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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000897101-02-000039.txt : 20020414
<SEC-HEADER>0000897101-02-000039.hdr.sgml : 20020414
ACCESSION NUMBER: 0000897101-02-000039
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 8
CONFORMED PERIOD OF REPORT: 20011026
FILED AS OF DATE: 20020124
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: VALSPAR CORP
CENTRAL INDEX KEY: 0000102741
STANDARD INDUSTRIAL CLASSIFICATION: PAINTS, VARNISHES, LACQUERS, ENAMELS & ALLIED PRODUCTS [2851]
IRS NUMBER: 362443580
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1031
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-03011
FILM NUMBER: 02515958
BUSINESS ADDRESS:
STREET 1: 1101 THIRD ST SOUTH
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55415
BUSINESS PHONE: 6123327371
MAIL ADDRESS:
STREET 1: 1101 THIRD STREET SOUTH
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55415
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>valspar020271_10k.txt
<DESCRIPTION>THE VALSPAR CORPORATION FORM 10K
<TEXT>
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 26, 2001 Commission file number 1-3011
---------------- -----------------------------
THE VALSPAR CORPORATION
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 36-2443580
-------- ----------
(State of incorporation) (I.R.S. Employer
Identification No.)
1101 Third Street South
Minneapolis, Minnesota 55415
---------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 332-7371
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
------------------- -------------------
Common Stock, $.50 Par Value New York Stock Exchange
Common Stock Purchase Rights 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 12 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. [ ]
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, 2001 was $1.4 billion based on the closing sales price of $39.60
per share as reported on the New York Stock Exchange. As of such date,
49,598,813 shares of Common Stock, $.50 par value per share (net of 10,622,499
shares in treasury), were outstanding.
DOCUMENTS INCORPORATED IN PART BY REFERENCE
Incorporated Documents Location in Form 10-K
---------------------- ---------------------
1. The Valspar Corporation Annual Report Parts II and IV
to Stockholders for fiscal year ended
October 26, 2001
2. The Valspar Corporation Notice of 2002 Part III
Annual Meeting of Stockholders and Proxy
Statement to be filed with the Securities
and Exchange Commission within 120 days
of fiscal year ended October 26, 2001
<PAGE>
2
PART I
ITEM 1. BUSINESS
OVERVIEW
Founded in 1806, The Valspar Corporation ("Valspar" or the "Company") has grown
into a leading global paint and coatings manufacturer. The Company manufactures
and distributes a broad portfolio of products, including:
o Industrial coatings for factory application by industrial customers and
original equipment manufacturers (OEMs);
o Packaging coatings and inks for rigid containers, particularly food and
beverage cans;
o Architectural paints, varnishes and stains for the do-it-yourself and
professional markets;
o Automotive refinish and other specialty coatings, including high
performance floor coatings; and
o Specialty polymers and colorants for use by coatings manufacturers
including Valspar.
Prior to the acquisition of Lilly Industries, Inc. in December 2000, the Company
had two reportable segments: Coatings and Coatings Intermediates. Following the
acquisition, the Company included the former Lilly Industries operations in its
coatings segment, and the coatings intermediates segment no longer meets the
quantitative criteria for separate reporting. The Company now refers to these
products as Other. The Company now operates its business in one reportable
segment: Coatings.
The Company manufactures and distributes a broad portfolio of coatings products.
The Industrial coatings product line includes decorative and protective coatings
for wood, metal, plastic and glass. The Architectural, Automotive and Specialty
("AAS") coatings product line includes interior and exterior decorative paints,
primers, varnishes and specialty decorative products, such as enamels, aerosols
and faux finishes for the do-it-yourself and professional markets, as well as
automotive refinish and high performance floor coatings. The Packaging coatings
product line includes coatings and inks for rigid packaging containers. The
Other products category includes specialty polymers and colorants, which are
used internally and sold to other coatings manufacturers.
The following table shows the net sales by product line for the past three
fiscal years:
2001 2000 1999
---- ---- ----
Industrial Coatings $ 739,479 $ 372,142 $ 328,669
AAS Coatings 558,262 505,087 510,960
Packaging Coatings 494,146 508,536 452,846
Other Products 129,083 97,555 95,202
----------- ----------- -----------
$ 1,920,970 $ 1,483,320 $ 1,387,677
=========== =========== ===========
<PAGE>
3
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
For additional financial information about the Company's operating segment, see
Note 11 to the Consolidated Financial Statements included in the 2001 Annual
Report to Stockholders, incorporated by reference into this Form 10-K.
ACQUISITIONS
Much of our growth has occurred during the last decade and, more recently, we
have expanded our business into international markets. Our business growth has
been accomplished mostly through acquisitions. Since 1995, we have made more
than 20 acquisitions (including purchases of equity in joint ventures).
The most important of these acquisitions among those described above include our
acquisitions of Coates Coatings, Dexter Packaging and Lilly Industries. Our
purchase of Coates and its line of packaging coatings products was structured as
a series of acquisitions. In the first acquisition, completed in May 1996, we
acquired packaging coatings businesses in Europe, Australia and the United
States, marking a significant step in the globalization of our Packaging product
line. This business had approximately $70 million in sales in its last full
fiscal year prior to our acquisition. We completed the second Coates acquisition
in January 1997, which included packaging coatings businesses in Hong Kong and
China which in the aggregate had approximately $10 million in sales in 1996. We
commenced the third acquisition in December 1997 by entering into a joint
venture for a packaging coatings business in South Africa. In October 2000, we
acquired a majority interest in this business, called ValsparCoates.
ValsparCoates had approximately $9 million in net sales in 1999, the last full
fiscal year prior to the time we completed this part of the Coates acquisition.
In July 2001, we completed the last in the series of Coates acquisitions of
packaging coatings businesses in Singapore, Malaysia, Indonesia and Thailand.
Sales for these businesses were $7 million in 2000.
In February 1999, we acquired the worldwide packaging and French industrial
coatings business of Dexter Corporation. The Dexter acquisition provided us with
additional packaging coatings facilities and businesses in Europe, the United
States and Asia. Dexter S.A., Dexter's industrial coatings subsidiary in France,
expanded our international presence in industrial coatings products. The Dexter
businesses that we acquired generated $212 million in sales in 1998, the last
full fiscal year prior to the acquisition.
In December 2000, we completed the acquisition of Lilly Industries, our largest
acquisition to date. We acquired all outstanding Lilly Industries shares for
$31.75 per share in cash in a transaction valued at $1.036 billion, including
the assumption of approximately $218 million of debt. The transaction was
accounted for under the purchase method of accounting. At the time of the
acquisition, Lilly Industries was considered to be one of the five largest
industrial coatings and specialty chemical manufacturers in North America, with
reported net sales of $670 million for its fiscal year ended November 30, 2000.
Lilly Industries formulates, manufactures and markets industrial coatings and
specialty chemicals to original equipment manufacturers for products such as
furniture, appliances, building products and transportation, agricultural and
<PAGE>
4
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
construction equipment. Lilly Industries has manufacturing facilities and sales
offices in the United States, Canada, Mexico, the United Kingdom, Ireland,
Germany, China, Malaysia, Taiwan, Singapore and Australia. In connection with
the acquisition, the U.S. Federal Trade Commission required us to dispose of our
former mirror coatings business, which has been replaced with Lilly Industries'
mirror coatings business. The Lilly Industries acquisition was significant not
only due to its size but because, through the acquisition, we believe we have
become the world's largest supplier of wood, coil and mirror coatings and the
leading North American supplier of non-automotive industrial coatings. Lilly
Industries also provides us with complementary product lines and new technology,
expanding the breadth and depth of our Industrial product line.
As we have done with past acquisitions, we have taken, and are continuing to
take, aggressive steps to integrate the Lilly Industries business into our
company in order to take advantage of cost savings synergies between the two
businesses. Following the acquisition, we eliminated duplicative selling,
general and administrative services and personnel and closed redundant
production facilities. To date, we have closed seven plants and, with our
restructuring plans announced in September 2001, an additional seven plants will
be closed and four plants will be partially closed. As of October 2001, we have
achieved $70 million in annualized cost savings and, with the additional
initiatives announced in September 2001, in the next two years we expect to
bring the total integration savings to $90-100 million on an annualized basis.
PRODUCTS
INDUSTRIAL COATINGS
Our Industrial coatings product line includes a broad range of decorative and
protective coatings for metal, wood, plastic and glass, primarily for sale to
OEM customers in North America and Australia and selected countries in Europe
and Asia. Products within our Industrial coatings product line include fillers,
primers, stains and topcoats used by customers in a wide range of manufacturing
industries, including building products, transportation, appliances, automotive
parts, furniture, agricultural equipment, construction equipment and metal
fabrication. We are also a leading U.S. supplier of coatings that are applied to
metal coils prior to fabrication into pre-engineered products such as doors,
building system components, lighting fixtures and appliances.
We utilize a wide variety of coatings technologies to meet our customers'
industrial coatings requirements, including electro-deposition, powder, high
solids, water-borne and UV light-cured coatings. This broad technical capability
allows us to customize our Industrial coatings products to our customers'
specifications and to provide "one-stop" integrated solutions. For example, in
the appliance coatings market, we believe that we are one of only a small number
of coatings manufacturers that currently have the technological and
manufacturing capabilities to be a single source coatings supplier to appliance
customers.
<PAGE>
5
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
The major customers of our Industrial coatings product line are coatings
applicators. They apply our coatings to metal and, in some cases, fabricate or
process the coated metal further. We also market our products to the ultimate
users of the coated products because they often specify the coatings to be used
by the coatings applicator.
Through our acquisition of Lilly Industries, which reported fiscal 2000 net
sales of approximately $670 million primarily in the industrial coatings market
segment, we have significantly increased our presence in industrial coatings,
particularly in the furniture, appliance, building product, transportation,
agriculture and construction equipment and mirror manufacturing industries. In
December 2001, we completed the acquisition of the coil, spray applied door and
rigid packaging businesses of Technical Coatings, a subsidiary of Benjamin Moore
& Co. The acquired businesses had combined sales of approximately $25 million in
2001.
PACKAGING COATINGS
Packaging coatings are a distinct portion of the global industrial coatings
market segment. Our Packaging coatings product line provides coatings for both
interior and exterior use in rigid packaging containers, principally food
containers and beverage cans for global customers. Interior coatings are used to
protect the interior surface of packaging materials from consumable products
such as beer, soda, fish and other food products, while exterior coatings
enhance the appearance of the packaging's exterior. We also produce coatings for
aerosol and paint cans, bottle crowns for glass and plastic packaging and glass
bottle closures. These coatings are required to meet the regulations of the U.S.
Food and Drug Administration and the U.S. Department of Agriculture, as well as
the laws and regulations of the other countries in which we sell our Packaging
coatings products.
Historically, we have been a strong competitor in the global packaging coatings
market segment, and we believe we have become the world's largest supplier of
rigid packaging coatings following our 1996 acquisition of the Coates Coatings
business in the United States, Europe and Australia. In addition to providing us
with a global manufacturing presence, this acquisition provided us with external
packaging coatings and metal decorating ink technologies, thereby improving the
depth and breadth of our product line. Our 1999 acquisition of Dexter's
packaging coatings business further expanded our international presence,
providing us with additional manufacturing facilities in Europe and Asia. We
believe we are now the only coatings manufacturer in the global beverage can
market that supplies coatings for the entire can.
The major customers of our Packaging coatings product line include global
companies that apply our coatings in the production of rigid packaging products,
principally food containers and beverage cans. Consolidation and globalization
of our customers has been most apparent in this market segment, and we have
responded to these trends by offering a wide variety of packaging coatings
products throughout the world.
<PAGE>
6
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
ARCHITECTURAL, AUTOMOTIVE AND SPECIALTY COATINGS
The largest portion of our AAS coatings product line is our architectural
coatings products. We offer a broad portfolio of interior and exterior paints,
stains, primers, varnishes and specialty decorative products, such as enamels,
aerosols and faux finishes, used primarily in the do-it-yourself market. The
primary distribution channels for these products are home centers, mass
merchants, hardware wholesalers and independent dealers, including Lowe's,
Wal-Mart and Do-It-Best stores. Due to the weather requirements of house
painting, sales of our AAS coatings product line are seasonal, with the lowest
levels occurring in the first quarter of our fiscal year when weather conditions
in much of North America are ill-suited for exterior painting.
We develop highly customized merchandising and marketing support programs for
our architectural coatings customers, enabling them to differentiate their paint
departments from their competitors' through point-of-purchase materials,
labeling and product and color selection assistance. Through such programs, we
offer branded product lines under the names Valspar, Plasti-Kote, Colony,
Magicolor and McCloskey. We also manufacture customer exclusive brands such as
One & Only, Severe Weather, Enterprise, American Tradition and Decorative
Effects, in addition to a variety of other private label brands. At key
customers such as Lowe's, we also offer additional marketing and customer
support by providing in-store employees to answer coatings questions. We have
been recognized as the paint supplier of the year seven times for Lowe's and
twice for Wal-Mart.
Within the AAS coatings product line, we also manufacture and distribute
automotive refinish coatings under the brand names Valspar and House of Kolor
and aerosol spray paints for automotive distributors and large automotive supply
retailers under the brand names Plasti-Kote, Tempo and Mr. Spray. Major
customers for these products include large automotive supply retailers. We also
manufacture and distribute high performance floor coatings for commercial and
industrial applications.
OTHER PRODUCTS
In addition to our main product lines, we make and sell specialty polymers and
colorants. We produce these products for internal use as well as for external
sale to other coatings and building products manufacturers. We believe our
ability to develop proprietary polymers for use in our coatings products
provides us with an advantage over some of our competitors who cannot produce
these products themselves.
COMPETITION
All aspects of the coatings business are highly competitive. We face strong
competitors in all areas of our business, some of which are larger and better
capitalized than we are.
<PAGE>
7
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
Competition in the market segments in which we sell our Industrial and Packaging
coatings product lines is based on technical capabilities for specific product
formulation, the ability to meet customer delivery requirements, technical
assistance to the customer in product application, price and new product
concepts. In addition, the markets for industrial coatings are becoming
increasingly global, and customers are looking for global coatings solutions. We
believe we can provide global coatings solutions to our customers in a manner in
which some of our competitors cannot because of our focus on industrial coatings
for the global market, our position as one of the world's largest industrial
coatings manufacturers and our commitment to developing innovative technologies.
Competition in the markets in which we sell our AAS coatings product line is
based on factors such as price, product quality, distribution and consumer
recognition. In this market segment, we offer highly customized merchandising
and marketing support programs to our AAS customers and have maintained product
recognition through high-quality and well-designed products. Relationships, such
as the ones we have with key retailers like Lowe's and Wal-Mart, are highly
important, as these firms account for most of the growth in the architectural
coatings market segment.
INTERNATIONAL JOINT VENTURES
The Company has formed various international joint ventures over the past
several years.
MEXICO AND CENTRAL AMERICA. 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. In November 2000, the Company acquired the remaining 49% interest
of Regio Empresas, and Valspar Mexicana is now wholly owned by the Company.
INDIA AND JAPAN. 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. In 1999, the Company also
assumed Dexter's majority position in a joint venture with Rock Paint, a
Japanese company.
HONG KONG AND CHINA. The Company and China Merchants Hai Hong Holdings Co., Ltd.
formed a joint venture company in Hong Kong in 1995 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 manufactures and distributes the
Company's packaging coatings products in China,
<PAGE>
8
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
Hong Kong and other Southeast Asian markets. The Company also acquired Coates'
packaging coatings and metal decoration inks business in Hong Kong and
Guangzhou, China during 1997 and Dexter's packaging coatings business in China
during 1999. The Company has consolidated these businesses with its Hong Kong
joint venture.
SOUTH AMERICA. 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. In
December 2001, the Company acquired a plant from Renner Herrmann S.A. and then,
in January 2002, the Company acquired the remaining 50% interest in this joint
venture.
SOUTH AFRICA. In December 1997, as part of the Coates acquisition, the Company
acquired a 49% interest in a joint venture with Coates for packaging coatings in
South Africa. In February 1999, as part of the Dexter acquisition, the Company
acquired Dexter's majority position in a joint venture with Plascon (Pty)
Limited, a South African company, for packaging coatings in South Africa. As of
October 2000, the Company acquired Coates' 51% interest in the Valspar/Coates
joint venture and reorganized the businesses of both South African joint
ventures so that Valspar now has a majority position in a joint venture with
Plascon for a combined packaging coatings business in South Africa.
RAW MATERIALS
We obtain raw materials from a number of suppliers. Many of these raw materials
are petroleum-based derivatives, minerals and metals. Under normal conditions,
all of these materials are generally available on the open market, although
prices and availability are subject to fluctuation. In general, higher oil and
gas costs result in higher prices for our raw materials. Because our raw
material costs average approximately 80% of our costs of goods sold, raw
material efficiency is a critical component of the cost of the products we
manufacture.
PATENTS
Our policy is to seek patent protection for our products and manufacturing
processes when appropriate. We also license some patented technology from other
sources. Although we believe our patent rights are valuable, our knowledge and
trade secret information regarding our manufacturing processes and materials
have also been important in maintaining our competitive position. As a condition
of employment, we now require domestic employees to sign a confidentiality
agreement relating to proprietary information and patent rights. Our business is
not materially dependent upon licenses or similar rights or on any single patent
or trademark or group of related patents or trademarks.
<PAGE>
9
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
While we make efforts to protect our trade secret information, others may
independently develop or otherwise acquire substantially equivalent proprietary
information or techniques or gain access to our proprietary technology or
disclose this technology. Any of these factors could adversely impact the value
of our proprietary trade secret information and harm our business.
SEASONALITY AND WORKING CAPITAL ITEMS
The Company's sales volume is traditionally lowest during the first quarter of
the fiscal year, primarily due to the buying cycle in the AAS coatings product
line. When sales are generally lowest, the Company builds inventory, the
financing for which is provided primarily by internally generated funds and
short-term and long-term credit lines discussed in Note 6 of the Notes to
Consolidated Financial Statements on page 18 of Valspar's 2001 Annual Report to
Stockholders incorporated by reference into this Form 10-K.
SIGNIFICANT CUSTOMERS
In 2001, the Company's sales to Lowe's Companies, Inc. exceeded 10% of net
sales, and our 10 largest customers accounted for approximately 30% of 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 profits or termination of contracts or subcontracts at the election of the
government.
RESEARCH AND DEVELOPMENT
Many of the products we offer today have been developed in the last five years.
We have adopted a "best practices" approach to technology development by
combining our technology efforts with those of the businesses we have acquired.
This has resulted in several successful new product developments. For example,
we have advanced our Packaging coatings product line technology by focusing on
universal coatings for two-piece food cans, and we have further advanced our
Industrial coatings product line technology by developing electro-coat
technology. Finally, we have continued to expand our line of polymers and now
have a full portfolio of both water-based and conventional polymers.
<PAGE>
10
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
Research and development costs for fiscal 2001 were $58,105,000, representing a
25.3% increase over fiscal 2000 ($46,353,000). Fiscal 2000 costs increased 5.1%
over those of fiscal 1999 ($44,091,000). Primary emphasis has been on developing
and refining emerging technologies in our Industrial and Packaging 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 2001, and capital expenditures for 2002 to
comply with existing laws and regulations are also not expected to be material.
EMPLOYEES
The Company employs approximately 6,750 persons, approximately 800 of whom are
members of unions.
FOREIGN OPERATIONS AND EXPORT SALES
Our foreign operations consist of a mixture of subsidiaries, joint ventures and,
to a lesser extent, licensing arrangements with independent third parties. In
recent years, we have placed greater emphasis on the development of our
majority-owned subsidiaries and joint ventures and a reduced emphasis on the use
of licensing arrangements. The bulk of our foreign operations have been acquired
in the last five years. In 1996, we acquired the European, U.S. and Australian
metal decorating inks and packaging coatings business of Coates Coatings to
provide our customers with global support. In 1999, we acquired the global
packaging coatings business of the Dexter Corporation, along with its industrial
coatings business in France. This acquisition added several manufacturing
facilities throughout Europe and in Singapore. In December 2000, we completed
our acquisition of Lilly Industries, which included its manufacturing operations
in Canada, Mexico, Europe and Asia. We now have operations in, among other
countries, Australia, Brazil, Canada, France, Germany, Hong Kong, Ireland,
Malaysia, Norway, Singapore, Spain, Switzerland, Taiwan and the United Kingdom.
We also have joint ventures in China, Hong Kong, India, Japan and South Africa.
Export sales are increasing as the Company's products are being recognized in
the global markets. During fiscal 2001, export sales represented approximately
3.4% of the Company's business. The Company's various acquisitions over the past
three years have also increased revenues from foreign subsidiaries and
operations, which comprised 24% of the Company's total revenues in fiscal 2001.
<PAGE>
11
PART I (CONTINUED)
ITEM 2. PROPERTIES
The Company's principal offices in Minneapolis, Minnesota are owned. Operations
in North America are conducted at 40 locations, primarily in Illinois,
California, Texas, Indiana, North Carolina and Pennsylvania, with two plants
each in Canada and Mexico. Thirty-seven plants with approximate square footage
of 4,250,000 are owned, and three plants with square footage of 330,000 are
leased. Manufacturing operations in Europe are conducted at eight owned
locations, with plants in the United Kingdom, France, Germany, Ireland and
Switzerland with a combined square footage of 510,000. The Company owns two
plants in Australia and one plant in each of China, Malaysia and Taiwan with a
combined approximate square footage of 240,000. The Company leases two plants in
both Singapore and China with a combined square footage of approximately 45,000.
We believe our principal properties and facilities owned or leased are well
maintained, in good operating condition and adequate for the purposes for which
they are being used. Operating capacity varies by product line, but additional
production capacity is available for most product lines by increasing the number
of shifts worked.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
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 discussion 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 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 2001
Annual Report to Stockholders incorporated by reference into this Form 10-K.
<PAGE>
12
PART I (CONTINUED)
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
LEGAL MATTERS
The Company is one of a number of defendants in numerous proceedings that allege
that the plaintiffs suffered injuries or contracted diseases from exposure to
chemicals used in the production of some of the Company's products. The Company
is also 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 the Company's business
or financial condition.
The Company, along with other companies, is a defendant in a number of legal
proceedings and claims brought by governmental bodies and private persons
against companies who are alleged to have manufactured and sold paint containing
lead pigment. The Company believes that the litigation is without merit and is
vigorously defending these matters. It is possible that additional lawsuits or
claims could be brought against the Company. At this time, management cannot
estimate the scope or amount of potential costs or liabilities relating to these
matters. However, based on the outcome of such matters to date, and other
factors, management does not believe that the costs and liabilities of such
matters will have a material adverse effect on the Company's financial condition
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted during the fourth quarter of fiscal year 2001 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 2002, and the positions held by them are as listed
below. There are no family relationships between any of the officers or between
any officer and director.
Name Age Position
---- --- --------
Richard M. Rompala 55 Chairman since February 1998 and Chief Executive
Officer since October 1995
John M. Ballbach 41 President and Chief Operating Officer since
January 2002
Rolf Engh 48 Senior Vice President since November 1998,
General Counsel and Secretary since April 1993
<PAGE>
13
PART I (CONTINUED)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
Name Age Position
---- --- --------
Steven L. Erdahl 49 Executive Vice President, Industrial and
Automotive Coatings since January 2002
William L. Mansfield 53 Executive Vice President, Architectural,
Packaging and Specialty Coatings since January
2002
Paul C. Reyelts 55 Senior Vice President, Finance and Chief
Financial Officer since November 1998
The foregoing executive officers have served in the stated capacity for the
registrant during the past five years, except for the following:
Prior to January 2002, Mr. Rompala was President since March 1994.
Prior to January 2002, Mr. Ballbach was Senior Vice President - Operations,
E-Commerce, EPS and Color Corporation of America since December 2000. Prior to
December 2000, Mr. Ballbach was Senior Vice President - Operations, EPS and
Color Corporation of America since February 2000. Prior to February 2000, Mr.
Ballbach was Group Vice President - Packaging since November 1998 and President
- - Europe, Middle East and South Africa since June 1996.
Prior to November 1998, Mr. Engh was Vice President - International since
September 1993.
Prior to January 2002, Mr. Erdahl was Senior Vice President - Packaging and
Industrial Coatings since February 2000. Prior to February 2000, Mr. Erdahl was
Senior Vice President - Operations since November 1998. Prior to November 1998,
Mr. Erdahl was Vice President - Industrial Coatings Group since June 1991.
Prior to January 2002, Mr. Mansfield was Senior Vice President - Architectural,
Automotive and Specialty Coatings since February 2000. Prior to February 2000,
Mr. Mansfield was Senior Vice President - Packaging and Industrial Coatings
since November 1998. 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.
<PAGE>
14
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 2001 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, 2001 was 1,688.
The quarterly dividend declared December 12, 2001, which was paid January 15,
2002 to Common Stockholders of record December 31, 2001, was increased to
14(cent) per share.
ITEM 6. SELECTED FINANCIAL DATA
The information in the section titled "Eleven Year Financial Summary" for the
years 1997 through 2001 on pages 6 and 7 of Valspar's 2001 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 2001 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 2001 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 2001 Annual Report to Stockholders are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors set forth on pages 2 through 4 of Valspar's
Proxy Statement dated January 25, 2002 is incorporated herein by reference. The
information in the section titled "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 7 of Valspar's Proxy Statement dated January 25, 2002 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 8
through 10 and the section titled "Director Compensation" on page 6 of Valspar's
Proxy Statement dated January 25, 2002 is incorporated herein by reference. The
information in the section titled "Change in Control Agreements" on page 10 of
Valspar's Proxy Statement dated January 25, 2002 is incorporated herein by
reference. The information on pages 11 through 16 of Valspar's Proxy Statement
dated January 25, 2002 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 20 and 21 of Valspar's
Proxy Statement dated January 25, 2002 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the section titled "Certain Transactions" on page 7 of
Valspar's Proxy Statement dated January 25, 2002 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) During the three months ended October 26, 2001, a report on Form 8-K, dated
September 10, 2001, was filed on September 12, 2001, under Item 5 - Other
Events.
<PAGE>
16
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
---------------------------------------------------------------------------
2(a)(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)
2(b)(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)
2(c)(14) AGREEMENT AND PLAN OF MERGER BETWEEN LILLY INDUSTRIES, INC.,
VAL ACQUISITION CORP. (A WHOLLY-OWNED SUBSIDIARY OF THE
REGISTRANT) AND THE REGISTRANT MADE AND ENTERED INTO AS OF
JUNE 23, 2000
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
4(a)(11) RIGHTS AGREEMENT DATED AS OF MAY 1, 2000, BETWEEN THE
REGISTRANT AND CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS
RIGHTS AGENT
10(a)(1) THE VALSPAR CORPORATION SUPPLEMENTAL STOCK OWNERSHIP PLAN**
<PAGE>
17
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(CONTINUED)
(c) Index of Exhibits (continued)
Exhibit
No. Description
---------------------------------------------------------------------------
10(b)(1) 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 December 12, 2001**
10(e)(3) THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN**
10(f)(10) THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN - as
amended to and including October 20, 1999**
10(g)* THE VALSPAR CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS - as amended to and including December 11, 2001**
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)(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(k)(8) CREDIT AGREEMENT DATED AS OF MARCH 16, 1998 AMONG THE
REGISTRANT AND WACHOVIA BANK, N.A.
10(l)(12) CHANGE OF CONTROL AGREEMENT BETWEEN THE REGISTRANT AND THE
COMPANY'S NAMED EXECUTIVES
<PAGE>
18
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(CONTINUED)
(c) Index of Exhibits (continued)
Exhibit
No. Description
---------------------------------------------------------------------------
10(m)(13) 180-DAY CREDIT AGREEMENT DATED AS OF AUGUST 25, 2000 AMONG THE
REGISTRANT AND CERTAIN SUBSIDIARIES OF THE REGISTRANT AND
WACHOVIA BANK, N.A., AS ADMINISTRATIVE AGENT
10(n)(15) 364-DAY CREDIT AGREEMENT DATED AS OF NOVEMBER 17, 2000 AMONG
THE REGISTRANT AND CERTAIN SUBSIDIARIES OF THE REGISTRANT AND
THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT
10(o)(15) FIVE-YEAR CREDIT AGREEMENT DATED AS OF NOVEMBER 17, 2000 AMONG
THE REGISTRANT AND CERTAIN SUBSIDIARIES OF THE REGISTRANT AND
THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT
10(p)(15) CREDIT AGREEMENT DATED AS OF DECEMBER 19, 2000 AMONG THE
REGISTRANT, CERTAIN BANKS AND WACHOVIA BANK, N.A., AS
ADMINISTRATIVE AGENT
13* 2001 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
---------------------------------------------------------------------------
(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.
<PAGE>
19
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(CONTINUED)
(c) Index of Exhibits (continued)
Exhibit
No. Description
---------------------------------------------------------------------------
(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.
(10) As filed with Form 10-K for the period ended October 29, 1999.
(11) Incorporated by reference to Exhibit 2.1 to Form 8-A filed on
May 3, 2000.
(12) Incorporated by reference to Exhibit 10(a) to Form 10-Q for
the quarter ended April 28, 2000.
(13) Incorporated by reference to Exhibit 10(a) to Form 10-Q for
the quarter ended July 28, 2000.
(14) Incorporated by reference to Exhibit 1 to Form 8-K filed on
January 4, 2000.
(15) As filed with Form 10-K for the period ended October 27, 2000;
amendment filed with this Form 10-K.
* As filed with this Form 10-K.
** Compensatory Plan or arrangement required to be filed pursuant
to Item 14(c) of Form 10-K.
Portions of the 2002 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>
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE VALSPAR CORPORATION
/s/Rolf Engh 1/22/02
-------------------------------------
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 1/22/02 /s/Susan S. Boren 1/22/02
- ---------------------------------------- -------------------------------------
Richard M. Rompala, Director Susan S. Boren, Director
Chairman and Chief Executive Officer
(principal executive officer) /s/Jeffrey H. Curler 1/22/02
-------------------------------------
Jeffrey H. Curler, Director
/s/Paul C. Reyelts 1/22/02
- ---------------------------------------- /s/Charles W. Gaillard 1/22/02
Paul C. Reyelts, Senior Vice President, -------------------------------------
Finance and Chief Financial Officer Charles W. Gaillard, Director
(principal financial officer)
/s/Thomas R. McBurney 1/22/02
-------------------------------------
Thomas R. McBurney, Director
/s/Lori A. Walker 1/22/02
- ---------------------------------------- /s/Gregory R. Palen 1/22/02
Lori A. Walker, Vice President and -------------------------------------
Controller (principal accounting officer) Gregory R. Palen, Director
-------------------------------------
Lawrence Perlman, Director
/s/Edward B. Pollak 1/22/02
-------------------------------------
Edward B. Pollak, Director
/s/Michael P. Sullivan 1/22/02
-------------------------------------
Michael P. Sullivan, Director
-------------------------------------
Richard L. White, 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 26, 2001
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 26, 2001:
Pages in
Annual Report
-------------
Report of Independent Auditors.......................................... 23
Financial Statements:
Consolidated Balance Sheets - October 26, 2001 and October 27, 2000... 11
Consolidated Statements of Income - Years ended October 26, 2001,
October 27, 2000 and October 29, 1999 ............................... 12
Consolidated Statements of Changes in Stockholders' Equity - Years
Ended October 26, 2001, October 27, 2000 and October 29, 1999........ 13
Consolidated Statements of Cash Flows -Years ended October 26, 2001,
October 27, 2000 and October 29, 1999................................ 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 26, 2001, October 27, 2000 and October 29, 1999
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 26, 2001 $4,925,000 $8,090,468 $1,722,000 (3) $4,714,694 (1) $10,212,000
(189,226) (2)
Year ended October 27, 2000 4,801,000 999,313 1,084,064 (1) 4,925,000
(208,751) (2)
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)
</TABLE>
(1) Uncollectible accounts written off.
(2) Recoveries on accounts previously written off.
(3) Consists principally of amounts relating to businesses acquired.
<PAGE>
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
---------------------------------------------------------------------------
2(a)(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)
2(b)(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)
2(c)(14) AGREEMENT AND PLAN OF MERGER BETWEEN LILLY INDUSTRIES, INC.,
VAL ACQUISITION CORP. (A WHOLLY-OWNED SUBSIDIARY OF THE
REGISTRANT) AND THE REGISTRANT MADE AND ENTERED INTO AS OF
JUNE 23, 2000
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
4(a)(11) RIGHTS AGREEMENT DATED AS OF MAY 1, 2000, BETWEEN THE
REGISTRANT AND CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS
RIGHTS AGENT
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**
<PAGE>
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
---------------------------------------------------------------------------
10(d)* THE VALSPAR CORPORATION 1991 STOCK OPTION PLAN - as amended to
and including December 12, 2001**
10(e)(3) THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN**
10(f)(10) THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN - as
amended to and including October 20, 1999**
10(g)* THE VALSPAR CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS - as amended to and including December 11, 2001**
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)(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(k)(8) CREDIT AGREEMENT DATED AS OF MARCH 16, 1998 AMONG THE
REGISTRANT AND WACHOVIA BANK, N.A.
10(l)(12) CHANGE OF CONTROL AGREEMENT BETWEEN THE REGISTRANT AND THE
COMPANY'S NAMED EXECUTIVES
10(m)(13) 180-DAY CREDIT AGREEMENT DATED AS OF AUGUST 25, 2000 AMONG THE
REGISTRANT AND CERTAIN SUBSIDIARIES OF THE REGISTRANT AND
WACHOVIA BANK, N.A., AS ADMINISTRATIVE AGENT
10(n)(15) 364-DAY CREDIT AGREEMENT DATED AS OF NOVEMBER 17, 2000 AMONG
THE REGISTRANT AND CERTAIN SUBSIDIARIES OF THE REGISTRANT AND
THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT
<PAGE>
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
---------------------------------------------------------------------------
10(o)(15) FIVE-YEAR CREDIT AGREEMENT DATED AS OF NOVEMBER 17, 2000 AMONG
THE REGISTRANT AND CERTAIN SUBSIDIARIES OF THE REGISTRANT AND
THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT
10(p)(15) CREDIT AGREEMENT DATED AS OF DECEMBER 19, 2000 AMONG THE
REGISTRANT, CERTAIN BANKS AND WACHOVIA BANK, N.A., AS
ADMINISTRATIVE AGENT
13* 2001 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
---------------------------------------------------------------------------
(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.
(10) As filed with Form 10-K for the period ended October 29, 1999.
<PAGE>
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
---------------------------------------------------------------------------
(11) Incorporated by reference to Exhibit 2.1 to Form 8-A filed on
May 3, 2000.
(12) Incorporated by reference to Exhibit 10(a) to Form 10Q for the
quarter ended April 28, 2000.
(13) Incorporated by reference to Exhibit 10(a) to Form 10-Q for
the quarter ended July 28, 2000.
(14) Incorporated by reference to Exhibit 1 to Form 8-K filed on
January 4, 2000.
(15) As filed with Form 10-K for the period ended October 27, 2000;
amendment filed with this Form 10-K.
* As filed with this Form 10-K.
** Compensatory Plan or arrangement required to be filed pursuant
to Item 14(c) of Form 10-K.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(D)
<SEQUENCE>4
<FILENAME>valspar020271_ex-10d.txt
<DESCRIPTION>1991 STOCK OPTION PLAN
<TEXT>
Exhibit 10(d)
THE VALSPAR CORPORATION
1991 STOCK OPTION PLAN
AS AMENDED THROUGH DECEMBER 12, 2001
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
8,000,000 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
Except as otherwise provided by the Committee, 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 or a permitted transferee
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;
<PAGE>
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.
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 12, 2000,
subject to stockholder approval, to increase the total number of shares
reserved for issuance upon exercise of options to be granted under the
Plan. 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.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(G)
<SEQUENCE>5
<FILENAME>valspar020271_ex-10g.txt
<DESCRIPTION>STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
<TEXT>
Exhibit 10(g)
THE VALSPAR CORPORATION STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS, AS AMENDED 12/12/2001
SECTION 1. PURPOSE.
This plan is known as "The Valspar Corporation Stock Option Plan for
Non-Employee Directors" and is hereinafter referred to as the "Plan." The
purpose of the Plan is to promote the interests of The Valspar Corporation, a
Delaware corporation (the "Company"), by enhancing its ability to attract and
retain the services of experienced and knowledgeable independent directors and
by providing additional incentive for these directors to increase their interest
in the Company's long-term success and progress.
SECTION 2. PARTICIPATION IN THE PLAN.
Each director of the Company who is not an employee of the Company or
any subsidiary of the Company (a "Non-Employee Director") will be eligible to
participate in the Plan.
SECTION 3. STOCK SUBJECT TO THE PLAN.
Shares to be issued under the Plan shall be common stock of the Company
(par value $.50 per share) ("common stock"), not to exceed a maximum of 250,000
shares, and may be unissued shares or reacquired shares. If options granted
under the Plan expire or terminate without having been exercised in full, such
unpurchased shares shall be available for other option grants. If shares of
common stock are delivered as full or partial payment upon exercise of an
option, the number of shares so delivered shall again be available for other
option grants.
SECTION 4. NON-QUALIFIED STOCK OPTION GRANTS.
a.) For grants in respect of board service in fiscal year 2000 and prior
fiscal years, each Non-Employee Director serving as a member of the
Board of Directors of the Company on the December 31 immediately
preceding each annual meeting of the stockholders of the Company, will
automatically be granted on the date of such annual meeting a
Non-Qualified Stock Option with a value equal to 50% of the amount of
the current annual retainer and meeting fees paid to Non-Employee
Directors for their service on the Board of Directors and board
committees for the preceding fiscal year. The per share option exercise
price will be equal to 100% of the Fair Market Value of one share of
the Company's common stock on the date of grant, as determined by the
closing price of the Company's common stock on the last business day
prior to the annual meeting date.
b.) For grants in respect of service in fiscal year 2001, each Non-Employee
Director serving as a member of the Board of Directors of the Company
on October 26, 2001 will automatically be granted, on the date of the
Company's annual meeting in 2002, a non-qualified stock option with a
value equal to 100% of the annual retainer and meeting fees paid to
Non-Employee Directors for their service on the Board of Directors and
board committees during fiscal year 2001. The per share option price
will be equal to 100% of
<PAGE>
the fair market value of one share of the Company's common stock on the
date of grant as determined by the closing price of the Company's
common stock on the last business day prior to such annual meeting.
c.) For grants in respect of service in fiscal year 2002 and subsequent
fiscal years, each Non-Employee Director serving as a member of the
Board of Directors of the Company on the date of the October board
meeting in any year will automatically be granted on the date of such
meeting a non-qualified stock option with a value equal to 100% of the
amount of the current annual retainer and meeting fees paid to
Non-Employee Directors for service on the Board of Directors and board
committees during the current fiscal year. The per share option
exercise price will be equal to 100% of the fair market value of one
share of the Company's common stock on the date of grant, as determined
by the closing price of the Company's common stock on the last business
day prior to such October board meeting date. In the event no Board
meeting is held in October of any year, the grant date shall be the
last day of the current fiscal year and the per share option exercise
price shall be equal to 100% of the fair market value of one share of
the Company's common stock on the last business day preceding such
grant date.
The number of shares subject to the option will be determined by using
the same option valuation model used to value options for purposes of
the notes to the Company's audited financial statements for the prior
fiscal year. If no option valuation model is used for financial
reporting purposes, the Board of Directors will determine the
appropriate model to be used for this purpose. All such options will be
designated as Non-Qualified Stock Options. Each option will be
immediately exercisable in full and have a term of ten years. Upon
termination of a person's service as a director of the Company, such
Non-Employee Director will be allowed to exercise the option for a
period of three years after the date on which such person ceased to be
a director, but in no event may the option be exercised after the
expiration of its original term.
SECTION 5. OPTION AGREEMENT AND EXERCISE OF OPTION.
Promptly after determination of the number of stock options to be
granted to each Non-Employee Director under Section 4, the Company will prepare
and deliver a Non-Qualified Stock Option Agreement to each Non-Employee
Director, containing the terms described in this Plan. Optionee is not required
to exercise options in the sequential order that the options were granted. An
option shall be exercised by written notice in a form designated by the Company
accompanied by full payment of the purchase price. All or part of the purchase
price may be paid by surrender (or deemed surrender through attestation) of
previously acquired shares of common stock valued at the fair market value at
the closing price on the day preceding the date of exercise. Until an option is
exercised and the stock certificate issued, the Optionee shall have no rights as
a stockholder with respect to such option.
SECTION 6. WITHHOLDING OF TAXES.
Upon exercise of an option, the Optionee shall (i) pay cash, (ii)
surrender previously acquired shares of common stock or (iii) authorize the
withholding of shares from the shares issued upon exercise of an option for all
taxes required to be withheld.
<PAGE>
SECTION 7. NON-TRANSFERABILITY.
Except as otherwise provided by the Committee, Options shall not be
transferable, voluntarily or involuntarily, except by will or applicable laws of
descent and distribution. Only the Optionee, Optionee's legal representative or
guardian or a permitted transferee may exercise the option.
SECTION 8. DILUTION OR OTHER ADJUSTMENTS.
The number of shares subject to the Plan, the outstanding options and
the exercise price may be adjusted by the Committee as it deems equitable in the
event of stock split, stock dividend, recapitalization, reclassification or
similar event to prevent dilution or enhancement of option rights.
SECTION 9. MERGERS, ACQUISITIONS, OR OTHER REORGANIZATION.
The Committee may make provision, as it deems equitable, for the
protection of Optionees with grants of outstanding options in the event of (a)
merger of the Company into, or the acquisition of substantially all of the stock
or assets of the Company by, another entity; or (b) liquidation; or (c) other
reorganization of the Company.
SECTION 10. ADMINISTRATION AND AMENDMENT OF THE PLAN.
The Plan shall be administered by the Compensation Committee of the
Board of Directors. The Committee may suspend or discontinue the Plan or revise
or amend it in any respect deemed advisable and in the best interests of the
Company; provided, however, that no such revision or amendment would impair the
terms and conditions of any option which is outstanding on the date of such
revision or amendment to the material detriment of the Optionee without the
consent of the Optionee. In addition, no such revision or amendment may, without
the approval of the Corporation's stockholders, (i) materially increase the
number of shares subject to the Plan except as provided in the case of stock
splits, consolidations, stock dividends or similar events, (ii) change the
designation of the class of individuals eligible to receive options, or (iii)
materially increase the benefits accruing to Optionees under the Plan.
SECTION 11. EFFECTIVE DATE OF THE PLAN.
The Plan will become effective as of February 25, 1998, the date
stockholders of the Company approve such Plan. The first option grant under this
Plan will be granted on the date of the annual stockholder meeting held in 1999
to all Non-Employee Directors who were members of the Board of Directors on
December 31, 1998. This Plan is being adopted to replace The Valspar Corporation
Restricted Stock Plan for Non-Employee Directors, which will automatically
terminate following the issuance of the restricted stock grant that was earned
for services during 1997. The effectiveness of the amendments to Section 4
relating to grants in fiscal 2001 and subsequent years is subject to shareholder
approval of such amendments.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(N)
<SEQUENCE>6
<FILENAME>valspar020271_ex-10n.txt
<DESCRIPTION>364-DAY CREDIT AGREEMENT
<TEXT>
Exhibit 10(n)
US$150,000,000
AMENDED AND RESTATED 364-DAY CREDIT AGREEMENT
dated as of
November 15, 2001
among
THE VALSPAR CORPORATION
The Borrowing Subsidiaries
Party Hereto
The Lenders Party Hereto
and
JPMORGAN CHASE BANK,
as Administrative Agent
BANK OF AMERICA, N.A.,
BANK ONE, N.A.,
WACHOVIA BANK, N.A.,
as Co-Syndication Agents and Co-Documentation Agents
---------------------------
J.P. MORGAN SECURITIES INC.
as Lead Arranger and Bookrunner
<PAGE>
AMENDMENT AND RESTATEMENT AGREEMENT dated as
of November 15, 2001 (this "Amendment and
Restatement"), in respect of the 364-DAY CREDIT
AGREEMENT dated as of November 17, 2000 (the "Credit
Agreement"), among THE VALSPAR CORPORATION, a
Delaware corporation (the "Company"); the BORROWING
SUBSIDIARIES from time to time party hereto (the
Company and the Borrowing Subsidiaries being
collectively called the "Borrowers"); the LENDERS
from time to time party hereto; JPMORGAN CHASE BANK,
as Administrative Agent; and BANK OF AMERICA, N.A.,
BANK ONE, N.A. and WACHOVIA BANK, N.A., as
Co-Syndication Agents and Co-Documentation Agents.
The Company and each other Borrower has requested that the
Credit Agreement be amended and restated as set forth in Section 1 below and the
parties hereto are willing so to amend the Credit Agreement. Each capitalized
term used but not defined herein has the meaning assigned thereto in the Credit
Agreement.
In consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto hereby agree, on
the terms and subject to the conditions set forth herein, as follows:
SECTION 1. Amendment and Restatement. Upon the effectiveness
of this Amendment and Restatement as provided in Section 3 below, the Credit
Agreement shall be amended and restated in the form resulting from the following
revisions:
(a) The preamble to the Credit Agreement is hereby amended by
deleting the preamble in its entirety and substituting therefore the
following paragraph:
"The Company has requested the Lenders to amend and
restate the Existing Credit Agreement (such term and
each other capitalized term used and not otherwise
defined herein having the meaning assigned to it in
Article I) under which the Borrowers may obtain
revolving loans in an aggregate principal amount at
any time outstanding not greater than $150,000,000.
All Borrowings under this Agreement will be
denominated in U.S. Dollars."
(b) Section 1.01 of the Credit Agreement is hereby amended as
follows:
(i) Consolidated EBITDA. The definition of the term
"Consolidated EBITDA" is hereby amended by deleting clause
(vi) in its entirety and substituting therefor "(vi) charges,
to the extent such charges do not exceed $40,000,000 in the
aggregate, associated with addbacks related to the
restructuring program and other initiatives to eliminate
redundant facilities from the Lilly Acquisition and to
accelerate performance improvement".
(ii) Existing Credit Agreement. The definition of the
term "Existing Credit Agreement" is hereby amended by deleting
in its entirety and substituting therefor the following
definition:
<PAGE>
"Existing Credit Agreement" means the 364-Day Credit Agreement
dated as of November 17, 2000, among the Company, the
borrowing subsidiaries party thereto, the lenders party
thereto and Chase, as administrative agent."
(iii) Five-Year Credit Agreement. The definition of
the term "Five-Year Credit Agreement" is hereby amended by
deleting the words "as of the date hereof" and substituting
therefor "dated as of November 15, 2000, as amended,
supplemented or otherwise modified from time to time".
(iv) Information Memorandum. The definition of the
term "Information Memorandum" is hereby amended by deleting
the date "August 2000" and substituting therefor "October
2001".
(v) Maturity Date. The definition of the term
"Maturity Date" is hereby amended by deleting the words
"second anniversary" and substituting therefor "first
anniversary".
(vi) Termination Date. The definition of the term
"Termination Date" is hereby amended by deleting the date
"November 16, 2001" and substituting therefor "November 14,
2002".
(vii) US Tranche Commitment. The definition of the
term "US Tranche Commitment" is hereby amended by deleting the
amount "US$500,000,000" and substituting therefor
"US$150,000,000".
(viii) Transactions. The definition of the term
"Transactions" is hereby amended by deleting the words "and
the completion of the Lilly Acquisition" and inserting the
word "and" before the words "the use of the proceeds thereof".
(c) Fees. Paragraph (d) of Section 2.10 of the Credit
Agreement is hereby amended by deleting the paragraph in its entirety
and substituting therefor:
"(d) [Intentionally deleted];".
(d) Financial Information; No Material Adverse Change. (i)
Paragraph (a) of Section 3.04 of the Credit Agreement is hereby amended
by deleting the date "October 29, 1999" and substituting therefor
"October 27, 2000", and deleting the dates "January 28, 2000, April 28,
2000 and July 28, 2000" and substituting therefor "January 26, 2001,
April 27, 2001 and July 27, 2001".
(ii) Paragraph (b) of Section 3.04 of the Credit
Agreement is hereby amended by deleting the date "October 29,
1999" and substituting therefor "October 27, 2000".
(e) Conditions. Section 4.01 of the Credit Agreement is hereby
amended by deleting the entire Section and substituting therefor
Section 3 of this Amendment and Restatement.
(f) Ratio of Consolidated Debt to Consolidated EBITDA. Section
5.03 of the Credit Agreement is hereby amended by deleting the table
appearing therein in its entirety and substituting therefor the
following table:
<PAGE>
Period Ratio
------ -----
Effective Date through December 4.75 to 1.00
20, 2001
December 21, 2001 through 4.00 to 1.00
December 20, 2002
December 21, 2002 through 3.50 to 1.00
December 20, 2003
December 21, 2003 through 3.25 to 1.00
December 20, 2004
December 21, 2004 and thereafter 3.00 to 1.00
(g) Effective Date. From and after the Effective Date (as
defined below), all references in the Credit Agreement to "the date
hereof", "the date of this Agreement" or other words or phrases of
similar import, shall be deemed references to the date of this
Amendment and Restatement.
(h) Schedules. Schedules 1.01, 2.01, 3.08 and 3.14 to the
Credit Agreement are hereby deleted and new Schedules 1.01, 2.01, 3.08
and 3.14 hereto are inserted in their place.
SECTION 2. Representations and Warranties. The Company and
each other Borrower represents and warrants as of the Effective Date to the
Lenders that:
(a) Before and after giving effect to this Amendment and
Restatement, the representations and warranties set forth in the Credit
Agreement are true and correct in all material respects with the same
effect as if made on the Effective Date, except to the extent such
representations and warranties expressly relate to an earlier date.
(b) Immediately before and after giving effect to this
Amendment and Restatement, no Default has occurred and is continuing.
SECTION 3. Conditions to Effectiveness. This Amendment and
Restatement and the obligations of the Lenders to make Loans under the Credit
Agreement as amended and restated hereby shall become effective on the date (the
"Effective Date") on which each of the following conditions is satisfied (or
waived in accordance with Section 9.02 of the Credit Agreement):
(a) The Administrative Agent (or its counsel) shall have
received from each party hereto either (i) a counterpart of this
Amendment and Restatement signed on behalf of such party or (ii)
written evidence satisfactory to the Administrative Agent (which may
include telecopy transmission of a signed signature page of this
Amendment and Restatement) that such party has signed a counterpart of
this Amendment and Restatement.
(b) The Administrative Agent shall have received a favorable
written opinion (addressed to the Administrative Agent and the Lenders
and dated the Effective Date) of Lindquist & Vennum, PLLP, special
counsel to the Company, dated the Effective Date and substantially in
the form of Exhibit C to the Credit Agreement, and covering such other
matters relating to the
<PAGE>
Company, this Amendment and Restatement, the Credit Agreement or the
Transactions as the Required Lenders shall reasonably request. The
Company hereby requests such counsel to deliver such opinion.
(c) The Administrative Agent shall have received such
documents and certificates as the Administrative Agent or its counsel
may reasonably request relating to the organization, existence and good
standing of the Borrowers, the authorization of the Transactions and
any other legal matters relating to the Borrowers, this Amendment and
Restatement, the Credit Agreement or the Transactions, all in form and
substance satisfactory to the Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by the President, a
Vice President or a Financial Officer of the Company, confirming
compliance with the conditions set forth in paragraphs (a) and (b) of
Section 4.02 of the Credit Agreement.
(e) All loans outstanding under the Existing Credit Agreement
shall have been repaid, together with all interest, fees and other
amounts accrued thereunder.
(f) The Administrative Agent shall have received all fees and
other amounts due and payable on or prior to the Effective Date,
including, to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses (including the agreed upon fees and charges,
plus disbursements, of counsel) required to be reimbursed or paid by
the Company or any Subsidiary in connection with this Amendment and
Restatement or any Loan Document.
The Administrative Agent shall notify the Company and the Lenders of the
Effective Date, and such notice shall be conclusive and binding.
SECTION 4. Agreement. Except as specifically stated herein,
the provisions of the Credit Agreement are and shall remain in full force and
effect. As used therein, the terms "Credit Agreement", "herein", "hereunder",
"hereinafter", "hereto", "hereof" and words of similar import shall, unless the
context otherwise requires, refer to the Credit Agreement as amended hereby.
SECTION 5. Consents. Each of the Company and the Borrowing
Subsidiaries hereby acknowledges receipt of and consents to the terms of this
Amendment and Restatement and confirms that their respective Guarantees pursuant
to Article VIII of the Credit Agreement and the Guarantee Agreement remain in
full force and effect notwithstanding the execution and delivery of this
Amendment and Restatement.
SECTION 6. APPLICABLE LAW. THIS AMENDMENT AND RESTATEMENT
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
SECTION 7. Counterparts. This Amendment and Restatement may be
executed in two or more counterparts, each of which shall constitute an original
but all of which when taken together shall constitute but one contract. Delivery
of an executed counterpart of a signature page of this Amendment and Restatement
by telecopy shall be effective as delivery of a manually executed counterpart of
this Amendment and Restatement.
<PAGE>
SECTION 8. Expenses. The Borrowers agree to reimburse the
Administrative Agent for all out-of-pocket expenses incurred by it in connection
with this Amendment and Restatement, including the agreed upon fees and charges
plus disbursements of Cravath, Swaine & Moore, counsel for the Administrative
Agent.
SECTION 9. Headings. The headings of this Amendment and
Restatement are for purposes of reference only and shall not limit or otherwise
affect the meaning hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment and Restatement to be duly executed by their respective authorized
officers as of the day and year first above written.
THE VALSPAR CORPORATION
by
----------------------------------------
Name:
Title:
ENGINEERED POLYMER SOLUTIONS,
INC.,
by
----------------------------------------
Name:
Title:
Consent. Each of the undersigned Subsidiary Guarantors hereby acknowledges
receipt of, and consents to the terms of, the foregoing Amendment and confirms
that their respective Guaranties pursuant to the Guarantee Agreement remain in
full force and effect notwithstanding the execution and delivery of this
Amendment by the parties thereto.
VALSPAR FINANCE CORPORATION
by
----------------------------------------
Name:
Title:
VALSPAR COATINGS FINANCE
CORPORATION,
by
----------------------------------------
Name:
Title:
<PAGE>
VALSPAR CREDIT CORPORATION
by
----------------------------------------
Name:
Title:
VALSPAR FINANCE CORPORATION
by
----------------------------------------
Name:
Title:
JPMORGAN CHASE BANK, individually and
as Administrative Agent and Swingline
Lender
by
----------------------------------------
Name:
Title:
BANK OF AMERICA, N.A., individually and
as Co-Documentation Agent and Co-
Syndication Agent,
by
----------------------------------------
Name:
Title:
BANK ONE, N.A., (Main Office Chicago
individually and as Co-Documentation
Agent and Co-Syndication Agent,
by
----------------------------------------
Name:
Title:
WACHOVIA SECURITIES, INC., individually
and as Co-Documentation Agent and Co-
Syndication Agent,
by
----------------------------------------
Name:
Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(O)
<SEQUENCE>7
<FILENAME>valspar020271_ex-10o.txt
<DESCRIPTION>FIVE YEAR CREDIT AGREEMENT
<TEXT>
Exhibit 10(o)
FIRST AMENDMENT dated as of November 15, 2001 (this
"Amendment"), among THE VALSPAR CORPORATION, a Delaware
corporation (the "Company"); the BORROWING SUBSIDIARIES from
time to time party thereto; the LENDERS party hereto; and THE
CHASE MANHATTAN BANK, as Administrative Agent (the
"Administrative Agent").
A. Reference is made to the Five-Year Credit Agreement dated as of
November 17, 2000 (as further amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among the Company; the Lenders from time
to time party thereto; Chase Manhattan International Limited, as London agent;
Chase Securities Australia Limited (ABN 52 002 88011), as Australian agent; and
Bank of America, N.A., Citicorp USA, Inc. and Wachovia Bank, N.A.; as
co-syndication agents and co-documentation agents; and the Administrative Agent.
Capitalized terms used but not otherwise defined herein have the meanings
assigned to them in the Credit Agreement.
B. The Company has requested that the Lenders amend certain provisions
of the Credit Agreement. The Lenders are willing to agree to such amendments on
the terms and subject to the conditions of this Amendment.
Accordingly, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Amendment to Article 1 of the Credit Agreement. Article I of
the Credit Agreement is hereby amended by deleting clause (vi) in its entirety
in the definition of "Consolidated EBITDA" and substituting therefor "(vi)
charges, to the extent such charges do not exceed $40,000,000 in the aggregate,
associated with addbacks related to the restructuring program and other
initiatives to eliminate redundant facilities from the Lilly Acquisition and to
accelerate performance improvement".
SECTION 2. Amendment to Section 5.03. The table appearing in Section
5.03 of the Credit Agreement is hereby deleted and replaced with the following
table:
Period Ratio
------ -----
Through first anniversary of Effective Date 4.75:1.00
(i.e. through December 20, 2001)
Day after first anniversary of Effective Date 4.00:1.00
through second anniversary of Effective Date
(i.e. December 21, 2001 through December 20,
2002)
Day after second anniversary of Effective Date 3.50:1.00
through third anniversary of Effective Date
(i.e. December 21, 2002 through December 20,
2003)
<PAGE>
Period Ratio
------ -----
Day after third anniversary of Effective Date 3.25:1.00
through fourth anniversary of Effective Date
(i.e. December 21, 2003 through December 20,
2004)
Day after fourth anniversary of the Effective Date 3.00:1.00
and thereafter (i.e. December 21, 2004 and
thereafter)
SECTION 3. Representations, Warranties and Agreements. Each of the
Company and the Borrowing Subsidiaries hereby represents and warrants to and
agrees with each Lender and the Administrative Agent that:
(a) its representations and warranties set forth in Article III of
the Credit Agreement are true and correct in all material respects with the
same effect as if made on the Amendment Effective Date, except to the
extent such representations and warranties expressly relate to an earlier
date;
(b) it has the requisite power and authority to execute, deliver
and perform its obligations under this Amendment and to perform its
obligations under the Credit Agreement as amended by this Amendment;
(c) the execution, delivery and performance by it of this
Amendment and the performance by it of the Credit Agreement, as amended by
this Amendment, (i) have been duly authorized by all requisite action and
(ii) will not (A) violate (x) any provision of law, statute, rule or
regulation, or of its certificate or articles of incorporation or other
constitutive documents or by-laws, (y) any order of any Governmental
Authority or (z) any provision of any indenture, agreement or other
instrument to which it is a party or by which any of its property is or may
be bound, (B) be in conflict with, result in a breach of or constitute
(alone or with notice or lapse of time or both) a default under any such
indenture, agreement for borrowed money or other agreement or instrument or
(C) result in the creation or imposition of any Lien upon or with respect
to any property or assets now owned or hereafter acquired by it;
(d) this Amendment has been duly executed and delivered by it, and
each of this Amendment and the Credit Agreement, as amended by this
Amendment, constitutes a legal, valid and binding obligation, enforceable
against it in accordance with its terms, except as enforceability may be
limited by (i) any applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and (ii) general principles of equity; and
(e) as of the date of effectiveness of this Amendment under
Section 4, no Event of Default or Default has occurred and is continuing.
SECTION 4. Conditions to Effectiveness. This Amendment shall become
effective on the date of the satisfaction in full of the following conditions
precedent:
(a) the Administrative Agent shall have received duly executed
counterparts hereof which, when taken together, bear the authorized
signatures of the Company, each of the Borrowing Subsidiaries, the
Administrative Agent and the Required Lenders;
<PAGE>
(b) all legal matters incident to this Amendment shall be
satisfactory to the Required Lenders, the Administrative Agent and Cravath,
Swaine & Moore, counsel for the Administrative Agent; and
(c) the Administrative Agent shall have received such other
documents, instruments and certificates as it or its counsel shall
reasonably request.
SECTION 5. Amendment Fee. In consideration of the consent provided by
the consenting Lenders, the Company agrees to pay, upon the effectiveness of the
Amendment, to the Administrative Agent, for the account of each Lender that
delivers an executed counterpart of this Amendment prior to 5:00 p.m., New York
City time, on November 5, 2001, an amendment fee equal to 0.05% of the sum of
the outstanding Revolving Exposure and unused Commitment of such Lender.
SECTION 6. Credit Agreement. Except as specifically stated herein, the
Credit Agreement shall continue in full force and effect in accordance with the
provisions thereof. As used therein, the terms "Agreement", "herein",
"hereunder", "hereto", "hereof" and words of similar import shall, unless the
context otherwise requires, refer to the Credit Agreement as modified hereby.
SECTION 7. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 8. Counterparts. This Amendment may be executed in any number
of counterparts, each of which shall be an original but all of which, when taken
together, shall constitute but one instrument. Delivery of an executed
counterpart of a signature page of this Amendment by telecopy shall be effective
as delivery of a manually executed counterpart of this Amendment.
SECTION 9. Expenses. The Company agrees to reimburse the Administrative
Agent for its out-of-pocket expenses in connection with this Amendment,
including the reasonable fees, charges and disbursements of Cravath, Swaine &
Moore, counsel for the Administrative Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the date first above
written.
THE VALSPAR CORPORATION,
by
- ----------------------------------------
Name:
Title:
ENGINEERED POLYMER SOLUTIONS, INC.,
by
- ----------------------------------------
Name:
Title:
<PAGE>
THE VALSPAR (UK) HOLDING CORPORATION LTD.,
by
- ----------------------------------------
Name:
Title:
THE VALSPAR (SWITZERLAND) HOLDING CORPORATION A.G.,
by
- ----------------------------------------
Name:
Title:
DYFLEX B.V.,
by
- ----------------------------------------
Name:
Title:
FORTON B.V.,
by
- ----------------------------------------
Name:
Title:
EXECUTED by THE VALSPAR )
(AUSTRALIA) HOLDINGS PTY )
LIMITED in accordance with section ) --------------------------------
127(1) of the Corporations Law by ) Signature of director
authority of its directors in the )
presence of: ) --------------------------------
) Name of director (block letters)
)
)
Signature of witness ) --------------------------------
) Signature of director
)
Name of witness (block letters ) --------------------------------
Name of director (block letters)
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent,
by
- ----------------------------------
Name:
Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>8
<FILENAME>valspar020271_ex-13.txt
<DESCRIPTION>2001 ANNUAL REPORT
<TEXT>
EXHIBIT 13
PAGE 6 VALSPAR AR 01
ELEVEN-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
(Dollars in Thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FISCAL YEARS 2001 2000 1999
OPERATING RESULTS Net Sales $ 1,920,970 $ 1,483,320 $ 1,387,677
Cost and Expenses
Cost of Sales 1,346,934 1,039,267 960,395
Operating Expense 391,184 281,318 273,925
Restructuring Charge 21,930 (1,200) 8,346
--------------------------------------------------------------------------------------------
Income from Operations 160,922 163,935 145,011
Other (Income) Expense - Net (2,787) 200 (9,164)
Interest Expense 72,559 21,989 19,089
--------------------------------------------------------------------------------------------
Income Before Income Taxes 91,150 141,746 135,086
Net Income 51,500 86,466 82,142
Net Income as a Percent of Sales 2.7% 5.8% 5.9%
Return on Average Equity 13.5%* 20.6%* 23.8%*
Per Common Share:
Net Income - Basic $ 1.12 $ 2.02 $ 1.90
Net Income - Diluted $ 1.10 $ 2.00 $ 1.87
Dividends Paid 0.54 0.52 0.46
Stockholders' Equity Per Share 13.23 10.30 9.16
================================================================================================================
FINANCIAL POSITION Total Assets $ 2,226,070 $ 1,125,030 $ 1,110,720
Working Capital at Year-End 186,427 199,576 140,216
Property, Plant and Equipment, Net 411,179 298,747 312,133
Long-Term Debt, Excluding Current Portion 1,006,217 300,300 298,874
Stockholders' Equity 654,565 437,571 393,756
================================================================================================================
OTHER STATISTICS Property, Plant and Equipment Expenditures $ 36,200 $ 32,425 $ 31,400
Depreciation and Amortization Expense 73,050 45,238 39,800
Research and Development Expense 58,105 46,353 44,091
Total Cash Dividends $ 24,856 $ 22,185 $ 19,785
Average Common Shares Outstanding (000's) 46,658 43,196 43,836
Number of Stockholders 1,702 1,728 1,818
Number of Employees at Year-End 6,750 4,685 4,482
Market Price Range - Common Stock: High $ 37.80 $ 43.31 $ 39.69
Low 24.45 19.75 28.00
================================================================================================================
</TABLE>
* Excluding impact of restructuring and non-recurring charges in 1999, 2000 and
2001
STOCK INFORMATION
Stock traded on the New York Stock Exchange
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR 2001 2000
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
MARKET PRICE (HIGH/LOW): First Quarter $ 33.60-24.45 $ 43.31-29.88
Second Quarter 33.78-26.48 38.75-31.63
Third Quarter 36.91-30.15 40.25-30.19
Fourth Quarter 37.80-29.90 31.38-19.75
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
VALSPAR AR 01 PAGE 7
Reference is made to the Notes in Consolidated Financial Statements for a
summary of accounting policies and additional information. Per share data have
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>
1998 1997 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,155,134 $ 1,017,271 $ 859,799 $ 790,175 $ 795,275 $ 700,897 $ 638,485 $ 632,562
803,240 698,474 594,935 561,170 569,063 501,135 492,092 458,953
230,152 206,834 169,873 146,344 146,683 129,997 131,232 120,643
-- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
121,742 111,963 94,991 82,661 79,529 69,765 60,161 52,966
(7,753) (2,508) (1,081) (763) 631 2,036 360 1,504
10,707 5,294 3,029 4,216 2,504 1,645 2,932 5,686
- --------------------------------------------------------------------------------------------------------------------------------
118,788 109,177 93,043 79,208 76,394 66,084 56,869 45,776
72,130 65,877 55,893 47,520 45,799 40,156 34,418 27,676
6.2% 6.5% 6.5% 6.0% 5.8% 5.7% 5.0% 4.4%
22.7% 24.0% 24.0% 24.4% 24.4% 21.8% 21.7% 20.0%
$ 1.66 $ 1.51 $ 1.28 $ 1.09 $ 1.04 $ 0.92 $ 0.79 $ 0.64
$ 1.63 $ 1.49 $ 1.26 $ 1.08 $ 1.04 $ 0.91 $ 0.79 $ 0.64
0.42 0.36 0.33 0.30 0.26 0.22 0.18 0.15
7.84 6.76 5.78 4.83 3.99 4.51 3.92 3.40
================================================================================================================================
$ 801,680 $ 615,470 $ 486,440 $ 398,199 $ 367,608 $ 340,479 $ 321,618 $ 319,367
158,085 97,427 96,130 90,995 87,887 85,741 57,500 58,066
233,482 185,748 153,819 130,404 107,956 103,916 101,005 98,818
164,768 35,844 31,948 21,658 35,343 7,890 10,684 30,697
340,188 295,065 253,703 212,115 176,712 198,826 169,377 147,896
================================================================================================================================
$ 42,833 $ 48,131 $ 25,376 $ 38,982 $ 31,817 $ 17,213 $ 19,581 $ 8,843
30,742 25,771 22,262 20,318 19,134 20,648 19,793 18,896
39,555 39,099 32,616 27,746 27,430 24,955 24,802 23,226
$ 18,575 $ 15,741 $ 14,575 $ 13,121 $ 11,252 $ 9,471 $ 7,843 $ 6,519
44,320 44,233 44,403 44,183 44,326 44,062 43,946 43,724
1,815 1,830 1,783 1,864 1,902 1,866 1,863 1,857
3,833 3,205 2,855 2,542 2,585 2,577 2,482 2,530
$ 42.13 $ 32.94 $ 25.50 $ 20.94 $ 22.88 $ 20.75 $ 18.19 $ 11.72
25.75 24.00 19.13 15.25 16.38 15.19 11.28 7.63
================================================================================================================================
</TABLE>
DIVIDENDS
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR 2001 2000
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DIVIDENDS: First Quarter $ 0.135 $ 0.130
Second Quarter 0.135 0.130
Third Quarter 0.135 0.130
Fourth Quarter 0.135 0.130
========================================================================================================
$ 0.54 $ 0.52
========================================================================================================
</TABLE>
<PAGE>
PAGE 8 VALSPAR AR 01
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:
* 2001 - Effective December 20, 2000, the Company acquired Lilly Industries,
Inc., the Company's largest acquisition to date. Total consideration paid was
approximately $1,036 million, including the assumption of debt of
approximately $218 million. See Note 2 to the Consolidated Financial
Statements for detail of the acquisition. The Company completed the sale of
its existing Mirror Coatings business as a condition of Federal Trade
Commission approval for the Lilly Industries acquisition. The Company
acquired the Packaging Coatings business of Coates Brothers in Singapore,
Malaysia, Indonesia and Thailand. The Company acquired the 49% interest in
The Valspar (Mexico) Corporation, S.A. de C.V. held by its joint venture
partner.
* 2000 - In October 2000, the Company combined its two joint ventures in South
Africa so that the Company now has a majority position in a joint venture
with Plascon (Pty) Limited for a combined packaging coatings business in
South Africa.
* 1999 - The Company completed three acquisitions and two divestitures. Net
consideration paid was $203.0 million.
The acquisitions were accounted for as purchases and are discussed in detail in
Note 2 to the Consolidated Financial Statements.
OPERATIONS 2001 VS. 2000.
Net sales increased 29.5% to $1,920,970,000 in 2001 from $1,483,320,000 in 2000.
Excluding the impact of acquisitions and divestitures during the year, sales
decreased approximately 1%, primarily driven by volume decreases in the
Industrial Coatings product line offset by increased volume in the
Architectural, Automotive, and Specialty (AAS) Coatings product line.
The gross profit margin remained constant at 29.9% in 2001 and 2000. Included in
cost of sales are charges of $17,370,000 incurred to account for the write-down
of inventory resulting from new account capture and other assets related to the
$39,300,000 restructuring plan announced in September 2001. Excluding the impact
of the write-down, the gross profit margin increased to 30.8% in 2001 due to
successful raw material price reductions with added Lilly volume.
Operating expenses (research and development, selling and administrative,
excluding the impact of restructuring) increased 39.1% to $391,184,000 (20.4% of
net sales) in 2001 compared to $281,318,000 (19.0% of net sales) in 2000.
Excluding the impact of acquisitions and divestitures, operating expenses
remained constant. During the fourth quarter of 2001, the Company recorded a
$21,930,000 restructuring charge to eliminate redundant facilities and functions
resulting from the Lilly acquisition in order to accelerate performance
improvement. See Note 3 to the Consolidated Financial Statements for detail of
the restructuring.
Other (income)/expense, increased to ($2,787,000) in 2001 from $200,000 in 2000.
The 2001 income was driven by the gains on the divestiture of the Company's
Mirror Coatings business and sale of certain assets, which were partially offset
by losses on the disposal and abandonment of certain assets.
Interest expense increased to $72,559,000 in 2001 from $21,989,000 in 2000 due
to higher debt levels resulting from the Lilly acquisition.
Net income for the full year was $51,500,000 or $1.10 per diluted share.
Excluding the impact of restructuring and other non-recurring charges, net
income for the full year was $73,704,000 or $1.58 per diluted share. A weak
economy, rising raw material prices, and significantly higher interest and
amortization expense negatively impacted the Company's financial performance in
2001. However, demand in the AAS Coatings product line remained strong and
Packaging Coatings sales were stable. Additionally, the Company is aggressively
implementing cost saving actions which are expected to result in $90-100 million
of pre-tax savings on an annualized basis by 2003.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations" and
Statement of Financial Accounting Standards No. 142 (SFAS 142) "Goodwill and
Other Intangible Assets," effective for fiscal years beginning after December
15, 2001. Under the new rules, goodwill and intangibles deemed to have
indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.
The Company will early adopt these Statements effective October 27, 2001.
Application of the non-amortization provisions of the Statement is expected to
result in an annual increase of earnings of approximately $.35 per share. The
Company will perform the first of the required tests for impairment of goodwill
and indefinite lived intangible assets as of the beginning of Fiscal 2002 and
will complete the initial impairment test by the end of the second quarter of
2002.
<PAGE>
VALSPAR AR 01 PAGE 9
OPERATIONS 2000 VS. 1999.
Net sales increased 6.9% to $1,483,320,000 in 2000 from $1,387,677,000 in 1999.
Excluding the impact of acquisitions and divestitures during the year, sales
increased approximately 3%, primarily driven by volume increases in the
Industrial Coatings product line.
The gross profit margin decreased to 29.9% in 2000 from 30.8% in 1999. The lower
margin was attributable to higher raw material costs and a difference in product
mix within the AAS Coatings product line.
Operating expenses (research and development, selling and administrative,
excluding the impact of restructuring) increased 2.7% to $281,318,000 (19.0% of
net sales) in 2000 compared to $273,925,000 (19.7% of net sales) in 1999.
Excluding the impact of acquisitions and divestitures, operating expenses
increased approximately 3%. This increase was primarily attributable to higher
expenditures to support the AAS Coatings product line. The Company recorded a
non-recurring restructuring charge of $8,346,000 in 1999 related to the closure
of existing Valspar facilities and workforce reduction following the Dexter
aquisition. During the second quarter of 2000, restructuring accruals in the
amount of $1,200,000 were reversed. These reversals were primarily related to
lower than estimated employee termination benefits and fewer program
cancellation costs than originally estimated.
Other (income)/expense, decreased to $200,000 in 2000 from ($9,164,000) in 1999.
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 $21,989,000 in 2000 from $19,089,000 in 1999 due
to higher debt levels resulting primarily from the Dexter acquisition.
2000 net income of $86,466,000 or $2.00 per diluted share represented the 26th
consecutive year of increased earnings for the Company. Net income increased
5.3% from 1999 primarily due to sales growth and expense controls. Income from
operations increased by 13.1% and was partially offset by higher interest
expense related to the Dexter acquisition.
FINANCIAL CONDITION.
Cash provided by operating activities was $197,609,000 in 2001 compared with
$93,338,000 in 2000 and $127,249,000 in 1999. The cash provided by operating
activities in 2001 and current cash balances were used largely to fund
$36,200,000 in capital expenditures and $24,856,000 in dividend payments. The
cash provided by borrowings and an equity offering yielding net proceeds of
$184,700,000 were used to fund $830,664,000 in Lilly acquisition related
commitments and in the repayment of bank borrowings.
Accounts receivable decreased $20,214,000 due to reduced sales primarily in the
Industrial Coatings business. Inventories and other assets decreased $10,108,000
primarily as a result of improved inventory controls. Accounts payable and
accrued liabilities decreased $26,989,000 primarily due to the timing of payable
disbursements and accrued liability disbursements.
Capital expenditures for property, plant and equipment were $36,200,000 in 2001
compared with $32,425,000 in 2000 and $31,400,000 in 1999. The Company
anticipates capital spending in fiscal 2002 to be approximately $40,000,000.
The Company reported $484,053,000 in net proceeds from bank borrowings during
2001. In April 2001, the Company reported net proceeds of $184,689,000 from the
public offering of 6.9 million shares of common stock. The ratio of total debt
to capital increased to 61.6% at the end of 2001 compared to 43.8% in 2000.
Average debt outstanding during 2001 was $1,118,086,000 at a weighted average
interest rate of 6.49% versus $362,855,000 at 6.06% last year, increasing the
current year's interest expense to $72,559,000 from $21,989,000 in the prior
year.
At October 26, 2001, the Company had unused lines of credit available from banks
of $688,429,000. In November, the Company reduced its lines of credit by
$350,000,000, reducing the unused lines by a similiar amount.
Common stock dividends of $24,856,000 in 2001 represented a 12% increase over
2000. The annual dividend was increased to $0.54 per share from $0.52 per share
in 2000 with the payout at 29% 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. There
were no purchases in 2001. Purchases under this program were 661,000 and 494,000
shares in 2000 and 1999, 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
<PAGE>
PAGE 10 VALSPAR AR 01
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 believes that such liabilities, individually and in the aggregate,
will not have a material adverse effect on the Company's financial condition or
results of operations.
The Company, along with other companies, is a defendant in a number of legal
proceedings and claims brought by governmental bodies and private persons
against companies who are alleged to have manufactured and sold paint containing
lead pigment. The Company believes that the litigation is without merit and is
vigorously defending these matters. It is possible that additional lawsuits or
claims could be brought against the Company. At this time, management cannot
estimate the scope or amount of potential costs or liabilities relating to these
matters. However, based on the outcome of such matters to date, and other
factors, management does not believe that the costs and liabilities of such
matters will have a material adverse effect on the Company's financial condition
or results of operations.
MARKET RISK.
The Company's foreign sales and results of operations are subject to the impact
of foreign currency fluctuations. 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. Including the impact of debt
incurred to fund the acquisition of Lilly Industries in fiscal 2001, if interest
rates are 10% higher in 2002 than the average rate experienced in 2001, interest
expense would increase by approximately $5 million.
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 risks related to the
Company's acquisitions, including risks of adverse changes in the results of
acqired businessses; risks of disruptions in business resulting from the
integration process; and significantly higher levels of debt for the Company
resulting in higher interest costs. The Company also faces general risks and
uncertainties such 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; 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 sales; the
outbreak of war and other significant national and international events; 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.
<PAGE>
VALSPAR AR 01 PAGE 11
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except per share amounts)
<TABLE>
<CAPTION>
OCTOBER 26, OCTOBER 27,
2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
Current Assets Cash and cash equivalents $ 20,139 $ 20,935
----------------------------------------------------------------------------------------
Accounts and notes receivable, less
allowances for doubtful accounts
(2001 - $10,212; 2000 - $4,925) 341,383 277,763
----------------------------------------------------------------------------------------
Inventories 185,565 154,887
----------------------------------------------------------------------------------------
Deferred income taxes 40,547 18,464
----------------------------------------------------------------------------------------
Prepaid expenses and other accounts 73,860 61,815
----------------------------------------------------------------------------------------
Total Current Assets 661,494 533,864
----------------------------------------------------------------------------------------
Goodwill, net 1,056,628 208,748
----------------------------------------------------------------------------------------
Other Assets, net 96,769 83,671
----------------------------------------------------------------------------------------
Property, Plant and Equipment Land 35,905 21,093
----------------------------------------------------------------------------------------
Buildings 144,158 135,205
----------------------------------------------------------------------------------------
Machinery and equipment 520,935 389,177
----------------------------------------------------------------------------------------
700,998 545,475
Less accumulated depreciation 289,819 246,728
----------------------------------------------------------------------------------------
Net Property, Plant and Equipment 411,179 298,747
----------------------------------------------------------------------------------------
Total Assets $ 2,226,070 $ 1,125,030
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities Notes payable to banks $ 41,114 $ 39,731
----------------------------------------------------------------------------------------
Trade accounts payable 174,844 153,996
----------------------------------------------------------------------------------------
Income taxes 23,328 10,910
----------------------------------------------------------------------------------------
Accrued liabilities 235,295 129,187
----------------------------------------------------------------------------------------
Current Portion of Long-Term Debt 486 464
----------------------------------------------------------------------------------------
Total Current Liabilities 475,067 334,288
----------------------------------------------------------------------------------------
Long-Term Debt 1,006,217 300,300
----------------------------------------------------------------------------------------
Deferred Income Taxes 60,012 22,366
----------------------------------------------------------------------------------------
Deferred Liabilities 30,209 30,505
----------------------------------------------------------------------------------------
Total Liabilities 1,571,505 687,459
----------------------------------------------------------------------------------------
Stockholders' Equity Common Stock (par value $.50 per share;
shares authorized 126,900,000;
shares issued, including shares in
treasury, 60,221,312 shares in 2001; 53,321,312 in 2000) 30,110 26,660
----------------------------------------------------------------------------------------
Additional paid-in capital 216,756 34,267
----------------------------------------------------------------------------------------
Retained earnings 522,805 490,860
----------------------------------------------------------------------------------------
Other (1,551) (306)
----------------------------------------------------------------------------------------
768,120 551,481
Less cost of Common Stock in treasury
(2001 - 10,739,685 shares;
2000 - 10,840,142 shares) 113,555 113,910
----------------------------------------------------------------------------------------
Total Stockholders' Equity 654,565 437,571
----------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 2,226,070 $ 1,125,030
============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
PAGE 12 VALSPAR AR 01
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, except per share amounts)
<TABLE>
<CAPTION>
OCTOBER 26, OCTOBER 27, OCTOBER 29,
FOR THE YEAR ENDED 2001 2000 1999
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 1,920,970 $ 1,483,320 $ 1,387,677
- -------------------------------------------------------------------------------------
COST AND EXPENSES:
- -------------------------------------------------------------------------------------
Cost of sales 1,346,934 1,039,267 960,395
- -------------------------------------------------------------------------------------
Research and development 58,105 46,353 44,091
- -------------------------------------------------------------------------------------
Selling and administrative 303,796 224,290 222,275
- -------------------------------------------------------------------------------------
Amortization Expense 29,283 10,675 7,559
- -------------------------------------------------------------------------------------
Restructuring 21,930 (1,200) 8,346
- -------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 160,922 163,935 145,011
Other (Income)/Expense, net (2,787) 200 (9,164)
Interest expense 72,559 21,989 19,089
- -------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 91,150 141,746 135,086
Income taxes 39,650 55,280 52,944
- -------------------------------------------------------------------------------------
NET INCOME $ 51,500 $ 86,466 $ 82,142
- -------------------------------------------------------------------------------------
Net Income Per Common Share - Basic $ 1.12 $ 2.02 $ 1.90
- -------------------------------------------------------------------------------------
Net Income Per Common Share - Diluted $ 1.10 $ 2.00 $ 1.87
- -------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
VALSPAR AR 01 PAGE 13
CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in Thousands, except per share amounts)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------ PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS OTHER STOCK
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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, net of tax -- -- -- -- 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
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock options
exercised for 84,893 shares -- -- 1,101 -- -- (840)
- -----------------------------------------------------------------------------------------------------------------------------------
Purchase of 661,000 shares of
common stock for treasury -- -- -- -- -- 21,124
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income: -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 86,466 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign currency translation, net of tax -- -- -- -- (1,306) --
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends on common
stock - $.52 per share -- -- -- (22,185) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Other -- -- 4,270 (2,818) (997) 432
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 27, 2000 53,321,312 $ 26,660 $ 34,267 $ 490,860 $ (306) $ 113,910
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock options
exercised for 141,578 shares -- -- 918 -- -- (1,225)
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock issuance and
sale of 6,900,000 shares, net 6,900,000 3,450 181,239 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income: -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 51,500 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign currency translation, net of tax -- -- -- -- (1,245) --
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends on common
stock - $.54 per share -- -- -- (24,856) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Other -- -- 332 5,301 -- 870
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 26, 2001 60,221,312 $ 30,110 $ 216,756 $ 522,805 $ (1,551) $ 113,555
===================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
PAGE 14 VALSPAR AR 01
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
OCTOBER 26, OCTOBER 27, OCTOBER 29,
FOR THE YEAR ENDED 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES Net income $ 51,500 $ 86,466 $ 82,142
Adjustments to reconcile net
income to net cash provided by
operating activities:
Restructuring and non-recurring charge 39,300 (1,200) 8,346
------------------------------------------------------------------------------------------------------
Depreciation 43,767 34,563 32,241
------------------------------------------------------------------------------------------------------
Amortization 29,283 10,675 7,559
------------------------------------------------------------------------------------------------------
Deferred income taxes 15,055 11,526 (9,619)
------------------------------------------------------------------------------------------------------
Gain on sales or abandonment
of property, plant and equipment (3,512) -- 3,358
------------------------------------------------------------------------------------------------------
Gain on sales of investments (736) -- (13,850)
------------------------------------------------------------------------------------------------------
Changes in certain assets and liabilities,
net of effects of acquired businesses:
Decrease (increase) in accounts and
notes receivable 20,214 (17,100) (9,513)
------------------------------------------------------------------------------------------------------
Decrease (increase) in inventories and
other assets 10,108 (14,397) (1,348)
------------------------------------------------------------------------------------------------------
Increase (decrease) in trade accounts
payable and accrued liabilities (26,989) (8,074) 12,687
------------------------------------------------------------------------------------------------------
Increase (decrease) in income taxes payable 8,293 (10,952) 15,849
------------------------------------------------------------------------------------------------------
Increase (decrease) in other deferred liabilities 6,048 (792) 717
------------------------------------------------------------------------------------------------------
Other 5,278 2,623 (1,320)
------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 197,609 93,338 127,249
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES Purchases of property, plant and equipment (36,200) (32,425) (31,400)
------------------------------------------------------------------------------------------------------
Acquired businesses, net of cash (830,664) (3,935) (240,657)
------------------------------------------------------------------------------------------------------
Divested businesses/assets 22,430 -- 37,678
------------------------------------------------------------------------------------------------------
Other investments/advances to joint ventures -- (15,586) (459)
------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (844,434) (51,946) (234,838)
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES Net proceeds from borrowings 484,053 (12,278) 162,037
------------------------------------------------------------------------------------------------------
Proceeds from sales of treasury stock 2,143 1,941 1,121
------------------------------------------------------------------------------------------------------
Proceeds from equity offering 184,689 -- --
------------------------------------------------------------------------------------------------------
Purchase of shares of Common Stock for treasury -- (21,124) (17,585)
------------------------------------------------------------------------------------------------------
Dividends paid (24,856) (22,185) (19,785)
------------------------------------------------------------------------------------------------------
Net Cash provided by/(used in)
financing activities 646,029 (53,646) 125,788
------------------------------------------------------------------------------------------------------
(Decrease)/Increase in cash and cash equivalents (796) (12,254) 18,199
==================================================================================================================================
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,935 33,189 14,990
==================================================================================================================================
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 20,139 $ 20,935 $ 33,189
==================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
VALSPAR AR 01 PAGE 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE VALSPAR CORPORATION * Years Ended October 2001, 2000 and 1999
(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. All 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.
REVENUE RECOGNITION: Other than long-term warranty programs, revenue from sales
is recognized upon product shipment and passage of title to the customer.
Revenue from long-term warranty programs is recognized based on the ratio of
costs incurred to estimated total costs at program completion, using historical
claim data. Adjustments in estimated costs are reflected in earnings in the
current period. Anticipated losses on programs in progress are charged to
earnings when identified.
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".
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 Standard 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" and its
interpretations 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 fair value 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 each of the three years ended October 26, 2001 in
accordance with Statement of Financial Accounting Standards No. 128 (SFAS 128):
2001 2000 1999
- --------------------------------------------------------------------------------
Weighted average
common shares
outstanding-basic 46,062,459 42,706,168 43,298,367
Dilutive effect of
stock options 595,296 489,599 537,212
- --------------------------------------------------------------------------------
Equivalent average
common shares
outstanding diluted 46,657,755 43,195,767 43,835,579
================================================================================
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
<PAGE>
PAGE 16 VALSPAR AR 01
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.
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
26, 2001.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and foreign
currency translation adjustment and is presented in the Consolidated Statements
of Changes in Stockholders' Equity.
NOTE 2 - ACQUISITIONS AND DIVESTITURES
Effective July 31, 2001, the Company acquired the Packaging Coatings business of
Coates Brothers in Singapore, Malaysia, Indonesia and Thailand. Revenues for
these businesses were $7 million in 2000. This acquisition significantly
strengthens the Company's presence in the Southeast Asia packaging coatings
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 effect of this transaction on the
Company's results of operations for 2001 was not material.
Effective December 20, 2000, the Company acquired all outstanding Class A and
Class B stock of Lilly Industries, Inc. for $31.75 per share in cash. Total
consideration paid was approximately $1,036 million, including the assumption of
debt of approximately $218 million. Lilly Industries was one of the five largest
industrial coatings and specialty chemicals manufacturers in North America, with
reported net sales of $656.2 million for the year ended November 30, 1999, and
$669.7 for the year ended November 30, 2000. Lilly Industries formulates,
manufactures and markets industrial coatings and specialty chemicals to original
equipment manufacturers for products such as home and office furniture,
cabinets, appliances, building products, transportation, and agricultural and
construction equipment. 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 prior to the adoption of Statement of Financial
Accounting Standards No. 142, is being amortized over the estimated period of
benefit.
The following unaudited pro forma combined summary statements of income
information for the twelve month periods ended October 26, 2001 and October 27,
2000 were 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 CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars, except per share data)
YEAR ENDED YEAR ENDED
OCTOBER 26, 2001 OCTOBER 27, 2000
- --------------------------------------------------------------------------------
Net sales $ 2,018,468 $ 2,153,019
Net income 45,420 57,275
Net income per share-basic .99 1.34
Net income per share-diluted .97 1.33
During the first quarter of fiscal 2001, the Company completed the sale of its
existing Mirror Coatings business as a condition of Federal Trade Commission
approval for the Lilly Industries acquisition. This product line had revenues of
approximately $12 million for the year ended October 27, 2000. The effect of
this divestiture on the Company's results of operations for 2001 was not
material.
In November 2000, the Company acquired the 49% interest in The Valspar (Mexico)
Corporation, S.A. de C.V. held by its joint venture partner. The Valspar
(Mexico) Corporation has operations in Mexico City and Monterrey and produces
Industrial and Packaging coatings. 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 2001 was not
material.
In December 1997, as a part of the Coates acquisition, the Company acquired a
49% interest in a joint venture with Coates for packaging coatings in South
Africa. In February 1999, as a part of the Dexter acquisition, the Company
acquired Dexter's majority position in a joint venture with Plascon (Pty)
Limited, a South African company, for packaging coatings in South Africa. As of
October 2000, the Company acquired Coates' 51% interest in the Valspar/Coates
joint venture and reorganized the businesses of both South African joint
ventures so that Valspar now has a majority position in a joint venture with
Plascon for a combined packaging coatings business in South Africa. 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 2000 was not material.
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 in
1999 of $17 million. The transaction was accounted for as a purchase.
Accordingly, the net assets and operating
<PAGE>
VALSPAR AR 01 PAGE 17
results have been included in the Company's financial statements from the date
of acquisition.
Effective February 26, 1999, the Company acquired Dexter Corporation's worldwide
packaging coatings business and its French industrial coatings subsidiary,
Dexter SAS. Dexter 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 good will and is being amortized over the estimated period
of benefit.
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.
Effective March 26 and April 20,1999, 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.
NOTE 3 - RESTRUCTURING
In September 2001, the Company's Board of Directors approved and the Company
initiated actions to eliminate redundant facilities and functions resulting from
the Lilly Industries acquisition in order to accelerate performance improvement.
These actions resulted in the Company recording aggregate pre-tax charges of
$39,300. The charges include $21,930 classified as restructuring and $17,370 of
inventory and other asset write-downs classified in cost of sales. Through
October 26, 2001, the Company has paid or incurred $21,678 of the $39,300
charge. The Company anticipates that substantially all of the remaining
restructuring costs will be paid by October 25, 2002.
INCURRED
THROUGH BALANCE
TOTAL OCTOBER OCTOBER
CHARGE 26, 2001 26, 2001
- --------------------------------------------------------------------------------
Severance costs $ 8,384 $ 888 $ 7,496
Exit and termination costs 2,049 115 1,934
Property, plant and equipment 11,497 7,733 3,764
Inventory and other assets 17,370 12,942 4,428
- --------------------------------------------------------------------------------
$39,300 $21,678 $17,622
================================================================================
These plans contemplated a workforce reduction of worldwide headcount by 350 or
five percent. As of October 26, 2001 the Company had communicated the benefits
due to employees resulting from the workforce reduction. The net cash impact of
the charges over the next two years will be negligible.
During 1999, the Company initiated actions to eliminate redundant facilities and
functions resulting from the acquired Dexter packaging coatings operations,
resulting in a pre-tax restructuring charge of $8,346. During 2000, accruals in
the amount of $1,200 were reversed related to lower than estimated costs.
NOTE 4 - INVENTORIES
The major classes of inventories consist of the following:
2001 2000
- --------------------------------------------------------------------------------
Manufactured products $114,967 $108,225
Raw materials, supplies and work-in-process 70,598 46,662
- --------------------------------------------------------------------------------
$185,565 $154,887
================================================================================
Inventories stated at cost determined by the last-in, first-out (LIFO) method
aggregate $128,450 at October 26, 2001 and $108,031 at October 27, 2000,
approximately $28,530 and $27,335 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 $24,459 and $23,326 of issued checks which had
not cleared the Company's bank accounts as of October 26, 2001 and October 27,
2000, respectively.
Accrued liabilities include the following:
2001 2000
- --------------------------------------------------------------------------------
Employee compensation $ 58,860 $ 43,879
Uninsured loss reserves 56,372 22,575
Customer volume rebates 34,006 25,541
Contribution to employees'
retirement trusts 5,642 7,789
Restructuring 17,622 1,093
Deferred Revenue 17,619 --
Other 45,174 28,310
- --------------------------------------------------------------------------------
Total $235,295 $129,187
================================================================================
The increase in accrued liabilities is due to the Lilly acquisition,
restructuring, and deferred revenue.
<PAGE>
PAGE 18 VALSPAR AR 01
NOTE 6 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
2001 2000
- --------------------------------------------------------------------------------
Notes to banks
(3.225% - 5.6233% at October 26, 2001) $ 890,597 $ 283,741
Senior Notes
(7.75% at October 26, 2001 payable in 2007) 100,000
Industrial development bonds
(2.2 - 7.6% at October 26,
2001, payable in 2015 and 2018) 14,955 15,204
Obligations under capital lease
(7.5% at October 26, 2001,
payable through 2004) 1,151 1,819
- --------------------------------------------------------------------------------
$ 1,006,703 $ 300,764
Less current maturities (486) (464)
- --------------------------------------------------------------------------------
$ 1,006,217 $ 300,300
================================================================================
The Company has $1,150,000 of committed revolving multi-currency credit
facilities with two syndicates of banks at optional interest rates of prime or
IBOR-based rates. The 364-day facility in the amount of $150,000 matures
November 14, 2002 and the five-year facility in the amount of $1,000,000 matures
November 17, 2005. Included in the $1 billion credit facility are notes to banks
totaling $890,597 at October 26, 2001 and $283,741 at October 27, 2000. The
maturities of the remaining long-term debt are as follows: 2002 - $486; 2003 -
$519; 2004 - $718; 2005-$150; 2006-$127 and $114,106 thereafter. The revolving
credit loan agreement contains covenants that require the Company to maintain
certain financial ratios. The Company is in compliance with these covenants as
of October 26, 2001.
Under other short-term bank lines of credit around the world, the Company may
borrow up to $118,673 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, including the revolver,
had an average annual interest rate of 6.37% in 2001 and 6.06% in 2000.
The Company had unused lines of credit under short-term bank lines and the
revolving credit facility of $688,429 at October 26, 2001, which was reduced by
$350 million in November 2001.
Interest paid during 2001, 2000 and 1999 was $67,660, $22,369 and $19,092,
respectively.
NOTE 7 - INCOME TAXES
Significant components of the provision for income taxes are as follows:
YEAR ENDED 2001 2000 1999
- --------------------------------------------------------------------------------
Current
Federal $ 14,558 $ 32,312 $ 49,820
State (1,443) 3,412 5,943
Foreign 7,938 8,212 5,319
- --------------------------------------------------------------------------------
Total Current 21,053 43,936 61,082
================================================================================
Deferred
Federal 15,302 9,586 (4,717)
State 2,731 1,565 (860)
Foreign 564 193 (2,561)
- --------------------------------------------------------------------------------
Total Deferred 18,597 11,344 (8,138)
================================================================================
Total Income Taxes $ 39,650 $ 55,280 $ 52,944
================================================================================
Significant components of the Company's deferred tax assets and liabilities are
as follows:
2001 2000 1999
- --------------------------------------------------------------------------------
Deferred tax assets:
Product liability accruals $ 9,372 $ 2,508 $ 2,749
Insurance accruals 3,392 3,418 4,459
Deferred compensation 7,414 7,125 7,797
Workers' compensation accruals 2,141 2,538 2,177
Employee compensation accruals 2,693 1,931 2,943
Other 31,769 20,974 19,142
- --------------------------------------------------------------------------------
Total deferred tax assets 56,781 38,494 39,267
================================================================================
Deferred tax liabilities:
Tax in excess of book depreciation (33,510) (24,445) (15,336)
Other (42,736) (17,951) (16,658)
- --------------------------------------------------------------------------------
Total deferred tax liabilities (76,246) (42,396) (31,994)
- --------------------------------------------------------------------------------
Net deferred tax (liabilities)/assets $(19,465) $ (3,902) $ 7,273
================================================================================
A reconciliation of income tax computed at the U.S. Federal statutory tax rate
to the effective income tax rate is as follows:
2001 2000 1999
- --------------------------------------------------------------------------------
Tax at U.S. statutory Rate 35.0% 35.0% 35.0%
Goodwill Amortization 5.5% 0.5% 0.4%
State income taxes, net of Federal benefit 0.8% 2.1% 2.4%
Non-U.S. Taxes 2.7% 0.7% 0.1%
Other -0.5% 0.7% 1.3%
- --------------------------------------------------------------------------------
43.5% 39.0% 39.2%
================================================================================
<PAGE>
VALSPAR AR 01 PAGE 19
No provision has been made for U.S. Federal Income taxes on certain
undistributed earnings of foreign subsidiaries that the Company intends to
permanently invest or that may be remitted substantially tax-free. The total of
undistributed earnings that would be subject to federal income tax if remitted
under existing law is approximately $84,931 at October 26, 2001. Determination
of the unrecognized deferred tax liability related to these earnings is not
practicable because of the complexities with its hypothetical calculation. Upon
distribution of these earnings, the Company will be subject to U.S. taxes and
withholding taxes payable to various foreign governments. A credit for foreign
taxes already paid would be available to reduce the U.S. tax liability.
Income taxes paid during 2001, 2000 and 1999 were $21,292, $51,669 and $45,749,
respectively.
NOTE 8 - STOCK PLANS
Stock Options: Under the Company's Stock Option Plan, options for the purchase
of up to 8,000,000 shares of common stock may be granted to officers, employees
and non-employee directors. 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.
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 price 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:
2001 2000 1999
- --------------------------------------------------------------------------------
Pro forma net income $49,785 $ 79,406 $ 80,974
Pro forma earnings per share:
Basic 1.08 1.86 1.87
Diluted 1.07 1.84 1.85
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:
2001 2000 1999
- --------------------------------------------------------------------------------
Expected dividend yield 1.5% 1.5% 1.5%
Expected stock price volatility 29.8% 27.9% 22.2%
Risk-free interest rate 4.2% 5.5% 6.2%
Expected life of options 6 years 6 years 6 years
The weighted average fair value for options granted during 2001, 2000 and 1999
is $11.05, $10.83, and $8.71 per share, respectively. Stock option activity for
the three years ended October 26, 2001 is summarized as follows:
WEIGHTED
AVERAGE
SHARES OPTIONS EXERCISE
RESERVED OUTSTANDING PRICE
- --------------------------------------------------------------------------------
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
Canceled 28,466 (28,466) $ 32.24
- --------------------------------------------------------------------------------
October 29, 1999 Balance 3,263,447 2,228,395 $ 26.49
Shares reserved -- -- --
Granted (1,444,172) 1,444,172 $ 33.32
Exercised -- (84,893) $ 22.86
Canceled 68,192 (68,192) $ 37.24
- --------------------------------------------------------------------------------
October 27, 2000 Balance 1,887,467 3,519,482 $ 29.47
Shares reserved 3,010,000 -- --
Granted (2,428,825) 2,428,825 $ 32.16
Exercised -- (130,364) $ 20.94
Canceled 163,554 (163,554) $ 35.92
- --------------------------------------------------------------------------------
October 26, 2001 2,632,196 5,654,389 $ 30.64
================================================================================
Options outstanding at October 26, 2001 had an average remaining contractual
life of 7.86 years. Options exercisable of 2,395,331 at October 26, 2001,
1,911,232 at October 27, 2000, and 939,257 at October 29, 1999 had weighted
average exercise prices of $26.32, $23.20, and $19.61, respectively. The
exercise price for options outstanding as of October 26, 2001 range from $12.00
to $40.31, with 1,372,214 shares outstanding in the $12.00 - $25.00 range and
4,282,175 shares outstanding in the $25.00 - $40.31 range.
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 9% 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 $4,328, $3,314 and $5,307, for 2001, 2000 and 1999,
respectively.
<PAGE>
PAGE 20 VALSPAR AR 01
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 26, 2001, 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
- --------------------------------------------------------------------------------
2002 $ 8,533
2003 6,595
2004 3,867
2005 1,045
2006 838
2007 and beyond 2,373
================================================================================
$23,251
Rent expense for operating leases was $12,408 in 2001, $6,426 in 2000 and $6,338
in 1999.
NOTE 10 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS
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 $9,264, $10,657, and $9,869, for 2001, 2000, and 1999, respectively.
The Company also sponsors a number of defined benefit pension plans for certain
hourly and foreign employees. The benefits for these plans are generally based
on stated amounts for each year of service. The Company funds the plans in
amounts consistent with the limits of allowable tax deductions. The Company
assumed the liabilities and assets under the Lilly pension plan for employees
eligible as of the date of acquisition.
The cost of the pension benefits is as follows:
NET PERIODIC COST
2001 2000 1999
- --------------------------------------------------------------------------------
Service cost $ 1,837 $ 1,185 $ 1,158
Interest cost 7,861 2,328 2,016
Expected return on plan assets (12,774) (3,818) (3,059)
Amortization of transition asset obligation (301) (91) (92)
Amortization of prior service cost 817 343 367
Recognized actuarial gain (409) (406) (292)
================================================================================
Net-periodic benefit cost (2,969) (459) 98
Settlement gain -- (787) --
Net-periodic benefit cost after settlement $ (2,969) $(1,246) $ 98
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 obligation--the 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 OBLIGATIONS
2001 2000
- --------------------------------------------------------------------------------
Benefit obligation at beginning of year $ 37,582 $ 35,628
Service cost 1,837 1,185
Interest cost 7,861 2,328
Plan participants' contributions 125 134
Amendments 1,316 148
Actuarial loss 20,889 2,278
Acquisitions 79,211 --
Benefits paid (5,813) (1,824)
Settlements -- (2,295)
================================================================================
Benefit obligation at end of year $ 143,008 $ 37,582
CHANGE IN PLAN ASSETS
2001 2000
- --------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $ 51,806 $ 47,460
Actual return on plan assets (6,955) 6,759
Employer contributions 628 1,572
Plan participants' contributions 125 134
Benefit payments (5,813) (1,824)
Acquisitions 94,240 --
Settlements -- (2,295)
================================================================================
Fair value of plan assets at end of year $ 134,031 $ 51,806
<PAGE>
VALSPAR AR 01 PAGE 21
FUNDED STATUS
2001 2000
- --------------------------------------------------------------------------------
Funded status at end of year $ (8,977) $ 14,224
Unrecognized transition asset (1,098) (871)
Unrecognized prior service cost 7,752 3,414
Unrecognized net loss/(gain) 24,534 (11,622)
================================================================================
Net amount recognized in
statement of financial position $ 22,211 $ 5,145
The actuarial assumptions were as follows:
2001 2000
- --------------------------------------------------------------------------------
Discount rate 6.0%-7.0% 6.25%-7.25%
Expected return on plan assets 7.0%-9.0% 7.0%-9.0%
Average increase in compensation 2.75%-4.0% 3.75%-6.0%
In addition to the Company's defined benefit pension plans, the Company sponsors
a health care plan that provides post-retirement medical benefits for some of
its employees. The Company's policy is to fund these benefits as they are paid.
The Company's accrued post-retirement benefit liability recognized in the
Company's balance sheet was $5,331 and $1,607 at October 26, 2001 and October
27, 2000, respectively. Net periodic post-retirement expense was $487, $150 and
$95 in 2001, 2000 and 1999, respectively.
The weighted-average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.0% and 7.5% at October 26, 2001 and
October 27, 2000, respectively. The assumed health-care cost trend rate used in
measuring the accumulated post-retirement benefit obligation was 6.5% in 2001,
then declining by .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
post-retirement benefit obligation or net periodic post-retirement expense.
NOTE 11 - SEGMENT INFORMATION
Prior to the Lilly Industries acquisition, the Company had two reportable
segments: coatings and coating intermediates. Following the acquisition, the
Company included the former Lilly Industries operations in its coatings segment,
and the coating intermediates segment no longer meets the quantitative criteria
for separate reporting. The Company now refers to these products as Other.
The Company now operates its business in one reportable segment: Coatings. The
Company manufactures and distributes a broad portfolio of coatings products. The
Industrial product line includes decorative and protective coatings for wood,
metal, plastic, and glass. The Architectural, Automotive, and Specialty (AAS)
product line includes interior and exterior decorative paints, primers,
varnishes and specialty decorative products, such as enamels, aerosols and faux
finishes, as well as automotive refinish and high performance floor coatings.
The Packaging product line includes coatings and inks for rigid packaging
containers. The Other category includes specialty polymers and colorants, which
are used internally and sold to other coatings manufacturers.
Net sales by product line are as follows:
2001 2000 1999
- --------------------------------------------------------------------------------
Industrial $ 739,479 $ 372,142 $ 328,669
AAS 558,262 505,087 510,960
Packaging 494,146 508,536 452,846
Other 129,083 97,555 95,202
================================================================================
$1,920,970 $1,483,320 $1,387,677
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 goodwill 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:
2001 2000 1999
- --------------------------------------------------------------------------------
Net sales-External
United States 1,470,394 1,137,219 1,116,347
Outside United States 450,576 346,101 271,330
================================================================================
Total net sales-External 1,920,970 1,483,320 1,387,677
2001 2000 1999
- --------------------------------------------------------------------------------
Long-lived assets:
United States 1,245,059 343,813 339,760
Outside United States 222,748 163,682 191,041
================================================================================
Total long-lived assets 1,467,807 507,495 530,801
<PAGE>
PAGE 22 VALSPAR AR 01
NOTE 12 - QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a tabulation of the unaudited quarterly results for the years
ended October 26, 2001 and October 27, 2000:
NET INCOME
GROSS NET PER SHARE-
NET SALES MARGIN INCOME DILUTED
- --------------------------------------------------------------------------------
2001 Quarter Ended:
January 26 $ 336,980 $ 93,335 $ 4,458 $ .10
April 27 513,745 162,099 19,036 .44
July 27 544,888 170,392 25,502 .51
October 26 525,357 148,210 2,504 .05
- --------------------------------------------------------------------------------
$1,920,970 $ 574,036 $ 51,500 $ 1.10
================================================================================
2000 Quarter Ended:
January 28 $ 323,671 $ 92,441 $ 11,455 $ .26
April 28 392,780 120,025 25,371 .59
July 28 385,070 117,292 25,466 .59
October 27 381,799 114,295 24,174 .56
- --------------------------------------------------------------------------------
$1,483,320 $ 444,053 $ 86,466 $ 2.00
================================================================================
NOTE 13 - RECENTLY ISSUED ACCOUNTING STANDARDS
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards no. 144 (SFAS 144), "Accounting for the
Impairment and Disposal of Long-Lived Assets," which is effective for fiscal
years beginning after December 15, 2001. The adoption of this standard is not
expected to have a material impact on the Company's consolidated results of
operations, financial position or cash flows.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations" and
Statement of Financial Accounting Standards No. 142 (SFAS 142) "Goodwill and
Other Intangible Assets," effective for fiscal years beginning after December
15, 2001. Under the new rules, goodwill and intangibles deemed to have
indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.
The Company will early adopt these Statements effective October 27, 2001.
Application of the non-amortization provisions of the Statement is expected to
result in an annual increase of earnings of approximately $.35 per share. The
Company will perform the first of the required tests for impairment of goodwill
and indefinite lived intangible assets as of the beginning of Fiscal 2002 and
will complete the initial impairment test by the end of the second quarter of
2002.
Effective October 28, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments
and Hedging Activities." The Company has developed procedures and policies for
the use of derivative instruments and hedging strategies. The adoption of this
standard did not have a material impact on the Company's consolidated results of
operations, financial position or cash flows.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>9
<FILENAME>valspar020271_ex-21.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
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 (Germany) GmbH Germany
The Valspar (H.K.) Corporation Limited Hong Kong
Valspar Mexicana, S.A. de C.V. Mexico
Valspar Rock Co., Ltd. Japan
The Valspar (Singapore) Corporation Pte Ltd Singapore
The Valspar (South Africa) Corporation (Pty) Ltd. South Africa
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.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.(A)
<SEQUENCE>10
<FILENAME>valspar020271_ex-23a.txt
<DESCRIPTION>CONSENT OF INDEPENDENT AUDITORS
<TEXT>
Exhibit No. 23(a)
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Valspar Corporation of our report dated November 16, 2001, included in
the 2001 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, 333-46865 and 333-67668 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; and Form S-8 No.
333-67668 pertaining to The Valspar Corporation 2001 Stock Incentive Plan of our
report dated November 16, 2001, 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 22, 2002
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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