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, 2001
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 and
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. [ X ]
The aggregate market value as of September 28, 2001, 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 $345,719,000.
At September 28, 2001, Ferrellgas Partners, L.P. had outstanding 35,921,966
Common Units and 2,801,622 Senior Units
Documents Incorporated by Reference:
None
FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
2001 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............9
PART II
ITEM 5. MARKET FOR REGISTRANT'S UNITS AND
RELATED UNITHOLDER MATTERS.....................................9
ITEM 6. SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA..............10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...........................23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS...........24
ITEM 11. EXECUTIVE COMPENSATION........................................26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K...........................................33
PART I
ITEM 1. BUSINESS.
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.
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 earnings, except for interest expense related to
$160 million of 9 3/8% Senior Secured Notes issued by Ferrellgas Partners in
April 1996.
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 an effective 2% general partner interest in
the Partnership. As general partner, Ferrellgas, Inc. performs all management
functions for the Partnership. Ferrell Companies, Inc., the parent company of
Ferrellgas, Inc., owns approximately 50% of the Ferrellgas Partners' outstanding
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.
General
The Partnership is engaged primarily in the retail distribution of propane
and related equipment and supplies in the United States. The Partnership
believes that it is the second largest retail marketer of propane in the United
States, accounting for approximately 11% of the retail propane gallons sold. The
Partnership currently serves approximately 1,100,000 residential,
industrial/commercial and agricultural customers in 45 states through a
nationwide network of approximately 600 retail locations. These operations
extend from coast to coast with concentration in the Midwest, Southeast,
Southwest and Northwest regions of the country.
The Partnership's retail propane distribution business consists principally
of transporting propane to retail distribution locations and then to tanks on
customers' premises, as well as to portable propane cylinders. In the
residential and commercial markets, propane is primarily used for space heating,
water heating and cooking. In the agricultural market, propane is primarily used
for crop drying, 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.
In the past three fiscal years, the Partnership has reported annual retail
propane sales volumes as follows:
Fiscal year ended Retail propane sales (gallons)
----------------- ------------------------------
July 31, 2001 957 million
July 31, 2000 847 million
July 31, 1999 680 million
Fiscal 2001 retail propane sales volumes included a full year's
contribution from the Thermogas operations acquired in December 1999. With this
acquisition, the Partnership acquired over 180 retail locations primarily in the
Midwest, complimenting the Partnership's historically strong presence in that
region. Over 65 of the approximately 180 Thermogas locations were blended with
existing Partnership locations.
Formation and History
The Partnership is a Delaware limited partnership that was formed in 1994
in connection with its initial public offering. Its operations began in 1939 as
a single retail propane location in Atchison, Kansas. The Partnership has since
grown to nearly 600 retail locations primarily through acquisitions of other
propane companies. The Partnership's initial growth largely resulted from small
acquisitions in rural areas of eastern Kansas, northern and central Missouri,
Iowa, western Illinois, southern Minnesota, South Dakota and Texas. Since 1986,
the Partnership has acquired more than 100 propane retailers, the largest of
which were:
Estimated Retail
Company Date Acquired Gallons Acquired
------- ------------- ----------------
Vision Energy November 1994 47 million
Skelgas May 1996 93 million
Thermogas December 1999 270 million
Business Strategy
The Partnership's business strategy is to manage its business in a manner
that provides for a secure quarterly distribution to its unitholders and to
continue to expand its operations and improve its financial performance.
The Partnership intends to execute this strategy by:
Using technology to improve operations. The Partnership has recently
completed a review of its key business processes to identify areas where it can
use technology and process enhancements to improve its operations. Specifically,
the Partnership has identified areas where it can reduce operating expenses and
improve customer satisfaction in the near future. These areas include
improvements to the routing and scheduling of customer deliveries, customer
administration and operational workflow. During fiscal 2002, the Partnership
expects to allocate considerable resources toward these improvements.
Employing a disciplined acquisition strategy. The Partnership expects to
continue the expansion of its customer base through the acquisition of other
retail propane distributors. The Partnership intends to concentrate on
acquisition activities in geographical areas near its existing operations,
although it may pursue acquisitions that broaden its geographic coverage on a
selected basis. The Partnership also intends to acquire propane retailers that
can be efficiently combined with its existing operations to provide an
attractive return on investment after taking into account the cost savings that
may result from those combinations. The Partnership's goal is to improve the
operations and profitability of the businesses it acquires by integrating them
into its established national organization. The Partnership believes there are
numerous retail propane distribution companies that are potential candidates for
acquisition and that the geographic diversity of its operations helps to create
many attractive acquisition opportunities. The Partnership continually seeks and
is presented with these types of opportunities.
Achieving internal growth. The Partnership believes that it can also
achieve growth within its existing propane operations. As a result of its
industry leadership and implementation of more efficient operating standards,
the Partnership believes that it has positioned itself to successfully compete
for these growth opportunities. The Partnership currently has marketing programs
that focus specific resources towards internal growth.
2
Capitalizing on our national presence and economies of scale. The
Partnership believes its national presence of approximately 600 retail locations
and an estimated 11% market share gives it advantages over its smaller
competitors. These advantages include economies of scale in areas such as:
o product procurement;
o transportation;
o fleet purchases;
o customer administration; and
o general administration.
The Partnership's national presence also allows it to be one of the few
propane retailers that can competitively serve commercial customers on a
nationwide basis. In addition, the Partnership believes that its presence in 45
states provides more opportunities to make acquisitions that overlap with its
existing operations and provide economies of scale in those markets. This was
true with the acquisition of Thermogas in December 1999 where the Partnership
had direct and indirect overlaps with over 70% of the 180 Thermogas retail
locations acquired.
Aligning employee interests with common unitholders. In 1998, the
Partnership established an employee benefit plan that aligns the interests of
its employees with those of its public common unitholders. Through the Ferrell
Companies, Inc. Employee Stock Ownership Trust, employees own approximately 50%
of the Partnership's outstanding common units, allowing them to participate
directly in the Partnership's overall success. This plan is unique in the retail
propane distribution industry and the Partnership believes that the
entrepreneurial culture fostered by employee owners provides it with a distinct
competitive advantage.
Retail Distribution of Propane and Related Equipment and Supplies
The retail distribution of propane 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. During the
fiscal year ended July 31, 2001, the gross profit derived from these sales were
as follows:
o 63% from sales to residential customers
o 27% from sales to industrial and other commercial customers
o 10% from sales to agricultural and other customers.
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 2001.
Profits in the retail propane distribution 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 domestic
energy companies and on a short-term basis. Therefore, the Partnership's supply
costs fluctuate with market price fluctuations and 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 have tended 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 distributors. Over 70%
of the Partnership's retail propane 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 owning 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, which helps the
Partnership minimize customer loss.
3
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.
The Partnership purchases propane primarily from major domestic energy
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, 2001, no
supplier provided 10% or more 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.
The Partnership may purchase and store inventories of propane to avoid
delivery interruptions during periods of increased demand. The Partnership owns
three underground and four above ground storage facilities with an aggregate
capacity of approximately 206 million gallons. Currently, approximately 160
million gallons of this capacity is leased to third parties. The remaining space
is available for the Partnership's use. The Partnership also leases underground
and above ground storage at third party storage facilities and pipeline
terminals.
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
the Partnership's exposure to the volatility of floating commodity prices and to
protect the Partnership's inventory positions. The Partnership also makes use of
certain over-the-counter energy commodity options to limit overall price risk
and to hedge its exposure to inventory price movements.
4
The propane the Partnership sells to its customers is generally transported
from natural gas processing plants and refineries, pipeline terminals and
storage facilities to the Partnership's 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 its customers by the Partnership's fleet of 2,157 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.
The Partnership's retail operations also include leasing tanks to
customers, the sale of propane appliances and related parts and fittings, and
other propane related services.
Industry and Competition
Industry
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.
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 (BTU) basis in
locations served by natural gas, although propane is often sold in such areas as
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. Conversely, 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.
5
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, such as the
Partnership, 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 46%
of the total retail sales of propane in the United States and that there are
approximately 5,000 local or regional distributors. The Partnership believes
that it is the second 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 reside in close proximity to their 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 of wholesale propane
marketing, chemical feedstocks marketing, natural gas liquids storage, a
wholesale propane appliance operation, transport hauling and other. These
operations, individually and in the aggregate, make up less than 10% of the
Partnership's revenue and operating income.
The Partnership engages in the wholesale marketing and distribution of
propane to other retail propane distributors. During the past three fiscal
years, the Partnership made the following sales to wholesale customers:
Wholesale Wholesale
Fiscal year ended Gallons Sold Revenues
----------------- ------------ ---------
July 31, 2001 97 million $ 65.1 million
July 31, 2000 99 million $ 43.4 million
July 31, 1999 103 million $ 33.8 million
Employees
The Partnership has no employees and is managed by Ferrellgas, Inc.
pursuant to its partnership agreement. At September 28, 2001, Ferrellgas, Inc.
had 4,435 full-time employees and 857 temporary and part-time employees.
Ferrellgas, Inc.'s full-time employees were employed in the following areas:
Retail Locations ................................................. 3,814
Transportation and Storage ....................................... 241
Corporate Offices in Liberty, MO and Houston, TX ................. 380
-----
Total .................................................... 4,435
=====
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 risk management, wholesale propane marketing, chemical
feedstocks marketing, natural gas liquid storage, transport hauling and other
functions are operated primarily out of the Partnership's offices located in
Houston, Texas by a total full-time corporate staff of 77 people.
Governmental Regulation - Environmental and Safety Matters
The Partnership is not subject to any price or allocation regulation of
propane and propane is not a hazardous substance within the meaning of federal
and state environmental laws.
6
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 has
implemented the required discharge control systems and is in full compliance in
all material respects with current regulatory requirements.
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, and the tradename "Ferrell Transport" for most of
its third party hauling and oil field services operations. In addition, the
Partnership has a trademark on the name "FerrellMeter," its patented gas leak
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.
Ferrellgas Receivables, LLC is a wholly-owned, special purpose subsidiary
of Ferrellgas, L.P. and was organized in September 2000. Ferrellgas, L.P.
transferred 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 Standards No.
140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," Ferrellgas Receivables is accounted for using
the equity method of accounting. The accounts receivable securitization is more
fully described in "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources" and Note E to the
Consolidated Financial Statements provided herein.
7
ITEM 2. PROPERTIES.
The Partnership owns or leases the following transportation equipment that
is utilized primarily in retail operations.
Owned Leased Total
Truck tractors ................................. 71 139 210
Transport trailers ............................. 354 39 393
Bulk delivery trucks ........................... 1,302 855 2,157
Pickup and service trucks ...................... 1,526 716 2,242
Railroad tank cars ............................. -- 287 287
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
customers for propane storage. At July 31, 2001, the Partnership owned
approximately 40 million gallons of propane storage at its retail distribution
outlets. The Partnership owns the land and buildings in the applicable local
markets of approximately 50% of its operating locations and leases the remaining
facilities on terms customary in the industry.
Approximately 1,017,000 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 723,000 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 and four above-ground storage facilities
primarily located in the Upper Midwest and North Carolina that together hold 206
million gallons of product.
Storage Capacity
Location Gallons
-------- ----------------
Adamana, Arizona 105 million
Hutchinson, Kansas 92 million
Moab, Utah and above ground storage 9 million
-----------
Total 206 million
===========
Currently, approximately 160 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.
8
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 sometimes threatened with
or is named as a defendant in various lawsuits seeking 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 it believes are 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.
Currently, the Partnership is not a party to any legal proceedings other
than various claims and lawsuits arising in the ordinary course of business. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S UNITS AND RELATED UNITHOLDER MATTERS.
The common units representing limited partner interests in the Partnership
are listed and traded on the New York Stock Exchange under the symbol FGP. As of
September 28, 2001, there were 768 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 Per Unit
-------------------- ---------------------
High Low
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
2001
---------- ---------- ---------------------
First Quarter $16.94 $13.00 $0.50
Second Quarter 15.99 12.50 0.50
Third Quarter 19.85 14.92 0.50
Fourth Quarter 21.24 18.55 0.50
9
In December 1999, the Partnership issued senior units, none of which have
an established public trading market. Originally issued to a subsidiary of The
Williams Companies Inc. pursuant to the Thermogas acquisition, the senior units
were subsequently sold to an entity owned by James E. Ferrell, Chairman, Chief
Executive Officer and President of the General Partner. The issuance,
modification of terms and partial redemption of the senior units are more fully
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources" and in Notes A, C and G
to the Consolidated Financial Statements provided herein.
The Partnership makes quarterly cash distributions of its available cash,
as defined by the partnership agreement. Available cash is generally defined as
consolidated cash receipts less consolidated cash disbursements and changes in
cash reserves established for future requirements by Ferrellgas, Inc. To the
extent necessary, the Partnership will generally 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,
---------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
Income Statement Data:
Total revenues .................................. $1,468,670 $ 959,023 $ 633,349 $ 623,775 $ 811,337
Depreciation and amortization ................... 56,523 61,633 47,257 45,009 43,789
ESOP compensation charge ........................ 4,843 3,733 3,295 350 --
Operating income ................................ 126,691 57,091 60,497 52,586 67,380
Interest expense ................................ 61,544 58,298 46,621 49,129 45,769
Earnings before extraordinary loss .............. 64,068 860 14,783 4,943 23,218
Basic and diluted earnings (loss) per
common and subordinated unit-
Earnings (loss) before extraordinary loss .... 1.43 (0.32) 0.47 0.16 0.74
Cash distributions declared per common .......... 2.00 2.00 2.00 2.00 2.00
and subordinated unit
Balance Sheet Data at end of period:
Working capital $ 22,062 $ (6,344) $ (4,567) $ (443) $ 18,111
Total assets 896,159 967,907 656,745 621,223 657,076
Long-term debt 704,782 718,118 583,840 507,222 487,334
Partners' Capital:
Senior Unitholder $ 112,065 $ 179,786 $ - $ - $ -
Common Unitholders (12,959) (80,931) 1,215 27,985 52,863
Subordinated Unitholder - - (10,516) 19,908 50,337
General Partner (58,738) (58,511) (59,553) (58,976) (58,417)
Accumulated other comprehensive income (2,381) - (797) - -
10
Ferrellgas Partners, L.P.
---------------------------------------------------------------
Year Ended July 31,
---------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(in thousands)
Operating Data:
Retail propane sales volumes (in gallons) 956,718 846,664 680,477 659,932 693,995
Capital expenditures:
Maintenance $ 12,096 $ 8,917 $ 10,505 $ 10,569 $ 10,137
Growth 3,152 11,838 15,238 10,060 6,055
Acquisition 1,417 310,260 48,749 13,003 38,780
------------ ------------ ------------ ---------- ---------
Total $ 16,665 $331,015 $ 74,492 $ 33,632 $ 54,972
============ ============ ============ ========== =========
Supplemental Data:
EBITDA: $193,801 $122,101 $112,891 $98,119 $112,608
Net cash provided by operating activities $ 99,859 $ 53,352 $ 92,494 $74,337 $ 75,087
The Partnership defines EBITDA as earnings before interest, income taxes,
depreciation, amortization, other charges and non-cash items such as employee
stock ownership plan compensation charge and gain or loss on disposal of assets
and other. EBITDA provides additional information for evaluating the
Partnership's ability to make quarterly distributions and is presented solely as
a supplemental measure. You should not consider EBITDA as an alternative to
operating income, net cash provided by operating activities or any other measure
of financial performance presented in accordance with generally accepted
accounting principles. The Partnership's EBITDA may not be comparable to EBITDA
or similarly titled measures of other entities as other entities may not
calculate EBITDA in the same manner as the Partnership.
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
acquisition of retail propane operations. Acquisition capital expenditures
represent total cost of acquisitions less working capital acquired and in
fiscal 2001 does not include a $4,638,000 adjustment to working capital
related to a final valuation adjustment to record the Thermogas
acquisition. The Partnership acquired Thermogas in December 1999.
In fiscal 2001, the Partnership applied the provisions of Emerging Issues
Task Force (EITF) Issue No. 99-19 "Reporting Revenue Gross as a Principal versus
Net as an Agent", which impacts the presentation of certain revenue and cost of
product sold items. Prior to fiscal 2001, the Partnership had reported the
results of certain activities on a net margin basis in other revenue. This
included the reporting of appliance sales, material and parts sales, refined
fuel sales and certain risk management activities. In fiscal 2001 with the
application of EITF No. 99-19, the Partnership began reporting these activities
either gross as other revenues and cost of product sold or net as cost of
product sold. Certain amounts included in prior fiscal years' consolidated
financial statements have been reclassified to conform to EITF No. 99-19. These
reclassifications had no effect on gross profit or net income in any fiscal year
previously reported.
11
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.
Forward-looking statements
Statements included in this report include forward-looking statements
within the meaning of Section 21E of the Exchange Act and Section 27A of the
Securities Act. These forward-looking statements are identified as any statement
that does not relate strictly to historical or current facts. They use words
such as "anticipate," "believe," "intend," "plan," "projection," "forecast,"
"strategy," "position," "continue," "estimate," "expect," "may," "will," or the
negative of those terms or other variations of them or by comparable
terminology. In particular, statements, express or implied, concerning future
operating results, or the ability to generate sales, income or cash flow are
forward-looking statements. Forward-looking statements are not guarantees of
performance. They involve risks, uncertainties and assumptions. The
Partnership's future results may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results are beyond the Partnership's ability to control or predict. These
statements include, but are not limited to, the following:
o whether 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 its
$160,000,000 senior secured notes, to pay the required distribution on its
senior units, and to pay the minimum quarterly distribution of $0.50 per
common unit,
o whether or not the Partnership will continue to meet all of the quarterly
financial tests required by various financing instruments, and
o whether the percentage growth in retail volumes, revenue, cost of sales and
expenses will be less than the percentage growth in 2001.
Readers of this report should not put undue reliance on any forward-looking
statements. 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 risks, which are more fully described in the Partnership's 1933 Act
filings:
o the retail propane industry is a mature one,
o the effect of weather conditions on demand for propane,
o increases in propane prices may cause higher levels of conservation by the
Partnership's customers, o price, availability and inventory risk of
propane supplies,
o the timing of collections of the Partnership's accounts receivable and
increases in product costs and demand may decrease its working capital
availability,
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, including the litigation risks which may not be covered by
insurance,
o the Partnership may not be successful in making acquisitions,
o changes in interest rates, including the refinancing of long-term financing
at favorable interest rates,
o governmental legislation and regulations,
o energy efficiency and technology trends may affect demand for propane, o
the condition of the capital markets in the United States,
o the political and economic stability of the oil producing nations,
o the Partnership may sell additional limited partner interests, thus
diluting existing interests of unitholders,
12
o the distribution priority to the Partnership's common units owned by the
public terminates no later than December 31, 2005,
o the holder of the Partnership's senior units may have the right in the
future to convert the senior units into common units;
o the holder of the Partnership's senior units may be able to sell the senior
units or convert into common units with special indemnification rights
available to the holder,
o a redemption of the senior units may be dilutive to the Partnership's
common unitholders, o the terms of the senior units limit the Partnership's
use of proceeds from sales of equity and the rights of the common
unitholders,
o the current holder of the senior units has a special voting exemption if
the senior units convert into common units, and
o the expectation that the remaining senior units will be redeemed in the
future with proceeds from an offering of equity at a price satisfactory to
the Partnership.
Selected Quarterly Financial Data
Due to the seasonality of the retail distribution of propane, 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 from a subsidiary
of Williams. Thus the first and second quarters of fiscal year 2001 varied
significantly from those same quarters in fiscal 2000.
During fiscal 2001, the wholesale cost of propane increased significantly
compared to fiscal 2000. The wholesale market price at one of the major supply
points, Mt. Belvieu, Texas, averaged $0.62 per gallon in fiscal 2001 compared to
an average of $0.45 per gallon in fiscal 2000. 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 and cost of product sold in the first and
second quarters of fiscal 2001 as compared to fiscal 2000. The significant
wholesale cost increase is the primary factor causing the increase in the
Partnership's revenues and cost of product sold in the third quarter of fiscal
2001 as compared to fiscal 2000. Fiscal 2001 included a full year effect of the
Thermogas acquisition, while fiscal 2000 included seven and one half months
results from the effect of the Thermogas acquisition.
The following presents the Partnership's selected quarterly financial data
for the two years ended July 31, 2001. Certain amounts included in the four
quarterly periods ended July 31, 2000 and the three quarterly periods ended
April 30, 2001 have been reclassified to conform to the quarterly period ended
July 31, 2001 presentation. Due to net earnings (loss) variations between
quarters within a fiscal year combined with the issuance of common units in the
fourth quarter of fiscal 2001, the individual quarterly earnings per common unit
in fiscal 2001 reported below will not sum to the earnings per common unit for
the year ended fiscal 2001 reported in the Consolidated Financial Statements
included elsewhere in this report.
13
(in thousands, except per unit data)
Fiscal year ended July 31, 2001
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------- ---------------- --------------- ------------------
Revenues $288,460 $641,817 $384,393 $154,000
Gross profit 92,141 234,150 152,801 59,461
Net earnings (loss) (17,565) 94,948 30,402 (43,717)
Net earnings (loss) per
common unit - basic and
diluted (0.70) 2.85 0.81 (1.38)
Fiscal year ended July 31, 2000
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------- ---------------- --------------- ------------------
Revenues $161,482 $340,693 $302,695 $154,153
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
common unit - basic and
diluted (0.45) 1.58 0.03 (1.49)
Results of Operations
Fiscal Year Ended July 31, 2001 versus Fiscal Year Ended July 31, 2000
Gas liquid and related product sales. Total gas liquids and related product
sales increased 57.1% to $1,381,940,000, primarily due to an increased average
sales price per gallon and increased retail sales volumes. The average sales
price per gallon increased due to the effect of a significant increase in the
wholesale cost of propane during fiscal 2001, which was significantly higher as
compared to fiscal 2000. The wholesale market price at one of the major supply
points, Mt. Belvieu, Texas, averaged $0.62 per gallon this period in fiscal 2001
as compared to an average of $0.45 per gallon in same period of fiscal 2000.
Other major supply points in the United States also experienced significant
increases.
Retail sales volumes increased 13.0% to 956,718,000 gallons in fiscal 2001
as compared to 846,664,000 gallons for the prior year, primarily due to the
acquisition of Thermogas completed in December 1999 and the effect of colder
weather, partially offset by the impact of customer conservation caused by the
higher product cost environment. During the winter heating season of fiscal
2001, temperatures as reported by the American Gas Association were 5% colder
than normal as compared to temperatures 14% warmer than normal during the same
period in fiscal 2000.
Gross profit. Gross profit increased 25.8% to $538,553,000, primarily due
to increased retail margins, the effect on sales related to the colder than
normal weather and the acquired Thermogas operations, partially offset by risk
management gains realized in the first half of fiscal 2000 that were greater
than during the first half of fiscal 2001. See Note H to the Consolidated
Financial Statements included elsewhere in this report for additional
information regarding risk management activities and the accounting for
derivatives.
Operating expense. Operating expense increased 12.7% to $288,258,000
primarily due to operating expenses related to the acquired Thermogas operations
and to a lesser extent the increased cost of incentives resulting from the
improved financial performance of the Partnership. This increase was partially
offset by favorable expense management related to the completed integration of
the Thermogas acquisition and expense savings initiatives established late in
fiscal year 2000.
14
General and administrative expense. General and administrative expense
increased 3.7% to $25,508,000, primarily due to incentives resulting from the
improved financial performance of the company as compared to last year and due
to expenses incurred related to business process reviews. Prior to the
acquisition by the Partnership, Thermogas incurred in excess of $20,000,000 in
general and administrative expenses per year. As a result of Ferrellgas'
acquisition of Thermogas and the complete integration of the general and
administrative services into the Ferrellgas operations, Ferrellgas has been able
to eliminate approximately 90% of these overhead costs, thus realizing the
expected general and administrative cost reduction from the acquisition.
Depreciation and amortization expense. Depreciation and amortization
expense decreased 8.3% to $56,523,000 primarily due to the change in the
estimated residual values of customer and storage tanks, partially offset by the
depreciation and amortization expense from the addition of property, plant and
equipment and intangible assets from the Thermogas acquisition. In the first
quarter of fiscal 2001, the Partnership increased the estimate of the residual
values of its existing customer and storage tanks. This increase in the residual
values resulted from a review by management of its tank values established
through an independent tank valuation obtained in connection with a financing
completed in December 1999. Due to this change in the tank residual values,
depreciation expense decreased by approximately $12,000,000, compared to the
depreciation that would have been recorded using the previously estimated
residual values. The change in estimated residual values will continue to affect
future depreciation expense as compared to the depreciation that would have been
recorded using the previously estimated residual values.
Equipment lease expense. Equipment lease expense increased 21.4% to
$30,986,000 due to the addition of the $160,000,000 operating leases in December
1999, and to a lesser extent to upgrades to the Partnership's truck fleet.
Loss (gain) on disposal of assets and other. Loss on disposal of assets and
other increased $6,100,000 primarily due to the loss on disposal of fixed assets
and losses related to the transfer of accounts receivables pursuant to the
accounts receivable securitization. See Note E in the Consolidated Financial
Statements included elsewhere in this report for additional information
regarding the accounts receivable securitization.
Other charges. On April 6, 2001, Ferrellgas Partners announced a series of
transactions that increased the cash distribution coverage to its public
unitholders and modified the structure of its outstanding senior units. See
additional discussion of this transaction in "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources-Financing Activities." Ferrellgas Partners recognized
$3,277,000 in banking, legal and other fees related to these transactions.
Interest expense. Interest expense increased 5.6% to $61,544,000. This
increase is primarily the result of increased borrowings related to the
Thermogas acquisition, partially offset by the effect of the reduced credit
facility borrowings during fiscal 2001 and the interest rate savings resulting
from an interest rate swap arrangement in effect during most of the fiscal year.
In June 2001, the interest rate swap agreement was terminated by the
counterparty. The reduced credit facility borrowings resulted primarily from the
funds generated from the accounts receivable securitization facility. See
discussion of the transactions between the Partnership and Ferrellgas
Receivables in "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
Forward looking statements. The Partnership does not expect a similar
magnitude of percentage increase in retail volumes, revenues, cost of product
sold or expenses in fiscal 2002. These percentage increases experienced in this
fiscal year compared to the prior year were primarily a result of the impact of
the acquisition of Thermogas, the significantly higher wholesale propane prices
experienced during fiscal 2001 compared to last year, and colder winter
temperatures this year compared to last year. Also contributing to the gross
profit percentage increases this fiscal year were a strong margin environment
and favorable product purchasing and risk management operations. The interest
rate swap was terminated in the fourth quarter of fiscal 2001, therefore, the
related interest expense savings may not be repeated.
15
Fiscal Year Ended July 31, 2000 versus Fiscal Year Ended July 31, 1999
Gas liquid and related product sales. Total gas liquids and related product
sales increased 51.1% to $879,380,000 in fiscal 2000, 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 the fiscal
1999 winter 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
Thermogas partially offset by the effect of warmer weather. Other revenues
increased by $28,136,000 primarily due to the acquisition effect of Thermogas on
increased appliance and material sales, tank rental and service labor.
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 risk management results, partially offset by lower retail
margins. See Note H to the Consolidated Financial Statements included elsewhere
in this report for additional information regarding risk management activities
and the accounting for derivatives. 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 Expense. Operating expense increased 24.4% to $255,838,000 in
fiscal 2000 compared to $205,720,000 in fiscal 1999 primarily due to personnel,
plant and office, vehicle and other operating expenses incurred by 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. Equipment lease expense increased by $12,542,000
in fiscal 2000 due primarily to the addition of operating leases, and to a
lesser extent to increased operating leases related to new vehicles and
computers acquired for retail locations. See Note J to the Consolidated
Financial Statements included elsewhere in this report for additional
information regarding the operating 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.
16
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 retail propane distribution business, a
significant portion of the Partnership's cash flow from operations is typically
generated during the winter heating season which occurs during the Partnership's
second and third fiscal quarters. Typically, the Partnership generates
significantly lower cash flows from operations in its first and fourth fiscal
quarters as compared to the second and third quarters, because fixed costs
exceed gross profit during the non-peak season. However, the third and fourth
quarters of fiscal 2001 generated higher than historical cash flow from
operating activities and the second quarter of fiscal 2001 generated lower than
historical cash flow from operating activities. This variance between these
quarters in the amount of cash flow from operating activities compared to
historical levels was primarily caused by significant increases in customer
receivables related to the significantly higher than historical retail prices,
increases in retail volumes, and, to a lesser extent, by increases in the cost
of propane inventory during the first half of the year. As a result of the lower
cash flow from operating activities in the second quarter, the Partnership
generated higher than normal cash flow from operating activities in the third
and fourth quarters as customers remitted payment of the receivables invoiced
during the second quarter of fiscal 2001. Subject to meeting certain financial
tests discussed below, the General Partner believes that Ferrellgas, L.P. will
have sufficient funds available to meet its obligations, and 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. In addition,
the General Partner believes that Ferrellgas, L.P. will have sufficient funds
available to distribute to Ferrellgas Partners sufficient cash to pay the
required quarterly distribution on the senior units and the minimum quarterly
distribution on all common units during fiscal 2002. See Financing Activities
for additional information about the increased cash distribution coverage to
Ferrellgas Partners' publicly held common unitholders.
The Partnership's credit facilities, public debt, private debt, accounts
receivable securitization facility and operating tank leases contain several
financial tests and covenants restricting 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, operating tank leases and accounts receivable securitization
facility and limitations on the payment of distributions within the Ferrellgas
Partners senior secured notes. The credit facility, operating 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. 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.
Although fiscal 2001 financial performance was favorably impacted by colder
temperatures, the Partnership's financial performance during the 2000, 1999 and
1998 fiscal years was adversely impacted by average temperatures that were
reported by the National Oceanic Atmospheric Administration as the warmest in
recorded history. Despite these challenges in prior fiscal years, the
Partnership met all of its financial tests and covenants during these previous
years and fiscal 2001.
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
quarterly financial tests and covenants. However, if the Partnership were to
encounter unexpected downturns in business operations in the future, such as
significantly warmer than normal weather or a volatile cost environment, the
Partnership may not meet certain financial tests in 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 unitholders.
Depending on the circumstances, the Partnership may 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 unitholders. No
assurances can be given, however, that such alternatives can or will be
implemented with respect to any given quarter.
17
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 permitting
the delayed sale of up to $300,000,000 in equity and/or debt securities. These
registered securities would be available for issuance by the Partnership in the
future to fund acquisitions, to reduce indebtedness or to fund general corporate
purposes. On June 8, 2001, Ferrellgas Partners received $84,865,000, after
underwriting discounts, commission and expenses, from the issuance of 4,500,000
common units to the public from this shelf registration statement. See
"Financing Activities" for additional information regarding this equity
offering.
Ferrellgas Partners also maintains an additional shelf registration
statement with the Securities and Exchange Commission for the issuance of up to
2,010,484 common units. These common units may be issued by Ferrellgas Partners
only in connection with the Partnership's acquisition of another business or the
acquisition of properties or securities of another business in a business
combination transaction.
Operating Activities. Cash provided by operating activities was
$99,859,154,000 for fiscal 2001, compared to $53,352,000 for fiscal 2000. This
increased cash provided by operations is primarily due to the increased earnings
in fiscal 2001.
Investing Activities. On September 25, 2000, Ferrellgas, L.P. entered into
an account receivable securitization facility with Bank One, NA. As part of this
364-day facility, Ferrellgas, L.P. transfers an interest in a pool of its trade
accounts receivable to its wholly-owned, special purpose subsidiary, Ferrellgas
Receivables, LLC. Ferrellgas Receivables then sold its interest to a commercial
paper conduit of Banc One, NA. Ferrellgas, L.P. remits daily to Ferrellgas
Receivables funds collected on the pool of trade receivables held by Ferrell
Receivables. This facility was renewed effective September 25, 2001 for a one
year commitment with Banc One, N.A. At July 31, 2001, Ferrellgas, L.P. had
collected and remitted to Ferrellgas Receivables all but $31,000,000 of the
receivables previously sold to it. Additionally, Ferrellgas, L.P. had invested
$3,399,000 of cash into Ferrellgas Receivables related to this facility. The
level of funding available from this accounts receivable facility agreement is
currently limited to $60,000,000. See Note E in the Consolidated Financial
Statements included elsewhere in this report for additional information
regarding these transactions.
During the twelve months ended July 31, 2001, the Partnership made
acquisitions of three businesses with an aggregate value of $418,000. The
purchase was funded by $200,000 of cash payments and the issuance of $218,000 of
notes payable to the seller.
In fiscal 2000, the Partnership had accrued $7,033,000 in involuntary
employee termination benefits and exit costs, which it expected to incur within
twelve months from the acquisition date as it implemented 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. The Partnership paid
$2,788,000 and $1,306,000 for termination benefits and $491,000 and $890,000 for
exit costs in fiscal years 2001 and 2000, respectively. The remaining liability
for termination benefits and exit costs was reduced in fiscal 2001 by $1,558,000
as an adjustment to goodwill.
18
During fiscal 2001, the Partnership made growth and maintenance capital
expenditures of $15,248,000 consisting primarily of :
o vehicle lease buyouts,
o relocating and upgrading district plant facilities,
o upgrading computer equipment and software, and
o additions to propane storage tanks and cylinders.
Historically, the Partnership's capital requirements for repair and
maintenance of property, plant and equipment have been relatively low due to
limited technological change and long useful lives of propane tanks and
cylinders. The Partnership has recently completed a review of its key business
processes to identify areas where it can use technology and process enhancements
to improve its operations. Specifically, the Partnership has identified areas
where it can reduce operating expenses and improve customer satisfaction in the
near future. These areas under review include improvements to the routing and
scheduling of customer deliveries, customer administration and operational
workflow. During fiscal 2002, the Partnership expects to allocate considerable
resources toward these improvements and intends to fund the necessary capital
requirements primarily from excess cash from operations generated during fiscal
2001.
The Partnership leases computers and light and medium duty trucks, tractors
and trailers. The Partnership believes vehicle leasing is a cost-effective
method for meeting its transportation and technology equipment needs. The
Partnership purchased $3,012,000 of vehicles whose lease terms expired in fiscal
2001 or would have expired in fiscal 2002. The Partnership plans to purchase
additional vehicles and computers at the end of their lease term totaling
$781,000 in fiscal 2002, $1,203,000 in fiscal 2003, $1,488,000 in fiscal 2004,
$1,342,000 in fiscal 2005 and $1,009,000 in fiscal 2006. The Partnership intends
to renew other vehicle and tank leases that would have had buyouts of $5,137,000
in fiscal 2002, $161,109,000 in fiscal 2003, $3,789,000 in fiscal 2004,
$2,744,000 in fiscal 2005 and $815,000 in fiscal 2006. Historically, the
Partnership has been successful in renewing leases subject to buyouts. However,
there is no assurance that it will be successful in the future. The large amount
to be renewed in fiscal 2003, primarily relates to the operating tank leases
entered into at the time of the Thermogas acquisition. These two leases have
terms that expire June 30, 2003 and the Partnership intends to exercise its
option on the two additional one-year periods, if such extension is approved by
the lessor. At the end of the renewal dates, the Partnership intends to secure
additional financing in order to either lease or purchase the related tanks. See
Note J in the Consolidated Financial Statements included elsewhere in this
report for additional information regarding these leases.
The Partnership continues to consider opportunities to expand its
operations through strategic acquisitions of retail propane operations located
throughout the United States.
Financing Activities. On June 8, 2001, the Partnership received
$84,865,000, net of issuance costs, pursuant to the issuance of 4,500,000 common
units to the public. The Partnership then used these proceeds to redeem
2,048,697 senior units, to pay the related accrued senior unit distribution and
to pay related issuance fees. After the completion of these transactions, the
exercise of 101,250 common unit options and an additional redemption of 37,915
senior units in July 2001, the Partnership had outstanding 35,908,366 common
units and 2,801,622 senior units. The common units issued to the public on June
8, 2001, and common units issued pursuant to options exercised in the fourth
quarter of fiscal 2001, are entitled to a distribution equivalent to the
distribution expected to be paid to the already outstanding publicly held common
units for the quarter ended July 31, 2001.
19
On April 6, 2001, the Partnership announced a series of transactions that
increased the cash distribution coverage to its public common unitholders and
modified the structure of its outstanding senior units. In addition, the
Partnership announced that an entity owned by the General Partner's Chairman,
Chief Executive Officer and President, James E. Ferrell, purchased all its
outstanding senior units from Williams for a purchase price of $195,529,000 plus
any accrued and unpaid distributions. The senior units are now paid quarterly
cash distributions from Ferrellgas Partners equivalent to 10 percent per annum
of the liquidating value. The senior units are redeemable by the Partnership at
any time, in whole or in part, upon payment in cash of the liquidating value of
the senior units, currently $40 per unit, plus the amount of any accrued and
unpaid distributions. The holder of the senior units has the right, subject to
certain events and conditions, to convert any outstanding senior units into
common units at the earlier of December 31, 2005 or upon the occurrence of a
material event as defined by the Partnership Agreement. Such conversion rights
are contingent upon the Partnership not previously redeeming such securities.
Also Ferrell Companies granted the Partnership the ability to defer future
distributions on the common units held by it up to an aggregate outstanding
amount of $36,000,000 until December 31, 2005.
Ferrellgas, L.P.'s credit facility, which expires June 30, 2003, is
unsecured and consists of a $117,000,000 working capital, general corporate and
acquisition facility, including a letter of credit sub-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
(LIBOR) 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, 2001 and July 31, 2000 was 6.75% and
9.5%, respectively. During fiscal 2001, the Partnership repaid $30,000,000 of
its credit facility.
At July 31, 2001, no borrowings and $46,660,000 of letters of credit were
outstanding under the Ferrellgas, L.P. credit facility. Effective July 16, 2001,
the credit facility was amended to increase the letter of credit sub-facility
availability from $60,000,000 to $80,000,000. At July 31, 2001, Ferrellgas, L.P.
had $110,340,000 available for general corporate, acquisition and working
capital purposes under the credit facility. Based on the pricing grid contained
in the credit facility, the current borrowing rate for future borrowings under
the credit facility is LIBOR plus 1.50%. The Partnership believes that these
facilities will be sufficient to meet its future working capital needs. However,
if the Partnership were to experience an unexpected significant increase in
working capital requirements, it could exceed its immediately available
resources. Events that could cause increases in working capital requirements
include a significant increase in the cost of propane, 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 could be implemented.
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 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 Ferrellgas, L.P. at
the end of each March, June, September and December the excess, if any, of the
applicable three month floating LIBOR 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, 2001 was $157,600,000.
The Ferrellgas Partners $160,000,000 senior secured notes, issued in April
1996 and due June 2006, became redeemable at the option of Ferrellgas Partners,
in whole or in part, at any time after June 15, 2001. The Partnership does not
currently plan to exercise its option to redeem these notes, in whole or in
part, however, there can be no assurance the Partnership will not exercise this
option. Effective April 27, 2000, the Partnership entered into an interest rate
swap agreement with Bank of America, related to the semi-annual interest payment
due on these notes. The swap agreement, which was terminated at the option of
Bank of America on June 15, 2001, required Bank of America to pay the stated
fixed interest rate (annual rate 9.375%) equaling $7,500,000 every six months
due on each June 15 and December 15. In exchange, the Partnership was 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 three month
LIBOR interest rate plus 1.655% applied to the same notional amount of
$160,000,000. The Partnership resumed paying the stated fixed interest rate
(annual rate 9.375%) effective June 15, 2001.
20
On February 28, 2000, Ferrellgas, L.P. issued $184,000,000 of privately
placed unsecured senior notes. The proceeds of these 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 December 17, 1999, the Partnership purchased Thermogas from a subsidiary
of Williams. Part of the consideration paid to Williams at closing by the
Partnership was $175,000,000 in newly issued senior units. On April 6, 2001,
these units were acquired by an entity owned by James E. Ferrell, the General
Partner's Chairman, Chief Executive Officer and President. During the fourth
quarter of fiscal 2001, Ferrellgas Partners, L.P. redeemed 2,086,612 senior
units and intends to redeem the remaining 2,801,622 senior units at the
redemption value prior to the date of conversion. No assurances can be given
that the Partnership will be successful in selling additional equity or securing
the financing to redeem the remaining senior units.
On December 6, 1999, Ferrellgas, L.P. entered into a $25,000,000 operating
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 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 lease, which have terms and
conditions similar to the December 6, 1999, $25,000,000 operating 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. See related discussion in the
Investing Activities section of Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources.
On August 4, 1998, Ferrellgas, L.P. issued the privately placed unsecured
$350,000,000 senior notes. The senior notes include five series with maturities
ranging from year 2005 through 2013 at an average fixed interest rate of 7.16%.
On September 14, 2001, the Partnership paid cash distributions of $1.00 per
senior unit and $0.50 per common unit.
Adoption of New Accounting Standards. The Financial Accounting Standards
Board (FASB) recently issued Statement of Financial Accounting Standards (SFAS)
No. 141 "Business Combinations", SFAS No. 142 "Goodwill and Other Intangible
Assets", SFAS No. 143 "Accounting for Asset Retirement Obligations" and SFAS No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets."
SFAS No. 141 requirements include, among other things, that all business
combinations be accounted for by a single method - the purchase method. It
applies to all business combinations initiated after June 30, 2001. The
Partnership has historically accounted for business combinations using the
purchase method, therefore, this new standard will not have a substantial impact
on how the Partnership accounts for future combinations.
SFAS No. 142 modifies the financial accounting and reporting for acquired
goodwill and other intangible assets, including the requirement that goodwill
and some intangible assets no longer be amortized. Also some intangibles will be
reclassified to goodwill. The Partnership has elected to adopt SFAS No. 142
beginning in the first quarter of fiscal 2002. Although there will be no cash
21
flow effect, the Partnership believes its amortization expense will decrease by
$10,600,000 in fiscal 2002, compared to the amortization that would have been
recorded had the new accounting standard not been issued. This new standard also
requires the Partnership to test goodwill for impairment at the time the
standard is adopted and also on an annual basis. The Partnership believes that
the results of the initial impairment test of goodwill performed at the time the
standard is adopted will not have a material effect on its financial position,
results of operations or cash flows.
SFAS No. 143 requires the recognition of a liability if a company has a
legal or contractual financial obligation in connection with the retirement of a
tangible long-lived asset. The Partnership expects to implement SFAS No. 143
beginning in the fiscal year ending July 31, 2003, and is currently assessing
its effect on the Partnership's financial position, results of operations and
cash flows.
SFAS No. 144 modifies the financial accounting and reporting for long-lived
assets to be disposed of by sale and it broadens the presentation of
discontinued operations to include more disposal transactions. The Partnership
expects to implement SFAS No. 144 beginning in the fiscal year ending July 31,
2003, and is currently assessing its effect on the Partnership's financial
position, results of operations and 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. The Partnership's risk management trading activities utilize
certain types of energy commodity forward contracts, options, 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's risk management activities, other than
trading, also utilizes certain over-the-counter energy commodity forward
contracts and 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 trading and other than
trading risk management policies. These policies include 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 forwards,
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. In order to minimize the
liquidity risk of cash, margin or collateral requirements of counterparties for
over-the-counter instruments, the Partnership attempts to balance maturities and
positions with individual counterparties.
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 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 $8,000,000 and $4,448,000 for trading and $1,400,000 and $940,000
for other than trading activities as of July 31, 2001 and 2000, respectively.
The preceding hypothetical analysis is limited because changes in prices may or
may not equal 10%, thus, actual results may differ.
22
Additionally, the Partnership seeks to mitigate its variable rate interest
rate risk exposure on operating leases by entering into interest rate cap
agreements. At July 31, 2001, the Partnership had no variable rate debt,
$157,600,000 outstanding in variable rate operating leases and an equal amount
of interest rate cap agreements outstanding to hedge the related variable rate
exposure. The operating leases were entered into during fiscal 2000. Thus,
assuming a 100 basis point increase in the variable interest rate to the
Partnership during fiscal 2002, the interest rate risk related to the operating
leases and the associated interest rate cap agreements would be a decrease to
earnings of $1,569,000.
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 then outstanding swap transaction. The
variable rate debt included $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 an equal amount of interest rate cap agreements outstanding
to mitigate the related variable rate exposure. Both the operating leases and
interest rate cap 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 leases, the swap transaction and the associated interest rate collar
and cap agreements would have been a decrease to earnings of $3,370,000.
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.
23
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. nor an 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, rather, these individuals are employed by
Ferrellgas, Inc. At September 28, 2001, 4,435 full-time and 857 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 September 28, 2001.
Each of the persons named below is elected to their respective office or offices
annually.
Director
Name Age Since Position
---- --- -------- --------
James E. Ferrell 62 1984 Chairman of the Board,
Chief Executive Officer,
President and a Director
of Ferrellgas, Inc.
Patrick J. Chesterman 51 Executive Vice President
and Chief Operating
Officer
James M. Hake 41 Senior Vice President,
Administration
Kevin T. Kelly 36 Senior Vice President
and Chief Financial
Officer
A. Andrew Levison 45 1994 Director of
Ferrellgas, Inc.
Elizabeth T. Solberg 62 1998 Director of
Ferrellgas, Inc.
Michael F. Morrissey 59 1999 Director of
Ferrellgas, Inc.
24
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.
James M. Hake--Mr. Hake was named Senior Vice President, Administration in
January, 2001. He had been Senior Vice President or Vice President, Corporate
Development/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
and Chief Financial Officer in May 1998. After joining Ferrellgas, Inc. in June
1996, he served as Director of Finance and Corporate Controller until May 1998.
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 and Midwest Express Holdings since
2001.
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.
25
Officers, directors and unitholders with greater than 10% ownership 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
2001 all filing requirements applicable to its officers, directors, and
beneficial owners with greater than 10% ownership were met in a timely manner.
ITEM 11. Executive Compensation.
Summary Compensation Table
The following table sets forth the compensation for the past three fiscal
years of Ferrellgas, Inc.'s chief executive officer and the three most highly
compensated executive officers other than the chief executive officer, who were
serving as executive officers at the end of the 2001 fiscal year.
Long-Term Compensation
-------------------------------
Annual Compensation Awards Pay-outs
------------------------- --------------- ---------------
Securities Long-Term
Underlying Incentive All Other
Name and Salary Bonus (1) Options(2) Payouts Compensation
Principal Position Year ($) ($) (#) ($) ($)
--------------------------------- ------ ------------ ------------ --------------- --------------- --------------------
James E. Ferrell (3) 2001 431,075 1,000,000 1,050,000 --- 9,682 (4)
Chairman, Chief Executive
Officer and President
Patrick J. Chesterman 2001 285,900 425,000 90,000 --- 8,714 (4)
Executive Vice President, 2000 212,646 202,125 50,000 --- 13,701
And Chief Operating Officer 1999 198,338 110,000 200,000 --- 31,197
James M. Hake 2001 192,000 115,000 115,000 --- 6,306 (4)
Senior Vice President, 2000 182,226 75,000 25,000 --- 9,594
Administration 1999 181,667 55,830 200,000 --- 8,140
Kevin T. Kelly 2001 180,000 208,000 120,000 --- 9,619 (4)
Senior Vice President and 2000 160,319 75,000 75,000 --- 8,184
Chief Financial Officer 1999 142,808 25,000 150,000 --- 5,001
(1) Awards under bonus plans are for the year reported, regardless of the year
paid.
(2) The awards are grants of unit options from the Ferrellgas, Inc. Unit Option
Plan and stock options from the Incentive Compensation Plan, a stock option
plan of Ferrell Companies (see below for unit option and stock option grant
tables).
(3) On October 5, 2000, James E. Ferrell was named the Chief Executive Officer,
President and Director of Ferrellgas, Inc. and affiliates.
(4) Includes for Mr. Ferrell contributions of $9,682 to the employee's 401(k)
and profit sharing plans. Includes for Mr. Chesterman contributions of
$8,065 to the profit sharing plans and compensation of $649 resulting from
the payment of life insurance premiums. Includes for Mr. Hake contributions
of $5,766 to the employee's 401(k) and profit sharing plans and
compensation of $540 resulting from the payment of life insurance premiums.
Includes for Mr. Kelly contributions of $9,619 to the employee's 401(k) and
profit sharing plans.
26
Unit Options
The Amended and Restated Ferrellgas, Inc. Unit Option Plan grants key
employees options to purchase Ferrellgas Partner's common units. The original
Unit Option Plan was adopted in October 1994. 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 1,229,200 options to purchase common units as
of July 31, 2001, at prices ranging from $16.80 to $21.67 per unit, which was an
estimate of the fair market value of the units at the time of the grant. The
options generally vest over a five-year period, and expire on the tenth
anniversary of the date of the grant. On July 31, 2001, 503,543 of the unit
options outstanding were exercisable.
The following table lists information on the named executive officers' unit
options granted during the fiscal year ended July 31, 2001.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grant (1)
---------------------------------------------------------------------------------------
Number of
Securities % of Total Options
Underlying Granted to Exercise
Options Employees in Price Expiration Grant date
Name Granted Fiscal Year ($/Unit) Date Present value $ (2)
-------------------------- ------------- -------------------- ----------- ------------ -----------------------
James E. Ferrell 300,000 46.0 17.90 04-19-11 767,000
Patrick J. Chesterman 90,000 13.8 17.90 04-19-11 230,000
James M. Hake 90,000 13.8 17.90 04-19-11 230,000
Kevin T. Kelly 95,000 14.6 17.90 04-19-11 243,000
(1) Unit Options vest over five years.
(2) Based on a binomial option valuation model. The key input variables used in
valuing the options were the following: risk-free interest rate - 4.4%;
distribution amount of $0.50 per unit per quarter; common unit price
volatility of 23.2%; options exercised on earliest possible dates, i.e.,
April, 2002, assuming certain financial tests are achieved. Additionally,
it was assumed that the Partnership will make its Minimum Quarterly
Distribution each quarter. The New York Stock Exchange "Monthly Market
Statistics Report" was used and the volatility variable reflected over six
years of historical common unit price trading data. No adjustments for
non-transferability or risk of forfeiture were made. The actual value, if
any, a grantee may realize will depend on the excess of the common unit
price over the exercise price on the date the option is exercised, so that
there is no assurance the value realized will be at or near the value
estimated by the binomial option valuation model.
The following table lists information on the CEO and named executive
officers' exercised/unexercised unit options as of September 28, 2001.
27
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-The-Money Options at
At Fiscal Year-End (#) Fiscal Year-End ($)
------------------------- ---------------------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
----------------------------- --------------- -------------- ---------------------- -----------------------
James E. Ferrell 0 0 0/300,000 0/300,000
Patrick J. Chesterman 0 0 30,000/90,000 6,300/90,000
James M. Hake 0 0 51,000/90,000 75,600/90,000
Kevin T. Kelly 0 0 10,000/95,000 0/95,000
Employee Stock Ownership Plan
On July 17, 1998, pursuant to the Ferrell Companies, Inc. Employee Stock
Ownership Plan, an employee stock ownership trust purchased all of the
outstanding common stock of Ferrell. The purpose of the Employee Stock Ownership
Plan is to provide employees of Ferrellgas, Inc. an opportunity for ownership in
Ferrell Companies and indirectly in the Partnership. Ferrell Companies makes
contributions to the Employee Stock Ownership Plan which allows a portion of the
shares of Ferrell Companies owned by the Employee Stock Ownership Plan to be
allocated to employees' accounts over time.
Incentive Compensation Plan
On July 17, 1998, a stock option plan was established by Ferrell Companies
to allow upper-middle and senior level managers of Ferrellgas, Inc. to
participate in the equity growth of Ferrell Companies, and indirectly in the
equity growth of the Partnership. The shares underlying the stock options are
common shares of Ferrell Companies. The following table lists information on the
named executive officers' stock options granted during the fiscal year ended
July 31, 2001.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grant
---------------------------------------------------------------------------------------
Number of
Securities % of Total Options
Underlying Granted to Exercise
Options Employees in Price Expiration Grant date
Name Granted Fiscal Year ($/Share) Date Present value $
-------------------------- ------------- -------------------- ----------- ------------ -----------------------
James E. Ferrell 750,000 60.5 4.28 01-31-20 756,000
James M. Hake 25,000 0.2 4.28 01-31-20 25,200
Kevin T. Kelly 25,000 0.2 4.28 01-31-20 25,200
The Ferrell Companies stock options vest ratably in 5% to 10% increments
over 12 years or 100% upon a change of control of Ferrell Companies, or the
death, disability or retirement at the age of 65 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 5.2%; dividend amount of $0; Ferrell Companies stock
price volatility of 13.2%; options exercised 25% in 2006, 25% in 2007 and 10% in
28
years 2009 through 2013, because this is most likely assuming the Ferrell
Companies debt is retired as scheduled. No adjustments for non-transferability
or risk of forfeiture were made. The actual value, if any, a grantee may realize
will depend on the excess of the Ferrell Companies stock price over the exercise
price on the date the option is exercised, so that there is no assurance the
value realized will be at or near the value estimated by the binomial option
valuation model.
The following table lists information on the CEO and named executive
officers' exercised/unexercised stock options as of July 31, 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-The-Money Options at
At Fiscal Year-End (#) Fiscal Year-End ($)
------------------------- ---------------------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
------------------------------ -------------- -------------- ---------------------- -----------------------
James E. Ferrell 0 0 0/750,000 0/885,300
Patrick J. Chesterman 0 0 0/250,000 0/292,000
James M. Hake 0 0 0/250,000 0/264,000
Kevin T. Kelly 0 0 0/250,000 0/295,100
Profit Sharing Plan
The Ferrell Companies, Inc. Profit Sharing and 401(k) Investment Plan is a
qualified defined contribution plan which includes both profit sharing and
matching contributions. 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. With the
establishment of the employee stock ownership plan in July 1998, the Partnership
suspended future profit sharing contributions to the plan beginning with fiscal
year 1998. The 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 plan. The plan also provides for matching contributions under
a cash or deferred arrangement based upon participant salaries and employee
contributions to the plan. Unlike the profit sharing contributions, these
matching contributions were not eliminated with the establishment of the ESOP.
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
In April 2001, the independent board of directors modified the amount of
compensation paid to Mr. James E. Ferrell as Chairman, Chief Executive Officer
and President of Ferrellgas, Inc. pursuant to Mr. Ferrell's existing employment
agreement dated July 17, 1998. Effective October 2000, Mr. Ferrell's annual
salary was increased to $500,000. He is also entitled to an annual bonus, the
amount to be determined in the sole discretion of the independent board members.
29
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 stock option plan of Ferrell Companies.
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, following his termination of employment, 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, 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 compensation paid for the prior three fiscal
years. The employment agreements also state that Messrs. Chesterman, Hake, and
Kelly will receive an annual salary of not less than $285,000, $192,000, and
$180,000, respectively.
Messrs. Chesterman, Hake 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.
Compensation of Directors
Ferrellgas, Inc. does not pay any additional remuneration to its employees
for serving as directors. Directors who are not employees of Ferrellgas, Inc.
receive an annual retainer of $16,000. They also 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 September 28,
2001, 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. Ferrellgas, Inc. knows of no other person beneficially owning more
than 5% of the common units. The senior units currently are not voting
securities of the Partnership and therefore are not presented in the table
below.
30
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 49.6
James E. Ferrell 15,000 *
Patrick J. Chesterman 30,200 *
James M. Hake 51,400 *
Kevin T. Kelly 10,700 *
Elizabeth T. Solberg 8,200 *
A. Andrew Levison 35,300 *
Michael F. Morrissey 775 *
All Directors and Executive
Officers as a Group 151,575 *
* Less than one percent
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 $194,519,000 for the year ended July 31,
2001, 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, Williams became a related party to the Partnership due
to the Partnership's issuance of 4,375,000 senior units to a subsidiary of
Williams as part of the Thermogas acquisition. In April 2001, Williams sold all
of their senior units to JEF Capital Management, Inc., an entity owned by James
31
E. Ferrell, Chairman, Chief Executive Officer and President of the General
Partner, and thereafter, ceased to be a related party of the Partnership. See
further discussion of senior units and the Thermogas acquisition in Notes G and
N of the Consolidated Financial Statements provided herein. During fiscal 2001
the Partnership recognized wholesale sales of $493,000 to Williams. In
connection with its normal purchasing and risk management activities, the
Partnership entered into, with Williams as a counterparty, certain purchase,
forward, futures, option and swap contracts. During fiscal 2001, the Partnership
recognized a net decrease to cost of sales of $4,456,000 on the consolidated
statements of earnings. The Partnership believes these transactions were under
terms that were no less favorable to the Partnership than those available with
third parties. At July 31, 2001, Williams was no longer a related party.
On April 6, 2001 Williams approved amendments to the Ferrellgas Partners
partnership agreement related to the terms of the senior units. Williams then
sold all of those senior units for a purchase price of $195,529,000 plus any
accrued and unpaid distributions to JEF Capital Management. The senior units
currently have the same terms and preference rights in distributions and
liquidation as when they were owned by Williams. As a member of Ferrellgas,
Inc.'s board of directors and the board of directors of Ferrell Companies, Mr.
Ferrell abstained from voting on the April 2001 partnership agreement amendment,
leaving the approval to the remaining directors. All of the other members of
those respective boards of directors were independent, had no financial interest
in the amendments and voted unanimously in favor of the amendments. Mr. Ferrell
has an ongoing interest in the terms of the senior units and the timing of
future redemptions of the senior units by the MLP.
During the fourth quarter of fiscal 2001, the Partnership paid to JEF
Capital Management $83,464,000 to redeem a total of 2,086,612 senior units and
$2,951,000 in senior unit distributions. As of July 31, 2001, the Partnership
had recognized a senior unit distribution of $2,801,622 payable to JEF Capital
Management on September 14, 2001.
During fiscal 2001, two affiliates of the Partnership, Ferrell
International Limited and FI Trading, Inc., which are owned by James E. Ferrell,
entered into certain forward, option and swap contracts with the Partnership as
a counterparty. In connection with these normal purchasing and risk management
transactions, the Partnership recognized net increase to cost of sales of
$28,329,000. There were no amounts due from or due to Ferrell International
Limited or FI Trading at July 31, 2001.
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 2001. The Partnership believes these transactions
were under terms that were no less favorable to the Partnership than those
available with third parties.
The Partnership also leased propane tanks from Ferrell Propane, Inc., a
subsidiary of the Ferrellgas, Inc., the general partner, 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
fiscal 2001.
See Note I to the Consolidated Financial Statements 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 filed five Form 8-Ks during the quarter ended July 31, 2001.
Items
Date of Report Reported Financial Statements Filed
-------------- ------------ ---------------------------
May 15, 2001 9 None
May 23, 2001 5 and 7c a) unaudited consolidated balance sheet as
of 4/30/01
b) unaudited consolidated statements of
earnings for the three and nine
months ended 4/30/01
May 29, 2001 7c None
June 5, 2001 5 and 7c None
June 5, 2001 5 and 7c None
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
--------------------------------
Chairman, 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 Chairman, President and 10/19/01
Chief Executive Officer
(Principal Executive Officer)
/s/ A. Andrew Levison Director 10/19/01
/s/ Elizabeth T. Solberg Director 10/19/01
/s/ Michael F. Morrissey Director 10/19/01
/s/ Kevin T. Kelly Senior Vice President and Chief 10/19/01
Financial Officer (Principal
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
--------------------------------
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, 10/19/01
Sole Director (Principal
Executive Officer)
/s/ Kevin T. Kelly Chief Financial Officer 10/19/01
(Principal Financial and
Accounting Officer)
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., Ferrellgas,
L.P and Williams Natural Gas Liquids, Inc., dated 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 First Amendment to Purchase Agreement, dated as of December 17, 1999,
by and among Ferrellgas Partners, L.P., Ferrellgas, L.P., and Williams
Natural Gas Liquids, Inc. Incorporated by reference to the same
numbered Exhibit to the Registrant's Current Report on Form 8-K filed
December 29, 1999.
2.3 Second Amendment to Purchase Agreement dated 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.
2.4 Third Amendment to Purchase Agreement dated as of April 6, 2001 by and
among Ferrellgas Partners, L.P., Ferrellgas L.P. and The Williams
Companies, Inc. Incorporated by reference to Exhibit 10.1 to
Registrant's Current Report on Form 8-K filed April 6, 2001.
3.1 Third Amended and Restated Agreement of Limited Partnership of
Ferrellgas Partners, L.P., dated as of April 6, 2001. Incorporated by
reference to the same numbered Exhibit to Registrant's Current Report
on Form 8-K filed April 6, 2001.
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.
4.2 Ferrellgas, L.P., Note Purchase Agreement dated as of July 1, 1998
relating to:
$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, and
$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
E-1
Exhibit
Number Description
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 relating to: $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.
4.6 Second Amendment to the Registration Rights Agreement dated as of
April 6, 2001 by and between Ferrellgas Partners, L.P. and The
Williams Companies, Inc. Incorporated by reference to Exhibit 10.3 to
Registrant's Current Report on Form 8-K filed April 6, 2001.
4.7 Representations Agreement dated as of December 17, 1999 by and among
Ferrellgas Partners, L.P., Ferrellgas, Inc., Ferrellgas, L.P. and
Williams Natural Gas Liquids, Inc. Incorporated by reference to
Exhibit 2.3 to Registrant's Current Report on Form 8-K filed December
29, 1999.
4.8 First Amendment to Representations Agreement dated as of April 6, 2001
by and among Ferrellgas Partners, L.P., Ferrellgas, Inc., Ferrellgas,
L.P. and The Williams Companies, Inc. Incorporated by reference to
Exhibit 10.2 to Registrant's Current Report on Form 8-K filed April 6,
2001.
# 10.1 Ferrell Companies, Inc. Supplemental Savings Plan. Incorporated by
reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K
filed October 17, 1995.
# 10.2 Second Amended and Restated Ferrellgas, Inc. Unit Option Plan.
Incorporated by reference to Exhibit 10.1 to Registrant's Current
Report on Form 8-K filed on June 5, 2001.
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. Exhibit Number Description
# 10.5 Ferrell Companies, Inc. 1998 Incentive Compensation Plan -
Incorporated by reference to 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 Exhibit 10.13 to
Registrant's Annual Report on Form 10-K filed October 29, 1998.
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.
E-2
Exhibit
Number Description
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
purchasers and lenders named therein. 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 and lenders named therein. Incorporated by reference to
Exhibit 10.2 to Registrant's Current Report on Form 8-K filed December
29, 1999
* 10.11 Omnibus Amendment Agreement dated as of February 4, 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.
* 10.12 Omnibus Amendment Agreement dated as of February 4, 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.
10.13 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.
10.14 Omnibus Amendment Agreement No. 2, Dated as of April 18, 2000 in
respect of Thermogas 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.
10.15 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.
10.16 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.
E-3
Exhibit
Number Description
10.17 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
10.18 Receivable Interest Sale Agreement dated as of September 26, 2000
between Ferrellgas, L.P., as Originator, and Ferrellgas Receivables,
L.L.C., as buyer.
10.19 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.
# 10.20 Employment agreement between Patrick Chesterman and Ferrellgas, Inc.
dated July 31, 2000.
# 10.21 Employment agreement between James Hake and Ferrellgas, Inc. dated
July 31, 2000.
# 10.22 Employment agreement between Kevin Kelly and Ferrellgas, Inc. dated
July 31, 2000.
10.23 First Amendment to the Third Amended and Restated Credit Agreement
dated as of January 17, 2001, 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 March 14, 2001.
10.24 Omnibus Amendment Agreement No. 3, dated as of December 28, 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 10.2 to Registrant's
Quarterly Report on Form 10-Q filed March 14, 2001.
10.25 Omnibus Amendment Agreement No. 3, dated as of December 28, 2000 in
respect of Thermogas Trust No. 1999-A Participation Agreement Lease
Intended as Security Loan Agreement each dated as of December 15,
1999. Incorporated by reference to Exhibit 10.3 to Registrant's
Quarterly Report on Form 10-Q filed March 14, 2001.
10.26 First Amendment to the Receivable Interest Sale Agreement dated as of
January 17, 2001 between Ferrellgas, L.P., as originator, and
Ferrellgas Receivables, L.L.C., as buyer. Incorporated by reference to
Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q filed March
14, 2001.
E-4
Exhibit
Number Description
10.27 First Amendment to the Receivables Purchase Agreement dated as of
January 17, 2001 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. Incorporated by reference to
Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q filed March
14, 2001.
* 10.28 Second Amendment to the Third Amended and Restated Credit
Agreement dated as of July 16, 2001, among Ferrellgas, L.P.,
Ferrellgas, Inc., Bank of America National Trust and Savings
Association, as agent, and the other financial institutions party
thereto.
* 10.29 Second Amendment to the Receivables Purchase Agreement dated as
of September 25, 2001 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.
* 21.1 List of subsidiaries.
* 23.1 Consent of Deloitte & Touche, LLP, independent auditors.
--------------------------------------------------------------------------------
* Filed herewith
# Management contracts or compensatory plans.
E-5
INDEX TO FINANCIAL STATEMENTS
Page
Ferrellgas Partners, L.P. and Subsidiaries
Independent Auditors' Report...........................................F-2
Consolidated Balance Sheets - July 31, 2001 and 2000...................F-3
Consolidated Statements of Earnings -
Years ended July 31, 2001, 2000 and 1999............................F-4
Consolidated Statements of Partners' Capital -
Years ended July 31, 2001, 2000 and 1999............................F-5
Consolidated Statements of Cash Flows -
Years ended July 31, 2001, 2000 and 1999............................F-6
Notes to Consolidated Financial Statements.............................F-7
Ferrellgas Partners Finance Corp.
Independent Auditors' Report..........................................F-25
Balance Sheets - July 31, 2001 and 2000...............................F-26
Statements of Earnings -
Years ended July 31, 2001, 2000 and 1999...........................F-27
Statements of Stockholder's Equity -
Years ended July 31, 2001, 2000 and 1999...........................F-28
Statements of Cash Flows -
Years ended July 31, 2001, 2000 and 1999...........................F-29
Notes to Financial Statements.........................................F-30
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, 2001 and
2000, and the related consolidated statements of earnings, partners' capital and
cash flows for each of the three years in the period ended July 31, 2001. 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, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
2001, in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 14, 2001
F-2
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
July 31,
--------------------------
ASSETS 2001 2000
-------------------------------------------------------------------- ------------ -----------
Current Assets:
Cash and cash equivalents $ 25,386 $ 14,838
Accounts and notes receivable (net of
allowance for doubtful accounts of $3,159 and
$2,388 in 2001 and 2000, respectively) 56,772 89,801
Inventories 65,284 71,979
Prepaid expenses and other current assets 10,504 8,275
------------ -----------
Total Current Assets 157,946 184,893
Property, plant and equipment, net 491,194 516,183
Intangible assets, net 230,918 256,476
Other assets, net 16,101 10,355
------------ -----------
Total Assets $896,159 $967,907
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
--------------------------------------------------------------------
Current Liabilities:
Accounts payable $58,274 $95,264
Other current liabilities 77,610 77,631
Short-term borrowings - 18,342
------------ -----------
Total Current Liabilities 135,884 191,237
Long-term debt 704,782 718,118
Other liabilities 15,472 16,176
Contingencies and commitments (Note J) - -
Minority interest 2,034 2,032
Partners' Capital:
Senior unitholder (2,801,622 and 4,652,691 units outstanding
at 2001 and 2000, respectively - liquidation preference 112,065 179,786
$112,065 and $186,108, respectively)
Common unitholders (35,908,366 and 31,307,116 units
outstanding in 2001 and 2000, respectively) (12,959) (80,931)
General partner (362,711 and 316,233 units outstanding at
2001 and 2000, respectively) (58,738) (58,511)
Accumulated other comprehensive income (2,381) -
------------ -----------
Total Partners' Capital 37,987 40,344
------------ -----------
Total Liabilities and Partners' Capital $896,159 $967,907
============ ===========
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,
--------------------------------------
2001 2000 1999
------------- ----------- -----------
Revenues:
Gas liquids and related product sales $1,381,940 $879,380 $581,842
Other 86,730 79,643 51,507
------------- ----------- -----------
Total revenues 1,468,670 959,023 633,349
Cost of product sold (exclusive of
depreciation, shown separately below) 930,117 530,979 282,588
------------- ----------- -----------
Gross profit 538,553 428,044 350,761
Operating expense 288,258 255,838 205,720
Depreciation and amortization expense 56,523 61,633 47,257
General and administrative expense 25,508 24,587 19,174
Equipment lease expense 30,986 25,518 12,976
Employee stock ownership plan compensation charge 4,843 3,733 3,295
Loss (gain) on disposal of assets and other 5,744 (356) 1,842
------------- ----------- -----------
Operating income 126,691 57,091 60,497
Interest expense (61,544) (58,298) (46,621)
Interest income 3,027 2,229 1,216
Other charges (3,277) - -
------------- ----------- -----------
Earnings before minority interest
and extraordinary loss 64,897 1,022 15,092
Minority interest 829 162 309
------------- ----------- -----------
Earnings before extraordinary loss 64,068 860 14,783
Extraordinary loss on early extinguishment of debt,
net of minority interest of $130 - - (12,786)
------------- ----------- -----------
Net earnings 64,068 860 1,997
Distribution to senior unitholder 18,013 11,108 N/A
Net earnings (loss) available to general partner 461 (102) 20
------------- ----------- -----------
Net earnings (loss) available to common and
subordinated unitholders $ 45,594 ($10,146) $ 1,977
============= =========== ===========
Basic and diluted earnings (loss)
per common and subordinated unit
Earnings (loss) before extraordinary loss $ 1.43 $ (0.32) $ 0.47
Extraordinary loss - - (0.41)
------------- ----------- -----------
Net earnings (loss) available to common and
subordinated unitholders $ 1.43 $ (0.32) $ 0.06
============= =========== ===========
See notes to consolidated financial statements.
F-4
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(in thousands)
Number of units Accumulated
--------------------------------- other
Sub- General Sub- General compre- Total
Senior Common ordinated partner Senior Common ordinated partner hensive partners'
unitholder unitholder unitholder unitholder unitholder unitholder unitholder unitholder income capital
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------- --------
August 1, 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)
Comprehensive income:
Net earnings - - - - - 2,223 (246) 20 - 1,997
Pension liability
adjustment - - - - - - - - (797) (797)
---------
Comprehensive income 1,200
---------- ---------- --------- ---------- ---------- ---------- ---------- ---------- -------- ---------
July 31, 1999 - 14,710.8 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 units 4,375.0 - - - 175,000 - - 1,768 - 176,768
Fees paid to issue
senior units - - - - (8,925) - - - - (8,925)
General partner interest
conversion to general
partner units - - - 316.2 - - - - - -
Accretion of discount on
senior units - - - - 2,603 (2,575) - (28) - -
Contribution in connection
with ESOP compensation
charge - - - - - 3,661 - 36 - 3,697
Quarterly cash distributions - - - - - (62,615) - (632) - (63,247)
Senior unit paid in kind
distributions 277.7 - - - 11,108 (10,997) - (111) - -
Comprehensive income:
Net earnings - - - - - 851 - 9 - 860
Pension liability
adjustment - - - - - - - - 797 797
-------
Comprehensive income 1,657
-------- --------- ---------- ---------- ---------- ---------- ---------- ---------- -------- ---------
July 31, 2000 4,652.7 31,307.1 - 316.2 179,786 (80,931) - (58,511) - 40,344
Accretion of discount on
senior units - - - - 6,321 (6,258) - (63) - -
Contribution in connection
with ESOP compensation
charge - - - - - 4,745 - 48 - 4,793
Common unit cash
distributions - - - - - (62,645) - (632) - (63,277)
Senior unit paid in kind
distributions 235.5 - - - 9,422 (9,328) - (94) - -
Senior unit cash and
accrued distributions- - - - - - (8,535) - (144) - (8,679)
Common unit options
exercised - 101.3 - 1.0 - 1,701 - 17 - 1,718
Common unit offering,
net - 4,500.0 - 45.5 - 84,865 - - - 84,865
Redemption of senior
units (2,086.6) - - - (83,464) - - - - (83,464)
Comprehensive income:
Net earnings - - - - - 63,427 - 641 - 64,068
Other comprehensive
income:
Cumulative effect
of accounting change - - - - - - - - 709 -
Risk management fair
value adjustment - - - - - - - - (289) -
Reclassification
adjustment - - - - - - - - (709) -
Pension liability
adjustment - - - - - - - - (2,092) (2,381)
---------
Comprehensive income 61,687
----------- --------- ---------- ---------- ---------- ---------- ---------- ---------- -------- ---------
July 31, 2001 2,801.6 35,908.4 - 362.7 $112,065 $(12,959) $ - $ (58,738) $(2,381) $ 37,987
=========== ========= ========== ========== ========== ========== ========== ========== ======== =========
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,
---------------------------------
2001 2000 1999
---------- ---------- ----------
Cash Flows From Operating Activities:
Net earnings $64,068 $ 860 $ 1,997
Reconciliation of net earnings to net
cash provided by operating activities:
Depreciation and amortization 56,523 61,633 47,257
Employee stock ownership plan compensation charge 4,843 3,733 3,295
Minority interest 829 162 309
Extraordinary loss, net of minority interest - - 12,786
Other 7,555 2,759 4,487
Changes in operating assets and liabilities, net of
effects from business acquisitions:
Accounts and notes receivable, net of securitization (9,121) (12,609) (9,565)
Inventories 11,333 (25,423) 11,382
Prepaid expenses and other current assets (2,071) (731) 1,926
Accounts payable (39,792) 10,418 12,737
Accrued interest expense 1,157 6,594 2,152
Other current liabilities 2,233 7,140 4,235
Other liabilities 2,302 (1,184) (504)
---------- ---------- ----------
Net cash provided by operating activities 99,859 53,352 92,494
---------- ---------- ----------
Cash Flows From Investing Activities:
Business acquisitions, net of cash acquired (4,668) 47,656 (43,838)
Cash paid for acquisition transaction fees - (15,893) -
Capital expenditures (15,248) (20,755) (25,743)
Net proceeds from accounts receivable securitization 31,000 - -
Proceeds from sale leaseback transaction - 25,000 -
Other 1,652 5,743 3,286
---------- ---------- ----------
Net cash provided by (used in) investing
activities 12,736 41,751 (66,295)
---------- ---------- ----------
Cash Flows From Financing Activities:
Distributions (69,125) (63,247) (63,229)
Issuance of common units, net of issuance costs 84,865 - -
Redemption of senior units (83,464) - -
Additions to long-term debt 9,843 226,490 408,113
Reductions of long-term debt (26,205) (276,111) (338,613)
Net reductions to short-term borrowings (18,342) (2,144) (664)
Cash paid for debt and lease financing costs (56) (3,163) (12,827)
Minority interest activity (848) 1,008 (810)
Proceeds from exercise of common unit options 1,718 - -
Cash contribution from general partner - 1,768 -
Other (433) - 4
---------- ---------- ----------
Net cash used in financing activities (102,047) (115,399) (8,026)
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents 10,548 (20,296) 18,173
Cash and cash equivalents - beginning of period 14,838 35,134 16,961
---------- ---------- ----------
Cash and cash equivalents - end of period $25,386 $14,838 $35,134
========== ========== ==========
Cash paid for interest $57,893 $49,176 $42,310
========== ========== ==========
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 (collectively referred to as the "Partnership") are both Delaware
limited partnerships. Both the MLP and the OLP are governed by partnership
agreements that were made effective at the time of formation of the
partnerships. 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
owns 17,817,600 of the outstanding MLP common units. 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 an effective 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 MLP. As
contributions are made by Ferrell to the ESOP in the future, shares of
Ferrell are allocated to the Company employees' ESOP accounts.
On December 17, 1999, the MLP's Partnership Agreement was amended to allow
for the issuance of a newly created senior unit, in connection with an
acquisition. Generally, these senior units were to be paid quarterly
distributions in additional senior units equal to 10 % per annum. Also, the
senior units were structured to allow for a redemption by the MLP at any
time, in whole or in part, upon payment in cash of the liquidating value of
the senior units, currently $40 per unit, plus the amount of any accrued
and unpaid distributions. The holder of the senior units also had the
right, at dates in the future and subject to certain events and conditions,
to convert any outstanding senior units into common units.
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. Prior to
this amendment, the Company was required to make capital contributions to
maintain its 1% general partner interest with the issuance of any
additional MLP equity. Also as part of this amendment, the General
Partner's interest in the MLP's Common Units was converted from a General
Partner interest to General Partner units.
On April 6, 2001, the MLP's Partnership Agreement was amended to reflect
modifications made to the senior units, previously issued on December 17,
1999, and the common units owned by Ferrell. The senior units are to be
paid quarterly distributions in cash equivalent to 10 % per annum or $4 per
senior unit. The amendment also granted the holder of the senior units the
right, subject to certain events and conditions, to convert any outstanding
senior units into common units at the earlier of December 31, 2005 or upon
the occurrence of a material event as defined by the Partnership Agreement.
Also as part of the amendment, Ferrell granted the Partnership the ability
to defer future distributions on the common units held by it, up to an
aggregate outstanding amount of $36,000,000, until December 31, 2005.
F-7
B. Summary of Significant Accounting Policies
(1) Nature of operations: The Partnership is engaged primarily in the
retail distribution of propane and related equipment and supplies in the
United States. The retail market is seasonal because propane is used
primarily for heating in residential and commercial buildings. The
Partnership serves approximately 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 consolidated 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
subsidiary, Ferrellgas Partners Finance Corp. The Company's 1.0101% General
Partner interest in Ferrellgas, L.P. is accounted for as a minority
interest. The wholly-owned subsidiary of the OLP, Ferrellgas Receivables,
LLC, is accounted for using the equity method of accounting. All material
intercompany profits, transactions and balances have been eliminated.
(4) Cash and cash equivalents: For purposes of the Consolidated Statements
of Cash Flows, the Partnership considers cash equivalents to include all
highly liquid debt instruments purchased with an original maturity of three
months or less.
(5) Inventories: Inventories are stated at the lower of cost or market
using average cost and actual cost methods. The Partnership enters into
commodity derivative contracts involving propane and related products to
hedge, reduce risk and anticipate market movements. The fair value of these
derivative contracts is classified as inventory.
(6) Property, plant and equipment: 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 30 years. In the first quarter of fiscal 2001, the
Partnership increased the estimate of the residual values of its existing
customer and storage tanks. This change in accounting estimate resulted
from a review by management of its tank values established through an
independent tank valuation obtained in connection with a financing
completed in December 1999. The Partnership, using its best estimates based
on reasonable and supportable assumptions and projections, reviews
long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of its assets might not be
recoverable.
(7) Goodwill and intangible assets: Intangible assets, consisting primarily
of customer lists, trademarks, assembled workforce, goodwill, and
noncompete notes, are stated at cost, net of amortization calculated using
either straight-line or accelerated methods over periods ranging from five
to 40 years. The Partnership reviews identifiable intangibles for
impairment in a similar manner as with long-lived assets. See "Adoption of
new accounting standards" below for a related discussion of the effect of a
new accounting pronouncement, Statement of Financial Accounting Standards
(SFAS) No. 142, on goodwill and intangible assets.
F-8
(8) Accounting for derivative commodity contracts: The Partnership enters
into commodity options involving propane and related products to
specifically hedge certain product cost risk. Any changes in the fair value
of these specific cash flow hedge positions are deferred and included in
other comprehensive income and recognized as an adjustment to the overall
purchase price of product in the month the purchase contract is settled.
The Partnership also enters into other commodity forward and futures
purchase/sale agreements and commodity swaps and options involving propane
and related products, which are not specific hedges to a certain product
cost risk, but are used for risk management purposes. 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 this valuation method, derivatives are carried on the
consolidated balance sheets at fair value with changes in that value
recognized in earnings. The Partnership classifies all gains and losses
from these derivative commodity contracts entered into for product risk
management purposes as cost of product sold on the consolidated statements
of earnings.
(9) 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
delivery or installation. Revenues from repairs and maintenance are
recognized upon completion of the service. The Partnership adopted Staff
Accounting Bulletin No. 101 entitled "Revenue Recognition" in the first
quarter of fiscal 2001. This new standard did not have a material affect on
the Partnership's financial position, results of operations or cash flows.
(10) Income taxes: The MLP is a limited partnership. As a result, the MLP's
earnings or losses for Federal income tax purposes are included in the tax
returns of the individual partners, the MLP unitholders. Accordingly, no
recognition has been given to income taxes in the accompanying consolidated
financial statements of the Partnership. Net earnings for financial
statement purposes may differ significantly from taxable income reportable
to MLP 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.
(11) 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 accrued and paid senior
unit distributions, by the weighted average number of outstanding common
and subordinated units and the dilutive effect, if any, of outstanding unit
options. There was no effect on the dilutive earnings per unit calculation
when making the assumption that all outstanding unit options were exercised
into common units.
(12) Unit and stock-based compensation: The Partnership accounts for its
Unit Option Plan and the Ferrell Companies Incentive Compensation Plan
using the intrinsic value method under the provisions of Accounting
Principles Board (APB) No. 25, "Accounting for Stock Issued to Employees,"
and makes the fair value method pro forma disclosures required under the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
(13) Segment information: The Partnership is a single reportable operating
segment engaging in the retail 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.
(14) Adoption of new accounting standards: The Financial Accounting
Standards Board (FASB) recently issued SFAS No. 141 "Business
Combinations", SFAS No. 142 "Goodwill and Other Intangible Assets", SFAS
No. 143 "Accounting for Asset Retirement Obligations" and SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."
F-9
SFAS No. 141 requirements include, among other things, that all business
combinations be accounted for by a single method - the purchase method. It
applies to all business combinations initiated after June 30, 2001. The
Partnership has historically accounted for business combinations using the
purchase method, therefore, this new standard will not have a substantial
impact on how the Partnership accounts for future combinations.
SFAS No. 142 modifies the financial accounting and reporting for acquired
goodwill and other intangible assets, including the requirement that
goodwill and some intangible assets no longer be amortized. Also some
intangibles will be reclassified to goodwill. The Partnership has elected
to adopt SFAS No. 142 beginning in the first quarter of fiscal 2002.
Although there will be no cash flow effect, the Partnership believes its
amortization expense will decrease by $10,600,000 in fiscal 2002, compared
to the amortization that would have been recorded had the new accounting
standard not been issued. This new standard also requires the Partnership
to test goodwill for impairment at the time the standard is adopted and
also on an annual basis. The Partnership believes that the results of the
initial impairment test of goodwill performed at the time the standard is
adopted will not have a material effect on its financial position, results
of operations or cash flows.
SFAS No. 143 requires the recognition of a liability if a company has a
legal or contractual financial obligation in connection with the retirement
of a tangible long-lived asset. The Partnership expects to implement SFAS
No. 143 beginning in the fiscal year ending July 31, 2003, and is currently
assessing its effect on the Partnership's financial position, results of
operations and cash flows.
SFAS No. 144 modifies the financial accounting and reporting for long-lived
assets to be disposed of by sale and it broadens the presentation of
discontinued operations to include more disposal transactions. The
Partnership expects to implement SFAS No. 144 beginning in the fiscal year
ending July 31, 2003, and is currently assessing its effect on the
Partnership's financial position, results of operations and cash flows.
(15) Reclassifications: In fiscal 2001, the Partnership applied the
provisions of Emerging Issues Task Force (EITF Issue) No. 99-19 "Reporting
Revenue Gross as a Principal versus Net as an Agent" which affects the
presentation of certain revenue and cost of product sold items. Prior to
fiscal 2001, the Partnership had reported the results of certain activities
on a net margin basis in other revenue. These activities include the
reporting of appliance sales, material and parts sales, refined fuel sales
and certain risk management activities. In fiscal 2001, with the
application of EITF No. 99-19, the Partnership began reporting these
activities either gross as other revenues and cost of product sold or net
as cost of product sold. These reclassifications had no effect on gross
profit or net income in any fiscal year previously reported. Certain
reclassifications have been made to the prior years' consolidated financial
statements to conform to the current year's consolidated financial
statements' presentation.
C. Quarterly Distributions of Available Cash
The Partnership makes quarterly cash distributions 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.
F-10
Distributions by the MLP in an amount equal to 100% of its available cash,
as defined in its Partnership Agreement, will be made to the senior and
common unitholders and the general partner. Additionally, the payment of
incentive distributions to the holders of incentive distribution rights
will be made to the extent that certain target levels of cash distributions
are achieved. The senior units have certain distribution and preference
rights over the common units. The publicly held common units have certain
distribution preference rights over the common units held by Ferrell
Companies.
On April 6, 2001, the Partnership modified the structure of its outstanding
senior units and increased the cash distribution coverage to its publicly
held common unitholders. Among other changes, the senior units were
modified to allow the holder to be paid a quarterly distribution in cash
instead of in additional senior unit distributions. See Note A for
additional information about the modifications to the senior units. In
addition, Ferrell Companies, Inc., the owner of 17,817,600 common units,
granted the Partnership the ability to defer future distributions on the
common units held by it up to an aggregate outstanding amount of
$36,000,000. The ability to defer distributions to Ferrell provides the
MLP's public common unitholders distribution support until December 31,
2005. This new distribution support is available if the Partnership's
available cash for any fiscal quarter is insufficient to pay all of the
common unitholders their quarterly distribution. The MLP will first pay a
distribution to the senior units and then will pay a distribution out of
the remaining available cash to the publicly-held common units. Any
remaining available cash will then be used to pay a distribution on the
common units held by Ferrell. Any quarterly distribution paid per unit to
the publicly-held common units that is not able to be paid on the
Ferrell-owned common units will be deferred, within certain limits, and
paid to Ferrell in future quarters when available cash is sufficient. If
insufficient available cash should exist for a particular quarter or any
previous deferred distributions to Ferrell remain outstanding, the
distribution declared per common unit may not be more than the highest
quarterly distribution paid on the common units for any of the immediately
preceding four fiscal quarters. If the cumulative amount of deferred
quarterly distributions to Ferrell were to reach $36,000,000, the common
units held by Ferrell will then be paid in the same priority as the
publicly-held common units. After payment of all required distributions for
any subsequent period, the MLP will use any remaining available cash to
reduce any amount previously deferred on the common units held by Ferrell.
Reductions in amounts previously deferred will then again be available for
future deferrals to Ferrell through December 31, 2005. In connection with
these transactions, the MLP incurred $3,277,000 in banking, legal and other
professional fees that are classified as other charges on the consolidated
statements of earnings. The MLP has also incurred and capitalized $774,000
related to payments made to lenders. The capitalized fees are classified as
other assets on the consolidated balance sheet.
D. Supplemental Balance Sheet Information
Inventories consist of:
(in thousands) 2001 2000
---------- ----------
Liquefied propane gas and re $45,966 $50,868
Appliances, parts and supplies 19,318 21,111
---------- ----------
$65,284 $71,979
========== ==========
F-11
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, 2001, in addition to the inventory on
hand, the Partnership had committed to take net delivery of approximately
3,754,000 gallons at a fixed price for its future retail propane sales.
Property, plant and equipment consist of:
(in thousands) 2001 2000
---------- ----------
Land and improvements $ 41,191 $ 40,761
Buildings and improvements 54,384 54,794
Vehicles 76,611 78,490
Furniture and fixtures 35,138 32,844
Bulk equipment and district facili 90,930 88,289
Tanks and customer equipment 472,593 482,617
Other 3,281 3,753
---------- ----------
774,128 781,548
Less: accumulated depreciation 282,934 265,365
---------- ----------
$491,194 $516,183
========== ==========
Depreciation expense totaled $28,332,000, $37,941,000, and $30,772,000 for
the years ended July 31, 2001, 2000, and 1999, respectively. In the first
quarter of fiscal 2001, the Partnership increased the estimate of the
residual values of its existing customer and storage tanks. Due to this
change in the tank residual values, depreciation expense decreased by
approximately $12,000,000 or $0.38 per common unit for fiscal 2001,
compared to the depreciation that would have been recorded using the
previously estimated residual values.
Intangibles consist of:
(in thousands) 2001 2000
---------- ----------
Customer lists $207,667 $207,478
Goodwill 142,921 141,326
Non-compete agreements 60,222 59,905
Assembled workforce 9,600 9,600
Other 168 391
---------- ----------
420,578 418,700
Less: accumulated amortization 189,660 162,224
---------- ----------
$230,918 $256,476
========== ==========
Amortization expense related to intangibles totaled $27,436,000,
$22,951,000 and $15,712,000 for the years ended July 31, 2001, 2000, and 1999,
respectively.
F-12
Other current liabilities consist of:
(in thousands) 2001 2000
---------- ----------
Accrued interest $22,816 $21,659
Accrued payroll 20,236 15,073
Accrued insurance 8,056 4,770
Other 26,502 36,129
---------- ----------
$77,610 $77,631
========== ==========
E. Accounts Receivable Securitization
On September 26, 2000, the OLP entered into an account receivable
securitization facility with Bank One, NA. As part of this 364-day
facility, the OLP transferred an interest in a pool of its trade accounts
receivable to its wholly-owned, special purpose subsidiary, Ferrellgas
Receivables, LLC. Ferrellgas Receivables then sold its interest to a
commercial paper conduit of Banc One, NA. The OLP remits daily to
Ferrellgas Receivables funds collected on the pool of trade receivables
held by Ferrellgas Receivables. The Partnership intends to renew effective
September 25, 2001 for a one year commitment with Bank One, N.A. From the
inception of this facility in September 2000 through July 31, 2001, the
cash flows related to this facility between the OLP and Ferrellgas
Receivables are detailed as follows:
(in thousands) 2001
----------
Proceeds from new securitizations $115,000
Proceeds from collections reinvested in revolving period securitizations 725,955
Remittance of amounts collected on securitizations (809,955)
-----------
Net proceeds from accounts receivable securitization $31,000
===========
Cash invested in unconsolidated subsidiary $ 3,399
===========
The level of funding available from this facility is currently limited to
$60,000,000. In accordance with SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," this
transaction is reflected on the Partnership's consolidated financial
statements as a sale of accounts receivable and an investment in an
unconsolidated subsidiary. The OLP retained servicing rights and the right
to collect finance charges, however, the assets related to these retained
interests at July 31, 2001, had no material effect on the consolidated
balance sheet.
The investment in the unconsolidated subsidiary related to this facility
was $7,225,000 at July 31, 2001 and is classified within "other assets" on
the consolidated balance sheet. The "loss (gain) on disposal of assets and
other" on the consolidated statements of earnings for the year ended July
31, 2001, includes a $7,816,000 loss on sale of receivables, a $2,205,000
equity in earnings of unconsolidated subsidiary and $1,326,000 of service
income. These amounts reported on the consolidated statements of earnings
approximate the financing cost of issuing commercial paper backed by these
accounts receivable plus an allowance for doubtful accounts associated with
the outstanding receivables transferred to Ferrellgas Receivables.
F-13
F. Long-Term Debt
Long-term debt consists of:
(in thousands) 2001 2000
---------- ----------
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) 184,000 184,000
Credit Agreement
Revolving credit loans 8.9% due 2003 (4) - 11,658
Notes payable, 7.9% and 7.5% weighted average
interest rates, respectively, due 2001 to 2009 12,566 15,988
---------- ----------
706,566 721,646
Less: current portion, included in
other current liabilities 1,784 3,528
---------- ----------
$704,782 $718,118
========== ==========
(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 OLP does not have the option to prepay
the Notes prior to maturity without incurring prepayment penalties.
(2) The MLP fixed rate Senior Secured Notes ("MLP Senior Secured Notes"),
issued in April 1996, are redeemable at the option of the MLP, in
whole or in part, at any time 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.
(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 OLP does not have the option to prepay the Notes prior to
maturity without incurring prepayment penalties.
(4) At July 31, 2001, 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 % to 2.25 % or, b) the
bank's base rate plus an applicable margin varying from 0.25 % to 1.25
%. The bank's base rate at July 31, 2001 and 2000 was 6.75% and 9.5%,
respectively.
F-14
On December 17, 1999, in connection with the purchase of Thermogas, LLC
("Thermogas acquisition") (see Note N), the OLP assumed a $183,000,000 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 loan. The additional $1,000,000 in borrowings
was used to fund debt issuance costs.
Effective April 27, 2000, the MLP entered into an interest rate swap
agreement with Bank of America, related to the semi-annual interest payment
due on these MLP Senior Secured notes. The swap agreement, which was
terminated at the option of the counterparty on June 15, 2001, required the
counterparty to pay the stated fixed interest rate every six months. In
exchange, the MLP was required to make quarterly floating interest rate
payments based on an annual interest rate equal to the three month LIBOR
interest rate plus 1.655% applied to the same notional amount of
$160,000,000. The Partnership resumed paying the stated fixed interest rate
effective after June 15, 2001.
At July 31, 2001 and 2000, $0 and $18,342,000, respectively, of short-term
borrowings were outstanding under the credit facility. Letters of credit
outstanding, used primarily to secure obligations under certain insurance
arrangements, totaled $46,660,000 and $36,892,000, respectively. Effective
July 16, 2001, the credit facility was amended to increase the letter of
credit sub-facility availability from $60,000,000 to $80,000,000.
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 these debt agreements.
The scheduled annual principal payments on long-term debt are to be
$1,784,000 in 2002, $2,068,000 in 2003, $2,113,000 in 2004, $2,263,000 in
2005, $271,260,000 in 2006 and $427,078,000 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.
G. Partners' Capital
On July 31, 2001, the Partnership's capital consisted of 2,801,622 senior
units, 35,908,366 common units, and a 1% General Partner interest. 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 on December 17, 1999 (See Note
N) , the Partnership issued 4,375,000 senior units to a subsidiary of The
Williams Companies, Inc. ("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. On April 6, 2001, an entity owned by James E. Ferrell,
the Chairman, Chief Executive Officer and President of the General Partner,
purchased all senior units held by Williams, who prior to the transaction
F-15
agreed to certain modifications to the senior units. See Note A for more
information on the modifications to the senior units.
The Partnership maintains shelf registration statements for common units
representing limited partner interests in the Partnership. One of the shelf
registration statements allows for common units to 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. On June 8,
2001, the Partnership received $84,865,000 net of issuance costs pursuant
to the issuance of 4,500,000 common units to the public. The Partnership
then used these proceeds to redeem 2,048,697 senior units and related
accrued but unpaid distributions. These common units issued to the public
on June 8, 2001, were entitled to the same distribution to be paid to the
already outstanding publicly held common units for the quarter ended July
31, 2001. The Partnership also made a redemption of 37,915 senior units in
July 2001. During the fourth quarter of fiscal 2001, the Partnership issued
101,250 common units pursuant to the unit option plan (see Note L).
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 were allowed to be
converted to common units once 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 ended July 31, 1999.
H. Derivatives
SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS No. 137 and SFAS No. 138, requires all
derivatives (with certain exceptions), whether designated in hedging
relationships or not, to be recorded on the consolidated balance sheet at
fair value. As a result of implementing SFAS No. 133 at the beginning of
fiscal 2001, the Partnership recognized in its first quarter of fiscal
2001, gains totaling $709,000 and $299,000 in accumulated other
comprehensive income and the consolidated statements of earnings,
respectively. In addition, beginning in the first quarter of fiscal 2001,
the Partnership recorded 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 consolidated
statements of earnings. The Partnership's overall objective for entering
into derivative contracts for the purchase of product is related to
hedging, risk reduction and to anticipate market movements. Other
derivatives are entered into to reduce interest rate risk associated with
long term debt and lease obligations. Fair value hedges are derivative
financial instruments that hedge the exposure to changes in the fair value
of an asset or a liability or an identified portion thereof attributable to
a particular risk. Cash flow hedges are derivative financial instruments
that hedge the exposure to variability in expected future cash flows
attributable to a particular risk.
The Partnership uses cash flow hedges to manage exposures to product
purchase price risk and uses both fair value and cash flow hedges to manage
exposure to interest rate risks.
Fluctuations in the wholesale cost of propane expose the Partnership to
purchase price risk. The Partnership purchases propane at various prices
that are eventually sold to its customers, exposing the Partnership to
future product price fluctuations. Also, certain forecasted transactions
F-16
expose the Partnership to purchase price risk. The Partnership monitors its
purchase price exposures and utilizes product hedges to mitigate the risk
of future price fluctuations. Propane is the only product hedged with the
use of product hedge positions. The Partnership uses derivative products to
hedge a portion of its forecasted purchases for up to one year in the
future. These derivatives are designated as cash flow hedging instruments.
Because these derivatives are designated as cash flow hedges, the effective
portions of changes in the fair value of the derivative are recorded in
other comprehensive income (OCI) and are recognized in the consolidated
statements of earnings when the forecasted transaction impacts earnings.
The $289,000 risk management fair value adjustment classified as other
comprehensive income at July 31, 2001, will be recognized in the
consolidated statements of earnings during fiscal 2002. Changes in the fair
value of cash flow hedges due to hedge ineffectiveness are recognized in
cost of product sold on the consolidated statements of earnings. The fair
value of the derivatives related to purchase price risk are classified on
the consolidated balance sheets as inventories. The Partnership also
purchases and sells derivatives that are not classified as hedges to manage
other risks associated with commodity prices. The changes in fair value of
these derivatives are recognized as they occur in cost of product sold on
the consolidated statements of earnings. During fiscal years ended July 31,
2001, 2000 and 1999, the Partnership recognized gains related to
derivatives not classified as hedges of $23,320,000, $28,413,000, and
$7,699,000 respectively.
The Partnership also uses forward contracts, not designated as hedging
instruments under SFAS No. 133, to help reduce the price risk related to
sales made to its propane customers. These forward contracts meet the
requirement to qualify as normal purchases and sales as defined in SFAS No.
133, as amended by SFAS No. 137 and SFAS No. 138, and thus are not adjusted
to fair market value.
As of July 31, 2001, the Partnership holds $706,566,000 in primarily fixed
rate debt and $157,600,000 in variable rate operating leases. Fluctuations
in interest rates subject the Partnership to interest rate risk. Decreases
in interest rates increase the fair value of the Partnership's fixed rate
debt, while increases in interest rates subject the Partnership to the risk
of increased interest expense related to its variable rate debt and
operating leases.
The Partnership enters into fair value and cash flow hedges to help reduce
its overall interest rate risk. Interest rate swaps were used to hedge the
exposure to changes in the fair value of fixed rate debt due to changes in
interest rates. The fair value of interest rate derivatives that are
considered fair value or cash flow hedges are classified either as other
current or long-term assets or as other current or long-term liabilities on
the consolidated balance sheets. Changes in the fair value of the fixed
rate debt and any related fair value hedges are recognized as they occur in
interest expense on the consolidated statements of earnings. There were no
such fair value hedges outstanding at July 31, 2001. Interest rate caps are
used to hedge the risk associated with rising interest rates and their
affect on forecasted transactions related to variable rate debt and lease
obligations. These interest rate caps are designated as cash flow hedges
and are outstanding at July 31, 2001. Thus, the effective portions of
changes in the fair value of the hedges are recorded in OCI at interim
periods and are recognized as interest expense in the consolidated
statements of earnings when the forecasted transaction impacts earnings.
Cash flow hedges are assumed to hedge the risk of changes in cash flows of
the hedged risk.
I. 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 $194,519,000,
F-17
$179,033,000, and $143,850,000 for the years ended July 31, 2001, 2000, and
1999, respectively, include compensation and benefits paid to officers and
employees of the General Partner and general and administrative costs.
During fiscal 2000, Williams became a related party to the Partnership due
to the Partnership's issuance of 4,375,000 senior units to a subsidiary of
Williams as part of the Thermogas acquisition (See Notes G and N). In April
2001, Williams sold all its senior units to JEF Capital Management, Inc.,
an entity owned by James E. Ferrell, Chairman, Chief Executive Officer and
President of the General Partner, and thereafter, ceased to be a related
party of the Partnership. During fiscal 2001 and 2000, the Partnership
recognized wholesale sales to Williams of $493,000 and $2,091,000,
respectively. In connection with its normal purchasing and risk management
activities, the Partnership entered into, with Williams as a counterparty,
certain purchase, forward, futures, option and swap contracts. During
fiscal 2001 and 2000 the Partnership recognized a net increase (decrease)
to cost of sales of $(4,456,000) and $3,645,000, respectively, related to
these activities.
During fiscal 2000, Williams provided propane supply and general and
administrative services to the Partnership to assist in the integration of
the acquisition. The Partnership paid $67,547,000, $4,062,000 and $176,000
to Williams in fiscal 2000 and classified these costs to cost of product
sold, general and administrative expenses and operating expenses,
respectively. The amount due to Williams at July 31, 2000, was $5,045,000.
The amount due from Williams at July 31, 2000, was $13,000.
On April 6, 2001, Williams approved amendments to the MLP partnership
agreement related to certain terms of the senior units. Williams then sold
all of the senior units for a purchase price of $195,529,000 plus accrued
and unpaid distributions to JEF Capital Management. The senior units
currently have all the same terms and preference rights in distributions
and liquidation as when the units were owned by Williams.
During the fourth quarter of fiscal 2001, the Partnership paid to
JEF Capital Management $83,464,000 to redeem a total of 2,086,612
senior units and $2,951,000 in senior unit distributions. In a noncash
transaction the Partnership accrued a senior unit distribution of
$2,801,622 payable to JEF Capital Management on September 14, 2001.
During fiscal 2001, 2000 and 1999, Ferrell International Limited, FI
Trading, Inc. and Ferrell Resources, LLC, three affiliates of the
Partnership which are owned by James E. Ferrell, paid the Partnership a
total of $40,000, $313,000 and $265,000, respectively, for accounting and
administration services. In connection with its normal purchasing and risk
management activities, the Partnership entered into, with Ferrell
International Limited and FI Trading as a counterparty, certain forward,
option and swap contracts. During fiscal 2001, 2000 and 1999, the
Partnership recognized net sales (purchases) of $28,329,000, $(8,508,000),
and $20,414,000, respectively. These net sales (purchases) with Ferrell
International Limited and FI Trading, Inc. are classified in cost of
product sold. Amounts due from Ferrell International Limited at July 31,
2001 and 2000 were $0 and $1,826,000, respectively. Amounts due to Ferrell
International Limited at July 31, 2001 and 2000 were $0 and $1,484,000,
respectively.
The Partnership also leased propane tanks from Ferrell Propane, Inc., a
subsidiary of the General Partner 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 2001, 2000, and 1999.
F-18
J. 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. Currently, the Partnership is not a party to any legal
proceedings other than various claims and lawsuits arising in the ordinary
course of business.
On December 6, 1999, the OLP entered into, with Banc of America Leasing &
Capital LLC, a $25,000,000 operating lease involving the sale-leaseback of
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 N), Thermogas entered into, with Banc of America
Leasing & Capital LLC, a $135,000,000 operating 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 lease, which
has terms and conditions similar to the December 6, 1999, $25,000,000
operating 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 three 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,
2001 and 2000 was $157,600,000 and $159,200,000, respectively.
The 2,801,621 senior units outstanding as of July 31, 2001 have a
liquidating value of $40 per unit or $112,065,000. The senior units are
redeemable by the Partnership at any time, in whole or in part, upon
payment in cash of the liquidating value of the senior units, currently $40
per unit, plus the amount of any accrued and unpaid distributions. The
holder of the senior units has the right, subject to certain events and
conditions, to convert any outstanding senior units into common units at
the earlier of December 31, 2005 or upon the occurrence of a material event
as defined by the Partnership Agreement. Such conversion rights are
contingent upon the Partnership not previously redeeming such securities.
Certain property and equipment is leased under noncancelable operating
leases which require fixed monthly rental payments and which expire at
various dates through 2020. Rental expense under these leases totaled
$42,420,000, $35,292,000, and $19,595,000 for the years ended July 31,
2001, 2000, and 1999, respectively. Future minimum lease commitments for
such leases in the next five years, including the aforementioned operating
tank leases, are $34,287,000 in 2002, $28,594,000 in 2003, $11,617,000 in
2004, $8,279,000 in 2005 and $5,855,000 in 2006.
In addition to the future minimum lease commitments, the Partnership plans
to purchase vehicles and computers at the end of their lease terms totaling
$781,000 in 2002, $1,203,000 in 2003, $1,488,000 in 2004, $1,342,000 in
2005 and $1,009,000 in 2006. The Partnership intends to renew other
F-19
vehicle, tank and computer leases that would have had buyouts of $5,137,000
in 2002, $161,109,000 in 2003, $3,789,000 in 2004, $2,744,000 in 2005, and
$815,000 in 2006.
K. 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 the Partnership, equivalent
to the fair value of such shares allocated. This non-cash compensation
charge is reported separately on the Partnership's consolidated statements
of earnings and thus excluded from operating and general and administrative
expenses. The Partnership is not obligated to fund or make contributions to
the ESOT.
The General Partner and its parent, Ferrell, have a defined contribution
profit-sharing plan which includes both profit sharing and matching
contributions. The plan covers substantially all employees with more than
one year of service. With the establishment of the ESOP in July 1998, the
Company suspended future profit sharing contributions to the plan beginning
with fiscal year 1998. The 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. Unlike the profit sharing contributions, these
matching contributions were not eliminated with the establishment of the
ESOP. Contributions for the years ended July 31, 2001, 2000, and 1999, were
$3,235,000, $2,869,000, and $2,110,000, respectively, under the 401(k)
provisions.
The General Partner has a defined benefit plan that provides participants
who were covered under a previously terminated plan with a guaranteed
retirement benefit at least equal to the benefit they would have received
under the terminated plan. Until July 31, 1999, benefits under the
terminated plan were determined by years of credited service and salary
levels. As of July 31, 1999, years of credited service and salary levels
were frozen. The General Partner's funding policy for this plan is to
contribute amounts deductible for Federal income tax purposes and invest
the plan assets primarily in corporate stocks and bonds, U.S. Treasury
bonds and short-term cash investments. As of July 31, 2001, other
comprehensive income was reduced by $2,092,000 due to the recording of
$2,092,000 as an increase to other liabilities, because the accumulated
benefit obligation of this plan exceeded the fair value of plan assets.
L. Unit Options of the Partnership and Stock Options of Ferrell Companies,
Inc.
Prior to April 19, 2001, the Ferrellgas, Inc. Unit Option Plan (the "unit
option plan") authorized 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 April 19, 2001, the unit option plan was
amended to authorize the issuance of options covering an additional 500,000
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 units at the time of the grant. In general, the options vest
over a five year period, and expire on the tenth anniversary of the date of
the grant.
F-20
Number Weighted Average Weighted
Of Exercise Price Average Fair
Units Value
-------------- ---------------- ------------
Outstanding, August 1, 1998 783,000 $18.21
Granted 40,000 18.54 $0.39
Forfeited (40,975) 18.15
--------------
Outstanding, July 31, 1999 782,025 18.23
Granted - - -
Forfeited (60,500) 19.38
--------------
Outstanding, July 31, 2000 721,525 18.13
Granted 651,000 17.90 2.56
Exercised (101,250) 16.80
Forfeited (42,075) 19.27
--------------
Outstanding, July 31, 2001 1,229,200 18.08
--------------
Options exercisable, July 31, 2001 503,543 18.06
--------------
Options Outstanding at July 31, 2001
----------------------------------------------------
Range of option prices at end of year $16.80-$21.67
Weighted average remaining contractual life 7.2 Years
The Ferrell Companies, Inc. nonqualified stock option plan (the "NQP") was
established by 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 of Ferrell, or the death, disability or retirement at the age of 65
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.
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 unit would have
been adjusted as noted in the table below:
(in thousands, except per unit amounts) 2001 2000 1999
---------- ---------- ----------
Net earnings (loss) available to common and
subordinated unitholders as reported $45,594 $(10,146) $1,977
Pro forma adjustment (498) (79) (465)
---------- ---------- ----------
Net earnings (loss) available to common and
subordinated unitholders as adjusted 45,096 $(10,225) $1,512
========== ========== ==========
Pro forma basic and diluted net earnings
(loss) per common and subordinated unit $1.41 $ (0.32) $ 0.05
========== ========== ==========
F-21
The fair value of the unit options granted during the 2001 and 1999 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 2001 and 1999, b) average common unit price volatilities of 23.2% and
18.1% for 2001 and 1999, respectively, c) the risk-free interest rates used
were 4.4% and 5.5%, for 2001 and 1999, respectively and d) the expected
life of the option used was five years for 2001 and 1999. The fair value of
the Ferrell Companies, Inc. NQP stock options granted during the 2001, 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 13.2%, 10.1% and 10.6% used in 2001, 2000 and 1999,
respectively, c) the risk-free interest rate used was 5.2%, 6.4% and 5.5%
in 2001, 2000 and 1999, respectively and d) expected life of the options
between six and 13 years.
M. Disclosures About Fair Value of Financial Instruments
The carrying amount of short-term financial instruments approximates fair
value because of the short maturity of the instruments. The estimated fair
value of the Partnership's long-term financial instruments was $681,060,000
and $698,082,000 as of July 31, 2001 and 2000, respectively. The fair value
is estimated based on quoted market prices.
Interest Rate Collar, Cap and Swap Agreements. The Partnership from time to
time 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. During fiscal 2001, an interest rate collar agreement expired and
a swap agreement was terminated by a counterparty. As of July 31, 2001, an
interest rate cap agreement with a counterparty who is a large financial
institution remained in place. The fair value of this interest rate cap
agreement at July 31, 2001 is de minimis. The fair values for the interest
rate collar, cap and swap agreements at July 31, 2000 were $43,000,
$(258,000), and $(561,000), respectively.
N. Business Combinations
On December 17, 1999, the Partnership purchased Thermogas from a subsidiary
of Williams. At closing the Partnership entered into the following noncash
transactions: a) issued $175,000,000 in senior units to the seller, b)
assumed a $183,000,000 loan, (see Note F) and c) assumed a $135,000,000
operating lease (see Note J). 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 paid
$17,146,000 in additional costs and fees related to the acquisition. 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. In fiscal 2000, the Partnership had
accrued $7,033,000 in involuntary employee termination benefits and exit
costs, which it expected to incur within twelve months from the acquisition
date as it implemented 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. The Partnership paid $2,788,000 and
$1,306,000 for termination benefits and $491,000 and $890,000 for exit
costs in fiscal years 2001 and 2000, respectively. The remaining liability
for termination benefits and exit costs was reduced in fiscal 2001 by
$1,558,000 as an adjustment to goodwill.
F-22
The total assets contributed to the OLP (at the Partnership's cost basis)
have been allocated as follows: (a) working capital of $16,870,000, (b)
property, plant and equipment of $140,284,000, (c) $60,200,000 to customer
list with an estimated useful life of 15 years, (d) $9,600,000 to assembled
workforce with an estimated useful life of 15 years, (e) $3,071,000 to
non-compete agreements with an estimated useful life ranging from one to
seven years, and (f) $86,475,000 to goodwill at an estimated useful life of
15 years. 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, 1999 (unaudited):
For the year
ended
July 31,
(in thousands, except per unit amounts) 2000
----------------
Total revenues $1,055,031
Net loss (18,609)
Common unitholders' interest in net loss (18,423)
Basic and diluted loss per common unit $ (0.59)
During the year ended July 31, 2001, the Partnership made acquisitions of
three businesses with an aggregate value at $418,000. The purchase was
funded by $200,000 of cash payments and, in a noncash transaction, the
issuance of $218,000 of notes payable to the seller.
During the year ended July 31, 2000, the Partnership made acquisitions of
two other businesses with an aggregate value of $7,183,000, in addition to
the Thermogas acquisition. The purchase was funded by $6,338,000 of cash
payments and the following noncash transactions: the issuance of $601,000
of notes payable to the seller, $46,000 of common units and $198,000 of
other costs and consideration.
During the year ended July 31, 1999, the Partnership made acquisitions of
11 businesses with an aggregate value of $50,049,000. This amount was
funded by $43,838,000 of cash payments, $199,000 in common units and
noncash transactions totaling $6,012,000 in the issuance of notes payable
to the seller 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.
F-23
O. Earnings Per Common and Subordinated Unit
Below is a calculation of the basic and diluted earnings per unit on the
consolidated statements of earnings. In fiscal 2001 and 2000, the unit
options were antidilutive. In fiscal 1999, 39,500 unit options were
considered dilutive, however, these additional units caused less than a
$0.01 change between the basic and dilutive earnings per unit. For diluted
earnings per unit purposes, the senior units were 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 order to compute the basic and diluted earnings per
common and subordinated unit, the distributions on senior units are
subtracted from net earnings to compute net earnings available to common
and subordinated unitholders.
(in thousands, except per unit data)
For the year ended July 31,
---------------------------
2001 2000 1999
---------- ---------- ----------
Net earnings (loss) available to
common and subordinated unitholders $45,594 $(10,146) $ 1,977
---------- ---------- ----------
Weighted average common and
subordinated units outstanding 31,987.3 31,306.7 31,298.7
Basic and diluted earnings (loss)
per common and subordinated unit
before extraordinary loss $ 1.43 $ (0.32) $ 0.47
========== ========== ===========
Basic and diluted earnings (loss)
per common and subordinated unit $ 1.43 $ (0.32) $ 0.06
========== ========== ===========
F-24
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,
2001, and 2000, and the related statements of earnings, stockholder's equity and
cash flows for each of the three years in the period ended July 31, 2001. These
financial statements are the responsibility of the 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, 2001 and 2000, and the results of its operations and its cash flows for each
of the three years in the period ended July 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 14, 2001
F-25
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)
BALANCE SHEETS
July 31,
--------------------
ASSETS 2001 2000
---------------------------------------------------------------- --------- ---------
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 1,662 1,237
Accumulated deficit (1,662) (1,237)
--------- ---------
Total Stockholder's Equity $1,000 $1,000
========= =========
F-26
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)
STATEMENTS OF EARNINGS
For the year ended July 31,
-----------------------------------
2001 2000 1999
---------- ---------- ----------
Revenues $ - $ - $ -
General and administrative expense 425 463 226
---------- ---------- ----------
Net loss $ (425) $ (463) $ (226)
========== ========== ==========
F-27
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
Capital contribution - - 425 - 425
Net loss - - - (425) (425)
----------- ---------- ----------- ------------ -----------------
July 31, 2001 1,000 $1,000 $1,662 $(1,662) $1,000
=========== ========== =========== ============ =================
F-28
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)
STATEMENTS OF CASH FLOWS
For the year ended July 31,
-----------------------------------
2001 2000 1999
----------- ---------- ----------
Cash Flows From Operating Activities:
Net loss $(425) $(463) $(226)
----------- ---------- ----------
Cash used by operating activities (425) (463) (226)
----------- ---------- ----------
Cash Flows From Financing Activities:
Capital contribution 425 463 226
----------- ---------- ----------
Cash provided by financing activities 425 463 226
----------- ---------- ----------
Change in cash - - -
Cash - beginning of period 1,000 1,000 1,000
----------- ---------- ----------
Cash - end of period $1,000 $1,000 $1,000
=========== ========== ==========
F-29
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
became 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 was terminated by Bank of America on June 15, 2001,
required 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 was 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
Partnership resumed paying the stated fixed interest rate effective
June 16, 2001.
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 $666 associated with the current year net operating loss
carryforward of $1,711, which expire at various dates through July 31,
2016, 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 years ended July 31, 2001, 2000 or 1999, and there is
no net deferred tax asset as of July 31, 2001 and 2000.
F-30
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, 2001
and 2000 and Statements of Earnings and Cash Flows for
the years ended July 31, 2001, 2000 and 1999...................S-3
Schedule II Valuation and Qualifying Accounts for the years ended
July 31, 2001, 2000 and 1999...................................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 (the "Partnership") as of July 31, 2001 and 2000, and for
each of the three years in the period ended July 31, 2001, and have issued our
report thereon dated September 14, 2001. 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.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 14, 2001
S-2
FERRELLGAS PARTNERS, L.P. Schedule 1
PARENT ONLY
BALANCE SHEETS
(in thousands)
July 31,
----------------------------
ASSETS 2001 2000
--------------------------------------------------- ------------- -------------
Cash and cash equivalents $ 215 $ 1
Prepaid expenses and other current assets 147 -
Investment in Ferrellgas, L.P. 196,737 199,086
Other assets, net 3,019 2,962
------------- -------------
Total Assets $200,118 $202,049
============= =============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------------------------
Other current liabilities $ 2,131 $ 1,705
Long term debt 160,000 160,000
Partners' Capital
Senior unitholder 112,065 179,786
Common unitholders (12,959) (80,931)
General partner (58,738) (58,511)
Accumulated other comprehensive income (2,381) -
------------- -------------
Total Partners' Capital 37,987 40,344
------------- -------------
Total Liabilities and Partners' Capital $200,118 $202,049
============= =============
S-3
FERRELGAS PARTNERS, L.P. Schedule 1
PARENT ONLY
STATEMENT OF EARNINGS
(in thousands)
For the year ended July 31,
-----------------------------------------------
2001 2000 1999
------------ -------------- ---------------
Equity in earnings of Ferrellgas, L.P. $ 81,203 $ 15,907 $ 17,511
Operating expense - - -
Interest expense 13,858 15,047 15,514
Other charges 3,277 - -
------------ -------------- ---------------
Net earnings $ 64,068 $ 860 $ 1,997
============ ============== ===============
S-4
FERRELLGAS PARTNERS, L.P. Schedule 1
PARENT ONLY
STATEMENTS OF CASH FLOWS
(in thousands)
For the year ended July 31,
-----------------------------------------
2001 2000 1999
------------ ------------- -------------
Cash Flows From Operating Activities:
Net earnings $ 64,068 $ 860 $ 1,997
Reconciliation of net earnings to
net cash used in operating activities:
Amortization of capitalized financing costs 523 515 513
Other 337 - (1,200)
Equity in earnings of Ferrellgas, L.P. (81,203) (15,907) (17,511)
Increase (decrease) in accrued interest expense 148 (183) -
------------ ------------- -------------
Net cash used in operating activities (16,127) (14,715) (16,201)
------------ ------------- -------------
Cash Flows From Investing Activities:
Distributions received from Ferrellgas, L.P. 83,133 77,962 79,430
------------ ------------- -------------
Net cash provided by investing activities 83,133 77,962 79,430
------------ ------------- -------------
Cash Flows From Financing Activities:
Distributions to partners (69,125) (63,247) (63,229)
Issuance of common units, net of issuance costs 84,865 - -
Redemption of senior units (83,464) - -
Proceeds from exercise of common unit options 1,718 - -
Other (774) - -
Net advance from affiliate (12) - -
------------ ------------- -------------
Net cash used by financing activities (66,792) (63,247) (63,229)
------------ ------------- -------------
Increase in cash and cash equivalents 214 - -
Cash and cash equivalents - beginning of period 1 1 1
------------ ------------- -------------
Cash and cash equivalents - end of period $ 215 $ 1 $ 1
============ ============= =============
S-5
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY Schedule II
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, 2001
Allowance for doubtful accounts $2,388 $3,029 $0 $(2,258) $3,159
Accumulated amortization:
Intangible assets 162,224 27,436 0 0 189,660
Other assets 6,896 2,167 0 (2,122) 6,941
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
S-6