FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Fiscal Year ended November 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Stock, without par value
Common Share Purchase Right
(Title of class)
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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Page 1 of Pages
Exhibit Index on Page
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 17, 1998 was $442,468,000.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 17, 1998.
22,702,280 shares of Class A Common Stock, without par value
422,687 shares of Class B Common Stock, without par value
DOCUMENTS INCORPORATED BY REFERENCE
Part II: Items 5 Annual Report to Shareholders for Fiscal
through 8 Year Ended November 30, 1997
Part III: Items 10 Proxy Statement for Annual Meeting of
through 13 Shareholders to be held April 23, 1998
2
PART I
Lilly Industries, Inc.
Item 1. BUSINESS
Business Description
Lilly Industries, Inc. (referred to herein as "Lilly" or the "Company") was
founded in 1865, and incorporated under the laws of the State of Indiana on
December 5, 1888. The Company believes it is a leader in the industrial coatings
industry, one of the five largest industrial coatings manufacturers in North
America, and one of the 15 largest in the world based on net sales of $601.3
million in fiscal 1997. Lilly formulates, produces and sells coatings primarily
to original equipment manufacturers, enhancing the appearance of and providing
durability to products such as home and office furniture, cabinets, appliances,
building products, transportation, agricultural and construction equipment,
mirrors and a variety of metal and fiberglass reinforced surfaces. A significant
amount of the Company's sales represent coatings developed in cooperation with
its customers to meet their specific product requirements, resulting in a number
of primary supplier relationships with those customers. Lilly also produces and
sells household products, such as fabric protectors, furniture care products and
cleaning aids.
No one class of similar products (other than protective and decorative
coatings) accounted for 10% or more of consolidated revenues of the Company in
any of the last three fiscal years. The Company has only one reportable industry
segment, and employs approximately 2,100 people. The Company has plants and
sales offices in the U.S., Australia, Canada, China, Germany, Ireland, Malaysia,
Singapore, Taiwan and the United Kingdom. (1)
On April 8, 1996, the Company acquired all the outstanding shares of
Guardsman Products, Inc. ("GPI") for $235 million in cash. Like the Company, GPI
was in the business of formulating, producing and selling industrial coatings.
GPI also marketed various household furniture care and automotive after-market
products. With the acquisition of GPI, Lilly increased its fiscal 1996 net sales
by approximately 55% over fiscal 1995 net sales. The GPI acquisition
strengthened Lilly's market position by broadening customer base and product
lines. The acquisition increased Lilly's presence in industrial wood and metal
coatings, and provided it with important environmentally-friendly water-borne
technologies. Lilly also gained a household products business focused on fabric
and stain protection products for household furniture. This business is
characterized by relatively high margins and the potential for new product
development, and adds a degree of diversification to the Company.
- --------------
(1) References in this Form 10-K are references to the Company's fiscal years
ended November 30, 1995, 1996 and 1997.
Industrial Coatings Industry
Coatings protect a wide range of manufactured goods from the effects of
external elements over the life of the product. In addition, coatings make
products more aesthetically pleasing to end-use customers. Lilly competes in
three principal industrial coatings markets: (i) wood coatings, such as
furniture lacquer and protective color; (ii) metal coatings, such as coil and
powder coatings used to finish furniture, appliances and transportation
equipment; and (iii) composites and glass coatings, such as those used for
mirrors.
Sales for the global paints and coatings market equal approximately $50
billion annually, with annual sales for the domestic market equaling
approximately $17 billion. Annual sales for the industrial coatings segment in
which Lilly participates are approximately $25 billion globally and $8.5 billion
domestically. The balance of the market consists primarily of architectural
coatings (primarily house paints), a market in which Lilly does not compete, and
specialty coatings, including maintenance coatings and traffic paints.
Industrial coatings is a mature and highly fragmented industry in the
U.S., growing in-line with industrial production, and includes many small
competitors. Long term annual unit growth in the U.S. industrial coatings
business is projected between 1% and 2%, largely tied to fluctuations in general
economic cycles. Annual unit growth rate is projected between 1% and 2% in
Europe and between 4% and 6% in Asia. The North American industrial coatings
industry is divided among over 700 participants.
Due to its maturity and historically fragmented participant base, the
coatings industry is undergoing consolidation through mergers and acquisitions.
Consolidation of the coatings industry is being driven by several factors,
including (i) the need for growth in maturing markets; (ii) environmental costs
which, together with a more demanding global customer base, will make it
difficult for smaller manufacturers with limited financial resources to remain
independent; and (iii) the increasing technical and financial resources of the
larger players. To date, the effects of industry consolidation include a greater
concentration of market share with fewer companies, a reduction in the number of
competitors, and the creation of new synergies within the larger coatings
companies, such as raw material purchasing power and manufacturing economies of
scale.
Competition
The industrial coatings industry is competitive, with more than 700
North American manufacturers operating in numerous market segments.
Manufacturers include large international companies as well as small regional
firms, and no one manufacturer dominates. Competitive advantages include
developing coatings that meet specific customer requirements, pricing coatings
competitively and rapidly delivering quality products. Increasingly,
technological developments that reduce negative environmental effects are
becoming an important competitive factor.
Lilly is one of the top five industrial coatings manufacturers in North
America, one of the top 15 worldwide, and, with the acquisition of GPI, became
the largest supplier to the U.S. residential furniture market, serving virtually
all of the top 25 U.S. furniture manufacturers. The Company is also well
represented in other wood coatings, industrial metal finishes, coil and powder
coatings and mirror glass coatings markets. While Lilly is among the top five
North American producers of industrial coatings, some competitors are generally
more diversified and have greater financial resources than the Company. Major
competitors include Akzo Nobel; Ferro Corporation; Morton International, Inc.;
The Sherwin-Williams Company; PPG Industries, Inc.; and The Valspar Corporation.
End Use Markets
The Company focuses on four end use markets: metal coatings; wood
coatings; glass coatings and composites; and Guardsman products. These four
markets accounted for approximately 39%, 38%, 12% and 11% of the Company's
fiscal 1997 net sales, respectively. The following provides a summary of these
markets.
Metal Coatings. The Company's metal coatings provide specialized
coatings for numerous applications such as appliances, building products and
fixtures (such as residential siding, aluminum gutters, and metal roofing),
agricultural and construction equipment, furniture, bicycles, digital satellite
systems, automotive trim and wheels, entry and garage doors, computers, window
trim, shelving, and playground equipment. These coatings include traditional
liquid coatings as well as polyester-based coil coatings and a full range of
decorative and functional powder coatings. The coil coatings process is
considered one of the most environmentally safe, energy-efficient methods of
applying coatings to metal substrates. Lilly's technical innovation has produced
conventional and waterborne coil coatings formulated with proprietary resins
that provide high exterior durability, flexibility, corrosion resistance and
chemical resistance. Powder coatings are experiencing growth because of their
environmental desirability, as powder coatings have no solvent content. Lilly
powder coatings are environmentally compliant and provide outstanding durability
and performance for both interior and exterior applications. Metal coatings are
manufactured at fourteen facilities in the U.S. and two in Canada.
Wood Coatings. Lilly's wood coatings provide a full range of
custom-formulated coatings designed to enhance the beauty of wood while
providing maximum durability for products such as residential and office
furniture, building products and kitchen cabinets. Wood coatings are
manufactured at six U.S. locations, as well as five foreign facilities located
in Canada, China, Ireland, Malaysia and Taiwan.
Glass Coatings and Composites. Lilly's glass coatings are well
recognized globally. The Company's glass coatings provide mirror manufacturers
with everything needed to convert glass into mirrors of premier quality. Glass
coatings include patented silver and copper plating solutions, as well as
low-lead and lead-free coatings for mirror-back protection, all of which meet
the environmental and quality performance standards of mirror manufacturers.
Glass coatings are manufactured at two facilities located in Connecticut, and
foreign facilities located in Canada and Germany. The Company's composites
include in-mold coatings ("gelcoats") that are used as the surface finish on
boats, recreational vehicles, cultured marble vanity tops, custom van and truck
components and personal watercraft.
Guardsman Products. The Company also manufactures and distributes a
wide variety of household products consisting of four distinct businesses:
Interior Care, Consumer Products, Specialty Chemicals and WoodPro(R). The
Interior Care business provides fabric protection and furniture care products to
consumers through furniture stores, and is the world's largest supplier of
retail-applied fabric protection, Fabri-Coate(R). The Consumer Products business
markets several well-known brand name household specialty items, such as
Guardsman(R) Furniture Polish, Goof Off(R) remover, One-Wipe(R) dust clothes and
Chip Clip(R) snack closures. These products are sold through hardware, home
center, paint, mass merchant and grocery retailers. The Specialty Chemicals
business manufactures private-label automotive chemicals such as brake part
cleaner, fuel injector cleaner, and engine oil supplements for national
automotive customers. This division also serves as a private-label contractor in
the chemical packaging market. The WoodPro(R) business is a franchise group that
offers on-site repair and maintenance of wood and upholstered furnishings for
the home or office. These businesses operate from two facilities located in
Michigan and one facility located in the United Kingdom.
Distribution and Customers
Lilly's technical sales force of approximately 600 people market and
sell its industrial coatings directly to over 6,000 industrial customers
throughout the world. Most of the Company's customers are located throughout the
United States and Canada, with the remaining customers concentrated in Asia and
Europe. The Company is not dependent upon any single customer or few customers.
The loss of any single customer would not have a material adverse impact on the
Company. No single customer of the Company represented more than 5% of net
sales. International sales, including U.S. exports of $17.2 million, were $126.5
million in fiscal year 1997, which represented 21% of consolidated sales.
Information concerning the Company's net sales, pre-tax profit and assets in
foreign countries and the United States for the three years ended November 30,
1997 is set forth in Note 9 in the Notes to Consolidated Financial Statements in
the Company's 1997 Annual Report to Shareholders. Note 9 is incorporated herein
by reference.
The Company has no significant order backlog. No material part of the
business is subject to re-negotiation of profit or termination of contracts or
subcontracts at the election of any governments. Historically, first quarter
operating results are below operating results for the second, third and fourth
quarters due to the lower demand for industrial production which typically
occurs in December.
Raw Materials
Raw materials are the largest single cost in the industrial coatings
business, representing about half of the selling price of most coatings. The
typical coating consists of pigments dispersed in a liquid known as the
"vehicle," which is usually composed of one or more polymers, and a solvent. The
solvent helps the coating spread over the substrate; the polymers form a film to
hold the coating in place after the solvent has evaporated and provides the
unique performance characteristics of the coating. Solvents are typically
petrochemical-based products that evaporate quickly. However, the use of
petrochemical-based solvents is declining as environmentally friendly
technologies, such as water-borne and powder coatings, gain market share. The
pigment, usually an inorganic substance, provides the color. "Fillers" and
"extender pigments" provide gloss and sheen control, while specialty chemicals
known as additives, enhance the flow and application properties of the coating.
The Company manufactures its industrial coatings from a variety of
polymers, pigments, solvents and other chemicals, the bulk of which are obtained
from petrochemical feed stocks. In addition to petrochemicals, the Company uses
both silver and copper. Under normal conditions, all of these raw materials are
available on the open market, although prices and availability are subject to
fluctuation from time to time. Lilly, like most other companies in the coatings
industry, uses a variety of organic and inorganic materials in its products. No
single raw material cost currently accounts for over 4% of net sales and most
account for 1% of net sales or less.
The Company's largest single raw material cost is for titanium dioxide
(TiO2), which is a white pigment, and accounts for approximately 30% of pigment
usage in the coatings industry. The Company's annual expenditures for TiO2 total
approximately 4% of the Company's annual net sales.
Research and Development
Lilly's Corporate Technology Center, as well as laboratories at its
major facilities, emphasize the development of product finishes to meet specific
requirements of customers and the maintenance of quality throughout the
manufacturing process. They are also engaged in research directed toward
development of new products and new manufacturing and application techniques.
Research and development expenses were $18.7 million (3.1% of net sales), $17.3
million (3.4% of net sales) and $13.2 million (4.0% of net sales) for the fiscal
years 1997, 1996 and 1995, respectively. Future research and development
expenses as a percent of net sales are anticipated to remain at current levels
with emphasis on new product development.
The Company holds several patents and trademarks, and considers patent
and trademark protection to be important, but no individual patent is currently
material to the Company's business as a whole. The Company has patents and
licenses for glass coatings which are material to that specific business; and
new patents are continually being developed to sustain the Company's competitive
advantage.
Properties
As of November 30, 1997, Lilly maintained 31 principal facilities, of
which 20 were located in the U.S. See Item 2 - Properties. The plants range in
size from approximately 260,000 square feet to approximately 9,000 square feet.
The facilities vary in age and are well maintained and adequate for their
present uses. Utilization rates vary from site to site depending on capacity,
customers served and range of production capabilities. The Company believes it
can take advantage of special situations (e.g., special orders, new customers,
new technology) that may arise during the course of an operating cycle by adding
capacity through incremental shifts. Each facility operates technical support
centers to assist customers in addressing both application and processing
issues.
Although the Company has traditionally located its domestic plants near
its customer base, the Company has begun to rely on larger, more efficient,
centralized plants in the U.S. With respect to its foreign operations, the
Company continues to adhere to its strategy of following, and being in close
proximity to, its customers as they open plants around the world.
Employees and Collective Bargaining Units
As of November 30, 1997, Lilly employed approximately 2,100 people. The
coatings industry is not heavily unionized and to the extent that there is
unionization, it is highly fragmented. Unionized workers account for
approximately 14% of the Company's total work force and operate through six
separate unions at seven Lilly facilities. The Company believes that its
relations with its employees are good.
Environmental Regulation
The Company's operations are subject to numerous foreign, federal,
state and local environmental laws and regulations relating to protection of the
environment, employee health and safety, and the discharge, storage, treatment
and disposal of hazardous materials. In the United States, these laws include
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "Superfund"), the Resource Conservation and Recovery Act, the Clean
Water Act, and the Clean Air Act. Certain operations of the Company use
pigments, resins and solvents that contain chemicals that are considered
hazardous under various environmental laws. Accordingly, management closely
monitors the Company's environmental performance at its facilities. Management
believes that the Company is in compliance in material respects with all
environmental laws and regulations.
CERCLA imposes joint and several liability, without regard to fault or
the legality of the original conduct, on certain classes of persons that are
considered to have contributed to the release of hazardous substances into the
environment. These persons include the owner and operator of the site where the
release occurred and companies that disposed or arranged for disposal of the
hazardous substances found at the site. The Company has been named as a
potentially responsible party ("PRP") by the United States Environmental
Protection Agency ("EPA") or similar state agencies with respect to several
inactive waste processing and/or disposal sites where clean-up costs have been
incurred or may be incurred. In addition to these sites, the Company is
currently investigating and remediating on-site disposal areas at certain of its
current and former facilities.
The Company continually assesses its environmental matters and establishes
reserves to provide for these matters as they arise. The Company's experience to
date leads it to believe that it will have continuing expenditures for
compliance with provisions regulating protection of the environment and
remediation efforts at waste and manufacturing sites. However, management
believes that such expenditures will not have a material adverse effect on
operating results or the financial position of the Company as a whole.
Under the Clean Air Act Amendments of 1990 ("CAAA"), the EPA is
required to regulate volatile organic compound ("VOC") emissions from a variety
of consumer and commercial products, including coatings. Accordingly, in June
1996, the EPA issued proposed regulations that would limit VOCs from industrial
coatings. Final regulations are expected in 1998. Although the Company cannot
accurately assess the impact of these regulations prior to their promulgation or
implementation in final form, based on currently available information, the
Company believes that these regulations will not have a material adverse effect
on the operating results or the financial position of the Company as a whole.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements which constitute
forward looking statements within the meaning of Section 27A of the Securities
Act. Discussions containing such forward looking statements may be found under
the captions "Management's Discussion and Analysis of Results of Operations and
Financial Condition ("MD&A"), and "Business," as well as elsewhere within this
Report. Forward looking statements include statements regarding the intent,
belief or current expectations of the Company, primarily with respect to the
future operating performance of the Company or related industry developments.
When used in this Report, terms such as "anticipate," "believe," "estimate,"
"expect," "intend," "indicate," "may be," "objective," "plan," "predict," and
"will be" are intended to identify such statements. Forward looking statements
are not guarantees of future performance and involve risks and uncertainties.
Forward looking statements are based upon management's expectations at the time
they are made. Actual results could differ materially from those projected in
the forward looking statements as a result of the risk factors set forth below
and the matters set forth in this Report generally, many of which are beyond the
control of the Company. The Company cautions the reader, however, that the
following list of factors may not be exhaustive.
Sensitivity to General Economic and Industry Conditions
The Company's business, and the industrial coatings industry as a
whole, is cyclical in nature and affected by the general trends of the economy.
In particular, consumer behavior and confidence, the level of personal
discretionary spending, housing activity, interest rates, credit availability,
and demographics influence the Company's end use markets, such as the housing,
building products, construction and agricultural equipment, appliance, furniture
and automotive industries. During economic downturns, these industries tend to
experience declines, which in turn diminish demand for the Company's products.
Effects of Leverage
The Company's level of indebtedness will have several important effects
on its operations including (i) a substantial portion of the Company's cash flow
from operations will be dedicated to debt service obligations, (ii) the
covenants contained in the Company's revolving credit facility and senior notes
may limit the Company's ability to borrow additional funds, and (iii) the
Company's leveraged financial position may make the Company more vulnerable to
economic downturns and may limit its ability to withstand competitive pressures,
and plan for, or react to, changes in market conditions.
Environmental Matters
The operations of the Company, like those of other companies in the
industrial coatings industry, are subject to numerous foreign, federal, state
and local environmental laws and regulations. While the Company believes that it
is currently in material compliance with environmental requirements, any failure
to comply with such present and future requirements could subject the Company to
future liabilities. The imposition of more stringent environmental requirements,
or a determination that the Company is potentially responsible for site
remediation where contamination is not presently known could result in
expenditures for which no accrual has been made.
Mature Industry
The industrial coatings industry is a mature business in the U.S.,
growing in line with industrial production. Long-term annual growth in the U.S.
industrial coatings industry is projected in the 1% to 2% range. To expand and
remain competitive, the Company will be required to continue (i) to develop
coatings that meet specific customer requirements, (ii) to price those coatings
competitively, and (iii) to deliver quality products on time. In addition, the
Company will also need to keep pace with technological developments to remain
competitive, particularly technological developments that relate to
environmental demands such as reductions of volatile organic compound emissions
imposed by the Clean Air Act Amendments of 1990.
Raw Materials
Over 50% of the Company's operating costs are typically attributable to
the cost of raw materials. The cost of these raw materials, most of which are
derived from petrochemical products, depends on numerous factors, including
changes in the economy, the level of foreign and domestic production, and the
crude oil supply and demand balance. A rise in the price of raw materials could
materially increase the Company's operating costs and thereby adversely affect
its profit margins.
International Operations
During fiscal 1997, the Company's international sales, including U.S.
exports of $17.2 million, accounted for approximately 21% of total sales, and
the Company may increase this percentage in the coming years. The Company's
international operations subject it to the risks of doing business abroad,
including currency fluctuations, various trade barriers, restrictions on the
transfer of funds, greater difficulty in accounts receivable collection, burdens
of complying with a wide variety of foreign laws, and, in certain parts of the
world, economic, social, and political instability, any of which could have an
adverse effect on the Company's financial position and results of operations.
Executive Officers of the Company
The executive officers of the Company, the age of each, the positions and
offices held by each during the last five years, and the period during which
each has served in such positions and offices are as follows:
Name of
Executive Officer Age Positions and Offices Held
- ----------------- --- --------------------------
Larry H. Dalton 50 Vice President - Manufacturing
and Engineering since July,
1994; General Manager of the
Company's Indianapolis Division
from prior to 1992 to
July, 1994.
William C. Dorris 54 Director since 1989; Vice
President - Corporate
Development since July, 1994;
General Manager of the
Company's High Point Division
from prior to 1992 to July,
1994; of the Company's
Templeton Division from prior
to 1992 to July, 1994; and of
the Company's Dallas Division
from 1993 to July, 1994.
John C. Elbin 44 Vice President, Chief Financial
Officer and Secretary since
April, 1997; Senior Vice
President and Chief Financial
Officer, Pet Incorporated from
prior to 1992 to June, 1995.
Douglas W. Huemme 56 Director since 1990; Chairman,
President and Chief Executive
Officer of the Company since
prior to 1992.
A. Barry Melnkovic 40 Vice President - Human
Resources since April, 1996;
Director, Corporate Employee &
Labor Relations and Director
Corporate Compensation and
Benefits, Cummins Engine
Company, Inc., from August, 1993
to February, 1996; Division Human
Resource Manager, Ashland
Chemical, Inc. from prior to
1992 to August, 1993.
Kenneth L. Mills 49 Assistant Secretary since prior
to 1992; Treasurer from prior
to 1992 until October, 1993;
Corporate Accounting Director
since October, 1993.
Robert A. Taylor 43 Director since April, 1997;
Executive Vice President and
Chief Operating Officer since
February, 1997; Vice President
and General Manager, Wood
Coatings from April 1994 to
February, 1997; Vice President,
Specialty and Container Coatings,
AKZ0 Coatings, Inc. from 1992 to
April, 1994.
Each executive officer will serve as such until his successor is chosen and
qualified. No family relationships exist among the Company's executive officers.
6
Item 2. Properties.
The Company has 31 principal facilities. The locations and approximate
square footage at those facilities are as follows:
Location Square Feet
High Point, North Carolina (2 locations) 320,000
Indianapolis, Indiana 260,000
Grand Rapids, Michigan 165,000
Eschweiler, Germany 121,000
Fremont, Michigan 120,000
North Kansas City, Missouri 106,000
London, Ontario, Canada 103,000
Bowling Green, Kentucky 94,000
Moline, Illinois 76,000
Cornwall, Ontario, Canada 71,000
Kaohsiung Hsien, Taiwan, R.O.C. 64,000
Montebello, California 58,000
Charlotte, North Carolina 57,000
Rocky Hill, Connecticut 57,000
Gardena, California 52,000
Paulsboro, New Jersey 47,000
Dothan, Alabama 42,000
Dallas, Texas 36,000
Little Rock, Arkansas 35,000
Seattle, Washington 30,000
Elkhart, Indiana 25,000
Guangdon, China 25,000
Selangor, Malaysia 20,000
Davie, Florida 14,000
Woodbridge, Connecticut 13,000
Ballinamore, Ireland 12,000
Oxfordshire, England 12,000
Wallenfels, West Germany 9,000
North Sydney, Australia 1,000
Singapore 1,000
All of these principal facilities noted above are owned directly or indirectly
by the Company, except for the facilities in Grand Rapids, Michigan, Gardena,
California, Guangdon, China, Selangor, Malaysia, Oxfordshire, England, Singapore
and Australia which are leased.
Item 3. Legal Proceedings.
The Company is involved in various litigation and other asserted and
unasserted claims arising in the ordinary course of business, primarily relating
to product warranty and clean-up costs at independently operated waste
treatment/disposal sites previously used by the Company or the predecessors of
businesses purchased by the Company. While the results of lawsuits or other
proceedings against the Company cannot be predicted with certainty, management
believes that uninsured and unreserved losses, if any, arising from these
proceedings will not have a material adverse effect on the business or
consolidated financial position of the Company.
8
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of fiscal 1997 to a vote
of security holders through the solicitation of proxies or otherwise.
PART II
Item 5. Market for Company's Common Equity and Related
Stockholder Matters.
The information required by this item is incorporated by reference herein
from the information included under caption "Stock Trading and Dividend
Information" in the Company's 1997 Annual Report to Shareholders and is included
in Exhibit 13. There is no established public trading market for the Company's
Class B Common Stock.
Item 6. Selected Financial Data.
The information required by this item is incorporated by reference herein
from the information included under the caption "Selected Financial Data" in the
Company's 1997 Annual Report to Shareholders and is included in Exhibit 13.
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
The information required by this item is incorporated by reference herein
from the information included under the caption "Management's Discussion and
Analysis of Results of Operations and Financial Condition" in the Company's 1997
Annual Report to Shareholders and is included in Exhibit 13.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
No information is required to be disclosed under this item of this report
pursuant to General Instruction 1 to Item 305 of Regulation S-K.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of the Company are incorporated by
reference from the Company's 1997 Annual Report to Shareholders and are included
in Exhibit 13.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
No information is required to be disclosed under this item of this report
pursuant to Instruction 1 to Item 304 of Regulation S-K.
9
PART III
Item 10. Directors and Executive Officers of the Company.
The information required by this item with respect to directors of the
Company is incorporated herein by reference from the section entitled "Proposal
Number One, Election of Directors" of the Company's definitive Proxy Statement
relating to its Annual Meeting of Shareholders to be held April 23, 1998. See
Part I, for a list of the Company's executive officers, and their ages,
positions and offices.
Item 11. Executive Compensation.
The information required by this item is incorporated herein by reference
from the section entitled "Compensation of Executive Officers" of the Company's
definitive Proxy Statement relating to its Annual Meeting of Shareholders to be
held April 23, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this item is incorporated herein by reference
from the sections entitled "Share Ownership of Certain Beneficial Owners" and
"Proposal Number One, Election of Directors" of the Company's definitive Proxy
Statement relating to its Annual Meeting of Shareholders to be held April 23,
1998.
Item 13. Certain Relationships and Related Transactions.
The information required by this item, if any, is incorporated herein by
reference from the section entitled "Proposal Number One, Election of Directors"
of the Company's definitive Proxy statement relating to its Annual Meeting of
Shareholders to be held April 23, 1998.
10
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a)-1 The following items, included in the Company's 1997 Annual Report
to Shareholders, are incorporated herein by reference and are
included herein in Exhibit 13.
Report of Independent Auditors
Consolidated Balance Sheets --
November 30, 1997 and 1996
Consolidated Statements of Income and Retained Earnings -- Years ended
November 30, 1997, 1996 and 1995
Consolidated Statements of Cash
Flows -- Years ended November 30, 1997,
1996 and 1995
Notes to Consolidated Financial
Statements -- November 30, 1997
(a)-2 The following financial statement schedule is filed as a
part of this report.
Schedule
Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
11
(a)-3 Exhibits.
Exhibits Incorporated by Reference
EXHIBIT INDEX
Exhibit No. Description Page
2 Merger Agreement, dated March 4, 1996, by and among Lilly
Industries, Inc., LP Acquisition Corporation and Guardsman
Products, Inc. This exhibit is incorporated by reference to
Exhibit 2 to Lilly Industries, Inc.'s Form 8-K Current
Report filed with the SEC on April 22, 1996.
3.1 Restated Articles of Incorporation of Lilly Industries, Inc.,
as amended. This exhibit is incorporated by reference to
Exhibit 3(a) to Lilly Industries, Inc.'s Form 10-K Annual
Report for the fiscal year ended November 30, 1996.
3.2 Restated By-Laws of Lilly Industries, Inc., as amended. This
exhibit is incorporated by reference to Exhibit 3(b) to Lilly
Industries, Inc.'s Form 10-K Annual Report for the fiscal year
ended November 30, 1993.
4.1 Indenture, dated November 10, 1997, between Lilly Industries,
Inc. and Harris Trust and Savings Bank. This exhibit is
incorporated by reference to Exhibit 4.1 to Lilly Industries,
Inc.'s Registration Statement on Form S-4 filed with the
Commission on December 5, 1997 (Commission No. 333-41587).
4.2 Credit Agreement, dated October 24, 1997, between Lilly
Industries, Inc., the Lenders Signatory thereto, and NBD Bank,
N.A. as Agent. This exhibit is incorporated by reference to
Exhibit 4.2 to Lilly Industries, Inc.'s Registration Statement
on Form S-4 filed with the Commission on December 5, 1997
(Commission No. 333-41587).
4.3 Rights Agreement, dated January 12, 1996, between Lilly
Industries, Inc. and KeyCorp Shareholder Services, Inc. as
Rights Agent. This exhibit is incorporated by reference to
Exhibit 4 to Lilly Industries, Inc.'s Form 8-A filed with the
SEC on January 23, 1996.
10.1 Registration Agreement, dated November 5, 1997, between Lilly
Industries, Inc. and Salomon Brothers, Inc., Lehman Brothers,
Inc. and Schroder & Co., Inc. This exhibit is incorporated by
reference to Exhibit 10.1 to Lilly Industries, Inc.'s
Registration Statement on Form S-4 filed with the Commission on
December 5, 1997 (Commission No. 333-41587).
10.2 Form of Exchange Agent Agreement, dated December 22, 1997,
between Lilly Industries, Inc. and Harris Trust and Savings
Bank. This exhibit is incorporated by reference to Exhibit 10.2
to Lilly Industries, Inc.'s Registration Statement on Form S-4
filed with the Commission on December 5, 1997 (Commission No.
333-41587).
*10.3 Lilly Industries, Inc. Unfunded Supplemental Retirement Plan
(as in effect November 29, 1990). This exhibit is incorporated
by reference to Exhibit 10(b) to Lilly Industries, Inc.'s Form
10-K Annual Report for the fiscal year ended November 30, 1990.
*10.4 Lilly Industries, Inc. Unfunded Excess Benefit Plan. This
exhibit is incorporated by reference to Exhibit 10(c) to Lilly
Industries, Inc.'s Form 10-K Annual Report for the fiscal year
ended November 30, 1989.
*10.5 Lilly Industries, Inc. Second Unfunded Supplemental Retirement
Plan (effective June 4, 1990). This exhibit is incorporated by
reference to Exhibit 10(f) to Lilly Industries, Inc.'s Form
10-K Annual Report for the fiscal year ended November 30, 1990.
*10.7 Lilly Industries, Inc. 1991 Director Stock Option Plan. This
exhibit is incorporated by reference to Exhibit 10(i) to Lilly
Industries, Inc.'s Form 10-K Annual Report for the fiscal year
ended November 30, 1991.
*10.8 Lilly Industries, Inc. 1992 Stock Option Plan. This exhibit is
incorporated by reference to Exhibit 10(j) to Lilly Industries,
Inc.'s Form 10-K Annual Report for the fiscal year ended
November 30, 1991. First Amendment to Lilly Industries, Inc.
1992 Stock Option Plan. This exhibit is incorporated by
reference to Exhibit 10.8 to Lilly Industries, Inc.'s
Registration Statement on Form S-4 filed with the Commission on
December 5, 1997 (Commission No. 333-41587).
10.9 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,
Indianapolis, N.A., as Co-Agents. This exhibit is incorporated
by reference to Exhibit 10 to Lilly Industries, Inc.'s Form
10-Q Quarterly Report for the fiscal quarter ended May 31,
1997.
*10.10 Lilly Industries, Inc. Executive Retirement Plan (effective as
of January 1, 1996). This exhibit is incorporated by reference
to Exhibit 10(i) to Lilly Industries, Inc.'s Form 10-K Annual
Report for the fiscal year ended November 30, 1996.
*10.11 Lilly Industries, Inc. Retirement Plan (effective as of January
1, 1996) and Trust Agreement for Lilly Industries, Inc.
Replacement Plan between Lilly Industries, Inc. and Bankers
Trust Company of Des Moines, dated September 27, 1996. This
exhibit is incorporated by reference to Exhibit 10(j) to Lilly
Industries, Inc.'s Form 10-K Annual Report for the fiscal year
ended November 30, 1996.
*10.12 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and Hugh M. Cates. This exhibit is
incorporated by reference to Exhibit 10(1) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.13 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and Larry H. Dalton. This exhibit is
incorporated by reference to Exhibit 10(2) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.14 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and William C. Dorris. This exhibit is
incorporated by reference to Exhibit 10(3) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.15 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and John C. Elbin. This exhibit is
incorporated by reference to Exhibit 10(4) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.16 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and Ned L. Fox. This exhibit is incorporated
by reference to Exhibit 10(5) to Lilly Industries, Inc.'s Form
10-Q Quarterly Report for the fiscal quarter ended August 31,
1997.
*10.17 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and Douglas W. Huemme. This exhibit is
incorporated by reference to Exhibit 10(6) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.18 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and A. Barry Melnkovic. This exhibit is
incorporated by reference to Exhibit 10(7) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.19 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and John D. Million. This exhibit is
incorporated by reference to Exhibit 10(8) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.20 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and Kenneth L. Mills. This exhibit is
incorporated by reference to Exhibit 10(9) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.21 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and Gary D. Missildine. This exhibit is
incorporated by reference to Exhibit 10(10) to Lilly
Industries, Inc.'s Form 10-Q Quarterly Report for the fiscal
quarter ended August 31, 1997.
*10.22 Change in Control Agreement, dated September 5, 1997, by and
between Registrant and Robert A. Taylor. This exhibit is
incorporated by reference to Exhibit 10(11) to Lilly
Industries, Inc.'s Form 10-Q Quarterly Report for the fiscal
quarter ended August 31, 1997.
*10.23 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and Keith C. Vander Hyde, Jr.. This exhibit
is incorporated by reference to Exhibit 10(12) to Lilly
Industries, Inc.'s Form 10-Q Quarterly Report for the fiscal
quarter ended August 31, 1997.
*10.24 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and Jay M. Wiegner. This exhibit is
incorporated by reference to Exhibit 10(13) to Lilly
Industries, Inc.'s Form 10-Q Quarterly Report for the fiscal
quarter ended August 31, 1997.
- ----------------
* Management contracts and compensatory plans required to be filed
pursuant to Item 14(c) of Form 10-K.
13
Exhibits Filed Herewith:
11 Computation of Earnings Per Share.
13 Excerpts from the Lilly Industries, Inc. 1997
Annual Report.
21 List of Subsidiaries.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
(b) The Following Reports on Form 8-K were filed
by Lilly Industries, Inc. during the fourth
quarter of fiscal 1997:
Report on Form 8-K filed on October 17, 1997
filing a press release announcing the offer
of $100 million in ten year Senior Unsecured
Notes maturing in 2007 and the finalizing of
a five year $175 million unsecured bank
revolving credit facility to replace an
exisiting $300 million facility.
Report on Form 8-K filed on November 10, 1997
filing a press release announcing completion
of the offering of $100 million of Senior
Unsecured Notes and the closing of a new $175
million unsecured bank revolving credit
facility.
(c) The response to this portion of this item is
submitted as a separate section of this
report.
(d) The response to this portion of this item is
submitted as a separate section of this
report.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: February 23, 1998
LILLY INDUSTRIES, INC.
/s/ Douglas W. Huemme
--------------------------
Douglas W. Huemme,
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Signature Title Date
- ---------------------------- ------------------- ------------------
(1) Principal Executive
Officer and Director
/s/ Douglas W. Huemme Chairman, President February 23, 1998
- ----------------------- and Chief Executive
Douglas W. Huemme Officer
(2) Principal
Financial Officer
/s/ John C. Elbin Vice President, February 23, 1998
- ------------------------ Chief Financial Officer
John C. Elbin and Secretary
(3) Principal
Accounting Officer
/s/ Kenneth L. Mills Corporate Accounting February 23, 1998
- ----------------------- Director and
Kenneth L. Mills Assistant Secretary
(4) A majority of the
Board of Directors
/s/ James M. Cornelius Director February 23, 1998
- ----------------------
James M. Cornelius
/s/ William C. Dorris Director February 23, 1998
- ----------------------
William C. Dorris
/s/ Paul K. Gaston Director February 23, 1998
- ----------------------
Paul K. Gaston
/s/ Harry MoRrison Director February 23, 1998
- ----------------------
Harry Morrison, Ph.D.
/s/ Norma J. Oman Director February 23, 1998
- ----------------------
Norma J. Oman
/s/ John D. Peterson Director February 23, 1998
- ----------------------
John D. Peterson
/s/ Thomas E. Reilly, Jr. Director February 23, 1998
- ----------------------
Thomas E. Reilly, Jr.
/s/ Van P. Smith Director February 23, 1998
- ----------------------
Van P. Smith
/s/ Robert A. Taylor Director February 23, 1998
- ----------------------
Robert A. Taylor
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E
- ------ ------ ---------------------------------------------- ------ ------
Additions
Description Balance at (1) (2) (3) Deductions- Balance
Beginning Charged to Charged to Acquired in Describe at End of
of Period Costs and Other Accounts Business Period
Expenditures -Describe Combination
Year ended November 30, 1997:
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts receivable $2,705,759 $ 538,000 $ -- $ -- $1,104,759 (A) $2,139,000
========== ========== ====== ======== ========= ==========
Year ended November 30, 1996:
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts receivable $2,050,922 $ 510,826 $ -- $729,307 $585,296 (A) $2,705,759
========== ========== ====== ======== ======== ==========
Year ended November 30, 1995:
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts receivable $1,758,769 $ 600,717 $ -- $ -- $308,564 (A) $2,050,922
========== ========== ====== ======== ======== ==========
Note A - Uncollectible accounts receivable charged off, net of recoveries.
17