<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 January 31, 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: 0-14133
----------------
BLUE RHINO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 56-1870472
(State of other jurisdiction (I.R.S. Employer
of 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 March 15, 2000: 8,648,486 common shares
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
<PAGE>
BLUE RHINO CORPORATION
INDEX
<TABLE>
<C> <S> <C>
PART I: FINANCIAL INFORMATION....................................... 3
Item 1: Financial Statements (unaudited):
Condensed consolidated balance sheets as of January 31, 2000
and July 31, 1999........................................... 3
Condensed consolidated statements of operations for the
three and six month periods ended January 31, 2000 and 1999. 4
Condensed consolidated statements of cash flows for the six
month periods ended January 31, 2000 and 1999............... 5
Notes to condensed consolidated financial statements........ 6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 3: Quantitative and Qualitative Disclosures about Market Risk.. 14
PART II: OTHER INFORMATION........................................... 15
Item 1: Legal Proceedings........................................... 15
Item 2: Changes in Securities and Use of Proceeds................... 15
Item 3: Defaults Upon Senior Securities............................. 15
Item 4: Submission of Matters to a Vote of Security Holders......... 15
Item 5: Other Information........................................... 15
Item 6: Exhibits and Reports on Form 8-K............................ 15
SIGNATURES............................................................ 16
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
BLUE RHINO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
As of January 31, 2000 and July 31, 1999
(in thousands)
<TABLE>
<CAPTION>
January 31, July 31,
2000 1999
----------- --------
(unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.............................. $ 284 $ 913
Accounts receivable, net............................... 10,851 12,736
Inventories............................................ 436 106
Prepaid expenses and other current assets.............. 2,261 2,137
-------- --------
Total current assets................................. 13,832 15,892
Cylinders held under operating lease agreements, net..... 19,621 17,205
Property, plant and equipment, net....................... 20,974 16,646
Intangibles, net......................................... 11,986 9,498
Other assets............................................. 1,015 658
-------- --------
Total assets......................................... $ 67,428 $ 59,899
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable....................................... $ 6,391 $ 6,386
Current portion of long-term debt and capital lease
obligations........................................... 1,307 1,423
Accrued liabilities.................................... 1,097 641
-------- --------
Total current liabilities............................ 8,795 8,450
Notes payable to bank.................................... 16,240 16,580
Long-term debt, less current maturities.................. 6,693 7,037
Capital lease obligations, less current maturities....... 353 494
-------- --------
Total liabilities.................................... 32,081 32,561
Stockholders' equity:
Common stock........................................... 9 8
Additional paid in capital............................. 54,141 46,825
Accumulated deficit.................................... (18,803) (19,495)
-------- --------
Stockholders' equity................................. 35,347 27,338
-------- --------
Total liabilities and stockholders' equity........... $ 67,428 $ 59,899
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BLUE RHINO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended January 31, 2000 and 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
------------------- ---------------
2000 1999 2000 1999
--------- --------- ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Net sales............................... $ 14,422 $ 8,676 $27,865 $17,898
Lease income............................ 792 552 1,557 764
--------- -------- ------- -------
Total revenues........................ 15,214 9,228 29,422 18,662
Operating costs and expenses:
Cost of sales........................... 10,907 6,566 21,030 13,500
Selling, general and administrative..... 2,596 1,814 5,046 3,587
Depreciation and amortization........... 976 653 1,893 1,177
--------- -------- ------- -------
Total operating costs and expenses.... 14,479 9,033 27,969 18,264
--------- -------- ------- -------
Income from operations................ 735 195 1,453 398
Other expenses (income):
Interest expense........................ 374 207 752 239
Loss on investee........................ -- -- -- 311
Other, net.............................. 9 (80) 9 (150)
--------- -------- ------- -------
Income (loss) before provision for
income taxes......................... 352 68 692 (2)
Provision for income taxes................ -- -- -- --
--------- -------- ------- -------
Net income (loss)..................... $ 352 $ 68 $ 692 $ (2)
========= ======== ======= =======
Earnings (loss) per common share,
basic and diluted....................... $ 0.04 $ 0.01 $ 0.08 $ (0.00)
========= ======== ======= =======
Shares used in per share calculations:
Basic................................... 8,648 7,642 8,445 7,637
========= ======== ======= =======
Diluted................................. 8,795 7,935 8,510 7,929
========= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BLUE RHINO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended January 31, 2000 and 1999
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
January 31,
------------------
2000 1999
-------- --------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 692 $ (2)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 1,893 1,177
Loss on disposal of assets............................. 18 --
Loss on investee....................................... -- 311
Expense related to distributor stock option plan....... 151 145
Accretion of interest and amortization of discount on
convertible notes..................................... 237 --
Changes in operating assets and liabilities, net of
business acquisitions:
Accounts receivable.................................. 1,886 1,360
Inventories.......................................... (329) (35)
Other current assets................................. (162) (1,726)
Accounts payable..................................... 5 (497)
Other accrued liabilities............................ 110 13
-------- --------
Net cash provided by operating activities.......... 4,501 746
-------- --------
Cash flows from investing activities:
Business acquisitions.................................... (2,476) (5,577)
Purchases of property, plant and equipment............... (4,968) (2,437)
Purchases of cylinders held under operating leases, net.. (2,469) (7,547)
Collections on notes receivable.......................... 38 124
-------- --------
Net cash used in investing activities.............. (9,875) (15,437)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of expenses.. 6,362 81
Proceeds from issuance of convertible notes.............. 7,000 --
Payment on cylinder financing............................ (7,000) --
Proceeds from notes payable to bank...................... 19,750 15,198
Payments on notes payable to bank........................ (20,090) (3,433)
Payment of financing costs............................... (490) (454)
Payments of long-term debt and capital lease obligations. (787) (928)
-------- --------
Net cash provided by financing activities.......... 4,745 10,464
-------- --------
Net decrease in cash and cash equivalents.................. (629) (4,227)
Cash and cash equivalents at beginning of period........... 913 5,908
-------- --------
Cash and cash equivalents at end of period................. $ 284 $ 1,681
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2000 (Unaudited)
(in thousands, except per share data)
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, CPD Associates, Inc., formed in March
1998 and USA Leasing, L.L.C. ("USA Leasing") formed in October 1998. All
intercompany transactions and balances have been eliminated in consolidation.
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 three and six month periods ended January
31, 2000 are not necessarily indicative of the results that may be expected
for the fiscal year ending July 31, 2000.
The balance sheet at July 31, 1999 has been derived from the audited
financial statements of the Company as of July 31, 1999 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
fiscal year ended July 31, 1999.
Note 2--Inventories
Inventories consist of the following at:
<TABLE>
<CAPTION>
January 31, July 31,
2000 1999
----------- --------
(unaudited)
<S> <C> <C>
Patio heaters...... $220 $--
Other supplies..... 216 106
---- ----
$436 $106
==== ====
</TABLE>
Note 3--Intangibles, net
Intangibles consist of the following at:
<TABLE>
<CAPTION>
January 31, July 31,
2000 1999
----------- --------
(Unaudited)
<S> <C> <C>
Goodwill........... $10,674 $9,570
Patents and
trademarks........ 1,542 81
Noncompete
agreements........ 482 293
Accumulated
amortization...... (712) (446)
------- ------
$11,986 $9,498
======= ======
</TABLE>
6
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the three months ended January 31, 2000, the Company closed three
acquisitions with an aggregate purchase price of approximately $1,900 for
assets including cylinders, cylinder displays and and all of the sellers'
rights, title and interest in and to retail propane cylinder exchange accounts
and locations. These acquisitions were accounted for under the purchase method
of accounting and were financed with cash provided by the Company's Amended
and Restated Bank Credit Facility (defined below) and from cash provided by
operations.
On September 17, 1999, the Company completed the acquisition of certain
assets related to the overfill prevention device ("OPD") developed,
manufactured and marketed by Bison Valve, L.L.C ("Bison Valve"). The acquired
assets included OPD molds, dies, and all intellectual property relating to the
OPD developed by Bison Valve, which includes two patent applications on the
OPD. This acquisition has been accounted for by the purchase method of
accounting. The aggregate purchase price, including certain acquisition costs,
was approximately $1,655 of which approximately $1,572 was allocated to
intangibles consisting of patents and a non-compete agreement.
Amortization expense for the three and six months ended January 31, 2000
was approximately $142 and $266 versus approximately $107 and $200 for the
three and six months ended January 31, 1999.
Note 4--Notes Payable to Bank
On December 9, 1999, the Company entered into an amended and restated
credit facility with its bank. The $25,000 facility will be used to finance
working capital, acquisitions and capital expenditures, and to support the
issuance of documentary and standby letters of credit (the "Amended and
Restated Bank Credit Facility"). The Amended and Restated Bank Credit Facility
replaced the Company's prior facility and the facility of the Company's wholly
owned subsidiary, USA Leasing . The Amended and Restated Bank Credit Facility,
which matures on August 31, 2001, bears interest at a maximum rate of LIBOR
plus 2.25% and is collateralized by a lien on substantially all of the
Company's assets. In addition to interest the Amended and Restated Bank Credit
Facility required a commitment fee at closing of $50 and a quarterly 0.25% fee
on any unused balance. The Amended and Restated Bank Credit Facility also
requires the Company to meet certain covenants, including maintaining a minimum
net worth, debt coverage and cash flow coverage ratios. As of January 31, 2000,
the Company had borrowings under its existing credit facility of $16,240, which
bear interest at a rate of LIBOR plus 2.00% and the Company was in compliance
with all covenants.
Note 5--Income Taxes
No provision for income taxes was recorded for the six months ended January
31, 2000 due to the reversal of deferred tax assets for which the benefit was
fully reserved.
7
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6--Earnings (Loss) Per Share
The following table sets forth a reconciliation of the numerators and
denominators in computing earnings (loss) per common share in accordance with
Statement of Financial Accounting Standards No. 128 (in thousands, except per
share amounts).
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
January 31, January 31,
------------- -------------
2000 1999 2000 1999
------ ------ ------ ------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Basic and diluted earnings (loss) per
share:
Net income (loss).......................... $ 352 $ 68 $ 692 $ (2)
Weighted average common shares used in
computing the earnings (loss) per common
share (in thousands):
Basic.................................... 8,648 7,642 8,445 7,637
====== ====== ====== ======
Diluted.................................. 8,795 7,935 8,510 7,637
====== ====== ====== ======
Basic and diluted earnings (loss) per
common share.............................. $ 0.04 $ 0.01 $ 0.08 $ 0.00
====== ====== ====== ======
</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. For the six months ended January 31, 1999, the inclusion of
the effects of stock options and stock warrants would have been anti-dilutive.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 including in
particular, our ability to place Blue Rhino cylinder exchange at additional
retail locations and the successful launch of new products. 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 those detailed in our Prospectus and in
filings with the Securities and Exchange Commission. 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.
Overview
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., CPD Associates, Inc. and USA Leasing, L.L.C. (collectively, "Blue
Rhino," "us," "we," or "our"), and with our audited consolidated financial
statements as of and for the fiscal year ended July 31, 1999, on file with the
Securities and Exchange Commission. The results of operations for the three and
six month periods ended January 31, 2000 are not necessarily indicative of
results that may be expected for the fiscal year ended July 31, 2000, in part
due to the seasonality of our business.
We are the leading national provider of propane grill cylinder exchange in
the United States with Blue Rhino cylinder exchange displays at over 21,500
retail locations in 46 states and Puerto Rico. We dedicate our efforts and
capital to brand development, value-added marketing, customer service, account
growth, distributor development and management information systems while our 49
independent distributors make the investments in the vehicles and refilling and
refurbishing equipment necessary to operate cylinder exchange businesses.
Additionally, we have invested capital to build an automated propane bottling
plant, which we expect to provide additional capacity and improve efficiency and
product quality to meet the growth in cylinder exchange demand and capitalize on
the overfill prevention device ("OPD") valve opportunity. We are continually
adding locations, concluding the second quarter of fiscal 2000 with
approximately 21,500 locations, a net increase of 3,000 locations over July 31,
1999. In the ordinary course of business, customer locations are deinstalled due
to closings, relocations, performance competitive, regulatory and other factors.
Approximately 950 locations were deinstalled in the six months ended January 31,
2000 for various reasons. While we continue to add locations through further
penetration of existing retailer relationships, new retailer relationships and
acquisitions, we may experience additional deinstallations in the future. The
number of retail locations we report as of any date or the number of locations
by which our installed base has increased in any period is net of any
deinstallations in that period.
During the three months ended January 31, 2000, we began introducing the
Blue Rhino Ultra Service Dealer Program in strategic markets. This initiative
is directed at large markets where independent dealers will work in tandem
with our distributors to perform store training, retail merchandising and
direct selling and installation of commercial patio heaters.
Results of Operations
Comparison of the Three Months Ended January 31, 2000 as Compared to the
Three Months Ended January 31, 1999
Total revenues. Total revenues increased 64.9% to approximately $15.2
million for the three months ended January 31, 2000 from approximately $9.2
million for the three months ended January 31, 1999. Total revenues
9
<PAGE>
for the three months ended January 31, 2000, consisted of approximately $13.3
million from cylinder transactions, $1.1 million from product sales (combined
cylinder transactions and product sales are reflected on the statement of
operations as net sales) and $792,000 from lease income. Product sales
represent sales of patio heaters. Lease income is generated primarily from
cylinders and cylinder displays leased to distributors. The increase in total
revenues was due primarily to increased sales volume at existing locations and
the increase in the number of retail locations placed in service. The number
of cylinders transacted increased 60% to approximately 918,000 units in the
three months ended January 31, 2000 from approximately 573,000 units during
the three months ended January 31, 1999. Same store sales increased more than
60% for the quarter versus the same period in the prior year. The installed
base of retail locations increased 58% to approximately 21,500 locations at
January 31, 2000 from approximately 13,600 locations at January 31, 1999.
Gross margin. Gross margin, including the impact from lease income,
decreased to 28.3% in the second quarter of fiscal 2000 from 28.8% in the
second quarter of fiscal 1999. This decrease was due primarily to a shift in
product mix to a higher percentage of cylinder sales and the addition of patio
heaters, which carry lower margins.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 43.1% to approximately $2.6 million for the
three months ended January 31, 2000 from approximately $1.8 million for the
three months ended January 31, 1999 but decreased as a percentage of total
revenues to 17.1% for the three months ended January 31, 2000 from 19.7% for
the three months ended January 31, 1999. The increase in selling, general and
administrative expenses was due primarily to additional compensation costs and
costs related to our introduction of a patio heater product. The decrease in
selling, general and administrative expenses as a percentage of total revenues
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 total
revenues. Going forward, we expect selling, general and administrative
expenses to increase because national advertising and promotions as well as
start-up costs related to the new Ultra Service Dealer Program will be included.
Depreciation and amortization. Depreciation and amortization increased to
approximately $976,000 for the second quarter of fiscal 2000 from
approximately $653,000 for the second quarter of fiscal 1999. Depreciation
expense increased by $258,000 to approximately $804,000 for the second quarter
of fiscal 2000 from approximately $546,000 for the second quarter of fiscal
1999 primarily due to the increase in the number of installed cylinder
displays and the commencement of depreciation on cylinders held under
operating lease agreements. The increase in cylinder displays was due to our
ongoing purchase of additional cylinder displays to support the 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 $65,000 to approximately $172,000 in the second quarter of fiscal
2000 from approximately $107,000 in the second quarter of fiscal 1999
principally due to the increased amortization of intangibles associated with
the purchase of retail propane cylinder exchange locations and to a lesser
extent the amortization of patents related to our September 1999 purchase
of the OPD from Bison Valve, L.L.C. ("Bison Valve").
Interest expense. Interest expense increased to approximately $374,000 in
the second quarter of fiscal 2000 from approximately $207,000 in the second
quarter of fiscal 1999. The increase in interest expense resulted from the
additional borrowings outstanding under our credit facility. The additional
borrowings were used primarily to purchase cylinders leased to our
distributors, for business acquisitions and for capital expenditures including
construction in progress on our automated propane bottling and cylinder
refurbishing facility. The interest expense in the second quarter of fiscal
1999 resulted primarily from debt incurred to purchase cylinders leased to
distributors and capital lease obligations incurred to purchase computer
technology.
Other, net. Other, net decreased to a $9,000 loss in the second quarter of
fiscal 2000 from $80,000 of income in the second quarter of fiscal 1999. The
loss in the second quarter of fiscal 2000 resulted from the loss on disposal
of assets. The income in the second quarter of fiscal 2000 resulted primarily
from interest income from excess cash balances and various notes receivable.
10
<PAGE>
Comparison of the Six Months Ended January 31, 2000 as Compared to the Six
Months Ended January 31, 1999
Total revenues. Total revenues increased 57.7% to approximately $29.4
million for the six months ended January 31, 2000 from approximately $18.7
million for the six months ended January 31, 1999. Total revenues for the six
months ended January 31, 2000 consisted of approximately $26.4 million from
cylinder transactions, $1.5 million from product sales (combined cylinder
transactions and product sales are reflected on the statement of operations as
net sales) and $1.6 million from lease income. The product sales include sales
of patio heaters and to a lesser extent sales of OPD's. The lease income is
generated primarily from cylinders and cylinder displays leased to
distributors. The increase in total revenues was due primarily to increased
sales volume at existing locations and the increase in the number of retail
locations placed in service.The number of cylinders transacted increased 48.7%
to approximately 1.9 million units in the six months ended January 31, 2000
from approximately 1.3 million units during the six months ended January 31,
1999. Same store sales for the six months ended January 31, 2000 increased
more than 40% versus the same period in the prior year.
Gross margin. Gross margin, including the impact from lease income,
increased to 28.5% for the first six months of fiscal 2000 from 27.7% in the
same period of fiscal 1999. This increase was due primarily to additional
lease income.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 40.7% to approximately $5.0 million for the
six months ended January 31, 2000 from approximately $3.6 million for the six
months ended January 31, 1999 but decreased as a percentage of total revenues
to 17.2% for the six months ended January 31, 2000 from 19.2% for the six
months ended January 31, 1999. The increase in selling, general and
administrative expenses was due primarily to additional compensation costs and
costs related to our introduction of a patio heater product. Going forward, we
expect selling, general and administrative expenses to increase because costs
for national advertising and promotions as well as start-up costs related to
the new Ultra Service Dealer Program will be included. The decrease in
selling, general and administrative expenses as a percentage of total revenues
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 total
revenues.
Depreciation and amortization. Depreciation and amortization increased to
approximately $1.9 million for the six months ended January 31, 2000 from
approximately $1.2 million for the six months ended January 31, 1999.
Depreciation expense increased by $590,000 to approximately $1.6 million for
the six months ended January 31, 2000 from approximately $977,000 for the six
months ended January 31, 1999 primarily due to the increase in the number of
installed cylinder displays and the commencement of depreciation on cylinders
held under operating lease agreements. The increase in cylinder displays was
due to the 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 $126,000 to approximately $326,000 in the
six months ended January 31, 2000 from approximately $200,000 in the six
months ended January 31, 1999 principally due to the increased amortization of
intangibles associated with the purchase of retail propane cylinder exchange
locations and to a lesser extent the amortization of patents related to our
September 1999 purchase of certain assets related to the OPD from Bison Valve.
Interest expense. Interest expense increased to approximately $752,000 in
the six months ended January 31, 2000 from approximately $239,000 in the six
months ended January 31, 1999. The increase in interest expense resulted from
the additional borrowings outstanding under our credit facility. The
additional borrowings were used primarily to purchase cylinders leased to our
distributors, for business acquisitions and for capital expenditures including
construction in progress on our automated propane bottling and cylinder
refurbishing facility. The interest expense in the six months ended January
31, 1999 resulted primarily from debt incurred to purchase cylinders leased to
distributors and capital lease obligations incurred to purchase computer
technology.
11
<PAGE>
Other, net. Other, net decreased to a $9,000 loss in the six months ended
January 31, 2000 from $150,000 of income in the six months ended January 31,
1999. The loss in the six months ended January 31, 2000 resulted from the loss
on disposal of assets. The income in the six months ended January 31, 1999
resulted primarily from 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 and the
incurrence of debt, most recently through a private stock offering and a
convertible note offering in September 1999. We had positive working capital
of approximately $5.0 million as of January 31, 2000, which is primarily the
result of proceeds from the private stock and convertible note offerings and
to a lesser extent from cash provided by operations.
Net cash provided by operations was approximately $4.5 million for the six
months ended January 31, 2000 and approximately $746,000 for the six months
ended January 31, 1999. For the six months ended January 31, 2000, cash
provided by operations included net income of approximately $692,000.
Net cash used in investing activities was approximately $9.9 million for
the six months ended January 31, 2000 and $15.4 million for the six months
ended January 31, 1999. The primary components of cash used in investing
activities in both periods included acquisitions, purchases of cylinders
leased to our distributors and investments in property, plant and equipment
including approximately $2.9 million in the six months ended January 31, 2000
for the automated propane bottling and cylinder refurbishing plant.
Net cash provided by financing activities was approximately $4.7 million
for the six months ended January 31, 2000 and approximately $10.5 million for
the six months ended January 31, 1999. Cash provided by financing activities
for the six months ended January 31, 2000 included net proceeds of
approximately $6.4 million from a common stock and warrant private placement
and $7.0 million from a convertible notes and warrants private placement. For
the six months ended January 31, 1999, cash provided by financing activities
resulted from bank borrowings. In both periods, the cash used in financing
activities included payments on various notes payable and capital lease
obligations.
In September 1999, we entered into an agreement with two institutional
investors (the "Investors") to issue $7.0 million of 5% Convertible Notes (the
"Convertible Notes") and 332,203 warrants to purchase Common Stock (the
"Warrants") in a private placement (the "Convertible Note Offering"). The
Convertible Notes have a two-year term and bear interest at 5% per annum,
payable in full in cash or in kind at maturity. We may require the holders of
the Convertible Notes to convert the principal and interest on the Convertible
Notes into Common Stock over a company-chosen conversion period, which may be
from 20 to 60 days and may be in amounts of at least $300,000 subject to
certain conditions. Upon the occurrence of certain events, the holder may
convert the principal and interest on the Convertible Notes into Common Stock.
The Convertible Notes convert at the lesser of a fixed conversion price or 95%
of the Weighted Average Price of the Common Stock at the time of conversion.
The warrants are exercisable for five years at an exercise price of $8.48 per
share. In the future, we may also require the Investors to purchase in up to
two additional closings Convertible Notes in an aggregate amount equal to at
least $1.0 million but not more than $4.9 million if certain conditions are
met In addition, the Convertible Notes are subordinate, subject to certain
exceptions, to up to $25.0 million of our indebtedness to our bank.
Also, in September 1999, we completed a $7.2 million private placement of
981,119 units with each consisting of one share of our Common Stock, and one
warrant to purchase 0.35 shares of Common Stock. The offering was made only to
"accredited investors", as defined in Rule 501(a) of Regulation D. The
investors included the following officers and directors of the Company: Billy
D. Prim, Craig J. Duchossois, Andrew J. Filipowski, Mark Castaneda, Steven D.
Devick, Richard A. Brenner and Jerald D. Shadley, who in the aggregate
purchased 438,747 of the 981,119 units sold. The price per unit was $7.375,
which was the closing price of our Common Stock on September 3, 1999, the
final trading day prior to the consummation of the offering. The warrants may
be exercised at a price equal to $8.48 per share at any time prior to
September 7, 2004.
12
<PAGE>
Additionally, in September 1999, we purchased for an aggregate purchase price of
approximately $1.7 million certain assets related to the OPD developed
manufactured and marketed by Bison Valve. The acquired assets included OPD
molds, dies and all intellectual property relating to the OPD developed by
Bison Valve, which includes two patent applications on the OPD.
On December 9, 1999, we amended our credit facility with our bank. We can
use the up to $25.0 million facility to finance working capital, acquisitions
and capital expenditures, and to support the issuance of documentary and
standby letters of credit (the "Amended and Restated Bank Credit Facility").
The Amended and Restated Bank Credit Facility replaced our prior facility and
the facility of our wholly owned subsidiary, USA Leasing. The Amended and
Restated Bank Credit Facility, which matures on August 31, 2001, bears
interest at a maximum rate of LIBOR plus 2.25% and is collateralized by a lien
on substantially all our assets. The Amended and Restated Bank Credit Facility
also requires us to meet certain covenants, including maintaining a minimum
net worth, debt coverage and cash flow coverage ratios. Each of our
subsidiaries has executed a guaranty of this facility in favor of the bank. As
of January 31, 2000, we had borrowings outstanding under our Amended and
Restated Bank Credit Facility of approximately $16.2 million and we were in
compliance with all covenants.
In December 1999, we also closed three acquisitions of cylinder exchange
assets, including cylinders, cylinder displays and seller's right, title and
interest in a total of approximately 900 cylinder exchange accounts and
locations for an aggregate purchase price of approximately $1.9 million, of
which approximately $1.2 million was paid in cash. The cylinder exchange
accounts are located in Georgia, Kentucky, Ohio, South Carolina and Tennessee.
These acquisitions were accounted for under the purchase method of accounting
and were financed with cash provided by our Amended and Restated Bank Credit
Facility and from cash provided by operations.
We used the aggregate net proceeds of approximately $13.3 million from our
common stock and warrant private placement and our convertible notes and
warrants private placement to repay $7.0 million of cylinder financing, to
purchase certain assets related to the OPD from Bison Valve with approximately
$1.3 million and the balance was used to repay outstanding borrowings under
our notes payable to our bank.
We anticipate that our total capital expenditures for fiscal 2000,
excluding acquisitions, will be approximately $10.0 million, and will relate
primarily to cylinders, cylinder displays, investment in the automated
bottling plant and computer technology. Our capital expenditure 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. We believe that our existing borrowing capacity under
our line of credit, together with cash provided by operations will be
sufficient to meet our working capital requirements through fiscal 2000.
However, there can be no assurance that we will not seek or require additional
capital in the future as a result of expansion or otherwise.
Seasonality
We have experienced and expect to continue to experience significant
seasonal fluctuations in our total revenues and net income (loss). Our total
revenues generally are highest in our third and fourth quarters, which include
the majority of the grilling season, and historically have been lower in our
first and second quarters which include the winter months. Sustained periods
of poor weather, particularly in the spring and summer seasons, can negatively
impact sales. Our rate of establishing new retail locations and expenses
incurred in anticipation of increased sales also cause quarterly fluctuations
in our results of operations. Accordingly, the results of operations in any
quarter will not necessarily be indicative of the results that we may achieve
for a full fiscal year or any future quarter.
13
<PAGE>
Inflation
We do not believe that inflation has had a material adverse effect on our
revenues, cost of sales or our results of operations. As a result of the
recent and dramatic increase in fuel prices the cost of liquid propane and
diesel fuel are currently at historically high levels as we enter our peak
season. If fuel costs remain inflated for an extended period, our gross
margins and results of operations could be negatively effected due to
additional costs that may not be fully recovered through an increase in our
price to our customers. Therefore, 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 "Reporting
Comprehensive Income" ("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. There were no items of
comprehensive income for the three and six-month periods ended January 31,
2000 and 1999, as defined under SFAS No. 130.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which was
effective for fiscal years beginning after June 15, 1999. SFAS No. 133 was
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS No. 133," which delayed the
effective date of implementation by one year. The Company is required to and
will adopt SFAS No. 133 in the first quarter of fiscal 2001. The Company has
not completed all of the analysis, but does not expect adoption to have a
significant effect on its consolidated results of operations or financial
position.
Impact of Year 2000
In prior periods, we discussed the nature and progress of our plans to
become Year 2000 ready. In late 1999, we completed our remediation and testing
of systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believe those systems
successfully responded to the Year 2000 date change. We expensed approximately
$20,000 during 1999 in connection with remediating our systems. We are not
aware of any material problems resulting from Year 2000 issues, either with
our products, our internal systems, or the products and services of third
parties. We will continue to monitor our mission critical computer
applications and those of our suppliers and vendors throughout the year 2000
to ensure that any latent Year 2000 matters that may arise are addressed
promptly.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk related to changes in interest rates on our
borrowings under our Amended and Restated Bank Credit Facility. Our Amended
and Restated Bank Credit Facility bears interest based on LIBOR. The Amended
and Restated Bank Credit Facility is collateralized by cylinders held under
operating leases with our independent distributors. The operating leases
currently yield 1% of the cylinder value monthly (approximately 12% annually)
and continue until either party terminates upon 60 days written notice to the
other party. Upon any significant increase in LIBOR, we would attempt to
renegotiate the operating leases with our independent distributors mitigating
the interest rate exposure on the majority of the notes payable to the bank.
However, there can be no assurance that we will be successful in such
renegotiations or that we will be able to mitigate any or all of the interest
rate risk.
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.
14
<PAGE>
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
On December 2, 1999, we filed a complaint against PricewaterhouseCoopers
LLP in the Superior Court of Forsyth County, North Carolina alleging
negligence, breach of fiduciary duty, breach of contract, defamation and
unfair and deceptive trade practices. This suit is currently in the discovery
phase and relates to the conduct of PricewaterhouseCoopers during our
engagement of them as our auditors. We do not expect this litigation to have a
material adverse effect on our financial condition or results of operations.
We are not presently involved in any material litigation nor, to our
knowledge, is any material litigation threatened against us or our
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:
On December 21, 1999, we held our 1999 annual meeting of stockholders in
Winston-Salem, North Carolina. The following five matters were submitted to a
vote of the stockholders:
1. The election of Richard A. Brenner, Robert J. Lunn and John H.
Muehlstein to serve three year terms as our directors;
2. The amendment of our Amended and Restated Certificate of
Incorporation to reduce our authorized capital stock from 120,000,000
shares to 45,000,000 shares comprised of 7,500,000 shares of preferred
stock and 37,500,000 shares of common stock.
3. The approval of the issuance of our Common Stock issuable upon the
conversion of convertible notes and warrants issued to investors in the
September 1999 private placement.
4. The ratification of the adoption of the Blue Rhino Corporation
Employee Stock Purchase Plan.
5. The ratification of the appointment of Ernst & Young LLP as the
Company's independent public accountants for the fiscal year ending July
31, 2000.
The results of the stockholder voting were as follows:
<TABLE>
<CAPTION>
Broker Total
For Against Abstain Non-vote Votes
--------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
1 . Election of Directors
Richard A. Brenner............. 7,488,731 0 0 10,905 7,499,636
John H. Muehlstein............. 7,488,081 0 0 11,555 7,499,636
Robert J. Lunn................. 7,488,831 0 0 10,805 7,499,636
2. Amendment of Certificate of
Incorporation................... 6,061,891 7,995 3,782 1,425,968 7,499,636
3. Issuance of Common Stock...... 6,039,372 27,306 6,990 1,425,968 7,499,636
4. Ratification of Employee Stock
Purchase Plan................... 7,469,835 21,878 7,923 0 7,499,636
5. Ratification of Accountants... 7,494,203 1,500 3,933 0 7,499,636
</TABLE>
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
Exhibit 27.1 Financial data schedule
15
<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
By: _________________________________
Chairman, President and
Chief Executive Officer
Date: March 15, 2000
By: _________________________________
Chief Financial Officer
Date: March 15, 2000
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ACCOMPAYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 284
<SECURITIES> 0
<RECEIVABLES> 11,162
<ALLOWANCES> 311
<INVENTORY> 436
<CURRENT-ASSETS> 13,832
<PP&E> 26,203
<DEPRECIATION> 5,229
<TOTAL-ASSETS> 67,428
<CURRENT-LIABILITIES> 8,795
<BONDS> 23,286
0
0
<COMMON> 9
<OTHER-SE> 24,808
<TOTAL-LIABILITY-AND-EQUITY> 35,347
<SALES> 27,865
<TOTAL-REVENUES> 29,422
<CGS> 21,030
<TOTAL-COSTS> 27,969
<OTHER-EXPENSES> 9
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 752
<INCOME-PRETAX> 692
<INCOME-TAX> 0
<INCOME-CONTINUING> 692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 692
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
