<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
[ ] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For Quarterly Period Ended September 30, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the transition period from ___ to ___
Commission file Number: 33-84262
-----------------------------------
MVE HOLDINGS, INC. MVE, INC.
(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
Delaware 41-1641718 Delaware 41-1396485
(State or other (IRS Employer (State or other (IRS Employer
jurisdiction of Identification jurisdiction of Identification
incorporation or Number) incorporation or Number)
organization) organization)
TWO APPLETREE SQUARE, SUITE 100
8011 34TH AVENUE, SOUTH
BLOOMINGTON, MN 55425
(Address of principal executive offices)
TELEPHONE: (612) 853-9600
(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 and Exchange Act
of 1934 during 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 ninety (90) days.
Yes No
-------- -------
Applicable Only To Corporate Issuers:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class September 30, 1997
----------------- ------------------
MVE Holdings, Inc. Common Stock 149,068 Shares
MVE, Inc. Common Stock 1,000 Shares
MVE Holdings, Inc. Preferred A Stock 4,700 Shares
MVE Holdings, Inc. Preferred B Stock 797 Shares
<PAGE>
NOTE: The duty of each of MVE Holdings, Inc., a Delaware corporation
("Holdings") and MVE, Inc. also a Delaware corporation ("MVE"), to file reports
under Section 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), has been suspended. Holdings and MVE are voluntarily filing
this quarterly report under cover of Form 10-Q. Please be advised that this
report does not include all the information required to be included in a
quarterly report on Form 10-Q filed pursuant to Section 13 or 15(d) of the
Exchange Act.
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
--------------------
<PAGE>
MVE HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------------- --------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,630 $ 10,505
Accounts receivable, net of allowance for doubtful accounts 30,424 26,958
Inventories 26,830 28,091
Prepaid expenses 1,562 1,227
Income tax refund receivable 1,701 3,102
Deferred income taxes 6,740 6,740
-------------------- --------------------
Total current assets 72,887 76,623
PROPERTY, PLANT AND EQUIPMENT 47,941 42,388
Less-Accumulated depreciation and amortization (17,878) (15,376)
-------------------- --------------------
Net property, plant and equipment 30,063 27,012
GOODWILL, net 24,519 26,001
OTHER ASSETS, net 11,541 12,540
-------------------- --------------------
Total assets $ 139,010 $ 142,176
==================== ====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 7,842 $ 3,633
Accounts payable 18,833 18,090
Accrued expenses and other liabilities 18,429 24,988
-------------------- --------------------
Total current liabilities 45,104 46,711
LONG-TERM DEBT, net of current maturities 147,267 143,009
DEFERRED INCOME TAXES 1,887 1,887
OTHER NONCURRENT LIABILITIES 1,565 1,908
-------------------- --------------------
Total liabilities 195,823 193,515
MINORITY INTEREST 344 320
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK 53,710 48,974
SERIES B CONVERTIBLE PREFERRED STOCK 8,826 8,608
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Notes receivable from shareholders (2,000) (2,000)
Common stock 2 2
Additional paid-in deficit (449) (449)
Common stock warrants 165 168
Accumulated deficit (117,411) (106,962)
-------------------- --------------------
Total stockholders' deficit (119,693) (109,241)
-------------------- --------------------
Total liabilities and stockholders' deficit $ 139,010 $ 142,176
==================== ====================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
<PAGE>
MVE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------------- -------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,583 $ 3,054
Accounts receivable, net allowance for doubtful accounts 30,242 26,958
Inventories 26,830 28,091
Prepaid expenses 1,562 1,227
Income tax refund receivable 1,701 3,102
Deferred income taxes 6,740 6,740
-------------------- -------------------
Total current assets 69,658 69,172
PROPERTY, PLANT AND EQUIPMENT 47,941 42,388
Less-Accumulated depreciation and amortization (17,878) (15,376)
-------------------- -------------------
Net property, plant and equipment 30,063 27,012
DUE FROM MVE HOLDINGS, INC. 31,015 31,015
GOODWILL, net 24,519 26,001
OTHER ASSETS, net 11,541 12,540
-------------------- -------------------
Total assets $166,796 $165,740
==================== ===================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 7,842 $ 3,633
Accounts payable 18,833 18,071
Accrued expenses and other liabilities 18,429 24,982
-------------------- -------------------
Total current liabilities 45,104 46,686
LONG-TERM DEBT, net of current maturities 147,267 143,009
DEFERRED INCOME TAXES 1,887 1,887
OTHER NONCURRENT LIABILITIES 1,565 1,041
-------------------- -------------------
Total liabilities 195,823 192,623
MINORITY INTEREST 344 320
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock 1 1
Additional paid-in deficit 10,411 10,411
Accumulated deficit (39,783) (37,615)
Total stockholders' deficit (29,371) (27,203)
-------------------- -------------------
Total liabilities and stockholders' deficit $166,796 $165,740
==================== ===================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
<PAGE>
MVE HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
-------------------------------- -----------------------------
Three Months Ended Sept 30 Nine Months Ended Sept 30
--------------------------------- ------------------------------
1997 1996 1997 1996
-------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
NET SALES $46,692 $48,244 $145,637 $145,388
COST OF SALES 33,881 34,460 103,397 103,124
-------------- ------------- ------------- -----------
Gross profit 12,811 13,784 42,240 42,264
OPERATING EXPENSES:
Selling and marketing 3,400 2,816 9,982 8,046
General and administrative 5,029 7,444 13,876 12,509
Research and development 1,596 881 4,726 2,374
Amortization 1,035 1,346 3,080 4,057
-------------- ------------- ------------- -----------
Total operating expenses 11,060 12,487 31,664 26,986
-------------- ------------- ------------- -----------
Operating income 1,751 1,297 10,576 15,278
INTEREST INCOME (193) (462)
INTEREST EXPENSE 4,445 4,223 13,269 12,517
-------------- ------------- ------------- -----------
Income (loss) before income tax (2,501) (2,926) (2,231) 2,761
provision (benefit) and
minority interest
INCOME TAX PROVISION (BENEFIT) (539) (245) (437) 2,397
-------------- ------------- ------------- -----------
Income (loss) before minority (1,962) (2,681) (1,794) 364
interest
MINORITY INTEREST IN NET INCOME
(LOSS) 21 (43) 25 (152)
-------------- ------------- ------------- -----------
Net income (loss) (1,983) (2,638) (1,819) 516
PREFERRED STOCK DIVIDENDS 1,826 5,314
-------------- ------------- ------------- -----------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $(3,809) $(2,638) $ (7,133) $ 516
============== ============= ============= ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
MVE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements Of Operations
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
---------------------------------
Three Months Ended Sept 30 Nine Months Ended Sept 30
--------------------------------- ---------------------------------
1997 1996 1997 1996
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
NET SALES $46,692 $48,244 $145,637 $145,388
COST OF SALES 33,881 34,460 103,397 103,124
-------------- ------------- -------------- -------------
Gross profit 12,811 13,784 42,240 42,264
OPERATING EXPENSES:
Selling and marketing 3,400 2,816 9,982 8,046
General and administrative 5,029 4,895 13,876 9,960
Research and development 1,596 881 4,726 2,374
Amortization 1,035 1,346 3,080 4,057
-------------- ------------- -------------- -------------
Total operating expenses 11,060 9,938 31,664 24,437
-------------- ------------- -------------- -------------
Operating income 1,751 3,846 10,576 17,827
INTEREST INCOME (103) (103)
INTEREST EXPENSE 4,445 4,223 13,269 12,517
-------------- ------------- -------------- -------------
Income (loss) before income tax (2,591) (377) (2,590) 5,310
provision (benefit) and
minority interest
INCOME TAX PROVISION (BENEFIT) (539) (245) (437) 2,397
-------------- ------------- -------------- -------------
Income (loss) before minority (2,052) (132) (2,153) 2,913
interest
MINORITY INTEREST IN NET INCOME
(LOSS) 21 (43) 25 (152)
-------------- ------------- -------------- -------------
Net income (loss) $(2,073) $ (89) $ (2,178) $ 3,065
============== ============= ============== =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
MVE HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements Of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
September 30,
----------------------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) before preferred stock dividends $ (1,819) $ 516
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 5,514 6,736
Minority interest 24 (152)
Interest on exchangeable debt 247 245
Deferred income tax benefit (478)
Loss (gain) on disposition of assets 60 (61)
Change in operating assets and liabilities:
Accounts receivable (2,228) (742)
Inventories 1,453 (2,656)
Prepaid expenses (333) 10
Accounts payable 583 5,392
Accrued expenses and other liabilities (6,572) (2,808)
Changes in other non-current liabilities 771 119
------------ ------------
Net cash provided by (used in) operating activities (2,300) 6,121
INVESTING ACTIVITIES:
Proceeds from sale of assets 221 77
Purchase of property, plant, and equipment (5,331) (8,689)
Purchase of other assets (528) (2,654)
Cash acquired from acquisition 239
------------ ------------
Net cash used in investing activities (5,638) (11,027)
FINANCING ACTIVITIES:
Borrowings under working capital agreement 154,386 161,920
Repayments under working capital agreement (145,271) (159,559)
Proceeds from issuance of long-term debt 4,400
Repayment of long-term debt (1,939) (1,439)
Proceeds from preferred stock sale 47,000
Notes receivable from shareholders (2,000)
Purchase of common stock warrants (13) (2,638)
Purchase of treasury stock (3,183) (33,638)
Purchase of preferred stock (493)
Changes in other non-current assets and liabilities (424) (505)
------------ ------------
Net cash provided by financing activities 3,063 13,541
------------ ------------
Net (decrease) increase in cash and cash equivalents (4,875) 8,635
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,505 1,053
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,630 $ 9,688
============ =============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 15,658 $ 15,308
Cash paid for taxes $ 170 $ 2,170
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
<PAGE>
MVE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements Of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
September 30,
--------------------------------------
1997 1996
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (2,178) $ 3,065
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 5,514 6,736
Minority interest 24 (152)
Interest on exchangeable debt 247 245
Deferred income tax benefit (478)
Loss (gain) on disposition of assets 60 (61)
Change in operating assets and liabilities:
Accounts receivable (2,046) (742)
Inventories 1,453 (2,656)
Prepaid expenses (333) 10
Accounts payable 602 5,392
Accrued expenses and other liabilities (6,566) (2,808)
Changes in other non-current liabilities 771 119
------------ -----------
Net cash provided by (used in) operating activities (2,452) 8,670
INVESTING ACTIVITIES:
Proceeds from sale of assets 221 77
Purchases of property, plant, and equipment (5,331) (8,689)
Purchase of other assets (528) (2,654)
Cash acquired from acquisition 239
------------ -----------
Net cash used in investing activities (5,638) (11,027)
FINANCING ACTIVITIES:
Borrowings under working capital agreement 154,386 161,920
Repayments under working capital agreement (145,271) (159,559)
Proceeds from issuance of long-term debt 4,400
Repayment of long-term debt (1,939) (1,439)
Changes in other non-current assets and liabilities 443 (2,103)
------------ -----------
Net cash provided by financing activities 7,619 3,219
------------ -----------
Net (decrease) increase in cash and cash equivalents (471) 862
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,054 1,053
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,583 $ 1,915
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 15,658 $ 15,308
Cash paid for taxes $ 170 $ 2,170
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
MVE HOLDINGS, INC. AND MVE, INC. AND SUBSIDIARIES
NOTES TO INTERIM UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. Description of Business and General Information
In the opinion of MVE Holdings, Inc. (Holdings) and MVE, Inc. (the Company),
the accompanying condensed consolidated financial statements include all
adjustments necessary, all of which were of a normal recurring nature, to
present fairly the financial position of Holdings and the Company as of
September 30, 1997 and the results of its operations and its cash flows for
the nine month periods ended September 30, 1997 and 1996. These results are
not necessarily indicative of the results to be expected for the full year.
The consolidated financial statements included herein have been prepared by
Holdings and the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). The consolidated
financial statements include the accounts of Holdings and the Company and
their subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
In accordance with the rules and regulations of the SEC, the accompanying
interim financial statements have been prepared under the presumption that
users of the interim financial information have either read or have access to
the audited financial statements for the latest fiscal year ended December
31, 1996. Accordingly, footnote disclosures which would substantially
duplicate the disclosures contained in the December 31, 1996 audited
financial statements have been omitted from these interim financial
statements. While management of Holdings and the Company believes the
procedures followed in preparing these financial statements are reasonable
under the circumstances and that all adjustments necessary for a fair
statement of the results of operations have been made, it is suggested that
these interim financial statements be read in conjunction with the financial
statements and the notes thereto included in Holdings' and the Company's
latest annual report under cover of Form 10-K.
2. Pursuant to an agreement entered into in June, 1997, between Holdings and
certain shareholders, Holdings redeemed 25,373 shares of Common Stock for
$125.456 per share and issued 13.31 shares of the 10% Class B Preferred stock
in exchange for 1,061 shares of Common Stock.
In addition, Holdings redeemed 49.33 shares of the 10% Class B Preferred
Stock, each share having a liquidation preference of $10,000.
3. In March, 1997, Holdings purchased 430 of its outstanding Warrants for
$30.10944 per Warrant.
4. The Company's Series A and B Convertible Preferred Stock requires a non-
cash payment-in-kind dividend to be accrued toward the value of the
convertible Preferred Stock. This Accumulated Accrued dividend was $7.6
million and $2.3 million as of September 30, 1997, and December 31, 1996,
respectively. The Company has recorded this dividend as an increase to the
Convertible Preferred Stock and has reclassified the December 31, 1996
financial statements to conform to this presentation. The amounts are as
follows:
September 30, December 31,
1997 1996
------------- -------------
Series A Convertible Preferred Stock $6.7 million $2.0 million
Series B Convertible Preferred Stock $ .9 million $ .3 million
------------ ------------
$7.6 million $2.3 million
============ ============
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SUMMARY
- -------
The Company develops, manufactures, markets and sells products which are grouped
according to three business segments: Industrial, Distributed and Medical.
Industrial products include cryogenic storage tanks and transportation equipment
sold to producers, distributors and end users of industrial gases. Distributed
products include bulk CO2 containers used for beverage carbonization, biological
storage systems used to store and transport temperature-sensitive biological
matter and insulated storage of liquid natural gas. Medical products include a
range of respiratory products such as liquid oxygen systems, ambulatory oxygen
systems, oxygen concentrators and nebulizers.
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended September 30, 1997 and 1996
Net Sales
- ---------
Net sales for the quarter ended September 30, 1997 decreased 3.1% to $46.7
million from $48.2 million in the comparable period in 1996.
Industrial Products: Net sales for the quarter ended September 30, 1997
decreased 2.4% to $29.0 million from $29.7 million in the comparable period in
1996. The decrease is primarily attributable to a $4.6 million decrease in bulk
tank sales and an $.8 million decrease of small pressure vessels. Offsetting
this decrease was the Company's acquisition, in November 1996, of a subsidiary
located near Sydney, Australia. This subsidiary had sales of approximately $1.7
million during the quarter ended September 30, 1997. These sales primarily
consisted of very large cryogenic tanks and tanker trailers sold to customers in
Australia and southeast Asia. In addition, sales of vacuum jacketed pipe
increased $.6 million and the new Orca and Environmental Chambers product lines
were introduced in 1997, which increased sales $1.5 million and $.7 million,
respectively.
Distributed Products: Net sales for the quarter ended September 30, 1997
increased 3.5% to $11.9 million from $11.5 million in the comparable period in
1996. The increase is primarily attributable to an $.8 million increase in
liquid natural gas product sales over the same quarter last year. There were no
sales of AURA panels for the quarter ended September 30, 1997 compared to $.4
million for the quarter ended September 30, 1996. The sales of AURA panels have
been discontinued.
Medical Products: Net sales for the quarter ended September 30, 1997 decreased
17.1% to $5.8 million from $7.0 million in the comparable period in 1996. Sales
of concentrators increased $.5 million between the two periods due to the
introduction of a new concentrator product in late 1996. This increase was
offset primarily by decreasing sales of liquid oxygen resulting from continued
uncertainty in oxygen reimbursement caused by governmental review of
Medicare/Medicaid expenditures.
Gross Margin
- ------------
Gross margin (expressed as a percent of net sales) decreased to 27.4% for the
quarter ended September 30, 1997 from 28.6% in the comparable period in 1996.
Industrial Products: Gross margin increased to 23.8% for the quarter ended
September 30, 1997 from 22.8% in the comparable period in 1996. The increase is
primarily attributable to changes in the mix of products.
Distributed Products: Gross margin increased to 39.8% for the quarter ended
September 30, 1997 from 39.3% in the comparable period in 1996. This increase is
primarily due to the elimination of AURA panels which are a lower margin
product. Sales of AURA panels were discontinued in the first quarter of 1997.
Medical Products: Gross margin decreased to 20.5% for the quarter ended
September 30, 1997 from 35.7% in the comparable period in 1996. The decrease is
due to lower pricing for liquid sales as a result of increased competition and
governmental regulation, lower margins on concentrator products due to the
introduction of a new concentrator in late 1996, due to changes in the mix of
medical product sales. Sales of lower margin concentrators represented 25% of
net sales in 1997 versus 12% in 1996.
<PAGE>
Operating Expenses
- ------------------
Operating expenses for the quarter ended September 30, 1997 were $11.0 million
or 23.7% of net sales compared to $12.5 million or 25.9% of net sales for the
same period one year ago. The decrease in operating expense is primarily
attributable to $2.5 million of expenses related to the recapitalization with
MVE Investors, LLC in August 1996. Offsetting this decrease are additional
expenses of $1.0 million associated with the expansion of the Company's
business into the Pacific Rim and Europe.
Operating Income
- ----------------
Operating income increased 38.7% to $1.8 million or 3.8% of net sales for the
quarter ended September 30, 1997 from $1.3 million or 2.7% of net sales in the
comparable period in 1996. The decrease is primarily due to the factors noted
in the Operating Expenses discussion above.
Interest Expense
- ----------------
Interest expense was $4.4 million for the quarter ended September 30, 1997 and
$4.2 million in the comparable period in 1996.
Income Taxes
- ------------
The effective income tax rate was 21.6% for the quarter ended September 30, 1997
compared to 8.4% in the comparable period in 1996. The 1996 income tax rate was
trued up as of December 31, 1996. If adjusted, the actual effective rate would
have been 27.6%.
Net Income
- ----------
As a result of the above, net loss (before preferred stock dividends) for the
quarter ended September 30, 1997 was $2.0 million compared to a net loss of $2.6
million in the comparable period in 1996.
EBITDA
- ------
EBITDA (earnings before interest, income taxes, depreciation, amortization)
virtually remained the same at $3.6 million or 7.8% of sales for the quarter
ended September 30, 1997 from $3.6 million or 7.4% of sales in the comparable
period of 1996.
Nine Months Ended September 30, 1997 and 1996
Net Sales
- ---------
Net sales for the nine months ended September 30, 1997 increased .1% to 145.6
million from 145.4 million in the comparable period in 1996.
Industrial Products: Net sales for the nine months ended September 30, 1997
increased 4.4% to $93.0 million from $89.1 million in the comparable period in
1996. The increase is primarily attributable to the Company's acquisition, in
November 1996, of a subsidiary located near Sydney, Australia. This subsidiary
had sales of approximately $7.1 million during the nine months ended September
30, 1997. These sales primarily consisted of very large cryogenic tanks and
tanker trailers sold to customers in Australia and southeast Asia. In addition,
sales of small pressure vessels increased $3.1 million and vacuum jacketed pipe
sales increased $1.0 million. The new Orca and Environmental Chambers product
lines were introduced in 1997 which increased sales $2.2 million and $1.1
million, respectively. These increases were offset by a $10.7 million decrease
in bulk tank sales.
Distributed Products: Net sales for the nine months ended September 30, 1997
decreased 4.6% to $33.2 million from $34.8 million in the comparable period in
1996. The decrease is primarily attributable to decreases in the sales of AURA
panels. Sales of AURA panels were $.1 million for the nine months ended
September 30, 1997 compared to $2.3 million for the nine months ended September
30, 1996. The sales of AURA panels have been discontinued. Restaurant and
liquid natural gas products sales increased approximately $.6 million between
the two periods.
<PAGE>
Medical Products: Net sales for the nine months ended September 30, 1997
decreased 9.3% to $19.4 million from $21.4 million in the comparable period in
1996. Sales of concentrators increased $2.0 million between the two periods due
to the introduction of a new concentrator product in late 1996. This increase
was offset by a $4.0 million decrease in liquid oxygen sales resulting from
continued uncertainty in oxygen reimbursement caused by governmental review of
Medicare/Medicaid expenditures.
Gross Margin
- ------------
Gross margin (expressed as a percent of net sales) decreased to 29.0% for the
nine months ended September 30, 1997 from 29.1% in the comparable period in
1996.
Industrial Products: Gross margin increased to 25.4% for the nine months ended
September 30, 1997 from 22.6% in the comparable period in 1996. The increase is
attributable to changes in the mix of products and decreased manufacturing
costs.
Distributed Products: Gross margin decreased to 41.3% for the nine months ended
September 30, 1997 from 42.5% in the comparable period in 1996. The decrease is
primarily attributable to favorable efficiency adjustments made in February 1996
for the year ended February 29, 1996, which were partially offset by improved
manufacturing efficiencies.
Medical Products: Gross margin decreased to 25.1% for the nine months ended
September 30, 1997 from 34.0% in the comparable period in 1996. The decrease is
due to lower pricing for liquid sales as a result of increased competition and
governmental regulation, lower margins on concentrator products due to the
introduction of a new concentrator in late 1996, due to changes in the mix of
medical product sales. Sales of lower margin concentrators represented 14% of
net sales in the third quarter of 1996 versus 24% in the third quarter of 1997.
Operating Expenses
- ------------------
Operating expenses for the nine months ended September 30, 1997 were $31.7
million or 21.7% of net sales compared to $27.0 million or 18.6% of net sales
for the same period one year ago. The increase in operating expense is
primarily attributable to favorable, non-recurring adjustments of $1.8 million
made in January and February 1996, additional expenses of $1.5 million
associated with the expansion of the Company's business into the Pacific Rim and
Europe and other net spending increases of approximately $3.9 million.
Offsetting this increase were $2.5 million of expenses related to the
recapitalization with MVE Investors, LLC in August 1996.
Operating Income
- ----------------
Operating income decreased 30.7% to $10.6 million or 7.3% of net sales for the
nine months ended September 30, 1997 from $15.3 million or 10.5% of net sales in
the comparable period in 1996. The decrease is primarily due to the factors
noted in the Net Sales and Operating Expense discussions above.
Interest Expense
- ----------------
Interest expense was $13.3 million for the nine months ended September 30, 1997
and $12.5 million in the comparable period in 1996.
Income Taxes
- ------------
The effective income tax rate was 19.6% for the nine months ended September 30,
1997 compared to 86.8% in the comparable period in 1996. 1996 included $.9
million of audit adjustments from the year ended February 29, 1996. Excluding
these adjustments, the effective rate would have been 66.4%.
Net Income
- ----------
As a result of the above, net loss (before preferred stock dividends) for the
nine months ended September 30, 1997 was $1.8 million compared to a net income
of $.5 million in the comparable period in 1996.
<PAGE>
EBITDA
- ------
EBITDA (earnings before interest, income taxes, depreciation, amortization)
decreased 26.8% to $16.1 million or 11.0% of sales for the nine months ended
September 30, 1997 from $22.0 million or 15.1% of sales in the comparable period
of 1996. The decrease in EBITDA is attributable to the factors noted in
"Operating Income" above.
LIQUIDITY AND CAPITAL RESERVES
- ------------------------------
Cash flow used by operating activities was $2.3 million for the nine months
ended September 30, 1997 compared to cash provided of $6.1 million in the same
period one year ago. This resulted primarily from the Company's decrease in net
income and liabilities.
Working capital was $27.8 million and $29.9 million at September 30, 1997 and
December 31, 1996, respectively.
The Company invested $5.6 million in the nine months ended September 30, 1997
compared to $11.0 million in the same period one year ago. 1996 included a
prepayment of $1.8 million which was to be applied to subsequent inventory
purchases for the medical division.
Cash provided by financing activities was $3.0 million for the nine months ended
September 30, 1997 compared to $13.5 million in the same period one year ago.
This was the result of proceeds from a preferred stock sale in 1996 and proceeds
from issuance of long-term debt. This was offset by notes receivable issued to
shareholders in 1996. The Company is not in default under any lending agreement
nor in violation of any related covenants for which there have not been waivers
obtained. The Company successfully refinanced the revolving line of credit with
a $38.5 million combined revolving credit and line of credit facility which
expires October 31, 2000.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
MVE HOLDINGS, INC.
DATE: November 14, 1997
---------------------------------------
John M. Kucharik
President and CEO
MVE, INC.
DATE: November 14, 1997
---------------------------------------
John M. Kucharik
President and CEO
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
MVE HOLDINGS, INC.
DATE: November 14, 1997 /s/ John M. Kucharik
---------------------------------------
President and CEO
MVE, INC.
DATE: November 14, 1997 /s/ John M. Kucharik
---------------------------------------
President and CEO
