Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
VAL > SEC Filings for VAL > Form 10-Q on 5-Mar-2014All Recent SEC Filings

Show all filings for VALSPAR CORP

Form 10-Q for VALSPAR CORP


5-Mar-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Unless otherwise noted, transactions, trends and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. In addition, unless expressly stated otherwise, the comparisons presented in this MD&A refer to the same period in the prior year. Our MD&A is presented in seven sections:

Overview
Results of Operations
Financial Condition
Non-GAAP Financial Measures
Critical Accounting Estimates
Off-Balance Sheet Arrangements
Forward Looking Statements

Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended October 25, 2013, as well as our reports on Forms 10-Q and 8-K and other publicly available information. All amounts herein are unaudited.

OVERVIEW
The Valspar Corporation is a global leader in the paint and coatings industry. Our strong consumer brands and leading technologies, together with our technical expertise and customer service, differentiate us from our competition and allow us to grow and create value with customers in a wide variety of geographic and end-use markets. We operate our business in two reportable segments: Coatings and Paints. Our Coatings segment aggregates our industrial product lines and our packaging product line. Our Paints segment aggregates our consumer paints and automotive refinish product lines. See Note 14 in Notes to Condensed Consolidated Financial Statements for further information on our reportable segments.

We operate in over 25 countries, and approximately 52% of our total net sales for the first three months of 2014 were generated outside of the U.S. In the discussions of our operating results, we sometimes refer to the impact of changes in foreign currency exchange rates or the impact of foreign currency exchange rate fluctuations, which are references to the differences between the foreign currency exchange rates we use to convert international operating results from local currencies into U.S. dollars for reporting purposes. The impact of foreign currency exchange rate fluctuations is calculated as the difference between current period activity translated using the current period's currency exchange rates and the comparable prior-year period's currency exchange rates. We use this method to calculate the impact of changes in foreign currency exchange rates for all countries where the functional currency is not the U.S. dollar.

Our fundamental business objective is to create long-term value for our shareholders. We intend to accomplish this by:

focusing on our customers and delivering coatings products and solutions based on a deep understanding of their needs;

investing in our brands and developing innovative, proprietary technologies;

expanding our global presence;

enhancing the productivity of our business by maximizing efficiencies in procurement, manufacturing and process adherence;

maintaining operational discipline and prudent cost control;

generating strong cash flow; and

allocating our capital to maintain and grow the business, fund internal growth initiatives and strategic acquisitions and increase shareholder value.

In addition to creating value for our shareholders, we are committed to:

adhering to our values, ethical business conduct and doing business with integrity;

improving the safety and reducing the environmental footprint of our business and the products we manufacture while also delivering coatings solutions that enable our customers to meet their environmental and safety objectives; and

demonstrating our corporate citizenship by supporting the communities in which we work and live through volunteer efforts and philanthropy.


Table of Contents

- 19 -

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

The following discussion of financial condition and results of operations should be read in the context of this overview.

RESULTS OF OPERATIONS
Overview
Net sales grew 9.2% for the first quarter of 2014, primarily due to the effect of our 2013 acquisitions of Inver Holdings S.r.l. (Inver Group) and the paint manufacturing business of Ace Hardware (Ace paints), and new business wins in both our Coatings and Paints segments. Net income as a percent of sales declined to 5.6% from 6.3% in the prior year, primarily due to restructuring charges and a higher effective income tax rate.

Restructuring
Restructuring charges in the first quarter of fiscal year 2014 related primarily to initiatives that began in fiscal year 2013, including the following: (i) actions in the Paints segment to consolidate manufacturing and distribution operations following the acquisition of Ace Hardware Corporation's paint manufacturing business, and ongoing profit improvement plans in Australia, (ii) actions in our Coatings segment to consolidate manufacturing operations in Europe following the acquisition of the Inver Group, and other actions to rationalize manufacturing operations and lower operating expenses, and (iii) overall initiatives to improve our global cost structure, including non-manufacturing headcount reductions. We expect the majority of the restructuring activities commenced in fiscal year 2013 and fiscal year 2014 to be completed by the end of fiscal year 2014. These restructuring activities resulted in pre-tax charges of $11,806 or $0.09 per share in the first quarter of fiscal year 2014, and we expect the total pre-tax cost of all restructuring activities to be approximately $32,000 to $38,000 or $0.27 to $0.32 per share in fiscal 2014. These restructuring activities resulted in pre-tax charges of $36,433 or $0.32 per share for the full fiscal year 2013. There were no restructuring charges in the first quarter of fiscal 2013. Included in restructuring charges in the first quarter of fiscal year 2014 is $5,265 in non-cash pre-tax asset impairment charges. See Note 2 in Notes to Condensed Consolidated Financial Statements for further information on our Inver Group acquisition and Note 15 in Notes to Condensed Consolidated Financial Statements for further information on restructuring. See reconciliation in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures" for more information on the per share impact of restructuring charges.

Financial Results
The following tables present selected financial data for the three months ended
January 24, 2014 and January 25, 2013.


Net Sales                              Three Months Ended
                            January 24,       January 25,         %
                               2014              2013          Change
Coatings                   $     548,585     $     497,616        10.2 %
Paints                           361,405           329,079         9.8 %
Other and Administrative          46,129            48,547        (5.0 )%
Consolidated Net Sales     $     956,119     $     875,242         9.2 %

Consolidated Net Sales - Consolidated net sales for the first quarter of 2014 increased 9.2%, including a positive impact of 7.2% from the Inver Group and Ace paints acquisitions and a negative impact of 1.2% from foreign currency. Excluding acquisitions and foreign currency exchange, the increase in sales was primarily due to new business in both our Coatings and Paints segments.

Coatings Segment Net Sales - Our Coatings segment net sales for the first quarter of 2014 increased 10.2%, including a positive impact of 10.9% from our Inver Group acquisition and a negative impact of 0.9% from foreign currency. Excluding acquisitions and foreign currency exchange, the increase in sales was primarily due to growth in our wood product line due to new business wins and continuing improvement in the North American housing market, partially offset by declines in our general industrial and coil product lines, which were affected by soft end markets in North America.

Paints Segment Net Sales - Our Paints segment net sales for the first quarter of 2014 increased 9.8%, including a positive impact of 2.5% from our Ace paints acquisition and a negative impact of 2.0% from foreign currency. Excluding acquisitions and foreign currency exchange, the increase in sales was driven by new business in all regions, growth in our North America consumer product line due to an improved housing market and higher sales in China.

Other and Administrative Net Sales - The Other and Administrative category includes the following product lines: resins, furniture protection plans and colorants. Other and Administrative net sales for the first quarter of 2014 decreased 5.0%, due to lower sales of resins and furniture protection plans, including a positive impact of 0.1% from foreign currency.


Table of Contents

- 20 -

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

Due to the seasonal nature of portions of our business, sales for the first
quarter are not necessarily indicative of sales for subsequent quarters or for
the full year.


Gross Profit                      Three Months Ended
                             January 24,       January 25,
                                2014              2013
Consolidated Gross Profit   $     319,053     $     294,351
As a percent of Net Sales            33.4 %            33.6 %

Gross Profit - The gross profit rate decreased slightly due to our 2013 investments in strategic acquisitions which had lower initial margins and restructuring charges incurred in 2014, partially offset by an improved sales mix and slightly lower raw material costs. Restructuring charges of $6,106 or 0.6% of net sales were included in the first quarter of 2014. There were no restructuring charges included in gross profit in the first quarter of 2013.

Operating Expenses                       Three Months Ended
                                    January 24,       January 25,
                                       2014              2013
Consolidated Operating Expenses1   $     223,493     $     200,820
As a percent of Net Sales                   23.4 %            22.9 %

1 Includes research and development, selling, general and administrative and restructuring charges. For breakout, see Condensed Consolidated Statements of Operations.

Consolidated Operating Expenses (dollars) - Consolidated operating expenses increased $22,673 or 11.3%, primarily due to our 2013 Inver Group acquisition and investments to support growth initiatives, as well as restructuring charges in 2014, partially offset by continued productivity improvements. Restructuring charges of $5,700 or 0.6% of net sales were included in the first quarter of 2014. There were no restructuring charges included in operating expenses in the first quarter of 2013.

EBIT                              Three Months Ended
                             January 24,      January 25,
                                 2014             2013
Coatings                    $    69,975      $    74,340
As a percent of Net Sales          12.8 %           14.9 %
Paints                      $    30,997      $    22,543
As a percent of Net Sales           8.6 %            6.9 %
Other and Administrative    $    (5,783 )    $    (4,302 )
As a percent of Net Sales         (12.5 )%          (8.9 )%
Consolidated EBIT           $    95,189      $    92,581
As a percent of Net Sales          10.0 %           10.6 %

Consolidated EBIT - EBIT for the first quarter of 2014 increased $2,608 or 2.8% from the prior year. Restructuring charges of $11,806 or 1.2% of net sales were included in the first quarter of 2014. There were no restructuring charges in the first quarter of 2013. Foreign currency exchange fluctuation had an immaterial effect on Consolidated EBIT, as well as EBIT of the segments discussed below.

Coatings Segment EBIT - EBIT as a percent of net sales for the first quarter decreased primarily due to the effect of restructuring costs and our Inver Group acquisition. Restructuring charges of $8,620 or 1.6% of net sales were included in the first quarter of 2014. There were no restructuring charges in the first quarter of 2013.

Paints Segment EBIT - EBIT as a percent of net sales for the first quarter increased primarily due to sales growth in the global consumer product line and slightly improved raw material costs in certain geographic markets, partially offset by investments to support growth initiatives and restructuring costs. Restructuring charges of $2,819 or 0.8% of net sales were included in the first quarter of 2014. There were no restructuring charges in the first quarter of 2013.


Table of Contents

- 21-

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

Other and Administrative - Other and Administrative EBIT includes corporate expenses. EBIT as a percent of net sales for the first quarter was unfavorable compared to the first quarter of 2013 primarily due to decreased sales. EBIT included restructuring charges of $367 or 0.8% of net sales in the first quarter of 2014. There were no restructuring charges in the first quarter of 2013.

Due to the seasonal nature of portions of our business, EBIT for the first quarter is not necessarily indicative of EBIT for subsequent quarters or for the full year.

Interest Expense                       Three Months Ended
                                 January 24,       January 25,
                                    2014              2013
Consolidated Interest Expense   $      15,932     $      15,873

Interest Expense - Interest expense increased slightly, as higher average debt levels were partially offset by lower average interest rates.

Effective Tax Rate           Three Months Ended
                      January 24,         January 25,
                         2014                2013
Effective Tax Rate            32.4 %              28.3 %

Effective Tax Rate - The higher first quarter 2014 effective tax rate was due to lower discrete tax benefits in 2014.

  Add VAL to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for VAL - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.