-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LY2JiBakLTt7qZtOmLrmQ4VX8qgeK0mbwCg4BfvXhdDH7qscz0irEWXQzDUaQQ0W tENWzBXJKOBUXeGVL4ZJvg== 0000908834-96-000022.txt : 19960228 0000908834-96-000022.hdr.sgml : 19960228 ACCESSION NUMBER: 0000908834-96-000022 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19951130 FILED AS OF DATE: 19960226 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LILLY INDUSTRIES INC CENTRAL INDEX KEY: 0000059479 STANDARD INDUSTRIAL CLASSIFICATION: PAINTS, VARNISHES, LACQUERS, ENAMELS & ALLIED PRODUCTS [2851] IRS NUMBER: 350471010 STATE OF INCORPORATION: IN FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-11553 FILM NUMBER: 96525051 BUSINESS ADDRESS: STREET 1: 733 S WEST ST CITY: INDIANAPOLIS STATE: IN ZIP: 46225 BUSINESS PHONE: 3176876700 MAIL ADDRESS: STREET 1: 733 S WEST STREET CITY: INDIANNAPOLIS STATE: IN ZIP: 46225 FORMER COMPANY: FORMER CONFORMED NAME: LILLY INDUSTRIAL COATINGS INC DATE OF NAME CHANGE: 19911229 10-K405 1 LILLY INDUSTRIES, INC. 10-K FYE 11-30-95 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 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 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 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 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 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 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 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 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 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 (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 *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 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 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 (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
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 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 ========== =========== ============== ============ ==========
Note A - Uncollectible accounts receivable charged off, net of recoveries. 16 EX-10.(M) 2 AMENDMENT TO NATIONAL CITY CREDIT AGREEMENT 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. "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- 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- 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- 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- 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- EX-10.(N) 3 AMENDMENT TO NBD BANK CREDIT AGREEMENT 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. "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- 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- 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- 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- 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- EX-10.(O) 4 AMENDMENT TO SOCIETY CREDIT AGREEMENT 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. "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- 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- 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- 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- 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- EX-11 5 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE LILLY INDUSTRIES, INC. AND SUBSIDIARIES (In thousands, except per share data)
Year Ended November 30 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.
EX-13 6 EXCERPTS FROM LILLY 1995 ANNUAL REPORT 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 Selected Financial Data (1)
Year Ended November 30 1995 1994 1993 1992 -------- -------- -------- --------- 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% (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.
2 Selected Financial Data (1)
Year Ended November 30 1991 1990 1989 1988 1987 1986 1985 -------- -------- -------- -------- -------- -------- -------- 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% (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.
3 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 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 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 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 Consolidated Statements of Income and Retained Earnings (In thousands, except per share data)
Year Ended November 30 1995 1994 1993 -------- ------- ------- 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.
8 Consolidated Balance Sheets (In thousands)
November 30 1995 1994 ---------- --------- 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 ======== ========
*See notes to consolidated financial statements. 9 Consolidated Statements of Cash Flows (In thousands)
Year Ended November 30 1995 1994 1993 ------- ------- ------- 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 ======= ======= =======
*See notes to consolidated financial statements. 10 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 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):
1995 1994 ----------------------- 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 ======= =======
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 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 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):
1995 1994 1993 ------------------------------------ Defined benefit plans: 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 ======= ======= =======
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):
1995 1994 ---------------------- Actuarial present value of benefit obligations: 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 ======= =======
14 Assumptions used in the accounting for the defined benefit plans as of November 30 were:
1995 1994 ------------------- Discount rate on benefit obligation 7.0% 8.0% Rates of increase in compensation levels 5.0% 5.0%
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):
1995 1994 ------------------- Service cost $ 76 $ 50 Interest cost 309 380 Net amortization and deferral (51) - Amortization of transition obligation 238 238 ------- ------- $572 $668 ======= =======
15 The funded status and amounts recognized in the Company's consolidated balance sheet for postretirement benefits at November 30 were as follows (in thousands):
1995 1994 -------------------- 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 ======= =======
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):
1995 1994 ---------------------- 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 ======= =======
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 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):
Liability Method Deferred Method 1995 1994 1993 ---------------------------------------------------- Current expense: 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 ======= ======= =======
17 A reconciliation of the statutory U.S. federal rate to the effective income tax rate for the years ended November 30 is as follows:
1995 1994 1993 -------------------------------- 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% ==== ==== ====
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):
1995 1994 --------------------- Deferred tax assets: 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 ===== =====
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 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):
Capital Stock Issued Held in Treasury Class A Class B Class A Class B ------------------------------------------------------ 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 ====== === ===== ===
19 Changes in capital stock are summarized as follows (in thousands):
Cost of Capital Stock Capital (Stated Amount) Additional Stock in Class A Class B Capital Treasury ----------------------------------------------------- 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 ====== === ====== ======
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 8. Foreign Operations United States and foreign operations, which include subsidiaries located in Canada, Germany, Taiwan, Malaysia and China are as follows (in thousands):
1995 1994 1993 -------------------------------------- Net sales to unaffiliated customers: 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 ======= ======= =======
9. Quarterly Results of Operations (Unaudited) Quarterly results of operations are summarized as follows (in thousands, except per share data):
Quarter Ended 1995 Feb 28 May 31 Aug 31 Nov 30 - ------------------------------------------------------------------------------------------------------------------- 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
EX-21 7 LIST OF SUBSIDIARIES 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 EX-23 8 CONSENT OF ERNST & YOUNG LLP 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 EX-27 9 FINANCIAL DATA SCHEDULE
5 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 1,000 YEAR NOV-30-1995 NOV-30-1995 20,260 0 42,962 ( 2,051) 15,411 76,931 86,273 (40,804) 183,582 41,426 0 88,697 0 0 20,677 183,582 328,345 328,345 219,899 292,957 ( 544) 0 2,158 33,774 13,510 0 0 0 0 20,264 .88 .88 -----END PRIVACY-ENHANCED MESSAGE-----