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 MARCH 31, 1997
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 MARCH 31, 1997
----- -----------------------------
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
March 31, 1997 and June 30, 1996
Consolidated Statements of Operations 4
for the Three Months Ended March 31,
1997 and March 31, 1996
Consolidated Statements of Operations 5
for the Nine Months Ended March 31, 1997
and March 31, 1996
Consolidated Statement of Shareholders' 6
Equity for the Nine Months Ended
March 31, 1997
Consolidated Statements of Cash Flows for the 7-8
Nine Months Ended March 31, 1997 and
March 31, 1996
Notes to Consolidated Financial Statements 9-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 3-18
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS (unaudited)
March 31, 1997 June 30, 1996
-------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 27,355,295 $ 43,000,676
Trade accounts receivable, net of allowance for doubtful accounts of
$443,465 and $210,629, respectively 1,825,632 1,385,642
Inventories 85,701 52,425
Prepaid expenses and other current assets 550,380 384,948
------------ ------------
Total current assets 29,817,008 44,823,691
------------ ------------
Property and equipment, net 38,492,678 24,392,692
------------ ------------
Other assets:
Goodwill, net 5,470,326 3,064,877
Deferred charges, net 292,364 389,343
Customer lists, net 1,509,064 873,512
Restrictive covenants, net 413,667 114,167
Deferred lease acquisition costs, net 1,113,802 714,040
Deposits 87,128 260,363
------------ ------------
Total other assets 8,886,351 5,416,302
------------ ------------
Total assets $ 77,196,037 $ 74,632,685
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 2,233,383 $ 1,358,447
Accounts payable 1,965,469 2,226,795
Accrued expenses 4,522,993 497,975
Other current liabilities 27,622 73,529
------------ ------------
Total current liabilities 8,749,467 4,156,746
Long-term debt, excluding current maturities 7,900,204 9,485,994
Customers' deposits 482,773 305,535
------------ ------------
Total liabilities 17,132,444 13,948,275
------------ ------------
Shareholders' Equity:
Common stock; par value $.001 per share; 30,000,000 authorized; issued and
outstanding 7,163,434 and 7,129,467 shares, respectively 7,163 7,129
Additional paid-in capital 62,690,183 63,743,312
Accumulated deficit (2,633,753) (3,066,031)
------------ ------------
Total shareholders' equity 60,063,593 60,684,410
Commitments and contingencies
------------ ------------
$ 77,196,037 $ 74,632,685
============ ============
</TABLE>
3
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
------------------
March 31, 1997 March 31, 1996
-------------- --------------
Net sales $ 4,668,867 $ 2,974,376
Costs and expenses:
Cost of products sold 2,166,284 1,321,047
Selling, general and administrative expenses 1,564,630 774,063
Depreciation and amortization 1,070,776 608,057
----------- -----------
4,801,690 2,703,167
----------- -----------
Operating (loss) income (132,823) 271,209
Interest (income) expense, net (157,432) 154,027
----------- -----------
Net income $ 24,609 $ 117,182
=========== ===========
Net income per common share $ -- $ 0.02
=========== ===========
Weighted average number of common and common
equivalent shares outstanding 7,283,115 5,513,124
=========== ===========
4
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Net Sales $ 13,073,052 $ 8,455,077
Costs and expenses:
Cost of products sold 6,231,148 3,636,566
Selling, general and administrative expenses 4,196,604 1,926,981
Depreciation and amortization 2,888,417 1,736,236
------------ ------------
13,316,169 7,299,783
------------ ------------
Operating income (loss) (243,117) 1,155,294
Other (Income) Expenses:
Interest (income) expense, net (675,395) 1,152,997
------------ ------------
Income before extraordinary item 432,278 2,297
Extraordinary item - loss on extinguishment of debt -- (859,522)
------------ ------------
Net income (loss) $ 432,278 (857,225)
============ ============
Dividends on Preferred Stock $ -- $ (110,917)
============ ============
Net income (loss) attributable to common stockholders $ 432,278 $ (968,142)
============ ============
Income (loss) per common share
Income (loss) before extraordinary item $ 0.06 $ (0.03)
Extraordinary item -- (.20)
------------ ------------
Net income (loss) $ 0.06 $ (.23)
============ ============
Weighted average number of common and 7,322,850 4,166,807
common equivalent shares outstanding ============ ============
</TABLE>
5
<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 (59,100) (59,100)
Net income
432,278 432,278
------------ ------------ ------------ ------------ ------------
Balance, March 31, 1997 7,163,434 $ 7,163 $ 62,690,183 $ (2,633,753) $ 60,063,593
============ ============ ============ ============ ============
</TABLE>
6
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Net income before extraordinary item $ 432,278 $ 2,297
Extraordinary item - loss on extinguishment of debt -- (859,522)
------------ ------------
Net income (loss) 432,278 (857,225)
Cash flows from operating activities:
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation of property and equipment 2,156,766 1,128,617
Amortization of other assets 731,651 607,619
Loss (gain) on disposal of property and equipment 91,065 (1,823)
Write-off of deferred financing costs -- 784,069
Changes in operating assets and liabilities:
Decrease (increase) in:
Trade accounts receivable (439,990) (356,491)
Inventories (33,276) (109)
Prepaid expenses and other current assets (165,432) (217,682)
Increase (decrease) in:
Accounts payable (261,326) (869,161)
Accrued expenses 4,025,018 (242,936)
Other current liabilities (45,907) 9,873
Customers' deposits 177,238 57,525
------------ ------------
Net cash provided by operating activities 6,668,085 42,276
------------ ------------
Cash flows from investing activities:
Proceeds from disposal of property and equipment 2,011,526 82,600
Purchase of property and equipment (18,359,342) (5,477,718)
Acquisition of customer lists (835,873) (29,000)
Increase in restrictive covenant (360,000) --
Increase in deferred charges -- (643,116)
Increase in goodwill (2,531,674) (105,558)
(Increase) decrease in deposits 173,235 (7,484)
Increase in deferred lease acquisition costs (618,188) (372,281)
------------ ------------
Net cash (used in) investing activities (20,520,316) (6,552,557)
------------ ------------
</TABLE>
7
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock $ -- $ 16,148,474
Proceeds from issuance of long-term debt 11,604 9,636,637
Repayment of long-term debt (722,458) (18,291,848)
Increase in deferred charges (29,201) --
Decrease in deferred interest payable -- (306,535)
Exercise of warrants and options 149,455 656,902
Preferred stock dividends -- (361,275)
Redemption of Series A preferred stock -- (485,000)
Redemption of Series B preferred stock -- (500)
Redemption of warrants (1,143,450) --
Additional expenses - secondary offering (59,100) --
------------ ------------
Net cash (used in) provided by financing activities (1,793,150) 6,996,855
------------ ------------
(Decrease ) Increase in cash and cash equivalents (15,645,381) 486,574
Cash and cash equivalents, beginning of period 43,000,676 561,778
------------ ------------
Cash and cash equivalents, end of period $ 27,355,295 $ 1,048,352
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 691,031 $ 1,027,425
============ ============
Income taxes $ 0 $ 0
============ ============
</TABLE>
8
<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 1997 and 1996
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 connection 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 OFFERING
(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.
9
<PAGE>
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 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.
In December 1996, the shareholders voted and approved another
increase in the number of shares authorized of Common Stock of the Company to
30,000,000 shares.
(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 $44,584,145. 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.
Effective February 28, 1997, the Company purchased certain assets
from three separate companies, Welders Supply, Inc., Carbon Dioxide In Action,
Inc. and Tyler Welders Supply, Inc. for an approximate aggregate purchase price
of $2,905,000. The Company paid cash in all of these transactions.
Effective March 31, 1997, the Company acquired certain assets of
Texas Oxygen, Inc. and the common stock of Texas Co2, Inc. for an aggregate
purchase price of $4,000,000. The Company paid cash in this transaction.
10
<PAGE>
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 March 31, 1997, a total of $9,717,916 was outstanding pursuant to
the new credit facility. The original principal balance was 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 was payable interest
only for twelve months. Principal payments of $100,000 plus interest at a fixed
rate of 8.51%, are 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") (8.19% at March 31, 1997), 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. In January 1997
the drawings pursuant to the tank and acquisition revolvers converted to term
loans with aggregate monthly principal payments of $69,274. Any accrued interest
and one final payment of all unpaid principal is due and payable on November 30,
1998.
Extraordinary item - loss on extinguishment of debt
For the nine months ended March 31, 1996 the Company incurred a one
time extraordinary charge of $859,522 for the write-off of deferred financing
costs and prepayment penalties related to debt which was repaid with the
proceeds of the IPO.
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. As of March 31, 1997, 50,576 options were granted at an exercise price of
$9.00 per share, 75,000 options were granted at an exercise price of $17.50 per
share and 222,500 options were granted at an exercise price of $11.25 per share.
The 50,576 options, the 75,000 options and the 222,500 options vest one-third
per annum commencing December 1996, April 1997 and October 1997, respectively.
Of these options, 16,859 are currently exercisable.
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 March 31, 1997, options to purchase a
total of 24,000 shares of Common Stock at an exercise price of $9.00 per share
had been issued. Of these options, 8,000 are currently exercisable.
11
<PAGE>
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 and fiscal 1997; expected volatility
of 83%, risk-free interest rate of approximately 6.4%, 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:
Nine Months Ended
March 31, 1997
--------------
Net income attributable to common shareholders $ 82,053
==========
Net income per common share $ 0.01
==========
Weighted average number of common and common
equivalent shares outstanding 7,277,698
==========
The pro forma adjustment for stock based compensation costs under
SFAS 123 is approximately $350,000.
NOTE 7. OPERATING LEASES
The Company entered into fifty operating leases from July 1 through
March 31, 1997. Thirteen leases were for warehouse facilities with aggregate
annual rentals of approximately $268,000 expiring at various dates through 2000.
Thirty seven leases were for trucks with aggregate annual rentals of
approximately $372,000 expiring at various dates through 2003.
NOTE 8. SUBSEQUENT EVENTS
In April 1997, the Company purchased certain assets from two
unrelated companies for an aggregate purchase price of approximately $8,000,000.
The Company paid cash for these transactions.
12
<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 Company continued to take major steps towards becoming the
national supplier of bulk CO2 systems and liquid carbon dioxide to the
restaurant and convenience store industries. With the announcement of four (4)
acquisitions in the Texas market, the Company solidified its presence there with
the addition of approximately 1,800 accounts to its customer base. The Company
is now the dominant supplier of bulk CO2 in Texas.
During the quarter, the Company reached agreements with Friendly's
Ice Cream Corporation and Captain D's, a division of Shoney's Inc. and with
Coastal Mart convenience store locations. These agreements necessitated the
expansion of the Company's service territory by adding the Philadelphia and
Mid-Atlantic markets. Additionally, these agreements also helped "back-fill" and
add route density to markets in the Northeast and the South.
The layering effect of both the acquisitions and agreements
combined with the Company's largest increase in new internally generated
placements in a quarter (1,600) strengthened the Company's position as the
leader in the industry as well as striving towards its major objective, the
building of route density.
GENERAL
At March 31, 1997 the Company leased 18,275 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 March 31,
1997, the Company provided "fill only" service to approximately 4,100 customers.
As of March 31, 1997, approximately 7,900 of the Company's 22,500
bulk CO2 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 March 31, 1997, approximately 14,600 of the Company's
22,500 bulk customers were billed at a flat monthly rate which does not vary
throughout the year. The Company also supplies carbon dioxide, nitrogen and
helium in high pressure cylinders, to approximately an additional 700 customers.
13
<PAGE>
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 service 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
nine months ended March 31, 1997, 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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------- ---------
1996 1997 1996 1997
---- ---- ---- ----
Income Statement Data:
<S> <C> <C> <C> <C>
Net sales ........................................................... 100.0% 100.0% 100.0% 100.0%
Cost of products sold ............................................... 44.4% 46.4% 43.0% 47.7%
Selling, general and administrative expenses ........................ 26.0% 33.5% 22.8% 32.1%
Depreciation and amortization ....................................... 20.5% 22.9% 20.5% 22.1%
---- ----- ----- -----
Operating income .................................................... 9.1% (2.8%) 13.7% (1.9%)
---- ----- ----- -----
Interest expense (income), net ...................................... 5.2% (3.3%) 13.7% (5.2%)
Extraordinary item - loss on extinguishment of debt ................. -- -- (10.1%) --
---- ----- ----- -----
Net income (loss) ................................................... 3.9% .5% (10.1%) 3.3%
==== ===== ===== =====
Other Data:
Operating income before depreciation and amortization
(EBITDA)............................................................. 29.6% 20.1% 34.2% 20.2%
==== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net sales increased by $1.7 million, or 57.0%, from $3.0 million in
the 1996 period to $4.7 million in the 1997 period. Approximately $275,000 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 $33,000, $118,000, and $102,000
represented net sales from one acquisition in June 1996, one acquisition in
September 1996 and three acquisitions in February 1997, respectively. The
remainder of the increase in net sales was primarily due to internal growth in
the number of Company owned and customer owned bulk CO2 systems in service.
14
<PAGE>
Costs of products sold increased by $845,000, from $1.3 million in
the 1996 period to $ 2.2 million in the 1997 period and increased as a
percentage of net sales from 44.4% to 46.4%. This increase was attributable to
the expansion of the Company into new territories. The number of depots operated
by the Company at March 31, 1997, increased to 36, compared to 23 at March 31,
1996. 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 $791,000
from $774,000 in the 1996 period to $1.6 million in the 1997 period and
increased as a percentage of net sales from 26.0% to 33.5%. 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 March 31, 1996 the Company had
operations in seven southeastern states and employed 20 marketing personnel and
at March 31, 1997, the Company had operations in 24 states and employed 53
marketing personnel. The Company also experienced approximately $123,000 of
general and administrative expenses in connection with the Company's airplane
and $66,000 of additional insurance, professional fees and other costs
associated with being a public company. The Company sold its airplane on March
11, 1997 for $1,875,000. A loss of approximately $16,000 was incurred in
connection with this transaction.
Depreciation and amortization increased by $463,000 from $608,000
in the 1996 period to $1.1 million in the 1997 period. As a percentage of net
sales, such expenses increased from 20.5% in the 1996 period to 22.9% in the
1997 period. Depreciation expense increased by $390,000 from $417,000 in the
1996 period to $807,000 in the 1997 period principally due to the increase in
bulk CO2 systems leased to customers and the Company's airplane. Expressed as
percentage of net sales, depreciation expense increased from 14.0% in the 1996
period to 17.3% in the 1997 period. Amortization expense increased by $72,000
from $191,000 in the 1996 period to $264,000 in the 1997 period primarily due to
the amortization related to deferred lease acquisition costs, goodwill and
customer lists. As a percentage of net sales, amortization expense decreased
from 6.4% to 5.7%, respectively.
Net interest expense in the 1996 period was $154,000 compared to net
interest income in the 1997 period of $157,000. 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 1997 period from the
Secondary Public Offering in June 1996.
For the reasons described above, EBITDA, representing operating
income plus depreciation and amortization, increased from $879,000 in the 1996
period to $938,000 in the 1997 period and decreased as a percentage of net sales
from 29.6% to 20.1%, 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.
NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO NINE MONTHS ENDED MARCH 31, 1996
Net sales increased by $4.6 million, or 54.6%, from $8.5 million in
the 1996 period to $13.1 million in the 1997 period. Approximately $871,000 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 $113,000, $283,000 and $102,000,
represented net sales from one acquisition in June 1996, one acquisition in
September 1996 and three acquisitions in February 1997, 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.
15
<PAGE>
Cost of products sold increased by $2.6 million from $3.6 million in
the 1996 period to $6.2 million in the 1997 period and increased as a percentage
of net sales from 43.0% to 47.7%. This increase was attributable to the
expansion of the Company into new territories. The number of depots operated by
the Company at March 31, 1997 increased to 36, compared to 23 at March 31, 1996.
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 $2.3
million from $1.9 million in the 1996 period to $4.2 million in the 1997 period
and increased as a percentage of net sales, from 22.8% to 32.1%. 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 March 31, 1996 the
Company had operations in seven southeastern states and employed 20 marketing
personnel and at March 31, 1997 the company had operations in 24 states and
employed 53 marketing personnel. The Company also experienced approximately
$263,000 of general and administrative expenses in connection with the Company's
airplane and $207,000 of additional insurance, professional fees and other costs
associated with being a public company. The Company sold its airplane on March
11, 1997 for $1,875,000. A loss of approximately $16,000 was incurred in
connection with this transaction.
Depreciation and amortization increased by $1.2 million from $1.7
million in the 1996 period to $2.9 million in the 1997 period. As a percentage
of net sales, such expenses increased from 20.5% in the 1996 period to 22.1% in
the 1997 period. Depreciation expense increased by $1.0 million from $1.1
million in the 1996 period to $2.2 million in the 1997 period principally due to
the increase in bulk CO2 systems leased to customers and depreciation on the
Company's airplane . Expressed as a percentage of net sales, depreciation
expense increased from 13.3% in the 1996 period to 16.5% in the 1997 period.
Amortization expense increased by $124,000 from $608,000 in the 1996 period to
$732,000 in the 1997 period primarily due to amortization related to deferred
lease acquisition costs, goodwill and customer lists. As a percentage of net
sales, amortization expense decreased from7.2% to 5.6%, respectively.
Net interest expense in the 1996 period was $1.2 million compared to
net interest income in the 1997 period of $675,000. 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 1997 period from the
Secondary Public Offering in June 1996.
During the 1996 period, the Company wrote-off $785,000 of deferred
financing costs and incurred $75,000 in prepayment penalties related to debt
which was repaid with the proceeds of the IPO.
For the reasons described above, EBITDA, representing operating
income plus depreciation and amortization, decreased from $2.9 million in the
1996 period to $2.6 million in the 1997 period and decreased as a percentage of
net sales from 34.2% to 20.2%, 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.
16
<PAGE>
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 operating leases as a means of
conserving capital. The Company anticipates making cash capital expenditures of
approximately $4.0 million to $7.0 million during the remaining three 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 and February and March of 1997, certain assets, primarily consisting
of bulk CO2 systems, were acquired for an aggregate cash purchase price of $8.3
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 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 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. As of March 31, 1997,
a total of $9,717,916 was outstanding pursuant to the credit facility. Principal
payments of $100,000 plus interest at a fixed rate of 8.51% are payable monthly
for twenty-three months commencing January 1997 on the $6.0 million term loan.
In January 1997 drawings pursuant to the tank and acquisition revolvers
converted to term loans with aggregate monthly principal payments of $69,274
plus interest at two hundred seventy-five basis points above the 30-day London
InterBank Offering Rate ("LIBOR") (8.19% at March 31, 1997). 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.
17
<PAGE>
Working Capital. At June 30, 1996 the Company had working capital
of $40.7 million. At March 31, 1997, the Company had working capital of $21.1
million.
Cash Flows from Operating Activities. For the nine months ended
March 31, 1996 and March 31, 1997 net cash provided by operating activities was
$35,000 and $6.7 million, respectively. The increase from the 1996 period to the
1997 period of $6.6 million is primarily due to the net income, an increase in
depreciation and amortization and an increase in accrued expenses.
Cash Flows from Investing Activities. For the nine months ended
March 31, 1996 and March 31, 1997 net cash used in investing activities was $6.6
million and $20.5 million, respectively. These investing activities were
attributable to the installation and direct placement costs and acquisition of
bulk CO2 systems, the additional fixed assets for the Company's new corporate
headquarters and the increase in intangible assets in connection with the asset
acquisitions.
Cash Flows from Financing Activities. For the nine months ended
March 31, 1996 and March 31, 1997, net cash provided by (used in) financing
activities were $7.0 million and ($1.8 million), respectively. For the nine
months ended March 31, 1996, cash flows from financing activities are primarily
from the issuance of Common Stock in connection with the IPO less the repayment
of long-term debt, redemption of Preferred Stock and additional borrowings used
to finance the placement of bulk CO2 systems into service. For the nine months
ended March 31, 1997 net cash used in financing activities was primarily for the
redemption of warrants.
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.
18
<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 March 31, 1997
19
<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 May 14, 1997 By: /S/ JOANN SABATINO
------------------
Joann Sabatino
Chief Financial Officer
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the NuCo2
Inc. Consolidated Financial Statements as of March 31, 1997 and is qualified in
its entirety by reference to such consolidated financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 27,355,295
<SECURITIES> 0
<RECEIVABLES> 1,825,632
<ALLOWANCES> 443,465
<INVENTORY> 85,701
<CURRENT-ASSETS> 29,817,008
<PP&E> 43,987,129
<DEPRECIATION> 5,494,451
<TOTAL-ASSETS> 77,196,037
<CURRENT-LIABILITIES> 8,749,467
<BONDS> 0
<COMMON> 7,163
0
0
<OTHER-SE> 60,056,430
<TOTAL-LIABILITY-AND-EQUITY> 77,196,037
<SALES> 13,073,052
<TOTAL-REVENUES> 13,073,052
<CGS> 6,231,148
<TOTAL-COSTS> 13,316,169
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 675,055
<INCOME-PRETAX> 432,278
<INCOME-TAX> 0
<INCOME-CONTINUING> 432,278
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 432,278
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
