SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Six Months Commission File
Ended April 28, 2000 Number: 1-3011
THE VALSPAR CORPORATION
State of Incorporation: IRS Employer ID No.:
Delaware 36-2443580
Principal Executive Offices:
1101 Third Street South
Minneapolis, MN 55415
Telephone Number: 612/332-7371
The registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities and Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days.
As of May 31, 2000, The Valspar Corporation had 42,662,004 shares of common
stock outstanding, excluding 10,659,308 shares held in treasury. The Company had
no other classes of stock outstanding.
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THE VALSPAR CORPORATION
Index to Form 10-Q
for the Quarter Ended April 28, 2000
PART I. FINANCIAL INFORMATION Page No.
------------------------------ --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - April 28, 2000,
April 30, 1999 and October 29, 1999........................... 2 & 3
Condensed Consolidated Statements of Income - Three months
and six months ended April 28, 2000 and April 30, 1999........ 4
Condensed Consolidated Statements of Cash Flows - Six months
ended April 28, 2000 and April 30, 1999....................... 5
Notes to Condensed Consolidated Financial Statements -
April 28, 2000................................................ 6 - 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 9 - 11
Item 3. Quantitative and Qualitative Disclosure about Market
Risk ......................................................... 11 & 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 12
Item 2 Changes in Securities.......................................... 12 - 14
Item 4. Submission of Matters to a Vote of Security Holders............ 14 & 15
Item 6. Exhibits and Reports on Form 8-K............................... 15
SIGNATURES ............................................................. 16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
April 28, April 30, October 29,
2000 1999 1999
------------ ------------ ------------
(Unaudited) (Unaudited) (Note)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24,672 $ 27,396 $ 33,189
Accounts receivable less allowance
(4/28/00-$5,645; 4/30/99-
$4,643; 10/29/99-$4,801) 288,446 278,460 260,663
Inventories:
Manufactured products 115,160 123,329 115,585
Raw materials, supplies and work-
in-process 49,743 37,842 47,069
------------ ------------ ------------
164,903 161,171 162,654
Other current assets 54,134 62,545 58,422
------------ ------------ ------------
TOTAL CURRENT ASSETS 532,155 529,572 514,928
GOODWILL, NET 215,600 201,413 218,668
OTHER ASSETS, NET 73,834 82,175 64,991
PROPERTY, PLANT AND EQUIPMENT 536,533 505,644 533,222
Less allowance for depreciation (233,806) (203,259) (221,089)
------------ ------------ ------------
302,727 302,385 312,133
------------ ------------ ------------
$ 1,124,316 $ 1,115,545 $ 1,110,720
============ ============ ============
</TABLE>
Note: The Balance Sheet at October 29, 1999 has been derived from the audited
financial statements at that date.
See Notes to Condensed Consolidated Financial Statements.
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THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
April 28, April 30, October 29,
2000 1999 1999
----------- ----------- -----------
(Unaudited) (Unaudited) (Note)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable to banks $ 47,459 $ 57,994 $ 53,899
Trade accounts payable 154,599 167,937 154,312
Income taxes 22,655 11,245 21,862
Accrued liabilities 124,472 120,219 144,639
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 349,185 357,395 374,712
LONG TERM DEBT 324,775 354,670 298,874
DEFERRED LIABILITIES 41,100 42,932 43,378
STOCKHOLDERS' EQUITY:
Common Stock (Par value - $.50;
Authorized - 120,000,000 shares;
Shares issued, including shares in
treasury - 53,321,312 shares) 26,660 26,660 26,660
Additional paid-in capital 32,881 27,791 28,896
Retained earnings 454,256 390,260 429,397
Other 2,280 762 1,997
----------- ----------- -----------
516,077 445,473 486,950
Less cost of common stock in
treasury (4/28/00-10,635,352
shares; 4/30/99-10,102,690 shares;
10/29/99-10,337,999 shares) 106,821 84,925 93,194
----------- ----------- -----------
409,256 360,548 393,756
----------- ----------- -----------
$ 1,124,316 $ 1,115,545 $ 1,110,720
=========== =========== ===========
</TABLE>
Note: The Balance Sheet at October 29, 1999 has been derived from the audited
financial statements at that date.
See Notes to Condensed Consolidated Financial Statements.
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THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
April 28, April 30, April 28, April 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 392,780 $ 356,702 $ 716,451 $ 622,512
Costs and expenses:
Cost of sales 272,755 244,734 503,985 435,205
Research and development 11,806 11,350 23,555 20,859
Selling and administration 62,411 58,724 119,115 105,856
Restructuring charge (1,200) 8,346 (1,200) 8,346
------------ ------------ ------------ ------------
Income from Operations 47,008 33,548 70,996 52,246
Interest expense 5,606 5,512 10,509 8,666
Other expense/( income) - net (113) (8,871) 118 (9,321)
------------ ------------ ------------ ------------
Income before income taxes 41,515 36,907 60,369 52,901
Income taxes 16,144 14,463 23,543 20,741
------------ ------------ ------------ ------------
Net income $ 25,371 $ 22,444 $ 36,826 $ 32,160
============ ============ ============ ============
Net income per common share -
basic $ 0.59 $ 0.52 $ 0.86 $ 0.74
============ ============ ============ ============
Net income per common share -
diluted $ 0.59 $ 0.51 $ 0.85 $ 0.73
============ ============ ============ ============
Average number of common
shares outstanding - basic 42,734,764 43,360,950 42,863,221 43,402,127
============ ============ ============ ============
- diluted 43,256,793 43,842,486 43,476,474 43,908,385
============ ============ ============ ============
Dividends paid per common share $ 0.130 $ 0.115 $ 0.260 $ 0.230
============ ============ ============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
April 28, 2000 April 30,1999
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 36,827 $ 32,160
Adjustments to reconcile net income to net
cash provided by operating activities:
Restructuring charges (1,200) 8,346
Depreciation and amortization 24,888 17,322
Gains on sales of assets (10,520)
Increase (decrease) in cash due to changes in
net operating assets, net of effects of
acquired businesses:
Accounts and notes receivable (27,783) (33,858)
Inventories and prepaid assets 2,039 (7,499)
Trade accounts payable and
accrued liabilities (12,659) 6,756
Income taxes payable 793 4,170
Other deferred liabilities (2,150) 1,109
Other (2,924) (4,468)
----------- -----------
Net Cash Provided By Operating Activities 17,831 13,518
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (11,939) (11,772)
Acquired businesses/assets, net of cash (3,935) (229,475)
Divested businesses/assets 35,750
Other investments/advances to joint ventures (5,892) (128)
----------- -----------
Net Cash Used In Investing Activities (21,766) (205,625)
FINANCING ACTIVITIES:
Net proceeds from borrowing 19,461 222,876
Proceeds from sale of treasury stock 1,004 589
Purchase of shares of Common Stock for treasury (13,891) (9,008)
Dividends paid (11,156) (9,944)
----------- -----------
Net Cash (Used in)/Provided by Financing Activities (4,582) 204,513
(Decrease)/Increase In Cash and Cash Equivalents (8,517) 12,406
Cash and Cash Equivalents at Beginning of Period 33,189 14,990
----------- -----------
Cash and Cash Equivalents at End of Period $ 24,672 $ 27,396
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 28, 2000
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended April 28,
2000 are not necessarily indicative of the results that may be expected for the
year ended October 27, 2000. For further information refer to the consolidated
financial statements and footnotes thereto included in The Valspar Corporation's
annual report on Form 10-K for the year ended October 29, 1999.
NOTE 2: ACCOUNTS PAYABLE
Trade accounts payable include $24.4 million at April 28, 2000, $19.8 million at
October 29, 1999 and $28.4 million at April 30, 1999 of issued checks which had
not cleared the Company's bank accounts.
NOTE 3: ACQUISITIONS AND DIVESTITURES
Effective February 26, 1999, the Company acquired the Dexter Corporation's
worldwide packaging coatings product lines and its French industrial coatings
subsidiary, Dexter SAS. Dexter packaging coatings is a worldwide supplier of
beverage can coatings, food can and specialty coatings to the packaging market.
Dexter SAS supplies a variety of industrial coatings to the European 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 following unaudited pro forma statement of income
information for the six months ended April 30, 1999 was prepared in accordance
with Accounting Principles Board Opinion No. 16 and assumes the acquisition had
occurred at the beginning of the period presented. The following pro forma data
reflects 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.
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THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 28, 2000 - CONTINUED
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data) Six months ended
April 30, 1999
----------------
Net sales $692,055
Net income 31,251
Net income per share-basic .72
Net income per share-diluted .71
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 pro forma results of operations for
this acquisition have not been presented as the impact on reported results is
not material.
During the second quarter of fiscal 1999, the Company completed the sale of its
marine and flexible packaging coatings businesses. These businesses had revenues
of $25 million and $12 million, respectively, for the year ended October 30,
1998. Operating results from these businesses were not material to the results
of operations reported for the three month or six month periods ended April 28,
2000 and April 30, 1999.
NOTE 4: RESTRUCTURING
During the second quarter of fiscal 1999 the Company's board approved and the
Company initiated plans to eliminate redundant facilities and functions
resulting from the acquired Dexter packaging coatings operations. The
formulation of such plans had begun as of the date of acquisition of Dexter.
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 estimated restructuring
liability recorded, $5.3 million related to employee termination benefits and
$0.6 million related to contract cancellation costs. As of April 28, 2000, costs
totaling $5.1 million have been charged against accrued expenses pertaining to
the closure of former Dexter locations and workforce reductions.
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THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 28, 2000 - CONTINUED
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 estimated restructuring
liability recognized, $3.5 million related to employee termination benefits,
$3.1 million related to contract and other program cancellation costs, and $1.0
million related to recording assets to be disposed of at fair value. As of April
28, 2000, costs totaling $6.1 million have been charged against accrued expenses
pertaining to the closure of existing Valspar locations and workforce
reductions. During the second quarter of 2000, accruals in the amount of $1.2
million were reversed. These reversals were primarily related to lower than
estimated employee termination benefits and fewer program cancellation costs
than originally estimated.
These plans contemplate a reduction of worldwide headcount of approximately 200.
Cash requirements of this restructuring plan are estimated to be $12.5 million
with $10.0 million spent through the second quarter of fiscal 2000 and the
remainder to be expended during fiscal 2000.
NOTE 5: COMPREHENSIVE INCOME
The Company's components of Shareholders' Equity relating to cumulative other
comprehensive income/(loss) consists entirely of foreign currency translation
adjustments of ($4,486,000), ($4,679,000) and ($2,157,000) as of April 28, 2000,
October 29, 1999 and April 30, 1999, respectively.
NOTE 6: 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." Net sales and earnings before interest
expense and income taxes (EBIT) for the operating segments are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Three Months Ended Six Months Ended
April 28, 2000 April 30, 1999 April 28, 2000 April 30, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales
Coatings $ 369,092 $ 331,193 $ 672,796 $ 580,093
Coating Intermediates 38,300 39,667 68,373 68,099
---------- ---------- ---------- ----------
407,392 370,860 741,169 648,192
Intersegment sales (14,612) (14,158) (24,718) (25,680)
---------- ---------- ---------- ----------
Total net sales 392,780 356,702 716,451 622,512
---------- ---------- ---------- ----------
EBIT:
Coatings 49,684 43,814 78,611 66,301
Coating Intermediates 3,792 5,068 6,379 7,789
---------- ---------- ---------- ----------
53,476 48,882 84,990 74,090
Corporate (6,355) (6,463) (14,112) (12,523)
---------- ---------- ---------- ----------
Total EBIT 47,121 42,419 70,878 61,567
---------- ---------- ---------- ----------
</TABLE>
<PAGE>
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THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 28, 2000 - CONTINUED
NOTE 7: NEW 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.
NOTE 8: RECLASSIFICATION
Certain amounts in the 1999 financial statements have been reclassified to
conform with the 2000 presentation.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Operations: Net sales for the quarter increased 10.1% to $392,780,000 from
$356,702,000 in 1999. For the six month period net sales increased 15.1% to
$716,451,000 from $622,512,000 in 1999. Core business growth was approximately
4.5%, with the impact of acquisitions and divestitures accounting for 11.6%
growth and foreign currency translation accounting for an approximate 1.0%
reduction in sales reported for the six month period ended April 28, 2000. The
growth in sales, excluding acquisitions and divestitures, was primarily driven
by volume increases in the Industrial and Packaging Coatings product lines. Due
to the seasonal nature of the Company's business, sales for the second quarter
and six month period are not necessarily indicative of sales for the full year.
The gross profit margin decreased to 30.6% from 31.4% during the second quarter
and to 29.7% from 30.1% for the first six months from the comparable periods
last year. The decreased margin was attributable to cost increases for key raw
materials.
Operating expenses (research and development, selling and administrative)
increased 5.9% to $74,217,000 (18.9% of net sales) in the second quarter of 2000
compared to $70,074,000 (19.6% of net sales) in the second quarter of 1999. Year
to date operating expenses increased 12.6% to $142,670,000 (19.9% of net sales)
compared with $126,715,000 (20.4% of net sales) for the same period last year.
Excluding the impact of acquisitions and divestitures, operating expenses
increased approximately 1% for the quarter and 3% year to date. This increase
was primarily attributable to higher promotional and advertising
<PAGE>
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
expenditures to support the Architectural, Automotive and Specialty (AAS)
product line of the Coatings segment.
During the second quarter, accrued restructuring costs of $1,200,000 were
reversed. The reversal is a result of lower than estimated employee termination
benefits and fewer program cancellation costs than originally estimated in the
restructuring charge recorded in 1999.
Interest expense during the second quarter of 2000 increased 1.7% compared to
the second quarter of 1999. Year to date interest expense increased 21.3% from
the prior year due to higher debt levels resulting from the Dexter acquisition.
Other income decreased during the second quarter compared to 1999. This decrease
for both the quarter and year to date was primarily the result of gains from the
sale of the North American flexible packaging coatings business and the sale of
the marine coatings business recognized in the prior year.
Net income in the second quarter of 2000 increased 13.0% to $25,371,000 or $.59
per diluted share. Year to date net income increased by 14.5% to $36,826,000 or
diluted earnings per share of $.85. Both increases were primarily driven by
higher sales and improved operating expense margins.
Financial Condition: The net cash provided by the Company's operations was
$17,831,000 for the first six months of 2000, compared with $13,518,000 for the
first six months of 1999. The operating cash flow improvement in the second
quarter of 2000 was due to higher earnings as well as increased depreciation and
amortization resulting from the Dexter acquisition. During the second quarter of
2000, $19,461,000 in proceeds from bank borrowings and cash from operations were
used to fund $11,939,000 in capital expenditures, $3,935,000 in Farboil
acquisition related building commitments, $5,892,000 net joint venture and other
investments, $11,156,000 in dividend payments and $13,891,000 in treasury stock
repurchases.
Accounts receivable increased $27,783,000 as sales volumes increased.
Inventories and other assets decreased $2,039,000 as a result of tighter
inventory controls, primarily within the AAS product line of the Coatings
segment. Accounts payable and accrued liabilities decreased $12,659,000 due to
the timing of accrued liability disbursements.
Capital expenditures for property, plant and equipment were $11,939,000 in the
first six months of 2000, compared with $11,772,000 in the first six months of
1999. Overall capital spending in 2000 is still anticipated to be somewhat
higher than 1999 spending levels as the Company moves and upgrades equipment to
<PAGE>
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
support the plant and production restructuring actions resulting from the Dexter
acquisition.
The ratio of total debt to capital increased to 47.6% at the end of second
quarter of 2000 from 47.3% at the close of fiscal 1999. The total debt to
capital ratio as of April 30, 1999 was 53.4%. The Company believes its existing
lines of credit and access to credit facilities will be sufficient to meet its
current and projected needs for financing.
Forward-looking Statements: This discussion contains certain "forward-looking"
statements. 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: 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 paint and coatings sales;
increases in costs of key raw materials, particularly petroleum-based raw
materials; exposure to market risk from changes in interest rates and foreign
currency exchange rates; and other risks and uncertainties. The foregoing 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.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
The company is exposed to market risk from changes in interest rates and foreign
currency exchange rates because it funds its operations through long and
short-term borrowings and denominates its business transactions in a variety of
foreign currencies.
Interest Rate Risk:
The Company's primary interest rate risk exposure results from floating rate
debt including various revolving credit and other lines of credit. The impact of
an increase in interest rates by 100 basis points (1%) from April 28, 2000 rates
would not be material to the Company's net income.
Foreign Currency 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
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - CONTINUED
countries with fairly stable currencies, such as the United Kingdom, France,
Switzerland and Canada, this effect has not been material. A 10% adverse change
in foreign currency exchange rates would not have resulted in a material impact
on the Company's net income. The Company does not currently hedge against the
risk of exchange rate fluctuations, however, it has reduced its exposure by
borrowing funds in local currencies.
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS:
During the period covered by this report, there were no legal proceedings
instituted that are reportable, and there were no material developments in any
pending legal proceedings that were previously reported on the Company's Form
10-K for the year ended October 29, 1999.
ITEM 2: CHANGES IN SECURITIES:
On April 19, 2000, the Board of Directors of The Valspar Corporation (the
"Company"), declared a dividend of one common share purchase right (a "Right")
for each outstanding common share, $.50 par value (a "Common Share"), of the
Company. The dividend is payable to shareholders of record on May 11, 2000 (the
"Record Date").
Each Right entitles the registered holder to purchase from the Company one
Common Share at a price of $140.00 per share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement, dated as of May 1, 2000 (the "Rights Agreement") between the Company
and ChaseMellon Shareholder Services, L.L.C., as Rights Agent.
Initially, the Rights will be evidenced by the certificates representing Common
Shares then outstanding, and no separate Right Certificates will be distributed.
The Rights will separate from the Common Shares, and a distribution date (a
"Distribution Date") for the Rights will occur, upon the earlier of: (i) the
10th day following the first date of public announcement that a person or group
of affiliated or associated persons has become an "Acquiring Person" (I.E., has
become, subject to certain exceptions, the beneficial owner of 15% or more of
the outstanding Common Shares (other than as a result of a Permitted Offer)) and
(ii) the 10th day following the commencement or public announcement of a tender
offer or exchange offer, the consummation of which would result in a person or
group of affiliated or associated persons becoming an Acquiring Person.
<PAGE>
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ITEM 2: CHANGES IN SECURITIES - CONTINUED
A "Permitted Offer" is a tender offer or an exchange offer for all outstanding
Common Shares determined by the Board of Directors of the Company, after
receiving such advice as it deems necessary and giving due consideration to all
relevant factors, to be in the best interests of the Company and its
shareholders.
Until the Distribution Date, (i) the Rights will be evidenced by the Common
Share certificates, together with a copy of this Summary of Rights, and will be
transferred with and only with the Common Shares, (ii) new Common Share
certificates issued after the Record Date upon transfer or new issuance of the
Common Shares will contain a notation incorporating the Rights Agreement by
reference, and (iii) the surrender for transfer of any Common Share certificate,
even without such notation or a copy of this Summary of Rights attached thereto,
will also constitute the transfer of the Rights associated with the Common
Shares represented by such certificate.
As promptly as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date, and such separate Right Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on May 11, 2010, unless extended or earlier redeemed or exchanged by the
Company as described below. No fraction of a Common Share will be issued and, in
lieu thereof, an adjustment in cash will be made based on the closing price on
the last trading date prior to the date of exercise.
The Purchase Price payable and the number of Common Shares issuable upon
exercise of the Rights are subject to adjustment from time to time to prevent
dilution: (i) in the event of a stock dividend on, or a subdivision, combination
or reclassification of, the Common Shares, (ii) upon the grant to holders of the
Common Shares of certain rights, options or warrants to subscribe for or
purchase Common Shares or convertible securities at less than the then current
market price of the Common Shares, or (iii) upon the distribution to holders of
the Common Shares of evidences of indebtedness or assets (excluding quarterly
cash dividends or dividends payable in Common Shares) or of subscription rights
or warrants (other than those described in clause (ii) of this paragraph). With
certain exceptions, no adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least 1% in the Purchase
Price.
In the event any person becomes an Acquiring Person, each holder of a Right
(other than the Acquiring Person) shall thereafter have a right to receive, upon
exercise thereof at the then current aggregate exercise price, Common Shares
having a current aggregate market price equal to twice the current aggregate
exercise price.
<PAGE>
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ITEM 2: CHANGES IN SECURITIES - CONTINUED
In the event that at any time after there is an Acquiring Person the Company is
acquired in certain mergers or other business combination transactions or 50% or
more of the assets or earning power of the Company and its subsidiaries (taken
as a whole) are sold, holders of the Rights (other than the Acquiring Person)
will thereafter have the right to receive, upon exercise thereof at the then
current aggregate exercise price, such number of common shares of the acquiring
company (or, in certain cases, one of its affiliates) having a current aggregate
market price equal to twice the current aggregate exercise price.
At any time after a person becomes an Acquiring Person (subject to certain
exceptions), and prior to the acquisition by a Person of 50% or more of the
outstanding Common Shares, the Board of Directors of the Company may exchange
all or part of the Rights for Common Shares at an exchange ratio of one Common
Share per Right, subject to adjustment.
At any time before a person has become an Acquiring Person, the Board of
Directors of the Company may redeem the Rights in whole, but not in part, at a
price of $0.001 per Right, subject to adjustment. The redemption of the Rights
may be made effective at such time, on such basis and with such conditions as
the Board of Directors in its sole discretion may establish.
Until a Right is exercised, the holder thereof, as such, will have no rights as
a shareholder of the Company, including without limitation, the right to vote or
to receive dividends.
This summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement.
ITEM 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS:
The Annual Meeting of Stockholders was held at the Research Center of the
Corporation at 312 South 11th Avenue, Minneapolis, Minnesota, on February 23,
2000. The stockholders took the following actions:
(i) The stockholders elected three directors to serve for three-year terms. The
stockholders present in person or by proxy cast the following numbers of votes
in connection with the election of directors, resulting in the election of all
nominees:
Votes For Votes Withheld
---------------- ----------------
Susan S. Boren 39,711,102 339,706
Jeffrey H. Curler 39,711,905 338,903
Edward B. Pollak 39,709,308 341,500
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ITEM 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS - CONTINUED
(ii) The stockholders ratified the appointment of Ernst & Young LLP as the
Company's independent auditors for fiscal 2000. 39,835,587 votes were
cast for the resolution; 143,883 votes were cast against the
resolution; shares representing 71,338 votes abstained; and there were
no broker non-votes.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibit 4(a) - Rights Agreement, dated as of May 1, 2000, between the
registrant and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent, incorporated by reference to Exhibit 2.1 to Form 8-A filed on
May 3, 2000.
Exhibit 10(a) - Form of Change in Control Agreement between the
registrant and the Company's named executives.
Exhibit 27 - Financial Data Schedule (submitted in electronic format
for use of Commission only).
(b) The registrant did not file any reports on Form 8-K during the three
months ended April 28, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities and 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
Date: June 12, 2000 By /s/ R. Engh
-------------------------------
R. Engh
Secretary
Date: June 12, 2000 By /s/ P. C. Reyelts
-------------------------------
P. C. Reyelts
Senior Vice President, Finance
(Chief Financial Officer)
