FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended February 29, 1996
Commission file number 0-6953
LILLY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-0471010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
733 SOUTH WEST STREET
INDIANAPOLIS, INDIANA 46225
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(317) 687-6700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Number of shares outstanding at March 31, 1996:
Class A Common 22,170,000
Class B Common 390,000
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
February 29 February 28
1996 1995
-----------------------
<S> <C> <C>
Net sales $73,271 $80,447
Costs and expenses:
Cost of products sold 49,210 53,567
Selling, administrative and general 14,869 15,309
Research and development 3,172 3,341
------- -------
67,251 72,217
------- -------
OPERATING INCOME 6,020 8,230
Other income (expense):
Interest income and sundry 166 133
Interest expense (471) (616)
------- -------
(305) (483)
------- -------
INCOME BEFORE INCOME TAXES 5,715 7,747
Income Taxes 2,229 3,100
------- -------
NET INCOME $ 3,486 $ 4,647
======= =======
Cash dividends per share--Note B $ 0.08 $ 0.07
======= =======
Average number of shares and equivalent shares
of capital stock outstanding--Note B 22,900 23,300
======= =======
Net income per share--Note B $ 0.15 $ 0.20
======= =======
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
<TABLE>
<CAPTION>
February 29 November 30
1996 1995
--------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,507 $ 20,260
Accounts receivable, less allowances
for doubtful accounts (2/29/96, $2,097;
11/30/95, $2,051) 41,202 40,911
Inventories--Note C 20,509 15,411
Other 1,181 349
-------- --------
TOTAL CURRENT ASSETS 69,399 76,931
OTHER ASSETS 14,034 13,781
INTANGIBLE ASSETS 46,436 47,401
PROPERTY AND EQUIPMENT
Land 4,279 4,176
Buildings and equipment 85,001 82,097
Allowances for depreciation (deduction) (41,765) (40,804)
-------- --------
47,515 45,469
-------- --------
$177,384 $183,582
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
<TABLE>
<CAPTION>
February 29 November 30
1996 1995
-----------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 24,585 $ 23,982
Salaries, wages, commissions and
related items 5,740 7,970
State and local taxes 427 661
Federal income taxes 2,335 1,784
Current portion of long-term debt 7,029 7,029
-------- --------
TOTAL CURRENT LIABILITIES 40,116 41,426
LONG-TERM DEBT 14,200 21,200
OTHER LIABILITIES 11,734 11,582
SHAREHOLDERS' EQUITY Capital stock:
Class A (limited voting) 14,983 14,947
Class B (voting) 300 300
Additional capital 73,998 73,450
Retained earnings 53,132 51,446
Currency translation adjustments 82 288
Cost of capital stock in treasury
(deduction) (31,161) (31,057)
-------- --------
111,334 109,374
-------- --------
$177,384 $183,582
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
February 29 February 28
1996 1995
--------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,486 $ 4,647
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,195 1,241
Amortization of intangibles 900 933
Deferred income taxes 0 (20)
Changes in operating assets and liabilities:
Accounts receivable (291) 647
Inventories (5,098) (1,506)
Prepaid expenses (832) (775)
Accounts payable and accrued expenses (1,861) (4,493)
Income taxes 551 (767)
Sundry (199) (321)
------- -------
NET CASH USED BY OPERATING ACTIVITIES (2,149) (414)
INVESTING ACTIVITIES
Purchases of property and equipment (3,315) (1,400)
Sundry 32 (1,563)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (3,283) (2,963)
FINANCING ACTIVITIES
Cash dividends paid (1,800) (1,590)
Principal payments on short-term and
long-term borrowings (7,000) (7,031)
Sundry 479 751
------- -------
NET CASH USED BY FINANCING ACTIVITIES (8,321) (7,870)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (13,753) (11,247)
Cash and cash equivalents at beginning of year 20,260 26,581
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,507 $15,334
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
FEBRUARY 29, 1996
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended November 30, 1995.
NOTE B--SHARE AND PER SHARE AMOUNTS
Equivalent shares of capital stock represent additional shares assumed issued
upon exercise of stock options.
NOTE C--INVENTORIES
The principal inventory classifications are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
February 29 November 30
1996 1995
---------- --------
<S> <C> <C>
Finished products $ 13,450 $ 11,065
Raw materials 15,297 12,584
-------- --------
28,747 23,649
Less adjustment of certain
inventories to last in,
first out (LIFO) basis 8,238 8,238
-------- --------
$ 20,509 $ 15,411
======== ========
</TABLE>
The Company uses the LIFO method in inventory valuation for approximately 70% of
inventories where an actual valuation can be made only at the end of each year
based on the inventory levels and costs at that time. Accordingly, interim LIFO
calculations must necessarily be based on management's estimates of expected
year-end inventory levels and costs. Since these are subject to many forces
beyond management's control, interim results are subject to the final year-end
LIFO inventory valuation. The
<PAGE>
Company estimates the annual adjustment for LIFO and allocates it to quarters
based on actual inflation experienced in a quarter as it relates to anticipated
inflation for the year.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
Guardsman Acquisition Status
The Company has made a cash tender offer for all of the stock of Guardsman
Products, Inc. for $23.00 per share or approximately $235 million. Commitments
for bank financing are in place and Guardsman's three largest shareholders, who
collectively own approximately 50 percent of its outstanding stock, have agreed
to the tender offer. The waiting period under the Hart-Scott-Rodino Antitrust
Act has expired as of March 23, 1996 without further action being taken by the
Department of Justice or Federal Trade Commission. The closing of the
acquisition, including the consummation of the follow-up short form merger,
occurred on April 8, 1996.
Guardsman's revenues for 1995 were $251 million, approximately 75 percent of
Lilly's 1995 sales. Operating earnings of Guardsman were $15 million, returning
six percent on sales. Approximately 80 percent of its revenues were derived from
businesses similar to Lilly's - the manufacture and sale of customized
industrial coatings. The remaining 20 percent of its business is consumer
oriented - the manufacture and sale of fine furniture polishes, fabric
protectors, paint removers and a variety of other consumer products.
Guardsman is an excellent fit with Lilly. It is strong in certain domestic
markets where we are less so, and we are well established where they are not.
Internationally, Guardsman is successful in Canada and the United Kingdom, while
we are established in Canada, Germany and the Far East. Guardsman also brings us
excellent technology. The combination of both companies' core technologies
should yield substantial benefits, including the expansion of our key strategic
markets.
We estimate additional interest expense on the debt incurred in connection with
the acquisition to be about $20 million annually for the next several years
until we can materially reduce these borrowings. Against that sum we have
Guardsman's operating earnings of approximately $15 million, which we expect to
maintain, plus at least $20 million in annual pre-tax expenses that we expect to
save over the next twelve to twenty-four months as a result of merging the two
companies. There are a number of areas where management believes that synergy
will enable the Company to realize expense reductions, including raw material
and inventory costs savings and the elimination of redundant expenditures. A
portion of these expense reductions will be
<PAGE>
realized when Guardsman's headquarters is closed. There is a 10% overlap in
employee count of the combined companies. However, the Company intends to
maintain a base of qualified people in order to build THE NEW LILLY for the
future. There can, however, be no assurance as to the actual expense reductions
which the Company will be able to accomplish.
The Guardsman acquisition will be a major step forward for Lilly and its
shareholders. It will move Lilly into the ranks of the largest industrial
coatings companies in North America, strengthen Lilly's presence in existing
markets, and give the Company new technologies, thereby expanding the value we
bring to customers. Shareholders should especially benefit as we will not issue
any new shares to obtain Guardsman. In effect, shareholders will get the added
benefit of owning another profitable company almost as large as Lilly without
any dilution of their equity in the combined company.
First Quarter Results
Sales for the first quarter ended February 29, 1996 were down nine percent at
$73.3 million compared with $80.4 million this time last year. Net earnings were
$3.5 million, or $0.15 per share, compared with $4.6 million, or $0.20 per share
last year. We suffer more by comparison than by business reality. Last year's
first quarter was exceptional - nearly nine percent greater in sales than our
previous best first quarter. This year's first quarter virtually matched the
sales of the first quarter of 1994 (at that time our best ever first quarter)
and exceeded the earnings of that quarter by more than 11 percent.
Domestic sales were generally lower, reflecting lower manufacturing levels and
the weakness in the U.S. balance of trade over the past several quarters. By
contrast, international results improved while contributing approximately 16
percent to consolidated sales.
A regular quarterly dividend of eight cents per common share will be paid July
1, 1996 to shareholders of record on June 10, 1996. This marks the 229th
consecutive dividend payment.
For the balance of 1996 we anticipate an improved sales trend apart from what
Guardsman will contribute. In addition our new plant in Bowling Green, Kentucky
is just about completed and this will prove particularly beneficial for our coil
coating operations. We have also made progress from continued research to
identify lower cost raw materials which will improve profit margins.
<PAGE>
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are included herein:
EXHIBIT 11 Computation of Earnings Per Share
EXHIBIT 27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three
months ended February 29, 1996.
Note: All other item numbers under this section are not
applicable.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LILLY INDUSTRIES, INC. (Registrant)
April 12, 1996
/s/ Douglas W. Huemme
------------------------------------
Douglas W. Huemme
Chairman, President and
Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER
April 12, 1996
/s/ Roman J. Klusas
------------------------------------
Roman J. Klusas
Vice President and
Chief Financial Officer
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
LILLY INDUSTRIES, INC.
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
February 29 February 28
1996 1995
<S> <C> <C>
Primary:
Average shares outstanding--
Note A 22,530 22,700
Net income $ 3,486 $ 4,647
Net income per common share--
Note A $ 0.15 $ 0.20
======= =======
Average shares outstanding--
Note A 22,530 22,700
Dilutive stock options based
on treasury stock method
using average market
price--Note A 370 600
------- -------
22,900 23,300
Net income $ 3,486 $ 4,647
Net income per common
and common equivalent
share--Note A $ 0.15 $ 0.20
======= =======
Fully diluted:
Average shares outstanding--
Note A 22,530 22,700
Dilutive stock options based
on the treasury stock
method using the higher
of quarter end or average
market price--Note A 370 600
------- -------
22,900 23,300
Net income $ 3,486 $ 4,647
Net income per common
and common equivalent
share--Note A $ 0.15 $ 0.20
======= =======
</TABLE>
Note A--Share and per share amounts have been adjusted to reflect the
three-for-two stock split distributed June 1, 1994.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> FEB-29-1996
<PERIOD-TYPE> 3-MOS
<CASH> 6,507
<SECURITIES> 0
<RECEIVABLES> 43,299
<ALLOWANCES> (2,097)
<INVENTORY> 20,509
<CURRENT-ASSETS> 69,399
<PP&E> 89,280
<DEPRECIATION> (41,765)
<TOTAL-ASSETS> 177,384
<CURRENT-LIABILITIES> 40,116
<BONDS> 0
0
0
<COMMON> 89,281
<OTHER-SE> 22,053
<TOTAL-LIABILITY-AND-EQUITY> 177,384
<SALES> 73,271
<TOTAL-REVENUES> 73,271
<CGS> 49,210
<TOTAL-COSTS> 67,251
<OTHER-EXPENSES> (166)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 471
<INCOME-PRETAX> 5,715
<INCOME-TAX> 2,229
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,486
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
