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 APRIL 30, 2003 | |||
| 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: 0-24287
BLUE RHINO CORPORATION
(Exact name of registrant as specified in its charter)
| DELAWARE (State of other jurisdiction of incorporation or organization) |
56-1870472 (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 [ ] |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
| 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 | Outstanding at May 31, 2003 | |
|
|
||
| Common stock, par value $.001 per share | 17,760,461 Shares |
BLUE RHINO CORPORATION
INDEX
| PART I: FINANCIAL INFORMATION | ||||
| Item 1: | Financial Statements (unaudited): | |||
| Condensed consolidated balance sheets as of April 30, 2003 and July 31, 2002. | ||||
| Condensed consolidated statements of operations for the three- and nine-month periods ended April 30, 2003 and 2002. | ||||
| Condensed consolidated statements of cash flows for the nine-month periods ended April 30, 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 1: | Legal Proceedings. | |||
| Item 2: | Changes in Securities and Use of Proceeds. | |||
| Item 6: | Exhibits and Reports on Form 8-K. | |||
| SIGNATURES | ||||
| CERTIFICATIONS | ||||
1
PART I
FINANCIAL INFORMATION
Item 1: Condensed Consolidated Financial Statements
BLUE RHINO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
As of April 30, 2003 and July 31, 2002
(In thousands)
| April 30, | July 31, | |||||||||
| 2003 | 2002 | |||||||||
| (unaudited) | ||||||||||
| ASSETS | ||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 2,745 | $ | 1,563 | ||||||
Accounts receivable, net |
24,279 | 25,329 | ||||||||
Inventories |
26,906 | 11,035 | ||||||||
Prepaid expenses and other current assets |
7,766 | 3,081 | ||||||||
Total current assets |
61,696 | 41,008 | ||||||||
Cylinders, net |
51,029 | 37,004 | ||||||||
Property, plant and equipment, net |
36,733 | 30,477 | ||||||||
Intangibles, net |
62,311 | 31,988 | ||||||||
Other assets |
1,511 | 2,896 | ||||||||
Total assets |
$ | 213,280 | $ | 143,373 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
Current liabilities: |
||||||||||
Accounts payable |
$ | 25,683 | $ | 19,969 | ||||||
Current portion of long-term debt and capital lease obligations |
5,418 | 2,013 | ||||||||
Accrued liabilities |
4,770 | 3,770 | ||||||||
Total current liabilities |
35,871 | 25,752 | ||||||||
Long-term debt and capital lease obligations, less current maturities |
54,397 | 39,259 | ||||||||
Total liabilities |
90,268 | 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
April 30, 2003 and July 31, 2002, respectively |
— | 2 | ||||||||
Common stock, $0.001 par value, 100,000,000 shares authorized,
17,748,297 and 12,058,542 shares issued and outstanding at
April 30, 2003 and July 31, 2002, respectively |
18 | 12 | ||||||||
Capital in excess of par |
131,758 | 95,901 | ||||||||
Accumulated deficit |
(11,132 | ) | (17,527 | ) | ||||||
Accumulated other comprehensive income
(loss) |
2,368 | (26 | ) | |||||||
Total stockholders’ equity |
123,012 | 78,362 | ||||||||
Total liabilities and stockholders’ equity |
$ | 213,280 | $ | 143,373 | ||||||
The accompanying notes are an integral part of these financial statements.
2
BLUE RHINO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended April 30, 2003 and 2002
(In thousands, except per share data)
| Three months ended | Nine months ended | ||||||||||||||||||
| April 30, | April 30, | ||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||||||
| |
|||||||||||||||||||
Net revenues |
$ | 59,900 | $ | 58,933 | $ | 172,770 | $ | 134,238 | |||||||||||
Operating costs and expenses: |
|||||||||||||||||||
Cost of sales |
47,078 | 48,091 | 135,531 | 105,808 | |||||||||||||||
Selling, general, and administrative |
6,311 | 4,975 | 21,103 | 14,687 | |||||||||||||||
Depreciation and amortization |
2,342 | 2,021 | 6,767 | 5,812 | |||||||||||||||
Total operating costs and expenses |
55,731 | 55,087 | 163,401 | 126,307 | |||||||||||||||
Income from operations |
4,169 | 3,846 | 9,369 | 7,931 | |||||||||||||||
Interest and other expenses (income): |
|||||||||||||||||||
Interest expense |
2,308 | 1,585 | 4,943 | 4,736 | |||||||||||||||
Loss on investee |
— | 11 | 455 | 689 | |||||||||||||||
Other, net |
(2,444 | ) | (114 | ) | (2,540 | ) | (366 | ) | |||||||||||
Income before income taxes |
4,305 | 2,364 | 6,511 | 2,872 | |||||||||||||||
Income taxes |
15 | 10 | 45 | 36 | |||||||||||||||
Net income |
$ | 4,290 | $ | 2,354 | $ | 6,466 | $ | 2,836 | |||||||||||
Preferred dividends |
— | 537 | 71 | 1,644 | |||||||||||||||
Income available to common
stockholders |
$ | 4,290 | $ | 1,817 | $ | 6,395 | $ | 1,192 | |||||||||||
Earnings per common share: |
|||||||||||||||||||
Basic |
$ | 0.24 | $ | 0.15 | $ | 0.40 | $ | 0.10 | |||||||||||
Diluted |
$ | 0.22 | $ | 0.12 | $ | 0.34 | $ | 0.09 | |||||||||||
Shares used in per share calculations: |
|||||||||||||||||||
Basic |
17,740 | 12,431 | 15,985 | 12,248 | |||||||||||||||
Diluted |
19,723 | 14,752 | 18,999 | 13,731 | |||||||||||||||
The accompanying notes are an integral part of these financial statements.
3
BLUE RHINO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended April 30, 2003 and 2002
(In thousands)
| Nine Months Ended | ||||||||||||
| April 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
| (unaudited) | ||||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 6,466 | $ | 2,836 | ||||||||
Adjustments to reconcile net income to net cash provided by
(used in) operating activities: |
||||||||||||
Depreciation and amortization |
6,767 | 5,812 | ||||||||||
Loss on investee |
455 | 689 | ||||||||||
Accretion of the discount on notes |
1,233 | 538 | ||||||||||
Other non-cash expenses |
578 | 259 | ||||||||||
Changes in operating assets and liabilities, net of business
acquisitions: |
||||||||||||
Accounts receivable |
1,682 | (2,244 | ) | |||||||||
Inventories |
(21,569 | ) | 1,611 | |||||||||
Other current assets |
(1,214 | ) | (1,604 | ) | ||||||||
Accounts payable and accrued liabilities |
335 | 6,161 | ||||||||||
Net cash provided by (used in) operating activities |
(5,267 | ) | 14,058 | |||||||||
Cash flows from investing activities: |
||||||||||||
Business acquisitions |
(5,916 | ) | (207 | ) | ||||||||
Purchases of property, plant, and equipment |
(8,811 | ) | (2,972 | ) | ||||||||
Net advances to and investment in joint venture |
(1,086 | ) | (1,850 | ) | ||||||||
Purchases of cylinders, net |
(7,050 | ) | (5,318 | ) | ||||||||
(Issuance of) collections on notes receivable and advances
to distributors |
(2,356 | ) | (491 | ) | ||||||||
Net cash (used in) investing activities |
(25,219 | ) | (10,838 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from (payments on) credit facility, net |
22,757 | (11,220 | ) | |||||||||
Proceeds from issuance of equity, net of expenses |
17,589 | 10,392 | ||||||||||
Payments on long-term debt and capital lease obligations |
(7,374 | ) | (1,721 | ) | ||||||||
Debt issuance costs |
(1,304 | ) | — | |||||||||
Net cash provided by (used in) financing activities |
31,668 | (2,549 | ) | |||||||||
Net increase in cash and cash equivalents |
1,182 | 671 | ||||||||||
Cash and cash equivalents at beginning of period |
1,563 | 1,044 | ||||||||||
Cash and cash equivalents at end of period |
$ | 2,745 | $ | 1,715 | ||||||||
The accompanying notes are an integral part of these financial statements.
4
BLUE RHINO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 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.; Blue Rhino Global Sourcing, 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 8). 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 nine-month periods ended April 30, 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.
5
A summary of changes in OCI for the three and nine months ended April 30, 2003 and 2002 is presented below:
| Three months ended | Nine months ended | |||||||||||||||
| April 30, | April 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Beginning balance
deferred in
accumulated
OCI |
$ | 3,537 | $ | (3,126 | ) | $ | (26 | ) | $ | (1,102 | ) | |||||
Net change
associated with
current period
hedge
transactions |
(122 | ) | 3,040 | 3,960 | (621 | ) | ||||||||||
Net amount
reclassified into
earnings during the
period |
(1,047 | ) | 656 | (1,566 | ) | 2,293 | ||||||||||
Ending balance
deferred in
accumulated
OCI |
$ | 2,368 | $ | 570 | $ | 2,368 | $ | 570 | ||||||||
Total comprehensive income for the three and nine months ended April 30, 2003 was $3,121 and $8,860, respectively. Total comprehensive income for the three and nine months ended April 30, 2002 was $6,050 and $4,508, respectively.
3. Stock-Based Compensation
The Company has three active stock-based compensation plans (the “Plans”) for outside directors, officers and certain employees to receive stock options and other equity-based awards. Under the Plans, the Company may, at its discretion, issue incentive or non-qualified stock options, stock appreciation rights, restricted stock or deferred stock. The Company accounts for the 1994 Stock Incentive Plan, the 1998 Stock Incentive Plan and the Director Option Plan in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). Under APB 25, no compensation expense is recognized for stock options issued with an exercise price equivalent to the fair value of the Company’s common stock on the date of grant.
The Company also has a Distributor Stock Option Plan (the “Distributor Option Plan”) for Blue Rhino distributors and their stockholders, partners, members, directors, general partners, managers, officers, employees and consultants. In general, stock options and other equity instruments granted or issued under the Distributor Stock Option Plan are accounted for in accordance with Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS 123”).
Had compensation expense for the 1994 Stock Incentive Plan, the 1998 Stock Incentive Plan or the Director Option Plan been determined for options granted since August 1, 1995 in accordance with SFAS No. 123, the Company’s pro forma net income and earnings per share for the three and nine months ended April 30, 2003 and 2002 would have been as follows:
| Three months ended | Nine months ended | ||||||||||||||||
| April 30, | April 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net income available for common stockholders: |
|||||||||||||||||
As reported |
$ | 4,290 | $ | 1,817 | $ | 6,395 | $ | 1,192 | |||||||||
Less: |
|||||||||||||||||
Compensation expense determined using Black-
Scholes Option Pricing Model |
1,051 | 393 | 2,340 | 990 | |||||||||||||
Pro forma net income |
$ | 3,239 | $ | 1,424 | $ | 4,055 | $ | 202 | |||||||||
Earnings per common share: |
|||||||||||||||||
Basic: |
|||||||||||||||||
As reported |
$ | 0.24 | $ | ||||||||||||||