BLUE RHINO CORP - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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 JANUARY 31, 2003


[ ]		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: 0-24287

BLUE RHINO CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE 56-1870472

(State of other jurisdiction of
incorporation or organization) (I.R.S. Employer
Identification No.)

104 CAMBRIDGE PLAZA DRIVE
WINSTON-SALEM, NORTH CAROLINA 27104
(Address of principal executive offices)

(336) 659-6900
(Registrant’s telephone number, including area code)

Indicate by check mark 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 [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class Common stock, par value $.001 per share		Outstanding at February 28, 2003 17,736,452 Shares

BLUE RHINO CORPORATION

INDEX


PART I: FINANCIAL INFORMATION
Item 1:	Financial Statements (unaudited):
		Condensed consolidated balance sheets as of January 31, 2003 and July 31, 2002.
		Condensed consolidated statements of operations for the three- and six-month periods ended January 31, 2003 and 2002.
		Condensed consolidated statements of cash flows for the six-month periods ended January 31, 2003 and 2002.
		Notes to condensed consolidated financial statements.
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 3:	Quantitative and Qualitative Disclosures about Market Risk.
Item 4:	Controls and Procedures.
PART II: OTHER INFORMATION
Item 2:	Changes in Securities and Use of Proceeds.
Item 4:	Submission of Matters to a Vote of Security Holders.
Item 5:	Other Information.
Item 6:	Exhibits and Reports on Form 8-K.
SIGNATURES
CERTIFICATIONS

PART I

FINANCIAL INFORMATION

Item 1: Condensed Consolidated Financial Statements

BLUE RHINO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
As of January 31, 2003 and July 31, 2002
(In thousands)


			January 31,			July 31,
			2003			2002

			(unaudited)
	ASSETS
Current assets:
	Cash and cash equivalents		$	2,354		$	1,563
	Accounts receivable, net			23,102			25,329
	Inventories			19,463			11,035
	Prepaid expenses and other current assets			10,342			3,081

		Total current assets		55,261			41,008
Cylinders, net				45,109			37,004
Property, plant and equipment, net				34,452			30,477
Intangibles, net				62,133			31,988
Other assets				1,260			2,896

		Total assets	$	198,215		$	143,373

		LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	24,516		$	19,969
	Current portion of long-term debt and capital lease obligations			5,784			2,013
	Accrued liabilities			5,808			3,770

		Total current liabilities		36,108			25,752
Long-term debt and capital lease obligations, less current maturities				42,342			39,259

		Total liabilities		78,450			65,011
Stockholders’ equity:
	Preferred stock, $0.001 par value, 20,000,000 shares authorized, no and 1,850,000 shares issued and outstanding at January 31, 2003 and July 31, 2002, respectively			—			2
	Common stock, $0.001 par value, 100,000,000 shares authorized, 17,722,288 and 12,058,542 shares issued and outstanding at January 31, 2003 and July 31, 2002, respectively			18			12
	Capital in excess of par			131,633			95,901
	Accumulated deficit			(15,423	)		(17,527	)
	Accumulated other comprehensive income (loss)			3,537			(26	)

		Total stockholders’ equity		119,765			78,362

		Total liabilities and stockholders’ equity	$	198,215		$	143,373

The accompanying notes are an integral part of these financial statements.

BLUE RHINO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended January 31, 2003 and 2002
(In thousands, except per share data)


			Three months ended						Six months ended
			January 31,						January 31,

			2003			2002			2003			2002

			(Unaudited)						(Unaudited)
Net revenues			$	58,054		$	38,759		$	112,870		$	75,305
Operating costs and expenses:
	Cost of sales			47,102			30,913			88,453			57,716
	Selling, general, and administrative			6,399			4,196			14,792			9,711
	Depreciation and amortization			2,267			1,955			4,425			3,792

		Total operating costs and expenses		55,768			37,064			107,670			71,219

		Income from operations		2,286			1,695			5,200			4,086
Interest and other expenses (income):
	Interest expense			1,380			1,498			2,636			3,152
	Loss on investee			—			340			455			677
	Other, net			(25	)		(65	)		(96	)		(251	)

		Income (loss) before income taxes		931			(78	)		2,205			508
Income taxes				15			13			30			26

		Net income (loss)	$	916		$	(91	)	$	2,175		$	482
Preferred dividends				—			641			71			1,107

		Income (loss) available to common stockholders	$	916		$	(732	)	$	2,104		$	(625	)

Earnings (loss) per common share:
	Basic		$	0.06		$	(0.06	)	$	0.14		$	(0.05	)

	Diluted		$	0.05		$	(0.06	)	$	0.11		$	(0.05	)

Shares used in per share calculations:
	Basic			16,114			12,182			15,123			12,159

	Diluted			19,587			12,182			18,676			12,159

The accompanying notes are an integral part of these financial statements.

BLUE RHINO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended January 31, 2003 and 2002
(In thousands)


				Six Months Ended
				January 31,

				2003			2002

				(unaudited)
Cash flows from operating activities:
	Net income			$	2,175		$	482
	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
		Depreciation and amortization			4,425			3,792
		Loss on investee			455			677
		Accretion of the discount on notes			344			344
		Other non-cash expenses			511			175
		Changes in operating assets and liabilities, net of business acquisitions:
			Accounts receivable		2,858			6,925
			Inventories		(14,125	)		1,748
			Other current assets		(2,861	)		189
			Accounts payable and accrued liabilities		302			(6,555	)

			Net cash provided by (used in) operating activities		(5,916	)		7,777

Cash flows from investing activities:
	Business acquisitions				(5,867	)		(203	)
	Purchases of property, plant, and equipment				(4,650	)		(1,562	)
	Net advances to and investment in joint venture				(1,086	)		(1,524	)
	Purchases of cylinders held under operating leases, net				(370	)		(1,673	)
	(Issuance of) collections on notes receivable and advances to distributors				(2,376	)		20

			Net cash used in investing activities		(14,349	)		(4,942	)

Cash flows from financing activities:
	Proceeds from (payments on) credit facility, net				6,207			(1,256	)
	Proceeds from issuance of equity, net of expenses				17,435			213
	Payments on long-term debt and capital lease obligations				(1,646	)		(1,405	)
	Debt issuance costs				(940	)		—

			Net cash provided by (used in) financing activities		21,056			(2,448	)

Net increase in cash and cash equivalents					791			387
Cash and cash equivalents at beginning of period					1,563			1,044

			Cash and cash equivalents at end of period	$	2,354		$	1,431

The accompanying notes are an integral part of these financial statements.

BLUE RHINO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2003 (Unaudited)
(In thousands, except share and per share data)

1. Basis of Presentation

The condensed consolidated financial statements of Blue Rhino Corporation (the “Company”) include the accounts of its wholly owned subsidiaries: Uniflame Corporation (“Uniflame”); QuickShip, Inc. (“QuickShip”); Rhino Services, L.L.C., CPD Associates, Inc.; USA Leasing, L.L.C.; Uniflame, LLC; Platinum Propane, L.L.C. (“Platinum”); Ark Holding Company LLC (“Ark”); and Blue Rhino Consumer Products, LLC. As a result of the Company’s acquisition of Platinum in November 2002, the Company increased its ownership interest in R4 Technical Center North Carolina, LLC (“R4 Tech”) on a consolidated basis by 1% to 50%. The Company consolidated the results of R4 Tech beginning in the second quarter of fiscal 2003 as a result of its increased ownership and financial control (Note 6). All material intercompany transactions and balances have been eliminated in consolidation.

The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared by the Company in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and, accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of items of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the three- and six-month periods ended January 31, 2003 are not necessarily indicative of the results that may be expected for the year ending July 31, 2003 or for any other period.

The balance sheet at July 31, 2002 has been derived from the audited financial statements of the Company as of July 31, 2002 but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

These financial statements should be read in conjunction with the audited consolidated financial statements of Blue Rhino Corporation as of and for the year ended July 31, 2002.

2. Derivative Instruments

The Company accounts for derivative instruments in accordance with Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement specifies that all derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (“OCI”) and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings.

The Company uses derivative instruments, which are designated as cash flow hedges, to manage exposure to interest rate fluctuations and wholesale propane price volatility. The Company’s objective for holding derivatives is to minimize risks by using the most effective methods to eliminate or reduce the impacts of these exposures.

The net derivative income (loss) recorded in OCI will be reclassified into earnings over the term of the underlying cash flow hedges. The amount that will be reclassified into earnings will vary depending upon the movement of the underlying interest rates and propane prices. As interest rates and propane prices decrease, the charge to earnings will increase. Conversely, as interest rates and propane prices increase, the charge to earnings will decrease.

A summary of changes in OCI for the three and six months ended January 31, 2003 and 2002 is presented below:


	Three months ended						Six months ended
	January 31,						January 31,

	2003			2002			2003			2002

Beginning balance deferred in OCI	$	915		$	(2,319	)	$	(26	)	$	(1,102	)
Net change associated with current period hedge transactions		3,008			(2,002	)		4,082			(3,660	)
Net amount reclassified into earnings during the period		(386	)		1,195			(519	)		1,636

Ending balance deferred in OCI	$	3,537		$	(3,126	)	$	3,537		$	(3,126	)

Total comprehensive income for the three and six months ended January 31, 2003 was $3,538 and $5,738, respectively. Total comprehensive loss for the three and six months ended January 31, 2002 was ($898) and ($1,542), respectively.

3. Earnings Per Share

The following table sets forth a reconciliation of the numerators and denominators in computing earnings per common share in accordance with Statement of Financial Accounting Standards No. 128.


		Three months ended					Six months ended
		January 31,					January 31,

		2003		2002			2003		2002

		(Unaudited)					(Unaudited)
Net income (loss)		$	916	$	(91	)	$	2,175	$	482
Less: Preferred stock dividends			—		641			71		1,107

Income (loss) applicable to common stockholders		$	916	$	(732	)	$	2,104	$	(625	)

Income (loss) applicable to common stockholders		$	916	$	(732	)	$	2,104	$	(625	)
Weighted average number of common shares outstanding (in thousands)			16,114		12,182			15,123		12,159

Basic earnings (loss) per common share		$	0.06	$	(0.06	)	$	0.14	$	(0.05	)

Income (loss) applicable to common stockholders		$	916	$	(732	)	$	2,104	$	(625	)
Weighted average number of common shares outstanding (in thousands)			16,114		12,182			15,123		12,159
Effect of potentially dilutive securities:
	Common stock options		1,972		—			1,873		—
	Common stock warrants		1,501		—			1,680		—

Weighted average number of common shares outstanding assuming dilution			19,587		12,182			18,676		12,159

Diluted earnings (loss) per common share		$	0.05	$	(0.06	)	$	0.11	$	(0.05	)

Common stock options and common stock warrants listed below for the three and six months ended January 31, 2003 were not included in the computation of diluted earnings per share because the exercise prices are greater than the average market price of the Company’s common stock during those periods such that the effect would be anti-dilutive. Common stock options and common stock warrants listed below for the three months and six months ended January 31, 2002 have been excluded from the computation of diluted loss per share because they were anti-dilutive.

Three months ended

Six months ended

January 31,

2003

2002

2003

2002

(Unaudited)

Common stock options

953,250

3,247,756

979,750

3,247,756


DELAWARE		56-1870472
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)