HERITAGE PROPANE PARTNERS L P - 10-Q Quarterly Report

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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 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 January 13, 2003, the registrant had units outstanding as follows:
Heritage Propane Partners, L.P. 16,367,803 Common Units

FORM 10-Q

HERITAGE PROPANE PARTNERS, L.P.

TABLE OF CONTENTS

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
(unaudited)

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

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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.

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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.

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HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES

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

The accompanying notes are an integral part of these financial statements

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HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES

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

1. OPERATIONS AND ORGANIZATION:

The accompanying financial statements should be read in conjunction with the
consolidated financial statements of Heritage Propane Partners, L.P. and
subsidiaries (the "Partnership") as of August 31, 2002, 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 27, 2002.
The accompanying financial statements include only normal recurring accruals and
all adjustments that the Partnership considers necessary for a fair
presentation. Due to the seasonal nature of the Partnership's business, the
results of operations for interim periods are not necessarily indicative of the
results to be expected for a full year.

In order to simplify the Partnership's obligations under the laws of several
jurisdictions in which it conducts business, the Partnership's activities are
conducted through a subsidiary operating partnership, Heritage Operating, L.P.
(the "Operating Partnership"). The Partnership and the Operating Partnership are
collectively referred to in this report as "Heritage." At November 30, 2002, the
Operating Partnership sold 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 MP Energy Partnership. MP Energy Partnership is a Canadian partnership, in
which Heritage owns a 60% interest, engaged in supplying Heritage's northern
U.S. locations and lower-margin wholesale distribution. Heritage buys and sells
financial instruments for its own account through its wholly owned subsidiary,
Heritage Energy Resources L.L.C. ("Resources").

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, MP Energy Partnership,
Heritage Service Corp., Guilford Gas Service, Inc., and Resources. Heritage
accounts for its 50% partnership interest in Bi-State Propane, a propane
retailer in the states of Nevada and California, under the equity method. All
significant intercompany transactions and accounts have been eliminated in
consolidation. For purposes of maintaining partner capital accounts, the
Partnership Agreement of Heritage Propane Partners, L.P. 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% to the
General Partner. On February 4, 2002, at a special meeting of the Partnership's
Common Unitholders, the Common Unitholders approved the substitution of U.S.
Propane, L.P. ("U.S. Propane") as the successor General Partner of the
Partnership and the Operating Partnership, replacing Heritage Holdings, Inc.
("Heritage Holdings"). At November 30, 2002, U.S. Propane's 1.0101% general
partner interest in the Operating Partnership was accounted for in the
consolidated financial statements as a minority interest. For the three months
ended November 30, 2001, the 1.0101% general partner interest of the former
General Partner, Heritage Holdings, and U.S. Propane's 1.0101% limited partner
interest in the Operating Partnership were accounted for in the consolidated
financial statements as minority interests.

ACCOUNTS RECEIVABLE

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

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The activity in the allowance for doubtful accounts 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 of fuel delivered to the
customer service locations, while the cost of appliances, parts, and fittings is
determined by the first-in, first-out method. Inventories consisted of the
following:

RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform with the November
30, 2002 presentation. These reclassifications have no impact on net income or
net assets.

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 Units outstanding. Diluted net income (loss) per
limited partner unit is computed by dividing net income, after considering the
General Partner's interest, by the weighted average number of Common 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 net income
(loss) per unit is as follows:

(a) For the three months ended November 30, 2001, 41,900 phantom units were
excluded from the calculation of diluted net loss as such units were
anti-dilutive due to the net loss for the period.

QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH

The Partnership Agreement requires that the Partnership 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 the Partnership's business,
to comply with applicable laws or any 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
Partnership Agreement.

Prior to the Special Meeting on February 4, 2002, distributions by the
Partnership in an amount equal to 100% of Available Cash were made 97% to the
Common Unitholders, 1.0101% to U.S. Propane for its limited partner interest in
the Operating Partnership, and 1.9899% to the former General Partner, Heritage
Holdings. After the approval by the Common Unitholders of the substitution of
U.S. Propane as the General Partner, distributions by the Partnership in an
amount equal to 100% of Available Cash will generally be made 98% to the Common
Unitholders and 2% to the General Partner, subject to the payment of incentive
distributions to the holders of Incentive Distribution Rights to the extent that
certain target levels of cash distributions are achieved.

On October 15, 2002, a quarterly distribution of $0.6375 per unit, or $2.55
annually, was paid to Unitholders of record at the close of business on October
8, 2002 and to the General Partner for its general partner interest in the
Partnership, its minority interest, and its Incentive Distribution Rights. On
December 18, 2002, the Partnership declared a cash distribution for the first
quarter ended November 30, 2002 of $0.6375 per unit, or $2.55 per unit annually,
payable on January 14, 2003 to Unitholders of record at the close of business on
December 30, 2002. These quarterly distributions include incentive distributions
payable to the General Partner to the extent the quarterly distribution exceedes
$0.55 per unit.

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Heritage applies Financial Accounting Standards Board ("FASB") 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 statement of operations. During the three
months ended November 30, 2001, Heritage reclassified into earnings a loss of
$1,590 that was previously reported in accumulated other comprehensive loss.
There were no such financial instruments outstanding as of November 30, 2002.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible

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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 adopted the
provisions of SFAS 143 on September 1, 2002. The adoption of SFAS 143 did not
have a material impact on the Partnership's consolidated financial position or
results of operations.

In August 2001, the FASB issued Statement No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 supersedes FASB Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of (SFAS 121), and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. SFAS 144 retains the fundamental
provisions of SFAS 121 for recognition and measurement of the impairment of
long-lived assets to be held and used, and measurement of long-lived assets to
be disposed of by sale. Heritage adopted the provisions of SFAS 144 on September
1, 2002. The adoption of SFAS 144 did not have a material impact on the
Partnership's consolidated financial position or results of operations.

In April 2002, the FASB issued Statement No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections
(SFAS 145). SFAS 145 rescinds FASB Statement No. 4, Reporting Gains and Losses
from Extinguishment of Debt, and an amendment of that Statement, FASB Statement
No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. SFAS
145 also rescinds FASB Statement No. 44, Accounting for Intangible Assets of
Motor Carriers, amends FASB Statement No. 13, Accounting for Leases, to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions and also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. Heritage adopted the provisions of SFAS 145 on September 1, 2002.
The adoption did not have a material impact on the Partnership's consolidated
financial position or results of operations.

RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED

In October 2002, the Emerging Issues Task Force ("EITF") of the FASB discussed
EITF Issue No. 02-3, Issues Related to Accounting for Contracts Involved in
Energy Trading and Risk Management Activities (EITF 02-3). The EITF reached a
consensus to rescind EITF Issue No. 98-10, Accounting for Contracts Involved in
Energy Trading and Risk Management Activities (EITF 98-10), the impact of which
is to preclude mark-to-market accounting for energy trading contracts not within
the scope of SFAS 133. The EITF also reached a consensus that gains and losses
on derivative instruments within the scope of SFAS 133 should be shown net in
the statement of operations if the derivative instruments are held for trading
purposes. The consensus regarding the rescission of EITF 98-10 is applicable for
fiscal periods beginning after December 15, 2002. Energy trading contracts not
within the scope of SFAS 133 purchased after October 25, 2002, but prior to the
implementation of the consensus are not permitted to apply mark-to-market
accounting. Heritage will adopt the provisions of EITF 02-3 as of September 1,
2003. Management has not yet determined the impact the adoption of EITF 02-3
will have on the Partnership's financial position or results of operations.

In June 2002, the FASB issued Statement No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (SFAS 146). SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and requires that a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at fair value only when the
liability is incurred. The provisions of SFAS 146 are effective for exit or
disposal activities that are initiated after December 31, 2002, with early
application encouraged. Management does not believe that the adoption will have
a material impact on the Partnership's consolidated financial position or
results of 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, is available
through June 30, 2004. 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

9

days each fiscal year. The weighted average interest rate was 3.255%
for the amount outstanding at November 30, 2002. The maximum commitment
fee payable on the unused portion of the facility is 0.50%. All
receivables, contracts, equipment, inventory, general intangibles, cash
concentration accounts, and the capital stock of Heritage's
subsidiaries secure the Senior Revolving Working Capital Facility. As
of November 30, 2002, the Senior Revolving Working Capital Facility had
a balance outstanding of $52,800.

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. 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 3.255% for the amount outstanding at November 30, 2002. The
maximum commitment fee payable on the unused portion of the facility is
0.50%. All receivables, contracts, equipment, inventory, general
intangibles, cash concentration accounts, and the capital stock of
Heritage's subsidiaries secure the Senior Revolving Acquisition
Facility. As of November 30, 2002, the Senior Revolving Acquisition
Facility had a balance outstanding of $15,300.

4. REPORTABLE SEGMENTS:

The Partnership's financial statements reflect four reportable segments: the
domestic retail operations of Heritage, the domestic wholesale operations of
Heritage, the foreign wholesale operations of MP 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 retail and wholesale customers. Intersegment sales by the foreign
wholesale segment to the domestic segment are priced in accordance with the
partnership agreement of MP Energy Partnership. 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 selling,
general, and administrative expenses of $3,192 and $2,951 for the three months
ended November 30, 2002 and 2001, respectively. The following table presents the
unaudited financial information by segment for the following periods:

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Operating Income (Loss):
Domestic retail $ 13,404 $ 10,523
Domestic wholesale fuel (484) (635)
Foreign wholesale fuel
Affiliated 110 --
Unaffiliated 506 338
Elimination (110) --
Liquids marketing 323 (3,405)
--------- ---------
Total $ 13,749 $ 6,821
========= =========

5. SUBSEQUENT EVENT:

On January 2, 2003, the Partnership completed the acquisition of the propane
assets of V-1 Oil Co. ("V-1") of Idaho Falls, Idaho. Under the terms of the
acquisition, the Operating Partnership acquired all of the propane distribution
assets of V-1 for a total consideration of approximately $32.3 million, after
adjustments. The acquisition price was payable $17.3 million in cash, financed
by the Acquisition Facility, and by the issuance of 551,456 Common Units of the
Registrant valued at $15.0 million. The exchange price for the Common Units was
$27.20, determined under a formula based upon the average closing price of the
Registrant's Common Units for the twenty (20) consecutive trading days
commencing on the tenth trading day prior to the public announcement of the
transaction on December 10, 2002.

6. SIGNIFICANT INVESTEE:

Heritage holds a 50% interest in Bi-State Propane. Heritage accounts for this
50% interest in Bi-State Propane under the equity method. Heritage's investment
in Bi-State Propane totaled $7,691 and $7,485 at November 30, 2002 and August
31, 2002 respectively. Heritage did not receive any distributions from Bi-State
Propane for the three months ended November 30, 2002 or 2001. On March 1, 2002,
the Operating Partnership sold certain assets acquired in the ProFlame
acquisition to Bi-State Propane for approximately $9,730 plus working capital.
This sale was made pursuant to the provision in the Bi-State Propane partnership
agreement that requires each partner to offer to sell any newly acquired
businesses within Bi-State Propane's area of operations to Bi-State Propane. In
conjunction with this sale, the Operating Partnership guaranteed $5 million of
debt incurred by Bi-State Propane to a financial institution. Based on the
current financial condition of Bi-State Propane, management considers the

11

likelihood of Heritage incurring a liability resulting from the guarantee to be
remote. Bi-State Propane's financial position is summarized below:

Bi-State Propane's results of operations for the three months ended November 30,
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 27, 2002. 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:

NOTE DESCRIPTION

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
BALANCE SHEET DETAIL
4. WORKING CAPITAL FACILITY AND LONG-TERM DEBT
5. COMMITMENTS AND CONTINGENCIES
6. PARTNERS' CAPITAL
7. PROFIT SHARING AND 401(K) SAVINGS PLAN
8. RELATED PARTY TRANSACTIONS

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

Heritage Propane Partners, L.P. (the "Registrant" or "Partnership"), is a
Delaware limited partnership. The Partnership's common units are listed on the
New York Stock Exchange. The Partnership's business activities are primarily
conducted through its subsidiary, Heritage Operating, L.P. (the "Operating
Partnership"), a Delaware limited partnership. The Partnership is the sole
limited partner of the Operating Partnership, with a 98.9899%

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limited partner interest. The Partnership and the Operating Partnership are
sometimes referred to collectively in this report as "Heritage."

The following is a discussion of the historical financial condition and results
of operations of the Partnership and its subsidiaries, and should be read in
conjunction with the Partnership's historical consolidated financial statements
and accompanying notes thereto included elsewhere in this Quarterly Report on
Form 10-Q.

FORWARD-LOOKING STATEMENTS

CERTAIN MATTERS DISCUSSED IN THIS REPORT, EXCLUDING HISTORICAL INFORMATION, AS
WELL AS SOME STATEMENTS BY HERITAGE IN PERIODIC PRESS RELEASES AND SOME ORAL
STATEMENTS OF HERITAGE OFFICIALS DURING PRESENTATIONS ABOUT THE PARTNERSHIP,
INCLUDE CERTAIN "FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934. STATEMENTS USING WORDS SUCH AS "ANTICIPATE," "BELIEVE," "INTEND,"
"PROJECT," "PLAN," "CONTINUE," "ESTIMATE," "FORECAST," "MAY," "WILL," OR SIMILAR
EXPRESSIONS HELP IDENTIFY 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.

ACTUAL RESULTS MAY DIFFER MATERIALLY FROM ANY RESULTS PROJECTED, FORECASTED,
ESTIMATED, OR EXPRESSED IN FORWARD-LOOKING STATEMENTS SINCE MANY OF THE FACTORS
THAT DETERMINE THESE RESULTS ARE DIFFICULT TO PREDICT AND ARE BEYOND
MANAGEMENT'S CONTROL. SUCH FACTORS INCLUDE:

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

o WEATHER CONDITIONS THAT VARY SIGNIFICANTLY FROM HISTORICALLY
NORMAL CONDITIONS WHICH MAY ADVERSELY AFFECT THE DEMAND FOR
PROPANE AND HERITAGE'S FINANCIAL CONDITION;

o HERITAGE'S SUCCESS IN HEDGING ITS PRODUCT SUPPLY POSITIONS;

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

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

o SUDDEN AND SHARP PROPANE PRICE INCREASES AND MARKET VOLATILITY
MAY ADVERSELY AFFECT HERITAGE'S OPERATING RESULTS;

o THE POLITICAL AND ECONOMIC STABILITY OF PETROLEUM PRODUCING
NATIONS;

o HERITAGE'S ABILITY TO CONDUCT BUSINESS IN FOREIGN COUNTRIES;

o HERITAGE'S ABILITY TO OBTAIN ADEQUATE SUPPLIES OF PROPANE FOR
RETAIL SALE IN THE EVENT OF AN INTERRUPTION IN SUPPLY OR
TRANSPORTATION;

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

o THE MATURITY OF THE PROPANE INDUSTRY AND COMPETITION FROM
OTHER PROPANE DISTRIBUTORS AND OTHER ENERGY SOURCES;

o ENERGY EFFICIENCIES AND TECHNOLOGICAL TRENDS MAY AFFECT DEMAND
FOR PROPANE;

o THE AVAILABILITY AND COST OF CAPITAL;

o HERITAGE'S ABILITY TO ACCESS CERTAIN CAPITAL SOURCES MAY
REQUIRE IT TO OBTAIN A DEBT RATING;

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

o OPERATING RISKS INCIDENTAL TO TRANSPORTING, STORING, AND
DISTRIBUTING PROPANE, INCLUDING LITIGATION RISKS WHICH MAY NOT
BE COVERED BY INSURANCE;

o HERITAGE'S ABILITY TO GENERATE AVAILABLE CASH FOR
DISTRIBUTIONS TO UNITHOLDERS;

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

o HERITAGE'S ABILITY TO SUSTAIN HISTORICAL LEVELS OF INTERNAL
GROWTH;

o HERITAGE'S ABILITY TO CONTINUE TO LOCATE AND ACQUIRE OTHER
PROPANE COMPANIES AT PURCHASE PRICES THAT ARE ACCRETIVE TO ITS
FINANCIAL RESULTS;

o CASH DISTRIBUTIONS TO UNITHOLDERS ARE NOT GUARANTEED AND MAY
FLUCTUATE WITH HERITAGE'S PERFORMANCE AND OTHER EXTERNAL
FACTORS, INCLUDING RESTRICTIONS IN HERITAGE'S DEBT AGREEMENTS;
AND

o HERITAGE MAY SELL ADDITIONAL LIMITED PARTNER INTERESTS, THUS
DILUTING THE EXISTING INTEREST OF UNITHOLDERS.

GENERAL

The retail propane business is a margin-based business in which gross profits
depend on the excess of sales price over propane supply cost. 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 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 customer service locations and in
major storage facilities for future resale.

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 customer service locations 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, 2002, Heritage completed 91 acquisitions
for an aggregate purchase price approximating $633 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 three
months ended November 30, 2002, Heritage completed two acquisitions for an
aggregate purchase price of $2.5 million, which includes $1.6 million in cash
and $0.9 million in notes payable on non-compete agreements and liabilities
assumed. Subsequent to November 30, 2002, Heritage purchased the propane assets
of V-1 Oil Co, which was one of the largest privately held propane marketers in
the northwest. Management believes that Heritage is the fourth largest retail
marketer of propane in the United States, based on retail gallons sold. Heritage
now serves more than 650,000 customers from nearly 300 customer service
locations in 29 states, following the acquisition of the propane assets of V-1.

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Heritage's propane distribution business is largely seasonal and dependent upon
weather conditions in its service areas. Propane sales to residential and
commercial customers are affected by winter heating season requirements.
Historically, approximately two-thirds of Heritage's retail propane volume and
in excess of 80% of Heritage's EBITDA is attributable to sales during the
six-month peak-heating season of October through March. 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.
Consequently, sales and operating profits are concentrated in the first and
second fiscal quarters, however, cash flow from operations is generally greatest
during the second and third fiscal quarters when customers pay for propane
purchased during the six-month peak-heating season. 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 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.

Gross profit margins are not only affected by weather patterns, but also vary
according to customer mix. For example, sales to residential customers generate
higher margins than sales to certain other customer groups, such as commercial
or 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% of the results of MP Energy Partnership. MP
Energy Partnership is a general partnership in which Heritage owns a 60%
interest. Because MP Energy Partnership is primarily engaged in lower-margin
wholesale distribution, its contribution to Heritage's net income is not
significant and the minority interest of this partnership is excluded from the
EBITDA calculation.

THREE MONTHS ENDED NOVEMBER 30, 2002 COMPARED TO THE THREE MONTHS ENDED NOVEMBER
30, 2001

Volume. Total retail gallons sold in the three months ended November
30, 2002 were 76.7 million, an increase of 1.9 million over the 74.8 million
gallons sold in the three months ended November 30, 2001. The increase in volume
reflects the benefits of the volume added through acquisitions and from more
favorable weather conditions in some of Heritage's areas of operations, offset
by warmer than normal weather conditions in other areas of operations. Heritage
also sold approximately 22.1 million wholesale gallons in this first quarter of
fiscal 2003, a decrease of 1.2 million gallons from the 23.3 million wholesale
gallons sold in the first quarter of fiscal 2002. U.S. wholesale gallons
decreased 0.1 million gallons to 4.9 million gallons and the foreign volumes of
MP Energy Partnership decreased 1.1 million gallons to 17.2 million for the
first quarter.

Revenues. Total revenues for the three months ended November 30, 2002
were $173.5 million, an increase of $11.4 million, as compared to $162.1 million
in the three months ended November 30, 2001. The current period's domestic
retail propane revenues increased $0.8 million to $84.0 million versus the prior
year's revenues of $83.2 million primarily due to slightly increased retail
volumes offset by slightly lower selling prices in the current period. The U.S.
wholesale revenues decreased to $2.4 million, as compared to $3.1 million for
the period ended November 30, 2001, primarily due to lower selling prices.
Foreign revenues decreased $0.6 million for the three months ended November 30,
2002 to $8.9 million as compared to $9.5 million for the three months ended
November 30, 2001, as a result of decreased volumes described above. The liquids
marketing activity conducted through Resources increased $9.9 million to $60.7
million versus the prior year's revenues of $50.8 million due to an increase in
the volume of contracts sold, more favorable market conditions related to colder
winter temperatures and higher propane selling prices in the current period.
Other domestic revenues increased by $1.9 million, to $17.4 million as compared
to $15.5 million in the prior year as a result of acquisitions.

Cost of Products Sold. Total cost of products sold and liquids
marketing activities increased to $117.0 million for the three months ended
November 30, 2002 as compared to $114.4 million for the three months ended
November 30, 2001. The current period's domestic retail cost of sales decreased
$2.8 million to $41.6 million as compared to $44.4 million in the prior year due
to a lower cost of fuel per gallon this period offset by slightly increased
volumes compared to the same period last fiscal year. The U.S. wholesale cost of
sales decreased to $2.1

15

million as compared to $2.9 million for the period ended November 30, 2001,
primarily due to lower wholesale fuel costs and slightly lower volumes than
those incurred during the same period last fiscal year. Foreign cost of sales
decreased $0.8 million to $8.4 million as compared to $9.2 million in the prior
year primarily due to a decrease in wholesale fuel costs and lower volumes.
Other cost of sales increased $1.0 million to $4.8 million as compared to $3.8
million for the three months ended November 30, 2001. Liquids marketing cost of
sales increased $5.9 million during the three months ended November 30, 2002 to
$60.0 million as compared to the prior year's cost of sales of $54.1 million.
This increase is primarily due to an increase in contracts sold due to the
reasons stated above.

Gross Profit. Total gross profit for the three months ended November
30, 2002 increased by $8.7 million to $56.4 million as compared to $47.7 million
for the three months ended November 30, 2001. For the three months ended
November 30, 2002, retail fuel gross profit was $42.4 million, U.S. wholesale
was $0.3 million, and other gross profit was $12.5 million. Foreign wholesale
gross profit was $0.5 million and liquids marketing gross profit was $0.7
million. As a comparison, for the three months ended November 30, 2001, Heritage
recorded retail fuel gross profit of $38.9 million, U.S. wholesale was $0.2
million, and other gross profit was $11.6 million. Foreign wholesale gross
profit was $0.3 million and liquids marketing was a loss of $3.3 million for the
three months ended November 30, 2001. The increase in gross profit is primarily
attributable to lower fuel costs and slightly increased volumes, offset by
slightly lower selling prices.

Operating Expenses. Operating expenses were $33.4 million for the three
months ended November 30, 2002 as compared to $31.8 million for the three months
ended November 30, 2001. The increase of $1.6 million is primarily the result of
an increase in employee-related costs, and industry-wide increases in business
insurance costs.

Selling, General and Administrative. Selling, general and
administrative expenses were $3.2 million for the three months ended November
30, 2002, a $0.3 million increase from the $2.9 million for the same three month
period last year.

Depreciation and Amortization. Depreciation and amortization was $9.3
million in the three months ended November 30, 2002 as compared to $9.1 million
in the three months ended November 30, 2001. This increase is due to additional
depreciation and amortization of property, plant and equipment, and other
intangible assets from acquisitions.

Operating Income. For the three months ended November 30, 2002,
Heritage had operating income of $10.6 million as compared to operating income
of $3.9 million for the three months ended November 30, 2001. This increase is a
combination of increased gross profit offset by increased operating expenses
described above.

Net Income(Loss). For the three month period ended November 30, 2002,
Heritage had net income of $1.1 million, an increase of $5.9 million as compared
to a net loss for the three months ended November 30, 2001 of $4.8 million. The
increase is primarily the result of the operating income decrease described
above.

EBITDA. Earnings before interest, taxes, depreciation and amortization
increased $7.1 million to $20.8 million for the three months ended November 30,
2002, as compared to EBITDA of $13.7 million for the period ended November 30,
2001. This increase is due to the operating conditions described above, and is a
record level EBITDA for the first quarter results of Heritage. Heritage's EBITDA
includes the EBITDA of investees, but does not include the EBITDA of the
minority interest of MP 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 management's
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;

16

b) growth capital expenditures, 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, issuance of additional Common Units or a combination thereof.

Operating Activities. Cash used in operating activities during the three
months ended November 30, 2002, was $2.3 million as compared to cash provided by
operating activities of $0.1 million for the same three-month period ended
November 30, 2001. The net cash used in operations for the three months ended
November 30, 2002 consisted of net income of $1.1 million and noncash charges of
$9.9 million, principally depreciation and amortization, offset by the impact of
an increase in working capital of $13.3 million. The increase in working capital
for the quarter ended November 30, 2002 as compared to the quarter ended
November 30, 2001 is primarily due to the effect of timing of collection of the
high accounts receivable related to the cold winter of fiscal 2001 and the
timing of the purchase of inventory between the two periods.

Investing Activities. Heritage completed two acquisitions during the
three months ended November 30, 2002 spending a net of $1.6 million, after
deducting cash received in such acquisitions. This capital expenditure amount is
reflected in the cash used in investing activities of $9.8 million along with
$9.7 million invested for maintenance needed to sustain operations at current
levels and for customer tanks to support growth of operations. Cash used in
investing activities also includes proceeds from the sale of idle property of
$1.5 million.

Financing Activities. Cash provided by financing activities during the three
months ended November 30, 2002 of $12.7 million resulted mainly from a net
increase in the Working Capital Facility of $22.6 million and a net increase in
the Acquisition Facility of $1.3 million used to acquire other propane
businesses. These increases were offset by cash distributions to Unitholders of
$10.4 million and payments on other long-term debt of $0.8 million.

Financing and Sources of Liquidity

During the quarter ended November 30, 2002, the Operating Partnership utilized
its Bank Credit Facility, which includes a Working Capital Facility, providing
for up to $65.0 million of borrowings for working capital and other general
partnership purposes, and an Acquisition Facility providing for up to $50.0
million of borrowings for acquisitions and improvements. As of November 30,
2002, the Working Capital Facility had $12.2 million available for borrowings
and the Acquisition Facility had $34.7 million available to fund future
acquisitions. Subsequent to November 30, 2002, approximately $17.3 million was
drawn on the Acquisition Facility to fund the acquisition of V-1. Management
believes that its Bank Credit Facility is adequate to fund the future operating
and capital needs of the Partnership.

Heritage uses its cash provided by operating and financing activities to provide
distributions to the Partnership's 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 $1.6
million for the three months ended November 30, 2002. In addition to the $1.6
million of cash expended for acquisitions, $0.5 million for notes payable on
non-compete agreements were issued and liabilities of $0.4 million were assumed
in connection with certain acquisitions.

Under the Partnership Agreement, the Partnership will distribute to its partners
within 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. The Partnership's commitment to its Unitholders is to
distribute the increase in its cash flow while maintaining prudent reserves for
the Partnership's operations. The Partnership paid a quarterly distribution of
$0.6375 (or $2.55 annually) on October 15, 2002 for the fourth quarter ended
August 31, 2002, and declared a distribution of $0.6375 (or $2.55 annually) on
December 18, 2002 payable on January 14, 2003. The current distribution level
includes incentive distributions payable to the General Partner to the extent
the quarterly distribution exceeds $0.55 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

17

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 little cash flow exposure due to rate changes for long-term debt
obligations. The Operating Partnership had $68.1 million of variable rate debt
outstanding as of November 30, 2002 through its Bank Credit Facility described
elsewhere in this report. The balance outstanding in the Bank Credit Facility
generally fluctuates throughout the year. A theoretical change of 1% in the
interest rate on the balance outstanding at November 30, 2002 would result in an
approximate $681 thousand change in annual net income. Heritage primarily enters
debt obligations to support general corporate purposes including capital
expenditures and working capital needs. The Operating Partnership'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 market conditions over which
management 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 that adequate supply sources are
available to Heritage during periods of high demand, Heritage will, from time to
time, 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 customer 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. 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. 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 has entered into these swap instruments
in the past to hedge the projected propane volumes to be purchased during each
of the one-month periods during the projected heating season.

At November 30, 2002, Heritage had no outstanding propane hedges. Heritage
continues to monitor propane prices and may enter into additional propane hedges
in the future. Inherent in the portfolio from the liquids marketing activities
are 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 counter
parties 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, L.L.C. ("Resources"). In
accordance with the provisions of SFAS 133, financial instruments utilized in
connection with Resources' 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 other income (expense). 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.

18

Notional Amounts and Terms. The notional amounts and terms of these financial
instruments as of November 30, 2002 and 2001 include fixed price payor for
586,000 and 1,592,500 barrels of propane and butane, and fixed price receiver of
440,000 and 1,221,964 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 Heritage's exposure to market or credit risks.

Fair Value. The fair value of the financial instruments related to liquids
marketing activities as of November 30, 2002 and August 31, 2002, was assets of
$0.8 and $2.3 million respectively, and liabilities of $0.8 and $1.8 million,
respectively, related to propane. The unrealized gain (loss) related to liquids
marketing activities for the period ended November 30, 2002 and 2001, was $102
and ($2,139) respectively and is recorded through the income statement as other
income (loss).

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.

SENSITIVITY ANALYSIS

A theoretical change of 10% in the underlying commodity value of the liquids
marketing contracts would result in an approximate $273 change in the market
value of the contracts as there were approximately 6.1 million gallons of net
unbalanced positions at November 30, 2002.

ITEM 4. CONTROLS AND PROCEDURES

The Partnership maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Partnership files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the SEC. Within 90 days prior to the filing date of this report, an
evaluation was performed under the supervision and with the participation of the
Partnership's management, including the Chief Executive Officer and the Chief
Financial Officer of the General Partner of the Partnership, of the
effectiveness of the design and operation of the Partnership's disclosure
controls and procedures (as such terms are defined in Rule 13a-14(c) and
15d-14(c) of the Exchange Act). Based upon that evaluation, management,
including the Chief Executive Officer and the Chief Financial Officer of the
General Partner of the Partnership, concluded that the Partnership's disclosure
controls and procedures were adequate and effective as of November 30, 2002.
There have been no significant changes in the Partnership's internal controls or
in other factors subsequent to such evaluation, and there have been no
corrective actions with respect to significant deficiencies and material
weaknesses in our internal controls.

19

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

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

Exhibit
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.

(19) 3.1.3 Amendment No. 3 to Amended and Restated Agreement of
Limited Partnership of Heritage Propane Partners,
L.P.

(19) 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.

(19) 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

(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

20

Exhibit
Number Description

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

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

(4) 10.2.2 Amendment of Note Purchase Agreement (June 25, 1996)
dated as of March 11, 1997

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

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

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

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

(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

(20) 10.7.2 Amendment 1 of Employment Agreement for James E.
Bertelsmeyer dated August 10, 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

21

Exhibit
Number Description

(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

22

Exhibit
Number Description

(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

(21) 10.28 Assignment for Contribution of Assets in Exchange for
Partnership Interest dated December 9, 2002 amount
V-1 Oil Co., the shareholders of V-1 Oil Co.,
Heritage Propane Partners, L.P. and Heritage
Operating, L.P.

(*) 10.29 Employment Agreement for Michael L. Greenwood dated
as of July 1, 2002

23

Exhibit
Number Description

(20) 21.1 List of Subsidiaries

(*) 99.1 Certification of Chief Executive Officer and
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

------------------

(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.

24

(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.

(19) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended May 31, 2002.

(20) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-K for the year ended August 31, 2002.

(21) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 8-K dated January 6, 2003.

(*) Filed herewith.

(b) Reports on Form 8-K

The Partnership filed no reports on Form 8-K during the three months ended
November 30, 2002.

25

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

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

Date: January 14, 2003 By: /s/ Michael L. Greenwood
----------------------------------------
Michael L. Greenwood
(Vice President, Chief Financial
Officer and officer duly authorized
to sign on behalf of the registrant)

26

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

I, H. Michael Krimbill, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Heritage
Propane Partners, L.P.;

2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the Audit Committee of registrant's
board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize, and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated
in this quarterly report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.

Date: January 14, 2003

/s/ H. Michael Krimbill
-----------------------
H. Michael Krimbill
President and Chief Executive Officer

27

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

I, Michael L. Greenwood, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Heritage
Propane Partners, L.P.;

2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the Audit Committee of registrant's
board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize, and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated
in this quarterly report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.

Date: January 14, 2003

/s/ Michael L. Greenwood
------------------------
Michael L. Greenwood
Vice President and Chief Financial Officer

28

INDEX TO EXHIBITS

----------

(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.

(19) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended May 31, 2002.

(20) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-K for the year ended August 31, 2002.

(21) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 8-K dated January 6, 2003.

(*) Filed herewith.

(b) Reports on Form 8-K

The Partnership filed no reports on Form 8-K during the
three months ended November 30, 2002.