<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, 2000
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 3, 2001, the registrant had units outstanding as follows:
Heritage Propane Partners, L.P. 9,746,196 Common Units
3,233,985 Subordinated Units
<PAGE> 2
FORM 10-Q
HERITAGE PROPANE PARTNERS, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Pages
-----
<S> <C> <C>
PART I FINANCIAL INFORMATION
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(FORMERLY PEOPLES GAS COMPANY AND SURVIVING LEGAL ENTITY IN THE SERIES
OF TRANSACTIONS WITH U.S. PROPANE)
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
November 30, 2000 and August 31, 2000.............................................1
Consolidated Statements of Operations - Three months ended
November 30, 2000, December 31, 1999 (Peoples Gas)
and November 30, 1999 (Predecessor Heritage).......................................2
Consolidated Statements of Comprehensive Income -
Three months ended November 30, 2000,
December 31, 1999 (Peoples Gas)
and November 30, 1999 (Predecessor Heritage) ......................................3
Consolidated Statement of Partners' Capital
Three months ended November 30, 2000...............................................4
Consolidated Statements of Cash Flows
Three months ended November 30, 2000,
December 31, 1999 (Peoples Gas)
and November 30, 1999 (Predecessor Heritage).......................................5
Notes to Consolidated Financial Statements.............................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................................13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.......................................................................17
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................................19
SIGNATURE
</TABLE>
i
<PAGE> 3
PART I - FINANCIAL INFORMATION
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
<TABLE>
<CAPTION>
November 30, August 31,
2000 2000
------------ ----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 7,982 $ 4,845
Marketable securities 2,142 --
Accounts receivable 58,164 31,855
Inventories 44,931 39,045
Assets from trading activities 893 4,133
Prepaid expenses and other 3,008 4,991
------------ ----------
Total current assets 117,120 84,869
PROPERTY, PLANT AND EQUIPMENT, net 348,950 339,366
INVESTMENT IN AFFILIATES 6,011 5,795
INTANGIBLES AND OTHER ASSETS, net 193,064 185,749
------------ ----------
Total assets $ 665,145 $ 615,779
============ ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Working capital facility $ 48,800 $ 24,200
Accounts payable 56,178 43,244
Accounts payable to related companies 1,913 3,814
Accrued and other current liabilities 27,822 24,682
Liabilities from trading activities 697 3,684
Current maturities of long-term debt 3,068 2,588
------------ ----------
Total current liabilities 138,478 102,212
LONG-TERM DEBT, less current maturities 378,999 361,990
MINORITY INTEREST 4,496 4,821
COMMITMENTS AND CONTINGENCIES
Total liabilities 521,973 469,023
------------ ----------
PARTNERS' CAPITAL:
Common unitholders (9,746,196 and 9,674,146 units issued and
outstanding at November 30, 2000 and August 31, 2000,
respectively) 102,225 106,221
Subordinated unitholders (1,851,471 units issued and
outstanding at November 30, 2000 and August 31, 2000,
respectively) 22,371 23,130
Class B subordinated unitholders (1,382,514 units issued and
outstanding at November 30, and August 31, 2000, 15,897 16,464
respectively)
General partner 837 941
Accumulated other comprehensive income 1,842 --
------------ ----------
Total partners' capital 143,172 146,756
------------ ----------
Total liabilities and partners' capital $ 665,145 $ 615,779
============ ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
1
<PAGE> 4
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit and unit data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Three Months
Ended Ended Ended
November 30, December 31, November 30,
2000 1999 1999
------------ ------------ ------------
(Peoples Gas) (Predecessor)
<S> <C> <C> <C>
REVENUES:
Retail fuel $ 87,752 $ 10,133 $ 36,518
Wholesale fuel 16,581 -- 7,817
Trading activities 48,320 -- --
Other 13,192 -- 7,555
------------ ------------ ------------
Total revenues 165,845 10,133 51,890
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of products sold 69,939 5,198 29,421
Trading activities 47,790 -- --
Operating expenses 25,589 3,601 13,603
Depreciation and amortization 9,562 779 4,022
Selling, general and administrative 2,392 -- 1,414
------------ ------------ ------------
Total costs and expenses 155,272 9,578 48,460
------------ ------------ ------------
OPERATING INCOME 10,573 555 3,430
OTHER INCOME (EXPENSE):
Interest expense (8,751) -- (4,398)
Equity in earnings of affiliates 217 -- 46
Gain on disposal of assets 221 -- 285
Other (138) 18 (70)
------------ ------------ ------------
INCOME (LOSS) BEFORE MINORITY INTEREST
AND INCOME TAXES 2,122 573 (707)
Minority interest (159) -- (101)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 1,963 573 (808)
Income taxes -- 289 --
------------ ------------ ------------
NET INCOME (LOSS) 1,963 284 (808)
GENERAL PARTNER'S INTEREST IN
NET INCOME (LOSS) 20 1 (8)
------------ ------------ ------------
LIMITED PARTNERS' INTEREST IN
NET INCOME (LOSS) $ 1,943 $ 283 $ (800)
============ ============ ============
BASIC NET INCOME (LOSS) PER LIMITED
PARTNER UNIT $ .15 $ .16 $ (.09)
============ ============ ============
BASIC WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING
12,980,181 1,732,231 9,081,607
============ ============ ============
DILUTED NET INCOME (LOSS) PER LIMITED
PARTNER UNIT $ .15 $ .16 $ (.09)
============ ============ ============
BASIC WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING
13,004,901 1,732,231 9,081,607
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE> 5
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Three Months
Ended Ended Ended
November 30, December 31, November 30,
2000 1999 1999
------------ ------------ ------------
(Peoples Gas) (Predecessor)
<S> <C> <C> <C>
Net income (loss) $ 1,963 $ 284 $ (808)
Other comprehensive income
Unrealized loss on derivative
instruments (3,416) -- --
Unrealized loss on
available-for-sale securities (171) -- --
------------ ------------ ------------
Comprehensive income (loss) $ (1,624) $ 284 $ (808)
============ ============ ============
RECONCILIATION OF ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of period $ -- $ -- $ --
Cumulative effect of the adoption of
SFAS 133 5,429 -- --
Current period reclassification to
earnings (864)
Current period change (2,723) -- --
------------ ------------ ------------
Balance, end of period $ 1,842 $ -- $ --
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 6
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(in thousands, except unit data)
(unaudited)
<TABLE>
<CAPTION>
Number of Units
----------------------------------------
Class B Class B General
Common Subordinated Subordinated Common Subordinated Subordinated Partner
---------- ------------ ------------ --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 31, 2000 9,674,146 1,851,471 1,382,514 $ 106,221 $ 23,130 $ 16,464 $ 941
Unit distribution -- -- -- (5,604) (1,065) (795) (125)
Issuance of Common Units pursuant to
the vesting rights of the 72,050 -- -- -- -- -- --
Restricted Unit Plan
Other -- -- -- 149 29 21 1
Cumulative effect of the adoption of
SFAS 133 -- -- -- -- -- -- --
Net change in accumulated other
comprehensive income per
accompanying statements -- -- -- -- -- -- --
Net income -- -- -- 1,459 277 207 20
---------- ------------ ------------ --------- ------------ ------------ ---------
BALANCE, NOVEMBER 30, 2000 9,746,196 1,851,471 1,382,514 $ 102,225 $ 22,371 $ 15,897 $ 837
========== ============ ============ ========= ============ ============ =========
<CAPTION>
Accumulated
Other
Comprehensive
Income Total
------------- ---------
BALANCE, AUGUST 31, 2000 $ -- $ 146,756
Unit distribution -- (7,589)
Issuance of Common Units pursuant to
the vesting rights of the -- --
Restricted Unit Plan
Other -- 200
Cumulative effect of the adoption of
SFAS 133 5,429 5,429
Net change in accumulated other
comprehensive income per (3,587)
accompanying statements (3,587)
Net income -- 1,963
------------- ---------
BALANCE, NOVEMBER 30, 2000 $ 1,842 $ 143,172
============= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 7
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Three Months
Ended Ended Ended
November 30, December 31, November 30,
2000 1999 1999
------------ ------------ ------------
(Peoples Gas) (Predecessor)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,963 $ 284 $ (808)
Reconciliation of net income (loss) to net cash provided by
operating activities-
Depreciation and amortization 9,562 779 4,022
Provision for loss on accounts receivable 160 -- 68
Gain on disposal of assets (221) -- (285)
Deferred compensation on restricted units 201 -- 121
Undistributed earnings of affiliates (216) -- (46)
Minority interest (446) -- (63)
Deferred income taxes -- 388 --
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable (26,240) (1,877) (8,128)
Trading asset 3,240 -- --
Inventories (5,785) (73) (789)
Prepaid expenses (1,451) (13) (617)
Intangibles and other assets (820) -- 503
Accounts payable to related parties (1,901) -- --
Accounts payable 12,890 728 3,646
Trading liability (2,987) -- --
Accrued and other current liabilities 2,822 938 1,946
------------ ------------ ------------
Net cash provided by (used in) operating activities (9,229) 1,154 (430)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired (12,194) -- (15,271)
Capital expenditures (6,253) (2,838) (5,045)
Other (1,922) -- 431
------------ ------------ ------------
Net cash used in investing activities (20,369) (2,838) (19,885)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 81,493 -- 36,400
Principal payments on debt (41,169) -- (34,499)
Net proceeds from issuance of common units -- -- 24,041
Unit distribution (7,589) -- (4,899)
Advances from parent -- 2,097 --
Capital contribution from General Partner -- -- 253
------------ ------------ ------------
Net cash provided by financing activities 32,735 2,097 21,296
------------ ------------ ------------
INCREASE IN CASH 3,137 413 981
CASH, beginning of period 4,845 (392) 1,679
------------ ------------ ------------
CASH, end of period $ 7,982 $ 21 $ 2,660
============ ============ ============
NONCASH FINANCING ACTIVITIES:
Notes payable incurred on noncompete agreements $ 1,766 $ -- $ 2,335
============ ============ ============
Issuance of restricted common units $ -- $ -- $ 1,262
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 6,769 $ -- $ 2,768
============ ============ ============
Cash paid to parent for income taxes under tax sharing
agreement, net $ -- $ 175 $ --
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 8
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except unit and per unit data)
(unaudited)
1. OPERATIONS AND ORGANIZATION:
The accompanying financial statements should be read in conjunction with the
Partnership's consolidated financial statements as of August 31, 2000, 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 29, 2000. 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.
In August 2000, TECO Energy, Inc., Atmos Energy Corporation, Piedmont Natural
Gas Co., Inc., and AGL Resources, Inc. contributed each company's propane
operations, Peoples Gas Company ("Peoples Gas"), United Cities Propane Gas, Inc.
("United Cities"), Piedmont Propane Company ("Piedmont") and AGL Propane, Inc.,
("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 $ 112,338
Net book value of Piedmont, AGL and United Cities 82,765
----------
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
Heritage Holdings, Inc., ("General Partner"), the General Partner of Heritage
Propane Partners, L.P., for $120,000. By virtue of Heritage Holdings, Inc.'s
general partner and limited partner interests in Heritage Propane Partners,
L.P., U.S. Propane gained control of Heritage Propane Partners, L.P.
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), (collectively, the
"Propane LLCs"), to Heritage Propane Partners, L.P. 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 Propane Partners, L.P. valued
at $7,348 and a 1.0101 percent limited partnership interest in Heritage Propane
Partners, L.P.'s operating partnership, Heritage Operating, L.P., valued at
$2,652. The purchase price and the exchange price for the Common Units were
approved by an independent committee of the Board of Directors of Heritage
Holdings, Inc. The exchange price for the Common Units was $19.73125 per unit
under a formula based on the average closing price of Heritage Propane Partners
L.P.'s Common Units on the New York Stock Exchange for the twenty (20) day
period beginning 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 January 2001. An additional payment
of $5,000 was accrued at August 31, 2000 for the working capital adjustment. To
the extent the final payment is more or less than $5,000, goodwill recorded in
the transaction will be adjusted.
Concurrent with the acquisition, Heritage Propane Partners, L.P. 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 Heritage Holdings, Inc. based on the Formula Price resulting in
net proceeds of $50,203. The total of these proceeds was utilized to finance the
transaction and retire a portion of existing debt.
The merger was accounted for as a reverse acquisition in accordance with
Accounting Principles Board Opinion No. 16. The propane operations of Heritage
Propane Partners, L.P. prior to the series of transactions with U.S. Propane are
referred to as Predecessor Heritage. Although Predecessor Heritage is the
surviving entity for legal purposes, U.S. Propane's propane operations is the
acquirer for accounting purposes. The assets and liabilities of Predecessor
Heritage have been recorded at fair value to the extent acquired by U.S.
Propane's propane operations,
6
<PAGE> 9
approximately 36 percent, in accordance with Emerging Issues Task Force Issue
No. 90-13, "Accounting for Simultaneous Common Control Mergers." The assets and
liabilities of U.S. Propane have been recorded at historical cost, as recorded
in the U.S. Propane transaction described above. The combined operations of
Predecessor Heritage and U.S. Propane are referred to herein as "Heritage."
Although the equity accounts of Peoples Gas survive the merger, Predecessor
Heritage's partnership structure and partnership units survive. Accordingly, the
equity accounts of Peoples Gas have been restated based on the general partner
interest and common units received by Peoples Gas in the merger.
The excess purchase price over Predecessor Heritage's cost was determined as
follows:
<TABLE>
<S> <C>
Net book value of Predecessor Heritage at August 9, 2000 $ 35,716
Equity investment 50,203
----------
85,919
Percent of Predecessor Heritage acquired by U.S. Propane 36%
----------
Equity interest acquired $ 30,931
==========
Purchase price $ 120,000
Equity interest acquired 30,931
----------
Excess purchase price over Predecessor Heritage cost $ 89,069
==========
</TABLE>
The excess purchase price over Predecessor Heritage cost was allocated as
follows:
<TABLE>
<S> <C>
Property, plant and equipment (25 year life) $ 11,180
Customer lists (15 year life) 5,935
Goodwill (30 year life) 71,954
----------
$ 89,069
==========
</TABLE>
The accompanying financial statements for the three month period ended November
30, 2000 include the results of operations of Heritage. The financial statements
of Peoples Gas are the financial statements of the registrant as Peoples Gas was
the acquirer in the transaction in which U.S. Propane was formed. The
accompanying financial statements for the three month period ended December 31,
1999 have been presented on a carve-out basis and reflect the historical results
of operations, financial position and cash flows of Peoples Gas. Certain
expenses in the financial statements include allocations from TECO Energy, Inc.
("TECO") and other wholly-owned subsidiaries of TECO. Management believes that
the allocations were made on a reasonable basis; however, the allocations of
costs and expenses do not necessarily indicate the costs that would have been
incurred by Peoples Gas on a stand-alone basis. Also, the financial statements
may not necessarily reflect what the financial position, results of operations
and cash flows of Peoples Gas would have been if Peoples Gas had been a
separate, stand-alone company during the periods presented. Peoples Gas had a
fiscal year-end of December 31, however, Heritage will continue to have
Predecessor Heritage's August 31 year-end.
The following unaudited pro forma consolidated results of operations are
presented as if the series of transactions with U.S. Propane and Predecessor
Heritage had been made at the beginning of the period presented.
<TABLE>
<CAPTION>
3-months
Ended
December 31, 1999
-----------------
<S> <C>
Total revenues $ 93,463
Net income $ 926
Basic and diluted earnings per common unit $ .07
</TABLE>
The pro forma consolidated results of operations include adjustments to give
effect to amortization of goodwill, interest expense on acquisition and assumed
debt and certain other adjustments, including the elimination of income taxes.
The unaudited pro forma information is not necessarily indicative of the results
of operations that would have
7
<PAGE> 10
occurred had the transactions been made at the beginning of the periods
presented or the future results of the combined operations.
In order to simplify Heritage's obligation under the laws of several
jurisdictions in which Heritage conducts business, Heritage's activities are
conducted through a subsidiary operating partnership, Heritage Operating, L.P.
(the "Operating Partnership"). Heritage holds a 97.9798 percent limited partner
interest in the Operating Partnership. In addition, the General Partner and U.S.
Propane each hold a 1.0101 percent limited partner interest in the Operating
Partnership.
The Operating Partnership sells propane and propane-related products to more
than 500,000 retail customers in 28 states throughout the United States.
Heritage is also a wholesale propane supplier in the southwestern and
southeastern United States and in Canada, the latter through participation in
M-P Energy Partnership. M-P Energy Partnership is a Canadian partnership
primarily engaged in lower-margin wholesale distribution in which Heritage owns
a 60 percent interest. Heritage grants credit to its customers for the purchase
of propane and propane-related products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BALANCE SHEET DETAIL:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Heritage include the accounts of its
subsidiaries, including Heritage Operating, L.P. ("Operating Partnership"), M-P
Energy Partnership, Heritage Energy Resources, L.L.C. ("Resources") and the
Propane LLCs. Heritage accounts for its 50 percent partnership interest in
Bi-State Partnership, 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 limited partner interest and
U.S. Propane's 1.0101 percent limited partner interest in the Operating
Partnership are accounted for in the consolidated financial statements as
minority interests.
REVENUE RECOGNITION
Sales of propane, propane appliances, parts and fittings are recognized at the
later of the time of delivery of the product to the customer or the time of sale
or installation. Revenue from service labor is recognized upon completion of the
service, and tank rent is recognized ratably over the period it is earned.
INVENTORIES
Inventories are valued at the lower of cost or market. The cost of fuel
inventories is determined using weighted-average cost, while the cost of
appliances, parts and fittings is determined by the first-in, first-out method.
Inventories consisted of the following:
<TABLE>
<CAPTION>
November 30, August 31,
2000 2000
------------ ----------
<S> <C> <C>
Fuel $ 36,482 $ 30,882
Appliances, parts and fittings 8,449 8,163
------------ ----------
$ 44,931 $ 39,045
============ ==========
</TABLE>
INCOME TAXES
For the three months ended December 31, 1999, Peoples Gas followed the liability
method of accounting for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under SFAS 109, deferred income taxes are recorded based upon differences
between the financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets are received and liabilities are settled. TECO retained all
tax liabilities related to Peoples Gas that may have existed as of August 9,
2000.
8
<PAGE> 11
Heritage is a limited partnership. As a result, Heritage's earnings or loss for
federal income tax purposes is included in the tax returns of the individual
partners. Accordingly, because of the merger, no recognition has been given to
income taxes in the accompanying financial statements of Heritage for the three
months ended November 30, 2000. Net earnings for financial statement purposes
may differ significantly from taxable income reportable to unit holders as a
result of differences between the tax basis and financial reporting basis of
assets and liabilities and the taxable income allocation requirements under the
partnership agreement.
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 Three Months Three Months
Ended Ended Ended
November 30, December 31, November 30,
2000 1999 1999
------------ ------------ ------------
(Peoples Gas) (Predecessor)
<S> <C> <C> <C>
BASIC NET INCOME (LOSS) PER LIMITED PARTNER UNIT:
Limited Partners' interest in net income (loss) $ 1,963 $ 284 $ (800)
============ ============ ============
Weighted average limited partner units 12,980,181 1,732,231 9,081,607
============ ============ ============
Basic net income (loss) per limited partner unit $ .15 $ .16 $ (.09)
============ ============ ============
DILUTED NET INCOME (LOSS) PER LIMITED PARTNER UNIT:
Limited partners' interest in net income (loss) $ 1,963 $ 284 $ (800)
============ ============ ============
Weighted average limited partner units 12,980,181 1,732,231 9,081,607
Dilutive effect of Phantom Units 24,720 -- --
------------ ------------ ------------
Weighted average limited partner units, assuming dilutive
effect of Phantom Units 13,004,901 1,732,231 9,081,607
============ ============ ============
Diluted net income (loss) per limited partner unit $ .15 $ .16 $ (.09)
============ ============ ============
</TABLE>
CASH DISTRIBUTIONS
Heritage is expected to make quarterly cash distributions of Available Cash,
generally defined as consolidated cash receipts less consolidated operating
expenses, debt service payments, maintenance capital expenditures and net
changes in reserves established by the General Partner for future requirements.
These reserves are retained to provide for the proper conduct of Heritage
business, or to provide funds for distributions with respect to any one or more
of the next four fiscal quarters.
Distributions by Heritage in an amount equal to 100 percent of Available Cash
will generally be made 97 percent to the Common, Subordinated and Class B
Subordinated Unitholders, 1.0101 percent to U.S. Propane for its limited partner
interest in the Operating Partnership and 1.9899 percent to the General Partner,
subject to the payment of incentive distributions to the holders of Incentive
Distribution Rights to the extent that certain target levels of cash
distributions are achieved.
On October 16, 2000, a quarterly distribution of $.575 per Common and
Subordinated Unit, was paid to Unitholders of record at the close of business on
October 9, 2000 and to the General Partner for its General Partner interest in
the Partnership, its Minority Interest and its Incentive Distribution Rights and
to U.S. Propane for its limited partner interest. On December 22, 2000, the
Partnership declared a cash distribution for the first quarter ended November
30, 2000 of $.5875 per unit payable on
9
<PAGE> 12
January 15, 2001 to Unitholders of record at the close of business on January 4,
2001. This was the second increase to the distribution level this fiscal year.
SFAS 133 ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING
ACTIVITIES
SFAS 133 establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, and for hedging activities, be recorded on the balance sheet as
either an asset or liability measured at its fair value. The statement requires
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. Heritage adopted the provisions of SFAS 133
effective September 1, 2000. The cumulative effect of adopting SFAS 133 was an
adjustment to beginning other comprehensive income of $5,429.
Heritage had certain financial swap instruments outstanding at November 30, 2000
that have been designated as cash flow hedging instruments in accordance with
SFAS 133. A financial swap is a contractual agreement to exchange obligations of
money between the buyer and seller of the instruments as propane volumes during
the pricing period are purchased. The swaps are tied to a set fixed price for
the buyer and floating price determinants for the seller priced on certain
indices. Heritage entered into these instruments to hedge the forecasted propane
volumes to be purchased during each of the one-month periods ending October 2000
through March 2001. Heritage utilizes hedging transactions to provide price
protection against significant fluctuations in propane prices. These instruments
had a fair value of $2,134 as of November 30, 2000, which was recorded as other
assets on the balance sheet through other comprehensive income, exclusive of
$121 of minority interest. During the three months ended November 30, 2000,
Heritage reclassified into earnings a gain of $864 that was reported in
accumulated other comprehensive income.
MARKETABLE SECURITIES
Heritage's marketable securities are classified as available for sale securities
as defined by SFAS No. 115 and are reflected as a current asset on the balance
sheet at their fair value. An unrealized holding loss of $171 was recorded
through accumulated other comprehensive income based on the market value of the
securities at November 30, 2000.
3. WORKING CAPITAL FACILITY AND LONG-TERM DEBT:
Effective August 10, 2000, Heritage entered into the Third Amendment to First
Amended and Restated Credit Agreement, with various financial institutions that
amended then existing credit agreements. Subsequent to the period ended November
30, 2000 Heritage entered into the Fourth Amendment to First Amended and
Restated Credit Agreement, which amended the Senior Revolving Working Capital
Facility to increase it to $65,000 effective December 28, 2000. The terms of the
Agreement as amended are as follows:
A $65,000 Senior Revolving Working Capital Facility, expiring June 30,
2002, with $48,800 outstanding at November 30, 2000. The interest rate
and interest payment dates vary depending on the terms the Partnership
agrees to when the money is borrowed. The weighted average interest
rate was 8.94 percent for the amount outstanding at November 30, 2000.
The Partnership must be free of all working capital borrowings for 30
consecutive days each fiscal year. The maximum commitment fee payable
on the unused portion of the facility is .375 percent.
A $50,000 Senior Revolving Acquisition Facility is available through
December 31, 2001, at which time the outstanding amount must be paid in
ten equal quarterly installments, beginning March 31, 2002. The
interest rate and interest payment dates vary depending on the terms
the Partnership agrees to when the money is borrowed. The average
interest rate was 8.94 percent on the $18,100 amount outstanding at
November 30, 2000. The maximum commitment fee payable on the unused
portion of the facility is .375 percent
10
<PAGE> 13
4. REPORTABLE SEGMENTS:
Heritage's financial statements reflect four reportable segments: the domestic
retail operations of Heritage, the domestic wholesale operations of Heritage,
the foreign wholesale operations of M-P Energy Partnership, and the trading
activities of Resources. Heritage's reportable domestic and wholesale fuel
segments are strategic business units that sell products and services to
different types of users; retail and wholesale customers. Intersegment sales by
the foreign wholesale segment to the domestic segment are priced in accordance
with the partnership agreement. Resources is a trading company that buys and
sells financial instruments for their own account. Heritage manages these
segments separately as each segment involves different distribution, sale and
marketing strategies. Heritage evaluates the performance of its operating
segments based on operating income. The operating income below does not reflect
domestic and foreign selling, general, and administrative expenses of $2,392,
$0, and $1,414 for the periods ended November 30, 2000, December 31, 1999 and
November 30, 1999, respectively. The following table presents the unaudited
financial information by segment for the following periods:
<TABLE>
<CAPTION>
For the Three For the Three For the Three
Months ended Months ended Months ended
November 30, December 31, November 30,
2000 1999 1999
------------ ------------ ------------
(Peoples Gas) (Predecessor)
<S> <C> <C> <C>
Gallons:
Domestic retail fuel 74,075 8,042 38,875
Domestic wholesale fuel 3,146 -- 1,727
Foreign wholesale fuel
Affiliated 18,025 -- 14,506
Unaffiliated 22,383 -- 19,426
Elimination (18,025) -- (14,506)
------------ ------------ ------------
Total 99,604 8,042 60,028
============ ============ ============
Revenues:
Domestic retail fuel $ 87,752 $ 10,133 $ 36,518
Domestic wholesale fuel 2,507 -- 946
Foreign wholesale fuel
Affiliated 11,040 -- 5,538
Unaffiliated 14,074 -- 6,864
Elimination (11,040) -- (5,538)
Trading activities 48,320 -- --
Other domestic revenues 13,192 -- 7,562
------------ ------------ ------------
Total $ 165,845 $ 10,133 $ 51,890
============ ============ ============
Operating Income:
Domestic retail $ 12,073 $ 555 $ 4,430
Domestic wholesale fuel (53) -- --
Foreign wholesale fuel
Affiliated 178 -- 145
Unaffiliated 492 -- 414
Elimination (178) -- (145)
Trading activities 453 -- --
------------ ------------ ------------
Total $ 12,965 $ 555 $ 4,844
============ ============ ============
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
As of As of
November 30, August 31,
2000 2000
------------ ----------
<S> <C> <C>
Total Assets:
Domestic retail $ 520,856 $ 473,725
Domestic wholesale 14,579 12,790
Foreign wholesale 11,600 7,918
Trading 15,558 7,747
Corporate 102,552 113,599
------------ ----------
Total $ 665,145 $ 615,779
============ ==========
</TABLE>
<TABLE>
<CAPTION>
For the Three For the Three For the Three
Months ended Months ended Months ended
November 30, December 31, November 30,
2000 1999 1999
-------------- -------------- -------------
<S> <C> <C> <C>
Depreciation and amortization:
Domestic retail $ 9,535 $ 779 $ 4,010
Domestic wholesale 23 -- 10
Foreign wholesale 4 -- 2
-------------- -------------- -------------
Total $ 9,562 $ 779 $ 4,022
============== ============== =============
</TABLE>
5. 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 29, 2000. 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:
<TABLE>
<CAPTION>
NOTE DESCRIPTION
---- -----------
<S> <C>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND BALANCE SHEET DETAIL
4. INCOME TAXES
5. WORKING CAPITAL FACILITY AND LONG-TERM DEBT
6. COMMITMENTS AND CONTINGENCIES
7. PARTNERS' CAPITAL
8. PROFIT SHARING AND 401(K) SAVINGS PLAN
9. RELATED PARTY TRANSACTIONS
</TABLE>
12
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
CERTAIN MATTERS DISCUSSED IN THIS REPORT, EXCLUDING HISTORICAL INFORMATION, AS
WELL AS SOME STATEMENTS BY HERITAGE IN PERIODIC PRESS RELEASES, INCLUDE CERTAIN
"FORWARD-LOOKING" STATEMENTS. ALTHOUGH HERITAGE BELIEVES SUCH FORWARD-LOOKING
STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS AND CURRENT EXPECTATIONS AND
PROJECTIONS ABOUT FUTURE EVENTS, 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.
AS REQUIRED BY THAT LAW, HERITAGE HEREBY IDENTIFIES THE FOLLOWING IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY RESULTS
PROJECTED, FORECASTED OR ESTIMATED BY HERITAGE IN FORWARD-LOOKING STATEMENTS.
THESE RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHER THINGS:
o CHANGES IN GENERAL ECONOMIC CONDITIONS IN THE UNITED STATES AS WELL
AS CHANGES IN GENERAL ECONOMIC CONDITIONS AND CURRENCIES IN FOREIGN
COUNTRIES;
o WEATHER CONDITIONS THAT VARY SIGNIFICANTLY FROM HISTORICALLY NORMAL
CONDITIONS;
o THE GENERAL LEVEL OF PETROLEUM PRODUCT DEMAND, AND THE AVAILABILITY
OF PROPANE SUPPLIES;
o ENERGY PRICES GENERALLY AND SPECIFICALLY, THE PRICE OF PROPANE TO
THE CONSUMER COMPARED TO THE PRICE OF ALTERNATIVE AND COMPETING
FUELS;
o COMPETITION FROM OTHER PROPANE DISTRIBUTORS AND ALTERNATE FUELS;
o THE AVAILABILITY AND COST OF CAPITAL;
o CHANGES IN LAWS AND REGULATIONS TO WHICH HERITAGE IS SUBJECT,
INCLUDING TAX, ENVIRONMENTAL AND EMPLOYMENT REGULATIONS;
o THE COSTS AND EFFECTS OF LEGAL AND ADMINISTRATIVE PROCEEDINGS
AGAINST HERITAGE OR WHICH MAY BE BROUGHT AGAINST HERITAGE;
o THE ABILITY OF HERITAGE TO SUSTAIN ITS HISTORICAL LEVELS OF INTERNAL
GROWTH; AND
o THE ABILITY OF HERITAGE TO CONTINUE TO LOCATE AND ACQUIRE OTHER
PROPANE COMPANIES AT PURCHASE PRICES THAT ARE ACCRETIVE TO ITS
FINANCIAL RESULTS.
WEATHER AND SEASONALITY
Heritage's propane distribution business is seasonal and dependent upon weather
conditions in its service areas. Propane sales to residential and commercial
customers are affected by winter heating season requirements, which generally
results in higher operating revenues and net income during the period from
October through March of each year and lower operating revenues and either net
losses or lower net income during the period from April through September of
each year. Sales to industrial and agricultural customers are much less weather
sensitive. 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. Heritage therefore uses
information derived from periods of normal temperatures in understanding how
temperatures that are colder or warmer than normal
13
<PAGE> 16
affect historical results of operations and in preparing forecasts of future
operations, which generally assumes that normal weather will prevail in each of
the regions in which it operates.
Gross profit margins are not only affected by weather patterns but also by
changes in customer mix. For example, sales to residential customers ordinarily
generate higher margins than sales to other customer groups, such as commercial
or agricultural customers. In addition, gross profit margins vary by geographic
region. Accordingly, gross profit margins could vary significantly from year to
year in a period of identical sales volumes.
GENERAL
Peoples Gas engaged in the sale, distribution and marketing of propane and other
related products. Revenues were derived primarily from the retail propane
marketing business. Peoples Gas believes that prior to the series of
transactions with Atmos, AGL, Piedmont and Predecessor Heritage, it was among
the top 25 retail propane marketers nationally and was the largest independent
propane distributor in Florida. At the time of the transactions, Peoples Gas was
serving more than 70,000 residential, commercial and industrial customers
located in the Florida peninsula.
In August 2000, TECO Energy, Inc., Atmos Energy Corporation, Piedmont Natural
Gas Company, Inc. and AGL Resources, Inc. contributed each company's propane
operations, Peoples Gas Company ("Peoples Gas"), United Cities Propane Gas, Inc.
("United Cities"), Piedmont Propane Company ("Piedmont"), and AGL Propane, Inc.
("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 accounting
acquirer.
Predecessor Heritage engaged in the sale, distribution and marketing of propane
and other related products. Predecessor Heritage derived its revenue primarily
from the retail propane marketing business. The General Partner believes that
Predecessor Heritage was the seventh largest retail marketer of propane in the
United States, based on retail gallons sold prior to the series of transactions
with U.S. Propane, serving almost 286,000 residential, industrial/commercial and
agricultural customers in 27 states through over 170 retail outlets. The General
Partner believes that following the U.S. Propane transactions, Heritage is the
fourth largest retail marketer of propane in the United States, based on retail
gallons sold. Heritage now serves almost 500,000 residential,
industrial/commercial and agricultural customers in 28 states through over 250
retail outlets.
Since its formation in 1989, Predecessor Heritage grew primarily through
acquisitions of retail propane operations and, to a lesser extent, through
internal growth. Through August 9, 2000, Predecessor Heritage completed 70
acquisitions for an aggregate purchase price of approximately $297 million.
Predecessor Heritage completed 42 of these acquisitions since its initial public
offering on June 25, 1996. During the period between August 9, 2000 and November
30, 2000, Heritage completed six additional acquisitions.
The retail propane business of Heritage 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 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 Heritage 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 gross profits. In the past,
Predecessor Heritage generally attempted to reduce price risk by purchasing
propane on a short-term basis. Predecessor Heritage had 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.
14
<PAGE> 17
The formation of U.S. Propane and the merger with Predecessor Heritage affect
the comparability of the three months ended November 30, 2000 and December 31,
1999, because the volumes and results of operations for the three months ended
November 30, 2000 include the volumes and results of operations of Heritage. The
increases in the line items discussed below are a result of these transactions
and the effects of slightly colder than normal weather experienced during the
quarter ended November 30, 2000. Amounts discussed below reflect 100 percent of
the results of M-P Energy Partnership during the three months ended November 30,
2000. M-P Energy Partnership is a general partnership in which Heritage owns a
60 percent interest. Because M-P Energy Partnership is primarily engaged in
lower-margin wholesale distribution, its contribution to Heritage's net income
is not significant and the minority interest of this partnership is excluded
from the EBITDA calculation.
THREE MONTHS ENDED NOVEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED DECEMBER
31, 1999
Volume. Total retail gallons sold in the three months ended November
30, 2000 were 74.1 million, an increase of 66.1 million over the 8.0 million
gallons sold in the three months ended December 31, 1999. As a comparison,
Predecessor Heritage sold 38.9 million retail gallons in the three months ended
November 30, 1999.
Revenues. Total revenues for the three months ended November 30, 2000
were $165.8 million, an increase of $155.7 million as compared to $10.1 million
in the three months ended December 31, 1999 and an increase of $113.9 million
over Predecessor Heritage's revenues for the three months ended November 30,
1999. The trading activity conducted through Heritage Energy Resources
represented $48.3 million of the increases described above and the remainder
related to increased volumes related to the transactions referred to above and
increased volumes related to colder temperatures in 2000 along with higher
selling prices.
Cost of Products Sold. Total cost of products sold and trading
activities increased to $117.7 million for the three months ended November 30,
2000 as compared to $5.2 million for the three months ended December 31, 1999.
Of this increase, $47.8 million is the result of trading activity during the
three months ended November 30, 2000. Predecessor Heritage had cost of sales of
$29.4 million for the three months ended November 30, 1999. Fuel cost of sales
increased due to the increases in volumes described above and due to the
wholesale cost of propane for the three months ended November 30, 2000 being
significantly higher as compared to the same time period last year.
Gross Profit. Total gross profit for the three months ended November
30, 2000 was $48.1 million as compared to $4.9 million for the three months
ended December 31, 1999 due to the aforementioned increases in retail volumes
and revenues, offset by the increase in product costs. For the three months
ended November 30, 2000, retail fuel gross profit was $37.2 million, U.S.
wholesale was $.2 million, and other gross profit was $9.7 million. Foreign
wholesale gross profit and trading gross profit both were $.5 million for the
period ended November 30, 2000. As a comparison, the three months ended November
30, 1999, Predecessor Heritage recorded retail fuel gross profit of $17.3
million, wholesale fuel gross profit of $.1 million, foreign gross profit of $.4
million and other of $4.7 million, for a total gross profit of $22.5 million.
Operating Expenses. Operating expenses were $25.6 million for the three
months ended November 30, 2000 as compared to $3.6 million for the three months
ended December 31, 1999. The increase of $22.0 million is the result of the
additional operating expense related to the merger. Predecessor Heritage had
operating expenses of $13.6 million in the three months ended November 30, 1999.
Selling, General and Administrative. Selling, general and
administrative expenses were $2.4 million for the three months ended November
30, 2000. Predecessor Heritage had selling, general and administrative expenses
of $1.4 million for the three months ended November 30, 1999.
Depreciation and Amortization. Depreciation and amortization was $9.5
million in the three months ended November 30, 2000 as compared to $.8 million
in the three months ended December 31, 1999 and $4.1 million for Predecessor
Heritage for the three months ended November 30, 1999. The increase is primarily
attributable to the addition of property, plant and equipment, and intangible
assets from the transactions referred to above.
Operating Income. For the three months ended November 30, 2000 Heritage
had operating income of $10.6 million as compared to operating income of $.6
million for the three months ended December 31, 1999. Predecessor Heritage
reported operating income of $3.4 million in the three months ended November 30,
1999.
15
<PAGE> 18
Net Income. For the three month period ended November 30, 2000, Heritage
had net income of $2.0 million, an increase of $1.7 million as compared to net
income for the three months ended December 31, 1999 of $.3 million. As a
comparison, Heritage's current quarter net income of $2.0 million, represents an
increase of $2.8 million over Predecessor Heritage's reported net loss of $.8
million for the three months ended November 30, 1999.
EBITDA. Earnings before interest, taxes, depreciation and amortization
increased $19.3 million to $20.6 million for the three months ended November 30,
2000, as compared to the EBITDA of $1.3 million for the period ended December
31, 1999. The EBITDA for Predecessor Heritage for the three months ended
November 30, 1999 was $7.7 million. Heritage's EBITDA includes the EBITDA of
investees, but does not include the EBITDA of the minority interest of M-P
Energy Partnership. EBITDA should not be considered as an alternative to net
income (as an indicator of operating performance) or as an alternative to cash
flow (as a measure of liquidity or ability to service debt obligations), but
provides additional information for evaluating Heritage's ability to make the
Minimum Quarterly Distribution.
LIQUIDITY AND CAPITAL RESOURCES
The ability of Heritage 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 requirements of Heritage are expected to be provided by cash
flows from operating activities. To the extent future capital requirements
exceed cash flows from operating activities:
a) working capital will be financed by the working capital line of
credit and repaid from subsequent seasonal reductions in inventory
and accounts receivable
b) growth capital, expended mainly for customer tanks, will be financed
by the revolving acquisition bank line of credit; and
c) acquisition capital expenditures will be financed by the revolving
acquisition bank line of credit; other lines of credit, long term
debt, issues of additional Common Units or a combination thereof.
Operating Activities. Cash used in operating activities during the three
months ended November 30, 2000, was $9.2 million. The net cash used from
operations for the three months ended November 30, 2000 consisted of the impact
of working capital used of $20.2 million offset by net income of $2.0 million
and noncash charges of $9.0 million, principally depreciation and amortization.
Accounts receivable have increased significantly as compared to the prior year
as a result of the net effect of the increase in propane costs which in part was
passed on to the customers and a larger customer base due to the transactions
with U.S. Propane. Accounts payable has also increased due to the same related
reasons of the increased cost of propane and the merger.
Investing Activities. Heritage completed four acquisitions during the
three months ended November 30, 2000 spending $12.2 million, net of cash
received, to purchase propane companies. This capital expenditure amount is
reflected in the cash used in investing activities of $20.4 million along with a
net $5.9 million spent for maintenance needed to sustain operations at current
levels and customer tanks to support growth of operations. Other investing
activities include $2.3 million of cash paid for marketable securities.
Financing Activities. Cash provided by financing activities during the
three months ended November 30, 2000 of $32.7 million resulted mainly from a net
increase in the working capital facility of $24.6 million and a net increase in
the Acquisition Facility of $16.2 million used to acquire other propane
businesses. These increases were offset by cash distributions to unitholders of
$7.6 million and payments on other long-term debt of $.5 million.
Financing and Sources of Liquidity
During the quarter ended November 30, 2000, Heritage used its Bank Credit
Facility, which includes a Working Capital Facility, a revolving credit facility
providing for up to $50.0 million of borrowings for working capital and other
general partnership purposes, and the Acquisition Facility, a revolving credit
facility providing for up to $50.0 million of borrowings for acquisitions and
improvements. Subsequent to November 30, 2000, Heritage increased its Working
Capital Facility to $65.0 million.
16
<PAGE> 19
Heritage uses its cash provided by operating and financing activities to provide
distributions to unitholders and to fund acquisition, 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 $12.2 million for the
three months ended November 30, 2000. In addition to this, $1.8 million for
notes payable on non-compete agreements were issued in connection with certain
acquisitions.
Under its Partnership Agreement, Heritage will distribute to its partners, 45
days after the end of each fiscal quarter, an amount equal to all of its
Available Cash for such quarter. Available Cash generally means, with respect to
any quarter of Heritage, all cash on hand at the end of such quarter less the
amount of cash reserves that are necessary or appropriate in the reasonable
discretion of the General Partner to (i) provide for the proper conduct of the
Heritage's business, (ii) comply with applicable law or any Heritage debt
instrument or other agreement, or (iii) provide funds for distributions to
Unitholders and the General Partner in respect of any one or more of the next
four quarters. Available Cash is more fully defined in the Amended and Restated
Agreement of Limited Partnership of Heritage Propane Partners, L.P. previously
filed as an exhibit. Distributions of Available Cash to the holders of the
Subordinated Units and the Class B Subordinated Units are subject to the prior
rights of the holders of the Common Units to receive the Minimum Quarterly
Distributions of $.50 per unit for each quarter during the subordination period,
and to receive any arrearages in the distribution of Minimum Quarterly
Distributions on the Common Units for prior quarters during the subordination
period. The subordination period will not end earlier than June 1, 2001
("Subordination Period"). Heritage's commitment to its unitholders is to
distribute the increase in its cash flow while maintaining prudent reserves for
operations. Heritage raised the quarterly distribution paid on October 16, 2000
for the fourth quarter ended August 31, 2000, to $.575 per unit (or $2.30
annually) from the quarterly distribution of $.5625 (or $2.25 annually) and
again for the distribution declared on December 21, 2000 payable on January 15,
2001, to $.5875 per unit (or $2.35 annually). The decision to increase the
quarterly distributions resulted from a review of Predecessor Heritage's past
financial performance, and current projections for available cash based on the
first quarter's performance and future expectations for Heritage. The current
distribution level includes incentive distributions payable to the General
Partner to the extent the quarterly distribution exceeds $.55 per unit ($2.20
annually).
The assets utilized in the propane business do not typically require lengthy
manufacturing process time nor complicated, high technology components.
Accordingly, Heritage does not have any significant financial commitments for
capital expenditures. In addition, Heritage has not experienced any significant
increases attributable to inflation in the cost of these assets or in its
operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Heritage has very little cash flow exposure due to rate changes for long-term
debt obligations. Predecessor Heritage primarily entered into debt obligations
to support general corporate purposes including capital expenditures and working
capital needs. Predecessor Heritage's long-term debt instruments were typically
issued at fixed interest rates. When these debt obligations mature, Heritage may
refinance all or a portion of such debt at then-existing market interest rates
which may be more or less than the interest rates on the maturing debt.
Commodity price risk arises from the risk of price changes in the propane
inventory that Heritage buys and sells. The market price of propane is often
subject to volatile changes as a result of supply or other market conditions
over which Heritage will have no control. In the past, price changes have
generally been passed along to Predecessor Heritage's customers to maintain
gross margins, mitigating the commodity price risk. In order to help ensure
adequate supply sources are available to Heritage during periods of high demand,
Predecessor Heritage in the past 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. Heritage also attempts to minimize the
effects of market price fluctuations for its propane supply through its trading
activities and by entering into certain financial contracts. Heritage's trading
activities include both purchases and sales of product supply. Trading activity
is recorded at fair value on Heritage's balance sheet, with the changes in fair
value included in earnings.
The financial contracts entered into by Heritage are often referred to as swap
instruments. The swap instruments are a contractual agreement to exchange
obligations of money between the buyer and seller of the instruments as propane
volumes during the pricing period are purchased. The swaps are tied to a fixed
price bid by the buyer and a floating price determination for the seller based
on certain indices at the end of the relevant trading period. Heritage
17
<PAGE> 20
enters into these swap instruments to hedge the projected propane volumes to be
purchased during each of the one-month periods during the projected heating
season.
At November 30, 2000, Heritage had outstanding propane hedges ("swap
agreements") for a total of 34 million gallons of propane at a weighted average
price of $.505 per gallon. The fair value of the swap agreement is the amount at
which they could be settled, based on quoted market prices. Heritage continues
to monitor propane prices and may enter into additional propane hedges in the
future. Inherent in the portfolio from the trading activities is certain
business risks, including market risk and credit risk. Market risk is the risk
that the value of the portfolio will change, either favorably or unfavorably, in
response to changing market conditions. Credit risk is the risk of loss from
nonperformance by suppliers, customers, or financial counterparties to a
contract. Heritage takes an active role in managing and controlling market and
credit risk and has established control procedures, which are reviewed on an
ongoing basis. Heritage monitors market risk through a variety of techniques,
including routine reporting to senior management. Heritage attempts to minimize
credit risk exposure through credit policies and periodic monitoring procedures.
TRADING ACTIVITIES
Heritage trades financial instruments for its own account through Heritage
Energy Resources ("Resources"). Financial instruments utilized in connection
with trading activities are accounted for using the mark-to-market method. Under
the mark-to-market method of accounting, forwards, swaps, options and storage
contracts are reflected at fair value, and are shown in the consolidated balance
sheet as assets and liabilities from trading activities. Unrealized gains and
losses from the financial contracts and the impact of price movements are
recognized in the income statement as other income (expense). Changes in the
assets and liabilities from trading activity result primarily from changes in
the market prices, newly originated transactions and the timing of settlement.
Resources attempts to balance its contractual portfolio in terms of notional
amounts and timing of performance and delivery obligations. However, net
unbalanced positions can exist or are established based on an assessment of
anticipated market movements.
Heritage has recorded its trading activities at fair value in accordance with
Emerging Issues Task Force Issue No. 98-10, "Accounting for Contracts Involved
in Energy Trading and Risk Management Activities" ("EITF 98-10"), which requires
energy trading contracts to be recorded at fair value on the balance sheet, with
the changes in fair value included in earnings.
Notional Amounts and Terms -
The notional amounts and terms of these financial instruments as of November 30,
2000 include fixed price payor for 717,000 barrels of propane and butane, and
fixed price receiver of 712,000 barrels of propane and butane. Notional amounts
reflect the volume of the transactions, but do not represent the amounts
exchanged by the parties to the financial instruments. Accordingly, notional
amounts do not accurately measure Heritage's exposure to market or credit risks.
Fair Value -
The fair value of the financial instruments related to trading activities as of
November 30, 2000, was assets of $893 and liabilities of $697. The unrealized
gain related to trading activities for the period ended November 30, 2000, was
$190.
Market and Credit Risk -
Inherent in the resulting contractual portfolio is certain business risks,
including market risk and credit risk. Market risk is the risk that the value of
the portfolio will change, either favorably or unfavorably, in response to
changing market conditions. Credit risk is the risk of loss from nonperformance
by suppliers, customers, or financial counterparties to a contract. Heritage and
Resources take active roles in managing and controlling market and credit risk
and have established control procedures, which are reviewed on an ongoing basis.
Heritage monitors market risk through a variety of techniques, including routine
reporting to senior management. Heritage attempts to minimize credit risk
exposure through credit policies and periodic monitoring procedures.
18
<PAGE> 21
The market prices used to value these transactions reflect management's best
estimate considering various factors including closing average spot prices for
the current and outer months plus a differential to consider time value and
storage costs.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) During the three months ended November 30, 2000, the Partnership issued
72,050 Common Units ("Units") to certain individuals pursuant to the
vesting rights of the Restricted Unit Plan. These Units were issued
utilizing an exemption from registration under the Securities Act of
1933 as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits listed on the following Exhibit Index 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.
(10) 3.1.1 Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of Heritage
Propane Partners, L.P.
(1) 3.2 Agreement of Limited Partnership of Heritage Operating, L.P.
(12) 3.2.1 Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of Heritage
Operating, L.P.
(7) 10.1 First Amended and Restated Credit Agreement with Banks Dated May 31, 1999
(8) 10.1.1 First Amendment to the First Amended and Restated Credit Agreement dated as of October 15,
1999
(9) 10.1.2 Second Amendment to First Amended and Restated Credit Agreement dated as of May 31, 2000
(10) 10.1.3 Third Amendment dated as of August 10, 2000 to First Amended and Restated Credit Agreement
(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
(6) 10.2.3 Amendment of Note Purchase Agreement (June 25, 1996) dated as of October 15, 1998
(8) 10.2.4 Second Amendment Agreement dated September 1, 1999 to June 25, 1996 Note Purchase Agreement
(11) 10.2.5 Third Amendment Agreement dated May 31, 2000 to June 25, 1996 Note Purchase Agreement and
November 19, 1997 Note Purchase Agreement
(10) 10.2.6 Fourth Amendment Agreement dated August 10, 2000 to June 25, 1996 Note Purchase Agreement
and November 19, 1997 Note Purchase Agreement
</TABLE>
19
<PAGE> 22
<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) 10.6 Restricted Unit Plan
(4) 10.6.1 Amendment of Restricted Unit Plan dated as of October 17, 1996
(12) 10.6.2 Amended and Restated Restricted Unit Plan dated as of August 10, 2000
(12) 10.7 Employment Agreement for James E. Bertelsmeyer dated as of August 10, 2000
(12) 10.8 Employment Agreement for R. C. Mills dated as of August 10, 2000
(12) 10.9 Employment Agreement for Larry J. Dagley dated as of August 10, 2000
(12) 10.10 Employment Agreement for H. Michael Krimbill dated as of August 10, 2000
(12) 10.11 Employment Agreement for Bradley K. Atkinson dated as of August 10, 2000
(7) 10.12 First Amended and Restated Revolving Credit Agreement between Heritage Service Corp. and
Banks Dated May 31, 1999
(12) 10.13 Employment Agreement for Mark A. Darr dated as of August 10, 2000
(12) 10.14 Employment Agreement for Thomas H. Rose dated as of August 10, 2000
(12) 10.15 Employment Agreement for Curtis L. Weishahn dated as of August 10, 2000
(5) 10.16 Note Purchase Agreement dated as of November 19, 1997
(6) 10.16.1 Amendment dated October 15, 1998 to November 19, 1997 Note Purchase Agreement
(8) 10.16.2 Second Amendment Agreement dated September 1, 1999 to November 19, 1997 Note Purchase
Agreement and June 25, 1996 Note Purchase Agreement
(9) 10.16.3 Third Amendment Agreement dated May 31, 2000 to November 19, 1997 Note Purchase Agreement
and June 25, 1996 Note Purchase Agreement
(10) 10.16.4 Fourth Amendment Agreement dated August 10, 2000 to November 19, 1997 Note Purchase
Agreement and June 25, 1996 Note Purchase Agreement
(10) 10.17 Contribution Agreement dated June 15, 2000 among U.S. Propane, L.P., Heritage Operating,
L.P. and Heritage Propane Partners, L.P.
(10) 10.17.1 Amendment dated August 10, 2000 to June 15, 2000 Contribution Agreement
(10) 10.18 Subscription Agreement dated June 15, 2000 between Heritage Propane Partners, L.P. and
individual investors
(10) 10.18.1 Amendment dated August 10, 2000 to June 15, 2000 Subscription Agreement
(10) 10.19 Note Purchase Agreement dated as of August 10, 2000
(12) 21.1 List of Subsidiaries
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C> <C>
(12) 99.1 Balance Sheet of Heritage Holdings, Inc. as of August 31, 2000
</TABLE>
----------
(1) Incorporated by reference to the same numbered Exhibit to Registrant's
Registration Statement of Form S-1, File No. 333-04018, 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. 333-04018, 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-Q for the quarter ended May 31, 1998.
(6) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-K for the year ended August 31, 1998.
(7) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended May 31, 1999.
(8) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-K for the year ended August 31, 1999.
(9) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended May 31, 2000.
(10) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 8-K dated August 10, 2000.
(11) Filed as Exhibit 10.16.3.
(12) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-K for the year ended August 31, 2000.
(b) Reports on Form 8-K.
Heritage Propane Partners, L.P. filed one report on Form 8-K during the
three months ended November 30, 2000. On October 24, 2000, Form 8-K/A
was filed to amend the Form 8-K of Heritage Propane Partners, L.P.
dated August 23, 2000 and filed with the Securities and Exchange
Commission on August 23, 2000. That Form 8-K reported under Item 2 the
acquisition of assets from U.S. Propane, L.P. This report provided the
financial statements and the pro forma financial information as
required under Item 7. This Form 8-K/A also amended the Date of Report
(Date of earliest event reported) to be August 10, 2000.
21
<PAGE> 24
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 15, 2001 By: /s/ Larry J. Dagley
-----------------------------------------
Larry J. Dagley
(Vice President, Chief Financial
Officer and officer duly authorized
to sign on behalf of the registrant)
22
<PAGE> 25
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
(1) 3.1 Agreement of Limited Partnership of Heritage Propane Partners, L.P.
(10) 3.1.1 Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of Heritage
Propane Partners, L.P.
(1) 3.2 Agreement of Limited Partnership of Heritage Operating, L.P.
(12) 3.2.1 Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of Heritage
Operating, L.P.
(7) 10.1 First Amended and Restated Credit Agreement with Banks Dated May 31, 1999
(8) 10.1.1 First Amendment to the First Amended and Restated Credit Agreement dated as of October 15,
1999
(9) 10.1.2 Second Amendment to First Amended and Restated Credit Agreement dated as of May 31, 2000
(10) 10.1.3 Third Amendment dated as of August 10, 2000 to First Amended and Restated Credit Agreement
(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
(6) 10.2.3 Amendment of Note Purchase Agreement (June 25, 1996) dated as of October 15, 1998
(8) 10.2.4 Second Amendment Agreement dated September 1, 1999 to June 25, 1996 Note Purchase Agreement
(11) 10.2.5 Third Amendment Agreement dated May 31, 2000 to June 25, 1996 Note Purchase Agreement and
November 19, 1997 Note Purchase Agreement
(10) 10.2.6 Fourth Amendment Agreement dated August 10, 2000 to June 25, 1996 Note Purchase Agreement
and November 19, 1997 Note Purchase Agreement
</TABLE>
<PAGE> 26
<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) 10.6 Restricted Unit Plan
(4) 10.6.1 Amendment of Restricted Unit Plan dated as of October 17, 1996
(12) 10.6.2 Amended and Restated Restricted Unit Plan dated as of August 10, 2000
(12) 10.7 Employment Agreement for James E. Bertelsmeyer dated as of August 10, 2000
(12) 10.8 Employment Agreement for R. C. Mills dated as of August 10, 2000
(12) 10.9 Employment Agreement for Larry J. Dagley dated as of August 10, 2000
(12) 10.10 Employment Agreement for H. Michael Krimbill dated as of August 10, 2000
(12) 10.11 Employment Agreement for Bradley K. Atkinson dated as of August 10, 2000
(7) 10.12 First Amended and Restated Revolving Credit Agreement between Heritage Service Corp. and
Banks Dated May 31, 1999
(12) 10.13 Employment Agreement for Mark A. Darr dated as of August 10, 2000
(12) 10.14 Employment Agreement for Thomas H. Rose dated as of August 10, 2000
(12) 10.15 Employment Agreement for Curtis L. Weishahn dated as of August 10, 2000
(5) 10.16 Note Purchase Agreement dated as of November 19, 1997
(6) 10.16.1 Amendment dated October 15, 1998 to November 19, 1997 Note Purchase Agreement
(8) 10.16.2 Second Amendment Agreement dated September 1, 1999 to November 19, 1997 Note Purchase
Agreement and June 25, 1996 Note Purchase Agreement
(9) 10.16.3 Third Amendment Agreement dated May 31, 2000 to November 19, 1997 Note Purchase Agreement
and June 25, 1996 Note Purchase Agreement
(10) 10.16.4 Fourth Amendment Agreement dated August 10, 2000 to November 19, 1997 Note Purchase
Agreement and June 25, 1996 Note Purchase Agreement
(10) 10.17 Contribution Agreement dated June 15, 2000 among U.S. Propane, L.P., Heritage Operating,
L.P. and Heritage Propane Partners, L.P.
(10) 10.17.1 Amendment dated August 10, 2000 to June 15, 2000 Contribution Agreement
(10) 10.18 Subscription Agreement dated June 15, 2000 between Heritage Propane Partners, L.P. and
individual investors
(10) 10.18.1 Amendment dated August 10, 2000 to June 15, 2000 Subscription Agreement
(10) 10.19 Note Purchase Agreement dated as of August 10, 2000
(12) 21.1 List of Subsidiaries
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
(12) 99.1 Balance Sheet of Heritage Holdings, Inc. as of August 31, 2000
</TABLE>
----------
(1) Incorporated by reference to the same numbered Exhibit to Registrant's
Registration Statement of Form S-1, File No. 333-04018, 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. 333-04018, 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-Q for the quarter ended May 31, 1998.
(6) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-K for the year ended August 31, 1998.
(7) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended May 31, 1999.
(8) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-K for the year ended August 31, 1999.
(9) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended May 31, 2000.
(10) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 8-K dated August 10, 2000.
(11) Filed as Exhibit 10.16.3.
(12) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-K for the year ended August 31, 2000.
