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, 2000
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, 2000 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, 1999 and
September 30, 2000 (unaudited)....................... 3
Consolidated Statements of Operations for each of the
three and nine month periods ended September 30, 1999
and 2000 (unaudited)................................. 4
Consolidated Statement of Stockholder's Equity for the nine
month period ended September 30, 2000 (unaudited).... 5
Consolidated Statements of Cash Flows for each of the
nine month periods ended September 30, 1999 and
2000 (unaudited)..................................... 6
Notes to Consolidated Financial Statements (unaudited).. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................... 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................ 14
Part II.Other Information
Item 1. Legal Proceedings..................................... 14
Item 6. Exhibits and Reports on Form 8-K...................... 14
Signatures............................................................ 18
Exhibit Index......................................................... 19
2
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents..................... $ 4,140 $ 2,425
Receivables, less allowance of $671
and $736, respectively....................... 33,488 38,730
Inventories................................... 4,721 4,493
Prepaid expenses and other current assets..... 1,993 2,888
Income taxes receivable....................... 504 504
Deferred income taxes......................... 1,725 1,725
------- -------
Total current assets....................... 46,571 50,765
Property and equipment, at cost................... 96,672 97,982
Accumulated depreciation...................... (43,756) (50,912)
------- -------
52,916 47,070
Intangible assets, net............................ 101,415 98,158
------- -------
Total assets............................... $200,902 $195,993
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.............................. $ 6,829 $ 7,301
Accrued liabilities........................... 17,870 12,889
Current portion of long-term debt............. 2,670 5,932
------- -------
Total current liabilities.................. 27,369 26,122
Long-term debt.................................... 148,209 144,321
Deferred income taxes............................. 9,205 9,205
Commitments and contingencies
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 earnings (deficit)................... (440) (214)
------- -------
Total stockholder's equity.................... 16,119 16,345
------- -------
Total liabilities and stockholder's equity.. $200,902 $195,993
======= =======
</TABLE>
See accompanying notes.
3
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue.......................... $ 43,010 $ 52,049 $146,109 $159,687
Cost of revenue.................. 25,709 32,733 86,409 98,170
------- ------- ------- -------
Gross profit................ 17,301 19,316 59,700 61,517
Selling, general and
administrative expense.......... 11,144 12,293 36,518 37,351
Depreciation..................... 2,836 3,016 8,588 8,831
------- ------- ------- -------
Operating income............ 3,321 4,007 14,594 15,335
Other (income) expense:
Interest expense, net....... 3,229 4,018 9,725 12,051
Amortization of intangibles. 634 999 1,901 2,995
Other, net.................. 105 (98) 37 63
------- ------- ------- -------
Income(loss) before taxes........ (647) (912) 2,931 226
Income tax provision........ - - - -
------- ------- ------- -------
Net income (loss)................ $ (647) $ (912) $ 2,931 $ 226
======= ======= ======= =======
</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, 1999 .......... $ 1 $ 16,558 $ (440) $16,119
Net income......................... - - 226 226
---- ------- ------ -------
Balance at September 30, 2000.......... $ 1 $ 16,558 $ (214) $16,345
==== ======= ===== ======
</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,
1999 2000
---- ----
<S> <C> <C>
Operating activities:
Net income........................................ $ 2,931 $ 226
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation.................................. 8,588 8,831
Amortization.................................. 1,901 2,995
Amortization of deferred financing costs...... 356 544
Loss on sale of property and equipment........ 110 122
Changes in operating assets and liabilities,
net of effects of acquisition:
Receivables, net.............................. (4,187) (5,242)
Inventories................................... (684) 228
Prepaid expenses and other current assets..... 17 (887)
Accounts payable.............................. (71) 472
Accrued liabilities........................... (144) (3,965)
------- -------
Net cash provided by operating activities.. 8,817 3,324
------- -------
Investing activities:
Expenditures for property and equipment........... (5,044) (3,592)
Proceeds from sale of property and equipment...... 187 477
Acquisitions, net of cash......................... (32,170) (964)
------- -------
Net cash used in investing activities...... (37,022) (4,079)
------- -------
Financing activities:
Repayments of long-term debt, net................. (3,359) (626)
Debt financing costs.............................. - (334)
------- -------
Net cash used in financing activities...... (3,359) (960)
------- -------
Net decrease in cash.................................. (31,569) (1,715)
Cash at beginning of period........................... 33,775 4,140
------- -------
Cash at end of period................................. $ 2,206 $ 2,425
======= =======
</TABLE>
See accompanying notes.
6
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
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") and, since
November 19, 1999, Landry Service Co., Inc. ("LANSCO"). 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, rubber
plants, steel mills, and aluminum plants. Services provided include
high-pressure and ultra-high pressure water cleaning (hydroblasting),
chemical cleaning, industrial vacuuming, tank cleaning, mechanical services,
waste minimization, and commissioning and other specialized services. The
majority of these services involves recurring maintenance to improve or
sustain the operating efficiencies and extend the useful lives of process
equipment and facilities.
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 period ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. 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, 1999.
2. New Accounting Pronouncement
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101, Revenue Recognition in Financial
Statements. SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements.
The company is required to adopt SAB 101 in the fourth calendar quarter of
2000. Based upon its review to date of SAB 101, the Company does not believe
that any changes will be required in its current revenue recognition
policies, practices or procedures. The Company will complete its evaluation
of the provisions of SAB 101 during the fourth calendar quarter of 2000.
7
<PAGE>
3. Long-term Debt
Long-term debt at December 31, 1999 and September 30, 2000 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Senior Subordinated Notes....................... $110,000 $110,000
Term Loan....................................... 30,000 29,500
Revolver........................................ - -
Mortgage Loan................................... 7,379 7,253
Seller Notes.................................... 3,500 3,500
--------- -------
Total long-term debt......................... 150,879 150,253
Less current portion of long-term debt....... (2,670) (5,932)
-------- -------
$148,209 $144,321
======= =======
</TABLE>
Effective June 30, 2000, the credit agreement governing the Term Loan and
Revolver was amended to modify, among other things, certain interest rate
margins and financial ratios and covenants.
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 for 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,
1999 2000
---- ----
<S> <C> <C>
Current assets................... $2,727 $3,639
Noncurrent assets................ 92 122
Current liabilities.............. 496 469
Noncurrent liabilities........... - -
</TABLE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue......................$1,815 $1,731 $4,630 $4,747
Gross profit....................636 632 1,743 1,847
Net income (1)..................199 289 680 969
</TABLE>
----------
(1) Net income does not include any allocation from HydroChem of SG&A,
amortization, or interest expense.
6. Commitments and Contingencies
The Company has substantially completed the settlement of 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 arose from a chemical exposure
incident at a Georgia Gulf facility in Plaquemine, Louisiana in September
1996. As of September 30, 2000, approximately 95% of the escrow established
by the Company's insurance carriers and the other defendants pursuant to a
8
<PAGE>
settlement agreement with the plaintiffs had been disbursed. By separate
agreement, and in exchange for a payment funded by insurance, Georgia Gulf
assumed the Company's defense and indemnity against the claims of any
plaintiff who did not participate in the settlement agreement, the claims of
approximately twenty plaintiffs who were not parties to the settlement
agreement, certain additional claims which have been filed against the
Company, and future claims which may arise in connection with this incident.
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. This litigation is in its initial stages, and is
being defended by one of the Company's insurance carriers.
The Company is a defendant in various other 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 adequate provision has been made for all of the foregoing
claims and the final outcome of any pending litigation will not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
9
<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 these forward-looking statements are reasonable, it can give no
assurance that these expectations will prove to have been correct. These
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, 1999. 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,
------------- -------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue..................... 100.0% 100.0% 100.0% 100.0%
Cost of Revenue............. 58.3 62.9 58.9 61.5
---- ---- ---- ----
Gross profit............ 41.7 37.1 41.1 38.5
SG&A expense................ 24.7 23.6 24.6 23.4
Depreciation................ 5.4 5.8 5.6 5.5
---- ---- ---- ----
Operating income........ 11.6 7.7 10.9 9.6
Other (income) expense:
Interest expense, net... 6.2 7.7 6.3 7.5
Amortization of intangibles 1.2 1.9 1.2 1.9
Other, net.............. - (0.1) (0.1) 0.1
---- ---- ---- ----
Income (loss) before taxes.. 4.2 (1.8) 3.5 0.1
Income tax provision.... - - - -
---- ---- ---- ----
Net income (loss)........... 4.2% (1.8)% 3.5% 0.1%
==== ==== ==== ====
EBITDA (1).................. 17.0% 13.5% 16.5% 15.1%
==== ==== ==== ====
</TABLE>
(1) EBITDA for any relevant period presented above represents gross profit less
selling, general and administrative expense. 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.
10
<PAGE>
Three months Ended September 30, 2000 Compared to Three months Ended
September 30, 1999
------------------
Revenue. Revenue increased $9.0 million, or 21.0%, to $52.0 million for the
three months ended September 30, 2000 from $43.0 million in the prior year
period. The increase resulted from tank cleaning revenue of $4.9 million,
principally attributable to the LANSCO acquisition, an increase in industrial
vacuuming revenue of $1.7 million, or 19.3%, from $9.0 million to $10.8 million,
an increase in chemical cleaning revenue of $1.3 million, or 12.3%, from $10.6
million to $11.9 million, and an increase in hydroblasting revenue of $1.2
million, or 6.0%, from $20.1 million to $21.4 million. These increases were
partially offset by a decrease in other services revenue of $109,000, or 3.5%,
from $3.1 million to $3.0 million. The increase in industrial vacuuming revenue
resulted from additional vacuum trucks placed in service by the Company in 1999
and 2000. Chemical cleaning revenue increased primarily as a result of a
increased volume of projects. The increase in hydroblasting revenue principally
resulted from an increase in the volume of projects. Other services revenue
decreased principally as a result of decreased mechanical services projects.
Gross profit. Gross profit increased 2.0 million, or 11.6%, to $19.3 million
in 2000 from $17.3 million in the prior year period. Cost of revenue increased
$7.0 million, or 27.3%, to $32.7 million in 2000 from $25.7 million in the prior
year period primarily due to the LANSCO acquisition and the revenue increases
described above. The 4.6% decrease from the prior year period in gross profit
as a percentage of revenue principally resulted from the acquired LANSCO
operations, and proportionately higher direct compensation costs.
SG&A expense. SG&A expense increased $1.1 million, or 10.3%, to $12.3 million
in 2000 from $11.1 million in the prior year period. The increase primarily
resulted from the SG&A expense of LANSCO, and proportionately higher
compensation expense.
EBITDA. Increased gross profit, partially offset by increased SG&A expense,
resulted in a $866,000, or 14.1%, increase in EBITDA to $7.0 million in 2000
from $6.2 million in the prior year period.
Depreciation. Depreciation expense increased $182,000, or 6.3%, to $3.0
million in 2000 from $2.8 million in the prior year period. The increase in
depreciation expense principally resulted from the acquired LANSCO assets and
from capital expenditures in 1999 and 2000, partially offset by a reduction in
depreciation associated with fully depreciated assets.
Operating income. Increased gross profit, partially offset by increased SG&A
and depreciation expense, resulted in an increase in operating income of
$686,000, or 20.7%, to $4.0 million in 2000 from $3.3 million in 1999.
Interest expense, net. Interest expense, net increased $789,000, or 24.4%, to
$4.0 million in 2000 from $3.2 million in the prior year period. Increased
interest expense, net resulted from additional borrowings to finance the LANSCO
acquisition.
Amortization. Amortization expense increased $365,000, or 57.6%, to $1.0
million in 2000 from $634,000 in the prior year period. Increased amortization
expense resulted from goodwill incurred in connection with the acquisition of
LANSCO.
Income (loss) before taxes. For the reasons described above, the Company's
loss before taxes increased $265,000, or 41.0%, to $912,000 in 2000 from
$647,000 in the prior year period.
Income tax provision. The income tax provision of zero in 2000 was unchanged
from the prior year period, principally as a result of changes in the valuation
allowance for deferred tax assets.
Net income (loss). For the reasons described above, the Company's net loss
increased $265,000, or 41.0%, to $912,000 in 2000 from $647,000 in the prior
year period.
11
<PAGE>
Nine Months Ended September 30, 2000 Compared to Nine Months Ended
September 30, 1999
------------------
Revenue. Revenue increased $13.6 million, or 9.3%, to $159.7 million for the
nine months ended September 30, 2000 from $146.1 million in the prior year
period. The increase resulted from tank cleaning revenue of $13.1 million,
principally attributable to the LANSCO acquisition, an increase in industrial
vacuuming revenue of $5.6 million, or 21.1%, from $26.3 million to $31.9
million, an increase in other services revenue of $626,000, or 6.3%, from $9.9
million to $10.6 million, and an increase in chemical cleaning revenue of
$281,000, or 0.7%, from $41.0 million to $41.3 million. These increases were
partially offset by a decrease in hydroblasting revenue of $6.0 million, or 8.8%
from $68.2 million to $62.2 million. The increase in industrial vacuuming
revenue resulted from additional vacuum trucks placed in service by the Company
in 1999 and 2000. Other services revenue increased principally as a result of
increased commissioning services projects. Chemical cleaning revenue increased
primarily as a result of an increase in the volume of projects. The decrease in
hydroblasting revenue resulted from a reduced volume of projects and reduced
customer spending.
Gross profit. Gross profit increased $1.8 million, or 3.0%, to $61.5 million
in 2000 from $59.7 million in the prior year period. Cost of revenue increased
$11.8 million, or 13.6%, to $98.2 million in 2000 from $86.4 million in the
prior year period primarily due to the LANSCO acquisition. The 2.6% decrease
from the prior year period in gross profit as a percentage of revenue
principally resulted from the acquired LANSCO operations, and increased fuel
and equipment maintenance costs.
SG&A expense. SG&A expense increased $833,000, or 2.3%, to $37.4 million in
2000 from $36.5 million in the prior year period. The increase primarily
resulted from the SG&A expense of LANSCO, partially offset by reduced insurance
expense.
EBITDA. Increased gross profit, partially offset by increased SG&A expense,
resulted in a $984,000, or 4.2%, increase in EBITDA to $24.2 million in 2000
from $23.2 million in the prior year period.
Depreciation. Depreciation expense increased $243,000, or 2.8%, to $8.8
million in 2000 from $8.6 million in the prior year period. The increase in
depreciation expense principally resulted from the acquired LANSCO assets and
from capital expenditures in 1999 and 2000, partially offset by a reduction in
depreciation associated with fully depreciated assets.
Operating income. Increased gross profit, partially offset by increased SG&A
and depreciation expense, resulted in an increase in operating income of
$741,000, or 5.1%, to $15.3 million in 2000, from $14.6 million in the prior
year period.
Interest expense, net. Interest expense, net increased $2.3 million, or
23.9%, to $12.1 million in 2000 from $9.7 million in the prior year period.
Increased interest expense, net resulted from additional borrowings to finance
the LANSCO acquisition.
Amortization. Amortization expense increased $1.1 million, or 57.5%, to $3.0
million in 2000 from $1.9 million in the prior year period. Increased
amortization expense resulted from goodwill incurred in connection with the
acquisition of LANSCO.
Income (loss) before taxes. For the reasons described above, income before
taxes decreased $2.7 million, or 92.3%, to $226,000 in 2000 from $2.9 million in
the prior year period.
Income tax provision. The income tax provision of zero in 2000 was unchanged
from the prior year period, principally as a result of changes in the valuation
allowance for deferred tax assets.
Net income (loss). For the reasons described above, the Company's net income
decreased $2.7 million, or 92.3%, to $226,000 in 2000 from $2.9 million in the
prior year period.
12
<PAGE>
Liquidity and Capital Resources
Effective June 30, 2000, the credit agreement governing the Company's Term
Loan and Revolver was amended to modify, among other things, certain interest
rate margins and financial ratios and covenants. As of September 30, 2000, (i)
$1.9 million had been drawn under the Revolver in the form of standby letters of
credit, (ii) there were no outstanding borrowings under the Revolver, and (iii)
as adjusted for covenant limitations, the Company had net available unused
borrowings of $18.9 million.
For the nine months ended September 30, 2000, the Company used net cash of
$928,000 in operating and investing activities which consisted of $2.3 million
provided by operating activities and $3.2 million used in investing activities.
For the nine months ended September 30, 1999, $23.2 million of net cash was used
in operating and investing activities which consisted of $8.8 million provided
by operating activities and $37.0 million used in investing activities,
including $32.0 million for acquisitions.
Expenditures for property and equipment for the nine months ended September
30, 2000 were $3.6 million. These expenditures were principally for operating
equipment. For the nine months ended September 30, 1999, $5.0 million of
expenditures for property and equipment included $3.1 million for the purchase
of operating equipment, $1.1 million to implement new field and corporate
information software and hardware systems, and $770,000 for the construction of
the Company's headquarters and operating facility.
13
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is exposed to certain market risks from transactions that
are entered into during the normal course of business. The Company does not
enter into derivative instruments for trading purposes, however, an Interest
Rate Swap was entered into during 1998 in connection with the Company's
Mortgage Loan. The Interest Rate Swap protects the Company against interest
rate fluctuation by fixing the Mortgage Loan interest rate from a variable
rate. The Company's primary market risk exposure relates to interest rate
risk. The Term Loan balance of $29.5 million at September 30, 2000 is
subject to variable interest rates. Assuming no change in Term Loan
borrowings, a one hundred basis point change in interest rates would impact
net interest expense by approximately $295,000 per year.
Part II. Other Information
Item 1.Legal Proceedings
There have been no material changes to the proceedings previously
reported in the Registrants' Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000.
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.)
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.)
14
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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 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.)
10.3 First Amendment to Deferred Bonus Plan of HydroChem
Industrial Services, Inc. dated as of May 1, 2000.
(Exhibit 10.3 to the Company's Form 10-Q filed August
11, 2000, is hereby incorporated by reference.)
10.4 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.)
10.5 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.)
10.6 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.)
10.7 Pledge Agreement dated April 30, 1999 between B. Tom
Carter, Jr. and HydroChem Holding, Inc. (Exhibit 10.5
to the Company's Form 10-Q filed May 11, 1999, is
hereby incorporated by reference.)
10.8 Secured Promissory Note dated May 15, 2000 from B. Tom
Carter, Jr. to HydroChem Holding, Inc. (Exhibit
10.8 to the Company's Form 10-Q filed August 11, 2000,
is hereby incorporated by reference.)
10.9 Pledge Agreement dated May 15, 2000 between HydroChem
Holding, Inc. and B. Tom Carter, Jr. (Exhibit 10.9 to
the Company's Form 10-Q filed August 11, 2000, is
hereby incorporated by reference.)
10.10 Employment Agreement dated November 1, 1992 between
HydroChem Industrial Services, Inc. and Gary D. Noto.
(Exhibit 10.3 to the Company's Registration Statement
on Form S-4, filed August 25, 1997, is hereby
incorporated by reference.)
15
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10.11 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.)
10.12 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.)
10.13 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.)
10.14 First Amendment to Employment Agreement dated as of
June 28, 1999 to Employment Agreement dated as of
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.)
10.15 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.)
10.16 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.)
10.17 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.)
10.18 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.)
10.19 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.)
10.20 Extension Agreement dated as of February 2, 1999
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.)
10.21 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.)
10.22 Credit Agreement dated November 19, 1999 among
HydroChem Holding, Inc, HydroChem Industrial Services,
Inc., various lenders and Bank of America, N.A., as
administrative agent. (Exhibit 2.2 to the Company's
Form 8-K filed December 3, 1999, is hereby
incorporated by reference.)
10.23 First Amendment dated as of December 17, 1999 to
Credit Agreement dated November 19, 1999 among
HydroChem Holding, Inc., HydroChem Industrial Services
Inc., various lenders and Bank of America, N.A., as
administrative agent. (Exhibit 10.20 to the Company's
Form 10-K filed March 24, 2000, is hereby incorporated
by reference.)
16
<PAGE>
10.24 Second Amendment dated as of June 30, 2000 to Credit
Agreement dated November 19, 1999 among HydroChem
Holding, Inc., HydroChem Industrial Services, Inc.,
various lenders and Bank of America, N.A., as
administrative agent. (Exhibit 10.24 to the Company's
Form 10-Q filed August 11, 2000, is hereby
incorporated by reference.)
10.25 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.)
10.26 Stock Purchase Agreement dated November 19, 1999 by
and among HydroChem Industrial Services, Inc. and
each stockholder of Landry Service Co., Inc. including
Kenneth C. Landry and Charles A. Landry, Jr. (Exhibit
2.1 to the Company's Form 8-K filed December 3, 1999,
is hereby incorporated by reference.)
27.1 Financial Data Schedule. (Filed herewith.)
(b) Reports on Form 8-K.
None.
17
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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 13, 2000 By: /s/ Selby F. Little, III
---------------------------
Selby F. Little, III, Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
HYDROCHEM INTERNATIONAL, INC.
Date: November 13, 2000 By: /s/ Selby F. Little, III
---------------------------
Selby F. Little, III, Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
18
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EXHIBIT INDEX
27.1 Financial Data Schedule
19
