Edgar Filing: VALSPAR CORP

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 26, 2001 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
Common Stock Purchase Rights 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 12 months and (2) has been subject to the filing requirements for
the past 90 days.

Yes _X_ No ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by persons other than
officers, directors and more than 5% stockholders of the registrant as of
December 31, 2001 was $1.4 billion based on the closing sales price of $39.60
per share as reported on the New York Stock Exchange. As of such date,
49,598,813 shares of Common Stock, $.50 par value per share (net of 10,622,499
shares in treasury), were outstanding.

DOCUMENTS INCORPORATED IN PART BY REFERENCE

Incorporated Documents Location in Form 10-K
---------------------- ---------------------

1. The Valspar Corporation Annual Report Parts II and IV
to Stockholders for fiscal year ended
October 26, 2001

2. The Valspar Corporation Notice of 2002 Part III
Annual Meeting of Stockholders and Proxy
Statement to be filed with the Securities
and Exchange Commission within 120 days
of fiscal year ended October 26, 2001

PART I

ITEM 1. BUSINESS

OVERVIEW

Founded in 1806, The Valspar Corporation ("Valspar" or the "Company") has grown
into a leading global paint and coatings manufacturer. The Company manufactures
and distributes a broad portfolio of products, including:

o Industrial coatings for factory application by industrial customers and
original equipment manufacturers (OEMs);
o Packaging coatings and inks for rigid containers, particularly food and
beverage cans;
o Architectural paints, varnishes and stains for the do-it-yourself and
professional markets;
o Automotive refinish and other specialty coatings, including high
performance floor coatings; and
o Specialty polymers and colorants for use by coatings manufacturers
including Valspar.

Prior to the acquisition of Lilly Industries, Inc. in December 2000, the Company
had two reportable segments: Coatings and Coatings Intermediates. Following the
acquisition, the Company included the former Lilly Industries operations in its
coatings segment, and the coatings intermediates segment no longer meets the
quantitative criteria for separate reporting. The Company now refers to these
products as Other. The Company now operates its business in one reportable
segment: Coatings.

The Company manufactures and distributes a broad portfolio of coatings products.
The Industrial coatings product line includes decorative and protective coatings
for wood, metal, plastic and glass. The Architectural, Automotive and Specialty
("AAS") coatings product line includes interior and exterior decorative paints,
primers, varnishes and specialty decorative products, such as enamels, aerosols
and faux finishes for the do-it-yourself and professional markets, as well as
automotive refinish and high performance floor coatings. The Packaging coatings
product line includes coatings and inks for rigid packaging containers. The
Other products category includes specialty polymers and colorants, which are
used internally and sold to other coatings manufacturers.

The following table shows the net sales by product line for the past three
fiscal years:

2001 2000 1999
---- ---- ----

Industrial Coatings $ 739,479 $ 372,142 $ 328,669
AAS Coatings 558,262 505,087 510,960
Packaging Coatings 494,146 508,536 452,846
Other Products 129,083 97,555 95,202
----------- ----------- -----------
$ 1,920,970 $ 1,483,320 $ 1,387,677
=========== =========== ===========

PART I (CONTINUED)

ITEM 1. BUSINESS (CONTINUED)

For additional financial information about the Company's operating segment, see
Note 11 to the Consolidated Financial Statements included in the 2001 Annual
Report to Stockholders, incorporated by reference into this Form 10-K.

ACQUISITIONS

Much of our growth has occurred during the last decade and, more recently, we
have expanded our business into international markets. Our business growth has
been accomplished mostly through acquisitions. Since 1995, we have made more
than 20 acquisitions (including purchases of equity in joint ventures).

The most important of these acquisitions among those described above include our
acquisitions of Coates Coatings, Dexter Packaging and Lilly Industries. Our
purchase of Coates and its line of packaging coatings products was structured as
a series of acquisitions. In the first acquisition, completed in May 1996, we
acquired packaging coatings businesses in Europe, Australia and the United
States, marking a significant step in the globalization of our Packaging product
line. This business had approximately $70 million in sales in its last full
fiscal year prior to our acquisition. We completed the second Coates acquisition
in January 1997, which included packaging coatings businesses in Hong Kong and
China which in the aggregate had approximately $10 million in sales in 1996. We
commenced the third acquisition in December 1997 by entering into a joint
venture for a packaging coatings business in South Africa. In October 2000, we
acquired a majority interest in this business, called ValsparCoates.
ValsparCoates had approximately $9 million in net sales in 1999, the last full
fiscal year prior to the time we completed this part of the Coates acquisition.
In July 2001, we completed the last in the series of Coates acquisitions of
packaging coatings businesses in Singapore, Malaysia, Indonesia and Thailand.
Sales for these businesses were $7 million in 2000.

In February 1999, we acquired the worldwide packaging and French industrial
coatings business of Dexter Corporation. The Dexter acquisition provided us with
additional packaging coatings facilities and businesses in Europe, the United
States and Asia. Dexter S.A., Dexter's industrial coatings subsidiary in France,
expanded our international presence in industrial coatings products. The Dexter
businesses that we acquired generated $212 million in sales in 1998, the last
full fiscal year prior to the acquisition.

In December 2000, we completed the acquisition of Lilly Industries, our largest
acquisition to date. We acquired all outstanding Lilly Industries shares for
$31.75 per share in cash in a transaction valued at $1.036 billion, including
the assumption of approximately $218 million of debt. The transaction was
accounted for under the purchase method of accounting. At the time of the
acquisition, Lilly Industries was considered to be one of the five largest
industrial coatings and specialty chemical manufacturers in North America, with
reported net sales of $670 million for its fiscal year ended November 30, 2000.
Lilly Industries formulates, manufactures and markets industrial coatings and
specialty chemicals to original equipment manufacturers for products such as
furniture, appliances, building products and transportation, agricultural and

PART I (CONTINUED)

ITEM 1. BUSINESS (CONTINUED)

construction equipment. Lilly Industries has manufacturing facilities and sales
offices in the United States, Canada, Mexico, the United Kingdom, Ireland,
Germany, China, Malaysia, Taiwan, Singapore and Australia. In connection with
the acquisition, the U.S. Federal Trade Commission required us to dispose of our
former mirror coatings business, which has been replaced with Lilly Industries'
mirror coatings business. The Lilly Industries acquisition was significant not
only due to its size but because, through the acquisition, we believe we have
become the world's largest supplier of wood, coil and mirror coatings and the
leading North American supplier of non-automotive industrial coatings. Lilly
Industries also provides us with complementary product lines and new technology,
expanding the breadth and depth of our Industrial product line.

As we have done with past acquisitions, we have taken, and are continuing to
take, aggressive steps to integrate the Lilly Industries business into our
company in order to take advantage of cost savings synergies between the two
businesses. Following the acquisition, we eliminated duplicative selling,
general and administrative services and personnel and closed redundant
production facilities. To date, we have closed seven plants and, with our
restructuring plans announced in September 2001, an additional seven plants will
be closed and four plants will be partially closed. As of October 2001, we have
achieved $70 million in annualized cost savings and, with the additional
initiatives announced in September 2001, in the next two years we expect to
bring the total integration savings to $90-100 million on an annualized basis.

PRODUCTS

INDUSTRIAL COATINGS

Our Industrial coatings product line includes a broad range of decorative and
protective coatings for metal, wood, plastic and glass, primarily for sale to
OEM customers in North America and Australia and selected countries in Europe
and Asia. Products within our Industrial coatings product line include fillers,
primers, stains and topcoats used by customers in a wide range of manufacturing
industries, including building products, transportation, appliances, automotive
parts, furniture, agricultural equipment, construction equipment and metal
fabrication. We are also a leading U.S. supplier of coatings that are applied to
metal coils prior to fabrication into pre-engineered products such as doors,
building system components, lighting fixtures and appliances.

We utilize a wide variety of coatings technologies to meet our customers'
industrial coatings requirements, including electro-deposition, powder, high
solids, water-borne and UV light-cured coatings. This broad technical capability
allows us to customize our Industrial coatings products to our customers'
specifications and to provide "one-stop" integrated solutions. For example, in
the appliance coatings market, we believe that we are one of only a small number
of coatings manufacturers that currently have the technological and
manufacturing capabilities to be a single source coatings supplier to appliance
customers.

PART I (CONTINUED)

ITEM 1. BUSINESS (CONTINUED)

The major customers of our Industrial coatings product line are coatings
applicators. They apply our coatings to metal and, in some cases, fabricate or
process the coated metal further. We also market our products to the ultimate
users of the coated products because they often specify the coatings to be used
by the coatings applicator.

Through our acquisition of Lilly Industries, which reported fiscal 2000 net
sales of approximately $670 million primarily in the industrial coatings market
segment, we have significantly increased our presence in industrial coatings,
particularly in the furniture, appliance, building product, transportation,
agriculture and construction equipment and mirror manufacturing industries. In
December 2001, we completed the acquisition of the coil, spray applied door and
rigid packaging businesses of Technical Coatings, a subsidiary of Benjamin Moore
& Co. The acquired businesses had combined sales of approximately $25 million in
2001.

PACKAGING COATINGS

Packaging coatings are a distinct portion of the global industrial coatings
market segment. Our Packaging coatings product line provides coatings for both
interior and exterior use in rigid packaging containers, principally food
containers and beverage cans for global customers. Interior coatings are used to
protect the interior surface of packaging materials from consumable products
such as beer, soda, fish and other food products, while exterior coatings
enhance the appearance of the packaging's exterior. We also produce coatings for
aerosol and paint cans, bottle crowns for glass and plastic packaging and glass
bottle closures. These coatings are required to meet the regulations of the U.S.
Food and Drug Administration and the U.S. Department of Agriculture, as well as
the laws and regulations of the other countries in which we sell our Packaging
coatings products.

Historically, we have been a strong competitor in the global packaging coatings
market segment, and we believe we have become the world's largest supplier of
rigid packaging coatings following our 1996 acquisition of the Coates Coatings
business in the United States, Europe and Australia. In addition to providing us
with a global manufacturing presence, this acquisition provided us with external
packaging coatings and metal decorating ink technologies, thereby improving the
depth and breadth of our product line. Our 1999 acquisition of Dexter's
packaging coatings business further expanded our international presence,
providing us with additional manufacturing facilities in Europe and Asia. We
believe we are now the only coatings manufacturer in the global beverage can
market that supplies coatings for the entire can.

The major customers of our Packaging coatings product line include global
companies that apply our coatings in the production of rigid packaging products,
principally food containers and beverage cans. Consolidation and globalization
of our customers has been most apparent in this market segment, and we have
responded to these trends by offering a wide variety of packaging coatings
products throughout the world.

PART I (CONTINUED)

ITEM 1. BUSINESS (CONTINUED)

ARCHITECTURAL, AUTOMOTIVE AND SPECIALTY COATINGS

The largest portion of our AAS coatings product line is our architectural
coatings products. We offer a broad portfolio of interior and exterior paints,
stains, primers, varnishes and specialty decorative products, such as enamels,
aerosols and faux finishes, used primarily in the do-it-yourself market. The
primary distribution channels for these products are home centers, mass
merchants, hardware wholesalers and independent dealers, including Lowe's,
Wal-Mart and Do-It-Best stores. Due to the weather requirements of house
painting, sales of our AAS coatings product line are seasonal, with the lowest
levels occurring in the first quarter of our fiscal year when weather conditions
in much of North America are ill-suited for exterior painting.

We develop highly customized merchandising and marketing support programs for
our architectural coatings customers, enabling them to differentiate their paint
departments from their competitors' through point-of-purchase materials,
labeling and product and color selection assistance. Through such programs, we
offer branded product lines under the names Valspar, Plasti-Kote, Colony,
Magicolor and McCloskey. We also manufacture customer exclusive brands such as
One & Only, Severe Weather, Enterprise, American Tradition and Decorative
Effects, in addition to a variety of other private label brands. At key
customers such as Lowe's, we also offer additional marketing and customer
support by providing in-store employees to answer coatings questions. We have
been recognized as the paint supplier of the year seven times for Lowe's and
twice for Wal-Mart.

Within the AAS coatings product line, we also manufacture and distribute
automotive refinish coatings under the brand names Valspar and House of Kolor
and aerosol spray paints for automotive distributors and large automotive supply
retailers under the brand names Plasti-Kote, Tempo and Mr. Spray. Major
customers for these products include large automotive supply retailers. We also
manufacture and distribute high performance floor coatings for commercial and
industrial applications.

OTHER PRODUCTS

In addition to our main product lines, we make and sell specialty polymers and
colorants. We produce these products for internal use as well as for external
sale to other coatings and building products manufacturers. We believe our
ability to develop proprietary polymers for use in our coatings products
provides us with an advantage over some of our competitors who cannot produce
these products themselves.

COMPETITION

All aspects of the coatings business are highly competitive. We face strong
competitors in all areas of our business, some of which are larger and better
capitalized than we are.

PART I (CONTINUED)

ITEM 1. BUSINESS (CONTINUED)

Competition in the market segments in which we sell our Industrial and Packaging
coatings product lines is based on technical capabilities for specific product
formulation, the ability to meet customer delivery requirements, technical
assistance to the customer in product application, price and new product
concepts. In addition, the markets for industrial coatings are becoming
increasingly global, and customers are looking for global coatings solutions. We
believe we can provide global coatings solutions to our customers in a manner in
which some of our competitors cannot because of our focus on industrial coatings
for the global market, our position as one of the world's largest industrial
coatings manufacturers and our commitment to developing innovative technologies.

Competition in the markets in which we sell our AAS coatings product line is
based on factors such as price, product quality, distribution and consumer
recognition. In this market segment, we offer highly customized merchandising
and marketing support programs to our AAS customers and have maintained product
recognition through high-quality and well-designed products. Relationships, such
as the ones we have with key retailers like Lowe's and Wal-Mart, are highly
important, as these firms account for most of the growth in the architectural
coatings market segment.

INTERNATIONAL JOINT VENTURES

The Company has formed various international joint ventures over the past
several years.

MEXICO AND CENTRAL AMERICA. In the Mexican and Central American markets, the
Company formed a joint venture in 1993 called Valspar-Marlux with Regio
Empresas, a Mexican corporation. While the initial focus of the joint venture
was to engage in the marketing, sales, distribution and technical service of
packaging, coil, wood and general metals coatings, during fiscal year 1996, the
joint venture started manufacturing coatings products at its plant in Monterrey,
Mexico. During 1998, the Company obtained a majority position of 51% in the
joint venture. In 1999, the Dexter acquisition added a manufacturing facility in
Mexico City. In November 2000, the Company acquired the remaining 49% interest
of Regio Empresas, and Valspar Mexicana is now wholly owned by the Company.

INDIA AND JAPAN. Polycoat Powders Limited, a joint venture of the Company and
The Goodlass Nerolac Paint Co., Ltd. in India, manufactures decorative powder
coatings for the industrial coatings market in India. In 1999, the Company also
assumed Dexter's majority position in a joint venture with Rock Paint, a
Japanese company.

HONG KONG AND CHINA. The Company and China Merchants Hai Hong Holdings Co., Ltd.
formed a joint venture company in Hong Kong in 1995 for the purpose of
constructing a packaging coatings plant in the Shenzhen Economic Development
Zone in the Guangdong Province of China. This plant became operational at the
beginning of the 1997 fiscal year and currently manufactures and distributes the
Company's packaging coatings products in China,

PART I (CONTINUED)

ITEM 1. BUSINESS (CONTINUED)

Hong Kong and other Southeast Asian markets. The Company also acquired Coates'
packaging coatings and metal decoration inks business in Hong Kong and
Guangzhou, China during 1997 and Dexter's packaging coatings business in China
during 1999. The Company has consolidated these businesses with its Hong Kong
joint venture.

SOUTH AMERICA. The Company formed a joint venture in 1997, called Valspar
Renner, with Renner Herrmann S.A., a Brazilian company. Valspar Renner supplies
packaging coatings and metal decoration inks to the South American market. In
December 2001, the Company acquired a plant from Renner Herrmann S.A. and then,
in January 2002, the Company acquired the remaining 50% interest in this joint
venture.

SOUTH AFRICA. In December 1997, as part of the Coates acquisition, the Company
acquired a 49% interest in a joint venture with Coates for packaging coatings in
South Africa. In February 1999, as part of the Dexter acquisition, the Company
acquired Dexter's majority position in a joint venture with Plascon (Pty)
Limited, a South African company, for packaging coatings in South Africa. As of
October 2000, the Company acquired Coates' 51% interest in the Valspar/Coates
joint venture and reorganized the businesses of both South African joint
ventures so that Valspar now has a majority position in a joint venture with
Plascon for a combined packaging coatings business in South Africa.

RAW MATERIALS

We obtain raw materials from a number of suppliers. Many of these raw materials
are petroleum-based derivatives, minerals and metals. Under normal conditions,
all of these materials are generally available on the open market, although
prices and availability are subject to fluctuation. In general, higher oil and
gas costs result in higher prices for our raw materials. Because our raw
material costs average approximately 80% of our costs of goods sold, raw
material efficiency is a critical component of the cost of the products we
manufacture.

PATENTS

Our policy is to seek patent protection for our products and manufacturing
processes when appropriate. We also license some patented technology from other
sources. Although we believe our patent rights are valuable, our knowledge and
trade secret information regarding our manufacturing processes and materials
have also been important in maintaining our competitive position. As a condition
of employment, we now require domestic employees to sign a confidentiality
agreement relating to proprietary information and patent rights. Our business is
not materially dependent upon licenses or similar rights or on any single patent
or trademark or group of related patents or trademarks.

PART I (CONTINUED)

ITEM 1. BUSINESS (CONTINUED)

While we make efforts to protect our trade secret information, others may
independently develop or otherwise acquire substantially equivalent proprietary
information or techniques or gain access to our proprietary technology or
disclose this technology. Any of these factors could adversely impact the value
of our proprietary trade secret information and harm our business.

SEASONALITY AND WORKING CAPITAL ITEMS

The Company's sales volume is traditionally lowest during the first quarter of
the fiscal year, primarily due to the buying cycle in the AAS coatings product
line. When sales are generally lowest, the Company builds inventory, the
financing for which is provided primarily by internally generated funds and
short-term and long-term credit lines discussed in Note 6 of the Notes to
Consolidated Financial Statements on page 18 of Valspar's 2001 Annual Report to
Stockholders incorporated by reference into this Form 10-K.

SIGNIFICANT CUSTOMERS

In 2001, the Company's sales to Lowe's Companies, Inc. exceeded 10% of net
sales, and our 10 largest customers accounted for approximately 30% of 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 profits or termination of contracts or subcontracts at the election of the
government.

RESEARCH AND DEVELOPMENT

Many of the products we offer today have been developed in the last five years.
We have adopted a "best practices" approach to technology development by
combining our technology efforts with those of the businesses we have acquired.
This has resulted in several successful new product developments. For example,
we have advanced our Packaging coatings product line technology by focusing on
universal coatings for two-piece food cans, and we have further advanced our
Industrial coatings product line technology by developing electro-coat
technology. Finally, we have continued to expand our line of polymers and now
have a full portfolio of both water-based and conventional polymers.

PART I (CONTINUED)

ITEM 1. BUSINESS (CONTINUED)

Research and development costs for fiscal 2001 were $58,105,000, representing a
25.3% increase over fiscal 2000 ($46,353,000). Fiscal 2000 costs increased 5.1%
over those of fiscal 1999 ($44,091,000). Primary emphasis has been on developing
and refining emerging technologies in our Industrial and Packaging product
lines.

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 2001, and capital expenditures for 2002 to
comply with existing laws and regulations are also not expected to be material.

EMPLOYEES

The Company employs approximately 6,750 persons, approximately 800 of whom are
members of unions.

FOREIGN OPERATIONS AND EXPORT SALES

Our foreign operations consist of a mixture of subsidiaries, joint ventures and,
to a lesser extent, licensing arrangements with independent third parties. In
recent years, we have placed greater emphasis on the development of our
majority-owned subsidiaries and joint ventures and a reduced emphasis on the use
of licensing arrangements. The bulk of our foreign operations have been acquired
in the last five years. In 1996, we acquired the European, U.S. and Australian
metal decorating inks and packaging coatings business of Coates Coatings to
provide our customers with global support. In 1999, we acquired the global
packaging coatings business of the Dexter Corporation, along with its industrial
coatings business in France. This acquisition added several manufacturing
facilities throughout Europe and in Singapore. In December 2000, we completed
our acquisition of Lilly Industries, which included its manufacturing operations
in Canada, Mexico, Europe and Asia. We now have operations in, among other
countries, Australia, Brazil, Canada, France, Germany, Hong Kong, Ireland,
Malaysia, Norway, Singapore, Spain, Switzerland, Taiwan and the United Kingdom.
We also have joint ventures in China, Hong Kong, India, Japan and South Africa.

Export sales are increasing as the Company's products are being recognized in
the global markets. During fiscal 2001, export sales represented approximately
3.4% of the Company's business. The Company's various acquisitions over the past
three years have also increased revenues from foreign subsidiaries and
operations, which comprised 24% of the Company's total revenues in fiscal 2001.

PART I (CONTINUED)

ITEM 2. PROPERTIES

The Company's principal offices in Minneapolis, Minnesota are owned. Operations
in North America are conducted at 40 locations, primarily in Illinois,
California, Texas, Indiana, North Carolina and Pennsylvania, with two plants
each in Canada and Mexico. Thirty-seven plants with approximate square footage
of 4,250,000 are owned, and three plants with square footage of 330,000 are
leased. Manufacturing operations in Europe are conducted at eight owned
locations, with plants in the United Kingdom, France, Germany, Ireland and
Switzerland with a combined square footage of 510,000. The Company owns two
plants in Australia and one plant in each of China, Malaysia and Taiwan with a
combined approximate square footage of 240,000. The Company leases two plants in
both Singapore and China with a combined square footage of approximately 45,000.

We believe our principal properties and facilities owned or leased are well
maintained, in good operating condition and adequate for the purposes for which
they are being used. Operating capacity varies by product line, but additional
production capacity is available for most product lines by increasing the number
of shifts worked.

ITEM 3. LEGAL PROCEEDINGS

ENVIRONMENTAL MATTERS

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
engages or 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, considering the number of parties involved, the level of
potential liability or contribution of 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 the restoration or other clean-up costs and related claims for each
site. The estimates are based in part on discussion with other PRPs,
governmental agencies and engineering firms.

The Company accrues appropriate reserves for potential environmental
liabilities, which are continuously reviewed and adjusted as additional
information becomes available. 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 8 through 10 of the Company's 2001
Annual Report to Stockholders incorporated by reference into this Form 10-K.

PART I (CONTINUED)

ITEM 3. LEGAL PROCEEDINGS (CONTINUED)

LEGAL MATTERS

The Company is one of a number of defendants in numerous proceedings that allege
that the plaintiffs suffered injuries or contracted diseases from exposure to
chemicals used in the production of some of the Company's products. The Company
is also 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 the Company's business
or financial condition.

The Company, along with other companies, is a defendant in a number of legal
proceedings and claims brought by governmental bodies and private persons
against companies who are alleged to have manufactured and sold paint containing
lead pigment. The Company believes that the litigation is without merit and is
vigorously defending these matters. It is possible that additional lawsuits or
claims could be brought against the Company. At this time, management cannot
estimate the scope or amount of potential costs or liabilities relating to these
matters. However, based on the outcome of such matters to date, and other
factors, management does not believe that the costs and liabilities of such
matters will have a material adverse effect on the Company's financial condition
or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There was no matter submitted during the fourth quarter of fiscal year 2001 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 2002, and the positions held by them are as listed
below. There are no family relationships between any of the officers or between
any officer and director.

Name Age Position
---- --- --------

Richard M. Rompala 55 Chairman since February 1998 and Chief Executive
Officer since October 1995

John M. Ballbach 41 President and Chief Operating Officer since
January 2002

Rolf Engh 48 Senior Vice President since November 1998,
General Counsel and Secretary since April 1993

PART I (CONTINUED)

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)

Name Age Position
---- --- --------

Steven L. Erdahl 49 Executive Vice President, Industrial and
Automotive Coatings since January 2002

William L. Mansfield 53 Executive Vice President, Architectural,
Packaging and Specialty Coatings since January
2002

Paul C. Reyelts 55 Senior Vice President, Finance and Chief
Financial Officer since November 1998

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

Prior to January 2002, Mr. Rompala was President since March 1994.

Prior to January 2002, Mr. Ballbach was Senior Vice President - Operations,
E-Commerce, EPS and Color Corporation of America since December 2000. Prior to
December 2000, Mr. Ballbach was Senior Vice President - Operations, EPS and
Color Corporation of America since February 2000. Prior to February 2000, Mr.
Ballbach was Group Vice President - Packaging since November 1998 and President
- Europe, Middle East and South Africa since June 1996.

Prior to November 1998, Mr. Engh was Vice President - International since
September 1993.

Prior to January 2002, Mr. Erdahl was Senior Vice President - Packaging and
Industrial Coatings since February 2000. Prior to February 2000, Mr. Erdahl was
Senior Vice President - Operations since November 1998. Prior to November 1998,
Mr. Erdahl was Vice President - Industrial Coatings Group since June 1991.

Prior to January 2002, Mr. Mansfield was Senior Vice President - Architectural,
Automotive and Specialty Coatings since February 2000. Prior to February 2000,
Mr. Mansfield was Senior Vice President - Packaging and Industrial Coatings
since November 1998. Prior to November 1998, Mr. Mansfield was Vice President -
Packaging Coatings Group since February 1991.

Prior to November 1998, Mr. Reyelts was Vice President - Finance since April
1982.

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 pages
6 and 7 of Valspar's 2001 Annual Report to Stockholders is incorporated herein
by reference. All market prices indicated in this section represent transactions
on the New York Stock Exchange. The number of record holders of the Company's
Common Stock at December 31, 2001 was 1,688.

The quarterly dividend declared December 12, 2001, which was paid January 15,
2002 to Common Stockholders of record December 31, 2001, was increased to
14(cent) per share.

ITEM 6. SELECTED FINANCIAL DATA

The information in the section titled "Eleven Year Financial Summary" for the
years 1997 through 2001 on pages 6 and 7 of Valspar's 2001 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 2001 Annual Report to Stockholders is incorporated herein by
reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information in the section titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Market Risk" on page 10 of
Valspar's 2001 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 22
of Valspar's 2001 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 through 4 of Valspar's
Proxy Statement dated January 25, 2002 is incorporated herein by reference. The
information in the section titled "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 7 of Valspar's Proxy Statement dated January 25, 2002 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 8
through 10 and the section titled "Director Compensation" on page 6 of Valspar's
Proxy Statement dated January 25, 2002 is incorporated herein by reference. The
information in the section titled "Change in Control Agreements" on page 10 of
Valspar's Proxy Statement dated January 25, 2002 is incorporated herein by
reference. The information on pages 11 through 16 of Valspar's Proxy Statement
dated January 25, 2002 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 20 and 21 of Valspar's
Proxy Statement dated January 25, 2002 is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information in the section titled "Certain Transactions" on page 7 of
Valspar's Proxy Statement dated January 25, 2002 is incorporated herein by
reference.

PART IV

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

(a) For financial statements and the financial statement schedule filed as a
part of this report, reference is made to "Index to Financial Statements
and Financial Statement Schedule" on page F-2 of this report. For a list of
exhibits filed as a part of this report, see Item 14(c) below. Compensatory
Plans listed in Item 14(c) are denoted by a double asterisk.

(b) During the three months ended October 26, 2001, a report on Form 8-K, dated
September 10, 2001, was filed on September 12, 2001, under Item 5 - Other
Events.

PART IV (CONTINUED)

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

Exhibit
No. Description
---------------------------------------------------------------------------

2(a)(6) ACQUISITION AGREEMENT BETWEEN COATES BROTHERS PLC AND THE
REGISTRANT MADE AND ENTERED INTO AS OF FEBRUARY 26, 1996, AS
AMENDED BY AMENDMENT NO. 1 TO THE ACQUISITION AGREEMENT DATED
MAY 2, 1996 (PURSUANT TO RULE 24b-2, CERTAIN INFORMATION HAS
BEEN DELETED AND FILED SEPARATELY WITH THE COMMISSION)

2(b)(9) DEXTER COATINGS BUSINESS PURCHASE AND SALE AGREEMENT BETWEEN
DEXTER CORPORATION AND THE REGISTRANT MADE AND ENTERED INTO
AS OF AUGUST 21, 1998, AS AMENDED BY THE FIRST AMENDMENT TO
DEXTER COATINGS BUSINESS PURCHASE AND SALE AGREEMENT DATED
FEBRUARY 26, 1999 (PURSUANT TO RULE 24b-2, CERTAIN
INFORMATION HAS BEEN DELETED AND FILED SEPARATELY WITH THE
COMMISSION)

2(c)(14) AGREEMENT AND PLAN OF MERGER BETWEEN LILLY INDUSTRIES, INC.,
VAL ACQUISITION CORP. (A WHOLLY-OWNED SUBSIDIARY OF THE
REGISTRANT) AND THE REGISTRANT MADE AND ENTERED INTO AS OF
JUNE 23, 2000

3(a)(7) CERTIFICATE OF INCORPORATION - as amended to and including
June 30, 1970, with further amendments to Article Four dated
February 29, 1984, February 25, 1986, February 26, 1992 and
February 26, 1997 and to Article Eleven dated February 25,
1987

3(b)(7) BY-LAWS - as amended to and including October 15, 1997

4(a)(11) RIGHTS AGREEMENT DATED AS OF MAY 1, 2000, BETWEEN THE
REGISTRANT AND CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS
RIGHTS AGENT

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

PART IV (CONTINUED)

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

Exhibit
No. Description
---------------------------------------------------------------------------

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

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

10(d)* THE VALSPAR CORPORATION 1991 STOCK OPTION PLAN - as amended to
and including December 12, 2001**

10(e)(3) THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN**

10(f)(10) THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN - as
amended to and including October 20, 1999**

10(g)* THE VALSPAR CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS - as amended to and including December 11, 2001**

10(h)(7) THE VALSPAR CORPORATION ANNUAL BONUS PLAN - as amended August
19, 1997**

10(i)(4) THE VALSPAR CORPORATION INCENTIVE BONUS PLAN**

10(j)(5) CREDIT AGREEMENT DATED AS OF APRIL 20, 1995 AMONG THE
REGISTRANT, CERTAIN BANKS, WACHOVIA BANK OF GEORGIA, N.A., AS
AGENT, AND CHEMICAL BANK, AS CO-AGENT, AND RELATED SYNDICATED
LOAN NOTE, MONEY MARKET LOAN NOTE AND SWING LOAN NOTE

10(k)(8) CREDIT AGREEMENT DATED AS OF MARCH 16, 1998 AMONG THE
REGISTRANT AND WACHOVIA BANK, N.A.

10(l)(12) CHANGE OF CONTROL AGREEMENT BETWEEN THE REGISTRANT AND THE
COMPANY'S NAMED EXECUTIVES

PART IV (CONTINUED)

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

Exhibit
No. Description
---------------------------------------------------------------------------

10(m)(13) 180-DAY CREDIT AGREEMENT DATED AS OF AUGUST 25, 2000 AMONG THE
REGISTRANT AND CERTAIN SUBSIDIARIES OF THE REGISTRANT AND
WACHOVIA BANK, N.A., AS ADMINISTRATIVE AGENT

10(n)(15) 364-DAY CREDIT AGREEMENT DATED AS OF NOVEMBER 17, 2000 AMONG
THE REGISTRANT AND CERTAIN SUBSIDIARIES OF THE REGISTRANT AND
THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT

10(o)(15) FIVE-YEAR CREDIT AGREEMENT DATED AS OF NOVEMBER 17, 2000 AMONG
THE REGISTRANT AND CERTAIN SUBSIDIARIES OF THE REGISTRANT AND
THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT

10(p)(15) CREDIT AGREEMENT DATED AS OF DECEMBER 19, 2000 AMONG THE
REGISTRANT, CERTAIN BANKS AND WACHOVIA BANK, N.A., AS
ADMINISTRATIVE AGENT

13* 2001 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

---------------------------------------------------------------------------

(1) As filed with Form 10-K for the period ended October 31, 1981.

(2) As filed with Form 10-K for the period ended October 31, 1983.

(3) As filed with Form 10-K for the period ended October 25, 1991;
amendment filed with Form 10-K for the period ended October
31, 1997.

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

(5) Incorporated by reference to Exhibit 10(a) to Form 10-Q for
the quarter ended April 28, 1995.

PART IV (CONTINUED)

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

Exhibit
No. Description
---------------------------------------------------------------------------

(6) Incorporated by reference to Exhibit 2.1 to Form 8-K filed on
May 17, 1996 and with Form 8-K/A filed on July 16, 1996.

(7) As filed with Form 10-K for the period ended October 31, 1997.

(8) As filed with Form 10-K for the period ended October 30, 1998.

(9) Incorporated by reference to Exhibit 2.1 to Form 8-K filed on
March 15, 1999 and with Form 8-K/A filed on May 12, 1999.

(10) As filed with Form 10-K for the period ended October 29, 1999.

(11) Incorporated by reference to Exhibit 2.1 to Form 8-A filed on
May 3, 2000.

(12) Incorporated by reference to Exhibit 10(a) to Form 10-Q for
the quarter ended April 28, 2000.

(13) Incorporated by reference to Exhibit 10(a) to Form 10-Q for
the quarter ended July 28, 2000.

(14) Incorporated by reference to Exhibit 1 to Form 8-K filed on
January 4, 2000.

(15) As filed with Form 10-K for the period ended October 27, 2000;
amendment filed with this Form 10-K.

* As filed with this Form 10-K.

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

Portions of the 2002 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

/s/Rolf Engh 1/22/02
-------------------------------------
Rolf Engh, Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

/s/Richard M. Rompala 1/22/02 /s/Susan S. Boren 1/22/02
---------------------------------------- -------------------------------------
Richard M. Rompala, Director Susan S. Boren, Director
Chairman and Chief Executive Officer
(principal executive officer) /s/Jeffrey H. Curler 1/22/02
-------------------------------------
Jeffrey H. Curler, Director
/s/Paul C. Reyelts 1/22/02
---------------------------------------- /s/Charles W. Gaillard 1/22/02
Paul C. Reyelts, Senior Vice President, -------------------------------------
Finance and Chief Financial Officer Charles W. Gaillard, Director
(principal financial officer)
/s/Thomas R. McBurney 1/22/02
-------------------------------------
Thomas R. McBurney, Director
/s/Lori A. Walker 1/22/02
---------------------------------------- /s/Gregory R. Palen 1/22/02
Lori A. Walker, Vice President and -------------------------------------
Controller (principal accounting officer) Gregory R. Palen, Director

-------------------------------------
Lawrence Perlman, Director

/s/Edward B. Pollak 1/22/02
-------------------------------------
Edward B. Pollak, Director

/s/Michael P. Sullivan 1/22/02
-------------------------------------
Michael P. Sullivan, Director

-------------------------------------
Richard L. White, 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 26, 2001

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 26, 2001:

Pages in
Annual Report
-------------

Report of Independent Auditors.......................................... 23

Financial Statements:
Consolidated Balance Sheets - October 26, 2001 and October 27, 2000... 11
Consolidated Statements of Income - Years ended October 26, 2001,
October 27, 2000 and October 29, 1999 ............................... 12
Consolidated Statements of Changes in Stockholders' Equity - Years
Ended October 26, 2001, October 27, 2000 and October 29, 1999........ 13
Consolidated Statements of Cash Flows -Years ended October 26, 2001,
October 27, 2000 and October 29, 1999................................ 14
Notes to Consolidated Financial Statements............................ 15-22
Selected Quarterly Financial Data (Unaudited)........................... 22

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 26, 2001, October 27, 2000 and October 29, 1999

Schedule Page
-------- ----

II Valuation and Qualifying Accounts and Reserves.................. F-3

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.

F-3

The Valspar Corporation

Schedule II - Valuation and Qualifying Accounts and Reserves

---------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. C COL. D COL. E
---------------------------------------------------------------------------------------------------------------------------------
Additions
--------------------------------
(1) (2)
Balance at Charged to Charged to Other
Beginning of Expense or Accounts - Deductions - Balance at End
Description Period (Income) Describe Describe of Period
---------------------------------------------------------------------------------------------------------------------------------

Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts:

Year ended October 26, 2001 $4,925,000 $8,090,468 $1,722,000 (3) $4,714,694 (1) $10,212,000
(189,226) (2)

Year ended October 27, 2000 4,801,000 999,313 1,084,064 (1) 4,925,000
(208,751) (2)

Year ended October 29, 1999 1,464,000 1,937,000 2,606,000 (3) 1,355,000 (1) 4,801,000
(149,000) (2)

(1) Uncollectible accounts written off.

(2) Recoveries on accounts previously written off.

(3) Consists principally of amounts relating to businesses acquired.

INDEX TO EXHIBITS FILED WITH THIS REPORT

THE VALSPAR CORPORATION

Exhibit
No. Description
---------------------------------------------------------------------------

2(b)(9) DEXTER COATINGS BUSINESS PURCHASE AND SALE AGREEMENT BETWEEN
DEXTER CORPORATION AND THE REGISTRANT MADE AND ENTERED INTO AS
OF AUGUST 21, 1998, AS AMENDED BY THE FIRST AMENDMENT TO
DEXTER COATINGS BUSINESS PURCHASE AND SALE AGREEMENT DATED
FEBRUARY 26, 1999 (PURSUANT TO RULE 24b-2, CERTAIN INFORMATION
HAS BEEN DELETED AND FILED SEPARATELY WITH THE COMMISSION)

2(c)(14) AGREEMENT AND PLAN OF MERGER BETWEEN LILLY INDUSTRIES, INC.,
VAL ACQUISITION CORP. (A WHOLLY-OWNED SUBSIDIARY OF THE
REGISTRANT) AND THE REGISTRANT MADE AND ENTERED INTO AS OF
JUNE 23, 2000

3(b)(7) BY-LAWS - as amended to and including October 15, 1997

4(a)(11) RIGHTS AGREEMENT DATED AS OF MAY 1, 2000, BETWEEN THE
REGISTRANT AND CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS
RIGHTS AGENT

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

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