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 December 31, 1997
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 Identification No.)
Incorporation or Organization)
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 December 31, 1997
----- --------------------------------
Common Stock, $.001 par value 7,216,553 shares
<PAGE>
NUCO2 INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1997 3
and June 30, 1997
Consolidated Statements of Operations for the Three 4
Months Ended December 31, 1997 and
December 31, 1996
Consolidated Statements of Operations for the Six 5
Months Ended December 31, 1997 and
December 31, 1996
Consolidated Statement of Shareholders' 6
Equity for the Six Months Ended
December 31, 1997
Consolidated Statements of Cash Flows for the Six 7-8
Months Ended December 31, 1997 and
December 31, 1996
Notes to Consolidated Financial Statements 9-13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 14-19
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY 20
HOLDERS
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>
December 31, 1997 June 30, 1997
----------------- -------------
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,090,897 $ 11,672,506
Trade accounts receivable; net of allowance for doubtful
accounts of $274,455 and $113,054, respectively 3,502,351 2,120,880
Inventories 188,613 85,601
Prepaid expenses and other current assets 795,459 276,858
------------ ------------
Total current assets 5,577,320 14,155,845
------------ ------------
Property and equipment, net 70,129,527 46,803,050
------------ ------------
Other assets:
Goodwill, net 19,567,472 7,580,763
Deferred charges, net 2,344,894 272,608
Customer lists, net 4,131,075 1,755,919
Restrictive covenants, net 1,835,347 1,401,833
Deferred lease acquisition costs, net 1,794,557 1,274,577
Deposits 162,138 99,863
------------ ------------
29,835,483 12,385,563
------------ ------------
$ 105,542,330 $ 73,344,458
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Current maturities of long-term debt $ 142,372 $ 2,180,601
Accounts payable 5,145,897 1,514,048
Accrued expenses 1,945,602 961,544
Other current liabilities 32,395 22,699
------------ ------------
Total current liabilities 7,266,266 4,678,892
Long-term debt, excluding current maturities 8,045,308 7,365,740
Subordinated debt 30,000,000 -
Customer deposits 938,575 598,177
------------ ------------
Total Liabilities 46,250,149 12,642,809
------------ ------------
Shareholders' equity:
Common stock; par value $.001 per share; 30,000,000 authorized;
issued and outstanding 7,216,553 shares at December 31, 1997
and 7,197,718 shares at June 30, 1997 7,217 7,198
Additional paid-in capital 63,808,015 63,233,043
Accumulated deficit (4,523,051) (2,538,592)
------------ ------------
Total shareholders' equity 59,292,181 60,701,649
Commitments and contingencies
------------ -------------
$ 105,542,330 $ 73,344,458
============ =============
</TABLE>
3
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Net Sales $ 8,077,798 $ 4,332,528
Costs and expenses:
Cost of products sold 4,309,627 2,095,313
Selling, general and administrative expenses 2,399,037 1,401,549
Depreciation and amortization 2,051,101 995,798
----------- ------------
8,759,765 4,492,660
----------- ------------
Operating (loss) net (681,967) (160,132)
Other expenses (income):
Interest expense (income), net 806,721 (225,952)
----------- ------------
Income (loss) before extraordinary item (1,488,688) 65,820
----------- ------------
Extraordinary item - loss on extinguishment of debt 184,861 -
----------- ------------
Net (loss) income $(1,673,549) $ 65,820
=========== ============
Basic and Diluted EPS:
Income (loss) before extraordinary item $ (.20) $ 0.01
----------- ------------
Extraordinary item (.03) -
----------- ------------
Net income (loss) $ (.23) $ 0.01
=========== ============
Weighted average number of common and common
equivalent shares outstanding
Basic 7,210,616 7,161,957
=========== ============
Diluted 7,210,616 7,283,451
=========== ============
</TABLE>
4
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Net Sales $15,192,088 $ 8,404,185
Costs and expenses:
Cost of products sold 7,892,494 4,064,864
Selling, general and administrative expenses 4,399,360 2,631,974
Depreciation and amortization 3,683,998 1,817,641
----------- ----------
15,975,852 8,514,479
----------- ----------
Operating (loss), net (783,764) (110,294)
Other expenses (income):
Interest expense (income), net 1,015,834 (517,964)
----------- ----------
Income (loss) before extraordinary item (1,799,598) 407,670
----------- ----------
Extraordinary item - loss on extinguishment of debt 184,861 -
----------- ----------
Net (loss) income $(1,984,459) $ 407,670
=========== ==========
Basic and Diluted EPS:
Income (loss) before extraordinary item $ (.25) $ 0.06
----------- ----------
Extraordinary item (.03) -
----------- ----------
Net income (loss) $ (.28) $ 0.06
=========== ==========
Weighted average number of common and common
equivalent shares outstanding
Basic 7,204,167 7,162,696
=========== ==========
Diluted 7,204,167 7,307,585
=========== ==========
</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, 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 warrants - - 300,000 - 300,000
Net (loss) - - - (1,984,459) (1,984,459)
------------- --------- ------------ ----------- -----------
Balance, December 31, 1997 7,216,553 $7,217 $63,808,015 $(4,523,051) $59,292,181
============= ========= ============ =========== ===========
</TABLE>
6
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------
December 31, 1997 December 31, 1996*
----------------- ------------------
<S> <C> <C>
Net (loss) income before extraordinary item $ (1,799,598) $ 407,670
Extraordinary item - loss on extinguishment of debt 184,861 -
----------- ------------
Net (loss) income (1,984,459) 407,670
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 2,550,038 1,349,905
Amortization of other assets 1,133,960 467,736
Loss on disposal of property, and equipment 238,659 67,379
Write-off of deferred financing costs 184,861 -
Changes in operating assets and liabilities:
Decrease (increase) in:
Trade accounts receivable (1,364,506) (262,283)
Inventories (103,012) (26,615)
Prepaid expenses and other current assets (518,601) (262,451)
Increase (decrease) in:
Accounts payable 3,631,849 (205,962)
Accrued expenses 984,058 16,680
Other current liabilities 9,696 (49,087)
Customer deposits 340,398 119,670
----------- -------------
Net cash provided by operating activities $ 5,102,941 $ 1,622,642
----------- -------------
Cash flows from investing activities:
Proceeds from disposal of property and equipment 75,714 74,813
Purchase of property and equipment (9,626,455) (11,561,219)
Acquisition of businesses (12,132,122) (422,932)
(Increase) decrease in deposits (62,275) 178,256
(Increase) in deferred lease acquisition costs (789,336) (413,779)
----------- -------------
Net cash (used in) investing activities (22,534,474) (12,144,861)
----------- -------------
Cash flows from financing activities:
(Redemption) of warrants - (1,143,450)
Exercise of options - 149,455
Repayment of long-term debt (757,964) (197,080)
Proceeds from issuance of long-term debt and subordinated debt 9,689,190 11,604
Increase in deferred charges (2,081,302) (4,618)
Additional expenses - secondary offering - (59,100)
----------- -------------
Net cash provided by (used in) financing activities 6,849,924 (1,243,189)
----------- -------------
Net decrease in cash and cash equivalents (10,581,609) (11,765,408)
Cash and cash equivalents at the beginning of period 11,672,506 43,000,676
----------- -------------
Cash and cash equivalents at the end of period $ 1,090,897 $ 31,235,268
=========== =============
</TABLE>
* Restated to conform to current year's classifications.
7
<PAGE>
NUCO2 INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 408,926 $ 455,400
=========== =============
Income taxes $ 0 $ 0
=========== =============
Supplemental schedule of noncash investing and financing activities:
Acquisition of businesses:
Fair value of assets acquired $ 19,759,698 $ -
Cost in excess of net assets of businesses acquired 12,136,387 -
Liabilities assumed or incurred (19,729,345) -
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 with the proceeds of
the issuance of subordinated debt in the amount of $20,782,995. 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 December 31, 1996
and NuCo2 Acquisition Corp. for the periods ended December 31, 1997. 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 six month
periods ended December 31, 1997 have been calculated according to the guidelines
of Statement 128 and earnings per share of common stock for the quarter and six
month periods ended December 31, 1996 have been restated to conform with
Statement 128.
Basic earnings per share for the quarter and six month periods ended
December 31, 1997 and 1996 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 six month
periods ended December 31, 1996 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 six month periods ended December 31, 1997 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 December 31, 1996
--------------------------------------------
Weighted Per-Share
Net Income Average Shares Amount
---------- -------------- ------
Basic EPS
<S> <C> <C> <C>
Income available to common stockholders $ 65,820 7,161,957 $ 0.01
Effect of Dilutive Options and Warrants - 121,494 -
-------- ---------- ------
Diluted EPS $ 65,820 7,283,451 $ 0.01
======== ========== ======
For the Six Months Ended December 31, 1996
------------------------------------------
Weighted Per-Share
Net Income Average Shares Amount
---------- -------------- ------
Basic EPS
Income available to common stockholders $ 407,670 7,162,696 $ 0.06
Effect of Dilutive Options and Warrants - 144,889 -
-------- ---------- -------
Diluted EPS $ 407,670 7,307,585 $ 0.06
======== ========== =======
</TABLE>
Incremental shares for stock options and warrants calculated pursuant
to the treasury stock method for the three and six months ended December 31,
1997 were 128,115 and 153,090, respectively. These shares were not included in
diluted EPS because they would have been antidilutive for such periods.
Additionally, options and warrants to purchase 1,000,000 shares, 655,738 shares
(see Note 5) and 30,000 shares (see Note 5) for $17.00, $16.40 and $14.64,
respectively, were outstanding during all or a portion of the three and six
months ended December 31, 1997 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.
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 credit 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
credit 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 $12,377,000 for the six
months ended December 31, 1997, 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. 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>
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>
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 $7,500,000 was outstanding pursuant to the SunTrust Facility with interest at
7.625% as of December 31, 1997. In December, SunTrust syndicated the SunTrust
Facility with three additional banks.
Extraordinary item - loss on extinguishment of debt
For the three and six months ended December 31, 1997, the Company
incurred a one time extraordinary charge of $184,861 for the write-off of
deferred financing costs in connection with the repayment of the NationsBank
credit facility.
11
<PAGE>
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 through five equal increments commencing one year from the date of grant.
As of December 31, 1997, options for 118,646 shares are exercisable.
The following table summarizes the transactions pursuant to the 1995
Plan.
<TABLE>
<CAPTION>
Shares Exercise Price
<S> <C> <C>
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 518,000 $10.25-$11.28
Expired or canceled 175,300 $11.25-$17.50
---------- -------------
Outstanding at December 31, 1997 689,304 $9-$11.28
========== =============
</TABLE>
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 December 31, 1997, options to purchase a total of 20,000
shares of Common Stock at an exercise price of $9 per share had been issued. Of
these options, 14,000 are currently exercisable.
NOTE 7. OPERATING LEASES
The Company entered into forty-eight operating leases from July 1
through December 31, 1997. Eighteen leases were for warehouse facilities with
aggregate annual rentals of approximately $447,000 expiring at various dates
through 2002. Thirty leases were for trucks with aggregate annual rentals of
approximately $324,000 expiring at various dates through 2003.
12
<PAGE>
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 December 31, 1996, 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 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.
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 December 31, 1997, the Company finalized its
new credit facility and subordinated debt agreements as well as continued to
take major steps towards becoming the national supplier of bulk CO2 systems and
liquid carbon dioxide to the restaurant and convenience store industries. In
October 1997, the Company purchased the stock of a company that 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. In November 1997,
the Company purchased a bulk CO2 company operating in Texas. Additionally, in
December 1997, the Company acquired four related bulk CO2 distributors based in
the Illinois market, and in a separate agreement, a distributor based in Kansas.
Through these acquisitions, the Company continued its expansion by adding three
additional states, Illinois, Wisconsin and North Dakota. As of December 31,
1997, the Company was operating from fifty-three depots in thirty-nine states.
Acquisitions during the quarter added approximately 3,300 bulk CO2 customers and
approximately 6,600 high-pressure customers while new internally generated
placements totaled 2,263. Additionally, during the quarter ended December 31,
1997, the Company reached multi-unit placement agreements with Papa Ginos,
Grandys, KFC, 7-Eleven, Bertucci's and Exxon.
At December 31, 1997, the Company leased approximately 31,700 bulk CO2
systems to its customers, principally pursuant to five year noncancelable lease
contracts. These customers include restaurants, convenience stores, theaters,
taverns and other businesses which dispense carbonated beverages. Generally,
these contracts are classified as one of two types: "budget-plan" service
contracts and "rental plus per pound charge" contracts. Pursuant to budget plan
contracts, customers pay a fixed monthly charge for the lease of a Company owned
bulk CO2 system on the customer's premises and refills of bulk CO2 according to
a predetermined schedule. The bulk CO2 is included in the monthly rental charge
up to a predetermined maximum annual volume. If the maximum annual volume is
exceeded, the customer is charged for additional bulk CO2 delivered. Pursuant to
rental plus per pound charge contracts, the Company also leases a bulk CO2
system to the customer, but the customer is charged on a per pound basis for all
bulk CO2 delivered. The Company's contracts generally provide for price
increases based upon increases in the consumer price index.
The Company provides some services besides those offered under the
above two types of contracts. As of December 31, 1997, the Company provided
"fill only" service to approximately 5,500 customers.
As of December 31, 1997, approximately 13,000 of the Company's 38,000
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 December 31, 1997, approximately 25,000 of the
Company's 38,000 bulk customers were billed at a flat monthly rate which does
not vary throughout the year. Additionally, the Company has approximately 9,000
high pressure 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 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
six months ended December 31, 1997, less than 5% of Company owned bulk CO2
systems experienced service termination. Service termination is typically caused
by restaurant closure. Affected bulk CO2 systems are either removed and
reconditioned for use with other customers, or left in place when prospects for
a new restaurant in the same location are deemed favorable.
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 $4.5 million and $9.1 million as of December 31,
1996 and 1997, respectively. Depreciation and amortization expense related to
capitalized component parts and direct costs associated with installation was
approximately $399,000 and $736,000 for the six months ended December 31, 1996
and 1997, 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 Six Months Ended
December 31, December 31,
------------ ------------
1996 1997 1996 1997
---- ---- ---- ----
Income Statement Data:
<S> <C> <C> <C> <C>
Net sales..................................... 100.0% 100.0% 100.0% 100.0%
Cost of products sold......................... 48.4% 53.3% 48.4% 52.0%
Selling, general and administrative expenses.. 32.3% 29.7% 31.3% 29.0%
Depreciation and amortization................. 23.0% 25.4% 21.6% 24.2%
-------- ------- ------- -------
Operating (loss).............................. (3.7%) (8.4%) (1.3%) (5.2%)
--------- -------- ------- -------
Interest (income) expense, net................ (5.2%) 10.0% (6.2%) 6.7%
Extraordinary item - loss on extinguishment of debt - 2.3% - 1.2%
-------- ------- ------- -------
Net income (loss)............................. 1.5% (20.7%) 4.9% (13.1%)
======== ======== ======= =======
Other Data:
Operating income before depreciation and amortization
(EBITDA) 19.3% 16.9% 20.3% 19.1%
======== ======= ======= =======
</TABLE>
15
<PAGE>
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1996
Net sales increased by $3.7 million, or 86.4%, from $4.3 million in the
1996 period to $8.1 million in the 1997 period. Approximately $328,000 of the
increase represented net sales resulting from the May 1997 acquisition of
certain assets of the BOC Group, Inc., $509,000 of the increase represented net
sales resulting from the July 1997 acquisition of CC Acquisition Corp. (Carbo
Co.) and $511,000 from the October 1997 acquisition of Koch Compressed Gases,
Inc. In addition, approximately $623,000 and $394,000 represented net sales from
seven acquisitions during the second half of the fiscal year ended June 30, 1997
and eight acquisitions during the first half of the fiscal year ended June 30,
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 $2.2 million, from $2.1 million in
the 1996 period to $4.3 million in the 1997 period and increased as a percentage
of net sales from 48.4% to 53.3%. 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 $734,000 from $725,000 in the 1996 period to $1.5 million in the
1997 period and increased as a percentage of net sales from 16.7% to 18.1%.
Overtime increased by $169,000 from $97,000 in the 1996 period compared to
$266,000 in the 1997 period and increased as a percentage of net sales from 2.2%
in the 1996 period to 3.3% in the 1997 period. The increase in overtime was
attributable to the acquisitions during the 1997 period. Additionally, helium
and nitrogen purchases and high pressure cylinder rent and testing increased by
$197,000 from $118,000 in the 1996 period compared to $315,000 in the 1997
period and increased as a percentage of net sales from 2.7% in the 1996 period
to 3.9% in the 1997 period. During the three months ended December 31, 1997, the
Company acquired approximately 6,600 high pressure customers. The number of
depots operated by the Company at December 31, 1997, increased to 53, compared
to 35 at December 31, 1996. In addition, as of December 31, 1997, eight 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 $997,000 from
$1.4 million in the 1996 period to $2.4 million in the 1997 period and decreased
as a percentage of net sales from 32.3% to 29.7%. 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 December 31, 1996, the Company had operations in 22
states and employed 47 marketing personnel and at December 31, 1997, the Company
had operations in 39 states and employed 83 marketing personnel.
Depreciation and amortization increased by $1.1 million from $996,000
in the 1996 period to $2.1 million in the 1997 period. As a percentage of net
sales, such expenses increased from 23.0% in the 1996 period to 25.4% in the
1997 period. Depreciation expense increased by $638,000 from $750,000 in the
1996 period to $1.4 million in the 1997 period principally due to the increase
in bulk CO2 systems leased to customers. Expressed as a percentage of net sales,
depreciation expense decreased from 17.3% in the 1996 period to 17.2% in the
1997 period. Amortization expense increased by $417,000 from $246,000 in the
1996 period to $663,000 in the 1997 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 8.2%, respectively.
Net interest income in the 1996 period was $226,000 compared to net
interest expense in the 1997 period of $807,000. 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 1997 period as compared to the 1996
period.
During the 1997 period, the Company wrote off $185,000 of deferred
financing costs related to its NationsBank 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 $533,000 or 63.8% from $836,000
in the 1996 period to $1.4 million in the 1997 period and decreased as a
percentage of net sales from 19.3% to 16.9%, 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>
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1996
Net sales increased by $6.8 million, or 80.8%, from $8.4 million in the
1996 period to $15.2 million in the 1997 period. Approximately $715,000 of the
increase represented net sales resulting from the May 1997 acquisition of
certain assets of the BOC Group, Inc., $895,000 of the increase represented net
sales resulting from the July 1997 acquisition of CC Acquisition Corp. (Carbo
Co.) and $511,000 from the October 1997 acquisition of Koch Compressed Gases,
Inc. In addition, approximately $1.3 million and $462,000 represented net sales
from seven acquisitions during the second half of the fiscal year ended June 30,
1997 and eight acquisitions during the first half of the fiscal year end June
30, 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 $3.8 million, from $4.1 million in
the 1996 period to $7.9 million in the 1997 period and increased as a percentage
of net sales from 48.4% to 52.0%. 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 $1.3 million from $1.4 million in the 1996 period to $2.7 million
in the 1997 period and increased as a percentage of net sales from 16.5% to
17.7%. Overtime increased by $298,000 from $199,000 in the 1996 period compared
to $497,000 in the 1997 period and increased as a percentage of net sales from
2.4% in the 1996 period to 3.3% in the 1997 period. The increase in overtime was
attributable to the acquisitions during the 1997 period. Additionally, helium
and nitrogen and high pressure cylinder rent and testing increased by $294,000
from $203,000 in the 1996 period to $497,000 in the 1997 period and increased as
a percentage of net sales from 2.4% in the 1996 period to 3.3% in the 1997
period. During the six months ended December 31, 1997, the Company acquired
approximately 8,700 high pressure customers. The number of depots operated by
the Company at December 31, 1997, increased to 53, compared to 35 at December
31, 1996. As of December 31, 1997, eight 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 $1.8 million
from $2.6 million in the 1996 period to $4.4 million in the 1997 period and
decreased as a percentage of net sales from 31.3% to 29.0%. 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 December 31, 1996, the Company had
operations in 22 states and employed 47 marketing personnel and at December 31,
1997, the Company had operations in 39 states and employed 83 marketing
personnel.
Depreciation and amortization increased by $1.9 million from $1.8
million in the 1996 period to $3.7 million in the 1997 period. As a percentage
of net sales, such expenses increased from 21.6% in the 1996 period to 24.2% in
the 1997 period. Depreciation expense increased by $1.2 million from $1.3
million in the 1996 period to $2.6 million in the 1997 period principally due to
the increase in bulk CO2 systems leased to customers. Expressed as a percentage
of net sales, depreciation expense increased from 16.1% in the 1996 period to
16.8% in the 1997 period. Amortization expense increased by $666,000 from
$246,000 in the 1996 period to $1.1 million in the 1997 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 7.5%,
respectively.
Net interest income in the 1996 period was $518,000 compared to net
interest expense in the 1997 period of $1.0 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 1997 period as compared to the 1996
period.
During the 1997 period, the Company wrote off $185,000 of deferred
financing costs related to its NationsBank 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 $1.2 million or 69.9% from $1.7
million in the 1996 period to $2.9 million in the 1997 period and decreased as a
percentage of net sales from 20.3% to 19.1%, respectively. The Company believes
EBITDA is useful as a means of measuring the growth and earning power of its
business. In addition, the Company uses EBITDA to measure how well the Company
is generating cash flow. EBITDA excludes significant costs and should not be
considered in isolation from GAAP measures.
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 $10.0 million to $15.0 million during the remaining six 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 six months ended December 31, 1997, the Company's capital
resources included cash flows from operations, available borrowing capacity
under the Company's credit facilities (NationsBank Facility through October 1997
and SunTrust Facility thereafter) and proceeds from the sale of its 12% Senior
Subordinated Promissory 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 from borrowings under the Company's NationsBank Facility.
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. for an aggregate purchase price of $5.5 million which was
funded through a borrowing under the NationsBank Facility. On October 31, 1997,
the Company repaid the NationsBank credit facility which totaled approximately
$21.0 million with the proceeds of its 12% Senior Subordinated Promissory Notes
due 2004. The notes which aggregated $30.0 million were sold with 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.
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 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>
Senior Funded Debt to Annualized Under 1.50 1.50 and 2.25 2.25 and Over 3.00
EBITDA 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>
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. In
December 1997, SunTrust syndicated the SunTrust Facility with three additional
banks.
As of December 31, 1997, a total of $7.5 million was borrowed under the
SunTrust Facility with interest at one hundred seventy-five basis points above
the 90-day London InterBank Offering Rate ("LIBOR") (7.625% at December 31,
1997).
In November and December 1997, the Company purchased assets consisting
primarily of bulk CO2 and high pressure assets for $6.0 million cash, $7.5
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.
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 at its current rate of growth.
18
<PAGE>
Working Capital. At June 30, 1997 the Company had working capital of
$9.5 million. At December 31, 1997, the Company had negative working capital of
$1.7 million.
Cash Flows from Operating Activities. For the six months ended December
31, 1996 and December 31, 1997 net cash provided by operating activities was
$1.6 million and $5.1 million, respectively. The increase from the 1996 period
to the 1997 period of $3.5 million is primarily due to an increase in
depreciation and amortization and an increase in accounts payable and accrued
expenses.
Cash Flows from Investing Activities. For the six months ended December
31, 1996 and December 31, 1997 net cash used in investing activities was $12.1
million and $22.5 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.
Cash Flows from Financing Activities. For the six months ended December
31, 1996 cash flows used in financing activities were $1.2 million. For the six
months ended December 31, 1997, cash flows provided by financing activities were
$6.8 million. For the six months ended December 31, 1996, net cash used in
financing activities are primarily from the redemption and cancellation of a
warrant issued to a representative of the underwriters in the Company's initial
public offering in December 1995. For the six months ended December 31, 1997 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 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.
19
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 December 31, 1996, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Company's Annual Meeting of Shareholders was held on
December 3, 1997 (the "Annual Meeting").
(b) Edward M. Sellian, Joseph M. Criscuolo, Robert L.
Frome, John J. O'Neil and Edward F. O'Reilly were
elected as directors of the Company to serve until the
next annual meeting of shareholders or until their
successors are elected and qualified. No other
director's term of office continued after the Annual
Meeting.
(c)(1) Election of Directors:
Number of Number of
Votes For Votes Against
--------- -------------
Edward M. Sellian 6,140,018 14,710
Joseph M. Criscuolo 6,139,098 14,730
Robert L. Frome 6,140,118 14,610
John J. O'Neil 6,140,118 14,610
Edward F. O'Reilly 6,140,098 14,630
(2) Amendment of 1995 Stock Option Plan:
Number of Number of Number of
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
4,709,361 1,417,137 28,230
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 dated November 6,
1997 reporting an Item 5 event.
(2) The Company filed 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 February 17, 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 December 31, 1997 and is qualified
in its entirety by reference to such Consolidated Financial Statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,090,897
<SECURITIES> 0
<RECEIVABLES> 3,502,351
<ALLOWANCES> 274,455
<INVENTORY> 188,613
<CURRENT-ASSETS> 5,577,320
<PP&E> 79,363,600
<DEPRECIATION> 9,234,073
<TOTAL-ASSETS> 105,542,330
<CURRENT-LIABILITIES> 7,266,266
<BONDS> 0
<COMMON> 7,217
0
0
<OTHER-SE> 59,284,964
<TOTAL-LIABILITY-AND-EQUITY> 105,542,330
<SALES> 15,192,088
<TOTAL-REVENUES> 15,192,088
<CGS> 7,892,494
<TOTAL-COSTS> 15,975,852
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,162,335
<INCOME-PRETAX> (1,799,598)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,799,598)
<DISCONTINUED> 0
<EXTRAORDINARY> 184,861
<CHANGES> 0
<NET-INCOME> (1,984,459)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
