SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____________ to _______________
Commission file number 0-27378
NuCo2 Inc.
(Exact Name of Registrant as Specified in Its Charter)
Florida 65-010800
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2800 Southeast Market Place, Stuart, FL 34997
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (561) 221-1754
N/A
Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.
Indicate by check /X/ whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at March 31, 1998
----- -----------------------------
Common Stock, $.001 par value 7,216,664 shares
<PAGE>
NUCO2 INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1998 3
and June 30, 1997
Consolidated Statements of Operations for the Three 4
Months Ended March 31, 1998 and
March 31, 1997
Consolidated Statements of Operations for the Nine 5
Months Ended March 31, 1998 and
March 31, 1997
Consolidated Statement of Shareholders' 6
Equity for the Nine Months Ended
March 31, 1998
Consolidated Statements of Cash Flows for the Nine 7-8
Months Ended March 31, 1998 and
March 31, 1997
Notes to Consolidated Financial Statements 9-13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 14-19
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 19
MARKET RISK
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURES 21
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1997
-------------- -------------
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 110,817 $ 11,672,506
Trade accounts receivable; net of allowance for doubtful
accounts of $358,948 and $113,054, respectively 4,460,405 2,120,880
Inventories 228,295 85,601
Prepaid expenses and other current assets 795,089 276,858
------------ ------------
Total current assets 5,594,606 14,155,845
------------ ------------
Property and equipment, net 80,065,071 46,803,050
------------ ------------
Other assets:
Goodwill, net 22,869,820 7,580,763
Deferred charges, net 2,248,813 272,608
Customer lists, net 4,847,823 1,755,919
Restrictive covenants, net 2,289,723 1,401,833
Deferred lease acquisition costs, net 2,115,614 1,274,577
Deposits 178,046 99,863
------------ ------------
34,549,839 12,385,563
------------ ------------
$120,209,516 $ 73,344,458
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Current maturities of long-term debt $ 143,365 $ 2,180,601
Accounts payable 5,071,436 1,514,048
Accrued expenses 2,952,778 961,544
Other current liabilities 116,443 22,699
------------- -------------
Total current liabilities 8,284,022 4,678,892
Long-term debt, excluding current maturities 23,487,275 7,365,740
Subordinated debt 30,000,000 -
Customer deposits 1,083,703 598,177
------------- -------------
Total Liabilities 62,855,000 12,642,809
------------- -------------
Shareholders' equity:
Common stock; par value $.001 per share; 30,000,000 authorized;
issued and outstanding 7,216,664 shares at March 31, 1998
and 7,197,718 shares at June 30, 1997 7,217 7,198
Additional paid-in capital 63,809,014 63,233,043
Accumulated deficit (6,461,715) (2,538,592)
------------- -------------
Total shareholders' equity 57,354,516 60,701,649
Commitments and contingencies ------------- -------------
$ 120,209,516 $ 73,344,458
============= =============
</TABLE>
3
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Net Sales $ 9,463,552 $ 4,668,867
Costs and expenses:
Cost of products sold 5,161,496 2,166,284
Selling, general and administrative expenses 2,523,072 1,564,630
Depreciation and amortization 2,506,824 1,070,776
----------- -----------
10,191,392 4,801,690
----------- -----------
Operating (loss) (727,840) (132,823)
Other expenses (income):
Interest expense (income), net 1,208,740 (157,432)
----------- -----------
Income (loss) before extraordinary item (1,936,580) 24,609
----------- -----------
Extraordinary item - loss on extinguishment of debt 2,084 -
----------- -----------
Net (loss) income $(1,938,664) $ 24,609
=========== ===========
Basic and Diluted EPS:
Income (loss) before extraordinary item $ (.27) $ -
----------- -----------
Extraordinary item - -
----------- -----------
Net income (loss) $ (.27) $ -
=========== ===========
Weighted average number of common and common
equivalent shares outstanding
Basic 7,216,605 7,163,434
=========== ===========
Diluted 7,216,605 7,282,921
=========== ===========
</TABLE>
4
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Net Sales $24,655,640 $13,073,052
Costs and expenses:
Cost of products sold 13,053,990 6,231,148
Selling, general and administrative expenses 6,922,432 4,196,604
Depreciation and amortization 6,190,822 2,888,417
----------- -----------
26,167,244 13,316,169
----------- -----------
Operating (loss) (1,511,604) (243,117)
Other expenses (income):
Interest expense (income), net 2,224,574 (675,395)
----------- -----------
Income (loss) before extraordinary item (3,736,178) 432,278
----------- -----------
Extraordinary item - loss on extinguishment of debt 186,945 -
----------- -----------
Net (loss) income $(3,923,123) $ 432,278
=========== ===========
Basic and Diluted EPS:
Income (loss) before extraordinary item $ (0.52) $ 0.06
----------- -----------
Extraordinary item (0.02) -
----------- -----------
Net income (loss) $ (0.54) $ 0.06
=========== ===========
Weighted average number of common and common
equivalent shares outstanding
Basic 7,208,252 7,162,938
=========== ===========
Diluted 7,208,252 7,299,360
=========== ===========
</TABLE>
5
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Accumulated Shareholders'
Shares Amount Capital Deficit Equity
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1997 7,197,718 $7,198 $63,233,043 $(2,538,592) $60,701,649
Issuance of 18,835 shares of
common stock - asset acquisition 18,835 19 274,972 - 274,991
Issuance of 111 shares of
common stock - exercise of options 111 - 999 - 999
Issuance of warrants - - 300,000 - 300,000
Net (loss) - - - (3,923,123) (3,923,123)
------------- --------- ------------ ----------- ------------
Balance, March 31, 1998 7,216,664 $7,217 $63,809,014 $(6,461,715) $ 57,354,516
============= ========= ============ =========== ===========
</TABLE>
6
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
March 31, 1998 March 31, 1997*
-------------- ---------------
<S> <C> <C>
Net (loss) income before extraordinary item $ (3,736,178) $ 432,278
Extraordinary item - loss on extinguishment of debt 186,945 -
----------- ------------
Net (loss) income (3,923,123) 432,278
Cash flows from operating activities:
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Depreciation and amortization of property and equipment 4,179,031 2,156,766
Amortization of other assets 2,011,790 731,651
Loss on disposal of property and equipment 318,554 91,065
Write-off of deferred financing costs 186,945 -
Changes in operating assets and liabilities:
Decrease (increase) in:
Trade accounts receivable (2,322,560) (439,990)
Inventories (142,694) (33,276)
Prepaid expenses and other current assets (518,231) (165,432)
Increase (decrease) in:
Accounts payable 3,557,388 (261,326)
Accrued expenses 1,991,234 4,025,018
Other current liabilities 93,744 (45,907)
Customer deposits 485,526 177,238
----------- -------------
Net cash provided by operating activities $ 5,917,604 $ 6,668,085
----------- -------------
Cash flows from investing activities:
Proceeds from disposal of property and equipment 337,238 2,011,526
Purchase of property and equipment (15,173,107) (18,359,342)
Acquisition of businesses (12,270,750) (3,727,547)
(Increase) decrease in deposits (78,183) 173,235
Increase in deferred lease acquisition costs (1,256,760) (618,188)
----------- -------------
Net cash (used in) investing activities (28,441,562) (20,520,316)
----------- -------------
Cash flows from financing activities:
Redemption of warrants - (1,143,450)
Exercise of options 999 149,455
Repayment of long-term debt (800,634) (722,458)
Proceeds from issuance of long-term debt and subordinated debt 13,831,611 11,604
Increase in deferred charges (2,069,707) (29,201)
Additional expenses - secondary offering - (59,100)
----------- -------------
Net cash provided by (used in) financing activities 10,962,269 (1,793,150)
----------- -------------
Net decrease in cash and cash equivalents (11,561,689) (15,645,381)
Cash and cash equivalents at the beginning of period 11,672,506 43,000,676
----------- -------------
Cash and cash equivalents at the end of period $ 110,817 $ 27,355,295
=========== =============
</TABLE>
* Restated to conform to current year's classifications.
7
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
March 31, 1998 March 31, 1997
-------------- --------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
<S> <C> <C>
Interest $ 596,023 $ 691,031
=========== =============
Income taxes $ 0 $ 0
=========== =============
Supplemental schedule of noncash investing and
financing activities:
Acquisition of businesses:
Fair value of assets acquired $ 27,702,406 $ -
Cost in excess of net assets of businesses acquired 15,536,887 -
Liabilities assumed or incurred (31,072,553) -
Issuance of common stock (274,991) -
----------- -------------
Cash paid $ 11,891,749 $ -
=========== =============
</TABLE>
In July 1997, the Company wrote-off a restrictive covenant and the related
liability in the amount of $19,231 due to the employee resigning.
In October 1997, the Company repaid long-term debt in the amount of
$20,782,995 with the proceeds of the issuance of subordinated debt. In
connection therewith, detachable warrants were issued and original issue
discount in the amount of $300,000 was recorded.
8
<PAGE>
NUCO2 INC. AND 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-Q 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
wholly-owned subsidiaries, NuAir Inc. for the periods ended March 31, 1997 and
NuCo2 Acquisition Corp. for the periods ended March 31, 1998. NuCo2 Acquisition
Corp. owns all of the issued and outstanding shares of common stock of Koch
Compressed Gases, Inc. (see Note 3).
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, 1997 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-Q
should be read in conjunction with the Company's audited financial statements
for the fiscal year ended June 30, 1997. 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
In February 1997, the FASB issued Statement 128, "Earnings Per Share".
Statement 128 supersedes APB Opinion No. 15, "Earnings Per Share" and specifies
the computation, presentation and disclosure requirements for earnings per share
("EPS") for entities with publicly held common stock or potential common stock.
It replaces the presentation of primary EPS with the presentation of basic EPS
and replaces fully diluted EPS with diluted EPS. It also requires dual
presentation of basic and diluted EPS on the face of the statement of operations
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Statement 128 is effective for
financial statements for both interim and annual periods ending after December
15, 1997.
Earnings per share of common stock for the quarter and nine month
periods ended March 31, 1998 have been calculated according to the guidelines of
Statement 128 and earnings per share of common stock for the quarter and nine
month periods ended March 31, 1997 have been restated to conform with Statement
128.
Basic earnings per share for the quarter and nine month periods ended
March 31, 1998 and 1997 has been computed by dividing income before
extraordinary item, extraordinary item and net income/loss for each respective
period by the weighted average number of shares of common stock outstanding for
each respective period. Diluted earnings per share for the quarter and nine
month periods ended March 31, 1997 has been computed by dividing income before
extraordinary item, extraordinary item and net income for each respective period
by the weighted average number of shares of common stock and common stock
equivalents outstanding for each respective period, plus the assumed exercise of
stock options and warrants, less the number of treasury shares assumed to be
purchased from the proceeds of such exercises using the average market price of
the Company's common stock during each respective period. Stock options and
warrants have been excluded from the calculation of diluted earnings per share
for the quarter and nine month periods ended March 31, 1998 because their
inclusion would be antidilutive.
9
<PAGE>
Note 2. Net Income or Loss per Common Share - (Continued)
Following are reconciliations of the numerators and denominators of the
basic and diluted per share computations for income from continuing operations
for the respective periods.
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1997
-----------------------------------------
Weighted Per-Share
Net Income Average Shares Amount
---------- -------------- ------
Basic EPS
<S> <C> <C> <C>
Income available to common stockholders $ 24,609 7,163,434 $ -
Effect of Dilutive Options and Warrants - 119,487 -
-------- ---------- ---
Diluted EPS $ 24,609 7,282,921 $ -
======== ========== ===
</TABLE>
<TABLE>
<CAPTION>
For The Nine Months Ended March 31, 1997
----------------------------------------
Weighted Per-Share
Net Income Average Shares Amount
---------- -------------- ------
Basic EPS
<S> <C> <C> <C>
Income available to common stockholders $ 432,278 7,162,938 $ 0.06
Effect of Dilutive Options and Warrants - 136,422 -
-------- ---------- --------
Diluted EPS $ 432,278 7,299,360 $ 0.06
======== ========== =====
</TABLE>
Incremental shares for stock options and warrants calculated pursuant
to the treasury stock method for the three and nine months ended March 31, 1998
were 143,760 and 148,726, respectively. These shares were not included in
diluted EPS because they would have been antidilutive for such periods.
Additionally, options and warrants to purchase 75,000 shares, 1,000,000 shares,
655,738 shares (see Note 5) and 30,000 shares (see Note 5) for $17.50, $17.00,
$16.40 and $14.64, respectively, were outstanding during all or a portion of the
three and nine months ended March 31, 1998 but were not included in the
computation of diluted EPS because the options and warrants exercise price was
greater than the average market price of the common shares.
NOTE 3. ACQUISITIONS
In August 1996, the Company acquired the bulk CO2 operations of two
affiliated companies operating in Ohio, Kentucky and Indiana for an aggregate
purchase price of approximately $1,350,000. The Company paid cash for these
transactions.
In March 1997, the Company acquired certain assets of three unrelated
companies operating in Texas for an aggregate purchase price of approximately
$2,875,000. The Company paid cash for these transactions.
Effective July 15, 1997, the Company purchased substantially all of the
assets of a bulk CO2 company operating in Colorado for a purchase price of
$675,000. The purchase price was funded through a borrowing under the Company's
NationsBank credit facility (see Note 4).
Effective July 31, 1997, the Company purchased certain assets from CC
Acquisition Corp. (Carbo Co.) for an aggregate purchase price of $11,000,000.
Carbo Co. had operations in Nebraska, Kansas, Oklahoma, Iowa, Missouri, Arkansas
and South Dakota. The Company funded $5,000,000 through a borrowing under its
$30 million NationsBank credit facility (see Note 4) and paid cash for the
balance.
In September 1997, the Company purchased certain assets of a bulk CO2
company with operations in Arizona for an aggregate purchase price of
$1,084,250. The Company funded $1,075,000 through a borrowing under its
NationsBank credit facility (see Note 4) and paid cash for the balance.
10
<PAGE>
Note 3. Acquisitions - (Continued)
Effective October 1, 1997, a newly formed wholly-owned subsidiary of
the Company purchased all of the issued and outstanding shares of common stock
of Koch Compressed Gases, Inc. ("Koch") for an aggregate purchase price of
$5,500,000 subject to adjustments. Koch operated a bulk CO2 business as well as
provided carbon dioxide and other gases in high-pressure cylinders throughout
the tri-state New York metropolitan area. The purchase price was funded through
a borrowing under the Company's NationsBank credit facility (see Note 4).
In November 1997, the Company purchased substantially all of the assets
of a bulk CO2 company operating in Texas for a purchase price of $949,240. The
Company paid approximately $674,249 cash and issued 18,835 shares of common
stock at market, for a value of $274,991.
Effective December 2, 1997, the Company purchased certain assets from
four related carbonic gas distributors , Miller Carbonic Systems Co. Inc.,
Miller Carbonic, Inc., Carbonic National Systems, Inc., and Carbonic Gas
Service, Inc. operating primarily in Illinois, Indiana, Wisconsin and Michigan
for an aggregate purchase price of $11,500,000. The Company paid approximately
$5,000,000 cash and funded $6,500,000 through a borrowing under the Company's
SunTrust Facility (see Note 4).
Effective December 2, 1997, the Company purchased certain assets of a
bulk CO2 company with operations in Kansas for a purchase price of $1,000,000.
The purchase price was funded through a borrowing under the Company's SunTrust
Facility (see Note 4).
Effective January 23, 1998, the Company purchased substantially all of
the assets of a bulk CO2 company operating in California for a purchase price of
$4,500,000. The purchase price was funded through a borrowing under the
Company's SunTrust Facility (see Note 4).
Effective March 2, 1998, the Company purchased certain assets from
Florida Carbonic Distributor, Inc., a carbonic gas distributor operating in
Florida for a purchase price of $6,425,000. The purchase price was funded
through a borrowing under the Company's SunTrust Facility (see Note 4).
In March 1998, the Company purchased certain assets from three
unrelated carbonic gas distributors with operations in Texas, Maine and Alabama
for an aggregate purchase price of $406,208. The purchase prices were funded
through a borrowing under the Company's SunTrust Facility (see Note 4).
These acquisitions were accounted for by the purchase method of
accounting and, accordingly, the purchase prices and direct costs of the
acquisitions have been allocated to the respective assets and liabilities of the
acquired companies based upon their estimated fair market values at the dates of
acquisition. This resulted in goodwill of approximately $16,000,000 for the nine
months ended March 31, 1998, which is being amortized on a straight-line basis
over twenty years. The results of operations of the acquired companies are
included in the Company's financial statements since the effective dates of the
acquisitions.
NOTE 4. LONG-TERM DEBT
On October 31, 1997, the Company finalized a $50.0 million senior
secured revolving credit facility with SunTrust Bank, South Florida, National
Association ("SunTrust Facility"). The SunTrust Facility replaced the Company's
prior facility with NationsBank of Florida, N.A. ("NationsBank"). The SunTrust
Facility contains a mechanism to increase it by an additional $50.0 million to a
total of $100.0 million upon the achievement of annualized one quarter EBITDA on
a pro-forma basis for acquisitions of $15.0 million or upon request by the
Company. Additionally, the SunTrust Facility contains interest rates and an
unused facility fee based on a pricing grid calculated quarterly on senior
funded debt to annualized EBITDA. The pricing grid is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Senior Funded Debt to Annualized EBITDA Under 1.50 1.50 and 2.25 2.25 and 3.00 Over 3.00
Commitment Fee 0.1875% 0.25% 0.375% 0.50%
Applicable LIBOR Margin 1.25% 1.75% 2.25% 2.75%
Applicable Base Rate Margin 0.00% 0.00% 0.00% 0.50%
</TABLE>
11
<PAGE>
The Company is entitled to select the Base Rate or LIBOR, plus
applicable margin, for principal drawings under the SunTrust Facility. Base Rate
is defined as the higher of the prime lending rate of SunTrust or the Federal
Funds rate plus one-half of one percent (1/2%) per annum. Interest only is
payable periodically until the expiration of the SunTrust Facility at which time
all outstanding principal and interest is due. The SunTrust Facility expires on
October 31, 2000; however, it contains a two year renewal option. Additionally,
it is collateralized by substantially all of the assets of the Company. A total
of $23,000,000 was outstanding pursuant to the SunTrust Facility with interest
at 6.9% as of March 31, 1998. In December 1997, SunTrust syndicated the SunTrust
Facility with three additional banks.
Extraordinary item - loss on extinguishment of debt
For the nine months ended March 31, 1998, the Company incurred a one
time extraordinary charge of $186,945 for the write-off of deferred financing
costs and a prepayment penalty in connection with the repayment of the
NationsBank credit facility.
NOTE 5. SUBORDINATED DEBT
Represents Senior Subordinated Promissory Notes ("Notes") with interest
only at 12% per annum payable semi-annually on April 30 and October 31, due
October 31, 2004. The Notes were sold with detachable seven year warrants to
purchase an aggregate of 655,738 shares of the Company's Common Stock at an
exercise price of $16.40 per share. Additionally, NationsBanc Montgomery
Securities, Inc., the placement agent, received a warrant to purchase an
aggregate of 30,000 shares of the Company's Common Stock at an exercise price of
$14.64 per share which expires on October 31, 2004.
NOTE 6. STOCK OPTION PLAN
In 1995, the Company adopted the 1995 Stock Option Plan (the "1995
Plan"). Under the 1995 Plan, the Company has reserved 850,000 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 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. Options granted to date vest in
three or four installments commencing one year from the date of grant. As of
March 31, 1998, options for 105,431 shares are exercisable.
The following table summarizes the transactions pursuant to the 1995
Plan.
SHARES EXERCISE PRICE
Outstanding at June 30, 1995 -0- -0-
Granted 130,991 $9-$17.50
Expired or canceled 340 $9
Exercised -0- -0-
--------- -------------
Outstanding at June 30, 1996 130,651 $9-$17.50
Granted 222,500 $11.25
Expired or canceled 6,225 $9-$11.25
Exercised 322 $9
--------- -------------
Outstanding at June 30, 1997 346,604 $9-$17.50
Granted 341,500 $10.25-11.28
Expired or canceled 1,407 $9-$11.25
Exercised 111 $9
--------- -------------
Outstanding at March 31, 1998 686,586 $9-$17.50
========= =============
In 1995, 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, 1998, options to purchase a total of 18,000
shares of Common Stock at an exercise price of $9.00 per share and a total of
6,000 shares of Common Stock at an exercise price of $12.50 per share had been
issued. Of these options, 14,000 shares at an exercise price of $9.00 per share
are currently exercisable.
12
<PAGE>
NOTE 7. OPERATING LEASES
The Company entered into 91 operating leases from July 1, 1997 through
March 31, 1998. Twenty-nine leases were for warehouse facilities with aggregate
annual rentals of approximately $916,000 expiring at various dates through 2003.
Sixty-two leases were for trucks with aggregate annual rentals of approximately
$708,000 expiring at various dates through 2004.
NOTE 8. CONTINGENCIES
Carbonic Designs, Inc. v. MVE, Inc., The Taylor-Wharton Gas Equipment
Division of Harsco Corporation, Welders Supply Co. and NuCo2 Inc., filed on or
about March 31, 1997, asserted claims for violation of the Texas Free Enterprise
and AntiTrust Act of 1983, business disparagement, tortious interference with
contract, tortious interference with prospective business relations and civil
conspiracy. The Company settled this lawsuit in December 1997 for an immaterial
amount.
NOTE 9. SUBSEQUENT EVENTS
Effective April 13, 1998, the Company entered into a three year
consulting agreement with the former president of the Company. Pursuant to the
terms of the agreement, the Consultant shall receive $50,000 per annum and shall
not compete with the Company for a period of two years after the expiration of
the contract. Simultaneously, options to purchase 75,000 shares of Common Stock
were canceled.
13
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 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
During the quarter ended March 31, 1998, the Company achieved a major
goal and became the national supplier of bulk CO2 systems and liquid carbon
dioxide to the restaurant and convenience store industries in the U.S. In
January 1998, the Company purchased the assets of a bulk CO2 company operating
in the greater Los Angeles metropolitan area. Additionally, in March 1998, the
Company acquired the bulk CO2 assets of four separate companies operating in
Florida, Maine, Alabama and Texas. As of March 31, 1998, the Company was
operating from 62 depots in 42 states. Acquisitions during the quarter added
approximately 3,700 bulk CO2 customers and approximately 300 high pressure
customers while new internally generated bulk CO2 systems placements totaled
2,432. Additionally, during the quarter ended March 31, 1998, the Company
reached multi-unit placement agreements with Dairy Mart, Discovery Zone,
7-Eleven and Kentucky Fried Chicken.
At March 31, 1998, the Company leased approximately 36,500 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" 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, 1998, the Company provided "fill
only" service to approximately 6,800 customers where it supplies only CO2 refill
services and the customer is charged on a per pound basis for all CO2 delivered.
As of March 31, 1998, approximately 15,000 of the Company's 43,300 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, 1998, approximately 28,300 of the Company's 43,300
bulk customers were billed at a flat monthly rate which does not vary throughout
the year. Additionally, the Company has approximately 9,500 high pressure
customers.
The Company intends to continue to grow through a combination of
internal growth and opportunistic acquisitions. The Company requires significant
capital to purchase and install bulk CO2 systems at customers' locations and to
grow its 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 1997 and the
nine months ended March 31, 1998, 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.
14
<PAGE>
GENERAL
Under the budget plan, the Company's net sales consist of charges to
customers for the use of Company owned bulk CO2 systems and a predetermined
quantity of liquid CO2. On customer invoices, the Company does not separate
charges for equipment use from charges for liquid CO2 delivered; customers are
presented with a single amount payable. Customers are invoiced monthly in
advance of services rendered. For customers on rental plus per pound charge
contracts, invoices are broken down into the two respective services, with the
charge for liquid CO2 supply varying with the amount delivered. The Company's
net sales also include revenues received from customers to which it supplies
only CO2 refill services, based on the amount delivered.
Cost of products sold is comprised of purchased CO2 and labor, vehicle
and depot costs associated with the Company's delivery and storage of bulk CO2
to customers. Selling, general and administrative expenses consist of salaries,
dispatch and communications costs, and expenses associated with marketing,
administration, accounting and employee training. Consistent with the capital
intensive character of its business, the Company incurs significant depreciation
and amortization expenses. These stem from the depreciation of Company owned
bulk CO2 systems; depreciation and amortization of bulk system installation
costs; amortization of sales commissions, and amortization of goodwill, deferred
financing costs and other intangible assets.
With respect to bulk CO2 systems, the Company only capitalizes costs
that are associated with specific successful placements of such systems with
customers under noncancelable contracts and which would not be incurred by the
Company but for a successful placement. All other service, marketing and
administrative costs are expensed as incurred. Capitalized component parts and
direct costs associated with installation of bulk CO2 equipment leased to
customers was approximately $5.4 million and $10.6 million as of March 31, 1997
and 1998, respectively. Depreciation and amortization expense related to
capitalized component parts and direct costs associated with installation was
approximately $636,000 and $1.2 million for the nine months ended March 31, 1997
and 1998, respectively.
The Company believes EBITDA is useful as a means of measuring the
growth and earning power of its business. In addition, the SunTrust Facility
utilizes EBITDA for its formal calculation of financial leverage, affecting the
amount of funds available and rates to the Company for borrowing under such
credit facility. EBITDA represents operating income plus depreciation and
amortization. Information regarding EBITDA is presented because of its use by
certain investors as one measure of a corporation's ability to generate cash
flow. EBITDA should not be considered an alternative to, or more meaningful
than, operating income or cash flows from operating activities as an indicator
of a corporation's operating performance. EBITDA excludes significant costs of
doing business and should not be considered in isolation from GAAP measures.
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,
--------- ---------
1997 1998 1997 1998
---- ---- ---- ----
Income Statement Data:
<S> <C> <C> <C> <C>
Net sales..................................... 100.0% 100.0% 100.0% 100.0%
Cost of products sold......................... 46.4% 54.5% 47.7% 52.9%
Selling, general and administrative expenses.. 33.5% 26.7% 32.1% 28.1%
Depreciation and amortization................. 22.9% 26.5% 22.1% 25.1%
------- ------- ------- -------
Operating (loss).............................. (2.8%) (7.7%) (1.9%) (6.1%)
------- ------- ------- -------
Interest (income) expense, net................ (3.3%) 12.8% (5.2%) 9.0%
Extraordinary item - loss on extinguishment of debt - - - 0.8%
------- ------- ------- -------
Net income (loss)............................. .5% (20.5%) 3.3% (15.9%)
======= ======= ======= =======
Other Data:
Operating income before depreciation and amortization
(EBITDA) 20.1% 18.8% 20.2% 19.0%
======== ======= ======= =======
</TABLE>
15
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net sales increased by $4.8 million, or 102.7%, from $4.7 million in
the 1997 period to $9.5 million in the 1998 period. Approximately $291,000 of
the increase represented net sales resulting from the May 1997 acquisition of
certain assets of The BOC Group, Inc., $440,000 of the increase represented net
sales resulting from the July 1997 acquisition of CC Acquisition Corp. (Carbo
Co.), $303,000 of the increase represented net sales resulting from the October
1997 acquisition of Koch Compressed Gases, Inc. and $583,000 from the December
1997 acquisitions of the four related companies operating in the midwest. In
addition, approximately $442,000 and $635,000 represented net sales from five
acquisitions during the fourth quarter of the fiscal year ended June 30, 1997
and ten acquisitions during the nine months ended March 31, 1998, 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.
Cost of products sold increased by $3.0 million, from $2.2 million in
the 1997 period to $5.2 million in the 1998 period and increased as a percentage
of net sales from 46.4% to 54.5%. The increase was attributable to the expansion
of the Company into new territories, an increase in fully loaded route drivers
and an increase in high pressure cylinder business. Fully loaded route drivers
increased by $1.1 million from $737,000 in the 1997 period to $1.8 million in
the 1998 period and increased as a percentage of net sales from 15.8% to 18.9%.
Overtime increased by $274,000 from $90,000 in the 1997 period compared to
$364,000 in the 1998 period and increased as a percentage of net sales from 1.9%
in the 1997 period to 3.8% in the 1998 period. The increase in overtime was
attributable to the acquisitions during the 1998 period. Additionally, helium
and nitrogen purchases and high pressure cylinder rent and testing increased by
$239,000 from $107,000 in the 1997 period compared to $346,000 in the 1998
period and increased as a percentage of net sales from 2.3% in the 1997 period
to 3.7% in the 1998 period. During the three months ended March 31, 1998, the
Company acquired approximately 300 high pressure customers. The number of depots
operated by the Company at March 31, 1998, increased to 62, compared to 36 at
March 31, 1997. In addition, as of March 31, 1998, two more depots were at
various stages of being set up. 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 $958,000 from
$1.6 million in the 1997 period to $2.5 million in the 1998 period and decreased
as a percentage of net sales from 33.5% to 26.7%. The dollar increase was
primarily 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. The percentage decrease is attributable
to economies of scale. At March 31, 1997, the Company had operations in 24
states and employed 53 marketing personnel and at March 31, 1998, the Company
had operations in 42 states and employed 94 marketing personnel.
Depreciation and amortization increased by $1.4 million from $1.1
million in the 1997 period to $2.5 million in the 1998 period. As a percentage
of net sales, such expenses increased from 22.9% in the 1997 period to 26.5% in
the 1998 period. Depreciation expense increased by $822,000 from $807,000 in the
1997 period to $1.6 million in the 1998 period principally due to the increase
in bulk CO2 systems leased to customers. Expressed as percentage of net sales,
depreciation expense decreased from 17.3% in the 1997 period to 17.2% in the
1998 period. Amortization expense increased by $614,000 from $264,000 in the
1997 period to $878,000 in the 1998 period primarily due to the amortization
related to restrictive covenants, goodwill and customer lists. As a percentage
of net sales, amortization expense increased from 5.7% to 9.3%, respectively.
Net interest income in the 1997 period was $157,000 compared to net
interest expense in the 1998 period of $1.2 million. This change is attributable
to the decreased level of cash and cash equivalents and the increased level of
long-term debt and subordinated debt in the 1998 period as compared to the 1997
period.
For the reasons described above, EBITDA, representing operating income
plus depreciation and amortization, increased by $841,000, or 89.7%, from
$938,000 in the 1997 period to $1.8 million in the 1998 period and decreased as
a percentage of net sales from 20.1% to 18.8%, 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>
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO NINE MONTHS ENDED MARCH 31, 1997
Net sales increased by $11.6 million, or 88.6%, from $13.1 million in
the 1997 period to $24.7 million in the 1998 period. Approximately $1.0 million
of the increase represented net sales resulting from the May 1997 acquisition of
certain assets of The BOC Group, Inc., $1.3 million of the increase represented
net sales resulting from the July 1997 acquisition of CC Acquisition Corp.
(Carbo Co.), $626,000 of the increase represented net sales resulting from the
October 1997 acquisition of Koch Compressed Gases, Inc. and $766,000 from the
December 1997 acquisitions of the four related companies operating in the
midwest. In addition, approximately $1.4 million and $909,000 represented net
sales from five acquisitions during the fourth quarter of the fiscal year ended
June 30, 1997 and ten acquisitions during the nine months ended March 31, 1998,
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.
Cost of products sold increased by $6.8 million, from $6.2 million in
the 1997 period to $13.1 million in the 1998 period and increased as a
percentage of net sales from 47.7% to 52.9%. The increase was attributable to
the expansion of the Company into new territories, an increase in fully loaded
route drivers and an increase in high pressure cylinder business. Fully loaded
route drivers increased by $2.4 million from $2.1 million in the 1997 period to
$4.5 million in the 1998 period and increased as a percentage of net sales from
16.2% to 18.2%. Overtime increased by $559,000 from $288,000 in the 1997 period
compared to $847,000 in the 1998 period and increased as a percentage of net
sales from 2.2% in the 1997 period to 3.4% in the 1998 period. The increase in
overtime was attributable to the acquisitions during the 1998 period.
Additionally, helium and nitrogen and high pressure cylinder rent and testing
increased by $514,000 from $306,000 in the 1997 period to $820,000 in the 1998
period and increased as a percentage of net sales from 2.3% in the 1997 period
to 3.3% in the 1998 period. During the nine months ended March 31, 1998, the
Company acquired approximately 9,000 high pressure customers. The number of
depots operated by the Company at March 31, 1998, increased to 62, compared to
36 at March 31, 1997. As of March 31, 1998, two additional depots were at
various stages of being set up. 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 $2.7 million
from $4.2 million in the 1997 period to $6.9 million in the 1998 period and
decreased as a percentage of net sales from 32.1% to 28.1%. The dollar increase
was primarily 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. The percentage decrease is
attributable to economies of scale. At March 31, 1997, the Company had
operations in 24 states and employed 53 marketing personnel and at March 31,
1998, the Company had operations in 42 states and employed 94 marketing
personnel.
Depreciation and amortization increased by $3.3 million from $2.9
million in the 1997 period to $6.2 million in the 1998 period. As a percentage
of net sales, such expenses increased from 22.1% in the 1997 period to 25.1% in
the 1998 period. Depreciation expense increased by $2.0 million from $2.2
million in the 1997 period to $4.2 million in the 1998 period principally due to
the increase in bulk CO2 systems leased to customers. Expressed as a percentage
of net sales, depreciation expense increased from 16.5% in the 1997 period to
16.9% in the 1998 period. Amortization expense increased by $1.3 million from
$732,000 in the 1997 period to $2.0 million in the 1998 period primarily due to
the amortization related to restrictive covenants, goodwill and customer lists.
As a percentage of net sales, amortization expense increased from 5.6% to 8.2%,
respectively.
Net interest income in the 1997 period was $675,000 compared to net
interest expense in the 1998 period of $2.2 million. This change is attributable
to the decreased level of cash and cash equivalents and the increased level of
long-term debt and subordinated debt in the 1998 period as compared to the 1997
period.
During the 1998 period, the Company wrote-off $187,000 of deferred
financing costs related to its NationsBank credit facility which was replaced by
a new syndicated bank group facility led by SunTrust Bank.
For the reasons described above, EBITDA, representing operating income
plus depreciation and amortization, increased by $2.0 million, or 76.9%, from
$2.6 million in the 1997 period to $4.7 million in the 1998 period and decreased
as a percentage of net sales from 20.2% to 19.0%, 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.
17
<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 $6.0 million to $9.0 million during the remaining three months of
fiscal 1998, 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.
During the nine months ended March 31, 1998, the Company's capital
resources included cash flows from operations, available borrowing capacity
under the Company's credit facilities (NationsBank credit facility through
October 1997 and SunTrust Facility thereafter) and proceeds from the sale of its
12% Senior Subordinated Promissory Notes due 2004 (the "Notes"). In July and
September of 1997, certain assets, primarily consisting of bulk CO2 systems,
were acquired for $6.0 million in cash and $6.8 million in borrowings under the
Company's NationsBank credit facility. Effective October 1, 1997, a newly formed
wholly-owned subsidiary of the Company purchased all of the issued and
outstanding share of common stock of Koch Compressed Gases, Inc. for an
aggregate purchase price of $5.5 million which was funded through a borrowing
under the NationsBank credit facility. On October 31, 1997, the Company repaid
its outstanding indebtedness under the NationsBank credit facility which totaled
approximately $21.0 million with a portion of the proceeds of the Notes. The
Notes which aggregated $30.0 million were sold with seven year warrants to
purchase an aggregate of 655,738 shares of Common Stock at an exercise price of
$16.40 per share. Additionally, NationsBanc Montgomery Securities, Inc., the
placement agent for the Notes, received a warrant to purchase an aggregate of
30,000 shares of Common Stock at an exercise price of $14.64 per share which
expires on October 31, 2004.
On October 31, 1997, the Company finalized a $50.0 million senior
secured revolving credit facility with SunTrust Bank, South Florida, National
Association ("SunTrust Facility"). The SunTrust Facility contains a mechanism to
increase it by an additional $50.0 million to a total of $100.0 million upon the
achievement of annualized one quarter EBITDA on a pro-forma basis for
acquisitions of $15.0 million or upon request by the Company. Additionally, the
SunTrust Facility contains interest and an unused facility fee based on a
pricing grid calculated quarterly on senior funded debt to annualized EBITDA.
The SunTrust Facility expires on October 31, 2000; however, it contains a two
year renewal option. Additionally, it is collateralized by substantially all of
the assets of the Company. In December 1997, SunTrust closed on a syndication of
the SunTrust Facility with three additional banks.
For the period November 1997 through March 1998, the Company purchased
assets from various carbonic gas distributors consisting primarily of bulk CO2
and high pressure assets for $6.0 million cash, $23.0 million borrowing under
the Company's SunTrust Facility and the issuance of 18,835 shares of Common
Stock at market for a value of $275,000.
As of March 31, 1998, a total of $23.0 million was outstanding under
the SunTrust Facility with interest at one hundred twenty-five basis points
above the 90-day London InterBank Offering Rate ("LIBOR") (6.9% at March 31,
1998).
The Company believes that cash from operating activities and available
borrowings under the SunTrust Facility will be sufficient to fund proposed
operations for at least the next twelve months.
Working Capital. At June 30, 1997 the Company had working capital of
$9.5 million. At March 31, 1998, the Company had negative working capital of
$2.7 million.
Cash Flows from Operating Activities. For the nine months ended March
31, 1997 and March 31, 1998, net cash provided by operating activities was $6.7
million and $5.9 million, respectively. The decrease from the 1997 period to the
1998 period of $750,000 is primarily due to an increase in the net loss of the
Company and an increase in accounts receivable.
Cash Flows from Investing Activities. For the nine months ended March
31, 1997 and March 31, 1998, net cash used in investing activities was $20.5
million and $28.4 million, respectively. These investing activities were
attributable to the installation and direct placement costs and acquisition of
bulk CO2 systems, and the cash expended in connection with the asset
acquisitions.
18
<PAGE>
Cash Flows from Financing Activities. For the nine months ended March
31, 1997, cash flows used in financing activities were $1.8 million. For the
nine months ended March 31, 1998, cash flows provided by financing activities
were $11.0 million. For the nine months ended March 31, 1997, net cash used in
financing activities are primarily from the redemption and cancellation of a
warrant issued to a representative of the underwriters in the Company's initial
public offering in December 1995. For the nine months ended March 31, 1998, net
cash provided by financing activities was primarily from the issuance of
long-term debt and subordinated debt.
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 an increase in the consumer price index. The
Company believes that inflation will not have a material adverse effect on its
future results of operations.
ITEM 2. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K.
(1) The Company filed a Form 8-K/A dated February
12, 1998 amending a Form 8-K dated December 9,
1997 reporting an Item 2 event.
20
<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, 1998 By: /S/ JOANN SABATINO
------------------
Joann Sabatino
Chief Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the NuCo2
Inc. Consolidated Financial Statements as of March 31, 1998 and is qualified in
its entirety by reference to such Consolidated Financial Statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1998
<CASH> 110,817
<SECURITIES> 0
<RECEIVABLES> 4,460,405
<ALLOWANCES> 358,948
<INVENTORY> 228,295
<CURRENT-ASSETS> 5,594,606
<PP&E> 90,860,998
<DEPRECIATION> 10,795,927
<TOTAL-ASSETS> 120,209,516
<CURRENT-LIABILITIES> 8,284,022
<BONDS> 0
<COMMON> 7,217
0
0
<OTHER-SE> 57,347,299
<TOTAL-LIABILITY-AND-EQUITY> 120,209,516
<SALES> 24,655,640
<TOTAL-REVENUES> 24,655,640
<CGS> 13,053,990
<TOTAL-COSTS> 26,167,244
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,381,265
<INCOME-PRETAX> (3,736,178)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,736,178)
<DISCONTINUED> 0
<EXTRAORDINARY> 186,945
<CHANGES> 0
<NET-INCOME> (3,923,123)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
