<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________ to __________.
Commission file number 333-59485
HENRY COMPANY
(Exact Name of Registrant as Specific in Its Charter)
California 95-3618402
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
2911 Slauson Avenue, Huntington Park, California 90255
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (323) 583-5000
Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.
Indicate by check X 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. As of November 15,
1999, there were 221,500 shares of the registrant's common stock and 6,000
shares of Class A Common Stock, no par value, outstanding.
<PAGE>
HENRY COMPANY
FORM 10-Q
TABLE OF CONTENTS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets as of December 31, 1998 and September 30, 1999 (Unaudited) ................................ 3
Consolidated Statements of Operations for the three months and nine months ended September 30, 1998 and
1999 (Unaudited) .................................................................................................... 4
Consolidated Statement of Changes in Shareholders' Equity for the nine months ended September 30, 1999 (Unaudited) .... 5
Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and September 30, 1999 (Unaudited).. 6
Notes to Consolidated Financial Statements ............................................................................ 7
ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ....................... 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .................................................... 21
PART II. OTHER INFORMATION .............................................................................................. 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........................................................... 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .............................................................................. 22
SIGNATURES .............................................................................................................. 23
</TABLE>
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HENRY COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(unaudited)
ASSETS:
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................................. $ 12,022,676 $ 1,034,337
Trade accounts receivable, net of allowance for
doubtful accounts of $766,633 and $1,113,508 for
1998 and 1999, respectively............................................................. 19,798,709 33,877,368
Inventories................................................................................ 14,787,345 17,283,381
Receivables from affiliate................................................................. 2,853,677 2,921,830
Notes receivable........................................................................... 498,059 530,654
Prepaid expenses and other current assets.................................................. 2,449,184 3,613,243
Income tax receivable...................................................................... - 413,597
------------ ------------
Total current assets.................................................................. 52,409,650 59,674,410
Property and equipment, net................................................................... 35,370,224 36,612,079
Cash surrender value of life insurance, net................................................... 3,469,017 4,078,721
Intangibles, net.............................................................................. 31,777,329 30,303,353
Notes receivable.............................................................................. 376,308 359,648
Note receivable from affiliate................................................................ 1,863,072 1,863,072
Other......................................................................................... 248,200 281,212
------------ ------------
Total assets.......................................................................... $125,513,800 $133,172,495
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable........................................................................... $ 9,640,787 $ 13,745,927
Accrued expenses........................................................................... 8,298,365 11,929,198
Income taxes payable....................................................................... 103,094 --
Notes payable, current portion............................................................. 330,224 260,954
Borrowings under lines of credit........................................................... 1,657,500 4,994,546
------------ ------------
Total current liabilities............................................................. 20,029,970 30,930,625
Notes payable................................................................................. 642,915 370,339
Environmental reserve......................................................................... 3,432,371 3,377,566
Deferred income taxes......................................................................... 5,711,071 5,314,112
Deferred warranty revenue..................................................................... 2,190,938 2,482,988
Deferred compensation......................................................................... 1,015,565 1,053,021
Series B Senior Notes......................................................................... 85,000,000 85,000,000
------------ ------------
Total liabilities..................................................................... 118,022,830 128,528,651
Commitments and contingencies
Redeemable convertible preferred stock........................................................ 1,660,874 1,727,876
Shareholders' equity:
Common stock............................................................................. 4,691,080 4,691,080
Additional paid-in capital............................................................... 2,622,867 2,555,865
Cumulative translation adjustment........................................................ (892,724) (471,039)
Accumulated deficit...................................................................... (591,127) (3,859,938)
------------ ------------
Total shareholders' equity............................................................ 5,830,096 2,915,968
------------ ------------
Total liabilities and shareholders' equity............................................ $125,513,800 $133,172,495
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
<PAGE>
HENRY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
1998 1999 1998 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales................................... $56,796,945 $54,796,067 $108,904,548 $137,489,244
Cost of sales............................... 39,084,335 36,621,353 75,091,639 95,803,602
----------- ----------- ------------ ------------
Gross profit.......................... 17,712,610 18,174,714 33,812,909 41,685,642
Operating expenses:
Selling, general and administrative... 11,601,041 13,318,471 24,206,002 35,948,479
Amortization of intangibles........... 763,087 906,460 1,385,300 2,684,221
----------- ----------- ------------ ------------
Operating income...................... 5,348,482 3,949,783 8,221,607 3,052,942
Other expense (income):
Interest expense...................... 2,237,689 2,304,130 4,336,725 6,789,734
Interest and other income, net........ (61,711) (54,167) (183,811) (155,979)
----------- ----------- ------------ ------------
Income (loss) before provision (benefit)
for income taxes..................... 3,172,504 1,699,820 4,068,693 (3,580,813)
Provision (benefit) for income taxes........ 1,554,902 1,107,316 1,032,900 (312,002)
----------- ----------- ------------ ------------
Net income (loss)..................... $ 1,617,602 $ 592,504 $ 3,035,793 $ (3,268,811)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4
<PAGE>
HENRY COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
-------------------- Cumulative Retained
Issued Additional Translation Earnings
Shares Amount Paid-in Capital Adjustment (Deficit) Total
------- ---------- --------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998...... 227,500 $4,691,080 $ 2,622,867 ($892,724) ($591,127) $5,830,096
Accretion on redeemable
convertible preferred stock.. -- -- (67,002) -- -- (67,002)
Comprehensive income (loss):
Net loss..................... -- -- -- -- (3,268,811) (3,268,811)
Other comprehensive income:
Change in cumulative
translation adjustment.. -- -- -- 421,685 -- 421,685
----------
Total comprehensive
income (loss)................ -- -- -- -- -- (2,847,126)
------- ---------- --------------- ----------- ----------- ----------
Balance, September 30, 1999..... 227,500 $4,691,080 $ 2,555,865 ($471,039) ($3,859,938) $2,915,968
------- ---------- --------------- ----------- ----------- ----------
------- ---------- --------------- ----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5
<PAGE>
HENRY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................................... $ 3,035,793 ($3,268,811)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization....................................................... 1,934,585 2,458,833
Provision for doubtful accounts..................................................... 218,764 399,280
Deferred income taxes............................................................... -- (398,359)
Noncompetition and goodwill amortization............................................ 1,385,300 2,890,980
Interest on subordinated shareholder debt........................................... 176,506 --
Gain on disposal of property and equipment.......................................... (138,262) (1,625)
Changes in operating assets and liabilities, net of assets acquired:
Accounts receivable............................................................... (5,440,118) (13,940,520)
Inventories....................................................................... (759,449) (2,108,776)
Receivables from affiliates....................................................... (439,861) (68,153)
Notes receivable.................................................................. 171,944 23,211
Cash surrender value of life insurance............................................ (663,601) (303,009)
Other assets...................................................................... (794,488) (1,136,621)
Income tax receivable............................................................. -- (413,597)
Accounts payable and accrued expenses............................................. 5,015,245 7,065,025
Deferred warranty revenue......................................................... 118,375 292,050
Deferred compensation............................................................. (12,969) 37,456
----------- ----------
Net cash provided by (used in) operating activities......................... 3,807,764 (8,472,636)
----------- ----------
Cash flows from investing activities:
Capital expenditures................................................................... (1,361,499) (2,868,683)
Proceeds from the disposal of property and equipment................................... 178,212 1.625
Acquisition of business, net of cash acquired.......................................... (43,819,000) (2,613,931)
Investment in affiliate................................................................ (19,582) (25,756)
----------- ----------
Net cash used in investing activities....................................... (45,021,869) (5,506,745)
----------- ----------
Cash flows from financing activities:
Net (repayments) borrowings under line-of-credit agreements............................ (14,157,186) 3,210,046
Repayments under notes payable agreements.............................................. (11,364,189) (409,717)
Borrowings under notes payable agreements.............................................. 4,281 67,871
Payments on subordinated shareholder debt.............................................. (5,199,972) --
Payments of finance fees for note offering.............................................. (2,550,000) --
Proceeds from Senior Notes............................. ........................ 85,000,000 --
Proceeds from issuance of common stock.................................................. 2,000,000 --
Proceeds from issuance of preferred stock............................................... 600,000 --
Dividends paid......................................................................... (800,000) --
----------- ----------
Net cash provided by financing activities......................... 53,532,934 2,868,200
----------- ----------
Effect of exchange rate changes on cash and cash equivalents.............................. (797,220) 122,842
----------- ----------
Net increase (decrease) in cash and cash equivalents........................ 11,521,609 (10,988,339)
Cash and cash equivalents, beginning of period............................................ 118,857 12,022,676
----------- ----------
Cash and cash equivalents, end of period.................................................. $11,640,466 $1,034,337
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 6
<PAGE>
HENRY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS:
The accompanying unaudited condensed consolidated financial statements
of Henry Company, a California corporation (the "Company"), include all
adjustments (consisting of normal recurring entries) which management believes
are necessary for a fair presentation of the financial position and results of
operations for the periods presented. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted in
accordance with quarterly reporting guidelines. The year-end condensed balance
sheet data was derived from the Company's audited consolidated financial
statements, but does not include all disclosures required by generally accepted
accounting principles. The accompanying financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
footnotes as of and for the year ended December 31, 1998 as included in the
Company's Annual Report on Form 10-K. Operating results for the three and nine
months ended September 30, 1999 are not necessarily indicative of the operating
results for the full fiscal year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
As more fully described in Note 3, the Company's financial statements
include the financial results of Monsey Bakor and its subsidiaries which were
acquired by the Company on April 22, 1998. The Acquisition was accounted for
using the purchase method of accounting and accordingly the results of
operations of Monsey Bakor since the acquisition date have been included in the
consolidated financial statements of the Company.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Software for Internal
Use", which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The Company
adopted the provisions of SOP No. 98-1 with no material impact on the Company's
financial position, results of operations, or cash flows.
In April 1998, the AICPA issued SOP No. 98-5 "Reporting on the Costs
of Start-up Activities". SOP No. 98-5, which is effective for fiscal years
beginning after December 15, 1998 and provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incurred. As the
Company has historically expensed these costs, the adoption of this standard
did not have a significant impact on the Company's financial position,
results of operations, or cash flows.
Page 7
<PAGE>
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivatives
and Hedging Activities", which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company does not expect the adoption of this
statement to have a significant impact on the Company's financial position,
results of operations, or cash flows.
3. BUSINESS ACQUISITION AND NOTE OFFERING:
On April 22, 1998, the Company completed the acquisition of Monsey
Bakor and its subsidiaries (the "Acquisition"), which are engaged in the
distribution and manufacture of roof coatings, adhesives and membranes, and
waterproofing and air barrier systems, for residential and commercial
applications. The cash purchase price was $42,750,000 with an additional
$3,227,000 paid at closing to certain selling shareholders of Monsey Bakor for
noncompetition agreements. A selling shareholder also purchased 22,500 shares of
redeemable convertible preferred stock of the Company for $600,000 cash. The
Acquisition was accounted for using the purchase method of accounting.
Concurrent with the Acquisition, the Company conducted a senior note
offering (the "Offering") in the aggregate principal amount of $85,000,000, and
converted its tax status from an S Corporation under Section 1361 of the
Internal Revenue Code (the "Code") to a C Corporation status. Since the
conversion, the Company has been required to pay federal and state corporate
income taxes on its taxable income.
In accordance with the requirements of APB Opinion No. 16 "Business
Combinations," the following unaudited pro forma summary presents the results of
operations of the Company as if the Acquisition and Offering had occurred as of
the beginning of the period presented prior to the acquisition date. The pro
forma adjustments include the results of operations for Monsey Bakor for the
period prior to the acquisition, adjustment for compensation expense in excess
of amounts paid under new employment agreements, amortization of intangible
assets created as a result of the Acquisition, interest expense on the debt
issued as part of the Offering, and related income tax effects. The pro forma
financial information is presented for informational purposes only and may not
be indicative of the results of operations as they would have been if the
Company and Monsey Bakor had been a single entity during the three and nine
month periods ended September 30, 1998, nor is such information indicative of
the results of operations which may occur in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
- -----------------------------------------------------------------------------
<S> <C>
Net Sales $142,744,548
------------
------------
Net Income $1,169,934
------------
------------
- -----------------------------------------------------------------------------
</TABLE>
Page 8
<PAGE>
4. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Raw materials............................ $ 7,240,227 $ 5,056,246
Finished goods........................... 7,547,118 12,227,135
----------- -----------
$14,787,345 $17,283,381
----------- -----------
----------- -----------
</TABLE>
Page 9
<PAGE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------- -------------
<S> <C> <C>
Buildings..................................... $13,634,579 $ 14,123,430
Machinery and equipment....................... 23,898,403 24,430,950
Office furniture and equipment................ 3,241,389 4,379,804
Automotive equipment.......................... 1,635,230 1,653,759
Leasehold improvements........................ 3,145,244 3,149,376
Other......................................... 330,695 330,695
------------- -------------
45,885,540 48,068,014
Less, accumulated depreciation and
amortization.............................. 16,338,442 19,322,999
------------- -------------
29,547,098 28,745,015
Land.......................................... 3,298,139 3,514,477
Construction-in-progress...................... 2,524,987 4,352,587
------------- -------------
$35,370,224 $ 36,612,079
------------- -------------
------------- -------------
</TABLE>
6. LONG-TERM DEBT AND CREDIT FACILITIES:
In April 1998 the Company privately issued and sold $85,000,000 of
Series B Senior Notes (the "Senior Notes") due in 2008. Interest on the Notes is
payable semi-annually at 10% per annum. In October 1998, the Company completed
an exchange offer for all of the Senior Notes. The terms of the new Senior Notes
are identical in all material respects to the original private issue. The
proceeds from the offering were used to (i) retire existing Henry Company bank
debt, (ii) retire existing Henry Company subordinated shareholder debt, (iii)
acquire Monsey Bakor, (iv) retire a substantial portion of Monsey Bakor's
then-existing bank debt with (v) the remainder providing additional working
capital.
Long-term debt consists of the following at September 30, 1999:
Long-Term debt consists of the following at September 30, 1999:
<TABLE>
<S> <C>
10.0% Series B Senior Notes due 2008.......................... $85,000,000
Various term notes payable to third parties with interest
rates ranging from 6% to 9.25%, maturing from 1999 to 2013... 631,293
-----------
85,631,293
Less, current maturities...................................... 260,954
-----------
$85,370,339
-----------
-----------
</TABLE>
Page 10
<PAGE>
The Company's Senior Notes are guaranteed by all of the Company's
United States subsidiaries (the "Subsidiary Guarantors"). The guarantee
obligations of the Subsidiary Guarantors are full, unconditional and joint and
several. See Note 9 for the Guarantor Condensed Consolidating Financial
Statements.
The Company has a $35 million credit facility, $25 million of which is
available in accordance with a borrowing base and to be used for working capital
needs and $10 million of which may be used for capital expenditures. The credit
facility expires on April 22, 2003 with interest charged at prime or LIBOR plus
2.25% (8.25% at September 30, 1999). At September 30, 1999, $2,112,686 was
outstanding under the credit facility. At December 31, 1998, there were no
amounts outstanding under the credit facility.
The Company also has a Canadian bank line of credit, subject to annual
confirmation, aggregating $4,440,000 with interest charged at prime plus 0.5%
(7.75% at December 31, 1998 and 6.25% at September 30, 1999). At December 31,
1998 and September 30, 1999, there was $1,657,500 and $2,881,860, respectively,
outstanding under this Canadian line.
7. INCOME TAXES:
Concurrent with the Acquisition and the Offering, the Company converted
its tax status from an S Corporation under Section 1361 of the Internal Revenue
Code to a C Corporation status. Since conversion, the Company has been required
to pay federal and state corporate income taxes on its taxable income.
Upon conversion to C status the Company recognized deferred taxes
amounting to $882,437 as a deferred tax benefit in 1998 in accordance with the
liability method of accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
The significant components of the provision (benefit) for income
taxes for the nine months ended September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999
------------------
<S> <C>
Current:
Federal.......................... ($405,215)
State............................ (71,508)
Foreign.......................... 544,098
-----------
67,375
-----------
Deferred:
Federal.......................... (297,894)
State............................ (81,483)
Foreign.......................... --
-----------
(379,377)
-----------
(312,002)
-----------
-----------
</TABLE>
Page 11
<PAGE>
The Company's effective tax rate differs from the federal statutory tax
rate for the nine months ended September 30, 1999 as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
1999
------------
<S> <C>
Provision (benefit) for income taxes at the federal statutory tax rate..... (34.0)%
State taxes, net of federal tax benefit.................................... (6.0)
Foreign income taxes in excess of U.S. statutory rate...................... 15.2
Nondeductible intangibles.................................................. 14.7
Other, net................................................................. 1.4
-----
(8.7)%
-----
-----
</TABLE>
Income (Loss) before income taxes of the Company's Canadian operations
was $1,083,430 and ($273,794) for the year ended December 31, 1998 and the nine
month period ended September 30, 1999 respectively.
8. RELATED PARTY TRANSACTIONS:
During the three month period ended September 30, 1999, the Company has
charged the Henry Wine Group approximately $581,000 for reimbursement of
administrative services provided by the Company pursuant to an administrative
services agreement that was effective as of January 1, 1998.
9. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS:
In connection with the Offering in April 1998, the Company's United
States subsidiaries, Monsey Products Co., Kimberton Enterprises, Inc. and Monsey
Products of Arizona LLC (the "Guarantor Subsidiaries") are unconditional
guarantors, on a full, joint and several basis, of the Company's debt
represented by the Senior Notes. The Company's Canadian subsidiaries are not
guarantors of the Senior Notes. Effective December 31, 1998, the Company merged
Monsey Products Co. and Monsey Products of Arizona LLC into Henry Company; as a
result, Kimberton Enterprises Inc. is the only Guarantor.
Condensed consolidating financial statements of the Guarantors, from
the date of the Acquisition, are combined with the Henry Company and are
presented below. Separate financial statements of the Guarantor Subsidiaries are
not presented and the Guarantor Subsidiaries are not filing separate reports
under the Exchange Act because the Subsidiary Guarantors have fully and
unconditionally guaranteed the Senior Notes on a joint and several basis under
the guarantees. Company management has determined that separate financial
statements and other disclosures concerning the Guarantor Subsidiaries are not
material to investors.
Page 12
<PAGE>
9. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS: (CONTINUED)
The following summarizes the Condensed Consolidating Financial
Statements of the Subsidiary Guarantors subsequent to the date of the Company's
acquisition of Monsey Bakor:
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Henry Company
(Parent
Corporation) Consolidated
and Guarantor Nonguarantor Elimination Consolidated
Subsidiaries Subsidiaries Entries Total
--------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents... $ 1,032,492 $ 1,845 -- $ 1,034,337
Accounts receivable, net.... 29,203,951 4,673,417 -- 33,877,368
Inventories................. 13,681,850 3,601,531 -- 17,283,381
Receivables from affiliate.. 6,014,190 1,624,881 $ (4,717,241) 2,921,830
Notes receivable............ 530,654 -- -- 530,654
Prepaid expenses and
other current assets....... 3,459,563 153,680 -- 3,613,243
Income tax receivable....... 692,910 (279,313) -- 413,597
------------ ------------ ------------ ------------
Total current assets.... 54,615,610 9,776,041 (4,717,241) 59,674,410
Property and equipment, net... 30,545,971 6,066,108 -- 36,612,079
Investment in subsidiaries.... 8,685,319 -- (8,564,729) 120,590
Cash surrender value
of life insurance, net...... 4,078,721 -- -- 4,078,721
Intangibles, net.............. 27,673,975 2,629,378 -- 30,303,353
Notes receivable.............. 359,648 -- -- 359,648
Note receivable from
affiliate................... 1,863,072 -- -- 1,863,072
Other......................... 138,673 21,949 -- 160,622
------------ ----------- ------------ ------------
Total assets.................. $127,960,989 $18,493,476 $(13,281,970) $133,172,495
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable............ $ 11,393,865 $ 2,352,062 -- $ 13,745,927
Accrued expenses............ 10,874,910 1,054,288 -- 11,929,198
Intercompany payables....... 1,624,881 3,092,360 $ (4,717,241) --
Notes payable, current
portion.................... 161,094 99,860 -- 260,954
Borrowings under lines
of credit.................. 2,112,686 2,881,860 -- 4,994,546
------------ ----------- ------------ ------------
Total current liabilities. 26,167,436 9,480,430 (4,717,241) 30,930,625
Notes payable................. 370,339 -- -- 370,339
Environmental reserve......... 3,377,566 -- -- 3,377,566
Deferred income taxes......... 3,576,864 1,737,248 -- 5,314,112
Deferred warranty revenue..... 2,482,988 -- -- 2,482,988
Deferred compensation......... 1,053,021 -- -- 1,053,021
Series B Senior Notes......... 85,000,000 -- -- 85,000,000
------------ ----------- ------------ ------------
Total liabilities......... 122,028,214 11,217,678 (4,717,241) 128,528,651
Redeemable convertible
preferred stock.............. 1,727,876 -- -- 1,727,876
Common stock................. 4,691,080 7,194,402 (7,194,402) 4,691,080
Additional paid-in
capital.................... 2,555,865 -- -- 2,555,865
Cumulative translation
adjustment................. -- (1,059,039) 588,000 (471,039)
Accumulated (deficit)
retained earnings.......... (3,042,046) 1,140,435 (1,958,327) (3,859,938)
------------ ----------- ------------ ------------
Total shareholders'
equity.................. 4,204,899 7,275,798 (8,564,729) 2,915,968
------------ ----------- ------------ ------------
Total liabilities and
shareholders' deficit... $127,960,989 $18,493,476 $(13,281,970) $133,172,495
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>
Page 13
<PAGE>
9. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS: (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Henry Company
(Parent
Corporation) Consolidated
And Guarantor Nonguarantor Elimination Consolidated
Subsidiaries Subsidiaries Entries Total
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales............................. $120,619,419 $22,208,566 $(5,338,741) $137,489,244
Cost of sales......................... 84,830,286 16,406,413 (5,433,097) 95,803,602
------------ ------------ ------------ ------------
Gross profit.................... 35,789,133 5,802,153 94,356 41,685,642
Operating expenses:
Selling, general and
administrative.................. 29,996,639 5,857,484 94,356 35,948,479
Amortization of intangibles........ 2,596,327 87,894 -- 2,684,221
------------ ------------ ------------ ------------
Operating income (loss)......... 3,196,167 (143,225) -- 3,052,942
Other expense (income):
Interest expense................... 6,659,165 130,569 -- 6,789,734
Interest and other income, net..... (155,979) -- -- (155,979)
------------ ------------ ------------ ------------
Income (loss) before
provision (benefit) for
income taxes.................. (3,307,019) (273,794) -- (3,580,813)
Provision (benefit) for income taxes.. (856,100) 544,098 -- (312,002)
------------ ------------ ------------ ------------
Net income (loss)................. ($2,450,919) ($817,892) -- ($3,268,811)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
9. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS: (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Henry Company
(Parent
Corporation) Consolidated
And Guarantor Nonguarantor Elimination Consolidated
Subsidiaries Subsidiaries Entries Total
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net cash used in operating
activities......................... ($6,951,816) ($1,520,820) -- ($8,472,636)
------------ ---------- ------------ ------------
Cash flows from investing activities:
Capital expenditures............... (2,457,890) (410,793) -- (2,868,683)
Proceeds from the disposal of
property and equipment.......... -- 1,625 -- 1.625
Acquisition of business, net of
cash acquired................... (2,613,931) -- -- (2,613,931)
Investment in affiliate............ (25,756) -- -- (25,756)
------------ ---------- ------------ ------------
Net cash used in investing
activities.................... (5,097,577) (409,168) -- (5,506,745)
------------ ---------- ------------ ------------
Cash flows from financing
activities:
Net borrowings under
line-of-credit agreements...... 1,985,686 1,224,360 -- 3,210,046
Repayments under notes payable
agreements..................... (275,252) (134,465) -- (409,717)
Borrowings under notes payable
agreements.................... 67,871 -- -- 67,871
------------ ---------- ------------ ------------
Net cash provided by
financing activities........ 1,778,305 1,089,895 -- 2,868,200
------------ ---------- ------------ ------------
Effect of changes in
exchange rate on cash and
cash equivalents............ -- 122,842 -- 122,842
------------ ---------- ------------ ------------
Net decrease in cash and
cash equivalents............ (10,271,088) (717,251) -- (10,988,339)
Cash and cash equivalents,
beginning of period.............. 11,303,580 719,096 -- 12,022,676
------------ ---------- ------------ ------------
Cash and cash equivalents,
end of period.................... $ 1,032,492 $ 1,845 -- $ 1,034,337
------------ ---------- ------------ ------------
------------ ---------- ------------ ------------
</TABLE>
10. SUBSEQUENT EVENT:
On October 5, 1999, the Company purchased $3,600,000 of Henry
Company Senior Notes. The Senior Notes will be held by the Company for
investment purposes.
Page 14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information
management believes to be relevant to understanding the financial condition
and results of operations of the Company. This discussion should be read in
conjunction with the Company's Quarterly Report on Form 10-Q for the period
ended September 30, 1999, of which this commentary is a part, the unaudited
condensed consolidated financial statements and the related notes thereto.
GENERAL The Company manages its business through two reportable
segments or primary business units with separate management teams,
infrastructures, marketing strategies and customers. The Company's reportable
segments are: the Henry Coatings Division, which develops, manufactures and
markets roof and driveway coatings and paving products, industrial emulsions,
air barriers, and specialty products; and the Resin Technology Division, which
develops, manufactures and sells polyurethane foam for roofing and commercial
construction. The Company evaluates the performance of its operating segments
based on net sales, gross profit and operating income. Intersegment sales and
transfers are not significant.
Summarized financial information concerning the Company's reportable
segments is shown below.
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
----------------------------------
Henry Resin
Coatings Technology
Division Division Total
--------- ---------- --------
<S> <C> <C> <C>
Net sales 123,855,532 $13,633,712 $137,489,244
Gross profit 39,304,624 2,381,018 41,685,642
Operating income (Loss) 2,322,635 730,307 3,052,942
Depreciation and amortization 5,169,936 179,877 5,349,813
Total assets 119,761,319 13,411,176 133,172,495
Capital expenditures 2,740,821 127,862 2,868,683
</TABLE>
The Company is domiciled in the United States with foreign operations
based in Canada which were acquired in April 1998. Prior to the April 1998
acquisition of Monsey Bakor, the Company had no foreign operations. Summarized
geographic data related to the Company's operations 1999 are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999
------------------
Net Long-Lived
Sales Assets
<S> <C> <C>
United States................ $115,280,678 $64,780,650
Canada............................. 22,208,566 8,717,435
------------ -----------
Total........................ 137,489,244 73,498,085
------------ -----------
------------ -----------
</TABLE>
Page 15
<PAGE>
BUSINESS ACQUISITION, NOTE OFFERING, AND CHANGE IN TAX STATUS
On April 22, 1998, the Company completed the acquisition of Monsey
Bakor and its subsidiaries (the "Acquisition") which are engaged in the
distribution and manufacture of roof coatings, adhesives and membranes, and
waterproofing and air barrier systems for residential and commercial
applications. The cash purchase price was $42.8 million with an additional
$3.2 million paid at closing to certain selling shareholders of Monsey Bakor
for noncompetition agreements. The Acquisition was accounted for using the
purchase method of accounting.
Concurrent with the Acquisition, the Company conducted a senior note
offering (the "Offering") in the aggregate principal amount of $85.0 million,
and converted it's tax status from an S Corporation to a C Corporation. Since
the conversion, the Company has been required to pay federal and state
corporate income taxes on its taxable income.
The Company has received a covenant waiver from its revolving credit
facility lender for the first three quarters of 1999. New bank covenants have
been accepted and agreed to by the Company and its revolving credit facility
lender. The Company expects to make the fourth quarter covenant.
RESULTS OF OPERATIONS
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF HENRY COMPANY
Consolidated Statements of Operations Data:
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
($ in millions) ($ in millions)
----------------------------------------- -----------------------------------------
1998 % of sales 1999 % of sales 1998 % of sales 1999 % of sales
----------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 56.8 100.0% $ 54.8 100.0% $108.9 100.0% $137.5 100.0%
Cost of sales 39.1 68.8% 36.6 66.8% 75.1 69.0% 95.8 69.7%
Gross Profit 17.7 31.2% 18.2 33.2% 33.8 31.0% 41.7 30.3%
Operating expenses:
Selling, general
And administrative 11.6 20.4% 13.4 24.5% 24.3 22.3% 36.0 26.2%
Amortization of Intangibles 0.8 1.4% 0.9 1.6% 1.4 1.3% 2.7 2.0%
----------------------------------------- -----------------------------------------
Operating income 5.3 9.3% 3.9 7.1% 8.1 7.4% 3.0 2.2%
----------------------------------------- -----------------------------------------
Interest expense 2.2 3.9% 2.3 4.2% 4.3 3.9% 6.8 4.9%
Interest and other (0.1) (0.2%) (0.1) (0.2)% (0.2) (0.2)% (0.2) (0.1)%
income
----------------------------------------- -----------------------------------------
Income (loss) before provision
(benefit) for taxes 3.2 5.6% 1.7 3.1% 4.0 3.7% (3.6) (2.6%)
Provision (benefit) for taxes 1.6 2.8% 1.1 2.0% 1.0 0.9% (0.3) (0.2%)
----------------------------------------- -----------------------------------------
Net income (loss) $ 1.6 2.8% $ 0.6 1.1% $ 3.0 2.8% ($ 3.3) (2.4%)
----------------------------------------- -----------------------------------------
----------------------------------------- -----------------------------------------
</TABLE>
Page 16
<PAGE>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
NET SALES. The Company's net sales decreased to $54.8 million for the three
months ended September 30, 1999, a decrease of $2.0 million, or 3.5%, from
$56.8 million for the three months ended September 30, 1998. The decrease was
primarily due to rainfall amounts that were below seasonal averages over the
prior nine months in the Company's major markets.
GROSS PROFIT. The Company's gross profit increased to $18.2 million for the
three months ended September 30, 1999, an increase of $0.5 million, or 2.8%,
from $17.7 million for the three months ended September 30, 1998. Gross
profit increased as a percentage of net sales to 33.2% for the three months
ended September 30, 1999 from 31.2% for the three months ended September 30,
1998. The percentage increase was primarily attributable to lower raw
material costs and a shift in sales mix towards the Company's higher margin
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of net sales increased to 24.5% for
the three months ended September 30, 1999 from 20.4% for the three months
ended September 30, 1998. Selling, general and administrative expenses
increased to $13.4 million for the three months ended September 30, 1999, an
increase of $1.8 million, or 15.5%, from $11.6 million for the three months
ended September 30, 1998. The increase of $1.8 million was primarily due to
an increase of selling, general and administrative expenses associated with
the Company's continued nationwide expansion in the retail and roofing
systems segments of the business, expenses related to the continued
integration of the Monsey Bakor operations and a bad debt reserve created as
a result of the bankruptcy of a major customer.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles amounted to $0.9
million for the three months ended September 30, 1999. The increase in
amortization expense was primarily due to the amortization of intangible
assets created as a result of the acquisition of Monsey Bakor.
OPERATING INCOME (LOSS). Operating income decreased to $3.9 million for the
three months ended September 30, 1999, a decrease of $1.4 million, or 26.4%,
from income of $5.3 million for the three months ended September 30, 1998.
Operating income as a percentage of net sales decreased to 7.1% for the three
months ended September 30, 1999, from income of 9.3% as a percentage of net
sales for the three months ended September 30, 1998. The decrease of $1.4
million was primarily attributable to lower sales volume, increased selling
general and administrative costs, and amortization of intangible assets as a
result of the acquisition of Monsey Bakor.
INTEREST EXPENSE. Interest expense increased to $2.3 million for the three
months ended September 30, 1999, an increase of $0.1 million, or 4.5%, from
$2.2 million for the three months ended September 30, 1998, primarily as a
result of the interest incurred on the Senior Notes used to finance the
Monsey Bakor acquisition.
PROVISION FOR INCOME TAXES. The provision for income taxes of $1.1 million
for the three months ended September 30, 1999 is primarily related to the
Company's operating profit for the three months ended September 30, 1999.
Page 17
<PAGE>
NET INCOME. The net income was $0.6 million for the three months ended
September 30, 1999, a decrease of $1.0 million, or 62.5% from the net income
of $1.6 million for the three months ended September 30, 1998. The decrease
of $1.0 million was primarily due to increased selling general and
administrative expense, interest expense incurred to finance the acquisition
of Monsey Bakor and other factors discussed above.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998
NET SALES. The Company's net sales increased to $137.5 million for the nine
months ended September 30, 1999, an increase of $28.6 million, or 26.3%, from
$108.9 million for the nine months ended September 30, 1998. The increase was
primarily due to the acquisition of Monsey Bakor which occurred April 22,
1998.
GROSS PROFIT. The Company's gross profit increased to $41.7 million for the
nine months ended September 30, 1999, an increase of $7.9 million, or 23.4%,
from $33.8 million for the nine months ended September 30, 1998. Gross profit
decreased as a percentage of net sales to 30.3% for the nine months ended
September 30, 1999 from 31.0% for the nine months ended September 30, 1998.
The percentage decrease was attributable to lower sales of certain higher
margin products as a result of mild winters in both the western and eastern
parts of the United States.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of revenue increased to 26.2% for the
nine months ended September 30, 1999 from 22.3% for the nine months ended
September 30, 1998. Selling, general and administrative expenses increased to
$36.0 million for the nine months ended September 30, 1999, an increase of
$11.7 million, or 48.1%, from $24.3 million for the nine months ended
September 30, 1998. The increase of $11.7 million was primarily due to the
acquisition of Monsey Bakor and an increase of selling general and
administrative expenses associated with the Company's continued nationwide
expansion in the retail and roofing systems segments of the business and
expense related to continued integration of the Monsey Bakor operations.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles amounted to $2.7
million for the nine months ended June 30, 1999. The increase in amortization
expense was primarily due to the amortization of intangible assets created as
a result of the acquisition of Monsey Bakor.
OPERATING INCOME. Operating income decreased to $3.0 million for the nine
months ended September 30, 1999, a decrease of $5.1 million, or 63.0%, from
income of $8.1 million for the nine months ended September 30, 1998.
Operating income as a percentage of net sales decreased to 2.2% for the nine
months ended September 30, 1999, from 7.4% as a percentage of net sales
for the nine months ended September 30, 1998. The decrease of $5.1 million
was primarily attributable to increased selling general and administrative
costs, amortization of intangible assets as a result of the acquisition of
Monsey Bakor and lower sales of higher margined products sold primarily
during periods of wet weather.
INTEREST EXPENSE. Interest expense increased to $6.8 million for the nine
months ended September 30, 1999, an increase of $2.5 million, or 58.1%, from
$4.3 million for the nine months ended September 30, 1998. Primarily as a
result of the interest incurred on the Senior Notes used to finance the
Monsey Bakor acquisition.
PROVISION (BENEFIT) FOR INCOME TAXES. The benefit for income taxes of $0.3
million for the nine months ended September 30, 1999 is primarily related to
the tax benefit associated with the Company's loss before income taxes for
the nine months ended September 30, 1999, net of the effects of the
nondeductible intangible amortization.
Page 18
<PAGE>
NET INCOME (LOSS). The net loss was $3.3 million for the nine months ended
September 30, 1999, a decrease of $6.3 million, or 210.0% from the income of
$3.0 million for the nine months ended September 30, 1998. The decrease of
$6.3 million was primarily due to increased selling general and
administrative expense, interest expense incurred to finance the acquisition
of Monsey Bakor and other factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's historical requirements for capital have been
primarily for working capital, capital expenditures and acquisitions. Henry
Company's primary sources of capital to finance such needs have been cash
flow from operations and borrowings under bank credit facilities.
Concurrently with the consummation of the Offering and the acquisition of
Monsey Baker on April 22, 1998, the Company entered into a new bank credit
facility (the "Credit Facility") which provides for $25.0 million which is
available in accordance with a borrowing base and is to be used for working
capital, and $10.0 million which may be used for capital expenditures. As of
September 30, 1999 outstanding balances were $2.1 million for the revolving
line of credit facility and no amounts were outstanding under for the capital
expenditure facility. The Company also had $2.9 million outstanding under its
Canadian line of credit at September 30, 1999.
On October 5, 1999 the Company purchased $3,600,000 of Henry Company Senior
Notes on the open market. The Senior Notes are being held by the Company for
investment purposes.
CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1998
The Company's cash flows from operations were ($8.5) million and
$3.8 million for the nine months ended September 30, 1999 and 1998,
respectively. The decrease from September 30, 1998 to September 30, 1999 of
$12.3 million was primarily attributable to increased inventories and
receivables. Cash flows used in investing activities were ($5.5) million and
($45.0) million for the nine months ended September 30, 1999 and 1998,
respectively. The decrease in cash used in investing activities was due
primarily to the acquisition of Monsey Bakor which occurred on April 22,
1998. Cash from financing activities during the nine months ended September
30, 1999 and the nine months ended September 30, 1998 was $2.9 million and
$53.5 million, respectively. The decrease of $50.6 million from the nine
months ended September 30, 1998 to the nine months ended September 30, 1999
was primarily due to proceeds from the issuance of the Senior Notes net of
other debt principal repayments.
The Company believes that available cash and cash equivalents, cash
generated from operations and available borrowings under the Credit Facility,
will be sufficient to finance working capital, capital expenditures,
acquisitions, and scheduled principal and interest payments for the next
twelve months. There can be no assurance, however, that such resources will
be sufficient to meet the Company's anticipated working capital, capital
expenditure and acquisition financing requirements or that the Company will
not require additional financing within this time frame.
Page 19
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position ("SOP") No. 98-1,
"Software for Internal Use", which provides guidance on accounting for the
cost of computer software developed or obtained for internal use. SOP No.
98-1 is effective for financial statements for fiscal years beginning after
December 15, 1998. The Company adopted the provisions of SOP No. 98-1 with no
material impact on the Company's financial position, results of operations,
or cash flows.
In April 1998, the AICPA issued SOP No. 98-5 "Reporting on the Costs
of Start-up Activities". SOP No. 98-5, which is effective for fiscal years
beginning December 15, 1998, provides guidance on financial reporting of
start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. As the Company
has expensed these costs historically, the adoption of this standard did not
have a significant impact on the Company's financial position, results of
operations, or cash flows.
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivatives and Hedging Activities", which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The Company
does not expect the adoption of this statement to have a significant impact
on the Company's financial position, results of operations, or cash flows.
YEAR 2000 MODIFICATIONS
The Company is not highly dependent on its internal computer
systems, and does not generally interact electronically with its customers or
suppliers. The Company has been and is currently assessing its computer
systems and embedded-technology equipment in order to evaluate what, if any,
corrections or modifications may be necessary to respond to potential Year
2000 computer issues. The Company currently expects to complete any necessary
corrections or modifications by December 1, 1999. The historical costs of
this assessment and correction have been less than $10,000, and future
assessment and correction (including replacement) costs are currently
estimated to be less than $50,000. The Company relies upon computer systems
primarily to invoice its customers, some of whom are billed on an Electronic
Data Interchange ("EDI") system. The most reasonably likely risk to the
Company for a Year 2000 failure is believed to involve an interruption of
this electronic invoicing system. The Company is prepared to invoice its
customers manually to respond to such an interruption.
Page 20
<PAGE>
SAFE HARBOR STATEMENT
Investors are cautioned that certain statements contained in this
document, as well as some statements by the Company in periodic press
releases and some oral statements by Company officials to ratings agencies
and bondholders during presentations about the Company are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995 (the "Act"). Statements which are predictive in nature, which
depend upon or refer to future events or conditions, or which include words
such as "expects," "anticipates," "intends," "plans," "believes,"
"estimates," "hopes," and similar expressions constitute forward-looking
statements. In addition, any statements concerning future financial
performance (including future revenues, earnings or growth rates), ongoing
business strategies or prospects, and possible future Company actions, which
may be provided by management are also forward-looking statements as defined
by the Act. Forward-looking statements are based on current expectations and
projections about future events and are subject to risks, uncertainties, and
assumptions about the Company, economic and market factors and the
construction materials industry, among other things. These statements are not
guaranties of future performance, and the Company has no specific intention
to update these statements.
Actual events and results may differ materially from those expressed
or forecasted in the forward-looking statements made by the Company or
Company officials due to a number of factors. The principal important risk
factors that could cause the Company's actual performance and future events
and actions to differ materially from such forward-looking statements
include, but are not limited to, changes in general economic conditions
either nationally or in regions where the Company operates or may commence
operations, employment growth or unemployment rates, fluctuations in asphalt
or other raw material costs, labor costs, the impact of weather, product
liability and asbestos litigation, reliance on key personnel, environmental
matters, costs and effects of unanticipated legal or administrative
proceedings or governmental regulation and capital or credit market
conditions affecting the Company's cost of capital; as well as competition,
and unanticipated delays in the Company's operations. See the Company's
Amendment No. 2 to Registration Statement on Form S-4 filed September 11,
1998 (Registration No. 333-59485) for a further discussion of risks and
uncertainties applicable to the Company's business.
The Company undertakes no obligation to update any forward-looking
statements in this Report on Form 10-Q or elsewhere.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk exposures that
affect the quantitative and qualitative disclosures presented in the notes to
the Company's December 31, 1998 audited financial statements and management's
discussion and analysis included in the Company's Annual Report on Form 10-K.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Election of Directors
The board of directors, consisting of Messrs. Warner W. Henry,
Terrill M. Gloege, Frederick H. Muhs, Paul H. Beemer, Richard B. Gordinier,
Jeffrey A. Wahba, Donald M. Ford, Joseph A. Mooney, Jr. and Mrs. Carol F.
Henry, was re-elected in its entirety to serve as directors until the next
annual meeting of Shareholders or until otherwise replaced. One hundred
percent (100%) of the votes cast by the Shareholders were voted in favor of
the reelection of each director.
Page 21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The registrant has filed herewith the following exhibits:
27 Financial Data Schedule for the nine month period ended September 30,
1999 (filed in electronic form only).
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarterly period
ended September 30, 1999:
None
Page 22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: November 15, 1999 HENRY COMPANY
/s/ JEFFREY A. WAHBA
------------------------------------
By: Jeffrey A. Wahba
Its: Vice President, Secretary
and Chief Financial Officer
Page 23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000046916
<NAME> HENRY CO.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,034,337
<SECURITIES> 0
<RECEIVABLES> 34,990,876
<ALLOWANCES> 1,113,508
<INVENTORY> 17,283,381
<CURRENT-ASSETS> 59,674,410
<PP&E> 55,935,078
<DEPRECIATION> 19,322,999
<TOTAL-ASSETS> 133,172,495
<CURRENT-LIABILITIES> 30,930,625
<BONDS> 85,370,339
0
1,727,876
<COMMON> 4,691,080
<OTHER-SE> (1,775,112)
<TOTAL-LIABILITY-AND-EQUITY> 133,172,495
<SALES> 137,489,244
<TOTAL-REVENUES> 143,300,964
<CGS> 95,803,602
<TOTAL-COSTS> 131,752,081
<OTHER-EXPENSES> 2,684,221
<LOSS-PROVISION> 399,280
<INTEREST-EXPENSE> 6,789,734
<INCOME-PRETAX> (3,580,813)
<INCOME-TAX> (312,002)
<INCOME-CONTINUING> 3,052,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,268,811)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
