Table of Contents





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

|   |                                                                                         
|-- | ----------------------------------------------------------------------------------------
|x  | QUARTERLY
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|   |                                                                                         
|   | For
 the quarterly period ended April 30, 2010                                          
|   |                                                                                         
|or
|  
|o  | TRANSITION
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934        
|   |                                                                                         
|   | For
 the transition period from _________ to ________                                   

|                                                       
|-------------------------------------------------------
|Commission File Number: 1-3011                         
|                                                       
|THE VALSPAR CORPORATION                                
|(Exact name of
 registrant as specified in its charter)

|                                 |  |                    
|-------------------------------- |  | -------------------
|Delaware                         |  | 36-2443580         
|                                 |  |                    
|(State or other
 jurisdiction of |  | (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 has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). o Yes     o No

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

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

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

As of June 1, 2010, The Valspar Corporation had
99,341,355 shares of common stock outstanding, excluding 19,101,269 shares held
in treasury. We had no other classes of stock outstanding.







- 1 -

THE VALSPAR
CORPORATION

Index to Form 10-Q
for the Quarter Ended April 30, 2010

|           |                                                                                                                 |  |         
|---------- | --------------------------------------------------------------------------------------------------------------- |  | --------
|           |                                                                                                                 |  | Page No.
|           |                                                                                                                 |  |         
|PART I.    | FINANCIAL INFORMATION                                                                                           |  |         
|           |                                                                                                                 |  |         
|Item 1.    | Financial Statements                                                                                            |  |         
|           |                                                                                                                 |  |         
|           | Condensed Consolidated Balance Sheets  April 30,
 2010, May 1, 2009 and October 30, 2009.                      |  | 2 - 3   
|           |                                                                                                                 |  |         
|           | Condensed Consolidated Statements of Income  Three
 months and six months ended April 30, 2010 and May 1, 2009 |  | 4       
|           |                                                                                                                 |  |         
|           | Condensed Consolidated Statements of Cash Flows  Six
 months ended April 30, 2010 and May 1, 2009              |  | 5       
|           |                                                                                                                 |  |         
|           | Notes to Condensed Consolidated Financial Statements 
 April 30, 2010                                          |  | 6 - 13  
|           |                                                                                                                 |  |         
|Item 2.    | Managements Discussion and Analysis of Financial
 Condition and Results of Operations                          |  | 14  18 
|           |                                                                                                                 |  |         
|Item 3.    | Quantitative and Qualitative Disclosures About Market
 Risk                                                     |  | 19      
|           |                                                                                                                 |  |         
|Item 4.    | Controls and Procedures                                                                                         |  | 19      
|           |                                                                                                                 |  |         
|PART II.   | OTHER INFORMATION                                                                                               |  |         
|           |                                                                                                                 |  |         
|Item 1.    | Legal Proceedings                                                                                               |  | 19      
|           |                                                                                                                 |  |         
|Item 2.    | Unregistered Sales of Equity Securities and Use of
 Proceeds                                                    |  | 19      
|           |                                                                                                                 |  |         
|Item 6.    | Exhibits                                                                                                        |  | 20      
|           |                                                                                                                 |  |         
|SIGNATURES |                                                                                                                 |  | 20      

---



Table of Contents

- 2 -

PART
I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE VALSPAR
CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

|                                                                                                    |  |                 |           |              |   |                   |   |   |           |  
|--------------------------------------------------------------------------------------------------- |  | --------------- | --------- | ------------ | - | ----------------- | - | - | --------- | -
|ASSETS                                                                                              |  | April 30,
 2010 |           | May 1,
 2009 |   | October 30,
 2009 |  
|                                                                                                    |  | (Unaudited)     |           | (Unaudited)  |   | (Note)            |  
|                                                                                                    |  |                 |           |              |   |                   |   |   |           |  
|CURRENT
 ASSETS:                                                                                    |  |                 |           |              |   |                   |   |   |           |  
|Cash and cash equivalents                                                                           |  | $               | 164,627   |              | $ | 75,640            |   | $ | 187,719   |  
|Accounts and notes receivable less
 allowance
 (4/30/10-$20,019; 5/1/09-$21,698;
 10/30/09-$21,768) |  |                 | 560,637   |              |   | 491,061           |   |   | 518,188   |  
|Inventories                                                                                         |  |                 | 253,316   |              |   | 239,239           |   |   | 238,449   |  
|Deferred income taxes                                                                               |  |                 | 35,035    |              |   | 32,132            |   |   | 34,479    |  
|Prepaid expenses and other                                                                          |  |                 | 87,131    |              |   | 88,348            |   |   | 83,631    |  
|TOTAL CURRENT ASSETS                                                                                |  |                 | 1,100,746 |              |   | 926,420           |   |   | 1,062,466 |  
|                                                                                                    |  |                 |           |              |   |                   |   |   |           |  
|GOODWILL                                                                                            |  |                 | 1,333,678 |              |   | 1,312,118         |   |   | 1,337,997 |  
|INTANGIBLES,
 NET                                                                                   |  |                 | 624,211   |              |   | 626,494           |   |   | 629,923   |  
|OTHER ASSETS                                                                                        |  |                 | 4,483     |              |   | 5,337             |   |   | 4,192     |  
|LONG-TERM
 DEFERRED INCOME TAXES                                                                    |  |                 | 5,216     |              |   | 2,714             |   |   | 5,358     |  
|                                                                                                    |  |                 |           |              |   |                   |   |   |           |  
|GROSS
 PROPERTY, PLANT AND EQUIPMENT                                                                |  |                 | 1,080,866 |              |   | 1,023,658         |   |   | 1,085,147 |  
|Less accumulated depreciation                                                                       |  |                 | (628,850  | )            |   | (564,297          | ) |   | (614,059  | )
|NET
 PROPERTY, PLANT AND EQUIPMENT                                                                  |  |                 | 452,016   |              |   | 459,361           |   |   | 471,088   |  
|                                                                                                    |  |                 |           |              |   |                   |   |   |           |  
|TOTAL ASSETS                                                                                        |  | $               | 3,520,350 |              | $ | 3,332,444         |   | $ | 3,511,024 |  

|      |                                                                                                                          
|----- | -------------------------------------------------------------------------------------------------------------------------
|NOTE: | The Balance
 Sheet at October 30, 2009 has been derived from the audited consolidated
 financial statements at that date.

See Notes to
Condensed Consolidated Financial Statements

---



Table of Contents

- 3 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES

CONDENSED
CONSOLIDATED BALANCE SHEETS - CONTINUED
(DOLLARS IN THOUSANDS)

|                                                                                                                                |  |                 |           |              |   |                   |   |   |           |  
|------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | --------- | ------------ | - | ----------------- | - | - | --------- | -
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                            |  | April 30,
 2010 |           | May 1,
 2009 |   | October 30,
 2009 |  
|                                                                                                                                |  | (Unaudited)     |           | (Unaudited)  |   | (Note)            |  
|                                                                                                                                |  |                 |           |              |   |                   |   |   |           |  
|CURRENT
 LIABILITIES:                                                                                                           |  |                 |           |              |   |                   |   |   |           |  
|Notes payable and commercial paper                                                                                              |  | $               | 6,370     |              | $ | 285,977           |   | $ | 7,278     |  
|Trade accounts payable                                                                                                          |  |                 | 359,120   |              |   | 252,761           |   |   | 349,999   |  
|Income taxes                                                                                                                    |  |                 | 32,933    |              |   | 9,927             |   |   | 4,762     |  
|Other accrued liabilities                                                                                                       |  |                 | 295,532   |              |   | 245,423           |   |   | 349,440   |  
|TOTAL CURRENT LIABILITIES                                                                                                       |  |                 | 693,955   |              |   | 794,088           |   |   | 711,479   |  
|                                                                                                                                |  |                 |           |              |   |                   |   |   |           |  
|LONG-TERM
 DEBT, NET OF CURRENT PORTION                                                                                         |  |                 | 873,489   |              |   | 695,392           |   |   | 873,095   |  
|DEFERRED
 INCOME TAXES                                                                                                          |  |                 | 241,007   |              |   | 227,297           |   |   | 235,975   |  
|OTHER
 LONG-TERM LIABILITIES                                                                                                    |  |                 | 170,328   |              |   | 161,340           |   |   | 185,968   |  
|TOTAL
 LIABILITIES                                                                                                              |  |                 | 1,978,779 |              |   | 1,878,117         |   |   | 2,006,517 |  
|                                                                                                                                |  |                 |           |              |   |                   |   |   |           |  
|HUARUN
 REDEEMABLE STOCK                                                                                                        |  |                 |          |              |   | 40,213            |   |   |          |  
|                                                                                                                                |  |                 |           |              |   |                   |   |   |           |  
|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                                                                                                      |  |                 | 369,351   |              |   | 335,523           |   |   | 353,086   |  
|                                                                                                                                |  |                 |           |              |   |                   |   |   |           |  
|Retained earnings                                                                                                               |  |                 | 1,333,587 |              |   | 1,188,631         |   |   | 1,269,738 |  
|                                                                                                                                |  |                 |           |              |   |                   |   |   |           |  
|Accumulated other comprehensive income
 (loss)                                                                                  |  |                 | 56,787    |              |   | 32,975            |   |   | 67,997    |  
|                                                                                                                                |  |                 |           |              |   |                   |   |   |           |  
|Less cost of Common Stock in treasury 
 (4/30/10-19,147,886 shares; 5/1/09-17,976,105 shares;
 10/30/09-18,960,410 shares)      |  |                 | (277,374  | )            |   | (202,235          | ) |   | (245,534  | )
|TOTAL
 STOCKHOLDERS EQUITY                                                                                                     |  |                 | 1,541,571 |              |   | 1,414,114         |   |   | 1,504,507 |  
|                                                                                                                                |  |                 |           |              |   |                   |   |   |           |  
|TOTAL
 LIABILITIES AND 
 STOCKHOLDERS EQUITY                                                                                   |  | $               | 3,520,350 |              | $ | 3,332,444         |   | $ | 3,511,024 |  

|      |                                                                                                                          
|----- | -------------------------------------------------------------------------------------------------------------------------
|NOTE: | The Balance
 Sheet at October 30, 2009 has been derived from the audited consolidated
 financial statements at that date.

See Notes to
Condensed Consolidated Financial Statements

---



Table of Contents

- 4 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES

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

|                                             |  |                    |             |                  |   |                 |   |              |             |   |   |             |  
|-------------------------------------------- |  | ------------------ | ----------- | ---------------- | - | --------------- | - | ------------ | ----------- | - | - | ----------- | -
|                                             |  | THREE MONTHS ENDED |             | SIX MONTHS ENDED |  
|                                             |  | April 30,
 2010    |             | May 1,
 2009     |   | April 30,
 2010 |   | May 1,
 2009 |            
|                                             |  |                    |             |                  |   |                 |   |              |             |   |   |             |  
|Net sales                                    |  | $                  | 803,570     |                  | $ | 668,384         |   | $            | 1,475,933   |   | $ | 1,307,881   |  
|Cost of sales                                |  |                    | 530,217     |                  |   | 447,248         |   |              | 985,589     |   |   | 897,401     |  
|Gross profit                                 |  |                    | 273,353     |                  |   | 221,136         |   |              | 490,344     |   |   | 410,480     |  
|Research and development                     |  |                    | 24,703      |                  |   | 22,543          |   |              | 48,368      |   |   | 45,612      |  
|Selling, general and administrative          |  |                    | 144,347     |                  |   | 141,499         |   |              | 277,784     |   |   | 273,531     |  
|Income from
 operations                      |  |                    | 104,303     |                  |   | 57,094          |   |              | 164,192     |   |   | 91,337      |  
|Interest expense                             |  |                    | 14,726      |                  |   | 10,581          |   |              | 29,111      |   |   | 22,507      |  
|Other (income)/expense  net                 |  |                    | (1,255      | )                |   | 86              |   |              | (1,459      | ) |   | 640         |  
|Income
 before income taxes                  |  |                    | 90,832      |                  |   | 46,427          |   |              | 136,540     |   |   | 68,190      |  
|Income taxes                                 |  |                    | 29,159      |                  |   | 15,297          |   |              | 40,930      |   |   | 22,892      |  
|Net income                                   |  | $                  | 61,673      |                  | $ | 31,130          |   | $            | 95,610      |   | $ | 45,298      |  
|Huarun redeemable
 stock accrual (1)         |  |                    |            |                  |   | (3,318          | ) |              |            |   |   | (6,636      | )
|Net income
 available to common stockholders |  | $                  | 61,673      |                  | $ | 27,812          |   | $            | 95,610      |   | $ | 38,662      |  
|                                             |  |                    |             |                  |   |                 |   |              |             |   |   |             |  
|Net income
 per common share  basic         |  | $                  | 0.63        |                  | $ | 0.28            |   | $            | 0.97        |   | $ | 0.39        |  
|Net income
 per common share  diluted       |  | $                  | 0.61        |                  | $ | 0.28            |   | $            | 0.95        |   | $ | 0.39        |  
|Average
 number of common shares outstanding |  |                    |             |                  |   |                 |   |              |             |   |   |             |  
|- basic                                      |  |                    | 98,657,090  |                  |   | 99,996,680      |   |              | 98,895,203  |   |   | 99,889,693  |  
|- diluted                                    |  |                    | 100,986,419 |                  |   | 100,538,299     |   |              | 101,058,134 |   |   | 100,396,752 |  
|                                             |  |                    |             |                  |   |                 |   |              |             |   |   |             |  
|Dividends
 paid per common share             |  | $                  | 0.16        |                  | $ | 0.15            |   | $            | 0.32        |   | $ | 0.30        |  
|                                             |  |                    |             |                  |   |                 |   |              |             |   |   |             |  

(1) For more
information on the Huarun redeemable stock accrual see Note 3.

See Notes to
Condensed Consolidated Financial Statements

---



Table of Contents

- 5 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES

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

|                                                                                             |  |                  |         |              |   |          |  
|-------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ------------ | - | -------- | -
|                                                                                             |  | SIX MONTHS ENDED |        
|                                                                                             |  | April 30,
 2010  |         | May 1,
 2009 |  
|OPERATING
 ACTIVITIES:                                                                       |  |                  |         |              |   |          |  
|Net income                                                                                   |  | $                | 95,610  |              | $ | 45,298   |  
|Adjustments to reconcile net income to net
 cash (used in)/provided by operating activities: |  |                  |         |              |   |          |  
|Depreciation                                                                                 |  |                  | 36,738  |              |   | 38,688   |  
|Amortization                                                                                 |  |                  | 3,660   |              |   | 3,953    |  
|Stock-based compensation                                                                     |  |                  | 3,350   |              |   | 2,517    |  
|(Gain)/loss on asset divestiture                                                             |  |                  | (221    | )            |   | 87       |  
|Changes in certain assets and liabilities,
 net of effects of acquired businesses:           |  |                  |         |              |   |          |  
|(Increase)/decrease in accounts and notes
 receivable                                        |  |                  | (47,536 | )            |   | 48,136   |  
|(Increase)/decrease in inventories and
 other current assets                                 |  |                  | (20,393 | )            |   | 26,754   |  
|Increase/(decrease) in trade accounts
 payable and other accrued liabilities                 |  |                  | (35,135 | )            |   | (169,533 | )
|Increase/(decrease) in income taxes payable                                                  |  |                  | 24,283  |              |   | (18,835  | )
|Increase/(decrease) in other deferred
 liabilities                                           |  |                  | 1,078   |              |   | (1,806   | )
|Other                                                                                        |  |                  | (6,956  | )            |   | (1,887   | )
|Net Cash (Used In)/Provided By Operating
 Activities                                         |  |                  | 54,478  |              |   | (26,628  | )
|                                                                                             |  |                  |         |              |   |          |  
|INVESTING
 ACTIVITIES:                                                                       |  |                  |         |              |   |          |  
|Purchases of property, plant and equipment                                                   |  |                  | (22,334 | )            |   | (23,316  | )
|Cash proceeds on disposal of assets                                                          |  |                  | 3,016   |              |   | 75       |  
|Net Cash (Used In)/Provided By Investing
 Activities                                         |  |                  | (19,318 | )            |   | (23,241  | )
|                                                                                             |  |                  |         |              |   |          |  
|FINANCING
 ACTIVITIES:                                                                       |  |                  |         |              |   |          |  
|Net change in borrowings                                                                     |  |                  | 2,574   |              |   | 62,922   |  
|Proceeds from sale of treasury stock                                                         |  |                  | 28,525  |              |   | 5,575    |  
|Payments on deferred liability  excess
 cash  Huarun                                       |  |                  |        |              |   | (4,818   | )
|Excess tax benefit from stock-based
 compensation                                            |  |                  | 2,674   |              |   | 181      |  
|Treasury stock purchases                                                                     |  |                  | (56,531 | )            |   |         |  
|Dividends paid                                                                               |  |                  | (31,761 | )            |   | (30,042  | )
|Net Cash (Used In)/Provided By Financing
 Activities                                         |  |                  | (54,519 | )            |   | 33,818   |  
|                                                                                             |  |                  |         |              |   |          |  
|Increase/(Decrease) in Cash and Cash
 Equivalents                                            |  |                  | (19,359 | )            |   | (16,051  | )
|Effect of exchange rate changes on Cash and
 Cash Equivalents                                |  |                  | (3,733  | )            |   | 1,618    |  
|                                                                                             |  |                  |         |              |   |          |  
|Cash and
 Cash Equivalents at Beginning of Period                                            |  |                  | 187,719 |              |   | 90,073   |  
|Cash and
 Cash Equivalents at End of Period                                                  |  | $                | 164,627 |              | $ | 75,640   |  

See Notes to
Condensed Consolidated Financial Statements

---



Table of Contents

- 6 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
APRIL 30, 2010
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

NOTE
1: BASIS OF
PRESENTATION

The
accompanying unaudited condensed consolidated financial statements of The
Valspar Corporation have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles (GAAP) for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the quarter ended April 30, 2010 are not necessarily
indicative of the results that may be expected for the year ending October 29,
2010.

Subsequent
to April 30, 2010, we sold certain assets, including selected inventory,
equipment and intangibles relating to our metal packaging inks products to DIC
Corporation of Japan and certain of its affiliates. The sale will be recorded
at fair value and as a result in our third quarter of fiscal year 2010 we will
recognize a gain, net of taxes, restructuring and transaction costs. We also
purchased from DIC Corporation and certain of its affiliates selected inventory
and intangibles (including the shares of DIC Coatings India Limited) relating
to DICs packaging coatings products. The acquisition will be recorded at fair
value in the third quarter of fiscal year 2010. Also, subsequent to the end of
the quarter, we have announced the closure of a plant in our Coatings segment
in order to lower our cost structure and further increase our operational
efficiency. The net after-tax effect of the gain from the sale and the expenses from the plant closure on earnings per
share is expected to be immaterial. There were no other subsequent events that
require recognition or disclosure.

Certain
amounts in the 2009 financial statements have been reclassified to conform to
the 2010 presentation. Such reclassifications had no effect on net income or
stockholders equity as previously reported.

The
Condensed Consolidated Balance Sheet at October 30, 2009 has been derived from
the audited consolidated financial statements at that date but does not include
all of the information and footnotes required by GAAP for complete financial
statements.

For
further information refer to the consolidated financial statements and
footnotes thereto included in our annual report on Form 10-K for the year ended
October 30, 2009.

NOTE
2: ACCOUNTS PAYABLE

Trade
accounts payable includes $27,738 at April 30, 2010, $26,689 at October 30,
2009 and $23,580 at May 1, 2009, of issued checks that had not cleared our bank
accounts.

NOTE
3: ACQUISITIONS

In
July 2006, we acquired approximately 80% of the share capital of Huarun Paints
Holdings Company Limited (Huarun) from Champion Regal and certain other
stockholders. Certain of the shares not purchased by us in July 2006 were
subject to various put and call rights. The put and call rights were 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. During the fourth quarter of 2009, we acquired the remaining
Huarun Redeemable Stock. Acquisition accounting was applied upon the
acquisition of the shares in 2009 and 2008. The balance in Huarun Redeemable
Stock was zero at April 30, 2010, zero at October 30, 2009 and $40,213 at May
1, 2009.

The
Huarun Redeemable Stock was 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 $3,318 and $6,636 for the
three and six-month periods ended May 1, 2009, which reduced basic and diluted
net income per common share by $0.03 and $0.06, respectively.

NOTE
4: INVENTORIES

The
major classes of inventories consist of the following:

|                                              |  |                  |         |               |   |         | 
|--------------------------------------------- |  | ---------------- | ------- | ------------- | - | ------- | 
|                                              |  |                  |         |               |   |         | 
|                                              |  | April
 30,
 2010 |         | May
 1,
 2009 |  
|Manufactured products                         |  | $                | 143,149 |               | $ | 143,556 | 
|Raw materials, supplies
 and work-in-progress |  |                  | 110,167 |               |   | 95,683  | 
|Total Inventories                             |  | $                | 253,316 |               | $ | 239,239 | 

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Table of Contents

- 7 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 2010
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

NOTE
5: COMPREHENSIVE
INCOME (LOSS)

For
the three and six-month periods ended April 30, 2010 and May 1, 2009,
Comprehensive Income, a component of Stockholders Equity, was as follows:

|                                                    |  |                     |        |                   |   |                  |   |               |         |   |   |         |  
|--------------------------------------------------- |  | ------------------- | ------ | ----------------- | - | ---------------- | - | ------------- | ------- | - | - | ------- | -
|                                                    |  |                     |        |                   |  
|                                                    |  | Three
 Months Ended |        | Six
 Months Ended |  
|                                                    |  | April
 30,
 2010    |        | May
 1,
 2009     |   | April
 30,
 2010 |   | May
 1,
 2009 |        
|Net Income                                          |  | $                   | 61,673 |                   | $ | 31,130           |   | $             | 95,610  |   | $ | 45,298  |  
|Other Comprehensive
 Income, net of tax:            |  |                     |        |                   |   |                  |   |               |         |   |   |         |  
|Foreign currency translation gain (loss)            |  |                     | (9,476 | )                 |   | (21,341          | ) |               | (11,386 | ) |   | (58,230 | )
|Net unrealized gain (loss) on financial instruments |  |                     | 20     |                   |   | 1,104            |   |               | 176     |   |   | 1,169   |  
|Total Comprehensive Income
 (Loss)                  |  | $                   | 52,217 |                   | $ | 10,893           |   | $             | 84,400  |   | $ | (11,763 | )

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

|                                                     |  |                  |         |               |   |                    |   |   |         |  
|---------------------------------------------------- |  | ---------------- | ------- | ------------- | - | ------------------ | - | - | ------- | -
|                                                     |  |                  |         |               |   |                    |  
|                                                     |  | April
 30,
 2010 |         | May
 1,
 2009 |   | October
 30,
 2009 |  
|Foreign currency
 translation                        |  | $                | 126,659 |               | $ | 71,629             |   | $ | 138,045 |  
|Pension and postretirement
 benefits, net            |  |                  | (77,679 | )             |   | (42,356            | ) |   | (77,679 | )
|Net unrealized gain (loss)
 on financial instruments |  |                  | 7,807   |               |   | 3,702              |   |   | 7,631   |  
|Accumulated other
 comprehensive income (loss)       |  | $                | 56,787  |               | $ | 32,975             |   | $ | 67,997  |  

NOTE
6: GOODWILL AND OTHER
INTANGIBLE ASSETS

The
carrying amount of goodwill as of April 30, 2010 decreased from the end of
fiscal year 2009 by $4,319 to $1,333,678. The decrease is primarily due to
foreign currency translation.

Total
intangible asset amortization expense for the six months ended April 30, 2010
was $3,660, compared to $3,953 for the same period last year. Estimated
amortization expense for each of the five succeeding fiscal years based on the
intangible assets as of April 30, 2010 is expected to be approximately $7,500
annually.

NOTE
7: SEGMENT
INFORMATION

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

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

The
Paints segment aggregates our architectural and automotive refinish product
lines. Architectural products include interior and exterior decorative paints,
stains, primers, varnishes, high performance floor paints and specialty
decorative products, such as enamels, aerosols and faux varnishes for consumers
in the do-it-yourself and professional markets in North America and China.

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Table of Contents

- 8 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 2010
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

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 our Corporate
administrative expenses. The administrative expenses include interest and
amortization expense, certain environmental-related expenses and other expenses
not directly allocated to any other operating segment.

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

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

|                           |  |                     |         |                   |   |                  |   |               |           |   |   |           |  
|-------------------------- |  | ------------------- | ------- | ----------------- | - | ---------------- | - | ------------- | --------- | - | - | --------- | -
|                           |  |                     |         |                   |  
|                           |  | Three
 Months Ended |         | Six
 Months Ended |  
|                           |  | April
 30,
 2010    |         | May
 1,
 2009     |   | April
 30,
 2010 |   | May
 1,
 2009 |          
|Net Sales:                 |  |                     |         |                   |   |                  |   |               |           |   |   |           |  
|Coatings                   |  | $                   | 442,091 |                   | $ | 357,862          |   | $             | 833,412   |   | $ | 732,514   |  
|Paints                     |  |                     | 303,996 |                   |   | 257,161          |   |               | 537,409   |   |   | 469,861   |  
|All Other                  |  |                     | 86,210  |                   |   | 74,468           |   |               | 152,825   |   |   | 141,568   |  
|Less Intersegment Sales    |  |                     | (28,727 | )                 |   | (21,107          | ) |               | (47,713   | ) |   | (36,062   | )
|Total Net Sales            |  | $                   | 803,570 |                   | $ | 668,384          |   | $             | 1,475,933 |   | $ | 1,307,881 |  
|                           |  |                     |         |                   |   |                  |   |               |           |   |   |           |  
|EBIT                       |  |                     |         |                   |   |                  |   |               |           |   |   |           |  
|Coatings                   |  | $                   | 62,417  |                   | $ | 29,859           |   | $             | 105,372   |   | $ | 54,757    |  
|Paints                     |  |                     | 52,161  |                   |   | 35,384           |   |               | 79,993    |   |   | 51,335    |  
|All Other                  |  |                     | (9,020  | )                 |   | (8,235           | ) |               | (19,714   | ) |   | (15,395   | )
|Total EBIT                 |  | $                   | 105,558 |                   | $ | 57,008           |   | $             | 165,651   |   | $ | 90,697    |  
|Interest                   |  | $                   | 14,726  |                   | $ | 10,581           |   | $             | 29,111    |   | $ | 22,507    |  
|Income before Income Taxes |  | $                   | 90,832  |                   | $ | 46,427           |   | $             | 136,540   |   | $ | 68,190    |  

NOTE
8: DERIVATIVE
FINANCIAL INSTRUMENTS

We
use derivative financial instruments to manage well-defined interest rate and
foreign currency exchange risks. We enter into derivative financial instruments
with high-credit quality counterparties and diversify our positions among such
counterparties to reduce our exposure to credit losses. We do not have any
credit-risk-related contingent features in our derivative contracts as of April
30, 2010.

At
April 30, 2010, we had an aggregate $50,000 notional amount of interest rate
swap contracts, which have been designated as cash flow hedges, to pay fixed
rates of interest and receive a floating interest rate based on LIBOR. All
contracts mature during fiscal year 2011. The interest rate swap contracts are
reflected at fair value in the condensed consolidated balance sheet. Unrealized
gains and losses are recorded in accumulated other comprehensive income.
Amounts to be received or paid under the contracts are recognized as interest
expense over the life of the contracts. There was no ineffectiveness for these
swaps recognized in interest expense for the quarter ended April 30, 2010. We
had $100,000 notional amount of interest rate swap contracts in place as of May
1, 2009. There was no ineffectiveness for these swaps recognized in interest
expense for the quarter and year-to-date periods ended May 1, 2009.

At
April 30, 2010, we had $5,808 notional amount of foreign currency contracts
maturing during fiscal year 2010 and $2,622 notional amount of foreign currency
contracts maturing during fiscal year 2011. These foreign currency contracts
have been designated as cash flow hedges with unrealized gains or losses
recorded in accumulated other comprehensive income. Realized gains and losses
will be recognized in Other Expense (Income) when they occur. At May 1, 2009,
we had approximately $5,600 notional amount of foreign currency contracts.
There was no ineffectiveness for these hedges during the quarter ended April
30, 2010 or for the quarter and year-to-date periods ended May 1, 2009.

At
April 30, 2010 we had no treasury lock contracts in place. At May 1, 2009, we
had $150,000 notional amount of treasury locks to hedge, or lock-in, interest
rates on anticipated long-term debt to be issued. We designated the treasury
locks as cash flow hedges with unrealized gains and losses recorded, net of
tax, to accumulated other comprehensive income. In the third quarter of 2009,
we terminated the $150,000 of treasury lock contracts as a result of our bond
issuance, yielding a pretax gain of $11,600. The unamortized gain is reflected,
net of tax, in accumulated other comprehensive income in our consolidated
balance sheet as of April 30, 2010 and is being reclassified ratably to our statements
of income as a decrease to interest expense over the term of the related debt.

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Table of Contents

- 9 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 2010
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

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

Fair Value Measurements

|                             |  |   |                                |  |   |                             | 
|---------------------------- |  | - | ------------------------------ |  | - | --------------------------- | 
|                             |  |   | Fair
 Value at
 April 30, 2010 |  |   | Fair
 Value at
 May 1, 2009 | 
|                             |  |   | Level
 2 *                     |  |   | Level
 2 *                  | 
|Assets                       |  |   |                                |  |   |                             | 
|Prepaid expenses and other:  |  |   |                                |  |   |                             | 
|Foreign currency contracts   |  | $ | 181                            |  | $ |                            | 
|Treasury lock contracts      |  |   |                               |  |   | 7,077                       | 
|Total Assets                 |  | $ | 181                            |  | $ | 7,077                       | 
|Liabilities                  |  |   |                                |  |   |                             | 
|Accrued liabilities other:   |  |   |                                |  |   |                             | 
|Foreign currency contracts   |  | $ |                               |  | $ | 44                          | 
|Interest rate swap contracts |  |   | 980                            |  |   |                            | 
|                             |  |   |                                |  |   |                             | 
|Other long-term liabilities: |  |   |                                |  |   |                             | 
|Interest rate swap contracts |  |   |                               |  |   | 3,413                       | 
|Total Liabilities            |  | $ | 980                            |  | $ | 3,457                       | 

|  |                                                                                                                                                                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | 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 fair value hierarchy. We do
 not have any derivative financial instruments that are classified as Level 1
 or Level 3 inputs under the hierarchy.

Derivative Gains (Losses) in AOCI**

|                                            |  |                  |      |               |   |        |  
|------------------------------------------- |  | ---------------- | ---- | ------------- | - | ------ | -
|                                            |  |                  |      |               |  
|                                            |  | April
 30,
 2010 |      | May
 1,
 2009 |  
|Amount of Gain (Loss)
 Recognized in AOCI** |  |                  |      |               |   |        |  
|Foreign currency contracts                  |  | $                | 308  |               | $ | (187   | )
|Treasury lock contracts                     |  |                  |     |               |   | 4,352  |  
|Interest rate swap contracts                |  |                  | (603 | )             |   | (2,354 | )
|Total Gain (Loss) in AOCI                   |  | $                | (295 | )             | $ | 1,811  |  

|   |                                                                                                                                                                    
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | Accumulated
 other comprehensive income (loss) (AOCI) is included on the Consolidated
 Balance Sheet in the Stockholders Equity section and is reported net of tax

Additionally,
the AOCI balance as of the quarter ended April 30, 2010 and May 1, 2009
included a net unrealized after-tax gain of $8,102 and 1,891, respectively,
resulting from treasury locks that have been settled. The gain is recognized as
a benefit to interest expense over the life of the related debt that was
issued, which resulted in a pretax benefit of $391 and $782 for the three and
six-month periods ended April 30, 2010, and $101 and $202 for the three and
six-month periods ended May 1, 2009, respectively.

Derivative Gains (Losses) on the Consolidated Statement of
Income

|                                  |  |                     |      |                   |   |                  |   |               |      |   |   |      |  
|--------------------------------- |  | ------------------- | ---- | ----------------- | - | ---------------- | - | ------------- | ---- | - | - | ---- | -
|                                  |  |                     |      |                   |  
|                                  |  | Three
 Months Ended |      | Six
 Months Ended |  
|                                  |  | April
 30,
 2010    |      | May
 1,
 2009     |   | April
 30,
 2010 |   | May
 1,
 2009 |     
|Other Income / (Expense),
 Net*** |  |                     |      |                   |   |                  |   |               |      |   |   |      |  
|Foreign currency contracts        |  | $                   | (17  | )                 | $ | 468              |   | $             | (161 | ) | $ | 418  |  
|Interest Expense ***              |  |                     |      |                   |   |                  |   |               |      |   |   |      |  
|Interest rate swap contracts      |  |                     | (347 | )                 |   | (632             | ) |               | (688 | ) |   | (935 | )
|Total Gain (Loss) in
 Income      |  | $                   | (364 | )                 | $ | (164             | ) | $             | (849 | ) | $ | (517 | )

|    |                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|*** | Other
 income / (expense), net and interest expense are included on the Consolidated
 Statement of Income and are reported pretax

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Table of Contents

- 10 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 2010
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

NOTE
9: DEBT AND MONEY
MARKET SECURITIES

The
tables below summarize the carrying value and fair market value of our
outstanding debt. The fair market value of our publicly traded debt is based on
observable market prices. The fair market value of our non-publicly traded debt
was estimated using a discounted cash flow analysis based on our current
borrowing costs for debt with similar maturities.

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

|                         |  |                                  |         |                     |   |         | 
|------------------------ |  | -------------------------------- | ------- | ------------------- | - | ------- | 
|                         |  |                                  |        
|                         |  | May
 1, 2009                     |        
|                         |  | Balance
 Sheet
 (carrying value) |         | Fair
 Market
 Value |  
|Publicly traded debt     |  | $                                | 500,000 |                     | $ | 488,286 | 
|Non-publicly traded debt |  |                                  | 481,369 |                     |   | 477,969 | 
|Total debt               |  | $                                | 981,369 |                     | $ | 966,255 | 

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

We
have a credit facility with covenants that require us to maintain certain
financial ratios. We were in compliance with these covenants as of April 30,
2010. Our debt covenants do not limit, nor are they reasonably likely to limit,
our ability to obtain additional debt or equity financing.

We
invest in money market funds with high-credit quality counterparties and
diversify our positions among such counterparties to reduce our exposure to
credit losses. The fair values of our money market funds are $58,782 and $306
as of April 30, 2010 and May 1, 2009, respectively. The money market funds are
included in our cash and cash equivalents balance with the carrying value
approximating the fair value as the maturities are less than three months.
These assets have observable prices that are quoted on an active exchange, and
are therefore classified as Level 1 inputs under the fair value hierarchy.

NOTE
10: GUARANTEES AND
CONTRACTUAL OBLIGATIONS

We
are required to disclose information about certain guarantees and contractual
obligations in our periodic financial statements. We do not have any guarantees
that require recognition at fair value.

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.

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Table of Contents

- 11 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 2010
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

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

|                                                                |  |                   |        |               |   |        |  
|--------------------------------------------------------------- |  | ----------------- | ------ | ------------- | - | ------ | -
|                                                                |  |                   |       
|                                                                |  | Six
 Months Ended |       
|                                                                |  | April
 30,
 2010  |        | May
 1,
 2009 |  
|Beginning balance, October                                      |  | $                 | 70,503 |               | $ | 77,993 |  
|Additional net deferred
 revenue/accrual made during the period |  |                   | 6,992  |               |   | 1,292  |  
|Payments made during the
 period                                |  |                   | (3,840 | )             |   | (3,796 | )
|Ending balance                                                  |  | $                 | 73,655 |               | $ | 75,489 |  

NOTE
11: STOCK BASED
COMPENSATION

Compensation
expense associated with our stock-based compensation plans was $1,548 ($1,030
after tax) and $3,350 ($2,218 after tax) for the three and six-month periods
ended April 30, 2010, compared to $1,250 ($816 after tax) and $2,517 ($1,647
after tax) for the three and six-month periods ended May 1, 2009.

NOTE
12: PENSION AND OTHER
POSTRETIREMENT BENEFITS

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

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

|                                    |  |                     |        |                   |   |                  |   |               |        |   |   |        |  
|----------------------------------- |  | ------------------- | ------ | ----------------- | - | ---------------- | - | ------------- | ------ | - | - | ------ | -
|                                    |  |                     |        |                   |  
|                                    |  | Three
 Months Ended |        | Six
 Months Ended |  
|                                    |  | April
 30,
 2010    |        | May
 1,
 2009     |   | April
 30,
 2010 |   | May
 1,
 2009 |       
|Service cost                        |  | $                   | 811    |                   | $ | 671              |   | $             | 1,645  |   | $ | 1,359  |  
|Interest cost                       |  |                     | 3,221  |                   |   | 3,307            |   |               | 6,482  |   |   | 6,655  |  
|Expected return on plan
 assets     |  |                     | (4,065 | )                 |   | (3,826           | ) |               | (8,162 | ) |   | (7,701 | )
|Amortization of prior
 service cost |  |                     | 114    |                   |   | 153              |   |               | 228    |   |   | 307    |  
|Recognized actuarial
 (gain)/loss   |  |                     | 1,229  |                   |   | 512              |   |               | 2,464  |   |   | 1,024  |  
|Settlement loss                     |  |                     |       |                   |   | 2,333            |   |               |       |   |   | 2,333  |  
|Curtailment                         |  |                     |       |                   |   | 161              |   |               |       |   |   | 161    |  
|Net periodic benefit cost           |  | $                   | 1,310  |                   | $ | 3,311            |   | $             | 2,657  |   | $ | 4,138  |  

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

|                                    |  |                     |      |                   |   |                  |   |               |        |   |   |        |  
|----------------------------------- |  | ------------------- | ---- | ----------------- | - | ---------------- | - | ------------- | ------ | - | - | ------ | -
|                                    |  |                     |      |                   |  
|                                    |  | Three
 Months Ended |      | Six
 Months Ended |  
|                                    |  | April
 30,
 2010    |      | May
 1,
 2009     |   | April
 30,
 2010 |   | May
 1,
 2009 |       
|Service cost                        |  | $                   | 53   |                   | $ | 71               |   | $             | 106    |   | $ | 142    |  
|Interest cost                       |  |                     | 119  |                   |   | 150              |   |               | 238    |   |   | 300    |  
|Amortization of prior
 service cost |  |                     | (718 | )                 |   | (947             | ) |               | (1,436 | ) |   | (1,894 | )
|Recognized actuarial
 (gain)/loss   |  |                     | 657  |                   |   | 804              |   |               | 1,314  |   |   | 1,608  |  
|Net periodic
 benefit cost          |  | $                   | 111  |                   | $ | 78               |   | $             | 222    |   | $ | 156    |  

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Table of Contents

- 12 -

THE VALSPAR
CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
APRIL 30, 2010 
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

NOTE
13: INCOME TAXES

At
October 30, 2009, we had a $33,397 liability recorded for gross unrecognized
tax benefits (excluding interest and penalties). Of this total, $29,907
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 30, 2009, we had accrued approximately $13,196 of
interest and penalties relating to unrecognized tax benefits.

During
the first quarter of fiscal year 2010 we settled certain income tax audits,
which reduced our liability for gross unrecognized tax benefits by $7,244
(excluding interest and penalties). The first quarter net impact to tax expense
for these audit settlements (including interest, penalties, and other
offsetting items) was a reduction of $4,821. There were no material adjustments
to our recorded liability for unrecognized tax benefits during the second
quarter of 2010, or during the first or second quarters of fiscal year 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 2004. The
Internal Revenue Service (IRS) has concluded its examination of our U.S.
federal tax returns for the fiscal years ended 2004 and 2005. There were no
material adjustments to our income tax expense or balance of unrecognized tax
benefits as a result of the IRS examination. We are currently under audit in
several state and foreign jurisdictions. We also expect various statutes of
limitation to expire during the year. Due to the uncertain response of taxing
authorities, a range of outcomes cannot be reasonably estimated at this time.

NOTE
14: RESTRUCTURING

During
the third quarter of 2008, we initiated a comprehensive series of actions to
lower our cost structure and further increase our operational efficiency. The
restructuring activities will be completed by the end of the 2010 fiscal year.
We incurred total restructuring charges of $0.16, $0.18 and $0.02 per share
after tax, in fiscal years 2008, 2009 and 2010, respectively. The restructuring
activities for the three and six-month periods ended April 30, 2010 resulted in
pre-tax charges of $261 and $4,262 or $0.02 per share after tax, respectively.
The restructuring activities for the three and six-month periods ended May 1,
2009 resulted in pre-tax charges of $7,903 or $0.05 per share after tax and
$17,017 or $0.11 per share after tax, respectively.

The
expenses included severance and employee benefits, asset impairments,
professional services and site cleanup. We plan to pay the majority of the
current restructuring liabilities by the end of fiscal year 2010.

The
restructuring initiatives included 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 reduced our manufacturing capacity and our overall
global headcount to lower our costs in light of the challenging global economic
conditions.

The
following net restructuring and impairment charges by segment were recorded in
the six-month periods of 2010 and 2009:

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

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Table of Contents

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THE VALSPAR
CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
APRIL 30, 2010 
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

|                                      |  |                                           |        |         |   |          |  |                                      |         |   |   |       | 
|------------------------------------- |  | ----------------------------------------- | ------ | ------- | - | -------- |  | ------------------------------------ | ------- | - | - | ----- | 
|                                      |  |                                           |        |         |   |          |  |                                      |         |   |   |       | 
|Six-Month
 Period Ending May 1, 2009  |  | Liability
 Beginning
 Balance
 10/31/2008 |        | Expense |   | Activity |  | Liability
 Ending
 Balance
 5/1/2009 |        
|Coatings                              |  |                                           |        |         |   |          |  |                                      |         |   |   |       | 
|Severance and employee benefits       |  | $                                         | 7,842  |         | $ | 10,012   |  | $                                    | (10,841 | ) | $ | 7,013 | 
|Asset impairments                     |  |                                           |       |         |   | 1,857    |  |                                      | (1,857  | ) |   |      | 
|Exit costs (consulting/site clean-up) |  |                                           | 423    |         |   | 432      |  |                                      | (824    | ) |   | 31    | 
|Contract term costs (leases)          |  |                                           |       |         |   | 445      |  |                                      | (445    | ) |   |      | 
|Total
 Coatings                       |  |                                           | 8,265  |         |   | 12,746   |  |                                      | (13,967 | ) |   | 7,044 | 
|Paints                                |  |                                           |        |         |   |          |  |                                      |         |   |   |       | 
|Severance and employee benefits       |  |                                           |       |         |   | 456      |  |                                      | (430    | ) |   | 26    | 
|Asset impairments                     |  |                                           |       |         |   | 52       |  |                                      | (52     | ) |   |      | 
|Exit costs (consulting/site clean-up) |  |                                           | 2,252  |         |   | 73       |  |                                      | (73     | ) |   | 2,252 | 
|Total Paints                          |  |                                           | 2,252  |         |   | 581      |  |                                      | (555    | ) |   | 2,278 | 
|All Other                             |  |                                           |        |         |   |          |  |                                      |         |   |   |       | 
|Severance and employee benefits       |  |                                           | 806    |         |   | 431      |  |                                      | (1,035  | ) |   | 202   | 
|Asset impairments                     |  |                                           |       |         |   | 2,342    |  |                                      | (2,342  | ) |   |      | 
|Exit costs (consulting/site clean-up) |  |                                           | 64     |         |   | 917      |  |                                      | (981    | ) |   |      | 
|Total All Other                       |  |                                           | 870    |         |   | 3,690    |  |                                      | (4,358  | ) |   | 202   | 
|Total                                 |  | $                                         | 11,387 |         | $ | 17,017   |  | $                                    | (18,880 | ) | $ | 9,524 | 

The
ending liability balance at April 30, 2010 and at May 1, 2009 is included in
other accrued liabilities on our Consolidated Balance Sheet. The restructuring
reserve balances presented are considered adequate to cover committed
restructuring actions. The restructuring expenses recorded are included in the
Consolidated Statement of Income. For the six-month period ended April 30,
2010, $4,262 was charged to Cost of Sales. For the six-month period ended May
1, 2009, $12,786 was charged to Cost of Sales and $4,231 was charged to
Selling, General and Administrative expense.

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Table of Contents

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

Overview: Our 2010 second quarter net income
increased over the prior year primarily due to sales growth and overall
operating discipline. Sales for the quarter increased compared to the prior
year primarily due to improved volumes and favorable foreign currency exchange
rates. We experienced higher volumes in our Coatings and Paints segments,
across all regions, due to better underlying economic conditions and market
share gains. Gross profit as a percent of net sales in the second quarter of
2010 increased compared to last year due to manufacturing efficiencies
resulting from increased volumes and lower restructuring charges in 2010,
partially offset by increased raw material costs. Operating expenses as a
percent of net sales decreased in the quarter compared to the prior year
primarily due to tight control of expense and leverage from higher sales
volume.

In
the second quarter of 2010, we experienced rising raw material costs and
tight supply of certain raw materials; we expect the rising cost trend to continue in the
second half of the year. Our ability to maintain historical gross margins will
depend on implementing customer price increases in a timely manner since,
historically, there has been a lag between rising raw material costs and our
ability to increase customer pricing.

During
the third quarter of 2008, we initiated a comprehensive series of actions to
lower our cost structure and further increase our operational efficiency. The
restructuring activities will be completed by the end of the 2010 fiscal year.
We incurred total restructuring charges of $0.16, $0.18 and $0.02 per share
after tax, in fiscal years 2008, 2009 and 2010, respectively. The restructuring
charges for the second quarter of 2010 were immaterial and year-to-date
included pre-tax charges of $4,262 or $0.02 per share after tax. The
restructuring activities for the second quarter and year-to-date periods ended
May 1, 2009 resulted in pre-tax charges of $7,903 or $0.05 per share after tax
and $17,017 or $0.11 per share after tax, respectively.

Earnings
Per Share: Net income
per share available to common stockholders was $0.61 and $0.95 for the three
and six-month periods ended April 30, 2010, and $0.28 and $0.39 for the three
and six-month periods ended May 1, 2009, respectively. Huarun Redeemable Stock
had no effect on the second quarter and year-to-date periods of 2010 as we acquired the remaining
shares in the fourth quarter of 2009. We accrued $3,318, or $0.03 per common
share basic and diluted, and $6,636, or $0.06 per common share basic and
diluted, in the second quarter and year-to-date periods of 2009, respectively,
for the Huarun Redeemable Stock (see Note 3 in Notes to Condensed Consolidated
Financial Statements for further details). The table below presents adjusted
net income per common share  diluted, which excludes the non-cash accrual
relating to Huarun Redeemable Stock and restructuring charges included in net
income in the respective periods.

| |                                                 |  |                     |      |                   |   |                  |  |               |      |  |   |      | 
| | ----------------------------------------------- |  | ------------------- | ---- | ----------------- | - | ---------------- |  | ------------- | ---- |  | - | ---- | 
| |                                                 |  | Three
 Months Ended |      | Six
 Months Ended |  
| |                                                 |  | April
 30,
 2010    |      | May
 1,
 2009     |   | April
 30,
 2010 |  | May
 1,
 2009 |     
| | Net income per common
 share - diluted          |  | $                   | 0.61 |                   | $ | 0.28             |  | $             | 0.95 |  | $ | 0.39 | 
| | Huarun redeemable stock
 accrual                |  |                     |     |                   |   | 0.03             |  |               |     |  |   | 0.06 | 
| | Restructuring charges                           |  |                     |     |                   |   | 0.05             |  |               | 0.02 |  |   | 0.11 | 
| | Adjusted net income per
 common share - diluted |  | $                   | 0.61 |                   | $ | 0.36             |  | $             | 0.97 |  | $ | 0.56 | 

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 period of the non-cash
accrual related to the Huarun Redeemable Stock and without after-tax
restructuring charges in the 2010 and 2009 periods. As the Huarun Redeemable
Stock was redeemed, acquisition accounting was applied; refer to Note 3 in
Notes to Condensed Consolidated Financial Statements for further details. Refer
to Note 14 in Notes to Condensed Consolidated Financial Statements for further
restructuring details.

Critical
Accounting Policies:
There were no material changes in our critical accounting policies during the
quarter ended April 30, 2010.

Operations:

| |                        |  |                     |         |                   |   |           |  |                  |      |               |   |           |  |   |           |  |  |      |    | 
| | ---------------------- |  | ------------------- | ------- | ----------------- | - | --------- |  | ---------------- | ---- | ------------- | - | --------- |  | - | --------- |  |  | ---- | -- | 
| | Net Sales              |  | Three
 Months Ended |         | Six
 Months Ended |   |          
| |                        |  | April
 30,
 2010    |         | May
 1,
 2009     |   | %
 Change |  | April
 30,
 2010 |      | May
 1,
 2009 |   | %
 Change |  |  
| | Coatings               |  | $                   | 442,091 |                   | $ | 357,862   |  |                  | 23.5 | %             | $ | 833,412   |  | $ | 732,514   |  |  | 13.8 | %  | 
| | Paints                 |  |                     | 303,996 |                   |   | 257,161   |  |                  | 18.2 | %             |   | 537,409   |  |   | 469,861   |  |  | 14.4 | %  | 
| | All Other              |  |                     | 57,483  |                   |   | 53,361    |  |                  | 7.7  | %             |   | 105,112   |  |   | 105,506   |  |  | (0.4 | )% | 
| | Consolidated Net Sales |  | $                   | 803,570 |                   | $ | 668,384   |  |                  | 20.2 | %             | $ | 1,475,933 |  | $ | 1,307,881 |  |  | 12.8 | %  | 
| |                        |  |                     |         |                   |   |           |  |                  |      |               |   |           |  |   |           |  |  |      |    | 

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Table of Contents

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

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Consolidated Net Sales Excluding a 3.8% positive effect from
 foreign currency, sales increased for the second quarter of 2010 by 16.4%.
 Excluding a 3.8% positive effect from foreign currency, sales increased
 year-to-date by 9.0%. The increase in sales was primarily due to improved
 market conditions and new business in our Coatings and Paints segments.                                                                                                                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Coatings Segment Net Sales Excluding a 6.1% positive effect from
 foreign currency, sales increased for the second quarter of 2010 by 17.4%.
 Excluding a 5.6% positive effect from foreign currency, sales increased
 year-to-date by 8.2%. The year-to-date sales increase was driven by the
 second quarter growth resulting primarily from improved economic conditions
 in industrial and packaging markets and new business across all of our
 product lines.                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Paints Segment Net Sales Excluding a 1.1% positive effect from
 foreign currency, sales increased for the second quarter of 2010 by 17.1%.
 Excluding a 1.5% positive effect from foreign currency, sales increased
 year-to-date by 12.9%. The increase in sales in the second quarter of 2010
 was primarily due to volume growth in our global architectural product line
 driven by improved market demand. The increase in the year-to-date period was
 due to both our global architectural and automotive refinish product lines.
 Our global architectural product line continues to benefit from the
 strengthening of the U.S.
 Do-It-Yourself channel, investment in our brands and improved market
 conditions in Asia.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | All Other Net Sales The All Other category includes resins,
 colorants, gelcoats and our furniture protection plan business. Excluding a
 2.5% positive effect from foreign currency, sales increased for the second
 quarter of 2010 by 5.2%. Excluding a 2.7% positive effect from foreign
 currency, sales decreased year-to-date by 3.1%. The higher sales in the
 second quarter were primarily due to improved demand in the U.S. coatings
 markets. However, due to weak first quarter demand in those markets,
 year-to-date sales were down.                                                                                                                                                                              

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

| |                           |  |                     |         |                   |   |                  |   |               |         |   |   |         |   | 
| | ------------------------- |  | ------------------- | ------- | ----------------- | - | ---------------- | - | ------------- | ------- | - | - | ------- | - | 
| | Gross Profit              |  | Three
 Months Ended |         | Six
 Months Ended |   |                 
| |                           |  | April
 30,
 2010    |         | May
 1,
 2009     |   | April
 30,
 2010 |   | May
 1,
 2009 |         |  
| | Consolidated Gross Profit |  | $                   | 273,353 |                   | $ | 221,136          |   | $             | 490,344 |   | $ | 410,480 |   | 
| | As a percent of Net Sales |  |                     | 34.0    | %                 |   | 33.1             | % |               | 33.2    | % |   | 31.4    | % | 

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Gross Profit Gross profit included immaterial restructuring charges in the second
 quarter of 2010. The year-to-date period included restructuring charges of
 $4,262 or 0.3% of net sales. Restructuring charges of $7,903 or 1.2% of net
 sales and $12,786 or 1.0% of net sales were included in the second quarter
 and year-to-date periods of 2009, respectively. The gross profit increase, as
 a percent of net sales, in the second quarter of 2010 was driven primarily by
 manufacturing efficiencies resulting from increased volumes and lower
 restructuring charges in 2010, partially offset by increased raw material
 costs. The gross profit increase, as a percent of net sales, in the
 year-to-date period was driven primarily by manufacturing efficiencies
 resulting from increased volumes and previously completed restructuring
 actions and lower restructuring charges in 2010.

| |                                                                                                                                      |  |                     |         |                   |   |                  |   |               |         |   |   |         |   | 
| | ------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------- | ------- | ----------------- | - | ---------------- | - | ------------- | ------- | - | - | ------- | - | 
| | Operating
Expenses *                                                                                                                 |  | Three
 Months Ended |         | Six
 Months Ended |   |                 
| |                                                                                                                                      |  | April
 30,
 2010    |         | May
 1,
 2009     |   | April
 30,
 2010 |   | May
 1,
 2009 |         |  
| | Consolidated Operating
 Expenses                                                                                                     |  | $                   | 169,050 |                   | $ | 164,042          |   | $             | 326,152 |   | $ | 319,143 |   | 
| | As a percent of Net Sales                                                                                                            |  |                     | 21.0    | %                 |   | 24.5             | % |               | 22.1    | % |   | 24.4    | % | 
| |                                                                                                                                      |  |                     |         |                   |   |                  |   |               |         |   |   |         |   | 
| | * Includes
 research and development, selling, general and administrative costs. For
 breakout see Consolidated Statement of Income.

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Consolidated Operating Expenses (dollars)  Consolidated operating expenses increased
 3.1% or $5,008 in the second quarter compared to last year. Consolidated
 operating expenses increased 2.2% or $7,009 year-to-date compared to the
 prior year. The increase in both periods was driven primarily by the
 unfavorable effect of foreign currency exchange. Restructuring charges of
 $4,231 or 0.3% of net sales were included in the year-to-date period of 2009.
 There were no restructuring charges in operating expenses in 2010 or in the
 second quarter of 2009.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Consolidated Operating Expenses (percent of
 net sales) As a percent of consolidated net sales,
 operating expenses decreased 3.5 percentage points compared to the second
 quarter last year. As a percent of consolidated net sales, operating expenses
 decreased 2.3 percentage points for the year-to-date period compared to last
 year. The improvement in both periods was primarily due to tight control of
 expenses and leverage from higher sales.                                                                                                                

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Table of Contents

- 16 -

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

DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS

|                                                                               |   |                 |                    |              |                  |                 |    |              |         |    |   |         |    | 
|------------------------------------------------------------------------------ | - | --------------- | ------------------ | ------------ | ---------------- | --------------- | -- | ------------ | ------- | -- | - | ------- | -- | 
|EBIT                                                                           | * |                 | Three Months Ended |              | Six Months Ended |                
|                                                                               |   | April 30,
 2010 |                    | May 1,
 2009 |                  | April 30,
 2010 |    | May 1,
 2009 |        
|Coatings                                                                       |   | $               | 62,417             |              | $                | 29,859          |    | $            | 105,372 |    | $ | 54,757  |   
|As a percent of Net Sales                                                      |   |                 | 14.1               | %            |                  | 8.3             | %  |              | 12.6    | %  |   | 7.5     | % 
|Paints                                                                         |   | $               | 52,161             |              | $                | 35,384          |    | $            | 79,993  |    | $ | 51,335  |   
|As a percent of Net Sales                                                      |   |                 | 17.2               | %            |                  | 13.8            | %  |              | 14.9    | %  |   | 10.9    | % 
|All Other                                                                      |   | $               | (9,020             | )            | $                | (8,235          | )  | $            | (19,714 | )  | $ | (15,395 | ) 
|As a percent of Net Sales                                                      |   |                 | (15.7              | )%           |                  | (15.4           | )% |              | (18.8   | )% |   | (14.6   | )%
|Consolidated EBIT                                                              |   | $               | 105,558            |              | $                | 57,008          |    | $            | 165,651 |    | $ | 90,697  |   
|As a percent of Net Sales                                                      |   |                 | 13.1               | %            |                  | 8.5             | %  |              | 11.2    | %  |   | 6.9     | % 
|                                                                              
|* Defined as profit or loss from operations before
interest expense and taxes.

| |                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                          | Consolidated EBIT  EBIT for the second quarter of 2010 increased
$48,550 or 85.2% from the prior year. EBIT for the year-to-date period of
2010 increased $74,954 or 82.6% from the prior year. The restructuring
charges for the second quarter of 2010 were immaterial and year-to-date
included pre-tax charges of $4,262 or 0.3% of net sales. Restructuring
charges of $7,903 or 1.2% of net sales and $17,017 or 1.3% of net sales were
included in the quarter and year-to-date periods of 2009, respectively.
Foreign currency exchange fluctuation had an immaterial effect on EBIT. The
increase in second quarter EBIT, as a percent of net sales, was primarily due
to improved volumes, lower 2010 restructuring charges and benefits from
previously completed restructuring actions, partially offset by increased raw
material costs. The increase in year-to-date EBIT, as a percent of net sales,
was primarily due to improved volumes, lower 2010 restructuring charges and
benefits from previously completed restructuring actions.
| |                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                          | Coatings Segment EBIT  EBIT included immaterial restructuring
charges in the second quarter of 2010 and charges of $2,633 or 0.3% of net
sales in the year-to-date period of 2010. The quarter and year-to-date
periods of 2009 included restructuring charges of $5,499 or 1.5% of net sales
and $12,746 or 1.7% of net sales, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                          | Paints Segment EBIT  EBIT included immaterial restructuring charges
in the second quarter of 2010 and charges of $1,404 or 0.3% of net sales in
the year-to-date period of 2010. The quarter and year-to-date periods of 2009
included restructuring charges of $283 or 0.1% of net sales and $581 or 0.1%
of net sales, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                          | All Other EBIT  All Other EBIT includes corporate expenses. EBIT
included immaterial restructuring charges in the second quarter and charges
of $225 or 0.2% of net sales in the year-to-date period of 2010. The quarter
and year-to-date periods of 2009 included restructuring charges of $2,121 or
4.0% of net sales and $3,690 or 3.5% of net sales, respectively. The decrease
in EBIT, as a percent of net sales, for the second quarter and year-to-date
periods of 2010 was driven primarily by higher incentive compensation and
higher raw material costs, partially offset by leverage from higher sales and
lower restructuring charges in 2010.                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Due to the seasonal nature of portions of our business, EBIT for the
 second quarter is not necessarily indicative of EBIT for subsequent quarters
 or for the full year.

|                              |  |                    |        |                  |   |                 |  |              |        |  |   |        | 
|----------------------------- |  | ------------------ | ------ | ---------------- | - | --------------- |  | ------------ | ------ |  | - | ------ | 
|Interest Expense              |  | Three Months Ended |        | Six Months Ended |  
|                              |  | April 30,
 2010    |        | May 1,
 2009     |   | April 30,
 2010 |  | May 1,
 2009 |       
|Consolidated Interest Expense |  | $                  | 14,726 |                  | $ | 10,581          |  | $            | 29,111 |  | $ | 22,507 | 

| |   |                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Interest Expense  The second quarter and year-to-date increase is primarily due to
higher average interest rates resulting from our third quarter 2009 bond
issuance partially offset by lower average debt levels in 2010.

|                   |  |                    |      |                  |  |                 |   |              |      |   |  |      |  
|------------------ |  | ------------------ | ---- | ---------------- |  | --------------- | - | ------------ | ---- | - |  | ---- | -
|Effective Tax Rate |  | Three Months Ended |      | Six Months Ended | 
|                   |  | April 30,
 2010    |      | May 1,
 2009     |  | April 30,
 2010 |   | May 1,
 2009 |     
|Effective Tax Rate |  |                    | 32.1 | %                |  | 32.9            | % |              | 30.0 | % |  | 33.6 | %

| |   |                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Effective Tax Rate The 2010 year-to-date effective tax rate reflects
the settlement of certain income tax audits that decreased income tax
expense. We expect the effective tax rate for the full year to be 31.5% to
32.0%.

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Table of Contents

- 17 -

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

DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS

|                        |  |                    |        |                  |   |           |  |                 |      |              |   |           |  |   |        |  |  |       |  
|----------------------- |  | ------------------ | ------ | ---------------- | - | --------- |  | --------------- | ---- | ------------ | - | --------- |  | - | ------ |  |  | ----- | -
|Net Income              |  | Three Months Ended |        | Six Months Ended |  
|                        |  | April 30,
 2010    |        | May 1,
 2009     |   | %
 Change |  | April 30,
 2010 |      | May 1,
 2009 |   | %
 Change | 
|Consolidated Net Income |  | $                  | 61,673 |                  | $ | 31,130    |  |                 | 98.1 | %            | $ | 95,610    |  | $ | 45,298 |  |  | 111.1 | %
|                       

Financial Condition: Net cash provided by
operations was $54,478 for the first six months of 2010, compared to net cash
used by operations of $26,628 for the first six months of 2009. The cash
provided by operations in 2010 was primarily generated by net income and an
increase in income taxes payable, partially offset by an increase in accounts
and notes receivable, a net decrease in trade accounts payable and other accrued
liabilities and an increase in inventories and other current assets. The
$24,283 increase in income taxes payable is due to timing of tax payments. The
$47,536 increase in accounts and notes receivable is due to higher sales levels
and timing of customer payments. The $35,135 net decrease in trade accounts
payable and other accrued liabilities is due to timing of payments. The $20,393
increase in inventories and other current assets is due to higher inventory
levels in response to improved sales volume.

During the 2010 period, we used cash on hand, cash provided by
operations and $28,525 in proceeds from the sale of treasury stock to fund
$56,531 in share repurchases, $31,761 in dividend payments and $22,334 in
capital expenditures.

Capital expenditures for property, plant and equipment were $22,334 in
the 2010 period, compared with $23,316 in 2009. We anticipate capital spending
in 2010 to be approximately $80,000.

The ratio of total debt to capital was 36.3% at April 30, 2010,
compared to 36.9% at October 30, 2009 and 41.0% at May 1, 2009. We ended our
2010 second quarter with $592,373 of liquidity that includes $427,746 of
available committed credit facilities and $164,627 of cash. We believe cash
flow from operations, existing lines of credit, access to credit facilities and
access to debt and capital markets will be sufficient to meet our current and
projected financing needs.

We have a credit facility with covenants that require us to maintain
certain financial ratios. We were in compliance with these covenants as of
April 30, 2010. Our debt covenants do not limit, nor are they reasonably likely
to limit, our ability to obtain additional debt or equity financing.

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

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

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

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

Forward Looking Statements: Certain statements contained in
Managements Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in this report constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements made by or on behalf of the Company. These forward-looking
statements are based on managements current expectations, estimates,
assumptions and beliefs concerning future events, conditions and financial
performance. 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 compliance and avoid disruption of our
business; risks of disruptions in business resulting from our relationships
with 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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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 April 30, 2010,
approximately 3.4 % of our total debt consisted of floating rate debt. From
time to time, we may enter into interest rate swaps to hedge a portion of
either our variable or fixed rate debt. Assuming the current level of
borrowings, a 10% increase in interest rates from those in effect at the end of
the second quarter would not have a material impact on our results of
operations or financial position.

ITEM 4: CONTROLS AND PROCEDURES

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

We have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of April 30, 2010. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective.

There were no changes in our internal control over financial reporting
during the quarter ended April 30, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

PART II. OTHER
INFORMATION

ITEM 1: LEGAL PROCEEDINGS

During the period covered by this report, there were no legal
proceedings instituted that are reportable, and there were no material
developments in any of the legal proceedings that were previously reported on
our Form 10-K for the year ended October 30, 2009.

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

| | (a) | Not
 applicable                                                                                  
| | --- | -------------------------------------------------------------------------------------------------
| | (b) | Not
 applicable                                                                                  
| | (c) | We made the
 following repurchases of equity securities during the quarter ended April 30,
 2010:

|                   |  |                                    |         |                                |   |                                                                                     |  |                                                                                   |         |  |  |          
|------------------ |  | ---------------------------------- | ------- | ------------------------------ | - | ----------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------- | ------- |  |  | ---------
|Period             |  | Total Number
 of Shares
 Purchased |         | Average
 Price Paid
 per Share |   | Total Number of
 Shares Purchased as Part
 of Publicly Announced
 Plans or Programs |  | Maximum Number
 of Shares that May
 Yet be Purchased Under
 the Plans or Programs
|1/30/10 
 2/26/10 |  |                                    | 100,000 |                                | $ | 27.63                                                                               |  |                                                                                   | 100,000 |  |  | 2,900,000
|                   |  |                                    |         |                                |   |                                                                                     |  |                                                                                   |         |  |  |          
|2/27/10 
 3/26/10 |  |                                    | 500,000 |                                |   | 28.66                                                                               |  |                                                                                   | 500,000 |  |  | 2,400,000
|                   |  |                                    |         |                                |   |                                                                                     |  |                                                                                   |         |  |  |          
|3/27/10 
 4/30/10 |  |                                    | 400,000 |                                |   | 29.54                                                                               |  |                                                                                   | 400,000 |  |  | 2,000,000

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ITEM 6: EXHIBITS

| |          |                                                                                                                                                                         
| | -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Exhibits |                                                                                                                                                                         
| | 10.1     | The Valspar
 Corporation 2009 Omnibus Equity Plan (as amended through June 8, 2010)                                                                                     
| | 31.1     | Section 302
 Certification of the Chief Executive Officer                                                                                                               
| | 31.2     | Section 302
 Certification of the Chief Financial Officer                                                                                                               
| | 32.1     | Certification
 of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.
 §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

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

|                    |                            |                   
|------------------- | -------------------------- | ------------------
|                    | THE VALSPAR
 CORPORATION  
|                    |                            |                   
|Date: June
 9, 2010 | By                         | /s/Rolf Engh      
|                    | Rolf Engh                 
|                    | Secretary                 
|                    |                            |                   
|Date: June
 9, 2010 | By                         | /s/Lori A.
 Walker
|                    | Lori A.
 Walker           
|                    | Senior Vice
 President and
|                    | Chief
 Financial Officer  

---