FORM 10-Q/A
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 August 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 September 30, 1998:
Class A Common 22,789,000
Class B Common 419,000
Item 2, Management's Discussion and Analysis of Results of Operations and
Financial Condition of the Registrant's Form 10-Q for the period ended August
31, 1998, is amended by this filing to include Year 2000 Readiness discussion
which was omitted from the original filing made on October 14, 1998.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
The Company reports all-time record quarterly sales and record
third quarter net income and net income per share. Sales for the
quarter ended August 31, 1998 of $159.3 million rose 6% compared
with 1997 third quarter sales of $150.9 million. Record 1998
third quarter net income was up 13% at $8.7 million, or 37 cents
per share on a diluted basis, compared to $7.7 million, or 33
cents per share, for the third quarter of 1997.
For the nine months ended August 31, 1998, sales increased to
$461.9 million compared to $447.3 million a year ago. Net income
for the 1998 nine-month period was $22.5 million, up 14% over
last year's $19.8 million. Diluted net income per share increased
13% to 96 cents from 85 cents last year.
Sales trends during the third quarter were positive with gains
registered by each of our major businesses. Sales from our German
acquisition earlier this year were offset by unfavorable foreign
currency translation and divested business. Higher sales, lower
interest expense, and a lower effective tax rate are the primary
reasons for our improved performance.
We have recently combined our liquid and powder industrial
coatings units to bring improved focus to the marketplace.
Additionally, our glass coatings unit has assumed responsibility
for our composites business, which was formerly combined with our
liquid industrial business. We are excited about these changes,
and expect fiscal 1998 to be another successful, record year for
the Company.
The Board of Directors declared a regular quarterly dividend of
eight cents per common share, payable January 4, 1999, to
shareholders of record on December 10, 1998. This is the
Company's 239th consecutive quarterly cash dividend.
Year 2000 Readiness
The Year 2000 issue ("Y2K" or "Y2K issue") is the result of
computer programs being written using two digits rather than four
to define the applicable year. Any computer programs or any
hardware that have date sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a temporary inability to process
transactions or engage in normal manufacturing or other business
activities.
The Company is actively engaged in a company-wide effort to
achieve Y2K readiness for both information technology ("IT") and
non-information technology ("Non-IT") systems, and to determine
the Y2K readiness of significant suppliers. The Company is
focusing its efforts on IT systems, Non-IT systems and suppliers
that, without Y2K readiness, could have a material adverse effect
on the Company's operations.
The Company's approach to addressing Y2K preparedness consists of
the following:
Inventory - identification of items to be assessed
for Y2K readiness.
Assessment - prioritizing the inventoried items,
assessing their Y2K readiness and defining
corrective actions and developing contingency
plans.
Deployment - implementing corrective actions,
verifying implementation and finalizing
contingency plans.
The Company's IT systems are comprised of business computer
systems and technical infrastructure. In 1996, the Company
determined that the IT systems supporting its business units
could be inadequate to meet business requirements after 1999 and
thus implemented a project to replace all critical IT systems.
All critical IT systems have been inventoried and assessed, and
replacement of non-conforming IT systems is expected to begin
during the fourth quarter of 1998. Deployment of all critical IT
systems is expected to be completed during the third quarter of
1999.
The Company's Non-IT systems are comprised of manufacturing and
warehousing systems and facility support systems. A preliminary
inventory and assessment of these Non-IT systems has been
completed and deployment of these Non-IT systems is expected to
be completed during the third quarter of 1999.
The Company is in the process of contacting significant raw
material and service suppliers regarding their Y2K readiness. The
Company's supplier readiness program focuses on those suppliers
considered essential for the prevention of a material disruption
to the Company's business operation. The Company will make
efforts to address third-party Y2K compliance issues noted from
the inquiries. However, there is no assurance that such
third-parties will be Y2K compliant. Non-compliance by
third-parties could have a material adverse impact on the
Company's financial position and business operations. Deployment
of the program is expected to be completed during the third
quarter of 1999.
The Company utilizes both internal and external resources in all
phases of its Y2K readiness program. The Company estimates the
total cost of resolving the Y2K issue to be approximately $5
million. Of this amount, the Company estimates $2 million will be
spent subsequent to August 31, 1998. Approximately 70% of total
Y2K cost is comprised of equipment and software replacement costs
with the balance being comprised of assessment and remediation
costs. The Company expects all costs to be funded with operating
cash flow. Y2K costs are expensed as incurred except for new
systems and equipment, which are capitalized and charged to
expense over the estimated useful life of the related asset.
While the Company believes that its efforts to address Y2K issues
will be successfully completed in a timely manner, the Company
recognizes that failing to resolve Y2K issues could, in a
reasonably likely worst case scenario, increase costs and limit
the Company's ability to conduct business operations. The
financial impact of such scenario can not be reasonably
estimated.
Statements contained herein are not strictly historical and 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.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
LILLY INDUSTRIES, INC. (Registrant)
February 9, 1999
/s/ John C. Elbin
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John C. Elbin,
Vice President, Chief Financial Officer
and Secretary