Exhibit 99.1
INTEGRATED PROPANE BUSINESS OF
WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
COMBINED FINANCIAL REPORT
JUNE 30, 2003
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
CONTENTS
REPORT LETTER 1
COMBINED FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations and Changes in Accumulated Deficit 3
Statement of Cash Flows 4
Notes to Combined Financial Statements 5-17
Independent Auditor's Report
To the Director
Integrated Propane Business of
WHM Emprises, Inc. (Debtor-in-Possession)
We have audited the accompanying combined balance sheet of the Integrated
Propane Business of WHM Emprises, Inc. (Debtor-in-Possession) as of June 30,
2003 and the related combined statements of operations and changes in
accumulated deficit and cash flows for the year then ended. These combined
financial statements are the responsibility of the Propane Business's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Integrated Propane Business of WHM Emprises, Inc. (Debtor-in-Possession) as of
June 30, 2003 and the combined results of its operations and its cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.
As more fully described in Note 1, the assets of the Propane Business were sold
and certain liabilities transferred to the purchaser on July 2, 2003.
PLANTE & MORAN, PLLC
August 29,2003
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
COMBINED BALANCE SHEET
<Caption>
JUNE 30,
2003
ASSETS
CURRENT ASSETS
Cash $ 163,008
Accounts receivable 1,592,739
Inventories (Note 5) 1,751,443
Prepaid expenses and other current assets (Notes 4 and 6) 2,821,395
-------------
Total current assets 6,328,585
PROPERTY, PLANT, AND EQUIPMENT - Net (Notes 7 and 10) 15,042,809
OTHER ASSETS
Deposits 725,366
Other 463,593
-------------
Total other assets 1,188,959
-------------
Total assets $ 22,560,353
=============
LIABILITIES AND DEFICIENCY IN ASSETS
LIABILITIES NOT SUBJECT TO COMPROMISE - CURRENT
Notes payable (Note 10) $ 13,810,286
Current portion of capital lease obligations (Note 11) 1,632,444
Accounts payable 6,699,161
Accrued expenses and other current liabilities (Note 8) 5,833,451
-------------
Total liabilities not subject to compromise 27,975,342
LIABILITIES SUBJECT TO COMPROMISE (Notes 1 and 9) 96,041,371
DEFICIENCY IN ASSETS
Common stock 82,000
Additional paid-in capital 6,927,706
Accumulated deficit (108,466,066)
-------------
Total deficiency in assets (101,456,360)
-------------
Total liabilities and deficiency in assets $ 22,560,353
=============
See Notes to Combined Financial Statements.
2
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
COMBINED STATEMENT OF OPERATIONS AND
CHANGES IN ACCUMULATED DEFICIT
<Caption>
YEAR ENDED
JUNE 30,
2003
NET SALES $ 51,962,532
COSTS AND EXPENSES
Cost of sales 48,852,034
Selling, general, and administrative expenses 4,438,350
Depreciation 5,991,022
Interest 1,629,810
-------------
Total costs and expenses 60,911,216
-------------
LOSS - Before reorganization items (8,948,684)
REORGANIZATION ITEMS (Note 3) 7,287,662
-------------
NET LOSS (16,236,346)
ACCUMULATED DEFICIT - July 1, 2002, as restated (Note 16) (92,229,720)
-------------
ACCUMULATED DEFICIT - June 30, 2003 $(108,466,066)
=============
See Notes to Combined Financial Statements.
3
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
COMBINED STATEMENT OF CASH FLOWS
<Caption>
YEAR ENDED
JUNE 30,
2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(16,236,346)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation 5,991,022
Reorganization items 7,287,662
Loss on disposal of assets 379,439
Effect of changes in operating assets and liabilities:
Accounts receivable 846,684
Inventories (638,221)
Prepaid expenses and other current assets (2,312,090)
Accounts payable 5,764,578
Accrued expenses and other current liabilities (6,223,779)
------------
Net cash used in operating activities (5,141,051)
NET CASH USED FOR REORGANIZATION ITEMS (6,072,510)
CASH FLOWS FROM INVESTING ACTIVITIES - Property additions (963,596)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 37,500
Net borrowings under notes payable 11,640,209
Payment on capital lease obligations (434,498)
------------
Net cash provided by financing activities 11,243,211
------------
NET DECREASE IN CASH (933,946)
CASH - July 1, 2002 1,096,954
------------
CASH - June 30, 2003 $ 163,008
============
SUPPLEMENTAL CASH FLOW INFORMATION - Cash paid for interest $ 616,000
See Notes to Combined Financial Statements.
4
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003
NOTE 1 - ORGANIZATION AND PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
The Integrated Propane Business of WHM Emprises, Inc. (the "Propane
Business") is comprised of Level Propane Gases, Inc., Level Energy
Distribution, and EP Transport, all of which are wholly owned
subsidiaries of Level Energy Group, Inc., a wholly owned subsidiary of
WHM Emprises, Inc. The Propane Business is engaged in retail
distribution of propane to residential and commercial customers located
primarily in the midwest and southwest regions of the United States.
The Propane Business's customers are approximately 90 percent
residential and 10 percent commercial.
On June 6, 2002 (the "Petition Date"), Level Propane Gases, Inc. filed
an involuntary petition for liquidation under Chapter 7 of the federal
bankruptcy laws (the "Bankruptcy Code") in the United States Bankruptcy
Court for the Northern District of Ohio (the "Court"). On June 17,
2002, this petition was converted to a petition for reorganization
under Chapter 11 of the Bankruptcy Code by the Court's order. Level
Energy Distribution and EP Transport subsequently filed involuntary
petitions for reorganization under Chapter 11 on September 11, 2002,
and the reorganization of these entities is being jointly administered
by the Court under the caption "In re Level Propane Gases, Inc, et al.
case No. 02-16172."
As a debtor-in-possession, the Propane Business is authorized to
continue to operate as an ongoing business, but is not permitted to
engage in transactions outside the ordinary course of business without
the approval of the Court, after notice and an opportunity for a
hearing. Under the Bankruptcy Code, creditor actions to collect
pre-petition indebtedness, as well as most other pending litigation,
are stayed and other contractual obligations against the Propane
Business may not be enforced. In addition, under the Bankruptcy Code,
the Propane Business may assume or reject executory contracts,
including lease obligations. Parties affected by these rejections may
file claims with the Court in accordance with the reorganization
process. Absent an order of the Court, substantially all pre-petition
liabilities are subject to settlement under a plan of reorganization to
be voted upon by creditors and equity holders and approved by the
Court.
Following the bankruptcy filings, the Propane Business obtained and
received Court approval for a $15,000,000 debtor-in-possession
financing facility ("DIP Credit Facility") from Eaglerock Propane, Ltd.
to be used for payment of permitted pre-petition claims, working
capital needs, letters of credit and other general corporate purposes
(see Note 10 for additional details on the DIP Credit Facility).
5
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003
NOTE 1 - ORGANIZATION AND PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
On June 20, 2003, certain secured creditors (primarily financial
institutions and equipment lessors) entered into a Settlement and
Distribution Agreement, whereby those parties consented to a sale of
the Propane Business's assets free and clear of all liens, claims,
encumbrances, and interests and further agreed that their respective
lien and security interests shall attach to the proceeds from such a
sale.
On July 2, 2003, the Propane Business assets were sold and certain
liabilities transferred to Eaglerock Propane, Ltd. in a Court-approved
transaction under Section 363(f) of the Bankruptcy Code. Under the
terms of the asset purchase agreement, the purchase price totaled
approximately $22,400,000, with assumption of liabilities approximating
$2,439,000.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The combined financial statements, which have
been prepared on a going-concern basis, include the accounts of Level
Propane Gases, Inc., Level Energy Distribution, and EP Transport,
wholly owned subsidiaries of Level Energy Group, Inc., which is a
wholly owned subsidiary of WHM Emprises, Inc. All significant
intercompany balances have been eliminated in combination.
Details of the respective capital structure of the entities included in
the combined financial statements are as follows:
Level Propane Level Energy
Gases, Inc. Distribution EP Transport Combined Totals
----------- ------------ ------------ ---------------
Common stock $ 80,500 $ 500 $ 1,000 $ 82,000
Additional paid-in capital 6,927,706 -- -- 6,927,706
Accumulated deficit (100,798,990) (2,464,919) (5,202,157) (108,466,066)
------------- ------------- ------------- -------------
Total $ (93,790,784) $ (2,464,419) $ (5,201,157) $(101,456,360)
============= ============= ============= =============
Level Propane Gases, Inc. has 750 shares authorized and 75 shares
issued and outstanding. Level Energy Distribution has 500 shares
authorized, issued and outstanding. EP Transport has 1,000 share
authorized and 100 shares issued and outstanding. The common stock
amounts have been recorded at their respective stated values.
6
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BANKRUPTCY ACCOUNTING - Since the Petition Date, the Propane Business
has applied the provisions of Statement of Position 90-7, Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code ("SOP
90-7"), which requires that the financial statements for periods
including and subsequent to filing the Chapter 11 petition distinguish
transactions and events that are directly associated with the
reorganization from the ongoing operations of the business.
CASH AND CASH EQUIVALENTS - The Propane Business considers all highly
liquid investments with an original maturity of three months or less to
be cash equivalents. The Propane Business also has cash held in escrow
accounts that are restricted for use in the bankruptcy proceedings and
classified in other current assets.
TRADE ACCOUNTS RECEIVABLE - Credit is extended to customers based on an
evaluation of the customer's financial condition and generally
collateral is not required. Trade accounts receivable are stated at
invoice amounts. An allowance for doubtful accounts is established on
an aggregate basis. The allowance is computed using historical loss
rate factors applied to unpaid accounts stratified by the number of
days outstanding. Loss rate factors are based on historical loss
experience and adjusted for economic conditions and other trends
affecting the Propane Business's ability to collect outstanding
amounts.
INVENTORIES - Inventories are valued at the lower of cost, determined
by the first-in, first-out method, or market.
PROPERTY, PLANT, AND EQUIPMENT - Expenditures for property, plant, and
equipment and renewals and betterments that extend the estimated useful
lives of assets are capitalized at cost. Expenditures for routine
maintenance are expensed as incurred. Depreciation is computed on the
straight-line method over the estimated useful lives, which generally
are 5 to 20 years for land and leasehold improvements, 5 to 10 years
for transportation equipment, 4 to 30 years for tanks, fixtures, and
equipment, and 5 to 7 years for office and computer equipment.
FINANCIAL INSTRUMENTS - The Propane Business utilizes financial
instruments to manage the exposure to fluctuations in the cost of
propane. The Propane Business does not hold or issue derivative
financial instruments for trading purposes.
7
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Propane Business accounts for derivative instruments in accordance
with Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS
133, as amended, establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that all
derivative instruments be recognized as either assets or liabilities
and measured at fair value. The accounting for changes in fair value
depends upon the purpose of the derivative instrument and whether it is
designated and qualifies for hedge accounting. To the extent a
derivative instrument qualifies and is designated as a hedge of the
variability of cash flows associated with a forecasted transaction
("cash flow hedge"), the effective portion of the gain or loss on such
derivative instrument is generally reported in other comprehensive
income and the ineffective portion, if any, is reported in net income.
Such amounts reported in other comprehensive income are reclassified
into net income when the forecasted transaction affects earnings. If a
cash flow hedge is discontinued because it is probable that the
forecasted transaction will not occur, the net gain or loss is
immediately reclassified into earnings. To the extent derivative
instruments qualify and are designated as hedges of changes in the fair
value of an existing asset ("fair value hedge"), unrealized gains and
losses are reflected as adjustments to the recorded asset and any
realized gain or loss on the hedge instrument is recognized in cost of
sales.
CUSTOMER DEPOSITS - Customer deposits primarily represent cash received
by the Propane Business from customers for propane purchased that will
be delivered at a future date.
DEFERRED REVENUE - Lock-in fees received from customers who commit to
purchase a specified number of gallons of propane over a 12-month
period for a fixed price are deferred and recognized as revenue when
the contracted propane is delivered.
DEFERRED GAINS - Gains on sale-leaseback transactions are deferred and
recognized based on the straight-line method over the term of the
related leases, which range from 5 to 15 years.
REVENUE RECOGNITION - Sales of propane are recognized at the time of
delivery to the customer. Revenue from tank repairs and maintenance is
recognized upon completion of service.
FREIGHT COSTS - Freight and related costs, which are recorded as
incurred, are classified in cost of sales.
8
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS - Advertising costs approximated $519,000 in 2003 and
are expensed as incurred.
INCOME TAXES - The entities included in the combined financial
statements have elected to be treated as Subchapter S Corporations
under the Internal Revenue Code. The stockholder includes the Propane
Business's taxable income or loss in its returns and, therefore, no
provision is made for federal income taxes in the accompanying combined
financial statements.
USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - The Financial Accounting
Standards Board ("FASB") recently issued the following statements that
are relevant to the Propane Business and its activities: SFAS No. 143,
Accounting for Asset Retirement Obligations (SFAS 143); SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144); SFAS No. 145, Rescission of FASB Statements Nos. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections (SFAS
145); SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities (SFAS 146); SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure (SFAS 148); SFAS
No. 149, Amendment to Statement 133 on Derivative Instruments and
Hedging Activities (SFAS 149); and SFAS 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity (SFAS 150).
SFAS 143 addresses financial accounting and reporting for legal
obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS 143 requires
that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred with a
corresponding increase in the carrying value of the related asset.
Entities shall subsequently charge the retirement cost to expense using
a systematic and rational method over the related asset's useful life
and adjust the fair value of the liability resulting from the passage
of time through charges to operating expense. The adoption of SFAS 143
did not have a material effect on the financial position or results of
operations.
9
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SFAS 144 supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of (SFAS
121), and the accounting and reporting provisions of APB Opinion No.
30, Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, as it relates to the
disposal of a segment of a business. SFAS 144 establishes a single
accounting model for long-lived assets to be disposed of based upon the
framework of SFAS 121, and resolves significant implementation issues
of SFAS 121. The adoption of SFAS 144 did not affect the Propane
Business's financial position or results of operations.
SFAS 145 rescinded SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt (an amendment of APB Opinion No. 30) (SFAS 4),
effective for fiscal years beginning after May 15, 2002. SFAS 4 had
required that material gains and losses on extinguishment of debt be
classified as an extraordinary item. Under SFAS 145, it is less likely
that a gain or loss on extinguishment of debt would be classified as an
extraordinary item in the combined statement of income. Among other
things, SFAS 145 also amends SFAS No. 13, Accounting for Leases, to
require that certain lease modifications that have economic effects
similar to sale-leaseback transactions be accounted for in the same
manner as sale-leaseback transactions. The provisions of SFAS 145
relating to leases were effective for transactions occurring after May
15, 2002. The adoption of SFAS 145 did not affect the Propane
Business's financial position or results of operations.
SFAS 146 addresses accounting for costs associated with exit or
disposal activities and replaces the guidance in Emerging Issues Task
Force (EITF) No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity. Generally,
SFAS 146 requires that a liability for costs associated with an exit or
disposal activity, including contract termination costs, employee
termination benefits and other associated costs, be recognized when the
liability is incurred. Under EITF No. 94-3, a liability was recognized
at the date an entity committed to an exit plan. SFAS 146 will be
effective for disposal activities initiated after December 31, 2002.
The adoption of SFAS 146 did not affect the Propane Business's
financial position or results of operations.
SFAS 148 amends SFAS 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the
fair value-based method of accounting for stock-based employee
compensation. SFAS 148 also addresses disclosure requirements in both
annual and interim financial statements. SFAS 148 is effective for
fiscal years ending after December 15, 2002. The adoption of SFAS 148
did not affect the Propane Business's financial position or results of
operations.
10
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SFAS 149 amends and clarifies financial accounting and reporting for
derivative instruments including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS 133.
This statement will be effective for contracts entered into after June
30, 2003. The Propane Business does not expect SFAS 149 to affect the
Propane Business's financial position or results of operations.
SFAS 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of these instruments were previously recorded as
equity. This statement will be effective for the first fiscal period
beginning after December 15, 2003. The Propane Business does not expect
SFAS 150 to affect the Propane Business's financial position or results
of operations.
NOTE 3 - REORGANIZATION ITEMS
Reorganization items represent amounts incurred as a direct result of
the Propane Business's bankruptcy filing. Such amounts are presented
separately in the combined statement of operations and changes in
accumulated deficit, and are comprised of the following:
Professional fees $6,429,086
Employee and other costs 858,576
----------
Reorganization items $7,287,662
==========
NOTE 4 - FINANCIAL INSTRUMENTS
Option contracts are used by the Propane Business to manage exposure to
fluctuations in the cost of propane. These derivative instruments have
been designated by the Propane Business as fair value hedges under SFAS
133. The fair values of these derivative instruments is affected by
changes in propane product prices. The carrying amount of the option
contacts of $168,000, included in current assets, approximates the fair
value of these instruments at June 30, 2003. These contracts expire
through March 2004.
11
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003
NOTE 4 - FINANCIAL INSTRUMENTS (CONTINUED)
In addition to the above derivative instruments, the Propane Business
also routinely enters into contracts for future sales and purchases of
propane. These contracts generally qualify under the normal purchases
and normal sales exception of SFAS 133 and, therefore, are not
recognized in the accompanying combined financial statements. The
aggregate commitment under such sale contracts at June 30, 2003
approximated 4.2 million gallons of propane at prices ranging from
$1.11 to $2.11 per gallon. The aggregate commitment under purchase
contracts at June 30, 2003 approximated 16 million gallons of propane
at amounts based on the market price of the propane at the time of
delivery. These commitments extend through March 2004.
NOTE 5 - INVENTORIES
Inventories consist of the following at June 30, 2003:
Propane $1,646,164
Materials, supplies, and other 105,279
----------
Total inventories $1,751,443
==========
NOTE 6 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following at
June 30, 2003:
Prepaid insurance $1,122,731
Cash held in escrow accounts 727,281
Prepaid fuel costs 682,508
Other current assets 288,875
----------
Total prepaid expenses and other current assets $2,821,395
==========
12
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003
NOTE 7 - PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following at June 30,
2003:
Land and land improvements $ 1,898,925
Tanks and fixtures 36,767,882
Transportation equipment 13,575,351
Office and computer equipment 7,178,414
Leasehold improvements 2,929,528
-----------
Total property, plant, and equipment 62,350,100
Less accumulated depreciation 47,307,291
-----------
Net carrying amount $15,042,809
===========
Depreciation for 2003 approximated $5,991,000.
NOTE 8 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following
at June 30, 2003:
Accrued interest $1,016,314
Deferred gains on sale-leaseback transactions 1,445,103
Accrued expenses other than wages and benefits 1,207,000
Customer deposits 897,694
Accrued wages and benefits 592,917
Deferred revenue 366,939
Other 307,484
----------
Total accrued expenses and other current liabilities $5,833,451
==========
</Table>
13
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003
NOTE 9 - LIABILITIES SUBJECT TO COMPROMISE
Under bankruptcy laws, actions by creditors to collect indebtedness
owed by the Propane Business prior to the Petition Date are stayed and
certain pre-petition contractual obligations may not be enforced. The
Propane Business has received the Court's approval to pay certain
pre-petition liabilities including employee salaries and wages,
benefits, and other employee obligations. Except for secured debt, all
pre-petition liabilities have been classified as liabilities subject to
compromise.
The following table summarizes the components of liabilities subject to
compromise as of June 30, 2003:
Bank debt $68,083,123
Accounts payable 12,335,015
Capital lease obligations 6,030,001
Accrued liabilities 4,743,781
Amounts due to affiliates 2,793,774
Litigation settlement obligation 1,415,587
Other liabilities 640,090
-----------
Total liabilities subject to compromise $96,041,371
===========
NOTE 10 - DEBT
Debt consisted of the following at June 30, 2003:
Note payable to financial institution, due on demand with interest
payable monthly at blended rate of 6.4% $ 78,288,275
DIP credit facility, due on demand with maximum borrowings of up to
$15,000,000 with interest due monthly at prime plus 5% (9% at
June 30, 2003) 3,065,604
Other notes payable, due 2004 539,530
------------
Total 81,893,409
Less current portion (13,810,286)
------------
Amounts included in liabilities subject to compromise $ 68,083,123
============
14
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003
NOTE 10 - DEBT (CONTINUED)
The Propane Business is a co-borrower, along with Park Place Co., a
wholly owned subsidiary of WHM Emprises, Inc., on the above financial
institution note payable. The financial statements of Park Place Co.,
the other borrower, reflect an additional $8,625,000 that is part of
the overall obligation under the note. This note, which is secured by
substantially all of the Propane Business's assets, is subject to a
forbearance agreement as a result of default. This forbearance
agreement was included in the Settlement and Distribution Agreement
described in Note 1.
Borrowings on the DIP credit facility are subject to a borrowing base
calculated on a percentage of eligible assets. This agreement is also
secured by substantially all of the Propane Business's assets.
On the Petition Date, the Propane Business ceased accruing interest on
all unsecured pre-petition debt in accordance with SOP 90-7.
Contractual interest not accrued or recorded on pre-petition debt
approximated $6,120,000 in 2003.
NOTE 11 - CAPITAL LEASES
Assets acquired under capital leases include primarily tanks and
transportation equipment. These assets are generally amortized over
the estimated useful life of the equipment due to the existence of
bargain purchase options at the end of the lease term. Amortization
expense of these assets is included in depreciation expense in 2003.
At June 30, 2003, assets under capital leases had an original cost of
approximately $13,904,000 and accumulated amortization of
approximately $9,685,000.
These leases include original maturity dates through 2006; however,
all such leases are included in the Settlement and Distribution
Agreement described in Note 1. Consequently, the secured amounts of
the capital lease obligations have been classified as liabilities not
subject to compromise and the unsecured portions of these claims have
been classified as liabilities subject to compromise.
15
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003
NOTE 12 - OPERATING LEASES
The Propane Business leases various manufacturing and other equipment
under noncancelable operating leases with terms in excess of one year.
Total rent expense under all operating lease agreements was $8,256,000
in 2003. Future minimum lease payments for the years ending December
31 are as follows:
2004 $10,654,592
2005 4,428,350
2006 2,892,703
2007 2,132,913
2008 846,474
Thereafter 352,382
-----------
Total $21,307,414
===========
Certain of these lease agreements are included in the Settlement and
Distribution Agreement described in Note 1.
NOTE 13 - RETIREMENT PLAN
The Propane Business has a 401(k) defined contribution savings and
retirement plan for substantially all of its employees. An employee
may elect to contribute an amount up to 15 percent of compensation
during each plan year, subject to ERISA limitations. The plan provides
for discretionary matching contributions by the Propane Business based
on each employee's voluntary contribution limited to 50 percent of the
first 4 percent contributed by the employee. The expense related to
this plan in 2003 was approximately $21,000.
NOTE 14 - RELATED PARTY TRANSACTIONS
Prior to July 1, 2002, the Propane Business regularly advanced funds
to and received advances from entities related through common
ownership. The majority of these entities are included in the jointly
administered bankruptcy reorganization. At June 30, 2003, the Propane
Business had amounts due to these related parties of approximately
$2.8 million.
During 2003, the Propane Business paid approximately $154,000 to its
director for consulting services and reimbursement of expenses. The
Propane Business also paid approximately $578,000 in rent to entities
related through common ownership.
16
INTEGRATED PROPANE BUSINESS OF WHM EMPRISES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003
NOTE 15 - COMMITMENTS AND CONTINGENCIES
At June 30, 2003, the Propane Business had approximately 13,000
installed propane tanks located at inactive customers. The
accompanying combined financial statements include approximately
$300,000 recognized for estimated costs to remove such tanks from
customer sites. Management believes, after consultation with counsel,
that it does not have an obligation to remove these tanks in all
circumstances and has recognized estimated costs of removal for those
sites where such an obligation may exist. Further, management believes
that obligations, if any, for removal of tanks from additional sites
would not have a material adverse effect on the Propane Business's
financial position or results of operations.
NOTE 16 - PRIOR PERIOD ADJUSTMENT
The combined accumulated deficit at July 1, 2002 has been adjusted to
correct errors in prior years. These errors relate to items
inappropriately capitalized as property and equipment, inadequate
allowances for uncollectible accounts receivable, unrecorded
liabilities, and inappropriate depreciation periods. Had these errors
not been made, the net loss as previously reported for the year ended
June 30, 2002 would have increased by approximately $2,500,000.
Accumulated deficit, as previously reported $(71,559,196)
Effect of correction for:
Inappropriately capitalized property and equipment (9,320,284)
Inappropriate depreciation periods (8,666,726)
Uncollectible amounts receivable (1,862,400)
Unrecorded liabilities (821,114)
------------
Accumulated deficit at July 1, 2002, as restated $(92,229,720)
============
17