HERITAGE PROPANE PARTNERS L P - 10-Q Quarterly Report

Back to GetFilings.com

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM to
---------- ----------

COMMISSION FILE NUMBER 1-11727

HERITAGE PROPANE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)

DELAWARE 73-1493906
(state or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No.)

8801 SOUTH YALE AVENUE, SUITE 310
TULSA, OKLAHOMA 74137
(Address of principal
executive offices
and zip code)

(918) 492-7272
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.

Yes x No
---

At July 10, 2002, the registrant had units outstanding as follows:
Heritage Propane Partners, L.P. 15,815,847 Common Units

FORM 10-Q

HERITAGE PROPANE PARTNERS, L.P.

TABLE OF CONTENTS

i

PART I - FINANCIAL INFORMATION

HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)

The accompanying notes are an integral part of these
consolidated financial statements.

1

HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit and unit data)
(unaudited)

The accompanying notes are an integral part of these
consolidated financial statements.

2

HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, unaudited)

The accompanying notes are an integral part of these
consolidated financial statements.

3

HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(in thousands, except unit data)
(unaudited)

The accompanying notes are an integral part of these
consolidated financial statements.

4

HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

The accompanying notes are an integral part of these
consolidated financial statements.

5

HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except unit and per unit data)
(unaudited)

1. OPERATIONS AND ORGANIZATION:

The accompanying financial statements should be read in conjunction with
Heritage Propane Partners, L.P. and subsidiaries (Heritage or the Partnership)
consolidated financial statements as of August 31, 2001, and the notes thereto
included in the Partnership's consolidated financial statements included in Form
10-K as filed with the Securities and Exchange Commission on November 29, 2001.
The accompanying financial statements include only normal recurring accruals and
all adjustments that the Partnership considers necessary for a fair
presentation. Due to the seasonal nature of the Partnership's business, the
results of operations for interim periods are not necessarily indicative of the
results to be expected for a full year.

Heritage Operating, L.P. (the Operating Partnership) sells propane and
propane-related products to more than 600,000 active residential, commercial,
industrial and agricultural customers in 28 states. Heritage is also a wholesale
propane supplier in the southwestern and southeastern United States and in
Canada, the latter through participation in M-P Energy Partnership. M-P Energy
Partnership is a Canadian partnership engaging in supplying the Partnership's
northern U.S. locations and lower-margin wholesale distribution in which
Heritage owns a 60 percent interest.

On February 4, 2002, the Partnership's common unitholders, at a special meeting,
approved the substitution of U.S. Propane, L.P. (U.S. Propane) as the successor
General Partner of the Partnership replacing Heritage Holdings, Inc. Heritage
Holdings, Inc. exchanged its general partner interest in Heritage and the
Incentive Distribution Rights (which are described in Note 2), for 158,026
common units, and its 1.0101 percent general partner interest in the Operating
Partnership for 162,913 common units. The 1.0101 percent limited partner
interest in the Operating Partnership owned by U.S. Propane converted to a
1.0101 percent general partner interest in the Operating Partnership and 158,026
of the common units owned by U.S. Propane converted into a 1 percent general
partner interest in the Partnership and the Incentive Distribution Rights.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BALANCE SHEET DETAIL:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of the Partnership include the accounts of
its subsidiaries, including the Operating Partnership, M-P Energy Partnership,
Heritage Service Corp., Guilford Gas Service, Inc., Heritage Energy Resources,
L.L.C. ("Resources"), 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. (collectively the
"Propane LLCs".) Heritage accounts for its 50 percent partnership interest in
Bi-State Partnership, another propane retailer, under the equity method. All
significant intercompany transactions and accounts have been eliminated in
consolidation. For purposes of maintaining partner capital accounts, Heritage's
partnership agreement specifies that items of income and loss shall be allocated
among the partners in accordance with their percentage interests. Normal
allocations according to percentage interests are made, however, only after
giving effect to any priority income allocations in an amount equal to the
incentive distributions that are allocated 100 percent to the General Partner.
At May 31, 2002, as successor General Partner, U.S. Propane's 1.0101 percent
general partner interest in the Operating Partnership was accounted for in the
consolidated financial statements as a minority interest. For the nine months
ended May 31, 2001, Heritage Holdings, Inc.'s 1.0101 percent general partner
interest and U.S. Propane's 1.0101 percent limited partner interest in the
Operating Partnership were accounted for in the consolidated financial
statements as minority interests.

RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform with the 2002
presentation. These reclassifications have no impact on net income or net
assets.

6

ACCOUNTS RECEIVABLE

Heritage grants credit to its customers for the purchase of propane and
propane-related products. Accounts receivable consisted of the following:

INVENTORIES

Inventories are valued at the lower of cost or market. The cost of fuel
inventories is determined using weighted-average cost, while the cost of
appliances, parts and fittings is determined by the first-in, first-out method.
Inventories consisted of the following:

INCOME (LOSS) PER LIMITED PARTNER UNIT

Basic net income (loss) per limited partner unit is computed by dividing net
income (loss), after considering the General Partner's interest, by the weighted
average number of common and subordinated units outstanding. Diluted net income
(loss) per limited partner unit is computed by dividing net income (loss), after
considering the General Partner's interest, by the weighted average number of
common and subordinated units outstanding and the weighted average number of
restricted units ("phantom units") granted under the Restricted Unit Plan. A
reconciliation of net income (loss) and weighted average units used in computing
basic and diluted earnings (loss) per unit is as follows:

7

DILUTED NET INCOME (LOSS) PER LIMITED PARTNER
UNIT:

Limited partners' interest in net income (loss) $ (4,493) $ (6,241) $ 20,171 $ 38,599
============ ============ ============ ============

Weighted average limited partner units 15,805,747 12,981,442 15,713,694 12,980,606
Dilutive effect of phantom units -- -- 41,010 30,940
------------ ------------ ------------ ------------
Weighted average limited partner units, assuming
dilutive effect of phantom units 15,805,747 12,981,442 15,754,704 13,011,546
============ ============ ============ ============

Diluted net income (loss) per limited partner unit $ (.28) $ (.48) $ 1.28 $ 2.97
============ ============ ============ ============

QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH

The partnership agreement requires that Heritage will distribute all of its
"available cash" to its unitholders and its General Partner within 45 days
following the end of each fiscal quarter, 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. The term "available
cash" generally means, with respect to any fiscal quarter of the Partnership,
all cash on hand at the end of such quarter, plus working capital borrowings
after the end of the quarter, less reserves established by the General Partner
in its sole discretion to provide for the proper conduct of Heritage's business,
to comply with applicable laws or any Heritage debt instrument or other
agreement, or to provide funds for future distributions to partners with respect
to any one or more of the next four quarters. Available cash is more fully
defined in the Amended and Restated Agreement of Limited Partnership of Heritage
Propane Partners, L.P.

Prior to the unitholder vote on February 4, 2002, distributions by Heritage in
an amount equal to 100 percent of available cash were made 97 percent to the
common 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 former General Partner, Heritage Holdings, Inc. After the unitholder vote,
distributions by Heritage in an amount equal to 100 percent of available cash
will generally be made 98 percent to the common unitholders and 2 percent to
U.S. Propane, subject to the payment of incentive distributions to the holders
of Incentive Distribution Rights to the extent that certain target levels of
cash distributions are achieved.

On October 15, 2001, a quarterly distribution of $.6250 per unit, or $2.50
annually, was paid to unitholders of record at the close of business on October
5, 2001 and to the former General Partner for its general partner interest in
the Partnership, its minority interest and its Incentive Distribution Rights. On
January 14, 2002,a quarterly distribution of $.6375 per unit, or $2.55 annually,
was paid to unitholders of record at the close of business on January 3, 2002
and to the former General Partner for its general partner interest in the
Partnership, its minority interest and its Incentive Distribution Rights. On
April 15, 2002, a quarterly distribution of $.6375 per unit, or $2.55 annually,
was paid to unitholders of record at the close of business on April 4, 2002 and
to the General Partner for its general partner interest in the Partnership, its
minority interest and its Incentive Distribution Rights. On June 24, 2002, the
Partnership declared a cash distribution for the third quarter ended May 31,
2002 of $.6375 per unit, or $2.55 per unit annually, payable on July 15, 2002 to
unitholders of record at the close of business on July 8, 2002. These quarterly
distributions included incentive distributions payable to the General Partner to
the extent the quarterly distribution exceeded $.55 per unit.

SFAS 133 ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS
133). SFAS 133 requires that all derivatives be recognized in the balance sheet
as either an asset or liability measured at fair value. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement. Heritage adopted the
provisions of SFAS 133 effective September 1, 2000. The cumulative effect of
adopting SFAS 133 was an adjustment to accumulated other comprehensive income of
$5,429.

Heritage had certain financial swap instruments that settled during the three
months ended at May 31, 2002 that were designated as cash flow hedging
instruments in accordance with SFAS 133. The swap instruments are a contractual
agreement to exchange obligations of money between the buyer and seller of the
instruments as propane

8

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 at the end of the relevant trading period. Heritage entered
into these instruments to hedge the forecasted propane volumes to be purchased
during each of the one-month periods ending October 2001 through March 2002.
Heritage utilizes hedging transactions to provide price protection against
significant fluctuations in propane prices. During the three months and nine
months ended May 31, 2002, Heritage reclassified into earnings a loss of $1,158
and $7,016, respectively, that was previously reported in accumulated other
comprehensive loss. There were no hedges outstanding as of May 31, 2002.

SFAS 142 GOODWILL AND OTHER INTANGIBLE ASSETS

In June 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible
Assets. Under Statement No. 142, goodwill is no longer subject to amortization
over its estimated useful life. Rather, goodwill will be subject to at least an
annual assessment for impairment by applying a fair-value-based test.
Additionally, any acquired intangible assets should be separately recognized if
the benefit of the intangible asset is obtained through contractual or other
legal rights, or if the intangible asset can be sold, transferred, licensed,
rented or exchanged, regardless of the acquirer's intent to do so. There will be
more recognized intangible assets, such as unpatented technology and database
content, being separated from goodwill. Those assets will be amortized over
their useful lives, other than assets that have an indefinite life.

Heritage adopted Statement No. 142 on September 1, 2001 and accordingly has
discontinued the amortization of goodwill existing at the time of adoption.
Under the provisions of Statement No. 142, Heritage was required to perform a
transitional goodwill impairment appraisal within six months from the time of
adoption. Management engaged an independent appraisal firm to perform an
assessment of the fair value of each of Heritage's operating segments, which
were compared with the carrying value of each segment to determine whether any
impairment existed on the date of adoption. Heritage has completed the
transitional goodwill impairment appraisal and has determined that based on the
fair value of Heritage's operating segments, Heritage's goodwill was not
impaired as of September 1, 2001. The adoption of Statement No. 142 eliminated
goodwill amortization that would have totaled approximately $1,426 and $4,278
for the three and nine months ended May 31, 2002, based on the balances of
August 31, 2001, and totaled approximately $1,027 and $3,969 for the three and
nine months ended May 31, 2001.

RECENTLY ISSUED ACCOUNTING STANDARD NOT YET ADOPTED

In June 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement
Obligations. Statement No. 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. Heritage will adopt the provisions of Statement No. 143
effective September 1, 2002. Management does not believe that the adoption of
Statement No. 143 will have a material impact, if any, on its consolidated
financial condition or results of operations.

In August 2001, the FASB issued Statement No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This Statement supersedes FASB Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, 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. This statement retains the fundamental
provisions of Statement No. 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. This statement is effective for
financial statements issued for fiscal years beginning after December 15, 2001
and interim periods within those fiscal years, with early application
encouraged. Heritage will adopt the provisions of Statement No. 144 effective
September 1, 2002. Management does not believe that the adoption of Statement
No. 144 will have a material impact, if any, on its consolidated financial
condition or results of operations.

PRO FORMA RESULTS

On July 31, 2001, Heritage purchased the propane operations of ProFlame, Inc.
and subsidiaries and affiliates (ProFlame) located in California and Nevada, in
a series of mergers, stock purchases and asset purchases. The

9

results of operations of ProFlame are included in the consolidated statement of
operations of Heritage for the three and nine months ended May 31, 2002.

The following unaudited pro forma consolidated results of operations are
presented as if the series of transactions with ProFlame and Heritage had been
made at the beginning of the period presented:

The pro forma consolidated results of operations include adjustments to give
effect to amortization of non-competes and customer lists, interest expense on
acquisition and assumed debt and certain other adjustments, including the
elimination of income taxes. The acquisition of ProFlame was completed after
Heritage adopted SFAS 142, therefore there is no amortization of goodwill and
intangible assets have been separately identified. The unaudited pro forma
information is not necessarily indicative of the results of operations that
would have occurred had the transactions been made at the beginning of the
period presented or the future results of the combined operations.

3. WORKING CAPITAL FACILITY AND LONG-TERM DEBT:

Effective July 16, 2001, the Operating Partnership entered into the Fifth
Amendment to the First Amended and Restated Credit Agreement. The terms of the
Agreement as amended are as follows:

A $65,000 Senior Revolving Working Capital Facility, expiring June 30,
2004. There were no amounts outstanding at May 31, 2002. The interest
rate and interest payment dates vary depending on the terms Heritage
agrees to when the money is borrowed. 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 0.50 percent.

A $50,000 Senior Revolving Acquisition Facility is available through
December 31, 2003, at which time the outstanding amount must be paid in
ten equal quarterly installments beginning March 31, 2004, with $14,000
outstanding as of May 31, 2002. The interest rate and interest payment
dates vary depending on the terms Heritage agrees to when the money is
borrowed. The weighted average interest rate was 3.77 percent for the
amount outstanding at May 31, 2002. The maximum commitment fee payable
on the unused portion of the facility is 0.50 percent.

4. COMMITMENTS AND CONTINGENCIES

In May 2001, a company that Heritage subsequently acquired received a request
for information from the U.S. Environmental Protection Agency (the "EPA")
regarding potential contribution to a widespread groundwater contamination
problem in San Bernardino, California, known as the Newmark Groundwater
Contamination. The EPA has indicated that it believes that a likely source of
the groundwater contamination is a former military base. The U.S. Army has been
notified of this and is working in a cooperative manner with the EPA. The EPA
has not made any final determination regarding the U.S. Army or any other
person's liability. Although the groundwater contamination problem appears to be
attributable to releases of solvents from the former military base in the 1940's
(well before the company facility was constructed in the 1970's), it is possible
that EPA may seek to recover all or a portion of groundwater remediation costs
from private parties which could include Heritage under the Comprehensive
Environmental Response, Compensation, and Liability Act (commonly called
"Superfund").

10

5. REPORTABLE SEGMENTS:

Heritage's financial statements reflect four reportable segments: the domestic
retail operations of Heritage, the domestic wholesale operations of Heritage,
the foreign wholesale operations of M-P Energy Partnership and the liquids
marketing activities of Resources. Heritage's reportable domestic and wholesale
fuel segments are strategic business units that sell products and services to
different types of users: retail and wholesale customers. Intersegment sales by
the foreign wholesale segment to the domestic segment are priced in accordance
with the partnership agreement. Resources is a liquids marketing company that
buys and sells financial instruments for their own account. Heritage manages
these segments separately as each segment involves different distribution, sale
and marketing strategies. Heritage evaluates the performance of its operating
segments based on operating income. The operating income below does not reflect
domestic and foreign selling, general, and administrative expenses of $3,539 and
$4,422 for the three months ended May 31, 2002 and May 31, 2001, respectively,
or $9,648 and $14,003 for the nine months ended May 31, 2002 and May 31, 2001,
respectively. The following table presents the unaudited financial information
by segment for the following periods:

Revenues:
Domestic retail fuel $ 82,312 $ 87,254 $ 317,941 $ 386,235
Domestic wholesale fuel 1,967 1,548 8,303 9,214
Foreign wholesale fuel
Affiliated 8,612 15,556 29,128 48,880
Unaffiliated 6,898 8,651 27,689 43,734
Elimination (8,612) (15,556) (29,128) (48,880)
Liquids marketing 40,113 26,073 138,259 152,155
Other 11,348 8,627 42,184 33,419
------------ ------------ ------------ ------------
Total $ 142,638 $ 132,153 $ 534,376 $ 624,757
============ ============ ============ ============

Operating Income (Loss):
Domestic retail $ 7,259 $ 6,400 $ 58,817 $ 76,044
Domestic wholesale fuel (1,182) (182) (2,881) (35)
Foreign wholesale fuel
Affiliated 147 252 419 685
Unaffiliated 524 402 1,576 2,253
Elimination (147) (252) (419) (685)
Liquids marketing 1,372 278 (422) 1,420
------------ ------------ ------------ ------------
Total $ 7,973 $ 6,898 $ 57,090 $ 79,682
============ ============ ============ ============

6. SIGNIFICANT INVESTEE:

At May 31, 2002, Heritage held a 50 percent interest in Bi-State Partnership.
Heritage accounts for its 50 percent interest in Bi-State Partnership under the
equity method. Heritage's investment in Bi-State Partnership totaled $8,158 and
$6,610 at May 31, 2002 and August 31, 2001, respectively. Heritage received
distributions from Bi-State Partnership for the year ended August 31, 2001 of
$125. On March 1, 2002, the Operating Partnership sold certain assets acquired
in the ProFlame acquisition to Bi-State Partnership for approximately $9,730
plus working capital. There was no gain or loss recorded on the transaction.
This sale was made pursuant to the provision in the Bi-State partnership
agreement that requires each partner to offer to sell any newly acquired
businesses within Bi-State Partnership's area of operations to Bi-State
Partnership. In conjunction with this sale, the Operating Partnership guaranteed
$5 million of debt incurred by Bi-State Partnership.

Bi-State Partnership's financial position is summarized below:

12

Bi-State Partnership's results of operations for the three months and nine
months ended May 31, 2002 and 2001, respectively are summarized below:

7. FOOTNOTES INCORPORATED BY REFERENCE:

Certain footnotes are applicable to the consolidated financial statements but
would be substantially unchanged from those presented on Form 10-K filed with
the Securities and Exchange Commission on November 29, 2001. Accordingly,
reference should be made to the Company's Annual Report filed with the
Securities and Exchange Commission on Form 10-K for the following:

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD-LOOKING STATEMENTS

CERTAIN MATTERS DISCUSSED IN THIS REPORT, EXCLUDING HISTORICAL INFORMATION, AS
WELL AS SOME STATEMENTS BY HERITAGE IN PERIODIC PRESS RELEASES, INCLUDE CERTAIN
"FORWARD-LOOKING" STATEMENTS. ALTHOUGH HERITAGE BELIEVES SUCH FORWARD-LOOKING
STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS AND CURRENT EXPECTATIONS AND
PROJECTIONS ABOUT FUTURE EVENTS, NO ASSURANCE CAN BE GIVEN THAT EVERY OBJECTIVE
WILL BE REACHED. SUCH STATEMENTS ARE MADE IN RELIANCE ON THE "SAFE HARBOR"
PROTECTIONS PROVIDED UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

AS REQUIRED BY THAT LAW, HERITAGE HEREBY IDENTIFIES THE FOLLOWING IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY RESULTS
PROJECTED, FORECASTED OR ESTIMATED BY HERITAGE IN FORWARD-LOOKING STATEMENTS.
THESE INCLUDE:

o CHANGES IN GENERAL ECONOMIC CONDITIONS IN THE UNITED STATES AS
WELL AS CHANGES IN GENERAL ECONOMIC CONDITIONS AND CURRENCIES
IN FOREIGN COUNTRIES;

o WEATHER CONDITIONS THAT VARY SIGNIFICANTLY FROM HISTORICALLY
NORMAL CONDITIONS;

o ITS SUCCESS IN HEDGING ITS POSITIONS;

13

o THE EFFECTIVENESS OF RISK-MANAGEMENT POLICIES AND PROCEDURES
AND THE ABILITY OF HERITAGE'S LIQUIDS MARKETING COUNTERPARTIES
TO SATISFY THEIR FINANCIAL COMMITMENTS;

o THE GENERAL LEVEL OF PETROLEUM PRODUCT DEMAND, AND THE
AVAILABILITY OF PROPANE SUPPLIES;

o ENERGY PRICES GENERALLY AND SPECIFICALLY, THE PRICE OF PROPANE
TO THE CONSUMER COMPARED TO THE PRICE OF ALTERNATIVE AND
COMPETING FUELS;

o COMPETITION FROM OTHER PROPANE DISTRIBUTORS AND ALTERNATE
FUELS;

o THE AVAILABILITY AND COST OF CAPITAL;

o CHANGES IN LAWS AND REGULATIONS TO WHICH HERITAGE IS SUBJECT,
INCLUDING TAX, ENVIRONMENTAL AND EMPLOYMENT REGULATIONS;

o ITS ABILITY TO GENERATE AVAILABLE CASH FOR DISTRIBUTIONS TO
UNITHOLDERS;

o THE COSTS AND EFFECTS OF LEGAL AND ADMINISTRATIVE PROCEEDINGS
AGAINST IT OR WHICH MAY BE BROUGHT AGAINST IT;

o ITS ABILITY TO SUSTAIN HISTORICAL LEVELS OF INTERNAL GROWTH;
AND

o ITS ABILITY TO CONTINUE TO LOCATE AND ACQUIRE OTHER PROPANE
COMPANIES AT PURCHASE PRICES THAT ARE ACCRETIVE TO ITS
FINANCIAL RESULTS.

WEATHER AND SEASONALITY

Heritage's propane distribution business is seasonal and dependent upon weather
conditions in its service areas. Propane sales to residential and commercial
customers are affected by winter heating season requirements. This generally
results in higher operating revenues and net income during the period from
October through March of each year and lower operating revenues and either net
losses or lower net income during the period from April through September of
each year. Sales to industrial and agricultural customers are much less weather
sensitive.

A substantial portion of Heritage's propane is used in the heating-sensitive
residential and commercial markets causing the temperatures realized in
Heritage's areas of operations, particularly during the six-month peak-heating
season, to have a significant effect on its financial performance. In any given
area, sustained warmer-than-normal temperatures will tend to result in reduced
propane use, while sustained colder-than-normal temperatures will tend to result
in greater propane use. Heritage therefore uses information on normal
temperatures in understanding how temperatures that are colder or warmer than
normal affect historical results of operations and in preparing forecasts of
future operations, which assumes that normal weather will prevail in each of the
regions in which it operates.

GENERAL

The retail propane business is a "margin-based" business in which gross profits
depend on the excess of sales price over propane supply costs. The market price
of propane is often subject to volatile changes as a result of supply or other
market conditions over which Heritage will have no control. Product supply
contracts are one-year agreements subject to annual renewal and generally permit
suppliers to charge posted prices (plus transportation costs) at the time of
delivery or the current prices established at major delivery points. Since rapid
increases in the wholesale cost of propane may not be immediately passed on to
retail customers, such increases could reduce gross profits. Heritage generally
has attempted to reduce price risk by purchasing propane on a short-term basis.
Heritage has had on occasion purchased significant volumes of propane during
periods of low demand, which generally occur during the summer months, at the
then current market price, for storage both at its service centers and in major
storage facilities for future resale.

14

The retail propane business of Heritage consists principally of transporting
propane purchased in the contract and spot markets, primarily from major fuel
suppliers, to its retail distribution outlets and then to tanks located on the
customers' premises, as well as to portable propane cylinders. In the
residential and commercial markets, propane is primarily used for space heating,
water heating and cooking. In the agricultural market, propane is primarily used
for crop drying, tobacco curing, poultry brooding and weed control. In addition,
propane is used for certain industrial applications, including use as an engine
fuel that burns in internal combustion engines that power vehicles and forklifts
and as a heating source in manufacturing and mining processes.

Since its formation in 1989, Heritage has grown primarily through acquisitions
of retail propane operations and, to a lesser extent, through internal growth.
Since its inception through August 31, 2001, Heritage completed 81 acquisitions
for an aggregate purchase price approximating $608 million, including the
transfer by U.S. Propane of its propane operations to Heritage for $181.4
million, plus working capital of approximately $12.9 million. During the nine
months ended May 31, 2002, Heritage completed nine propane acquisitions and one
non-propane related acquisition for an aggregate purchase price of $22.1
million. The General Partner believes that Heritage is the fourth largest retail
marketer of propane in the United States, based on retail gallons sold. Heritage
serves approximately 600,000 customers from over 275 customer service locations
in 28 states.

The retail propane distribution business is largely seasonal due to propane's
use as a heating source in residential and commercial buildings. Historically,
approximately two-thirds of Heritage's retail propane volume and in excess of 80
percent of Heritage's earnings before interest, taxes, depreciation and
amortization or EBITDA is attributable to sales during the six-month
peak-heating season of October through March. Consequently, sales and operating
profits are concentrated in the first and second fiscal quarters. Cash flow from
operations, however, is generally greatest during the second and third fiscal
quarters when customers pay for propane purchased during the six-month
peak-heating season.

Gross profit margins vary according to customer mix. For example, sales to
residential customers generate higher margins than sales to certain other
customer groups, such as agricultural customers. Wholesale margins are
substantially lower than retail margins. In addition, gross profit margins vary
by geographical region. Accordingly, a change in customer or geographic mix can
affect gross profit without necessarily affecting total revenues.

Amounts discussed below reflect 100 percent of the results of M-P Energy
Partnership. M-P Energy Partnership is a general partnership in which Heritage
owns a 60 percent interest. Because M-P Energy Partnership is primarily engaged
in lower-margin wholesale distribution, its contribution to Heritage's net
income is not significant and the minority interest of this partnership is
excluded from the EBITDA calculation.

THREE MONTHS ENDED MAY 31, 2002 COMPARED TO THE THREE MONTHS ENDED MAY 31, 2001

Volume. Total retail gallons sold in the three months ended May 31,
2002 were 75.0 million, an increase of 6.3 million over the 68.7 million gallons
sold in the three months ended May 31, 2001. The increase primarily is due to
volumes added through acquisitions and the quarter ended May 31, 2002 being 19%
colder than the same period last year. The Partnership also sold approximately
18.0 million wholesale gallons in this third quarter of fiscal 2002, a decrease
of 2.2 million gallons from the 20.2 million wholesale gallons sold in the third
quarter of fiscal 2001. U.S. wholesale volumes increased 1.7 million gallons to
3.5 million gallons due to acquisition related volumes while the foreign
wholesale volumes of MP Energy Partnership decreased 3.9 million gallons to 14.5
million gallons for the third quarter.

Revenues. Total revenues for the three months ended May 31, 2002 were
$142.6 million, an increase of $10.4 million, or 7.9% as compared to $132.2
million in the three months ended May 31, 2001. The current period's domestic
retail propane revenues decreased $4.9 million or 5.6% to $82.3 million versus
the prior year's revenues of $87.3 million primarily due to lower selling prices
in the current period. The U.S. wholesale revenues increased $0.5 million to
$2.0 million for the three months ended May 31, 2002 as compared to $1.5 million
for the period ended May 31, 2001, due to acquisition related volumes. Other
domestic revenues increased by $2.7 million, to $11.3 million as compared to
$8.6 million in the prior year as a result of acquisitions. Foreign revenues
decreased $1.8 million for the three months ended May 31, 2002 to $6.9 million
as compared to $8.7 million for the three months ended May 31, 2001, as a result
of lower selling prices and the decreased volumes described above. The liquids
marketing activity conducted through Heritage Energy Resources increased $14.0
million to $40.1 million versus the prior year's activity of $26.1 million due
to an increase in the volume of contracts sold due to the market conditions
during the third quarter of fiscal 2002.

15

Cost of Products Sold. Total cost of products sold and liquids
marketing activities increased to $90.9 million for the three months ended May
31, 2002 as compared to $85.9 million for the three months ended May 31, 2001.
The current period's domestic retail cost of sales decreased $7.1 million or
14.7% to $41.1 million as compared to $48.2 million in the prior year as the
increase in volumes was more than offset by the lower product cost for the
quarter ended May 31, 2002 as compared to the same period last year. The U.S.
wholesale cost of sales increased $0.5 million to $1.9 million for the three
months ended May 31, 2002 as compared to $1.4 million for the period ended May
31, 2001, primarily due to increased volumes offset by lower wholesale fuel
costs. Foreign cost of sales decreased $1.9 million to $6.4 million as compared
to $8.3 million in the prior year primarily due to lower volumes. Other cost of
sales increased $0.9 million to $2.9 million as compared to $2.0 million for the
three months ended May 31, 2001. Liquids marketing cost of sales increased $12.6
million during the three months ended May 31, 2002 to $38.6 million as compared
to the prior year's cost of sales of $26.0 million. This increase is primarily
due to the increase in the volumes contracts purchased in relation to the
increase of contracts sold offset by the decrease in overall product cost as
compared to last year.

Gross Profit. Total gross profit for the three months ended May 31,
2002 was $51.7 million as compared to $46.3 million for the three months ended
May 31, 2001. For the three months ended May 31, 2002, retail fuel gross profit
was $41.2 million, U.S. wholesale was $0.1 million, and other gross profit was
$8.4 million, which includes service and tank rental revenues. Foreign wholesale
gross profit was $.5 million and liquids marketing was $1.5 million. As a
comparison, for the three months ended May 31, 2001, Heritage recorded retail
fuel gross profit of $39.1 million, U.S. wholesale was $0.1 million, and other
gross profit was $6.6 million. Foreign wholesale gross profit was $0.4 million
and liquids marketing gross profit was $0.1 million for the three months ended
May 31, 2001.

Operating Expenses. Operating expenses were $33.8 million an increase
of $4.9 million, for the three months ended May 31, 2002 as compared to $28.9
million for the three months ended May 31, 2001. The increase in operating
expenses relates to increases in employee wages and benefits that normally occur
with growth through acquisitions and other acquisition related expense
increases.

Selling, General and Administrative. Selling, general and
administrative expenses were $3.5 million for the three months ended May 31,
2002, a $0.9 million decrease from the $4.4 million for the same three month
period last year. This decrease is primarily related to the executive short-term
compensation plan expense that did not reoccur this fiscal year due to the year
to date decrease in operating income, offset by non-reoccurring professional
fees expensed during the quarter.

Depreciation and Amortization. Depreciation and amortization was $9.9
million in the three months ended May 31, 2002 as compared to $10.5 million in
the three months ended May 31, 2001. The decrease is primarily attributable to
the fact that goodwill is no longer being amortized effective September 1, 2001
with the adoption of SFAS 142, which would have totaled approximately $1.4
million for the quarter ended May 31, 2002 as compared to $1.0 million recorded
in the third quarter of fiscal 2001. This decrease is offset by additional
depreciation and amortization of property, plant and equipment, and other
intangible assets from businesses acquired since the third quarter of fiscal
2001.

Operating Income. For the three months ended May 31, 2002, Heritage had
operating income of $4.4 million as compared to operating income of $2.5 million
for the three months ended May 31, 2001. This increase is primarily the result
of increased gross profit this quarter and decreased selling, general and
administrative expenses and depreciation and amortization offset by the increase
in operating expenses.

Net Loss. For the three-month period ended May 31, 2002, Heritage
recorded a net loss of $4.3 million, an improvement of $1.5 million as compared
to net loss for the three months ended May 31, 2001 of $5.8 million. The
decrease is primarily the result of the increase in operating income described
above, offset by a slight increase in interest expense of $0.4 million for the
quarter.

EBITDA. Earnings before interest, taxes, depreciation and amortization
increased $1.5 million, or 10.9% to $15.3 million for the three months ended May
31, 2002, as compared to EBITDA of $13.8 million for the period ended May 31,
2001. This increase is due to the increase in operating income described above
exclusive of the decrease in depreciation and amortization and $.4 million of
non-cash compensation expense included in the expenses above. Heritage's EBITDA
includes the EBITDA of investees, but does not include the EBITDA of the

16

minority interest of M-P Energy Partnership or any non-cash compensation
expense. EBITDA should not be considered as an alternative to net income (as an
indicator of operating performance) or as an alternative to cash flow (as a
measure of liquidity or ability to service debt obligations), but provides
additional information for evaluating Heritage's ability to make the Minimum
Quarterly Distribution.

NINE MONTHS ENDED MAY 31, 2002 COMPARED TO THE NINE MONTHS ENDED MAY 31, 2001

Volume. Total retail gallons sold in the nine months ended May 31, 2002
were 284.2 million, an increase of 1.4 million gallons over the 282.8 million
gallons sold in the nine months ended May 31, 2001. U.S. Wholesale gallons were
14.0 million for the nine months ended May 31, 2002 as compared to 11.7 million
for the nine months ended May 31, 2001. Foreign gallons decreased 18.1 million
for the nine months ended May 31, 2002 to 57.5 million as compared to 75.6
million for the same period last fiscal year. Temperatures in the Partnership's
area of operations were an average of 13% warmer than last year and 12% warmer
than normal, which offset the volume increases realized from acquisitions not
included in the nine months ended May 31, 2001.

Revenues. Total revenues for the nine months ended May 31, 2002 were
$534.4 million, a decrease of $90.4 million, or 14.5% as compared to $624.8
million in the nine months ended May 31, 2001. Retail fuel revenues decreased
$68.3 million to $317.9 million for the nine months ended May 31, 2002 due
primarily due to the decrease in selling prices. Selling prices in all the
reportable segments decreased from the same period last year in response to
lower supply costs. U.S. wholesale revenues decreased $0.9 million to $8.3
million primarily due to lower selling prices this fiscal year as compared to
the same period last fiscal year. Other domestic revenues increased by $8.8
million, or 26.3% to $42.2 million as compared to $33.4 million in the prior
nine months as a result of acquisitions. Foreign revenues were $27.7 million for
the nine months ended May 31, 2002 as compared to $43.7 million for the nine
months ended May 31, 2001, a decrease of $16.0 million primarily due to a
combination of decreased volumes and lower selling prices. Liquids marketing
revenues decreased $13.9 million to $138.3 million for the nine months ended May
31, 2002 primarily due to an overall reduction in the number of contracts
entered into during the nine months ended May 31, 2002 as compared to the same
period of fiscal 2001 due to unfavorable market conditions during the peak
months and lower selling prices attached to trading contracts.

Cost of Products Sold. Total cost of products sold and liquids
marketing activities decreased $70.6 million, or 16.9%, to $348.1 million for
the nine months ended May 31, 2002 as compared to $418.7 million for the nine
months ended May 31, 2001. Retail fuel cost of sales decreased $44.6 million or
21.3% due to the decreases in the cost of propane for the nine months ended May
31, 2002 being lower as compared to the same time period last year. Although the
market price for propane for the nine months ended May 31, 2002 is well below
the price for the same period last year, the average cost per gallon sold for
the nine months ended May 31, 2002 was higher than market because a higher cost
of pre-bought inventory was absorbed into cost of sales throughout the nine
months ended May 31, 2002. Foreign cost of sales decreased $15.4 million to
$26.1 million for the nine months ended May 31, 2002 due to a lower cost of
product this fiscal year and the decreased volumes described above. The liquids
marketing cost of sales decreased $11.9 million during the nine months ended May
31, 2002 as compared to the same time period last fiscal year as the volume of
contracts purchased during the nine months ended May 31, 2002 declined in
relation to the reduced volume of contracts sold coupled with the decreased
market price.

Gross Profit. Total gross profit for the nine months ended May 31, 2002
decreased $19.7 million, or 9.6%, to $186.3 million as compared to $206.0
million for the nine months ended May 31, 2001 due to the aforementioned
decreases in volumes and revenues described above, offset by the decreases in
product costs. For the nine months ended May 31, 2002, retail fuel gross profit
was $152.8 million, U.S. wholesale was $0.3 million, and other gross profit was
$31.7 million as compared to $176.5 million, $0.7 million and $24.6 million,
respectively for the nine months ended May 31, 2001. Foreign wholesale gross
profit was $1.6 million and the liquids marketing recorded a gross loss of $0.1
million for the period ended May 31, 2002 as compared to gross profit of $2.3
million and $1.9 million, respectively for the nine months ended May 31, 2001.

Operating Expenses. Operating expenses were $100.6 million for the nine
months ended May 31, 2002 as compared to $96.0 million for the nine months ended
May 31, 2001. The increase of $4.6 million is primarily the result of the
additional operating expenses incurred for employee wages and benefits related
to the growth of Heritage from acquisitions since the third quarter of 2001
offset by the decrease in the short-term incentive plan expense for the
operating employees due to decreased operating income and the reduced operating
expenses related to decreased volumes.

17

Selling, General and Administrative. Selling, general and
administrative expenses were $9.6 million for the nine months ended May 31, 2002
as compared to $14.0 million for the nine months ended May 31, 2001. This
decrease is primarily attributable to the additional expenses incurred in the
nine months ended May 31, 2001 related to the executive short-term compensation
plan that did not reoccur during this fiscal year.

Depreciation and Amortization. Depreciation and amortization decreased
$1.7 million to $28.6 million in the nine months ended May 31, 2002 as compared
to $30.3 million in the nine months ended May 31, 2001. The decrease is
primarily attributable to the fact that goodwill is no longer amortized
effective September 1, 2001 with the adoption of SFAS 142, which would have
totaled $4.3 million for the nine months ended May 31, 2002 offset by the
addition of property, plant and equipment, and intangible assets from the
businesses acquired since the third quarter of fiscal 2001. Goodwill
amortization for the nine months ended May 31, 2001 was $4.0 million.

Operating Income. For the nine months ended May 31, 2002 Heritage had
operating income of $47.4 million as compared to operating income of $65.7
million for the nine months ended May 31, 2001. The decrease of $18.3 million,
or 27.7% is due to the related decrease in gross profit described above offset
by the decrease in operating and selling, general and administrative expenses
and the decrease in depreciation and amortization described above.

Net Income. For the nine-month period ended May 31, 2002, Heritage had
net income of $21.0 million, a decrease of $18.4 million as compared to net
income for the nine months ended May 31, 2001 of $39.4 million. This decrease is
primarily due to the decreased operating income described above, offset by a
reduction in minority interest expense due to the change in the general partner
described elsewhere in this report, and a gain from the sale of assets.

EBITDA. Earnings before interest, taxes, depreciation and amortization
decreased $19.1 million to $79.2 million for the nine months ended May 31, 2002,
as compared to the EBITDA of $98.3 million for the period ended May 31, 2001.
This decrease is related to the decrease in degree-days realized in the nine
months ended May 31, 2002 as compared to the same nine-month period last fiscal
year, resulting in reduced operating income. Heritage's EBITDA includes the
EBITDA of investees, but does not include the EBITDA of the minority interest of
M-P Energy Partnership. EBITDA should not be considered as an alternative to net
income (as an indicator of operating performance) or as an alternative to cash
flow (as a measure of liquidity or ability to service debt obligations), but
provides additional information for evaluating Heritage's ability to make the
Minimum Quarterly Distribution.

LIQUIDITY AND CAPITAL RESOURCES

The ability of Heritage to satisfy its obligations will depend on its future
performance, which will be subject to prevailing economic, financial, business
and weather conditions and other factors, many of which are beyond its control.
Future capital requirements of Heritage are expected to be provided by cash
flows from operating activities. To the extent future capital requirements
exceed cash flows from operating activities:

a) working capital will be financed by the working capital line of
credit and repaid from subsequent seasonal reductions in inventory
and accounts receivable

b) growth capital, expended mainly for customer tanks, will be
financed by the revolving acquisition bank line of credit; and

c) acquisition capital expenditures will be financed by the revolving
acquisition bank line of credit; other lines of credit, long term
debt, issues of additional common units or a combination thereof.

Operating Activities. Cash provided by operating activities during the
nine months ended May 31, 2002 was $65.5 million as compared to cash provided by
operating activities of $51.3 million for the same nine-month period ended May
31, 2001. The net cash provided by operations for the nine months ended May 31,
2002 consisted of net income of $21.0 million, noncash charges of $28.6 million,
principally depreciation and amortization and the impact of a decrease in
working capital of $15.9 million.

Investing Activities. Heritage completed nine propane acquisitions and
one non-propane related acquisition during the nine months ended May 31, 2002
spending $16.9 million, net of cash received. This capital expenditure amount is
reflected in the cash used in investing activities of $26.6 million along with
$20.0 million spent for

18

maintenance capital expenditures needed to sustain operations at current levels
and customer tanks to support growth of operations. Investing activities also
includes proceeds from the sale of idle property of $1.4 million, $9.7 million
received from the sale of assets to Bi-State Partnership and cash paid for other
investing activities of $.8 million.

Financing Activities. Cash used in financing activities during the nine
months ended May 31, 2002 of $40.1 million resulted mainly from a net decrease
in the Working Capital Facility of $19.9 and a net increase in the Acquisition
Facility of $14.0 million used to acquire other propane businesses offset by
cash distributions to unitholders of $30.7 million and a net decrease in other
long-term debt of $3.5 million.

Financing and Sources of Liquidity

During the quarter ended May 31, 2002, Heritage used its Bank Credit Facility,
which includes a Working Capital Facility, a revolving credit facility providing
for up to $65.0 million of borrowings for working capital and other general
partnership purposes, and the Acquisition Facility, a revolving credit facility
providing for up to $50.0 million of borrowings for acquisitions and
improvements. As of May 31, 2002, the Acquisition Facility had $36.0 million
available to fund future acquisitions and the Working Capital Facility had $65.0
million available for borrowings.

Heritage uses its cash provided by operating and financing activities to provide
distributions to unitholders and to fund acquisition, maintenance and growth
capital expenditures. Acquisition capital expenditures, which include
expenditures related to the acquisition of retail propane operations and
intangibles associated with such acquired businesses, were $16.9 million for the
nine months ended May 31, 2002. In addition to the $16.9 million of cash
expended for acquisitions, $2.8 million for notes payable on non-compete
agreements were issued and liabilities of $2.4 million were assumed in
connection with certain acquisitions.

Under the partnership agreement, Heritage will distribute to its partners, 45
days after the end of each fiscal quarter, an amount equal to all of its
Available Cash for such quarter. Available cash generally means, with respect to
any quarter of the Partnership, all cash on hand at the end of such quarter less
the amount of cash reserves established by the General Partner in its reasonable
discretion that is necessary or appropriate to provide for future cash
requirements. Heritage's commitment to its unitholders is to distribute the
increase in its cash flow while maintaining prudent reserves for the
Partnership's operations. Heritage raised the quarterly distribution paid on
October 15, 2001 for the fourth quarter ended August 31, 2001, to $0.625 per
unit (or $2.50 annually) from $0.6125 paid the previous quarter, and again for
the distribution declared on December 20, 2001 payable on January 14, 2002, to
$0.6375 (or $2.55 annually). This was the sixth consecutive increase and the
seventh since the formation of the Partnership. On April 15, 2002 a quarterly
distribution of $.6375 per unit, or $2.55 annually was paid to unitholders of
record at the close of business on April 4, 2002. On June 24, 2002, the
Partnership declared a cash distribution for the third quarter ended May 31,
2002 of $.6375 per unit, or $2.55 per unit annually, payable on July 15, 2002 to
unitholders of record at the close of business on July 8, 2002. These quarterly
distributions included incentive distributions payable to the General Partner to
the extent the quarterly distribution exceeded $.55 per unit ($2.20 annually).

The assets utilized in the propane business do not typically require lengthy
manufacturing process time or complicated, high technology components.
Accordingly, the Partnership does not have any significant financial commitments
for capital expenditures. In addition, the Partnership has not experienced any
significant increases attributable to inflation in the cost of these assets or
in its operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Heritage has very little cash flow exposure due to rate changes for long-term
debt obligations. Heritage primarily enters debt obligations to support general
corporate purposes including capital expenditures and working capital needs.
Heritage's long-term debt instruments were typically issued at fixed interest
rates. When these debt obligations mature, Heritage may refinance all or a
portion of such debt at then-existing market interest rates which may be more or
less than the interest rates on the maturing debt.

Commodity price risk arises from the risk of price changes in the propane
inventory that Heritage buys and sells. The market price of propane is often
subject to volatile changes as a result of supply or other market conditions
over

19

which Heritage will have no control. In the past, price changes have generally
been passed along to Heritage's customers to maintain gross margins, mitigating
the commodity price risk. In order to help ensure adequate supply sources are
available to Heritage during periods of high demand, Heritage at times will
purchase significant volumes of propane during periods of low demand, which
generally occur during the summer months, at the then current market price, for
storage both at its service centers and in major storage facilities and for
future delivery.

Heritage also attempts to minimize the effects of market price fluctuations for
its propane supply by entering into certain financial contracts. In order to
manage a portion of its propane price market risk, Heritage uses contracts for
the forward purchase of propane, propane fixed-price supply agreements, and
derivative commodity instruments such as price swap and option contracts. The
swap instruments are a contractual agreement to exchange obligations of money
between the buyer and seller of the instruments as propane volumes during the
pricing period are purchased. The swaps are tied to a fixed price bid by the
buyer and a floating price determination for the seller based on certain indices
at the end of the relevant trading period. Heritage enters into these swap
instruments to hedge the projected propane volumes to be purchased during each
of the one-month periods during the projected heating season.

At May 31, 2002, Heritage had no outstanding propane hedges (swap agreements).
Heritage continues to monitor propane prices and may enter into propane hedges
in the future. Inherent in the portfolio from the liquids marketing activities
is certain business risks, including market risk and credit risk. Market risk is
the risk that the value of the portfolio will change, either favorably or
unfavorably, in response to changing market conditions. Credit risk is the risk
of loss from nonperformance by suppliers, customers, or financial counterparties
to a contract. Heritage takes an active role in managing and controlling market
and credit risk and has established control procedures, which are reviewed on an
ongoing basis. Heritage monitors market risk through a variety of techniques,
including routine reporting to senior management. Heritage attempts to minimize
credit risk exposure through credit policies and periodic monitoring procedures.

LIQUIDS MARKETING

Heritage buys and sells financial instruments for its own account through its
wholly owned subsidiary, Heritage Energy Resources ("Resources"). Financial
instruments utilized in connection with the liquids marketing activity 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 liquids marketing activities. Unrealized gains and losses from
the financial contracts and the impact of price movements are recognized in the
income statement, as liquids marketing revenue. Changes in the assets and
liabilities from the liquids marketing activities result primarily from changes
in the market prices, newly originated transactions and the timing of settlement
related to the receipt of cash for certain contracts. 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.

Notional Amounts and Terms -

The notional amounts and terms of these financial instruments as of May 31, 2002
include fixed price payor for 645,000 barrels of propane and butane, and fixed
price receiver of 660,000 barrels of propane and butane. Notional amounts
reflect the volume of the transactions, but do not represent the amounts
exchanged by the parties to the financial instruments. Accordingly, notional
amounts do not accurately measure Heritage's exposure to market or credit risks.

Fair Value -

The fair value of the financial instruments related to liquids marketing
activities as of May 31, 2002, was assets of $831 thousand and liabilities of
$738 thousand. The unrealized gain related to trading activities for the period
ended May 31, 2002, was $57 thousand and is recorded in the income statement
through the liquids marketing revenue.

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.

20

SENSITIVITY ANALYSIS

A theoretical change of 10 percent in the underlying commodity value of the
liquids marketing contracts would not have a significant impact in the
Partnership's financial position as there were approximately 0.6 million gallons
of net unbalanced positions at May 31, 2002.

21

PART II - OTHER INFORMATION

ITEM 5. OTHER INFORMATION

In May 2001, a company that Heritage subsequently acquired received a request
for information from the U.S. Environmental Protection Agency (the "EPA")
regarding potential contribution to a widespread groundwater contamination
problem in San Bernardino, California, known as the Newmark Groundwater
Contamination. The EPA has indicated that it believes that a likely source of
the groundwater contamination is a former military base. The U.S. Army has been
notified of this and is working in a cooperative manner with the EPA. The EPA
has not made any final determination regarding the U.S. Army or any other
person's liability. Although the groundwater contamination problem appears to be
attributable to releases of solvents from the former military base in the 1940's
(well before the company facility was constructed in the 1970's), it is possible
that EPA may seek to recover all or a portion of groundwater remediation costs
from private parties which could include Heritage under the Comprehensive
Environmental Response, Compensation, and Liability Act (commonly called
"Superfund").

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The exhibits listed on the following Exhibit Index are filed as part of
this Report. Exhibits required by Item 601 of Regulation S-K, but which are
not listed below, are not applicable.

Exhibit
Number Description

(1) 3.1 Agreement of Limited Partnership of Heritage Propane
Partners, L.P.

(10) 3.1.1 Amendment No. 1 to Amended and Restated Agreement of
Limited Partnership of Heritage Propane Partners,
L.P.

(16) 3.1.2 Amendment No. 2 to Amended and Restated Agreement of
Limited Partnership of Heritage Propane Partners,
L.P.

(*) 3.1.3 Amendment No. 3 to Amended and Restated Agreement of
Limited Partnership of Heritage Propane Partners,
L.P.

(*) 3.1.4 Amendment No. 4 to Amended and Restated Agreement of
Limited Partnership of Heritage Propane Partners,
L.P.

(1) 3.2 Agreement of Limited Partnership of Heritage
Operating, L.P.

(12) 3.2.1 Amendment No. 1 to Amended and Restated Agreement of
Limited Partnership of Heritage Operating, L.P.

(*) 3.2.2 Amendment No. 2 to Amended and Restated Agreement of
Limited Partnership of Heritage Operating, L.P.

(18) 3.3 Amended Certificate of Limited Partnership of
Heritage Propane Partners, L.P.

(18) 3.4 Amended Certificate of Limited Partnership of
Heritage Operating, L.P.

(7) 10.1 First Amended and Restated Credit Agreement with
Banks Dated May 31, 1999

(8) 10.1.1 First Amendment to the First Amended and Restated
Credit Agreement dated as of October 15, 1999

22

(9) 10.1.2 Second Amendment to First Amended and Restated Credit
Agreement dated as of May 31, 2000

(10) 10.1.3 Third Amendment dated as of August 10, 2000 to First
Amended and Restated Credit Agreement

(13) 10.1.4 Fourth Amendment to First Amended and Restated Credit
Agreement dated as of December 28, 2000

(16) 10.1.5 Fifth Amendment to First Amended and Restated Credit
Agreement dated as of July 16, 2001

(1) 10.2 Form of Note Purchase Agreement (June 25, 1996)

(3) 10.2.1 Amendment of Note Purchase Agreement (June 25, 1996)
dated as of July 25, 1996

(4) 10.2.2 Amendment of Note Purchase Agreement (June 25, 2996)
dated as of March 11, 1997

(6) 10.2.3 Amendment of Note Purchase Agreement (June 25, 1996)
dated as of October 15, 1998

(8) 10.2.4 Second Amendment Agreement dated September 1, 1999 to
June 25, 1996 Note Purchase Agreement

(11) 10.2.5 Third Amendment Agreement dated May 31, 2000 to June
25, 1996 Note Purchase Agreement and November 19,
1997 Note Purchase Agreement

(10) 10.2.6 Fourth Amendment Agreement dated August 10, 2000 to
June 25, 1996 Note Purchase Agreement and November
19, 1997 Note Purchase Agreement

(13) 10.2.7 Fifth Amendment Agreement dated as of December 28,
2000 to June 25, 1996 Note Purchase Agreement,
November 19, 1997 Note Purchase Agreement and August
10, 2000 Note Purchase Agreement

(1) 10.3 Form of Contribution, Conveyance and Assumption
Agreement among Heritage Holdings, Inc., Heritage
Propane Partners, L.P. and Heritage Operating, L.P.

(1) 10.6 Restricted Unit Plan

(4) 10.6.1 Amendment of Restricted Unit Plan dated as of October
17, 1996

(12) 10.6.2 Amended and Restated Restricted Unit Plan dated as of
August 10, 2000

(18) 10.6.3 Second Amended and Restated Restricted Unit Plan
dated as of February 4, 2002

(12) 10.7 Employment Agreement for James E. Bertelsmeyer dated
as of August 10, 2000

(18) 10.7.1 Consent to Assignment of Employment Agreement for
James E. Bertelsmeyer dated February 3, 2002

(12) 10.8 Employment Agreement for R. C. Mills dated as of
August 10, 2000

(18) 10.8.1 Consent to Assignment of Employment Agreement for
R.C. Mills dated February 3, 2002

(12) 10.9 Employment Agreement for Larry J. Dagley dated as of
August 10, 2000

23

(18) 10.9.1 Consent to Assignment of Employment Agreement for
Larry J. Dagley dated February 3, 2002

(12) 10.10 Employment Agreement for H. Michael Krimbill dated as
of August 10, 2000

(18) 10.10.1 Consent to Assignment of Employment Agreement for H.
Michael Krimbill dated February 3, 2002

(12) 10.11 Employment Agreement for Bradley K. Atkinson dated as
of August 10, 2000

(18) 10.11.1 Consent to Assignment of Employment Agreement for
Bradley K. Atkinson dated February 3, 2002

(7) 10.12 First Amended and Restated Revolving Credit Agreement
between Heritage Service Corp. and Banks Dated May
31, 1999

(16) 10.12.1 First Amendment to First Amended and Restated
Revolving Credit Agreement, dated October 15, 1999

(16) 10.12.2 Second Amendment to First Amended and Restated
Revolving Credit Agreement, dated August 10, 2000

(16) 10.12.3 Third Amendment to First Amended and Restated
Revolving Credit Agreement, dated December 28, 2000

(16) 10.12.4 Fourth Amendment to First Amended and Restated
Revolving Credit Agreement, dated July 16, 2001

(12) 10.13 Employment Agreement for Mark A. Darr dated as of
August 10, 2000

(18) 10.13.1 Consent to Assignment of Employment Agreement for
Mark A Darr dated February 3, 2002

(12) 10.14 Employment Agreement for Thomas H. Rose dated as of
August 10, 2000

(18) 10.14.1 Consent to Assignment of Employment Agreement for
Thomas H. Rose dated February 3, 2002

(12) 10.15 Employment Agreement for Curtis L. Weishahn dated as
of August 10, 2000

(18) 10.15.1 Consent to Assignment of Employment Agreement for
Curtis L. Weishahn dated February 3, 2002

(5) 10.16 Note Purchase Agreement dated as of November 19, 1997

(6) 10.16.1 Amendment dated October 15, 1998 to November 19, 1997
Note Purchase Agreement

(8) 10.16.2 Second Amendment Agreement dated September 1, 1999 to
November 19, 1997 Note Purchase Agreement and June
25, 1996 Note Purchase Agreement

(9) 10.16.3 Third Amendment Agreement dated May 31, 2000 to
November 19, 1997 Note Purchase Agreement and June
25, 1996 Note Purchase Agreement

(10) 10.16.4 Fourth Amendment Agreement dated August 10, 2000 to
November 19, 1997 Note Purchase Agreement and June
25, 1996 Note Purchase Agreement

24

(13) 10.16.5 Fifth Amendment Agreement dated as of December 28,
2000 to June 25, 1996 Note Purchase Agreement,
November 19, 1997 Note Purchase Agreement and August
10, 2000 Note Purchase Agreement

(10) 10.17 Contribution Agreement dated June 15, 2000 among U.S.
Propane, L.P., Heritage Operating, L.P. and Heritage
Propane Partners, L.P.

(10) 10.17.1 Amendment dated August 10, 2000 to June 15, 2000
Contribution Agreement

(10) 10.18 Subscription Agreement dated June 15, 2000 between
Heritage Propane Partners, L.P. and individual
investors

(10) 10.18.1 Amendment dated August 10, 2000 to June 15, 2000
Subscription Agreement

(16) 10.18.2 Amendment Agreement dated January 3, 2001 to the June
15, 2000 Subscription Agreement.

(17) 10.18.3 Amendment Agreement dated October 5, 2001 to the June
15, 2000 Subscription Agreement.

(10) 10.19 Note Purchase Agreement dated as of August 10, 2000

(13) 10.19.1 Fifth Amendment Agreement dated as of December 28,
2000 to June 25, 1996 Note Purchase Agreement,
November 19, 1997 Note Purchase Agreement and August
10, 2000 Note Purchase Agreement

(14) 10.19.2 First Supplemental Note Purchase Agreement dated as
of May 24, 2001 to the August 10, 2000 Note Purchase
Agreement

(15) 10.20 Stock Purchase Agreement dated as of July 5, 2001
among the shareholders of ProFlame, Inc. and Heritage
Holdings, Inc.

(15) 10.21 Stock Purchase Agreement dated as of July 5, 2001
among the shareholders of Coast Liquid Gas, Inc. and
Heritage Holdings, Inc.

(15) 10.22 Agreement and Plan of Merger dated as of July 5, 2001
among California Western Gas Company, the Majority
Stockholders of California Western Gas Company
signatories thereto, Heritage Holdings, Inc. and
California Western Merger Corp.

(15) 10.23 Agreement and Plan of Merger dated as of July 5, 2001
among Growth Properties, the Majority Shareholders
signatories thereto, Heritage Holdings, Inc. and
Growth Properties Merger Corp.

(15) 10.24 Asset Purchase Agreement dated as of July 5, 2001
among L.P.G. Associates, the Shareholders of L.P.G.
Associates and Heritage Operating, L.P.

(15) 10.25 Asset Purchase Agreement dated as of July 5, 2001
among WMJB, Inc., the Shareholders of WMJB, Inc. and
Heritage Operating, L.P.

(15) 10.25.1 Amendment to Asset Purchase Agreement dated as of
July 5, 2001 among WMJB, Inc., the Shareholders of
WMJB, Inc. and Heritage Operating, L.P.

25

(18) 10.26 Assignment, Conveyance and Assumption Agreement
between U.S. Propane, L.P. and Heritage Holdings,
Inc., as the former general partner of Heritage
Propane Partners, L.P. dated as of February 4, 2002

(18) 10.27 Assignment, Conveyance and Assumption Agreement
between U.S. Propane, L.P. and Heritage Holdings,
Inc., as the former general partner of Heritage
Operating, L.P., dated as of February 4, 2002

(16) 21.1 List of Subsidiaries

- ----------

(1) Incorporated by reference to the same numbered Exhibit to Registrant's
Registration Statement of Form S-1, File No. 333-04018, filed with the
Commission on June 21, 1996.

(2) Incorporated by reference to Exhibit 10.11 to Registrant's Registration
Statement on Form S-1, File No. 333-04018, filed with the Commission on
June 21, 1996.

(3) Incorporated by reference to the same numbered Exhibit to Registrant's
Form 10-Q for the quarter ended November 30, 1996.

(4) Incorporated by reference to the same numbered Exhibit to Registrant's
Form 10-Q for the quarter ended February 28, 1997.

(5) Incorporated by reference to the same numbered Exhibit to Registrant's
Form 10-Q for the quarter ended May 31, 1998.

(6) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-K for the year ended August 31, 1998.

(7) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended May 31, 1999.

(8) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-K for the year ended August 31, 1999.

(9) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended May 31, 2000.

(10) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 8-K dated August 23, 2000.

(11) File as Exhibit 10.16.3.

(12) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-K for the year ended August 31, 2000.

(13) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended February 28, 2001.

(14) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended May 31, 2001.

(15) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 8-K dated August 15, 2001.

(16) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-K for the year ended August 31, 2001.

26

(17) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended November 30, 2001.

(18) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended February 28, 2002.

(*) Filed herewith.

(b) Reports on Form 8-K.

A Form 8-K was filed on July 11, 2002 reporting a change in the
registrant's independent auditor. Based on the recommendation of the
Audit Committee, the Board of Directors of Heritage approved the
dismissal of its independent auditors Arthur Andersen LLP and engaged
the firm of Grant Thornton LLP as its new independent auditors for the
fiscal year ended August 31, 2002, on July 8, 2002.

27

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

HERITAGE PROPANE PARTNERS, L.P.

By: U.S. Propane, L.P., General Partner

Date: July 11, 2002 By: /s/ H. Michael Krimbill
------------------------------------------
H. Michael Krimbill
(President, Chief Executive Officer
and officer duly authorized to sign on
behalf of the registrant)

28

EXHIBIT INDEX

(9) 10.1.2 Second Amendment to First Amended and Restated Credit
Agreement dated as of May 31, 2000

(10) 10.1.3 Third Amendment dated as of August 10, 2000 to First
Amended and Restated Credit Agreement

(13) 10.1.4 Fourth Amendment to First Amended and Restated Credit
Agreement dated as of December 28, 2000

(16) 10.1.5 Fifth Amendment to First Amended and Restated Credit
Agreement dated as of July 16, 2001

(1) 10.2 Form of Note Purchase Agreement (June 25, 1996)

(3) 10.2.1 Amendment of Note Purchase Agreement (June 25, 1996)
dated as of July 25, 1996

(4) 10.2.2 Amendment of Note Purchase Agreement (June 25, 2996)
dated as of March 11, 1997

(6) 10.2.3 Amendment of Note Purchase Agreement (June 25, 1996)
dated as of October 15, 1998

(8) 10.2.4 Second Amendment Agreement dated September 1, 1999 to
June 25, 1996 Note Purchase Agreement

(11) 10.2.5 Third Amendment Agreement dated May 31, 2000 to June
25, 1996 Note Purchase Agreement and November 19,
1997 Note Purchase Agreement

(10) 10.2.6 Fourth Amendment Agreement dated August 10, 2000 to
June 25, 1996 Note Purchase Agreement and November
19, 1997 Note Purchase Agreement

(13) 10.2.7 Fifth Amendment Agreement dated as of December 28,
2000 to June 25, 1996 Note Purchase Agreement,
November 19, 1997 Note Purchase Agreement and August
10, 2000 Note Purchase Agreement

(1) 10.3 Form of Contribution, Conveyance and Assumption
Agreement among Heritage Holdings, Inc., Heritage
Propane Partners, L.P. and Heritage Operating, L.P.

(1) 10.6 Restricted Unit Plan

(4) 10.6.1 Amendment of Restricted Unit Plan dated as of October
17, 1996

(12) 10.6.2 Amended and Restated Restricted Unit Plan dated as of
August 10, 2000

(18) 10.6.3 Second Amended and Restated Restricted Unit Plan
dated as of February 4, 2002

(12) 10.7 Employment Agreement for James E. Bertelsmeyer dated
as of August 10, 2000

(18) 10.7.1 Consent to Assignment of Employment Agreement for
James E. Bertelsmeyer dated February 3, 2002

(12) 10.8 Employment Agreement for R. C. Mills dated as of
August 10, 2000

(18) 10.8.1 Consent to Assignment of Employment Agreement for
R.C. Mills dated February 3, 2002

(12) 10.9 Employment Agreement for Larry J. Dagley dated as of
August 10, 2000

(18) 10.9.1 Consent to Assignment of Employment Agreement for
Larry J. Dagley dated February 3, 2002

(12) 10.10 Employment Agreement for H. Michael Krimbill dated as
of August 10, 2000

(18) 10.10.1 Consent to Assignment of Employment Agreement for H.
Michael Krimbill dated February 3, 2002

(12) 10.11 Employment Agreement for Bradley K. Atkinson dated as
of August 10, 2000

(18) 10.11.1 Consent to Assignment of Employment Agreement for
Bradley K. Atkinson dated February 3, 2002

(7) 10.12 First Amended and Restated Revolving Credit Agreement
between Heritage Service Corp. and Banks Dated May
31, 1999

(16) 10.12.1 First Amendment to First Amended and Restated
Revolving Credit Agreement, dated October 15, 1999

(16) 10.12.2 Second Amendment to First Amended and Restated
Revolving Credit Agreement, dated August 10, 2000

(16) 10.12.3 Third Amendment to First Amended and Restated
Revolving Credit Agreement, dated December 28, 2000

(16) 10.12.4 Fourth Amendment to First Amended and Restated
Revolving Credit Agreement, dated July 16, 2001

(12) 10.13 Employment Agreement for Mark A. Darr dated as of
August 10, 2000

(18) 10.13.1 Consent to Assignment of Employment Agreement for
Mark A Darr dated February 3, 2002

(12) 10.14 Employment Agreement for Thomas H. Rose dated as of
August 10, 2000

(18) 10.14.1 Consent to Assignment of Employment Agreement for
Thomas H. Rose dated February 3, 2002

(12) 10.15 Employment Agreement for Curtis L. Weishahn dated as
of August 10, 2000

(18) 10.15.1 Consent to Assignment of Employment Agreement for
Curtis L. Weishahn dated February 3, 2002

(5) 10.16 Note Purchase Agreement dated as of November 19, 1997

(6) 10.16.1 Amendment dated October 15, 1998 to November 19, 1997
Note Purchase Agreement

(8) 10.16.2 Second Amendment Agreement dated September 1, 1999 to
November 19, 1997 Note Purchase Agreement and June
25, 1996 Note Purchase Agreement

(9) 10.16.3 Third Amendment Agreement dated May 31, 2000 to
November 19, 1997 Note Purchase Agreement and June
25, 1996 Note Purchase Agreement

(10) 10.16.4 Fourth Amendment Agreement dated August 10, 2000 to
November 19, 1997 Note Purchase Agreement and June
25, 1996 Note Purchase Agreement

(13) 10.16.5 Fifth Amendment Agreement dated as of December 28,
2000 to June 25, 1996 Note Purchase Agreement,
November 19, 1997 Note Purchase Agreement and August
10, 2000 Note Purchase Agreement

(10) 10.17 Contribution Agreement dated June 15, 2000 among U.S.
Propane, L.P., Heritage Operating, L.P. and Heritage
Propane Partners, L.P.

(10) 10.17.1 Amendment dated August 10, 2000 to June 15, 2000
Contribution Agreement

(10) 10.18 Subscription Agreement dated June 15, 2000 between
Heritage Propane Partners, L.P. and individual
investors

(10) 10.18.1 Amendment dated August 10, 2000 to June 15, 2000
Subscription Agreement

(16) 10.18.2 Amendment Agreement dated January 3, 2001 to the June
15, 2000 Subscription Agreement.

(17) 10.18.3 Amendment Agreement dated October 5, 2001 to the June
15, 2000 Subscription Agreement.

(10) 10.19 Note Purchase Agreement dated as of August 10, 2000

(13) 10.19.1 Fifth Amendment Agreement dated as of December 28,
2000 to June 25, 1996 Note Purchase Agreement,
November 19, 1997 Note Purchase Agreement and August
10, 2000 Note Purchase Agreement

(14) 10.19.2 First Supplemental Note Purchase Agreement dated as
of May 24, 2001 to the August 10, 2000 Note Purchase
Agreement

(15) 10.20 Stock Purchase Agreement dated as of July 5, 2001
among the shareholders of ProFlame, Inc. and Heritage
Holdings, Inc.

(15) 10.21 Stock Purchase Agreement dated as of July 5, 2001
among the shareholders of Coast Liquid Gas, Inc. and
Heritage Holdings, Inc.

(15) 10.22 Agreement and Plan of Merger dated as of July 5, 2001
among California Western Gas Company, the Majority
Stockholders of California Western Gas Company
signatories thereto, Heritage Holdings, Inc. and
California Western Merger Corp.

(15) 10.23 Agreement and Plan of Merger dated as of July 5, 2001
among Growth Properties, the Majority Shareholders
signatories thereto, Heritage Holdings, Inc. and
Growth Properties Merger Corp.

(15) 10.24 Asset Purchase Agreement dated as of July 5, 2001
among L.P.G. Associates, the Shareholders of L.P.G.
Associates and Heritage Operating, L.P.

(15) 10.25 Asset Purchase Agreement dated as of July 5, 2001
among WMJB, Inc., the Shareholders of WMJB, Inc. and
Heritage Operating, L.P.

(15) 10.25.1 Amendment to Asset Purchase Agreement dated as of
July 5, 2001 among WMJB, Inc., the Shareholders of
WMJB, Inc. and Heritage Operating, L.P.

(18) 10.26 Assignment, Conveyance and Assumption Agreement
between U.S. Propane, L.P. and Heritage Holdings,
Inc., as the former general partner of Heritage
Propane Partners, L.P. dated as of February 4, 2002

(18) 10.27 Assignment, Conveyance and Assumption Agreement
between U.S. Propane, L.P. and Heritage Holdings,
Inc., as the former general partner of Heritage
Operating, L.P., dated as of February 4, 2002

(16) 21.1 List of Subsidiaries

- ----------

(1) Incorporated by reference to the same numbered Exhibit to Registrant's
Registration Statement of Form S-1, File No. 333-04018, filed with the
Commission on June 21, 1996.

(2) Incorporated by reference to Exhibit 10.11 to Registrant's Registration
Statement on Form S-1, File No. 333-04018, filed with the Commission on
June 21, 1996.

(3) Incorporated by reference to the same numbered Exhibit to Registrant's
Form 10-Q for the quarter ended November 30, 1996.

(4) Incorporated by reference to the same numbered Exhibit to Registrant's
Form 10-Q for the quarter ended February 28, 1997.

(5) Incorporated by reference to the same numbered Exhibit to Registrant's
Form 10-Q for the quarter ended May 31, 1998.

(6) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-K for the year ended August 31, 1998.

(7) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended May 31, 1999.

(8) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-K for the year ended August 31, 1999.

(9) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended May 31, 2000.

(10) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 8-K dated August 23, 2000.

(11) File as Exhibit 10.16.3.

(12) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-K for the year ended August 31, 2000.

(13) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended February 28, 2001.

(14) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended May 31, 2001.

(15) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 8-K dated August 15, 2001.

(16) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-K for the year ended August 31, 2001.

(17) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended November 30, 2001.

(18) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended February 28, 2002.

(*) Filed herewith.