UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q/A
Amendment No. 1
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1999
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: 0-14133
BLUE RHINO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 56-1870472
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) 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 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 December 13, 1999: 8,647,654 - common shares
BLUE RHINO CORPORATION
This amendment changes the Balance Sheet and Consolidated Statement of Cash
Flows for the three months ended October 31, 1999 included in Part I, Item 1 to
correct typographical and EDGAR conversion errors. No other changes have been
made to the Quarterly Report on Form 10-Q for the period ended October 31, 1999.
INDEX
-----
PART 1: FINANCIAL INFORMATION 3
Item 1: Financial Statements (unaudited): 3
Condensed consolidated balance sheets as of October 31, 1999 and
July 31, 1999 3
Condensed consolidated statements of operations for the three
month periods ended October 31, 1999 and 1998 4
Condensed consolidated statements of cash flows for the three
month periods ended October 31, 1999 and 1998 5
Notes to condensed consolidated financial statements 6
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3: Quantitative and Qualitative Disclosures about Market Risk 14
PART II: OTHER INFORMATION 15
Item 1: Legal Proceedings 15
Item 2: Changes in Securities 15
Item 3: Defaults Upon Senior Securities 15
Item 4: Submission of Matters to a Vote of Security Holders 15
Item 5: Other Information 15
Item 6: Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
PART I. FINANCIAL INFORMATION
- - - -----------------------------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Blue Rhino Corporation
Condensed Consolidated Balance Sheets
As of October 31, 1999 and July 31, 1999
(in thousands)
October 31, July 31,
1999 1999
---------- ----------
(unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $ 781 $ 913
Accounts receivable, net 9,734 12,736
Inventories 191 106
Prepaid expenses and other current assets 1,881 2,137
-------- --------
Total current assets 12,587 15,892
Cylinders held under operating lease agreements, net 17,873 17,205
Property, plant and equipment, net 18,409 16,646
Intangibles, net 10,993 9,478
Other assets 954 678
-------- --------
Total assets $ 60,816 $ 59,899
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 4,996 $ 6,386
Current portion of long-term debt and capital lease obligations 1,148 1,423
Accrued liabilities 968 641
-------- --------
Total current liabilities 7,112 8,450
Notes payable to bank 11,990 16,580
Long-term debt, less current maturities 6,446 7,037
Capital lease obligations, less current maturities 350 494
-------- --------
Total liabilities 25,898 32,561
Stockholders' equity:
Common stock 9 8
Additional paid in capital 54,064 46,825
Accumulated deficit (19,155) (19,495)
-------- --------
Total stockholders' equity 34,918 27,338
-------- --------
Total liabilities and stockholders' equity $ 60,816 $ 59,899
======== ========
The accompanying notes are an integral part of these financial statements.
3
Blue Rhino Corporation
Condensed Consolidated Statements of Operations
For the Three Months Ended October 31, 1999 and 1998
(in thousands, except per share data)
Three Months Ended
October 31,
------------------
1999 1998
------- ------
(unaudited)
Revenues:
Net sales $13,443 $9,222
Lease income 765 212
------- ------
Total revenues 14,208 9,434
Operating costs and expenses:
Cost of sales 10,123 6,934
Selling, general and administrative 2,450 1,773
Depreciation and amortization 917 524
------- ------
Total operating costs and expenses 13,490 9,231
------- ------
Income from operations 718 203
Other expenses (income):
Interest expense 378 32
Loss on investee - 311
Other income, net - (70)
------- ------
Income (loss) before taxes 340 (70)
Income taxes - -
------- ------
Net income (loss) $ 340 $ (70)
======= ======
Earnings (loss) per common share:
Basic and diluted $ 0.04 $(0.01)
======= ======
Weighted average common shares used in
computing earnings (loss) per common share:
Basic 8,242 7,631
======= ======
Diluted 8,268 7,631
======= ======
The accompanying notes are an integral part of these financial statements.
4
Blue Rhino Corporation
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended October 31, 1999 and 1998
(in thousands)
Three Months Ended
October 31,
----------------------
1999 1998
-------- --------
(unaudited)
Cash flows from operating activities:
Net income (loss) $ 340 $ (70)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 917 524
Loss on disposal of assets 3 -
Loss on investee - 311
Expense related to distributor stock option plan 77 74
Accretion of interest and amortization of discount on
convertible notes 72 -
Changes in operating assets and liabilities, net
of business acquisitions:
Accounts receivable 3,002 2,552
Inventories (55) -
Other current assets 100 (1,201)
Accounts payable (1,390) (1,866)
Other accrued liabilities 203 (62)
-------- -------
Net cash provided by operating activities 3,269 262
-------- -------
Cash flows from investing activities:
Business acquisitions (1,256) (3,614)
Purchases of property, plant and equipment (2,272) (1,099)
Purchases of cylinders held under operating leases, net (861) (3,654)
Collections on notes receivable 20 104
-------- -------
Net cash used in investing activities (4,369) (8,263)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of expenses 6,361 -
Proceeds from issuance of convertible notes 7,000 -
Payment on cylinder financing (7,000) -
Proceeds from notes payable to bank 10,500 9,933
Payments on notes payable to bank (15,090) (3,433)
Payment of financing costs (435) -
Payments of long-term debt and capital lease obligations (368) (285)
-------- -------
Net cash provided by financing activities 968 6,215
-------- -------
Net decrease in cash and cash equivalents (132) (1,786)
Cash and cash equivalents at beginning of period 913 5,908
-------- -------
Cash and cash equivalents at end of period $ 781 $ 4,122
======== =======
The accompanying notes are an integral part of these financial
statements.
5
Blue Rhino Corporation
Notes to Condensed Consolidated Financial Statements
October 31, 1999 (Unaudited)
(dollars in thousands, except share and per share data)
Note 1 - Basis of Presentation
The condensed consolidated financial statements of Blue Rhino Corporation
(the "Company") include the accounts of its wholly owned subsidiaries, Rhino
Services, L.L.C., formed in March 1997, CPD Associates, Inc., formed in March
1998 and USA Leasing, L.L.C. ("USA Leasing") formed in October 1998. All
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 months ended October 31, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ending July 31, 2000.
The balance sheet at July 31, 1999 has been derived from the audited
financial statements of the Company as of July 31, 1999 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, 1999.
Note 2 - Inventories
Inventories consisted of the following at:
October 31, July 31,
1999 1999
----------------- ---------------
(unaudited)
Patio heaters $ 110 $ -
Other supplies 81 106
----- -----
$ 191 $ 106
===== =====
Note 3 - Intangibles, net
Intangibles consisted of the following at:
October 31, July 31,
1999 1999
----------- --------
(unaudited)
Goodwill $ 9,630 $9,570
Patents and trademarks 1,522 61
Noncompete agreements 398 293
Accumulated amortization (557) (446)
------- ------
$10,993 $9,478
======= ======
6
On September 17, 1999, the Company completed the acquisition of certain
assets related to the overfill prevention device ("OPD") developed, manufactured
and marketed by Bison Valve, L.L.C ("Bison Valve"). The acquired assets included
OPD molds, dies, and all intellectual property relating to the OPD developed by
Bison Valve, which includes two patent applications on the OPD. This acquisition
has been accounted for by the purchase method of accounting. The aggregate
purchase price, including certain acquisition costs, was approximately $1,655,
of which approximately $1,572 was allocated to intangibles consisting of patents
and a non-compete agreement.
Note 4 - Notes Payable to Bank
On December 9, 1999, the Company entered into an amended and restated
credit facility with its bank. The $25,000 facility will be used to
finance working capital, acquisitions and capital expenditures, and to support
the issuance of documentary and standby letters of credit (the "Amended and
Restated Bank Credit Facility"). The Amended and Restated Bank Credit Facility
replaced the Company's prior facility and the facility of the Company's wholly
owned subsidiary, USA Leasing. The Amended and Restated Bank Credit Facility,
which expires on August 31, 2001, bears interest at a maximum rate of LIBOR plus
2.25% and is collateralized by a lien on substantially all of the Company's
assets. In addition to interest, the Amended and Restated Bank Credit Facility
requires a commitment fee of $50 and a 1/4% fee on any unused balance. The
Amended and Restated Bank Credit Facility also requires the Company to meet
certain covenants, including maintaining a minimum net worth, debt coverage and
cash flow coverage ratios. As of October 31, 1999, the Company had borrowings
under its existing credit facilities of $11,990, which bear interest at a
maximum rate of LIBOR plus 2.25%. Each of the Company's subsidiaries has
executed a guaranty of this facility in favor of the bank.
Note 5 - Certain Transactions
Common Stock and Warrant Private Placement
On September 7, 1999, the Company completed a $7,236 private placement of
981,119 units each consisting of one share of the Company's Common Stock and one
warrant to purchase 0.35 shares of Common Stock. The offering was only made to
"accredited investors", as defined in Rule 501(a) of Regulation D. The investors
included the following officers and directors of the Company: Messrs. Billy D.
Prim, Craig J. Duchossois, Andrew J. Filipowski, Mark Castaneda, Steven D.
Devick, Richard A. Brenner and Jerald D. Shadley, who in the aggregate purchased
438,747 of the 981,119 units sold. The price per unit was $7.375, which was the
closing price of the Company's Common Stock on September 3, 1999, the last
trading day prior to consummation of the offering. The warrants may be exercised
at a price equal to $8.48 per share at any time prior to September 7, 2004.
7
Convertible Note and Warrant Private Placement
On September 22, 1999, the Company entered into an agreement with two
institutional investors (the "Investors") to issue $7,000 of 5% Convertible
Notes (the "Convertible Notes") and 332,203 warrants to purchase Common Stock in
a private placement (the "Convertible Note Offering"). The Convertible Notes
have a two-year term and bear interest at 5% per annum, payable in full in cash
or in shares of Common Stock at the Company's option. The Company may require
the holders of the Convertible Notes to convert the principal and interest on
the Convertible Notes into common stock over a company-chosen conversion period,
which may be from 20 to 60 days and must be in amounts of at least $300 subject
to certain conditions. Upon the occurrence of certain events, the holder may
convert the principal and interest on the Convertible Notes into common stock.
The Convertible Notes convert at the lesser of a fixed conversion price or 95%
of the weighted average price of the common stock at the time of conversion. The
warrants are exercisable for five years at an exercise price of $8.48 per share.
The Company valued the warrants at approximately $610 (which is reflected in the
balance sheet as a discount offsetting long term debt and a credit to paid-in
capital) and is amortizing this amount using the effective interest method over
the term of the Convertible Notes. The fair value of the warrants was determined
by using the Black-Scholes pricing model with the following weighted-average
assumptions: expected life of two years; expected volatility of 40%; expected
dividends of $0 and a risk-free interest rate of 5.83%. In the future, the
Company may also require the Investors to purchase, in up to two additional
transactions, Convertible Notes in an aggregate amount equal to at least $1,000
but not more than $4,900 if certain conditions are met. The Convertible Notes
are subordinate, subject to certain exceptions, to up to $25,000 of the
Company's indebtedness to its bank.
The Company used the net proceeds of the two September 1999 offerings to
repay $7.0 million of cylinder financing, repay other indebtedness and acquire
assets.
Affiliated Distributors
In August 1999, the Company's Chairman and Chief Executive Officer, Billy
D. Prim, and Vice Chairman, Andrew J. Filipowski sold all of their interests in
Blue Rhino distributors to an existing investor in Platinum Propane Holdings,
LLC, a holding company for five Blue Rhino distributors. This investor is not
affiliated with the Company.
8
Note 6 - Income Taxes
No provision for income taxes was recorded for the three months ended
October 31, 1999 due to the reversal of deferred tax assets for which the
benefit was fully reserved.
Note 7 - Earnings (Loss) Per Share
The basic and diluted earnings (loss) per share was determined as follows:
Three Months Ended
October 31,
--------------------------
1999 1998
---------- ----------
Basic and diluted earnings (loss) per common share:
Net income (loss)................................................... $ 340 $ (70)
Weighted average common shares used in computing the
Earnings (loss) per common share (in thousands):
Basic............................................................. 8,242 7,631
Effect of dilution................................................ 26 __
---------- ----------
Diluted........................................................... 8,268 7,631
========== ==========
Basic and diluted earnings (loss) per common share.................. $ 0.04 $(0.01)
========== ==========
Options to purchase Common Stock and the assumed exercise of warrants
during the three months ended October 1998 have been excluded from the
computation of diluted loss per common share as they were anti-dilutive.
Note 8 - Subsequent Events
S-3 Registration Statement
On November 12, 1999, the Company filed a Registration Statement on Form
S-3 (the "Registration") with the Securities and Exchange Commission to register
3,261,885 shares for re-sale by certain security holders. The shares include
958,402 shares previously issued in private stock offerings, 100,000 warrants
issued in the Bison Valve acquisition and 2,203,483 shares that may be issued
upon the conversion or exercise of the securities issued in the Company's
September 22, 1999 Convertible Note Offering. Blue Rhino controls the timing and
extent of conversion of the Convertible Notes into shares. The Registration does
not represent the offering of new shares. The Registration was declared
effective on November 29, 1999.
Joint Venture
On October 21, 1999, the Company and Manchester Tank and Equipment Company
("Manchester") entered into a letter of intent to establish a joint venture to
operate and manage the automated propane bottling and cylinder refurbishing
plant currently under construction in Hamptonville, North Carolina. Blue Rhino
and Manchester will share in the cost of developing and constructing the plant.
The terms of the joint venture agreement are being negotiated.
Acquisitions
In December 1999, the Company also closed on two acquisitions of cylinder
exchange assets, including cylinder display racks and sellers' right, title and
interest in a total of approximately 880 cylinder exchange accounts and
locations for an aggregate cash purchase price of approximately $1.7 million.
One acquisition, for a purchase price of approximately $1.3 million, was for
cylinder exchange assets and approximately 700 cylinder exchange accounts and
locations in Georgia, Tennessee and South Carolina. The second acquisition had a
purchase price of approximately $400,000 for approximately 180 cylinder exchange
accounts and locations in Ohio. These acquisitions will be accounted for under
the purchase method of accounting and will be financed with cash provided by our
Amended and Restated Bank Credit Facility and from cash provided by operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
the accompanying Condensed Consolidated Financial Statements and related notes
of Blue Rhino Corporation and its wholly owned subsidiaries, Rhino Services,
L.L.C., CPD Associates, Inc. and USA Leasing, L.L.C. (together with Blue Rhino
Corporation, Rhino Services, L.L.C., CPD Associates, Inc. and USA Leasing,
L.L.C., the "Company"), and with the Company's audited consolidated financial
statements as of and for the fiscal year ended July 31, 1999, on file with the
Securities and Exchange Commission. The results of operations for the three
months ended October 31, 1999 are not necessarily indicative of results that may
be expected for the year ended July 31, 2000, in part due to the seasonality of
the Company's business. Historically, the Company has generated approximately
65% to 70% of its revenues in the six months beginning in February and ending
in July which months correspond with our third and fourth fiscal quarters.
We are the leading national provider of propane grill cylinder exchange in
the United States with Blue Rhino cylinder exchange displays at over 20,000
retail locations in 46 states and Puerto Rico. We dedicate our efforts and
capital to brand development, value-added marketing, customer service, account
growth, distributor development and management information systems while our 49
independent distributors make the investments in the vehicles and refilling and
refurbishing equipment necessary to operate cylinder exchange businesses. We are
continually adding locations, concluding the first quarter of fiscal 2000 with
approximately 20,000 locations, a net increase of 1,500 locations. From time to
time customer locations are deinstalled due to closings,
relocations, competitive, regulatory and other factors. In addition, some
acquired locations are never converted to Blue Rhino locations for various
reasons. As previously reported, Hechinger's, one of our customers has been in
bankruptcy proceedings and, as a result, has closed stores, resulting in a loss
of approximately 100 locations. Approximately 300 locations were deinstalled in
the three months ended October 31, 1999 for various reasons. While we continue
to add locations through acquisition and further penetration of existing
retailer relationships, we may experience additional deinstallations in the
future. The number of retail locations we report as of any date or the number of
locations by which our installed base has increased in any period is net of any
deinstallations in that period.
9
Results of Operations
Comparison of the Three Months Ended October 31, 1999 as Compared to the Three
Months Ended October 31, 1998
Total revenues. Total revenues increased 50.6% to approximately $14.2
million for the three months ended October 31, 1999 from approximately $9.4
million for the three months ended October 31, 1998. The total revenues of $14.2
million for the three months ended October 31, 1999 consisted of approximately
$13.1 million from cylinder transactions, $364,000 from product sales (combined
cylinder transactions and product sales are reflected on the statement of
operations as net sales) and $765,000 from lease income. The product sales
include sales of patio heaters, a new product offering in this three month
period, and do not include cylinder sales which are part of cylinder
transactions. The lease income is generated primarily from cylinders and
cylinder displays under lease to distributors. The increase in total revenues
was due primarily to the increase in the number of retail locations placed in
service and increased sales volume at existing locations. The installed base of
retail locations increased 67% to approximately 20,000 locations at October 31,
1999 from approximately 12,000 locations at October 31, 1998. The number of
cylinders transacted increased 39.3% to approximately 982,000 units in the three
months ended October 31, 1999 from approximately 705,000 units during the three
months ended October 31, 1998.
Gross margin. Gross margin increased to 28.8% in the first quarter of
fiscal 2000 from 26.5% in the first quarter of fiscal 1999. This increase was
due primarily to additional lease income from cylinders and cylinder displays.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 38.8% to approximately $2.5 million for the
three months ended October 31, 1999 from approximately $1.8 million for the
three months ended October 31, 1998 but decreased as a percentage of total
revenues to 17.6% for the three months ended October 31, 1999 from 19.2% for the
three months ended October 31, 1998. The increase in selling, general and
administrative expenses was due primarily to additional compensation costs
stemming primarily from the growth of our internal sales force, costs related to
our introduction of a patio heater product and additional costs associated with
operating a public company, including investor relations and other professional
fees. The decrease in selling, general and administrative expenses as a
percentage of total revenues was due primarily to the fact that a significant
portion of our selling, general and administrative expenses are fixed and, as a
result, selling, general and administrative expenses increased at a slower rate
than total revenues.
Depreciation and amortization. Depreciation and amortization increased to
approximately $917,000 for the first quarter of fiscal 2000 from approximately
$524,000 for the first quarter of fiscal 1999. Depreciation expense increased by
$332,000 to approximately $763,000 for the first quarter of fiscal 2000 from
approximately $431,000 for the first quarter of fiscal 1999 primarily due to the
increase in the number of installed cylinder displays and the commencement of
depreciation on cylinders held under operating lease agreements. We continued to
purchase additional cylinders and cylinder displays to support growth in our
installed base of retail locations. Our purchase of computer technology also
impacted depreciation expense to a lesser extent. Amortization expense increased
by $61,000 to approximately $154,000 in the first quarter of fiscal 2000 from
approximately $93,000 in the first quarter of fiscal 1999 principally due to the
increased amortization of intangibles associated with the purchase of retail
propane cylinder exchange assets and to a lesser extent the amortization of
patents related to our September 1999 purchase of certain assets related to the
overfill prevention device ("OPD") from Bison Valve, L.L.C. ("Bison Valve").
Interest expense. Interest expense increased to approximately $378,000 in
the first quarter of fiscal 2000 from approximately $32,000 in the first quarter
of fiscal 1999. The increase in interest expense resulted from the additional
borrowings outstanding under our credit facilities. The additional borrowings
were used primarily to purchase cylinders leased to our distributors, for
business acquisitions and for capital expenditures including construction in
progress on our automated propane bottling and cylinder refurbishing facility.
The interest expense in the first quarter of fiscal 1999 was a result of capital
lease obligations incurred principally to purchase computer technology.
10
Loss on investee. The loss on investee in the quarter ended October 31,
1998 reflects the application of the equity method of accounting to our
convertible loan to Bison Valve. We recorded these losses as Bison Valve used
the proceeds of our loan to fund losses incurred primarily in researching,
developing, marketing and producing an OPD and other propane related products.
As of October 31, 1998, we recognized charges for the entire principal balance
of the convertible loan. In September 1999, we purchased from Bison Valve the
intellectual property, inventory and certain other assets related to its
Underwriters Laboratories-approved OPD.
Other income-net. Other income-net decreased to $0 in the first quarter of
fiscal 2000 from $70,000 in the first quarter of fiscal 1999. The other income-
net in the first quarter of fiscal 1999 resulted primarily from interest income
from excess cash balances and various notes receivable.
Liquidity and Capital Resources
Our primary sources of funds have been the issuance of stock and the
incurrence of debt, most recently through a private stock offering and a
convertible note offering in September 1999. We had positive working capital of
approximately $5.5 million as of October 31, 1999, which is primarily the result
of available proceeds from the private stock and convertible note offerings and
to a lesser extent from cash provided by operations.
Net cash provided by operations was approximately $3.3 million for the
first quarter of fiscal 2000 and approximately $262,000 for the first quarter of
fiscal 1999. For the first quarter of fiscal 2000, cash provided by operations
included approximately $340,000 of net income.
Net cash used in investing activities was approximately $4.4 million in the
first quarter of fiscal 2000 and $8.3 million for the first quarter of fiscal
1999. The primary components of cash used in investing activities in both
periods included acquisitions, purchases of cylinders leased to our distributors
and investments in property, plant and equipment including approximately $1.1
million in the first quarter of fiscal 2000 for the automated propane bottling
and cylinder refurbishing plant.
Net cash provided by financing activities was approximately $1.0 million
for the first quarter of fiscal 2000 and approximately $6.2 million for the
first quarter of fiscal 1999. Cash provided by financing activities in the
first quarter of fiscal 2000 included net proceeds of approximately $6.4 million
from a common stock and warrant private placement and $7.0 million from a
convertible notes and warrants private placement. For the first quarter of
fiscal 1999, cash provided by financing activities resulted from bank
borrowings. In both periods, the cash used in financing activities included
payments on various notes payable and capital lease obligations.
In September 1999, we entered into an agreement with two institutional
investors (the "Investors") to issue $7.0 million of 5% Convertible Notes (the
"Convertible Notes") and 332,203 warrants to purchase Common Stock (the
"Warrants") in a private placement (the "Convertible Note Offering"). The
Convertible Notes have a two year term and bear interest at 5% per annum,
payable in full in cash or in common stock at maturity. We may require the
holders of the Convertible Notes to convert the principal and interest on the
Convertible Notes into Common Stock over a Company-chosen conversion period,
which may be from 20 to 60 days and must be in amounts of at least $300,000
subject to certain conditions. Upon the occurrence of certain events, the holder
may convert the principal and interest on the Convertible Notes into Common
Stock. The Convertible Notes convert at the lesser of a fixed conversion price
or 95% of the Weighted Average Price of the Common Stock at the time of
conversion. The warrants are exercisable for five years at an exercise price of
$8.48 per share. In the future, we may also require the Investors to
11
purchase in up to two additional transactions Convertible Notes in an aggregate
amount equal to at least $1.0 million but not more than $4.9 million if certain
conditions are met. In addition, the Convertible Notes are subordinate, subject
to certain exceptions, to up to $25.0 million of our indebtedness to our bank.
Also, in September 1999, we completed a $7.2 million private placement of
981,119 units with each consisting of one share of our Common Stock, and one
warrant to purchase 0.35 shares of Common Stock. The offering was made only to
"accredited investors", as defined in Rule 501(a) of Regulation D. The
investors included the following officers and directors of the Company: Billy D.
Prim, Craig J. Duchossois, Andrew J. Filipowski, Mark Castaneda, Steven D.
Devick, Richard A. Brenner and Jerald D. Shadley, who in the aggregate purchased
438,747 of the 981,119 units sold. The price per unit was $7.375, which was the
closing price of our Common Stock on September 3, 1999, the final trading day
prior to the consummation of the offering. The warrants may be exercised at a
price equal to $8.48 per share at any time prior to September 7, 2004. Upon the
repayment of $2.6 million of the indebtedness of its wholly owned subsidiary,
USA Leasing to its bank, the bank will release Billy D. Prim, Andrew J.
Filipowski, Craig J. Duchossois and Peer Pedersen from their $650,000 guarantees
of such indebtedness.
We used the aggregate net proceeds of approximately $13.3 million from our
common stock and warrant private placement and our convertible notes and
warrants private placement to repay $7.0 million of cylinder financing, to
purchase certain assets related to the overfill prevention device from Bison
Valve, L.L.C. with approximately $1.3 million and the balance was used to repay
outstanding borrowings under our notes payable to our bank.
On December 9, 1999, we amended our credit facility with our bank. We can
use the up to $25.0 million facility to finance working capital, acquisitions
and capital expenditures, and to support the issuance of documentary and standby
letters of credit (the "Amended and Restated Bank Credit Facility"). The Amended
and Restated Bank Credit Facility replaced our prior facility and the facility
of our wholly owned subsidiary, USA Leasing. The Amended and Restated Bank
Credit Facility, which expires on August 31, 2001, bears interest at a maximum
rate of LIBOR plus 2.25% and is collateralized by a lien on substantially all
our assets. The Amended and Restated Bank Credit Facility also requires the
Company to meet certain covenants, including maintaining a minimum net worth,
debt coverage and cash flow coverage ratios. Each of our subsidiaries has
executed a guaranty of this facility in favor of the bank.
In December 1999, the Company also closed two acquisitions of cylinder
exchange assets, including cylinders, cylinder displays and sellers' right,
title and interest in a total of approximately 880 cylinder exchange accounts
and locations for an aggregate cash purchase price of approximately $1.7
million. One acquisition, for a purchase price of approximately $1.3 million,
was for cylinder exchange assets and approximately 700 cylinder exchange
accounts and locations in Georgia, Tennessee and South Carolina. The second
acquisition had a purchase price of approximately $400,000 for approximately 180
cylinder exchange accounts and locations in Ohio. These acquisitions will be
accounted for under the purchase method of accounting and will be financed with
cash provided by our Amended and Restated Bank Credit Facility and from cash
provided by operations.
We anticipate that our total capital expenditures excluding acquisitions
for fiscal 2000 will be approximately $10.0 million, and will relate primarily
to cylinders, cylinder displays and computer technology. Our capital expenditure
and working capital requirements in the foreseeable future will change depending
on the rate of our expansion, our operating results and any other adjustments in
our operating plan as needed in response to competition, acquisition
opportunities or unexpected events. We believe that existing borrowing capacity
under lines of credit, together with the remaining proceeds from the private
stock offering and the convertible note offering and cash provided by
operations, will be sufficient to meet our working capital requirements through
fiscal 2000. However, there can be no assurance that we will not seek or require
additional capital in the future as a result of expansion or otherwise.
Inflation
We do not believe that inflation has had a material adverse effect on our
net sales or the results of operations. However, there can be no assurance that
our business will not be affected by inflation in the future.
Impact of New Accounting Pronouncements
There were no items of comprehensive income for the three months ended
October 31, 1999 and October 31, 1998, as defined under SFAS No. 130, "Reporting
Comprehensive Income."
12
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which was
effective for fiscal years beginning after June 15, 1999. SFAS No. 133 was
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS No. 133," which delayed the
effective date of implementation by one year. The Company is required to and
will adopt SFAS No. 133 in the first quarter of fiscal 2001. The Company has not
completed all of the analysis, but does not expect adoption to have a
significant effect on its consolidated results of operations or financial
position
Year 2000 Compliance
Year 2000 issues are the result of computer programs that were written
using two digits rather than four to define the applicable year. For example,
date sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among other material adverse
consequences, a temporary inability to process transactions or engage in similar
normal business activities. We depend on our management information systems
("MIS") to process orders, manage inventory and accounts receivable, maintain
distributor and customer information, assist distributors in delivering products
on a timely basis and in maintaining cost-efficient operations.
Our State of Readiness for Year 2000. We began evaluating our MIS for Year
2000 compliance in January 1997. Since that time we have developed a Year 2000
compliance policy encompassing employee education, testing, progress reporting,
external impact plans and contingency plans. Our Chief Information Officer
directs our Year 2000 compliance policy and oversees the remediation and testing
of MIS. As of July 31, 1999, we believe that we were 100% Year 2000 compliant.
All core MIS are currently 100% Year 2000 compliant. However, if our
modifications, testing and solicitations of third party compliance are not made
on a timely basis or do not resolve our Year 2000 issues, these issues could
have a negative effect on our business.
We have assessed the Year 2000 readiness of each of our core MIS and
remediated these systems as necessary. Our core MIS include Online Sales Account
Information System ("OASIS"), Platinum for Windows, Electronic Data Interchange
("EDI") and Blue Rhino Electronic Accounting System ("BREAS"). OASIS was already
compliant when it was implemented in February 1998, Platinum for Windows was
updated in March 1998 to be Year 2000 compliant, EDI was upgraded in December
1998 to be Year 2000 compliant and BREAS was upgraded in October 1998 to be Year
2000 compliant. We have engaged Integrated Solutions International, L.L.C. to,
among other things, assist us in implementing our distributors' use of Year 2000
compliant handheld computer units of BREAS. All of our distributors are
currently using Year 2000 compliant handheld units. We have established
integrated test procedures in which all of our MIS are simultaneously tested for
Year 2000 compliance. We expect these integrated tests to continue throughout
1999.
Historical and Estimated Costs. We have not established a separate Year
2000 compliance budget and do not expect to do so. To date, we have incurred
approximately $20,000 in Year 2000 compliance costs. We currently anticipate
that the implementation of our Year 2000 compliance policy will cost
approximately $25,000, all of which will be expensed. Although we can give no
assurances, we do not expect future costs related to Year 2000 compliance to
negatively affect our business in any material way. Costs are based on current
estimates and actual results may vary significantly from such estimates.
Most Reasonably Likely Worst Case Scenario. The most reasonably likely
worst case Year 2000 scenario we face is an interruption of our business
operations caused by the failure of third parties with which we have a material
relationship to achieve Year 2000 compliance. The consequences of a third party
failure are unknown, but could have a negative effect on our business. We are
considering several contingency plans to address possible business interruptions
caused by a non-compliant third party. Possible contingency plans include using
alternate service providers and using a manual billing, payment and collection
system. Initial contingency plans have been completed. Additional refinement and
monitoring will continue throughout the remainder of 1999. In addition, in an
effort to protect ourselves and increase the awareness of third parties whose
failure to comply could have a material effect on our business, we are seeking
to obtain certifications from them that they are Year 2000 compliant.
13
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk related to changes in interest rates on our
borrowings under our Amended and Restated Bank Credit Facility. Our Amended and
Restated Bank Credit Facility bears interest based on LIBOR. The Amended and
Restated Bank Credit Facility is collateralized by cylinders held under
operating leases with our independent distributors. The operating leases
currently yield 1% of the cylinder value monthly (approximately 12% annually)
and continue until either party terminates upon 60 day written notice to the
other party. Upon any significant increase in LIBOR, we would attempt to
renegotiate the operating leases with our independent distributors mitigating
the interest rate exposure on the majority of the notes payable to the bank.
However, there can be no assurance that we will be successful in such
renegotiations or that we will be able to mitigate any or all of the interest
rate risk.
We have no derivative financial instruments or derivative commodity
instruments in our cash equivalents and investments. We invest our cash and cash
equivalents and investments in investment grade, highly liquid investments
consisting of money market instruments, bank certificates of deposit and
overnight investments in commercial paper.
All of our transactions are conducted and accounts are denominated in
United States Dollars and as such we do not currently have exposure to foreign
currency risk. Furthermore, we do not have any direct exposure to commodity
price risk.
14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On December 2, 1999 we filed a complaint against PricewaterhouseCoopers
LLP in the Superior Court of Forsyth County, North Carolina alleging negligence,
breach of fiduciary duty, breach of contract, defamation and unfair and
deceptive trade practices. This suit relates to the conduct of
PricewaterhouseCoopers during our engagement of them as our auditors. We do not
expect this litigation to have a material adverse effect on our financial
condition or results of operations.
We are not presently involved in any material litigation nor, to our
knowledge, is any material litigation threatened against us or our subsidiaries,
other than routine litigation arising in the ordinary course of business and
which is expected to be covered by insurance.
Item 2. Changes in Securities and Use of Proceeds
We used the aggregate net proceeds of approximately $13.3 million from our
common stock and warrant private placement and our convertible notes and
warrants private placement to repay $7.0 million of cylinder financing, to
purchase certain assets related to the overfill prevention device from Bison
Valve, L.L.C. with approximately $1.3 million and the balance was used to repay
outstanding borrowings under our notes payable to our bank.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.1 Amended and Restated Loan Agreement between Bank of America, N.A.
and Blue Rhino Corporation dated as of December 9, 1999
10.2 Amendment to Security Agreement between Bank of America, N.A. and
Blue Rhino Corporation dated as of December 9, 1999
10.3 Promissory Note in the amount of $25 million made by Blue Rhino
Corporation dated as of December 9, 1999 pursuant to the Amended and
Restated Loan Agreement (Exhibit 10.1)
10.4 Continuing and Unconditional Guaranty Agreement between CPD
Associates, Inc. and Bank of America, N.A. dated December 9, 1999
10.5 Continuing and Unconditional Guaranty Agreement between Rhino
Services, L.L.C. and Bank of America, N.A., dated December 9, 1999
10.6 Continuing and Unconditional Guaranty Agreement between USA Leasing,
L.L.C. and Bank of America, N.A. dated December 9, 1999
10.7 Asset Purchase Agreement between Blue Rhino Corporation and Georgia
Gas Distributions, Inc. dated December 9, 1999
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
Current report on Form 8-K dated August 16, 1999, Item 2 to report the
acquisition of 100% of the membership interests in USA Leasing, L.L.C.
Current report on Form 8-K dated September 23, 1999, Item 5 to Report the
completion of a Common Stock and Warrant Private Placement, Convertible Note and
Warrant Private Placement and the purchase of certain assets related to the
overfill prevention device from Bison Valve, L.L.C.
15
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Blue Rhino Corporation
Date: December 15, 1999 By: /s/ Billy D. Prim
-----------------------------------------------
Chairman, President and Chief Executive Officer
Date: December 15, 1999 By: /s/ Mark Castaneda
-----------------------------------------------
Chief Financial Officer
16