SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
FORM 10-Q/A
AMENDMENT NO. 1
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Six Months Commission File
Ended April 25, 1997 Number: 1-3011
THE VALSPAR CORPORATION
State of Incorporation: IRS Employer ID No.:
Delaware 36-2443580
Principal Executive Offices:
1101 Third Street South
Minneapolis, MN 55415
Telephone Number: 612/332-7371
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Acquisitions & Divestitures: Effective January 1, 1997, the Company completed
the second phase of its acquisition of TOTAL SA's Coates Coatings ("Coates")
operations. The second phase consisted of packaging coatings and metal
decorating inks businesses in Hong Kong and China. The acquisition was made with
the Company's joint venture partner, China Merchants Hai Hong Holdings Company,
Ltd. The transaction was accounted for as a purchase. Accordingly, the net
assets and operating results have been included in the Company's financial
statements from the date of acquisition. This transaction was not material to
the results of operations reported for the six month period ended April 25,
1997.
The Acquisition Agreement between the Company and Coates Brothers plc calls for
the purchase of certain other Coates operations in subsequent phases over a
period of up to five years. The additional phases of the transaction are subject
to various conditions and regulatory approvals.
In addition to the above, during the second quarter the Company completed its
acquisition of Sureguard, Incorporated, an industrial coatings manufacturer, and
completed a transaction with Ameron International Corporation (Ameron) to
exchange selected assets of the Company's Maintenance Coatings division for
selected assets of the Product Finishes business of Ameron, none of which were
material.
The discussion of operations below includes the combined effect of the
acquisition of the first and second phases of Coates and other acquisitions and
divestitures which occurred during fiscal 1996 and the first six months of
fiscal 1997.
Operations: Net sales increased 21.3% to $252,768,000 and 18.3% to $442,056,000
in the three and six month periods ended April 25, 1997, respectively, over net
sales for the comparable periods one year ago. Excluding the results of
acquisitions and divestitures, net sales increased 12.0% for the three month
period and 9.1% for the six month period. The second quarter and year to date
increases were primarily driven by volume increases in the Consumer Group and in
certain business lines within the Special Products Group. Due to the seasonal
nature of the Company's business, sales for the quarter and six month periods
are not necessarily indicative of sales for the full year.
The gross profit margin improved from 31.0% to 32.8% during the second quarter
and from 29.3% to 30.8% for the first six months over the comparable periods
last year. The increases were primarily the result of a modest decline in raw
material costs over the comparable periods in the prior year. Raw material costs
continued to be stable in the first six months of 1997 and the Company does not
expect a significant upward trend in raw material costs over the next several
months.
Operating expenses (research and development, selling, and administrative)
increased 30.4% to $53,221,000 (21.1% of net sales) in the second quarter of
1997 compared with $40,821,000 (19.6% of net sales) in the second quarter of
1996. Year to date, operating expenses increased 24.3% to $93,289,000 (21.1% of
net sales) compared with $75,077,000 (20.1% of net sales) for the same period
last year. Excluding the results of acquisitions and divestitures, operating
expenses increased 17.6% for the quarter and 12.6% year to date. This increase
was primarily the result of additional advertising and promotional costs for
large Consumer Group customers, additional selling expenses in all business
groups, and higher information systems expenditures as the Company continues to
replace its existing systems.
Net income in the second quarter of 1997 increased 21.0% to $17,103,000, or
$0.39 per share over the second quarter of 1996. Year to date, net income
increased 22.9% to $25,031,000, or $0.57 per share over the prior year. Both
increases were primarily driven by higher sales levels and gross profit margin
rates.
Financial Condition: The net cash used by the Company's operations was
$3,055,000 for the first six months of 1997, compared with cash provided by
operations of $13,887,000 for the first six months of 1996. The additional cash
usage was the result of an increase in net working capital requirements. The
cash used in operating activities combined with $24,299,000 of acquisition
expenditures, $18,531,000 of capital expenditures, $8,826,000 in payments for
share repurchases, and $7,886,000 in dividend payments were funded through
$62,535,000 in proceeds from bank borrowings and other investing activities.
Cash balances decreased $1,009,000 during the first six months of 1997.
During the first six months of 1997, accounts receivable increased $16,807,000
as sales volume increased. Inventory increased $22,662,000 as the Consumer Group
increased production for seasonal sales and moved inventory into two additional
warehouses to better meet customer needs. Accounts payable and accrued
liabilities increased $8,646,000 as a result of the increase in inventories and
the timing of accounts payable disbursements.
Capital expenditures for property, plant, and equipment were $18,539,000 in the
first six months of 1997, compared with $11,702,000 in the first six months of
1996. The Company continues to upgrade and replace its existing management
information systems. Additionally, the Packaging Group is completing a new
laboratory in Pittsburgh. Aside from these projects, capital spending was
distributed among the four business groups with no other major single
expenditure.
The Company's total debt to capital ratio increased to 28.1% at the end of the
second quarter from 15.6% at the close of fiscal 1996. The total debt to capital
ratio as of April 26, 1996 was 15.0%. The Company believes its existing lines of
credit will be sufficient to meet its current and projected needs for financing.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
THE VALSPAR CORPORATION
Date: June 27, 1997 By /s/R. Engh
-----------------------------
R. Engh
Secretary
