Annual Report on Form 10-K
THE VALSPAR CORPORATION
October 29, 1999
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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 29, 1999 Commission file number 1-3011
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THE VALSPAR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 36-2443580
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(State of incorporation) (I.R.S. Employer
Identification No.)
1101 Third Street South
Minneapolis, Minnesota 55415
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(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, 1999 was $982 million based on the closing sales price of $41.875
per share as reported on the New York Stock Exchange. As of such date 42,973,685
shares of Common Stock, $.50 par value per share (net of 10,347,627 shares in
treasury) were outstanding.
DOCUMENTS INCORPORATED IN PART BY REFERENCE
Incorporated Documents Location in Form 10-K
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1. The Valspar Corporation Annual Report to Parts II and IV
Stockholders for fiscal year ended October 29, 1999
2. The Valspar Corporation Notice of 2000 Annual Part III
Meeting of Stockholders and Proxy Statement to be
filed with the Securities and Exchange Commission
within 120 days of fiscal year ended October 29,
1999
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2
PART I
ITEM 1. BUSINESS
DESCRIPTION
The Valspar Corporation (the "Company") is a multinational paint and coatings
manufacturer that has two reportable segments: Coatings and Coating
Intermediates. The Company manufactures and distributes a broad portfolio of
coatings products. The Architectural, Automotive and Specialty ("AAS") product
line includes interior and exterior decorative paints and aerosols, automotive
and fleet refinish coatings and high performance floor coatings. The Packaging
product line includes coatings and inks for rigid packaging containers. The
Industrial product line includes decorative and protective coatings for metal,
wood and plastic substrates. Coating Intermediates, primarily resins and
colorants, are sold to the Company and to other coatings manufacturers.
The following table shows the net sales for these two operating segments for the
past three fiscal years and the net sales for the product lines within the
Coatings segment.
Operating Segments 1999 1998 1997
------------------ ---- ---- ----
Coatings $ 1,292,475 $ 1,074,416 $ 946,311
Coating Intermediates 145,725 126,843 113,102
----------- ----------- -----------
1,438,200 1,201,259 1,059,413
Intersegment Sales (50,523) (46,125) (42,142)
----------- ----------- -----------
Total Net Sales - External 1,387,677 1,155,134 1,017,271
----------- ----------- -----------
Coatings Segment Product Lines 1999 1998 1997
------------------------------ ---- ---- ----
Architectural, Automotive
and Specialty 510,960 482,295 419,145
Packaging 452,846 319,653 299,383
Industrial 328,669 272,468 227,783
----------- ----------- -----------
1,292,475 1,074,416 946,311
For additional financial information for the Company's operating segments, see
Note 11 to the Consolidated Financial Statements included in the 1999 Annual
Report to Stockholders, incorporated by reference into this Form 10-K.
PRODUCTS AND DISTRIBUTION METHODS
The Company is engaged in the manufacture and distribution of paint and coatings
in its COATINGS segment through the AAS, Packaging and Industrial product lines.
Within the AAS product line, the Company manufactures and markets a broad line
of architectural products including interior and exterior paints, stains,
primers, varnishes and specialty decorative products such as enamels, aerosols,
sealers and faux finishes, primarily for the do-it-yourself market in the United
States. Primary distribution channels for this product line are home centers,
mass merchants, hardware wholesalers and independent dealers. The Company
develops highly customized marketing
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3
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
programs for customers which enable them to differentiate their paint
departments from those of competitors through point-of-purchase materials,
labeling and product and color selection assistance. These programs include:
branded product lines such as Valspar, Plasti-Kote, Colony, Magicolor and
McCloskey; exclusive brands such as One & Only, Severe Weather, Enterprise,
American Tradition and Decorative Effects; and private labels.
Within the AAS product line, the Company also manufactures and distributes,
primarily in the United States, automotive and fleet refinish coatings marketed
under the brand names Valspar and House of Kolor, as well as aerosol spray
paints for automotive distributors and mass automotive retailers under the brand
names Plasti-Kote, Tempo and Mr. Spray.
In 1998, the Company acquired Plasti-Kote Co., Inc., a manufacturer and
distributor of aerosol spray paint with production facilities located in Medina,
Ohio. As noted above, Plasti-Kote's broad range of branded and private label
products are marketed within the AAS product line.
Specialty products within the AAS product line once included marine,
maintenance, functional power and floor coatings. However, in 1997, the Company
sold its maintenance coatings business and in 1998, the Company sold its
functional powder business (powder coatings applied primarily to pipelines). In
March 1999, the Company completed the sale of its marine coatings business. The
Company continues to manufacture and market, primarily in the United States,
high performance floor coatings for industrial and commercial use under the
Valspar and Federal brand names. These products include specialty coatings and
resurfacing coatings for concrete and wood floors.
The primary manufacturing plants for the AAS product line are located in
Statesville, North Carolina; Tampa, Florida; Medina, Ohio; Chicago, Illinois;
Wheeling, Illinois; Rockford, Illinois; Picayune, Mississippi; Grand Prairie,
Texas; and Garland, Texas. In addition, in 1999, the Company opened a major
distribution facility in Sacramento, California.
The Company's PACKAGING product line includes coatings and inks for rigid
packaging, principally food containers and beverage cans. The Company is the
largest global coatings supplier to the rigid packaging industry. Packaging
coatings and inks for application to food and beverage can bodies and ends
comprise the largest volume of sales in this line. The Company also produces
coatings for aerosol and paint cans, bottle crowns for glass and plastic
packaging and glass bottle closures. These coatings are required to meet F.D.A.,
U.S.D.A. and other country-specific regulations.
In 1996, the Company opened a plant for the manufacture of packaging coatings in
the People's Republic of China with the Company's Chinese joint venture partner.
In 1996, the Company acquired the can coatings and metal decorating inks
business of Coates Coatings. 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 in January 1997, included
businesses in Hong Kong and China. The Company completed the South Africa
portion of the third phase in December
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4
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
1997 by purchasing a 49% interest in a joint venture with Coates in South
Africa. The Company expects to acquire the remaining 51% interest from Coates
within the next two years. The Packaging product line 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. In July 1998, the
Company increased its ownership position from 49% to 51% of its Valspar Marlux
joint venture in Mexico. In April 1998, the Company acquired Anzol Pty. Ltd., an
Australian industrial and packaging coatings company based in Sydney, Australia.
In February 1999, the Company acquired Dexter Corporation's worldwide Packaging
coatings product line. Dexter was a worldwide supplier of beverage can, food can
and specialty coatings to the packaging market. In April 1999, the Company
completed the sale of its North American flexible packaging coatings business.
The primary manufacturing plants for the PACKAGING product line are located in
Birmingham, Alabama; Carol Stream, Illinois; Covington, Georgia; Garland, Texas;
Hayward, California; Pittsburgh, Pennsylvania; Rochester, Pennsylvania; West
Hill, Ontario, Canada; Deeside, Wales; Durban, South Africa; Gruningen,
Switzerland; Kaltbrunn, Switzerland; Machen, England; Melbourne, Australia;
Mexico City, Mexico; Nantes, France; Sao Paulo, Brazil; Singapore; Sydney,
Australia; Tokyo, Japan; Tournus, France; and XiXiang, China.
The Company's INDUSTRIAL product line includes decorative and protective
coatings for metal, wood and plastic, primarily for distribution to original
equipment manufacturers in North America and selected countries in Europe and
Asia. Products include fillers, primers, stains and topcoats which are used by a
wide range of customers, including the automotive parts, building products,
railcar, appliance, office furniture, agricultural equipment, construction
equipment and metal fabrication industries. The Company is also a leading U.S.
supplier of coating systems which are used to coat coils of metal prior to
fabrication into pre-engineered products such as buildings, doors, lighting
fixtures and appliances. The Company uses a variety of coatings technologies to
meet customer requirements, including 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 the mirror backing metals and coatings market by acquiring
Sureguard, Incorporated and Hilemn Laboratories, Inc. With the acquisition of
Anzol Pty. Ltd. in April 1998, the Industrial product line entered the
Australian industrial market, specifically coil coatings and general industrial
products, with full manufacturing capabilities. In February 1999, the Company
acquired Dexter Corporation's Industrial Coatings subsidiary, Dexter SAS,
located in Tournus, France, which supplies a variety of coatings to the European
industrial market. In September 1999, the Company acquired the remaining 50%
interest in Farboil Company held by its joint venture partner. Farboil Company
is located in Baltimore, Maryland and produces decorative powder coatings.
The primary manufacturing plants for the INDUSTRIAL product line are located in
Baltimore, Maryland; Fort Wayne, Indiana; Garland, Texas; High Point, North
Carolina; Jackson, Tennessee; Kankakee, Illinois; West Hill, Ontario, Canada;
Monterrey, Mexico; Tournus, France; and Singapore.
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5
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
COATING INTERMEDIATES, which is the Company's other reportable segment, includes
resins and colorants. These products are sold to the Company to support its AAS,
Industrial and Packaging product lines, and they are also sold to external
customers, such as other coatings manufacturers and building products
manufacturers.
Resins, which act as binding agents for coatings, are manufactured primarily in
the United States and sold throughout North America and in Western Europe. The
Company offers a broad range of water-based and solvent-based resins, including
water-based acrylics, styrene acrylics and polyvinylacetates for architectural
and industrial coatings and building products, and solvent-based urethanes,
alkyds, polyesters, co-polymers and acrylics for architectural, industrial, wood
and coil coatings and building products.
The Company manufactures resins at its 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.). In December 1998, the Company's Dutch
subsidiary, Forton B.V., acquired a majority interest in Dyflex B.V., a
Netherlands producer of specialty water-based polymers.
Colorants are manufactured by the Company in the United States and sold
throughout the Americas. The Company's water-based colorants are sold primarily
to retail paint dealers and paint manufacturers to color architectural paint to
customer specifications. The Company's solvent-based colorants are sold
primarily to industrial coatings manufacturers.
The Company manufactures colorants at its facilities in Louisville, Kentucky and
Rockford, Illinois.
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
manufacturing coatings products at its plant in Monterrey, Mexico. During 1998,
the Company obtained a majority position of 51% in the joint venture. In 1999,
the Dexter acquisition added a manufacturing facility in Mexico City, and the
entire business in Mexico is now known as Valspar 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 manufacturers
and distributes the Company's packaging coatings products in China, Hong Kong
and other Southeast Asian markets. The Company also acquired Coates' packaging
coatings and metal decoration inks business in Hong Kong and Guangzhou during
1997 and Dexter's packaging coatings business in China during 1999, and
consolidated these businesses with the Hong Kong joint venture. The Company
formed a joint venture in 1997, called Valspar Renner, with Renner Herrmann
S.A., a Brazilian company. Valspar Renner supplies packaging coatings and metal
decoration inks to the South American market. As part of the Coates acquisition
in December 1997, the Company acquired a 49% interest in a joint venture in
South Africa. In 1999, as a part of the Dexter acquisition, the Company assumed
Dexter's majority position with Plascon IPC, a South African company, in a
packaging coatings joint venture. In 1999, the Company also assumed Dexter's
majority position in a joint venture with Rock Paint, a Japanese company.
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.
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6
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
PATENTS
Although the Company licenses some technology, the Company's business is not
materially dependent upon franchises, licenses or similar rights, or on any
single patent or trademark or group of related patents or trademarks.
SEASONALITY AND WORKING CAPITAL ITEMS
The Company's sales volume is traditionally highest during the third quarter of
the fiscal year. This seasonality is primarily due to the buying cycle in the
AAS product line. During the first quarter, when sales are generally lowest, the
Company builds inventory, the financing for which is provided primarily by
internally generated funds and short-term credit lines discussed in Note 6 of
the Notes to Consolidated Financial Statements on pages 17 and 18 of Valspar's
1999 Annual Report to Stockholders incorporated by reference into this Form
10-K.
SIGNIFICANT CUSTOMERS
In 1999, 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 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 AAS products include price, consumer
recognition, product innovation, product quality and rapid response to customer
orders. The Company offers merchandising and promotion programs to its AAS
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 product
lines 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.
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7
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
Competitive factors in the Coating Intermediates product line for resins are
product quality, rapid response to customer orders, technical assistance to the
customer in product application, price and new product development. The
competitive factors for sales of colorants and color systems 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 1999 were $44,091,000, representing a
11.5% increase over fiscal 1998 ($39,555,000). Fiscal 1998 costs increased 1.2%
over those of fiscal 1997 ($39,099,000). Primary emphasis has been on emerging
technologies in the Industrial and Packaging coatings product lines.
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 1999, and capital expenditures for 2000 to
comply with existing laws and regulations are also not expected to be material.
EMPLOYEES
The Company employs approximately 4,500 persons, approximately 675 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, to a decreasing extent, licensing arrangements.
The market for Packaging coatings has become an increasingly global market.
During 1996, the Company acquired the metal decorating and packaging coatings
business of Coates Coatings to provide global support to the Company's
customers. In 1999, the Company acquired the European industrial coatings
business and the global packaging coatings business of the Dexter Corporation,
adding several manufacturing operations throughout Europe and in Singapore. The
Company's plant in West Hill, Ontario, Canada manufactures and distributes
packaging, coil and general industrial coatings for the Canadian market. The
Company now has wholly-owned subsidiaries in, among other countries, Australia,
Brazil, Canada, France, Germany, Hong Kong, Norway, Singapore, Spain,
Switzerland and the United Kingdom. Joint venture companies are now established
in Brazil, China, Hong Kong, India, Japan, Mexico and South Africa. Greater
emphasis is being placed on wholly-owned subsidiaries and majority-owned
ventures to permit the Company to retain greater control over its technology,
but licensing arrangements for the utilization of the Company's technologies in
the fields of packaging coatings, colorants, coil coatings, general industrial
coatings and architectural coatings continue in over fifty foreign countries.
Export sales are
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8
PART I (CONTINUED)
ITEM 2. PROPERTIES
increasing as the Company's products are being recognized in the global markets.
During 1999, export sales represented approximately 5% of the Company's
business.
The Company's principal offices in Minneapolis, Minnesota are owned. Operations
in North America are conducted at twenty-seven locations, primarily in Illinois,
California, Texas and Pennsylvania, with one plant in West Hill, Ontario,
Canada. Twenty-three plants with square footage of 2,900,000 are owned and four
of the plants with square footage of 350,000 are leased. Manufacturing
operations in Europe are conducted at seven locations with plants in the United
Kingdom, France, Switzerland and Norway. The seven plants are owned with a
combined square footage of 490,000. The Company owns two plants in Australia
with a combined square footage of 150,000. The Company leases two plants in
Singapore and one plant in both China and Mexico with a combined square footage
of 95,000.
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 product line, but for most of the Company's product lines, 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 1999
Annual Report to Stockholders incorporated by reference into this Form 10-K.
The Company is a defendant in a number of other legal proceedings which it
believes are not out of the ordinary in a business of the type and size in which
it is engaged. The Company believes that these legal proceedings, individually
and in the aggregate, will not have a material adverse effect on its business or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted during the fourth quarter of fiscal year 1999 to a
vote of security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of all of the registrant's executive officers, all of whose
terms expire in February 2000, 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.
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9
PART I (CONTINUED)
ITEM 4. (CONTINUED)
Name Age Position
---- --- --------
Richard M. Rompala 53 Chairman since February 1998, Chief
Executive Officer since October 1995 and
President since March 1994
Larry B. Brandenburger 52 Vice President, Technology since October
1989
Stephen M. Briggs 43 Senior Vice President, Architectural,
Automotive and Specialty Coatings Products
since November 1998
Rolf Engh 46 Senior Vice President since November 1998
and Secretary since April 1993
Steven L. Erdahl 47 Senior Vice President, Operations since
November 1998
Joel C. Hart 52 Group Vice President, Automotive and
International since November 1998
William L. Mansfield 51 Senior Vice President, Packaging and
Industrial Coatings since November 1998
Paul C. Reyelts 53 Senior Vice President, Finance and Chief
Financial Officer since November 1998
Robert T. Smith 53 Group Vice President, Industrial since
November 1998
Thomas A. White 57 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 November 1998, Mr. Briggs was Vice President, Consumer Coatings Group
since August 1993.
Prior to November 1998, Mr. Engh was Vice President, International since
September 1993.
Prior to November 1998, Mr. Erdahl was Vice President, Industrial Coatings Group
since June 1991.
Prior to November 1998, Mr. Hart was Vice President, Automotive Refinish since
May 1995. Prior to 1995, Mr. Hart was the Managing Director of Automotive
Refinish International for PPG Industries, Inc. since January 1993.
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10
PART I (CONTINUED)
ITEM 4. (CONTINUED)
Prior to November 1998, Mr. Mansfield was Vice President, Packaging Coatings
Group since February 1991.
Prior to November 1998, Mr. Reyelts was Vice President, Finance since April
1982.
Prior to November 1998, Mr. Smith was Vice President, Marine and Federal since
May 1995. Prior to 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.
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 pages
6 and 7 of Valspar's 1999 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, 1999 was 1,808.
The quarterly dividend declared December 15, 1999, which was paid January 14,
2000 to Common Stockholders of record December 31, 1999, was increased to
13(cents) per share.
ITEM 6. SELECTED FINANCIAL DATA
The information in the section titled "Eleven Year Financial Summary" for the
years 1995 through 1999 on pages 6 and 7 of Valspar's 1999 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 1999 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information in the section titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Market Risk" on page 10 of
Valspar's 1999 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and notes thereto on pages 11 through 22
of Valspar's 1999 Annual Report to Stockholders are incorporated herein by
reference.
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11
PART II (CONTINUED)
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 21, 2000 is incorporated herein by reference. The
information in the section titled "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 6 of Valspar's Proxy Statement dated January 21, 2000 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 7
through 9 and the section titled "Director Compensation" on page 5 of Valspar's
Proxy Statement dated January 21, 2000 is incorporated herein by reference. The
information on pages 9 through 13 of Valspar's Proxy Statement dated January 21,
2000 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 21, 2000 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the section titled "Certain Transactions" on page 6 of
Valspar's Proxy Statement dated January 21, 2000 is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) For financial statements and the financial statement schedule filed as a
part of this report, reference is made to "Index to Financial Statements
and Financial Statement Schedule" on page F-2 of this report. For a list of
exhibits filed as a part of this report, see Item 14(c) below. Compensatory
Plans listed in Item 14(c) are denoted by a double asterisk.
(b) No reports on Form 8-K were filed during the fourth quarter of the year
ended October 29, 1999.
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12
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(CONTINUED)
(c) The following exhibits are filed as part of this report.
Exhibit
No. Description
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3(a)(7) CERTIFICATE OF INCORPORATION--as amended to and including June
30, 1970, with further amendments to Article Four dated
February 29, 1984, February 25, 1986, February 26, 1992 and
February 26, 1997, and to Article Eleven dated February 25,
1987
3(b)(7) 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)* THE VALSPAR CORPORATION 1991 STOCK OPTION PLAN--as amended to
and including September 20, 1999**
10(e)(3) THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN**
10(f)* THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN--as
amended to and including October 20, 1999**
10(g)(7) THE VALSPAR CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS**
10(h)(7) THE VALSPAR CORPORATION ANNUAL BONUS PLAN--as amended August
19, 1997**
10(i)(4) THE VALSPAR CORPORATION INCENTIVE BONUS PLAN**
10(j)+ DISTRIBUTION AGREEMENT REGARDING McWHORTER SPIN-OFF
10(k)+ ENVIRONMENTAL MATTERS AGREEMENT
10(l)+ TECHNOLOGY LICENSE AGREEMENT
10(m)+ MASTER TOLLING AGREEMENT
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13
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(n)+ SALE AND PURCHASE OF ASSETS AGREEMENT BETWEEN CARGILL,
INCORPORATED AND McWHORTER, INC. DATED AS OF MAY 19, 1993, AS
SUBSEQUENTLY MODIFIED AND AMENDED
10(o)+ AGREEMENT CONTAINING CONSENT ORDER EXECUTED AS OF SEPTEMBER
30, 1993 BY THE FEDERAL TRADE COMMISSION, THE VALSPAR
CORPORATION AND McWHORTER, INC.
10(p)(5) 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(q)(6) 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)
10(r)(8) CREDIT AGREEMENT DATED AS OF MARCH 16, 1998 AMONG THE
REGISTRANT AND WACHOVIA BANK N.A.
10(s)(9) DEXTER COATINGS BUSINESS PURCHASE AND SALE AGREEMENT BETWEEN
DEXTER CORPORATION AND THE REGISTRANT MADE AND ENTERED INTO AS
OF AUGUST 21, 1998, AS AMENDED BY THE FIRST AMENDMENT TO
DEXTER COATINGS BUSINESS PURCHASE AND SALE AGREEMENT DATED
FEBRUARY 26, 1999 (PURSUANT TO RULE 24b-2, CERTAIN INFORMATION
HAS BEEN DELETED AND FILED SEPARATELY WITH THE COMMISSION)
13* 1999 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
<PAGE>
14
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(CONTINUED)
(c) Index of Exhibits (continued)
Exhibit
No. Description
---------------------------------------------------------------------------
99(a)* Financial Statements for the Years Ended October 29, 1999 and
October 30, 1998 and Independent Auditors' Report--Valspar
Stock Ownership Trust for Salaried Employees
99(b)* Financial Statements for the Years Ended October 29, 1999 and
October 30, 1998 and Independent Auditors' Report--Valspar
Stock Ownership Trust for Hourly Employees
99(c)* Financial Statements for the Years Ended October 29, 1999 and
October 30, 1998 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 25, 1991;
amendment filed with Form 10-K for the period ended October 31, 1997.
(4) As filed with Form 10-K for the period ended October 30, 1992.
(5) Incorporated by reference to Exhibit 10(a) to Form 10-Q for the
quarter ended April 28, 1995.
(6) 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.
(7) As filed with Form 10-K for the period ended October 31, 1997.
(8) As filed with Form 10-K for the period ended October 30, 1998
(9) Incorporated by reference to Exhibit 2.1 to Form 8-K filed on March
15, 1999 and with Form 8-K/A filed on May 12, 1999.
* As filed with this Form 10-K.
** Compensatory Plan or arrangement required to be filed pursuant to Item
14(c) of Form 10-K.
<PAGE>
15
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(CONTINUED)
(c) Index of Exhibits (continued)
+ 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 2000 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>
16
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 01-20-00
----------------------------------
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/ Richard M. Rompala 01-20-00 /s/ Susan S. Boren 01-20-00
- ---------------------------------- ----------------------------------
Richard M. Rompala, Director Susan S. Boren, Director
Chairman, President and Chief Executive
Officer (principal executive officer) /s/ Jeffrey H. Curler 01-20-00
----------------------------------
/s/ Paul C. Reyelts 01-20-00 Jeffrey H. Curler, Director
- ----------------------------------
Paul C. Reyelts, Senior Vice President, /s/ Charles W. Gaillard 01-20-00
Finance and Chief Financial Officer ----------------------------------
(principal financial officer) Charles W. Gaillard, Director
/s/ Kathleen P. Pepski 01-20-00 /s/ Thomas R. McBurney 01-20-00
- ---------------------------------- ----------------------------------
Kathleen P. Pepski, Vice President and Thomas R. McBurney, Director
Controller (principal accounting officer)
/s/ Kendrick B. Melrose 01-20-00
----------------------------------
Kendrick B. Melrose, Director
----------------------------------
Gregory R. Palen, Director
----------------------------------
Lawrence Perlman, Director
/s/ Edward B. Pollak 01-20-00
----------------------------------
Edward B. Pollak, Director
/s/ Michael P. Sullivan 01-20-00
----------------------------------
Michael P. Sullivan, Director
----------------------------------
C. Angus Wurtele, 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 29, 1999
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 29, 1999:
Pages in
Annual Report
-------------
Report of Independent Auditors ...................................... 23
Financial Statements:
Consolidated Balance Sheets--October 29, 1999 and October 30,
1998 ............................................................ 11
Consolidated Statements of Income--Years ended October 29, 1999,
October 30, 1998 and October 31, 1997 ........................... 12
Consolidated Statements of Changes in Stockholders' Equity--Years
Ended October 29, 1999, October 30, 1998 and October 31, 1997 ... 13
Consolidated Statements of Cash Flows--Years ended October 29,
1999, October 30, 1998 and October 31, 1997 ..................... 14
Notes to Consolidated Financial Statements ........................ 15 - 22
Selected Quarterly Financial Data (Unaudited) ....................... 22
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 29, 1999, October 30, 1998 and October 31, 1997
Schedule Page
- -------- ----
II Valuation and Qualifying Accounts and Reserves ................ F-3
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
<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 Other
Beginning of Expense or Accounts-- Deductions-- Balance at End
Description Period (Income) Describe Describe of Period
- ------------------------------------- -------------- ------------ ------------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Reserves and allowances deducted
from asset accounts
Allowance for doubtful accounts:
Year ended October 29, 1999 $1,464,000 $1,937,000 $2,606,000 (3) $1,355,000 (1) $4,801,000
(149,000)(2)
Year ended October 30, 1998 1,364,000 2,099,000 2,436,000 (1) 1,464,000
(437,000)(2)
Year ended October 31, 1997 1,260,000 1,101,000 1,130,000 (1) 1,364,000
(133,000)(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)(7) CERTIFICATE OF INCORPORATION--as amended to and including June
30, 1970, with further amendments to Article Four dated
February 29, 1984, February 25, 1986, February 26, 1992 and
February 26, 1997, and to Article Eleven dated February 25,
1987
3(b)(7) 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)* THE VALSPAR CORPORATION 1991 STOCK OPTION PLAN-- as amended to
and including September 20, 1999**
10(e)(3) THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN**
10(f)* THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN--as
amended to and including October 20, 1999**
10(g)(7) THE VALSPAR CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS**
10(h)(7) THE VALSPAR CORPORATION ANNUAL BONUS PLAN--as amended August
19, 1997**
10(i)(4) THE VALSPAR CORPORATION INCENTIVE BONUS PLAN**
10(j)+ DISTRIBUTION AGREEMENT REGARDING McWHORTER SPIN-OFF
10(k)+ ENVIRONMENTAL MATTERS AGREEMENT
10(l)+ TECHNOLOGY LICENSE AGREEMENT
10(m)+ MASTER TOLLING AGREEMENT
10(n)+ SALE AND PURCHASE OF ASSETS AGREEMENT BETWEEN CARGILL,
INCORPORATED AND McWHORTER, INC. DATED AS OF MAY 19, 1993, AS
SUBSEQUENTLY MODIFIED AND AMENDED
<PAGE>
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
---------------------------------------------------------------------------
10(o)+ AGREEMENT CONTAINING CONSENT ORDER EXECUTED AS OF SEPTEMBER
30, 1993 BY THE FEDERAL TRADE COMMISSION, THE VALSPAR
CORPORATION AND McWHORTER, INC.
10(p)(5) 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(q)(6) 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)
10(r)(8) CREDIT AGREEMENT DATED AS OF MARCH 16, 1998 AMONG THE
REGISTRANT AND WACHOVIA BANK N.A.
10(s)(9) DEXTER COATINGS BUSINESS PURCHASE AND SALE AGREEMENT BETWEEN
DEXTER CORPORATION AND THE REGISTRANT MADE AND ENTERED INTO AS
OF AUGUST 21, 1998, AS AMENDED BY THE FIRST AMENDMENT TO
DEXTER COATINGS BUSINESS PURCHASE AND SALE AGREEMENT DATED
FEBRUARY 26, 1999 (PURSUANT TO RULE 24b-2, CERTAIN INFORMATION
HAS BEEN DELETED AND FILED SEPARATELY WITH THE COMMISSION)
13* 1999 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 29, 1999 and
October 30, 1998 and Independent Auditors' Report--Valspar
Stock Ownership Trust for Salaried Employees
99(b)* Financial Statements for the Years Ended October 29, 1999 and
October 30, 1998 and Independent Auditors' Report--Valspar
Stock Ownership Trust for Hourly Employees
99(c)* Financial Statements for the Years Ended October 29, 1999 and
October 30, 1998 and Independent Auditors' Report--Valspar
Profit Sharing Retirement Plan
<PAGE>
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
---------------------------------------------------------------------------
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 25, 1991;
amendment filed with Form 10-K for the period ended October 31, 1997.
(4) As filed with Form 10-K for the period ended October 30, 1992.
(5) Incorporated by reference to Exhibit 10(a) to Form 10-Q for the
quarter ended April 28, 1995.
(6) 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.
(7) As filed with Form 10-K for the period ended October 31, 1997.
(8) As filed with Form 10-K for the period ended October 30, 1998
(9) Incorporated by reference to Exhibit 2.1 to Form 8-K filed on March
15, 1999 and with Form 8-K/A filed on May 12, 1999.
* 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 10(d)
THE VALSPAR CORPORATION
1991 STOCK OPTION PLAN
AS AMENDED THROUGH SEPTEMBER 20, 1999
1. PURPOSES OF THE PLAN
The purposes of the 1991 Stock Option Plan (the "Plan") are (i) to
enhance the ability of The Valspar Corporation (the "Company") and its
subsidiary companies to attract and retain superior personnel and (ii) to
stimulate and reward their interest and initiative. The Plan is designed to
enable key officers and employees, and certain other key individuals who
perform services for the Company, to contribute to the Company's strategic
performance objectives by making such individuals eligible to receive
options to purchase common stock of the Company as provided herein. Subject
to the provisions of the Plan, options may contain such terms and
conditions as shall be required so as to be either nonqualified stock
options or incentive stock options as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Subject to such
limits as may be imposed by existing or future laws or by the Plan,
nonqualified stock options or incentive stock options or both may be
granted to eligible individuals.
2. 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 6,000,000 shares, and may be unissued shares or reacquired
shares. If any 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.
3. ADMINISTRATION
The Plan shall be administered by a committee (the "Committee"),
appointed from time to time by the Company's Board of Directors (the
"Board"), consisting of not less than two members of the Board. Each
Committee member shall be (a) non-employee director within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act")
or any successor Rule and (b) an outside director within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder. Except as provided below, the Committee
shall determine from time to time (i) the individuals to whom grants will
be made; (ii) the number of shares to be granted; and (iii) the terms and
provisions of each option (which need not be identical). Except as provided
below, each grant shall be in such form and content as the Committee shall
determine.
<PAGE>
The Committee may from time to time adopt rules for carrying out the
Plan and for its interpretation and construction which rules shall be
final, conclusive and binding on all parties. All determinations of the
Committee shall be made by a majority of the Committee. Any determination
reduced to writing and signed by all members shall be as effective as if it
had been made by a majority vote at a duly constituted meeting.
The Company's Chief Executive Officer may, on a discretionary basis
and without Committee review or approval, grant options to purchase up to
5,000 shares each to new employees of the Company who are not officers of
the Company. Such discretionary option grants shall not exceed 25,000
shares in total in any fiscal year. Subject to the foregoing limitations,
the Chief Executive Office shall determine from time to time (i) the new
employees to whom grants will be made, (ii) the number of shares to be
granted, and (iii) the terms and provisions of each option (which need not
be identical).
4. ELIGIBILITY
Options will be granted only to salaried officers and employees of the
Company or of a subsidiary (as defined in Section 425 of the Code) and to
any other individual who performs services for the Company and contributes
to its strategic performance objectives, including, without limitation,
members of the Board of Directors, consultants and advisors ("Optionee");
provided, however, that a consultant or advisor shall not be eligible to
receive stock options hereunder unless such consultant or advisor renders
bona fide services to the Company or a subsidiary and such services are not
in connection with the offer or sale of securities in a capital-raising
transaction.
Notwithstanding any other provisions of the Plan, the maximum number
of shares of Common Stock that may be covered by option grants to a person
covered by Section 162(m) of the Code during any fiscal year shall be
500,000 shares.
5. OPTION PRICE
The exercise price of each option shall be not less than 100% of the
fair market value of the common stock at the closing price on the day
preceding the date that such option is granted.
6. EXERCISE OF OPTION
The Committee may prescribe at the time of grant that the option will
be exercisable in full or in installments at any time or from time to time.
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 which has been owned for more than six months on the date of
surrender 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.
<PAGE>
7. 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.
8. 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.
9. 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.
10. MERGERS, ACQUISITION 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.
11. CHANGE OF CONTROL
Upon any Change of Control, each outstanding option shall immediately
become exercisable in full for the remainder of its term without regard to
any vesting or installment exercise provisions then applicable to the
option. This section applies to all options outstanding under this Plan as
of June 16, 1999, as well as to all options granted under this Plan
thereafter. For purposes of this Plan, the term "Change of Control" means
any of the following:
A. Any individual, entity or group becomes a beneficial owner (as
defined in Rule 13d-3 of the Securities Exchange Act of 1934), directly or
indirectly, of 20% or more of the voting stock of the Company;
B. The persons who were directors of the Company immediately prior to
any contested election or series of contested elections, tender offer,
exchange offer, merger, consolidation, other business combinations, or any
combination of the foregoing cease to constitute a majority of the members
of the Board of Directors of the Company immediately following such
occurrence;
C. Any merger, consolidation, reorganization or other business
combination where the individuals or entities who constituted the Company's
shareholders immediately prior to the combination will not immediately
after the combination own at least 50% of the voting securities of the
business resulting from the combination;
<PAGE>
D. The sale, lease, exchange or other transfer of all or substantially
all the assets of the Company to any individual, entity or group not
affiliated with the Company;
E. The liquidation or dissolution of the Company; or
F. The occurrence of any other event by which the Company no longer
operates as an independent public company.
12. AMENDMENT OF THE PLAN
The Plan may be amended, suspended or discontinued in whole or in part
at any time and from time to time by the Board, provided, however, that no
amendment to increase the number of shares with respect to which options
may be granted, or to increase materially the benefits accruing to
Optionees, or to materially modify the requirements as to eligibility,
shall be effective without stockholder approval where the failure to obtain
such approval would adversely affect the compliance of the Plan with Rule
16b-3 under the Exchange Act or successor rule and with other applicable
law, including the Code. No amendment of the Plan shall adversely affect in
a material manner any right of any Optionee with respect to a prior grant
without such Optionee's written consent.
13. DURATION OF THE PLAN
The Amended Plan shall become effective as of December 16, 1998,
subject to stockholder approval of the limitation on options granted to a
person covered by Section 162(m) of the Code pursuant to Section 4.
Incentive Stock Options may be granted from time to time during a period of
ten (10) years from the effective date of the Amended Plan. Nonqualified
stock options may be granted from time to time from the effective date
until the Plan is discontinued or terminated by the Board.
EXHIBIT 10(f)
THE VALSPAR CORPORATION
KEY EMPLOYEE ANNUAL BONUS PLAN
AS AMENDED THROUGH OCTOBER 20, 1999
KEY EMPLOYEE
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 in any of the following
circumstances: (a) Any individual, entity or group becomes a beneficial owner
(as defined in Rule 13d-3 of the Securities Exchange Act of 1934), directly or
indirectly, of 20% or more of the voting stock of the Company; (b) The persons
who were directors of the Company immediately prior to any contested election or
series of contested elections, tender offer, exchange offer, merger,
consolidation, other business combinations, or any combination of the foregoing
cease to constitute a majority of the members of the Board of Directors of the
Company immediately following such occurrence; (c) Any merger, consolidation,
reorganization or other business combination where the individuals or entities
who constituted the Company's shareholders immediately prior to the combination
will not immediately after the combination own at least 50% of the voting
securities of the business resulting from the combination; (d) The sale, lease,
exchange or other transfer of all or substantially all the assets of the Company
to any individual, entity or group not affiliated with the Company; (e) The
liquidation or dissolution of the Company; or (f) The occurrence of any other
event by which the Company no longer operates as an independent public company.
"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
Committee shall be an outside director within the meaning of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code") and the rules and
regulations thereunder.
"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 Committee has determined to
permit to become a Participant.
"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, or any
other stock option plan of Valspar designated by the Committee.
<PAGE>
"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 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 (or age fifty-five with
an executed non-compete agreement) 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 Committee shall determine the
Employees who will be Eligible Employees under the Plan. As soon as possible
after the Committee has made its determination, the Plan Administrator will
notify each Eligible Employee of his/her 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) his/her termination of employment with Valspar for any reason or
(ii) a determination by the Committee that he/she shall no longer be an Eligible
Employee.
2. CASH BONUS DETERMINATION AND AMOUNT:
(a) 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 pursuant to The Valspar Corporation Incentive Bonus Plan for Key
Employees (the "Incentive Plan").
(b) With respect to any executive officers designated by the Committee (the
"Designated Executive Officers"), who shall always include the Chief Executive
Officer, the Chief Operating Officer and the President, (i) the Committee will
identify specific performance targets and maximum bonus levels, as a percentage
of base salary, for each Designated Executive Officer under the Incentive Plan
within the first 90 days of each Fiscal Year and record these targets and bonus
levels in writing; (ii) the performance targets for Designated Executive
Officers shall be limited to one or more of the following categories for the
Fiscal Year, either on an absolute basis or a comparative basis with other
Fiscal Years: gross or net sales, expenses as a percentage of net sales,
inventory turns, earnings per share, return on average equity, cash flow, and
gallon sales; (iii) the Committee will certify in writing following the end of
the Fiscal Year whether the performance targets have been met and the level of
the Cash Bonus Amount earned under the Incentive Plan; and (iv) the maximum Cash
Bonus Amount for any Designated Executive Officer under the Incentive Plan for
any Fiscal Year shall be $1,000.000.00.
<PAGE>
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
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. The maximum
number of shares that may be granted to any Designated Executive Officer under
this Section 3(a) for any Fiscal Year shall be 250,000 shares.
(b) Each participant who receives a Cash Bonus Amount (whether or not
he/she elects to convert all or any portion of his/her Cash Bonus Amount into a
grant of restricted Stock pursuant to the previous paragraph) will also receive
a grant of restricted Stock equal to his/her Cash Bonus Amount. The number of
shares of Stock contained in the grant of restricted Stock under this paragraph
for each Fiscal Year shall be determined by dividing the Cash Bonus Amount for
that Fiscal Year 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.
(c) Notwithstanding the fact that the number of shares of Stock contained
in any grant of restricted Stock made pursuant to Sections 3(a) or (b) above 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(s) 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(s) of restricted Stock is determined or the certificate representing those
shares is issued.
(d) 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(e) 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(e) below.
(e) 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 (i) the Participant's employment with Valspar terminates during such three
year period as a result of the Participant's death, Disability or Retirement,
(ii) any Change of Control (see Definitions) occurs during such three year
period, or (iii) 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.
(f) A maximum of 1,400,000 shares of stock may be issued as restricted
Stock under the Plan.
<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 33 1/3% per year so that the option will be fully exercisable three
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 (i) the
Participant's employment with Valspar terminates as a result of death,
Disability or Retirement or (ii) a Change of Control (see Definitions) occurs.
The option agreement shall permit the exercise in full of the option for the
remainder of its term in the event of a Change of Control. Terms for stock
option vesting are stated in the attached Appendix.
5. CHANGE OF CONTROL:
Upon any Change of Control (see Definitions), each outstanding option shall
immediately become exercisable in full for the remainder of its term, without
regard to any vesting or installment exercise provisions theretofore applicable
to the option, and all restrictions shall immediately lapse with respect to each
grant of restricted Stock. This section applies to all options and grants of
restricted Stock outstanding under this Plan as of June 16, 1999, as well as to
all options and restricted Stock granted under this Plan thereafter.
6. MISCELLANEOUS:
(a) The Board of Directors of Valspar or the 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.
<PAGE>
(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
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.
(c) The categories of performance criteria for Designated Executive
Officers under Section 2(b) shall be subject to shareholder approval at the
first shareholders meeting following the Fiscal Year ending October 30, 1998.
These categories, or new categories of performance criteria for the Designated
Executive Officers, shall be subject to shareholder approval at the first
shareholders meeting following the end of each fifth Fiscal Year after 1998.
<PAGE>
================================================================================
APPENDIX
OFFICERS
================================================================================
STOCK OPTION VESTING TERMS AND CONDITIONS
================================================================================
Option Term * 10 years
- --------------------------------------------------------------------------------
Vesting * one year from date of grant: option may be
exercised for one-third of the shares
originally granted
* two years from date of grant: option may be
exercised for two-thirds of the shares
originally granted
* three years from date of grant: option may be
exercised in whole or part during the remaining
option term
- --------------------------------------------------------------------------------
Retirement After Age 60 * 100% vested
* three (3) years to exercise, not to exceed
original option term
- --------------------------------------------------------------------------------
Retirement After Age 55 * per cent vested at time of retirement, 30 days
to exercise, not to exceed original option term
* 100% vested, three (3) years to exercise, with
non-compete agreement executed at time of
retirement, not to exceed original option term
- --------------------------------------------------------------------------------
Death or Disability * 100% vested
* one (1) year to exercise, not to exceed
original option term
- --------------------------------------------------------------------------------
Change of Control * 100% vested
* option becomes exercisable in full for the
remainder of its term without regard to any
vesting or installment exercise provisions then
applicable to the option
- --------------------------------------------------------------------------------
Termination * per cent vested at time of termination
* 30 days to exercise, not to exceed original
option term
- --------------------------------------------------------------------------------
Termination For Cause * forfeit unexercised options
================================================================================
EXHIBIT 13
VALSPAR ANNUAL REPORT
ELEVEN-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal years 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING RESULTS: Net sales $ 1,387,677 $ 1,155,134 $ 1,017,271
Cost and expenses
Cost of sales 960,395 803,240 698,474
Operating expense 273,925 230,152 206,834
Restructuring charge 8,346 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Income from operations 145,011 121,742 111,963
Other (income) expense - net (9,164) (7,753) (2,508)
Interest expense 19,089 10,707 5,294
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 135,086 118,788 109,177
Net income $ 82,142 $ 72,130 $ 65,877
Net income as a percent of sales 5.9% 6.2% 6.5%
Return on average equity 22.4% 22.7% 24.0%
Per common share:
Net income - basic $ 1.90 $ 1.66 $ 1.51
Net income - diluted 1.87 1.63 1.49
Dividends paid 0.46 0.42 0.36
Stockholders' equity 9.16 7.84 6.76
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION: Total assets $ 1,110,720 $ 801,680 $ 615,470
Working capital at year-end 140,216 158,085 97,427
Property, plant and equipment, net 312,133 233,482 185,748
Long-term debt, excluding current portion 298,874 164,768 35,844
Stockholders' equity 393,756 340,188 295,065
- ---------------------------------------------------------------------------------------------------------------------------
OTHER STATISTICS: Property, plant and equipment expenditures $ 31,400 $ 42,833 $ 48,131
Depreciation and amortization expense 39,800 30,742 25,771
Research and development expense 44,091 39,555 39,099
Total cash dividends $ 19,785 $ 18,575 $ 15,741
Average common shares outstanding - diluted (000's) 43,836 44,320 44,233
Number of stockholders 1,818 1,815 1,830
Number of employees at year-end 3,982 3,833 3,205
Market price range - common stock: High $ 39.69 $ 42.13 $ 32.94
Low 28.00 25.75 24.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
STOCK INFORMATION
Stock traded on the New York Stock Exchange
<TABLE>
<CAPTION>
For the fiscal year 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MARKET PRICE / HIGH-LOW: First quarter $ 37.75-28.00 $ 32.50-29.00
Second quarter 35.00-29.25 42.13-31.38
Third quarter 39.69-33.75 42.00-38.56
Fourth quarter 37.56-30.19 38.81-25.75
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Reference is made to the Notes in Consolidated Financial Statements for a
summary of accounting policies and additional information. Per share data has
been adjusted to reflect 2-for-1 stock splits effective in March 1992 and March
1997. The number of stockholders is based on recordholders at year-end.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 859,799 $ 790,175 $ 795,275 $ 700,897 $ 683,485 $ 632,562 $ 571,445 $ 526,892
594,935 561,170 569,063 501,135 492,092 458,953 410,094 385,459
169,873 146,344 146,683 129,997 131,232 120,643 109,206 98,725
-- -- -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
94,991 82,661 79,529 69,765 60,161 52,966 52,145 42,708
(1,081) (763) 631 2,036 360 1,504 3,337 (1,555)
3,029 4,216 2,504 1,645 2,932 5,686 4,704 5,838
- ----------------------------------------------------------------------------------------------------------------------
93,043 79,208 76,394 66,084 56,869 45,776 44,104 38,425
$ 55,893 $ 47,520 $ 45,799 $ 40,156 $ 34,418 $ 27,676 $ 26,731 $ 23,234
6.5% 6.0% 5.8% 5.7% 5.0% 4.4% 4.7% 4.4%
24.0% 24.4% 24.4% 21.8% 21.7% 20.0% 22.1% 21.9%
$ 1.28 $ 1.09 $ 1.04 $ 0.92 $ 0.79 $ 0.64 $ 0.61 $ 0.52
1.26 1.08 1.04 0.91 0.79 0.64 0.61 0.52
0.33 0.30 0.26 0.22 0.18 0.15 0.13 0.11
5.78 4.83 3.99 4.51 3.92 3.40 2.96 2.56
- ----------------------------------------------------------------------------------------------------------------------
$ 486,440 $ 398,199 $ 367,608 $ 340,479 $ 321,618 $ 319,367 $ 302,806 $ 261,103
96,130 90,995 87,887 85,741 57,500 58,066 56,199 63,519
153,819 130,404 107,956 103,916 101,005 98,818 106,621 82,687
31,948 21,658 35,343 7,890 10,684 30,697 49,456 40,201
253,703 212,115 176,712 198,826 169,377 147,896 128,707 112,698
- ----------------------------------------------------------------------------------------------------------------------
$ 25,376 $ 38,982 $ 31,817 $ 17,213 $ 19,581 $ 8,843 $ 13,171 $ 8,701
22,262 20,318 19,134 20,648 19,793 18,896 15,119 13,975
32,616 27,746 27,430 24,955 24,802 23,226 20,350 18,037
$ 14,575 $ 13,121 $ 11,252 $ 9,471 $ 7,843 $ 6,519 $ 5,651 $ 4,899
44,403 44,183 44,326 44,062 43,946 43,724 43,708 44,660
1,783 1,864 1,902 1,866 1,863 1,857 1,863 1,864
2,855 2,542 2,585 2,577 2,482 2,530 2,502 2,593
$ 25.50 $ 20.94 $ 22.88 $ 20.75 $ 18.19 $ 11.72 $ 10.00 $ 7.97
19.13 15.25 16.38 15.19 11.28 7.63 7.35 5.66
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
DIVIDENDS
Stock traded on the New York Stock Exchange
<TABLE>
<CAPTION>
For the fiscal year 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DIVIDENDS: First quarter $ 0.115 $ 0.105
Second quarter 0.115 0.105
Third quarter 0.115 0.105
Fourth quarter 0.115 0.105
- ----------------------------------------------------------------------------------------------------------------------
$ 0.46 $ 0.42
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
VALSPAR ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion of financial condition and operations is affected by
the acquisition and divestiture activity during the reporting period:
* 1999 - The Company completed three acquisitions and two divestitures. Net
consideration paid was $203.0 million.
* 1998 - The Company completed three acquisitions and one divestiture. Net
consideration paid was $83.9 million.
* 1997 - The Company completed nine acquisitions. Net consideration paid was
$40.6 million and the exchange of the Company's maintenance business.
The acquisitions were accounted for as purchases and are discussed in detail in
Note 2 to the Consolidated Financial Statements.
In addition, the Company is a multinational manufacturer with two reportable
segments under Statement of Financial Accounting Standards No. 131 (SFAS 131):
Coatings and Coating Intermediates. SFAS 131 information is discussed and
disclosed in detail in Note 11 to the Consolidated Financial Statements.
OPERATIONS 1999 VS. 1998
Net sales increased 20.1% to $1,387,677,000 in 1999 from $1,155,134,000 in 1998.
Excluding the impact of acquisitions and divestitures during the year, sales
increased approximately 5%, primarily driven by volume increases in the
Industrial Coatings product line and Coating Intermediates.
The gross profit margin increased to 30.8% in 1999 from 30.5% in 1998. The
higher margin was attributable to cost and waste reductions in the Company's
manufacturing facilities as well as improved efficiency from production
rationalization at the international locations following the Dexter acquisition.
Operating expenses (research and development, selling and administrative, but
excluding the restructuring charge) increased 19.0% to $273,925,000 (19.7% of
net sales) in 1999 compared to $230,152,000 (19.9% of net sales) in 1998.
Excluding the impact of acquisitions and divestitures, operating expenses
increased approximately 7%. This increase was primarily attributable to higher
expenditures to support the Architectural, Automotive and Specialty (AAS)
product line of the Coatings segment as well as a reduction in royalties from
licensees of the Company's technology. The Company recorded a non-recurring
restructuring charge of $8,346,000 in 1999 related to the closure of existing
Valspar facilities and workforce reductions following the Dexter acquisition.
See Note 3 to the Consolidated Financial Statements for details of the
restructuring.
Other income, net of expense, increased to $9,164,000 in 1999 from $7,753,000 in
1998. The 1999 income was driven by the gains on the divestitures of the
Company's Marine and Flexible Packaging Coatings product lines, which were
partially offset by losses on the disposal and abandonment of certain assets.
Interest expense increased to $19,089,000 in 1999 from $10,707,000 in 1998 due
to higher debt levels resulting primarily from the Dexter acquisition.
1999 net income of $82,142,000 or $1.87 per diluted share represents the 25th
consecutive year of increased earnings for the Company. Net income increased
13.9% from 1998 primarily due to sales growth, improved gross margin and expense
controls. Income from operations increased by 19.1% and was partially offset by
higher interest expense related to the Dexter acquisition.
OPERATIONS 1998 VS. 1997
Net sales increased 13.6% to $1,155,134,000 in 1998 from $1,017,271,000 in 1997.
1997 was a 53-week fiscal year. Excluding the results of acquisitions,
divestitures and the additional accounting week, net sales increased by
approximately 9%. The increase was primarily driven by volume increases in both
the Coatings and the Coating Intermediates segments. The AAS and Industrial
product lines led the volume growth within the Coatings segment.
The gross profit margin decreased to 30.5% in 1998 from 31.3% in 1997. The
decrease was primarily driven by pricing pressures in the industry, a shift in
product mix to lower margin products within the Coatings segment, as well as
increased raw material costs, particularly in certain key, high-volume
materials.
Operating expenses (research and development, selling and administrative)
increased 11.3% to $230,152,000 (19.9% of net sales) in 1998 compared with
$206,834,000 (20.3% of net sales) in 1997. Excluding the results of
acquisitions, divestitures and the additional accounting week, operating
expenses increased approximately 7%. The increase in operating expenses was
primarily attributable to additional advertising and promotional costs for large
AAS customers, additional selling expenses in the Company's two operating
segments and higher costs to support the upgrade of the Company's information
systems.
8
<PAGE>
The improvement in operating expenses as a percent of sales is due to the
continued focus on expense control and the efforts of cross-functional cost
reduction teams.
Other income, net of expense, increased to $7,753,000 in 1998 from $2,508,000 in
1997, as a result of the gain recognized on the divestiture of the Company's
Functional Powder product line.
Interest expense increased to $10,707,000 in 1998 from $5,294,000 in 1997
reflecting an increase in debt levels during the year due to acquisitions during
the period.
In 1998, net income increased 9.5% to $72,130,000, or $1.63 per diluted share.
Income from operations increased 8.7% due to the sales growth and operating
expense controls which were partially offset by the reduced gross margin during
1998. The gain on the divestiture offset the increased interest costs during the
year.
FINANCIAL CONDITION
Cash provided by operating activities was $127,249,000 in 1999 compared with
$109,439,000 in 1998 and $53,129,000 in 1997. The operating cash flow increase
in 1999 was due to the higher earnings as well as improved management of working
capital, primarily inventories. The cash provided by operating activities
combined with $162,037,000 in proceeds from bank borrowings were used for
$31,400,000 in capital expenditures, $202,979,000 in net cash payments for
acquisitions less cash received from divestitures, $19,785,000 in dividend
payments and $17,585,000 in payments for share repurchases. Cash balances
increased by $14,990,000 in 1999.
Accounts receivable increased $9,513,000 due to increased sales. Inventories and
other assets increased only $1,348,000 as a result of tighter inventory
controls, primarily within the AAS product line of the Coatings segment.
Accounts payable and accrued liabilities increased $12,687,000 primarily as a
result of an increase in various expense accruals.
Capital expenditures for property, plant and equipment were $31,400,000 in 1999
compared with $42,833,000 in 1998 and $48,131,000 in 1997. The decrease in
capital expenditures in 1999 was related to tight spending controls. 1998
spending included approximately $2,000,000 to refinance operating leases
expiring during the year. The Company anticipates capital spending in fiscal
2000 to be somewhat higher than 1999 spending levels as the Company moves and
upgrades equipment to support the plant and production restructuring actions
resulting from the Dexter acquisition. In addition, the Company has a $3,800,000
commitment to acquire the building occupied by the Farboil business.
During 1999, the Company invested $240,657,000 to acquire Dexter Corporation's
Packaging Coatings product line, its French Industrial Coatings subsidiary, a
controlling interest in Dyflex B.V., and the 50% interest held by its joint
venture partner in Farboil Company. The Company divested its Marine and Flexible
Packaging Coatings product lines in 1999, generating $37,678,000 of cash
proceeds. Cash payments for acquisitions and other investments were funded
through the Company's operations and available credit facilities.
The Company increased its borrowings with banks by $162,037,000 during 1999. The
ratio of total debt to capital increased to 47.3% at the end of 1999 compared to
35.7% in 1998. Average debt outstanding during 1999 was $346,142,000 at a
weighted average interest rate of 5.53% versus $176,491,000 at 5.48% last year,
increasing the current year's interest expense to $19,089,000 from $10,707,000
in the prior year.
At October 29, 1999, the Company had unused lines of credit available from banks
of $300,218,000, which is expected to be adequate for current and projected
financing needs.
Common stock dividends of $19,785,000 represented a 6.5% increase over 1998. The
annual dividend was increased to $0.46 per share from $0.42 per share in 1998
with the payout at 27.4% of the prior year earnings, which is consistent with
the Company's target payout rate of 25% to 35%.
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 494,000, 452,000 and 471,000 shares in 1999,
1998 and 1997, 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, considering the number of parties involved, the level of
potential liability or contribution of 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 the restoration or other clean-up costs and related claims for each
site. The estimates are based in part on discussions with other PRPs,
governmental agencies and engineering firms.
The Company accrues appropriate reserves for potential environmental
liabilities, which are continuously reviewed and adjusted as additional
information becomes available. While uncertainties exist with respect to the
amounts and timing of the Company's ultimate environmental liabilities,
management
9
<PAGE>
VALSPAR ANNUAL REPORT
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 READINESS DISCLOSURE
The Company has completed an enterprise-wide project to prepare its business for
the change in date from the year 1999 to 2000; the "Year 2000" issue. The scope
of this project addressed (i) identifying and taking appropriate corrective
action to remedy the Company's information technology (IT) systems, (ii) an
assessment and remediation, as necessary, of non-IT equipment and systems with
embedded computer chips, (iii) working with the Company's significant business
partners to assess their Year 2000 readiness impact to the Company, and (iv)
business continuity plans should the Company encounter any Year 2000 issues.
A corporate-wide Year 2000 steering committee implemented a detailed project
plan which included an inventory of the Company's systems and equipment that may
be affected; provided a risk assessment; established detailed remediation plans;
and provided for complete testing of each system subject to Year 2000 risk. The
inventory, risk assessment and remediation actions have been completed for all
of the affected systems. Contingency plans were developed for critical
applications.
The Company worked with its significant business partners to minimize Year 2000
risks and protect the Company and its customers from potential service
interruptions. The Company surveyed its key raw material and services suppliers
to determine their Year 2000 readiness. The inability of external parties to
complete their Year 2000 readiness in a timely fashion could materially affect
the Company, including the risk of disruptions in raw materials supply or in
communications or electrical service.
The Company expensed its Year 2000 readiness costs as incurred and estimates the
total cost for Year 2000 readiness was $3,500,000, with one-half of the costs
incurred in 1999.
MARKET RISK
The Company's foreign sales and results of operations are subject to the impact
of foreign currency fluctuations. As most of the Company's foreign operations
are in countries with fairly stable currencies, the effect of such fluctuations
has not been significant. The Company has not hedged its exposure to translation
gains and losses; however, it has reduced its exposure by borrowing funds in
local currencies. A 10% adverse change in foreign currency rates would not have
a material effect on the Company's results of operations or financial position.
The Company is also subject to interest rate risk. The Company has not hedged
its exposure to interest rate fluctuations; however, a 10% increase or decrease
in interest rates would not have a material effect on the Company's results of
operations, fair values or cash flows.
FORWARD-LOOKING STATEMENTS
This discussion contains certain "forward-looking" statements, particularly
those pertaining to Year 2000 readiness. These forward-looking statements are
based on management's expectations and beliefs concerning future events.
Forward-looking statements are necessarily subject to risks, uncertainties and
other factors, many of which are outside the control of the Company that could
cause actual results to differ materially from such statements. These
uncertainties and other factors include such things as: the Company's reliance
on the efforts of vendors, government agencies, utilities and other third
parties to achieve adequate compliance and avoid disruption of its business in
early 2000; dependence of internal earnings growth on economic conditions and
growth in the domestic and international coatings industry; changes in the
Company's relationships with customers and suppliers; unusual weather conditions
that might adversely affect Coatings and Coating Intermediates' sales; and other
risks and uncertainties. The forgoing list is not exhaustive, and the Company
disclaims any obligation to subsequently revise any forward-looking statements
to reflect events or circumstances after the date of such statements.
10
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
October 29, October 30,
1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 33,189 $ 14,990
Accounts and notes receivable, less allowances
for doubtful accounts (1999 - $4,801; 1998 - $1,464) 260,663 212,287
Inventories 162,654 142,811
Deferred income taxes 18,770 13,967
Prepaid expenses and other accounts 39,652 42,014
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 514,928 426,069
- ----------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 19,429 15,203
Buildings 129,253 116,224
Machinery and equipment 391,026 293,500
- ----------------------------------------------------------------------------------------------------------------------
539,708 424,927
Less accumulated depreciation 227,575 191,445
- ----------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 312,133 233,482
- ----------------------------------------------------------------------------------------------------------------------
GOODWILL, NET 218,668 92,872
OTHER ASSETS, NET 64,991 49,257
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,110,720 $ 801,680
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ 53,593 $ 24,055
Trade accounts payable 154,312 138,182
Income taxes 21,862 6,913
Accrued liabilities 144,639 98,549
Current portion of long-term debt 306 285
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 374,712 267,984
- ----------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 298,874 164,768
DEFERRED INCOME TAXES 11,148 8,910
DEFERRED LIABILITIES 32,230 19,830
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 716,964 461,492
- ----------------------------------------------------------------------------------------------------------------------
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 26,660
Additional paid-in capital 28,896 24,880
Retained earnings 429,397 367,040
Accumulated other comprehensive income (loss) 1,997 (2,776)
- ----------------------------------------------------------------------------------------------------------------------
486,950 415,804
Less cost of common stock in treasury (1999 - 10,337,999 shares; 1998 - 9,902,827 shares) 93,194 75,616
- ----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 393,756 340,188
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,110,720 $ 801,680
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
11
<PAGE>
VALSPAR ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
October 29, October 30, October 31,
For the year ended 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,387,677 $1,155,134 $1,017,271
COST AND EXPENSES:
Cost of sales 960,395 803,240 698,474
Research and development 44,091 39,555 39,099
Selling and administrative 229,834 190,597 167,735
Restructuring charge 8,346 -- --
- ------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 145,011 121,742 111,963
Other income - net 9,164 7,753 2,508
Interest expense 19,089 10,707 5,294
- ------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 135,086 118,788 109,177
Income taxes 52,944 46,658 43,300
- ------------------------------------------------------------------------------------------------------
NET INCOME $ 82,142 $ 72,130 $ 65,877
- ------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE - BASIC $ 1.90 $ 1.66 $ 1.51
NET INCOME PER COMMON SHARE - DILUTED $ 1.87 $ 1.63 $ 1.49
- ------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
12
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
------------------------ Paid-In Retained Comprehensive Treasury
Shares Amount Capital Earnings Income (Loss) Stock
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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) -- --
Comprehensive income:
Net income -- -- -- 65,877 -- --
Foreign currency translation -- -- -- -- 51 --
Cash dividends on common
stock - $.36 per share -- -- -- (15,741) -- --
Other -- -- 3,138 -- (1,308) (632)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 31, 1997 53,321,312 26,660 17,758 313,485 (1,850) 60,988
- ----------------------------------------------------------------------------------------------------------------------
Common stock options
exercised for 59,202 shares -- -- 596 -- -- (372)
Purchase of 452,100 shares of
common stock for treasury -- -- -- -- -- 13,745
Comprehensive Income
Net income -- -- -- 72,130 -- --
Foreign currency translation -- -- -- -- 677 --
Cash dividends on common
stock - $.42 per share -- -- -- (18,575) -- --
Other -- -- 6,526 -- (1,603) 1,255
- ----------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 30, 1998 53,321,312 26,660 24,880 367,040 (2,776) 75,616
- ----------------------------------------------------------------------------------------------------------------------
Common stock options
exercised for 50,007 shares -- -- 715 -- -- (406)
Purchase of 494,400 shares of
common stock for treasury -- -- -- -- -- 17,585
Comprehensive income:
Net income -- -- -- 82,142 -- --
Foreign currency translation -- -- -- -- 4,679 --
Cash dividends on common
stock - $.46 per share -- -- -- (19,785) -- --
Other -- -- 3,301 -- 94 399
- ----------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 29, 1999 53,321,312 $ 26,660 $ 28,896 $ 429,397 $ 1,997 $ 93,194
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
13
<PAGE>
VALSPAR ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
October 29, October 30, October 31,
For the year ended 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 82,142 $ 72,130 $ 65,877
Adjustments to reconcile net income to net cash provided
by operating activities:
Restructuring charge 8,346 -- --
Depreciation and amortization 39,800 30,742 25,771
Deferred income taxes (9,619) 1,587 1,669
Loss on sales or abandonment of property, plant and equipment 3,358 1,854 1,486
Gain on asset divestiture (13,850) (6,886) --
(Decrease) increase in cash due to changes in net operating assets,
net of effects of acquired businesses:
Accounts and notes receivable (9,513) (7,164) (23,953)
Inventories and other assets (1,348) (19,095) (41,965)
Trade accounts payable and accrued liabilities 12,687 31,556 32,018
Income taxes payable 15,849 7,218 (6,341)
Other deferred liabilities 717 108 790
Other (1,320) (2,611) (2,223)
- --------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 127,249 109,439 53,129
- --------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (31,400) (42,833) (48,131)
Acquired businesses, net of cash (240,657) (93,074) (40,629)
Divested businesses/assets 37,678 9,206
Other investments/advances to joint ventures (459) (11,320) 5,734
- --------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (234,838) (138,021) (83,026)
- --------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net proceeds from borrowings 162,037 63,684 60,926
Proceeds from sales of treasury stock 1,121 1,095 1,208
Purchase of shares of Common Stock for treasury (17,585) (13,745) (12,495)
Dividends paid (19,785) (18,575) (15,741)
- --------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 125,788 32,459 33,898
- --------------------------------------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents 18,199 3,877 4,001
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,990 11,113 7,112
- --------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 33,189 $ 14,990 $ 11,113
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended October 1999, 1998 and 1997
(Dollars in thousands, except per share amounts)
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
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
which the Company has a 20 to 50 percent interest and 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 these 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 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 the straight-line method. Effective October 30,1999, the Company
adopted Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". The adoption of this SOP is
not expected to materially impact the Company's financial condition or results
of operations.
INTANGIBLE AND LONG-LIVED ASSETS: Intangible assets, including goodwill, are
carried at cost and amortized using the straight-line method over their
estimated period of benefit (6 to 40 years). The Company reviews its intangible
and long-lived assets for impairment in accordance with Statement of Financial
Accounting Standards No. 121 (SFAS 121). Under SFAS 121, impairment losses are
recorded on long-lived assets used in operations when events and circumstances
indicate that the assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amounts of
those assets.
STOCK OPTIONS: As permitted by Statement of Financial Accounting Standards No.
123 (SFAS 123), 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 compensation awards. Pro forma
information regarding net income and earnings per share as calculated under the
provisions of SFAS 123 is disclosed in Note 8 to the financial statements.
FOREIGN CURRENCY: Foreign currency denominated 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 are recorded as a component of
stockholders' equity. Gains and losses from foreign currency transactions are
included in other income (expense), net.
NET INCOME PER SHARE: The following table reflects the components of common
shares outstanding for the three years ended October 29, 1999 in accordance with
Statement of Financial Accounting Standards No. 128 (SFAS 128):
1999 1998 1997
- --------------------------------------------------------------------------------
Weighted average
common shares
outstanding-basic 43,298,367 43,457,221 43,521,370
Effect of stock
options 537,212 862,628 711,178
- --------------------------------------------------------------------------------
Equivalent common
shares outstanding-
diluted 43,835,579 44,319,849 44,232,548
- --------------------------------------------------------------------------------
Under the provisions of SFAS 128, basic earnings per share are based on the
weighted average number of common shares outstanding during each year. In
computing diluted earnings per share, the number of common shares outstanding is
increased by common stock options with exercise prices lower than the average
market prices of common shares during each year and reduced by the number of
shares assumed to have been purchased with proceeds from the exercised options.
All earnings per share amounts for all periods presented have been restated to
conform to SFAS 128.
15
<PAGE>
VALSPAR ANNUAL REPORT
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
29, 1999.
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 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.
COMPREHENSIVE INCOME: Effective October 31, 1998, the Company adopted Statement
of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income." This statement establishes rules for the reporting of comprehensive
income and its components. Comprehensive income consists of net income and
currency effects and is presented in the Consolidated Statements of Changes in
Stockholders' Equity. The adoption of SFAS 130 has no impact on total equity.
BASIS OF PRESENTATION: Certain prior year amounts have been reclassified to
conform with the current year presentation.
NOTE 2: ACQUISITIONS AND DIVESTITURES
Effective September 30,1999, the Company acquired the 50% interest in Farboil
Company held by its joint venture partner. Farboil Company, located in
Baltimore, Maryland, produces decorative powder coatings with annual revenues of
$17 million. The transaction was accounted for as a purchase. Accordingly, the
net assets and operating results have been included in the Company's financial
statements from the date of acquisition. The effect of this transaction on the
Company's results of operations for 1999 was not material.
Effective February 26, 1999, the Company acquired Dexter Corporation's worldwide
Packaging Coatings product line and its French Industrial Coatings subsidiary,
Dexter SAS. Dexter packaging coatings is a worldwide supplier of beverage can,
food can and specialty coatings to the packaging market. Dexter SAS supplies a
variety of coatings to the European industrial market. The transaction was
accounted for as a purchase. Accordingly, the net assets and operating results
have been included in the Company's financial statements from the date of
acquisition. 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. The following unaudited pro forma combined
summary statement of income for the twelve month periods ended October 29, 1999
and October 30, 1998 was prepared in accordance with Accounting Principles Board
Opinion No. 16 and assumes the acquisition had occurred at the beginning of the
periods presented. The following pro forma data reflect adjustments for interest
expense, amortization of goodwill and depreciation of fixed assets. The
unaudited pro forma financial information is provided for informational purposes
only and does not purport to be indicative of the future results of the Company.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
Year ended Year ended
(Thousands of dollars, October 29, October 30,
except share data) 1999 1998
- --------------------------------------------------------------------------------
Net sales $ 1,457,220 $ 1,367,407
Net income 81,361 68,922
Net income per share-basic 1.88 1.59
Net income per share-diluted 1.86 1.56
- --------------------------------------------------------------------------------
Effective December 17, 1998, the Company acquired a majority interest in Dyflex
B.V., a Netherlands based producer of specialty water-based polymers. The
transaction was accounted for as a purchase. Accordingly, the net assets and
operating results have been included in the Company's financial statements from
the date of acquisition. The effect of this transaction on the Company's results
of operations for 1999 was not material.
Effective April 30, 1999, the Company completed the sale of its Marine and
Flexible Packaging Coatings product lines. These product lines had revenues of
$25 million and $12 million, respectively, for the year ended October 1998. The
effect of these divestitures on the Company's results of operations for 1999 was
not material.
Net consideration paid for the acquisitions and divestitures in 1999 was $203.0
million in cash.
In 1998 the Company completed three acquisitions including the purchase of
Plasti-Kote Co., Inc., a manufacturer of Architectural and Automotive aerosol
and specialty paint products; the purchase of Anzol Pty. Ltd., an
Australian-based manufacturer of packaging and industrial coatings; and the
purchase of Hilemn Laboratories, a mirror coatings supplier. In addition, the
Company divested its Functional Powder product line. Net consideration paid for
the acquisitions in 1998 was $83.9 million in cash.
In 1997 the Company completed nine acquisitions including the second phase of
its acquisition of the Coates Coatings (Coates) operations of TOTAL S.A. The
second phase included the packaging coatings and metal decorating inks
operations in Hong Kong and China. Total consideration paid for the nine
acquisitions in 1997 was $40.6 million in cash and the exchange of the Company's
Maintenance product line.
The acquisitions in 1998 and 1997 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 dates of
acquisition. The impact of these transactions on the results of operations for
1998 or 1997 was not material. The excess of the purchase
16
<PAGE>
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.
In addition to the above acquisitions, in 1998 the Company made its initial 49%
investment in a joint venture in South Africa, in connection with the third
phase of its acquisition of Coates operations. This investment was accounted for
using the equity method of accounting for investments and was not material to
the results of operations in 1998.
NOTE 3: RESTRUCTURING
During 1999, the Company's Board of Directors approved and the Company initiated
actions to eliminate redundant facilities and functions resulting from the
acquired Dexter packaging coatings operations. Costs associated with the planned
closure of former Dexter locations and workforce reductions totaling $6.4
million were recorded as liabilities in the purchase price allocation. Of the
$6.4 million total, $5.3 million related to employee termination benefits and
$0.6 million related to contract cancellation costs. As of October 29, 1999,
costs totaling $2.9 million were charged against the liability for the closure
of former Dexter locations and workforce reductions.
Additionally, costs associated with workforce reductions and the planned closure
of existing Valspar locations were reflected as a pre-tax restructuring charge
totaling $8.3 million. Of the $8.3 million total, $3.5 million related to
employee termination benefits, $3.1 million related to contract and other
program cancellation costs, and $1.0 million relates to recording assets to be
disposed of at fair value. As of October 29, 1999, costs totaling $3.4 million
were charged against the liability for the closure of existing Valspar locations
and workforce reductions.
These actions contemplate a workforce reduction of worldwide headcount of
approximately 200. Cash requirements of this restruc-turing plan are estimated
to be $13.7 million with $5.4 million spent in 1999 and the remainder to be
expended in 2000.
NOTE 4: INVENTORIES
The major classes of inventories consist of the following:
1999 1998
- --------------------------------------------------------------------------------
Manufactured products $ 47,069 $ 99,990
Raw materials, supplies
and work-in-process 115,585 42,821
- --------------------------------------------------------------------------------
$ 162,654 $ 142,811
- --------------------------------------------------------------------------------
Inventories stated at cost determined by the last-in, first-out (LIFO) method
aggregate $108,668 at October 29, 1999 and $109,916 at October 30, 1998,
approximately $20,051 and $24,682 lower, respectively, than such costs
determined under the first-in, first-out (FIFO) method.
NOTE 5: TRADE ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade accounts payable include $19,819 and $12,231 of issued checks which had
not cleared the Company's bank accounts as of October 29, 1999 and October 30,
1998, respectively.
Accrued liabilities include the following:
1999 1998
- --------------------------------------------------------------------------------
Employee compensation $ 50,685 $ 35,077
Uninsured loss reserves 20,615 19,639
Customer volume rebates 20,838 $ 11,152
Contribution to employees'
retirement trusts 10,603 6,645
Restructuring 8,130 --
Other 33,768 26,036
- --------------------------------------------------------------------------------
Total $ 144,639 $ 98,549
- --------------------------------------------------------------------------------
NOTE 6: LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
1999 1998
- --------------------------------------------------------------------------------
Notes to banks (1.7%-5.9%
at October 29, 1999) $ 282,189 $ 149,769
Industrial development bonds
(3.2-4.0% at October 29, 1999,
payable in 2015 and 2018) 15,208 13,233
Obligations under capital lease
(7.5% at October 29, 1999,
payable through 2004) 1,783 2,051
- --------------------------------------------------------------------------------
299,180 165,053
Less current maturities (306) (285)
- --------------------------------------------------------------------------------
$ 298,874 $ 164,768
- --------------------------------------------------------------------------------
The notes to banks totaling $282,189 at October 29, 1999 and $149,769 at October
30, 1998 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: 2000 - $306; 2001 - $464; 2002 - $493; 2003 -
$526, 2004-$561 and $14,641 thereafter.
The Company has $450,000 of committed revolving multi-currency credit facilities
with a syndicate of banks at optional interest rates of prime or IBOR-based
rates. This 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 29,
1999.
17
<PAGE>
VALSPAR ANNUAL REPORT
Under other short-term bank lines of credit around the world, the Company may
borrow up to $186,000 on such terms as the Company and the banks may mutually
agree. These arrangements are reviewed periodically for renewal and
modification. Borrowings under these debt arrangements had an average annual
rate of 5.19% in 1999 and 5.75% in 1998.
The Company had unused lines of credit under the short-term bank lines and
revolving credit facility of $300,218 at October 29, 1999.
Interest paid during 1999, 1998 and 1997 was $19,092, $9,670 and $4,878
respectively.
NOTE 7: INCOME TAXES
Significant components of the provision for income taxes are as follows:
Years ended 1999 1998 1997
- --------------------------------------------------------------------------------
Current:
Federal $ 49,820 $ 33,695 $ 34,636
State 5,943 6,285 5,703
Foreign 5,319 1,813 1,437
- --------------------------------------------------------------------------------
Total current 61,082 41,793 41,776
- --------------------------------------------------------------------------------
Deferred:
Federal (4,717) 3,562 1,542
State (860) 434 497
Foreign (2,561) 869 (515)
- --------------------------------------------------------------------------------
Total deferred (8,138) 4,865 1,524
- --------------------------------------------------------------------------------
Total income taxes $ 52,944 $ 46,658 $ 43,300
- --------------------------------------------------------------------------------
Significant components of the Company's deferred tax assets and liabilities are
as follows:
Years ended 1999 1998 1997
- --------------------------------------------------------------------------------
Deferred tax assets:
Product liability accruals $ 2,749 $ 2,023 $ 2,063
Insurance accruals 4,459 2,873 2,690
Deferred compensation 7,797 4,471 4,175
Workers' compensation
accruals 2,177 3,013 2,606
Employee compensation
accruals 2,943 3,014 2,970
Other 19,142 15,658 14,018
- --------------------------------------------------------------------------------
Total deferred tax assets 39,267 31,052 28,522
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Tax over book depreciation (15,336) (16,012) (13,887)
Other (16,658) (9,982) (6,476)
- --------------------------------------------------------------------------------
Total deferred tax liabilities (31,994) (25,994) (20,363)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 7,273 $ 5,058 $ 8,159
- --------------------------------------------------------------------------------
The reconciliation of income tax computed at the US Federal statutory tax rates
to income tax expense is as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Tax at U.S. statutory rates 35.0% 35.0% 35.0%
State income taxes,
net of Federal benefit 2.4% 3.5% 3.7%
Other 1.8% 0.8% 1.0%
- --------------------------------------------------------------------------------
39.2% 39.3% 39.7%
- --------------------------------------------------------------------------------
Income taxes paid during 1999, 1998 and 1997 were $45,749, $33,571 and $46,094
respectively.
NOTE 8: STOCK PLANS
STOCK OPTIONS: Under the Company's Stock Option Plan, options for the purchase
of up to 6,000,000 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 over a prescribed period of 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 as the exercise equals or exceeds the market price of the
underlying stock on the date of grant. Had compensation expense for the stock
option plan been determined based on the fair value at the date of grant,
consistent with the provisions of SFAS 123, the Company's net income and
earnings per share would have been reported as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Pro forma net income $ 80,974 $ 71,424 $ 65,486
Pro forma earnings per share:
Basic 1.87 1.64 1.50
Diluted 1.85 1.61 1.48
- --------------------------------------------------------------------------------
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.
18
<PAGE>
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:
1999 1998 1997
- --------------------------------------------------------------------------------
Expected dividend yield 1.5% 1.5% 1.5%
Expected stock price volatility 22.2% 21.1% 21.2%
Risk-free interest rate 6.2% 4.2% 5.2%
Expected life of options 6 years 6 years 6 years
- --------------------------------------------------------------------------------
The weighted average fair value for options granted during 1999, 1998 and 1997
is $8.71, $7.79, and $7.63 per share, respectively.
Stock option activity for the three years ended October 29, 1999 is summarized
as follows:
Weighted
Average
Shares Options Exercise
Reserved Outstanding Price
- --------------------------------------------------------------------------------
OCTOBER 25, 1996
Balance 410,204 1,138,276 $ 17.34
Reserve shares
cancelled (105,154) -- --
Shares reserved 1,000,000 -- --
Granted (249,600) 249,600 $ 28.32
Exercised -- (94,885) $ 12.73
Cancelled 11,280 (11,280) $ 20.37
- --------------------------------------------------------------------------------
OCTOBER 31, 1997
Balance 1,066,730 1,281,711 $ 19.79
Shares reserved 1,000,000 -- --
Granted (398,150) 398,150 $ 31.34
Exercised -- (56,592) $ 17.10
Cancelled 22,901 (22,901) $ 23.72
- --------------------------------------------------------------------------------
OCTOBER 30, 1998
Balance 1,691,481 1,600,368 $ 22.70
Shares reserved 2,250,000 -- --
Granted (706,500) 706,500 $ 35.02
Exercised -- (50,007) $ 22.40
Cancelled 28,466 (28,466) $ 32.24
- --------------------------------------------------------------------------------
OCTOBER 29, 1999 3,263,447 2,228,395 $ 26.49
- --------------------------------------------------------------------------------
Options outstanding at October 29, 1999 had an average remaining contractual
life of 6.4 years. Options exercisable of 939,257 at October 29, 1999, 665,194
at October 30, 1998 and 465,000 at October 31, 1997 had weighted average
exercise prices of $19.61, $17.99, and $16.83 respectively. The exercise prices
for options outstanding as of October 29, 1999 range from $12.00 to $39.75.
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 7% of their compensation to the Plans. The
Company contributes a minimum amount equal to one-half of the employee
contributions up to 3% of employees' compensation, with the potential to match
up to 6% based upon the financial performance of the Company. The Company's
contributions were $5,545, $2,649, and $2,615, for 1999, 1998, and 1997,
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 9: LEASING ARRANGEMENTS
The company has operating lease commitments outstanding at October 29,1999 for
plant and warehouse equipment, office and warehouse space and automobiles. The
leases have initial periods ranging from one to ten years, with minimum future
rental payments as follows:
Minimum Lease Payments
- --------------------------------------------------------------------------------
2000 $ 5,600
2001 5,094
2002 2,954
2003 772
2004 482
2005 and beyond 1,997
- --------------------------------------------------------------------------------
$16,899
- --------------------------------------------------------------------------------
Rent expense for operating leases was $6,338 in 1999, $4,445 in 1998 and $4,003
in 1997.
NOTE 10: PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Effective October 29,1999, the Company adopted Statement of Financial Accounting
Standards No. 132 (SFAS 132), "Employers Disclosures About Pensions and Other
Postretirement Benefits." The provisions of SFAS 132 standardize the disclosure
require-ments for pensions and other postretirement benefits but do not change
the measurement or accounting for these 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 $9,869, $9,342, and $8,603, for 1999, 1998, and 1997, respectively.
19
<PAGE>
VALSPAR ANNUAL REPORT
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 cost of the pension benefits is as follows:
NET PERIODIC COST
1999 1998 1997
- --------------------------------------------------------------------------------
Service cost 1,158 961 899
Interest cost 2,016 2,049 1,880
Expected return on plan assets (3,059) (2,849) (2,432)
Amortization of transition
asset obligation (92) (93) (90)
Amortization of prior
service cost 367 360 318
Recognized actuarial gain (292) (313) (102)
- --------------------------------------------------------------------------------
Net-periodic benefit cost 98 115 473
- --------------------------------------------------------------------------------
The plans' funded status is shown below, along with a description of how the
status changed during the past two years. The benefit obligation is the
projected benefit obligationthe actuarial present value as of a date of all
benefits attributed by the pension benefit formula to employee service rendered
prior to that date.
CHANGE IN BENEFIT OBLIGATION
1999 1998
- --------------------------------------------------------------------------------
Benefit obligation at beginning of year 30,669 27,517
Service cost 1,149 1,211
Interest cost 2,005 2,240
Plan participants' contributions 111 92
Actuarial loss 1,582 952
Acquisitions 1,873 --
Benefits paid (1,761) (1,343)
- --------------------------------------------------------------------------------
Benefit obligation at end of year 35,628 30,669
- --------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
1999 1998
- --------------------------------------------------------------------------------
Fair value of plan assets
at beginning of year 39,907 35,722
Actual return on plan assets 6,802 5,013
Employer contributions 438 425
Plan participants' contributions 111 90
Benefit payments (1,761) (1,343)
Acquisitions 1,963 0
- --------------------------------------------------------------------------------
Fair value of plan assets at end of year 47,460 39,907
- --------------------------------------------------------------------------------
FUNDED STATUS
1999 1998
- --------------------------------------------------------------------------------
Funded status at end of year 11,832 9,238
Unrecognized transition asset (923) (1,010)
Unrecognized prior service cost 2,831 2,532
Unrecognized net gain (11,429) (8,066)
- --------------------------------------------------------------------------------
Net amount recognized in statement
of financial position 2,311 2,694
- --------------------------------------------------------------------------------
The actuarial assumptions were as follows:
1999 1998
- --------------------------------------------------------------------------------
Discount rate 6.25%-7.25% 6.25%-8.0%
Expected return
on plan assets 7.5%-8.0% 7.5%-8.0%
Average increase
in compensation 3.75%-6.0% 3.75%-6.0%
- --------------------------------------------------------------------------------
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 $1,587 and $1,599 at October 29, 1999 and October 30, 1998,
respectively. Net periodic postretirement expense was $95, $103, and $98 in
1999, 1998 and 1997, respectively.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% and 6.75% at October 29, 1999 and
October 30, 1998, respectively. The assumed health-care cost trend rate used in
measuring the accumulated postretirement benefit obligation was 7.5% in 1999,
then declining by 0.5% per year to an ultimate rate of 5.5%. A 1% change in the
cost trend rate would not have a material effect on the accumulated
postretirement benefit obligation or net periodic postretirement expense.
20
<PAGE>
NOTE 11: SEGMENT INFORMATION
Effective October 29, 1999, the Company adopted Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 requires disclosure of operating
segments using the management approach, or the measures used internally to
evaluate operating results and to decide resource allocations. The adoption of
this standard did not affect the Company's results of operations or financial
position.
Based on the nature of the Company's products, technology, manufacturing
processes, customers, regulatory environment, and internal management structure,
and considering the aggregation criteria of SFAS 131, the Company operates its
business in two reportable segments: Coatings and Coating Intermediates. The
Company manufactures and distributes a broad portfolio of coatings products. The
Architectural, Automotive and Specialty product line includes interior and
exterior decorative paints and aerosols, automotive finish, automotive
aftermarket and high performance floor coatings. The Packaging product line
includes coatings and inks for rigid packaging containers. The Industrial
products are decorative and protective coatings for metal, wood, and plastic
substrates. Coating Intermediates, primarily resins and colorants, are sold to
the Company and to other coatings manufacturers.
There are certain business activities, referred to as Corporate in the following
table, that do not constitute an operating segment. Included in Corporate are
administrative expenses of the headquarters site, gains or losses on the sale of
certain assets, and other income or expenses not directly related to an
operating segment. The Company evaluates the performance of operating segments
and allocates resources based on profit or loss from operations before interest
expense and income taxes (EBIT). Intersegment sales are recorded at selling
prices which are below market prices. Segment EBIT includes realized profit on
intersegment sales. Identifiable assets are those directly identified with each
segment's operations. Corporate assets consist primarily of cash and cash
equivalents, income tax assets, prepaid expenses and headquarter's property,
plant and equipment. The accounting polices of the reportable segments are the
same as those described in Note 1 - Significant Accounting Policies.
Net sales, EBIT, depreciation and amortization, identifiable assets, and capital
expenditures by operating segment are as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Net sales:
Coatings $1,292,475 $1,074,416 $ 946,311
Coating Intermediates 145,725 126,843 113,102
- --------------------------------------------------------------------------------
1,438,200 1,201,259 1,059,413
Intersegment sales (50,523) (46,125) (42,142)
- --------------------------------------------------------------------------------
Total net sales -
external $1,387,677 $1,155,134 $1,017,271
- --------------------------------------------------------------------------------
EBIT:
Coatings (1) $ 162,770 $ 139,016 $ 124,929
Coating Intermediates 17,024 13,568 11,216
- --------------------------------------------------------------------------------
179,794 152,584 136,145
Corporate (1) (25,619) (23,089) (21,674)
- --------------------------------------------------------------------------------
Total EBIT $ 154,175 $ 129,495 $ 114,471
- --------------------------------------------------------------------------------
Depreciation and amortization:
Coatings $ 30,981 $ 19,555 $ 18,024
Coating Intermediates 3,419 2,900 2,669
Corporate 5,400 8,287 5,078
- --------------------------------------------------------------------------------
Total depreciation
and amortization $ 39,800 $ 30,742 $ 25,771
- --------------------------------------------------------------------------------
Identifiable assets:
Coatings $ 926,655 $ 635,375 $ 464,791
Coating Intermediates 87,916 58,808 51,909
Corporate 96,149 107,497 98,770
- --------------------------------------------------------------------------------
Total assets $1,110,720 $ 801,680 $ 615,470
- --------------------------------------------------------------------------------
Capital expenditures:
Coatings $ 19,727 $ 26,952 $ 39,108
Coating Intermediates 3,694 9,063 4,660
Corporate 7,979 6,818 4,363
- --------------------------------------------------------------------------------
Total capital
expenditures $ 31,400 $ 42,833 $ 48,131
- --------------------------------------------------------------------------------
(1) EBIT in 1999 includes a pre-tax restructuring charge of $6.8 million
and $1.5 million in Coatings and Corporate, respectively.
21
<PAGE>
VALSPAR ANNUAL REPORT
Net sales by product line within the Coatings Segment are as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Architectural,
automotive
and specialty $ 510,960 $ 482,295 $ 419,145
Packaging 452,846 319,653 299,383
Industrial 328,669 272,468 227,783
- --------------------------------------------------------------------------------
$1,292,475 $1,074,416 $ 946,311
- --------------------------------------------------------------------------------
Geographic net sales are based on the country from which the customer was billed
for the products sold. The United States is the largest country for customer
sales. No single country outside the United States represents more than 10% of
consolidated net sales. Long-lived assets include property, plant and equipment
and intangibles attributable to each country's operations. No single country
outside the United States represents more than 10% of consolidated long-lived
assets. Net sales and long-lived assets by geographic region are as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Net sales - external:
United States $1,116,347 $1,021,449 $ 923,492
Outside U.S. 271,330 133,685 93,779
- --------------------------------------------------------------------------------
Total net sales -
external $1,387,677 $1,155,134 $1,017,271
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Long-lived assets:
United States $339,760 $264,478 $201,852
Outside U.S. 191,041 61,876 29,868
- --------------------------------------------------------------------------------
Total long-lived assets $530,801 $326,354 $231,720
- --------------------------------------------------------------------------------
NOTE 12: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results for the years
ended October 29, 1999 and October 30, 1998:
Net
Income
Net Gross Net Per Share
Sales Margin Income Diluted
- --------------------------------------------------------------------------------
1999 quarter
ended:
January 29 $ 265,810 $ 75,339 $ 9,716 $0.22
April 30 356,702 111,968 22,444 0.51
July 30 398,076 120,621 25,834 0.59
October 29 367,089 119,354 24,148 0.55
- --------------------------------------------------------------------------------
$1,387,677 $427,282 $82,142 $1.87
- --------------------------------------------------------------------------------
1998 quarter
ended:
January 30 $ 225,359 $ 63,714 $8,895 $0.20
May 1 292,462 90,041 19,951 0.45
July 31 327,684 101,324 22,246 0.50
October 30 309,629 96,815 21,038 0.48
- --------------------------------------------------------------------------------
$1,155,134 $351,894 $72,130 $1.63
- --------------------------------------------------------------------------------
NOTE 13: RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133, which will be effective for the
Company's fiscal year 2001, requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The Company is currently reviewing the standard and its effect on
its financial statements.
22
EXHIBIT 21
SUBSIDIARIES OF THE VALSPAR CORPORATION
The following are wholly-owned subsidiaries of The Valspar Corporation. Where
the name of the subsidiary includes the `Valspar" name, that subsidiary does
business under the Valspar corporate name:
State of Incorporation
----------------------
Engineered Polymer Solutions, Inc. Delaware
Plasti-Kote Co., Inc. Ohio
Valspar Coatings Finance Corporation Minnesota
Valspar Finance Corporation Minnesota
Valspar Inc. Canada
Valspar Refinish, Inc. Mississippi
The Valspar (Australia) Corporation Pty Limited Australia
The Valspar (France) Corporation, S.A. France
The Valspar (France) Corporation, S.A.S. France
The Valspar (H.K.) Corporation Limited Hong Kong
The Valspar (Kolack) Corporation AG Switzerland
The Valspar (Singapore) Corporation Pte Ltd Singapore
The Valspar (UK) Corporation, Limited United Kingdom
The Valspar (Vernicolor) Corporation AG Switzerland
Subsidiaries not listed would not, if considered in the aggregate as a single
subsidiary, constitute a significant subsidiary.
EXHIBIT 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 18, 1999, included in
the 1999 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
Form S-3 No. 333-78487 and related Prospectus; Forms S-8 Nos. 33-51224 and
33-51226 pertaining to The Valspar Stock Ownership Trusts; Forms S-8 Nos.
33-39258, 333-29979, 333-87385 and 333-46865 pertaining to The Valspar
Corporation 1991 Stock Option Plan; Forms S-8 Nos. 33-51222 and 333-46865
pertaining to The Valspar Profit Sharing Retirement Plan; Forms S-8 Nos.
33-53824 and 333-01319 pertaining to The Valspar Corporation Key Employee Annual
Bonus Plan; and Form S-8 No. 333-46865 pertaining to The Valspar Corporation
Stock Option Plan for Non-Employee Directors of our report dated November 18,
1999, 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, 2000
Exhibit 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements No.
33-51224, No. 33-51226, No. 33-51222, and No. 33-46865 of The Valspar
Corporation on Form S-8 of our reports dated January 10, 2000 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 29, 1999
appearing in the Annual Report on Form 10-K of The Valspar Corporation.
/s/ Deloitte & Touche LLP
January 17, 2000
Minneapolis, Minnesota
EXHIBIT 99(a)
VALSPAR STOCK OWNERSHIP TRUST
FOR SALARIED EMPLOYEES
FINANCIAL STATEMENTS FOR THE YEARS ENDED
OCTOBER 29, 1999 AND OCTOBER 30, 1998 AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
[DELOITTE & TOUCHE LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
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 29, 1999 and October 30, 1998 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 29, 1999 and October 30, 1998 and the changes in its net assets
available for benefits for the years then ended, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
January 10, 2000
<PAGE>
VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
OCTOBER 29, 1999 AND OCTOBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS:
Investments (Note 3) -
Interest in Valspar Corporation Master Trust $ 105,369,182 $ 105,295,635
Receivables:
Employees' contributions 537,203 475,936
Employer's contributions 222,742 213,813
------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS $ 106,129,127 $ 105,985,384
============= =============
</TABLE>
See notes to financial statements.
2
<PAGE>
VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED OCTOBER 29, 1999 AND OCTOBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Employee contributions (Note 2) $ 5,234,332 $ 4,590,944
Employer contributions (Note 2) 2,213,072 1,954,700
Interest in investment income of Valspar Corporation
Master Trust 7,135,833 (5,431,788)
------------- -------------
14,583,237 1,113,856
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Dividend payments to participants 1,536,078 811,610
Benefit payments:
The Valspar Corporation:
In cash 512,168 2,561,401
In stock 11,916,828 7,298,061
McWhorter Technologies, Incorporated:
In cash 1,808 18,891
In stock 506,817 475,861
Other (34,205) 738,382
------------- -------------
14,439,494 11,904,206
------------- -------------
NET INCREASE (DECREASE) 143,743 (10,790,350)
NET ASSETS AVAILABLE FOR BENEFITS AT
BEGINNING OF YEAR 105,985,384 116,775,734
------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS AT
END OF YEAR $ 106,129,127 $ 105,985,384
============= =============
</TABLE>
See notes to financial statements.
3
<PAGE>
VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 29, 1999 AND OCTOBER 30, 1998
- --------------------------------------------------------------------------------
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., which 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.
Purchases and sales of investments are recorded on a trade-date basis,
and dividends are recorded on the ex-dividend date.
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 $38,301 and $18,725
at October 29, 1999 and October 30, 1998, respectively.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of additions
and deductions during the reporting period. Actual results could differ
from those estimates.
RECLASSIFICATION - Certain 1998 amounts have been reclassified to
conform to 1999 presentation.
2. DESCRIPTION OF THE PLAN
The following description of the Plan provides only general
information. Participants should refer to the plan agreement for a more
complete description of the Plan's provisions.
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 benefits.
Employees electing to participate in the Plan make voluntary
contributions on a pretax or after-tax basis subject to certain limits.
The Company has voluntarily agreed to contribute an amount equal to
one-half of the employee's contribution (to a maximum match of 3% of
eligible wages). Additionally, beginning in fiscal 1998, the Company
contributes a performance-based matching
4
<PAGE>
contribution if the Company meets certain targeted earnings as defined
in accordance with the Plan. Participants must complete one year of
service and be employed by the Company on the last day of the plan year
to share in the Company's contributions to the Plan. Employee
contributions vest immediately, and company contributions vest only
after five years of service (except for instances when participants
retire at or after reaching age 60; are terminated (i) on account of
permanent disability or (ii) on account of elimination of the
participant's job; or upon death, under which circumstances the
participant becomes immediately vested). The Company has the right
under the Plan to terminate the Plan and discontinue such contributions
at any anniversary date. All net assets of the Plan are held 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 who
have attained age 55 and have ten years of participation in the Plan
may diversify a portion of their interest into investments other than
common stock of the Company.
Participants may elect to receive benefits in the form of a lump-sum
distribution, a direct rollover to an IRA account or another qualified
employee benefit plan, or in a series of installments over the life
expectancy of the participant or the joint life expectancies of such
participant and such participant's designated beneficiary. However,
according to the Plan, benefits will be paid in the form of a lump-sum
distribution in the event that the participant's vested account balance
does not exceed $5,000.
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 $94,074 and $201,390 in 1999 and
1998, respectively.
3. INVESTMENTS
Participants in the Plan have four investment options: the Principal
Protection Fund, Positive Return Fund, Equity Fund, and Valspar
Corporation Common Stock. The McWhorter Technologies, Incorporated
Common Stock is not available as a current investment option (see Note
6). The Principal Protection Fund, Positive Return Fund, and Equity
Fund are available for diversification purposes to plan participants
who have attained age 55 and have ten years of participation in the
Plan.
All assets of the Plan are maintained in the Valspar Corporation Master
Trust (the Master Trust). The master trust holds assets for the Plan,
Employee Pension Plans, and the Valspar Stock Ownership Plans. The
Plan's ownership interest in the Master Trust was 30.9% on October 29,
1999 and 33.9% on October 30, 1998. The investment accounts within the
Master Trust are composed of the Principal Protection Fund, Positive
Return Fund, Equity Fund, Bond Fund, Valspar Corporation Common Stock,
and McWhorter Technologies, Incorporated Common Stock.
Investments of the Master Trust are determined on a unit-value basis as
determined by Norwest Bank Minnesota, N.A., trustee.
5
<PAGE>
The fair values of investment funds of the Valspar Corporation Master
Trust in which the Plan invests are as follows:
<TABLE>
<CAPTION>
October 29, October 30,
1999 1998
<S> <C> <C>
Positive Return Fund:
Cash and short-term investment fund $ 7,092,479 $ 1,738,407
United States Government securities 8,487,315 15,113,197
Corporate bonds and debentures 4,672,803
Net amount payable for settlements pending (3,779,844)
Accrued income 40,918 245,061
------------- -------------
$ 16,513,671 $ 17,096,665
============= =============
Equity Fund:
Cash and short-term investment fund $ 2,167,661 $ 1,841,829
Common stock 127,900,615 103,051,158
Collective equity fund 701,469 335,416
Net amount payable for settlements pending (1,141,335) (792,472)
Accrued income 30,953 45,341
------------- -------------
$ 129,659,363 $ 104,481,272
============= =============
Principal Protection Fund:
Cash and short-term investment fund $ 67,289
Collective trust funds 24,937,979 $ 18,683,787
------------- -------------
$ 25,005,268 $ 18,683,787
============= =============
Bond Fund:
Cash and short-term investment fund $ 75,350 $ 343,431
United States Government and agency securities 1,974,149 2,952,295
Corporate bonds and debentures 464,418 465,755
Accrued income 18,814 30,282
------------- -------------
$ 2,532,731 $ 3,791,763
============= =============
Common stock of The Valspar Corporation $ 160,551,917 $ 155,220,466
============= =============
Common stock of McWhorter Technologies,
Incorporated (Note 6) $ 7,011,450 $ 11,708,902
============= =============
</TABLE>
6
<PAGE>
The net investment fund (loss) gain of the Valspar Corporation Master
Trust for the years ended are as follows:
<TABLE>
<CAPTION>
October 29, October 30,
1999 1998
<S> <C> <C>
Positive Return Fund:
Interest $ 863,496 $ 884,108
Net gain on sale of assets 900,468 121,417
Unrealized asset (depreciation) appreciation (1,798,878) 1,370,164
Investment advisory and management fees (23,905)
------------ ------------
$ (34,914) $ 2,351,784
============ ============
Equity Fund:
Interest $ 56,222 $ 167,631
Dividends 3,108,556 3,169,995
Net gain on sale of assets 16,346,394 9,418,086
Unrealized asset appreciation 14,132,772 15,050,495
Investment advisory and management fees (440,820) (487,812)
------------ ------------
$ 33,203,124 $ 27,318,395
============ ============
Principal Protection Fund:
Interest $ 1,406 $ 677
Unrealized asset appreciation 456,481 892,489
Net gain on sale of assets 898,040 213,228
Investment advisory and management fees (27,692) (38,520)
------------ ------------
$ 1,328,235 $ 1,067,874
============ ============
Bond Fund -
Investment income $ 147,993 $ 640,121
============ ============
Common stock of The Valspar Corporation:
Interest $ 12,169 $ 12,198
Dividends 2,499,351 2,315,075
Gain on sale of assets 1,454,366 1,940,852
Unrealized asset appreciation (depreciation) 11,364,726 (9,774,380)
------------ ------------
$ 15,330,612 $ (5,506,255)
============ ============
Common stock of McWhorter Technologies, Incorporated:
Interest $ 4,487 $ 451
Gain on sale of assets 341,666 722,272
Unrealized asset depreciation (4,003,725) (4,008,830)
------------ ------------
$ (3,657,572) $ (3,286,107)
============ ============
</TABLE>
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 29, 1999 and October 30, 1998, the
Valspar Corporation Master Trust purchased 301,998 and 284,852 shares
of common stock of the Company at a cost of $10,432,976 and $9,927,518,
respectively. Dividends on common stock of the Company received by the
Master Trust totaled $1,943,134 and $1,798,437 in the years ended
October 29, 1999 and October 30, 1998, respectively.
7
<PAGE>
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, INCORPORATED 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 Corporation Common Stock as of that date)
received a stock dividend of one share of McWhorter Common Stock for
every two shares of Valspar Corporation 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 Common 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
Corporation Common Stock.
8
EXHIBIT 99(b)
VALSPAR STOCK OWNERSHIP TRUST
FOR HOURLY EMPLOYEES
FINANCIAL STATEMENTS FOR THE YEARS ENDED
OCTOBER 29, 1999 AND OCTOBER 30, 1998
AND INDEPENDENT AUDITORS' REPORT
<PAGE>
[DELOITTE & TOUCHE LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
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 29, 1999 and October 30, 1998 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 29, 1999 and October 30, 1998 and the changes in its net assets
available for benefits for the years then ended, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
January 10, 2000
<PAGE>
VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
OCTOBER 29, 1999 AND OCTOBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS:
Investments (Note 3) -
Interest in Valspar Corporation Master Trust $ 28,006,285 $ 26,533,236
Receivables:
Employees' contributions 182,233 169,498
Employer's contributions 76,276 67,074
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $ 28,264,794 $ 26,769,808
============ ============
</TABLE>
See notes to financial statements.
2
<PAGE>
VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED OCTOBER 29, 1999 AND OCTOBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Employee contributions (Note 2) $ 2,013,194 $ 1,870,006
Employer contributions (Note 2) 819,400 735,956
Interest in investment income of Valspar Corporation
Master Trust 1,653,529 (1,516,742)
------------ ------------
4,486,123 1,089,220
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Dividend payments to participants 401,472 269,713
Benefit payments:
The Valspar Corporation:
In cash 448,188 1,117,115
In stock 1,942,170 1,311,433
McWhorter Technologies, Incorporated:
In cash 899 4,044
In stock 82,139 122,709
Other 116,269 146,265
------------ ------------
2,991,137 2,971,279
------------ ------------
NET INCREASE (DECREASE) 1,494,986 (1,882,059)
NET ASSETS AVAILABLE FOR BENEFITS AT
BEGINNING OF YEAR 26,769,808 28,651,867
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS AT
END OF YEAR $ 28,264,794 $ 26,769,808
============ ============
</TABLE>
See notes to financial statements.
3
<PAGE>
VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 29, 1999 AND OCTOBER 30, 1998
- --------------------------------------------------------------------------------
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., which 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.
Purchases and sales of investments are recorded on a trade-date basis,
and dividends are recorded on the ex-dividend date.
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 $10,666 and $8,836
at October 29, 1999 and October 30, 1998, respectively.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of additions
and deductions during the reporting period. Actual results could differ
from those estimates.
RECLASSIFICATION - Certain 1998 amounts have been reclassified to
conform to 1999 presentation.
2. DESCRIPTION OF THE PLAN
The following description of the Plan provides only general
information. Participants should refer to the plan agreement for a more
complete description of the Plan's provisions.
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 benefits.
Employees electing to participate in the Plan make voluntary
contributions on a pretax or after-tax basis subject to certain limits.
The Company has voluntarily agreed to contribute an amount equal to
one-half of the employee's contribution (to a maximum match of 3% of
eligible wages).
4
<PAGE>
Additionally, beginning in fiscal 1998, the Company contributes a
performance-based matching contribution if the Company meets certain
targeted earnings as defined in accordance with the Plan. Participants
must complete one year of service and be employed by the Company on the
last day of the plan year to share in the Company's contributions to
the Plan. Employee contributions vest immediately, and company
contributions vest only after five years of service (except for
instances when participants retire at or after reaching age 60; are
terminated (i) on account of permanent disability or (ii) on account of
elimination of the participant's job; or upon death, under which
circumstances the participant becomes immediately vested). The Company
has the right under the Plan to terminate the Plan and discontinue such
contributions at any anniversary date. All net assets of the Plan are
held 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 who
have attained age 55 and have ten years of participation in the Plan
may diversify a portion of their interest into investments other than
common stock of the Company.
Participants may elect to receive benefits in the form of a lump-sum
distribution, a direct rollover to an IRA account or another qualified
employee benefit plan, or in a series of installments over the life
expectancy of the participant or the joint life expectancies of such
participant and such participant's designated beneficiary. However,
according to the Plan, benefits will be paid in the form of a lump-sum
distribution in the event that the participant's vested account balance
does not exceed $5,000.
Forfeitures resulting from the termination of plan participants with
less than 100% vesting reduce the Company's contribution in the year of
forfeiture. Total forfeitures were $20,904 and $20,673 in 1999 and
1998, respectively.
3. INVESTMENTS
All assets of the Plan are maintained in the Valspar Corporation Master
Trust (the Master Trust). Participants in the Plan have four investment
options: the Principal Protection Fund, Positive Return Fund, Equity
Fund, and Valspar Corporation Common Stock. The McWhorter Technologies,
Incorporated Common Stock is not available as a current investment
option (see Note 6). The Principal Protection Fund, Positive Return
Fund, and Equity Fund are available for diversification purposes to
plan participants who have attained age 55 and have ten years of
participation in the Plan. The Master Trust holds assets for the Plan,
Employee Pension Plans, and the Valspar Stock Ownership Plans. The
Plan's ownership interest in the Valspar Corporation Master Trust was
8.2% on October 29, 1999 and 8.5% on October 30, 1998. The investment
accounts within the Master Trust are composed of the Principal
Protection Fund, Positive Return Fund, Equity Fund, Bond Fund, Valspar
Corporation Common Stock, and McWhorter Technologies, Incorporated
Common Stock.
Investments of the Master Trust are determined on a unit-value basis as
determined by Norwest Bank Minnesota, N.A., trustee.
5
<PAGE>
The fair values of investment funds of the Valspar Corporation Master
Trust in which the Plan invests are as follows:
<TABLE>
<CAPTION>
October 29, October 30,
1999 1998
<S> <C> <C>
Positive Return Fund:
Cash and short-term investment fund $ 7,092,479 $ 1,738,407
United States Government securities 8,487,315 15,113,197
Corporate bonds and debentures 4,672,803
Net amount payable for settlements pending (3,779,844)
Accrued income 40,918 245,061
------------- -------------
$ 16,513,671 $ 17,096,665
============= =============
Equity Fund:
Cash and short-term investment fund $ 2,167,661 $ 1,841,829
Common stock 127,900,615 103,051,158
Collective equity fund 701,469 335,416
Net amount payable for settlements pending (1,141,335) (792,472)
Accrued income 30,953 45,341
------------- -------------
$ 129,659,363 $ 104,481,272
============= =============
Principal Protection Fund:
Cash and short-term investment fund $ 67,289
Collective trust funds 24,937,979 $ 18,683,787
------------- -------------
$ 25,005,268 $ 18,683,787
============= =============
Bond Fund:
Cash and short-term investment fund $ 75,350 $ 343,431
United States Government and agency securities 1,974,149 2,952,295
Corporate bonds and debentures 464,418 465,755
Accrued income 18,814 30,282
------------- -------------
$ 2,532,731 $ 3,791,763
============= =============
Common stock of The Valspar Corporation $ 160,551,917 $ 155,220,466
============= =============
Common stock of McWhorter Technologies,
Incorporated (Note 6) $ 7,011,450 $ 11,708,902
============= =============
</TABLE>
6
<PAGE>
The net investment fund (loss) gain of the Valspar Corporation Master
Trust for the years ended are as follows:
<TABLE>
<CAPTION>
October 29, October 30,
1999 1998
<S> <C> <C>
Positive Return Fund:
Interest $ 863,496 $ 884,108
Net gain on sale of assets 900,468 121,417
Unrealized asset (depreciation) appreciation (1,798,878) 1,370,164
Investment advisory and management fees (23,905)
------------ ------------
$ (34,914) $ 2,351,784
============ ============
Equity Fund:
Interest $ 56,222 $ 167,631
Dividends 3,108,556 3,169,995
Net gain on sale of assets 16,346,394 9,418,086
Unrealized asset appreciation 14,132,772 15,050,495
Investment advisory and management fees (440,820) (487,812)
------------ ------------
$ 33,203,124 $ 27,318,395
============ ============
Principal Protection Fund:
Interest $ 1,406 $ 677
Unrealized asset appreciation 456,481 892,489
Net gain on sale of assets 898,040 213,228
Investment advisory and management fees (27,692) (38,520)
------------ ------------
$ 1,328,235 $ 1,067,874
============ ============
Bond Fund -
Investment income $ 147,993 $ 640,121
============ ============
Common stock of The Valspar Corporation:
Interest $ 12,169 $ 12,198
Dividends 2,499,351 2,315,075
Gain on sale of assets 1,454,366 1,940,852
Unrealized asset appreciation (depreciation) 11,364,726 (9,774,380)
------------ ------------
$ 15,330,612 $ (5,506,255)
============ ============
Common stock of McWhorter Technologies, Incorporated:
Interest $ 4,487 $ 451
Gain on sale of assets 341,666 722,272
Unrealized asset depreciation (4,003,725) (4,008,830)
------------ ------------
$ (3,657,572) $ (3,286,107)
============ ============
</TABLE>
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 29, 1999 and October 30, 1998, the
Valspar Corporation Master Trust purchased 301,998 and 284,852 shares
of common stock of the Company at a cost of $10,432,976 and $9,927,518,
respectively. Dividends on common stock of the Company received by the
Master Trust totaled $1,943,134 and $1,798,437 in the years ended
October 29, 1999 and October 30, 1998, respectively.
7
<PAGE>
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, INCORPORATED 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 Corporation Common Stock as of that date)
received a stock dividend of one share of McWhorter Common Stock for
every two shares of Valspar Corporation 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 Common 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
Corporation Common Stock.
8
EXHIBIT 99(c)
THE VALSPAR PROFIT SHARING
RETIREMENT PLAN
FINANCIAL STATEMENTS FOR THE YEARS ENDED
OCTOBER 29, 1999 AND OCTOBER 30, 1998
AND INDEPENDENT AUDITORS' REPORT
<PAGE>
[DELOITTE & TOUCHE 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 29, 1999
and October 30, 1998 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 29, 1999 and October 30, 1998 and the changes in its net assets
available for benefits for the years then ended, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
January 10, 2000
<PAGE>
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
OCTOBER 29, 1999 AND OCTOBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS:
Investments in Master Trust (Note 3) -
Interest in Valspar Corporation Master Trust $ 178,174,607 $ 154,487,580
Receivables:
Net amount receivable for settlements pending 75,005
Employer's contributions 6,994,512 6,284,099
Employees' contributions 281,658 283,800
------------- -------------
Total receivables 7,351,175 6,567,899
------------- -------------
Total assets 185,525,782 161,055,479
LIABILITIES -
Net amount payable for settlements pending (150,367) (132,057)
------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS $ 185,375,415 $ 160,923,422
============= =============
</TABLE>
See notes to financial statements.
2
<PAGE>
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED OCTOBER 29, 1999 AND OCTOBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Employer contributions (Note 2) $ 6,994,512 $ 6,284,099
Employee contributions (Note 2) 2,811,755 3,216,909
Interest in investment income of Valspar Corporation
Master Trust 32,980,763 6,055,979
------------- -------------
42,787,030 15,556,987
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO -
Benefit payments 18,335,037 12,923,032
------------- -------------
NET INCREASE 24,451,993 2,633,955
NET ASSETS AVAILABLE FOR BENEFITS AT
BEGINNING OF YEAR 160,923,422 158,289,467
------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS AT
END OF YEAR $ 185,375,415 $ 160,923,422
============= =============
</TABLE>
See notes to financial statements.
3
<PAGE>
THE VALSPAR PROFIT SHARING RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 29, 1999 AND OCTOBER 30, 1998
- --------------------------------------------------------------------------------
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.
Purchases and sales of investments are recorded on a trade-date basis,
and dividends are recorded on the ex-dividend date. Net investment gain
(loss) 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 $635,194 and
$554,722 at October 29, 1999 and October 30, 1998, respectively.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of additions
and deductions during the reporting period. Actual results could differ
from those estimates.
RECLASSIFICATIONS - Certain 1998 amounts have been reclassified to
conform to 1999 presentation.
2. DESCRIPTION OF THE PLAN
The following description of the Plan provides only general
information. Participants should refer to the plan agreement for a more
complete description of the Plan's provisions.
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. All assets of the Plan are to be
held 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 composed of
both employee 401(k) contributions up to 4% of eligible compensation
and company contributions up to 6% of eligible compensation. 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
4
<PAGE>
contributions vest only after five years of service (except for
instances when participants attain the normal retirement age; are
terminated (i) at or after reaching age 60, (ii) on account of
disability, or (iii) on account of elimination of the participant's
job; or upon death, under which circumstances the participant becomes
immediately vested). Participants must be employed by the Company for
12 consecutive months, complete a minimum of 1,000 hours of service
during the year, and be employed by the Company on the last day of the
plan year to share in the Company's contribution to the Plan.
Participants may elect to receive benefits in the form of a lump-sum
distribution, a direct rollover to an IRA account or another qualified
employee benefit plan, or, if 100% vested, in a series of installments
over the life expectancy of the participant or joint life expectancies
of such participant and such participant's designated beneficiary.
However, according to the Plan, benefits will be paid in the form of a
lump-sum distribution in the event that the participant's vested
account balance does not exceed $5,000.
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 $133,152 and $360,396 in 1999 and
1998, respectively.
The Plan was amended in 1999 to accept a transfer of assets from the
qualified plan maintained by Plastikote of Dexter, Illinois, and the
Plan is considered the obligee under the terms of certain promissory
notes granted to plan participants by the Plastikote plan. Participants
shall be obligated to continue to make payments as and when they become
due under the terms of the promissory notes. Interest rates range from
9.25% to 9.50% for the year ended October 29, 1999. Principal and
interest are paid ratably through biweekly payroll deductions. The loan
balance at October 29, 1999 is $89,597. These loans are part of the
Plan's interest in the Valspar Corporation Master Trust.
3. INVESTMENTS
Participants in the Plan have four investment options: the Principal
Protection Fund, Positive Return Fund, Equity Fund, and Valspar
Corporation Common Stock. The McWhorter Technologies, Incorporated
Common Stock is not available as a current investment option (see Note
6). Participants may change their investment elections quarterly and
may allocate their account balance among one or more of the options in
increments of 5%.
All assets of the Plan are maintained in the Valspar Corporation Master
Trust (the Master Trust). The Master Trust holds assets for the Plan,
Employee Pension Plans, and the Valspar Stock Ownership Plans. The
Plan's ownership interest in the Master Trust was 52.2% on October 29,
1999 and 49.7% on October 30, 1998. The investment accounts within the
Master Trust are composed of the Principal Protection Fund, Positive
Return Fund, Equity Fund, Bond Fund, Valspar Corporation Common Stock,
and McWhorter Technologies, Incorporated Common Stock.
Investments of the Master Trust are determined on a unit-value basis as
determined by Norwest Bank Minnesota, N.A., trustee.
5
<PAGE>
The fair values of investment funds of the Valspar Corporation Master
Trust in which the Plan invests are as follows:
<TABLE>
<CAPTION>
October 29, October 30,
1999 1998
<S> <C> <C>
Positive Return Fund:
Cash and short-term investment fund $ 7,092,479 $ 1,738,407
United States Government securities 8,487,315 15,113,197
Corporate bonds and debentures 4,672,803
Net amount payable for settlements pending (3,779,844)
Accrued income 40,918 245,061
------------- -------------
$ 16,513,671 $ 17,096,665
============= =============
Equity Fund:
Cash and short-term investment fund $ 2,167,661 $ 1,841,829
Common stock 127,900,615 103,051,158
Collective equity fund 701,469 335,416
Net amount payable for settlements pending (1,141,335) (792,472)
Accrued income 30,953 45,341
------------- -------------
$ 129,659,363 $ 104,481,272
============= =============
Principal Protection Fund:
Cash and short-term investment fund $ 67,289
Collective trust funds 24,937,979 $ 18,683,787
------------- -------------
$ 25,005,268 $ 18,683,787
============= =============
Bond Fund:
Cash and short-term investment fund $ 75,350 $ 343,431
United States Government and agency securities 1,974,149 2,952,295
Corporate bonds and debentures 464,418 465,755
Accrued income 18,814 30,282
------------- -------------
$ 2,532,731 $ 3,791,763
============= =============
Common stock of The Valspar Corporation $ 160,551,917 $ 155,220,466
============= =============
Common stock of McWhorter Technologies,
Incorporated (Note 6) $ 7,011,450 $ 11,708,902
============= =============
</TABLE>
6
<PAGE>
The net investment fund (loss) gain of the Valspar Corporation Master
Trust for the years ended are as follows:
<TABLE>
<CAPTION>
October 29, October 30,
1999 1998
<S> <C> <C>
Positive Return Fund:
Interest $ 863,496 $ 884,108
Net gain on sale of assets 900,468 121,417
Unrealized asset (depreciation) appreciation (1,798,878) 1,370,164
Investment advisory and management fees (23,905)
------------ ------------
$ (34,914) $ 2,351,784
============ ============
Equity Fund:
Interest $ 56,222 $ 167,631
Dividends 3,108,556 3,169,995
Net gain on sale of assets 16,346,394 9,418,086
Unrealized asset appreciation 14,132,772 15,050,495
Investment advisory and management fees (440,820) (487,812)
------------ ------------
$ 33,203,124 $ 27,318,395
============ ============
Principal Protection Fund:
Interest $ 1,406 $ 677
Unrealized asset appreciation 456,481 892,489
Net gain on sale of assets 898,040 213,228
Investment advisory and management fees (27,692) (38,520)
------------ ------------
$ 1,328,235 $ 1,067,874
============ ============
Bond Fund -
Investment income $ 147,993 $ 640,121
============ ============
Common stock of The Valspar Corporation:
Interest $ 12,169 $ 12,198
Dividends 2,499,351 2,315,075
Gain on sale of assets 1,454,366 1,940,852
Unrealized asset appreciation (depreciation) 11,364,726 (9,774,380)
------------ ------------
$ 15,330,612 $ (5,506,255)
============ ============
Common stock of McWhorter Technologies, Incorporated:
Interest $ 4,487 $ 451
Gain on sale of assets 341,666 722,272
Unrealized asset depreciation (4,003,725) (4,008,830)
------------ ------------
$ (3,657,572) $ (3,286,107)
============ ============
</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 tax counsel believe
that the Plan is
7
<PAGE>
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, the company stockholders of record as of April 15,
1994 (including plan participants with a portion of their account
balance invested in company stock as of that date) received a stock
dividend of one share of McWhorter Technologies, Incorporated Common
Stock for every two shares of Valspar Corporation Common Stock held.
The common stock of McWhorter Technologies, Incorporated is not a
current investment option of the Plan, and plan participants may not
increase the allocation of their account balance to McWhorter Common
Stock. Participants may make a one-time election to liquidate all of
their shares of common stock of McWhorter Technologies, Incorporated.
Proceeds from liquidation will be reinvested in the participants'
accounts based on their current election options.
8
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