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 25, 1996 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 definitive 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 31, 1996 was $580 million based on the closing sales price of $56.625
per share as reported on the New York Stock Exchange. As of such date,
21,892,005 shares of Common Stock, $.50 par value per share (net of 4,768,651
shares in treasury) were outstanding.
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DOCUMENTS INCORPORATED IN PART BY REFERENCE
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Incorporated Documents Location in Form 10-K
1. The Valspar Corporation Annual Report to Stockholders Parts II and IV
for fiscal year ended October 25, 1996
2. The Valspar Corporation Notice of 1997 Annual Meeting Part III
of Stockholders and Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days of fiscal year
ended October 25, 1996
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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 1996 1995 1994
----------------- ---- ---- ----
Consumer Coatings 34% 34% 31%
Packaging Coatings 27 27 25
Industrial Coatings 24 25 23
Special Products 15 14 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; Rockford, Illinois; Tampa, Florida; Wheeling,
Illinois and our newest facility located in Statesville, North Carolina which
was opened in 1995. The latex manufacturing plants in Wheeling, Statesville and
Garland are three of the most efficient facilities in the consumer paint
industry.
The PACKAGING COATINGS group is the largest global coatings supplier to the
rigid packaging industry. 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., U.S.D.A. and
other country specific regulations. Also produced are coatings for aerosol cans,
bottle crowns, closures for glass bottles, and coatings for flexible packaging -
paper, film and foil substrates. In 1995, 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 the Peoples Republic of China and in Southeast Asia.
The group also entered into a joint venture with a large Chinese company for the
manufacture of packaging coatings in the Peoples Republic of China which began
operations in late 1996. During 1995, the Packaging Group expanded its
international operations by establishing wholly-owned foreign subsidiaries in
the United Kingdom, The Valspar (UK) Corporation, Limited, and Australia, The
Valspar (Australia) Corporation Pty, Limited. Toll manufacturing arrangements
were contracted and sales representatives hired to support these subsidiaries.
In 1996, the Company acquired the can coatings and metal decorating inks
business of Coates Coatings. This acquisition expands on the initiatives begun
in 1995. The first phase of the acquisition, completed in May 1996, included
businesses in the UK, France, Norway, Spain, Germany, Australia and the U.S.A.
The second phase, completed January 1997, included businesses in Hong Kong and
China. In some countries, Coates will continue to provide toll manufacturing and
certain facilities and services to the newly acquired businesses.
The primary manufacturing plants for the PACKAGING COATINGS group are in Azusa,
California; Covington, Georgia; Garland, Texas; Pittsburgh, Pennsylvania;
Rochester, Pennsylvania; West Hill, Ontario, Canada; Witney, England; Machen,
England; Nantes, France; Erkrath, Germany; and Mjondalen, Norway.
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 and
furniture. For metal and plastic substrates, a large variety of coatings are
formulated to meet customers' needs and, 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,
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. In late 1994,
the Industrial Group established a foreign subsidiary in Singapore, The Valspar
(Singapore) Corporation Pte Ltd, to manufacture and sell fluorocarbon coatings
for architectural applications in the Far East. The Company does not sell to
original equipment manufacturers.
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, automotive and fleet
refinish 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; and Kankakee, Marengo 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 3 to the Consolidated Financial Statements on page 16 of
Valspar's 1996 Annual Report to Stockholders incorporated by reference into this
Form 10-K. In May 1995, production of emulsions began at a new resin plant in
Marengo, Illinois to support the growth of the Company's consumer paint business
and to better service external customers. The automotive and fleet refinish
coatings are produced at the Company's facility in Picayune, Mississippi. The
acquisition of Sunbelt Coatings, Inc., a manufacturer of automotive and fleet
refinish coatings, was completed in March 1995. The new company, Valspar
Refinish, established a sales force and distribution network throughout the
United States and Canada. The Company is focusing on strengthening its presence
in the fleet refinish coatings sector and the production shop/light industrial
refinish sector. The Company is also a supplier of coatings for auto under-body,
under-hood, exterior and interior trim parts. In November 1996, the Company
acquired House of Kolor, Inc., a high-end custom refinish coatings manufacturer.
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 facility in 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 has formed various international joint ventures in the last several
years. In the Mexican and Central American markets, the Company formed a joint
venture in 1993 called Valspar-Marlux, with Regio Empresas, a Mexican
corporation. While the initial focus of the joint venture was to engage in the
marketing, sales, distribution and technical service of packaging, coil, wood
and general metals coatings, during fiscal year 1996, the joint venture started
producing coatings products at its plant in Monterrey, Mexico. Polycoat Powders
Limited. in India, a joint venture of the Company and the Goodlass Nerolac Paint
Co., Ltd. manufactures decorative powder coatings for the industrial coatings
market in India. The third and most recent joint venture investment was entered
into in 1995 between the Company and China Merchants Hai Hong, a Hong Kong
company, to build a packaging coatings plant in the Shenzhen Economic
Development Zone in the Guangdong Province, China. The grand opening of this
plant was celebrated on October 9, 1996. It is expected that this plant will
provide the Company's packaging coatings products to China and possibly other
South East Asian markets. The Company's joint venture with Smiland Paint
Company, Conco Paint Company, continues to market and sell coatings to the
professional paint market served by home centers.
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
Although the Company licenses some technology, 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 6 of the Notes to Consolidated Financial Statements on
page 17 of Valspar's 1996 Annual Report to Stockholders incorporated by
reference into this Form 10-K.
SIGNIFICANT CUSTOMERS
In 1996, the Company's sales to Lowe's Companies, Inc. exceeded 10% of
consolidated net sales.
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 700 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 well positioned to serve the global markets.
Principal methods of competition for resins and emulsions, automotive and fleet
refinish coatings, 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 1996 were $32,616,000, representing a
17.5% increase over fiscal 1995 ($27,746,000). Fiscal 1995 costs increased 1.2%
over those of fiscal 1994 ($27,430,000). 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 1996, and capital expenditures for 1997 to
comply with existing laws and regulations are also not expected to be material.
EMPLOYEES
The Company employs approximately 2,800 persons, approximately 402 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. The
Company's foreign operations consist of a mixture of licensing, joint ventures
and wholly-owned subsidiary companies. Technologies for packaging and heavy duty
maintenance coatings, colorants, powder coatings and general industrial coatings
are licensed to paint and coating manufacturers in over twenty foreign
countries. The market for packaging coatings has become an increasingly global
market and the Company acquired the metal decorating and packaging coatings
business of Coates Coatings during 1996 to provide global support to the
Company's customers. Greater emphasis is being placed on joint ventures and
wholly-owned subsidiaries by the Company to permit the Company to retain greater
control over its technology. Export sales are also increasing as the Company's
products are being recognized in the global markets. During 1996, export sales
represented approximately 5% of the Company's business.
ITEM 2. PROPERTIES
The Company's principal offices in Minneapolis, Minnesota are owned. Operations
in North America are conducted at twenty-one locations, primarily in Illinois,
California, Texas and Pennsylvania with one plant in West Hill, Ontario, Canada.
Eighteen plants with square footage of 2,300,000 are owned and three of the
plants with square footage of 285,000 are leased. Operations in Europe are
conducted at five locations with two plants in the United Kingdom, one each in
France, Norway and Germany. Four plants are owned with square footage of
230,000. One plant with square footage of 25,000 is leased.
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 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 1996
Annual Report to Stockholders incorporated by reference into this Form 10-K.
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 1996 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 December 1997, 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.
Name Age Position
Richard M. Rompala 50 Chief Executive Officer since October 1995
and President since March 1994
Larry B. Brandenburger 49 Vice President, Research and Development
since October 1989
Stephen M. Briggs 40 Vice President, Consumer Coatings Group
since August 1993
Rolf Engh 43 Vice President, International since
September 1993 and Secretary since
April 1993
Steven L. Erdahl 44 Vice President, Industrial Coatings Group
since June 1991
William L. Mansfield 48 Vice President, Packaging Coatings Group
since February 1991
Paul C. Reyelts 50 Vice President, Finance since April 1982
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. 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.
Prior to April 1993, Mr. Engh was a partner of Lindquist & Vennum, a
Minneapolis, Minnesota law firm, since 1986.
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 1996 Annual Report to Stockholders is incorporated herein by
reference. All market prices indicated in this section represent transactions on
the New York Stock Exchange. The number of record holders of the Company's
Common Stock at December 31, 1996 was 1,812.
The quarterly dividend declared December 11, 1996, which was paid January 15,
1997 to Common Stockholders of record December 31, 1996, was increased to
18(cents) per share.
ITEM 6. SELECTED FINANCIAL DATA
The information in the section titled "Eleven Year Financial Summary" for the
years 1992 through 1996 on pages 6 and 7 of Valspar's 1996 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 1996 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 20
of Valspar's 1996 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 24, 1997 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
through 8 and the section titled "Director Compensation" on pages 4 and 5 of
Valspar's Proxy Statement dated January 24, 1997 is incorporated herein by
reference. The information on pages 8 through 11 of Valspar's Proxy Statement
dated January 24, 1997 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 15 and 16 of Valspar's
Proxy Statement dated January 24, 1997 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 24, 1997 is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) For financial statements and the financial statement schedule filed as a
part of this report, reference is made to "Index to Financial Statements
and Financial Statement Schedule" 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 25, 1996.
(c) The following exhibits are filed as part of this report.
Exhibit
No. Description
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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)(l) THE VALSPAR CORPORATION SUPPLEMENTAL STOCK OWNERSHIP
PLAN**
10(b)(l) THE VALSPAR CORPORATION KEY EMPLOYEES' SUPPLEMENTARY
RETIREMENT PLAN**
10(c)(2) THE VALSPAR CORPORATION SUPPLEMENTAL BONUS PLAN**
10(d)(4) THE VALSPAR CORPORATION DEFERRED BONUS AND STOCK SALE
PLAN--as amended August 12, 1987, December 21, 1988 and
December 12, 1990**
10(e)(5) THE VALSPAR CORPORATION 1991 STOCK OPTION PLAN--as amended
December 11, 1996**
10(f)(5) THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN**
10(g)(6) THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN--as
amended December 13, 1995**
10(h)(7) THE VALSPAR CORPORATION RESTRICTED STOCK PLAN FOR
NON-EMPLOYEE DIRECTORS**
10(i)(8) THE VALSPAR CORPORATION ANNUAL BONUS PLAN**
10(j)(8) THE VALSPAR CORPORATION INCENTIVE BONUS PLAN**
10(k)(+) DISTRIBUTION AGREEMENT REGARDING McWHORTER SPIN-OFF
10(l)(+) ENVIRONMENTAL MATTERS AGREEMENT
10(m)(+) TECHNOLOGY LICENSE AGREEMENT
10(n)(+) TAX SHARING AGREEMENT
10(o)(+) MASTER TOLLING AGREEMENT
10(p)(+) SALE AND PURCHASE OF ASSETS AGREEMENT BETWEEN CARGILL,
INCORPORATED AND McWHORTER, INC. DATED AS OF MAY 19, 1993,
AS SUBSEQUENTLY MODIFIED AND AMENDED
10(q)(+) AGREEMENT CONTAINING CONSENT ORDER EXECUTED AS OF
SEPTEMBER 30, 1993 BY THE FEDERAL TRADE COMMISSION, THE
VALSPAR CORPORATION AND McWHORTER, INC.
10(r)(+) $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(s)(+) LEASE AGREEMENT BETWEEN McWHORTER TECHNOLOGIES, INC. AND
THE VALSPAR CORPORATION FOR THE LEASE TO McWHORTER OF
OFFICE AND LABORATORY SPACE IN MINNEAPOLIS, MINNESOTA
10(t)(+) 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
10(u)(9) CREDIT AGREEMENT DATED AS OF APRIL 20, 1995 AMONG THE
REGISTRANT, CERTAIN BANKS, WACHOVIA BANK OF GEORGIA, N.A.,
AS AGENT, AND CHEMICAL BANK AS CO-AGENT, AND RELATED
SYNDICATED LOAN NOTE, MONEY MARKET LOAN NOTE AND SWING
LOAN NOTE.
10(v)(10) ACQUISITION AGREEMENT BETWEEN COATES BROTHERS PLC AND THE
REGISTRANT MADE AND ENTERED INTO AS OF FEBRUARY 26, 1996,
AS AMENDED BY AMENDMENT NO. 1 TO THE ACQUISITION AGREEMENT
DATED MAY 2, 1996 (PURSUANT TO RULE 24b-2, CERTAIN
INFORMATION HAS BEEN DELETED AND FILED SEPARATELY WITH THE
COMMISSION.)
13(*) 1996 Annual Report to Stockholders (only those portions
expressly incorporated by reference herein shall be deemed
filed with the Commission)
21(*) Subsidiaries of the Registrant
23(a)(*) Consent of Independent Auditors--Ernst & Young LLP
23(b)(*) Consent of Independent Auditors--Deloitte & Touche LLP
99(a)(*) Financial Statements for the Years Ended October 25, 1996
and October 27, 1995 and Independent Auditors'
Report--Valspar Stock Ownership Trust for Salaried
Employees
99(b)(*) Financial Statements for the Years Ended October 25, 1996
and October 27, 1995 and Independent Auditors'
Report--Valspar Stock Ownership Trust for Hourly Employees
99(c)(*) Financial Statements for the Years Ended October 25, 1996
and October 27, 1995 and Independent Auditors'
Report--Valspar Profit Sharing Retirement Plan
27 Financial Data Schedule (submitted in electronic format
for use of Commission only)
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1 As filed with Form 1O-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 26,
1990.
5 As filed with Form 10-K for the period ended October 25,
1991; amendment filed with this Form 10-K.
6 As filed with Form 10-K for the period ended October 30,
1992; amendment filed with Form 10-K for the period ended
October 27, 1995.
7 As filed with Form 1O-K for the period ended October 30,
1992; amendment filed with Form 10-K for the period ended
October 28, 1994.
8 As filed with Form 10-K for the period ended October 30,
1992.
9 Incorporated by reference to Exhibit 10(a) to Form 10-Q
for the quarter ended April 28, 1995.
10 Incorporated by reference to Exhibit 2.1 to Form 8-K filed
on May 17, 1996 and with Form 8-K/A filed on July 16,
1996.
* As filed with this Form 1O-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 1997 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
/s/ Rolf Engh 1/22/97
--------------------------------------
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.
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/s/ C. Angus Wurtele 1/23/97 /s/ Susan S. Boren 1/23/97
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C. Angus Wurtele, Chairman of the Board Susan S. Boren, Director
/s/ Richard M. Rompala 1/23/97
- --------------------------------------- --------------------------------------
Richard M. Rompala, Director William W. George, Director
(President and Chief Executive Officer)
/s/ Paul C. Reyelts 1/22/97 /s/ Thomas R. McBurney 1/23/97
- --------------------------------------- --------------------------------------
Paul C. Reyelts, Vice President, Finance Thomas R. McBurney, Director
(Chief Financial Officer)
/s/ Kathleen P. Pepski 1/22/97 /s/ Kendrick B. Melrose 1/23/97
- ---------------------------------------- --------------------------------------
Kathleen P. Pepski, Vice President and Controller Kendrick B. Melrose, Director
(Chief Accounting Officer)
/s/ Robert E. Pajor 1/22/97
--------------------------------------
Robert E. Pajor, Director
--------------------------------------
Gregory R. Palen, Director
/s/ Lawrence Perlman 1/22/97
--------------------------------------
Lawrence Perlman, Director
--------------------------------------
Michael P. Sullivan, Director
</TABLE>
F-1
Annual Report on Form 10-K
Item 14(a)(1) and (2), (c) and (d)
Financial Statements and
Financial Statement Schedule
Certain Exhibits
Year ended October 25, 1996
THE VALSPAR CORPORATION
Minneapolis, Minnesota
F-2
The Valspar Corporation
Form 10-K--Item 14(a)(1) and (2) and Item 14(d)
Index to Financial Statements and Financial Statement Schedule
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 25, 1996:
<TABLE>
Pages in
Annual Report
-------------
<S> <C>
Report of Independent Auditors....................................................................... 20
Financial Statements:
Consolidated Balance Sheets--October 25, 1996 and October 27, 1995.......................... 12
Consolidated Statements of Income--Years ended October 25, 1996
October 27, 1995 and October 28, 1994................................................... 11
Consolidated Statements of Changes in Stockholders' Equity--
Years ended October 25, 1996, October 27, 1995 and October 28, 1994..................... 13
Consolidated Statements of Cash Flows--Years ended October 25, 1996
October 27, 1995 and October 28, 1994................................................... 14
Notes to Consolidated Financial Statements.................................................. 15-20
Selected Quarterly Financial Data (Unaudited)........................................................ 20
The following consolidated financial statement schedule should be read in
conjunction with the consolidated financial statements referred to above:
Financial Statement Schedule:
Years ended October 25, 1996, October 27, 1995 and October 28, 1994
Schedule Page
- -------- ----
II Valuation and Qualifying Accounts and Reserves......................................... F-3
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
</TABLE>
<TABLE>
<CAPTION>
The Valspar Corporation
Schedule II--Valuation and Qualifying Accounts and Reserves
- -----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------------------------------
Additions
----------------------------
(1) (2)
Balance at Charged to Charged to
Beginning Expense or Other Accounts Deductions Balance at
Description of Period (Income) --Describe --Describe End of Period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts:
Year ended October 25, 1996 $ 911,000 $771,000 $721,000 (4) $1,254,000 (1) $1,260,000
(111,000) (2)
Year ended October 27, 1995 890,000 610,000 830,000 (1) 911,000
(241,000) (2)
Year ended October 28, 1994 1,054,000 (96,000) 388,000 (1) 890,000
(433,000) (2)
113,000 (3)
(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 3 in Annual Report.)
(4) Consists principally of amounts relating to businesses acquired and foreign currency translation adjustments.
</TABLE>
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
--- -----------
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)l THE VALSPAR CORPORATION SUPPLEMENTAL STOCK OWNERSHIP
PLAN**
10(b)l THE VALSPAR CORPORATION KEY EMPLOYEES' SUPPLEMENTARY
RETIREMENT PLAN**
10(c)2 THE VALSPAR CORPORATION SUPPLEMENTAL BONUS PLAN**
10(d)4 THE VALSPAR CORPORATION DEFERRED BONUS AND STOCK SALE
PLAN--as amended August 12, 1987, December 21, 1988 and
December 12, 1990**
10(e)5 THE VALSPAR CORPORATION 1991 STOCK OPTION PLAN--as amended
December 11, 1996**
10(f)5 THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN**
10(g)6 THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN--as
amended December 13, 1995**
10(h)7 THE VALSPAR CORPORATION RESTRICTED STOCK PLAN FOR
NON-EMPLOYEE DIRECTORS**
10(i)8 THE VALSPAR CORPORATION ANNUAL BONUS PLAN**
10(j)8 THE VALSPAR CORPORATION INCENTIVE BONUS PLAN**
10(k)+ DISTRIBUTION AGREEMENT REGARDING McWHORTER SPIN-OFF
10(l)+ ENVIRONMENTAL MATTERS AGREEMENT
10(m)+ TECHNOLOGY LICENSE AGREEMENT
10(n)+ TAX SHARING AGREEMENT
10(o)+ MASTER TOLLING AGREEMENT
10(p)+ SALE AND PURCHASE OF ASSETS AGREEMENT BETWEEN CARGILL,
INCORPORATED AND McWHORTER, INC. DATED AS OF MAY 19, 1993,
AS SUBSEQUENTLY MODIFIED AND AMENDED
10(q)+ AGREEMENT CONTAINING CONSENT ORDER EXECUTED AS OF
SEPTEMBER 30, 1993 BY THE FEDERAL TRADE COMMISSION, THE
VALSPAR CORPORATION AND McWHORTER, INC.
10(r)+ $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(s)+ LEASE AGREEMENT BETWEEN McWHORTER TECHNOLOGIES, INC. AND
THE VALSPAR CORPORATION FOR THE LEASE TO McWHORTER OF
OFFICE AND LABORATORY SPACE IN MINNEAPOLIS, MINNESOTA
10(t)+ 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
10(u)9 CREDIT AGREEMENT DATED AS OF APRIL 20, 1995 AMONG THE
REGISTRANT,CERTAIN BANKS, WACHOVIA BANK OF GEORGIA, N.A.,
AS AGENT, AND CHEMICAL BANK, AS CO-AGENT, AND RELATED
SYNDICATED LOAN NOTE, MONEY MARKET LOAN NOTE AND SWING LOAN
NOTE.
10(v)10 ACQUISITION AGREEMENT BETWEEN COATES BROTHERS PLC AND THE
REGISTRANT MADE AND ENTERED INTO AS OF FEBRUARY 26, 1996,
AS AMENDED BY AMENDMENT NO. 1 TO THE ACQUISITION AGREEMENT
DATED MAY 2, 1996 (PURSUANT TO RULE 24b-2, CERTAIN
INFORMATION HAS BEEN DELETED AND FILED SEPARATELY WITH THE
COMMISSION.)
13* 1996 Annual Report to Stockholders (only those portions
expressly incorporated by reference herein shall be deemed
filed with the Commission)
21* Subsidiaries of the Registrant
23(a)* Consent of Independent Auditors--Ernst & Young LLP
23(b)* Consent of Independent Auditors--Deloitte & Touche LLP
99(a)* Financial Statements for the Years Ended October 25, 1996
and October 27, 1995 and Independent Auditors'
Report--Valspar Stock Ownership Trust for Salaried
Employees
99(b)* Financial Statements for the Years Ended October 25, 1996
and October 27, 1995 and Independent Auditors'
Report--Valspar Stock Ownership Trust for Hourly Employees
99(c)* Financial Statements for the Years Ended October 25, 1996
and October 27, 1995 and Independent Auditors'
Report--Valspar Profit Sharing Retirement Plan
27 Financial Data Schedule (submitted in electronic format
for use of Commission only)
- ------------------------------------
1 As filed with Form 1O-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 26,
1990.
5 As filed with Form 10-K for the period ended October 25,
1991; amendment filed with this Form 10-K.
6 As filed with Form 10-K for the period ended October 30,
1992; amendment filed with Form 10-K for the period ended
October 27, 1995.
7 As filed with Form 1O-K for the period ended October 30,
1992; amendment filed with Form 10-K for the period ended
October 28, 1994.
8 As filed with Form 10-K for the period ended October 30,
1992.
9 Incorporated by reference to Exhibit 10(a) to Form 10-Q
for the quarter ended April 28, 1995.
10 Incorporated by reference to Exhibit 2.1 to Form 8-K filed
on May 17, 1995 and with Form 8-K/A filed on July 16,
1996.
* As filed with this Form 1O-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 10(e)
THE VALSPAR CORPORATION
BOARD OF DIRECTORS MEETING
DECEMBER 11, 1996
Increase in Shares Reserved Under 1991 Stock Option Plan
WHEREAS, the Board of Directors adopted on December 12, 1990, and the
stockholders ratified, The Valspar Corporation 1991 Stock Option Plan (the
"Plan");
WHEREAS, prior to the date hereof, the Board had reserved 1,000,000 shares of
Common Stock of the Corporation for grants of stock options under the Plan; and
WHEREAS, 150,972 shares remain in the reserve under the Plan, and the Board
believes that an increase in shares reserved under the Plan is appropriate to
accommodate anticipated future stock option grants under the Plan, in order to
further the purposes of the Plan.
NOW, THEREFORE, BE IT RESOLVED, that the Plan be, and it hereby is, amended,
subject to stockholder approval, to increase by 1,000,000 the number of shares
reserved under the Plan for future stock option grants pursuant to the Plan.
FURTHER RESOLVED, that the proposed increase of 1,000,000 shares reserved under
the Plan be submitted to the stockholders at their next annual meeting for
approval.
FURTHER RESOLVED, that each of the following officers of the Corporation be
authorized and empowered to execute and deliver on behalf of the Corporation a
Registration Statement on Form S-8 covering the additional shares subject to the
Plan, and to take any and all other actions deemed necessary or appropriate to
further the purposes of the foregoing resolutions: Chairman of the Board, Chief
Executive Officer, President, Vice President-Finance, Secretary and Treasurer.
ELEVEN-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal Years 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING RESULTS Net Sales $859,799 $790,175 $795,275
Cost and Expenses
Cost of Sales 594,935 561,170 569,063
Operating Expense 169,873 146,344 146,683
- ------------------------------------------------------------------------------------------------------------------------------------
Income from Operations 94,991 82,661 79,529
Other (Income) Expense - Net (1,081) (763) 631
Interest Expense 3,029 4,216 2,504
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 93,043 79,208 76,394
Net Income 55,893 47,520 45,799
Net Income as a Percent of Sales 6.5% 6.0% 5.8%
Return on Average Equity 24.0% 24.4% 24.4%
Per Common Share:
Net Income $ 2.52 $ 2.15 $ 2.07
Dividends Paid .66 .60 .52
Stockholders' Equity 11.55 9.65 7.97
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION Total Assets $486,440 $398,199 $367,608
Working Capital at Year-End 96,130 90,995 87,887
Property, Plant and Equipment - Net 153,819 130,404 107,956
Long-Term Debt, Excluding Current Portion 31,948 21,658 35,343
Stockholders' Equity 253,703 212,115 176,712
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER STATISTICS Property, Plant and Equipment Expenditures $ 25,376 $ 38,982 $ 31,817
Depreciation and Amortization Expense 22,262 20,318 19,134
Research and Development Expense 32,616 27,746 27,430
Total Cash Dividends $ 14,575 $ 13,121 $ 11,252
Average Common Shares Outstanding (000's) 22,201 22,091 22,163
Number of Stockholders 1,783 1,864 1,902
Number of Employees at Year-End 2,855 2,542 2,585
Market Price Range -
Common Stock: High $ 51.00 $ 41.88 $ 45.75
Low 38.25 30.50 32.75
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE VALSPAR CORPORATION
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C>
$700,897 $683,485 $632,562 $571,445 $526,892 $479,617 $448,944 $345,248
501,135 492,092 458,953 410,094 385,459 356,690 321,258 252,588
129,997 131,232 120,643 109,206 98,725 89,906 89,862 63,733
69,765 60,161 52,966 52,145 42,708 33,021 37,824 28,927
2,036 360 1,504 3,337 (1,555) (2,733) (479) (2,871)
1,645 2,932 5,686 4,704 5,838 6,370 6,227 5,103
66,084 56,869 45,776 44,104 38,425 29,384 32,076 26,695
40,156 34,418 27,676 26,731 23,234 18,295 18,052 14,770
5.7% 5.0% 4.4% 4.7% 4.4% 3.8% 4.0% 4.3%
21.8% 21.7% 20.0% 22.1% 21.9% 19.7% 23.0% 20.3%
$ 1.82 $ 1.57 $ 1.27 $ 1.22 $ 1.04 $ .81 $ .80 $ .63
.44 .36 .30 .26 .22 .20 .16 .13
9.02 7.84 6.79 5.92 5.11 4.46 3.85 3.21
$340,479 $321,618 $319,367 $302,806 $ 261,103 $232,974 $236,099 $164,678
85,741 57,500 58,066 56,199 63,519 60,694 57,148 29,091
103,916 101,005 98,818 106,621 82,687 73,652 74,748 51,931
7,890 10,684 30,697 49,456 40,201 42,412 58,561 6,619
198,826 169,377 147,896 128,707 112,698 99,895 85,807 71,020
$ 17,213 $ 19,581 $ 8,843 $ 13,171 $ 8,701 $ 9,390 $ 10,032 $ 4,806
20,648 19,793 18,896 15,119 13,975 12,759 11,687 7,042
24,955 24,802 23,226 20,350 18,037 17,190 17,062 14,880
$ 9,471 $ 7,843 $ 6,519 $ 5,651 $ 4,899 $ 4,472 $ 3,559 $ 3,034
22,031 21,973 21,862 21,854 22,330 22,488 22,490 23,536
1,866 1,863 1,857 1,863 1,864 1,922 1,869 1,814
2,577 2,482 2,530 2,502 2,593 2,505 2,687 2,121
$ 41.50 $ 36.38 $ 23.44 $ 20.00 $ 15.94 $ 15.50 $ 20.25 $ 12.04
30.38 22.56 15.25 14.69 11.32 10.57 9.82 6.60
</TABLE>
Reference is made to the Notes to Consolidated Financial Statements for a
summary of accounting policies and additional information. The above amounts
include Sunbelt Coatings, Inc. results, as the 1995 acquisition was accounted
for as a pooling of interests. Results for 1994 include six months of operations
for McWhorter Technologies, Inc. prior to the spin-off to shareholders. Per
share data has been adjusted to reflect 2-for-1 stock splits effective in 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 to reflect classes of
similar products. The table below shows the percentage of net sales for these
groups for the past five years.
<TABLE>
<CAPTION>
(Percent of Net Sales)
- ------------------------------------------------------------------------------------------------
Fiscal Years 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consumer Coatings 34 34 31 29 29
Packaging Coatings 27 27 25 27 27
Industrial Coatings 24 25 23 22 23
Special Products 15 14 21 22 21
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STOCK INFORMATION AND DIVIDENDS
Stock traded on the New York Stock Exchange
- ------------------------------------------------------------------------------------------------
For the Fiscal Year 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Market price / high - low: First quarter $44.75 - $38.25 $36.75 - $30.50
Second quarter 48.25 - 42.88 39.50 - 33.38
Third quarter 48.63 - 43.38 40.00 - 35.25
Fourth quarter 51.00 - 42.50 41.88 - 38.25
- ------------------------------------------------------------------------------------------------
Per share dividends: First quarter $.165 $.15
Second quarter .165 .15
Third quarter .165 .15
Fourth quarter .165 .15
- ------------------------------------------------------------------------------------------------
$.66 $.60
- ------------------------------------------------------------------------------------------------
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
OVERVIEW. Effective April 30, 1996, the Company completed the first phase of its
acquisition of TOTAL SA's Coates Coatings (Coates) operations for $47.3 million
in cash. The first phase included the Coates European operations which consist
of packaging coatings and metal decorating inks businesses in the United
Kingdom, France, Norway, Germany, and Spain. Also included were the Coates
Australian and United States operations which were combined with the Company's
existing businesses in these countries. This acquisition was accounted for as a
purchase. The acquisition agreement calls for the purchase of certain other
Coates operations in subsequent phases. See Note 2 to the Consolidated Financial
Statements.
On October 18, 1996, the Company acquired certain assets of the packaging
coatings business of the Gordon Bartels Company. The production volumes related
to this business will be sourced out of the U.S. facility acquired from Coates,
increasing the utilization of that facility in 1997.
On March 24, 1995, the Company acquired the outstanding shares of stock of
Sunbelt Coatings, Inc. The transaction was accounted for as a pooling of
interests with the consolidated financial statements for all periods restated to
include the results of Sunbelt. See Note 2 to the Consolidated Financial
Statements.
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. (McWhorter), 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 certain assets and liabilities of McWhorter were
distributed to Valspar shareholders in the form of a stock dividend. See Note 3
to the Consolidated Financial Statements.
OPERATIONS 1996 VS. 1995. Net sales increased 8.8% to $859,799,000 in 1996 from
$790,175,000 in 1995. Excluding the results of the acquired Coates operations,
net sales increased 5.2%. The increase was primarily driven by volume increases
in the Consumer Group, a shift in product mix in the Industrial Group, increased
volume in certain business lines within the Special Products Group, and pricing
actions taken in all business groups in response to rising raw material costs in
1995. The increase was partially offset by lower unit sales within the Packaging
Group, excluding Coates.
The gross profit margin increased to 30.8% in 1996 from 29.0% in 1995. The
increase was primarily the result of a modest decline in raw material costs,
improved material handling efficiencies within our plants, and savings generated
by the efforts of cross-functional cost reduction teams. In addition, the
Company incurred start-up costs related to three new facilities in 1995. The
Company expects raw material costs to remain stable for the first several months
of 1997.
Operating expenses (research and development, selling, and administrative)
increased 16.1% to $169,873,000 (19.8% of net sales) in 1996 compared with
$146,344,000 (18.5% of net sales) in 1995. Excluding the results of Coates,
operating expenses increased 10.9%. This increase was primarily attributable to
a higher level of promotional and advertising programs in the Consumer Group,
costs related to global expansion efforts, and continuing investment in the
upgrade and replacement of existing information systems.
Other income, net of expense, increased 41.7% to $1,081,000 in 1996. The
increase was the result of improved financial performance by the Company's joint
ventures.
Interest expense decreased 28.2% to $3,029,000 in 1996 reflecting a decline in
average levels of debt during the year. Additionally, 1995 interest expense
included interest paid on an income tax assessment.
In 1996, net income increased 17.6% to $55,893,000, or $2.52 per share,
representing the 22nd consecutive year of increased earnings. Higher sales
coupled with an improved gross margin due to a modest decline in raw material
costs, improved material handling efficiencies, and cost reduction efforts,
offset the impact of increased operating expenses during 1996.
OPERATIONS 1995 VS. 1994. Excluding the sales of McWhorter operations spun-off
in 1994, net sales increased $57,945,000 or 7.9% to $790,175,000 in 1995 from
fiscal 1994 pro-forma sales of $732,230,000. The increase was driven by volume
increases in the Consumer and Packaging Groups, a favorable shift in mix in the
Industrial Group, and pricing actions taken in all groups to mitigate the impact
of rising raw material costs. The increase was partially offset by lower unit
sales in certain business lines within the Special Products Group. 1994 sales
including McWhorter were $795,275,000.
The gross profit margin declined to 29.0% in 1995 from 29.4% in 1994 on a
pro-forma basis. The decrease in margin was largely attributable to
higher raw material costs, which were partially offset by reduced production
costs in existing facilities. Other items which contributed to the margin
decline were a shift in product mix in the Industrial Group and costs related to
the start-up of the new Louisville, Kentucky; Statesville, North Carolina; and
Marengo, Illinois facilities.
On a historical basis, the gross profit margin increased to 29.0% in 1995 from
28.4% in 1994 as the spun-off McWhorter operations sold lower margin products.
Operating expenses (research and development, selling, and administrative) were
3.8% higher than the comparable period of 1994 on a pro-forma basis. The Company
incurred increased expenses attributable to the upgrade and replacement of the
Company's information systems and higher selling expenses, including
expenditures associated with global expansion efforts. These increases were
partially offset by cost containment and reduction efforts throughout the
Company in response to the gross margin pressure during 1995.
Other income, net of expense, for 1994 included a pretax charge of $2,474,000
for the write-down of a resin plant to appraised fair value that was transferred
from McWhorter to Valspar in connection with the spin-off. Other income in 1995
decreased $1,144,000 from 1994 on a pro-forma basis, as the prior year included
better financial performance from joint ventures and recovery of accounts
receivable and other assets written off in prior years.
Interest expense increased $1,498,000 or 55.1% over 1994 on a pro-forma basis.
Increased average debt levels resulting from the McWhorter spin-off, higher
interest rates, and interest paid on an income tax assessment contributed to the
increase in 1995.
On a pro-forma basis, net income increased 8.4% from $43,853,000 in 1994 to
$47,520,000 in 1995, representing the 21st consecutive year of increased
earnings. Historical net income for 1994 was $45,799,000. Higher sales,
manufacturing efficiencies, and restrained operating expenses offset the impact
of reduced margin due to escalating raw material costs during 1995.
FINANCIAL CONDITION. Cash provided by operating activities was $86,642,000 in
1996 compared with $82,153,000 in 1995 and $57,109,000 in 1994. The increase in
1996 was largely due to improved earnings compared with 1995. The cash provided
by operating activities combined with $18,194,000 in proceeds from bank
borrowings were used to support $25,376,000 in capital expenditures, $51,698,000
in cash payments related to acquisitions, $14,575,000 in dividend payments, and
$7,582,000 in payments for share repurchases. Cash balances increased $2,237,000
in 1996.
Accounts receivable increased $22,888,000 primarily due to the acquisition of
Coates and increased sales volume in all businesses. Inventory increased
$7,293,000 due to the acquisition of Coates offset by continued focused
inventory management efforts. Accounts payable and accrued liabilities increased
$24,742,000 due to the acquisition of Coates and increases in various expense
accruals. Capital expenditures for property, plant and equipment were
$25,376,000 in 1996 compared with $38,982,000 in 1995 and $31,817,000 in 1994.
The decline in capital expenditures in 1996 was primarily the result of higher
spending levels in 1995 to complete construction of three new facilities to meet
increased production requirements for the resin, consumer, and colorant
businesses. Capital expenditures in 1996 included payments to continue the
replacement and upgrade of the Company's management information systems. Other
capital spending was evenly distributed among the four business groups. The
Company anticipates capital spending in fiscal 1997 to be somewhat higher than
the spending level in 1996 as the Company continues to upgrade and replace
existing management information systems, invest in operations-related upgrade
projects, and construct a new research and development laboratory for the
Packaging Group.
During 1996, the Company invested $51,698,000 in business acquisitions, the
primary acquisition being Coates. Cash payments for acquisitions were funded
through the Company's operations and available credit facilities.
During 1996 the Company increased its borrowings with banks by $18,194,000. The
ratio of total debt to capital increased to 15.6% at the end of 1996 compared to
11.4% in 1995. Average debt outstanding during 1996 was $46,265,000 at a
weighted average interest rate of 5.36% versus $52,400,000 at 5.27% last year,
decreasing the current year's interest expense to $3,029,000 from $4,216,000 in
the prior year. At October 25, 1996, the Company had unused lines of credit
available from banks of $276,027,000 which is expected to be adequate to cover
current and projected needs for short-term financing.
Fiscal 1996 Common Stock dividends of $14,575,000 represents an 11.1% increase
over 1995. The annual dividend was increased to $0.66 per share from $0.60 per
share in 1995 with the payout at 30.7% of the prior year earnings, which is
consistent with the Company's target payout rate 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 at management's discretion for general corporate purposes.
Purchases under this program were 168,000, 105,000, and 133,000 shares in 1996,
1995, and 1994, respectively.
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, the 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 established reserves 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 and management is able 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.
THE VALSPAR CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------- -------------------------------------------------------------------
(Dollars in Thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------
October 25, October 27, October 28,
For the Year Ended 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $859,799 $790,175 $795,275
- -----------------------------------------------------------------------------------------------------
COST AND EXPENSES
Cost of sales 594,935 561,170 569,063
Research and development 32,616 27,746 27,430
Selling and administrative 137,257 118,598 119,253
- -----------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 94,991 82,661 79,529
Other (income) expense, net (1,081) (763) 631
Interest expense 3,029 4,216 2,504
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 93,043 79,208 76,394
Income taxes 37,150 31,688 30,595
- -----------------------------------------------------------------------------------------------------
NET INCOME $ 55,893 $ 47,520 $ 45,799
- -----------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ 2.52 $ 2.15 $ 2.07
- -----------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 22,201,312 22,091,411 22,162,848
- -----------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------
(Dollars in Thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------
October 25, October 27,
1996 1995
- -----------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS Cash and cash equivalents $ 7,112 $ 4,875
- -----------------------------------------------------------------------------------------------------
Accounts and notes receivable, less
allowances for doubtful accounts
(1996 - $1,260; 1995 - $911) 152,842 129,954
- -----------------------------------------------------------------------------------------------------
Inventories 84,186 76,893
- -----------------------------------------------------------------------------------------------------
Prepaid expenses and other accounts 31,060 25,186
- -----------------------------------------------------------------------------------------------------
Total Current Assets 275,200 236,908
OTHER ASSETS 57,421 30,887
- -----------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND
EQUIPMENT Land 8,611 8,607
- -----------------------------------------------------------------------------------------------------
Buildings 79,283 76,047
- -----------------------------------------------------------------------------------------------------
Machinery and equipment 214,671 162,886
- -----------------------------------------------------------------------------------------------------
302,565 247,540
- -----------------------------------------------------------------------------------------------------
Less accumulated depreciation 148,746 117,136
- -----------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment 153,819 130,404
$486,440 $398,199
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES Notes payable to banks $ 14,665 $ 5,288
- -----------------------------------------------------------------------------------------------------
Trade accounts payable 80,125 68,575
- -----------------------------------------------------------------------------------------------------
Income taxes 8,123 9,098
- -----------------------------------------------------------------------------------------------------
Accrued liabilities 75,911 62,719
- -----------------------------------------------------------------------------------------------------
Current portion of long-term debt 246 233
- -----------------------------------------------------------------------------------------------------
Total Current Liabilities 179,070 145,913
LONG-TERM DEBT, LESS
CURRENT PORTION 31,948 21,658
- -----------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 6,433 5,113
DEFERRED LIABILITIES 15,286 13,400
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 13,957 10,348
- -----------------------------------------------------------------------------------------------------
Retained earnings 276,679 235,361
- -----------------------------------------------------------------------------------------------------
Other (593) (3,436)
- -----------------------------------------------------------------------------------------------------
303,373 255,603
Less cost of Common Stock in treasury
(1996 - 4,688,393 shares;
1995 - 4,672,046 shares) 49,670 43,488
- -----------------------------------------------------------------------------------------------------
Total Stockholders' Equity 253,703 212,115
- -----------------------------------------------------------------------------------------------------
$486,440 $398,199
- -----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
THE VALSPAR CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock Additional
------------------------- Paid-In Retained Treasury
Shares Amount Capital Earnings Other Stock
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE OCTOBER 29, 1993 26,660,656 $13,330 $ 1,920 $223,018 $(1,109) $38,357
- ---------------------------------------------------------------------------------------------------------------------------
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 45,799
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends on Common
Stock - $.52 per share (11,252)
- ---------------------------------------------------------------------------------------------------------------------------
McWhorter spin-off (55,822)
- ---------------------------------------------------------------------------------------------------------------------------
Other 3,001 (830) (1,507) (318)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 28, 1994 26,660,656 13,330 6,588 200,913 (2,616) 41,503
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock options
exercised for 178,048 shares 637 (884)
- ---------------------------------------------------------------------------------------------------------------------------
Purchase of 113,004 shares of
Common Stock for treasury 3,607
- ---------------------------------------------------------------------------------------------------------------------------
Net income 47,520
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends on Common
Stock - $.60 per share (13,121)
- ---------------------------------------------------------------------------------------------------------------------------
Other 3,123 49 (820) (738)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 27, 1995 26,660,656 13,330 10,348 235,361 (3,436) 43,488
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock options
exercised for 101,074 shares 856 (954)
- ---------------------------------------------------------------------------------------------------------------------------
Purchase of 167,544 shares of
Common Stock for treasury 7,582
- ---------------------------------------------------------------------------------------------------------------------------
Net income 55,893
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends on Common
Stock - $.66 per share (14,575)
- ---------------------------------------------------------------------------------------------------------------------------
Other 2,753 2,843 (446)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 25, 1996 26,660,656 $13,330 $13,957 $276,679 $ (593) $49,670
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
October 25, October 27, October 28,
For the Year Ended 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES Net income $55,893 $47,520 $45,799
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 22,262 20,318 19,134
- ------------------------------------------------------------------------------------------------------------------------
Deferred income taxes (3,352) (220) (1,552)
- ------------------------------------------------------------------------------------------------------------------------
Loss on sales or abandonment
of property, plant and equipment 1,587 396 2,357
- ------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash due to
changes in net operating assets, net
of effects of acquired businesses:
Accounts and notes receivable (3,257) (17,062) (6,444)
- ------------------------------------------------------------------------------------------------------------------------
Inventories and other assets (1,698) 6,600 (16,575)
- ------------------------------------------------------------------------------------------------------------------------
Trade accounts payable and
accrued liabilities 14,039 22,052 13,936
- ------------------------------------------------------------------------------------------------------------------------
Income taxes payable 21 1,814 (1,323)
- ------------------------------------------------------------------------------------------------------------------------
Other deferred liabilities 1,464 255 1,122
- ------------------------------------------------------------------------------------------------------------------------
Other (317) 480 655
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 86,642 82,153 57,109
INVESTING ACTIVITIES Purchases of property, plant
and equipment (25,376) (38,982) (31,817)
- ------------------------------------------------------------------------------------------------------------------------
Acquired businesses/assets, net of cash (51,698) - (75,385)
- ------------------------------------------------------------------------------------------------------------------------
Other investments/advances to joint ventures (5,178) (1,050) (3,300)
- ------------------------------------------------------------------------------------------------------------------------
Other - - (1,069)
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (82,252) (40,032) (111,571)
FINANCING ACTIVITIES Net (payments on) proceeds
from borrowings 18,194 (23,488) 38,415
- ------------------------------------------------------------------------------------------------------------------------
McWhorter debt spun off - - 30,086
- ------------------------------------------------------------------------------------------------------------------------
Proceeds from sale of treasury stock 1,810 1,521 4,686
- ------------------------------------------------------------------------------------------------------------------------
Purchase of shares of Common Stock
for treasury (7,582) (3,607) (5,022)
- ------------------------------------------------------------------------------------------------------------------------
Dividends paid (14,575) (13,121) (11,252)
- ------------------------------------------------------------------------------------------------------------------------
Other - (1,131) (1,643)
- ------------------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by
Financing Activities (2,153) (39,826) 55,270
- ------------------------------------------------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents 2,237 2,295 808
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 4,875 2,580 1,772
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 7,112 $ 4,875 $ 2,580
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE VALSPAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 1996, 1995 AND 1994
(Dollars in Thousands, except per share amounts)
NOTE 1 - 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.
The Company's products are sold primarily in the United States, Europe, Canada,
Australia, Singapore, and Hong Kong.
FISCAL YEAR: The Company has a 4-4-5 accounting cycle with the fiscal year
ending on the Friday immediately preceding October 31.
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 and transactions have been
eliminated in consolidation. Investments in companies owned 20 to 50 percent are
accounted for using the equity method.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS: The Company considers all highly liquid instruments purchased
with an original maturity of less than three months to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost or market. 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 years 1994 through 1996 are depreciated
using the straight-line method. The result of this change on the financial
statements was not material.
STOCK OPTIONS: The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting For Stock Issued to Employees" in accounting for
stock options. Pro-forma information regarding net income and earnings per share
as calculated under the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," will be disclosed
beginning in fiscal year 1997.
LONG-LIVED ASSETS: Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," requires impairment losses to be recorded on long-lived assets
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by the assets are less than the carrying amount of
such assets. The Company adopted SFAS No. 121 in 1996. Such adoption did not
have a material effect on the Company's financial statements.
FOREIGN CURRENCY: Foreign currency assets and liabilities are translated into
U.S. dollars using the exchange rates in effect at the balance sheet date.
Results of operations are translated using the average exchange rates throughout
the period. The effect of exchange rate fluctuations on translation of assets
and liabilities is recorded as a component of stockholders' equity.
NET INCOME PER SHARE: Net income per share is based on the weighted average
number of common shares outstanding during each year adjusted for the dilutive
effect of common stock equivalents.
FINANCIAL INSTRUMENTS: All financial instruments are held for purposes other
than trading. The estimated fair values of the Company's financial instruments
approximate their carrying amounts in the consolidated balance sheet at October
25, 1996.
NOTE 2 - ACQUISITIONS
Effective April 30, 1996, the Company completed the first phase of its
acquisition of TOTAL SA's Coates Coatings ("Coates") operations for $47.3
million in cash. The first phase included the Coates European operations which
consist of packaging coatings and metal decorating inks businesses in the United
Kingdom, France, Norway, Germany, and Spain. Also included were the Coates
Australian and United States operations which were combined with the Company's
existing businesses in these countries. The acquisition agreement calls for the
purchase of certain other Coates operations in subsequent phases.
The acquisition of Coates has been accounted for as a purchase. Accordingly, the
results of operations of the acquired business have been included in the
Company's consolidated results of operations from the date of acquisition. The
impact of this transaction on the results of operations for 1996 was not
material. The excess of the purchase price over the estimated fair value of the
net assets acquired has been recorded as goodwill and is being amortized over
the estimated period of benefit.
On March 24, 1995, the Company acquired all of the Common Stock of Sunbelt
Coatings, Inc., in exchange for 339,455 shares of the Company's Common Stock.
Sunbelt is an automotive refinish coatings manufacturer. The transaction was
accounted for as a pooling of interests, and, accordingly, the consolidated
financial statements for all periods presented have been restated to include
Sunbelt. The effect of this acquisition on the Company's financial statements
was not significant.
NOTE 3 - SPIN-OFF
On February 18, 1994, Valspar's wholly-owned subsidiary, McWhorter, Inc.,
purchased substantially all of the assets of the Resin Products Division of
Cargill, Incorporated for approximately $75 million. 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 certain assets and liabilities of McWhorter's operations
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.
The following supplemental unaudited pro-forma data assumes that the McWhorter
spin-off occurred at the beginning of fiscal 1994. The pro-forma data 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 on October 30, 1993).
- ----------------------------------------------------------
Year Ended October 28, 1994
- ----------------------------------------------------------
Historical Adjustments Pro-Forma
- ----------------------------------------------------------
Net sales $795,275 $(63,045) $732,230
- ----------------------------------------------------------
Net income $ 45,799 $ (1,946) $ 43,853
- ----------------------------------------------------------
Earnings
per share $ 2.07 $ 1.98
- ----------------------------------------------------------
Total assets $367,608 $367,608
- ----------------------------------------------------------
NOTE 4 - INVENTORIES
The major classes of inventories consist of the following:
- -------------------------------------------------------
1996 1995
- -------------------------------------------------------
Manufactured products $58,591 $46,284
Raw materials, supplies
and work-in-process 25,595 30,609
- -------------------------------------------------------
$84,186 $76,893
Inventories stated at cost determined by the last-in, first-out (LIFO) method
aggregate $69,988 at October 25, 1996 and $73,957 at October 27, 1995,
approximately $26,591 and $30,046 lower, respectively, than such costs
determined under the first-in, first-out (FIFO) method.
THE VALSPAR CORPORATION
NOTE 5 - TRADE ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade accounts payable include $12,290 and $12,400 of issued checks which had
not cleared the Company's bank accounts as of October 25, 1996 and October 27,
1995, respectively.
Accrued liabilities include the following:
- -------------------------------------------------------
1996 1995
- -------------------------------------------------------
Employee compensation $30,587 $26,305
Customer volume rebates 8,580 8,431
Contribution to employees'
retirement trusts 5,311 4,995
Other 31,433 22,988
- -------------------------------------------------------
$75,911 $62,719
- -------------------------------------------------------
NOTE 6 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
- --------------------------------------------------------
1996 1995
- --------------------------------------------------------
Short-term notes to banks
(3.92-11.50% at
October 25, 1996) $17,116 $ 6,575
Industrial development
bonds (3.65-3.70% at
October 25, 1996,
payable in 2015) 12,500 12,500
Obligations under capital
lease (7.48% at
October 25, 1996,
payable through 2004) 2,578 2,806
Other - 10
- --------------------------------------------------------
32,194 21,891
- --------------------------------------------------------
Less current maturities (246) (233)
- --------------------------------------------------------
$31,948 $21,658
- --------------------------------------------------------
The short-term notes to banks totaling $17,116 at October 25, 1996 and $6,575 at
October 27, 1995 have been classified as long-term reflecting the Company's
ability to refinance these amounts on a long-term basis. The maturities of the
remaining long-term debt are as follows: 1997-$246; 1998-$264; 1999-$285;
2000-$306, and $13,977 thereafter.
The Company has a $150,000 committed revolving credit loan with a syndicate of
banks at optional interest rates of prime, LIBOR-based, or CD-based rates. The
revolving credit loan facility matures in 2000. 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 25, 1996.
Under other short-term bank lines of credit, the Company may borrow up to
$157,690 on such terms as the Company and the banks may mutually agree. These
arrangements are reviewed periodically for renewal and modification. Borrowings
under these short-term notes had an average annual rate of 5.89% in fiscal 1996
and 5.19% in fiscal 1995.
The Company had unused lines of credit under the short-term bank lines and
revolving credit facility of $276,027 at October 25, 1996.
Cash paid for interest during 1996, 1995 and 1994 was $2,608, $3,783 and $2,473,
respectively.
NOTE 7 - INCOME TAXES
Significant components of the provision for income taxes are as follows:
- --------------------------------------------------------
Year Ended 1996 1995 1994
- --------------------------------------------------------
Current
Federal $32,368 $26,009 $25,905
State 6,798 5,681 5,761
Foreign 1,336 218 481
- --------------------------------------------------------
Total Current 40,502 31,908 32,147
- --------------------------------------------------------
Deferred
Federal (2,279) (93) (1,296)
State (435) (9) (209)
Foreign (638) (118) (47)
- --------------------------------------------------------
Total Deferred (3,352) (220) (1,552)
- --------------------------------------------------------
Total Income Taxes $37,150 $31,688 $30,595
- --------------------------------------------------------
Significant components of the Company's deferred tax assets and liabilities are
as follows:
- --------------------------------------------------------
1996 1995
- --------------------------------------------------------
Deferred tax assets:
Product liability accruals $ 2,141 $ 2,205
Insurance reserves 2,843 2,350
Deferred compensation 2,686 2,266
Workers' compensation
reserves 3,879 3,383
Employee compensation
reserve 3,180 2,061
Other 11,354 8,025
- --------------------------------------------------------
Total deferred tax assets 26,083 20,290
- --------------------------------------------------------
Deferred tax liabilities:
Tax over book
depreciation (11,010) (10,197)
Other (6,078) (3,726)
- --------------------------------------------------------
Total deferred tax liabilities (17,088) (13,923)
- --------------------------------------------------------
Net deferred tax assets $ 8,995 $ 6,367
- --------------------------------------------------------
The reconciliation of income tax computed at the U.S. Federal statutory tax rate
to income tax expense is as follows:
- ---------------------------------------------------------
Year Ended 1996 1995 1994
- ---------------------------------------------------------
Tax at U.S.
statutory rate 35.0% 35.0% 35.0%
State income taxes,
net of Federal benefit 4.5% 4.7% 4.7%
Other 0.4% 0.3% 0.2%
- ---------------------------------------------------------
39.9% 40.0% 39.9%
- ---------------------------------------------------------
Cash paid for income taxes during 1996, 1995, and 1994 was $39,748, $29,989, and
$33,530, respectively.
NOTE 8 - STOCK PLANS
STOCK OPTIONS: Under the 1991 Stock Option Plan, options for the purchase of up
to 1,000,000 shares of common stock may be granted to officers and key
employees. Options are issued at market value at the date of grant and are
exercisable in full or in part at that time. Activity for the two years ended
October 25, 1996 is summarized as follows:
- -----------------------------------------------------------
Shares Options Option Price
Reserved Outstanding Per Share
- -----------------------------------------------------------
Balance
October 28,
1994 542,001 428,325 $11.60-$29.63
Granted (176,295) 176,295 34.50- 36.63
Exercised (95,012) 11.60- 34.50
Canceled 12,589 (12,589) 15.11- 34.50
- -----------------------------------------------------------
Balance
October 27,
1995 378,295 497,019 15.11- 36.63
Granted (179,325) 179,325 37.63- 44.63
Exercised (101,074) 15.11- 34.50
Canceled 6,132 (6,132) 15.11- 44.13
- -----------------------------------------------------------
Balance
October 25,
1996 205,102 569,138 $15.11-$44.63
- -----------------------------------------------------------
The balance of 569,138 options outstanding at October 25, 1996 includes 556,460
non-qualified options.
EMPLOYEE STOCK OWNERSHIP PLANS: Under the Company's Employee Stock Ownership
Plans, substantially all of the Company's domestic employees are eligible to
participate and may contribute 1% to 6% of their compensation to the Plans. The
Company contributes an amount equal to one-half of the employee contributions.
The Company's contributions were $2,231, $2,145, and $1,950, for 1996, 1995, and
1994, respectively.
KEY EMPLOYEE BONUS PLAN: 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 certain incentive bonus plans
into a grant of restricted stock receivable three years from the date of grant.
THE VALSPAR CORPORATION
NOTE 9 - RETIREMENT PLANS
The Company sponsors a Profit Sharing Plan for substantially all of its domestic
employees. Under the 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. Contributions to the Profit Sharing Plan
totaled $7,583, $7,552, and $7,045, for 1996, 1995, and 1994, respectively.
The Company also sponsors a number of defined benefit pension plans for certain
hourly and foreign employees. The benefits for these plans are generally based
on stated amounts for each year of service. The Company funds the plans in
amounts consistent with the limits of allowable tax deductions.
The components of net periodic pension cost for the defined benefit pension
plans were as follows:
- --------------------------------------------------------
Year Ended 1996 1995 1994
- --------------------------------------------------------
Service cost of
benefits
earned during
the period $761 $428 $393
Interest cost on
projected
benefit
obligation 1,564 1,209 1,101
Return on assets (1,993) (4,540) 93
Net amortization
and deferral 128 3,420 (1,360)
- --------------------------------------------------------
$460 $517 $227
- --------------------------------------------------------
The funded status of the plans was as follows:
- --------------------------------------------------------
1996 1995
- --------------------------------------------------------
Projected benefit
obligation $(24,905) $(19,051)
Plan assets at fair value 29,903 21,114
- --------------------------------------------------------
Funded status 4,998 2,063
Unrecognized net
transition asset (1,000) (1,070)
Unrecognized prior
service cost 2,287 2,209
Unrecognized net
gains (3,732) (2,039)
- --------------------------------------------------------
Net prepaid
pension cost $ 2,553 $ 1,163
- --------------------------------------------------------
The actuarial assumptions used were as follows:
- ------------------------------------------------------
1996 1995
- ------------------------------------------------------
Discount rate 7.0%-8.5% 7.0%-8.0%
Expected long-term
return on assets 8.0%-9.5% 8.0%
Average increase in
compensation 6.0% 6.0%
- ------------------------------------------------------
NOTE 10 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
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 policy is to fund these benefits as they are paid.
The Company's accrued postretirement benefit liability recognized in the
Company's balance sheet was $1,626 and $1,629 at October 25, 1996 and October
27, 1995, respectively. Net periodic postretirement expense was $125, $142, and
$187 in 1996, 1995, and 1994, respectively.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% at October 25, 1996 and October 27,
1995. The assumed health-care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9.0% in 1996, then declining by 0.5% per
year to an ultimate rate of 5.5%. A 1% change in the cost trend rate would not
have a material effect on the accumulated postretirement benefit obligation or
net periodic postretirement expense.
NOTE 11 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results for the years
ended October 25, 1996 and October 27, 1995:
- ----------------------------------------------------------
Net
Gross Net Income
Net Sales Margin Income Per Share
- ----------------------------------------------------------
1996 Quarter Ended:
January 26 $165,304 $ 44,853 $ 6,232 $ .28
April 26 208,459 64,587 14,137 .64
July 26 247,481 75,965 18,194 .82
October 25 238,555 79,459 17,330 .78
- ----------------------------------------------------------
$859,799 $264,864 $55,893 $2.52
1995 Quarter Ended:
January 27 $163,220 $ 43,089 $ 5,379 $ .24
April 28 205,041 58,437 12,168 .55
July 28 216,310 64,226 15,473 .70
October 27 205,604 63,253 14,500 .66
- ----------------------------------------------------------
$790,175 $229,005 $47,520 $2.15
- ----------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
THE VALSPAR CORPORATION
We have audited the accompanying consolidated balance sheets of The Valspar
Corporation and subsidiaries as of October 25, 1996 and October 27, 1995 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended October 25, 1996.
These financial statements are the responsibility of the Corporation'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 from
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 consolidated financial position of The Valspar
Corporation and subsidiaries at October 25, 1996 and October 27, 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 25, 1996, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
November 11, 1996
Exhibit No. 21
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
The Valspar (UK) Holding Corporation, Limited United Kingdom
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 11, 1996, included in
the 1996 Annual Report to Stockholders of The Valspar Corporation.
Our audits also included the financial statement schedule of The Valspar
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents 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; and Form S-8 No.
33-56062 pertaining to The Valspar Corporation Restricted Stock Plan for
Non-Employee Directors of The Valspar Corporation of our report dated November
11, 1996, 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 schedule included in this Annual Report (Form
10-K) of The Valspar Corporation.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
January 23, 1997
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 10, 1997, 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 25, 1996 appearing in the Annual Report on Form
10-K of Valspar Corporation.
/s/ Deloitte & Touche LLP
January 20, 1997
Minneapolis, Minnesota
Exhibit 99A
VALSPAR STOCK OWNERSHIP TRUST
FOR SALARIED EMPLOYEES
FINANCIAL STATEMENTS FOR THE YEARS ENDED
OCTOBER 25, 1996 AND OCTOBER 27, 1995
AND INDEPENDENT AUDITORS' REPORT
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 25, 1996 and October 27, 1995 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 25, 1996 and October 27, 1995 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
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.
/s/ DELOITTE & TOUCHE LLP
January 10, 1997
VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
OCTOBER 25, 1996 AND OCTOBER 27, 1995
- ------------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
ASSETS:
Investments (Note 3):
Interest in Valspar Stock Ownership Master Trust $ 97,314,358 $ 79,331,462
Other 311,910 214,818
Receivables:
Employees' contributions 246,887 217,334
Employer's contributions 115,309 105,231
-------------- ---------------
NET ASSETS AVAILABLE FOR BENEFITS $ 97,988,464 $ 79,868,845
============== ===============
</TABLE>
See notes to financial statements.
VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED OCTOBER 25, 1996 AND OCTOBER 27, 1995
- -------------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Employee contributions $ 3,446,540 $ 3,232,086
Employer contributions 1,646,964 1,579,742
Interest in earnings of Valspar Stock Ownership
Master Trust 21,735,063 2,184,133
Other 23,693 14,964
-------------- ---------------
26,852,260 7,010,925
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Dividend payments to participants 1,148,442 1,048,596
Benefit payments:
The Valspar Corporation:
In cash 227,127 176,632
In stock 6,554,266 5,801,165
McWhorter Technologies, Incorporated:
In cash 1,550 8,940
In stock 826,733 1,180,387
Other (25,477) 37,238
-------------- ---------------
8,732,641 8,252,958
-------------- ---------------
NET INCREASE (DECREASE) 18,119,619 (1,242,033)
NET ASSETS AVAILABLE FOR BENEFITS AT
BEGINNING OF YEAR 79,868,845 81,110,878
-------------- ---------------
NET ASSETS AVAILABLE FOR BENEFITS AT
END OF YEAR $ 97,988,464 $ 79,868,845
============== ===============
</TABLE>
See notes to financial statements.
VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 25, 1996 AND OCTOBER 27, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The accounting records of 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 $11,632 and $25,388 at
October 25, 1996 and October 27, 1995, 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 employee's contribution. 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 $47,665 and $53,057 in 1996 and 1995,
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:
<TABLE>
<CAPTION>
October 25, October 27,
1996 1995
<S> <C> <C>
Common stock of the Valspar Corporation $ 106,272,407 $ 83,844,618
Common stock of McWhorter Technologies,
Incorporated (Note 6) 13,319,518 12,622,035
Collective Trust Fund 52,054 54,450
----------------- -----------------
$ 119,643,979 $ 96,521,103
================= =================
</TABLE>
The investment income of the Valspar Stock Ownership Master Trust for the
years ended October 25, 1996 and October 27, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Valspar Stock:
Interest $ 10,008 $ 14,292
Dividends 1,418,697 1,280,451
Gain on sale of assets 209,703
Unrealized asset appreciation 21,662,963 4,938,519
----------------- -----------------
$ 23,301,371 $ 6,233,262
================= =================
McWhorter Stock:
Interest $ 162
Gain on sale of assets 1,036,052 $ 575,432
Unrealized asset appreciation (depreciation) 2,106,296 (4,187,426)
----------------- -----------------
$ 3,142,510 $ (3,611,994)
================= =================
</TABLE>
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 81.3% and 82.2%
on October 25, 1996 and October 27, 1995, 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 10 years
of participation in the Plan.
4. TRANSACTIONS WITH PARTIES-IN-INTEREST
Fees incurred for trustee, record keeping, and other services rendered by
parties-in-interest are paid by the Company.
During the years ended October 25, 1996 and October 27, 1995, the Valspar
Stock Ownership Master Trust purchased 182,721 and 200,952 shares of
common stock of the Company at a cost of $8,253,917 and $7,410,495,
respectively. Dividends on common stock of the Company received by the
Master Trust totaled $1,418,697 and $1,280,451 in the years ended October
25, 1996 and October 27, 1995, respectively.
5. INCOME TAX STATUS
The Plan obtained its latest determination letter on August 30, 1996 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 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 common stock for every two shares of Valspar common
stock held.
The common stock of McWhorter 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.
Proceeds from liquidation will be reinvested in Valspar common stock.
SUPPLEMENTAL SCHEDULE
VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES
<TABLE>
<CAPTION>
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
OCTOBER 25, 1996
- -------------------------------------------------------------------------------------------------------------------
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 7,923 units $ 99,007 $ 120,481
Bond Fund Master Trust 307 units 3,530 3,675
Principal Protection Fund
Master Trust 9,847 units 133,258 144,326
Valspar Stock Ownership
Master Trust 2,323,375 units 32,342,858 97,314,358
Interest in common stock -
McWhorter Technologies,
Incorporated 2,256 shares 12,150 43,428
-------------- --------------
$ 32,590,803 $ 97,626,268
============== ==============
</TABLE>
Exhibit 99B
VALSPAR STOCK OWNERSHIP TRUST
FOR HOURLY EMPLOYEES
FINANCIAL STATEMENTS FOR THE YEARS ENDED
OCTOBER 25, 1996 AND OCTOBER 27, 1995
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 25, 1996 and October 27, 1995 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 25, 1996 and October 27, 1995 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
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 (ERISA). 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.
/s/ Deloitte & Touche LLP
January 10, 1997
<TABLE>
<CAPTION>
VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
OCTOBER 25, 1996 AND OCTOBER 27, 1995
- -------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
ASSETS:
Investments (Note 3):
Interest in Valspar Stock Ownership Master Trust $ 22,329,621 $ 17,189,641
Other 112,065 116,879
Receivables:
Employees' contributions 127,935 117,666
Employer's contributions 57,203 51,921
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $ 22,626,824 $ 17,476,107
============ ============
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED OCTOBER 25, 1996 AND OCTOBER 27, 1995
- -----------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Employee contributions (Note 2) $ 1,345,160 $ 1,227,200
Employer contributions (Note 2) 584,300 563,951
Interest in earnings of Valspar Stock Ownership
Master Trust 4,708,818 437,136
Other 17,738 20,338
------------ ------------
6,656,016 2,248,625
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Dividend payments to participants 266,937 229,007
Benefit payments:
The Valspar Corporation:
In cash 273,700 106,212
In stock 877,187 1,836,884
McWhorter Technologies, Incorporated:
In cash 4,295 3,122
In stock 64,381 349,779
Other 18,799 11,915
------------ ------------
1,505,299 2,536,919
------------ ------------
NET INCREASE (DECREASE) 5,150,717 (288,294)
NET ASSETS AVAILABLE FOR BENEFITS AT
BEGINNING OF YEAR 17,476,107 17,764,401
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS AT
END OF YEAR $ 22,626,824 $ 17,476,107
============ ============
See notes to financial statements.
</TABLE>
VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 25, 1996 AND OCTOBER 27, 1995
- -------------------------------------------------------------------------------
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 that 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 $55,833 and $17,392 at
October 25, 1996 and October 27, 1995, 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 and age
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 if they are also participating in Valspar's Profit Sharing
Plan. Employees participating in a defined benefit pension plan are
eligible to contribute up to a maximum of 15% of eligible wages. The
Company has voluntarily agreed to contribute an amount equal to one-half
of eligible wages contributed by employees (to a maximum match of 3% of
eligible wages). 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 $20,986 and $8,282 in 1996 and 1995,
respectively.
3. INVESTMENTS
Investments of the Valspar Stock Ownership Master Trust are accounted for
on a share-value basis as determined by the trustee.
The fair value of investments of the Valspar Stock Ownership Master Trust
in which the Plan invests are as follows:
<TABLE>
<CAPTION>
October 25, October 27,
1996 1995
<S> <C> <C>
Common stock of the Valspar Corporation $ 106,272,407 $ 83,844,618
Common stock of McWhorter Technologies,
Incorporated (Note 6) 13,319,518 12,622,035
Collective Trust Fund 52,054 54,450
-------------- --------------
$ 119,643,979 $ 96,521,103
=============== ==============
The investment income of the Valspar Stock Ownership Master Trust for the
years ended October 25, 1996 and October 27, 1995 are as follows:
1996 1995
Valspar Stock:
Interest $ 10,008 $ 14,292
Dividends 1,418,697 1,280,451
Gain on sale of assets 209,703
Unrealized asset appreciation 21,662,963 4,938,519
-------------- --------------
$ 23,301,371 $ 6,233,262
============== ==============
McWhorter Stock:
Interest $ 162
Gain on sale of assets 1,036,052 $ 575,432
Unrealized asset (depreciation) appreciation 2,106,296 (4,187,426)
-------------- --------------
$ 3,142,510 $ (3,611,994)
============== ==============
</TABLE>
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 18.7%
and 17.8% on October 25, 1996 and October 27, 1995, 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 25, 1996 and October 27, 1995, the Valspar
Stock Ownership Master Trust purchased 182,721 and 200,952 shares of
common stock of the Company at a cost of $8,253,917 and $7,410,495,
respectively. Dividends on common stock of the Company received by the
Master Trust totaled $1,418,697 and $1,280,451 in the years ended October
25, 1996 and October 27, 1995, respectively.
5. INCOME TAX STATUS
The Plan obtained its latest determination letter on January 9, 1996. In
the letter, 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 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, the Company's stockholders recorded that as of April
15, 1994 (including Plan participants with a portion of their account
balance invested in Valspar stock as of that date) they received a stock
dividend of one share of McWhorter common stock for every two shares of
Valspar common stock held.
The common stock of McWhorter 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.
Proceeds from liquidation will be reinvested in Valspar common stock.
SUPPLEMENTAL SCHEDULE
<TABLE>
<CAPTION>
THE VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
OCTOBER 25, 1996
- -----------------------------------------------------------------------------------------------------
DESCRIPTION OF INVESTMENT
INCLUDING MATURITY DATE,
IDENTITY OF ISSUER, 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 5,184 units $ 61,889 $ 78,832
Bond Fund Master Trust 1,670 units 19,188 19,979
Principal Protection Fund
Master Trust 904 units 11,688 13,254
Valspar Stock Ownership
Master Trust 531,854 units 7,421,248 22,329,621
------------- --------------
$ 7,514,013 $ 22,441,686
============= ==============
</TABLE>
Exhibit 99C
THE VALSPAR PROFIT SHARING
RETIREMENT PLAN
FINANCIAL STATEMENTS FOR THE YEARS ENDED
OCTOBER 25, 1996 AND OCTOBER 27, 1995
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 25, 1996
and October 27, 1995 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 25, 1996 and October 27, 1995 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
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.
/s/ Deloitte & Touche LLP
January 10, 1997
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
- ---------------------------------------------------------------------------------------------------
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
OCTOBER 25, 1996 AND OCTOBER 27, 1995
- ---------------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
ASSETS:
Investments (Note 3):
Interest in Bond Fund Master Trust $ 11,638,276 $ 11,154,321
Interest in Equity Fund Master Trust 66,457,157 52,708,380
Interest in Principal Protection Fund Master Trust 17,851,606 18,608,202
The Valspar Corporation Common Stock 24,920,720 18,899,634
McWhorter Technologies, Incorporated
Common Stock (Note 6) 1,425,674 1,373,130
Interest in collective funds 203,710 493,832
--------------- ----------------
Total investments 122,497,143 103,237,499
Receivables:
Employer's contributions 5,166,579 4,855,440
Employees' contributions 170,494 179,229
--------------- ----------------
NET ASSETS AVAILABLE FOR BENEFITS $ 127,834,216 $ 108,272,168
=============== ================
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED OCTOBER 25, 1996 AND OCTOBER 27, 1995
- -----------------------------------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Employer contributions $ 5,166,579 $ 4,855,440
Employee contributions 2,493,197 2,518,718
Net investment gain - Bond Fund Master Trust 2,432,216 1,163,123
Net investment gain - Equity Fund Master Trust 10,828,698 12,890,511
Net investment gain - Principal Protection Fund Master Trust 1,519,628 1,253,973
Net investment gain - Collective Trust Funds 2,036 19,815
The Valspar Corporation Common Stock:
Net investment gain 4,938,614 1,647,742
Dividends 320,941 274,964
McWhorter Technologies, Incorporated Common Stock -
Net investment gain (loss) 336,250 (379,128)
--------------- ---------------
28,038,159 24,245,158
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO -
Benefit payments 8,476,111 7,723,414
--------------- ---------------
NET INCREASE 19,562,048 16,521,744
NET ASSETS AVAILABLE FOR BENEFITS AT
BEGINNING OF YEAR 108,272,168 91,750,424
--------------- ---------------
NET ASSETS AVAILABLE FOR BENEFITS AT
END OF YEAR $ 127,834,216 $ 108,272,168
=============== ===============
</TABLE>
See notes to financial statements.
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 25, 1996 AND OCTOBER 27, 1995
- --------------------------------------------------------------------------------
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 $461,702 and $191,646
at October 25, 1996 and October 27, 1995, 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 $142,458 and $146,027 in 1996 and 1995,
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%.
The change in net assets available for benefits by investment option for
the year ended October 25, 1996 is as follows:
<TABLE>
<CAPTION>
Investment Options
------------------------------------------------------------------------------------------
Valspar McWhorter
Principal Common Common
Bond Equity Protection Stock Stock Collective
Fund Fund Fund Fund Fund Trusts Total
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to net
assets attributed to:
Employer con-
tributions $ 553,999 $ 2,538,385 $ 683,914 $ 1,390,281 $ 5,166,579
Employee con-
tributions 280,861 1,139,431 356,576 716,329 2,493,197
Net investment
gain - Bond
Fund 2,432,216 2,432,216
Net investment
gain - Equity
Fund 10,828,698 10,828,698
Net investment
gain - Principal
Protection Fund 1,519,628 1,519,628
Net investment
gain - Collective
Trust Funds $ 2,036 2,036
Valspar Corporation
Common
Stock:
Net investment
gains 4,938,614 4,938,614
Dividends 320,941 320,941
McWhorter Tech-
nologies, Incor-
porated Com-
mon Stock -
Net investment gain $ 336,250 336,250
---------- ----------- ----------- ----------- ---------- ---------- -----------
3,267,076 14,506,514 2,560,118 7,366,165 336,250 2,036 28,038,159
Deductions from net
assets attributed
to -
Benefit payments 1,975,260 2,657,789 2,412,190 1,149,425 75,335 206,112 8,476,111
---------- ----------- ----------- ----------- ---------- ---------- -----------
Net increase (decrease)
prior to interfund
transfers 1,291,816 11,848,725 147,928 6,216,740 260,915 (204,076) 19,562,048
Interfund transfers (882,033) 2,309,792 (1,019,452) (113,890) (208,371) (86,046)
---------- ----------- ----------- ----------- ---------- ---------- -----------
Net increase $ 409,783 $ 14,158,517 $ (871,524) $ 6,102,850 $ 52,544 $(290,122) $19,562,048
(decrease) ========== ============ =========== =========== ========== ========= ===========
</TABLE>
The change in net assets available for benefits by investment option for
the year ended October 27, 1995 is as follows:
<TABLE>
<CAPTION>
Investment Options
------------------------------------------------------------------------------------------
Valspar McWhorter
Principal Common Common
Bond Equity Protection Stock Stock Collective
Fund Fund Fund Fund Fund Trusts Total
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to net
assets attributed to:
Employer con-
tributions $ 626,481 $ 2,127,223 $ 793,743 $1,307,993 $ 4,855,440
Employee con-
tributions 330,451 1,043,218 416,770 728,279 2,518,718
Net investment
gain - Bond
Fund 1,163,123 1,163,123
Net investment
gain - Equity
Fund 12,890,511 12,890,511
Net investment
gain - Principal
Protection Fund 1,253,973 1,253,973
Net investment
gain - Collective
Trust Funds $ 19,815 19,815
Valspar Corporation
Common
Stock:
Net investment
gains 1,647,742 1,647,742
Dividends 274,964 274,964
McWhorter Tech-
nologies, Incor-
porated Com-
mon Stock -
Net investment loss $ (379,128) (379,128)
---------- ----------- ----------- ----------- ---------- ---------- -----------
2,120,055 16,060,952 2,464,486 3,958,978 (379,128) 19,815 24,245,158
Deductions from net
assets attributed
to -
Benefit payments 996,351 2,823,827 3,473,329 324,661 89,346 15,900 7,723,414
---------- ----------- ----------- ----------- ---------- ---------- -----------
Net increase (decrease)
prior to interfund
transfers 1,123,704 13,237,125 (1,008,843) 3,634,317 (468,474) 3,915 16,521,744
Interfund transfers (3,769,451) (20,178) 72,399 3,763,261 (129,256) 83,225
---------- ----------- ----------- ----------- ---------- ---------- -----------
Net (decrease) $(2,645,747) $13,216,947 $ (936,444) $7,397,578 $ (597,730) $ 87,140 $16,521,744
increase =========== =========== ========== ========== ========== ========== ===========
</TABLE>
As of October 25, 1996, 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. 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
86%, 75.1%, and 99.1%, respectively, on October 25, 1996 and 86.1%,
99.7%, and 99.5%, on October 27, 1995, 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 25, October 27,
1996 1995
<S> <C> <C>
Bond Fund Master Trust:
Cash and short-term investment fund $ 1,112,852 $ 61,285
United States Government securities 10,824,650 6,660,887
Municipal securities and foreign debt securities 1,965,748
Corporate bonds and debentures 3,305,334 1,225,316
Mutual bond fund 963,823
Accrued income 251,698 314,021
--------------- ---------------
$ 15,494,534 $ 11,191,080
=============== ===============
Equity Fund Master Trust:
Cash and short-term investment fund $ 1,035,264 $ 1,985,685
Common stock 53,435,803 40,047,826
Collective equity fund 22,896,653 19,581,513
Net amount payable for
settlements pending (116,051) (442,981)
Accrued income 34,027 26,853
--------------- ---------------
$ 77,285,696 $ 61,198,896
=============== ===============
Principal Protection Fund Master Trust:
Collective trust funds $ 17,749,512 $ 18,705,323
Net amount receivable for settlements pending 259,674
--------------- ---------------
$ 18,009,186 $ 18,705,323
=============== ===============
</TABLE>
The net investment income of the Master Trusts for the years ended are as
follows:
<TABLE>
<CAPTION>
October 25, October 27,
1996 1995
<S> <C> <C>
Bond Fund Master Trust:
Interest $ 800,823 $ 660,932
Net gain on sale of assets 229,135 52,221
Unrealized asset (depreciation) appreciation (52,187) 497,553
Investment advisory and management fees (44,559) (47,532)
-------------- --------------
$ 933,212 $ 1,163,174
============== ==============
Equity Fund Master Trust:
Interest $ 153,760 $ 105,631
Dividends 2,273,064 345,839
Net gain on sale of assets 6,927,900 12,675,572
Unrealized asset appreciation 2,854,755 2,134,941
Investment advisory and management fees (381,810) (302,419)
-------------- --------------
$ 11,827,669 $ 14,959,564
============== ==============
Principal Protection Fund Master Trust:
Interest $ 1,500 $ 301,726
Unrealized asset appreciation 941,565 870,297
Net gain on sale of assets 204,360 164,321
Investment advisory and management fees (89,855) (78,735)
-------------- --------------
$ 1,057,570 $ 1,257,609
============== ==============
</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 August 30, 1996,
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 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 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
<TABLE>
<CAPTION>
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
OCTOBER 25,1996
- -------------------------------------------------------------------------------------------------------------------
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 507,292 shares $ 17,133,867 $ 24,920,720
McWhorter Technologies,
Incorporated 74,061 shares 1,069,741 1,425,674
Interest in Collective Trust Funds:
Norwest Short-term Investment
Fund 201,632 units 201,632 201,632
Accrued income 2,078 2,078
Interest in Master Trust Funds:
Equity Fund Master Trust 4,370,174 units 45,586,079 66,457,157
Bond Fund Master Trust 972,804 units 11,177,490 11,638,276
Principal Protection Fund
Master Trust 1,217,954 units 13,525,817 17,851,606
---------------- ----------------
$ 88,696,704 $ 122,497,143
================ ================
</TABLE>
<TABLE>
<CAPTION>
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
YEAR ENDED OCTOBER 25, 1996
- -------------------------------------------------------------------------------------------------------------------
CURRENT VALUE
OF ASSETS AT
IDENTITY OF DESCRIPTION OF PURCHASE/ COST OF TRANSACTION
PARTY INVOLVED ASSET/TRANSACTION SALE PRICE ASSET DATE
<S> <C> <C> <C>
Norwest Norwest Short-term Investment Fund $ 6,089,856 $ 6,089,856 $ 6,089,856
Purchased 6,089,856 shares in 118
transactions
Norwest Norwest Short-term Investment Fund 6,189,860 6,189,860 6,189,860
Sold 6,189,860 shares in 116 transactions
</TABLE>
Transactions are executed on behalf of the Plan by Norwest Bank. Known to be a
party-in-interest.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-25-1996
<PERIOD-END> OCT-25-1996
<CASH> 7,112
<SECURITIES> 0
<RECEIVABLES> 154,102
<ALLOWANCES> (1,260)
<INVENTORY> 84,186
<CURRENT-ASSETS> 275,200
<PP&E> 302,565
<DEPRECIATION> (148,746)
<TOTAL-ASSETS> 486,440
<CURRENT-LIABILITIES> 179,070
<BONDS> 0
0
0
<COMMON> 13,330
<OTHER-SE> (593)
<TOTAL-LIABILITY-AND-EQUITY> 486,440
<SALES> 859,799
<TOTAL-REVENUES> 859,799
<CGS> 594,935
<TOTAL-COSTS> 169,873
<OTHER-EXPENSES> (1,081)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,029
<INCOME-PRETAX> 93,043
<INCOME-TAX> 37,150
<INCOME-CONTINUING> 55,893
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,893
<EPS-PRIMARY> 2.52
<EPS-DILUTED> 2.52
</TABLE>
