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 31, 1997 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, 1997 was $804 million based on the closing sales price of $31.875
per share as reported on the New York Stock Exchange. As of such date,
43,677,588 shares of Common Stock, $.50 par value per share (net of 9,643,724
shares in treasury) were outstanding.
DOCUMENTS INCORPORATED IN PART BY REFERENCE
Incorporated Documents Location in Form 10-K
---------------------- ---------------------
1. The Valspar Corporation Annual Report to Stockholders Parts II and IV
for fiscal year ended October 31, 1997
2. The Valspar Corporation Notice of 1998 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 31, 1997
<PAGE>
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 1997 1996 1995
----------------- ---- ---- ----
Consumer Coatings 34% 34% 34%
Packaging Coatings 29 27 27
Industrial Coatings 23 24 25
Special Products 14 15 14
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 the CONSUMER COATINGS group are located in
Azusa, California; Garland, Texas; Rockford, Illinois; Tampa, Florida; Wheeling,
Illinois and Statesville, North Carolina. The latex manufacturing plants in
Wheeling, Statesville and Garland are three of the most efficient facilities in
the consumer paint industry.
<PAGE>
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
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. The Company completed the South Africa portion of the third phase in
December 1997 by purchasing a 49% interest in a joint venture with Coates in
South Africa. The Company will acquire the remaining 51% interest from Coates
within the next four years. In some countries, Coates continues to provide toll
manufacturing and certain facilities and services to the newly acquired
businesses. The Packaging Coatings Group expanded its operations to South
America through the formation of a joint venture in June 1997 with Renner
Herrmann, S.A., a leading Brazilian coatings manufacturer.
The primary manufacturing plants for the PACKAGING COATINGS group are located in
Azusa, California; Covington, Georgia; Garland, Texas; Pittsburgh, Pennsylvania;
Rochester, Pennsylvania; West Hill, Ontario, Canada; Witney, England; Machen,
England; Nantes, France; Erkrath, Germany; Mjondalen, Norway; XiXiang, China;
Sydney, Australia; Durban, South Africa and Sao Paulo, Brazil.
The INDUSTRIAL COATINGS group manufactures and distributes, primarily in the
United States and Canada, decorative and protective coatings for application to
metal, wood and plastic substrates. The Industrial Group is a major supplier of
finishes to the kitchen cabinet, 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.
During 1997, the Company acquired additional powder and general industrial
business through a business exchange with Ameron International Corporation and
entered into
<PAGE>
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
the mirror backing metals and coatings market by acquiring Sureguard,
Incorporated and Hilemn Laboratories, Inc. These products are used by a wide
range of industries including the automotive parts, building products, railcar,
appliance, office furniture, agricultural equipment, construction equipment and
metal fabrication industries. The Industrial Group 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 fluoropolymer coatings for architectural applications in
the Far East.
The primary manufacturing plants for the INDUSTRIAL COATINGS group are located
in Fort Wayne, Indiana; Garland, Texas; High Point, North Carolina; Jackson,
Tennessee; Kankakee, Illinois; West Hill, Ontario, Canada and Singapore.
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 marine coatings, high performance floor coatings
for industrial and commercial use, colorants and colorant systems. Emulsions and
resins are produced at the Company's facilities in Los Angeles, California;
Garland, Texas; Kankakee, Marengo and Rockford, Illinois; and Hagerstown,
Maryland (the Hagerstown facility was acquired in May 1997 from Rust-Oleum
Corporation, a subsidiary of RPM, Inc.) for use by the Company and for sale to
other coatings manufacturers. 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 facilities in
Picayune, Mississippi and Grand Prairie, Texas (the Grand Prairie facility was
acquired in January 1997 from Sureguard, Incorporated). 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 marine coatings are formulated for industrial marine applications
with highly corrosive and other harsh environmental exposures requiring
specialized coatings technology. Major markets are marine vessels and off-shore
oil and gas drilling rigs. Heavy duty marine coatings are manufactured primarily
in Garland, Texas or are toll manufactured under long-term agreements. In
February 1997, the Company's maintenance coatings business was sold and marine
coatings production at Beaumont, Texas was moved to Garland, Texas. The Federal
Flooring Division manufactures and markets specialty coatings and resurfacers
for concrete and wood floors. Major markets are commercial and industrial
buildings. 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 and paint manufacturers to color
<PAGE>
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
paint to customer specifications. These colorants are used to support the
Company's consumer, industrial and packaging businesses and are also sold to
external customers. During 1994, new colorant capacity was added to the
Company's Louisville, Kentucky plant. This facility primarily produces colorants
to serve the industrial segment.
The Company has formed various international joint ventures over the past
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, a joint venture of the Company and The Goodlass Nerolac Paint Co., Ltd.
in India, manufactures decorative powder coatings for the industrial coatings
market in India. Another joint venture company was formed in Hong Kong in 1995
between the Company and China Merchants Hai Hong Holdings Co., Ltd. for the
purpose of constructing a packaging coatings plant in the Shenzhen Economic
Development Zone in the Guangdong Province of China. This plant became
operational at the beginning of the 1997 fiscal year and currently provides the
Company's packaging coatings products to China and Hong Kong, and may provide
packaging coatings products to other Southeast Asian markets in the future. The
Company formed a joint venture, called Valspar Renner, in 1997 in Brazil with
Renner Herrmann S.A., a Brazilian company. Valspar Renner will focus its efforts
on supplying packaging coatings to the South American market. As part of the
Coates acquisition, the Company acquired from Coates in December 1997, a 49%
interest in a joint venture in South Africa. The Company's joint venture with
Smiland Paint Company, called Conco Paint Company, continues to market and sell
coatings to the professional paint market served by home centers primarily in
the United States.
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.
<PAGE>
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
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 5 of the Notes to Consolidated Financial Statements on
page 16 of Valspar's 1997 Annual Report to Stockholders incorporated by
reference into this Form 10-K.
SIGNIFICANT CUSTOMERS
In 1997, 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. The
Company has many competitors in all areas of its business, some of which are
larger and more well-capitalized than the Company.
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.
<PAGE>
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
Principal methods of competition for resins and emulsions, automotive and fleet
refinish coatings, heavy duty marine 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.
Competitive factors in the colorant and color systems business 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 1997 were $39,099,000, representing a
19.9% increase over fiscal 1996 ($32,616,000). Fiscal 1996 costs increased 17.6%
over those of fiscal 1995 ($27,746,000). Primary emphasis has been on 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 1997, and capital expenditures for 1998 to
comply with existing laws and regulations are also not expected to be material.
EMPLOYEES
The Company employs approximately 3,200 persons, approximately 417 of whom are
members of unions.
FOREIGN OPERATIONS AND EXPORT SALES
The Company's foreign operations consist of a mixture of wholly-owned subsidiary
companies, joint ventures, and licensing arrangements. The market for packaging
coatings has become an increasingly global market, and during 1996 the Company
acquired the metal decorating and packaging coatings business of Coates Coatings
to provide global support to the Company's customers. The Company's plant in
West Hill, Ontario, Canada manufactures and distributes packaging, coil and
general industrial coatings for the Canadian market. In addition to its
wholly-owned subsidiary in Canada, the Company has formed subsidiary companies
in Australia, France, Germany, Hong Kong, Norway, Singapore, Spain and the
United Kingdom.
<PAGE>
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
Joint venture companies are now established in Brazil, India, Mexico and South
Africa. Greater emphasis is being placed on wholly-owned subsidiaries and joint
ventures to permit the Company to retain greater control over its technology.
Licensing arrangements for the utilization of the Company's technologies in the
fields of packaging coatings, marine coatings, colorants, powder coatings, coil
coatings, and general industrial coatings continue in over thirty foreign
countries. Export sales are increasing as the Company's products are being
recognized in the global markets. During 1997, 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-three locations, primarily in Illinois,
California, Texas and Pennsylvania with one plant in West Hill, Ontario, Canada.
Eighteen plants with square footage of 2,500,000 are owned and three of the
plants with square footage of 285,000 are leased. Operations in Europe are
conducted at four locations with one plant in each of the United Kingdom,
France, Norway and Germany. The four plants are owned with a combined square
footage of 230,000. The Company has one leased plant in Singapore with square
footage of 15,300.
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 1997
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.
<PAGE>
PART I (CONTINUED)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted during the fourth quarter of fiscal year 1997 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 1998, 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 51 Chief Executive Officer since October 1995 and
President since March 1994
Larry B. Brandenburger 50 Vice President, Research and Development since
October 1989
Stephen M. Briggs 41 Vice President, Consumer Coatings Group since
August 1993
Rolf Engh 44 Vice President, International since September 1993
and Secretary since April 1993
Steven L. Erdahl 45 Vice President, Industrial Coatings Group since
June 1991
Joel C. Hart 50 Vice President, Automotive Refinish since May 1995
William L. Mansfield 49 Vice President, Packaging Coatings Group since
February 1991
Paul C. Reyelts 51 Vice President, Finance since April 1982
Robert T. Smith 51 Vice President, Marine and Federal since May 1995
Thomas A. White 55 Vice President, Manufacturing since July 1995
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 at PPG Industries, Inc.
<PAGE>
PART I (CONTINUED)
Prior to August 1993, Mr. Briggs was Vice President, Consumer Sales since
February 1992.
Prior to April 1993, Mr. Engh was a partner of Lindquist & Vennum, a
Minneapolis, Minnesota law firm, since 1986.
Prior to May 1995, Mr. Hart was the Managing Director of Automotive Refinish
International for PPG Industries since January 1993.
Prior to May 1995, Mr. Smith was Director, Machinery Europe for FMC Corporation
since 1992.
Prior to July 1995, Mr. White was Vice President, Manufacturing for Corimon
Corporation since June 1994 and was Director of Manufacturing-Europe for PPG
Industries since 1987.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information in the section titled "Stock Information and Dividends" on page
7 of Valspar's 1997 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, 1997 was 1,830.
The quarterly dividend declared December 10, 1997, which was paid January 15,
1998 to Common Stockholders of record December 31, 1997, was increased to
10.5(cent) per share.
ITEM 6. SELECTED FINANCIAL DATA
The information in the section titled "Eleven Year Financial Summary" for the
years 1993 through 1997 on pages 6 and 7 of Valspar's 1997 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 1997 Annual Report to Stockholders is incorporated herein by
reference.
<PAGE>
PART II (CONTINUED)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and notes thereto on pages 11 through 19
of Valspar's 1997 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 23, 1998 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 23, 1998 is incorporated herein by
reference. The information on pages 8 through 11 of Valspar's Proxy Statement
dated January 23, 1998 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 14 and 15 of Valspar's
Proxy Statement dated January 23, 1998 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 23, 1998 is incorporated herein by
reference.
<PAGE>
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 31, 1997.
(c) The following exhibits are filed as part of this report.
Exhibit
No. Description
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3(a)* CERTIFICATE OF INCORPORATION--as amended to and including June
30, 1970, with further amendments to Article Four dated
February 29, 1984, February 25, 1986, February 26, 1992 and
February 26, 1997, and to Article Eleven dated February 25,
1987
3(b)* BY-LAWS--as amended to and including October 15, 1997
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)(3) THE VALSPAR CORPORATION DEFERRED BONUS AND STOCK SALE PLAN--as
amended August 12, 1987, December 21, 1988 and December 12,
1990**
10(e)(4) THE VALSPAR CORPORATION 1991 STOCK OPTION PLAN-- as amended
December 11, 1996**
10(f)(4) THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN**
10(g)* THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN--as
amended to and including August 19, 1997**
10(h)(5) THE VALSPAR CORPORATION RESTRICTED STOCK PLAN FOR NON-EMPLOYEE
DIRECTORS**
<PAGE>
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(CONTINUED)
(c) Index of Exhibits (continued)
Exhibit
No. Description
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10(i)* THE VALSPAR CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS**
10(j)* THE VALSPAR CORPORATION ANNUAL BONUS PLAN--as amended August
19, 1997**
10(k)(6) THE VALSPAR CORPORATION INCENTIVE BONUS PLAN**
10(l)+ DISTRIBUTION AGREEMENT REGARDING McWHORTER SPIN-OFF
10(m)+ ENVIRONMENTAL MATTERS AGREEMENT
10(n)+ TECHNOLOGY LICENSE AGREEMENT
10(o)+ TAX SHARING AGREEMENT
10(p)+ MASTER TOLLING AGREEMENT
10(q)+ SALE AND PURCHASE OF ASSETS AGREEMENT BETWEEN CARGILL,
INCORPORATED AND McWHORTER, INC. DATED AS OF MAY 19, 1993, AS
SUBSEQUENTLY MODIFIED AND AMENDED
10(r)+ AGREEMENT CONTAINING CONSENT ORDER EXECUTED AS OF SEPTEMBER
30, 1993 BY THE FEDERAL TRADE COMMISSION, THE VALSPAR
CORPORATION AND McWHORTER, INC.
10(s)+ $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(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
<PAGE>
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(CONTINUED)
(c) Index of Exhibits (continued)
Exhibit
No. Description
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10(u)(7) 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)(8) 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* 1997 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 31, 1997 and
October 25, 1996 and Independent Auditors' Report--Valspar
Stock Ownership Trust for Salaried Employees
99(b)* Financial Statements for the Years Ended October 31, 1997 and
October 25, 1996 and Independent Auditors' Report--Valspar
Stock Ownership Trust for Hourly Employees
99(c)* Financial Statements for the Years Ended October 31, 1997 and
October 25, 1996 and Independent Auditors' Report--Valspar
Profit Sharing Retirement Plan
27 Financial Data Schedule (submitted in electronic format for
use of Commission only)
- -----------------------------
<PAGE>
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(CONTINUED)
Exhibit
No. Description
-----------------------------------------------------------------------
1 As filed with Form 10-K for the period ended October 31, 1981.
2 As filed with Form 10-K for the period ended October 31, 1983.
3 As filed with Form 10-K for the period ended October 26, 1990.
4 As filed with Form 10-K for the period ended October 25, 1991;
amendment filed with this Form 10-K.
5 As filed with Form 10-K for the period ended October 30, 1992;
amendment filed with Form 10-K for the period ended October
28, 1994.
6 As filed with Form 10-K for the period ended October 30, 1992.
7 Incorporated by reference to Exhibit 10(a) to Form 10-Q for
the quarter ended April 28, 1995.
8 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 10-K.
** Compensatory Plan or arrangement required to be filed pursuant
to Item 14(c) of Form 10-K.
+ Incorporated by reference to Exhibits 10.1, 10.2, 10.3, 10.4,
10.5, 10.11, 10.12, 10.13, 10.14 and 10.15, respectively, to
Form S-1 Registration Statement of McWhorter (Commission File
No. 33-75726), as declared effective on April 4, 1994.
Portions of the 1998 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.
<PAGE>
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 1/22/98
---------------------------------
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.
/s/ C. Angus Wurtele 1/22/98 /s/ Susan S. Boren 1/22/98
- -------------------------------------------- ---------------------------------
C. Angus Wurtele, Chairman of the Board Susan S. Boren, Director
/s/ Richard M. Rompala 1/22/98 /s/ Jeffrey H. Curler 1/22/98
- -------------------------------------------- ---------------------------------
Richard M. Rompala, Director Jeffrey H. Curler, Director
(President and Chief Executive Officer)
/s/ Paul C. Reyelts 1/22/98 /s/ Thomas R. McBurney 1/22/98
- -------------------------------------------- ---------------------------------
Paul C. Reyelts, Vice President, Finance Thomas R. McBurney, Director
(Chief Financial Officer)
/s/ Kathleen P. Pepski 1/22/98
- -------------------------------------------- ---------------------------------
Kathleen P. Pepski, Vice President and Kendrick B. Melrose, Director
Controller (Chief Accounting Officer)
---------------------------------
Gregory R. Palen, Director
/s/ Lawrence Perlman 1/22/98
---------------------------------
Lawrence Perlman, Director
---------------------------------
Edward B. Pollak, Director
/s/ Michael P. Sullivan 1/22/98
---------------------------------
Michael P. Sullivan, Director
<PAGE>
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 31, 1997
THE VALSPAR CORPORATION
Minneapolis, Minnesota
<PAGE>
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 31, 1997:
<TABLE>
<CAPTION>
Pages in
Annual Report
-------------
<S> <C>
Report of Independent Auditors................................................ 20
Financial Statements:
Consolidated Balance Sheets--October 31, 1997 and October 25, 1996........ 11
Consolidated Statements of Income--Years ended October 31, 1997,
October 25, 1996 and October 27, 1995................................. 12
Consolidated Statements of Changes in Stockholders' Equity--
Years ended October 31, 1997, October 25, 1996 and October 27, 1995... 12
Consolidated Statements of Cash Flows--Years ended October 31, 1997,
October 25, 1996 and October 27, 1995................................. 13
Notes to Consolidated Financial Statements................................ 14-19
Selected Quarterly Financial Data (Unaudited)................................. 19
</TABLE>
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 31, 1997, October 25, 1996 and October 27, 1995
<TABLE>
<CAPTION>
Schedule Page
- -------- ----
<S> <C>
II Valuation and Qualifying Accounts and Reserves.................... F-3
</TABLE>
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.
<PAGE>
F-3
The Valspar Corporation
Schedule II--Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
- ------------------------------------------- -------------- -------------------------------- ------------------- ---------------
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 31, 1997 $1,260,000 $1,101,000 $1,130,000 (1) $1,364,000
(133,000)(2)
Year ended October 25, 1996 911,000 771,000 $721,000(3) 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)
</TABLE>
(1) Uncollectible accounts written off.
(2) Recoveries on accounts previously written off.
(3) Consists principally of amounts relating to businesses acquired and
foreign currency translation adjustments.
<PAGE>
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
----------------------------------------------------------------------
3(a)* CERTIFICATE OF INCORPORATION--as amended to and including
June 30, 1970, with further amendments to Article Four dated
February 29, 1984, February 25, 1986, February 26, 1992 and
February 26, 1997, and to Article Eleven dated February 25,
1987
3(b)* BY-LAWS--as amended to and including October 15, 1997
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)(3) THE VALSPAR CORPORATION DEFERRED BONUS AND STOCK SALE
PLAN--as amended August 12, 1987, December 21, 1988 and
December 12, 1990**
10(e)(4) THE VALSPAR CORPORATION 1991 STOCK OPTION PLAN-- as amended
December 11, 1996**
10(f)(4) THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN**
10(g)* THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN--as
amended to and including August 19, 1997**
10(h)(5) THE VALSPAR CORPORATION RESTRICTED STOCK PLAN FOR
NON-EMPLOYEE DIRECTORS**
10(i)* THE VALSPAR CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS**
10(j)* THE VALSPAR CORPORATION ANNUAL BONUS PLAN--as amended August
19, 1997**
10(k)(6) THE VALSPAR CORPORATION INCENTIVE BONUS PLAN**
<PAGE>
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
----------------------------------------------------------------------
10(l)+ DISTRIBUTION AGREEMENT REGARDING McWHORTER SPIN-OFF
10(m)+ ENVIRONMENTAL MATTERS AGREEMENT
10(n)+ TECHNOLOGY LICENSE AGREEMENT
10(o)+ TAX SHARING AGREEMENT
10(p)+ MASTER TOLLING AGREEMENT
10(q)+ SALE AND PURCHASE OF ASSETS AGREEMENT BETWEEN CARGILL,
INCORPORATED AND McWHORTER, INC. DATED AS OF MAY 19, 1993,
AS SUBSEQUENTLY MODIFIED AND AMENDED
10(r)+ AGREEMENT CONTAINING CONSENT ORDER EXECUTED AS OF SEPTEMBER
30, 1993 BY THE FEDERAL TRADE COMMISSION, THE VALSPAR
CORPORATION AND McWHORTER, INC.
10(s)+ $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(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)(7) 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
<PAGE>
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
----------------------------------------------------------------------
10(v)(8) 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* 1997 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 31, 1997
and October 25, 1996 and Independent Auditors'
Report--Valspar Stock Ownership Trust for Salaried Employees
99(b)* Financial Statements for the Years Ended October 31, 1997
and October 25, 1996 and Independent Auditors'
Report--Valspar Stock Ownership Trust for Hourly Employees
99(c)* Financial Statements for the Years Ended October 31, 1997
and October 25, 1996 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 10-K for the period ended October 31,
1981.
2 As filed with Form 10-K for the period ended October 31,
1983.
3 As filed with Form 10-K for the period ended October 26,
1990.
<PAGE>
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
----------------------------------------------------------------------
4 As filed with Form 10-K for the period ended October 25,
1991; amendment filed with this Form 10-K.
5 As filed with Form 10-K for the period ended October 30,
1992; amendment filed with Form 10-K for the period ended
October 28, 1994.
6 As filed with Form 10-K for the period ended October 30,
1992.
7 Incorporated by reference to Exhibit 10(a) to Form 10-Q for
the quarter ended April 28, 1995.
8 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 10-K.
** Compensatory Plan or arrangement required to be filed
pursuant to Item 14(c) of Form 10-K.
+ Incorporated by reference to Exhibits 10.1, 10.2, 10.3,
10.4, 10.5, 10.11, 10.12, 10.13, 10.14 and 10.15,
respectively, to Form S-1 Registration Statement of
McWhorter (Commission File No. 33-75726), as declared
effective on April 4, 1994.
Exhibit 3(a)
THE VALSPAR CORPORATION
CERTIFICATE OF INCORPORATION
AS AMENDED TO AND INCLUDING
JUNE 30, 1970
with further amendments dated February 29, 1984; February 25, 1986;
February 25, 1987; February 26, 1992; and February 26, 1997 (attached)
<PAGE>
CERTIFICATE OF INCORPORATION
OF
THE VALSPAR CORPORATION
AS AMENDED TO AND INCLUDING JUNE 30, 1970
FIRST. The name of the corporation is
THE VALSPAR CORPORATION
SECOND. Its principal office in the State of Delaware is located at No.
100 West Tenth Street, in the City of Wilmington 99, County of New Castle. The
name and address of its resident agent is The Corporate Trust Company, No. 100
West Tenth Street, Wilmington 99, Delaware.
THIRD. The nature of the business, or objects or purposes to be
transacted, promoted or carried on are:
To deal in and with, manufacture, produce, buy, acquire, distribute,
lease, sell or otherwise dispose of, in any manner whatsoever, paints,
varnishes, colors and pigments, all types of paint vehicles, synthetics,
plastics, chemicals, and machinery, equipment, supplies and products of all
types pertaining to the foregoing.
To take, own, hold, deal in, mortgage or otherwise lien, and to lease,
sell, exchange, transfer, or in any manner whatever dispose of real property
within or without the State of Delaware, wherever situated.
To manufacture, purchase or otherwise acquire, invest in, own,
mortgage, pledge, sell, assign and transfer or otherwise dispose of, trade,
deal in and deal with goods, wares and merchandise and personal property of
every class and description.
To acquire, and pay for in cash, stock or bonds of this corporation or
otherwise, the good will, rights, assets and property, and to undertake or
assume the whole or any part of the obligations or liabilities of any
person, firm, association or corporation.
To acquire, hold, use, sell, assign, lease, grant licenses in respect
of, mortgage or otherwise dispose of letters patent of the United States or
any foreign country, patent rights, licenses and privileges, inventions,
improvements and processes, copyrights, trademarks and trade names, relating
to or useful in connection with any business of this corporation.
To acquire by purchase, subscription or otherwise, and to receive,
hold, own, guarantee, sell, assign, exchange, transfer, mortgage, pledge or
otherwise dispose of or deal in and with any of the shares of the capital
stock, or any voting trust certificates in respect of the shares of capital
stock, scrip, warrants, rights, bonds, debentures, notes, trust receipts,
and other securities, obligations, choses in action and evidences of
indebtedness or interest issued or created by any corporations, joint stock
companies, syndicates, associations, firms, busts or persons, public or
private, or by the
<PAGE>
government of the United States of America, or by any foreign government, or
by any state, territory, province, municipality or other political
subdivision or by any governmental agency, and as owner thereof to possess
and exercise all the rights, powers and privileges of ownership, including
the right to execute consents and vote thereon, and to do any and all acts
and things necessary or advisable for the preservation, protection,
improvement and enhancement in value thereof.
To enter into, make and perform contracts of every kind and description
with any person, firm. association, corporation, municipality, county,
state, body politic or government or colony or dependency thereof.
To borrow or raise moneys for any of the purposes of the corporation
and, from time to time without limit as to amount, to draw, make, accept,
endorse, execute, and issue promissory notes, drafts, bills of exchange,
warrants, bonds, debentures and other negotiable or non-negotiable
instruments and evidences of indebtedness and to secure the payment of any
thereof and of the interest thereon by mortgage upon or pledge, conveyance
or assignment in trust of the whole or any part of the property of the
corporation, whether at the time owned or thereafter acquired, and to sell,
pledge or otherwise dispose of such bonds or other obligations of the
corporation for its corporate purposes.
To loan to any person, firm or corporation any of its surplus funds,
either with or without security.
To purchase, hold, sell and transfer the shares of its own capital
stock; provided it shall not use its funds or property for the purchase of
its own shares of capital stock when such use would cause any impairment of
its capital except as otherwise permitted by law, and provided further that
shares of its own capital stock belonging to it shall not be voted upon
directly or indirectly.
To have one or more offices, to carry on all or any of its operations
and business and without restriction or limit as to amount to purchase or
otherwise acquire, hold, own, mortgage, sell, convey or otherwise dispose
of, real and personal property of every class and description in any of the
states, districts, territories or colonies of the United States, and in any
and all foreign countries, subject to the laws of such state, district,
territory, colony or country.
In general, to carry on any other business in connection with the
foregoing, and to have and exercise all the powers conferred by the laws of
Delaware upon corporations formed under the General Corporation Law of the
State of Delaware, and to do any or all of the things hereinbefore set forth
to the same extent as natural persons might or could do.
The objects and purposes specified in the foregoing clauses shall
except where otherwise expressed, be in nowise limited or restricted by
reference to, or inference from, the terms of any other clause in this
certificate of incorporation, but the objects and purposes specified in each of
the foregoing clauses of this article shall be regarded as independent objects
and purposes.
FOURTH. The total number of shares of stock which the corporation shall
have authority to issue is five million six thousand five hundred (5,006,500),
classified as follows, amounting in the aggregate to Five Million Six Hundred
Fifty Thousand Dollars ($5,650,000.00):
<PAGE>
(a) Six thousand five hundred (6,500) shares of Cumulative Preferred
Stock of the par value of One Hundred Dollars ($100) per share; and
(b) Five million (5,000,000) shares of Common Stock of the par value of
One Dollar ($1.00) per share.
The minimum amount of capital with which the corporation shall commence
business is One Thousand Dollars ($1,000.00).
The following is a statement of all designations and powers,
preferences, rights, qualifications, limitations or restrictions in respect to
any class of stock of the corporation:
SECTION 1. CUMULATIVE PREFERRED STOCK.
(a) The holders of the Cumulative Preferred Stock I shall be entitled
to receive, when and if declared by the Board of Directors of the
corporation, out of any surplus legally available therefor, cash dividends
at the rate of four per cent (4%) per annum, and no more, payable quarterly
on the first days of January, April, July and October, in preference to and
in priority over dividends upon any of the shares ranking junior thereto as
to dividends. The holders of the Cumulative Preferred Stock shall not be
entitled to participate in any earnings of the corporation in excess of the
rate provided for herein.
(b) All or any part of the outstanding Cumulative Preferred Stock may
be redeemed at the option of the Board of Directors at any time upon the
payment of One Hundred Dollars ($100) per share plus all accumulated and
unpaid dividends thereon, whether or not earned or declared. If less than
all of said shares are redeemed, such redemption shall be pro rata. Notice
of any redemption hereunder shall be given by certified mail at least
thirty (30) days prior to the date fixed for redemption, to each preferred
shareholder at his address appearing on the corporate records.
(c) Except as mandatorily required by law or otherwise specifically
provided for in this Article Fourth, the holders of the Preferred Stock
shall not be entitled to vote upon any matters presented to the Common
Stock holders of the corporation at the corporation's annual meeting, or at
any special meetings of stockholders that may be called from time to time
for any purpose.
(d) In the event of any liquidation or dissolution of the affairs of
the corporation, followed by a distribution of the assets of the
corporation, the holders of the Cumulative Preferred Stock shall be
entitled to be paid in cash out of the assets of the corporation whether
from capital or from earnings, the par value of the Cumulative Preferred
Stock, together with an amount equal to all accrued unpaid dividends
thereon, whether or not earned or declared, but without interest, to the
date fixed for the payment of such distributive amounts. Said distribution
shall be made before any distribution shall be made to the holders of any
shares ranking junior to the Cumulative Preferred Stock provided for
herein.
(e) No Preferred shares retired by redemption as provided for herein
shall be re-issued and no Preferred shares shall be issued in lieu of
Preferred shares which have been retired.
<PAGE>
(f) So long as the corporation shall be in default in complying with
any of the provisions herein described, the right of the corporation to pay
dividends on its Common Stock shall be suspended.
(g) No Preferred shareholder shall have any pre-emptive or preferential
right to subscribe for or purchase any of the unissued shares of stock of
the corporation of the same class or of any other class, whether now or
hereafter authorized, or any stock of this corporation purchased by this
corporation or by its nominee or nominees, or any bonds, certificates of
indebtedness, debentures or other securities whether or Dot such securities
shall be convertible into stock of the corporation. No Preferred
shareholder shall be entitled to participate in any Common Stock which the
corporation or the Board of Directors in its or their discretion, may see
fit to distribute by way of dividends.
(h) The corporation unless with the written consent of the holders of
at least two-thirds (2/3) of the Cumulative Preferred Stock at the time
outstanding, shall not authorize or issue any shares of any class which in
their claim either to assets or dividends rank prior to the Cumulative
Preferred Stock, or any securities convertible into any such shares, or
evidencing rights to purchase any such shares.
SECTION 2. COMMON STOCK.
(a) Dividends (payable either in cash, Common Stock, or otherwise) as
may be determined by the Board of Directors, may be declared and paid upon
the Common Stock from time to time out of the surplus or net profits of the
corporation, subject to the applicable express terms of the Cumulative
Preferred Stock.
(b) At all meetings of the stockholders, every holder of Common Stock
shall be entitled to vote and shall have one vote for every share standing
in his name on the books of the corporation.
(c) In the event of any liquidation, dissolution or winding up of the
affairs of the corporation, whether voluntary or involuntary, the holders
of the Common Stock shall be entitled to share ratably in all assets of the
corporation, subject to the applicable express terms of the Cumulative
Preferred Stock.
(d) No Common Stock bolder shall have any preemptive or preferential
right to subscribe for or purchase any of the unissued shares of stock of
the corporation of the same class or of any other class, whether now or
hereafter authorized, or any stock, of this corporation purchased by this
corporation, or by its nominee or nominees, or any bonds, certificates of
indebtedness, debentures or other securities whether or not such securities
shall be convertible into stock of the corporation.
(e) The corporation shall be entitled to treat the holder of record of
any share or shares of stock as the owner thereof for all purposes, and
shall not be bound to recognize any equitable or other claim to or interest
in any such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof.
<PAGE>
FIFTH. The names and places of residence of each of the incorporators
are as follows:
Names Places of Residence
L. H. Herman.........................Wilmington, Delaware
D. O. Newman.........................Wilmington, Delaware
Walter Lenz..........................Wilmington, Delaware
SIXTH. The corporation is to have perpetual existence.
SEVENTH. The private property of the stockholders shall not be subject
to the payment of corporate debts to any extent whatever.
EIGHTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(1) To make, alter or repeal the by-laws of the corporation.
(2) To authorize and cause to be executed mortgages and liens upon the
real and personal property of the corporation.
(3) To set apart out of any of the funds of the corporation available
for dividends a reserve or reserves for any proper purpose and to
abolish any such reserve in the manner in which it was created.
(4) By resolution passed by a majority of the whole board, to designate
one or more committees, each committee to consist of two or more of the
directors of the corporation, which, to the extent provided in the
resolution or in the by-laws of the corporation, shall have and may
exercise the powers of the board of directors in the management of the
business and affairs of the corporation, and may authorize the seal of
the corporation to be affixed to all papers which may require it. Such
committee or committees shall have such name or names as may be stated
in the by-laws of the corporation or as may be determined from time to
time by resolution adopted by the Board of Directors.
(5) When and as authorized by the affirmative vote of the holders of a
majority of the stock issued and outstanding having voting power given.
at a stockholders' meeting duly called for that purpose, or when
authorized by the written consent of the holders of a majority of the
voting stock issued and outstanding, to sell, lease or exchange all of
the property and assets of the corporation, including its good will and
its corporate franchises, upon such terms and conditions and for such
consideration, which may be in whole or in part shares of stock in,
and/or other securities of, any other corporation or corporations, as
its Board of Directors shall deem expedient and for the best interests
of the corporation.
NINTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary,
way of this corporation or of any creditor or stockholder thereof, or on the
application of any
<PAGE>
receiver or receivers appointed for this corporation under the provisions of
section 291 of Title 8 of the Delaware Code, or on the application of trustees
in dissolution or of any receiver or receivers appointed for this corporation
under the provisions of section 279 of Title 8 of the Delaware Code, order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
TENTH. Meetings of stockholders may be held outside the State of
Delaware, if the by-laws so provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the by-laws of the corporation. Elections of directors
need not be by ballot unless the by-laws of the corporation shall so provide.
The by-laws shall determine whether and to what extent the accounts and books of
this corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right of inspecting any account,
or book, or document of this corporation, except as conferred by the law or the
by-laws, or by resolution of the stockholders.
ELEVENTH. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, we have hereunto set our hands and seals this 3rd
day of December, 1934.
L. H. HERMAN(L.S.)
D. O. NEWMAN (L.S.)
WALTER LENZ (L.S.)
In the presence of:
HAROLD E. GRANTLAND
<PAGE>
STATE OF DELAWARE ) Ss.:
COUNTY OF NEW CASTLE )
BE IT REMEMBERED that on this 3rd day of December, 1934, personally
came before me, a Notary Public of the State of Delaware, L. H. Herman, D.O.
Newman and Walter Lenz, all the parties to the foregoing Certificate of
Incorporation, known to me personally to be such and severally acknowledged the
said certificate to be the act and deed of the signers respectively and that the
facts therein stated are truly set forth.
GIVEN under my hand and seal of office the day and year aforesaid.
HAROLD E. GRANTLAND
Notary Public
(Notarial Seal)
HAROLD E. GRANTLAND
Notary Public
Appointed Jan. 11, 1933
State of Delaware
Term Two Years
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
The Valspar Corporation, a corporation organized and existing under
and by Virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of The Valspar
Corporation resolutions were duly adopted setting forth a proposed amendment to
the Certificate of Incorporation of said corporation, declaring said amendment
to be advisable and calling a meeting of the stockholders of said corporation
for consideration thereof. The resolution setting forth the proposed amendment
is as follows:
"RESOLVED, that Article Fourth of the Certificate of Incorporation of
The Valspar Corporation be amended to read as follows:
Fourth. The total number of shares of stock which the
corporation shall have authority to issue is ten million
(10,000,000) shares of Common Stock of the par value of One
Dollar ($1.00) per share. At all meetings of the stockholders,
holders of Common Stock shall be entitled to one vote for each
share registered in their names. No stockholder shall have any
preemptive or preferential right to subscribe for or purchase
any of the unissued shares of stock of the corporation of the
same class or of any other class, whether now or hereafter
authorized, or any stock, of this corporation purchased by
this corporation, or by its nominee or nominees, or any bonds,
certificates of indebtedness, debentures or other securities
whether or not such securities shall be convertible into stock
of the corporation."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the annual meeting of the stockholders of the corporation was duly
called and held on February 29, 1984, upon notice in accordance with Section 222
of the General Corporation Law of the State of Delaware, at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, The Valspar Corporation has caused this certificate
to be signed by C. Angus Wurtele, its Chairman of the Board of Directors, and
attested by H. F. Denker, its Secretary, this 29th day of February, 1984.
THE VALSPAR CORPORATION
By __________________________
C. Angus Wurtele, Chairman
of the Board of Directors
ATTEST:
By _______________________
H. F. Denker, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
The Valspar Corporation, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of The Valspar
Corporation resolutions were duly adopted setting forth a proposed amendment to
the Certificate of Incorporation of said corporation, declaring said amendment
to be advisable and calling a meeting of the stockholders of said corporation
for consideration thereof. The resolution setting forth the proposed amendment
is as follows:
"RESOLVED, That the first sentence of Article Fourth of the Certificate
of Incorporation of The Valspar Corporation be amended to read as
follows:
'Fourth. The total number of shares of stock which the
corporation will have authority to issue is twenty million
(20,000,000) shares of Common Stock of the par value of fifty
cents ($.50) per share."'
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the Annual Meeting of the Stockholders of the corporation was duly
called and held on February 26, 1986, upon notice in accordance with Section 222
of the General Corporation Law of the State of Delaware, at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, The Valspar Corporation has caused this Certificate
to be signed by C. Angus Wurtele, its Chairman of the Board of Directors, and
attested by H. F. Denker, its Secretary, this 25th day of February, 1986.
THE VALSPAR CORPORATION
By:__________________________
C. Angus Wurtele, Chairman
of the Board of Directors
ATTEST:
By:__________________________
H.F. Denker, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
The Valspar Corporation, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of The Valspar
Corporation resolutions were duly adopted setting forth a proposed amendment to
the Certificate of Incorporation of said corporation, declaring said amendment
to be advisable and calling a meeting of the stockholders of said corporation
for consideration thereof. The resolution setting forth the proposed amendment
is as follows:
"RESOLVED, that the Certificate of Incorporation of The Valspar
Corporation be amended by adding the following new Article Eleventh and
renumbering present Article Eleventh as Article Twelfth:
Eleventh. No director shall be personally liable to the
corporation or to its stockholders for monetary damages for
any breach of fiduciary duty as a director, except to the
extent such exemption from liability or limitation thereof is
not permitted under the Delaware General Corporation Law as
the same exists or may hereafter be amended. Any repeal or
modification of the provisions of this Article shall not
adversely affect any right or protection of a director of the
corporation existing at the time of such repeal or
modifications."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the annual meeting of the stockholders of the corporation was duly
called and held on February 25, 1987, upon notice in accordance with Section 222
of the General Corporation Law of the State of Delaware, at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, The Valspar Corporation has caused this certificate
to be signed by C. Angus Wurtele, its Chairman of the Board of Directors, and
attested by D. C. Olfe, its Secretary, this 25th day of February, 1987.
THE VALSPAR CORPORATION
By ___________________________
C. Angus Wurtele, Chairman
of the Board of Directors
ATTEST:
By __________________________
D. C. Olfe, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
The Valspar Corporation, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware. DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of The Valspar
Corporation resolutions were duly adopted setting forth a proposed amendment to
the Certification, of Incorporation of said Corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the proposed
amendment is as follows
"RESOLVED, That the first sentence of Article Fourth of as Certificate
of Incorporation of The Valspar Corporation be and it hereby be amended to read
as follows:
Fourth. The total number of shares of stock which the
corporation shall have authority to issue is thirty million
(30,000,000) shares of Canon Stock of the par value of Fifty
Cents ($0.50) per share."
SECOND: That thereafter, pursuant to resolution of Its board of
Directors, the annual meeting of the Stockholders of the corporation was duly
called and held on February 16, 1992, upon notice in accordance with Section 222
of the General Corporation Law of the State of Delaware, at Which meeting the
necessary number of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment WAS duly adopted in accordance with the
provision of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, The Valspar Corporation has caused this certificate
to be signed by C. Angus Wurtele its Chairman of the board of Directors, and
attested by D.C. Olfe, its Secretary, this 26th day of February, 1992.
THE VALSPAR CORPORATION
By __________________________
C. Angus Wurtele, Chairman
of the Board of Directors
ATTEST:
By: _______________________________
D. C. Olfe, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE VALSPAR CORPORATION
The Valspar Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that, in accordance with Section 242 of the Delaware General
Corporation Law, the amendment to the Corporation's Certificate of Incorporation
set forth in the following resolution was approved by the Corporation's board of
directors at a duly held meeting, was recommended to the shareholders, and was
approved by the shareholders at the annual meeting of the shareholders duly
called and held pursuant to Section 222 of the Delaware General Corporation Law:
RESOLVED, that the first sentence of Article Fourth of the
Certificate of Incorporation of The Valspar Corporation be and it
hereby is amended to read as follows:
"Fourth. The total number of shares of stock which the
corporation shall have the authority to issue is one hundred
twenty million (120,000,000) shares of Common Stock of the par
value of Fifty Cents ($0.50) per share."
IN WITNESS WHEREOF, The Valspar Corporation has caused this Certificate
of Amendment to be signed by its duly authorized officer this 26th day of
February, 1997.
THE VALSPAR CORPORATION
By _________________________
Rolf Engh, Secretary and
General Counsel
EXHIBIT 3(b)
THE VALSPAR CORPORATION
(INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE)
B Y - L A W S
AS AMENDED TO AND INCLUDING OCTOBER 15, 1997
================================================================================
<PAGE>
THE VALSPAR CORPORATION
B Y - L A W S
AS AMENDED TO AND INCLUDING OCTOBER 15, 1997
ARTICLE I
Stockholders
Section 1. The Annual Meeting of the Stockholders of the Corporation
shall be held on the fourth Wednesday in February in each year, beginning in the
year 1971 (or if said day be a legal holiday, then on the next succeeding day,
not a legal holiday), at 2:00 in the afternoon for the purpose of electing
directors and of transacting such other business as may properly be brought
before the meeting. The Annual Meeting shall be held at such place within or
without the State of Delaware, and at such other date and time, as may be fixed
by the Board of Directors and stated in the call and notice of the meeting.
Section 2. Special meetings of the stockholders may be held upon call
of the Board of Directors or the Executive Committee or the Chairman of the
Board or the President, at such time and at such place within or without the
State of Delaware as may be stated in the call and notice.
Section 3. Notice of the time and place of every meeting of the
stockholders shall be delivered personally or mailed at least fifteen days
previous thereto to each stockholder of record entitled to vote at the meeting,
at the address furnished by him to the Corporation or its Transfer Agent. Such
further notice shall be given as may be required by law. Meetings may be held
without notice if all of the stockholders entitled to vote are present or
represented at the meeting, or if notice is waived by those not so present or
represented.
Section 4. At every meeting of the stockholders the holders of record
of a majority of the outstanding shares of stock of the Corporation, entitled to
vote at the meeting, whether present in person or represented by proxy, shall,
except as otherwise provided by law, or by the Certificate of Incorporation,
constitute a quorum. If at any meeting there shall be no quorum, the holders of
record, entitled to vote, of a majority of such shares of stock so present or
represented may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall have been obtained, when any
business may be transacted which might have been transacted at the meeting as
first convened had there been a quorum.
<PAGE>
Section 5. Unless otherwise provided in the Certificate of
Incorporation of the Corporation, meetings of the stockholders shall be presided
over by the Chairman of the Board or the President or, if neither is present, by
a Vice President or, if a Vice President is not present, by a chairman to be
chosen at the meeting. The Secretary of the Corporation or, if he is not
present, an Assistant Secretary of the Corporation, if present, shall act as
secretary of the meeting, but if no such officer is present, a secretary shall
be chosen at the meeting.
Section 6. Each stockholder entitled to vote at any meeting shall have
one vote in person or by proxy for each share of stock held by him which has
voting power upon the matter in question at the time, but no proxy shall be
voted on after three years from its date, unless such proxy provides for a
longer period, and, except when the stock transfer books of the Corporation
shall have been closed or a date shall have been fixed in advance as a record
date for the determination of stockholders entitled to vote, as hereinafter
provided, no share of stock shall be voted on at any election for directors
which shall have been transferred on the books of the Corporation within twenty
days next preceding such election of directors.
Section 7. At all elections of directors the voting shall be by ballot
and a majority of the votes cast thereat shall elect. At all such elections the
chairman of the meeting shall appoint two inspectors of election, unless such
appointment shall be unanimously waived by the stockholders present in person or
represented by proxy at the meeting and entitled to vote for the election of
directors; but no director or candidate for the office of director shall be
appointed as such inspector. The inspectors, before entering upon the discharge
of their duties, shall take and subscribe an oath or affirmation faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according to the best of their ability, and shall take charge of the polls and
after the balloting shall make a certificate of the result of the vote taken.
Section 8. The Board of Directors shall have power to close the stock
transfer books of the Corporation for a period not exceeding sixty days
preceding the date of any meeting of stockholders or the date for payment of any
dividend or the date for the allotment of rights or the date when any change or
conversion or exchange of stock shall go into effect or for a period of not
exceeding sixty days in connection with obtaining the consent of stockholders
for any purpose; provided, however, that in lieu of closing the stock transfer
books as aforesaid, the Board of Directors may fix in advance a date, not
exceeding sixty days preceding the date of any meeting of stockholders, or the
date for the payment of any dividend, or the date for the allotment of rights,
or the date when any change or conversion or exchange of stock shall go into
effect, or a date in connection with obtaining such consent, as a record date
for the determination of the stockholders entitled to notice of, and to vote at,
any such meeting and any adjournment thereof, or entitled to receive payment of
any such dividend, or to any such allotment of
<PAGE>
rights, or to exercise the rights in respect of any such change, conversion or
exchange of stock, or to give such consent, and in such case such stockholders
and only such stockholders as shall be stockholders of record on the date so
fixed shall be entitled to such notice of, and to vote at, such meeting and any
adjournment thereof, or to receive payment of such dividend, or to receive such
allotment of rights, or to exercise such rights, or to give such consent, as the
case may be, notwithstanding any transfer of any stock on the books of the
Corporation after any such record date fixed as aforesaid.
Section 9. The provisions of this Article I, and of these By-Laws, are
subject to the provisions of the Certificate of Incorporation of the
Corporation, as from time to time amended, and in the case of any inconsistency
between the provisions of these By-Laws and of the Certificate of Incorporation,
the Certificate of Incorporation shall govern and such inconsistency shall be
resolved so as to carry into effect the intent and purpose of the provisions of
the Certificate of incorporation.
<PAGE>
ARTICLE II
Board of Directors
Section 1. The Board of Directors of the Corporation shall consist of
such number of persons, not less than three, as may be fixed from time to time
by resolution of the Board of Directors. Commencing at the Annual Meeting of
Stockholders in 1986, the terms of office of the Board of Directors shall be
divided into three classes as nearly equal in number as possible, as determined
by the Board of Directors. The terms of office of the directors initially
classified shall be as follows: (i) terms of Class I shall expire at the Annual
Meeting of Stockholders in 1987; (ii) terms of Class II shall expire at the
Annual Meeting of Stockholders in 1988; and (iii) terms of Class III shall
expire at the Annual Meeting of Stockholders in 1989. At each Annual Meeting of
Stockholders after the initial classification, a successor to a director whose
term shall then expire shall be elected to serve from the time of election and
qualification until the third Annual Meeting following election and until a
successor shall have been duly elected and shall have qualified. Directors
numbering at least one half of the Board shall constitute a quorum for the
transaction of business, but if at any meeting of the Board there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without notice other than announcement at the meeting,
until a quorum shall have been obtained, when any business may be transacted
which might have been transacted at the meeting as first convened had there been
a quorum.
Whenever any vacancies shall have occurred in the Board of Directors, by
death, resignation, or otherwise, or the number of directors shall be increased
by amendment of this Section, such vacancy may be filled, or the additional
directors may be elected by the vote of a majority of the directors then in
office, although such majority is less than the quorum.
Section 2. Meetings of the Board of Directors shall be held at such
place within or without the State of Delaware as may from time to time be fixed
by resolution of the Board or as may be specified in the call of any meeting.
Meetings of the Board may be held at any time upon call of the Executive
Committee or the Chairman of the Board, if any, or the President, by oral,
telegraphic or written notice, duly served on or sent or mailed to each director
not less than two days before any such meeting. A meeting of the Board may be
held without notice immediately after the Annual Meeting of Stockholders at the
same place at which such meeting is held. Meetings may be held at any time
without notice if all of the directors are present or if those not present waive
notice of the meeting in writing or by telegram, before or after any such
meeting.
Directors shall be reimbursed for their necessary traveling expenses
incurred in attending meetings of the Board and shall be paid such reasonable
fee for their attendance as the Board of Directors may fix.
<PAGE>
Section 3. The Board of Directors may, by resolution or resolutions,
passed by the vote of a majority of the whole Board designate an Executive
committee, to consist of the Chairman of the Board or the President, and two or
more other directors of the Corporation, as the Board may from time to time
determine. The Executive Committee shall have and may exercise, when the Board
is not in session, all of the powers of the Board in the management of the
business and affairs of the Corporation, and shall have power to authorize the
seal of the Corporation to be affixed to all papers which may require it; but
the Executive Committee shall not have power to change the membership of, or to
fill vacancies in, the Executive Committee, or to make or amend By-Laws of the
Corporation. The Board shall have the power at any time to fill vacancies in, to
change the membership of, or to dissolve, the Executive Committee.
Section 4. The Board of Directors may also, by resolution or
resolutions, passed by a majority of the total number of directors, appoint one
or more other committees, each such committee to consist of two or more of the
directors of the Corporation, which, to the extent provided in said resolution
or resolutions, shall have and may exercise such powers as shall be conferred or
authorized by the Board, and may have power to authorize the seal of the
Corporation to be affixed to all papers which may require it. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board. The Board shall have the power at any time
to fill vacancies in, to change the membership of, or to dissolve, any such
committee.
Section 5. Meetings of the Executive Committee and of each one or more
other committees appointed by the Board of Directors pursuant to the provisions
of the preceding Section 4 shall be held at such place within or without the
State of Delaware as may from time to time be fixed by resolution of the
committee or as may be specified in the call of any meeting. Regular meetings of
the Executive Committee and of each one or more other such committees shall be
held at such time as may from time to time be fixed by resolution of the
committee, and notice of such meetings need not be given. Special meetings of
the Executive Committee and of each one or more other such committees may be
held at any time upon call of the Chairman or Vice-Chairman of the committee, if
any, or the President, and notice thereof, unless otherwise determined by the
committee, shall be mailed to each member thereof, addressed to him at his
residence or usual place of business, or shall be sent to him at such residence
or place of business by telegram, radio, or cable, or shall be given to him
orally, in person or by telephone or otherwise, at least two days before such
meeting. Notice of any special meeting need not be given to any member who shall
attend such meeting in person or who shall waive notice thereof in writing or by
telegram, radio-or cable, whether before or after the time of such meeting, and
any such meeting shall be a legal meeting without
<PAGE>
any notice thereof having been given if all the members shall be present
thereat. No notice of any adjourned meeting need be given. At all meetings of
the Executive Committee and of each one or more other such committees the
presence of members constituting a majority of the membership of the committee
shall be necessary and sufficient to constitute a quorum for the transaction of
business, and the act of a majority of the member present at any meeting at
which a quorum is present shall be the act of the committee. The Executive
Committee and each one or more other such committees may, except to the extent
provided herein or in any resolution of the Board of Directors, make rule for
the conduct of its business and may appoint such committees and assistants as it
shall from time to time deem necessary.
<PAGE>
ARTICLE III
Officers
Section 1. At the annual meeting of the Board, and from time to time
thereafter, the Board of Directors shall elect or appoint such officers as it
deems proper which may include, but without limitation, a Chairman of the Board,
who shall be a Director, a President, one or more Vice Presidents, a Treasurer,
a Secretary, and Assistants thereto. One person may hold more than one office,
except the offices of President and Vice President.
Section 2. The term of office of all officers shall be one year, or
until their respective successors are chosen; but any office may be removed from
office at any time by the affirmative vote of a majority of the members of the
whole Board.
Section 3. Subject to such limitations as the Board of Directors or the
Executive Committee may from time to time prescribe, the officers of the
Corporation shall each have such powers and duties as generally pertain to their
respective offices, as well as such powers and duties as from time to time may
be conferred by the Board of Directors or the Executive Committee. The Board of
Directors may require the Treasurer, the Assistant Treasurers and any other
officers, agents or employees of the Corporation to give bond for the faithful
discharge of their duties, in such sum and of such character as the Board may
from time to time prescribe.
Section 4. The Board of Directors may designate from time to time one
of the officers of the Corporation as Chief Executive officer. within limits
prescribed from time to time by the Board of Directors or Executive Committee,
the Chief Executive Officer shall have broad executive authority and
responsibility to supervise and control the Corporation's operations and to
provide general leadership in matters of corporate policy and planning.
<PAGE>
ARTICLE IV
Certificates of Stock
Section 1. The interest of each stockholder in the Corporation shall be
evidenced by a certificate or certificates for shares of stock of the
Corporation, in such form as the Board of Directors may from time to time
prescribe. The certificates for shares of stock of the Corporation shall be
signed by the Chairman of the Board or the President or a Vice-President and by
the Secretary or the Treasurer or an Assistant Secretary or an Assistant
Treasurer, and shall be countersigned and registered in such manner, if any, as
the Board may by resolution prescribe; provided, however, that, in case such
certificates are required by such resolution to be signed by a transfer agent or
an assistant transfer agent or by a transfer clerk acting on behalf of the
Corporation and by a registrar, the signatures of any such Chairman of the Board
or President, Vice-President, Treasurer, Assistant Treasurer, Secretary or
Assistant Secretary may be facsimile.
In case any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on, any certificate or
certificates for shares of stock of the Corporation shall cease to be such
officer or officers of the Corporation, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be adopted by
the Corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature or
signatures shall have been used thereon had not ceased to be such officer or
officers of the Corporation.
Section 2. The shares of stock of the Corporation shall be transferable
on the books of the Corporation by the holders thereof in person or by duly
authorized attorney, upon surrender for cancellation of certificates for a like
number of shares of the same class of stock, with duly executed assignment and
power of transfer endorsed thereon or attached thereto, and with such proof of
the authenticity of the signatures as the Corporation or its agents may
reasonably require.
Section 3. No certificate for shares of stock of the Corporation shall
be issued in place of any certificate alleged to have been lost, stolen or
destroyed, except upon production of such evidence of the loss, theft or
destruction and upon indemnification of the Corporation and its agents to such
extent and in such manner as the Board of Directors may from time to time
prescribe.
<PAGE>
Section 4. Notwithstanding the foregoing, the Board of Directors by
resolution may from time to time designate any or all classes or series of
shares of the stock of the Corporation, as it deems appropriate, as
uncertificated shares. Any such resolution adopted by the Board of Directors
shall not apply to shares represented by a certificate until such certificate is
surrendered to the Corporation. Notwithstanding the adoption of such a
resolution by the Board of Directors, upon request, every holder of
uncertificated shares shall be entitled to receive a certificate representing
the number of shares registered as provided in Section 1 of this Article IV.
ARTICLE V
Checks, Notes, Etc.
All checks and drafts on the Corporation's bank accounts and all bills
of exchange and promissory notes, and all acceptances, obligations and other
instruments for the payment of money, shall be signed by such officer or
officers or agent or agents as shall be thereunto authorized from time to time
by the Board of Directors or the Executive Committee.
ARTICLE VI
Fiscal Year
The fiscal year of the Corporation shall begin on the first day of
November in each year, commencing with the year 1960, and shall end on the
thirty-first day of October following.
ARTICLE VII
Corporate Seal
The corporate seal shall have inscribed thereon the name of the
Corporation and the words "Incorporated - Delaware - 1934."
<PAGE>
ARTICLE VIII
Officers
The Corporation and the stockholders and the directors may have offices
outside of the State of Delaware, at such places as shall be determined from
time to time by the Board of Directors.
ARTICLE IX
Indemnification of Officers and Directors
The Corporation may indemnify every person, his heirs, executors and
administrators, against any and all judgments, fines, amounts paid in settlement
and reasonable expenses, including attorneys' fees, incurred by him in
connection with any claim, action, suit or proceeding (whether actual or
threatened, brought by or in the right of the Corporation or otherwise, civil,
criminal, administrative or investigative, including appeals), to which he may
be or is made a party by reason of his being or having been a director or
officer of the Corporation, or at its request of any other corporation.
Any such person shall be entitled to indemnification as of right (i) if
he has been wholly successful, on the merits or otherwise, with respect to any
claim, action, suit or proceeding or, (A) except as hereinafter provided, in
respect of matters as to which a court or independent legal counsel shall have
determined that he acted in good faith for a purpose which he reasonably
believed to be in the best interests of the Corporation or such other
corporation and, in addition, in the case of any criminal action or proceeding,
had no reasonable cause to believe that his conduct was unlawful. Such court or
independent counsel shall have the power to determine that such director or
officer is entitled to indemnification as to some matters even though he is not
so entitled as to others. The termination of any claim, action, suit or
proceeding by judgment, settlement, conviction or upon a plea of nolo contendere
or its equivalent, shall not in itself create a presumption that any such
director or officer did not act in good faith for a purpose which he reasonable
believed to be in the best interests of the Corporation and, in the case of any
criminal action or proceeding, that he had reasonable cause to believe that his
conduct was unlawful.
<PAGE>
There shall be no indemnification (i) as to amounts paid in settlement
or other disposition of any threatened or pending action by or in the right of
the Corporation or such other corporation, or (ii) as to matters in respect of
which it shall be determined by judgment or otherwise that such director or
officer was derelict in the performance of his duties to the Corporation or such
other corporation and, in the case of any criminal action or proceeding, that he
had reasonable cause to believe that his conduct was unlawful.
Amounts paid in indemnification shall include, but shall not be
limited-to, counsel and other fees and disbursements and judgments, fines or
penalties against, and amounts paid in settlement by, such director or officer.
The Corporation may advance expenses to, or where appropriate may itself at its
expense undertake the defense of, any such director or officer provided that he
shall have undertaken to repay or to reimburse such expenses if it should be
ultimately determined that he is not entitled to indemnification under this
article.
Payments of indemnification made pursuant to this article shall be
reported to the stockholders in the next proxy statement or otherwise, except
that no such payments need be reported if such director or officer has been
wholly successful on the merits or otherwise.
The provisions of this article shall be applicable to claims, actions,
suits or proceedings made or commenced after the adoption hereof, whether
arising from acts or omissions to act occurring before or after the adoption
hereof.
The rights of indemnification provided in this Article IX shall not be
exclusive of any rights to which any such director or officer may otherwise be
entitled by contract or as a matter of law.
In addition to the protection provided to directors and officers under
the corporation's Certificate of Incorporation and under the foregoing
provisions of these By-laws, their liability shall be limited to, and their
rights of indemnification and expense advances shall extend to, the extent
permitted under applicable provisions of the Delaware General Corporation Law.
The provisions of this By-law may also be extended, at the discretion of the
Board of Directors, to other employees and agents of the corporation, and shall
in all events extend to the legal representatives of indemnified persons.
<PAGE>
ARTICLE X
Amendments
The By-Laws of the Corporation may be altered, amended, added to or
repealed at any meeting of the Board of Directors, by the affirmative vote of a
majority of the total number of directors, if notice of the proposed change is
given in the notice of the meeting, or if all of the directors are present at
the meeting, or if all directors not present at the meeting assent in writing to
such change; PROVIDED, however, that no change of the time or place for the
annual meeting of the stockholders for the election of directors shall be made
except in accordance with the laws of the State of Delaware. By-Laws made by the
directors may be altered or repealed by the stockholders having voting power, or
by the directors.
Exhibit 10(g)
THE VALSPAR CORPORATION
KEY EMPLOYEE ANNUAL BONUS PLAN
PURPOSE:
The purpose of The Valspar Corporation Key Employee Annual Bonus Plan is to more
closely align the goals and motivation of management with those of other Valspar
shareholders and to provide key personnel with a long-term capital appreciation
opportunity. This purpose is accomplished by granting options to acquire Valspar
stock based on the performance of the Participant and Valspar and by encouraging
the conversion of performance based cash bonuses to grants of restricted Valspar
stock.
DEFINITIONS:
"Bonus and Election Form" shall mean the form used from time to time by Valspar
for Participants to make elections under the Plan for each Fiscal Year.
"Cash Bonus Amount" shall mean the amount determined for a Participant for a
particular Fiscal Year as set forth in Section 2 below. The amount of the Cash
Bonus Amount will not change if all or part is converted into a restricted stock
grant pursuant to the terms of this Plan.
"Change of Control" shall be deemed to have occurred if (i) any person increases
or decreases its percentage equity ownership in Valspar by more than twenty
percentage points from that person's percentage equity ownership in Valspar on
the date hereof or (ii) a majority of the members of the board of directors of
Valspar were not nominated and approved by the board of directors as it existed
prior to the election of such directors. For the purposes of this definition, a
"person" shall include an individual, corporation, partnership, trust or other
legal entity or any group of such persons acting in concert. In calculating the
ownership interest of any person, all securities for which such person is a
beneficial owner as that term is used in Rule 13d-3, as then in effect, under
the Securities Exchange Act of 1934 shall be included.
"Compensation Committee" shall mean the compensation committee of the Board of
Directors of Valspar as constituted from time to time; provided, however, each
member of the Compensation Committee shall be a "disinterested person" within
the meaning of Rule 16b-3, as then in effect, under the Securities Exchange Act
of 1934.
"Disability" shall mean permanent disability as that term is defined under the
long term disability insurance coverage offered by Valspar to its employees at
the time the determination is to be made.
"Eligible Employee" shall mean an Employee that the Compensation Committee has
determined to permit to become a Participant.
<PAGE>
"Employee" shall mean each person who is an employee of Valspar which term shall
include both full and part-time employees but shall not include independent
contractors providing services to Valspar.
"Fiscal Year" shall mean the period corresponding with each of the fiscal years
of Valspar.
"Option Plan" shall mean The Valspar Corporation 1991 Stock Option Plan.
"Participant" shall mean an Eligible Employee that has executed a Bonus and
Election Form and who remains a Participant pursuant to the provisions of
Section 1 of the Plan.
"Plan" shall mean The Valspar Corporation Key Employee Annual Bonus Plan, as set
forth herein and as amended from time to time.
"Plan Administrator" shall mean the person or persons designated as such from
time to time by the Compensation Committee. If no person is designated as the
Plan Administrator, the Plan Administrator shall be the Secretary of Valspar.
"Retirement" shall mean the termination of employment with Valspar at any time
after the Employee has attained the age of sixty years for any reason other than
Termination for Cause.
"Stock" shall mean the common stock of Valspar, par value $.50 per share.
"Termination for Cause" shall mean the termination of employment with Valspar as
a result of an illegal act, gross insubordination or willful violation of a
Valspar policy by an Employee.
"Valspar" shall mean The Valspar Corporation, a Delaware corporation, with its
principal offices in Minneapolis, Minnesota.
PLAN:
1. Participants.
From time to time, the Compensation Committee shall determine the
Employees who will be Eligible Employees under the Plan. As soon as possible
after the Compensation Committee has made its determination, the Plan
Administrator will notify each Eligible Employee of her/his eligibility. An
Eligible Employee shall become a participant by executing a Bonus and Election
Form and filing it with the Plan Administrator. A Participant will cease being a
Participant upon the earlier of (i) her/his termination of employment with
Valspar for any reason or (ii) a determination by the Compensation Committee
that he/she shall no longer be an Eligible Employee.
<PAGE>
2. Cash Bonus Amount.
Each Participant will be eligible to earn a Cash Bonus Amount
calculated as a percentage of that Participant's base salary for the Fiscal Year
based on the performance of the Participant and/or Valspar for such Fiscal Year
as determined by the Participant and his/her supervisor and as recorded in
writing in an individual bonus plan for such Participant. A Participant must be
an Employee on the last day of the Fiscal Year to earn any Cash Bonus Amount.
3. Restricted Stock Grant.
(a) A Participant may elect prior to the beginning of each Fiscal Year
to convert all or any portion of his/her Cash Bonus Amount for that Fiscal Year
into a grant of restricted Stock. The number of shares of Stock contained in the
grant of restricted Stock for each Fiscal Year shall be determined by dividing
twice the Cash Bonus Amount for that Fiscal Year that is converted into a grant
of restricted Stock by the average closing price of one share of Stock on the
New York Stock Exchange for the ten business days immediately prior to the date
on which the Cash Bonus Amount for such Fiscal Year was to be paid.
(b) Notwithstanding the fact that the number of shares of Stock
contained in the grant of restricted Stock is not determined until after the end
of each Fiscal Year, a Participant who is a Participant on the last day of a
Fiscal Year shall be entitled to his/her Cash Bonus Amount and/or grant of
restricted Stock for such Fiscal Year even if such Participant is not a
Participant on the date the Cash Bonus Amount is determined or paid or when the
number of shares of Stock to be contained in the grant of restricted Stock is
determined or the certificate representing those shares is issued.
(c) Immediately upon determination of the number of shares of Stock
contained in the grant of restricted Stock, Valspar shall cause to be issued a
stock certificate representing such shares of Stock in the name of the
Participant. All certificates representing shares of Stock that are subject to
the risk of forfeiture set forth in Section 3(d) below shall be held for Valspar
by the Plan Administrator; provided, however, the person in whose name the
certificate is issued shall be entitled to vote the shares represented by such
certificate and receive dividends attributable thereto until such time, if ever,
the shares are forfeited pursuant to Section 3(d) below.
(d) The shares of Stock contained in each grant of restricted Stock are
forfeitable for three years from the date of the grant if the Participant's
employment with Valspar terminates for any reason other than death, Disability,
Retirement or Change of Control. Such shares of Stock shall not be forfeitable
if the Participant's employment with Valspar terminates during such three year
period as a result of the Participant's death, Disability or Retirement or a
Change of Control of Valspar or if the Participant's employment with Valspar
terminates after the end of such three year period. At such time as the
foregoing risk of forfeiture lapses, the certificate representing the shares of
Stock shall be distributed to the person in whose name it was issued, or if
appropriate that person's estate. If the shares of Stock are forfeited, the
certificate representing those shares shall be canceled.
<PAGE>
4. Nonstatutory Stock Options.
(a) For each Fiscal Year, each Participant will be granted a
nonstatutory stock option under the Option Plan. The number of shares of Stock
included in the nonstatutory stock option will be determined by dividing a
percentage of the participant's base salary by the average closing price of one
share of Stock on the New York Stock Exchange for the ten business days prior to
the date on which the Cash Bonus Amount for such Fiscal Year was to be paid.
(b) Each such option shall be evidenced by an option agreement between
the Participant and Valspar which shall be prepared and executed as soon as
possible after the determination of the number of shares of Stock to be covered
by the option. The option agreement shall provide for an exercise price per
share equal to the closing price of one share of Stock on the New York Stock
Exchange on the day prior to the date on which the number of shares of Stock
included in the nonstatutory stock option is determined, a term of ten years,
vesting at the rate of 20% per year so that the option will be fully exercisable
five years after the date of grant and will permit the option to be exercised by
surrendering other shares of Stock owned by the Participant. The option
agreement shall also provide for full vesting in the event that the
Participant's employment with Valspar terminates as a result of death,
Disability, Retirement or Change of Control. Except in the case of Termination
for Cause, the option agreement shall permit the exercise of the vested portion
of the option within thirty days (one year in the event of death) after the
Employee's termination of employment with Valspar.
5. Miscellaneous.
(a) The Board of Directors of Valspar or the Compensation Committee
may, at any time and without further action on the part of the shareholders of
Valspar, terminate this Plan or make such amendments as it deems advisable and
in the best interests of Valspar; provided, however, that no such termination or
amendment shall, without the consent of the Participant, materially adversely
affect or impair the right of the Participant with respect to a Cash Bonus
Amount that the Participant has already earned or a grant of restricted Stock or
a nonstatutory stock option that the Participant has already received; and
provided, further, that unless the shareholders of Valspar shall have approved
the same, no amendment shall, either directly or indirectly:
(1) Materially increase the total number of shares of
Stock that may be awarded under this Plan to all
Participants;
(2) Materially increase the benefits accruing to
Participants under the Plan; or
(3) Materially modify the requirements as to eligibility
for participation in the Plan.
(b) Valspar shall be entitled to withhold and deduct from future wages
of a Participant or from the Cash Bonus Amount, or make other arrangements for
the collection of, all legally required amounts necessary to satisfy any and all
federal, state and local withholding and employment-related tax requirements
attributable to the lapse of restrictions applicable to the grant of restricted
Stock pursuant to the Plan, or shall require the Participant promptly to remit
<PAGE>
the amount of such withholding tax obligations to Valspar before issuing any
certificate for shares of Stock awarded under a grant of restricted Stock.
Subject to such rules as the Compensation Committee may adopt, the Committee
may, in its sole discretion, permit a Participant to satisfy such withholding
tax obligations, in whole or in part, with shares of Stock having an equivalent
fair market value or by electing to have Valspar withhold shares of Stock having
an equivalent fair market value from the shares that may be issued pursuant to a
grant of restricted Stock; provided, however, that the Participant must comply
with any applicable provisions of Rule 16b-3 or its successor, as then in
effect, of the General Rules and Regulations under the Securities and Exchange
Act of 1934, as amended.
Exhibit 10(i)
THE VALSPAR CORPORATION STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
SECTION 1. PURPOSE.
This plan is known as "The Valspar Corporation Stock Option Plan for
Non-Employee Directors" and is hereinafter referred to as the "Plan." The
purpose of the Plan is to promote the interests of The Valspar Corporation, a
Delaware corporation (the "Company"), by enhancing its ability to attract and
retain the services of experienced and knowledgeable independent directors and
by providing additional incentive for these directors to increase their interest
in the Company's long-term success and progress.
SECTION 2. PARTICIPATION IN THE PLAN.
Each director of the Company who is not an employee of the Company or
any subsidiary of the Company (a "Non-Employee Director") will be eligible to
participate in the Plan.
SECTION 3. STOCK SUBJECT TO THE PLAN.
Shares to be issued under the Plan shall be common stock of the Company
(par value $.50 per share) ("common stock"), not to exceed a maximum of 250,000
shares, and may be unissued shares or reacquired shares. If options granted
under the Plan expire or terminate without having been exercised in full, such
unpurchased shares shall be available for other option grants. If shares of
common stock are delivered as full or partial payment upon exercise of an
option, the number of shares so delivered shall again be available for other
option grants.
SECTION 4. NON-QUALIFIED STOCK OPTION GRANTS.
Each Non-Employee Director serving as a member of the Board of
Directors of the Company on the December 31 immediately preceding each annual
meeting of the stockholders of the Company, will automatically be granted on the
date of such annual meeting a Non-Qualified Stock Option with a value equal to
50% of the amount of the current annual retainer paid to Non-Employee Directors
for their service on the Board of Directors for the preceding fiscal year. The
per share option exercise price will be equal to 100% of the Fair Market Value
of one share of the Company's common stock on the date of grant, as determined
by the closing price of the Company's common stock on the last business day
prior to the annual meeting date. The number of shares subject to the option
will be determined by using the same option valuation model used to value
options for purposes of the notes to the Company's audited financial statements
for the prior fiscal year. If no option valuation model is used for financial
reporting purposes, the Board of Directors will determine the appropriate model
to be used for this purpose. All such options will be designated as
Non-Qualified Stock Options. Each option will be immediately exercisable in full
and have a term of ten years. Upon termination of a person's service as a
director of the Company, such Non-Employee Director will be allowed to
<PAGE>
exercise the option for a period of three years after the date on which such
person ceased to be a director, but in no event may the option be exercised
after the expiration of its original term.
SECTION 5. OPTION AGREEMENT AND EXERCISE OF OPTION.
Promptly after determination of the number of stock options to be
granted to each Non-Employee Director under Section 4, the Company will prepare
and deliver a Non-Qualified Stock Option Agreement to each Non-Employee
Director, containing the terms described in this Plan. Optionee is not required
to exercise options in the sequential order that the options were granted. An
option shall be exercised by written notice in a form designated by the Company
accompanied by full payment of the purchase price. All or part of the purchase
price may be paid by surrender (or deemed surrender through attestation) of
previously acquired shares of common stock valued at the fair market value at
the closing price on the day preceding the date of exercise. Until an option is
exercised and the stock certificate issued, the Optionee shall have no rights as
a stockholder with respect to such option.
SECTION 6. WITHHOLDING OF TAXES.
Upon exercise of an option, the Optionee shall (i) pay cash, (ii)
surrender previously acquired shares of common stock or (iii) authorize the
withholding of shares from the shares issued upon exercise of an option for all
taxes required to be withheld.
SECTION 7. NON-TRANSFERABILITY.
Options shall not be transferable, voluntarily or involuntarily, except
by will or applicable laws of descent and distribution. Only the Optionee or
Optionee's legal representative or guardian may exercise the option.
SECTION 8. DILUTION OR OTHER ADJUSTMENTS.
The number of shares subject to the Plan, the outstanding options and
the exercise price may be adjusted by the Committee as it deems equitable in the
event of stock split, stock dividend, recapitalization, reclassification or
similar event to prevent dilution or enhancement of option rights.
SECTION 9. MERGERS, ACQUISITIONS, OR OTHER REORGANIZATION.
The Committee may make provision, as it deems equitable, for the
protection of Optionees with grants of outstanding options in the event of (a)
merger of the Company into, or the acquisition of substantially all of the stock
or assets of the Company by, another entity; or (b) liquidation; or (c) other
reorganization of the Company.
<PAGE>
SECTION 10. ADMINISTRATION AND AMENDMENT OF THE PLAN.
The Plan shall be administered by the Compensation Committee of the
Board of Directors. The Committee may suspend or discontinue the Plan or revise
or amend it in any respect deemed advisable and in the best interests of the
Company; provided, however, that no such revision or amendment would impair the
terms and conditions of any option which is outstanding on the date of such
revision or amendment to the material detriment of the Optionee without the
consent of the Optionee. In addition, no such revision or amendment may, without
the approval of the Corporation's stockholders, (i) materially increase the
number of shares subject to the Plan except as provided in the case of stock
splits, consolidations, stock dividends or similar events, (ii) change the
designation of the class of individuals eligible to receive options, or (iii)
materially increase the benefits accruing to Optionees under the Plan.
SECTION 11. EFFECTIVE DATE OF THE PLAN.
The Plan will become effective as of February 25, 1998, the date
stockholders of the Company approve such Plan. The first option grant under this
Plan will be granted on the date of the annual stockholder meeting held in 1999
to all Non-Employee Directors who were members of the Board of Directors on
December 31, 1998. This Plan is being adopted to replace The Valspar Corporation
Restricted Stock Plan for Non-Employee Directors, which will automatically
terminate following the issuance of the restricted stock grant that was earned
for services during 1997.
Exhibit 10(j)
THE VALSPAR CORPORATTON
ANNUAL BONUS PLAN
PURPOSE:
The purpose of The Valspar Corporation Annual Bonus Plan is to more closely
align the goals and motivation of selected Valspar employees with those of other
Valspar shareholders and to provide such employees with a long-term capital
appreciation opportunity. This purpose is accomplished by granting options to
acquire Valspar stock based on the performance of the Participant and/or
Valspar.
DEFINITIONS:
"Bonus Form" shall mean the form used from time to time by Valspar for
Participants under the Plan for each Fiscal Year.
"Cash Bonus Amount" shall mean the amount determined for a Participant for a
particular Fiscal Year as set forth in Section 2 below.
"Change of Control" shall be deemed to have occurred if (i) any person increases
or decreases its percentage equity ownership in Valspar by more than twenty
percentage points from that person's percentage equity ownership in Valspar on
the date hereof or (ii) a majority of the members of the board of directors of
Valspar were not nominated and approved by the board of directors as it existed
prior to the election of such directors. For the purposes of this definition, a
"person" shall include an individual, corporation, partnership, trust or other
legal entity or any group of such persons acting in concert. In calculating the
ownership interest of any person, all securities for which such person is a
beneficial owner as that term is used in Rule 13d-3, as then in effect, under
the Securities Exchange Act of 1934 shall be included.
"Compensation Committee" shall mean the compensation committee of the Board of
Directors of Valspar as constituted from time to time; provided, however, each
member of the Compensation Committee shall be a "disinterested person" within
the meaning of Rule 16b-3, as then in effect, under the Securities Exchange Act
of 1934.
"Disability" shall mean permanent disability AS that term is defined under the
long term disability insurance coverage offered by Valspar to its employees at
the time the determination is to be made.
"Eligible Employee" shall mean an Employee that the Compensation Committee has
determined to permit to become a Participant.
<PAGE>
"Employee" shall mean each person who is an employee of Valspar which term shall
include both full and part-time employees but shall not include independent
contractors providing services to Valspar.
"Fiscal Year" shall mean the period corresponding with each of the fiscal years
of Valspar.
"Option Plan" shall mean The Valspar Corporation 1991 Stock Option Plan.
"Participant" shall mean an Eligible Employee that has executed a Bonus Form and
who remains a Participant pursuant to the provisions of Section 1 of the Plan.
"Plan" shall mean The Valspar Corporation Annual Bonus Plan, as set forth herein
and as amended from time to time.
"Plan Administrator" shall mean the person or persons designated as such from
time to time by the Compensation Committee. If no person is designated as the
Plan Administrator, the Plan Administrator shall be the Secretary of Valspar.
"Retirement" shall mean the termination of employment with Valspar at any time
after the Employee has attained the age of sixty years for any reason other than
Termination for Cause.
"Stock" shall mean the common stock of Valspar, par value $.50 per share.
"Termination for Cause" shall mean the termination of employment with Valspar as
a result of an illegal act, gross insubordination or willful violation of a
Valspar policy by an Employee.
"Valspar" shall mean The Valspar Corporation, a Delaware corporation, with its
principal offices in Minneapolis, Minnesota.
PLAN:
1. Participants.
From time to time, the Compensation Committee shall determine the Employees who
will be Eligible Employees under the Plan. As soon as possible after the
Compensation Committee has made its determination, the Plan Administrator will
notify each Eligible Employee of her/his eligibility. An Eligible Employee shall
become a participant by executing a Bonus Form and filing it with the Plan
Administrator. A Participant will cease being a Participant upon the earlier of
(i) her/his termination of employment with Valspar for any reason or (ii) a
determination by the Compensation Committee that he/she shall no longer be an
Eligible Employee.
<PAGE>
2. Cash Bonus Amount.
Each Participant will be eligible to earn a Cash Bonus Amount calculated as a
percentage of that Participant's base salary for the Fiscal Year based on the
performance of the Participant and/or Valspar for such Fiscal Year as determined
by the Participant and his/her supervisor and as recorded in writing in an
individual bonus plan for such Participant. A Participant must be an Employee on
the last day of the Fiscal Year to earn any Cash Bonus Amount.
3. Nonstatutory Stock Options.
(a) For each Fiscal Year, each Participant will be granted a
nonstatutory stock option under the Option Plan. The number of shares of Stock
included in the nonstatutory stock option will be determined by dividing a
percentage of the participant's base salary by the average closing price of one
share of Stock on the New York Stock Exchange for the ten business days
immediately prior to the date on which the Cash Bonus Amount for such Fiscal
Year was to be paid.
(b) Each such option shall be evidenced by an option agreement between
the Participant and Valspar which shall be prepared and executed as soon as
possible after the determination of the number of shares of Stock to be covered
by the option. The option agreement shall provide for an exercise price per
share equal to the closing price of one share of Stock on the New York Stock
Exchange on the day prior to the date on which the number of shares of Stock
included in the nonstatutory stock option is determined, a term of ten years,
vesting at the rate of 20% per year so that the option will be fully exercisable
five years after the date of grant and will permit the option to be exercised by
surrendering other shares of Stock owned by the Participant. The option
agreement shall also provide for full vesting in the event that the
Participant's employment with Valspar terminates as a result of death,
Disability, Retirement or Change of Control. Except in the case of Termination
for Cause, the option agreement shall permit the exercise of the vested portion
of the option within thirty days (one year in the event of death) after the
Employee's termination of employment with Valspar.
4. Amendment and Termination.
The Board of Directors of Valspar or the Compensation Committee may, at any
time, terminate this Plan or make such amendments as it deems advisable and in
the best interests of Valspar; provided, however, that no such termination or
amendment shall, without the consent of the Participant, materially adversely
affect or impair the right of the Participant with respect to a Cash Bonus
Amount that the Participant has already earned or a nonstatutory stock option
that the Participant has already received.
ELEVEN-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------
Fiscal Years 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS Net Sales $1,017,271 $859,799 $790,175 $795,275
Cost and Expenses
Cost of Sales 698,474 594,935 561,170 569,063
Operating Expense 206,834 169,873 146,344 146,683
------------------------------------------------------------------------------------------------
Income from Operations 111,963 94,991 82,661 79,529
Other (Income) Expense - Net (2,508) (1,081) (763) 631
Interest Expense 5,294 3,029 4,216 2,504
------------------------------------------------------------------------------------------------
Income Before Income Taxes 109,177 93,043 79,208 76,394
Net Income 65,877 55,893 47,520 45,799
Net Income as a Percent of Sales 6.5% 6.5% 6.0% 5.8%
Return on Average Equity 24.0% 24.0% 24.4% 24.4%
Per Common Share:
Net Income $ 1.49 $ 1.26 $ 1.08 $ 1.04
Dividends Paid .36 .33 .30 .26
Stockholders' Equity 6.76 5.77 4.82 3.99
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION Total Assets $ 615,470 $486,440 $398,199 $367,608
Working Capital at Year-End 97,427 96,130 90,995 87,887
Property, Plant and Equipment - Net 185,748 153,819 130,404 107,956
Long-Term Debt, Excluding Current Portion 35,844 31,948 21,658 35,343
Stockholders' Equity 295,065 253,703 212,115 176,712
- ------------------------------------------------------------------------------------------------------------------------
OTHER STATISTICS Property, Plant and Equipment Expenditures $ 48,131 $ 25,376 $ 38,982 $ 31,817
Depreciation and Amortization Expense 25,771 22,262 20,318 19,134
Research and Development Expense 39,099 32,616 27,746 27,430
Total Cash Dividends $ 15,741 $ 14,575 $ 13,121 $ 11,252
Average Common Shares Outstanding (000s) 44,233 44,403 44,183 44,326
Number of Stockholders 1,830 1,783 1,864 1,902
Number of Employees at Year-End 3,205 2,855 2,542 2,585
Market Price Range -
Common Stock: High $ 32.94 $ 25.50 $ 20.94 $ 22.88
Low 24.00 19.13 15.25 16.38
- ------------------------------------------------------------------------------------------------------------------------
</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, March 1992, and March 1997. 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.
(Percent of Net Sales)
- --------------------------------------------------------------------------------
Fiscal Years 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
Consumer Coatings 34 34 34 31 29
Packaging Coatings 29 27 27 25 27
Industrial Coatings 23 24 25 23 22
Special Products 14 15 14 21 22
- --------------------------------------------------------------------------------
6
<PAGE>
THE VALSPAR CORPORATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$700,897 $683,485 $632,562 $571,445 $526,892 $479,617 $448,944
501,135 492,092 458,953 410,094 385,459 356,690 321,258
129,997 131,232 120,643 109,206 98,725 89,906 89,862
- ----------------------------------------------------------------------------------------
69,765 60,161 52,966 52,145 42,708 33,021 37,824
2,036 360 1,504 3,337 (1,555) (2,733) (479)
1,645 2,932 5,686 4,704 5,838 6,370 6,227
- ----------------------------------------------------------------------------------------
66,084 56,869 45,776 44,104 38,425 29,384 32,076
40,156 34,418 27,676 26,731 23,234 18,295 18,052
5.7% 5.0% 4.4% 4.7% 4.4% 3.8% 4.0%
21.8% 21.7% 20.0% 22.1% 21.9% 19.7% 23.0%
$ .91 $ .79 $ .64 $ .61 $ .52 $ .41 $ .40
.22 .18 .15 .13 .11 .10 .08
4.51 3.92 3.40 2.96 2.56 2.23 1.93
- ----------------------------------------------------------------------------------------
$340,479 $321,618 $319,367 $302,806 $261,103 $232,974 $236,099
85,741 57,500 58,066 56,199 63,519 60,694 57,148
103,916 101,005 98,818 106,621 82,687 73,652 74,748
7,890 10,684 30,697 49,456 40,201 42,412 58,561
198,826 169,377 147,896 128,707 112,698 99,895 85,807
- ----------------------------------------------------------------------------------------
$ 17,213 $ 19,581 $ 8,843 $ 13,171 $ 8,701 $ 9,390 $ 10,032
20,648 19,793 18,896 15,119 13,975 12,759 11,687
24,955 24,802 23,226 20,350 18,037 17,190 17,062
$ 9,471 $ 7,843 $ 6,519 $ 5,651 $ 4,899 $ 4,472 $ 3,559
44,062 43,946 43,724 43,708 44,660 44,976 44,980
1,866 1,863 1,857 1,863 1,864 1,922 1,869
2,577 2,482 2,530 2,502 2,593 2,505 2,687
$ 20.75 $ 18.19 $ 11.72 $ 10.00 $ 7.97 $ 7.75 $ 10.13
15.19 11.28 7.63 7.35 5.66 5.29 4.91
- ----------------------------------------------------------------------------------------
</TABLE>
STOCK INFORMATION AND DIVIDENDS
Stock traded on the New York Stock Exchange
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
For the Fiscal Year 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Market price/high - low: First quarter $29.13 - $24.00 $22.38 - $19.13
Second quarter 29.88 - 27.00 24.13 - 21.44
Third quarter 32.94 - 27.88 24.32 - 21.69
Fourth quarter 32.13 - 29.50 25.50 - 21.25
- --------------------------------------------------------------------------------------------
Per share dividends: First quarter $.09 $.0825
Second quarter .09 .0825
Third quarter .09 .0825
Fourth quarter .09 .0825
- --------------------------------------------------------------------------------------------
$.36 $ .33
- --------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW. In 1997 the Company completed nine acquisitions including the second
phase of its acquisition of TOTAL SA's Coates Coatings (Coates) operations. The
second phase included the packaging coatings and metal decorating inks
businesses in Hong Kong and China. The acquisition agreement calls for the
purchase of certain other Coates operations in subsequent phases. Total
consideration paid for the nine acquisitions in 1997 was $40.6 million in cash
and the exchange of the Company's maintenance business.
In 1996, the Company completed the first phase of its acquisition of the 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.
These acquisitions were accounted for as purchases. See Note 2 to the
Consolidated Financial Statements.
The following discussion of operations is impacted by the combined effect of the
transactions discussed above.
OPERATIONS 1997 VS. 1996. Net sales increased 18.3% to $1,017,271,000 in 1997
from $859,799,000 in 1996. 1997 was a 53-week fiscal year. Excluding the results
of acquisitions, divestitures and the additional accounting week, net sales
increased 10.0%. This increase was primarily driven by volume growth in all
business groups.
The gross profit margin increased to 31.3% in 1997 from 30.8% in 1996. The
increase was driven by improved efficiencies within our plants, savings
generated by the efforts of cross-functional cost reduction teams and lower raw
material costs in the first half of the year. The Company expects raw material
costs to increase modestly over the first several months of fiscal 1998.
Operating expenses (research and development, selling, and administrative)
increased 21.8% to $206,834,000 (20.3% of net sales) in 1997 compared with
$169,873,000 (19.8% of net sales) in 1996. Excluding the results of
acquisitions, divestitures and the additional accounting week, operating
expenses increased 14.6%. The increase was primarily attributable to a higher
level of promotional and advertising programs in the Consumer Group, sales and
marketing cost increases in all businesses, and higher costs to support the
upgrade of the Company's information systems.
Other income, net of expense, increased to $2,508,000 in 1997 from $1,081,000 in
1996. The increase was the result of improved financial performance by the
Company's joint ventures in 1997 and realized gains on marketable securities,
partially offset by the writedown of certain equipment no longer in use in 1997.
Interest expense increased to $5,294,000 in 1997 from $3,029,000 in 1996
reflecting an increase in debt levels during the year.
In 1997, net income increased 17.9% to $65,877,000, or $1.49 per share,
representing the 23rd consecutive year of increased earnings. The growth in
sales and improved gross margin offset the impact of increased operating
expenses during 1997.
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 and
increased volume in certain business lines within the Special Products Group.
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
8
<PAGE>
material handling efficiencies within our plants, and savings generated by the
efforts of cross-functional cost reduction teams.
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%. The 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 our
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 $1.26 per share. 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.
FINANCIAL CONDITION. Cash provided by operating activities was $53,129,000 in
1997 compared with $86,642,000 in 1996 and $82,153,000 in 1995. The decrease in
1997 was due to increased working capital requirements driven by the growth in
all the businesses. The cash provided by operating activities combined with
$60,926,000 in proceeds from bank borrowings were used to support $48,131,000 in
capital expenditures, $40,629,000 in net cash payments related to acquisitions,
$15,741,000 in dividend payments and $12,495,000 in payments for share
repurchases. Cash balances increased $4,001,000 in 1997.
Accounts receivable increased $23,953,000 primarily due to increased sales
volume in all businesses, particularly in the last month of the year.
Inventories and other assets increased $41,965,000 due to an increase in sales
volume and, to a lesser extent, a build up of inventory in anticipation of the
information systems implementation. Accounts payable and accrued liabilities
increased $32,018,000 as a result of the increase in inventories and an increase
in various expense accruals.
Capital expenditures for property, plant and equipment were $48,131,000 in 1997
compared with $25,376,000 in 1996 and $38,982,000 in 1995. The increase in
capital expenditures in 1997 was primarily the result of the construction of a
new research and development laboratory for the Packaging Group, the
construction of production facilities in China and Singapore, and continued
investment in the upgrade and replacement of existing management information
systems. Other capital spending was evenly distributed among the four business
groups. The Company anticipates capital spending in fiscal 1998 to be lower than
the spending level in 1997.
During 1997, the Company invested $40,629,000 in acquisitions, including the
second phase of the Coates acquisition. Cash payments for acquisitions were
funded through the Company's operations and available credit facilities.
The Company increased its borrowings with banks by $60,926,000 during 1997. The
ratio of total debt to capital increased to 26.8% at the end of 1997 compared to
15.6% in 1996. Average debt outstanding during 1997 was $89,997,000 at a
weighted average interest rate of 5.42% versus $46,265,000 at 5.36% last year.
At October 31, 1997, the Company had unused lines of credit available from banks
of $227,024,000 which is expected to be adequate to cover current and projected
financing needs.
Fiscal 1997 Common Stock dividends of $15,741,000 represents an 8.0% increase
over 1996. The annual dividend was increased to $0.36 per share from $0.33 per
share in 1996 with the payout at 28.2% of the prior year earnings, which is
consistent with the Company's target payout rate of 25% to 35%. The Company's
debt agreements
9
<PAGE>
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 448,000, 335,000 and 210,000 shares in 1997,
1996 and 1995, 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 cleanup 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 cleanup 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.
YEAR 2000. The Company has conducted a review of its computer and other
operating systems to identify those that could be affected by the "Year 2000"
issue and is developing an implementation plan to resolve any issues. The
Company presently believes that, with modifications to existing software and
converting to new software, the Year 2000 problem will not pose significant
operational problems for the Company's computer and other operating systems as
so modified and converted.
10
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(Dollars in Thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------
October 31, October 25,
1997 1996
---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS Cash and cash equivalents $ 11,113 $ 7,112
---------------------------------------------------------------------------------
Accounts and notes receivable, less
allowances for doubtful accounts
(1997 - $1,364; 1996 - $1,260) 183,593 152,842
---------------------------------------------------------------------------------
Inventories 119,653 84,186
---------------------------------------------------------------------------------
Prepaid expenses and other accounts 42,488 31,060
=================================================================================
Total Current Assets 356,847 275,200
OTHER ASSETS 72,875 57,421
---------------------------------------------------------------------------------
PROPERTY, PLANT AND
EQUIPMENT Land 10,516 8,611
---------------------------------------------------------------------------------
Buildings 102,448 79,283
---------------------------------------------------------------------------------
Machinery and equipment 238,883 214,671
=================================================================================
351,847 302,565
---------------------------------------------------------------------------------
Less accumulated depreciation 166,099 148,746
=================================================================================
Net Property, Plant and Equipment 185,748 153,819
=================================================================================
$615,470 $486,440
==========================================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES Notes payable to banks $ 71,720 $ 14,665
---------------------------------------------------------------------------------
Trade accounts payable 96,676 80,125
---------------------------------------------------------------------------------
Income taxes 1,083 8,123
---------------------------------------------------------------------------------
Accrued liabilities 89,660 75,911
---------------------------------------------------------------------------------
Current portion of long-term debt 281 246
=================================================================================
Total Current Liabilities 259,420 179,070
LONG-TERM DEBT, LESS
CURRENT PORTION 35,844 31,948
---------------------------------------------------------------------------------
DEFERRED INCOME TAXES 6,769 6,433
---------------------------------------------------------------------------------
OTHER LIABILITIES 18,372 15,286
---------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY Common Stock (par value $.50 per share;
shares authorized 120,000,000;
shares issued, including shares in
treasury, 53,321,312 shares) 26,660 13,330
---------------------------------------------------------------------------------
Additional paid-in capital 17,758 13,957
---------------------------------------------------------------------------------
Retained earnings 313,485 276,679
---------------------------------------------------------------------------------
Other (1,850) (593)
=================================================================================
356,053 303,373
Less cost of Common Stock in treasury
(1997 - 9,642,341 shares;
1996 - 9,376,786 shares) 60,988 49,670
=================================================================================
Total Stockholders' Equity 295,065 253,703
=================================================================================
$615,470 $486,440
==========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
11
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------
October 31, October 25, October 27,
For the Year Ended 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,017,271 $859,799 $790,175
- ------------------------------------------------------------------------------------------------------------------------
COST AND EXPENSES
Cost of sales 698,474 594,935 561,170
Research and development 39,099 32,616 27,746
Selling and administrative 167,735 137,257 118,598
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 111,963 94,991 82,661
Other (income) expense, net (2,508) (1,081) (763)
Interest expense 5,294 3,029 4,216
- ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 109,177 93,043 79,208
Income taxes 43,300 37,150 31,688
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 65,877 $ 55,893 $ 47,520
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ 1.49 $ 1.26 $ 1.08
- ------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 44,232,548 44,402,624 44,182,822
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(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 28, 1994 26,660,656 $13,330 $ 6,588 $200,913 $(2,616) $41,503
- ------------------------------------------------------------------------------------------------------------------------
Common Stock options
exercised for 356,096 shares 637 (884)
- ------------------------------------------------------------------------------------------------------------------------
Purchase of 226,008 shares of
Common Stock for treasury 3,607
- ------------------------------------------------------------------------------------------------------------------------
Net income 47,520
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends on Common
Stock - $.30 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 202,148 shares 856 (954)
- ------------------------------------------------------------------------------------------------------------------------
Purchase of 335,088 shares of
Common Stock for treasury 7,582
- ------------------------------------------------------------------------------------------------------------------------
Net income 55,893
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends on Common
Stock - $.33 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
- ------------------------------------------------------------------------------------------------------------------------
Common Stock options
exercised for 94,885 shares 663 (545)
- ------------------------------------------------------------------------------------------------------------------------
Purchase of 470,698 shares of
Common Stock for treasury 12,495
- ------------------------------------------------------------------------------------------------------------------------
Stock Split 26,660,656 13,330 (13,330)
- ------------------------------------------------------------------------------------------------------------------------
Net income 65,877
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends on Common
Stock - $.36 per share (15,741)
- ------------------------------------------------------------------------------------------------------------------------
Other 3,138 (1,257) (632)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 31, 1997 53,321,312 $26,660 $17,758 $313,485 $(1,850) $60,988
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
12
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- --------------------------------------------------------------------------------------------------------------------
October 31, October 25, October 27,
For the Year Ended 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES Net income $65,877 $55,893 $47,520
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 25,771 22,262 20,318
------------------------------------------------------------------------------------------
Deferred income taxes 1,669 (3,352) (220)
------------------------------------------------------------------------------------------
Loss on property, plant
and equipment disposals 1,486 1,587 396
------------------------------------------------------------------------------------------
(Decrease) increase in cash due to
changes in net operating assets, net
of effects of acquired businesses:
Accounts and notes receivable (23,953) (3,257) (17,062)
------------------------------------------------------------------------------------------
Inventories and other assets (41,965) (1,698) 6,600
------------------------------------------------------------------------------------------
Trade accounts payable and
accrued liabilities 32,018 14,039 22,052
------------------------------------------------------------------------------------------
Income taxes payable (6,341) 21 1,814
------------------------------------------------------------------------------------------
Other deferred liabilities 790 1,464 255
------------------------------------------------------------------------------------------
Other (2,223) (317) 480
==========================================================================================
Net Cash Provided by Operating Activities 53,129 86,642 82,153
====================================================================================================================
INVESTING ACTIVITIES Purchases of property, plant
and equipment (48,131) (25,376) (38,982)
------------------------------------------------------------------------------------------
Acquired businesses/assets, net of cash (40,629) (51,698) -
------------------------------------------------------------------------------------------
Other investments/advances to joint ventures 5,734 (5,178) (1,050)
------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (83,026) (82,252) (40,032)
====================================================================================================================
FINANCING ACTIVITIES Net proceeds from
(payments on) borrowings 60,926 18,194 (23,488)
------------------------------------------------------------------------------------------
Proceeds from sale of treasury stock 1,208 1,810 1,521
------------------------------------------------------------------------------------------
Purchase of shares of Common Stock
for treasury (12,495) (7,582) (3,607)
------------------------------------------------------------------------------------------
Dividends paid (15,741) (14,575) (13,121)
------------------------------------------------------------------------------------------
Other - - (1,131)
==========================================================================================
Net Cash Provided by (Used in)
Financing Activities 33,898 (2,153) (39,826)
------------------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents 4,001 2,237 2,295
====================================================================================================================
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 7,112 4,875 2,580
====================================================================================================================
CASH AND CASH EQUIVALENTS
AT END OF YEAR $11,113 $ 7,112 $ 4,875
====================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 1997, 1996 AND 1995
(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 in the United States, Western Europe, Canada,
Australia, Singapore, China, Hong Kong, South America, and Mexico.
FISCAL YEAR: The Company has a 4-4-5 accounting cycle with the fiscal year
ending on the Friday on or immediately preceding October 31. Fiscal year 1997
included 53 weeks. All other years presented include 52 weeks.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the parent company and its subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation. Investments in
companies owned 20 to 50 percent where the Company does not have management
control 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 1997 are depreciated
using the straight-line method. The result of this change on the financial
statements was not material.
STOCK OPTIONS: In 1997, the Company adopted Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." As
permitted under this standard, the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting For Stock Issued to Employees" in
accounting for its stock options and other stock-based employee awards. Pro
forma information regarding net income and earnings per share as calculated
under the pro-visions of SFAS 123, is disclosed in Note 7.
LONG-LIVED ASSETS: Impairment losses are 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.
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.
14
<PAGE>
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. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share," which is required to be adopted for the quarter ended
January 1998. Under the new requirements for calculating basic earnings per
share, the dilutive effect of stock options will be excluded. The dilutive
effect of options will be included in a diluted earnings per share computation
required by the Statement. The adoption of this standard will not have a
material effect on reported earnings per share.
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
31, 1997.
STOCK SPLIT: The Company's Board of Directors declared a 2-for-1 stock split,
effected in the form of a 100% stock dividend, for stockholders of record on
March 7, 1997. Information regarding shares outstanding, earnings per share,
dividends per share and common stock options has been restated to give
retroactive effect to the stock split.
NOTE 2 - ACQUISITIONS
In 1997, the Company completed nine acquisitions, including the second phase of
its acquisition of TOTAL SA's Coates Coatings (Coates) operations. The second
phase included the packaging coatings, and metal decorating inks businesses in
Hong Kong and China. The acquisition agreement calls for the purchase of certain
other Coates operations in subsequent phases. Total consideration paid for the
nine acquisitions in 1997 was $40.6 million in cash and the exchange of the
Company's maintenance business.
In 1996, the Company completed the first phase of its acquisition of the Coates
operations for $47.3 million in cash. The first phase included the Coates
European businesses, 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.
These acquisitions have been accounted for as purchases. Accordingly, the
results of operations of the acquired businesses have been included in the
Company's consolidated results of operations from the date of acquisition. The
impact of these transactions on the results of operations for 1996 or 1997 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 678,910 shares of the Company's Common Stock.
The transaction has been 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 - INVENTORIES
The major classes of inventories consist of the following:
- ----------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------
Manufactured products $ 81,720 $58,591
Raw materials, supplies
and work-in-process 37,933 25,595
- ----------------------------------------------------------------
$119,653 $84,186
- ----------------------------------------------------------------
Inventories stated at cost determined by the last-in, first-out (LIFO) method
aggregate $102,185 at October 31, 1997 and $69,988 at October 25, 1996,
approximately $28,677 and $26,591 lower, respectively, than such costs
determined under the first-in, first-out (FIFO) method.
15
<PAGE>
NOTE 4 - TRADE ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade accounts payable include $19,120 and $12,290 of issued checks which had
not cleared the Company's bank accounts as of October 31, 1997 and October 25,
1996, respectively.
Accrued liabilities include the following:
- ---------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------
Employee compensation $35,661 $30,587
Customer volume rebates 8,914 8,580
Contribution to employees'
retirement trusts 6,029 5,311
Other 39,056 31,433
- ---------------------------------------------------------------
$89,660 $75,911
- ---------------------------------------------------------------
NOTE 5 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
- ---------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------
Notes to banks
(3.53%-11.50% at
October 31, 1997) $21,293 $17,116
Industrial development
bonds (3.70-3.75% at
October 31, 1997,
payable in 2015) 12,500 12,500
Obligations under capital lease
(7.48% at October 31, 1997,
payable through 2004) 2,332 2,578
- ---------------------------------------------------------------
36,125 32,194
- ---------------------------------------------------------------
Less current maturities (281) (246)
- ---------------------------------------------------------------
$35,844 $31,948
- ---------------------------------------------------------------
The notes to banks totaling $21,293 at October 31, 1997 and $17,116 at October
25, 1996 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: 1998 - $281; 1999 - $285; 2000 - $306; 2001 -
$330; 2002 - $355, and $13,275 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 31, 1997.
Under other short-term bank lines of credit, the Company may borrow up to
$160,286 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 5.76% in fiscal 1997
and 5.89% in fiscal 1996.
The Company had unused lines of credit under the short-term bank lines and
revolving credit facility of $227,024 at October 31, 1997.
Interest paid during 1997, 1996 and 1995 was $4,878, $2,608 and $3,783,
respectively.
NOTE 6 - INCOME TAXES
Significant components of the provision for income taxes are as follows:
- ----------------------------------------------------------------
Year Ended 1997 1996 1995
- ----------------------------------------------------------------
Current
Federal $34,636 $32,368 $26,009
State 5,703 6,798 5,681
Foreign 1,437 1,336 218
- ----------------------------------------------------------------
Total Current 41,776 40,502 31,908
- ----------------------------------------------------------------
Deferred
Federal 1,542 (2,279) (93)
State 497 (435) (9)
Foreign (515) (638) (118)
- ----------------------------------------------------------------
Total Deferred 1,524 (3,352) (220)
- ----------------------------------------------------------------
Total Income Taxes $43,300 $37,150 $31,688
- ----------------------------------------------------------------
16
<PAGE>
Significant components of the Company's deferred tax assets and liabilities are
as follows:
- ---------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------
Deferred tax assets:
Product liability accruals $ 2,063 $ 2,141
Insurance reserves 2,690 2,843
Deferred compensation 4,175 2,686
Workers' compensation
reserves 2,606 3,879
Employee compensation
reserves 2,970 3,180
Other 14,018 11,354
- ---------------------------------------------------------------
Total deferred tax assets 28,522 26,083
- ---------------------------------------------------------------
Deferred tax liabilities:
Tax over book
depreciation (13,887) (11,010)
Other (6,476) (6,078)
- ---------------------------------------------------------------
Total deferred tax liabilities (20,363) (17,088)
- ---------------------------------------------------------------
Net deferred tax assets $ 8,159 $ 8,995
- ---------------------------------------------------------------
The reconciliation of income tax expense computed at the US federal statutory
tax rates to recorded income tax expense is as follows:
- ---------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------
Tax at US statutory
rates 35.0% 35.0% 35.0%
State income taxes,
net of Federal
benefit 3.7% 4.5% 4.7%
Other 1.0% 0.4% 0.3%
- ---------------------------------------------------------------
39.7% 39.9% 40.0%
- ---------------------------------------------------------------
Income taxes paid during 1997, 1996 and 1995 were $46,094, $39,748 and $29,989,
respectively.
NOTE 7 - STOCK PLANS
STOCK OPTIONS: Under the 1991 Stock Option Plan, options for the purchase of up
to 4,000,000 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.
In 1997, the Company adopted Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock-Based Compensation." As permitted by SFAS 123,
the Company has elected to continue following the guidance of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" for
measurement and recognition of stock-based transactions with employees.
Accordingly, no compensation expense has been recorded for options granted under
the stock option plan. Had compensation expense for the stock option plan been
determined based on the fair value at the date of grant for awards in 1997 and
1996, consistent with the provisions of SFAS 123, the Company's net income and
earnings per share would have been reported as follows:
- ---------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------
Net income -
As reported $65,877 $55,893
Pro forma 65,486 55,710
Earnings per share -
As reported $ 1.49 $ 1.26
Pro forma 1.48 1.26
- ---------------------------------------------------------------
The pro forma effect on net income and earnings per share is not representative
of the pro forma net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1996.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
- ---------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------
Expected dividend yield 1.5% 1.5%
Expected stock price volatility 21.2% 21.2%
Risk-free interest rate 5.15% 5.9%
Expected life of options 6 years 6 years
- ---------------------------------------------------------------
The weighted average fair value for options granted during 1997 and 1996 is
$7.63 and $6.06 per share, respectively.
17
<PAGE>
Stock option activity for the three years ended October 31, 1997 is summarized
as follows:
- -----------------------------------------------------------------
Weighted
Average
Shares Options Exercise
Reserved Outstanding Price
- -----------------------------------------------------------------
OCTOBER 28, 1994
Balance 1,084,002 856,650 $12.36
Granted (352,590) 352,590 17.28
Exercised (190,024) 9.29
Canceled 25,178 (25,178) 13.86
- -----------------------------------------------------------------
OCTOBER 27, 1995
Balance 756,590 994,038 14.41
Granted (358,650) 358,650 20.72
Exercised (202,148) 8.96
Canceled 12,264 (12,264) 16.76
- -----------------------------------------------------------------
OCTOBER 25, 1996
Balance 410,204 1,138,276 17.34
Cancelled (105,154)
Reserved 1,000,000
Granted (249,600) 249,600 28.32
Exercised (94,885) 12.73
Canceled 11,280 (11,280) 20.37
- -----------------------------------------------------------------
OCTOBER 31, 1997
Balance 1,066,730 1,281,711 $19.79
- -----------------------------------------------------------------
Options outstanding at October 31, 1997 had an average remaining contractual
life of 7.5 years. Options exercisable of 465,000 at October 31, 1997 had a
weighted average exercise price of $16.83.
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 $2,615, $2,231, and $2,145 for 1997, 1996, and
1995, 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.
NOTE 8 - 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 $8,603, $7,583, and $7,552 for 1997, 1996, and 1995, 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 1997 1996 1995
- --------------------------------------------------------------
Service cost of
benefits
earned during
the period $ 913 $ 761 $ 428
Interest cost on
projected
benefit
obligation 1,855 1,564 1,209
Return on assets (2,422) (1,993) (4,540)
Net amortization
and deferral 127 128 3,420
- --------------------------------------------------------------
$ 473 $ 460 $ 517
- --------------------------------------------------------------
18
<PAGE>
The funded status of the plans was as follows:
- ---------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------
Projected benefit
obligation $(27,517) $(24,905)
Plan assets at fair value 35,722 29,903
- ---------------------------------------------------------------
Funded status 8,205 4,998
Unrecognized net
transition asset (1,096) (1,000)
Unrecognized prior
service cost 2,771 2,287
Unrecognized net gains (7,536) (3,732)
- ---------------------------------------------------------------
Net prepaid
pension cost $ 2,344 $ 2,553
- ---------------------------------------------------------------
The actuarial assumptions were as follows:
- ---------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------
Discount rate 7.5%-8.0% 7.0%-8.5%
Expected long-term
return on assets 8.0%-8.5% 8.0%-9.5%
Average increase in
compensation 5.0%-6.0% 6.0%
- ---------------------------------------------------------------
NOTE 9 - 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 $1,616 and $1,626 at October 31, 1997 and October
25, 1996, respectively. Net periodic post-retirement expense was $98, $125, and
$142 in 1997, 1996 and 1995, respectively.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% at October 31, 1997 and October 25,
1996. The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8.5% in 1997, 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 postretirment benefit obligation or
net periodic postretirement expense.
NOTE 10 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results for the years
ended October 31, 1997 and October 25, 1996:
- ----------------------------------------------------------------------
Net
Gross Net Income
Net Sales Margin Income Per Share
- ----------------------------------------------------------------------
1997 Quarter Ended:
January 24 $ 189,288 $ 53,438 $ 7,928 $ .18
April 25 252,768 82,809 17,103 .39
July 25 282,655 88,655 20,668 .47
October 31 292,560 93,895 20,178 .46
- -----------------------------------------------------------
$1,017,271 $318,797 $ 65,877 $1.49
- -----------------------------------------------------------
1996 Quarter Ended:
January 26 $ 165,304 $ 44,853 $ 6,232 $ .14
April 26 208,459 64,587 14,137 .32
July 26 247,481 75,965 18,194 .41
October 25 238,555 79,459 17,330 .39
- -----------------------------------------------------------
$ 859,799 $264,864 $ 55,893 $1.26
- -----------------------------------------------------------
19
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
Valspar Refinish, Inc. Mississippi
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 19, 1997, included in
the 1997 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
19, 1997, 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 21, 1998
Exhibit No. 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements No.
33-51224, No. 33-51226, and No. 33-51222 of The Valspar Corporation on Form S-8
of our reports dated January 6, 1998, 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 31, 1997 appearing in the Annual Report on Form
10-K of Valspar Corporation.
/s/ Deloitte & Touche LLP
January 21, 1998
Minneapolis, Minnesota
Exhibit 99A
VALSPAR STOCK OWNERSHIP TRUST
FOR SALARIED EMPLOYEES
FINANCIAL STATEMENTS FOR THE YEARS ENDED
OCTOBER 31, 1997 AND OCTOBER 25, 1996,
SUPPLEMENTAL SCHEDULE FOR THE YEAR ENDED
OCTOBER 31, 1997, AND INDEPENDENT
AUDITORS' REPORT
<PAGE>
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
<PAGE>
[DELOITTE & TOUCHE LLP LETTERHEAD]
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 31, 1997 and October 25, 1996 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 31, 1997 and October 25, 1996 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 6, 1998
<PAGE>
VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
OCTOBER 31, 1997 AND OCTOBER 25, 1996
- --------------------------------------------------------------------------------
1997 1996
ASSETS:
Investments (Note 3):
Interest in Valspar Stock Ownership Master Trust $115,162,418 $97,314,358
Other 1,015,428 311,910
------------ -----------
Total investments 116,177,846 97,626,268
Receivables:
Employees' contributions 409,828 246,887
Employer's contributions 188,060 115,309
------------ -----------
NET ASSETS AVAILABLE FOR BENEFITS $116,775,734 $97,988,464
============ ===========
See notes to financial statements.
<PAGE>
VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED OCTOBER 31, 1997 AND OCTOBER 25, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Employee contributions (Note 2) $ 4,030,265 $ 3,446,540
Employer contributions (Note 2) 1,930,678 1,646,964
Interest in earnings of Valspar Stock Ownership
Master Trust 21,975,714 21,735,063
Other 24,041 23,693
------------ ------------
27,960,698 26,852,260
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Dividend payments to participants 1,271,764 1,148,442
Benefit payments:
The Valspar Corporation:
In cash 390,872 227,127
In stock 6,639,230 6,554,266
McWhorter Technologies, Incorporated:
In cash 4,474 1,550
In stock 687,980 826,733
Other 179,108 (25,477)
------------ ------------
9,173,428 8,732,641
------------ ------------
NET INCREASE 18,787,270 18,119,619
NET ASSETS AVAILABLE FOR BENEFITS AT
BEGINNING OF YEAR 97,988,464 79,868,845
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS AT
END OF YEAR $116,775,734 $ 97,988,464
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997 AND OCTOBER 25, 1996
- --------------------------------------------------------------------------------
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 $24,741 and $11,632 at
October 31, 1997 and October 25, 1996, 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 $70,548 and $47,665 in 1997 and 1996,
respectively.
<PAGE>
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:
October 31, October 25,
1997 1996
Common stock of the Valspar Corporation $ 127,801,080 $ 106,272,407
Common stock of McWhorter Technologies,
Incorporated (Note 6) 15,038,783 13,319,518
Collective Trust Fund 72,972 52,054
------------- -------------
$ 142,912,835 $ 119,643,979
============= =============
The investment income of the Valspar Stock Ownership Master Trust for the
years ended October 31, 1997 and October 25, 1996 are as follows:
1997 1996
Valspar Stock:
Interest $ 10,908 $ 10,008
Dividends 1,566,418 1,418,697
Gain on sale of assets 183,031 209,703
Unrealized asset appreciation 21,223,349 21,662,963
------------- -------------
$ 22,983,706 $ 23,301,371
============= =============
McWhorter Stock:
Interest $ 1,278 $ 162
Gain on sale of assets 3,008,539 1,036,052
Unrealized asset appreciation 1,139,671 2,106,296
------------- -------------
$ 4,149,488 $ 3,142,510
============= =============
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 80.6% and 81.3%
on October 31, 1997 and October 25, 1996, respectively.
Other investments of the Plan include investments in the Equity Fund
Master Trust, the Positive Return 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.
<PAGE>
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 31, 1997 and October 25, 1996, the Valspar
Stock Ownership Master Trust purchased 241,347 and 182,721 shares of
common stock of the Company at a cost of $9,016,898 and $8,253,917,
respectively. Dividends on common stock of the Company received by the
Master Trust totaled $1,566,418 and $1,418,697 in the years ended October
31, 1997 and October 25, 1996, 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, the Company's 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.
<PAGE>
SUPPLEMENTAL SCHEDULE
<PAGE>
VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION OF INVESTMENT
INCLUDING MATURITY DATE,
IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST, CURRENT
LESSOR, OR SIMILAR PARTY PAR, OR MATURITY VALUE COST VALUE
<S> <C> <C> <C>
Interest in Master Trust Funds:
(*) Norwest Bank Minnesota, N.A.
Equity Fund Master Trust 4,245 units $ 53,389 $ 86,726
Positive Return Fund Master Trust 307 units 3,530 3,936
Principal Protection Fund
Master Trust 6,030 units 83,796 93,790
Valspar Stock Ownership
Master Trust 3,967,566 units 36,641,919 115,162,418
Interest in common stock:
(*) McWhorter Technologies,
Incorporated 1,483 units 7,987 38,281
(*) Valspar, Incorporated 26,871 units 260,573 792,695
----------- ------------
$37,051,194 $116,177,846
=========== ============
</TABLE>
(*) Known to be a party-in-interest.
Exhibit 99B
VALSPAR STOCK OWNERSHIP TRUST
FOR HOURLY EMPLOYEES
FINANCIAL STATEMENTS FOR THE YEARS ENDED
OCTOBER 31, 1997 AND OCTOBER 25, 1996,
SUPPLEMENTAL SCHEDULE FOR THE YEAR ENDED
OCTOBER 31, 1997, AND INDEPENDENT
AUDITORS' REPORT
<PAGE>
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
<PAGE>
[DELOITTE & TOUCHE LLP LETTERHEAD]
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 31, 1997 and October 25, 1996 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 31, 1997 and October 25, 1996 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 6, 1998
<PAGE>
VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
OCTOBER 31, 1997 AND OCTOBER 25, 1996
- --------------------------------------------------------------------------------
1997 1996
ASSETS:
Investments (Note 3):
Interest in Valspar Stock Ownership Master Trust $27,750,417 $22,329,621
Other 647,480 112,065
----------- -----------
Total investments 28,397,897 22,441,686
Receivables:
Employees' contributions 187,190 127,935
Employer's contributions 66,780 57,203
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $28,651,867 $22,626,824
=========== ===========
See notes to financial statements.
<PAGE>
VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED OCTOBER 31, 1997 AND OCTOBER 25, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Employee contributions (Note 2) $ 1,598,594 $ 1,345,160
Employer contributions (Note 2) 662,912 584,300
Interest in earnings of Valspar Stock Ownership
Master Trust 5,157,482 4,708,818
Other 12,318 17,738
----------- -----------
7,431,306 6,656,016
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Dividend payments to participants 290,548 266,937
Benefit payments:
The Valspar Corporation:
In cash 235,543 273,700
In stock 745,918 877,187
McWhorter Technologies, Incorporated:
In cash 398 4,295
In stock 91,254 64,381
Other 42,602 18,799
----------- -----------
1,406,263 1,505,299
----------- -----------
NET INCREASE 6,025,043 5,150,717
NET ASSETS AVAILABLE FOR BENEFITS AT
BEGINNING OF YEAR 22,626,824 17,476,107
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS AT
END OF YEAR $28,651,867 $22,626,824
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997 AND OCTOBER 25, 1996
- --------------------------------------------------------------------------------
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 $20,989 and $55,833 at
October 31, 1997 and October 25, 1996, respectively.
2. DESCRIPTION OF THE PLAN
The Plan is a defined contribution plan that is available to all hourly
employees who meet certain age and length of service requirements. It
provides for retirement and termination benefits.
Employees electing to participate in the Plan make voluntary
contributions on a pretax or after-tax basis up to a maximum of 6% of
eligible wages 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.
<PAGE>
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 $26,000 and $20,986 in 1997 and 1996,
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:
October 31, October 25,
1997 1996
Common stock of the Valspar Corporation $127,801,080 $106,272,407
Common stock of McWhorter Technologies,
Incorporated (Note 6) 15,038,783 13,319,518
Collective Trust Fund 72,972 52,054
------------ ------------
$142,912,835 $119,643,979
============ ============
The investment income of the Valspar Stock Ownership Master Trust for the
years ended October 31, 1997 and October 25, 1996 are as follows:
1997 1996
Valspar Stock:
Interest $ 10,908 $ 10,008
Dividends 1,566,418 1,418,697
Gain on sale of assets 183,031 209,703
Unrealized asset appreciation 21,223,349 21,662,963
------------ ------------
$ 22,983,706 $ 23,301,371
============ ============
McWhorter Stock:
Interest $ 1,278 $ 162
Gain on sale of assets 3,008,539 1,036,052
Unrealized asset appreciation 1,139,671 2,106,296
------------ ------------
$ 4,149,488 $ 3,142,510
============ ============
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 19.4%
and 18.7% on October 31, 1997 and October 25, 1996, respectively.
Other investments of the Plan include investments in the Equity Fund
Master Trust, the Positive Return 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.
<PAGE>
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 31, 1997 and October 25, 1996, the Valspar
Stock Ownership Master Trust purchased 241,347 and 182,721 shares of
common stock of the Company at a cost of $9,016,898 and $8,253,917,
respectively. Dividends on common stock of the Company received by the
Master Trust totaled $1,566,418 and $1,418,697 in the years ended October
31, 1997 and October 25, 1996, 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 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.
<PAGE>
SUPPLEMENTAL SCHEDULE
<PAGE>
THE VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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:
(*) Norwest Bank Minnesota, N.A.
Equity Fund Master Trust 2,773 units $ 38,529 $ 56,221
Positive Return Fund Master Trust 505 units 5,806 6,474
Principal Protection Fund
Master Trust 904 units 11,688 14,065
Valspar Stock Ownership
Master Trust 947,279 units 8,819,519 27,750,417
Interest in common stock:
(*) McWhorter Technologies, Incorporated 2,141 units 11,531 55,266
(*) Valspar, Incorporated 17,473 units 169,762 515,454
---------- -----------
$9,056,835 $28,397,897
========== ===========
</TABLE>
(*) Known to be a party-in-interest.
Exhibit 99C
THE VALSPAR PROFIT SHARING
RETIREMENT PLAN
FINANCIAL STATEMENTS FOR THE YEARS ENDED
OCTOBER 31, 1997 AND OCTOBER 25, 1996,
SUPPLEMENTAL SCHEDULES FOR THE YEAR
ENDED OCTOBER 31, 1997, AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
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
<PAGE>
[DELOITTE & TOUCHE LLP LETTERHEAD]
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 31, 1997
and October 25, 1996 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 31, 1997 and October 25, 1996 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 6, 1998
<PAGE>
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
OCTOBER 31, 1997 AND OCTOBER 25, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS:
Investments in Master Trusts (Note 3):
Interest in Positive Return Fund Master Trust $ 9,622,345 $ 11,638,276
Interest in Equity Fund Master Trust 87,342,513 66,457,157
Interest in Principal Protection Fund Master Trust 16,924,239 17,851,606
The Valspar Corporation Common Stock 36,257,712 24,920,720
McWhorter Technologies, Incorporated
Common Stock (Note 6) 1,660,370 1,425,674
Interest in collective funds 401,177 203,710
Cash 6,144
------------- ------------
Total investments 152,214,500 122,497,143
Receivables:
Employer's contributions 5,828,966 5,166,579
Employees' contributions 279,965 170,494
------------- ------------
Total receivables 6,108,931 5,337,073
------------- ------------
Total assets 158,323,431 127,834,216
LIABILITIES -
Net amount payable for settlements pending (33,964)
------------- ------------
NET ASSETS AVAILABLE FOR BENEFITS $ 158,289,467 $127,834,216
============= ============
</TABLE>
See notes to financial statements.
<PAGE>
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED OCTOBER 31, 1997 AND OCTOBER 25, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Employer contributions $ 5,828,966 $ 5,166,579
Employee contributions 3,800,481 2,493,197
Net investment gain - Positive Return Fund Master Trust 709,349 2,432,216
Net investment gain - Equity Fund Master Trust 21,634,495 10,828,698
Net investment gain - Principal Protection Fund Master Trust 1,669,923 1,519,628
Net investment gain - Collective Trust Funds 32,530 2,036
The Valspar Corporation Common Stock:
Net investment gain 5,143,438 4,938,614
Dividends 413,103 320,941
McWhorter Technologies, Incorporated Common Stock -
Net investment gain 455,535 336,250
------------ ------------
39,687,820 28,038,159
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO -
Benefit payments 10,360,267 8,476,111
TRANSFER FROM SUNBELT/SUREGUARD, INC. -
401(k) PLANS (Note 7) 1,127,698
------------ ------------
NET INCREASE 30,455,251 19,562,048
NET ASSETS AVAILABLE FOR BENEFITS AT
BEGINNING OF YEAR 127,834,216 108,272,168
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS AT
END OF YEAR $158,289,467 $127,834,216
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997 AND OCTOBER 25, 1996
- --------------------------------------------------------------------------------
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. Net investment gain includes
interest, dividends, net gain (loss) on sale of assets and unrealized
asset appreciation (depreciation), less investment advisory and
management fees.
Approved benefits payable representing the unpaid vested interest of
participants who have withdrawn from the Plan were $703,573 and $461,702
at October 31, 1997 and October 25, 1996, 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 $196,594 and $142,458 in 1997 and 1996,
respectively.
3. INVESTMENTS
Participants in the Plan have four investment options: the Principal
Protection Fund, Bond Fund, Equity Fund, and Valspar Common Stock Fund.
Effective November 1, 1996, the Bond Fund was renamed the Positive Return
Fund. The Collective Trusts and McWhorter Common Stock Fund are not
available as current investment options (see Note 6). Participants may
change their investment
<PAGE>
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 31, 1997 is as follows:
<TABLE>
<CAPTION>
Investment Options
-------------------------------------------------------------------------------------------
Valspar McWhorter
Positive Principal Common Common Collective
Return Equity Protection Stock Stock Trusts/
Fund Fund Fund Fund Fund Other Total
<S> <C> <C> <C> <C> <C>
Additions to net
assets attributed to:
Employer con-
tributions $ 464,568 $ 2,759,163 $ 606,870 $ 1,998,365 $ 5,828,966
Employee con-
tributions 350,030 1,666,864 332,205 1,451,382 3,800,481
Net investment
gain - Positive
Return Fund 709,349 709,349
Net investment
gain - Equity
Fund 21,634,495 21,634,495
Net investment
gain - Principal
Protection Fund 1,669,923 1,669,923
Net investment
gain - Collective
Trust Funds $ 32,530 32,530
Valspar Corporation
Common
Stock:
Net investment
gains 5,143,438 5,143,438
Dividends 413,103 413,103
McWhorter Tech-
nologies, Incor-
porated Common
Stock -
Net investment gain $ 455,535 455,535
---------- ----------- ----------- ----------- ----------- ---------- -----------
1,523,947 26,060,522 2,608,998 9,006,288 455,535 32,530 39,687,820
Deductions from net
assets attributed
to -
Benefit payments 914,930 4,102,671 3,597,843 1,627,348 117,475 10,360,267
Transfer from Sunbelt/
Sureguard, Inc.
401(k) Plans 103,333 427,861 71,174 525,330 1,127,698
---------- ----------- ----------- ----------- ----------- ---------- -----------
Net increase (decrease)
prior to interfund
transfers 712,350 22,385,712 (917,671) 7,904,270 338,060 32,530 30,455,251
Interfund transfers (2,812,753) (1,233,395) (81,693) 4,094,088 (103,364) 137,117
---------- ----------- ----------- ----------- ----------- ---------- -----------
Net (decrease) increase $(2,100,403) $21,152,317 $ (999,364) $11,998,358 $ 234,696 $ 169,647 $30,455,251
========== =========== =========== =========== =========== ========== ===========
</TABLE>
<PAGE>
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 - Positive
Return 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 (decrease) $ 409,783 $14,158,517 $ (871,524) $ 6,102,850 $ 52,544 $ (290,122) $19,562,048
========== =========== =========== =========== =========== ========== ===========
</TABLE>
As of October 31, 1997, the assets in the Equity Fund, the Positive
Return Fund, and the Principal Protection Fund are maintained in three
master trusts: the Equity Fund Master Trust, the Positive Return 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, Positive Return Fund
Master Trust, and Principal Protection Fund Master Trust was 85.6%,
70.0%, and 99.4%, respectively, on October 31, 1997 and 86%, 75.1%, and
99.1%, respectively, on October 25, 1996.
<PAGE>
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 31, October 25,
1997 1996
<S> <C> <C>
Positive Return Fund Master Trust:
Cash and short-term investment fund $ 612,152 $ 1,112,852
United States Government securities 10,752,879 10,824,650
Municipal securities and foreign debt securities
Corporate bonds and debentures 2,285,080 3,305,334
Net amount payable for settlements pending (114,492)
Accrued income 201,726 251,698
--------------- ----------------
$ 13,737,345 $ 15,494,534
=============== ================
Equity Fund Master Trust:
Cash and short-term investment fund $ 2,567,184 $ 1,035,264
Common stock 69,382,870 53,435,803
Collective equity fund 30,078,881 22,896,653
Net amount payable for settlements pending (22,479) (116,051)
Accrued income 39,852 34,027
--------------- ----------------
$ 102,046,308 $ 77,285,696
=============== ================
Principal Protection Fund Master Trust:
Collective trust funds $ 16,765,637 $ 17,749,512
Net amount receivable for settlements pending 266,457 259,674
--------------- ----------------
$ 17,032,094 $ 18,009,186
=============== ================
</TABLE>
<PAGE>
The net investment gain of the Master Trusts for the years ended are as
follows:
<TABLE>
<CAPTION>
October 31, October 25,
1997 1996
<S> <C> <C>
Positive Return Fund Master Trust:
Interest $ 878,835 $ 800,823
Net (loss) gain on sale of assets (18,404) 229,135
Unrealized asset appreciation (depreciation) 114,610 (52,187)
Investment advisory and management fees (50,956) (44,559)
-------------- --------------
$ 924,085 $ 933,212
============== ==============
Equity Fund Master Trust:
Interest $ 176,630 $ 153,760
Dividends 3,790,840 2,273,064
Net gain on sale of assets 14,203,278 6,927,900
Unrealized asset appreciation 8,310,238 2,854,755
Investment advisory and management fees (415,148) (381,810)
-------------- --------------
$ 26,065,838 $ 11,827,669
============== ==============
Principal Protection Fund Master Trust:
Interest $ 1,500
Unrealized asset appreciation $ 674,706 941,565
Net gain on sale of assets 444,167 204,360
Investment advisory and management fees (61,771) (89,855)
-------------- --------------
$ 1,057,102 $ 1,057,570
============== ==============
</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.
<PAGE>
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.
7. PLAN MERGER (TRANSFER IN)
Effective July 1, 1997, both the Sunbelt Coatings, Inc. and Sureguard,
Inc. 401(k) Plans were merged into the Plan. Net assets of $1,127,698
were transferred to the Plan on July 30, 1997.
<PAGE>
SUPPLEMENTAL SCHEDULES
<PAGE>
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
OCTOBER 31,1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION OF INVESTMENT
INCLUDING MATURITY DATE,
IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST, CURRENT
LESSOR, OR SIMILAR PARTY PAR, OR MATURITY VALUE COST VALUE
<S> <C> <C> <C>
Common stock:
(*) The Valspar Corporation 1,229,075 shares $ 24,116,809 $ 36,257,712
(*) McWhorter Technologies,
Incorporated 64,323 shares 929,085 1,660,370
Interest in Collective Trust Funds:
(*) Norwest Short-term Investment
Fund 398,828 units 399,828 399,828
Accrued income 1,349 1,349
Interest in Master Trust Funds:
(*) Norwest Bank Minnesota, N.A.
Equity Fund Master Trust 4,275,035 units 45,583,787 87,342,513
Positive Return Fund Master Trust 751,003 units 8,634,694 9,622,345
Principal Protection Fund
Master Trust 1,088,088 units 12,345,188 16,924,239
Cash 6,144 6,144
------------- ---------------
$ 92,016,884 $ 152,214,500
============= ===============
</TABLE>
(*) Known to be a party-in-interest.
<PAGE>
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
YEAR ENDED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REALIZED
GAIN OR
IDENTITY OF DESCRIPTION OF PURCHASE/ COST OF (LOSS)
PARTY INVOLVED ASSET/TRANSACTION SALE PRICE ASSET ON SALE
<S> <C> <C> <C>
Norwest Norwest Short-term Investment Fund $ 13,074,478 $ 13,074,478
Purchased 13,074,478 shares in
136 transactions
Norwest Norwest Short-term Investment Fund 12,876,282 12,876,282
Sold 12,876,282 shares in 110 transactions
Norwest The Valspar Corporation Common Stock 8,376,158 8,376,158
Purchased 212,695 shares in
37 transactions
Norwest The Valspar Corporation Common Stock 529,893 329,416 $ 200,477
Sold 16,847 shares in
2 transactions
</TABLE>
Transactions are executed on behalf of the Plan by Norwest Bank Minnesota, N.A.
Known to be a party-in-interest.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 11,113
<SECURITIES> 0
<RECEIVABLES> 184,957
<ALLOWANCES> (1,364)
<INVENTORY> 119,653
<CURRENT-ASSETS> 356,847
<PP&E> 351,847
<DEPRECIATION> (166,099)
<TOTAL-ASSETS> 615,470
<CURRENT-LIABILITIES> 259,420
<BONDS> 0
0
0
<COMMON> 26,660
<OTHER-SE> (1,850)
<TOTAL-LIABILITY-AND-EQUITY> 615,470
<SALES> 1,017,271
<TOTAL-REVENUES> 1,017,271
<CGS> 698,474
<TOTAL-COSTS> 206,834
<OTHER-EXPENSES> (2,508)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,294
<INCOME-PRETAX> 109,177
<INCOME-TAX> 43,300
<INCOME-CONTINUING> 65,877
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,877
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.49
</TABLE>
