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 [FEE REQUIRED]
For the Fiscal Year ended November 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
(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
1
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The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 16, 1996 was $271,000,000.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 16, 1996.
22,166,360 shares of Class A Common Stock, without par value
392,264 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, 1995
Part III: Items 10 Proxy Statement for Annual Meeting of
through 13 Shareholders to be held April 18, 1996
2
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PART I
Item 1. Business.
Business Description
Lilly Industries, Inc. (referred to herein as "Lilly" or the "Company")
was incorporated under the laws of the State of Indiana on December 5, 1888. The
Company's business is the formulation, manufacture and sale of industrial
coatings. The Company's products include liquid and powder coatings used by a
variety of manufacturers to coat wood, metal, plastics and glass substrates. 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, and the Company has only one reportable industry
segment.
On May 7, 1993 Lilly acquired assets of ICI Paints' North American
wood, coil and general liquid industrial coatings business (the "Acquired
Business") in exchange for $37,500,000 in cash and Lilly's packaging coatings
business. The acquired assets included inventory, certain laboratory equipment,
patents, trademarks and other related intellectual property rights (together
with a non-compete covenant from ICI). Lilly did not purchase any plant or
equipment (other than the immaterial laboratory equipment referenced above). The
acquired business was integrated into the Company's existing facilities.
The Company's principal products are: wood coatings for furniture,
building products, and cabinets; coil coatings for residential siding
components, appliances, and metal buildings; specialty coatings for a
variety of metal products and fiberglass reinforced products; powder
coatings for a variety of metal products; and glass coatings for mirrors.
The Company manufactures its products from a variety of resins,
pigments, solvents and other chemicals, the bulk of which are obtained from
petrochemical feed stocks. In addition, the Company uses 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.
Most of the Company's products are sold into industrial markets through
a technical sales force of approximately 280 people. The Company sold products
to approximately 3,500 different industrial customers during 1995(1). Some
products are also sold through retail outlets or through distributors. No
material part
- ------------------------
(1) References in this Form 10-K are references to the Company's fiscal
years ended November 30, 1993, 1994 and 1995.
3
<PAGE>
of the business is dependent on any single customer or a few customers, the loss
of which would have a material adverse effect on the Company.
The Company has no significant backlog of orders. No material part of
the business is subject to renegotiation of profit or termination of contracts
or subcontracts at the election of the Government. Historically, first quarter
operating results are below operating results for the second, third and fourth
quarters due to lower demand for the Company's products during this time period.
Although the Company holds several patents and trademarks and considers
patent and trademark protection to be important from an overall standpoint, none
are currently material (as a percent of total revenues) to the Company's
business as a whole. The many patents and licenses for glass coatings are
material to those specific products and new patents are continually being
developed to replace older patents as they expire.
The Company maintains laboratories at its major facilities. These
laboratories have traditionally emphasized the development of product finishes
to meet specific requirements of customers and the maintenance of quality
throughout the manufacturing process. They have also, along with the Corporate
Technology Center, engaged in research directed toward the development of new
products and new manufacturing and application techniques. Research and
development expenses were $13.2 million (4.0% of net sales), $13.0 million (3.9%
of net sales), and $12.3 million (4.3% of net sales) for the years ended
November 30, 1995, 1994 and 1993, 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 industrial coatings industry is very competitive. In the United
States and Canada there are more than 750 manufacturers of protective and
decorative coatings. No one manufacturer dominates. Competition includes
national and small regional firms. While Lilly is among the ten largest
manufacturers of industrial coatings in the United States (based on annual sales
to industrial customers), some competitors have far greater financial resources
than the Company. Price competition is keen. Among the larger manufacturers,
competitive advantages depend upon the manufacturer's ability to purchase the
necessary raw materials in economic quantities, to keep pace with technological
developments (particularly to meet environmental demands), to develop industrial
coatings meeting the specific (and changing) requirements of a variety of
customers, to adhere to strict quality control standards in manufacturing those
coatings, and to make deliveries on time.
Most of the Company's customers are located throughout the United
States and Canada, with remaining customers concentrated in Europe and Asia.
During 1995, the Company's operations outside the United States accounted for
approximately 15% of its total net sales. Information concerning the Company's
net sales, pre-tax profit and assets in foreign countries and the United States
4
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for the three years ended November 30, 1995 is set forth in Note 8 in the Notes
to Consolidated Financial Statements in the Company's 1995 Annual Report to
Shareholders. Note 8 is incorporated herein by reference.
The Company undertakes to comply with applicable laws regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment and the Company believes it is in substantial
compliance with such federal, state and local provisions. Capital expenditures
for this purpose were not material in fiscal 1995, and capital expenditures for
1996 are not anticipated to be material.
In addition, like most companies in the paint and coatings industry,
the Company has been named as a potentially responsible party (a "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 or may be incurred under the Federal Comprehensive
Environmental Response, Compensation and Liability Act and similar state
statutes. While the Company is not usually a major contributor of wastes to
these sites, each contributor may face agency assertions of joint and several
liability. Generally, however, a final allocation of costs is made based on
relative contributions of wastes to the site. The Company also, from time to
time, conducts or participates in remedial investigations and clean-up
activities at currently and formerly occupied facilities.
The Company is continually assessing its environmental matters and
establishing reserves to handle 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 condition of the Company as a whole.
The Company employs approximately 1,150 people.
5
<PAGE>
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 48 Vice President - Operations
and Manufacturing since July,
1994; General Manager of the
Company's Indianapolis
Division from prior to 1991
to July, 1994.
William C. Dorris 53 Director since 1989; Vice
President - Corporate
Development since July, 1994;
General Manager of the Company's
High Point Division from prior to
1991 to July, 1994; of the
Company's Templeton Division
from 1991 to July, 1994; and of
the Company's Dallas Division
from 1993 to July, 1994.
Douglas W. Huemme 54 Director since 1990; Chairman,
President and Chief Executive
Officer of the Company since
July, 1991; President and Chief
Operating Officer of the
Company from prior to 1991 to
July, 1991.
Roman J. Klusas 49 Director since 1988; Vice
President and Chief Financial
Officer, and Secretary of the
Company since prior to 1991.
Kenneth L. Mills 47 Assistant Secretary since prior
to 1991; Treasurer from prior
to 1991 until October, 1993;
Director of Corporate
Accounting since October, 1993.
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
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Item 2. Properties.
The Company has 20 principal manufacturing facilities. The locations
and approximate square footage at those facilities are as follows:
Location Square Feet
Indianapolis, Indiana (2 locations) 296,000
High Point, North Carolina 236,000
North Kansas City, Missouri 106,000
London, Ontario, Canada 103,000
Bowling Green, Kentucky 94,000
Jamestown, New York 85,000
Kaohsiung Hsien, Taiwan, R.O.C. 64,000
Montebello, California 58,000
Gardena, California 52,000
Paulsboro, New Jersey 47,000
Dothan, Alabama 42,000
Dallas, Texas 36,000
Tampa, Florida 29,000
Elkhart, Indiana 25,000
Guangdon, China 25,000
Selangor, Malaysia 20,000
Davie, Florida 14,000
Woodbridge, Connecticut 13,000
Wallenfels, West Germany 9,000
All of these principal facilities noted above are owned directly or indirectly
by the Company, except for the facilities in Gardena, California, Selangor,
Malaysia, and Guangdon, China which are leased. The facilities are of varying
ages, and are well maintained and adequate for their present uses. Additional
productive capacity at these facilities is generally available by increasing the
number of shifts worked. The Company also owns the Corporate Technology Center
and office facilities in Indianapolis which contain approximately 37,000 square
feet.
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.
7
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of 1995 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 "Dividend Information
and Common Stock Prices" in the Company's 1995 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 1995 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
1995 Annual Report to Shareholders and is included in Exhibit 13.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of the Company are incorporated
by reference from the Company's 1995 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.
8
<PAGE>
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
I, Election of Directors" of the Company's definitive Proxy Statement relating
to its Annual Meeting of Shareholders to be held April 18, 1996. 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 sections entitled "Cash Compensation of Executive Officers"
and "Non-Cash Compensation Arrangements" of the Company's definitive Proxy
Statement relating to its Annual Meeting of Shareholders to be held
April 18, 1996.
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 "Outstanding Shares and Voting Rights" and
"Proposal I, Election of Directors" of the Company's definitive Proxy Statement
relating to its Annual Meeting of Shareholders to be held April 18, 1996.
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 I, Election of Directors" of
the Company's definitive Proxy statement relating to its Annual Meeting of
Shareholders to be held April 18, 1996.
9
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a)-1 The following items, included in the Company's 1995 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, 1995 and 1994
Consolidated Statements of Income
and Retained Earnings -- Years ended
November 30, 1995, 1994 and 1993
Consolidated Statements of Cash
Flows -- Years ended November 30, 1995,
1994 and 1993
Notes to Consolidated Financial
Statements -- November 30, 1995
(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.
10
<PAGE>
(a)-3 Exhibits.
Exhibits Incorporated by Reference
2 Agreement of Sale and Purchase Between The Glidden
Company and Lilly Industries, Inc. dated March 25,
1993 and amended by Amendment No. 1 dated May 7,
1993. This document is incorporated by reference to
Exhibit 2 to the Company's Form 8-K Current Report
dated May 7, 1993 and filed with the SEC on May 20,
1993.
3(a) The Company's Amended and Restated Articles of
Incorporation. This exhibit is incorporated by
reference to Exhibit 3(a) to the Company's Form 10-K
Annual Report for the fiscal year ended November
30, 1993.
3(b) The Company's Code of By-Laws, as amended. This
exhibit is incorporated by reference to Exhibit 3(b)
to the Company's Form 10-K Annual Report for the
fiscal year ended November 30, 1993.
4 See Exhibits 10(d), 10(i), 10(j), 10(k) and 10(1).
*10(a) Lilly Industries, Inc. Stock Option Plan. This
exhibit is incorporated by reference to Exhibit
10(a) to the Company's Form 10-K Annual Report for
the fiscal year ended November 30, 1988.
*10(b) Lilly Industries, Inc. Unfunded Supplemental
Retirement Plan (as in effect November 29, 1990).
This exhibit is incorporated by reference to Exhibit
10(b) to the Company's Form 10-K Annual Report for
the fiscal year ended November 30, 1990.
*10(c) Lilly Industries, Inc. Unfunded Excess Benefit
Plan. This exhibit is incorporated by reference to
Exhibit 10(c) to the Company's Form 10-K Annual
Report for the fiscal year ended November 30, 1989.
10(d) Credit Agreement dated as of November 9, 1992, by and
between Lilly Industries, Inc. and INB National Bank
completely restating the Second Amended and Restated
Revolving Loan Agreement dated May 31, 1991, as
amended. This document is incorporated by reference
to Exhibit 10(d) to the Company's Annual Report for
the fiscal year ended November 30, 1992.
11
<PAGE>
*10(e) Lilly Industries, Inc. Second Unfunded Supplemental
Retirement Plan effective June 4, 1990. This
exhibit is incorporated by reference to Exhibit
10(f) to the Company's Form 10-K Annual Report for
the fiscal year ended November 30, 1990.
*10(f) Lilly Industries, Inc. Termination Benefits Agreement
(form of agreement applicable to 3 officers). This
exhibit is incorporated by reference to Exhibit 10(g)
to the Company's Form 10-K Annual Report for the
fiscal year ended November 30, 1990.
*10(g) Lilly Industries, Inc. 1991 Director Stock Option
Plan. This exhibit is incorporated by reference to
Exhibit 10(i) to the Company's Form 10-K Annual
Report for the fiscal year ended November 30, 1991.
*10(h) Lilly Industries, Inc. 1992 Stock Option Plan.
This exhibit is incorporated by reference to Exhibit
10(j) to the Company's Form 10-K Annual Report for
the fiscal year ended November 30, 1991.
10(i) Note Agreement among the Company and Principal
Mutual Life Insurance Company and Principal
National Life Insurance Company dated as of
December 22, 1993. This exhibit is incorporated by
reference to Exhibit 10(k) to the Company's 10-K
Annual Report for the fiscal year ended November
30, 1993.
10(j) Revolving Credit Agreement [1995] between the
Company and National City Bank, Indiana dated as of
January 27, 1995. This exhibit is incorporated by
reference to Exhibit 10(j) to the Company's 10-K
Annual Report for the fiscal year ended November 30,
1994.
10(k) Revolving Credit Agreement [1995] between the
Company and NBD Bank, N.A. dated as of January 27,
1995. This exhibit is incorporated by
reference to Exhibit 10(k) to the Company's 10-K
Annual Report for the fiscal year ended November 30,
1994.
10(l) Amended and Restated Revolving Credit Agreement
[1995] between the Company and Society National
Bank, Indiana dated as of January 27, 1995. This
exhibit is incorporated by reference to Exhibit
10(l) to the Company's 10-K Annual Report for the
fiscal year ended November 30, 1994.
-------------------
* Management contracts and compensatory reports
required to be filed pursuant to Item 14(c) of Form
10-K.
12
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Exhibits Filed Herewith:
10(m) First Amendment to Revolving Credit Agreement [1995]
between the Company and National City Bank, Indiana
dated as of January 27, 1995.
10(n) First Amendment to Revolving Credit Agreement [1995]
between the Company and NBD Bank, N.A. dated as of
January 27, 1995.
10(o) First Amendment to Amended and Restated Revolving
Credit Agreement [1995] between the Company and
Society National Bank, Indiana dated as of
January 27, 1995.
11 Computation of Earnings Per Share.
13 Excerpts from the Lilly Industries, Inc. 1995
Annual Report.
21 List of Subsidiaries.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the fourth
quarter of fiscal year 1995.
(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.
13
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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, 1996
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, 1996
- ------------------------ and Chief Executive
Douglas W. Huemme Officer
(2) Principal Financial
Officer and Director
/s/ Roman J. Klusas Vice President, February 23, 1996
- ------------------------ Chief Financial
Roman J. Klusas Officer and Secretary
(3) Director of Corporate
Accounting and Principal
Accounting Officer
/s/ Kenneth L. Mills Director of Cor- February 23, 1996
- ------------------------ porate Accounting
Kenneth L. Mills and Assistant Secretary
14
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(4) A majority of the
Board of Directors
/s/ H. J. Baker
- -------------------------
H. J. (Jack) Baker Director February 23, 1996
/s/ William C. Dorris
- -------------------------
William C. Dorris Director February 23, 1996
/s/ Robert H. McKinney
- -------------------------
Robert H. McKinney Director February 23, 1996
/s/ Harry Morrison, Ph.D.
- -------------------------
Harry Morrison, Ph.D. Director February 23, 1996
/s/ John D. Peterson
- -------------------------
John D. Peterson Director February 23, 1996
/s/ Thomas E. Reilly, Jr.
- --------------------------
Thomas E. Reilly, Jr. Director February 23, 1996
/s/ Van P. Smith
- --------------------------
Van P. Smith Director February 23, 1996
/s/ Richard A. Steele
- --------------------------
Richard A. Steele Director February 23, 1996
15
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<TABLE>
<CAPTION>
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) Deductions- Balance
Beginning Charged to Charged to Describe at End of
of Period Costs and Other Accounts Period
Expenditures -Describe
<S> <C> <C> <C> <C> <C>
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
========== =========== =========== ============ ==========
Year ended November 30, 1994:
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts receivable $1,353,042 $790,422 $ - $384,695 (A) $1,758,769
========== =========== ============== ============ ==========
Year ended November 30, 1993:
Reserve and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts receivable $1,193,639 $827,912 $ - $668,509 (A) $1,353,042
========== =========== ============== ============ ==========
</TABLE>
Note A - Uncollectible accounts receivable charged off, net of recoveries.
16
FIRST AMENDMENT
TO
REVOLVING CREDIT AGREEMENT [1995]
THIS FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT [1995] ("Agreement") is
made and entered into as of the 31st day of October, 1995, by and between Lilly
Industries, Inc., an Indiana corporation and National City Bank, Indiana, a
national banking association (the "Bank").
Recitals
1. The Borrower and the Bank are parties to a Revolving Credit Agreement
[1995], dated as of January 27, 1995 (the "Credit Agreement").
2. The Borrower has requested the Bank to amend the terms of the Credit
Agreement to increase its Commitment (as such term is defined in the Credit
Agreement) from $15,000,000 to $20,000,000 and to extend the Commitment Period
(as such term is defined in the Credit Agreement) through June 30, 2000 to be
considered for extension annually. The Bank is entering into this Agreement to
so amend the terms of the Credit Agreement and to make the other modifications
to Credit Agreement specified below.
Agreement
NOW THEREFORE, in consideration of the premises, the mutual covenants
and agreements herein, and each act performed and to be performed hereunder, the
Bank and the Borrower agree as follows:
1. Definitions. All terms used in the Recitals and in this Agreement that
are defined in the Credit Agreement and are not otherwise defined herein are
used in this Agreement with the meanings ascribed to them in the Credit
Agreement.
2. Amendment of Credit Agreement. (a) Effective as of the date hereof, the
definition of the terms "Cash Flow Coverage Ratio," "Commitment," "Commitment
Period," "Loans," "Note" and "Termination Date" in Section 1.1 of the Credit
Agreement are amended to read as follows:
"Cash Flow Coverage Ratio" means, as of the date of determination, (a)
the sum of (i) net income after taxes, plus (ii) income tax expense,
plus (iii) interest expense, plus (iv) depreciation, amortization and
other non-cash expenses; divided by (b) the sum of (i) income tax
expense, plus (ii) interest expense, plus (iii) current maturities of
long term debt, plus (iv) cash dividends, for the four (4) fiscal
quarters immediately preceding such date all as determined by reference
to the financial statements furnished to the Bank from time to time
pursuant to Section 5.3.
<PAGE>
"Commitment" means the obligation of the Bank to make Loans during the
Commitment Period up to a maximum aggregate principal amount
outstanding at any time of $20,000,000.
"Commitment Period" means the period from the date hereof through June
30, 2000, unless extended or renewed by a prior written agreement
executed by the Borrower and the Bank (it being understood that, if so
agreed by the Borrower and the Bank, the Commitment Period referenced
above shall be considered for extension annually).
"Loans" means the revolving loans made by the Bank to the Borrower from
time to time pursuant to Section 2.1 hereof in the maximum aggregate
principal amount of $20,000,000 in accordance with the Commitment,
including any extensions or renewals thereof.
"Note" means the Revolving Credit Note in the form attached hereto as
Exhibit A in the maximum aggregate principal amount of $20,000,000 (or
so much thereof as may be advanced or outstanding from time to time)
executed by the Borrower in favor of the Bank.
"Termination Date" means June 30, 2000.
(b) Effective as of the date hereof, the following defined terms
are added to Section 1.1 of the Credit Agreement:
"Funded Debt Ratio" means, as of the date of determination,
Total Funded Debt divided by (a) the sum of (i) net income after taxes,
plus (ii) income tax expense, plus (iii) interest expense plus (iv)
depreciation, amortization and non-cash expenses (b) minus additional
investments in treasury stock.
"Interest Expense Coverage Ratio" means, as of the date of
determination, net income after taxes plus (i) income tax expense plus
(ii) interest expense divided by interest expense.
"Total Funded Debt" means (i) All Indebtedness for borrowed
money or which has been incurred in connection with the acquisition of
assets, (ii) all capitalized lease obligations in respect of
capitalized leases with a term of one year or more remaining after the
date of determination thereof, and (iii) all guaranties of Indebtedness
of others maturing one year or more after the date of determination
thereof.
(c) Effective as of the date hereof, the last sentence of Section
2.3 shall be amended and restated to read as follows:
-2-
<PAGE>
Unless the Loans are sooner paid by the Borrower or extended by the
Bank in its sole discretion, the entire principal balance of the Loans,
together with all accrued and unpaid interest thereon, and all fees and
charges payable in connection therewith, shall be due and payable on
June 30, 2000.
(d) Effective as of the date hereof, Section 2.11 of the Credit
Agreement shall be amended and restated to read in its entirety as
follows:
Section 2.11. Commitment Fee. Borrower shall pay to the Bank a
commitment fee equal to three-sixteenths (3/16) of one percent (1%) per
annum on the maximum amount of the Commitment, which fee shall be due
and payable quarterly in advance of each calendar quarter within
fifteen (15) days of receipt by the Borrower of an invoice therefor.
(e) Effective as of the date hereof, Section 5.5 of the Credit
Agreement shall be amended and restated to read in its entirety as
follows:
"5.5 Leverage Ratio. Maintain a ratio of Total
Funded Debt to Total Funded Debt plus Consolidated Net
Worth not in excess of 0.50:1.00 as of the end of each
fiscal quarter."
(f) Effective as of the date hereof, Section 5.6 of the Credit
Agreement shall be amended and restated to read in its entirety as
follows:
"5.6 Interest Expense Coverage Ratio. Maintain an
Interest Expense Coverage Ratio of not less than 5.00 to
1.00 as at the end of each fiscal quarter."
(g) Effective as of the date hereof, Section 5.7 of the Credit
Agreement shall be amended and restated to read in its entirety as
follows:
"5.7 Cash Flow Coverage Ratio. Maintain a Cash
Flow Coverage Ratio of not less than 1.15 to 1.00 as at
the end of each fiscal quarter."
(h) Effective as of the date hereof, a new Section 5.8A shall be
added to the Credit Agreement as follows:
"5.8A Funded Debt Ratio. Maintain a Funded Debt
Ratio not in excess of 2.75 to 1.00 as of the end of each
fiscal quarter.
2. Credit Agreement. Except as otherwise expressly provided herein, all of
the terms and provisions of the Credit Agreement, as
-3-
<PAGE>
modified by this Agreement, remain in full force and effect, and are fully
binding on the parties thereto and their respective successors and assigns. All
references to the Credit Agreement in the other Loan Documents shall mean the
Credit Agreement as modified by this Agreement and as it may be further amended,
modified, extended, renewed, supplemented and/or restated from time to time.
3. Binding on Successors and Assigns. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto,
their respective successors, assigns and legal representatives. Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party.
4. Representations and Warranties. Borrower hereby represents and warrants
to the Bank that:
(a) The execution, delivery and performance of this Agreement
by Borrower is within Borrower's corporate powers, has been duly authorized by
all requisite corporate action and is not in conflict with the terms of any
charter, bylaws or other organization papers of Borrower, or any instrument or
agreement to which Borrower is a party or by which Borrower is bound.
(b) None of the representations and warranties contained in
Section 4 of the Credit Agreement has ceased to be true and correct in any
material respect and no Default or Event of Default has occurred and is
continuing.
5. Condition Precedent. The obligation of the Bank to execute this
Agreement is subject to the condition precedent that the following shall have
been delivered to the Bank:
(a) Copies of resolutions passed by the Board of Directors of
Borrower, certified by the Secretary or Assistant Secretary of Borrower, as
being in full force and effect on the date hereof.
(b) This Agreement duly executed by Borrower.
(c) An Amended or Restated Promissory Note duly executed by
Borrower and payable to Bank in the principal amount of up to $20,000,000 with a
maturity date of on or before June 30, 2000 (subject to acceleration, extension
or prepayment) (the "Amended Note") and substantially similar in form to the
Promissory Note of the Borrower dated January 27, 1995, payable to Bank in the
principal amount of $15,000,000 (the "Existing Note") in exchange for
cancellation and delivery to Borrower of the Existing Note. The parties agree
that the Amended Note shall be substituted for the Existing Note as Exhibit A to
the Credit Agreement.
-4-
<PAGE>
6. Survival. All covenants, agreements, undertakings, representations, and
warranties made in this Agreement shall survive the execution and delivery of
this Agreement, and shall not be affected by any investigation made by any
party.
7. Entire Agreement. This Agreement constitutes and expresses the entire
understanding between the parties hereto with respect to the subject matter
hereof, and supersedes all prior agreements and understandings, commitments,
inducements or conditions, whether express or implied, oral or written.
8. Counterparts. This Agreement may be executed in counterparts, each
counterpart to be executed by one or more or all of the parties but collectively
to constitute but one agreement.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the date and year first above written.
"BORROWER"
LILLY INDUSTRIES, INC.
Attest: By: /s/ Roman J. Klusas
--------------------------
Roman J. Klusas,
Vice President, Chief
/s/ Kenneth L. Mills Financial Officer and
Kenneth L. Mills, Secretary
Director of Corporate Accounting
and Assistant Secretary
Address:
733 South West Street
Indianapolis, IN 46225
Attn: Vice President, Chief
Financial Officer and
Secretary
Telephone: (317) 687-6702
Telecopier: (317) 687-6710
"BANK"
NATIONAL CITY BANK, INDIANA
By: /s/ Frank B. Meltzer
----------------------------
Frank B. Meltzer,
Vice President
Address:
101 W. Washington St., #200E
Indianapolis, IN 46255
Attn: Frank B. Meltzer
Telephone: (317) 267-6132
Telecopier: (317) 267-8899
-6-
FIRST AMENDMENT
TO
REVOLVING CREDIT AGREEMENT [1995]
THIS FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT [1995] ("Agreement") is
made and entered into as of the 31st day of October, 1995, by and between Lilly
Industries, Inc., an Indiana corporation and NBD Bank, N.A., a national banking
association (the "Bank").
Recitals
1. The Borrower and the Bank are parties to a Revolving Credit Agreement
[1995], dated as of January 27, 1995 (the "Credit Agreement").
2. The Borrower has requested the Bank to amend the terms of the Credit
Agreement to increase its Commitment (as such term is defined in the Credit
Agreement) from $15,000,000 to $20,000,000 and to extend the Commitment Period
(as such term is defined in the Credit Agreement) through June 30, 2000 to be
considered for extension annually. The Bank is entering into this Agreement to
so amend the terms of the Credit Agreement and to make the other modifications
to Credit Agreement specified below.
Agreement
NOW THEREFORE, in consideration of the premises, the mutual covenants
and agreements herein, and each act performed and to be performed hereunder, the
Bank and the Borrower agree as follows:
1. Definitions. All terms used in the Recitals and in this Agreement that
are defined in the Credit Agreement and are not otherwise defined herein are
used in this Agreement with the meanings ascribed to them in the Credit
Agreement.
2. Amendment of Credit Agreement. (a) Effective as of the date hereof, the
definition of the terms "Cash Flow Coverage Ratio," "Commitment," "Commitment
Period," "Loans," "Note" and "Termination Date" in Section 1.1 of the Credit
Agreement are amended to read as follows:
"Cash Flow Coverage Ratio" means, as of the date of determination, (a)
the sum of (i) net income after taxes, plus (ii) income tax expense,
plus (iii) interest expense, plus (iv) depreciation, amortization and
other non-cash expenses; divided by (b) the sum of (i) income tax
expense, plus (ii) interest expense, plus (iii) current maturities of
long term debt, plus (iv) cash dividends, for the four (4) fiscal
quarters immediately preceding such date all as determined by reference
to the financial statements furnished to the Bank from time to time
pursuant to Section 5.3.
<PAGE>
"Commitment" means the obligation of the Bank to make Loans during the
Commitment Period up to a maximum aggregate principal amount
outstanding at any time of $20,000,000.
"Commitment Period" means the period from the date hereof through June
30, 2000, unless extended or renewed by a prior written agreement
executed by the Borrower and the Bank (it being understood that, if so
agreed by the Borrower and the Bank, the Commitment Period referenced
above shall be considered for extension annually).
"Loans" means the revolving loans made by the Bank to the Borrower from
time to time pursuant to Section 2.1 hereof in the maximum aggregate
principal amount of $20,000,000 in accordance with the Commitment,
including any extensions or renewals thereof.
"Note" means the Revolving Credit Note in the form attached hereto as
Exhibit A in the maximum aggregate principal amount of $20,000,000 (or
so much thereof as may be advanced or outstanding from time to time)
executed by the Borrower in favor of the Bank.
"Termination Date" means June 30, 2000.
(b) Effective as of the date hereof, the following
defined terms are added to Section 1.1 of the Credit Agreement:
"Funded Debt Ratio" means, as of the date of determination,
Total Funded Debt divided by (a) the sum of (i) net income after taxes,
plus (ii) income tax expense, plus (iii) interest expense plus (iv)
depreciation, amortization and non-cash expenses (b) minus additional
investments in treasury stock.
"Interest Expense Coverage Ratio" means, as of the date of
determination, net income after taxes plus (i) income tax expense plus
(ii) interest expense divided by interest expense.
"Total Funded Debt" means (i) All Indebtedness for borrowed
money or which has been incurred in connection with the acquisition of
assets, (ii) all capitalized lease obligations in respect of
capitalized leases with a term of one year or more remaining after the
date of determination thereof, and (iii) all guaranties of Indebtedness
of others maturing one year or more after the date of determination
thereof.
(c) Effective as of the date hereof, the last sentence
of Section 2.3 shall be amended and restated to read as follows:
-2-
<PAGE>
Unless the Loans are sooner paid by the Borrower or extended by the
Bank in its sole discretion, the entire principal balance of the Loans,
together with all accrued and unpaid interest thereon, and all fees and
charges payable in connection therewith, shall be due and payable on
June 30, 2000.
(d) Effective as of the date hereof, Section 2.11 of the
Credit Agreement shall be amended and restated to read in its
entirety as follows:
Section 2.11. Commitment Fee. Borrower shall pay to the Bank a
commitment fee equal to three-sixteenths (3/16) of one percent (1%) per
annum on the maximum amount of the Commitment, which fee shall be due
and payable quarterly in advance of each calendar quarter within
fifteen (15) days of receipt by the Borrower of an invoice therefor.
(e) Effective as of the date hereof, Section 5.5 of the
Credit Agreement shall be amended and restated to read in its
entirety as follows:
"5.5 Leverage Ratio. Maintain a ratio of Total
Funded Debt to Total Funded Debt plus Consolidated Net
Worth not in excess of 0.50:1.00 as of the end of each
fiscal quarter."
(f) Effective as of the date hereof, Section 5.6 of the
Credit Agreement shall be amended and restated to read in its
entirety as follows:
"5.6 Interest Expense Coverage Ratio. Maintain an
Interest Expense Coverage Ratio of not less than 5.00 to
1.00 as at the end of each fiscal quarter."
(g) Effective as of the date hereof, Section 5.7 of the
Credit Agreement shall be amended and restated to read in its
entirety as follows:
"5.7 Cash Flow Coverage Ratio. Maintain a Cash
Flow Coverage Ratio of not less than 1.15 to 1.00 as at
the end of each fiscal quarter."
(h) Effective as of the date hereof, a new Section 5.8A
shall be added to the Credit Agreement as follows:
"5.8A Funded Debt Ratio. Maintain a Funded Debt
Ratio not in excess of 2.75 to 1.00 as of the end of each
fiscal quarter.
2. Credit Agreement. Except as otherwise expressly provided
herein, all of the terms and provisions of the Credit Agreement, as
-3-
<PAGE>
modified by this Agreement, remain in full force and effect, and are fully
binding on the parties thereto and their respective successors and assigns. All
references to the Credit Agreement in the other Loan Documents shall mean the
Credit Agreement as modified by this Agreement and as it may be further amended,
modified, extended, renewed, supplemented and/or restated from time to time.
3. Binding on Successors and Assigns. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto,
their respective successors, assigns and legal representatives. Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party.
4. Representations and Warranties. Borrower hereby represents and warrants
to the Bank that:
(a) The execution, delivery and performance of this Agreement
by Borrower is within Borrower's corporate powers, has been duly authorized by
all requisite corporate action and is not in conflict with the terms of any
charter, bylaws or other organization papers of Borrower, or any instrument or
agreement to which Borrower is a party or by which Borrower is bound.
(b) None of the representations and warranties contained in
Section 4 of the Credit Agreement has ceased to be true and correct in any
material respect and no Default or Event of Default has occurred and is
continuing.
5. Condition Precedent. The obligation of the Bank to execute this
Agreement is subject to the condition precedent that the following shall have
been delivered to the Bank:
(a) Copies of resolutions passed by the Board of Directors of
Borrower, certified by the Secretary or Assistant Secretary of Borrower, as
being in full force and effect on the date hereof.
(b) This Agreement duly executed by Borrower.
(c) An Amended or Restated Promissory Note duly executed by
Borrower and payable to Bank in the principal amount of up to $20,000,000 with a
maturity date of on or before June 30, 2000 (subject to acceleration, extension
or prepayment) (the "Amended Note") and substantially similar in form to the
Promissory Note of the Borrower dated January 27, 1995, payable to Bank in the
principal amount of $15,000,000 (the "Existing Note") in exchange for
cancellation and delivery to Borrower of the Existing Note. The parties agree
that the Amended Note shall be substituted for the Existing Note as Exhibit A to
the Credit Agreement.
-4-
<PAGE>
6. Survival. All covenants, agreements, undertakings, representations, and
warranties made in this Agreement shall survive the execution and delivery of
this Agreement, and shall not be affected by any investigation made by any
party.
7. Entire Agreement. This Agreement constitutes and expresses the entire
understanding between the parties hereto with respect to the subject matter
hereof, and supersedes all prior agreements and understandings, commitments,
inducements or conditions, whether express or implied, oral or written.
8. Counterparts. This Agreement may be executed in counterparts, each
counterpart to be executed by one or more or all of the parties but collectively
to constitute but one agreement.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the date and year first above written.
"BORROWER"
LILLY INDUSTRIES, INC.
Attest: By: /s/ Roman J. Klusas
-----------------------
Roman J. Klusas,
Vice President, Chief
/s/ Kenneth L. Mills Financial Officer and
Kenneth L. Mills, Secretary
Director of Corporate Accounting
and Assistant Secretary
Address:
733 South West Street
Indianapolis, IN 46225
Attn: Vice President, Chief
Financial Officer and
Secretary
Telephone: (317) 687-6702
Telecopier: (317) 687-6710
"BANK"
NBD BANK, N.A.
By: /s/ Steven P. Clemens
------------------------
Title: Senior Vice President
Address:
One Indiana Square, #460
Indianapolis, IN 46266
Attn: Steven P. Clemens
Telephone: (317) 266-5850
Telecopier: (317) 266-6042
-6-
FIRST AMENDMENT
TO
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT [1995]
THIS FIRST AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
[1995] ("Agreement") is made and entered into as of the 31st day of October,
1995, by and between Lilly Industries, Inc., an Indiana corporation and Society
National Bank, Indiana, a national banking association (the "Bank").
Recitals
1. The Borrower and the Bank are parties to an Amended and Restated
Revolving Credit Agreement [1995], dated as of January 27, 1995 (the "Credit
Agreement").
2. The Borrower has requested the Bank to amend the terms of the Credit
Agreement to increase its Commitment (as such term is defined in the Credit
Agreement) from $15,000,000 to $20,000,000 and to extend the Commitment Period
(as such term is defined in the Credit Agreement) through June 30, 2000 to be
considered for extension annually. The Bank is entering into this Agreement to
so amend the terms of the Credit Agreement and to make the other modifications
to Credit Agreement specified below.
Agreement
NOW THEREFORE, in consideration of the premises, the mutual covenants
and agreements herein, and each act performed and to be performed hereunder, the
Bank and the Borrower agree as follows:
1. Definitions. All terms used in the Recitals and in this Agreement that
are defined in the Credit Agreement and are not otherwise defined herein are
used in this Agreement with the meanings ascribed to them in the Credit
Agreement.
2. Amendment of Credit Agreement. (a) Effective as of the date hereof, the
definition of the terms "Cash Flow Coverage Ratio," "Commitment," "Commitment
Period," "Loans," "Note" and "Termination Date" in Section 1.1 of the Credit
Agreement are amended to read as follows:
"Cash Flow Coverage Ratio" means, as of the date of determination, (a)
the sum of (i) net income after taxes, plus (ii) income tax expense,
plus (iii) interest expense, plus (iv) depreciation, amortization and
other non-cash expenses; divided by (b) the sum of (i) income tax
expense, plus (ii) interest expense, plus (iii) current maturities of
long term debt, plus (iv) cash dividends, for the four (4) fiscal
quarters immediately preceding such date all as determined by reference
to the financial statements furnished to the Bank from time to time
pursuant to Section 5.3.
<PAGE>
"Commitment" means the obligation of the Bank to make Loans during the
Commitment Period up to a maximum aggregate principal amount
outstanding at any time of $20,000,000.
"Commitment Period" means the period from the date hereof through June
30, 2000, unless extended or renewed by a prior written agreement
executed by the Borrower and the Bank (it being understood that, if so
agreed by the Borrower and the Bank, the Commitment Period referenced
above shall be considered for extension annually).
"Loans" means the revolving loans made by the Bank to the Borrower from
time to time pursuant to Section 2.1 hereof in the maximum aggregate
principal amount of $20,000,000 in accordance with the Commitment,
including any extensions or renewals thereof.
"Note" means the Revolving Credit Note in the form attached hereto as
Exhibit A in the maximum aggregate principal amount of $20,000,000 (or
so much thereof as may be advanced or outstanding from time to time)
executed by the Borrower in favor of the Bank.
"Termination Date" means June 30, 2000.
(b) Effective as of the date hereof, the following
defined terms are added to Section 1.1 of the Credit Agreement:
"Funded Debt Ratio" means, as of the date of determination,
Total Funded Debt divided by (a) the sum of (i) net income after taxes,
plus (ii) income tax expense, plus (iii) interest expense plus (iv)
depreciation, amortization and non-cash expenses (b) minus additional
investments in treasury stock.
"Interest Expense Coverage Ratio" means, as of the date of
determination, net income after taxes plus (i) income tax expense plus
(ii) interest expense divided by interest expense.
"Total Funded Debt" means (i) All Indebtedness for borrowed
money or which has been incurred in connection with the acquisition of
assets, (ii) all capitalized lease obligations in respect of
capitalized leases with a term of one year or more remaining after the
date of determination thereof, and (iii) all guaranties of Indebtedness
of others maturing one year or more after the date of determination
thereof.
(c) Effective as of the date hereof, the last sentence
of Section 2.3 shall be amended and restated to read as follows:
-2-
<PAGE>
Unless the Loans are sooner paid by the Borrower or extended by the
Bank in its sole discretion, the entire principal balance of the Loans,
together with all accrued and unpaid interest thereon, and all fees and
charges payable in connection therewith, shall be due and payable on
June 30, 2000.
(d) Effective as of the date hereof, Section 2.11 of the
Credit Agreement shall be amended and restated to read in its
entirety as follows:
Section 2.11. Commitment Fee. Borrower shall pay to the Bank a
commitment fee equal to three-sixteenths (3/16) of one percent (1%) per
annum on the maximum amount of the Commitment, which fee shall be due
and payable quarterly in advance of each calendar quarter within
fifteen (15) days of receipt by the Borrower of an invoice therefor.
(e) Effective as of the date hereof, Section 5.5 of the
Credit Agreement shall be amended and restated to read in its
entirety as follows:
"5.5 Leverage Ratio. Maintain a ratio of Total
Funded Debt to Total Funded Debt plus Consolidated Net
Worth not in excess of 0.50:1.00 as of the end of each
fiscal quarter."
(f) Effective as of the date hereof, Section 5.6 of the
Credit Agreement shall be amended and restated to read in its
entirety as follows:
"5.6 Interest Expense Coverage Ratio. Maintain an
Interest Expense Coverage Ratio of not less than 5.00 to
1.00 as at the end of each fiscal quarter."
(g) Effective as of the date hereof, Section 5.7 of the
Credit Agreement shall be amended and restated to read in its
entirety as follows:
"5.7 Cash Flow Coverage Ratio. Maintain a Cash
Flow Coverage Ratio of not less than 1.15 to 1.00 as at
the end of each fiscal quarter."
(h) Effective as of the date hereof, a new Section 5.8A
shall be added to the Credit Agreement as follows:
"5.8A Funded Debt Ratio. Maintain a Funded Debt
Ratio not in excess of 2.75 to 1.00 as of the end of each
fiscal quarter.
2. Credit Agreement. Except as otherwise expressly provided
herein, all of the terms and provisions of the Credit Agreement, as
-3-
<PAGE>
modified by this Agreement, remain in full force and effect, and are fully
binding on the parties thereto and their respective successors and assigns. All
references to the Credit Agreement in the other Loan Documents shall mean the
Credit Agreement as modified by this Agreement and as it may be further amended,
modified, extended, renewed, supplemented and/or restated from time to time.
3. Binding on Successors and Assigns. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto,
their respective successors, assigns and legal representatives. Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party.
4. Representations and Warranties. Borrower hereby represents and warrants
to the Bank that:
(a) The execution, delivery and performance of this Agreement
by Borrower is within Borrower's corporate powers, has been duly authorized by
all requisite corporate action and is not in conflict with the terms of any
charter, bylaws or other organization papers of Borrower, or any instrument or
agreement to which Borrower is a party or by which Borrower is bound.
(b) None of the representations and warranties contained in
Section 4 of the Credit Agreement has ceased to be true and correct in any
material respect and no Default or Event of Default has occurred and is
continuing.
5. Condition Precedent. The obligation of the Bank to execute this
Agreement is subject to the condition precedent that the following shall have
been delivered to the Bank:
(a) Copies of resolutions passed by the Board of Directors of
Borrower, certified by the Secretary or Assistant Secretary of Borrower, as
being in full force and effect on the date hereof.
(b) This Agreement duly executed by Borrower.
(c) An Amended or Restated Promissory Note duly executed by
Borrower and payable to Bank in the principal amount of up to $20,000,000 with a
maturity date of on or before June 30, 2000 (subject to acceleration, extension
or prepayment) (the "Amended Note") and substantially similar in form to the
Promissory Note of the Borrower dated January 27, 1995, payable to Bank in the
principal amount of $15,000,000 (the "Existing Note") in exchange for
cancellation and delivery to Borrower of the Existing Note. The parties agree
that the Amended Note shall be substituted for the Existing Note as Exhibit A to
the Credit Agreement.
-4-
<PAGE>
6. Survival. All covenants, agreements, undertakings, representations, and
warranties made in this Agreement shall survive the execution and delivery of
this Agreement, and shall not be affected by any investigation made by any
party.
7. Entire Agreement. This Agreement constitutes and expresses the entire
understanding between the parties hereto with respect to the subject matter
hereof, and supersedes all prior agreements and understandings, commitments,
inducements or conditions, whether express or implied, oral or written.
8. Counterparts. This Agreement may be executed in counterparts, each
counterpart to be executed by one or more or all of the parties but collectively
to constitute but one agreement.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the date and year first above written.
"BORROWER"
LILLY INDUSTRIES, INC.
Attest: By: /s/ Roman J. Klusas
--------------------
Roman J. Klusas,
Vice President, Chief
/s/ Kenneth L. Mills Financial Officer and
Kenneth L. Mills, Secretary
Director of Corporate Accounting
and Assistant Secretary
Address:
733 South West Street
Indianapolis, IN 46225
Attn: Vice President, Chief
Financial Officer and
Secretary
Telephone: (317) 687-6702
Telecopier: (317) 687-6710
"BANK"
SOCIETY NATIONAL BANK, INDIANA
By: /s/ Frank J. Jancar
----------------------
Title: Vice President
Address:
10 West Market Street
Indianapolis, IN 46204
Attn: Daniel J. Lee
Telephone: (317) 464-8291
Telecopier: (317) 464-8050
-6-
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended November 30
<S> <C> <C> <C>
1995 1994 1993
Primary:
Average shares outstanding - -
Note A 22,677 22,660 22,383
Net Income $20,264 $23,302 $16,155
Net Income per common share - -
Note A $0.89 $1.03 $0.72
======= ======= =======
Average shares outstanding - -
Note A 22,677 22,660 22,383
Dilutive stock options based
on treasury stock method
using average market
price - - Note A 409 571 579
------- ------- -------
23,086 23,231 22,962
======= ======= =======
Net Income $20,264 $23,302 $16,155
Net Income per common
and common equivalent
share - - Note A $0.88 $1.00 $0.70
======= ======= =======
Fully diluted:
Average shares outstanding - -
Note A 22,677 22,660 22,383
Dilutive stock options based
on treasury stock method
using the higher of year end,
quarter end or average market
price - - Note A 423 590 740
------- ------- -------
23,100 23,250 23,123
======= ======= =======
Net Income $20,264 $23,302 $16,155
Net Income per common
and common equivalent
share - - Note A $0.88 $1.00 $0.70
======= ======= =======
Note A - - Amounts have been adjusted to recognize the effect of all stock
splits and stock dividends through November 30, 1995.
</TABLE>
Dividend Information and Common Stock Prices
Dividends are traditionally paid on the 1st business day of January, April,
July and October to shareholders of record approximately three weeks prior.
The following table sets forth the dividends paid per share of stock and
the high and low prices in each of the quarters in the past two years ended
November 30.
Dividends
Fiscal 1995 Per Share High Low
1st quarter ended February 28 $.070 $14 1/2 $11 3/4
2nd quarter ended May 31 .080 15 11
3rd quarter ended August 31 .080 13 1/2 11
4th quarter ended November 30 .080 13 1/2 12 1/8
$.310
Fiscal 1994
1st quarter ended February 28 $.060 $16 7/8 $13 1/2
2nd quarter ended May 31 .067 18 14 1/2
3rd quarter ended August 31 .070 15 11 3/4
4th quarter ended November 30 .070 14 1/2 12
$.267
Stock Trading
The Company's Class A stock is traded on the New York Stock Exchange under
the symbol LI.
At November 30, 1995, there were approximately 2,200 registered
shareholders of Class A stock and 70 registered shareholders of Class B stock.
1
<PAGE>
Selected Financial Data (1)
<TABLE>
<CAPTION>
Year Ended November 30 1995 1994 1993 1992
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
OPERATIONS
Net sales $328,345 $331,306 $284,325 $236,476
Cost of products sold 219,899 214,809 189,111 152,480
Selling, administrative, research and
development expenses 73,058 74,480 65,644 61,158
Income taxes 13,510 16,350 11,784 9,201
Minority shareholders' interests (deduction) -- -- -- --
Net income 20,264 23,302 16,155 12,706
PER SHARE DATA (2)
Net income .88 1.00 .70 .55
Cash dividends .310 .267 .238 .223
Book value 4.86 4.38 3.60 3.16
Average number of shares and equivalent
shares outstanding (3) 23,100 23,250 23,123 23,189
Shares outstanding at year end 22,502 22,710 22,517 22,226
Price range of Class A stock 15 11 18 11-3/4 15-7/8 9-3/8 9-3/4 5-5/8
OTHER DATA
Working capital 35,505 41,604 33,270 27,131
Current ratio 1.9:1 1.8:1 1.9:1 2.0:1
Total assets 183,582 190,252 167,044 117,049
Additions to property and equipment (4) 15,599 6,693 7,598 3,262
Depreciation 4,251 4,637 3,746 3,965
Cash dividends 7,041 6,049 5,327 5,104
Long-term debt 21,200 28,026 40,621 10,361
Shareholders' equity 109,374 99,424 81,128 70,125
Return on average equity 19.4% 25.8% 21.4% 17.6%
Return on sales before minority
shareholders' interests 6.2% 7.0% 5.7% 5.4%
<FN>
(1) This table of Selected Financial Data should be read in conjunction with
Management's Discussion and Analysis of Results of Operations and Financial
Condition and the Company's consolidated financial statements included
herein.
(2) Adjusted for all stock splits and stock dividends through November 30,
1995, inclusive. Prices are rounded to nearest 1/8.
(3) Used to calculate net income per share.
(4) Excludes effect of acquisitions.
</FN>
</TABLE>
2
<PAGE>
Selected Financial Data (1)
<TABLE>
<CAPTION>
Year Ended November 30 1991 1990 1989 1988 1987 1986 1985
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net sales $220,508 $240,146 $219,713 $203,499 $189,213 $147,524 $149,858
Cost of products sold 150,669 161,626 145,592 134,114 122,135 96,196 98,910
Selling, administrative,
research and development
expenses 57,527 61,218 53,821 51,496 48,651 35,551 35,502
Income taxes 4,417 6,850 8,399 7,550 8,599 7,785 7,542
Minority shareholders'
interests (deduction) -- -- 286 356 94 (404) (437)
Net income 6,357 10,022 12,574 11,284 10,272 8,515 8,648
PER SHARE DATA (2)
Net income .27 .41 .51 .45 .40 .33 .34
Cash dividends .214 .199 .173 .153 .141 .131 .113
Book value 3.16 3.10 3.00 2.65 2.34 2.11 1.92
Average number of shares and
equivalent shares
outstanding (3) 23,499 24,659 24,863 24,921 25,511 25,482 25,416
Shares outstanding at year end 23,480 23,634 24,863 24,863 25,104 25,284 24,870
Price range of Class A stock 6-1/8 4-1/8 7-5/8 4 7-1/8 5-3/8 7-1/8 4-7/8 7-5/8 4-5/8 6 4-1/4 4-7/8 3-3/8
OTHER DATA
Working capital 30,405 34,513 40,389 36,368 26,006 31,798 32,891
Current ratio 2.0:1 2.6:1 2.5:1 2.8:1 2.0:1 3.6:1 3.4:1
Total assets 127,342 125,371 129,025 101,357 96,814 75,924 69,153
Additions to property and
equipment (4) 1,928 3,968 2,486 2,930 5,397 4,304 4,447
Depreciation 4,038 4,021 3,387 3,133 2,785 2,123 2,098
Cash dividends 5,005 4,923 4,341 3,843 3,603 3,293 2,796
Long-term debt 16,638 23,016 21,105 5,829 3,137 1,006 910
Shareholders' equity 74,187 73,185 74,482 65,987 58,755 53,359 47,658
Return on average equity 8.6% 13.6% 17.9% 18.1% 18.3% 16.9% 19.3%
Return on sales before minority
shareholders' interests 2.9% 4.2% 5.6% 5.4% 5.4% 6.0% 6.1%
<FN>
(1) This table of Selected Financial Data should be read in conjunction with
Management's Discussion and Analysis of Results of Operations and Financial
Condition and the Company's consolidated financial statements included
herein.
(2) Adjusted for all stock splits and stock dividends through November 30,
1995, inclusive. Prices are rounded to nearest 1/8.
(3) Used to calculate net income per share.
(4) Excludes effect of acquisitions.
</FN>
</TABLE>
3
<PAGE>
Management's Discussion and Analysis of Results
of Operations and Financial Condition
Results of Operations
1995 vs. 1994
Sales totaled $328.3 million in 1995 compared to 1994 record levels of
$331.3 million. Lower sales resulted from decreased demand for liquid coatings
during the second, third and fourth quarters due to reduced U.S. manufacturing
activity in markets served by the Company.
Cost of products sold in 1995 increased as a percentage of sales to
67.0% from 64.8% in 1994. This change resulted from sharp increases in raw
material costs during the first three quarters of 1995. Price increases were
instituted by the Company in the second half of the year to partially offset the
impact of these higher raw material costs.
Operating expenses of $73.1 million in 1995 decreased from $74.5
million in 1994 due to continuing cost control measures and lower business
volumes. Operating expenses as a percentage of sales continued to decline and
were 22.3% and 22.5% in 1995 and 1994, respectively.
Net nonoperating expenses in 1995 totaled $1.6 million compared to $2.4
million in 1994. This decrease was due primarily to lower interest expense
resulting from reductions in average outstanding borrowings.
Net income in 1995 totaled $20.3 million, or $.88 per share, compared
to 1994 record levels of $23.3 million, or $1.00 per share.
1994 vs. 1993
Sales of $331.3 million in 1994 were at record high levels increasing
17% compared to 1993 sales of $284.3 million. This increase was due to higher
demand for the Company's products resulting from a strong manufacturing sector
of the North American economy and the liquid industrial coatings business
acquired from ICI Paints. Cost of products sold represented 64.8% of sales in
1994 compared to 66.5% in 1993. This improvement resulted from gains in
production efficiencies and higher capacity utilization.
Higher business volumes in 1994 resulted in a 13.5% increase in
operating expenses as compared to 1993. However, 1994 operating expenses as a
percentage of sales decreased to 22.5% from 23.1% in 1993 due to effective cost
controls. Net nonoperating expenses increased in 1994 and totaled $2.4 million
compared to $1.6 million in 1993. This change was due to increased interest
expense resulting from higher debt levels.
Net income in 1994 was a record high of $23.3 million, or $1.00 per
share, which was a 44% increase over net income earned in 1993.
4
<PAGE>
Liquidity and Capital Resources
Operating cash flow generated in 1995 totaled $27.2 million compared to
$39.0 million in 1994. Accounts receivable decreased slightly due to lower
business volumes. The Company's overall programs in 1995 to reduce inventory
levels resulted in an $8.5 million reduction and a corresponding decrease in
accounts payable and accrued expenses. This operating cash flow allowed the
Company to reduce debt, pay increased dividends, fund capital expenditures and
repurchase 370,000 shares of stock, as discussed below.
Cash used by investing activities in 1995 was $16.2 million compared to
$5.7 million in 1994. The majority of this increase related to expenditures for
construction of the new manufacturing facility in Bowling Green, Kentucky.
Management anticipates a lower level of capital expenditures in 1996. During
fiscal 1995, the Company made acquisitions for its specialty and glass coatings
businesses. The Company also divested its automotive refinish business. The
impact of these transactions was not material to the Company's operating results
or financial condition.
Financing activities used cash of $17.3 million in 1995, a $3.2 million
increase over 1994. The increase was primarily due to purchases of stock for
treasury and higher dividend payments. The rate of dividends paid to
shareholders was increased 14% in 1995 from 7 cents to 8 cents per share.
In addition to internally generated funds, the Company maintains $61
million in revolving lines of credit with various banks, all of which were
available at November 30, 1995. Use of these credit lines was not required
during 1995. The Company's 1995 current ratio improved slightly to 1.9:1
compared to 1.8:1 in 1994. This improvement was attributable to lower accounts
payable and accrued expenses offset by lower levels of cash and inventory.
The Company's operations, like those of most companies in the coatings
industry, are subject to regulations relating to maintaining or improving the
quality of the environment. Such regulations, along with the Company's own
internal compliance efforts, have required and will continue to require capital
expenditures. Capital spending for environmental compliance is not anticipated
to be material to the Company's financial condition. The Company has been
notified that it is a potentially responsible party for clean-up costs with
respect to several governmental investigations at independently operated waste
disposal sites previously used by the Company. Management has accrued, as
appropriate, for these environmental liabilities. Management believes the
liabilities associated with these sites will not have a material adverse effect
on its operating results or financial condition.
The Company's strong financial condition and cash flow allow it to be
well-positioned to fund general operating needs, dividend payments, debt service
requirements, and other future investment needs.
5
<PAGE>
Responsibility for Financial Statements and Report of Independent Auditors
Responsibility for Financial Statements
The management of Lilly Industries, Inc. is responsible for the
preparation of the financial statements in the Annual Report and for the
integrity and objectivity of the information presented. The financial statements
have been prepared in conformity with generally accepted accounting principles
and necessarily include amounts which are estimates and judgments. The fairness
of the presentation in these statements of the Company's financial position,
results of operations and cash flows is reported on by the independent auditors.
To assist in carrying out the above responsibility, the Company has
internal systems which provide for selection of personnel, segregation of duties
and the maintenance of accounting policies, systems, procedures and related
controls.
Although no cost-effective system can insure the elimination of errors,
the Company's systems have been designed to provide reasonable but not absolute
assurances that assets are safeguarded, that policies and procedures are
followed, and that the financial records are adequate to permit the production
of reliable financial statements. The Audit Committee of the Board of Directors,
which is composed of directors who are not employees of the Company or its
subsidiaries, meets regularly with Company officers and independent auditors in
connection with the adequacy and integrity of the Company's financial reporting
and internal controls.
Roman J. Klusas
Vice President and Chief Financial Officer
6
<PAGE>
Report of Independent Auditors
Shareholders and Board of Directors
Lilly Industries, Inc.
We have audited the accompanying consolidated balance sheets of Lilly
Industries, Inc. and subsidiaries as of November 30, 1995 and 1994, and the
related consolidated statements of income and retained earnings and cash flows
for each of the three years in the period ended November 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Lilly
Industries, Inc. and subsidiaries at November 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended November 30, 1995, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Indianapolis, Indiana
January 12, 1996
7
<PAGE>
Consolidated Statements of Income and Retained Earnings
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended November 30 1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Net sales $328,345 $331,306 $284,325
Costs and expenses
Cost of products sold 219,899 214,809 189,111
Selling, administrative and general 59,874 61,498 53,319
Research and development 13,184 12,982 12,325
-------- ------- -------
292,957 289,289 254,755
-------- ------- -------
Operating income 35,388 42,017 29,570
Other income (expense)
Interest income and sundry 544 554 294
Interest expense (2,158) (2,919) (1,925)
-------- ------- -------
(1,614) (2,365) (1,631)
-------- ------- -------
Income before income taxes 33,774 39,652 27,939
Income taxes - Note 6 13,510 16,350 11,784
-------- ------- -------
Net income 20,264 23,302 16,155
Retained earnings at beginning of year 38,223 20,970 10,142
-------- ------- -------
58,487 44,272 26,297
Deduct dividends paid (1995, $.310 per share;
1994, $.267 per share; 1993, $.238 per share) 7,041 6,049 5,327
-------- ------- -------
Retained earnings at end of year $ 51,446 $ 38,223 $ 20,970
======== ======== ========
Average number of shares and equivalent
shares of capital stock outstanding 23,100 23,250 23,123
Net income per share $ .88 $ 1.00 $ .70
*See notes to consolidated financial statements.
</TABLE>
8
<PAGE>
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
November 30 1995 1994
---------- ---------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 20,260 $ 26,581
Accounts receivable, less allowances for doubtful accounts
(1995, $2,051; 1994, $1,759) 40,911 42,231
Inventories - Note 3 15,411 23,885
Other 349 360
------- -------
Total current assets 76,931 93,057
Other assets
Goodwill, less amortization (1995, $4,658; 1994, $3,978) 27,390 28,511
Other intangibles, less amortization (1995, $12,544; 1994, $9,697) 20,011 22,467
Sundry 13,781 10,464
------- -------
61,182 61,442
Property and equipment
Land 4,176 4,044
Buildings 31,862 25,382
Equipment 50,235 46,339
Allowances for depreciation (deduction) (40,804) (40,012)
------- -------
45,469 35,753
------- -------
$183,582 $190,252
======= =======
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 23,982 $ 29,288
Salaries and payroll related items 7,970 9,160
State and local taxes 661 1,520
Federal income taxes 1,784 4,401
Current portion of long-term debt - Note 5 7,029 7,084
------- -------
Total current liabilities 41,426 51,453
Long-term debt - Note 5 21,200 28,026
Other liabilities 11,582 11,349
Shareholders' equity - Notes 7 and 9
Capital stock - $.55 stated value per share:
Class A (limited voting) - 26,903 shares issued
(1994, 26,695 shares) 14,947 14,831
Class B (voting) - 540 shares issued 300 300
Additional capital 73,450 71,972
Retained earnings 51,446 38,223
Currency translation adjustments 288 185
Cost of capital stock in treasury (deduction) (31,057) (26,087)
------- -------
109,374 99,424
------- -------
$183,582 $190,252
======== ========
</TABLE>
*See notes to consolidated financial statements.
9
<PAGE>
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended November 30 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Operating Activities
Net income $20,264 $23,302 $16,155
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 4,251 4,637 3,746
Amortization of intangibles 3,923 4,328 3,141
Deferred income taxes (70) (1,789) (745)
Changes in operating assets and liabilities net of effects
from acquired business:
Accounts receivable 1,320 (2,295) (10,335)
Inventories 8,474 (1,158) (2,974)
Accounts payable and accrued expenses (7,355) 7,482 9,185
Federal income taxes (2,617) 3,416 398
Sundry (987) 1,047 (1,143)
------- ------- -------
Net cash provided by operating activities 27,203 38,970 17,428
Investing Activities
Purchases of property and equipment (15,599) (6,693) (7,598)
Payment for acquired business -- -- (37,500)
Sundry (620) 1,005 2,576
------- ------- -------
Net cash used by investing activities (16,219) (5,688) (42,522)
Financing Activities
Dividends paid (7,041) (6,049) (5,327)
Proceeds from short-term and long-term borrowings -- -- 39,000
Principal payments on short-term and long-term borrowings (6,888) (9,000) (9,529)
Purchases of capital stock for treasury (4,380) -- --
Sundry 1,004 964 --
------- ------- -------
Net cash (used) provided by financing activities (17,305) (14,085) 24,144
------- ------- -------
(Decrease) increase in cash and cash equivalents (6,321) 19,197 (950)
Cash and cash equivalents at beginning of year 26,581 7,384 8,334
------- ------- -------
Cash and cash equivalents at end of year $20,260 $26,581 $ 7,384
======= ======= =======
</TABLE>
*See notes to consolidated financial statements.
10
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Business
Lilly Industries, Inc. and its subsidiaries (the Company) are in the
business of formulating, producing and selling industrial coatings to other
manufacturing companies. The Company's principal products are wood coatings for
furniture, building products and cabinets; coil coatings for residential siding
components, appliances and metal buildings; specialty coatings for a variety of
metal products and fiberglass reinforced products; powder coatings for a variety
of metal products; and glass coatings for mirrors.
Consolidation and Use of Estimates
The consolidated financial statements include the accounts of all
subsidiaries after elimination of intercompany accounts and transactions.
Preparation of these statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Cash Equivalents
Cash equivalents include time deposits and certificates of deposit with
original maturities of three months or less.
Inventories
Inventories in the United States are stated at the lower of cost,
determined by the last-in, first-out (LIFO) method, or market. Inventories of
foreign subsidiaries are stated at the lower of cost, determined by the
first-in, first-out (FIFO) method, or market.
Intangible Assets
Goodwill, which represents the excess of cost over fair value of net
assets of purchased businesses, is amortized by the straight-line method over
periods ranging from 20 to 40 years. Other intangible assets consist of
noncompete agreements, customer lists and technology, and are amortized by the
straight-line method over periods ranging from 5 to 20 years. The Company
periodically evaluates the value of intangible assets to determine if an
impairment has occurred. This evaluation is based on various analyses including
reviewing anticipated cash flows.
Property and Equipment
Property and equipment is recorded on the basis of cost and includes
expenditures for new facilities and items which substantially increase the
useful life of existing buildings and equipment. Depreciation is based on
estimated useful lives and computed primarily by the straight-line method.
11
<PAGE>
Net Income Per Share
Net income per share is computed on the basis of the weighted average
number of shares outstanding during each year, adjusted for stock splits, stock
dividends and the dilutive effect, if any, of common stock equivalents.
2. Acquisition
On May 7, 1993, the Company acquired assets of ICI Paints' North
American wood, coil and general liquid industrial coatings business (the
"Acquired Business") for $37,500,000 in cash and the Company's packaging
coatings business. The acquisition transaction was recorded by the purchase
method and the consolidated financial statements include the results of
operations of the acquired business since the date of acquisition.
The following pro forma consolidated results of operations are stated
as though the acquisition occurred on December 1, 1992 and are not necessarily
indicative of actual results of operations that would have occurred had the
purchase been made at that date. Unaudited pro forma net sales, net income and
net income per share for the year ended November 30, 1993 were $311,725,000,
$16,913,000 and $.73, respectively.
3. Inventories
The principal inventory classifications at November 30
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-----------------------
<S> <C> <C>
Finished products $11,065 $16,831
Raw materials 12,584 15,127
------- -------
23,649 31,958
Less adjustment of certain inventories
to last-in, first-out (LIFO) basis 8,238 8,073
------- -------
$15,411 $23,885
======= =======
</TABLE>
Inventory cost is determined by the LIFO method of inventory valuation
for approximately 70% and 82% of inventories at November 30, 1995 and 1994,
respectively. While management believes the LIFO method results in a better
matching of current costs and revenues, the FIFO method is used to cost
inventories of foreign subsidiaries because foreign statutory requirements
prohibit use of the LIFO method.
12
<PAGE>
During fiscal 1995 inventory quantities were reduced. This reduction
resulted in a liquidation of LIFO inventory layers carried at lower costs which
prevailed in prior years. The effect of this liquidation was to increase
earnings by approximately $600,000.
4. Benefit Plans
The Company maintains defined benefit and defined contribution plans
that cover substantially all employees. Retirement benefits under the defined
benefit plans are based on final monthly compensation and years of service.
Retirement benefits under the defined contribution plans are based on employer
and employee contributions plus earnings to retirement. The plans' assets
consist primarily of common stock, fixed income securities and guaranteed
insurance contracts. In addition, an unfunded supplemental executive retirement
plan covers certain employees in which benefits, determined by the Board of
Directors, are payable over 15 years. This plan is designed so that if certain
assumptions regarding mortality experience, policy dividends and other factors
are realized, the Company will recover all costs through insurance policies.
The provision for defined benefit pension cost is determined using the
projected unit credit actuarial method. The Company's policy is to fund amounts
as are necessary on an actuarial basis to provide assets sufficient to meet the
benefits to be paid to plan members in accordance with the Employee Retirement
Income Security Act of 1974. Amounts contributed to union-sponsored pension
plans are based upon requirements of collective bargaining agreements. Company
contributions to the defined contribution plans are based on a percentage of
employee contributions.
Effective December 1, 1994, the defined benefit pension plan covering
substantially all U.S. employees was amended to freeze years of service at
November 30, 1994. Concurrently with this amendment, the Company increased its
matching contribution rates to the defined contribution plans.
13
<PAGE>
A summary of the components of net pension cost for the defined benefit
plans and amounts charged to expense for the defined contribution plans for the
years ended November 30 follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------
Defined benefit plans:
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 708 $ 2,109 $ 1,800
Interest cost on projected benefit obligation 2,742 2,638 2,549
Actual net (gain) loss on plan assets (8,849) 529 (3,503)
Net amortization and deferral 5,267 (4,224) 160
------- ------- ------
Net pension cost (132) 1,052 1,006
Defined contribution plans 2,130 759 705
------- ------- ------
Pension expense $ 1,998 $ 1,811 $ 1,711
======= ======= =======
</TABLE>
The expected long-term rate of return on assets used to compute the
defined benefit plans' pension cost was 9.25% for 1995, 1994 and 1993.
The following table sets forth the funded status and amounts recognized
in the consolidated balance sheets at November 30 for the Company's defined
benefit pension plans (in thousands):
<TABLE>
<CAPTION>
1995 1994
----------------------
Actuarial present value of benefit obligations:
<S> <C> <C>
Vested $ 33,498 $ 27,598
Nonvested 3,126 2,944
------- -------
Total accumulated benefit obligations $ 36,624 $ 30,542
======= =======
Actuarial present value of projected benefit
obligations for services rendered to date $(43,118) $(35,257)
Plan assets at fair value 46,510 38,714
------- -------
Excess of plan assets over projected
benefit obligations 3,392 3,457
Unrecognized net losses (gains) 535 (990)
Unrecognized prior service cost 2,248 2,455
Unrecognized net excess plan assets at
December 1, 1985, net of amortization (1,539) (1,741)
------- -------
Net pension asset $ 4,636 $ 3,181
======= =======
</TABLE>
14
<PAGE>
Assumptions used in the accounting for the defined benefit plans
as of November 30 were:
<TABLE>
<CAPTION>
1995 1994
-------------------
<S> <C> <C>
Discount rate on benefit obligation 7.0% 8.0%
Rates of increase in compensation levels 5.0% 5.0%
</TABLE>
The decrease in the discount rate resulted in an increase of
approximately $5,000,000 in the projected benefit obligations.
Accumulated benefits for the supplemental executive retirement plan
totaled approximately $2,235,000 and $2,290,000 at November 30, 1995 and 1994,
respectively.
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.
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 accumulated postretirement benefit obligation resulting from the adoption of
this statement is being amortized over 20 years.
Net periodic postretirement benefit cost includes the following
components for the years ended November 30 (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------------------
<S> <C> <C>
Service cost $ 76 $ 50
Interest cost 309 380
Net amortization and deferral (51) -
Amortization of transition obligation 238 238
------- -------
$572 $668
======= =======
</TABLE>
15
<PAGE>
The funded status and amounts recognized in the Company's consolidated
balance sheet for postretirement benefits at November 30 were as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
--------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $1,996 $3,469
Eligible active employees 1,109 1,429
------- -------
3,105 4,898
Unrecognized actuarial gain 1,822 -
Unrecognized transition obligation (4,291) (4,530)
------- -------
Accrued postretirement benefit cost $ 636 $ 368
======= =======
</TABLE>
The accumulated postretirement benefit obligation was determined using
a discount rate of 7.5% (1994, 8.5%). The health care cost trend rate used in
determining the accumulated postretirement benefit obligation was 12% in 1995
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 8% and fiscal 1995 expense by approximately 9%.
5. Long-Term Debt
Long-term debt consists of the following as of November 30 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
----------------------
<C> <C> <C>
4.92% unsecured senior notes $28,000 $35,000
Other 229 110
------- -------
28,229 35,110
Less current portion 7,029 7,084
------- -------
$21,200 $28,026
======= =======
</TABLE>
Outstanding principal of the unsecured senior notes in the amount of
$7,000,000 is due annually through 1999, when the entire unpaid principal amount
becomes due. Interest is payable semiannually. In January 1994, the Company
entered into a three year interest rate swap agreement which effectively
converts the senior notes from fixed rate debt to six-month LIBOR-based floating
rate debt. The notional amount of the swap, $28,000,000 at November 30, 1995,
declines ratably as principal payments are made on the senior notes.
16
<PAGE>
Scheduled maturities of long-term debt are: 1996 - $7,029,000; 1997 -
$7,029,000; 1998 - $7,016,000; 1999 - $7,018,000 and 2000 - $19,000. Interest of
$2,306,000, $1,853,000 and $1,992,000 was paid in fiscal 1995, 1994 and 1993,
respectively.
The Company has revolving lines of credit through June 1, 1997 that
allow borrowings of up to $61,000,000, all of which were available at November
30, 1995. Interest rates for these lines are to be determined at the time of
borrowing based on a choice of formulas specified in the agreements.
Certain of the Company's financing arrangements contain covenants
which, among other things, require maintenance of certain financial ratios. The
Company was in compliance with such ratios at November 30, 1995.
6. Income Taxes
Effective December 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" which
requires use of the liability method for financial reporting. Financial
statements for prior years have not been restated and the cumulative effect of
the accounting change was not material.
Income tax expense for the years ended November 30 is comprised of the
following components (in thousands):
<TABLE>
<CAPTION>
Liability Method Deferred Method
1995 1994 1993
----------------------------------------------------
Current expense:
<S> <C> <C> <C>
Federal $ 7,953 $12,395 $ 8,001
Foreign 3,267 2,944 2,563
------- ------- -------
11,220 15,339 10,564
Deferred credit:
Federal - (1,627) (674)
Foreign (70) (162) (71)
------- ------- -------
(70) (1,789) (745)
State 2,360 2,800 1,965
------- ------- -------
$13,510 $16,350 $11,784
======= ======= =======
</TABLE>
17
<PAGE>
A reconciliation of the statutory U.S. federal rate to the effective
income tax rate for the years ended November 30 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------
<S> <C> <C> <C>
Statutory U.S. federal income tax rate 35.0% 35.0% 34.9%
Increase resulting from:
State income taxes, net of federal
income tax benefit 3.4 3.7 3.6
Foreign tax rates .8 .2 .1
Other items .8 2.3 3.6
---- ---- ----
Effective income tax rate 40.0% 41.2% 42.2%
==== ==== ====
</TABLE>
Deferred income taxes are recorded based upon differences between the
financial statement and tax basis of assets and liabilities. The deferred tax
assets and liabilities recorded on the balance sheet at November 30 are as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------------------
Deferred tax assets:
<S> <C> <C>
Goodwill $1,152 $1,308
Employee benefits 1,520 1,499
Accounts receivable, inventory and other 5,927 5,331
----- -----
8,599 8,138
Deferred tax liabilities:
Property and equipment 3,264 2,994
Pension 1,630 1,310
Intangibles and other 1,335 1,534
----- -----
6,229 5,838
----- -----
Net deferred tax assets $2,370 $2,300
===== =====
</TABLE>
No provision has been made for U.S. federal income taxes on certain
undistributed earnings of foreign subsidiaries that the Company intends to
permanently invest or that may be remitted tax-free. The total of undistributed
earnings that would be subject to federal income tax if remitted under existing
law is approximately $12,000,000 at November 30, 1995. Determination of the
unrecognized deferred tax liability related to these earnings is not practicable
because of the complexities with its hypothetical calculation. Upon distribution
of these earnings, the Company will be subject to U.S. taxes and withholding
taxes payable to various foreign governments. A credit for foreign taxes already
paid would be available to reduce the U.S. tax liability.
18
<PAGE>
Income taxes of $16,524,000, $13,400,000 and $12,877,000 were paid in
1995, 1994 and 1993, respectively.
7. Capital Stock
Authorized shares of Class A and Class B stock are 48,500,000 and
1,500,000 shares, respectively. The limited voting rights of Class A
shareholders are equal to voting rights of Class B shareholders only with regard
to voting for merger, consolidation or dissolution of the Company and voting and
electing four directors of the Company if there are ten or more directors and
two directors if there are nine or fewer directors. With respect to all rights
other than voting, Class A shareholders are the same as Class B shareholders.
The terms of the Class B stock, which is held only by employees,
provide that these shares be exchanged for Class A stock on a share-for-share
basis when the shareholder ceases to be an employee or decides to dispose of the
shares. Accordingly, 1,500,000 shares of authorized Class A stock are reserved
for this purpose.
A summary of shares issued and held in treasury follows (in thousands):
<TABLE>
<CAPTION>
Capital Stock
Issued Held in Treasury
Class A Class B Class A Class B
------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at November 30, 1992 11,588 240 1,809 141
Class A exchanged for Class B - - 66 (66)
Class B exchanged for Class A - - (11) 11
Stock options exercised 237 - 40 21
Three-for-two stock split 5,821 120 921 63
------ --- ----- ----
Balance at November 30, 1993 17,646 360 2,825 170
Class A exchanged for Class B - - 74 (74)
Class B exchanged for Class A - - (40) 40
Stock options exercised 161 - 8 17
Three-for-two stock split 8,888 180 1,437 69
------ --- ----- ---
Balance at November 30, 1994 26,695 540 4,304 222
Class A exchanged for Class B - - 78 (78)
Class B exchanged for Class A - - (8) 8
Acquisition for treasury - - 370 -
Stock options exercised 208 - 10 35
------ --- ----- ---
Balance at November 30, 1995 26,903 540 4,754 187
====== === ===== ===
</TABLE>
19
<PAGE>
Changes in capital stock are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Cost of
Capital Stock Capital
(Stated Amount) Additional Stock in
Class A Class B Capital Treasury
-----------------------------------------------------
<S> <C> <C> <C> <C>
Balance at November 30, 1992 $14,484 $300 $68,681 $24,388
Stock options exercised 221 - 1,954 1,199
------ --- ------ ------
Balance at November 30, 1993 14,705 300 70,635 25,587
Stock options exercised 126 - 1,177 500
Disqualifying disposition
of stock options - - 160 -
------ --- ------ ------
Balance at November 30, 1994 14,831 300 71,972 26,087
Acquisition for treasury - - - 4,380
Stock options exercised 116 - 1,376 590
Disqualifying disposition
of stock options - - 102 -
------ --- ------ ------
Balance at November 30, 1995 $14,947 $300 $73,450 $31,057
====== === ====== ======
</TABLE>
Incentive stock option plans entitle certain directors, officers and
other key employees to buy shares of Class A stock at prices not less than fair
market value on the date of grant. The number of shares reserved and the number
and price per share of options granted are adjusted for subsequent stock
dividends and stock splits. Shares reserved under these plans totaled 1,887,698
at November 30, 1995 of which option grants have been made for 1,198,880 shares
at prices ranging from $5.01 to $17.17. During 1995, 208,229 options were
exercised at prices ranging from $5.01 to $10.83 and 101,041 additional options
were granted. Options to buy 576,844 shares are currently exercisable.
The Company sponsors an employees' stock purchase plan and a 401(k)
savings plan that allow participants to acquire Class A stock at the current
fair market value. At November 30, 1995, 4,926,000 shares of Class A stock were
reserved for sale under the plans.
20
<PAGE>
8. Foreign Operations
United States and foreign operations, which include subsidiaries
located in Canada, Germany, Taiwan, Malaysia and China are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------
Net sales to unaffiliated customers:
<S> <C> <C> <C>
United States $277,494 $284,826 $246,162
Foreign 50,851 46,480 38,163
------- ------- -------
Consolidated $328,345 $331,306 $284,325
======= ======= =======
Income before income taxes:
United States $ 23,785 $ 30,421 $ 19,638
Foreign 9,989 9,231 8,301
------- ------- -------
Consolidated $ 33,774 $ 39,652 $ 27,939
======= ======= =======
Total assets:
United States $158,338 $165,182 $146,356
Foreign 25,784 25,572 23,857
Eliminations (deductions) (540) (502) (3,169)
------- ------- -------
Consolidated $183,582 $190,252 $167,044
======= ======= =======
</TABLE>
9. Quarterly Results of Operations (Unaudited)
Quarterly results of operations are summarized as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
Quarter Ended
1995 Feb 28 May 31 Aug 31 Nov 30
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $80,447 $85,407 $79,705 $82,786
Gross profit 26,880 28,530 25,119 27,917
Net income 4,647 5,808 4,577 5,232
Net income per share .20 .25 .20 .23
Quarter Ended
1994 Feb 28 May 31 Aug 31 Nov 30
- -------------------------------------------------------------------------------------------------------------------
Net sales $73,972 $84,520 $86,639 $86,175
Gross profit 24,241 29,724 30,948 31,584
Net income 3,141 5,786 6,973 7,402
Net income per share .13 .25 .30 .32
</TABLE>
Exhibit 21
SUBSIDIARIES OF LILLY INDUSTRIES, INC. AS OF FEBRUARY 23, 1996
All subsidiaries other than London Laboratories GmbH are doing business
as Lilly Industries, Inc.
Name of Subsidiary State of Incorporation
1. Lilly Industries, Inc.(Canada) Ontario, Canada
2. Lilly Industries (USA), Inc. Indiana
3. London Laboratories Limited Ontario, Canada
(Subsidiary of
Lilly Industries (USA), Inc.)
4. London Laboratories GmbH Germany
(Subsidiary of
Lilly Industries (USA), Inc.)
5. Lilly Industries (Far East), Ltd. Taiwan
6. Lilly Industries (Malaysia) Sdn.Bhd. Malaysia
7. Lilly Industries (Asia) Limited Hong Kong
8. Lilly Industries (Thailand) Ltd. Thailand
9. Dongguan Lilly Paint Industries Ltd. Peoples Republic
(Subsidiary of Lilly (Asia) Limited) of China
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Lilly Industries, Inc. of our report dated January 12, 1996, included in the
1995 Annual Report to Shareholders of Lilly Industries, Inc.
Our audits also included the financial statement schedule of Lilly Industries,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We further consent to the incorporation by reference in Registration Statements
(Form S-8 Nos. 2-59159, 2-76317, 33-52959, 33-52956 and 33-52958 pertaining to
the Lilly Employees' Stock Purchase Plan, the Lilly Industries, Inc. Stock
Option Plan, the Lilly Industries, Inc. 1991 Director Stock Option Plan, the
Lilly Industries, Inc. Employee 401(k) Savings Plan and the Lilly Industries,
Inc. 1992 Stock Option Plan, respectively) of our report dated January 12, 1996,
with respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedule included in this Annual Report (Form 10-K) of
Lilly Industries, Inc.
February 23, 1996
/s/ Ernst & Young LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED CONDENSED BALANCE SHEET OF LILLY INDUSTRIES, INC. AS
AT November 30, 1995 AND THE CONSOLIDATED CONDENSED STATEMENT OF
INCOME OF LILLY INDUSTRIES, INC. FOR THE YEAR THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<CASH> 20,260
<SECURITIES> 0
<RECEIVABLES> 42,962
<ALLOWANCES> ( 2,051)
<INVENTORY> 15,411
<CURRENT-ASSETS> 76,931
<PP&E> 86,273
<DEPRECIATION> (40,804)
<TOTAL-ASSETS> 183,582
<CURRENT-LIABILITIES> 41,426
<BONDS> 0
<COMMON> 88,697
0
0
<OTHER-SE> 20,677
<TOTAL-LIABILITY-AND-EQUITY> 183,582
<SALES> 328,345
<TOTAL-REVENUES> 328,345
<CGS> 219,899
<TOTAL-COSTS> 292,957
<OTHER-EXPENSES> ( 544)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,158
<INCOME-PRETAX> 33,774
<INCOME-TAX> 13,510
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,264
<EPS-PRIMARY> .88
<EPS-DILUTED> .88
