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Annual Report on Form 10-K
THE VALSPAR CORPORATION
October 30, 1998
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 30, 1998 Commission file number 1-3011
---------------- -----------------------------
THE VALSPAR CORPORATION
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 36-2443580
-------- ----------
(State of incorporation) (I.R.S. Employer
Identification No.)
1101 Third Street South
Minneapolis, Minnesota 55415
---------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 332-7371
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
------------------- -------------------
Common Stock, $.50 Par Value New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to the filing requirements
for the past 90 days.
Yes __X__ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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, 1998 was $850 million based on the closing sales price of $37.3125
per share as reported on the New York Stock Exchange. As of such date,
43,428,113 shares of Common Stock, $.50 par value per share (net of 9,893,199
shares in treasury) were outstanding.
DOCUMENTS INCORPORATED IN PART BY REFERENCE
Incorporated Documents Location in Form 10-K
---------------------- ---------------------
1. The Valspar Corporation Annual Report to Parts II and IV
Stockholders for fiscal year ended
October 30, 1998
2. The Valspar Corporation Notice of 1999 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 30, 1998
2
PART I
ITEM 1. BUSINESS
DESCRIPTION
The Valspar Corporation (the "Company") is a paint and coatings manufacturer and
has one reportable industry segment. Operating groups of the Company are
organized so as to reflect classes of similar products, and the following table
shows the percentage of net sales for these groups for the past three fiscal
years.
Class of Products 1998 1997 1996
----------------- ---- ---- ----
Consumer Coatings 34% 34% 34%
Packaging Coatings 28 29 27
Industrial Coatings 24 23 24
Special Products 14 14 15
PRODUCTS AND DISTRIBUTION METHODS
The Company is engaged in the manufacture and distribution of paint and coatings
through its Consumer Coatings, Industrial Coatings, Packaging Coatings and
Special Products groups.
The CONSUMER COATINGS group manufactures and distributes a full line of latex
and oil-based paints, stains and varnishes serving primarily the do-it-yourself
market. Its products are marketed under proprietary brands (Colony, Valspar,
Enterprise, Magicolor, McCloskey, BPS and Masury) and under private labels.
Colony, Valspar, Enterprise and McCloskey paint sales are directed primarily to
home improvement centers. Magicolor's marketing focus is mass merchants and the
branded products of Masury and Valspar are sold directly to paint specialty
stores and independent building material outlets. Private label and BPS consumer
products are primarily sold to hardware wholesalers, home center chains, farm
store chains and farm cooperatives. A group of specialty products, which
includes Valspar and McCloskey varnishes, clear polyurethanes, interior stains
and marine paints, is sold nationally through all of these channels.
Merchandising assistance is provided to consumer customers in the form of
seasonal promotion programs, cooperative advertising on a local basis,
informational literature and self-merchandised displays. Consumer products are
distributed throughout the United States, primarily from factory warehouses and
warehouse distribution centers.
In 1998, the Company acquired Plasti-Kote Co., Inc., a manufacturer and
distributor of aerosol spray paint with production facilities located in Medina,
Ohio. Plasti-Kote's broad range of branded and private label products are
marketed to the same channels as the Consumer Group's other products.
3
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
The primary manufacturing plants for the CONSUMER COATINGS group are located in
Azusa, California; Garland, Texas; Rockford, Illinois; Tampa, Florida; Wheeling,
Illinois; Statesville, North Carolina; and Medina, Ohio. The latex manufacturing
plants in Wheeling, Statesville and Garland are three of the most efficient
facilities in the consumer paint industry.
The PACKAGING COATINGS group is the largest global coatings supplier to the
rigid packaging industry. Packaging coatings for application to food and
beverage can bodies and ends comprise the largest volume of sales by this group.
Great care is taken to ensure that these coatings meet F.D.A., U.S.D.A. and
other country specific regulations. Also produced are coatings for aerosol cans,
bottle crowns, closures for glass bottles, and coatings for flexible packaging -
paper, film and foil substrates. In 1996, the Company opened a plant for the
manufacture of packaging coatings in the Peoples Republic of China with the
Company's Chinese joint venture partner. In 1996, the Company acquired the can
coatings and metal decorating inks business of Coates Coatings. The first phase
of the acquisition, completed in May 1996, included businesses in the UK,
France, Norway, Spain, Germany, Australia and the U.S.A. The second phase,
completed January 1997, included businesses in Hong Kong and China. The Company
completed the South Africa portion of the third phase in December 1997 by
purchasing a 49% interest in a joint venture with Coates in South Africa. The
Company will acquire the remaining 51% interest from Coates within the next
three years. The Packaging Coatings Group expanded its operations to South
America through the formation of a joint venture in June 1997 with Renner
Herrmann, S.A., a leading Brazilian coatings manufacturer. In July 1998, the
Company increased its ownership position from 49% to 51% of its Valspar Marlux
joint venture in Mexico. In April 1998, the Company acquired Anzol Pty. Ltd., an
Australian industrial and packaging coatings company based in Sydney, Australia.
In August 1998, the Company entered into an agreement to purchase the worldwide
packaging coatings business of Dexter Corporation, which is subject to customary
closing conditions.
The primary manufacturing plants for the PACKAGING COATINGS group are located in
Azusa, California; Carol Stream, Illinois; Covington, Georgia; Garland, Texas;
Pittsburgh, Pennsylvania; Rochester, Pennsylvania; West Hill, Ontario, Canada;
Machen, England; Nantes, France; Mjondalen, Norway; XiXiang, China; Melbourne,
Australia; Sydney, Australia; Durban, South Africa; Sao Paulo, Brazil; and
Monterrey, Mexico.
The INDUSTRIAL COATINGS group manufactures and distributes, primarily in the
United States and Canada, decorative and protective coatings for application to
metal, wood and plastic substrates. The Industrial Group is a supplier of
finishes to the kitchen cabinet, furniture and wood paneling industry. Products
include fillers, primers, stains and topcoats which are sold for such
diversified end uses as exterior siding, prefinished flooring, interior wall
paneling, kitchen cabinets and furniture. For metal and plastic substrates, a
large variety of coatings are formulated to meet customers' needs and, when
required, to meet EPA requirements through the use of such technologies as
electrodeposition, powder, high solids, water-borne and UV light cured coatings.
4
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
During 1997, the Company acquired additional powder and general industrial
business through a business exchange with Ameron International Corporation and
entered into the mirror backing metals and coatings market by acquiring
Sureguard, Incorporated and Hilemn Laboratories, Inc. The Industrial Coatings
group products are used by a wide range of industries including the automotive
parts, building products, railcar, appliance, office furniture, agricultural
equipment, construction equipment and metal fabrication industries. The
Industrial Group also supplies coating systems to the coil coatings industry
which are used to coat coils of metal prior to fabrication into products for
such markets as pre-engineered buildings, doors, lighting fixtures and
appliances. Through the acquisition of Anzol Pty. Ltd. in Australia, the
Industrial Group entered the Australian industrial market, specifically coil
coatings and general industrial products, with full manufacturing capabilities.
The primary manufacturing plants for the INDUSTRIAL COATINGS group are located
in Fort Wayne, Indiana; Garland, Texas; High Point, North Carolina; Jackson,
Tennessee; Kankakee, Illinois; West Hill, Ontario, Canada; Singapore; Melbourne,
Australia; and Sydney, Australia.
The SPECIAL PRODUCTS group is engaged in the production and marketing, primarily
in the United States, of resins and emulsions for coatings, automotive and fleet
refinish coatings, heavy duty marine coatings, high performance floor coatings
for industrial and commercial use, colorants and colorant systems. Emulsions and
resins are produced at the Company's facilities in Los Angeles, California;
Garland, Texas; Kankakee, Marengo and Rockford, Illinois; and Hagerstown,
Maryland (the Hagerstown facility was acquired in May 1997 from Rust-Oleum
Corporation, a subsidiary of RPM, Inc.) for use by the Company and for sale to
other coatings manufacturers. In December 1998, the Company's resin subsidiary
acquired a majority interest in Dyflex Polymers, a Netherlands producer of
specialty water-based polymers. The automotive and fleet refinish coatings are
produced at the Company's facilities in Picayune, Mississippi and Grand Prairie,
Texas (the Grand Prairie facility was acquired in January 1997 from Sureguard,
Incorporated). The Company is focusing on strengthening its presence in the
fleet refinish coatings sector and the production shop/light industrial refinish
sector. The Company is also a supplier of coatings for auto under-body,
under-hood, exterior and interior trim parts. In November 1996, the Company
acquired House of Kolor, Inc., a high-end custom refinish coatings manufacturer.
As mentioned above in the discussion of the Consumer Coatings Group, the Company
acquired Plasti-Kote Co., Inc. in 1998. Plasti-Kote also sells aerosol spray
paints to automotive distributors as well as mass automotive retailers. These
products are used by body shops, fleet, aircraft shops and general consumers.
Products range from primers to automotive colors and are sold under various name
brands including TEMPO, PLASTI-KOTE and MR. SPRAY. Heavy duty marine coatings
are formulated for industrial marine applications with highly corrosive and
other harsh environmental exposures requiring specialized coatings technology.
Major markets are marine vessels and off-shore oil and gas drilling rigs. Heavy
duty marine coatings are manufactured primarily in Garland, Texas or are toll
manufactured by third parties. In February 1997, the Company's maintenance
coatings business was sold and marine coatings production at Beaumont, Texas was
moved to Garland, Texas. In September 1998, the
5
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
Company sold its functional powder business. Functional powder coatings are
applied primarily to pipes. The Federal Flooring Division manufactures and
markets specialty coatings and resurfacers for concrete and wood floors. Major
markets are commercial and industrial buildings. These products are produced at
Federal's plant in Chicago, Illinois. Paint colorants, manufactured at the
Company's facility in Rockford, Illinois, are used by retail paint dealers and
paint manufacturers to color paint to customer specifications. These colorants
are used to support the Company's consumer, industrial and packaging businesses
and are also sold to external customers.
The Company has formed various international joint ventures over the past
several years. In the Mexican and Central American markets, the Company formed a
joint venture in 1993 called Valspar-Marlux with Regio Empresas, a Mexican
corporation. While the initial focus of the joint venture was to engage in the
marketing, sales, distribution and technical service of packaging, coil, wood
and general metals coatings, during fiscal year 1996, the joint venture started
producing coatings products at its plant in Monterrey, Mexico. During 1998, the
Company obtained a majority position of 51% in the joint venture. Polycoat
Powders Limited, a joint venture of the Company and The Goodlass Nerolac Paint
Co., Ltd. in India, manufactures decorative powder coatings for the industrial
coatings market in India. Another joint venture company was formed in Hong Kong
in 1995 between the Company and China Merchants Hai Hong Holdings Co., Ltd. for
the purpose of constructing a packaging coatings plant in the Shenzhen Economic
Development Zone in the Guangdong Province of China. This plant became
operational at the beginning of the 1997 fiscal year and currently provides the
Company's packaging coatings products to China and Hong Kong, and may provide
packaging coatings products to other Southeast Asian markets in the future. The
Company formed a joint venture, called Valspar Renner, in 1997 in Brazil with
Renner Herrmann S.A., a Brazilian company. Valspar Renner will focus its efforts
on supplying packaging coatings to the South American market. As part of the
Coates acquisition, the Company acquired from Coates in December 1997, a 49%
interest in a joint venture in South Africa. The Company's joint venture with
Smiland Paint Company, called Conco Paint Company, continues to market and sell
coatings to the professional paint market served by home centers primarily in
the United States. In 1998, the Company acquired Plasti-Kote Co., Inc., a
manufacturer and distributor of aerosol spray cans with operations in Canada,
Denmark and United Kingdom. Plasti-Kote exports aerosol cans to over 40
countries in the world. The products are sold to mass merchants, do-it-yourself
outlets and professional painters.
RAW MATERIALS
Materials are procured from a number of suppliers. Many of these raw materials
are petroleum based derivatives, including olefin and natural gas derivatives,
as well as mined products. Under normal conditions all of these materials are
generally available on the open market, although prices and availability are
subject to fluctuation from time to time.
6
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
PATENTS
Although the Company licenses some technology, the Company's business is not
materially dependent upon franchises, licenses or similar rights, or on any
single patent or trademark or group of related patents or trademarks.
SEASONALITY AND WORKING CAPITAL ITEMS
The Company's sales volume is traditionally highest during the third quarter of
the fiscal year. This seasonality is primarily due to the buying cycle of the
consumer paint business. During the first quarter, when sales are generally
lowest, the Company builds inventory, the financing for which is provided
primarily by internally generated funds and short-term credit lines discussed in
Note 5 of the Notes to Consolidated Financial Statements on page 16 and 17 of
Valspar's 1998 Annual Report to Stockholders incorporated by reference into this
Form 10-K.
SIGNIFICANT CUSTOMERS
In 1998, the Company's sales to Lowe's Companies, Inc. exceeded 10% of
consolidated net sales.
BACKLOG AND GOVERNMENT CONTRACTS
The Company has no significant backlog of orders and generally is able to fill
orders on a current basis.
No material portion of the business of the Company is subject to renegotiation
of profit or termination of contracts or subcontracts at the election of the
government.
COMPETITION
All aspects of the paint and coatings business are highly competitive. The
Company has many competitors in all areas of its business, some of which are
larger and more well-capitalized than the Company.
Principal methods of competition for consumer coatings and specialty paint
products include price, consumer recognition, product innovation, product
quality and rapid response to customer orders. The Company offers merchandising
and promotion programs to its consumer customers to counter the extensive
advertising programs of some of its competitors, and has maintained product
recognition through high quality, well-designed products.
7
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
Principal methods of competition for industrial and packaging coatings are
technical capabilities for specific product formulation, ability to meet
customer delivery requirements, technical assistance to the customer in product
application, price and new product concepts. The Company believes that its
industrial and packaging coatings are competitive in these respects in the
industries it serves. The markets for these coatings are increasingly global and
the Company is well positioned to serve the global markets.
Principal methods of competition for resins and emulsions, automotive and fleet
refinish coatings, heavy duty marine coatings and high performance floor
coatings are product quality, rapid response to customer orders, technical
assistance to the customer in product application, price and new product
development. The Company believes it is competitive in these respects in the
Special Products business discussed previously.
Competitive factors in the colorant and color systems business include color
design and range, product quality, compatibility with various types of paint
bases, dealer merchandising assistance and price. The Company believes that it
is competitive in these respects.
RESEARCH AND DEVELOPMENT
Research and development costs for fiscal 1998 were $39,555,000, representing a
1.2% increase over fiscal 1997 ($39,099,000). Fiscal 1997 costs increased 19.9%
over those of fiscal 1996 ($32,616,000). Primary emphasis has been on emerging
technologies in the industrial and packaging coatings markets.
ENVIRONMENTAL COMPLIANCE
The Company undertakes to comply with applicable regulations relating to
protection of the environment and workers' safety. Capital expenditures for this
purpose were not material in fiscal 1998, and capital expenditures for 1999 to
comply with existing laws and regulations are also not expected to be material.
EMPLOYEES
The Company employs approximately 3,800 persons, approximately 500 of whom are
members of unions.
FOREIGN OPERATIONS AND EXPORT SALES
The Company's foreign operations consist of a mixture of wholly-owned subsidiary
companies, joint ventures, and licensing arrangements. The market for packaging
coatings has become an increasingly global market, and during 1996 the Company
acquired the metal decorating and
8
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
packaging coatings business of Coates Coatings to provide global support to the
Company's customers. The Company's plant in West Hill, Ontario, Canada
manufactures and distributes packaging, coil and general industrial coatings for
the Canadian market. In addition to its wholly-owned subsidiary in Canada, the
Company has formed subsidiary companies in Australia, France, Germany, Hong
Kong, Norway, Singapore, Spain and the United Kingdom. Joint venture companies
are now established in Brazil, India, Mexico and South Africa. Greater emphasis
is being placed on wholly-owned subsidiaries and joint majority-owned ventures
to permit the Company to retain greater control over its technology. Licensing
arrangements for the utilization of the Company's technologies in the fields of
packaging coatings, marine coatings, colorants, powder coatings, coil coatings,
and general industrial coatings continue in over thirty foreign countries.
Export sales are increasing as the Company's products are being recognized in
the global markets. During 1998, export sales represented approximately 5% of
the Company's business.
ITEM 2. PROPERTIES
The Company's principal offices in Minneapolis, Minnesota are owned. Operations
in North America are conducted at twenty-four locations, primarily in Illinois,
California, Texas and Pennsylvania with one plant in West Hill, Ontario, Canada.
Twenty-one plants with square footage of 2,800,000 are owned and three of the
plants with square footage of 285,000 are leased. Manufacturing operations in
Europe are conducted at three locations with plants in the United Kingdom,
France and Norway. The three plants are owned with a combined square footage of
220,000. The Company owns two plants in Australia with a combined square footage
of 150,000. The Company leases plants in Singapore, China and Mexico with a
combined square footage of 70,000.
The Company considers that the principal properties and facilities owned or
leased by it are adequately maintained, in good operating condition and are
adequate for the purposes for which they are being used. Operating capacity
varies by division, but for most of the Company's businesses, additional
productive capacity is available by increasing the number of shifts worked.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims relating to environmental and waste
disposal matters at the sites of a number of current and former plants. The
Company participates in remedial and other environmental compliance activities
at certain of these sites. At other sites, the Company has been named as a
potentially responsible party (PRP) under federal and state environmental laws
for the remediation of hazardous waste. While uncertainties exist with respect
to the amounts and timing of the Company's ultimate environmental liabilities,
the Company believes that such liabilities, individually and in the aggregate,
will not have a material adverse effect on the Company's financial condition or
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 8 through 10 of the Company's 1998
Annual Report to Stockholders incorporated by reference into this Form 10-K.
9
PART I (CONTINUED)
The Company is a defendant in a number of other legal proceedings which it
believes are not out of the ordinary in a business of the type and size in which
it is engaged. The Company believes that these legal proceedings, individually
and in the aggregate, will not have a material adverse effect on its business or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted during the fourth quarter of fiscal year 1998 to a
vote of security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of all of the registrant's executive officers, all of whose
terms expire in December 1999, 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 52 Chairman since February 1998, Chief
Executive Officer since October 1995 and
President since March 1994
Larry B. Brandenburger 51 Vice President, Technology since October
1989
Stephen M. Briggs 42 Senior Vice President, Architectural,
Automotive and Specialty Coatings
Products since November 1998
Rolf Engh 45 Senior Vice President since November
1998 and Secretary since April 1993
Steven L. Erdahl 46 Senior Vice President, Operations since
November 1998
Joel C. Hart 51 Group Vice President, Automotive and
International since November 1998
William L. Mansfield 50 Senior Vice President, Packaging and
Industrial Coatings since November 1998
Paul C. Reyelts 52 Senior Vice President, Finance and Chief
Financial Officer since November 1998
Robert T. Smith 52 Group Vice President, Industrial since
November 1998
10
PART I (CONTINUED)
Name Age Position
---- --- --------
Thomas A. White 56 Vice President, Manufacturing since July
1995
The foregoing executive officers have served in the stated capacity for the
registrant during the past five years, except for the following:
Prior to March 1994, Mr. Rompala was Group Vice President - Coatings and Resins
since January 1992 at PPG Industries, Inc.
Prior to November 1998, Mr. Briggs was Vice President, Consumer Coatings Group
since August 1993.
Prior to November 1998, Mr. Engh was Vice President, International since
September 1993.
Prior to November 1998, Mr. Erdahl was Vice President, Industrial Coatings Group
since June 1991.
Prior to November 1998, Mr. Hart was Vice President, Automotive Refinish since
May 1995. Prior to 1995, Mr. Hart was the Managing Director of Automotive
Refinish International for PPG Industries, Inc. since January 1993.
Prior to November 1998, Mr. Mansfield was Vice President, Packaging Coatings
Group since February 1991.
Prior to November 1998, Mr. Reyelts was Vice President, Finance since April
1982.
Prior to November 1998, Mr. Smith was Vice President, Marine and Federal since
May 1995. Prior to 1995, Mr. Smith was Director, Machinery Europe for FMC
Corporation since 1992.
Prior to July 1995, Mr. White was Vice President, Manufacturing for Corimon
Corporation since June 1994. Prior to 1994, Mr. White was Director of
Manufacturing-Europe for PPG Industries, Inc. since 1987.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information in the section titled "Stock Information and Dividends" on page
7 of Valspar's 1998 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, 1998 was 1,847.
11
PART II (CONTINUED)
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(CONTINUED)
The quarterly dividend declared December 16, 1998, which was paid January 15,
1999 to Common Stockholders of record December 31, 1998, was increased to
11.5(cent) per share.
ITEM 6. SELECTED FINANCIAL DATA
The information in the section titled "Eleven Year Financial Summary" for the
years 1994 through 1998 on pages 6 and 7 of Valspar's 1998 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 1998 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 19
of Valspar's 1998 Annual Report to Stockholders are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors set forth on pages 2 and 3 of Valspar's
Proxy Statement dated January 22, 1999 is incorporated herein by reference. The
information in the section titled "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 6 of Valspar's Proxy Statement dated January 22, 1999 is
incorporated herein by reference. The information regarding executive officers
is set forth in Part I of this report.
12
PART III (CONTINUED)
ITEM 11. EXECUTIVE COMPENSATION
The information in the section titled "Executive Compensation" on pages 7
through 9 and the section titled "Director Compensation" on page 5 of Valspar's
Proxy Statement dated January 22, 1999 is incorporated herein by reference. The
information on pages 9 through 12 of Valspar's Proxy Statement dated January 22,
1999 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 19 and 20 of Valspar's
Proxy Statement dated January 22, 1999 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the section titled "Certain Transactions" on page 6 of
Valspar's Proxy Statement dated January 22, 1999 is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) For financial statements and the financial statement schedule filed as a
part of this report, reference is made to "Index to Financial Statements
and Financial Statement Schedule" on page F-2 of this report. For a list of
exhibits filed as a part of this report, see Item 14(c) below. Compensatory
Plans listed in Item 14(c) are denoted by a double asterisk.
(b) No reports on Form 8-K were filed during the fourth quarter of the year
ended October 30, 1998.
(c) The following exhibits are filed as part of this report.
Exhibit
No. Description
----------------------------------------------------------------------
3(a)(7) CERTIFICATE OF INCORPORATION--as amended to and including
June 30, 1970, with further amendments to Article Four dated
February 29, 1984, February 25, 1986, February 26, 1992 and
February 26, 1997, and to Article Eleven dated February 25,
1987
3(b)(7) BY-LAWS--as amended to and including October 15, 1997
10(a)(l) THE VALSPAR CORPORATION SUPPLEMENTAL STOCK OWNERSHIP PLAN**
13
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(CONTINUED)
(c) Index of Exhibits (continued)
Exhibit
No. Description
----------------------------------------------------------------------
10(b)(l) THE VALSPAR CORPORATION KEY EMPLOYEES' SUPPLEMENTARY
RETIREMENT PLAN**
10(c)(2) THE VALSPAR CORPORATION SUPPLEMENTAL BONUS PLAN**
10(d)* THE VALSPAR CORPORATION 1991 STOCK OPTION PLAN-- as amended
December 11, 1996 and December 16, 1998**
10(e)(3) THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN**
10(f)* THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN--as
amended to and including December 16, 1998**
10(g)(7) THE VALSPAR CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS**
10(h)(7) THE VALSPAR CORPORATION ANNUAL BONUS PLAN--as amended August
19, 1997**
10(i)(4) THE VALSPAR CORPORATION INCENTIVE BONUS PLAN**
10(j)+ DISTRIBUTION AGREEMENT REGARDING McWHORTER SPIN-OFF
10(k)+ ENVIRONMENTAL MATTERS AGREEMENT
10(l)+ TECHNOLOGY LICENSE AGREEMENT
10(m)+ TAX SHARING AGREEMENT
10(n)+ MASTER TOLLING AGREEMENT
10(o)+ SALE AND PURCHASE OF ASSETS AGREEMENT BETWEEN CARGILL,
INCORPORATED AND McWHORTER, INC. DATED AS OF MAY 19, 1993,
AS SUBSEQUENTLY MODIFIED AND AMENDED
10(p)+ AGREEMENT CONTAINING CONSENT ORDER EXECUTED AS OF SEPTEMBER
30, 1993 BY THE FEDERAL TRADE COMMISSION, THE VALSPAR
CORPORATION AND McWHORTER, INC.
14
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(CONTINUED)
(c) Index of Exhibits (continued)
Exhibit
No. Description
----------------------------------------------------------------------
10(q)(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(r)(6) ACQUISITION AGREEMENT BETWEEN COATES BROTHERS PLC AND THE
REGISTRANT MADE AND ENTERED INTO AS OF FEBRUARY 26, 1996, AS
AMENDED BY AMENDMENT NO. 1 TO THE ACQUISITION AGREEMENT
DATED MAY 2, 1996 (PURSUANT TO RULE 24b-2, CERTAIN
INFORMATION HAS BEEN DELETED AND FILED SEPARATELY WITH THE
COMMISSION)
10(s)* CREDIT AGREEMENT DATED AS OF MARCH 16, 1998 AMONG THE
REGISTRANT AND WACHOVIA BANK N.A.
13* 1998 Annual Report to Stockholders (only those portions
expressly incorporated by reference herein shall be deemed
filed with the Commission)
21* Subsidiaries of the Registrant
23(a)* Consent of Independent Auditors--Ernst & Young LLP
23(b)* Consent of Independent Auditors--Deloitte & Touche LLP
99(a)* Financial Statements for the Years Ended October 30, 1998
and October 31, 1997 and Independent Auditors'
Report--Valspar Stock Ownership Trust for Salaried Employees
99(b)* Financial Statements for the Years Ended October 30, 1998
and October 31, 1997 and Independent Auditors'
Report--Valspar Stock Ownership Trust for Hourly Employees
99(c)* Financial Statements for the Years Ended October 30, 1998
and October 31, 1997 and Independent Auditors'
Report--Valspar Profit Sharing Retirement Plan
27 Financial Data Schedule (submitted in electronic format for
use of Commission only)
27.1 Restated Financial Data Schedule for the period ended
October 31, 1997 (submitted in electronic format for use of
Commission only)
---------------------
15
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(CONTINUED)
(c) Index of Exhibits (continued)
Exhibit
No. Description
----------------------------------------------------------------------
(1) As filed with Form 10-K for the period ended October 31,
1981.
(2) As filed with Form 10-K for the period ended October 31,
1983.
(3) As filed with Form 10-K for the period ended October 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.
* As filed with this Form 10-K.
** Compensatory Plan or arrangement required to be filed
pursuant to Item 14(c) of Form 10-K.
+ Incorporated by reference to Exhibits 10.1, 10.2, 10.3,
10.4, 10.5, 10.11, 10.12, 10.13, 10.14 and 10.15,
respectively, to Form S-1 Registration Statement of
McWhorter (Commission File No. 33-75726), as declared
effective on April 4, 1994.
Portions of the 1999 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.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE VALSPAR CORPORATION
/s/ Rolf Engh 1/20/99
-----------------------------------
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 1/20/99 /s/ Susan S. Boren 1/20/99
- ----------------------------------------- -----------------------------------
Richard M. Rompala, Director Susan S. Boren, Director
Chairman, President and Chief Executive
Officer (principal executive officer)
-----------------------------------
Jeffrey H. Curler, Director
/s/ Paul C. Reyelts 1/20/99
- -----------------------------------------
Paul C. Reyelts, Senior Vice President, /s/ Thomas R. McBurney 1/20/99
Finance and Chief Financial Officer -----------------------------------
(principal financial officer) Thomas R. McBurney, Director
/s/ Kendrick B. Melrose 1/20/99
/s/ Kathleen P. Pepski 1/20/99 -----------------------------------
- ----------------------------------------- Kendrick B. Melrose, Director
Kathleen P. Pepski, Vice President and
Controller (principal accounting officer)
/s/ Gregory R. Palen 1/20/99
-----------------------------------
Gregory R. Palen, Director
-----------------------------------
Lawrence Perlman, Director
-----------------------------------
Edward B. Pollak, Director
/s/ Michael P. Sullivan 1/20/99
-----------------------------------
Michael P. Sullivan, Director
/s/ C. Angus Wurtele 1/20/99
-----------------------------------
C. Angus Wurtele, Director
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 30, 1998
THE VALSPAR CORPORATION
Minneapolis, Minnesota
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 30, 1998:
Pages in
Annual Report
-------------
Report of Independent Auditors............................................ 20
Financial Statements:
Consolidated Balance Sheets--October 30, 1998 and October 31, 1997...... 11
Consolidated Statements of Income--Years ended October 30, 1998,
October 31, 1997 and October 25, 1996............................... 12
Consolidated Statements of Changes in Stockholders' Equity--Years
ended October 30, 1998, October 31, 1997 and October 25, 1996....... 13
Consolidated Statements of Cash Flows--Years ended October 30, 1998,
October 31, 1997 and October 25, 1996............................... 14
Notes to Consolidated Financial Statements.............................. 15-19
Selected Quarterly Financial Data (Unaudited)............................. 19
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 30, 1998, October 31, 1997 and October 25, 1996
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.
F-3
The Valspar Corporation
Schedule II--Valuation and Qualifying Accounts and Reserves
- ------------------------------------- -------------- -------------- ---------------- -------------- ----------------
COL. A COL. B COL. C COL. C COL. D COL. E
- ------------------------------------- -------------- -------------- ---------------- -------------- ---------------
Additions
--------------------------------
(1) (2)
Balance at Charged to Charged to
Beginning Expense or Other Deductions Balance at
Description of Period (Income) Accounts --Describe End of Period
--Describe
- ------------------------------------- -------------- -------------- ---------------- -------------- ---------------
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts:
Year ended October 30, 1998 $1,364,000 $2,099,000 $2,436,000 (1) $1,464,000
(437,000)(2)
Year ended October 31, 1997 1,260,000 1,101,000 1,130,000 (1) 1,364,000
(133,000)(2)
Year ended October 25, 1996 911,000 771,000 $721,000 (3) 1,254,000 (1) 1,260,000
(111,000)(2)
(1) Uncollectible accounts written off.
(2) Recoveries on accounts previously written off.
(3) Consists principally of amounts relating to businesses acquired and
foreign currency translation adjustments.
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
----------------------------------------------------------------------
3(a)(7) CERTIFICATE OF INCORPORATION--as amended to and including
June 30, 1970, with further amendments to Article Four dated
February 29, 1984, February 25, 1986, February 26, 1992 and
February 26, 1997, and to Article Eleven dated February 25,
1987
3(b)(7) BY-LAWS--as amended to and including October 15, 1997
10(a)(l) THE VALSPAR CORPORATION SUPPLEMENTAL STOCK OWNERSHIP PLAN**
10(b)(l) THE VALSPAR CORPORATION KEY EMPLOYEES' SUPPLEMENTARY
RETIREMENT PLAN**
10(c)(2) THE VALSPAR CORPORATION SUPPLEMENTAL BONUS PLAN**
10(d)* THE VALSPAR CORPORATION 1991 STOCK OPTION PLAN-- as amended
December 11, 1996 and December 16, 1998**
10(e)(3) THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN**
10(f)* THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN--as
amended to and including December 16, 1998**
10(g)(7) THE VALSPAR CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS**
10(h)(7) THE VALSPAR CORPORATION ANNUAL BONUS PLAN--as amended August
19, 1997**
10(i)(4) THE VALSPAR CORPORATION INCENTIVE BONUS PLAN**
10(j)+ DISTRIBUTION AGREEMENT REGARDING McWHORTER SPIN-OFF
10(k)+ ENVIRONMENTAL MATTERS AGREEMENT
10(l)+ TECHNOLOGY LICENSE AGREEMENT
10(m)+ TAX SHARING AGREEMENT
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
----------------------------------------------------------------------
10(n)+ MASTER TOLLING AGREEMENT
10(o)+ SALE AND PURCHASE OF ASSETS AGREEMENT BETWEEN CARGILL,
INCORPORATED AND McWHORTER, INC. DATED AS OF MAY 19, 1993,
AS SUBSEQUENTLY MODIFIED AND AMENDED
10(p)+ AGREEMENT CONTAINING CONSENT ORDER EXECUTED AS OF SEPTEMBER
30, 1993 BY THE FEDERAL TRADE COMMISSION, THE VALSPAR
CORPORATION AND McWHORTER, INC.
10(q)(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(r)(6) ACQUISITION AGREEMENT BETWEEN COATES BROTHERS PLC AND THE
REGISTRANT MADE AND ENTERED INTO AS OF FEBRUARY 26, 1996, AS
AMENDED BY AMENDMENT NO. 1 TO THE ACQUISITION AGREEMENT
DATED MAY 2, 1996 (PURSUANT TO RULE 24b-2, CERTAIN
INFORMATION HAS BEEN DELETED AND FILED SEPARATELY WITH THE
COMMISSION)
10(s)* CREDIT AGREEMENT DATED AS OF MARCH 16, 1998 AMONG THE
REGISTRANT AND WACHOVIA BANK N.A.
13* 1998 Annual Report to Stockholders (only those portions
expressly incorporated by reference herein shall be deemed
filed with the Commission)
21* Subsidiaries of the Registrant
23(a)* Consent of Independent Auditors--Ernst & Young LLP
23(b)* Consent of Independent Auditors--Deloitte & Touche LLP
99(a)* Financial Statements for the Years Ended October 30, 1998
and October 31, 1997 and Independent Auditors'
Report--Valspar Stock Ownership Trust for Salaried Employees
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
----------------------------------------------------------------------
99(b)* Financial Statements for the Years Ended October 30, 1998
and October 31, 1997 and Independent Auditors'
Report--Valspar Stock Ownership Trust for Hourly Employees
99(c)* Financial Statements for the Years Ended October 30, 1998
and October 31, 1997 and Independent Auditors'
Report--Valspar Profit Sharing Retirement Plan
27 Financial Data Schedule (submitted in electronic format for
use of Commission only)
27.1 Restated Financial Data Schedule for the period ended
October 31, 1997 (submitted in electronic format for use of
Commission only)
----------------------
(1) As filed with Form 10-K for the period ended October 31,
1981.
(2) As filed with Form 10-K for the period ended October 31,
1983.
(3) As filed with Form 10-K for the period ended October 25,
1991; amendment filed with Form 10-K for the period ended
October 31, 1997.
(4) As filed with Form 10-K for the period ended October 30,
1992.
(5) Incorporated by reference to Exhibit 10(a) to Form 10-Q for
the quarter ended April 28, 1995.
(6) Incorporated by reference to Exhibit 2.1 to Form 8-K filed
on May 17, 1996 and with Form 8-K/A filed on July 16, 1996.
(7) As filed with Form 10-K for the period ended October 31,
1997.
* As filed with this Form 10-K.
** Compensatory Plan or arrangement required to be filed
pursuant to Item 14(c) of Form 10-K.
+ Incorporated by reference to Exhibits 10.1, 10.2, 10.3,
10.4, 10.5, 10.11, 10.12, 10.13, 10.14 and 10.15,
respectively, to Form S-1 Registration Statement of
McWhorter (Commission File No. 33-75726), as declared
effective on April 4, 1994.