<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, 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 (IRS Employer
of incorporation or Identification Number)
organization)
MVE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1396485
(State or other jurisdiction (IRS Employer
of incorporation or Identification Number)
organization)
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 SEPTEMBER 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>
September 30, December 31,
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,344 $ 5,864
Accounts receivable, net of allowance for doubtful accounts 34,980 28,838
Inventories 29,335 24,774
Prepaid expenses 1,449 1,319
Income tax refund receivable 723 1,013
Deferred income taxes 5,604 5,604
--------- ---------
Total current assets 81,435 67,412
PROPERTY, PLANT AND EQUIPMENT 71,712 48,640
Less-Accumulated depreciation and amortization (31,739) (18,765)
--------- ---------
Net property, plant and equipment 39,973 29,875
GOODWILL, net 22,868 24,471
DEFERRED INCOME TAXES 3,526 3,483
OTHER ASSETS, net 11,349 11,541
--------- ---------
Total assets $ 159,151 $ 136,782
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 9,151 $ 9,858
Accounts payable 17,021 18,297
Accrued expenses and other liabilities 23,501 22,376
--------- ---------
Total current liabilities 49,673 50,531
LONG-TERM DEBT, net of current maturities 157,972 140,669
OTHER NONCURRENT LIABILITIES 532 94
--------- ---------
Total liabilities 208,177 191,294
MINORITY INTEREST 1,458 368
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK 60,745 55,388
SERIES B CONVERTIBLE PREFERRED STOCK 9,714 9,050
STOCKHOLDERS' DEFICIT:
Notes receivable from shareholders (590) (2,225)
Common stock 1 2
Additional paid-in capital 1,437 1,417
Common stock warrants 165 165
Accumulated deficit (121,956) (118,677)
--------- ---------
Total stockholders' deficit (120,943) (119,318)
--------- ---------
Total liabilities and stockholders' deficit $ 159,151 $ 136,782
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<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
-------------------------- -------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 51,725 $ 46,692 $ 157,711 $ 145,637
COST OF SALES 36,690 33,881 112,062 103,397
--------- --------- --------- ---------
Gross profit 15,035 12,811 45,649 42,240
OPERATING EXPENSES:
Selling and marketing 3,370 3,400 10,325 9,982
General and administrative 5,873 5,029 15,543 13,876
Research and development 1,349 1,596 3,949 4,726
Amortization 1,157 1,035 3,386 3,080
--------- --------- --------- ---------
Total operating expenses 11,749 11,060 33,203 31,664
--------- --------- --------- ---------
Operating income 3,286 1,751 12,446 10,576
INTEREST INCOME 206 193 308 462
INTEREST EXPENSE (4,910) (4,445) (14,421) (13,269)
--------- --------- --------- ---------
Net loss before income tax (1,418) (2,501) (1,667) (2,231)
(provision) benefit, minority
interest and extraordinary gain
INCOME TAX (PROVISION) BENEFIT (51) 539 80 437
--------- --------- --------- ---------
Net loss before minority interest and (1,469) (1,962) (1,587) (1,794)
extraordinary gain
MINORITY INTEREST IN NET LOSS
(INCOME) 137 (21) (120) (25)
--------- --------- --------- ---------
Net loss before extraordinary gain (1,332) (1,983) (1,707) (1,819)
EXTRAORDINARY GAIN FROM EARLY
EXTINGUISHMENT OF DEBT, NET OF
TAX OF $393 5,755
--------- --------- --------- ---------
Net income (loss) (1,332) (1,983) 4,048 (1,819)
PREFERRED STOCK DIVIDENDS (2,067) (1,826) (6,021) (5,314)
--------- --------- --------- ---------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ (3,399) $ (3,809) $ (1,973) $ (7,133)
========= ========= ========= =========
</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)
Nine Months Ended
September 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) before preferred stock dividends $ 4,048 $ (1,819)
Adjustments to reconcile net income to net cash used in operating activities
net of affects of acquisition:
Depreciation and amortization 6,904 5,514
Extraordinary gain, net of tax (5,755)
Minority interest 120 24
Interest on exchangeable debt 50 247
Loss on disposition of assets 2 60
Change in operating assets and liabilities:
Accounts receivable (3,445) (2,228)
Inventories (21) 1,453
Prepaid expenses 154 (333)
Deferred income taxes 23
Accounts payable (6,209) 583
Accrued expenses (1,482) (6,572)
Changes in other non-current assets and liabilities 785 771
--------- ---------
Net cash used in operating activities (4,826) (2,300)
INVESTING ACTIVITIES:
Proceeds from sale of assets 29 221
Purchases of property, plant, and equipment (2,577) (5,331)
Payment for purchase of Ferox, net of cash acquired (1,019)
Increase in other assets (67) (528)
--------- ---------
Net cash used in investing activities (3,634) (5,638)
FINANCING ACTIVITIES:
Borrowings under working capital agreement 153,101 154,386
Repayments under working capital agreement (145,131) (145,271)
Proceeds from issuance of long-term debt 6,300
Repayment of long-term debt (2,156) (1,939)
Deferred financing costs (323)
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) (424)
--------- ---------
Net cash provided by financing activities 11,783 3,063
Effect of foreign currency exchange rate changes on cash and cash
equivalents 157
--------- ---------
Net increase (decrease) in cash and cash equivalents 3,480 (4,875)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,864 10,505
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,344 $ 5,630
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 16,583 $ 15,658
Cash paid for taxes $ 2,226 $ 170
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE>
MVE HOLDINGS AND SUBSIDIARIES
NOTES TO INTERIM UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 1998 and
the results of its operations and its cash flows for the nine month
periods ended September 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. 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.
6
<PAGE>
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.
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.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SUMMARY
- -------
Holdings develops, manufactures, markets and sells products 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, 1998 and 1997
Net Sales
- ---------
Net sales for the quarter ended September 30, 1998 increased 10.7% to $51.7
million from $46.7 million in the comparable period in 1997.
Industrial Products: Net sales for the quarter ended September 30, 1998
increased 2.8% to $29.8 million from $29.0 million in the comparable period in
1997. The increase is primarily attributable to Holdings' acquisition, in
February 1998, of a majority interest in Ferox a.s. which had sales of
approximately $4.8 million during the quarter ended September 30, 1998.
Offsetting this increase was a $4.0 million reduction in bulk tanks,
transportation equipment, and liquid cylinders due primarily to economic
conditions in Asia Pacific.
Distributed Products: Net sales for the quarter ended September 30, 1998
increased 28.6% to $15.3 million from $11.9 million in the comparable period in
1997. The increase is primarily attributable to a $2.1 million increase in
restaurant product sales and a $0.7 million increase in liquid natural gas
product sales over the same quarter last year.
Medical Products: Net sales for the quarter ended September 30, 1998 increased
13.8% to $6.6 million from $5.8 million in the comparable period in 1997. This
increase was due primarily to increased international sales in all product
lines.
Gross Margin
- ------------
Gross margin (expressed as a percent of net sales) increased to 29.1% for the
quarter ended September 30, 1998 from 27.4% in the comparable period in 1997.
Industrial Products: Gross margin decreased to 23.6% for the quarter ended
September 30, 1998 from 23.8% in the comparable period in 1997.
Distributed Products: Gross margin increased to 41.2% for the quarter ended
September 30, 1998 from 39.8% in the comparable period in 1997. This increase is
primarily due to increased sales and better margins on liquid natural gas
products.
Medical Products: Gross margin increased to 25.6% for the quarter ended
September 30, 1998 from 20.5% in the comparable period in 1997. This increase
was due primarily to increased international sales relative to domestic sales.
8
<PAGE>
Operating Expenses
- ------------------
Operating expenses for the quarter ended September 30, 1998 were $11.7 million
or 22.7% of net sales compared to $11.0 million or 23.7% of net sales for the
same period one year ago. This increase in operating expenses is associated with
the expansion of Holdings' business into the Czech Republic and Europe, offset
by spending reductions domestically.
Operating Income
- ----------------
Operating income increased 83.3% to $3.3 million or 6.4% of net sales for the
quarter ended September 30, 1998 from $1.8 million or 3.8% of net sales in the
comparable period in 1997. The increase in net sales and gross margin as noted
in the discussions above were the primary reasons for the improved operating
income.
Interest Expense
- ----------------
Interest expense was $4.9 million for the quarter ended September 30, 1998 and
$4.4 million in the comparable period in 1997. The increase is due to Holdings'
acquisition of Ferox a.s. and the issuance of 14.125% senior subordinated notes.
Net Loss
- --------
As a result of the above, net loss (before preferred stock dividends) for the
quarter ended September 30, 1998 was $1.3 million compared to $2.0 million in
the comparable period in 1997.
EBITDA
- ------
EBITDA (earnings before interest, income taxes, depreciation, amortization)
increased 55.6% to $5.6 million or 10.8% of sales for the quarter ended
September 30, 1998 from $3.6 million or 7.8% of sales in the comparable period
of 1997. The increase in net sales and gross margin as noted in the discussions
above were the primary reasons for improved EBITDA.
Nine Months Ended September 30, 1998 and 1997
Net Sales
- ---------
Net sales for the nine months ended September 30, 1998 increased 8.3% to $157.7
million from $145.6 million in the comparable period in 1997.
Industrial Products: Net sales for the nine months ended September 30, 1998
increased 2.5% to $95.3 million from $93.0 million in the comparable period in
1997. The increase is primarily attributable to Holdings' acquisition, in
February 1998, of a majority interest in Ferox a.s. which had sales of
approximately $12.6 million since acquisition. Offsetting this increase was a
$10.7 million reduction in bulk tanks, transportation equipment, and liquid
cylinders due primarily to economic conditions in Asia Pacific.
Distributed Products: Net sales for the nine months ended September 30, 1998
increased 27.4% to $42.3 million from $33.2 million in the comparable period in
1997. The increase is primarily attributable to a $4.5 million increase in
restaurant product sales and a $3.7 million increase in liquid natural gas
product sales over the same period last year.
Medical Products: Net sales for the nine months ended September 30, 1998
increased 3.6% to $20.1 million from $19.4 million in the comparable period in
1997. This increase was due, in part, to increased international sales offset by
weaker domestic sales as a result of decreasing oxygen reimbursement levels from
Medicare / Medicaid.
9
<PAGE>
Gross Margin
- ------------
Gross margin (expressed as a percent of net sales) remained virtually the same
at 28.9% for the nine months ended September 30, 1998 and 29.0% in the
comparable period in 1997.
Industrial Products: Gross margin decreased to 23.2% for the nine months ended
September 30, 1998 from 25.4% 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 43% for the nine months ended
September 30, 1998 from 41.3% in the comparable period in 1997. This increase is
primarily due to increased sales and better margins on liquid natural gas
products.
Medical Products: Gross margin increased to 26.6% for the nine months ended
September 30, 1998 from 25.1% in the comparable period in 1997. This increase
was due primarily to increased international sales relative to domestic sales.
Operating Expenses
- ------------------
Operating expenses for the nine months ended September 30, 1998 were $33.2
million or 21.1% of net sales compared to $31.7 million or 21.7% of net sales
for the same period one year ago. Operating expenses increased $2.2 million with
Holdings' acquisition, in February 1998, of a majority interest in Ferox a.s.
Also, expenses increased $0.5 million due to the acquisition of a subsidiary in
Solingen, Germany in June, 1997.
Operating Income
- ----------------
Operating income increased 17% to $12.4 million or 7.9% of net sales for the
nine months ended September 30, 1998 from $10.6 million or 7.3% of net sales in
the comparable period in 1997. The increase in net sales as noted in the
discussion above was the primary reason for the increase in operating income.
Interest Expense
- ----------------
Interest expense was $14.4 million for the nine months ended September 30, 1998
and $13.3 million in the comparable period in 1997. The increase is due to
Holdings' acquisition of Ferox a.s. and the issuance of 14.125% senior
subordinated notes.
Income Taxes
- ------------
The effective income tax rate was 4.8% for the nine months ended September 30,
1998 compared to 19.6% in the comparable period in 1997. The decrease in tax
rate resulted from projected book loss being offset by permanent tax
differences.
Net Income
- ----------
As a result of the extraordinary gain, net income (before preferred stock
dividends) for the nine months ended September 30, 1998 was $4.0 million
compared to a net loss of $1.8 million in the comparable period in 1997.
EBITDA (Before extraordinary gain)
- ----------------------------------
EBITDA (earnings before interest, income taxes, depreciation, amortization)
increased 16.8% to $18.8 million or 11.9% of sales for the nine months ended
September 30, 1998 from $16.1 million or 11.0% of sales in the comparable period
of 1997. The increase in EBITDA is attributable to the factors noted in the
operating income discussion above.
10
<PAGE>
LIQUIDITY AND CAPITAL RESERVES
- ------------------------------
Cash flow used by operating activities was $4.8 million for the nine months
ended September 30, 1998 compared to $2.3 million in the same period one year
ago. This resulted primarily from changes in accounts receivable, accounts
payable and customer advances offset by an increase in net income compared to
the prior year.
Working capital was $31.8 million and $16.9 million at September 30, 1998 and
December 31, 1997, respectively. The following contributed to the increase in
working capital: Cash was received from the 14.125% senior subordinated notes,
debt of a subsidiary was restructured, a majority interest in Ferox a.s. was
obtained, and proceeds from the revolving line of credit were used to fund
reductions in accounts payable and accruals and a $2.8 million increase in cash.
The Company invested $3.6 million in the nine months ended September 30, 1998
compared to $5.6 million in the same period one year ago. Holdings invested less
in property, plant, and equipment compared to the prior year and acquired a
majority interest in Ferox a.s.
Cash provided by financing activities was $11.8 million for the nine months
ended September 30, 1998 compared to $3.0 million in the same period one year
ago. $6.3 million was received from the issuance of 14.125% senior subordinated
notes. Also, in the prior year, Holdings purchased $3.1 million of treasury
stock and $.5 million of preferred stock. The Company is not in default under
any lending agreement nor in violation of any related covenants for which
waivers have not been obtained.
11
<PAGE>
MVE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 746 $ 2,772
Accounts receivable, net allowance for doubtful accounts 32,068 28,837
Inventories 26,492 24,774
Prepaid expenses 1,125 1,228
Income tax refund receivable 723 1,013
Deferred income taxes 5,604 5,604
--------- ---------
Total current assets 66,758 64,228
PROPERTY, PLANT AND EQUIPMENT 50,850 48,640
Less-Accumulated depreciation and amortization (21,620) (18,765)
--------- ---------
Net property, plant and equipment 29,230 29,875
DUE FROM MVE HOLDINGS, INC. 31,952 31,903
GOODWILL, net 22,868 24,471
DEFERRED INCOME TAXES 2,445 2,402
OTHER ASSETS, net 5,217 6,108
--------- ---------
Total assets $ 158,470 $ 158,987
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,046 $ 9,069
Accounts payable 13,972 18,297
Accrued expenses and other liabilities 20,919 22,371
--------- ---------
Total current liabilities 36,937 49,737
LONG-TERM DEBT, net of current maturities 141,103 134,594
OTHER NONCURRENT LIABILITIES 72 113
--------- ---------
Total liabilities 178,112 184,444
MINORITY INTEREST 438 368
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock 1 1
Additional paid-in capital 12,297 12,277
Accumulated deficit (32,378) (38,103)
--------- ---------
Total stockholders' deficit (20,080) (25,825)
--------- ---------
Total liabilities and stockholders' deficit $ 158,470 $ 158,987
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
12
<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
-------------------------- -------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 46,912 $ 46,692 $ 145,160 $ 145,637
COST OF SALES 32,688 33,881 101,702 103,397
--------- --------- --------- ---------
Gross profit 14,224 12,811 43,458 42,240
OPERATING EXPENSES:
Selling and marketing 3,258 3,400 10,043 9,982
General and administrative 5,251 5,029 14,428 13,876
Research and development 1,349 1,596 3,949 4,726
Amortization 835 1,035 2,541 3,080
--------- --------- --------- ---------
Total operating expenses 10,693 11,060 30,961 31,664
--------- --------- --------- ---------
Operating income 3,531 1,751 12,497 10,576
INTEREST INCOME 13 103 50 103
INTEREST EXPENSE (4,132) (4,445) (12,654) (13,269)
--------- --------- --------- ---------
Net loss before income tax (provision) (588) (2,591) (107) (2,590)
benefit, minority interest and
extraordinary gain
INCOME TAX (PROVISION) BENEFIT 294 539 188 437
--------- --------- --------- ---------
Net loss before minority interest and
extraordinary gain (294) (2,052) 81 (2,153)
MINORITY INTEREST IN NET (INCOME)
LOSS (9) (21) (69) (25)
--------- --------- --------- ---------
Net loss before extraordinary gain (303) (2,073) 12 (2,178)
EXTRAORDINARY GAIN FROM EARLY
EXTINGUISHMENT OF DEBT, NET OF TAX
OF $393 5,755
--------- --------- --------- ---------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ (303) $ (2,073) $ 5,767 $ (2,178)
========= ========= ========= =========
</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)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
September 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 5,767 $ (2,178)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 5,539 5,514
Extraordinary gain, net of tax (5,755)
Minority interest 69 24
Interest on exchangeable debt 50 247
Loss on disposition of assets 2 60
Change in operating assets and liabilities:
Accounts receivable (3,086) (2,046)
Inventories (1,620) 1,453
Prepaid expenses 101 (333)
Deferred income taxes 23
Accounts payable (4,364) 602
Accrued expenses (1,805) (6,566)
Changes in other non-current assets and liabilities (383) 771
--------- ---------
Net cash used in operating activities (5,462) (2,452)
INVESTING ACTIVITIES:
Proceeds from sale of assets 6 221
Purchases of property, plant, and equipment (2,278) (5,331)
Increase in other assets (81) (528)
--------- ---------
Net cash used in investing activities (2,353) (5,638)
FINANCING ACTIVITIES:
Borrowings under working capital agreement 153,101 154,386
Repayments under working capital agreement (145,131) (145,271)
Repayment of long-term debt (2,140) (1,939)
Changes in other non-current assets and liabilities (39) 443
--------- ---------
Net cash provided by financing activities 5,791 7,619
Effect of foreign currency exchange rate changes on cash and cash
equivalents (2)
--------- ---------
Net decrease in cash and cash equivalents (2,026) (471)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,772 3,054
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 746 $ 2,583
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 16,060 $ 15,658
Cash paid for taxes $ 2,226 $ 170
</TABLE>
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
SEPTEMBER 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 September 30, 1998 and the
results of its operations and its cash flows for the nine month periods
ended September 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, the Company 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 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, 1998 and 1997
Net Sales
- ---------
Net sales for the quarter ended September 30, 1998 remained virtually the same
at $46.9 million and $46.7 million in the comparable period in 1997.
Industrial Products: Net sales for the quarter ended September 30, 1998
decreased 13.1% to $25.2 million from $29.0 million in the comparable period in
1997. Sales decreased $4.0 million in bulk tanks, transportation equipment, and
liquid cylinders due primarily to economic conditions in Asia Pacific.
Distributed Products: Net sales for the quarter ended September 30, 1998
increased 26.9% to $15.1 million from $11.9 million in the comparable period in
1997. The increase is primarily attributable to a $2.1 million increase in
restaurant product sales and a $0.7 million increase in liquid natural gas
product sales over the same quarter last year.
Medical Products: Net sales for the quarter ended September 30, 1998 increased
13.8% to $6.6 million from $5.8 million in the comparable period in 1997. This
increase was due primarily to increased international sales in all product
lines.
Gross Margin
- ------------
Gross margin (expressed as a percent of net sales) increased to 30.3% for the
quarter ended September 30, 1998 from 27.4% in the comparable period in 1997.
Industrial Products: Gross margin increased to 24.7% for the quarter ended
September 30, 1998 from 23.8% in the comparable period in 1997. This increase is
due primarily to an increase in margins on end user application products.
Distributed Products: Gross margin increased to 41.8% for the quarter ended
September 30, 1998 from 39.8% in the comparable period in 1997. This increase is
primarily due to increased sales and better margins on liquid natural gas
products.
Medical Products: Gross margin increased to 25.6% for the quarter ended
September 30, 1998 from 20.5% in the comparable period in 1997. This increase
was due primarily to increased international sales relative to domestic sales.
16
<PAGE>
Operating Expenses
- ------------------
Operating expenses for the quarter ended September 30, 1998 were $10.7 million
or 22.8% of net sales compared to $11.1 million or 23.7% of net sales for the
same period one year ago.
Operating Income
- ----------------
Operating income increased 94.4% to $3.5 million or 7.5% of net sales for the
quarter ended September 30, 1998 from $1.8 million or 3.8% of net sales in the
comparable period in 1997. The increase resulted from the factors noted in the
Gross Margin discussion above.
Interest Expense
- ----------------
Interest expense was $4.1 million for the quarter ended September 30, 1998 and
$4.4 million in the comparable period in 1997.
Net Loss
- --------
As a result of the above, net loss for the quarter ended September 30, 1998 was
$0.3 million compared to $2.1 million in the comparable period in 1997.
EBITDA
- ------
EBITDA (earnings before interest, income taxes, depreciation, amortization)
increased 50.0% to $5.4 million or 11.5% of sales for the quarter ended
September 30, 1998 from $3.6 million or 7.7% of sales in the comparable period
of 1997. This increase is attributable to the factors noted in the Gross Margin
discussion above.
Nine Months Ended September 30, 1998 and 1997
Net Sales
- ---------
Net sales for the nine months ended September 30, 1998 remained virtually the
same at $145.2 million and $145.6 million in the comparable period in 1997.
Industrial Products: Net sales for the nine months ended September 30, 1998
decreased 10.8% to $83.0 million from $93.0 million in the comparable period in
1997. Sales decreased $10.7 million in bulk tanks, transportation equipment, and
liquid cylinders due primarily to economic conditions in Asia Pacific.
Distributed Products: Net sales for the nine months ended September 30, 1998
increased 26.8% to $42.1 million from $33.2 million in the comparable period in
1997. The increase is primarily attributable to a $4.5 million increase in
restaurant product sales and a $3.7 million increase in liquid natural gas
product sales over the same period last year.
Medical Products: Net sales for the nine months ended September 30, 1998
increased 3.6% to $20.1 million from $19.4 million in the comparable period in
1997. This increase was due primarily to increased international sales offset by
weaker domestic sales as a result of decreasing oxygen reimbursement levels from
Medicare / Medicaid.
17
<PAGE>
Gross Margin
- ------------
Gross margin (expressed as a percent of net sales) increased to 29.9% for the
nine months ended September 30, 1998 from 29.0% in the comparable period in
1997.
Industrial Products: Gross margin decreased to 24.0% for the nine months ended
September 30, 1998 from 25.4% in the comparable period in 1997. This decrease
was due primarily to product mix changes caused by reduced sales to Asia Pacific
and volume / pricing terms with certain customers.
Distributed Products: Gross margin increased to 43.2% for the nine months ended
September 30, 1998 from 41.3% in the comparable period in 1997. This increase is
primarily due to increased sales and better margins on liquid natural gas
products.
Medical Products: Gross margin increased to 26.6% for the nine months ended
September 30, 1998 from 25.1% in the comparable period in 1997. This increase
was due primarily to increased international sales relative to domestic sales.
Operating Expenses
- ------------------
Operating expenses for the nine months ended September 30, 1998 were $31.0
million or 21.3% of net sales compared to $31.7 million or 21.7% of net sales
for the same period one year ago.
Operating Income
- ----------------
Operating income increased 17.9% to $12.5 million or 8.6% of net sales for the
nine months ended September 30, 1998 from $10.6 million or 7.3% of net sales in
the comparable period in 1997. The increase is primarily due to the factors
noted in the Gross Margin discussion above.
Interest Expense
- ----------------
Interest expense was $12.7 million for the nine months ended September 30, 1998
and $13.3 million in the comparable period in 1997.
Income Taxes
- ------------
The effective income tax rate was 175.7% for the nine months ended September 30,
1998 compared to 16.9% in the comparable period in 1997. The increase in the tax
rate resulted from large permanent tax differences relative to projected book
income.
Net Income / Loss
- -----------------
Net income for the nine months ended September 30, 1998 was $5.8 million
compared to a net loss of $2.2 million in the comparable period in 1997. This
resulted from the extraordinary gain and improvements noted in the Gross Margin
discussion above.
EBITDA (Before extraordinary gain)
- ----------------------------------
EBITDA (earnings before interest, income taxes, depreciation, amortization)
increased 11.8% to $18.0 million or 12.4% of sales for the nine months ended
September 30, 1998 from $16.1 million or 11.1% of sales in the comparable period
of 1997. The increase in EBITDA is attributable to the factors noted in the
Gross Margin discussion above.
LIQUIDITY AND CAPITAL RESERVES
- ------------------------------
Cash flow used in operating activities was $5.5 million for the nine months
ended September 30, 1998 compared to $2.5 million in the same period one year
ago. This resulted primarily from changes in accounts receivable, inventory,
accounts payable, and customer advances, offset by an increase in net income
compared to the prior year.
18
<PAGE>
Working capital was $29.2 million and $14.5 million at September 30, 1998 and
December 31, 1997, respectively. Certain debt of a subsidiary was restructured
and proceeds from the revolving line of credit were used to fund reductions in
accounts payable and accrued liabilities.
The Company invested $2.4 million in the nine months ended September 30, 1998
compared to $5.6 million in the same period one year ago. The Company invested
less in property, plant, and equipment compared to the prior year.
Cash provided by financing activities was $5.8 million for the nine months ended
September 30, 1998 compared to $7.6 million in the same period one year ago. The
decrease was primarily due to lower borrowings under the working capital
agreement compared to the prior year. The Company is not in default under any
lending agreement nor in violation of any related covenants for which waivers
have not been obtained.
19
<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 16, 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: November 16, 1998 /s/ John M. Kucharik
-------------------------------------
John M. Kucharik
President and Chief Executive Officer
/s/ David E. Hoffman
-------------------------------------
David E. Hoffman
Chief Financial Officer
20
