<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 June 30, 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.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 41-1641718
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
MVE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 41-1396485
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3505 COUNTY ROAD 42 WEST
BURNSVILLE, MN 55306
(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 JUNE 30, 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
2
<PAGE>
MVE HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,488 $ 5,864
Accounts receivable, net of allowance for doubtful accounts 36,050 28,838
Inventories 29,762 24,774
Prepaid expenses 2,007 1,319
Income tax refund receivable 723 1,013
Deferred income taxes 5,604 5,604
--------- ---------
Total current assets 85,634 67,412
PROPERTY, PLANT AND EQUIPMENT 71,814 48,640
Less-Accumulated depreciation and amortization (30,061) (18,765)
--------- ---------
Net property, plant and equipment 41,753 29,875
GOODWILL, net 23,316 24,471
DEFERRED INCOME TAXES 3,527 3,483
OTHER ASSETS, net 11,990 11,541
--------- ---------
Total assets $ 166,220 $ 136,782
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 8,054 $ 9,858
Accounts payable 24,123 18,297
Accrued expenses and other liabilities 24,485 22,376
--------- ---------
Total current liabilities 56,662 50,531
LONG-TERM DEBT, net of current maturities 155,146 140,669
OTHER NONCURRENT LIABILITIES 444 94
--------- ---------
Total liabilities 212,252 191,294
MINORITY INTEREST 3,487 368
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK 58,904 55,388
SERIES B CONVERTIBLE PREFERRED STOCK 9,488 9,050
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Notes receivable from shareholders (579) (2,225)
Common stock 1 2
Additional paid-in deficit 1,437 1,417
Common stock warrants 165 165
Accumulated deficit (118,935) (118,677)
--------- ---------
Total stockholders' deficit (117,911) (119,318)
--------- ---------
Total liabilities and stockholders' deficit $ 166,220 $ 136,782
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated balance sheets.
3
<PAGE>
MVE HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements Of Operations
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
-------------------------- ------------------------
Three Months Ended June 30 Six Months Ended June 30
------------------------- ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 56,878 $ 50,501 $ 105,986 $ 98,945
COST OF SALES 40,215 35,954 75,372 69,516
--------- --------- --------- ---------
Gross profit 16,663 14,547 30,614 29,429
OPERATING EXPENSES:
Selling and marketing 3,603 3,522 6,955 6,582
General and administrative 5,366 4,951 9,670 8,847
Research and development 1,347 1,514 2,600 3,130
Amortization 1,181 1,032 2,229 2,045
--------- --------- --------- ---------
Total operating expenses 11,497 11,019 21,454 20,604
--------- --------- --------- ---------
Operating income 5,166 3,528 9,160 8,825
INTEREST INCOME 33 109 102 269
INTEREST EXPENSE (4,942) (4,459) (9,511) (8,824)
--------- --------- --------- ---------
Income (loss) before income tax
provision (benefit), minority
interest and extraordinary gain 257 (822) (249) 270
INCOME TAX BENEFIT (PROVISION) (110) 370 131 (102)
--------- --------- --------- ---------
Income (loss) before minority interest 147 (452) (118) 168
and extraordinary gain
MINORITY INTEREST IN NET INCOME (192) (257) (4)
--------- --------- --------- ---------
Net income (loss) before extraordinary (45) (452) (375) 164
gain
EXTRAORDINARY GAIN FROM EARLY
EXTINGUISHMENT OF DEBT, NET OF
TAX OF $393 5,755
--------- --------- --------- ---------
Net income (loss) (45) (452) 5,380 164
PREFERRED STOCK DIVIDENDS (2,004) (1,750) (3,954) (3,488)
--------- --------- --------- ---------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ (2,049) $ (2,202) $ 1,426 $ (3,324)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE>
MVE HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements Of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
June 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income before preferred stock dividends $ 5,380 $ 164
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 4,541 3,635
Extraordinary gain, net of tax (5,755)
Minority interest 257 4
Interest on exchangeable debt 63 165
Loss (gain) on disposition of assets (3) 66
Currency exchange gain (50)
Change in operating assets and liabilities:
Accounts receivable (5,060) (5,500)
Inventories (824) (332)
Prepaid expenses (320) (388)
Deferred income taxes 21
Accounts payable 56 915
Accrued expenses and other liabilities (352) (3,707)
Changes in other non-current assets and liabilities 559 551
--------- ---------
Net cash used in operating activities (1,487) (4,427)
INVESTING ACTIVITIES:
Proceeds from sale of assets 1 219
Purchase of property, plant, and equipment (1,681) (4,458)
Payment for purchase of Ferox, net of cash acquired (1,019)
Purchase of minority shares (8)
Increase in other assets (73) (380)
--------- ---------
Net cash used in investing activities (2,780) (4,619)
FINANCING ACTIVITIES:
Borrowings under working capital agreement 99,486 103,976
Repayments under working capital agreement (94,165) (95,347)
Proceeds from issuance of long-term debt 6,436
Repayment of long-term debt (1,667) (1,525)
Deferred financing costs (326)
Purchase of common stock warrants (13)
Purchase of treasury stock (3,183)
Purchase of preferred stock (493)
Changes in other non-current assets and liabilities (8) (26)
--------- ---------
Net cash provided by financing activities 9,756 3,389
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash
Equivalents 135
--------- ---------
Net increase (decrease) in cash and cash equivalents 5,624 (5,657)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,864 10,505
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,488 $ 4,848
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 8,815 $ 8,057
Cash paid for taxes $ 2,137 $ 166
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE>
MVE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO INTERIM UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. Description of Business and General Information
In the opinion of MVE Holdings, Inc. (Holdings), 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 as of June 30, 1998 and the results of its operations
and its cash flows for the six month periods ended June 30, 1998 and 1997.
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, 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 its 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 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' latest annual report
under cover of Form 10-K.
2. Debt Restructuring
On February 2, 1998, CAIRE Inc. (CAIRE), a subsidiary of Holdings, 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, Holdings accepted,
in full payment of all outstanding unsecured indebtedness currently owed to
it by CAIRE, 632 shares of the Series AA Preferred Stock. Additionally,
Holdings 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, Holdings incurred
an extraordinary gain, net of tax, of $5,755,000.
3. Acquisition
Effective February 18, 1998, Holdings, through a subsidiary, acquired a
majority interest in Ferox, a.s., a manufacturer of cryogenic bulk storage
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 $364,000 were incurred which will be amortized on a straight-line
basis over 15 years.
4. Loan Default
A $1.5 million loan in favor of a shareholder matured on January 9, 1998
and the shareholder defaulted. In accordance with the terms of the loan and
pledge agreement, Holdings satisfied the defaulted loan by taking
possession of certain Holdings' Common Stock that secured the payment of
the loan.
6
<PAGE>
5. Issuance of Senior Subordinated Notes
On May 5, 1998, Holdings issued 14.125%, senior subordinated notes in the
amount of $6,300,000 and two common stock purchase warrants, each allowing
the holder to purchase 4,000 shares of Holdings common stock at $0.01 per
share. The proceeds from these notes will be used for working capital and
general corporate purposes. The senior subordinated notes are redeemable at
the option of Holdings, in whole or in part, on May 5, 2005, plus accrued
and unpaid interest. The senior subordinated notes contain certain
covenants which restrict, among other things, dividends and additional
equity issuances.
6. Redemption of Common and Preferred Stock
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.
7. Warrant Purchase
In March, 1997, Holdings purchased 430 of its outstanding warrants for
$30.10944 per Warrant.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SUMMARY
- -------
Holdings 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 JUNE 30, 1998 AND 1997
NET SALES
Net sales for the quarter ended June 30, 1998 increased 12.7% to $56.9 million
from $50.5 million in the comparable period in 1997.
INDUSTRIAL PRODUCTS: Net sales for the quarter ended June 30, 1998 increased
7.4% to $34.8 million from $32.4 million in the comparable period in 1997. The
purchase of a majority interest in Ferox a.s. accounts for a $5.6 million
increase in net sales. Offsetting this increase is a $2.3 million reduction in
bulk storage tanks and liquid cylinders due primarily to economic conditions in
Asia Pacific.
DISTRIBUTED PRODUCTS: Net sales for the quarter ended June 30, 1998 increased
45.8% to $15.6 million from $10.7 million in the comparable period in 1997. The
increase is largely attributable to increased sales of liquid natural gas tanks
and obtaining a larger share of CO2 business from a major customer.
MEDICAL PRODUCTS: Net sales for the quarter ended June 30, 1998 decreased 12.2%
to $6.5 million from $7.4 million in the comparable period in 1997. Domestic
sales declined as a result of decreasing oxygen reimbursement from
Medicare/Medicaid, offset by stronger international sales.
GROSS MARGIN
Gross margin (expressed as a percent of net sales) increased to 29.3% for the
quarter ended June 30, 1998 from 28.8% in the comparable period in 1997.
INDUSTRIAL PRODUCTS: Gross margin decreased to 22.6% for the quarter ended June
30, 1998 from 25.5% in the comparable period in 1997. Volume/pricing terms with
certain customers, economic conditions in Asia Pacific and the addition of Ferox
a.s., which has margins lower than historical margins for Holdings, contributed
to the decline in gross margin.
DISTRIBUTED PRODUCTS: Gross margin increased to 44.9% for the quarter ended June
30, 1998 from 43.0% in the comparable period in 1997. Increased sales of liquid
natural gas tanks contributed to the higher margin.
MEDICAL PRODUCTS: Gross margin increased to 27.7% for the quarter ended June 30,
1998 from 22.6% in the comparable period in 1997. This change resulted from an
increase in international liquid oxygen sales and a decrease in domestic
concentrator sales .
OPERATING EXPENSES
Operating expenses for the quarter ended June 30, 1998 were $11.5 million or
20.2% of net sales compared to $11.0 million or 21.8% of net sales for the same
period one year ago. The increase in operating expenses is associated with the
expansion of Holdings' business into the Czech Republic and Europe offset by
reductions domestically.
8
<PAGE>
OPERATING INCOME
Operating income increased 48.6% to $5.2 million or 9.1% of net sales for the
quarter ended June 30, 1998 from $3.5 million or 7.0% of net sales in the
comparable period in 1997. The increase is primarily due to the factors noted in
the Net Sales and Gross Margin discussions above.
INTEREST EXPENSE
Interest expense was $4.9 million for the quarter ended June 30, 1998 and $4.5
million in the comparable period in 1997.
INCOME TAXES
The effective income tax rate was 42.8% for the quarter ended June 30, 1998
compared to 45.0% in the comparable period in 1997.
NET INCOME (LOSS)
As a result of the above, net loss (before preferred stock dividends) for the
quarter ended June 30, 1998 was $45,000 compared to a net loss of $452,000 in
the comparable period in 1997.
EBITDA (BEFORE EXTRAORDINARY GAIN)
EBITDA (earnings before interest, income taxes, depreciation, amortization)
increased 35.2% to $7.3 million or 12.7% of net sales for the quarter ended June
30, 1998 from $5.4 million or 10.7% of net sales in the comparable period of
1997. The increase in EBITDA is attributable to the factors noted in the Net
Sales and Gross Margin discussions above.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NET SALES
Net sales for the six months ended June 30, 1998 increased 7.2% to $106.0
million from $98.9 million in the comparable period in 1997.
INDUSTRIAL PRODUCTS: Net sales for the six months ended June 30, 1998 increased
2.3% to $65.5 million from $64.0 million in the comparable period in 1997. The
acquisition of a majority interest in Ferox a.s. accounts for net sales
increases of $7.7 million. Sales of bulk storage tanks and liquid cylinders
decreased approximately $6.9 million due primarily to economic conditions in
Asia Pacific.
DISTRIBUTED PRODUCTS: Net sales for the six months ended June 30, 1998 increased
26.8% to $27.0 million from $21.3 million in the comparable period in 1997. The
increase is largely attributable to increased sales of liquid natural gas tanks
and obtaining a larger share of CO2 business from a major customer.
MEDICAL PRODUCTS: Net sales for the six months ended June 30, 1998 decreased
0.7% to $13.5 million from $13.6 million in the comparable period in 1997.
GROSS MARGIN
Gross margin (expressed as a percent of net sales) decreased to 28.9% for the
six months ended June 30, 1998 from 29.7% in the comparable period in 1997.
INDUSTRIAL PRODUCTS: Gross margin decreased to 23.0% for the six months ended
June 30, 1998 from 26.5% in the comparable period in 1997. Volume/pricing terms
with certain customers, economic conditions in Asia Pacific and the addition of
Ferox a.s., which has margins lower than historical margins for Holdings,
contributed to the decline in gross margin.
DISTRIBUTED PRODUCTS: Gross margin increased to 44.0% for the six months ended
June 30, 1998 from 43.0% in the comparable period in 1997. Increased sales of
liquid natural gas tanks contributed to the higher margin.
9
<PAGE>
MEDICAL PRODUCTS: Gross margin increased to 27.0% for the six months ended June
30, 1998 from 25.6% in the comparable period in 1997. The increase is primarily
attributable to a change in the mix of international sales and domestic sales.
OPERATING EXPENSES
Operating expenses for the six months ended June 30, 1998 were $21.5 million or
20.2% of net sales compared to $20.6 million or 20.8% of net sales for the same
period one year ago. The increase in operating expenses is associated with the
expansion of Holdings' business into the Czech Republic and Europe offset by
reductions domestically.
OPERATING INCOME
Operating income increased 4.5% to $9.2 million or 8.6% of net sales for the six
months ended June 30, 1998 from $8.8 million or 8.9% of net sales in the
comparable period in 1997. The increase is primarily due to the factors noted in
the Net Sales and Gross Margin discussions above.
INTEREST EXPENSE
Interest expense was $9.5 million for the six months ended June 30, 1998 and
$8.8 million in the comparable period in 1997. The addition of Ferox, a.s. and
increased borrowings on the working line contributed to the increase in interest
expense.
INCOME TAXES
The effective income tax rate before extraordinary gain was 52.6% for the six
months ended June 30, 1998 compared to 37.8% in the comparable period in 1997.
NET INCOME
As a result of the extraordinary gain, net income (before preferred stock
dividends) for the six months ended June 30, 1998 was $5.4 million compared to
$164,000 in the comparable period in 1997.
EBITDA (BEFORE EXTRAORDINARY GAIN)
EBITDA (earnings before interest, income taxes, depreciation, amortization)
increased 5.6% to $13.2 million or 12.5% of net sales for the six months ended
June 30, 1998 from $12.5 million or 12.6% of net sales in the comparable period
of 1997. The increase in EBITDA is attributable to the factors noted in the Net
Sales and Gross Margin discussions above.
LIQUIDITY AND CAPITAL RESERVES
- ------------------------------
Cash flow used by operating activities was $1.5 million for the six months ended
June 30, 1998 compared to $4.4 million in the same period one year ago. This
resulted primarily from a reduction in customer advances relating to specific
projects in 1997.
Working capital was $29.0 million and $16.9 million at June 30, 1998 and
December 31, 1997, respectively. The increase is primarily due to the CAIRE debt
restructuring, the Ferox a.s. acquisition, and an increase in receivables.
Holdings invested $2.8 million in the six months ended June 30, 1998 compared to
$4.6 million in the same period one year ago. Reduced purchases of property,
plant and equipment were offset by the purchase of the majority interest in
Ferox a.s.
Cash provided by financing activities was $9.8 million for the six months ended
June 30, 1998 compared to $3.4 million in the same period one year ago. In 1998,
cash was received from the issuance of senior subordinated notes. In 1997,
borrowings under the working capital agreement were higher than in 1998 and cash
was used to redeem common and preferred stock.
10
<PAGE>
Holdings is not in default under any lending agreement nor in violation of any
related covenants for which there have not been waivers obtained.
11
<PAGE>
MVE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,175 $ 2,772
Accounts receivable, net allowance for doubtful accounts 33,927 28,837
Inventories 26,432 24,774
Prepaid expenses 1,468 1,228
Income tax refund receivable 723 1,013
Deferred income taxes 5,604 5,604
--------- ---------
Total current assets 70,329 64,228
PROPERTY, PLANT AND EQUIPMENT 50,059 48,640
Less-Accumulated depreciation and amortization (20,633) (18,765)
--------- ---------
Net property, plant and equipment 29,426 29,875
DUE FROM MVE HOLDINGS, INC 32,059 31,903
GOODWILL, net 23,316 24,471
DEFERRED INCOME TAXES 2,446 2,402
OTHER ASSETS, net 5,560 6,108
--------- ---------
Total assets $ 163,136 $ 158,987
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,052 $ 9,069
Accounts payable 18,807 18,297
Accrued expenses and other liabilities 22,537 22,371
--------- ---------
Total current liabilities 43,396 49,737
LONG-TERM DEBT, net of current maturities 138,984 134,594
OTHER NONCURRENT LIABILITIES 69 113
--------- ---------
Total liabilities 182,449 184,444
MINORITY INTEREST 429 368
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock 1 1
Additional paid-in deficit 12,297 12,277
Accumulated deficit (32,040) (38,103)
--------- ---------
Total stockholders' deficit (19,742) (25,825)
--------- ---------
Total liabilities and stockholders' deficit $ 163,136 $ 158,987
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
12
<PAGE>
MVE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements Of Operations
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
-------------------- --------------------
Three Months Ended Six Months Ended
June 30 June 30
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 51,312 $ 50,501 $ 98,248 $ 98,945
COST OF SALES 35,720 35,954 69,014 69,516
-------- -------- -------- --------
Gross profit 15,592 14,547 29,234 29,429
OPERATING EXPENSES:
Selling and marketing 3,481 3,522 6,785 6,582
General and administrative 4,937 4,951 9,177 8,847
Research and development 1,347 1,514 2,600 3,130
Amortization 864 1,032 1,706 2,045
-------- -------- -------- --------
Total operating expenses 10,629 11,019 20,268 20,604
-------- -------- -------- --------
Operating income 4,963 3,528 8,966 8,825
INTEREST INCOME 22 37
INTEREST EXPENSE (4,302) (4,459) (8,522) (8,824)
-------- -------- -------- --------
Income (loss) before income tax provision (benefit),
minority interest and extraordinary gain 683 (931) 481 1
INCOME TAX (PROVISION) BENEFIT (189) 370 (106) (102)
-------- -------- -------- --------
Income (loss) before minority interest and 494 (561) 375 (101)
extraordinary gain
MINORITY INTEREST IN NET INCOME (35) (60) (4)
-------- -------- -------- --------
Net income (loss) before extraordinary gain 459 (561) 315 (105)
EXTRAORDINARY GAIN FROM EARLY EXTINGUISHMENT OF
DEBT, NET OF TAX OF $393 5,755
-------- -------- -------- --------
Net income (loss) $ 459 $ (561) $ 6,070 $ (105)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
13
<PAGE>
MVE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements Of Cash Flows
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
----------------------
1998 1997
--------- ---------
OPERATING ACTIVITIES:
Net income (loss) $ 6,070 $ (105)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 3,678 3,635
Extraordinary gain, net of taxes (5,755)
Minority interest 60 4
Interest on exchangeable debt 63 165
Loss (gain) on disposition of assets (3) 66
Change in operating assets and liabilities:
Accounts receivable (5,271) (5,385)
Inventories (1,662) (332)
Prepaid expenses (126) (388)
Deferred income taxes 21
Accounts payable 512 934
Accrued expenses and other liabilities (232) (3,701)
Changes in other non-current liabilities 24 470
--------- ---------
Net cash used in operating activities (2,621) (4,637)
INVESTING ACTIVITIES:
Proceeds from sale of assets 1 219
Purchases of property, plant, and equipment (1,547) (4,458)
Purchase of other assets (96) (380)
--------- ---------
Net cash used in investing activities (1,642) (4,619)
FINANCING ACTIVITIES:
Borrowings under working capital agreement 99,486 103,976
Repayments under working capital agreement (94,166) (95,347)
Repayment of long-term debt (1,574) (1,525)
Changes in other non-current assets and liabilities (160) 922
--------- ---------
Net cash provided by financing activities 3,586 8,026
Effect of Foreign Currency Exchange Rate Changes on
Cash and Cash Equivalents 80
--------- ---------
Net decrease in cash and cash equivalents (597) (1,230)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,772 3,054
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,175 $ 1,824
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 8,519 $ 8,138
Cash paid for taxes $ 2,137 $ 166
The accompanying notes are an integral part of these condensed consolidated
financial statements.
14
<PAGE>
MVE, INC. AND SUBSIDIARIES
NOTES TO INTERIM UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. Description of Business and General Information
In the opinion of 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 the Company as of June 30, 1998 and the results of its
operations and its cash flows for the six month periods ended June 30, 1998
and 1997. 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
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 the Company and its 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 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 the Company's latest annual
report under cover of 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, the Company
accepted, in full payment of all outstanding unsecured indebtedness
currently owed to it by CAIRE, 632 shares of the Series AA Preferred Stock.
Additionally, the Company 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,
Holdings incurred an extraordinary gain, net of tax, of $5,755,000.
15
<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 JUNE 30, 1998 AND 1997
NET SALES
Net sales for the quarter ended June 30, 1998 increased 1.6% to $51.3 million
from $50.5 million in the comparable period in 1997.
INDUSTRIAL PRODUCTS: Net sales for the quarter ended June 30, 1998 decreased
9.9% to $29.2 million from $32.4 million in the comparable period in 1997. Bulk
storage tanks and liquid cylinders decreased $2.3 million due primarily to
economic conditions in Asia Pacific.
DISTRIBUTED PRODUCTS: Net sales for the quarter ended June 30, 1998 increased
45.8% to $15.6 million from $10.7 million in the comparable period in 1997. The
increase is largely attributable to increased sales of liquid natural gas tanks
and obtaining a larger share of CO2 business from a major customer.
MEDICAL PRODUCTS: Net sales for the quarter ended June 30, 1998 decreased 12.2%
to $6.5 million from $7.4 million in the comparable period in 1997. Domestic
sales declined as a result of decreasing oxygen reimbursement from
Medicare/Medicaid, offset by stronger international sales.
GROSS MARGIN
Gross margin (expressed as a percent of net sales) increased to 30.4% for the
quarter ended June 30, 1998 from 28.8% in the comparable period in 1997.
INDUSTRIAL PRODUCTS: Gross margin decreased to 23.2% for the quarter ended June
30, 1998 from 25.5% in the comparable period in 1997. Volume/pricing terms with
certain customers and economic conditions in Asia Pacific contributed to the
decline in gross margin.
DISTRIBUTED PRODUCTS: Gross margin increased to 44.9% for the quarter ended June
30, 1998 from 43.0% in the comparable period in 1997. Increased sales of liquid
natural gas tanks contributed to the higher margin.
MEDICAL PRODUCTS: Gross margin increased to 27.7% for the quarter ended June 30,
1998 from 22.6% in the comparable period in 1997. This change resulted from an
increase in international liquid oxygen sales and a decrease in domestic
concentrator sales .
OPERATING EXPENSES
Operating expenses for the quarter ended June 30, 1998 were $10.6 million or
20.7% of net sales compared to $11.0 million or 21.8% of net sales for the same
period one year ago.
16
<PAGE>
OPERATING INCOME
Operating income increased 42.9% to $5.0 million or 9.7% of net sales for the
quarter ended June 30, 1998 from $3.5 million or 7.0% of net sales in the
comparable period in 1997. The increase is primarily due to the factors noted in
the Net Sales and Gross Margin discussions above.
INTEREST EXPENSE
Interest expense was $4.3 million for the quarter ended June 30, 1998 and $4.5
million in the comparable period in 1997.
INCOME TAXES
The effective income tax rate was 27.7% for the quarter ended June 30, 1998
compared to 39.7% in the comparable period in 1997.
NET INCOME
As a result of the above, net income for the quarter ended June 30, 1998 was
$459,000 compared to a net loss of $561,000 in the comparable period in 1997.
EBITDA (BEFORE EXTRAORDINARY GAIN)
EBITDA (earnings before interest, income taxes, depreciation, amortization)
increased 25.9% to $6.8 million or 13.3% of net sales for the quarter ended June
30, 1998 from $5.4 million or 10.7% of net sales in the comparable period of
1997. The increase in EBITDA is attributable to the factors noted in the Net
Sales and Gross Margin discussions above.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NET SALES
Net sales for the six months ended June 30, 1998 decreased 0.7% to $98.2 million
from $98.9 million in the comparable period in 1997.
INDUSTRIAL PRODUCTS: Net sales for the six months ended June 30, 1998 decreased
9.8% to $57.7 million from $64.0 million in the comparable period in 1997. Sales
of bulk storage tanks and liquid cylinders decreased approximately $6.9 million
due primarily to economic conditions in Asia Pacific.
DISTRIBUTED PRODUCTS: Net sales for the six months ended June 30, 1998 increased
26.8% to $27.0 million from $21.3 million in the comparable period in 1997. The
increase is largely attributable to increased sales of liquid natural gas tanks
and obtaining a larger share of CO2 business from a major customer.
MEDICAL PRODUCTS: Net sales for the six months ended June 30, 1998 decreased
0.7% to $13.5 million from $13.6 million in the comparable period in 1997.
GROSS MARGIN
Gross margin (expressed as a percent of net sales) increased to 29.8% for the
six months ended June 30, 1998 from 29.7% in the comparable period in 1997.
INDUSTRIAL PRODUCTS: Gross margin decreased to 23.7% for the six months ended
June 30, 1998 from 26.5% in the comparable period in 1997. Volume/pricing terms
with certain customers and economic conditions in Asia Pacific contributed to
the decline in gross margin.
DISTRIBUTED PRODUCTS: Gross margin increased to 44.0% for the six months ended
June 30, 1998 from 43.0% in the comparable period in 1997. Increased sales of
liquid natural gas tanks contributed to the higher margin.
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<PAGE>
MEDICAL PRODUCTS: Gross margin increased to 27.0% for the six months ended June
30, 1998 from 25.6% in the comparable period in 1997. The increase is primarily
attributable to a change in the mix of international sales and domestic sales.
OPERATING EXPENSES
Operating expenses for the six months ended June 30, 1998 were $20.3 million or
20.6% of net sales compared to $20.6 million or 20.8% of net sales for the same
period one year ago.
OPERATING INCOME
Operating income increased 2.3% to $9.0 million or 9.1% of net sales for the six
months ended June 30, 1998 from $8.8 million or 8.9% of net sales in the
comparable period in 1997. The increase is primarily due to the factors noted in
the Net Sales and Gross Margin discussions above.
INTEREST EXPENSE
Interest expense was $8.5 million for the six months ended June 30, 1998 and
$8.8 million in the comparable period in 1997.
NET INCOME
As a result of the extraordinary gain, net income for the six months ended June
30, 1998 was $6.1 million compared to a loss of $105,000 in the comparable
period in 1997.
EBITDA (BEFORE EXTRAORDINARY GAIN)
EBITDA (earnings before interest, income taxes, depreciation, amortization)
increased 7.2% to $13.4 million or 13.7% of net sales for the six months ended
June 30, 1998 from $12.5 million or 12.6% of net sales in the comparable period
of 1997. The increase in EBITDA is attributable to the factors noted in the Net
Sales and Gross Margin discussions above.
LIQUIDITY AND CAPITAL RESERVES
- ------------------------------
Cash flow used by operating activities was $2.6 million for the six months ended
June 30, 1998 compared to $4.6 million in the same period one year ago. This
resulted primarily from a reduction in customer advances relating to specific
projects in 1997.
Working capital was $26.9 million and $14.5 million at June 30, 1998 and
December 31, 1997, respectively. The increase is primarily due to the CAIRE debt
restructuring and an increase in receivables.
The Company invested $1.6 million in the six months ended June 30, 1998 compared
to $4.6 million in the same period one year ago. Purchases of property, plant
and equipment were reduced.
Cash provided by financing activities was $3.6 million for the six months ended
June 30, 1998 compared to $8.0 million in the same period one year ago. In 1997,
borrowings under the working capital agreement were higher than in 1998.
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.
18
<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 HOLDING, INC.
DATE: August 14, 1998 /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: August 14, 1998 /s/ John M. Kucharik
----------------------------------------
John M. Kucharik
President and Chief Executive Officer
/s/ David E. Hoffman
----------------------------------------
David E. Hoffman
Chief Financial Officer
19
