UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 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 OctoberJanuary 31, 19992000

                                       or

[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period from __________ to __________


Commission file numbers: 1-11331
                         333-06693


                            Ferrellgas Partners, L.P.
                        Ferrellgas Partners Finance Corp.

           (Exact name of registrants as specified in their charters)



         Delaware                                       43-1698480
         Delaware                                       43-1742520
- ----------------------------                  -------------------------------
(States or other jurisdictions of          (I.R.S. Employer Identification Nos.)
incorporation or organization)

                   One Liberty Plaza, Liberty, Missouri 64068

               (Address of principal executive offices) (Zip Code)

Registrants' telephone number, including area code: (816) 792-1600

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

Yes    [ X ]  No    [   ]

At December 2, 1999,March 15, 2000, the registrants had units or shares outstanding as follows:

Ferrellgas Partners, L.P.                31,307,116          Common Units
                                          4,428,499          Senior Common Units

Ferrellgas Partners Finance Corp.             1,000          Common Stock





                   FERRELLGAS PARTNERS, L.P. and SUBSIDIARIES
                        FERRELLGAS PARTNERS FINANCE CORP.

                                Table of Contents
Page PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS Page Ferrellgas Partners, L.P. and Subsidiaries Consolidated Balance Sheets - OctoberJanuary 31, 19992000 and July 31, 1999 1 Consolidated Statements of Earnings - Three and six months ended OctoberJanuary 31, 19992000 and 19981999 2 Consolidated Statement of Partners' Capital - ThreeSix months ended OctoberJanuary 31, 19992000 3 Consolidated Statements of Cash Flows - ThreeSix months ended OctoberJanuary 31, 19992000 and 19981999 4 Notes to Consolidated Financial Statements 5 Ferrellgas Partners Finance Corp. Balance Sheets - OctoberJanuary 31, 19992000 and July 31, 1999 811 Statements of Earnings - Three and six months ended OctoberJanuary 31, 2000 and 1999 and 1998 811 Statements of Cash Flows - ThreeSix months ended OctoberJanuary 31, 2000 and 1999 and 1998 912 Notes to Financial Statements 912 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1013 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 1418 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 19 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 19 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 19 ITEM 4. SUBMISSION TO A VOTE OF SECURITIES HOLDERS 19 ITEM 5. OTHER INFORMATION 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 1519
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except unit data)
OctoberJanuary 31, July 31, ASSETS 19992000 1999 - ---------------------------------------------------------------------- ------------- -------------------------------------------------------------------------------------- ---------------- ------------ (unaudited) Current Assets: Cash and cash equivalents $ 12,26125,156 $35,134 Accounts and notes receivable, 84,563net 161,566 58,380 Inventories 52,83167,232 24,645 Prepaid expenses and other current assets 17,3639,586 6,780 ------------- ----------------------------- ------------ Total Current Assets 167,018263,540 124,939 Property, plant and equipment, net 405,450537,844 405,292 Intangible assets, net 116,473264,072 118,117 Other assets, net 8,3408,772 8,397 ------------- ----------------------------- ------------ Total Assets $697,281$1,074,228 $656,745 ============= ============================= ============ LIABILITIES AND PARTNERS' CAPITAL - ----------------------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Accounts payable $88,370$126,610 $60,754 Other current liabilities 45,53775,510 48,266 Short-term borrowings 55,96535,000 20,486 ------------- ----------------------------- ------------ Total Current Liabilities 189,872237,120 129,506 Long-term debt 593,081708,202 583,840 Other liabilities 12,30019,586 12,144 Contingencies and commitments - - Minority interest 6502,709 906 Partners' Capital: Senior common unitholders (4,428,499 units oustanding at January 31, 2000 - redeemable liquidation value - $177,139,946) 168,587 - Common unitholders (31,307,116 and 14,710,765 units outstanding at OctoberJanuary 31, 19992000 and July 31, 1999, respectively) (37,982)(3,452) 1,215 Subordinated unitholders (0 and 16,593,721 units outstanding at OctoberJanuary 31, 19992000 and July 31, 1999, respectively) - (10,516) General partner (59,843)(57,727) (59,553) Accumulated other comprehensive income (797) (797) ------------- ----------------------------- ------------ Total Partners' Capital (98,622)106,611 (69,651) ------------- ----------------------------- ------------ Total Liabilities and Partners' Capital $697,281$1,074,228 $656,745 ============= ============================= ============
See notes to consolidated financial statements. 1 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per-unit data) (unaudited)
For the three months ended ----------------------------------- OctoberFor the six months ended --------------------------- ----------------------- January 31, January 31, January 31, January 31, 2000 1999 October 31, 1998 ------------------ ----------------2000 1999 ------------ --------------- ----------- ------------- Revenues: Gas liquids and related product sales $141,507 $118,002$316,025 $216,541 $457,532 $334,543 Other 21,232 12,337 ---------------24,970 13,536 46,202 25,873 -------------- ----------- ----------- ----------- Total revenues 162,739 130,339340,995 230,077 503,734 360,416 Cost of product sold (exclusive of depreciation, shown separately below) 85,325 58,712 ---------------178,028 101,328 263,353 160,040 -------------- ----------- ----------- ----------- Gross profit 77,414 71,627162,967 128,749 240,381 200,376 Operating expense 57,177 51,71269,341 56,240 126,518 107,952 Depreciation and amortization expense 12,083 11,31113,916 11,806 25,999 23,117 Employee stock ownership plan compensation charge 1,027 8901,026 800 2,053 1,690 General and administrative expense 5,183 4,6685,960 4,197 11,143 8,865 Equipment lease expense 3,853 2,968 ---------------5,586 3,173 9,439 6,141 -------------- ----------- ----------- ----------- Operating income (loss) (1,909) 7867,138 52,533 65,229 52,611 Interest expense (12,581) (11,618)(14,697) (11,960) (27,278) (23,578) Interest income 258 158 Gain (loss)351 386 609 544 Loss on disposal of assets (96) 86 ---------------(33) (598) (129) (512) -------------- Loss----------- ----------- ----------- Earnings before minority interest and extraordinary item (14,328) (11,296)52,759 40,361 38,431 29,065 Minority interest (106) (75) ---------------573 446 467 371 -------------- Loss----------- ----------- ----------- Earnings before extraordinary item (14,222) (11,221)52,186 39,915 37,964 28,694 Extraordinary loss on early extinguishment of debt, net of minority interest of $130 - - - (12,786) --------------- -------------- ----------- ----------- ----------- Net loss (14,222) (24,007)earnings 52,186 39,915 37,964 15,908 Paid in kind distribution to senior common unitholders 2,140 N/A 2,140 N/A General partner's interest in net loss (142) (240) ---------------earnings 500 399 358 159 -------------- ----------- ----------- ----------- Limited partners' interest in net loss $(14,080) $(23,767) ===============earnings $49,546 $39,516 $35,466 $15,749 ============== Loss=========== =========== =========== Basic earnings per limited partner unit: LossEarnings before extraordinary item $ (0.45)1.58 $ (0.35)1.26 $ 1.13 $ 0.91 Extraordinary loss - - - (0.41) --------------- -------------- ----------- ----------- ----------- Net lossearnings $ (0.45)1.58 $ (0.76) ===============1.26 $ 1.13 $ 0.50 ============== Loss=========== =========== =========== Diluted earnings per limited partner unit-assuming dilution: Lossunit: Earnings before extraordinary item $ (0.45)1.58 $ (0.35)1.26 $ 1.13 $ 0.91 Extraordinary loss - - - (0.41) --------------- -------------- ----------- ----------- ----------- Net lossearnings $ (0.45)1.58 $ (0.76) ===============1.26 $ 1.13 $ 0.50 ============== =========== =========== ===========
See notes to consolidated financial statements. 2 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (in thousands) (unaudited)
Number of units Accumulated --------------------------------------------------------- other Sub- Senior Sub- compre- Total Senior Common ordinated common Common ordinated General hensive partners' unitholders unitholders unitholders unitholders unitholders unitholder partner income capital ----------- ----------- ------------ ------------------------ ------------ ------------- -------------------------- ---------- ----------- ------- -------- -------- August 1, 1999 - 14,710.8 16,593.7 $ - $ 1,215 $(10,516) $(59,553) $(797) $(69,651) Conversion of subordinated units into common units 16,593.7 (16,593.7) - (10,516) 10,516 - - - into common unitsUnits issued in connection - with acquisitions Common units issued in - connection with acquisitions 2.6 - 45 - - - 45 Senior Common units 4,375.0 - - 175,000 - - 1,768 - 176,768 Fees paid to issue senior common units (8,925) - - - - (8,925) Accretion of discount on senior common units - - - 372 (368) - (4) - - Contribution from general partner in connection with ESOP compensation charge - - 1,007 - 10 - 1,017 charge Quarterly distributions - - (15,653)2,013 - (158)20 - (15,811)2,033 Quarterly cash distributios - - - - (31,307) - (316) - (31,623) Accrued paid in kind distributions 53.5 2,140 (2,119) (21) - Comprehensive income: Net lossearnings - - (14,080) - (142) - (14,222) ---------------37,585 - 379 - 37,964 -------- Comprehensive income (14,222)37,964 ----------- ----------- ------------ ------------------------ ------------ ------------- --------------- October----------- ---------- ----------- ------- -------- -------- January 31, 19992000 4,428.5 31,307.1 0.0 $(37,982)- $168,587 $(3,452) $ 0 $(59,843)- $(57,727) $(797) $(98,622)$106,611 =========== =========== ============ ======================== ============ ============= ========================== ========== =========== ======= ======== ========
See notes to consolidated financial statements. 3 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
For the threesix months ended ------------------------------------- October---------------------------- January January 31, 2000 31, 1999 October 31, 1998 ------------------ ------------------------------ --------------- Cash Flows From Operating Activities: Net loss $(14,222) $(24,007)earnings $37,964 $15,908 Reconciliation of net lossearnings to net cash used in operating activities: Depreciation and amortization 12,083 11,31125,999 23,117 Extraordinary loss, net of minority interest - 12,786 Employee stock ownership plan compensation charge 1,027 8902,053 1,690 Other 938 4682,821 2,837 Changes in operating assets and liabilities, net of effects from business acquisitions: Accounts and notes receivable (26,542) (10,951)(79,282) (47,393) Inventories (27,640) (15,645)(24,881) 5,084 Prepaid expenses and other current assets (10,583) (7,229)(1,828) (2,609) Accounts payable 27,616 15,12343,977 10,114 Other current liabilities (2,959) (2,679)2,705 2,103 Other liabilities 157 (175) ------------------ -----------------(41) 2,350 ------------ --------------- Net cash usedprovided in operating activities (40,125) (20,108) ------------------ -----------------9,487 25,987 ------------ --------------- Cash Flows From Investing Activities: Business acquisitions, (6,527) (17,844)net of cash acquired 54,827 (19,480) Capital expenditures (6,205) (7,124)(13,597) (14,739) Proceeds from sale leaseback transaction 25,000 - Cash paid for acquisition transaction fees (13,294) - Other 1,468 983 ------------------ -----------------1,934 1,138 ------------ --------------- Net cash used inprovided by (used in) investing activities (11,264) (23,985) ------------------ -----------------54,870 (33,081) ------------ --------------- Cash Flows From Financing Activities: Net additions to short-term borrowings 35,479 27,54114,514 6,282 Additions to long-term debt 10,223 370,71912,812 391,713 Reductions of long-term debt (1,214) (336,090)(72,552) (350,668) Cash paid for call premiumdebt and debt issuancelease financing costs -(659) (12,528) Distributions (15,811) (15,805)(31,623) (31,612) Cash contribution from general partner 3,571 - Other (161) (161) ----------------- ------------------(398) (399) ------------ --------------- Net cash provided by (used in) financing activities 28,516 33,676 ------------------ -----------------(74,335) 2,788 ------------ --------------- Decrease in cash and cash equivalents (22,873) (10,417)(9,978) (4,306) Cash and cash equivalents - beginning of period 35,134 16,961 ------------------ ----------------------------- --------------- Cash and cash equivalents - end of period $12,261 $6,544 ================== =================$25,156 $12,655 ============ =============== Cash paid for interest $13,708 $11,847 ================== =================$23,775 $20,935 ============ ===============
See notes to consolidated financial statements. 4 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBERJANUARY 31, 19992000 (unaudited) A. The financial statements of Ferrellgas Partners, L.P. and Subsidiaries ( thesubsidiaries (the "Partnership") reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the interim periods presented. All adjustments to the financial statements were of a normal, recurring nature. These financial statements should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the year ended July 31, 1999. B. The preparation of financial statements in conformity with generally accepted accounting principles ("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. C. The propane industry is seasonal in nature with peak activity during the winter months. Therefore, the results of operations for the periods ended OctoberJanuary 31, 19992000 and OctoberJanuary 31, 19981999 are not necessarily indicative of the results to be expected for a full year. D. Inventories consist of:
OctoberJanuary 31, July 31, (in thousands) 19992000 1999 --------------- --------------- Liquefied propane gas and related products $43,747$45,791 $15,480 Appliances, parts and supplies 9,08421,441 9,165 --------------- --------------- $52,831$67,232 $24,645 =============== =============== ===============
In addition to inventories on hand, the Partnership enters into contracts to buy product for supply purposes. Nearly all such contracts have terms of less than one year and most call for payment based on market prices at date of delivery. All fixed price contracts have terms of less than one year. As of October 31, 1999, the Partnership had committed to take delivery of 43,329,000In addition to inventories on hand, the Partnership enters into contracts to buy product for supply purposes. Nearly all such contracts have terms of less than one year and most call for payment based on market prices at date of delivery. All fixed price contracts have terms of less than one year. As of January 31, 2000, the Partnership had committed to take delivery of approximately 9,004,000 gallons at a fixed price for its estimated future retail propane sales.
Property, plant and equipment, net consist of: OctoberJanuary 31, July 31, (in thousands) 19992000 1999 --------------- --------------- Property, plant and equipment $656,374$787,708 $650,536 Less: accumulated depreciation 250,924249,864 245,244 --------------- --------------- $405,450$537,844 $405,292 =============== =============== Intangible assets, net consist of: OctoberJanuary 31, July 31, (in thousands) 19992000 1999 --------------- --------------- Intangible assets $259,977$413,079 $257,390 Less: accumulated amortization 143,504149,007 139,273 --------------- --------------- $116,473$264,072 $118,117 =============== ===============
5 E. Quarterly Distributions of Available Cash The Partnership makes quarterly cash distributions to its Common Unitholders of all of its "Available Cash", generally defined as consolidated cash receipts less consolidated cash disbursements and net changes in reserves established by the General Partner for future requirements. These reservesReserves are retained in order to provide for the proper conduct of the Partnership business, or to provide funds for distributions with respect to any one or more of the next four fiscal quarters. Distributions are made within 45 days after the end of each fiscal quarter ending January, April, July and October to holders of record on the applicable record date. Distributions by the Partnership in an amount equal to 100% of its Available Cash, as defined in its Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P. (the "Partnership Agreement"), will generally be made 98% to the Senior Common Unitholders (see footnote G for discussion of the in kind distribution paid to the Senior Common Unitholders) and Common Unitholders (the "Unitholders") and 2% to the General Partner, subject to the payment of incentive distributions to the holders of Incentive Distribution Rights to the extent that certain target levels of cash distributions are achieved. The Senior Common Units do not accrue arrearages.have certain preference rights over the Common Units. See Notes G, I and K for additional information about the Senior Common Units. F. Long-term debt consists of:
January 31, July 31, (in thousands) 2000 1999 ---------------- --------------- Senior Notes Fixed rate, 7.16%, due 2005-2013 $350,000 $350,000 Fixed rate, 9.375%, due 2006 160,000 160,000 Bridge Loan Floating rate, 8.0625%, due 2000 (refinanced with long-term borrowings on February 28, 2000) (1) 183,000 - Credit Agreement Revolving credit loans, 8.5%, due 2001 - 58,314 Notes payable, 7.9% and 6.4% weighted average interest rates, respectively, due 2000 to 2009 17,978 18,154 ---------------- --------------- 710,978 586,468 Less: current portion 2,776 2,628 ---------------- --------------- $708,202 $583,840 ================ ===============
(1) The bridge loan, assumed in connection with the acquisition of Thermogas L.L.C. on December 17, 1999, (see Note J), has a stated maturity date of June 30, 2000. At January 31, 2000, the loan was incurring interest at LIBOR plus 2.25% or 8.0625%. On December 17, 1999, in connection with the purchase of Thermogas L.L.C. ("Thermogas Acquisition") (see Note J), Ferrellgas, L.P. (the "Operating Partnership" or "OLP") assumed a $183,000,000 bridge loan that was originally issued by Thermogas L.L.C. ("Thermogas") and had a maturity date of June 30, 2000. This loan is classified as long-term because it was refinanced on a long-term basis on February 28, 2000. On this date, the OLP issued $184,000,000 of fixed rate Senior Notes which have maturities ranging from 2006 to 2009 and an average interest rate of 8.8%. The additional $1,000,000 in borrowings was used to fund debt issuance costs. 6 On December 17, 1999, in connection with the Thermogas Acquisition, the OLP paid off the balance remaining of $35,000,000 then outstanding on its $38,000,000 unsecured credit facility used for acquisitions, capital expenditures, and general corporate purposes. This outstanding credit facility was then terminated, leaving the OLP with the $145,000,000 credit facility as its only senior bank credit facility. G. Partners' Capital Ferrellgas Partners, L.P. ("MLP") partners'The Partnership's capital (after including the effect of 53,499 Senior Common Units issued in order to pay the in-kind distribution) consists of 4,428,499 Senior Common Units and 31,307,116 Common Units representing the entire limited partner interest, and a 1% General Partner interest. The Agreement of Limited Partnership of Ferrellgas Partners, L.P. (the "Partnership Agreement")Agreement contains specific provisions for the allocation of net earnings and loss to each of the partners for purposes of maintaining the partner capital accounts. In connection with the Thermogas Acquisition (See Note J) on December 17, 1999, the Partnership issued 4,375,000 Senior Common Units to Williams Natural Gas Liquids, Inc. ("Williams" or "Seller") with a liquidating value of $175,000,000 plus accrued and unpaid distributions. The Senior Common Units entitle the holder to quarterly distributions from the MLP equivalent to 10 percent per annum of the liquidating value. Distributions are payable quarterly, in-kind, through issuance of additional Senior Common Units until the earlier of February 1, 2002 or the occurrence of a Material Event, as defined in the Partnership Agreement, ("Material Event") after which distributions are payable in cash. The Senior Common Units are redeemable by the Partnership at any time, in whole or in part, upon payment in cash of the face value of the Senior Common Units and the amount of any accrued but unpaid distributions. Williams has the right, subject to certain events and conditions, to convert any outstanding Senior Common Units into Common Units at the end of two years or upon the occurrence of a Material Event. Such conversion rights are contingent upon the Partnership not previously redeeming such securities, the approval of the Partnership's common unitholders of the conversion feature, and the passage of two years, among other conditions. The Partnership has agreed that within 180 days after the closing of the Thermogas Acquisition, it would submit to its common unitholders a proposal to approve this common unit conversion feature and to approve an exemption under the Partnership Agreement to enable Williams to vote the Common Units, if such conversion were to occur. Ferrell Companies, Inc., which holds a majority of the Partnership's Common Units, has agreed to vote in favor of that proposal. The Partnership has also granted Williams demand registration rights at the end of two years or upon the occurrence of a Material Event with respect to any outstanding Senior Common Units (or Common Units into which they may be convertible). In a non-cash transaction, effective August 1, 1999, the Subordination Periodperiod ended and the Subordinated Units converted to Common Units. Certain financial tests, which were primarily related to making the Minimum Quarterly Distribution on all Units, were satisfied for each of the three consecutive four quarter periods ending July 31, 1999. The Partnership maintains a shelf registration statement for Common Units representing limited partner interests in the Partnership. The Common Units may be issued from time to time by the Partnership in connection with the Partnership's acquisition of other businesses, properties or securities in business combination transactions. The Partnership also maintains another shelf registration statement for the issuance of Common Units, Deferred Participation Units, Warrants and Debt Securities. The Partnership Agreement allows the General Partner to issue an unlimited number of additional Partnership general and limited interests and other equity securities of the Partnership for such consideration and on such terms and conditions as shall be established by the General Partner without the approval of any Unitholders. G.7 H. Contingencies and Commitments The Partnership is threatened with or named as a defendant in various lawsuits which,that, among other items, claim damages for product liability. It is not possible to determine the ultimate disposition of these matters; however, management is of the opinion that there are no known claims or contingent claims that are likely to have a material adverse effect on the financial condition, results of operations or financial conditioncash flows of the Partnership. H. On September 14, 1999, the Partnership paid a cash distribution of $0.50 per Common and Subordinated Unit for the quarter ended July 31, 1999. On November 22, 1999, the Partnership declared its first-quarter cash distribution of $0.50 per Common Unit, payable December 15, 1999. 6 I. Subsequent Events On November 8, 1999, the Partnership announced that it had signed a definitive agreement to purchase Thermogas Company, a subsidiary of Williams, for total consideration of $432,500,000. At closing the seller will receive $257,500,000 cash and $175,000,000 Senior Common Units. The closing of the transaction is subject to customary conditions, including regulatory approval. Effective December 6, 1999, the Ferrellgas, L.P. (the "OLP")OLP entered into, with Banc of America Leasing & Capital LLC, as investor,lender, and First Security Bank, as lessor-trustee,agent, a $25,000,000 synthetic lease transactionsale leaseback facility involving a portion of the Partnership'sOLP's customer tanks. TheThis operating lease has a term that extends over three and one-half years and may be extended for two additional one-year periods at the option of the OLP, if such extension is approved by the lessor. 7On December 17, 1999, immediately prior to the closing of the Thermogas Acquisition (See Note J), Thermogas entered into, with Bank of America Leasing & Capital LLC, as lender, and First Security Bank, as agent, a $135,000,000 operating tank lease facility involving a portion of its customer tanks. In connection with the Thermogas Acquisition, the OLP assumed all obligations under the $135,000,000 operating tank lease facility, which has terms and conditions similar to the December 6, 1999, $25,000,000 operating tank lease facility discussed above. Certain property and equipment is leased under noncancellable operating leases which require fixed monthly rental payments and which expire at various dates through 2018. Future minimum lease commitments for such leases are $29,309,000 in 2000, $33,356,000 in 2001, $29,088,000 in 2002, $23,765,000 in 2003, $4,971,000 in 2004 and $7,232,000 thereafter. I. Partnership Distributions On September 14, 1999, the Partnership paid a cash distribution of $0.50 per Common and Subordinated Unit for the quarter ended July 31, 1999. On December 14, 1999, the Partnership paid a cash distribution of $0.50 per Common Unit for the quarter ended October 31, 1999. On February 21, 2000, the Partnership declared its second-quarter cash distribution of $0.50 per Common Unit, payable March 14, 2000. Additionally, on February 21, 2000, the Partnership declared an in-kind distribution to the Senior Common Unitholders of $2,140,000, payable by the issuance of 53,499 additional Senior Common Units. The Senior Common Unitholders will continue to receive quarterly distributions in-kind through issuance of additional Senior Common Units until the earlier of February 1, 2002 or the occurrence of a Material Event, after which distributions are payable in cash. J. Business Combinations On December 17, 1999, the Partnership purchased Thermogas, a subsidiary of Williams. At closing the Partnership entered into the following noncash transactions: a) issued $175,000,000 in Senior Common Units to the seller, b) assumed a $183,000,000 bridge loan, (see Note F) and c) assumed a $135,000,000 operating tank lease (see Note H). After the conclusion of these acquisition-related transactions, including the merger of the OLP and Thermogas, the Partnership acquired $61,088,000 of cash which remained on the Thermogas balance sheet at the acquisition date. The Partnership has paid $13,294,000 in additional costs and fees related to the acquisition between December 17, 1999 and January 31, 2000. 8 The total assets contributed to the OLP (at the Partnership's cost basis) have been preliminarily allocated as follows: (i) working capital of $9,148,000, (ii) property, plant and equipment of $149,878,000, (iii) $60,200,000 to customer list, (iv) $18,500,000 to trademarks (v) $9,600,000 to assembled workforce and (vi) $56,559,000 to goodwill. The estimated fair values and useful lives of assets acquired are based on a preliminary valuation and are subject to final valuation adjustments. The Partnership intends to continue its analysis of the net assets of Thermogas to determine the final allocation of the total purchase price to the various assets acquired. The transaction has been accounted for as a purchase and, accordingly, the results of operations of Thermogas have been included in the consolidated financial statements from the date of acquisition. The following pro forma financial information assumes that the Thermogas Acquisition occurred as of August 1, 1998:
Six months ended -------------------------------- Pro Forma January 31, January 31, (in thousands, except per unit amounts) 2000 1999 --------------- ---------------- Total revenues $599,742 $493,094 Earnings before extraordinary item 20,814 23,822 Net earnings 20,814 11,036 Limited partners' interest in net earnings 20,606 10,926 Basic and diluted earnings per limited partner unit before extraordinary item $ 0.66 $ 0.75 Basic and diluted earnings per limited partner unit after extraordinary item $ 0.66 $ 0.35
K. Earnings Per Unit Below is a calculation of the basic and diluted Common Units (and Subordinated Units prior to August 1, 1999) used to calculate earnings per basic and diluted earnings per unit on the Statement of Earnings. (in thousands, except per unit data)
Three months ended Six months ended January 31, January 31, January 31, January 31, 2000 1999 2000 1999 ----- ----- ----- ----- Limited partners' interest in net earnings $49,546 $39,516 $35,466 $15,749 ---------------- ----------------- ----------------- ---------------- Weighted average common and subordinated units outstanding 31,307.1 31,297.0 31,306.3 31,295.5 Basic earnings per unit before extraordinary item $1.58 $1.26 $1.13 $0.91 ================ ================= ================= ================ Basic earnings per unit $1.58 $1.26 $1.13 $0.50 ================ ================= ================= ================
9
Three months ended Six months ended January 31, January 31, January 31, January 31, 2000 1999 2000 1999 ----- ----- ----- ----- Limited partners' interest in net earnings $49,546 $39,516 $35,466 $15,749 ---------------- ----------------- ----------------- ---------------- Weighted average common and subordinated units outstanding 31,307.1 31,297.0 31,306.3 31,295.5 Dilutive securities - options 0.0 85.8 0.0 95.4 ---------------- ----------------- ----------------- ---------------- Weighted average out-standing units + dilutive units 31,307.1 31,382.8 31,306.3 31,390.9 ================ ================= ================= ================ Diluted earnings per unit before extraordinary item $1.58 $1.26 $1.13 $0.91 ================ ================= ================= ================ Diluted earnings per unit $1.58 $1.26 $1.13 $0.50 ================ ================= ================= ================
For diluted earnings per unit purposes, the Senior Common Units have been excluded as they are considered contingently issuable Common Units for which all necessary conditions for their issuance have not been satisfied as of the end of the reporting period. 10 FERRELLGAS PARTNERS FINANCE CORP. (a wholly owned subsidiary of Ferrellgas Partners, L.P.) BALANCE SHEETS
OctoberJanuary 31, July 31, ASSETS 19992000 1999 - -------------------------------------------------------------------- ------------------ ------------------- (unaudited) 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 9601,010 774 Accumulated deficit (960)(1,010) (774) ------------------ ------------------- Total Stockholder's Equity $1,000 $1,000 ================== ===================
STATEMENTS OF EARNINGS (unaudited)
Three Months Ended ------------------------------------- OctoberSix Months Ended ----------------------------------------------------------------------- January 31, OctoberJanuary 31, January 31, January 31, 2000 1999 19982000 1999 ----------------- ------------------ ----------------------------------- ---------------- General and administrative expense $ 18650 $ 0 $ 236 $ 45 ----------------- ------------------ ----------------------------------- ---------------- Net loss $(186)$(50) $ 0 $(236) $(45) ================= ================== =================================== ================
See notes to financial statements. 811 FERRELLGAS PARTNERS FINANCE CORP. (A wholly owned subsidiary of Ferrellgas Partners, L.P.) STATEMENTS OF CASH FLOWS (unaudited)
ThreeSix Months Ended ------------------------------------------------- October-------------------------------------------------- January 31, OctoberJanuary 31, 2000 1999 1998 --------------------- ------------------------ Cash Flows From Operating Activities: Net loss $(186)$(236) $(45) --------------------- ------------------------ Cash used in operating activities (186)(236) (45) --------------------- ------------------------ Cash Flows From Financing Activities: Capital contribution 186236 45 --------------------- ------------------------ Cash provided by financing activities 186236 45 --------------------- ------------------------ Change in cash - - Cash - beginning of period 1,000 1,000 --------------------- ------------------------ Cash - end of period $1,000 $1,000 ===================== ========================
See notes to financial statements. NOTES TO FINANCIAL STATEMENTS OCTOBERJanuary 31, 19992000 (unaudited) A. Ferrellgas Partners Finance Corp., a Delaware corporation, was formed on March 28, 1996, and is a wholly-ownedwholly owned subsidiary of Ferrellgas Partners, L.P. B. The financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statementpresentation of the interim periods presented. All adjustments to the financial statements were of a normal, recurring nature. 912 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the results of operations and liquidity and capital resources of Ferrellgas Partners, L.P. (the "Partnership" or "MLP"). Except for the $160,000,000 of 9 3/8% Senior Secured Notes issued in April 1996 by the MLP and the related interest expense, Ferrellgas, L.P. (the "Operating Partnership" or "OLP") accounts for nearly all of the consolidated assets, liabilities, sales and earnings of the MLP. When the discussion refers to the consolidated MLP, the term Partnership will be used. Ferrellgas Partners Finance Corp. has nominal assets and does not conduct any operations. Accordingly, a discussion of the results of operations and liquidity and capital resources is not presented. Forward-looking statements StatementsCertain statements included in this report that are not historical facts, including statements concerning Year 2000 compliance andof the belief that the OLP will have sufficient funds to meet its obligations and to enable it to distribute to the MLP sufficient funds to permit the MLP to meet its obligations with respect to the MLP Senior Notes issued in April 1996, and sufficient funds to pay the required distribution on both the Senior Common Units (see Note E in the Consolidated Financial Statements included elsewhere in this report) and the Minimum Quarterly Distribution ("MQD") ($0.50 per Unit) on all Common Units, are forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the statements. The risks and uncertainties and their effect on the Partnership's operations include but are not limited to the following: a) the effect of weather conditions on demand for propane, b) price and availability of propane supplies, c) the availability of capacity to transport propane to market areas, d) competition from other energy sources and within the propane industry, e) operating risks incidental to transporting, storing, and distributing propane, f) changes in interest rates, g) governmental legislation and regulations, h) energy efficiency and technology trends i) Year 2000 compliance of the Partnership's suppliers and j)i) other factors that are discussed in the Risk Factor section of the Partnership's most recent 1933 Act filing with the Securities and Exchange Commission, Amendment No. 1 to Form S-3 Registration Statement, as filed February 5, 1999. Year 2000 Compliance Many computer systems and applications in use throughout the world today may not be able to appropriately interpret dates beginning in the year 2000 ("Year 2000" issue). As a result, this problem could have adverse consequences on the operations of companies and the integrity of information processing. The Partnership began the process in 1997 of identifying and correcting its computer systems and applications that were exposed to the Year 2000 issue. The Partnership initially focused on the systems and applications that were considered critical to its operations and services for supplying propane to its customers and to its ability to account for those business services accurately. These critical areas include the retail propane accounting and operations system (including related computer hardware), financial accounting and reporting system, supply and distribution accounting and operating system, payroll system, local and wide area networks and electronic mail systems. All these systems are now believed to be Year 2000 compliant. The Partnership has also taken steps to identify other non-critical applications that may have exposure to the Year 2000 issue. It has established a separate company group to independently test these applications for Year 2000 compliance. To date, no material Year 2000 issues have been identified as a result of this testing. There can be no assurance that every system in every location where Ferrellgas conducts business 10 will function properly on January 1, 2000. In addition, there are other Year 2000 risks which are beyond the Partnership's control, any of which if wide spread could have a material adverse affect on the Partnership's operations. Such risks include, but are not limited to, the failure of utility and telecommunications companies to provide service. For these reasons, the Partnership has developed a contingency plan should Year 2000 problems temporarily affect any of our locations. Each Ferrellgas location has been provided with a contingency plan that contains, among others, procedures to keep the Partnership's plants operational, to access emergency management personnel, and to utilize cellular phones. The Partnership conducts business with several hundred outside suppliers. While no single supplier is considered material to the Partnership, a combined number could constitute a material amount to the Partnership. The Partnership has reviewed its largest suppliers, particularly liquid petroleum gas suppliers, to obtain appropriate assurances that they are, or will be, Year 2000 compliant. This review included general public disclosures made by the supplier, general questionnaires and direct contact with suppliers regarding specific facilities. While no supplier will provide assurances regarding Year 2000 compliance or the effect from external factors on their operations, our review has indicated suppliers are addressing Year 2000 issues. If compliance by the Partnership's suppliers is not achieved in a timely manner, it is unknown what effect, if any, the Year 2000 issue could have on the Partnership's operations. The Partnership has evaluated its Year 2000 issues and does not expect that the total cost of related modifications and conversions will have a material effect on its financial position, results of operations or cash flows. Such costs are being expensed as incurred. To date, the Partnership has incurred approximately $930,000 to identify and correct its Year 2000 issues. This expense has been primarily related to its critical systems and applications. It is estimated that in the remaining calendar year 1999 the Partnership will incur an additional $51,000 to identify and correct its Year 2000 issues. The Partnership does not anticipate significant purchases of computer software or hardware as a result of its Year 2000 issue and does not believe that the correction of any Year 2000 issues will delay or eliminate other scheduled computer upgrades and replacements. Despite the Partnership's efforts to address and remediate the Year 2000 issue, there can be no assurance that all critical areas and non-critical applications will continue without interruption through January 1, 2000 and beyond. Results of Operations The propane industry is seasonal in nature with peak activity during the winter months. Due to the seasonality of the business and the timing of business acquisitions, results of operations for the threesix months ended OctoberJanuary 31, 19992000 and 1998,1999, are not necessarily indicative of the results to be expected for a full year. Other factors affecting the results of operations include competitive conditions, demand for product, variations in weather and fluctuations in propane prices. As the Partnership has grown through acquisitions, fixed costs such as personnel costs, depreciation and interest expense have increased. Historically, these fixed cost increases have caused net losses in the first and fourth quarters and net income in the second and third quarters to be more pronounced. On December 17, 1999, the Partnership purchased Thermogas L.L.C. (the "Thermogas Acquisition" or "Thermogas"), a subsidiary of Williams. During the second quarter of fiscal 2000, the Partnership was able to identify the effect of the Thermogas Acquisition on the results of operations, because the Thermogas operations acquired are currently being operated separately from the existing Ferrellgas operations. Beginning in the third quarter of fiscal 2000, the Partnership will begin to implement its strategic and operating plans for the integration of Thermogas into the Partnership's existing operations. These integration actions will result in the merging of retail locations and the related customer groups. Due to the extent of this integration, the Partnership will be unable to quantify separately the effect of the Thermogas Acquisition in the discussion of results of operations in future quarters. 13 Three Months Ended OctoberJanuary 31, 19992000 vs. OctoberJanuary 31, 19981999 Total Revenues. Total gas liquids and related product sales increased 19.9%45.9% to $141,507,000$316,025,000 as compared to $118,002,000$216,541,000 in the firstsecond quarter of fiscal 1999, primarily due to the addition of Thermogas sales of $56,414,000 and increased sales price per gallongallon. For the quarter, temperatures were 12% warmer than normal and increased retail propane volumes.3% warmer than last year as reported by the American Gas Association. Sales price per gallon increased due to the effect of a significant increase in the wholesale cost of propane as compared to the prior period. Retail volumes increased 6.0%25.0% to 153,429,000314,044,000 gallons as compared to 144,682,000251,246,000 gallons for the prior period, primarily due to increased base business sales and the acquisition effect of acquisitions, partially offset by reduced crop drying volumes compared to the same quarter last year and hurricane related crop damage in the southeastern United States.Thermogas sales of 64,566,000 gallons. Other revenues increased by $8,895,000$11,434,000 primarily due to favorable results from the trading revenues. 11 operations. Gross Profit. Gross profit increased 8.1%26.6% to $77,414,000$162,967,000 as compared to $71,627,000$128,749,000 in the firstsecond quarter of fiscal 1999, primarily due to gross profit of $26,383,000 generated from the acquired Thermogas operations and, to a lesser extent, favorable results from the trading profits and increased retail sales volume, partially offset by reduced retail margins. Last year's margins benefited significantly from a low wholesale cost environment. This cost environment was not repeated this year. In addition, while the wholesale cost of propane rapidly increased during the quarter, the sales price lagged the cost increase.operations. Operating Expenses. Operating expenses increased 10.6%23.3% to $57,177,000$69,341,000 as compared to $51,712,000$56,240,000 in the firstsecond quarter of fiscal 1999 primarily due the addition of $7,856,000 related to tradingthe acquired Thermogas operations, and, to a lesser extent, merit salary increases, and acquisition related increasesincentive increases. Depreciation and Amortization. Depreciation and amortization expense increased 17.9% to $13,916,000 as compared to $11,806,000 in personnel costs,the same quarter last year primarily due to the addition of intangibles and property, plant and office expenses, and vehicleequipment from the Thermogas Acquisition and other expenses.acquisitions of propane businesses. Equipment Lease Expense. Equipment lease expense, which includes vehicle, propaneVehicle, tank and computer lease expense increased by $885,000$2,413,000 primarily due to the utilizationaddition of the $25,000,000 and $135,000,000 operating tank leases ("Tank Leases") during the quarter, and, to a lesser extent, increased operating lease financingfacilities for new vehicles and computers for the retail locations. See Note H to fund fleet upgrades and replacements.the Consolidated Financial Statements included elsewhere in this report for additional information regarding the Tank Leases. Interest expense.Expense. Interest expense increased 8.3%22.9% to $12,581,000$14,697,000 as compared to $11,618,000$11,960,000 in the firstsecond quarter of fiscal 1999. This increase is primarily the result of increased borrowings related to acquisitionsthe Thermogas acquisition and, capital expenditures. Extraordinary item. During fiscal yearto a lesser extent, an increase in the overall average interest rate paid by the Partnership. As a result of the Thermogas Acquisition which closed on December 17, 1999, the Partnership recognized an extraordinary loss of $12,786,000 net of minority interest of $130,000. The gross extraordinary loss includedOLP assumed $183,000,000 in debt and also refinanced a payment of a 5% premium and a write-off of unamortized financing costs of $2,916,000, resulting primarily from the early extinguishment of $200,000,000portion of its fixed rate senior notes.existing revolving credit facility balances (see Financing Activities following). Six Months Ended January 31, 2000 vs. January 31, 1999 Total Revenues. Total gas liquids and related product sales increased 36.8% to $457,532,000 as compared to $334,543,000 for the prior period, primarily due to the addition of Thermogas sales of $56,414,000 and increased sales price per gallon. For the fiscal year to date, temperatures were 11% warmer than normal and 2% warmer than last year as reported by the American Gas Association. Sales price per gallon increased due to the effect of a significant increase in the wholesale cost of propane as compared to the prior period. Retail volumes increased 18.1% to 467,473,000 gallons as compared to 395,928,000 gallons for the prior period, primarily due to the acquisition effect of Thermogas sales of 64,566,000 gallons. Other revenues increased by $20,329,000 primarily due to favorable results from trading operations. 14 Gross Profit. Gross profit increased 20.0% to $240,381,000 as compared to $200,376,000 in the year ago period, primarily due to gross profit of $26,383,000 generated from the acquired Thermogas operations and, to a lesser extent, increased favorable results from the trading operations. Operating Expenses. Operating expenses increased 17.2% to $126,518,000 as compared to $107,952,000 in the first half of fiscal 1999 primarily due to operating expenses of $7,856,000 incurred due to the acquired Thermogas operations, merit salary and incentive increases. Depreciation and Amortization. Depreciation and amortization expense increased 12.5% to $25,999,000 as compared to $23,117,000 for the same period last year primarily due to the addition of intangibles and property, plant and equipment from the Thermogas Acquisition and other acquisitions of propane businesses. Equipment Lease Expense. Vehicle, tank and computer lease expense increased by $3,298,000 due to the addition of the Tank Leases, and increased operating lease facilities for new vehicles and computers for retail locations. See Note H to the Consolidated Financial Statements included elsewhere in this report for additional information regarding the Tank Leases. Interest Expense. Interest expense increased 15.7% to $27,278,000 as compared to $23,578,000 in the first half of fiscal 1999. This increase is primarily the result of increased borrowings related to the Thermogas Acquisition and, to a lesser extent, an increase in the overall average interest rate paid by the Partnership. As a result of the Thermogas Acquisition closed on December 17, 1999, the OLP assumed $183,000,000 in debt and also refinanced a portion of its existing revolving credit facility balances. The extraordinary charge in fiscal 1999 is due primarily to the payment of a $10,000,000 call premium related to the refinancing of $200,000,000 of fixed rate debt on August 5, 1998. The remaining costs relate to the write off of unamortized debt issuance costs related to refinancing of the fixed rate debt and revolving credit facility balances. (See Financing Activities below) Liquidity and Capital Resources The ability of the MLP to satisfy its obligations is dependent upon future performance, which will be subject to prevailing economic, financial, business and weather conditions and other factors, many of which are beyond its control. For the fiscal year ending July 31, 2000, the General Partner believes that the OLP will have sufficient funds to meet its obligations and enable it to distribute to the MLP sufficient funds to permit the MLP to meet its obligations with respect to the $160,000,000 senior secured notes issued in April 1996 ("MLP Senior Secured Notes") and pay the required distribution on the Senior Common Units (see Note E in to the Consolidated Financial Statements included elsewhere in this report) and enable it to distribute the MQDminimum quarterly distribution ("MQD") on all Common Units. The MLP Senior Secured Notes, the $350,000,000 OLP senior notes ("$350 million Senior Notes"), the $145,000,000 amended and restated OLP credit facility ("Credit Facility"), the $184,000,000 OLP senior notes issued in February 2000 ("$184 million Senior Notes") and the $38,000,000 additional$25,000,000 and $135,000,000 OLP revolving credit agreementoperating tank leases ("Additional Credit Facility"Tank Leases") (See Financing Activities following) contain several financial tests which restrict the Partnership's ability to pay distributions, incur indebtedness and engage in certain other business transactions. These tests, in general, are based on the ratio of the MLP's and OLP's consolidated cash flow to fixed charges, primarily interest expense. Because the Partnership is more highly leveraged at the MLP than at the OLP, the tests related to the MLP Senior Secured Notes are more sensitive to fluctuations in consolidated cash flows and fixed charges. The most sensitive of the MLP related tests restricts the Partnership's ability to make certain Restricted Payments which include, but are not limited to, the payment of the MQDdistributions to unitholders. 15 Although the MLP's financial performance during fiscal both 1999 wasand the first six months of fiscal 2000 have been adversely impacted by unseasonably warmer temperatures, the Partnership believes it will continue to meet the MLP Senior Secured Notes Restricted Payment test during fiscal 2000, in addition to meeting the other financial tests in the MLP Senior Secured Notes, the $350 million Senior Notes, the $184 million Senior Notes, Credit Facility agreement and Additional Credit Facility agreements.the Tank Leases. However, if the OLP were to encounter any unexpected downturns in business operations in the near future, it could result in the Partnership not meeting certain financial tests in future quarters, including but not limited to, the MLP Senior Secured Notes Restricted Payment test. Depending on the circumstances, the Partnership would pursue alternatives to permit the continued payment of the required distribution on the Senior Common Units and payment of MQD to its Common Unitholders. 12 No assurances can be given, however, that such alternatives will be successful with respect to any given quarter. In a non-cash transaction, on August 1, 1999, the subordination period ended and the Subordinated Units converted to Common Units. This conversion is more fully described in Note F of the Consolidated Financial Statements provided herein. Future maintenance and working capital needs of the Partnership are expected to be provided by cash generated from future operations, existing cash balances and the working capital borrowing facility. In order to fund expansive capital projects and future acquisitions, the OLP may borrow on existing bank lines, the MLP or OLP may issue additional debt or the MLP may issue additional equity securities, including, among others, Common Units. Toward this purpose, on February 5, 1999, the MLP filed a shelf registration statement with the Securities and Exchange Commission (the "Commission") for the periodic sale of up to $300,000,000 in debt and/or equity securities. The registered securities would be available for sale by the Partnership in the future to fund acquisitions or to reduce indebtedness. Also, the MLP maintains a shelf registration statement with the Commission for 2,010,484 Common Units representing limited partner interests in the MLP. The Common Units may be issued from time to time by the MLP in connection with the OLP's acquisition of other businesses, properties or securities in business combination transactions. In a non-cash transaction, on August 1, 1999, the subordination period ended and the Subordinated Units converted to Common Units. This conversion is more fully described in Note G of the Consolidated Financial Statements provided herein. Operating Activities. Cash used inprovided by operating activities was $40,125,000$9,487,000 for the threesix months ended OctoberJanuary 31, 1999,2000, compared to cash used in operating activities of $20,108,000$25,987,000 for the prior period. This increased use ofdecrease in cash provided from operations is primarily due to the net effect of increased wholesale cost of product on accounts receivable, inventory, and accounts payable and to a lesser extent the timing of receipts and payments related to trading activities. Investing Activities. During the threesix months ended OctoberJanuary 31, 1999,2000, before the effect of the Thermogas Acquisition, the Partnership made total acquisition capital expenditures of $6,708,000.$7,055,000. This amount was funded by $6,527,000$6,262,000 cash payments, $45,000$601,000 of noncompete notes, $46,000 of Common Units issued and $136,000$146,000 of other costs and consideration. On December 17, 1999, the Partnership purchased Thermogas. At closing the Partnership entered into the following noncash transactions: a) issued $175,000,000 in Senior Common Units to the seller, b) assumed a $183,000,000 bridge loan, which was refinanced from the proceeds of the $184 million Senior Notes issued on February 28, 2000, and c) assumed a $135,000,000 operating tank lease. After the conclusion of these acquisition-related transactions, the Partnership acquired $61,088,000 of cash which remained on the Thermogas balance sheet. The Partnership has paid $13,294,000 in additional costs and fees related to the acquisition between December 17, 1999 and January 31, 2000. The Partnership has accrued $7,100,000 in exit costs which it expects to incur over the next twelve months as it implements the integration of the Thermogas operations. Other than future effects from the Thermogas Acquisition, the Partnership does not have any material commitments of funds for capital expenditures other than to support the current level of operations. In fiscal 2000, the Partnership does not expect a significant increase in growth and maintenance capital expenditures resulting from the Thermogas Acquisition as compared to fiscal 1999 levels. 16 During the threesix months ended OctoberJanuary 31, 1999,2000, the Partnership made growth and maintenance capital expenditures of $6,205,000$13,597,000 consisting primarily of the following: 1) additions to Partnership-owned customer tanks and cylinders, 2) relocating and upgrading district plant facilities, 3) vehicle lease buyouts, and 4) upgrading computer equipment and software.software, and 4) vehicle lease buyouts. Capital requirements for repair and maintenance of property, plant and equipment are relatively low since technological change is limited and the useful lives of propane tanks and cylinders, the Partnership's principal physical assets, are generally long. The Partnership meets its vehicle and transportation equipment fleet needs by leasing light and medium duty trucks, tractors and tractors.trailers. The General Partner believes vehicle leasing is a cost effectivecost-effective method for meeting the Partnership's transportation equipment needs. The Partnership continues seeking to expand its operations through strategic acquisitions of smaller retail propane operations located throughout the United States. These acquisitions will be funded through internal cash flow, external borrowings or the issuance of additional Partnership interests. Financing Activities. On November 8,February 28, 2000, the OLP issued $184 million of privately placed unsecured senior notes ("$184 million Senior Notes"). The proceeds of the $184 million Senior Notes, which include three series with maturities ranging from year 2006 through 2009 and an average fixed interest rate of 8.8%, were used to retire $183,000,000 of OLP bridge loan financing assumed in connection with the Thermogas Acquisition. On December 6, 1999, the Partnership announcedOLP entered into, with Banc of America Leasing & Capital, LLC. as lender and First Security Bank as agent, a $25,000,000 sale leaseback facility involving a portion of the OLP's customer tanks. This operating lease has a term that it had signed a definitive agreementextends over three and one-half years and may be extended for two additional one-year periods at the option of the OLP, if such extension is approved by the lessor. On December 17, 1999, immediately prior to purchase Thermogas Company, a subsidiary of Williams, for total consideration of $432,500,000. At closing the seller will receive $257,500,000 cash and $175,000,000 Senior Common Units. The closing of the transaction is subjectThermogas Acquisition (See Note J), Thermogas entered into, with Banc of America Leasing & Capital, LLC as lender and First Security Bank as agent, a $135,000,000 operating tank lease facility involving a portion of its customer tanks. In connection with the acquisition of Thermogas, the OLP assumed all obligations under the $135,000,000 operating tank lease facility, which have terms and conditions similar to customary conditions, including regulatory approval. Other than future effects from the Thermogas acquisition, the Partnership does not have any material commitments of funds for capital expenditures other than to support the current level of operations. In fiscal 2000, the Partnership does expect an increase in growth and maintenance capital expenditures as compared to fiscalDecember 6, 1999, levels, primarily resulting from the Thermogas Company acquisition. 13 Financing Activities.$25,000,000 operating tank lease facility discussed above. On August 4, 1998, the OLP issued the privately placed unsecured $350 million Senior Notes and entered into a Credit Facility with its existing banks. The proceeds of the Senior Notes, which include five series with maturities ranging from year 2005 through 2013 at an average fixed interest rate of 7.16%, were used to redeem $200,000,000 of OLP fixed rate senior notes issued in July 1994, including a 5% call premium, and to repay outstanding indebtedness under the former OLP revolving credit facility. TheOn December 17, 1999, the OLP entered theterminated its Additional Credit Facility agreement that it had entered into on April 30, 1999. This facility provideshad provided for an unsecured facility for acquisitions, capital expenditures, and general corporate purposes. The outstanding Additional Credit Facility balance at April 29, 2000, may be converted to a term loan and will be due and payable in full July 2, 2001.before its termination on December 17, 1999 was $35,000,000. During the threesix months ended OctoberJanuary 31, 1999,2000, the Partnership borrowed $35,479,000$14,514,000 from its credit facilities to fund working capital, business acquisitions, and capital expenditure needs. At OctoberJanuary 31, 1999, $123,900,0002000, $35,000,000 of borrowings were outstanding under the credit facilities.Credit Facility. These borrowings carried an interest rate of LIBOR plus 2.0% or 8.19%. Letters of credit outstanding, used primarily to secure obligations under certain insurance arrangements, totaled $23,665,000.$22,965,000. At OctoberJanuary 31, 1999,2000, the Operating Partnership had $35,435,000$87,035,000 available for general corporate, acquisition and working capital purposes under the credit facilities.Credit Facility. The current borrowing rate for future borrowings under the Credit Facility is 1.75% plus LIBOR. 17 On November 22, 1999,February 21, 2000, the Partnership declared a cash distribution of $1.00 per Senior Common Unit payable by the issuance of 53,499 additional Senior Common Units (see Notes G and I and K in the Consolidated Financial Statements included elsewhere in this report for additional information regarding the in-kind distributions to the Senior Common Unitholders) and $0.50 per Common Unit, payable December 15, 1999. Effective December 6, 1999, the OLP entered into with Banc of America, as investor, and First Security Bank, as lessor-trustee $25,000,000 synthetic lease transaction involving a portion of the OLP customer tanks. The lease term extends over three and one-half years and may be extended for two additional one-year periods at the option of the OLP if such extension is approved by the lessor.March 14, 2000. Adoption of New Accounting Standards. The Financial Accounting Standards Board ("FASB") recently issued StatmentStatement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, as amended by SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133", is required to be adopted by the Partnership for the first quarter of fiscal 2001. The Partnership is currently assessing its impact on the Partnership's financial position, results of operations and cash flows. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risk inherent in the Partnership's market risk sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices. Additionally, the Partnership seeks to mitigate its interest rate risk exposure on variable rate debt by entering into interest rate collar agreements. AsAfter the issuance of October 31, 1999,the $184 million Senior Notes on February 28, 2000, the Partnership had $123,900,000$35,000,000 in variable rate debt and $25,000,000 notional amount of interest rate collar agreements effectively outstanding. Thus, assuming a 100 basis point change increase in the variable interest rate to the Partnership, the interest rate risk related to the variable rate debt and the associated interest rate collar agreements is not material to the financial statements. The Partnership's trading activities utilize certain types of energy commodity forward contracts and swaps traded on the over-the-counter financial markets and futures traded on the New York Mercantile Exchange ("NYMEX" or "Exchange") to anticipate market movements, manage and hedge its exposure to the volatility of floating commodity prices and to protect its inventory positions. The Partnership's non-trading activities utilize certain over-the-counter energy commodity options to limit overall price risk and to hedge its exposure to inventory price movements. 14 Market risks associated with energy commodities are monitored daily for compliance with the Partnership's trading policy. This policy includes specific dollar exposure limits, limits on the term of various contracts and volume limits for various energy commodities. The Partnership also utilizes loss limits and daily review of open positions to manage exposures to changing market prices. Market and Credit Risk. NYMEX traded futures are guaranteed by the Exchange and have nominal credit risk. The Partnership is exposed to credit risk associated with futures, swaps and option transactions in the event of nonperformance by counterparties. For each counterparty, the Partnership analyzes the financial condition prior to entering into an agreement, establishes credit limits and monitors the appropriateness of each limit. The change in market value of Exchange-traded futures contracts requires daily cash settlement in margin accounts with brokers. Forwards and most other over-the-counter instruments are generally settled at the expiration of the contract term. Sensitivity Analysis. The Partnership has prepared a sensitivity analysis to estimate the exposure to market risk of its energy commodity positions. Forward contracts, futures, swaps and options were analyzed assuming a hypothetical 10% change in forward prices for the delivery month for all energy commodities. The potential loss in future earnings from these positions from a 10% adverse movement in market prices of the underlying energy commodities is estimated at $4,300,000$2,200,000 as of OctoberJanuary 31, 1999. Actual2000. The preceding hypothetical analysis is limited because changes in prices may or may not equal 10%. Thus, actual results may differ. 18 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On December 17, 1999, the Partnership purchased all of the member interests in Thermogas from Williams Natural Gas Liquids, Inc. in consideration for the issuance of Senior Common Units. (See Note J in the Consolidated Financial Statement contained elsewhere in this document.) The Senior Common Units represent limited partner interests in the Partnership, and their face value was $175,000,000 million. Williams Natural Gas Liquids qualified as an accredited investor (as that term is defined in Rule 501 of Regulation D) and was the only purchaser of the Senior Common Units. As a result, the issuance of Senior Common Units was exempted from the registration requirements of the Securities Act pursuant to Rule 506 of Regulation D. The Senior Common Units entitle the holder to annual distributions from the Partnership equivalent to 10 percent of face value. Distributions are payable quarterly in kind through issuance of further Senior Common Units until February 1, 2002, after which distributions are payable in cash. Distributions are also payable in cash upon the occurrence of a Material Event, as defined in the Partnership Agreement. These distributions are made to the holders of Senior Common Units in preference over holders of Common Units. Williams has the right, subject to certain events and conditions, to convert any outstanding Senior Common Units into Common Units either at the end of two years or upon the occurrence of a Material Event, as defined in the Partnership Agreement. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION TO A VOTE OF SECURITIES HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 10.1 Lease Intended as Security, dated as of December 1, 1999 between Ferrellgas, LP as Lessee and First Security Bank, National Association, solely as Certificate Trustee, as Lessor 10.2 Participation2.1 Amendment No. 2 to Purchase Agreement dated as of December 1, 1999,March 14, 2000, by and among Ferrellgas Partners, L.P., as Lessee, Ferrellgas L.P., and Williams Natural Gas Liquids, Inc. as General Partner, First Security Bank, National Association, solely as Certificate Trustee, First Security Trust Company of Nevada, solely as Agent, The Persons Named on Schedule I-A, The Persons Named on Schedule I-B, as Lenders and Appendix I to Participation Agreement 10.3 Third3.1 Amendment to Secondthe Amended and Restated CreditAgreement of Limited Partnership of Ferrellgas Partners, L.P. dated as of March 14, 2000. 4.1 First Amendment to the Registration Rights Agreement dated as of December 2, 1999, amongMarch 14, 2000, by and between Ferrellgas Partners, L.P., and Williams Natural Gas Liquids, Inc. 19 (a) Exhibits (continued) 4.2 Ferrellgas, Inc., Bank of America N.A. as agent, and the other financial institutions party thereto. 10.4 First Amendment to Short-Term Revolving CreditL.P. Note Purchase Agreement datedDated as of December 2, 1999, among Ferrellgas, L.P., Ferrellgas, Inc., Bank of America N.A., as agent,February 28, 2000 Re: $21,000,000 8.68% Senior Notes, Series A, due August 1, 2006 $70,000,000 8.78% Senior Notes, Series B, due August 1, 2007, and the other financial institutions party thereto.$93,000,000 8.87% Senior Notes, Series C, due August 1, 2009 . 27.1 Financial Data Schedule - Ferrellgas Partners, L.P. (filed in electronic format only) 27.2 Financial Data Schedule - Ferrellgas-Ferrellgas Partners Finance Corp. (filed in electronic format only) (b) Reports on Form 8-K The Partnership did not file afiled the following reports on Form 8-K during the quarter ended OctoberJanuary 31, 1999. 152000. (1) Form 8-K dated November 9, 1999, announcing that Ferrellgas Partners, L.P., entered into a definitive purchase agreement to purchase Thermogas Company, a subsidiary of Williams (, for total consideration of $432.5 million. (2) Form 8-K dated November 12, 1999, announcing that Ferrellgas Partners, L.P has signed an agreement to purchase Thermogas Company, a subsidiary of Williams, for total consideration of $432.5 million. (3) Form 8-K dated December 7, 1999, reporting that Ferrellgas, Inc., the General Partner of Ferrellgas Partners, L.P., balance sheet as of July 31, 1999, has been audited by an independent auditor. (4) Form 8-K dated December 29, 1999, reporting that Ferrellgas Partners, L.P. completed the acquisition of all of the member interests in Thermogas L.L.C. from Williams 20 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: December 13, 1999March 16, 2000 By /s/ Kevin T. Kelly ------------------------------------------------- Kevin T. Kelly Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) FERRELLGAS PARTNERS FINANCE CORP. Date: December 13, 1999March 16, 2000 By /s/ Kevin T. Kelly ------------------------------------------------------------------------------------------------- Kevin T. Kelly Chief Financial Officer (Principal Financial and Accounting Officer) 1521 INDEX TO EXHIBITS Exhibit No. Description of Exhibit 10.1 Lease Intended as Security, dated as of December 1, 1999 between Ferrellgas, LP as Lessee and First Security Bank, National Association, solely as Certificate Trustee, as Lessor 10.2 Participation2.1 Amendment No. 2 to Purchase Agreement dated as of December 1, 1999,March 14, 2000, by and among Ferrellgas Partners, L.P., as Lessee, Ferrellgas L.P., and Williams Natural Gas Liquids, Inc. as General Partner, First Security Bank, National Association, solely as Certificate Trustee, First Security Trust Company of Nevada, solely as Agent, The Persons Named on Schedule I-A, The Persons Named on Schedule I-B, as Lenders and Appendix I3.1 Amendment No. 1 to Participation Agreement 10.3 Third Amendment to Secondthe Amended and Restated CreditAgreement of Limited Partnership of Ferrellgas Partners, L.P. dated as of March 14, 2000. 4.1 First Amendment to the Registration Rights Agreement dated as of December 2, 1999, amongMarch 14, 2000, by and between Ferrellgas Partners, L.P., and Williams Natural Gas Liquids, Inc. 4.2 Ferrellgas, Inc., Bank of America N.A. as agent, and the other financial institutions party thereto. 10.4 First Amendment to Short-Term Revolving CreditL.P. Note Purchase Agreement datedDated as of December 2, 1999, among Ferrellgas, L.P., Ferrellgas, Inc., Bank of America N.A., as agent,February 28, 2000 Re: $21,000,000 8.68% Senior Notes, Series A, due August 1, 2006 $70,000,000 8.78% Senior Notes, Series B, due August 1, 2007, and the other financial institutions party thereto.$93,000,000 8.87% Senior Notes, Series C, due August 1, 2009 . 27.1 Financial Data Schedule - Ferrellgas Partners, L.P. (filed in electronic format only) 27.2 Financial Data Schedule - Ferrellgas Partners Finance Corp. (filed in electronic format only) 1622