Valspar Corp

VALSPAR CORP

FORM 10-K405 (Annual Report (Regulation S-K, item 405))

Filed 01/25/96 for the Period Ending 10/27/95

Address 901 3RD AVENUE SOUTH MINNEAPOLIS, MN 55402 Telephone 612-851-7000 CIK 0000102741 Symbol VAL SIC Code 2851 - Paints, Varnishes, Lacquers, Enamels, and Allied Products Industry Chemical Manufacturing Sector Basic Materials Fiscal Year 10/27

VALSPAR CORP

FORM 10-K405 (Annual Report (Regulation S-K, item 405))

Filed 1/25/1996 For Period Ending 10/27/1995

Address 1101 THIRD ST SOUTH MINNEAPOLIS, Minnesota 55415 Telephone 612-332-7371 CIK 0000102741 Industry Chemical Manufacturing Sector Basic Materials Fiscal Year 10/31 Annual Report on Form 10-K

THE VALSPAR CORPORATION

October 27, 1995 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 27, 1995 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. [X]

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 29, 1995 was $429 million based on the closing sales price of $44.625 per share as reported on the New York Stock Exchange. As of such date, 21,996,071 shares of Common Stock, $.50 par value per share (net of 4,664,585 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 Stockholders Parts II and IV for fiscal year ended October 27, 1995

2. The Valspar Corporation Notice of 1996 Annual Meeting of Part III Stockholders and Proxy Statement to be filed with the Securities and Exchange Commission within 120 days of fiscal year ended October 27, 1995

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 1995 1994 1993 ------

Consumer Coatings 34% 31% 30% Packaging Coatings 27 25 27 Industrial Coatings 25 23 23 Special Products 14 21 20

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.

The primary manufacturing plants for CONSUMER COATINGS are located in Azusa, California; Garland, Texas; Philadelphia, Pennsylvania; Rockford, Illinois; Tampa, Florida; and Wheeling, Illinois. The latex manufacturing plant in Wheeling is one of the most modern facilities in the consumer paint industry. The Garland plant is also a very modern manufacturing facility providing needed capacity for producing consumer latex paint, industrial coatings, packaging coatings and resins. During 1995, production began at our newest facility in Statesville, North Carolina.

The PACKAGING COATINGS group is the largest coatings supplier to the rigid packaging industry in North America and a major licensor of the related technology to coatings companies throughout the world. 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. and U.S.D.A. standards. Also produced are coatings for aerosol cans, bottle crowns, closures for glass bottles, and coatings for flexible packaging-paper, film and foil substrates. In 1995, the Packaging Coatings Group expanded its operations to the Far East by opening a sales office in Hong Kong to sell to and service customers in the Peoples Republic of China and in Southeast Asia. The group also entered into a joint venture with a large Chinese company for the manufacture of packaging coatings in the Peoples Republic of China which is expected to begin operations in mid 1996. During 1995, the Packaging Group expanded its international operations by establishing wholly-owned foreign subsidiaries in the United Kingdom, The Valspar (UK) Corporation, Limited, and Australia, The Valspar (Australia) Corporation Pty, Limited. Toll manufacturing arrangements were contracted and sales representatives hired to support these subsidiaries.

The primary manufacturing plants for the PACKAGING COATINGS group are in Azusa, California; Covington, Georgia; Garland, Texas; Pittsburgh, Pennsylvania; Rochester, Pennsylvania; and West Hill, Ontario, Canada.

The INDUSTRIAL COATINGS group manufactures and distributes, primarily in the United States and Canada, decorative and protective coatings for application to wood, metal and plastic substrates. The Company is a major supplier of finishes to the 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, pianos 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. These products are used by a wide range of industries including the railcar, appliance, office furniture, agricultural and construction equipment and metal fabrication industries. The Company 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. In late 1994, the Industrial Group established a foreign subsidiary in Singapore, The Valspar (Singapore) Corporation Pte Ltd, to manufacture and sell fluorocarbon coatings for architectural applications in the Far East. The Company does not sell to original equipment manufacturers. The acquisition of Sunbelt Coatings, a manufacturer of automotive and fleet refinish coatings, was completed in March 1995. The new company, Valspar Sunbelt, established a sales force and distribution network throughout the United States and Canada. 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 for auto under -body, under -hood, exterior and interior trim parts. The manufacturing plants for the INDUSTRIAL COATINGS group are located at Fort Wayne, Indiana; Garland, Texas; High Point, North Carolina; Jackson, Tennessee; Kankakee, Illinois; and West Hill, Ontario, Canada.

The SPECIAL PRODUCTS group is engaged in the production and marketing, primarily in the United States, of resins and emulsions for coatings, heavy duty maintenance and 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 for use by the Company and for sale to other coatings manufacturers. Certain resin operations previously included in the Company's McWhorter subsidiary were distributed to the Company's shareholders in the form of a stock dividend at the time of the spin-off of McWhorter Technologies, Inc. in April 1994. Following the spin-off, the Company retained the resin operations located in Los Angeles, Rockford, Kankakee and Garland as described above. The spin-off is described in Note C to the Consolidated Financial Statements on pages 15 and 16 of Valspar's 1995 Annual Report to Stockholders incorporated by reference into this Form 10-K. In May 1995, production of emulsions began at a new resin plant in Marengo, Illinois to support the growth of the Company's consumer paint business and to better service external customers. Heavy duty maintenance coatings are formulated for applicators with highly corrosive and other harsh environmental exposures requiring specialized coatings technology. Major markets are petrochemical units, utilities, nuclear plants, paper mills, food processing and pharmaceutical plants, waste and water treatment facilities, off-shore oil structures and the marine industry. Heavy duty maintenance and marine coatings are primarily manufactured in Beaumont, Texas and Garland, Texas. Also distributed through its Federal International Chemical division are specialty coatings and resurfacers for concrete and wood floors. 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 to color paint to customer specification. These colorants are used to support the Company's consumer business and are sold directly to external customers. During 1994, new colorant capacity was added to the Company's Louisville, Kentucky plant. This state-of-the-art facility primarily produces colorants to serve the industrial segment as well as provide additional trade sales colorant capacity.

The Company invested in two joint ventures during the first quarter of 1993. To expand coatings sales in the Mexican and Central American markets, the Company formed a joint venture with Pinturas Atlas Marlux called Valspar-Marlux to engage in the marketing, sales, distribution and technical service of packaging, coil, wood and general metals coatings. To further develop the professional paint market served by home centers, the Company entered into a sales and marketing joint venture with Smiland Paint Company called Conco Paint Company. In each venture, both the Company and its joint venture partner manufacture the products sold by the joint venture.

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.

PATENTS

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 due to the buying cycle of the consumer paint and heavy duty maintenance businesses. 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 F of the Notes to Consolidated Financial Statements on page 17 of Valspar's 1995 Annual Report to Stockholders incorporated by reference into this Form 10-K.

SIGNIFICANT CUSTOMERS

In 1995, 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. There are approximately 800 domestic paint and coatings manufacturers, and the Company now ranks sixth in North America with less than 5% of the market. 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.

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 taking measures to establish a presence in Asia and Europe to address these important markets.

Principal methods of competition for resins and emulsions, heavy duty maintenance 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.

The Company competes in the colorant and colorant systems business with fewer than five colorant manufacturers. The Company ranks second in sales to the largest colorant producer, which has greater than 50% of U.S. colorant sales. Competitive factors 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 1995 were $27,746,000, representing a 1.2% increase over fiscal 1994 ($27,430,000). Fiscal 1994 costs increased 9.9% over those of fiscal 1993 ($24,955,000). Primary emphasis has been in 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 1995, and capital expenditures for 1996 to comply with existing laws and regulations are also not expected to be material.

EMPLOYEES

The Company employs approximately 2,500 persons, approximately 482 of whom are members of unions.

FOREIGN OPERATIONS AND EXPORT SALES

The Company's plant in West Hill, Ontario, Canada manufactures and distributes packaging, coil and general industrial coatings for the Canadian market. Other than the business of the Canadian subsidiary, the Company's foreign operations consist primarily of licensing and joint venture arrangements. Technologies for packaging and heavy duty maintenance coatings, colorants, powder coatings and general industrial coatings are currently licensed to paint and coating manufacturers in over twenty foreign countries. The markets for industrial and packaging coatings are becoming increasingly global. To capitalize on this globalization, the Company is reducing its reliance on licensing agreements in various foreign countries and placing greater emphasis on joint ventures which provide the Company an equity interest and permit the Company to exert greater control over the use of its technology. Export sales are not material.

ITEM 2. PROPERTIES

The Company's principal offices in Minneapolis, Minnesota are owned. Operations are conducted at eighteen locations, primarily in Illinois, California, Texas and Pennsylvania with one plant in West Hill, Ontario, Canada. Fifteen plants with square footage of 2,270,000 are owned and three of the plants with square footage of 250,000 are leased. The Statesville, North Carolina plant with 50,000 square footage and the Marengo, Illinois plant with 52,000 square footage began production in 1995.

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 1995 Annual Report to Stockholders incorporated by reference into this Form 10-K.

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 1995 to a vote of security holders.

EXECUTIVE OFFICERS OF THE REGISTRANT

The names and ages of all of the registrant's executive officers, all of whose terms expire in February 1996, 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

C. Angus Wurtele 61 Chairman of the Board since February 1973

Robert E. Pajor 59 Vice Chairman since March 1994

Richard M. Rompala 49 Chief Executive Officer since October 1995 and President since March 1994

Larry B. Brandenburger 48 Vice President, Research and Development since October 1989

Stephen M. Briggs 39 Vice President, Consumer Coatings Group since August 1993

Rolf Engh 42 Vice President, International since September 1993 and Secretary since April 1993

Steven L. Erdahl 43 Vice President, Industrial Coatings Group since June 1991

William L. Mansfield 47 Vice President, Packaging Coatings Group since February 1991

Paul C. Reyelts 49 Vice President, Finance since April 1982

The foregoing executive officers have served in the stated capacity for the registrant during the past five years, except for the following:

Prior to October 1995, Mr. Wurtele was Chief Executive Officer since February 1973.

Prior to March 1994, Mr. Pajor was President and Chief Operating Officer since June 1981.

Prior to March 1994, Mr. Rompala was Group Vice President-Coatings and Resins since January 1992 and Group Vice President -Chemicals since June 1987 at PPG Industries, Inc.

Prior to August 1993, Mr. Briggs was Vice President, Consumer Sales since February 1992. Previously he held the position of Vice President, Color Corporation of America and McCloskey since December 1991 and was General Manager, Color Corporation of America since November 1989.

Prior to April 1993, Mr. Engh was a partner of Lindquist & Vennum, a Minneapolis, Minnesota law firm, since 1986.

Prior to June 1991, Mr. Erdahl was Vice President, Metal Coatings since October 1989.

Prior to February 1991, Mr. Mansfield was Vice President, Packaging Coatings since July 1990.

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 1995 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 29, 1995 was 1,845.

The quarterly dividend declared December 13, 1995, which was paid January 15, 1996 to Common Stockholders of record December 29, 1995, was increased to 16.5(cent) per share.

ITEM 6. SELECTED FINANCIAL DATA

The information in the section titled "Eleven Year Financial Summary" for the years 1991 through 1995 on pages 6 and 7 of Valspar's 1995 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 1995 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 1995 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 26, 1996 is incorporated herein by reference. The information regarding executive officers is set forth in Part I of this report.

ITEM 11. EXECUTIVE COMPENSATION

The information in the section titled "Executive Compensation" on pages 6 through 8 and the section titled "Director Compensation" on pages 4 and 5 of Valspar's Proxy Statement dated January 26, 1996 is incorporated herein by reference. The information on pages 8 through 11 of Valspar's Proxy Statement dated January 26, 1996 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 15 and 16 of Valspar's Proxy Statement dated January 26, 1996 is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information in the section titled "Certain Transactions" on page 5 of Valspar's Proxy Statement dated January 26, 1996 is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a) For financial statements and 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 27, 1995.

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 and February 26, 1992, and to Article Eleven dated February 25, 1987

3(b)3 BY-LAWS--as amended to and including February 25, 1987

10(a)1 THE VALSPAR CORPORATION SUPPLEMENTAL STOCK OWNERSHIP PLAN **

10(b)1 THE VALSPAR CORPORATION KEY EMPLOYEES' SUPPLEMENTARY RETIREMENT PLAN **

10(c)2 THE VALSPAR CORPORATION SUPPLEMENTAL BONUS PLAN **

10(d)5 THE VALSPAR CORPORATION DEFERRED BONUS AND STOCK SALE PLAN--as amended August 12, 1987, December 21, 1988 and December 12, 1990 **

10(e)4 THE VALSPAR CORPORATION 1982 INCENTIVE STOCK OPTION PLAN--as amended February 25, 1987 **

10(f)4 THE VALSPAR CORPORATION NONQUALIFIED STOCK OPTION PLAN **

10(g)6 THE VALSPAR CORPORATION 1991 STOCK OPTION PLAN **

10(h)6 THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN **

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (CONTINUED)

Exhibit No. Description ------

10(i)7 THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN--as amended December 13, 1995 **

10(j)8 THE VALSPAR CORPORATION RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS **

10(k)9 THE VALSPAR CORPORATION ANNUAL BONUS PLAN **

10(l)9 THE VALSPAR CORPORATION INCENTIVE BONUS PLAN **

10(m)+ DISTRIBUTION AGREEMENT REGARDING McWHORTER SPIN-OFF

10(n)+ ENVIRONMENTAL MATTERS AGREEMENT

10(o)+ TECHNOLOGY LICENSE AGREEMENT

10(p)+ TAX SHARING AGREEMENT

10(q)+ MASTER TOLLING AGREEMENT

10(r)+ SALE AND PURCHASE OF ASSETS AGREEMENT BETWEEN CARGILL, INCORPORATED AND McWHORTER, INC. DATED AS OF MAY 19, 1993, AS SUBSEQUENTLY MODIFIED AND AMENDED

10(s)+ AGREEMENT CONTAINING CONSENT ORDER EXECUTED AS OF SEPTEMBER 30, 1993 BY THE FEDERAL TRADE COMMISSION, THE VALSPAR CORPORATION AND McWHORTER, INC.

10(t)+ $60,000,000 CREDIT AGREEMENT DATED AS OF FEBRUARY 1, 1994 AMONG McWHORTER, INC., McWHORTER TECHNOLOGIES, INC., THE BANKS LISTED THEREIN AND WACHOVIA BANK OF GEORGIA, N.A., AS AGENT

10(u)+ LEASE AGREEMENT BETWEEN McWHORTER TECHNOLOGIES, INC. AND THE VALSPAR CORPORATION FOR THE LEASE TO McWHORTER OF OFFICE AND LABORATORY SPACE IN MINNEAPOLIS, MINNESOTA

10(v)+ LEASE AGREEMENT BETWEEN McWHORTER TECHNOLOGIES, INC. AND THE VALSPAR CORPORATION FOR THE LEASE TO VALSPAR OF MANUFACTURING, WAREHOUSING, LABORATORY AND OFFICE SPACE IN PHILADELPHIA, PENNSYLVANIA

13* 1995 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 27, 1995 and October 28, 1994 and Independent Auditors' Report--Valspar Stock Ownership Trust for Salaried Employees

99(b)* Financial Statements for the Years Ended October 27, 1995 and October 28, 1994 and Independent Auditors' Report--Valspar Stock Ownership Trust for Hourly Employees

99(c)* Financial Statements for the Years Ended October 27, 1995 and October 28, 1994 and Independent Auditors' Report--Valspar Profit Sharing Retirement Plan

27 Financial Data Schedule (submitted in electronic format for use of Commission only)

------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (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 30, 1987.

4 As filed with Form 10-K for the period ended October 27, 1989.

5 As filed with Form 10-K for the period ended October 26, 1990.

6 As filed with Form 10-K for the period ended October 25, 1991.

7 As filed with Form 10-K for the period ended October 30, 1992; amendment filed with this Form 10-K.

8 As filed with Form 10-K for the period ended October 30, 1992; amendment filed with Form 10-K for the period ended October 28, 1994.

9 As filed with Form 10-K for the period ended October 30, 1992.

* 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 1996 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.

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 January 22, 1996 /s/ Rolf Engh 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.

------C. Angus Wurtele, Chairman of the Board Susan S. Boren, Director

/s/ Richard M. Rompala January 22, 1996 ------Richard M. Rompala, Director Richard N. Cardozo, Director (President and Chief Executive Officer)

/s/ Robert E. Pajor January 22, 1996 /s/ William W. George January 22, 1996 Robert E. Pajor, Director William W. George, Director (Vice Chairman)

/s/ Paul C. Reyelts January 22, 1996 /s/ Thomas R. McBurney January 22, 1996 Paul C. Reyelts, Vice President, Finance Thomas R. McBurney, Director (Chief Financial Officer)

/s/ Kathleen P. Pepski January 22, 1996 ------Kathleen P. Pepski, Controller Kendrick B. Melrose, Director (Chief Accounting Officer)

/s/ Gregory R. Palen January 22, 1996 Gregory R. Palen, Director

------Lawrence Perlman, Director

/s/ Michael P. Sullivan January 22, 1996 Michael P. Sullivan, 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 27, 1995

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 27, 1995:

Pages in Annual Report

Report of Independent Auditors...... 20

Financial Statements: Consolidated Balance Sheets--October 27, 1995 and October 28, 1994...... 11 Consolidated Statements of Income--Years ended October 27, 1995, October 28, 1994 and October 29, 1993...... 12 Consolidated Statements of Changes in Stockholders' Equity-- Years ended October 27, 1995, October 28, 1994 and October 29, 1993...... 12 Consolidated Statements of Cash Flows--Years ended October 27, 1995, October 28, 1994 and October 29, 1993...... 13 Notes to Consolidated Financial Statements...... 14-19

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 27, 1995, October 28, 1994 and October 29, 1993

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 ------Additions ------(1) (2) Balance at Beginning Charged to Charged to of Period Expense or Other Description (Income) Accounts--Describe ------Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts: Year ended October 27, 1995 $ 890,000 $610,000

Year ended October 28, 1994 1,054,000 (96,000)

Year ended October 29, 1993 1,005,000 257,000

Schedule II--Valuation and Qualifying Accounts and Reserves

(TABLE CONTINUED)

------COL. A COL. D COL. E ------

Deductions--Describe Balance at Description End of Period ------Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts: Year ended October 27, 1995 $830,000 (1) $ 911,000 (241,000) (2)

Year ended October 28, 1994 388,000 (1) 890,000 (433,000) (2) 113,000 (3)

Year ended October 29, 1993 490,000 (1) 1,054,000 (282,000) (2)

(1) Uncollectible accounts written off.

(2) Recoveries on accounts previously written off.

(3) Amount spun off to McWhorter Technologies, Inc. on April 29, 1994 (see Note B in Annual Report.)

INDEX TO EXHIBITS FILED WITH THIS REPORT

THE VALSPAR CORPORATION

Exhibit No. Description ------

3(b)3 BY-LAWS--as amended to and including February 25, 1987

10(a)1 THE VALSPAR CORPORATION SUPPLEMENTAL STOCK OWNERSHIP PLAN **

10(b)1 THE VALSPAR CORPORATION KEY EMPLOYEES' SUPPLEMENTARY RETIREMENT PLAN **

10(c)2 THE VALSPAR CORPORATION SUPPLEMENTAL BONUS PLAN **

10(d)5 THE VALSPAR CORPORATION DEFERRED BONUS AND STOCK SALE PLAN--as amended August 12, 1987, December 21, 1988 and December 12, 1990 **

10(e)4 THE VALSPAR CORPORATION 1982 INCENTIVE STOCK OPTION PLAN--as amended February 25, 1987 **

10(f)4 THE VALSPAR CORPORATION NONQUALIFIED STOCK OPTION PLAN **

10(g)6 THE VALSPAR CORPORATION 1991 STOCK OPTION PLAN **

10(h)6 THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN **

10(i)7 THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN--as amended December 13, 1995 **

10(j)8 THE VALSPAR CORPORATION RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS **

10(k)9 THE VALSPAR CORPORATION ANNUAL BONUS PLAN **

10(l)9 THE VALSPAR CORPORATION INCENTIVE BONUS PLAN **

10(m)+ DISTRIBUTION AGREEMENT REGARDING McWHORTER SPIN-OFF

10(n)+ ENVIRONMENTAL MATTERS AGREEMENT

10(o)+ TECHNOLOGY LICENSE AGREEMENT

10(p)+ TAX SHARING AGREEMENT

10(q)+ MASTER TOLLING AGREEMENT

10(r)+ SALE AND PURCHASE OF ASSETS AGREEMENT BETWEEN CARGILL, INCORPORATED AND McWHORTER, INC. DATED AS OF MAY 19, 1993, AS SUBSEQUENTLY MODIFIED AND AMENDED

10(s)+ AGREEMENT CONTAINING CONSENT ORDER EXECUTED AS OF SEPTEMBER 30, 1993 BY THE FEDERAL TRADE COMMISSION, THE VALSPAR CORPORATION AND McWHORTER, INC.

10(t)+ $60,000,000 CREDIT AGREEMENT DATED AS OF FEBRUARY 1, 1994 AMONG McWHORTER, INC., McWHORTER TECHNOLOGIES, INC., THE BANKS LISTED THEREIN AND WACHOVIA BANK OF GEORGIA, N.A., AS AGENT

10(u)+ LEASE AGREEMENT BETWEEN McWHORTER TECHNOLOGIES, INC. AND THE VALSPAR CORPORATION FOR THE LEASE TO McWHORTER OF OFFICE AND LABORATORY SPACE IN MINNEAPOLIS, MINNESOTA

13* 1995 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 27, 1995 and October 28, 1994 and Independent Auditors' Report--Valspar Stock Ownership Trust for Salaried Employees

99(b)* Financial Statements for the Years Ended October 27, 1995 and October 28, 1994 and Independent Auditors' Report--Valspar Stock Ownership Trust for Hourly Employees

99(c)* Financial Statements for the Years Ended October 27, 1995 and October 28, 1994 and Independent Auditors' Report--Valspar Profit Sharing Retirement Plan

27 Financial Data Schedule (submitted in electronic format for use of Commission only) ------

INDEX TO EXHIBITS FILED WITH THIS REPORT (continued)

THE VALSPAR CORPORATION

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 30, 1987.

4 As filed with Form 10-K for the period ended October 27, 1989.

5 As filed with Form 10-K for the period ended October 26, 1990.

6 As filed with Form 10-K for the period ended October 25, 1991.

7 As filed with Form 10-K for the period ended October 30, 1992; amendment filed with this Form 10-K.

8 As filed with Form 10-K for the period ended October 30, 1992; amendment filed with this Form-10-K for the period ended October 28, 1994.

9 As filed with Form 10-K for the period ended October 30, 1992.

* As filed with this Form 10-K.

** Compensatory Plan or arrangement required to be filed pursuant to Item 14(c) of Form 10-K.

Exhibit 10(i)

THE VALSPAR CORPORATION

BOARD OF DIRECTORS MEETING

December 13, 1995

AMENDMENT TO KEY EMPLOYEE ANNUAL BONUS PLAN

WHEREAS, on October 21, 1992 this Board of Directors adopted The Valspar Corporation Key Employee Annual Bonus Plan (the "Plan"), and the Board reserved 200,000 shares of Common Stock of the Corporation for grants of restricted stock under the Plan; and

WHEREAS, 118,432 shares of restricted stock have been granted to date under the Plan, and the Board believes that an increase in the reserve for restricted stock grants under the Plan is appropriate to accommodate anticipated future restricted stock awards under the Plan, in order to further the purposes of the Plan.

NOW, THEREFORE, BE IT RESOLVED, that the Plan be, and it hereby is, amended, subject to shareholder approval, to provide that an aggregate 700,000 shares of Common Stock of the Corporation shall be available for grants of restricted stock pursuant to the Plan.

FURTHER RESOLVED, that the following officers of the Corporation be authorized and empowered to execute and deliver on behalf of the Corporation a Registration Statement on Form S-8 covering the additional shares subject to the Plan, and to take any and all other actions necessary or appropriate to further the purposes of the foregoing resolutions: Chairman of the Board, Vice Chairman, President, Vice President -Finance, Secretary and Treasurer. ------ELEVEN-YEAR FINANCIAL SUMMARY ------(Dollars in Thousands, except per share amounts) ------OPERATING RESULTS Fiscal Years 1995 1994 1993 1992 1991 1990 Net Sales $ 790,175 $ 795,275 $ 700,897 $ 683,485 $ 632,562 $571,445 Cost and Expenses Cost of Sales 561,170 569,063 501,135 492,092 458,953 410,094 Operating Expense 146,344 146,683 129,997 131,232 120,643 109,206 ------Income from Operations 82,661 79,529 69,765 60,161 52,966 52,145

Other (Income) Expense - Net (763) 631 2,036 360 1,504 3,337 Interest Expense 4,216 2,504 1,645 2,932 5,686 4,704 ------Income Before Income Taxes 79,208 76,394 66,084 56,869 45,776 44,104

Net Income 47,520 45,799 40,156 34,418 27,676 26,731 Net Income as a Percent of Sales 6.0% 5.8% 5.7% 5.0% 4.4% 4.7% Return on Average Equity 24.4% 24.4% 21.8% 21.7% 20.0% 22.1% Per Common Share: Net Income $ 2.15 $ 2.07 $ 1.82 $ 1.57 $ 1.27 $ 1.22 Dividends Paid .60 .52 .44 .36 .30 .26 Stockholders' Equity 9.65 7.97 9.02 7.84 6.79 5.92

------FINANCIAL POSITION Total Assets $ 398,199 $ 367,608 $ 340,479 $ 321,618 $ 319,367 $302,806 Working Capital at Year-End 90,995 87,887 85,741 57,500 58,066 56,199 Property, Plant and Equipment - Net 130,404 107,956 103,916 101,005 98,818 106,621 Long-Term Debt, Excluding Current Portion 21,658 35,343 7,890 10,684 30,697 49,456 Stockholders' Equity 212,115 176,712 198,826 169,377 147,896 128,707

------OTHER STATISTICS Property, Plant and Equipment Expenditures $ 38,982 $ 31,817 $ 17,213 $ 19,581 $ 8,843 $ 13,171 Depreciation and Amortization Expense 20,318 19,134 20,648 19,793 18,896 15,119 Research and Development Expense 27,746 27,430 24,955 24,802 23,226 20,350 Total Cash Dividends $ 13,121 $ 11,252 $ 9,471 $ 7,843 $ 6,519 $ 5,651 Average Common Shares Outstanding (000's) 22,091 22,163 22,031 21,973 21,862 21,854 Number of Stockholders 1,864 1,902 1,866 1,863 1,857 1,863 Number of Employees at Year-End 2,542 2,585 2,577 2,482 2,530 2,502 Market Price Range -- Common Stock: High $ 41.88 $ 45.75 $ 41.50 $ 36.38 $ 23.44 $ 20.00 Low 30.50 32.75 30.38 22.56 15.25 14.69

------ELEVEN-YEAR FINANCIAL SUMMARY Table Continued ------(Dollars in Thousands, except per share amounts) ------Fiscal Years 1989 1988 1987 1986 1985 ------OPERATING RESULTS Net Sales $ 526,892 $ 479,617 $ 448,944 $ 345,248 $ 347,164

Cost of Sales 385,459 356,690 321,258 252,588 260,858 Operating Expense 98,725 89,906 89,862 63,733 62,403 ------Income from Operations 42,708 33,021 37,824 28,927 23,903

Other (Income) Expense - Net (1,555) (2,733) (479) (2,871) (2,710) Interest Expense 5,838 6,370 6,227 5,103 6,153 ------Income Before Income Taxes 38,425 29,384 32,076 26,695 20,460

Net Income 23,234 18,295 18,052 14,770 11,532 Net Income as a Percent of Sales 4.4% 3.8% 4.0% 4.3% 3.3% Return on Average Equity 21.9% 19.7% 23.0% 20.3% 16.5% Per Common Share: Net Income $ 1.04 $ .81 $ .80 $ .63 $ .49 Dividends Paid .22 .20 .16 .13 .11 Stockholders' Equity 5.11 4.46 3.85 3.21 3.15

------FINANCIAL POSITION Total Assets $ 261,103 $ 232,974 $ 236,099 $ 164,678 $ 164,758 Working Capital at Year-End 63,519 60,694 57,148 29,091 57,316 Property, Plant and Equipment - Net 82,687 73,652 74,748 51,931 54,341 Long-Term Debt, Excluding Current Portion 40,201 42,412 58,561 6,619 35,986 Stockholders' Equity 112,698 99,895 85,807 71,020 74,363

------OTHER STATISTICS Property, Plant and Equipment Expenditures $ 8,701 $ 9,390 $ 10,032 $ 4,806 $ 4,060 Depreciation and Amortization Expense 13,975 12,759 11,687 7,042 7,020 Research and Development Expense 18,037 17,190 17,062 14,880 15,494 Total Cash Dividends $ 4,899 $ 4,472 $ 3,559 $ 3,034 $ 2,593 Average Common Shares Outstanding (000's) 22,330 22,488 22,490 23,536 23,774 Number of Stockholders 1,864 1,922 1,869 1,814 1,855 Number of Employees at Year-End 2,593 2,505 2,687 2,121 2,204 Market Price Range-- Common Stock: High $ 15.94 $ 15.50 $ 20.25 $ 12.04 $ 6.97 Low 11.32 10.57 9.82 6.60 4.38

Reference is made to the Notes to Consolidated Financial Statements for a summary of accounting policies and additional information. The above amounts include Sunbelt Coatings, Inc. results, as the 1995 acquisition was accounted for as a pooling of interests. Results for 1994 include six months of operations for McWhorter Technologies, Inc. prior to the spin-off to shareholders. Results for 1987 include ten months of operations for Enterprise Paint Companies. Per share data has been adjusted to reflect 2-for-1 stock splits effective in March 1987 and March 1992. The number of stockholders is based on recordholders at year-end.

GROUP SALES

The operating divisions of the Company are organized to reflect classes of similar products. The table below shows the percentage of net sales for these groups for the past five years.

(Percent of Net Sales) ------Fiscal Years 1995 1994 1993 1992 1991 ------Consumer Coatings 34 31 29 29 30 Packaging Coatings 27 25 27 27 24 Industrial Coatings 25 23 22 23 24 Special Products 14 21 22 21 22 ------

STOCK INFORMATION AND DIVIDENDS Stock traded on the New York Stock Exchange

------For the Fiscal Year 1995 1994 ------Market price / high - low: First quarter $36.75 - $30.50 $41.38 - $36.50 Second quarter 39.50 - 33.38 45.75 - 39.25 Third quarter 40.00 - 35.25 38.13 - 33.75 Fourth quarter 41.88 - 38.25 37.25 - 32.75 ------Per share dividends: First quarter $.15 $.13 Second quarter .15 .13 Third quarter .15 .13 Fourth quarter .15 .13 ------$.60 $.52 ------

------

6 & 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW. On March 24, 1995, the Company acquired the outstanding shares of stock of Sunbelt Coatings, Inc. The transaction was accounted for as a pooling of interests with the consolidated financial statements for all periods presented restated to include the results of Sunbelt. The impact of this restatement was not material to the financial condition or results of operations of the Company. See Note B to the Consolidated Financial Statements.

The Company's operations for fiscal 1994 include the results for the Resin Products Division, which was purchased from Cargill, Incorporated by the Company's wholly-owned subsidiary, McWhorter, Inc., from the date of its acquisition on February 18, 1994, to the time of the spin-off at the close of business on April 29, 1994. At the time of the spin-off, all of the assets of the Resin Products Division and certain assets and liabilities of McWhorter were distributed to Valspar shareholders in the form of a stock dividend. See Note C to the Consolidated Financial Statements.

OPERATIONS 1995 VS. 1994. Net sales declined $5,100,000 from 1994. Excluding the sales of McWhorter operations spun-off in 1994, net sales increased $57,945,000 or 7.9% to $790,175,000 in 1995 from fiscal 1994 pro-forma sales of $732,230,000. The increase was driven by volume increases in the Consumer and Packaging Groups, a favorable shift in mix in the Industrial Group, and pricing actions taken in all groups to mitigate the impact of rising raw material costs. The increase was partially offset by lower unit sales in certain business lines within the Special Products Group.

The gross profit margin declined slightly to 29.0% in 1995 from 29.4% in 1994 on a pro-forma basis. The decrease in this year's margin is largely attributable to higher raw material costs, which were partially offset by reduced production costs in existing facilities. Other items contributing to the margin decline are a shift in product mix in the Industrial Group and costs related to the start up of the new Louisville, Kentucky; Statesville, North Carolina; and Marengo, Illinois facilities. With Marengo beginning production during the third quarter, all three facilities are operating satisfacto rily. Although the Company estimates that the rate of raw material price escalation will ease in fiscal 1996, margin pressure will continue. The Company intends to offset these higher costs by continuing to improve its operating efficiency and to seek product price increases.

On a historical basis, the gross profit margin increased to 29.0% in 1995 from 28.4% in 1994 as the spun-off McWhorter operations sold lower margin products.

Operating expenses (research, selling, and administrative) were 3.8% higher than the comparable period of 1994 on a pro-forma basis. The Company incurred increased expenses attributable to the upgrade and replacement of the Company's information systems and higher selling expenses, including expenditures associated with global expansion efforts. These increases were partially offset by cost containment and reduction efforts throughout the Company in response to the gross margin pressure during 1995. Headcount at the end of the year decreased by 1.7% even though personnel were added in high growth potential areas of the Company.

Other income, net of expense, for 1994 included a pre-tax charge of $2,474,000 for the write-down of a resin plant to appraised fair value that was transferred from McWhorter to Valspar in connection with the spin-off. Other income in 1995 decreased $1,144,000 from 1994 on a pro- forma basis, as the prior year included better financial performance from joint ventures and recovery of accounts receivable and other assets written off in prior years.

Interest expense increased $1,498,000 or 55.1% over 1994 on a pro-forma basis. Increased average debt levels resulting from the McWhorter spin-off, coupled with higher interest rates and interest paid on an income tax assessment, were the primary contributors to the increase in 1995.

On a pro-forma basis, net income increased 8.4% from $43,853,000 in 1994 to $47,520,000 in 1995, representing the 21st consecutive year of increased earnings. Historical net income for 1994 was $45,799,000. Higher sales, manufacturing efficiencies and restrained operating expenses offset the impact of reduced margin due to escalating raw material costs during 1995.

8 OPERATIONS 1994 VS. 1993. Net sales in fiscal 1994 were $795,275,000, an increase of $94,378,000 or 13.5% over fiscal 1993. Excluding McWhorter, pro-forma sales in 1994 were $732,230,000, up $74,545,000 or 11.3% from pro-forma fiscal 1993 sales. The majority of the 1994 increase was attributable to additional volume sold within the Consumer, Industrial, and Packaging Coatings Groups.

The Company's gross profit margin was essentially flat - 28.5% in 1993 and 28.4% in 1994. Excluding McWhorter in both years, the Company's pro-forma gross profit margin increased from 28.6% in 1993 to 29.4% in 1994. The improvement in gross profit margin for the Company's continuing businesses was primarily due to increased sales of higher margin Consumer and Industrial Group products coupled with reduced manufacturing costs. Raw material prices declined modestly from 1993, although prices increased during the last half of 1994.

Operating expenses (research, selling, and administrative) for 1994 increased $16,686,000 or 12.8% from 1993. The increase in operating expenses was primarily due to operating expenses associated with the acquired business, increased direct selling expenses, a higher level of promotional and advertising programs associated with our Consumer Group's new business efforts, and pilot program expenses related to the selection of a new management information system. Excluding McWhorter, pro-forma operating expenses were $140,991,000, an increase of $16,055,000 or 12.9% from pro-forma 1993 expenses.

Interest expense increased by $859,000 or 52.2% from 1993. This increase was due to additional borrowings after the repayment of intercompany debt owed to McWhorter and to slightly higher interest rates in effect during 1994.

Other non-operating expenses for 1994 included the write-down to appraised fair value of a resin plant mentioned earlier. In 1993, non- operating expense included $1,712,000 of expense related to the pre-tax cumulative effect of adopting Statement of Financial Accounting Standards Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."

Excluding McWhorter, net income increased 24.3% from $35,290,000 in 1993 to $43,853,000 in 1994. On a historical basis, net income improved by 14.1% from $40,156,000 in 1993 to $45,799,000 in 1994. The additional volume sold, improved gross profit margins within the Company's continuing businesses, and controlled operating expenses, were the primary contributors to 1994's increase in net income.

FINANCIAL CONDITION. The net cash provided by the Company's operations was $82,153,000 for fiscal 1995 compared to $57,109,000 for fiscal 1994. The increase is a result of the higher earnings, increased non-cash depreciation and amortization expense and reduced working capital requirements. Inventory levels in the Consumer, Industrial and Packaging Groups declined in fiscal 1995 as a result of focused inventory management.

Accounts payable and accrued liabilities increased in 1995 due to increases in various expense accruals and approximately $12,400,000 of issued checks which had not cleared the Company's bank accounts at October 27, 1995.

Accounts receivable balances have increased, partially offsetting the impact of the other changes in net operating assets. The increase is a result of the sales growth coupled with an extension of longer payment terms to selected high-volume customers.

Cash used for investing activities decreased from $111,571,000 in fiscal 1994 to $40,032,000 in 1995 due to the acquisition of the Resin Products Division in 1994, partially offset by higher capital spending in 1995. The higher capital spending was attributable to the upgrade and replacement of existing management information systems and the completion of construction on three facilities to meet increased production requirements for the resin, consumer and colorant businesses. Aside from the construction projects, capital spending was evenly distributed among the four business groups with no other single major expenditure. The Company anticipates capital spending in fiscal 1996 to be close to the spending level in 1995 as the Company continues to upgrade and replace existing management information systems and invest in operations-related upgrade projects.

9 Aside from investing activities, the Company used its cash from operations to pay down $23,488,000 in debt; the ratio of total debt to capital decreased to 11.4% at the close of 1995 compared to 22.3% at 1994. Average debt outstanding during 1995 was $52,400,000 at a weighted average interest rate of 5.27% versus $46,700,000 at 4.65% last year, increasing the current year's interest expense to $4,216,000 from $2,504,000 in the prior year. In the second quarter, the Company entered into a new five-year $150,000,000 revolving credit agreement, replacing a $45,000,000 facility. Also during the year, the Company obtained $12,500,000 in Industrial Revenue Bond financing for its construction projects in Statesville, North Carolina and Marengo, Illinois. At October 27, 1995, the Company has unused lines of credit available from banks of $280,741,000 which are expected to be adequate to cover current and projected needs for short-term financing.

Fiscal 1995 Common Stock dividends of $13,121,000 represent a 16.6% increase over 1994. The annual amount was increased to 60(cent) per share from 52(cent) in 1994 with the payout at 28.6% of the prior year's earnings, which is consistent with the Company's target payout rate of 25% to 35%. The Company's debt agreements impose limitations on the amount of dividends that can be paid. These limitations have not affected, nor are they expected to affect, the ability of the Company to pay dividends in the future.

The Company has continuing authorization to purchase shares of its Common Stock for treasury at management's discretion for general corporate purposes. Purchases under this program were 105,000, 133,000 and 160,000 shares in 1995, 1994 and 1993, respectively. Additional treasury stock activity for 1995 included approximately 8,000 shares tendered in conjunction with the exercise of stock options totaling 113,000 shares.

The Company is involved in various claims relating to environmental and waste disposal matters at a number of current and former plant sites. The Company participates in remedial and other environmental compliance activities at certain of these sites. At other sites, the Company has been named as a potentially responsible party (PRP) under federal and state environmental laws for the remediation of hazardous waste. The Company's management reviews each individual site, taking into consideration the number of parties involved at the site, joint and several liability of other PRPs, the level of contribution that may be attributed to the Company relative to the other parties, the nature and magnitude of the wastes involved, the method and extent of remediation, the potential insurance coverage, the estimated legal and consulting expense with respect to each site, and the time period over which any costs would likely be incurred. Based on the above analysis, management estimates, to the extent possible, the restoration or other clean-up costs and related claims for each site. The estimates are based in part on discussions with other PRPs, governmental agencies and engineering firms.

Based on the above considerations, the Company has established reserves for potential environmental liabilities and plans to continue to accrue reserves in appropriate amounts. The reserves are continuously reviewed and adjusted as additional information becomes available and management is able to better estimate the ultimate clean-up costs at individual sites. While uncertainties exist with respect to the amounts and timing of the Company's ultimate environmental liabilities, management believes that such liabilities, individually and in the aggregate, will not have a material adverse effect on the Company's financial condition or results of operations.

10 CONSOLIDATED BALANCE SHEETS ------(Dollars in Thousands, except per share amounts) ------October 27, October 28, 1995 1994 ------ASSETS CURRENT ASSETS Cash and cash equivalents $ 4,875 $ 2,580 ------Accounts and notes receivable, less allowances for doubtful accounts (1995 - $911; 1994 - $890) 129,954 112,892 ------Inventories 76,893 84,076 ------Prepaid expenses and other accounts 25,186 24,603 ------Total Current Assets 236,908 224,151

OTHER ASSETS 30,887 35,501 ------

PROPERTY, PLANT AND EQUIPMENT Land 8,607 8,560 ------Buildings 76,047 64,025 ------Machinery and equipment 162,886 137,372 ------247,540 209,957 ------Less accumulated depreciation 117,136 102,001 ------Net Property, Plant and Equipment 130,404 107,956 ------$398,199 $367,608 ------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES Notes payable to banks $ 5,288 15,000 ------Trade accounts payable 68,575 51,850 ------Income taxes 9,098 8,449 ------Accrued liabilities 62,719 60,641 ------Current portion of long-term debt 233 324 ------Total Current Liabilities 145,913 136,264 LONG-TERM DEBT, LESS CURRENT PORTION 21,658 35,343 ------DEFERRED INCOME TAXES 5,113 4,724 ------DEFERRED LIABILITIES 13,400 14,565 ------STOCKHOLDERS' EQUITY Common Stock (par value $.50 per share; shares authorized 30,000,000; shares issued, including shares in treasury, 26,660,656 shares) 13,330 13,330 ------Additional paid-in capital 10,348 6,588 ------Retained earnings 235,361 200,913 ------Other (3,436) (2,616) ------255,603 218,215 Less cost of Common Stock in treasury (1995 - 4,672,046 shares; 1994 - 4,739,015 shares) 43,488 41,503 ------Total Stockholders' Equity 212,115 176,712 ------$398,199 $367,608 ------

See Notes to Consolidated Financial Statements. 11 CONSOLIDATED STATEMENTS OF INCOME ------(Dollars in Thousands, except per share amounts) ------October 27, October 28, October 29, For the Year Ended 1995 1994 1993 ------NET SALES $ 790,175 $ 795,275 $ 700,897 ------COST AND EXPENSES Cost of sales 561,170 569,063 501,135 Research and development 27,746 27,430 24,955 Selling and administrative 118,598 119,253 105,042 ------INCOME FROM OPERATIONS 82,661 79,529 69,765 Other (income) expense, net (763) 631 2,036 Interest 4,216 2,504 1,645 ------INCOME BEFORE INCOME TAXES 79,208 76,394 66,084 Income taxes 31,688 30,595 25,928 ------

NET INCOME $ 47,520 $ 45,799 40,156 ------NET INCOME PER COMMON SHARE $ 2.15 $ 2.07 $ 1.82 ------WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 22,091,411 22,162,848 22,030,853 ------

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY ------(Dollars in Thousands, except per share amounts) ------Additional Common Stock Paid-In Retained Treasury ------Shares Amount Capital Earnings Other Stock ------BALANCE OCTOBER 30, 1992 26,660,656 $13,330 $ 547 $192,333 $(1,352) $33,171 ------Common Stock options exercised for 65,671 shares 639 (501) ------Purchase of 173,436 shares of Common Stock for treasury 5,707 ------Net income for the year 40,156 ------Cash dividends on Common Stock - $.44 per share (9,471) ------Other 734 243 (20) ------BALANCE OCTOBER 29, 1993 26,660,656 13,330 1,920 223,018 (1,109) 38,357 ------Common Stock options exercised for 187,309 shares 1,667 (1,533) ------Purchase of 150,694 shares of Common Stock for treasury 4,997 ------Net income for the year 45,799 ------Cash dividends on Common Stock - $.52 per share (11,252) ------McWhorter spin-off (55,822) ------Other 3,001 (830) (1,507) (318) ------BALANCE OCTOBER 28, 1994 26,660,656 13,330 6,588 200,913 (2,616) 41,503 ------Common Stock options exercised for 178,048 shares 637 (884) ------Purchase of 113,004 shares of Common Stock for treasury 3,607 ------Net income for the year 47,520 ------Cash dividends on Common Stock - $.60 per share (13,121) ------Other 3,123 49 (820) (738) ------BALANCE OCTOBER 27, 1995 26,660,656 $13,330 $10,348 $235,361 $(3,436) $43,488 ------

See Notes to Consolidated Financial Statements.

12 CONSOLIDATED STATEMENTS OF CASH FLOWS ------(Dollars in Thousands) ------October 27, October 28, October 29, For the Year Ended 1995 1994 1993 ------OPERATING ACTIVITIES Net income $47,520 $45,799 $40,156 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,318 19,134 20,648 ------Provisions for: Deferred income taxes (220) (1,552) (1,786) ------Other deferred liabilities 255 1,122 3,384 ------Loss on sales or abandonment of property, plant and equipment 396 2,357 591 ------(Decrease) increase in cash due to changes in net operating assets, net of effects of acquired businesses: Accounts and notes receivable (17,062) (6,444) (13,636) ------Inventories and prepaid assets 6,600 (16,575) 1,817 ------Trade accounts payable and accrued liabilities 22,052 13,936 816 ------Income taxes payable 1,814 (1,323) 4,724 ------Other 480 655 819 ------Net Cash Provided by Operating Activities 82,153 57,109 57,533 ------

INVESTING ACTIVITIES Purchases of property, plant and equipment (38,982) (31,817) (17,213) ------Acquired businesses/assets, net of cash - (75,385) (1,000) ------Investments in/advances to joint ventures (1,050) (3,300) (3,484) ------Other - (1,069) (276) ------Net Cash Used in Investing Activities (40,032) (111,571) (21,973) ------

FINANCING ACTIVITIES Net (payments on) proceeds from borrowings (23,488) 38,415 (21,511) ------McWhorter debt spun off - 30,086 ------Proceeds from sale of treasury stock 1,521 4,686 1,140 ------Purchase of shares of Common Stock for treasury (3,607) (5,022) (5,759) ------Dividends paid (13,121) (11,252) (9,471) ------Other (1,131) (1,643) (13) ------Net Cash (Used in) Provided by Financing Activities (39,826) 55,270 (35,614) ------Increase (Decrease) in Cash and Cash Equivalents 2,295 808 (54) ------CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,580 1,772 1,826 ------CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,875 $ 2,580 $1,772 ------

See Notes to Consolidated Financial Statements.

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED OCTOBER 1995, 1994 AND 1993

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS: The Company operates in one business segment, the manufacture and distribution of paint and coatings through its Consumer Coatings, Packaging Coatings, Industrial Coatings and Special Products Groups.

FISCAL YEAR: The Company has adopted a 4-4-5 accounting cycle with the fiscal year ending on the Friday immediately preceding October 31.

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the parent company and its subsidiaries, all of which are wholly-owned. All material intercompany accounts, transactions and profits have been eliminated. Investments in joint ventures in which the Company has a 20% to 50% interest are accounted for using the equity method.

CASH EQUIVALENTS: The Company considers all highly liquid instruments purchased with a maturity of less than three months to be cash equivalents.

INVENTORIES: Inventories are stated at the lower of cost or market. Costs in the Company's domestic coatings inventories are recorded on the last-in, first-out (LIFO) method. The remaining inventories are recorded using the first-in, first-out (FIFO) method.

PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are recorded at cost. Provision for depreciation of property is made by charges to operations at rates calculated to amortize the cost of the property over its useful life (twenty years for buildings; three to ten years for machinery and equipment) primarily using accelerated methods for assets acquired prior to fiscal year 1994. All assets acquired in fiscal years 1994 and 1995 are depreciated using the straight-line method. The result of this change on the financial statements was not material.

INCOME TAXES: The Company provides for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." The cumulative effect of adopting SFAS No. 109 as of October 31, 1992 was to increase 1993 net income by $1,075,000 or $.05 per share. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the tax rates and laws enacted that will be in effect when the differences are expected to reverse.

STOCK OPTIONS: At the time options are exercised, shares are issued from treasury stock. The differences between the option price and the cost of the treasury stock is charged or credited to additional paid-in capital. There have been no charges or credits to income in connection with stock options because all options were granted at an exercise price equal to the fair market value of the stock on the date of grant.

EMPLOYEE BENEFIT PROGRAMS: Under the Company's Profit Sharing Plan, the Company makes a contribution based on return on assets as defined in the Plan up to a maximum of 10% of the aggregate compensation of eligible participants.

Under the Company's Employee Stock Ownership Trusts, substantially all of the Company's domestic employees are eligible to participate in the Trusts and may contribute 1% to 6% of their compensation to the Trusts. The Company contributes an amount equal to one-half of the employee contributions.

The Company also sponsors a number of defined benefit pension plans for certain hourly employees. Pension costs are actuarially determined and include normal costs and amortization of prior service costs over a period of ten years. The Company funds the domestic pension plans in amounts that meet the minimum funding requirements prescribed by ERISA.

The Company accounts for the cost of its postretirement medical benefits in accordance with SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions." The cumulative effect of adopting SFAS 106 effective October 31, 1992 was to decrease 1993 net income by $1,024,000 (net of related income taxes of $680,000) or $.05 per share.

The Company has a Deferred Bonus Plan for certain senior managers. Under the Plan, participants are awarded a deferred bonus of up to 15% of salary depending upon certain financial performance criteria.

14 In 1993 the Company established a Key Employee Bonus Plan for certain employees. Under the Plan, participants can elect to convert all or any portion of the cash bonus awarded under the Incentive Bonus Plan into a grant of restricted stock receivable three years from the date of grant.

In 1991 the Company established a Leveraged Equity Purchase Plan designed to provide key employees with loans, up to an aggregate amount of $6,000,000, to acquire and retain Common Stock of the Company.

The Company adopted SFAS No. 112 "Employers' Accounting for Postemployment Benefits" effective as of October 31, 1994. The adoption of the Statement did not have a material impact on the financial statements.

NET INCOME PER SHARE: Net income per share is based on the weighted average number of Common Shares outstanding during each year plus common stock equivalents on dilutive stock options.

RECLASSIFICATIONS: Certain reclassifications have been reflected in the 1994 and 1993 financial statements to conform to the 1995 presentation.

NOTE B - ACQUISITION

On March 24, 1995 the Company acquired all of the Common Stock of Sunbelt Coatings, Inc., in exchange for 339,455 shares of the Company's Common Stock. Sunbelt is an automotive refinish coatings manufacturer. The transaction has been accounted for as a pooling of interests, and, accordingly, the consolidated financial statements for all periods presented have been restated to include Sunbelt. The effect of this acquisition on the Company's financial statements was not significant.

NOTE C - SPIN-OFF

On February 18, 1994 Valspar's wholly-owned subsidiary, McWhorter, Inc., purchased substantially all of the assets, consisting primarily of inventory and fixed assets, but excluding accounts receivable, of the Resin Products Division of Cargill, Incorporated for approximately $75 million. McWhorter's financing for the Resin Product Division acquisition was derived from two sources: $44 million in cash received upon collection of an intercompany balance due from Valspar and $31 million in bank financing. Valspar utilized existing credit facilities to finance payment of the intercompany balance owed to McWhorter. Immediately after the acquisition, McWhorter, Inc., was merged into McWhorter Technologies, Inc. ("McWhorter"), with the surviving corporation remaining a wholly-owned subsidiary of the Company.

At the close of business on April 29, 1994, all of the assets of the Resin Products Division and the assets and liabilities of McWhorter's operations located in Philadelphia, Pennsylvania; Carpentersville, Illinois; and Portland, Oregon were distributed to the Valspar shareholders in the form of a stock dividend of one share of McWhorter Common Stock for every two shares of Valspar Common Stock. Prior to the distribution, McWhorter transferred to Valspar resin assets located at facilities in Los Angeles, California; Rockford and Kankakee, Illinois; and Garland, Texas.

The significant assets and liabilities of McWhorter at the date of spin-off were as follows:

ASSETS: Accounts receivable $40,386 Inventory 21,435 Other assets 3,734 Property, plant, and equipment (net) 69,523

LIABILITIES: Notes to bank (12,700) Accounts payable (22,382) Accrued liabilities (11,250) Long-term debt (30,086) Other liabilities (2,838) ------NET ASSETS $55,822 ------

15 The following supplemental unaudited consolidated pro-forma information shows condensed results of operations as though the McWhorter spin-off had occurred at the beginning of fiscal 1993. The pro-forma data is provided for information purposes only and does not purport to be indicative of the future results or financial position of Valspar (or what the results of operations or financial position would have been had the McWhorter spin-off occurred as described above).

Pro-Forma Condensed Statements of Income (Unaudited)

(In Thousands except per share amounts)

Year Ended October 28, 1994

Historical Adjustments(a) Pro-Forma ------Net sales $795,275 $ (63,045) $732,230 Cost of sales 569,063 (51,853) 517,210 ------Gross profit 226,212 (11,192) 215,020 Research and development 27,430 (1,261) 26,169 Selling and administrative 119,253 (4,431) 114,822 ------Income from operations 79,529 (5,500) 74,029 Other expense (income), net 631 (2,538) (1,907) Interest expense 2,504 214 2,718 ------Income before income taxes 76,394 (3,176) 73,218 Income taxes 30,595 (1,230) 29,365 ------Net income $ 45,799 $ (1,946) $ 43,853 ------Earnings per share $ 2.07 $ 1.98 ------Total assets $367,608 $367,608 ------

Year Ended October 29, 1993 ------Historical Adjustments(a) Pro-Forma ------Net sales $700,897 $ (43,212) $657,685 Cost of sales 501,135 (31,598) 469,537 ------Gross profit 199,762 (11,614) 188,148 Research and development 24,955 (858) 24,097 Selling and administrative 105,042 (4,203) 100,839 ------Income from operations 69,765 (6,553) 63,212 Other expense 2,036 (72) 1,964 Interest expense 1,645 1,010 2,655 ------Income before income taxes 66,084 (7,491) 58,593 Income taxes 25,928 (2,625) 23,303 ------Net income $ 40,156 $ (4,866) $ 35,290 ------Earnings per share $ 1.82 $ 1.60 ------Total assets $340,479 $ (59,993) $280,486 ------

(a) To eliminate the revenue and expenses of McWhorter for the respective periods presented, as if the spin-off had occurred on October 31, 1992.

NOTE D - INVENTORIES

The major classes of inventories consist of the following: ------October 27, October 28, (Dollars in Thousands) 1995 1994 ------Manufactured products $46,284 $51,614 Raw materials, supplies and work-in-process 30,609 32,462 ------$76,893 $84,076 ------

Inventories stated at cost determined by the last-in, first-out (LIFO) method aggregate $73,957,000 at October 27, 1995 and $78,593,000 at October 28, 1994, approximately $30,046,000 and $23,953,000 lower, respectively, than such costs determined under the first-in, first-out (FIFO) method.

16 NOTE E - TRADE ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Trade accounts payable at October 27, 1995 include $12,400,000 of issued checks which had not cleared the Company's bank accounts.

Accrued liabilities include the following:

------October 27, October 28, (Dollars in Thousands) 1995 1994 ------Employee compensation $26,305 $27,739 Contribution to employees' retirement trusts 4,995 4,790 Customer volume rebates 8,431 5,248 Other 22,988 22,864 ------$62,719 $60,641 ------

NOTE F - LONG-TERM DEBT AND CREDIT ARRANGEMENTS

Long-term debt consists of the following:

------October 27, October 28, (Dollars in Thousands) 1995 1994 ------Short-term notes to banks (7.27% at October 27, 1995) $ 6,575 $32,528 Industrial development bonds (4.10% at October 27, 1995) 12,500 - Obligations under capital lease (7.48% at October 27, 1995) 2,806 3,018 Other 10 121 ------21,891 35,667 ------Less current maturities (233) (324) ------$21,658 $35,343 ------

The Company has $150,000,000 available under a revolving credit loan agreement with banks at optional interest rates of prime, or LIBOR- based or CD-based rates. The revolving credit loan facility matures in 2000. The revolving credit loan agreement contains covenants which require the Company to maintain certain financial ratios. The Company is in compliance with these covenants as of October 27, 1995.

Maturities of long-term debt are as follows: 1996 - $233,000; 1997 - $246,000; 1998 - $264,000; 1999 - $285,000 and $20,630,000 thereafter.

Under other short-term bank lines of credit, the Company may borrow up to $136,030,000 on such terms as the Company and the banks may mutually agree. These arrangements are reviewed periodically for renewal and modification. Borrowings under these short-term notes had an average annual rate of 5.19% in fiscal 1995 and 4.53% in fiscal 1994.

Borrowings under the Canadian short-term bank lines in the amount of $6,575,000 at October 27, 1995 have been classified as long-term debt reflecting the Company's ability to refinance these amounts during the subsequent fiscal year. The Company had unused lines of credit under the short-term bank lines and revolving credit facility of $280,741,000 at October 27, 1995.

The Company obtained $12,500,000 in Industrial Revenue Bond (IRB) financing for its plant construction projects in Statesville, North Carolina and Marengo, Illinois. These bonds have variable rates of interest and mature in 2015.

Interest paid during 1995, 1994 and 1993 was $3,783,000, $2,473,000 and $1,647,000, respectively.

17 NOTE G - COMMON STOCK OPTIONS

Under the 1991 Stock Option Plan, options for the purchase of 1,000,000 shares of Common Stock may be granted to officers and key employees. Under the prior stock option plans (1982 Incentive Stock Option Plan and 1989 Non-Qualified Stock Option Plan), options were also granted to officers and key employees. Options issued under the 1982 and 1989 plans are fully exercised. The Company has elected to grant all future options under the 1991 Stock Option Plan. Options are exercisable in full or in part at the date of grant. Activity for the two years ended October 27, 1995 is summarized as follows:

------Shares Options Option Price Reserved Outstanding Per Share ------Balance October 30, 1993 734,212 423,423 $ 9.48 - $28.64 Granted (148,800) 148,800 29.63 - 34.38 Exercised (187,309) 9.48 - 29.63 Canceled 32,440 (32,440) 9.48 - 29.63 Adjustment for McWhorter spin-off (75,851) 75,851 ------Balance October 28, 1994 542,001 428,325 11.60 - 29.63 Granted (176,295) 176,295 34.50 - 36.63 Exercised (95,012) 11.60 - 34.50 Canceled 12,589 (12,589) 15.11 - 34.50 ------Balance October 27, 1995 378,295 497,019 $11.60 - $36.63 ------

The balance of 497,019 options outstanding at October 27, 1995 includes 473,907 non-qualified options.

The impact of the McWhorter spin-off on April 29, 1994 on both the option price and number of shares is reflected above.

NOTE H - INCOME TAXES

Significant components of the provision for income taxes are as follows:

------(Dollars in Thousands) ------October 27, October 28, October 29, Year Ended 1995 1994 1993 ------Current Federal $26,009 $25,905 $24,431 State 5,681 5,761 4,393 Foreign 218 481 653 ------Total current 31,908 32,147 29,477 ------Deferred Federal (93) (1,296) (1,301) State (9) (209) (427) Foreign (118) (47) (58) ------Total deferred (220) (1,552) (1,786) ------Cumulative tax effect of changes in accounting Methods for: Income taxes (1,075) Postretirement benefits (688) ------Total cumulative effect (1,763) ------

Total income taxes $31,688 $30,595 $25,928

Significant components of the Company's deferred tax assets and liabilities are as follows:

------October 27, October 28, (Dollars in Thousands) 1995 1994 ------Deferred tax assets: Product liability accruals $ 2,205 $ 2,097 Insurance reserves 2,350 2,216 Deferred compensation 2,266 1,721 Workers' compensation reserves 3,383 3,171 Employee compensation reserve 2,061 2,075 Other 8,025 6,184 ------Total deferred tax assets 20,290 17,464 ------Deferred tax liabilities: Tax over book depreciation (10,197) (8,387) Other (3,726) (2,930) ------Total deferred tax liabilities (13,923) (11,317) ------Net deferred tax assets $ 6,367 $ 6,147 ------

18 The reconciliation of income tax computed at the United States Federal statutory tax rates to income tax expense is as follows:

------1995 1994 1993 ------Tax at United States statutory rates 35.0% 35.0% 34.8% State income taxes, net of Federal benefit 4.7% 4.7% 3.8% Other 0.3% 0.2% 1.8% FAS 109 implementation (1.6)% ------40.0% 39.9% 38.8% ------

Income taxes paid during 1995, 1994 and 1993 were $29,989,000, $33,530,000 and $24,692,000, respectively.

NOTE I - RETIREMENT BENEFIT PROGRAMS

The Company's primary retirement benefit programs are its defined contribution plans. Contributions to the Profit Sharing Plan totaled $7,552,000, $7,045,000, and $6,911,000, for 1995, 1994, and 1993, respectively. The Company's contributions to the Employee Stock Ownership Plans were $2,145,000, $1,950,000, and $2,055,000, for 1995, 1994, and 1993, respectively.

The Company also sponsors a number of defined benefit pension plans for certain hourly employees. The related pension costs are not significant. On January 1, 1995 the Company merged 11 of its pension plans into one previously existing plan. The funded status of all pension plans using a 7.0% discount rate in 1995 and a 7.5% discount rate in 1994 is as follows:

------Overfunded Underfunded (Dollars in Thousands) Plan Plan ------OCTOBER 27, 1995 Plan assets at fair value $16,903 $4,211 Accumulated benefit obligation 14,804 4,247 ------Plan assets in excess of (less than) accumulated benefit obligation 2,099 (36) ------OCTOBER 28, 1994 Plan assets at fair value $5,721 $10,473 Accumulated benefit obligation 3,691 12,565 ------Plan assets in excess of (less than) accumulated benefit obligation $2,030 $(2,092) ------

NOTE J - OTHER POSTRETIREMENT BENEFIT PLANS

In addition to the Company's defined benefit pension plans, the Company sponsors a health care plan that provides postretirement medical benefits for some of its employees.

The Company's accrued postretirement benefit liability of $1,629,000 is equal to its accumulated postretirement benefit obligation at October 27, 1995. Net periodic postretirement expense for the year ended October 27, 1995 and October 28, 1994 was $142,000 and $187,000, respectively.

The weighted-average discount rate used in determining the accumulated postretirement benefit obligation at October 27, 1995 was 7.5%.

NOTE K - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a tabulation of the unaudited quarterly results for the years ended October 27, 1995 and October 28, 1994:

------(Dollars in Thousands) ------Net Gross Net Income Net Sales Margin Income Per Share ------1995 Quarter Ended: January 27 $163,220 $ 43,089 $ 5,379 $ .24 April 28 205,041 58,437 12,168 .55 July 28 216,310 64,226 15,473 .70 October 27 205,604 63,253 14,500 .66 ------$790,175 $229,005 $47,520 $2.15 ------

1994 Quarter Ended: January 28 $149,802 $ 40,316 $ 4,433 $ .20 April 29 248,081 66,046 14,399 .65 July 29 203,302 60,371 14,674 .66 October 28 194,090 59,479 12,293 .56 ------$795,275 $226,212 $45,799 $2.07 ------

19 Exhibit No. 21

SUBSIDIARIES OF THE VALSPAR CORPORATION

The following are wholly-owned subsidiaries of The Valspar Corporation and do business under its corporate name:

State of Incorporation ------

Engineered Polymer Solutions, Inc. Delaware

Valspar Inc. Canada

Subsidiaries not listed would not, if considered in the aggregate as a single subsidiary, constitute a significant subsidiary. Exhibit No. 23(a)

Consent of Independent Auditors

We consent to the incorporation by reference in this Annual Report (Form 10-K) of The Valspar Corporation of our report dated November 13, 1995, included in the 1995 Annual Report to Stockholders of The Valspar Corporation.

Our audits also included the financial statement schedule of The Valspar Corporation listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also consent to the incorporation by reference in the Registration Statement Forms S-8 No. 2-79961, No. 2-79962, No. 33-51224 and No. 33-51226 pertaining to The Valspar Stock Ownership Trusts; Form S-8 No. 33-39258 pertaining to The Valspar Corporation 1991 Stock Option Plan; Form S-8 No. 33-51222 pertaining to The Valspar Profit Sharing Retirement Plan; Form S-8 No. 33-53824 pertaining to The Valspar Corporation Key Employee Annual Bonus Plan; Form S-8 No. 33-56062 pertaining to The Valspar Corporation Restricted Stock Plan for Non-Employee Directors; and Form S-8 No. 33-72238 pertaining to the Valspar Corporation 1982 Incentive Stock Option Plan and 1989 Nonqualified Stock Option Plan of The Valspar Corporation of our report dated November 13, 1995, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of The Valspar Corporation.

ERNST & YOUNG LLP

Minneapolis, Minnesota January 25, 1996 Exhibit No. 23(b)

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in the Registration Statements No. 33-51224, No. 33-51226, and No. 33-51222 of The Valspar Corporation on Form S-8 of our reports dated January 8, 1996 with respect to the financial statements of The Valspar Stock Ownership Trust for Salaried Employees, The Valspar Stock Ownership Trust for Hourly Employees, and The Valspar Profit Sharing Retirement Plan for the year ended October 27, 1995 appearing in the Annual Report on Form 10 -K of The Valspar Corporation.

/s/ DELOITTE & TOUCHE LLP

January 22, 1996 Minneapolis, Minnesota

Exhibit 99A

VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES

FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 27, 1995 AND OCTOBER 28, 1994 AND INDEPENDENT AUDITORS' REPORT

VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES

TABLE OF CONTENTS

PAGE

INDEPENDENT AUDITORS' REPORT 1

FINANCIAL STATEMENTS: Statements of Net Assets Available for Benefits 2 Statements of Changes in Net Assets Available for Benefits 3 Notes to Financial Statements 4

SUPPLEMENTAL SCHEDULE - Item 27a - Schedule of Assets Held for Investment Purposes 8

INDEPENDENT AUDITORS' REPORT

The Valspar Stock Ownership Trust Administrative Committee

We have audited the accompanying statements of net assets available for benefits of the Valspar Stock Ownership Trust for Salaried Employees (the Plan) as of October 27, 1995 and October 28, 1994 and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at October 27, 1995 and October 28, 1994 and the changes in its net assets available for benefits for the years then ended, in conformity with generally accepted accounting principles.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule listed in the Table of Contents is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplementary schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

DELOITTE & TOUCHE LLP

January 8, 1996

VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES

STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS OCTOBER 27, 1995 AND OCTOBER 28, 1994 ------1995 1994 ASSETS: Investments (Note 3): Interest in Valspar Stock Ownership Master Trust $79,331,462 $80,511,333 Other 214,818 281,892 Receivables: Employees' contributions 217,334 217,423 Employer's contributions 105,231 100,230 ------

NET ASSETS AVAILABLE FOR BENEFITS $79,868,845 $81,110,878 ======

See notes to financial statements.

VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES

STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS YEARS ENDED OCTOBER 27, 1995 AND OCTOBER 28, 1994 ------

1995 1994

ADDITIONS TO NET ASSETS ATTRIBUTED TO: Employee contributions $ 3,232,086 $ 3,061,731 Employer contributions 1,579,742 1,499,185 Interest in earnings of Valspar Stock Ownership Master Trust 2,184,133 11,921,158 Other 14,964 (3,990) ------7,010,925 16,478,084

DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO: Dividend payments to participants 1,048,596 923,510 Benefit payments: The Valspar Corporation: In cash 176,632 142,353 In stock 5,801,165 6,490,677 McWhorter Technologies, Incorporated: In cash 8,940 8,980 In stock 1,180,387 698,117 Other 37,238 20,230 ------8,252,958 8,283,867 ------

NET (DECREASE) INCREASE (1,242,033) 8,194,217

NET ASSETS AVAILABLE FOR BENEFITS AT BEGINNING OF YEAR 81,110,878 72,916,661 ------

NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 79,868,845 $ 81,110,878 ======

See notes to financial statements.

VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES

NOTES TO FINANCIAL STATEMENTS YEARS ENDED OCTOBER 27, 1995 AND OCTOBER 28, 1994

1. SIGNIFICANT ACCOUNTING POLICIES

The accounting records of the Valspar Stock Ownership Trust for Salaried Employees (the Plan) are maintained on the accrual basis.

Investments in common stock of The Valspar Corporation (the Company) and McWhorter Technologies, Incorporated (McWhorter) are stated at fair value (the last reported sales price on the last business day of the year).

Other investments are stated at current fair value as determined by the trustee, Norwest Bank Minnesota, N.A., who holds the various investments. The trustee values securities which are traded on a national securities exchange at the last reported sales price on the last business day of the year; investments traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the average of the last reported bid and ask prices.

Benefits paid to participants in shares of the Company or in shares of McWhorter are valued at fair value. Approved benefits payable representing the unpaid vested interest of participants who have withdrawn from the Plan were $25,388 and $20,991 at October 27, 1995 and October 28, 1994, respectively.

2. DESCRIPTION OF THE PLAN

The Plan is a defined contribution plan that is available to all salaried employees who meet certain age and length of service requirements. It provides for retirement and termination benefits.

Employees electing to participate in the Plan make voluntary contributions on a pretax or after-tax basis up to a maximum of 6% of eligible wages. The Company has voluntarily agreed to contribute an amount equal to one-half of employee's contribution. Employee contributions vest immediately, and Company contributions vest after five years of service. The Company has the right under the Plan to terminate the Plan and discontinue such contributions at any anniversary date. In the event of termination of the Plan, the net assets of the Plan are to be set aside for the exclusive benefit of the participants or their beneficiaries.

According to the Plan, contributions are to be primarily invested in common stock of the Company. Cash dividends earned on plan shares are paid out to the Plan participants. The common stock of McWhorter is not a current investment option of the Plan (see Note 6). Participants meeting certain age and length of participation requirements may diversify a portion of their interest into investments other than common stock of the Company.

Forfeitures resulting from the termination of Plan participants with less than 100% vesting reduce the Company's contribution in the year of forfeiture. Total forfeitures were $53,057 and $28,138 in 1995 and 1994, respectively.

3. INVESTMENTS

Investments of the Valspar Stock Ownership Master Trust are accounted for on a share value basis as determined by Norwest Bank Minnesota, N.A., trustee.

The fair value of investments of the Valspar Stock Ownership Master Trust in which the Plan invests are as follows:

October 27, October 28, 1995 1994

Common stock of the Valspar Corporation $ 83,844,618 $ 78,930,684 Common stock of McWhorter Technologies, Incorporated (Note 6) 12,622,035 18,624,874 Collective Trust Fund 54,450 324,688 ------$ 96,521,103 $ 97,880,246 ======

The investment income of the Valspar Stock Ownership Master Trust for the years ended October 27, 1995 and October 28, 1994 are as follows:

1995 1994

Valspar Stock: Interest $ 14,292 $ 10,803 Dividends 1,280,451 1,122,192 Unrealized asset appreciation 4,938,519 16,124,133 ------$ 6,233,262 $ 17,257,128 ======

McWhorter Stock: Interest $ 266 Gain on sale of assets $ 575,432 374,659 Unrealized asset (depreciation) appreciation (4,187,426) 1,344,684 ------$ (3,611,994) $ 1,719,609 ======

The Valspar Stock Ownership Master Trust holds assets for the Plan and the Valspar Stock Ownership Trust for Hourly Employees. The Plan's ownership interest in the Valspar Stock Ownership Master Trust were 82.2% on October 27, 1995 and October 28, 1994.

Other investments of the Plan include investments in the Equity Fund Master Trust, the Bond Fund Master Trust, the Principal Protection Fund Master Trust, and a Norwest Short-term investment fund (collective trust fund). These alternative investments are available for diversification purposes to Plan participants who have attained age 55 and have ten years of participation in the Plan.

4. TRANSACTIONS WITH PARTIES -IN -INTEREST Fees incurred for trustee, recordkeeping, and other services rendered by parties-in-interest are paid by the Company.

During the years ended October 27, 1995 and October 28, 1994, the Valspar Stock Ownership Master Trust purchased 200,952 and 163,267 shares of common stock of the Company at a cost of $7,410,495 and $6,170,396, respectively. Dividends on common stock of the Company received by the Master Trust totaled $1,280,451 and $1,122,192 in the years ended October 27, 1995 and October 28, 1994, respectively.

5. INCOME TAX STATUS

The Plan obtained its latest determination letter on May 26, 1992 in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has been amended to comply with new legislation enacted since receiving the determination letter. However, the Plan administrator and the Plan's tax counsel believe that the Plan is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code. Therefore, no provision for income taxes has been included in the Plan's financial statements.

6. MCWHORTER TECHNOLOGIES, INC. TRANSACTION

On April 29, 1994, Valspar stockholders of record as of April 15, 1994 (including Plan Participants with a portion of their account balance invested in Valspar stock as of that date) received a stock dividend of one share of McWhorter common stock for every two shares of Valspar common stock held.

The common stock of McWhorter is not a current investment option of the Plan and Plan participants may not increase the allocation of their account balance to McWhorter stock. Participants may make a one-time election to liquidate all of their shares of common stock of McWhorter. Proceeds from liquidation will be reinvested in Valspar common stock.

SUPPLEMENTAL SCHEDULE

VALSPAR STOCK OWNERSHIP TRUST FOR SALARIED EMPLOYEES

ITEM 27A - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES OCTOBER 27, 1995 ------

DESCRIPTION OF INVESTMENT INCLUDING MATURITY DATE, IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST, CURRENT LESSOR, OR SIMILAR PARTY PAR, OR MATURITY VALUE COST VALUE

Interest in Master Trust Funds: Equity Fund Master Trust 2,569 units $ 25,693 $ 33,091 Bond Fund Master Trust 1,433 units 17,632 16,018 Principal Protection Fund Master Trust 6,038 units 78,782 83,455 Valspar Stock Ownership Master Trust 2,462,253 units 28,705,964 79,331,462 Interest in common stock: The Valspar Corporation 1,851 shares 26,122 72,189 McWhorter Technologies, Incorporated 671 shares 3,614 10,065 ------$ 28,857,807 $ 79,546,280 ======

Exhibit 99B

VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES

FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 27, 1995 AND OCTOBER 28, 1994 AND INDEPENDENT AUDITORS' REPORT

THE VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES

TABLE OF CONTENTS

PAGE

INDEPENDENT AUDITORS' REPORT 1

FINANCIAL STATEMENTS: Statements of Net Assets Available for Benefits 2 Statements of Changes in Net Assets Available for Benefits 3 Notes to Financial Statements 4

SUPPLEMENTAL SCHEDULE - Item 27a - Schedule of Assets Held for Investment Purposes 8

INDEPENDENT AUDITORS' REPORT

The Valspar Stock Ownership Trust Administrative Committee

We have audited the accompanying statements of net assets available for benefits of the Valspar Stock Ownership Trust for Hourly Employees (the Plan) as of October 27, 1995 and October 28, 1994 and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits.

DELOITTE & TOUCHE LLP

January 8, 1996

VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES

STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS OCTOBER 27, 1995 AND OCTOBER 28, 1994 ------

1995 1994

ASSETS: Investments (Note 3): Interest in Valspar Stock Ownership Master Trust $17,189,641 $17,368,913 Other 116,879 243,379 Receivables: Employees' contributions 117,666 104,730 Employer's contributions 51,921 47,379 ------

NET ASSETS AVAILABLE FOR BENEFITS $17,476,107 $17,764,401 ======

See notes to financial statements.

VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES

STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS YEARS ENDED OCTOBER 27, 1995 AND OCTOBER 28, 1994 ------

1995 1994

ADDITIONS TO NET ASSETS ATTRIBUTED TO: Employee contributions $ 1,227,200 $ 1,152,012 Employer contributions 563,951 527,084 Interest in earnings of Valspar Stock Ownership Master Trust 437,136 2,039,237 Other 20,338 304,182 ------2,248,625 4,022,515

DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO: Dividend payments to participants 229,007 195,748 Benefit payments: The Valspar Corporation: In cash 106,212 132,686 In stock 1,836,884 725,705 McWhorter Technologies, Incorporated: In cash 3,122 3,313 In stock 349,779 148,807 Other 11,915 ------2,536,919 1,206,259 ------

NET (DECREASE) INCREASE (288,294) 2,816,256

NET ASSETS AVAILABLE FOR BENEFITS AT BEGINNING OF YEAR 17,764,401 14,948,145 ------

NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 17,476,107 $ 17,764,401 ======

See notes to financial statements.

VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES

NOTES TO FINANCIAL STATEMENTS YEARS ENDED OCTOBER 27, 1995 AND OCTOBER 28, 1994

1. SIGNIFICANT ACCOUNTING POLICIES

The accounting records of the Valspar Stock Ownership Trust for Hourly Employees (the Plan) are maintained on the accrual basis.

Investments in common stock of the Valspar Corporation (the Company) and McWhorter Technologies, Incorporated (McWhorter) are stated at fair value (the last reported sales price on the last business day of the year).

Benefits paid to participants in shares of the Company or in shares of McWhorter are valued at fair value. Approved benefits payable representing the unpaid vested interest of participants who have withdrawn from the Plan were $17,392 and $311 at October 27, 1995 and October 28, 1994, respectively.

2. DESCRIPTION OF THE PLAN

The Plan is a defined contribution plan that is available to all hourly employees who meet certain age and length of service requirements. It provides for retirement and termination benefits.

Employees electing to participate in the Plan make voluntary contributions on a pretax or after-tax basis up to a maximum of 6% of eligible wages if they are also participating in Valspar's Profit Sharing Plan. Employees participating in a defined benefit pension plan are eligible to contribute up to a maximum of 15% of eligible wages. The Company has voluntarily agreed to contribute an amount equal to one-half of eligible wages contributed by employees (to a maximum match of 3% of eligible wages). Employee contributions vest immediately, and Company contributions vest after five years of service. The Company has the right under the Plan to terminate the Plan and discontinue such contributions at any anniversary date. In the event of termination of the Plan, the net assets of the Plan are to be set aside for the exclusive benefit of the participants or their beneficiaries.

3. INVESTMENTS

Investments of the Valspar Stock Ownership Master Trust are accounted for on a share value basis as determined by Norwest Bank Minnesota N.A., trustee.

The fair value of investments of the Valspar Stock Ownership Master Trust in which the Plan invests are as follows:

October 27, October 28, 1995 1994

The investment income of the Valspar Stock Ownership Master Trust for the years ended October 27, 1995 and October 28, 1994 are as follows:

1995 1994

Valspar Stock: Interest $ 14,292 $ 10,803 Dividends 1,280,451 1,122,192 Unrealized asset appreciation 4,938,519 16,124,133 ------$ 6,233,262 $ 17,257,128 ======

McWhorter Stock: Interest $ 266 Gain on sale of assets $ 575,432 374,659 Unrealized asset (depreciation) appreciation (4,187,426) 1,344,684 ------$ (3,611,994) $ 1,719,609 ======

The Valspar Stock Ownership Master Trust holds assets for the Plan and the Valspar Stock Ownership Trust for Salaried Employees. The Plan's ownership interest in the Valspar Stock Ownership Master Trust was 17.8% on October 27, 1995 and October 28, 1994.

Fees incurred for trustee, recordkeeping, and other services rendered by parties-in-interest are paid by the Company.

5. INCOME TAX STATUS

6. MCWHORTER TECHNOLOGIES, INC. TRANSACTION

The common stock of McWhorter is not a current investment option of the Plan, and Plan participants may not increase the allocation of their account balance to McWhorter stock. Participants may make a one-time election to liquidate all of their shares of common stock of McWhorter. Proceeds from liquidation will be reinvested in Valspar common stock.

SUPPLEMENTAL SCHEDULE

THE VALSPAR STOCK OWNERSHIP TRUST FOR HOURLY EMPLOYEES

ITEM 27A - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES ------OCTOBER 27, 1995 ------

DESCRIPTION OF INVESTMENT INCLUDING MATURITY DATE, IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST, CURRENT LESSOR, OR SIMILAR PARTY PAR, OR MATURITY VALUE COST VALUE

Interest in Master Trust Funds: Equity Fund Master Trust 5,046 units $ 50,354 $ 64,990 Bond Fund Master Trust 1,856 units 22,866 20,743 Principal Protection Fund Master Trust 989 units 10,724 13,665 Valspar Stock Ownership Master Trust 529,078 units 6,220,044 17,189,641 Interest in common stock: The Valspar Corporation 379 shares 5,349 14,781 McWhorter Technologies, Incorporated 180 shares 969 2,700 ------$ 6,310,306 $ 17,306,520 ======

Exhibit 99C

THE VALSPAR PROFIT SHARING RETIREMENT PLAN

FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 27, 1995 AND OCTOBER 28, 1994 AND INDEPENDENT AUDITORS' REPORT

THE VALSPAR PROFIT SHARING RETIREMENT PLAN

TABLE OF CONTENTS

PAGE

INDEPENDENT AUDITORS' REPORT 1

FINANCIAL STATEMENTS: Statements of Net Assets Available for Benefits 2 Statements of Changes in Net Assets Available for Benefits 3 Notes to Financial Statements 4

SUPPLEMENTAL SCHEDULES: Item 27a - Schedule of Assets Held for Investment Purposes 11 Item 27d - Schedule of Reportable Transactions 12

INDEPENDENT AUDITORS' REPORT

The Valspar Profit Sharing Retirement Plan Administrative Committee

We have audited the accompanying statements of net assets available for benefits of The Valspar Profit Sharing Retirement Plan (the Plan) as of October 27, 1995 and October 28, 1994 and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules listed in the Table of Contents are presented for the purpose of additional analysis and are not a required part of the basic financial statements, but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplementary schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.

DELOITTE & TOUCHE LLP

January 8, 1996

THE VALSPAR PROFIT SHARING RETIREMENT PLAN

STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS OCTOBER 27, 1995 AND OCTOBER 28, 1994 ------

1995 1994

ASSETS: Investments (Note 3): Interest in Bond Fund Master Trust $ 11,154,321 $ 13,547,559 Interest in Equity Fund Master Trust 52,708,380 39,474,266 Interest in Principal Protection Fund Master Trust 18,608,202 19,507,604 The Valspar Corporation Common Stock 18,899,634 11,987,143 McWhorter Technologies, Incorporated Common Stock (Note 6) 1,373,130 1,970,860 Interest in collective funds 493,832 406,692 ------Total investments 103,237,499 86,894,124

Receivables: Employer's contributions 4,855,440 4,692,361 Employees' contributions 179,229 163,939 ------

NET ASSETS AVAILABLE FOR BENEFITS $108,272,168 $ 91,750,424 ======

See notes to financial statements.

THE VALSPAR PROFIT SHARING RETIREMENT PLAN

STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS YEARS ENDED OCTOBER 27, 1995 AND OCTOBER 28, 1994 ------

1995 1994

ADDITIONS TO NET ASSETS ATTRIBUTED TO: Employer contributions $ 4,855,440 $ 4,694,800 Employee contributions 2,518,718 2,311,980 Net investment gain - Balanced Fund Master Trust 339,954 Net investment gain (loss) - Bond Fund Master Trust 1,163,123 (4,068,898) Net investment gain (loss) - Equity Fund Master Trust 12,890,511 (1,839,798) Net investment gain - Principal Protection Fund Master Trust 1,253,973 1,010,081 Net investment gain (loss) - Collective Trust Funds 19,815 (6,647) The Valspar Corporation Common Stock: Net investment gain 1,647,742 1,330,746 Dividends 274,964 103,457 McWhorter Technologies, Incorporated Common Stock - Net investment (loss) gain (379,128) 177,169 ------24,245,158 4,052,844

DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO - Benefit payments 7,723,414 6,403,195 ------

NET INCREASE (DECREASE) 16,521,744 (2,350,351)

NET ASSETS AVAILABLE FOR BENEFITS AT BEGINNING OF YEAR 91,750,424 94,100,775 ------

NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 108,272,168 $ 91,750,424 ======

See notes to financial statements.

THE VALSPAR PROFIT SHARING RETIREMENT PLAN

NOTES TO FINANCIAL STATEMENTS YEARS ENDED OCTOBER 27, 1995 AND OCTOBER 28, 1994

1. SIGNIFICANT ACCOUNTING POLICIES

The accounting records of the Valspar Profit Sharing Retirement Plan (the Plan) are maintained on an accrual basis.

Investments are stated at current fair value as determined by Norwest Bank Minnesota, N.A. (the Trustee), which holds the various investments. The Trustee values securities that are traded on a national exchange at the last reported sales price on the last business day of the year; investments traded in the over -the -counter market and listed securities for which no sales were reported on that date are valued at the average of the last reported bid and ask prices.

Approved benefits payable representing the unpaid vested interest of participants who have withdrawn from the Plan were $191,646 and $433,606 at October 27, 1995 and October 28, 1994, respectively.

2. DESCRIPTION OF THE PLAN

The Plan is a defined contribution plan which covers substantially all employees of The Valspar Corporation (the Company) who are not participants in a defined benefit retirement plan sponsored by the Company. The Plan provides for retirement and termination benefits. The Company has agreed to contribute voluntarily such amounts as determined in accordance with the provisions of the Plan. The Company has the right under the Plan to terminate the Plan and discontinue such contributions at any anniversary date. In the event of the termination of the Plan, the assets of the Plan are to be set aside for the exclusive benefit of the participants or their beneficiaries.

Contributions up to a maximum of 10% of the participants' eligible wages may be made as defined by the Plan. Contributions are comprised of both employee 401(k) contributions and Company contributions. Company contributions to the Plan are based on the Company's return on assets for the fiscal year ending coincident with the Plan year. Employee contributions vest immediately, and Company contributions vest after five years of service.

Forfeitures resulting from the termination of plan participants less than 100% vested reduce the Company's contribution in the year of forfeiture. Total forfeitures were $146,027 and $97,842 in 1995 and 1994, respectively.

3. INVESTMENTS

Effective January 1, 1994, participants in the Plan have four investment options: the Principal Protection Fund, Bond Fund, Equity Fund, and Valspar Common Stock Fund. The Collective Trusts and McWhorter Common Stock Fund are not available as current investment options (see Note 6). Also effective January 1, 1994, participants may change their investment elections quarterly and may allocate their account balance among one or more of the options in increments of 5%.

During 1993, the Plan offered participants a choice of three investment options for the investment of plan assets: the Balanced Fund, the Principal Protection Fund, and the Valspar Common Stock Fund. The Collective Trusts were not available as current investment options. Participants were able to change their investment elections twice annually and were able to allocate their account balance among the investment options in increments of 25%.

The change in net assets available for benefits by investment option for the year ended October 27, 1995 is as follows:

Investment Options Valspar McWhorter Principal Common Common Bond Equity Protection Stock Stock Collective Fund Fund Fund Fund Fund Trusts Total Additions to net assets attributed to: Employer contributions $ 626,481 $ 2,127,223 $ 793,743 $ 1,307,993 $ 4,855,440 Employee contributions 330,451 1,043,218 416,770 728,279 2,518,718 Net investment gain - Bond Fund 1,163,123 1,163,123 Net investment gain - Equity Fund 12,890,511 12,890,511 Net investment gain - Principal Protection Fund 1,253,973 1,253,973 Net investment gain - Collective Trust Funds $ 19,815 19,815 Valspar Corporation Common Stock: Net investment gains 1,647,742 1,647,742 Dividends 274,964 274,964 McWhorter Tech- nologies, Incor- porated Com- mon Stock - Net investment loss $ (379,128) (379,128) ------2,120,055 16,060,952 2,464,486 3,958,978 (379,128) 19,815 24,245,158

Deductions from net assets attributed to - Benefit payments 996,351 2,823,827 3,473,329 324,661 89,346 15,900 7,723,414 ------

Net increase (decrease) prior to interfund transfers 1,123,704 13,237,125 (1,008,843) 3,543,895 (468,474) 3,915 16,521,744

Interfund transfers (3,769,451) (20,178) 72,399 3,763,261 (129,256) 83,225 ------

Net (decrease) increase $ (2,645,747) $13,216,947 $ (936,444) $ 7,397,578 $ (597,730) $ 87,140 $ 16,521,744 ======

The change in net assets available for benefits by investment option for the year ended October 28, 1994 is as follows:

Investment Options Valspar McWhorter Principal Common Common Balanced Bond Equity Protection Stock Stock Collective Fund Fund Fund Fund Fund Fund Trusts Total Additions to net assets attributed to: Employer contributions $ 380 $ 869,197 $2,149,901 $ 830,437 $ 844,885 $4,694,800 Employee contributions 292,004 387,310 930,181 393,773 308,712 2,311,980 Net investment gain - Balanced Fund 339,954 339,954 Net investment loss - Bond Fund (4,068,898) (4,068,898) Net investment loss - Equity Fund (1,839,798) (1,839,798) Net investment gain - Principal Protection Fund 1,010,081 1,010,081 Net investment loss - Collective Trust Funds $ (6,647) (6,647) Valspar Corporation Common Stock: Net investment gains 1,330,746 1,330,746 Dividends 103,457 103,457 McWhorter Tech- nologies, Incor- porated Com- mon Stock - Net investment gain $ 177,169 177,169 ------632,338 (2,812,391) 1,240,284 2,234,291 2,587,800 177,169 (6,647) 4,052,844 Deductions from net assets attributed to - Benefit payments 1,031,990 863,969 1,614,194 2,577,307 254,194 47,141 14,400 6,403,195 ------

Net (decrease) increase prior to interfund transfers (399,652) (3,676,360) (373,910) (343,016) 2,333,606 130,028 (21,047) (2,350,351)

Interfund transfers (70,541,410) 18,138,603 42,152,483 1,721,431 6,687,611 1,840,832 450 ------

Net (decrease) increase $ (70,941,062)$14,462,243 $41,778,573 $1,378,415 $9,021,217 $1,970,860 $(20,597) $(2,350,351) ======

As of October 27, 1995, the assets in the Equity Fund, the Bond Fund, and the Principal Protection Fund are maintained in three master trusts: the Equity Fund Master Trust, the Bond Fund Master Trust, and the Principal Protection Fund Master Trust, respectively. The Master Trusts hold assets for the Plan, Employee Pension Plans, and the Valspar Stock Ownership Plans. The Plan's ownership interest in the Equity Fund Master Trust, Bond Fund Master Trust, and Principal Protection Fund Master Trust was 86.1%, 99.7%, and 99.5%, respectively, on October 27, 1995 and 88.4%, 99.8%, and 99.8%, on October 28, 1994, respectively.

Investments of the Master Trusts are determined on a unit value basis as determined by Norwest Bank Minnesota, N.A., Trustee. The fair values of investments of the Master Trusts in which the Plan invests are as follows:

October 27, October 28, 1995 1994 Bond Fund Master Trust: Cash and short-term investment fund $ 61,285 $ 4,899,873 United States Government securities 6,660,887 3,895,630 Municipal securities and foreign debt securities 1,965,748 2,475,928 Corporate bonds and debentures 1,225,316 748,537 Mutual bond fund 963,823 1,454,752 Accrued income 314,021 107,676 ------$ 11,191,080 $ 13,582,396 ======

Equity Fund Master Trust: Cash and short-term investment fund $ 1,985,685 $ 1,021,007 Common stock 40,047,826 29,348,260 Collective equity fund 19,581,513 14,143,683 Net amount (payable) receivable for settlements pending (442,981) 191,024 Accrued income 26,853 25,525 ------$ 61,198,896 $ 44,729,499 ======

Principal Protection Fund Master Trust - Collective trust funds $ 18,705,323 $ 19,548,234 ======

The net investment income of the Master Trusts for the year ended are as follows:

October 27, October 28, 1995 1994

Balanced Fund Master Trust: Interest $ 415,403 Dividends 57,639 Net gain on sale of assets 5,086,535 Unrealized asset depreciation (5,063,174) Investment advisory and management fees (84,319) ------$ 412,084 ======Equity Fund Master Trust: Interest $ 105,631 $ 67,862 Dividends 345,839 230,022 Net gain on sale of assets 12,675,572 27,329 Unrealized asset appreciation (depreciation) 2,134,941 (2,430,634) Investment advisory and management fees (302,419) (329,200) ------$ 14,959,654 $ (2,434,621) ======Bond Fund Master Trust: Interest $ 660,932 $ 339,568 Net gain (loss) on sale of assets 52,221 (982,517) Unrealized asset appreciation (depreciation) 497,553 (3,409,123) Investment advisory and management fees (47,532) (34,918) ------$ 1,163,174 $ (4,086,990) ======Principal Protection Fund Master Trust: Interest $ 301,726 $ 1,064,300 Unrealized asset appreciation 870,297 15,177 Net gain on sale of assets 164,321 Investment advisory and management fees (78,735) (68,490) ------$ 1,257,609 $ 1,010,987 ======

4. TRANSACTIONS WITH PARTIES-IN-INTEREST

Fees paid during the year for trustee, recordkeeping, and other services rendered by parties-in-interest are paid directly by the plan sponsor.

5. INCOME TAX STATUS

In the Plan's latest determination letter, obtained on September 12, 1990, the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has been amended to comply with new legislation enacted since receiving the determination letter. The Plan administrator and the Plan's tax counsel believe that the Plan is currently designed and operated in compliance with the applicable requirements of the Internal Revenue Code. Therefore, no provision for income taxes has been included in the Plan's financial statements.

6. MCWHORTER TECHNOLOGIES, INCORPORATED TRANSACTION

On April 29, 1994, Valspar stockholders of record as of April 15, 1994 (including Plan participants with a portion of their account balance invested in Valspar stock as of that date) received a stock dividend of one share of McWhorter Technologies, Inc. common stock for every two shares of Valspar Corporation common stock held. The initial distribution of McWhorter Technologies, Inc. common stock is reflected as an interfund transfer from the Valspar Common Stock Fund in Note 3.

The common stock of McWhorter Technologies, Inc. is not a current investment option of the Plan, and Plan participants may not increase the allocation of their account balance to McWhorter stock. Participants may make a one-time election to liquidate all of their shares of common stock of McWhorter Technologies, Inc. Proceeds from liquidation will be reinvested in the participants' accounts based on their current election options.

SUPPLEMENTAL SCHEDULES

THE VALSPAR PROFIT SHARING RETIREMENT PLAN

ITEM 27A - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES OCTOBER 27, 1995 ------

DESCRIPTION OF INVESTMENT INCLUDING MATURITY DATE, IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST, CURRENT LESSOR, OR SIMILAR PARTY PAR, OR MATURITY VALUE COST VALUE

Common stock: The Valspar Corporation 484,606 shares $ 15,378,397 $ 18,899,634 McWhorter Technologies, Incorporated 91,542 shares 1,322,238 1,373,130

Interest in Collective Trust Funds: Norwest Intermediate U.S. Government Bond Fund 1,012 units 56,188 62,733 Norwest Managed Fixed Income Fund 4,556 units 114,280 127,208 Norwest Short-term Investment Fund 301,636 units 301,636 301,636 Accrued income 2,255 2,255

Interest in Master Trust Funds: Equity Fund Master Trust 4,092,456 units 41,361,941 52,708,380 Bond Fund Master Trust 998,178 units 12,232,259 11,154,321 Principal Protection Fund Master Trust 1,346,219 units 14,836,960 18,608,202 ------$ 85,606,154 $ 103,237,499 ======

THE VALSPAR PROFIT SHARING RETIREMENT PLAN

ITEM 27D - SCHEDULE OF REPORTABLE TRANSACTIONS OCTOBER 27,1995 ------

CURRENT VALUE OF ASSETS AT IDENTITY OF DESCRIPTION OF PURCHASE COST OF TRANSACTION PARTY INVOLVED ASSET/TRANSACTION PRICE ASSET DATE

Piper Jaffray Inc. The Valspar Corporation Common Stock - $ 1,156,776 $ 1,156,776 $ 1,156,776 Purchased 31,608 shares in 21 transactions

McDonald & The Valspar Corporation Common Stock - $ 6,120,250 $ 6,120,250 $ 6,120,250 Company Purchased 178,725 shares in 3 transactions

ARTICLE 5 MULTIPLIER: 1,000

PERIOD TYPE YEAR FISCAL YEAR END OCT 27 1995 PERIOD END OCT 27 1995 CASH 4,875 SECURITIES 0 RECEIVABLES 130,865 ALLOWANCES (911) INVENTORY 76,893 CURRENT ASSETS 236,908 PP&E 247,540 DEPRECIATION (117,136) TOTAL ASSETS 398,199 CURRENT LIABILITIES 145,913 BONDS 0 PREFERRED MANDATORY 13,330 PREFERRED 0 COMMON 0 OTHER SE (3,436) TOTAL LIABILITY AND EQUITY 398,199 SALES 790,175 TOTAL REVENUES 790,175 CGS 561,170 TOTAL COSTS 145,716 OTHER EXPENSES (763) LOSS PROVISION 628 INTEREST EXPENSE 4,216 INCOME PRETAX 79,208 INCOME TAX 31,688 INCOME CONTINUING 47,520 DISCONTINUED 0 EXTRAORDINARY 0 CHANGES 0 NET INCOME 47,520 EPS PRIMARY 2.15 EPS DILUTED 2.15

End of Filing