<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For Quarterly Period Ended March 31, 1998
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)
<TABLE>
<S> <C> <C> <C>
DELAWARE 41-1641718 DELAWARE 41-1396485
(State or other jurisdiction of (IRS Employer (State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number) incorporation or organization) Identification Number)
</TABLE>
3505 COUNTY ROAD 42 WEST
BURNSVILLE, MN 55306-3803
(Address of principal executive offices)
TELEPHONE: (612) 882-5000
(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 MARCH 31, 1998
----------------- --------------
MVE Holdings, Inc. Common Stock 124,275 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>
March 31, December 31,
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,528 $ 5,864
Accounts receivable, net of allowance for doubtful accounts 33,917 28,838
Inventories 29,813 24,774
Prepaid expenses 1,778 1,319
Income tax refund receivable 715 1,013
Deferred income taxes 5,604 5,604
--------- ---------
Total current assets 77,355 67,412
PROPERTY, PLANT AND EQUIPMENT 61,692 48,640
Less-Accumulated depreciation and amortization (19,810) (18,765)
--------- ---------
Net property, plant and equipment 41,882 29,875
DEFERRED INCOME TAXES 3,547 3,483
GOODWILL, net 23,863 24,471
OTHER ASSETS, net 12,470 11,541
--------- ---------
Total assets $ 159,117 $ 136,782
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 8,199 $ 9,858
Accounts payable 23,406 18,297
Accrued expenses and other liabilities 20,716 22,376
--------- ---------
Total current liabilities 52,321 50,531
LONG-TERM DEBT, net of current maturities 152,395 140,669
OTHER NONCURRENT LIABILITIES 474 94
--------- ---------
Total liabilities 205,190 191,294
MINORITY INTEREST 3,380 368
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK 57,119 55,388
SERIES B CONVERTIBLE PREFERRED STOCK 9,269 9,050
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Notes receivable from shareholders (568) (2,225)
Common stock 1 2
Additional paid-in deficit 1,437 1,417
Common stock warrants 165 165
Accumulated deficit (116,876) (118,677)
--------- ---------
Total stockholders' deficit (115,841) (119,318)
--------- ---------
Total liabilities and stockholders' deficit $ 159,117 $ 136,782
========= =========
</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>
March 31, December 31,
1998 1997
--------- ---------
Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,734 $ 2,772
Accounts receivable, net allowance for doubtful accounts 31,705 28,837
Inventories 26,392 24,774
Prepaid expenses 1,460 1,228
Income tax refund receivable 715 1,013
Deferred income taxes 5,604 5,604
--------- ---------
Total current assets 68,610 64,228
PROPERTY, PLANT AND EQUIPMENT 49,272 48,640
Less-Accumulated depreciation and amortization (19,724) (18,765)
--------- ---------
Net property, plant and equipment 29,548 29,875
DUE FROM MVE HOLDINGS, INC 31,979 31,903
DEFERRED INCOME TAXES 2,466 2,402
GOODWILL, net 23,863 24,471
OTHER ASSETS, net 5,882 6,108
--------- ---------
Total assets $ 162,348 $ 158,987
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,509 $ 9,069
Accounts payable 18,267 18,297
Accrued expenses and other liabilities 18,594 22,371
--------- ---------
Total current liabilities 39,370 49,737
LONG-TERM DEBT, net of current maturities 142,685 134,594
OTHER NONCURRENT LIABILITIES 93 113
--------- ---------
Total liabilities 182,148 184,444
MINORITY INTEREST 394 368
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock 1 1
Additional paid-in capital 12,297 12,277
Accumulated deficit (32,492) (38,103)
--------- ---------
Total stockholders' deficit (20,194) (25,825)
--------- ---------
Total liabilities and stockholders' deficit $ 162,348 $ 158,987
========= =========
</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)
-----------------------
Three Months Ended
March 31
-----------------------
1998 1997
-------- --------
<S> <C> <C>
NET SALES $ 49,108 $ 48,444
COST OF SALES 35,157 33,562
-------- --------
Gross profit 13,951 14,882
OPERATING EXPENSES:
Selling and marketing 3,352 3,060
General and administrative 4,304 3,896
Research and development 1,253 1,616
Amortization 1,048 1,013
-------- --------
Total operating expenses 9,957 9,585
-------- --------
Operating income 3,994 5,297
INTEREST INCOME 69 160
INTEREST EXPENSE (4,569) (4,365)
-------- --------
Income (loss) before income tax provision,
minority interest and
extraordinary gain (506) 1,092
INCOME TAX BENEFIT (PROVISION) 241 (472)
-------- --------
Income (loss) before minority interest and
extraordinary gain (265) 620
MINORITY INTEREST IN NET INCOME (65) (4)
-------- --------
Net income (loss) before extraordinary gain (330) 616
EXTRAORDINARY GAIN FROM EARLY EXTINGUISHMENT OF
DEBT, NET OF TAX OF $393 5,755
-------- --------
Net income 5,425 616
PREFERRED STOCK DIVIDENDS (1,950) (1,738)
-------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS $ 3,475 $ (1,122)
======== ========
</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)
-----------------------
Three Months Ended
March 31
-----------------------
1998 1997
-------- --------
(Unaudited)
<S> <C> <C>
NET SALES $ 46,936 $ 48,444
COST OF SALES 33,294 33,562
-------- --------
Gross profit 13,642 14,882
OPERATING EXPENSES:
Selling and marketing 3,304 3,060
General and administrative 4,240 3,896
Research and development 1,253 1,616
Amortization 842 1,013
-------- --------
Total operating expenses 9,639 9,585
-------- --------
Operating income 4,003 5,297
INTEREST INCOME 15
INTEREST EXPENSE (4,220) (4,365)
-------- --------
Income (loss) before income tax provision,
minority interest and
extraordinary gain (202) 932
INCOME TAX BENEFIT (PROVISION) 83 (472)
-------- --------
Income (loss) before minority interest and
extraordinary gain (119) 460
MINORITY INTEREST IN NET INCOME (25) (4)
-------- --------
Net income (loss) before extraordinary gain (144) 456
EXTRAORDINARY GAIN FROM EARLY EXTINGUISHMENT OF
DEBT, NET OF INCOME TAX PROVISION OF $393 5,755
-------- --------
Net income $ 5,611 $ 456
======== ========
</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)
Three Months Ended
March 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income before preferred stock dividends $ 5,425 $ 616
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 2,094 1,766
Extraordinary gain, net of tax (5,755)
Minority interest 70 4
Interest on exchangeable debt 63 82
Loss on disposition of assets 10
Change in operating assets and liabilities:
Accounts receivable (2,714) (3,093)
Inventories (940) (456)
Prepaid expenses (211) 28
Income tax receivable 298
Accounts payable (556) 1,102
Accrued expenses and other liabilities (4,133) (4,981)
Changes in other non-current liabilities 228 226
-------- --------
Net cash used in operating activities (6,121) (4,706)
INVESTING ACTIVITIES:
Proceeds from sale of assets 1
Purchase of property, plant, and equipment (673) (2,072)
Purchase of other assets (503) (191)
Payment for purchase of Ferox, net of cash acquired (1,004)
-------- --------
Net cash used in investing activities (2,179) (2,263)
FINANCING ACTIVITIES:
Borrowings under working capital agreement 52,925 52,931
Repayments under working capital agreement (44,497) (47,459)
Repayment of long-term debt (708) (242)
Changes in other non-current assets and liabilities 244 115
-------- --------
Net cash provided by financing activities 7,964 5,345
-------- --------
Net decrease in cash and cash equivalents (336) (1,624)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,864 10,505
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,528 $ 8,881
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 7,723 $ 7,612
Cash paid for taxes $ 1,494 $ 149
</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)
Three Months Ended
March 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,611 $ 456
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,802 1,766
Extraordinary gain, net of tax (5,755)
Minority interest 26 4
Interest on exchangeable debt 63 82
Loss on disposition of assets 10
Change in operating assets and liabilities:
Accounts receivable (2,783) (2,996)
Inventories (1,618) (456)
Prepaid expenses (232) 28
Income tax receivable 298
Accounts payable (30) 1,121
Accrued expenses and other liabilities (4,234) (4,975)
Changes in other non-current liabilities 245 226
-------- --------
Net cash used in operating activities (6,597) (4,744)
INVESTING ACTIVITIES:
Proceeds from sale of assets 1
Purchases of property, plant, and equipment (644) (2,072)
Purchase of other assets (93) (191)
-------- --------
Net cash used in investing activities (736) (2,263)
FINANCING ACTIVITIES:
Borrowings under working capital agreement 52,813 52,931
Repayments under working capital agreement (44,496) (47,459)
Repayment of long-term debt (926) (242)
Changes in other non-current assets and liabilities (96) 983
-------- --------
Net cash provided by financing activities 7,295 6,213
-------- --------
Net decrease in cash and cash equivalents (38) (794)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,772 3,054
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,734 $ 2,260
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 7,594 $ 7,612
Cash paid for taxes $ 1,494 $ 149
</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
MARCH 31, 1998
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, except for Notes 1 - 3, to present fairly the financial position of
Holdings and the Company as of March 31, 1998 and the results of its
operations and its cash flows for the three month periods ended March 31,
1998 and 1997. These results are not necessarily indicative of the results
to be expected for the full year.
The condensed consolidated financial statements included herein have been
prepared by Holdings and the Company, without audit, in accordance with the
rules and regulations of the Securities and Exchange Commission (SEC). The
condensed 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, 1997. Accordingly, footnote disclosures which would
substantially duplicate the disclosures contained in the December 31, 1997
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, these interim
financial statements should be read in conjunction with the financial
statements and the notes thereto included in Holdings' and the Company's
latest annual report on Form 10-K.
2. Debt Restructuring
On February 2, 1998, CAIRE Inc. (CAIRE), a subsidiary of the Company,
entered into an agreement whereby a third party agreed to accept, in full
payment of all outstanding indebtedness currently owed to it by CAIRE, a
cash payment of $50,000 and an option to purchase 820 shares of 10% Series
AA Cumulative Preferred Stock (Series AA Preferred Stock), par value $.01
per share, of CAIRE. Concurrent with the above settlement, MVE accepted, in
full payment of all outstanding unsecured indebtedness currently owed to it
by CAIRE, 632 shares of the Series AA Preferred Stock. Additionally, MVE
purchased all shares of CAIRE common stock owned by the third party for an
aggregate purchase price of $100. The Series AA Preferred Stock has a
liquidation preference of $10,000 per share and is subject to mandatory
redemption. As a result of this restructuring, the Company incurred an
extraordinary gain, net of tax, of $5,755.
3. Acquisition
Effective February 18, 1998, Holdings, through a subsidiary, acquired a
majority interest in Ferox, a.s., a manufacturer of bulk tanks and other
cryogenic equipment located in the Czech Republic, for $400,000 in cash and
an agreement with the seller to make additional payments based on certain
operational results of Ferox and Holdings. The purchase price has been
allocated to the assets acquired and liabilities assumed based on their
estimated fair market values at the date of acquisition. Upon completion of
the evaluation process, Holdings may adjust the allocation of purchase
price based on a final determination of fair value. In addition, Holdings
paid to the seller's parent the sum of $600,000 in cash in exchange for an
agreement not to compete. Acquisition costs of $350,000 were incurred which
will be amortized on a straight-line basis over 15 years.
4. Loan Default
The Company accelerated the maturity of a $1.5 million loan in favor of a
shareholder, to January 9, 1998 and the shareholder defaulted. In
accordance with the terms of the loan and pledge agreement, Holdings took
possession of certain Holdings' Common Stock equal in value to the
principal and unpaid interest on the loan.
<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 MARCH 31, 1998 AND 1997
NET SALES
Net sales for the quarter ended March 31, 1998 increased 1.4% to $49.1 million
from $48.4 million in the comparable period in 1997.
INDUSTRIAL PRODUCTS: Net sales for the quarter ended March 31, 1998 decreased
2.8% to $30.7 million from $31.6 million in the comparable period in 1997. Sales
of bulk tanks and liquid cylinders decreased approximately $4.9 million between
the two quarters. This decrease was offset by a $0.8 million increase in sales
of vacuum insulated pipe. Additionally, the first quarter of 1998 included $0.7
million of environmental chamber sales as a result of the acquisition of Hanse
Environmental in May 1997 and sales of $2.2 million resulting from the purchase
of a majority interest of Ferox in February 1998.
DISTRIBUTED PRODUCTS: Net sales for the quarter ended March 31, 1998 increased
7.5% to $11.4 million from $10.5 million in the comparable period in 1997. The
increase is largely due to increased sales of liquid natural gas tanks.
MEDICAL PRODUCTS: Net sales for the quarter ended March 31, 1998 increased 11.1%
to $7.0 million from $6.3 million in the comparable period in 1997. The increase
is primarily attributable to sales of the concentrator product.
GROSS MARGIN
Gross margin (expressed as a percent of net sales) decreased to 28.4% for the
quarter ended March 31, 1998 from 30.7% in the comparable period in 1997.
INDUSTRIAL PRODUCTS: Gross margin decreased to 23.3% for the quarter ended March
31, 1998 from 26.9% in the comparable period in 1997. The decrease resulted from
lower margin products being sold in addition to volume pricing terms for certain
customers.
DISTRIBUTED PRODUCTS: Gross margin increased to 43.5% for the quarter ended
March 31, 1998 from 43.1% in the comparable period in 1997.
MEDICAL PRODUCTS: Gross margin decreased to 26.4% for the quarter ended March
31, 1998 from 29.2% in the comparable period in 1997. The decrease is primarily
attributable to market pricing changes resulting from reimbursement levels from
Medicare.
<PAGE>
OPERATING EXPENSES
Operating expenses for the quarter ended March 31, 1998 were $10.0 million, or
20.3% of net sales, compared to $9.6 million, or 19.8% of net sales, for the
same period one year ago. The increase in operating expense is primarily
attributable to additional expenses associated with the expansion of Holdings
business in Europe. Additionally, other unusual expenses were incurred as a
result of various organizational changes made in 1998.
OPERATING INCOME
Operating income decreased 24.6% to $4.0 million, or 8.1% of net sales, for the
three months ended March 31, 1998 from $5.3 million, or 10.9% of net sales, in
the comparable period in 1997. The decrease is primarily due to the decline in
Industrial and Medical Products gross margin noted in the Gross Margin
discussion above.
INTEREST EXPENSE
Interest expense was $4.6 million for the quarter ended March 31, 1998 and $4.4
million in the comparable period in 1997.
INCOME TAXES
The effective income tax rate was 47.6% for the three months ended March 31,
1998 compared to 43.4% for the same period one year ago.
NET INCOME/LOSS
As a result of the above, net loss (before preferred stock dividends and
extraordinary gain) for the three months ended March 31, 1998 was $330,000
compared to a net income of $616,000 in the comparable period in 1997.
EBITDA (BEFORE EXTRAORDINARY GAIN)
EBITDA (earnings before interest, income taxes, depreciation, amortization)
decreased 16.9% to $5.9 million or 12.3% of sales for the quarter ended March
31, 1998 from $7.1 million or 14.6% of sales in the comparable period of 1997.
The decrease in EBITDA is attributable to the factors noted in the Gross Margin
and Operating Income discussions above.
LIQUIDITY AND CAPITAL RESERVES
Cash flow used by operating activities was $6.1 million for the three months
ended March 31, 1998 compared to $4.7 million in the same period one year ago.
Working capital was $25.0 million and $16.9 million at March 31, 1998 and
December 31, 1997, respectively.
The Company invested $2.2 million in the three months ended March 31, 1998
compared to $2.3 million in the same period one year ago.
Cash provided by financing activities was $8.0 million for the three months
ended March 31, 1998 compared to $5.3 million in the same period one year ago.
The increase resulted from a reduction in repayments on the working capital
agreement. 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.
<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:
-----------------------------------------
John M. Kucharik
President and Chief Executive Officer
-----------------------------------------
David E. Hoffman
Chief Financial Officer
MVE, INC.
DATE:
-----------------------------------------
John M. Kucharik
President and Chief Executive Officer
-----------------------------------------
David E. Hoffman
Chief Financial Officer
<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: /s/ John M. Kucharik
-----------------------------------------
John M. Kucharik
President and Chief Executive Officer
/s/ David E. Hoffman
-----------------------------------------
David E. Hoffman
Chief Financial Officer
MVE, INC.
DATE: /s/ John M. Kucharik
-----------------------------------------
John M. Kucharik
President and Chief Executive Officer
/s/ David E. Hoffman
-----------------------------------------
David E. Hoffman
Chief Financial Officer
