<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 June 30, 2000
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 14,
2000, 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
JUNE 30, 2000
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1999
and June 30, 2000 (Unaudited)........................................ 3
Consolidated Statements of Operations for the three and six months
ended June 30, 1999 and 2000 (Unaudited)............................. 4
Consolidated Statements of Changes in Shareholders' Equity
for the six months ended June 30, 2000 (Unaudited)................... 5
Consolidated Statements of Cash Flows for the six months ended
June 30, 1999 and June 30, 2000 (Unaudited).......................... 6
Notes to Consolidated Financial Statements............................ 7
ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................... 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.... 19
PART II. OTHER INFORMATION............................................... 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. 19
SIGNATURES................................................................ 20
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HENRY COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ -------------
(Unaudited)
ASSETS:
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................................. $ 685,044 $ 1,348,234
Trade accounts receivable, net of allowance for
doubtful accounts of $1,027,825 and $1,155,242 for
1999 and 2000, respectively............................................................. 21,349,756 33,643,427
Inventories................................................................................ 15,606,752 20,247,620
Receivables from affiliate................................................................. 2,144,212 2,382,746
Notes receivable........................................................................... 516,210 525,489
Prepaid expenses and other current assets.................................................. 2,564,743 1,996,031
Income tax receivable...................................................................... - 1,710,034
------------ ------------
Total current assets.................................................................. 42,866,717 61,853,581
Property and equipment, net................................................................... 36,751,720 35,213,318
Cash surrender value of life insurance, net................................................... 4,340,388 4,598,920
Intangibles, net.............................................................................. 29,401,525 28,065,613
Notes receivable.............................................................................. 354,462 356,056
Note receivable from affiliate................................................................ 1,863,072 1,863,072
Other......................................................................................... 349,326 385,541
------------ ------------
Total assets.......................................................................... $115,927,210 $132,336,101
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable........................................................................... $ 7,662,800 $ 12,672,432
Accrued expenses........................................................................... 8,328,487 9,332,458
Income taxes payable....................................................................... 258,117 63,640
Notes payable, current portion............................................................. 124,994 105,132
Borrowings under lines of credit........................................................... 2,629,837 18,660,396
------------ ------------
Total current liabilities............................................................. 19,004,235 40,834,058
Notes payable................................................................................. 516,214 429,656
Environmental reserve......................................................................... 3,375,025 3,343,444
Deferred income taxes......................................................................... 5,428,817 5,119,520
Deferred warranty revenue..................................................................... 2,563,231 2,605,672
Deferred compensation......................................................................... 1,071,073 1,026,426
Series B Senior Notes......................................................................... 81,400,000 81,400,000
------------ ------------
Total liabilities..................................................................... 113,358,595 134,758,776
Commitments and contingencies
Redeemable convertible preferred stock........................................................ 1,764,594 1,840,386
Shareholders' equity:
Common stock............................................................................. 4,691,080 4,691,080
Additional paid-in capital............................................................... 2,519,147 2,443,355
Cumulative translation adjustment........................................................ (149,083) (375,065)
Accumulated deficit...................................................................... (6,257,123) (11,022,431)
------------ ------------
Total shareholders' equity............................................................ 804,021 (4,263,061)
------------ ------------
Total liabilities and shareholders' equity............................................ $115,927,210 $132,336,101
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
HENRY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales.................................. $47,122,481 $51,540,724 $82,693,177 $93,093,069
Cost of sales.............................. 33,666,844 38,795,828 59,182,249 69,276,099
----------- ----------- ----------- -----------
Gross profit......................... 13,455,637 12,744,896 23,510,928 23,816,970
Operating expenses:
Selling, general and administrative.. 11,828,854 12,778,826 22,630,008 24,180,121
Amortization of intangibles.......... 897,670 789,618 1,777,761 1,582,272
----------- ----------- ----------- -----------
Operating income/(loss).............. 729,113 (823,548) (896,841) (1,945,423)
Other expense (income):
Interest expense..................... 2,230,979 2,504,624 4,485,604 4,716,769
Interest and other income, net....... (52,003) (58,584) (101,812) (114,326)
----------- ----------- ----------- -----------
Loss before benefit for
income taxes........................ (1,559,863) (3,269,588) (5,280,633) (6,547,866)
Benefit for income taxes................... (293,015) (897,391) (1,419,318) (1,782,558)
----------- ----------- ----------- -----------
Net loss............................. ($1,266,848) ($2,372,197) ($3,861,315) ($4,765,308)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
HENRY COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AS OF JUNE 30, 2000
(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, 1999...... 227,500 $4,691,080 $2,519,147 ($149,083) ($6,257,123) $804,021
Accretion on redeemable
convertible preferred stock.. -- -- (75,792) -- -- (75,792)
Comprehensive income (loss):
Net loss..................... -- -- -- -- (4,765,308) (4,765,308)
Other comprehensive
loss:
Change in cumulative
translation adjustment.. -- -- -- (225,982) -- (225,982)
----------
Total comprehensive
loss......................... -- -- -- -- -- (4,991,290)
------- ---------- ---------- --------- ----------- ----------
Balance, June 30, 2000.......... 227,500 $4,691,080 $2,443,355 ($375,065) ($11,022,431) ($4,263,061)
------- ---------- ---------- --------- ------------ ----------
------- ---------- ---------- --------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
HENRY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................... ($3,861,315) ($4,765,308)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................................................... 1,825,115 2,205,565
Provision for doubtful accounts..................................................... 244,852 174,804
Deferred income taxes............................................................... (248,174) (309,297)
Noncompetition and goodwill amortization............................................ 1,777,761 1,582,272
Loss on disposal of property and equipment.......................................... -- 221,045
Changes in operating assets and liabilities, net of assets acquired:
Accounts receivable............................................................... (11,419,951) (12,468,475)
Inventories....................................................................... (2,590,819) (4,640,868)
Receivables from affiliates....................................................... 27,575 (238,534)
Notes receivable.................................................................. 12,449 (10,873)
Cash surrender value of life insurance............................................ (207,673) (258,532)
Other assets...................................................................... (134,381) 524,818
Income tax receivable............................................................. (1,799,982) (1,710,034)
Accounts payable and accrued expenses............................................. 7,266,831 5,787,544
Deferred warranty revenue......................................................... 276,808 42,441
Deferred compensation............................................................. 21,988 (44,647)
---------- -----------
Net cash used in operating activities....................................... (8,808,916) (13,908,079)
---------- -----------
Cash flows from investing activities:
Capital expenditures................................................................... (2,340,304) (1,246,162)
Proceeds from the disposal of property and equipment................................... -- 15,955
Acquisition of business, net of cash acquired.......................................... (2,613,931) --
Investment in affiliate................................................................ (24,336) 4,643
---------- -----------
Net cash used in investing activities....................................... (4,978,571) (1,225,564)
---------- -----------
Cash flows from financing activities:
Net borrowings under line-of-credit agreements......................................... 2,446,780 16,030,559
Repayments under notes payable agreements.............................................. (355,548) (140,911)
Borrowings under notes payable agreements.............................................. 106,920 34,491
---------- -----------
Net cash provided by financing activities.................................. 2,198,152 15,924,139
---------- -----------
Effect of exchange rate changes on cash and cash equivalents.............................. (60,754) (127,306)
---------- -----------
Net increase (decrease) in cash and cash equivalents........................ (11,650,089) 663,190
Cash and cash equivalents, beginning of period............................................ 12,022,676 685,044
---------- -----------
Cash and cash equivalents, end of period.................................................. $372,587 $1,348,234
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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, 1999 as included in the Company's Annual
Report on Form 10-K. Operating results for the six months ended June 30, 2000
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.
2. RECENT ACCOUNTING PRONOUNCEMENTS
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.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," which Provides the SEC's views on applying generally accepted
accounting principles to selected revenue recognition issues. The Company is
presently evaluating the impact, if any, that this may have on the Company's
revenue recognition policy.
3. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ -------------
<S> <C> <C>
Raw materials............................ $ 7,333,325 $10,187,091
Finished goods........................... 8,273,427 10,060,529
---------- -----------
$15,606,752 $20,247,620
---------- -----------
---------- -----------
</TABLE>
7
<PAGE>
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ -------------
<S> <C> <C>
Buildings..................................... $14,621,684 $14,537,227
Machinery and equipment....................... 26,799,922 26,869,589
Office furniture and equipment................ 6,236,473 6,134,050
Automotive equipment.......................... 1,521,456 1,473,006
Leasehold improvements........................ 3,183,658 3,183,658
Other......................................... 454,834 454,834
----------- -----------
52,818,027 52,652,364
Less, accumulated depreciation and
amortization.............................. 20,449,525 22,818,385
----------- -----------
32,368,502 29,833,979
Land.......................................... 3,475,849 3,272,135
Construction-in-progress...................... 907,369 2,107,204
----------- -----------
$36,751,720 $35,213,318
----------- -----------
----------- -----------
</TABLE>
5. LONG-TERM DEBT AND CREDIT FACILITIES:
In 1998, the Company privately issued and sold $85,000,000 of Series B
Senior Notes (the "Senior Notes") due in 2008. Interest on the Senior 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, 2000:
<TABLE>
<S> <C>
10.0% Series B Senior Notes due 2008.......................... $81,400,000
Various term notes payable to third parties with interest
rates ranging from 6% to 9.5%, maturing from 2000 to 2013... 19,195,184
-----------
100,595,184
Less, current maturities...................................... 18,765,528
-----------
$81,829,656
-----------
-----------
</TABLE>
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 8 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% (9.5% at June 30, 2000). At June 30, 2000, $13,793,916
was outstanding under the credit facility.
8
<PAGE>
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% (8.0% at June 30, 2000). At June 30, 2000, $4,866,480 was
outstanding under this Canadian line.
6. INCOME TAXES:
The significant components of the provision (benefit) for income taxes
are as follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
----------------- ------------------
<S> <C> <C>
Current:
Federal.......................... -- ($1,578,400)
State............................ -- (278,500)
Foreign.......................... 681,896 271,971
--------- ------------
681,896 (1,584,929)
--------- ------------
Deferred:
Federal.......................... (207,557) (155,201)
State............................ (170,370) (42,428)
Foreign.......................... -- --
--------- ------------
(377,927) (197,629)
--------- ------------
303,969 ($1,782,558)
--------- ------------
--------- ------------
</TABLE>
The Company's effective tax rate differs from the federal statutory
tax rate for the year ended December 31, 1999 and the six months ended June
30, 2000 as follows:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1999 2000
----------- ------------
<S> <C> <C>
Provision (benefit) for income taxes at the federal statutory tax rate................. (34.0%) (34.0%)
State taxes, net of federal tax benefit................................................ (6.0) (6.0)
Foreign income taxes in excess of U.S. statutory rate.................................. 20.0 4.2
Nondeductible intangibles.............................................................. 26.0 9.7
Nondeductible business expense......................................................... 5.0 --
Other, net............................................................................. (2.0) (1.1)
---- ------
9.0% (27.2%)
---- ------
---- ------
</TABLE>
Income (Loss) before income taxes of the Company's Canadian operations
was ($281,974) and $ 574,270 for the year ended December 31, 1999 and the six
month period ended June 30, 2000, respectively.
9
<PAGE>
7. RELATED PARTY TRANSACTIONS:
During the six month period ended June 30, 2000, the Company has
charged the Henry Wine Group approximately $387,500 for reimbursement of
administrative services provided by the Company pursuant to an administrative
services agreement that was effective as of January 1, 1998 and has been
subsequently renewed and modified on an annual basis.
8. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS:
The Company's United States subsidiaries, Kimberton Enterprises,
Inc. and Grundy Industries, Inc. (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.
Condensed consolidating financial statements of the Guarantors 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 full joint and several basis under the guarantees and
management has determined that separate financial statements and other
disclosures concerning the Guarantor Subsidiaries are not material to
investors.
10
<PAGE>
8. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS: (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2000
(UNAUDITED)
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... $ 1,346,373 $ 1,861 -- $ 1,348,234
Accounts receivable, net.... 28,577,702 5,065,725 -- 33,643,427
Inventories................. 15,537,943 4,709,677 -- 20,247,620
Receivables from affiliate.. 5,777,151 2,385,501 ($5,779,906) 2,382,746
Notes receivable............ 525,489 -- -- 525,489
Prepaid expenses and
other current assets....... 1,799,316 196,715 -- 1,996,031
Income tax receivable....... 1,710,031 -- -- 1,710,031
------------ ----------- ------------ ------------
Total current assets.... 55,274,008 12,359,479 (5,779,906) 61,853,581
Property and equipment, net... 29,024,781 6,188,537 -- 35,213,318
Investment in subsidiaries.... 8,685,047 -- (8,564,729) 120,318
Cash surrender value
of life insurance, net...... 4,598,920 -- -- 4,598,920
Intangibles, net.............. 25,505,265 2,560,348 -- 28,065,613
Notes receivable.............. 356,056 -- -- 356,056
Note receivable from
affiliate................... 1,863,072 -- -- 1,863,072
Other......................... 262,970 2,253 -- 265,223
------------ ----------- ------------ ------------
Total assets.................. $125,570,119 $21,110,617 ($14,344,635) $132,336,101
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable............ $ 8,958,420 $ 3,714,012 -- $ 12,672,432
Accrued expenses............ 8,349,278 983,180 -- 9,332,458
Intercompany payables....... 2,385,501 3,394,405 ($5,779,906) --
Income taxes payable........ -- 63,640 -- 63,640
Notes payable, current
portion.................... 105,132 -- -- 105,132
Borrowings under line
of credit.................. 13,793,916 4,866,480 -- 18,660,396
------------ ----------- ------------ ------------
Total current liabilities. 33,592,247 13,021,717 (5,779,906) 40,834,058
Notes payable................. 429,656 -- -- 429,656
Environmental reserve......... 3,343,444 -- -- 3,343,444
Deferred income taxes......... 3,377,811 1,741,709 -- 5,119,520
Deferred warranty revenue..... 2,605,672 -- -- 2,605,672
Deferred compensation......... 1,026,426 -- -- 1,026,426
Series B Senior Notes......... 81,400,000 -- -- 81,400,000
------------ ----------- ------------ ------------
Total liabilities......... 125,775,256 14,763,426 (5,779,906) 134,758,776
Redeemable convertible
preferred stock.............. 1,840,386 -- -- 1,840,386
Common stock................. 4,691,080 7,194,402 (7,194,402) 4,691,080
Additional paid-in
capital.................... 2,443,355 -- -- 2,443,355
Cumulative translation
adjustment................. -- (963,065) 588,000 (375,065)
Accumulated (deficit)
retained earnings.......... (9,179,958) 115,854 (1,958,327) (11,022,431)
------------ ----------- ------------ ------------
Total shareholders'
equity.................. (2,045,523) 6,347,191 (8,564,729) (4,263,061)
------------ ----------- ------------ ------------
Total liabilities and
shareholders' deficit... $125,570,119 $21,110,617 ($14,344,635) $132,336,101
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>
11
<PAGE>
8. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS: (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
Henry Company
(Parent
Corporation) Consolidated
And Guarantor Nonguarantor Elimination Consolidated
Subsidiaries Subsidiaries Entries Total
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales............................. $81,699,070 $16,045,125 ($4,651,126) $ 93,093,069
Cost of sales......................... 61,381,918 12,608,211 (4,714,030) 69,276,099
------------- ------------ ------------ ------------
Gross profit.................... 20,317,152 3,436,914 62,904 23,816,970
Operating expenses:
Selling, general and
administrative.................. 20,254,168 3,863,049 62,904 24,180,121
Amortization of intangibles........ 1,519,854 62,418 -- 1,582,272
------------- ------------ ------------ ------------
Operating loss ................. (1,456,870) (488,553) -- (1,945,423)
Other expense (income):
Interest expense................... 4,598,690 118,079 -- 4,716,769
Interest and other income, net..... (114,326) -- -- (114,326)
------------- ------------ ------------ ------------
Loss before
benefit for
income taxes.................. (5,941,234) (606,632) -- (6,547,866)
Provision (benefit) for income taxes.. (2,054,529) 271,971 -- (1,782,558)
------------- ------------ ------------ ------------
Net loss.......................... ($3,886,705) ($878,603) -- ($4,765,308)
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
12
<PAGE>
8. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS: (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
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......................... ($12,079,267) $(1,828,812) -- ($13,908,079)
------------- ---------- ------------ ------------
Cash flows from investing activities:
Capital expenditures............... (882,748) (363,414) -- (1,246,162)
Proceeds from the disposal
of property and equipment........ 15,955 -- -- 15,955
Investment in affiliate............ 4,643 -- -- 4,643
------------- ---------- ------------ ------------
Net cash used in investing
activities.................... (862,150) (363,414) -- (1,225,564)
------------- ---------- ------------ ------------
Cash flows from financing
activities:
Net borrowings under
line-of-credit agreements...... 13,656,719 2,373,840 -- 16,030,559
Repayments under notes payable
agreements..................... (86,558) (54,353) -- (140,911)
Borrowings under notes payable
agreements..................... 34,491 -- -- 34,491
------------- ---------- ------------ ------------
Net cash provided by
financing activities........ 13,604,652 2,319,487 -- 15,924,139
------------- ---------- ------------ ------------
Effect of changes in
exchange rate on cash and
cash equivalents............ -- (127,306) -- (127,306)
------------- ---------- ------------ ------------
Net increase (decrease) in cash
and cash equivalents......... 663,235 (45) -- 663,190
Cash and cash equivalents,
beginning of period.............. 683,138 1,906 -- 685,044
------------- ---------- ------------ ------------
Cash and cash equivalents,
end of period.................... $ 1,346,373 $ 1,861 -- $ 1,348,234
------------- ---------- ------------ ------------
------------- ---------- ------------ ------------
</TABLE>
13
<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 March 31, 2000,
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, 2000
---------------------------------------
Henry Resin
Coatings Technology
Division Division Total
----------- ---------- -----------
<S> <C> <C> <C>
Net sales $ 82,672,714 $10,420,355 $ 93,093,069
Gross profit 21,985,801 1,831,169 23,816,970
Operating income (Loss) (2,376,533) 431,110 (1,945,423)
Depreciation and amortization 3,703,725 84,112 3,787,837
Total assets 118,003,934 14,332,167 132,336,101
Capital expenditures 1,190,075 56,087 1,246,162
</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 for the six months ended
June 30, 2000 are as follows:
<TABLE>
<CAPTION>
LONG-LIVED
NET SALES ASSETS
----------- -----------
<S> <C> <C>
United States................................. $77,047,944 $61,731,382
Canada........................................ 16,045,125 8,751,138
----------- -----------
Total................................... $93,093,069 $70,482,520
----------- -----------
----------- -----------
</TABLE>
14
<PAGE>
RESULTS OF OPERATIONS
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF HENRY COMPANY
Consolidated Statements of Operations Data:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
($ in millions) ($ in millions)
--------------------------------------------------------------------
1999 % of sales 2000 % of sales 1999 % of sales 2000 % of sales
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $47.1 100.0% $51.5 100.0% $82.7 100.0% 93.1 100.0%
Cost of sales 33.7 71.5% 38.8 75.3% 59.2 71.6% 69.3 74.4%
--------------------------------------------------------------------
Gross Profit 13.4 28.5% 12.7 24.7% 23.5 28.4% 23.8 25.6%
Operating expenses:
Selling, general and administrative 11.8 25.1% 12.8 24.9% 22.6 27.3% 24.2 26.0%
Amortization of intangibles 0.9 1.9% 0.8 1.6% 1.8 2.2% 1.6 1.7%
--------------------------------------------------------------------
Operating loss 0.7 1.5% (0.9) (1.7%) (0.9) (1.1)% (2.0) (2.1)%
--------------------------------------------------------------------
Interest expense 2.3 4.9% 2.5 4.9% 4.5 5.4% 4.7 5.0%
Interest and other income, net 0.0 0.0% (0.1) (0.2)% (0.1) (0.1)% (0.1) (0.1)%
--------------------------------------------------------------------
Loss before
(benefit) for income taxes (1.6) (3.4%) (3.3) (6.4%) (5.3) (6.4)% (6.6) (7.1)%
Benefit for income taxes (0.3) (0.6%) (0.9) (1.7%) (1.4) (1.7)% (1.8) (1.9)%
-------------------------------------------------------------------
Net income (loss) (1.3) (2.8%) ($2.4) (4.7%) (3.9) (4.7)% (4.8) (5.2)%
-------------------------------------------------------------------
-------------------------------------------------------------------
</TABLE>
15
<PAGE>
FOR THE THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE
MONTHS ENDED JUNE 30, 1999
NET SALES. The Company's net sales increased to $51.5 million for the three
months ended June 30, 2000, an increase of $4.4 million, or 9.3%, from $47.1
million for the three months ended June 30, 1999. The increase was primarily
due to the introduction of products into new markets and growth with several
existing major accounts.
GROSS PROFIT. The Company's gross profit decreased to $12.7 million for the
three months ended June 30, 2000, a decrease of $0.7 million, or 5.2%, from
$13.4 million for the three months ended June 30, 1999. Gross profit as a
percentage of net sales decreased to 24.7% for the three months ended June
30, 2000 from 28.5% for the three months ended June 30, 1999. The decrease
was due to increased raw material prices primarily related to petroleum based
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of sales decreased to 24.9% for the
three months ended June 30, 2000 from 25.1% for the three months ended June
30, 1999. Selling, general and administrative expenses increased to $12.8
million for the three months ended June 30, 2000, an increase of $1.0
million, or 8.5%, from $11.8 million for the three months ended June 30,
1999. The increase of $1.0 million was primarily due to the more than
commensurate increase in sales and the Company's continued support of its
national brand strategy.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles decreased 11.1% to
$0.8 million for the three months ended June 30, 2000, from $0.9 million for
the three months ended June 30, 1999. The decrease in amortization expense
was primarily due to the expiration of a noncompete agreement.
OPERATING INCOME (LOSS). Operating income decreased to a loss of $0.9 million
for the three months ended June 30, 2000, a decrease of $1.6 million, or
228.6%, from income of $0.7 million for the three months ended June 30, 1999.
Operating income as a percentage of net sales decreased to a negative 1.7%
for the three months ended June 30, 2000, from income of 1.5% as a percentage
of net sales for the three months ended June 30, 1999. The decrease of $1.6
million was primarily attributable to increased net sales partially offset by
higher raw material costs.
INTEREST EXPENSE. Interest expense increased to $2.5 million for the three
months ended June 30, 2000, an increase of $0.2 million, or 8.7%, from $2.3
million for the three months ended June 30, 1999. The increase was primarily
due to additional working capital borrowings required to support increased
sales.
BENEFIT FOR INCOME TAXES. The benefit for income taxes increased to $0.9
million for the three months ended June 30, 2000, or 200.0%, from a benefit
for income taxes of $0.3 million for the three months ended June 30, 1999.
The increase is primarily related to the Company's increased operating loss
for the three months ended June 30, 2000.
NET LOSS. The net loss increased to $2.4 million for the three months ended June
30, 2000, an increase of $1.1 million, or 84.6% from a loss of $1.3 million for
the three months ended June 30, 1999. The increase was primarily due to
increased raw material costs and other factors discussed above.
16
<PAGE>
FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1999
NET SALES. The Company's net sales increased to $93.1 million for the six
months ended June 30, 2000, an increase of $10.4 million, or 12.6%, from
$82.7 million for the six months ended June 30, 1999. The increase was
primarily due to the introduction of products into new markets, growth with
several existing major accounts and increased rainfall in the southwest.
GROSS PROFIT. The Company's gross profit increased to $23.8 million for the
six months ended June 30, 2000, an increase of $0.3 million, or 1.3%, from
$23.5 million for the six months ended June 30, 1999. The increase was
primarily due to increased sales. Gross profit as a percentage of net sales
decreased to 25.6% for the six months ended June 30, 2000 from 28.4% for the
six months ended June 30, 1999. The decrease was due to increased raw
material prices primarily related to petroleum based products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of sales decreased to 26.0% for the
six months ended June 30, 2000 from 27.3% for the six months ended June 30,
1999. Selling, general and administrative expenses increased to $24.2 million
for the six months ended June 30, 2000, an increase of $1.6 million, or 7.1%,
from $22.6 million for the six months ended June 30, 1999. The increase of
$1.6 million was primarily due to the more than commensurate increase in net
sales and the Company's continued support of its national brand strategy.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles decreased 11.1% to
$1.6 million for the six months ended June 30, 2000, from $1.8 million for
the six months ended June 30, 1999. The decrease in amortization expense was
primarily due to the expiration of a noncompete agreement.
OPERATING LOSS. The Company's operating loss increased to a loss of $2.0
million for the six months ended June 30, 2000, an increase of $1.1 million,
or 122.2%, from a loss of $0.9 million for the six months ended June 30,
1999. Operating loss as a percentage of net sales increased to a negative
2.1% for the six months ended June 30, 2000, from a loss of 1.1% as a
percentage of net sales for the six months ended June 30, 1999. The increase
of $1.1 million was primarily attributable to increased net sales partially
offset by higher raw material costs.
INTEREST EXPENSE. Interest expense increased to $4.7 million for the six
months ended June 30, 2000, an increase of $0.2 million, or 4.4%, from $4.5
million for the six months ended June 30, 1999. The increase was primarily
due to increased working capital borrowings required to support increased
sales.
BENEFIT FOR INCOME TAXES. The benefit for income taxes increased to $1.8
million for the six months ended June 30, 2000, or 28.6%, from a benefit for
income taxes of $1.4 million for the six months ended June 30, 1999. The
increase is primarily related to the Company's increased operating loss for
the six months ended June 30, 2000.
NET LOSS. The net loss increased to $4.8 million for the six months ended
June 30, 2000, an increase of $0.9 million, or 23.1% from a loss of $3.9
million for the six months ended June 30, 1999. The increase was primarily
due to increased sales offset by 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. The bank
credit facility (the "Credit Facility") 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, 2000 outstanding balances were $13.8 million for the revolving line
of credit facility, and no amounts were outstanding under for the capital
expenditure facility. The Company also had $4.9 million outstanding under its
Canadian line of credit at June 30, 2000.
Cash flows for the Six Months Ended June 30, 2000 Compared to the Six
Months Ended June 30, 1999
The Company's cash flows from operations were ($13.9) million and
($8.8) million for the six months ended June 30, 2000 and 1999, respectively.
The decrease in operating cash flows from June 30, 1999 to June 30, 2000 of
$5.1 million was primarily attributable to increased levels of accounts
receivables, inventories and decreased levels of accounts payables and
accrued expenses. Cash flows from financing activities during the six months
ended June 30, 2000 and the six months ended June 30, 1999 was $15.9 million
and $2.2 million, respectively. The increase in financial cash flows of $13.7
million from the six months ended June 30, 1999 to the six months ended June
30, 2000 was primarily due to borrowings under the line of credit agreement.
Cash flows used in investing activities were ($1.2) million and ($5.0)
million for the six months ended June 30, 2000 and 1999, respectively. The
decrease in cash used in investing activities was due primarily to the
acquisition of a business for $2.7 million in March 1999 and a decrease in
capital expenditures of $1.1 million.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
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.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," which Provides the SEC's views on applying generally accepted
accounting principles to selected revenue recognition issues. The Company is
presently evaluating the impact, if any, that this may have on the Company's
revenue recognition policy.
YEAR 2000 MODIFICATIONS
The Company used internal and external resources to remediate and
test its systems. Costs incurred in addressing the Year 2000 (Y2K) issue were
expensed as incurred and were not material to the Company's financial results.
The Company did not experience any significant malfunctions or
errors in its operating or business systems when the date changed from 1999
to 2000. Based on operations since January 1, 2000, the Company does not
expect any significant impact to its ongoing business as a result of the Y2K
issue. However, it is possible that the full impact of the date change has
not been fully recognized. The Company currently is not aware of any
significant Y2K or similar problems that have arisen for its customers and
suppliers.
17
<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.
18
<PAGE>
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, 1999 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.
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 three month period ended June
30, 2000 (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 June 30, 2000:
None
19
<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 14, 2000 HENRY COMPANY
/s/ Jeffrey A. Wahba
-------------------------------
By: JEFFREY A. WAHBA
Its: Vice President, Secretary
and Chief Financial Officer
20
