UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF EARLIEST EVENT REPORTED: JANUARY 2, 2003 DATE OF REPORT: MARCH 18, 2003 HERITAGE PROPANE PARTNERS, L.P. (Exact name of registrant as specified in its charter) Delaware 1-11727 73-1493906 (State or other jurisdiction (Commission file number) (I.R.S. Employer of 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) This Form 8-K/A amends the Form 8-K of Heritage Propane Partners, L.P. dated January 2, 2003 and filed with the Securities and Exchange Commission on January 6, 2003, that reported under Item 2 the acquisition of the propane distribution assets of V-1 Oil Co. This amendment is filed to provide the financial statements and the pro forma financial information required by Item 7. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of businesses acquired. The combined balance sheets of V-1 Oil Co. and V-1 Gas Co. as of December 31, 2001 and 2000, and the related combined statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2001 and related notes and for the nine months ended September 30, 2002 (unaudited) and 2001 (unaudited), together with the report of independent certified public accountants are filed as Exhibit 99.1 to this Current Report.
(b) Pro forma Financial Information. The unaudited pro forma combined financial statements of Heritage Propane Partners, L.P. and V-1 Oil Co. as of November 30, 2002, for the three months ended November 30, 2002 and the year ended August 31, 2002 are filed as Exhibit 99.2 to this Current Report. (c) Exhibits. The following Exhibits are filed herewith: Exhibit 23.1 - Consent of Grant Thornton LLP. Exhibit 99.1 - The combined balance sheets of V-1 Oil Co. and V-1 Gas Co. as of December 31, 2001 and 2000, and the related combined statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2001 and related notes and for the nine months ended September 30, 2002 (unaudited) and 2001 (unaudited). Exhibit 99.2 - The unaudited pro forma combined financial statements of Heritage Propane Partners, L.P. and V-1 Oil Co. as of November 30, 2002, for the three months ended November 30, 2002 and the year ended August 31, 2002 and related notes. SIGNATURES 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 hereunto duly authorized. DATED: March 18, 2003. HERITAGE PROPANE PARTNERS, L.P. By: U.S. Propane, L.P. (General Partner) By: U.S. Propane, L.L.C. (General Partner) By: s/ Michael L. Greenwood ------------------------------------------ Michael L. Greenwood Vice President and Chief Financial Officer
INDEX TO EXHIBITS 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.
EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated February 7, 2003, accompanying the combined financial statements of V-1 Oil Co. and V-1 Gas Co. as of December 31, 2001 and 2000, and for each of the three years in the period ended December 31, 2001, included in this Current Report of Heritage Propane Partners, L.P. on Form 8-K/A. We hereby consent to the incorporation by reference of said report in the Registration Statements of Heritage Propane Partners, L.P. on Form S-4 (File No. 333-40407) and on Form S-3 (File No. 333-86057). GRANT THORNTON LLP Tulsa, Oklahoma March 17, 2003
. . . EXHIBIT 99.1 V-1 OIL CO. AND V-1 GAS CO. Index to financial statements PAGE ---- Report of Independent Certified Public Accountants F-2 Combined balance sheets - September 30, 2002 (unaudited) and December 31, 2001 and 2000 F-3 Combined statements of operations - Nine Months Ended September 30, 2002 and 2001 (unaudited) and Years Ended December 31, 2001, 2000 and 1999 F-4 Combined statements of stockholders' equity and comprehensive income - Nine Months Ended September 30, 2002 (unaudited) and Years Ended December 31, 2001, 2000 and 1999 F-5 Combined statements of cash flows - Nine Months Ended September 30, 2002 and 2001 (unaudited) and Years Ended December 31, 2001, 2000 and 1999 F-6 Notes to combined financial statements F-7 F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Boards of Directors and Stockholders V-1 Oil Co. and V-1 Gas Co. We have audited the accompanying combined balance sheets of V-1 Oil Co. (an Idaho corporation) and V-1 Gas Co. (an Idaho corporation), as of December 31, 2001 and 2000, and the related combined statements of operations, stockholders' equity and comprehensive income and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of V-1 Oil Co. and V-1 Gas Co., as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. GRANT THORNTON LLP Tulsa, Oklahoma February 7, 2003 F-2
V-1 OIL CO. AND V-1 GAS CO. Combined balance sheets (in thousands) December 31, September 30, ----------------------------- 2002 2001 2000 -------- -------- -------- (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 6,687 $ 4,619 $ 6,212 Marketable securities 5,937 7,356 7,729 Accounts receivable, net 2,301 3,656 5,009 Inventories, net 1,736 1,628 2,138 Prepaids and other assets 279 154 125 -------- -------- -------- Total current assets 16,940 17,413 21,213 MARKETABLE SECURITIES 1,647 1,678 1,986 PROPERTY, PLANT AND EQUIPMENT, net 10,448 10,711 10,262 OTHER ASSETS 1,113 1,113 1,113 -------- -------- -------- Total assets $ 30,148 $ 30,915 $ 34,574 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,103 $ 1,954 $ 2,925 Accrued and other current liabilities 1,897 1,852 2,963 -------- -------- -------- Total current liabilities 3,000 3,806 5,888 ENVIRONMENTAL REMEDIATION LIABILITY 404 504 604 OTHER LONG-TERM LIABILITIES 446 576 240 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock 1 171 89 Stockholder note receivable -- (1,170) (1,088) Retained earnings 26,398 26,011 27,446 Accumulated other comprehensive income (loss) (101) 1,017 1,395 -------- -------- -------- Total stockholders' equity 26,298 26,029 27,842 -------- -------- -------- Total liabilities and stockholders' equity $ 30,148 $ 30,915 $ 34,574 ======== ======== ======== The accompanying notes are an integral part of these combined financial statements. F-3
V-1 OIL CO. AND V-1 GAS CO. Combined statements of operations (in thousands) For the Nine Months Ended For the Years Ended September 30, December 31, ------------------------------ ------------------------------------------ 2002 2001 2001 2000 1999 --------- --------- --------- --------- --------- (unaudited) (unaudited) REVENUES: Retail propane $ 19,734 $ 24,429 $ 32,208 $ 28,408 $ 20,833 Wholesale propane 596 756 953 1,445 1,833 Retail gasoline 4,771 8,410 10,484 13,522 10,212 Other 2,970 2,883 4,087 4,184 4,480 --------- --------- --------- --------- --------- Total revenues 28,071 36,478 47,732 47,559 37,358 --------- --------- --------- --------- --------- COSTS AND EXPENSES: Cost of products sold 15,339 25,276 31,785 33,768 23,050 Operating expenses 7,157 6,548 8,574 8,429 7,785 Depreciation 914 1,002 1,249 1,134 981 Selling, general and administrative 2,177 2,091 3,569 3,036 2,799 --------- ---------- --------- --------- --------- Total costs and expenses 25,587 34,917 45,177 46,367 34,615 --------- --------- --------- --------- --------- OPERATING INCOME 2,484 1,561 2,555 1,192 2,743 OTHER INCOME: Interest and investment income 368 568 811 1,308 1,299 Gain on disposal of assets 641 5 11 998 47 Gain on redemption of marketable securities 5 16 16 12 1 Other 107 55 101 58 61 --------- --------- --------- --------- --------- NET INCOME $ 3,605 $ 2,205 $ 3,494 $ 3,568 $ 4,151 ========= ========= ========= ========= ========= The accompanying notes are an integral part of these combined financial statements. F-4
V-1 OIL CO. AND V-1 GAS CO. Combined statements of stockholders' equity and comprehensive income (in thousands) V-1 Oil Co. --------------------------------------------------------------- Accumulated Shares of Stockholder Other Common Common Retained Note Comprehensive Stock Stock Earnings Receivabl Income(Loss) ----- ----- -------- --------- ------------ Balance, January 1, 1999 54 $ -- $ 22,152 $ -- $ 2,178 Comprehensive income: Net income -- -- 3,986 -- -- Change in value of available-for-sale securities -- -- -- -- (271) Advance on stockholder note receivable -- -- -- (250) -- Interest on stockholder note receivable -- 18 -- (18) -- Distributions -- -- (982) -- -- ------ ----- -------- ------- ------- Balance, December 31, 1999 54 18 25,156 (268) 1,907 Comprehensive income: Net income -- -- 3,378 -- -- Change in value of available-for-sale securities -- -- -- -- (512) Advance on stockholder note receivable -- -- -- (750) -- Interest on stockholder note receivable -- 70 -- (70) -- Distributions -- -- (2,288) -- -- ------ ----- -------- ------- ------- Balance, December 31, 2000 54 88 26,246 (1,088) 1,395 Comprehensive income: Net income -- -- 3,305 -- -- Change in value of available-for-sale securities -- -- -- -- (378) Interest on stockholder note receivable -- 82 -- (82) -- Distributions -- -- (4,804) -- -- ------ ----- -------- ------- ------- Balance, December 31, 2001 54 170 24,747 (1,170) 1,017 Comprehensive income: Net income (unaudited) -- -- 3,454 -- -- Change in value of available-for-sale securities (unaudited) -- -- -- -- (1,118) Interest on stockholder note receivable (unaudited) -- 13 -- (13) -- Redemption of shares for cancellation of stockholder note (unaudited) (1) (183) (1,000) 1,183 -- Distributions (unaudited) -- -- (2,068) -- -- ------ ----- -------- ------- ------- Balance, September 30, 2002 (unaudited) 53 $ -- $ 25,133 $ -- $ (101) ====== ===== ======== ======= ======= V-1 Gas Co. ------------------------------ Shares of Common Common Retained Stock Stock Earnings Combined ----- ----- -------- -------- Balance, January 1, 1999 5 $ 1 $ 845 $ 25,176 Comprehensive income: Net income -- -- 165 4,151 Change in value of available-for-sale securities -- -- -- (271) -------- Total Comprehensive Income 3,880 Advance on stockholder note receivable -- -- -- (250) Interest on stockholder note receivable -- -- -- -- Distributions -- -- -- (982) ----- ---- ------- -------- Balance, December 31, 1999 5 1 1,010 27,824 Comprehensive income: Net income -- -- 190 3,568 Change in value of available-for-sale securities -- -- -- (512) -------- Total Comprehensive Income 3,056 Advance on stockholder note receivable -- -- -- (750) Interest on stockholder note receivable -- -- -- -- Distributions -- -- -- (2,288) ----- ---- ------- -------- Balance, December 31, 2000 5 1 1,200 27,842 Comprehensive income: Net income -- -- 189 3,494 Change in value of available-for-sale securities -- -- -- (378) -------- Total Comprehensive Income 3,116 Interest on stockholder note receivable -- -- -- -- Distributions -- -- (125) (4,929) ----- ---- ------- -------- Balance, December 31, 2001 5 1 1,264 26,029 Comprehensive income: Net income (unaudited) -- -- 151 3,605 Change in value of available-for-sale securities (unaudited) -- -- -- (1,118) -------- Total Comprehensive Income (unaudited) 2,487 Interest on stockholder note receivable (unaudited) -- -- -- -- Redemption of shares for cancellation of stockholder note (unaudited) -- -- -- -- Distributions (unaudited) -- -- (150) (2,218) ----- ---- ------- -------- Balance, September 30, 2002 (unaudited) 5 $ 1 $ 1,265 $ 26,298 ===== ==== ======= ======== The accompanying notes are an integral part of these combined financial statements. F-5
V-1 OIL CO. AND V-1 GAS CO. Combined statements of cash flows (in thousands) For the Nine Months Ended For the Years Ended September 30, December 31, --------------------- ----------------------------------- 2002 2001 2001 2000 1999 ------- ------- ------- ------- ------- (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,605 $ 2,205 $ 3,494 $ 3,568 $ 4,151 Adjustments- Depreciation 914 1,002 1,249 1,134 981 Gain on disposal of assets (641) (5) (11) (998) (47) Provision for loss on accounts receivable 38 50 63 122 46 Gain on redemption of marketable securities (5) (16) (16) (12) (1) Change in assets and liabilities: Accounts receivable 1,317 2,281 1,290 (2,000) (156) Inventories (108) 25 510 (467) (70) Other current assets (125) (56) (29) (8) (1) Accounts payable (851) (1,384) (971) 155 556 Accrued and other current liabilites 45 312 (1,111) 1,226 73 Long-term liabilities (230) 136 236 (1,744) 107 Other -- (3) (3) (11) (3) ------- ------- ------- ------- ------- Net cash provided by operating activities 3,959 4,547 4,701 965 5,636 ------- ------- ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (702) (1,234) (1,765) (2,114) (1,195) Proceeds from sale of assets 692 72 78 1,504 259 Proceeds from redemption of marketable securities 337 322 322 525 139 ------- ------- ------- ------- ------- Net cash used in investing activities 327 (840) (1,365) (85) (797) ------- ------- ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to stockholders (2,218) (4,682) (4,929) (2,288) (982) Advances on note receivable from stockholder -- -- -- (750) (250) ------- ------- ------- ------- ------- Net cash used in financing activities (2,218) (4,682) (4,929) (3,038) (1,232) ------- ------- ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,068 (975) (1,593) (2,158) 3,607 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,619 6,212 6,212 8,370 4,763 ------- ------- ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,687 $ 5,237 $ 4,619 $ 6,212 $ 8,370 ======= ======= ======= ======= ======= The accompanying notes are an integral part of these combined financial statements. F-6
V-1 OIL CO. AND V-1 GAS CO. Notes to combined financial statements (Dollar amounts in thousands) (Unaudited as to September 30, 2002 and 2001) A - OPERATIONS AND FINANCIAL STATEMENT PRESENTATION The accompanying combined financial statements include the accounts of V-1 Oil Co. (an Idaho corporation, "V-1 Oil") and V-1 Gas Co. (an Idaho corporation, "V-1 Gas"). These companies are collectively referred to herein as V-1 or the Company and were under common management and ownership control throughout the periods presented in these combined financial statements. On September 30, 2002, V-1 Gas was merged into V-1 Oil. On December 9, 2002, the Company and its stockholders entered into an Agreement for Contribution of Assets in Exchange for Partnership Interests ("Exchange Agreement") with Heritage Propane Partners, L.P. and certain of its affiliates ("Heritage"), whereby Heritage would acquire the propane related assets of the Company in exchange for cash and limited partnership interests in Heritage. On January 2, 2003, the parties to the agreement completed the transactions contemplated in the Exchange Agreement (See note G). All significant intercompany accounts and transactions have been eliminated, except for the equity accounts because no parent-subsidiary relationship existed throughout the periods presented. The Company sells propane and propane-related products from retail outlets located in Idaho, Utah, Montana, Colorado, Washington, Oregon and Wyoming. The Company is also a wholesale propane supplier in those regions. The Company also owns and operates retail gasoline stations, which sell gasoline and convenience store items. The Company closed or sold three of its 11 gasoline stations during 2001. An additional four stations were disposed of during the nine-months ended September 30, 2002. The accompanying unaudited combined financial statements as of September 30, 2002, and for the nine months ended September 30, 2002 and 2001, have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, including all adjustments of a normal and recurring nature which, in the opinion of the Company's management, are necessary for the fair presentation of interim results. Not all information and notes required for complete financial statements are included. The results of operations presented are not necessarily indicative of the results for the full year. B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BALANCE SHEET DETAIL Revenue Recognition Sales of propane, propane appliances, parts and fittings, gasoline and other items 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. F-7
V-1 OIL CO. AND V-1 GAS CO. Notes to combined financial statements - continued (Dollar amounts in thousands) (Unaudited as to September 30, 2002 and 2001) Cash and Cash Equivalents Cash and cash equivalents include all cash on hand, demand deposits, and cash equivalents. The Company considers cash equivalents to include short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Accounts Receivable The Company grants credit to its customers for the purchase of propane and gasoline and other related products. Accounts receivable consisted of the following: December 31, September 30, -------------------------- 2002 2001 2000 -------- --------- --------- Trade accounts receivable $ 2,339 $ 3,721 $ 5,142 Less - allowance for doubtful accounts 38 65 133 -------- --------- --------- Accounts receivable, net $ 2,301 $ 3,656 $ 5,009 ======== ========= ========= The activity in the allowance for doubtful accounts consisted of the following during the periods ended: September 30, December 31, ------------------- ----------------------------------- 2002 2001 2001 2000 1999 ----- ------- ------- ------- ----- Balance, beginning of the period $ 65 $ 133 $ 133 $ 74 $ 93 Provision for loss on accounts receivable 38 50 63 122 46 Accounts receivable written-off, net of recoveries (65) (118) (131) (63) (65) ----- ------- ------- ------- ----- Balance, end of period $ 38 $ 65 $ 65 $ 133 $ 74 ===== ======= ======= ======= ===== 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 and other items is determined by the first-in, first-out method. Inventories consisted of the following: December 31, September 30, -------------------------- 2002 2001 2000 -------- --------- --------- Propane $ 667 $ 572 $ 864 Gasoline 57 114 185 Appliances, parts and fittings and other 1,197 1,127 1,274 Less - reserve for excess and obsolete inventory (185) (185) (185) -------- --------- --------- Inventories, net $ 1,736 $ 1,628 $ 2,138 ======== ========= ========= F-8
V-1 OIL CO. AND V-1 GAS CO. Notes to combined financial statements - continued (Dollar amounts in thousands) (Unaudited as to September 30, 2002 and 2001) Marketable Securities Marketable securities consist of mutual funds and federal and municipal government debt securities. The Company accounts for marketable securities in accordance with Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115), which requires that the securities be classified into one of three categories: held-to-maturity, available-for-sale, or trading securities. Management has determined that the Company has the ability and intent to hold its investments in government debt securities to their respective maturity dates. Accordingly, these investments are reported at amortized cost in the accompanying combined balance sheets. Realized gains or losses from the sale of securities classified as held-to-maturity are determined by the specific identification method. Mutual funds are classified as available-for-sale securities and are reported at fair value, based on quoted market values, with unrealized gains or losses being reported in other comprehensive income. Property, Plant and Equipment Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for maintenance and repairs are expensed as incurred. Components and useful lives of property, plant and equipment were as follows: December 31, September 30, --------------------------- 2002 2001 2000 ---------- ---------- ---------- Land $ 447 $ 464 $ 447 Buildings and improvements (20 years) 1,759 1,861 1,850 Plant facilities and equipment (20 years) 2,184 1,891 1,764 Tanks and other equipment (20 years) 14,435 14,508 13,581 Transportation equipment (5 years) 4,128 3,889 3,596 Airplane (25 years) - 235 235 Furniture and fixtures (5 years) 642 640 613 ---------- ---------- ---------- 23,595 23,488 22,086 Less- accumulated depreciation 13,147 12,777 11,824 ---------- ---------- ---------- Property, plant and equipment, net $ 10,448 $ 10,711 $ 10,262 ========== ========== ========== Long-lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate, in management's judgment, that the carrying amount of such assets may not be recoverable. If such a review should indicate that the carrying amount of long-lived assets is not recoverable, the Company reduces the carrying amount of such assets to fair value. No impairment of long-lived assets was recorded during the nine-months ended September 30, 2002 and 2001, or the years ended December 31, 2001, 2000 and 1999. Other Assets The Company owns two parcels of land in Idaho. One of these parcels is an approximately 400-acre plot of unimproved property and the other is an approximately 177-acre plot that includes a cabin and a shop building. F-9
V-1 OIL CO. AND V-1 GAS CO. Notes to combined financial statements - continued (Dollar amounts in thousands) (Unaudited as to September 30, 2002 and 2001) These items are not used in the operations of the Company and are recorded on the balance sheet as a long-term other asset at cost. The Company has obtained a valuation of these properties by an independent appraiser, which indicates that the market value of these assets is greater than the cost. Accordingly, no impairment of these assets has been recorded. Accrued and Other Current Liabilities Accrued and other current liabilities consisted of the following: December 31, September 30, --------------------------- 2002 2001 2000 ---------- ---------- ---------- Environmental remediation liability (See note D) $ 100 $ 100 $ 1,344 Settlement agreement payable (See note D) 62 62 - Wages and payroll taxes 483 555 520 Deferred tank rent 805 822 800 Customer deposits 317 260 177 Taxes other than income 88 26 25 Other 42 27 97 ---------- ---------- ---------- Accrued and other current liabilities $ 1,897 $ 1,852 $ 2,963 ========== ========== ========== Environmental Remediation Liability The Company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Management basis its estimates on evaluations of each individual location, utilizing its past experience with similar projects, consultation with third-party remediation firms and the likely degree of the contamination. Such accruals are adjusted as further information develops or circumstances change. The actual costs the Company will incur related to the remediation of these sites may differ materially from the amounts estimated by management. Future expenditures for environmental remediation obligations are discounted to their present value if the timing of the payments is reasonably determinable. Income Taxes The Company has elected to be treated as a Subchapter S Corporation under the Internal Revenue Code. As such, the Company is not subject to income tax. The Company's net income or loss is reported in the stockholders' individual income tax returns. Fair Value The carrying amounts of accounts receivable and accounts payable approximate their fair value. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported F-10
V-1 OIL CO. AND V-1 GAS CO. Notes to combined financial statements - continued (Dollar amounts in thousands) (Unaudited as to September 30, 2002 and 2001) amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Recently Issued Accounting Standards In June 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 143, Accounting for Asset Retirement Obligations (SFAS 143). SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The provisions of this statement are effective for the Company on January 1, 2003, however, management has not yet determined the impact of the adoption on the Company's combined financial position or results of operations. In August 2001, the FASB issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS 121), and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS 144 retains the fundamental provisions of SFAS 121 for recognition and measurement of the impairment of long-lived assets to be held and used, and measurement of long-lived assets to be disposed of by sale. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company adopted the provisions of SFAS 144 on January 1, 2002. The adoption of SFAS 144 did not have a material impact on the Company's combined financial position or results of operations. In April 2002, the FASB issued Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS 145). SFAS 145 rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. SFAS 145 also rescinds FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers, amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions and also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. SFAS 145 is effective for fiscal years beginning after May 15, 2002. Management does not believe that the adoption of SFAS 145 will have a material impact on the combined financial statements of the Company. In June 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. The provisions of SFAS 146 are effective for F-11
V-1 OIL CO. AND V-1 GAS CO. Notes to combined financial statements - continued (Dollar amounts in thousands) (Unaudited as to September 30, 2002 and 2001) exit or disposal activities that are initiated after December 31, 2002. Management does not believe that adoption of SFAS 146 will have a material impact on the combined financial statements of the Company. C - MARKETABLE SECURITIES The cost basis and carrying value of the Company's available-for-sale and held-to-maturity securities held at September 30, 2002 and December 31, 2001 and 2000 are as follows: September 30, 2002 --------------------------------------------------------------------------- Cost/Amortized Fair Unrealized Unrealized Net Unrealized Cost Value Gains Losses Gain/(Loss) ----------------- -------- ----------- ----------- -------------- Available-for-Sale Securities: Mutual Funds $6,038 $5,937 $ 762 $ (863) $ (101) ------ ------ ------ ------ ------- Held-to-Maturity: Government Securities- Non-Current 1,647 2,019 373 (1) 372 ------ ------ ------ ------ ------- Total Investments $7,685 $7,956 $1,135 $ (864) $ 271 ====== ====== ====== ====== ======= December 31, 2001 --------------------------------------------------------------------------- Cost/Amortized Fair Unrealized Unrealized Net Unrealized Cost Value Gains Losses Gain/(Loss) ----------------- -------- ----------- ----------- -------------- Available-for-Sale Securities: Mutual Funds $6,038 $7,055 $1,397 $ (380) $ 1,017 ------ ------ ------ ------ ------- Held-to-Maturity: Government Securities- Current 301 304 3 - 3 Non-Current 1,678 1,926 260 (12) 248 ------ ------ ------ ------ ------- Total 1,979 2,230 263 (12) 251 ------ ------ ------ ------ ------- Total Investments $8,017 $9,285 $1,660 $ (392) $ 1,268 ====== ====== ====== ====== ======= December 31, 2000 --------------------------------------------------------------------------- Cost/Amortized Fair Unrealized Unrealized Net Unrealized Cost Value Gains Losses Gain/(Loss) ----------------- -------- ----------- ----------- -------------- Available-for-Sale Securities: Mutual Funds $6,038 $7,433 $1,606 $ (211) $ 1,395 ------ ------ ------ ------ ------- Held-to-Maturity: Government Securities- Current 296 307 11 - 11 Non-Current 1,986 2,246 261 (1) 260 ------ ------ ------ ------ ------- Total 2,282 2,553 272 (1) 271 ------ ------ ------ ------ ------- Total Investments $8,320 $9,986 $1,878 $ (212) $ 1,666 ====== ====== ====== ====== ======= F-12
V-1 OIL CO. AND V-1 GAS CO. Notes to combined financial statements - continued (Dollar amounts in thousands) (Unaudited as to September 30, 2002 and 2001) The net unrealized holding gains (losses) on available-for-sale securities are included in accumulated other comprehensive income. The contractual maturity dates of marketable securities classified as held-to-maturity range from 2011 to 2025, however these securities may be called at an earlier date by the issuer. Proceeds on redemption of securities classified as held-to-maturity were $337 and $322 for the nine-month periods ended September 30, 2002 and 2001, respectively, and $322, $525 and $139 for the years ended December 31, 2001, 2000 and 1999, respectively. Realized gains on marketable securities are recorded in the combined statements of operations and are the result of gains on the redemption of held-to-maturity securities. Realized gains on redemptions of securities classified as held-to-maturity were $5 and $16 for the nine-months ended September 30, 2002 and 2001, respectively, and, $16, $12 and $1 for the years ended December 31, 2001, 2000 and 1999, respectively. D - ENVIRONMENTAL REMEDIATION AND OTHER COMMITMENTS AND CONTINGENCIES Environmental Remediation The Company has certain obligations to remove underground storage tanks from its gasoline stations and is involved in remediation and ongoing compliance activities at several sites. After removing the tanks and completing any necessary remediation of the sites, the Company must pass certain soil evaluations by the United States Environmental Protection Agency (EPA) and/or the United States Department of Environmental Quality (DEQ), as well as various state environmental agencies. The Company typically hires third party environmental specialists to perform the remediation. The Company owns 22 sites of current or former propane and gasoline stations that management believes require remediation to some degree. The Company has accrued a liability for the estimated costs associated with the clean up of these sites, which ranges from approximately $1 to $120 per site. Future expenditures for environmental remediation obligations are not discounted to their present value as the timing of the payments is not reasonably determinable. During the year ending December 31, 2001, the Company entered into a consent agreement with the United States of America, on behalf of the EPA and the United States Coast Guard, regarding the contamination at one of the Company's gasoline stations. In connection with the consent agreement, the Company paid $1,200 and has been released from further federal liability in connection with environmental contamination at this location, although additional remediation efforts are ongoing under the terms of an agreement with the state department of environmental quality. The Company recorded a liability for this settlement at December 31, 1998 at the present value of the future liability. The discount rate used was equal to the risk-free rate available at the time the liability was incurred with a similar maturity. This liability increased each year with a charge to interest expense until it was paid in November 2001. The estimated cost of the ongoing remediation effort is included in the environmental remediation accrual in the combined balance sheets. F-13
V-1 OIL CO. AND V-1 GAS CO. Notes to combined financial statements - continued (Dollar amounts in thousands) (Unaudited as to September 30, 2002 and 2001) Legal The Company is a party to various legal proceedings incidental to its business. Certain claims, suits and complaints arising in the ordinary course of business have been filed or are pending against the Company. In the opinion of management, all such matters are covered by insurance, are without merit or involve amounts, which, if resolved unfavorably, would not have a significant effect on the financial position or results of operations of the Company. During the year ended December 31, 2001, the Company settled a lawsuit brought forth by a former stockholder by agreeing to pay this stockholder $500, payable in equal monthly amounts through June 2009. Under the settlement agreement, the Company continues to be obligated to pay any amount that is outstanding at the time of a sale or merger of the Company. The Company has recorded the current portion of this settlement in accrued and other current liabilities with the remainder of the settlement recorded in other long-term liabilities. Purchase and Supply Commitments The Company enters into purchase and supply agreements with various parties used to supply fuel for its retail operations. These agreements are for short durations and call for the fuel to be priced at current market price upon delivery. E - PROFIT SHARING AND 401(K) SAVINGS PLAN The Company sponsors a defined contribution 401(k) savings plan (the "Plan"), which covers all employees subject to service period requirements. Contributions are made to the Plan at the discretion of the Board of Directors. Total expense related to the Plan during the nine-months ended September 30, 2002 and 2001, and the years ended December 31, 2001, 2000 and 1999, was approximately $130, $99, $128, $114 and $105, respectively. F - RELATED PARTY TRANSACTIONS During the year ended December 31, 1999, the Company loaned a stockholder $250 bearing interest of 7% due January 20, 2000. In 2000, the Company amended the loan agreement and advanced the stockholder an additional $750 also bearing interest of 7%, with the total principal of $1,000 due July 30, 2001. The notes and the related interest have been accounted for as equity transactions in the combined balance sheets. These advances were secured by a portion of the stockholder's stock in the Company. In August 2001, the parties further amended the loan agreement by setting a due date of January 15, 2002 and increasing the interest rate to 9%. This note was settled in January 2002 with the redemption of 1,452 shares of Company stock based on the value of the shares agreed to by the stockholders. The shares were cancelled upon redemption. Certain related parties purchased from the Company an interest in a bond owned by the Company. The Company recorded the related parties' share of the bond as a long-term liability and has proportionately distributed the interest income related to this bond. The amounts recorded as a liability at September 30, 2002 and December 31, 2001 and 2000 were $86, $169, and $240, respectively. The Company distributed interest income in the amount of $8 and $13 for the nine-months ended September 30, 2002 and 2001, and $17, $33 and $36 for the years ended December 31, 2001, 2000 and 1999, respectively. F-14
V-1 OIL CO. AND V-1 GAS CO. Notes to combined financial statements - continued (Dollar amounts in thousands) (Unaudited as to September 30, 2002 and 2001) A business owned by a stockholder of the Company supplies certain gasoline quantities and hauling services. All transactions with this company are conducted at prices equivalent to those available in the market. The total amount paid to this company was $2,115, $5,137, $6,445, $6,791, and $6,127 during the nine-months ended September 30, 2002 and 2001, and the years ended December 31, 2001, 2000, and 1999, respectively. During the nine-months ended September 30, 2002, the Company made payments totaling $540 to a business owned by an officer of the Company and recorded these payments in selling, general, and administrative expenses in the accompanying statement of operations. The officer utilized $240 of these proceeds to purchase an airplane and hanger from the Company. No gain or loss was recognized on this transaction. G - SUBSEQUENT EVENT On January 2, 2003, Heritage acquired the propane distribution assets of V-1 for total consideration of $32,298, before post-closing adjustments. The acquisition price was negotiated with V-1 and was payable $17,298 in cash and by the issuance of 551,456 Common Units of Heritage valued at $15,000. The exchange price for the Common Units was determined under a formula based upon the average closing price of Heritage's Common Units for the twenty consecutive trading days commencing on the tenth trading day prior to the public announcement of the transaction on December 10, 2002. F-15
EXHIBIT 99.2 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS On January 2, 2003, Heritage Propane Partners, L.P. (Heritage), through its subsidiary Heritage Operating, L.P., acquired the propane distribution assets of V-1 Oil Co. (formerly the combined operations of V-1 Oil Co. and V-1 Gas Co., which were merged on September 30, 2002, herein referred to as V-1), for total consideration of $34,189,443, after post-closing adjustments. The acquisition price was negotiated with V-1, and was payable $19,189,443 in cash, and by the issuance of 551,456 Common Units of Heritage valued at $15,000,000. The exchange price for the Common Units was $27.20074, determined under a formula based upon the average closing price of Heritage's Common Units for the twenty (20) consecutive trading days commencing on the tenth trading day prior to the public announcement of the transaction on December 10, 2002. The following unaudited pro forma combined financial statements present (i) unaudited pro forma balance sheet data at November 30, 2002, giving effect to the acquisition of the propane operations of V-1 as if the acquisition had been consummated on that date and (ii) unaudited pro forma combined statements of operations for the three months ended November 30, 2002 and the year ended August 31, 2002, giving effect to the acquisition as if the acquisition had been consummated on September 1, 2001. The unaudited pro forma combined balance sheet data at November 30, 2002 combines the balance sheets of Heritage as of November 30, 2002, and V-1 as of September 30, 2002, after giving effect to pro forma adjustments. The unaudited pro forma combined statements of operations for the three months ended November 30, 2002 and the year ended August 31, 2002, combines the results of operations of Heritage for the three month period ended November 30, 2002, and fiscal year ended August 31, 2002, with the results of operations for V-1 for the three month period ended September 30, 2002, and the year ended September 30, 2002, after giving effect to pro forma adjustments. 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 unaudited 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 consolidated financial statements of Heritage (which are filed with Heritage's Annual Report filed on Form 10-K and Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 27, 2002 and January 14, 2003, respectively, incorporated herein by reference) and the financial statements of V-1 (which are included elsewhere in this Form 8-K/A). The following unaudited pro forma combined financial statements are based on certain assumptions and do not purport to be indicative of the results that actually would have been achieved if the acquisition of V-1 had been consummated on the dates indicated or which may be achieved in the future. 1
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED BALANCE SHEETS NOVEMBER 30, 2002 (IN THOUSANDS)
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS THREE MONTHS ENDED NOVEMBER 30, 2002 (IN THOUSANDS, EXCEPT PER UNIT AND UNIT DATA)
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS YEAR ENDED AUGUST 31, 2002 (IN THOUSANDS, EXCEPT PER UNIT AND UNIT DATA)
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER UNIT AND UNIT DATA) 1. Presentation: The unaudited pro forma 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 acquisition. 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 acquisition 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 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 acquisition of the propane operations of V-1 occurred on November 30, 2002 and for purposes of the unaudited pro forma combined statements of operations, the acquisition occurred on September 1, 2001. The unaudited pro forma combined balance sheet data at November 30, 2002 combines balance sheets Heritage as of November 30, 2002 and V-1 as of September 30, 2002, after giving effect to pro forma adjustments. The unaudited pro forma combined statements of operations for the three months ended November 30, 2002 and the year ended August 31, 2002, combine the results of Heritage for three months ended November 30, 2002, and 12 months ended August 31, 2002, and V-1's three months ended September 30, 2002, and year ended September 30, 2002, after giving effect to pro forma adjustments. The purchase of assets was accounted for as an acquisition using the purchase method of accounting. Heritage paid the sellers of V-1 cash consideration of $17,298 at closing, $1,891 post closing, and issued common units of $15,000 for a total aggregate purchase price of $34,189. The actual purchase price was allocated to property, plant and equipment ($29,324), customer lists ($458), trademarks ($229) and working capital ($4,178) on January 2, 2003. 3. The pro forma adjustments for the dates specified above are as follows: a) Reflects the elimination of assets not acquired and liabilities not assumed by Heritage and the elimination of V-1's equity accounts. b) Reflects the pro forma allocation of the step-up of property, plant and equipment to fair value and to customer lists ($473) and trademarks ($236), and the elimination of assets related to the gasoline operations of V-1 not acquired. c) Reflects the issuance of 551,456 Common Units of Heritage, valued at $27.20074 per unit and cash contribution of $306 by U.S. Propane, L.P. to maintain its general partner interests in Heritage Propane Partners, L.P. and Heritage Operating L.P. d) Reflects the proceeds from borrowings under Heritage's Senior Revolving Acquisition Facility at a rate of 3.13 percent. e) Reflects cash portion of the purchase price of V-1. f) Reflects the depreciation and amortization of the purchase price allocated to property, plant and equipment (3-30 years) and customer lists (15 years), and the elimination of depreciation on the assets related to the gasoline operations of V-1 not acquired. g) Reflects interest expense related to borrowings under the Senior Revolving Acquisition Facility at a rate of 3.13 percent. 5
h) Reflects the elimination of income and expenses related to the gasoline operations of V-1 not acquired. i) Reflects the elimination of the gain on disposal of assets. j) Reflects the elimination of interest and investment income and gains on the redemption of marketable securities related to assets not acquired. k) Reflects adjustment to minority interest expense for Heritage Operating, L.P. l) Reflects the adjustment to the general partner's interest in the pro forma combined net income of Heritage. 6