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, 1998
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, 1998:
Class A Common 22,757,000
Class B Common 420,000
Page 1 of 12
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
1998 1997
--------- ---------
Net Sales $ 159,198 $ 154,238
Costs and expenses
Cost of products sold 97,404 95,045
Selling, general and administrative 37,836 36,062
Research and development 4,929 4,656
--------- ---------
140,169 135,763
--------- ---------
OPERATING INCOME 19,029 18,475
Sundry income (expense) (61) (29)
Interest expense, net (4,258) (4,989)
--------- ---------
INCOME BEFORE INCOME TAXES 14,710 13,457
Income Taxes 5,995 6,056
--------- ---------
--------- ---------
NET INCOME $ 8,715 $ 7,401
========= =========
========= =========
Cash dividends per share $ 0.08 $ 0.08
Net income per share (Note B)
Basic $ 0.38 $ 0.32
Diluted $ 0.37 $ 0.32
See notes to consolidated condensed financial statements.
Page 2 of 12
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
Six Months Ended
May 31 May 31
1998 1997
--------- ---------
Net sales $ 302,532 $ 296,398
Costs and expenses
Cost of products sold 187,307 185,157
Selling, general and administrative 72,122 70,063
Research and development 10,295 9,251
--------- ---------
269,724 264,471
--------- ---------
OPERATING INCOME 32,808 31,927
Sundry income (expense) (128) 121
Interest expense, net (8,792) (10,029)
--------- ---------
INCOME BEFORE INCOME TAXES 23,888 22,019
Income Taxes $ 10,033 $ 9,908
--------- ---------
NET INCOME $ 13,855 $ 12,111
========= =========
Cash dividends per share $ 0.16 $ 0.16
Net income per share (Note B)
Basic $ 0.60 $ 0.53
Diluted $ 0.59 $ 0.52
See notes to consolidated condensed financial statements.
Page 3 of 12
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
May 31 November 30
1998 1997
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,256 $ 10,079
Accounts receivable, less allowances
for doubtful accounts (5/31/98, $2,276;
11/30/97, $2,139) 82,482 80,011
Inventories (Note C) 48,466 45,704
Other 7,491 10,880
--------- ---------
TOTAL CURRENT ASSETS 151,695 146,674
OTHER ASSETS 18,318 21,326
INTANGIBLE ASSETS 246,659 250,956
PROPERTY AND EQUIPMENT
Land, buildings and equipment 151,915 137,088
Allowances for depreciation (deduction) (58,649) (54,249)
--------- ---------
93,266 82,839
--------- ---------
$ 509,938 $ 501,795
========= =========
See notes to consolidated condensed financial statements.
Page 4 of 12
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
May 31 November 30
1998 1997
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 57,934 $ 60,510
Other 33,487 34,038
--------- ---------
TOTAL CURRENT LIABILITIES 91,421 94,548
LONG-TERM DEBT 220,933 224,171
OTHER LIABILITIES 44,905 40,637
SHAREHOLDERS' EQUITY Capital stock:
Class A (limited voting) 15,410 15,375
Class B (voting) 300 300
Additional capital 80,824 79,417
Retained earnings 93,900 83,745
Currency translation adjustments (3,257) (2,254)
Cost of capital stock in treasury
(deduction) (34,498) (34,144)
--------- ---------
152,679 142,439
--------- ---------
$ 509,938 $ 501,795
========= =========
See notes to consolidated condensed financial statements.
Page 5 of 12
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
Three Months Ended
May 31 May 31
1998 1997
-------- --------
OPERATING ACTIVITIES
Net income $ 13,855 $ 12,111
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 4,855 4,449
Amortization of intangibles 5,092 5,881
Deferred income taxes 0 1,610
Changes in operating assets and liabilities
net of effects from acquired
business:
Accounts receivable (865) 2,568
Inventories (244) (1,135)
Accounts payable and accrued expenses (4,555) (8,324)
Sundry 2,924 (74)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 21,062 17,086
INVESTING ACTIVITIES
Purchases of property and equipment (5,288) (6,202)
Payment for acquired business (11,253) 0
Sundry 4,468 4,908
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (12,073) (1,294)
FINANCING ACTIVITIES
Dividends paid (3,700) (3,649)
Proceeds from short-term and long-term borrowings 11,000 0
Principal payments on short-term and long-term borrowings (14,200) (10,780)
Sundry 1,088 1,168
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (5,812) (13,261)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 3,177 2,531
Cash and cash equivalents at beginning of year 10,079 6,790
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,256 $ 9,321
======== ========
See notes to consolidated condensed financial statements.
Page 6 of 12
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
MAY 31, 1998
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, 1997.
NOTE B--NET INCOME PER SHARE
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share" during the first quarter of fiscal year 1998. Share and per
share amounts shown for periods prior to adoption have been restated to conform
to the requirements of SFAS No. 128.
Basic and diluted net income per share are computed by dividing net income as
reported by the average number of shares outstanding as follows (in thousands):
Three Months Ended Six Months Ended
May 31 May 31 May 31 May 31
1998 1997 1998 1997
----------- ----------- ----------- -----------
Basic
Weighted-average common shares
outstanding 23,138 22,865 23,127 22,800
======== ======== ======== ========
Diluted
Weighted-average common shares
outstanding 23,138 22,865 23,127 22,800
Dilutive effect of stock options 265 535 261 600
--------- --------- -------- --------
Average common shares outstanding
assuming dilution 23,403 23,400 23,388 23,400
======== ======== ======== ========
Page 7 of 12
NOTE C--INVENTORIES
The principal inventory classifications are summarized as follows (in
thousands):
May 31 November 30
1998 1997
Finished products $27,527 $26,361
Raw materials 28,215 27,019
------- -------
55,742 53,380
Less adjustment of certain
inventories to last in,
first out (LIFO) basis 7,276 7,676
------- -------
$48,466 $45,704
======= =======
The Company uses the LIFO method in inventory valuation for approximately 68% 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 8 of 12
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Sales, net income and net income per share were the highest of any
quarter in the Company's history. Sales for the quarter ended May 31,
1998 were at an all-time record $159.2 million compared with $154.2
million for the same quarter last year. Net income for the 1998 second
quarter was also an all-time record at $8.7 million, up 18% over last
year's second quarter net income of $7.4 million. Diluted net income
per share of 37 cents was up 16% from the second quarter of last year.
Lilly's sales for the six months ended May 31, 1998 were $302.5 million
compared to $296.4 million for the same period last year. Net income
for the first half of fiscal 1998 was $13.9 million, or 59 cents per
share on a diluted basis, an increase of 15% over net income of $12.1
million, or 52 cents per share, for the same period a year ago.
Sales for the second quarter and first half increased modestly, as
sales of our recent German acquisition were substantially offset by
unfavorable foreign currency translations and divestiture of our retail
paint business. Improved earnings for 1998 have resulted from sales
gains, lower interest expense, and a reduction in the Company's
effective income tax rate. Lower interest is due mainly to a reduced
debt level, $30 million lower than a year ago. Our annual effective
income tax rate has improved to 42 percent from implementation of
international and other tax strategies.
We will continue to focus upon profitable growth initiatives and cost
control. We expect to show continued improvement in our financial
performance during the remainder of fiscal 1998.
The Board of Directors declared a quarterly cash dividend of eight
cents per common share, payable October 1, 1998, to shareholders of
record at the close of business on September 10, 1998. This marks the
Company's 238th consecutive quarterly dividend.
Statements in this release that are not strictly historical may be
"forward-looking" statements, which involve risks and uncertainties.
Risk factors include general economic and industry conditions, effects
of leverage, environmental matters, technological developments, product
pricing, raw material cost changes, and international operations, among
others, which are set forth in the Company's annual report on Form 10-K
for the year ended November 30, 1997.
Page 9 of 12
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 23,
1998, the following directors were elected by the votes indicated:
Stock Votes
Director Class Votes For Withheld
-------------------- ----- ---------- --------
James M. Cornelius A 20,163,813 146,349
John D. Peterson A 20,161,245 148,917
Thomas E. Reilly, Jr. A 20,155,814 154,348
Van P. Smith A 20,153,510 156,652
William C. Dorris B 422,687 0
Paul K. Gaston B 422,687 0
Douglas W. Huemme B 422,687 0
Harry Morrison, Ph.D. B 422,687 0
Norma J. Oman B 422,687 0
Robert A. Taylor B 422,687 0
Shareholders of record on February 17, 1998 were entitled to notice of, and to
vote at, the Annual Meeting of Shareholders. On that date 22,702,280 shares of
the Company's Class A Stock and 422,687 shares of the Company's Class B Stock
were outstanding, each share (except the 8,606 shares of Class A Stock held by
the Employees Stock Purchase Plan) being entitled to one vote.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibit is included herein:
EXHIBIT 27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three
months ended May 31, 1998.
Note: All other item numbers under this section are not applicable.
Page 10 of 12
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 14, 1998
------------------------------------
Douglas W. Huemme
Chairman, President and
Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER
July 14, 1998
------------------------------------
John C. Elbin
Vice President,
Chief Financial Officer
and Secretary
Page 11 of 12