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, 1994
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, 1994:
Class A Common 22,367,000
Class B Common 323,000
<PAGE>
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)
<TABLE>
<CAPTION>
Three Months Ended
May 31 May 31
1994 1993
_____________________
<S> <C> <C>
Net sales $84,520 $65,825
Costs and expenses:
Cost of products sold 54,796 42,701
Selling, administrative and general 15,807 12,840
Research and development 3,282 2,869
------- -------
73,885 58,410
------- -------
OPERATING INCOME 10,635 7,415
Other income (expense):
Interest income and sundry 70 51
Interest expense (730) (385)
------- -------
(660) (334)
------- -------
INCOME BEFORE INCOME TAXES 9,975 7,081
Income Taxes 4,189 2,975
------- -------
NET INCOME $ 5,786 $ 4,106
======= =======
Cash dividends per share--Note B $ 0.067 $ 0.060
======= =======
Average number of shares and equivalent shares
of capital stock outstanding--Note B 23,300 22,935
======= =======
Net income per share--Note B $ 0.25 $ 0.18
======= =======
<FN>
See notes to consolidated condensed financial statements.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
Six Months Ended
May 31 May 31
1994 1993
_____________________
<S> <C> <C>
Net sales $158,492 $120,349
Costs and expenses:
Cost of products sold 104,527 79,100
Selling, administrative and general 30,706 24,108
Research and development 6,622 5,578
-------- --------
141,855 108,786
-------- -------
OPERATING INCOME 16,637 11,563
Other income (expense):
Interest income and sundry 88 149
Interest expense (1,333) (687)
-------- --------
(1,245) (538)
-------- --------
INCOME BEFORE INCOME TAXES 15,392 11,025
Income Taxes 6,465 4,631
-------- --------
NET INCOME $ 8,927 $ 6,394
======== ========
Cash dividends per share--Note B $ 0.127 $ 0.118
======= =======
Average number of shares and equivalent
shares of capital stock outstanding
--Note B 23,260 22,900
======= =======
Net income per share--Note B $ 0.38 $ 0.28
======= =======
<FN>
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
May 31 November 30
1994 1993
_____________________
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 14,700 $ 7,384
Short-term investments 75 75
Accounts receivable, less allowances
for doubtful accounts (5/31/94, $1,693;
11/30/93, $1,353) 41,893 $ 39,936
Inventories--Note C 22,479 22,727
Prepaid expenses 744 99
-------- --------
TOTAL CURRENT ASSETS 79,891 70,221
OTHER ASSETS 8,344 7,576
INTANGIBLE ASSETS 53,040 55,471
PROPERTY AND EQUIPMENT
Land 4,017 3,910
Buildings and equipment 68,941 65,895
Allowances for depreciation (deduction) (37,961) (36,029)
-------- --------
34,997 33,776
-------- --------
$176,272 $167,044
======== ========
<FN>
See notes to consolidated condensed financial statements.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
May 31 November 30
1994 1993
_____________________
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 27,735 $ 24,872
Salaries, wages, commissions and
related items 6,056 7,341
State and local taxes 669 273
Federal income taxes 2,268 985
Current portion of long-term debt 11,438 3,480
-------- --------
TOTAL CURRENT LIABILITIES 48,166 36,951
LONG TERM DEBT 31,389 40,621
OTHER LIABILITIES 9,184 8,344
SHAREHOLDERS' EQUITY
Capital stock:
Class A (limited voting) 14,814 14,705
Class B (voting) 300 300
Additional capital 71,610 70,635
Retained earnings 27,035 20,970
Currency translation adjustments (244) 105
Cost of capital stock in treasury
(deduction) (25,982) (25,587)
-------- --------
87,533 81,128
-------- --------
$176,272 $167,044
======== ========
<FN>
See notes to consolidated condensed financial statements
/TABLE
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
Six Months Ended
May 31 May 31
1994 1993
_______________________
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,927 $ 6,394
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,370 1,980
Amortization of intangibles 2,183 1,174
Deferred income taxes (98) (591)
Changes in operating assets and liabilities
net of effects from acquired business:
Accounts receivable (1,957) (6,449)
Inventories 248 1,177
Prepaid expenses (645) (525)
Accounts payable and accrued expenses 1,974 621
Income taxes 1,283 (460)
Sundry 166 (511)
------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 14,451 2,810
INVESTING ACTIVITIES
Purchases of property and equipment (3,669) (2,522)
Payment for acquired business 0 (37,500)
Proceeds from maturities of short-term
investments 0 2,417
Sundry 675 (131)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (2,994) (37,736)
FINANCING ACTIVITIES
Cash dividends paid (2,863) (2,633)
Proceeds from short-term and
long-term borrowings 0 39,000
Principal payments on short-term and
long-term borrowings (1,278) (3,196)
------- --------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (4,141) 33,171
------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 7,316 (1,755)
Cash and cash equivalents at beginning of year 7,384 8,334
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $14,700 $ 6,579
======= ========
<FN>
See notes to consolidated condensed financial statements.
/TABLE
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
MAY 31, 1994
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, 1993.
NOTE B--SHARE AND PER SHARE AMOUNTS
Share and per share amounts have been adjusted to reflect the
three-for-two stock split distributed June 1, 1994. Equivalent
shares of capital stock represent additional shares assumed
issued upon exercise of stock options.
<TABLE>
<CAPTION>
NOTE C--INVENTORIES
The principal inventory classifications are summarized as follows
(in thousands):
May 31 November 30
1994 1993
<S> <C> <C>
Finished products $ 12,993 $ 12,971
Raw materials 17,649 17,619
-------- --------
30,642 30,590
Less adjustment of certain
inventories to last in,
first out (LIFO) basis 8,163 7,863
-------- --------
$ 22,479 $ 22,727
======== ========
</TABLE>
The Company uses the LIFO method in inventory valuation for
approximately 85% 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.
NOTE D--ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
NO. 106
During the first quarter of fiscal 1994, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions". SFAS No. 106 requires accrual accounting for the
expected cost of providing postretirement health care benefits to
retirees. Prior to fiscal 1994, the Company recognized the cost
of these benefits as claims were paid. Expense recognized under
SFAS No. 106 is not materially different from expense recognized
prior to 1994 using the cash basis.
The Company provides health care benefits to retirees meeting
certain eligibility requirements. Eligibility is based on age
and years of service. Retirees participate in the cost of these
benefits through contributions and other cost sharing features
such as deductibles and coinsurance, which are subject to
periodic adjustment by the Company. Funding of benefits is
provided by the Company and retiree contributions.
The accumulated postretirement benefit obligation resulting from
the adoption of SFAS No. 106 is $4.8 million ($2.8 million net of
tax) and is being amortized over 20 years. The accumulated
postretirement benefit obligation was determined using a discount
rate of 8.5%.
The health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 12% in 1994 and is assumed
to decrease gradually to 6% in the year 2000 and finally to 5.5%
in the year 2019 and thereafter. A one percent increase in the
health care cost trend rate would increase the accumulated
postretirement benefit obligation by approximately 3%.
NOTE E--ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
NO. 109
During the first quarter of fiscal 1994, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". The effect of adopting this accounting
standard was not material.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
Second quarter 1994 financial results were at all-time quarterly
record high levels. Sales and earnings have now improved over
the prior year for eleven consecutive quarters. For the three
months ended May 31, 1994 sales of $84.5 million increased 28%
from $65.8 million in 1993. Net income for the quarter increased
41% to $5.8 million, or 25 cents per share, compared to $4.1
million, or 18 cents per share for last year's second quarter.
Sales for the first half of fiscal 1994 increased to $158.5
million, up 32% over last year. Net income for the six-month
period increased 40% to $8.9 million. Net income per share was
38 cents, up from 28 cents last year.
Sales gains were realized in all markets and relate to a steadily
strengthening economy and the business acquired from ICI Paints
last year. Gross profit margins improved reflecting increased
production efficiencies.
At the annual shareholders' meeting on April 21, 1994 the Company
announced a three-for-two stock split and a 5% increase in the
quarterly cash dividend. The stock split was distributed to
shareholders on June 1, 1994. The quarterly cash dividend was
raised to 7 cents per share payable on post-split shares on July
1, 1994. This new quarterly rate represents a 17% increase over
the cash dividend rate in effect one year ago. On June 24, 1994
the Board of Directors declared a quarterly cash dividend of 7
cents per share payable October 3, 1994 to shareholders of record
on September 12, 1994.
The Company's operating results for the first six months of 1994
were consistent with expectations. The outlook for the second
half of the year is for a continuation of improved performance.
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 21, 1994, the following directors were elected by the
votes indicated:
<TABLE>
<CAPTION>
Absententions
Stock Votes and Broker
Director Name Class Votes For Withheld Nonvotes
<S> <C> <C> <C> <C>
H.J. (Jack) Baker A 12,070,818 28,587 --
Robert H. McKinney A 12,070,768 28,637 --
John D. Peterson A 12,087,234 12,171 --
Van P. Smith A 12,070,935 28,470 --
Robert S. Bailey B 216,292 -- --
William C. Dorris B 216,292 -- --
Douglas W. Huemme B 216,292 -- --
Roman J. Klusas B 216,292 -- --
Thomas E. Reilly, Jr. B 216,292 -- --
Richard A. Steele B 216,292 -- --
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibit is included herein:
EXHIBIT 11 Computation of Earnings Per Share
(b) The Company did not file any reports on Form 8-K during the
three months ended May 31, 1994.
Note: All other item numbers under this section are not
applicable.
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 13, 1994
/s/ Douglas W. Huemme
Douglas W. Huemme
Chairman, President and
Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER
July 13, 1994
/s/ Roman J. Klusas
Roman J. Klusas
Vice President and
Chief Financial Officer
EXHIBIT 11
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE
LILLY INDUSTRIES, INC.
(In thousands, except per share data)
Three Months Ended Six Months Ended
May 31 May 31 May 31 May 31
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding--
Note A 22,670 22,361 22,623 22,305
Net income $ 5,786 $ 4,106 $ 8,927 $ 6,394
Net income per common share--
Note A $ 0.26 $ 0.18 $ 0.39 $ 0.29
======= ======= ======= =======
Average shares outstanding--
Note A 22,670 22,361 22,623 22,305
Dilutive stock options based
on treasury stock method
using average market
price--Note A 603 574 615 576
------- ------- ------- -------
23,273 22,935 23,238 22,881
Net income $ 5,786 $ 4,106 $ 8,927 $ 6,394
Net income per common
and common equivalent
share--Note A $ 0.25 $ 0.18 $ 0.38 $ 0.28
======= ======= ======= =======
Fully diluted:
Average shares outstanding--
Note A 22,670 22,361 22,623 22,305
Dilutive stock options based
on the treasury stock
method using the higher
of quarter end or average
market price--Note A 630 574 637 595
------- ------- ------- -------
23,300 22,935 23,260 22,900
Net income $ 5,786 $ 4,106 $ 8,927 $ 6,394
Net income per common
and common equivalent
share--Note A $ 0.25 $ 0.18 $ 0.38 $ 0.28
======= ======= ======= =======
<FN>
Note A--Share and per share amounts have been adjusted to reflect the
three-for-two stock split distributed June 1, 1994.
</TABLE>
