Table of Contents





UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

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FORM 10-Q

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|   |                                                                                         
|-- | ----------------------------------------------------------------------------------------
|x  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|   |                                                                                         
|   | For the quarterly period ended January 30,
 2009                                        
|   |                                                                                         
|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

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THE VALSPAR CORPORATION

(Exact name of registrant as
 specified in its charter)

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

|                                                            
|------------------------------------------------------------
|901 - 3rd Avenue South                                      
|Minneapolis, 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 is a large accelerated
filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company (as defined 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 February 27, 2009, The Valspar Corporation had 100,260,235 shares
of common stock outstanding, excluding 18,182,389 shares held in treasury. We
had no other classes of stock outstanding.





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- 1 -

THE VALSPAR
CORPORATION

Index to Form
10-Qfor the
Quarter Ended January 30, 2009

|           |                                                                                                              |    |         
|---------- | ------------------------------------------------------------------------------------------------------------ | -- | --------
|           |                                                                                                              |    | Page No.
|PART I.    | FINANCIAL
 INFORMATION                                                                                       |    |         
|           |                                                                                                              |    |         
|Item 1.    | Financial
 Statements                                                                                        |    |         
|           |                                                                                                              |    |         
|           | Condensed
 Consolidated Balance Sheets  January 30, 2009, January 25, 2008 and October
 31, 2008            |    | 2 - 3   
|           |                                                                                                              |    |         
|           | Condensed
 Consolidated Statements of Income  Three months ended January 30, 2009 and
 January 25, 2008     |    | 4       
|           |                                                                                                              |    |         
|           | Condensed
 Consolidated Statements of Cash Flows  Three months ended January 30, 2009
 and January 25, 2008 |    | 5       
|           |                                                                                                              |    |         
|           | Notes to
 Condensed Consolidated Financial Statements  January 30, 2009                                     |    | 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                                                                                           |    | 21      
|           |                                                                                                              |    |         
|Item 6.    | Exhibits                                                                                                     |    | 21      
|           |                                                                                                              |    |         
|SIGNATURES |                                                                                                              | 21

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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                                                                                             |  | January 30,
 2009 |           | January 25,
 2008 |   | October 31,2008 |  
|                                                                                                   |  | (Unaudited)       |           | (Unaudited)       |   | (Note)          |  
|CURRENT ASSETS:                                                                                    |  |                   |           |                   |   |                 |   |   |           |  
|Cash and cash equivalents                                                                          |  | $                 | 81,072    |                   | $ | 84,131          |   | $ | 90,073    |  
|                                                                                                   |  |                   |           |                   |   |                 |   |   |           |  
|Accounts and notes receivable less allowance
(1/30/09-$19,361;
 1/25/08-$11,612; 10/31/08-$16,389) |  |                   | 453,943   |                   |   | 513,425         |   |   | 565,237   |  
|                                                                                                   |  |                   |           |                   |   |                 |   |   |           |  
|Inventories:                                                                                       |  |                   |           |                   |   |                 |   |   |           |  
|Manufactured products                                                                              |  |                   | 156,215   |                   |   | 196,493         |   |   | 153,325   |  
|Raw materials, supplies and
work-in-process                                                        |  |                   | 109,346   |                   |   | 125,374         |   |   | 118,098   |  
|Total inventories                                                                                  |  |                   | 265,561   |                   |   | 321,867         |   |   | 271,423   |  
|                                                                                                   |  |                   |           |                   |   |                 |   |   |           |  
|Deferred income taxes                                                                              |  |                   | 31,817    |                   |   | 27,409          |   |   | 31,989    |  
|                                                                                                   |  |                   |           |                   |   |                 |   |   |           |  
|Prepaid expenses and other                                                                         |  |                   | 81,212    |                   |   | 102,482         |   |   | 88,298    |  
|                                                                                                   |  |                   |           |                   |   |                 |   |   |           |  
|TOTAL CURRENT ASSETS                                                                               |  |                   | 913,605   |                   |   | 1,049,314       |   |   | 1,047,020 |  
|                                                                                                   |  |                   |           |                   |   |                 |   |   |           |  
|GOODWILL                                                                                           |  |                   | 1,320,946 |                   |   | 1,359,270       |   |   | 1,352,813 |  
|INTANGIBLES, NET                                                                                   |  |                   | 632,017   |                   |   | 597,515         |   |   | 619,468   |  
|OTHER ASSETS                                                                                       |  |                   | 5,364     |                   |   | 14,422          |   |   | 7,123     |  
|LONG-TERM DEFERRED INCOME TAXES                                                                    |  |                   | 2,801     |                   |   | 2,312           |   |   | 3,902     |  
|                                                                                                   |  |                   |           |                   |   |                 |   |   |           |  
|PROPERTY, PLANT AND EQUIPMENT                                                                      |  |                   | 1,025,569 |                   |   | 1,025,929       |   |   | 1,036,460 |  
|Less accumulated depreciation                                                                      |  |                   | (553,836  | )                 |   | (503,642        | ) |   | (546,744  | )
|NET PROPERTY, PLANT AND EQUIPMENT                                                                  |  |                   | 471,733   |                   |   | 522,287         |   |   | 489,716   |  
|                                                                                                   |  |                   |           |                   |   |                 |   |   |           |  
|TOTAL ASSETS                                                                                       |  | $                 | 3,346,466 |                   | $ | 3,545,120       |   | $ | 3,520,042 |  

|      |                                                                                                                          
|----- | -------------------------------------------------------------------------------------------------------------------------
|NOTE: | The Balance
 Sheet at October 31, 2008 has been derived from the audited consolidated
 financial statements at that date.

See Notes to
Condensed Consolidated Financial Statements

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- 3 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES

CONDENSED
CONSOLIDATED BALANCE SHEETS - CONTINUED
(DOLLARS IN THOUSANDS)

|                                                                                                                              |  |                   |           |                   |   |                   |  |   |           | 
|----------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | ----------------- | - | ----------------- |  | - | --------- | 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                          |  | January 30,
 2009 |           | January 25,
 2008 |   | October 31,
 2008 | 
|                                                                                                                              |  | (Unaudited)       |           | (Unaudited)       |   | (Note)            | 
|CURRENT LIABILITIES:                                                                                                          |  |                   |           |                   |   |                   |  |   |           | 
|Notes payable and commercial paper                                                                                            |  | $                 | 231,218   |                   | $ | 302,772           |  | $ | 159,514   | 
|Current portion of long-term debt                                                                                             |  |                   | 5         |                   |   | 29                |  |   | 12        | 
|Trade accounts payable                                                                                                        |  |                   | 266,722   |                   |   | 375,844           |  |   | 400,763   | 
|Income taxes                                                                                                                  |  |                   | 43        |                   |   |                  |  |   | 29,156    | 
|Accrued liabilities                                                                                                           |  |                   | 243,991   |                   |   | 244,968           |  |   | 290,898   | 
|                                                                                                                              |  |                   |           |                   |   |                   |  |   |           | 
|TOTAL CURRENT LIABILITIES                                                                                                     |  |                   | 741,979   |                   |   | 923,613           |  |   | 880,343   | 
|                                                                                                                              |  |                   |           |                   |   |                   |  |   |           | 
|LONG-TERM DEBT, NET OF CURRENT PORTION                                                                                        |  |                   | 767,080   |                   |   | 801,695           |  |   | 763,129   | 
|DEFERRED INCOME TAXES                                                                                                         |  |                   | 228,826   |                   |   | 220,950           |  |   | 224,764   | 
|DEFERRED LIABILITIES                                                                                                          |  |                   | 156,308   |                   |   | 175,060           |  |   | 165,361   | 
|                                                                                                                              |  |                   |           |                   |   |                   |  |   |           | 
|TOTAL LIABILITIES                                                                                                             |  |                   | 1,894,193 |                   |   | 2,121,318         |  |   | 2,033,597 | 
|                                                                                                                              |  |                   |           |                   |   |                   |  |   |           | 
|HUARUN REDEEMABLE STOCK                                                                                                       |  |                   | 36,895    |                   |   | 40,256            |  |   | 33,577    | 
|                                                                                                                              |  |                   |           |                   |   |                   |  |   |           | 
|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                                                                                                    |  |                   | 333,218   |                   |   | 316,449           |  |   | 331,083   | 
|                                                                                                                              |  |                   |           |                   |   |                   |  |   |           | 
|Retained earnings                                                                                                             |  |                   | 1,175,860 |                   |   | 1,104,373         |  |   | 1,180,011 | 
|                                                                                                                              |  |                   |           |                   |   |                   |  |   |           | 
|Other                                                                                                                         |  |                   | 53,212    |                   |   | 98,144            |  |   | 90,036    | 
|                                                                                                                              |  |                   | 1,621,510 |                   |   | 1,578,186         |  |   | 1,660,350 | 
|Less cost of Common Stock in treasury
(1/30/09-18,322,477 shares;
 1/25/08-18,272,963 shares; 10/31/08-18,449,741 shares)     |  |                   | 206,132   |                   |   | 194,640           |  |   | 207,482   | 
|                                                                                                                              |  |                   |           |                   |   |                   |  |   |           | 
|TOTAL STOCKHOLDERS EQUITY                                                                                                    |  |                   | 1,415,378 |                   |   | 1,383,546         |  |   | 1,452,868 | 
|                                                                                                                              |  |                   |           |                   |   |                   |  |   |           | 
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                    |  | $                 | 3,346,466 |                   | $ | 3,545,120         |  | $ | 3,520,042 | 

|      |                                                                                                                          
|----- | -------------------------------------------------------------------------------------------------------------------------
|NOTE: | The Balance
 Sheet at October 31, 2008 has been derived from the audited consolidated
 financial statements at that date.

See Notes to
Condensed Consolidated Financial Statements

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THE VALSPAR
CORPORATION AND SUBSIDIARIES

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

|                                             |  |                    |             |                  |   |             |  
|-------------------------------------------- |  | ------------------ | ----------- | ---------------- | - | ----------- | -
|                                             |  | THREE MONTHS ENDED |            
|                                             |  |                    |             |                  |  
|                                             |  | January 30, 2009   |             | January 25, 2008 |  
|                                            
|Net sales                                    |  | $                  | 639,497     |                  | $ | 765,124     |  
|                                             |  |                    |             |                  |   |             |  
|Cost of sales                                |  |                    | 450,153     |                  |   | 554,659     |  
|                                             |  |                    |             |                  |   |             |  
|Gross profit                                 |  |                    | 189,344     |                  |   | 210,465     |  
|                                             |  |                    |             |                  |   |             |  
|Research and development                     |  |                    | 23,069      |                  |   | 22,742      |  
|                                             |  |                    |             |                  |   |             |  
|Selling and administrative                   |  |                    | 132,032     |                  |   | 132,742     |  
|                                             |  |                    |             |                  |   |             |  
|Income from operations                       |  |                    | 34,243      |                  |   | 54,981      |  
|                                             |  |                    |             |                  |   |             |  
|Interest expense                             |  |                    | 11,926      |                  |   | 15,683      |  
|                                             |  |                    |             |                  |   |             |  
|Other (income)/expense  net                 |  |                    | 554         |                  |   | 2,634       |  
|                                             |  |                    |             |                  |   |             |  
|Income before income taxes                   |  |                    | 21,763      |                  |   | 36,664      |  
|                                             |  |                    |             |                  |   |             |  
|Income taxes                                 |  |                    | 7,595       |                  |   | 12,649      |  
|                                             |  |                    |             |                  |   |             |  
|Net income                                   |  | $                  | 14,168      |                  | $ | 24,015      |  
|                                             |  |                    |             |                  |   |             |  
|Huarun redeemable stock
 accrual (1)         |  |                    | (3,318      | )                |   | (2,914      | )
|                                             |  |                    |             |                  |   |             |  
|Net income available to
 common stockholders |  | $                  | 10,850      |                  | $ | 21,101      |  
|                                             |  |                    |             |                  |   |             |  
|Net income per common
 share  basic         |  | $                  | 0.11        |                  | $ | 0.21        |  
|                                             |  |                    |             |                  |   |             |  
|Net income per common
 share  diluted       |  | $                  | 0.11        |                  | $ | 0.21        |  
|                                             |  |                    |             |                  |   |             |  
|Average number of common
 shares outstanding |  |                    |             |                  |   |             |  
|- basic                                      |  |                    | 99,782,705  |                  |   | 100,093,680 |  
|- diluted                                    |  |                    | 100,188,774 |                  |   | 100,940,574 |  
|                                             |  |                    |             |                  |   |             |  
|Dividends paid per common
 share             |  | $                  | 0.15        |                  | $ | 0.14        |  

|    |                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Huarun
 redeemable stock accrual reduced basic and diluted net income per common
 share $0.03 in the first quarter of 2009 and $0.03 in the first quarter of
 2008 as further described in Note 3.

See Notes to
Condensed Consolidated Financial Statements

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THE VALSPAR
CORPORATION AND SUBSIDIARIES

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

|                                                                                             |  |                    |          |                   |   |         |  
|-------------------------------------------------------------------------------------------- |  | ------------------ | -------- | ----------------- | - | ------- | -
|                                                                                             |  | THREE MONTHS ENDED |         
|                                                                                             |  | January 30,
 2009  |          | January 25,
 2008 |  
|OPERATING ACTIVITIES:                                                                        |  |                    |          |                   |   |         |  
|Net Income                                                                                   |  | $                  | 14,168   |                   | $ | 24,015  |  
|Adjustments to reconcile net income to net cash
(used in)/provided by
 operating activities: |  |                    |          |                   |   |         |  
|Depreciation                                                                                 |  |                    | 18,007   |                   |   | 17,475  |  
|Amortization                                                                                 |  |                    | 2,023    |                   |   | 1,954   |  
|Stock-based compensation                                                                     |  |                    | 1,267    |                   |   | 2,057   |  
|(Gain)/loss on asset divestiture                                                             |  |                    | 111      |                   |   | 77      |  
|Changes in certain assets and liabilities, net of
effects of acquired
 businesses:           |  |                    |          |                   |   |         |  
|(Increase)/decrease in accounts and notes
receivable                                         |  |                    | 93,467   |                   |   | 38,638  |  
|(Increase)/decrease in inventories and other
current assets                                  |  |                    | 3,983    |                   |   | (34,347 | )
|Increase/(decrease) in trade accounts payable and
accrued liabilities                        |  |                    | (160,875 | )                 |   | (46,022 | )
|Increase/(decrease) in income taxes
payable                                                  |  |                    | (28,792  | )                 |   | (6,039  | )
|Increase/(decrease) in other deferred
liabilities                                            |  |                    | (2,654   | )                 |   | 2,712   |  
|Other                                                                                        |  |                    | (908     | )                 |   | (1,793  | )
|                                                                                             |  |                    |          |                   |   |         |  
|Net Cash (Used In)/Provided By Operating
Activities                                          |  |                    | (60,203  | )                 |   | (1,273  | )
|                                                                                             |  |                    |          |                   |   |         |  
|INVESTING ACTIVITIES:                                                                        |  |                    |          |                   |   |         |  
|Purchases of property, plant and equipment                                                   |  |                    | (10,811  | )                 |   | (8,640  | )
|Acquired businesses, net of cash                                                             |  |                    |         |                   |   | (64,647 | )
|Cash proceeds on disposal of assets                                                          |  |                    | 54       |                   |   | 13,788  |  
|                                                                                             |  |                    |          |                   |   |         |  
|Net Cash (Used In)/Provided By Investing
Activities                                          |  |                    | (10,757  | )                 |   | (59,499 | )
|                                                                                             |  |                    |          |                   |   |         |  
|FINANCING ACTIVITIES:                                                                        |  |                    |          |                   |   |         |  
|Net proceeds from (payments on) borrowing                                                    |  |                    | 79,404   |                   |   | 84,396  |  
|Proceeds from sale of treasury stock                                                         |  |                    | 645      |                   |   | 4,468   |  
|Payments on deferred liability  excess cash
 Huarun                                        |  |                    | (4,818   | )                 |   |        |  
|Excess tax benefit from stock-based
compensation                                             |  |                    |         |                   |   | 52      |  
|Treasury stock purchases                                                                     |  |                    |         |                   |   | (16,685 | )
|Dividends paid                                                                               |  |                    | (15,001  | )                 |   | (14,021 | )
|                                                                                             |  |                    |          |                   |   |         |  
|Net Cash (Used In)/Provided By Financing
Activities                                          |  |                    | 60,230   |                   |   | 58,210  |  
|                                                                                             |  |                    |          |                   |   |         |  
|Increase/(Decrease) in Cash and Cash
Equivalents                                             |  |                    | (10,730  | )                 |   | (2,562  | )
|Effect of exchange rate changes on Cash and Cash
Equivalents                                 |  |                    | 1,729    |                   |   | 1,745   |  
|                                                                                             |  |                    |          |                   |   |         |  
|Cash and Cash Equivalents at Beginning of Period                                             |  |                    | 90,073   |                   |   | 84,948  |  
|Cash and Cash Equivalents at End of Period                                                   |  | $                  | 81,072   |                   | $ | 84,131  |  

See Notes to
Condensed Consolidated Financial Statements

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THE VALSPAR
CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JANUARY 30, 2009

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 for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been included.
Operating results for the quarter ended January 30, 2009 are not necessarily
indicative of the results that may be expected for the year ending October 30,
2009.

The Condensed Consolidated Balance Sheet at October 31, 2008 has been
derived from the audited consolidated financial statements at that date but
does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.

For further information refer to the consolidated financial statements
and footnotes thereto included in our annual report on Form 10-K for the year
ended October 31, 2008.

NOTE 2: ACCOUNTS PAYABLE

Trade accounts payable includes $11.5 million at January 30, 2009,
$33.1 million at October 31, 2008 and $17.2 million at January 25, 2008 of
issued checks that had not cleared our bank accounts.

NOTE 3: ACQUISITIONS AND DIVESTITURES

In October 2008, we completed the sale of a non-strategic specialty
product line to W.M. Barr & Co., Inc. No manufacturing equipment or plants
were included in the transaction.

In January 2008, we
completed the sale of our commercial/industrial polymer floor coatings product
line to Sika AG. The product line had annual sales of approximately $17 million
in fiscal year 2007. No manufacturing equipment or plants were included in the
transaction.

In December 2007, we
acquired control of Aries Coil Coatings S.A. de C.V. (Aries), a privately owned
manufacturer of high-performance coil and packaging coatings based in
Monterrey, Mexico. We acquired the remaining shares of this
business in the second quarter of 2008. Aries had annual sales in calendar year 2007 of approximately $40
million. This transaction was accounted for as a purchase. Accordingly, the net
assets and operating results have been included in our financial statements
from the date of acquisition.

In January 2007, we acquired, from Tekno S.A., a majority of the voting shares of a coil
coatings business in Brazil. Teknos revenue for 2006 was $10.7
million. In the fourth quarter of 2008, we acquired the remaining shares of
this business and have accounted for this transaction as a purchase. The net assets and operating results have been included in
our fiscal year 2008 financial statements from the date of acquisition.

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THE VALSPAR
CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 30, 2009

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.

In July 2006, we acquired approximately 80% of the share capital of
Huarun Paints Holdings Company Limited (Huarun Paints), one of Chinas largest
independent coatings companies, from Champion Regal Limited, a Hong Kong based
investment company, and certain other stockholders. Huarun Paints is one of
Chinas leading domestic suppliers of wood and furniture coatings, and a
supplier of architectural coatings. Huarun Paints sells its products primarily
through an extensive network of distributors and retail paint stores throughout
China. Huarun Paints revenue for fiscal year 2005 was approximately $180
million. The cash purchase price was approximately $290.4 million. The net
assets and operating results have been included in our financial statements
from the date of acquisition. Goodwill has been allocated to the Paints
(approximately 60%) and Coatings (approximately 40%) segments.

Certain of the shares not purchased by us at the closing are subject to
various put and call rights. The put and call rights are classified outside of
stockholders equity in Huarun Redeemable Stock. During the fourth quarter of
2008, certain minority stockholders exercised their right to sell shares to us.
Acquisition accounting was applied upon the exercise of the put options and our
acquisition of the shares. After those purchases, we now own approximately
85.8% of the outstanding shares of Huarun Paints. The balance in Huarun
Redeemable Stock was $36.9 million at January 30, 2009, $33.6 million at
October 31, 2008 and $40.3 million at January 25, 2008, and represents the
accrual for the remaining shares that may be put to us in July 2009.

The Huarun Redeemable Stock will be accrued to redemption value and the
amount of accretion is shown as an adjustment below net income to arrive at the
net income available to common stockholders. We accrued $3.3 million and $2.9
million for the periods ended January 30, 2009 and January 25, 2008,
respectively. This accrual reduced basic and diluted income available to common
stockholders by $0.03 in the quarters ended January 30, 2009 and January 25,
2008.

Certain other Huarun shares were awarded as part of a Long Term
Incentive Plan (LTIP) by Huarun prior to the acquisition closing. The pre-acquisition
share awards are classified as equity awards as there is no obligation to
purchase the shares, and if we were to purchase the shares, we would purchase
the shares at fair market value.

The terms of the acquisition also require us to pay to Champion Regal
and certain other stockholders an amount equal to the excess cash, as defined
in the purchase agreement, held by Huarun as of the closing date. The liability
shall be paid as soon as practical before the third anniversary of the closing
date, including interest at 6%. The excess cash of $34.4 million was recorded
as a deferred liability under purchase accounting. We made a payment of $4.8
million plus accrued interest during the first quarter of 2009 to reduce this
liability to zero. During fiscal years 2008 and 2007, we paid $11.4 million and
$19.7 million, plus interest, respectively. The total payments, excluding
interest, of $35.9 million included $1.5 million of unfavorable foreign
currency exchange.

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THE VALSPAR
CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 30, 2009

NOTE 4: COMPREHENSIVE (LOSS) INCOME

For the three months ended January 30, 2009 and January 25, 2008,
Comprehensive Income, a component of Stockholders Equity, was as follows:

|                                           |  |                    |         |                   |   |        | 
|------------------------------------------ |  | ------------------ | ------- | ----------------- | - | ------ | 
|(Dollars
 in thousands)                    |  | Three Months Ended |        
|                                           |  | January 30,
 2009  |         | January 25,
 2008 |  
|Net Income                                 |  | $                  | 14,168  |                   | $ | 24,015 | 
|Other Comprehensive Income, net of tax:    |  |                    |         |                   |   |        | 
|Foreign currency translation gain (loss)   |  |                    | (36,889 | )                 |   | 15,942 | 
|Deferred gain (loss) on hedging activities |  |                    | 65      |                   |   | 331    | 
|                                          
|Total Comprehensive (Loss) Income          |  | $                  | (22,656 | )                 | $ | 40,288 | 

NOTE 5: GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying amount of goodwill for the quarter ended January 30, 2009
decreased from the end of fiscal 2008 by $31.9 million to $1,320.9 million. The
decrease is primarily due to foreign currency translation and the final
purchase price allocation related to the acquisition of Aries.

Total intangible asset amortization expense for the three months ended
January 30, 2009 and January 25, 2008 was $2.0 million. Estimated amortization
expense for each of the five succeeding fiscal years based on the intangible
assets as of January 30, 2009 is expected to be approximately $8.1 million
annually.

NOTE 6: SEGMENT INFORMATION

In accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information (SFAS 131), and 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.

SFAS 131 requires an enterprise to report segment information in the
same way that management internally organizes its business for assessing
performance and making decisions regarding allocation of resources. 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, plastic and glass. 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.

The Paints segment aggregates our architectural and automotive product
lines. Architectural products include 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
North America and our Huarun products sold primarily through exclusive
distributors in China.

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THE VALSPAR
CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 30, 2009

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 gelcoats and related products and
furniture protection plans. Also included within All Other are the
administrative expenses of our corporate headquarters site. The administrative
expenses include interest and amortization expense, certain
environmental-related expenses and other expenses not directly allocated to any
other operating segment.

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

|                           |  |                    |         |                   |   |         |  
|-------------------------- |  | ------------------ | ------- | ----------------- | - | ------- | -
|(Dollars
 in thousands)    |  | Three Months Ended |        
|                           |  | January 30,
 2009  |         | January 25,
 2008 |  
|Net Sales:                 |  |                    |         |                   |   |         |  
|Coatings                   |  | $                  | 374,652 |                   | $ | 471,405 |  
|Paints                     |  |                    | 212,700 |                   |   | 228,749 |  
|All Other                  |  |                    | 67,100  |                   |   | 88,093  |  
|Less Intersegment Sales    |  |                    | (14,955 | )                 |   | (23,123 | )
|                          
|Total Net Sales            |  | $                  | 639,497 |                   | $ | 765,124 |  
|                           |  |                    |         |                   |   |         |  
|EBIT                       |  |                    |         |                   |   |         |  
|Coatings                   |  | $                  | 24,898  |                   | $ | 39,301  |  
|Paints                     |  |                    | 15,951  |                   |   | 18,300  |  
|All Other                  |  |                    | (7,160  | )                 |   | (5,254  | )
|                          
|Total EBIT                 |  | $                  | 33,689  |                   | $ | 52,347  |  
|                          
|Interest                   |  | $                  | 11,926  |                   | $ | 15,683  |  
|                          
|Income before Income Taxes |  | $                  | 21,763  |                   | $ | 36,664  |  

NOTE 7: FINANCIAL INSTRUMENTS

Our involvement with derivative financial instruments is limited
principally to managing 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.

At January 30, 2009, we had an aggregate $100 million of notional
amount interest rate swap contracts which have been designated as cash flow
hedges under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities(SFAS 133), to pay
fixed rates of interest and receive a floating interest rate based on LIBOR. All contracts mature
during fiscal 2011. The interest rate swap contracts are reflected at fair
value in the condensed consolidated balance sheet. Amounts to be received or
paid under the contracts are recognized in interest expense over the life of
the contracts. Unrealized gains and losses are recorded in accumulated other
comprehensive income and will be recognized in interest expense over the life
of the swaps. There was no ineffectiveness for these swaps recognized in
interest expense for the quarter ended January 30, 2009. We had no interest
rate swap contracts in place as of January 25, 2008.

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THE VALSPAR
CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 30, 2009

At January 30, 2009, we had $5.6 million notional amount of forward
foreign currency exchange contracts maturing during fiscal year 2009. These
forward foreign exchange contracts have been designated as cash flow hedges
under SFAS 133 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. There was no ineffectiveness for these hedges
during the quarter ended January 30, 2009. At January 25, 2008, we had
approximately $10.3 million notional amount of forward foreign currency exchange
contracts.

At January 30, 2009, we had $150 million notional amount of treasury
locks to hedge, or lock-in, interest rates on anticipated long-term debt we
plan to issue during fiscal year 2009. We have designated the treasury locks as
cash flow hedges under SFAS 133 and recorded unrealized gains and losses in
accumulated other comprehensive income. At January 25, 2008, we had no treasury
locks in place.

In September 2006, the Financial Accounting Standards Board (FASB)
issued SFAS No. 157, Fair Value Measurements
(SFAS 157), which defines fair value, establishes a framework in generally
accepted accounting principles for measuring fair value and expands disclosures
about fair value measurements. It does not increase the use of fair value
measurement. SFAS 157 is effective for fiscal years beginning after November
15, 2007 for financial assets and liabilities, and will be effective for
nonfinancial assets and liabilities for years beginning after November 15,
2008.

During the first quarter of 2009 we adopted SFAS 157 for our financial
assets and liabilities. Our financial assets subject to SFAS 157 consist of
foreign currency contracts and treasury lock contracts totaling $0.9 million
and $3.6 million, respectively. Our financial liabilities subject to SFAS 157
consist of interest rate swaps totaling $3.3 million. The foreign currency
contracts, treasury lock contracts and interest rate swaps have observable
prices that are not quoted on active exchanges, and are therefore classified as
Level 2 inputs under the hierarchy established by SFAS 157.

NOTE 8: GUARANTEES AND CONTRACTUAL OBLIGATIONS

We account for and disclose guarantees and contractual obligations in
accordance with FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others
(FIN 45). The interpretation requires disclosure in periodic financial
statements of certain guarantee arrangements. The interpretation also clarifies
situations where a guarantor is required to recognize the fair value of certain guarantees in the financial statements. We do not have any guarantees
 that require recognition at fair value under the interpretation.

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THE VALSPAR
CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
JANUARY 30, 2009

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 are estimable. 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.

Changes in the
recorded amounts, both short and long-term, during the period are as follows:

|                                                                |  |                    |        |                  |   |        |  
|--------------------------------------------------------------- |  | ------------------ | ------ | ---------------- | - | ------ | -
|(Dollars in thousands)                                          |  | Three Months Ended |       
|                                                                |  | January 30, 2009   |        | January 25, 2008 |  
|Beginning balance, October                                      |  | $                  | 77,993 |                  | $ | 85,142 |  
|Additional net deferred
 revenue/accrual made during the period |  |                    | 285    |                  |   | 3,015  |  
|Payments made during the
 period                                |  |                    | (1,835 | )                |   | (2,265 | )
|Ending balance                                                  |  | $                  | 76,443 |                  | $ | 85,892 |  

NOTE 9: STOCK BASED COMPENSATION

Compensation
expense associated with our stock-based compensation plans was $1.3 million
($0.8 million after tax) for the three months ended January 30, 2009, compared
to $2.0 million ($1.3 million after tax) for the three months ended January 25,
2008.

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THE VALSPAR
CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
JANUARY 30, 2009

NOTE 10: PENSION AND OTHER POSTRETIREMENT
BENEFITS

We sponsor a
number of defined benefit pension plans for certain hourly, salaried and
non-U.S. 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:

|                                    |  |                    |        |                   |   |        |  
|----------------------------------- |  | ------------------ | ------ | ----------------- | - | ------ | -
|(Dollars in thousands)              |  | Three Months Ended |       
|                                    |  | January 30,
 2009  |        | January 25,
 2008 |  
|Service cost                        |  | $                  | 688    |                   | $ | 944    |  
|Interest cost                       |  |                    | 3,348  |                   |   | 3,375  |  
|Expected return on plan
 assets     |  |                    | (3,875 | )                 |   | (3,940 | )
|Amortization of transition
 asset   |  |                    |       |                   |   | (9     | )
|Amortization of prior
 service cost |  |                    | 154    |                   |   | 184    |  
|Recognized actuarial
 (gain)/loss   |  |                    | 512    |                   |   | 763    |  
|Net periodic benefit cost           |  | $                  | 827    |                   | $ | 1,317  |  

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

|                                    |  |                    |      |                   |   |     |  
|----------------------------------- |  | ------------------ | ---- | ----------------- | - | --- | -
|(Dollars in thousands)              |  | Three Months Ended |     
|                                    |  | January 30,
 2009  |      | January 25,
 2008 |  
|Service cost                        |  | $                  | 71   |                   | $ | 292 |  
|Interest cost                       |  |                    | 150  |                   |   | 232 |  
|Amortization of prior
 service cost |  |                    | (947 | )                 |   | (20 | )
|Recognized actuarial
 (gain)/loss   |  |                    | 804  |                   |   | 97  |  
|Net periodic benefit cost           |  | $                  | 78   |                   | $ | 601 |  

NOTE 11: RECLASSIFICATION

Certain
amounts in the 2008 financial statements have been reclassified to conform with
the 2009 presentation.

NOTE 12: INCOME TAXES

At October 31,
2008, we had a $44.8 million liability recorded under FASB Interpretation No.
48, Accounting for Uncertainty in Income
Taxes (FIN 48), for gross unrecognized tax benefits (excluding
interest and penalties). Of this total, $32.0 million 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 31, 2008, we had accrued approximately $12.4 million of
interest and penalties relating to unrecognized tax benefits. There were no
material adjustments to our recorded liability for unrecognized tax benefits
during the first quarter of 2009.

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 2003. The Internal Revenue
Service (IRS) concluded its examination of our U.S. federal tax returns for the
fiscal years ended 2004 and 2005 in April 2008. 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.

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THE VALSPAR
CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 30, 2009

NOTE 13: RESTRUCTURING

During the
third quarter of 2008, we initiated a comprehensive series of actions to lower
our cost structure and further increase our operational efficiency. During the
first quarter of 2009, we expanded these restructuring activities. We now expect
the total restructuring cost to be $0.35 to $0.38 per share after tax, an
increase from the initial estimate of $0.23 to $0.25 per share after tax. The
restructuring activities in 2008 resulted in pre-tax charges of $23.5 million
or $0.16 per share after tax. The restructuring activities in the first quarter
of 2009 resulted in pre-tax charges of $9.1 million or $0.06 per share after
tax. The remaining restructuring charges to be incurred during fiscal year
2009 are in the Coatings segment and All Other. The expenses include severance
and employee benefits, asset impairments, professional services and site
cleanup. We plan to pay the remaining restructuring liabilities in the current
fiscal year.

The restructuring
initiatives include plant closures, reductions to research and development and
selling and administrative expenses, manufacturing consolidation and
relocation, and the exit of nonstrategic product lines in certain geographies.
We have reduced manufacturing capacity and our overall global headcount to
lower our costs in light of challenging global economic conditions.

The severance
and employee benefits, exit costs and contract termination costs associated
with restructuring initiatives are primarily accounted for in accordance with
SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities(SFAS 146). Asset
impairment charges are primarily accounted for in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal
of Long-Lived Assets(SFAS 144). The following net restructuring
and impairment charges by segment were recorded in the first quarter of 2009:

|                                      |  |                                           |       |         |   |          |  |                                       |        |   |   |       | 
|------------------------------------- |  | ----------------------------------------- | ----- | ------- | - | -------- |  | ------------------------------------- | ------ | - | - | ----- | 
|                                      |  |                                           |       |         |   |          |  |                                       |        |   |   |       | 
|(Dollars in thousands)                |  | Liability
 Beginning
 Balance
 10/31/2008 |       | Expense |   | Activity |  | Liability
 Ending
 Balance
 1/30/2009 |       
|Coatings                              |  |                                           |       |         |   |          |  |                                       |        |   |   |       | 
|Severance and Employee benefits       |  | $                                         | 7,842 |         | $ | 6,361    |  | $                                     | (6,298 | ) | $ | 7,905 | 
|Asset Impairments                     |  |                                           |      |         |   | 250      |  |                                       | (250   | ) |   |      | 
|Exit Costs (Consulting/Site Clean-up) |  |                                           | 423   |         |   | 294      |  |                                       | (519   | ) |   | 198   | 
|Contract Term Costs (Leases)          |  |                                           |      |         |   | 342      |  |                                       | (15    | ) |   | 327   | 
|Total Coatings                        |  |                                           | 8,265 |         |   | 7,247    |  |                                       | (7,082 | ) |   | 8,430 | 

|                                      |  |   |        |  |   |       |  |   |        |   |   |        | 
|------------------------------------- |  | - | ------ |  | - | ----- |  | - | ------ | - | - | ------ | 
|Paints                                |  |   |        |  |   |       |  |   |        |   |   |        | 
|Severance and Employee benefits       |  |   |       |  |   | 298   |  |   | (49    | ) |   | 249    | 
|Asset Impairments                     |  |   |       |  |   |      |  |   |       |   |   |       | 
|Exit Costs (Consulting/Site Clean-up) |  |   | 2,252  |  |   |      |  |   |       |   |   | 2,252  | 
|Contract Term Costs (Leases)          |  |   |       |  |   |      |  |   |       |   |   |       | 
|Total Paints                          |  |   | 2,252  |  |   | 298   |  |   | (49    | ) |   | 2,501  | 
|                                      |  |   |        |  |   |       |  |   |        |   |   |        | 
|All Other                             |  |   |        |  |   |       |  |   |        |   |   |        | 
|Severance and Employee benefits       |  |   | 806    |  |   | 320   |  |   | (507   | ) |   | 619    | 
|Asset Impairments                     |  |   |       |  |   | 692   |  |   | (692   | ) |   |       | 
|Exit Costs (Consulting/Site Clean-up) |  |   | 64     |  |   | 557   |  |   | (580   | ) |   | 41     | 
|Contract Term Costs (Leases)          |  |   |       |  |   |      |  |   |       |   |   |       | 
|Total All Other                       |  |   | 870    |  |   | 1,569 |  |   | (1,779 | ) |   | 660    | 
|                                      |  |   |        |  |   |       |  |   |        |   |   |        | 
|Total                                 |  | $ | 11,387 |  | $ | 9,114 |  | $ | (8,910 | ) | $ | 11,591 | 

The liability
ending balance at January 30, 2009, is included in accrued liabilities on our
Consolidated Balance Sheet. The restructuring reserve balances presented are
considered adequate to cover committed restructuring actions that will be
complete by the end of fiscal year 2009. The restructuring expenses recorded
are included in the Consolidated Statement of Income. For the first quarter of
2009, $4.9 million was charged to Cost of Sales and $4.2 million was charged to
Selling and Administrative expense.

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THE VALSPAR
CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
JANUARY 30, 2009

NOTE 14: RECENTLY ISSUED ACCOUNTING STANDARDS

FASB issued
SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (SFAS 161), in March 2008. SFAS
161 applies to all derivative instruments and related hedged items accounted
for under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). SFAS 161
requires entities to provide greater transparency about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under SFAS 133 and its related interpretations,
and (c) how derivative instruments and related hedged items affect an entitys
financial position, results of operations, and cash flows. To meet those
objectives, SFAS 161 requires (1) qualitative disclosures about objectives for
using derivatives by type of primary underlying risk exposure (e.g., interest
rate, credit or foreign exchange rate) and by purpose or strategy (fair value
hedge, cash flow hedge, net investment hedge, and non-hedges), (2) information
about the volume of derivative activity in a flexible format that the preparer
believes is the most relevant and practicable, (3) tabular disclosures about
balance sheet location and gross fair value amounts of derivative instruments,
income statement and other comprehensive income location and amounts of gains
and losses on derivative instruments by type of contract (e.g., interest rate
contracts, credit contracts or foreign exchange contracts), and (4) disclosures
about credit-risk related contingent features in derivative agreements.
Comparative disclosures for earlier periods are not required. SFAS 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, which is our second quarter of fiscal year
2009.

FASB issued
SFAS No. 157,Fair Value Measurements
(SFAS 157), in September 2006. SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally
accepted
accounting principles (GAAP) and expands disclosures about fair value
measurements. SFAS 157 applies under other accounting pronouncements that
require or permit fair value measurements. This statement does not require us
to make any new fair value measurements. We adopted SFAS 157 for financial
assets and liabilities in the first quarter of 2009 (see Note 7 for more
information).

In February
2008, FASB issued FSP FAS 157-2, Effective
Date of FASB Statement No. 157(FSP FAS 157-2) which delays the
effective date for the implementation of SFAS 157 solely for nonfinancial
assets and nonfinancial liabilities, except those nonfinancial items that are
recognized or disclosed at fair value in the financial statements on a
recurring basis (i.e., at least annually). The new effective date would be for
fiscal years beginning after November 15, 2008 or our fiscal year 2010.

FASB issued
SFAS No. 158,Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans (SFAS 158),
in September 2006. We adopted the recognition and disclosure provisions of SFAS
158 in fiscal year 2007. SFAS 158 will further require us to measure the plans assets and
obligations that determine its funded status as of the end of the employers
fiscal year (with limited exceptions). This will be required to be adopted for
fiscal years ending after December 15, 2008, which would be our fiscal year
2009. We do not expect the adoption of SFAS 158 to have a material effect on
our consolidated financial statements.

In December
2007, FASB issued SFAS No. 141(R), Business
Combinations (SFAS 141(R)), and SFAS No. 160, Non-controlling Interests in Consolidated Financial
Statements  an Amendment of ARB No. 51 (SFAS 160), which changed
the accounting for and reporting of business combinations and non-controlling
interests in consolidated financial statements. SFAS 141(R) and SFAS 160 are
required to be adopted simultaneously and are effective for the first annual
reporting period beginning on or after December 15, 2008, which is our fiscal
year 2010. Earlier adoption is prohibited. SFAS 141(R) applies prospectively to
business combinations for which the acquisition date is on or after the date of
adoption. SFAS 160 shall be applied prospectively as of the beginning of the
fiscal year of adoption, except for the presentation and disclosure requirements,
which shall be applied retrospectively for all periods presented. Generally,
the effect of SFAS 141(R) will depend on future acquisitions. However, the
accounting for the resolution of any tax uncertainties remaining will be
subject to the provisions of SFAS 141(R). We do not expect the adoption of SFAS
141(R) and SFAS 160 to have a material impact on our consolidated financial
statements.

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|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|ITEM 2: | MANAGEMENTS
 DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview:
In the first quarter of fiscal year 2009, sales decreased compared to the prior
year primarily due to volume declines and unfavorable foreign currency exchange
rates, partially offset by price increases implemented last year and favorable
sales mix. The overall worldwide economic decline negatively affected our
results. Sales in our coil and general industrial product lines decreased
significantly due to a decline in global demand. Our wood product line
continues to be affected by the weak housing market. We experienced less
significant volume declines in
our architectural, packaging and Huarun product lines. Gross profit as
a percent of net sales increased compared to last year as a result of previous
price increases, favorable product mix and improved productivity in our
manufacturing facilities, partially offset by higher raw material costs and
restructuring charges. Operating expenses for the quarter, as a percentage of
net sales, increased compared to the prior year due to lower sales volumes and
restructuring charges. Excluding restructuring charges, operating expense
dollars decreased in the first quarter of 2009 compared to the first quarter of
2008 reflecting benefits from our previously completed restructuring actions
and expense controls.

During the third quarter of 2008, we initiated a comprehensive series
of actions to lower our cost structure and further increase our operational
efficiency. During the first quarter of 2009, we expanded these restructuring
activities. We now expect the total restructuring cost to be $0.35 to $0.38 per
share after tax, an increase from the initial estimate of $0.23 to $0.25 per
share after tax. The restructuring activities in 2008 resulted in pre-tax
charges of $23.5 million or $0.16 per share after tax. The restructuring
activities in the first quarter of 2009 resulted in pre-tax charges of $9.1
million or $0.06 per share after tax. The remaining restructuring charges to be
incurred during fiscal year 2009 are in the Coatings segment and All Other.

Earnings Per Share: Net income per share available to common
stockholders was $0.11 and $0.21 for the first quarter of 2009 and 2008,
respectively. We accrued $3.3 million in the first quarter of 2009 and $2.9
million for the first quarter of 2008 for the Huarun Redeemable Stock (see Note
3 for further details). The accrual reduced basic and diluted income available
to common stockholders by $0.03 per share in both the first quarter of 2009 and
first quarter of 2008. The table below presents adjusted net income per common
share  diluted, which excludes a non-cash accrual relating to Huarun
Redeemable Stock. The table also presents restructuring charges included in net
income in the respective periods.

Three Months EndedJanuary 30,
 2009

January 25,
 2008Net income per common
 share - diluted

$
0.11

$
0.21Huarun redeemable stock
 accrual


0.03


0.03Adjusted net income per
 common share - diluted

$
0.14

$
0.24Restructuring Charges

$
0.06

$



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 effect on results in the 2009 and 2008 periods of
the non-cash accrual related to the Huarun Redeemable Stock. As the Huarun
Redeemable Stock is redeemed, acquisition accounting is applied.

Critical Accounting Policies: There were no material changes in our
critical accounting policies during the three-month period ended January 30,
2009.

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Table of Contents

- 16 -

|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|ITEM 2: | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
 CONDITION AND RESULTS OF OPERATION

Operations:

Net Sales

Three Months Ended(Dollars
 in millions)

January 30,
 2009

January 25,
 2008

%
 ChangeCoatings

$
374.7

$
471.4


(20.5
)%Paints


212.7


228.7


(7.0
)%All Other


52.1


65.0


(19.7
)%Consolidated Net Sales

$
639.5

$
765.1


(16.4
)%


|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Consolidated Net Sales The sales decline
 for the first quarter of 2009 was 14.0% after excluding the negative effect
 of foreign currency of 3.1% and the positive effect of acquisitions of 0.7%.
 The core sales decline for the first quarter was primarily due to decreased
 volume, partially offset by previous price increases and improved sales mix.                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Coatings Segment Net Sales The sales
 decline for the first quarter of 2009 was 17.0% after excluding the negative
 effect of foreign currency of 4.4% and the positive effect of acquisitions of
 0.9%. The core sales decline was primarily driven by our coil, general
 industrial and wood product lines. Our wood product line continues to be
 affected by the weak housing market, and a decline in global demand affected
 coil and general industrial volumes. Product lines servicing commercial
 construction, heavy equipment and consumer durables were significantly
 affected. Moreover, temporary year-end customer plant closures were longer
 than normal as our customers worked to reduce their inventories.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Paints Segment Net Sales The sales decline
 for the first quarter of 2009 was 7.4% after excluding the positive effect of
 acquisitions of 0.4%. Core sales declines in the quarter were primarily due
 to decreased demand in our North American architectural product line. We also
 have seen softness in the Chinese market, which has affected the growth of
 our Huarun Paints architectural product line.                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | All Other Net Sales  The All Other category
 includes resins, colorants, gelcoats and our furniture protection plan
 business. Sales decline for the first quarter of 2009 was 15.8% after
 excluding the negative effect of foreign currency of 3.9%. The sales decline
 was driven by decreased volumes in the gelcoat product line due to the
 weakened global economy.                                                                                                                                                                                                                                                                                                                                                      

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

Gross Profit

Three Months Ended(Dollars
 in millions)

January 30,
 2009

January 25,
 2008Consolidated Gross Profit

$
189.3

$
210.5As a percent of Net Sales


29.6
%

27.5
%


|  |                                                                                                                                                                                                                                                                                                                                                                                                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Gross Profit The gross profit increase, as
 a percent of net sales, was driven primarily by previous price increases,
 favorable product mix and improved productivity in our manufacturing
 facilities, partially offset by raw material cost increases and restructuring
 charges. Gross margins for the first quarter of 2009 included restructuring
 charges of $4.9 million or 0.8% of net sales.

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- 17 -

|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|ITEM 2: | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
 RESULTS OF OPERATION

Operating Expenses *

Three Months Ended(Dollars
 in millions)

January 30,
 2009

January 25,
 2008Consolidated Operating
 Expenses

$
155.1

$
155.5As a percent of Net Sales


24.3
%

20.3
%*
 Includes research and development, selling and administrative costs. For
 breakout see Condensed Consolidated Statements of Income.


|  |                                                                                                                                                                                                                                                                                                                                                                                   
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Consolidated Operating Expenses (dollars) 
 Consolidated operating expenses decreased 0.2% to $155.1 million in the first
 quarter of 2009 compared to the prior year. The decrease was driven primarily
 by benefits from our previously completed restructuring actions and expense
 controls, partially offset by restructuring charges of $4.2 million or 0.7%
 of net sales.
|  |                                                                                                                                                                                                                                                                                                                                                                                   
| | Consolidated Operating Expenses (percent of net sales) As
 a percent of consolidated net sales, consolidated operating expenses
 increased four percentage points for the first quarter compared to last year.
 In addition to the restructuring charges, the increase is due to lower sales
 volume.                                                                            

EBIT

Three Months Ended(Dollars
 in millions)

January 30,2009

January 25,2008Coatings

$
24.9

$
39.3As a percent of Net Sales


6.6
%

8.3
%Paints

$
16.0

$
18.3As a percent of Net Sales


7.5
%

8.0
%All Other

$
(7.2
)
$
(5.3
)As a percent of Net Sales


(13.7
)%

(8.1
)%Consolidated EBIT

$
33.7

$
52.3As a percent of Net Sales


5.3
%

6.8
%


|  |                                                                                                                                                                                                                                                                                                  
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Consolidated EBIT EBIT for the first
 quarter of 2009 decreased $18.7 million or 35.6% compared to the prior year.
 The first quarter of 2009 included restructuring charges of $9.1 million or
 1.4% of net sales. Foreign currency exchange fluctuation had an immaterial
 effect on EBIT.    
|  |                                                                                                                                                                                                                                                                                                  
| | Coatings Segment EBIT The EBIT decrease as
 a percentage of net sales for the first quarter was driven primarily by a
 combination of the decrease in net sales and restructuring charges of $7.2
 million or 1.9% of net sales.                                                                
|  |                                                                                                                                                                                                                                                                                                  
| | Paints Segment EBIT The EBIT decrease as a
 percentage of net sales for the first quarter was driven primarily by a
 combination of the decrease in net sales and restructuring charges of $0.3
 million or 0.1% of net sales.                                                                  
|  |                                                                                                                                                                                                                                                                                                  
| | All Other EBIT The All Other category
 includes resins, colorants, gelcoats, our furniture protection plan business
 and corporate expenses. The decrease for the first quarter was due primarily
 to the decrease in net sales and restructuring charges of $1.6 million or
 3.0% of net sales.

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- 18 -

|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|ITEM 2: | MANAGEMENTS DISCUSSION
 AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

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

Interest
 Expense

Three Months Ended(Dollars
 in millions)

January 30,
 2009

January 25,
 2008Consolidated Interest
 Expense

$
11.9

$
15.7


|  |                                                                                                                               
|- | ------------------------------------------------------------------------------------------------------------------------------
| | Interest Expense The
 first quarter decrease is due primarily to lower average interest rates and
 lower average debt levels.

Effective
 Tax Rate

Three Months EndedJanuary 30,
 2009

January 25,
 2008Effective Tax Rate


34.9
%

34.5
%


|  |                                                                                            
|- | -------------------------------------------------------------------------------------------
| | Effective Tax Rate We
 expect the effective tax rate for the full year to be 33.5% to 34%.

Net Income

Three Months Ended(Dollars in
 millions, except per share amounts)

January 30,
 2009

January 25,
 2008

%
 ChangeConsolidated Net Income

$
14.2

$
24.0


(41.0
)%


Financial Condition: Net cash used by
operations was $60.2 million for the first quarter of 2009, compared with net
cash used by operations of $1.3 million for the first quarter of 2008. The use
of cash for operations was primarily related to a reduction in accounts payable
and accrued liabilities and a decrease in income taxes payable, partially
offset by a decrease in accounts receivable. The balance of accounts payable
and accrued liabilities declined $160.9 million due to the decrease in
purchases and timing of disbursements. Income taxes payable decreased $28.8
million due to the timing of disbursements. Accounts receivable decreased $93.5
million due to the reduction in net sales and timing of customer payments.

During the first quarter of 2009, $79.4 million in proceeds from bank
borrowings were used to fund seasonal working capital needs. During the
quarter, we used cash to fund $15.0 million in dividend payments, $10.8 million
in capital expenditures and a $4.8 million payment to settle the remaining deferred
liability for excess cash related to the Huarun Paints acquisition (see Note 3
for more information).

Capital expenditures for property, plant and equipment were $10.8
million in the first quarter of 2009, compared with $8.6 million in the first
quarter of 2008. We anticipate capital spending in 2009 to be approximately $60
million.

The ratio of total debt to capital was 41.4% at January 30, 2009,
compared to 38.8% at October 31, 2008 and 44.4% at January 25, 2008. Short-term
debt (notes payable plus current portion of long-term debt) was $231.2 million
at January 30, 2009. This debt included U.S. commercial paper, borrowings from
a credit facility that matures in November 2009 and short-term
borrowings. 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 ended our
quarter with $345.3 million of liquidity that includes $264.2 million of
available committed credit facilities and $81.1 million of cash, which is in
excess of our anticipated funding requirements for fiscal 2009.

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- 19 -

|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|ITEM 2: | MANAGEMENTS DISCUSSION
 AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Our cash balances are primarily held by our international subsidiaries
and are used to fund day-to-day operating needs. Those cash 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.

Forward Looking Statements: This discussion
contains certain forward-looking statements. These forward-looking
statements are based on managements expectations and beliefs concerning
future events. Forward-looking statements are necessarily subject to risks,
uncertainties and other factors, many of which are outside 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 and may be
identified by the use of words and phrases such as expects,
anticipates, believes, will, will
likely result, will continue, plans to and similar
expressions. These uncertainties and other factors include, but are not limited
to, changes in general economic conditions both domestic and international,
including recessions and other external economic and political factors, which
may adversely affect our business, the value of our investments, the financial
stability of our customers and suppliers and our ability to obtain financing;
dependence of internal earnings growth on economic conditions and growth in the
domestic and international coatings industry; competitive factors including
pricing pressure and product competition; risks related to any future
acquisitions, including risks of adverse changes in the results of acquired
businesses and the assumption of unforeseen liabilities; risks of disruptions in
business resulting from the integration process and higher interest costs
resulting from further borrowing for any such acquisitions; our reliance on the
efforts of vendors, government agencies, utilities and other third parties to
achieve adequate regulatory compliance and avoid disruption of our business;
risks of disruptions in business resulting from strains in or the loss of
relationships with our material customers and suppliers; risks and uncertainties
associated with operations and achievement of growth in developing markets,
including China and Central and South America; unusual weather conditions
adversely affecting sales; changes in raw materials pricing and availability;
delays in passing along cost increases to customers; changes in governmental
regulation, including more stringent environmental, health and safety
regulations; 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; civil unrest and the outbreak of war and other significant national
and international events; and other risks and uncertainties. The foregoing list
is not exhaustive, and we disclaim any obligation to subsequently revise any
forward-looking statements to reflect events or circumstances after the date of
such statements.

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Table of Contents

- 20 -

|        |                                                            
|------- | -----------------------------------------------------------
|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. 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 would not have a
material effect on our results of operations or financial position.

We are also subject to interest rate risk. At January 30, 2009,
approximately 40% 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 first 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 January
30, 2009. 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 January 30, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

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Table of Contents

- 21 -

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 31, 2008.

|        |         
|------- | --------
|ITEM 6: | EXHIBITS

| |          |                                                                                                                                                                         
| | -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Exhibits |                                                                                                                                                                         
| |         
| | 3.1      | The
 Valspar Corporation By-Laws, as amended to and including February 25, 2009                                                                                         
| | 10.1     | The
 Valspar Corporation 2009 Omnibus Equity Plan (incorporated by reference to
 Form 8-K filed on March 3, 2009)                                                       
| | 10.2     | Employment
 Transition Agreement and Release between The Valspar Corporation and Paul C.
 Reyelts, effective February 25, 2009                                          
| | 10.3     | Form
 of Indemnification Letter Agreement to Non-Employee Directors and Certain
 Executive Officers                                                                     
| | 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: March
 11, 2009 | By                         | /s/Rolf Engh      
|                      | Rolf Engh                 
|                      | Secretary                 
|                      |                           
|Date: March
 11, 2009 | By                         | /s/Lori A.
 Walker
|                      | Lori A.
 Walker           
|                      | Senior Vice
 President and
|                      | Chief
 Financial Officer  

---