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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended July 31, 2000
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 numbers 1-11331
333-06693
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
(Exact name of registrants as specified in their charters)
Delaware 43-1698480
Delaware 43-1742520
- ------------------------------ ------------------------------
(State or other jurisdictions of (I.R.S. Employer Identification Nos.)
incorporation or organization)
One Liberty Plaza, Liberty, Missouri 64068
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 792-1600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Units New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value as of October 5, 2000, of the registrant's Common
Units held by nonaffiliates of the registrant, based on the reported closing
price of such units on the New York Stock Exchange on such date, was
approximately $218,305,000.
At October 5, 2000, Ferrellgas Partners, L.P. had units outstanding as follows:
31,307,116 Common Units
4,652,691 Senior Common Units
Documents Incorporated by Reference: None
FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
2000 FORM 10-K ANNUAL REPORT
Table of Contents
Page
PART I
ITEM 1. BUSINESS.......................................................................................1
ITEM 2. PROPERTIES.....................................................................................8
ITEM 3. LEGAL PROCEEDINGS..............................................................................9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................................10
PART II
ITEM 5. MARKET FOR REGISTRANT'S UNITS AND
RELATED UNITHOLDER MATTERS....................................................................10
ITEM 6. SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA..............................................11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................................12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................................22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...........................................................22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS...........................................22
ITEM 11. EXECUTIVE COMPENSATION........................................................................24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................................................29
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K...........................................................................31
PART I
ITEM 1. BUSINESS.
Business of Ferrellgas Partners, L.P.
Ferrellgas Partners, L.P. is a Delaware limited partnership that was
formed on April 19, 1994. The common units of Ferrellgas Partners are listed on
the New York Stock Exchange and its activities are primarily conducted through
its subsidiary Ferrellgas, L.P. Ferrellgas Partners is the sole limited partner
of Ferrellgas, L.P. with a 99% limited partner interest. Ferrellgas Partners and
Ferrellgas, L.P. are together referred to as the Partnership.
Business of Ferrellgas, L.P.
Ferrellgas, L.P., a Delaware limited partnership, was formed on April 22,
1994, to acquire, own and operate the propane business and assets of Ferrellgas,
Inc. Ferrellgas, L.P. accounts for nearly all of Ferrellgas Partner's
consolidated assets, sales and operating earnings, except for interest expense
related to $160 million of 9 3/8% Senior Secured Notes issued by Ferrellgas
Partners in April 1996 and a related interest rate swap agreement entered into
in April 2000.
Ferrellgas, Inc. owns general partner units that represent a 1%
interest in Ferrellgas Partners and a 1.0101% general partner interest in
Ferrellgas, L.P. The combined ownership represents a 2% general partner interest
in the Partnership. As general partner, Ferrellgas, Inc. performs all management
functions for the Partnership. All historical references prior to July 5, 1994,
relate to operations as conducted by Ferrellgas, Inc. and its predecessors.
General
The Partnership is engaged in the sale, distribution and marketing of
propane and other natural gas liquids. Natural gas liquids are derived from
petroleum products and are sold in compressed or liquefied form. Propane, the
predominant type of natural gas liquid, is typically extracted from natural gas
or separated during crude oil refining. Although propane is gaseous at normal
pressures, it is compressed into liquid form at relatively low pressures for
storage and transportation. Propane is a clean-burning energy source, recognized
for its transportability and ease of use relative to alternative forms of stand
alone energy sources.
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, space heating, irrigation and weed control. In
addition, propane is used for certain industrial applications, including use as
an engine fuel which is burned in internal combustion engines that power
vehicles and forklifts, and as a heating or energy source in manufacturing and
drying processes.
The Partnership believes that it is the largest retail marketer of propane
in the United States as measured by gallons sold, serving more than 1,100,000
residential, industrial/commercial and agricultural customers in 45 states and
the District of Columbia through 604 retail outlets in 40 states. Some outlets
serve interstate markets. Based upon information contained in industry
publications for calendar year 1999, the Partnership believes that its retail
operations account for approximately 11% of the retail propane gallons sold in
the United States. For the Partnership's fiscal years ended July 31, 2000, 1999,
and 1998, annual retail propane sales volumes were 847 million, 680 million, and
660 million gallons, respectively.
Formation and History
Ferrell Companies, Inc. is the parent entity of Ferrellgas, Inc., was
founded in 1939 as a single retail propane outlet in Atchison, Kansas and was
incorporated in 1954. Ferrellgas, Inc. was formed in 1984 to operate the retail
propane business previously conducted by Ferrell Companies. In July 1994, the
propane business and assets of Ferrellgas, Inc. were contributed to the
Partnership in connection with Ferrellgas Partner's initial public offering of
common units. Ferrell Companies was previously owned primarily by James E.
Ferrell and his family but was sold in July 1998 to the Ferrell Companies, Inc.
Employee Stock Ownership Trust.
Ferrellgas, Inc.'s initial growth largely resulted from small acquisitions
in the rural areas of eastern Kansas, northern and central Missouri, Iowa,
western Illinois, southern Minnesota, South Dakota and Texas. In July 1984,
Ferrellgas, Inc. acquired propane operations with annual retail sales volumes of
approximately 33 million gallons and in December 1986 acquired propane
operations with annual retail sales volumes of approximately 395 million
gallons. These two major acquisitions and many other smaller acquisitions
significantly expanded and diversified Ferrellgas, Inc.'s geographic coverage.
Since 1986, Ferrellgas, Inc. and the Partnership have acquired more than 100
smaller independent propane retailers, the largest of which were Thermogas LLC
acquired in December 1999, Skelgas Propane, Inc. acquired in May 1996 and Vision
Energy Resources, Inc. acquired in November 1994. For the fiscal years ended
July 31, 2000 to 1996, the Partnership invested approximately $310.3 million,
$48.7 million, $13.0 million, $38.8 million, and $108.8 million, respectively,
to acquire operations with annual retail sales of approximately 302.4 million,
21.5 million, 4.4 million, 20.5 million, and 111.8 million gallons of propane,
respectively.
Retail Operations
The retail business of the Partnership consists principally of transporting
propane purchased in the contract and spot markets primarily from major oil
companies to its retail distribution outlets and then to tanks located on its
customers' premises, as well as to portable cylinders.
Business Strategy
The Partnership's business strategy is to continue its historical focus on
residential and commercial retail propane operations. The Partnership
anticipates that its future growth will be achieved primarily through the
acquisition of smaller retail propane operations throughout the United States
and to a lesser extent through the expansion of its existing customer base by
increased competitiveness and investment in internal growth opportunities. The
Partnership believes that it has obtained a competitive advantage by promoting
an entrepreneurial culture that empowers its employees to be responsive to
individual customer needs. In addition, the Partnership believes this culture is
supported and enhanced by the ownership of Ferrell Companies by the Employee
Stock Ownership Trust for the sole benefit of Ferrellgas, Inc.'s employees.
The Partnership intends to concentrate its acquisition activities in
geographical areas in close proximity to the Partnership's existing operations
and to acquire propane retailers that can be efficiently combined with such
existing operations to provide an attractive return on investment after taking
into account the efficiencies which may result from such combination. However,
the Partnership will also pursue acquisitions that broaden its geographic
coverage. The Partnership's goal in any acquisition will be to improve the
operations and profitability of these smaller companies by integrating them into
the Partnership's established supply network. The Partnership regularly
evaluates a number of propane distribution companies that may be candidates for
acquisition. The Partnership believes that there are numerous local retail
propane distribution companies that are possible candidates for acquisition and
that its geographic diversity of operations helps to create many attractive
acquisition opportunities. The Partnership intends to fund acquisitions through
internal cash flow, external borrowings or the issuance of
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additional common units or other securities. The Partnership's ability to
accomplish these goals will be subject to the continued availability of
acquisition candidates at prices attractive to the Partnership and to
availability of funds for that purpose to the Partnership. There is no assurance
the Partnership will be successful in sustaining the recent level of
acquisitions or that any acquisitions that are made will prove beneficial to the
Partnership.
In addition to growth through acquisitions, the Partnership believes
that it may also achieve growth within its existing propane operations. As a
result of its experience in responding to competition and in implementing more
efficient operating standards, the Partnership believes that it has positioned
itself to be successful in direct competition for customers. The Partnership
currently has marketing programs that focus specific resources toward this
effort.
Recent Initiatives
During fiscal 2000, the Partnership began an assessment of its operations
to reduce operating costs to offset the impact of future potential challenges to
its operations such as warmer than normal weather and volatile product cost
environments. This operational assessment resulted in the implementation of
several expense savings and customer satisfaction initiatives, including the
elimination of redundancies in overlapping Thermogas and Ferrellgas, L.P.
operations, the review of staffing and asset utilization levels in the existing
Ferrellgas, L.P. base business, and improvements to the routing and scheduling
of customers' deliveries.
The majority of the integration of the Thermogas acquisition into the
existing Ferrellgas, L.P. operations occurred during the spring and summer of
fiscal 2000. Over 65 of the approximately 180 Thermogas locations were blended
together with existing Ferrellgas, L.P. locations. The Partnership eliminated
duplicate personnel and assets in these locations. The Partnership also
identified cost reduction opportunities in approximately 65 additional locations
in which the Partnership transferred customers and assets between existing
Ferrellgas, L.P. and Thermogas locations in a manner that allowed the customer
to be serviced from a more cost effective location. Since completing the
Thermogas acquisition in December 1999, the Partnership has reduced its
workforce by approximately 180 full time equivalent positions and has eliminated
over 175 excess vehicles from these overlapping locations. A portion of these
cost savings was realized during the integration that occurred in the spring and
summer of fiscal 2000. The Partnership believes these actions will result in
savings of approximately $7 million of expenses during fiscal 2001.
In addition to savings resulting from the integration of Thermogas, the
Partnership reduced additional operating costs by the assessment of its existing
operations. This assessment involved the review of the staffing and asset
utilization levels of the 520 existing Ferrellgas, L.P. locations, through the
using of productivity and benchmark measurements to identify savings
opportunities. The review was similar to the review used to establish optimal
staff and asset levels in the overlapping Ferrellgas, L.P. and Thermogas
locations. As a result, the Partnership reduced its workforce by over 500
additional full time equivalent positions, eliminated over 250 additional excess
vehicles, merged approximately 30 retail locations and divested 2 retail
locations. The majority of these actions were taken throughout the latter half
of fiscal 2000, therefore some of this cost savings was realized during fiscal
2000. The Partnership believes that these actions will result in savings of
approximately $12 million of expenses during fiscal 2001.
During the fourth quarter of fiscal 2000, the Partnership introduced
significant improvements to its existing routing and scheduling process used for
planning customer deliveries. The Partnership expects these improvements to
increase customer satisfaction and also reduce delivery costs. These
improvements resulted from a pilot program that was in place throughout fiscal
2000 that involved several locations in Ohio. This pilot program assisted the
Partnership in the improvement of the technology, training and reporting
associated with the routing and scheduling of customer propane deliveries. The
existing technology has been improved to better predict customer inventory
3
levels and more efficiently plan deliveries. The Partnership's employees were
recently extensively trained on these routing and scheduling improvements. In
addition, incentive programs for fiscal 2001 were modified to encourage
employees to achieve success measurements related to improved routing and
scheduling and improved customer satisfaction. A large portion of the new
incentive program is based on each location reducing operating expenses by 1.5
cents per gallon delivered. The Partnership expects the vast majority of its
locations will utilize these routing and scheduling improvements by the start of
the fiscal 2001 heating season.
Marketing
The retail propane marketing business generally involves large numbers of
small volume deliveries averaging approximately 200 gallons each. The market
areas are generally rural, but also include suburban areas for industrial
applications.
The Partnership utilizes marketing programs targeting both new and existing
customers by emphasizing its efficiency in delivering propane to customers as
well as its employee training and safety programs. The Partnership sells propane
primarily to four markets: residential, industrial/commercial, agricultural and
other, with other being principally to other propane retailers and as engine
fuel. During the fiscal year ended July 31, 2000, sales to residential customers
accounted for 63% of retail gross profit, sales to industrial and other
commercial customers accounted for 27% of retail gross profit, and sales to
agricultural and other customers accounted for 10% of retail gross profit.
Residential sales have a greater profit margin, more stable customer base and
tend to be less sensitive to price changes than the other markets served by the
Partnership. No single customer of the Partnership accounted for 10% or more of
the Partnership's consolidated revenues in fiscal 2000.
Profits in the retail propane business are primarily based on margins, the
cents-per-gallon difference between the purchase price and the sales price of
propane. The Partnership generally purchases propane in the contract and spot
markets. These purchases are primarily from major oil companies and on a
short-term basis. Therefore, the Partnership's supply costs fluctuate with
market price fluctuations that subject the Partnership to price and inventory
risk. Should wholesale propane prices decline in the future, the Partnership's
margins on its retail propane distribution business should increase in the
short-term because retail prices tend to change less rapidly than wholesale
prices. Should the wholesale cost of propane increase, for similar reasons
retail margins and profitability would likely be reduced, at least for the
short-term, until retail prices can be increased. Retail propane customers
typically lease their storage tanks from their propane distributors. Over 70% of
the Partnership's customers lease their tanks from the Partnership. The lease
terms and fire safety regulations in some states require leased tanks to be
filled only by the propane supplier that owns the tank. The cost and
inconvenience of switching tanks minimizes a customer's tendency to switch
suppliers of propane on the basis of minor variations in price.
The retail market for propane is seasonal because propane is used primarily
for heating in residential and commercial buildings. Consequently, sales and
operating profits are concentrated in the second and third fiscal quarters or
November through April. In addition, sales volume traditionally fluctuates from
year to year in response to variations in weather, price and other factors. The
Partnership believes that the broad geographic distribution of its operations
helps to minimize exposure to regional weather or economic patterns. Long-term,
historic weather data from the National Climatic Data Center indicates that the
average annual temperatures have remained relatively constant over the last
thirty years with fluctuations occurring on a year-to-year basis. During times
of colder-than-normal winter weather, the Partnership has been able to take
advantage of its large, efficient distribution network to help avoid supply
disruptions such as those experienced by some of its competitors, thereby
broadening its long-term customer base.
4
Supply, Distribution and Risk Management
The Partnership purchases propane primarily from major domestic oil
companies. Supplies of propane from these sources have traditionally been
readily available, although no assurance can be given that supplies of propane
will be readily available in the future. As a result of the Partnership's
ability to:
o buy large volumes of propane,
o utilize various risk management strategies, and
o utilize its large distribution system and underground storage capacity,
the Partnership believes it is in a position to achieve product cost savings and
avoid shortages during periods of tight supply to an extent not generally
available to other retail propane distributors. The Partnership is not dependent
upon any single supplier or group of suppliers, the loss of which would have a
material adverse effect on the Partnership. For the year ended July 31, 2000, no
supplier provided more than 10% of the Partnership's total propane purchases.
A portion of the Partnership's propane inventory is purchased under supply
contracts that typically have a one-year term and a price that fluctuates based
on the spot market prices. Additionally, the Partnership will enter into fixed
price contracts that have a term of less than one year. Some of the
Partnership's contracts specify minimum and maximum amounts of propane to be
purchased.
The Partnership may purchase and store inventories of propane to avoid
delivery interruptions during periods of increased demand. The Partnership owns
three underground storage facilities with an aggregate capacity of approximately
192 million gallons. Currently, approximately 141 million gallons of this
capacity is leased to third parties. The remaining space is available for the
Partnership's use.
In addition, the Partnership's risk management activities utilize
certain types of energy commodity forward contracts and swaps traded on the
over-the-counter financial markets and futures traded on the New York Mercantile
Exchange. These activities are utilized to anticipate market movements, manage
and hedge the Partnership's exposure to the volatility of floating commodity
prices and to protect the Partnership's inventory positions. The Partnership
also utilizes certain over-the-counter energy commodity options to limit overall
price risk and to hedge its exposure to inventory price movements.
Propane is generally transported from natural gas processing plants and
refineries, pipeline terminals and storage facilities to retail distribution
outlets and wholesale customers by railroad tank cars leased by the Partnership
and by highway transport trucks owned or leased by the Partnership. Common
carrier transport trucks may be used during the peak delivery season in the
winter months or to provide service in areas where economic considerations favor
common carrier use. Propane is then transported from the Partnership's retail
distribution outlets to customers by the Partnership's fleet of 2,201 bulk
delivery trucks, which are fitted generally with 2,000 to 3,000 gallon propane
tanks. Propane storage tanks located on the customers' premises are then filled
from the delivery truck. Propane is also delivered to customers in portable
cylinders.
Industry and Competition
Industry
Based upon industry publications, propane accounts for approximately 3% to
4% of household energy consumption in the United States, an average level which
has remained relatively constant for the past two decades. Propane competes
primarily with natural gas, electricity and fuel oil as an energy source
principally on the basis of price, availability and portability. Propane serves
as an alternative to natural gas in rural and suburban areas where natural gas
is unavailable or portability of product is required. Propane is generally more
expensive than natural gas on an equivalent British Thermal Unit basis in
locations served by natural gas, although propane is often sold in such areas as
5
a standby fuel for use during peak demands and during interruption in natural
gas service. The expansion of natural gas into traditional propane markets has
historically been inhibited by the capital costs required to expand distribution
and pipeline systems. Although the extension of natural gas pipelines tends to
displace propane distribution in the neighborhoods affected, the Partnership
believes that new opportunities for propane sales arise as more geographically
remote neighborhoods are developed.
Propane is generally less expensive to use than electricity for space
heating, water heating and cooking and competes effectively with electricity in
those parts of the country where propane is cheaper than electricity on an
equivalent BTU basis. Although propane is similar to fuel oil in application,
market demand and price, propane and fuel oil have generally developed their own
distinct geographic markets. Because residential furnaces and appliances that
burn propane will not operate on fuel oil, a conversion from one fuel to the
other requires the installation of new equipment. The Partnership's residential
retail propane customers will have an incentive to switch to fuel oil only if
fuel oil becomes significantly less expensive than propane. Likewise, the
Partnership may be unable to expand its customer base in areas where fuel oil is
widely used, particularly the Northeast United States, unless propane becomes
significantly less expensive than fuel oil. However, many industrial customers
who use propane as a heating fuel have the capacity to switch to other fuels,
such as fuel oil, on the basis of availability or minor variations in price.
Competition
In addition to competing with marketers of other fuels, the Partnership
competes with other companies engaged in the retail propane distribution
business. Competition within the propane distribution industry stems from two
types of participants: the larger multi-state marketers, and the smaller, local
independent marketers, including recent entrants such as certain rural electric
cooperatives. Based upon industry publications, the Partnership believes that
the ten largest multi-state retail marketers of propane, including the
Partnership, account for approximately 45% of the total retail sales of propane
in the United States and that there are approximately 5,000 local or regional
distributors. Based upon information contained in industry publications for
calendar year 1998, the Partnership also believes no single marketer other than
itself has a greater than 10% share of the total market in the United States.
The Partnership believes that it is the largest retail marketer of propane in
the United States with a market share of approximately 11% as measured by volume
of national retail propane sales.
Most of the Partnership's retail distribution outlets compete with three or
more marketers or distributors, the principal factors being price and service.
The Partnership competes with other retail marketers primarily on the basis of
reliability of service and responsiveness to customer needs, safety and price.
Each retail distribution outlet operates in its own competitive environment
because retail marketers locate in close proximity to customers to lower the
cost of providing service. The typical retail distribution outlet has an
effective marketing radius of approximately 25 miles.
Other Operations
The other operations of the Partnership consist principally of wholesale
propane marketing and other smaller operations, e.g., chemical feedstocks
marketing, natural gas liquids storage, a wholesale propane appliance operation,
retail refined fuels sales, truck maintenance centers, tank refurbishment
centers, transport hauling and others.
The Partnership engages in the wholesale marketing and distribution of
propane to other retail propane distributors. During the fiscal years ended July
31, 2000, 1999 and 1998, the Partnership sold 99 million, 103 million and 136
million gallons, respectively, of propane to wholesale customers and had
revenues attributable to such sales of $43.4 million, $33.8 million and $49.9
million, respectively.
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Employees
The Partnership has no employees and is managed by Ferrellgas, Inc.
pursuant to its partnership agreement. At September 30, 2000, Ferrellgas, Inc.
had 4,532 full-time employees and 882 temporary and part-time employees.
Ferrellgas, Inc.'s full-time employees were employed in the following areas:
Retail Locations 3,896
Transportation and Storage 265
Corporate Offices in Liberty, MO and Houston, TX 371
-----------
Total 4,532
===========
Less than one percent of Ferrellgas, Inc.'s employees are represented by four
local labor unions, which are all affiliated with the International Brotherhood
of Teamsters. Ferrellgas, Inc. has not experienced any significant work
stoppages or other labor problems.
The Partnership's supply, risk management, wholesale marketing,
distribution scheduling and product accounting functions are operated primarily
out of the Partnership's offices located in Houston, by a total full-time
corporate staff of 82 people.
Governmental Regulation - Environmental and Safety Matters
The Partnership is not subject to any price or allocation regulation of
propane.
Propane is not a hazardous substance within the meaning of federal and
state environmental laws. In connection with all acquisitions of retail propane
businesses that involve the purchase of real estate, the Partnership conducts a
due diligence investigation to attempt to determine whether any substance other
than propane has been sold from or stored on any such real estate prior to its
purchase. That due diligence includes questioning the sellers, obtaining
representations and warranties concerning the sellers' compliance with
environmental laws and visual inspections of the properties.
With respect to the transportation of propane by truck, the Partnership is
subject to regulations promulgated under the Federal Motor Carrier Safety Act.
These regulations cover the transportation of hazardous materials and are
administered by the United States Department of Transportation. The National
Fire Protection Association has issued Pamphlet No. 58 that established a set of
rules and procedures governing the safe handling of propane. Those rules and
procedures have been adopted as the industry standard in a majority of the
states in which the Partnership operates.
The Partnership believes it is in material compliance with all governmental
regulations and industry standards applicable to environmental and safety
matters. The Department of Transportation established new regulations addressing
emergency discharge control issues that became effective on July 1, 1999 with
various requirements phased in over the next seven years. The Partnership is in
full compliance in all material respects with those current regulatory
requirements and is working with both the Department of Transportation and
outside experts to fully test emergency discharge control systems that comply
with the new requirements as they become effective.
Service Marks and Trademarks
The Partnership markets retail propane under the "Ferrellgas," "Thermogas,"
"Puget Propane," "Seacrist Fuels," and "Elk Grove Gas & Oil" tradenames. The
Partnership uses the tradenames "Ferrell North America" and "American Energy
Incorporated" for its wholesale operations, the tradename "NRG" for its propane
appliance wholesale operation, the tradename "Ferrell Transport" for most of its
third party hauling and oil field services operations and the tradename
"bluebuzz.com" for its internet service provider operations. In addition, the
Partnership has a trademark on the name "FerrellMeter," its patented gas leak
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detection device. Ferrellgas, Inc. has an option to purchase the tradenames and
trademark that it contributed to the Partnership for a nominal value if
Ferrellgas, Inc. is removed as general partner of the Partnership other than for
cause. If Ferrellgas, Inc. ceases to serve as the general partner of the
Partnership for any other reason, it will have the option to purchase the
tradenames and trademark from the Partnership for fair market value.
Businesses of Other Subsidiaries
Ferrellgas Partners Finance Corp. is a Delaware corporation formed in
1996 and is a wholly-owned subsidiary of Ferrellgas Partners. Ferrellgas
Partners Finance Corp. has nominal assets and does not conduct any operations,
but serves as a co-obligor for securities issued by Ferrellgas Partners.
Accordingly, a discussion of the results of operations, liquidity and capital
resources of Ferrellgas Partners Finance Corp. is not presented. Certain
institutional investors that might otherwise be limited in their ability to
invest in securities issued by Ferrellgas Partners by reasons of the legal
investment laws of their states of organization or their charter documents, may
be able to invest in Ferrellgas Partner's securities because Ferrellgas Partners
Finance Corp. is a co-obligor. See the notes to Ferrellgas Partners Finance
Corp.'s financial statements for a discussion of the securities with respect to
which Ferrellgas Partners Finance Corp. is serving as a co-obligor.
Bluebuzz.com, Inc., is the Partnership's internet service provider and
a wholly-owned subsidiary of Ferrellgas, L.P. Bluebuzz.com was incorporated in
Delaware in April 2000 and provides internet service to subscribers in some of
the locations where Ferrellgas, L.P. has retail propane locations. Bluebuzz.com
currently does not own significant assets, nor has it generated significant
operating income or loss. Accordingly, a discussion of the results of
operations, liquidity and capital resources of Bluebuzz.com is not presented.
Ferrellgas Receivables, LLC is a newly created wholly-owned, special
purpose subsidiary of Ferrellgas, L.P., and was organized in September 2000.
Ferrellgas, L.P., contributed and sold interests in a pool of accounts
receivable to Ferrellgas Receivables. Ferrellgas Receivables then sold the
interests to a commercial paper conduit of Banc One, NA. Ferrellgas Receivables
does not conduct any other activities. In accordance with Statement of Financial
Accounting Standard No. 125 "Accounting for Transfers of Assets," Ferrellgas
Receivables will not be consolidated into the results of the Partnership and
thus will be accounted for using the equity method of accounting.See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
ITEM 2. PROPERTIES.
The Partnership owns or leases the following transportation equipment that
is utilized primarily in retail operations.
Owned Leased Total
Truck tractors ................................................... 107 124 231
Transport trailers................................................ 362 49 411
Bulk delivery trucks.............................................. 1,256 945 2,201
Pickup and service trucks......................................... 1,713 643 2,356
Railroad tank cars................................................ - 222 222
The transport trailers have an average capacity of approximately 9,000
gallons. The bulk delivery trucks are generally fitted with 2,000 to 3,000
gallon propane tanks. Each railroad tank car has a capacity of approximately
30,000 gallons.
A typical retail distribution outlet is located on one to three acres of
land and includes a small office, a workshop, bulk storage capacity of 18,000
gallons to 60,000 gallons and a small inventory of stationary customer storage
tanks and portable propane cylinders that the Partnership provides to its retail
8
customers for propane storage. The Partnership owns the land and buildings in
the applicable local markets of approximately 50% of its retail outlets and
leases the remaining facilities on terms customary in the industry.
Approximately 1,012,000 propane tanks are either owned or leased by the
Partnership, most of which are located on customer property and leased to those
customers. The Partnership also owns approximately 829,000 portable propane
cylinders, most of which are leased to industrial and commercial customers. See
"Management's Discussion and Analysis of Financial Condition - Liquidity and
Capital Resources and Results of Operations" for a discussion of the operating
tank lease involving a portion of the Partnership's customer tanks.
The Partnership owns underground storage facilities at Hutchinson, Kansas;
Adamana, Arizona; and Moab, Utah. At July 31, 2000, the capacity of these
facilities approximated 86 million gallons, 98 million gallons, and 8 million
gallons, respectively for an aggregate of approximately 192 million gallons.
Currently, approximately 141 million gallons of this capacity is leased to third
parties. The remaining space is available for the Partnership's use.
The Partnership owns land and two buildings with 50,245 square feet of
office space and leases 6,250 square feet of office space that together comprise
its corporate headquarters in Liberty, Missouri, and leases 27,696 square feet
of office space in Houston, Texas, where its risk management, supply and
wholesale marketing operations are primarily located.
The Partnership believes that it has satisfactory title to or valid rights
to use all of its material properties. Although some of those properties may be
subject to liabilities and leases, liens for taxes not yet currently due and
payable and immaterial encumbrances, easements and restrictions, the Partnership
does not believe that any such burdens will materially interfere with the
continued use of such properties in its business. The Partnership believes that
it has made, or is in the process of obtaining, all required material:
approvals, authorizations, orders, licenses, permits, franchises, consents of,
registrations, qualifications and filings with, the various state and local
governmental and regulatory authorities which relate to ownership of the
Partnership's properties or the operations of its business.
ITEM 3. LEGAL PROCEEDINGS.
Propane is a flammable, combustible gas. Serious personal injury and
property damage can occur in connection with its transportation, storage or use.
In the ordinary course of business, the Partnership is threatened with or is
named as a defendant in various lawsuits which may seek actual and punitive
damages for product liability, personal injury and property damage. The
Partnership maintains liability insurance policies with insurers in amounts and
with coverages and deductibles as it believes is reasonable and prudent.
However, there can be no assurance that the insurance will be adequate to
protect the Partnership from material expenses related to personal injury or
property damage or that current levels of insurance will continue to be
available in the future at economical prices. It is not possible to determine
the ultimate disposition of these lawsuits. However, management is of the
opinion that there are no known claims or known contingent claims that are
likely to have a material adverse effect on the results of operations, financial
condition or cash flows of the Partnership.
9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A special meeting of common unitholders was held on June 5, 2000. The
common unitholders voted in favor of two proposals at the special meeting as
follows:
1. A proposal to approve the conversion provisions related to the
Partnership's recently issued senior units to allow the holders of
the senior units to elect to convert into common units upon the
earlier of February 1, 2002 or the occurrence of a material event, as
defined in our partnership agreement:
FOR AGAINST ABSTAIN
22,932,167 254,008 171,954
2. A proposal to amend the definition of "outstanding" in the
partnership agreement to provide that Williams Natural Gas Liquids,
Inc., its successors or The Williams Companies, Inc., as holders of
common units obtained upon the conversion of the senior units, may
vote their common units and shall be entitled to all other rights as
common unitholders:
FOR AGAINST ABSTAIN
22,989,138 209,331 159,660
PART II
ITEM 5. MARKET FOR REGISTRANT'S UNITS AND RELATED UNITHOLDER MATTERS.
The common units representing common limited partner interests in the
Partnership are listed and traded on the New York Stock Exchange under the
symbol FGP. As of October 5, 2000, there were 788 common unitholders of record.
The following table sets forth the high and low sales prices for the common
units on the New York Stock Exchange and the cash distributions declared per
common unit for the periods indicated.
Common Unit Price Distributions
Range Declared
--------------------------------------
High Low Per Unit
1999
---------------------------------------
First Quarter $20.94 $19.13 $0.50
Second Quarter 21.75 17.00 0.50
Third Quarter 18.88 16.00 0.50
Fourth Quarter 17.94 16.69 0.50
2000
---------------------------------------
First Quarter $17.75 $15.06 $0.50
Second Quarter 15.63 12.00 0.50
Third Quarter 14.56 13.25 0.50
Fourth Quarter 14.63 13.31 0.50
During 1994, the Partnership issued subordinated units, all of which were
held by Ferrell Companies for which there was no established public trading
market. Effective August 1, 1999, the subordinated units converted into common
units and were subsequently listed on the New York Stock Exchange. The
subordinated units and the conversion to common units are more fully described
in Note F to the Consolidated Financial Statements provided herein.
10
The Partnership makes quarterly cash distributions of its available cash,
as defined by the applicable partnership agreement. Available cash is generally
defined as consolidated cash receipts less consolidated cash disbursements and
changes in cash reserves established by Ferrellgas, Inc. for future
requirements. To the extent necessary, the Partnership will reserve cash inflows
from the second and third quarters for distribution in the first and fourth
fiscal quarters. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources" for a
discussion of the financial tests and covenants which place limits on the amount
of cash that can be used by the Partnership to pay distributions.
The Partnership is not subject to federal income taxes. Instead,
unitholders are required to report their allocable share of the Partnership's
income, gains, losses, deductions and credits, regardless of whether the
Partnership makes distributions.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA.
The following table presents selected consolidated historical financial
data of the Partnership.
(in thousands, except per unit data)
Ferrellgas Partners, L.P.
-------------------------------------------------------------
Year Ended July 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ -----------
Income Statement Data:
Total revenues $ 952,199 $ 624,149 $ 667,353 $ 804,298 $ 653,640
Depreciation and amortization 61,633 47,257 45,009 43,789 37,024
ESOP compensation charge 3,733 3,295 350 - -
Operating income 56,735 62,339 52,760 68,819 62,506
Interest expense 58,298 46,621 49,129 45,769 37,983
Earnings before extraordinary loss 860 14,783 4,943 23,218 24,312
Basic and diluted earnings (loss) per
common and subordinated unit
- Earnings (loss) before extraordinary
loss and after paid-in-kind distribution (0.32) 0.47 0.16 0.74 0.77
Cash distributions declared per
common and subordinated unit 2.00 2.00 2.00 2.00 2.00
Balance Sheet Data at end of period:
Working capital $(6,344) $ (4,567) $ (443) $ 18,111 $ 15,294
Total assets 967,907 656,745 621,223 657,076 654,295
Long-term debt 718,118 583,840 507,222 487,334 439,112
Partners' Capital:
Senior Common Unitholder $ 179,786 $ - $ - $ - $ -
Common Unitholders (80,931) 1,215 27,985 52,863 71,323
Subordinated Unitholder - (10,516) 19,908 50,337 71,302
General Partner Unitholder (58,511) (59,553) (58,976) (58,417) (58,016)
Accumulated other comprehensive income - (797) - - -
11
(in thousands)
Ferrellgas Partners, L.P.
-------------------------------------------------------------
Year Ended July 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ -----------
Operating Data:
Retail propane sales volumes (in 846,664 680,477 659,932 693,995 650,214
gallons)
Capital expenditures:
Maintenance $ 8,917 $ 10,505 $ 10,569 $ 10,137 $ 6,657
Growth 11,838 15,238 10,060 6,055 6,654
Acquisition 310,260 48,749 13,003 38,780 108,803
------------ ------------ ------------ ----------- ------------
Total $331,015 $ 74,492 $ 33,632 $ 54,972 $ 122,114
============ ============ ============ =========== ============
Supplemental Data:
Adjusted earnings before
income taxes, depreciation and $122,101 $112,891 $ 98,119 $112,608 $99,530
amortization:
Net cash provided by operating $53,352 $92,494 $74,337 $75,087 $65,096
activities
The Partnership's capital expenditures fall generally into three categories:
o maintenance capital expenditures, which include capitalized
expenditures for repair and replacement of property, plant and equipment,
o growth capital expenditures, which include expenditures for purchases
of new propane tanks and other equipment to facilitate expansion of the
Partnership's customer base and operating capacity, and
o acquisition capital expenditures, which include expenditures related
to the acquisitions of retail propane operations. Acquisition capital
expenditures represent total cost of acquisition less working capital acquired.
The Partnership acquired Thermogas LLC and Skelgas Propane, Inc. in December
1999 and May 1996, respectively
Adjusted earnings before interest, taxes, depreciation and amortization is:
o calculated as operating income less depreciation and amortization and
an Employee Stock Ownership Plan related non-cash compensation charge,
o not intended to represent cash flow and does not represent the measure
of cash available for distribution,
o a non-generally accepted accounting principle measure, but provides
additional information for evaluating the Partnership's ability to make its
minimum quarterly distribution,
o as defined by the Partnership, may not be comparable to similarly
reported measures reported by other companies,
o not intended as an alternative to earnings from continuing operations
or net earnings, and
o may not be comparable to similarly titled measures reported by
other companies.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following is a discussion of the historical financial condition and
results of operations for Ferrellgas Partners and its subsidiaries and should be
read in conjunction with the historical consolidated financial statements and
accompanying notes thereto included elsewhere in this Form 10-K.
12
Forward-looking statements
Statements included in this report that are not historical facts are
forward-looking statements. These statements include whether or not Ferrellgas,
L.P. will have sufficient funds to meet its obligations and to enable it to
distribute to Ferrellgas Partners sufficient funds to permit Ferrellgas Partners
to meet its obligations with respect to the $160,000,000 of Senior Notes issued
by Ferrellgas Partners in April 1996, and to pay the required distribution on
its senior common units, and to pay the minimum quarterly distribution of $0.50
per common unit.
The forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from those expressed in or
implied by the statements. The risks and uncertainties and their effect on the
Partnership's operations include but are not limited to the following:
o the effect of weather conditions on demand for propane, o price and
availability of propane supplies, o price and inventory risk of propane
supplies,
o the effect of increasing volatility in commodity prices on the Partnership's
liquidity,
o the timing of collection of accounts receivable,
o the availability of capacity to transport propane to market areas,
o competition from other energy sources and within the propane industry,
o operating risks incidental to transporting, storing, and distributing
propane,
o changes in interest rates,
o governmental legislation and regulations,
o energy efficiency and technology trends,
o the condition of the capital markets in the United States,
o the political and economic stability of the oil producing nations,
o the expectation that the senior common units will be redeemed in the
future with proceeds from an offering of equity at a price satisfactory to
the Partnership, and
o expected savings from the integration of the Thermogas acquisition,
reductions made in personnel and assets related to the existing Ferrellgas,
L.P. locations and savings related to the routing and scheduling
improvements, all discussed in "Business - Recent Initiatives".
Selected Quarterly Financial Data
Due to the seasonality of the retail propane business, first and fourth
quarter revenues, gross profit and net earnings are consistently less than the
comparable second and third quarter results. Other factors affecting the results
of operations include competitive conditions, demand for product, timing of
acquisitions, variations in the weather and fluctuations in propane prices.
On December 17, 1999, the Partnership purchased Thermogas LLC from Williams
Natural Gas Liquids, Inc., a subsidiary of The Williams Companies, Inc. Thus the
second, third and fourth quarters of fiscal year 2000 will vary significantly
from those same quarters in fiscal 1999. During the second quarter of fiscal
2000, the Partnership was able to identify the effect of the Thermogas
acquisition on the results of operations, because the Thermogas operations
acquired were being operated separately from the existing Partnership
operations. Beginning in the third quarter of fiscal 2000, the Partnership began
to implement its strategic and operating plans for the integration of Thermogas
into the Partnership's existing operations. These integration actions resulted
in the merging of retail locations and the related customer groups. Due to the
extent of this integration, the Partnership is unable to quantify separately the
effect of the Thermogas acquisition in the discussion of results of operations
in the third quarter of fiscal 2000 and future quarters.
During fiscal 2000, the wholesale cost of propane increased significantly
compared to fiscal 1999. The wholesale market price at one of the major supply
points, Mt. Belvieu, Texas, ranged from a per gallon monthly average low of
$0.405 to a high of $0.597 in fiscal 2000. In fiscal 1999, the per gallon
monthly average low and high price for the same supply point was $0.209 and
13
$0.373, respectively. Other major supply points in the United States experienced
similar increases. This significant cost increase together with the Thermogas
acquisition were the major factors causing the increase in the Partnership's
revenues, accounts receivable, inventory, accounts payable and cost of goods
sold in each quarter of fiscal 2000 as compared to fiscal 1999.
The following presents the Partnership's selected quarterly financial data
for the two years ended July 31, 2000.
Fiscal year ended July 31, 2000
(in thousands, except per unit data)
First Quarter Second Quarter Third Quarter Fourth Quarter
---------------- ---------------- --------------- -----------------
Revenues $162,739 $340,995 $300,240 $148,225
Gross profit 77,414 162,967 123,966 63,697
Net earnings (loss) (14,222) 52,186 5,378 (42,482)
Net earnings (loss) per
limited partner unit - basic
and diluted $(0.45) $1.58 $0.03 $(1.49)
Fiscal year ended July 31, 1999
(in thousands, except per unit data)
First Quarter Second Third Quarter Fourth Quarter
Quarter
----------------- -------------- ----------------- ----------------
Revenues $130,339 $230,077 $169,892 $93,841
Gross profit 71,627 128,749 99,721 50,664
Earnings (loss) before
extraordinary loss (11,221) 39,915 13,629 (27,540)
Earnings (loss) before
extraordinary loss per
limited partners unit - basic
and diluted (0.35) 1.26 0.43 (0.87)
Net earnings (loss) $(24,007) $39,915 $13,629 $(27,540)
The net earnings (loss) for the first quarter of fiscal year ended July 31,
1999, reflects a $12,786 extraordinary loss on early retirement of debt, net of
minority interest of $130.
Results of Operations
Fiscal Year Ended July 31, 2000 versus Fiscal Year Ended July 31, 1999
Total Revenues. Total gas liquids and related product sales increased 50.1%
to $867,779,000 in fiscal 2000 as compared to $578,025,000 for fiscal 1999,
primarily due to the addition of Thermogas sales and increased sales price per
gallon. The fiscal 2000 winter was reported as the warmest winter in recorded
history. For the year, temperatures were 14% warmer than normal and 6% warmer
than last year as reported by the American Gas Association.
Sales price per gallon increased due to the effect of the significant
increase in the wholesale cost of propane as compared to fiscal 1999. Retail
volumes increased 24.4% to 846,664,000 gallons in fiscal 2000 as compared to
680,477,000 gallons for fiscal 1999, primarily due to the acquisition of
14
Thermogas and partially offset by the effect of warmer weather. Other revenues
increased by $38,296,000 primarily due to favorable results from risk management
operations and increased other retail sales. Other retail sales, which includes,
among others, tank rental, service labor, appliance and material sales,
increased primarily due to the acquisition effect of Thermogas.
15
Gross Profit. Gross profit increased 22.0% to $428,044,000 in fiscal 2000
as compared to $350,761,000 during fiscal 1999, primarily due to gross profit
generated from the acquired Thermogas operations and, to a lesser extent,
increased favorable results from the risk management operations, partially
offset by lower retail margins. Fiscal 1999's retail margins benefited
significantly from a low wholesale cost environment. That cost environment was
not repeated during fiscal 2000. In addition, while the wholesale cost of
propane rapidly increased during the year, the retail sales price lagged the
cost increase which caused retail margins to decrease.
Operating Expenses. Operating expenses increased 24.4% to $255,838,000 in
fiscal 2000 as compared to $205,720,000 for fiscal 1999 primarily due to
personnel, plant and office, vehicle and other operating expenses incurred due
to the acquired Thermogas operations.
Depreciation and Amortization. Depreciation and amortization expense
increased 30.4% in fiscal 2000 to $61,633,000 as compared to $47,257,000 for
fiscal 1999 primarily due to the addition of intangibles and property, plant and
equipment from the Thermogas acquisition.
Equipment Lease Expense. Vehicle, tank and computer lease expense increased
by $12,542,000 in fiscal 2000 due primarily to the addition of operating tank
leases, and to a lesser extent to increased operating leases related to new
vehicles and computers acquired for retail locations. See Note H to the
Consolidated Financial Statements included elsewhere in this report for
additional information regarding the operating tank leases.
Interest Expense. Interest expense increased 25.0% to $58,298,000 in fiscal
2000 as compared to $46,621,000 in fiscal 1999. This increase is primarily the
result of increased borrowings related to the Thermogas acquisition and, to a
lesser extent, an increase in the overall average interest rate paid by the
Partnership. As a result of the Thermogas acquisition, Ferrellgas, L.P. assumed
$183,000,000 in debt and also refinanced a portion of its existing revolving
credit facility balances. On February 28, 2000, Ferrellgas, L.P. issued
$184,000,000 of fixed rate senior notes which have maturities ranging from 2006
to 2009 and an average interest rate of 8.8% in order to repay the $183,000,000
in assumed debt. The additional $1,000,000 in borrowings was used to fund debt
issuance costs.
Fiscal Year Ended July 31, 1999 versus Fiscal Year Ended July 31, 1998
Total Revenues. Total gas liquids and related product sales decreased 7.1%
to $578,025,000 in fiscal 1999 as compared to $622,423,000 in fiscal 1998,
primarily due to a decrease in sales price per gallon as a result of the lower
wholesale cost of propane experienced in fiscal 1999, the effects of warmer
weather and a decrease in revenues from wholesale propane marketing, partially
offset by the effect of acquisitions of propane businesses. The winter of fiscal
1999 was reported as the third warmest winter in recorded history. For the year,
temperatures were 9% warmer than normal and 1% warmer than the same period in
1998 as reported by the American Gas Association.
A generally lower wholesale product cost environment experienced during
fiscal 1999 caused a significant decrease in the sales price per gallon as
compared to fiscal 1998. Retail volumes increased by 3.1% or 20,545,000 gallons,
primarily due to acquisitions.
Gross Profit. Gross profit increased 8.0% to $350,761,000 in fiscal 1999 as
compared to $324,753,000 in fiscal 1998. Retail operations results increased
primarily due to increased retail margins and an increase in volumes attributed
to acquisitions, partially offset by decreased volumes attributed to warmer
weather.
Operating Expenses. Operating expenses increased 3.4% to $205,720,000 in
fiscal 1999 as compared to $199,010,000 in fiscal 1998. Fiscal 1999's operating
expenses increased due to acquisition-related increases in personnel costs,
plant and office expenses, vehicle and other expenses and also due to
performance and merit compensation increases.
16
Equipment Lease Expense. Vehicle and tank lease expense increased by
$2,849,000 in fiscal 1999 due to the utilization of operating lease financing to
fund fleet upgrades and replacements.
Interest Expense. Interest expense decreased 5.1% in fiscal 1999 as
compared to the fiscal 1998. This decrease was primarily the result of a
decrease in the overall average interest rate paid by the Partnership on its
borrowings as a result of the refinancing of fixed rate debt and existing
revolving credit facility balances, partially offset by the effect of increased
borrowings for acquisition and growth capital expenditures (see Liquidity and
Capital Resources-Financing Activities following).
Extraordinary item. During fiscal year 1999, the Partnership recognized an
extraordinary loss of $12,786,000 net of a minority interest of $130,000. The
gross extraordinary loss included a payment of a 5% premium and a write-off of
unamortized financing costs of $2,916,000, resulting primarily from the early
extinguishment of $200,000,000 of its fixed rate senior notes.
Liquidity and Capital Resources
The ability of the Partnership to satisfy its obligations is dependent upon
future performance, which will be subject to prevailing economic, financial,
business and weather conditions and other factors, many of which are beyond its
control. Due to the seasonality of the Partnership's retail propane business, a
significant portion of the Partnership's cash flow from operations is typically
generated during the winter heating season and the Partnership's corresponding
second and third fiscal quarters. During the non-peak season and the
Partnership's first and fourth fiscal quarters, it is not unusual for the
Partnership to generate negative cash flow from operations due to lower retail
sales and fixed expenses impact during the non-peak season. As experienced in
previous fiscal years, the next fiscal quarter ending October 31, 2000, is
expected to generate negative cash flows from operations, and is typically the
time period when the Partnership utilizes other sources of funds to meet its
obligations. Subject to meeting certain financial tests discussed below,
Ferrellgas, Inc. believes that Ferrellgas, L.P. will have sufficient funds
available to meet its obligations, to distribute to Ferrellgas Partners
sufficient funds to permit Ferrellgas Partners to meet its obligations with
respect to the $160,000,000 senior secured notes issued in April 1996 and to
distribute to Ferrellgas Partners sufficient funds to distribute the minimum
quarterly distribution on all common units for the fiscal quarter ending October
31, 2000.
The Partnership's credit facilities, public debt, private debt, accounts
receivable securitization facility and operating tank leases contain several
financial tests and covenants which restrict the Partnership's ability to pay
distributions, incur debt and engage in certain other business transactions. In
general, these tests are based on the Partnership's debt to cash flow ratio and
cash flow to interest expense ratio. Ferrellgas, Inc. believes that the most
restrictive of these tests currently are debt incurrence limitations within the
credit facility, tank leases and accounts receivable securitization facility and
limitations on the payment of distributions within the Ferrellgas Partners
senior secured notes. The credit facility, tank leases and accounts receivable
securitization facility limit Ferrellgas, L.P.'s ability to incur debt if
Ferrellgas, L.P. exceeds prescribed ratios of either debt to cash flow or cash
flow to interest expense. The Ferrellgas Partners senior secured notes restrict
payments if a minimum ratio of cash flow to interest expense is not met. This
restriction places limitations on the Partnership's ability to make certain
restricted payments such as the payment of cash distributions to unitholders.
The cash flow used to determine these financial tests generally is based upon
the Partnership's most recent cash flow performance giving pro forma effect for
acquisitions and divestitures made during the test period.
The Partnership's financial performance during the 2000, 1999 and 1998
fiscal years has been adversely impacted by average temperatures that were
reported by the National Oceanic Atmospheric Administration as the warmest in
recorded history. In addition, during fiscal 2000, the Partnership has
experienced high product costs which has negatively impacted retail margins.
Despite these challenges, the Partnership has continued to meet all of its
financial tests and covenants. These include the debt incurrence tests within
17
the credit facility, tank leases and accounts receivable securitization facility
and the Ferrellgas Partners senior secured notes restricted payment test, as
well as other financial tests and covenants in the Ferrellgas Partners senior
secured notes, the $350 million senior notes, the $184 million senior notes, the
credit facility, the tank leases and the accounts receivable securitization
facility.
Based upon current estimates of the Partnership's cash flow, Ferrellgas,
Inc. believes that the Partnership will be able to meet all of the required
financial tests and covenants for the fiscal quarter ending October 31, 2000.
However, due to the lower than expected operating results experienced during
fiscal 2000, if the Partnership were to encounter additional unexpected
downturns in business operations, such as significantly warmer than normal
weather or a volatile cost environment, the Partnership may not meet certain
financial tests during immediate future quarters. These factors could
temporarily restrict the ability of Ferrellgas, L.P. to incur debt or Ferrellgas
Partner's ability to make cash distributions to its common unitholders.
Depending on the circumstances, the Partnership could consider alternatives to
permit the incurrence of debt at Ferrellgas, L.P. or the continued payment by
Ferrellgas Partners of the quarterly cash distribution to its common
unitholders. No assurances can be given, however, that such alternatives can or
will be implemented with respect to any given quarter.
Future maintenance and working capital needs of the Partnership are
expected to be provided by cash generated from future operations, existing cash
balances, the credit facility and the accounts receivable securitization
facility. To fund expansive capital projects and future acquisitions,
Ferrellgas, L.P. may borrow on the existing credit facility, Ferrellgas Partners
or Ferrellgas, L.P. may issue additional debt to the extent permitted under
existing debt agreements or Ferrellgas Partners may issue additional equity
securities, including, among others, common units.
Toward this purpose, on February 5, 1999, Ferrellgas Partners filed a shelf
registration statement with the Securities and Exchange Commission for the
periodic sale of up to $300,000,000 in debt and/or equity securities. The
registered securities would be available for sale by the Partnership in the
future to fund acquisitions, reductions in indebtedness or for general corporate
purposes.
Ferrellgas Partners also maintains an additional shelf registration
statement with the Securities and Exchange Commission for 2,010,484 common
units. These common units may be issued by Ferrellgas Partners in connection
with the Partnership's acquisition of other businesses, properties or securities
in business combination transactions.
On August 1, 1999, the subordination period ended and all subordinated
units converted to common units. This conversion is more fully described in Note
F of the Consolidated Financial Statements provided herein.
Operating Activities. Cash provided by operating activities was $53,352,000
for the twelve months ended July 31, 2000, compared to $92,494,000 for fiscal
1999. This decrease in cash provided from operations is primarily due to the
higher working capital requirements resulting from the increased costs of
propane during fiscal 2000.
Investing Activities. During the twelve months ended July 31, 2000, before
the effect of the Thermogas acquisition, the Partnership made total acquisition
capital expenditures of $7,183,000. This amount was funded by $6,338,000 of cash
payments, $601,000 of noncompete notes, $46,000 of common units issued and
$198,000 of other costs and consideration.
18
On December 17, 1999, the Partnership purchased Thermogas from a subsidiary
of The Williams Companies. At closing the Partnership entered into the following
noncash transactions:
o issued $175,000,000 in senior common units to the seller,
o assumed a $183,000,000 bridge loan, which was refinanced from the proceeds
of the $184,000,000 senior notes issued on February 28, 2000, and
o assumed a $135,000,000 operating tank lease.
As a result of the transaction, the Partnership acquired $61,842,000 of
cash which remained on the Thermogas balance sheet. Since the closing of the
acquisition, the Partnership has paid $15,893,000 in additional costs and fees
related to the transaction between December 17, 1999 and July 31, 2000. The
Partnership reimbursed The Williams Companies $5,652,500 as final settlement of
its working capital reimbursement obligation.
The Partnership has accrued $7,033,000 in exit costs, which it expects to
incur within twelve months from the acquisition date as it implements the
integration of the Thermogas operations. This accrual included $5,870,000 of
termination benefits and $1,163,000 of costs to exit Thermogas activities. Exit
costs are generally those costs incurred to terminate employees pursuant to an
acquisition and to exit an activity of an acquired company. As of July 31, 2000,
the Partnership has paid $1,306,000 for termination benefits and $890,000 for
exit costs. The Partnership does not have any material commitments of funds for
capital expenditures other than to support the current level of operations. In
fiscal 2001, the Partnership does not expect a significant increase in growth
and maintenance capital expenditures resulting from the Thermogas acquisition as
compared to fiscal 2000 levels.
During the twelve months ended July 31, 2000, the Partnership made growth
and maintenance capital expenditures of $20,755,000 consisting primarily of the
following:
o additions to Partnership-owned customer storage tanks and cylinders,
o relocating and upgrading district plant facilities,
o upgrading computer equipment and software, and
o vehicle lease buyouts.
The Partnership's capital requirements for repair and maintenance of
property, plant and equipment are relatively low due to limited technological
change and long useful lives of propane tanks and cylinders.
The Partnership leases light and medium duty trucks, tractors and trailers.
The Partnership believes vehicle leasing is a cost-effective method for meeting
its transportation equipment needs. The Partnership plans to purchase vehicles
at the end of their lease term totaling $1,364,000 in 2001, $203,000 in 2002 and
$143,000 in 2003. The Partnership intends to renew other vehicle leases that
would have had buyouts of $452,000 in 2001, $7,057,000 in 2002, $162,569,000 in
2003, $4,981,000 in 2004 and $4,086,000 in 2005. Historically, the Partnership
has been successful in renewing vehicle leases subject to buyouts. However,
there is no assurance that it will be successful in the future.
The Partnership continues to seek to expand its operations through
strategic acquisitions of smaller retail propane operations located throughout
the United States. These acquisitions will be funded through internal cash flow,
external borrowings or the issuance of additional Partnership interests.
Financing Activities. On August 4, 1998, Ferrellgas, L.P. issued the
privately placed unsecured $350 million senior notes and entered into a credit
facility with its existing banks. The senior notes include five series with
maturities ranging from year 2005 through 2013 at an average fixed interest rate
of 7.16%. The proceeds of the senior notes were used to redeem $200,000,000 of
Ferrellgas, L.P. fixed rate senior notes issued in July 1994, including a 5%
call premium, and to repay outstanding indebtedness under the former Ferrellgas,
L.P. revolving credit facility. On December 17, 1999, Ferrellgas, L.P.
terminated its additional credit facility agreement that it had entered into on
April 30, 1999. This facility had provided for an unsecured facility for
19
acquisitions, capital expenditures, and general corporate purposes. The
outstanding additional credit facility before its termination on December 17,
1999 was $35,000,000.
On December 6, 1999, Ferrellgas, L.P. entered into a $25,000,000 operating
tank lease involving the sale-leaseback of a portion of its customer tanks with
Banc of America Leasing & Capital, LLC. This operating lease has a term that
expires June 30, 2003 and may be extended for two additional one-year periods at
the option of Ferrellgas, L.P., if such extension is approved by the lessor. On
December 17, 1999, immediately prior to the closing of the Thermogas
acquisition, Thermogas entered into a $135,000,000 operating tank lease
involving a portion of its customer tanks, with Banc of America Leasing &
Capital, LLC. In connection with the acquisition of Thermogas, Ferrellgas, L.P.
assumed all obligations under the $135,000,000 operating tank lease, which have
terms and conditions similar to the December 6, 1999, $25,000,000 operating tank
lease discussed above. The Partnership intends to renew both leases for the two
additional one-year periods, subject to lessor approval. Following the renewal
periods, the Partnership intends to refinance these leases, however, there can
be no assurance that the Partnership will be successful in obtaining this
refinancing or lessor approval for the renewals.
On February 28, 2000, Ferrellgas, L.P. issued $184 million of privately
placed unsecured senior notes. The proceeds of the $184 million senior notes,
which include three series with maturities ranging from year 2006 through 2009
and an average fixed interest rate of 8.8%, were used to retire $183,000,000 of
Ferrellgas, L.P. bridge loan financing assumed in connection with the Thermogas
acquisition.
On April 18, 2000, Ferrellgas, L.P. completed the syndication of both the
$25,000,000 and $135,000,000 operating tank lease to a group of banks and other
financial institutions.
On April 18, 2000, Ferrellgas, L.P. entered into an amended and restated
credit facility. This $157,000,000 credit facility, which expires on June 30,
2003, replaces the previous $145,000,000 credit facility.
Ferrellgas, L.P.'s credit facility consists of a $117,000,000 unsecured
working capital, general corporate and acquisition facility, including a letter
of credit facility, and a $40,000,000 revolving working capital facility. This
$40,000,000 facility is subject to an annual reduction in outstanding balances
to zero for thirty consecutive days. All borrowings under the credit facility
bear interest, at the borrower's option, at a rate equal to either London
Interbank Offered Rate plus an applicable margin varying from 1.25 percent to
2.25 percent or the bank's base rate plus an applicable margin varying from 0.25
percent to 1.25 percent. The bank's base rate at July 31, 2000 and 1999 was 9.5%
and 8.0%, respectively. To offset the variable rate characteristic of the credit
facility, Ferrellgas, L.P. entered into a interest rate collar agreement,
expiring January 2001, with a major bank limiting the floating rate portion of
London Interbank Offered Rate -based loan interest rates on a notional amount of
$25,000,000 to between 5.05% and 6.5%. During the year ended July 31, 2000, the
Partnership repaid $48,800,000 to its credit facility as it related to the
funding of working capital, business acquisitions and capital expenditure needs.
Effective April 27, 2000, Ferrellgas Partners entered into an interest rate
swap agreement with Bank of America, related to the semi-annual interest payment
due on the $160,000,000 fixed rate senior secured notes due 2006. The swap
agreement, which expires June 15, 2006, requires Bank of America to pay the
stated fixed interest rate (annual rate 9.375%) pursuant to the $160,000,000
senior secured notes, equaling $7,500,000 every six months due on each June 15
and December 15. In exchange, the Partnership is required to make quarterly
floating interest rate payments on the 15th of March, June, September and
December based on an annual interest rate equal to the 3 month London Interbank
Offered Rate interest rate plus 1.655% applied to the same notional amount of
$160,000,000.
Effective June 2, 2000, Ferrellgas, L.P. entered into an interest rate cap
agreement with Bank of America, related to variable quarterly rent payments due
pursuant to two operating tank lease agreements. The variable quarterly rent
payments are determined based upon a floating London Interbank Offered Rate
based interest rate. The cap agreement, which expires June 30, 2003, requires
Bank of America to pay Ferrellgas, L.P., at the end of each March, June,
20
September and December, the excess, if any, of the applicable 3 month floating
London Interbank Offered Rate interest rate over a cap of 9.3%, applied to the
unamortized amount outstanding each quarter under the two operating tank lease
agreements. The total obligation under these two operating tank lease agreements
as of July 31, 2000 was $159,200,000.
On September 26, 2000, Ferrellgas, L.P. received $20,000,000 in cash in
exchange for the sale and contribution of a $25,000,000 interest in a pool of
its trade accounts receivable to its recently created wholly-owned, special
purpose subsidiary, Ferrellgas Receivables. Ferrellgas Receivables then sold the
interest to a commercial paper conduit of Banc One, NA according to the terms of
a 364-day agreement. The level of funding available from this agreement is
limited to $60,000,000. In accordance with SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
this transaction will be reflected on the Partnership's financial statements as
a sale of accounts receivable and contribution of capital in the first quarter
of fiscal 2001. The proceeds of these sales are less than the face amount of
accounts receivable sold by an amount that approximates the purchaser's
financing cost of issuing its own commercial paper backed by these accounts
receivable. This loss on the September, 2000 transaction will be approximately
$300,000 in the first quarter of fiscal 2001 and represents the difference
between the fair market value and the book value of the receivables contributed
and sold.
At September 30, 2000, $60,000,000 of borrowings and $47,865,000 of letters
of credit were outstanding under the Ferrellgas, L.P. credit facility. These
borrowings currently carry interest rates ranging from 8.88% to 8.94%. At
September 30, 2000, Ferrellgas, L.P. had $89,135,000 available for general
corporate, acquisition and working capital purposes under the credit facility
and the accounts receivable facility. Based on the pricing grid contained in the
credit facility, the current borrowing rate for future borrowings under the
credit facility is London Interbank Offered Rate plus 2.25%. The Partnership
believes that during fiscal 2001 these facilities will be sufficient to meet its
working capital needs. However, if the Partnership were to experience an
unexpected significant increase in working capital requirements, it could cause
the Partnership to exceed its immediately available resources. Events that could
cause increases in working capital requirements include a significant increase
in the cost of propane compared to current levels, a significant delay in the
collections of accounts receivable or increased volatility in commodity prices
related to risk management activities. The Partnership would consider
alternatives to provide increased working capital. No assurances can be given,
however, that such alternatives can or will be implemented.
Although The Williams Companies has the right to convert any outstanding
senior common units into common units at a premium on February 1, 2002 or upon
the occurrence of a material event, the Partnership intends to redeem the senior
common units at par value prior to the date of conversion. No assurances can be
given that the Partnership will be successful in securing the financing to
redeem the senior common units.
On August 17, 2000, the Partnership declared an in-kind distribution of
$1.00 per senior common unit payable by the issuance of additional senior common
units and a cash distribution of $0.50 per common unit, that was paid on
September 14, 2000. See Notes C and F in the Consolidated Financial Statements
included elsewhere in this report for additional information regarding the
in-kind distributions to the senior common unitholders.
New Accounting Pronouncements. The Financial Accounting Standards Board
recently issued Statement of Financial Accounting Standards No. 133 "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by
SFAS No. 137 and No. 138 is required to be adopted by the Partnership for the
first quarter of fiscal 2001. SFAS No. 133 requires that all derivative
instruments be recorded in the balance sheet at fair value. The provisions of
SFAS No. 133 will impact the Partnership's accounting for certain options
hedging overall purchase price risk. Under the provisions of SFAS No. 133,
changes in the fair value of certain positions qualifying as cash flow hedges
will be recorded in accumulated other comprehensive income. Changes in the fair
value of certain other positions not qualifying as hedges under SFAS No. 133
21
will be recorded in the statement of earnings. As a result of these changes in
classification, the Partnership will recognize in its first quarter of fiscal
2001 gains totaling approximately $709,000 and $299,000 in accumulated other
comprehensive income and the statement of earnings, respectively. In addition,
beginning in the first quarter of fiscal 2001, the Partnership will record
subsequent changes in the fair value of positions qualifying as cash flow hedges
in accumulated other comprehensive income and changes in the fair value of other
positions in the statement of earnings.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 entitled "Revenue Recognition". The
bulletin, as amended, is to be adopted, if needed, no later than the fourth
fiscal quarter of fiscal years commencing after December 15, 1999, with
retroactive adjustment to the first fiscal quarter of that year. Management will
implement this bulletin in the first quarter of fiscal 2001 and believes that it
will have no material affect on the Partnership's financial position, results of
operations or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The market risk inherent in the Partnership's market risk sensitive
instruments and positions is the potential loss arising from adverse changes in
commodity prices. Additionally, the Partnership seeks to mitigate its interest
rate risk exposure on variable rate debt and operating leases by interest rate
collar and cap agreements. At July 31, 2000, the Partnership had $190,000,000 in
variable rate debt and $25,000,000 notional amount of interest rate collar
agreements outstanding, after considering the effect of the swap transaction.
The variable rate debt increased in fiscal 2000 by $160,000,000 due to the swap
transaction. At July 31, 2000, the Partnership had $159,200,000 outstanding in
variable rate operating leases and $159,200,000 notional amount of interest rate
collar agreements outstanding to mitigate the related variable rate exposure.
Both the operating leases and interest rate collar agreements were entered into
in fiscal 2000. Thus, assuming a 100 basis point increase in the variable
interest rate to the Partnership during fiscal 2001, the interest rate risk
related to the variable rate debt, the operating tank leases, the swap
transaction and the associated interest rate collar and cap agreements would be
an increase of $3,370,000.
The Partnership's risk management activities utilize certain types of
energy commodity forward contracts and swaps traded on the over-the-counter
financial markets and futures traded on the New York Mercantile Exchange to
anticipate market movements, manage and hedge its exposure to the volatility of
floating commodity prices and to protect its inventory positions. The
Partnership also utilizes certain over-the-counter energy commodity options to
limit overall price risk and to hedge its exposure to inventory price movements.
Market risks associated with energy commodities are monitored daily by
senior management for compliance with the Partnership's risk management trading
policy. This policy includes specific dollar exposure limits, limits on the term
of various contracts and volume limits for various energy commodities. The
Partnership also utilizes loss limits and daily review of open positions to
manage exposures to changing market prices.
Market, Credit and Liquidity Risk. New York Mercantile Exchange traded
futures are guaranteed by the New York Mercantile Exchange and have nominal
credit risk. The Partnership is exposed to credit risk associated with futures,
swaps and option transactions in the event of nonperformance by counterparties.
For each counterparty, the Partnership analyzes its financial condition prior to
entering into an agreement, establishes credit limits and monitors the
appropriateness of each limit. The change in market value of Exchange-traded
futures contracts requires daily cash settlement in margin accounts with
brokers. Forwards and most other over-the-counter instruments are generally
settled at the expiration of the contract term. The Partnership attempts to
balance favorable and unfavorable positions with counterparties in order to
minimize the risk of collateral requirements for over-the-counter instruments.
22
Sensitivity Analysis. The Partnership has prepared a sensitivity analysis
to estimate the exposure to market risk of its energy commodity positions.
Forward contracts, futures, swaps and options were analyzed assuming a
hypothetical 10% change in forward prices for the delivery month for all energy
commodities. The potential loss in future earnings from these positions from a
10% adverse movement in market prices of the underlying energy commodities is
estimated at $4,448,000 as of July 31, 2000. The preceding hypothetical analysis
is limited because changes in prices may or may not equal 10%, thus, actual
results may differ.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Partnership's Consolidated Financial Statements and the Independent
Auditors' Reports thereon and the Supplementary Financial Information listed on
the accompanying Index to Financial Statements and Financial Statement Schedules
are hereby incorporated by reference. See Item 7 for Selected Quarterly
Financial Data.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.
Partnership Management
Ferrellgas, Inc. manages and operates the activities of the
Partnership and anticipates that its activities will be limited to that
management and operation. Unitholders do not directly or indirectly participate
in the management or operation of the Partnership.
Ferrellgas, Inc. has appointed persons who are neither officers nor
employees of Ferrellgas, Inc. or any affiliate of Ferrellgas, Inc. to serve on
its audit committee. At the request of Ferrellgas, Inc., the audit committee has
the authority to review specific matters which Ferrellgas, Inc. believes may be
a conflict of interest with the Partnership. The audit committee determines if
the resolution of that conflict as proposed by Ferrellgas, Inc. is fair and
reasonable to the Partnership. Ferrellgas, Inc. has sole discretion to determine
which matters, if any, to submit to the audit committee. In addition, the audit
committee has the authority and responsibility for selecting the Partnership's
independent public accountants, reviewing the Partnership's annual audit and
resolving accounting policy questions. Any matters approved by the audit
committee are conclusively deemed to be fair and reasonable to the Partnership,
approved by all unitholders of the Partnership and not a breach by Ferrellgas,
Inc. of any duties it may owe the Partnership or its Unitholders.
The Partnership does not directly employ any of the persons responsible for
managing or operating the Partnership. At September 30, 2000, 4,532 full-time
and 882 temporary and part-time individuals were employed by Ferrellgas, Inc.
Directors and Executive Officers of the General Partner
The following table sets forth certain information with respect to the
directors and executive officers of Ferrellgas, Inc. as of October 5, 2000. Each
23
of the persons named below is elected to their respective office or offices
annually. On October 5, 2000, Danley K. Sheldon resigned as the Chief Executive
Officer, President and Director of Ferrellgas, Inc. and affiliates.
Director
Name Age Since Position
James E. Ferrell 61 1984 Chairman of the Board, Chief Executive
Officer, President and a Director of
Ferrellgas, Inc.
Patrick J. Chesterman 50 Executive Vice President and Chief
Operating Officer
James M. Hake 40 Senior Vice President, Corporate
Development
Kevin T. Kelly 35 Senior Vice President , Chief
Financial Officer and Treasurer
Boyd H. McGathey 41 Senior Vice President, Corporate
Administration and Chief Information
Officer
A. Andrew Levison 44 1994 Director of Ferrellgas, Inc.
Elizabeth T. Solberg 61 1998 Director of Ferrellgas, Inc.
Michael F. Morrissey 58 1999 Director of Ferrellgas, Inc.
James E. Ferrell--Mr. Ferrell has been with Ferrell Companies or its
predecessors and its affiliates in various executive capacities since 1965,
including Chairman of the Board of Ferrellgas, Inc. He was named Chief Executive
Officer and President of Ferrellgas, Inc. on October 5, 2000. He previously
served as Ferrellgas, Inc.'s Chief Executive Officer until August 1998 and as
President until October 1996.
Patrick J. Chesterman--Mr. Chesterman was named Executive Vice
President and Chief Operating Officer of Ferrellgas, Inc. in June 2000. He had
been Executive Vice President and Chief Operating Officer, Ferrell North America
since April 1998 after having served as Senior Vice President, Supply since
September 1997. After joining Ferrellgas, Inc. in June, 1994, he had one-year
assignments as Vice President-Retail Operations, Director of Field Support, and
Director of Human Resources. Prior to joining Ferrellgas, Inc., Mr. Chesterman
was Director of Fuels Policy and Operations for the U.S. Air Force.
James M. Hake--Mr. Hake was named Senior Vice President, Corporate
Development in June, 2000. He had been Senior Vice President or Vice President,
Acquisitions of Ferrellgas, Inc. since October, 1994. He joined Ferrellgas, Inc.
in 1986.
Kevin T. Kelly--Mr. Kelly was named Senior Vice President in October
2000, Chief Financial Officer in May 1998 and Treasurer in August 1998. After
joining Ferrellgas, Inc. in June 1996, he served as Director of Finance and
Corporate Controller until May 1998. Prior to joining Ferrellgas, Inc., Mr.
Kelly was Manager of Project Acquisitions with UtiliCorp United, Inc.
Boyd H. McGathey--Mr. McGathey was named Senior Vice President, Corporate
Administration and Chief Information Officer in June 2000, after having served
as Vice President, Chief Operating Officer-Eastern U.S. since August 1998. He
served as Regional Vice President since February 1997. After joining Ferrellgas,
Inc. in 1989, he held District Manager and Area Manager positions.
24
A. Andrew Levison--Mr. Levison was elected a Director of Ferrellgas, Inc.
in September 1994. He is also a member of the Audit Committee. Mr. Levison
retired in 2000 after having been a Managing Director of Donaldson, Lufkin &
Jenrette Securities Corporation since 1989.
Elizabeth T. Solberg--Ms. Solberg was elected a Director of Ferrellgas,
Inc. in July 1998. She is also a member of the Audit Committee. Ms. Solberg is
Regional President and Senior Partner of Fleishman-Hillard, Inc. and has been
with the firm since 1976. She has been a member of the Board of Directors of
Kansas City Life Insurance Company since 1997.
Michael F. Morrissey--Mr. Morrissey was elected a Director of Ferrellgas,
Inc. in November 1999. He is also Chairman of the Audit Committee. Mr. Morrissey
retired as the Managing Partner of Ernst & Young's Kansas City office in the
fall of 1999. He had been with that firm, or its predecessor, since 1975.
Compensation of the General Partner
Ferrellgas, Inc. receives no management fee or similar compensation in
connection with its management of the Partnership and receives no remuneration
other than:
o distributions on its combined 2% general partner interest in the Partnership,
and,
o reimbursement for all direct and indirect costs and expenses incurred on
behalf of the Partnership, all selling, general and administrative expenses
incurred by Ferrellgas, Inc. for or on behalf of the Partnership and all
other expenses necessary or appropriate to the conduct of the business of,
and allocable to, the Partnership. The selling, general and administrative
expenses reimbursed include specific employee benefits and incentive plans
for the benefit of the executive officers and employees of Ferrellgas, Inc.
Compliance With Section 16(a) of the Securities and Exchange Act
Section 16(a) of the Securities and Exchange Act of 1934 requires
Ferrellgas, Inc.'s officers and directors, and persons who own more than 10% of
a registered class of the Partnership's equity securities, to file reports of
beneficial ownership and changes in beneficial ownership with the Commission.
Officers, directors and greater than 10% unitholders are required by the
Commission's regulation to furnish Ferrellgas, Inc. with copies of all Section
16(a) forms.
Based solely on its review of the copies of such forms received by
Ferrellgas, Inc., or written representations from certain reporting persons that
no Annual Statement of Beneficial Ownership of Securities on Form 5 were
required for those persons, Ferrellgas, Inc. believes that during fiscal year
2000 all filing requirements applicable to its officers, directors, and greater
than 10% beneficial owners were met in a timely manner.
ITEM 11. Executive Compensation.
Summary Compensation Table
The following table sets forth the compensation for the past three years of
Ferrellgas, Inc.'s Chief Executive Officer and the four most highly compensated
executive officers other than the Chief Executive Officer, who were serving as
executive officers at the end of the 2000 fiscal year.
25
Long-Term Compensation
-------------------------------
Annual Compensation Awards Pay-outs
------------------------- --------------- ---------------
Long-Term
Stock Incentive All Other
Name and Salary Bonus (1) Options(2) Payouts Compensation
Principal Position Year ($) ($) (#) ($) ($)
------ ------------ ------------ --------------- --------------- -----------------
Danley K. Sheldon (3) 2000 381,261 --- --- --- 13,880 (4)
President and Chief 1999 344,802 123,420 937,500 --- 12,883
Executive Officer 1998 225,000 50,000 --- --- 20,104
Patrick J. Chesterman 2000 212,646 202,125 50,000 --- 13,701 (4)
Executive Vice President, 1999 198,338 110,000 200,000 --- 31,197
And Chief Operating Officer 1998 161,500 25,000 --- --- 15,530
James M. Hake 2000 182,226 75,000 25,000 --- 9,594 (4)
Senior Vice President, 1999 181,667 55,830 200,000 --- 8,140
Corporate Development 1998 120,000 85,000 --- --- 15,887
Kevin T. Kelly 2000 160,319 75,000 75,000 --- 8,184 (4)
Senior Vice President, 1999 142,808 25,000 150,000 --- 5,001
Chief Financial Officer 1998 99,014 50,000 --- --- 9,376
Boyd H. McGathey 2000 153,659 75,000 25,000 --- 7,053 (4)
Senior Vice President, Corp 1999 140,003 24,348 200,000 --- 37,038
Administration and
Chief Information Officer
(1) Mr. Sheldon received a bonus in fiscal 1998 and 1999 pursuant to his
employment agreement. All other named executives participate in the Ferrellgas
Annual Incentive Plan. Awards under both plans are for the year reported,
regardless of the year paid.
(2) The awards are to grants of stock options from the Incentive Compensation
Plan, a non-qualified stock option plan of Ferrell Companies.
(3) On October 5, 2000, Danley K. Sheldon resigned as the Chief Executive
Officer, President and Director of Ferrellgas, Inc. and affiliates.
(4) Includes for Mr. Sheldon contributions of $12,674 to the employee's 401(k)
and profit sharing plans and compensation of $1,206 resulting from the
payment of life insurance premiums. Includes for Mr. Chesterman
contributions of $13,033 to the employee's 401(k) and profit sharing plans
and compensation of $668 resulting from the payment of life insurance
premiums. Includes for Mr. Hake contributions of $9,077 to the employee's
401(k) and profit sharing plans and compensation of $517 resulting from the
payment of life insurance premiums. Includes for Mr. Kelly contributions of
$8,184 to the employee's 401(k) and profit sharing plans. Includes for Mr.
McGathey contributions of $6,513 to the employee's 401(k) and profit
sharing plans and compensation of $540 resulting from the payment of life
insurance premiums.
Unit Options
On October 14, 1994, Ferrellgas, Inc. adopted the Ferrellgas, Inc. Unit
Option Plan pursuant to which key employees are granted options to purchase
Ferrellgas Partner's subordinated units. The purpose of the Unit Option Plan is
to encourage certain employees of Ferrellgas, Inc. to develop a proprietary
interest in the growth and performance of the Partnership, to generate an
increased incentive to contribute to the Partnership's future success and
prosperity, thus enhancing the value of the Partnership for the benefit of its
Unitholders, and to enhance the ability of Ferrellgas, Inc. to attract and
retain key individuals who are essential to progress, growth and profitability
of the Partnership.
Ferrellgas, Inc. has granted options to purchase units, 720,525 of which
26
are outstanding at July 31, 2000, at prices ranging from $16.80 to $21.67 per
unit, which was an estimate of the fair market value of the units at the time of
the grant. The options vest immediately or over a one to five year period, and
expire on the tenth anniversary of the date of the grant. As of July 31, 2000,
720,525 options were outstanding. On July 31, 2000, 546,875 of the unit options
were exercisable. Effective August 1, 1999, with the conversion of the
subordinated units, the units covered by the options are common units.
There were no grants of unit options during the 2000 fiscal year.
The following table lists information on the CEO and named executive
officers' exercised/unexercised unit options as of October 16, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-The-Money Options at
At Fiscal Year-End (#) Fiscal Year-End ($)
------------------------- ---------------------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ------------------------------ -------------- -------------- ---------------------- --- -----------------------
Danley K. Sheldon (1) 0 0 88,000/12,000 0/0
Patrick J. Chesterman 0 0 19,200/10,800 0/0
James M. Hake 0 0 45,000/6,000 0/0
Kevin T. Kelly 0 0 6,000/4,000 0/0
Boyd H. McGathey 0 0 7,500/0 0/0
(1) On October 5, 2000, Danley K. Sheldon resigned as the Chief Executive Officer, President and Director of
Ferrellgas, Inc. and affiliates.
Employee Stock Ownership Plan
On July 17, 1998, pursuant to the Ferrell Companies, Inc. Employee
Stock Ownership Plan, an employee stock ownership trust purchased all of the
outstanding common stock of Ferrell. The purpose of the Employee Stock Ownership
Plan is to provide employees of Ferrellgas, Inc. an opportunity for ownership in
Ferrell Companies and indirectly in the Partnership. Ferrell Companies makes
contributions to the Employee Stock Ownership Plan which allows a portion of the
shares of Ferrell Companies owned by the Employee Stock Ownership Plan to be
allocated to employees' accounts over time.
Incentive Compensation Plan
On July 17, 1998, a nonqualified stock option plan was established by
Ferrell Companies to allow upper-middle and senior level managers of Ferrellgas,
Inc. to participate in the equity growth of Ferrell Companies, and indirectly in
the equity growth of the Partnership. The shares underlying the stock options
are common shares of Ferrell Companies. The following table lists information on
the named executive officers' stock options granted in the fiscal year ended
July 31, 2000.
27
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grant
---------------------------------------------------------------------------------------
Number of
Securities % of Total Options
Underlying Granted to Exercise
Options Employees in Price Expiration Grant date
Name Granted Fiscal Year ($/Share) Date Present value $
- -------------------------- ------------- -------------------- ----------- ------------ -----------------------
Patrick J. Chesterman 50,000 8.5 4.12 01-31-18 90,284
James M. Hake 25,000 4.3 4.12 01-31-18 45,142
Kevin T. Kelly 75,000 4.3 4.12-4.75 01-31-18 138,811
Boyd H. McGathey 25,000 12.8 4.12-4.75 01-31-18 47,678
The Ferrell Companies stock options vest ratably in 5% to 10% increments
over 12 years or 100% upon a change of control, death, disability or retirement
of the participant. Vested options are exercisable in increments based on the
timing of the payoff of Ferrell Companies debt, but in no event later than 20
years from the date of issuance.
The grant date present value is based on a binomial option valuation model.
The key input variables used in valuing the options were the following:
risk-free interest rate of 6.4%; dividend amount of $0; Ferrell Companies stock
price volatility of 10.1%; options exercised 25% in 2006, 25% in 2007 and 10% in
years 2009 through 2013, because this is most likely assuming the Ferrell
Companies debt is retired as scheduled. Only two stock values were used in the
computation of volatility as Ferrell Companies common stock is not publicly
traded and has only had two valuations since the grant date. No adjustments for
non-transferability or risk of forfeiture were made. The actual value, if any, a
grantee may realize will depend on the excess of the Ferrell Companies stock
price over the exercise price on the date the option is exercised, so that there
is no assurance the value realized will be at or near the value estimated by the
binomial option valuation model.
The following table lists information on the CEO and named executive
officers' exercised/unexercised nonqualified stock options as of October 16,
2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-The-Money Options at
At Fiscal Year-End (#) Fiscal Year-End ($)
------------------------- ---------------------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ------------------------------ -------------- -------------- ---------------------- --- -----------------------
Danley K. Sheldon (1) 0 0 0/937,500 0/18,750
Patrick J. Chesterman 0 0 0/250,000 0/4,000
James M. Hake 0 0 0/225,000 0/4,000
Kevin T. Kelly 0 0 0/225,000 0/3,000
Boyd H. McGathey 0 0 0/225,000 0/4,000
(1) On October 5, 2000, Danley K. Sheldon resigned as the Chief Executive Officer, President and Director of
Ferrellgas, Inc. and affiliates.
28
Profit Sharing Plan
The Ferrell Companies, Inc. Profit Sharing and 401(k) Investment Plan is a
qualified defined contribution plan. All full-time employees of Ferrell
Companies or any of its direct or indirect wholly-owned subsidiaries with at
least one year of service are eligible to participate in the profit sharing
plan. The Board of Directors of Ferrell Companies determines the amount of the
annual contribution to the profit sharing plan, which is purely discretionary.
This decision is based on the operating results of Ferrell Companies for the
previous fiscal year and anticipated future cash needs of Ferrellgas, Inc. and
Ferrell Companies. The contributions are allocated to the profit sharing plan
participants based on each participant's wages or salary as compared to the
total of all participants' wages and salaries.
Historically, the annual contribution to the profit sharing plan has been
1% to 7% of each participant's annual wage or salary. With the establishment of
the employee stock ownership plan in July 1998, the Partnership suspended future
contributions to the profit sharing plan beginning with fiscal year 1998. The
profit sharing plan also has a 401(k) feature allowing all full-time employees
to specify a portion of their pre-tax and/or after-tax compensation to be
contributed to the profit sharing plan. The profit sharing plan also provides
for matching contributions under a cash or deferred arrangement based upon
participant salaries and employee contributions to the plan.
Supplemental Savings Plan
The Ferrell Supplemental Savings Plan was established October 1, 1994 in
order to provide certain management or highly compensated employees with
supplemental retirement income which is approximately equal in amount to the
retirement income that would have been provided to members of the select group
of employees under the terms of the 401(k) feature of the profit sharing plan
based on such members' deferral elections thereunder, but which could not be
provided under the 401(k) feature of the profit sharing plan due to the
application of certain IRS rules and regulations.
Employment Agreements
On July 17, 1998, Mr. James E. Ferrell, as Chairman of the Board of
Ferrellgas, Inc., entered into a five year employment agreement with automatic
one year renewals. He receives a monthly salary of not less than $10,000 and a
bonus based on the annual increase in the equity value of Ferrell. In addition
to his compensation, Mr. Ferrell participates in the Partnership's various
employee benefit plans, with the exception of the employee stock ownership plan
and the nonqualified stock option plan of Ferrell.
Pursuant to the terms of Mr. Ferrell's employment agreement, in the event
of a termination without cause, resignation for cause or a change of control of
Ferrell Companies or Ferrellgas, Inc., Mr. Ferrell is entitled to a cash amount
equal to three times the greater of 125% of his current base salary or the
average compensation paid for the prior three fiscal years.
Mr. Ferrell's agreement contains a non-compete provision for the period of
time equal to the greater of five years or the time in which certain outstanding
debt of Ferrell Companies is paid in full. The non-compete provision provides
that he shall not directly or indirectly own, manage, control, or engage in any
business with any person whose business is substantially similar to the business
of the Partnership.
During the first quarter of fiscal 2001, Patrick J. Chesterman, James M. Hake,
Boyd H. McGathey and Kevin T. Kelly each entered into three year employment
agreements. In addition to receiving an annual salary, each are entitled to a
bonus based on the earnings of the Partnership and individual performance.
Pursuant to the terms of each employment agreement, in the event of a
termination without cause or resignation for cause, each are entitled to a cash
amount equal to two times their current base salary. If a change of control of
Ferrell Companies or Ferrellgas, Inc. occurs, each will receive a cash
termination benefit equal to two and a half times the greater of 125% of his
current base salary or the average three year compensation paid. Messrs.
Chesterman, Hake, McGathey and Kelly will receive an annual salary of not less
than $285,000, $192,000, $180,000 and $180,000, respectively.
29
Messrs. Chesterman, Hake, McGathey and Kelly's agreements contain
non-compete provisions for a period of two years following their termination of
employment. The non-compete provisions provide that they shall not directly or
indirectly own, manage, control, or engage in any business with any person whose
business is substantially similar to the business of the Partnership.
On October 5, 2000, Danley K. Sheldon resigned as the Chief Executive Officer,
President and Director of Ferrellgas, Inc. and affiliates. In accordance with
his employment agreement, Mr. Sheldon will receive 60 days pay after the date of
his resignation.
Compensation of Directors
Ferrellgas, Inc. does not pay any additional remuneration to its employees
for serving as directors, except for the monthly salary of not less than $10,000
paid to Mr. Ferrell pursuant to his employment agreement as discussed above in
"Employment Agreements". Beginning in fiscal 1999, directors who are not
employees of Ferrellgas, Inc. receive an annual retainer of $16,000. They also
currently receive a fee per meeting of $1,000 if they attend in person and $500
if they participate by telephone, plus reimbursement for out-of-pocket expenses.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of October 5, 2000,
regarding the beneficial ownership of the common units of Ferrellgas Partners by
beneficial owners that are directors and named executive officers of Ferrellgas,
Inc., and all directors and executive officers of Ferrellgas, Inc. as a group.
All subordinated units converted to common units effective August 1, 1999.
Ferrellgas, Inc. knows of no other person beneficially owning more than 5% of
the common units. The senior common units currently are not voting securities of
the Partnership and therefore are not presented in the table below.
Ferrellgas Partners, L.P.
Units
Name and Address of Beneficial Beneficially Percentage of
Title of Class Owner Owned Class
- ------------------------ --------------------------------------------------- ----------------
Common Units Employee Stock Ownership
Trust 17,817,600 56.9
James E. Ferrell 10,000 *
Patrick J. Chesterman 19,400 *
James M. Hake 45,400 *
Kevin T. Kelly 6,265 *
Boyd H. McGathey 7,700 *
Elizabeth T. Solberg 8,200 *
A. Andrew Levison 35,300 *
Michael F. Morrissey 775 *
All Directors and Officers as a
Group 133,040 *
* Less than one percent
30
Beneficial ownership for the purposes of the foregoing table is defined by
Rule 13d-3 under the Securities Exchange Act of 1934. Under that rule, a person
is generally considered to be the beneficial owner of a security if he has or
shares the power to vote or direct the voting thereof or to dispose or direct
the disposition thereof or has the right to acquire either of those powers
within 60 days. See the Aggregated Option Exercises In Last Fiscal Year And
Fiscal Year-End Option Values table above for the number of common units that
could be acquired by named executive officers through exercising common unit
options.
The address for LaSalle National Bank, the trustee for the Ferrell
Companies, Inc. Employee Stock Ownership Trust is 125 S. LaSalle Street, 17th
Floor, Chicago, Illinois, 60603. The common units owned by the Employee Stock
Ownership Trust includes 17,803,883 Common Units owned by Ferrell Companies
which is 100% owned by the Employee Stock Ownership Trust and 13,717 common
units owned by Ferrell Propane, Inc., a wholly-owned subsidiary of Ferrellgas,
Inc.
ITEM 13. Certain Relationships and Related Transactions.
Set forth below is a discussion of certain relationships and related
transactions among affiliates of the Partnership.
The Partnership has no employees and is managed and controlled by
Ferrellgas, Inc. Pursuant to the partnership agreement, Ferrellgas, Inc. is
entitled to reimbursement for all direct and indirect expenses incurred or
payments made on behalf of the Partnership, and all other necessary or
appropriate expenses allocable to the Partnership or otherwise reasonably
incurred by Ferrellgas, Inc. in connection with operating the Partnership's
business. These costs, which totaled $179,033,000 for the year ended July 31,
2000, include compensation and benefits paid to officers and employees of
Ferrellgas, Inc. and general and administrative costs. In addition, the
conveyance of the net assets of Ferrellgas, Inc. to the Partnership upon the
formation of the Partnership included the assumption of specific liabilities
related to employee benefit and incentive plans for the benefit of the officers
and employees of Ferrellgas, Inc.
During fiscal 2000 two affiliates of the Partnership, Ferrell
International Limited. and Ferrell Resources, LLC, which are owned by the
chairman of the board, James E. Ferrell, paid the Partnership a total of
$313,000 for accounting and administration services. In connection with its risk
management activities, the Partnership entered into, with Ferrell International
Limited as a counterparty, certain forward, futures and swaps contracts for
trading purposes and certain option contracts for purposes other than trading.
During fiscal 2000, the Partnership recognized net purchases of $8,508,000,
recorded in other revenue related to these transactions. Amounts due from
Ferrell International Limited at July 31, 2000 were $1,826,000. Amounts due to
Ferrell International Limited at July 31, 2000 were $1,484,000. The Partnership
also leased propane tanks from Ferrell Propane, Inc., a subsidiary of
Ferrellgas, Inc. The Partnership recognized $515,000 of lease expense during
fiscal year 2000. The Partnership believes these transactions were under terms
that were no less favorable to the Partnership than those arranged with third
parties.
During fiscal 2000, The Williams Companies became a related party to the
Partnership due to the Partnership's issuance of senior common units. See
further discussion of senior common units and the Thermogas acquisition in Notes
F and L of the Consolidated Financial Statements provided herein. The
Partnership recognized wholesale sales of $2,091,000 to The Williams Companies
and purchases of $13,175,000 from The Williams Companies and its affiliates
related to the Partnership's wholesale and risk management activity. In
connection with its risk management activities, the Partnership entered into,
with The Williams Companies as a counterparty, certain forward, futures and
swaps contracts for trading purposes and certain option contracts for purposes
other than trading. During fiscal 2000, the Partnership recognized net sales
(purchases) related to these transactions of $9,530,000, which are classified in
other revenue on the statement of earnings. The Partnership believes these
transactions were under terms that were no less favorable to the Partnership
than those arranged with third parties.
31
The Williams Companies provided propane supply and general and
administrative services to the Partnership to assist in the integration of the
acquisition. The Partnership recognized $67,547,000, $4,062,000 and $176,000 to
The Williams Companies in fiscal 2000 and classified these costs in cost of
goods sold, general and administrative expenses and operating expenses,
respectively. The Partnership believes these transactions were under terms that
were no less favorable to the Partnership than those available with other
parties. Amounts due to The Williams Companies at July 31, 2000 was $5,045,000.
Amounts due from The Williams Companies at July 31, 2000 was $13,000.
See Note L to the Consolidated Financial Statements in Item 14 for
discussion of transactions involving acquisitions related to Ferrellgas, Inc.
and the Partnership.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) 1. Financial Statements.
See "Index to Financial Statements" set forth on page F-1.
2. Financial Statement Schedules.
See "Index to Financial Statement Schedules" set forth on page
S-1.
3. Exhibits.
See "Index to Exhibits" set forth on page E-1.
(b) Reports on Form 8-K.
The Partnership did not file a Form 8-K during the quarter ended July 31, 2000.
32
INDEX TO EXHIBITS
The exhibits listed on the accompanying Exhibit Index are filed as part of
this report. Exhibits required by Item 601 of Regulation S-K, which are not
listed, are not applicable.
Exhibit
Number Description
2.1 Purchase Agreement by and among Ferrellgas Partners, L.P., and
Williams Natural Gas Liquids, Inc., November 7, 1999. Incorporated by
reference to the same numbered Exhibit to the Registrant's Current
Report on Form 8-K filed November 12, 1999.
2.2 Amendment No. 1 to Purchase Agreement by and among Ferrellgas
Partners, L.P., Ferrellgas L.P., and Williams Natural Gas Liquids,
Inc., dated as of December 17, 1999. Incorporated by reference to the
same numbered Exhibit to the Registrant's Current Report on Form 8-K
filed December 29, 1999.
2.3 Amendment No. 2 to Purchase Agreement as of March 14, 2000, by and
among Ferrellgas Partners, L.P., Ferrellgas L.P., and Williams Natural
Gas Liquids, Inc. Incorporated by reference to Exhibit 2.1 to
Registrant's Quarterly Report on Form 10-Q filed March 16, 2000.
3.1 Second Amended and Restated Agreement of Limited Partnership of
Ferrellgas Partners, L.P., dated as of June 5, 2000. Incorporated by
reference to the same numbered Exhibit to Registrant's Quarterly
Report on Form 10-Q filed June 15, 2000.
3.2 Articles of Incorporation for Ferrellgas Partners Finance Corp.
Incorporated by reference to the same numbered Exhibit to Registrant's
Quarterly Report on Form 10-Q filed June 13, 1997.
3.3 Bylaws of Ferrellgas Partners Finance Corp. Incorporated by reference
to the same numbered Exhibit to Registrant's Quarterly Report on Form
10-Q filed June 13, 1997.
4.1 Indenture dated as of April 30, 1996, among Ferrellgas Partners, L.P.,
Ferrellgas Partners Finance Corp., Ferrellgas, L.P. as guarantor, and
American Bank National Association, as Trustee, relating to
$160,000,000 9 3/8% Senior Secured Notes due 2006. Incorporated by
reference to Exhibit 4.1 to Registrant's Current Report on Form 8-K
filed on May 6, 1996.
E-1
4.2 Ferrellgas, L.P., Note Purchase Agreement dated as of July 1, 1998 Re:
$109,000,000 6.99% Senior Notes, Series A, due August 1, 2005,
$37,000,000 7.08% Senior Notes, Series B, due August 1, 2006,
$52,000,000 7.12% Senior Notes, Series C, due August 1, 2008,
$82,000,000 7.24% Senior Notes, Series D, due August 1, 2010,
$70,000,000 7.42% Senior Notes, Series E, due August 1, 2013.
Incorporated by reference to the Exhibit 4.4 to Registrant's Annual
Report on Form 10-K filed October 29, 1998
4.3 Registration Rights Agreement dated as of December 17, 1999 by and
between Ferrellgas Partners, L.P. and Williams Natural Gas Liquids,
Inc. Incorporated by reference to Exhibit 4.2 to Registrant's Current
Report on Form 8-K filed December 29, 2000.
4.4 First Amendment to the Registration Rights Agreement dated as of March
14, 2000, by and between Ferrellgas Partners, L.P. and Williams
Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 4.1 to
Registrant's Quarterly Report on Form 10-Q filed March 16, 2000.
4.5 Ferrellgas, L.P., Note Purchase Agreement dated as of February 28,
2000 Re: $21,000,000 8.68% Senior Notes, Series A, due August 1, 2006,
$70,000,000 8.78% Senior Notes, Series B, due August 1, 2007, and
$93,000,000 8.87% Senior Notes, Series C, due August 1, 2009.
Incorporated by reference to Exhibit 4.2 to Registrant's Quarterly
Report on Form 10-Q filed March 16, 2000.
# 10.1 Ferrell Companies, Inc. Supplemental Savings Plan. Incorporated
by reference to the Exhibit 10.7 to Registrant's Annual Report on Form
10-K filed October 17, 1995.
# 10.2 Amended and Restated Ferrellgas, Inc. Unit Option Plan.
Incorporated by reference to the Exhibit 10.1 to Registrant's
Registration Statement on Form S-8 File No. 333-87633 filed with the
Commission on September 23, 1999.
10.3 Second Amended and Restated Agreement of Limited Partnership of
Ferrellgas, L.P. dated as of October 14, 1998. Incorporated by
reference to Exhibit 10.1 to Registrant's Quarterly Report on Form
10-Q filed March 17, 1999.
10.4 Pledge and Security Agreement dated as of April 26, 1996, among
Ferrellgas Partners, L.P., Ferrellgas, Inc., and American Bank
National Association, as collateral agent. Incorporated by reference
to Exhibit 10.2 to Registrant's Current Report on Form 8-K filed May
6, 1996.
# 10.5 Ferrell Companies, Inc. 1998 Incentive Compensation Plan -
Incorporated by reference to the Exhibit 10.12 to Registrant's Annual
Report on Form 10-K filed October 29, 1998.
# 10.6 Employment agreement between James E. Ferrell and Ferrellgas,
Inc. dated July 31, 1998. Incorporated by reference to the Exhibit
10.13 to Registrant's Annual Report on Form 10-K filed October 29,
1998.
E-2
10.7 Lease Intended as Security dated as of December 1, 1999, between
Ferrellgas, L.P., as Lessee and First Security Bank, National
Association, solely as Certificate Trustee, as Lessor. Incorporated by
reference to Exhibit 10.1 to Registrant's Quarterly Report on Form
10-Q filed December 13, 1999.
10.8 Lease Intended as Security dated as of December 15, 1999, between
Thermogas L.L.C. as Lessee and First Security Bank, National
Association, solely as Certificate Trustee, as Lessor. Incorporated by
reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K
filed December 29, 2000.
10.9 Participation Agreement dated as of December 1, 1999, among
Ferrellgas, L.P., as Lessee, Ferrellgas, Inc. as General Partner,
First Security Bank, National Association, solely as Certificate
Trustee, First Security Trust Company of Nevada, solely as Agent, and
the persons named on Schedule I-B, as Lenders and Appendix I to
Participation Agreement. Incorporated by reference to Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q filed December 13, 1999.
10.10 Participation Agreement dated as of December 15, 1999, among Thermogas
L.L.C., as Lessee, The Williams Companies, Inc., First Security Bank,
National Association, solely as Certificate Trustee, First Security
Trust Company of Nevada, solely as Agent, and the purchasers named
therein. Incorporated by reference to Exhibit 10.2 to Registrant's
Current Report on Form 8-K filed December 29, 2000
10.11 Omnibus Amendment Agreement No.2, Dated as of April 18, 2000, In
respect of Ferrellgas, L.P. Trust No. 1999-A Participation Agreement
Lease Intended as Security Loan Agreement each dated as of December 1,
1999. Incorporated by reference to Exhibit 10.3 to Registrant's
Quarterly Report on Form 10-Q filed June 14, 2000.
10.12 Omnibus Amendment Agreement No.2, Dated as of April 18, 2000, In
respect of Ferrellgas, L.P. Trust No. 1999-A Participation Agreement
Lease Intended as Security Loan Agreement each dated as of December
15, 1999. Incorporated by reference to Exhibit 10.4 to Registrant's
Quarterly Report on Form 10-Q filed June 14, 2000.
10.13 Assumption Agreement dated as of December 17, 1999 executed by
Ferrellgas, L.P. and Ferrellgas, Inc., for the benefit of the First
Security Trust Company of Nevada as agent, First Security Bank,
National Association solely as Certificate Trustee and the purchasers
and lenders named therein. Incorporated by reference to Exhibit 10.3
to Registrant's Current Report on Form 8-K filed December 29, 2000.
10.14 First Amendment to the Second Amended and Restated Agreement of
Limited Partnership of Ferrellgas, L.P. Incorporated by reference to
Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q filed June
14, 2000.
10.15 Third Amended and Restated Credit Agreement dated as of April 18,
2000, among Ferrellgas, L.P., Ferrellgas, Inc., Bank of America
National Trust and Savings Association, as agent, and the other
financial institutions party thereto. Incorporated by reference to
Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q filed June
14, 2000
E-3
* 10.17 Receivable Interest Sale Agreement dated as of September 26, 2000
between Ferrellgas, L.P., as Originator, and Ferrellgas Receivables,
L.L.C., as buyer.
* 10.18 Receivables Purchase Agreement dated as of September 26, 2000 among
Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as
Servicer, Jupiter Secruritization Corporation, the financial
institutions from time to time party hereto, and Bank One, N.A., main
office Chicago, as agent.
*# 10.19 Employment agreement between Patrick Chesterman and Ferrellgas,
Inc. dated July 31, 2000.
*# 10.20 Employment agreement between James Hake and Ferrellgas, Inc.
dated July 31, 2000.
*# 10.21 Employment agreement between Boyd McGathey and Ferrellgas, Inc.
dated July 31, 2000.
*# 10.22 Employment agreement between Kevin Kelly and Ferrellgas, Inc.
dated July 31, 2000.
*21.1 List of subsidiaries.
*23.1 Consent of Deloitte & Touche, LLP, Independent Auditors.
- ---------------------------------------------------------------------------
# Management contracts or compensatory plans.
* Included herewith.
E-4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FERRELLGAS PARTNERS, L.P.
By Ferrellgas, Inc. (General Partner)
By /s/ James E. Ferrell
------------------------
James E. Ferrell
Chariman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated:
Signature Title Date
/s/ James E. Ferrell
- -----------------------
James E. Ferrell Chairman, President and 10/23/00
Chief Executive Officer
(Principal Executive Officer)
/s/ A. Andrew Levison
- ------------------------
A. Andrew Levison Director 10/23/00
/s/ Elizabeth T. Solberg Director 10/23/00
- ------------------------
Elizabeth T. Solberg
/s/ Michael F. Morrissey Director 10/23/00
- -----------------------
Michael F. Morrissey
/s/ Kevin T. Kelly Senior Vice President and Chief 10/23/00
- ------------------------ Financial Officer (Principal
Kevin T. Kelly Financial and Accounting Officer)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FERRELLGAS PARTNERS FINANCE CORP.
By /s/ James E. Ferrell
--------------------
James E. Ferrell
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated:
Signature Title Date
/s/ James E. Ferrell Chief Executive Officer and 10/23/00
--------------------- Sole Director (Principal
James E. Ferrell Executive Officer)
/s/ Kevin T. Kelly Chief Financial Officer 10/23/00
- ---------------------- (Principal Financial and
Kevin T. Kelly Accounting Officer)
INDEX TO FINANCIAL STATEMENTS
Page
Ferrellgas Partners, L.P. and Subsidiaries
Independent Auditors' Report..........................................................................F-2
Consolidated Balance Sheets - July 31, 2000 and 1999..................................................F-3
Consolidated Statements of Earnings - Year ended July 31, 2000, 1999 and 1998.........................F-4
Consolidated Statements of Partners' Capital and Other Comprehensive Income
- Year ended July 31, 2000, 1999 and 1998........................................................F-5
Consolidated Statements of Cash Flows - Year ended July 31, 2000, 1999 and 1998.......................F-6
Notes to Consolidated Financial Statements............................................................F-7
Ferrellgas Partners Finance Corp.
Independent Auditors' Report.........................................................................F-23
Balance Sheets - July 31, 2000 and 1999..............................................................F-24
Statements of Earnings - Year ended July 31, 2000, 1999 and 1998.....................................F-25
Statements of Stockholder's Equity - Year ended July 31, 2000, 1999 and 1998.........................F-26
Statements of Cash Flows - Year ended July 31, 2000, 1999 and 1998...................................F-27
Notes to Financial Statements........................................................................F-28
F-1
INDEPENDENT AUDITORS' REPORT
To the Partners of
Ferrellgas Partners, L.P. and Subsidiaries
Liberty, Missouri
We have audited the accompanying consolidated balance sheets of Ferrellgas
Partners, L.P. and subsidiaries ("the Partnership") as of July 31, 2000 and
1999, and the related consolidated statements of earnings, partners' capital and
other comprehensive income and cash flows for each of the three years in the
period ended July 31, 2000. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Ferrellgas Partners, L.P. and
subsidiaries as of July 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
2000, in conformity with accounting principles generally accepted in the United
States of America.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 14, 2000
F-2
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
July 31, July 31,
ASSETS 2000 1999
- --------------------------------------------------------- ------------- --------------
Current Assets:
Cash and cash equivalents $ 14,838 $ 35,134
Accounts and notes receivable (net of
allowance for doubtful accounts of $2,388 and
$1,296 in 2000 and 1999, respectively) 89,801 58,380
Inventories 71,979 24,645
Prepaid expenses and other current assets 8,275 6,780
------------- --------------
Total Current Assets 184,893 124,939
Property, plant and equipment, net 516,183 405,292
Intangible assets, net 256,476 118,117
Other assets, net 10,355 8,397
------------- --------------
Total Assets $967,907 $656,745
============= ==============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------------------------------
Current Liabilities:
Accounts payable $95,264 $60,754
Other current liabilities 77,631 48,266
Short-term borrowings 18,342 20,486
------------- --------------
Total Current Liabilities 191,237 129,506
Long-term debt 718,118 583,840
Other liabilities 16,176 12,144
Contingencies and commitments (Note H) - -
Minority interest 2,032 906
Partners' Capital:
Senior common unitholder (4,652,691 units outstanding
at July 2000 - liquidation preference $186,108) 179,786 -
Common unitholders (31,307,116 and 14,710,765 units
outstanding at July 2000 and 1999, respectively) (80,931) 1,215
Subordinated unitholder (16,593,721 units outstanding
at July 1999) - (10,516)
General partner unitholder(316,233 units outstanding
at July 2000) (58,511) (59,553)
Accumulated other comprehensive income - (797)
------------- --------------
Total Partners' Capital 40,344 (69,651)
------------- --------------
Total Liabilities and Partners' Capital $967,907 $656,745
============= ==============
See notes to consolidated financial statements.
F-3
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per unit data)
For the year ended July 31,
-----------------------------------
2000 1999 1998
----------- ---------- ----------
Revenues:
Gas liquids and related product sales $867,779 $578,025 $622,423
Other 84,420 46,124 44,930
----------- ---------- ----------
Total revenues 952,199 624,149 667,353
Cost of product sold (exclusive of
depreciation, shown separately below) 524,155 273,388 342,600
----------- ---------- ----------
Gross profit 428,044 350,761 324,753
Operating expense 255,838 205,720 199,010
Depreciation and amortization expense 61,633 47,257 45,009
Employee stock ownership plan compensation charge 3,733 3,295 350
General and administrative expense 24,587 19,174 17,497
Equipment lease expense 25,518 12,976 10,127
----------- ---------- ----------
Operating income 56,735 62,339 52,760
Interest expense (58,298) (46,621) (49,129)
Interest income 2,229 1,216 1,695
Gain (loss) on disposal of assets 356 (1,842) (174)
----------- ---------- ----------
Earnings before minority interest
and extraordinary loss 1,022 15,092 5,152
Minority interest 162 309 209
----------- ---------- ----------
Earnings before extraordinary loss 860 14,783 4,943
Extraordinary loss on early extinguishment of debt,
net of minority interest of $130 - (12,786) -
----------- ---------- ----------
Net earnings 860 1,997 4,943
Paid in kind distribution to senior common unitholders 11,108 N/A N/A
General partner's interest in net earnings (loss)
after paid in kind distribution (102) 20 49
----------- ---------- ----------
Common and subordinated unitholder's interest in
net earnings (loss) after paid in kind distribution $(10,146) $ 1,977 $ 4,894
=========== ========== ==========
Basic and diluted earnings (loss) per
common and subordinated unit:
Earnings (loss) before extraordinary loss $ (0.32) $ 0.47 $ 0.16
Extraordinary loss - $ (0.41) -
----------- ---------- ----------
Net earnings (loss) after paid in kind distribution $ (0.32) $ 0.06 $ 0.16
=========== ========== ==========
See notes to consolidated financial statements.
F-4
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL AND OTHER COMPREHENSIVE INCOME
(in thousands)
Number of units Accumulated
------------------------------------------------------ other
Senior Sub- General Senior Common Sub- General compre- Total
common Common ordinated partner common Unit- ordinated partner hensive partners'
unitholder unitholders unitholder unitholder unitholder holders unitholder unitholder income capital
---------- ----------- ----------- ----------- ------- ------ ------------ ------ ------ --------
August 1, 1997 - 14,612.6 16,593.7 - $ - $52,863 $50,337 $(58,417) $ - $44,783
Common units issued in
commection with
acquisitions 87.1 - - - 2,000 - 20 - 2,020
Contribution in
connection with ESOP
compensation-charge - - - - - 23 320 4 - 347
Quarterly distributions - - - - - (29,356) (33,188) (632) - (63,176)
Net earnings - - - - - 2,455 2,439 49 - 4,943
---------- ----------- ----------- ----------- ------- ------ ------------ ------ ------ --------
July 31, 1998 - 14,699.7 16,593.7 27,985 19,908 (58,976) - (11,083)
Common units
issued in connection
with acquisitions 11.1 - - - 197 - 2 - 199
Contribution in
connection with ESOP
compensation-charge - - - - - 219 3,010 33 - 3,262
Quarterly distributions - - - - - (29,409) (33,188) (632) - (63,229)
Other comprehensive
income:
Net earnings - - - - - 2,223 (246) 20 - 1,997
Other comprehensive
income- Pension
liability adjustment - - - - - - - - (797) (797)
------
Comprehensive income 1,200
---------- ----------- ----------- ----------- ------- ------ ------------ -------- ------ ------
July 31, 1999 - 14,710.7 16,593.7 - - 1,215 (10,516) (59,553) (797) (69,651)
Conversion of
subordinated units
into common units - 16,593.7 (16,593.7) - - (10,516) 10,516 - - -
Units issued in
connection with
acquisitions:
Common units - 2.6 - - - 45 - - - 45
Senior common units 4,375.0 - - - 175,000 - - 1,768 - 176,768
Fees paid to issue senior
common units - - - - (8,925) - - - - (8,925)
General partner
interest conversion
to general partner units - - - 316.2 - - - - - -
Accretion of discount
on senior common units - - - - 2,603 (2,575) - (28) - -
Contribution in
connection with ESOP
compensation charge - - - - - 3,661 - 36 - 3,697
Quarterly cash
distribution - - - - - (62,615) - (632) - (63,247)
Accrued paid in kind
distributions 277.7 - - - 11,108 (10,997) - (111) - -
Other comprehensive
income:
Net earnings - - - - - 851 - 9 - 860
Other comprehensive
income-
Pension liability
adjustment - - - - - - - - 797 797
----
Comprehensive income 1657
---------- ----------- ----------- ----------- -------- -------- ----------- ------ ------ -------
July 31, 2000 4,652.7 31,307.1 - 316.2 $179,786 $(80,931) $ - $(58,511) $ - $40,344
========== =========== =========== =========== ======== ======== =========== ====== ====== =======
See notes to consolidated financial statements.
F-5
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the year ended July 31,
------------------------------------------
2000 1999 1998
------------- ------------ -------------
Cash Flows From Operating Activities:
Net earnings $ 860 $ 1,997 $ 4,943
Reconciliation of net earnings to net
cash from operating activities:
Depreciation and amortization 61,633 47,257 45,009
Employee stock ownership plan compensation charge 3,733 3,295 350
Minority interest 162 301 209
Extraordinary loss, net of minority interest - 12,786 -
Other 2,759 4,487 5,236
Changes in operating assets and liabilities,
net of effects from business acquisitions:
Accounts and notes receivable (12,609) (9,565) 9,313
Inventories (25,423) 11,382 8,052
Prepaid expenses and other current assets (731) 1,926 200
Accounts payable 10,418 12,737 8,695
Accrued interest expense 6,594 2,152 (157)
Other current liabilities 7,140 4,235 (7,799)
Other liabilities (1,184) (496) 286
------------- ------------ -------------
Net cash provided by operating activities 53,352 92,494 74,337
------------- ------------ -------------
Cash Flows From Investing Activities:
Business acquisitions, net of cash acquired 47,656 (43,838) (9,839)
Cash paid for acquisition transaction fees (15,893) - -
Capital expenditures (20,755) (25,743) (20,629)
Proceeds from sale leaseback transaction 25,000 - -
Other 5,743 3,286 4,539
------------- ------------ -------------
Net cash provided by (used in) investing activities 41,751 (66,295) (25,929)
------------- ------------ -------------
Cash Flows From Financing Activities:
Distributions (63,247) (63,229) (63,176)
Additions to long-term debt 226,490 408,113 21,094
Reductions of long-term debt (276,111) (338,613) (2,759)
Cash paid for debt and lease financing costs (3,163) (12,827) -
Net reductions to short-term borrowings (2,144) (664) (636)
Minority interest activity 1,008 (810) (798)
Cash contribution from general partner 1,768 - -
Other - 4 40
------------- ------------ -------------
Net cash used in financing activities (115,399) (8,026) (46,235)
------------- ------------ -------------
Increase (decrease) in cash and cash equivalents (20,296) 18,173 2,173
Cash and cash equivalents - beginning of period 35,134 16,961 14,788
------------- ------------ -------------
Cash and cash equivalents - end of period $14,838 $35,134 $16,961
============= ============ =============
Cash paid for interest $49,176 $42,310 $46,546
============= ============ =============
See notes to consolidated financial statements.
F-6
FERRELLGAS PARTNERS, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Partnership Organization and Formation
Ferrellgas Partners, L.P. (the "MLP") was formed April 19, 1994, and is a
publicly traded limited partnership, owning a 99% limited partner interest
in Ferrellgas, L.P. (the "Operating Partnership" or "OLP"). The MLP and the
OLP are both Delaware limited partnerships, and are collectively referred to
as the Partnership. Ferrellgas Partners, L.P. was formed to acquire and hold
a limited partner interest in the Operating Partnership. The Operating
Partnership was formed to acquire, own and operate the propane business and
assets of Ferrellgas, Inc. (the "Company" or "General Partner"), a
wholly-owned subsidiary of Ferrell Companies, Inc. ("Ferrell"). Ferrell has
a 50% limited partnership interest in Ferrellgas Partners, L.P. The Company
has retained a 1% general partner interest in Ferrellgas Partners, L.P. and
also holds a 1.0101% general partner interest in the Operating Partnership,
representing a 2% general partner interest in the Partnership on a combined
basis. As General Partner of the Partnership, the Company performs all
management functions required for the Partnership.
On July 17, 1998, 100% of the outstanding common stock of Ferrell was
purchased primarily from Mr. James E. Ferrell and his family by a newly
established leveraged employee stock ownership trust ("ESOT") established
pursuant to the Ferrell Companies, Inc. Employee Stock Ownership Plan
("ESOP"). The purpose of the ESOP is to provide employees of the Company an
opportunity for ownership in Ferrell and indirectly in the Partnership. As
contributions are made by Ferrell to the ESOP in the future, shares of
Ferrell are allocated to employees' ESOP accounts.
On June 5, 2000, the MLP's Partnership Agreement was amended to allow the
General Partner to have an option in maintaining its 1% general partner
interest concurrent with the issuance of other additional equity.
Additionally, the General Partner's interest in the MLP's Common Units was
converted from a General Partner interest to General Partner units.
B. Summary of Significant Accounting Policies
(1) Nature of operations: The Partnership is engaged primarily in the sale,
distribution, and marketing of propane and other natural gas liquids
throughout the United States. The retail market is seasonal because propane
is used primarily for heating in residential and commercial buildings. The
Partnership serves more than 1,100,000 residential, industrial/commercial
and agricultural customers.
(2) Accounting estimates: The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America ("GAAP") requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from these
estimates. Significant estimates impacting the financial statements include
reserves that have been established for product liability and other claims.
(3) Principles of consolidation: The accompanying consolidated financial
statements present the consolidated financial position, results of
operations and cash flows of the Partnership and its wholly-owned
subsidiaries, Ferrellgas Partners Finance Corp. and Bluebuzz.com, Inc. The
Company's 1.0101% General Partner interest in Ferrellgas, L.P. is accounted
for as a minority interest. All material intercompany profits, transactions
and balances have been eliminated.
F-7
(4) Cash and cash equivalents: For purposes of the Consolidated Statements
of Cash Flows, the Partnership considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
(5) Inventories: Inventories are stated at the lower of cost or market
using average cost and actual cost methods.
(6) Property, plant and equipment and intangible assets: Property, plant and
equipment are stated at cost less accumulated depreciation. Expenditures for
maintenance and routine repairs are expensed as incurred. Depreciation is
calculated using the straight-line method based on the estimated useful
lives of the assets ranging from two to thirty years. Intangible assets,
consisting primarily of customer lists, trademarks, assembled workforce,
goodwill, and noncompete notes, are stated at cost, net of amortization
calculated using the straight-line method over periods ranging from 5 to 40
years. The Partnership, using its best estimates based on reasonable and
supportable assumptions and projections, reviews for impairment of
long-lived assets and certain identifiable intangibles to be held and used
whenever events or changes in circumstances indicate that the carrying
amount of its assets might not be recoverable, and has concluded no
financial statement adjustment is required.
(7) Accounting for derivative commodity contracts: The Partnership enters
into commodity forward and futures purchase/sale agreements and commodity
options involving propane and related products which are used for risk
management purposes in connection with its trading activities. To the extent
such contracts are entered into at fixed prices and thereby subject the
Partnership to market risk, the contracts are accounted for using the fair
value method. Under the fair value method, derivatives are carried on the
balance sheet at fair value with changes in that value recognized in
earnings. The Partnership also enters into commodity options involving
propane and related products to hedge its overall purchase price risk. Any
changes in the fair value of hedge positions are deferred and recognized as
an adjustment to the overall purchase price of product in the settlement
month. The Partnership classifies all earnings from derivative commodity
contracts entered into for trading purposes as other revenue on the
statement of earnings.
(8) Revenue recognition: Sales of propane are recognized by the Partnership
at the time product is delivered or shipped to its customers. Revenue from
the sale of propane appliances and equipment is recognized at the time of
sale or installation. Revenues from repairs and maintenance are recognized
upon completion of the service.
(9) Income taxes: The Partnership is a limited partnership. As a result, the
Partnership's earnings or losses for Federal income tax purposes are
included in the tax returns of the individual partners. Accordingly, no
recognition has been given to income taxes in the accompanying financial
statements of the Partnership. Net earnings for financial statement purposes
may differ significantly from taxable income reportable to unitholders as a
result of differences between the tax basis and financial reporting basis of
assets and liabilities and the taxable income allocation requirements under
the Partnership Agreement.
(10) Net earnings per common and subordinated unit: Net earnings (loss) per
common and subordinated unit is computed by dividing net earnings, after
deducting the General Partner's 1% interest and paid-in-kind distributions,
by the weighted average number of outstanding Common Units, Subordinated
Units and the dilutive effect (if any) of Unit Options. There was no effect
on the earnings per unit calculation due to the assumption of the conversion
of Unit Options in the dilutive per-unit computation.
F-8
(11) Unit and stock-based compensation: The Partnership accounts for
Ferrellgas, Inc.'s Unit Option Plan and the Ferrell Companies Incentive
Compensation Plan under the provisions of Accounting Principles Board
("APB") No. 25, "Accounting for Stock Issued to Employees," and makes the
pro forma information disclosures required under the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation."
(12) Segment information: The Partnership has determined that it has a
single reportable operating segment which engages in the distribution of
propane and related equipment and supplies. No single customer represents
10% or more of consolidated revenues. In addition, all of the Partnership's
revenues are derived from sources within the U.S., and all of its long-lived
assets are located in the U.S.
(13) Adoption of new accounting standards: The Financial Accounting
Standards Board recently issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, as
amended by SFAS No. 137, and SFAS No. 138 is required to be adopted by the
Partnership beginning in the first quarter of fiscal 2001. SFAS No. 133
requires that all derivative instruments be recorded in the balance sheet
at fair value. The provisions of SFAS No. 133 will impact the Partnership's
accounting for certain options hedging product cost risk. Under the
provisions of SFAS No. 133, changes in the fair value of certain positions
qualifying as cash flow hedges will be recorded in accumulated other
comprehensive income. Changes in the fair value of certain other positions
not qualifying as hedges under SFAS No. 133 will be recorded in the
statement of earnings. As a result of these changes in classification, the
Partnership will recognize in its first quarter of fiscal 2001, gains
totaling approximately $709,000 and $299,000 in accumulated other
comprehensive income and the statement of earnings, respectively. In
addition, beginning in the first quarter of fiscal 2001, the Partnership
will record subsequent changes in the fair value of positions qualifying as
cash flow hedges in accumulated other comprehensive income and changes in
the fair value of other positions in the statement of earnings.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 entitled "Revenue Recognition". The
bulletin, as amended, is to be adopted, if needed, no later than the fourth
fiscal quarter of fiscal years commencing after December 15, 1999, with
retroactive adjustment to the first fiscal quarter of that year. Management
will implement this bulletin in the first quarter of fiscal 2001 and
believes that it will have no material affect on the Partnership's financial
position, results of operations or cash flows.
C. Quarterly Distributions of Available Cash
Ferrellgas Partners, L.P. makes quarterly cash distributions to its Common
Unitholders of all of its "Available Cash", generally defined as consolidated
cash receipts less consolidated cash disbursements and net changes in reserves
established by the General Partner for future requirements. Reserves are
retained in order to provide for the proper conduct of the Partnership business,
or to provide funds for distributions with respect to any one or more of the
next four fiscal quarters. Distributions are made within 45 days after the end
of each fiscal quarter ending January, April, July and October to holders of
record on the applicable record date.
Distributions by the Ferrellgas Partners, L.P. in an amount equal to 100%
of its Available Cash, as defined in its Second Amended and Restated Agreement
of Limited Partnership of Ferrellgas Partners, L.P. (the "Partnership
Agreement"), will be made to the General Partner based upon the number of
General Partner Units held in the Ferrellgas Partners, L.P. and its interest in
Ferrellgas, L.P., currently an aggregate 2%, subject to the
F-9
payment of incentive distributions to the holders of Incentive Distribution
Rights to the extent that certain target levels of cash distributions are
achieved. The remaining Available Cash will be paid to the Senior Common
Unitholder (see Note F for discussion of the in kind distribution paid
to the Senior Common Unitholder) and Common Unitholders (the
"Unitholders"). The Senior Common Units have certain preference rights over
the Common Units. See Note F for additional information about the Senior
Common Units.
D. Supplemental Balance Sheet Information
Inventories consist of:
(in thousands) 2000 1999
-------------- --------------
Liquefied propane gas and related products $50,868 $15,480
Appliances, parts and supplies 21,111 9,165
-------------- --------------
$71,979 $24,645
============== ==============
In addition to inventories on hand, the Partnership enters into contracts
to buy product for supply purposes. Nearly all of these contracts have
terms of less than one year and most call for payment based on market
prices at the date of delivery. All fixed price contracts have terms of
less than one year. As of July 31, 2000, in addition to the inventory on
hand, the Partnership had committed to take delivery of approximately
98,300,000 gallons at a fixed price for its future retail propane sales.
Property, plant and equipment consist of:
(in thousands) 2000 1999
------------- --------------
Land and improvements $40,761 $32,776
Buildings and improvements 54,794 43,577
Vehicles 78,490 50,897
Furniture and fixtures 32,844 28,626
Bulk equipment and district facilities 88,289 71,693
Tanks and customer equipment 482,617 418,598
Other 3,753 4,369
------------- --------------
781,548 650,536
Less: accumulated depreciation 265,365 245,244
------------- --------------
$516,183 $405,292
============= ==============
Depreciation expense totaled $37,941,000, $30,772,000, and $30,034,000
for the years ended July 31, 2000, 1999, and 1998, respectively.
F-10
Intangibles consist of:
(in thousands) 2000 1999
------------- --------------
Customer lists $207,478 $145,200
Goodwill 122,826 55,789
Non-compete agreements 59,905 56,234
Trademark 18,500 -
Assembled workforce 9,600 -
Other 391 167
------------- --------------
418,700 257,390
Less: accumulated amortization 162,224 139,273
------------- --------------
$256,476 $118,117
============= ==============
Amortization expense related to intangibles totaled $22,951,000,
$15,712,000, and $14,375,000 for the years ended July 31, 2000, 1999, and 1998,
respectively.
Other current liabilities consist of:
(in thousands) 2000 1999
-------------- -------------
Accrued interest $21,659 $15,065
Accrued payroll 15,073 11,821
Other 40,899 21,380
-------------- -------------
$77,631 $48,266
============== =============
E. Long-Term Debt
Long-term debt consists of:
(in thousands) 2000 1999
------------- ------------
Senior Notes
Fixed rate, 7.16% due 2005-2013 (1) $350,000 $350,000
Fixed rate, 9.375%, due 2006 (2) 160,000 160,000
Fixed rate, 8.8%, due 2006-2009 (3) 184,000 -
Credit Agreement
Revolving credit loans, 8.9% and 6.0%, respectively, due 2003 (4) 11,658 58,314
Notes payable, 7.5% and 7.3% weighted average interest rates,
respectively, due 2000 to 2010 15,988 18,154
------------- ------------
721,646 586,468
Less: current portion, included in other current liabilities 3,528 2,628
------------- ------------
$718,118 $583,840
============= ============
F-11
(1) The OLP fixed rate Senior Notes ("$350 million Senior Notes"),
issued in August 1998, are general unsecured obligations of the OLP
and rank on an equal basis in right of payment with all senior
indebtedness of the OLP and senior to all subordinated indebtedness
of the OLP. The outstanding principal amount of the Series A, B, C,
D and E Notes shall be due on August 1, 2005, 2006, 2008, 2010, and
2013, respectively. In general, the Notes may not be prepaid prior
to maturity at the option of the Partnership.
(2) The MLP fixed rate Senior Secured Notes ("MLP Senior
Secured Notes"), issued in April 1996, will be redeemable at the
option of the MLP, in whole or in part, at any time on or after June
15, 2001. The notes are secured by the MLP's partnership interest in
the OLP. The MLP Senior Secured Notes bear interest from the date of
issuance, payable semi-annually in arrears on June 15 and December 15
of each year. Due to a change of control in the ownership of the
General Partner on July 17, 1998 as a result of the ESOP transaction
described in Note A, the MLP was required, pursuant to the MLP fixed
rate Senior Secured Note Indenture, to offer to purchase the
outstanding MLP fixed rate Senior Secured Notes at a price of 101% of
the principal amount thereof plus accrued and unpaid interest. The
offer to purchase was made on July 27, 1998 and expired August 26,
1998. Upon the expiration of the offer, the MLP accepted for purchase
$65,000 of the notes which were all of the notes tendered pursuant to
the offer. The MLP assigned its right to purchase the notes to a third
party, thus the notes remain outstanding.
(3) The OLP fixed rate Senior Notes ("$184 million Senior Notes"),
issued in February 2000, are general unsecured obligations of the
OLP and rank on an equal basis in right of payment with all senior
indebtedness of the OLP and senior to all subordinated indebtedness
of the OLP. The outstanding principal amount of the Series A, B and
C Notes shall be due on August 1, 2006, 2007 and 2009,
respectively. In general, the Notes may not be prepaid prior to
maturity at the option of the Partnership.
(4) At July 31, 2000, the unsecured $157,000,000 Credit
Facility (the "Credit Facility"), expiring June 2003, consisted of a
$117,000,000 unsecured working capital, general corporate and
acquisition facility, including a letter of credit facility, and a
$40,000,000 revolving working capital facility. This $40,000,000
facility is subject to an annual reduction in outstanding balances to
zero for thirty consecutive days. All borrowings under the Credit
Facility bear interest, at the borrower's option, at a rate equal to
either a) LIBOR plus an applicable margin varying from 1.25 percent to
2.25 percent or, b) the bank's base rate plus an applicable margin
varying from 0.25 percent to 1.25 percent. The bank's base rate at
July 31, 2000 and 1999 was 9.5% and 8.0%, respectively. To offset the
variable rate characteristic of the Credit Facility, the OLP entered
into a interest rate collar agreement, expiring January 2001, with a
major bank limiting the floating rate portion of LIBOR-based loan
interest rates on a notional amount of $25,000,000 to
between 5.05% and 6.5%.
On December 17, 1999, in connection with the purchase of Thermogas, LLC
("Thermogas acquisition") (see Note L), the OLP assumed a $183,000,000
bridge loan that was originally issued by Thermogas, LLC ("Thermogas") and
had a maturity date of June 30, 2000. On February 28, 2000, the OLP issued
$184,000,000 Senior Notes at an average interest rate of 8.8% in order to
refinance the $183,000,000 bridge loan. The additional $1,000,000 in
borrowings was used to fund debt issuance costs.
On December 17, 1999, in connection with the Thermogas acquisition, the OLP
paid off the balance remaining of $35,000,000 then outstanding on its
$38,000,000 unsecured credit facility used for acquisitions, capital
expenditures, and general corporate purposes. This outstanding credit
facility was then terminated. On April 18, 2000, the OLP entered into an
amended and restated Credit Facility with a group of financial institutions.
F-12
Effective April 27, 2000, the Partnership entered into an interest rate swap
agreement ("Swap Agreement") with Bank of America, related to the
semi-annual interest payment due on the MLP Senior Secured Notes. The Swap
Agreement, which expires June 15, 2006, requires Bank of America to pay an
amount based on the stated fixed interest rate (annual rate 9.375%) pursuant
to the MLP Senior Secured Notes equaling $7,500,000 every six months due on
each June 15 and December 15. In exchange, the Partnership is required to
make quarterly floating interest rate payments on the 15th of March, June,
September and December based on an annual interest rate equal to the 3 month
LIBOR interest rate plus 1.655% applied to the same notional amount of
$160,000,000.
At July 31, 2000 and 1999, $18,342,000 and $20,486,000, respectively, of
short-term borrowings were outstanding under the credit facility and
letters of credit outstanding, used primarily to secure obligations under
certain insurance arrangements, totaled $36,892,000 and $32,178,000,
respectively.
The MLP Senior Secured Notes, the $350 million and $184 million Senior
Notes and the Credit Facility Agreement contain various restrictive
covenants applicable to the MLP and OLP and its subsidiaries, the most
restrictive relating to additional indebtedness, sale and disposition of
assets, and transactions with affiliates. In addition, the Partnership is
prohibited from making cash distributions of the Minimum Quarterly
Distribution if a default or event of default exists or would exist upon
making such distribution, or if the Partnership fails to meet certain
coverage tests. The Partnership is in compliance with all requirements,
tests, limitations and covenants related to the Senior Secured Note
Indenture and the Senior Note Indentures. The Senior Notes and the Credit
Facility agreement have similar restrictive covenants to the Senior Note
Indenture and credit facility agreement that were replaced.
The annual principal payments on long-term debt for each of the next five
fiscal years are $3,528,000 in 2001, $2,126,000 in 2002, $1,943,000 in
2003, $2,086,000 in 2004, $2,234,000 in 2005 and $709,729,000 thereafter.
During fiscal year 1999, the Partnership recognized an extraordinary loss
of $12,786,000 net of minority interest of $130,000. The gross
extraordinary loss included a payment of a 5% premium and a write-off of
unamortized financing costs of $2,916,000, resulting primarily from the
early extinguishment of $200,000,000 of its fixed rate senior notes.
F. Partners' Capital
The Partnership's capital (after including the effect of an aggregate of
277,691 Senior Common Units issued in order to pay the applicable in-kind
quarterly distributions) consists of 4,652,691 Senior Common Units,
31,307,116 Common Units, 316,233 General Partner Units representing a 1%
General Partner interest related to the Common Units, and a 1% General
Partner interest related to the Senior Common Units. The Partnership
Agreement contains specific provisions for the allocation of net earnings
and loss to each of the partners for purposes of maintaining the partner
capital accounts.
In connection with the Thermogas acquisition (See Note L) on December 17,
1999, the Partnership issued 4,375,000 Senior Common Units to Williams
Natural Gas Liquids, Inc.a subsidiary of The Williams Companies, Inc.
("Williams" or "Seller"). As of September 14, 2000, Williams held 4,652,691
Senior Common Units with a liquidation value of approximately $186,108,000
including accrued and unpaid distributions. The Senior Common Units entitle
the holder to quarterly distributions from the MLP equivalent to 10 percent
per annum of the liquidating value. Distributions are payable quarterly,
in-kind, through issuance of
F-13
additional Senior Common Units until the earlier of February 1, 2002 or the
occurrence of a Material Event, as defined in the Partnership Agreement
("Material Event") after which distributions are payable in cash. The
Senior Common Units are redeemable by the Partnership at any time, in whole
or in part, upon payment in cash of the face value of the Senior Common
Units and the amount of any accrued but unpaid distributions.
Williams has the right, subject to certain events and conditions, to
convert any outstanding Senior Common Units into Common Units at the end of
two years or upon the occurrence of a Material Event. Such conversion
rights are contingent upon the Partnership not previously redeeming such
securities, among other conditions. The Partnership also granted Williams
demand registration rights at the end of two years or upon the occurrence
of a Material Event with respect to any outstanding Senior Common Units (or
Common Units into which they may be convertible). On June 5, 2000, at a
special meeting of its common unitholders, the Partnership's common
unitholders approved both the common unit conversion feature and an
exemption under the Partnership Agreement to enable Williams to vote the
Common Units, if such a conversion were to occur.
At July 31, 2000, the Senior Common Units had a discount of $6,321,000,
which includes the original discount of $8,925,000 less the accretion of
the discount of $2,604,000. This discount, which represents the fees paid
by the Partnership related to the issuance of the Senior Common Units, will
be amortized until February 2002.
In connection with the issuance of Senior Common Units to Williams,
Ferrellgas, Inc. contributed $1,768,000 to Ferrellgas Partners, L.P. and
$1,803,000 to Ferrellgas, L.P. in order to maintain its 1% and 1.0101%
general partner interest in each respective entity.
During 1994, the Partnership issued Subordinated Units, all of which were
held by Ferrell for which there was no established public trading market.
Effective August 1, 1999, the Subordinated Units converted to Common Units.
Certain financial tests, which were primarily related to making the Minimum
Quarterly Distribution on all Units, were satisfied for each of the three
consecutive four quarter periods ending July 31, 1999.
The Partnership maintains a shelf registration statement for Common Units
representing limited partner interests in the Partnership. The Common Units
may be issued from time to time by the Partnership in connection with the
Partnership's acquisition of other businesses, properties or securities in
business combination transactions. The Partnership also maintains another
shelf registration statement for the issuance of Common Units, Deferred
Participation Units, Warrants and Debt Securities. The Partnership
Agreement allows the General Partner to issue an unlimited number of
additional Partnership general and limited interests and other equity
securities of the Partnership for such consideration and on such terms and
conditions as shall be established by the General Partner without the
approval of any Unitholders.
G. Transactions with Related Parties
The Partnership has no employees and is managed and controlled by the
General Partner. Pursuant to the Partnership Agreement, the General Partner
is entitled to reimbursement for all direct and indirect expenses incurred
or payments it makes on behalf of the Partnership, and all other necessary
or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with operating the
Partnership's business. These costs, which totaled $179,033,000,
$143,850,000, and $129,808,000 for the years ended July 31, 2000, 1999 and
1998, respectively, include compensation and benefits paid to officers and
employees of the General Partner, and general and administrative costs.
F-14
During fiscal 2000, Williams became a related party to the Partnership due
to the Partnership's issuance of Senior Common Units to Williams (See Notes
F and L). The Partnership recognized wholesale sales of $2,091,000 to
Williams and purchases of $13,175,000 from Williams related to the
Partnership's wholesale and risk management activity. In connection with
its risk management activities, the Partnership entered into, with Williams
as a counterparty, certain forward, futures and swaps contracts for trading
purposes and certain option contracts for purposes other than trading.
During fiscal 2000 the Partnership recognized net sales (purchases) related
to these transactions of $9,530,000 which are classified in other revenue
on the statement of earnings.
Williams provided propane supply and general and administrative services to
the Partnership to assist in the integration of the acquisition. The
Partnership recognized $67,547,000, $4,062,000 and $176,000 to Williams in
fiscal 2000 and classified these costs in cost of goods sold, general and
administrative expenses and operating expenses, respectively. Amounts due
to Williams at July 31, 2000, was $5,045,000. Amounts due from Williams at
July 31, 2000, was $13,000.
During fiscal 2000 and 1999, Ferrell International Limited and Ferrell
Resources, LLC, two affiliates of the Partnership which are owned by the
General Partner's chairman of the board, president and chief executive
officer, James E. Ferrell, paid the Partnership a total of $313,000 and
$265,000, respectively, for accounting and administration services. In
connection with its risk management activities, the Partnership entered
into, with Ferrell International Limited as a counterparty, certain
forward, futures and swaps contracts for trading purposes and certain
option contracts for purposes other than trading. During fiscal 2000, 1999
and 1998, the Partnership recognized net sales (purchases) of $(8,508,000),
$20,414,000 and $3,106,000, respectively. These net sales (purchases) with
Ferrell International Limited are classified in other revenue. Amounts due
from Ferrell International Limited at July 31, 2000 and 1999 were
$1,826,000 and $2,531,000, respectively. Amounts due to Ferrell
International Limited at July 31, 2000 and 1999 were $1,484,000 and
$3,377,000, respectively.
The Partnership also leased propane tanks from Ferrell Propane, Inc., a
subsidiary of Ferrellgas, Inc. since October 1998. Prior to October 1998,
Ferrell Propane, Inc. was a subsidiary of Ferrell Companies, Inc. The
Partnership recognized $515,000 of lease expense during each of fiscal
years 2000, 1999 and 1998.
Prior to the ESOP transaction completed on July 17, 1998, Ferrell, the
parent of the General Partner and its other wholly-owned subsidiaries,
engaged in various investment activities including, but not limited to,
commodity investments and the trading thereof. The Partnership from time to
time acted as an agent on behalf of Ferrell to purchase and market natural
gas liquids and enter into certain trading activities. The Partnership
charged all direct and indirect expenses incurred in performing this agent
role to Ferrell. During the year ended July 31, 1998, the Partnership, as
Ferrell's agent, marketed and sold 469,820 barrels of propane. The
Partnership charged Ferrell $66,467 for its direct and indirect expenses
related to these transactions. All of the 469,820 barrels of propane sold
were sold to and used by the Partnership at the applicable market prices
(an aggregate of $7,405,200). In addition, during fiscal 1998, the
Partnership sold to Ferrell certain physical and derivative crude oil
commodity contracts totaling 4,120,000 aggregate barrels at a price of
$2,548,927. Subsequent to the close of the ESOP transaction, Ferrell
divested of its wholly-owned subsidiaries that were engaged in these
commodity and trading activities.
F-15
H. Contingencies and Commitments
The Partnership is threatened with or named as a defendant in various
lawsuits that, among other items, claim damages for product liability. It
is not possible to determine the ultimate disposition of these matters;
however, management is of the opinion that there are no known claims or
contingent claims that are likely to have a material adverse effect on the
financial condition, results of operations or cash flows of the
Partnership.
On December 6, 1999, the OLP entered into, with Banc of America Leasing &
Capital LLC, a $25,000,000 operating tank lease involving a portion of the
OLP's customer tanks. This operating lease has a term that expires June 30,
2003 and may be extended for two additional one-year periods at the option
of the OLP, if such extension is approved by the lessor.
On December 17, 1999, immediately prior to the closing of the Thermogas
acquisition (See Note L), Thermogas entered into, with Banc of America
Leasing & Capital LLC, a $135,000,000 operating tank lease involving a
portion of its customer tanks. In connection with the Thermogas
acquisition, the OLP assumed all obligations under the $135,000,000
operating tank lease, which has terms and conditions similar to the
December 6, 1999, $25,000,000 operating tank lease discussed above.
Effective June 2, 2000, the OLP entered into an interest rate cap agreement
("Cap Agreement") with Bank of America, related to variable quarterly rent
payments due pursuant to two operating tank lease agreements. The variable
quarterly rent payments are determined based upon a floating LIBOR based
interest rate. The Cap Agreement, which expires June 30, 2003, requires
Bank of America to pay the OLP at the end of each March, June, September
and December the excess, if any, of the applicable 3 month floating LIBOR
interest rate over 9.3%, the cap, applied to the total obligation due each
quarter under the two operating tank lease agreements. The total obligation
under these two operating tank lease agreements as of July 31, 2000 was
$159,200,000.
Certain property and equipment is leased under noncancellable operating
leases which require fixed monthly rental payments and which expire at
various dates through 2020. Rental expense under these leases totaled
$35,292,000, $19,595,000 and $17,095,000 for the years ended July 31, 2000,
1999 and 1998, respectively. Future minimum lease commitments for such
leases in the next five years, including the aforementioned operating tank
leases, are $37,166,000 in 2001, $33,882,000 in 2002, $28,358,000 in 2003,
$7,431,000 in 2004, and $4,868,000 in 2005.
In addition to the future minimum lease commitments, the Partnership plans
to purchase vehicles at the end of their lease term totaling $1,364,000 in
2001, $203,000 in 2002 and $143,000 in 2003. The Partnership intends to
renew other vehicle and tank leases that would have had buyouts of $452,000
in 2001, $7,057,000 in 2002, $162,569,000 in 2003, $4,981,000 in 2004 and
$4,086,000 in 2005.
I. Employee Benefits
The Partnership has no employees and is managed and controlled by the
General Partner. The Partnership assumes all liabilities, which include
specific liabilities related to the following employee benefit plans for
the benefit of the officers and employees of the General Partner.
Ferrell makes contributions to the ESOT which causes a portion of the
shares of Ferrell owned by the ESOT to be allocated to employees' accounts
over time. The allocation of Ferrell shares to employee accounts causes a
non-cash compensation charge to be incurred by Ferrell, equivalent to the
F-16
fair value of such shares allocated. This non-cash compensation charge is
reported separately on the statement of earnings, and therefore excluded
from operating and general and administative expenses. The Partnership is
not obligated to fund or make contributions to the ESOT. Nevertheless, due
to the benefit received by the Company's employees from participating in
the ESOP, the non-cash compensation charge is also recorded by the
Partnership.
The General Partner and its parent, Ferrell, have a defined contribution
profit-sharing plan which covers substantially all employees with more than
one year of service. Contributions were made to the plan at the discretion
of Ferrell's Board of Directors. With the establishment of the ESOP in July
1998, the Company suspended future contributions to the profit sharing plan
beginning with fiscal year 1998. The profit sharing plan, which qualifies
under section 401(k) of the Internal Revenue Code, also provides for
matching contributions under a cash or deferred arrangement based upon
participant salaries and employee contributions to the plan. These matching
contributions were not affected by the establishment of the ESOP.
Contributions for the years ended July 31, 2000, 1999 and 1998,
respectively, were $2,869,000, $2,110,000, and $1,693,000 under the 401(k)
provision.
J. Unit Options of the Partnership and Stock Options of Ferrell Companies,Inc.
The Ferrellgas, Inc. Unit Option Plan (the "Unit Option Plan") currently
authorizes the issuance of options (the "Unit Options") covering up to
850,000 of the MLP's units to certain officers and employees of the General
Partner. Effective August 1, 1999, with the conversion of the Subordinated
Units, the units covered by the options are Common Units. The Unit Options
are exercisable at exercise prices ranging from $16.80 to $21.67 per unit,
which was an estimate of the fair market value of the Subordinated Units at
the time of the grant. The options vest immediately or over a one to five
year period, and expire on the tenth anniversary of the date of the grant.
Number Weighted Average Weighted
Of Exercise Price Average Fair
Units Value
------------- ------------------- ---------------
Outstanding, July 31, 1997 727,600 $18.09
Granted 118,500 19.47 $0.47
Forfeited (64,100) 19.16
-------------
Outstanding, July 31, 1998 782,000 18.21
Granted 40,000 18.54 0.39
Forfeited (40,975) 18.15
-------------
Outstanding, July 31, 1999 781,025 18.23
Granted - - -
Forfeited (60,500) 19.38
-------------
Outstanding, July 31, 2000 720,525 18.13
-------------
Options exercisable, July 31, 2000 546,875 17.57
-------------
Options Outstanding at July 31, 2000
-------------------------------------------------
Range of option prices at end of year $16.80-$21.67
Weighted average remaining contractual life 5.3 Years
The Ferrell Companies, Inc. nonqualified stock option plan (the "NQP") was
established by Ferrell Companies, Inc. ("Ferrell") to allow upper middle
and senior level managers of the General Partner to participate in the
equity growth of Ferrell and, indirectly in the equity growth of the
Partnership. The shares underlying the stock options are common shares of
Ferrell, therefore, there is no potential dilution of the Partnership. The
Ferrell NQP stock options vest ratably in 5% to 10% increments over 12
years or 100% upon a change of control, death, disability or retirement of
the participant. Vested options are exercisable in increments based on the
timing of the payoff of Ferrell debt, but in no event later than 20 years
from the date of issuance.
F-17
The Partnership accounts for stock-based compensation using the intrinsic
value method prescribed in APB No. 25 and related Interpretations.
Accordingly, no compensation cost has been recognized for the Unit Option
Plan, or for the NQP. Had compensation cost for these plans been determined
based upon the fair value at the grant date for awards under these plans,
consistent with the methodology prescribed under SFAS No. 123, the
Partnership's net income (loss) and earnings (loss) per share would have
been adjusted as noted in the table below:
2000 1999 1998
------------- ------------- -------------
Common and subordinate unitholders' interest
in net earnings (loss) after paid in kind
distribution as reported $(10,146) $1,977 $4,894
Pro forma adjustment (79) (465) (40)
============= ============= =============
Common and subordinate unitholders' interest
in net earnings (loss) after paid in kind
distribution as adjusted $(10,225) $1,512 $4,854
============= ============= =============
Pro forma basic and diluted net earnings
(loss) per common and subordinated unit
after paid in kind distribution $ (0.32) $ 0.05 $ 0.16
============= ============= =============
There were no unit options granted during the 2000 fiscal year. The fair
value of the unit options granted during the 1999 and 1998 fiscal years
were determined using a binomial option valuation model with the following
assumptions: a) distribution amount of $0.50 per unit per quarter for 1999
and 1998, b) average Common Unit price volatilities of 18.1% and 16.2% for
1999 and 1998, respectively, c) the risk-free interest rates used were 5.5%
and 5.7%, for 1999 and 1998, respectively and d) the expected life of the
option used was 5 years for 1999 and 1998. The fair value of the Ferrell
Companies, Inc. NQP stock options granted during the 2000 and 1999 fiscal
years were determined using a binomial option valuation model with the
following assumptions: a) no dividends, b) average stock price volatility
of 10.1% and 10.6% used in 2000 and 1999, respectively, c) the risk-free
interest rate used was 6.4% and 5.5% in 2000 and 1999, respectively and d)
expected life of the options between 7 and 15 years.
K. Disclosures About Off Balance Sheet Risk, Fair Value of Financial
Instruments and Derivatives
The carrying amount of current financial instruments approximates fair
value because of the short maturity of the instruments. The estimated fair
value of the Partnership's long-term debt was $698,082,000 and $568,459,000
as of July 31, 2000 and 1999, respectively. The fair value is estimated
based on quoted market prices.
Interest Rate Collar, Cap and Swap Agreements. The Partnership has entered
into various interest rate collar, cap and swap agreements involving, among
others, the exchange of fixed and floating interest payment obligations
without the exchange of the underlying principal amounts. The
counterparties to these agreements are large financial institutions. The
interest rate collar agreements subject the Partnership to financial risk
that will vary during the life of these agreements in relation to market
interest rates. The fair values for these off-balance sheet financial
instruments at July 31, 2000 are as follows: Interest rate collar -
$43,000; interest rate cap - $(258,000); and interest rate swap -
$(561,000).
F-18
Option Commodity Contracts. The Partnership is a party to certain option
contracts, involving various liquefied petroleum products, for risk
management purposes in connection with its risk management activities.
Certain option contracts held by the Partnership meet the criteria for
classi-fication as hedges of forecasted transactions that will occur in
less than one year. Net gains deferred for option contracts accounted for
as hedges were $1,008,000 for the year ended July 31, 2000. Contracts are
executed with private counterparties and to a lesser extent on national
mercantile exchanges. Open contract positions are summarized below.
Forward, Futures and Swaps Commodity Contracts. In connection with its risk
management activities, the Partnership is a party to certain forward,
futures and swaps contracts for trading purposes. Such contracts do not
meet the criteria for classification as hedge transactions. Net gains from
risk management activities were $28,413,000, $7,699,000, and $7,464,000,
for the years ended July 31, 2000, 1999, and 1998, respectively. Such
contracts permit settlement by delivery of the commodity. Open contract
positions are summarized below (assets are defined as purchases or long
positions and liabilities are sales or short positions).
As of July 31
(In thousands, except price per gallon data)
Derivative Commodity Instruments Held for Derivative Commodity
Purposes Other than Trading Instruments Held for
(Options) Trading Purposes
(Forward, Futures and Swaps)
------------------------------------------- ---------------------------------------------------
-----------------------
2000 1999 2000 1999
-------------------- ------------------- -----------------------
---------- ------------
Asset Liab. Asset Liab. Asset Liab. Asset Liab.
--------- ---------- -------- ---------- ----------- ----------- ---------- ------------
Volume (gallons) 107,069 (50,526) 3,245 (22,648) 6,056,726 (5,903,184) 2,814,698 (2,720,295)
Price ((cent)/gal) 37-62 37-75 23-39 27-55 42-84 45-95 19-49 19-49
Maturity 8/00- 8/00- 8/99-3/00 8/99-3/00 8/00- 8/00-12/01 8/99-12/01 8/99-
Dates 12/01 12/01 12/01 12/01
Contract Amounts
($) 111,688 (63,193) 10,775 (13,973) 4,528,216 (4,476,361) 1,232,209 (1,215,341)
Fair Value ($) 113,728 (64,168) 10,941 (15,850) 4,526,076 (4,474,314) 1,337,924 (1,318,526)
Unrealized gain
(loss) ($) 2,040 (975) 166 (1,877) (2,140) 2,047 105,715 (103,185)
Risks related to these contracts arise from the possible inability of the
counterparties to meet the terms of their contracts and changes in
underlying product prices. The Partnership attempts to minimize market risk
through the enforcement of its trading policies, which include total
inventory limits and loss limits, and attempts to minimize credit risk
through application of its credit policies.
F-19
L. Business Combinations
On December 17, 1999, the Partnership purchased Thermogas LLC from
Williams Natural Gas Liquids, Inc.,a subsidiary of The Williams Companies,
Inc. of At closing the Partnership entered into the following noncash
transactions: a) issued $175,000,000 in Senior Common Units to the seller,
b) assumed a $183,000,000 bridge loan, (see Note E) and c) assumed a
$135,000,000 operating tank lease (see Note H). After the conclusion of
these acquisition-related transactions, including the merger of the OLP and
Thermogas, the Partnership acquired $61,842,000 of cash, which remained on
the Thermogas balance sheet at the acquisition date. The Partnership has
paid $15,893,000 in additional costs and fees related to the acquisition
between December 17, 1999 and July 31, 2000. As part of the Thermogas
acquisition, the OLP agreed to reimburse Williams for the value of working
capital received by the Partnership in excess of $9,147,500. On June 6,
2000, the OLP and Williams agreed upon the amount of working capital that
was acquired by the Partnership on December 17, 1999. The OLP reimbursed
Williams $5,652,500 as final settlement of this working capital
reimbursement obligation.
The total assets contributed to the OLP (at the Partnership's cost basis)
have been preliminarily allocated as follows: (a) working capital of
$14,800,000, (b) property, plant and equipment of $145,711,000, (c)
$60,200,000 to customer list with an estimated useful life of 15 years,
(d) $18,500,000 to trademarks with an estimated useful life of 15 years
(e) $9,600,000 to assembled workforce with an estimated useful life of 15
years, (f) $3,071,000 to non-compete agreements with an estimated useful
life ranging from one to seven years, and (g) $65,589,000 to goodwill at
an estimated useful life of 15 years. The estimated fair values and useful
lives of assets acquired are based on a preliminary valuation and are
subject to final valuation adjustments. The Partnership has accrued
$7,033,000 in involuntary employee termination benefits and exit costs,
which it expects to incur within twelve months from the acquisition date as
it implements the integration of the Thermogas operations. This accrual
included $5,870,000 of termination benefits and $1,163,000 of costs to exit
Thermogas activities. As of July 31, 2000, the Partnership has paid
$1,306,000 for termination benefits and $890,000 for exit costs. The
Partnership intends to continue its analysis of the net assets of Thermogas
to determine the final allocation of the total purchase price to the
various assets acquired. The transaction has been accounted for as a
purchase and, accordingly, the results of operations of Thermogas have been
included in the consolidated financial statements from the date of
acquisition.
The following pro forma financial information assumes that the Thermogas
acquisition occurred as of August 1, 1998 (unaudited):
Pro Forma
--------------------------------
Year Ended
July 31, July 31,
(in thousands, except per unit amounts) 2000 1999
--------------- ----------------
Total revenues $1,048,207 $856,731
Loss before extraordinary item (18,609) (4,358)
Net loss (18,609) (17,144)
Limited partners' interest in net loss (18,423) (16,973)
Basic and diluted loss per limited partner unit before extraordinary item $ (0.59) $ (0.14)
Basic and diluted loss per limited partner unit after extraordinary item $ (0.59) $ (0.54)
During the year ended July 31, 2000, the Partnership made acquisitions of
two other businesses valued at $7,183,000. This amount was funded by
$6,338,000 cash payments, $601,000 of noncompete notes, $46,000 in Common
units and $198,000 in other costs and consideration.
F-20
During the year ended July 31, 1999, the Partnership made acquisitions of
11 businesses valued at $50,049,000. This amount was funded by $43,838,000
cash payments, $199,000 in Common units and noncash transactions totaling
$6,012,000 in the issuance of noncompete notes and other costs and
consideration.
During the year ended July 31, 1998, the Partnership made acquisitions of
four businesses valued at $12,670,000. This amount was funded by $9,839,000
cash payments, $2,000,000 in common units and noncash transactions totaling
$831,000 in the issuance of noncompete notes and other costs and
consideration.
All transactions have been accounted for using the purchase method of
accounting and, accordingly, the results of operations of all acquisitions
have been included in the consolidated financial statements from their
dates of acquisition. The pro forma effect of these transactions, except
those related to the Thermogas acquisition, was not material to the results
of operations.
M. Earnings Per Unit
Below is a calculation of the basic and diluted Common Units (and
Subordinated Units prior to August 1, 1999) used to calculate basic and
diluted earnings per unit on the Statements of Earnings.
(in thousands, except per unit data)
For the year ended July 31,
2000 1999 1998
---------------- ---------------- ----------------
Common and subordinated
unitholders' interest in net
earnings (loss) after paid in kind
distribution $ (10,146) $ 1,977 $ 4,894
---------------- ---------------- ----------------
Weighted average common and
subordinated units outstanding
31,306.7 31,298.7 31,275.3
Basic earnings (loss) per common and
subordinated unit before
extraordinary item
and after paid in kind
distribution
$ (0.32) $ 0.47 $ 0.16
================ ================ ================
Basic earnings (loss) per common
and subordinated unit after paid in
kind distribution
$ (0.32) $ 0.06 $ 0.16
================ ================ ================
For the year ended July 31,
2000 1999 1998
---------------- ---------------- ----------------
Common and subordinated
unitholders' interest in net
earnings (loss) after paid in kind
distribution $ (10,146) $ 1,977 $ 4,894
Weighted average common and
subordinated units outstanding
31,306.7 31,298.7 31,275.3
Dilutive securities - options 0.0 39.5 72.5
---------------- ---------------- -----------------
Weighted average common and
subordinated outstanding units +
dilutive units 31,306.7 31,338.2 31,347.8
Diluted earnings (loss) per
common and subordinated unit
before extraordinary
item and after paid in kind
distribution
$(0.32) $0.47 $0.16
================ ================ =================
Diluted earnings (loss) per common
and subordinated unit after paid in
kind distribution
$(0.32) $0.06 $0.16
================ ================ =================
F-21
For diluted earnings per unit purposes, the Senior Common Units have been
excluded as they are considered contingently issuable Common Units for which all
necessary conditions for their issuance have not been satisfied as of the end of
the reporting period. In fiscal 2000, the Unit Options were antidilutive and
therefore were reported as zero in the table above.
N. Subsequent Event (unaudited)
On September 26, 2000, Ferrellgas, L.P. received $20,000,000 in cash in
exchange for the sale and contribution of a $25,000,000 interest in a pool
of its trade accounts receivable to its newly created, wholly-owned,
special purpose subsidiary, Ferrellgas Receivables, LLC. Ferrellgas
Receivables, LLC then sold the interest to a commercial paper conduit of
Banc One, NA in accordance with the terms of a 364 day agreement. The level
of funding available from this 364 day agreement is limited to $60,000,000.
In accordance with SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities ("SFAS No. 125")," this
transaction will initially be reflected on the financial statements as a
sale of accounts receivable and contribution of capital in the first
quarter of fiscal 2001. Additionally, in accordance with SFAS No. 125,
Ferrellgas Receivables, LLC will not be conslidated into the results of the
partnership and thus will be accounted for using the equity method of
accounting, The proceeds of these sales are less than the face amount of
accounts receivable sold by an amount that approximates the purchaser's
financing cost of issuing its own commercial paper backed by these accounts
receivable. This loss on the September, 2000 transaction will be
approximately $300,000 in the first quarter of fiscal 2001, and represents
the difference between the fair market value and the book value of
the receivable contibuted and sold.
F-22
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ferrellgas Partners Finance Corp.
Liberty, Missouri
We have audited the accompanying balance sheets of Ferrellgas Partners
Finance Corp. (a wholly-owned subsidiary of Ferrellgas Partners, L.P.), as of
July 31, 2000, and 1999 and the related statements of earnings, stockholder's
equity and cash flows for each of the three years in the period ended July 31,
2000. These financial statements are the responsibility of Ferrellgas Partners
Finance Corp.'s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Ferrellgas Partners Finance Corp. as of July
31, 2000 and 1999, and the results of its operations and its cash flows for each
of the three years in the period ended July 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 14, 2000
F-23
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas Partners, L.P.)
BALANCE SHEETS
July 31, July 31,
ASSETS 2000 1999
------------------------------------------------------- --------------- --------------
Cash $1,000 $1,000
--------------- -------------
Total Assets $1,000 $1,000
=============== ==============
STOCKHOLDER'S EQUITY
-------------------------------------------------------
Common stock, $1.00 par value; 2,000 shares
authorized; 1,000 shares issued and outstanding $1,000 $1,000
Additional paid in capital 1,237 774
Accumulated deficit (1,237) (774)
--------------- --------------
Total Stockholder's Equity $1,000 $1,000
=============== ==============
See notes to financial statements
F-24
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas Partners, L.P.)
STATEMENTS OF EARNINGS
For the year ended July 31,
-------------------------------------------------
2000 1999 1998
------------- ------------- -------------
Revenues $ - $ - $ -
General and administrative expense 463 226 221
------------- ------------- -------------
Net loss $ (463) $ (226) $ (221)
============= ============= =============
See notes to financial statements
F-25
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas Partners, L.P.)
STATEMENTS OF STOCKHOLDER'S EQUITY
Common stock Additional Accum Total
------------------------- paid in ulated stockholder's
Shares Dollars capital deficit equity
----------- ---------- -------------- ----------- -----------------
August 1, 1998 1,000 $1,000 $ 548 $ (548) $ 1,000
Capital contribution - - 226 - 226
Net loss - - - (226) (226)
----------- ---------- -------------- ----------- -----------------
July 31, 1999 1,000 1,000 774 (774) 1,000
Capital contribution - - 463 - 463
Net loss - - - (463) (463)
----------- ---------- -------------- ----------- -----------------
July 31, 2000 1,000 $1,000 $ 1,237 $(1,237) $ 1,000
=========== ========== ============== =========== =================
See notes to financial statements
F-26
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas Parnters, L.P.)
STATEMENTS OF CASH FLOWS
From Inception to
For the year ended July 31,
--------------------------------------------
2000 1999 1998
------------- ------------- -------------
Cash Flows From Operating Activities:
Net loss $ (463) $ (226) $ (221)
------------- ------------- -------------
Cash used by operating activities (463) (226) (221)
------------- ------------- -------------
Cash Flows From Financing Activities:
Capital contribution 463 226 221
------------- ------------- -------------
Cash provided by financing activities 463 226 221
------------- ------------- -------------
Change in cash 0 0 0
Cash - beginning of period 1,000 1,000 1,000
------------- ------------- -------------
Cash - end of period $ 1,000 $ 1,000 $ 1,000
============= ============= =============
See notes to financial statements
F-27
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)
NOTES TO FINANCIAL STATEMENTS
A. Formation
Ferrellgas Partners, Finance Corp. (the "Finance Corp."), a Delaware
corporation, was formed on March 28, 1996 and is a wholly-owned subsidiary of
Ferrellgas Partners, L.P. (the "Partnership").
The Partnership contributed $1,000 to the Finance Corp. on April 8,
1996 in exchange for 1,000 shares of common stock.
B. Commitment
On April 26, 1996, the Partnership issued $160,000,000 of 9 3/8% Senior
Secured Notes due 2006 (the "Senior Notes"). The Senior Notes will be
redeemable at the option of the Partnership, in whole or in part, at
any time on or after June 15, 2001.
Effective April 27, 2000, the Partnership entered into an interest rate
swap agreement ("Swap Agreement") with Bank of America, related to the
semi-annual interest payment due on the Senior Notes. The Swap
Agreement, which expires June 15, 2006, requires Bank of America to pay
the stated fixed interest rate (annual rate 9 3/8%) pursuant to the
Senior Notes equaling $7,500,000 every six months due on each June 15
and December 15. In exchange, the Partnership is required to make
quarterly floating interest rate payments on the 15th of March, June,
September and December based on an annual interest rate equal to the 3
month LIBOR interest rate plus 1.655% applied to the same notional
amount of $160,000,000.
The Finance Corp. serves as a co-obligor for the Senior Notes.
C. Income Taxes
Income taxes have been computed as though the Company files its own
income tax return. Deferred income taxes are provided as a result of
temporary differences between financial and tax reporting using the
asset/liability method. Deferred income taxes are recognized for the
tax consequences of temporary differences between the financial
statement carrying amounts and tax basis of existing assets and
liabilities.
Due to the inability of the Company to utilize the deferred tax benefit
of $500 associated with the current year net operating loss
carryforward of $1,286, which expire at various dates through July 31,
2015, a valuation allowance has been provided on the full amount of the
deferred tax asset. Accordingly, there is no net deferred tax benefit
for the year ended July 31, 2000 or 1999 and there is no net deferred
tax asset as of July 31, 2000 or July 31, 1999.
F-28
ITEM 14(A) 2 INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
Ferrellgas Partners, L.P. and Subsidiaries
Independent Auditors' Report on Schedules......................................................................S-2
Schedule I Parent Company Only Balance Sheets as of July 31, 2000 and
1999 and Statements of Earnings and Cash Flows for the years
ended July 31, 2000,1999 and 1998............................................................S-3
Schedule II Valuation and Qualifying Accounts for the years ended July 31, 2000, 1999
and 1998.....................................................................................S-6
S-1
INDEPENDENT AUDITORS' REPORT
To the Partners of
Ferrellgas Partners, L.P. and Subsidiaries
Liberty, Missouri
We have audited the consolidated financial statements of Ferrellgas Partners,
L.P., and subsidiaries as of July 31, 2000 and 1999, and for each of the three
years in the period ended July 31, 2000, and have issued our report thereon
dated September 14, 2000. Our audit also included the financial statement
schedules listed in Item 14(a)2. These financial statement schedules are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 14, 2000
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FERRELLGAS PARTNERS, L.P.
PARENT ONLY
BALANCE SHEETS
(in thousands)
ASSETS July 31, 2000 July 31, 1999
- ----------------------------------------------------- ---------------- ----------------
Cash and cash equivalents $ 1 $ 1
Investment in Ferrellgas, L.P. 199,086 88,758
Other assets, net 2,962 3,466
---------------- ----------------
Total Assets $ 202,049 $ 92,225
================ ================
LIABILITIES AND PARTNERS' CAPITAL
- -----------------------------------------------------
Other current liabilities $ 1,705 $ 1,876
Long term debt 160,000 160,000
Partners' Capital
Senior common unitholders 179,786 -
Common unitholders (80,931) 1,215
Subordinated unitholders - (10,516)
General partner (58,511) (59,553)
Accumulated other comprehensive income 0 (797)
---------------- ----------------
Total Partners' Capital 40,344 (69,651)
---------------- ----------------
Total Liabilities and Partners' Capital $ 202,049 $ 92,225
================ ================
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FERRELLGAS PARTNERS, L.P.
PARENT ONLY
STATEMENTS OF EARNINGS
(in thousands)
For the Year Ended July 31
---------------------------------------------------------
2000 1999 1998
---------------- ----------------- -----------------
Equity in earnings of Ferrellgas, L.P. $ 15,907 $ 17,511 $ 20,462
Operating expense - - 5
Interest expense 15,047 15,514 15,514
---------------- ----------------- -----------------
Net earnings $ 860 $ 1,997 $ 4,943
================ ================= =================
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FERRELLGAS PARTNERS, L.P.
PARENT ONLY
STATEMENTS OF CASH FLOWS
(in thousands)
For the Year Ended
-------------------------------------------------------
July 31, 2000 July 31, 1999 July 31, 1998
----------------- ----------------- --------------
Cash Flows From Operating Activities:
Net earnings $ 860 $ 1,997 $ 4,943
Reconciliation of net earnings to
net cash from operating activities:
Amortization of capitalized financing costs 515 513 513
Equity in earnings of Ferrellgas, L.P. (16,069) (17,690) (20,671)
Other current assets (11) (1,201) 3
Distributions received from Ferrellgas, L.P. 77,962 79,430 78,176
Increase (decrease) in other current liabilities (172) 1 (1)
----------------- ----------------- ---------------
Net cash provided by operating activities 63,085 63,050 62,963
----------------- ----------------- ---------------
Cash Flows From Financing Activities:
Distributions to partners (63,247) (63,229) (63,176)
Net advance from affiliate 162 179 213
----------------- ----------------- ---------------
Net cash used by financing activities (63,085) (63,050) (62,963)
----------------- ----------------- ---------------
Increase in cash and cash equivalents - - -
Cash and cash equivalents - beginning of period 1 1 1
----------------- ----------------- ---------------
Cash and cash equivalents - end of period $ 1 $ 1 $ 1
================= ================= ===============
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FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at Charged to Deductions Balance
beginning cost/ Other (amounts at end
Description of period expenses Additions charged-off) of period
- ---------------------------------------- -------------- -------------- -------------- --------------- --------------
Year ended July 31, 2000
Allowance for doubtful accounts $1,296 $2,349 $0 $1,257 $2,388
Accumulated amortization:
Intangible assets 139,273 22,951 0 0 162,224
Other assets 5,005 1,906 0 15 6,896
Year ended July 31, 1999
Allowance for doubtful accounts $1,381 $1,627 $75 $1,787 $1,296
Accumulated amortization:
Intangible assets 123,531 15,742 0 0 139,273
Other assets 9,054 1,716 0 5,765 5,005
Year ended July 31, 1998
Allowance for doubtful accounts 1,234 2,997 6 2,856 1,381
Accumulated amortization:
Intangible assets 109,211 14,320 0 0 123,531
Other assets 6,753 2,301 0 0 9,054
S-6