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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 99.1
To the Board of Directors of
Heritage Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Heritage
Holdings, Inc. (a Delaware corporation and wholly-owned subsidiary of U.S.
Propane, L.P.) and subsidiaries prepared on the pushdown method of accounting
(see Note 1) as of August 31, 2000. This balance sheet is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the consolidated financial position of
Heritage Holdings, Inc. and subsidiaries as of August 31, 2000, in conformity
with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Tulsa, Oklahoma
October 26, 2000
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HERITAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 2000
(Pushdown method of accounting, see Note 1)
(in thousands, except share and per share amounts)
ASSETS
CURRENT ASSETS:
Cash $ 5,324
Accounts receivable 31,855
Inventories 39,045
Assets from trading activities 4,133
Prepaid expenses and other 5,016
Assets held in trust 493
---------
Total current assets 85,866
PROPERTY, PLANT AND EQUIPMENT, net 339,366
ASSETS HELD IN TRUST 1,848
INVESTMENT IN AFFILIATE 5,795
INTANGIBLES AND OTHER ASSETS, net 214,912
---------
Total assets $ 647,787
=========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Working capital facility $ 24,200
Accounts payable 43,269
Accounts payable to affiliate 1,139
Accrued and other current liabilities 28,830
Liabilities from trading activities 3,684
Current maturities of long-term debt 2,954
---------
Total current liabilities 104,076
LONG-TERM DEBT, less current maturities 363,391
MINORITY INTEREST 32,609
DEFERRED TAXES 28,760
---------
528,836
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value, 600,000 shares authorized, 534,788
shares issued and outstanding 5
Additional paid-in capital 119,995
Accumulated deficit (1,049)
---------
Total stockholder's equity 118,951
---------
Total liabilities and stockholder's equity $ 647,787
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The accompanying notes are an integral part of this consolidated balance sheet.
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HERITAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
AUGUST 31, 2000
(Dollars in thousands, except per share/unit amounts)
1. OPERATIONS AND ORGANIZATION:
In August 2000, TECO Energy, Inc., Atmos Energy Corporation, Piedmont Natural
Gas Co., Inc. and AGL Resources, Inc. contributed each company's propane
operations, Peoples Gas Company ("Peoples Gas"), United Cities Propane Gas, Inc.
("United Cities"), Piedmont Propane Company ("Piedmont") and AGL Propane, Inc.
("AGL"), respectively, to U.S. Propane L.P., ("U.S. Propane") in exchange for
equity interests in U.S. Propane. The merger was accounted for as an acquisition
using the purchase method of accounting with Peoples Gas being the acquirer.
Accordingly, Peoples Gas' assets and liabilities were recorded at historical
cost and the assets and liabilities of United Cities, Piedmont and AGL were
recorded at fair market value, as determined based on a valuation and appraisal.
The purchase allocations were as follows:
Purchase price of Piedmont, AGL and United Cities $112,338
Net book value of Piedmont, AGL and United Cities 82,765
--------
Step-up of net book value, allocated to property, plant and equipment $ 29,573
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In August 2000, U.S. Propane acquired all of the outstanding common stock of
Heritage Holdings, Inc. ("the Company"), the General Partner of Heritage Propane
Partners, L.P., for $120,000. By virtue of the Company's general partner and
limited partner interests in Heritage Propane Partners, L.P., U.S. Propane
gained control of Heritage Propane Partners, L.P. Simultaneously, U.S. Propane
transferred its propane operations, consisting of its interest in four separate
limited liability companies, AGL Propane, L.L.C., Peoples Gas Company, L.L.C.,
United Cities Propane Gas, L.L.C. and Retail Propane Company, L.L.C. (former
Piedmont operations), to Heritage Propane Partners, L.P. for $181,395 plus
working capital. The $181,395 was payable $139,552 in cash, $31,843 of assumed
debt, and the issuance of 372,392 Common Units of Heritage Propane Partners,
L.P. valued at $7,348 and a 1.0101 percent limited partnership interest in
Heritage Propane Partners, L.P.'s operating partnership valued at $2,652. The
purchase price and the exchange price for the Common Units were approved by an
independent committee of the Board of Directors of the Company. The exchange
price for the Common Units was $19.73125 per unit under a formula based on the
average closing price of Heritage Propane Partners, L.P.'s Common Units on the
New York Stock Exchange for the twenty (20) day period beginning ten (10) days
prior to the public announcement of the transaction on June 15, 2000 (the
"Formula Price"). The working capital adjustment is anticipated to be settled in
December 2000. An additional payment of $5,000 has been accrued at August 31,
2000, for the working capital adjustment. To the extent the final payment is
more or less than $5,000, goodwill recorded in the transaction will be adjusted.
Concurrent with the acquisition, Heritage Propane Partners, L.P. borrowed
$180,000 from several institutional investors and sold 1,161,814 Common Units
and 1,382,514 Class B Subordinated Units in a private placement to the former
shareholders of the Company based on the Formula Price resulting in net proceeds
of $50,203. The total of these proceeds were utilized to finance the transaction
and retire a portion of existing debt.
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The merger was accounted for as a reverse acquisition in accordance with
Accounting Principles Board Opinion No. 16. The propane operations of Heritage
Propane Partners, L.P. prior to the series of transactions with U.S. Propane are
referred to as "Predecessor Heritage." Although Predecessor Heritage is the
surviving entity for legal purposes, U.S. Propane's propane operation is the
acquirer for accounting purposes. The assets and liabilities of Predecessor
Heritage have been recorded at fair value to the extent acquired by U.S.
Propane's propane operations, approximately 36 percent, in accordance with
Emerging Issues Task Force Issue No. 90-13, "Accounting for Simultaneous Common
Control Mergers." The assets and liabilities of U.S. Propane have been recorded
at historical cost, as recorded in the U.S. Propane transaction described above.
The combined operations of Predecessor Heritage and U.S. Propane are referred to
herein as "Heritage."
The excess purchase price over Predecessor Heritage's cost was determined as
follows:
Net book value of Predecessor Heritage at August 9, 2000 $ 35,716
Equity investment 50,203
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85,919
Percent of Predecessor Heritage acquired by U.S. Propane 36%
--------
Equity interest acquired $ 30,931
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Purchase price $120,000
Equity interest acquired 30,931
--------
Excess purchase price over Predecessor Heritage cost $ 89,069
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The excess purchase prices over Predecessor Heritage cost was allocated as
follows:
Property, plant and equipment (25 year life) $ 11,180
Customer lists (15 year life) 5,935
Goodwill (30 year life) 71,954
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$ 89,069
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The accompanying consolidated balance sheet has been prepared on the pushdown
method of accounting under which stockholder's equity was determined based on
the purchase price paid by U.S. Propane. Goodwill of $29,163 was recorded in
connection with U.S. Propane's acquisition of the Company, which will be
amortized over 30 years. The fair value of the deferred tax liability assumed
was based on preliminary estimates and may be revised at a later date.
Heritage sells propane and propane-related products to more than 485,000 retail
customers in 28 states throughout the United States. Heritage is also a
wholesale propane supplier in the southwestern and southeastern United States
and in Canada, the latter through participation in a Canadian partnership.
Heritage grants credit to its customers for the purchase of propane and
propane-related products.
2. SIGNIFICANT ACCOUNTING POLICIES AND BALANCE SHEET DETAIL:
Principles of Consolidation
The accompanying consolidated balance sheet includes the accounts of the Company
and its subsidiaries, including Heritage Propane Partners, L.P., Heritage
Operating, L.P. ("Operating Partnership"), Heritage Energy Resources
("Resources") and M-P Energy Partnership. The Company accounts for its 50
percent partnership interest in Bi-State Partnership, another propane retailer,
under the equity method. All significant intercompany transactions and accounts
have been eliminated in consolidation.
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Inventories
Inventories are valued at the lower of cost or market. The cost of fuel
inventories is determined using the average cost method, while the cost of
appliances, parts and fittings is determined by the first-in, first-out method.
Inventories consist of the following at August 31, 2000:
Fuel $ 30,882
Appliances, parts and fittings 8,163
--------
$ 39,045
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Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets. Expenditures for maintenance and repairs
are expensed as incurred. Additionally, the Company capitalizes certain costs
directly related to the installation of Company owned tanks, including internal
labor costs. Components and useful lives of property, plant and equipment are as
follows at August 31, 2000:
Land and improvements $ 16,648
Buildings and improvements (10 to 30 years) 22,483
Bulk storage, equipment and facilities (3 to 30 years) 28,210
Tanks and other equipment (5 to 30 years) 241,934
Vehicles (5 to 10 years) 41,125
Furniture and fixtures (5 to 10 years) 5,262
Other 2,995
-----------
358,657
Less- Accumulated depreciation (23,948)
-----------
334,709
Plus- Construction work-in-process 4,657
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$ 339,366
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Intangibles and Other Assets
Intangibles and other assets are stated at cost net of amortization computed on
the straight-line method. The Company eliminates from its balance sheet any
fully amortized intangibles and the related accumulated amortization. Components
and useful lives of intangibles and other assets are as follows at August 31,
2000:
Goodwill (30 years) $ 148,751
Noncompete agreements (10 to 15 years) 30,665
Customer lists (15 years) 32,678
Other 4,808
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216,902
Less- Accumulated amortization (1,990)
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$ 214,912
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Long-lived Assets
The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate 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 was required as of August 31, 2000.
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Accrued and Other Current Liabilities
Accrued and other current liabilities consist of the following at August 31,
2000:
Interest payable $ 4,743
Wages and benefits 6,176
Deferred tank rent 2,568
Customer deposits 2,220
Taxes other than income 2,523
U.S. Propane working capital payable 5,000
Other 5,600
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$ 28,830
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Income Taxes
Concurrent with the series of transactions with U.S. Propane, the Company
converted to a taxable corporation from a subchapter "S" corporation for tax
reporting purposes. The Company follows the liability method of accounting for
income taxes in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, deferred income
taxes are recorded based upon differences between the financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the underlying assets are received and
liabilities settled.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements. Actual results could differ from those
estimates.
Fair Value
The carrying amount of accounts receivable and accounts payable approximates
their fair value. Based on the estimated borrowing rates currently available to
the Company for long-term loans with similar terms and average maturities, the
aggregate fair value at August 31, 2000, of the Company's long-term debt
approximates the aggregate carrying amount.
Recently Issued Accounting Standard Not Yet Adopted
At the date of acquisition of Predecessor Heritage, TECO Energy, Inc. and
Peoples Gas had not yet adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other contracts, and for
hedging activities, be recorded on the balance sheet as either an asset or
liability measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. Predecessor Heritage previously applied the provisions of SFAS 133.
Accordingly, since Peoples Gas is the accounting acquirer, Predecessor Heritage
discontinued applying the provisions of SFAS 133 as of August 10, 2000.
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SFAS 133 is effective for fiscal years beginning after June 15, 2000, which
would be Heritage's fiscal year 2001 beginning September 1, 2000. The Company
has evaluated the impact of adopting SFAS 133 and does not expect it to have a
significant impact on its reported financial condition. Heritage entered into
certain financial swap instruments during the period ended August 31, 2000 that
have been designated as cash flow hedging instruments in accordance with SFAS
133. Financial swaps are a contractual agreement to exchange obligations of
money between the buyer and seller of the instruments as propane volumes during
the pricing period are purchased. The swaps are tied to a set fixed price for
the buyer and floating price determinants for the seller priced on certain
indices. Heritage entered into these instruments to hedge the forecasted propane
volumes to be purchased during each of the one-month periods ending October 2000
through March 2001. Heritage utilizes hedging transactions to provide price
protection against significant fluctuations in propane prices. These instruments
had an unrecorded fair value of $5,659 as of August 31, 2000. Upon adoption of
SFAS 133, Heritage will recognize the fair value of these instruments on the
balance sheet through other comprehensive income. Heritage will then reclassify
into earnings the gain or loss that is reported in accumulated other
comprehensive income as the related physical transactions occur.
Trading Activities
Heritage trades financial instruments for its own account through Resources.
Financial instruments utilized in connection with trading activities are
accounted for using the mark-to-market method. Under the mark-to-market method
of accounting, forwards, swaps, options and storage contracts are reflected at
fair value, and are shown in the consolidated balance sheet as assets and
liabilities from trading activities. Changes in the assets and liabilities from
trading activities result primarily from changes in the market prices, newly
originated transactions and the timing of settlement. Resources attempts to
balance its contractual portfolio in terms of notional amounts and timing of
performance and delivery obligations. However, net unbalanced positions can
exist or are established based on assessment of anticipated market movements.
The Company has recorded its trading activities at fair value in accordance with
Emerging Issues Task Force Issue No. 98-10, "Accounting for Contracts Involved
in Energy Trading and Risk Management Activities" ("EITF 98-10"). EITF 98-10
requires energy trading contracts to be recorded at fair value on the balance
sheet.
Notional Amounts and Terms -
The notional amounts and terms of these financial instruments as of August 31,
2000 include fixed price payor for 898 barrels and 285 barrels of propane and
butane, respectively, and fixed price receiver of 858 barrels and 285 barrels of
propane and butane, respectively. Notional amounts reflect the volume of the
transactions, but do not represent the amounts exchanged by the parties to the
financial instruments. Accordingly, notional amounts do not accurately measure
the Company's exposure to market or credit risks.
Fair Value -
The fair value of the financial instruments related to trading activities as of
August 31, 2000, was assets of $4,133 and liabilities of $3,684.
Market and Credit Risk -
Inherent in the resulting contractual portfolio is certain business risks,
including market risk and credit risk. Market risk is the risk that the value of
the portfolio will change, either favorably or unfavorably, in response to
changing market conditions. Credit risk is the risk of loss from nonperformance
by
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suppliers, customers, or financial counterparties to a contract. Heritage and
Resources take active roles in managing and controlling market and credit risk
and have established control procedures, which are reviewed on an ongoing basis.
Heritage monitors market risk through a variety of techniques, including routine
reporting to senior management. Heritage attempts to minimize credit risk
exposure through credit policies and periodic monitoring procedures.
The market prices used to value these transactions reflect management's best
estimate considering various factors including closing average spot prices for
the current and outer months plus a differential to consider time value and
storage costs.
3. ASSETS HELD IN TRUST:
In connection with the initial public offering ("IPO") by Predecessor Heritage
in June 1996, the Company retained proceeds which were placed in various trusts
to be paid to the noteholders of noncompete agreements entered into by the
Company prior to the IPO. The proceeds are disbursed monthly from the trust in
accordance with the noncompete agreements. The Company retains all earnings from
the trust assets.
4. WORKING CAPITAL FACILITY AND LONG-TERM DEBT:
Long-term debt consists of the following at August 31, 2000:
8.55% Senior Secured Notes $ 120,000
Medium Term Note Program:
7.17% Series A Senior Secured Notes 12,000
7.26% Series B Senior Secured Notes 20,000
6.50% Series C Senior Secured Notes 4,286
6.59% Series D Senior Secured Notes 5,000
6.67% Series E Senior Secured Notes 5,000
Senior Secured Promissory Notes:
8.47% Series A Senior Secured Notes 16,000
8.55% Series B Senior Secured Notes 32,000
8.59% Series C Senior Secured Notes 27,000
8.67% Series D Senior Secured Notes 58,000
8.75% Series E Senior Secured Notes 7,000
8.87% Series F Senior Secured Notes 40,000
Senior Revolving Acquisition Facility 1,900
Notes Payable on noncompete agreements with interest imputed at rates
averaging 8%, due in installments through 2010, collateralized by a first
security lien on certain assets of Heritage 16,874
Other 1,285
Current maturities of long-term debt (2,954)
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$ 363,391
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Maturities of the Senior Secured Notes, the Medium Term Note Program and the
Senior Secured Promissory Notes are as follows:
8.55% Senior Notes: mature at the rate of $12,000 on June 30 in each of the years 2002 to and
including 2011.
Medium Term Note Program:
Series A Notes: mature at the rate of $2,400 on November 19 in each of the years 2005 to
and including 2009.
Series B Notes: mature at the rate of $2,000 on November 19 in each of the years 2003 to
and including 2012.
Series C Notes: mature at the rate of $714 on March 13 in each of the years 2000 to and
including 2003, $357 on March 13, 2004, $1,073 on March 13, 2005, and
$357 in each of the years 2006 and 2007.
Series D Notes: mature at the rate of $556 on March 13 in each of the years 2002 to and
including 2010.
Series E Notes: mature at the rate of $714 on March 13 in each of the years 2007 to and
including 2013.
Senior Secured Promissory Notes:
Series A Notes: mature at the rate of $3,200 on August 15 in each of the years 2003 to and
including 2007.
Series B Notes: mature at the rate of $4,571 on August 15 in each of the years 2004 to and
including 2010.
Series C Notes: mature at the rate of $5,750 on August 15 in each of the years 2006 to and
including 2007, $4,000 on August 15, 2008 and $5,750 on August 15, 2009 to
and including 2010.
Series D Notes: mature at the rate of $12,450 on August 15 in each of the years 2008 and
2009, $7,700 on August 15, 2010, $12,450 on August 15, 2011 and $12,950
on August 15, 2012.
Series E Notes: mature at the rate of $1,000 on August 15 in each of the years 2009 to and
including 2015.
Series F Notes: mature at the rate of $3,636 on August 15 in each of the years 2010 to and
including 2020.
The Note Purchase Agreement, the Medium Term Note Program and the Senior Secured
Promissory Notes contain restrictive covenants including limitations on
substantial disposition of assets, changes in ownership of Heritage and
additional indebtedness and require the maintenance of certain financial ratios.
At August 31, 2000, Heritage was in compliance with all covenants. All
receivables, contracts, equipment, inventory, general intangibles, cash
concentration accounts, and the common stock of Heritage's subsidiaries secure
the notes. The noteholders have recourse against the Company.
Effective August 31, 2000, Heritage entered into the Third Amendment to the
First Amended and Restated Credit Agreement with various financial institutions
that amended existing credit agreements. The terms of the Agreement, as amended,
are as follows:
A $50,000 Senior Revolving Working Capital Facility, expiring June 30,
2002, with $24,200 outstanding at August 31, 2000. The interest rate
and interest payment dates vary depending on the terms Heritage agrees
to when the money is borrowed.
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The weighted average interest rate was 8.25 percent at August 31, 2000.
Heritage must be free of all working capital borrowings for 30
consecutive days each fiscal year. The maximum commitment fee payable
on the unused portion of the facility is .375 percent.
A $50,000 Senior Revolving Acquisition Facility is available through
December 31, 2001, at which time the outstanding amount must be paid in
ten equal quarterly installments, beginning March 31, 2002. The
interest rate and interest payment dates vary depending on the terms
Heritage agrees to when the money is borrowed. The average interest
rate was 8.25 percent on the $1,900 amount outstanding at August 31,
2000. The maximum commitment fee payable on the unused portion of the
facility is .375 percent.
Future maturities of long-term debt for each of the next five fiscal years and
thereafter are $2,954 in 2001; $16,111 in 2002; $19,436 in 2003; $26,196 in
2004; $25,677 in 2005 and $275,971 thereafter.
5. INCOME TAXES:
The components of the deferred tax liability are as follows:
Deferred tax assets-
Net operating loss carryforwards (NOLs) $ 5,343
Reserves 244
Alternative minimum tax carryforwards 155
--------
$ 5,742
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Deferred tax liabilities-
Property basis $ 34,502
========
Net deferred tax liabilities $ 28,760
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The Company's NOLs generally begin to expire in 2010 through 2015.
6. COMMITMENTS AND CONTINGENCIES:
Certain property and equipment is leased under noncancelable leases which
require fixed monthly rental payments and expire at various dates through 2008.
Fiscal year future minimum lease commitments for such leases are $1,946 in 2001;
$1,349 in 2002; $1,201 in 2003; $892 in 2004; $737 in 2005 and $529 thereafter.
The Company is a party to various legal proceedings incidental to its business.
Certain claims, suits and complaints arising in the ordinary course of business
have been filed or are pending against the Company. In the opinion of
management, all such matters are covered by insurance, are without merit or
involve amounts, which, if resolved unfavorably, would not have a significant
effect on the financial position of the Company.
Heritage has entered into several purchase and supply commitments with varying
terms as to quantities and prices, which expire at various dates through March
2001.
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7. PARTNERSHIP UNITS:
Heritage is expected to make quarterly cash distributions of all Available Cash,
generally defined as consolidated cash receipts less consolidated operating
expenses, debt service payments, maintenance capital expenditures and net
changes in reserves established by the Company for future requirements. These
reserves are retained to provide for the proper conduct of Heritage's business,
or to provide funds for distributions with respect to any one or more of the
next four fiscal quarters.
Distributions by Heritage in an amount equal to 100 percent of Available Cash
will generally be made 97 percent to the Common, Subordinated and Class B
Subordinated Unitholders, 1.0101 percent to U.S. Propane for its limited partner
interest in the Operating Partnership and 1.9899 percent to the Company, subject
to the payment of incentive distributions to the holders of Incentive
Distribution Rights to the extent that certain target levels of cash
distributions are achieved. To the extent there is sufficient Available Cash,
the holders of Common Units have the right to receive the Minimum Quarterly
Distribution ($.50 per Unit), plus any arrearages, prior to any distribution of
Available Cash to the holders of Subordinated Units. Common Units will not
accrue arrearages for any quarter after the Subordination Period and
Subordinated Units will not accrue any arrearages with respect to distributions
for any quarter.
In general, the Subordination Period will continue indefinitely until the first
day of any quarter beginning after May 31, 2001, in which distributions of
Available Cash equal or exceed the Minimum Quarterly Distribution ("MQD") on the
Common Units and the Subordinated Units for each of the three consecutive
four-quarter periods immediately preceding such date. Pursuant to the terms of
the Partnership Agreement 925,736 Subordinated Units held by the Company
converted to Common Units on July 7, 1999 and an additional 925,736 on July 5,
2000. The conversion of these units was dependent on meeting certain cash
performance and distribution requirements during the period that commenced with
Predecessor Heritage's IPO in June 1996. The subordination period applicable to
the remaining Subordinated Units will end the first day of any quarter ending
after May 31, 2001, in which certain cash performance and distribution
requirements have been met. Upon expiration of the Subordination Period, all
remaining Subordinated Units will convert to Common Units.
Heritage is expected to make distributions of its Available Cash within 45 days
after the end of each fiscal quarter ending November, February, May and August
to holders of record on the applicable record date. A prorata MQD of $.353 per
Common and Subordinated Unit was made by Predecessor Heritage on October 15,
1996 for the two month period between the IPO and the fourth quarter ended
August 31, 1996. The MQD was made by Predecessor Heritage to the Common and
Subordinated Unitholders for the quarters ended November 30, 1996 through August
31, 1998. For the quarter ended November 30, 1998, a quarterly distribution of
$.5125 was paid by Predecessor Heritage to the Common and Subordinated
Unitholders. For each of the quarters ended February 28, 1999 through May 31,
2000, quarterly distributions of $.5625 were paid by Predecessor Heritage to
Common and Subordinated Unitholders. A distribution of $.575 per Common and
Subordinated Unit for the quarter ended August 31, 2000, was declared on
September 28, 2000, payable on October 16, 2000, to Unitholders of record on
October 9, 2000. The quarterly distributions for the quarters ended February 28,
1999 through August 31, 2000, included incentive distributions payable to the
Company to the extent the quarterly distribution exceeded $.55 per unit.
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Restricted Unit Plan
The Company adopted a restricted unit plan (the "Restricted Unit Plan") for
certain directors and key employees of the Company and its affiliates effective
June 1996. Rights to acquire 146,000 Common Units ("Phantom Units") are
available under the Restricted Unit Plan and may be granted to employees from
time to time at the discretion of the Restricted Unit Plan Committee. Commencing
on September 1, 1996, and on each September 1 thereafter that the Restricted
Unit Plan is in effect, certain director who is in office automatically receives
500 units. The Phantom Units vest upon, and in the same proportions as (1) the
conversion of Heritage's Subordinated Units into Common Units, or (2) if later,
the third anniversary of their grant date, and (3) terms and conditions
specified by each grant. As of August 31, 2000, 80,800 Phantom Units have been
awarded, of which 4,500 grants vested pursuant to the vesting rights of the
Restricted Plan and 71,300 vested in accordance with the change of control that
occurred with the Company. Individuals holding the remaining 5,000 grants waived
their rights to vesting under the change of control. Subsequent to August 31,
2000, 750 additional Phantom Units vested pursuant to the vesting rights of the
Restricted Unit Plan and Common Units were issued.
8. SUPPLEMENTAL INFORMATION:
The following balance sheet of the Company includes its investment in Heritage
on an equity basis. Such presentation is included to provide additional
information with respect to the Company's financial position on a stand-alone
basis at August 31, 2000:
ASSETS
CURRENT ASSETS:
Cash $ 479
Receivable from Heritage 2,675
Prepaid expenses and other 25
Assets held in trust 493
-----------
Total current assets 3,672
ASSETS HELD IN TRUST 1,848
INVESTMENT IN HERITAGE 118,968
INTANGIBLES AND OTHER ASSETS, net 29,163
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Total assets $ 153,651
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LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 4,173
Current maturities of long-term debt 366
-----------
Total current liabilities 4,539
LONG-TERM DEBT, less current maturities 1,401
DEFERRED TAXES 28,760
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34,700
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STOCKHOLDER'S EQUITY:
Common stock $.01 par value, 600,000 shares authorized,
534,788 shares issued and outstanding 5
Additional paid-in capital 119,995
Accumulated deficit (1,049)
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Total stockholder's equity 118,951
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Total liabilities and stockholder's equity $ 153,651
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