EX-99.2 3 dex992.txt CONSOLIDATED BALANCE SHEETS 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 ===== ======= ===== ======= ======= ========
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, ------------------------------------------- 2001 2000 1999 ----------- ------------ ----------- 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