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| NRGM > SEC Filings for NRGM > Form 8-K/A on 23-Jul-2012 | All Recent SEC Filings |
23-Jul-2012
Financial Statements and Exhibits
Table of Contents
Independent Auditors' Report 3
(a) Financial statements of businesses acquired.
Balance Sheet at September 30, 2011 4
Statement of Operations for the Year Ended September 30, 2011 5
Statement of Changes in Member's Equity 6
Statement of Cash Flows for the Year Ended September 30, 2011 7
Notes to Financial Statements 8-18
Unaudited Balance Sheet at March 31, 2012 19
Unaudited Statements of Operations for the Six Months Ended March 31, 2012
and 2011 20
Unaudited Statements of Cash Flows for the Six Months Ended March 31, 2012
and 2011 21
Notes to Financial Statements 22-27
(b) Pro forma financial information. 28-34
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The Member of US Salt, LLC
We have audited the accompanying balance sheet of US Salt, LLC as of September 30, 2011, and the related statement of operations, member's capital, and cash flows for the year then ended. 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 audit 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. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides 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 US Salt, LLC at September 30, 2011, and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Kansas City, Missouri
July 23, 2012
US Salt, LLC
Balance Sheet
(in millions)
September 30, 2011
Assets
Current assets:
Accounts receivable $ 6.4
Inventories 4.0
Prepaid expenses and other current assets 0.2
Total current assets 10.6
Property, plant and equipment (Note 3) 109.5
Less: accumulated depreciation 17.6
Property, plant and equipment, net 91.9
Intangible assets:
Customer accounts 3.2
Less: accumulated amortization 0.7
Intangible assets, net 2.5
Goodwill 6.3
Total assets $ 111.3
Liabilities and member's capital
Current liabilities:
Accounts payable $ 2.4
Accrued expenses 1.5
Total current liabilities 3.9
Total member's capital 107.4
Total liabilities and member's capital $ 111.3
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The accompanying notes are an integral part of these consolidated financial statements.
US Salt, LLC
Statement of Operations
(in millions)
Year Ended
September 30, 2011
Revenue $ 52.3
Cost of product sold (excluding depreciation and
amortization as shown below) 30.6
Expenses:
Operating and administrative 3.5
Depreciation, depletion and amortization 6.3
9.8
Net income $ 11.9
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The accompanying notes are an integral part of these consolidated financial statements.
US Salt, LLC
Statement of Member's Capital
(in millions)
Total Member's
Capital
Balance at September 30, 2010 $ 102.9
Distribution to member, net (7.4 )
Net income 11.9
Balance at September 30, 2011 $ 107.4
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The accompanying notes are an integral part of these consolidated financial statements.
US Salt, LLC
Statement of Cash Flows
(in millions)
Year Ended
September 30, 2011
Operating activities
Net income $ 11.9
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and depletion 6.0
Amortization 0.3
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable (0.2 )
Inventories (0.7 )
Prepaid expenses and other current assets (0.1 )
Accounts payable and accrued expenses (0.8 )
Net cash provided by operating activities 16.4
Investing activities
Purchases of property, plant and equipment (9.0 )
Net cash used in investing activities (9.0 )
Financing activities
Distribution to member (7.4 )
Net cash used in financing activities (7.4 )
Net increase in cash -
Cash at beginning of period -
Cash at end of period $ -
Supplemental schedule of noncash investing and financing
activities
Net change to property, plant and equipment through
accounts payable and accrued expenses $ (0.3 )
Net change to property, plant and equipment through
non-cash capitalized interest $ 2.5
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The accompanying notes are an integral part of these consolidated financial statements.
1. Organization and nature of operations
Organization
US Salt, LLC ("US Salt" or the "Company") is a Delaware limited liability company. During the periods presented in these financial statements, US Salt was a wholly owned subsidiary of Inergy Midstream, L.P. (formerly Inergy Midstream, LLC, "Inergy Midstream"), which was a wholly owned subsidiary of Inergy, L.P. ("Inergy"). The sole member's maximum liability arising from its investment in a limited liability company is limited to the amount of its investment. In November 2011, in conjunction with the initial public offering ("IPO") of Inergy Midstream, 100% of the membership interests in US Salt were assigned to Inergy. In May 2012, Inergy Midstream acquired 100% of the membership interest in US Salt from Inergy.
Nature of Operations
US Salt, located on the shores of Seneca Lake outside of Watkins Glen, New York, is one of five major solution mined salt manufacturers in the United States, producing evaporated salt products for food, industrial, pharmaceutical and water conditioning uses. The solution mining process used by US Salt creates salt caverns that can be developed into usable natural gas and natural gas liquids ("NGL") storage capacity.
2. Summary of significant accounting policies
Revenue Recognition
The Company recognizes revenue on sales when product is shipped to the customer or when certain contractual performance requirements have otherwise been met.
Income Taxes
Federal and state income tax regulations require that the income or loss of a limited liability company be included in the tax return of the members; accordingly, no provision for income taxes has been recorded in the accompanying financial statements.
Credit Risk and Concentrations
Approximately 14% of the Company's sales were derived from one major customer for the year ended September 30, 2011. A major customer is defined as any customer from whom 10% or more of aggregate sales are derived. The majority of sales occurred in the United States.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates.
Accounts Receivable
The majority of the Company's accounts receivable are due from various companies included in the grocery, retail, agricultural, pharmaceutical and industrial chemical industries. Credit is extended based on the evaluation of a customer's financial condition and, generally, collateral is not required. Accounts receivable are generally due within 30 days and are stated at amounts due from customers, net of allowance for doubtful accounts. Accounts outstanding longer than their contractual payment terms are considered past due. The Company estimates its provision for doubtful accounts by considering a number of factors, including the length of time accounts receivable are past due, the Company's previous loss history, the customer's current ability to pay its obligations to the Company and the condition of the general economy and the industry as a whole. The Company's estimates have generally been within management's expectations. The Company writes off accounts receivable when they become uncollectible and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. The allowance for doubtful accounts was immaterial at September 30, 2011.
Inventories
Inventories are stated at the lower of cost or market, cost being principally determined on the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation. The Company capitalizes all construction related direct labor and material costs as well as the cost of funds used during construction. Amounts capitalized for cost of funds used during construction amounted to $2.5 million for the year ended September 30, 2011. Depreciation is computed by the straight-line method over the estimated useful lives of the assets, as follows:
Years
Land, improvements and buildings 20
Office furniture and equipment 3
Vehicles 3
Plant equipment 3-20
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Salt deposits are depleted on a unit of production method. Maintenance and repairs are charged to expense as incurred.
2. Summary of significant accounting policies (continued)
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such events or changes in circumstances are present, a loss is recognized if the carrying value of the asset is in excess of the sum of the undiscounted cash flows expected to result from the use of the asset and its eventual disposition. An impairment loss is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. The Company has not identified any indicators that suggest the carrying amount of an asset may not be recoverable for the period ended September 30, 2011.
Identifiable Intangible Assets
Intangible assets acquired in the acquisition of a business are required to be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, regardless of the acquirer's intent to do so.
The Company has recorded customer accounts, an identifiable intangible asset. Customer accounts are amortized on a straight-line basis over their estimated economic lives, which is 15 years. Estimated amortization expense is $0.2 million per year for the next five years.
Goodwill
Goodwill is recognized for the 2008 acquisition of the Company by Inergy Midstream as the excess of the cost of the acquisition over the fair value of the related net assets at the date of acquisition. Goodwill is subject to at least an annual assessment for impairment by applying a fair-value-based test.
In connection with the goodwill impairment evaluation, the Company identified one reporting unit. The carrying value of this reporting unit is determined by assigning the assets and liabilities, including the existing goodwill and intangible assets, to the reporting unit as of the date of the evaluation on a specific identification basis. To the extent the reporting unit's carrying value exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the second step of the impairment test must be performed. In the second step, the implied fair value of the goodwill is determined by allocating the fair value to all of its assets (recognized and unrecognized) and liabilities to its carrying amount.
The Company completed its annual impairment test for its reporting unit and determined that no impairment existed as of September 30, 2011.
Asset Retirement Obligations
An asset retirement obligation (ARO) is an estimated liability for the cost to retire a tangible asset. The fair value of these AROs could not be made as settlement dates (or range of dates) associated with these assets were not estimable.
Fair Value
The carrying amounts of accounts receivable and accounts payable approximate their fair value.
3. Certain balance sheet information
Inventories
Inventories consisted of the following at September 30, 2011 (in millions):
September 30,
2011
Parts and supplies $ 3.2
Raw materials 0.2
Finished goods 0.6
Total inventories $ 4.0
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Property, Plant and Equipment
Property, plant and equipment consisted of the following at September 30, 2011
(in millions):
September 30,
2011
Plant equipment $ 63.6
Salt deposits 41.6
Land and buildings 2.7
Vehicles 0.2
Construction in process 0.9
Office furniture and equipment 0.5
109.5
Less: accumulated depreciation 17.6
Total property, plant and equipment, net $ 91.9
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Depreciation expense and depletion expense totaled $5.8 million and $0.2 million, respectively, for the year ended September 30, 2011.
4. Leases
The Company leases equipment and vehicles under noncancelable operating lease agreements. The leases expire at various dates throughout 2014.
Future minimum lease payments under noncancelable operating leases for the next five years ending September 30 and thereafter consist of the following (in millions):
Year Ending September 30,
2012 $ 0.5
2013 0.4
2014 0.3
Total minimum lease payments $ 1.2
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Rent expense for operating leases for the year ended September 30, 2011 totaled $0.6 million.
5. Employee benefit plans
Inergy, L.P. sponsors a 401(k) plan which is available to all of US Salt's employees after meeting certain requirements. The plan permits employees to make contributions up to 75% of their salary, up to statutory limits, which was $16,500 in 2011. The plan provides for matching contributions by Inergy, L.P. for employees completing one year of service of at least 1,000 hours. Aggregate matching contributions allocated to US Salt were $0.1 million for the year ended September 30, 2011.
Approximately 75% of the Company's employees are subject to collective bargaining agreements.
6. Commitments and contingencies
The Company is subject to certain federal, state and local environmental laws and regulations. These laws regulate the discharge of materials into the environment. They may require the Company to remove certain chemical substances from its sites or otherwise mitigate the environmental effects of the disposal or release of those substances. The Company is currently not involved in any action or litigation concerning environmental matters.
7. Related party transactions
Transactions with Inergy, L.P. and Inergy Propane, LLC
Inergy, through Inergy Propane, LLC ("Inergy Propane") has historically provided US Salt with funding to support capital expansion and working capital needs. Inergy charged interest on borrowings made by US Salt to fund capital improvement projects. US Salt has historically provided all of their cash generated by operations to Inergy Propane. Payments made and received by Inergy Propane from these related parties are considered to be permanent distributions or contributions between Inergy and US Salt and are accordingly classified in member's equity at cost on the financial statements of US Salt.
Allocation of Expenses
The Company shares common management, operating and administrative and overhead costs with Inergy. The shared costs allocated to the Company totaled $1.7 million for the year ended September 30, 2011. Management believes the assumptions and allocations were made on a reasonable basis. Due to the nature of these shared costs, it is not practicable to estimate what the costs would have been on a stand-alone basis. Accordingly, the accompanying financial statements may not necessarily be indicative of the conditions that would have existed, or the results of operations that would have occurred, if the Company had operated as a stand-alone entity.
Related Party Charges
The Company leased storage rights to Inergy Midstream for the period July 2011 through September 2011. The revenue generated from this lease amounted to $0.2 million.
8. Inergy, L.P. long-term debt
During the year ended September 30, 2011, US Salt was dependent on Inergy for any financing required in excess of the cash generated by its operations. As of September 30, 2011 Inergy had outstanding debt balances of $1,835.3 million. Obligations under Inergy's outstanding senior notes are jointly and severally guaranteed by US Salt and Inergy's other wholly owned domestic subsidiaries. Obligations under Inergy's credit agreement and term loan are secured by liens on substantially all of US Salt's assets. However, such balances are not reflected on US Salt's consolidated financial statements. Inergy's interest expense was $113.5 million for the year ended September 30, 2011, which was also funded in part by distributions from US Salt. None of the interest related to debt in which US Salt was not the legal obligor is recorded in the financial statements of US Salt. Inergy's credit agreement and senior notes, and Holdings' term loan, consisted of the following at September 30, 2011 (in millions):
September 30,
2011
Credit agreement:
Revolving loan facility $ 81.2
Term loan facility 300.0
Senior unsecured notes 1,445.1
Fair value hedge adjustment on senior unsecured notes 0.5
Bond/swap premium 13.8
Bond discount (5.3 )
Total debt 1,835.3
Less: current portion 7.4
Total long-term debt $ 1,827.9
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Credit Agreement
On November 24, 2009, Inergy entered into a secured credit facility ("Credit Agreement") which provided borrowing capacity of up to $525 million in the form of a $450 million revolving general partnership credit facility ("General Partnership Facility") and a $75 million working capital credit facility ("Working Capital Facility"). This facility was to mature on November 22, 2013. Borrowings under these secured facilities are available for working capital needs, future acquisitions, capital expenditures and other general partnership purposes, including the refinancing of existing indebtedness under the former credit facility.
On February 2, 2011, Inergy amended and restated the Credit Agreement to add a $300 million term loan facility (the "Term Loan Facility"). The term loan matures on February 2, 2015, and bears interest, at Inergy's option, subject to certain limitations, at a rate equal to the following:
• the Alternate Base Rate, which is defined as the higher of (i) the federal funds rate plus 0.50%; (ii) JP Morgan's prime rate; or (iii) the Adjusted LIBO Rate plus 1%; plus a margin varying from 1.00% to 2.25%; or
• the Adjusted LIBO Rate, which is defined as the LIBO Rate plus a margin varying from 2.00% to 3.25%. . . .
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