<PAGE> 1
EXHIBIT 99.3
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements present (i)
unaudited pro forma balance sheet data at June 30, 2000, giving effect to the
Merger (as defined below) as if the Merger had been consummated on that date and
(ii) unaudited pro forma operating data for the six months ended June 30, 2000
and the year ended December 31, 1999, giving effect to the Merger as if the
Merger had been consummated on January 1, 1999. The unaudited pro forma combined
balance sheet data at June 30, 2000 combines balance sheets of Peoples Gas
Company (Peoples Gas) as of June 30, 2000, Heritage Propane Partners, L.P.
(Heritage) as of May 31, 2000, United Cities Propane Gas, Inc. (United Cities)
as of June 30, 2000, Piedmont Propane Company (Piedmont) as of July 31, 2000 and
AGL Propane, Inc. (AGL) as of June 30, 2000, after giving effect to pro forma
adjustments. The unaudited pro forma combined statements of operations for the
six months ended June 30, 2000 and the year ended December 31, 1999, combine the
results of operations for Peoples Gas' six months ended June 30, 2000, and
fiscal year ended December 31, 1999, with the results of operations for
Heritage's six months ended May 31, 2000, and 12 months ended November 30, 1999,
United Cities' six months ended March 31, 2000, and year ended September 30,
1999, Piedmont's six months ended April 30, 2000, and year ended October 31,
1999, and AGL's six months ended March 31, 2000, and year ended September 30,
1999, after giving effect to pro forma adjustments.
Immediately prior to the transaction with Heritage Holdings, Inc., TECO Energy,
Inc., Atmos Energy Corporation, Piedmont Natural Gas Co., Inc., and AGL
Resources, Inc. contributed each companies' propane operations, Peoples Gas,
United Cities, Piedmont and AGL, respectively, to U.S. Propane L.P., (U.S.
Propane) in exchange for equity interests in U.S. Propane. The merger was
accounted for as an acquisition using the purchase method of accounting with
Peoples Gas being the acquirer. Accordingly, Peoples Gas' assets and liabilities
were recorded at historical cost and the assets and liabilities of United
Cities, Piedmont and AGL were recorded at fair market value, as determined based
on a valuation and appraisal.
In August 2000, U.S. Propane obtained control of Heritage by acquiring Heritage
Holdings, Inc., Heritage's general partner. U.S. Propane simultaneously
transferred its propane operations to Heritage in exchange for cash, common
units in Heritage and a limited partner interest in Heritage Operating, L.P. The
merger will be accounted for as a reverse acquisition in accordance with
Accounting Principles Board Opinion No. 16. Although Heritage is the surviving
entity for legal purposes, U.S. Propane's propane operations will be the
acquirer for accounting purposes. The assets and liabilities of Heritage will be
reflected at fair value to the extent acquired by U.S. Propane in accordance
with EITF 90-13. The assets and liabilities of U.S. Propane's propane operations
will be reflected at historical cost, as recorded in the U.S. Propane merger
described above.
A final determination of purchase accounting adjustments, including the
allocation of the purchase price to the assets acquired and liabilities assumed
based on their respective fair values, has not been made. Accordingly, the
purchase accounting adjustments made in connection with the development of the
following summary pro forma combined financial statements are preliminary and
have been made solely for purposes of developing such pro forma combined
financial statements. However, management does not believe that final
adjustments will be materially different from the amounts presented herein.
The following unaudited pro forma combined financial statements are provided for
informational purposes only and should be read in conjunction with the separate
audited consolidated financial statements and related notes of Peoples Gas,
United Cities, Piedmont and AGL (which are included elsewhere in this Form
8-K/A) and Heritage (which are filed with Heritage's Annual Report filed on Form
10-K with the Securities and Exchange Commission on November 29, 1999,
incorporated herein by reference). The following unaudited pro forma combined
financial statements are based on certain assumptions and do not purport to be
indicative of the results which actually would have been achieved if the Merger
had been consummated on the dates indicated or which may be achieved in the
future.
<PAGE> 2
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS (1)
JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
Piedmont
Peoples Gas Propane AGL Propane,
Company Company Inc.
(Historical) (Historical) (Historical)
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 11 $ 1,508 $ 1,480
Accounts receivable 4,206 1,538 1,398
Inventories 1,541 3,375 1,594
Marketable securities -- -- --
Prepaid expenses 14 2,815 264
-------------- -------------- --------------
Total current assets 5,772 9,236 4,736
PROPERTY, PLANT AND EQUIPMENT, net 40,887 23,910 21,936
DUE FROM PARENT -- 21,882 --
INTANGIBLES AND OTHER ASSETS, net 1,284 2,878 5,866
-------------- -------------- --------------
Total assets $ 47,943 $ 57,906 $ 32,538
============== ============== ==============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Working capital facility $ -- $ -- $ --
Accounts payable 1,823 2,608 182
Payable to associated companies 21,359 3,820 133
Accrued and other current liabilities 1,205 1,791 1,561
Current maturities of long-term debt -- -- --
-------------- -------------- --------------
Total current liabilities 24,387 8,219 1,876
LONG-TERM DEBT, less current maturities -- -- --
DEFERRED INCOME TAXES 8,711 8,296 4,980
COMMITMENTS AND CONTINGENCIES -- -- --
-------------- -------------- --------------
Total liabilities 33,098 16,515 6,856
-------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
United Cities
Propane Gas, Pro Forma U.S. Propane
Inc. Adjustments Pro Forma
(Historical) (2) Combined
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 649 $ -- $ 3,648
Accounts receivable 3,044 (2,468)(3) 7,718
Inventories 1,753 -- 8,263
Marketable securities -- -- --
Prepaid expenses 39 -- 3,132
-------------- -------------- --------------
Total current assets 5,485 (2,468) 22,761
PROPERTY, PLANT AND EQUIPMENT, net 22,536 (685)(4) 138,157
29,573 (5) --
DUE FROM PARENT -- (21,882)(6)
INTANGIBLES AND OTHER ASSETS, net 3,956 -- 13,984
-------------- -------------- --------------
Total assets $ 31,977 $ 4,538 $ 174,902
============== ============== ==============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Working capital facility $ -- $ -- $ --
Accounts payable 97 -- 4,710
Payable to associated companies 16,838 (42,150)(6) --
Accrued and other current liabilities 1,197 -- 5,754
Current maturities of long-term debt 975 (975)(7) --
-------------- -------------- --------------
Total current liabilities 19,107 (43,125) 10,464
LONG-TERM DEBT, less current maturities 4,807 (3,694)(7) 1,113
DEFERRED INCOME TAXES 1,330 (23,317)(8) --
COMMITMENTS AND CONTINGENCIES -- -- --
-------------- -------------- --------------
Total liabilities 25,244 (70,136) 11,577
-------------- -------------- --------------
</TABLE>
2
<PAGE> 3
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS(1)
JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
Piedmont
Peoples Gas Propane AGL Propane,
Company Company Inc.
(Historical) (Historical) (Historical)
------------ ------------ ------------
<S> <C> <C> <C>
PARTNERS' CAPITAL:
Common unitholders $ -- $ -- $ --
Subordinated unitholders -- -- --
Class B subordinated unitholders -- -- --
General partner -- -- --
Stockholder's equity 14,845 41,391 25,682
Accumulated other comprehensive income -- -- --
------------ ------------ ------------
Total partners' capital 14,845 41,391 25,682
------------ ------------ ------------
Total liabilities and partners' capital $ 47,943 $ 57,906 $ 32,538
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
United Cities
Propane Gas, Pro Forma U.S. Propane
Inc. Adjustments Pro Forma
(Historical) (2) Combined
------------ ------------ ------------
<S> <C> <C> <C>
PARTNERS' CAPITAL:
Common unitholders $ -- $ -- $ --
Subordinated unitholders -- -- --
Class B subordinated unitholders -- -- --
General partner -- -- --
Stockholder's equity 6,733 (2,468)(3) 163,325
(685)(4)
29,573 (5)
20,268 (6)
4,669 (7)
23,317 (8)
Accumulated other comprehensive income -- -- --
------------ ------------ ------------
Total partners' capital 6,733 74,674 163,325
------------ ------------ ------------
Total liabilities and partners' capital $ 31,977 $ 4,538 $ 174,902
============ ============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS(1)
JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
U.S. Propane Heritage Pro Forma
Pro Forma Propane Adjustments Pro Forma
Combined (Historical) (2) Combined
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 3,648 $ 4,206 $ 180,000 (9) $ 1,842
(180,000)(10)
1,201 (12)
(7,213)(14)
Accounts receivable 7,718 19,489 -- 27,207
Inventories 8,263 17,857 -- 26,120
Marketable securities -- 2,697 -- 2,697
Prepaid expenses 3,132 1,608 -- 4,740
------------- ------------- ------------- -------------
Total current assets 22,761 45,857 (6,012) 62,606
PROPERTY, PLANT AND EQUIPMENT, net 138,157 190,179 11,180 (15) 339,516
INVESTMENT IN AFFILIATE -- 5,924 -- 5,924
INTANGIBLES AND OTHER ASSETS, net 13,984 92,606 7,213 (14) 187,013
73,210 (15)
------------- ------------- ------------- -------------
Total assets $ 174,902 $ 334,566 $ 85,591 $ 595,059
============= ============= ============= =============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Working capital facility $ -- $ 25,400 $ (8,605)(10) $ 16,795
Accounts payable 4,710 22,235 -- 26,945
Payable to associated companies -- -- -- --
Accrued and other current liabilities 5,754 10,703 581 (12) 21,030
2,652 (11)
1,704 (15)
(364)(16)
Current maturities of long-term debt -- 2,364 -- 2,364
------------- ------------- ------------- -------------
Total current liabilities 10,464 60,702 (4,032) 67,134
</TABLE>
4
<PAGE> 5
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS(1)
JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
U.S. Propane Heritage Pro Forma
Pro Forma Propane Adjustments Pro Forma
Combined (Historical) (2) Combined
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
LONG-TERM DEBT, less current maturities 1,113 225,149 180,000 (9) 356,059
(50,203)(13)
DEFERRED INCOME TAXES -- -- -- --
COMMITMENTS AND CONTINGENCIES -- -- -- --
------------ ------------ ------------ -------------
Total liabilities 11,577 285,851 125,765 423,193
------------ ------------ ------------ -------------
PARTNERS' CAPITAL:
Common unitholders -- 44,085 7,348 (11) 122,570
22,924 (13)
61,350 (15)
(13,137)(16)
Subordinated unitholders -- 1,050 11,742 (15) 10,277
(2,515)(16)
Class B subordinated unitholders -- -- 27,279 (13) 34,169
8,767 (15)
(1,877)(16)
General partner -- 407 620 (12) 1,677
827 (15)
(177)(16)
Stockholder's equity 163,325 -- (163,325)(16) --
Accumulated other comprehensive income -- 3,173 -- 3,173
------------ ------------ ------------ -------------
Total partners' capital 163,325 48,715 (40,174) 171,866
------------ ------------ ------------ -------------
Total liabilities and partners' capital $ 174,902 $ 334,566 $ 85,591 $ 595,059
============ ============ ============ =============
</TABLE>
See accompanying notes.
5
<PAGE> 6
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS(1)
TWELVE MONTHS ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Piedmont
Peoples Gas Propane AGL Propane,
Company Company Inc.
(Historical) (Historical) (Historical)
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Fuel sales $ 34,045 $ 26,265 $ 20,010
Other -- 1,984 --
------------- ------------- -------------
Total revenues 34,045 28,249 20,010
------------- ------------- -------------
COSTS AND EXPENSES:
Cost of products sold 14,849 14,383 8,311
Operating expenses 13,223 10,430 7,665
Depreciation and amortization 3,088 2,133 2,080
------------- ------------- -------------
Total costs and expenses 31,160 26,946 18,056
------------- ------------- -------------
OPERATING INCOME (LOSS) 2,885 1,303 1,954
OTHER INCOME (EXPENSE):
Interest expense -- (406) (65)
Equity in earnings of affiliate -- -- --
Gain on disposal of assets -- -- --
Other 10 254 341
------------- ------------- -------------
INCOME (LOSS) BEFORE MINORITY INTEREST 2,895 1,151 2,230
Minority interest -- -- --
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 2,895 1,151 2,230
Income tax benefit (expense) (1,127) (469) (961)
------------- ------------- -------------
NET INCOME (LOSS) $ 1,768 $ 682 $ 1,269
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
United Cities
Propane Gas, Pro Forma U.S. Propane
Inc. Adjustments Pro Forma
(Historical) (2) Combined
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Fuel sales $ 19,647 $ -- $ 99,967
Other 3,297 -- 5,281
------------- ------------- -------------
Total revenues 22,944 -- 105,248
------------- ------------- -------------
COSTS AND EXPENSES:
Cost of products sold 10,895 -- 48,438
Operating expenses 9,499 -- 40,817
Depreciation and amortization 2,960 (34)(17) 11,213
986 (18)
------------- ------------- -------------
Total costs and expenses 23,354 952 100,468
------------- ------------- -------------
OPERATING INCOME (LOSS) (410) (952) 4,780
OTHER INCOME (EXPENSE):
Interest expense (1,338) 1,809 (19) --
Equity in earnings of affiliate -- -- --
Gain on disposal of assets 214 (214)(20) --
Other 252 -- 857
------------- ------------- -------------
INCOME (LOSS) BEFORE MINORITY INTEREST (1,282) 643 5,637
Minority interest -- -- --
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (1,282) 643 5,637
Income tax benefit (expense) 478 2,079 (21) --
------------- ------------- -------------
NET INCOME (LOSS) $ (804) $ 2,722 $ 5,637
============= ============= =============
</TABLE>
See accompanying notes.
6
<PAGE> 7
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS(1)
TWELVE MONTHS ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Heritage
U.S. Propane Propane Pro Forma
Pro Forma Partners Adjustments Pro Forma
Combined (Historical) (2) Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Fuel sales $ 99,967 $ 170,660 $ -- $ 270,627
Other 5,281 23,692 -- 28,973
----------- ----------- ----------- -----------
Total revenues 105,248 194,352 -- 299,600
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold 48,438 96,757 -- 145,195
Operating expenses 40,817 58,935 -- 99,752
Depreciation and amortization 11,213 15,226 3,252 (22) 29,691
----------- ----------- ----------- -----------
Total costs and expenses 100,468 170,918 3,252 274,638
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 4,780 23,434 (3,252) 24,962
OTHER INCOME (EXPENSE):
Interest expense -- (16,417) (11,224)(23) (27,641)
Equity in earnings of affiliate -- 873 -- 873
Gain on disposal of assets -- 505 (505)(20) --
Other 857 (302) 555
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST 5,637 8,093 (14,981) (1,251)
Minority interest -- (454) 43 (24) (411)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 5,637 7,639 (14,938) (1,662)
----------- ----------- ----------- -----------
Income tax benefit (expense) -- -- -- --
NET INCOME (LOSS) $ 5,637 $ 7,639 $ (14,938) $ (1,662)
=========== =========== =========== ===========
GENERAL PARTNER'S INTEREST IN NET LOSS $ (16)
===========
LIMITED PARTNERS' INTEREST IN NET LOSS $ (1,646)
===========
BASIC AND DILUTED NET INCOME (LOSS) PER LIMITED
PARTNER UNIT $ .65 $ (.14)
=========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF
UNITS OUTSTANDING 8,715 11,631
=========== ===========
</TABLE>
See accompanying notes.
7
<PAGE> 8
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS(1)
SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
Piedmont
Peoples Gas Propane AGL Propane,
Company Company Inc.
(Historical) (Historical) (Historical)
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Fuel sales $ 23,747 $ 25,284 $ 16,981
Other -- 1,174 --
------------- ------------- -------------
Total revenues 23,747 26,458 16,981
------------- ------------- -------------
COSTS AND EXPENSES:
Cost of products sold 13,153 15,377 8,850
Operating expenses 6,650 5,712 4,001
Depreciation and amortization 1,665 1,161 1,081
------------- ------------- -------------
Total costs and expenses 21,468 22,250 13,932
------------- ------------- -------------
OPERATING INCOME 2,279 4,208 3,049
OTHER INCOME (EXPENSE):
Interest expense -- (298) (5)
Equity in earnings of affiliate -- -- --
Gain on disposal of assets -- -- --
Other (228) 187 528
------------- ------------- -------------
INCOME BEFORE MINORITY INTEREST 2,051 4,097 3,572
Minority interest -- -- --
------------- ------------- -------------
INCOME BEFORE INCOME TAXES 2,051 4,097 3,572
Income taxes (800) (1,628) (1,429)
------------- ------------- -------------
NET INCOME $ 1,251 $ 2,469 $ 2,143
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
United Cities
Propane Gas, Pro Forma
Inc. Adjustments Pro Forma
(Historical) (2) Combined
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Fuel sales $ 17,152 $ -- $ 83,164
Other 2,289 -- 3,463
------------- ------------- -------------
Total revenues 19,441 -- 86,627
------------- ------------- -------------
COSTS AND EXPENSES:
Cost of products sold 10,778 -- 48,158
Operating expenses 4,557 -- 20,920
Depreciation and amortization 1,424 (17)(17) 5,807
493 (18)
------------- ------------- -------------
Total costs and expenses 16,759 476 74,885
------------- ------------- -------------
OPERATING INCOME 2,682 (476) 11,742
OTHER INCOME (EXPENSE):
Interest expense (783) 1,086 (19) --
Equity in earnings of affiliate -- -- --
Gain on disposal of assets 4 (4)(20) --
Other 150 -- 637
------------- ------------- -------------
INCOME BEFORE MINORITY INTEREST 2,053 606 12,379
Minority interest -- -- --
------------- ------------- -------------
INCOME BEFORE INCOME TAXES 2,053 606 12,379
Income taxes (811) 4,668 (21) --
------------- ------------- -------------
NET INCOME $ 1,242 $ 5,274 $ 12,379
============= ============= =============
</TABLE>
See accompanying notes.
8
<PAGE> 9
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS(1)
SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
Heritage
U.S. Propane Propane Pro Forma
Pro Forma Partners Adjustments Pro Forma
Combined (Historical) (2) Combined
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Fuel sales $ 83,164 $ 146,432 $ -- $ 229,596
Other 3,463 12,953 -- 16,416
---------- ---------- ---------- ----------
Total revenues 86,627 159,385 -- 246,012
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of products sold 48,158 90,157 -- 138,315
Operating expenses 20,920 35,641 -- 56,561
Depreciation and amortization 5,807 9,602 1,626 (22) 17,035
---------- ---------- ---------- ----------
Total costs and expenses 74,885 135,400 1,626 211,911
---------- ---------- ---------- ----------
OPERATING INCOME 11,742 23,985 (1,626) 34,101
OTHER INCOME (EXPENSE):
Interest expense -- (9,697) (5,612)(23) (15,309)
Equity in earnings of affiliate -- 676 -- 676
Gain on disposal of assets -- 134 (134)(20) --
Other 637 108 -- 745
---------- ---------- ---------- ----------
INCOME BEFORE MINORITY INTEREST 12,379 15,206 (7,372) 20,213
Minority interest -- (433) (275)(24) (708)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 12,379 14,773 (7,647) 19,505
Income taxes -- -- -- --
---------- ---------- ---------- ----------
NET INCOME $ 12,379 $ 14,773 $ (7,647) $ 19,505
========== ========== ========== ==========
GENERAL PARTNER'S INTEREST IN NET INCOME $ 195
==========
LIMITED PARTNERS' INTEREST IN NET INCOME $ 19,310
==========
BASIC AND DILUTED NET INCOME PER LIMITED
PARTNER UNIT $ 1.25 $ 1.50
========== ==========
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF
UNITS OUTSTANDING 9,934 12,850
========== ==========
</TABLE>
See accompanying notes.
9
<PAGE> 10
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
($ IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
1. Presentation:
The unaudited pro forma condensed combined financial statements do not give
any effect to any restructuring cost, potential cost savings, or other
operating efficiencies that are expected to result from the Merger. The
unaudited pro forma combined financial statements are based on certain
assumptions and do not purport to be indicative of the results which
actually would have been achieved if the Merger had been consummated on the
dates indicated or which may be achieved in the future. The purchase
accounting adjustments made in connection with the development of the
unaudited pro forma condensed combined financial statements are preliminary
and have been made solely for purposes of presenting such pro forma
financial information.
2. It has been assumed that for purposes of the unaudited pro forma combined
balance sheet, the following transactions occurred on June 30, 2000 and for
purposes of the unaudited pro forma combined statements of operations, the
following transactions occurred on January 1, 1999. The unaudited pro forma
combined balance sheet data at June 30, 2000 combines balance sheets of
Peoples Gas Company (Peoples Gas) as of June 30, 2000, Heritage Propane
Partners, L.P. (Heritage) as of May 31, 2000, United Cities Propane Gas,
Inc. (United Cities) as of June 30, 2000, Piedmont Propane Company
(Piedmont) as of July 31, 2000 and AGL Propane, Inc. (AGL) as of June 30,
2000, after giving effect to pro forma adjustments. The unaudited pro forma
combined statements of operations for the six months ended June 30, 2000
and the year ended December 31, 1999, combine the results of operations for
Peoples Gas' six months ended June 30, 2000, and fiscal year ended December
31, 1999, with the results of operations for Heritage's six months ended
May 31, 2000, and 12 months ended November 30, 1999, United Cities' six
months ended March 31, 2000, and year ended September 30, 1999, Piedmont's
six months ended April 30, 2000, and year ended October 31, 1999, and AGL's
six months ended March 31, 2000, and year ended September 30, 1999, after
giving effect to pro forma adjustments.
Immediately prior to the transaction with Heritage Holdings, Inc. (HHI),
TECO Energy, Inc., Atmos Energy Corporation, Piedmont Natural Gas Co.,
Inc., and AGL Resources, Inc. contributed each companies' propane
operations, Peoples Gas, United Cities, Piedmont and AGL, respectively, to
U.S. Propane L.P., (U.S. Propane) in exchange for equity interests in U.S.
Propane. The Merger was accounted for as an acquisition using the purchase
method of accounting with Peoples Gas being the acquirer. Accordingly,
Peoples Gas' assets and liabilities were recorded at historical cost and
the assets and liabilities of United Cities, Piedmont and AGL were recorded
at fair market value, as determined based on a valuation and appraisal.
The purchase allocations were as follows:
<TABLE>
<S> <C>
Purchase price of Piedmont, AGL and United Cities $ 112,501
Net book value of Piedmont, AGL and United Cities 82,928
----------
Step-up of net book value, allocated to property,
plant and equipment $ 29,573
==========
</TABLE>
In August 2000, U.S. Propane acquired all of the outstanding common stock
of HHI, Heritage's General Partner for $120,000. By virtue of HHI's 2%
general partner interest and a 34% limited partner interest in Heritage,
U.S. Propane gained control of Heritage. Simultaneously, U.S. Propane,
transferred its propane operations, consisting of its interest in four
separate limited liability companies, AGL Propane, L.L.C., Peoples Gas
Company, L.L.C., United Cities Propane Gas, L.L.C. and Retail Propane
Company, L.L.C. (former Piedmont operations) to Heritage for $181,395 plus
working capital. The $181,395 was payable $139,552 in cash, $31,843 of
assumed debt, and the issuance of 372,392 Common Units of Heritage valued
at $7,348 and a $2,652 limited partnership interest in Heritage's operating
partnership. The purchase price and the exchange price for the common units
were approved by an independent committee of the Board of Directors of HHI.
The exchange price for the common units was $19.73125 per unit under a
formula based on the average closing price of Heritage's common units on
the New York Stock Exchange for the twenty (20) day period beginning
10
<PAGE> 11
ten (10) days prior to the public announcement of the transaction on June
15, 2000 (the "Formula Price"). The working capital adjustment is
anticipated to be settled in December 2000. For purposes of the pro forma
financial statements, an additional payment of $5,000 has been assumed.
Concurrent with the acquisition, Heritage borrowed $180,000 from several
institutional investors and sold 1,161,814 common units and 1,382,514 Class
B subordinated units in a private placement to the former shareholders of
HHI based on the Formula Price resulting in net proceeds of $50,203. The
total of these proceeds were utilized to finance the transaction and retire
a portion of existing debt.
The merger will be accounted for as a reverse acquisition in accordance
with Accounting Principles Board Opinion No. 16. Although Heritage is the
surviving entity for legal purposes, U.S. Propane's propane operations will
be the acquirer for accounting purposes. The assets and liabilities of
Heritage will be reflected at fair value to the extent acquired by U.S.
Propane's propane operations, approximately 36 percent, in accordance with
EITF 90-13. The assets and liabilities of U.S. Propane will be reflected at
historical cost, as recorded in the U.S. Propane transaction described
above.
The historical financial statements of Peoples Gas will be the historical
financial statements of the registrant as Peoples Gas is the acquirer in
the transaction in which U.S. Propane was formed. The results of operations
of Heritage, Piedmont, AGL and United Cities will be included with the
results of Peoples Gas after completion of the merger on August 10, 2000.
Peoples Gas has a fiscal year-end of December 31, however the registrant
will continue to have an August 31 year-end. Accordingly, the eight-month
period ended August 31, 2000, will be treated as a transition period under
the rules of the Securities and Exchange Commission.
The excess purchase price over predecessor cost was determined as follows:
<TABLE>
<S> <C>
Net book value of Heritage at May 31, 2000 $ 48,715
Equity investment 50,203
----------
98,918
Percent acquired by U.S. Propane 36%
----------
Equity interest acquired $ 35,610
==========
Purchase price $ 120,000
Equity interest acquired 35,610
----------
Excess purchase price over predecessor cost $ 84,390
==========
</TABLE>
<TABLE>
<S> <C>
The excess purchase price over predecessor cost was allocated as follows:
Property, plant and equipment (30 year life) $ 11,180
Customer lists (15 year life) 5,935
Goodwill (30 year life) 67,275
----------
$ 84,390
==========
</TABLE>
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The pro forma adjustments are as follows:
3. Reflects the elimination of receivables retained by U.S. Propane owners.
4. Reflects the elimination of a building retained by United Cities.
5. Reflects the allocation of the fair market value of the assets of Piedmont,
AGL, and United Cities.
6. Reflects the elimination of intercompany receivables and payables retained
by U.S. Propane owners.
7. Reflects the elimination of the debt retained by United Cities.
8. Reflects the elimination of the deferred tax liabilities of U.S. Propane as
income taxes will be borne by the partners and not the Partnership.
9. Reflects the proceeds received from borrowings from institutional
investors. The notes have a fixed average rate of 8.66%.
10. Reflects use of proceeds from long-term debt as follows:
<TABLE>
<S> <C>
Cash paid to U.S. Propane for purchase of propane operations.......................$ (171,395)
Excess proceeds used to pay down working capital................................... (8,605)
-----------
Total........................................................$ (180,000)
===========
</TABLE>
11. Reflects the issuance to U.S. Propane of limited partnership interest in
Heritage and common units.
<TABLE>
<S> <C>
U.S. Propane's limited partnership interest in Heritage's operating
partnership....................................................................$ 2,652
Issuance of 372,392 common units of Heritage....................................... 7,348
-----------
Total........................................................$ 10,000
===========
</TABLE>
12. Reflects the cash contribution from U.S. Propane for the HHI General
Partner interest received through the purchase of HHI's common stock. Of
the total contribution of $1,201, $581 was for the 1.0101% minority
interest in the Operating Partnership and $620 was for the 1% interest in
the MLP.
13. Reflects the proceeds received from the private placement of 1,161,814
common units and 1,382,514 Class B subordinated units to the former
shareholders of HHI.
14. Reflects the allocation to goodwill for the cash paid for acquisition costs
of $2,213 and the estimated working capital payment of $5,000.
15. Reflects the allocation of the excess purchase price over predecessor costs
to the property, plant and equipment of $11,180, goodwill of $67,275 and
customer lists of $5,935.
16. Represents the allocation of the cash paid of $171,395, $7,348 of common
units of Heritage and $2,652 of limited partnership interest in Heritage's
operating partnership for U.S. Propane's propane operations by Heritage
allocated to partners' capital and minority interest liability based on
their ownership percentages.
17. Reflects the elimination of the depreciation for the building retained by
United Cities.
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18. Reflects the additional depreciation related to the step-up of net book
value of Piedmont, AGL and United Cities allocated to property, plant and
equipment having 30-year lives.
19. Reflects the elimination of interest expense related to debt retained by
Piedmont, AGL and United Cities.
20. Reflects the elimination of the gain on sale of assets as the assets are
recorded at fair market value there would not be any gain to recognize.
21. Reflects the elimination of provision for current income tax expense and
benefits, as income taxes will be borne by the partners and not at the
partnership level.
22. Reflect the additional depreciation and amortization related to the excess
purchase price over Heritage's cost allocated to property, plant and
equipment (30-years), goodwill (30 years) and customer lists (15 years).
23. Allocation of additional interest expense of $15,600 and $7,800 for the
twelve and six month periods respectively, related to the issuance of $180
million of Senior Secured Notes at a fixed average rate of 8.66%. This
additional expense is offset by the elimination of $4,376 and $2,188 of
interest on the debt reduction of $58,808 for the twelve and six months,
respectively.
24. Reflects the adjustment to minority interest expense for U.S. Propane's
General Partner 1.0101% interest and their 1.0101% limited partner interest
in the operating partnership on the pro forma income and adjustments.
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