##### 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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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

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                                                       |  | 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





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##### 



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               

1



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##### 



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.

2



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##### 



BLUE RHINO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONSFor 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.

3



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BLUE RHINO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFor 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.

4



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##### 



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.

5



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##### 



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,        |         | January 31,     
|                      |  |                    |         |                 
|                      |  | 2003               |         | 2002             |  | 2003 |           | 2002
|                      |  |                    |         |                  |  |      |           |     
|                      |  | (Unaudited)        |         | (Unaudited)     
|Common stock options  |  |                    | 953,250 |                  |  |      | 3,247,756 |      |  |  | 979,750 |  |  |  | 3,247,756 | 
|                      |  |                    |         |                  |  |      |           |      |  |  |         |  |  |  |           | 
|Common stock warrants |  |                    | 330,000 |                  |  |      | 2,910,295 |      |  |  |        |  |  |  | 2,910,295 | 
|                      |  |                    |         |                  |  |      |           |      |  |  |         |  |  |  |           | 

4. Credit Facility

On November 20, 2002, the Company completed the syndication of a new and
expanded bank credit facility (the Credit Facility). The Credit Facility
consists of a $45,000 revolving line of credit and a $15,000 term loan, both
for general corporate purposes, inclusive of payments made under letters of
credit. The Credit Facility has a maturity date of November 30, 2005 and, as
amended, requires the Company to utilize the approximately $14,900 in net
proceeds from a private placement of common stock completed December 20, 2002
to repay the term loan or its subordinated debt, in such proportion as the
Company elects, by May 26, 2003. Pending that repayment, $5,000 of the
availability under the revolving line of credit has been reserved. Advances
under the Credit Facility are collateralized by a lien on substantially all of
the Companys assets.

6



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##### 



Advances under the Credit Facility may be made as either base rate (prime
rate) loans or London Interbank Offered Rate (LIBOR) loans at the Companys
election. Interest rates are based upon either the LIBOR or prime rate plus an
applicable margin dependent upon a total leverage ratio. The applicable LIBOR
margins range from 200 to 300 basis points, and the applicable prime rate
margins range from 50 to 150 basis points. The Company incurred fees of
approximately $1,000 in connection with the Credit Facility. The fees will be
amortized over the life of the Credit Facility, through November 30, 2005. The
Company incurred a charge of $96 in November 2002 resulting from unamortized
fees related to its prior credit facility. On January 31, 2003 the Company had
$31,250 (including a $14,000 balance on the term loan) in LIBOR loans
outstanding at a weighted-average interest rate of 3.86% and $1,600 in prime
rate loans outstanding at a weighted-average interest rate of 5.25%.

Principal payments on the outstanding term loan began on December 31, 2002
and continue quarterly until September 30, 2005. The initial principal
payments are $1,000 per calendar quarter beginning December 31, 2002, will
increase to $1,250 per calendar quarter beginning December 31, 2003 and will
further increase to $1,500 per calendar quarter beginning December 31, 2004.
The Credit Facility includes a .50% commitment fee on the average daily unused
amount for each fiscal quarter. The Credit Facility requires the Company to
meet certain covenants, including minimum net worth and cash flow requirements,
restricts the payment of cash dividends and permits early extinguishment of up
to $15,000 of the Companys subordinated debt. At January 31, 2003, the
Company was in compliance with all covenants.

The Credit Facility stipulates that, by May 31, 2003, the Company must
enter into swap agreements with respect to interest rate exposure under the
Credit Facility with durations covering the remaining term of the Credit
Facility and with an aggregate notional principal amount equal to at least
two-thirds of the outstanding principal amount of the term loan. The Company
is currently party to an interest rate swap agreement with a notional amount of
$10,000. Under the existing swap agreement, which expires in July 2003, the
Company pays a fixed rate of 7.36% and receives a rate equivalent to the
thirty-day LIBOR, adjusted quarterly.

5. Platinum Propane and Ark Acquisitions

In November 2002, the Company acquired Platinum Propane, L.L.C.
(Platinum) and Ark Holding Company LLC (Ark) and their respective
subsidiaries, representing ten of the Companys 46 distributors. Platinums
five subsidiary distributors operate in Southern California, including Los
Angeles and San Diego, Chicago, the Carolinas, Georgia and Florida. Arks five
subsidiary distributors operate in New Jersey, Seattle, Kansas City, Denver and
Salt Lake City. Collectively, the territories served by the acquired
distributors have historically represented approximately 45% of the Companys
cylinder exchange revenues. The condensed consolidated statements of
operations include the results of Platinum and Ark effective November 1, 2002.

The aggregate purchase price for the two acquisitions was approximately
$32,000. The consideration paid by the Company in the two acquisitions
consisted of approximately 1.1 million restricted shares of common stock
valued, based on the closing price of the Companys common stock on the Nasdaq
National Market on November 22, 2002, at approximately $19,000, $3,100 in
assumed debt satisfied at closing, $4,900 in advances, and $5,000 in
liabilities assumed. On a preliminary basis, approximately $28,200 of the
purchase price was allocated to goodwill, $2,800 was allocated to current
assets and $1,200 was allocated to equipment, vehicles and other assets.

The following unaudited pro forma summary presents the financial
information as if the acquisition of Platinum and Ark had occurred on August 1,
2001. These pro forma results have been prepared for comparative purposes and
do not purport to be indicative of what would have occurred had the acquisition
been made on August 1, 2001, nor are they indicative of future results. See
Managements Discussion and Analysis of Financial Condition and Results of
Operations.

|                                                   |  |                    |        |                  |  |           |        |           |  |   |         |   |  |   |        |  
|-------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | --------- | ------ | --------- |  | - | ------- | - |  | - | ------ | -
|                                                   |  | Three months ended |        | Six months ended
|                                                   |  | January 31,        |        | January 31,     
|                                                   |  |                    |        |                 
|                                                   |  | Actual             |        | Pro forma        |  | Pro forma |        | Pro forma
|                                                   |  | 2003               |        | 2002             |  | 2003      |        | 2002     
|                                                   |  |                    |        |                  |  |           |        |          
|Net revenues                                       |  | $                  | 58,054 |                  |  | $         | 38,348 |           |  | $ | 110,542 |   |  | $ | 74,496 |  
|                                                   |  |                    |        |                  |  |           |        |           |  |   |         |   |  |   |        |  
|Net income (loss)                                  |  | $                  | 916    |                  |  | $         | (819   | )         |  | $ | (975    | ) |  | $ | (675   | )
|                                                   |  |                    |        |                  |  |           |        |           |  |   |         |   |  |   |        |  
|Net income (loss)
available to common
stockholders |  | $                  | 916    |                  |  | $         | (1,460 | )         |  | $ | (1,046  | ) |  | $ | (1,782 | )
|                                                   |  |                    |        |                  |  |           |        |           |  |   |         |   |  |   |        |  
|Basic earnings
(loss) per common
share             |  | $                  | 0.06   |                  |  | $         | (0.11  | )         |  | $ | (0.07   | ) |  | $ | (0.13  | )
|                                                   |  |                    |        |                  |  |           |        |           |  |   |         |   |  |   |        |  
|Diluted earnings
(loss) per common
share           |  | $                  | 0.05   |                  |  | $         | (0.11  | )         |  | $ | (0.07   | ) |  | $ | (0.13  | )
|                                                   |  |                    |        |                  |  |           |        |           |  |   |         |   |  |   |        |  

7



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##### 



6. Investment in Joint Venture

As a result of the acquisition of Platinum, 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. R4 Tech was established in April
2000 to operate and manage an automated propane bottling and cylinder
refurbishing plant. R4 Tech began operations in May 2000 and was accounted for
under the equity method of accounting through the first quarter of fiscal 2003.
During the first quarter of fiscal 2003, the Company recognized 100% of the
loss of R4 Tech as a result of advances made without a corresponding advance
from the other joint venture partners. The Company recognized a loss in the
joint venture for the three months ended January 31, 2002 of $340 and a loss in
the joint venture for the six months ended January 31, 2003 and 2002 of $455
and $677, respectively.

7. Common Stock

On December 20, 2002, the Company completed a private placement of 1.0
million shares of its common stock at a purchase price of $15.79 per share to
two institutional investors for gross proceeds of $15.8 million. In
conjunction with the private placement, the Company issued Additional
Investment Rights to the investors exercisable for, collectively, up to an
additional 330,000 shares of its common stock at an exercise price of $15.79
per share. Each Additional Investment Right is exercisable by the holder for a
period that began on the effective date of the related registration statement
filed by the Company with the Securities and Exchange Commission with respect
to the resale of the shares and ending initially 90 trading days thereafter and
now reset to October 1, 2003.

8. Segment Information

The Company has two reportable segments: cylinder exchange and products
and other. The cylinder exchange segment relates to cylinder exchange
transactions and lease income from cylinders and cylinder displays. The
products and other segment includes the activities required to sell patio
heaters, grills and other complementary propane products, fireplace accessories
and garden products. In addition, financial information related to QuickShip,
a retail shipping service company acquired in October 2000, is included within
the products and other segment as it is not currently material on a stand-alone
basis. For the three and six months ended January 31, 2003, QuickShip had a
loss from operations of ($327) and ($778), respectively. For the three and six
months ended January 31, 2002, QuickShip had a loss from operations of ($493)

and ($942), respectively.

The Company evaluates performance and allocates resources based on several
factors, of which the primary financial measure is business segment operating
income, defined as earnings before interest, taxes, depreciation and
amortization before other non-operating expenses (EBITDA). Management of the
Company believes that EBITDA is a useful measure of operating performance
at a segment level as it is an important indicator of the ability of each
segment to provide cash flows to service debt and fund working capital
requirements and eliminates the uneven effect between our segments of noncash
depreciation of tangible assets and amortization of certain intangible assets.
In addition, management uses EBITDA performance objectives at a segment level
as the basis for determining incentive compensation. EBITDA as presented may
not be comparable to similarly titled measures used by other entities. EBITDA
should not be considered in isolation from, or as a substitute for, net income
or cash flows from operating activities prepared in accordance with generally
accepted accounting principles as an indicator of operating performance or as a
measure of liquidity.

8



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##### 



The Companys reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and operational strategies. The
Companys selected segment information as of and for the three and six months
ended January 31, 2003 and 2002 is as follows:

|                            |                    |   |                    |        |                  |   |        |        |      |   |         |        |  |   |        |        | 
|--------------------------- | ------------------ | - | ------------------ | ------ | ---------------- | - | ------ | ------ | ---- | - | ------- | ------ |  | - | ------ | ------ | 
|                            |                    |   | Three Months Ended |        | Six Months Ended
|                            |                    |   | January 31,        |        | January 31,     
|                            |                    |   |                    |        |                 
|                            |                    |   | 2003               |        | 2002             |   | 2003   |        | 2002
|                            |                    |   |                    |        |                  |   |        |        |     
|Net revenues:               |                    |   |                    |        |                  |   |        |        |      |   |         |        |  |   |        |       
|                            | Cylinder exchange  |   | $                  | 29,816 |                  |   | $      | 18,911 |      |   | $       | 66,765 |  |   | $      | 40,042 | 
|                            | Products and other |   |                    | 28,238 |                  |   |        | 19,848 |      |   |         | 46,105 |  |   |        | 35,263 | 
|                            |                    |   |                    |        |                  |   |        |        |      |   |         |        |  |   |        |       
|                            |                    | $ | 58,054             |        |                  | $ | 38,759 |        |      | $ | 112,870 |        |  | $ | 75,305 |       
|                            |                    |   |                    |        |                  |   |        |        |      |   |         |        |  |   |        |       
|Segment EBITDA:             |                    |   |                    |        |                  |   |        |        |      |   |         |        |  |   |        |       
|                            | Cylinder exchange  |   | $                  | 3,464  |                  |   | $      | 2,524  |      |   | $       | 9,015  |  |   | $      | 5,451  | 
|                            | Products and other |   |                    | 1,089  |                  |   |        | 1,126  |      |   |         | 610    |  |   |        | 2,427  | 
|                            |                    |   |                    |        |                  |   |        |        |      |   |         |        |  |   |        |       
|                            |                    | $ | 4,553              |        |                  | $ | 3,650  |        |      | $ | 9,625   |        |  | $ | 7,878  |       
|Depreciation & amortization |                    |   | 2,267              |        |                  |   | 1,955  |        |      |   | 4,425   |        |  |   | 3,792  |       
|Interest expense            |                    |   | 1,380              |        |                  |   | 1,498  |        |      |   | 2,636   |        |  |   | 3,152  |       
|Loss on investee            |                    |   |                   |        |                  |   | 340    |        |      |   | 455     |        |  |   | 677    |       
|Other, net                  |                    |   | (25                | )      |                  |   | (65    | )      |      |   | (96     | )      |  |   | (251   | )     
|Income taxes                |                    |   | 15                 |        |                  |   | 13     |        |      |   | 30      |        |  |   | 26     |       
|                            |                    |   |                    |        |                  |   |        |        |      |   |         |        |  |   |        |       
|Net income (loss)           |                    | $ | 916                |        |                  | $ | (91    | )      |      | $ | 2,175   |        |  | $ | 482    |       
|                            |                    |   |                    |        |                  |   |        |        |      |   |         |        |  |   |        |       

|              |                    |   |                   |         |      |   |         |        | 
|------------- | ------------------ | - | ----------------- | ------- | ---- | - | ------- | ------ | 
|              |                    |   | As of January 31,
|              |                    |   | 2003              |         | 2002
|              |                    |   |                   |         |     
|Total assets: |                    |   |                   |         |      |   |         |       
|              | Cylinder exchange  |   | $                 | 142,207 |      |   | $       | 87,851 | 
|              | Products and other |   |                   | 56,008  |      |   |         | 32,351 | 
|              |                    |   |                   |         |      |   |         |       
|              |                    | $ | 198,215           |         |      | $ | 120,202 |       
|              |                    |   |                   |         |      |   |         |        | 

9



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##### 



Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this section and elsewhere in this Quarterly Report on
Form 10-Q are forward-looking in nature and relate to the Companys plans,
objectives, estimates, goals and future financial performance. The terms
may, will, should, expects, intends, plans, anticipates,
believes, estimates, projects, predicts, potential, continue and
similar words or expressions are intended to identify forward-looking
statements. These statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 and speak only as of
the date of this report. The Companys business is subject to numerous risks
and uncertainties including: that its significant retail relationships are
generally nonexclusive and terminable at will; that it relies on a limited
number of distributors; its ability to manage growth; its ability to place Blue
Rhino cylinder exchange at additional retail locations; its ability to protect
its intellectual property and to strengthen its brand; its ability to maintain
an adequate supply of cylinders that comply with applicable guidelines; its
ability to mitigate the effects of high propane commodity prices; its ability
to integrate its distributor acquisitions and manage its distributor
operations; its ability to launch new products and services; the effect of
safety guidelines on consumer demand for cylinder exchange; and the possibility
of a war with Iraq and its effects on the Companys ability to import an
adequate product supply, consumer confidence and spending patterns, retailer
inventory policies and the price of propane. These and other risks and
uncertainties, including those detailed in the Companys Registration Statement
on Form S-3 dated January 7, 2003 and in its most recent Annual Report on Form
10-K and other filings with the Securities and Exchange Commission under Risk
Factors or Business  Additional Factors that May Affect our Business or
Future Results, could cause actual results and experience to be materially
different from those expressed or implied by any of these forward-looking
statements. To the extent permitted by law, the Company makes no commitment to
update any forward-looking statement or to disclose any facts, events, or
circumstances after the date hereof that may affect the accuracy of any
forward-looking statement.

Overview

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., USA Leasing, L.L.C., Uniflame Corporation,
QuickShip, Inc., Uniflame, LLC, Platinum Propane, L.L.C. (Platinum), Ark
Holding Company LLC (Ark) and Blue Rhino Consumer Products, LLC
(collectively, the Company, Blue Rhino, us or we), and with our audited
consolidated financial statements as of and for the fiscal year ended July 31,
2002, on file with the Securities and Exchange Commission. As a result of our
acquisition of Platinum in November 2002, we increased our ownership interest
in R4 Technical Center North Carolina, LLC (R4 Tech) on a consolidated basis
by 1% to 50%. We consolidated the results of R4 Tech beginning in the second
quarter of fiscal 2003 as a result of our increased ownership and financial
control. The results of operations for the three- and six-month periods ended
January 31, 2003 are not necessarily indicative of results that may be expected
for the fiscal year ending July 31, 2003 or any other period, in part due to
the seasonality of our business.

Blue Rhino was founded in March 1994. We believe we have become the
leading national provider of propane grill cylinder exchange and a leading
provider of complementary propane and non-propane products to consumers through
many of the worlds greatest retailers. Our branded propane grill cylinder
exchange service is offered at more than 27,000 retail locations in 48 states
and Puerto Rico, including leading home improvement centers, mass merchants,
hardware, grocery and convenience stores. Our retail partners include Home
Depot, Lowes, Wal*Mart, Sears, Kroger, Food Lion, Winn-Dixie, SuperAmerica,
Circle K and ExxonMobil. Propane grill cylinder exchange provides consumers
with a safe and convenient alternative to traditional propane tank refilling.

Our cylinder exchange segment partners with retailers and, in many cases,
independent distributors to provide consumers with a nationally-branded
alternative to traditional grill cylinder refill. We dedicate our efforts and
capital to brand development, value-added marketing, customer service,
cylinders, displays, account growth, distributor network development and
management information systems. Our distributors invest in the vehicles and
other operational infrastructure necessary to operate cylinder exchange
businesses. In November 2002, we acquired ten distributors whose territories
have historically represented approximately forty-five percent of our revenues.
We believe that our distributor network affords us the opportunity to service
approximately 90% of the cylinder exchange markets in the United States.

Our products and other segment includes the design and import of consumer
products sold through mass retailers. The segments revenues are derived from
products that use propane cylinders as their fuel source, principally patio
heaters and grills, and non-propane products such as charcoal grills, fireplace
accessories and garden products. The segments revenues have historically been
strongest in the fall and winter months, which is counterseasonal to the
strongest months for our cylinder exchange segment. QuickShip, Inc., a retail
shipping services company that we acquired in October 2000, is included within
the products and other segment as it is not currently significant on a
stand-alone basis.

10



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##### 



Results of Operations

Comparison of the three months ended January 31, 2003 with the three months ended January 31, 2002

Net revenues.Net revenues increased 49.8% to $58.1 million for the three
months ended January 31, 2003 from $38.8 million for the three months ended
January 31, 2002. Net revenues consisted of $29.8 million from the cylinder
exchange segment and $28.3 million from the products and other segment.
Cylinder exchange revenues increased 57.7%, with approximately one-fourth of
the increase due to price increases to retailers, enabled by a higher mix of
upgrade transactions, and approximately three-fourths of the increase due to an
approximately 45% increase in the number of total cylinder transactions to 1.8
million units for the second quarter of fiscal 2003 from 1.2 million units for
the second quarter of fiscal 2002. This increase reflects the positive trend
toward consumer acceptance of cylinder exchange versus refill and the impact of
National Fire Protection Association (NFPA) guidelines adopted by many states
that mandate that all propane cylinders refilled after April 1, 2002 be fitted
with an overfill prevention device (OPD). Product revenues increased 42.3%
due principally to an increase in the number of grills sold as a major customer
took delivery during the quarter, earlier than in the last fiscal year. We
currently anticipate double-digit revenue growth for our cylinder exchange
segment through the end of fiscal year 2004 and that the NFPA guidelines will
continue to contribute to our cylinder exchange revenue growth through the end
of fiscal 2005.

Gross margin. Our overall gross margin decreased to 18.9% for the second
quarter of fiscal 2003 from 20.2% for the second quarter of fiscal 2002. Gross
margin percentage decreased 259 basis points in cylinder exchange to 24.9% for
the three months ended January 31, 2003 from 27.5% for the three months ended
January 31, 2002 due primarily to consolidating the operating loss of R4 Tech,
increased fuel costs on unhedged volumes and an increase in the number of
valves replaced, partially offset by price increases to retailers. The
products and other segment gross margin decreased to 12.5% for the second
quarter of fiscal 2003 from 13.4% for the second quarter of fiscal 2002 due
primarily to a greater percentage of lower-margin products in the mix of
products sold.

Selling, general and administrative expenses. Selling, general and
administrative (SG&A) expenses increased 52.5% to $6.4 million for the three
months ended January 31, 2003 from $4.2 million for the three months ended
January 31, 2002 and, as a percentage of net revenues, increased slightly to
11.0% for the second quarter of fiscal 2003 from 10.8% for the second quarter
of fiscal 2002. SG&A expenses in the cylinder exchange segment increased 48.0%
to $3.9 million for the second quarter of fiscal 2003 from $2.7 million for the
second quarter of fiscal 2002 due primarily to increased personnel costs
associated with managing distributor operations and increased professional
fees. SG&A expenses in the products and other segment increased 60.4% to $2.5
million from $1.5 million in the same period in the prior year primarily due to
start up and development costs related to the introduction of new products. We
currently expect SG&A expenses for the second half of fiscal 2003 to decrease
as a percentage of net revenues as compared to the first half.

Depreciation and amortization. Depreciation and amortization increased to
$2.3 million for the second quarter of fiscal 2003 from $2.0 million for the
second quarter of fiscal 2002 due primarily to the increase in depreciation
expense resulting from an increase in the number of cylinders and displays used
in the cylinder exchange segment.

Interest expense.Interest expense decreased to $1.4 million in the second
quarter of fiscal 2003 from $1.5 million in the second quarter of fiscal 2002
due to both lower interest rates and reduced borrowings on our credit facility.

Loss on investee.Loss on investee was $340,000 in the second quarter of
fiscal 2002. This charge represented the loss related to our 49% ownership
interest in R4 Tech, which has since increased to 50% as a result of our
acquisition of Platinum. The increased ownership interest and financial
control resulted in the consolidation of the financial statements of R4 Tech in
the second quarter of fiscal 2003.

Other, net. Other, net decreased to $25,000 in the second quarter of
fiscal 2003 from $65,000 in the second quarter of fiscal 2002. Other income
consists primarily of interest income from advances made to R4 Tech and
independent distributors.

Preferred dividends.Preferred dividends accrued on our outstanding
shares of Series A convertible preferred stock were $641,000 for the three
months ended January 31, 2002. All shares of Series A Convertible preferred
stock were converted into common stock prior to the second quarter of fiscal
2003.

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Comparison of the six months ended January 31, 2003 with the six months ended January 31, 2002

Net revenues.Net revenues increased 49.9% to $112.9 million for the six
months ended January 31, 2003 from $75.3 million for the six months ended
January 31, 2002. Net revenues consisted of $66.8 million from the cylinder
exchange segment and $46.1 million from the products and other segment.
Cylinder exchange revenues increased 66.7%, with approximately one-third of the
increase due to price increases to retailers, enabled by a higher mix of
upgrade transactions, and approximately two-thirds of the increase due to an
approximately 46% increase in the number of total cylinder transactions to 4.1
million units for the first half of fiscal 2003 from 2.8 million units for the
first half of fiscal 2002. Product revenues increased 30.7% due principally to
an increase in the number of grills sold as a major customer took delivery
earlier in this fiscal year.

Gross margin.Our overall gross margin decreased to 21.6% for the first
six months of fiscal 2003 from 23.4% for the first six months of fiscal 2002.
Gross margin percentage decreased 159 basis points in cylinder exchange to
26.8% from 28.3% in the same period of the prior year due primarily to
consolidating the operating loss of R4 Tech, increased fuel costs on unhedged
volumes and an increase in the number of valves replaced, partially offset by
price increases to retailers. The products segment gross margin decreased to
14.2% from 17.7% for the six months ended January 31, 2002 due primarily to a
greater percentage of lower-margin products in the mix of products sold.

Selling, general and administrative expenses. Selling, general and
administrative (SG&A) expenses increased 52.3% to $14.8 million for the six
months ended January 31, 2003 from $9.7 million for the six months ended
January 31, 2002 and, as a percentage of net revenues, increased slightly to
13.1% for the first half of fiscal 2003 from 12.9% for the first half of fiscal
2002. SG&A expenses in the cylinder exchange segment increased 50.0% to $8.9
million for the first six months of fiscal 2003 from $5.9 million for the first
six months of fiscal 2002 due primarily to increased personnel costs associated
with managing distributor operations and increased professional fees. SG&A
expenses in the products and other segment increased 55.9% to $5.9 million from
$3.8 million in the same period in the prior year due primarily to special
charges, consisting primarily of relocation expenses associated with
consolidating many products segment employees based in Zion, Illinois with the
cylinder exchange employee base in Winston-Salem, North Carolina and start-up
and development costs related to the introduction of new products.

Depreciation and amortization.Depreciation and amortization increased to
$4.4 million in the six months ended January 31, 2003 from $3.8 million in the
six months ended January 31, 2002 due primarily to the increase in depreciation
expense resulting from an increase in the number of cylinders and displays used
in the cylinder exchange segment.

Interest expense.Interest expense decreased to $2.6 million in the six
months ended January 31, 2003 from $3.2 million in the six months ended January

31, 2002 due to both lower interest rates and reduced borrowings on our credit
facility.

Loss on investee.Loss on investee decreased to $455,000 in the six months
ended January 31, 2003 from $677,000 in the six months ended January 31, 2002.
This charge represented the loss related to our 49% ownership interest in R4
Tech, which has since increased to 50% as a result of our acquisition of
Platinum. The increased ownership interest and financial control resulted in
the consolidation of the financial statements of R4 Tech in the second quarter
of fiscal 2003.

Other, net. Other, net decreased to $96,000 in the six months ended
January 31, 2003 from $251,000 in the six months ended January 31, 2002. Other
income consists primarily of interest income from advances made to R4 Tech and
independent distributors.

Preferred dividends.Preferred dividends accrued on our outstanding
shares of Series A convertible preferred stock decreased to $71,000 for the six
months ended January 31, 2003 from $1.1 million for the six months ended
January 31, 2002 due to the conversion of the Series A Convertible preferred
stock to common stock in March, April, May and September 2002.

Liquidity and Capital Resources

Our primary sources of funds have been the incurrence of debt, the
issuance of stock and cash flow from operations.

Net cash used in operations was $5.9 million for the six months ended
January 31, 2003 and net cash provided by operations was $7.8 million for the
six months ended January 31, 2002. The decrease in cash provided by operations
for the first half of fiscal 2003 over the first half of fiscal 2002 was
primarily due to significant increases in inventory in both the cylinder
exchange and the products and other segments partially offset by the increase
in net income. The inventory increase in the cylinder exchange segment was
primarily to prepare for the anticipated rise in demand associated with the
grilling season and the increase in inventory in the products and other segment
was primarily associated with the launch of new products. As a result of the
acquisitions of Platinum and Ark and

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the consolidation of R4 Tech resulting from the acquisition of Platinum
(Note 5 of Notes to Condensed Consolidated Financial Statements), the
operations of R4 Tech, Platinum and Ark affected working capital in the second
quarter of fiscal 2003 and were reflected in net cash used in operating
activities.

Net cash used in investing activities was $14.3 million for the six months
ended January 31, 2003 and $4.9 million for the six months ended January 31,
2002. The primary components of cash used in investing activities for both
periods included investments in property, plant and equipment and advances to
R4 Tech and, in the case of the six months ended January 31, 2003, acquisitions
and advances to independent distributors. During the six months ended January
31, 2003 and January 31, 2002, we provided net advances of $1.1 million and
$1.5 million, respectively, to R4 Tech. As a result of the acquisitions of
Platinum and Ark and the consolidation of R4 Tech resulting from the
acquisition of Platinum (Note 5 of Notes to Condensed Consolidated Financial
Statements), advances to R4 Tech, Platinum and Ark in the second quarter of
fiscal 2003 were not reflected in net cash used in investing activities.

Net cash provided by financing activities was $21.1 million for the six
months ended January 31, 2003, while cash used in financing activities was $2.4
million for the six months ended January 31, 2002. Cash provided by financing
activities for the six months ended January 31, 2003 included $14.9 million in
net proceeds from the sale of common stock, net proceeds from our credit
facility and net proceeds from exercises of warrants and stock options. Cash
used in financing activities for the six months ended January 31, 2002 included
net payments on our credit facility and payments on long-term debt and capital
lease obligations.

In November 2002, we completed the syndication of a new and expanded bank
credit facility (the Credit Facility). The Credit Facility consists of a $45
million revolving line of credit and a $15 million term loan, both for general
corporate purposes, inclusive of payments made under letters of credit. The
Credit Facility has a maturity date of November 30, 2005 and, as amended,
requires us to utilize the approximately $14.9 million in net proceeds from a
private placement of common stock completed December 20, 2002 to repay the term
loan or our subordinated debt, in such proportion as we elect, by May 26, 2003.
Pending that repayment, $5.0 million of the availability under the revolving
line of credit has been reserved. Advances under the Credit Facility are
collateralized by a lien on substantially all of our assets.

Advances under the Credit Facility may be made as either base rate (prime
rate) loans or London Interbank Offered Rate (LIBOR) loans at our election.
Applicable interest rates are based upon either the LIBOR or prime rate plus an
applicable margin dependent upon a total leverage ratio. The applicable LIBOR
margins range from 200 to 300 basis points, and the applicable prime rate
margins range from 50 to 150 basis points. We incurred fees of approximately
$1.0 million in connection with the Credit Facility. The fees will be
amortized over the life of the agreement through November 30, 2005. We
incurred a charge of $96,000 in November 2002 resulting from unamortized fees
related to our prior credit facility. On January 31, 2003 we had $31.3 million
(including a $14 million balance on the term loan) in LIBOR loans outstanding
at a weighted-average interest rate of 3.86% and $1.6 million in prime rate
loans outstanding at a weighted-average interest rate of 5.25%.

Principal payments on the outstanding term loan began on December 31, 2002
and continue quarterly until September 30, 2005. The initial principal
payments are $1 million per calendar quarter beginning December 31, 2002, will
increase to $1.25 million per calendar quarter beginning December 31, 2003 and
will further increase to $1.5 million per calendar quarter beginning December
31, 2004. The Credit Facility includes a .50% commitment fee on the average
daily unused amount for each fiscal quarter. The Credit Facility requires us
to meet certain covenants, including minimum net worth and cash flow
requirements, restricts the payment of cash dividends and permits early
extinguishment of up to $15 million in our subordinated debt. At January 31,
2003, we were in compliance with all covenants.

The Credit Facility stipulates that, by May 31, 2003, we must enter into
swap agreements with respect to interest rate exposure under the Credit
Facility with durations covering the remaining term of the Credit Facility and
with an aggregate notional principal amount equal to at least two-thirds of the
outstanding principal amount of the term loan. We are currently party to an
interest rate swap agreement with a notional amount of $10 million. Under the
existing swap agreement, which expires in July 2003, we pay a fixed rate of
7.36% and receive a rate equivalent to the thirty-day LIBOR, adjusted
quarterly.

On June 15, 2001, we completed a $15 million private placement of
subordinated debt to an institutional investor. The agreement requires us to
meet certain cash flow and other covenants and contains restrictions on capital
expenditures and the payment of cash dividends. At January 31, 2003, we were
in compliance with all covenants. The debenture bears interest at the annual
rate of 13%, payable quarterly. The principal balance matures on August 31,
2006. In conjunction with the subordinated debt, we issued a warrant to the
investor to purchase 1,372,071 shares of common stock, with an exercise price
of $3.8685 per share (subject to adjustment for organic changes in our common
stock and for certain future issuances below the then-existing exercise price).
The warrant was converted by the investor into 1,070,179 shares of common
stock effective January 6, 2003.

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In November 2002, we acquired Platinum and Ark and their respective
subsidiaries, representing ten of our distributors. Collectively, the
territories served by the acquired distributors have historically represented
approximately 45% of our cylinder exchange revenues. The aggregate purchase
price for the two acquisitions was approximately $32 million. The
consideration paid by Blue Rhino in the acquisitions consisted of approximately
1.1 million restricted shares of common stock valued, based on the closing
price of our common stock on the Nasdaq National Market on November 22, 2002,
at approximately $19 million, $3.1 million in assumed debt satisfied at
closing, $4.9 million in advances, and $5.0 million in liabilities assumed. On
a preliminary basis, approximately $28.2 million of the purchase price was
allocated to goodwill, $2.8 million was allocated to current assets and $1.2
million was allocated to equipment, vehicles and other assets.

On December 20, 2002, we completed a private placement of 1.0 million
shares of our common stock at a purchase price of $15.79 per share to two
institutional investors for gross proceeds of $15.8 million. We have initially
utilized the proceeds to pay down the revolving line of credit under the Credit
Facility and currently intend to use the resulting increased availability under
the revolving line to repay $5 million in subordinated debt in our third fiscal
quarter and the remaining portion of the subordinated debt before the end of
fiscal 2003. In conjunction with the private placement, we issued Additional
Investment Rights to the investors exercisable for, collectively, up to an
additional 330,000 shares of our common stock at an exercise price of $15.79
per share. Each Additional Investment Right is exercisable by the holder for a
period that began on the effective date of the related registration statement
filed by us with the Securities and Exchange Commission with respect to the
resale of the shares and ending initially 90 trading days thereafter and now
reset to October 1, 2003.

In March 2003, pursuant to a negotiated settlement agreement, we dismissed
our lawsuit against PricewaterhouseCoopers alleging violations of professional
standards and failure to comply with contractual obligations during its
engagement as our auditor. The net proceeds to us in the settlement to be
recognized in our fiscal third quarter, after attorneys fees and other third
quarter litigation expenses, are approximately $2.5 million. In accordance
with the terms of the Credit Facility, approximately $1.0 million of the net
proceeds will be applied against the term loan as a reduction. The
specific terms of the settlement are confidential.

We currently have capital commitments outstanding of approximately $2.5
million relating to machinery and equipment associated with new cylinder
refilling and refurbishing facilities in Los Angeles, Chicago and Denver.
These commitments must be satisfied by the end of calendar year 2003. We
currently anticipate that our total capital expenditures for fiscal 2003,
excluding acquisitions, will be approximately $21.0 million, and will relate
primarily to cylinders, cylinder displays, computer technology and distribution
infrastructure. Our capital expenditure and working capital requirements in
the foreseeable future will change depending on many factors including, but not
limited to, the rate of our expansion, our operating results and any other
adjustments in our operating plan made in response to competition, acquisition
opportunities or unexpected events. We believe that our existing borrowing
capacity under the Credit Facility, together with cash provided by operations,
will be sufficient to meet our capital expenditure and working capital
requirements, including the repayment required by our Credit Facility, through
fiscal 2003. Moreover, if we experience an unexpected change in demand for our
cylinder exchange service or our products, we may need additional funds to meet
our capital requirements and, in that event, we may seek additional debt or
equity financing. We cannot be sure that any additional equity or debt
financing will be available on favorable terms or on terms that are not
dilutive to our stockholders.

Related Party Transactions

Blue Rhino Corporation, QuickShip, Inc. and Uniflame, LLC lease their
respective facilities from Rhino Real Estate, LLC, a company affiliated with
Billy D. Prim, our Chairman and Chief Executive Officer, and Andrew J.
Filipowski, our Vice Chairman. The leases expire on December 31, 2003, April
30, 2003 and October 31, 2007, respectively. Blue Rhinos rent expense for the
three and six months ended January 31, 2003 was $83,000 and $163,000,
respectively, and QuickShips rent expense for the three and six months ended
January 31, 2003 was $4,000 and $11,000, respectively. Blue Rhinos rent
expense for the three and six months ended January 31, 2002 was $55,000 and
$108,000, respectively, and QuickShips rent expense for the three and six
months ended January 31, 2002 was $5,000 and $10,000, respectively. Uniflames
lease became effective November 1, 2002 and its rent expense for the three
months ended January 31, 2003 was $24,000. Management has received an
independent third-party determination to the effect that the Blue Rhino and
Uniflame leases are fair and within typical market conditions and believes that
the terms of all of these leases are comparable to those that could have been
obtained from unrelated third parties.

Uniflame Corporation leases its facility from H & M Enterprises, LLC, a
company affiliated with Mac McQuilkin, the president of Uniflame. The lease
terminates on March 31, 2005. Uniflames rent expense for three and six months
ended January 31, 2003 was $79,000 and $157,000, respectively. Uniflames rent
expense for three and six months ended January 31, 2002 was $82,000 and

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$159,000, respectively. Management believes that the terms of these
leases are comparable to those that could have been obtained from unrelated
third parties.

Platinum leased an office facility and storage tank in Booneville, NC
through the expiration date of January 31, 2003 from Billy D. Prim, our
Chairman and Chief Executive Officer. Platinums lease expense was $6,000 for
the three months ended January 31, 2003. Management has received an
independent third-party determination to the effect that this lease is fair and
within typical market conditions and believes that the terms of the lease are
comparable to those that could have been obtained from an unrelated third
party.

During the three and six months ended January 31, 2003, Blue Rhino paid
fees for software development and Internet hosting services provided by divine,
inc. in the amount of $99,000 and $236,000, respectively. Blue Rhino did not
pay fees to divine, inc. in the first six months of fiscal 2002. Andrew J.
Filipowski is the Chairman of divine, inc. and our Vice Chairman. Management
believes that the terms of these services were comparable to those that could
have been obtained from an unrelated third party.

Seasonality

We have experienced and currently expect to continue to experience
seasonal fluctuations in our revenues and operating income. Our revenues and
operating income have been highest in the spring and summer, which includes the
majority of the grilling season, and lowest in the fall and winter. Our
cylinder exchange segment, which generally enjoys higher margins than our
products and other segment, experiences higher revenues and operating income in
the spring and summer. Conversely, our products and other segment experiences
higher revenues and operating income in the fall and winter. Sustained periods
of poor weather, particularly in the spring and summer, can negatively impact
our revenues. Accordingly, our results of operations in any quarter will not
necessarily be indicative of the results that we may achieve for a full fiscal
year or any future quarter.

Inflation

We do not believe that inflation has had a material adverse effect on our
revenues, cost of sales or our results of operations. There can be no assurance
that our business will not be materially adversely affected by inflation in the
future.

Price of Propane

During the fiscal year ended July 31, 2001, there were dramatic increases
in fuel costs and propane reached unusually high levels. During the fourth
quarter of fiscal 2001 and continuing through the first quarter of fiscal 2002,
propane prices returned to a range more consistent with historical levels but,
during the winter months of fiscal 2003, again reached unusually high levels.
On March 1, 2001, we initiated a propane price hedging strategy that reduced,
and we currently believe will continue to reduce, our gross margin risk
resulting from fluctuations in the price of propane. Our strategy is designed
to reduce exposure to the fuel cost component of a significant portion of our
expected total cylinder exchange volume, approximately 65% for calendar year
2003. If propane costs rise, our gross margins and results of operations would
be negatively affected due to additional costs on unhedged volumes (both within
and, if applicable, in excess of our expected volumes) that we may not be able
to recover fully through an increase in our price to retailers.

Off-Balance Sheet Arrangements

We do not have any transactions, agreements or other contractual
arrangements that constitute off-balance sheet arrangements.

Impact of New Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 143, Accounting for
Asset Retirement Obligations.The Statement requires entities to record the
fair value of a liability for an asset retirement obligation in the period in
which it is incurred. As required by SFAS No. 143, we have adopted this new
accounting standard for fiscal year 2003. The adoption of SFAS No. 143 did not
have a material impact on our consolidated results of operations or financial
position.

In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement establishes a
single accounting model for the impairment or disposal of long-lived assets.
As required by SFAS No. 144, we have adopted this new accounting standard for
fiscal year 2003. The adoption of SFAS No. 144 did not have a material impact
on our consolidated results of operations or financial position.

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In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This statement eliminates an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions and establishes that gains and losses from
extinguishment of debt should be classified as extraordinary items only if they
meet the criteria for treatment as extraordinary. We have adopted this
standard for fiscal year 2003. The adoption of SFAS No. 145 did not have a
material impact on our consolidated results of operations or financial
position.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. SFAS No. 146 also establishes that fair value
is the objective for initial measurement of the liability. We have adopted
this standard for fiscal year 2003. The adoption of SFAS No. 146 did not have
a material impact on our consolidated results of operations or financial
position.

In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain
Financial Institutions-An Amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9. SFAS No. 147 is an industry specific standard and is not
applicable to us; therefore, it will not have an impact on our consolidated
results of operations or financial position.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition to SFAS No. 123s fair value method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure provisions in
SFAS No. 123 and Accounting Principles Board Opinion No. 28, Interim Financial
Reporting, to require disclosure in the summary of significant accounting
policies of the effects of an entitys accounting policy with respect to
stock-based employee compensation on reported net income and earnings per share
in annual and interim financial statements. We will adopt the interim
financial reporting for interim periods beginning after December 15, 2002. We
do not currently believe that adoption of SFAS No. 148 will have a significant
impact on our consolidated results of operations or financial position.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk related to changes in interest rates on
borrowings under our Credit Facility, which are based upon either the LIBOR or
prime rate plus an applicable margin dependent upon a total leverage ratio. To
quantify our exposure to interest rate risk, a 100 basis point increase in
interest rates would have increased interest expense for the six months ended
January 31, 2003 and 2002 by approximately $101,000 and $141,000, respectively.
Actual changes in interest expense may differ materially from those based on
hypothetical assumptions used in computing this exposure.

We use derivative financial instruments to manage exposure to fluctuations
in interest rates on our Credit Facility (Note 2 of Notes to Condensed
Consolidated Financial Statements). These derivative financial instruments,
which are generally swap agreements, are not entered into for trading purposes.
A swap agreement is a contract to exchange a floating rate for a fixed rate
without the exchange of the underlying notional amount. In fiscal 2000, we
entered into an interest rate swap agreement with a notional amount of $10
million as a hedge of our variable interest rate debt represented by the Credit
Facility. Under the swap agreement, which expires in July 2003, we pay a fixed
rate of 7.36% and receive a rate equivalent to the thirty-day LIBOR, adjusted
quarterly. At January 31, 2003, we had $31,250,000 in LIBOR-based loans
outstanding at a weighted-average interest rate of 3.86% and the interest rate
swap was an effective cash flow hedge.

We are exposed to commodity price risk related to changes in the price of
propane. If propane prices rise, our gross margins and
results of operations would be negatively affected due to additional costs that
may not be fully recovered through an increase in our price to retailers.
Assuming that propane prices are not hedged and any increase cannot be
recovered through an increase in our price, a $.01 increase in the price per
gallon of propane would reduce the gross margin in our cylinder exchange
segment by approximately .3% or 30 basis points. Actual changes in cylinder
exchange margins may differ materially from that based on the hypothetical
assumptions used in computing this exposure. We have entered into a series of
monthly option contracts that are designed to reduce exposure to the propane
cost component of a significant portion of our total projected cylinder
exchange volume (Note 2 of Notes to Condensed Consolidated Financial
Statements). These monthly option contracts are not entered into for trading
purposes.

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We invest our cash and cash equivalents 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 U.S. dollars, and, as such, we do
not currently have exposure to foreign currency risk.

Item 4. Controls and Procedures

Within 90 days prior to the date of this report, our Chief Executive
Officer and Chief Financial Officer evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934, as amended (the Exchange Act)) in
accordance with Rule 13a-14 under the Exchange Act. The Chief Executive
Officer and the Chief Financial Officer concluded that, as of the date of
evaluation, our disclosure controls and procedures were effective to enable us
to record, process, summarize and report in a timely manner the information
that we are required to disclose in our Exchange Act reports.

There have been no significant changes in our internal controls or in
other factors that could significantly affect these internal controls
subsequent to their most recent evaluation.

PART II  OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

On November 20, 2002, we completed the syndication of a new and expanded
$60 million secured loan facility for general corporate purposes. The new
facility restricts our ability to pay cash dividends on our common stock.

Effective November 22, 2002, we issued an aggregate of 1,104,196 shares of
our common stock to the members of Platinum Propane, L.L.C. (Platinum) and
Ark Holding Company LLC (Ark) in connection with our acquisitions of Platinum
and Ark by reverse merger. We issued the shares in reliance on Section 4(2) of
the Securities Act of 1933 and Rule 506 promulgated thereunder based on
representations received from the members of Platinum and Ark with regard to
their status as accredited investors and the nature of the arms-length,
negotiated transactions not involving general solicitation or advertising.

Effective December 5, 2002, we issued 6,460 shares of our common stock
upon the conversion of a warrant to purchase 11,864 shares of our common stock
at an exercise price of $8.48 per share by a single warrant holder that we
believe to be an accredited investor. We issued the shares in reliance on
Section 3(a)(9) of the Securities Act as securities exchanged with an existing
security holder exclusively where no commission or other remuneration is paid
or given, directly or indirectly, for soliciting such exchange.

In addition, effective December 5, 2002, we issued 6,460 shares of our
common stock upon the conversion of a warrant to purchase 11,864 shares of our
common stock at an exercise price of $8.48 per share by a single warrant holder
that we believe to be an accredited investor. We issued the shares in reliance
on Section 3(a)(9) of the Securities Act as securities exchanged with an
existing security holder exclusively where no commission or other remuneration
is paid or given, directly or indirectly, for soliciting such exchange.

Effective December 20, 2002, we issued 1,000,000 shares of our common
stock at a purchase price of $15.79 per share, and Additional Investment Rights
to purchase an aggregate of 330,000 additional shares of our common stock at an
exercise price of $15.79 per share, to two institutional investors. We issued
the shares and the Additional Investment Rights in reliance on Section 4(2) of
the Securities Act of 1933 and Rule 506 promulgated thereunder based on
representations received from the purchasers with regard to their status as
accredited investors and the nature of the arms-length, negotiated transaction
not involving general solicitation or advertising. We have filed a
registration statement on Form S-3 covering the resale by such purchasers of
such shares of common stock, including the shares of common stock underlying
the Additional Investment Rights, and such registration statement has been
declared effective by the Securities and Exchange Commission.

Effective January 6, 2003, we issued 1,070,179 shares of our common stock
upon the conversion of a warrant to purchase 1,372,071 shares of our common
stock at an exercise price of $3.8685 per share by a single warrant holder that
we believe to be an accredited investor. We issued the shares in reliance on
Section 3(a)(9) of the Securities Act as securities exchanged with an existing
security holder exclusively where no commission or other remuneration is paid
or given, directly or indirectly, for soliciting such exchange.

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Item 4.Submission of Matters to a Vote of Security Holders:

On December 17, 2002, we held our 2002 annual meeting of stockholders in
Bermuda Run, North Carolina. The following three proposals were submitted to a
vote of the stockholders:



| | 1. |  | The election of Richard A. Brenner, Robert J. Lunn and John H.
Muehlstein to serve three-year terms on our board of directors;                                   
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | The amendment to our 1998 Stock Incentive Plan to increase the
number of shares of common stock reserved for distribution thereunder
from 3,200,000 to 4,700,000.
|
| | 3. |  | The ratification of the appointment of Ernst & Young LLP as the
Companys independent accountants for the fiscal year ending July 31,
2003.                      

All of these proposals were approved.

The results of the stockholder voting were as follows:

| |    |  |  |                       |  |     |            |          |  |       |         |  |  |       |            | 
| | -- |  |  | --------------------- |  | --- | ---------- | -------- |  | ----- | ------- |  |  | ----- | ---------- | 
| |    |  |  |                       |  |     |            |          |  |       |         |  |  | Total
| |    |  |  |                       |  | For |            | Withheld |  | Votes
| |    |  |  |                       |  |     |            |          |  |      
| | 1. |  |  | Election of Directors |  |     |            |          |  |       |         |  |  |       |            | 
| |    |  |  | Richard A. Brenner    |  |     | 12,800,498 |          |  |       | 301,430 |  |  |       | 13,101,928 | 
| |    |  |  | Robert J. Lunn        |  |     | 12,787,023 |          |  |       | 314,905 |  |  |       | 13,101,928 | 
| |    |  |  | John H. Muehlstein    |  |     | 12,642,942 |          |  |       | 458,986 |  |  |       | 13,101,928 | 

| |    |  |  |                                            |  |     |            |         |  |         |           |           |  |       |         |  |  |        |           |  |  |  |            | 
| | -- |  |  | ------------------------------------------ |  | --- | ---------- | ------- |  | ------- | --------- | --------- |  | ----- | ------- |  |  | ------ | --------- |  |  |  | ---------- | 
| |    |  |  |                                            |  |     |            |         |  |         |           |           |  |       |         |  |  | Broker |           |  |  | 
| |    |  |  |                                            |  | For |            | Against |  | Abstain |           | Non-votes |  | Total
| |    |  |  |                                            |  |     |            |         |  |         |           |           |  |      
| | 2. |  |  | Amendment to the 1998 Stock Incentive Plan |  |     | 7,045,939  |         |  |         | 2,382,950 |           |  |       | 139,063 |  |  |        | 3,533,976 |  |  |  | 13,101,928 | 
| | 3. |  |  | Ratification of Appointment of Accountants |  |     | 12,814,786 |         |  |         | 280,870   |           |  |       | 6,272   |  |  |        | 0         |  |  |  | 13,101,928 | 

Item 5.Other Information

In March 2003, pursuant to a negotiated settlement agreement, we dismissed
our lawsuit against PricewaterhouseCoopers alleging violations of professional
standards and failure to comply with contractual obligations during its
engagement as our auditor. The net proceeds to us in the settlement to be
recognized in our fiscal third quarter, after attorneys fees and other third
quarter litigation expenses, are approximately $2.5 million. The specific
terms of the settlement are confidential.

Item 6.Exhibits And Reports On Form 8-K

(a)  Exhibits:

|    |  |                                                                                                                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1 |  | Merger Agreement among the Company, Platinum Acquisition, LLC
and Platinum Propane, L.L.C., incorporated by reference to Exhibit
2.1 to the Companys Current Report on Form 8-K filed November 27,
2002.
|    |  |                                                                                                                                                                                                          
|2.2 |  | Merger Agreement among the Company, Ark Acquisition, LLC and
Ark Holding Company LLC, incorporated by reference to Exhibit 2.2 to
the Companys Current Report on Form 8-K filed November 27, 2002.      
|    |  |                                                                                                                                                                                                          
|4.1 |  | Revolving Credit Note of the Company dated November 20, 2002 in
favor of Bank of America, N.A. in the amount of $11,250,000.                                                                             

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##### 



|        |  |                                                                                                                                                                                                                                                                                     
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  |                                                                                                                                                                                                                                                                                     
|4.2     |  | Revolving Credit Note of the Company dated November 20, 2002 in
favor of SunTrust Bank in the amount of $7,500,000.                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                     
|4.3     |  | Revolving Credit Note of the Company dated November 20, 2002 in
favor of RBC Centura Bank in the amount of $7,500,000.                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                     
|4.4     |  | Revolving Credit Note of the Company dated November 20, 2002 in
favor of Wachovia Bank, National Association in the amount of
$11,250,000.                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                     
|4.5     |  | Revolving Credit Note of the Company dated November 20, 2002 in
favor of LaSalle Bank National Association in the amount of
$7,500,000.                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                     
|4.6     |  | Term Note of the Company dated November 20, 2002 in favor of
Bank of America, N.A. in the amount of $3,750,000.                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                     
|4.7     |  | Term Note of the Company dated November 20, 2002 in favor of
SunTrust Bank in the amount of $2,500,000.                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                     
|4.8     |  | Term Note of the Company dated November 20, 2002 in favor of
RBC Centura Bank in the amount of $2,500,000.                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                     
|4.9     |  | Term Note of the Company dated November 20, 2002 in favor of
Wachovia Bank, National Association in the amount of $3,750,000.                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                     
|4.10    |  | Term Note of the Company dated November 20, 2002 in favor of
LaSalle Bank National Association in the amount of $2,500,000.                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                     
|4.11    |  | Amended and Restated Senior Subordinated Debenture dated
November 20, 2002 of the Company in the amount of $15,000,000 payable
to Allied Capital Corporation.                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                     
|10.1(a) |  | Credit Agreement dated as of November 20, 2002 among the Company,
as the Borrower, Bank of America, N.A., as Administrative Agent,
Swing Line Lender and L/C Issuer, Wachovia Bank, National
Association, as Syndication Agent and the Other Lenders Party
Thereto.                 
|        |  |                                                                                                                                                                                                                                                                                     
|10.1(b) |  | First Amendment to Credit Agreement dated as of February 25, 2003
among the Company, as the Borrower, the Lenders referred to in the
Credit Agreement dated as of November 20, 2002 and Bank of America,
N.A., as Administrative Agent for the Lenders.                             
|        |  |                                                                                                                                                                                                                                                                                     
|10.2    |  | Guaranty Agreement dated November 20, 2002, by and among
certain Subsidiaries of the Company as Guarantors, in favor of Bank
of America, N.A., as Administrative Agent.                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                     
|10.3    |  | Collateral Agreement dated November 20, 2002, by and among the
Company and certain of its Subsidiaries as Grantors in favor of Bank
of America, N.A., as Administrative Agent.                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                     
|10.4    |  | Patent Security Agreement dated November 20, 2002 by the
Company, CPD Associates, Inc. and Uniflame Corporation in favor of
Bank of America, N.A., as Administrative Agent.                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                     
|10.5    |  | Trademark Security Agreement dated November 20, 2002 by the
Company, CPD Associates, Inc. and Uniflame Corporation in favor of
Bank of America, N.A., as Administrative Agent.                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                     
|10.6    |  | First Amendment to Investment Agreement dated November 20, 2002
by and among the Company, USA Leasing, L.L.C., Rhino Services,
L.L.C., CPD Associates, Inc., QuickShip, Inc., Uniflame Corporation,
Blue Rhino Consumer Products, LLC, Uniflame, LLC and Allied Capital
Corporation.

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##### 



|      |  |                                                                                                                                                                                               
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.7  |  | Securities Purchase Agreement dated as of December 20, 2002
among the Company and the purchasers identified on the signature
pages thereto.                                                   
|      |  |                                                                                                                                                                                               
|10.8  |  | Form of Additional Investment Right dated December 20, 2002 and
issued to the purchasers identified on the signature pages to the
Securities Purchase Agreement dated as of December 20, 2002.
|      |  |                                                                                                                                                                                               
|10.9  |  | Letter Agreement among the Company and the purchasers
identified on the signature pages to the Securities Purchase
Agreement dated as of December 20, 2002.                                   
|      |  |                                                                                                                                                                                               
|10.10 |  | Blue Rhino Corporation Amended and Restated Stock Option Plan
for Non-Employee Directors, as amended and restated through February
21, 2003.                                                  
|      |  |                                                                                                                                                                                               
|99.1  |  | Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002.                                        
|      |  |                                                                                                                                                                                               
|99.2  |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act
of 2002.                                        

(b)  Reports on Form 8-K filed in the quarter ended January 31, 2003:

|     |  |        |  |            |  |                                                                                                                                                                                                                                                                                                        
|---- |  | ------ |  | ---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Form |  | Item   |  | Date Filed |  | Reporting Purpose                                                                                                                                                                                                                                                                                      
|     |  |        |  |            |  |                                                                                                                                                                                                                                                                                                        
|8-K  |  | Item 5 |  | 11/21/02   |  | To report the completion of the
syndication of a new and expanded $60
million secured loan facility.                                                                                                                                                                                                   
|    
|8-K  |  | Item 2 |  | 11/27/02   |  | To report the acquisition of Platinum
Propane, L.L.C. and Ark Holding Company
LLC and their respective subsidiaries.                                                                                                                                                                                   
|    
|8-K  |  | Item 5 |  | 12/23/02   |  | To report the completion of the private
placement of 1,000,000 shares of our
common stock and Additional Investment
Rights to purchase up to an additional
330,000 shares of our common stock at a
purchase price of $15.79 per share to two
institutional investors for gross
proceeds of $15,790,000.

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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 thereunto duly authorized.

|      |  |                |  |                        |  |                                     
|----- |  | -------------- |  | ---------------------- |  | ------------------------------------
|      |  |                |  | Blue Rhino Corporation
|      |  |                |  |                        |  |                                     
|Date: |  | March 17, 2003 |  | By:                    |  | /s/ Billy D. Prim                   
|      |  |                |  |                        |  |                                     
|      |  |                |  |                        |  | Chairman and Chief Executive Officer
|      |  |                |  |                        |  |                                     
|Date: |  | March 17, 2003 |  | By:                    |  | /s/ Mark Castaneda                  
|      |  |                |  |                        |  |                                     
|      |  |                |  |                        |  | Chief Financial Officer             

21



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##### 



CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Billy D. Prim, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Blue Rhino
Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 17, 2003

/s/ Billy D. PrimBilly D. Prim
Chairman and Chief Executive Officer


22



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##### 



CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Mark Castaneda, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Blue Rhino
Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report; and

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 17, 2003

/s/ Mark CastanedaMark Castaneda
Chief Financial Officer


23