UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended April 30, 2003
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: 001-11331
333-06693-02
000-50182
000-50183
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
Ferrellgas, L.P.
Ferrellgas Finance Corp.
(Exact name of registrants as specified in their charters)
Delaware 43-1698480
Delaware 43-1742520
Delaware 43-1698481
Delaware 14-1866671
- -------------------------------- --------------------------------
(States or other jurisdictions of (I.R.S. Employer
incorporation or organization) Identification Nos.)
One Liberty Plaza, Liberty, Missouri 64068
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (816) 792-1600
Indicate by check mark whether the registrants (1) have 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) have been subject to such
filing requirements for the past 90 days.
Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp. Yes [ X ] No [ ]
Ferrellgas, L.P. and Ferrellgas Finance Corp. Yes[ ] No [ X ]
Indicate by check mark whether the registrants are accelerated filers (as
defined in Rule 12b-2 of the Exchange Act).
Ferrellgas Partners, L.P. Yes [ X ] No [ ]
Ferrellgas Partners Finance Corp., Ferrellgas, L.P. and
Ferrellgas Finance Corp. Yes [ ] No [ X ]
At May 30, 2003, the registrants had common units or shares outstanding as
follows:
Ferrellgas Partners, L.P. 36,237,303 Common Units
Ferrellgas Partners Finance Corp. 1,000 Common Stock
Ferrellgas, L.P. n/a n/a
Ferrellgas Finance Corp. 1,000 Common Stock
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
FERRELLGAS PARTNERS FINANCE CORP.
FERRELLGAS, L.P. AND SUBSIDIARIES
FERRELLGAS FINANCE CORP.
Table of Contents
Page
------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Ferrellgas Partners, L.P. and Subsidiaries
Condensed Consolidated Balance Sheets - April 30, 2003
and July 31, 2002 (unaudited) 1
Condensed Consolidated Statements of Earnings -
Three and nine months ended April 30, 2003 and 2002
(unaudited) 2
Condensed Consolidated Statement of Partners' Capital -
Nine months ended April 30, 2003 (unaudited) 3
Condensed Consolidated Statements of Cash Flows -
Nine months ended April 30, 2003 and 2002
(unaudited) (as restated) 4
Notes to Condensed Consolidated Financial Statements
(unaudited) 5
Ferrellgas Partners Finance Corp.
Condensed Balance Sheets - April 30, 2003
and July 31, 2002 (unaudited) 17
Condensed Statements of Earnings -
Three and nine months ended April 30, 2003
and 2002 (unaudited) 17
Condensed Statements of Cash Flows -
Nine months ended April 30, 2003
and 2002 (unaudited) 18
Notes to Condensed Financial Statements (unaudited) 18
Ferrellgas, L.P. and Subsidiaries
Condensed Consolidated Balance Sheets - April 30, 2003
and July 31, 2002 (unaudited) 19
Condensed Consolidated Statements of Earnings -
Three and nine months ended April 30, 2003 and 2002
(unaudited) 20
Condensed Consolidated Statement of Partners' Capital -
Nine months ended April 30, 2003 (unaudited) 21
Condensed Consolidated Statements of Cash Flows -
Nine months ended April 30, 2003 and 2002
(unaudited) 22
Notes to Condensed Consolidated Financial Statements
(unaudited) 23
Ferrellgas Finance Corp.
Condensed Balance Sheets - April 30, 2003
and January 24, 2003 (unaudited) 32
Condensed Statements of Earnings -
Three months ended and from inception to
April 30, 2003 (unaudited) 32
Condensed Statement of Cash Flows -
From inception to April 30, 2003 (unaudited) 33
Notes to Condensed Financial Statements (unaudited) 33
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 34
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 44
ITEM 4. CONTROLS AND PROCEDURES 45
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 46
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 46
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 46
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 46
ITEM 5. OTHER INFORMATION 46
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 47
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
(unaudited)
April 30, July 31,
ASSETS 2003 2002
- ------------------------------------------------------------ --------------- ---------------
Current Assets:
Cash and cash equivalents $ 14,104 $ 19,781
Accounts and notes receivable, net 85,015 74,274
Inventories 48,949 48,034
Prepaid expenses and other current assets 7,763 10,724
--------------- ---------------
Total Current Assets 155,831 152,813
Property, plant and equipment, net 684,126 506,531
Goodwill 124,190 124,190
Intangible assets, net 99,908 98,170
Other assets, net 8,900 3,424
--------------- ---------------
Total Assets $ 1,072,955 $ 885,128
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
- -------------------------------------------------------------
Current Liabilities:
Accounts payable $ 50,521 $ 54,316
Other current liabilities 83,367 89,061
--------------- ---------------
Total Current Liabilities 133,888 143,377
Long-term debt 853,327 703,858
Other liabilities 17,701 14,861
Contingencies and commitments (Note L) - -
Minority interest 3,050 1,871
Partners' Capital:
Senior unitholder (2,743,020 and 2,782,211 units
outstanding at April 30, 2003 and July 31, 2002,
respectively - liquidation amount $109,721 and $111,288 at
April 30, 2003 and July 31, 2002, respectively) 109,721 111,288
Common unitholders (36,213,803 and 36,081,203 units outstanding
at April 30, 2003 and July 31, 2002, respectively) 16,552 (28,320)
General partner unitholder (393,510 and 392,556 units outstanding
at April 30, 2003 and July 31, 2002, respectively) (58,664) (59,035)
Accumulated other comprehensive loss (2,620) (2,772)
--------------- ---------------
Total Partners' Capital 64,989 21,161
--------------- ---------------
Total Liabilities and Partners' Capital $ 1,072,955 $ 885,128
=============== ===============
See notes to these condensed consolidated financial statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per unit data)
(unaudited)
For the three months ended For the nine months ended
-------------------------------- --------------------------------
April 30, 2003 April 30, 2002 April 30, 2003 April 30, 2002
-------------- -------------- --------------- --------------
Revenues:
Propane and other gas liquids sales $ 351,338 $ 269,825 $ 985,539 $ 825,239
Other 18,027 17,336 64,606 62,903
-------------- -------------- --------------- --------------
Total revenues 369,365 287,161 1,050,145 888,142
Cost of product sold (exclusive of
depreciation, shown with amortization below) 207,934 134,640 586,324 461,178
-------------- -------------- --------------- --------------
Gross profit 161,431 152,521 463,821 426,964
Operating expense 79,121 74,686 227,226 212,186
Depreciation and amortization expense 10,563 10,625 30,719 32,844
General and administrative expense 7,202 8,117 21,863 21,574
Equipment lease expense 4,990 5,825 16,510 18,456
Employee stock ownership plan compensation charge 1,619 1,273 4,653 3,856
Loss on disposal of assets and other 1,985 552 3,781 1,830
-------------- -------------- --------------- --------------
Operating income 55,951 51,443 159,069 136,218
Interest expense (16,548) (14,717) (47,328) (45,039)
Interest income 424 323 850 1,194
Early extinguishment of debt expense - - (7,052) -
-------------- -------------- --------------- --------------
Earnings before minority interest and cumulative
effect of change in accounting principle 39,827 37,049 105,539 92,373
Minority interest 454 414 1,276 1,052
-------------- -------------- --------------- --------------
Earnings before cumulative effect of change in
accounting principle 39,373 36,635 104,263 91,321
Cumulative effect of change in accounting principle,
net of minority interest of $28 - - (2,754) -
-------------- -------------- --------------- --------------
Net earnings 39,373 36,635 101,509 91,321
Distribution to senior unitholder 2,775 2,786 8,300 8,390
Net earnings available to general partner unitholder 366 338 932 829
-------------- -------------- --------------- --------------
Net earnings available to common unitholders $36,232 $33,511 $92,277 $82,102
============== ============== =============== ==============
Basic and diluted earnings per common unit:
Net earnings available to common unitholders before
cumulative effect of change in accounting principle $ 1.00 $ 0.93 $ 2.62 $ 2.28
Cumulative effect of change in accounting principle - - (0.07) -
-------------- -------------- --------------- --------------
Net earnings available to common unitholders $ 1.00 $ 0.93 $ 2.55 $ 2.28
============== ============== =============== ==============
See notes to these condensed consolidated financial statements.
2
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
Number of units Accumulated
------------------------------------ other
General General compre- Total
Senior Common partner Senior Common partner hensive partners'
unitholder unitholders unitholder unitholder unitholders unitholder loss capital
---------- ----------- ---------- ---------- ----------- ---------- --------- ---------
August 1, 2002 2,782.2 36,081.2 392.6 $111,288 $ (28,320) $ (59,035) $ (2,772) $21,161
Contribution in
connection with
ESOP compensation charge - - - - 4,561 45 - 4,606
Common unit cash distribution - - - - (54,204) (548) - (54,752)
Senior unit cash and
accrued distribution - - - - (8,218) (166) - (8,384)
Redemption of senior units (39.2) - (0.4) (1,567) - - - (1,567)
Common unit options exercised - 132.6 1.3 - 2,241 23 - 2,264
Comprehensive income:
Net earnings - - - - 100,492 1,017 - 101,509
Other comprehensive income:
Risk management fair value
adjustment - - - - - - 152 152
-----------
Comprehensive income 101,661
---------- ---------- ------- ---------- ----------- ---------- --------- ---------
April 30, 2003 2,743.0 36,213.8 393.5 $109,721 $ 16,552 $ (58,664) $ (2,620) $64,989
========== ========== ======= ========== =========== ========== ========= =========
See notes to these condensed consolidated financial statements.
3
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the nine months ended
-------------------------------
April 30, 2003 April 30, 2002
-------------- --------------
(restated*)
Cash Flows From Operating Activities:
Net earnings $101,509 $91,321
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Cumulative effect of change in accounting principle 2,754 -
Early extinguishment of debt expense 1,854 -
Depreciation and amortization expense 30,719 32,844
Employee stock ownership plan compensation charge 4,653 3,856
Minority interest 1,276 1,052
Other 8,057 1,806
Changes in operating assets and liabilities, net of
effects from business acquisitions:
Accounts and notes receivable, net (60,276) (15,501)
Inventories 2,984 23,628
Prepaid expenses and other current assets 2,170 3,175
Accounts payable (3,775) (5,121)
Other current liabilities (6,740) (10,086)
Other liabilities (381) 566
Accounts receivable securitization:
Proceeds from new accounts receivable securitizations 60,000 30,000
Proceeds from collections reinvested in revolving
period accounts receivable securitizations 505,065 360,677
Remittances of amounts collected as servicer of
accounts receivable securitizations (515,065) (421,677)
-------------- --------------
Net cash provided by operating activities 134,804 96,540
-------------- --------------
Cash Flows From Investing Activities:
Business acquisitions, net of cash acquired (36,329) (6,376)
Capital expenditures - tank lease buyout (155,600) -
Capital expenditures - technology initiative (18,517) (19,733)
Capital expenditures - other (11,087) (9,136)
Other 1,691 2,611
-------------- --------------
Net cash used in investing activities (219,842) (32,634)
-------------- --------------
Cash Flows From Financing Activities:
Distributions (63,176) (63,044)
Proceeds from issuance of debt 359,715 -
Principal payments on debt (210,662) (1,715)
Cash paid for financing costs (7,093) -
Minority interest activity (116) (704)
Proceeds from exercise of common unit options 2,241 821
Redemption of senior units (1,567) (777)
Cash contribution from general partner 19 26
-------------- --------------
Net cash provided by (used in) financing
activities 79,361 (65,393)
-------------- --------------
Decrease in cash and cash equivalents $ (5,677) $ (1,487)
Cash and cash equivalents - beginning of period 19,781 25,386
-------------- --------------
Cash and cash equivalents - end of period $14,104 $23,899
============== ==============
Cash paid for interest $49,833 $49,900
============== ==============
* See Note R to these condensed consolidated financial statements.
See notes to these condensed consolidated financial statements.
4
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2003
(Dollars in thousands, except per unit data)
(unaudited)
A. Organization
Ferrellgas Partners, L.P. is a holding entity that conducts no operations
and has two subsidiaries, Ferrellgas Partners Finance Corp. and Ferrellgas,
L.P. Ferrellgas Partners, L.P. owns an approximate 99% limited partner
interest in Ferrellgas, L.P. and a 100% equity interest in Ferrellgas
Partners Finance Corp. No operations are conducted by or through Ferrellgas
Partners Finance Corp., whose only purpose is to act as the co-issuer and
co-obligor of any debt issued by Ferrellgas Partners, L.P. Ferrellgas, L.P.
is the only operating subsidiary of Ferrellgas Partners, L.P.
References to Ferrellgas, unless otherwise indicated, refer to Ferrellgas
Partners, L.P. and its subsidiaries, including Ferrellgas, L.P., on a
consolidated basis. The general partner of both Ferrellgas Partners and
Ferrellgas, L.P. is Ferrellgas, Inc., which owns an effective 2% general
partner interest in Ferrellgas on a combined basis.
The condensed consolidated financial statements of Ferrellgas reflect all
adjustments which are, in the opinion of management, necessary for a fair
statement of the interim periods presented. All adjustments to the
condensed consolidated financial statements were of a normal, recurring
nature. The information included in this Quarterly Report on Form 10-Q
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations, and the consolidated
financial statements and accompanying notes included in Ferrellgas Partners
L.P.'s Annual Report on Form 10-K/A Amendment No. 2 for the fiscal year
ended July 31, 2002.
B. Accounting for Stock-Based Compensation
Ferrellgas accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board (APB) No. 25 and related
Interpretations. Accordingly, no compensation cost has been recognized in
the condensed consolidated statements of earnings. 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 recommended
under Statement of Financial Accounting Standards (SFAS) No. 123,
Ferrellgas' net income and earnings per unit would have been adjusted as
noted in the table below:
5
For the three months ended For the nine months ended
April 30, April 30,
------------------------------ -----------------------------
2003 2002 2003 2002
------------ ------------ ------------ -----------
Net earnings available to common
unitholders, as reported $36,232 $33,511 $92,277 $82,102
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards (8) (1) (56) (1)
------------ ------------ ------------ -----------
Pro forma net earnings available to
common unitholders $36,224 $33,510 $92,221 $82,101
============= ============= ============= =============
Earnings per common unit:
Basic and diluted - before
cumulative effect of change in
accounting principle, as reported $1.00 $0.93 $2.62 $2.28
===== ===== ===== =====
Basic and diluted, as reported $1.00 $0.93 $2.55 $2.28
===== ===== ===== =====
Basic and diluted - before
cumulative effect of change in
accounting principle, pro forma $1.00 $0.93 $2.62 $2.28
===== ===== ===== =====
Basic and diluted, pro forma $1.00 $0.93 $2.55 $2.28
===== ===== ===== =====
C. 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 condensed consolidated financial statements include accruals
that have been established for product liability and other claims.
D. Reclassifications
Certain reclassifications have been made to the nine months ended April 30,
2002 condensed consolidated financial statements to conform to the nine
months ended April 30, 2003 condensed consolidated financial statements
presentation.
6
E. Nature of Operations
Ferrellgas 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. Therefore, the results of operations for the three
and nine months ended April 30, 2003 and 2002 are not necessarily
indicative of the results to be expected for a full fiscal year.
F. Cash and Cash Equivalents and Non-Cash Activities
For purposes of the condensed consolidated statements of cash flows,
Ferrellgas considers cash equivalents to include all highly liquid debt
instruments purchased with an original maturity of three months or less.
Significant non-cash investing and financing activities are primarily
related to business combinations and are disclosed in Note O - Business
Combinations.
G. Accounts Receivable Securitization
At April 30, 2003, $50.0 million had been funded from Ferrellgas' accounts
receivable securitization facility. Ferrellgas renewed this facility
effective September 24, 2002, for a 364-day commitment with Banc One, N.A.
In accordance with SFAS No. 140, this transaction is reflected on the
condensed consolidated financial statements as a sale of accounts
receivable and a retained interest in transferred accounts receivable. The
retained interest is classified on the balance sheet within "Accounts and
notes receivable, net".
H. Supplemental Balance Sheet and Statement of Earnings Information
Inventories consist of:
April 30, July 31,
2003 2002
------------- -------------
Propane gas and related products $30,372 $29,169
Appliances, parts and supplies 18,577 18,865
------------- -------------
$48,949 $48,034
============= =============
In addition to inventories on hand, Ferrellgas enters into contracts to buy
and sell product, primarily propane for supply procurement 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 April 30, 2003,
Ferrellgas had committed, for supply procurement purposes, to take net
delivery of approximately 37.2 million gallons of propane at a fixed price.
Property, plant and equipment, net consist of:
April 30, July 31,
2003 2002
------------- -------------
Property, plant and equipment $997,398 $810,416
Less: accumulated depreciation 313,272 303,885
------------- -------------
$684,126 $506,531
============= =============
On December 10, 2002, Ferrellgas purchased propane tanks and related assets
for $155.6 million that it previously leased. See Note I - Long-Term Debt -
for a discussion regarding the funding of this purchase.
7
Intangible assets consist of:
April 30, 2003 July 31, 2002
------------------------------------------ ------------------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
------------ ---------------- ------------ ------------ ---------------- ------------
Customer lists $217,583 $(131,337) $86,246 $208,662 $(124,860) $83,802
Non-compete agreements 65,355 (51,693) 13,662 62,893 (48,525) 14,368
------------ ---------------- ------------ ------------ ---------------- ------------
$282,938 $(183,030) $99,908 $271,555 $(173,385) $98,170
============ ================ ============ ============ ================ ============
For the three months ended For the nine months ended
April 30, April 30,
------------------------------- -------------------------------
2003 2002 2003 2002
-------------- -------------- -------------- --------------
Aggregate amortization expense $3,341 $3,002 $9,645 $10,984
Estimated amortization expense:
For the year ended July 31,
2003 $12,275
2004 11,742
2005 11,570
2006 10,691
2007 10,051
Loss on disposal of assets and other consists of:
For the three months ended For the nine months ended
April 30, April 30,
------------------------------ -----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Loss on disposal of assets $1,594 $592 $2,380 $1,161
Loss on transfer of accounts receivable
related to the accounts receivable
securitizations 760 361 2,134 1,954
Service income related to the accounts
receivable securitizations (369) (401) (733) (1,285)
------------ ------------ ------------ ------------
$1,985 $552 $3,781 $1,830
============ ============ ============ ============
Shipping and handling expenses are classified in the following condensed
consolidated statements of earnings line items:
For the three months ended For the nine months ended
April 30, April 30,
------------------------------ -----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Operating expenses $ 33,750 $ 33,362 $100,820 $ 97,483
Depreciation and amortization expense 1,168 1,531 4,345 4,820
Equipment lease expense 3,039 3,910 8,971 9,624
------------ ------------ ------------ ------------
$ 37,957 $ 38,803 $114,136 $111,927
============ ============ ============ ============
8
I. Long-Term Debt
Long-term debt consists of:
April 30, July 31,
2003 2002
--------------- --------------
Senior notes
Fixed rate, 7.16%, due 2005-2013 $350,000 $350,000
Fixed rate, 8.75%, due 2012 219,614 -
Fixed rate, 9.375%, due 2006 - 160,000
Fixed rate, 8.8%, due 2006-2009 184,000 184,000
Credit agreement, variable interest rates, expiring 2006 91,100 -
Notes payable, 7.6% weighted average interest rate each year,
due 2003 to 2011 11,131 12,177
--------------- --------------
855,845 706,177
Less: current portion, included in other current liabilities on
the condensed consolidated balance sheets 2,518 2,319
--------------- --------------
$853,327 $703,858
=============== ==============
On September 24, 2002, Ferrellgas issued $170.0 million of 8.75% senior
notes due 2012, the proceeds of which were used to repurchase and redeem
its $160.0 million of 9.375% senior secured notes due 2006. During the
three months ended October 31, 2002, Ferrellgas recognized $7.1 million of
early extinguishment of debt expense related to the $5.2 million of premium
and other costs incurred to repurchase and redeem its $160.0 million senior
secured notes and the write-off of $1.9 million of unamortized debt issue
costs.
On December 18, 2002, Ferrellgas issued $48.0 million of 8.75% senior notes
due 2012, the proceeds of which were used to reduce borrowings under its
bank credit facility, to provide increased availability of funds for
working capital, acquisition, capital expenditure and for general
partnership purposes. The $48.0 million senior notes were issued with a
debt premium of $1.7 million that will be amortized to interest expense
through 2012.
Interest on the 8.75% senior notes due 2012 is payable semi-annually in
arrears on June 15 and December 15. Interest on the $170.0 million 8.75%
senior notes commenced on December 15, 2002 and interest on the $48.0
million 8.75% senior notes will commence on June 15, 2003. These notes are
unsecured and are not redeemable before June 15, 2007, except in specific
circumstances, as described in the governing indenture.
On December 10, 2002, Ferrellgas refinanced its $157.0 million bank credit
facility with a $307.5 million amended bank credit facility, using $155.6
million of the funds available thereunder to purchase propane tanks and
related assets that it previously leased, plus making a $1.2 million
payment of related accrued lease expense. The remaining portion of the
amended bank credit facility is available for working capital, acquisition,
capital expenditure and general partnership purposes and will terminate on
April 28, 2006, unless extended or renewed. As of April 30, 2003,
Ferrellgas had borrowings of $91.1 million, at a weighted average interest
rate of 3.72%, under this amended bank credit facility. As of April 30,
2003, Ferrellgas believes that it has met all the required quarterly
financial tests and covenants.
All borrowings under the amended bank credit facility bear interest, at
Ferrellgas' option, at a rate equal to either:
o the base rate, which is defined as the higher of the federal funds
rate plus 0.50% or Bank of America's prime rate (as of April 30, 2003,
the federal funds rate and Bank of America's prime rate were 1.31% and
4.25%, respectively); or
o the Eurodollar Rate plus a margin varying from 1.75% to 2.75% (as of
April 30, 2003, the one-month Eurodollar Rate was 1.26%).
The scheduled annual principal payments on long-term debt as of April
30, 2003, are as follows:
Scheduled annual
principal payments
For the year ending July 31, --------------------
Payments remaining in 2003 $ 1,379
2004 2,134
2005 2,299
2006 202,413
2007 59,039
Thereafter 586,967
9
J. Asset Retirement Obligations
SFAS No. 143 provides accounting requirements for retirement obligations
associated with tangible long-lived assets, including the requirement that
a liability be recognized if there is a legal or financial obligation
associated with the retirement of the assets. Ferrellgas adopted SFAS No.
143 beginning in the year ending July 31, 2003. This cumulative effect of a
change in accounting principle resulted in a one-time charge to earnings of
$2.8 million during the three months ended October 31, 2002, together with
the recognition of a $3.1 million long-term liability and a $0.3 million
long-term asset. Ferrellgas believes the implementation will not have a
material ongoing effect on its financial position, results of operations
and cash flows. These obligations relate primarily to the estimated future
expenditures required to retire Ferrellgas' underground storage facilities.
The remaining period until these facilities will require closure and
remediation expenditures is approximately 50 years. The following table
presents a reconciliation of the beginning and ending carrying amounts of
the asset retirement obligation:
Nine months
ended
April 30, 2003
----------------
Asset retirement obligation as of August 1, 2002 $3,073
Add: Accretion 149
----------------
Asset retirement obligation as of April 30, 2003 $3,222
================
The related asset carried for the purpose of settling the asset retirement
obligation is $0.3 million as of April 30, 2003, and is not a legally
restricted asset. Assuming retroactive application of the change in
accounting principle as of August 1, 2001, there would be no material
change in the pro forma net earnings for the nine months ended April 30,
2002. Other liabilities, assuming retroactive application of the change in
accounting principle as of August 1, 2001 and July 31, 2002, would have
increased $2.9 million and $3.1 million, respectively.
K. Guarantees
Financial Accounting Standards Board (FASB) Financial Interpretation No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others," expands the
existing disclosure requirements for guarantees and requires recognition of
a liability for the fair value of guarantees issued after December 31,
2002. As of April 30, 2003, the only material guarantees that Ferrellgas
had outstanding were associated with residual value guarantees of operating
leases. These operating leases are related to transportation equipment with
remaining lease periods scheduled to expire over the next seven fiscal
years. Upon completion of the lease period, Ferrellgas guarantees that the
fair value of the equipment will equal or exceed the guaranteed amount, or
Ferrellgas will pay the lessor the difference. The fair value of these
residual value guarantees entered into after December 31, 2002 was $30
thousand as of April 30, 2003. Although the fair values at the end of the
lease terms have historically exceeded these guaranteed amounts, the
maximum potential amount of aggregate future payments Ferrellgas could be
required to make under these leasing arrangements, assuming the equipment
is worthless at the end of the lease term, is $16.6 million.
L. Contingencies
Ferrellgas is threatened with or named as a defendant in various claims and
lawsuits arising in the ordinary course of business 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 would
reasonably be expected to have a material adverse effect on the financial
condition, results of operations and cash flows of Ferrellgas. Currently,
Ferrellgas is not a party to any legal proceedings other that various
claims and lawsuits arising in the ordinary course of business.
10
M. Distributions
On September 13, 2002, December 13, 2002 and March 14, 2003, Ferrellgas
paid cash distributions of $1.00 and $0.50 per senior and common unit,
respectively, for the three months ended July 31, 2002, October 31, 2002,
and January 31, 2003. On May 19, 2003, Ferrellgas declared cash
distributions of $1.00 and $0.50 per senior and common unit, respectively,
for the three months ended April 30, 2003, that was paid on June 13, 2003.
N. Earnings Per Common Unit
Below is a calculation of the basic and diluted earnings per common unit in
the condensed consolidated statements of earnings for the periods
indicated. For diluted earnings per common 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 unit, the distributions on senior units are
subtracted from net earnings to compute net earnings available to common
unitholders.
11
Three months ended April 30, Nine months ended April 30,
------------------------------ -----------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net earnings available to common
unitholders before cumulative
effect of change in accounting
principle $36,232 $33,511 $95,003 $82,102
Cumulative effect of change in
accounting principle, net of
minority interest and general partner
interest of $56 - - (2,726) -
-------------- ------------- ------------- -------------
Net earnings available to common
unitholders $36,232 $33,511 $92,277 $82,102
============== ============= ============= =============
-----------------------------------------------------------------------------------------------------------------
Weighted average common units
outstanding 36,197.3 36,072.0 36,142.5 36,003.3
Dilutive securities 104.2 67.8 68.1 67.8
-------------- ------------- ------------- -------------
Weighted average common units outstanding
plus dilutive securities 36,301.5 36,139.8 36,210.6 36,071.1
-----------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per common
unit:
Net earnings available to common
unitholders before cumulative
effect of change in accounting
principle $1.00 $0.93 $2.62 $2.28
Cumulative effect of change in
accounting principle, net of
minority interest and general partner
interest of $56 - - (0.07) -
-------------- ------------- ------------- -------------
Net earnings available to common
unitholders $1.00 $0.93 $2.55 $2.28
============== ============= ============= =============
-----------------------------------------------------------------------------------------------------------------
O. Business Combinations
During the nine months ended April 30, 2003, Ferrellgas acquired the
following retail propane businesses with an aggregate value at $45.9
million:
o ProAm, Inc., based primarily in Georgia and Texas, acquired December
2002;
o a branch of Cenex Propane Partners Co., based in Iowa, acquired
November 2002; and
o Northstar Propane, based in Nevada, acquired November 2002.
12
These purchases were primarily funded by $36.3 million of cash payments and
the issuance of a $10.0 million non-interest bearing note due in December
2003.
The $45.9 million aggregate value of these three retail propane businesses
was preliminarily allocated as follows: $26.2 million for fixed assets such
as customer tanks, buildings and land, $9.5 million for customer lists,
$2.5 million for non-compete agreements and $7.7 million for net working
capital. Net working capital was comprised of $8.5 million of current
assets and $0.8 million of current liabilities. The estimated fair values
and useful lives of assets acquired are based on a preliminary valuation
and are subject to final valuation adjustments. Ferrellgas intends to
continue its analysis of the net assets of these acquired businesses to
determine the final allocation of the total purchase price to the various
assets acquired. The weighted average amortization period for non-compete
agreements and customer lists are five and 15 years, respectively.
The results of operations of all of these acquisitions have been included
in the condensed consolidated financial statements from their dates of
acquisition. The pro forma effect of these transactions was not material to
the results of operations.
P. Adoption of New Accounting Standards
The FASB recently issued SFAS No. 143 "Accounting for Asset Retirement
Obligations," SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-lived Assets," SFAS No. 145 "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections,"
SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal
Activities," SFAS No. 148 "Accounting for Stock-Based Compensation -
Transition and Disclosure," SFAS No. 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," SFAS No. 150 "Accounting
for Certain Financial Instruments with Characteristics of both Liabilities
and Equity," FASB Financial Interpretation No. 45 "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others" and FASB Financial Interpretation No. 46
"Consolidation of Variable Interest Entities."
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. Ferrellgas implemented SFAS No. 143
beginning in the year ending July 31, 2003. This cumulative effect of a
change in accounting principle resulted in a one-time charge to earnings of
$2.8 million during the three months ended October 31, 2002, together with
the recognition of a $3.1 million long-term liability and a $0.3 million
long-term asset. See Note J - Asset Retirement Obligations - for further
discussion of these obligations. Ferrellgas believes this implementation
will not have a material ongoing effect on its 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. Ferrellgas
implemented SFAS No. 144 beginning in the fiscal year ending July 31, 2003,
with no material effect on its financial position, results of operations
and cash flows.
SFAS No. 145 eliminates the requirement that material gains and losses
resulting from the early extinguishment of debt be classified as an
extraordinary item in the condensed consolidated statements of earnings.
Instead, companies must evaluate whether the transaction meets both the
criteria of being unusual in nature and infrequent in occurrence. Other
aspects of SFAS No. 145 relating to accounting for intangible assets of
motor carriers and accounting for certain lease modifications do not
currently apply to Ferrellgas. Ferrellgas implemented SFAS No. 145
beginning in the fiscal year ending July 31, 2003, and began reporting
expenses associated with early extinguishment of debt in income from
continuing operations. For the three months ended October 31, 2002,
Ferrellgas recognized $7.1 million of expenses associated with the early
extinguishment of the $160.0 million senior secured notes. Prior to the
adoption of SFAS No. 145, Ferrellgas would have classified this type of
expense as an extraordinary item.
13
SFAS No. 146 modifies the financial accounting and reporting for costs
associated with exit or disposal activities. This statement requires that a
liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Additionally, the statement
requires the liability to be recognized and measured initially at fair
value. Under previous rules, liabilities for exit costs were recognized at
the date of the entity's commitment to an exit plan. Ferrellgas has adopted
and implemented SFAS No. 146 for all exit or disposal activities initiated
after July 31, 2002. Ferrellgas believes it will not have a material effect
on its financial position, results of operations and cash flows.
SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation"
to provide alternative methods of transition for a voluntary change to the
fair-value based method of accounting for stock-based employee
compensation. This statement also amends SFAS No. 123 disclosure
requirements for annual and interim financial statements to provide more
prominent disclosures about the method of accounting for stock-based
employee compensation and the effect of the method used on reported
results. This statement is effective for the fiscal year ending July 31,
2003. Ferrellgas implemented the interim disclosure requirements during the
three months ended April 30, 2003. See Note B - Accounting for Stock-Based
Compensation - for additional information related to these requirements.
Ferrellgas is currently studying the remaining requirements of SFAS No. 148
and the related implications of SFAS No. 123.
SFAS No. 149 amends SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" and clarifies financial accounting and reporting
for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. This statement is,
in general, effective for contracts entered into or modified after June 30,
2003, and for hedging relationships designated after June 30, 2003.
Ferrellgas has studied SFAS No. 149 and believes it will not have a
material effect on its financial position, results of operations and cash
flows.
SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as
equity. This statement is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective for the fiscal
year ending July 31, 2004. Ferrellgas has studied SFAS No. 150 and believes
it will not have a material effect on its financial position, results of
operations and cash flows.
FASB Financial Interpretation No. 45 expands the existing disclosure
requirements for guarantees and requires that companies recognize a
liability for guarantees issued after December 31, 2002. Ferrellgas
implemented this interpretation beginning in the three months ended January
31, 2003. During the nine months ended April 30, 2003, the implementation
resulted in the recognition of a liability of $30 thousand, and a related
prepaid asset of $30 thousand, both of which will be recognized into income
over the life of the guarantees. See Note K - Guarantees - for further
discussion about these guarantees.
FASB Financial Interpretation No. 46 clarifies Accounting Research Bulletin
No. 51, "Consolidated Financial Statements." If certain conditions are met,
this interpretation requires the primary beneficiary to consolidate certain
variable interest entities in which equity investors lack the
characteristics of a controlling financial interest or do not have
sufficient equity investment at risk to permit the variable interest entity
to finance its activities without additional subordinated financial support
from other parties. This interpretation is effective immediately for
variable interest entities created or obtained after January 31, 2003. For
variable interest entities acquired before February 1, 2003, the
interpretation is effective for the first fiscal year or interim period
beginning after June 15, 2003. Ferrellgas currently does not have any
variable interest entities that would be subject to this interpretation.
14
Q. Related Party Transactions
Ferrellgas has no employees and is managed and controlled by its general
partner. Pursuant to its partnership agreement, Ferrellgas's general
partner is entitled to reimbursement for all direct and indirect expenses
incurred or payments it makes on Ferrellgas's behalf, and all other
necessary or appropriate expenses allocable to Ferrellgas or otherwise
reasonably incurred by its general partner in connection with operating
Ferrellgas's business. These reimbursable costs, which include compensation
and benefits paid to employees of Ferrellgas's general partner who perform
services on their behalf, as well as related general and administrative
costs, are as follows:
For the three months ended For the nine months ended
April 30, April 30,
-------------------------- --------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Reimbursable costs $ 53,563 $ 54,445 $152,855 $150,916
JEF Capital Management is beneficially owned by James E. Ferrell, the
Chairman, President and Chief Executive Officer of Ferrellgas's general
partner, and thus is an affiliate. Ferrellgas paid senior unit
distributions of $2.8 million to JEF Capital Management on September 13,
2002 and December 14, 2002. Ferrellgas paid a senior unit distribution of
$2.7 million to JEF Capital Management on March 14, 2003. On April 30,
2003, Ferrellgas accrued a senior unit distribution of $2.7 million that
Ferrellgas paid to JEF Capital Management on June 13, 2003. On January 15,
2003, Ferrellgas redeemed 39.2 thousand senior units held by JEF Capital
Management with a cash payment of $1.6 million.
Ferrell International Limited is beneficially owned by James E. Ferrell and
thus is an affiliate. Ferrellgas enters into transactions with Ferrell
International Limited in connection with Ferrellgas's risk management
activities and does so at market prices in accordance with Ferrellgas's
affiliate trading policy approved by its general partner's Board of
Directors. These transactions include forward, option and swap contracts
and are all reviewed for compliance with the policy. Ferrellgas recognized
the following net receipts (disbursements) from purchases, sales and
commodity derivative transactions:
For the three months ended For the nine months ended
April 30, April 30,
-------------------------- --------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net receipts (disbursements) $ - $ (1,636) $ 246 $ 50
These net purchases, sales and commodity derivative transactions with
Ferrell International Limited are classified as cost of product sold on the
condensed consolidated statements of earnings. There were no amounts due
from or due to Ferrell International Limited at April 30, 2003.
Ferrellgas believes these related party transactions were conducted in the
ordinary course of business and under terms that were no less favorable to
Ferrellgas than those available with third parties.
R. Restatement of Condensed Consolidated Statements of Cash Flows
Subsequent to the issuance of Ferrellgas's condensed consolidated financial
statements for the three and nine months ended April 30, 2002, management
of Ferrellgas determined that the cash flows from Ferrellgas's accounts
receivable securitizations should be reflected gross in its consolidated
statements of cash flows and be included within operating activities rather
than a net presentation within investing activities. As a result,
Ferrellgas's condensed consolidated statement of cash flows for the nine
months ended April 30, 2002 has been restated to present the gross cash
flow activities from the accounts receivable securitizations and within the
correct cash flow activity. A summary of the significant effects of the
restatement follows:
15
For the nine
months ended
----------------
April 30,
2002
----------------
Cash Flows From Operating Activities
Net cash provided by operating activities, as
previously reported $127,540
Adjustment of cash flows
related to accounts receivable securitizations:
Proceeds from new accounts receivable
securitizations 30,000
Proceeds from collections reinvested in
revolving period accounts receivable
securitizations 360,677
Remittances of amounts collected as servicer
of accounts receivable securitizations (421,677)
----------------
Net cash provided by operating activities, as
restated $ 96,540
================
Cash Flows From Investing Activities
Net cash used in investing activities, as
previously reported $(63,634)
Adjustment of cash flows
related to accounts receivable securitizations 31,000
----------------
Net cash used in investing activities, as restated $(32,634)
================
16
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)
CONDENSED BALANCE SHEETS
(Amounts in dollars)
(unaudited)
April 30, July 31,
ASSETS 2003 2002
- ------------------------------------------------ ----------------- ----------------
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 2,368 2,061
Accumulated deficit (2,368) (2,061)
----------------- ----------------
Total Stockholder's Equity $1,000 $1,000
================= ================
CONDENSED STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended Nine Months Ended
---------------------------------- ----------------------------------
April 30, April 30, April 30, April 30,
2003 2002 2003 2002
--------------- --------------- --------------- ---------------
General and administrative expense $ 307 $ 298 $ 307 $ 393
--------------- --------------- --------------- ---------------
Net loss $ (307) $ (298) $ (307) $ (393)
=============== =============== =============== ===============
See notes to these condensed financial statements.
17
FERRELLGAS PARTNERS FINANCE CORP.
(A wholly-owned subsidiary of Ferrellgas Partners, L.P.)
CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in dollars)
(unaudited)
For the nine months ended
-------------------------------------
April 30, April 30,
2003 2002
--------------- ---------------
Cash Flows From Operating Activities:
Net loss $ (307) $ (393)
--------------- ---------------
Cash used in operating activities (307) (393)
--------------- ---------------
Cash Flows From Financing Activities:
Capital contribution 307 393
--------------- ---------------
Cash provided by financing activities 307 393
--------------- ---------------
Change in cash - -
Cash - beginning of period 1,000 1,000
--------------- ---------------
Cash - end of period $1,000 $1,000
=============== ===============
See notes to these condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
APRIL 30, 2003
(unaudited)
A. Ferrellgas Partners Finance Corp., a Delaware corporation, was formed on
March 28, 1996, and is a wholly-owned subsidiary of Ferrellgas Partners,
L.P.
B. The condensed financial statements reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the interim
periods presented. All adjustments to the condensed financial statements
were of a normal, recurring nature.
18
FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
April 30, July 31,
ASSETS 2003 2002
- ------------------------------------------- --------------- --------------
Current Assets:
Cash and cash equivalents $ 13,360 $ 19,388
Accounts and notes receivable, net 85,015 74,274
Inventories 48,949 48,034
Prepaid expenses and other current assets 7,089 8,645
--------------- --------------
Total Current Assets 154,413 150,341
Property, plant and equipment, net 684,126 506,531
Goodwill 124,190 124,190
Intangible assets, net 99,908 98,170
Other assets, net 4,196 3,001
--------------- --------------
Total Assets $1,066,833 $ 882,233
=============== ==============
LIABILITIES AND PARTNERS' CAPITAL
- -------------------------------------------
Current Liabilities:
Accounts payable $ 50,521 $ 54,316
Other current liabilities 65,814 86,926
--------------- --------------
Total Current Liabilities 116,335 141,242
Long-term debt 633,713 543,858
Other liabilities 17,701 14,861
Contingencies and commitments (Note K) - -
Partners' Capital:
Limited partner 298,654 183,173
General partner 3,050 1,871
Accumulated other comprehensive loss (2,620) (2,772)
--------------- --------------
Total Partners' Capital 299,084 182,272
--------------- --------------
Total Liabilities and Partners' Capital $1,066,833 $882,233
=============== ==============
See notes to these condensed consolidated financial statements.
19
FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands)
(unaudited)
For the three months ended For the nine months ended
-------------------------------- -------------------------------
April 30, 2003 April 30, 2002 April 30, 2003 April 30, 2002
-------------- -------------- --------------- --------------
Revenues:
Propane and other gas liquids sales $ 351,338 $ 269,825 $ 985,539 $ 825,239
Other 18,027 17,336 64,606 62,903
-------------- -------------- --------------- --------------
Total revenues 369,365 287,161 1,050,145 888,142
Cost of product sold 207,934 134,640 586,324 461,178
-------------- -------------- --------------- --------------
Gross profit 161,431 152,521 463,821 426,964
Operating expense 79,022 74,685 226,856 212,185
Depreciation and amortization expense 10,563 10,625 30,719 32,844
General and administrative expense 7,202 8,117 21,863 21,574
Equipment lease expense 4,990 5,825 16,510 18,456
Employee stock ownership plan compensation charge 1,619 1,273 4,653 3,856
Loss on disposal of assets and other 1,985 552 3,781 1,830
-------------- -------------- --------------- --------------
Operating income 56,050 51,444 159,439 136,219
Interest expense (11,550) (10,827) (33,992) (33,293)
Interest income 423 321 841 1,186
-------------- -------------- --------------- --------------
Earnings before cumulative effect of change in
accounting principle 44,923 40,938 126,288 104,112
Cumulative effect of change in accounting principle - - (2,782) -
-------------- -------------- --------------- --------------
Net earnings $44,923 $40,938 $123,506 $104,112
============== ============== =============== ==============
See notes to these condensed consolidated financial statements.
20
FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
Accumulated
other
compre- Total
Limited General hensive partners'
partner partner loss capital
--------------- ------------- ---------------- ---------------
August 1, 2002 $ 183,173 $ 1,871 $ (2,772) $ 182,272
Contribution in connection with
ESOP compensation charge 4,606 47 - 4,653
Quarterly cash and accrued distributions (70,551) (720) - (71,271)
Net assets contributed by Ferrellgas Partners
and General Partner in connection with
acquisitions 59,168 604 - 59,772
Comprehensive income:
Net earnings 122,258 1,248 - 123,506
Other comprehensive income:
Risk management fair value adjustment - - 152 152
---------------
Comprehensive income 123,658
--------------- ------------- ---------------- ---------------
April 30, 2003 $ 298,654 $ 3,050 $ (2,620) $ 299,084
=============== ============= ================ ===============
See notes to these condensed consolidated financial statements.
21
FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
For the nine months ended
---------------------------------
April 30, 2003 April 30, 2002
---------------- ----------------
Cash Flows From Operating Activities:
Net earnings $123,506 $104,112
Cumulative effect of change in accounting principle 2,782 -
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization expense 30,719 32,844
Employee stock ownership plan compensation charge 4,653 3,856
Other 7,474 1,356
Changes in operating assets and liabilities, net of
effects from business acquisitions:
Accounts and notes receivable, net (60,276) (15,501)
Inventories 2,984 23,628
Prepaid expenses and other current assets 2,170 3,175
Accounts payable (4,204) (5,150)
Other current liabilities (11,953) (13,913)
Other liabilities (381) 566
Accounts receivable securitization:
Proceeds from new accounts receivable securitizations 60,000 30,000
Proceeds from collections reinvested in revolving
period accounts receivable securitizations 505,065 360,677
Remittances of amounts collected as servicer of
accounts receivable securitizations (515,065) (421,677)
---------------- ----------------
Net cash provided by operating activities 147,474 103,973
---------------- ----------------
Cash Flows From Investing Activities:
Business acquisitions, net of cash acquired (4,330) (6,376)
Capital expenditures - tank lease buyout (155,600) -
Capital expenditures - technology initiative (18,517) (19,733)
Capital expenditures - other (11,087) (9,136)
Other 1,748 2,610
---------------- ----------------
Net cash used in investing activities (187,786) (32,635)
---------------- ----------------
Cash Flows From Financing Activities:
Distributions (71,311) (71,240)
Proceeds from issuance of debt 140,000 -
Principal payments on debt (50,662) (1,715)
Cash paid for financing costs (1,922) -
Cash contribution from partners 18,179 33
---------------- ----------------
Net cash provided by (used in) financing activities 34,284 (72,922)
---------------- ----------------
Decrease in cash and cash equivalents $ (6,028) $ (1,584)
Cash and cash equivalents - beginning of period 19,388 25,171
---------------- ----------------
Cash and cash equivalents - end of period $ 13,360 $ 23,587
================ ================
Cash paid for interest $ 42,564 $ 42,400
================ ================
See notes to these condensed consolidated financial statements.
22
FERRELLGAS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2003
(Dollars in thousands)
(unaudited)
A. Organization
Ferrellgas, L.P. operates the propane business of Ferrellgas Partners, L.P.
Ferrellgas Partners, a publicly traded limited partnership, holds an
approximate 99% interest in and consolidates Ferrellgas, L.P. Ferrellgas,
Inc. holds an approximate 1% general partner interest in Ferrellgas, L.P.
and performs all management functions. Ferrellgas, L.P., has two
wholly-owned subsidiaries, Ferrellgas Finance Corp. and Ferrellgas
Receivables, LLC, an unconsolidated qualified special purpose entity.
The condensed consolidated financial statements of Ferrellgas, L.P. and
subsidiaries reflect all adjustments, which are, in the opinion of
management, necessary for a fair statement of the interim periods
presented. All adjustments to the condensed consolidated financial
statements were of a normal, recurring nature. The information included in
this Quarterly Report on Form 10-Q should be read in conjunction with the
consolidated financial statements and accompanying notes included in
Ferrellgas, L.P.'s Amendment No. 2 to Form 10/A filed with the Securities
and Exchange Commission on June 10, 2003.
B. Accounting for Stock-Based Compensation
Ferrellgas, L.P. accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board (APB) No. 25 and
related Interpretations. Accordingly, no compensation cost has been
recognized in the condensed consolidated statements of earnings. 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 recommended under Statement of Financial Accounting Standard
(SFAS) No. 123, Ferrellgas, L.P.'s net earnings would have been adjusted as
noted in the table below:
For the three months ended For the nine months ended
April 30, April 30,
------------------------------ ------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net earnings, as reported $44,923 $40,938 $123,506 $104,122
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards (8) (1) (56) (1)
------------- ------------- ------------- -------------
Pro forma net earnings $44,915 $40,937 $123,450 $104,121
============= ============= ============= =============
C. 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 condensed consolidated financial statements include accruals
that have been established for product liability and other claims.
23
D. Nature of Operations
Ferrellgas, L.P. 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. Therefore, the results of operations for the
three and nine months ended April 30, 2003 and 2002 are not necessarily
indicative of the results to be expected for a full fiscal year.
E. Cash and Cash Equivalents and Non-Cash Activities
For purposes of the condensed consolidated statements of cash flows,
Ferrellgas, L.P. considers cash equivalents to include all highly liquid
debt instruments purchased with an original maturity of three months or
less. Significant non-cash investing and financing activities are primarily
related to business combinations and are disclosed in Note M - Business
Combinations.
F. Accounts Receivable Securitization
At April 30, 2003, $50.0 million had been funded from our accounts
receivable securitization facility. Ferrellgas, L.P. renewed this facility
effective September 24, 2002, for a 364-day commitment with Banc One, N.A.
In accordance with SFAS No. 140, this transaction is reflected on the
condensed consolidated financial statements as a sale of accounts
receivable and a retained interest in transferred accounts receivable. The
retained interest is classified on the balance sheet within "Accounts and
notes receivable, net".
G. Supplemental Balance Sheet and Statement of Earnings Information
Inventories consist of:
April 30, July 31,
2003 2002
--------------- --------------
Propane gas and related products $30,372 $29,169
Appliances, parts and supplies 18,577 18,865
--------------- -------------
$48,949 $48,034
=============== =============
In addition to inventories on hand, Ferrellgas, L.P. enters into contracts
to buy and sell product, primarily propane for supply procurement 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 April 30, 2003,
Ferrellgas, L.P. had committed, for supply procurement purposes, to take
net delivery of approximately 37.2 million gallons of propane at a fixed
price.
Property, plant and equipment, net consist of:
April 30, July 31,
2003 2002
--------------- -------------
Property, plant and equipment $997,398 $810,416
Less: accumulated depreciation 313,272 303,885
--------------- -------------
$684,126 $506,531
=============== =============
On December 10, 2002, Ferrellgas, L.P. purchased propane tanks and related
assets for $155.6 million that it previously leased. See Note H - Long-Term
Debt - for a discussion regarding the funding of this purchase.
24
Intangible assets consist of:
April 30, 2003 July 31, 2002
------------------------------------------ ------------------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
------------ ---------------- ------------ ------------ ---------------- ------------
Customer lists $ 217,583 $ (131,337) $ 86,246 $ 208,662 $(124,860) $83,802
Non-compete agreements 65,355 (51,693) 13,662 62,893 (48,525) 14,368
------------ ---------------- ------------ ------------ ---------------- ------------
$ 282,938 $ (183,030) $ 99,908 $ 271,555 $(173,385) $98,170
============ ================ ============ ============ ================ ============
For the three months ended For the nine months ended
April 30, April 30,
---------------------------- ---------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Aggregate amortization expense $3,341 $3,002 $9,645 $10,984
Estimated amortization expense:
For the year ended July 31,
2003 $12,275
2004 11,742
2005 11,570
2006 10,691
2007 10,051
Loss on disposal of assets and other consists of:
For the three months ended For the nine months ended
April 30, April 30,
---------------------------- ---------------------------
2003 2002 2003 2002
------------- ------------- ------------- ------------
Loss on disposal of assets $1,594 $ 592 $2,380 $1,161
Loss on transfer of accounts receivable
related to the accounts receivable
securitizations 760 361 2,134 1,954
Service income related to the accounts
receivable securitizations (369) (401) (733) (1,285)
------------- ------------- ------------- ------------
$1,985 $ 552 $3,781 $1,830
============= ============= ============= ============
Shipping and handling expenses are classified in the following condensed
consolidated statements of earnings line items:
For the three months ended For the nine months ended
April 30, April 30,
------------------------------ -----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Operating expenses $ 33,750 $ 33,362 $100,820 $ 97,483
Depreciation and amortization expense 1,168 1,531 4,345 4,820
Equipment lease expense 3,039 3,910 8,971 9,624
------------ ------------ ------------ ------------
$ 37,957 $ 38,803 $114,136 $111,927
============ ============ ============ ============
25
H. Long-Term Debt
Long-term debt consists of:
April 30, July 31,
2003 2002
--------------- --------------
Senior notes
Fixed rate, 7.16%, due 2005-2013 $350,000 $350,000
Fixed rate, 8.8%, due 2006-2009 184,000 184,000
Credit agreement, variable interest rates, expiring 2006 91,100 -
Notes payable, 7.6% weighted average interest rate each year, due 2003 to
2011 11,131 12,177
--------------- --------------
636,231 546,177
Less: current portion, included in other current liabilities on
the condensed consolidated balance sheets 2,518 2,319
--------------- --------------
$633,713 $543,858
=============== ==============
On December 10, 2002, Ferrellgas, L.P. refinanced its $157.0 million bank
credit facility with a $307.5 million amended bank credit facility, using
$155.6 million of the funds available thereunder to purchase propane tanks
and related assets that it previously leased, plus making a $1.2 million
payment of related accrued lease expense. The remaining portion of the
amended bank credit facility is available for working capital, acquisition,
capital expenditure and general partnership purposes and will terminate on
April 28, 2006, unless extended or renewed. As of April 30, 2003,
Ferrellgas, L.P. had borrowings of $91.1 million, at a weighted average
interest rate of 3.72%, under this amended bank credit facility. As of
April 30, 2003, Ferrellgas, L.P. believes that it has met all the required
quarterly financial tests and covenants.
All borrowings under the amended bank credit facility bear interest, at
Ferrellgas L.P.'s option, at a rate equal to either:
o the base rate, which is defined as the higher of the federal
funds rate plus 0.50% or Bank of America's prime rate (as of
April 30, 2003, the federal funds rate and Bank of America's
prime rate were 1.31% and 4.25%, respectively); or
o the Eurodollar Rate plus a margin varying from 1.75% to 2.75% (as
of April 30, 2003, the one-month Eurodollar Rate was 1.26%).
The scheduled annual principal payments on long-term debt as of April 30,
2003, are as follows:
Scheduled annual
For the year ending July 31, principal payments
---------------------------- --------------------
Payments remaining in 2003 $ 1,379
2004 2,134
2005 2,299
2006 202,413
2007 59,039
Thereafter 368,967
26
I. Asset Retirement Obligations
SFAS No. 143 provides accounting requirements for retirement obligations
associated with tangible long-lived assets, including the requirement that
a liability be recognized if there is a legal or financial obligation
associated with the retirement of the assets. Ferrellgas, L.P. adopted SFAS
No. 143 beginning in the year ending July 31, 2003. This cumulative effect
of a change in accounting principle resulted in a one-time charge to
earnings of $2.8 million during the three months ended October 31, 2002,
together with the recognition of a $3.1 million long-term liability and a
$0.3 million long-term asset. Ferrellgas, L.P. believes the implementation
will not have a material ongoing effect on its financial position, results
of operations and cash flows. These obligations relate primarily to the
estimated future expenditures required to retire Ferrellgas L.P.'s
underground storage facilities. The remaining period until these facilities
will require closure and remediation expenditures is approximately 50
years. The following table presents a reconciliation of the beginning and
ending carrying amounts of the asset retirement obligation:
Nine months ended
April 30, 2003
-----------------
Asset retirement obligation as of August 1, 2002 $3,073
Add: Accretion 149
-----------------
Asset retirement obligation as of April 30, 2003 $3,222
=================
The related asset carried for the purpose of settling the asset retirement
obligation is $0.3 million as of April 30, 2003, and is not a legally
restricted asset. Assuming retroactive application of the change in
accounting principle as of August 1, 2001, there would be no material
change in the pro forma net earnings for the nine months ended April 30,
2002. Other liabilities, assuming retroactive application of the change in
accounting principle as of August 1, 2001 and July 31, 2002, would have
increased $2.9 million and $3.1 million, respectively.
J. Guarantees
Financial Accounting Standards Board (FASB) Financial Interpretation No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others," expands the
existing disclosure requirements for guarantees and requires recognition of
a liability for the fair value of guarantees issued after December 31,
2002. As of April 30, 2003, the only material guarantees that Ferrellgas,
L.P. had outstanding were associated with residual value guarantees of
operating leases. These operating leases are related to transportation
equipment with remaining lease periods scheduled to expire over the next
seven fiscal years. Upon completion of the lease period, Ferrellgas, L.P.
guarantees that the fair value of the equipment will equal or exceed the
guaranteed amount, or Ferrellgas, L.P. will pay the lessor the difference.
The fair value of these residual value guarantees entered into after
December 31, 2002 was $30 thousand as of April 30, 2003. Although the fair
values at the end of the lease terms have historically exceeded these
guaranteed amounts, the maximum potential amount of aggregate future
payments Ferrellgas, L.P. could be required to make under these leasing
arrangements, assuming the equipment is worthless at the end of the lease
term, is $16.6 million.
K. Contingencies
Ferrellgas, L.P. is threatened with or named as a defendant in various
claims and lawsuits arising in the ordinary course of business 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
would reasonably be expected to have a material adverse effect on the
financial condition, results of operations and cash flows of Ferrellgas,
L.P. Currently, Ferrellgas is not a party to any legal proceedings other
than various claims arising in the ordinary course of business.
27
L. Distributions
On September 13, 2002, December 13, 2002, and March 14, 2003, Ferrellgas,
L.P. paid cash distributions of $25.3 million, $24.7 million and $21.3
million for the three months ended January 31, 2003. On May 19, 2003,
Ferrellgas declared cash distributions of $28.1 million for the three
months ended April 30, 2003, that was paid on June 13, 2003.
M. Business Combinations
During the nine months ended April 30, 2003, Ferrellgas, L.P. acquired, or
had contributed to it, the following retail propane businesses with an
aggregate value at $45.9 million:
o ProAm, Inc., based primarily in Georgia and Texas, (contributed by
Ferrellgas Partners, L.P. in December 2002);
o a branch of Cenex Propane Partners Co., based in Iowa, acquired November
2002; and
o Northstar Propane, based in Nevada, acquired November 2002.
These purchases were primarily funded by $4.3 million of cash payments and
$41.6 million of limited partner contributions.
The $45.9 million aggregate value of these three retail propane businesses
was preliminarily allocated as follows: $26.2 million for fixed assets such
as customer tanks, buildings and land, $9.5 million for customer lists,
$2.5 million for non-compete agreements and $7.7 million for net working
capital. Net working capital was comprised of $8.5 million of current
assets and $0.8 million of current liabilities. The estimated fair values
and useful lives of assets acquired are based on a preliminary valuation
and are subject to final valuation adjustments. Ferrellgas, L.P. intends to
continue its analysis of the net assets of these acquired businesses to
determine the final allocation of the total purchase price to the various
assets acquired. The weighted average amortization period for non-compete
agreements and customer lists are five and 15 years, respectively.
The results of operations of all of these acquisitions have been included
in the condensed consolidated financial statements from their dates of
acquisition. The pro forma effect of these transactions was not material to
the results of operations.
N. Adoption of New Accounting Standards
The FASB recently issued SFAS No. 143 "Accounting for Asset Retirement
Obligations", SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-lived Assets", SFAS No. 145 "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections,"
SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal
Activities," SFAS No. 148 "Accounting for Stock-Based Compensation -
Transition and Disclosure," SFAS No. 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," SFAS No. 150 "Accounting
for Certain Financial Instruments with Characteristics of both Liabilities
and Equity," FASB Financial Interpretation No. 45 "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others" and FASB Financial Interpretation No. 46
"Consolidation of Variable Interest Entities."
28
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. Ferrellgas, L.P. implemented SFAS No. 143
beginning in the year ending July 31, 2003. This cumulative effect of a
change in accounting principle resulted in a one-time charge to earnings of
$2.8 million during the three months ended October 31, 2002, together with
the recognition of a $3.1 million long-term liability and a $0.3 million
long-term asset. See Note I - Asset Retirement Obligations - for further
discussion of these obligations. Ferrellgas, L.P. believes this
implementation will not have a material ongoing effect on its 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. Ferrellgas,
L.P. implemented SFAS No. 144 beginning in the fiscal year ending July 31,
2003, with no material effect on its financial position, results of
operations and cash flows.
SFAS No. 145 eliminates the requirement that material gains and losses
resulting from the early extinguishment of debt be classified as an
extraordinary item in the condensed consolidated statements of earnings.
Instead, companies must evaluate whether the transaction meets both the
criteria of being unusual in nature and infrequent in occurrence. Other
aspects of SFAS No. 145 relating to accounting for intangible assets of
motor carriers and accounting for certain lease modifications do not
currently apply to Ferrellgas, L.P. Ferrellgas, L.P. implemented SFAS No.
145 beginning in the fiscal year ending July 31, 2003, and will report
expenses associated with early extinguishment of debt in income from
continuing operations.
SFAS No. 146 modifies the financial accounting and reporting for costs
associated with exit or disposal activities. This statement requires that a
liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Additionally, the statement
requires the liability to be recognized and measured initially at fair
value. Under previous rules, liabilities for exit costs were recognized at
the date of the entity's commitment to an exit plan. Ferrellgas, L.P. has
adopted and implemented SFAS No. 146 for all exit or disposal activities
initiated after July 31, 2002. Ferrellgas, L.P. believes the implementation
will not have a material effect on its financial position, results of
operations and cash flows.
SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation"
to provide alternative methods of transition for a voluntary change to the
fair-value based method of accounting for stock-based employee
compensation. This statement also amends SFAS No. 123 disclosure
requirements for annual and interim financial statements to provide more
prominent disclosures about the method of accounting for stock-based
employee compensation and the effect of the method used on reported
results. This statement is effective for the fiscal year ending July 31,
2003. Ferrellgas, L,.P. implemented the interim disclosure requirements
during the three months ended April 30, 2003. See Note B - Accounting for
Stock-Based Compensation - for additional information related to these
requirements. Ferrellgas, L.P. is currently studying the remaining
requirements of SFAS No. 148 and the related implications of SFAS No. 123.
SFAS No. 149 amends SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" and clarifies financial accounting and reporting
for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. This Statement is,
in general, effective for contracts entered into or modified after June 30,
2003, and for hedging relationships designated after June 30, 2003.
Ferrellgas, L.P. has studied SFAS No. 149 and believes it will not have a
material effect on its financial position, results of operations and cash
flows.
SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as
equity. This statement is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective for the fiscal
year ending July 31, 2004. Ferrellgas, L.P. has studied SFAS No. 150 and
believes it will not have a material effect on its financial position,
results of operations and cash flows.
29
FASB Financial Interpretation No. 45 expands the existing disclosure
requirements for guarantees and requires that companies recognize a
liability for guarantees issued after December 31, 2002. Ferrellgas, L.P.
implemented this interpretation beginning in the three months ended January
31, 2003. During the nine months ended April 30, 2003, the implementation
resulted in the recognition of a liability of $30 thousand, and a related
prepaid asset of $30 thousand, both of which will be recognized into income
over the life of the guarantees. See Note J - Guarantees - for further
discussion about these guarantees.
FASB Financial Interpretation No. 46 clarified Accounting Research Bulletin
No. 51, "Consolidated Financial Statements." If certain conditions are met,
this interpretation requires the primary beneficiary to consolidate certain
variable interest entities in which equity investors lack the
characteristics of a controlling financial interest or do not have
sufficient equity investment at risk to permit the variable interest entity
to finance its activities without additional subordinated financial support
from other parties. This interpretation is effective immediately for
variable interest entities created or obtained after January 31, 2003. For
variable interest entities acquired before February 1, 2003, the
interpretation is effective for the first fiscal year or interim period
beginning after June 15, 2003. Ferrellgas, L.P. currently does not have any
variable interest entities that would be subject to this interpretation.
O. Related Party Transactions
Ferrellgas, L.P. has no employees and is managed and controlled by its
general partner. Pursuant to its partnership agreement, Ferrellgas, L.P.'s
general partner is entitled to reimbursement for all direct and indirect
expenses incurred or payments it makes on Ferrellgas, L.P.'s behalf, and
all other necessary or appropriate expenses allocable to Ferrellgas, L.P.
or otherwise reasonably incurred by its general partner in connection with
operating Ferrellgas L.P.'s business. These reimbursable costs, which
include compensation and benefits paid to employees of Ferrellgas L.P.'s
general partner who perform services on their behalf, as well as related
general and administrative costs, are as follows:
For the three months ended For the nine months ended
April 30, April 30,
-------------------------- --------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Reimbursable costs $ 53,563 $ 54,445 $152,855 $150,916
Ferrellgas, L.P. paid or declared the following distributions to Ferrellgas
Partners, L.P. and Ferrellgas L.P.'s general partner during the nine months
ended April 30, 2003:
Ferrellgas Ferrellgas, Inc.
Partners, L.P. (general partner)
----------------- ---------------------
Paid September 13, 2002 $25,135 $257
Paid December 13, 2002 24,407 249
Paid March 14, 2003 21,048 215
Declared May 19, 2003 27,839 284
Ferrell International Limited is beneficially owned by James E. Ferrell and thus
is an affiliate. Ferrellgas, L.P. enters into transactions with Ferrell
International Limited in connection with Ferrellgas L.P.'s risk management
activities and does so at market prices in accordance with Ferrellgas L.P.'s
affiliate trading policy approved by its general partner's Board of Directors.
These transactions include forward, option and swap contracts and are all
reviewed for compliance with the policy. Ferrellgas, L.P. recognized the
following net receipts (disbursements) from purchases, sales and commodity
derivative transactions:
30
For the three months ended For the nine months ended
April 30, April 30,
-------------------------- --------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net receipts (disbursements) $ - $ (1,636) $ 246 $ 50
These net purchases, sales and commodity derivative transactions with Ferrell
International Limited are classified as cost of product sold on the condensed
consolidated statements of earnings. There were no amounts due from or due to
Ferrell International Limited at April 30, 2003.
Ferrellgas believes these related party transactions were conducted in the
ordinary course of business and under terms that were no less favorable to
Ferrellgas than those available with third parties.
31
FERRELLGAS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas, L.P.)
CONDENSED BALANCE SHEETS
(Amounts in dollars)
(unaudited)
April 30, January 24,
ASSETS 2003 2003
- ----------------------------------------------- ----------------- -------------------
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 515 -
Accumulated deficit (515) -
----------------- -------------------
Total Stockholder's Equity $1,000 $1,000
================= ===================
CONDENSED STATEMENTS OF EARNINGS
(unaudited)
Three months From
ended inception to
April 30, April 30,
2003 2003
--------------- ---------------
General and administrative expense $ 515 $ 515
--------------- ---------------
Net loss $ (515) $ (515)
=============== ===============
See notes to these condensed financial statements.
32
FERRELLGAS FINANCE CORP.
(A wholly-owned subsidiary of Ferrellgas, L.P.)
CONDENSED STATEMENT OF CASH FLOWS
(Amounts in dollars)
(unaudited)
From inception to
April 30,
2003
-----------------------
Cash Flows From Operating Activities:
Net loss $ (515)
-----------------------
Cash used in operating activities (515)
-----------------------
Cash Flows From Financing Activities:
Capital contribution 515
-------------------------
Cash provided by financing activities 515
-------------------------
Change in cash -
Cash - beginning of period 1,000
-------------------------
Cash - end of period $1,000
=========================
See notes to these condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
APRIL 30, 2003
(unaudited)
A. Ferrellgas Finance Corp., a Delaware corporation, was formed on January 16,
2003 and is a wholly-owned subsidiary of Ferrellgas, L.P.
Ferrellgas, L.P. contributed $1,000 to Ferrellgas Finance Corp. on January 24,
2003, in exchange for 1,000 shares of common stock.
B. The condensed financial statements reflect all adjustments which are, in the
opinion of management, necessary for a fair statement of the interim periods
presented. All adjustments to the condensed financial statements were of a
normal, recurring nature.
33
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Our management's discussion and analysis of financial condition and results
of operations relates to Ferrellgas Partners, L.P. and Ferrellgas, L.P.
Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp. have nominal
assets and do not conduct any operations. Their sole purpose is to serve as
co-obligors for any debt securities issued by Ferrellgas Partners, L.P. or
Ferrellgas, L.P., respectively. Accordingly, a discussion of the results of
operations, liquidity and capital resources of Ferrellgas Partners Finance Corp.
and Ferrellgas Finance Corp. are not presented.
In this report, unless the context indicates otherwise:
o when we refer to "us," "we," "our," or "ours," we generally mean
Ferrellgas Partners, L.P. together with its consolidated subsidiaries,
including Ferrellgas Partners Finance Corp., Ferrellgas, L.P. and
Ferrellgas Finance Corp., except when used in connection with "common
units" and "senior units," in which case these terms refer to
Ferrellgas Partners, L.P.;
o references to "Ferrellgas Partners" refer to Ferrellgas Partners, L.P.
itself, without its consolidated subsidiaries;
o references to the "operating partnership" refer to Ferrellgas, L.P.
together with its consolidated subsidiaries, including Ferrellgas
Finance Corp.;
o references to our "general partner" refer to Ferrellgas, Inc.;
o the term "unitholder" refers to holders of common units of Ferrellgas
Partners, L.P.; and
o references to "Note" refers to the notes to the condensed consolidated
financial statements of Ferrellgas Partners, L.P., unless otherwise
designated.
Ferrellgas Partners and the operating partnership are Delaware limited
partnerships. Ferrellgas Partners is a holding entity that conducts no
operations and has two subsidiaries, Ferrellgas Partners Finance Corp. and the
operating partnership. Ferrellgas Partner's only significant assets are its
approximate 99% limited partnership interest in the operating partnership and
its 100% equity interest in Ferrellgas Partners Finance Corp. Our common units
are listed on the New York Stock Exchange and our activities are substantially
conducted through our operating partnership. Ferrellgas, L.P. is our only
operating subsidiary.
The following is a discussion of our historical financial condition and
results of operations and should be read in conjunction with our historical
condensed consolidated financial statements and accompanying notes thereto
included elsewhere in this Quarterly Report on Form 10-Q.
The discussions set forth in the "Results of Operations" and Liquidity and
Capital Resources" sections generally refer to Ferrellgas Partners and its
consolidated subsidiaries. However, there do exist two material differences
between Ferrellgas Partners and the operating partnership. Those material
differences include the following:
o because Ferrellgas Partners and the operating partnership have
outstanding indebtedness, the two partnerships incur different amounts
of interest expense; see pages 2 and 20 in the respective condensed
consolidated financial statements and pages 9 and 26 in the respective
notes to the condensed consolidated financial statements; and
o during the three months ended October 31, 2002, Ferrellgas Partners
incurred $7.1 million in expenses related to the early extinguishment
of its debt.
As discussed in Note R to the condensed consolidated financial statements of
Ferrellgas Partners, we have restated the condensed consolidated statements of
cash flows of Ferrellgas Partners for the nine months ended April 30, 2002. The
Management Discussion and Analysis for Operating Activities gives effect to this
restatement.
34
Forward-looking statements
Statements included in this report include forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934 and
Section 27A of the Securities Act of 1933. These forward-looking statements are
identified as any statement that does not relate strictly to historical or
current facts. They often use or are preceeded by 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 comparable terminology. These statements often
discuss plans, strategies, events or developments that we expect or anticipate
will or may occur in the future and are based upon the beliefs and assumptions
of our management and on the information currently available. 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 future performance. You
should not put undue reliance on any forward-looking statements. All
forward-looking statements are subject to risks, uncertainties and assumptions
that could cause our actual results to differ materially from those expressed in
or implied by these forward-looking statements. Many of the factors that will
affect our future results are beyond our ability to control or predict.
Some of our forward-looking statements include the following:
o whether the operating partnership will have sufficient funds to meet
its obligations, including its obligations under its debt securities,
and enable it to distribute to Ferrellgas Partners sufficient funds to
permit Ferrellgas Partners to meet its obligations with respect to its
existing securities;
o whether Ferrellgas Partners and the operating partnership will
continue to meet all of the quarterly financial tests required by the
agreements governing our indebtedness;
o the expectation that propane and other gas liquids sales, cost of
product sold and interest expense in the fourth quarter of fiscal 2003
will exceed those experienced in the fourth quarter of fiscal 2002;
and
o the expectation that gross profit, equipment lease expense and net
earnings will be less than those experienced in the fourth quarter of
fiscal 2002.
For a more detailed description of these particular forward-looking
statements and for risk factors that may affect any forward-looking statements,
see the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item 7 of our Annual Report on Form
10-K/A Amendment No. 2 as filed June 6, 2003, and the section entitled "Risk
Factors" in our Registration Statement on Form S-3, as amended, as filed with
the Securities and Exchange Commission on June 10, 2003.
Results of Operations
Due to the seasonality of the retail distribution of propane, results of
our operations for the three and nine months ended April 30, 2003 and 2002 are
not necessarily indicative of the results to be expected for a full fiscal year.
Other factors affecting the results of our operations include competitive
conditions, demand for product, timing of acquisitions, general economic
conditions in the United States, variations in the weather and fluctuations in
commodity prices.
As we have grown through acquisitions, fixed costs such as personnel costs,
equipment leases, depreciation and interest expense have increased.
Historically, due to the seasonality of our business, these fixed costs have
caused net losses in the first and fourth fiscal quarters.
35
Three Months Ended April 30, 2003 vs. April 30, 2002
Propane and other gas liquids sales. Propane and other gas liquids sales
increased $75.2 million primarily due to an increase in the average propane
sales price per gallon and an additional $6.3 million primarily due to an
increase in retail propane sales volume.
The average propane sales price per gallon increased due to the effect of a
significant increase in the wholesale cost of propane during the three months
ended April 30, 2003 as compared to the prior year period. The wholesale market
price at one of the major supply points, Mt. Belvieu, Texas, averaged $0.63 per
gallon, compared to an average of $0.35 per gallon in the prior year period.
Other major supply points in the United States also experienced significant
increases.
Retail sales volumes increased 10.2 million gallons compared to the prior
year period primarily due to acquisitions and colder temperatures. For the three
months ended April 30, 2003, national temperatures as reported by the National
Oceanic and Atmospheric Administration, were 2% colder than normal as compared
to normal temperatures recorded in the prior year period.
Cost of product sold. Cost of product sold increased $75.0 million
primarily due to an increase in the wholesale price of propane. Our cost of
product sold increased an additional $2.9 million primarily due to the increase
in our retail propane sales volume compared to the prior year period. Improved
results from our risk management trading activities resulted in a decrease of
$4.7 million in our cost of product sold compared to the prior year period.
Gross profit. Gross profit increased 5.8% primarily due to the effect of
the increase in our retail propane volumes and improved results from our risk
management trading activities. See additional discussion regarding risk
management trading activities in Item 3 "Quantitative and Qualitative
Disclosures about Market Risk."
Operating expense. Operating expense increased 5.9% primarily due to
expenses related to acquisitions completed during fiscal 2003.
General and administrative expense. General and administrative expense
decreased 11.3% primarily due to reduced legal expenses.
Equipment lease expense. Equipment lease expense decreased 14.3% primarily
due to the effect of the December 2002 buyout of operating tank leases. See
further discussion about the buyout of these leases in "Liquidity and Capital
Resources - Investing Activities."
Interest expense. Interest expense increased 12.4% due to increased
borrowings related to the buyout of previously leased propane tanks in December
2002 and to finance acquisitions. This increase was partially offset by
increased capitalized interest and the effect of refinancing fixed-rate debt at
a lower interest rate. See further discussion about increased borrowings to
buyout these leases in "Liquidity and Capital Resources - Financing Activities."
Net earnings. Net earnings increased 7.5% primarily due to the effect of
the increase in retail propane volumes and improved results from our risk
management trading activities. This increase was partially offset by the
increased operating expenses and interest expense.
Interest expense and net earnings of the operating partnership
Interest expense. The operating partnership's interest expense increased
6.7% due to increased credit facility borrowings related to the buyout of
previously leased propane tanks in December 2002. This increase was partially
offset by increased capitalized interest. See further discussion about the
increased borrowings to buyout these leases in "Liquidity and Capital Resources
- - Financing Activities."
36
Net earnings. The operating partnership's net earnings increased 9.7%
primarily due to the effect of an increase in retail propane volumes. This
increase was partially offset by the increased operating expenses and interest
expense.
Nine Months Ended April 30, 2003 vs. April 30, 2002
Propane and other gas liquids sales. Propane and other gas liquids sales
increased $101.8 million primarily due to an increase in the average propane
sales price per gallon and an additional $58.5 million primarily due to an
increase in retail propane sales volume.
The average sales price per gallon increased due to the effect of a
significant increase in the wholesale cost of propane during fiscal 2003 as
compared to the prior year period. The wholesale market price at one of the
major supply points, Mt. Belvieu, Texas, averaged $0.54 per gallon during the
first nine months of fiscal 2003, compared to an average of $0.37 per gallon in
the prior year period. Other major supply points in the United States also
experienced significant increases. Retail sales volumes increased 62.3 million
gallons compared to the prior year period, primarily due to colder winter
temperatures, and to a lesser extent, acquisitions.
For the heating season (November through March), temperatures as reported
by the National Oceanic and Atmospheric Administration, were relatively normal
as compared to 11% warmer than normal in the prior year period, which was the
third warmest heating season in recorded United States history.
Cost of product sold. Cost of product sold increased $107.4 million
primarily due to an increase in the wholesale price of propane and increased an
additional $34.7 million primarily due to the effect of an 8.7% increase in our
retail sales volume compared to the prior year period. This increase was offset
by improved results from risk management trading activities that resulted in a
decrease of $17.0 million in our cost of product sold compared to the prior year
period.
Gross profit. Gross profit increased 8.6% primarily due to the effect of
the increase in our retail propane volumes. Improved results from our risk
management trading activities were largely offset by retail margins that,
although better than expected, were less than the prior year period. We were
able to temporarily increase the retail margins in the prior year period to
partially offset the impact of significantly warmer winter temperatures. See
additional discussion regarding risk management trading activities in Item 3
"Quantitative and Qualitative Disclosures about Market Risk."
Operating expense. Operating expense increased 7.1% primarily due to
expenses related to acquisitions completed during fiscal 2003, increased
expenses related to our operational improvement initiative and increased
vehicle-related fuel and oil costs.
Depreciation and amortization expense. Depreciation and amortization
expense decreased 6.5% primarily due to the effect of an intangible asset
completing its amortizable life in December 2001.
Equipment lease expense. Equipment lease expense decreased 10.5% due to the
effect of the December 2002 buyout of operating tank leases. See further
discussion about the buyout of these leases in "Liquidity and Capital Resources
- - Investing Activities."
Interest expense. Interest expense increased 5.1% due to increased
borrowings to buyout previously leased propane tanks in December 2002 and to
finance acquisitions. This increase was partially offset by increased
capitalized interest and the effect of refinancing fixed-rate debt at a lower
interest rate. See further discussion about the increased borrowings to buyout
these leases in "Liquidity and Capital Resources - Financing Activities."
37
Net earnings. Net earnings increased 11.2% primarily due to the effect of
the increase in retail propane volumes. This increase was partially offset by
the increased operating expenses, a $7.1 million early extinguishment of debt
expense related to the repurchase and redemption of our $160.0 million senior
secured notes and the $2.8 million cumulative effect of a change in accounting
principle related to the adoption of Statement of Financial Accounting Standard
(SFAS) No. 143, "Accounting for Asset Retirement Obligations."
Interest expense and net earnings of the operating partnership
Interest expense. The operating partnership's interest expense increased
2.1% due to increased credit facility borrowings related to the buyout of
previously leased propane tanks in December 2002. This increase was mostly
offset by increased capitalized interest. See further discussion about the
increased borrowings to buyout these leases in "Liquidity and Capital Resources
- - Financing Activities.
Net earnings. The operating partnership's net earnings increased 18.6%
primarily due to the effect of an increase in retail propane volumes. This
increase was partially offset by the increased operating expenses and the $2.8
million cumulative effect of a change in accounting principle related to the
adoption of SFAS No. 143. The operating partnership was not affected by
Ferrellgas Partner's $7.1 million early extinguishment of debt expense related
to the repurchase and redemption of its $160.0 million senior secured notes.
Forward-looking statements
We expect the increases in propane and other gas liquid sales and cost of
product sold experienced in the first three quarters of fiscal 2003 to continue
in the fourth quarter of fiscal 2003 as compared to the same periods in fiscal
2002. These expected increases in gas liquid sales and cost of product sold,
which are largely offsetting, are primarily due to the effects of significantly
higher wholesale propane prices experienced during fiscal 2003 as compared to
last year. However, the strong retail margin performance experienced in the
fourth quarter of 2002 is not expected to be repeated and may therefore result
in lower gross profit and net earnings than the prior year period.
We expect interest expense to continue to be higher and equipment lease
expense to be lower in the fourth quarter of fiscal 2003 as compared to the
prior year period due to the effect of the December 2002 buyout of operating
tank leases and related increased credit facility borrowings. See further
discussion about the buyout of these leases in "Liquidity and Capital Resources
- - Investing Activities."
Liquidity and Capital Resources
Our ability to satisfy our 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 our control.
Due to the seasonality of the retail propane distribution business, a
significant portion of our cash flow from operations is typically generated
during the winter heating season, which occurs during our second and third
fiscal quarters. Typically, we generate significantly lower cash flows from
operations in our first and fourth fiscal quarters as compared to the second and
third fiscal quarters because our fixed costs generally exceed gross profit
during the non-peak heating season. Subject to meeting the financial tests
discussed below, our general partner believes that the operating partnership
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. In addition, our general partner believes that the operating
partnership will have sufficient funds available to distribute to Ferrellgas
Partners sufficient cash to pay the required quarterly distribution on its
senior units and the minimum quarterly distribution on all of its common units
during the remainder of the non-heating season, which covers the fourth quarter
of fiscal 2003 and the first quarter of fiscal 2004 when we typically experience
lower cash flows from operating activities. The minimum quarterly distribution
of $0.50 paid on all common units on June 13, 2003, represents the thirty-fifth
consecutive minimum quarterly distribution paid to our common unitholders dating
back to October 1994.
38
Our bank credit facility, public debt, private debt and accounts receivable
securitization facility contain several financial tests and covenants
restricting our ability to pay distributions, incur debt and engage in certain
other business transactions. In general, these tests are based on our debt to
cash flow ratio and cash flow to interest expense ratio. Our general partner
currently believes that the most restrictive of these tests are debt incurrence
limitations under the terms of our bank credit and accounts receivable
securitization facilities and limitations on the payment of distributions within
our 8.75% senior notes due 2012. The bank credit and accounts receivable
securitization facilities generally limit the operating partnership's ability to
incur debt if it exceeds prescribed ratios of either debt to cash flow or cash
flow to interest expense. Our 8.75% senior notes restrict payments if a minimum
ratio of cash flow to interest expense is not met, assuming certain exceptions
to this ratio limit have previously been exhausted. This restriction places
limitations on our ability to make restricted payments such as the payment of
cash distributions to our unitholders. The cash flow used to determine these
financial tests generally is based upon our most recent cash flow performance
giving pro forma effect for acquisitions and divestitures made during the test
period. It should be noted that our bank credit facility, public debt, private
debt and accounts receivable securitization facility do not contain repayment
provisions related to a decline in our credit rating.
As of April 30, 2003, our general partner believes that we met all the
required quarterly financial tests and covenants. Based upon current estimates
of our cash flow, our general partner believes that we will be able to continue
to meet all of the required quarterly financial tests and covenants for the
remainder of the fiscal year ending July 31, 2003. However, if we were to
encounter unexpected downturns in business operations in the future, such as
significantly warmer than normal winter temperatures, a volatile energy
commodity cost environment or continued economic downturn, we may not meet the
applicable financial tests in future quarters. This could have a materially
adverse effect on our operating capacity and cash flows and could restrict our
ability to incur debt or to make cash distributions to our unitholders, even if
sufficient funds were available. Depending on the circumstances, we may consider
alternatives to permit the incurrence of debt or the continued payment of the
quarterly cash distribution to our unitholders. No assurances can be given,
however, that such alternatives can or will be implemented with respect to any
given quarter.
Our future capital expenditures and working capital needs are expected to
be provided by cash generated from future operations, existing cash balances,
the bank credit facility or the accounts receivable securitization facility. To
fund expansive capital projects and future acquisitions, we may obtain funds
from our facilities, we may issue additional debt to the extent permitted under
existing financing arrangements or we may issue additional equity securities,
including, among others, common units.
Toward this purpose, we filed a shelf registration statement with the
Securities and Exchange Commission for the periodic sale of $500 million of
equity and/or debt securities. The registration statement was declared effective
on June 11, 2003. The registered securities are available to us for sale in the
future to fund acquisitions, to reduce indebtedness, to redeem senior units or
to provide funds for general partnership purposes.
We also maintain a shelf registration statement with the Securities and
Exchange Commission for the issuance of approximately 2.0 million common units
in connection with our acquisition of other businesses, properties or securities
in business combination transactions.
Operating Activities
Cash provided by operating activities was $134.8 million for the nine
months ended April 30, 2003, compared to cash provided by operating activities
of $96.5 million for the prior fiscal year period. This increase in cash
provided by operating activities is primarily due to higher proceeds from
accounts receivable securitization activity and increased net earnings. This
increase was partially offset by the effect of higher wholesale cost of product,
the timing of collections of accounts receivable and the timing of purchases of
inventory. The fiscal 2003 winter heating season has required more working
capital to finance operating activities than the fiscal 2002 winter heating
season because of the effect of financing the purchase and sale of greater
volumes of retail propane at higher average wholesale costs.
39
Accounts receivable securitization
At April 30, 2003, $50.0 million had been funded from our accounts
receivable securitization facility. This funding resulted from our increased
liquidity needs caused primarily by the seasonal increase in accounts receivable
outstanding and in propane inventory levels. We renewed this facility effective
September 24, 2002, for a 364-day commitment with Banc One, N.A. In accordance
with SFAS No. 140, this transaction is reflected on our condensed consolidated
financial statements as a sale of accounts receivable and a retained interest in
transferred accounts receivable.
The operating partnership
Cash provided by operating activities was $147.5 million for the nine
months ended April 30, 2003, compared to cash provided by operating activities
of $104.0 million for the nine months ended April 30, 2002, for the reasons
mentioned above.
Investing Activities
Capital expenditures
During the nine months ended April 30, 2003, we made cash capital expenditures
of $18.5 million related to our technology initiative and $11.1 million
primarily for the following:
o upgrading district plant facilities;
o purchase of vehicles at the end of the lease terms; and
o purchase of additional propane storage tanks and cylinders.
Our capital requirements for repair and maintenance of property, plant and
equipment are expected to remain relatively low.
We lease property, computer equipment, propane tanks, light and medium duty
trucks, tractors and trailers. We believe leasing is a cost-effective method for
meeting our equipment needs. On December 10, 2003, we purchased $155.6 million
of equipment whose lease terms would have expired in June 2003. See "Financing
Activities" and Note I - Long-Term Debt - to our condensed consolidated
financial statements for discussions about the financing of the equipment lease
buyouts.
Business acquisitions
We continue to consider opportunities to expand our operations through
strategic acquisitions of retail propane operations located throughout the
United States. During the nine months ended April 30, 2003, we made total
acquisition capital expenditures of $45.9 million for three retail propane
companies, which included the acquisition of $7.7 million of working capital.
These expenditures were funded by $36.3 million in cash payments and the
issuance of a $10.0 million non-interest bearing note due in December 2003.
The operating partnership
The investing activities discussion above also applies to the operating
partnership, except for cash flows related to business acquisitions. During the
nine months ended April 30, 2003, the operating partnership made total
acquisition capital expenditures of $4.3 million pursuant to the acquisition of
two retail propane companies. In addition, during December 2002, Ferrellgas
Partners acquired and contributed a propane company to the operating partnership
in exchange for a $41.6 million limited partner interest.
40
Financing Activities
Credit Facility
On December 10, 2002, we refinanced our $157.0 million bank credit facility
with a $307.5 million amended bank credit facility. This amended bank credit
facility will terminate on April 28, 2006, unless extended or renewed. This
$307.5 million amended bank credit facility consists of the following:
o a $151.5 million revolving working capital facility, general partnership
and acquisition facility, including an $80.0 million letter of credit
sub-facility; and
o a $156.0 million revolving facility, which was used on December 10, 2002,
to purchase propane tanks and related assets that we previously leased.
All borrowings under the amended bank credit facility bear interest, at our
option, at a rate equal to either:
o a base rate, which is defined as the higher of the federal funds rate plus
0.50% or Bank of America's prime rate (as of April 30, 2003, the federal
funds rate and Bank of America's prime rate were 1.31% and 4.25%,
respectively); or
o the Eurodollar Rate plus a margin varying from 1.75% to 2.75% (as of
April 30, 2003, the one-month Eurodollar Rate was 1.26%).
At April 30, 2003, $91.1 million of borrowings and $44.7 million of letters
of credit were outstanding under the amended bank credit facility. Letters of
credit are currently used to cover obligations primarily relating to
requirements for our insurance coverage and, and to a lesser extent, our risk
management activities. At April 30, 2003, we had $171.7 million available for
working capital, acquisition, capital expenditure and general partnership
purposes under the amended bank credit facility.
We believe that the liquidity available from the amended bank credit
facility and the accounts receivable securitization facility will be sufficient
to meet our future working capital needs for the fiscal year ending July 31,
2003. See "Investing Activities." However, if we were to experience an
unexpected significant increase in working capital requirements, our working
capital needs could exceed our immediately available resources. Events that
could cause increases in working capital borrowings or letter of credit
requirements include, but are not limited to the following:
o a significant increase in the wholesale cost of propane;
o a significant delay in the collections of accounts receivable;
o increased volatility in energy commodity prices related to risk management
activities;
o increased liquidity requirements imposed by insurance providers;
o a significant downgrade in our credit rating; or
o decreased trade credit.
If one or more of these or other events caused a significant use of available
funding, we would consider alternatives to provide increased working capital
funding. No assurances can be given, however, that such alternatives could, or
would, be implemented.
Long-term debt
On September 24, 2002, we issued, in a public offering, $170.0 million of
8.75% senior notes due 2012. Interest is payable semi-annually in arrears on
June 15 and December 15, commencing on December 15, 2002. These senior notes are
unsecured and not redeemable before June 15, 2007, except under specific
circumstances. We used the proceeds from the $170.0 million senior note issuance
to repurchase and redeem our $160.0 million 9.375% senior secured notes due 2006
and fund related premiums, fees, accrued and unpaid interest and tender consent
payments.
41
On December 18, 2002, we issued, in a public offering, $48.0 million of
8.75% senior notes with the same terms as those on the $170.0 million 8.75%
senior notes except that interest will commence on June 15, 2003. We used the
proceeds from the $48.0 million senior note issuance to reduce borrowings under
the amended bank credit facility and to provide increased availability of funds
for working capital, acquisition, capital expenditure and general partnership
purposes. The $48.0 million senior notes were issued with a debt premium of $1.7
million that will be amortized to interest expense through fiscal 2012.
The following table summarizes our long-term debt obligations as of April
30, 2003:
Principal Payments due by Fiscal Year
----------------------------------------------------------------
Remainder 2007 and
of 2003 2004 2005 2006 Thereafter Total
---------- ---------- ---------- ---------- ---------- ----------
Long-term debt, including
current portion $1,379 $2,134 $2,299 $202,413 $646,006 $854,231
See Note I - Long-term Debt - to our condensed consolidated financial statements
for further discussion of the maturity dates and interest rates related to our
long-term debt.
Distributions
During the nine months ended April 30, 2003, we declared and paid the
required quarterly distribution on our senior units and the minimum quarterly
distribution on all common units for each of the three months ended July 31,
2002, October 31, 2002 and January 31, 2003. The required quarterly distribution
on the senior units and the minimum quarterly distribution on all common units
for the three months ended April 30, 2003 was paid on June 13, 2003 to holders
of record on May 30, 2003.
The operating partnership
The financing activities discussion above also applies to the operating
partnership except for cash flows related to distributions and the issuance of
the 8.75% senior notes due 2012. The following table summarizes the operating
partnership's long-term debt obligations as of April 30, 2003:
Principal Payments due by Fiscal Year
----------------------------------------------------------------
Remainder 2007 and
of 2003 2004 2005 2006 Thereafter Total
---------- ---------- ---------- ---------- ---------- ----------
Long-term debt, including current
portion of long-term debt $1,379 $2,134 $2,299 $202,413 $428,006 $636,231
See Note H - Long-Term Debt - in the operating partnership's condensed
consolidated financial statements for further discussion of maturity dates and
interest rates related to its long-term debt.
Disclosures about Risk Management Activities Accounted for at Fair Value
The following table summarizes the change in the unrealized fair value of
contracts from our risk management trading activities for the three and nine
months ended April 30, 2003. This table summarizes the contracts where
settlement has not yet occurred:
42
Three months Nine
ended months ended
April 30, 2003 April 30, 2003
---------------- ----------------
Unrealized gains (losses) in fair value of contracts
outstanding at beginning of period $1,582 $(4,569)
Other unrealized gains (losses) recognized (2,894) 6,579
Less: realized gains (losses) recognized (1,598) 1,724
---------------- ----------------
Unrealized gains in fair value of contracts
outstanding at April 30, 2003 $ 286 $ 286
================ ================
The following table summarizes the maturity of contracts from our risk
management trading activities for the valuation methodologies we utilized as of
April 30, 2003. This table summarizes the contracts where settlement has not yet
occurred:
Fair Value of Contracts at
Period-End
----------------------------------
Maturity less Maturity greater
Source of Fair Value than 1 year than 1 year
- -------------------------------------------- ---------------- ----------------
Prices actively quoted $ (1) $ -
Prices provided by other external sources 287 -
Prices based on models and other
valuation methods - -
---------------- ----------------
Unrealized gains in fair value of contracts
outstanding at April 30, 2003 $286 $ -
================ ================
See additional discussion about market, counterparty credit and liquidity risks
related to our risk management trading activities and other risk management
activities in Item 3 "Quantitative and Qualitative Disclosures about Market
Risk."
Disclosures about Effects of Transactions with Related Parties
We have no employees and are managed and controlled by our general partner.
Pursuant to our partnership agreement, our general partner is entitled to
reimbursement for all direct and indirect expenses incurred or payments it makes
on our behalf, and all other necessary or appropriate expenses allocable to us
or otherwise reasonably incurred by our general partner in connection with
operating our business. These reimbursable costs, which totaled $53.6 million
and $152.9 million for the three and nine months ended April 30, 2003,
respectively, include compensation and benefits paid to employees of our general
partner who perform services on our behalf, as well as related general and
administrative costs.
We paid senior unit distributions of $2.8 million to JEF Capital Management
on September 13, 2002 and December 14, 2002. We paid a senior unit distribution
of $2.7 million to JEF Capital Management on March 14, 2003. On April 30, 2003,
we accrued a senior unit distribution of $2.7 million that was paid to JEF
Capital Management on June 13, 2003. JEF Capital Management is beneficially
owned by James E. Ferrell, the Chairman, President and Chief Executive Officer
of our general partner, and thus is an affiliate. On January 15, 2003, we
redeemed 39.2 thousand senior units held by JEF Capital Management with a cash
payment of $1.6 million.
43
Ferrell International Limited is beneficially owned by James E. Ferrell and
thus is an affiliate. We enter into transactions with Ferrell International
Limited in connection with our risk management activities and do so at market
prices in accordance with our affiliate trading policy approved by our general
partner's Board of Directors. These transactions include forward, option and
swap contracts and are all reviewed for compliance with the policy. During the
nine months ended April 30, 2003, we recognized net receipts from purchases,
sales and commodity derivative transactions of $0.2 million. These net
purchases, sales and commodity derivative transactions with Ferrell
International Limited are classified as cost of product sold on our condensed
consolidated statements of earnings. There were no amounts due from or due to
Ferrell International Limited at April 30, 2003.
We believe these related party transactions were conducted in the ordinary
course of business and under terms that were no less favorable to us than those
available with third parties.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements include the leasing of transportation
equipment, property, computer equipment and propane tanks. We account for these
arrangements as operating leases. We believe these arrangements are a
cost-effective method for financing our equipment needs. These off-balance sheet
arrangements enable us to lease equipment from third parties rather than, among
other options, purchasing the equipment using on-balance sheet financing. See
further discussion about these leases in "Investing Activities."
Most of the operating leases involving our transportation equipment contain
residual value guarantees. These transportation equipment lease arrangements are
scheduled to expire over the next seven years. Most of these arrangements
provide that the fair value of the equipment will equal or exceed a guaranteed
amount, or we will be required to pay the lessor the difference. Although the
fair values at the end of the lease terms have historically exceeded these
guaranteed amounts, the maximum potential amount of aggregate future payments we
could be required to make under these leasing arrangements, assuming the
equipment is worthless at the end of the lease term, is $16.6 million. We do not
know of any event, demand, commitment, trend or uncertainty that would result in
a material change to these arrangements. See Note K - Guarantees - to our
condensed consolidated financial statements for further discussion of Financial
Accounting Standards Board Financial Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others."
The following table summarizes our future minimum rental payments as of
April 30, 2003:
Future Minimum Rental and Buyout Amounts by Fiscal Year
----------------------------------------------------------------
Remainder 2007 and
of 2003 2004 2005 2006 Thereafter Total
---------- ---------- ---------- ---------- ---------- ----------
Operating lease
rental payments $ 2,168 $14,135 $10,827 $ 8,713 $ 9,883 $45,726
Operating lease buyouts
2,366 6,061 5,271 2,076 11,259 27,033
Historically, we have been successful in renewing certain leases that are
subject to buyouts. However, there is no assurance that we will be successful in
the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our risk management activities primarily attempt to mitigate risks related
to the purchasing, storing and transporting of propane. We generally purchase
propane in the contract and spot markets from major domestic energy companies on
a short-term basis. Our costs to purchase and distribute propane fluctuate with
the movement of market prices. This fluctuation subjects us to potential price
risk, which we attempt to minimize through the use of risk management
activities.
44
Our risk management activities include the use of energy commodity forward
contracts, swaps and options traded on the over-the-counter financial markets
and futures and options traded on the New York Mercantile Exchange. These risk
management activities are conducted primarily to offset the effect of market
price fluctuations on propane inventory and purchase commitments and to mitigate
the price and inventory risk on sale commitments to our customers.
Our risk management activities are intended to generate a profit, which we
then apply to reduce our cost of product sold. The results of our risk
management activities directly related to the delivery of propane to our retail
customers, which include our supply procurement, storage and transportation
activities, are presented in our discussion of retail margins and are accounted
for at cost. The results of our other risk management activities are presented
separately in our discussion of cost of product sold and gross profit as risk
management trading activities and are accounted for at fair value.
Market risks associated with energy commodities are monitored daily by
senior management for compliance with our commodity risk management policy. This
policy includes an aggregate dollar loss limit and limits on the term of various
contracts. We also utilize volume limits for various energy commodities and
review our positions daily where we remain exposed to market risk, so as to
manage exposures to changing market prices.
Market, Credit and Liquidity Risk. New York Mercantile Exchange traded
futures and options are guaranteed by the New York Mercantile Exchange and have
nominal credit risk. We are exposed to credit risk associated with forwards,
swaps and option transactions in the event of nonperformance by counterparties.
For each counterparty, we analyze its financial condition prior to entering into
an agreement, establish a credit limit and monitor the appropriateness of the
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, we
attempt to balance maturities and positions with individual counterparties.
Historically, our risk management activities have not experienced significant
credit related losses in any year or with any individual counterparty. Our risk
management contracts do not contain material repayment provisions related to a
decline in our credit rating.
Sensitivity Analysis. We have prepared a sensitivity analysis to estimate
the exposure to market risk of our energy commodity positions. Forward
contracts, futures, swaps and options used in our risk management trading
activities were analyzed assuming a hypothetical 10% adverse change in prices
for the delivery month for all energy commodities. The potential loss in future
earnings regarding these positions from a 10% adverse movement in market prices
of the underlying energy commodities is estimated at $0.9 million for risk
management trading activities as of April 30, 2003. The preceding hypothetical
analysis is limited because changes in prices may or may not equal 10%, thus
actual results may differ.
Additionally, we seek to mitigate our variable rate interest rate risk
exposure on operating leases by entering into interest rate cap agreements. At
April 30, 2003, we had $91.1 million in variable rate amended bank credit
facility borrowings and $50.0 million in funding from our variable rate accounts
receivable securitization facility. Thus, assuming a one percent increase in our
variable interest rate, our interest rate risk related to the operating leases
and the associated interest rate cap agreements, the borrowings on the variable
rate amended bank credit facility and the funding from the variable rate
accounts receivable securitization facility would be a loss in future earnings
of $1.4 million for the twelve months ending April 30, 2004. The preceding
hypothetical analysis is limited because changes in interest rates may or may
not equal one percent, thus actual results may differ.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the filing of this Quarterly Report on Form 10-Q,
an evaluation was performed under the supervision and with the participation of
our management, including the Chief Executive Officer and Chief Financial
Officer of our general partner, of the effectiveness of the design and operation
of our disclosure controls and procedures (as such terms are defined in Rule
13a-14(c) and 15d-14(c) of the Exchange Act). Based on that evaluation, our
management, including the Chief Executive Officer and Chief Financial Officer of
our general partner, concluded that our disclosure controls and procedures were
adequate and effective as of the date of evaluation to ensure that material
information relating to us was made known to our management, including the Chief
Executive Officer and Chief Financial Officer of our general partner, by others
within our company, particularly during the period to which this report relates
and the period in which it was prepared.
45
There have been no significant changes in our internal controls or in other
factors that could significantly affect our internal controls subsequent to the
evaluation referenced above, including no corrective actions with respect to
significant deficiencies and material weaknesses in our internal controls.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note L - Contingencies - to our condensed consolidated financial
statements included elsewhere in this report.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
46
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits listed below are filed as part of this Quarterly Report on Form
10-Q. Exhibits required by Item 601 of Regulation S-K of the Securities Act,
which are not listed, are not applicable.
Exhibit
Number Description
-------- -----------
3.1 Fourth Amended and Restated Agreement of Limited Partnership
of Ferrellgas Partners, L.P., dated as of February 18, 2003.
Incorporated by reference to Exhibit 4.3 to our Current
Report on Form 8-K filed February 18, 2003.
3.2 Articles of Incorporation for Ferrellgas Partners Finance
Corp. Incorporated by reference to the same numbered Exhibit
to our 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 our Quarterly
Report on Form 10-Q filed June 13, 1997.
3.4 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 our Quarterly
Report on Form 10-Q filed March 17, 1999.
3.5 First Amendment to the Second Amended and Restated Agreement
of Limited Partnership of Ferrellgas, L.P. Incorporated by
reference to Exhibit 10.2 to our Quarterly Report on Form
10-Q filed June 14, 2000.
3.6 Certificate of Incorporation of Ferrellgas Finance Corp.
filed with the Delaware Secretary of State on January 16,
2003. Incorporated by reference to Exhibit 4.1 to the Current
Report on Form 8-K of Ferrellgas Partners, L.P. filed
February 18, 2003.
3.7 Bylaws of Ferrellgas Finance Corp. adopted as of January 16,
2003. Incorporated by reference to Exhibit 4.2 to the Current
Report on Form 8-K of Ferrellgas Partners, L.P. filed
February 18, 2003.
4.1 Specimen Certificate evidencing Common Units representing
Limited Partner Interests (contained in Exhibit 3.1 as
Exhibit A thereto).
4.2 Indenture, dated as of September 24, 2002, with form of Note
attached, among Ferrellgas Partners, L.P., Ferrellgas
Partners Finance Corp., and U.S. Bank National Association,
as trustee, relating to 8 3/4% Senior Notes due 2012.
Incorporated by reference to Exhibit 4.1 to our Current
Report on Form 8-K filed September 24, 2002.
4.3 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 Exhibit 4.4 to our Annual Report on Form 10-K
filed October 29, 1998.
47
Exhibit
Number Description
-------- -----------
4.4 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 our Quarterly Report on Form 10-Q
filed March 16, 2000.
4.5 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
our Current Report on Form 8-K filed December 29, 2000.
4.6 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 our Quarterly Report on Form 10-Q
filed March 16, 2000.
4.7 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 our Current Report on Form 8-K filed April
6, 2001.
4.8 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 our Current
Report on Form 8-K filed December 29, 1999.
4.9 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
our Current Report on Form 8-K filed April 6, 2001.
10.1 Fourth Amended and Restated Credit Agreement, dated as of
December 10, 2002, by and among Ferrellgas, L.P., Ferrellgas,
Inc., Bank of America National Trust and Savings Association,
as agent, and the other financial institutions party.
Incorporated by reference to Exhibit 10.3 to our Quarterly
Report on Form 10-Q filed December 11, 2002.
10.2 Receivable Interest Sale Agreement, dated as of September 26,
2000, by and between Ferrellgas, L.P., as originator, and
Ferrellgas Receivables, L.L.C., as buyer. Incorporated by
reference to Exhibit 10.17 to our Annual Report on Form 10-K
filed October 26, 2000.
10.3 First Amendment to the Receivable Interest Sale Agreement
dated as of January 17, 2001, by and between Ferrellgas,
L.P., as originator, and Ferrellgas Receivables, L.L.C., as
buyer. Incorporated by reference to Exhibit 10.5 to our
Quarterly Report on Form 10-Q filed March 14, 2001.
48
Exhibit
Number Description
-------- -----------
10.4 Receivables Purchase Agreement, dated as of September 26,
2000, by and among Ferrellgas Receivables, L.L.C., as seller,
Ferrellgas, L.P., as servicer, Jupiter Securitization
Corporation, the financial institutions from time to time
party hereto, and Bank One, NA, main office Chicago, as
agent. Incorporated by reference to Exhibit 10.18 to our
Annual Report on Form 10-K filed October 26, 2000.
10.5 First Amendment to the Receivables Purchase Agreement, dated
as of January 17, 2001, by and among Ferrellgas Receivables,
L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter
Securitization 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 our Quarterly Report on Form 10-Q filed March 14, 2001.
10.6 Second Amendment to the Receivables Purchase Agreement dated
as of September 25, 2001, by and among Ferrellgas
Receivables, L.L.C., as seller, Ferrellgas, L.P., as
servicer, Jupiter Securitization 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 10.29 to our Annual Report on Form 10-K
filed October 25, 2001.
10.7 Third Amendment to the Receivables Purchase Agreement, dated
as of September 24, 2002, by and 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,
NA, main office Chicago, as agent.
10.8 Purchase Agreement, dated as of November 7, 1999, by and
among Ferrellgas Partners, L.P., Ferrellgas, L.P and Williams
Natural Gas Liquids, Inc. Incorporated by reference to
Exhibit 99.1 to our Current Report on Form 8-K filed November
12, 1999.
10.9 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 Exhibit 2.2 to our Current Report on Form 8-K
filed December 29, 1999.
10.10 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 our Quarterly Report on Form 10-Q
filed March 16, 2000.
10.11 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 our Current Report on Form 8-K filed April 6,
2001.
# 10.12 Ferrell Companies, Inc. Supplemental Savings Plan, restated
January 1, 2000. Incorporated by reference to Exhibit 99.1
to our Current Report on Form 8-K filed February 18, 2003.
# 10.13 Second Amended and Restated Ferrellgas Unit Option Plan.
Incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K filed June 5, 2001.
49
Exhibit
Number Description
-------- -----------
# 10.14 Ferrell Companies, Inc. 1998 Incentive Compensation Plan -
Incorporated by reference to Exhibit 10.12 to our Annual
Report on Form 10-K filed October 29, 1998.
# 10.15 Employment agreement between James E. Ferrell and Ferrellgas,
Inc., dated July 31, 1998. Incorporated by reference to
Exhibit 10.13 to our Annual Report on Form 10-K filed October
29, 1998.
# 10.16 Employment agreement between Patrick Chesterman and
Ferrellgas, Inc. dated July 31, 2000. Incorporated by
reference to Exhibit 10.19 to our Annual Report on Form 10-K
filed October 26, 2000.
# 10.17 Employment agreement between Kevin Kelly and Ferrellgas, Inc.
dated July 31, 2000. Incorporated by reference to Exhibit
10.22 to our Annual Report on Form 10-K filed October 26,
2000.
* 99.1 Certification of Ferrellgas Partners, L.P. Pursuant to U.S.C.
Section 1350, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
* 99.2 Certification of Ferrellgas Partners Finance Corp. Pursuant
to U.S.C. Section 1350, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* 99.3 Certification of Ferrellgas, L.P. Pursuant to U.S.C. Section
1350, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
* 99.4 Certification of Ferrellgas Finance Corp. Pursuant to U.S.C.
Section 1350, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
- ---------------
* Filed herewith
# Management contracts or compensatory plans.
(b) Reports on Form 8-K
Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp. filed two Form
8-K's during the three months ended April 30, 2003.
Items
Date of Report Reported Financial Statements Furnished
- ------------------------ -------- ------------------------------
Filed February 3, 2003 5 None
Filed February 18, 2003 5, 7 None
Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp. furnished one
Form 8-K during the three months ended April 30, 2003.
Items
Date of Report Reported Financial Statements Furnished
- ---------------------------- -------- ------------------------------
Furnished February 19, 2003 9 None
50
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have 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)
Date: June 13, 2003 By /s/ Kevin T. Kelly
-------------------------------------
Kevin T. Kelly
Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
FERRELLGAS PARTNERS FINANCE CORP.
Date: June 13, 2003 By /s/ Kevin T. Kelly
-------------------------------------
Kevin T. Kelly
Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
FERRELLGAS, L.P.
By Ferrellgas, Inc. (General Partner)
Date: June 13, 2003 By /s/ Kevin T. Kelly
-------------------------------------
Kevin T. Kelly
Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
FERRELLGAS FINANCE CORP.
Date: June 13, 2003 By /s/ Kevin T. Kelly
-------------------------------------
Kevin T. Kelly
Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
51
CERTIFICATIONS
FERRELLGAS PARTNERS, L.P.
I, James E. Ferrell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ferrellgas Partners,
L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons forming the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 13, 2003
/s/ James E. Ferrell
------------------------------------------
James E. Ferrell
Chairman, President and Chief
Executive Officer of Ferrellgas, Inc.,
the registrant's general partner
52
CERTIFICATIONS
FERRELLGAS PARTNERS, L.P.
I, Kevin T. Kelly, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ferrellgas Partners,
L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons forming the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 13, 2003
/s/ Kevin T. Kelly
------------------------------------------
Kevin T. Kelly
Senior Vice President and Chief
Financial Officer of Ferrellgas, Inc.,
the registrant's general partner
53
CERTIFICATIONS
FERRELLGAS PARTNERS FINANCE CORP.
I, James E. Ferrell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ferrellgas Partners
Finance Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons forming the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 13, 2003
/s/ James E. Ferrell
-------------------------------------
James E. Ferrell
President and Chief Executive Officer
54
CERTIFICATIONS
FERRELLGAS PARTNERS FINANCE CORP.
I, Kevin T. Kelly, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ferrellgas Partners
Finance Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons forming the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 13, 2003
/s/ Kevin T. Kelly
-------------------------
Kevin T. Kelly
Senior Vice President and
Chief Financial Officer
55
CERTIFICATIONS
FERRELLGAS, L.P.
I, James E. Ferrell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ferrellgas, L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons forming the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 13, 2003
/s/ James E. Ferrell
--------------------------------------------------
James E. Ferrell
Chairman, President and Chief Executive Officer of
Ferrellgas, Inc., the registrant's general partner
56
CERTIFICATIONS
FERRELLGAS, L.P.
I, Kevin T. Kelly, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ferrellgas, L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons forming the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 13, 2003
/s/ Kevin T. Kelly
----------------------------------------------------
Kevin T. Kelly
Senior Vice President and Chief Financial Officer of
Ferrellgas, Inc., the registrant's general partner
57
CERTIFICATIONS
FERRELLGAS FINANCE CORP.
I, James E. Ferrell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ferrellgas Finance
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons forming the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 13, 2003
/s/ James E. Ferrell
-------------------------------------
James E. Ferrell
President and Chief Executive Officer
58
CERTIFICATIONS
FERRELLGAS FINANCE CORP.
I, Kevin T. Kelly, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ferrellgas Finance
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons forming the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 13, 2003
/s/ Kevin T. Kelly
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Kevin T. Kelly
Senior Vice President and Chief Financial Officer
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