UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
/ / 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 0-27378
NUCO2 INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Florida 65-0180800
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
2800 Southeast Market Place
Stuart, Florida 34997
(Address of Principal Executive Offices)
(561) 221-1754
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
CLASS OUTSTANDING AT SEPTEMBER 30, 1996
----- ---------------------------------
Common Stock, $.001 par value 7,163,434 shares
<PAGE>
NUCO2 INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of 3
September 30, 1996 and June 30, 1996
Consolidated Statements of Operations 4
for the Three Months Ended September 30,
1996 and September 30, 1995
Consolidated Statement of Shareholders' 5
Equity for the Three Months Ended
September 30, 1996
Consolidated Statements of Cash Flows for 6
the Three Months Ended September 30, 1996
and September 30, 1995
Notes to Consolidated Financial Statements 7-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 10-14
OF OPERATION
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
ASSETS SEPTEMBER 30, 1996 JUNE 30, 1996
------------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................... $35,107,039 $43,000,676
Trade accounts receivable, net of allowance for doubtful
accounts of $263,067 and $210,629, respectively.............. 1,435,236 1,385,642
Inventories.................................................. 61,358 52,425
Prepaid expenses and other current........................... 304,700 384,948
----------- -----------
Total current assets...................................... 36,908,333 44,823,691
---------- ----------
Property and equipment, net...................................... 30,679,848 24,392,692
---------- ----------
Other assets:
Goodwill, net................................................ 3,070,396 3,064,877
Deferred charges, net........................................ 349,022 389,343
Customer lists, net.......................................... 964,439 873,512
Restrictive covenants, net 197,500 114,167
Deferred lease acquisition costs, net........................ 837,061 714,040
Deposits..................................................... 70,418 260,363
---------- ----------
Total other assets........................................ 5,488,836 5,416,302
---------- ----------
Total assets............................................ $73,077,017 $74,632,685
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt......................... $1,838,872 $1,358,447
Accounts payable............................................. 1,278,835 2,226,795
Accrued expenses............................................. 626,472 497,975
Other current liabilities.................................... 27,622 73,529
---------- ----------
Total current liabilities................................. 3,771,801 4,156,746
Long-term debt, excluding current maturities................. 8,920,000 9,485,994
Customers' deposits.......................................... 354,565 305,535
----------- -----------
Total liabilities......................................... 13,046,366 13,948,275
---------- ----------
Shareholders' Equity:
Common stock; par value $.001 per share; 20,000,000
authorized; issued and outstanding 7,163,434 and 7,129,467
shares, respectively...................................... 7,163 7,129
Additional paid-in capital................................... 62,747,668 63,743,312
Accumulated deficit.......................................... (2,724,180) (3,066,031)
------------ ------------
Total shareholders' equity................................ 60,030,651 60,684,410
Commitments and contingencies................................
$73,077,017 $74,632,685
=========== ===========
</TABLE>
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<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
<S> <C> <C>
Net sales........................................................ $4,071,657 $2,697,698
Costs and expenses:
Cost of products sold........................................ 1,969,551 1,117,038
Selling, general and administrative expenses................. 1,230,425 562,816
Depreciation and amortization................................ 821,842 590,742
---------- ----------
4,021,818 2,270,596
---------- ----------
Operating income........................................ 49,839 427,102
Interest (income) expense, net............................... (292,012) 502,307
---------- ----------
Net income (loss)................................................ $ 341,851 $ (75,205)
========== ==========
Undeclared dividends on Preferred Stock.......................... $ 0 $ (56,975)
========== ==========
Net income (loss) attributable to common stockholders............ $ 341,851 $(132,180)
========== ==========
Net income (loss) per common share............................... $ 0.05 $ (0.03)
=========== ==========
Weighted average number of common and common equivalent
shares outstanding........................................... 7,333,148 3,379,493
========== ==========
</TABLE>
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<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
------------ Additional Total
Paid-in Accumulated Shareholders'
Shares Amount Capital Deficit Equity
------ ------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996 7,129,467 $7,129 $63,743,312 ($3,066,031) $60,684,410
Exercise of options 33,967 34 149,421 149,455
Redemption of warrant (1,143,450) (1,143,450)
Additional expenses - secondary
offering (1,615) (1,615)
Net income 341,851 341,851
--------- ------ ------------ ------------ -----------
Balance, September 30, 1996 7,163,434 $7,163 $62,747,668 ($2,724,180) $60,030,651
========= ====== =========== ============ ===========
</TABLE>
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<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
September 30, 1996 September 30, 1995
------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $341,851 ($75,205)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation of property and equipment 600,000 350,294
Amortization of other assets 221,842 240,448
(Gain) on disposal of property and equipment 0 (2,482)
Changes in operating assets and liabilities:
Decrease (increase) in:
Trade accounts receivable (49,594) (26,894)
Inventories (8,933) (219)
Prepaid expenses and other current assets 80,248 6,733
Increase (decrease) in:
Accounts payable (947,960) (3,027)
Accrued expenses 128,497 40,568
Other current liabilities (45,907) 13,869
Customers' deposits 49,030 13,410
-------- --------
Net cash provided by operating activities $369,074 $557,495
-------- --------
Cash flows from investing activities:
Proceeds from disposal of property and equipment 0 3,900
Purchase of property and equipment (6,887,156) (1,177,367)
Acquisition of customer list (150,000) 0
Increase in restrictive covenant (100,000) 0
Increase in goodwill (46,203) 0
(Increase) decrease in deposits 189,945 (2,484)
(Increase) in deferred lease acquisition costs (186,676) (112,501)
----------- ----------
Net cash (used in) investing activities (7,180,090) (1,288,452)
----------- -----------
Cash flows from financing activities:
Redemption of warrants (1,143,450) 0
Exercise of options 149,455 0
Repayment of long-term debt (85,569) (396,656)
Proceeds from issuance of long-term debt 0 1,004,119
Increase in deferred charges (1,442) (63,557)
Increase in deferred interest payable 0 51,601
Additional expenses - secondary offering (1,615) 0
----------- ---------
Net cash (used in) provided by financing activities (1,082,621) 595,507
----------- --------
Net decrease in cash and cash equivalents (7,893,637) (135,450)
Cash and cash equivalents at the beginning of period 43,000,676 561,778
----------- --------
Cash and cash equivalents at the end of period $35,107,039 $426,328
=========== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $226,136 $364,626
=========== ========
Income taxes $0 $0
=========== ========
</TABLE>
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<PAGE>
NUCO2 INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB used for quarterly
reports under Section 13 or 15 (d) of the Securities Exchange Act of 1934, and
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. The accompanying
unaudited consolidated financial statements are consolidated with the Company's
newly formed (July 1996) wholly-owned subsidiary, NuAir Inc.
The financial information included in this report has been prepared in
conformity with the accounting principles and methods of applying those
accounting principles, reflected in the financial statements for the fiscal year
ended June 30, 1996 included in Form 10-KSB filed with the Securities and
Exchange Commission.
All adjustments necessary for a fair statement of the results for the
interim periods presented have been recorded. This quarterly report on Form
10-QSB should be read in conjunction with the Company's audited financial
statements for the fiscal year ended June 30, 1996. The results of operations
for the periods presented are not necessarily indicative of the results to be
expected for the full fiscal year.
NOTE 2. NET INCOME OR LOSS PER COMMON SHARE
The net income or loss per share computations for the 1996 and 1995
periods presented are based on the weighted average number of common shares and
dilutive common equivalent shares outstanding during each period. Fully diluted
and primary income or loss per common share are the same amounts for each
period.
In conjunction with the Initial Public Offering (IPO), 155,164 and
300,266 shares of Common Stock were issued upon conversion of the Company's
Series C Preferred Stock and Series D Preferred Stock, respectively. An
additional 805,209 shares of Common Stock were issued upon the conversion of the
convertible portion of the Senior Subordinated Notes and 118,167 shares of
Common Stock were issued upon the exercise of warrants and options. The above
shares have been treated as outstanding for the entirety of the periods
presented. Stock options and warrants to purchase an additional 152,851 shares
of Common Stock granted during 1995 have also been treated as outstanding for
the entirety of those periods, using the treasury stock method.
NOTE 3. PUBLIC OFFERINGS
(a) Initial Public Offering (IPO)
In connection with the Company's IPO, 2,022,576 shares of Common Stock
were sold by the Company in December 1995. In addition, Representatives of the
Underwriters acquired warrants to purchase up to 110,000 shares of Common Stock.
Such warrants are exercisable for a period of five years, at an exercise price
of $10.80. In July 1996, the Company redeemed and cancelled a Representative's
warrant to purchase 77,000 shares for $1,143,450. This amount represented the
approximate market value of such warrant.
The gross proceeds the Company received from the sale of the 2,022,576
shares of Common Stock were $18,203,184. After deducting the underwriters'
discounts and commissions and other offering expenses, the net proceeds were
$16,151,364.
Prior to the IPO, the Company had outstanding approximately $2.9
million in principal amount of Senior Subordinated Notes, a portion of which was
convertible at the option of the holders thereof into Common Stock.
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<PAGE>
The holders of the Senior Subordinated Notes converted, effective upon the
closing of the IPO, approximately $407,000 of the principal amount of the Senior
Subordinated Notes into an aggregate of 805,209 shares of Common Stock. The
Company repaid the remaining principal of the Senior Subordinated Notes and
accrued interest thereon with a portion of the net proceeds from the IPO. The
Company also had outstanding 485 shares of Series A Preferred Stock, 500 shares
of Series B Preferred Stock, 500 shares of Series C Preferred Stock and 1,500
shares of Series D Preferred Stock. Effective upon closing of the IPO, (i) the
Company redeemed with a portion of the net proceeds of the IPO all of the
outstanding Series A Preferred Stock and Series B Preferred Stock for an
aggregate of $485,500 plus approximately $243,000 of dividends and (ii) all of
the outstanding Series C Preferred Stock and Series D Preferred Stock
automatically converted into an aggregate of 455,430 shares of Common Stock. The
Company used a portion of the net proceeds of the IPO to pay dividends of
approximately $118,000 on the Series C Preferred Stock and Series D Preferred
Stock. In addition, the holders of warrants to purchase an aggregate of 118,167
shares of Common Stock exercised such warrants effective upon the closing of the
IPO.
Prior to the IPO, the board of directors approved, among other things,
an increase in the number of shares authorized of Common Stock of the Company to
20,000,000 shares, reduced the par value to $ .001 per share, and increased the
number of authorized shares of Preferred Stock to 5,000,000 shares.
The Company's board of directors also declared an approximate
3,866-for-1 stock split of the Company's Common Stock. This stock split resulted
in the issuance of an additional 1,932,453 shares of Common Stock of the
Company. All share, per share and conversion amounts relating to Common Stock,
stock options and warrants, included in the accompanying consolidated financial
statements have been restated to reflect this stock split.
(b) Secondary Public Offering
In connection with the Company's Secondary Public Offering, 1,425,165
shares of Common Stock were sold by the Company in June 1996. In addition, an
over-allotment option from the Company for an additional 336,000 shares of
Common Stock was exercised.
The net proceeds the Company received from the sale of the 1,761,165
shares of Common Stock, after deducting the underwriters' discounts and
commissions and other offering expenses was $44,641,630. The Company repaid
$1,963,486 of indebtedness outstanding under its credit facility with
NationsBank of Florida, N.A. with the proceeds of the Secondary Public Offering.
The Company intends to use the remaining proceeds to fund internal growth, for
the acquisition of additional bulk CO2 systems leasing businesses and for
general corporate purposes.
NOTE 4. ACQUISITIONS
Effective August 30, 1996, the Company purchased certain assets from
Geer Gas Corporation and OK Leasing Company for an aggregate purchase price of
$1,400,000. The Company paid cash in these transactions.
NOTE 5. LONG-TERM DEBT
The Company entered into an agreement for a $30 million dollar credit
facility with NationsBank of Florida, N.A. simultaneous with the closing of the
IPO. Additionally, all loans with the Company's previous bank were repaid. As of
September 30, 1996, a total of $10,156,465 was outstanding pursuant to the new
credit facility which is comprised of a $6.0 million term loan and $4,156,465 of
drawings pursuant to the tank and acquisition revolvers of the credit facility.
The term loan is payable interest only for twelve months and principal payments
of $100,000 plus interest at a fixed rate of 8.51%, payable monthly for
twenty-three months commencing January 1997. The tank and acquisition revolvers
are interest only for 12 months at two hundred seventy-five basis points above
the 30-day London InterBank Offering Rate ("LIBOR") (8.22% at September 30,
1996), with the principal amount outstanding at the end of 12 months (December
1996) and 24 months (December 1997) converted to term loans calculated on a 60
month amortization schedule. Any accrued interest and one final payment of all
unpaid principal is due and payable on November 30, 1998.
-8-
<PAGE>
NOTE 6. STOCK OPTION PLAN
In 1995, the board of directors approved the 1995 Stock Option Plan
(the "1995 Plan"). Under the 1995 Plan, the Company has reserved 350,000 shares
of Common Stock for employees of the Company. Under the terms of the 1995 Plan,
options granted may be either incentive stock options or non qualified stock
options, or both. The exercise price of incentive options shall be at least
equal to 100% of the fair market value of the Company's Common Stock at the date
of the grant, and the exercise price of non qualified stock options issued to
employees may not be less than 75% of the fair market value of the Company's
Common Stock at the date of the grant. The maximum term for all options is 10
years. At September 30, 1996, 50,776 options were granted at an exercise price
of $9.00 per share and 75,000 options were granted at an exercise price of
$17.50 per share. The 50,776 options and the 75,000 options vest one-third per
annum commencing December 1996 and April 1997, respectively.
The board of directors of the Company adopted the Directors' Stock
Option Plan (the "Directors' Plan"). Under the Directors' Plan, the Company has
reserved 60,000 shares of Common Stock. Under the terms of the Directors' Plan
each non-employee director will receive options for 6,000 shares of Common Stock
on the date of his or her first election to the board of directors. In addition,
on the third anniversary of each director's first election to the Board, and on
each three year anniversary thereafter, each non-employee director will receive
an additional option to purchase 6,000 shares of Common Stock. The exercise
price per share for all options granted under the Directors' Plan will be equal
to the fair market value of the Common Stock as of the date of grant. All
options vest in three equal annual installments beginning on the first
anniversary of the date of grant. As of September 30, 1996, options to purchase
a total of 24,000 shares of Common Stock at an exercise price of $9 per share
had been issued. None of these options are currently exercisable.
Statement of Financial Standards No. 123 Accounting for Stock-Based
Compensation, defines a fair value based method of accounting for stock options.
It is effective for fiscal years beginning after December 15, 1995. The
Statement allows an entity to continue to measure cost using the accounting
method prescribed by APB Opinion No. 25, Accounting for Stock Issued to
Employees, and to make pro forma disclosures of net income and earnings per
share as if the fair value based method of accounting had been applied. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 1996; expected volatility of 57%,
risk-free interest rate of 6.5%, and expected lives of one to five years. The
Company is adopting SFAS 123 in fiscal year end June 30, 1997 and presents the
following pro forma disclosures rather than change its present method of
accounting for employee stock options:
Three Months Ended
SEPTEMBER 30, 1996
Net income attributable to common shareholders $ 251,034
==========
Net income per common share $ 0.03
==========
Weighted average number of common and common equivalent
shares outstanding 7,300,419
==========
The pro forma adjustment for stock based compensation costs recognized
under SFAS 123 is approximately $91,000.
NOTE 7. OPERATING LEASES
The Company entered into fifteen operating leases from July 1 through
September 30, 1996. Six leases were for warehouse facilities with aggregate
annual rentals of approximately $105,000 expiring at various dates through 1999.
Nine leases were for trucks with aggregate annual rentals of approximately
$35,000 expiring at various dates through 2002.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT
ARE NOT LIMITED TO, THE COMPANY'S EXPANSION INTO NEW MARKETS, COMPETITION,
TECHNOLOGICAL ADVANCES AND AVAILABILITY OF MANAGERIAL PERSONNEL.
OVERVIEW
The following discussion and analysis should be read in conjunction
with the unaudited Consolidated Financial Statements and Notes thereto included
elsewhere in this Form 10-QSB.
During the quarter ending September 30, 1996 the Company concentrated
on expanding its operations in the New York, New Jersey and Connecticut markets,
which were initially entered into through the May 1996 acquisition of the bulk
CO2 operating segment of the BevServ division of The Coca-Cola Bottling Company
of New York, Inc. (BevServ), and the Ohio market which was initially entered
into through an agreement the Company reached with the McDonalds Corporation in
July 1996 to service 370 of their locations. These events required the Company
to continue to build the necessary infrastructure both in operations and sales.
The lack of route density in the Company's new service areas resulted in costs
incurred to be far in excess of normal operating expenses. The Company proceeded
to add to its account base by focusing on its internal sales force and national
accounts relationships. In September 1996, the Company acquired the bulk CO2
assets of Geer Gas, an Ohio based company servicing over 600 locations. Inasmuch
as the Ohio and New York markets were not mature at the time of the Company's
entry into these areas, the Company did not consider the acquisition a
"tuck-in", but rather a non-contiguous addition to its expanding service area.
Throughout the September 1996 quarter, attention was focused on
building the necessary infrastructure that would eventually lead to new sales,
helping the Company succeed in reaching its placement and route density
objectives in the Company's expanded markets. To support the growing customer
base and service areas, the Company relocated its headquarters to a building
designed to accommodate rapid growth and to withstand extreme weather conditions
and equipped it with state of the art communication and information systems.
GENERAL
At September 30, 1996 the Company leased 14,198 bulk CO2 systems to its
customers, principally pursuant to five year noncancelable lease contracts.
These customers include restaurants, convenience stores, theaters, taverns and
other businesses which dispense carbonated beverages. Generally, these contracts
are classified as one of two types: "budget-plan" service contracts and "rental
plus per pound charge" contracts. Pursuant to budget plan contracts, customers
pay a fixed monthly charge for the lease of a Company owned bulk CO2 system on
the customer's premises and refills of bulk CO2 according to a predetermined
schedule. The bulk CO2 is included in the monthly rental charge up to a
predetermined maximum annual volume. If the maximum annual volume is exceeded,
the customer is charged for additional bulk CO2 delivered. Pursuant to rental
plus per pound charge contracts, the Company also leases a bulk CO2 system to
the customer, but the customer is charged on a per pound basis for all bulk CO2
delivered. The Company's contracts generally provide for price increases based
upon increases in the consumer price index.
The Company provides some services besides those offered under the
above two types of contracts. As of September 30, 1996, the Company provided
"fill only" service to approximately 3,400 customers, 82% of which were
previously serviced by acquired businesses.
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<PAGE>
As of September 30, 1996, approximately 6,625 of the Company's 17,747
customers were billed on a per pound basis which varies with the quantity of
bulk CO2 delivered. These customers will tend to consume less CO2 in the winter
months, and this may cause the Company's revenues and earnings for its fiscal
quarters ending in December and March to be relatively lower than for its other
quarters. As of September 30, 1996, approximately 11,100 of the Company's 17,747
customers were billed at a flat monthly rate which does not vary throughout the
year.
The Company intends to continue to grow through a combination of
internal growth and acquisitions. The Company requires significant capital to
purchase and install bulk CO2 systems at customers' locations and to grow the
network of services and supply depots and specialized CO2 delivery vehicles
required to service these installations. Once installed, however, there are
minimal additional capital requirements for bulk CO2 systems in service, and the
Company has generally experienced significant positive cash flows on a per-unit
basis. These cash flows stem from per-unit operating income combined with
per-unit non-cash charges for depreciation and amortization. The Company
believes its current installed base of bulk CO2 systems is stable, partly due to
the existence of long-term contracts with its customers. In fiscal 1996 and the
first quarter ended September 30, 1996, less than 5% of Company owned bulk CO2
systems experienced service termination. Service termination is typically caused
by restaurant closure. Affected bulk CO2 systems are either removed and
reconditioned for use with other customers, or left in place when prospects for
a new restaurant in the same location are deemed favorable.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage relationship which various items bear to net sales:
Three Months Ended September 30,
--------------------------------
1995 1996
---- ----
Income Statement Data:
Net sales ........................................ 100.0% 100.0%
Cost of products sold............................. 41.4% 48.4%
Selling, general and administrative expenses...... 20.9% 30.2%
Depreciation and amortization..................... 21.9% 20.2%
----- -----
Operating income.................................. 15.8% 1.2%
Interest expense (income), net.................... 18.6% (7.2%)
----- ------
Net (loss) income................................. (2.8%) 8.4%
====== =====
Other Data:
Operating income before depreciation
and amortization (EBITDA)......................... 37.7% 21.4%
===== =====
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995.
Net sales increased by $1.4 million, or 50.9%, from $2.7 million in the
1995 period to $4.1 million in the 1996 period. Approximately $319,000 of the
increase represented net sales resulting from the May 1996 acquisition of the
BevServ Division of The Coca-Cola Bottling Company of New York, Inc. (BevServ).
In addition, approximately $135,000 and $44,000 represented net sales from two
acquisitions in January 1996 and one acquisition in June 1996, respectively. The
remainder of the increase in net sales was principally due to internal growth in
the number of Company owned and customer owned bulk CO2 systems in service.
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<PAGE>
Cost of products sold increased by $853,000 from $1.1 million in the
1995 period to $2.0 million in the 1996 period and increased as a percentage of
net sales from 41.4% to 48.4%. This increase was attributable to the expansion
of the Company into new territories. The number of depots operated by the
Company at September 30, 1996 increased to 30, compared to 16 at September 30,
1995. When the Company opens new depots and expands into new markets, higher
costs expressed as a percentage of net sales are incurred until route density is
achieved. The Company typically services approximately 350 customers per
delivery vehicle in its mature markets. In new territories, a delivery vehicle
can initially service as few as 100 customers.
Selling, general and administrative expenses increased by $668,000 from
$563,000 in the 1995 period to $1.2 million in the 1996 period and increased as
a percentage of net sales, from 20.9% to 30.2%. The dollar increase was
attributable to growth in the number of marketing and administrative personnel
and their associated expenses, as well as the costs of expanding the Company's
geographic areas of service. At September 30, 1995 the Company had operations in
seven southeastern states and employed 11 marketing personnel and at September
30, 1996 the company had operations in 18 states and employed 35 marketing
personnel. The Company also experienced approximately $72,000 of additional
insurance, professional fees and other costs associated with being a public
company.
The agreement entered into in July 1996 with McDonald's to service 370
store owned bulk CO2 systems in the Ohio region resulted in additional operating
expenses estimated by the Company to be approximately $100,000. Had the Company
purchased a customer list through acquisition this amount would have been in
excess of $100,000; however, it would have been capitalized and amortized over
the estimated life of the customer thus alleviating the income statement effect
in one quarter.
Depreciation and amortization increased by $231,000 from $591,000 in
the 1995 period to $822,000 in the 1996 period. As a percentage of net sales,
such expenses decreased from 21.9% in the 1995 period to 20.2% in the 1996
period. Depreciation expense increased by $250,000 from $350,000 in the 1995
period to $600,000 in the 1996 period principally due to the increase in bulk
CO2 systems leased to customers. Expressed as a percentage of net sales,
depreciation expense increased from 13.0% in the 1995 period to 14.7% in the
1996 period. Amortization expense decreased by $19,000 from $240,000 in the 1995
period to $222,000 in the 1996 period primarily due to the amortization related
to deferred financing costs which were written-off in December 1995. As a
percentage of net sales, amortization expense decreased from 8.9% to 5.4%,
respectively.
Net interest expense in the 1995 period was $502,000 compared to net
interest income in the 1996 period of $292,000. This change is attributable to
the repayment of debt from the proceeds of the IPO in December 1995 and the
increased level of cash and cash equivalents in the 1996 period from the
Secondary Public Offering in June 1996.
For the reasons described above, EBITDA, representing operating income
plus depreciation and amortization, decreased from $1.0 million in the 1995
period to $872,000 in the 1996 period and decreased as a percentage of net sales
from 37.7% to 21.4%, respectively. The Company believes EBITDA is useful as a
means of measuring the growth and earning power of its business. In addition,
the Company uses EBITDA to measure how well the Company is generating cash flow.
EBITDA excludes significant costs and should not be considered in isolation from
GAAP measures.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements consist principally of capital
expenditures associated with placing new bulk CO2 systems into service at
customers' locations; payments of principal and interest on its outstanding
indebtedness; payments for acquired businesses; and working capital. Whenever
possible, the Company seeks to obtain the use of vehicles, land, buildings, and
other office and service equipment under
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<PAGE>
operating leases as a means of conserving capital. The Company anticipates
making cash capital expenditures of approximately $9.0 million to $12.0 million
during the remaining nine months of fiscal 1997, primarily for the purchases of
bulk CO2 systems that it expects to place into service during this time. Once
bulk CO2 systems are placed into service, the Company has generally experienced
significant positive cash flows on a per-unit basis, as there are minimal
additional capital expenditures required for ordinary operations. In addition to
the capital expenditures related to internal growth, the Company continually
reviews opportunities to acquire bulk CO2 service businesses, and may require
cash in an amount dictated by the scale and terms of any such transactions
successfully concluded. In August 1996 certain assets, primarily consisting of
bulk CO2 systems, were acquired for an aggregate cash purchase price of $1.4
million.
Prior to the IPO, the Company's primary sources of liquidity were
borrowings under its then existing credit facility with its secured lender which
was repaid and terminated upon consummation of the IPO; equity and debt capital
obtained from various venture capital funds and individuals, including parties
that sold businesses to the Company; and cash flows from operations.
Prior to the IPO, the Company had outstanding approximately $2.9
million in principal amount of Senior Subordinated Notes, a portion of which was
convertible at the option of the holders thereof into Common Stock. The holders
of the Senior Subordinated Notes converted, effective upon the closing of the
IPO, approximately $407,000 of the principal amount of the Senior Subordinated
Notes into an aggregate of 805,209 shares of Common Stock. The Company repaid
the remaining principal of the Senior Subordinated Notes and accrued interest
thereon with a portion of the net proceeds of the IPO. The Company also had
outstanding 485 shares of Series A Preferred Stock; 500 shares of Series B
Preferred Stock; 500 shares of Series C Preferred Stock and 1500 shares of
Series D Preferred Stock. Effective upon closing of the IPO, (i) the Company
redeemed with a portion of the net proceeds of the IPO all of the outstanding
Series A Preferred Stock and Series B Preferred Stock for an aggregate of $
485,500 plus approximately $243,000 of accrued dividends and (ii) all of the
outstanding Series C Preferred Stock and Series D Preferred Stock automatically
converted into an aggregate of 455,430 shares of Common Stock. The Company used
a portion of the net proceeds of the IPO to pay accrued dividends of
approximately $118,000 on the Series C Preferred Stock and Series D Preferred
Stock. In addition, the holders of warrants to purchase an aggregate of 118,167
shares of Common Stock exercised such warrants effective upon the closing of the
IPO.
The Company's capital resources include cash flows from operations; the
net proceeds from the Company's sale of 1,761,165 shares of Common Stock in the
Company's Secondary Public Offering in June 1996; and available borrowing
capacity under the Company's credit facility with NationsBank of Florida, N.A.
(the "NationsBank Facility"). The Company has available under the NationsBank
Facility an aggregate of $30.0 million, including a $6.0 million term loan that
was used, together with a portion of the net proceeds of the IPO, to refinance
the outstanding balance of existing indebtedness under its prior credit
facility; a $13.0 million "tank revolver" to finance the purchase and
installation of new bulk CO2 service systems; a $10.0 million acquisition
revolver to finance the purchase of bulk CO2 service businesses; and a $1.0
million line of credit for general working capital needs. All portions of the
NationsBank Facility require full repayment of all outstanding principal and
interest on November 30, 1998, the maturity date of the NationsBank Facility.
The Company believes that cash from operating activities, the net proceeds from
the IPO and the Secondary Public Offering and available borrowings under the
NationsBank Facility will be sufficient to fund proposed operations for at least
the next 12 months at its current rate of growth. The NationsBank Facility is
secured by substantially all the assets of the Company. The Company is required
to meet certain financial covenants under the NationsBank Facility, and may not
access borrowings which would cause its total debt to exceed 3.25 times EBITDA.
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<PAGE>
Working Capital. At June 30, 1996 the Company had working capital of
$40.7 million. At September 30, 1996, the Company had working capital of $33.1
million.
Cash Flows from Operating Activities. For the three months ended
September 30, 1995 and September 30, 1996 net cash provided by operating
activities was $557,000 and $369,000, respectively.
The decrease from the 1995 period to the 1996 period of $188,000 is primarily
attributable to a reduction in accounts payable.
Cash Flows from Investing Activities. For the three months ended
September 30, 1995 and September 30, 1996 net cash used in investing activities
was $1.3 million and $7.2 million, respectively. These investing activities were
attributable to the installation and direct placement costs and acquisition of
new bulk CO2 systems, the additional fixed assets for the Company's new
corporate headquarters and the purchase of an airplane by the Company's newly
formed July 1996, wholly-owned subsidiary NuAir, Inc. The airplane is to be
utilized exclusively by the Company. It will enable the Company to reach remote
geographic locations which are inconvenient by commercial means of
transportation.
Cash Flows from Financing Activities. For the three months ended
September 30, 1995 and September 30, 1996, net cash provided by (used in)
financing activities were $596,000 and ($1.1 million), respectively. For the
three months ended September 30, 1995, cash flows from financing activities are
primarily attributable to the net increase in borrowings to finance the
placement of bulk CO2 systems. For the three months ended September 30, 1996 net
cash used in financing activities are primarily from the redemption and
cancellation of a warrant issued to a representative of the underwriters in the
IPO.
INFLATION
The modest levels of inflation in the general economy since the Company
began business in 1990 have not affected its results of operations.
Additionally, the Company's contracts with its customers contain an annual lease
rate adjustment clause based on any increase in the consumer price index. The
Company believes that inflation will not have a material adverse effect on its
future results of operations.
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<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial data schedule
(b) No reports on Form 8-K were filed for the quarter
ended September 30, 1996
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NuCo2 Inc.
Dated November 13, 1996 By: /S/ JOANN SABATINO
------------------
Joann Sabatino
Chief Financial Officer
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the NuCo2
Inc. Consolidated Financial Statements as of September 30, 1996 and is qualified
in its entirety by reference to such consolidated financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 35,107,039
<SECURITIES> 0
<RECEIVABLES> 1,435,236
<ALLOWANCES> 263,067
<INVENTORY> 61,358
<CURRENT-ASSETS> 36,908,333
<PP&E> 34,747,158
<DEPRECIATION> 4,067,310
<TOTAL-ASSETS> 73,077,017
<CURRENT-LIABILITIES> 3,771,801
<BONDS> 0
0
0
<COMMON> 7,163
<OTHER-SE> 60,023,488
<TOTAL-LIABILITY-AND-EQUITY> 73,077,017
<SALES> 4,071,657
<TOTAL-REVENUES> 4,071,657
<CGS> 1,969,551
<TOTAL-COSTS> 4,021,818
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 292,012
<INCOME-PRETAX> 341,851
<INCOME-TAX> 0
<INCOME-CONTINUING> 341,851
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 341,851
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
