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 DECEMBER 31, 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 DECEMBER 31, 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
December 31, 1996 and June 30, 1996
Consolidated Statements of Operations 4
for the Three Months Ended December 31,
1996 and December 31, 1995
Consolidated Statements of Operations 5
for the Six Months Ended December 31, 1996
and December 31, 1995
Consolidated Statement of Shareholders' 6
Equity for the Six Months Ended
December 31, 1996
Consolidated Statements of Cash Flows for the 7-8
Six Months Ended December 31, 1996 and
December 31, 1995
Notes to Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION 13-18
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
<TABLE>
<CAPTION>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS (unaudited)
December 31, 1996 June 30, 1996
----------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $31,235,268 $43,000,676
Trade accounts receivable, net of allowance for doubtful accounts
of $331,777 and
$210,629, respectively 1,647,925 1,385,642
Inventories 79,040 52,425
Prepaid expenses and other current assets 647,399 384,948
---------- -----------
Total current assets 33,609,632 44,823,691
----------- ----------
Property and equipment, net 34,461,814 24,392,692
----------- -----------
Other assets:
Goodwill, net 3,055,722 3,064,877
Deferred charges, net 310,107 389,343
Customer lists, net 997,033 873,512
Restrictive covenants, net 177,500 114,167
Deferred lease acquisition costs, net 989,169 714,040
Deposits 82,107 260,363
----------- -----------
Total other assets 5,611,638 5,416,302
----------- -----------
Total assets $73,683,084 $74,632,685
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $2,293,527 $1,358,447
Accounts payable 2,020,833 2,226,795
Accrued expenses 514,655 497,975
Other current liabilities 24,442 73,529
---------- -----------
Total current liabilities 4,853,457 4,156,746
Long-term debt, excluding current maturities 8,365,438 9,485,994
Customers' deposits 425,205 305,535
---------- -----------
Total liabilities 13,644,100 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 (2,658,362) (3,066,031)
---------- ----------
Total shareholders' equity 60,038,984 60,684,410
Commitments and contingencies
----------- -----------
$73,683,084 $74,632,685
=========== ===========
</TABLE>
3
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Net sales $4,332,528 $2,783,003
Costs and expenses:
Cost of products sold 2,095,313 1,198,481
Selling, general and administrative expenses 1,401,549 590,102
Depreciation and amortization 995,798 537,437
---------- ----------
4,492,660 2,326,020
---------- ----------
Operating (loss) income (160,132) 456,983
Other (Income) Expenses:
Interest (income) expense, net (225,952) 496,663
---------- -----------
Income (loss) before extraordinary item 65,820 (39,680)
---------- -----------
Extraordinary item - loss on extinguishment of debt -- 859,522
---------- ----------
Net income (loss) $ 65,820 $(899,202)
========== ==========
Dividends on Preferred Stock $ -- $ (53,492)
========== ==========
Net income (loss) attributable to
stockholders $ 65,820 $(952,694)
========== ==========
Income (loss) per common share
Income (loss) before extraordinary item $ 0.01 $ (0.03)
Extraordinary item -- (0.23)
=========== ==========
Net income (loss) $ 0.01 $ (0.26)
=========== ==========
Weighted average number of common and
common equivalent shares outstanding 7,284,986 3,673,404
=========== ===========
</TABLE>
4
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Net Sales $ 8,404,185 $ 5,480,701
Costs and expenses:
Cost of products sold 4,064,864 2,315,519
Selling, general and administrative expenses 2,631,974 1,152,918
Depreciation and amortization 1,817,641 1,128,179
------------ ------------
8,514,479 4,596,616
------------ ------------
Operating income (loss) (110,294) 884,085
Other (Income) Expenses:
Interest (income) expense, net (517,964) 998,970
------------ ------------
Income (loss) before extraordinary item $407,670 $ (114,885)
------------ ------------
Extraordinary item - loss on extinguishment of debt -- 859,522
------------ ------------
Net income (loss) $407,670 $ (974,407)
============ ============
Dividends on Preferred Stock $ -- $ (110,917)
============ ============
Net income (loss) attributable to common stockholders $407,670 $(1,085,324)
============ ============
Income (loss) per common share
Income (loss) before extraordinary item $ 0.06 $ (0.07)
Extraordinary item -- (0.24)
-------- ----------
Net income (loss) $ 0.06 $ (0.31)
========= ==========
Weighted average number of common and
common equivalent shares outstanding 7,310,975 3,530,320
========= ==========
</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> <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 407,669 407,669
--------- ---------- ----------- ----------- -----------
Balance, December 31, 1996 7,163,434 $7,163 $62,690,183 $(2,658,362) $60,038,984
========= ========= =========== ============ ===========
</TABLE>
6
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Net income (loss) before extraordinary item $407,670 $(114,885)
Extraordinary item - loss on extinguishment of debt -- 859,522
----------- -----------
Net income (loss) 407,670 (974,407)
Cash flows from operating activities:
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation of property and equipment 1,349,905 712,010
Amortization of other assets 467,736 416,169
(Gain) on disposal of property and equipment (1,825) (8,765)
Write-off of deferred financing costs -- 784,069
Changes in operating assets and liabilities:
Decrease (increase) in:
Trade accounts receivable (262,283) (204,146)
Inventories (26,615) 1,795
Prepaid expenses and other current assets (262,451) (175,932)
Increase (decrease) in:
Accounts payable (205,962) 279,566
Accrued expenses 16,680 (21,589)
Other current liabilities (49,087) 17,773
Customers' deposits 119,670 34,785
----------- -----------
Net cash provided by operating activities 1,553,438 861,328
----------- -----------
Cash flows from investing activities:
Proceeds from disposal of property and equipment 74,813 20,600
Purchase of property and equipment (11,492,015) (2,481,550)
Acquisition of customer list (250,000) --
Increase in restrictive covenant (100,000) --
Increase in deferred charges -- (643,466)
Increase in goodwill (72,932) (40,000)
(Increase) decrease in deposits 178,256 (4,889)
Increase in deferred lease acquisition costs (413,779) (232,613)
------------ ---------
Net cash (used in) investing activities $(12,075,657) $(3,381,918)
------------- ------------
</TABLE>
7
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
December 31, 1996 December 31, 1995
----------------- -----------------
Cash flows from financing activities:
<S> <C> <C>
Proceeds from issuance of common stock $-- $16,232,804
Proceeds from issuance of long-term debt 11,604 7,681,631
Repayment of long-term debt (197,080) (15,633,847)
Increase in loan payable to shareholder -- 200,000
Repayment of loan payable to shareholder -- (200,000)
Increase in deferred charges (4,618) --
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 (1,243,189) 7,784,180
----------- -----------
(Decrease ) Increase in cash and cash equivalents (11,765,408) 5,263,590
Cash and cash equivalents, beginning of period 43,000,676 561,778
------------ ----- ------
Cash and cash equivalents, end of period $31,235,268 $5,825,368
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $455,400 $1,396,821
========== ===========
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 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 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.
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 December 31, 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") (8.13% at December 31, 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.
Extraordinary item - loss on extinguishment of debt
For the six months ended December 31, 1995 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. 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
December 31, 1996, 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 December 31, 1996, options to purchase a
total of 24,000 shares of Common Stock at an exercise price of $9 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 78%, risk-free interest rate of approximately 6.0%, 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:
Six Months Ended
December 31, 1996
-----------------
Net income attributable to common shareholders $ 183,670
==========
Net income per common share $ 0.03
==========
Weighted average number of common
and common equivalent shares 7,281,983
outstanding ==========
The pro forma adjustment for stock based compensation costs
recognized under SFAS 123 is approximately $224,000.
NOTE 7. OPERATING LEASES
The Company entered into thirty seven operating leases from July 1
through December 31, 1996. Twelve leases were for warehouse facilities with
aggregate annual rentals of approximately $235,000 expiring at various dates
through 1999. Twenty five leases were for trucks with aggregate annual rentals
of approximately $250,000 expiring at various dates through 2003.
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 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 December 31, 1996, the Company entered
into several agreements to help build route density and, in some cases, expand
its service area. On October 16, 1996, the Company announced that it had reached
an agreement to supply bulk CO2 systems to approximately 140 theaters in the
Northeast, owned by Loew's Theaters Management Corp. and operating as Sony
Theaters. On November 7, 1996, the Company reached an agreement with BP
Exploration & Oil Inc. ("BP") to supply bulk CO2 systems to BP owned locations
on a roll-out basis. The initial installations began in the Ohio market,
followed shortly thereafter with installations in the Southeast. On November 22,
1996, the Company announced the opening of its service and supply depot in
Houston, Texas. This event, coupled with the simultaneous installation rollout
of new Pizza Hut and previously announced Church's Chicken locations, allowed
the Company to intensify its presence in the Texas market.
Highlighting the events in this quarter was the Company reaching an
agreement with Burger King Corporation ("Burger King"), a division of Grand
Metropolitan PLC, to supply Burger King locations with bulk CO2 services
throughout the United States. This agreement includes approximately 550
company-owned locations, and, more importantly, provides that the Company and
Burger King will work jointly in the development of a program to be presented to
Burger King franchisees. The Company believes that there are approximately 1,100
franchisees operating 6,000 Burger King restaurants in the United States.
Currently, over 3,500 of these locations are within the Company's current
service area.
The Company continued dialogue with major fast-food restaurant and
convenience store chains both on regional and national levels. The Company also
recorded its largest increase in new internally generated placements in a
quarter (1,380), continuing to strive towards its major objective, the building
of route density.
GENERAL
At December 31, 1996 the Company leased 15,575 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
13
<PAGE>
under the above two types of contracts. As of December 31, 1996, the Company
provided "fill only" service to approximately 3,400 customers.
As of December 31, 1996, approximately 6,274 of the Company's 18,975
bulk 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 December 31, 1996, approximately 12,700 of the Company's
18,975 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.
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
six months ended December 31, 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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income Statement Data:
Net sales .......................................... 100.0% 100.0% 100.0% 100.0%
Cost of products sold............................... 43.1% 48.4% 42.3% 48.4%
Selling, general and administrative expenses........ 21.2% 32.3% 21.0% 31.3%
Depreciation and amortization....................... 19.3% 23.0% 20.6% 21.6%
----- ------- ----- ------
Operating income.................................... 16.4% (3.7)% 16.1% (1.3)%
----- ------- ----- ------
Interest expense (income), net...................... 17.8% (5.2)% 18.2% (6.2)%
------
Extraordinary item - loss on extinguishment of debt 30.9% -- 15.7% --
------- ------- ------- ------
Net (loss) income................................... (32.3%) 1.5% (17.8)% 4.9%
======= ======= ====== =====
Other Data:
Operating income before depreciation and amortization
(EBITDA)............................................ 35.7% 19.3% 36.7% 20.3%
===== ====== ===== =====
</TABLE>
14
<PAGE>
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1995
Net sales increased by $1.5 million, or 55.7%, from $2.8 million in
the 1995 period to $4.3 million in the 1996 period. Approximately $272,000 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 $124,000, $35,000, and $122,000
represented net sales from two acquisitions in January, 1996, one acquisition in
June 1996, and one acquisition in September 1996, 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.
Costs of products sold increased by $897,000 from $1.2 million in
the 1995 period to $ 2.1 million in the 1996 period and increased as a
percentage of net sales from 43.1% 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 December 31, 1996, increased to 35, compared to 21 at December
31, 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 approxiamtely 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 $811,000
from $590,000 in the 1995 period to $1.4 million in the 1996 period and
increased as a percentage of net sales, from 21.2% to 32.3%. 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 December 31, 1995 the Company had
operations in seven southeastern states and employed 13 marketing personnel and
at December 31, 1996, the Company had operations in 22 states and employed 34
marketing personnel. The Company also experienced approximately $134,000 of
general and administrative expenses in connection with the Company's airplane
and $64,000 of additional insurance, professional fees and other costs
associated with being a public company.
Depreciation and amortization increased by $458,000 from $537,000 in
the 1995 period to $996,000 in the 1996 period. As a percentage of net sales,
such expenses increased from 19.3% in the 1995 period to 23.0% in the 1996
period. Depreciation expense increased by $388,000 from $362,000 in the 1995
period to $750,000 in the 1996 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 13.0% in the 1995
period to 17.3% in the 1996 period. Amortization expense increased by $70,000
from $176,000 in the 1995 period to $246,000 in the 1996 period primarily due to
the amortization related to deferred lease acquisition costs. As a percentage of
net sales, amortization expense decreased from 6.3% to 5.7%, respectively.
Net interest expense in the 1995 period was $497,000 compared to net
interest income in the 1996 period of $226,000. This change is attributable to
the repayment of debt from the proceeds of the IPO in December 1995 and the
increased level of cash equivalents in the 1996 period from the Secondary Public
Offering in June 1996.
During the 1995 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.
15
<PAGE>
For the reasons described above, EBITDA, representing operating
income plus depreciation and amortization, decreased from $994,000 in the 1995
period to $836,000 in the 1996 period and decreased as a percentage of net sales
from 35.7% to 19.3%, 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.
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1995
Net sales increased by $2.9 million, or 53.3%, from $5.5 million in
the 1995 period to $8.4 million in the 1996 period. Approximately $591,000 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 $259,000, $79,000 and $162,000,
represented net sales from two acquisitions in January 1996 and one acquisition
in June 1996 and September 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.
Cost of products sold increased by $1.7 million from $2.3 million in
the 1995 period to $4.1 million in the 1996 period and increased as a percentage
of net sales from 42.3% 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 December 31, 1996 increased to 35, compared to 21 at December 31,
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 $1.5
million from $1.2 million in the 1995 period to $2.6 million in the 1996 period
and increased as a percentage of net sales, from 21.0% to 31.3%. 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 December 31, 1995 the
Company had operations in seven southeastern states and employed 13 marketing
personnel and at December 31, 1996 the company had operations in 22 states and
employed 34 marketing personnel. The Company also experienced approximately
$167,000 of general and administrative expenses in connection with the Company's
airplane and $141,000 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 period.
Depreciation and amortization increased by $689,000 from $1.1
million in the 1995 period to $1.8 million in the 1996 period. As a percentage
of net sales, such expenses increased from 20.6% in the 1995 period to 21.6% in
the 1996 period. Depreciation expense increased by $638,000 from $712,000 in the
1995 period to $1.3 million in the 1996 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 13.0% in the 1995 period to 16.1% in the 1996 period. Amortization expense
increased by $52,000 from $416,000 in the 1995 period to $468,000 in the 1996
period primarily due to amortization related to deferred financing costs. As a
percentage of net sales, amortization expense decreased from7.6% to 5.6%,
respectively.
16
<PAGE>
Net interest expense in the 1995 period was $999,000 compared to net
interest income in the 1996 period of $518,000. 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.
During the 1995 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 $2.0 million in the
1995 period to $1.7 million in the 1996 period and decreased as a percentage of
net sales from 36.7% to 20.3%, 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 operating leases as a means of
conserving capital. The Company anticipates making cash capital expenditures of
approximately $6.0 million to $9.0 million during the remaining six 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 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.
17
<PAGE>
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.
Working Capital. At June 30, 1996 the Company had working capital of
$40.7 million. At December 31, 1996, the Company had working capital of $28.8
million.
Cash Flows from Operating Activities. For the six months ended
December 31, 1995 and December 31, 1996 net cash provided by operating
activities was $861,000 and $1.6 million, respectively. The increase from the
1995 period to the 1996 period of $692,000 is primarily due to the net income
and an increase in depreciation and amortization.
Cash Flows from Investing Activities. For the six months ended
December 31, 1995 and December 31, 1996 net cash used in investing activities
was $3.4 million and $12.1 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. However, due to the higher than anticipated costs associated
with the airplane, on February 5, 1997 NuAir, Inc. listed the airplane on the
market to be sold.
Cash Flows from Financing Activities. For the six months ended
December 31, 1995 and December 31, 1996, net cash provided by (used in)
financing activities were $7.8 million and ($1.2 million), respectively. For the
six months ended December 31, 1995, 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.
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
December 31, 1996
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 February 12, 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 December 31, 1996 and is qualified
in its entirety by reference to such consolidated financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 31,235,268
<SECURITIES> 0
<RECEIVABLES> 1,647,925
<ALLOWANCES> 331,777
<INVENTORY> 79,040
<CURRENT-ASSETS> 33,609,632
<PP&E> 39,253,613
<DEPRECIATION> 4,791,799
<TOTAL-ASSETS> 73,683,084
<CURRENT-LIABILITIES> 4,853,457
<BONDS> 0
0
0
<COMMON> 7,163
<OTHER-SE> 60,031,821
<TOTAL-LIABILITY-AND-EQUITY> 73,683,084
<SALES> 8,404,185
<TOTAL-REVENUES> 8,404,185
<CGS> 4,064,864
<TOTAL-COSTS> 8,514,479
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 456,800
<INCOME-PRETAX> 407,670
<INCOME-TAX> 0
<INCOME-CONTINUING> 407,670
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 407,670
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
