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 May 31, 1997
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 June 30, 1997:
Class A Common 22,735,000
Class B Common 312,000
Page 1 of 13
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
May 31 May 31
1997 1996
-----------------------
Net sales $ 154,238 $ 131,711
Costs and expenses:
Cost of products sold 95,045 84,237
Selling, administrative and general 36,062 28,585
Research and development 4,656 4,618
Restructuring charge 0 9,607
--------- ---------
135,763 127,047
--------- ---------
OPERATING INCOME 18,475 4,664
Other income (expense):
Sundry (29) 173
Interest expense (4,989) (3,153)
--------- ---------
(5,018) (2,980)
--------- ---------
INCOME BEFORE INCOME TAXES 13,457 1,684
Income Taxes 6,056 1,068
--------- ---------
NET INCOME $ 7,401 $ 616
========= =========
Cash dividends per share--Note B $ 0.08 $ 0.08
========= =========
Average number of shares and equivalent shares
of capital stock outstanding--Note B 23,400 23,000
========= =========
Net income per share--Note B $ 0.32 $ 0.03
========= =========
See notes to consolidated condensed financial statements.
Page 2 of 13
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
Six Months Ended
May 31 May 31
1997 1996
-----------------------
Net sales $ 296,398 $ 204,982
Costs and expenses:
Cost of products sold 185,157 133,447
Selling, administrative and general 70,063 43,454
Research and development 9,251 7,790
Restructuring charge 0 9,607
--------- ---------
264,471 194,298
--------- ---------
OPERATING INCOME 31,927 10,684
Other income (expense):
Sundry 121 339
Interest expense (10,029) (3,624)
--------- ---------
(9,908) (3,285)
--------- ---------
INCOME BEFORE INCOME TAXES 22,019 7,399
Income Taxes 9,908 3,297
--------- ---------
NET INCOME $ 12,111 $ 4,102
========= =========
Cash dividends per share--Note B $ 0.16 $ 0.16
========= =========
Average number of shares and equivalent shares
of capital stock outstanding--Note B 23,400 23,000
========= =========
Net income per share--Note B $ 0.52 $ 0.18
========= =========
See notes to consolidated condensed financial statements.
Page 3 of 13
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
May 31 November 30
1997 1996
------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,321 $ 6,790
Accounts receivable, less allowances
for doubtful accounts (5/31/97, $2,817;
11/30/96, $2,706) 82,024 84,592
Inventories--Note C 48,681 47,546
Other 12,219 19,790
--------- ---------
TOTAL CURRENT ASSETS 152,245 158,718
OTHER ASSETS 24,971 23,749
INTANGIBLE ASSETS 251,387 258,811
PROPERTY AND EQUIPMENT
Land, buildings and equipment 131,153 127,538
Allowances for depreciation (deduction) (50,653) (46,956)
--------- ---------
80,500 80,582
--------- ---------
$ 509,103 $ 521,860
========= =========
See notes to consolidated condensed financial statements.
Page 4 of 13
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
May 31 November 30
1997 1996
------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 50,447 $ 56,593
Other 32,844 35,022
Current portion of long-term debt 20,520 16,524
--------- ---------
TOTAL CURRENT LIABILITIES 103,811 108,139
LONG-TERM DEBT 230,261 245,037
OTHER LIABILITIES 43,665 46,795
SHAREHOLDERS' EQUITY Capital stock:
Class A (limited voting) 15,213 15,103
Class B (voting) 300 300
Additional capital 77,033 75,433
Retained earnings 71,452 62,990
Currency translation adjustments (65) 88
Cost of capital stock in treasury
(deduction) (32,567) (32,025)
--------- ---------
131,366 121,889
--------- ---------
$ 509,103 $ 521,860
========= =========
See notes to consolidated condensed financial statements.
Page 5 of 13
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
Six Months Ended
May 31 May 31
1997 1996
------------------------
OPERATING ACTIVITIES:
Net income $ 12,111 $ 4,102
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 4,449 3,008
Amortization of intangibles 5,881 3,142
Restructuring charge 0 9,607
Deferred income taxes 1,610 (4,000)
Changes in operating assets and liabilities,
net of effects from acquired business:
Accounts receivable 2,568 (2,475)
Inventories (1,135) (4,707)
Accounts payable and accrued expenses (8,324) 1,409
Sundry (74) 4,428
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,086 14,514
INVESTING ACTIVITIES:
Purchases of property and equipment (6,202) (6,505)
Payment for acquired business 0 (235,000)
Sundry 4,908 (879)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (1,294) (242,384)
FINANCING ACTIVITIES:
Cash dividends paid (3,649) (3,606)
Proceeds from short-term and long-term borrowings 0 278,000
Principal payments on long-term debt (8,780) (59,578)
Net payments on revolving note (2,000) 0
Sundry 1,168 779
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (13,261) 215,595
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,531 (12,275)
Cash and cash equivalents at beginning of year 6,790 20,260
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $9,321 $ 7,985
========= =========
See notes to consolidated condensed financial statements.
Page 6 of 13
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
MAY 31, 1997
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, 1996.
NOTE B--SHARE AND PER SHARE AMOUNTS
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):
May 31 November 30
1997 1996
Finished products $ 26,560 $ 25,847
Raw materials 30,197 29,375
-------- --------
56,757 55,222
Less adjustment of certain
inventories to last in,
first out (LIFO) basis 8,076 7,676
-------- --------
$ 48,681 $ 47,546
======== ========
The Company uses the LIFO method in inventory valuation for approximately 82% 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.
Page 7 of 13
NOTE D--RESTRUCTURING
In 1996 the Company implemented plans for the consolidation of manufacturing
facilities related to the Guardsman acquisition. These plans include the closure
of some Lilly and Guardsman plants and workforce reductions. It is anticipated
these plans will be completed by the end of fiscal 1997.
Costs associated with the planned closure of Lilly facilities and workforce
reductions were recorded in the 1996 second quarter as a restructuring charge
totaling $9,607,000, which reduced net income by $5,284,000 or $.23 per share.
The components of the restructuring charge and amounts paid or charged against
these reserves are as follows (in thousands):
Costs Paid Ending
Provision or Charged Balance
Facilities, equipment,
inventories, and other $7,827 $ 836 $6,991
Termination benefits 1,780 759 1,021
------ ------ ------
$9,607 $1,595 $8,012
====== ====== ======
Costs associated with the planned closure of Guardsman facilities and workforce
reductions were recorded as liabilities in the opening balance sheet of the
combined entity as of the acquisition date. The components of these liabilities
and amounts paid or charged against these reserves are as follows (in
thousands):
Costs Paid Ending
Liabilities or Charged Balance
Facilities, equipment,
inventories, and other $6,532 $3,324 $3,208
Termination benefits 2,476 1,217 1,259
------ ------ ------
$9,008 $4,541 $4,467
====== ====== ======
NOTE E--ACQUISITION
On April 8, 1996 the Company acquired all the outstanding shares of Guardsman
Products, Inc. ("Guardsman") for $235,000,000 in cash. The Company used
$275,000,000 of senior secured credit facilities to finance the acquisition,
pay-off existing debt and to pay related expenses. The acquisition was recorded
using the purchase method and the consolidated financial statements include the
results of operations of Guardsman since the date of acquisition.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Second quarter sales and net income were records for a second quarter. For the
three months ended May 31, sales rose 17% to $154.2 million compared with $131.7
million for the same quarter last year. Second quarter net income increased to
$7.4 million, up 25% from last year, before last year's restructuring charge.
Net income per share increased to 32(cent) from 26(cent) last year, on a
comparable basis.
Page 8 of 13
The 1997 second quarter was the best second quarter in the Company's history.
Sales, operating income, net income and net income per share each set new second
quarter records. Earnings improved due mainly to higher sales and greater
manufacturing efficiencies realized from a combination of new equipment
installations and closings of older plants during the past twelve months.
Further cost reductions are anticipated as new plants in Charlotte, NC and
Bowling Green, KY move toward full production in the next six to nine months.
For the six-month period ended May 31, sales of $296.4 million were up 45% from
last year. Net income of $12.1 million and net income per share of 52(cent) were
up 29% and 27% , respectively, from last year's results, before the
restructuring charge. Sales gains largely reflected ownership of Guardsman for
the full six months of 1997 compared with two months in 1996. Gross profit
margin improved 2.6 percentage points compared to last year due to better sales
mix and manufacturing efficiencies.
Second quarter results and improved financial position were encouraging. Total
debt of $251 million at May 31, 1997 is $24 million lower than a year ago.
Current strategies for enhanced shareholder value include paying down debt,
consolidating older plants, opening new facilities, developing new technologies,
and expanding our presence overseas. The Company now has operations in eight
foreign countries, having recently opened a Far East headquarters site in
Singapore. A new plant in Ireland will be producing product by the end of this
year's fourth quarter.
The Board of Directors declared a quarterly cash dividend of 8(cent) per common
share, payable on October 1, 1997, to shareholders of record at the close of
business on September 10, 1997. This marks the Company's 234th consecutive
quarterly cash dividend.
Page 9 of 13
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At the annual meeting of shareholders of Lilly Industries, Inc. on April 24,
1997, the following directors were elected by the votes indicated:
Votes
Withheld,
Abstentions
Stock and Broker
Director Class Votes For Nonvotes
- --------------------- ----- ---------- ------------
James M. Cornelius A 18,336,260 252,247
John D. Peterson A 18,307,330 281,177
Thomas E. Reilly, Jr. A 18,334,696 253,811
Van P. Smith A 18,331,000 257,507
William C. Dorris B 342,707 6,836
Paul K. Gaston B 342,707 6,836
Douglas W. Huemme B 342,707 6,836
Harry Morrison, Ph.D. B 342,707 6,836
Norma J. Oman B 342,707 6,836
Robert A. Taylor B 342,707 6,836
Shareholders also approved adoption of a proposal to amend the Company's 1992
Stock Option Plan to increase the shares reserved by one million. Approval of
this proposal required the affirmative vote of a majority of the shares of the
Class A Stock and Class B Stock voting as separate voting groups. The proposal
was adopted with 14,265,268 shares, or 64%, of Class A Stock and 348,268 shares,
or 96%, of Class B Stock voting for the proposal. Shares of Class A Stock voting
against were 2,240,042. Shares of Class A Stock either abstained or the subject
of broker nonvotes were 2,083,197. Shares of Class B Stock voting against were
1,275.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are included or incorporated by reference
herein:
EXHIBIT 10 First Amendment to Credit Agreement dated April 2,
1997, between Lilly Industries, Inc., the Lenders
Signatory thereto, NBD Bank, N.A., as Agent, and
Harris Trust and Savings Bank, Comerica Bank,
Mercantile Bank of St.Louis, and Bank One, Indiana,
N.A., as Co-Agents
EXHIBIT 11 Computation of Earnings Per Share
EXHIBIT 27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three
months ended May 31, 1997.
Note: All other item numbers under this section are not applicable.
Page 10 of 13
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)
July 15, 1997
/s/ Douglas W. Huemme
----------------------------
Douglas W. Huemme
Chairman, President and
Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER
July 15, 1997
/s/ John C. Elbin
----------------------------
John C. Elbin
Vice President and
Chief Financial Officer
Page 11 of 13