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, 1998
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]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 16, 1999 was $336,355,000.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 16, 1999.
22,772,474 shares of Class A Common Stock, without par value; 437,037 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, 1998
Part III: Items 10 Proxy Statement for Annual Meeting of
through 13 Shareholders to be held April 22, 1999
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 $619.0
million in fiscal 1998. Lilly formulates, manufactures and markets 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 (1). The Company has only one reportable industry
segment, and employs approximately 2,300 people. The Company has plants and
sales offices in the U.S., Australia, Canada, China, Germany, Ireland, Malaysia,
Mexico, Singapore, Taiwan and the United Kingdom.
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, manufacturing and marketing 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, 1996, 1997 and 1998.
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 lacquer and protective
color for furniture, building products and kitchen cabinets; (ii) metal
coatings, such as liquid and powder coatings used to finish building products,
furniture, appliances and transportation equipment; and (iii) composites and
glass coatings, such as gelcoats and specialty chemicals for transportation
equipment, recreational vehicles and mirrors.
Sales for the global paints and coatings market equal approximately $55 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 companies. 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. Technological developments that reduce
negative environmental effects are also 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. 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;
composites and glass; and specialty. These four markets accounted for
approximately 39%, 38%, 12% and 11% of the Company's fiscal 1998 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 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 water-
borne coil coatings formulated with proprietary resins that provide high
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 facilities in Canada and Germany.
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.
Composites and Glass Coatings. The Company's composites include gelcoats and
fiberglass reinforced plastic composites for boats, recreational vehicles,
cultured marble vanity tops, custom van and truck components and personal
watercraft. 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.
Specialty. 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
facilities located in Australia, Canada and the United Kingdom.
Distribution and Customers
Lilly's technical sales force of approximately 700 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, were $149.3 million in fiscal year
1998, which represented 24% of consolidated sales. Information concerning the
Company's net sales, operating income and assets in foreign countries and the
United States for the three years ended November 30, 1998 is set forth in Note 9
in the Notes to Consolidated Financial Statements in the Company's 1998 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 liquid 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 less than 1% of net sales.
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 $20.6 million (3.3% of net sales), $18.7
million (3.1% of net sales), and $17.3 million (3.4% of net sales) for the
fiscal years 1998, 1997 and 1996, 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
Lilly maintains 32 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, 1998, Lilly employed approximately 2,300 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 9% of the
Company's total work force and operate through three separate unions at four
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, the EPA has issued
various regulations that limit VOCs from industrial coatings. 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 government regulations.
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 1998, the Company's international sales, including U.S. exports
accounted for approximately 24% of total sales, and this percentage may increase
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.
Year 2000 Issues
There can be no assurance that the Company and its vendors, suppliers and
customers will achieve Year 2000 readiness.
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
- ----------------- --- --------------------------
Douglas W. Huemme 57 Director since 1990; Chairman,
President and Chief Executive
Officer of the Company since
prior to 1994.
Robert A. Taylor 44 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 prior to 1994 to
April, 1994.
Larry H. Dalton 51 Vice President - Manufacturing
and Engineering since July,
1994; General Manager of the
Company's Indianapolis Division
from prior to 1994 to
July, 1994.
William C. Dorris 55 Director since 1989; Vice
President - Corporate
Development since July, 1994;
General Manager of the
Company's High Point Division,
Templeton Division and Dallas Division
from prior to 1994 to July, 1994
John C. Elbin 45 Vice President, Chief Financial
Officer and Secretary since
April, 1997 when he joined the Company;
Senior Vice President of Express
Scripts in 1996; Senior Vice
President and Chief
Financial Officer of
Pet Incorporated from
prior to 1994 to 1995.
A. Barry Melnkovic 41 Vice President - Human
Resources since April, 1996;
Director, Corporate Employee &
Labor Relations and Director
Corporate Compensation and
Benefits, Cummins Engine
Company, Inc., from 1993
to 1996.
Kenneth L. Mills 50 Corporate Accounting Director
and Assistant Secretary since
prior to 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.
Item 2. Properties.
The Company has 32 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 138,000
London, Ontario, Canada 103,000
Bowling Green, Kentucky 94,000
Moline, Illinois 76,000
Cornwall, Ontario, Canada 97,000
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
Guadalupe, Mexico 35,000
Seattle, Washington 30,000
Elkhart, Indiana 25,000
Dongguan, China 25,000
Selangor, Malaysia 20,000
Davie, Florida 14,000
Woodbridge, Connecticut 13,000
Ballinamore, Ireland 12,000
Abingdon, 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 leased facilities in Grand Rapids, Michigan; Gardena,
California; Dongguan, China; Selangor, Malaysia; Abingdon, England; Singapore;
and North Sydney Australia.
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.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of fiscal 1998 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 1998 Annual Report to Shareholders and is included in Exhibit
13. There is no 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 1998 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 1998 Annual
Report to Shareholders and is included in Exhibit 13.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company is subject to market risk in the form of interest rate risk and
foreign currency risk. Both interest rate risk and foreign currency risk are
immaterial to the Company.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of the Company are incorporated by
reference from the Company's 1998 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.
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 22, 1999. 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 22, 1999.
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 22,
1999.
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 22, 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)-1 The following items, included in the Company's 1998 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, 1998 and 1997
Consolidated Statements of Income and Retained Earnings -- Years
ended November 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows -- Years ended November 30,
1998, 1997 and 1996
Notes to Consolidated Financial Statements -- November 30, 1998
(a)-2 The following financial statement schedule is filed as a
part of this report.
Schedule II
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.
(a)-3 Exhibits.
Exhibits Incorporated by Reference
EXHIBIT INDEX
Exhibit No. Description
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 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.
*10.10 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.
*10.11 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.
*10.12 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.
*10.13 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.
*10.14 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.
*10.15 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.
*10.16 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.
*10.17 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.
*10.18 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.
*10.19 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.
*10.20 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.
*10.21 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.
*10.22 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.
*10.23 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.
Exhibits Filed Herewith:
4.4 First Amendment to Credit Agreement among Lilly Industries, Inc.,
the Lenders Signatory thereto and NBD Bank, N.A., as agent,
dated as of April 4, 1998.
13 Excerpts from the Lilly Industries, Inc. 1998 Annual
Report.
21 List of Subsidiaries.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
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, 1999
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, 1999
- ----------------------- and Chief Executive
Douglas W. Huemme Officer
(2) Principal
Financial Officer
/s/ John C. Elbin Vice President, February 23, 1999
- ------------------------ Chief Financial Officer
John C. Elbin and Secretary
(3) Principal
Accounting Officer
/s/ Kenneth L. Mills Corporate Controller February 23, 1999
- ----------------------- and
Kenneth L. Mills Assistant Secretary
(4) A majority of the
Board of Directors
/s/ James M. Cornelius Director February 23, 1999
- ---------------------------
James M. Cornelius
/s/ William C. Dorris Director February 23, 1999
- ---------------------------
William C. Dorris
/s/ Paul K. Gaston Director February 23, 1999
- ---------------------------
Paul K. Gaston
/s/ Harry Morrison, Ph.D. Director February 23, 1999
- ---------------------------
Harry Morrison, Ph.D.
/s/ Norma J. Oman Director February 23, 1999
- ---------------------------
Norma J. Oman
/s/ John D. Peterson Director February 23, 1999
- ---------------------------
John D. Peterson
/s/ Thomas E. Reilly, Jr. Director February 23, 1999
- ---------------------------
Thomas E. Reilly, Jr.
/s/ Van P. Smith Director February 23, 1999
- ---------------------------
Van P. Smith
/s/ Robert A. Taylor Director February 23, 1999
- ---------------------------
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, 1998:
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts receivable $2,139,000 $752,000 $-- $-- $910,000 (A) $1,981,000
========== ======== === === ============ ==========
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
========== ======== === ======== ============ ==========
Note A - Uncollectible accounts receivable charged off, net of recoveries.