<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 April 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: 0-24287
BLUE RHINO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 56-1870472
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
104 Cambridge Plaza Drive
Winston-Salem, North Carolina 27104
(Address of principal executive offices)
(336) 659-6900
(Registrant's telephone number, including area code)
____________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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 [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of May 31, 1999: 7,651,413 common shares.
<PAGE>
BLUE RHINO CORPORATION
INDEX
-----
PART 1: FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited):
Condensed consolidated balance sheets as of April 30, 1999 and
July 31, 1998.
Condensed consolidated statements of operations for the three and
nine month periods ended April 30, 1999 and 1998.
Condensed consolidated statements of cash flows for the nine
month periods ended April 30, 1999 and 1998.
Notes to condensed consolidated financial statements.
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3: Quantitative and Qualitative Disclosures about Market Risk.
PART II: OTHER INFORMATION
Item 1: Legal Proceedings.
Item 2: Changes in Securities and Use of Proceeds.
Item 3: Defaults Upon Senior Securities.
Item 4: Submission of Matters to a Vote of Security Holders.
Item 5: Other Information.
Item 6: Exhibits and Reports on Form 8-K.
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
- -----------------------------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Blue Rhino Corporation
Condensed Consolidated Balance Sheets
As of April 30, 1999 and July 31, 1998
(in thousands)
<TABLE>
<CAPTION>
April 30, July 31,
1999 1998
----------- -----------
ASSETS (unaudited) (Note 1)
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 563 $ 5,908
Trade accounts receivable, net 8,224 7,901
Inventories 162 2,377
Notes receivable 80 540
Prepaid expenses and other current assets 2,236 487
----------- -----------
Total current assets 11,265 17,213
Cylinders held under operating leases, net 14,158 -
Property, plant and equipment, net 14,428 8,505
Notes receivable 134 789
Intangibles, net 9,144 3,532
Other assets 405 431
----------- -----------
Total assets $ 49,534 $ 30,470
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Trade accounts payable $ 6,616 $ 4,421
Acquisition notes payable 723 212
Current portion of long-term debt and capital lease obligations 637 286
Accrued liabilities 780 475
----------- -----------
Total current liabilities 8,756 5,394
Notes payable to bank 15,480 -
Long-term debt, less current maturities - 104
Capital lease obligations, less current maturities 529 156
----------- -----------
Total liabilities 24,765 5,654
Stockholders Equity:
Common stock 8 8
Additional paid in capital 46,421 46,320
Accumulated deficit (21,660) (21,512)
----------- -----------
Total stockholders' equity 24,769 24,816
----------- -----------
Total liabilities and stockholders' equity $ 49,534 $ 30,470
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Blue Rhino Corporation
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended April 30, 1999 and 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------ -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Net sales $11,285 $ 5,694 $29,184 $14,008
Lease income - cylinders 374 - 612 -
Other revenues 231 150 756 393
------- ------- ------- -------
Total revenues 11,890 5,844 30,552 14,401
Operating costs and expenses:
Cost of sales 8,177 4,322 21,705 10,693
Cost of leased cylinders 374 - 612 -
Selling, general and administrative 2,484 1,637 6,070 4,638
Depreciation and amortization 618 331 1,702 846
Nonrecurring charges - 99 - 506
------- ------- ------- -------
Total operating costs and expenses, net 11,653 6,389 30,089 16,683
------- ------- ------- -------
Income (loss) from operations 237 (545) 463 (2,282)
Other expenses (income):
Interest expense 24 566 91 1,496
Loss on investee - - 311 -
Follow-on offering 551 - 551 -
Other, net 19 (44) (131) (147)
------- ------- ------- -------
Loss before taxes (357) (1,067) (359) (3,631)
Income taxes - - - -
------- ------- ------- -------
Net loss $(357) $(1,067) $ (359) $(3,631)
======= ======= ======= =======
Loss available to common stockholders $(357) $(1,280) $ (359) $(4,211)
======= ======= ======= =======
Loss per common share:
Basic and diluted $(0.05) $ (0.72) $ (0.05) $ (2.36)
======= ======= ======= =======
Weighted average common shares used in computing
basic and diluted loss per common share 7,650 1,779 7,641 1,779
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Blue Rhino Corporation
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended April 30, 1999 and 1998
(in thousands)
<TABLE>
Nine Months Ended
April 30,
------------------------
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Loss $ (359) $ (3,631)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,926 846
Loss on disposal of assets 34 285
Loss on investee 311 -
Expense related to distributor stock option plan 211 -
Follow-on offering costs 551 -
Accreted interest on senior discount notes - 1,241
Changes in operation assets and liabilities, net
of business acquisitions:
Accounts receivable (324) (1,008)
Inventories (162) (813)
Other current assets (1,848) (501)
Accounts payable 600 1,239
Other accrued liabilities 304 (482)
-------- --------
Net cash provided by (used in) operating activities 1,244 (2,824)
-------- --------
Cash flows from investing activities:
Business acquisitions (5,927) (3,050)
Purchase of property, plant and equipment (5,585) (1,027)
Proceeds from disposals of property and equipment - 39
Issuance of note receivable - (635)
Purchase of cylinders held under operating leases (8,570) -
Collection on notes receivable 258 374
-------- --------
Net cash used in investing activities (19,824) (4,299)
-------- --------
Cash flows from financing activities:
Proceeds from notes payable to bank 19,913 9,974
Payments on notes payable to bank (4,433) (5,801)
Payment of debt issuance costs (211) -
Proceeds from stockholder loans - 3,250
Proceeds from issuance of common stock 101 -
Payment of common stock offering and registration costs (584) -
Payments on acquisition notes payable (1,133) -
Payments of long-term debt and capital lease obligations (418) (185)
-------- --------
Net cash provided by financing activities 13,235 7,238
-------- --------
Net (decrease) increase in cash and cash equivalents (5,345) 115
Cash and cash equivalents at beginning of period 5,908 325
-------- --------
Cash and cash equivalents at end of period $ 563 $ 440
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Blue Rhino Corporation
Notes to Condensed Consolidated Financial Statements
April 30, 1999
Note 1 - Basis of Presentation
The condensed consolidated financial statements of Blue Rhino Corporation
(the "Company") include the accounts of its wholly owned subsidiaries, Rhino
Services, L.L.C., formed in March 1997 and CPD Associates, Inc., formed in March
1998 and its affiliate, USA Leasing, L.L.C. ("USA Leasing") formed in October
1998. All intercompany transactions and balances have been eliminated in
consolidation. USA Leasing is owned by four individuals affiliated with the
Company as officers, directors and/or stockholders. Under the terms of USA
Leasing's credit facility each of the four owners of USA Leasing guarantee 5% of
the total amount outstanding under the credit facility and the Company
guarantees the remaining 80% of the total amount outstanding.
The accompanying unaudited interim condensed consolidated financial
statements of the Company have been prepared by the Company in accordance with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of items of a normal recurring
nature) considered necessary for a fair presentation have been included.
Operating results for the nine months ended April 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended July 31, 1999.
The balance sheet at July 31, 1998 has been derived from the audited
financial statements of the Company as of July 31, 1998 but does not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
These financial statements should be read in conjunction with the audited
consolidated financial statements of Blue Rhino Corporation as of and for the
year ended July 31, 1998.
Note 2 - Inventories
Inventories were approximately $162,000 and $2.4 million as of April 30,
1999 and July 31, 1998, respectively. Inventory is valued at the lower of cost
or market.
Note 3 - Cylinders Held Under Operating Leases
At April 30, 1999, cylinders held under operating leases consisted of
approximately $1.4 million held by the Company and approximately $12.8 million
held by USA Leasing, net of depreciation of approximately $186,000. During the
nine months ended April 30, 1999, the Company sold cylinder inventories to USA
Leasing for a purchase price equal to their book value of approximately $13.0
million. USA Leasing has entered into operating lease agreements with the
Company's independent distributors to lease the cylinders at 1% of the cylinder
value monthly. Cylinders are depreciated over their estimated useful lives using
the straight-line method.
Note 4 - Intangibles, net
During the nine months ended April 30, 1999, the Company completed twelve
acquisitions of assets including cylinders, cylinder displays and other
equipment and the rights to sellers' retail propane cylinder exchange accounts
and locations for an aggregate purchase price of approximately $7.6 million. The
Company paid the aggregate purchase price with approximately $5.6 million in
cash from the proceeds of its initial public offering, approximately $300,000
from borrowings under the New Bank Credit Facility
<PAGE>
(see Note 5) and approximately $1.7 million in seller financing. These
acquisitions have been accounted for under the purchase method and, accordingly,
the operating results from these acquisitions have been included in the
Company's consolidated financial statements since the dates of the acquisitions.
The Company periodically assesses the net realizable value of its long-lived
assets and evaluates such assets for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Intangibles consist of the following at:
<TABLE>
<CAPTION>
April 30, July 31,
--------- --------
1999 1998
--------- --------
<S> <C> <C>
(in thousands)
(unaudited)
Goodwill $9,197 $3,518
Noncompete agreements 286 102
Accumulated amortization (339) (88)
------ ------
$9,144 $3,532
====== ======
</TABLE>
Amortization expense for the three and nine months ended April 30, 1999 was
approximately $100,000 and $25,000 versus approximately $18,000 and $27,000 for
the three and nine months ended April 30, 1998.
Note 5 - Notes Payable to Bank
In December 1998, USA Leasing entered into a two year, $13.0 million credit
facility (the "USA Leasing Credit Facility") with NationsBank, N.A.
("NationsBank") to fund the purchase of cylinders. Under the terms of this
credit facility, each of the four owners of USA Leasing guarantee 5% of the
total amount outstanding under the credit facility with the Company guaranteeing
the remaining 80% of the total amount outstanding. As of April 30, 1999, USA
Leasing had borrowings under this credit facility of approximately $13.0
million, which bear interest at LIBOR, plus 2.25%. The credit facility is
collateralized by a blanket lien on all of the assets of USA Leasing (cylinders
held under operating leases with a carrying value of approximately $12.8 million
as of April 30, 1999). In addition, the Company has received a subordinate
security interest in all of USA Leasing's assets as consideration for the
Company's guarantee.
In December 1998, the Company entered into a two year, $12.0 million credit
facility with NationsBank, which includes a $7.0 million revolving line of
credit and a $5.0 million acquisition facility (the "New Bank Credit Facility").
The Company's ability to borrow under the New Bank Credit Facility is reduced by
an amount equal to its contingent liability pursuant to its guarantee of the USA
Leasing Credit Facility. As the Company achieves certain performance measures,
its availability under the New Bank Credit Facility will increase. The New Bank
Credit Facility replaced a prior facility the Company had with NationsBank and
is collateralized by a lien on substantially all of the Company's assets. The
New Bank Credit Facility requires the Company to meet certain covenants,
including minimum net worth and cash flow. As of April 30, 1999, the Company was
not in compliance with the minimum debt coverage and cash flow coverage
covenants, however this noncompliance has subsequently been waived by the bank
(see Note 9). As of April 30, 1999, the Company had borrowings under the New
Bank Credit Facility of approximately $2.5 million which bear interest at a
maximum rate of LIBOR plus 2.25%.
<PAGE>
Note 6 - Income Taxes
No provision for income taxes was recorded for either the three or nine
months ended April 30, 1999 due to the reversal of deferred tax assets for which
the benefit was fully reserved.
Note 7 - Loss Per Share
The following table sets forth a reconciliation of the numerators and
denominators in computing loss per common share in accordance with Statement of
Financial Accounting Standards No. 128 (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
-------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Basic and diluted loss per share
Net loss $( 357) $(1,067) $( 359) $(3,631)
Less: Redeemable preferred stock dividend - 213 - 580
------- ------- ------- -------
Loss available to common stockholders $( 357) $(1,280) $( 359) $(4,211)
------- ------- ------- -------
Weighted average common shares used in
computing basic and diluted loss per
common share 7,650 1,779 7,641 1,779
------- ------- ------- -------
Basic and diluted loss per common share $( 0.05) $( 0.72) $( 0.05) $( 2.36)
======= ======= ======= =======
</TABLE>
The weighted average common shares outstanding include the effects of all
shares, stock options and stock warrants where the effect of their inclusion
would be dilutive.
Note 8 - Other Matters
During the three months ended October 31, 1998, the Company recognized
under the equity method of accounting, a loss of $311,000 representing the
remaining balance of the Company's loan to Bison Valve, L.L.C. ("Bison Valve").
This charge reflects the Company's funding of certain losses incurred by this
entity primarily related to researching, developing, marketing and producing
certain propane products. In December 1998, the Company signed a letter of
intent to purchase certain assets of Bison Valve related to its overfill
prevention device (primarily patent rights and manufacturing equipment) for $1.1
million in common stock and warrants to purchase 100,000 shares of common stock
of the Company at the market price as defined in the agreement. These assets,
once acquired, will be amortized over their respective useful lives.
During the three months ended April 30, 1999, the Company incurred a one-
time charge of $551,000 related to offering costs incurred in connection with an
offering of common stock which was terminated in February 1999 due to
unfavorable market conditions.
<PAGE>
Note 9 - Subsequent Events
On June 14, 1999, the Company's New Bank Credit Facility was amended to
provide approximately $7.4 million of credit availability under the existing
$7.0 million revolving line of credit and the $5.0 million acquisition facility.
The amended agreement provides up to $3.4 million of working capital financing,
$2.9 million to support documentary letters of credit and $1.1 million to
finance acquisitions. This amendment waives the provision under the New Bank
Credit Facility which reduced the Company's ability to borrow by an amount equal
to the Company's contingent liability pursuant to its guarantee of USA Leasing's
Credit Facility. The amendment also waives the Company's non-compliance with its
debt coverage and cash flow coverage covenants as of April 30, 1999 and amends
certain other debt coverage and covenants.
On June 11, 1999, Hechinger Company, a customer representing approximately
1% of the Company's net sales for the nine months ended April 30, 1999, filed
for protection under Chapter 11 of the Bankruptcy Code. The Company does not
believe this will materially affect the Company's overall results of operations
or financial position.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
the accompanying Condensed Consolidated Financial Statements and related notes
of Blue Rhino Corporation and its wholly owned subsidiaries, Rhino Services,
L.L.C. and CPD Associates, Inc. and with our audited consolidated financial
statements as of and for the fiscal year ended July 31, 1998, on file with the
Securities and Exchange Commission. Beginning in the quarter ended October 31,
1998, we have included the financial information of USA Leasing, L.L.C. ("USA
Leasing"), an affiliated company which offers cylinder lease financing to our
distributors, in our financial statements on a consolidated basis. The results
of operations for the three and nine months ended April 30, 1999 are not
necessarily indicative of results that may be expected for the year ended July
31, 1999, in part due to the seasonality of the Company's business. The terms
"we," "our," "us" and "the Company" refer to Blue Rhino Corporation, its wholly
owned subsidiaries and USA Leasing.
Results of Operations
Comparison of the Three Months Ended April 30, 1999 as Compared to the Three
Months Ended April 30, 1998
Total revenues. Total revenues increased 103.5% to approximately $11.9
million for the three months ended April 30, 1999 from approximately $5.8
million for the three months ended April 30, 1998. The total revenues of $11.9
million for the three months ended April 30, 1999 consisted of $11.2 million
from cylinder transactions, $80,000 from product sales (combined cylinder
transactions and product sales are reflected on the statement of operations as
net sales), $231,000 of other revenues and $374,000 from lease income -
cylinders. Other revenues consist primarily of cylinder display lease income
which was reclassified from a negative operating expense for all periods
presented. The lease income - cylinders relates to cylinder lease income of USA
Leasing, which began leasing cylinders to our independent distributors in
October 1998. The increase in total revenues was due primarily to the increase
in the number of retail locations placed in service and increased sales volume
at existing locations. The installed base of retail locations increased 100% to
approximately 16,000 locations at April 30, 1999 from approximately 8,000
locations at April 30, 1998. The number of cylinders transacted increased 71.7%
to approximately 843,000 units in the three months ended April 30, 1999 from
approximately 491,000 units during the three months ended April 30, 1998.
Gross margin. Gross margin, excluding the impact from other revenues and
leased cylinders, increased to 27.5% in the three months ended April 30, 1999
from 24.1% in the three months ended April 30, 1998. This improvement was
primarily due to a change in pricing strategy, a favorable cylinder transaction
mix and, to a lesser extent, the addition of higher margin accounts to the
customer base. The condensed consolidated statement of operations contains no
gross margin from leased cylinders as the lease
<PAGE>
cylinder revenue was offset in full by the cost of leased cylinders, which
includes related interest, depreciation, other expenses and the minority
interest due from USA Leasing.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 51.7% to approximately $2.5 million in the
three months ended April 30, 1999 from approximately $1.6 million in the three
months ended April 30, 1998 but decreased as a percentage of net sales to 22.0%
in the three months ended April 30, 1999 from 28.7% in the three months ended
April 30, 1998. The increase in selling, general and administrative expenses was
due primarily to additional compensation costs stemming primarily from the
growth of our internal sales force, costs related to launching the patio heater
products and additional costs associated with operating a public company,
including investor relations and other professional fees. The decrease in
selling, general and administrative expenses as a percentage of net sales was
due primarily to the fact that a significant portion of our selling, general and
administrative expenses are fixed and, as a result, selling, general and
administrative expenses increased at a slower rate than net sales.
Depreciation and amortization. Depreciation and amortization expense
increased to approximately $618,000 in the three months ended April 30, 1999
from approximately $331,000 in the three months ended April 30, 1998.
Depreciation expense increased by $234,000 to approximately $509,000 in the
three months ended April 30, 1999 from approximately $275,000 in the three
months ended April 30, 1998 primarily due to the increase in the number of
cylinder displays in service. This increase was due to our purchase of cylinder
displays which we previously leased under an operating lease and our ongoing
purchase of additional cylinder displays to support growth in our installed base
of retail locations. Our purchase of computer technology also impacted
depreciation expense to a lesser extent. Amortization expense increased by
$53,000 to approximately $109,000 in the fiscal 1999 period from approximately
$56,000 in the fiscal 1998 period principally due to the increased amortization
of intangibles associated with the purchase of retail propane cylinder exchange
locations. Depreciation and amortization does not include any depreciation of
cylinders owned by USA Leasing which is recognized under cost of leased
cylinders.
Nonrecurring charges. We had no nonrecurring charges for the three months
ended April 30, 1999 and do not expect to incur any additional nonrecurring
charges related to our transition to an independent distributor business model
from a vertically integrated business model. In the three months ended April 30,
1998, nonrecurring charges were approximately $99,000, consisting primarily of
the write-down of facilities and equipment purchased to support our former
vertically integrated business model.
Interest expense. Interest expense decreased to approximately $24,000 in
the three months ended April 30, 1999 from approximately $566,000 in the three
months ended April 30, 1998. The decrease in interest expense resulted from the
repayment of substantially all of our outstanding indebtedness in May 1998 with
proceeds from our initial public offering. The interest expense in the three
months ended April 30, 1999 is a result of interest payable under our credit
facility with NationsBank and capital lease obligations incurred primarily to
acquire computer technology. Interest expense does not include any interest
expense associated with USA Leasing's note payable to the bank which is
recognized under cost of leased cylinders.
Follow-on offering. During the three months ended April 30, 1999, we
incurred a one-time charge of $551,000 related to offering costs incurred in
connection with an offering of common stock which we terminated in February 1999
due to unfavorable market conditions.
Other, net. Other, net decreased to approximately $20,000 of net expense
in the three months ended April 30, 1999 from $44,000 of net income in the three
months ended April 30, 1998.
<PAGE>
The decrease was primarily due to the loss on disposal of property and equipment
of approximately $34,000 recorded in the three months ended April 30, 1999 which
was partially offset by interest income from excess cash balances and various
notes receivable.
<PAGE>
Comparison of the Nine Months Ended April 30, 1999 as Compared to the Nine
Months Ended April 30, 1998
Total revenues. Total revenues increased 112.2% to approximately $30.6
million for the nine months ended April 30, 1999 from approximately $14.4
million for the nine months ended April 30, 1999. The total revenues of $30.6
million for the nine months ended April 30, 1999 consisted of $28.7 million from
cylinder transactions, $516,000 from product sales (combined cylinder
transactions and product sales are reflected on the statement of operations as
net sales), $756,000 of other revenues and $612,000 from lease income -
cylinders. Other revenues consist primarily of cylinder display lease income
which was reclassified from a negative operating expense for all periods
presented. Lease income - cylinders relates to cylinder lease income of USA
Leasing, which began leasing cylinders to our independent distributors in
October 1998. The increase in total revenues was due primarily to the increase
in the number of retail locations placed in service and increased sales volume
at existing locations. The number of cylinders transacted increased 75.9% to
approximately 2.1 million units during the nine months ended April 30, 1999 from
approximately 1.2 million units during the nine months ended April 30, 1998.
Gross margin. Gross margin, excluding the impact from other revenues and
leased cylinders, increased to approximately 25.6% for the nine months ended
April 30, 1999 from approximately 23.7% for the nine months ended April 30,
1998. This improvement was due to a change in pricing strategy, a favorable
cylinder transaction mix and to a lesser extent, the addition of higher margin
accounts to the customer base. The condensed consolidated statement of
operations contains no gross margin from leased cylinders as the lease cylinder
revenue was offset in full by the cost of leased cylinders, which includes
related interest, depreciation, other expenses and the minority interest due
from USA Leasing.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 30.9% to approximately $6.0 million for the
nine months ended April 30, 1999 from approximately $4.6 million for the nine
months ended April 30, 1998 but decreased as a percentage of net sales to 20.8%
for the nine months ended April 30, 1999 from 33.1% for the nine months ended
April 30, 1998. The increase in selling, general and administrative expenses was
due primarily to additional compensation costs stemming primarily from the
growth of our internal sales force, costs related to the introduction of a patio
heater product and additional costs associated with operating a public company
including investor relations and other professional fees. The decrease in
selling, general and administrative expenses as a percentage of net sales was
due primarily to the fact that a significant portion of our selling, general and
administrative expenses are fixed and, as a result, selling, general and
administrative expenses increased at a slower rate than net sales.
Depreciation and amortization. Depreciation and amortization increased to
approximately $1.7 million for the nine months ended April 30, 1999 from
approximately $847,000 for the nine months ended April 30, 1998. Depreciation
expense increased by $648,000 to approximately $1.4 million for the nine months
ended April 30, 1999 from approximately $746,000 for the nine months ended April
30, 1998 primarily due to the increase in the number of cylinder displays. This
increase was due to our purchase of cylinder displays which we previously leased
under an operating lease and our ongoing purchase of additional cylinder
displays to support growth in our installed base of retail locations. Our
purchase of computer technology also impacted depreciation expense to a lesser
extent. Amortization expense increased by $208,000 to approximately $309,000 in
the fiscal 1999 period from approximately $100,000 in the fiscal 1998 period
principally due to the increased amortization of intangibles associated with the
purchase of retail propane cylinder exchange locations. Depreciation and
amortization does not include any depreciation of cylinders owned by USA Leasing
which is recognized under cost of leased cylinders.
<PAGE>
Nonrecurring charges. We had no nonrecurring charges for the nine months
ended April 30, 1999 and do not expect to incur any additional nonrecurring
charges related to our transition to an independent distributor business model
from a vertically integrated business model. In the nine months ended April 30,
1998, nonrecurring charges were approximately $506,000, consisting primarily of
the write-down of facilities and equipment purchased to support the vertically
integrated business model.
Interest expense. Interest expense decreased to approximately $91,000 for
the nine months ended April 30, 1999 from approximately $1.5 million for the
nine months ended April 30, 1998. The decrease in interest expense resulted from
the repayment of substantially all of our outstanding indebtedness in May 1998
with proceeds from our initial public offering. The interest expense for the
nine months ended April 30, 1999 is a result of borrowings under our credit
facility with NationsBank and capital lease obligations incurred primarily to
acquire computer technology.
Follow-on offering. For the nine months ended April 30, 1999, we incurred
a one-time charge of approximately $551,000 in connection with an offering of
common stock which we terminated in February 1999 due to unfavorable market
conditions.
Loss on investee. Loss on investee was $311,000 for the nine months ended
April 30, 1999, which reflects the application of the equity method of
accounting to our convertible loan to Bison Valve, L.L.C. ("Bison Valve"). A
loss was recorded because Bison Valve used the proceeds of our loan to fund
losses incurred primarily in researching, developing, marketing and producing an
overfill prevention device and other propane related products. As of October 31,
1998, we recognized charges for the entire principal balance of our convertible
loan. In December 1998, we signed a letter of intent to acquire all intellectual
property and other assets of Bison Valve related to its overfill prevention
device for $1.1 million of our common stock and warrants to purchase 100,000
shares of our common stock. We will account for substantially all of the
purchase price as a patent to be amortized over its remaining life.
Other, net. Other, net decreased to approximately $131,000 for the nine
months ended April 30, 1999 from approximately $147,000 for the nine months
ended April 30, 1998. The decrease was primarily due to the loss on disposal of
property and equipment of approximately $34,000 recorded in fiscal 1999 which
was offset by increased interest income from excess cash balances and various
notes receivable.
Liquidity and Capital Resources
Our primary sources of funds have been the issuance of stock, most recently
through our initial public offering in May 1998, and the incurrence of debt. We
had positive working capital of approximately $2.5 million as of April 30, 1999,
which is primarily the result of cash provided by our initial public offering
and to a lesser extent cash provided by operations.
Net cash provided by operations was approximately $1.2 million for the nine
months ended April 30, 1999, while cash used in operations was approximately
$2.8 million for the nine months ended April 30, 1998. Cash provided by
operations for both periods resulted primarily from the increase in accounts
payable associated with the seasonal increase in our sales volume in our spring
quarter ending on April 30. Additionally, the net loss was positively adjusted
for non-cash expenses, primarily depreciation and amortization, in the nine
months ended April 30, 1999 and accreted interest on senior discount notes in
the nine months ended April 30, 1998. Cash used in operations during the nine
months ended April 30, 1999 included approximately $1.6 million of advances on
certain products and services while during the nine months ended April 30, 1998
cash used in operations resulted primarily from a net loss.
<PAGE>
Net cash used in investing activities was approximately $19.8 million for
the nine months ended April 30, 1999 and approximately $4.3 million for the nine
months ended April 30, 1998. The primary components of cash used in investing
activities in both periods included acquisitions and investments in property,
plant and equipment and in the nine months ended April 30, 1999 included
approximately $8.6 million for the purchase of cylinders by USA Leasing. The
primary components of cash provided from investing activities included
collections on notes receivable.
Net cash provided by financing activities was approximately $13.2 million
for the nine months ended April 30, 1999 and approximately $7.2 million for the
nine months ended April 30, 1998. Cash provided by financing activities resulted
primarily from net bank borrowings of approximately $15.5 million for the nine
months ended April 30, 1999 and $4.2 million for the nine months ended April 30,
1998. In addition, during the nine months ended April 30, 1998 cash provided by
financing activities included proceeds of $3.3 million from loans from
stockholders of the Company. In both periods, the cash used in financing
activities included payments on various notes payable and capital lease
obligations. Also, during the nine months ended April 30, 1999, cash used in
financing activities included approximately $584,000 in common stock offering
and registration costs in connection with an offering of common stock which we
terminated in February 1999 and a shelf registration.
In October 1998, USA Leasing was formed to provide a cylinder financing
facility for our distributors. In December 1998, USA Leasing entered into a two
year $13.0 million credit facility (the "USA Leasing Credit Facility") with
NationsBank, N.A. ("NationsBank") which replaced an interim credit facility for
$6.5 million extended in October 1998. Under the terms of the USA Leasing Credit
Facility, we guarantee 80% of the outstanding balance on the facility and each
of the owners of USA Leasing guarantee 5% of outstanding balance of the
facility. Currently, we are not aware of any defaults under USA Leasing's credit
facility with NationsBank or under any cylinder lease between USA Leasing and
our distributors. However, we could be required to fund up to 80% of USA
Leasing's obligations to NationsBank in the event of a default under its credit
facility.
USA Leasing has used the proceeds of the USA Leasing Credit Facility to
purchase cylinders from Blue Rhino. USA Leasing is owned 24% each by Mr. Billy
D. Prim and Mr. Andrew J. Filipowski and 26% each by Mr. Craig Duchossois, a
director and stockholder of the Company, and Mr. Peer Pedersen, a stockholder of
the Company and a partner of Pedersen & Houpt, P.C., our legal counsel.
NationsBank has a first priority lien and we have a subordinate lien on all of
the assets of USA Leasing.
In addition, during the nine months ended April 30, 1999, we acquired and
sold approximately $13.0 million of cylinders to USA Leasing at no gain or loss.
USA Leasing has entered into operating lease agreements with our independent
distributors to lease the cylinders for monthly rent payments equal to 1% of the
initial cylinder value.
In December 1998, we entered into a $12 million credit facility with
NationsBank, which includes a $7.0 million revolving line of credit and a $5.0
million acquisition facility (the "New Bank Credit Facility"). At April 30,
1999, we had approximately $2.5 million outstanding under the New Bank Credit
Facility. The New Bank Credit Facility requires us to meet certain covenants,
including minimum net worth and cash flow requirements. Our ability to borrow
under the New Bank Credit Facility was initially reduced by an amount equal to
our contingent liability pursuant to our guarantee of USA Leasing's credit
facility with NationsBank. On June 14, 1999, the New Bank Credit Facility was
amended to provide approximately $7.4 million of credit availability under the
existing $7.0 million revolving line of credit and the $5.0 million acquisition
facility. This amended agreement provides up to $3.4 million of working capital
financing, $2.9 million of documentary letters of credit to support the purchase
of patio heaters and $1.1 million to finance acquisitions. This amendment waives
the provision under the New Bank Credit
<PAGE>
Facility which reduced our ability to borrow by an amount equal to our
contingent liability pursuant to our guarantee of the USA Leasing Credit
Facility. The amendment also waives our non-compliance with our debt coverage
and cash flow coverage covenants as of April 30, 1999 which resulted in part
from the expenses incurred and termination of our follow-on offering of common
stock and amends certain other covenants. As we achieve certain performance
measures, our availability under the New Bank Credit Facility will increase. The
New Bank Credit Facility is collateralized by a lien on substantially all of our
assets. The loans under the New Bank Credit Facility bear interest at a maximum
of LIBOR plus 2.25%.
We currently lease our offices under a lease from an entity affiliated with
two of our directors. Pursuant to the terms of the lease, we pay annual rent of
approximately $213,000, plus our allocable share of all taxes, utilities, and
maintenance.
We anticipate that our total capital expenditures (excluding acquisitions)
for fiscal 1999 will be approximately $18.5 million, which includes
approximately $7.0 million primarily for the purchase of cylinder displays and
computer technology and approximately $11.5 million in net cash expenditures by
USA Leasing to purchase cylinders. Our capital expenditures and working capital
requirements in the foreseeable future will change depending on the rate of our
expansion, our operating results and any other adjustments in our operating plan
as needed in response to competition, acquisition opportunities or unexpected
events. There can be no assurance that we will not seek or require additional
capital in the future as a result of expansion or otherwise.
Inflation
We do not believe that inflation has had a material adverse effect on our
net sales or the results of operations. However, there can be no assurance that
our business will not be affected by inflation in the future.
Impact of New Accounting Pronouncements
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130")
establishes standards for reporting and display of comprehensive income and its
components (revenues, gains, expenses, losses) in a full set of general purpose
financial statements and is effective for fiscal years beginning after December
15, 1997. We do not expect SFAS No. 130 to have any impact on our consolidated
financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131"). SFAS No. 131 requires public business enterprises to adopt its provisions
for periods beginning after December 15, 1997, and to report certain information
about operating segments in complete sets of financial statements of the
enterprise and in condensed financial statements of interim periods issued to
shareholders. We do not expect SFAS No. 131 to have any impact on our
consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It also requires entities to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. We do not expect SFAS No.
133 to have any impact on our consolidated financial statements as we do not
invest in any derivative instruments or engage in any hedging activities.
Year 2000 Compliance
Year 2000 issues are the result of computer programs that were written
using two digits rather than four to define the applicable year. For example,
date sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
<PAGE>
causing disruptions of operations, including, among other material adverse
consequences, a temporary inability to process transactions or engage in similar
normal business activities. We depend on our management information systems
("MIS") to process orders, manage inventory and accounts receivable, maintain
distributor and customer information, assist distributors in delivering products
on a timely basis and in maintaining cost-efficient operations.
Our State of Readiness for Year 2000. We began evaluating our MIS for Year
2000 compliance in January 1997. Since that time we have developed a Year 2000
compliance policy encompassing employee education, testing, progress reporting,
external impact plans and contingency plans. Our Chief Information Officer
directs our Year 2000 compliance policy and oversees the remediation and testing
of MIS. As of May 31, 1999, we believe that we were approximately 90% Year 2000
compliant. All core MIS are currently 100% Year 2000 compliant. Remaining
activity includes replacement of distributors' PC software which we expect to
complete by November 1999. However, if our modifications, testing and
solicitations of third party compliance are not made on a timely basis or do not
resolve our Year 2000 issues, these issues could have a negative effect on our
business.
We have assessed the Year 2000 readiness of each of our core MIS and
remediated these systems as necessary. Our core MIS include Online Sales Account
Information System ("OASIS"), Platinum for Windows, Electronic Data Interchange
("EDI") and Blue Rhino Electronic Accounting System ("BREAS"). OASIS was already
compliant when it was implemented in February 1998, Platinum for Windows was
updated in March 1998 to be Year 2000 compliant, EDI was upgraded in December
1998 to be Year 2000 compliant and BREAS was upgraded in October 1998 to be Year
2000 compliant. We have engaged Integrated Solutions International, L.L.C. to,
among other things, assist us in implementing our distributors' use of Year 2000
compliant handheld computer units of BREAS. All of our distributors are
currently using Year 2000 compliant handheld units. We have established
integrated test procedures in which all of our MIS are simultaneously tested for
Year 2000 compliance. We expect these integrated tests to continue throughout
1999.
Historical and Estimated Costs. We have not established a separate Year
2000 compliance budget and do not expect to do so. To date, we have incurred
approximately $15,000 in Year 2000 compliance costs. We currently anticipate
that the implementation of our Year 2000 compliance policy will cost
approximately $35,000, all of which will be expensed. Although we can give no
assurances, we do not expect future costs related to Year 2000 compliance to
negatively affect our business in any material way. Costs are based on current
estimates and actual results may vary significantly from such estimates.
Most Reasonably Likely Worst Case Scenario. The most reasonably likely
worst case Year 2000 scenario we face is an interruption of our business
operations caused by the failure of third parties with which we have a material
relationship to achieve Year 2000 compliance. The consequences of a third party
failure are unknown, but could have a negative effect on our business. We are
considering several contingency plans to address possible business interruptions
caused by a non-compliant third party. Possible contingency plans include using
alternate service providers and using a manual billing, payment and collection
system. Initial contingency plans have been completed. Additional refinement and
monitoring will continue throughout the remainder of 1999. In addition, in an
effort to protect ourselves and increase the awareness of third parties whose
failure to comply could have a material effect on our business, we are seeking
to obtain certifications from them that they are Year 2000 compliant.
Forward-Looking Information
Certain statements in this Section and elsewhere in this report are
forward-looking in nature and relate to trends and events that may affect the
Company's future financial position and operating results. Such statements are
made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The terms "expect," "anticipate," "intend," and
"project" and similar words or expressions are intended to identify forward-
looking statements. These statements speak only as of the date of this report.
The statements are based on current expectations, are inherently uncertain, are
subject to risks, and should be viewed with caution. Actual results and
experience may differ materially from the forward-looking statements as a result
of many factors, including changes in economic conditions in the markets served
by the Company, increasing competition and other unanticipated events and
conditions. It is not possible to foresee or identify all such factors. The
Company makes no commitment to update any forward-looking statement or to
disclose any facts, events, or circumstances after the date hereof that may
affect the accuracy of any forward-looking statement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
<PAGE>
We are exposed to market risk related to changes in interest rates on our
borrowings under the USA Leasing Credit Facility and our New Bank Credit
Facility. The USA Leasing Credit Facility and our New Bank Credit Facility bear
interest based on LIBOR. The USA Leasing Credit Facility is collateralized by
cylinders held under operating leases with the Company's independent
distributors. The operating leases currently yield 1% of the cylinder value
monthly (approximately 12% annual) and continue until either party terminates
upon 60 day written notice to the other party. Upon any significant increase in
LIBOR, USA Leasing would re-negotiate the operating leases with the Company's
independent distributors mitigating the interest rate exposure on the majority
of the notes payable to bank.
We have no derivative financial instruments or derivative commodity
instruments in our cash and cash equivalents and investments. We invest our cash
and cash equivalents and investments in investment grade, highly liquid
investments consisting of money market instruments, bank certificates of deposit
and overnight investments in commercial paper.
All of our transactions are conducted and accounts are denominated in
United States Dollars and as such we do not currently have exposure to foreign
currency risk. Furthermore, we do not have any direct exposure to commodity
price risk.
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not presently involved in any material litigation nor, to our
knowledge, is any material litigation threatened against the Company or its
subsidiaries, other than routine litigation arising in the ordinary course of
business and which is expected to be covered by insurance.
Item 2. Changes in Securities and Use of Proceeds: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.1 Amendment to Loan Agreement dated June 14, 1999
between Blue Rhino Corporation and NationsBank,
N.A.*
Exhibit 27.1 Financial data schedule.
(b) Reports on Form 8-K:
Form 8-K Filed on February 26, 1999 to report change in
registrants' certifying accountants.
Form 8-K/A Filed on March 4, 1999 to report concurrence of
former certifying accountants in disclosure on Form
8-K filed on February 26, 1999.change in
registrants' certifying accountants.
Form 8-K Filed on May 7, 1999 to report change in
registrants' certifying accountants.
* To be filed by amendment.
<PAGE>
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Blue Rhino Corporation
Date: June 14, 1999 By: /s/ Billy D. Prim
-------------------------------------------
Chairman, President and Chief Executive Officer
Date: June 14, 1999 By: /s/ Mark Castaneda
-------------------------------------------
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Condensed Consolidated Financial Statements of Blue Rhino Corporation
and its Subsidiaries and Consolidated Affiliate as of and for the three and nine
month periods ended April 30, 1999 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JUL-31-1999 JUL-31-1999
<PERIOD-START> FEB-01-1999 AUG-01-1999
<PERIOD-END> APR-30-1999 APR-30-1999
<CASH> 563 563
<SECURITIES> 0 0
<RECEIVABLES> 8,224<F1> 8,224<F1>
<ALLOWANCES> 0 0
<INVENTORY> 162 162
<CURRENT-ASSETS> 11,265 11,265
<PP&E> 14,428<F1> 14,428<F1>
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 49,534 49,534
<CURRENT-LIABILITIES> 8,756 8,756
<BONDS> 0 0
0 0
0 0
<COMMON> 8 8
<OTHER-SE> 24,761 24,761
<TOTAL-LIABILITY-AND-EQUITY> 49,534 49,534
<SALES> 11,285 29,184
<TOTAL-REVENUES> 11,890 30,552
<CGS> 8,551 22,317
<TOTAL-COSTS> 11,653 30,089
<OTHER-EXPENSES> 570 731
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 24 91
<INCOME-PRETAX> (357) (359)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (357) (359)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (357) (359)
<EPS-BASIC> (0.05) (0.05)
<EPS-DILUTED> (0.05) (0.05)
<FN>
<F1> Receivables and PP&E are presented net of allowances and accrued
depreciation.</FN>
</TABLE>
