Dollars in Thousands, except per share amounts)
Fiscal Years 1989 1988 1987 1986 1985 1984
OPERATING RESULTS
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 526,892 $ 479,617 $ 448,944 $ 345,248 $ 347,164 $ 224,232
Cost and Expenses
Cost of Sales 385,459 356,690 321,258 252,588 260,858 160,566
Operating Expense 98,725 89,906 89,862 63,733 62,403 42,466
Income from Operations 42,708 33,021 37,824 28,927 23,903 21,200
Other Expense (Income)- Net (1,555) (2,733) (479) (2,871) (2,710) (1,951)
Interest 5,838 6,370 6,227 5,103 6,153 2,101
Income Before Income Taxes 38,425 29,384 32,076 26,695 20,460 21,050
Net Income 23,234 18,295 18,052 14,770 11,532 11,392
Net Income as a Percent of Sales 4.4% 3.8% 4.0% 4.3% 3.3% 5.1%
Return on Average Equity 21.9% 19.7% 23.0% 20.3% 16.5% 18.8%
Per Common Share:
Net Income $ 1.04 $ .81 $ .80 $ .63 $ .49 $ .48
Dividends Paid .22 .20 .16 .13 .11 .10
Stockholders' Equity 5.11 4.46 3.85 3.21 3.15 2.77
FINANCIAL POSITION
Total Assets $ 261,103 $ 232,974 $ 236,099 $ 164,678 $ 164,758 $ 177,847
Working Capital at Year-End 63,519 60,694 57,148 29,091 57,316 70,380
Property, Plant and Equipment, Net 82,687 73,652 74,748 51,931 54,341 57,645
Long-Term Debt,
Excluding Current Portion 40,201 42,412 58,561 6,619 35,986 62,200
Stockholders' Equity 112,698 99,895 85,807 71,020 74,363 65,268
OTHER STATISTICS
Property, Plant and Equipment Expenditures $ 8,701 $ 9,390 $ 10,032 $ 4,806 $ 4,060 $ 4,886
Depreciation and Amortization Expense 13,975 12,759 11,687 7,042 7,020 4,869
Research and Development Expense 18,037 17,190 17,062 14,880 15,494 7,994
Total Cash Dividends $ 4,899 $ 4,472 $ 3,559 $ 3,034 $ 2,593 $ 2,352
Average Common Shares Outstanding (000's) 22,330 22,488 22,490 23,536 23,774 23,682
Number of Stockholders 1,864 1,922 1,869 1,814 1,855 1,919
Number of Employees at Year-End 2,593 2,505 2,687 2,121 2,204 2,363
Market Price Range -
Common Stock:
High $ 15.94 $ 15.50 $ 20.25 $ 12.04 $ 6.97 $ 5.10
Low 11.32 10.57 9.82 6.60 4.38 3.82
</TABLE>
Reference is made to the Notes to Consolidated Financial Statements for a
summary of accounting policies and additional information. Results for 1984 and
1987 include three months of operations for Mobil Coatings and ten months of
operations for Enterprise Paint Companies, respectively. 1994 results include
six months of operations for McWhorter Technologies, Inc. prior to the spin-off
to the shareholders. Per share data has been adjusted to reflect 2-for-1 stock
splits effective in March 1984, March 1987 and March 1992. The number of
stockholders is based on recordholders at year-end.
GROUP SALES
The operating divisions of the Company are organized so as to reflect classes of
similar products. The table below shows the percentage of historical net sales
for these groups for the past five years.
<TABLE>
<CAPTION>
(Percent of Net Sales)
Fiscal Years 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Consumer Coatings 31 30 29 30 32
Packaging Coatings 25 27 27 24 21
Industrial Coatings 23 23 23 24 22
Special Products 21 20 21 22 25
</TABLE>
<PAGE> 6
STOCK INFORMATION AND DIVIDENDS
Stock traded on the New York Stock Exchange
For the Fiscal Year 1994 1993
MARKET PRICE / HIGH-LOW:
First quarter $41.38 - $36.50 $36.50 - $32.00
Second quarter 45.75 - 39.25 36.38 - 30.38
Third quarter* 38.13 - 33.75 38.00 - 33.50
Fourth quarter* 37.25 - 32.75 41.50 - 35.88
PER SHARE DIVIDENDS:
First quarter $.13 $.11
Second quarter .13 .11
Third quarter .13 .11
Fourth quarter .13 .11
$.52 $.44
* Valspar spun off the operations of McWhorter Technologies, Inc. to
shareholders at the end of the second quarter.
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OPERATIONS 1994 VS. 1993. The Company's operations for fiscal 1994 include the
results for the Resin Products Division, which was purchased from Cargill,
Incorporated by the Company's wholly-owned subsidiary, McWhorter, Inc. from the
date of its acquisition on February 18, 1994 to the time of the spin-off at the
close of business on April 29, 1994. At the time of the spin-off, all of the
assets of the Resin Products Division and the assets and liabilities of
McWhorter's operations located in Philadelphia, Pennsylvania; Carpentersville,
Illinois; and Portland, Oregon were distributed to Valspar shareholders in the
form of a stock dividend of one share of McWhorter for every two shares of
Valspar Common Stock. Note B describes this transaction in greater detail and
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations for 1994 versus 1993.
Net sales in fiscal 1994 were $786,848,000, an increase of $93,170,000 or 13.4%
over fiscal 1993. Excluding McWhorter, 1994 was the Company's strongest year in
its history for internal sales growth. Pro-forma sales in 1994 were
$723,803,000, up $73,337,000 or 11.3% from pro-forma fiscal 1993 sales. Sales
within the Company's Consumer, Industrial, Packaging, Color Corp., E.P.S., and
Marine businesses were above last year's levels with the majority of the 1994
increase attributable to additional volume sold within the Consumer, Industrial,
and Packaging Coatings Groups.
The Company's gross profit margin was 28.3% for both years. Gross profit margin
was maintained in 1994, despite increased sales of lower margin resin products
resulting from the acquisition of the Resin Products Division. Excluding
McWhorter in both years, the Company's pro-forma gross profit margin increased
from 28.4% in 1993 to 29.2% in 1994. The improvement in gross profit margin for
the Company's continuing businesses was primarily due to increased sales of
higher margin Consumer and Industrial Group products coupled with reduced
manufacturing unit costs resulting from improved productivity and higher
capacity utilization. Raw material prices declined modestly from 1993, although
prices were increasing during the last half of 1994. The Company intends to
recover these higher raw material costs through product price increases while
continuing to pursue operating efficiencies.
Operating expenses (research, selling and administration) for 1994 increased
$16,382,000 or 12.9% from 1993. This year's increase in operating expenses was
primarily due to operating expenses associated with the acquired business,
increased direct selling expenses, a higher level of promotional and advertising
programs associated with our Consumer Group's new business efforts, increased
charitable contributions, and pilot program expenses related to the selection of
a new management information system. Although operating expenses increased in
1994, they declined as a percent of sales, from 18.4% in 1993 to 18.3% in 1994.
Excluding McWhorter, pro-forma operating expenses were $138,019,000, an increase
of $15,751,000 or 12.9% from pro-forma 1993 expenses.
Interest expense increased by $859,000 or 52.2% from 1993. This increase was due
to additional borrowings after the repayment of intercompany debt owed to
McWhorter and to slightly higher interest rates in effect during 1994.
Other non-operating expenses for 1994 included $2,474,000 of expense associated
with the write-down to appraised fair value of a resin plant which was sold to
Valspar at the time McWhorter acquired the Resin Products Division assets from
Cargill. In 1993, non-operating expense included $1,712,000 of expense related
to the pre-tax cumulative effect of adopting FASB Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The reduction in
other expense in 1994 was primarily attributable to increased income from joint
ventures and recovery of accounts receivable and other assets written off in
prior years.
The Company registered its 20th consecutive year of improved earnings
performance in 1994. Excluding McWhorter, net income increased 23.3% from
$35,316,000 in 1993 to $43,538,000 in 1994. On a historical basis, net income
improved by 13.2% from $40,182,000 in 1993 to $45,484,000 in 1994.
<PAGE> 8
Increased sales from the acquired resin business, along with the additional
volume sold, improved gross profit margins within the Company's continuing
businesses, coupled with controlled operating expenses, were the primary
contributors to 1994's increase in net income.
OPERATIONS 1993 VS. 1992. Net sales in fiscal 1993 were $693,678,000, up
$10,193,000 or 1.5% from fiscal 1992. It should be noted that 1993 was a 52 week
fiscal year compared to 1992 which included 53 weeks. Excluding the additional
accounting week in 1992, along with fiscal 1992 sales for the Container Coatings
business acquired from Cook Paint & Varnish Company on December 6, 1991 and
1992's sales for the MCI Quality Coatings contractor business which was sold May
8, 1992, comparable sales were 3.7% higher than 1992. Comparable sales in 1993
were above 1992's levels for all four business groups, with the majority of
1993's increase attributable to additional volume sold within the Consumer and
Industrial Groups.
The Company's gross profit margin improved from 28.0% in 1992 to 28.3% in 1993.
The improvement in 1993 gross profit margin was primarily attributable to
increased sales of higher margin consumer group products and improved raw
material handling efficiencies. Further, unit costs for manufacturing and
distribution decreased for the second year in a row. Although average raw
material costs decreased during the last half of 1993, overall for the year,
they were comparable with 1992.
Operating expenses (research, selling and administration) for 1993 decreased
$3,903,000 or 3.0% from 1992. The reduction in 1993's operating expenses was
mainly due to one less week of expense, controlled spending throughout the
Company, the divestiture of the MCI Quality Coatings contractor business and a
lower level of promotional and advertising expenses for the Consumer Group.
Interest expense decreased by $1,287,000 or 43.9% from 1992 due to a reduced
average level of borrowing and lower interest rates in effect during 1993.
Other non-operating expenses net of other income included $1,712,000 of expense
related to the pre-tax cumulative effect of adopting FASB Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," during
the fourth quarter of 1993. In addition, income tax expense for 1993 was reduced
by $1,075,000 for the cumulative effect of adopting FASB Statement No. 109,
"Accounting for Income Taxes," during the fourth quarter of 1993. The cumulative
effects of implementing FASB Statements Nos. 106 and 109 on the results for 1993
were not material.
Net income improved by 16.8% from $34,418,000 in 1992 to $40,182,000 in 1993.
Increased sales at an improved gross profit margin, coupled with lower operating
and interest expenses were the primary contributors to 1993's increase in net
income.
FINANCIAL CONDITION. The net cash provided by the Company's operations was
$56,780,000 for fiscal 1994 compared to $57,121,000 for fiscal 1993. Raw
material and finished goods inventories increased in 1994 due to the additional
production required to support the sales volume growth and revised distribution
arrangements with certain customers in the Consumer Group. The increase in
accounts receivable resulted from the growth in sales and extended payment
terms. Accounts payable and accrued liabilities also increased in 1994 as a
result of higher inventory purchasing activity and various increases in expense
accruals. The cash provided by operations and net additional borrowings of
$38,368,000 were used to fund the Company's capital spending, acquisition, and
dividend requirements during the year, as discussed below.
Cash used for investing activities increased to $111,300,000 in fiscal 1994 from
$21,833,000 in 1993 due to the acquisition of the Resin Products Division and
higher capital spending. The higher capital spending was attributable to three
plants under construction to meet increased production requirements for the
consumer, colorant and resin businesses. Aside from the construction projects,
capital spending was evenly distributed among the four business groups with no
other single major expenditure. We anticipate continued higher capital spending
in fiscal 1995 to complete the construction of production facilities and to
invest in the upgrade and replacement of existing management information
systems. The Company invested $75,385,000 in McWhorter, Inc. for the purchase of
the Resin Products
<PAGE> 9
Division. The purchase was financed with $44,000,000 of funding from Valspar and
$31,385,000 of McWhorter bank financing, which was retained by McWhorter in the
spin-off.
The Company invested in two joint ventures during fiscal 1993 to expand coatings
sales to new markets and further develop the professional paint market served by
home centers. A net amount of $3,300,000 was advanced to those ventures during
fiscal 1994.
Fiscal 1994 Common Stock dividends of $11,252,000 represent an 18.8% increase
over 1993. The annual rate was increased to $.52 per share from $.44 in 1993
with the payout at 28% of the prior year's earnings, consistent with last year's
payout and with the Company's target payout of 25% to 35%. The Company's debt
agreements impose limitations on the amount of dividends that can be paid. These
limitations have not affected, nor are they expected to affect, the ability of
the Company to pay dividends in the future. The Company has continuing
authorization to purchase shares of its Common Stock for treasury. Shares may be
purchased at management's discretion for general corporate purposes depending on
market conditions and the Company's financial position. Purchases under this
program were 133,000, 160,000 and 250,000 shares in 1994, 1993 and 1992,
respectively. Additional treasury stock activity for 1994 included approximately
17,000 shares surrendered in conjunction with the exercise of stock options
totaling 187,000 shares.
The Company's debt increased by $38,368,000 in fiscal 1994 with the ratio of
total debt to capital increasing to 22.5% at the close of 1994 compared to 5.8%
at 1993. The higher debt ratio is attributable to the McWhorter spin-off as the
Resin Products Division acquisition and subsequent stock distribution increased
debt by $44,000,000 and reduced stockholders' equity by $55,822,000. Average
debt outstanding during 1994 was $46,700,000 at a weighted average interest rate
of 4.65% versus average debt last year of $29,300,000 at 4.53%, increasing the
current year's interest expense to $2,504,000 compared to $1,645,000 in the
prior year. At October 28, 1994, the Company had unused lines of credit
available from banks of $114,000,000 which are expected to be adequate to cover
current and projected needs for short-term financing. The Company is seeking
Industrial Revenue Bond financing for its plant construction projects in
Marengo, Illinois and Statesville, North Carolina.
The Company is involved in various claims relating to environmental and waste
disposal matters at a number of current and former plant sites. The Company
engages or participates in remedial and other environmental compliance
activities at certain of these sites. At other sites, the Company has been named
as a potentially responsible party (PRP) under federal and state environmental
laws for the remediation of hazardous waste. The Company's management reviews
each individual site, taking into consideration the number of parties involved
at the site, joint and several liability of other PRPs, the level of
contribution that may be attributed to the Company relative to the other
parties, the nature and magnitude of the wastes involved, the method and extent
of remediation, potential insurance coverage, the estimated legal and consulting
expense with respect to each site, and the time period over which any costs
would likely be incurred. Based on the above analysis, management estimates, to
the extent possible, the restoration or other clean-up costs and related claims
for each site. The estimates are based in part on discussions with other PRPs,
governmental agencies and engineering firms.
Based on the above considerations, the Company has accrued for potential
environmental liabilities and plans to continue to accrue reserves in
appropriate amounts. The reserves are continuously reviewed and adjusted as
additional information becomes available to enable management to better estimate
the ultimate clean-up costs at individual sites. While uncertainties exist with
respect to the amounts and timing of the Company's ultimate environmental
liabilities, management believes that such liabilities, individually and in the
aggregate, will not have a material adverse effect on the Company's financial
condition or results of operations.
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except per share amounts)
October 28, October 29,
1994 1993
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,364 $ 1,637
Accounts and notes receivable, less
allowances for doubtful accounts
(1994-$835; 1993-$985) 111,907 105,505
Inventories 82,430 68,390
Prepaid expenses and other accounts 24,198 21,948
Total Current Assets 220,899 197,480
OTHER ASSETS
35,441 36,179
PROPERTY, PLANT AND
EQUIPMENT
Land 8,560 10,361
Buildings 63,376 67,072
Machinery and equipment 136,357 129,735
208,293 207,168
Less accumulated depreciation 101,265 104,029
Net Property, Plant and Equipment 107,028 103,139
$363,368 $336,798
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks $ 15,000 $ 3,500
Trade accounts payable 51,230 44,746
Income taxes 8,149 11,412
Accrued liabilities 60,207 53,035
Current portion of long-term debt 212 788
Total Current Liabilities 134,798 113,481
LONG-TERM DEBT, LESS
CURRENT PORTION 35,334 7,890
DEFERRED INCOME TAXES 4,758 6,855
DEFERRED LIABILITIES 14,358 12,054
STOCKHOLDERS'EQUITY
Common Stock (par value
$.50 per share; shares
authorized 30,000,000;
shares issued, including
shares in treasury,
26,660,656 shares) 13,330 13,330
Additional paid-in capital 6,937 2,269
Retained earnings 201,070 223,483
Other (2,616) (1,109)
218,721 237,973
Less cost of Common
Stock in treasury
(1994 - 5,078,470 shares;
1993 - 5,154,506 shares) 44,601 41,455
Total Stockholders' Equity 174,120 196,518
$363,368 $336,798
See notes to consolidated financial statements.
<PAGE> 11
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, except per share amounts)
October 28, October 29, October 30,
For the Year Ended 1994 1993 1992
NET SALES $ 786,848 $ 693,678 $ 683,485
COST AND EXPENSES
Cost of sales 564,210 497,034 492,092
Research and development 26,980 24,579 24,802
Selling and administrative 116,731 102,750 106,430
INCOME FROM OPERATIONS 78,927 69,315 60,161
Other expense, net 606 2,038 360
Interest 2,504 1,645 2,932
INCOME BEFORE INCOME TAXES 75,817 65,632 56,869
Income taxes 30,333 25,450 22,451
NET INCOME $ 45,484 $ 40,182 $ 34,418
NET INCOME PER
COMMON SHARE $ 2.08 $ 1.85 $ 1.57
AVERAGE NUMBER OF
SHARES OUTSTANDING 21,823,393 21,691,398 21,973,211
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in Thousands, except per share amounts)
Additional
Common Stock Paid-In Retained Treasury
Shares Amount Capital Earnings Other Stock
<S> <C> <C> <C> <C> <C> <C>
BALANCE OCTOBER 26, 1991 13,330,328 $ 6,665 $ 4,855 $ 167,409 $(2,151) $28,882
Stock Split (2-for-1) 13,330,328 6,665 (5,453) (1,212)
Common Stock options
exercised for 119,170 shares 918 (718)
Purchase of 275,946 shares of
Common Stock for treasury 8,105
Net income for the year 34,418
Cash dividends on Common
Stock - $.36 per share (7,843)
Other 576 799
BALANCE OCTOBER 30, 1992 26,660,656 13,330 896 192,772 (1,352) 36,269
Common Stock options
exercised for 65,671 shares 639 (501)
Purchase of 173,436 shares of
Common Stock for treasury 5,707
Net income for the year 40,182
Cash dividends on Common
Stock - $.44 per share (9,471)
Other 734 243 (20)
BALANCE OCTOBER 29, 1993 26,660,656 13,330 2,269 223,483 (1,109) 41,455
Common Stock options
exercised for 187,309 shares 1,667 (1,533)
Purchase of 150,694 shares of
Common Stock for treasury 4,997
Net income for the year 45,484
Cash dividends on Common
Stock - $.52 per share (11,252)
McWhorter spin-off (55,822)
Other 3,001 (823) (1,507) (318)
BALANCE OCTOBER 28, 1994 26,660,656 $ 13,330 $ 6,937 $ 201,070 $(2,616) $44,601
</TABLE>
See notes to consolidated financial statements.
<PAGE> 12
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in Thousands)
October 28, October 29, October 30,
For the Year Ended 1994 1993 1992
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 45,484 $ 40,182 $ 34,418
Adjustments to reconcile
net income to net
cash provided by
operating activities:
Depreciation and amortization 19,115 20,621 19,793
Provisions for:
Deferred income taxes (1,454) (2,057) (1,219)
Other deferred liabilities 1,122 3,384 411
Loss on sales or abandonment
of property, plant and
equipment 2,357 591 1,113
(Decrease) Increase in
cash due to changes in net
operating assets, net of effects
of acquired businesses:
Accounts and notes receivable (6,402) (13,307) (4,371)
Inventories and prepaid assets (16,290) 1,793 752
Trade accounts payable
and accrued liabilities 13,705 530 5,133
Income taxes payable (1,418) 4,716 (1,705)
Other 561 668 464
Net Cash Provided by
Operating Activities 56,780 57,121 54,789
INVESTING ACTIVITIES
Purchases of property,
plant and equipment (31,546) (17,073) (19,581)
Acquired businesses/assets,
net of cash (75,385) (1,000) (3,787)
Proceeds from disposition of
equipment and other assets -- 31 3,315
Investments in/advances to
joint ventures (3,300) (3,484) --
Other (1,069) (307) (342)
Net Cash Used in Investing
Activities (111,300) (21,833) (20,395)
FINANCING ACTIVITIES
Net proceeds from (payments
on) borrowings 38,368 (21,380) (19,622)
McWhorter debt spun off 30,086
Proceeds from sale of
treasury stock 4,686 1,140 1,636
Purchase of shares of
Common Stock for treasury (4,998) (5,707) (8,105)
Dividends paid (11,252) (9,471) (7,843)
Other (1,643) (13) 109
Net Cash Provided by (Used in)
Financing Activities 55,247 (35,431) (33,825)
Increase (Decrease) in Cash
and Cash Equivalents 727 (143) 569
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 1,637 1,780 1,211
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 2,364 $ 1,637 $ 1,780
</TABLE>
See notes to consolidated financial statements.
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended October 1994, 1993 and 1992
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: The Company operates in one business segment, the
manufacture and distribution of paint and coatings through its Consumer
Coatings, Packaging Coatings, Industrial Coatings and Special Products Groups.
FISCAL YEAR: The Company has adopted a 4-4-5 accounting cycle with the fiscal
year ending on the Friday immediately preceding October 31. Fiscal year 1992
included fifty-three weeks. All other years presented include fifty-two weeks.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the parent company and its subsidiaries, all of which are
wholly-owned. All material intercompany accounts, transactions and profits have
been eliminated. Investments in joint ventures in which the Company has a 20% to
50% interest are accounted for on the equity method.
CASH EQUIVALENTS: The Company considers all highly liquid instruments purchased
with a maturity of less than three months to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost or market. Costs in
the Company's domestic coatings inventories are recorded on the last-in,
first-out (LIFO) method. The remaining inventories are recorded using the
first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are recorded at
cost. Provision for depreciation of property is made by charges to operations at
rates calculated to amortize the cost of the property over its useful life
(twenty years for buildings; three to ten years for machinery and equipment)
primarily using accelerated methods for assets acquired prior to fiscal year
1994. All assets acquired in fiscal year 1994 are depreciated using the straight
line method. The result of this change on the financial statements is not
material.
INCOME TAXES: Effective October 31, 1992, the Company adopted FASB Statement
No. 109, "Accounting for Income Taxes." The cumulative effect of adopting
Statement No. 109 as of October 31, 1992 was to increase net income by
$1,075,000 or $.05 per share. Under Statement No. 109, the liability method is
used in accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the tax rates and
laws enacted that will be in effect when the differences are expected to
reverse. Prior to the adoption of Statement No. 109, income tax expense was
determined using the deferred method. Deferred tax expense was based on items of
income and expense that were reported in different years in the financial
statements and tax returns and were measured at the tax rate in effect in the
year the difference originated.
STOCK OPTIONS: At the time options are exercised, shares are issued from
treasury stock. The differences between the option price and the cost of the
treasury stock is charged or credited to additional paid-in capital. There have
been no charges or credits to income in connection with stock options because
all options granted during the periods covered were granted at an exercise price
equal to the fair market value of the stock on the date of grant.
EMPLOYEE BENEFIT PROGRAMS: Under the Company's Profit Sharing Plan, the Company
makes a contribution based on return on assets as defined in the Plan up to a
maximum of 10% of the aggregate compensation of eligible participants.
Under the Company's Employee Stock Ownership Trusts, substantially all of the
Company's domestic employees are eligible to participate in the Trusts and may
contribute 1% to 6% of their compensation to the Trusts. The Company contributes
an amount equal to one-half of the employee contributions.
The Company also sponsors a number of defined benefit pension plans for certain
hourly employees. Pension costs are actuarially determined and include normal
costs and amortization of prior service costs over a period of ten years. The
Company funds the domestic pension plans in amounts that meet the minimum
funding requirements prescribed by ERISA.
The Company accounts for the cost of its postretirement medical benefits in
accordance with Financial Accounting Standards Board Statement No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
Company adopted Statement No. 106 effective October 31, 1992. The cumulative
effect of adopting the new statement was to decrease 1993 net income by
$1,024,000 (net of related income taxes of $688,000) or $.05 per share.
<PAGE> 14
The Company has a Deferred Bonus Plan for certain senior managers. Under the
Plan, participants are awarded a deferred bonus of up to 15% of salary depending
upon certain financial performance criteria.
In 1993 the Company established a Key Employee Bonus Plan for certain employees.
Under the Plan, participants can elect to convert all or any portion of the cash
bonus awarded under the Incentive Bonus Plan into a grant of restricted stock
receivable three years from the date of grant.
In 1991 the Company established a Leveraged Equity Purchase Plan designed to
provide key employees with loans, up to an aggregate amount of $6,000,000, to
acquire and retain Common Stock of the Company.
The Financial Accounting Standards Board issued Statement No. 112 "Employers'
Accounting for Postemployment Benefits" which is effective for the Company's
fiscal year ending October 27, 1995. The Company believes the adoption of the
Statement will not have a material impact on the financial statements.
NET INCOME PER SHARE: Net income per share is based on the weighted average
number of Common Shares outstanding during each year plus common stock
equivalents on stock options.
RECLASSIFICATIONS: Certain reclassifications have been reflected in the 1993 and
1992 financial statements to conform to the 1994 presentation.
NOTE B - SPIN-OFF
On February 18, 1994, Valspar's wholly-owned subsidiary, McWhorter, Inc.,
purchased substantially all of the assets, consisting primarily of inventory and
fixed assets, but excluding accounts receivable, of the Resin Products Division
of Cargill, Incorporated for approximately $75 million. McWhorter's financing
for the Resin Product Division acquisition was derived from two sources: $44
million in cash received upon collection of an intercompany balance due from
Valspar and $31 million in bank financing. Valspar utilized existing credit
facilities to finance payment of the intercompany balance owed to McWhorter.
Immediately after the acquisition, McWhorter, Inc., was merged into McWhorter
Technologies, Inc. ("McWhorter"), with the surviving corporation remaining a
wholly-owned subsidiary of the Company.
At the close of business on April 29, 1994, all of the assets of the Resin
Products Division and the assets and liabilities of McWhorter's operations
located in Philadelphia, Pennsylvania; Carpentersville, Illinois; and Portland,
Oregon were distributed to the Valspar shareholders in the form of a stock
dividend of one share of McWhorter Common Stock for every two shares of Valspar
Common Stock. Prior to the distribution, McWhorter transferred to Valspar resin
assets located at facilities in Los Angeles, California; Rockford and Kankakee,
Illinois; and Garland, Texas.
The significant assets and liabilities of McWhorter at the date of spin-off were
as follows:
ASSETS: Accounts receivable $ 40,386
Inventory 21,435
Other assets 3,734
Property, plant and
equipment (net) 69,523
LIABILITIES: Notes to bank (12,700)
Accounts payable (22,382)
Accrued liabilities (11,250)
Long-term debt (30,086)
Other liabilities (2,838)
NET ASSETS $ 55,822
<PAGE> 15
The following supplemental unaudited consolidated pro-forma information shows
condensed results of operations as though the McWhorter spin-off had occurred at
the beginning of fiscal 1993. The unaudited consolidated pro-forma financial
information is provided for information purposes only and does not purport to be
indicative of the future results or financial position of Valspar (or what the
results of operations or financial position would have been had the McWhorter
spin-off occurred as described above).
Pro-Forma Condensed Statements of Income
(Unaudited)
(In Thousands, except per share amounts)
Year Ended October 28, 1994
Historical Adjustments(a) Pro-Forma
Net sales $786,848 $(63,045) $723,803
Cost of sales 564,210 (51,853) 512,357
Gross profit 222,638 (11,192) 211,446
Research and
development 26,980 (1,261) 25,719
Selling and
administrative 116,731 (4,431) 112,300
Income from
operations 78,927 (5,500) 73,427
Other 606 (2,538) (1,932)
Interest expense 2,504 214 2,718
Income before
income taxes 75,817 (3,176) 72,641
Income taxes 30,333 (1,230) 29,103
Net income $ 45,484 $ (1,946 $ 43,538
Earnings per
share $2.08 $ 2.00
Total assets $363,368 $363,368
Year Ended October 29, 1993
Historical Adjustments (a) Pro-Forma
Net sales $693,678 $(43,212) $650,466
Cost of sales 497,034 (31,598) 465,436
Gross profit 196,644 (11,614) 185,030
Research and
development 24,579 (858) 23,721
Selling and
administrative 102,750 (4,203) 98,547
Income from
operations 69,315 (6,553) 62,762
Other 2,038 (72) 1,966
Interest expense 1,645 1,010 2,655
Income before
income taxes 65,632 (7,491) 58,141
Income taxes 25,450 (2,625) 22,825
Net income $ 40,182 $ (4,866) $ 35,316
Earnings per
share $ 1.85 $ 1.63
Total assets $336,798 $(59,993) $276,805
(a) To eliminate the revenue and expenses of McWhorter for the respective
periods presented, as if the spin-off had occurred on October 31, 1992.
NOTE C - INVENTORIES
The major classes of inventories consist of the following:
October 28, October 29,
(Dollars in Thousands) 1994 1993
Manufactured products $49,968 $42,587
Raw materials, supplies
and work-in-process 32,384 25,688
Jobbed and sundry goods 78 115
$82,430 $68,390
Inventories stated at cost determined by the last-in, first-out (LIFO) method
aggregate $78,593,000 at October 28, 1994 and $65,427,000 at October 29, 1993,
or approximately $23,953,000 and $23,993,000 lower, respectively, than such
costs determined under the first-in, first-out (FIFO) method.
NOTE D - ACCRUED LIABILITIES
Accrued liabilities include the following:
October 28, October 29,
(Dollars in Thousands) 1994 1993
Employee compensation $27,739 $23,196
Contribution to employees'
retirement trusts 4,790 4,636
Customer volume rebates 5,248 5,541
Other 22,430 19,662
$60,207 $53,035
NOTE E - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
October 28, October 29,
(Dollars in Thousands) 1994 1993
Short-term notes to banks
(5.22% at October 28, 1994) $32,528 $4,753
Obligations under capital lease
(7.48% at October 28, 1994) 3,018 3,215
Other -- 710
35,546 8,678
Less current maturities 212 788
$35,334 $7,890
<PAGE> 16
The Company has $45,000,000 available under a revolving credit loan agreement
with two domestic banks at optional interest rates of prime, or LIBOR based or
CD based rates. The revolving credit loan facility matures in fiscal 1997. The
revolving credit loan agreement contains covenants which require the Company to
maintain certain financial ratios. The Company is in compliance with these
covenants as of October 28, 1994.
Maturities of long-term debt are as follows: 1995- $212,000; 1996 - $228,000;
1997 - $32,774,000; 1998 - $264,000; 1999 - $285,000 and $1,783,000 thereafter.
Under short-term bank lines of credit, the Company may borrow up to $116,000,000
on such terms as the Company and the banks may mutually agree. These
arrangements are reviewed periodically for renewal and modification.
Borrowings under the short-term bank lines in the amount of $32,528,000 at
October 28, 1994 have been classified as long-term debt reflecting the Company's
intention to refinance these amounts during the subsequent fiscal year. The
Company had unused lines of credit under the short-term bank lines and revolving
credit facility of $114,000,000 at October 28, 1994.
Interest paid during 1994, 1993 and 1992 was $2,473,000, $1,647,000 and
$3,005,000, respectively.
NOTE F - COMMON STOCK OPTIONS
Under the 1991 Stock Option Plan, options for the purchase of 1,000,000 shares
of Common Stock may be granted to officers and key employees. Under the prior
stock option plans (1982 Incentive Stock Option Plan and 1989 Non-Qualified
Stock Option Plan), options were also granted to officers and key employees. The
Company has elected to grant all future options under the 1991 Stock Option
Plan. Options are exercisable in full or in part at the date of grant.
Activity for the two years ended October 28, 1994 is summarized as follows:
<TABLE>
<CAPTION>
Shares Options Option Price
Reserved Outstanding Per Share
<S> <C> <C> <C>
Balance
October 31, 1992 779,942 443,364 $ 9.48 - $26.76
Granted (45,950) 45,950 24.00 - 28.64
Exercised (65,671) 9.48 - 26.07
Canceled 220 (220) 9.48
Balance
October 29, 1993 734,212 423,423 9.48 - 28.64
Granted (148,800) 148,800 29.63 - 34.38
Exercised (187,309) 9.48 - 29.63
Canceled 32,440 (32,440) 9.48 - 29.63
Adjustment for
McWhorter spin-off (75,851) 75,842
Balance
October 28, 1994 542,001 428,316 $11.60 - $29.63
</TABLE>
The balance of 428,316 options outstanding at October 28, 1994 includes 395,676
non-qualified options.
The impact of the McWhorter spin-off on both the option price and number of
shares is reflected above.
NOTE G - INCOME TAXES
Significant components of the provision for income taxes are as follows:
Deferred
(Dollars in Thousands) Liability Method Method
October 28, October 29, October 30,
Year Ended 1994 1993 1992
Current
Federal $ 25,545 $ 24,224 $ 19,803
State 5,761 4,393 3,703
Foreign 481 653 164
Total current 31,787 29,270 23,670
Deferred
Federal (1,198) (1,572) (916)
State (209) (427) (189)
Foreign (47) (58) (114)
Total deferred (1,454) (2,057) (1,219)
Cumulative Tax Effect of
Changes in accounting
methods for:
Income taxes (1,075)
Postretirement benefits (688)
Total cumulative effect (1,763)
Total income taxes $ 30,333 $ 25,450 $ 22,451
<PAGE> 17
Significant components of the Company's deferred tax assets and liabilities are
as follows:
October 28, October 29,
(Dollars in Thousands) 1994 1993
Deferred tax assets:
Product liability accruals $ 2,097 $ 1,910
Insurance reserves 2,216 1,848
Deferred compensation 1,721 2,016
Workers' compensation
reserves 3,171 2,764
Employee compensation reserve 2,075 2,792
Other 6,135 5,398
Total deferred tax assets 17,415 16,728
Deferred tax liabilities:
Tax over book depreciation (8,360) (10,499)
Other (2,735) (1,363)
Total deferred tax liabilities (11,095) (11,862)
Net deferred tax assets $ 6,320 $ 4,866
The components of the provision for deferred income taxes for the year ended
October 30, 1992 are as follows:
(Dollars in Thousands)
Depreciation $ (362)
Product liability 67
Insurance reserves (1)
Deferred compensation (393)
Other (530)
Deferred tax expense $(1,219)
The reconciliation of income tax computed at the U.S. Federal statutory tax
rates to income tax expense is as follows:
(Dollars in Thousands)
Amount Percent Amount Percent
Liability Method 1994 1993
Tax at U.S.
statutory rates $ 26,618 35.0% $22,788 34.8%
State income
taxes, net of
Federal benefit 3,609 4.7% 2,585 3.8%
Other 106 0.2% 1,152 1.8%
FAS 109 Adoption (1,075) (1.6)%
$ 30,333 39.9% $25,450 38.8%
Deferred Method 1992
Tax at U.S.
statutory rates $ 19,335 34.0%
State income
taxes, net of
Federal benefit 2,320 4.1%
Other 796 1.4%
$22,451 39.5%
Income taxes paid during 1994, 1993 and 1992 were $33,228,000, $24,430,000 and
$26,157,000, respectively.
NOTE H - RETIREMENT BENEFIT PROGRAMS
The Company's primary retirement benefit programs are its defined contribution
plans. Contributions to the Profit Sharing Plan totaled $7,045,000, $6,911,000,
and $6,787,000 for 1994, 1993, and 1992, respectively. The Company's
contributions to the Employee Stock Ownership Plans were $1,950,000, $2,055,000,
and $2,038,000 for 1994, 1993, and 1992, respectively.
The Company also sponsors a number of defined benefit pension plans for certain
hourly employees. The related pension costs are not significant. The funded
status of all pension plans using a 7.5% discount rate in 1994 and an 8%
discount rate in 1993 is as follows:
Overfunded Underfunded
(Dollars in Thousands) Plans Plans
October 28, 1994
Plan assets at fair value $5,721 $10,473
Accumulated benefit
obligation 3,691 12,565
Plan assets in excess of
(less than) accumulated
benefit obligation $2,030 $(2,092)
October 29, 1993
Plan assets at fair value $6,123 $10,920
Accumulated benefit
obligation 3,867 11,953
Plan assets in excess of
(less than) accumulated
benefit obligation $2,256 $(1,033)
NOTE I - OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's defined benefit pension plans, the Company sponsors
a health care plan that provides postretirement medical benefits for some of its
employees.
The Company's accrued postretirement benefit liability of $1,487,000 is equal to
its accumulated postretirement benefit obligation at October 28, 1994. Net
periodic postretirement expense for the years ended October 28, 1994 and October
29, 1993 was $187,000 and $226,000, respectively.
The weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 12 percent for 1995 and
is assumed to decrease gradually to 5.5 percent for 2005
<PAGE> 18
and remain at that level thereafter. Increasing the assumed health care cost
trend rates by one percentage point would increase the accumulated
postretirement benefit obligation as of October 28, 1994 by $165,000, and the
aggregate of the service and interest costs components of net periodic
postretirement benefit expense for 1994 by $30,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation at October 28, 1994 was 8%.
NOTE J - QUARTERLY RESULTS OF OPERATIONS
(Unaudited)
The following is a tabulation of the unaudited quarterly results for the years
ended October 28, 1994 and October 29, 1993:
(Dollars in Thousands)
Net
Gross Net Income
Net Sales Margin Income Per Share
1994 Quarter Ended:
January 28 $147,972 $ 39,308 $ 4,264 $ .20
April 29 245,634 65,037 14,271 .65
July 29 200,961 59,393 14,560 .67
October 28 192,281 58,900 12,389 .57
$786,848 $222,638 $45,484 $2.08
1993 Quarter Ended:
January 29 $137,167 $ 34,732 $ 3,392 $ .16
April 30 179,043 49,690 10,181 .47
July 30 196,861 57,425 14,414 .66
October 29 180,607 54,797 12,195 .56
$693,678 $196,644 $40,182 $1.85
The quarterly operating results for the year ended October 29, 1993 have been
restated to reflect the adoption of FASB Statement No. 109, "Accounting for
Income Taxes." The effect on previously reported net income for the first
quarter of 1993 would be an increase of $1,075,000 ($.05 per share) as a result
of the cumulative effect on prior years of adopting Statement No. 109. The
effective income tax rate for the first quarter prior to the adoption of
Statement No. 109 was 39.5% and 20.3% after the adoption. The 12 month effective
tax rate impact was 40.4% prior to adoption and 38.8% after the adoption of
Statement No. 109. The change had no material effect on net income for the last
three quarters of the year ended October 29, 1993.
The quarterly operating results for the year ended October 29, 1993 also have
been restated to reflect the adoption of FASB Statement No. 106 "Employers'
Accounting for Postretirement Benefits Other than Pensions." The effect on
previously reported net income for the first quarter of 1993 would be a decrease
of $1,024,000 ($.05 per share) as a result of the cumulative effect on prior
years of adopting Statement No. 106. The change had no material effect on net
income for the last three quarters of the year ended October 29, 1993.
NOTE K - STOCK SPLIT
The Company's Board of Directors declared a 2-for-1 stock split, effected in the
form of a 100% stock dividend, for shareholders of record March 9, 1992.
Information regarding shares outstanding, earnings per share, dividends per
share and common stock options has been restated to give retroactive effect to
the stock split.
<PAGE> 19
Exhibit No. 22
SUBSIDIARIES OF THE VALSPAR CORPORATION
The following are wholly-owned subsidiaries of The Valspar Corporation and do
business under its corporate name:
State of Incorporation
Engineered Polymer Solutions, Inc. Delaware
Valspar Inc. Canada
Subsidiaries not listed would not, if considered in the aggregate as a single
subsidiary, constitute a significant subsidiary.
Exhibit No. 23(a)
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Valspar Corporation of our report dated November 14, 1994, included in
the 1994 Annual Report to Stockholders of The Valspar Corporation.
Our audits also included the financial statement schedules listed in Item 14(a).
These schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
Forms S-8 No. 2-79961, No. 2-79962, No. 33-51224 and No. 33-51226 pertaining to
The Valspar Stock Ownership Trusts; Form S-8 No. 33-39258 pertaining to The
Valspar Corporation 1991 Stock Option Plan; Form S-8 No. 33-51222 pertaining to
The Valspar Profit Sharing Retirement Plan; Form S-8 No. 33-53824 pertaining to
The Valspar Corporation Key Employee Annual Bonus Plan; Form S-8 No. 33-56062
pertaining to The Valspar Corporation Restricted Stock Plan for Non-Employee
Directors; and Form S-8 No. 33-72238 pertaining to the Valspar Corporation 1982
Incentive Stock Option Plan and 1989 Nonqualified Stock Option Plan of The
Valspar Corporation of our report dated November 14, 1994, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedules included in this Annual Report (Form 10-K) of The Valspar
Corporation.
ERNST & YOUNG LLP
Minneapolis, Minnesota
January 26, 1995
Exhibit 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements No.
33-51224, No. 33-51226, and No. 33-51222 of The Valspar Corporation on Form S-8
of our reports dated January 6, 1994, with respect to the financial statements
of the Valspar Stock Ownership Trust for Salaried Employees, the Valspar Stock
Ownership Trust for Hourly Employees, and the Valspar Profit Sharing Retirement
Plan for the year ended October 28, 1994 appearing in the Annual Report on Form
10-K of Valspar Corporation.
DELOITTE & TOUCHE LLP
January 24, 1995
Minneapolis, Minnesota
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE
ARTICLE 5 OF REGULATION S-X
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-28-1994
<PERIOD-END> OCT-28-1994
<CASH> 2,364
<SECURITIES> 0
<RECEIVABLES> 112,742
<ALLOWANCES> (835)
<INVENTORY> 82,430
<CURRENT-ASSETS> 220,899
<PP&E> 208,293
<DEPRECIATION> (101,265)
<TOTAL-ASSETS> 363,368
<CURRENT-LIABILITIES> 134,798
<BONDS> 0
<COMMON> 13,330
0
0
<OTHER-SE> (2,616)
<TOTAL-LIABILITY-AND-EQUITY> 363,368
<SALES> 786,848
<TOTAL-REVENUES> 786,848
<CGS> 564,210
<TOTAL-COSTS> 143,356
<OTHER-EXPENSES> 606
<LOSS-PROVISION> 355
<INTEREST-EXPENSE> 2,504
<INCOME-PRETAX> 75,817
<INCOME-TAX> 30,333
<INCOME-CONTINUING> 45,484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,484
<EPS-PRIMARY> 2.08
<EPS-DILUTED> 2.08
</TABLE>
Exhibit 28(a)
VALSPAR STOCK OWNERSHIP TRUST
FOR SALARIED EMPLOYEES
FINANCIAL STATEMENTS FOR THE YEARS ENDED
OCTOBER 28, 1994 AND OCTOBER 29, 1993
AND INDEPENDENT AUDITORS' REPORT
THE VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4
SUPPLEMENTAL SCHEDULE -
Item 27a - Schedule of Assets Held for Investment Purposes 8
INDEPENDENT AUDITORS' REPORT
The Valspar Stock Ownership Trust
Administrative Committee
We have audited the accompanying statements of net assets available for benefits
of the Valspar Stock Ownership Trust for Salaried Employees (the Plan) as of
October 28, 1994 and October 29, 1993 and the related statements of changes in
net assets available for benefits for the years then ended. These financial
statements are the responsibility of the Plan'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 net assets available for benefits of the Plan at
October 28, 1994 and October 29, 1993 and the changes in its net assets
available for benefits for the years then ended in conformity with generally
accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
1994 financial statements taken as a whole. The supplemental schedule listed in
the Table of Contents is presented for the purpose of additional analysis and is
not a required part of the basic financial statements but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplementary schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
DELOITTE & TOUCHE LLP
January 12, 1995
Minneapolis, Minnesota
VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
OCTOBER 28, 1994 AND OCTOBER 29, 1993
1994 1993
ASSETS:
Investments (Note 3):
Interest in Valspar
Stock Ownership Master Trust $80,511,333 $72,531,736
Other 281,892 89,361
Receivables:
Employees' contributions 217,423 201,241
Employer's contributions 100,230 94,323
NET ASSETS AVAILABLE FOR BENEFITS $81,110,878 $72,916,661
See notes to financial statements.
VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED OCTOBER 28,1994 AND OCTOBER 29,1993
1994 1993
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Employee contributions $ 3,061,731 $ 2,846,126
Employer contributions 1,499,185 1,383,213
Interest in earnings of Valspar
Stock Ownership Master Trust 11,921,158 14,593,753
Other (3,990) 14,733
16,478,084 18,837,825
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Dividend payments to participants 923,510 792,000
Benefit payments:
The Valspar Corporation:
In cash 142,353 194,548
In stock 6,490,677 3,926,446
McWhorter Technologies, Incorporated:
In cash 8,980
In stock 698,117
Other 20,230
8,283,867 4,912,994
NET INCREASE 8,194,217 13,924,831
NET ASSETS AVAILABLE FOR BENEFITS AT
BEGINNING OF YEAR 72,916,661 58,991,830
NET ASSETS AVAILABLE FOR BENEFITS AT
END OF YEAR $ 81,110,878 $ 72,916,661
See notes to financial statements.
VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 28,1994 AND OCTOBER 29,1993
1. SIGNIFICANT ACCOUNTING POLICIES
The accounting records of the The Valspar Stock Ownership Trust for
Salaried Employees (the Plan) are maintained on the accrual basis.
Investments in common stock of The Valspar Corporation (the Company) and
McWhorter Technologies, Incorporated (McWhorter) are stated at fair value
(the last reported sales price on the last business day of the year).
Other investments are stated at current fair value as determined by the
trustee, Norwest Bank Minnesota, N.A., who holds the various investments.
The trustee values securities which are traded on a national securities
exchange at the last reported sales price on the last business day of the
year; investments traded in the over-the-counter market and listed
securities for which no sale was reported on that date are valued at the
average of the last reported bid and ask prices.
Benefits paid to participants in shares of the Company or in shares of
McWhorter are valued at fair value.
Approved benefits payable representing the unpaid vested interest of
participants who have withdrawn from the Plan were $20,991 and $3,267 at
October 28, 1994 and October 29, 1993, respectively.
2. DESCRIPTION OF THE PLAN
The Plan is a defined contribution plan that is available to all salaried
employees who meet certain age and length of service requirements. It
provides for retirement and termination benefits.
Employees electing to participate in the Plan make voluntary contributions
on a pretax or after-tax basis up to a maximum of 6% of eligible wages.
The Company has voluntarily agreed to contribute an amount equal to
one-half of eligible wages contributed by employees. Employee
contributions vest immediately, and Company contributions vest after five
years of service. The Company has the right under the Plan to terminate
the Plan and discontinue such contributions at any anniversary date. In
the event of termination of the Plan, the net assets of the Plan are to be
set aside for the exclusive benefit of the participants or their
beneficiaries.
According to the Plan, contributions are to be primarily invested in
common stock of the Company. Cash dividends earned on plan shares are paid
out to the Plan participants. The common stock of McWhorter is not a
current investment option of the Plan (see Note 6). Participants meeting
certain age and length of participation requirements may diversify a
portion of their interest into investments other than Common Stock of the
Company.
Forfeitures resulting from the termination of Plan participants with less
than 100% vesting reduce the Company's contribution in the year of
forfeiture. Total forfeitures were $28,138 and $42,435 in 1994 and 1993,
respectively.
3. INVESTMENTS
Investments of the Valspar Stock Ownership Master Trust are accounted for
on a share value basis as determined by Norwest Bank Minnesota, N.A.,
trustee.
The fair value of investments of the Valspar Stock Ownership Master Trust
in which the Plan invests are as follows:
October 28, October 29,
1994 1993
Common stock of the Valspar Corporation $78,930,684 $87,191,831
Common stock of McWhorter Technologies,
Incorporated (Note 6) 18,624,874
Collective Trust Fund 324,688 40,901
$97,880,246 $87,232,732
The investment income of the Valspar Stock Ownership Master Trust for the
year ended October 28, 1994 is as follows:
Valspar Stock:
Interest $ 10,803
Dividends 1,122,192
Unrealized asset appreciation 16,124,133
$17,257,128
McWhorter Stock:
Interest $ 266
Gain on sale of assets 374,659
Unrealized asset appreciation 1,344,684
$1,719,609
The Valspar Stock Ownership Master Trust holds assets for the Plan and the
Valspar Stock Ownership Trust for Hourly Employees. The Plan's ownership
interest in the Valspar Stock Ownership Master Trust was 82.2% and 83.1%
on October 28, 1994 and October 29, 1993, respectively.
Other investments of the Plan include investments in the Equity Fund
Master Trust, the Bond Fund Master Trust, the Principal Protection Fund
Master Trust, and a Norwest Short-term investment fund (collective trust
fund). These alternative investments are available for diversification
purposes to Plan participants who have attained age 55 and have ten years
of participation in the Plan.
4. TRANSACTIONS WITH PARTIES-IN-INTEREST
Fees incurred for trustee, recordkeeping, and other services rendered by
parties-in-interest are paid by the Company.
During the years ended October 28, 1994 and October 29, 1993, the Valspar
Stock Ownership Master Trust purchased 163,267 and 154,535 shares of
common stock of the Company at a cost of $6,170,396 and $5,446,836,
respectively. Dividends on common stock of the Company received by the
Master Trust totaled $1,122,192 and $954,479 in the years ended October
28, 1994 and October 29, 1993, respectively.
5. INCOME TAX STATUS
The Plan obtained its latest determination letter on May 26, 1992 in which
the Internal Revenue Service stated that the Plan, as then designed, was
in compliance with the applicable requirements of the Internal Revenue
Code. The Plan has been amended to comply with new legislation enacted
since receiving the determination letter. However, the Plan administrator
and the Plan's tax counsel believe that the Plan is currently designed and
being operated in compliance with the applicable requirements of the
Internal Revenue Code. Therefore, no provision for income taxes has been
included in the Plan's financial statements.
6. MCWHORTER TECHNOLOGIES, INC. TRANSACTION
On April 29, 1994, Valspar stockholders of record as of April 15, 1994
(including Plan participants with a portion of their account balance
invested in Valspar stock as of that date) received a stock dividend of
one share of McWhorter Technologies, Inc. common stock for every two
shares of Valspar Corporation common stock held.
The common stock of McWhorter Technologies, Inc. is not a current investment
option of the Plan and plan participants may not increase the allocation of
their account balance to McWhorter stock. Participants may make a one time
election to liquidate all of their shares of common stock of McWhorter
Technologies, Inc. Proceeds from liquidation will be reinvested in Valspar
common stock.
SUPPLEMENTAL SCHEDULE
THE VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
OCTOBER 28,1994
<TABLE>
<CAPTION>
DESCRIPTION OF INVESTMENT
INCLUDING MATURITY DATE,
IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST, CURRENT
LESSOR, OR SIMILAR PARTY PAR, OR MATURITY VALUE COST VALUE
<S> <C> <C> <C>
Interest in Master Trust Funds:
Equity Fund Master Trust 6,144 units $ 61,442 $ 59,160
Bond Fund Master Trust 1,624 units 20,009 16,259
Principal Protection Fund
Master Trust 1,254 units 15,562 16,316
Valspar Stock Ownership
Master Trust 2,595,305 units 25,476,001 80,511,333
Interest in common stock:
The Valspar Corporation 4,178 shares 49,325 153,019
McWhorter Technologies,
Incorporated 1,994 shares 10,739 37,138
$ 25,633,078 $ 80,793,225
</TABLE>
Exhibit 28(b)
VALSPAR STOCK OWNERSHIP TRUST
FOR HOURLY EMPLOYEES
FINANCIAL STATEMENTS FOR THE YEARS ENDED
OCTOBER 28, 1994 AND OCTOBER 29, 1993
AND INDEPENDENT AUDITORS' REPORT
THE VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4
SUPPLEMENTAL SCHEDULE -
Item 27a - Schedule of Assets Held for Investment Purposes 8
INDEPENDENT AUDITORS' REPORT
The Valspar Stock Ownership Trust
Administrative Committee
We have audited the accompanying statements of net assets available for benefits
of the Valspar Stock Ownership Trust for Hourly Employees (the Plan) as of
October 28, 1994 and October 29, 1993 and the related statements of changes in
net assets available for benefits for the years then ended. These financial
statements are the responsibility of the Plan'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 net assets available for benefits of the Plan at
October 28, 1994 and October 29, 1993 and the changes in its net assets
available for benefits for the years then ended in conformity with generally
accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
1994 financial statements taken as a whole. The supplemental schedule listed in
the Table of Contents is presented for the purpose of additional analysis and is
not a required part of the basic financial statements but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplementary schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
DELOITTE & TOUCHE LLP
January 12, 1995
Minneapolis, Minnesota
VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
OCTOBER 28,1994 AND OCTOBER 29,1993
1994 1993
ASSETS:
Investments (Note 3):
Interest in Valspar Stock
Ownership Master Trust $17,368,913 $14,700,996
Other 243,379 112,106
Receivables:
Employees' contributions 104,730 90,028
Employer's contributions 47,379 45,015
NET ASSETS AVAILABLE FOR BENEFITS $17,764,401 $14,948,145
See notes to financial statements.
VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED OCTOBER 28,1994 AND OCTOBER 29,1993
1994 1993
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Employee contributions $ 1,152,012 $ 909,975
Employer contributions 527,084 447,510
Interest in earnings of Valspar Stock Ownership
Master Trust 2,039,237 2,882,226
Other 304,182 15,195
4,022,515 4,254,906
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Dividend payments to participants 195,748 159,921
Benefit payments:
The Valspar Corporation:
In cash 132,686 144,368
In stock 725,705 838,010
McWhorter Technologies, Incorporated:
In cash 3,313
In stock 148,807
1,206,259 1,142,299
NET INCREASE 2,816,256 3,112,607
NET ASSETS AVAILABLE FOR BENEFITS AT
BEGINNING OF YEAR 14,948,145 11,835,538
NET ASSETS AVAILABLE FOR BENEFITS AT
END OF YEAR $17,764,401 $14,948,145
See notes to financial statements.
VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 28,1994 AND OCTOBER 29,1993
1. SIGNIFICANT ACCOUNTING POLICIES
The accounting records of The Valspar Stock Ownership Trust for Hourly
Employees (the Plan) are maintained on the accrual basis.
Investments in common stock of The Valspar Corporation (the Company) and
McWhorter Technologies, Incorporated (McWhorter) are stated at fair value
(the last reported sales price on the last business day of the year).
Other investments are stated at current fair value as determined by the
trustee, Norwest Bank Minnesota, N.A., who holds the various investments.
The trustee values securities which are traded on a national securities
exchange at the last reported sales price on the last business day of the
year; investments traded in the over-the-counter market and listed
securities for which no sale was reported on that date are valued at the
average of the last reported bid and ask prices.
Benefits paid to participants in shares of the Company or in shares of
McWhorter are valued at fair value.
Approved benefits payable representing the unpaid vested interest of
participants who have withdrawn from the Plan were $311 and $144 at
October 28, 1994 and October 29, 1993, respectively.
2. DESCRIPTION OF THE PLAN
The Plan is a defined contribution plan that is available to all hourly
employees who meet certain age and length of service requirements. It
provides for retirement and termination benefits.
Employees electing to participate in the Plan make voluntary
contributions on a pretax or after-tax basis up to a maximum of 6% of
eligible wages. The Company has voluntarily agreed to contribute an
amount equal to one-half of eligible wages contributed by employees.
Employee contributions vest immediately, and Company contributions vest
after five years of service. The Company has the right under the Plan to
terminate the Plan and discontinue such contributions at any anniversary
date. In the event of termination of the Plan, the net assets of the Plan
are to be set aside for the exclusive benefit of the participants or
their beneficiaries.
According to the Plan, contributions are to be primarily invested in
common stock of the Company. Cash dividends earned on plan shares are
paid out to the Plan participants. The common stock of McWhorter is not a
current investment option of the Plan (see Note 6). Participants meeting
certain age and length of participation requirements may diversify a
portion of their interest into investments other than Common Stock of the
Company.
Forfeitures resulting from the termination of Plan participants with less
than 100% vesting reduce the Company's contribution in the year of
forfeiture. Total forfeitures were $1,546 and $7,493 in 1994 and 1993,
respectively.
3. INVESTMENTS
Investments of the Valspar Stock Ownership Master Trust are accounted for
on a share value basis as determined by Norwest Bank Minnesota N.A.,
trustee.
The fair value of investments of the Valspar Stock Ownership Master Trust
in which the Plan invests are as follows:
October 28, October 29,
1994 1993
Common stock of the Valspar Corporation $78,930,684 $87,191,831
Common stock of McWhorter Technologies,
Incorporated (Note 6) 18,624,874
Collective Trust Fund 324,688 40,901
$97,880,246 $87,232,732
The investment income of the Valspar Stock Ownership Master Trust for the
year ended October 28, 1994 is as follows:
Valspar Stock:
Interest $ 10,803
Dividends 1,122,192
Unrealized asset appreciation 16,124,133
$17,257,128
McWhorter Stock:
Interest $ 266
Gain on sale of assets 374,659
Unrealized asset appreciation 1,344,684
$1,719,609
The Valspar Stock Ownership Master Trust holds assets for the Plan and
the Valspar Stock Ownership Trust for Salaried Employees. The Plan's
ownership interest in the Valspar Stock Ownership Master Trust was 17.8%
and 16.9% on October 28, 1994 and October 29, 1993, respectively.
Other investments of the Plan include investments in the Equity Fund
Master Trust, the Bond Fund Master Trust, the Principal Protection Fund
Master Trust, and a Norwest Short-term investment fund (collective trust
fund). These alternative investments are available for diversification
purposes to Plan participants who have attained age 55 and have ten years
of participation in the Plan.
4. TRANSACTIONS WITH PARTIES-IN-INTEREST
Fees incurred for trustee, recordkeeping, and other services rendered by
parties-in-interest are paid by the Company.
During the years ended October 28, 1994 and October 29, 1993, the Valspar
Stock Ownership Master Trust purchased 163,267 and 154,535 shares of
common stock of the Company at a cost of $6,170,396 and $5,446,836,
respectively. Dividends on common stock of the Company received by the
Master Trust totaled $1,122,192 and $954,479 in the years ended October
28, 1994 and October 29, 1993, respectively.
5. INCOME TAX STATUS
The Plan obtained its latest determination letter on May 26, 1992 in
which the Internal Revenue Service stated that the Plan, as then
designed, was in compliance with the applicable requirements of the
Internal Revenue Code. The Plan has been amended to comply with new
legislation enacted since receiving the determination letter. However,
the Plan administrator and the Plan's tax counsel believe that the Plan
is currently designed and being operated in compliance with the
applicable requirements of the Internal Revenue Code. Therefore, no
provision for income taxes has been included in the Plan's financial
statements.
6. MCWHORTER TECHNOLOGIES, INC. TRANSACTION
On April 29, 1994, Valspar stockholders of record as of April 15, 1994
(including Plan participants with a portion of their account balance
invested in Valspar stock as of that date) received a stock dividend of
one share of McWhorter Technologies, Inc. common stock for every two
shares of Valspar Corporation common stock held.
The common stock of McWhorter Technologies, Inc. is not a current
investment option of the Plan and plan participants may not increase the
allocation of their account balance to McWhorter stock. Participants may
make a one time election to liquidate all of their shares of common stock
of McWhorter Technologies, Inc. Proceeds from liquidation will be
reinvested in Valspar common stock.
SUPPLEMENTAL SCHEDULE
THE VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
OCTOBER 28, 1994
<TABLE>
<CAPTION>
DESCRIPTION OF INVESTMENT
INCLUDING MATURITY DATE,
IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST, CURRENT
LESSOR, OR SIMILAR PARTY PAR, OR MATURITY VALUE COST VALUE
<S> <C> <C> <C>
Interest in Master Trust Funds:
Equity Fund Master Trust 5,046 units $ 50,354 $ 48,585
Bond Fund Master Trust 1,856 units 22,865 18,580
Principal Protection Fund
Master Trust 1,869 units 20,270 24,313
Valspar Stock Ownership
Master Trust 557,743 units 5,489,821 17,368,913
Interest in common stock:
The Valspar Corporation 3,316 shares 39,148 121,449
McWhorter Technologies,
Incorporated 1,635 shares 8,806 30,452
$ 5,631,264 $ 17,612,292
</TABLE>
Exhibit 28(c)
THE VALSPAR PROFIT SHARING
RETIREMENT PLAN
FINANCIAL STATEMENTS FOR THE YEARS ENDED
OCTOBER 28, 1994 AND OCTOBER 29, 1993
AND INDEPENDENT AUDITORS' REPORT
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4
SUPPLEMENTAL SCHEDULES:
Item 27a - Schedule of Assets Held for Investment Purposes 11
Item 27d - Schedule of Reportable Transactions 12
INDEPENDENT AUDITORS' REPORT
The Valspar Profit Sharing Retirement
Plan Administrative Committee
We have audited the accompanying statements of net assets available for benefits
of The Valspar Profit Sharing Retirement Plan (the Plan) as of October 28, 1994
and October 29, 1993 and the related statements of changes in net assets
available for benefits for the years then ended. These financial statements are
the responsibility of the Plan'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 net assets available for benefits of the Plan at
October 28, 1994 and October 29, 1993 and the changes in its net assets
available for benefits for the years then ended in conformity with generally
accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
1994 financial statements taken as a whole. The supplemental schedules listed in
the Table of Contents are presented for the purpose of additional analysis and
are not a required part of the basic financial statements, but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplementary schedules have been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, are
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
DELOITTE & TOUCHE LLP
January 12, 1995
Minneapolis, Minnesota
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
OCTOBER 28,1994 AND OCTOBER 29,1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
ASSETS:
Investments (Note 3):
Interest in Balanced Fund Master Trust $67,449,361
Interest in Bond Fund Master Trust $13,547,559
Interest in Equity Fund Master Trust 39,474,266
Interest in Principal Protection Fund Master Trust 19,507,604 17,882,025
The Valspar Corporation Common Stock 11,987,143 3,596,725
McWhorter Technologies, Incorporated
Common Stock (Note 6) 1,970,860
Interest in collective funds 406,692 452,162
Total investments 86,894,124 89,380,273
Receivables:
Employer's contributions 4,692,361 4,566,125
Employees' contributions 163,939 154,377
NET ASSETS AVAILABLE FOR BENEFITS $91,750,424 $94,100,775
</TABLE>
See notes to financial statements.
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED OCTOBER 28, 1994 AND OCTOBER 29, 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Employer contributions $ 4,694,800 $ 4,566,125
Employee contributions 2,311,980 2,526,747
Net investment gain - Balanced Fund Master Trust 339,954 11,228,537
Net investment loss - Bond Fund Master Trust (4,068,898)
Net investment loss - Equity Fund Master Trust (1,839,798)
Net investment gain - Principal Protection Fund Master Trust 1,010,081 1,047,036
Net investment (loss) gain - Collective Trust Funds (6,647) 19,511
The Valspar Corporation Common Stock:
Net investment gain 1,330,746 664,179
Dividends 103,457 37,491
McWhorter Technologies, Incorporated Common Stock -
Net investment gain 177,169
4,052,844 20,089,626
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO -
Benefit payments 6,403,195 5,098,691
NET (DECREASE) INCREASE (2,350,351) 14,990,935
NET ASSETS AVAILABLE FOR BENEFITS AT
BEGINNING OF YEAR 94,100,775 79,109,840
NET ASSETS AVAILABLE FOR BENEFITS AT
END OF YEAR $ 91,750,424 $ 94,100,775
</TABLE>
See notes to financial statements.
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 28, 1994 AND OCTOBER 29, 1993
1. SIGNIFICANT ACCOUNTING POLICIES
The accounting records of the Valspar Profit Sharing Retirement Plan (the
Plan) are maintained on an accrual basis.
Investments are stated at current fair value as determined by Norwest
Bank Minnesota, N.A. (the Trustee), which holds the various investments.
The Trustee values securities that are traded on a national exchange at
the last reported sales price on the last business day of the year;
investments traded in the over-the-counter market and listed securities
for which no sales were reported on that date are valued at the average
of the last reported bid and ask prices.
Approved benefits payable representing the unpaid vested interest of
participants who have withdrawn from the Plan were $433,606 and $164,129
at October 28, 1994 and October 29, 1993, respectively.
2. DESCRIPTION OF THE PLAN
The Plan is a defined contribution plan which covers substantially all
employees of The Valspar Corporation (the Company) who are not
participants in a defined benefit retirement plan sponsored by the
Company. The Plan provides for retirement and termination benefits. The
Company has agreed to contribute voluntarily such amounts as determined
in accordance with the provisions of the Plan. The Company has the right
under the Plan to terminate the Plan and discontinue such contributions
at any anniversary date. In the event of the termination of the Plan, the
assets of the Plan are to be set aside for the exclusive benefit of the
participants or their beneficiaries.
Contributions up to a maximum of 10% of the participants' eligible wages
may be made as defined by the Plan. Contributions are comprised of both
employee 401(k) contributions and Company contributions. Company
contributions to the Plan are based on the Company's return on assets for
the fiscal year ending coincident with the Plan year. Employee
contributions vest immediately, and Company contributions vest after five
years of service.
Forfeitures resulting from the termination of plan participants less than
100% vested reduce the Company's contribution in the year of forfeiture.
Total forfeitures were $97,842 and $69,631 in 1994 and 1993,
respectively.
3. INVESTMENTS
Effective January 1, 1994, participants in the Plan have four investment
options: the Principal Protection Fund, Bond Fund, Equity Fund, and
Valspar Common Stock Fund. The Collective Trusts and McWhorter Common
Stock Fund are not available as current investment options (see Note 6).
Also effective January 1, 1994, participants may change their investment
elections quarterly and may allocate their account balance among one or
more of the options in increments of 5%.
During 1993, the Plan offered participants a choice of three investment
options for the investment of plan assets: the Balanced Fund, the
Principal Protection Fund, and the Valspar Common Stock Fund. The
Collective Trusts were not available as current investment options.
Participants were able to change their investment elections twice
annually and were able to allocate their account balance among the
investment options in increments of 25%.
The change in net assets available for benefits by investment option for
the year ended October 28, 1994 is as follows:
<TABLE>
<CAPTION>
Investment Options
Valspar McWhorter
Principal Common Common
Balanced Bond Equity Protection Stock Stock Collective
Fund Fund Fund Fund Fund Fund Trusts Total
<S> <C> <C> <C> <C> <C> <C>
Additions to net
assets
attributed to:
Employer con-
tributions $ 380 $ 869,197 $2,149,901 $ 830,437 $ 844,885 $4,694,800
Employee con-
tributions 292,004 387,310 930,181 393,773 308,712 2,311,980
Net investment
gain - Balanced
Fund 339,954 339,954
Net investment
loss - Bond
Fund (4,068,898) (4,068,898)
Net investment
loss - Equity
Fund (1,839,798) (1,839,798)
Net investment
gain - Principal
Protection Fund 1,010,081 1,010,081
Net investment
loss - Collective
Trust Funds $ (6,647) (6,647)
Valspar Corporation
Common
Stock:
Net investment
gains 1,330,746 1,330,746
Dividends 103,457 103,457
McWhorter Tech-
nologies, Incor-
porated Com-
mon Stock -
Net investment
gain $ 177,169 177,169
632,338 (2,812,391) 1,240,284 2,234,291 2,587,800 177,169 (6,647) 4,052,844
Deductions from net
assets attributed
to -
Benefit payments 1,031,990 863,969 1,614,194 2,577,307 254,194 47,141 14,400 6,403,195
Net (decrease) increase
prior to interfund
transfers (399,652) (3,676,360) (373,910) (343,016) 2,333,606 130,028 (21,047) (2,350,351)
Interfund
transfers (70,541,410) 18,138,603 42,152,483 1,721,431 6,687,611 1,840,832 450
Net (decrease)
increase $(70,941,062)$14,462,243 $41,778,573 $ 1,378,415 $9,021,217 $1,970,860 $ (20,597)$(2,350,351)
</TABLE>
The change in net assets available for benefits by investment option for
the year ended October 29, 1993 is as follows:
<TABLE>
<CAPTION>
Investment Options
Valspar
Principal Common
Balanced Protection Stock Collective
Fund Fund Fund Trusts Total
<S> <C> <C> <C> <C>
Additions to net assets
attributed to:
Employer contributions $ 3,242,498 $ 1,029,706 $ 293,921 $ 4,566,125
Employee contributions 1,516,577 822,512 187,658 2,526,747
Net investment gain -
Balanced Fund 11,228,537 11,228,537
Net investment gain -
Principal Protection Fund 1,047,036 1,047,036
Net investment gain -
Collective Trust Funds $ 19,511 19,511
Valspar Corporation Common
Stock:
Net investment gains 664,179 664,179
Dividends 37,491 37,491
15,987,612 2,899,254 1,183,249 19,511 20,089,626
Deductions from net assets
attributed to -
Benefit payments 3,360,769 1,452,308 272,714 12,900 5,098,691
Net increase $ 12,626,843 $ 1,446,946 $ 910,535 $ 6,611 $ 14,990,935
</TABLE>
As of October 28, 1994, the assets in the Equity Fund, the Bond Fund, and
the Principal Protection Fund are maintained in three master trusts, the
Equity Fund Master Trust, the Bond Fund Master Trust, and the Principal
Protection Fund Master Trust, respectively. As of October 28, 1993, the
assets in the Balanced Fund and the Principal Protection Fund were
maintained in two master trusts, the Balanced Fund Master Trust and the
Principal Protection Fund Master Trust, respectively. The Master Trusts
hold assets for the Plan, Employee Pension Plans, and the Valspar Stock
Ownership Plans. The Plan's ownership interest in the Equity Fund Master
Trust, Bond Fund Master Trust, and Principal Protection Fund Master Trust
was 88.4%, 99.8%, and 99.8%, respectively, on October 28, 1994. On
October 29, 1993, the Plan's ownership interest in the Balanced Fund
Master Trust and Principal Protection Fund Master Trust was 82.2% and
99.8%, respectively.
Investments of the Master Trusts are determined on a unit value basis as
determined by Norwest Bank Minnesota, N.A., Trustee.
The fair values of investments of the Master Trusts in which the Plan
invests are as follows:
<TABLE>
<CAPTION>
October 28, October 29,
1994 1993
<S> <C> <C>
Balanced Fund Master Trust:
Cash and short-term investment fund $ 7,057,502
United States Government securities 15,089,711
Municipal securities and foreign debt securities 2,092,194
Corporate bonds and debentures 6,231,211
Common stocks 34,040,662
Collective equity fund 16,675,173
Net amount due for settlements pending 615,163
Accrued income 204,519
$ 82,006,135
Bond Fund Master Trust:
Cash and short-term investment fund $ 4,899,873
United States Government securities 3,895,630
Municipal securities and foreign debt securities 2,475,928
Corporate bonds and debentures 748,537
Mutual bond fund 1,454,752
Accrued income 107,676
$ 13,582,396
Equity Fund Master Trust:
Cash and short-term investment fund $ 1,021,007
Common stock 29,348,260
Collective equity fund 14,143,683
Net amount due for settlements pending 191,024
Accrued income 25,525
$ 44,729,499
Principal Protection Fund Master Trust -
Collective trust funds $ 19,548,234 $ 17,919,608
</TABLE>
The net investment income of the Master Trusts for the year ended
October 28, 1994 are as follows:
<TABLE>
<S> <C>
Balanced Fund Master Trust:
Interest $ 415,403
Dividends 57,639
Net gain on sale of assets 5,086,535
Unrealized asset depreciation (5,063,174)
Investment advisory and management fees (84,319)
$ 412,084
Bond Fund Master Trust:
Interest $ 339,568
Net loss on sale of assets (982,517)
Unrealized asset depreciation (3,409,123)
Investment advisory and management fees (34,918)
$ (4,086,990)
Equity Fund Master Trust:
Interest $ 67,862
Dividends 230,022
Net gain on sale of assets 27,329
Unrealized asset depreciation (2,430,634)
Investment advisory and management fees (329,200)
$ (2,434,621)
Principal Protection Fund Master Trust:
Interest $ 1,064,300
Unrealized asset appreciation 15,177
Investment advisory and management fees (68,490)
$ 1,010,987
</TABLE>
4. TRANSACTIONS WITH PARTIES-IN-INTEREST
Fees paid during the year for trustee, recordkeeping, and other services
rendered by parties-in-interest are paid directly by the plan sponsor.
5. INCOME TAX STATUS
In the Plan's latest determination letter, obtained on September 12,
1990, the Internal Revenue Service stated that the Plan, as then
designed, was in compliance with the applicable requirements of the
Internal Revenue Code. The Plan has been amended to comply with new
legislation enacted since receiving the determination letter. The plan
administrator and the Plan's tax counsel believe that the Plan is
currently designed and operated in compliance with the applicable
requirements of the Internal Revenue Code. Therefore, no provision for
income taxes has been included in the Plan's financial statements.
6. MCWHORTER TECHNOLOGIES, INCORPORATED TRANSACTION
On April 29, 1994, Valspar stockholders of record as of April 15, 1994
(including Plan participants with a portion of their account balance
invested in Valspar stock as of that date) received a stock dividend of
one share of McWhorter Technologies, Inc. common stock for every two
shares of Valspar Corporation common stock held. The initial distribution
of McWhorter Technologies, Inc. common stock is reflected as an interfund
transfer from the Valspar Common Stock Fund in Note 3.
The common stock of McWhorter Technologies, Inc. is not a current
investment option of the Plan, and plan participants may not increase the
allocation of their account balance to McWhorter stock. Participants may
make a one time election to liquidate all of their shares of common stock
of McWhorter Technologies, Inc. Proceeds from liquidation will be
reinvested in the participants' accounts based on their current election
options.
SUPPLEMENTAL SCHEDULES
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
OCTOBER 28,1994
<TABLE>
<CAPTION>
DESCRIPTION OF INVESTMENT
INCLUDING MATURITY DATE,
IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST, CURRENT
LESSOR, OR SIMILAR PARTY PAR, OR MATURITY VALUE COST VALUE
<S> <C> <C> <C>
Common stock:
The Valspar Corporation 327,294 shares $ 9,773,692 $ 11,987,143
McWhorter Technologies,
Incorporated 105,828 shares 1,528,441 1,970,860
Interest in Collective Trust Funds:
Norwest Intermediate U.S.
Government Bond Fund 1,120 units 31,788 62,346
Norwest Managed Fixed Income
Fund 4,955 units 76,177 124,705
Norwest Short-term Investment
Fund 214,680 units 214,680 214,680
Accrued income 4,961 4,961
Interest in Master Trust Funds:
Equity Fund Master Trust 4,099,650 units 40,945,612 39,474,266
Bond Fund Master Trust 1,353,521 units 16,671,976 13,547,559
Principal Protection Fund
Master Trust 1,499,266 units 16,014,128 19,507,604
$ 85,261,455 $ 86,894,124
</TABLE>
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
OCTOBER 28,1994
<TABLE>
<CAPTION>
CURRENT VALUE
OF ASSETS AT NET
IDENTITY OF DESCRIPTION OF PURCHASE SELLING COST OF TRANSACTION GAIN OR
PARTY INVOLVED ASSET/TRANSACTION PRICE PRICE ASSET DATE (LOSS)
<S> <C> <C> <C> <C>
Piper Jaffray Inc. The Valspar Corpo- $ 9,188,753 $ 9,188,753 $ 9,188,753
ration Common
Stock -
Purchased 241,669
shares in 34
transactions
</TABLE>
