<PAGE>
HENRY CO 10-Q
- -------------------------------------------------------------------------------
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 June 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 August 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.
- -------------------------------------------------------------------------------
INTERNET FINANCIAL NETWORK HENRY CO 10-Q 05/17/1999 PAGE 1
<PAGE>
HENRY COMPANY
FORM 10-Q
TABLE OF CONTENTS
JUNE 30, 1999
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets as of December 31, 1998 and June 30, 1999
(Unaudited)......................................................................................... 3
Consolidated Statements of Operations for the three months and six months ended June 30, 1998 and
1999 (Unaudited).................................................................................... 4
Consolidated Statement of Changes in Shareholders' Equity for the six months ended June 30, 1999
(Unaudited)......................................................................................... 5
Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and June 30, 1999
(Unaudited)......................................................................................... 6
Notes to Consolidated Financial Statements.......................................................... 7
ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................................... 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................... 22
PART II. OTHER INFORMATION.......................................................................... 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................... 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................................... 24
SIGNATURES........................................................................................... 24
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HENRY COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents ......................................... $ 12,022,676 $ 372,587
Trade accounts receivable, net of allowance for
doubtful accounts of $766,633 and $798,287 for
1998 and 1999, respectively .................................... 19,798,709 31,511,227
Inventories ....................................................... 14,787,345 17,765,424
Receivables from affiliate ........................................ 2,853,677 2,826,102
Notes receivable .................................................. 498,059 526,327
Prepaid expenses and other current assets ......................... 2,449,184 2,612,281
Income tax receivable ............................................. -- 1,799,982
------------- -------------
Total current assets ......................................... 52,409,650 57,413,930
Property and equipment, net .......................................... 35,370,224 37,121,007
Cash surrender value of life insurance, net .......................... 3,469,017 3,983,385
Intangibles, net ..................................................... 31,777,329 31,089,272
Notes receivable ..................................................... 376,308 374,737
Note receivable from affiliate ....................................... 1,863,072 1,863,072
Other ................................................................ 248,200 278,514
------------- -------------
Total assets ................................................. $ 125,513,800 $ 132,123,917
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable .................................................. $ 9,640,787 $ 14,754,751
Accrued expenses .................................................. 8,298,365 10,638,212
Income taxes payable .............................................. 103,094 469,657
Notes payable, current portion .................................... 330,224 349,162
Borrowings under lines of credit .................................. 1,657,500 4,231,280
------------- -------------
Total current liabilities .................................... 20,029,970 30,443,062
Notes payable ........................................................ 642,915 375,349
Environmental reserve ................................................ 3,432,371 3,391,877
Deferred income taxes ................................................ 5,711,071 5,464,297
Deferred warranty revenue ............................................ 2,190,938 2,467,746
Deferred compensation ................................................ 1,015,565 1,037,553
Series B Senior Notes ................................................ 85,000,000 85,000,000
------------- -------------
Total liabilities ............................................ 118,022,830 128,179,884
Commitments and contingencies
Redeemable convertible preferred stock ............................... 1,660,874 1,691,923
Shareholders' equity:
Common stock .................................................... 4,691,080 4,691,080
Additional paid-in capital ...................................... 2,622,867 2,591,818
Cumulative translation adjustment ............................... (892,724) (578,346)
Accumulated deficit ............................................. (591,127) (4,452,442)
------------- -------------
Total shareholders' equity ................................... 5,830,096 2,252,110
------------- -------------
Total liabilities and shareholders' equity ................... $ 125,513,800 $ 132,123,917
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HENRY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ........................................ $ 37,174,091 $ 47,122,481 $ 52,107,603 $ 82,693,177
Cost of sales .................................... 26,191,504 33,666,844 36,007,304 59,182,249
------------ ------------ ------------ ------------
Gross profit ............................... 10,982,587 13,455,637 16,100,299 23,510,928
Operating expenses:
Selling, general and administrative ........ 8,411,512 11,828,854 12,604,961 22,630,008
Amortization of intangibles ................ 595,373 897,670 622,213 1,777,761
------------ ------------ ------------ ------------
Operating income (loss) .................... 1,975,702 729,113 2,873,125 (896,841)
Other expense (income):
Interest expense ........................... 1,776,867 2,340,979 2,099,036 4,485,604
Interest and other income, net ............. (100,920) (52,003) (122,100) (101,812)
------------ ------------ ------------ ------------
Income (loss) before provision (benefit) for
income taxes .............................. 299,755 (1,559,863) 896,189 (5,280,633)
Provision (benefit) for income taxes ............. (522,002) (293,015) (522,002) (1,419,318)
------------ ------------ ------------ ------------
Net income (loss) .......................... $ 821,757 ($ 1,266,848) $ 1,418,191 ($ 3,861,315)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HENRY COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
AS OF JUNE 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 .... -- -- (31,049) -- -- (31,049)
Comprehensive income (loss):
Net loss ......................... -- -- -- -- (3,861,315) (3,861,315)
Other comprehensive income:
Change in cumulative
translation adjustment ......... -- -- -- 314,378 -- 314,378
Total comprehensive income (loss) -- -- -- -- -- (3,546,937)
------- ---------- ----------- --------- ----------- -----------
Balance, June 30, 1999 ......... 227,500 $4,691,080 $ 2,591,818 ($578,346) ($4,452,442) $ 2,252,110
------- ---------- ----------- --------- ----------- -----------
------- ---------- ----------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HENRY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,418,194 ($ 3,861,315)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,028,766 1,653,521
Provision for doubtful accounts 141,426 244,852
Deferred income taxes -- (248,174)
Noncompetition and goodwill amortization 595,292 1,949,355
Interest on subordinated shareholder debt 176,506 --
Gain on disposal of property and equipment (17,000) --
Changes in operating assets and liabilities, net of assets acquired:
Accounts receivable (691,912) (11,419,951)
Inventories (1,196,601) (2,590,819)
Receivables from affiliates (310,407) 27,575
Notes receivable 14,628 12,449
Cash surrender value of life insurance (344,259) (207,673)
Other assets (218,744) (134,381)
Income tax receivable -- (1,799,982)
Accounts payable and accrued expenses (506,320) 7,266,831
Deferred warranty revenue 29,516 276,808
Deferred compensation 23,171 21,988
------------ ------------
Net cash provided by (used in) operating activities 142,253 (8,808,916)
------------ ------------
Cash flows from investing activities:
Capital expenditures (753,209) (2,340,304)
Proceeds from the disposal of property and equipment 17,000 --
Acquisition of business, net of cash acquired (43,819,000) (2,613,931)
Investment in affiliate (9,828) (24,336)
------------ ------------
Net cash used in investing activities (44,565,118) (4,978,571)
------------ ------------
Cash flows from financing activities:
Net (repayments) borrowings under line-of-credit agreements (14,160,431) 2,446,780
Repayments under notes payable agreements (11,200,042) (355,548)
Borrowings under notes payable agreements 4,281 106,920
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 53,693,836 2,198,152
------------ ------------
Effect of exchange rate changes on cash and cash equivalents 92,982 (60,754)
------------ ------------
Net increase (decrease) in cash and cash equivalents 9,363,953 (11,650,089)
Cash and cash equivalents, beginning of period 118,857 12,022,676
------------ ------------
Cash and cash equivalents, end of period $ 9,482,810 $ 372,587
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<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 six
months ended June 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, 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>
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 six month
periods ended June 30, 1998, nor is such information indicative of the results
of operations which may occur in the future.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1998 MARCH 31, 1998
(UNAUDITED) (UNAUDITED)
------------- -------------
<S> <C> <C>
Net sales........................... $85,947,603 $ 36,378,512
------------ ------------
------------ ------------
Net loss............................ ($916,312) ($1,602,712)
------------ ------------
------------ ------------
</TABLE>
4. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -------------
<S> <C> <C>
Raw materials............................ $ 7,240,227 $ 9,083,713
Finished goods........................... 7,547,118 8,681,711
---------- -----------
$14,787,345 $17,765,424
---------- -----------
---------- -----------
</TABLE>
<PAGE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -------------
<S> <C> <C>
Buildings..................................... $13,634,579 $14,489,236
Machinery and equipment....................... 23,898,403 24,169,692
Office furniture and equipment................ 3,241,389 4,260,606
Automotive equipment.......................... 1,635,230 1,673,758
Leasehold improvements........................ 3,145,244 3,149,376
Other......................................... 330,695 330,695
----------- -----------
45,885,540 48,073,363
Less, accumulated depreciation and
amortization.............................. 16,338,442 18,306,980
----------- -----------
29,547,098 29,766,383
Land.......................................... 3,298,139 3,514,477
Construction-in-progress...................... 2,524,987 3,840,147
----------- -----------
$35,370,224 $37,121,007
----------- -----------
----------- -----------
</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 June 30, 1999:
Long-Term debt consists of the following at June 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... 724,511
-----------
85,724,511
Less, current maturities...................................... 349,162
-----------
$85,375,349
-----------
-----------
</TABLE>
<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% (8.00% at June 30, 1999). At June 30, 1999, $1,108,340 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 7.25% at June 30, 1999). At December 31, 1998
and June 30, 1999, there was $1,657,500 and $3,122,940, 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 six months ended June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999
------------------
<S> <C>
Current:
Federal.......................... ($1,186,247)
State............................ (209,337)
Foreign.......................... 268,846
-----------
(1,126,738)
-----------
Deferred:
Federal.......................... (229,740)
State............................ (62,840)
Foreign.......................... --
-----------
(292,580)
-----------
($1,419,318)
-----------
-----------
</TABLE>
<PAGE>
The Company's effective tax rate differs from the federal statutory tax
rate for six months ended June 30, 1999 as follows:
<TABLE>
<CAPTION>
Six Months
Ended
June 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............................... 5.1
Nondeductible intangibles........................................................... 9.2
Other, net.......................................................................... (1.2)
------
(26.9%)
------
------
</TABLE>
Income (Loss) before income taxes of the Company's Canadian operations
was $1,083,430 and ($532,286) for the year ended December 31, 1998 and the six
month period ended June 30, 1999 respectively.
8. RELATED PARTY TRANSACTIONS:
During the three month period ended June 30, 1999, the Company has
charged the Henry Wine Group approximately $388,000 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>
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 JUNE 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... $ 370,717 $ 1,870 -- $ 372,587
Accounts receivable, net.... 27,150,925 4,360,302 -- 31,511,227
Inventories................. 13,452,664 4,312,760 -- 17,765,424
Receivables from affiliate.. 5,243,665 1,290,811 ($3,708,374) 2,826,102
Notes receivable............ 526,327 -- -- 526,327
Prepaid expenses and
other current assets....... 2,392,105 220,176 -- 2,612,281
Income tax receivable....... 1,799,982 -- -- 1,799,982
------------ ----------- ------------ ------------
Total current assets.... 50,936,385 10,185,919 (3,708,374) 57,413,930
Property and equipment, net... 30,908,554 6,212,453 -- 37,121,007
Investment in subsidiaries.... 8,683,899 -- (8,564,729) 119,170
Cash surrender value
of life insurance, net...... 3,983,385 -- -- 3,983,385
Intangibles, net.............. 28,395,163 2,694,109 -- 31,089,272
Notes receivable.............. 374,737 -- -- 374,737
Note receivable from
affiliate................... 1,863,072 -- -- 1,863,072
Other......................... 126,927 32,417 -- 159,344
------------ ----------- ------------ ------------
Total assets.................. $125,272,122 $19,124,898 ($12,273,103) $132,123,917
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable............ $ 11,512,992 $ 3,241,759 -- $ 14,754,751
Accrued expenses............ 9,811,303 826,909 -- 10,638,212
Intercompany payables....... 1,290,811 2,417,563 ($3,708,374) --
Income taxes payable........ 88,000 381,657 -- 469,657
Notes payable, current
portion.................... 200,143 149,019 -- 349,162
Borrowings under line
of credit.................. 1,108,340 3,122,940 -- 4,231,280
------------ ----------- ------------ ------------
Total current liabilities. 24,011,589 10,139,847 (3,708,374) 30,443,062
Notes payable................. 375,349 -- -- 375,349
Environmental reserve......... 3,391,877 -- -- 3,391,877
Deferred income taxes......... 3,663,661 1,800,636 -- 5,464,297
Deferred warranty revenue..... 2,467,746 -- -- 2,467,746
Deferred compensation......... 1,037,553 -- -- 1,037,553
Series B Senior Notes......... 85,000,000 -- -- 85,000,000
------------ ----------- ------------ ------------
Total liabilities......... 119,947,775 11,940,483 (3,708,374) 128,179,884
Redeemable convertible
preferred stock.............. 1,691,923 -- -- 1,691,923
Common stock................. 4,691,080 7,194,402 (7,194,402) 4,691,080
Additional paid-in
capital.................... 2,591,818 -- -- 2,591,818
Cumulative translation
adjustment................. -- (1,166,346) 588,000 (578,346)
Accumulated (deficit)
retained earnings.......... (3,650,474) 1,156,359 (1,958,327) (4,452,442)
------------ ----------- ------------ ------------
Total shareholders'
equity.................. 3,632,424 7,184,415 (8,564,729) 2,252,110
------------ ----------- ------------ ------------
Total liabilities and
shareholders' deficit... $125,272,122 $19,124,898 ($12,273,103) $132,123,917
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>
<PAGE>
9. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS: (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 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............................. $72,468,103 $13,416,077 ($3,191,003) $ 82,693,177
Cost of sales......................... 52,642,513 9,793,643 (3,253,907) 59,182,249
------------- ------------ ------------ ------------
Gross profit.................... 19,825,590 3,622,434 62,904 23,510,928
Operating expenses:
Selling, general and
administrative.................. 18,547,421 4,019,683 62,904 22,630,008
Amortization of intangibles........ 1,719,165 58,596 -- 1,777,761
------------- ------------ ------------ ------------
Operating income (loss)......... (440,996) (455,845) -- (896,841)
Other expense (income):
Interest expense................... 4,409,163 76,441 -- 4,485,604
Interest and other income, net..... (101,812) -- -- (101,812)
------------- ------------ ------------ ------------
Income (loss) before
provision (benefit) for
income taxes.................. (4,748,347) (532,286) -- (5,280,633)
Provision (benefit) for income taxes.. (1,689,000) 269,682 -- (1,419,318)
------------- ------------ ------------ ------------
Net income (loss)................. ($3,059,347) ($801,968) -- ($3,861,315)
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
<PAGE>
9. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS: (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 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......................... ($7,164,660) ($1,644,256) -- ($8,808,916)
------------- ---------- ------------ ------------
Cash flows from investing activities:
Capital expenditures............... (1,947,954) (392,350) -- (2,340,304)
Proceeds from the disposal of
property and equipment.......... -- -- -- --
Acquisition of business, net of
cash acquired................... (2,613,931) -- -- (2,613,931)
Investment in affiliate............ (24,336) -- -- (24,336)
------------- ---------- ------------ ------------
Net cash used in investing
activities.................... (4,586,221) (392,350) -- (4,978,571)
------------- ---------- ------------ ------------
Cash flows from financing
activities:
Net borrowings under
line-of-credit agreements...... 981,340 1,465,440 -- 2,446,780
Repayments under notes payable
agreements..................... (270,242) (85,306) -- (355,548)
Borrowings under notes payable
agreements.................... 106,920 -- -- 106,920
------------- ---------- ------------ ------------
Net cash provided by
financing activities........ 818,018 1,380,134 -- 2,198,152
------------- ---------- ------------ ------------
Effect of changes in
exchange rate on cash and
cash equivalents............ -- (60,754) -- (60,754)
------------- ---------- ------------ ------------
Net decrease in cash and
cash equivalents............ (10,932,863) (717,226) -- (11,650,089)
Cash and cash equivalents,
beginning of period.............. 11,303,580 719,096 -- 12,022,676
------------- ---------- ------------ ------------
Cash and cash equivalents,
end of period.................... $ 370,717 $ 1,870 -- $372,587
------------- ---------- ------------ ------------
------------- ---------- ------------ ------------
</TABLE>
<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 June 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>
Six Months Ended June 30, 1999
---------------------------------------------
Henry Resin
Coatings Technology
Division Division Total
------------ ----------- ------------
<S> <C> <C> <C>
Net sales $ 74,525,048 $ 8,168,129 $ 82,693,177
Gross profit 22,076,552 1,434,376 23,510,928
Operating income (Loss) (962,450) 65,609 (896,841)
Depreciation and amortization 3,475,993 126,883 3,602,876
Total assets 118,617,654 13,506,263 132,123,917
Capital expenditures 2,209,863 130,441 2,340,304
</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>
Six Months Ended
June 30, 1999
---------------------
Net Long-Lived
Sales Assets
<S> <C> <C>
United States...................... $69,277,100 $65,803,425
Canada............................. 13,416,077 8,906,562
----------- -----------
Total........................ 82,693,177 74,709,987
----------- -----------
----------- -----------
</TABLE>
<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 $85.0 million,
and converted it's tax status from an S Corporation to a C Corporation. Since
the conversion, the Company has been required to pay federal and state corporate
income taxes on its taxable income.
RESULTS OF OPERATIONS
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF HENRY COMPANY
Consolidated Statements of Operations Data:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
($ 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 $ 37.2 100.0% $47.1 100.0% $ 52.1 100.0% $82.7 100.0%
Cost of sales 26.2 70.4% 33.7 71.5% 36.0 69.1% 59.2 71.6%
Gross Profit 11.0 29.6% 13.4 28.5% 16.1 30.9% 23.5 28.4%
Operating expenses:
Selling, general and administrative 8.4 22.6% 11.8 25.1% 12.6 24.2% 22.6 27.3%
Amortization of intangibles 0.6 1.6% 0.9 1.9% 0.6 1.2% 1.8 2.2%
---------------------------------------- -----------------------------------------------
Operating income (Loss) 2.0 5.4% 0.7 1.5% 2.9 5.6% (0.9) (1.1%)
--------------------------------------- -----------------------------------------------
Interest expense 1.8 4.8% 2.3 4.9% 2.1 4.0% 4.5 5.4%
Interest and other income, net (0.1) (0.3%) 0.0 0.0% (0.1) (0.2)% (0.1) (0.1)%
---------------------------------------- -----------------------------------------------
Income (loss) before provision
(benefit) for taxes 0.3 0.8% (1.6) (3.4%) 0.9 1.7% (5.3) (6.4%)
Provision (benefit) for income taxes (0.5) (1.3)% (0.3) (0.6%) (0.5) (1.0)% (1.4) (1.7%)
---------------------------------------- -----------------------------------------------
Net income (loss) $0.8 2.2% ($1.3) (2.8%) $1.4 2.7% ($3.9) (4.7%)
---------------------------------------- ------------------------------------------------
---------------------------------------- -----------------------------------------------
</TABLE>
<PAGE>
FOR THE THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE
30, 1998
NET SALES. The Company's net sales increased to $47.1 million for the three
months ended June 30, 1999, an increase of $9.9 million, or 26.6%, from $37.2
million for the three months ended June 30, 1998. The increase was primarily due
to the acquisition of Monsey Bakor in 1998 with the quarter ended June 30, 1998
including two months of Monsey Bakor sales as compared to a full quarter of
combined operations for the quarter ended June 30, 1999.
GROSS PROFIT. The Company's gross profit increased to $13.4 million for the
three months ended June 30, 1999, an increase of $2.4 million, or 21.8%, from
$11.0 million for the three months ended June 30, 1998. Gross profit
decreased as a percentage of net sales to 28.5% for the three months ended
June 30, 1999 from 29.6% for the three months ended June 30, 1998. The
percentage decrease was largely attributable to the acquisition of Monsey
Bakor with lower gross profit margins and an increase in raw material prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of revenue increased to 25.1% for the
three months ended June 30, 1999 from 22.6% for the three months ended June
30, 1998. Selling, general and administrative expenses increased to $11.8
million for the three months ended June 30, 1999, an increase of $3.4
million, or 40.5%, from $8.4 million for the three months ended June 30,
1998. The increase of $3.4 million was primarily due to the acquisition of
Monsey Bakor. In addition, selling and marketing expenses increased to
support the Company's continued expansion in the retail and professional
roofing segments of the business.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles amounted to $0.9
million for the three 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 (LOSS). Operating income decreased to $0.7 million for the
three months ended June 30, 1999, a decrease of $1.3 million, or 65.0%, from
income of $2.0 million for the three months ended June 30, 1998. Operating
income as a percentage of net sales decreased to 1.5% for the three months
ended June 30, 1999, from income of 5.4% as a percentage of net sales for the
three months ended June 30, 1998. The decrease of $1.3 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 $2.3 million for the three
months ended June 30, 1999, an increase of $0.5 million, or 27.8%, from $1.8
million for the three months ended June 30, 1998, primarily as a result of the
interest incurred on the Senior Notes used to finance the Monsey Bakor
acquisitions.
PROVISION (BENEFIT) FOR INCOME TAXES. The benefit for income taxes of $0.3
million for the three months ended June 30, 1999 is primarily related to the tax
benefit associated with the Company's operating loss for the three months ended
June 30, 1999 net of the effects of the nondeductible intangible amortization.
<PAGE>
NET INCOME (LOSS). The net loss was $1.3 million for the three months ended
June 30, 1999, a decrease of $2.1 million, or 262.5% from the net income of
$0.8 million for the three months ended June 30, 1998. The decrease of $2.1
million was primarily due to interest expense incurred to finance the
acquisition of Monsey Bakor and other factors discussed above.
FOR THE SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1998
NET SALES. The Company's net sales increased to $82.7 million for the six months
ended June 30, 1999, an increase of $30.6 million, or 58.7%, from $52.1 million
for the six months ended June 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 $23.5 million for the
six months ended June 30, 1999, an increase of $7.4 million, or 46.0%, from
$16.1 million for the six months ended June 30, 1998. Gross profit decreased
as a percentage of net sales to 28.4% for the six months ended June 30, 1999
from 30.9% for the six months ended June 30, 1998. The percentage decrease
was attributable to a higher proportion of increased sales of lower margin
products as a result of mild winters in both the western and eastern parts of
the United States and to an increase in raw material prices as well as the
acquisition of Monsey Bakor.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of revenue increased to 27.3% for the
six months ended June 30, 1999 from 24.2% for the six months ended June 30,
1998. Selling, general and administrative expenses increased to $22.6 million
for the six months ended June 30, 1999, an increase of $10.0 million, or
79.4%, from $12.6 million for the six months ended June 30, 1998. The
increase of $10.0 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 expansion in the retail and
professional roofing segments of the business.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles amounted to $1.8
million for the six 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 (LOSS). Operating income decreased to a loss of $0.9 million
for the six months ended June 30, 1999, a decrease of $3.8 million, or
131.0%, from income of $2.9 million for the six months ended June 30, 1998.
Operating income as a percentage of net sales decreased to a negative of 1.1%
for the six months ended June 30, 1999, from income of 5.6% as a percentage
of net sales for the six months ended June 30, 1998. The decrease of $3.8
million was primarily attributable to amortization of intangible assets as a
result of the acquisition of Monsey Bakor, lower sales of higher margin
products sold primarily during periods of wet weather and higher selling and
marketing expenses to support the Company's business expansion.
INTEREST EXPENSE. Interest expense increased to $4.5 million for the six months
ended June 30, 1999, an increase of $2.4 million, or 114.3%, from $2.1 million
for the six months ended June 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 $1.4
million for the six months ended June 30, 1999 is primarily related to the tax
benefit associated with the Company's operating loss for the six months ended
June 30, 1999, net of the effects of the nondeductible intangible amortization.
<PAGE>
NET INCOME (LOSS). The net loss was $3.9 million for the six months ended
June 30, 1999, a decrease of $5.3 million, or 378.6% from the income of $1.4
million for the six months ended June 30, 1998. The decrease of $5.3 million
was primarily due to 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 June 30, 1999 outstanding
balances were $1.1 million for the revolving line of credit facility and no
amounts were outstanding under for the capital expenditure facility. The Company
also had $3.1 million outstanding under its Canadian line of credit at June 30,
1999.
CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1998
The Company's cash flows from operations were ($8.8) million and
$0.1 million for the six months ended June 30, 1999 and 1998, respectively.
The decrease from June 30, 1999 to June 30, 1998 of $8.9 million was
primarily attributable to increased inventories and receivables Cash flows
used in investing activities were ($5.0) million and ($44.6) million for the
six months ended June 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 six months ended June 30, 1999 and the six months ended June 30, 1998 was
$2.2 million and $53.7 million, respectively. The decrease of $51.5 million
from the six months ended June 30, 1998 to the six months ended June 30, 1999
was primarily due to proceeds from the issuance of the Senior Notes net of
debt 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>
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. 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 October 31, 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 $75,000. 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>
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>
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 six month period ended June 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 March 31, 1999:
None
<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: August 16, 1999 HENRY COMPANY
/s/ Jeffrey A. Wahba
------------------------------------
By: JEFFREY A. WAHBA
Its: Vice President, Secretary
and Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 372,587
<SECURITIES> 0
<RECEIVABLES> 32,309,514
<ALLOWANCES> 798,287
<INVENTORY> 17,765,424
<CURRENT-ASSETS> 57,413,930
<PP&E> 55,427,987
<DEPRECIATION> 18,306,980
<TOTAL-ASSETS> 132,123,917
<CURRENT-LIABILITIES> 30,443,062
<BONDS> 85,375,349
0
1,691,923
<COMMON> 4,691,080
<OTHER-SE> (2,438,970)
<TOTAL-LIABILITY-AND-EQUITY> 132,123,917
<SALES> 82,693,177
<TOTAL-REVENUES> 86,951,834
<CGS> 59,182,249
<TOTAL-COSTS> 81,812,257
<OTHER-EXPENSES> 1,777,761
<LOSS-PROVISION> 244,852
<INTEREST-EXPENSE> 4,485,604
<INCOME-PRETAX> (5,280,633)
<INCOME-TAX> (1,419,318)
<INCOME-CONTINUING> (896,841)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,861,315)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
