EXHIBIT 99.2
INDEPENDENT PROPANE COMPANY HOLDINGS
AND SUBSIDIARIES
Consolidated Financial Statements
As of September 30, 2001 and 2000
Together with Report of Independent Public Accountants
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Independent Propane Company Holdings:
We have audited the accompanying consolidated balance sheets of Independent
Propane Company Holdings (a Delaware corporation) and subsidiaries (the
"Company") as of September 30, 2001 and 2000, and the related consolidated
statements of operations, changes in shareholders' deficit, and cash flows for
each of the three years in the period ended September 30, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Independent Propane Company
Holdings and subsidiaries as of September 30, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 2001, in conformity with accounting principles generally
accepted in the United States.
/s/ Arthur Andersen LLP
Dallas, Texas,
November 16, 2001
INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2001 AND 2000
ASSETS 2001 2000
------ ------------ ------------
CURRENT ASSETS:
Cash $ 1,003,667 $ 809,997
Accounts receivable, net of allowance for
doubtful accounts of approximately
$867,000 and $707,000, respectively 5,772,793 5,831,190
Inventories, net 3,324,495 3,601,690
Other current assets 586,764 396,306
------------ ------------
Total current assets 10,687,719 10,639,183
------------ ------------
PROPERTY, PLANT, AND EQUIPMENT:
Land 1,515,322 1,663,412
Buildings 2,747,273 2,666,662
Office furniture and equipment 3,169,399 3,276,085
Shop equipment 1,232,236 950,540
Tanks 38,166,897 37,083,629
Vehicles 10,028,647 9,122,812
------------ ------------
56,859,774 54,763,140
Less- Accumulated depreciation (18,201,121) (14,158,003)
------------ ------------
Net property, plant, and equipment 38,658,653 40,605,137
------------ ------------
GOODWILL, net of accumulated amortization
of $6,840,356 and $5,175,632, respectively 19,216,266 20,702,730
NONCOMPETITION AGREEMENTS, net of
accumulated amortization of $2,696,431
and $1,993,740, respectively 1,341,582 2,031,873
DEBT ISSUANCE COSTS, net of accumulated
amortization of $1,730,298 and $1,373,892 683,464 1,039,870
OTHER NONCURRENT ASSETS, net 490,517 389,017
------------ ------------
Total assets $ 71,078,201 $ 75,407,810
============ ============
The accompanying notes are an integral part of these consolidated balance
sheets.
INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2001 AND 2000
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' DEFICIT 2001 2000
------------------------------------- ------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 4,879,937 $ 5,322,396
Accrued liabilities 1,466,905 1,399,882
Short-term notes payable - 466,000
Current maturities of long-term debt 6,408,576 4,721,242
------------ ------------
Total current liabilities 12,755,418 11,909,520
------------ ------------
CUSTOMER DEPOSITS 174,823 241,495
DEFERRED TAXES, net 100,000 100,000
DIVIDENDS PAYABLE ON SERIES E SENIOR
REDEEMABLE PREFERRED STOCK 15,143,381 9,466,691
LONG-TERM DEBT, net of current maturities 48,557,593 56,687,136
SERIES E SENIOR REDEEMABLE PREFERRED STOCK,
35,000 shares authorized, 29,000 issued and outstanding,
$1,000 redemption and carrying value 29,000,000 29,000,000
COMMITMENTS AND CONTINGENCIES
(Notes 9 and 12)
SHAREHOLDERS' DEFICIT:
Common stock - par value $.01 per share, 168,113 and 170,613
shares issued, respectively 1,681 1,706
Additional paid-in capital 1,221,152 1,221,127
Retained deficit (27,017,510) (24,361,528)
------------ ------------
(25,794,677) (23,138,695)
Treasury stock - 86,033 shares, at cost (8,858,337) (8,858,337)
------------ ------------
Total shareholders' deficit (34,653,014) (31,997,032)
------------ ------------
Total liabilities and shareholders' deficit $ 71,078,201 $ 75,407,810
============ ============
The accompanying notes are an integral part of these consolidated balance
sheets.
INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999
2001 2000 1999
----------- ------------ ------------
SALES:
Propane $67,358,523 $ 49,372,705 $ 37,685,218
Other 9,061,668 9,600,372 7,304,299
----------- ------------ ------------
Total sales 76,420,191 58,973,077 44,989,517
----------- ------------ ------------
COST OF SALES:
Propane 34,130,449 24,078,875 12,405,337
Other 3,630,779 4,249,833 3,631,276
----------- ------------ ------------
Total cost of sales 37,761,228 28,328,708 16,036,613
----------- ------------ ------------
GROSS PROFIT 38,658,963 30,644,369 28,952,904
OPERATING EXPENSES:
Selling, general, and administrative 22,321,832 21,922,915 21,305,182
Depreciation and amortization 7,018,730 6,883,411 5,544,293
----------- ------------ ------------
Total operating expenses 29,340,562 28,806,326 26,849,475
----------- ------------ ------------
OPERATING PROFIT 9,318,401 1,838,043 2,103,429
INTEREST EXPENSE, net 6,297,693 7,393,941 5,094,672
----------- ------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES 3,020,708 (5,555,898) (2,991,243)
INCOME TAXES - - -
----------- ------------ ------------
NET INCOME (LOSS) 3,020,708 (5,555,898) (2,991,243)
LESS: DIVIDENDS ON PREFERRED STOCK (5,676,690) (4,945,571) (4,309,777)
----------- ------------ ------------
NET LOSS AVAILABLE TO COMMON
SHAREHOLDERS $(2,655,982) $(10,501,469) $ (7,301,020)
=========== ============ ============
NET LOSS PER COMMON SHARE:
Basic and diluted $(15.68) $(61.07) $(42.13)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON SHARE
EQUIVALENTS OUTSTANDING:
Basic and diluted 169,363 171,959 173,304
The accompanying notes are an integral part of these consolidated financial
statements.
INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999
Additional Total
Common Paid-in Retained Treasury Shareholders'
Stock Capital Deficit Stock Equity
-------------- -------------- -------------- ------------ --------------
BALANCE, September 30, 1998 $ 1,733 $ 1,221,100 $ (6,559,039) $(8,858,337) $(14,194,543)
Preferred stock dividends - - (4,309,777) - (4,309,777)
Net loss - - (2,991,243) - (2,991,243)
----------- ----------- ------------ ----------- -------------
BALANCE, September 30, 1999 1,733 1,221,100 (13,860,059) (8,858,337) (21,495,563)
Cancellation of subscription receivable (27) 27 - - -
Preferred stock dividends - - (4,945,571) - (4,945,571)
Net loss - - (5,555,898) - (5,555,898)
----------- ----------- ------------ ----------- -------------
BALANCE, September 30, 2000 1,706 1,221,127 (24,361,528) (8,858,337) (31,997,032)
Cancellation of subscription receivable (25) 25 - - -
Preferred stock dividends - - (5,676,690) - (5,676,690)
Net income - - 3,020,708 - 3,020,708
----------- ----------- ------------ ----------- -------------
BALANCE, September 30, 2001 $ 1,681 $ 1,221,152 $(27,017,510) $(8,858,337) $(34,653,014)
=========== =========== ============ =========== =============
The accompanying notes are an integral part of these consolidated financial
statements.
INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999
2001 2000 1999
----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,020,708 $(5,555,898) $ (2,991,243)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities-
Depreciation and amortization 7,018,730 6,883,411 5,544,293
Amortization of debt issuance costs 356,406 389,508 707,265
Changes in, (net of effects from acquisitions)-
Accounts receivable, net 58,397 (2,090,924) (1,019,744)
Inventories, net 277,195 (308,756) (398,640)
Other current assets (190,458) (5,883) (103,580)
Accounts payable and accrued liabilities (375,436) 1,517,475 1,174,654
Customer deposits (66,672) (45,224) 14,150
----------- ----------- ------------
Net cash provided by operating activities 10,098,870 783,709 2,927,155
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (2,736,547) (2,799,446) (3,739,147)
Net cash paid in acquisitions - (5,273,317) (18,675,845)
(Increase) decrease in other noncurrent assets (260,444) 18,588 580,909
----------- ----------- ------------
Net cash used in investing activities (2,996,991) (8,054,175) (21,834,083)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term notes payable (466,000) (1,212,000) (160,000)
Net (payments) proceeds from credit agreement (4,382,528) 10,200,878 19,490,330
Proceeds from long-term debt - - 959,873
Payments on long-term debt (2,059,681) (1,601,984) (1,393,486)
Debt issuance costs - (8,445) (134,148)
----------- ----------- ------------
Net cash (used in) provided by financing activities (6,908,209) 7,378,449 18,762,569
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH 193,670 107,983 (144,359)
CASH, beginning of period 809,997 702,014 846,373
----------- ----------- ------------
CASH, end of period $ 1,003,667 $ 809,997 $ 702,014
=========== =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for interest $ 5,864,832 $ 6,904,101 $ 4,340,771
Noncash activities-
Debt issued in acquisitions $ - $ 696,500 $ 1,919,000
Preferred stock dividends $ 5,676,690 $ 4,945,571 $ 4,309,777
The accompanying notes are an integral part of these consolidated financial
statements.
INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
1. THE COMPANY:
Independent Propane Company Holdings, a Delaware corporation, and subsidiaries
(the "Company"), is a distributor of propane gas and related merchandise with
operations primarily in the Southern and Southeastern United States. At
September 30, 2001, the Company had 44 branch locations and 24 satellite
locations. The Company's business expansion to date has occurred mainly through
the acquisitions of other propane outlets. Acquisitions which occurred during
the periods presented in the accompanying consolidated financial statements are
discussed in Note 6.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION
All significant intercompany accounts and transactions have been eliminated in
the accompanying consolidated financial statements.
INVENTORIES
Inventories are stated at the lower of cost (weighted average for propane and
first-in, first-out for merchandise) or market.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation on property,
plant, and equipment is calculated using the straight-line method over the
estimated useful lives of the assets. Original cost and related accumulated
depreciation are removed from the accounts in the year assets are retired.
Maintenance and repairs are charged to expense as incurred.
INTANGIBLES
Intangible assets include the cost of noncompetition agreements and purchase
price in excess of the estimated fair value of net assets acquired ("goodwill").
The cost of noncompetition agreements is being amortized over periods of 2 to 7
years, while goodwill is being amortized over 15 years, using the straight-line
method.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," the Company records impairment for losses on its long-lived
assets and goodwill when events or circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of the assets. No such impairment
losses have been recognized to date.
1
INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
DEBT ISSUANCE COSTS
Debt issuance costs incurred in connection with obtaining and amending the debt
are being amortized over the life of the related loan and are included in
interest expense in the accompanying consolidated statements of operations.
INCOME TAXES
Deferred income taxes are recorded, where appropriate, to reflect the estimated
future tax effects of differences between financial statement bases and tax
bases of assets and liabilities.
REVENUE RECOGNITION
Propane sales are recognized when the product is delivered to the customer.
Other revenue, which primarily includes other fuel sales, merchandise sales, and
tank rental income, is recognized when products are delivered and as services
are rendered.
USE OF ESTIMATES
The preparation of these consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
CREDIT CONCENTRATION
The Company generally extends credit to its retail customers through delivery
into company and customer owned propane tanks. No individual customer comprises
more than 5% of the Company's business thus reducing the risk as a result of the
large volume of customers. Provisions for doubtful accounts receivable are
reflected in the consolidated financial statements and have generally been
within management's expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company enters into various financial instruments in the normal course of
business. The carrying values of the Company's short-term financial
instruments, including cash, receivables, and short-term notes payable
approximate their fair value because of the short maturity of the instruments.
The carrying value of the long-term debt approximates fair value because of its
variable interest rate.
NEW ACCOUNTING STANDARD
In July 2001, SFAS No. 142 "Goodwill and Other Intangible Assets" was issued.
The Company is required to adopt this new standard at the beginning of fiscal
2003, although early adoption is permitted at the beginning of fiscal 2002.
Subsequent to the adoption of SFAS No. 142, recorded goodwill is not amortized.
Adoption of the standard also includes transitional impairment testing of
previously recorded goodwill. The Company has not early adopted this new
standard and has not determined if impairment of goodwill will be required at
the date of adoption.
2
INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
3. INVENTORIES:
As of September 30, 2001 and 2000, inventories consisted of:
2001 2000
---------- ------------
Propane $1,845,677 $2,080,454
Merchandise 1,585,827 1,616,826
Other fuels 152,991 164,410
Reserves (260,000) (260,000)
---------- ------------
$3,324,495 $3,601,690
========== ============
4. PROPERTY, PLANT, AND EQUIPMENT:
A summary of the estimated useful lives utilized for depreciation purposes is as
follows:
Estimated
Lives (Years)
------------
Buildings 40
Office furniture and equipment 5 to 10
Shop equipment 10
Tanks 20
Vehicles 5
Depreciation expense related to property, plant, and equipment in 2001, 2000,
and 1999 was approximately $4,363,000, $4,658,000, and $3,759,000, respectively.
Certain of the Company's property, plant, and equipment has been pledged as
security under certain long-term debt agreements and the Amended and Restated
Credit Agreement (see Note 8).
5. INTANGIBLES:
As of September 30, 2001 and 2000, intangibles consisted primarily of goodwill
and noncompetition agreements (see Note 2). Amortization expense related to
intangible assets for 2001, 2000, and 1999 totaled approximately $2,656,000,
$2,225,000, and $1,785,000, respectively.
6. ACQUISITIONS:
In fiscal 2001, the Company did not complete any acquisitions. In fiscal 2000,
the Company acquired assets of nine Texas propane companies. The total purchase
price for those acquisitions included approximately $6,044,000 in cash and
$697,000 in promissory notes with terms ranging from 1 to 7 years.
In connection with one acquisition, the Company also entered into a certain
noncompetition agreement with the previous owner for approximately $235,000 for
7 years. Purchase price in excess of the fair value of assets acquired of
approximately $3,067,000 was allocated to intangible assets.
3
INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
7. SHORT-TERM NOTES PAYABLE:
As of September 30, 2001 and 2000, short-term notes payable consisted of notes
payable, at varying interest rates, to previous owners of acquired companies
totaling $0 and $466,000, respectively, payable within one year of the related
acquisition date.
8. LONG-TERM DEBT:
As of September 30, 2001 and 2000 long-term debt consisted of the following:
2001 2000
----------- ------------
Revolving line of credit up to a maximum of $21,000,000 at September 30, 2001
and 2000, matures on September 30, 2003, requires monthly payments of interest
at either the Bank Prime Loan Rate or LIBOR, plus an incremental interest rate
of up to 4% (7.1% and 10.6% at September 30, 2001 and 2000, respectively) $16,541,734 $17,724,262
Term A Loan, matures on September 30, 2003, requires quarterly payments of
principal and interest at either the Bank Prime Loan Rate or LIBOR, plus an
incremental interest rate of up to 4% (7.1% and 10.6% at September 30, 2001
and 2000, respectively), quarterly installments range from $50,000 beginning
after June 30, 2000, to $2,500,000 beginning after December 31, 2002 16,000,000 19,000,000
Term B Loan, matures on September 30, 2003, requires quarterly payments of
principal and interest at either the Bank Prime Loan Rate or LIBOR, plus an
incremental interest rate of up to 4% (7.1% and 10.6% at September 30, 2001
and 2000, respectively), payable quarterly in installments of 0.25% of Term B
loan outstanding 19,450,000 19,650,000
Notes payable to sellers for acquisitions, mature on various dates from
February 2001 through June 2010, principal and interest varying from 8% to 12%
payable in monthly installments 2,611,987 4,143,209
Other 362,448 890,907
----------- -----------
54,966,169 61,408,378
Less- Current maturities 6,408,576 4,721,242
----------- -----------
Total long-term debt, net of current maturities $48,557,593 $56,687,136
=========== ===========
4
INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
The Company has a credit agreement which consists of a revolving line of credit,
Term A loan, and Term B loan (collectively, the "Credit Agreement"). The Credit
Agreement matures on September 30, 2003, and is collateralized by the assets of
the Company.
The Credit Agreement contains various financial covenants under which the
Company is obligated. These financial covenants, among others, include
requirements for debt to cash flow, interest coverage, and fixed charge
coverage. As of September 30, 2001, the Company is in compliance with these
covenants.
At September 30, 2001 and 2000, the weighted average interest rate for
outstanding balances under this agreement equaled 7.2% and 10.6%, respectively.
As part of the Credit Agreement, the lender received a warrant to purchase 100
shares of Series D Convertible Preferred Stock (see Note 12). The lender also
invested $1,000,000 in exchange for Series E Preferred Stock and a related
warrant.
Principal maturities of long-term debt outstanding at September 30, 2001, over
the next five fiscal years and thereafter are as follows:
2002 $ 6,408,576
2003 47,836,207
2004 263,561
2005 189,356
2006 116,607
Thereafter 151,862
-----------
$54,966,169
===========
9. LEASES:
The Company rents most of its office and branch location space under leases
which range from 1 to 15 years. The Company also leases vehicles, equipment,
and land under leases ranging from 6 months to 15 years. At September 30, 2001,
the Company was committed to make future rental payments under several long-term
operating lease agreements. The future minimum payments required over the next
five fiscal years and thereafter are summarized below:
2002 $ 909,784
2003 833,316
2004 688,668
2005 571,441
2006 229,369
Thereafter 290,675
----------
Total minimum lease payments $3,523,253
==========
Total rent expense for the years ended September 30, 2001, 2000, and 1999, was
approximately $797,000, $848,000, and $820,000, respectively, and is included in
selling, general, and administrative expenses.
10. INCOME TAXES:
The Company recorded no income tax benefit for the years ended September 30,
2000 and 1999, due to an offsetting amount increasing the valuation allowance.
The Company made no provision for income taxes for
5
INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
the year ended September 30, 2001, due to the utilization of the net operating
loss carryforward and a corresponding reduction in the valuation allowance.
As of September 30, 2001 and 2000, the tax effects of temporary differences
which gave rise to the net deferred income tax liability were as follows:
2001 2000
----------- -----------
Allowance for doubtful accounts $ 294,780 $ 240,380
Property, plant, and equipment (2,331,079) (2,007,482)
Net operating loss carryforwards 3,464,470 4,458,587
Other 35,567 (58,380)
Valuation allowance (1,563,738) (2,733,105)
----------- -----------
Net noncurrent deferred tax liability $ (100,000) $ (100,000)
=========== ===========
As of September 30, 2001, the Company had net operating loss carryforwards of
approximately $10,190,000 for federal income tax purposes. The Company's income
tax provision differed from the federal statutory rate of 34% due to the
establishment of a valuation allowance for the net operating loss carryforwards,
the realization of which cannot be assured at this time. Substantially all of
the net operating loss carryforwards at September 30, 2001, are subject to
certain limitations under Internal Revenue Code Section 382.
11. OTHER RELATED-PARTY TRANSACTIONS:
For the years ended September 30, 2001, 2000, and 1999, the Company had
purchased legal services totaling approximately $32,000, $86,000, and $102,000
respectively, from certain shareholders. These legal costs were primarily
associated with the various acquisitions, and the amendments to the Credit
Agreement.
As of September 30, 2001, 2000, and 1999, in connection with the sale of stock,
the Company had a note receivable from officers of the Company totaling $0,
$250,000, and $653,650, respectively, which are included as a reduction in
additional paid-in capital. The notes bore interest at 8%.
12. PUT WARRANTS:
In connection with the Credit Agreement, the lender received a warrant to
purchase 100 shares of the Series D Convertible Preferred Stock, $.01 par value,
at an exercise price of $1.00 per share. The warrant is exercisable from
September 11, 1998, through September 11, 2008. The holder of the warrant has
the right to put its warrant to the Company at a price as defined in the Credit
Agreement. The put exercise period is anytime after September 11, 2003. The
warrant is adjusted annually to its fair market value through earnings.
6
INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
Series E Senior Redeemable Preferred Stock (Note 13) includes warrants to
purchase 82,492 shares of common stock at an exercise price of $.01 per share.
The warrants may be exercised at any time up to the expiration date of September
11, 2008. These warrants have a put feature that allows the holder to put the
warrants to the Company after September 11, 2003, at current market price as
defined in the stock purchase agreement. The warrants are adjusted annually to
their fair market value through earnings.
The fair market value assigned to the warrants upon issuance was $0 and there
has been no change in market value since their issuance.
13. SERIES E REDEEMABLE PREFERRED STOCK:
Series E Senior Redeemable Preferred Stock ("Series E") consist of 35,000
designated shares of which 29,000 were issued and outstanding as of September
30, 2001 and 2000. Each share of Series E stock has a liquidation value of
$1,000 plus accrued and unpaid dividends. Dividends accrue at a rate of 14% per
year and are compounded on a quarterly basis and totaled approximately
$15,143,000 at September 30, 2001. Series E stock has an optional redemption
feature that allows the Company to redeem shares at a percentage of liquidation
value. These percentages range from 112% in 1998, to 100% in 2004 and
thereafter, and the percentage reduces 2% per year for all years between 1998
and 2004. The Series E stock is mandatorily redeemed beginning August 31, 2003,
in 6.25% increments of original shares outstanding at the issuance date, payable
quarterly. Any remaining shares outstanding as of August 31, 2005, must be
redeemed in full as of that date.
14. SHAREHOLDERS' DEFICIT:
As of September 30, 2001 and 2000, the Company's authorized capital structure
consisted of 500,000 shares of common stock and 50,000 shares of preferred
stock, all of which have a par value of $.01 per share. Following is a summary
of each class of stock:
. Common stock - 500,000 authorized shares of which 168,113 and 170,613 shares
were issued as of September 30, 2001 and 2000, respectively, including 86,033
treasury shares.
. Series D Convertible Preferred Stock ("Series D") - 100 shares designated of
which no shares are issued. Each share of Series D stock has no dividends,
unless declared by the Board of Directors of the Company. The Series D stock
can also be converted into a total of 7,228 shares of common stock.
Certain current and former employees of the Company and other individuals have
stock options exercisable beginning at a date subject to the grant date and
vesting period. The remaining 1,250 unvested stock options vest in March 2002.
These options are to purchase shares of common stock of the Company at values
from $5 to $165 per share. At September 30, 2001, the Company had allocated
28,044 shares of common stock for issuance under the plan. During 2001, 5,000
options were granted that qualify for variable accounting treatment which
requires the recognition of compensation expense based on changes in
7
INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
the fair value of the common stock. During 2001, no compensation expense was
recognized. A summary of stock option activity for the years ended September
30, 2001, 2000, and 1999, is presented in the table below:
September 30, 2001 September 30, 2000 September 30, 1999
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- ------- -------- ------- --------
Outstanding, beginning of year 6,210 $106.97 8,299 $121.58 8,299 $121.58
Granted 5,000 5.00 - - - -
Exercised - - - - - -
Expired 3,044 100.00 - - - -
Cancelled 2,500 100.00 2,089 165.00 - -
----- ------- ----- ------- ------- --------
Outstanding, end of year 5,666 $ 23.81 6,210 $106.97 8,299 $121.58
===== ======= ===== ======= ======= ========
Exercisable at end of year 4,416 $ 29.13 4,960 $108.73 4,335 $109.99
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The Company has elected to account for stock-based compensation programs using
the intrinsic value method under Accounting Principles Board Opinion No. 25.
The following pro forma disclosures are presented to reflect amounts as if the
fair value method defined in SFAS No. 123 were applied:
September 30,
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2001 2000 1999
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Net loss available to common shareholders $(2,718,513) $(10,764,686) $(7,792,528)
Net loss per common share - basic and diluted $ (16.05) $ (62.60) $ (44.96)
The Company used the minimum value method to estimate the fair values of options
for the above pro forma information. For purposes of the minimum value method,
the Company used risk-free interest rates of 6.3%, 5.1% and 6.7%, respectively,
assumed no volatility or future dividends, and assumed the expected life of the
options to be through the applicable expiration dates.
The following table summarized information about stock options outstanding at
September 30, 2001:
Remaining
Exercise Number Number Contractual
Price Outstanding Exercisable Life
-------- ----------- ----------- -----------
$5.00 5,000 3,750 9.1
$165.00 666 666 1.9
15. SUBSEQUENT EVENTS (UNAUDITED):
On December 19, 2001, IPCH Acquisition Corp., a newly formed and wholly owned
subsidiary of Inergy Holdings, LLC purchased all of the outstanding stock and
assumed the outstanding debt of the Company.
8