United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period ended September 30, 1999
Commission File Number 333-34323
HYDROCHEM INDUSTRIAL SERVICES, INC. (*)
(Exact name of registrant as specified in its charter)
Delaware 75-2503906
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
900 Georgia Avenue
Deer Park, Texas 77536
(Address of principal executive offices) (Zip Code)
(713) 393-5600
(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 such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
The number of shares of Common Stock of the Registrant outstanding on
November 1, 1999 was 100 shares. The Registrant's Common Stock is not
registered under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended.
- ------------------------------------------------------------------------------
* HydroChem International, Inc., a wholly-owned subsidiary of HydroChem
Industrial Services, Inc., is a Co-Registrant. It is incorporated under the laws
of the State of Delaware. Its I.R.S. Employer Identification Number is
75-2512100.
<PAGE>
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999 (unaudited)....................... 3
Consolidated Statements of Operations for each of the
three and nine month periods ended September 30, 1998
and 1999 (unaudited)................................. 4
Consolidated Statement of Stockholder's Equity for the nine
month period ended September 30, 1999 (unaudited).... 5
Consolidated Statements of Cash Flows for each of the
nine month periods ended September 30, 1998 and
1999 (unaudited)..................................... 6
Notes to Consolidated Financial Statements (unaudited).. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................... 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................ 17
Part II.Other Information
Item 1. Legal Proceedings..................................... 18
Item 6. Exhibits and Reports on Form 8-K...................... 18
Signatures............................................................ 22
Exhibit Index......................................................... 23
2
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.................... $ 33,775 $ 2,206
Receivables, less allowance of $536 and $728,
respectively............................... 23,941 33,169
Inventories.................................. 3,902 4,586
Prepaid expenses and other current assets.... 1,714 2,339
Income taxes receivable...................... 243 243
Deferred income taxes........................ 1,467 1,655
------- -------
Total current assets....................... 65,042 44,198
Property and equipment, at cost.................. 81,459 92,832
Accumulated depreciation..................... (33,322) (41,061)
------- -------
48,137 51,771
Intangible assets, net........................... 43,246 67,906
------- -------
Total assets............................... $156,425 $163,875
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................. $ 4,973 $ 5,651
Accrued liabilities.......................... 13,193 14,543
Current portion of long-term debt (Note 3)... 121 209
------- -------
Total current liabilities.................. 18,287 20,403
Long-term debt (Note 3).......................... 115,996 118,211
Deferred income taxes............................ 8,626 8,814
Commitments and contingencies (Note 6)
Stockholder's equity:
Common stock, $.01 par value:
1,000 shares authorized, 100 shares
outstanding.............................. 1 1
Additional paid-in capital................... 16,558 16,558
Retained deficit............................. (3,043) (112)
------- -------
Total stockholder's equity................... 13,516 16,447
------- -------
Total liabilities and stockholder's equity. $156,425 $163,875
======= =======
</TABLE>
See accompanying notes.
3
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1999 1998 1999
------- ------- ------ ------
<S> <C> <C> <C> <C>
Revenue .............................. $40,509 $43,010 $126,464 $146,109
Cost of revenue....................... 25,632 25,709 78,702 86,409
------ ------ ------- -------
Gross profit...................... 14,877 17,301 47,762 59,700
Selling, general and administrative
expense.............................. 11,799 11,144 33,547 36,518
Depreciation.......................... 2,296 2,836 6,728 8,588
------ ------ ------ -------
Operating income.................. 782 3,321 7,487 14,594
Other (income) expense:
Interest expense, net............. 2,626 3,229 7,742 9,725
Special charge.................... - - 300 -
Other (income) expense, net....... (142) 105 (126) 37
Amortization of intangibles....... 375 634 1,125 1,901
------ ------ ------ -------
Income (loss) before taxes............ (2,077) (647) (1,554) 2,931
Income tax benefit (Note 4)....... (356) - (44) -
------ ------ ------ -------
Net income (loss)..................... $(1,721) $ (647) $(1,510) $ 2,931
====== ====== ====== =======
</TABLE>
See accompanying notes.
4
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Deficit Total
----- ------- ------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1998 .......... $ 1 $ 16,558 $(3,043) $13,516
Net income......................... - - 2,931 2,931
---- ------- ------ -------
Balance at September 30, 1999 ......... $ 1 $ 16,558 $ (112) $16,447
==== ======= ===== ======
</TABLE>
See accompanying notes.
5
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1998 1999
---- ----
<S> <C> <C>
Operating activities:
Net (loss) income..................................... $ (1,510) $ 2,931
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation...................................... 6,728 8,588
Amortization...................................... 1,125 1,901
Amortization of deferred financing costs.......... 230 356
Deferred income tax provision..................... (247) -
Loss (gain) on sale of property and equipment..... (58) 110
Changes in operating assets and liabilities, net of
effects of acquisition:
Restricted cash................................... 2,585 -
Receivables, net.................................. (1,094) (4,187)
Inventories....................................... (651) (684)
Prepaid expenses and other current assets......... (846) 17
Income taxes receivable........................... 95 -
Accounts payable.................................. 1,152 (71)
Income taxes payable.............................. (40) -
Accrued liabilities............................... (1,828) (144)
------- ------
Net cash provided by operating activities...... 5,641 8,817
------- ------
Investing activities:
Expenditures for property and equipment............... (15,278) (5,044)
Proceeds from sale of property and equipment.......... 244 187
Purchase of assets, net of cash....................... - (32,170)
------- -------
Net cash used in investing activities.......... (15,034) (37,027)
------- -------
Financing activities:
Proceeds from (repayments of) long-term debt, net..... 4,889 (3,359)
------- -------
Net cash used in financing activities.......... 4,889 (3,359)
------- -------
Net decrease in cash...................................... (4,504) (31,569)
Cash at beginning of period............................... 33,862 33,775
------- -------
Cash at end of period..................................... $ 29,358 $ 2,206
======= =======
</TABLE>
See accompanying notes.
6
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. ORGANIZATION, FORMATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of HydroChem
Industrial Services, Inc. ("HydroChem") and its wholly-owned subsidiaries,
including HydroChem International, Inc. ("International"). HydroChem
generally conducts business outside the United States through International.
(HydroChem and its subsidiaries are hereinafter sometimes referred to either
separately or collectively as the "Company.") HydroChem is a wholly-owned
subsidiary of HydroChem Holding, Inc. ("Holding").
The Company is engaged in the business of providing industrial cleaning
services to a wide range of processing industries, including petrochemical
plants, oil refineries, electric utilities, pulp and paper MILLS, STEEL
MILLS, ALUMINUM PLANTS, AND RUBBER PLANTS. This type of work is typically
recurring maintenance to improve or sustain the operating efficiencies and
extend the useful lives of process equipment and facilities. Services
provided include high-pressure water cleaning (hydroblasting), chemical
cleaning, industrial vacuuming and other services. Other services include
mechanical, commissioning, waste minimization and specialized services.
The accompanying unaudited consolidated financial statements presented
herein have been prepared in accordance with generally accepted accounting
principles for interim financial information and the rules and regulations
of the Securities and Exchange Commission. Accordingly, they do not include
all of the information and disclosures required by generally accepted
accounting principles for complete financial statements. Certain information
and disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted. In the opinion of management, the accompanying unaudited interim
financial statements include all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the results of the
interim periods. Operating results for the three and nine month interim
periods ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999. These
unaudited consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
2. DERIVATIVE FINANCIAL INSTRUMENTS
HydroChem entered into an interest rate swap agreement dated July 17,
1998 (the "Interest Rate Swap") with a financial institution to manage the
interest rate exposure of the Term Loan (as defined in Note 3) with the same
financial institution. At September 30, 1999, $7,420,000 was outstanding
under the Term Loan. Under the Interest Rate Swap, HydroChem's effective
fixed borrowing rate for the Term Loan is 7.82% per annum. The Company is
exposed to credit loss in the event of non-performance by the financial
institution; however, management does not anticipate non-performance and, in
the event of non-performance, no material loss would be expected. The
Company does not hold or issue financial instruments for trading purposes.
7
<PAGE>
3. LONG-TERM DEBT
Long-term debt at December 31, 1998 and September 30, 1999 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Senior subordinated notes..................... $110,000 $110,000
Construction loan............................. 6,117 -
Term loan..................................... - 7,420
Credit facility............................... - 1,000
------- -------
Total long-term debt.......................... 116,117 118,420
Less current portion of long-term debt..... (121) (209)
------- -------
$115,996 $118,211
======= =======
</TABLE>
HydroChem has outstanding $110,000,000 of Senior Subordinated Notes (the
"Notes"). The Notes mature on August 1, 2007 and bear interest at 10 3/8%
per annum which is payable semi-annually in arrears on February 1 and August
1 of each year. The Notes are redeemable at the option of HydroChem, in
whole or in part, on or after August 1, 2002 at specified redemption prices.
In addition, until August 4, 2000, up to 35% of the Notes are redeemable at
the option of HydroChem with the proceeds from one or more equity offerings
at a redemption price of 109.375% of the principal amount thereof. All
HydroChem subsidiaries, including International, are guarantors of the
Notes.
HydroChem is a party to a credit agreement dated December 31, 1997, as
amended, with a financial institution for a credit facility which provides
for unsecured borrowings of up to $25,000,000, subject to borrowing base
limitations (the "Credit Facility"). The Credit Facility matures on December
31, 2000 and any borrowings thereunder bear interest at rates which are
adjusted quarterly. At the discretion of HydroChem, interest rates are based
on (i) LIBOR plus an applicable margin of 1.75% to 3.00%, or, (ii) the
higher of (a) the prime rate plus an applicable margin of up to 1.00%, or
(b) the Federal Funds Rate plus an applicable margin of 0.50% to 1.50%. In
addition, a commitment fee of 0.25% to 0.50% per annum is payable quarterly
on the unborrowed portion of the Credit Facility. The specific rate within
each range depends upon the Company's operating performance. The Credit
Facility requires the Company to meet certain customary financial ratios and
covenants, and generally restricts the Company from pledging its assets. At
September 30, 1999, HydroChem's borrowing base under the Credit Facility was
$25,000,000, of which $3,260,000 had been utilized and $21,740,000 was
available. The amounts utilized consisted of advances and standby letters of
credit of $1,000,000 and $2,260,000, respectively. The standby letters of
credit principally were issued in connection with the Company's property and
casualty insurance program.
For the purpose of financing the land purchase and construction costs of
the Company's headquarters and operating facility in the Houston, Texas
area, HydroChem is a party to a loan agreement dated July 17, 1998, as
amended, with a financial institution (the "Construction Loan Agreement").
The Construction Loan Agreement provided for an interim construction loan
(the "Interim Loan") of up to $7,500,000 which was converted to a term loan
as of March 31, 1999 (the "Term Loan"). The Term Loan is collateralized by
first priority liens on the land and improvements. Interest on the Interim
Loan, which was payable quarterly, was at the lender's commercial loan rate
less 0.50%. The Term Loan matures on September 30, 2006. Under the Term
Loan, principal and interest are payable in quarterly installments, with a
final principal payment of $5,904,000 due at maturity. Pursuant to the
Interest Rate Swap, HydroChem's effective fixed borrowing rate for the Term
Loan is 7.82% per annum. The Construction Loan Agreement requires the
Company to meet certain customary financial ratios and covenants and
generally restricts the Company from transferring or pledging the facility's
assets. The Company obtained a waiver with respect to one of the ratios for
non-compliance resulting from special and restructuring charges recorded
during the quarter ended December 31, 1998. At September 30, 1999, HydroChem
had $7,420,000 outstanding under the Term Loan and was in compliance with
the financial ratios and covenants contained in the Construction Loan
Agreement.
8
<PAGE>
4. INCOME TAXES
The Company files a consolidated tax return with Holding. The Company's
effective income tax rate for the interim periods presented is based on
management's estimate of the Company's effective tax rate for the applicable
year and differs from the federal statutory income tax rate primarily due to
nondeductible permanent differences, state income taxes and changes in the
valuation allowance of deferred tax assets.
5. SUMMARY FINANCIAL INFORMATION
Summary financial information for International as consolidated with
HydroChem is as follows (in thousands):
<TABLE>
<CAPTION>
As of As of
December 31, September 30,
1998 1999
---- ----
<S> <C> <C>
Current assets......................... $ 1,377 $ 2,291
Noncurrent assets...................... 103 92
Current liabilities.................... 68 290
Noncurrent liabilities................. - -
</TABLE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
SEPTEMBER 30, SEPTEMBER 30,
-------------- ---------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue.................. $ 1,075 $1,815 $2,693 $ 4,630
Gross profit............. 296 636 833 1,743
Net income (loss)........ (2) 199 (206) 680
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various lawsuits arising in the normal
course of business. Substantially all of these suits are being defended by
the Company's insurance carriers. While the results of litigation cannot be
predicted with certainty, management believes that adequate provision has
been made for such claims and that the final outcome of such litigation will
not have a material adverse effect on the Company's consolidated financial
position.
The Company is a defendant in approximately 70 lawsuits originally filed
in the 18th Judicial District Court for the Parish of Iberville, Louisiana
against Georgia Gulf Corporation ("Georgia Gulf"), the Company and other
defendants, which have arisen from a chemical exposure incident at a Georgia
Gulf facility in Plaquemine, Louisiana in September 1996. The suits cover
claims by approximately 640 non-Company employees present at the facility
(the "Worker Plaintiffs") and by approximately 1,400 persons who are related
to or live with the Worker Plaintiffs. All of the plaintiffs seek damages
for alleged toxic exposure resulting from this incident. Pursuant to a
Memorandum of Understanding effective April 15, 1999, virtually all of the
plaintiffs and each of the defendants in the actions agreed upon a
settlement. Under this agreement, the Company's insurance carriers deposited
the Company's share of the settlement into escrow, which is being disbursed
on a pro rata basis upon receipt of a release from each participating
plaintiff or the dismissal of the claims of any plaintiff who does not
participate. as of october 31, 1999, approximately 90% of the escrow has
been disbursed. Separately, Georgia Gulf has agreed to indemnify the company
against the claims of any plaintiff who does not participate in the
settlement, the claims of the approximately twenty plaintiffs who are not
parties to the agreement, and against any future claims which may arise in
connection with this incident.
All payments by the Company under these arrangements have been made by
the Company's insurance carriers. accordingly, subject to the completion of
the settlement process, management believes this litigation will not have a
material adverse affect on the Company's financial position or results of
operations.
9
<PAGE>
The Company is also a defendant in a lawsuit filed on September 20, 1999
in the 24th Judicial District Court for the Parish of Jefferson, Louisiana,
which seeks class certification on behalf of an unknown number of
plaintiffs, who allege personal and property damages arising from the
release of a single 330-gallon container of hydrochloric acid on a public
highway in Kenner, Louisiana in September 1999. The Company is being
defended in this suit by one of its liability insurance carriers. Although
this matter is in its initial stages and its outcome is therefore difficult
to predict with certainty, management believes that any resolution will be
within the limits of its applicable insurance coverage and will not have a
material adverse affect on the Company's financial position or results of
operations.
7. ACQUISITION
On January 5, 1999, the Company acquired substantially all of the assets
and assumed certain liabilities of Valley Systems, Inc. and Valley Systems
of Ohio, Inc. (collectively "Valley"), a regional industrial services
provider. The acquisition, which was effective as of January 1, 1999, was
pursuant to the terms and conditions of a Second Amended and Restated Asset
Purchase Agreement dated as of September 8, 1998. The assets acquired
consisted primarily of (i) accounts receivable, (ii) property, plant and
equipment, (iii) intangibles, and (iv) other operating assets. The adjusted
purchase price for the acquired assets was $30,857,000, of which $4,000,000
was deposited into escrow. As part of the transaction, the Company also
assumed $2,493,000 in capital lease obligations and $5,594,000 in bank debt.
The Company has converted the capital leases to operating leases and retired
the bank debt. The source of funds for the purchase price and retirement of
Valley's bank debt was a combination of cash on hand and borrowings under
the Credit Facility.
The acquisition has been accounted for using the purchase method of
accounting. The Company's financial statements reflect a preliminary
allocation of the purchase price based upon the Company's initial valuation.
The excess of the purchase price over the fair value of the net assets
acquired is being amortized over periods ranging from 10 to 25 years and is
estimated as follows (in thousands):
<TABLE>
<S> <C>
Purchase price (as adjusted).............. $ 30,857
Transaction and acquisition costs......... 2,101
-------
32,958
Fair value of net assets acquired......... 5,986
-------
Excess of purchase price over fair value.. $ 26,972
======
</TABLE>
The book value of net assets acquired was determined to approximate fair
value at the date of acquisition. Transaction costs consisted primarily of
fees to attorneys, accountants and other outside service providers, and
costs of transferring ownership of the acquired assets. Acquisition costs
primarily represent (i) severance and relocation costs for certain Valley
employees, (ii) expenses incurred in connection with the closing or
consolidation of certain facilities, and (iii) certain other costs incurred
directly in connection with the acquisition.
The results of operations derived from assets acquired from Valley are
included in the Company's financial statements from the effective date of
acquisition. Unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of the Valley assets had occurred on
January 1, 1998 and include (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1998
---- ----
<S> <C> <C>
Revenue............................. $48,106 $146,578
Net loss............................ (1,233) (881)
</TABLE>
The unaudited pro forma consolidated results of operations presented
above do not purport to be indicative of results that would have occurred
had the acquisition been in effect for the period presented, nor do they
purport to be indicative of results that will be obtained in the future.
10
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND OTHER ITEMS IN THIS QUARTERLY REPORT ON FORM 10-Q CONTAIN
FORWARD-LOOKING STATEMENTS AND INFORMATION THAT ARE BASED ON MANAGEMENT'S
BELIEFS, AS WELL AS ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO,
MANAGEMENT. WHEN USED IN THIS DOCUMENT, THE WORDS "BELIEVE", "ANTICIPATE",
"ESTIMATE", "EXPECT", "INTEND", AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. ALTHOUGH MANAGEMENT BELIEVES THAT THE EXPECTATIONS
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO
ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. SUCH
STATEMENTS ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS. SHOULD
ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING
ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE
ANTICIPATED. THE COMPANY UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS
OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
For supplemental information, it is suggested that "Management's Discussion
and Analysis of Financial Condition and Results of Operations" be read in
conjunction with the corresponding sections included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998. The Form 10-K also
includes the Company's Consolidated Financial Statements and the Notes thereto
for certain prior periods, as well as other relevant financial and operating
information.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the Company's consolidated statements of operations, expressed as a
percentage of revenue. There can be no assurance that the trends in operating
results will continue in the future.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue......................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue................. 63.3 59.8 62.2 59.1
----- ----- ----- -----
Gross profit................. 36.7 40.2 37.8 40.9
SG&A expense.................... 29.1 25.9 26.5 25.0
Depreciation.................... 5.7 6.6 5.3 5.9
----- ----- ----- -----
Operating income............. 1.9 7.7 6.0 10.0
Other (income) expense:
Interest expense, net........ 6.5 7.5 6.1 6.7
Special charge............... - - 0.2 -
Other (income) expense, net.. (0.3) 0.2 - -
Amortization of intangibles.. 0.9 1.5 0.9 1.3
----- ----- ----- -----
Income (loss) before taxes...... (5.2) (1.5) (1.2) 2.0
Income tax benefit ..... (0.9) - - -
----- ----- ----- -----
Net income (loss)............... (4.3)% (1.5)% (1.2)% 2.0%
===== ===== ===== =====
EBITDA(1)....................... 7.6% 14.3% 11.3% 15.9%
===== ===== ===== =====
</TABLE>
- ----------
(1) EBITDA for any relevant period presented above represents income before
taxes plus interest expense, depreciation, amortization, and other income and
expense (including a special charge of $300,000 in the nine months ended
September 30, 1998). EBITDA should not be construed as a substitute for
operating income, as an indicator of liquidity or as a substitute for net cash
provided by operating activities, which are determined in accordance with
generally accepted accounting principles. EBITDA is included because management
believes it to be a useful tool for analyzing operating performance, leverage,
liquidity and a company's ability to service debt.
11
<PAGE>
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
- --------------------------------------------------------------------------------
REVENUE. Revenue increased $2.5 million, or 6.2%, to $43.0 million for the
three months ended September 30, 1999 from $40.5 million in the prior year
period. The increase resulted from an increase in industrial vacuuming revenue
of $2.2 million, or 33.1%, from $6.8 million to $9.0 million, and an increase in
hydroblasting revenue of $1.5 million, or 7.9%, from $18.7 million to $20.2
million. These increases were partially offset by a decrease in other services
revenue of $728,000, or 18.4%, from $3.9 million to $3.2 million, and a decrease
in chemical cleaning revenue of $489,000, or 4.4%, from $11.1 million to $10.6
million. The increase in industrial vacuuming revenue resulted from additional
vacuum trucks placed in service by the Company in 1998 and 1999, and the
acquisition of the Valley assets. Hydroblasting revenue increased as a result of
the acquisition of the Valley assets, partially offset by a reduced volume of
projects in other locations. The decrease in other services revenue and chemical
cleaning revenue principally resulted from a reduced volume of projects.
GROSS PROFIT. Gross profit increased $2.4 million, or 16.3%, to $17.3
million in 1999 from $14.9 million in the prior year period. Gross profit
margins increased from 36.7% to 40.2%. Cost of revenue increased $77,000, OR
0.3%, TO $25.7 million in 1999 from $25.6 million in the prior year period
primarily due to the revenue increases described above, partially offset by the
results of a cost reduction program implemented in late 1998, which included,
among other things, a reduction in work force.
SG&A EXPENSE. SG&A expense decreased $655,000, or 5.6%, to $11.1 million in
1999 from $11.8 million in the prior year period. This decrease primarily
resulted from the cost reduction program described above and was partially
offset by the acquisition of the Valley assets. SG&A expense as a percentage of
revenue decreased to 25.9% in 1999 from 29.1% in the prior year period.
EBITDA. Increased gross profit and decreased SG&A expense, resulted in a
$3.1 million, or 100.0%, increase in EBITDA to $6.2 million in 1999 from $3.1
million in the prior year period. As a percentage of revenue, EBITDA increased
TO 14.3% IN 1999 FROM 7.6% in the prior year period.
DEPRECIATION. Depreciation expense increased $540,000, or 23.5%, to $2.8
million in 1999 from $2.3 million in the prior year period, and was 6.6% and
5.7% of revenue, respectively. the increase in depreciation expense principally
resulted from the acquisition of the Valley assets, and from capital
expenditures in 1998 and 1999.
OPERATING INCOME. Increased gross profit and decreased SG&A, partially
offset by increased depreciation expense, resulted in an increase in operating
income of $2.5 million, or 324.7%, to $3.3 million in 1999 from $782,000 in the
prior year period. As a percentage of revenue, operating income increased to
7.7% in 1999 FROM 1.9% in the prior year period.
INTEREST EXPENSE, NET. Interest expense, net increased $603,000, or 23.0%,
to $3.2 million in 1999 from $2.6 million in the prior year period. Increased
interest expense, net resulted from (i) an increase in debt due to borrowings
under the Construction Loan Agreement beginning in July 1998 and borrowings
under the Credit Facility in January 1999 to finance a portion of the purchase
price of the Valley assets and the retirement of the Valley bank debt, and (ii)
a decrease in interest income due to lower invested cash balances.
AMORTIZATION. Amortization expense increased $259,000, or 69.1%, to $634,000
in 1999 from $375,000 in the prior year period. Increased amortization expense
resulted from goodwill incurred in connection with the acquisition of the Valley
assets.
INCOME (LOSS) BEFORE TAXES. For the reasons described above, the Company
incurred a loss before taxes of $647,000 in 1999 as compared to a loss of $2.1
million in the prior year period. As a percentage of revenue, the loss before
taxes was 1.5% in 1999 compared to 5.2% in the prior year period.
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INCOME TAX BENEFIT. The effective income tax benefit rate decreased to zero
in 1999 from 17.1% of loss before taxes in the prior year period. This decrease
principally resulted from changes in the valuation allowance of deferred tax
assets.
NET INCOME (LOSS). For the reasons described above, the Company's net loss
decreased $1.1 million to $647,000 in 1999 from $1.7 million in the prior year
period. As a percentage of revenue, the net loss was 1.5% in 1999 compared to
4.3% in the prior year period.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
- --------------------------------------------------------------------------------
REVENUE. Revenue increased $19.6 million, or 15.5%, to $146.1 million for
the nine months ended september 30, 1999 from $126.5 million in the prior year
period. The increase in revenue, which applied to all service lines, resulted
from increases in industrial vacuuming revenue of $9.1 million, or 52.6%, from
$17.2 million to $26.3 million; hydroblasting revenue of $5.9 million, or 9.5%
from $62.3 million to $68.2 million; other services revenue of $2.9 million, or
38.7%, from $7.7 million to $10.6 million; and chemical cleaning revenue of $1.7
million, or 4.3%, from $39.3 million to $41.0 million. The increase in
industrial vacuuming revenue resulted from additional vacuum trucks placed in
service by the Company in 1998 and 1999, and the acquisition of the Valley
assets. Hydroblasting revenue increased primarily as a result of the acquisition
of the Valley assets, partially offset by a reduced volume of projects in other
locations. The increase in other services revenue principally resulted from
mechanical services projects, which the Company began performing in april 1998,
and an increased volume of commissioning services projects. The increase in
chemical cleaning revenue principally resulted from an increased volume of
projects.
GROSS PROFIT. Gross profit increased $11.9 million, or 25.0%, to $59.7
million in 1999 from $47.8 million in the prior year period. Gross profit
margins increased from 37.8% to 40.9%. Cost of revenue increased $7.7 million,
or 9.8%, to $86.4 million in 1999 from $78.7 million in the prior year period
primarily due to the revenue increases described above, partially offset by the
results of a cost reduction program implemented in late 1998, which included,
among other things, a reduction in work force.
SG&A EXPENSE. SG&A expense increased $3.0 million, or 8.9%, to $36.5 million
in 1999 from $33.5 million in the prior year period. This increase primarily
resulted from the acquisition of the Valley assets and was partially offset by
the cost reduction program described above. SG&A expense as a percentage of
revenue decreased to 25.0% in 1999 from 26.5% in the prior year period.
EBITDA. Increased gross profit, partially offset by increased SG&A expense,
resulted in a $9.0 million, or 63.1%, increase in ebitda to $23.2 million in
1999 from $14.2 million in the prior year period. As a percentage of revenue,
EBITDA increased to 15.9% in 1999 from 11.3% in the prior year period.
DEPRECIATION. Depreciation expense increased $1.9 million, or 27.6%, to $8.6
million in 1999 from $6.7 million in the prior year period, and was 5.9% and
5.3% of revenue, respectively. The increase in depreciation expense principally
resulted from the acquisition of the Valley assets, and from capital
expenditures in 1998 and 1999.
OPERATING INCOME. Increased gross profit, partially offset by increased SG&A
and depreciation expense, resulted in an increase in operating income of $7.1
million, or 94.9%, to $14.6 million in 1999 from $7.5 million in the prior year
period. As a percentage of revenue, operating income increased to 10.0% in 1999
from 6.0% in the prior year period.
INTEREST EXPENSE, NET. Interest expense, net increased $2.0 million, or
25.6%, to $9.7 million in 1999 from $7.7 million in the prior year period.
Increased interest expense, net resulted from (i) an increase in debt due to
borrowings under the Construction Loan Agreement beginning in July 1998 and
borrowings under the credit facility in January 1999 to finance a portion of the
purchase price of the Valley assets and the retirement of the Valley bank debt,
and (ii) a decrease in interest income due to lower invested cash balances.
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SPECIAL CHARGE. The Company incurred approximately $300,000 of expense in
the prior year period related to a terminated acquisition.
AMORTIZATION. Amortization expense increased $776,000, or 69.0%, to $1.9
million in 1999 from $1.1 million in the prior year period. Increased
amortization expense resulted from goodwill incurred in connection with the
acquisition of the Valley assets.
INCOME (LOSS) BEFORE TAXES. For the reasons described above, income before
taxes increased $4.5 million to $2.9 million in 1999 from a loss of $1.6 million
in the prior year period. As a percentage of revenue, income before taxes was
2.0% in 1999 compared to a loss of 1.2% in the prior year period.
INCOME TAX BENEFIT. The effective income tax benefit rate decreased to zero
in 1999 from 2.8% of income before taxes in the prior year period. This decrease
principally resulted from changes in the valuation allowance of deferred tax
assets.
NET INCOME (LOSS). For the reasons described above, the Company's net income
increased $4.4 million to $2.9 million in 1999 from a $1.5 million net loss in
the prior year period. As a percentage of revenue, net income was 2.0% in 1999
compared to a net loss of 1.2% in the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
The Company principally has financed its operations through net cash
provided by operating activities, existing cash balances, available credit
facilities, and capital contributions from Holding. HydroChem has outstanding
$110.0 million of Senior Subordinated Notes (the "Notes"). The Notes mature on
August 1, 2007 and bear interest at 10 3/8% per annum which is payable
semi-annually in arrears on February 1 and August 1 of each year. The Notes are
redeemable at the option of HydroChem, in whole or in part, on or after August
1, 2002 at specified redemption prices. In addition, until August 4, 2000, up to
35% of the Notes are redeemable at the option of HydroChem with the proceeds
from one or more equity offerings at a redemption price of 109.375% of the
principal amount thereof. All HydroChem subsidiaries, including International,
are guarantors of the Notes.
HydroChem is a party to a credit agreement dated December 31, 1997, as
amended, with a financial institution for a credit facility which provides for
unsecured borrowings of up to $25.0 million, subject to borrowing base
limitations (the "Credit Facility"). The Credit Facility matures on December 31,
2000 and any borrowings thereunder bear interest at rates which are adjusted
quarterly. At the discretion of HydroChem, interest rates are based on (i) LIBOR
plus an applicable margin of 1.75% to 3.00%, or, (ii) the higher of (a) the
prime rate plus an applicable margin of up to 1.00%, or (b) the Federal Funds
Rate plus an applicable margin of 0.50% to 1.50%. In addition, a commitment fee
of 0.25% to 0.50% per annum is payable quarterly on the unborrowed portion of
the Credit Facility. The specific rate within each range depends upon the
Company's operating performance. The Credit Facility requires the Company to
meet certain customary financial ratios and covenants, and generally restricts
the Company from pledging its assets. At September 30, 1999, HydroChem's
borrowing base under the Credit Facility was $25.0 million, of which $3.3
million had been utilized and $21.7 million was available. The amounts utilized
consisted of advances and standby letters of credit of $1.0 million and $2.3
million, respectively. The standby letters of credit principally were issued in
connection with the Company's property and casualty insurance program.
For the purpose of financing the land purchase and construction costs of the
Company's headquarters and operating facility in the Houston, Texas area,
HydroChem is a party to a loan agreement dated July 17, 1998, as amended, with a
financial institution (the "Construction Loan Agreement"). The Construction Loan
Agreement provided for an interim construction loan (the "Interim Loan") of up
to $7.5 million which was converted to a term loan as of March 31, 1999 (the
"Term Loan"). The Term Loan is collateralized by first priority liens on the
land and improvements. Interest on the Interim Loan, which was payable
quarterly, was at the lender's commercial loan rate less 0.50%. The Term Loan
matures on September 30, 2006. Under the Term Loan, principal and interest are
payable in quarterly installments, with a final principal payment of $5.9
million due at maturity. Pursuant to the Interest Rate Swap, HydroChem's
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effective fixed borrowing rate for the Term Loan is 7.82% per annum. The
Construction Loan Agreement requires the Company to meet certain customary
financial ratios and covenants and generally restricts the Company from
transferring or pledging the facility's assets. The Company obtained a waiver
with respect to one of the ratios for non-compliance resulting from special and
restructuring charges recorded during the quarter ended December 31, 1998. At
September 30, 1999, HydroChem had outstanding $7.4 million under the Term Loan
and was in compliance with the financial ratios and covenants contained in the
Construction Loan Agreement.
For the nine months ended September 30, 1999, the Company used net cash of
$28.2 million in operating and investing activities, which consisted of $8.8
million provided by operating activities and $37.0 million used in investing
activities. For the nine months ended September 30, 1998, $9.4 million of net
cash was used in operating and investing activities, which consisted of $5.6
million provided by operating activities and $15.0 million used in investing
activities. Except for the purchase of the Valley assets in the current period,
investing activities for both periods consisted primarily of expenditures for
property and equipment.
Expenditures for property and equipment for the nine months ended September
30, 1999 were $5.0 million. Of this amount, $3.1 million was used principally
for purchases of operating equipment, $1.1 million to implement new field and
corporate software and hardware systems, and $770,000 in connection with the
CONSTRUCTION OF THE COMPANY'S headquarters and operating facility.
On January 5, 1999, the Company acquired substantially all of the assets and
assumed certain liabilities of Valley. The assets acquired consisted primarily
of (i) accounts receivable, (ii) property, plant and equipment, (iii)
intangibles, and (iv) other operating assets. The adjusted purchase price for
the acquired assets was $30.9 million, of which $4 million was deposited into
escrow. As part of the transaction, the Company also assumed $2.5 million in
capital lease obligations and $5.6 million in bank debt. The Company has
converted the capital leases to operating leases and retired the bank debt. The
source of funds for the purchase price and retirement of Valley's bank debt was
a combination of cash on hand and borrowings under the Credit Facility.
Management believes that cash and cash equivalents at September 30, 1999,
net cash expected to be provided by operating activities and funds available
from its existing credit facilities will be sufficient to meet its cash
requirements for operations and expenditures for property and equipment for the
next twelve months and the foreseeable future thereafter. From time to time, the
Company engages in discussions with respect to selected acquisitions and expects
to continue to assess these and other acquisition opportunities as the arise.
The Company may also require additional financing if it decides to make
additional acquisitions. There can be no assurance, however, that any such
opportunities will arise, that any such acquisitions will be consummated or that
any needed additional financing will be available when required on terms
satisfactory to the Company.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. This could
result in a system failure or miscalculation if, for example, a computer program
recognizes a date of "00" as the year 1900 instead of 2000. Management has
assessed the Year 2000 issue with regard to the Company's internal financial and
operating systems as well as certain third parties with which the Company has
material relationships.
With regard to the Company's financial and operating systems, HydroChem has
developed, acquired and implemented software and hardware systems which it
believes to be Year 2000 compliant, including new software and hardware systems
for which the Company expended a total of $2.2 million in 1998 and 1999.
Management estimates it will incur an aggregate of approximately $2.7 million in
connection with these systems by the end of 1999. The Company has successfully
completed testing these systems for Year 2000 compliance, however, there can be
no assurance that all Year 2000 issues have been detected. The Company is in the
process of completing a contingency plan to address situations that may result
if the Company is unable to achieve complete Year 2000 readiness. The Company's
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Year 2000 compliance program is ongoing and its ultimate scope, as well as the
consideration of contingency plans, will continue to be evaluated as new
information becomes available.
As part of its Year 2000 compliance program, management has identified
certain third parties with which the Company has material relationships. These
parties are primarily large financial, telecommunication and information
processing entities, and other third party suppliers. Certain of these third
parties have reported to the Company that they are on schedule with their
projects to remediate Year 2000 issues, and that they anticipate being Year 2000
compliant on a timely basis. Management is monitoring the progress of these
third parties and expects to develop contingency plans in the event one or more
of these third parties fail to remediate their Year 2000 issues in such a way as
to materially affect the operations of the Company.
The Year 2000 issue involves significant risks. There can be no assurance
that the Company will succeed in implementing its Year 2000 program, potentially
as a result of factors, which are beyond the Company's control. The following
describes the Company's most reasonably likely worst-case scenario, given
current uncertainties: if any of the Company's software applications or embedded
microprocessors central to the Company's operations are overlooked in the
assessment or implementation phases of the Company's Year 2000 program,
significant problems could occur, including delays in accounting and financial
reporting. It is also possible, given the numerous other uncertainties which
could occur, that the Company's business, financial condition and results of
operations could be adversely affected. Management is unable to assess the
likelihood of such events occurring or the extent of their effect. Although
there can be no assurance, management has no reason to believe that any Year
2000 issues that the Company may experience will have a material adverse effect
on its operations.
The foregoing Year 2000 discussion contains forward-looking statements. Such
statements, including without limitation anticipated costs and the dates by
which management expects to complete certain actions, are based on management's
best current estimates, which were derived utilizing numerous assumptions about
future events, including the continued availability of certain resources,
representations received from third parties, and other factors. However, there
can be no guarantee that these estimates will be achieved, and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the ability to
identify and remediate all relevant information technology and non-information
technology systems, results of Year 2000 testing, adequate resolution of Year
2000 issues by businesses and other third parties who are service providers,
suppliers or customers of the Company, unanticipated system costs, the adequacy
of and ability to develop and implement contingency plans, and similar
uncertainties. The forward looking statements made in the foregoing Year 2000
discussion speak only as of the date on which such statements are made, and the
Company undertakes no obligation to update any forward-looking statements to
reflect events or circumstances after the date on which such statements are made
or to reflect the occurrence of unanticipated events.
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HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The following discussion regarding the Company's market risk includes
forward-looking statements that involve risk and uncertainties. Actual results
could differ materially from those projected in the forward-looking statements.
The Company is exposed to certain market risks which include financial
instruments such as short-term investments, trade receivables, and long-term
debt. The adverse effects of potential changes in these market risks are
discussed below. The sensitivity analyses discussed below do not reflect: (i)
the effects that such adverse changes may have on overall economic activity; or,
(ii) additional actions management may take to mitigate the Company's exposure
to such changes. The Company does not engage in speculative transactions and
does not use derivative instruments or engage in hedging activities, except for
the Interest Rate Swap which is being utilized in connection with the Term Loan.
The Company provides industrial cleaning services to a wide range of
processing industries including petrochemical plants, oil refineries, electric
utilities, pulp and paper mills, rubber plants, and aluminum plants. Management
believes the Company's portfolio of accounts receivable is well diversified and,
as a result, its credit risks are minimal. Management evaluates the
creditworthiness of the Company's customers and monitors accounts on a periodic
basis, but typically does not require collateral. The Company's trade
receivables are primarily denominated in U.S. dollars and are generally due
within 30 days. In general, trade receivables are collected in a timely manner,
and historically bad debts have been immaterial and within management's
expectations. Management believes that diversification and timely collection of
accounts receivable reduces associated credit risk.
The Company's surplus cash is placed in overnight investments with a high
quality financial institution, in accordance with investment guidelines relative
to credit quality, diversification and maturity to reduce risk and provide for
liquidity. As of September 30, 1999, the Company had overnight investment
deposits in a cash reserves money market mutual fund totaling $2.2 million. Due
to the short-term nature of these investments, management believes the carrying
value approximates market value. Management expects to continue to invest
surplus cash amounts in overnight deposits during 1999 and, as a result, a
decrease of 1.0% from current average investment rates would not have a material
effect on the Company's consolidated financial position.
As of September 30, 1999, the Company's outstanding long-term debt consisted
of the Credit Facility, the Term Loan, and the Notes. The Notes totaled $110.0
million, are due August 1, 2007, and bear interest at a fixed rate of 10 3/8%
per annum. As of September 30, 1999, the market value of the Notes was estimated
to be $99.0 million.
At the same date, outstanding borrowings under the Credit Facility and the
Term Loan totaled $8.4 million and approximated their fair values. At the
discretion of HydroChem, interest rates under the Credit Facility are based on
(i) a range from LIBOR plus 1.75% to LIBOR plus 3.00%, or (ii) the higher of (a)
the prime rate or (b) the Federal Funds Rate plus 0.50%, plus an applicable
margin of up to 1.00%. The Term Loan bears interest at LIBOR rates plus 1.75%
adjusted quarterly. To protect the Term Loan against interest rate fluctuations,
the Company entered into the Interest Rate Swap which effectively fixes the
interest rate at 7.82% per annum.
Market risk, estimated as a potential increase in fair value of debt
instruments resulting from a hypothetical 1.0% decrease in interest rates, is
estimated not to be material to the Company's consolidated financial position
during 1999.
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PART II. OTHER INFORMATION
Item 1.Legal Proceedings
The Company is a defendant in approximately 70 lawsuits originally filed
in the 18th Judicial District Court for the Parish of Iberville, Louisiana
against Georgia Gulf Corporation ("Georgia Gulf"), the Company and other
defendants, which have arisen from a chemical exposure incident at a Georgia
Gulf facility in Plaquemine, Louisiana in September 1996. The suits cover claims
by approximately 640 non-Company employees present at the facility (the "Worker
Plaintiffs") and by approximately 1,400 persons who are related to or live with
the Worker Plaintiffs. All of the plaintiffs seek damages for alleged toxic
exposure resulting from this incident. Pursuant to a Memorandum of Understanding
effective April 15, 1999, virtually all of the plaintiffs and each of the
defendants in the actions agreed upon a settlement. Under this agreement, the
Company's insurance carriers deposited the Company's share of the settlement
into escrow, which is being disbursed on a pro rata basis upon receipt of a
release from each participating plaintiff or the dismissal of the claims of any
plaintiff who does not participate. As of October 31, 1999, approximately 90% of
the escrow has been disbursed. Separately, Georgia Gulf has agreed to indemnify
the Company against the claims of any plaintiff who does not participate in the
settlement, the claims of the approximately twenty plaintiffs who are not
parties to the agreement, and against any future claims which may arise in
connection with this incident.
All payments by the Company under these arrangements have been made by
the Company's insurance carriers. Accordingly, subject to the completion of the
settlement process, management believes this litigation will not have a material
adverse affect on the Company's financial position or results of operations.
The Company is also a defendant in a lawsuit recently filed on September
20, 1999 in the 24th Judicial District Court for the Parish of Jefferson,
Louisiana, which seeks class certification on behalf of an unknown number of
plaintiffs, who allege personal and property damages arising from the release of
a single 330-gallon container of hydrochloric acid on a public highway in
Kenner, Louisiana in September 1999. The Company is being defended in this suit
by one of its liability insurance carriers. Although this matter is in its
initial stages and its outcome is therefore difficult to predict with certainty,
management believes that any resolution will be within the limits of its
applicable insurance coverage and will not have a material adverse affect on the
Company's financial position or result of operations.
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
3.1 Certificate of Incorporation of HydroChem Industrial
Services, Inc. as amended. (Exhibit 3.1 to the
Company's Registration Statement on Form S-4, filed
August 25, 1997, is hereby incorporated by reference.)
3.2 Certificate of Incorporation of HydroChem
International, Inc., as amended. (Exhibit 3.2 to the
Company's Registration Statement on Form S-4, filed
August 25, 1997, is hereby incorporated by reference.)
3.3 By-Laws of HydroChem Industrial Services, Inc.
(Exhibit 3.3 to the Company's Registration Statement
on Form S-4, filed August 25, 1997, is hereby
incorporated by reference.)
3.4 By-Laws of HydroChem International, Inc. (Exhibit 3.4
to the Company's Registration Statement on Form S-4,
filed August 25, 1997, is hereby incorporated by
reference.)
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4.1 Purchase Agreement, dated as of July 30, 1997, by and
among HydroChem Industrial Services, Inc., HydroChem
International, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, as Initial Purchaser, relating
to the 10 3/8% Series A Senior Subordinated Notes due
2007. (Exhibit 4.1 to the Company's Registration
Statement on Form S-4, filed August 25, 1997, is
hereby incorporated by reference.)
4.2 Indenture, dated as of August 1, 1997, among HydroChem
Industrial Services, Inc., HydroChem International,
Inc., as Guarantor, and Norwest Bank, Minnesota, N.A.,
as Trustee. (Exhibit 4.2 to the Company's Registration
Statement on Form S-4, filed August 25, 1997, is
hereby incorporated by reference.)
4.3 Registration Rights Agreement dated August 4, 1997, by
and among HydroChem Industrial Services, Inc.,
HydroChem International, Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation, as Initial Purchaser.
(Exhibit 4.3 to the Company's Registration Statement
on Form S-4, filed August 25, 1997, is hereby
incorporated by reference.)
10.1 HydroChem Holding, Inc. 1994 Stock Option Plan.
(Exhibit 10.1 to the Company's Registration Statement
on Form S-4, filed August 25, 1997, is hereby
incorporated by reference.)
10.2 Employment Agreement dated December 15, 1993 by and
among HydroChem Holding, Inc., HydroChem Industrial
Services, Inc. and B. Tom Carter, Jr., as amended
through December 9, 1996. (Exhibit 10.5 to the
Company's Registration Statement on Form S-4, filed
August 25, 1997, is hereby incorporated by reference.)
10.3 Fourth Amendment to Employment Agreement dated April
9, 1998 by and among HydroChem Holding, Inc.,
HydroChem Industrial Services, Inc. and B. Tom Carter,
Jr. (Exhibit 10.8 to the Company's Form 10-Q, filed
May 14, 1998, is hereby incorporated by reference.)
10.4 Secured Promissory Note dated April 30, 1999 from B.
Tom Carter, Jr. to HydroChem Holding, Inc. (Exhibit
10.4 to the Company's Form 10-Q, filed May 11, 1999,
is hereby incorporated by reference.)
10.5 Pledge Agreement dated April 30, 1999 between
HydroChem Holding, Inc. and B. Tom Carter, Jr.
(Exhibit 10.5 to the Company's Form 10-Q, filed May
11, 1999, is hereby incorporated by reference.)
10.6 Employment Agreement dated November 1, 1992 between
HydroChem Industrial Services, Inc. and Gary Noto.
(Exhibit 10.3 to the Company's Registration Statement
on Form S-4, filed August 25, 1997, is hereby
incorporated by reference.)
10.7 Amendment dated January 27, 1999 to Employment
Agreement dated November 1, 1992 between HydroChem
Industrial Services, Inc. and Gary D. Noto. (Exhibit
10.8 to the Company's Form 10-K, filed March 29, 1999,
is hereby incorporated by reference.)
10.8 Employment Agreement dated November 1, 1992 between
HydroChem Industrial Services, Inc. and J. Pat DeBusk.
(Exhibit 10.2 to the Company's Registration Statement
on Form S-4, filed August 25, 1997, is hereby
incorporated by reference.)
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10.9 Employment Agreement dated September 26, 1997 between
HydroChem Industrial Services, Inc. and Donovan W.
Boyd. (Exhibit 10.10 to the Company's Form 10-K, filed
March 29, 1999, is hereby incorporated by reference.)
10.10 First Amendment dated June 28, 1999 to Employment
Agreement dated September 26, 1997 between HydroChem
Industrial Services, Inc. and Donovan W. Boyd.
(Exhibit 10.10 to the Company's Form 10-Q, filed
August 10, 1999, is hereby incorporated by reference.)
10.11 Employment Offer Letter dated June 3, 1996 from
HydroChem Industrial Services, Inc. to Selby F.
Little, III. (Exhibit 10.6 to the Company's
Registration Statement on Form S-4, filed August 25,
1997, is hereby incorporated by reference.)
10.12 Letter Agreement regarding severance compensation
dated October 31, 1997 between HydroChem Industrial
Services, Inc. and Pelham H. A. Smith. (Exhibit 10.7
to the Company's Form 10-Q, filed November 14, 1997,
is hereby incorporated by reference.)
10.13 Form of Indemnification Agreement entered into with
directors and officers. (Exhibit 10.8 to the Company's
Amendment No. 1 to the Registration Statement on Form
S-4, filed October 3, 1997, is hereby incorporated by
reference.)
10.14 Deferred Bonus Plan of HydroChem Industrial Services,
Inc. effective May 1, 1999. (Exhibit 10.14 to the
Company's Form 10-Q, filed August 10, 1999, is hereby
incorporated by reference.)
10.15 Credit Agreement dated December 31, 1997 among
HydroChem Industrial Services, Inc. and NationsBank,
N. A. and financial institutions named in the Credit
Agreement. (Exhibit 10.10 to the Company's Form 10-K,
filed March 30, 1998, is hereby incorporated by
reference.)
10.16 Letter Agreement dated March 6, 1998 regarding Credit
Agreement dated December 31, 1997 between HydroChem
Industrial Services, Inc. and NationsBank, N.A.
(Exhibit 10.11 to the Company's Form 10-K, filed March
30, 1998, is hereby incorporated by reference.)
10.17 Letter Agreement dated August 14, 1998 regarding
Credit Agreement dated December 31, 1997 between
HydroChem Industrial Services, Inc. and NationsBank,
N.A. (Exhibit 10.15 to the Company's Form 10-Q, filed
November 16, 1998, is hereby incorporated by
reference.)
10.18 Amendment No. 1 dated as of September 30, 1998 to
Credit Agreement dated as of December 31, 1997 between
HydroChem Industrial Services, Inc., NationsBank, N.A.
and financial institutions named in the Credit
Agreement. (Exhibit 10.16 to the Company's Form 10-Q,
filed November 16, 1998, is hereby incorporated by
reference.)
10.19 Amendment No. 2 dated as of December 31, 1998 to
Credit Agreement dated as of December 31, 1997 between
HydroChem Industrial Services, Inc., NationsBank, N.A.
and financial institutions named in the Credit
Agreement. (Exhibit 10.19 to the Company's Form 10-K,
filed March 29, 1999, is hereby incorporated by
reference.)
10.20 Loan Agreement dated July 17, 1998 between HydroChem
Industrial Services, Inc. and Bank One, Texas,
National Association. (Exhibit 10.15 to the Company's
Form 10-Q, filed August 14, 1998, is hereby
incorporated by reference.)
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10.21 Amendment No. 1 dated as of February 2, 1999 to Loan
Agreement dated July 17, 1998 between HydroChem
Industrial Services, Inc. and Bank One, Texas National
Association. (Exhibit 10.21 to the Company's Form
10-K, filed March 29, 1999, is hereby incorporated by
reference.)
10.22 Extension Agreement dated as of February 2, 1999 to
Loan Agreement dated July 17, 1998 between HydroChem
Industrial Services, Inc. and Bank One, Texas,
National Association. (Exhibit 10.22 to the Company's
Form 10-K, filed March 29, 1999, is hereby
incorporated by reference.)
10.23 International Swap Dealers Association, Inc. Master
Agreement and Schedule dated July 17, 1998 between
HydroChem Industrial Services, Inc. and Bank One,
Texas, National Association. (Exhibit 10.16 to the
Company's Form 10-Q, filed August 14, 1998, is hereby
incorporated by reference.)
10.24 Amended and Restated Asset Purchase Agreement by and
among HydroChem Industrial Services, Inc., Valley
Systems of Ohio, Inc. and Valley Systems, Inc. dated
as of September 8, 1998. (Exhibit 10.1 to the
Company's Form 8-K, filed January 20, 1999, is hereby
incorporated by reference.)
27.1 Financial Data Schedule. (Filed herewith.)
(b) Reports on Form 8-K.
None.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HYDROCHEM INDUSTRIAL SERVICES, INC.
Date: November 9, 1999 By: /s/ Selby F. Little, III
---------------------------
Selby F. Little, III, Executive Vice President
and Chief Financial Officer
HYDROCHEM INTERNATIONAL, INC.
Date: November 9, 1999 By: /s/ Selby F. Little, III
---------------------------
Selby F. Little, III, Executive Vice President
and Chief Financial Officer
22
<PAGE>
EXHIBIT INDEX
27.1 Financial Data Schedule
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 2,206
<SECURITIES> 0
<RECEIVABLES> 33,169
<ALLOWANCES> 0
<INVENTORY> 4,586
<CURRENT-ASSETS> 44,198
<PP&E> 92,832
<DEPRECIATION> 41,061
<TOTAL-ASSETS> 163,875
<CURRENT-LIABILITIES> 20,403
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 16,446
<TOTAL-LIABILITY-AND-EQUITY> 163,875
<SALES> 146,109
<TOTAL-REVENUES> 146,109
<CGS> 86,409
<TOTAL-COSTS> 86,409
<OTHER-EXPENSES> 47,044
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,725
<INCOME-PRETAX> 2,931
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,931
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,931
<EPS-BASIC> 0.000
<EPS-DILUTED> 0.000
</TABLE>
