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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 Three Months Commission File
Ended January 30, 2004 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 February 27, 2004, The Valspar Corporation had 51,250,063 shares of common
stock outstanding, excluding 8,971,249 shares held in treasury. The Company had
no other classes of stock outstanding.
-1-
THE VALSPAR CORPORATION
Index to Form 10-Q
for the Quarter Ended January 30, 2004
PART I. FINANCIAL INFORMATION Page No.
- ----------------------------- --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - January 30, 2004,
January 24, 2003 and October 31, 2003...................... 2-3
Condensed Consolidated Statements of Income - Three months
ended January 30, 2004 and January 24, 2003................ 4
Condensed Consolidated Statements of Cash Flows - Three
months ended January 30, 2004 and January 24, 2003......... 5
Notes to Condensed Consolidated Financial Statements -
January 30, 2004........................................... 6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 11-13
Item 3. Quantitative and Qualitative Disclosures about Market Risk... 13
Item 4. Controls and Procedures...................................... 13
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings............................................ 13
Item 6. Exhibits and Reports on Form 8-K............................ 14
SIGNATURES............................................................ 14
- ----------
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
January 30, January 24, October 31,
2004 2003 2003
----------- ----------- -----------
(Unaudited) (Unaudited) (Note)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 38,854 $ 26,967 $ 41,589
Accounts receivable less allowance
(1/30/04 - $17,484; 1/24/03 - $16,058;
10/31/03 - $16,140) 390,852 352,917 385,178
Inventories:
Manufactured products 130,897 137,124 115,091
Raw materials, supplies and work-
in-process 77,181 81,622 77,160
---------- ---------- ----------
208,078 218,746 192,251
Deferred income taxes 38,470 29,174 38,396
Prepaid expenses and other 74,216 78,367 81,417
---------- ---------- ----------
TOTAL CURRENT ASSETS 750,470 706,171 738,831
GOODWILL 1,004,445 946,476 961,915
INTANGIBLES, NET 286,027 292,202 287,133
OTHER ASSETS, NET 77,710 73,513 73,843
LONG-TERM DEFERRED INCOME TAX 23,436 16,223 20,583
PROPERTY, PLANT AND EQUIPMENT 750,745 667,581 725,924
Less accumulated depreciation (328,573) (264,662) (311,705)
---------- ---------- ----------
422,172 402,919 414,219
---------- ---------- ----------
$2,564,260 $2,437,504 $2,496,524
========== ========== ==========
NOTE: The Balance Sheet at October 31, 2003 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)
January 30, January 24, October 31,
2004 2003 2003
----------- ----------- -----------
(Unaudited) (Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Notes payable to banks $ 76,400 $ 55,607 $ 26,200
Trade accounts payable 188,648 178,386 202,713
Income taxes payable 48,000 32,965 48,458
Accrued liabilities 211,162 220,281 253,692
---------- ---------- ----------
TOTAL CURRENT LIABILITIES 524,210 487,239 531,063
LONG-TERM DEBT 790,885 890,236 749,199
DEFERRED INCOME TAXES 190,329 181,296 187,280
DEFERRED LIABILITIES 161,846 118,977 159,665
STOCKHOLDERS' EQUITY:
Common Stock (Par Value - $.50;
Authorized - 250,000,000 shares;
Shares issued, including shares
in treasury - 60,221,312) 30,110 30,110 30,110
Additional paid-in capital 257,128 236,271 250,400
Retained earnings 706,418 623,072 697,231
Other 2,709 (23,082) (5,735)
---------- ---------- ----------
996,365 866,371 972,006
Less cost of Common Stock in treasury
(1/30/04 - 9,167,885 shares; 1/24/03 -
9,859,050 shares; 10/31/03 - 9,490,462
shares) 99,375 106,615 102,689
---------- ---------- ----------
896,990 759,756 869,317
---------- ---------- ----------
$2,564,260 $2,437,504 $2,496,524
========== ========== ==========
NOTE: The Balance Sheet at October 31, 2003 has been derived from the audited
consolidated 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 SHARE AND PER SHARE AMOUNTS)
THREE MONTHS ENDED
-----------------------------
January 30, January 24,
2004 2003
----------- -----------
Net sales $ 501,591 $ 468,971
Cost of goods sold 345,239 325,323
---------- ----------
Gross profit 156,352 143,648
Research and development 17,275 16,617
Selling and administrative 98,825 89,884
---------- ----------
Income from operations 40,252 37,147
Interest expense 10,390 11,817
Other expense 207 140
---------- ----------
Income before income taxes 29,655 25,190
Income taxes 11,269 9,572
---------- ----------
Net income $ 18,386 $ 15,618
========== ==========
Net income per common share - basic $ 0.36 $ 0.31
========== ==========
Net income per common share - diluted $ 0.35 $ 0.30
========== ==========
Average number of common shares
outstanding - basic 50,874,763 50,205,519
=========== ===========
- diluted 52,602,010 51,558,029
=========== ===========
Dividends paid per common share $ 0.180 $ 0.150
=========== ===========
See Notes to Condensed Consolidated Financial Statements
-5-
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
-----------------------------
January 30, January 24,
2004 2003
----------- -----------
OPERATING ACTIVITIES:
Net income $ 18,386 $ 15,618
Adjustments to reconcile net income to net cash (used in)/provided
by operating activities:
Depreciation 13,265 11,692
Amortization 1,123 1,112
Loss on asset divestiture 123 783
Changes in certain assets and liabilities, net of effects of
acquired businesses:
Decrease in accounts and notes receivable 10,064 20,301
Increase in inventories and other current assets (1,538) (13,925)
Decrease in trade accounts payable and accrued
liabilities (66,363) (44,581)
(Decrease)/increase in income taxes payable (1,441) 11,843
Increase (decrease) in other deferred liabilities 3,008 1,196
Other 1,614 (2,771)
-------- --------
Net Cash (Used In)/Provided By Operating Activities (21,759) 1,268
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (10,802) (8,546)
Net assets of businesses acquired (43,685) --
-------- --------
Net Cash Used In Investing Activities (54,487) (8,546)
FINANCING ACTIVITIES:
Net proceeds from borrowings 74,990 14,541
Proceeds from sale of treasury stock 7,720 4,499
Dividends paid (9,199) (7,510)
-------- --------
Net Cash Provided by Financing Activities 73,511 11,530
(Decrease)/increase in Cash and Cash Equivalents (2,735) 4,252
Cash and Cash Equivalents at Beginning of Period 41,589 22,715
-------- --------
Cash and Cash Equivalents at End of Period $ 38,854 $ 26,967
======== ========
See Notes to Condensed Consolidated Financial Statements
-6-
THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 30, 2004
NOTE 1: BASIS OF PRESENTATION
- ------
The accompanying unaudited condensed consolidated financial statements of The
Valspar Corporation ("the Company") have been prepared in accordance with
accounting principles generally accepted in the United States 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 ended January 30, 2004 are not
necessarily indicative of the results that may be expected for the year ending
October 29, 2004.
The Condensed Consolidated Balance Sheet at October 31, 2003 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 statements.
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 31, 2003.
NOTE 2: ACCOUNTS PAYABLE
- ------
Trade accounts payable include $33.0 million at January 30, 2004, $18.9 million
at October 30, 2003 and $38.5 million at January 24, 2003 of issued checks that
had not cleared the Company's bank accounts.
NOTE 3: ACQUISITIONS AND DIVESTITURES
- ------
In January 2004, the Company acquired De Beer Lakfabrieken B.V., a manufacturer
and distributor of automotive refinish coatings based in The Netherlands. De
Beer's revenue for calendar year 2003 was approximately 39 million EUR ($50
million at current exchange rates). This transaction was accounted for as a
purchase. Accordingly, the net assets have been included in the Company's
balance sheet from the date of acquisition. The pro forma results of operations
for this acquisition have not been presented as the impact on reported results
was not material.
-7-
THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 30, 2004 - CONTINUED
NOTE 4: OTHER COMPREHENSIVE INCOME
- ------
For the three months ended January 30, 2004 and January 24, 2003, the activity
within the components of other comprehensive income, classified as a component
of Other within Stockholders' Equity, was as follows:
(dollars in thousands) Three Months Ended
------------------------------------
January 30, 2004 January 24, 2003
---------------- ----------------
Changes in Other Comprehensive
Income:
Foreign currency translation $4,785 $8,583
Deferred loss on hedging activities, 3,630 461
net of tax
Minimum pension liability, net of tax -- (2,425)
------ -------
Total Other Comprehensive Income $8,415 $6,619
NOTE 5: GOODWILL AND OTHER INTANGIBLE ASSETS
- ------
The carrying amount of goodwill for the quarter ended January 30, 2004 increased
from the end of fiscal 2003 by $42.5 million to $1.0 billion. The majority of
the increase is due to the De Beer acquisition ($35.6 million) and the remaining
difference is attributable to foreign currency translation.
Total intangible amortization expense for the three months ended January 30,
2004 was $1.1 million, which is comparable to the prior year. Estimated
amortization expense for each of the five succeeding fiscal years based on the
intangible assets as of January 30, 2004 is expected to be approximately $4.5
million annually.
NOTE 6: SEGMENT INFORMATION
- ------
In accordance with Statement of Financial Accounting Standards No. 131 (SFAS
131), "Disclosures about Segments of an Enterprise and Related Information," and
based on the nature of the Company's products, technology, manufacturing
processes, customers, and regulatory environment, the Company has determined
that it operates its business in two reportable segments: Paints and Coatings.
SFAS 131 requires an enterprise to report segment information in the same way
that management internally organizes its business for assessing performance and
making decisions regarding allocation of resources. The Company evaluates the
performances of operating segments and allocates resources based on profit or
loss from operations before interest expense and taxes.
-8-
THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 30, 2004 - CONTINUED
The Paints segment includes the products from the Architectural, Automotive and
Specialty (AAS) product line. AAS products include 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 in North America. Other AAS products include automotive refinish paints
and high performance floor paints.
The Coatings segment includes the products from the Industrial and Packaging
product lines. Industrial products include a broad range of decorative and
protective coatings for metal, wood, plastic and glass. Packaging products
include both interior and exterior coatings used in rigid packaging containers,
principally food containers and beverage cans. The products of this segment are
sold throughout the world.
The Company's remaining activities are included in All Other. These activities
include specialty polymers and colorants that are used internally and sold to
other coatings manufacturers, as well as composites (gelcoats and related
products) and furniture protection plans. Also, included within All Other are
the administrative expenses of the Company's corporate headquarters site. The
Administrative expenses include interest and amortization expense, certain
environmental-related expenses and other expenses not directly allocated to any
other operating segment.
In the following table, sales between segments are recorded at selling prices
that are below market prices, generally intended to recover internal costs.
Segment operating profit includes income realized on inter-segment sales.
Comparative first quarter results on this basis are as follows:
(dollars in thousands) Three Months Ended
------------------------------------
January 30, 2004 January 24, 2003
---------------- ----------------
Net Sales:
Paints $144,935 $128,020
Coatings 312,465 296,749
All Other 62,192 61,652
Less Intersegment sales (18,001) (17,450)
-------- --------
Total Net Sales $501,591 $468,971
======== ========
Operating Profit
Paints $ 13,698 $ 10,918
Coatings 36,589 30,763
All Other (10,242) (4,674)
-------- --------
Total Operating Profit $ 40,045 $ 37,007
Interest $ 10,390 $ 11,817
-------- --------
Income before Income Taxes $ 29,655 $ 25,190
======== ========
-9-
THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 30, 2004 - CONTINUED
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 primarily 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 condensed 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 January 30, 2004, the Company had a $100 million notional amount interest
rate swap contract designated as a cash flow hedge to pay fixed rates of
interest and receive variable rates of interest based on three-month LIBOR. This
contract started in this fiscal year and matures during fiscal 2008.
Additionally, the Company had a $100 million 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.
During the first quarter, the Company had $100 million notional amount interest
rate swaps contracts mature.
NOTE 8: GUARANTEES AND CONTRACTUAL OBLIGATIONS
- ------
The Company sells extended furniture protection plans and offers warranties for
certain of its products. 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 (dollars in
thousands):
Balance, October 31, 2003 $ 82,128
Additional accrual made during the period 15,640
Payments made during the period (11,506)
--------
Balance, January 30, 2004 $ 86,262
========
-10-
THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 30, 2004 - CONTINUED
NOTE 9: STOCK PLANS
- ------
Under the Company's Stock Option Plans, options for the purchase of up to
10,000,000 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. 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
-----------------------------------
January 30, 2004 January 24, 2003
---------------- ----------------
Net income, as reported $18,386 $15,618
Add: Stock-based employee compensation -- --
expense included in reported net
income, net of related tax effects.
Deduct: Total stock-based employee 1,555 2,153
compensation expense determined under
fair value based method for all awards,
net of related tax effects
Pro forma net income $16,831 $13,465
======= =======
Earnings per share:
Basic - as reported $ 0.36 $ 0.31
======= =======
Basic - pro forma $ 0.33 $ 0.27
======= =======
Diluted - as reported $ 0.35 $ 0.30
======= =======
Diluted - pro forma $ 0.32 $ 0.26
======= =======
NOTE 10: RECLASSIFICATION
- -------
Certain amounts in the 2003 financial statements have been reclassified to
conform with the 2004 presentation.
-11-
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 first quarter ended January 30, 2004.
Operations: Consolidated net sales increased 7.0 percent for the quarter to
$501.6 million from $469.0 million in the prior year. Excluding the positive
effect of foreign currency exchange, net sales increased 3.0 percent. Net sales
of the Paints segment increased 13.2 percent to $144.9 million in the quarter
compared to the prior year. The increase was largely attributable to favorable
product mix changes in the Architectural product line, specifically large home
improvement customers who continue to increase their market share of paint
sales. Foreign currency exchange fluctuation had an immaterial effect on the
reported results of the Paints segment. Net sales of the Coatings segment
increased 5.3 percent to $312.5 million in the quarter compared to last year.
Excluding the positive effect of foreign currency exchange, net sales for the
Coatings segment increased approximately one percent. Due to the seasonal nature
of the Company's business, sales for the first quarter are not necessarily
indicative of sales for the full year.
Consolidated gross profit increased $12.7 million to $156.4 million in the first
quarter of 2004. As a percent of consolidated net sales, consolidated gross
profit during the first quarter of 2004 increased to 31.2 percent from 30.6
percent. The increase in gross margin is largely due to manufacturing
efficiencies resulting from modest batch size and order volume increases in the
Industrial product line.
Consolidated operating expenses (research and development, selling and
administrative) increased 9.0 percent to $116.1 million (23.1 percent of
consolidated net sales) in the first quarter of 2004 compared to $106.5 million
(22.7 percent of consolidated net sales) in 2003. The increase in the first
quarter was primarily driven by additional merchandising expenses related to new
product line roll-outs within the Paints segment.
Operating profit increased $3.1 million or 8.4 percent from the prior year for
the first quarter of 2004. Foreign currency exchange fluctuation had an
immaterial effect on operating profit. Operating profit in the Paints segment
increased 25.5 percent to $13.7 million in the quarter compared to the prior
year. As a percent of net sales for the Paints segment, the Paints segment
operating profit increased to 9.5 percent from 8.5 percent. The increase was
largely attributable to higher Architectural sales volumes and related
manufacturing efficiencies. Operating profit of the Coatings segment increased
18.9 percent to $36.6 million in the quarter compared to last year. As a percent
of net sales for the Coatings segment, the Coatings segment operating profit
increased to 11.7 percent from 10.4 percent. The increase resulted from
manufacturing efficiencies within the Industrial product line and overall
focused operating expense control. Excluding the positive effect of foreign
currency exchange, operating profit for the Coatings segment increased
approximately 15 percent. Due to the seasonal nature of the Company's business,
operating profit for the first quarter is not necessarily indicative of
operating profit for subsequent quarters or for the full year.
-12-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -CONTINUED
Interest expense decreased to $10.4 million in the first quarter of 2004 from
$11.8 million in the first quarter of 2003. Lower interest rates combined with
lower debt balances resulted in the decreases for the first quarter.
Net income in the first quarter of 2004 increased 17.7% to $18.4 million or $.35
per diluted share.
Financial Condition: The net cash used by the Company's operations was $21.8
million for the first three months of 2004, compared with net cash provided by
operations of $1.3 million for the first three months of 2003. The use of cash
for operations in the first three months of 2004 resulted primarily from a
reduction in accrued liabilities. During the same period, $75.0 million in
proceeds from bank borrowings were used to fund $10.8 million in capital
expenditures, $12.0 million in tax payments, $9.2 million in dividend payments,
and $43.7 million in acquired businesses.
Accounts receivable decreased $10.1 million as higher year-end balances
resulting from fourth quarter sales were collected and sales volumes decreased.
Accounts payable and accrued liabilities decreased $66.4 million primarily as a
result of timing of payables and accrued liability disbursements.
Capital expenditures for property, plant and equipment were $10.8 million in the
first three months of 2004, compared with $8.5 million in the first three months
of 2003. The Company expects capital spending in 2003 to be in the range of $55
to $60 million.
The ratio of total debt to capital increased to 49.2 percent at the end of first
quarter of 2004 compared to 47.2 percent at the close of fiscal 2003. The total
debt to capital ratio as of January 24, 2003 was 55.5 percent. The Company
believes its cash flow from operations, 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 three months ended January 30, 2004.
Off-Balance Sheet Financing: The Company has no off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on its
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to investors.
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
-13-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
disruptions in business resulting from theCompany'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 percent 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 January 30, 2004,
approximately 48 percent 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 percent increase in interest rates from those in effect at
the end of the first quarter would increase the Company's interest expense for
the second quarter of 2004 by approximately $0.2 million.
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 Rules 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as of the end of the period covered by
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.
During the period covered by this report, there were 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 31, 2003.
-14-
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(a) Term Loan Agreement Between the registrant and Credit
Lyonnais New York Branch, dated February 9, 2004
31.1 Section 302 Certification of the Chief Executive Officer
31.2 Section 302 Certification of the Chief Financial Officer
32.1 Certification of Chief Executive Officer and 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 January 30, 2004, a report on Form
8-K, dated November 24, 2003, was filed on November 24, 2003,
under Item 12 - Results of Operations and Financial Information.
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: March 15, 2004 By /s/Rolf Engh
----------------------------------
Rolf Engh
Secretary
Date: March 15, 2004 By /s/Paul C. Reyelts
----------------------------------
Paul C. Reyelts
Senior Vice President, Finance
(Chief Financial Officer)