UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
FORM 8-K/A
CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): January 20, 2004
COMMISSION FILE NO. 1-11727
HERITAGE PROPANE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 73-1493906
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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 current report on Form 8-K/A amends our current report on Form 8-K
filed with the Securities and Exchange Commission on December 17, 2003 (the
"Form 8-K"). Unless set forth below, all previous items of the Form 8-K are
unchanged.
ITEMS 1 AND 2. CHANGES IN CONTROL OF REGISTRANT AND ACQUISITION OR DISPOSITION
OF ASSETS
On January 20, 2004, we closed our previously announced combination
with the operations of La Grange Energy, L.P., which is engaged in the midstream
natural gas business. La Grange Energy conducts its midstream operations through
La Grange Acquisition, L.P. and its subsidiaries under the name Energy Transfer
Company. As part of the transactions, on January 20, 2004, La Grange Energy
acquired our general partner, which pursuant to our partnership agreement has
sole responsibility for conducting our business and managing our operations.
La Grange Energy is owned by Natural Gas Partners VI, L.P., a private equity
fund, Ray C. Davis, Kelcy L. Warren and a group of institutional investors.
In connection with the transaction, La Grange Energy contributed its
interest in Energy Transfer and certain related assets to us in exchange for:
o a cash payment (the "Cash Payment") equal to $300 million, subject
to certain adjustments including (1) a reduction for any accounts
payable and other specified liabilities of Energy Transfer at
closing, (2) a reduction to the extent that the long-term debt of
Energy Transfer at closing is greater than $151.5 million and (3) an
increase by up to $80 million to reimburse La Grange Energy for
certain mutually agreed upon capital expenditures paid by La Grange
Energy to third parties prior to the closing;
o the retirement at closing of Energy Transfer's debt;
o the assumption at closing of Energy Transfer's accounts payable and
other specified liabilities;
o 4,419,177 common units;
o 7,721,542 class D units; and
o 3,742,515 special units.
As a result of the issuance of the units described above, La Grange
Energy owns approximately 41.6% of our outstanding common units assuming the
conversion of the class D units and special units into common units.
In conjunction with this transaction, Energy Transfer distributed its
cash and accounts receivable to La Grange Energy (the "Working Capital
Distribution"), and an affiliate of La Grange Energy contributed an office
building to Energy Transfer, in each case prior to the contribution of Energy
Transfer to us.
As part of this transaction, La Grange Energy purchased all of the
partnership interests of U.S. Propane, L.P., our general partner, and all of the
member interests of U.S. Propane, L.L.C., the general partner of U.S. Propane,
L.P., from subsidiaries of AGL Resources, Inc., Atmos Energy Corporation, TECO
Energy, Inc. and Piedmont Natural Gas Company, Inc. (the "Previous Owners") for
$30 million in cash. The $30 million cash purchase price was funded from a
portion of the Cash Payment and the Working Capital Distribution. Prior to the
sale of
2
our general partner to La Grange Energy, certain assets of our general partner,
including all of the stock of Heritage Holdings, Inc. and 180,028 common units,
were distributed by our general partner to an affiliate of the Previous Owners.
Prior to the closing, U.S. Propane, L.P. owned a 1% general partner interest in
us and a 1.01% general partner interest in our operating partnership, Heritage
Operating, L.P. As part of the acquisition of our general partner, U.S. Propane,
L.P. made a capital contribution of its interest in the operating partnership to
us in exchange for an additional 1% general partner interest in us. As a result,
U.S. Propane, L.P. now owns a 2% general partner interest in us.
Also in conjunction with these transactions, we acquired from this
affiliate of the Previous Owners all of the stock of Heritage Holdings, which
owned approximately 4,426,916 common units, for $100 million in cash. In
addition, we inherited approximately $104.7 million in liabilities of Heritage
Holdings. Substantially all of these liabilities are deferred tax liabilities
arising from differences in the book and tax basis of Heritage Holdings' assets.
After our purchase of Heritage Holdings, the common units owned by Heritage
Holdings were converted into class E units.
In connection with these transactions, La Grange Energy and its
affiliates, including Ray C. Davis and Kelcy L. Warren, have agreed not to
engage, invest or participate, directly or indirectly, in any business
activities involving (a) the purchase, sale, exchange, marketing, trading,
storage or transportation of propane or (b) the purchase, gathering, treating,
processing, marketing, sales, storage, transportation, fractionation or
distribution of natural gas and NGLs, subject to certain limited exceptions.
Each of La Grange Energy and its affiliates have agreed not to engage in these
activities until the earlier of (i) the third anniversary of the closing of the
Energy Transfer transaction or (ii) the date such party ceases to be engaged in
the business of Heritage or the business of Energy Transfer as an owner,
officer, director or employee, as the case may be.
Also in connection with the transactions, the Previous Owners have
agreed not to engage, invest or participate, directly or indirectly, in any
business activities involving the purchase, sale, exchange, marketing, trading,
storage or transportation of propane, subject to certain limited exceptions,
until the third anniversary of the closing of the acquisition of Energy
Transfer.
In connection with the Energy Transfer transaction, James E.
Bertelsmeyer, Andrew W. Evans, Royston K. Eustace, William N. Cantrell, David J.
Dzuricky, Kevin M. O'Hara, J. Patrick Reddy and J.D Woodward resigned as
directors of our general partner. Additionally, as part of the transaction, the
board of directors of our general partner elected Ray C. Davis, Kelcy L. Warren,
David R. Albin and Kenneth A. Hersh as directors of our general partner.
Attached as Exhibit 99.1 is a press release announcing the closing of
the Energy Transfer transaction.
3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(b) Pro Forma Financial Information.
Item 7(b) of the Form 8-K is hereby amended and restated in its entirety as
follows:
HERITAGE PROPANE PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
INTRODUCTION
The pro forma financial statements are based upon the combined historical
financial position and results of operations of Heritage Propane Partners, L.P.
("Heritage") and La Grange Acquisition, L.P. which conducts business under the
name Energy Transfer Company ("Energy Transfer"). The pro forma financial
statements give effect to the following transactions:
- In November 2003, Heritage signed a definitive agreement with La Grange
Energy, L.P. ("La Grange Energy") pursuant to which La Grange Energy will
contribute its subsidiary Energy Transfer to Heritage in exchange for
cash, the assumption of debt and accounts payable and other specified
liabilities, Common Units, Class D Units and Special Units of Heritage.
Energy Transfer will distribute its cash and accounts receivable to La
Grange Energy and an affiliate of La Grange Energy will contribute an
office building to Energy Transfer, in each case prior to the
contribution of Energy Transfer to Heritage. Simultaneously with this
acquisition, La Grange Energy will obtain control of Heritage by
acquiring all of the interest in U.S. Propane, L.P., the general partner
of Heritage, and U.S. Propane, L.L.C., the general partner of U.S.
Propane L.P., from subsidiaries of AGL Resources, Inc., Atmos Energy
Corporation, TECO Energy, Inc. and Piedmont Natural Gas Company, Inc.
(the "Utilities"). Heritage will also acquire all of the common stock of
Heritage Holdings, Inc. ("Heritage Holdings") from the Utilities. The
transactions described in this paragraph are collectively referred to as
the "Energy Transfer Transaction."
- Energy Transfer was formed on October 1, 2002, and is owned by its
limited partner, La Grange Energy, and its general partner, LA GP, LLC.
La Grange Acquisition, L.P. (La Grange Acquisition) is the limited
partner of ETC Gas Company, Ltd., ETC Texas Pipeline, Ltd., ETC Oklahoma
Pipeline, Ltd., ETC Texas Processing, Ltd., ETC Marketing, Ltd., ETC
Oasis Pipe Line, L.P. and ET Company I, Ltd. (collectively, the
"Operating Partnerships"). La Grange Acquisition and the Operating
Partnerships collectively form Energy Transfer Company. In October 2002,
Energy Transfer acquired the Texas and Oklahoma natural gas gathering and
gas processing assets of Aquila Gas Pipeline Corporation, a subsidiary of
Aquila, Inc., including 50% of the capital stock of Oasis Pipe Line
Company ("Oasis Pipe Line"), and a 20% ownership interest in the Nustar
Joint Venture. On December 27, 2002, Oasis Pipe Line redeemed the
remaining 50% of its capital stock and cancelled the stock, resulting in
Energy Transfer owning 100% of Oasis Pipe Line. Energy Transfer
contributed the assets acquired from Aquila Gas Pipeline to the Operating
Partnerships in return for its limited partner interests in the Operating
Partnerships. These transactions are collectively referred to as the "La
Grange Transactions."
The following pro forma combined financial statements include the
following:
- the unaudited pro forma balance sheet of Heritage, which gives pro forma
effect to the Energy Transfer Transaction as if such transaction occurred
on August 31, 2003;
- the unaudited pro forma statement of operations of Heritage, which
adjusts the pro forma statement of operations of Energy Transfer
described below to give pro forma effect to the Energy Transfer
Transaction as if such transaction occurred on September 1, 2002; and
- the unaudited pro forma statement of operations of Energy Transfer, which
gives pro forma effect to the La Grange Transactions as if such
transactions occurred on September 1, 2002.
SUMMARY OF ENERGY TRANSFER TRANSACTION AND RELATED PRO FORMA FINANCIAL
STATEMENTS
The following unaudited pro forma combined financial statements present (i)
unaudited pro forma balance sheet data at August 31, 2003, giving effect to the
Energy Transfer Transaction as if the Energy Transfer Transaction had been
consummated on that date and (ii) unaudited pro forma operating data for
4
the year ended August 31, 2003, giving effect to the Energy Transfer Transaction
and the La Grange Transactions as if such transactions had been consummated on
September 1, 2002. The unaudited pro forma combined balance sheet data combines
the August 31, 2003 balance sheets of Energy Transfer, which is contained
elsewhere in this prospectus supplement, Heritage, which is incorporated herein
by reference, and Heritage Holdings after giving effect to pro forma
adjustments. The unaudited pro forma combined statement of operations for the
year ended August 31, 2003, combines the pro forma results of operations for
Energy Transfer for the 12 months ended August 31, 2003, contained elsewhere in
this prospectus supplement, and the results of operations for Heritage for the
12 months ended August 31, 2003, incorporated herein by reference, and the
results of operations for Heritage Holdings after giving effect to pro forma
adjustments.
The Energy Transfer Transaction will be accounted for as a reverse
acquisition in accordance with Statement of Financial Accounting Standard No.
141. Although Heritage is the surviving parent entity for legal purposes, Energy
Transfer will be the acquiror for accounting purposes. The assets and
liabilities of Heritage will be reflected at fair value to the extent acquired
by Energy Transfer in accordance with EITF 90-13. The assets and liabilities of
Energy Transfer will be reflected at historical cost. A final determination of
the purchase accounting adjustments, including the allocation of the purchase
price to the assets acquired and liabilities assumed based on their respective
fair values, has not been made. Accordingly, the purchase accounting adjustments
made in connection with the development of the following summary pro forma
combined financial statements are preliminary and have been made solely for
purposes of developing such pro forma combined financial statements. However,
management does not believe that final adjustments will be materially different
from the amounts presented herein.
The following unaudited pro forma combined financial statements are
provided for informational purposes only and should be read in conjunction with
the separate audited combined financial statements of Energy Transfer (which are
included elsewhere in this prospectus supplement) and Heritage (which are filed
with Heritage's Annual Report filed on Form 10-K with the Securities and
Exchange Commission on November 26, 2003 and incorporated herein by reference).
The following unaudited pro forma combined financial statements are based on
certain assumptions and do not purport to be indicative of the results which
actually would have been achieved if the Energy Transfer Transaction and the La
Grange Transactions had been consummated on the dates indicated or which may be
achieved in the future.
5
HERITAGE PROPANE PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AUGUST 31, 2003
ENERGY HERITAGE HERITAGE PRO FORMA PRO FORMA
TRANSFER PROPANE HOLDINGS ADJUSTMENTS COMBINED
-------- -------- -------- ----------- ----------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................. $ 53,122 $ 7,117 $ 38 $ (53,122)(a) $ 72,091
271,000(b)
292,480(c)
(369,220)(d)
(5,500)(e)
(50,000)(h)
14,597(j)
(86,780)(k)
(1,641)(l)
Accounts receivable........................................ 105,987 35,879 -- (105,987)(a) 35,879
Inventories and exchanges.................................. 3,910 45,274 -- -- 49,184
Marketable securities and investments...................... -- 3,044 913 -- 3,957
Prepaid expenses and other current assets.................. 20,751 2,824 4,865 -- 28,440
-------- -------- -------- --------- ----------
Total current assets..................................... 183,770 94,138 5,816 (94,173) 189,551
PROPERTY, PLANT AND EQUIPMENT, net.......................... 393,025 426,588 -- 1,500(a) 861,604
5,000(d)
35,491(f)
INVESTMENT IN AFFILIATES.................................... 6,844 8,694 -- 2,302(f) 17,840
NOTE RECEIVABLE............................................. -- -- 11,539 (11,539)(g) --
INVESTMENT IN HERITAGE PROPANE.............................. -- -- 168,273 (168,273)(h) --
GOODWILL, net............................................... 13,409 156,595 -- 160,853(f) 273,700
(57,157)(m)
INTANGIBLES AND OTHER ASSETS, net........................... 3,645 52,824 -- 4,000(b) 86,253
15,096(f)
10,688(f)
-------- -------- -------- --------- ----------
Total assets............................................. $600,693 $738,839 $185,628 $ (96,212) $1,428,948
======== ======== ======== ========= ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Working capital facility................................... $ -- $ 26,700 $ -- $ -- $ 26,700
Accounts payable........................................... 114,198 43,690 767 (114,198)(d) 44,457
Accrued and other current liabilities...................... 23,865 36,073 -- (23,865)(d) 36,073
Payable to associated companies, net....................... -- 6,255 1,505 -- 7,760
Current maturities of long-term debt....................... 30,000 38,309 -- (30,000)(d) 38,309
-------- -------- -------- --------- ----------
Total current liabilities............................... 168,063 151,027 2,272 (168,063) 153,299
LONG-TERM DEBT, less current maturities..................... 196,000 360,762 -- 275,000(b) 685,762
(196,000)(d)
50,000(h)
MINORITY INTERESTS AND OTHER................................ 157 4,002 -- (157)(d) 647
(3,355)(i)
DEFERRED INCOME TAXES....................................... 55,385 -- 103,930 -- 159,315
-------- -------- -------- --------- ----------
419,605 515,791 106,202 (42,575) 999,023
-------- -------- -------- --------- ----------
PARTNERS' CAPITAL:
General partner's capital.................................. -- 2,190 -- (110)(e) 14,706
4,488(f)
3,355(i)
15,903(j)
(9,944)(k)
(33)(l)
(1,143)(m)
Limited partners' capital, 26,722 issued and outstanding... 181,088 221,207 -- (157,609)(a) 413,985
292,480(c)
(4,182)(e)
170,636(f)
(1,012)(j)
157,941(k)
(401,511)(k)
(1,247)(l)
(43,457)(m)
(349)(n)
Common stock............................................... -- -- 5 (5)(h) --
Additional paid-in capital................................. -- -- 96,446 (11,539)(g) --
(84,907)(h)
Retained earnings.......................................... -- -- (16,973) 16,973(h) --
Class C limited partners capital, 1,000 authorized, issued
and outstanding.......................................... -- -- -- -- --
Class D limited partners' capital, 7,722 authorized, issued
and outstanding.......................................... -- -- -- (1,208)(e) 201,620
49,306(f)
(294)(j)
275,968(k)
(109,234)(k)
(361)(l)
(12,557)(m)
Treasury units -- class E units, 4,427 authorized, issued
and outstanding.......................................... -- -- -- (200,386)(h) (200,386)
Other comprehensive income (loss).......................... -- (349) (52) 52(h) --
349(n)
-------- -------- -------- --------- ----------
Total partners' capital................................. 181,088 223,048 79,426 (53,637) 429,925
-------- -------- -------- --------- ----------
Total liabilities and partners' capital................. $600,693 $738,839 $185,628 $ (96,212) $1,428,948
======== ======== ======== ========= ==========
See accompanying notes.
6
HERITAGE PROPANE PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 2003
ENERGY
TRANSFER
PRO FORMA HERITAGE HERITAGE PRO FORMA PRO FORMA
COMBINED PROPANE HOLDINGS ADJUSTMENTS COMBINED
---------- -------- -------- ----------- ----------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
REVENUES.......................... $1,142,964 $571,476 $ -- $ -- $1,714,440
COSTS AND EXPENSES:
Cost of products sold........... 1,012,341 297,156 -- -- 1,309,497
Operating expenses.............. 22,735 152,131 435 -- 175,301
Depreciation and amortization... 15,996 37,959 -- 1,183(o) 56,245
1,006(p)
101(q)
Selling, general and
administrative............... 17,842 14,037 -- (90)(q) 31,789
---------- -------- ------- -------- ----------
Total costs and expenses..... 1,068,914 501,283 435 2,200 1,572,832
---------- -------- ------- -------- ----------
OPERATING INCOME (LOSS)........... 74,050 70,193 (435) (2,200) 141,608
OTHER INCOME (EXPENSE):
Interest expense................ (13,770) (35,740) (80) (4,480)(r) (54,070)
Equity in earnings (losses) of
affiliates................... (251) 1,371 8,251 (8,251)(s) 1,120
Gain on disposal of assets...... -- 430 -- (157)(t) 273
Other........................... (302) (3,213) 1,295 (692)(u) (2,912)
---------- -------- ------- -------- ----------
INCOME BEFORE MINORITY INTEREST
AND INCOME TAXES................ 59,727 33,041 9,031 (15,780) 86,019
MINORITY INTERESTS................ -- 876 -- (318)(v) 558
---------- -------- ------- -------- ----------
INCOME BEFORE INCOME TAXES........ 59,727 32,165 9,031 (15,462) 85,461
INCOME TAXES...................... 6,015 1,023 3,886 -- 10,924
---------- -------- ------- -------- ----------
NET INCOME........................ $ 53,712 $ 31,142 $ 5,145 $(15,462) 74,537
========== ======== ======= ========
GENERAL PARTNER'S INTEREST IN NET
INCOME.......................... 1,491
----------
LIMITED PARTNERS' INTEREST IN NET
INCOME.......................... $ 73,046
==========
BASIC AND DILUTED NET INCOME PER
LIMITED PARTNER UNIT............ $ 2.24
==========
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF UNITS OUTSTANDING..... 32,546
==========
See accompanying notes.
7
HERITAGE PROPANE PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
1. BASIS OF PRESENTATION AND OTHER TRANSACTIONS
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 Energy Transfer Transaction.
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 Energy Transfer Transaction 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.
It has been assumed that for purposes of the unaudited pro forma combined
balance sheet, the following transactions occurred on August 31, 2003, and for
purposes of the unaudited pro forma combined statement of operations, the
following transactions occurred on September 1, 2002. The unaudited pro forma
combined balance sheet data combines the August 31, 2003 balance sheets of
Energy Transfer, Heritage, and Heritage Holdings, after giving effect to pro
forma adjustments. The unaudited pro forma combined statement of operations for
the year ended August 31, 2003, combines the pro forma results of operations for
the year ended August 31, 2003 of Energy Transfer, with the results of
operations for the year ended August 31, 2003 of Heritage and Heritage Holdings,
after giving effect to pro forma adjustments.
In November 2003, Heritage signed a definitive agreement with La Grange
Energy pursuant to which La Grange Energy will contribute its subsidiary Energy
Transfer to Heritage in exchange for cash of $300,000, less the amount of Energy
Transfer debt in excess of $151,500, which will be repaid as part of the
transaction, and less Energy Transfer's accounts payable and other specified
liabilities plus any agreed upon capital expenditures paid by La Grange Energy
relating to the Energy Transfer business prior to closing, and $433,909 of
Common Units and Class D Units of Heritage. For purposes of these unaudited pro
forma combined financial statements, agreed upon capital expenditures of $5,000
have been assumed and the units are valued at $35.74, the average closing price
of Heritage's common units on the New York Stock Exchange for the period three
days before and three days after the signing of the definitive agreement on
November 6, 2003. In conjunction with the Energy Transfer Transaction, Energy
Transfer will distribute its cash and accounts receivables to La Grange Energy
and an affiliate of La Grange Energy will contribute an office building to
Energy Transfer, in each case prior to the contribution of Energy Transfer to
Heritage. La Grange Energy will also receive 3,742,515 Special Units as
contingent consideration for completing the Bossier Pipeline. If the Bossier
Pipeline does not become commercially operational by December 1, 2004 and, as a
result, XTO Energy, Inc. exercises rights to acquire the Bossier Pipeline
pursuant to its transportation contract, the Special Units will no longer be
considered outstanding and will not be entitled to any rights afforded any other
of our units. The Special Units will convert to Common Units upon the Bossier
Pipeline becoming commercially operational and such conversion being approved by
Heritage's unitholders. In accordance with Statement of Financial Accounting
Standards (SFAS) No. 141, the Special Units have not been recorded in the
following pro forma balance sheet.
Simultaneously with this acquisition, La Grange Energy will obtain control
of Heritage by acquiring all of the interest in U.S. Propane, L.P., the general
partner of Heritage, and U.S. Propane, L.L.C., the general partner of U.S.
Propane L.P., from the Utilities for $30,000. U.S. Propane, L.P. will contribute
its 1.0101% general partner interest in Heritage Operating, L.P. ("Heritage
Operating") to Heritage in exchange for an additional 1% general partner
interest in Heritage. Heritage will also buy the outstanding stock of Heritage
Holdings for $100,000 funded with $50,000 of cash and a $50,000 note payable to
the Utilities.
8
HERITAGE PROPANE PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
These pro forma combined financial statements assume that concurrent with
the Energy Transfer Transaction, Energy Transfer will borrow $275,000 from
financial institutions, and Heritage Propane will raise $309,520 of gross
proceeds through the sale of 8,000,000 Common Units at an offering price of
$38.69 per unit. The total of the proceeds will be used to finance the
transaction and for general partnership purposes.
The Energy Transfer Transaction will be accounted for as a reverse
acquisition in accordance with SFAS No. 141. Although Heritage is the surviving
parent entity for legal purposes, Energy Transfer will be the acquiror for
accounting purposes. The assets and liabilities of Heritage Propane will be
reflected at fair value to the extent acquired by Energy Transfer, which will be
approximately 36.5%, determined in accordance with EITF 90-13. The assets and
liabilities of Energy Transfer will be reflected at historical cost. The
acquisition of Heritage Holdings by Heritage Propane will be accounted for as a
capital transaction as the primary asset held by Heritage Holdings is 4,426,916
Common Units of Heritage Propane. Following the acquisition of Heritage Holdings
by Heritage Propane, these Common Units will be converted to Class E Units. The
Class E Units will be recorded as treasury units in the unaudited pro forma
combined balance sheet.
If the Bossier Pipeline extension contingency described above occurs and
the Special Units convert to Common Units, the Common Units will be valued at
$35.74 per unit for total consideration of approximately $134 million. The
Bossier Pipeline will be recorded at its historical cost. The issuance of the
additional Common Units upon the conversion of the special units will adjust the
percent of Heritage Propane acquired in the Energy Transfer Transaction and will
result in an additional step-up being recorded in accordance with EITF 90-13. If
the Special Units were converted to Common Units in the pro forma balance sheet,
Energy Transfer would have acquired approximately 42.8% of Heritage Propane and
recorded approximately $39 million as an additional step-up in the assets and
liabilities of Heritage Propane.
The historical financial statements of Energy Transfer will become the
historical financial statements of the registrant. The results of operations of
Heritage Propane will be included with the results of Energy Transfer after
completion of the Energy Transfer Transaction. Energy Transfer was formed on
October 1, 2002 and will have an August 31 year-end. Accordingly, Energy
Transfer's 11-month period ended August 31, 2003, will be treated as a
transition period under the rules of the Securities and Exchange Commission.
The excess purchase price over predecessor cost was determined as follows:
Net book value of Heritage Propane at August 31, 2003....... $ 223,048
Historical goodwill at August 31, 2003...................... (156,595)
Equity investment from public offering...................... 309,520
Treasury class E unit purchase.............................. (200,386)
---------
175,587
Percent of Heritage Propane acquired by La Grange Energy.... 36.5%
---------
Equity interest acquired.................................... $ 64,090
=========
Fair market value of limited partner units.................. $ 651,331
Purchase price of general partner interest.................. 30,000
Equity investment from public offering...................... 309,520
Treasury class E unit purchase.............................. (200,386)
---------
790,465
Percent of Heritage Propane acquired by La Grange Energy.... 36.5%
---------
9
HERITAGE PROPANE PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Fair value of equity acquired............................... 288,520
Net book value of equity acquired........................... 64,090
---------
Excess purchase price over predecessor cost................. $ 224,430
=========
For purposes of the pro forma balance sheet, the excess of purchase price
over predecessor costs have been allocated using the acquisition methodology
used by Heritage Propane when evaluating potential acquisitions. Following the
consummation of the Energy Transfer Transaction, an appraisal will be obtained
to record the final asset valuations. Management of Heritage Propane is in the
process of engaging an appraisal firm to perform the asset appraisal, however
management does not anticipate that the final valuation will be materially
different than the preliminary allocation. The preliminary allocation used in
the pro forma balance sheet is as follows:
Property, plant and equipment (30 year life)................ $ 35,491
Investment in affiliate..................................... 2,302
Customer lists (15 year life)............................... 15,096
Trademarks.................................................. 10,688
Goodwill.................................................... 160,853
--------
$224,430
========
For purposes of the pro forma statement of operations, pro forma basic and
diluted earnings per limited partner unit is calculated as follows:
Basic pro forma net income per limited partner unit:
Limited partners' interest in pro forma net income.......... $73,046
=======
Historical weighted average limited partner units........... 16,636
Conversion of phantom units to common units upon change in
control................................................... 196
Units issued in this offering............................... 8,000
Common units and class D units issued in conjunction with
the Energy Transfer Transaction........................... 12,141
Common units converted to class E units and recorded as
treasury units............................................ (4,427)
-------
Weighted average limited partner units...................... 32,546
=======
Basic pro forma net income per limited partner unit......... $ 2.24
=======
Diluted pro forma net income per limited partner unit:
Limited partners' interest in pro forma net income.......... $73,046
=======
Historical weighted average limited partner units, assuming
dilutive effect of phantom units.......................... 16,694
Less weighted average phantom units outstanding............. (58)
Conversion of phantom units to common units upon change in
control................................................... 196
Units issued in this offering............................... 8,000
10
HERITAGE PROPANE PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Common units and class D units issued in conjunction with
the Energy Transfer Transaction........................... 12,141
Common units converted to class E units and recorded as
treasury units............................................ (4,427)
-------
Weighted average limited partner units...................... 32,546
=======
Diluted pro forma net income per limited partner unit....... $ 2.24
=======
2. PRO FORMA ADJUSTMENTS
(a) Reflects the distribution of cash and accounts receivable of Energy
Transfer to La Grange Energy and the contribution of an office building owned by
an affiliate of La Grange Energy to Energy Transfer.
(b) Reflects borrowing of $275,000 under the new Energy Transfer credit
facility, net of loan origination fees of $4,000. The borrowing is assumed to
have a fixed average interest rate of 5%.
(c) Reflects the net proceeds received from this offering of 8,000,000
Common Units of Heritage Propane at an offering price of $38.69 per unit, net of
underwriting discount of approximately $17,040.
(d) Reflects the repayment of Energy Transfer's existing debt, accounts
payable and other specified liabilities of Energy Transfer that were outstanding
immediately prior to the Energy Transfer Transaction and the reimbursement of
certain capital expenditures.
(e) Reflects cash used to pay offering and other transaction costs of
$5,500, allocated to the partners' capital accounts based on their ownership
percentages.
(f) Reflects the allocation of the excess purchase price over predecessor
costs to property, plant and equipment of $35,491, investment in affiliate of
$2,302, customer lists of $15,096, trademarks of $10,688 and goodwill of
$160,853, and the allocation to partners' capital based on their ownership
percentages.
(g) Reflects the elimination of a note receivable held by Heritage Holdings
that is to be distributed to the Utilities that own U.S. Propane, L.P.
(h) Represents cash paid of $50,000 and the issuance of a $50,000 7% note
payable to the Utilities for all of the common stock of Heritage Holdings and
the assumption of liabilities of Heritage Holdings of $104,697. The purchase
price is allocated as follows:
Cash paid to the Utilities.................................. $ 50,000
Note payable to the Utilities............................... 50,000
Assumption of liabilities................................... 104,697
--------
$204,697
========
Allocated to assets as follows:
Current assets............................................ $ 4,311
Investment in Heritage Propane............................ 200,386
--------
$204,697
========
The investment in Heritage Holdings is recorded as Treasury Units in the
unaudited pro forma combined balance sheet as Heritage Holdings becomes a
wholly-owned subsidiary of Heritage Propane as part of the Energy Transfer
Transaction.
(i) Reflects the contribution of U.S. Propane, L.P.'s 1.0101% general
partner interest in Heritage Operating to Heritage Propane for an additional 1%
general partner interest in Heritage Propane.
11
HERITAGE PROPANE PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(j) Reflects the contribution from U.S. Propane, L.P. to Heritage of cash
of $14,597 and an interest in Energy Transfer of $1,306 in connection with this
offering and the Energy Transfer Transaction in order to maintain its 2% general
partner interest in Heritage.
(k) Reflects the payment of cash to La Grange Energy of $86,780 and the
issuance to La Grange Energy of 4,419,177 Common Units, and 7,721,542 Class D
Units of Heritage Propane. Also reflects the allocation of such amounts to
partners' capital based on their ownership percentages.
Cash paid to La Grange Energy for Energy Transfer........... $ 86,780
Issuance of 4,419,177 Common Units of Heritage Propane...... 157,941
Issuance of 7,721,542 Class D Units of Heritage Propane..... 275,968
--------
$520,689
========
(l) Reflects the payment of compensation to the executive officers of
Heritage Propane under the change of control provisions contained in the
executive officers' employment agreements, allocated to partners' capital based
on their ownership percentages.
(m) Reflects elimination of goodwill of Heritage Propane to the extent
Heritage Propane was acquired by Energy Transfer, and the allocation of such
amount to partners' capital based on their ownership interests.
(n) Reflects the elimination of accumulated other comprehensive income.
(o) Reflects the additional depreciation related to the step-up of net book
value of property, plant and equipment having 30-year lives.
(p) Reflects the additional amortization related to the step-up of net book
value of customer lists having lives of 15 years. Trademarks and goodwill are
indefinite-lived assets subject to annual tests for impairment.
(q) Reflects the effect on depreciation of the contribution of the Dallas
office building from an affiliate of La Grange Energy to Energy Transfer and the
reversal of rent previously paid.
(r) Allocation of additional interest expense of $13,250 related to the
$275,000 of borrowings under the term loan at an assumed average interest rate
of 5%, amortization of loan origination fees of $1,000 and $3,500 of additional
interest expense related to the issuance of a $50,000 note payable to the
Utilities at an average interest rate of 7%. This additional expense is offset
by the elimination of $13,770 of interest on the repayment of the Energy
Transfer debt of $226,000. A 1/8% change in the interest rate on the $275,000 of
borrowings under the term loan would change interest expense by approximately
$344.
(s) Reflects elimination of Heritage Holding's equity in earnings of
Heritage Propane.
(t) Reflects the elimination of the gain on sale of assets as the assets
are recorded at fair market value.
(u) Reflects elimination of interest income from the note receivable of
$11,539 which was retained by the Utilities. The note receivable had an interest
rate of 6%.
(v) Reflects the elimination of minority interest expense for the 1.0101%
general partner's interest in Heritage Operating contributed to Heritage Propane
for an additional 1% general partner interest in Heritage Propane.
12
SUMMARY OF LA GRANGE TRANSACTIONS AND RELATED PRO FORMA FINANCIAL STATEMENTS
The following is Energy Transfer's unaudited pro forma combined statement
of operations for the year ended August 31, 2003.
The unaudited pro forma combined statement of operations gives pro forma
effect to the following transactions as if they had occurred on September 1,
2002.
- The October 1, 2002 purchase of the operating assets of Aquila Gas
Pipeline Corporation by Energy Transfer.
- The December 27, 2002 redemption by Oasis Pipe Line Company of the 50% of
its common stock held by Dow Hydrocarbons Resources, Inc., resulting in
Energy Transfer's becoming the 100% owner of Oasis Pipe Line Company.
- The December 27, 2002 contribution of other assets and a marketing
operation by ETC Holdings L.P. to Energy Transfer.
The Energy Transfer unaudited pro forma amounts are included in the pro
forma statements of Heritage Propane, included on pages F-2 through F-10
elsewhere in the prospectus supplement, which reflect the pro forma effects of
the combination of Heritage Propane and Energy Transfer and the offering and
related transactions as contemplated in this prospectus supplement.
These transaction adjustments are presented in the notes to the Energy
Transfer unaudited pro forma combined statement of operations. The unaudited pro
forma combined statement of operations and accompanying notes should be read
together with the financial statements and related notes included elsewhere in
the prospectus.
The Energy Transfer unaudited pro forma combined statement of operations
was derived by adjusting the historical financial statements of Aquila Gas
Pipeline, Energy Transfer and Oasis Pipe Line Company. However, management
believes that the adjustments provide a reasonable basis for presenting the
significant effects of the transactions described above. The unaudited pro forma
combined statement of operations does not purport to present the results of
operations of Energy Transfer had the transactions above actually been completed
as of the dates indicated. Moreover, the unaudited pro forma combined statement
of operations does not project the results of operations of Energy Transfer for
any future date or period.
13
ENERGY TRANSFER COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2003
OASIS PIPE
ENERGY TRANSFER AQUILA GAS LINE FOUR ET COMPANY I
ELEVEN MONTHS PIPELINE ONE MONTHS FOUR MONTHS
ENDED MONTH ENDED ENDED ENDED
AUGUST 31, SEPTEMBER 30, DECEMBER 27, DECEMBER 27,
2003 2002 2002 2002 ADJUSTMENTS PRO FORMA
--------------- ------------- ------------ ------------ ----------- ----------
(IN THOUSANDS)
OPERATING REVENUES........... $1,008,723 $66,563 $11,532 $57,409 (1,263)(a) $1,142,964
COSTS AND EXPENSES:
Cost of sales.............. 899,539 59,691 283 55,003 (1,263)(a) 1,013,253
Operating.................. 19,081 1,669 1,424 561 -- 22,735
General and
administrative.......... 15,965 3 1,215 659 -- 17,842
Depreciation and
amortization............ 13,461 2,226 701 -- (1,241)(b) 15,996
849(c)
Unrealized (gain) on
derivatives............. (912) -- -- -- -- (912)
---------- ------- ------- ------- ------- ----------
Total costs and
expenses.............. 947,134 63,589 3,623 56,223 (1,655) 1,068,914
INCOME FROM OPERATIONS....... 61,589 2,974 7,909 1,186 392 74,050
OTHER INCOME (EXPENSE)....... 102 4 (408) -- -- (302)
EQUITY IN NET INCOME OF
AFFILIATE.................. 1,423 850 -- (94) (2,430)(d) (251)
INTEREST AND DEBT EXPENSES,
net........................ 12,057 393 (33) -- 1,353(e) 13,770
---------- ------- ------- ------- ------- ----------
INCOME BEFORE INCOME TAXES... 51,057 3,435 7,534 1,092 (3,391) 59,727
INCOME TAX EXPENSE........... 4,432 879 2,639 -- (1,056)(f) 6,015
(879)(g)
---------- ------- ------- ------- ------- ----------
NET INCOME................... $ 46,625 $ 2,556 $ 4,895 $ 1,092 $(1,456) $ 53,712
========== ======= ======= ======= ======= ==========
14
ENERGY TRANSFER COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
1. BASIS OF PRESENTATION AND OTHER TRANSACTIONS
The historical financial information is derived from the historical
financial statements of our predecessor company, Aquila Gas Pipeline and
subsidiaries ("Aquila Gas Pipeline") as well as the financial statements of
Energy Transfer and Oasis Pipe Line Company ("Oasis") and ET Company I.
The pro forma statement of operations reflects the closing of the following
transactions as if they occurred on September 1, 2002:
- The October 1, 2002 purchase of the operating assets of Aquila Gas
Pipeline by Energy Transfer.
- The December 27, 2002 redemption by Oasis of the 50% of its common stock
held by Dow Hydrocarbons Resources, Inc, resulting in Energy Transfer
being the 100% owner of Oasis.
- The December 27, 2002 contribution of ET Company I, consisting of other
assets and a marketing operation, by ETC Holdings, L.P. to Energy
Transfer.
The following describes where each of the columns on the unaudited pro
forma combined statement of operations was derived:
Energy Transfer -- This column was derived from the audited financial
statements of Energy Transfer for the eleven months ended August 31, 2003.
Aquila Gas Pipeline -- Energy Transfer purchased the assets and operations
of Aquila Gas Pipeline effective October 1, 2002. After this date, the
operations are included in the Energy Transfer financial statements. This column
was derived from the unaudited financial statements of Aquila Gas Pipeline for
the one-month ended September 30, 2002.
Oasis Pipe Line -- Prior to December 27, 2002, Energy Transfer and its
predecessor, Aquila Gas Pipeline, owned 50% of Oasis and accounted for Oasis
under the equity method. On December 27, 2002 the remaining 50% of Oasis was
purchased. After this date, the results of Oasis's operations are consolidated
into the results of Energy Transfer. This column was derived from the unaudited
financial statements of Oasis for the four months ended December 27, 2002.
ET Company I -- ETC Holdings, L.P. contributed ET Company I to Energy
Transfer on December 27, 2002. After this date, ET Company I's results of
operations are included in the financial statements of Energy Transfer. This
column was derived from the unaudited financial statements of ET Company I for
the four month period ended December 27, 2002.
2. PRO FORMA ADJUSTMENTS
(a) Reflects the elimination of transportation revenue of Oasis for
services provided to Energy Transfer and Aquila Gas Pipeline for the four months
ended December 27, 2002.
(b) Reflects the decrease to depreciation expense resulting from the change
in carrying value of the basis in property plant and equipment as a result of
the acquisition of Aquila Gas Pipeline's assets.
(c) Reflects the increase to depreciation expense resulting from the change
in carrying value of Oasis's assets as a result of Oasis's redemption of the
equity interest held by Dow Hydrocarbons Resources, Inc. and the contribution of
other assets and marketing operations to Energy Transfer from ETC Holdings, L.P.
(d) Reflects the elimination of the equity method income derived from Oasis
prior to its becoming a wholly owned subsidiary.
(e) Reflects the adjustment to interest expense as a result of the
assumption of a September 1, 2002 purchase transaction date for the assets of
Aquila Gas Pipeline and the redemption of the Oasis equity
15
interests. In addition, this adjustment reflects the change in amortization of
the deferred financing costs as though these costs were incurred as of September
1, 2002.
(f) Reflects the reduction in income tax expense at Oasis as a result of an
intercompany note between Energy Transfer and Oasis. The proceeds from the note
were used to redeem the equity interest in Oasis held by Dow Hydrocarbons
Resources, Inc. It also reflects the tax effects of the change in depreciation
expense related to Oasis as described in (c).
(g) Reflects the elimination of income tax expense of Aquila Gas Pipeline.
Aquila was taxed as a "C" corporation as opposed to Energy Transfer's limited
partnership structure.
16
(c) Exhibits. See Exhibit Index.
17
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 hereunto duly authorized.
HERITAGE PROPANE PARTNERS, L.P.
BY: U.S. Propane, L.P., its general partner
BY: U.S. Propane, L.L.C., the general partner
of U.S. Propane, L.P.
Date: January 20, 2004 By: /s/ RAY C. DAVIS
--------------------------------------
Ray C. Davis
Co-Chief Executive Officer and
officer duly authorized to sign
on behalf of the registrant
By: /s/ KELCY L. WARREN
--------------------------------------
Kelcy L. Warren
Co-Chief Executive Officer and
officer duly authorized to sign
on behalf of the registrant
18
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- ---------------------------------------------------------
10.1 Acquisition Agreement dated November 6, 2003 among the
owners of U.S. Propane, L.P. and U.S. Propane, L.L.C. and
La Grange Energy, L.P. (incorporated by reference to
Exhibit 10.30 to Heritage Propane Partners, L.P.'s Annual
Report on Form 10-K for the year ended August 31, 2003).
10.2 Contribution Agreement dated November 6, 2003 among
La Grange Energy, L.P. and Heritage Propane Partners,
L.P. and U.S. Propane, L.P. (incorporated by reference to
Exhibit 10.31 to Heritage Propane Partners, L.P.'s Annual
Report on Form 10-K for the year ended August 31, 2003).
10.3 Amendment No. 1 dated December 7, 2003 to Contribution
Agreement dated November 6, 2003 among La Grange Energy,
L.P. and Heritage Propane Partners, L.P. and U.S.
Propane, L.P. (incorporated by reference to Exhibit
10.31.1 to Heritage Propane Partners, L.P.'s Quarterly
Report on Form 10-Q for the fiscal quarter ended
November 30, 2003).
10.4 Stock Purchase Agreement dated November 6, 2003 among
the owners of Heritage Holdings, Inc. and Heritage
Propane Partners, L.P. (incorporated by reference to
Exhibit 10.32 to Heritage Propane Partners, L.P.'s Annual
Report on Form 10-K for the year ended August 31, 2003).
99.1 Press Release dated January 20, 2004.