Grilled stakes: Blue Rhino was red-hot, cooking on all burners until a dispute with its auditor skewered its stock price.

• Author: Buchanan, Lee

Blue Rhino Corp. came out charging. After an initial public offering in May 1998, the Winston-Salem-based company's shares gained 90% in eight months. Its accounts with retail giants such as Wal-Mart and Home Depot kept revenues climbing by creating a national market: a cleaner, more-efficient way for backyard chefs to replace the empty propane tanks that had fueled their grills.

Then, in January, on the cusp of a secondary stock offering, Blue Rhino stumbled. Early that month, The Wall Street Journal speculated that the company might have been doing a bit of barbecuing of its own in its first-quarter report, filed in mid-December, to inflate its share price before the new offering. Just before the quarter's end, the company moved $6.5 million of inventory off its balance sheet, replacing it with cash. The trouble: A leasing company controlled by Blue Rhino's CEO, vice chairman and another company director had bought the inventory.

Adding fuel to that fire, Blue Rhino's auditor, PricewaterhouseCoopers LLP, took a highly unusual step in early February. The national office took issue with an item in the company's annual report, filed in October and signed off on by the accounting firm's Greensboro office. It dealt with a $635,000 convertible loan, which the national office decided should have been entered as an equity investment. Blue Rhino was forced to restate its annual and first-quarter earnings. It posted losses in the first quarter instead of the earnings it had initially reported and bigger annual losses.

Blue Rhino's CEO, Billy D. Prim, says PricewaterhouseCoopers didn't give "proper direction" and fired the auditor. Wherever fault lay, reaction from investors was swift. Share value fell 21%, from $18.31 to $14.50, the day the restated earnings were released, then an additional 20% the next day. Blue Rhino called off the secondary offering in February. And despite strong third-quarter results, Blue Rhino's stock remains depressed. After trading between $9 and $10 in July, it hit an all-time low, $6.88, on Aug. 10. Management faces a scenario that, just a year ago, was unthinkable - having to rebuild Blue Rhino's tarnished reputation.

If Prim is concerned, he doesn't show it. The boyish-looking 43-year-old projects soft-spoken confidence as he sits in Blue Rhino's headquarters, where 50 of its 75 employees work. "Our goal is to be a $500 million company by 2003," he declares. Revenue in 1998 was $27.4 million, up 92.6% from 1997. For the three months ended April 30, revenue was $11.9 million, up 103.5% from a year earlier.

Prim places his faith in the company's burgeoning sales and its business model: a nationwide network of 16,000 retail outlets that offer cylinder exchange. Blue Rhino distributors pick up the empty cylinders, clean and refill them with propane and return them to the stores. Federal law requires that propane cylinders be stored outside retail buildings. For Blue Rhino, that amounts to free advertising -...