EX-99.2 6 dex992.txt FINANCIAL STATEMENTS Exhibit 99.2 Independent Accountants' Review Report The Executive Committee Meenan Oil Co., L.P. and Subsidiaries: We have reviewed the accompanying consolidated balance sheet of Meenan Oil Co., L.P. and subsidiaries as of March 31, 2001 and the related consolidated statements of income and partners' equity, comprehensive income and cash flows for the nine months ended March 31, 2001 and 2000, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these consolidated financial statements is the representation of the management of the Company. A review consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. July 31, 2001 MEENAN OIL CO., L.P. AND SUBSIDIARIES Consolidated Balance Sheet March 31, 2001
Assets Current assets: Cash $ 4,441,644 Accounts receivable - trade, less allowance for doubtful accounts of $ 475,000 39,883,020 Inventories 12,673,745 Prepaid expenses and other current assets 3,478,952 ------------- Total current assets 60,477,361 ------------- Property, plant and equipment, net 13,531,264 ------------- Customer lists and other intangible assets, net 22,295,389 Other, net 1,249,030 ------------- 23,544,419 ------------- $ 97,553,044 ============= Liabilities and Partners' Equity Current liabilities: Current maturities of long-term debt $ 20,144,275 Accounts payable 5,858,810 Customers' credit balances and deposits 3,589,529 Accrued expenses: Payroll 2,204,456 Other 11,356,033 Unearned service contract revenues 6,323,657 ------------- Total current liabilities 49,476,760 ------------- Long-terns debt, less current maturities 32,586,714 ------------- Other long-term liabilities 6,300,966 ------------- Partners' equity: Partners' equity 9,431,431 Accumulated other comprehensive loss (242,827) ------------- Total partners' equity 9,188,604 ------------- $ 97,553,044 =============
Unaudited - see accompanying accountants' review report and notes to consolidated statements. 2 MEENAN OIL CO., L.P. AND SUBSIDIARIES Consolidated Statements of Income and Partners' Equity For the nine months ended March 31, 2001 and 2000
2001 2000 --------------- --------------- Sales $ 217,664,965 175,144,022 Cost of sales 163,965,742 129,457,806 --------------- --------------- Gross profit 53,699,223 45,686,216 --------------- --------------- Selling, general and administrative expense 33,378,819 30,493,396 Amortization of intangible assets 1,496,081 1,579,393 Depreciation and amortization 1,149,439 1,022,258 Bad debt expense 912,352 197,270 --------------- --------------- 36,936,691 33,292,317 --------------- --------------- Operating income 16,762,532 12,393,899 --------------- --------------- Other expense (income): Interest expense 3,557,259 2,969,593 Interest income (314,360) (248,888) Sundry (654,764) (472,733) --------------- --------------- 2,588,135 2,247,972 --------------- --------------- Income before cumulative effect of change in accounting principle 14,174,397 10,145,927 Cumulative effect of change in accounting principle for adoption of SFAS No. 133 57,653 - --------------- --------------- Net income 14,232,050 10,145,927 Partners' deficit, beginning of year (1,112,351) (6,460,204) Distribution to partners (3,688,268) (1,315,007) --------------- --------------- Partners' equity, end of year $ 9,431,431 2,370,716 =============== ===============
Unaudited - see accompanying accountants' review report and notes to consolidated statements. 3 MEENAN OIL CO., L.P. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income For the nine months ended March 31, 200l and 2000 2001 2000 ----------------- ---------------- Net income $ 14,232,050 10,1.45,927 Other comprehensive income: Unrealized loss on derivative instruments (243,405) -- ----------------- ---------------- Comprehensive income $ 13,988,645 10,145,927 ================= ================ Reconciliation of Accumulated Other Comprehensive Income (Loss) Balance, beginning of year $ -- -- Cumulative effect of the adoption of SFAS No. 133 444,028 -- Current period reclassification to earnings (443,450) -- Current period other comprehensive income (243,405) -- ----------------- ---------------- Balance, end of year $ (243,827) -- ================= ================
Unaudited - see accompanying accountants' review report and notes to consolidated Statements. 4 MEENAN OIL CO., L.P. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the nine months ended March 31, 2001 and 2000
2001 2000 ------------------ -------------- Cash flows from operating activities: Net income $ 14,232,050 10,145,927 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 2,645,520 2,601,651 Gain on sale of equipment and other assets (88,710) (18,375) Cumulative effect of a change in accounting principle for the adoption of SFAS No. 133 (57,653) -- Changes in operating assets and liabilities: Accounts receivable (22,384,391) (19,607,758) Inventories (4,960,327) (886,037) Prepaid expenses and other 54,444 (20) Other assets 41,132 (58,296) Accounts payable and accrued expenses 5,129,272 4,625,479 Customer credit balances and deposits (693,475) (3,204,649) Other liabilities 718,697 2,203,986 ----------------- ---------------- Net cash used in operating activities (5,363,441) (4,198,092) ----------------- ---------------- Cash flows from investing activities: Proceeds from sale of equipment and other assets 292,050 23,598 Capital expenditures (1,094,164) (1,140,629) Payments for purchase of heating oil companies (2,651,758) (10,924,186) ----------------- ---------------- Net cash used in investing activities (3,453,872) (12,041,217) ----------------- ---------------- Cash flows from financing activities: Proceeds from long-term debt 16,500,000 20,500,000 Principal payments on long-term debt (158,286) (188,630) Distributions to partners (3,688,268) (1,315,007) ----------------- ---------------- Net cash provided by financing activities 12,653,446 18,996,363 ----------------- ---------------- Net increase in cash 3,836,133 2,757,054 Cash at beginning of year 605,511 2,544,357 ----------------- ---------------- Cash at end of year $ 4,441,644 5,301,411 ================= ================
Unaudited - See accompanying accountants' review report and notes to consolidated statements. 5 MEENAN OIL CO., L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2001 and 2000 (1) Summary of Significant Accounting Policies and Practices (a) Description of Business Meenan Oil Co., L.P. (the Company) engages primarily in the retail and wholesale distribution of home heating oil. In January 1992, the Company was formed through the contribution by Meenan Oil Co., Inc. (Meenan Inc.) of substantially all of its assets in exchange for a general partnership interest in the Company. The Company is a limited partnership consisting of various limited partners with Meenan Inc. as the sole general partner. During fiscal 2000, the Company admitted 4 employees as Class B limited partners to the partnership. These partners were not required to make a capital contribution. As of March 31, 2001, Meenan Inc. owned a 75.07% interest in the Company. (b) Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. (c) Inventories Inventories are valued at the lower of cost (first-in, first-out basis) or market. (d) Property, Plant and Equipment Property, plant and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets as follows: Building and improvements 20 - 31.5 years Automotive equipment 5 - 7 years Furniture, fixtures and equipment 5 - 10 years Leasehold improvements Term of leases (e) Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and 6 (Continued) MEENAN OIL CO., L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2001 and 2000 Hedging Activities" (SFAS No. 133) as amended by SFAS No. 137 and No. 138. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. It requires the recognition of all derivative instruments as assets or liabilities in the Company's balance sheet and measurement of those instruments at fair value and requires that a company formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The accounting treatment of changes in fair value is dependent upon whether or not a derivative instrument is designated as a hedge, and if so, the type of hedge. For derivatives designated as Cash Flow Hedges, changes in fair value are recognized in other comprehensive income until the hedged item is recognized in earnings. For derivatives recognized as Fair Value Hedges, changes in fair value are recognized in the income statement and are offset by related changes in the fair value of the item hedged. Changes in the fair value of derivative instruments which are not designated as hedges or which do not qualify for hedge accounting are recognized currently in earnings. The Company purchases and sells futures contracts on the New York Mercantile Exchange as a hedge against oil prices. The purpose of the hedges is to provide a measure of stability in the volatile market of oil and to manage its exposure to commodity price risk under certain existing sales commitments. Futures contracts open as of March 31, 2001 have expiration dates through March 2002. The Company adopted SFAS No. 133 on July 1, 2000, and records its derivatives at fair market value. As a result of adopting the Standard, the Company recognized current assets of $501,681, a $57,653 increase in net income and a $444,028 increase in additional other comprehensive income, which were recorded as cumulative effect of a change in accounting principle. The fair value of these outstanding contracts is recorded in the Company's balance sheet. For the nine-month period ended March 31, 2001, the Company recorded a net decrease of $243,405 to other comprehensive income for the net change in value of derivative instruments designated as cash flow hedges, and recorded a net loss of approximately $443,450 representing the net change in the fair value of all the derivative contracts which are no longer outstanding at March 31, 2001. The estimated net amount of existing losses currently within other comprehensive income are expected to be reclassified into earnings within the next twelve months. 7 (Continued) MEENAN OIL CO., L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2001 and 2000 (f) Customer Lists and Other Intangible Assets The costs of customer lists and covenants not to compete are amortized over a five to fifteen-year period on a straight-line basis. Goodwill is amortized on a straight-line basis over a forty-year period. The Company assesses the recoverability of these intangible assets by determining whether the amortization of the respective balance over its remaining life can be recovered through undiscounted future operating cash flows. (g) Revenue Recognition Sales of heating oil and heating oil equipment are recognized at the time of delivery of the product to the customer or installation. Revenue from repairs and maintenance service is recognized upon completion of the service. Payments received from customers for burner service contracts are deferred and amortized into income over the term of the respective contracts. (h) Income Taxes The Company is a limited partnership and the partners are taxed on their proportionate share of the income generated by the partnership. (i) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. (j) Long-Lived Assets The Company's accounting policies relating to the recording of long-lived assets including property and equipment and intangibles are discussed above. The Company accounts for long-lived assets in accordance with the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 121 requires, among other things, that long-lived assets held 8 (Continued) MEENAN OIL CO., L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2001 and 2000 and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair values of the assets. Assets to be disposed of or sold are reported at the lower of the carrying amount or fair value less costs to sell. (2) Property and Equipment Property and equipment consists of the following: Land $ 2,586,821 Buildings and improvements 11,046,891 Automotive equipment 14,042,972 Furniture, fixtures and equipment 5,927,164 Leasehold improvements 864,715 ----------- 34,468,563 Less accumulated depreciation and amortization (20,937,299) ----------- $ 13,531,264 =========== (3) Supplemental Cash Flow Information The following is supplemental information relating to the statements of cash flows: 2001 2000 ------------ ------------ Cash paid during the year for: Interest $ 2,766,699 2,400,665 ============= ============ 9 (Continued) MEENAN OIL CO., L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2001 and 2000 (4) Customer Lists and Other Intangible Assets Customer lists and other intangible assets at March 31, 2001 consist of: Customer lists $ 33,744,755 Covenants not to compete 6,995,549 Goodwill 4,938,692 Other 105,343 ----------- 45,784,339 Less accumulated amortization (23,488,950) ----------- $ 22,295,389 =========== (5) Long-Term Debt Long-term debt, less current maturities, at March 31, 2001 consist of: Senior secured notes with interest at 9.34% per annum (a) $ 25,000,000 Revolving credit agreement (b) 27,500,000 Other note payable with interest at 7.0% per annum, maturing at various dates to August 2004 230,989 ------------ 52,730,989 Less current maturities 20,144,275 ------------ $ 32,586,714 ============ 10 (Continued) MEENAN OIL CO., L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2001 and 2000 (a) During 1996, the Company issued senior secured notes due November 1, 2007 in the amount of $25,000,000 with a fixed rate of 9.34%. Interest only is due in semiannual payments through May 1, 2003. Principal is to be paid as follows: Period ending March 31: 2004 $ 5,000,000 2005 5,000,000 2006 5,000,000 2007 5,000,000 2008 5,000,000 The notes are collateralized by the shares of common stock of Meenan Inc., the general partnership interests owned by Meenan Inc. and the accounts receivable, equipment, general intangible assets, inventory and goods of the Company. In connection with these notes, the Company is required to maintain certain levels of working capital and earnings, is restricted in other investments it may make and transactions it may enter into and must maintain certain financial ratios. The Company was in compliance with all the covenants of the notes at March 31, 2001. (b) The Company has an amended revolving credit agreement with two banks. The agreement is comprised of two commitments of $12,500,000 and $45,000,000 totaling $57,500,000. The amount outstanding under the first commitment at March 31, 2001 was $12,500,000. The amount available under the first commitment is reduced automatically and permanently each year as defined in the amended agreement. At March 31, 2001, the total available under the first commitment, which expires on July 1, 2003, was $12,500,000, which will be reduced as follows: Period ending March 31: 2002 $ 5,000,000 2003 5,000,000 2004 2,500,000 ------------ $ 12,500,000 ============ 11 (Continued) MEENAN OIL CO., L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2001 and 2000 In addition, the first commitment may be automatically and permanently reduced annually through September 28, 2002. The reduction at September 28, 2000 is based on the amount by which June 30, 2000 gross operating cash generated exceeds amounts specified in the agreement. No such reduction was made on September 28, 2000. The second commitment, which expires on July 1, 2003, totals $45,000,000. of which approximately $11,346,000 was utilized for open letters of credit at March 31, 2001. The amount outstanding under the second commitment at March 31, 2001 was $15,000,000. Under both commitments, the interest rate options consist of: . 1.65% over the greatest of three defined rates, including prime. . 2.50% over a defined adjusted Certificate of Deposit (CD) rate. . 1.50% to 3.0% over a defined adjusted LIBOR rate. . 2.50% over the Agent bank's Acceptance Draft discount rate, as defined. The weighted average interest rate on this debt at March 31, 2001 was 6.65%. In connection with this revolving credit agreement, the Company is required to pay a commitment fee of 1/2 of 1% of the unused portion of the line of credit. In addition, the Company incurred financing costs in connection with this credit agreement and the amendments thereto amounting to approximately $1,440,000, which amount is included, net of amortization, in other assets on the consolidated balance sheet. Deferred financing costs are being amortized on a straight-line basis over the term of the related debt. Borrowings under the revolving credit agreement are collateralized by the shares of common stock of Meenan Inc., all of the general partnership interests owned by Meenan Inc., the stock of all of the subsidiaries of the Company and all of the personal property of the Company and its subsidiaries, including accounts receivable, inventory, equipment, fixtures, general intangible assets and customer lists. In connection with this revolving credit agreement, the Company is required to maintain certain levels of working capital and tangible net worth, is restricted in the amount of fixed assets it may acquire and other investments it may make and must maintain certain financial ratios. The Company was in compliance with all the covenants of the agreement at March 31, 2001. 12 (Continued) MEENAN OIL CO., L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2001 and 2000 Maturities of all long-term debt are as follows: Period ending March 31: 2002 $ 20,144,275 2003 5,070,000 2004 7,516,714 2005 5,000,000 2006 5,000,000 2007 and thereafter 10,000,000 ------------ $ 52,730,989 ============ (6) Leases The Company is obligated under several non-cancelable leases covering office, storage and other facilities, as well as transportation equipment for remaining periods of one to thirteen years. The Company also leases certain telephone equipment. Future minimum lease payments for operating leases with initial or remaining terms in excess of one year are as follows: Operating leases ------ Period ending March 31: 2002 $ 588,397 2003 512,331 2004 500,062 2005 445,286 2006 231,793 Later years 1,129,462 --------- Total minimum lease payments $ 3,407,331 ========= Total rent expense for all operating leases for the nine months ended March 31, 2001 and 2000 totaled approximately $1,619,000 and $1,739,000, respectively. 13 (Continued) MEENAN OIL CO., L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2001 and 2000 (7) Income Taxes The Company is a limited partnership and as such, Federal and state taxes payable on its income are the responsibility of the individual partners and are not reflected in the financial statements of the Company. (8) Employee Benefit Plans (a) Pension Benefits The Company has a noncontributory defined benefit pension plan which provides benefits to all eligible employees. Certain other employees are covered by union retirement plans to which the Company contributes. Pension expense for these plans aggregated approximately $1,198,000 and $1,188,000 for the nine months ended March 31, 2001 and 2000, respectively. The following table sets forth the defined benefit plan's benefit obligation, fair value of plan assets, and funded status at June 30, 2000: Pension benefits ---------------- Change in projected benefit obligation: Projected benefit obligation at beginning of year $ 29,341,414 Service cost 1,275,696 Interest cost 2,074,519 Actuarial gain (2,106,796) Benefits paid (1,186,648) ------------- Projected benefit obligation at end of year $ 29,398,185 ============= Change in plan assets: Fair value of plan assets at beginning of year $ 31,558,390 Actual return on plan assets 1,400,787 Benefits paid (1,186,648) ------------- Fair value of plan assets at end of year $ 31,772,529 ============= 14 (Continued) MEENAN OIL CO., L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2001 and 2000 Pension benefits ---------------- Funded status $ 2,374,344 Unrecognized transition asset 329,873 Unrecognized prior service cost (8,411) Unrecognized net actuarial gain (7,403,004) ---------- Accrued in balance sheet (other long-term liabilities) $(5,366,944) ========== Weighted average assumptions as of June 30, 2000: Discount rate 7.75% Rate of compensation increase 4.00% Expected return on plan assets 8.50% Components of net periodic benefit cost: Service cost $ 1,275,696 Interest cost 2,074,519 Expected return on plan assets (2,627,828) Amortization of unrecognized transition (asset) obligation (143,424) Amortization of prior service cost (1,092) Recognized net actuarial gain (265,130) ---------- Net periodic benefit cost $ 312,741 ========== (b) Executive Committee Bonus Plan The Company's Executive Committee has adopted a bonus plan, which provides for cash bonuses to eligible employees based upon the operating performance of the Company. Expense under the plan totaled approximately $797,000 and $634,000 for the nine months ended March 31, 2001 and 2000, respectively. The plan for any fiscal year may be modified or terminated at any time prior to the end of such year by the Company's Executive Committee. 15 (Continued) MEENAN OIL CO., L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2001 and 2000 (9) Acquisitions During 2001, the Company acquired the assets of five retail fuel oil businesses. The total purchase price for these acquisitions totaled approximately $2,374,000, of which $519,000 represented the fair value of property and equipment. The balance of $1,855,000 was allocated to customer lists and other intangibles. During 2000, the Company acquired the assets of six retail fuel oil businesses, an environmental consulting business and a retail security alarm business. The total purchase price for these acquisitions totaled approximately $10,924,000, of which $3,015,000 represented the fair value of property and equipment. The balance of $7,909,000 was allocated to customer lists and other intangibles. In addition, certain of the acquisitions contain contingent payout provisions based on the attainment of sales volume, for which the Company has accrued approximately $582,000 as of March 31, 2001. These acquisitions have been accounted for using the purchase method of accounting, and their operating results which are not material to the Company, are included in the consolidated statements of income from their respective dates of acquisition. (10) Distributions For the nine months ended March 31, 2001 and 2000, the Executive Committee of the Company approved distributions to the partners of $3,688,268 and $1,315,007, respectively. (11) Commitments and Contingencies (a) The Company is a defendant in certain legal actions the outcome of which, in the opinion of management based in part on the opinion of counsel, is not expected to have a materially adverse impact on the Company's financial position or results of operations. (b) The Company has elected to either self-insure or maintain high deductibles on its workers' compensation, auto and general liability insurance coverages. A liability of approximately $5,452,000 is included in accrued expenses - other for unpaid claims and an estimate for claims incurred but not reported for the nine months ended March 31, 2001. The Company has coverage to prevent catastrophic losses resulting from claims. 16 (Continued) MEENAN OIL CO., L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2001 and 2000 (12) Subsequent Event On July 31, 2001, the Company entered into an equity purchase agreement with Petro, Inc. for the sale of stock of Meenan Oil Co., Inc. and subsidiaries and the limited partnership interests of Meenan Oil Co., L.P. and the stock of its subsidiary. Under the terms of the agreement, amounts outstanding under the senior secured notes and the revolving credit agreement are to be repaid from the proceeds of the equity purchase agreement. 17