Table of Contents

|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|Washington, DC 20549              
|                                  
|                                  
|                                  
|FORM 10-Q                         

|   |                                                                                         
|-- | ----------------------------------------------------------------------------------------
|x  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|   |                                                                                         
|   | For the quarterly period ended April 29,
 2011                                          
|   |                                                                                         
|or
|   |                                                                                         
|o  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
 15(d) OF THE SECURITIES ACT OF 1934        
|   |                                                                                         
|   | For the transition period from _________ to
 ________                                   

Commission
File Number: 1-3011

|                                                      
|------------------------------------------------------
|THE VALSPAR CORPORATION                               
|(Exact name of registrant as specified in its charter)

|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|Delaware                                                        |  | 36-2443580                           
|(State or other jurisdiction of
 incorporation or organization) |  | (I.R.S. Employer
 Identification No.)

901
3rd Avenue SouthMinneapolis, MN 55402(Address of principal executive offices, including
zip code)

612/851-7000(Registrants telephone number, including area
code)

---

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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. x
Yes     o
No

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post
such files).x
Yes     o
No

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of large accelerated filer, accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act.

| |                            |                              | 
| | -------------------------- | ---------------------------- | 
| | Large
 accelerated filer x | Accelerated
 filer o         | 
| | Non-accelerated
 filer o   | Smaller
 reporting company o | 

Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). o Yes     x No

As of June 1,
2011, The Valspar Corporation had 93,671,450 shares of common stock
outstanding, excluding 24,771,174 shares held in treasury. We had no other
classes of stock outstanding.

---



- 1 -

THE VALSPAR CORPORATION

Index to Form 10-Q
for the Quarter Ended April 29, 2011

|           |                                                                                                                     |    |         
|---------- | ------------------------------------------------------------------------------------------------------------------- | -- | --------
|           |                                                                                                                     |    | Page No.
|           |                                                                                                                     |    |         
|PART I.    | FINANCIAL
 INFORMATION                                                                                              |    |         
|           |                                                                                                                     |    |         
|Item 1.    | Financial
 Statements                                                                                               |    |         
|           |                                                                                                                     |    |         
|           | Condensed
 Consolidated Balance Sheets  April 29, 2011, October 29, 2010 and April 30,
 2010                       |    | 2 - 3   
|           |                                                                                                                     |    |         
|           | Condensed
 Consolidated Statements of Income  Three months and six months ended April
 29, 2011 and April 30, 2010 |    | 4       
|           |                                                                                                                     |    |         
|           | Condensed
 Consolidated Statements of Cash Flows  Six months ended April 29, 2011 and
 April 30, 2010              |    | 5       
|           |                                                                                                                     |    |         
|           | Notes to
 Condensed Consolidated Financial Statements  April 29, 2011                                              |    | 6 - 14  
|           |                                                                                                                     |    |         
|Item 2.    | Managements
 Discussion and Analysis of Financial Condition and Results of Operations                              |    | 15  19 
|           |                                                                                                                     |    |         
|Item 3.    | Quantitative
 and Qualitative Disclosures About Market Risk                                                         |    | 20      
|           |                                                                                                                     |    |         
|Item 4.    | Controls and
 Procedures                                                                                            |    | 20      
|           |                                                                                                                     |    |         
|           |                                                                                                                     |    |         
|PART II.   | OTHER
 INFORMATION                                                                                                  |    |         
|           |                                                                                                                     |    |         
|Item 1.    | Legal
 Proceedings                                                                                                  |    | 20      
|           |                                                                                                                     |    |         
|Item 1A.   | Risk Factors                                                                                                        |    | 20      
|           |                                                                                                                     |    |         
|Item 2.    | Unregistered
 Sales of Equity Securities and Use of Proceeds                                                        |    | 20      
|           |                                                                                                                     |    |         
|Item 6.    | Exhibits                                                                                                            |    | 21      
|           |                                                                                                                     |   
|SIGNATURES |                                                                                                                     | 21

---



Table of Contents

- 2 -

PART I.
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE VALSPAR
CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN
THOUSANDS)

|                                                                                                   |  |                   |           |                   |   |                   |   |   |           |  
|-------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | ----------------- | - | ----------------- | - | - | --------- | -
|ASSETS                                                                                             |  | April
 29, 
 2011 |           | October
 29, 2010 |   | April
 30, 
 2010 |  
|                                                                                                   |  | (Unaudited)       |           | (Note)            |   | (Unaudited)       |  
|                                                                                                   |  |                   |           |                   |   |                   |   |   |           |  
|CURRENT ASSETS:                                                                                    |  |                   |           |                   |   |                   |   |   |           |  
|Cash and cash equivalents                                                                          |  | $                 | 120,051   |                   | $ | 167,621           |   | $ | 164,627   |  
|Restricted cash                                                                                    |  |                   | 16,977    |                   |   | 12,574            |   |   |          |  
|Accounts and notes receivable less allowance 
(4/29/11-$13,839; 10/29/10-$17,459; 4/30/10-$20,019) |  |                   | 708,495   |                   |   | 628,589           |   |   | 560,637   |  
|Inventories                                                                                        |  |                   | 431,237   |                   |   | 349,149           |   |   | 253,316   |  
|Deferred income taxes                                                                              |  |                   | 49,850    |                   |   | 49,069            |   |   | 35,035    |  
|Prepaid expenses and other                                                                         |  |                   | 79,391    |                   |   | 77,920            |   |   | 87,131    |  
|TOTAL CURRENT ASSETS                                                                               |  |                   | 1,406,001 |                   |   | 1,284,922         |   |   | 1,100,746 |  
|                                                                                                   |  |                   |           |                   |   |                   |   |   |           |  
|GOODWILL                                                                                           |  |                   | 1,385,406 |                   |   | 1,355,818         |   |   | 1,333,678 |  
|INTANGIBLES, NET                                                                                   |  |                   | 654,774   |                   |   | 637,390           |   |   | 624,211   |  
|OTHER ASSETS                                                                                       |  |                   | 14,967    |                   |   | 17,398            |   |   | 4,483     |  
|LONG-TERM DEFERRED INCOME TAXES                                                                    |  |                   | 4,902     |                   |   | 4,778             |   |   | 5,216     |  
|                                                                                                   |  |                   |           |                   |   |                   |   |   |           |  
|Gross property, plant and equipment                                                                |  |                   | 1,374,828 |                   |   | 1,326,070         |   |   | 1,080,866 |  
|Less accumulated depreciation                                                                      |  |                   | (800,976  | )                 |   | (758,440          | ) |   | (628,850  | )
|NET PROPERTY, PLANT AND EQUIPMENT                                                                  |  |                   | 573,852   |                   |   | 567,630           |   |   | 452,016   |  
|                                                                                                   |  |                   |           |                   |   |                   |   |   |           |  
|TOTAL ASSETS                                                                                       |  | $                 | 4,039,902 |                   | $ | 3,867,936         |   | $ | 3,520,350 |  

|      |                                                                                                                          
|----- | -------------------------------------------------------------------------------------------------------------------------
|NOTE: | The Balance
 Sheet at October 29, 2010 has been derived from the audited consolidated
 financial statements at that date.

See Notes to
Condensed Consolidated Financial Statements

---



Table of Contents

- 3 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES

CONDENSED
CONSOLIDATED BALANCE SHEETS - CONTINUED
(DOLLARS IN THOUSANDS)

|                                                                                                                              |  |                |           |                  |   |                |   |   |           |  
|----------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | ---------------- | - | -------------- | - | - | --------- | -
|LIABILITIES
AND STOCKHOLDERS EQUITY                                                                                          |  | April
29,
2011 |           | October
29,
2010 |   | April
30,
2010 |  
|                                                                                                                              |  | (Unaudited)    |           | (Note)           |   | (Unaudited)    |  
|                                                                                                                              |  |                |           |                  |   |                |   |   |           |  
|CURRENT LIABILITIES:                                                                                                          |  |                |           |                  |   |                |   |   |           |  
|Notes
payable and commercial paper                                                                                            |  | $              | 354,467   |                  | $ | 8,088          |   | $ | 6,370     |  
|Trade
accounts payable                                                                                                        |  |                | 473,794   |                  |   | 447,303        |   |   | 359,120   |  
|Income
taxes                                                                                                                  |  |                | 35,579    |                  |   | 33,331         |   |   | 32,933    |  
|Other
accrued liabilities                                                                                                     |  |                | 319,371   |                  |   | 396,129        |   |   | 295,532   |  
|TOTAL
CURRENT LIABILITIES                                                                                                     |  |                | 1,183,211 |                  |   | 884,851        |   |   | 693,955   |  
|                                                                                                                              |  |                |           |                  |   |                |   |   |           |  
|LONG-TERM DEBT, NET OF
CURRENT PORTION                                                                                        |  |                | 903,031   |                  |   | 943,216        |   |   | 873,489   |  
|DEFERRED INCOME TAXES                                                                                                         |  |                | 263,503   |                  |   | 256,525        |   |   | 241,007   |  
|OTHER LONG-TERM
LIABILITIES                                                                                                   |  |                | 155,316   |                  |   | 152,979        |   |   | 170,328   |  
|TOTAL LIABILITIES                                                                                                             |  |                | 2,505,061 |                  |   | 2,237,571      |   |   | 1,978,779 |  
|                                                                                                                              |  |                |           |                  |   |                |   |   |           |  
|STOCKHOLDERS EQUITY:                                                                                                         |  |                |           |                  |   |                |   |   |           |  
|Common
Stock (Par Value - $0.50; Authorized  250,000,000 shares; 
Shares issued, including shares in treasury  118,442,624) |  |                | 59,220    |                  |   | 59,220         |   |   | 59,220    |  
|Additional
paid-in capital                                                                                                    |  |                | 383,675   |                  |   | 383,167        |   |   | 369,351   |  
|Retained
earnings                                                                                                             |  |                | 1,483,767 |                  |   | 1,428,515      |   |   | 1,333,587 |  
|Accumulated
other comprehensive income (loss)                                                                                 |  |                | 128,319   |                  |   | 88,087         |   |   | 56,787    |  
|Less
cost of common stock in treasury 
(4/29/11-24,822,271 shares; 10/29/10-20,415,334 shares; 4/30/10-19,147,886 shares)     |  |                | (520,140  | )                |   | (328,624       | ) |   | (277,374  | )
|TOTAL STOCKHOLDERS EQUITY                                                                                                    |  |                | 1,534,841 |                  |   | 1,630,365      |   |   | 1,541,571 |  
|                                                                                                                              |  |                |           |                  |   |                |   |   |           |  
|TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY                                                                                    |  | $              | 4,039,902 |                  | $ | 3,867,936      |   | $ | 3,520,350 |  

NOTE:   The
Balance Sheet at October 29, 2010 has been derived from the audited
consolidated financial statements at that date.

See Notes to
Condensed Consolidated Financial Statements

---



Table of Contents

- 4 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

|                                            |  |                    |            |                  |   |                 |   |                 |            |  |   |             |  
|------------------------------------------- |  | ------------------ | ---------- | ---------------- | - | --------------- | - | --------------- | ---------- |  | - | ----------- | -
|                                            |  | THREE
MONTHS ENDED |            | SIX
MONTHS ENDED |  
|                                            |  | April
29, 
2011    |            | April
30, 
2010  |   | April
29, 
2011 |   | April
30, 
2010 |           
|Net sales                                   |  | $                  | 992,729    |                  | $ | 803,570         |   | $               | 1,835,133  |  | $ | 1,475,933   |  
|Cost of sales                               |  |                    | 677,219    |                  |   | 530,217         |   |                 | 1,260,710  |  |   | 985,589     |  
|Gross profit                                |  |                    | 315,510    |                  |   | 273,353         |   |                 | 574,423    |  |   | 490,344     |  
|Research and development                    |  |                    | 30,059     |                  |   | 24,703          |   |                 | 57,883     |  |   | 48,368      |  
|Selling, general and administrative         |  |                    | 185,935    |                  |   | 144,347         |   |                 | 353,636    |  |   | 277,784     |  
|Income from operations                      |  |                    | 99,516     |                  |   | 104,303         |   |                 | 162,904    |  |   | 164,192     |  
|Interest expense                            |  |                    | 15,486     |                  |   | 14,726          |   |                 | 31,045     |  |   | 29,111      |  
|Other (income)/expense  net                |  |                    | (17        | )                |   | (1,255          | ) |                 | 547        |  |   | (1,459      | )
|Income before income taxes                  |  |                    | 84,047     |                  |   | 90,832          |   |                 | 131,312    |  |   | 136,540     |  
|Income taxes                                |  |                    | 27,739     |                  |   | 29,159          |   |                 | 41,577     |  |   | 40,930      |  
|Net income                                  |  | $                  | 56,308     |                  | $ | 61,673          |   | $               | 89,735     |  | $ | 95,610      |  
|                                            |  |                    |            |                  |   |                 |   |                 |            |  |   |             |  
|Net income per common
share  basic         |  | $                  | 0.60       |                  | $ | 0.63            |   | $               | 0.94       |  | $ | 0.97        |  
|Net income per common
share  diluted       |  | $                  | 0.58       |                  | $ | 0.61            |   | $               | 0.91       |  | $ | 0.95        |  
|                                           
|Average number of common
shares outstanding |  |                    |            |                  |   |                 |   |                 |            |  |   |             |  
|- basic                                     |  |                    | 94,432,627 |                  |   | 98,657,090      |   |                 | 95,646,147 |  |   | 98,895,203  |  
|- diluted                                   |  |                    | 97,497,045 |                  |   | 100,986,419     |   |                 | 98,570,609 |  |   | 101,058,134 |  
|                                            |  |                    |            |                  |   |                 |   |                 |            |  |   |             |  
|Dividends paid per common
share             |  | $                  | 0.18       |                  | $ | 0.16            |   | $               | 0.36       |  | $ | 0.32        |  

See Notes to
Condensed Consolidated Financial Statements

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Table of Contents

- 5 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)

|                                                                                            |  |                  |          |                 |   |         |  
|------------------------------------------------------------------------------------------- |  | ---------------- | -------- | --------------- | - | ------- | -
|                                                                                            |  | SIX
MONTHS ENDED |         
|                                                                                            |  | April
29, 
2011  |          | April
30, 
2010 |  
|OPERATING ACTIVITIES:                                                                       |  |                  |          |                 |   |         |  
|Net income                                                                                  |  | $                | 89,735   |                 | $ | 95,610  |  
|Adjustments
to reconcile net income to net cash (used in)/provided by operating
activities: |  |                  |          |                 |   |         |  
|Depreciation                                                                                |  |                  | 41,457   |                 |   | 36,738  |  
|Amortization                                                                                |  |                  | 3,723    |                 |   | 3,660   |  
|Stock-based compensation                                                                    |  |                  | 3,789    |                 |   | 3,350   |  
|(Gain)/loss on asset divestitures                                                           |  |                  | (847     | )               |   | (221    | )
|Changes
in certain assets and liabilities, net of effects of acquired businesses:           |  |                  |          |                 |   |         |  
|(Increase)/decrease in accounts and notes receivable                                        |  |                  | (63,596  | )               |   | (47,536 | )
|(Increase)/decrease in inventories and other assets                                         |  |                  | (59,890  | )               |   | (20,996 | )
|Increase/(decrease) in trade accounts payable and other accrued
liabilities                 |  |                  | (69,775  | )               |   | (35,135 | )
|Increase/(decrease) in income taxes payable                                                 |  |                  | (1,956   | )               |   | 24,283  |  
|Increase/(decrease) in other deferred liabilities                                           |  |                  | 831      |                 |   | 1,078   |  
|Other                                                                                       |  |                  | (2,346   | )               |   | (6,353  | )
|Net Cash (Used In)/Provided By Operating Activities                                         |  |                  | (58,875  | )               |   | 54,478  |  
|                                                                                            |  |                  |          |                 |   |         |  
|INVESTING ACTIVITIES:                                                                       |  |                  |          |                 |   |         |  
|Purchases of property, plant and equipment                                                  |  |                  | (27,405  | )               |   | (22,334 | )
|Cash proceeds on disposal of assets                                                         |  |                  | 3,379    |                 |   | 3,016   |  
|Acquisition of businesses, net of cash acquired                                             |  |                  | (30,579  | )               |   |        |  
|(Increase)/decrease in restricted cash                                                      |  |                  | (189     | )               |   |        |  
|Net Cash (Used In)/Provided By Investing Activities                                         |  |                  | (54,794  | )               |   | (19,318 | )
|                                                                                            |  |                  |          |                 |   |         |  
|FINANCING ACTIVITIES:                                                                       |  |                  |          |                 |   |         |  
|Net change in other borrowings                                                              |  |                  | (51,140  | )               |   | 2,574   |  
|Proceeds from issuance of commercial paper                                                  |  |                  | 344,903  |                 |   |        |  
|Proceeds from sale of treasury stock                                                        |  |                  | 27,722   |                 |   | 28,525  |  
|Excess tax benefit from stock-based compensation                                            |  |                  | 5,428    |                 |   | 2,674   |  
|Treasury stock purchases                                                                    |  |                  | (218,643 | )               |   | (56,531 | )
|Dividends paid                                                                              |  |                  | (34,483  | )               |   | (31,761 | )
|Purchase of equity award shares                                                             |  |                  | (11,454  | )               |   |        |  
|Net Cash (Used In)/Provided By Financing Activities                                         |  |                  | 62,333   |                 |   | (54,519 | )
|                                                                                            |  |                  |          |                 |   |         |  
|Increase/(Decrease) in Cash and Cash Equivalents                                            |  |                  | (51,336  | )               |   | (19,359 | )
|Effect of exchange rate changes on Cash and Cash Equivalents                                |  |                  | 3,766    |                 |   | (3,733  | )
|                                                                                            |  |                  |          |                 |   |         |  
|Cash and Cash Equivalents
at Beginning of Period                                            |  |                  | 167,621  |                 |   | 187,719 |  
|Cash and Cash Equivalents
at End of Period                                                  |  | $                | 120,051  |                 | $ | 164,627 |  

See Notes to
Condensed Consolidated Financial Statements

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Table of Contents

- 6 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 29, 2011
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

NOTE
1: BASIS OF
PRESENTATION

The
accompanying unaudited condensed consolidated financial statements of The
Valspar Corporation have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles (GAAP) for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the quarter ended April 29, 2011 are not necessarily
indicative of the results that may be expected for the year ending October 28,
2011.

Certain
amounts in the 2010 financial statements have been reclassified to conform to
the 2011 presentation. Such reclassifications had no effect on net income or
stockholders equity as previously reported.

The
Condensed Consolidated Balance Sheet at October 29, 2010 has been derived from
the audited consolidated financial statements at that date but does not include
all of the information and footnotes required by GAAP for complete financial
statements.

For
further information refer to the consolidated financial statements and footnotes
thereto included in our annual report on Form 10-K for the year ended October
29, 2010.

NOTE
2: ACCOUNTS PAYABLE

Trade
accounts payable includes $34,483 at April 29, 2011, $33,944 at October 29,
2010 and $23,585 at April 30, 2010, of issued checks that had not cleared our
bank accounts.

NOTE
3: ACQUISITIONS AND DIVESTITURES

In
February 2011, we acquired Isocoat Tintas e Vernizes Ltda. (Isocoat), a
Brazilian powder coatings business serving customers in Brazil, Argentina and
Colombia. The acquisition strengthens our general industrial product
manufacturing, marketing and distribution in a growing region. Isocoat had 2010
sales of approximately $35,000. The acquisition was recorded at fair value in
the second quarter of fiscal year 2011 and a preliminary allocation of the
purchase price has been completed. Accordingly, the net assets and operating
results have been included in our financial statements from the date of
acquisition.

In
September 2010, we acquired all the outstanding shares of Australian paint
manufacturer Wattyl Limited (ASX:WYL) for approximately AUD 142,000 and assumed
Wattyls existing debt. The acquisition was paid for primarily through the use
of existing cash and cash equivalents. Wattyl had fiscal year 2010 net sales of
approximately AUD 386,500. Wattyl distributes leading paint brands through
independent dealers, hardware chains, home centers and approximately 135
company-owned stores. The acquisition was recorded at fair value in the fourth
quarter of fiscal year 2010. The purchase price allocation has been completed.
Accordingly, the net assets and operating results have been included in our
financial statements from the date of acquisition.

In
June 2010, we sold certain non-strategic metal decorating inks assets,
including inventory and intellectual property, to DIC Corporation of Japan. The
sale was recorded at fair value in the third quarter of 2010 and resulted in a
net gain, which was recorded as a reduction to Selling, General and
Administrative expenses.

In
June 2010, we purchased the shares of DIC Coatings India Limited and certain
metal packaging coatings inventory and intellectual property in other countries
from DIC Corporation. The acquisition was strategic as we obtained a
manufacturing site in India. The acquisition was recorded at fair value in the
third quarter of fiscal year 2010. Accordingly, the net assets and operating
results have been included in our financial statements from the date of
acquisition.

The
net sales for both the June 2010 divesture and acquisition are immaterial to
our consolidated results.

Pro
forma results of operations for the acquisitions and divestitures noted above
have not been presented, as they were immaterial to the reported results on an
individual and combined basis.

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Table of Contents

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THE VALSPAR
CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 29, 2011
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

NOTE
4: INVENTORIES

The
major classes of inventories consist of the following:


|                                              |  |                  |         |                  |   |         | 
|--------------------------------------------- |  | ---------------- | ------- | ---------------- | - | ------- | 
|                                              |  | April
 29,
 2011 |         | April
 30,
 2010 |  
|Manufactured products                         |  | $                | 265,892 |                  | $ | 143,149 | 
|Raw materials, supplies and
 work-in-progress |  |                  | 165,345 |                  |   | 110,167 | 
|Total Inventories                             |  | $                | 431,237 |                  | $ | 253,316 | 

NOTE
5: COMPREHENSIVE
INCOME (LOSS)

For
the three and six-month periods ended April 29, 2011 and April 30, 2010,
Comprehensive Income, a component of Stockholders Equity, was as follows:


|                                         |  |                     |        |                   |   |                  |   |                  |         |   |   |         |  
|---------------------------------------- |  | ------------------- | ------ | ----------------- | - | ---------------- | - | ---------------- | ------- | - | - | ------- | -
|                                         |  | Three
 Months Ended |        | Six
 Months Ended |  
|                                         |  | April
 29,
 2011    |        | April
 30,
 2010  |   | April
 29,
 2011 |   | April
 30,
 2010 |        
|Net Income                               |  | $                   | 56,308 |                   | $ | 61,673           |   | $                | 89,735  |   | $ | 95,610  |  
|Other Comprehensive Income,
 net of tax: |  |                     |        |                   |   |                  |   |                  |         |   |   |         |  
|Foreign currency translation gain (loss) |  |                     | 25,918 |                   |   | (9,476           | ) |                  | 41,229  |   |   | (11,386 | )
|Net gain (loss) on financial instruments |  |                     | (1,079 | )                 |   | 20               |   |                  | (997    | ) |   | 176     |  
|Total Comprehensive Income
 (Loss)       |  | $                   | 81,147 |                   | $ | 52,217           |   | $                | 129,967 |   | $ | 84,400  |  

The
period end balances of accumulated other comprehensive income (loss), net of
tax, were comprised of the following:


|                                                 |  |                  |         |                    |   |                  |   |   |         |  
|------------------------------------------------ |  | ---------------- | ------- | ------------------ | - | ---------------- | - | - | ------- | -
|                                                 |  | April
 29,
 2011 |         | October
 29,
 2010 |   | April
 30,
 2010 |  
|Foreign currency
 translation                    |  | $                | 201,195 |                    | $ | 159,966          |   | $ | 126,659 |  
|Pension and postretirement
 benefits, net        |  |                  | (79,100 | )                  |   | (79,100          | ) |   | (77,679 | )
|Unrealized gain (loss) on
 financial instruments |  |                  | 6,224   |                    |   | 7,221            |   |   | 7,807   |  
|Accumulated other
 comprehensive income (loss)   |  | $                | 128,319 |                    | $ | 88,087           |   | $ | 56,787  |  

NOTE
6: GOODWILL AND OTHER
INTANGIBLE ASSETS

The
carrying amount of goodwill as of April 29, 2011 increased from the end of
fiscal year 2010 by $29,588 to $1,385,406. The increase is primarily due to the
acquisition of Isocoat (see Note 3 for further details) and foreign currency
translation.

Total
intangible asset amortization expense for the six months ended April 29, 2011
was $3,723, compared to $3,660 for the same period last year. Estimated
amortization expense for each of the five succeeding fiscal years based on the
intangible assets as of April 29, 2011 is expected to be approximately $8,000
annually.

NOTE
7: SEGMENT INFORMATION

Based
on the nature of our products, technology, manufacturing processes, customers
and regulatory environment, we aggregate our operating segments into two
reportable segments: Coatings and Paints. We are required to report segment
information in the same way that management internally organizes its business
for assessing performance and making decisions regarding allocation of
resources. We evaluate the performance of operating segments and allocate
resources based on profit or loss from operations before interest expense and
taxes (EBIT).

The
Coatings segment aggregates our industrial and packaging product lines.
Industrial products include a broad range of decorative and protective coatings
for metal, wood and plastic. Packaging products include both interior and
exterior coatings used in metal packaging containers, principally food
containers and beverage cans. The products of this segment are sold throughout
the world.

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Table of Contents

- 8 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 29, 2011
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

The
Paints segment aggregates our consumer paints and automotive refinish product
lines. Consumer paints includes interior and exterior decorative paints,
primers, varnishes, high-performance floor paints and specialty decorative
products, such as enamels, aerosols and faux varnishes, for the do-it-yourself
and professional markets in Australia, China, New Zealand and North America. In
September 2010, we acquired Wattyl Limited which expanded our distribution of
consumer paints into Australia and New Zealand primarily through independent
dealers, hardware chains, home centers and company-owned stores (see Note 3).

Our
remaining activities are included in All Other. These activities include
specialty polymers and colorants that are used internally and sold to other
coatings manufacturers, as well as furniture protection plans and gelcoats and
related products. All Other also includes our corporate administrative
expenses. These administrative expenses include amortization expense, certain
environmental-related expenses and other expenses not directly allocated to any
other operating segment.

It
is not practicable to obtain the information needed to disclose revenues
attributable to each of our identified product lines within our reportable
segments.

In
the following table, sales between segments are recorded at selling prices that
are below market prices, generally intended to recover internal costs. Segment
EBIT includes income realized on inter-segment sales. Comparative second
quarter and year-to-date results on this basis are as follows:


|                           |  |                     |         |                   |   |                  |   |                  |           |   |   |           |  
|-------------------------- |  | ------------------- | ------- | ----------------- | - | ---------------- | - | ---------------- | --------- | - | - | --------- | -
|                           |  | Three
 Months Ended |         | Six
 Months Ended |  
|                           |  | April
 29,
 2011    |         | April
 30,
 2010  |   | April
 29,
 2011 |   | April
 30,
 2010 |          
|Net Sales:                 |  |                     |         |                   |   |                  |   |                  |           |   |   |           |  
|Coatings                   |  | $                   | 509,136 |                   | $ | 442,091          |   | $                | 965,525   |   | $ | 833,412   |  
|Paints                     |  |                     | 418,380 |                   |   | 303,996          |   |                  | 754,331   |   |   | 537,409   |  
|All Other                  |  |                     | 93,508  |                   |   | 86,210           |   |                  | 168,378   |   |   | 152,825   |  
|Less Intersegment Sales    |  |                     | (28,295 | )                 |   | (28,727          | ) |                  | (53,101   | ) |   | (47,713   | )
|Total Net Sales            |  | $                   | 992,729 |                   | $ | 803,570          |   | $                | 1,835,133 |   | $ | 1,475,933 |  
|                           |  |                     |         |                   |   |                  |   |                  |           |   |   |           |  
|EBIT                       |  |                     |         |                   |   |                  |   |                  |           |   |   |           |  
|Coatings                   |  | $                   | 59,913  |                   | $ | 62,417           |   | $                | 110,738   |   | $ | 105,372   |  
|Paints                     |  |                     | 38,964  |                   |   | 52,161           |   |                  | 58,477    |   |   | 79,993    |  
|All Other                  |  |                     | 656     |                   |   | (9,020           | ) |                  | (6,858    | ) |   | (19,714   | )
|Total EBIT                 |  | $                   | 99,533  |                   | $ | 105,558          |   | $                | 162,357   |   | $ | 165,651   |  
|Interest                   |  | $                   | 15,486  |                   | $ | 14,726           |   | $                | 31,045    |   | $ | 29,111    |  
|Income before Income Taxes |  | $                   | 84,047  |                   | $ | 90,832           |   | $                | 131,312   |   | $ | 136,540   |  

NOTE
8: DERIVATIVE
FINANCIAL INSTRUMENTS

We
use derivative financial instruments to manage well-defined interest rate and
foreign currency exchange risks. We enter into derivative financial instruments
with high-credit-quality counterparties and diversify our positions among such
counterparties to reduce our exposure to credit losses. We do not have any
credit-risk-related contingent features in our derivative contracts as of April
29, 2011.

In the second quarter of 2011, our aggregate $50,000 notional amount of
interest rate swap contracts matured. These contracts were designated as cash
flow hedges, to pay fixed rates of interest and receive a floating interest
rate based on LIBOR. We had $50,000 notional amount of interest rate swap
contracts in place as of April 30, 2010. There was no ineffectiveness for these
swaps during the quarter or year-to-date periods ended April 29, 2011 and April
30, 2010. Prior to maturity, the interest rate swap contracts were reflected at
fair value in the condensed consolidated balance sheet. Unrealized gains and
losses were recorded in accumulated other comprehensive income. Amounts to be
received or paid under the contracts were recognized as interest expense over
the life of the contracts.

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Table of Contents

- 9 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 29, 2011
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

At April 29, 2011, we had $6,454 and $3,005 notional amount of foreign
currency contracts that mature during fiscal year 2011 and 2012, respectively.
These foreign currency contracts have been designated as cash flow hedges with
unrealized gains or losses recorded in accumulated other comprehensive income.
Realized gains and losses will be recognized in Other Expense (Income) when
they occur. At April 30, 2010, we had approximately $8,430 notional amount of
foreign currency contracts maturing during fiscal years 2010 and 2011. There
was no ineffectiveness for these hedges during the quarter or year-to-date
periods ended April 29, 2011 or April 30, 2010.

At April 29, 2011, we had $100,000 notional amount of treasury locks to
hedge, or lock-in, interest rates on anticipated long-term debt to be issued.
We designated the treasury locks as cash flow hedges with unrealized gains and
losses recorded, net of tax, to accumulated other comprehensive income. The
accumulated other comprehensive income amount in our condensed consolidated
balance sheet represents the unrealized gains and losses, net of tax, from our
current contracts and the unamortized gain, net of tax, from our settled
contracts. The unamortized gain from our settled contracts is reclassified
ratably to our condensed statements of income as a decrease to interest expense
over the term of the related bond issuance. At April 30, 2010 we had no
treasury lock contracts in place.

Our derivative assets and liabilities subject to fair value measurement
disclosures are the following:

|                             |  |                                |       |                               |   |     | 
|---------------------------- |  | ------------------------------ | ----- | ----------------------------- | - | --- | 
|                             |  | Fair Value at 
 April 29, 2011 |       | Fair Value at
 April 30, 2010 |  
|                             |  | Level 2 1                      |       | Level 2 1                     |  
|Assets                       |  |                                |       |                               |   |     | 
|Prepaid expenses and other:  |  |                                |       |                               |   |     | 
|Foreign currency contracts   |  | $                              |      |                               | $ | 181 | 
|Total Assets                 |  | $                              |      |                               | $ | 181 | 
|Liabilities                  |  |                                |       |                               |   |     | 
|Accrued liabilities other:   |  |                                |       |                               |   |     | 
|Foreign currency contracts   |  | $                              | 634   |                               | $ |    | 
|Treasury lock contracts      |  |                                | 788   |                               |   |    | 
|Interest rate swap contracts |  |                                |      |                               |   | 980 | 
|Total Liabilities            |  | $                              | 1,422 |                               | $ | 980 | 

| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| | 1 | See Note 1 in Notes to
 Consolidated Financial Statements in our Form 10-K for more information on
 fair value measurements.

Derivative gains (losses) recognized in AOCI 2 and on the Condensed Consolidated
Statement of Income for the three and six-month periods ended April 29, 2011
and April 30, 2010, respectively, are as follows:

|                                                  |  |                                                 |        |                                      |                                |                          |   |      |  
|------------------------------------------------- |  | ----------------------------------------------- | ------ | ------------------------------------ | ------------------------------ | ------------------------ | - | ---- | -
|Three Months Ended April 29, 2011                 |  | Amount of 
 Gain (Loss) 
 recognized in 
 AOCI2 |        | Statement of Income 
 Classification |                                | Gain (Loss) 
 in Income2 |  
|Derivatives
 designated as cash flow hedges       |  |                                                 |        |                                      |                                |                          |   |      |  
|Foreign currency contracts                        |  | $                                               | (383   | )                                    | Other income
 / (expense), net |                          | $ | (160 | )
|Treasury lock contracts                           |  |                                                 | (1,179 | )                                    | Interest
 expense              |                          |   | 391  |  
|Interest rate swap contracts                      |  |                                                 | 47     |                                      | Interest
 expense              |                          |   | (47  | )
|Total
 derivatives designated as cash flow hedges |  | $                                               | (1,515 | )                                    |                                |                          | $ | 184  |  

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Table of Contents

- 10 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 29, 2011
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

|                                                  |  |                                             |                                         |                                      |                                      |                        |                        |      |  
|------------------------------------------------- |  | ------------------------------------------- | --------------------------------------- | ------------------------------------ | ------------------------------------ | ---------------------- | ---------------------- | ---- | -
|Three Months Ended April 30, 2010                 |  | Amount of Gain (Loss)
recognized in AOCI2   |                                         | Statement of Income 
 Classification |                                      | Gain (Loss) in Income2 |                       
|Derivatives
 designated as cash flow hedges       |  |                                             |                                         |                                      |                                      |                        |                        |      |  
|Foreign currency contracts                        |  | $                                           | 60                                      |                                      | Other income
 / (expense), net       |                        | $                      | (17  | )
|Treasury lock contracts                           |  |                                             | (391                                    | )                                    | Interest
 expense                    |                        |                        | 391  |  
|Interest rate swap contracts                      |  |                                             | 327                                     |                                      | Interest
 expense                    |                        |                        | (347 | )
|Total
 derivatives designated as cash flow hedges |  | $                                           | (4                                      | )                                    |                                      |                        | $                      | 27   |  
|                                                  |  |                                             |                                         |                                      |                                      |                        |                        |      |  
|Six Months Ended April 29, 2011                   |  |                                             | Amount of
Gain (Loss)recognized inAOCI2 |                                      | Statement of Income 
 Classification |                        | Gain (Loss)
in Income2 |     
|Derivatives
 designated as cash flow hedges       |  |                                             |                                         |                                      |                                      |                        |                        |      |  
|Foreign currency contracts                        |  | $                                           | (269                                    | )                                    | Other income
 / (expense), net       |                        | $                      | (234 | )
|Treasury lock contracts                           |  |                                             | (1,570                                  | )                                    | Interest
 expense                    |                        |                        | 782  |  
|Interest rate swap contracts                      |  |                                             | 385                                     |                                      | Interest
 expense                    |                        |                        | (388 | )
|Total
 derivatives designated as cash flow hedges |  | $                                           | (1,454                                  | )                                    |                                      |                        | $                      | 160  |  
|                                                  |  |                                             |                                         |                                      |                                      |                        |                        |      |  
|Six Months Ended April 30, 2010                   |  | Amount of Gain (Loss) 
recognized in 
AOCI2 |                                         | Statement of Income 
 Classification |                                      | Gain (Loss)
in Income2 |                       
|Derivatives
 designated as cash flow hedges       |  |                                             |                                         |                                      |                                      |                        |                        |      |  
|Foreign currency contracts                        |  | $                                           | 352                                     |                                      | Other income
 / (expense), net       |                        | $                      | (161 | )
|Treasury lock contracts                           |  |                                             | (782                                    | )                                    | Interest
 expense                    |                        |                        | 782  |  
|Interest rate swap contracts                      |  |                                             | 496                                     |                                      | Interest
 expense                    |                        |                        | (688 | )
|Total
 derivatives designated as cash flow hedges |  | $                                           | 66                                      |                                      |                                      |                        | $                      | (67  | )

| |   |                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2 | Accumulated other
 comprehensive income (loss) (AOCI) is included on the Condensed Consolidated
 Balance Sheet in the Stockholders Equity section and is reported net of tax.
 The amounts disclosed in the above table are reported pretax and represent
 the respective period derivative activity.

NOTE 9: DEBT AND MONEY MARKET SECURITIES

The tables below summarize the carrying value and fair market value of
our outstanding debt. The fair market value of our publicly traded debt is
based on observable market prices. The fair market value of our non-publicly
traded debt was estimated using either a discounted cash flow analysis based on
our current borrowing costs for debt with similar maturities, or in the case of
outstanding commercial paper, the carrying values approximate the fair market
values as the maturities are less than three months.

|                          |  |                               |           |                     |   |           | 
|------------------------- |  | ----------------------------- | --------- | ------------------- | - | --------- | 
|                          |  | April 29, 2011                |          
|                          |  | Balance Sheet(carrying value) |           | Fair Market 
 Value |  
|Publicly
 traded debt     |  | $                             | 800,000   |                     | $ | 898,503   | 
|Non-publicly
 traded debt |  |                               | 457,498   |                     |   | 456,005   | 
|Total debt                |  | $                             | 1,257,498 |                     | $ | 1,354,508 | 

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Table of Contents

- 11 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 29, 2011
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

|                          |  |                               |         |                     |   |         | 
|------------------------- |  | ----------------------------- | ------- | ------------------- | - | ------- | 
|                          |  | April 30, 2010                |        
|                          |  | Balance Sheet(carrying value) |         | Fair Market 
 Value |  
|Publicly
 traded debt     |  | $                             | 800,000 |                     | $ | 881,993 | 
|Non-publicly
 traded debt |  |                               | 79,859  |                     |   | 77,451  | 
|Total debt                |  | $                             | 879,859 |                     | $ | 959,444 | 

We did not elect the option to report our debt at fair value in our
Condensed Consolidated Balance Sheets.

Our non-publicly traded debt consists of the following:


|                                |  |                   |         |                   |   |        | 
|------------------------------- |  | ----------------- | ------- | ----------------- | - | ------ | 
|                                |  | April
 29, 
 2011 |         | April
 30, 
 2010 |  
|Commercial
 paper               |  | $                 | 344,903 |                   | $ |       | 
|Credit
 facility borrowings     |  |                   | 89,851  |                   |   | 60,987 | 
|Industrial
 development bonds   |  |                   | 12,502  |                   |   | 12,502 | 
|Uncommitted
 borrowings         |  |                   | 10,242  |                   |   | 6,370  | 
|Total non-publicly traded
 debt |  | $                 | 457,498 |                   | $ | 79,859 | 

Our
credit facilities have covenants that require us to maintain certain financial
ratios. We were in compliance with these covenants as of April 29, 2011. Our
debt covenants do not limit, nor are they reasonably likely to limit, our
ability to obtain additional debt or equity financing.

We invest in money market funds with high-credit-quality financial
institutions and diversify our holdings among such financial institutions to
reduce our exposure to credit losses. The fair values of our money market funds
are $15,452 and $58,782 as of April 29, 2011 and April 30, 2010, respectively.
The money market funds are included in our cash and cash equivalents and
restricted cash balances with the carrying values approximating the fair market
values as the maturities are less than three months. These assets have
observable prices that are quoted on an active exchange, and are therefore
classified as Level 1 inputs under the fair value hierarchy.

Restricted cash represents cash that is restricted from withdrawal. As
of April 29, 2011 and April 30, 2010, we had restricted cash of $16,977 and $0,
respectively. Such restricted cash primarily serves as collateral for our
liability insurance programs.

NOTE 10: GUARANTEES AND CONTRACTUAL
OBLIGATIONS

We are required to disclose information about certain guarantees and
contractual obligations in our periodic financial statements.

We sell extended furniture protection plans and offer warranties for
certain of our products. Revenue related to furniture protection plans is
deferred and recognized over the contract life. Historical claims data is used
to forecast claims payments over the contract period and revenue is recognized
based on the forecasted claims payments. Actual claims costs are reflected in
earnings in the period incurred. Anticipated losses on programs in progress are
charged to earnings when identified. For product warranties, we estimate the
costs that may be incurred under these warranties based on historical claims
data and record a liability in the amount of such costs at the time revenue is
recognized.

We periodically assess the adequacy of these recorded amounts and
adjust as necessary. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses can be estimated. The extended
furniture protection plans that we enter into have fixed prices. To the extent
the actual costs to complete contracts are higher than the amounts estimated as
of the date of the financial statements, gross margin would be negatively
affected in future quarters when we revise our estimates. Our practice is to
revise estimates as soon as such changes in estimates become known.

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Table of Contents

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THE VALSPAR
CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 29, 2011
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

|                                                                                                  |  |                  |        |                  |   |        |  
|------------------------------------------------------------------------------------------------- |  | ---------------- | ------ | ---------------- | - | ------ | -
|Changes in the recorded amounts, both short-term and long-term, during
the period are as follows:
|                                                                                                  |  | Six Months Ended |       
|                                                                                                  |  | April 29, 
 2011 |        | April 30, 
 2010 |  
|Beginning
 balance, October                                                                       |  | $                | 74,907 |                  | $ | 70,503 |  
|Additional
 net deferred revenue/accrual made during the period                                   |  |                  | 7,863  |                  |   | 6,992  |  
|Payments
 made during the period                                                                  |  |                  | (6,921 | )                |   | (3,840 | )
|Ending
 balance                                                                                   |  | $                | 75,849 |                  | $ | 73,655 |  

NOTE 11: STOCK-BASED COMPENSATION

Compensation expense associated with our stock-based compensation plans
was $1,801 ($1,192 after tax) and $3,789 ($2,475 after tax) for the three and six-month periods
ended April 29, 2011, compared to $1,548 ($1,030 after tax) and $3,350
($2,218 after tax) for the
three and six-month periods ended April 30, 2010, respectively.

NOTE 12: PENSIONS AND OTHER POSTRETIREMENT
BENEFITS

We sponsor a number of defined benefit pension plans for certain hourly
and salaried employees. The benefits for most of these plans are generally
based on stated amounts for each year of service. We fund the plans in amounts
consistent with the limits of allowable tax deductions.

The net periodic benefit cost of the pension benefits is as follows:


|                                    |  |                     |        |                   |   |                  |   |                  |        |   |   |        |  
|----------------------------------- |  | ------------------- | ------ | ----------------- | - | ---------------- | - | ---------------- | ------ | - | - | ------ | -
|                                    |  | Three
 Months Ended |        | Six
 Months Ended |  
|                                    |  | April 29, 
 2011    |        | April 30, 
 2010  |   | April 29, 
 2011 |   | April 30, 
 2010 |       
|Service cost                        |  | $                   | 1,113  |                   | $ | 811              |   | $                | 2,219  |   | $ | 1,645  |  
|Interest cost                       |  |                     | 3,660  |                   |   | 3,221            |   |                  | 7,308  |   |   | 6,482  |  
|Expected return on plan
 assets     |  |                     | (4,397 | )                 |   | (4,065           | ) |                  | (8,781 | ) |   | (8,162 | )
|Amortization of prior
 service cost |  |                     | 99     |                   |   | 114              |   |                  | 198    |   |   | 228    |  
|Recognized actuarial
 (gain)/loss   |  |                     | 1,512  |                   |   | 1,229            |   |                  | 3,022  |   |   | 2,464  |  
|Net periodic benefit cost           |  | $                   | 1,987  |                   | $ | 1,310            |   | $                | 3,966  |   | $ | 2,657  |  

The net periodic benefit
cost of the post-retirement medical benefits is as follows:


|                                    |  |                     |     |                   |   |                  |   |                  |     |   |   |        |  
|----------------------------------- |  | ------------------- | --- | ----------------- | - | ---------------- | - | ---------------- | --- | - | - | ------ | -
|                                    |  | Three
 Months Ended |     | Six
 Months Ended |  
|                                    |  | April 29, 
 2011    |     | April 30, 
 2010  |   | April 29, 
 2011 |   | April 30, 
 2010 |    
|Service cost                        |  | $                   | 47  |                   | $ | 53               |   | $                | 94  |   | $ | 106    |  
|Interest cost                       |  |                     | 128 |                   |   | 119              |   |                  | 256 |   |   | 238    |  
|Amortization of prior
 service cost |  |                     | (32 | )                 |   | (718             | ) |                  | (64 | ) |   | (1,436 | )
|Recognized actuarial
 (gain)/loss   |  |                     | 76  |                   |   | 657              |   |                  | 152 |   |   | 1,314  |  
|Net periodic benefit cost           |  | $                   | 219 |                   | $ | 111              |   | $                | 438 |   | $ | 222    |  

NOTE 13: INCOME TAXES

At October 29, 2010, we had a $17,817 liability recorded for gross
unrecognized tax benefits (excluding interest and penalties). Of this total,
$15,646 represents the amount of unrecognized tax benefits that, if recognized,
would affect the effective tax rate.

We recognize interest and penalties related to unrecognized tax
benefits in income tax expense. As of October 29, 2010, we had accrued
approximately $5,907 of interest and penalties relating to unrecognized tax
benefits.

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Table of Contents

- 13 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 29, 2011
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

During the first quarter of
fiscal year 2011, we recorded a $1,250 benefit to income tax expense for the
retroactive extension of the U.S. federal research and development tax credit.
In the same period of fiscal year 2010, we settled certain income tax audits,
which reduced our liability for gross unrecognized tax benefits by $7,244
(excluding interest and penalties). The net impact to tax expense during the
first quarter of fiscal year 2010 for these audit adjustments (including
interest, penalties, and other offsetting items) was a net decrease of $4,821.
There were no material adjustments to our recorded liability for unrecognized
tax benefits during the second quarter of fiscal year 2011 or 2010.

The Company and its
subsidiaries file income tax returns in the U.S. federal jurisdiction, and
numerous state and foreign jurisdictions. With few exceptions, we are no longer
subject to U.S. federal, state and local, or non-U.S. income tax examinations
by tax authorities for years before 2005. The Internal Revenue Service (IRS)
has concluded its examination of our U.S. federal tax returns for the fiscal
years ended 2004 and 2005. There were no material adjustments to our income tax
expense or balance of unrecognized tax benefits as a result of the IRS
examination. We are currently under audit in several state and foreign
jurisdictions. We also expect various statutes of limitation to expire during
the year. Due to the uncertain response of taxing authorities, a range of
outcomes cannot be reasonably estimated at this time.

NOTE
14: RESTRUCTURING

In fiscal year 2008, we
initiated a comprehensive series of restructuring activities which are now
complete. These restructuring initiatives included plant closures, reductions
to research and development and selling and administrative expenses,
manufacturing consolidation and relocation, and our exit from non-strategic
product lines in certain geographies. We rationalized our manufacturing
capacity and reduced our overall global headcount to lower our costs in light
of the challenging global economic conditions. Pre-tax restructuring charges
for these initiatives were $98 and $1,494 for the three and six-month periods
ended April 29, 2011, respectively.

During the second quarter of
2011, we initiated restructuring actions in our Coatings segment, primarily in
our wood product line, which will further rationalize our manufacturing
capacity and reduce our overall global headcount. These restructuring
activities during the second quarter of 2011 resulted in pre-tax charges of
$1,364 or $0.01 per share after tax. Additionally, we have announced restructuring
actions related to improving the profitability of our Australian paints
acquisition, Wattyl. Specific actions are expected to include facility
consolidations in manufacturing and distribution, store rationalization and
other related costs. We expect the cost of these activities to be $0.30 to
$0.35 per share after tax over the next 12 to 18 months.

Our total restructuring
activities for the three and six-month periods ended April 29, 2011 resulted in
pre-tax charges of $1,462 and $2,858, respectively, or $0.02 per share after
tax in each period. In comparison, total restructuring activities for the three
and six-month periods ended April 30, 2010 resulted in pre-tax charges of $261
and $4,262, respectively, or $0.02 per share after tax in each period.

The total resulting expenses
included severance and employee benefits, asset impairments, professional
services and site clean-up. We plan to pay the majority of the current
restructuring liabilities in fiscal year 2011.

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Table of Contents

- 14 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 29, 2011
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

|                                                                                                          |  |                                           |       |         |   |          |  |                                       |        |   |   |       | 
|--------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- | ----- | ------- | - | -------- |  | ------------------------------------- | ------ | - | - | ----- | 
|The following restructuring
and impairment charges by segment were recorded in the 2011 and 2010 periods:
|Six Month
 Period Ending April 29, 2011                                                                   |  | Liability
 Beginning
 Balance
 10/29/2010 |       | Expense |   | Activity |  | Liability
 Ending
 Balance
 4/29/2011 |       
|Coatings                                                                                                  |  |                                           |       |         |   |          |  |                                       |        |   |   |       | 
|Severance and employee benefits                                                                           |  | $                                         | 1,139 |         | $ | 1,112    |  | $                                     | (1,499 | ) | $ | 752   | 
|Asset Impairments                                                                                         |  |                                           |      |         |   | 252      |  |                                       | (252   | ) |   |      | 
|Exit costs (consulting/site clean-up)                                                                     |  |                                           | 2,034 |         |   | 1,094    |  |                                       | (1,533 | ) |   | 1,595 | 
|Total
 Coatings                                                                                           |  |                                           | 3,173 |         |   | 2,458    |  |                                       | (3,284 | ) |   | 2,347 | 
|Paints                                                                                                    |  |                                           |       |         |   |          |  |                                       |        |   |   |       | 
|Severance and employee benefits                                                                           |  |                                           | 19    |         |   |         |  |                                       | (18    | ) |   | 1     | 
|Exit costs (consulting/site clean-up)                                                                     |  |                                           | 2,763 |         |   | 400      |  |                                       | (1,689 | ) |   | 1,474 | 
|Total
 Paints                                                                                             |  |                                           | 2,782 |         |   | 400      |  |                                       | (1,707 | ) |   | 1,475 | 
|Total                                                                                                     |  | $                                         | 5,955 |         | $ | 2,858    |  | $                                     | (4,991 | ) | $ | 3,822 | 

|                                        |  |                                           |       |         |   |          |  |                                       |        |   |   |       | 
|--------------------------------------- |  | ----------------------------------------- | ----- | ------- | - | -------- |  | ------------------------------------- | ------ | - | - | ----- | 
|                                        |  |                                           |       |         |   |          |  |                                       |        |   |   |       | 
|Six Month
 Period Ending April 30, 2010 |  | Liability
 Beginning
 Balance
 10/30/2009 |       | Expense |   | Activity |  | Liability
 Ending
 Balance
 4/30/2010 |       
|Coatings                                |  |                                           |       |         |   |          |  |                                       |        |   |   |       | 
|Severance and employee benefits         |  | $                                         | 1,694 |         | $ | 62       |  | $                                     | (1,029 | ) | $ | 727   | 
|Asset impairments                       |  |                                           |      |         |   | 2,500    |  |                                       | (2,500 | ) |   |      | 
|Exit costs (consulting/site clean-up)   |  |                                           | 1,012 |         |   | 33       |  |                                       | 5      |   |   | 1,050 | 
|Contract term costs (leases)            |  |                                           |      |         |   | 38       |  |                                       | (38    | ) |   |      | 
|Total
 Coatings                         |  |                                           | 2,706 |         |   | 2,633    |  |                                       | (3,562 | ) |   | 1,777 | 
|Paints                                  |  |                                           |       |         |   |          |  |                                       |        |   |   |       | 
|Severance and employee benefits         |  |                                           | 827   |         |   | 314      |  |                                       | (1,104 | ) |   | 37    | 
|Asset impairments                       |  |                                           |      |         |   | 240      |  |                                       | (240   | ) |   |      | 
|Exit costs (consulting/site clean-up)   |  |                                           | 2,556 |         |   | 850      |  |                                       | (912   | ) |   | 2,494 | 
|Total
 Paints                           |  |                                           | 3,383 |         |   | 1,404    |  |                                       | (2,256 | ) |   | 2,531 | 
|All Other                               |  |                                           |       |         |   |          |  |                                       |        |   |   |       | 
|Severance and employee benefits         |  |                                           | 55    |         |   |         |  |                                       | (55    | ) |   |      | 
|Asset impairments                       |  |                                           |      |         |   | 114      |  |                                       | (114   | ) |   |      | 
|Exit costs (consulting/site clean-up)   |  |                                           |      |         |   | 111      |  |                                       | (111   | ) |   |      | 
|Total
 All Other                        |  |                                           | 55    |         |   | 225      |  |                                       | (280   | ) |   |      | 
|Total                                   |  | $                                         | 6,144 |         | $ | 4,262    |  | $                                     | (6,098 | ) | $ | 4,308 | 

The ending liability balance
at April 29, 2011 and at April 30, 2010 is included in other accrued
liabilities on our Condensed Consolidated Balance Sheet. The restructuring
reserve balances presented are considered adequate to cover committed
restructuring actions. The restructuring expenses recorded are included in the
Condensed Consolidated Statement of Income. For the three-month period ended
April 29, 2011, $529 was charged to Cost of Sales and $933 was charged to
Selling, General and Administrative (SG&A) expenses. For the six-month period
ended April 29, 2011, $1,925 was charged to Cost of Sales and $933 was charged
to SG&A. For the three-month period ended April 30, 2010, $261 was charged
to Cost of Sales. For the six-month period ended April 30, 2010, $4,262 was
charged to Cost of Sales.

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Table of Contents

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

Overview: In the second
quarter of 2011, we continued to experience a very challenging raw material
environment due to escalating costs, tight supply and strong global demand for
certain raw materials, a trend which began in the second half of 2010. We
expect the rising cost trend to continue in the second half of 2011. Our
ability to return to historical gross margins will depend on the implementation
of customer price increases in a timely manner. Historically, there has been a
lag between rising raw material costs and the impact of our customer price
increases.

Net sales growth for the
second quarter of 2011 was primarily due to higher volumes driven by our
acquisitions, customer price increases across all regions and strength in our
Coatings segment. Gross profit as a percent of net sales decreased due to the
lag between higher raw material costs and the impact of customer price
increases, along with non-recurring, acquisition-related charges. Operating
expenses as a percent of net sales increased due to Wattyl operating expenses
and continued investments in strategic growth initiatives. Net income declined
8.7% primarily due to one-time acquisition charges and restructuring costs.

We continually evaluate our
cost structure in the normal course of our business. During the second quarter
of 2011, we initiated restructuring actions in our Coatings segment, primarily
in our wood product line, which will reduce our manufacturing capacity and
overall global headcount. The end-markets served by this product line have been
struggling for several years and we do not anticipate any significant changes
in the near- or medium-term. In the third quarter of 2011, we announced
restructuring actions related to improving the profitability of our Australian
paints acquisition, Wattyl. Specific actions include facility consolidations in
manufacturing and distribution, store rationalization and other related costs.
We expect the restructuring cost relating to these actions to be $0.30 to $0.35
per share after tax over the next 12 to 18 months. Total restructuring
activities during the second quarter of 2011 resulted in pre-tax charges of
$1,462 or $0.01 per share after tax. See Note 14 in Notes to Condensed
Consolidated Financial Statements for more information on restructuring.

Earnings Per Share: Net
income per common share (diluted) was $0.58 and $0.91 for the three and
six-month periods ended April 29, 2011, and $0.61 and $0.95 for the three and
six-month periods ended April 30, 2010, respectively. The table below presents
adjusted net income per common share  diluted, which excludes after-tax
acquisition-related charges in 2011 and after-tax restructuring charges in 2011
and 2010.

| |                                                 |  |                     |      |                   |   |                  |  |                  |      |  |   |      | 
| | ----------------------------------------------- |  | ------------------- | ---- | ----------------- | - | ---------------- |  | ---------------- | ---- |  | - | ---- | 
| |                                                 |  | Three
 Months Ended |      | Six
 Months Ended |  
| |                                                 |  | April
 29,
 2011    |      | April
 30,
 2010  |   | April
 29,
 2011 |  | April
 30,
 2010 |     
| | Net income per common
 share - diluted          |  | $                   | 0.58 |                   | $ | 0.61             |  | $                | 0.91 |  | $ | 0.95 | 
| | Acquisition-related
 charges                    |  |                     | 0.05 |                   |   |                 |  |                  | 0.09 |  |   |     | 
| | Restructuring charges                           |  |                     | 0.01 |                   |   |                 |  |                  | 0.02 |  |   | 0.02 | 
| | Adjusted net income per
 common share - diluted |  | $                   | 0.64 |                   | $ | 0.61             |  | $                | 1.02 |  | $ | 0.97 | 
| |                                                 |  |                     |      |                   |   |                  |  |                  |      |  |   |      | 

Adjusted net income per common share  diluted is a non-GAAP
financial measure. Management discloses this measure because we believe the
measure may assist investors in comparing our results of operations in the
respective periods without regard to the impact of acquisition-related and
restructuring charges. The acquisition-related charges are primarily related to
the step-up of inventory to fair value. This non-GAAP measure is provided to
enhance investors overall understanding of our current financial performance
and prospects for the future. Specifically, we believe the non-GAAP measure
provides useful information to both management and investors by excluding
certain expenses, gains and losses on purchases or sales of assets and non-cash
charges, which may not be indicative of our core operating results and business
outlook. In addition, because we have historically reported certain non-GAAP
results to investors, we believe the inclusion of this non-GAAP measure
provides consistency in our presentation of financial information. See Note 14
for further information on the restructuring charges.

Critical
Accounting Policies:
In the second quarter of 2011, there were no material changes in our critical
accounting policies.

Operations:


| |                        |  |                     |         |                   |   |           |  |                  |      |                  |   |           |  |   |           |  |  |      |  
| | ---------------------- |  | ------------------- | ------- | ----------------- | - | --------- |  | ---------------- | ---- | ---------------- | - | --------- |  | - | --------- |  |  | ---- | -
| |                        |  |                     |         |                   |   |           |  |                  |      |                  |   |           |  |   |           |  |  |      |  
| | Net Sales              |  | Three
 Months Ended |         | Six
 Months Ended |  
| |                        |  | April
 29,
 2011    |         | April
 30,
 2010  |   | %
 Change |  | April
 29,
 2011 |      | April
 30,
 2010 |   | %
 Change | 
| | Coatings               |  | $                   | 509,136 |                   | $ | 442,091   |  |                  | 15.2 | %                | $ | 965,525   |  | $ | 833,412   |  |  | 15.9 | %
| | Paints                 |  |                     | 418,380 |                   |   | 303,996   |  |                  | 37.6 | %                |   | 754,331   |  |   | 537,409   |  |  | 40.4 | %
| | All Other              |  |                     | 65,213  |                   |   | 57,483    |  |                  | 13.4 | %                |   | 115,277   |  |   | 105,112   |  |  | 9.7  | %
| | Consolidated Net Sales |  | $                   | 992,729 |                   | $ | 803,570   |  |                  | 23.5 | %                | $ | 1,835,133 |  | $ | 1,475,933 |  |  | 24.3 | %
| |                        |  |                     |         |                   |   |           |  |                  |      |                  |   |           |  |   |           |  |  |      |  

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Table of Contents

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

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Consolidated Net Sales Excluding the positive effect of 12.3% from
 acquisitions and 1.6% from foreign currency, sales for the second quarter of
 2011 increased 9.6%. Excluding the positive effect of 13.5% from acquisitions
 and 1.2% from foreign currency, year-to-date sales increased 9.6%. The
 improvement in sales for both 2011 periods was due to customer price
 increases, new business and volume growth in our Coatings segment.                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Coatings Segment Net Sales Excluding the positive effect of 2.5% from
 foreign currency and 1.2% from acquisitions, sales for the second quarter of
 2011 increased 11.5%. Excluding the positive effect of 1.9% from foreign
 currency and 0.7% from acquisitions, year-to-date sales increased 13.3%. The
 increase in sales for both 2011 periods was primarily due to customer price
 increases and new business across all product lines. Additionally, improved
 market conditions in our general industrial product line offset continued
 weakness in our wood product line.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Paints Segment Net Sales Excluding the positive effect of 30.7% from
 acquisitions and a 0.6% from foreign currency, sales for the second quarter
 of 2011 increased 6.3%. Excluding the positive effect of 35.9% from
 acquisitions and 0.2% from foreign currency, year-to-date sales increased
 4.3%. The increase in sales for both periods was due to customer price
 increases and volume growth in Asia that more than offset the loss of a large
 U.S. retail customer.                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | All Other Net Sales The All Other category includes resins,
 colorants, gelcoats and furniture protection plan product lines. Excluding
 the positive effect of 0.6% from foreign currency, sales for the second
 quarter of 2011 increased 12.8%. Year-to-date sales increased 9.7% with no
 effect from foreign currency. The higher sales in both periods were due to
 customer price increases.                                                                                                                                                                                 

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

|                          |  |                     |         |                   |   |                  |   |                  |         |   |   |         |  
|------------------------- |  | ------------------- | ------- | ----------------- | - | ---------------- | - | ---------------- | ------- | - | - | ------- | -
|Gross
 Profit             |  | Three
 Months Ended |         | Six
 Months Ended |  
|                          |  | April
 29,
 2011    |         | April
 30,
 2010  |   | April
 29,
 2011 |   | April
 30,
 2010 |        
|Consolidated Gross Profit |  | $                   | 315,510 |                   | $ | 273,353          |   | $                | 574,423 |   | $ | 490,344 |  
|As a percent of Net Sales |  |                     | 31.8    | %                 |   | 34.0             | % |                  | 31.3    | % |   | 33.2    | %
|                          |  |                     |         |                   |   |                  |   |                  |         |   |   |         |  

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Gross
 Profit Gross
 profit as a percent of net sales decreased due to higher raw material costs
 and acquisition-related charges, partially offset by increased customer
 pricing. Acquisition-related charges of $4,909 or 0.5% of net sales and
 $11,416 or 0.6% of net sales were included in the second quarter and
 year-to-date periods of 2011, respectively. Restructuring charges of $529 and
 $1,925, or 0.1% of net sales in both periods, were included in the second
 quarter and year-to-date periods of 2011, respectively. Restructuring charges
 of $261 or 0.1% of net sales and $4,262 or 0.3% of net sales were included in
 the second quarter and year-to-date periods of 2010, respectively.

|                                 |  |                     |         |                   |   |                  |   |                  |         |   |   |         |  
|-------------------------------- |  | ------------------- | ------- | ----------------- | - | ---------------- | - | ---------------- | ------- | - | - | ------- | -
|Operating
Expenses *             |  | Three
 Months Ended |         | Six
 Months Ended |  
|                                 |  | April
 29,
 2011    |         | April
 30,
 2010  |   | April
 29,
 2011 |   | April
 30,
 2010 |        
|Consolidated Operating
 Expenses |  | $                   | 215,994 |                   | $ | 169,050          |   | $                | 411,519 |   | $ | 326,152 |  
|As a percent of Net Sales        |  |                     | 21.8    | %                 |   | 21.0             | % |                  | 22.4    | % |   | 22.1    | %
|                                 |  |                     |         |                   |   |                  |   |                  |         |   |   |         |  

* Includes research and
development and selling, general and administrative costs. For breakout see
Condensed Consolidated Statement of Income.


|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Consolidated Operating Expenses (dollars) Second quarter consolidated operating
 expenses increased 27.8% or $46,944 compared to last year. Year-to-date
 consolidated operating expenses increased 26.2% or $85,367. The increase in both periods was driven primarily by the addition of
 Wattyl operating expenses and continued investments in strategic growth
 initiatives. For both periods, acquisition-related charges of $1,859, 0.2% of
 second quarter net sales and 0.1% of year-to-date net sales, were included in
 operating expenses. Restructuring charges of $933 or 0.1% of net sales were
 included in operating expenses in the second quarter and year-to-date periods
 of 2011. There were no restructuring charges included in operating expenses
 in the 2010 periods.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Consolidated Operating Expenses (percent of net sales) Operating expenses as a percent of consolidated net sales increased 0.8 and
 0.3 percentage points for the second quarter and year-to-date periods,
 respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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Table of Contents

- 17 -

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

|                          |  |                     |        |                   |   |                  |    |                  |         |    |   |         |   
|------------------------- |  | ------------------- | ------ | ----------------- | - | ---------------- | -- | ---------------- | ------- | -- | - | ------- | --
|EBIT*                     |  | Three
 Months Ended |        | Six
 Months Ended |  
|                          |  | April
 29,
 2011    |        | April
 30,
 2010  |   | April
 29,
 2011 |    | April
 30,
 2010 |        
|Coatings                  |  | $                   | 59,913 |                   | $ | 62,417           |    | $                | 110,738 |    | $ | 105,372 |   
|As a percent of Net Sales |  |                     | 11.8   | %                 |   | 14.1             | %  |                  | 11.5    | %  |   | 12.6    | % 
|Paints                    |  | $                   | 38,964 |                   | $ | 52,161           |    | $                | 58,477  |    | $ | 79,993  |   
|As a percent of Net Sales |  |                     | 9.3    | %                 |   | 17.2             | %  |                  | 7.8     | %  |   | 14.9    | % 
|All Other                 |  | $                   | 656    |                   | $ | (9,020           | )  | $                | (6,858  | )  | $ | (19,714 | ) 
|As a percent of Net Sales |  |                     | 1.0    | %                 |   | (15.7            | )% |                  | (5.9    | )% |   | (18.8   | )%
|Consolidated EBIT         |  | $                   | 99,533 |                   | $ | 105,558          |    | $                | 162,357 |    | $ | 165,651 |   
|As a percent of Net Sales |  |                     | 10.0   | %                 |   | 13.1             | %  |                  | 8.8     | %  |   | 11.2    | % 
|                          |  |                     |        |                   |   |                  |    |                  |         |    |   |         |   

*
We evaluate the performance of operating segments and allocate resources based
on profit or loss from operations before interest expense and taxes (EBIT).


|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Consolidated EBIT EBIT for the second quarter of 2011
 decreased $6,025 or 5.7%. Year-to-date EBIT decreased
 $3,294 or 2.0%. Acquisition-related charges of $6,768 or
 0.7% of net sales and $13,275 or 0.7% of net sales were included in the
 quarter and year-to-date periods of 2011, respectively. Restructuring charges
 of $1,462 or 0.1% of net sales and $2,858 or 0.2% of net sales were included
 in the quarter and year-to-date periods of 2011, respectively. The
 restructuring charges for the second quarter of 2010 were immaterial, and the
 year-to-date period included pre-tax charges of $4,262 or 0.3% of net sales.
 Foreign currency exchange fluctuation had an immaterial effect on
 Consolidated EBIT, as well as EBIT of the segments discussed below.                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Coatings Segment EBIT EBIT as a percent of net sales for the
 second quarter and year-to-date periods decreased primarily due to higher raw
 material costs, which were partially offset by customer price increases. EBIT
 included acquisition-related charges of $1,859 or 0.4% of net sales in the
 quarter and year-to-date periods of 2011. EBIT included restructuring charges
 of $1,462 or 0.3% of net sales and $2,458 or 0.3% of net sales in the quarter
 and year-to-date periods of 2011, respectively. The restructuring charges for
 the second quarter of 2010 were immaterial, and the year-to-date period
 included pre-tax charges of $2,633 or 0.3% of net sales.                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Paints Segment EBIT EBIT as a percent of net sales for the
 second quarter and year-to-date periods declined primarily due to higher raw
 material costs, unfavorable product mix, investment in strategic
 initiatives and acquisition-related charges, partially offset by customer
 price increases. EBIT included acquisition-related charges of $4,909 or 1.2%
 of net sales and $11,416 or 1.5% of net sales in the quarter and year-to-date
 periods of 2011, respectively. There were no restructuring charges in the
 second quarter of 2011. EBIT included restructuring charges of $400 or 0.1%
 of net sales in the year-to-date period of 2011. The restructuring charges
 for the second quarter of 2010 were immaterial, and the year-to-date period
 included pre-tax charges of $1,404 or 0.3% of net sales.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | All Other EBIT All Other EBIT includes corporate expenses. Second quarter and
 year-to-date EBIT as a percent of net sales improved primarily due to better
 performance in our Other product lines and lower incentive compensation
 expenses. There were no restructuring charges included in EBIT in the second
 quarter and year-to-date periods of 2011. EBIT included immaterial
 restructuring charges in the second quarter of 2010 and charges of $225 or
 0.2% of net sales in the 2010 year-to-date period.                                                                                                                                                                                                                                                                                                       

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

|                               |  |                     |        |                   |   |                  |  |                  |        |  |   |        | 
|------------------------------ |  | ------------------- | ------ | ----------------- | - | ---------------- |  | ---------------- | ------ |  | - | ------ | 
|Interest
 Expense              |  | Three
 Months Ended |        | Six
 Months Ended |  
|                               |  | April
 29,
 2011    |        | April
 30,
 2010  |   | April
 29,
 2011 |  | April
 30,
 2010 |       
|Consolidated Interest
 Expense |  | $                   | 15,486 |                   | $ | 14,726           |  | $                | 31,045 |  | $ | 29,111 | 
|                               |  |                     |        |                   |   |                  |  |                  |        |  |   |        | 

|  |                                                                                                                                            
|- | -------------------------------------------------------------------------------------------------------------------------------------------
| | Interest Expense The second quarter and year-to-date increase
 is primarily due to higher average debt levels as a result of acquisitions.

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Table of Contents

- 18 -

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

|                   |  |                     |      |                   |  |                  |   |                  |      |   |  |      |  
|------------------ |  | ------------------- | ---- | ----------------- |  | ---------------- | - | ---------------- | ---- | - |  | ---- | -
|Effective
Tax Rate |  | Three
 Months Ended |      | Six
 Months Ended | 
|                   |  | April
 29,
 2011    |      | April
 30,
 2010  |  | April
 29,
 2011 |   | April
 30,
 2010 |     
|Effective Tax Rate |  |                     | 33.0 | %                 |  | 32.1             | % |                  | 31.7 | % |  | 30.0 | %
|                   |  |                     |      |                   |  |                  |   |                  |      |   |  |      |  

|  |                                                                                                                                                                                                                                                                                                                                       
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Effective Tax Rate The higher year-to-date 2011 effective tax
 rate is due to the settlement of certain income tax audits in the 2010 period
 partially offset by a benefit in 2011 from the retroactive extension of the
 research and development tax credit. We expect the effective tax rate for the
 full year to be 32% to 33%.

|                        |  |                     |        |                   |   |           |  |                  |      |                  |   |           |  |   |        |  |  |      |   
|----------------------- |  | ------------------- | ------ | ----------------- | - | --------- |  | ---------------- | ---- | ---------------- | - | --------- |  | - | ------ |  |  | ---- | --
|Net Income              |  | Three
 Months Ended |        | Six
 Months Ended |  
|                        |  | April
 29,
 2011    |        | April
 30,
 2010  |   | %
 Change |  | April
 29,
 2011 |      | April
 30,
 2010 |   | %
 Change | 
|Consolidated Net Income |  | $                   | 56,308 |                   | $ | 61,673    |  |                  | (8.7 | )%               | $ | 89,735    |  | $ | 95,610 |  |  | (6.1 | )%
|                       

Financial
Condition: Net cash
used in operations was $58,875 for the first six months of 2011 compared to
net cash provided by operations of $54,478 in the first six months of 2010. The
use of cash in the 2011 period was primarily related to a decrease in trade
accounts payable and other accrued liabilities, an increase in accounts and
notes receivable and an increase in inventories and other assets. The $69,775
decrease in trade accounts payable and other accrued liabilities was due to the
timing of disbursements and purchases. The $63,596 increase in accounts and
notes receivable was due to higher sales levels and timing of customer
payments. The $59,890 increase in inventories and other assets was primarily
due to higher raw material costs, pre-buying of certain raw materials to ensure
uninterrupted delivery of products to our customers in a tight supply market
and seasonality.

During
the 2011 period, we used $293,763 in net proceeds from bank borrowings to fund
$218,643 in share repurchases, working capital needs and acquisitions. We used
cash on hand and $27,722 in proceeds from the sale of treasury stock to fund
$34,483 in dividend payments, $27,405 in capital expenditures, and $11,454 in
equity award shares purchased from Huarun employees.

Capital
expenditures for property, plant and equipment were $27,405 in 2011 compared
with $22,334 in 2010. We anticipate capital spending in 2011 to be
approximately $90,000.

See
Note 9 in Notes to the Condensed Financial Statements for further discussion on
our restricted cash primarily associated with cash collateralization of certain
letters of credit.

The
ratio of total debt-to-capital was 45.0% at April 29, 2011 compared to 36.8%
at October 29, 2010 and 36.3% at April 30, 2010. Our short-term debt was
$354,467 at April 29, 2011 compared to $8,088 and $6,370 at October 29, 2010
and April 30, 2010, respectively. The increase was primarily funded by
commercial paper borrowings. We ended our 2011 second quarter with $343,730 of
liquidity that includes $223,679 of available committed credit facilities and
$120,051 of cash and cash equivalents. We believe cash flow from operations,
existing lines of credit, access to credit facilities and access to debt and
capital markets will be sufficient to meet our current and projected financing
needs.

We
have credit facilities with covenants that require us to maintain certain
financial ratios. We were in compliance with these covenants as of April 29,
2011. Our debt covenants do not limit, nor are they reasonably likely to limit,
our ability to obtain additional debt or equity financing.

Our
cash and cash equivalent balances consist of high quality short-term money
market instruments and cash held by our international subsidiaries that are
used to fund day-to-day operating needs. Those balances have also been used to
finance acquisitions. Our investment policy on excess cash is to preserve
principal.

We
use derivative instruments with a number of counterparties principally to
manage well-defined interest rate and foreign currency exchange risks. We
evaluate the financial stability of each counterparty and spread the risk among
several financial institutions to limit our exposure. We will continue to
monitor counterparty risk on an ongoing basis.

Off-Balance Sheet Financing: We do not have off-balance sheet
arrangements that have, or are reasonably likely to have, a current or future
material effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources.

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|                                                                                              
|----------------------------------------------------------------------------------------------
|ITEM 2: MANAGEMENTS
 DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|DOLLARS IN THOUSANDS,
 EXCEPT PER SHARE AMOUNTS                                               

Forward
Looking Statements:
Certain statements contained in Managements Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this report constitute
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements.

Forward-looking
statements are based on managements current expectations, estimates,
assumptions and beliefs about future events, conditions and financial
performance. Forward-looking statements are subject to risks, uncertainties and
other factors, many of which are outside our control and could cause actual
results to differ materially from such statements. Any statement that is not
historical in nature is a forward-looking statement. We may identify
forward-looking statements with words and phrases such as expects,
projects, estimates, anticipates, believes, could, may, will,
plans to, intend, should and similar expressions.

These
risks, uncertainties and other factors include, but are not limited to,
deterioration in general economic conditions, both domestic and international,
that may adversely affect our business; fluctuations in availability and prices
of raw materials, including raw material shortages and other supply chain
disruptions, and the inability to pass along or delays in passing along raw
material cost increases to our customers; dependence of internal sales and
earnings growth on business cycles affecting our customers and growth in the
domestic and international coatings industry; market share loss to, and pricing
or margin pressure from, larger competitors with greater financial resources;
significant indebtedness that restricts the use of cash flow from operations
for acquisitions and other investments; dependence on acquisitions for growth,
and risks related to future acquisitions, including adverse changes in the
results of acquired businesses, the assumption of unforeseen liabilities and
disruptions resulting from the integration of acquisitions; risks and
uncertainties associated with operations and achievement of profitable growth
in developing markets, including Asia and Central and South America; loss of
business with key customers; damage to our reputation and business resulting
from product claims or recalls, litigation, customer perception and other
matters; our ability to respond to technology changes and to protect our
technology; changes in governmental regulation, including more stringent
environmental, health and safety regulations; our reliance on the efforts of
vendors, government agencies, utilities and other third parties to achieve
adequate compliance and avoid disruption of our business; unusual weather
conditions adversely affecting sales; changes in accounting policies and
standards and taxation requirements such as new tax laws or revised tax law
interpretations; the nature, cost and outcome of pending and future litigation
and other legal proceedings; and civil unrest and the outbreak of war and other
significant national and international events.

We
undertake no obligation to subsequently revise any forward-looking statement to
reflect new information, events or circumstances after the date of such
statement.

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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

Our
foreign sales and results of operations are subject to the impact of foreign
currency fluctuations. As most of our underlying costs are denominated in the
same currency as our sales, the effect has not been material. We have not
hedged our exposure to translation gains and losses; however, we have reduced
our exposure by borrowing funds in local currencies. A 10% adverse change in
foreign currency rates is not expected to have a material effect on our results
of operations or financial position.

We
are also subject to interest rate risk. At April 29, 2011, approximately 36.4%
of our total debt consisted of floating rate debt. From time to time, we may
enter into interest rate swaps to hedge a portion of either our variable or
fixed rate debt. Assuming the current level of borrowings, a 10% increase in
interest rates from those in effect at the end of the second quarter would not
have a material impact on our results of operations or financial position.

ITEM 4: CONTROLS AND PROCEDURES

Disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) are our controls and other procedures that are designed to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commissions
rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate, to allow
timely decisions regarding required disclosure.

We
have evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of April 29, 2011. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective.

There
were no changes in our internal control over financial reporting during the
quarter ended April 29, 2011 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

During
the period covered by this report, there were no legal proceedings instituted
that are reportable, and there were no material developments in any of the
legal proceedings that were previously reported on our Form 10-K for the year
ended October 29, 2010.

ITEM 1A: RISK FACTORS

There
were no material changes to the risk factors disclosed in our Form 10-K for the
year ended October 29, 2010.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS

| |     |                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------
| | (a) | Not
 applicable                                                                                  
| | (b) | Not
 applicable                                                                                  
| | (c) | We
 made the following repurchases of equity securities during the quarter ended
 April 29, 2011:

|                       |  |                                        |  |                                |       |                                                                                         |  |                                                                                       |  |  |            |  | 
|---------------------- |  | -------------------------------------- |  | ------------------------------ | ----- | --------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  |  | ---------- |  | 
|Period                 |  | Total Number
 of Shares
 Purchased (1) |  | Average
 Price Paid
 per Share |       | Total Number of
 Shares Purchased as Part
 of Publicly Announced
 Plans or Programs (1) |  | Maximum Number
 of Shares that May
 Yet be Purchased Under
 the Plans or Programs (1) | 
|1/29/11  2/25/11      |  |                                        |  |                                |       |                                                                                         |  |                                                                                       |  |  |            |  | 
|Repurchase program     |  | 324,035                                |  | $                              | 38.39 |                                                                                         |  | 324,035                                                                               |  |  | 11,675,965 | 
|Other transactions (2) |  | 9,767                                  |  |                                | 37.22 |                                                                                         |  |                                                                                      |  |  |           | 
|2/26/11  3/25/11      |  |                                        |  |                                |       |                                                                                         |  |                                                                                       |  |  |            |  | 
|Repurchase program     |  | 1,525,000                              |  |                                | 37.87 |                                                                                         |  | 1,525,000                                                                             |  |  | 10,150,965 | 
|Other transactions (2) |  |                                       |  |                                |      |                                                                                         |  |                                                                                      |  |  |           | 
|3/26/11  4/29/11      |  |                                        |  |                                |       |                                                                                         |  |                                                                                       |  |  |            |  | 
|Repurchase program     |  | 1,150,965                              |  |                                | 39.02 |                                                                                         |  | 1,150,965                                                                             |  |  | 9,000,000  | 
|Other transactions (2) |  | 17,391                                 |  |                                | 38.56 |                                                                                         |  |                                                                                      |  |  |           | 

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Table of Contents

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|    |                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On
 October 13, 2010 we received board authorization to repurchase 15,000,000
 shares, with no predetermined end date. As of April 29, 2011, we have
 repurchased 6,000,000 shares under this authorization.                         
|    |                                                                                                                                                                                                                                      
|(2) | Our
 other transactions include our acquisition of common stock in satisfaction of
 tax-payment obligations upon vesting of restricted stock and our receipt of
 surrendered shares in connection with the exercise of stock options.

ITEM 6: EXHIBITS

|         |                                                                                                                                                                                                  
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |                                                                                                                                                                                                  
|         |                                                                                                                                                                                                  
|10.1     | Transition
 Agreement and Release with William L. Mansfield dated as of April 13, 2011
 (incorporated by reference to Exhibit 99.1 to the registrants 8-K filed with
 the SEC on April 18, 2011)
|31.1     | Section
 302 Certification of the Chief Executive Officer                                                                                                                                        
|31.2     | Section
 302 Certification of the Chief Financial Officer                                                                                                                                        
|32.1     | Certification
 of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.
 §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                         

SIGNATURES

Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                     |                         |                                                   
|-------------------- | ----------------------- | --------------------------------------------------
|                     | THE VALSPAR CORPORATION
|                     |                         |                                                   
|Date:  June 8,
 2011 | By                      | /s/Rolf Engh                                      
|                     |                         | Rolf Engh                                         
|                     |                         | Secretary                                         
|                     |                         |                                                   
|Date:  June 8,
 2011 | By                      | /s/Lori A. Walker                                 
|                     |                         | Lori A. Walker                                    
|                     |                         | Senior Vice President and
 Chief Financial Officer

---