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 June 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
August 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
June 30, 2000 (unaudited)............................ 3
Consolidated Statements of Operations for each of the
three and six month periods ended June 30, 1999
and 2000 (unaudited)................................. 4
Consolidated Statement of Stockholder's Equity for the six
month period ended June 30, 2000 (unaudited)......... 5
Consolidated Statements of Cash Flows for each of the
six month periods ended June 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.......................... 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................ 13
Part II.Other Information
Item 1. Legal Proceedings..................................... 13
Item 6. Exhibits and Reports on Form 8-K...................... 13
Signatures............................................................ 17
Exhibit Index......................................................... 18
2
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents..................... $ 4,140 $ 3,543
Receivables, less allowance of $671
and $736, respectively....................... 33,488 38,150
Inventories................................... 4,721 4,810
Prepaid expenses and other current assets..... 1,993 3,006
Income taxes receivable....................... 504 504
Deferred income taxes......................... 1,725 1,725
------- -------
Total current assets....................... 46,571 51,738
Property and equipment, at cost................... 96,672 97,437
Accumulated depreciation...................... (43,756) 48,145)
------- -------
52,916 49,292
Intangible assets, net............................ 101,415 99,022
------- -------
Total assets............................... $200,902 $200,052
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.............................. $ 6,829 $ 8,005
Accrued liabilities........................... 17,870 14,787
Current portion of long-term debt............. 2,670 5,178
------- -------
Total current liabilities.................. 27,369 27,970
Long-term debt.................................... 148,209 145,620
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) 698
------- -------
Total stockholder's equity.................... 16,119 17,257
------- -------
Total liabilities and stockholder's equity.. $200,902 $200,052
======= =======
</TABLE>
See accompanying notes.
3
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue.......................... $ 52,194 $ 54,199 $103,099 $107,638
Cost of revenue.................. 30,437 33,173 60,700 65,437
------- ------- ------- -------
Gross profit................ 21,757 21,026 42,399 42,201
Selling, general and
administrative expense.......... 12,874 12,257 25,374 25,058
Depreciation..................... 2,839 2,882 5,752 5,815
------- ------- ------- -------
Operating income............ 6,044 5,887 11,273 11,328
Other (income) expense:
Interest expense, net....... 3,228 4,019 6,496 8,033
Amortization of intangibles. 633 1,013 1,267 1,996
Other, net.................. (26) 134 (68) 161
------- ------- ------- -------
Income before taxes.............. 2,209 721 3,578 1,138
Income tax provision........ - - - -
------- ------- ------- -------
Net income....................... $ 2,209 $ 721 $ 3,578 $ 1,138
======= ======= ======= =======
</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......................... - - 1,138 1,138
---- ------- ------ -------
Balance at June 30, 1999 .............. $ 1 $ 16,558 $ 698 $17,257
==== ======= ===== ======
</TABLE>
See accompanying notes.
5
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 2000
---- ----
<S> <C> <C>
Operating activities:
Net income........................................ $ 3,578 $ 1,138
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation.................................. 5,752 5,815
Amortization.................................. 1,267 1,996
Amortization of deferred financing costs...... 218 359
Deferred income tax provision................. - -
Loss (gain) on sale of property and equipment. (5) 165
Changes in operating assets and liabilities,
net of effects of acquisition:
Receivables, net.............................. (8,568) (4,662)
Inventories................................... (921) (89)
Prepaid expenses and other current assets..... (378) (1,013)
Accounts payable.............................. 424 1,176
Accrued liabilities........................... 5,015 (2,489)
------- -------
Net cash provided by operating activities.. 6,382 2,396
------- -------
Investing activities:
Expenditures for property and equipment........... (3,423) (2,775)
Proceeds from sale of property and equipment...... 111 419
Acquisitions, net of cash......................... (31,971) (446)
------- -------
Net cash used in investing activities...... (35,283) (2,802)
------- -------
Financing activities:
Repayments of long-term debt, net................. (2,317) (81)
Debt financing costs.............................. - (110)
------- -------
Net cash used in financing activities...... (2,317) (191)
------- -------
Net decrease in cash.................................. 31,218) (597)
Cash at beginning of period........................... 33,775 4,140
------- -------
Cash at end of period................................. $ 2,557 $ 3,543
======= =======
</TABLE>
See accompanying notes.
6
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 six month interim
period ended June 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. Long-term Debt
Long-term debt at December 31, 1999 and June 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 30,000
Revolver ................................. -- --
Mortgage Loan ............................ 7,379 7,298
Seller Notes ............................. 3,500 3,500
--------- ----------
Total long-term debt ................. 150,879 150,798
Less current portion of long-term debt (2,670) (5,178)
--------- ----------
$ 148,209 $ 145,620
========= ==========
</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.
7
<PAGE>
3. 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.
4. 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, June 30,
1999 2000
---- ----
<S> <C> <C>
Current assets......................... $ 2,727 $ 3,406
Noncurrent assets...................... 92 87
Current liabilities.................... 496 490
Noncurrent liabilities................. - -
</TABLE>
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue.................. $1,705 $1,558 $2,815 $3,016
Gross profit............. 685 558 1,107 1,215
Net income (1)........... 318 547 481 680
</TABLE>
----------
(1) Net income does not include any allocation from HydroChem of SG&A,
amortization, or interest expense.
5. 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 June 30, 2000, approximately 95% of the escrow
established by the Company's insurance carriers and the other defendants
pursuant to a 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 such litigation will not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
8
<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 Six months ended
June 30, June 30,
1999 2000 1999 2000
------- ------ ------ -------
<S> <C> <C> <C> <C>
Revenue.................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue............ 58.3 61.2 58.9 60.8
----- ----- ----- -----
Gross profit............ 41.7 38.8 41.1 39.2
SG&A expense............... 24.7 22.6 24.6 23.3
Depreciation............... 5.4 5.3 5.6 5.4
----- ----- ----- -----
Operating income........ 11.6 10.9 10.9 10.5
Other (income) expense:
Interest expense, net... 6.2 7.4 6.3 7.5
Other (income) expense, net - 0.3 (0.1) 0.1
Amortization of intangibles 1.2 1.9 1.2 1.8
----- ----- ----- -----
Income before taxes........ 4.2 1.3 3.5 1.1
Income tax provision - - - -
----- ----- ----- -----
Net income ................ 4.2% 1.3% 3.5% 1.1%
===== ===== ===== =====
EBITDA(1).................. 17.0% 16.2% 16.5% 15.9%
===== ===== ===== =====
</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.
9
<PAGE>
Three months Ended June 30, 2000 Compared to Three months Ended June 30, 1999
-----------------------------------------------------------------------------
Revenue. Revenue increased $2.0 million, or 3.8%, to $54.2 million for the
three months ended June 30, 2000 from $52.2 million in the prior year period.
The increase resulted from tank cleaning revenue to $5.6 million, principally
attributable to the LANSCO acquisition, and an increase in industrial vacuuming
revenue of $2.5 million, or 32.0%, from $8.0 million to $10.5 million. These
increases were partially offset by a decrease in hydroblasting revenue of $2.4
million, or 10.6%, from $22.4 million to $20.0 million; a decrease in chemical
cleaning revenue of $2.4 million, or 13.9%, from $17.3 million to $14.9 million,
and a decrease in other services revenue of $1.2 million, or 28.6%, from $4.3
million to $3.1 million. The increase in industrial vacuuming revenue resulted
from additional vacuum trucks placed in service by the Company in 1999 and 2000.
The decrease in hydroblasting revenue principally resulted from a reduced volume
of projects and reduced customer spending. Chemical cleaning revenue decreased
primarily as a result of a decreased volume of projects. Other services revenue
decreased principally as a result of decreased mechanical services projects.
Gross profit. Gross profit decreased $731,000, or 3.4%, to $21.0 million in
2000 from $21.8 million in the prior year period. Cost of revenue increased $2.7
million, or 9.0%, to $33.1 million in 2000 from $30.4 million in the prior year
period primarily due to the LANSCO acquisition and the revenue increases
described above, partially offset by reduced profit sharing, insurance and bonus
expense.
SG&A expense. SG&A expense decreased $617,000, or 4.8%, to $12.3 million in
2000 from $12.9 million in the prior year period. The decrease primarily
resulted from reduced profit sharing, insurance and bonus expense, partially
offset by the SG&A expense of LANSCO.
EBITDA. Decreased gross profit, partially offset by decreased SG&A expense,
resulted in a $114,000, or 1.3%, decrease in EBITDA to $8.8 million in 2000 from
$8.9 million in the prior year period.
Depreciation. Depreciation expense increased $43,000, or 1.5%, to $2.9
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. Decreased gross profit and increased depreciation expense,
partially offset by decreased SG&A expense, resulted in a decrease in operating
income of $157,000, or 2.6%, to $5.9 million in 2000 from $6.0 million in 1999.
Interest expense, net. Interest expense, net increased $791,000, or 24.5%,
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 $380,000, or 60.0%, to $1.0
million in 2000 from $633,000 in the prior year period. Increased amortization
expense resulted from goodwill incurred in connection with the acquisition of
LANSCO.
Income before taxes. For the reasons described above, the Company's income
before taxes decreased $1.5 million, or 67.4%, to $721,000 in 2000 from $2.2
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. For the reasons described above, the Company's net income
decreased $1.5 million, or 67.4%, to $721,000 in 2000 from $2.2 million in the
prior year period.
10
<PAGE>
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
-------------------------------------------------------------------------
Revenue. Revenue increased $4.5 million, or 4.4%, to $107.6 million for the
six months ended June 30, 2000 from $103.1 million in the prior year period. The
increase resulted from tank cleaning revenue to $8.8 million, principally
attributable to the LANSCO acquisition, an increase in industrial vacuuming
revenue of $3.8 million, or 22.1%, from $17.3 million to $21.1 million, and an
increase in other services revenue of $735,000, or 10.8%, from $6.8 million to
$7.5 million. These increases were partially offset by a decrease in
hydroblasting revenue of $7.3 million, or 15.1% from $48.1 million to $40.8
million and a decrease in chemical cleaning revenue of $1.0 million, or 3.4%,
from $30.3 million to $29.3 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. The decrease in hydroblasting revenue
resulted from a reduced volume of projects and reduced customer spending.
Chemical cleaning revenue decreased primarily as a result of a decrease in the
volume of projects.
Gross profit. Gross profit decreased $198,000, or 0.5%, to $42.2 million in
2000 from $42.4 million in the prior year period. Cost of revenue increased $4.7
million, or 7.8%, to $65.4 million in 2000 from $60.7 million in the prior year
period primarily due to the LANSCO acquisition and the revenue increases
described above, partially offset by reduced profit sharing, insurance and bonus
expense.
SG&A expense. SG&A expense decreased $316,000, or 1.2%, to $25.1 million in
2000 from $25.4 million in the prior year period. The decrease primarily
resulted from reduced profit sharing, insurance and bonus expense, partially
offset by the SG&A expense of LANSCO.
EBITDA. Decreased SG&A expense, partially offset by decreased gross profit,
resulted in a $118,000, or 0.7%, increase in EBITDA to $17.1 million in 2000
from $17.0 million in the prior year period.
Depreciation. Depreciation expense increased $63,000, or 1.1%, to $5.8
million in 2000 from $5.8 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. Decreased SG&A expense, partially offset by decreased
gross profit and increased depreciation expense, resulted in an increase in
operating income of $55,000, or 0.5%, to $11.3 million in 2000, from $11.3
million in the prior year period.
Interest expense, net. Interest expense, net increased $1.5 million, or
23.7%, to $8.0 million in 2000 from $6.5 million in the prior year period.
Increased interest expense, net resulted from additional borrowings to finance
the LANSCO acquisition.
Amortization. Amortization expense increased $729,000, or 57.5%, to $2.0
million in 2000 from $1.3 million in the prior year period. Increased
amortization expense resulted from goodwill incurred in connection with the
acquisition of LANSCO.
Income before taxes. For the reasons described above, income before taxes
decreased $2.4 million, or 68.2%, to $1.1 million in 2000 from $3.5 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. For the reasons described above, the Company's net income
decreased $2.4 million, or 68.2%, to $1.1 million in 2000 from $3.5 million in
the prior year period.
11
<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. Also, as of June 30, 2000, (i)
$2.3 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 $15.3 million.
For the six months ended June 30, 2000, the Company used net cash of
$464,000 for operating and investing activities which consisted of $2.3 million
provided by operating activities and $2.8 million used in investing activities.
For the six months ended June 30, 1999, $28.9 million of net cash was used in
operating and investing activities which consisted of $6.4 million provided by
operating activities and $35.3 million used in investing activities, including
$32.0 million for acquisitions.
Expenditures for property and equipment for the six months ended June 30,
2000 were $2.8 million. These expenditures were principally for operating
equipment. For the six months ended June 30, 1999, $3.4 million of expenditures
for property and equipment included $1.9 million for the purchase of operating
equipment, $1.0 million to implement new field and corporate information
software and hardware systems, and $501,000 for the construction of the
Company's headquarters and operating facility.
Management believes that cash and cash equivalents at June 30, 2000, net
cash expected to be provided by operating activities and borrowings, if
necessary, under the Company's Revolver will be sufficient to meet the Company's
cash requirements for operations, expenditures for property and equipment, and
debt service for the next twelve months and the foreseeable future thereafter.
From time to time, the Company reviews acquisition opportunities as they arise,
and may require additional financing if it decides to complete additional
acquisitions. There can be no assurance, however, that any acquisition
opportunities will arise, that any acquisitions will be consummated, or that any
related financing will be available if required on terms satisfactory to the
Company.
12
<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 $30.0 million at December 31, 1999 and June
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 $300,000 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.)
13
<PAGE>
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.
(Filed herewith.)
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. (Filed
herewith.)
10.9 Pledge Agreement dated May 15, 2000 between HydroChem
Holding, Inc. and B. Tom Carter, Jr. (Filed herewith.)
10.10 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.)
10.11 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.)
14
<PAGE>
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 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.)
15
<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. (Filed herewith).
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.
16
<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: August 11, 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: August 11, 2000 By: /s/ Selby F. Little, III
---------------------------
Selby F. Little, III, Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
17
<PAGE>
EXHIBIT INDEX
10.3 First Amendment to Deferred Bonus Plan of HydroChem Industrial
Services, Inc. dated as of May 1, 2000. (Filed herewith.)
10.8 Secured Promissory Note dated May 15, 2000 from B. Tom Carter,
Jr. to HydroChem Holding, Inc. (Filed herewith.)
10.9 Pledge Agreement dated May 15, 2000 between HydroChem Holding,
Inc., and B. Tom Carter, Jr. (Filed herewith.)
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. (Filed herewith).
27.1 Financial Data Schedule
18
