<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM________TO
COMMISSION FILE NUMBER 1-11727
HERITAGE PROPANE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 73-1493906
(state or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No.)
8801 SOUTH YALE AVENUE, SUITE 310
TULSA, OKLAHOMA 74137
(Address of principal executive
offices and zip code)
(918) 492-7272
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
---
At January 5, 1999, the registrant had units outstanding as follows:
Heritage Propane Partners, L.P. 4,876,725 Common Units
3,702,943 Subordinated Units
<PAGE> 2
FORM 10-Q
HERITAGE PROPANE PARTNERS, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Pages
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<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets as of November 30, 1998 and August 31, 1998 1
Consolidated Statements of Operations for the three months ended
November 30, 1998 and 1997 2
Consolidated Statement of Partners' Capital for the three months ended
November 30, 1998 3
Consolidated Statements of Cash Flows for the three months ended
November 30, 1998 and 1997 4
Notes to Unaudited Consolidated Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 6
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
</TABLE>
SIGNATURE
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PART I - FINANCIAL INFORMATION
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
November 30, August 31,
ASSETS 1998 1998
------- ------------ ----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,424 $ 1,837
Accounts receivable, net of allowance for doubtful accounts 15,829 10,444
Inventories 12,876 12,545
Prepaid expenses 1,862 1,359
-------- --------
Total current assets 32,991 26,185
PROPERTY, PLANT AND EQUIPMENT, net 143,782 139,490
INVESTMENT IN AFFILIATES 4,565 4,739
INTANGIBLES AND OTHER ASSETS, net 69,152 69,550
-------- --------
Total assets $250,490 $239,964
======== ========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITIES:
Working capital facility $ 14,650 $ 10,600
Accounts payable 17,076 13,952
Accrued and other current liabilities 11,056 9,689
Current maturities of long-term debt 1,289 1,203
-------- --------
Total current liabilities 44,071 35,444
LONG-TERM DEBT, less current maturities 182,358 177,431
-------- --------
Total liabilities 226,429 212,875
-------- --------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL PER ACCOMPANYING
STATEMENTS:
Common unitholders 19,071 20,775
Subordinated unitholders 4,747 6,041
General partner 243 273
-------- --------
Total partners' capital 24,061 27,089
-------- --------
Total liabilities and partners' capital $250,490 $239,964
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
1
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HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit and unit data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
1998 1997
---- ----
<S> <C> <C>
REVENUES:
Retail $ 29,341 $ 31,039
Wholesale 5,755 9,396
Other 6,462 5,471
----------- -----------
Total revenues 41,558 45,906
----------- -----------
COSTS AND EXPENSES:
Cost of products sold 19,931 26,824
Operating expenses 12,178 10,752
Depreciation and amortization 3,545 3,056
Selling, general and administrative 1,341 1,275
----------- -----------
Total costs and expenses 36,995 41,907
----------- -----------
OPERATING INCOME 4,563 3,999
OTHER INCOME (EXPENSE):
Interest expense (3,896) (3,497)
Equity in earnings of affiliates 178 59
Gain on disposal of assets 502 71
Other (31) (18)
----------- -----------
INCOME BEFORE MINORITY INTEREST 1,316 614
Minority interest (101) (120)
----------- -----------
NET INCOME 1,215 494
GENERAL PARTNER'S INTEREST IN NET INCOME 12 5
----------- -----------
LIMITED PARTNERS' INTEREST IN NET INCOME $ 1,203 $ 489
=========== ===========
BASIC NET INCOME PER LIMITED PARTNER UNIT $ 0.14 $ 0.06
=========== ===========
BASIC WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING 8,579,668 8,122,697
=========== ===========
DILUTED NET INCOME PER LIMITED
PARTNER UNIT $ 0.14 $ 0.06
=========== ===========
DILUTED WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING 8,634,168 8,152,897
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
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HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(in thousands, except unit data)
(unaudited)
<TABLE>
<CAPTION>
NUMBER OF UNITS Total
--------------------------
Common Subordinated Common Subordinated General Partners'
Unitholders Unitholders Partner Capital
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1998 4,876,725 3,702,943 $ 20,775 $ 6,041 $ 273 $ 27,089
Unit distribution -- -- (2,438) (1,851) (43) (4,332)
Other -- -- 50 38 1 89
Net income -- -- 684 519 12 1,215
--------- --------- --------- --------- --------- ---------
BALANCE, NOVEMBER 30, 1998 4,876,725 3,702,943 $ 19,071 $ 4,747 $ 243 $ 24,061
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
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HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
-------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------
(in thousands, unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended November 30,
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,215 $ 494
Reconciliation of net income to net cash provided by
operating activities-
Depreciation and amortization 3,545 3,056
Provision for losses on accounts receivable 38 92
Gain on disposal of assets (502) (71)
Deferred compensation on restricted units 89 52
Undistributed earnings of affiliates 174 (43)
Minority Interest (298) (303)
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable (5,408) (5,613)
Inventories (158) (412)
Prepaid expenses (478) 98
Intangibles and other assets (17) (501)
Accounts payable 3,083 2,071
Accrued and other current liabilities 1,509 3,483
-------- --------
Net cash provided by operating activities 2,792 2,403
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired (3,425) (7,310)
Capital expenditures (3,529) (2,906)
Proceeds from asset sales 1,465 81
-------- --------
Net cash used in investing activities (5,489) (10,135)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 18,650 64,850
Principal payments on debt (11,034) (52,875)
Unit distribution (4,332) (4,034)
Capital contribution from General Partner -- 54
-------- --------
Net cash provided by financing activities 3,284 7,995
-------- --------
INCREASE IN CASH 587 263
CASH, beginning of period 1,837 2,025
-------- --------
CASH, end of period $ 2,424 $ 2,288
======== ========
NONCASH FINANCING ACTIVITIES:
Notes payable incurred on noncompete agreements $ 851 $ 3,446
Issuance of restricted common units in connection with certain
acquisitions $ -- $ 5,350
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 2,240 $ 817
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
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HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except unit data)
1. GENERAL:
The accompanying unaudited consolidated financial statements have been prepared
by Heritage Propane Partners, L.P. (the Partnership) and include the accounts of
the Partnership and its subsidiaries, including Heritage Operating Partnership,
and a majority owned partnership. The Partnership accounts for its 50 percent
partnership interest in another propane retailer under the equity method. All
significant intercompany transactions and accounts have been eliminated in
consolidation. The General Partner's 1.0101 percent interest in the Operating
Partnership is accounted for in the consolidated financial statements as a
minority interest. The accompanying financial statements should be read in
conjunction with the Partnership's consolidated financial statements as of
August 31, 1998, and the notes thereto included in the Partnership's
consolidated financial statements included in Form 10-K as filed with the
Securities and Exchange Commission on November 24, 1998. The accompanying
financial statements include only normal recurring accruals and all adjustments
that the Partnership considers necessary for a fair presentation. Due to the
seasonal nature of the Partnership's business, the results of operations for
interim periods are not necessarily indicative of the results to be expected for
a full year.
2. DETAILS TO CONSOLIDATED BALANCE SHEETS:
Inventories are valued at the lower of cost or market. The cost of fuel
inventories is determined using average cost while the cost of appliances, parts
and fittings is determined by the first-in, first-out method.
Inventories consist of the following:
<TABLE>
<CAPTION>
November 30, August 31,
1998 1998
------------ ----------
<S> <C> <C>
Fuel $ 8,244 $ 7,939
Appliances, parts and fittings 4,632 4,606
---------- ----------
$ 12,876 $ 12,545
========== ==========
</TABLE>
3. NET INCOME PER LIMITED PARTNER UNIT:
Basic net income per limited partner unit is computed by dividing net income,
after considering the General Partner's one percent interest, by the weighted
average number of Common and Subordinated Units outstanding. Diluted net income
per limited partner unit is computed by dividing net income, after considering
the General Partner's one percent interest, by the weighted average number of
Common and Subordinated Units outstanding and the weighted average number of
Restricted Units ("Phantom Units") granted under the Restricted Unit Plan. A
reconciliation of net income and weighted average units used in computing basic
and diluted earnings per unit is as follows:
<TABLE>
<CAPTION>
Three months ended
November 30,
1998 1997
---------- ----------
<S> <C> <C>
BASIC NET INCOME PER LIMITED PARTNER UNIT:
Basic limited partner's interest in net income $ 1,203 $ 489
========== ==========
Weighted average limited partner units 8,579,668 8,122,697
========== ==========
Basic net income per limited partner unit $ .14 $ .06
========== ==========
DILUTED NET INCOME PER LIMITED PARTNER UNIT:
Limited partner's interest in net income $ 1,203 $ 489
========== ==========
Weighted average limited partner units 8,579,668 8,122,697
Dilutive effect of Phantom Units 54,500 30,200
---------- ----------
Weighted average limited partner units, assuming
dilutive effect of Phantom Units 8,634,168 8,152,897
========== ==========
Dilutive net income per limited partner unit $ .14 $ .06
========== ==========
</TABLE>
5
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CASH DISTRIBUTIONS:
The Minimum Quarterly Distribution (MQD) of $4,290, or $.50 per Common and
Subordinated Unit, was paid on October 15, 1998, to Unitholders of record on
October 5, 1998, and $87 was distributed to the General Partner for its
cumulative two percent interest. In October 1998, the Partnership announced its
intention to increase the quarterly distribution to $.5125 per unit ($2.05
annually). On December 22, 1998, the Partnership declared a $.5125 per unit
distribution payable on January 14, 1999 to Common and Subordinated Unitholders
of record as of January 4, 1999.
4. FOOTNOTES INCORPORATED BY REFERENCE:
Certain footnotes are applicable to the consolidated financial statements but
would be substantially unchanged from those presented on Form 10-K filed with
the Securities and Exchange Commission on November 24, 1998. Accordingly,
reference should be made to the Company's Annual Report filed with the
Securities and Exchange Commission on Form 10-K for the following:
NOTE DESCRIPTION
---- -----------
1. OPERATIONS AND ORGANIZATION
2. SIGNIFICANT ACCOUNTING POLICIES AND BALANCE SHEET DETAIL
4. WORKING CAPITAL FACILITIES AND LONG-TERM DEBT
5. COMMITMENTS AND CONTINGENCIES
6. PARTNERS' CAPITAL
7. REGISTRATION STATEMENT
8. PROFIT SHARING AND 401(k) SAVINGS PLAN
9. RELATED PARTY TRANSACTIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Since its formation in 1989, Heritage has grown primarily through
acquisitions of retail propane operations and, to a lesser extent, through
internal growth. Through November 30, 1998, Heritage and the Partnership
completed 48 acquisitions for an aggregate purchase price of approximately $207
million. The Partnership has completed 19 of these acquisitions since going
public on June 25, 1996. Subsequent to November 30, 1998, the Partnership
completed an additional acquisition. The Partnership engages in the sale,
distribution and marketing of propane and other related products. The
Partnership derives its revenue primarily from the retail propane marketing
business. The General Partner believes that the Partnership is the sixth largest
retail marketer of propane in the United States, based on retail gallons sold,
serving more than 240,000 residential, industrial/commercial and agricultural
customers in 26 states through 146 retail outlets.
The retail propane business of the Partnership consists principally of
transporting propane purchased in the contract and spot markets, primarily from
major oil companies, to its retail distribution outlets and then to tanks
located on the customers' premises, as well as to portable propane cylinders. In
the residential and commercial markets, propane is primarily used for space
heating, water heating and cooking. In the agricultural market, propane is
primarily used for crop drying, tobacco curing, poultry brooding and weed
control. In addition, propane is used for certain industrial applications,
including use as an engine fuel that burns in internal combustion engines that
power vehicles and forklifts and as a heating source in manufacturing and mining
processes.
The retail propane distribution business is largely seasonal due to
propane's use as a heating source in residential and commercial buildings.
Historically, approximately two-thirds of the Partnership's retail propane
volume and in excess of 80% of the Partnership's EBITDA is attributable to sales
during the six-month peak heating season of October through March. Consequently,
sales and operating profits are concentrated in the Partnership's first and
second fiscal quarters. Cash Flow from operations, however, is greatest during
the second and third fiscal quarters when customers pay for propane purchased
during the six-month peak-heating season.
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A substantial portion of the Partnership's propane is used in the
heating-sensitive residential and commercial markets causing the temperatures
realized in the Partnership's areas of operations, particularly during the
six-month peak heating season, to have a significant effect on the financial
performance of the Partnership. In any given area, sustained warmer-than-normal
temperatures will tend to result in reduced propane use, while sustained
colder-than-normal temperatures will tend to result in greater propane use. The
Partnership therefore uses information on normal temperatures in understanding
how temperatures that are colder or warmer than normal affect historical results
of operations and in preparing forecasts of future operations, which assumes
that normal weather will prevail in each of the Partnership's regions.
The retail propane business is a "margin-based" business in which gross
profits depend on the excess of sales price over propane supply costs. The
market price of propane is often subject to volatile changes as a result of
supply or other market conditions over which the Partnership will have no
control. Product supply contracts are one-year agreements subject to annual
renewal and generally permit suppliers to charge posted prices (plus
transportation costs) at the time of delivery or the current prices established
at major delivery points. Since rapid increases in the wholesale cost of propane
may not be immediately passed on to retail customers, such increases could
reduce the Partnership's gross profits. In the past, the Partnership generally
attempted to reduce price risk by purchasing propane on a short-term basis. The
Partnership has on occasion purchased significant volumes of propane during
periods of low demand, which generally occur during the summer months, at the
then current market price, for storage both at its service centers and in major
storage facilities for future resale.
Gross profit margins vary according to customer mix. For example, sales
to residential customers generate higher margins than sales to certain other
customer groups, such as agricultural customers. Wholesale margins are
substantially lower than retail margins. In addition, gross profit margins vary
by geographical region. Accordingly, a change in customer or geographic mix can
affect gross profit without necessarily affecting total revenues.
ANALYSIS OF UNAUDITED HISTORICAL RESULTS OF OPERATIONS
The following discussion reflects for the periods indicated the results
of operations and operating data for the Partnership. Most of the increases in
the line items discussed below result from the acquisitions made by the
Partnership subsequent to the prior period discussed. These acquisitions affect
the comparability of prior period financial matters, as the volumes are not
included in the prior period's results of operations. Amounts discussed below
reflect 100% of the results of M-P Energy Partnership, a general partnership in
which the Partnership owns a 60% interest. Because M-P Energy Partnership is
primarily engaged in lower-margin wholesale distribution, its contribution to
the Partnership's net income and EBITDA is not significant.
THREE MONTHS ENDED NOVEMBER 30, 1998 COMPARED TO THE THREE MONTHS ENDED NOVEMBER
30, 1997.
Volume. The Partnership sold 35.7 million retail gallons in the three
months ended November 30, 1998, an increase of 2.8 million gallons or 8.5% over
the 32.9 million gallons sold in the three months ended November 30, 1997. This
increase was primarily attributable to acquisition related volumes offset
somewhat by the negative effects of warmer than normal weather.
The Partnership also sold approximately 20.3 million wholesale gallons
in this first quarter, a decrease of 2.5 million gallons or 11% from the 22.8
million wholesale gallons sold in the first quarter of fiscal 1998. The decrease
in wholesale volumes was attributable to a decline of 1.4 million gallons in the
foreign operations of M-P Energy Partnership and a decline of 1.1 million
gallons in U.S. wholesale operations, both primarily due to warmer than normal
weather.
Revenues. Total revenues for the Partnership decreased $4.4 million or
9.6% to $41.5 million for the three months ended November 30, 1998 as compared
to $45.9 million for the same three-month period last year. For the three months
ended November 30, 1998, domestic retail propane revenues decreased $1.7 million
or 5.5% to $29.3 million and U.S. wholesale revenues decreased $.7 million to
$.7 million as a result of the decline in the related volumes and lower selling
prices. Other domestic revenues increased $.9 million or 16.4% to $6.4 million
as a result of acquisitions and to a lesser degree internal growth. Foreign
revenues decreased $2.9 million for the three months ended November 30, 1998, to
$5.1 million as compared to $8.0 million for the three months ended November 30,
1997, as a result of decreased volumes and lower selling prices.
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Cost of Sales. Total cost of sales decreased $6.9 million or 25.7% to
$19.9 million for the three months ended November 30, 1998, as compared to $26.8
million for the three months ended November 30, 1997. U.S. cost of sales
decreased $4.1 million or 21.5% to $15.0 million for this first quarter of
fiscal 1999, compared to $19.1 million for the first quarter of fiscal 1998.
Foreign cost of sales decreased $2.8 million or 36.4% to $ 4.9 million in this
first quarter as compared to last year's first quarter's results of $7.7
million. Decreased volumes and the fact that product costs have remained soft
during the first three months of fiscal 1999 resulted in these lower cost of
sales as compared to the same period last year.
Gross Profit. Total gross profit increased $2.5 million or 13.1% to
$21.6 million for the three months ended November 30, 1998, as compared to $19.1
million for the three months ended November 30, 1997. Although volumes and
revenues were down during this three month period in fiscal 1999 as compared to
the same period last year, the Partnership has been able to retain higher
margins throughout this period due to a greater percentage drop in propane costs
over the decrease in selling prices in the first quarter comparisons.
Operating Expenses. Operating expense increased $1.5 million or 14% to
$12.2 in the first quarter of fiscal 1999 as compared to $10.7 million in the
first quarter of fiscal 1998. This increase was primarily the result of
acquisition related operating expenses.
Selling, General and Administrative. Selling, general and
administrative expenses were $1.3 million for the three months ended November
30, 1998, unchanged from those reported the same three months last year.
Depreciation and Amortization. Depreciation and amortization increased
approximately $.5 million or 16.7% to $3.5 million for the three months ended
November 30, 1998 as compared to $3.0 million for the three months ended
November 30, 1997. This increase was the result of additional depreciation and
amortization associated with the increase in property, plant, and equipment
along with intangible assets from the acquisitions the Partnership has made
subsequent to the three months ended November 30, 1997.
Operating Income. Operating income for the three months ended November
30, 1998, increased $.6 million or 15.0% to $4.6 million as compared to $4.0
million for the same three month period last fiscal year. This increase was
attributable to the increase in gross profit offset by the acquisition related
increases in operating expenses and depreciation and amortization.
Net Income. First quarter net income increased $.7 million to $1.2
million as compared to fiscal 1998's first quarter net income of $.5 million.
This increase is the result of higher operating income and a non-recurring gain
of $.4 million on the sale of certain idle property held by the Partnership,
partially offset by an acquisition related increase in interest costs.
EBITDA. Earnings before interest, taxes, depreciation and amortization
increased $1.3 million or 18.3 % to $8.4 million for the first quarter ended
November 30, 1998, as compared to $7.1 million for the first quarter of fiscal
1998 that ended November 30, 1997. This increase is due to the higher domestic
fuel margins offset by increased operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
The ability of the Partnership to satisfy its obligations will depend
on its future performance, which will be subject to prevailing economic,
financial, business and weather conditions and other factors, many of which are
beyond its control. Future capital needs of the Partnership are expected to be
provided by various sources as follows:
a) increases in working capital will be financed on the working capital
line of credit and repaid from subsequent seasonal reductions in
inventory and accounts receivable
b) payment of interest costs, and other debt services, will be provided by
the annual cash flow from operations
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<PAGE> 11
c) required maintenance capital, predominantly vehicle replacement, will
also be provided by the annual cash flow from operations
d) growth capital, mainly for customer tanks, expended will be financed by
the revolving acquisition bank line of credit
e) acquisition capital expenditures will be financed with additional
indebtedness on the revolving acquisition bank line of credit, other
lines of credit, issues of additional Common Units or a combination
thereof.
CASH FLOWS
Operating Activities. Cash provided by operating activities during the three
months ended November 30, 1998, was $2.8 million compared to $2.4 million during
the three months ended November 30, 1997. The cash flows from operations during
the three months ended November 30, 1998, consisted primarily of net income of
$1.2 million and non-cash charges of $3.0 million, principally depreciation and
amortization, offset by a non-recurring gain from the sale of certain idle
property. The impact of working capital changes decreased operating cash flow by
approximately $1.5 million.
Investing Activities. Cash used in investing activities during the three
months ended November 30, 1998 included capital expenditures for acquisitions
amounting to $3.4 million, net of cash received plus $3.5 million spent for
maintenance needed to sustain operations at current levels, as well as customer
tanks to support growth of operations and other miscellaneous capitalized items.
These investing activities were offset by proceeds from asset sales of $1.5
million, which was principally from the non-recurring sale of certain idle
property. The proceeds from asset sales were used to purchase property in
certain areas of the Partnership's operations that were previously under leased
facilities plus fund other maintenance and growth capital expenditures incurred.
Financing Activities. Cash provided by financing activities during the
three months ended November 30, 1998 of $3.3 million is the combination of $4.0
million of net additional working capital used to fund current operations, $3.6
million of net additional debt incurred to fund acquisitions, reduced by the
full Minimum Quarterly Distribution to unitholders of $4.3 million.
FINANCING AND SOURCES OF LIQUIDITY
The Partnership has a Bank Credit Facility, which includes a Working
Capital Facility, a revolving credit facility providing for up to $20 million of
borrowings to be used for working capital and other general partnership
purposes, and an Acquisition Facility, a revolving credit facility providing for
up to $30 million of borrowings to be used for acquisitions and improvements. As
of November 30, 1998 the Acquisition Facility had $26.2 million available to
fund future acquisitions and the Working Capital Facility had $5.4 million
available for borrowings.
The Partnership also has a Medium Term Note Program that provides for
the issuance of up to $100 million of senior secured promissory notes if certain
conditions are met. As of November 30, 1998 the Partnership had issued $47
million of these notes. The Partnership has a registration statement filed on
Form S-4 registering 2,000,000 additional Common Units which may be issued from
time to time by the Partnership by means of a prospectus delivered in connection
with its negotiations for acquisitions or other businesses, properties or
securities in business combination transactions. As of the date of the filing of
this Form 10-Q, 60,606 units have been issued utilizing this Registration
Statement No. 333-40407 on Form S-4 in connection with a prior acquisition.
The Partnership uses its cash provided by operating and financing
activities to provide distributions to unitholders and to fund acquisitions,
maintenance and growth capital expenditures. Acquisition capital expenditures,
which include expenditures related to the acquisition of retail propane
operations and intangibles associated with such acquired businesses, were $3.4
million for the three months ended November 30, 1998 and compared to $7.3
million for the three months ended November 30, 1997.
The assets utilized in the propane business do not typically require
lengthy manufacturing process time nor complicated, high technology components.
Accordingly, the Partnership does not have any
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significant financial commitments for capital expenditures. In addition, the
Partnership has not experienced any significant increases attributable to
inflation in the cost of these assets or in its operations.
YEAR 2000 MATTERS
The year 2000 issue arose because many computer programs use only the
last two digits to indicate the year; hence, they may not interpret dates beyond
the year 1999. The Partnership has recognized the potential impact of this
problem that could cause computer applications to fail or create erroneous
results and along with outside consultants, has conducted a detailed assessment
of its Year 2000 compliance and readiness. The Partnership has put a
comprehensive program in place to prepare for its year 2000 readiness.
The Partnership is reviewing and evaluating both their information
technology ("IT") and non-IT systems. A complete and detailed inventory list of
the Partnership's hardware and software systems has been established enabling
them to evaluate the state of readiness of these systems. The Partnership's
district operations use a variety of external software that has been evaluated
for Year 2000 compliance. The upgrade of the software at these district
locations is currently underway. The hardware necessary to accommodate the
software upgrades will be replaced as needed. Completion of this phase is
anticipated by March 1999. The Partnership's central accounting system, payroll
system and miscellaneous applications used are also in the process of being
upgraded with completion anticipated in January 1999. The upgraded software in
both the district locations and at the administration level is scheduled for
testing and user training starting December 1998 and to be completed in early
spring 1999. The non-IT systems such as telephones, fax machines, and
photocopiers will be investigated for the date critical Year 2000 and will be
replaced or updated as needed for operation.
The Partnership has identified major vendors and suppliers on whom it
depends upon for services and product to assess their Year 2000 readiness to
assure there are no interruptions in operations. A Year 2000 compliance letter
and questionnaire is being sent to these third parties with responses
anticipated by December 1998. Interruption of the supply and delivery of gas
products could have a material adverse effect on the operations of the
Partnership. By contacting these third parties to assess their state of
readiness and developing an appropriate contingency plan if necessary, the
Partnership is hoping to minimize these risks. The Partnership's banking
facilities are also being contacted to insure that the collection and transfer
of funds will not be interrupted and that extension of working capital will be
available as needed. Acquisition candidates are supplied with a compliance
letter and questionnaire also to assess the potential needs of their systems.
The Partnership does not expect the costs to modify its computer-based
systems to have a material effect on the Partnership's results of operations.
The current estimates of the amount of time, personnel, and costs to modify the
current systems to be Year 2000 compliant is less than $.5 million. A portion of
these costs is expected to be capitalized as they relate to adding new software
and hardware to enhance current operations. Costs related directly to becoming
Year 2000 compliant will be expensed as incurred. Estimated costs to date have
not been specifically tracked but are estimated to be immaterial.
The Partnership expects that its IT and non-IT systems will be
compliant by the target dates listed. A contingency plan is being developed to
deal with system failures. The Partnership will primarily focus on one of the
systems currently being tested that would be compliant. If other systems fail
during the testing, they will be upgraded to the compliant system. The success
it has with dealing with the issues of the Year 2000 and its vendor and
supplier's success in the matter will affect the Partnership's future
operations. Interruptions in the Partnership's operations or those of its major
suppliers due to Year 2000 failures could have a material adverse affect on its
operations and cash flows.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report, excluding historical information,
include certain forward-looking statements. Although the Partnership believes
such forward-looking statements are based on reasonable assumptions, no
assurance can be given that every objective will be reached. Such statements are
made in reliance on the "safe-harbor" protections provided under the Private
Securities Litigation Reform Act of 1995.
10
<PAGE> 13
As required by that law, the Partnership hereby identify the following important
factors that could cause actual results to differ materially from any results
projected, forecasted, estimated or budgeted by the Partnership in
forward-looking statements.
o Risks and uncertainties impacting the Partnership as a whole
relate to changes in general economic conditions in the United
States; the availability and cost of capital; changes in laws and
regulations to which the Partnership is subject, including tax,
environmental and employment laws and regulations; the cost and
effects of legal and administrative claims and proceedings against
the Partnership or which may be brought against the Partnership
and changes in general and economic and currencies in foreign
countries.
o The uncertainty of the ability of the Partnership to sustain its
rate of internal sales growth and its ability to locate and
acquire other propane companies at prices that are accretive to
the Partnership's EBITDA (earnings before interest, taxes,
depreciation and amortization).
o Risks and uncertainties related to energy prices and the ability
of the Partnership to develop expanded markets and products
offerings as well as their ability to maintain existing markets.
In addition, future sales will depend on the cost of propane
compared to other fuels, competition from other propane retailers
and alternate fuels, the general level of petroleum product
demand, and weather conditions, among other things.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) The following exhibits are filed as part of this Report. Exhibits required
by Item 601 of Regulation S-K, but which are not listed below, are not
applicable.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C> <C>
(1) 3.1 Agreement of Limited Partnership of Heritage Propane Partners, L.P.
(1) 10.1 Form of Bank Credit Facility
(3) 10.1.1 Amendment of Bank Credit Facility dated as of July 9, 1996
(4) 10.1.2 Amendment of Bank Credit Facility dated as of February 28, 1997
(5) 10.1.3 Third Amendment to Credit Agreement dated as of September 30, 1997
(6) 10.1.4 Fourth Amendment to Credit Agreement dated as of November 18, 1997.
(*) 10.1.5 Fifth Amendment to Credit Agreement dated as of November 13, 1998.
(1) 10.2 Form of Note Purchase Agreement (June 25, 1996)
(3) 10.2.1 Amendment of Note Purchase Agreement (June 25, 1996) dated as of July
25, 1996
(4) 10.2.2 Amendment of Note Purchase Agreement (June 25, 1996) dated as of
March 11, 1997
(8) 10.2.3 Amendment of Note Purchase Agreement (June 25, 1996) dated as of
October 15, 1998
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C> <C>
(1) 10.3 Form of Contribution, Conveyance and Assumption Agreement among
Heritage Holdings, Inc., Heritage Propane Partners, L.P. and Heritage
Operating L.P.
(1) 10.4 1989 Stock Option Plan
(1) 10.5 1995 Stock Option Plan
(1) 10.6 Restricted Unit Plan
(4) 10.6.1 Amendment of Restricted Unit Plan dated as of October 17, 1996
(2) 10.7 Employment Agreement for James E. Bertelsmeyer
(1) 10.8 Employment Agreement for R.C. Mills
(1) 10.9 Employment Agreement for G.A. Darr
(1) 10.10 Employment Agreement for H. Michael Krimbill
(8) 10.11 Employment Agreement for Bradley K. Atkinson
(7) 10.16 Note Purchase Agreement dated as of November 19, 1997
(8) 10.16.1 Amendment dated as of October 15, 1998 to November 19, 1997 Note
Purchase Agreement
(8) 21.1 List of Subsidiaries
(8) 23.3 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule - Filed with EDGAR version only
- - ----------------------------------------------------------------------------------------------------------------------------------
(1) Incorporated by reference to the same numbered Exhibit to Registrant's Registration Statement of
Form S-3, File No. 333-4018, filed with the Commission on June 21, 1996.
(2) Incorporated by reference to Exhibit 10.11 to Registrant's Registration Statement on Form S-1, File
No. 333-4018, filed with the Commission on June 21, 1996.
(3) Incorporated by reference to the same numbered Exhibit to Registrant's Form 10-Q for
the quarter ended November 30, 1996.
(4) Incorporated by reference to the same numbered Exhibit to Registrant's Form 10-Q for
the quarter ended February 28, 1997.
(5) Incorporated by reference to the same numbered Exhibit to Registrant's Form 10-K for
the year ended August 31, 1997.
(6) Incorporated by reference to the same numbered Exhibit to Registrant's Form 10-Q for
the quarter ended November 30, 1997.
</TABLE>
12
<PAGE> 15
<TABLE>
<S> <C>
(7) Incorporated by reference to the same numbered Exhibit to the Registrant's Form 10-Q
for the quarter ended May 31, 1998.
(8) Incorporated by reference to the same numbered Exhibit to Registrant's Form 10-K for
the year ended August 31, 1998.
(*) Filed Herewith
</TABLE>
- - -------------------------------------------------------------------------------
(b) Reports of Form 8-K.
The registrant has filed no reports on Form 8-K for the quarter for
which this report is filed.
13
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HERITAGE PROPANE PARTNERS, L.P.
By: Heritage Holdings, Inc., General Partner
Date: January 12, 1999 By: /s/ H. Michael Krimbill
--------------------------------------
H. Michael Krimbill
(Chief Financial Officer and officer
duly authorized to sign on behalf of
the registrant)
14
<PAGE> 17
INDEX TO EXHIBITS
(a) The following exhibits are filed as part of this Report.
Exhibits required by Item 601 of Regulation S-K, but which are
not listed below, are not applicable.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C> <C>
(1) 3.1 Agreement of Limited Partnership of Heritage Propane Partners, L.P.
(1) 10.1 Form of Bank Credit Facility
(3) 10.1.1 Amendment of Bank Credit Facility dated as of July 9, 1996
(4) 10.1.2 Amendment of Bank Credit Facility dated as of February 28, 1997
(5) 10.1.3 Third Amendment to Credit Agreement dated as of September 30, 1997
(6) 10.1.4 Fourth Amendment to Credit Agreement dated as of November 18, 1997.
(*) 10.1.5 Fifth Amendment to Credit Agreement dated as of November 13, 1998.
(1) 10.2 Form of Note Purchase Agreement (June 25, 1996)
(3) 10.2.1 Amendment of Note Purchase Agreement (June 25, 1996) dated as of July
25, 1996
(4) 10.2.2 Amendment of Note Purchase Agreement (June 25, 1996) dated as of
March 11, 1997
(8) 10.2.3 Amendment of Note Purchase Agreement (June 25, 1996) dated as of
October 15, 1998
(1) 10.3 Form of Contribution, Conveyance and Assumption Agreement among
Heritage Holdings, Inc., Heritage Propane Partners, L.P. and Heritage
Operating L.P.
(1) 10.4 1989 Stock Option Plan
(1) 10.5 1995 Stock Option Plan
(1) 10.6 Restricted Unit Plan
(4) 10.6.1 Amendment of Restricted Unit Plan dated as of October 17, 1996
(2) 10.7 Employment Agreement for James E. Bertelsmeyer
(1) 10.8 Employment Agreement for R.C. Mills
(1) 10.9 Employment Agreement for G.A. Darr
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C> <C>
(1) 10.10 Employment Agreement for H. Michael Krimbill
(8) 10.11 Employment Agreement for Bradley K. Atkinson
(7) 10.16 Note Purchase Agreement dated as of November 19, 1997
(8) 10.16.1 Amendment dated as of October 15, 1998 to November 19, 1997 Note Purchase Agreement
(8) 21.1 List of Subsidiaries
(8) 23.3 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule - Filed with EDGAR version only
- - ----------------------------------------------------------------------------------------------------------------------------------
(1) Incorporated by reference to the same numbered Exhibit to Registrant's Registration Statement of
Form S-3, File No. 333-4018, filed with the Commission on June 21, 1996.
(2) Incorporated by reference to Exhibit 10.11 to Registrant's Registration Statement on Form S-1, File
No. 333-4018, filed with the Commission on June 21, 1996.
(3) Incorporated by reference to the same numbered Exhibit to Registrant's Form 10-Q for the quarter ended
November 30, 1996.
(4) Incorporated by reference to the same numbered Exhibit to Registrant's Form 10-Q for the quarter ended
February 28, 1997.
(5) Incorporated by reference to the same numbered Exhibit to Registrant's Form 10-K for the year ended
August 31, 1997.
(6) Incorporated by reference to the same numbered Exhibit to Registrant's Form 10-Q for the quarter ended
November 30, 1997.
(7) Incorporated by reference to the same numbered Exhibit to the Registrant's Form 10-Q for the quarter
ended May 31, 1998.
(8) Incorporated by reference to the same numbered Exhibit to Registrant's Form 10-K for the year ended
August 31, 1998.
(*) Filed Herewith
</TABLE>
- - -------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.1.5
HERITAGE OPERATING, L.P.
FIFTH AMENDMENT TO CREDIT AGREEMENT
This Fifth Amendment to Credit Agreement, dated as of November 13,
1998, is among Heritage Operating, L.P., a Delaware limited partnership (the
"Company"), the Banks party hereto, BankBoston, N.A. (formerly known as The
First National Bank of Boston), as administrative agent (the "Administrative
Agent") for itself and the other Banks, and Bank of Oklahoma, National
Association, as documentation agent (the "Documentation Agent") for itself and
the other Banks. The parties agree as follows:
1. Reference to Credit Agreement; Background.
1.1. Reference to Credit Agreement; Definitions. Reference is made to
the Credit Agreement dated as of June 25, 1996, as amended by the First
Amendment to Credit Agreement dated as of July 25, 1996, the Second Amendment to
Credit Agreement dated as of February 28, 1997, the Third Amendment to Credit
Agreement dated as of September 30, 1997 and the Fourth Amendment to Credit
Agreement dated as of November 18, 1997 (as so amended, the "Credit Agreement"),
among the Company, the Banks from time to time party thereto, the Administrative
Agent and the Documentation Agent. The Credit Agreement, as amended by the
amendments set forth in Section 2 hereof (the "Amendment"), is referred to as
the "Amended Credit Agreement." Terms defined in the Amended Credit Agreement
and not otherwise defined herein are used herein with the meanings so defined.
1.2. Background. The Company has requested that the Bank agree to
certain changes in pricing and in certain financial covenants provided in the
Credit Agreement.
2. Amendments to Credit Agreement. Subject to all of the terms and conditions
hereof and in reliance upon the representations and warranties set forth or
incorporated by reference in Section 3 hereof, the Credit Agreement is amended
as follows, effective as of the date specified with respect to each such
amendment:
2.1. Section 1.1 of the Credit Agreement is amended, effective from and
after the Financial Statement Delivery Date for the fiscal quarter of the
Company ending August 31, 1998, by amending the definition of the term
"Applicable Commitment Fee Percentage" to read in its entirety as follows:
"Applicable Commitment Fee Percentage" means, with respect to
any Margin Period, the applicable percentage set forth below:
(i) if the Leverage Ratio on the Financial Statement
Delivery Date beginning such Margin Period was less than 3.25
to 1, .25%;
(ii) if the Leverage Ratio on the Financial Statement
Delivery Date beginning such Margin Period was equal to or
greater then 3.25 to 1 but less than 3.75 to 1, .30%;
<PAGE> 2
(iii) if the Leverage Ratio on the Financial
Statement Delivery Date beginning such Margin Period was equal
to or greater than 3.75 to 1 but less than 4.25 to 1, .35%;
and
(iv) if the Leverage Ratio on the Financial Statement
Delivery Date beginning such Margin Period was equal to or
greater than 4.25 to 1, .375%
Notwithstanding the foregoing, if any of the financial
statements required pursuant to Section 7A.1(i) are not delivered
within the time periods specified in Section 7A.1(i), the Applicable
Commitment Fee Percentage shall be .375% until the date such statements
are delivered.
2.2 Section 1.1 of the Credit Agreement is further amended, effective
from and after the Financial Statement Delivery Date for the fiscal quarter of
the Company ending August 31, 1998, by amending the definition of the term
"Applicable Margin" to read in its entirety as follows:
"Applicable Margin". With respect to any Eurodollar Loan or
with respect to any Base Rate Loan, for each Margin Period the rate of
interest per annum determined as set forth below:
(i) if the Leverage Ratio on the Financial Statement
Delivery Date commencing such Margin Period was less than 3.25
to 1, the Applicable Margin will be .75% for Eurodollar Loans
and zero for Base Rate Loans;
(ii) if the Leverage Ratio on the Financial Statement
Delivery Date commencing such Margin Period was equal to or
greater than 3.25 to 1 but less than 3.75 to 1, the Applicable
Margin will be 1.00% for Eurodollar Loans and zero for Base
Rate Loans;
(iii) if the Leverage Ratio on the Financial
Statement Delivery Date commencing such Margin Period was
equal to or greater than 3.75 to 1 but less than 4.25 to 1,
the Applicable Margin will be 1.25% for Eurodollar Loans and
zero for Base Rate Loans;
(iv) if the Leverage Ratio on the Financial Statement
Delivery Date commencing such Margin Period was equal to or
greater than 4.25 to 1 but less than 4.50 to 1, the Applicable
Margin will be 1.375% for Eurodollar Loans and zero for Base
Rate Loans; and
(v) if the Leverage Ratio on the Financial Statement
Delivery Date commencing such Margin Period was equal to or
greater than 4.50 to 1 but less than 4.75 to 1, the Applicable
Margin will be 1.50% for Eurodollar Loans and zero for Base
Rate Loans; and
(vi) if the Leverage Ratio on the Financial
Statement Delivery Date commencing such Margin Period was
equal to or greater than 4.75 to
2
<PAGE> 3
1, the Applicable Margin will be 1.75% for Eurodollar Loans
and .125% for Base Rate Loans.
Notwithstanding the foregoing, if any of the financial
statements required pursuant to Section 7A.1(i) are not delivered
within the time periods specified in Section 7A.1(i), the Applicable
Margin shall be the Applicable Margin set forth in clause (vi) above
until the date such statements are delivered.
2.3. Section 2.1.2 of the Credit Agreement is amended, effective as of
November 13, 1998, to read in its entirety as follows:
2.1.2 Maximum Amount of Acquisition Credit. The term "Maximum
Amount of Acquisition Credit" means, on any date on or prior to the
Acquisition Conversion Date, the remainder of (x) the lesser of (a)
$30,000,000 or (b) the aggregate Acquisition Loan Commitments described
in Section 10.1, as amended from time to time, minus (y) the aggregate
principal amount of the HHI Acquisition Notes from time to time, or
such lesser amount as the Borrower may specify from time to time by
notice from the Borrower to the Administrative Agent and, after the
Acquisition Conversion Date, zero.
2.4. Section 2.2.2 of the Credit Agreement is amended, effective as of
November 13, 1998, to read in its entirety as follows:
2.2.2 Maximum Amount of Working Capital Credit. The term,
"Maximum Amount of Working Capital Credit" means, on any date,
$20,000,000 minus the outstanding principal balance on the Indebtedness
permitted by Section 7B.2(v) or such lesser amount as the Borrower may
specify from time to time by notice from the Borrower to the
Administrative Agent; provided that the aggregate outstanding principal
amount of the Working Capital Loan shall be $0 for a period of not less
than 30 consecutive calendar days at least one time during each fiscal
year of the Borrower (the "Annual Clean-Up"). Failure by the Borrower
to comply with the provisions of the Annual Clean-Up shall constitute
a failure to pay the Loans when due and an Event of Default under
Section 9.1.
2.5. Section 7B.1 of the Credit Agreement is amended, effective as of
August 31, 1998, by amending clause (ii) thereof to read in its entirety as
follows:
(ii) Ratio of Consolidated Funded Indebtedness to Consolidated
EBITDA. The Borrower will not permit the ratio of the last day of any
fiscal quarter of Consolidated Funded Indebtedness to Consolidated
EBITDA to exceed (a) 5.00 to 1 on any date on or prior to August 31,
1999, or (b) 4.75 to 1 on any date after August 31, 1999;
2.6 Section 10.1 of the Credit Agreement is amended, effective as of
November 13, 1998, to read in its entirety as follows:
3
<PAGE> 4
10.1 Interests in Loans/Commitments. The percentage interest
of each Bank in the Loans and Letters of Credit, and the Commitments,
shall be computed based on the maximum principal amount for each Bank
as follows:
<TABLE>
<CAPTION>
Maximum Maximum
Acquisition Working Maximum
Loan Capital Loan Commitment Percentage
Bank Commitments Commitments Amounts Interests
---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BOk $12,000,000 $8,000,000 $20,000,000 40%
Bank of Boston 12,000,000 8,000,000 20,000,000 40%
Mercantile 6,000,000 4,000,000 10,000,000 20%
----------- ----------- ----------- -----------
TOTAL $30,000,000 $20,000,000 $50,000,000 100%
</TABLE>
The foregoing percentage interests, as from time to time in effect and
reflected in the Register, are referred to as the "Percentage
Interests" with respect to all or any portion of the Loans and Letters
of Credit, and the Commitments.
3. Representations and Warranties. In order to induce the Banks to enter into
this Amendment, the Company represents and warrants to each of the Banks that:
3.1 No Legal Obstacle to Agreements. Neither the execution and delivery
of this Amendment or any other Loan Document, nor the making of any borrowing
under the Amended Credit Agreement, nor the guaranteeing of the Credit
Obligations, nor the securing of the Credit Obligations with the Collateral, nor
the consummation of any transaction referred to in or contemplated by this
Amendment, the Amended Credit Agreement or any other Loan Document, nor the
fulfillment of the terms hereof or thereof or of any other agreement,
instrument, deed or lease contemplated by this Amendment, the Amended Credit
Agreement or any other Loan Document, has constituted or resulted in or will
constitute or result in:
(a) any breach or termination of the provisions of any
agreement, instrument, deed or lease to which the Company is a party or
by which it is bound, or of the Partnership Agreement of the Company;
(b) the violation of any law, statute, judgement, decree or
governmental order, rule or regulation applicable to the Company;
(c) the creation under any agreement, instrument, deed or
lease of any Lien (other than Liens on the Collateral which secure the
Credit Obligations and Liens permitted by Section 7B.3 of the Amended
Credit Agreement) upon any of the assets of the Company; or
(d) any redemption, retirement or other repurchase obligation
of the Company under the Partnership Agreement or other agreement,
instrument, deed or lease.
4
<PAGE> 5
No approval, authorization or other action by, or declaration to or filing with,
any governmental or administrative authority or any other Person is required to
be obtained or made by the Company in connection with the execution and delivery
of this Amendment, the performance of this Amendment, the Amended Credit
Agreement or any other Credit Document, the transactions contemplated hereby or
thereby, the making of any borrowing under the Amended Credit Agreement, the
guaranteeing of the Credit Obligations or the securing of the Credit Obligation
with the Collateral.
3.2. Defaults. Immediately after giving effect to this Amendment, no
Default shall exist.
3.3. Incorporation of Representations and Warranties of Company.
Immediately after giving effect to this Amendment, the representations and
warranties set forth in Article VIII of the Amended Credit Agreement will be
true and correct as if originally made on and as of the Amendment Closing Date
(except to the extent of any representation or warranty which refers to a
specific earlier date).
4. Conditions. The effectiveness of each of the amendments set forth in Section
2 hereof shall be subject to the satisfaction of the following conditions:
4.1. Representations. The representations and warranties contained in
Section 3 hereof shall be true and correct on and as of the Amendment Closing
Date with the same force and effect as though originally made on and as of the
Amendment Closing Date; immediately after giving effect to such amendments, no
Default shall exist; and no Material Adverse Change shall have occurred since
August 31, 1997.
4.2. Replacement Notes. The Company shall have executed and delivered
to the Administrative Agent for delivery to each of the Banks replacement
Acquisition Notes and Working Capital Notes in the amount of each Bank's
Percentage Interest in the Maximum Amount of Acquisition Credit and the Maximum
Amount of Working Capital Credit, respectively.
4.3. Note Purchase Agreement. The effectiveness of the amendments
provided in Sections 2.3, 2.4 and 2.6 of this Amendment is conditioned on the
consummation of an amendment of Section 6B(ii) of the Note Purchase Agreement
increasing the aggregate principal amount of Indebtedness permitted thereby from
$15,000,000 to $20,000,000.
4.4. Proper Proceedings. All proper proceedings shall have been taken
by the Company to authorize this Amendment, the Amended Credit Agreement and the
transactions contemplated hereby and thereby. On or before the Amendment Closing
Date, the Agents shall have received copies of all documents, including legal
opinions of counsel and records of corporate proceedings which the Agents may
have requested in connection therewith, such documents, where appropriate, to be
certified by proper corporate or governmental authorities.
4.5. Execution and Delivery. Each of the Company and the Banks shall
have executed and delivered this Amendment.
5
<PAGE> 6
5. Further Assurances. The Company will, promptly upon the request of the Agent
from time to time, execute, acknowledge and deliver, and file and record, all
such instruments and notices, and take all such action, as the Agents deem
necessary or advisable to carry out the intent and purposes of this Amendment
and the Amended Credit Agreement.
6. General. The Amended Credit Agreement and all of the other Loan Documents are
each confirmed as being in full force and effect. This Amendment, the Amended
Credit Agreement and the other Loan Documents referred to herein or therein
constitute the entire understanding of the parties with respect to the subject
matter hereof and thereof and supersede all prior and current understandings and
agreements, whether written or oral, with respect to such subject matter. The
invalidity or unenforceability of any provision hereof shall not affect the
validity and enforceability of any other term or provision hereof. The headings
in this Amendment are for convenience of reference only and shall nor alter,
limit or otherwise affect the meaning hereof. Each of this Amendment and the
Amended Credit Agreement is a Loan Document and may be executed in any number of
counterparts, which together shall constitute one instrument, and shall bind and
inure to the benefit of the parties and their respective successors and assigns,
including as such successors and assigns all holders of any Note. This Amendment
shall be governed by and construed in accordance with the laws (other than the
conflict of law rules) of the State of Oklahoma.
6
<PAGE> 7
Each of the undersigned has caused this Amendment to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
HERITAGE OPERATING L.P., a Delaware
limited partnership
By: Heritage Holdings, Inc., a Delaware
corporation, general partner
By: /s/ H. Michael Krimbill
----------------------------------------
H. Michael Krimbill, Vice President and
Chief Financial Officer
BANKBOSTON, N.A., individually and as
Administrative Agent for the Lenders
By: /s/ Timothy J. Norton
---------------------------------------
Authorized Officer
BANK OF OKLAHOMA, NATIONAL
ASSOCIATION, individually and as
Documentation Agent
By: /s/ Robert D. Mattax
--------------------------------------
Authorized Officer
MERCANTILE BANK NATIONAL
ASSOCIATION
By: /s/ Jeffery A. Nelson
---------------------------------------
Jeffrey A. Nelson
Vice President
7
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 2,424
<SECURITIES> 0
<RECEIVABLES> 16,265
<ALLOWANCES> 436
<INVENTORY> 12,876
<CURRENT-ASSETS> 32,991
<PP&E> 180,877
<DEPRECIATION> 37,095
<TOTAL-ASSETS> 250,490
<CURRENT-LIABILITIES> 44,071
<BONDS> 182,358
0
0
<COMMON> 0
<OTHER-SE> 24,061
<TOTAL-LIABILITY-AND-EQUITY> 250,490
<SALES> 41,558
<TOTAL-REVENUES> 41,558
<CGS> 19,931
<TOTAL-COSTS> 36,995
<OTHER-EXPENSES> (649)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,896
<INCOME-PRETAX> 1,316
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,316
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,215
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
