Dividend Information and Common Stock Prices

     Dividends are traditionally paid on the 1st business day of January, April,
July and October to shareholders of record  approximately three weeks prior.

     The following  table sets forth the  dividends  paid per share of stock and
the high and low  prices in each of the  quarters  in the past two  years  ended
November 30.

                                      Dividends
Fiscal 1995                           Per Share             High         Low
1st quarter ended February 28             $.070          $14 1/2     $11 3/4
2nd quarter ended May 31                   .080           15          11
3rd quarter ended August 31                .080           13 1/2      11
4th quarter ended November 30              .080           13 1/2      12 1/8
                                          $.310

Fiscal 1994
1st quarter ended February 28             $.060          $16 7/8     $13 1/2
2nd quarter ended May 31                   .067           18          14 1/2
3rd quarter ended August 31                .070           15          11 3/4
4th quarter ended November 30              .070           14 1/2      12
                                          $.267

Stock Trading

     The Company's  Class A stock is traded on the New York Stock Exchange under
the symbol LI.

     At  November  30,  1995,   there  were   approximately   2,200   registered
shareholders of Class A stock and 70 registered shareholders of Class B stock.

                                      
                    

                                       1
<PAGE>


Selected Financial Data (1)

<TABLE>
<CAPTION>

Year Ended November 30                                        1995            1994           1993           1992
                                                          --------        --------       --------      ---------
<S>                                                       <C>             <C>            <C>            <C>
OPERATIONS
     Net sales                                            $328,345        $331,306       $284,325       $236,476
     Cost of products sold                                 219,899         214,809        189,111        152,480
     Selling, administrative, research and
          development expenses                              73,058          74,480         65,644         61,158
     Income taxes                                           13,510          16,350         11,784          9,201
     Minority shareholders' interests (deduction)               --              --             --             --
     Net income                                             20,264          23,302         16,155         12,706

PER SHARE DATA (2)
     Net income                                                .88            1.00            .70            .55
     Cash dividends                                           .310            .267           .238           .223
     Book value                                               4.86            4.38           3.60           3.16
     Average number of shares and equivalent
          shares outstanding (3)                            23,100          23,250         23,123         23,189
     Shares outstanding at year end                         22,502          22,710         22,517         22,226
     Price range of Class A stock                           15 11         18 11-3/4    15-7/8 9-3/8    9-3/4 5-5/8

OTHER DATA
     Working capital                                        35,505          41,604         33,270         27,131
     Current ratio                                           1.9:1           1.8:1          1.9:1          2.0:1
     Total assets                                          183,582         190,252        167,044        117,049
     Additions to property and equipment (4)                15,599           6,693          7,598          3,262
     Depreciation                                            4,251           4,637          3,746          3,965
     Cash dividends                                          7,041           6,049          5,327          5,104
     Long-term debt                                         21,200          28,026         40,621         10,361
     Shareholders' equity                                  109,374          99,424         81,128         70,125
     Return on average equity                                 19.4%           25.8%          21.4%          17.6%
     Return on sales before minority
          shareholders' interests                              6.2%            7.0%           5.7%           5.4%

<FN>

(1)  This table of Selected  Financial Data should be read in  conjunction  with
     Management's Discussion and Analysis of Results of Operations and Financial
     Condition  and the Company's  consolidated  financial  statements  included
     herein.
(2)  Adjusted  for all stock  splits and stock  dividends  through  November 30,
     1995, inclusive. Prices are rounded to nearest 1/8.
(3)  Used to calculate net income per share.
(4)  Excludes effect of acquisitions.

</FN>
</TABLE>


                                       2
<PAGE>


Selected Financial Data (1)
<TABLE>
<CAPTION>


Year Ended November 30                1991       1990        1989        1988        1987        1986         1985
                                  --------   --------    --------    --------    --------    --------     --------
<S>                               <C>        <C>         <C>          <C>         <C>        <C>          <C>     
OPERATIONS                                  
 Net sales                         $220,508   $240,146    $219,713    $203,499    $189,213    $147,524     $149,858
 Cost of products sold              150,669    161,626     145,592     134,114     122,135      96,196       98,910
 Selling, administrative, 
   research and development
   expenses                          57,527     61,218      53,821      51,496      48,651      35,551       35,502
 Income taxes                         4,417      6,850       8,399       7,550       8,599       7,785        7,542
 Minority shareholders' 
   interests (deduction)                 --         --         286         356          94       (404)        (437) 
 Net income                           6,357     10,022      12,574      11,284      10,272       8,515        8,648 

PER SHARE DATA (2) 
 Net income                             .27        .41         .51         .45         .40         .33          .34
 Cash dividends                        .214       .199        .173        .153        .141        .131         .113
 Book value                            3.16       3.10        3.00        2.65        2.34        2.11         1.92
 Average number of shares and 
   equivalent shares 
   outstanding (3)                   23,499     24,659      24,863      24,921      25,511      25,482       25,416
 Shares outstanding at year end      23,480     23,634      24,863      24,863      25,104      25,284       24,870
 Price range of Class A stock    6-1/8 4-1/8   7-5/8 4   7-1/8 5-3/8  7-1/8 4-7/8  7-5/8 4-5/8  6 4-1/4   4-7/8 3-3/8
                                     
OTHER DATA                            
 Working capital                     30,405     34,513      40,389      36,368      26,006      31,798       32,891 
 Current ratio                        2.0:1      2.6:1       2.5:1       2.8:1       2.0:1       3.6:1        3.4:1
 Total assets                       127,342    125,371     129,025     101,357      96,814      75,924       69,153 
 Additions to property and 
   equipment (4)                      1,928      3,968       2,486       2,930       5,397       4,304        4,447   
 Depreciation                         4,038      4,021       3,387       3,133       2,785       2,123        2,098
 Cash dividends                       5,005      4,923       4,341       3,843       3,603       3,293        2,796   
 Long-term debt                      16,638     23,016      21,105       5,829       3,137       1,006          910   
 Shareholders' equity                74,187     73,185      74,482      65,987      58,755      53,359       47,658
 Return on average equity               8.6%      13.6%       17.9%       18.1%       18.3%       16.9%        19.3%
 Return on sales before minority 
   shareholders' interests              2.9%       4.2%        5.6%        5.4%        5.4%        6.0%         6.1%  

<FN>

(1)  This table of Selected  Financial Data should be read in  conjunction  with
     Management's Discussion and Analysis of Results of Operations and Financial
     Condition  and the Company's  consolidated  financial  statements  included
     herein.
(2)  Adjusted  for all stock  splits and stock  dividends  through  November 30,
     1995, inclusive. Prices are rounded to nearest 1/8.
(3)  Used to calculate net income per share.
(4)  Excludes effect of acquisitions.

</FN>
</TABLE>



                                       3
<PAGE>


Management's Discussion and Analysis of Results
of Operations and Financial Condition

         Results of Operations

1995 vs. 1994

         Sales totaled  $328.3 million in 1995 compared to 1994 record levels of
$331.3 million.  Lower sales resulted from decreased  demand for liquid coatings
during the second,  third and fourth quarters due to reduced U.S.  manufacturing
activity in markets served by the Company.

         Cost of products  sold in 1995  increased as a  percentage  of sales to
67.0% from 64.8% in 1994.  This  change  resulted  from sharp  increases  in raw
material  costs during the first three  quarters of 1995.  Price  increases were
instituted by the Company in the second half of the year to partially offset the
impact of these higher raw material costs.

         Operating  expenses  of $73.1  million  in 1995  decreased  from  $74.5
million in 1994 due to  continuing  cost  control  measures  and lower  business
volumes.  Operating  expenses as a percentage of sales  continued to decline and
were 22.3% and 22.5% in 1995 and 1994, respectively.

         Net nonoperating expenses in 1995 totaled $1.6 million compared to $2.4
million in 1994.  This  decrease  was due  primarily to lower  interest  expense
resulting from reductions in average outstanding borrowings.

         Net income in 1995 totaled $20.3 million, or $.88 per share, compared 
to 1994 record levels of $23.3 million, or $1.00 per share.

1994 vs. 1993

         Sales of $331.3  million in 1994 were at record high levels  increasing
17% compared to 1993 sales of $284.3  million.  This  increase was due to higher
demand for the Company's products resulting from a strong  manufacturing  sector
of the North  American  economy  and the  liquid  industrial  coatings  business
acquired from ICI Paints.  Cost of products sold  represented  64.8% of sales in
1994  compared  to  66.5% in  1993.  This  improvement  resulted  from  gains in
production efficiencies and higher capacity utilization.

         Higher  business  volumes  in  1994  resulted  in a 13.5%  increase  in
operating  expenses as compared to 1993.  However,  1994 operating expenses as a
percentage of sales  decreased to 22.5% from 23.1% in 1993 due to effective cost
controls.  Net nonoperating  expenses increased in 1994 and totaled $2.4 million
compared  to $1.6  million in 1993.  This change was due to  increased  interest
expense resulting from higher debt levels.

         Net  income in 1994 was a record  high of $23.3  million,  or $1.00 per
share, which was a 44% increase over net income earned in 1993.


                                       4
<PAGE>


         Liquidity and Capital Resources

         Operating cash flow generated in 1995 totaled $27.2 million compared to
$39.0  million in 1994.  Accounts  receivable  decreased  slightly  due to lower
business  volumes.  The Company's  overall  programs in 1995 to reduce inventory
levels  resulted in an $8.5 million  reduction and a  corresponding  decrease in
accounts  payable and accrued  expenses.  This  operating  cash flow allowed the
Company to reduce debt, pay increased  dividends,  fund capital expenditures and
repurchase 370,000 shares of stock, as discussed below.

         Cash used by investing activities in 1995 was $16.2 million compared to
$5.7 million in 1994. The majority of this increase  related to expenditures for
construction  of the new  manufacturing  facility  in Bowling  Green,  Kentucky.
Management  anticipates a lower level of capital  expenditures  in 1996.  During
fiscal 1995, the Company made  acquisitions for its specialty and glass coatings
businesses.  The Company also divested its  automotive  refinish  business.  The
impact of these transactions was not material to the Company's operating results
or financial condition.

         Financing activities used cash of $17.3 million in 1995, a $3.2 million
increase  over 1994.  The increase was  primarily  due to purchases of stock for
treasury  and  higher  dividend   payments.   The  rate  of  dividends  paid  to
shareholders was increased 14% in 1995 from 7 cents to 8 cents per share.

         In addition to internally  generated funds,  the Company  maintains $61
million in  revolving  lines of credit  with  various  banks,  all of which were
available  at November  30,  1995.  Use of these  credit  lines was not required
during  1995.  The  Company's  1995  current  ratio  improved  slightly to 1.9:1
compared to 1.8:1 in 1994. This  improvement was  attributable to lower accounts
payable and accrued expenses offset by lower levels of cash and inventory.

         The Company's operations,  like those of most companies in the coatings
industry,  are subject to  regulations  relating to maintaining or improving the
quality of the  environment.  Such  regulations,  along with the  Company's  own
internal compliance efforts,  have required and will continue to require capital
expenditures.  Capital spending for environmental  compliance is not anticipated
to be  material  to the  Company's  financial  condition.  The  Company has been
notified  that it is a  potentially  responsible  party for clean-up  costs with
respect to several governmental  investigations at independently  operated waste
disposal  sites  previously  used by the Company.  Management  has  accrued,  as
appropriate,  for  these  environmental  liabilities.  Management  believes  the
liabilities  associated with these sites will not have a material adverse effect
on its operating results or financial condition.

         The Company's strong  financial  condition and cash flow allow it to be
well-positioned to fund general operating needs, dividend payments, debt service
requirements, and other future investment needs.


                                       5
<PAGE>


Responsibility for Financial Statements and Report of Independent Auditors

         Responsibility for Financial Statements

         The  management  of  Lilly  Industries,  Inc.  is  responsible  for the
preparation  of the  financial  statements  in the  Annual  Report  and  for the
integrity and objectivity of the information presented. The financial statements
have been prepared in conformity with generally accepted  accounting  principles
and necessarily include amounts which are estimates and judgments.  The fairness
of the  presentation in these  statements of the Company's  financial  position,
results of operations and cash flows is reported on by the independent auditors.

         To assist in  carrying  out the above  responsibility,  the Company has
internal systems which provide for selection of personnel, segregation of duties
and the  maintenance  of accounting  policies,  systems,  procedures and related
controls.

         Although no cost-effective system can insure the elimination of errors,
the Company's systems have been designed to provide  reasonable but not absolute
assurances  that  assets are  safeguarded,  that  policies  and  procedures  are
followed,  and that the financial  records are adequate to permit the production
of reliable financial statements. The Audit Committee of the Board of Directors,
which is  composed  of  directors  who are not  employees  of the Company or its
subsidiaries,  meets regularly with Company officers and independent auditors in
connection with the adequacy and integrity of the Company's  financial reporting
and internal controls.

Roman J. Klusas
Vice President and Chief Financial Officer



                                       6
<PAGE>


         Report of Independent Auditors

Shareholders and Board of Directors
Lilly Industries, Inc.

         We have audited the accompanying  consolidated  balance sheets of Lilly
Industries,  Inc. and  subsidiaries  as of November  30, 1995 and 1994,  and the
related  consolidated  statements of income and retained earnings and cash flows
for each of the  three  years in the  period  ended  November  30,  1995.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,   as  well   as   evaluating   the   overall   financial   statement
presentation.  We  believe  that our  audits  provide a  reasonable  basis for 
our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material respects,  the consolidated  financial position of Lilly
Industries,  Inc.  and  subsidiaries  at  November  30,  1995 and 1994,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended November 30, 1995, in conformity  with generally
accepted accounting principles.

Ernst & Young LLP
Indianapolis, Indiana
January 12, 1996


                                       7
<PAGE>


Consolidated Statements of Income and Retained Earnings
(In thousands, except per share data)

<TABLE>
<CAPTION>

Year Ended November 30                                                          1995             1994              1993
                                                                            --------          -------           -------
<S>                                                                         <C>             <C>               <C>          
Net sales                                                                   $328,345         $331,306          $284,325
Costs and expenses
         Cost of products sold                                               219,899          214,809           189,111
         Selling, administrative and general                                  59,874           61,498            53,319
         Research and development                                             13,184           12,982            12,325
                                                                            --------          -------           -------
                                                                             292,957          289,289           254,755
                                                                            --------          -------           -------
                  Operating income                                            35,388           42,017            29,570

Other income (expense)
         Interest income and sundry                                              544              554               294
         Interest expense                                                     (2,158)          (2,919)           (1,925)
                                                                            --------          -------           -------
                                                                              (1,614)          (2,365)           (1,631)
                                                                            --------          -------           -------
                  Income before income taxes                                  33,774           39,652            27,939

Income taxes - Note 6                                                         13,510           16,350            11,784
                                                                            --------          -------           -------
                  Net income                                                  20,264           23,302            16,155

Retained earnings at beginning of year                                        38,223           20,970            10,142
                                                                            --------          -------           -------
                                                                              58,487           44,272            26,297
Deduct dividends paid (1995, $.310 per share;
         1994, $.267 per share; 1993, $.238 per share)                         7,041            6,049             5,327
                                                                            --------          -------           -------
                  Retained earnings at end of year                        $   51,446       $   38,223        $   20,970
                                                                            ========         ========          ========
Average number of shares and equivalent
         shares of capital stock outstanding                                  23,100           23,250            23,123

Net income per share                                                    $        .88      $      1.00      $        .70


*See notes to consolidated financial statements.

</TABLE>


                                       8
<PAGE>
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
November 30                                                                                      1995              1994
                                                                                           ----------         ---------
<S>                                                                                        <C>                <C>     
Assets
Current assets
         Cash and cash equivalents                                                          $  20,260         $  26,581
         Accounts receivable, less allowances for doubtful accounts
                  (1995, $2,051; 1994, $1,759)                                                 40,911            42,231
         Inventories - Note 3                                                                  15,411            23,885
         Other                                                                                    349               360
                                                                                              -------           -------
                  Total current assets                                                         76,931            93,057
Other assets
         Goodwill, less amortization (1995, $4,658; 1994, $3,978)                              27,390            28,511
         Other intangibles, less amortization (1995, $12,544; 1994, $9,697)                    20,011            22,467
         Sundry                                                                                13,781            10,464
                                                                                              -------           -------
                                                                                               61,182            61,442
Property and equipment
         Land                                                                                   4,176             4,044
         Buildings                                                                             31,862            25,382
         Equipment                                                                             50,235            46,339
         Allowances for depreciation (deduction)                                              (40,804)          (40,012)
                                                                                              -------           -------
                                                                                               45,469            35,753
                                                                                              -------           -------
                                                                                             $183,582          $190,252
                                                                                              =======           =======
Liabilities and Shareholders' Equity
Current liabilities
         Accounts payable                                                                   $  23,982         $  29,288
         Salaries and payroll related items                                                     7,970             9,160
         State and local taxes                                                                    661             1,520
         Federal income taxes                                                                   1,784             4,401
         Current portion of long-term debt - Note 5                                             7,029             7,084
                                                                                              -------           -------
                  Total current liabilities                                                    41,426            51,453
Long-term debt - Note 5                                                                        21,200            28,026
Other liabilities                                                                              11,582            11,349
Shareholders'  equity - Notes 7 and 9  
         Capital  stock - $.55  stated  value  per share:
                  Class A (limited voting) - 26,903 shares issued
                       (1994, 26,695 shares)                                                   14,947            14,831
                  Class B (voting) - 540 shares issued                                            300               300
         Additional capital                                                                    73,450            71,972
         Retained earnings                                                                     51,446            38,223
         Currency translation adjustments                                                         288               185
         Cost of capital stock in treasury (deduction)                                        (31,057)          (26,087)
                                                                                              -------           -------
                                                                                              109,374            99,424
                                                                                              -------           -------
                                                                                             $183,582          $190,252
                                                                                             ========          ========
</TABLE>
*See notes to consolidated financial statements.


                                       9
<PAGE>

Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>

Year Ended November 30                                                            1995           1994            1993
                                                                               -------         -------        ------- 
<S>                                                                           <C>             <C>             <C>

Operating Activities
Net income                                                                     $20,264        $23,302         $16,155
Adjustments to reconcile net income to net cash provided
    by operating activities:
         Depreciation                                                            4,251          4,637           3,746
         Amortization of intangibles                                             3,923          4,328           3,141
         Deferred income taxes                                                     (70)        (1,789)           (745)
         Changes in  operating  assets  and  liabilities  net  of  effects
              from acquired business:
                  Accounts receivable                                            1,320         (2,295)        (10,335)
                  Inventories                                                    8,474         (1,158)         (2,974)
                  Accounts payable and accrued expenses                         (7,355)         7,482           9,185
                  Federal income taxes                                          (2,617)         3,416             398
                  Sundry                                                          (987)         1,047          (1,143)
                                                                               -------         -------        ------- 
                  Net cash provided by operating activities                     27,203         38,970          17,428

Investing Activities
Purchases of property and equipment                                            (15,599)        (6,693)         (7,598)
Payment for acquired business                                                       --             --         (37,500)
Sundry                                                                            (620)         1,005           2,576
                                                                               -------        -------         -------
                  Net cash used by investing activities                        (16,219)        (5,688)        (42,522)

Financing Activities
Dividends paid                                                                  (7,041)        (6,049)         (5,327)
Proceeds from short-term and long-term borrowings                                   --             --          39,000
Principal payments on short-term and long-term borrowings                       (6,888)        (9,000)         (9,529)
Purchases of capital stock for treasury                                         (4,380)            --              --
Sundry                                                                           1,004            964              --
                                                                               -------        -------         -------    
                  Net cash (used) provided by financing activities             (17,305)       (14,085)         24,144
                                                                               -------        -------         -------    
                  (Decrease) increase in cash and cash equivalents              (6,321)        19,197            (950)

Cash and cash equivalents at beginning of year                                  26,581          7,384           8,334
                                                                               -------         -------         -------    
Cash and cash equivalents at end of year                                       $20,260        $26,581        $  7,384
                                                                               =======        =======         =======

</TABLE>

*See notes to consolidated financial statements.


                                       10
<PAGE>


Notes to Consolidated Financial Statements

1.       Summary of Significant Accounting Policies

Business

         Lilly  Industries,  Inc. and its subsidiaries  (the Company) are in the
business of  formulating,  producing  and selling  industrial  coatings to other
manufacturing  companies. The Company's principal products are wood coatings for
furniture,  building products and cabinets; coil coatings for residential siding
components,  appliances and metal buildings; specialty coatings for a variety of
metal products and fiberglass reinforced products; powder coatings for a variety
of metal products; and glass coatings for mirrors.

Consolidation and Use of Estimates

         The  consolidated  financial  statements  include  the  accounts of all
subsidiaries  after  elimination  of  intercompany  accounts  and  transactions.
Preparation of these statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
amounts  reported in the financial  statements and  accompanying  notes.  Actual
results could differ from those estimates.

Cash Equivalents

         Cash equivalents include time deposits and certificates of deposit with
original maturities of three months or less.

Inventories

         Inventories  in the  United  States  are  stated  at the lower of cost,
determined by the last-in,  first-out (LIFO) method,  or market.  Inventories of
foreign  subsidiaries  are  stated  at the  lower  of  cost,  determined  by the
first-in, first-out (FIFO) method, or market.

Intangible Assets

         Goodwill,  which  represents  the excess of cost over fair value of net
assets of purchased  businesses,  is amortized by the straight-line  method over
periods  ranging  from  20 to 40  years.  Other  intangible  assets  consist  of
noncompete agreements,  customer lists and technology,  and are amortized by the
straight-line  method  over  periods  ranging  from 5 to 20 years.  The  Company
periodically  evaluates  the  value of  intangible  assets  to  determine  if an
impairment has occurred.  This evaluation is based on various analyses including
reviewing anticipated cash flows.

Property and Equipment

         Property  and  equipment  is recorded on the basis of cost and includes
expenditures  for new  facilities  and items which  substantially  increase  the
useful  life of  existing  buildings  and  equipment.  Depreciation  is based on
estimated useful lives and computed primarily by the straight-line method.


                                       11
<PAGE>

Net Income Per Share

         Net income per share is computed on the basis of the  weighted  average
number of shares outstanding during each year, adjusted for stock splits,  stock
dividends and the dilutive effect, if any, of common stock equivalents.

2.       Acquisition

         On May 7,  1993,  the  Company  acquired  assets of ICI  Paints'  North
American  wood,  coil and  general  liquid  industrial  coatings  business  (the
"Acquired  Business")  for  $37,500,000  in  cash  and the  Company's  packaging
coatings  business.  The  acquisition  transaction  was recorded by the purchase
method  and  the  consolidated  financial  statements  include  the  results  of
operations of the acquired business since the date of acquisition.

         The following pro forma  consolidated  results of operations are stated
as though the  acquisition  occurred on December 1, 1992 and are not necessarily
indicative  of actual  results of  operations  that would have  occurred had the
purchase been made at that date.  Unaudited pro forma net sales,  net income and
net income per share for the year ended  November  30,  1993 were  $311,725,000,
$16,913,000 and $.73, respectively.

3.       Inventories

         The principal inventory classifications at November 30 
are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                   1995          1994
                                                                                  -----------------------
<S>                                                                                   <C>           <C> 
Finished products                                                                  $11,065       $16,831
Raw materials                                                                       12,584        15,127
                                                                                   -------       -------     
                                                                                    23,649        31,958
Less adjustment of certain inventories
         to last-in, first-out (LIFO) basis                                          8,238         8,073
                                                                                   -------       -------     
                                                                                   $15,411       $23,885
                                                                                   =======       =======
</TABLE>


         Inventory cost is determined by the LIFO method of inventory  valuation
for  approximately  70% and 82% of  inventories  at November  30, 1995 and 1994,
respectively.  While  management  believes  the LIFO method  results in a better
matching  of  current  costs  and  revenues,  the  FIFO  method  is used to cost
inventories  of foreign  subsidiaries  because  foreign  statutory  requirements
prohibit use of the LIFO method.


                                       12
<PAGE>

         During fiscal 1995 inventory  quantities  were reduced.  This reduction
resulted in a liquidation of LIFO inventory  layers carried at lower costs which
prevailed  in prior  years.  The  effect  of this  liquidation  was to  increase
earnings by approximately $600,000.

4.       Benefit Plans

         The Company  maintains defined benefit and defined  contribution  plans
that cover  substantially all employees.  Retirement  benefits under the defined
benefit  plans are based on final  monthly  compensation  and years of  service.
Retirement  benefits under the defined  contribution plans are based on employer
and  employee  contributions  plus  earnings to  retirement.  The plans'  assets
consist  primarily of common  stock,  fixed  income  securities  and  guaranteed
insurance contracts.  In addition, an unfunded supplemental executive retirement
plan covers  certain  employees in which  benefits,  determined  by the Board of
Directors,  are payable over 15 years.  This plan is designed so that if certain
assumptions regarding mortality  experience,  policy dividends and other factors
are realized, the Company will recover all costs through insurance policies.

         The provision for defined benefit pension cost is determined  using the
projected unit credit actuarial method.  The Company's policy is to fund amounts
as are necessary on an actuarial basis to provide assets  sufficient to meet the
benefits to be paid to plan members in accordance  with the Employee  Retirement
Income  Security Act of 1974.  Amounts  contributed to  union-sponsored  pension
plans are based upon requirements of collective bargaining  agreements.  Company
contributions  to the defined  contribution  plans are based on a percentage  of
employee contributions.

         Effective  December 1, 1994, the defined  benefit pension plan covering
substantially  all U.S.  employees  was  amended  to freeze  years of service at
November 30, 1994.  Concurrently with this amendment,  the Company increased its
matching contribution rates to the defined contribution plans.


                                       13
<PAGE>

         A summary of the components of net pension cost for the defined benefit
plans and amounts charged to expense for the defined  contribution plans for the
years ended November 30 follows (in thousands):

<TABLE>
<CAPTION>
                                                                                      1995          1994         1993
                                                                                  ------------------------------------
Defined benefit plans:
<S>                                                                               <C>            <C>         <C>    
         Service cost - benefits earned during the period                         $    708       $ 2,109     $ 1,800
         Interest cost on projected benefit obligation                               2,742         2,638       2,549
         Actual net (gain) loss on plan assets                                      (8,849)          529      (3,503)
         Net amortization and deferral                                               5,267        (4,224)        160
                                                                                   -------       -------      ------
         Net pension cost                                                             (132)        1,052       1,006

Defined contribution plans                                                           2,130           759         705
                                                                                   -------       -------      ------
         Pension expense                                                           $ 1,998       $ 1,811     $ 1,711
                                                                                   =======       =======     =======

</TABLE>

         The  expected  long-term  rate of return on assets  used to compute the
defined  benefit plans' pension cost was 9.25% for 1995, 1994 and 1993.

         The following table sets forth the funded status and amounts recognized
in the consolidated balance sheets at November 30 for the Company's defined 
benefit pension plans (in thousands):
<TABLE>
<CAPTION>
                                                                                      1995          1994
                                                                                  ---------------------- 
Actuarial present value of benefit obligations:
<S>                                                                               <C>           <C>     
         Vested                                                                   $ 33,498      $ 27,598
         Nonvested                                                                   3,126         2,944
                                                                                   -------       -------     
Total accumulated benefit obligations                                             $ 36,624      $ 30,542
                                                                                   =======       =======
Actuarial present value of projected benefit
         obligations for services rendered to date                                $(43,118)     $(35,257)

Plan assets at fair value                                                           46,510        38,714
                                                                                   -------       -------     
Excess of plan assets over projected
         benefit obligations                                                         3,392         3,457
Unrecognized net losses (gains)                                                        535          (990)
Unrecognized prior service cost                                                      2,248         2,455
Unrecognized net excess plan assets at
         December 1, 1985, net of amortization                                      (1,539)       (1,741)
                                                                                   -------       -------     
Net pension asset                                                                $   4,636     $   3,181
                                                                                   =======       =======
</TABLE>


                                       14
<PAGE>

         Assumptions used in the accounting for the defined benefit plans 
as of November 30 were:
<TABLE>
<CAPTION>
                                                                                      1995          1994
                                                                                     -------------------
<S>                                                                                   <C>           <C> 
Discount rate on benefit obligation                                                   7.0%          8.0%
Rates of increase in compensation levels                                              5.0%          5.0%

</TABLE>

         The  decrease  in  the  discount   rate  resulted  in  an  increase  of
approximately   $5,000,000  in  the  projected   benefit   obligations.

         Accumulated  benefits for the  supplemental  executive  retirement plan
totaled approximately $2,235,000 and $2,290,000 at November 30, 1995 and 1994, 
respectively.

         The Company  provides health care benefits to retirees  meeting certain
eligibility  requirements.  Eligibility  is based on age and  years of  service.
Retirees  participate in the cost of these benefits  through  contributions  and
other cost sharing  features  such as  deductibles  and  coinsurance,  which are
subject to periodic  adjustment by the Company.  Funding of benefits is provided
by the Company and retiree contributions.

         During the first quarter of fiscal 1994, the Company adopted  Statement
of Financial  Accounting  Standards (SFAS) No. 106,  "Employers'  Accounting for
Postretirement  Benefits  Other Than  Pensions".  SFAS No. 106 requires  accrual
accounting  for  the  expected  cost of  providing  postretirement  health  care
benefits to retirees.  Prior to fiscal 1994, the Company  recognized the cost of
these benefits as claims were paid. Expense recognized under SFAS No. 106 is not
materially different from expense recognized prior to 1994 using the cash basis.
The accumulated postretirement benefit obligation resulting from the adoption of
this statement is being amortized over 20 years.

         Net periodic postretirement benefit cost includes the following 
components for the years ended November 30 (in thousands):

<TABLE>
<CAPTION>
                                                                                      1995          1994
                                                                                     -------------------
<S>                                                                                  <C>           <C>  
Service cost                                                                         $  76         $  50
Interest cost                                                                          309           380
Net amortization and deferral                                                         (51)             -
Amortization of transition obligation                                                  238           238
                                                                                   -------       -------     
                                                                                      $572          $668
                                                                                   =======       =======
</TABLE>


                                       15
<PAGE>

         The funded status and amounts recognized in the Company's  consolidated
balance  sheet for  postretirement  benefits  at November 30 were as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                                      1995          1994
                                                                                    --------------------
<S>                                                                               <C>            <C>
Accumulated postretirement benefit obligation:
         Retirees                                                                   $1,996        $3,469
         Eligible active employees                                                   1,109         1,429
                                                                                   -------       -------     
                                                                                     3,105         4,898
Unrecognized actuarial gain                                                          1,822             -
Unrecognized transition obligation                                                  (4,291)       (4,530)
                                                                                   -------       -------     
Accrued postretirement benefit cost                                                $   636       $   368
                                                                                   =======       =======
</TABLE>


         The accumulated  postretirement benefit obligation was determined using
a discount  rate of 7.5% (1994,  8.5%).  The health care cost trend rate used in
determining the accumulated  postretirement  benefit  obligation was 12% in 1995
and is assumed to decrease  gradually to 6% in the year 2000 and finally to 5.5%
in the year 2019 and thereafter.  A one percent increase in the health care cost
trend rate would increase the accumulated  postretirement  benefit obligation by
approximately 8% and fiscal 1995 expense by approximately 9%.

5.       Long-Term Debt

         Long-term  debt  consists  of  the  following  as of  November  30  (in
thousands):
<TABLE>
<CAPTION>
                                                                                      1995          1994
                                                                                  ----------------------
<C>                                                                                <C>           <C>    
4.92% unsecured senior notes                                                       $28,000       $35,000
Other                                                                                  229           110
                                                                                   -------       -------     
                                                                                    28,229        35,110    
Less current portion                                                                 7,029         7,084
                                                                                   -------       -------     
                                                                                   $21,200       $28,026
                                                                                   =======       =======
</TABLE>

         Outstanding  principal of the  unsecured  senior notes in the amount of
$7,000,000 is due annually through 1999, when the entire unpaid principal amount
becomes due.  Interest is payable  semiannually.  In January  1994,  the Company
entered  into a three  year  interest  rate  swap  agreement  which  effectively
converts the senior notes from fixed rate debt to six-month LIBOR-based floating
rate debt.  The notional  amount of the swap,  $28,000,000 at November 30, 1995,
declines ratably as principal payments are made on the senior notes.


                                       16
<PAGE>

     Scheduled  maturities  of long-term  debt are:  1996 -  $7,029,000;  1997 -
$7,029,000; 1998 - $7,016,000; 1999 - $7,018,000 and 2000 - $19,000. Interest of
$2,306,000,  $1,853,000 and  $1,992,000 was paid in fiscal 1995,  1994 and 1993,
respectively.

         The Company has  revolving  lines of credit  through  June 1, 1997 that
allow  borrowings of up to $61,000,000,  all of which were available at November
30, 1995.  Interest  rates for these lines are to be  determined  at the time of
borrowing based on a choice of formulas specified in the agreements.

         Certain  of the  Company's  financing  arrangements  contain  covenants
which, among other things,  require maintenance of certain financial ratios. The
Company was in compliance with such ratios at November 30, 1995.

6.       Income Taxes

         Effective  December 1, 1993, the Company adopted Statement of Financial
Accounting  Standards  (SFAS)  No.  109,  "Accounting  for Income  Taxes"  which
requires  use  of  the  liability  method  for  financial  reporting.  Financial
statements for prior years have not been restated and the  cumulative  effect of
the accounting change was not material.

         Income tax expense for the years ended  November 30 is comprised of the
following components (in thousands):

<TABLE>
<CAPTION>
                                                             Liability Method            Deferred Method
                                                        1995             1994                       1993
                                                    ----------------------------------------------------
Current expense:
<S>                                                 <C>               <C>                       <C>     
         Federal                                    $  7,953          $12,395                   $  8,001
         Foreign                                       3,267            2,944                      2,563
                                                     -------          -------                    -------
                                                      11,220           15,339                     10,564
Deferred credit:
         Federal                                           -           (1,627)                      (674)
         Foreign                                         (70)            (162)                       (71)
                                                     -------          -------                    -------
                                                         (70)          (1,789)                      (745)
State                                                  2,360            2,800                      1,965
                                                     -------          -------                    -------
                                                     $13,510          $16,350                    $11,784
                                                     =======          =======                    =======
</TABLE>


                                       17
<PAGE>

         A reconciliation of the statutory U.S. federal rate to the effective 
income tax rate for the years ended November 30 is as follows:
<TABLE>
<CAPTION>
                                                                         1995         1994          1993
                                                                        --------------------------------
<S>                                                                     <C>         <C>            <C>  
Statutory U.S. federal income tax rate                                   35.0%        35.0%         34.9%
Increase resulting from:
         State income taxes, net of federal
         income tax benefit                                               3.4          3.7           3.6
         Foreign tax rates                                                 .8           .2            .1
         Other items                                                       .8          2.3           3.6
                                                                         ----         ----          ----
Effective income tax rate                                                40.0%        41.2%         42.2%
                                                                         ====         ====          ====
</TABLE>

         Deferred income taxes are recorded based upon  differences  between the
financial  statement and tax basis of assets and  liabilities.  The deferred tax
assets and  liabilities  recorded  on the  balance  sheet at  November 30 are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                                      1995          1994
                                                                                   ---------------------
Deferred tax assets:
<S>                                                                                 <C>           <C>   
         Goodwill                                                                   $1,152        $1,308
         Employee benefits                                                           1,520         1,499
         Accounts receivable, inventory and other                                    5,927         5,331
                                                                                     -----         -----
                                                                                     8,599         8,138
Deferred tax liabilities:
         Property and equipment                                                      3,264         2,994
         Pension                                                                     1,630         1,310
         Intangibles and other                                                       1,335         1,534
                                                                                     -----         ----- 
                                                                                     6,229         5,838
                                                                                     -----         ----- 
Net deferred tax assets                                                             $2,370        $2,300
                                                                                     =====         =====
</TABLE>

         No  provision  has been made for U.S.  federal  income taxes on certain
undistributed  earnings  of foreign  subsidiaries  that the  Company  intends to
permanently invest or that may be remitted tax-free.  The total of undistributed
earnings that would be subject to federal  income tax if remitted under existing
law is  approximately  $12,000,000  at November 30, 1995.  Determination  of the
unrecognized deferred tax liability related to these earnings is not practicable
because of the complexities with its hypothetical calculation. Upon distribution
of these  earnings,  the Company will be subject to U.S.  taxes and  withholding
taxes payable to various foreign governments. A credit for foreign taxes already
paid would be available to reduce the U.S. tax liability.

                                       18
<PAGE>

         Income taxes of $16,524,000,  $13,400,000 and $12,877,000  were paid in
1995, 1994 and 1993, respectively.


7.       Capital Stock

         Authorized  shares  of Class A and  Class B stock  are  48,500,000  and
1,500,000   shares,   respectively.   The  limited  voting  rights  of  Class  A
shareholders are equal to voting rights of Class B shareholders only with regard
to voting for merger, consolidation or dissolution of the Company and voting and
electing  four  directors of the Company if there are ten or more  directors and
two directors if there are nine or fewer  directors.  With respect to all rights
other than voting, Class A shareholders are the same as Class B shareholders.

         The  terms of the  Class B  stock,  which  is held  only by  employees,
provide that these shares be  exchanged  for Class A stock on a  share-for-share
basis when the shareholder ceases to be an employee or decides to dispose of the
shares.  Accordingly,  1,500,000 shares of authorized Class A stock are reserved
for this purpose.

         A summary of shares issued and held in treasury follows (in thousands):
<TABLE>
<CAPTION>
                                                                                  Capital Stock
                                                                        Issued                   Held in Treasury
                                                               Class A        Class B         Class A         Class B
                                                               ------------------------------------------------------
<S>                                                            <C>            <C>             <C>             <C>  
Balance at November 30, 1992                                     11,588            240          1,809             141
         Class A exchanged for Class B                                -              -             66             (66)
         Class B exchanged for Class A                                -              -            (11)             11
         Stock options exercised                                    237              -             40              21
         Three-for-two stock split                                5,821            120            921              63
                                                                 ------            ---          -----            ----
Balance at November 30, 1993                                     17,646            360          2,825             170
         Class A exchanged for Class B                                -              -             74             (74)
         Class B exchanged for Class A                                -              -            (40)             40
         Stock options exercised                                    161              -              8              17
         Three-for-two stock split                                8,888            180          1,437              69
                                                                 ------            ---          -----             --- 
Balance at November 30, 1994                                     26,695            540          4,304             222
         Class A exchanged for Class B                                -              -             78             (78)
         Class B exchanged for Class A                                -              -             (8)              8
         Acquisition for treasury                                     -              -            370               -
         Stock options exercised                                    208              -             10              35
                                                                 ------            ---          -----             ---
Balance at November 30, 1995                                     26,903            540          4,754             187
                                                                 ======            ===          =====             ===
</TABLE>



                                       19
<PAGE>

         Changes in capital stock are summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                                              Cost of
                                                                    Capital Stock                             Capital
                                                                  (Stated Amount)          Additional        Stock in
                                                                Class A        Class B        Capital        Treasury
                                                                -----------------------------------------------------
<S>                                                             <C>           <C>             <C>            <C>              
Balance at November 30, 1992                                    $14,484           $300        $68,681         $24,388
         Stock options exercised                                    221              -          1,954           1,199
                                                                 ------            ---         ------          ------
Balance at November 30, 1993                                     14,705            300         70,635          25,587
         Stock options exercised                                    126              -          1,177             500
         Disqualifying disposition
              of stock options                                        -              -            160               -
                                                                 ------            ---         ------          ------
Balance at November 30, 1994                                     14,831            300         71,972          26,087
         Acquisition for treasury                                     -              -              -           4,380
         Stock options exercised                                    116              -          1,376             590
         Disqualifying disposition
              of stock options                                        -              -            102               -
                                                                 ------            ---         ------          ------
Balance at November 30, 1995                                    $14,947           $300        $73,450         $31,057
                                                                 ======            ===         ======          ======
</TABLE>


         Incentive  stock option plans entitle certain  directors,  officers and
other key  employees to buy shares of Class A stock at prices not less than fair
market value on the date of grant.  The number of shares reserved and the number
and price  per share of  options  granted  are  adjusted  for  subsequent  stock
dividends and stock splits.  Shares reserved under these plans totaled 1,887,698
at November 30, 1995 of which option grants have been made for 1,198,880  shares
at prices  ranging  from $5.01 to $17.17.  During  1995,  208,229  options  were
exercised at prices ranging from $5.01 to $10.83 and 101,041  additional options
were granted. Options to buy 576,844 shares are currently exercisable.

         The Company  sponsors an  employees'  stock  purchase plan and a 401(k)
savings  plan that allow  participants  to acquire  Class A stock at the current
fair market value. At November 30, 1995,  4,926,000 shares of Class A stock were
reserved for sale under the plans.



                                       20
<PAGE>

8.       Foreign Operations

         United  States  and  foreign  operations,  which  include  subsidiaries
located in  Canada,  Germany,  Taiwan,  Malaysia  and China are as  follows  (in
thousands):
<TABLE>
<CAPTION>
                                                                 1995           1994           1993
                                                             --------------------------------------
Net sales to unaffiliated customers:
<S>                                                          <C>            <C>            <C>     
         United States                                       $277,494       $284,826       $246,162
         Foreign                                               50,851         46,480         38,163
                                                              -------        -------        -------
         Consolidated                                        $328,345       $331,306       $284,325
                                                              =======        =======        =======
Income before income taxes:
         United States                                       $ 23,785       $ 30,421       $ 19,638
         Foreign                                                9,989          9,231          8,301
                                                              -------        -------        -------
         Consolidated                                        $ 33,774       $ 39,652       $ 27,939
                                                              =======        =======        =======
Total assets:
         United States                                       $158,338       $165,182       $146,356
         Foreign                                               25,784         25,572         23,857
         Eliminations (deductions)                               (540)          (502)        (3,169)
                                                              -------        -------        -------
         Consolidated                                        $183,582       $190,252       $167,044
                                                              =======        =======        =======
</TABLE>

9.       Quarterly Results of Operations (Unaudited)

         Quarterly   results  of  operations   are  summarized  as  follows  (in
thousands, except per share data):
<TABLE>
<CAPTION>
                                                                                  Quarter Ended
1995                                                           Feb 28         May 31         Aug 31          Nov 30
-------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>            <C>            <C>             <C>   
Net sales                                                     $80,447        $85,407        $79,705         $82,786
Gross profit                                                   26,880         28,530         25,119          27,917
Net income                                                      4,647          5,808          4,577           5,232
Net income per share                                              .20            .25            .20             .23

                                                                                  Quarter Ended
1994                                                           Feb 28         May 31         Aug 31          Nov 30
-------------------------------------------------------------------------------------------------------------------
Net sales                                                     $73,972        $84,520        $86,639         $86,175
Gross profit                                                   24,241         29,724         30,948          31,584
Net income                                                      3,141          5,786          6,973           7,402
Net income per share                                              .13            .25            .30             .32

</TABLE>