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 August 31, 1998
Commission file number 0-6953
LILLY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-0471010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
733 SOUTH WEST STREET
INDIANAPOLIS, INDIANA 46225
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(317) 687-6700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Number of shares outstanding at September 30, 1998:
Class A Common 22,789,000
Class B Common 419,000
Page 1 of 12
<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
August 31 August 31
1998 1997
----------------------------------
<S> <C> <C>
Net Sales $ 159,345 $ 150,904
Costs and expenses
Cost of products sold 97,593 93,832
Selling, general and administrative 37,371 33,638
Research and development 5,235 4,757
-------------- ----------------
140,199 132,227
-------------- ----------------
-------------- ----------------
OPERATING INCOME 19,146 18,677
Sundry income (expense) (51) 38
Interest expense, net (4,140) (4,752)
-------------- ----------------
INCOME BEFORE INCOME TAXES 14,955 13,963
Income Taxes 6,281 6,284
-------------- ----------------
NET INCOME $ 8,674 $ 7,679
============== ================
Cash dividends per share $ 0.08 $ 0.08
Net income per share (Note B)
Basic $ 0.37 $ 0.33
Diluted $ 0.37 $ 0.33
</TABLE>
See notes to consolidated condensed financial statements.
Page 2 of 12
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
August 31 August 31
1998 1997
--------------------------
<S> <C> <C>
Net sales $ 461,877 $ 447,302
Costs and expenses
Cost of products sold 284,900 278,989
Selling, general and administrative 109,493 103,701
Research and development 15,530 14,008
--------- ---------
409,923 396,698
--------- ---------
OPERATING INCOME 51,954 50,604
Sundry income (expense) (179) 159
Interest expense, net (12,932) (14,781)
--------- ---------
INCOME BEFORE INCOME TAXES 38,843 35,982
Income Taxes 16,314 16,192
--------- ---------
NET INCOME $ 22,529 $ 19,790
========= =========
Cash dividends per share $ 0.24 $ 0.24
Net income per share (Note B)
Basic $ 0.97 $ 0.86
Diluted $ 0.96 $ 0.85
</TABLE>
See notes to consolidated condensed financial statements.
Page 3 of 12
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
<TABLE>
<CAPTION>
August 31 November 30
1998 1997
--------- ---------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 16,850 $ 10,079
Accounts receivable, less allowances
for doubtful accounts (8/31/98, $2,387;
11/30/97, $2,139) 81,860 80,011
Inventories (Note C) 50,114 45,704
Other 7,023 10,880
--------- ---------
TOTAL CURRENT ASSETS 155,847 146,674
OTHER ASSETS 19,678 21,326
INTANGIBLE ASSETS 243,420 250,956
PROPERTY AND EQUIPMENT
Land, buildings and equipment 156,191 137,088
Allowances for depreciation (deduction) (59,167) (54,249)
--------- ---------
97,024 82,839
--------- ---------
$ 515,969 $ 501,795
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
Page 4 of 12
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
August 31 November 30
1998 1997
----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 61,262 $ 60,510
Other 29,070 34,038
--------- ---------
TOTAL CURRENT LIABILITIES 90,332 94,548
LONG-TERM DEBT 219,578 224,171
OTHER LIABILITIES 47,627 40,637
SHAREHOLDERS' EQUITY Capital stock:
Class A (limited voting) 15,455 15,375
Class B (voting) 300 300
Additional capital 81,791 79,417
Retained earnings 100,721 83,745
Currency translation adjustments (4,726) (2,254)
Cost of capital stock in treasury (deduction) (35,109) (34,144)
--------- ---------
158,432 142,439
--------- ---------
$ 515,969 $ 501,795
========= =========
See notes to consolidated condensed financial statements.
Page 5 of 12
1
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
August 31 August 31
1998 1997
-------- --------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 22,529 $ 19,790
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 7,292 6,583
Amortization of intangibles 8,182 8,669
Deferred income taxes 0 1,701
Changes in operating assets and liabilities net of
effects from acquired business:
Accounts receivable (243) 8,025
Inventories (1,892) 1,042
Accounts payable and accrued expenses (5,644) (7,338)
Sundry 5,262 (1,589)
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES 35,486 36,883
INVESTING ACTIVITIES
Purchases of property and equipment (11,584) (9,618)
Payment for acquired business (11,253) 0
Sundry 2,786 5,656
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (20,051) (3,962)
FINANCING ACTIVITIES
Dividends paid (5,553) (5,491)
Proceeds from borrowings 11,000 0
Principal payments on borrowings (15,600) (29,655)
Sundry 1,489 1,620
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (8,664) (33,526)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,771 (605)
Cash and cash equivalents at beginning of year 10,079 6,790
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,850 $ 6,185
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
Page 6 of 12
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
AUGUST 31, 1998
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, 1997.
NOTE B--NET INCOME PER SHARE
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share" during the first quarter of fiscal year 1998. Share and per
share amounts shown for periods prior to adoption have been restated to conform
to the requirements of SFAS No. 128.
Basic and diluted net income per share are computed by dividing net income as
reported by the average number of shares outstanding as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
August 31 August 31
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic
Weighted-average common shares
outstanding 23,182 23,000 23,146 22,900
====== ====== ====== ======
Diluted
Weighted-average common shares outstanding 23,182 23,000 23,146 22,900
Dilutive effect of stock options 295 400 272 500
------ ------ ------ ------
Average common shares outstanding assuming dilution 23,477 23,400 23,418 23,400
====== ====== ====== ======
</TABLE>
Page 7 of 12
NOTE C--INVENTORIES
The principal inventory classifications are summarized as follows (in
thousands):
August 31 November 30
1998 1997
------- -------
Finished products $28,035 $26,361
Raw materials 28,735 27,019
------- -------
56,770 53,380
Less adjustment of certain
inventories to last in,
first out (LIFO) basis 6,656 7,676
------- -------
$50,114 $45,704
======= =======
The Company uses the LIFO method in inventory valuation for approximately 68% of
inventories where an actual valuation can be made only at the end of each year
based on the inventory levels and costs at that time. Accordingly, interim LIFO
calculations must necessarily be based on management's estimates of expected
year-end inventory levels and costs. Since these are subject to many forces
beyond management's control, interim results are subject to the final year-end
LIFO inventory valuation. The Company estimates the annual adjustment for LIFO
and allocates it to quarters based on actual inflation experienced in a quarter
as it relates to anticipated inflation for the year.
Page 8 of 12
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
The Company reports all-time record quarterly sales and record
third quarter net income and net income per share. Sales for the
quarter ended August 31, 1998 of $159.3 million rose 6% compared
with 1997 third quarter sales of $150.9 million. Record 1998
third quarter net income was up 13% at $8.7 million, or 37 cents
per share on a diluted basis, compared to $7.7 million, or 33
cents per share, for the third quarter of 1997.
For the nine months ended August 31, 1998, sales increased to
$461.9 million compared to $447.3 million a year ago. Net income
for the 1998 nine-month period was $22.5 million, up 14% over
last year's $19.8 million. Diluted net income per share increased
13% to 96 cents from 85 cents last year.
Sales trends during the third quarter were positive with gains
registered by each of our major businesses. Sales from our German
acquisition earlier this year were offset by unfavorable foreign
currency translation and divested business. Higher sales, lower
interest expense, and a lower effective tax rate are the primary
reasons for our improved performance.
We have recently combined our liquid and powder industrial
coatings units to bring improved focus to the marketplace.
Additionally, our glass coatings unit has assumed responsibility
for our composites business, which was formerly combined with our
liquid industrial business. We are excited about these changes,
and expect fiscal 1998 to be another successful, record year for
the Company.
The Board of Directors declared a regular quarterly dividend of
eight cents per common share, payable January 4, 1999, to
shareholders of record on December 10, 1998. This is the
Company's 239th consecutive quarterly cash dividend.
Statements in this release that are not strictly historical may
be "forward-looking" statements, which involve risks and
uncertainties. Risk factors include general economic and industry
conditions, effects of leverage, environmental matters,
technological developments, product pricing, raw material cost
changes, and international operations, among others, which are
set forth in the Company's annual report on Form 10-K for the
year ended November 30, 1997.
Page 9 of 12
<PAGE>
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibit is included herein:
EXHIBIT 27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three months
ended August 31, 1998.
Note: All other item numbers under this section are not applicable.
Page 10 of 12
<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)
October 14, 1998
/s/ Douglas W. Huemme
----------------------------
Douglas W. Huemme
Chairman, President and
Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER
October 14, 1998
/s/ John C. Elbin
----------------------------
John C. Elbin
Vice President,
Chief Financial Officer
and Secretary
Page 11 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000059479
<NAME> Lilly Industries, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-1-1997
<PERIOD-END> AUG-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 16,850
<SECURITIES> 81,860
<RECEIVABLES> 2,387
<ALLOWANCES> 50,114
<INVENTORY> 155,847
<CURRENT-ASSETS> 97,024
<PP&E> 59,167
<DEPRECIATION> 515,969
<TOTAL-ASSETS> 90,332
<CURRENT-LIABILITIES> 97,024
<BONDS> 0
<COMMON> 97,546
0
0
<OTHER-SE> 60,886
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<SALES> 461,877
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<TOTAL-COSTS> 409,923
<OTHER-EXPENSES> 179
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,932
<INCOME-PRETAX> 38,843
<INCOME-TAX> 16,314
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,529
<EPS-PRIMARY> .97
<EPS-DILUTED> .96
</TABLE>
