FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended February 28, 1994
Commission file number 0-6953
LILLY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-0471010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
733 SOUTH WEST STREET
INDIANAPOLIS, INDIANA 46225
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(317) 687-6700
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 periods that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date.
Number of shares outstanding at March 31, 1994:
Class A Common 14,885,000
Class B Common 225,000
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
Three Months Ended
February 28 February 28
1994 1993
______________________
Net sales $73,972 $54,524
Costs and expenses:
Cost of products sold 49,731 36,399
Selling, administrative and general 14,899 11,268
Research and development 3,340 2,709
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67,970 50,376
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OPERATING INCOME 6,002 4,148
Other income (expense):
Interest income and sundry 18 98
Interest expense (603) (302)
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(585) (204)
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INCOME BEFORE INCOME TAXES 5,417 3,944
Income Taxes 2,276 1,656
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NET INCOME $ 3,141 $ 2,288
======= =======
Cash dividends per share--Note B $ 0.090 $ 0.087
======= =======
Average number of shares and equivalent shares
of capital stock outstanding--Note B 15,480 15,241
======= =======
Net income per share--Note B $ 0.20 $ 0.15
======= =======
<FN>
See notes to consolidated condensed financial statements.
/TABLE
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
February 28 November 30
1994 1993
________________________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,956 $ 7,384
Short-term investments 75 75
Accounts receivable, less allowances
for doubtful accounts (2/28/94, $1,383;
11/30/93, $1,353) 39,326 $ 39,936
Inventories--Note C 22,904 22,727
Prepaid expenses 895 99
-------- --------
TOTAL CURRENT ASSETS 71,156 70,221
OTHER ASSETS 7,483 7,576
INTANGIBLE ASSETS 54,277 55,471
PROPERTY AND EQUIPMENT
Land 3,966 3,910
Buildings and equipment 67,126 65,895
Allowances for depreciation (deduction) (36,970) (36,029)
-------- --------
34,122 33,776
-------- --------
$167,038 $167,044
======== ========
<FN>
See notes to consolidated condensed financial statements.
/TABLE
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
February 28 November 30
1994 1993
________________________
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 23,327 $ 24,872
Salaries, wages, commissions and
related items 5,919 7,341
State and local taxes 411 273
Federal income taxes 2,026 985
Current portion of long-term debt 4,436 3,480
-------- --------
TOTAL CURRENT LIABILITIES 36,119 36,951
LONG TERM DEBT 39,001 40,621
OTHER LIABILITIES 8,469 8,344
SHAREHOLDERS' EQUITY
Capital stock:
Class A (limited voting) 14,798 14,705
Class B (voting) 300 300
Additional capital 71,475 70,635
Retained earnings 22,759 20,970
Currency translation adjustments 12 105
Cost of capital stock in treasury
(deduction) (25,895) (25,587)
-------- --------
83,449 81,128
-------- --------
$167,038 $167,044
======== ========
<FN>
See notes to consolidated condensed financial statements
/TABLE
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
Three Months Ended
February 28 February 28
1994 1993
________________________
OPERATING ACTIVITIES
Net income $ 3,141 $ 2,288
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,095 988
Amortization of intangibles 1,113 508
Deferred income taxes (48) (439)
Changes in operating assets and liabilities:
Accounts receivable 610 (1,767)
Inventories (177) (1,266)
Prepaid expenses (796) (587)
Accounts payable and accrued expenses (2,829) (506)
Income taxes 1,041 (476)
Sundry (201) (167)
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 2,949 (1,424)
INVESTING ACTIVITIES
Purchases of property and equipment (1,464) (1,191)
Proceeds from maturities of short-term investments 0 2,417
Sundry 1,103 359
------- -------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (361) 1,585
FINANCING ACTIVITIES
Cash dividends paid (1,352) (1,285)
Principal payments on short-term and
long-term borrowings (664) (1,081)
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NET CASH USED BY FINANCING ACTIVITIES (2,016) (2,366)
------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 572 (2,205)
Cash and cash equivalents at beginning of year 7,384 8,334
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,956 $ 6,129
======= ========
<FN>
See notes to consolidated condensed financial statements.
/TABLE
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
FEBRUARY 28, 1994
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. For further information, refer to the
consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the year ended
November 30, 1993.
NOTE B--SHARE AND PER SHARE AMOUNTS
Share and per share amounts have been adjusted to reflect the
three-for-two stock split in March, 1993. Equivalent shares of
capital stock represent additional shares assumed issued upon
exercise of stock options.
NOTE C--INVENTORIES
The principal inventory classifications are summarized as follows
(in thousands):
February 28 November 30
1994 1993
Finished products $ 13,046 $ 12,971
Raw materials 17,721 17,619
-------- --------
30,767 30,590
Less adjustment of certain
inventories to last in,
first out (LIFO) basis 7,863 7,863
-------- --------
$ 22,904 $ 22,727
======== ========
The Company uses the LIFO method in inventory valuation for
approximately 85% of inventories where an actual valuation can be
made only at the end of each year based on the inventory levels
and costs at that time. Accordingly, interim LIFO calculations
must necessarily be based on management's estimates of expected
year-end inventory levels and costs. Since these are subject to
many forces beyond management's control, interim results are
subject to the final year-end LIFO inventory valuation. The
Company estimates the annual adjustment for LIFO and allocates it
to quarters based on actual inflation experienced in a quarter as
it relates to anticipated inflation for the year.
NOTE D--ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
NO. 106
During the first quarter of fiscal 1994, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions". SFAS No. 106 requires accrual accounting for the
expected cost of providing postretirement health care benefits to
retirees. Prior to fiscal 1994, the Company recognized the cost
of these benefits as claims were paid. Expense recognized under
SFAS No. 106 is not materially different from expense recognized
prior to 1994 using the cash basis.
The Company provides health care benefits to retirees meeting
certain eligibility requirements. Eligibility is based on age
and years of service. Retirees participate in the cost of these
benefits through contributions and other cost sharing features
such as deductibles and coinsurance, which are subject to
periodic adjustment by the Company. Funding of benefits is
provided by the Company and retiree contributions.
The accumulated postretirement benefit obligation resulting from
the adoption of SFAS No. 106 is $4.8 million ($2.8 million net of
tax) and is being amortized over 20 years. The accumulated
postretirement benefit obligation was determined using a discount
rate of 8.5%.
The health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 12% in 1994 and is assumed
to decrease gradually to 6% in the year 2000 and finally to 5.5%
in the year 2019 and thereafter. A one percent increase in the
health care cost trend rate would increase the accumulated
postretirement benefit obligation by approximately 3%.
NOTE E--ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
NO. 109
During the first quarter of fiscal 1994, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". The effect of adopting this accounting
standard was not material.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
Sales and earnings for the 1994 first quarter were new record
first quarter highs and consistent with expectations. For the
three months ended February 28, 1994, sales increased 36% to
$74.0 million compared to $54.5 million for the first quarter
1993. Net income increased 37% to $3.1 million, or 20 cents per
share, up from $2.3 million, or 15 cents per share, for last
year's first quarter.
All major markets showed sales improvement during the quarter
with most of the sales gain attributable to the business acquired
in mid-year 1993. In addition, sales growth continues for non-
acquisition business reflecting strengthening demand from an
improving economy.
Higher operating expenses for the first quarter relate to
increased business volume. Integration of the acquired business
into our existing facilities is now in the final stage of
completion.
On March 25, 1994 the Board of Directors declared the 221st
consecutive quarterly cash dividend. The dividend of 10 cents
per share is payable July 1, 1994 to shareholders of record on
June 10, 1994.
We anticipate a continuing trend of improved performance for the
remainder of 1994.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibit is included herein:
EXHIBIT 11 Computation of Earnings Per Share
(b) The Company did not file any reports on Form 8-K during the
three months ended February 28, 1994.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
LILLY INDUSTRIES, INC. (Registrant)
April 13, 1994
/s/ Douglas W. Huemme
Chairman, President and
Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER
April 13, 1994
/s/ Roman J. Klusas
Vice President and
Chief Financial Officer
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
LILLY INDUSTRIES, INC.
(In thousands, except per share data)
Three Months Ended
February 28 February 28
1994 1993
Primary:
Average shares outstanding--
Note A 15,050 14,833
Net income $ 3,141 $ 2,288
Net income per common share--
Note A $ 0.21 $ 0.15
======= =======
Average shares outstanding--
Note A 15,050 14,833
Dilutive stock options based
on treasury stock method
using average market
price--Note A 418 381
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15,468 15,214
Net income $ 3,141 $ 2,288
Net income per common
and common equivalent
share--Note A $ 0.20 $ 0.15
======= =======
Fully diluted:
Average shares outstanding--
Note A 15,050 14,833
Dilutive stock options based
on the treasury stock
method using the higher
of quarter end or average
market price--Note A 430 408
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15,480 15,241
Net income $ 3,141 $ 2,288
Net income per common
and common equivalent
share--Note A $ 0.20 $ 0.15
======= =======
<FN>
Note A--Share and per share amounts have been adjusted to reflect the
three-for-two stock split in March, 1993.