SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Six Months Commission File
Ended April 25, 2003 Number: 1-3011
THE VALSPAR CORPORATION
-----------------------
State of Incorporation: IRS Employer ID No.:
Delaware 36-2443580
Principal Executive Offices:
1101 Third Street South
Minneapolis, MN 55415
Telephone Number: 612/332-7371
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 such filing requirements for
the past 90 days. |X| Yes |_| No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). |X| Yes |_| No
As of May 30, 2003, The Valspar Corporation had 50,476,497 shares of common
stock outstanding, excluding 9,744,815 shares held in treasury. The Company had
no other classes of stock outstanding.
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THE VALSPAR CORPORATION
Index to Form 10-Q
for the Quarter Ended April 25, 2003
PART I. FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
April 25, 2003, April 26, 2002 and
October 25, 2002...................................... 2 - 3
Condensed Consolidated Statements of Income -
Three months and six months ended April 25, 2003
and April 26, 2002.................................... 4
Condensed Consolidated Statements of Cash Flows -
Six months ended April 25, 2003 and April 26, 2002.... 5
Notes to Condensed Consolidated Financial Statements -
April 25, 2003........................................ 6 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 10 - 12
Item 3. Quantitative and Qualitative Disclosures about
Market Risk........................................... 12
Item 4. Controls and Procedures................................. 12
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings....................................... 12
Item 4. Submission of Matters to a Vote of Security Holders..... 13
Item 6. Exhibits and Reports on Form 8-K........................ 13
SIGNATURES/CERTIFICATIONS........................................... 14 - 16
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-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
April 25, April 26, October 25,
2003 2002 2002
----------- ----------- -----------
(Unaudited) (Unaudited) (Note)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 20,417 $ 37,559 $ 22,715
Accounts receivable less allowance
(4/25/03 - $14,051; 4/26/02 - $12,431;
10/25/02 - $17,013) 400,141 374,545 368,134
Inventories:
Manufactured products 139,539 129,869 123,274
Raw materials, supplies and work-
in-process 76,498 74,399 77,371
----------- ----------- -----------
216,037 204,268 200,645
Deferred income taxes 29,224 40,326 30,498
Prepaid expenses and other 70,155 65,924 79,796
----------- ----------- -----------
TOTAL CURRENT ASSETS 735,974 722,622 701,788
GOODWILL 950,991 934,000 938,759
INTANGIBLES, NET 291,098 292,518 293,208
OTHER ASSETS, NET 73,865 67,403 68,333
DEFERRED INCOME TAX 16,329 -- 14,989
PROPERTY, PLANT AND EQUIPMENT 687,074 614,302 652,164
Less allowance for depreciation (281,815) (229,334) (249,689)
----------- ----------- -----------
405,259 384,968 402,475
----------- ----------- -----------
$ 2,473,516 $ 2,401,511 $ 2,419,552
=========== =========== ===========
NOTE: The Balance Sheet at October 25, 2002 has been derived from the audited
consolidated financial statements at that date.
See Notes to Condensed Consolidated Financial Statements.
-3-
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(DOLLARS IN THOUSANDS)
April 25, April 26, October 25,
2003 2002 2002
----------- ----------- -----------
(Unaudited) (Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Notes payable to banks $ 49,095 $ 95,527 $ 40,579
Trade accounts payable 190,160 191,031 197,047
Income taxes 43,840 47,716 20,998
Accrued liabilities 220,562 208,662 245,271
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 503,657 542,936 503,895
LONG-TERM DEBT 873,043 940,162 885,819
DEFERRED INCOME TAXES 181,628 167,133 180,592
DEFERRED LIABILITIES 119,781 58,431 111,993
STOCKHOLDERS' EQUITY:
Common Stock (Par Value - $.50;
Authorized - 120,000,000 shares;
Shares issued, including shares
in treasury - 60,221,312) 30,110 30,110 30,110
Additional paid-in capital 240,084 227,907 230,163
Retained earnings 647,654 556,002 614,964
Other (16,250) (11,260) (29,919)
----------- ----------- -----------
901,598 802,759 845,318
Less cost of Common Stock in treasury
(4/25/03 - 9,784,310 shares; 4/26/02 -
10,304,509 shares; 10/25/02 -
10,117,299 shares) 106,191 109,910 108,065
----------- ----------- -----------
795,407 692,849 737,253
----------- ----------- -----------
$ 2,473,516 $ 2,401,511 $ 2,419,552
=========== =========== ===========
NOTE: The Balance Sheet at October 25, 2002 has been derived from the audited
financial statements at that date.
See Notes to Condensed Consolidated Financial Statements
-4-
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
April 25, April 26, April 25, April 26,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net sales $ 561,770 $ 554,002 $ 1,030,741 $ 985,042
Costs and expenses:
Cost of sales 383,854 368,805 709,176 668,145
Research and development 18,110 17,165 34,727 32,369
Selling and administration 96,156 100,115 186,040 183,071
------------ ------------ ------------ ------------
Income from Operations 63,650 67,917 100,798 101,457
Interest expense 11,508 11,053 23,325 23,277
Other (income)/expense - net 275 (218) 416 258
------------ ------------ ------------ ------------
Income before income taxes 51,867 57,082 77,057 77,922
Income taxes 19,710 22,548 29,281 30,780
------------ ------------ ------------ ------------
Net income $ 32,157 $ 34,534 $ 47,776 $ 47,142
============ ============ ============ ============
Net income per common share - basic $ 0.64 $ 0.69 $ 0.95 $ 0.95
============ ============ ============ ============
Net income per common share - diluted $ 0.62 $ 0.67 $ 0.92 $ 0.92
============ ============ ============ ============
Average number of common shares
outstanding - basic 50,386,741 49,862,123 50,297,951 49,705,086
============ ============ ============ ============
- diluted 51,618,420 51,594,252 51,730,317 51,206,402
============ ============ ============ ============
Dividends paid per common share $ 0.150 $ 0.140 $ 0.300 $ 0.280
============ ============ ============ ============
See Notes to Condensed Consolidated Financial Statements.
-5-
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
----------------------
April 25, April 26,
2003 2002
-------- --------
OPERATING ACTIVITIES:
Net income $ 47,776 $ 47,142
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 24,431 21,816
Amortization 2,225 2,620
Loss on asset divestiture 783 --
Changes in certain assets and liabilities, net of effects of
acquired businesses:
Decrease (increase) in accounts and notes receivable (23,899) (31,807)
Decrease (increase) in inventories and other current assets (1,140) (19,885)
Increase (decrease) in trade accounts payable and accrued
liabilities (34,410) 19,353
Increase (decrease) in income taxes payable 25,035 24,388
Increase (decrease) in other deferred liabilities 426 (1,985)
Other (1,978) 5,833
-------- --------
Net Cash Provided By Operating Activities 39,249 67,475
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (21,007) (13,587)
Acquired businesses/assets, net of cash -- (22,870)
-------- --------
Net Cash Used In Investing Activities (21,007) (36,457)
FINANCING ACTIVITIES:
Net proceeds from borrowings (12,275) (7,740)
Proceeds from sale of treasury stock 6,804 8,080
Dividends paid (15,069) (13,938)
-------- --------
Net Cash Used In Financing Activities (20,540) (13,598)
(Decrease)/increase in Cash and Cash Equivalents (2,298) 17,420
-------- --------
Cash and Cash Equivalents at Beginning of Period 22,715 20,139
-------- --------
Cash and Cash Equivalents at End of Period $ 20,417 $ 37,559
======== ========
See Notes to Condensed Consolidated Financial Statements.
-6-
THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 25, 2003
NOTE 1: BASIS OF PRESENTATION
- ------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the quarter and six months ended April 25,
2003 are not necessarily indicative of the results that may be expected for the
year ending October 31, 2003.
The Condensed Consolidated Balance Sheet at October 25, 2002 has been derived
from the audited consolidated financial statements at that date but does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial information.
For further information refer to the consolidated financial statements and
footnotes thereto included in The Valspar Corporation's annual report on Form
10-K for the year ended October 25, 2002.
NOTE 2: ACCOUNTS PAYABLE
- ------
Trade accounts payable include $34,610,000 at April 25, 2003, $41,100,000 at
October 25, 2002 and $39,020,000 at April 26, 2002 of issued checks that had not
cleared the Company's bank accounts.
NOTE 3: ACQUISITIONS AND DIVESTITURES
- ------
In March 2002, the Company purchased from its joint venture partner the
remaining 20% interest in Dyflex B.V., a resin manufacturer in the Netherlands.
The transaction was accounted for as a purchase. Accordingly, the net assets and
operating results have been included in the Company's financial statements from
the date of acquisition. The pro forma results of operations for this
acquisition have not been presented as the impact on reported results is not
material.
In December 2001, the Valspar Renner joint venture acquired a plant from Renner
Herrmann S.A. (a Brazilian company), and in January 2002, the Company acquired
the remaining 50% interest in the Valspar Renner joint venture. Valspar Renner
supplies packaging coatings and metal decorating inks to the South American
market. Revenues for the joint venture were $17 million in 2001. The transaction
was accounted for as a purchase. Accordingly, the net assets and operating
results have been included in the Company's financial statements from the date
of acquisition. The pro forma results of operations for this acquisition have
not been presented as the impact on reported results is not material.
-7-
THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 25, 2003 - CONTINUED
Effective November 30, 2001, Valspar acquired the coil, spray-applied door, and
rigid packaging coatings businesses of Technical Coatings Co., a subsidiary of
Benjamin Moore and Co. Revenues for these businesses were $25 million in 2001.
The transaction was accounted for as a purchase. Accordingly, the net assets and
operating results have been included in the Company's financial statements from
the date of acquisition. The pro forma results of operations for this
acquisition have not been presented as the impact on reported results is not
material.
NOTE 4: OTHER COMPREHENSIVE INCOME
- ------
For the three and six months ended April 25, 2003 and April 26, 2002, the
activity within the components of other comprehensive income, classified as a
component of Other within Stockholders' Equity, was as follows:
Three Months Ended Six Months Ended
------------------------------- -------------------------------
April 25, 2003 April 26, 2002 April 25, 2003 April 26, 2002
-------------- -------------- -------------- --------------
Other Comprehensive Income:
Foreign currency translation $ 6,770 $ (2,778) $ 15,353 $(10,171)
Deferred loss on hedging
activities, net of tax (170) -- 291 --
Minimum pension liability,
net of tax -- -- (2,425) --
-------- -------- -------- --------
Total Other Comprehensive Income $ 6,600 $ (2,778) $ 13,219 $(10,171)
NOTE 5: GOODWILL AND OTHER INTANGIBLE ASSETS
- ------
The carrying amount of goodwill for the quarter ended April 25, 2003 increased
from the end of fiscal 2002 by $12,232,000 to $950,991,000 due to foreign
currency translation.
Total intangible amortization expense for the six months ended April 25, 2003
was $2,225,000. Estimated amortization expense for each of the five succeeding
fiscal years based on the intangible assets as of April 25, 2003 is expected to
be approximately $5,000,000 annually.
NOTE 6: SEGMENT INFORMATION
- ------
The Company operates its business in one reportable segment: Coatings. The
Company manufactures and distributes a broad portfolio of coatings products
principally in three product lines. The Industrial product line includes
decorative and protective coatings for wood, metal and plastic substrates. The
Architectural, Automotive and Specialty (AAS) product line includes interior and
exterior decorative paints and aerosols, automotive and fleet refinish and high
performance floor coatings. The Packaging product line includes coatings and
inks for rigid packaging containers. The Other category primarily includes
resins, colorants and composites. The resins and colorants are used internally
and sold to other coatings manufacturers.
-8-
THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 25, 2003 - CONTINUED
Net sales by product line are as follows:
(Dollars in
thousands) Three Months Ended Six Months Ended
-------------------------------- --------------------------------
April 25, 2003 April 26, 2002 April 25, 2003 April 26, 2002
-------------- -------------- -------------- --------------
Industrial $ 212,084 $ 216,955 $ 414,453 $ 403,745
Packaging 131,049 120,944 246,519 229,730
AAS 180,277 180,399 301,229 289,052
Other 38,360 35,704 68,540 62,515
---------- ---------- ---------- ----------
$ 561,770 $ 554,002 $1,030,741 $ 985,042
NOTE 7: FINANCIAL INSTRUMENTS
- ------
The Company's involvement with derivative financial instruments is limited to
managing well-defined interest rate and foreign currency exchange risks. Forward
foreign currency exchange contracts are used to hedge the impact of currency
fluctuations on certain inter-company transactions.
The Company also holds interest rate swaps used to manage the interest rate risk
associated with its borrowings and to manage the Company's mix of fixed and
variable rate debt. The interest rate swap contracts are reflected at fair value
in the consolidated balance sheets. Amounts to be paid or received under the
contracts are accrued as interest rates change and are recognized over the life
of the contracts as an adjustment to interest expense.
At April 25, 2003, the Company had $100,000,000 notional amount interest rate
swap contracts designated as cash flow hedges to pay fixed rates of interest and
receive variable rates of interest based on three-month LIBOR; these contracts
will mature during fiscal 2004. At April 25, 2003, the Company also had a
$100,000,000 notional amount interest rate swap contract designated as a fair
value hedge to pay floating rates of interest based on three-month LIBOR,
maturing during fiscal 2008. As the critical terms of the interest rate swaps
and hedged debt match, there is an assumption of no ineffectiveness for these
hedges.
NOTE 8: GUARANTEES AND CONTRACTUAL OBLIGATIONS
- ------
In November 2002, the Financial Accounting Standards Board issued Interpretation
No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others." The
interpretation requires disclosure in periodic financial statements of certain
guarantee arrangements. The interpretation also clarifies situations where a
guarantor is required to recognize the fair value of certain guarantees in the
financial statements. The Company does not have any guarantees that require
recognition at fair value under the interpretation.
-9-
THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 25, 2003 - CONTINUED
The Company sells extended furniture protection plans and offers warranties for
certain of its products. These items are required to be disclosed in periodic
financial statements under the interpretation. For the furniture protection
plans, revenue is deferred over the contract period, generally five years, and
is recognized based on the ratio of costs incurred to estimated total costs at
program completion. For product warranties, the Company estimates the costs that
may be incurred under these warranties based on historical claim data and
records a liability in the amount of such costs at the time revenue is
recognized. The Company periodically assesses the adequacy of these recorded
amounts and adjusts as necessary.
Changes in the recorded amounts during the period are as follows:
Balance, October 25, 2002 $ 53,026,108
Additional accrual made during the period 14,157,408
Payments made during the period (14,840,000)
------------
Balance, April 25, 2003 $ 52,343,516
NOTE 9: STOCK PLANS
- ------
Under the Company's Stock Option Plans, options for the purchase of up to
8,250,000 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. The
Company accounts for these plans under the recognition and measurement
principles of APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and
related interpretations. No stock-based employee compensation is reflected in
income, as all options granted under these plans had an exercise price equal to
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of FASB Statement
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, to stock-based employee
compensation.
Three Months Ended Six Months Ended
------------------------------- -------------------------------
April 25, 2003 April 26, 2002 April 25, 2003 April 26, 2002
-------------- -------------- -------------- --------------
Net income, as reported 32,157 34,534 47,776 47,142
Deduct: Total stock-based employee 1,768 1,915 3,921 4,334
compensation expense determined under
fair value based method for all awards,
net of related tax effects
-10-
THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 25, 2003 - CONTINUED
Three Months Ended Six Months Ended
------------------------------- -------------------------------
April 25, 2003 April 26, 2002 April 25, 2003 April 26, 2002
-------------- -------------- -------------- --------------
Pro forma net income 30,389 32,619 43,855 42,808
Earnings per share:
Basic - as reported $0.64 $0.69 $0.95 $0.95
Basic - pro forma $0.60 $0.65 $0.87 $0.86
Diluted - as reported $0.62 $0.67 $0.92 $0.92
Diluted - pro forma $0.59 $0.63 $0.85 $0.84
NOTE 10: RECLASSIFICATION
- -------
Certain amounts in the 2002 financial statements have been reclassified to
conform with the 2003 presentation.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Critical Accounting Policies:
- ----------------------------
There were no material changes in the Company's critical accounting policies
during the quarter and six months ended April 25, 2003.
Operations: Net sales for the quarter increased 1.4% to $561,770,000 from
$554,002,000 in 2002. For the six month period net sales increased 4.6% to
$1,030,741,000 from $985,052,000. Adjusting for acquisitions of $1,030,700 and
with the impact of foreign currency translation of $15,461,100, sales increased
by 3.0% for the six months ended April 25, 2003. Due to the seasonal nature of
the Company's business, sales for the second quarter and six month period are
not necessarily indicative of sales for the full year.
The gross profit margin declined to 31.7% from 33.4% in the second quarter of
2003 and decreased to 31.2% from 32.2% for the first six months from the
comparable periods last year. The decrease in gross margin is attributable to
changes in product mix and increases in raw material costs.
Operating expenses (research and development, selling and administrative)
decreased 2.6% to $114,266,000 (20.3% of net sales) in the second quarter of
2003 compared to $117,280,000 (21.2% of net sales) in 2002. Year to date
operating expenses increased 2.5% to $220,767,000 (21.4% of net sales) compared
with $215,440,000 (21.9% of net sales) for the same period last year. The
decrease in the second quarter is due to tight expense controls, while the
year-to-date increase is primarily attributable to increased employment cost,
specifically higher medical expenses.
Interest expense increased to $11,508,000 in the second quarter of 2003 from
$11,053,000 in the second quarter of 2002 due to higher average interest rates
which more than offset the effect of lower debt balances. Year to date interest
expense increased to $23,325,000 in 2003 from
-11-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
$23,277,000 for the comparable period in 2002. Higher average interest rates for
the year to date period were offset by lower debt balances.
The effective tax rate decreased to 38.0% from 39.5% due to a more favorable mix
of income from foreign subsidiaries, which generally represent lower tax
jurisdictions.
Net income in the second quarter of 2003 decreased 6.9% to $32,157,000 or $.62
per diluted share. Year to date net income increased 1.3% to $47,776,000 or $.92
per diluted share.
Financial Condition: The net cash provided by the Company's operations was
$39,249,000 for the first six months of 2003, compared with $67,475,000 for the
first six months of 2002. During the first six months of 2003, the cash provided
by operating activities and current cash balances were used to fund $12,275,000
in repayment of bank borrowings, $21,007,000 in capital expenditures and
$15,069,000 in dividend payments.
Accounts receivable increased $23,899,000 as a result of increased sales
primarily in the Architectural and Packaging product lines. Inventories and
other current assets increased $1,140,000 due to seasonality in the AAS product
line. Accounts payable and accrued liabilities decreased $34,410,000 primarily
as a result of timing of payables and accrued liability disbursements.
Capital expenditures for property, plant and equipment were $21,007,000 in the
first six months of 2003, compared with $13,587,000 in the first six months of
2002. The Company expects capital spending in 2003 to be in the range of
$45,000,000 to $50,000,000.
The ratio of total debt to capital decreased to 53.7% at the end of second
quarter of 2003 compared to 55.7% at the close of fiscal 2002. The total debt to
capital ratio as of April 26, 2002 was 59.9%. The Company believes its existing
lines of credit, access to credit facilities and access to debt and capital
markets will be sufficient to meet its current and projected needs for
financing.
There were no material changes in the Company's fixed cash obligations during
the six months ended April 25, 2003.
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
dependence of internal earnings growth on economic conditions and growth in the
domestic and international coatings industry; risks related to any future
significant acquisitions, including risks of adverse changes in the results of
acquired businesses, risks of disruptions in business resulting from the
integration process and higher interest costs resulting from further borrowing
for any such acquisitions; our reliance on the efforts of vendors, government
agencies, utilities and other third parties to achieve adequate compliance and
avoid disruption of our business; changes in the
-12-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
Company's relationships with customers and suppliers; unusual weather conditions
that might adversely affect sales; changes in raw materials pricing and
availability; changes in governmental regulation, including more stringent
environmental, health, and safety regulations; the nature, cost, and outcome of
pending and future litigation and other legal proceedings; 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.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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. At April 25, 2003,
approximately 50% of the Company's total debt consisted of floating rate debt.
From time to time, the Company may enter into interest rate swaps to hedge a
portion of either its variable or fixed rate debt. Assuming the current level of
borrowings, a 10% increase in interest rates from those in effect at the end of
the second quarter would increase the Company's interest expense for the third
quarter of 2003 by approximately $250,000.
ITEM 4: CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), within 90 days of the filing date of this report.
Based on their evaluation, our chief executive officer and chief financial
officer concluded that the Company's disclosure controls and procedures are
effective.
There have been no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the evaluation referenced above.
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
During the period covered by this report, there were no legal proceedings
instituted that are reportable, and there were no material developments in any
of the legal proceedings that were previously reported on the Company's Form
10-K for the year ended October 25, 2002.
-13-
ITEM 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held at the Research Center of the
Corporation at 312 South 11th Avenue, Minneapolis, Minnesota, on February 26,
2003. The stockholders took the following actions:
(i) The stockholders elected three directors to serve for three-year terms. The
stockholders present in person or by proxy cast the following numbers of votes
in connection with the election of directors, resulting in the election of all
nominees:
Votes For Votes Withheld
---------- --------------
Susan S. Boren 45,056,470 1,332,832
Jeffrey H. Curler 45,114,631 1,274,671
Edward B. Pollak 45,454,396 934,906
(ii) The stockholders approved an increase of 2 million shares in the shares
reserved under the Corporation's 1991 Stock Option Plan. 40,477,595 votes were
cast for the resolution; 5,674,285 votes were cast against the resolution;
237,422 votes abstained; and there were no broker non-votes.
(iii) The stockholders approved an amendment of Article Fourth of the
Certificate of Incorporation to increase the authorized number of shares of
common stock from 120 million to 250 million. 36,348,658 votes were cast for the
amendment; 9,869,804 votes were cast against the amendment; 170,840 votes
abstained; and there were no broker non-votes.
(iv) The stockholders ratified the appointment of Ernst & Young LLP as the
Company's independent auditors for fiscal 2003. 43,600,872 votes were cast for
the resolution; 2,709,428 votes were cast against the resolution, shares
representing 79,002 votes abstained; and there were no broker non-votes.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation, as amended through May 22,
2003
10.1 1991 Stock Option Plan, as amended through December 11, 2002
99.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C.ss.1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C.ss.1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) During the three months ended April 25, 2003, a report on Form
8-K, dated February 10, 2003 was filed on February 10, 2003 under
Item 9 - Regulation FD Disclosure; a report on Form 8-K, dated
April 14, 2003, was filed on April 14, 2003, under Item 9 -
Regulation FD Disclosure.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE VALSPAR CORPORATION
Date: June 9, 2003 By /s/ Rolf Engh
------------------------------
Rolf Engh
Secretary
Date: June 9, 2003 By /s/ Paul C. Reyelts
------------------------------
Paul C. Reyelts
Senior Vice President, Finance
(Chief Financial Officer)
CERTIFICATIONS
I, Richard M. Rompala, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Valspar
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
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5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: June 9, 2003
/s/Richard M. Rompala
--------------------------------------
Richard M. Rompala
Chairman and Chief Executive Officer
I, Paul C. Reyelts, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Valspar
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
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c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: June 9, 2003 /s/ Paul C. Reyelts
--------------------------------
Paul C. Reyelts
Senior Vice President, Finance
(Chief Financial Officer)